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October 8, 2013

Wise v. DLA Piper LLP (US) (2013) 220 Cal.App.4th 1180

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The Fourth District holds a legal malpractice plaintiff must prove an underlying judgment is collectible to establish a cause of action.  Further, the evidence to establish this must not be speculative.

DLA Piper obtained a judgment for its clients Dennis Wise and Joan Macfarlane (“Wise”) against William Cheng.  Wise was advised the judgment was good “forever,” but was not told about the need to renew the judgment every ten years.  Wise sued DLA Piper when the judgment expired without renewal.  DLA Piper stipulated its conduct was below the standard of care, and argued only that the judgment against Cheng was never collectible, an element of Wise’s legal malpractice cause of action.

At trial Cheng testified to a dismal financial condition – he had no bank accounts, real estate, or other assets and had not filed a personal income tax return in 17 years.  He had convinced some investors to invest in a corporate entity he formed, but the corporation had minimal assets at the time of trial and the principle investor had written off the asset. 

The Wises’ expert Joel Selik testified the judgment could have been collected in the past, and might be collectible in the future.  He based his opinion on Cheng’s large donation to his alma mater; Cheng’s ability to attract investment dollars to corporations who, through “reverse piercing” could be responsible for Cheng’s debts; the probability that Cheng had an ownership interest in his rental home; Cheng’s multiple trips to China; the possibility Cheng had money hidden in foreign bank accounts; and the idea that examinations of third party investors would have put pressure on them to pay Cheng’s debt. 

DLA Piper presented testimony of a collection attorney, Miles Grant, who conducted an extensive asset investigation and learned Cheng had not owned any assets for over twenty years.  Grant refuted the argument that Wise could reach corporate assets funded by third parties to satisfy Cheng’s debt, that third party investors would have been forced to testify, or that investors would have succumbed to pressure to pay Cheng’s debts. 

The jury rendered a verdict in favor of Wise. 

The Court of Appeal reiterated collectability is a component of causation and damages, and thus a plaintiff’s burden in a legal malpractice action.  Although absolute certainty is not required, there must be a reasonable basis to conclude it is more likely than not the conduct of the attorney was a cause in fact of the result.  A plaintiff cannot rely on speculation or assumptions about an underlying defendant’s ability to respond in damages. 

Wise’s only collectability proof was the testimony of Selik.  The Court of Appeal observed Selik’s opinion was based on a single overarching theme: because Cheng had been able to convince some “very important men” to invest in his business proposals in the past, Cheng would likely be able to obtain investors in his new business schemes in the future.  However Selik’s opinion that the Wises could have reached the assets of a corporation funded by third party investors was incorrect as a matter of law, and could not carry any weight. 

Selik’s other bases were wholly speculative.  There is no right to levy on a debtor’s rental property; Selik conceded he had no evidence of foreign bank accounts; the donation to Cheng’s alma mater was remote in time to the relevant period; and there was no evidence Cheng used personal funds, as opposed to corporate funds, to pay for his trips to China.  The Court agreed with Grant third party investors would not have been compelled to testify, and it is wholly speculative to conclude investors would have felt compelled to satisfy Cheng’s debt. 

Selik’s opinion on future collectability similarly was premised on assumptions that were incorrect as a matter of law, or were speculative.  Selik’s testimony could not rise to the dignity of substantial evidence to establish it was more likely than not the judgment was collectible in the past or in the future. 

The Court noted the Supreme Court has recently cautioned trial courts about allowing speculative expert testimony, and to exercise their gatekeeping function to preclude such evidence.  Because Selik’s opinion was based on speculation and conjecture, as well as legal theories that were incorrect as a matter of law, it was not substantial evidence of collectability. 

Comment:  This case reaffirms the plaintiff’s burden of proof to establish collectability, and is additional authority that courts may preclude expert testimony based on speculation and conjecture.

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