The Second District holds that the case-with-a-case proof of causation generally applicable to malpractice and breach of fiduciary duties claims is irrelevant to claims that an attorney misappropriated settlement funds.
Luis Gutierrez was represented in a class action against his employer Lockheed Corporation by Thomas Girardi and his law firm. Over a ten year period Girardi negotiated settlements with most of the Lockheed defendants, and Gutierrez received a series of payments as his share. Three of the non-settling defendants prevailed on a motion for summary judgment based on the statute of limitations.
Gutierrez sued Girardi alleging causes of action for breach of fiduciary duty and money had and received asserting Girardi misappropriated part of the settlement proceeds. Girardi prevailed on summary judgment arguing Gutierrez could not prove causation or damages because his claims against the settling defendants in the Lockheed Action would have been barred by the statute of limitations. The Court of Appeal reversed the trial court decision
The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach. As his attorney, Girardi owed Gutierrez fiduciary duties, which included a duty of loyalty.
The Court of Appeal soundly rejected Girardi’s argument that Gutierrez could not prove breach because there was no written fee contract between the parties and therefore no basis for allocating between fees, costs, and recovery to the plaintiffs. If there was no written contract, Gutierrez was entitled to void the agreement and Girardi was only entitled to collect a reasonable fee. As a fiduciary, Girardi could not deduct unwarranted costs from the settlement proceeds and was required to comply with ethical obligations regarding client trust accounts.
Accepting the factual allegations of the operative pleading as true, Gutierrez properly framed the issue of breach of fiduciary duty by alleging misappropriation. In the summary judgment motion, Girardi failed to meet his burden of production to show he did not misappropriate funds by showing the terms of the agreement or an accounting of costs and fees.
In a typical case involving attorney litigation error, the client must prove the merits of the underlying case to establish the element of causation. The client must show that but for the attorney’s error, he or she would have obtained a better result in the underlying case. This requires a “trial within a trial” of the underlying case where the trier of fact determines what the result should have been in a properly handled case.
Gutierrez’s claims, by contrast, did not involve the merits of the Lockheed Action. Since the underlying case settled, the settling defendants could no longer raise any defenses, including their statute of limitations defense. Thus, Girardi’s alleged misappropriation caused Gutierrez to incur damages despite the merits of the underlying case.
The trial-within-a-trial method applies to breach of fiduciary duty cases where the breach of fiduciary duty is in connection with the outcome of a lawsuit against third parties. A plaintiff must demonstrate but for the attorneys’ malpractice and breach of fiduciary duty they objectively would have obtained a better result in the underlying lawsuit.
Gutierrez’s claims were distinguishable because he was not alleging that but for the breach of fiduciary duty he objectively would have obtained a better litigation result. The breach of fiduciary duty occurred after the resolution of the lawsuit, when Gutierrez was already entitled to a share of settlement proceeds regardless of whether the underlying defendants had a valid statute of limitations defense. This rendered the trial within a trial unnecessary and the merits of the underlying claim were irrelevant.
Gutierrez was also entitled to pursue his claim for money “had and received.” This common count is available in a great variety of situations when one person receives money which belongs to another, and which in equity and good conscience should be paid over to the latter. It is appropriate where an attorney allegedly misappropriates money belonging to a client.
Comment: This case does not relax the trial-within-a-trial requirement generally applicable to establish causation in claims against attorneys. Rather, it highlights that in cases of misappropriation of client funds a different analysis applies as the merits of the underlying case are no longer at issue.