WERTHEIMER v. ACRET (1992)

INTRODUCTION

Plaintiffs and appellants, Stephen Wertheimer and Barbara Wertheimer (“Wertheimers”), appeal from an order imposing sanctions against them pursuant to Code of Civil Procedure section 1 128.5 ² for failure to present their intended expert witness (Retired Superior Court Judge Jerry Pacht) as an expert on the issue of legal malpractice at a judicially ordered arbitration.

Following a request for a trial de novo by the Wertheimers, the jury returned a defense verdict for attorney James Acret (“Acret”) in Wertheimers' legal malpractice action against Acret.   At the conclusion of the jury trial, the Honorable Irving A. Shimer, imposed sanctions in the sum of $2,500.00 for failure of the Wertheimers to participate with good faith in the prior judicially mandated arbitration on their malpractice claim and for in effect taking a position that they would not present their expert witness on malpractice as they would be requesting a trial de novo in any event.   We affirm.

CONTENTIONS

The Wertheimers in essence raise the following contentions on appeal:

1. It was not necessary for them to present their legal malpractice expert since the arbitrator was an attorney duly licensed to practice law in the State of California and capable of interpreting Business and Professions Code section 7031 et seq.,³ without the aid of a legal malpractice expert;

2. Their actions in declining to present their stated legal malpractice expert at arbitration were not sanctionable since “both” the objective standard and the “subjective” standard for imposition of sanctions mentioned in section 128.5 must be satisfied.   They contend that neither standard is sufficient standing alone, but that both standards must be satisfied.   Thus, Judge Shimer erred in imposing sanctions on account of their conduct in  connection with the judicial arbitration process since the order addressed only the “subjective” portion of section 128.5 and was silent on the “objective” portion of section 128.5.

3. The Wertheimers lastly contend that had Judge Shimer also imposed sanctions utilizing the “objective” standard of section 128.5, an abuse of discretion would have been committed as no reasonable attorney would have called a malpractice expert to testify on a question of interpretation of a statute in this instance since such an interpretation is within the expertise of an attorney sitting as an arbitrator.

FACTS AND PROCEEDINGS BELOW

Acret has not filed a respondent's brief in this matter, and thus rule 17(b) of the California Rules of Court is applicable to this appeal.   It provides in pertinent part:  “the court may accept as true the statement of facts in the appellant's opening brief and, unless the appellant requests oral argument, may submit the case for decision on the record and on the appellant's opening brief.”

 Courts, however, have differed in the application of this rule.   One line of cases holds that respondent's failure to file a brief may be construed as a consent to a reversal (Doran v. White (1961) 196 Cal.App.2d 676, 677, 16 Cal.Rptr. 841);  it has also been held to be an abandonment of the trial court decision.  (Roth v. Keene (1967) 256 Cal.App.2d 725, 727, 64 Cal.Rptr. 399.)   Another view is that since the appellant has the affirmative burden to show error whether or not the respondent's brief has been filed, the respondent's failure to file does not require an automatic reversal.   (Perfection Paint Products v. Johnson (1958) 164 Cal.App.2d 739, 740, 330 P.2d 829.)   We think the better rule is to examine the record and reverse only if prejudicial error is found.

In 1984, the Wertheimers were sued for fraud, breach of contract, on common counts and to foreclosure a mechanic's lien in an action (the “underlying action”) brought by Stefan Bittenbinder (“Contractor”), a general contractor, who pursuant to a written contract with the Wertheimers, constructed extensive improvements to their home in Rancho Palos Verdes.

The Wertheimers were originally defended in the underlying action by the firm of Chern & Culver, but in 1985, the Wertheimers employed Acret to assume their defense.

One of the affirmative defenses available to the Wertheimers in the underlying action was the alleged failure of Contractor to be properly  licensed at all times during his performance of the construction project, as required by Business and Professions Code section 7031.⁴  Acret, during the early stages of his representation of the Wertheimers, discussed the defense with them on repeated occasions and also discussed the option of bringing a motion for summary judgment.

Potential obstacles and defenses to a successful motion for summary judgment included the following considerations:  (1) Contractor's company—Bittenbinder Construction—obtained a contractor's license midway through the project, presenting an opportunity for argument that Contractor had “substantially complied” with the requirements of Business and Professions Code section 7031,5 and (2) the Wertheimers during much of the project simply paid Contractor a weekly wage, while separately paying the subcontractors directly, providing Contractor with an opportunity to argue that he was merely an “employee” of the Wertheimers, thereby being statutorily exempt from the licensing laws and the requirements of Business and Professions Code section 7031.

Acret discussed with the Wertheimers not only the availability of the summary judgment procedure, but also the uncertainty and unpredictability of a favorable result on such a motion.   After deliberation, the Wertheimers, in an effort to avoid the expense of a possible unsuccessful summary judgment motion, expressly declined to proceed with the motion.   Acret, in a letter dated October 18, 1984, to Barbara Wertheimer, confirmed that no motion for summary judgment would be brought on the licensing issue.

In May 1986, the underlying action proceeded to trial.   Acret's pretrial motion to bifurcate and try first the Business and Professions Code section 7031 defense was denied, as was a motion for nonsuit brought at the conclusion of Contractor's case in chief.   At the close of the Wertheimers' defense, the court, on the basis of Business and Professions Code section 7031, granted their motion for directed verdict as to the causes of action for breach of contract, foreclosure of mechanic's lien and on the common counts, but permitted the fraud count to be tried by jury, opining that  Business and Professions Code section 7031 was not a bar to an unlicensed contractor's fraud claim.⁶

The jury in the underlying action, after hearing testimony in the two-week trial, returned a verdict against the Wertheimers for fraud and, in addition to awarding compensatory damages, imposed punitive damages in the sum of $176,400.00.

Acret promptly brought post-trial motions for a judgment notwithstanding the verdict and a new trial based on numerous grounds including the assertion, once again, that Business and Professions Code section 7031 provided a complete bar to Contractor's claims.   With respect to Contractor's contention that fraud claims were immune to a Business and Professions Code section 7031 defense, Acret was able to persuade the court that the fraud in the underlying action was distinguishable from the type of fraud found in the Grant and Pickens cases and that those decisions, therefore, were not controlling.   Accordingly, the post-trial motions were granted, and the court entered judgment in favor of the Wertheimers.

Notwithstanding Acret's successful defense in the underlying action, the Wertheimers failed to pay the final bill of Acret for approximately $17,000 but instead filed this current action for legal malpractice.   Their claim of malpractice is not that Acret failed to successfully defend them—but that Acret should have won the underlying action sooner.   Specifically, the Wertheimers contend that Acret committed malpractice by failing to bring a summary judgment motion grounded on section 7031 of the Business and Professions Code.

In the present action, the Wertheimers elected to submit their claims against Acret to nonbinding judicial arbitration, and after numerous delays, the matter finally proceeded to arbitration before Arbitrator Shelley Kaufman on February 20, 1990.   The Wertheimers and their counsel appeared at the arbitration without their expert witness, a retired Los Angeles Superior Court Judge employed by the Wertheimers, who purportedly would testify that Acret committed malpractice by failing to bring a summary judgment motion in the underlying action.

When questioned by Acret's counsel how the Wertheimers could proceed without expert testimony in this legal malpractice action, Wertheimers'  counsel responded that it was not worth the money to bring in the expert for the arbitration.   Counsel said that the matter would likely proceed to a trial de novo in any event and that the Wertheimers would produce the expert at that time.

Evidence was presented at the arbitration, and an award was rendered on March 1, 1990, denying Wertheimers' relief in their action and awarding Acret $17,770.00 on his cross-complaint for unpaid fees.   On or about March 7, 1990, the Wertheimers filed their request for trial de novo.

DISCUSSION

 Section 128.5, subdivision (a) gives trial courts authority to impose “reasonable expenses, including attorney's fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.”   That section applies to judicial arbitrations.  (§ 128.5, subd. (a).)

In Lyons v. Wickhorst (1986) 42 Cal.3d 911, 919, 231 Cal.Rptr. 738, 727 P.2d 1019, the Supreme Court expressly avowed the use of section 128.5 sanctions for a plaintiff's failure to present evidence at a nonbinding judicial arbitration:  “The Legislature squarely considered the problem of nonparticipation in judicial arbitration proceedings and decided to put teeth into the ‘mandatory’ nature of the process by authorizing the assessment of expenses, including attorney's fees, against a nonparticipating party.”

In a concurring opinion, Justice Reynoso encouraged the use of section 128.5 sanctions for a plaintiff's improper attempt to effect a “defense” award for strategic reasons:  “Section 128.5 provides a means of avoiding the danger that a party will refuse to participate in the judicial arbitration process as a strategic tactic, attempting to assure that the trial court judgment will be more favorable to it than the ‘default’ arbitration award, thus permitting the party to avoid the award-of-costs penalty provided by section 1141.21.”  (Id., at p. 926, 231 Cal.Rptr. 738, 727 P.2d 1019.)

In this case, it is clear that the Wertheimers entered the arbitration with no intention at all of presenting the expert testimony which was absolutely necessary for them to prevail.   One explanation for this conduct is that they sought to avoid the award-of-costs penalty provided by section 1141.21 ⁷ and otherwise get a “free look” or preview of Acret's case before demanding a  trial de novo.   Another explanation is that the Wertheimers simply sought to delay the day of reckoning on Acret's cross-claim for attorney's fees.   Their counsel candidly admitted that the Wertheimers had no intention of producing their expert witness at the arbitration, but would “save” him for the trial de novo.

Without the aid of expert testimony, the Wertheimers had no ability to recover under their claim of malpractice (Wright v. Williams (1975) 47 Cal.App.3d 802, 804, 121 Cal.Rptr. 194) which would aid their further attempt “to avoid the award-of-costs penalty provided by section 1141.21.”  (Lyons v. Wickhorst, supra, 42 Cal.3d at p. 926, 231 Cal.Rptr. 738, 727 P.2d 1019.)

With respect to the Wertheimers' obligation to produce expert testimony in support of their claim of malpractice, it must be observed that the alleged malpractice in question was not “so clear that a trier of fact may find professional negligence unaided by the testimony of experts” (Wright v. Williams, supra, 47 Cal.App.3d 802, 810, 121 Cal.Rptr. 194), such as where an attorney misses the deadline of the applicable statute of limitations.   Indeed, in this case, one can argue that as a matter of law no malpractice can be found, because the alleged malpractice is failure to bring a motion for summary judgment on disputed issues of fact and law.   Even if malpractice could reasonably be argued in a case like this one, the alleged “negligence” involves the exercise of the attorney's judgment in counseling the client on the appropriateness of bringing a motion for summary judgment.   The context is a specialized area of the law—California's statutory contractor license laws and application of the “substantial compliance” doctrine to Business and Professions Code section 7031.

In such cases, expert testimony is required in order for a plaintiff to establish a prima facie case.   As was noted in Wright v. Williams, supra, 47 Cal.App.3d 802, 810–811, 121 Cal.Rptr. 194, in a malpractice action against a lawyer specializing in maritime law:  “In some circumstances, the failure of attorney performance may be so clear that a trier of fact may find professional negligence unaided by the testimony of experts.   Where, however, the malpractice action is brought against an attorney holding himself out as a legal specialist and the claim against him is related to his expertise as such, then only a person knowledgeable in the specialty can define the applicable duty of care and opine whether it was met.” ⁸  (Fn. omitted.)

The Wertheimers' deliberate failure to produce their expert witness at the judicial arbitration is enough evidence to justify sanctions for their refusal to  engage in the legislatively-mandated and judicially-approved arbitration process in good faith as required by both statute and case law.   The sanctions of $2,500 in favor of Acret under the circumstances following the jury trial is warranted, and we discern no abuse of discretion by the imposition of such sanctions.

 Pertaining to Wertheimers' contention that both the “subjective” and “objective” standards must both be extant as a condition precedent to awarding sanctions under section 128.5, we find that section 128.5 is clear on its face.   Proof sufficient to satisfy either standard will support an award for sanctions under section 128.5.⁹  This interpretation is buttressed by the fact that the statute uses the word “or” and not the word “and” when discussing the two standards.   Under a plain meaning approach to statutory interpretation and being reluctant to engage in a strained construction of the statute, we hold that the use of the “disjunctive” as opposed to the “conjunctive” leads to an interpretation of the statute which permits the imposition of sanctions under either standard independent of the other, when supported by sufficient proof.   We conclude that the Wertheimers' contention to the contrary to be without merit.

DISPOSITION

The judgment is affirmed.   Since Acret has not appeared on this appeal, a permissible inference is that he has incurred no costs on appeal.   We therefore award no costs.   Each side will bear their own costs on this appeal.

I concur in the judgment but write separately to register my disagreement with the views of the majority as to Division Four's opinion in Javor v. Dellinger (1992) 2 Cal.App.4th 1258, 3 Cal.Rptr.2d 662 (see majority opn. p. 428, fn. 9).   Unlike my colleagues, I agree with the holding of the Javor decision that a 128.5 sanction cannot be imposed unless the trial court finds the offending action or tactic was both (1) undertaken in bad faith and (2) either (a) frivolous or (b) solely intended to cause unnecessary delay.   This seems the most logical  reading of the plain language of the statute.   In the instant case, however, I am convinced there was evidence appellants both acted in bad faith and that their action was frivolous.   Accordingly, I have no problem agreeing with the affirmance of the trial court's judgment.

FOOTNOTES

FN1. Unless otherwise noted, all statutory references are to the Code of Civil Procedure..  FN1. Unless otherwise noted, all statutory references are to the Code of Civil Procedure.

2.   Section 128.5 provides in relevant part:  “(a) Every trial court may order a party, the party's attorney, or both to pay any reasonable expenses, including attorney's fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.”

3.   Business and Professions Code section 7031 et seq. pertains to the general requirements for a valid license before a contractor can sue to recover compensation for labor and materials.

4.   Business and Professions Code section 7031 provides that a contractor may not sue to recover compensation for labor and materials unless the contractor can prove that he was duly licensed as a contractor by the Contractor's State License Board.

FN5. Under the “substantial compliance” doctrine, a contractor may often sue for compensation notwithstanding the fact that he has not strictly complied with the requirement of Business and Professions Code section 7031.  (See, e.g., Latipac, Inc. v. Superior Court (1966) 64 Cal.2d 278, 281, 49 Cal.Rptr. 676, 411 P.2d 564.).  FN5. Under the “substantial compliance” doctrine, a contractor may often sue for compensation notwithstanding the fact that he has not strictly complied with the requirement of Business and Professions Code section 7031.  (See, e.g., Latipac, Inc. v. Superior Court (1966) 64 Cal.2d 278, 281, 49 Cal.Rptr. 676, 411 P.2d 564.)

6.   The court's ruling was based on Grant v. Weatherholt (1954) 123 Cal.App.2d 34, 266 P.2d 185 and Pickens v. American Mortgage Exchange (1969) 269 Cal.App.2d 299, 74 Cal.Rptr. 788, both of which permitted unlicensed contractors to recover compensation for labor and materials on the basis of fraud.

7.   Section 1141.21, subdivision (a) provides:“If the judgment upon the trial de novo is not more favorable in either the amount of damages awarded or the type of relief granted for the party electing the trial de novo than the arbitration award, the court shall order that party to pay the following nonrefundable costs and fees, ․”

8.   James Acret, a defendant in this action, is a nationally-recognized expert in the field of construction law and the author of five books on the subject, including Attorney's Guide to California Construction Contracts and Disputes (Cont.Ed.Bar 1990).

9.   We are aware of the recent decision of Division Four of the Second Appellate District entitled Javor v. Dellinger (1992) 2 Cal.App.4th 1258, 3 Cal.Rptr.2d 662, in which both the subjective and objective standards were required to be satisfied before an award of sanctions under section 128.5 could be imposed.   The court in Javor expressed disagreement with a contrary holding in On v. Cow Hollow Properties (1990) 222 Cal.App.3d 1568, 272 Cal.Rptr. 535.   We agree with the holding in On and disagree with the holding in Javor to the extent that it requires the objective and subjective standards of section 128.5 to be met before an award of sanctions is permissible.

 FRED WOODS, Associate Justice.

LILLIE, P.J., concurs.