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March 11, 2010

Freedman v. Brutzkus (2010) 182 Cal.App.4th 1065

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The Second District holds that as between counsel, an approval on a contract as to form and content is not an actionable misrepresentation. 

Gary Freedman served as outside counsel for an apparel manufacturer Teddi of California, Inc.(Teddi).  Several years prior he had also provided legal services to Carol Anderson, Inc.  (CAI) and its owners.  Freedman contacted CAI on behalf of Teddi in connection with a trademark license agreement.  Both parties declined his offer to withdraw from representation if they were uncomfortable.  Mark Brutzkus represented CAI.  The final agreement recited that Freedman represented only the interests of Teddi and that CAI waived all conflicts of interest.  It had an integration clause stating that no other agreements or representations had been made.  The agreement also included a signature block signed by Freedman and Brutzkus for approval as to form and content.

CAI sued Teddi when a dispute arose.  Subsequently Teddi was forced into bankruptcy by creditors.  CAI then sued Freedman, claiming he had represented CAI and told its representatives that Teddi would pay the amount due under the agreement.  During the course of the lawsuit, Brutzkus testified CAI’s owner had told him that CAI was relying on Freedman on the basis of their long standing professional relationship.  Brutzkus did not tell Freedman or anyone else about CAI’s reliance on Freedman, or that the conflict waiver provisions in the agreement were inaccurate.  Brutzkus read and understood the agreement before approving it as to form and content.

Freeman sued Brutzkus alleging that his signature as to form and content was an actionable misrepresentation.  The Court of Appeal affirmed the trial court’s dismissal.

A lawyer communicating on behalf of a client with a non-client may not knowingly make a false statement of material fact.  A misrepresentation can occur through direct statement or through affirmation of a misrepresentation of another, as when a lawyer knowingly affirms a client’s false or misleading statement.  A lawyer who makes a fraudulent misrepresentation is subject to liability when the other elements of the tort are established.  This rule applies equally to statements made to a sophisticated person, such as a lawyer representing another client, as well as to an unsophisticated person.

 

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