CHANG v. LEDERMAN









Filed 3/16/09






CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

MYUNG CHANG, Plaintiff and Appellant, v. GREGORY LEDERMAN, Defendant and Respondent.

B199813 (Los Angeles County Super. Ct. No. BC349105)

APPEAL from a judgment of the Superior Court of Los Angeles County, Mary Ann Murphy, Judge. Affirmed.
Law Offices of Dana Moon, Dana M. Dorsett and John Y. Kim for Plaintiff and Appellant.
Nemecek & Cole, Jonathan B. Cole, Michael W. Feenberg and Susan S. Baker for Defendant and Respondent.
__________________________

More than a half century ago, in Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja), the Supreme Court held, notwithstanding the absence of privity, a notary public, engaging in the unauthorized practice of law, who drafted and supervised the execution of a will, owed a duty of care to the beneficiary who lost her inheritance due to his negligence. Three years later, in Lucas v. Hamm (1961) 56 Cal.2d 583 (Lucas), the Court held beneficiaries whose bequests arguably failed because the testator’s lawyer did not adequately safeguard the will from challenge under the rule against perpetuities could assert a claim for professional negligence against the lawyer. Under Biakanja and Lucas and the appellate cases that explain and apply them, does a testator’s lawyer owe a duty of care to a nonclient who alleges she was a potential beneficiary of the testator’s estate in the absence of an executed will or trust instrument expressly reflecting the testator’s intent‌ Does the answer to the question change if the nonclient was previously named in a will or trust instrument executed by the testator and the allegation is the testator intended to revise his or her estate plan to increase the gift to the beneficiary‌ Because recognizing an expanded duty of care in either situation would place an intolerable burden on the legal profession, we conclude the answer to both questions must be no. Accordingly, we affirm the trial court’s order of dismissal and the judgment entered after it sustained without leave to amend Gregory Lederman’s demurrer to Myung Chang’s second amended complaint for legal malpractice, breach of fiduciary duty and intentional infliction of emotion distress.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Raphael Schumert 2004 Revocable Trust, the First Amendment to the Trust and Raphael Schumert’s Death
Raphael Schumert, a physician, and Chang, a registered nurse, met while working at a hospital in 1994.[1] They lived together for several years before marrying on August 27, 2004.
In early 2004, approximately six months before his marriage to Chang, but while living with her, Schumert, who had been diagnosed with terminal cancer, retained Lederman, a probate attorney and estate planner, to prepare a revocable trust. The Raphael Schumert 2004 Revocable Trust, executed on March 2, 2004, provided for two specific distributions upon Schumert’s death: $30,000, as well as the furniture and television sets located at Schumert’s principal place of residence in Sherman Oaks, to Chang; and $10,000 to Wenna Tancio. The residue of the trust estate (identified in an attachment to the trust instrument) was left to Schumert’s only child, Roy Schumert, in trust.[2] Schumert identified himself as his trust’s initial trustee; his former wife and Roy Schumert’s mother, Etti Hadar, was named as first successor trustee. The trust also provided that, following Schumert’s death, the Sherman Oaks residence was to be sold by his successor trustee or leased to a third party for a fair market rent. The trust specified “Chang must vacate [the Sherman Oaks residence] within thirty (30) days of my death.”
On April 15, 2004 Schumert executed a first amendment to the Raphael Schumert 2004 Revocable Trust, also prepared by Lederman. The amendment reduced the sum to be distributed to Chang from $30,000 to $15,000, eliminated entirely the distribution to Tancio and recited, “In all other respects, the trust remains unchanged.”
During the same period, in late March 2004, Schumert executed a will to dispose of his assets in Israel. A second will was subsequently executed by Schumert in Israel, following his marriage to Chang, which apparently did not provide for Chang in any way and did not expressly revoke the Raphael Schumert 2004 Revocable Trust, as amended.
According to Chang’s pleading, on or about February 1, 2005, five to six months following their marriage, Schumert, who was now seriously ill, instructed Lederman to revise his trust to leave the entire trust estate to Chang (with the understanding Chang would give Roy Schumert the sum of $250,000 when he turned 25). Lederman refused and told Schumert, if he modified the trust, Schumert would be sued by Hadar. Lederman also advised Schumert he should have a psychiatric evaluation before making any changes to his estate plan. Schumert died on March 17, 2005 without making any further amendments to the trust.
2. The Probate Proceedings
After Schumert’s death, Hadar, as trustee of the Raphael Schumert 2004 Revocable Trust, retained Lederman to represent her in the administration of the trust. In that capacity on April 1, 2005 Lederman wrote Chang and requested she vacate the Sherman Oaks residence by April 17, 2005 as provided in the trust (30 days after Schumert’s death on March 17, 2005).
On April 12, 2005 Hadar initiated formal probate proceedings. For her part, Chang filed an action in probate court seeking to revoke the trust and awarding her a one-half interest in the estate under the “omitted spouse” doctrine. The probate court ruled the will executed by Schumert in Israel following the marriage precluded application of that doctrine and also found the Raphael Schumert 2004 Revocable Trust was valid and had not been revoked or invalidated by the subsequent will. In addition, the court ruled Chang’s action violated the no-contest provision in the trust, which revoked the $15,000 bequest to Chang in the trust.
3. Chang’s Complaint for Breach of Fiduciary Duty, Professional Negligence and Intentional Infliction of Emotional Distress
On March 16, 2006 Chang filed this lawsuit against Lederman, asserting causes of action for breach of fiduciary duty, breach of ethical duties of attorney, professional negligence and intentional infliction of emotional distress. The gravamen of Chang’s lawsuit, as she describes it, is that Lederman, in his capacity as Schumert’s probate attorney, breached his legal duty of care owed to Chang, in her capacity as an intended third-party beneficiary of her husband’s will and trust, by refusing and failing to revise the trust and will to comply with Schumert’s expressly communicated intent to bequeath to her his entire estate located in the United States (valued, according to Chang, at more than $600,000). The complaint also alleged Lederman’s subsequent representation of Hadar, as successor trustee of the trust, whose interests were adverse to Chang’s, was a breach of Lederman’s ethical duties to Chang. Finally, the complaint alleged Lederman’s demand that Chang move out of the Sherman Oaks residence shortly after the death of her husband “was extreme, outrageous and humiliating.”
The trial court sustained Lederman’s demurrer to the complaint on August 8, 2006, concluding Chang had failed to adequately allege she was the intended beneficiary of Schumert’s testamentary documents or otherwise allege facts establishing that Lederman owed her a duty of care. The court also found she had failed to allege the necessary elements for intentional infliction of emotional distress. Chang was granted leave to amend.
The first amended complaint, filed on August 28, 2006, eliminated the claim for breach of ethical duties of attorney and modified other language in the pleading. Chang now expressly alleged she was an intended beneficiary of the trust and Lederman was retained by Schumert for the purpose of benefiting beneficiaries, including Chang, of the trust. Chang also alleged, as part of her claim for intentional infliction of emotional distress, that Lederman knew the probate homestead provision would protect her from having to move from the Sherman Oaks residence shortly after her husband’s death,[3] but nonetheless failed to advise of her of that provision and insisted she leave the residence.
On November 30, 2006 the court sustained Lederman’s demurrer to the first amended complaint with leave to amend. The court again ruled Chang had failed to allege facts that would establish she was an intended beneficiary of the trust (other than for the $15,000 gift) or would create a duty of care to her. As to the claim for intentional infliction of emotional distress, the court found Lederman’s letter demanding Chang leave the Sherman Oaks residence, sent pursuant to the express provision of the trust and on behalf of the trust’s successor trustee, was absolutely privileged under Civil Code section 47, subdivision (b).
The second amended complaint was filed on January 3, 2007. Lederman’s demurrer was sustained without leave to amend on March 13, 2007. Once again the court ruled the operative facts alleged by Chang did not give rise to a duty owed by Lederman, the testator’s lawyer, to Chang, a potential beneficiary with respect to the alleged plan to revise the trust documents to increase the gift to her. The absence of duty defeated the claims for both legal malpractice and breach of fiduciary obligation. As to the cause of action for intentional infliction of emotional distress, which was largely unchanged from the first amended complaint, the court found Chang had failed to plead facts establishing extreme and outrageous conduct by Lederman with the intention of causing severe emotional distress. The court ordered the action dismissed; and a judgment was entered, including an award of costs, on April 3, 2007.
DISCUSSION
1. Standard of Review
On appeal from an order dismissing an action after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) We give the complaint a reasonable interpretation, “treat[ing] the demurrer as admitting all material facts properly pleaded,” but do not “assume the truth of contentions, deductions or conclusions of law.” (Aubry, at p. 967; accord, Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) We liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116, 1120.)
2. The Law Regarding Liability for Negligence in Estate Planning to Intended or Potential Beneficiaries
To state a cause of action for legal malpractice, a plaintiff must plead “(1) the duty of the attorney to use such skill, prudence, and diligence as members of his or her profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the breach and the resulting injury; and (4) actual loss or damage resulting from the attorney’s negligence.” (Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.) “‘“A key element of any action for professional malpractice is the establishment of a duty by the professional to the claimant. Absent duty there can be no breach and no negligence.”’” (Moore v. Anderson Zeigler Disharoon Gallagher & Gray (2003) 109 Cal.App.4th 1287, 1294 (Moore).) Whether a lawyer sued for professional negligence owed a duty of care to the plaintiff “is a question of law and depends on a judicial weighing of the policy considerations for and against the imposition of liability under the circumstances.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 342; see Osornio v. Weingarten (2004) 124 Cal.App.4th 304, 319 (Osornio) [“the existence of the attorney’s duty of care owing to the plaintiff is generally a question of law that may be addressed by demurrer”].)
a. The traditional rule of privity and the Supreme Court’s decisions in Biakanja, Lucas and Heyer v. Flaig
The traditional rule in California, as in other jurisdictions, was an attorney could be held liable only to his or her client with respect to actions based on professional negligence. (See, e.g., Buckley v. Gray (1895) 110 Cal. 339, 342-343 [lack of privity of contract precludes a lawyer’s liability to an intended beneficiary for negligence in drafting a will and directing its execution].) “[I]t was reasoned that there could be no recovery for mere negligence where there was no privity by contract or otherwise between the defendant and the person injured.” (Lucas, supra, 56 Cal.2d at p. 588; see generally Goodman v. Kennedy, supra, 18 Cal.3d at pp. 342-344.)
The strict privity test for professional liability was rejected in Biakanja, supra, 49 Cal.2d 647, in which the Supreme Court considered the liability of a notary public who had negligently allowed the will of the plaintiff’s brother, which left the entire estate to the plaintiff, to be improperly attested. As a result, the plaintiff received only his one-eighth intestate succession share of the estate. The Court held the notary public owed a duty of reasonable care to the plaintiff and that duty had been breached. (Id. at p. 650.) In reaching its conclusion the Court was careful not to declare an unlimited scope of liability in favor of any person who might have been injured from the negligent performance of the defendant’s contract with another party. “The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” (Ibid.)
In Lucas, supra, 56 Cal.2d 583, the Supreme Court applied the Biakanja factors to determine whether an attorney may be liable to the intended beneficiaries of a deceased testator for losses resulting from negligence in drafting a will. (Id. at p. 588 [“same general principle [articulated in Biakanja] must be applied in determining whether a beneficiary is entitled to bring an action for negligence in the drafting of a will when the instrument is drafted by an attorney rather than by a person not authorized to practice law”].) The residuary trust in the will prepared by the defendant contained language that arguably violated the rule against perpetuities and statutory restrictions relating to restraints on alienation. As a result, after the testator died, the plaintiffs entered into a settlement with certain of the testator’s relatives under which they received a share of the estate significantly less than they would have received pursuant to testamentary instruments property drafted in accordance with the directions of the testator. (Id. at pp. 586-587.)
Because the defendant in Lucas was an attorney, however, in addition to the Biakanja factors the Court held it was necessary to consider “whether the recognition of liability to beneficiaries of wills negligently drawn by attorneys would impose an undue burden on the profession.” (Lucas, supra, 56 Cal.2d at p. 589.) The Court concluded the extension of a drafting attorney’s liability to “beneficiaries injured by a negligently drawn will” did not threaten an undue burden on the legal profession[4] and held the other factors identified in Biakanja supported recognition of a cause of action for professional negligence in these circumstances. “As in Biakanja, one of the main purposes which the transaction between defendant and the testator intended to accomplish was to provide for the transfer of property to plaintiffs; the damage to plaintiffs in the event of invalidity of the bequest was clearly foreseeable; it became certain, upon the death of the testator without change of the will, that plaintiffs would have received the intended benefits but for the asserted negligence of defendant; and if persons such as plaintiffs are not permitted to recover for the loss resulting from negligence of the draftsman, no one would be able to do so and the policy of preventing future harm would be impaired.” (Ibid.)[5]
In Heyer v. Flaig (1969) 70 Cal.2d 223, disapproved on other grounds in Laird v Blacker (1992) 2 Cal.4th 606, 617, a case that primarily involved the statute of limitations in legal malpractice actions, the Supreme Court reaffirmed the basic principles of Biakanja and Lucas, explaining that the basis for tort liability to an intended beneficiary in the absence of privity with the defendant was a breach of duty owed directly to the beneficiary. “When an attorney undertakes to fulfill the testamentary instructions of his client, he realistically and in fact assumes a relationship not only with the client but also with the client’s intended beneficiaries. The attorney’s actions and omissions will affect the success of the client’s testamentary scheme; and thus the possibility of thwarting the testator’s wishes immediately becomes foreseeable. Equally foreseeable is the possibility of injury to an intended beneficiary. In some ways, the beneficiary’s interests loom greater than those of the client. After the latter’s death, a failure in his testamentary scheme works no practical effect except to deprive his intended beneficiaries of the intended bequests . . . only the beneficiaries suffer the real loss.” (Heyer, at p. 228.)
The plaintiffs in Heyer, the two daughters of the testator and her sole beneficiaries, alleged the defendant attorney had failed to advise their mother that omitting a provision in her will concerning her intended marriage could result in her new husband’s assertion of a claim to a portion of her estate if she predeceased him (under a now repealed provision of the Probate Code). Applying Lucas the Supreme Court concluded, “A reasonably prudent attorney should appreciate the consequences of a post-testamentary marriage, advise the testator of such consequences, and use good judgment to avoid them if the testator so desires.” (Heyer v. Flaig, supra, 70 Cal.2d at p. 229.)


TO BE CONTINUED AS PART II….

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