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Patch v. Hanley11/22/2002
Virginia K. Opfell sued Ryan M. Patch, an individual, Ryan M. Patch, a professional corporation, the partnership of Hanley & Patch (collectively Patch), plus William B. Hanley, an individual, and William B. Hanley, a professional corporation (collectively Hanley), for damages. Patch filed a cross-complaint against Hanley for equitable indemnity, express indemnity, express duty to defend, and declaratory relief.
Opfell settled her claim with all of the defendants in return for a sum paid by the partnership's malpractice insurance carrier. The trial court granted Patch's motion for summary adjudication on the cross-complaint's declaratory relief count. After a non-jury trial, the superior court ruled for Patch on the cross-complaint against Hanley, both individually and in his corporate capacity. The judgment awarded Patch damages of $621,738.18, which included the settlement and part of their legal fees, and declared Hanley must indemnify Patch for all additional expenses arising from the Opfell action.
Hanley attacks the trial court's damage award on several grounds, and claims it erred by refusing to rule on the right to recover certain partnership payments withheld by Patch. In their cross-appeal, Patch attacks the trial court's refusal to award them the entire amount of requested legal expenses.
We conclude Patch's entitlement to indemnification from Hanley for the settlement and the bulk of their legal expenses is premature. Thus, we modify the judgment to award Patch only the legal expenses they personally incurred in defending the Opfell action. In addition, we modify the judgment to clarify Patch's rights against Hanley in the event they are subsequently obligated to reimburse the partnership's malpractice carrier. We also affirm the trial court's denial of Patch's request for the fees they incurred prosecuting the cross-action against Hanley.
FACTS
Ryan M. Patch and William B. Hanley are attorneys. Between 1992 and 1997, they practiced law together as members of a partnership which eventually became Hanley & Patch.
The partnership agreement, executed by all of the parties in their corporate capacities, prohibited members from either incurring partnership debts exceeding $3,000 or accepting "gratuities of any substantial significance" without consent. The agreement's indemnification clause declared " ny party hereto who . . . violate any of the terms, covenants or conditions of this Agreement . . . shall protect, hold harmless and indemnify the Partnership and each partner thereof, against any and all claims, costs, expenses, demands, actions or liabilities that may arise out of or by reason of such violation." The same clause required a partner who violated the agreement to provide a defense to Hanley & Patch and its other partners and pay their costs and legal fees.
In 1993, Opfell retained Hanley to represent her. Between late 1994 and early 1997, Hanley received $298,500 from Opfell. He deposited the funds into his personal and corporate accounts and did not inform the other members of the partnership about them.
Hanley testified he believed the payments were gifts. Patch's evidence indicated Opfell loaned the funds to Hanley. Hanley did not give Opfell written notice the payments created a potential conflict of interest, or recommend she seek independent legal advice on the matter. He claimed the attorney-client relationship had ended before Opfell gave him any money, but failed to notify her of its termination. In 1996, Opfell hired another attorney in an effort to obtain repayment of the funds. Although aware of this fact, Hanley met with Opfell without her lawyer's knowledg
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