<b>Counsel Concerns:</b> Severability Used In Malpractice Suit Over California Talent Agency Act

In the recent court of appeal case, karate guru Billy Blanks had hired the law firm Seyfarth Shaw to represent him in a dispute with his former manager, Jeffrey Greenfield, who also acted as an unlicensed talent agent for Blanks. L.A.-based Seyfarth Shaw attorney William Lancaster served as Blanks' primary counsel in the matter.

Greenfield received his last check from his work with Blanks on Aug. 2, 1999. In November 1999, Seyfarth Shaw filed suit for Blanks against Greenfield in Los Angeles Superior Court. But in February 2000, the court of appeal ruled, in Styne v. Stevens, 92 Cal.Rptr. 2d 655 (2000), that the California Labor Commissioner has exclusive initial jurisdiction over TAA disputes. (The California Supreme Court agreed with that aspect of the court of appeal's ruling in a 2001 decision, Styne v. Stevens, 26 Cal.4th 42.) Lancaster didn't file a petition for Blanks with the commissioner until Aug. 28, 2000.

Blanks dismissed Seyfarth Shaw as his lawyers and hired new counsel. Meanwhile, the California Labor Commissioner ruled that the petition by Blanks against Greenfield for acting as an unlicensed agent was barred because it had been filed past the TAA's one-year statute of limitations. In 2003, the court of appeal declined to accept Blanks' argument that the filing of the suit against Greenfield in L.A. Superior Court had tolled the TAA's limitations period. See, Greenfield v. Superior Court, 106 Cal.App.4th 743 (2003).

Blanks sued Seyfarth Shaw for malpractice, breach of fiduciary duty and fraudulent concealment. Blanks claimed he hadn't recovered the $10.6 million he hoped to get back from Greenfield because Seyfarth Shaw had stalled in filing the petition with the labor commissioner allegedly to rack up legal fees. Lancaster responded that he pursued the case in superior court to be able to engage in discovery, which generally isn't allowed in petitions before the labor commissioner. Before the malpractice trial, the judge ruled as a matter of law on a motion in limine that the Seyfarth Shaw lawyers were negligent. The ruling prevented Lancaster from testifying as to why he chose most of the aspects of his litigation strategy in Blanks' case against Greenfield. The malpractice case jury ruled in favor of Blanks and awarded him several million dollars.

Seyfarth Shaw argued that, even if it was negligent in failing to timely file a petition for Blanks with the label commissioner, the cause of action in the complaint in superior court under Calif. Bus. and Prof. Code Sec. 17200, for engaging in unlawful business, was timely and would have obtained the same relief for Blanks as before the labor commissioner. But the court of appeal first found that Seyfarth Shaw didn't have a viable argument on this point. Here, the court of appeal noted that: “Seyfarth unpersuasively seeks to circumvent the comprehensive statutory scheme in which the Legislature has given exclusive original jurisdiction to the Labor Commissioner with regard to TAA claims. ' [T]he TAA mandates that cases colorably arising under the TAA must first be filed with the Commissioner within the one-year statute of limitation period. This is a procedural predicate-filing requirement that cannot be circumvented by recasting a TAA cause of action.”

However, on the severability issue, the court of appeal observed that “any recovery to Blanks in the legal malpractice case was limited to those sums attributable to Greenfield's agent-activities.” The trial court's failure to instruct the jury on the severability doctrine “infected the entire trial,” the court of appeal emphasized.

The court of appeal further criticized the trial court for the motion in limine ruling against Seyfarth Shaw, noting: “Consistent with its ruling that Seyfarth was negligent as a matter of law, the trial court substantially curtailed Seyfarth's presentation of evidence during trial. ' Seyfarth was precluded from fully explaining its rationale for its trial strategy in handling the Blanks v. Greenfield lawsuit, including that discovery was crucial to develop all theories in the multiple pled causes of action and to defend Greenfield's $49 million cross-complaint. ' If Blanks wished to obtain a ruling prior to trial that Seyfarth was negligent as a matter of law, Blanks should have raised the issue in a motion for summary judgment or summary adjudication where all relevant facts could be assessed.”

Certainly, the court of appeals' extension of the severability doctrine to the legal malpractice arena is good news for lawyers who handle TAA cases, as prevailing malpractice plaintiffs may be awarded lower damages. Moreover, as the court appeal further noted, Seyfarth Shaw should have the opportunity to argue on remand that “it was a prudent trial strategy to risk losing the TAA claims when the basis for Seyfarth's strategy was a number of uncertain and untested legal hypothesis that equal or greater results could be achieved for Blanks [in the courtroom and] outside the Commissioner's arena.”

In January 2008, the California Supreme Court decided that the doctrine of severability of contracts could be applied to the state's Talent Agencies Act (TAA), Labor Code Sec. 1700 et seq. Under the supreme court's ruling, a personal manager's activities as an unlicensed talent agent may be severed from the manager's legal activities, the latter still being commissionable from the artist by the manager. Marathon Entertainment Inc. v. Blasi , 42 Cal.4th 974 (Cal. 2008).

According to the supreme court: “[T]he full voiding of the parties' contract is available, but not mandatory; likewise, severance is available, but not mandatory.” The state high court added: “If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.”

The California Court of Appeal, Second District, has now held that a trial court should have instructed a jury on the doctrine of severability in a legal malpractice suit that arose out of representation of a client in a dispute under the TAA. See, Blanks v. Shaw, B183426 (2009). Application of the doctrine in the malpractice case could affect the amount to which the malpractice plaintiff may be entitled.

In the recent court of appeal case, karate guru Billy Blanks had hired the law firm Seyfarth Shaw to represent him in a dispute with his former manager, Jeffrey Greenfield, who also acted as an unlicensed talent agent for Blanks. L.A.-based Seyfarth Shaw attorney William Lancaster served as Blanks' primary counsel in the matter.

Greenfield received his last check from his work with Blanks on Aug. 2, 1999. In November 1999, Seyfarth Shaw filed suit for Blanks against Greenfield in Los Angeles Superior Court. But in February 2000, the court of appeal ruled, in Styne v. Stevens , 92 Cal.Rptr. 2d 655 (2000), that the California Labor Commissioner has exclusive initial jurisdiction over TAA disputes. (The California Supreme Court agreed with that aspect of the court of appeal's ruling in a 2001 decision, Styne v. Stevens , 26 Cal.4th 42.) Lancaster didn't file a petition for Blanks with the commissioner until Aug. 28, 2000.

Blanks dismissed Seyfarth Shaw as his lawyers and hired new counsel. Meanwhile, the California Labor Commissioner ruled that the petition by Blanks against Greenfield for acting as an unlicensed agent was barred because it had been filed past the TAA's one-year statute of limitations. In 2003, the court of appeal declined to accept Blanks' argument that the filing of the suit against Greenfield in L.A. Superior Court had tolled the TAA's limitations period. See , Greenfield v. Superior Court , 106 Cal.App.4th 743 (2003).

Blanks sued Seyfarth Shaw for malpractice, breach of fiduciary duty and fraudulent concealment. Blanks claimed he hadn't recovered the $10.6 million he hoped to get back from Greenfield because Seyfarth Shaw had stalled in filing the petition with the labor commissioner allegedly to rack up legal fees. Lancaster responded that he pursued the case in superior court to be able to engage in discovery, which generally isn't allowed in petitions before the labor commissioner. Before the malpractice trial, the judge ruled as a matter of law on a motion in limine that the Seyfarth Shaw lawyers were negligent. The ruling prevented Lancaster from testifying as to why he chose most of the aspects of his litigation strategy in Blanks' case against Greenfield. The malpractice case jury ruled in favor of Blanks and awarded him several million dollars.

Seyfarth Shaw argued that, even if it was negligent in failing to timely file a petition for Blanks with the label commissioner, the cause of action in the complaint in superior court under Calif. Bus. and Prof. Code Sec. 17200, for engaging in unlawful business, was timely and would have obtained the same relief for Blanks as before the labor commissioner. But the court of appeal first found that Seyfarth Shaw didn't have a viable argument on this point. Here, the court of appeal noted that: “Seyfarth unpersuasively seeks to circumvent the comprehensive statutory scheme in which the Legislature has given exclusive original jurisdiction to the Labor Commissioner with regard to TAA claims. ' [T]he TAA mandates that cases colorably arising under the TAA must first be filed with the Commissioner within the one-year statute of limitation period. This is a procedural predicate-filing requirement that cannot be circumvented by recasting a TAA cause of action.”

However, on the severability issue, the court of appeal observed that “any recovery to Blanks in the legal malpractice case was limited to those sums attributable to Greenfield's agent-activities.” The trial court's failure to instruct the jury on the severability doctrine “infected the entire trial,” the court of appeal emphasized.

The court of appeal further criticized the trial court for the motion in limine ruling against Seyfarth Shaw, noting: “Consistent with its ruling that Seyfarth was negligent as a matter of law, the trial court substantially curtailed Seyfarth's presentation of evidence during trial. ' Seyfarth was precluded from fully explaining its rationale for its trial strategy in handling the Blanks v. Greenfield lawsuit, including that discovery was crucial to develop all theories in the multiple pled causes of action and to defend Greenfield's $49 million cross-complaint. ' If Blanks wished to obtain a ruling prior to trial that Seyfarth was negligent as a matter of law, Blanks should have raised the issue in a motion for summary judgment or summary adjudication where all relevant facts could be assessed.”

Certainly, the court of appeals' extension of the severability doctrine to the legal malpractice arena is good news for lawyers who handle TAA cases, as prevailing malpractice plaintiffs may be awarded lower damages. Moreover, as the court appeal further noted, Seyfarth Shaw should have the opportunity to argue on remand that “it was a prudent trial strategy to risk losing the TAA claims when the basis for Seyfarth's strategy was a number of uncertain and untested legal hypothesis that equal or greater results could be achieved for Blanks [in the courtroom and] outside the Commissioner's arena.”