Jury Orders Firm to Pay $10 Million for Malpractice

By Anna Scott
(Los Angeles Daily Journal)

A jury last week found the former managing partner and a senior partner for law firm Rutter, Hobbs & Davidoff, Inc. committed legal malpractice, awarding $10 million in economic damages to a former client.

Plaintiff JP Hyan, a former executive with the real estate developer Lowe Enterprises Inc., targeted five Rutter Hobbs partners and the firm itself for negligence and other claims related to a separation agreement they negotiated when Hyan left Lowe 14 years ago.

When problems with the contract became apparent several years later, Rutter Hobbs lawyers tried to cover up the error rather than fix it, Hyan alleged. His complaint said Hyan lost millions of dollars in income, was forced to sell his homes and suffered health problems.

Suzelle M. Smith of Howarth & Smith, who represented Hyan along with her partner, Don Howarth, said the case hinged on “a clear error of basic contract law.”

“If you make a mistake, you have to admit it and control the harm to your client and also yourself,” she said. “That, to me, is the overarching lesson to be learned from this.”

Rutter Hobbs, a business litigation firm based in Los Angeles, plans to file post-trial motions asking the court to review the jury’s decision, according to Managing Director Brian Davidoff.

“Our view is that the verdict was in error and failed to follow clear California law,” Davidoff said. “We don’t believe the facts and the law support the verdict, and we’re confident it’s going to be reversed.”

Hyan joined Lowe in 1992 to help the developer set up an investment partnership with the Los Angeles County Employees’ Retirement Association. The initiative launced in 1995, according to Hyan’s complaint, eventually netting Lowe tens of millions of dollars a year. Hyan decided to leave the company in 1997. Lowe’s then president had verbally agreed Hyan could indefinitely continue to receive 10 percent of the fees grossed from the pension fund investment program after his departure, according to the complaint. Hyan retained Rutter Hobbs to formally document the arrangement.

However, unbeknownst to him, a provision in the final contract put his ongoing income streak at risk, he alleged. As a result, Hyan’s payments from the company abruptly stopped 10 years later. Hyan returned to Rutter Hobbs for advice and, instead of pointing out the original contract clause that legitimately led to the pay cutoff, the firm advised Hyan to sue for his lost income and proceed to arbitration, according to the complaint. Hyan lost, and in January 2010 filed his suit against Rutter Hobbs and the various attorneys there who advised him on the 1997 contract and the ensuing litigation.

The June 15 jury verdict capped a five-week trial in Los Angeles County Superior Court. The jury assigned 99 percent of the blame, according to the verdict form, to the firm’s now retired managing partner, Franklin Dean Hobbs. The remaining 1 percent went to current senior partner Geoffrey Mark Gold.

Davidoff disputed Hyan’s contention that Rutter Hobbs could have negotiated a better deal for heal in 1997, a crucial condition of establishing malpractice under state law, and said the firm’s continuing defense will emphasize that point as it seeks to overturn the jury’s verdict.