Channel Lumber Co., Inc. v. Porter Simon

After retained counsel unsuccessfully defended a corporate landlord in a legal action brought against it by tenants, the corporation sued counsel for malpractice. Judgment was entered in counsel’s favor.

Relying on Corporations Code section 317, the trial court ordered the corporation to indemnify counsel for the expenses and attorney fees incurred in defending agáinst the malpractice claim. (Further section references are to the Corporations Code unless specified otherwise.)

Section 317 gives a corporation the authority, and in some instances imposes an obligation upon the corporation, to indemnify a person “who was or is a party or is threatened to be made a party” to any legal proceeding “by reason of the fact that the person is or was an agent of the corporation

For reasons which follow, we agree with appellant corporation that section 317 does not apply to this case. As we will explain, when outside counsel (as opposed to in-house counsel) is retained by a corporation to represent it at trial and then is sued by the corporation for allegedly committing legal malpractice while representing the corporation, outside counsel is a party to the malpractice suit by…