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Hal W. WILLIAMS, Jr., and Pollack Lintz Williams, Inc., Appellants, v. David DREXLER and Gerald Ryckman, Respondents.
FACTS AND PROCEEDINGS BELOW
The plaintiff in this action is a former client of cross-complainants Williams and his law firm, Pollack Lintz Williams (Williams). Plaintiff alleges Williams, while representing her in a medical malpractice case, charged and collected a contingent fee of 50 percent; an amount exceeding the limit imposed by Business & Professions Code section 6146.1 Plaintiff alleges Williams' overcharging was fraudulent, negligent, intentional, reckless and malicious. She seeks actual and punitive damages from Williams.
Williams filed a cross-complaint in which he alleges he was “set up” by disloyal former associates who are now representing the plaintiff in this action out of a personal vendetta against him and for personal financial gain. Williams alleges cross-defendants Drexler and Ryckman were employed by his firm at the time it represented the plaintiff. Drexler and Ryckman had a duty to obtain waivers of the statutory contingent fee limits from the firm's medical malpractice clients. Drexler and Ryckman willfully failed to obtain contingent fee waivers from clients but did not advise Williams of their failure. Instead, Drexler and Ryckman intentionally misled Williams into believing waivers had been obtained knowing that belief would cause Williams to charge his clients a fee in excess of the statutory limit. Williams would not have charged the excess fee had he known the clients had not signed waivers.
Williams further alleges after Drexler and Ryckman fraudulently induced him to charge clients fees that violated Business & Professions Code section 6146 they left the firm and induced these clients, including the plaintiff here, to sue Williams for overcharging fees. Williams suffered severe emotional distress as the result of Drexler's and Ryckman's acts. He seeks general and punitive damages from Drexler and Ryckman.
The trial court sustained a demurrer to Williams' cross-complaint without leave to amend on the ground the cross-complaint did not arise out of the same transaction or occurrence as the cause brought against him. (Code Civ.Proc., § 428.10, subd. (b)(1).) Williams appeals from the dismissal of his cross complaint. We reverse.
DISCUSSION
I. THE DEMURRER TO THE CROSS–COMPLAINT CANNOT BE SUSTAINED ON THE GROUND OF LACK OF SUBJECT MATTER CONNECTION WITH THE COMPLAINT.
We find no merit in the argument the cross-complaint lacks the necessary connection to the plaintiff's cause of action.
A defendant may cross complain against a new party “if the cause of action asserted in his cross-complaint ․ arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause brought against him․” (Code Civ.Proc., § 428.10(b)(1).) The transaction giving rise to plaintiff's cause of action was Williams' allegedly charging her a contingent fee in excess of the statutory limit. Williams' cross-complaint alleges that overcharge resulted from the cross-defendants' deliberate failure to advise him this particular plaintiff had not waived the statutory limit.2 The cross-defendants' conduct in the case before us occurred during the course of the transaction sued upon: representation of plaintiff in a medical malpractice case. Thus, the requirement of section 428.10 subdivision (b)(1) is met.
II. IT WOULD NOT BE AGAINST PUBLIC POLICY TO ALLOW WILLIAMS TO PROSECUTE HIS CROSS–COMPLAINT AGAINST DREXLER AND RYCKMAN.
Cross-defendants, Drexler and Ryckman, contend it would be against public policy to allow Williams to prosecute a cross-complaint against them in a case where they represent the party suing Williams. They cite as authority numerous cases holding public policy prohibits an attorney sued for malpractice from cross-complaining for equitable indemnity against the attorneys representing the plaintiff in the malpractice action. (See Holland v. Thacher (1988) 199 Cal.App.3d 924, 929, 245 Cal.Rptr. 247 and cases cited.)
These equitable indemnity cases are inapplicable to the cross-complaint in the case before us. The cross-complaint does not seek indemnity and the public policy reasons for disallowing such claims do not apply to this cross-complaint for fraud.
The cross-complaint before us does not seek equitable indemnity. It does not allege that by reason of cross-defendants' acts Williams may be found liable to plaintiff and suffer a money judgment. Rather, Williams alleges fraud and intentional infliction of emotional distress. Moreover, the cross-complaint could not be construed as stating a claim for equitable indemnity. If, as Williams alleges in his cross-complaint, Drexler and Ryckman disobeyed his orders and failed to obtain a waiver of the fee limit from plaintiff, then Drexler and Ryckman committed no wrong as to the plaintiff and are not liable to her for any overcharges assessed by Williams. “[T]here can be no indemnity without liability.” (Munoz v. Davis (1983) 141 Cal.App.3d 420, 425, 190 Cal.Rtpr. 400.) If, on the other hand, Drexler and Ryckman did obtain a waiver of the fee limit from plaintiff they did so in accordance with instructions from Williams. Assuming their obtaining the waiver could make them liable to the plaintiff, it would not make them liable to Williams for equitable indemnity. As we explained in Munoz v. Davis not every situation involving joint tortfeasors gives rise to equitable indemnity. “[T]he key ingredient in equitable indemnity [is] equity.” (Id. at p. 428, 190 Cal.Rptr. 400.) An employer may obtain indemnity from an employee whose negligence resulted in the employer's liability to a third party under the doctrine of respondeat superior. (Walsh v. Hooker & Fay (1963) 212 Cal.App.2d 450, 462, 28 Cal.Rptr. 16.) But, where the employer specifically directs the employee to do an act which results in harm to a third party we see no equitable basis for requiring the employee to indemnify the employer for the employer's negligence or intentional tort. We decline to adopt in indemnity cases a doctrine of respondeat inferior.
The public policy reasons precluding equitable indemnity in legal malpractice cases do not apply in this malpractice case where the cross-complaint alleges fraud.
In the typical legal malpractice case, the plaintiff sues attorney A for negligence in handling a preceding action. Attorney A attempts to cross-complain against attorney B for indemnity on the theory attorney B, hired to assist the client in limiting the injury caused by attorney A, actually exacerbated the original injury. (See Holland v. Thacher, supra, 199 Cal.App.3d at p. 929, 245 Cal.Rptr. 247.)
The majority of decisions have disallowed such a cross-complaint. These decisions have pointed out attorney A can limit his liability to the client by imputing attorney B's negligence to the client as an affirmative defense. (Id. at pp. 929–930, 245 Cal.Rptr. 247.) Courts have also expressed concern such a cross-complaint would undermine the attorney-client relationship between the client and attorney B, discourage successor attorneys from attempting to assist clients harmed by the original attorney's negligence and “ ‘inject undesirable self-protective reservations into the [successor] attorney's counselling role’.” (Id. at pp. 930–931, 245 Cal.Rptr. 247.) Finally, attorney B would have a difficult task defending himself in a malpractice action brought by attorney A rather than the client. Much of the evidence he would need would be subject to the attorney-client privilege. The client has little incentive to waive the privilege because a judgment for attorney A on a cross-complaint for equitable indemnity would not reduce the award to the client. (Id. at pp. 930–931, 245 Cal.Rptr. 247.)
In the case before us, the facts pled in the cross-complaint would not serve as an affirmative defense to reduce the plaintiff's claim against Williams. It is extremely unlikely the plaintiff had any involvement at all in the alleged fraudulent activities of Drexler and Ryckman. Thus there would be no basis for reducing plaintiff's recovery by imputing their conduct to her. (Cf. Holland v. Thacher, supra, 199 Cal.App.3d at p. 929, 245 Cal.Rptr. 247.) Nor would the attorney-client privilege impede Drexler and Ryckman defending themselves against Williams' claim. In the underlying action the plaintiff alleges she signed a waiver of the contingent fee limit. Thus, the information the plaintiff has relevant to Drexler's and Ryckman's defense is not privileged because it has already been disclosed in plaintiff's pleading. Indeed, if her allegation is proved at trial it will defeat Williams' cross-complaint for fraud because the cross-complaint is based on the contention Drexler and Ryckman failed to obtain plaintiff's waiver of the contingent fee limit.
Even if Williams' cross-complaint might adversely affect Drexler's and Ryckman's relationship with the plaintiff, we do not find this a controlling consideration. Drexler and Ryckman have already put themselves in a precarious position by representing a client overcharged for fees by their former law firm especially if, as Williams alleges, they were associated with the firm at the time. Presumably they have already had to explain to plaintiff their involvement in her waiver of the contingent fee limit, (see Rule 2–107(A), Rules of Professional Conduct of the State Bar of Cal.) and that they may be required to withdraw as counsel if called by Williams as witnesses for the defense. (Rule 2–111(A)(5).) If those disclosures have not adversely affected their relationship with plaintiff, we doubt Williams' cross-complaint will have that effect.
DISPOSITION
The judgment of dismissal is reversed. Costs are awarded to the appellants.
FOOTNOTES
1. Business & Professions Code section 6146 limits contingent fees in medical malpractice cases to 40 percent of the first $50,000 recovered, 33 1/3 13 percent of the next $50,000, and 25 percent of the next $100,000 and 10 percent of the remaining recovery.
2. It has not yet been determined conclusively whether a client may effectively waive the contingent fee limit. (See Waters v. Bourhis (1985) 40 Cal.3d 424, 439, fn. 15, 220 Cal.Rptr. 666, 709 P.2d 469 and Shepherd v. Greene (1986) 185 Cal.App.3d 989, 992, 230 Cal.Rptr. 233 expressing the view, in dictum, the client cannot waive the limit.) See also Hathaway v. Baldwin Park Community Hospital (1986) 186 Cal.App.3d 1247, 1251–1253, 231 Cal.Rptr. 334 holding trial court lacks power to award attorneys' fees in excess of the statutory limit.The parties have not briefed this issue and we need not decide it to resolve this appeal. The validity of the waiver is not relevant to Williams' claim. His claim is that he would not have charged plaintiff a 50 percent fee if he had known she had not signed a waiver. In other words, Williams was misled into taking action which resulted in injury to him because of a misrepresentation of fact by the cross-defendants. Had cross-defendants told Williams the truth the validity of the waiver would never be an issue because Williams would not have charged a fee in excess of the statutory limit.
JOHNSON, Associate Justice.
LILLIE, P.J., and FRED WOODS, J., concur.
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Docket No: No. B027701.
Decided: December 02, 1988
Court: Court of Appeal, Second District, Division 7, California.
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