Gatto v. Panitz

Filed 1/28/09 Gatto v. Panitz CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Leon S. Kaplan, Judge. Affirmed.

Law Offices of Gregory B. Byberg, and Gregory B. Byberg, and Law Office of Michael S. Braun for Plaintiff and Appellant.

Berman, Berman, Berman, James W. McCord, and Jennifer C. Famulare for Defendants and Respondents.

introduction

Plaintiff Thomas D. Gatto, the former client of defendant attorneys Philip G. Panitz and Ryan D. Schaap, and the law firm of Panitz Schaap,[1]brought this action for legal malpractice, alleging that they gave him negligent advice with regard to the appropriate time to file a Chapter 7 bankruptcy petition in order to have Gattos tax debts discharged in bankruptcy. Panitz Schaap successfully moved for summary judgment on the basis that the scope of their representation was explicitly limited to negotiating an offer in compromise of the tax debts with the taxing agencies, and did not include filing the bankruptcy petition.[2] We conclude that Gatto failed to demonstrate that Panitz Schaap owed him a duty with regard to the filing of the bankruptcy petition, and also cannot demonstrate that any conduct by Panitz Schaap was the legal cause of his alleged injury. We therefore affirm the trial courts grant of summary judgment in favor of Panitz Schaap.

factual and procedural background

Gatto filed a complaint against Panitz Schaap on October 10, 2006, alleging causes of action for breach of contract and professional negligence, arising out of a contract for legal services. Gatto alleged he was damaged when tax debts owed by him that were to be discharged through bankruptcy were not discharged, resulting in damage in excess of $100,000.

The Retainer Agreement

The contract between Gatto and Panitz Schaap provided that Gatto hired Panitz Schaap in an Internal Revenue Service Collection Matter. Attorney will provide those legal services reasonably required to represent Client. For the retainer amount [agreed upon], Attorney agrees to negotiate and conclude either an installment agreement, lump sum offer in compromise or a deferred offer in compromise with the [IRS]. This includes preparation of financial information, completion of the designated forms, submission to the agency, meetings with government representatives either in person or on the telephone as necessary, follow-up correspondence, preparation of substantiation notebooks to support positions [sic] taken, follow-up with Client to report progress and results. The contract further stated under the heading What this Agreement does not include, the following: After obtaining either a deferred offer in compromise or lump sum offer in compromise, should Client breach the offer in compromise requiring renegotiation with the government agency, this renegotiation is not included in the retainer amount. . . . Likewise, should the Client at a later date determine that a downward modification of the deferred offer in compromise (if applicable) is necessary due to a change in financial condition of the Client, such renegotiation is not covered by the retainer amount . . . . Nor is the filing of a Chapter 7 bankruptcy included in the retainer amount. . . . This agreement does not include any other negotiations with any other taxing agency, such as the Employment Development Department, Franchise Tax Board or the State Board of Equalization.

The Operative Complaint

The operative second amended complaint alleged the following facts: Gatto received a notice from the IRS in 2001 informing him that he owed about $80,000 in back taxes for the tax years 1999 and 2000. He retained Panitz Schaap to assist him in negotiating an offer in compromise with the IRS; however, neither the IRS or the Franchise Tax Board were willing to compromise. Around April 2005, Gatto was told by Schaap and Panitz that they would be unable to compromise Gattos tax debts. Schaap told Gatto he had two options: refile the necessary tax forms, or file a Chapter 7 bankruptcy before the bankruptcy laws changed. Gatto alleged he was told by Panitz Schaap that enough time had passed after his last assessment so as to allow his debts to be discharged in bankruptcy.

In April 2005, Gatto retained Kenneth Rodman, who told Gatto he could discharge the tax debts through bankruptcy. Rodman prepared and filed the bankruptcy petition on behalf of Gatto. In March 2006, Gatto received a letter from the IRS stating he still owed the tax debts. The IRS stated that Gatto did not meet the requirement of the 240 day rule which requires that if Gatto filed his bankruptcy within 240 days from his last assessment, he could not discharge the debt. Gatto also alleges the IRS told him in March 2006 that he needed to have waited more than 240 days from the date the IRS rejected the offer to compromise, in order to have his debts discharged through bankruptcy. None of the defendants had informed Gatto of the 240 day rule.

The Motion for Summary Judgment

Panitz Schaap filed an answer to the second amended complaint. Thereafter, Panitz Schaap filed a motion for summary judgment or, in the alternative, for summary adjudication of issues. In their separate statement of undisputed material facts, Panitz Schaap asserted that Gatto retained them specifically to negotiate an offer in compromise with the IRS and the Franchise Tax Board (FTB). The attorney-client fee agreement stated that the services to be provided did not include the filing of a Chapter 7 bankruptcy. The specialty practiced by Panitz Schaap is federal tax litigation; they do not and have never practiced bankruptcy law.

Panitz Schaap submitted an offer in compromise to the IRS on Gattos behalf in January 2002. The IRS requested additional information, and an amended offer in compromise was submitted in June 2004. In March 2005, the IRS returned the amended offer in compromise because Gatto had failed to make estimated tax payments. Panitz Schaap also submitted an offer in compromise to the FTB in June 2002; it was rejected in June 2004.

On May 6, 2005, Gatto met with Panitz Schaap to discuss his options regarding his tax liabilities. They told him that filing a new offer in compromise might be successful due to changes in his financial situation. They also told him that under certain circumstances tax liabilities could be discharged in bankruptcy. They suggested he consult with a bankruptcy attorney if he wished to pursue this option, noting that there were impending changes in the bankruptcy laws. Panitz Schaap did not advise Gatto as to when he could or should file a Chapter 7 bankruptcy petition. Panitz Schaap did not represent to Gatto that his tax liabilities were dischargeable in bankruptcy, and did not agree to represent him in filing for bankruptcy. Panitz Schaap offered to refer Gatto to a competent bankruptcy attorney, but he declined because he had previously consulted with a bankruptcy attorney.

Gatto then retained Rodman to represent him in filing for Chapter 7 bankruptcy. Rodman filed a Chapter 7 bankruptcy petition on behalf of Gatto on June 2, 2005. Rodman never contacted Panitz Schaap regarding Gattos tax liabilities.

Panitz Schaap had no further communications with Gatto until March 2006, when Gatto told Panitz Schaap that his tax liabilities had not been discharged in bankruptcy. Panitz Schaap told Gatto that they could not advise him as to why his tax liabilities had not been discharged, as they were not his bankruptcy attorneys. Panitz Schaap considered that their provision of legal services to Gatto ceased on May 6, 2005.

On the basis of these allegedly undisputed facts, Panitz Schaap argued that they could not be held liable for damages arising out of Gattos inability to have his tax liabilities discharged in bankruptcy, because they represented him for the limited purpose of negotiating offers in compromise, and they had no obligation to advise him with respect to filing for bankruptcy, and did not do so. Panitz Schaap also contended that Gattos claims are barred by the statute of limitations.

The Opposition to the Motion for Summary Judgment

Gatto opposed the motion for summary judgment by asserting that Panitz Schaap did in fact advise him that his tax liabilities could be discharged, and that enough time had passed to permit him to do so. They advised him that filing before November 2005 could be advantageous due to upcoming changes in the bankruptcy laws. He contended that it constituted a breach of the standard of care for Panitz Schaap to tell him that his tax obligations were dischargeable without undertaking a thorough analysis.

In support of his opposition to the motion for summary judgment, Gatto submitted an expert declaration prepared by David M. Reeder, a bankruptcy lawyer. Therein, Reeder explained that dischargeability in bankruptcy of tax liability depends on the time period between three (unspecified) key events and the filing of the bankruptcy case. Reeder refers to the three time periods as the 3-year rule, the 2-year rule, and the 240-day rule. Reeder opined that it constituted a breach of the standard of care for an attorney to state to a client that his tax obligations were dischargeable in bankruptcy without first undertaking a thorough analysis of the three critical time periods, based upon examination of the taxpayers transcript.

Gatto acknowledged that the scope of the retainer agreement was limited to Panitz Schaap filing an offer in compromise. However, he argued that because Panitz Schaap nonetheless gave him erroneous bankruptcy advice, the scope of the representation did in fact extend to advice on filing for bankruptcy; their duty to Gatto extended to all actions reasonably related to their representation of him. Gatto relied upon their advice to his detriment.

The Reply to the Opposition

In their reply, Panitz Schaap pointed out that, regardless of what advice they gave to Gatto, he subsequently retained Rodman to file a bankruptcy petition on his behalf. It was Rodmans duty to advise Gatto with respect to whether his tax debts were dischargeable, not the duty of Panitz Schaap.

The Ruling

After the matter was heard, the trial court granted summary judgment in favor of Panitz Schaap, finding that Panitz Schaap had no contractual obligation to advise Gatto with respect to filing a Chapter 7 bankruptcy petition, as the parties retainer agreement extended only to advice regarding taxation matters, and specifically excluded bankruptcy matters. The court found there was no implied modification of the agreement. The court further concluded that there was no triable issue of material fact as to whether Panitz Schaap owed Gatto a legal duty with respect to filing a bankruptcy petition. Gatto was advised by Panitz Schaap to seek independent bankruptcy counsel, and thereafter he admittedly retained bankruptcy counsel of his own choosing.

This timely appeal followed.

discussion

Generally, [a] defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiffs asserted causes of action can prevail. [Citation.] (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.) The defendant may carry this burden by showing that the plaintiff cannot establish at least one element of the cause of action--for example, that the plaintiff cannot prove element X. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853 (Aguilar ).) The defendant need not conclusively negate the element; all that is required is a showing that the plaintiff does not possess, and cannot reasonably obtain, needed evidence. (Id. at pp. 853-854.) (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1176.) The elements of a legal malpractice cause of action are (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 attorneys negligence. [Citations.] (Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.) (Ambriz v. Kelegian (2007) 146 Cal.App.4th 1519, 1531.)

Following a grant of summary judgment, we review the record de novo for the existence of triable issues, and consider the evidence submitted in connection with the motion, with the exception of evidence to which objections were made and sustained. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) (Wall Street Network, Ltd. v. New York Times Co., supra, 164 Cal.App.4th at p. 1176, fn. omitted.)

The Scope of the Duty Owed by Panitz Schaap to Gatto

The retainer agreement between the parties here specified that the filing of a Chapter 7 bankruptcy was not included in the retainer, and on that basis, the trial court concluded that Panitz Schaap did not owe a duty to Gatto with regard to his bankruptcy matter. We agree, although that conclusion is not dispositive of the entire matter.

[T]he extent of an attorneys duty to act necessarily depends on the scope of the attorney-client relationship (1 Mallen & Smith, Legal Malpractice (5th ed. 2000)  8.2, p. 774), and the scope of this relationship may be limited by the agreement between the attorney and the client (Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2003) 3:23, p. 3-7.) But an attorney who undertakes one matter on behalf of a client owes that client the duty to at least consider and advise the client if there are apparent related matters that the client is overlooking and that should be pursued to avoid prejudicing the clients interests. [E]ven when a retention is expressly limited, the attorney may still have a duty to alert the client to legal problems which are reasonably apparent, even though they fall outside the scope of the retention. (Nichols v. Keller [(1993)] 15 Cal.App.4th [1672] at p. 1684; see Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 983-985; see also Vap[n]ek et al., Cal. Practice Guide: Professional Responsibility, supra, 3.21, 3.39-3.40, pp. 3-6, 3-13 to 3-14.) (Janik v. Rudy, Exelrod & Zieff (2004) 119 Cal.App.4th 940 [obligations of class counsel under class certification order].)

For example, in Nichols v. Keller, supra, 15 Cal.App.4th 1672, counsel whose retention agreement was explicitly limited to prosecuting a workers compensation claim were nonetheless held to have a duty to inform their clients of the availability of filing a third-party action. The appellate court stated that [o]ne of an attorneys basic functions is to advise. Liability can exist because the attorney failed to provide advice. Not only should an attorney furnish advice when requested, but he or she should also volunteer opinions when necessary to further the clients objectives. The attorney need not advise and caution of every possible alternative, but only of those that may result in adverse consequences if not considered. (Id. at pp. 1683-1684.) The court clarified that [t]he attorney need not represent the client on such matters. Nevertheless, the attorney should inform the client of the limitations of the attorneys representation and of the possible need for other counsel. (Id. at p. 1684.) The attorney has the duty to use such skill, prudence and diligence as other members of the profession commonly possess and exercise in informing the client of other courses of action that warrant consideration and, if prudence dictates that a claim beyond the scope of the retention agreement be pursued, the client can then consider whether to expand the retention or pursue the alternative course of action with different counsel. (Janik v. Rudy, Exelrod & Zieff, supra, 119 Cal.App.4th at p. 941; see also Nichols v. Keller, supra, 15 Cal.App.4th at p. 1685.)

Governed by this standard, Panitz Schaap did everything they were required to do. They advised Gatto of the potential availability of filing a Chapter 7 bankruptcy petition in order to have his tax debts discharged, and they advised him to seek bankruptcy counsel, in light of the fact their retention agreement was limited to representing Gatto in seeking to enter into an offer in compromise with the taxing authorities. As the trial court found, there was no triable issue of fact as to whether Panitz Schaap owed Gatto a legal duty with respect to filing a bankruptcy petition. Gatto was advised by Panitz Schaap to seek independent bankruptcy counsel, and thereafter he admittedly retained bankruptcy counsel of his own choosing.

Beyond that, however, Gatto argues that a triable issue of fact exists regarding whether Panitz Schaap specifically advised him that enough time had already passed such that he could successfully file a Chapter 7 petition and have his debts discharged. He contends that, by so doing, they rendered incorrect advice for which they may be held liable. We disagree. As we shall explain, even if Gatto is correct in that regard, we nonetheless conclude that summary judgment was properly granted.

Causation

To the extent that Panitz Schaap arguably owed a duty beyond the scope of their retention agreement to advise Gatto regarding the possibility of filing for bankruptcy, and even assuming for the purposes of this appeal that a triable issue of fact exists as to whether they breached that duty by giving erroneous advice (specifically, that a Chapter 7 bankruptcy petition could be filed immediately which would undoubtedly result in his tax debts being discharged), Gatto simply cannot demonstrate that their conduct was the legal, proximate cause of his alleged damages. Gattos subsequent attorney, Rodman, had the duty and obligationas well as the opportunityto file the petition at the correct time. Indeed, the record indicates Rodman merely would have had to delay filing the Chapter 7 bankruptcy petition for about one month in order to comply with the 240-day rule. After Panitz Schaap advised Gatto to consult bankruptcy counsel and he independently did so, Panitz Schaap had no control over the filing date of the bankruptcy petition, and no obligation to ensure that Rodman correctly ascertained and took into account the relevant dates.

The analogous circumstances in Steketee v. Lintz, Williams & Rothberg (1985) 38 Cal.3d 46 (Steketee) serve to demonstrate the failure to establish both duty and causation in the case before us. In Steketee, the plaintiff alleged that defendants committed legal malpractice by failing to file an action for medical malpractice on his behalf within the period of the statute of limitations. However, the statute of limitations for filing the medical malpractice action did not expire until several months after the attorney-client relationship between plaintiff and defendant attorneys had been terminated. (Id. at p. 51.) Under these circumstances, the Supreme Court held that [a]n attorney cannot be held liable for failing to file an action prior to the expiration of the statute of limitations if he ceased to represent the client and was replaced by other counsel before the statute ran on the clients action. (Steketee, supra, 38 Cal.3d at p. 57; citing Shelly v. Hansen (1966) 244 Cal.App.2d 210, 213-214, disapproved on other grounds in Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 190, fn. 29.)

The basis for the Steketee courts ruling is elucidated in Shelly v. Hansen, supra, another statute of limitations case, upon which the Steketee court relied. There, the court reasoned as follows: To warrant recovery for this type of negligence plaintiff must first plead and prove that at the critical times in question there existed the relationship of attorney and client with its accompanying responsibilities. [Citations.] During the last seven months of the statutory period, the responsibility for filing the breach of contract action lay with [the subsequent attorney] and not [the former, defendant attorney]; furthermore, even if the latter had wished to do so, the proceeding could not have been instituted by him due to the termination of his employment . . . . Stated otherwise, if [defendant attorney] then had no duty to perform, how can it be properly urged that such duty was negligently carried out? Under the above circumstances, it may not be contended (as is done by plaintiff) that [the defendant attorneys] asserted negligence while acting as his counsel, was a, not the, proximate cause of the damages said to have been sustained. The but for rule determines cause in fact [citation]; and in Lally v. Kuster [(1918)] 177 Cal. 783, 787, it is declared that in a suit for negligence by a client against an attorney it must be shown that but for the asserted negligence an actionable claim could have been successfully maintained. Here the subsequent employment of [the second attorney] intervened to make the above rule inoperative. (Shelly v. Hansen, supra, 244 Cal.App.2d at p. 214; see also Viner v. Sweet (2003) 30 Cal.4th 1232, 1244 [plaintiff in a transactional malpractice action must show that but for the alleged malpractice, it is more likely than not that the plaintiff would have obtained a more favorable result].)

Although the case before us involves a subsequent attorney taking action on the plaintiffs behalf too soon rather than too late as in the cases cited above, the same principles apply. Panitz Schaap owed no duty to Gatto to file a bankruptcy petition because the scope of their retention did not include such matters, and their representation of Gatto had ceased at the critical time. In addition, even if their advice regarding the timing of filing the bankruptcy petition was erroneous, such advice was not the legal cause of Gattos damage, where both the duty and the opportunity to competently represent Gatto and protect his interests rested entirely with Rodman. We thus conclude that summary judgment was properly granted in favor of Panitz Schaap.

disposition

The judgment is affirmed.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

WILLHITE, J.

We concur:

EPSTEIN, P. J.

MANELLA, J.

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[1] We hereafter collectively refer to Panitz and Schaap, the individuals, and the law firm, Panitz Schaapin the pluralas Panitz Schaap, unless otherwise indicated.

[2] Gatto also named as a defendant Kenneth B. Rodman, the attorney who subsequently represented him in filing the Chapter 7 bankruptcy petition. Rodman did not move for summary judgment, and he is not a party to this appeal.