California Fellows Suzelle Smith & Don Howarth Secure $10 Million Verdict in Legal Malpractice Case

(Litigation Commentary & Review)

Suzelle Smith and her law partner, Don Howarth of Howarth & Smith represented plaintiff JP Hyan in a lawsuit against Los Angeles firm, Rutter, Hobbs & Davidoff to jury verdict on June 15, 2011. Mr. Hyan was a highly compensated executive at Lowe Enterprises Inc. from 1993-1997. Mr. Hyan had brought the Los Angeles County Employees Retirement Account ("LACERA") business to Lowe. Lowe was an investment manager on certain real estate housing investments ("Housing Program"). Part of Mr. Hyan's negotiated compensation from Lowe was 10% of the gross revenues Lowe received from the LACERA housing account.

In 1997, Mr. Hyan changed his status at Lowe from employee to consultant. He hired Frank Hobbs from the firm Rutter, Hobbs & Davidoff ("RHD") to negotiate the contracts memorializing his change in status and including protection for his ongoing 10% of the fees in the event Lowe should transfer or sell the LACERA housing account. RHD assured Mr. Hyan that his stream of income was protected in the event of any transfer of the Housing Program due to "successors and assigns" language in the contract. For 10 years, Mr. Hyan received his 10% share, amounting to more than $11 million.

In 2006, Lowe sold the housing account and the new owner, Tri Pacific, stopped paying Mr. Hyan's fees. Mr. Hyan returned to RHD for legal advice when his payments were cut off. RHD told Mr. Hyan that the 1997 contract they drafted required Lowe or TriPacific to continue paying due to the "successors and assigns" clause and that Mr. Hyan should retain RHD to sue Tri Pacific. The matter went to binding arbitration and Mr. Hyan lost. A judgment of over $500,000 was entered in favor of TriPacific, because RHD had inserted an attorney’s fees provision in the 1997 contract.

RHD charged Mr. Hyan for over $700,000 in fees for their handling of the arbitration. Mr. Hyan sued RHD and Franks Hobbs for professional negligence, breach of fiduciary duty, breach of contract and punitive damages. Mr. Hyan's economic damages included over $3 million in past revenues and over $5 million present value in future revenues for 5 years, as well as the RHD fees and the value of the Tri Pacific judgment.

On defendants’ motion the court bifurcated the action, sending the breach of fiduciary duty and punitive damages claims to binding arbitration. After a five week jury trial, a verdict of $10,155,559 (to the dollar the amount plaintiff sought) on the professional negligence claim was returned in favor of Mr. Hyan. The breach of fiduciary duty and punitive damages claims will be arbitrated by ADR.

Suzelle Smith, Fellow of the Litigation Counsel of America, is a partner and co-founder of the Los Angeles, California law firm of Howarth & Smith. Ms. Smith has extensive complex litigation, class action, professional malpractice, products liability, and business law experience and has tried numerous complex cases to verdict, representing both plaintiffs and defendants. In 2010, Ms. Smith was awarded the Top Corporate White Collar Crime Defense Counsel Award. Ms. Smith was selected as one of the top ten litigators in the United States for 1997 by the National Law Journal; in 2004 she was named as one of "America’s Top 50 Women Litigators," in 2005 and every year thereafter she was named an one of California’s "Super Star" litigators. Ms. Smith received a Bachelor of Arts summa cum laude, with special distinction in Political Science, in 1975 from Boston University and a Master of Philosophy in 1977 from Oxford University. From 1978-1980, she served as a Legislative Assistant to United States Senator Howell Heflin. In 1983, she received her Juris Doctorate from the University of Virginia School of Law, Order of the Coif. Ms. Smith is a Lecturer in Law and Visiting Fellow of Lady Margaret Hall, Oxford University, England. She is also a Trustee of the University of Virginia Law School and a member of the Advisory Council of The American Ditchley Foundation.

California Fellow Don Howarth is a partner and co-founder of the Los Angeles law firm of Howarth & Smith. Mr. Howarth has extensive litigation experience and has tried numerous high-profile cases and class actions to verdicts. He represents both plaintiffs and defendants. Mr. Howarth received a Bachelor of Arts magna cum laude from Harvard College, and earned a Juris Doctor cum laude from Harvard Law School, as well as a Masters in Public Policy from the Kennedy School of Government at Harvard University. Mr. Howarth served as a Law clerk for the Honorable Shirley M. Hufstedler, United States Court of Appeals, Ninth Circuit. Mr. Howarth is admitted to practice in California as well as the United States Court of Appeals, Ninth Circuit, United States District Courts, Central, Southern and Northern Districts of California, and the Supreme Court of the United States. Mr. Howarth is an elected Fellow of the American College of Trial Lawyers, of the International Academy of Trial Lawyers, and of the American Bar Foundation; a member of the American Bar Association, Litigation Section and Contributor to the Litigation Journal; a certified Provider for Continuing Legal Education in Litigation for the State Bar of California, of which he is a member; a featured speaker for ATLA and CTLA; a member of the Federal Bar Association and the Los Angeles County Bar.

Firm Slammed With $10 Million Malpractice Verdict

By Amanda Bronstad
(The National Law Journal)

A jury has issued a $10 million malpractice verdict against Rutter, Hobbs & Davidoff Inc. and two of its senior attorneys over a 1997 business contract.

The June 15 verdict, which followed a month-long trial in Los Angeles County, Calif., Superior Court, was returned against the Los Angeles firm; name partner Frank Hobbs, who has since retired; and shareholder Geoffrey Gold, former head of the firm's litigation department.

An additional arbitration proceeding over related claims, including potential punitive damages associated with a failed lawsuit the firm filed to enforce the 1997 contract, will take place in the near future against Hobbs; Gold; Brian Davidoff, managing director of the firm; transactional attorney Fred Fenster; Olivia Goodkin, chairwoman of the labor & employment practice; and Rosslyn Hummer, a former attorney at the firm.

Don Howarth, co-founder of Howarth & Smith in Los Angeles, who represented the plaintiff in the malpractice case, said he expects to ask for punitive damages of up to three times the $10 million verdict during the arbitration hearing.

"We will be seeking punitive damages of two to three times the actual damages of $10 million because they went forward... with an action that had no basis without telling their client," Howarth said. "That's a common problem today, where lawyers think they're in business for themselves instead of being in business for their client."

Davidoff said the firm planned to file post-trialmotions to review the jury's decision and, if that fails, would appeal the verdict. "We strongly disagree with the jury's conclusion. We believe the.verdict was in error and failed to follow clear California law as annunciated by the California Supreme Court," Davidoff said. "Our view is clearly that the verdict will either be corrected by the trial court or the court of appeal."

The suit was filed Jan. 19, 2010, by J.P. Hyan, a former sheriffs deputy in Los Angeles County, Calif., who became a stockbroker during the late 1980s. In 1990, he created a business plan for the Los Angeles County Employees' Retirement Association to invest pension money in local residential building projects. He pitched the idea to Lowe Enterprises Inc., a national real estate company, where he began working as an investment adviser for a subsidiary in 1993. The Lowe subsidiary agreed to pay Hyan 10% of the gross fees received from the pension investment project, which was launched in 1995 and generated tens of millions of dollars over 12 years.

"He designed a program for LACERA, which has to invest pension fund money, and he brought in a manager called Lowe to manage pension fund money in this new program he started," Howarth said. "Lowe earned a fee for managing this pension fund money and investing it. Mr. Hyan was entitled to 10% of that fee."

But their partnership fell apart. In 1997, Hyan hired Rutter Hobbs & Davidoff to negotiate a separation agreement from Lowe. The primary attorney was Hobbs, but Gold also worked with Hyan on the deal. According to Howarth, the separation agreement should have allowed Hyan to continue to receive 10% from gross fees in the pension investment program indefinitely.

"The problem was they left a hole in it that a truck could drive through," he said of the 1997 contract.

L.A.'s Rutter, Hobbs & Davidoff Hit with $10 Million Malpractice Verdict

By Amanda Bronstad
(The National Law Journal)

A jury has issued a $10 million malpractice verdict against Rutter, Hobbs & Davidoff Inc. and two of its senior attorneys over a 1997 business contract.

The June 15 verdict, which followed a month-long trial in Los Angeles County, Calif., Superior Court, was returned against the Los Angeles firm; name partner Frank Hobbs, who has since retired; and shareholder Geoffrey Gold, former head of the firm’s litigation department.

An additional arbitration proceeding over related claims, including potential punitive damages associated with a failed lawsuit the firm filed to enforce the 1997 contract, will take place in the near future against Hobbs; Gold; Brian Davidoff, managing director of the firm; transactional attorney Fred Fenster; Olivia Goodkin, chairwoman of the labor & employment practice; and Rosslyn Hummer, a former attorney at the firm.

Don Howarth, co-founder of Howarth & Smith in Los Angeles, who represented the plaintiff in the malpractice case, said he expects to ask for punitive damages of up to three times the $10 million verdict during the arbitration hearing.

“We will be seeking punitive damages of two to three times the actual damages of $10 million because they went forward...with an action that had no basis without telling their client,” Howarth said. “That’s a common problem today, where lawyers think they’re in business for themselves instead of being in business for their client.”

Davidoff said the firm planned to file post-trial motions to review the jury’s decision and, if that fails, would appeal the verdict.

“We strongly disagree with the jury’s conclusion. We believe the verdict was in error and failed to follow clear California law as annunciated by the California Supreme Court,’’ Davidoff said. “Our view is clearly that the verdict will either be corrected by the trial court or the court of appeal.”

The suit was filed Jan. 19, 2010, by J.P. Hyan, a former sheriffs deputy in Los Angeles County, Calif., who became a stockbroker during the late 1980s. In 1990, he created a business plan for the Los Angeles County Employees’ Retirement Association to invest pension money in local residential building projects. He pitched the idea to Lowe Enterprises Inc., a national real estate company, where he began working as an investment adviser for a subsidiary in 1993. The Lowe subsidiary agreed to pay Hyan 10% of the gross fees received from the pension investment project, which was launched in 1995 and generated tens of millions of dollars over 12 years.

“He designed a program for LACERA, which has to invest pension fund money, and he brought in a manager called Lowe to manage pension fund money in this new program he started,” Howarth said. “Lowe earned a fee for managing this pension fund money and investing it. Mr. Hyan was entitled to 10% of that fee.”

But their partnership fell apart. In 1997, Hyan hired Rutter Hobbs & Davidoff to negotiate a separation agreement from Lowe. The primary attorney was Hobbs, but Gold also worked with Hyan on the deal. According to Howarth, the separation agreement should have allowed Hyan to continue to receive 10% from gross fees in the pension investment program indefinitely.

“The problem was they left a hole in it that a truck could drive through,” he said of the 1997 contract.

Hyan continued to receive the 10% for the next 10 years, with his annual income reaching $2.5 million by 2006. But by 2006, Lowe had sold the subsidiary that managed the program to a third party, TriPacific Capital Advisors LLC. Hyan’s payments stopped after December 2006. When he contacted Rutter Hobbs & Davidoff, the firm’s lawyers – specifically, Hobbs, Fenster, Gold, Goodkin, Davidoff and Hummer – pursued a lawsuit on his behalf against TriPacific for declaratory relief, asserting that a clause in the contract made it binding on “successors and assigns” to the Lowe subsidiary, according to court documents.

That lawsuit went to arbitration, and an arbitrator ruled against Hyan in 2008, awarding TriPacific $419,510 in attorneys’ fees, expenses and costs. Hyan, who claims he faced foreclosure of his home in Park City, Utah, and was hospitalized for a cardiac incident related to stress, sued the firm for more than $30.5 million, including $24.6 million in lost income.

The jury’s verdict pertained only to his malpractice claims against the firm, Hobbs and Gold. Hyan’s claims against the lawyers at Rutter, Hobbs & Davidoff who handled his unsuccessful lawsuit against TriPacific seeking to enforce the contract will be the subject of the pending arbitration proceeding, which has not yet been scheduled.

“That’s what the second portion is about – the decision to go forward when they knew or should have known they didn’t do this right,” Howarth said.

Rutter Hobbs & Davidoff argued that Hyan failed to prove he would have obtained a better deal but for the firm’s alleged legal malpractice –the standard set by the California Supreme Court’s 2003 decision in Viner v. Sweet.

“To prove causation, a plaintiff must present evidence that without defendant’s negligence, it would have obtained a more advantageous agreement – a better deal,” Davidoff said. “We don’t think the evidence was that he had a better deal.”

In fact, he said, the evidence at trial showed that the firm’s lawyers attempted to insert a clause that would have maintained Hyan’s 10% deal indefinitely, but Lowe balked at the idea.

Davidoff also disputed Hyan’s claims for punitive damages.

“His theory in that case is that knowing that allegedly the clause was wrong, we instituted an action to attempt to cover it up,” he said. “We think that’s just plainly absurd. That is just not the case.”

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.