May 2019

Taking Risks

Roger Bernhardt

Christine Tour-Sarkissian

Introduction

Some steps an attorney has to take for her client are risk-free, whereas others entail a high degree of danger. In the transactional realm, risk tends to be high because clients who executed a contract or lease (for example) rarely have the opportunity to say “we intended to include *** (e.g., an option to renew) but forgot to do so” or “we really meant A rather than B although it is true that the document says the opposite.” Other times, especially in litigation, mistakes are more forgivable. An attorney who mispleads a case and thereafter has her complaint slapped with a demurrer is usually given the opportunity to amend it. Similarly, an attorney can generally lose his motion for summary judgment but can always come back to fight another day and prevail at trial.

Ryan v Real Estate of the Pac., Inc.

In Ryan (reported at p 77), the Ryans lost at trial and came back with a motion for a new trial based on CCP §657(6)–(7) due to a mistake of law. In their motion for a new trial, the Ryans argued that

·      Expert testimony was not required to determine whether defendants’ failure to disclose a known fact constituted negligence; and

·      Defendants failed to meet their burden to show expert testimony was required.

After oral argument, the trial court denied the Ryans’ motion for a new trial. Once again, litigation was forgiving: The Ryans appealed on the basis of their summary judgment motion and won. But on which side does the question of using expert witnesses fit?

Analysis

The traditional strategy has been for a seller, who has just been sued by her buyer for nondisclosure, to not join the broker or his agent as a party. The sale documents usually provide that the broker and sales agent are not themselves parties to the buy/sell contract. So it would be wise, in a case when the broker’s liability is quite evident, just to arbitrate the case with the buyer, complete the necessary discovery, and expeditiously, within the applicable statutes of limitation applicable to brokers and sale agents, get the matter before an arbitrator and obtain a judgment. Then, the seller could turn around and go after the broker and sale agent and have a jury decide, among other things, the amount of punitive damages for breach of fiduciary duty.

In Ryan, the sellers’ agent learned from a neighbor of his plans to improve his (the neighbor’s) adjacent property, which would have destroyed the buyers’ view of the ocean, but the agent did not pass on this information to his client (the sellers). The buyers learned of the extensive remodel plans next door after they bought the property, and sought rescission, which the sellers refused. After a lot of discovery, the buyers were awarded rescission plus damages (more than $1 million) by an arbitrator. Thereafter, the sellers, who had lost, sued their broker for breach of fiduciary duty and equitable indemnity, among other things. The sellers’ attorney introduced no expert evidence on the standard of care, in part relying on the arbitrator’s findings in the previous trial and in part believing that the broker’s liability was so evident that no expert testimony was needed.

(For the remainder of this article, we will assume an arbitration going on between seller and buyer that does not include the broker. The broker may be a necessary witness but does not risk being held liable in the arbitration when, too often, the claim is split down the middle by the arbitrator. While we know there was extended discovery before the arbitration in Ryan, we do not know whether the broker was a witness during the arbitration.)

One consequence of omitting the broker as a party in the arbitration is that the issues of his or her negligence and breach of fiduciary duty were not resolved in that first arbitration, leaving it for a second tribunal to decide separately the question of the agent’s liability to the seller for causing him such a loss. It also meant that the seller suing for indemnity had to prove all over again that her broker fell short of the standard of care. Ultimately, the fact that the brokers knew about the neighbors’ plan was not disputed. The issue boiled down to whether the Ryans could meet their burden of proof on their causes of action against the brokers without the testimony of an expert witness on the standard of care.

With regard to standard of care evidence, one of two contradictory rules comes into play, both of which seem to be well settled. One rule is that without expert testimony, the jury cannot decide what is the standard of care. The other rule is that no evidence is needed for this issue to get to a jury when the liability is quite evident. Thus, in one situation, an expert witness must opine on the standard of care, while in the other, she is not so required.

There is plenty of authority supporting both sides of this argument.

From the Broker’s Perspective

The brokers’ argument in Ryan was not that unexpected. The traditional approach for most litigators, in cases like the Ryans’, is to assume that expert testimony is mandatory to establish the standard of care applicable to professionals.

Typically, when there is a standard of care breach, the plaintiff claims that the brokers failed to use the “skill, prudence and diligence as other members of the profession commonly possess and exercise.” Nichols v Keller (1993) 15 CA4th 1672, 1682; see also Padgett v Phariss (1997) 54 [61] CA4th 1270, 1279, reported at 20 CEB RPLR 166 (July 1997). This standard is spelled out specifically for brokers in CC §§2079, 2079.3. The belief is that, in this context, the jury (as laypersons) may not be considered to have knowledge of the standard of care or what the requirements are to prove a standard of care breach. Thus, attorneys generally believe it mandatory to have expert testimony.

For most litigators, the absence of an expert able to testify about the standard of care—on behalf of the Ryans, for example—would have meant they would be incapable, as a matter of law, of proving a vital element of their case. Only by an expert’s providing the standard of care can a jury determine if that standard was breached and whether damages were proximately caused by that breach. Kelley v Trunk (1998) 66 CA4th 519, 523, citing Miller v Los Angeles County Flood Control Dist. (1973) 8 C3d 689, 702.

Thus, from the broker’s perspective, the absence of expert testimony to establish the extent of a professional’s duty is considered normally to be fatal to any cause of action sounding in professional negligence. Wilkinson v Rives (1981) 116 CA3d 641, 648, reported at 4 CEB RPLR 75 (June 1981) (“[s]ince there was no such expert testimony, there is no evidence from which the trier of fact could have found negligence on the part of respondent Rives”). It is these types of considerations that make most litigators not want to take the risk of a malpractice claim and therefore play it safe and name an expert to testify at trial.

From the Ryans’ Perspective

Civil Code §§2020, 2079, and 2332 would support the Ryans’ argument that expert testimony is not required because the issue in the Ryans’ case was an issue of “common knowledge” of ordinary care, not a heightened issue for expert testimony. There is no statutory or legal requirement that an expert witness must be designated in every case alleging negligence of a real estate agent or broker. Shapiro v Sutherland (1998) 64 CA4th 1534, 1544, reported at 21 CEB RPLR 62 (Mar. 1998); Spaziani v Miller (1963) 215 CA2d 667, 684.

Historically, the “common knowledge” exception to designating an expert began with medical malpractice cases. Easton v Strassburger (1984) 152 CA3d 90, 106, reported at 7 CEB RPLR 93 (June 1984), citing to Prosser on the Law of Torts §32 at 162 (4th ed 1971).In medical malpractice cases, expert testimony had long been required to establish the standard of care in “cases which depend upon knowledge of the scientific effect of medicine, or the result of surgery.” Barham v Widing (1930) 210 C 206, 214. The “common knowledge” exception to that rule came into play only when the facts concerning the doctor’s duty could be ascertained by the ordinary use of the senses of a nonexpert. Classic examples for this exception are when a sponge or clamp is left inside the patient’s body in an operation. Ales v Ryan (1936) 8 C2d 82, 97 (“If, however, a surgeon should lose the instrument with which he operates in the incision which he makes in his patient, it would seem as a matter of common sense that scientific opinion could throw little light on the subject”).

From there, the common knowledge exception made its way into all sorts of fields. In People v Cole (1956) 47 C2d 99, 103, the California Supreme Court held that “the decisive consideration in determining the admissibility of expert opinion evidence is whether the subject of inquiry is one of such common knowledge that men of ordinary education could reach a conclusion as intelligently as the witness or whether, on the other hand, the matter is sufficiently beyond common experience that the opinion of an expert would assist the trier of fact.” See also Flowers v Torrance Mem. Hosp. Med. Ctr. (1994) 8 C4th 992, 1001; Miller v Los Angeles County Flood Control Dist. (1973) 8 C3d 689, 702; Easton v Strassburger (1984) 152 CA3d 90, 106.

In Godfrey v Steinpress (1982) 128 CA3d 154, 186, reported at 5 CEB RPLR 59 (Apr. 1982), the court concluded that “the jury was capable of appreciating and evaluating the significance of termite infestation without resort to expert opinion as to the causal relationship between termites and distress.” In Oregel v American Isuzu Motors, Inc. (2001) 90 CA4th 1094, 1102 n8, the court found that “[i]t is within the realm of common knowledge that a new car with an unremediable oil leak does not conform to its warranty, and no expert testimony is necessary to establish this proposition.” See also Carson v Facilities Dev. Co. (1984) 36 C3d 830, 845; Carleton v Tortosa (1993) 14 CA4th 745, 754, reported at 16 CEB RPLR 231 (July 1993); Easton v Strassburger (1984) 152 CA3d 90, 104.

In Jorgensen v Beach ‘N’ Bay Realty, Inc. (1981) 125 CA3d 155, reported at 5 CEB RPLR 38 (Mar. 1982), a case similar to the Ryans’ facts, the court concluded that no expert testimony was needed because the material facts the defendants failed to disclose were not beyond the realm of a lay juror’s understanding or common knowledge. “The correct rule on the necessity of expert testimony has been summarized by Bob Dylan: ‘You don’t need a weatherman to know which way the wind blows.’” 125 CA3d at 163.

How Would a Litigator Know That Certain Facts Fit the Common Knowledge Exception?

So how does a plaintiff’s attorney decide whether he has a case requiring expert testimony? Expert witnesses are expensive; plaintiffs in litigation are reluctant to spend $20,000–$30,000 for evidence they may not need. Hard thought must be given to taking the risk to not include an expert on the standard of care issue. Most attorneys do not want to take the risk of committing malpractice and guessing whether their particular case involves matters of common knowledge.

The question of using a standard of care expert appears to be one of those high-risk issues that we spoke of earlier, because one cannot find out in advance whether a critical step is necessary. Plaintiffs who know they can prove A, B, and C but are uncertain about their ability to prove D can [62] sometimes test the waters by filing a complaint omitting D and finding out whether the other side’s demurrer will be sustained. But how do they find the opposite? How do you assert D and then contend you don’t have to prove it, particularly with our rules on variance between claiming and proving—is this a serious risk? If proof of D (the standard of care) is required, then an expert is necessary, and the cost of an expert is essential to prove a complete case. But if proof of the standard of care was unnecessary, then the money was wasted.

Is this an issue the attorney should discuss with her client and let the client choose and take the risk? After all, it is the client who will have to pay for the cost of an expert. It might be better if the client were to be the one taking the risk and not the attorney. If this is something that should be discussed with the client, when should that discussion take place: At the outset of the case when the topic of the litigation budget is raised, or when a demand to exchange experts’ names is sent? The Ryans argued (in the post-arbitration indemnity action) that they did not have to prove the standard of care independently. However, the trial court treated this issue as a separate one, holding that, in isolation, standard of care testimony was required. The court of appeal held the opposite.

But we wonder: Was there a procedural way for the Ryans to find out in advance whether they would need an expert to testify on the question of standard of care? Could their attorney have made something like a motion in limine early in the case (rather than right before trial) or a motion requesting whether expert testimony would be necessary, given the facts of the case, to obtain a ruling that standard of care evidence would or would not be required in the matter? That would enable the judge to answer the question at the outset, well before the trial date and before a request to exchange expert witnesses is made. Or would the trial judge have told the Ryans that they had to prove their own case and the judge could not make such a ruling before hearing the entire case? Or could the Ryans have taken a riskier strategy, not offering standard of care testimony and then asking for a new trial once the judge announced expert testimony was needed? Well, we saw what happened in Ryan: They made a motion for a new trial and lost. Was the appeal filed to avoid the possibility the lawyer would be accused of malpractice, or was it because he really believed this was a “common knowledge” case? After all, appeals are expensive propositions. Should the cost of an appeal outweigh the cost of designating an expert instead?

This is a problem in both broker and lawyer malpractice cases in which the standard of care is almost always an issue, but the facts are different. The dividing line between the cases when the misbehavior is obvious and those when it is uncertain is slippery. The consequences are dangerous either way. A seller being sued by his buyer is naturally tempted to include the broker in the initial proceeding, but thereby risks having an angry co-defendant and also being subject to an arbitration rather than being able to choose. On the other hand, to exclude the broker means a second proceeding and a “revisiting” of the question of negligence, risking an adverse finding in the first trial and another one in the opposite direction in the second proceeding, as happened to the Ryans here.

Conclusion

In Ryan, the court of appeal held that the nondisclosure of the upcoming loss of view was misbehavior by common knowledge, although we think it might just as easily held the other way. As the King of Siam said to Anna, this “is a puzzlement.” Does anyone have the answer?

 

Reprinted from 42 Real Property Law Reporter 60 (Cal CEB May 2019), copyright 2019 by the Regents of the University of California. Reproduced with the permission of Continuing Education of the Bar - California (CEB). No other republication or external use is allowed without permission of CEB. All rights reserved.  (For information about CEB publications, telephone toll free 1-800-CEB-3444 or visit our website - CEB.com)

 

Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Calibri",sans-serif;}