K&L Gates Can't Escape KB Home's $9.4M Malpractice Suit

By Matthew Heller
Law360, Los Angeles (March 20, 2013, 5:34 PM EDT)

A California judge on Wednesday refused to toss a $9.4 million malpractice suit alleging K&L Gates LLP mishandled the defense of a consumer class action against developer KB Home, saying it was too early to decide whether the firm can be liable for strategic decisions.

Los Angeles Superior Court Judge Jane L. Johnson declined to rule that, as a matter of law, K&L Gates was immune from suit because KB Home had alleged negligent conduct consisting mostly of tactical decisions and professional judgments the firm and partner Matthew Ball made while representing the developer. The class action ended in a $7.1 settlement KB Home claims was avoidable.

“Even where 'strategic decisions' are involved, these decisions must still 'be based upon a rational, professional judgment that would have been made by other reputable attorneys in the community under the same or substantially similar circumstances,'” Judge Johnson said in a written order denying K&L's motion to dismiss. “This is a factual determination, not appropriate for a [motion to dismiss].”

At a hearing on the motion, K&L's attorney, Scott Garner of Morgan Lewis & Bockius LLP, argued that no matter what KB Home might allege, it could not meet the standard for malpractice.

“It's not clear what they could possibly say ... that would show that not filing a demurrer [in the class action] was malpractice,” he said. “Even if they got Mr. Ball to admit that, 'I didn't do any research on whether to file a demurrer' ... that's not going to get them to the point where, as a matter of law, the court would be able to find that was somehow below the standard of care.”

But Judge Johnson would not be swayed, concluding, “I really think these are issues for another day.”

KB Home, along with subsidiary KB Home Mortgage Co., filed suit in May, accusing K&L and Ball of misrepresenting their ability to handle class actions and failing to adequately represent the company in the suit.

Angela Bates, who had used KB Home's now-defunct subsidiary Homesafe Escrow Co., claimed in the class action that she and others were promised interest on house deposits that they never received and Homesafe had unlawfully provided and charged for escrow services.

According to the malpractice complaint, KB Home was forced to pay a "highly inflated settlement" of $7.1 million because of K&L's negligence. The suit challenged, among other things, the firm's decision not to file a motion to dismiss the complaint — or demurrer — as well as arguments it used in opposing the motion for class certification and its decision not to conduct discovery on the plaintiffs' class damages theory.

“California law gives attorneys, especially litigators, wide latitude in formulating case strategy and making tactical decisions,” it noted in its motion to dismiss, and “every instance of alleged misconduct involves the type of tactical and strategic decisions that California courts have deemed immune from liability.”

KB Home settled the class action, according to K&L, “based on a recognition of unfavorable facts surrounding its escrow practices, not any negligence on the part of K&L Gates.”

But Judge Johnson said she was not prepared to throw out the malpractice case “at this point, but I do realize — and I'm sure plaintiff knows — that they have a tough row to hoe” to prove negligence.

KB Home is represented by Don Howarth, Suzelle M. Smith and Padraic Glaspy of Howarth & Smith.

K&L Gates is represented by Robert E. Gooding, Scott B. Garner and Todd W. Smith of Morgan Lewis & Bockius LLP.

The case is KB Home et al. v. K&L Gates LLP et al., case number BC484090, in the Superior Court of the State of California, County of Los Angeles.