Opinion
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. CV071586
Premo, Acting P.J.
Petitioners Charles Corbalis and Linda J. Corbalis have sued real party in interest Berliner Cohen for legal malpractice. They allege that real party in interest gave them negligent tax and business advice about a real estate development causing them to suffer damages in the form of taxes, penalties, interest, and legal and accounting costs. They seek extraordinary relief from respondent superior court’s order denying their motion to stay the action until the completion of tax audits being performed by the federal Internal Revenue Service (IRS) and state Franchise Tax Board (FTB). We summarily denied relief, but the Supreme Court granted review and transferred the matter to us with directions to vacate our order and issue an alternative writ. We vacated our order, issued an alternative writ, and stayed all proceedings pending our review. Real party in interest filed a return, petitioners filed a reply, and we heard oral argument. We agree that petitioners might be entitled to some remedy upon a proper motion and showing. We therefore deny the petition after offering the parties guidance.
Background
The underlying complaint relates that petitioners purchased and developed certain real property in Cupertino after receiving tax and business advice from real party in interest. Petitioners supported their motion for a stay with a declaration from their current tax attorney. The attorney related the following: (1) the FTB has audited petitioners’ 2001 tax returns; (2) the FTB has issued a proposed notice of assessment that contests petitioners’ treatment of items relating to the development and sale of the Cupertino real property; (3) petitioners protested the proposed assessment and the matter is before the FTB administratively; (4) the IRS was auditing petitioners’ 2001-2002 tax returns; and (5) the IRS was considering the same issues relating to the Cupertino real property. The motion also informed that petitioners had filed the action in 2006 to avoid a statute of limitations bar but urged that the core questions whether real party in interest committed malpractice and caused damages were not ascertainable until the IRS and FTB made final assessments. It added that prejudice would result from petitioners having to fight a “two-front war.” Real party in interest countered that “a definitive measurement of [petitioners’] damages are simply unneeded at this time, as the parties can still readily engage in the necessary discovery and motion practice to prepare the case for a final resolution.” It continued that prejudice would result from real party in interest’s inability to marshal its evidence before memories faded and documents were lost. At the hearing, real party in interest emphasized that it would be prejudiced by a stay because a stay would allow “stale information to become even staler” and keep it “in the dark [during administrative proceedings] . . . could be a year, could be a year and a half. . . .” It asserted: “[T]he legal services [at issue] were rendered in the spring of 2001. Our last involvement with the [petitioners] was in 2002. Since then, we know nothing.” It concluded: “If this matter is stayed without us being able to get information, that is only going to get more and more stale. That is substantial prejudice to us.” Petitioners replied that engaging in discovery might result in a waste of time and resources in the event that neither tax agency imposes a final assessment. They added that both parties are now on notice to preserve documentary evidence. Respondent denied petitioners’ motion without explanation.
Discussion
In the context of urging that respondent abused its discretion, petitioners reiterate their arguments. They also clarify their prejudice point: if they are compelled to engage in discovery, taking the position that they have been damaged by real party in interest’s negligent tax advice, they risk admitting the validity of the tax authorities’ positions. Real party in interest argues that petitioners have failed to demonstrate abuse of discretion. It also reiterates its position below that it has the right to conduct discovery and seek an expeditious resolution of the serious allegations, which are “potentially devastating to the law firm’s reputation.” It counters petitioners’ prejudice point by asserting the following: “if Petitioners presently believe that the advice of their counsel . . . was incorrect or negligent then they should not be contesting the tax assessment.”
Reduced to the essence, petitioners argue that they are entitled to a stay because they are prejudiced without a stay and real party in interest argues that respondent rationally denied a stay because it is prejudiced with a stay.
The Legislature intended discovery to be allowed whenever consistent with justice and public policy. (Irvington-Moore, Inc. v. Superior Court (1993) 14 Cal.App.4th 733, 738.) A party to a civil action is entitled to discovery that is relevant to the subject matter of the pending action, provided the requested information is admissible or reasonably calculated to lead to the discovery of admissible evidence. (Code Civ. Proc., § 2017.010.) A party seeking to limit or stay discovery has the burden to show good cause therefore. (Id., §§ 2019.020, subd. (b), 2019.030, subd. (a)(1); GT, Inc. v. Superior Court (1984) 151 Cal.App.3d 748, 754.)
On the other hand, there is no harm in petitioners filing a suit for malpractice before the resolution of the underlying tax audits. “[C]oncerns for the premature filing of legal malpractice claims and the risk of inconsistent pleadings or judgments . . . can be readily overcome under existing law. Statutory provisions permit consolidation or coordination of related actions. [Citations.] Alternatively, trial courts have inherent authority to stay malpractice suits, holding them in abeyance pending resolution of underlying litigation. [Citations.] Moreover, a party may plead in the alternative and may make inconsistent allegations.” (Adams v. Paul (1995) 11 Cal.4th 583, 592-593.) “The liberal use of tolling agreements and stays in malpractice cases may reduce the impact on the underlying litigation, ensure that plaintiffs do not have their claims prematurely barred, protect defendants’ and defendants’ insurers’ interests in ‘receiving timely notice and avoiding stale claims.’ ” (Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 513.)
Given these competing interests, the question of a stay in a case such as this one is not resolved by essentially guessing which party would be most prejudiced by the grant or denial of a stay. Rather, the question requires a more thorough analysis and likely a less than all-or-nothing remedy. Neither party has directed our attention to authority precisely on point. But Haskel, Inc. v. Superior Court (1995) 33 Cal.App.4th 963 (Haskel), is instructive, if not analogous.
In Haskel, insureds that were subject to environmental remediation orders issued by federal and state agencies brought a declaratory relief action against their insurers to determine whether the insurers had a duty to defend them in connection with the orders. While the remediation orders were still pending, the insureds filed a motion for summary adjudication on the duty-to-defend issue, but the trial court took the motion off calendar and ordered that the motion could not be refiled until after the insureds complied with the insurers’ outstanding discovery requests. The insured challenged the trial court’s order via petition for writ of mandate. The court concluded that the trial court had erred by conditioning the insureds’ right to have its summary adjudication motion heard upon the satisfaction of all of the insurers’ discovery demands. It required the trial court to hear the motion and grant it absent a conclusive showing that negated a potential for coverage. But it advised that, after a grant of the motion, the insurers were nevertheless entitled to search for and develop evidence that would ultimately enable them to conclusively negate a potential for coverage. Toward this eventuality, the court examined whether the insureds were entitled to a discovery stay on issues that prejudiced its defense of the remediation orders. It quoted the general principles set forth in Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 301-302, governing a declaratory relief action brought to determine coverage issues while the underlying claim for which the insured claims coverage is still pending, as follows: “ ‘To eliminate the risk of inconsistent factual determinations that could prejudice the insured, a stay of the declaratory relief action pending resolution of the third party suit is appropriate when the coverage question turns on facts to be litigated in the underlying action. [Citations.] For example, when the third party seeks damages on account of the insured’s negligence, and the insurer seeks to avoid providing a defense by arguing that its insured harmed the third party by intentional conduct, the potential that the insurer’s proof will prejudice its insured in the underlying litigation is obvious. This is the classic situation in which the declaratory relief action should be stayed. By contrast, when the coverage question is logically unrelated to the issues of consequence in the underlying case, the declaratory relief action may properly proceed to judgment.’ ” (Haskel, supra,33 Cal.App.4th at p. 979, quoting People v. Montrose, supra, 6 Cal.4th at pp. 301-302.)
The court noted that the foregoing principles address three concerns that would otherwise arise where trial of the coverage issues necessarily turns on the facts to be litigated in the underlying action. The first of these is that the insurer, which is supposed to be on the side of its insured and with which it has a special relationship, would be permitted to effectively attack its insured, indirectly providing assistance to the underlying claimant. Second, allowing such a declaratory relief action to proceed would require the insured to expend resources to fight a two-front war, one with the underlying claimant and one with its insurer, thus undercutting a primary reason for purchasing liability insurance in the first instance. Third, if the declaratory relief action proceeded to trial before the underlying action, the insured might be collaterally estopped to contest issues relating to its liability in the underlying action. (Haskel, supra,33 Cal.App.4th at p. 979 ; Montrose Chemical Corp. v. Superior Court (Canadian Universal Ins. Co.) (1994) 25 Cal.App.4th 902, 910.)
The court concluded, however, that it could not make a determination whether the insureds were entitled to a discovery stay on issues logically related to issues affecting liability in the underlying action because of the limited record before it. It directed the trial court to make the determination, advising that logically related discovery “should be stayed pending resolution of the liability claims asserted against [the insureds] in the underlying action unless the court finds that a confidentiality order will be sufficient to protect [the insureds’] interests.” (Haskel, supra, 33 Cal.App.4th at p. 980.) It directed the trial court to make the following specific findings before resolving the request to stay: (1) what was the nature of the claims asserted in the underlying action; (2) what defenses to coverage were asserted by the insurers and to what extent were they logically related to the liability issues raised in the underlying action; (3) what factual questions had to be resolved in order to sustain or defeat the defenses; (4) what was the likely nature of the available evidence; (5) to what extent would the insureds suffer prejudice by the enforced discovery of the evidence that tends to support or defeat the claim of coverage or defenses; and (6) to what extent will a confidentiality order realistically protect the insureds from prejudicial disclosure.
We recognize that Haskel spoke about policy considerations arising from the existence of a special relationship between an insurer and its insured, a relationship that does not exist here. But the necessity for limiting discovery exists in other contexts. For example, in Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1210-1211, the court held that a trial court “should” stay a criminal malpractice action while the plaintiff timely and diligently pursues postconviction remedies to establish exoneration. (Id. at p. 1210.) “By this means, courts can ensure that the plaintiff’s claim will not be barred prematurely by the statute of limitations. This approach at the same time will protect the interest of defendants in attorney malpractice actions in receiving timely notice and avoiding stale claims.” (Id. at p. 1211.)
In short, the Haskel considerations, adapted as necessary, could provide a basis for limiting discovery in this case. But petitioners neither cited Haskel nor asked respondent to engage in a Haskel analysis. It is “inappropriate and futile for us to attempt to review for abuse a discretion the court was never requested to exercise and did not purport to exercise.” (Agricultural Labor Relations Bd. v. Laflin & Laflin (1979) 89 Cal.App.3d 651, 667, fn. 16.) We therefore deny the petition but affirm that petitioners may file a Haskel motion for respondent’s consideration.
Should petitioners file a Haskel motion, respondent should determine: (1) what is the exact nature of the tax authorities’ claims and petitioners’ defenses in the underlying proceedings; (2) what is the exact nature of petitioners’ claims and real party in interest’s defenses in the malpractice action; (3) what factual questions have to be resolved in order to sustain or defeat the tax authorities’ claims; (4) what factual questions have to be resolved in order to sustain or defeat petitioners’ malpractice claims; (5) what is the likely nature of the available evidence; (6) to what extent, if at all, will petitioners suffer prejudice by the enforced discovery of the evidence which tends to support or defeat the tax authorities’ claims and support or defeat their malpractice claims; and (7) to what extent, if at all, will a confidentiality order realistically protect petitioners from prejudicial disclosure. Respondent should make specific findings with respect to each of these matters before resolving a Haskel motion for a stay of discovery.
Disposition
The petition for writ of mandate, prohibition, or other appropriate relief is denied without prejudice to petitioners’ opportunity to file a Haskel motion. The stay of trial court proceedings in the underlying matter is vacated. The parties will bear their own costs in this original proceeding.
WE CONCUR: Elia, J., Duffy, J.