Len RONSON et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent; SHEPPARD, MULLIN, RICHTER & HAMPTON, et al., Real Parties in Interest.
Petitioners Len Ronson et al. (Ronson et al.), limited partners in a now-dissolved California limited partnership known as Manchester Hawaii Properties, Ltd. (MHP), seek a writ of mandate to overturn the trial court's grant of summary judgment in favor of real parties in interest, law firm Sheppard, Mullin, Richter & Hampton, and individual attorney Christopher B. Neils, a partner in that firm (collectively, the attorney defendants). This action by Ronson et al. alleges professional negligence, breach of fiduciary duty, and related fraud, conspiracy, and interference with prospective economic advantage theories against the attorney defendants. The trial court determined there was no attorney-client relationship between Ronson et al., as limited partners, and the attorney defendants who represented both the general partner, defendants Douglas Manchester and his company Torrey Enterprises, Inc. (TEI) (collectively, Manchester) and, for a limited period of time, the limited partnership itself, MHP. The trial court thus granted summary judgment in favor of the attorney defendants on both the client-based theories alleged, as well as the third party fraud, conspiracy, and interference with prospective advantage theories alleged.
Our examination of the record and the legal issues presented leads us to conclude that the writ should issue because triable issues of fact remain as to whether, under these circumstances, there were attorney-client duties imposed by public policy on the partnership's attorney toward the limited partners. We also find the trial court erroneously declined to adopt a discovery referee's ruling that the attorney defendants should produce certain documents to Ronson et al. over their objections of work product privilege. We grant the petition for writ of mandate.
FACTUAL AND PROCEDURAL BACKGROUND
MHP was formed in 1974 as a tax shelter, with its sole asset a ground lease on improved real property in an industrial park in Hawaii owned by the Estate of James Campbell (Campbell), which held the reversionary interest after MHP's lease lapsed. MHP subleased the improved property to a subsidiary of AMFAC Corporation (AMFAC), which had the obligation of paying the ground lease rent and the leasehold mortgage. The limited partnership agreement included a standard clause empowering the partnership to buy real property.
In 1989, Campbell offered to sell the underlying fee through a tax-deferred exchange transaction to the immediate industrial park lessees, including MHP. AMFAC had been carrying out secret negotiations to acquire the property also. MHP's general partner, TEI (later renamed The Manchester Group) which was incorporated by controlling director Douglas F. Manchester (collectively, Manchester), declined to sell AMFAC the partnership's leasehold interest, and entered into a contract on behalf of MHP to acquire the fee interest at the sum of $3.73 million.
Pursuant to the existing lease agreement, the rent on the subject property was shortly to be increased by 8.6 times that previously payable. The proposed purchase price agreed upon with Campbell was below market value. Manchester sent the limited partners a letter dated June 8, 1989, stating the investment had run its course and was now adversely affecting the limited partners as to tax consequences. The letter gave the limited partners the opportunity to sell their interests in MHP to the general partner. The buyout figure was calculated for the limited partners by using the potential AMFAC purchase price, less deductions for expenses which included attorney's fees to be paid by the partnership, presumably to these attorney defendants who had thus far represented the general partner and would shortly represent the partnership as well.1 The June 8, 1989 letter did not disclose that (1) Manchester for the partnership had already committed to purchase the property, (2) the property was available exclusively to the partnership as part of the tax-deferred Campbell exchange, (3) the rent had been increased, (4) the purchase price was favorable because it was below market value, or (5) Manchester had granted himself as an individual the opportunity to buy the property if Ronson et al. did not contribute further capital by a certain date.
Meanwhile, in Hawaii, AMFAC was threatening the partnership with an action for alleged breach of an oral agreement to sell the property. The attorney defendants had represented TEI and Manchester on a number of matters and were asked by Manchester to assist them in holding off any potential litigation by AMFAC against the partnership until the partnership could obtain Hawaii counsel. Beginning May 31, 1989, as shown by billing records, the attorney defendants performed services for Manchester concerning the partnership's potential property acquisition and the potential AMFAC litigation. Attorney defendant Neils wrote to AMFAC on June 9, 1989, that his office represented the partnership and its general partner, TEI, and asserted that AMFAC's position was without merit and that the partnership and general partner intended to pursue negotiations to acquire the property, and expected AMFAC not to interfere with those negotiations. Neils also represented the partnership in attempting to find Hawaii counsel. The parties characterize these activities as Neils's “gap representation” of the partnership. During this time, attorney defendant Neils understood from Manchester that although only the partnership could acquire the land, the general partner would be buying out all of the limited partners or terminating the partnership so the general partner would end up with the property. Hawaii counsel John Edmunds and his firm were retained by the partnership June 21, 1989. However, the attorney defendants continued after that date to work on the proposed property acquisition and related litigation.
After receiving Manchester's June 8, 1989 letter, all of the limited partners except Ronson had agreed to sell their interests to the general partner. The agreement of sale and assignment of partnership interest documents, prepared by Manchester, recited that the limited partners had consulted their own counsel in reviewing the transaction. Ronson, who did not agree to sell, also consulted personal counsel.
Although all of the partners but one had agreed to the buyout, Manchester, apparently pressured by deposition in the AMFAC matter, decided that more information had to be disclosed to Ronson et al. concerning that transaction. Accordingly, Manchester asked the attorney defendants to draft documents to accomplish this disclosure. This letter and the accompanying agreements to sell the limited partners' interests or to further provide capital to the partnership, along with accompanying release documents, were intended by the attorney defendants to satisfy the general partner's fiduciary duty of full disclosure of material information to the limited partners. In submitting the draft documents to his client Manchester, attorney defendant Neils wrote:
“I have prepared and enclose herewith for you a rough draft of further correspondence to each of the limited partners.
“Also some judgment is involved as to whether you want to ask the particular limited partner to sign a release, especially since that was not part of the document package that you sent out to each of them in early June. It is a bit complicated adding something to a deal unilaterally. I do not know whether the potential benefit of getting such a signed release is worth rocking the boat․
“In preparing them I have also been mindful of the general consensus to keep this new batch of documents as brief as possible. Obviously it would have been better to have been more complete in the first instance, and it makes it somewhat awkward to do so now․”
Neils's draft documents included a demand for each limited partner to contribute substantial additional capital to MHP, although the partnership agreement did not permit such capital calls. In deposition testimony, attorney defendant Neils stated that although the partnership agreement did not give the general partner any right to compel additional capital contributions, there was nothing in the agreement expressly prohibiting the general partner from asking for such capital contributions. The limited partnership agreement specifically provided only for the original capital contributions by the limited partners at the inception of the partnership, with a provision for additional cash contributions upon construction cost overruns.
The Neils working draft included a number of blanks that would be filled in with facts by the general partner, based upon his understanding of the proposed transaction. Manchester then revised the draft and omitted certain information, sending out the letter on his own letterhead to the limited partners July 27, 1989. This letter did not reference the attorney defendants. Neils billed his client Manchester for those legal services. In their complaint, Ronson et al. allege that Manchester deleted numerous material facts from the attorney defendants' July 26 drafts of correspondence, including information that the opportunity to acquire the property was available exclusively to the partnership, which Manchester intended to use as a conduit to purchase the property and then reconvey it to himself, solely for the benefit of the general partner. There was also no disclosure of the status of the fee title acquisition, i.e., that a purchase agreement had already been executed by the partnership and purchase funds were already irrevocably in place. Ronson et al. further allege that the draft correspondence prepared by Neils included numerous known false assertions of fact.
In response to Manchester's July 27, 1989, correspondence, all of the limited partners except Ronson agreed to choose the alternative of selling their limited partnership interests to the general partner as opposed to contributing several hundred thousand dollars additional capital in immediate funds. Ronson et al. now allege that the motive behind this capital call was to force the limited partners out of the partnership by setting an unreasonably short and arbitrary deadline to answer a substantial capital call, which was not authorized by the partnership agreement, and which was unnecessary because Manchester had already irrevocably financed the entire transaction for the partnership.
In November 1989 the attorney defendants provided additional legal services to Manchester by advising the general partner on his duties toward the sole remaining limited partner, Ronson, who had refused to sell his interest to the general partner. After Neils advised Manchester as to what the partnership agreement provided regarding dissolution, Manchester decided to dissolve the MHP partnership by a vote of the majority interest now held by Manchester, and when Ronson declined to voluntarily assign his interest or to respond to the capital call without an appraisal of the partnership's assets, Ronson was told that MHP had been dissolved. Approximately six months later, MHP took title to the Hawaii property.
Thereafter, the attorney defendants represented Manchester in a lawsuit filed by Ronson which sought disclosure of partnership information.2
Ronson et al. then brought their complaint against not only the attorney defendants, but also Manchester and his associated entities. As against the attorney defendants, two duty-related causes of action were alleged, breach of fiduciary duty (first cause of action) and professional negligence (eleventh cause of action). Third-party theories against the attorney defendants included fraud (third cause of action), interference with prospective economic advantage (seventh cause of action), interference with contractual relations (eighth cause of action), and conspiracy (thirteenth cause of action). The complaint alleged that Manchester eventually contracted to sell the property for $8.6 million, thus converting partnership profits to his own use.
A flurry of motions ensued. First, the attorney defendants filed a motion for summary judgment or adjudication of the various causes of action against them. (Code Civ.Proc., § 437c.) 3 Ronson et al. filed their own motion for summary adjudication of issues against the attorney defendants, seeking an order adjudicating that there was no defense against the claims for breach of fiduciary duty, fraud and deceit, or professional negligence. Ronson et al. also brought a motion to compel production of documents from the attorney defendants, i.e., documents relating to the partnership leasehold, business, and dissolution. The attorney defendants had refused to produce certain documents based on attorney-client privilege and attorney-work product privilege. That discovery motion was referred to a referee, the Honorable Edward T. Butler (Retired), before the motions for summary judgment or adjudication were heard. Justice Butler issued an order ruling that Ronson et al. were clients of the attorney defendants for purposes of discovery, so that the documents had to be produced on the basis that Ronson et al. were the clients of the attorney defendants by virtue of their status as limited partners, and the work product of the attorney defendants was relevant to the issue of breach of fiduciary duty. The order further stated that the parties had resolved the issues concerning attorney-client privilege so that the sole issue on the motion was work product. Ronson et al. sought to have the summary judgment motions continued pursuant to section 437c, subdivision (h), until the documents were produced pursuant to the referee's order. The attorney defendants then brought a motion for reconsideration of the referee's report and proposed order, which was heard along with the summary judgment motions. (§ 1008.) Although Judge Michael I. Greer initially ruled on the summary judgment motions, he eventually recused himself for reasons unrelated to the case, and Judge Anthony C. Joseph was assigned the case.
After extensive oral argument, Judge Joseph denied the summary adjudication motion brought by Ronson et al., but granted the attorney defendants' motion for summary judgment. The trial court made a finding that the attorney defendants had appeared on behalf of MHP, the limited partnership, for several weeks beginning approximately June 9, 1989. The court characterized the issue of whether these appearances on behalf of the partnership constituted representation of the limited partners as a question of both law and fact. The court then found that the undisputed facts that the limited partners had not signed any contract for legal services with the attorney defendants, nor had any interaction with them, nor exchanged documents with them, among other factors, established that there was no attorney-client relationship between the limited partners and the attorney defendants, and that no duty of care or fiduciary duty was accordingly owed to the limited partners. The trial court further found that the cause of action for fraud had no merit because there were no representations by the attorney defendants to the limited partners and that, further, they had not opposed the summary judgment motions with regard to the tortious interference causes of action, so that summary judgment should be granted. Moreover, the trial court found that the conspiracy allegations were insufficient because there was no underlying tort cause of action present as to the attorney defendants to support the conspiracy theory. The court then stated that in light of its ruling, it was unnecessary to reach the issues raised by the referee's discovery recommendation regarding work product. Judgment was entered accordingly and Ronson et al. brought these writ proceedings. We issued an order to show cause, determining there was no adequate remedy in the ordinary course of law, and stayed the trial date.4
An attorney-client relationship is usually expressly created by a contract between the parties. Some courts have found this relationship may be created by an implied contract, so that the professional relationship is implied from the circumstances of the parties' dealings. (Responsible Citizens v. Superior Court (1993) 16 Cal.App.4th 1717, 1732, 20 Cal.Rptr.2d 756 [hereafter Responsible Citizens ].) It is a question of law whether an attorney-client relationship exists. (Id. at p. 1733, 20 Cal.Rptr.2d 756.) However, where the evidence is conflicting, the factual basis for the determination whether an attorney-client relationship exists must be resolved before the legal question is addressed. (Ibid.)
The traditional approach in California has not emphasized the fiction of an implied attorney-client relationship, instead considering whether in a specific case, as a matter of public policy, a defendant professional will be held liable to a third person not in contractual privity. This determination involves the balancing of various factors:
“ ‘․ the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm.’ [Citation.]” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 343, 134 Cal.Rptr. 375, 556 P.2d 737.) 5
This balancing approach for the imposition of tort liability does not require consideration of third party beneficiary theories or issues of contractual privity; those items are superfluous to a tort theory of recovery. (Heyer v. Flaig (1969) 70 Cal.2d 223, 227, 74 Cal.Rptr. 225, 449 P.2d 161 (disapproved on another point in Laird v. Blacker (1992) 2 Cal.4th 606, 617, 7 Cal.Rptr.2d 550, 828 P.2d 691); see 1 Mallen & Smith, Legal Malpractice (3d ed. 1989) § 7.11, pp. 381–390, § 7.12, pp. 390–392.) Using this balancing test, and avoiding implied contract analysis, we shall first discuss the extent to which triable issues of fact exist as to whether there were attorney-client duties of care imposed by law on the attorney defendants in favor of Ronson et al., the limited partners, such as would support the causes of action here for breach of fiduciary duty and professional negligence. We then turn to the issue of the validity of the limited partners's various third party theories, i.e., fraud, tortious interference with economic advantage or contract, and conspiracy, as against these attorney defendants.
Extent of Duty toward the Limited PartnersAThe Law
In support of their assertion that the attorney defendants owed a professional duty of care of a fiduciary nature to the limited partners by virtue of their representation of the partnership and the general partner, Ronson et al. heavily rely on the statement by this court in Wortham & Van Liew v. Superior Court (1987) 188 Cal.App.3d 927, 932, 233 Cal.Rptr. 725, a decision dealing with access to partnership information by a general partner:
“In the context of the representation of a partnership, the attorney for the partnership represents all the partners as to matters of partnership business. Further, partners owe to one another, and general partners owe to limited partners, obligations of good faith, fair dealing. All partners are entitled to access to a wide range of partnership information, whether or not that information is generated under the aegis of the partnership's attorney.” (Italics added.)
In Wortham & Van Liew, this court found that the trial court had correctly compelled answers to a general partner's questions about the conduct of partnership business from the attorneys for the partnership, based on the joint client exception to attorney-client privilege. Since the counsel for the partnership also had fiduciary obligations to its general partner, counsel was required to disclose to that client, now excluded from the business of the partnership and a successor partnership by his associates, all matters concerning the partnership. (Id. at pp. 931–932, 233 Cal.Rptr. 725; Evid.Code, § 962.)
Ronson also relies upon another decision by this court, Tri–Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1149–1151, 265 Cal.Rptr. 330, in which triable issues of material fact were found to require reversal of a summary judgment granted in favor of a law firm which had been sued for breach of fiduciary duty and interference with prospective economic advantage after the law firm purchased certain real property for which its client, a partnership, had been negotiating. Specifically, one of the law firm's partners was a limited partner in the partnership, and also had served as attorney for the partnership's partners as individuals or for their other partnerships. We stated that an attorney's fiduciary duty can extend to former clients, or to conduct with a nonclient which affects the relationship with a client, and explained:
“For example, a breach can arise when an attorney gains an unfair advantage over a former client by using confidential information acquired from the relationship [citation], or when an attorney engages in a personal relationship with the client to the client's detriment [citation]. Further, conflict of interest concerns under the California Rules of Professional Conduct have been found to arise if an attorney is in a position to acquire confidential information from a nonclient which may be useful in the attorney's representation of a client [citations], and when an attorney puts himself in a position, without client consent, where he may be required to choose between or reconcile his interests with a client's conflicting interests [citation].” (Tri–Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg, supra, 216 Cal.App.3d at p. 1151, 265 Cal.Rptr. 330, fn. omitted, italics added.)
Between the times the above two decisions were issued, the Supreme Court decided Kapelus v. State Bar (1987) 44 Cal.3d 179, 191–196, 242 Cal.Rptr. 196, 745 P.2d 917, an attorney disciplinary proceeding, and discussed the issues of an attorney's representation of limited partners where the attorney represents the partnership and is also a general partner. Although the Supreme Court agreed with the recommendation of the state bar review department that the petitioner-attorney be disbarred, the Supreme Court discussed the limited partnership issues and resolved them in that attorney's favor. Ronson thus argues that the Supreme Court's discussion of these issues must be considered dicta and not controlling in this case. We disagree, as the Supreme Court had to consider all of the arguments asserted and explain its reasoning on each of them, and we as a lower court may obtain appropriate guidance from that discussion.
In any case, the facts of Kapelus v. State Bar, supra, 44 Cal.3d at pp. 191–196, 242 Cal.Rptr. 196, 745 P.2d 917 are not closely analogous to the facts before us. In Kapelus, the Supreme Court found that the evidence did not support a determination that an attorney-client relationship ever existed between the petitioner-attorney and the individual limited partners. Without discussing here the complicated fact situation in which the disciplinary proceedings arose, we shall outline those factors on which the Supreme Court relied to find an absence of such an attorney-client relationship: All the individual investors in the limited partnership had retained independent counsel to advise them before becoming limited partners, and they were well aware that the petitioner-attorney was acting as a “watchdog” on behalf of a lender which had made a loan to the partnership of which he was general partner and lawyer. There was also no evidence that the limited partners had sought the petitioner-attorney's professional advice or had attempted to establish any attorney-client relationship with him. (Id. at pp. 191–192, 242 Cal.Rptr. 196, 745 P.2d 917.)
Ruling strictly upon the facts of the case, the Supreme Court found that even considering the fact that the attorney, as a general partner, had owed a fiduciary duty to the limited partners regarding the actions of the partnership, there was an insufficient showing that there was an attorney-client relationship between the attorney and the individual investors. (Kapelus v. State Bar, supra, 44 Cal.3d at pp. 191–192, 242 Cal.Rptr. 196, 745 P.2d 917.) The Supreme Court also found no impropriety in the petitioner-attorney's actions in defending the partnership against individual limited partners who were allegedly attempting to defraud or destroy the partnership. Thus, there was no fiduciary relationship in the attorney as general partner as against the limited partners on either an attorney-client theory or a general partner/limited partner theory. (Id. at pp. 194–195, 242 Cal.Rptr. 196, 745 P.2d 917.) Nor was there any evidence that the attorney had obtained access to any confidential information of the limited partners. Thus, no conflict of interest was found. The attorney was nevertheless disbarred for other reasons. There was no discussion in Kapelus of Wortham & Van Liew v. Superior Court, supra, 188 Cal.App.3d 927, 233 Cal.Rptr. 725 or other case law on an attorney's duties toward limited partners when the attorney represents the partnership.
On the points before us, the Supreme Court's reasoning in Kapelus v. State Bar, supra, 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917, was confined to the facts of that case. Although the Supreme Court did set forth several factors to be considered in determining whether an attorney-client relationship exists between an attorney for the partnership and the individual limited partners (such as whether independent counsel is consulted before investment, whether there was a particular watchdog role to the partnership and its investors, whether the limited partners sought the attorney's professional advice on an individual basis, and whether the attorney obtains access to any confidential information of the limited partners), Kapelus does not stand for the proposition that an attorney for a partnership may never have an attorney-client relationship with the individual limited partners. (Cf. Wanetick v. Mel's of Modesto, Inc. (N.D.Cal.1992) 811 F.Supp. 1402; see Annot., 61 A.L.R.4th 464, Attorney Negligence—Nonclient, § 47, pp. 572–573.)
A test similar to that established by Kapelus v. State Bar, supra, 44 Cal.3d at pp. 191–196, 242 Cal.Rptr. 196, 745 P.2d 917 was set forth in Responsible Citizens, supra, 16 Cal.App.4th at pp. 1731–1733, 20 Cal.Rptr.2d 756. In Responsible Citizens, a case arising out of a ruling on a motion to disqualify counsel, the Court of Appeal held that an attorney representing a partnership does not necessarily have an attorney-client relationship with an individual partner for purposes of applying conflict of interest rules. The court stated that whether such a relationship exists depends on whether there is an express or implied agreement that the attorney also represents the partner. (Id. at p. 1721, 20 Cal.Rptr.2d 756.) In that case, a law firm representing a nonprofit public benefit association was disqualified from that representation because the law firm had also represented, in entirely unrelated matters, a general partnership in which one of the real parties in interest, whom the nonprofit public benefit association had sued, was a partner. The court held that the trial court had erroneously made the ruling as a matter of law that representation of a partnership automatically creates an attorney-client relationship with the individual partners, and required the trial court to reconsider the matter to determine if an agreement to represent the individual partner should be implied from the circumstances surrounding the law firm's representation of the partnership. (Ibid.) Because the two representations were unrelated, the Court of Appeal found that the authority of Wortham & Van Liew v. Superior Court, supra, 188 Cal.App.3d at pp. 932–933, 233 Cal.Rptr. 725 did not support the disqualification order because there was no contention that the attorney for the partnership had represented all the partners as to matters of partnership business; instead, the two representations were unrelated. (Responsible Citizens, supra, 16 Cal.App.4th at p. 1727, 20 Cal.Rptr.2d 756.)
In Responsible Citizens, supra, 16 Cal.App.4th 1717, 20 Cal.Rptr.2d 756, the court discussed the Rules of Professional Conduct of the State Bar of California (Bus. & Prof.Code, §§ 6076, 6077); in particular, rule 3–600(a) providing:
“In representing an organization, a member shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement.” 6
The court stated that the term “organization” in the rule should be deemed to include a partnership, and that partners could be deemed constituents of the organization. (Responsible Citizens, supra, 16 Cal.App.4th at p. 1730, 20 Cal.Rptr.2d 756.) The court found that rule 3–600(a) did not create a rule that representation of a partnership always creates an attorney-client relationship with the individual partners. (Responsible Citizens, supra, at p. 1731, 20 Cal.Rptr.2d 756.) This rule, the court held, does not create any bright line pronouncement that a partnership attorney either always or never represents the partners. (Ibid.) Instead, the court stated that since the relationship a partnership attorney has with individual partners may vary from case to case, certain factors should be taken into account when deciding on the existence of such an attorney-client relationship. Some factors which should be considered in making this determination include “[t]he type and size of the partnership ․ the nature and scope of the attorney's engagement by the partnership ․ [t]he kind and extent of contacts, if any, between the attorney and the individual partner ․ [and] the attorney's access to information (e.g., partnership financial information) relating to the individual partner's interest.” (Id. at p. 1733, 20 Cal.Rptr.2d 756.) The court thus stated that attention should be given to whether “the totality of the circumstances, including the party's conduct, implies an agreement by the partnership attorney not to accept other representations adverse to the individual partner's personal interests. [Citations.]” (Ibid.) Because those factual issues had not been resolved by the trial court, the court of appeal granted the writ to return the disqualification motion to the trial court for further proceedings. (Id. at p. 1735, 20 Cal.Rptr.2d 756.)
With these principles in mind, we turn to an examination of this record to determine whether triable issues of fact remain through the application of these tests. Ronson et al. focus upon several specific activities in which the attorney defendants participated on behalf of their clients, the general partner and partnership. Specifically, the attorney defendants drafted the July 1989 letters and agreements to be sent to the limited partners pursuant to the general partners's fiduciary duty of full disclosure of material facts. These letters and document drafts allegedly omitted a number of material facts and, when Manchester revised them to send them out, he allegedly omitted a number of additional facts. These draft documents included the suggested capital contribution mandatory requirement, which the attorney defendants allegedly knew was not authorized by the partnership agreement, even if not expressly forbidden by it. Later, after the other limited partners had assigned their interests to Manchester, the attorney defendants advised Manchester on his further disclosure duties to Ronson as the remaining limited partner. Further, the attorney defendants undertook a number of activities in representation of the partnership in addition to the “gap representation” (that which took place while attorney Neils was holding off the AMFAC litigation until the partnership could obtain Hawaii counsel). For example, attorney Neils's billing records show a number of consultations and activities in connection with the partnership's proposed property purchase and the related AMFAC litigation. Moreover, included in the calculation of the buyout price of the limited partners was an allocation for attorney's fees on behalf of the partnership incurred to date, evidently in favor of attorney Neils. The trial court recognized the fee question potentially raised triable issues of fact.
Based on this evidence, Ronson et al. suggest a number of theories for imposing liability for breach of fiduciary duty or professional duties on the attorney defendants. Specifically, they suggest that the attorney defendants simultaneously represented conflicting interests (i.e., the partnership or the general partner versus the limited partners), or conducted subsequent adverse representation (when the attorney defendants appeared for the general partner in Ronson's separate action seeking production of partnership documents). In addition, Ronson et al. argue third party beneficiary theories stemming from the attorney-client agreement between the attorney defendants and the partnership, inuring to the benefit of the limited partners (based on the attorney defendants' preparation of documents with the intent to induce the reliance of the limited partners, and the advice given to the general partner/fiduciary on fulfilling his duties of disclosure).7 Ronson et al. also claim that the attorney defendants's potential or actual acquisition of confidential information about the limited partners through the representation of the partnership gives rise to a duty to the limited partners. (See Tri–Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg, supra, 216 Cal.App.3d at pp. 1151–1152, 265 Cal.Rptr. 330.)
To analyze the validity of these arguments, we turn to the tests for the potential existence of implied attorney-client duties as to individual partners where there is legal representation of the partnership, as set forth in Kapelus v. State Bar, supra, 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917 and Responsible Citizens, supra, 16 Cal.App.4th at p. 1733, 20 Cal.Rptr.2d 756. First, looking at the nature and scope of the attorney's engagement by the partnership, we may take into account whether the representation of the individual partners was completely unrelated to the attorney's representation of the partnership, as in Responsible Citizens, or whether, as here, the representation of the partnership was with the goal of maximizing its financial success, a goal common to both the partnership, the general partner, and the limited partners. In other words, we consider that the theoretical purpose of the attorney's employment, to assist the general partner/manager in promoting the success of the partnership business, was not adverse in nature to the limited partners' interest in the financial success of the partnership; rather, this was a common goal of all concerned and the two representations were related. (See Wortham & Van Liew v. Superior Court, supra, 188 Cal.App.3d at pp. 932–933, 233 Cal.Rptr. 725; contrast Goldberg v. Frye (1990) 217 Cal.App.3d 1258, 1269, 266 Cal.Rptr. 483 [where third party legatees were held to be only incidental beneficiaries of an attorney-client relationship on behalf of the administrator of an estate, due in part to the conflicting interests among the legatees, such that the administrator could not always please them all].)
Further in the context of the nature and scope of the attorney's engagement by the partnership, we should note that in Kapelus v. State Bar, supra, 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917, the attorney, who represented a partnership which had borrowed money from a charitable organization, was openly acting also as the watchdog for that charitable organization as lender; thus, the limited partners had knowledge of his potential adverse interest to them regarding the partnership as debtor. We have no such express adverse context here.8
Moreover, the attorney defendants have not established that this was a situation as in Kapelus, supra, 44 Cal.3d 179, 242 Cal.Rptr. 196, 745 P.2d 917, where the limited partners consulted independent counsel before they ever invested in the partnership. It is true that the buyout documents as drafted by the attorney and revised by the general partner (and accordingly construed against them; Civ.Code, § 1654) recited that the limited partners had consulted their own counsel before agreeing to assign their interests. However, that buyout took place 15 years after the limited partners invested in the partnership, and they allege that their agreement to assign their interests was obtained through the misrepresentations and breaches of fiduciary duties alleged. Accordingly, this factor is not conclusive one way or the other as to the implied attorney-client duties.
In Goodman v. Kennedy, supra, 18 Cal.3d at pp. 343–344, 134 Cal.Rptr. 375, 556 P.2d 737, the Supreme Court declined to find that an attorney who represented corporate officers and advised them that they could sell stock without a particular consequence occurring owed any implied-in-law duty to third parties who dealt with the corporation in buying the stock, based upon the allegedly negligent advice to the client.9 The Supreme Court stated:
“The present defendant had no relationship to plaintiffs that would give rise to his owing plaintiffs any duty of care in advising his clients that they could sell the stock without adverse consequences. There is no allegation that the advice was ever communicated to plaintiffs and hence no basis for any claim that they relied upon it in purchasing or retaining the stock. Nor was the advice given for the purpose of enabling defendant's clients to discharge any obligation to plaintiffs. Thus, there is no allegation that plaintiffs had any relationship to defendant's clients or to the corporation as stockholders or otherwise when the advice was given.” (Goodman v. Kennedy, supra, 18 Cal.3d at pp. 343–344, 134 Cal.Rptr. 375, 556 P.2d 737, italics added, fn. omitted.)
The underlined portion of this quotation from Goodman v. Kennedy, supra, as above, suggests that a different result might have obtained if the attorney's advice had been given to his clients for the purpose of enabling the clients to discharge an obligation to plaintiffs. Unlike in Goodman v. Kennedy where the third party purchasers of stock dealt at arms' length with the attorney's clients, here, the general partner could not have dealt at arms' length with the limited partners, since a fiduciary duty existed toward them. (Id. at p. 344, 134 Cal.Rptr. 375, 556 P.2d 737.) Thus, in the case before us, the attorney defendants gave advice to the general partner (or the partnership) expressly for the purpose of enabling the client to discharge a fiduciary duty of disclosure to the limited partners. We believe this factor raises triable issues of fact as to the existence of attorney-client duties as implied from the circumstances and imposed by public policy. Even disregarding the issue of whether the general partner had any wish to confer a benefit upon the limited partners by engaging the attorney defendants' services (since we need not use any third party beneficiary theory here), some duty to protect their interests to some degree may be implied as a matter of law.
As to the factors of whether the individual partners sought professional advice or attempted to establish an attorney-client relationship with the partnership's attorneys, of course there was no such direct contact here. However, it is alleged that the attorney defendants prepared the draft documents in order to induce the limited partners to rely on them. This case is thus distinguishable from Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 110–111, 128 Cal.Rptr. 901, and Courtney v. Waring (1987) 191 Cal.App.3d 1434, 237 Cal.Rptr. 233 because in those cases the attorneys' names were evidently on the opinion letter or prospectus which was sent out to induce third party reliance. Here, the attorneys ghost-wrote the documents for the general partner, and thus did not intentionally induce knowing reliance on their participation in the transaction. Even so, if there are other factors leading to an implied attorney-client relationship, where the attorney has knowledge regarding the purpose of his or her work product, a duty may be established to those whose conduct has been influenced. (Id. at p. 1444, 237 Cal.Rptr. 233.) In such a case, an attorney may owe a plaintiff a duty of care where the “end and aim” of the attorney's advice, even to another, is to induce the plaintiff's reliance on it. (Goodman v. Kennedy, supra, 18 Cal.3d at p. 343, fn. 4, 134 Cal.Rptr. 375, 556 P.2d 737.)
Similarly, since the attorney defendants advised the fiduciary about his duty of disclosure to the limited partners, they may have undertaken some kind of duty to protect those interests. (See Morales v. Field, DeGoff, Huppert & MacGowan (1979) 99 Cal.App.3d 307, 316, 160 Cal.Rptr. 239 [holding that in the trust context an attorney undertaking a relationship as advisor to a trustee also assumes a relationship with the trust beneficiary akin to that between trustee and beneficiary].)
On the topic of whether the attorney defendants had access to any confidential information about the individual partners, we are given little evidence in the record to evaluate this factor. It is possible the attorney defendants could have considered such information in connection with the idea of requiring an additional capital contribution in order to avoid the buyout, and this information could have gone into setting the amount of the contribution proposed. However, this factor should be considered as part of the overall balancing test and is not dispositive on this record.
A further factor going toward the existence of an implied attorney-client relationship is the allocation to attorney's fees in the buyout amount which the limited partners received. If the limited partners paid the attorney defendants for services to the partnership, they also might be considered to have paid the attorneys for services to themselves. At least, triable issues are raised by this factor, as the trial court recognized.
Considering the totality of the circumstances (Responsible Citizens, supra, 16 Cal.App.4th at p. 1733, 20 Cal.Rptr.2d 756), the issue of professional liability of the attorney defendants to the limited partners cannot be resolved as a matter of law due to the unresolved factual issues we have outlined above. Based on those factual determinations by the trial court, a subsequent application by that court of the policy concerns identified in Goodman v. Kennedy, supra, 18 Cal.3d 335, 343, 134 Cal.Rptr. 375, 556 P.2d 737, for the imposition of liability without privity will be required. The writ will therefore issue on this ground.
Because of the conclusions we have reached concerning the potential presence of implied attorney-client duties here, it follows that the trial court erred in reconsidering and effectively declining to adopt the discovery referee's order that the limited partners should be considered to be clients of the attorney defendants for purposes of discovery, and should be entitled to have documents concerning partnership business produced over attorney work product objections. (§ 2018, subd. (f); Evid.Code, § 951.) 10 It also follows that the trial court should have allowed further discovery to take place before ruling on the summary judgment motions pursuant to section 437c, subdivision (h). The writ issued today will accordingly require the superior court to enter a new and different order adopting the referee's recommendations in this respect.
Third Party Theories of Liability
We have determined above that the writ will issue to require the trial court to vacate the summary judgment entered on the duty-based theories of breach of fiduciary duty and professional negligence, as well as on the discovery issue. For the guidance of the trial court, we shall address several issues raised by the remaining theories pled against the attorney defendants, fraud, intentional interference with economic advantage and/or contract, and a related conspiracy theory. First, as stated in Goodman v. Kennedy, supra, 18 Cal.3d at p. 346, 134 Cal.Rptr. 375, 556 P.2d 737, if an attorney commits actual fraud in the capacity of an attorney, he or she is not relieved of liability for such fraud. “The limitations upon liability for negligence based upon the scope of an attorney's duty of care do not apply to liability for fraud. [Citations.]” (Ibid.) However, in this case, it is not alleged that the attorney defendants made any direct representations to the limited partners, such as would make applicable the authority of Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, supra, 57 Cal.App.3d 104, 128 Cal.Rptr. 901 or Courtney v. Waring, supra, 191 Cal.App.3d 1434, 237 Cal.Rptr. 233; an essential element of an actual fraud cause of action, representations, is missing here. Nor is any alternative constructive fraud theory, of the type described in Goodman v. Kennedy, supra, 18 Cal.3d 335, 134 Cal.Rptr. 375, 556 P.2d 737, based on omissions as opposed to representations, pled by Ronson. (Id. at pp. 346–347, 134 Cal.Rptr. 375, 556 P.2d 737.) Nor is negligent misrepresentation, a different species of fraud, claimed against these attorney defendants. Since there were no actual representations by the attorney defendants to the limited partners, we fail to see how an actual fraud claim can survive.
However, we have determined above that triable issues of material fact remain as to the existence of an implied attorney-client duty as to the limited partners; such a duty sounds in tort. Accordingly, the conspiracy cause of action is not based solely upon the deficient fraud allegations, but may also rest upon the allegations of professional negligence. We find support for this conclusion in Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 260 Cal.Rptr. 183, 775 P.2d 508, where the Supreme Court stated:
“A cause of action for civil conspiracy may not arise, however, if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing and was acting only as the agent or employee of the party who did have that duty.” (Id. at p. 44, 260 Cal.Rptr. 183, 775 P.2d 508.)
This rule is based on the principle that corporate agents and employees cannot conspire with the corporate principal or employer when acting in an official capacity on behalf of the corporation, and not as individuals for their own individual advantage. (Id. at p. 45, 260 Cal.Rptr. 183, 775 P.2d 508.)
In Doctors' Co. v. Superior Court, supra, 49 Cal.3d 39, 260 Cal.Rptr. 183, 775 P.2d 508, the Supreme Court said that as an illustration of these rules an attorney could be held liable for conspiring with a client to cause injury by violating the attorney's own duty to the plaintiff (e.g., where an attorney is representing an insured, but is also following the instructions of the insurer). (Id. at p. 47, 260 Cal.Rptr. 183, 775 P.2d 508.) Such a theory fulfills the requirement in Doctors' Co. that for an attorney or agent to be held liable for conspiracy, an independent duty owed by the attorney or agent must have been violated such that a civil wrong has been committed resulting in damage. (Id. at p. 44, 260 Cal.Rptr. 183, 775 P.2d 508.)
However, these facts do not appear to support the applicability of a particular exception to the general bar against conspiracy liability for attorneys vis-a-vis clients, as stated in Doctors' Co. v. Superior Court, supra, 49 Cal.3d at p. 47, 260 Cal.Rptr. 183, 775 P.2d 508: Where agents may be subjected to conspiracy liability for conduct carried out by the agents as individuals for individual advantage, not solely on behalf of the principal. (Ibid.) In this case, there are no allegations that the attorney defendants were acting in furtherance of their individual advantage in taking the actions that they did; instead, the only claims are that they acted in their professional capacity on behalf of their clients. In light of this authority, we believe that limited triable issues of material fact remain as to the conspiracy allegations, based upon the implied attorney-client duty theory.
Finally, with regard to the causes of action for intentional interference with economic advantage and/or contract, the trial court's ruling was based on a lack of opposition by Ronson et al. to the attorney defendants' summary judgment motion as to those theories. Ronson argues this was error on the basis that the attorney defendants made an insufficient showing that they were entitled to the complete defense of the “manager's privilege,” as explained in Los Angeles Airways, Inc. v. Davis (9th Cir.1982) 687 F.2d 321, 325–328. These issues have not been thoroughly litigated below, due to the lack of opposition at the summary judgment stage, and we decline to resolve those issues in this writ proceeding as such resolution is not essential to our disposition of the petition. (See § 437c, subd. (n)(2).)
The petition is granted. Let a writ of mandate issue directing respondent court to vacate its order granting summary judgment to Sheppard, Mullin, et al., and to conduct such further proceedings as deemed necessary consistent with the views expressed herein.
1. There was also to be a realtor's commission deducted from the proposed AMFAC purchase price, payable to one of Manchester's subsidiaries, La Jolla Pacific Realty Co.
2. Manchester appealed attorney's fees awarded to Ronson in that action, and that case is pending in this court as No. D017848.
3. All statutory references are to the Code of Civil Procedure unless otherwise specified.
4. The attorney defendants continue to contend there is no need for writ relief in this matter and that appeal of the summary judgment would have been adequate. By our issuance of the order to show cause, we determined that issue adversely to the attorney defendants. (See Payne v. Superior Court (1976) 17 Cal.3d 908, 925, 132 Cal.Rptr. 405, 553 P.2d 565; Bodenhamer v. Superior Court (1986) 178 Cal.App.3d 180, 183, fn. 3, 223 Cal.Rptr. 486.)
5. In Lucas v. Hamm (1961) 56 Cal.2d 583, 589, 15 Cal.Rptr. 821, 364 P.2d 685, the Supreme Court substituted for the “moral blame” consideration an inquiry whether recognition of liability under the circumstances “would impose an undue burden on the profession.”
6. All rule references are to the Rules of Professional Conduct.
7. As we explained ante, the Goodman v. Kennedy, supra, 18 Cal.3d 335, 134 Cal.Rptr. 375, 556 P.2d 737 approach used by the Supreme Court does not emphasize third party beneficiary of contract issues. We believe we are required to analyze these issues with the Goodman balancing test instead.
8. The attorney defendants rely on Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal.App.3d 692, 700–707, 282 Cal.Rptr. 627, in which it was held that an attorney who represented a close corporation had no attorney-client relationship with a minority shareholder, whose interest the majority shareholders had bought out after consulting corporate counsel for advice on the method for doing so. The court noted that the minority shareholder, who was now suing corporate counsel for professional negligence, had never asserted he had an attorney-client relationship with that counsel, but instead was owed duties as a third person due to his status as a shareholder and based on the advice given about shareholder rights. (Id. at p. 701, 282 Cal.Rptr. 627.) The court noted that at the time the corporate management acted on the advice, the minority shareholder was a potential adverse party, whose interests were not being represented by his adversaries' chosen counsel, whose duty of loyalty was to the corporation. (Id. at p. 707, 282 Cal.Rptr. 627.) Thus there was no professional duty which could support the malpractice claim. We believe the Ronson facts are distinguishable, because Ronson has asserted such an attorney-client duty, based on the nature of the limited partnership and the advice given, and because the attorney defendants prepared documents for intended reliance by the limited partners, albeit without disclosing their participation in preparing the documents. Also, other than the general partner's alleged undisclosed scheme, there was no reason for the limited partners to assume they were adverse in interest to the general partner or the partnership; they were owed fiduciary duties of disclosure.
9. The attorney defendants strenuously argue that the Supreme Court in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745, by reimposing a privity requirement upon malpractice actions against auditors, effectively undermined or overruled the authority of Goodman v. Kennedy, supra, 18 Cal.3d 335, 134 Cal.Rptr. 375, 556 P.2d 737, declining to require privity for malpractice actions against attorneys in some cases. The discussion in Bily is so fact-specific as to auditors and appears to be so narrowly limited in its policy discussions that we do not believe its reasoning may be applied to attorney malpractice claims in light of existing authority in that field. If the Supreme Court had meant to overrule Goodman v. Kennedy and its predecessor authority, it would have said so.
10. As the referee noted in his order, the parties resolved the attorney-client privilege issues, and the only issue before him was attorney work product protection. Under section 2018, subdivision (f), where there is litigation between attorney and (implied) clients, the privilege does not obtain. The work product issues were sufficiently raised before the discovery referee and we decline to find any waiver of those issues by either party. However, we need not reach Ronson's further arguments that the joint client exception (Evid.Code, § 962) or the fraud exception (Evid.Code, § 956) apply here.
HUFFMAN, Acting Presiding Justice.
FROEHLICH and NARES, JJ., concur.