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Camenisch v. Superior Court4/30/1996
CORRIGAN, Acting P. J.
May a lawyer be held liable for the emotional distress of a client who learns that the attorney's negligence may have thwarted the client's tax avoidance goal? We conclude that the law does not recognize a protectable interest in freedom from the emotional distress involved in paying taxes, even if the taxes might have been avoided by skilled legal advice and drafting. The fact that the alleged negligence here did not take place in a litigation context does not defeat the general rule that emotional distress damages are not recoverable when attorney malpractice leads only to economic loss. We grant a peremptory writ of mandate directing the superior court to strike the request for emotional distress damages.
FACTS AND PROCEDURES
This petition arises from rulings on a demurrer and motion to strike. The complaint alleged that, in 1983, Robert Burns hired Shela Camenisch to prepare trust and estate documents, including a life insurance trust in favor of his daughters, Sharon and Julie. Burns informed Camenisch that he wanted to ensure financial security for his wife and daughters, and that he did not want the proceeds to become a taxable part of his estate. Camenisch prepared such a trust, telling Burns the proceeds of the life insurance policy would not be taxed.
Within two years, Burns advised Camenisch he had been told by his financial advisers that the trust was incorrectly formed and estate taxes would result. Camenisch disagreed. In 1993, Burns asked two other attorneys to review the trust. These attorneys recommended changes. Camenisch made several revisions to the trust she had prepared but continued to believe it accomplished Burns's purposes.
According to Burns, the trust was defective because: (1) Burns remained a trustee; (2) his company, not the trust, paid the policy premiums; (3) Sharon and Julie had insufficient withdrawal powers; (4) his wife was a successor trustee; and (5) his wife was not a settlor of the trust. Burns substituted one of the consulting attorneys for Camenisch and, in June 1995, transferred ownership of the life insurance policy to Sharon and Julie.
As a result of Camenisch's alleged negligence, Burns spent $11,800 to correct the trust, and his estate will be required to pay $25,000 in gift taxes for transferring the policy to Sharon and Julie. The complaint also asserted that, if Burns were to die within three years after the June 1995 gift, the gift would be disallowed. The proceeds of the life insurance policy would then become a taxable part of his estate, resulting in approximately $525,000 in taxes.
On July 31, 1995, Burns, his wife, and his two daughters filed their complaint against Camenisch, alleging professional malpractice and negligent infliction of emotional distress. According to the complaint, Burns hired Camenisch "for the express purpose of providing for his family and obtaining repose regarding their financial security. Defendant Camenisch negligently engaged in the acts set forth herein notwithstanding that it was reasonably foreseeable that such acts would cause emotional distress to Plaintiff Robert Burns. As a direct and proximate result of Defendant Camenisch's negligence and carelessness, Plaintiff Robert Burns has suffered and continues to suffer severe emotional distress." He suffered "anxiety and grief upon learning that his Estate would be taxed approximately $25,000 due to the 1995 transfer of ownership of the life insurance policy to his daughters, Plaintiffs Sharon Burns and Julie Burns." In addition, the news that the estate would be liable for $525,000 in taxes if he died within three years caused him to "suffer severe alarm, anxiety, s
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