## Facts

- URS Corporation, through its president, Arthur H. Stromberg, reached a preliminary agreement to buy a business owned by Gerald D. Lucas and related owners for $3.5 million cash, with URS’s counsel to prepare final documents quickly.
- Lucas retained attorney Frank J. Cicone to represent him and his family in completing the sale.
- During negotiations, URS and its counsel, Richard W. Canady, proposed a transaction structure (including merger and liquidation steps) described as serving URS’s tax planning.
- Cicone alleged Canady represented that the structure would be tax neutral for Lucas and his family and would not cause adverse tax consequences to them.
- Cicone alleged URS/Canady knew the tax assurances were false or made them without reasonable grounds, intending Cicone to rely on them in advising his clients.
- Lucas and related owners later sued Cicone for legal malpractice, alleging his advice and handling of the transaction caused substantial, unexpected tax liability.
- Cicone cross-complained against URS, Stromberg, and Canady for fraud, negligent misrepresentation, breach of the covenant of good faith and fair dealing, and comparative equitable indemnity, and sought punitive damages.
- The trial court sustained a general demurrer to all cross-claims without leave to amend and dismissed the cross-complaint with prejudice.

## Issues

1. Whether the cross-complaint, including proposed amendments, adequately alleged fraud and negligent misrepresentation based on statements about the transaction’s tax consequences and Cicone’s reliance.
2. Whether an attorney may sue opposing parties for misrepresentations made to influence the attorney’s advice to a client, even though the attorney was not the contracting principal.
3. Whether comparative equitable indemnity was sufficiently pleaded where the attorney faced malpractice claims allegedly caused in part by third-party misrepresentations.
4. Whether it was error to sustain the demurrer without leave to amend.

## Decision

- The judgment of dismissal was reversed.
- The proposed amended allegations stated causes of action for fraud and negligent misrepresentation against URS, Stromberg, and Canady.
- The court held reliance by an attorney on opposing parties’ factual representations is not categorically unreasonable; actual reasonableness is generally a fact question not resolvable on demurrer.
- Because viable tort claims were adequately alleged, comparative equitable indemnity was also sufficiently pleaded.
- Denying leave to amend was an abuse of discretion at least where the proposed amendments could cure any pleading defect.

## Legal Principles

- Negligent misrepresentation liability may arise when a defendant supplies false information for the guidance of others in business transactions, and the plaintiff’s reliance is intended or reasonably foreseeable.
- Misrepresentation liability can extend beyond the immediate contracting party to persons the speaker intends, or has reason to expect, will rely on the statements.
- Justifiable reliance is ordinarily a question of fact; it may be decided as a matter of law only when reasonable minds can reach only one conclusion.
- An adversarial relationship in negotiations does not, by itself, bar fraud or negligent misrepresentation claims based on statements made to induce action.
- Comparative equitable indemnity may be pleaded where the plaintiff alleges the cross-defendants’ tortious conduct was a concurrent cause of the same injury for which the cross-complainant is being sued, permitting allocation of fault among tortfeasors.
- A demurrer should not be sustained without leave to amend if there is a reasonable possibility the pleading defects can be cured by amendment.

## Conclusion

The court permitted an attorney sued for malpractice to pursue tort and equitable indemnity claims against the buyer, its president, and its counsel based on alleged tax-related misrepresentations made to influence the attorney’s advice, holding that reliance and fault allocation issues generally require factual development rather than dismissal on demurrer.


Cicone v. URS Corp., 183 Cal. App. 3d 194 (Cal. Ct. App. 1986)