Facts
- Michael Viner and Deborah Raffin Viner founded and controlled Dove Audio, Inc., holding significant stock interests and employment contracts.
- The Viners retained attorney Charles A. Sweet and his firm to negotiate and document agreements for (1) selling their ownership interests and (2) terminating their employment.
- The resulting deal included a stock purchase by a third party and deferred payments by the company, secured in part by preferred stock placed in escrow.
- The Viners later alleged the attorneys committed multiple errors in negotiating and drafting the transactional documents, causing financial losses.
- A jury returned a multimillion-dollar verdict for the Viners; the Court of Appeal largely affirmed and concluded plaintiffs in transactional malpractice need not prove “but for” causation.
- The California Supreme Court granted review to decide the proper causation standard for transactional legal malpractice.
Issues
- In a transactional legal malpractice action, must the plaintiff prove causation in fact under the traditional “but for” test by showing it is more likely than not that, absent the lawyer’s negligence, the client would have obtained a more favorable transactional result?
Decision
- The California Supreme Court reversed the Court of Appeal’s rule dispensing with “but for” causation in transactional malpractice.
- The Court held that, as in litigation malpractice, the plaintiff must prove that but for the attorney’s negligence it is more likely than not the client would have obtained a more favorable result.
- The Court remanded for further proceedings applying the traditional causation standard.
Legal Principles
- Legal malpractice is a negligence action, and causation in fact generally requires “but for” proof: the loss would not have occurred without the attorney’s breach.
- Transactional malpractice applies the same cause-in-fact standard used in litigation malpractice; the inquiry is what would have happened absent negligence.
- Difficulty proving what the counterparty would have done does not justify lowering the causation requirement; causation may be proven through reasonable inferences from circumstantial evidence, documents, market conditions, and expert testimony.
- The plaintiff bears the burden to show, by a preponderance of the evidence, that a better deal (or avoidance of a worse deal) was more likely than not without the alleged negligence.
- Causation is not presumed from drafting or negotiation errors; without proof of a different likely transactional outcome, liability would resemble strict liability for unfavorable business results.
Conclusion
The court required plaintiffs in transactional legal malpractice cases to prove traditional “but for” causation—more likely than not, competent legal work would have produced a more favorable transaction—and it reversed and remanded for application of that standard.