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By: Gretchen Carner & Brett Safford
California attorneys sued for fraud and intentional torts, as opposed to negligent legal malpractice, may be subjected to a different causation standard after the California Court of Appeal’s recent opinion in Knutson v. Foster (2018) 25 Cal.App.5th 1075. The opinion has caused somewhat of a stir. “But-for” causation and the “case-within-the-case” analysis are concepts used in virtually every lawsuit by a former client against his or her attorney. It is axiomatic that a plaintiff, to establish a claim against his or her former attorney, must show that but for the conduct of the attorney, plaintiff would have achieved a better result.
Knutson modifies the causation analysis for certain claims against attorneys. Knutson held that the “but-for” standard should not be used when an attorney is sued by his or her former client for fraud and/or intentional breach of fiduciary duty. The Knutson court premised its reversal of the trial court on a supposed distinction between the “but-for” and substantial factor causation tests. In addition, the Knutson court appears to have abandoned the well-established “case-within-the-case analysis.”
In Knutson, Plaintiff Dagny Knutson filed a lawsuit against her former attorney Richard Foster for fraudulent concealment and intentional breach of fiduciary duty. Knutson’s claims against Foster arose from his handling of her claim for breach of oral contract against USA Swimming.
Knutson, an internationally ranked swimmer in high school, committed to Auburn University on a full athletic scholarship. She selected Auburn because Paul Yetter, one of its swimming coaches, was considered an expert in the individual medley, Knutson’s specialty event. However, in March 2010, the head coach of USA Swimming Mark Schubert told Knutson that Yetter was leaving Auburn and advised her to swim professionally instead of attending Auburn or another university. Schubert then orally promised her that she would receive training at USA Swimming’s “Center for Excellence” in Fullerton, California as well as room, board, tuition, and a stipend. The agreement was to last through 2016—after the Summer Olympics in Rio de Janeiro. Notably, the oral agreement did not include “performance markers,” which Knutson would have to meet to retain her benefits. Knutson accepted the offer and hired a sports agent. However, only a few months after moving to Fullerton, USA Swimming terminated Schubert’s employment.
At the suggestion of her agent, Knutson hired attorney Foster after she stopped receiving money from USA Swimming. Yet, Foster did not disclose to Knutson his close personal ties with high-level persons in the aquatics industry or that he had well-established relationships USA Swimming and other swimming organizations. Foster also did not disclose that he represented Schubert in 2006, or that following Schubert’s termination from USA Swimming in 2010, he refused to represent Schubert in a wrongful termination action because “he did not want to have a negative relationship with USA Swimming in the future.”
Foster, on behalf of his client, Knutson, ultimately reached a settlement with USA Swimming. The settlement agreement provided tuition from January to December 2012, but between 2013 and 2016, all payments were contingent upon “perform markers,” i.e., Knutson maintaining a top 25 ranking in the world or a top three ranking in the United States.
After learning of Foster’s conflicts of interest, Knutson sued Foster for fraudulent concealment and intentional breach of fiduciary duty. The jury found in favor of Knutson on both causes of action, but the trial court granted Foster’s motion for new trial on the grounds that Knudson “failed to adduce evidence of causation and that the jury’s award of damages was excessive.” The trial court also denied Foster’s motion on two other grounds. Both Knutson and Foster filed notices of appeal.
The Court of Appeal reversed, holding that the trial court erroneously applied the “but-for” test for causation instead of the “substantial factor” test. The Court explained, “Here, the trial court recognized the different standards of causation between legal malpractice claims and fraud claims, but nevertheless erroneously applied the malpractice standard of causation to the fraudulent concealment claim. Although the court referred to the substantial factor for causation, it used and applied the but for test.” After identifying Foster’s alleged concealments and breaches of loyalty, the court then concluded that “[a] substantial factor in Knutson’s decision to enter into the settlement agreement was Foster’s fraudulent concealment of the foregoing facts” and breaches of his fiduciary “caused Knutson harm initially by failing to provide her with all the information needed to make an informed decision about entering into the settlement agreement with USA Swimming and failing to ensure that Knutson’s best interests were being protected by Foster during the negotiations.”
The Court’s analysis in Knutson is problematic because it blurs the relationship between the “but-for” test of causation applied in legal malpractice claims and the “substantial factor” test of causation applied in intentional tort claims. The “but-for” test has long been the appropriate causation standard for legal malpractice claims. As explained by the California Supreme Court in Viner v. Sweet (2003) 30 Cal.4th 1232, “In a litigation malpractice action, the plaintiff must establish that but for the alleged negligence of the defendant attorney, the plaintiff would have obtained a more favorable judgment or settlement in the action in which the malpractice allegedly occurred. The purpose of this requirement, which has been in use for more than 120 years, is to safeguard against speculative and conjectural claims.” (Id. at p. 1241, emphasis added.) “This method of presenting a legal malpractice lawsuit is commonly called a trial within a trial.” (Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 357.) The “substantial factor” test requires that the “the plaintiff to establish ‘a reasonable basis for the conclusion that it was more likely than not that the conduct of the defendant was a substantial factor in the result.’ ” (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 153, emphasis added.)
Knutson is a significant case because it not only contains a confusing analysis of the distinction between “but-for” causation and “substantial factor” causation, but it could also be read to dispose of the “case-within-the-case” analysis for claims against an attorney for fraud and/or intentional breach of fiduciary duty. Review by the California Supreme Court is warranted to address the confusion Knutson creates. Until then, it should be argued that Knutson is an outlier case which can be distinguished on its specific facts. We will be keeping a close eye on this one.
If you have any questions or would like more information, please contact Gretchen Carner at [email protected] or Brett Safford at [email protected].