Opinion
A096552.
7-15-2003
LELAND EVANS et al., Cross-Complainants and Respondents, v. F. RICHARD LOSEY et al., Cross-Defendants and Appellants.
Attorney and cross-defendant F. Richard Losey, together with his cross-defendant law firm (hereinafter collectively Losey), appeal from the judgment decreeing that they are jointly and severally liable to cross-complainant Leland Evans for $ 289,999.94, and to cross-complainant Ken Tran for a like amount. We affirm.
BACKGOUND
The judgment was entered on special verdicts returned by a jury, which concluded that Evans and Tran had been defrauded by Losey. The trial generated a reporters transcript of more than 900 pages. More than 80 exhibits, which have been provided to us in a bound volume, were admitted at trial. Each side furnished an appendix for this appeal. The general outlines of the controversy are already familiar to us from a prior appeal. (Evans v. Pillsbury, Madison & Sutro (1998) 65 Cal.App.4th 599.)
"The genesis of this dispute is the formation and capitalization of Sterling One, a limited partnership intended to be involved with air carrier service. Serebrodin, Inc., is Sterlings general partner. Leland B. Evans and Ken Tran are limited partners in Sterling and are directors of Serebrodin. Sterling commenced operations on December 7, 1995. On December 22, 1995, a smoldering dispute about the nature of Evanss and Trans investments in Sterling (i.e., whether they were simple equity partners or also secured creditors) blew up. . . . The boardroom battle over finances led to Sterling becoming insolvent and ceasing operations in January of 1996. This litigation began . . . [with] . . . a complaint for declaratory relief on behalf of Serebrodin and Sterling later that month. [P] Evans and Tran responded with a cross-complaint for damages against Serebrodin, Sterling, and others." (Evans v. Pillsbury, Madison & Sutro, supra, 65 Cal.App.4th 599, 601-602.) After an extended period of activity the case emerged from the pleading stage. Thereafter a number of cross-defendants settled with Evans and Tran. Evans and Tran proceeded to trial only against Losey.
Evans and Tran initially filed their cross-complaint alleging a cause of action for civil conspiracy against attorneys for Sterling without first obtaining court approval as required by Civil Code section 1714.10. We ordered the conspiracy cause of action stricken for this omission. (Evans v. Pillsbury, Madison & Sutro, supra, 65 Cal.App.4th 599, 607.) Evans and Tran then sought and obtained approval to amend the cross-complaint with a cause of action for civil conspiracy against one of Sterlings attorneys. The attorney then appealed from that order. After oral argument had been heard, the parties settled and the appeal was dismissed. (Evans v. Joseph , A086357, appeal dismissed August 25, 2000.) The settlements mentioned above were reached approximately a month before our dismissal.
In the final version of their cross-complaint, Evans and Tran alleged that Losey was a member of a civil conspiracy that had defrauded them of their investment in Sterling. Losey was the secretary of Serebrodin, and he participated in preparing the public offering used to solicit investors. He also prepared the instructions for the escrow in which investment funds were to be held until enough money was received to commence start-up operations. Although the actual soliciting of Evans and Tran was done by others, he knew that Evans and Tran had each decided to invest $ 300,000, but only on the basis of representations that their investment "would be secured and not be subject to third party claims or operational risk. " Additional representations, written and oral, were made that the money Evans and Tran provided would not be released from the escrow account except under specified conditions. Before they turned over their money, Evans and Tran had been told by Losey, "as counsel to Serebrodin," that their desired security arrangement "was legal and could be properly documented and structured." These misrepresentations were made in order to induce Evans and Tran to invest, and they relied on them. Without perfecting the security interests promised, and determined not to do so, Losey directed the escrow holder to release a portion of the Evans and Tran funds. Unaware of this, Evans and Tran repeatedly pressed for execution of the necessary security agreements. Losey told them it would be done. It never was, and Evans and Tran lost all of their investment.
The trial took 10 days. A dozen witnesses gave testimony and dozens of exhibits were received in evidence. Motions for a new trial and judgment notwithstanding the verdict were made by Losey and denied by the trial court. Losey then commenced this timely appeal.
REVIEW
I
Losey contends he was prejudiced by "the trial courts failure to adjudicate his legal duty to disclose." He states in his brief: "The trial court was faced pre-trial with an issue critical to Appellants defense of the claim that he concealed important information from the respondents. The facts of the alleged concealment were essentially undisputed, and admitted to by Appellant on the witness stand. [P] Appellant learned certain information in his capacity as attorney for Sterlings managing general partner, Serebrodin. He did not convey that information to the respondents, who were investors in Sterling, believing he was precluded from so doing by Business & Professions Code § 6068(e), requiring him, at all peril to himself, to maintain inviolate client confidences. [P] Appellant requested the trial court to make a finding, pre-trial, that he had no duty to disclose this information to the respondents. This the trial court failed to do, abdicating its role of adjudicating questions of law, and leaving the issue to be argued to the jury."
It appears that the parties made a number of written in limine motions (only those of Evans and Tran, however, were included in the record on appeal). The first volume of the reporters transcript of the trial opens with the court and counsel stating for the record rulings made on those motions. The court first stated its rulings on "Mr. Loseys motions." Four rulings are then stated, none of which deal with the issue of an attorneys "duty to disclose." It further appears that it was Evans and Tran who moved "to exclude all references that . . . Losey did not have a duty to disclose to Evans and Tran prior to the close of escrow that cross-defendant Quetnick was not cooperating to perfect their security interests which his office undertook to perform." Counsel for Evans and Tran stated that his motion "pertained to precluding Mr. Losey from mentioning that he was privileged not to disclose relevant information to Mr. Evans and Mr. Tran under the attorney-client privilege." Responding to the courts statement that it would "defer" a ruling "depending on what the evidence demonstrates," counsel for Losey argued that the issue was not attorney-client privilege but whether the relevant statutory and professional rules "governed or ought to have governed." Counsel for Evans and Tran argued that "Mr. Losey should not be permitted to hide under the attorney-client privilege." The court declined to rule.
Lita-Nadine Quetnick was the president of Serebrodin, one of the persons who directly solicited Evans and Tran to invest in Sterling, and perhaps the most prominent figure in the conspiracy. Losey testified that she was "a driving force" behind the creation of Sterling.
That forbearance was not error. Neither the granting nor the denial of the motion made by Evans and Tran would have established the proposition Losey now defends-that he was justified to do what he did or did not do as a matter of law. None of the authorities cited by Losey unambiguously states or squarely holds that an attorneys duties to maintain client confidences immunizes the attorney from civil liability for committing fraud on a third party. On the contrary, liability is the rule and has been for more than a century. "California has long adopted the view that an attorney may not, with impunity, either conspire with a client to defraud or injure a third person or engage in intentional tortious conduct toward a third person." (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal. App. 3d 104, 109, 128 Cal. Rptr. 901.) There are numerous decisions-and not just in this State-holding attorneys liable for making fraudulent misrepresentations to nonclient third parties. (See Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 69-75 and decisions cited.) The trial court was thus correct in recognizing that the trial would involve, not an abstract issue of law, but an issue of fact dependent upon the evidence presented by the parties. It is pertinent to note that the trial court permitted Losey to introduce evidence on the issue of his obligations as an attorney under Business and Professions Code section 6068, subdivision (e), and instructed the jury-in the language of Business and Professions Code section 6068, subdivision (e)-on those obligations. Loseys belief that his actions were consistent with, if not required by, his professional obligations were vigorously argued to the jury by his counsel during closing argument. Nevertheless, the jury found against Losey, and Losey does not claim that finding lacks the support of substantial evidence.
We also note that Loseys liability was not predicated solely upon silence or a failure to disclose. Evans and Tran demonstrate (with appropriate citation to the trial record) what Losey did went far beyond simple silence, encompassing numerous actual and active misrepresentations made directly to Evans and Tran.
II
Losey next contends that he was prejudiced "in being unable to testify to his physical and mental state in a case where state of mind was essential." He reasons that his "state of mind was essential to the issue of formation of and acts in furtherance of the alleged conspiracy. [P] At the outset of the case, the trial judge was called upon to rule whether Appellant would be able to advise the jury about his injuries, his recovery, and how his mental faculties were affected thereby." Elsewhere in his brief he explains that "prior to being retained to provide legal services to the venture, in 1994 Appellant had been the victim of a serious automobile collision in which he was gravely injured. Throughout the relevant time period . . ., calendar year 1995, Appellant suffered diminished physical and mental abilities. He often delegated duties to subordinate attorneys in his firm, particularly in matters of accounting and numerical analysis. Physical pain left him less than able to attend extended meetings, and he was unable to attend to the detailed issues which had been routine for him prior to being injured."
Once again we are addressing an in limine motion made by Evans and Tran. In its entirety, their moving papers state: "Evans and Trans Third Motion in Limine [P] Evans and Tran move to exclude all references to cross-defendant Loseys physical condition. [P] Points and Authorities [P] This is a case of fraud and conspiracy. Loseys physical condition is not in issue in this case. Therefore the evidence is inadmissible under § 350 of the Evidence Code. If cross-defendant Losey attempts to offer any evidence of his physical condition to the Jury, it will be for the purpose of appealing to the Jurys sympathy. Under these circumstances, the evidence should be excluded." In his written response Losey explained why he opposed the motion: "Where, as here, a claimant makes assertions regarding the defendants state of mind and intent, it seems only fair that the defendant be permitted to discuss the physical and mental factors that may have contributed to or affected his state of mind. Those same factors may well prove relevant to any issues or facts with respect to which Mr. Loseys present recollection may differ from that given during his deposition; cross-complainants counsel will certainly want the right to comment on any such discrepancies, and, if he does do so, Mr. Losey should have the right to explain them and their relationship to his improving physical and mental condition. [P] Although Mr. Loseys physical and mental condition are somewhat improved from 1995, they continue to be relevant to his behavior, demeanor, etc. As Mr. Losey will explain in more detail during the pre-trial conference, he still suffers from very substantial problems as a result of the accident and subsequent medical mis-treatment [sic]."
In discussing the in limine motions, Loseys counsel mischaracterized the Evans and Tran motion as concerning "evidence of Mr. Loseys physical and mental condition during the time in question." (Italics added.) The court replied: "Right. [P] . . . I said we wouldnt go into that unless something came up and we needed to give the jury some explanation, then I would say something appropriate."
After the jury returned its verdict, Losey moved for a new trial. One of the grounds for his motion was this ruling. Losey argued "the nature of cross-complainants claims made Mr. Loseys physical and mental condition in 1995 and during trial highly relevant. By charging that Mr. Losey has participated in a conspiracy to defraud them, cross-complainants specifically put his state of mind and mental condition at issue. Unfortunately, by barring Mr. Losey from discussing the chronic conditions which adversely affected his health and abilities during 1995, the Court deprived him of the opportunity to respond to several of cross-complainants arguments against him."
The court did not explicitly rule that evidence of Mr. Loseys mental condition would not be admitted; the court only ruled as to the motion made by Evans and Tran concerning Mr. Loseys physical condition. Neither the ruling, nor the denial of defendants new trial motion, requires reversal.
First of all, Loseys opposition to the motion was couched in very tentative, almost hypothetical language. He spoke of "physical and mental factors that may have contributed to or affected his state of mind" and "may well prove relevant to . . . issues or facts" (italics added). The trial courts ruling ("we wouldnt go into that unless something came up") clearly left defendant the opportunity to revisit the issue if developments at trial warranted. Losey identifies no points at trial where the fears he expressed became real, whereupon he sought to introduce evidence of his mental or physical condition and was refused. In short, he has not demonstrated that he was prevented from introducing pertinent evidence.
Second, Loseys written opposition to the motion mentioned that the issue would be "explained in more detail," but it never was. The record on appeal does not show that Losey made an offer of proof of what evidence he proposed to introduce and why it would be relevant. Without such an offer, the claimed error has not been preserved for appeal. (Evid. Code, § 354, subd. (a); People v. Anderson (2001) 25 Cal.4th 543, 580-581.)
Finally, at no point did Losey provide expert medical evidence that substantiated his lay opinion concerning the effect on his mind and body he claimed were caused by the automobile accident. Even if the declaration Losey submitted to support his new trial motion, in which he describes the effects of the accident, is deemed to constitute an offer of proof, it is far from sufficient to establish that the trial court abused its discretion either in ruling on the in limine ruling or in denying the new trial motion.
III
Loseys final contention is that he "was unfairly required to conduct a reverse empty chair prosecution," which is described as follows: "In many cases, the complaining party wants a settling defendant to attend trial to avoid the prejudice of the defendant blaming everything on an empty chair. (See, generally, Everman v. Superior Court (1992) 8 Cal.App.4th 446, 470-471, 473.) [P] Here, with the help of the court below, the complaining parties concocted an empty chair offense in which the terms of the last minute settlements with the co-conspirators were withheld from the jury and Appellant, and the case was argued and submitted for adjudication of the activities of more than half a dozen absent defendants. " For the third and last time we look to an in limine motion. Evans and Tran moved to "exclude all references that Evans and Tran settled with the remaining cross-defendants and the amount of those settlements" on the ground that such evidence was "irrelevant to either the liability or the damages issues in this case . . . ." For the record the trial court stated "I think we decided that we would take that up at the end. Unless someone is testifying, they can be asked about their financial interests in the case." Counsel for Evans and Tran inquired: "How would you propose to have it, Your Honor, that the case settled against those defendants? We might as well be up front with the jury and tell them exactly what happened here." The court responded, "My inclination is not to get into that until and unless they are testifying. And if you want to bring out that they may have a bias, then you can ask them if they have an interest. And if so, do they know what it is. . . . So getting into all this stuff beforehand is much ado about nothing."
We do not presume, and the legal system could not survive if it presumed, that jurors are unintelligent and lacking the power of independent thought and discerning insight. The record leaves absolutely no doubt that Evans and Tran were claiming that they were defrauded by a civil conspiracy and that Losey was only one member of that conspiracy. The identity of the other members was not withheld from the jury. On the contrary, the names of the other members, and what part they played in the conspiracy, were clearly disclosed to the jury during the trial. There was no secret deal. As pointed out by the trial court, nothing prevented Losey from calling any of the other conspirators to the stand or otherwise advising the jury that Loseys former codefendants had settled with Evans and Tran. When former members of the conspiracy did testify, nothing prevented Losey from cross-examining about the settlements. Even so, the jury also knew that these persons had concluded monetary settlements with Evans and Tran, and that the sum of the settlements-while not disclosed to the jury-would not be used to allow them a windfall recovery. There was consequently no likelihood that the jury was tempted to find against Losey in the mistaken belief that no one else was available to foot the bill for making Evans and Tran whole.
The jury was instructed: "In this case the plaintiffs have made a settlement with Ms. Quetnick, Mr. Hall, Mr. Smith, Mr. Strom, Serebrodin Inc., Sterling One, and Mr. Joseph. The amount of the settlement has been disclosed to the court but not to you. [P] If you should find that a plaintiff is entitled to recover against defendant Losey, then you should award damages to the plaintiff for the same amount you would have awarded as if no such settlement had been made. [P] In such event the court will later deduct the amount of this settlement from the amount of your award and your verdict will be reduced accordingly." The same points were made during closing argument by counsel for Evans and Tran.
Losey also points to the language of the special verdicts, specifically that the interrogatories the jury answered repeatedly used "defendants." Strictly speaking, the plural was accurate because it was Mr. Losey and his law firm who were defendants to the claims of Evans and Tran. Because Losey did not advise the trial court of any perceived defect in the verdict form before the jury was discharged, any claim of error based on the verdict form has not been preserved for purposes of this appeal. (E.g.,
Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 131; Babcock v. Omansky (1973) 31 Cal. App. 3d 625, 630, 107 Cal. Rptr. 512.)
The judgment is affirmed.
We concur: Reardon, J., and Sepulveda, J.