Lead Opinion
Appellants and cross-respondents Arthur Young & Company, Richard E. Lamping, Thomas W. Blumer and Ernst & Young (collectively Arthur Young) appeal the judgment following jury verdicts in favor of respondent Mattco Forge, Inc. (Mattco).
Because of prejudicial instructional error, the judgment is reversed, except for the award for out-of-pocket expenses and the interest thereon.
Cross-appellant Mateo Minguez (Minguez), owner of Mattco, appeals the judgment upon the granting of a directed verdict in favor of Arthur Young, which judgment is affirmed.
Background Information
This fact situation has spawned 11 years of convoluted and costly litigation, beginning in September 1985 in the federal court in Cincinnati, Ohio. Mattco, a parts manufacturer, filed a federal civil rights action against General Electric (GE), claiming GE’s elimination of Mattco as an approved subcontractor was racially motivated. The case eventually was transferred to the United States District Court for the Central District of California, where it was bitterly contested for three and one-half years.
In August of 1987, GE filed a counterclaim against Mattco alleging Mattco had engaged in bid-rigging fraud while doing business with GE. GE also filed a summary judgment motion going to the merits of the alleged discrimination action, which was denied.
The federal suit bogged down in extremely lengthy, extraordinarily expensive, highly contested discovery disputes, involving at least six motions to dismiss and for other sanctions. Among other allegations in the motions, GE argued Mattco had fabricated documents, with the assistance of its forensic accountant Arthur Young. The federal litigation finally culminated before trial with mutual dismissals, and the case was dismissed with prejudice in March 1989.
Within about six months, in July 1989, Mattco sued Arthur Young in the Los Angeles Superior Court and ultimately went to trial on its second amended complaint alleging eight causes of action including, inter alia,
Before trial, Arthur Young moved for summary judgment, contending Mattco’s unclean hands during the course of the federal lawsuit and the litigation privilege barred Mattco’s complaint as a matter of law. The motion was granted and Mattco appealed.
On appeal, in Mattco Forge, Inc. v. Arthur Young & Co. (1992)
“. . . But the federal district court did not adjudicate a dispute between Mattco and Arthur Young, it made no findings on the allegations relating to the causes of action in the case at bench. Thus, the federal district court findings satisfy neither the first, second, nor the third prong required to apply the collateral estoppel doctrine [on the issue of unclean hands.]” (
After the case was remanded, Arthur Young refiled a cross-complaint against Mattco’s former attorneys, Helmer and Neff, alleging, inter alia, fraud and complete and partial indemnity. In September 1993, Helmer and Neff entered into a purported good faith settlement with Mattco so as to bar Arthur Young’s cross-complaint against them, although Helmer and Neff had not been sued by Mattco. The trial court herein found the settlement agreement to be in good faith.
On appeal, this court again reversed in Mattco Forge, Inc. v. Arthur Young & Co. (1995)
The current appeal is from jury verdicts in favor of Mattco for a total award of $42 million, including punitive damages. The trial against Arthur
The main issue on appeal is whether the trial court erred in ruling that Mattco was not required to establish that absent Arthur Young’s negligence, Mattco would have prevailed in the underlying case.
Since we conclude the trial court’s fundamental instructional ruling was erroneous and prejudicial, regretfully, once more we must reverse and remand, thus prolonging the seemingly endless litigation.
Facts and Procedure
1. Trial evidence in the superior court.
Mattco is a manufacturing company located in Paramount, California, which supplies forged metal parts to various businesses, including GE, for which Mattco did 60 jobs over a 4-year period. The company is wholly owned by Minguez, a native of Argentina and naturalized United States citizen.
In the preparation of its federal racial discrimination lawsuit against GE, Mattco hired the accounting firm of Arthur Young as damage consultant and expert witness to assist in Mattco’s calculation of lost profits when GE delisted Mattco as a supplier.
Richard Lamping, managing partner at Arthur Young, met with Minguez and gave him a “glossy promotional brochure” which represented that the firm’s litigation support professionals were specially trained in legal procedures. However, the person who was assigned to the job, Tom Blumer, had no training or experience in litigation support.
Blumer reviewed Mattco’s business documents, including the 60 job folders on the GE jobs. He found 26 estimate sheets were missing. The estimate sheets were work sheets used by Mattco to approximate its costs in formulating bids to prospective customers.
For the 26 missing estimate sheets, Blumer asked Minguez to create workups that would reflect how he would have estimated costs on those jobs, and to prepare 26 new estimate documents. Minguez did so, and they were
Blumer assembled packets of information on each of the 60 jobs and intermingled the original and the new business records. GE made a demand for production of documents, including a request for all documents Arthur Young had relied on in calculating damages. In response, the packets Blumer had assembled on the 60 jobs were given to Mattco’s attorneys, Helmer and Neff, and subsequently to GE, without advisement of the recreated 26 estimate sheets.
After examining the above records and other evidence obtained through discovery, GE brought a counterclaim against Mattco for procurement fraud or bid rigging. Lamping’s deposition was taken. He testified he had not relied upon the newly created estimate sheets in calculating damages.
Unrelated to Arthur Young’s involvement in the case, GE discovered information during discovery which it believed proved Mattco had destroyed other documents, hidden witnesses, and that Mattco’s vice-president, Marilyn Nickles, had committed perjury. Based on this evidence, GE filed motions to dismiss, charging Mattco with this misconduct.
At one point in the federal proceedings, federal Judge Richard Gadbois suggested nothing more should be done pending resolution of sanction motions because, “there’s not going to be a whole lot left of this case to do anything about when I get through with it.”
In Judge Gadbois’s subsequent sanction order, he repeated statements that “Ms. Nickles ‘has been shown beyond anything resembling a serious doubt to be a multiple perjurer’ and . . . that ‘in view of her position at Mattco, there is no way [Mattco and Minguez] can avoid the extremely serious consequences of that finding.’ ”
Judge Gadbois’s sanction order then found that “in an attempt to fraudulently increase the damages they seek, [Mattco and Minguez] altered and fabricated estimate sheets used to help calculate damages. The Court further [finds] that [Mattco & Minguez] knowingly produced those false estimate sheets to [GE], and thereby perpetrated a fraud upon defendants, this Court,
After GE submitted its evidence in accordance with this order, Judge Gadbois granted $1.4 million in sanctions. The order stated the action would be dismissed if the monetary sanction of $1.4 million were not paid within 45 days and further stated, “[t]his Court’s . . . Order for Sanctions only partially resolves [GE’s] pending motions to dismiss. . . . After payment of the sanction for the fabrication of evidence, the Court will consider further briefing by the parties as to the appropriate penalty for [Mattco and Minguez]’s destruction of evidence.”
Sanctions were not paid; the parties settled and mutually dismissed their respective lawsuits.
All of the above evidence relating to the federal lawsuit, and in particular, Arthur Young’s participation in recreating the 26 estimate sheets was introduced, and expanded upon in massive detail, and sharply controverted throughout the trial.
2. Trial court’s rulings on evidentiary burdens.
Throughout the proceedings, Arthur Young urged to the trial court that Mattco had to meet the burden of a trial-within-a-trial, i.e., that Mattco had
The trial court ruled, “[o]nly in lawyer negligence do you have the standard that you have got to show that you would have gotten the collectable judgment; in other words, the kind of ‘but for’ rule, which may still exist insofar as lawyer malpractice is concerned . . . .” (Italics added.) The trial court added, “If I am wrong, the Court of [Appeal] will have to tell me. [<J[] . . . [! . . . Lawyers bear a different standard. They bear a different responsibility toward their clients than anybody else involved in litigation. ... [t] It is a different relationship, and I think it gives rise to a different set of responsibilities like any other professional.”
Pursuant to its ruling, the trial court rejected Arthur Young’s numerous offers of proof and instructions, sharply limiting Arthur Young’s introduction of evidence.
As a result of the trial court’s rulings, Mattco’s only evidentiary burden in the liability phase of the trial was to show Arthur Young had caused Mattco to suffer “harm.”
3. Trial court’s rulings on basic instructions.
In the liability phase, the trial court instructed the jury it was “. . . only to determine if the actions of [Arthur Young] caused [Mattco] to suffer harm . . . .” and if the jury so determined, “you will be asked in the next phase to determine the extent of the harm . . . and the amount of damages to be awarded . . . .”
At the close of phase 2, the valuation phase, the trial court instructed the jury:
“Having found that plaintiff Mattco is entitled to a verdict against defendants, you must award plaintiff damages in an amount which will reasonably*831 compensate for each of the following elements of claimed loss, provided that you find that such loss was suffered by plaintiff and caused by the act or omission upon which you base your findings of liability. The amount of such award may include: [*][] (1) value of Mattco’s case against G.E.; [<JQ (2) Out-of-pocket expenses; and in your discretion, [f] (3) Interest on out-of-pocket expenses.” (Italics added.) As to any definition of value, the jury was told “[i]n making an award for the value of the case, you shall exercise reasonable judgment and the damages you fix shall be just and reasonable in light of the evidence.”
In the third phase of the trial relating to punitive damages, the trial court used BAJI No. 2.62, and instructed the jury it was required to find “by clear and convincing evidence that [Arthur Young] was guilty of fraud in the conduct on which you base your finding of liability.”
Discussion
1. Standard of review.
The parties agree the fundamental questions presented on appeal raise issues of law which are subject to de novo review. (California Air Resources Bd. v. Hart (1993)
2. Trial-within-a-trial standard for attorney malpractice alive and well in California and elsewhere.
Arthur Young contends on appeal, as it did consistently during trial, that the trial-within-a-trial method was required in order fairly to ascertain the impact of the negligence of accountant/litigation support persons on Mattco. Arthur Young argued to the trial court that the nature of the alleged injury—the loss of a legal claim involving accountant malpractice—called for the adoption of the trial-within-a-trial approach. In presenting its legal theory, Arthur Young’s arguments focused heavily on Mattco’s having to show it would have prevailed in Judge Gadbois’s court in the underlying federal case against GE.
Mattco resisted, contending deviation from that strict approach in favor of a valuation method was appropriate to the case being tried, and that the trial-within-a-trial standard was limited to attorney malpractice cases, a procedure Mattco suggested was in some disrepute. The trial court agreed with Mattco.
In 1859, the California Supreme Court was presented with “an action against [attorneys, to recover damage[s] for injuries alleged to have resulted from their negligent and unskillful [defense] of a cause in which they were retained by plaintiff.” (Hastings v. Halleck (1859)
Hastings was only the beginning in a long line of cases adopting the trial-within-a-trial method of proof when an attorney is accused of losing a client’s legal claim or defense.
In Campbell v. Magana (1960)
In response, Campbell v. Magana explained: “This argument cannot prevail for at least two reasons; first, it advances speculative values as a measure of recovery, and second, it violates an established rule of this state (and most others) that one who establishes malpractice on the part of his attorney in prosecuting or defending a lawsuit must also prove that careful management of it would have resulted in recovery of a favorable judgment and collection of same . . . ; that there is no damage in the absence of these latter elements, and the burden of proof rests upon the plaintiff to prove recover-ability and collectibility of a plaintiff’s claim . . . .” (
Campbell v. Magana provides the rationale in support of an admittedly burdensome and complicated approach: it avoids “speculative values as a measure of recovery. . . .” (
Later cases adopt the descriptive language of a trial-within-a-trial, suit-within-a-suit or case-within-a-case in applying and discussing the plaintiff’s
Irrespective of phraseology used, California and foreign jurisdictions require the same burden. Budd v. Nixen (1971)
In this court’s most recent pronouncement on the subject, we quoted with approval the above language. (DiPalma v. Seldman (1994)
b. Criticism noted.
The trial within-a-trial burden has been criticized because “[n]o matter how outrageous and morally reprehensible the attorney’s behavior may have been, if minimal doubt exists as to the outcome in the original action, the plaintiff may not recover in the malpractice action.” (Note, The Standard of Proof of Causation in Legal Malpractice Cases (1978) 63 Cornell L.Rev. 666, 670.) It also has been suggested that by placing the burden on plaintiffs to prove both the malpractice and the underlying lawsuit, they “face formidable problems of proof” (Bauman, Damages for Legal Malpractice: An Appraisal of the Crumbling Dike and the Threatening Flood (1988) 61 Temp. L.Rev. 1127, 1128) constituting “an evasion by the legal profession of its responsibility to its clients.” (Koffler, Legal Malpractice Damages in a Trial Within a Trial - a Critical Analysis of Unique Concepts: Areas of Unconscionability (1989) 73 Marq. L.Rev. 40, 66.) Others note a trial-within-a-trial
Nonetheless, while some arguments of the critics have merit, the trial-within-a-trial burden persists. (DiPalma v. Seldman, supra,
3. Policy considerations have led to application of the same burden to analogous professional negligence lawsuits in other fields.
In response to Arthur Young’s contentions below that the trial-within-atrial burden should apply to try the negligence of Blumer, the accountant/ litigation support person, the trial court opined the standard was only applicable to “lawyer negligence” because the different relationship gave “rise to a different set of responsibilities than any other professional.”
In rejecting the trial court’s reasoning, we would not be the first court to hold the same evidentiary approach is applicable in analogous situations where the claim is that professional negligence caused the loss of a lawsuit.
In today’s technologically driven litigation, engineers, pathologists, serologists, physicians, appraisers, real estate brokers, and many other professionals, including accountants, frequently are hired to assist a party in preparing and presenting a legal case. “Often they play as great a role in the organization and shaping and evaluation of their client’s case, as do the lawyers. Those who provide these services are selected for their skill and ability and are compensated accordingly just as any other professional.” (Murphy v. A. A. Mathews (Mo. 1992)
Like other defendants in negligence lawsuits, litigation support professionals are only responsible for the losses they cause. (Turpin v. Sortini
To illustrate, in Travelers Ins. Co. v. Lesher, supra,
Travelers held “[g]iven the similarity between attorney malpractice cases and [the insured’s] unique theory of damages in this case, we conclude that he should have been required to try the underlying . . . antitrust action within this bad faith action to sustain his claim that he would have successfully defended the [underlying case] but for [the insurance company’s] acts and omissions.” (Travelers Ins. Co. v. Lesher, supra,
Importantly, Travelers observed: “This trial within a trial avoids the specter that the damages claimed by a plaintiff are a matter of pure speculation and conjecture.” (
In Williams v. Wraxall, supra,
In Schaffer v. Donegan (1990) 66 OhioApp.Sd 528 [
Similarly, in Rodgers v. St. Mary’s Hosp. of Decatur (1990)
In Beech v. Kapatis (Iowa 1981)
Another example appears in Universal Ideas v. Linn County (1983) 64 Or.App 805 [
b. Given the nature of Mattco’s lawsuit against Arthur Young, the trial court erred in relieving Mattco of the trial-within-a-trial burden of proof
Arthur Young, as an accountant, was subject to professional liability. (Lindner v. Barlow, Davis & Wood (1962)
As set forth, Mattco’s lawsuit was based on Arthur Young’s malpractice in allegedly negligently providing accounting litigation support services, thereby ruining Mattco’s federal lawsuit against GE, resulting in the loss of Mattco’s legal claim. Thus, Mattco’s cause of action is analogous to a malpractice case in which an attorney is accused of losing a plaintiff’s case through negligence, and the same evidentiary burden applies. Therefore, in order to prevail against Arthur Young in this action, Mattco has the burden to establish that had Arthur Young properly handled the underlying case, Mattco would have prevailed against GE.
4. Erroneous instructions require reversal.
Once the trial court started down its chosen path, erroneous instructions were sure to follow.
On review, “A judgment may not be reversed for instructional error in a civil case ‘unless, after an examination of the entire cause, including the evidence, ... the error complained of has resulted in a miscarriage of justice.’ [Citation.] ... [TO Instructional error in a civil case is prejudicial ‘where it seems probable’ that the error ‘prejudicially affected the verdict.’ [Citations.] Of course, that determination depends heavily on the particular nature of the error, including its natural and probable effect on a party’s ability to place his full case before the jury. [H . . . Actual prejudice must be assessed in the context of the individual trial record. . . . [W]hen deciding whether an error of instructional omission was prejudicial, the [reviewing] court must also evaluate (1) the state of the evidence, (2) the effect of other instructions, (3) the effect of counsel’s arguments, and (4) any indications by the jury itself that it was misled.” (Soule v. General Motors Corp., supra, 8 Cal.4th at pp. 580-581.)
a. Arthur Young’s proffered instructions incomplete and misleading statements of law.
In accordance with Arthur Young’s trial theory that Mattco had to prove it would have prevailed against GE in the specific federal trial before Judge Gadbois, Arthur Young submitted its instructions.
In phase 1, Arthur Young proffered the following: “A plaintiff is only entitled to recover damages to the extent that they resulted from loss or harm caused by the defendant. Under the law, defendant’s conduct ‘caused’ plaintiff’s loss or harm if that conduct was a substantial factor in bringing it about. . . .”
Arthur Young also submitted: “In order to recover damages from a damages consultant or expert trial witness for negligence in the handling of a litigation services engagement, the plaintiff must not only establish that the consultant or expert witness was negligent, but also must establish that but for such negligence, the plaintiff would have proceeded to trial in the prior lawsuit, and that that lawsuit would have resulted in a collectible judgment
In addition to utilizing the “but for” language rejected in Mitchell v. Gonzales, supra,
Arthur Young’s trial theory appeared to rest on its assumption it could put before this jury all of the federal judge’s comments and rulings regarding Mattco’s misconduct in its discovery with GE. In light of its analysis that Mattco’s case against GE was doomed in the federal court, Arthur Young proffered in evidence an expert who would testify Judge Gadbois eventually would have dismissed the federal lawsuit in further rulings.
Arthur Young contended to the trial court that since it stepped into GE’s shoes in defense, it should have been able to place into evidence not only all evidence relevant to GE’s counterclaim, but also all evidence of Mattco’s egregious misconduct in discovery, including Mattco’s fabrication and destruction of evidence and perjury. Arthur Young explained this evidence was
Mattco countered to the trial court that Arthur Young fundamentally misapprehended the issues in the trial. As it did below, Mattco avers on appeal that, “[f]rom the beginning of the trial, Arthur Young took the position that the basic question for the jury was how the underlying case ‘would have’ been resolved if Judge Gadbois had ruled on the motions to dismiss. This approach . . . was utterly wrongheaded. It is the universal rule that the elements of causation and damages . . . require the determination of what ‘should have’ happened in the underlying case (an objective determination of how a reasonable trier of fact would have decided the case), not what ‘would have’ happened (a subjective determination of how a particular trier of fact would have decided the case).”
In our review of the federal judge’s rulings and remarks, we find it highly likely a different federal judge would have ruled differently. We agree with Mattco’s argument that Arthur Young’s proffered instruction and its arguments were fatally flawed as they focused on what Judge Gadbois would have done had Mattco paid the sanctions and attempted to go forword with its lawsuit against GE.
The trial-within-a-trial method does not “recreate what a particular judge or fact finder would have done. Rather, the jury’s task is to determine what a reasonable judge or fact finder would have done . . . .” (Brust v. Newton (1993)
(1) Arthur Young may still complain about erroneous instructions given.
Notwithstanding Arthur Young’s proffered instructions missed the mark, Arthur Young is not precluded from complaining about the erroneous instructions the trial court did give. In Suman v. BMW of North America (1994)
“When a trial court gives a jury instruction which is correct as far as it goes but which is too general or is incomplete for the state of the evidence, a failure to request an additional or a qualifying instruction will waive a party’s right to later complain on appeal about the instruction which was given. [Citation.] However, when a trial court gives a jury instruction which is prejudicially erroneous as given, i.e., which is an incorrect statement of law, the party harmed by that instruction need not have objected to the instruction or proposed a correct instruction of his own in order to preserve the right to complain of the erroneous instruction on appeal. [Citation.]” (
b. Trial court’s instructions erroneous and prejudicial.
Mattco contends the issues of causation and damages were properly tried, and claims Mattco in fact presented a case-within-a-case. It argues the “trial court permitted an exhaustively thorough airing of every claim and defense that both sides had,” and allowed complete argument. Indeed, during the four-month trial, extensive evidence was introduced.
However, it is not a failure of facts that is the pivotal issue before us. Rather, the prejudice occurs because of the erroneous law the trial court instructed the jurors to apply to those facts. Even under Mattco’s theory of the case, the trial court’s instructions were inadequate at the least. And even assuming the evidence came in as a trial-within-a-trial, as claimed by Mattco, the instructions were wrong and misleading, and left the jurors in a sea of speculation and conjecture, just what the trial court assiduously sought to avoid.
To reiterate, at the end of the liability phase of the trial, the trial court instructed the jury: “. . . you are only to determine if the actions of the defendants caused the plaintiffs to suffer harm. If you determine that the actions of the defendants caused the plaintiffs to suffer harm, you will be asked in the next phase to determine the extent of the harm suffered by plaintiffs and the amount of damages to be awarded to plaintiffs.”
Omitted from the charge to the jury was the essential element of a causal connection between Arthur Young’s negligent conduct and the harm suffered by Mattco. The conduct of Arthur Young in the calculation of Mattco’s
Given the state of the evidence, any jury would have found Arthur Young’s actions were at least a cause of the harm. Once it made this finding, and given the argument and instructions that any case would have some intrinsic value, the jury was free to assign a value to Mattco’s lawsuit against GE. The lack of a proper causation instruction permitted Mattco to escape its burden of proving Arthur Young’s negligence caused Mattco to lose its lawsuit against GE.
Unlike Soule v. General Motors Corp., supra, 8 Cal.4th at pages 581-582, this is not a situation in which other instructions encompassed the concept and a party merely was denied a further explanation.
Moving on to the phase 2 instruction dealing with damages, the jurors were instructed: “Having found that Plaintiff Mattco is entitled to a verdict against [Arthur Young], you must award [Mattco] damages in an amount which will reasonably compensate for each of the following elements of claimed loss, provided that you find that such loss was suffered by [Mattco] and caused by the act or omission upon which you base your findings of liability. The amount of such award may include: [*][] (I) The value of Mattco’s case against G.E.; [f] (2) Out-of-pocket expenses; and in your discretion, [^ (3) Interest on out-of-pocket expenses.” “One element of the damages that the plaintiffs claim from the Arthur Young Parties is the reasonable value of the claims which the plaintiff had against GE in light of the defenses and counterclaim which GE had against the plaintiff.” “No definite standard or method of calculation is prescribed by law by which to fix reasonable compensation for the loss of a legal claim. In making an award for the value of the case, you shall exercise reasonable judgment and the damages you fix shall be just and reasonable in light of the evidence.” (Italics added.)
However, there is a “definite standard” and a “method of calculation” for the loss of a legal claim, and those elements are ascertained by the trial-within-a-trial approach, accompanied by proper instructions.
In addition to being vague in calling for jurors merely to assess the value of the entire case, the “just and reasonable” elaboration does not provide much additional guidance. In criticizing the simple valuation approach,
Again, what was missing was the element requiring Mattco to prove “that careful management of [Mattco’s lawsuit] would have resulted in recovery of a favorable judgment and collection of same” (Campbell v. Magana, supra,
Lastly, contrary to Mattco’s argument, the amount of the verdict does not necessarily indicate the jury found for Mattco on all vital issues. In the trial, Mattco argued that even if the case were a 50/50 proposition, the case was “worth” at least $10 million. Thus, when the jury rendered a verdict for compensatory damages as to the value of Mattco’s federal lawsuit in the sum of $13.2 million, it was not necessarily concluding Mattco would have won its lawsuit against GE, but rather Mattco had a chance of winning. Since the burden was not placed properly on Mattco, the jury was asked to speculate in reaching its results.
For these reasons, we cannot affirm the judgment.
c. A proper instruction is a modified BAJI No. 6.37.5.
As noted, at the close of the liability phase of the trial, the trial court correctly instructed the jury with BAJI No. 3.76 to the effect, “[a] cause of injury, damage, loss or harm is something that is a substantial factor in bringing about an injury, damage, loss or harm.”
At the same time, the jury was advised that if it found harm, it would be asked in the next phase “to determine the extent of the harm suffered by plaintiffs and the amount of damages to be awarded to plaintiffs.”
Hastings v. Halleck, supra,
It would appear BAJI No. 6.37.5 most closely approximates a usable instruction which the abundant case law contemplates in professional negligence cases and has been used for that purpose. (E.g., Jackson v. Johnson (1992)
Therefore, in the event of a retrial in this case, or in a comparable fact situation, we suggest a possible modification, not to the exclusion of others, as follows: “In order to recover damages from a professional for negligence in the handling of a lawsuit, which negligence resulted in the plaintiff’s loss of the prior lawsuit, the plaintiff must establish: (1) the professional was negligent in the handling of the prior lawsuit; (2) the professional’s negligence was a substantial factor in the plaintiff’s loss of the prior lawsuit; and (3) the proper handling of the prior lawsuit by the professional would have resulted in a collectible judgment in plaintiff’s favor.”
Guided by such an instruction, the jury will be able to determine whether Arthur Young is liable to Mattco for its role in the handling of the underlying federal action.
The nature of Mattco’s damages arose from two distinct theories, both based upon Arthur Young’s negligent conduct.
In addition to arguing it was entitled to the value of the loss of the legal claim against GE, Mattco argued it was entitled to its out-of-pocket expenses incurred in defending the numerous discovery and dismissal motions in the federal case, including accounting and attorney fees. This contention was based upon Mattco’s claim that had it not been for Arthur Young’s inept process of calculating damages, Mattco never would have created 26 new estimate sheets and it never would have been placed in the position of defending its damage calculation based upon those estimate sheets. Mattco suggested this error changed the focus of the federal lawsuit from the merits to a war over sanction and dismissal motions, and caused it to spend approximately $1 million in defending the motions. On this area of damages, the jury awarded approximately $1 million, plus interest.
On appeal, Arthur Young has not presented any argument to demonstrate why the damage award for out-of-pocket expenses, and interest thereon, is unsupported either in law or by the facts. The jury was instructed it could determine the amount of out-of-pocket losses as those expenses “reasonably required by the acts upon which [it] based [its] finding of liability and which can be documented by bills, canceled checks and business records.” The parties presented evidence on this aspect of damages, and after there was a finding of liability, Arthur Young virtually conceded such an award would be reasonable.
It is Arthur Young’s burden to demonstrate why each part of the verdict cannot withstand scrutiny. With regard to the out-of-pocket losses, and the interest on these expenses, Arthur Young has not met its burden. Thus, this part of the judgment must be affirmed.
6. Arthur Young’s unclean hands contention again fails.
Prior to trial, Arthur Young moved for summary judgment, contending Mattco’s unclean hands during the federal action barred Mattco’s lawsuit as a matter of law. After its motion was granted, this court reversed, holding the federal court did not adjudicate any dispute between Mattco and Arthur
The defense of unclean hands arises from the equitable maxim, “ ‘He who comes into Equity must come with clean hands.’ ” (Blain v. Doctor’s Co. (1990)
In its new theory, Arthur Young now argues that when the unclean acts constitute a “fraud on the court,” the improper acts need not have prejudiced the other party. Arthur Young asserts the equitable concept of unclean hands transcends the relationship between the parties and is intended to prevent parties from abusing the system. Arthur Young claims the federal court found Mattco had destroyed documents and its vice-president had committed
Because this theory is presented for the first time on appeal, this court will not consider it. Arthur Young’s appellate effort is contrary to the rule that parties are not permitted to “ ‘adopt a new and different theory on appeal. To permit [them] to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.’ [Citations.]” (In re Marriage of Broderick (1989)
Even if we were to accept the legal concept in Arthur Young’s new theory, we are foreclosed from addressing it as the issue does not arise on an uncontroverted record. The federal court orders did not specifically find Mattco destroyed documents. At the time the federal action was dismissed, the federal court had not completed its rulings on discovery issues, and the federal orders are ambiguous. Additionally, throughout this lawsuit, Mattco denied destroying documents. The record before us is hardly “uncontroverted,” and many “factual determinations” would be required.
We conclude the trial court’s instruction on this issue was correct.
7. No error in the clear and convincing burden of proof instruction.
Arthur Young contends the trial court erred in the third phase of the trial by instructing the jury with BAJI No. 2.62 — Burden of Proof and Clear and Convincing Evidence, and in not accepting its proposed modification thereto.
We perceive no error in the given instruction. As stated in Roberts v. Ford Aerospace• & Communications Corp. (1990)
Nonetheless, Arthur Young contends the jury was not properly instructed with respect to the definition of clear and convincing evidence. To explain and define the clear and convincing burden of proof as required to prove punitive damages (Civ. Code, § 3294), the trial court instructed with BAJI No. 2.62 as follows: “ ‘Clear and convincing’ evidence means evidence of such convincing force that it demonstrates, in contrast to the opposing evidence, a high probability of the truth of the facts for which it is offered as proof. Such evidence requires a higher standard of proof than proof by a preponderance of the evidence.”
In arguing this instruction was insufficient, Arthur Young proposed more rigorous language and suggested the following two sentences be added: “The evidence must be so clear as to leave no substantial doubt. It must be sufficiently strong to command the unhesitating agreement of every reasonable mind.”
This proposed language originated in Sheehan v. Sullivan (1899)
In In re Angelia P., supra,
Angelia P. concluded in such situations, proof must be by an intermediate burden, by clear and convincing evidence. Angelia P. defined such burden as
Without an additional mandate from the Supreme Court or the Legislature, BAJI No. 2.62 remains a correct instruction. (Roberts v. Ford Aerospace & Communications Corp., supra,
Further, we observe the restrictive language proposed by Arthur Young seems to impose a burden approaching the criminal burden, proof beyond a reasonable doubt.
In a criminal prosecution, a court is required to instruct a jury that “[reasonable doubt is defined as follows: It is not a mere possible doubt; because everything relating to human affairs is open to some possible or imaginary doubt. It is that state of the case which, after the entire comparison and consideration of all the evidence, leaves the minds of the jurors in that condition that they cannot say they feel an abiding conviction of the truth of the charge.” (CALJIC No. 2.90, based on People v. Freeman (1994)
The language proposed by Arthur Young, and our esteemed colleague in his concurring and dissenting opinion, would require proof “so clear as to leave no substantial doubt” and “sufficiently strong to command the unhesitating assent of every reasonable mind.” A comparison of that language and the reasonable doubt instruction readily points up the problem. There is essentially no difference between requiring proof that “leaves no substantial doubt” and that “commands the unhesitating assent of every reasonable mind” and the criminal definition of reasonable doubt. Arthur Young has not shown that in enacting Civil Code section 3294, the Legislature intended to require a civil litigant seeking punitive damages to meet the burden required of the People in a criminal prosecution.
Further, the “unhesitating assent of every reasonable mind” language improperly implies that juror unanimity is required for an award of punitive damages. (Cal. Const., art. I, § 16.) Arthur Young’s proposed instruction containing this language would have misled the jury and properly was refused.
Lastly, Arthur Young can point to no case which still has precedential value requiring the modified instruction which it proffered. Rather, for its
8. Minguez has waived his cross-appeal.
The complaint against Arthur Young included causes of action filed solely on behalf of Minguez, namely, violation of civil rights and intentional infliction of emotional distress. At the close of phase two, the trial court granted Arthur Young’s motion for directed verdict aimed at those two causes of action. In a page and a half, and with citation to but one case for the general proposition the conduct was despicable, Minguez cross-appeals from the granting of the directed verdict motion. This cursory treatment requires no discussion by us. (Huntington Landmark Adult Community Assn. v. Ross (1989)
Disposition
The judgment is reversed as to Mattco’s award of damages, except the portion that awarded Mattco out-of-pocket-expenses and interest thereon, which is affirmed.
The judgment for Arthur Young against Minguez is affirmed.
The parties are to bear their respective costs on appeal.
Aldrich, J., concurred.
Notes
In a judgment upon special verdicts, Mattco was awarded $995,717.38 out-of-pocket expenses and interest, $13.2 million compensatory damages and $27,680,000 in punitive damages.
After we reversed (Mattco Forge, Inc. v. Arthur Young & Co., supra, 38 CaI.App.4th 1337), a remittitur was issued and the cross-complaint was returned to the trial court. To date, the parties have not pursued this aspect of the litigation.
These false representations formed the basis for the fraudulent misrepresentation cause of action.
It was Blumer’s alleged negligence in asking Minguez to recreate the estimate data and in failing to make sure Mattco’s attorneys understood Arthur Young’s documents contained this recreated data that grounded the professional negligence malpractice cause of action. Further, it was Lamping’s failure to reveal he had relied on the recreated estimate sheets in computing damages that supported Matttco’s fraudulent concealment cause of action against Arthur Young.
In accordance with Mitchell v. Gonzales (1991)
The complete instruction read: “By Order of the Court, this case has been divided into two phases: the liability phase and the damages phase. In this phase, you are only to determine if the actions of the defendants caused the plaintiffs to suffer harm. If you determine that the actions of the defendants caused the plaintiffs to suffer harm, you will be asked in the next phase to determine the extent of the harm suffered by plaintiffs and the amount of damages to be awarded to plaintiffs.”
Mattco points to Walker v. Porter (1974)
Mattco also cites Clemente v. State of California (1985)
At the end of phase 1, Arthur Young was not allowed to argue to the jury Mattco had to prove it would have proceeded to trial against GE. However, Arthur Young repeatedly presented its theory Mattco was trying to blame Arthur Young for its conduct in the federal court and that had the matter proceeded, Judge Gadbois would have dismissed the case. For example, Arthur Young argued before the jury “Mattco never got anywhere near the courthouse in the General Electric case [because Mattco and Minguez] knew their case was dead in the water against General Electric. They knew that General Electric had come up with hard evidence of wrongful conduct in discovery that barred their case against General Electric; that Judge Gadbois was prepared to dismiss that case, and he would have done so. That did not have anything to do with Arthur Young. The writing was clearly on the wall in Judge Gadbois’ sanction order.”
Arthur Young was permitted to introduce evidence relating to the federal motions to dismiss for the limited purpose of refuting Minguez’s claim the only reason he dismissed the federal case was because he could not afford to pay the $1.4 million sanction.
In addition to the instructions being erroneous and prejudicial, the verdict form submitted to the jury was imprecise. Evidence was introduced on three causes of action: fraudulent misrepresentation, fraudulent concealment and professional malpractice and the evidence overlapped and intertwined. Instructions after phase 1 included those applicable to the fraud counts. The special verdict form called for jury findings on the three causes of action. However, there was only a single verdict of $13.2 million as the value of Mattco’s case against GE. Therefore, the entire verdict, with the exception of the out-of-pocket expenses and interest which were specifically provided for, must fall.
BAJI No. 6.37.5 reads: “In order to recover damages from an attorney for negligence in the handling of a lawsuit, the plaintiff must not only establish that the attorney was negligent but also must establish that but for such negligence the prior lawsuit [would have resulted in a collectible judgment in plaintiff’s favor] [would have been successfully defended].” (Italics added.)
The jury apparently awarded Mattco exactly the amount it requested for its out-of-pocket expenses in the space provided in the special verdict form. Evidence offered supporting the $995,717.38 award included: $45,567 for fees paid to Arthur Young; $59,500 for fees paid to another accounting firm; and $890,650.38 for legal fees expended to combat the federal discovery and sanction motions.
Arthur Young does not contend Mattco committed a “fraud on the court” by fabricating documents, i.e., the 26 estimate sheets. The $1.4 million sanction order was due in part to their fabrication, and the responsibility for such acts was the essence of Mattco’s lawsuit against Arthur Young and was the subject of much controversy. Minguez consistently maintained he was unaware of the significance of the documents in the discovery process. Arthur Young claimed Minguez was aware of the consequences of his actions and also that Helmer and Neff were told the 26 documents were newly created. Helmer and Neff, on the other hand, stated they did not know of the origin of these estimate sheets until after they had been given to GE in discovery.
Here, in both phase one and phase two the jury had been given a definition of the preponderance of the evidence standard.
In the second sentence, Arthur Young used the word “agreement,” rather than “assent,” as used in Sheehan and Angelia P.
The concurring and dissenting opinion correctly indicates the majority agreed in the cited cases. However as noted, the rigorous recommended language was dicta. The last case was decided in 1992, and BAJI No. 2.62 has been in continual use before and after. That state of affairs, and further reflection, has caused a change in our stance.
Concurrence Opinion
With but one exception, I concur with the thoughtful and well-reasoned opinion of my colleagues. However, that exception is important as it relates to the very significant question of what jurors should be told about the “clear and convincing” evidentiary standard they are required to apply in determining a defendant’s
One of the important changes in the law made by the Willie L. Brown Jr.Bill Lockyer Civil Liability Reform Act of 1987 was to increase the evidentiary threshold which must be met in order to justify a recovery of punitive damages. Civil Code section 3294, subdivision (a), now requires that a party seeking punitive damages must prove the existence of fraud, malice or oppression by “clear and convincing” evidence. This represents an important change in the law and is in line with a number of procedural and substantive changes which have been made by the Legislature over the past 15 years to limit and make more burdensome the recovery of punitive damages. (College Hospital Inc. v. Superior Court (1994)
For nearly 100 years, California has applied a consistent definition to this very high standard of proof. In In re Angelia P., supra,
My colleagues emphasize that the Sheehan court, in its 1899 opinion, had also referred to seven other characterizations of the clear and convincing burden which were not mentioned by Angelia P. Quoting from an earlier opinion (Mahoney v. Bostwick (1892)
When the Legislature determined in 1987 to impose this much higher burden of proof in punitive damage cases, it did so in the context of an
The Legislature’s decision to apply a more rigorous proof standard to claims of punitive damage liability, taken together with the Supreme Court’s very specific articulation of what the clear and convincing standard required, must control our understanding of the proof burden now imposed in punitive damage cases. In my view, the conclusion is inescapable that the Legislature necessarily, and as a matter of law, intended the same meaning and definition of that standard as set out in Angelia P. Indeed, given the history of consistent judicial interpretation, there was no need to attempt a legislative definition of that standard. Significantly, there is no legislative history to the contrary.
My colleagues complain that the language specifically endorsed by Angelia P. imposes a burden “approaching the criminal burden of proof of beyond a reasonable doubt.” I quite agree. The clear and convincing standard is indeed a high one, as it was intended to be; it does approach the criminal standard, but it is not the same or even “essentially” the same. The attempt by the majority to equate the language approved by Angelia P. with a reasonable doubt standard, and thereby justify its rejection, is a circular argument based upon a false premise simply assumed by the majority. In effect, this argument merely quarrels with the manner in which the Supreme Court chose to define “clear and convincing.” The Angelia P. court itself defined the standard by use of the language requested by Arthur Young while, at the same time, making it clear that this was a lower burden of proof than “beyond a reasonable doubt.” (In re Angelia P., supra, 28 Cal.3d at pp. 918-919.)
As this court has previously stated on three other occasions, the language of BAJI No. 2.62 as it presently reads is both misleading and unnecessarily limited. It suggests an evidentiary test which is significantly less rigorous than the one the Supreme Court has repeatedly defined in much stronger and more explicit terms. (In re Marriage of Weaver, supra,
In this case, Arthur Young did make such a request
Given that we reverse and remand this matter for a new trial, it is not necessary for me to belabor the question of whether these erroneous instructions were prejudicial. Nonetheless, it is clear from the record that the trial
For the foregoing reasons, I would remand this matter with additional instructions to submit the issue of punitive damage liability to the jury upon a proper and meaningful definition of the term “clear and convincing.”
Respondent’s petition for review by the Supreme Court was denied April 30, 1997.
AJI No. 2.62 defines the evidentiary standard in the following terms:
“ ‘Clear and convincing’ evidence means evidence of such convincing force that it demonstrates, in contrast to the opposing evidence, a high probability of the truth of the fact[s] for which it is offered as proof. Such evidence requires a higher standard of proof than proof by a preponderance of the evidence.”
In College Hospital, the Supreme Court recently summarized these changes: “Beginning in 1979, various procedural restrictions were enacted. The Legislature limited the circumstances under which evidence of the defendant’s financial condition could be discovered and admitted, authorized bifurcation of the punitive damages phase of trial, and barred disclosure of the amount of punitive damages sought in the complaint. (Civ. Code, § 3295, subds. (a)-(e).) These provisions were apparently intended to curtail use of such claims as a tactical ploy. The pretrial discovery limits ensure that defendants are not coerced into settling suits solely to avoid unwarranted intrusions into their private financial affairs, while the evidentiary restrictions minimize potential prejudice to the defense in front of a jury. [Citations.] HQ In 1980, the Legislature began modifying the substantive elements of punitive damage awards. It limited the circumstances under which an employer could be held liable for punitive damages ‘based upon acts of an employee.’ (Civ. Code, § 3294, subd. (b).) At the same time, the concepts of ‘oppression,’ ‘fraud,’ and ‘malice’ were given specific definitions. (Id., § 3294, subd. (c).) ... [DO Additional requirements were imposed by the [1987 Reform Act]. [It] amended Civil Code section 3294 by increasing the plaintiff’s burden of proving punitive damages at trial to ‘clear and convincing evidence.’ The definition of ‘malice’ was also refined. For plaintiffs attempting to prove malice by showing a ‘conscious disregard’ of their rights as opposed to an actual intent to harm, the [statute] imposed additional requirements of ‘despicable’ and ‘willful’ defense conduct. HD [Finally, it] also added section 425.13 to the Code of Civil Procedure. [That] statute imposes certain pretrial procedural requirements on plaintiffs attempting to plead a punitive damages claim against a health care provider. It is not the only statute of its kind. Between 1988 and 1992, several similar provisions, covering both compensatory and punitive damage claims, were added to the Code of Civil Procedure. (§§ 425.14 [punitive damages claim against religious corporation], 425.15 [negligence claim against volunteer director or officer of nonprofit corporation], 425.16 [‘SLAPP’ suit affecting right of petition/ffee speech]; see also Civ. Code, §§ 1714.10 [conspiracy claim against
Evidence Code section 115 provides: “ ‘Burden of proof’ means the obligation of a party to establish by evidence a requisite degree of belief concerning a fact in the mind of the trier of fact or the court. The burden of proof may require a party to raise a reasonable doubt concerning the existence or nonexistence of a fact or that he establish the existence or nonexistence of a fact by a preponderance of the evidence, by clear and convincing proof, or by proof beyond a reasonable doubt. [<1 Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence.”
The following is a summary of some of the evidentiary circumstances where California has recognized or imposed a clear and convincing burden of proof standard. They include: (1) deed absolute in form is actually a mortgage (Beeler v. American Trust Co. (1944)
As we recently noted, “Beyond doubt, when the Legislature amended Civil Code section 3294 in 1987 to impose a ‘clear and convincing’ evidentiary standard, it intended to impose a new statutory limitation on the award of punitive damages. [Citation.]” (Stewart v. Truck Ins. Exchange (1993)
The proposed jury instruction submitted by Arthur Young modified BAJI No. 2.62, as follows: “ ‘Clear and convincing’ evidence means evidence of such convincing force that it demonstrates, in contrast to the opposing evidence, a high probability of the truth of the facts for which it is offered as proof. Such evidence requires a higher standard of proof than proof by a preponderance of the evidence. The evidence must be so clear as to leave no substantial doubt. It must be sufficiently strong to command the unhesitating agreement of every reasonable mind." (Italics added.) As I point out in footnote 8, post, a proper instruction need not use these exact words.
In Soule, the Supreme Court summarized the rule for determining whether instructional error was prejudicial to the complaining party. It stated that consideration of a number of factors is required: “ ‘(1) the degree of conflict in the evidence on critical issues [citations]; (2) whether respondent’s argument to the jury may have contributed to the instruction’s misleading effect [citation]; (3) whether the jury requested a rereading of the erroneous instruction [citation] or of related evidence [citation]; (4) the closeness of the jury’s verdict [citation]; and (5) the effect of other instructions in remedying the error [citations].’ [Citations.]” Soule v. General Motors Corp., supra, 8 Cal.4th at pp. 570-571.)
Given the legal characterizations endorsed by the Angelia P. court, and recognizing that the precise language utilized in a judicial opinion may not be appropriate for use in a jury instruction, I would suggest that a proper instruction would add the following sentence to BAJI No. 2.62: “It requires that the evidence be sufficiently strong to command your immediate agreement and so clear as to leave you in no substantial doubt as to the truth of those facts.”