Lewis Brisbois Bisgaard & Smith has failed to convince a California appeals court to throw out a $13 million legal malpractice case brought by former client Kmart Corp.

The California 2d District Court of Appeal on Monday affirmed a trial judge who denied Lewis Brisbois’ bid to strike the retailer’s action under a California law that prohibits so-called strategic lawsuits against public participation. The “anti-SLAPP” statute forbids lawsuits intended to curb someone’s legally protected rights.

The three-judge panel held that the law did not apply to the allegations Kmart made against the law firm.

Judge Laurie Zelon, writing the 16-page opinion for the court, found Lewis Brisbois’ argument was “internally inconsistent.” She awarded costs to Kmart.

The ruling stemmed from a $26.4 million verdict in 1998 against Kmart in a case brought by two men injured while working in a vacant store. Lewis Brisbois represented Kmart and insurer National Union Fire Insurance Co. on the appeal and in assisting settlement negotiations. By the time an appeals court affirmed the judgment, it had ballooned to $35 million because of fees and interest — a figure about $9 million above what the National Union policy covered.

Shortly before the appeal was final in 2002, Kmart declared bankruptcy. Lewis Brisbois then filed a lawsuit on behalf of National Union against Liberty Mutual, another insurer of Kmart, seeking a declaratory judgment that Liberty Mutual had to cover the personal injury damages. The action also sought a declaration that if National Union had to pay, it was responsible only for $25 million and not for any interest and costs accrued during the appeal.

In November 2003, the trial court determined that National Union was responsible for paying the judgment, but only $25 million of it. The retailer then filed a legal malpractice lawsuit against Lewis Brisbois, alleging negligence, breach of fiduciary duty and breach of contract. Listed as defendants on the complaint in addition to the firm are partners Gordon Calhoun and Douglas Irvine and “Does 1 through 30.”

Lewis Brisbois issued a statement about Monday’s ruling through a spokeswoman: “The firm believes its conduct was appropriate and will continue to aggressively defend against the allegations. We are disappointed by the Court of Appeal’s ruling.”

Calhoun, Irvine and Jana Lubert, the Lewis Brisbois partner defending the malpractice case, did not return telephone calls seeking comment.

Kmart alleges that Lewis Brisbois failed to tell Kmart that National Union’s policy would not cover anything above $25 million; disclosed privileged information to National Union; and breached its professional duty by advising National Union on how it could avoid paying all of the personal injury judgment and then litigating against Liberty Mutual.

In dismissing the law firm’s motion to strike under the anti-SLAPP law, the court concluded that Lewis Brisbois had not shown that Kmart’s lawsuit related to any of the firm’s protected activity, such as free speech or pursuit of an action to recover for a grievance. The firm had claimed that the protected activity was its right to seek a declaratory action against Liberty Mutual for paying the personal injury damages.

“Kmart’s claims do not ‘arise from’ statements that [the firm] made or positions that it took in the Liberty Mutual action,” Zelon wrote. “Rather, Kmart’s allegations regarding the Liberty Mutual action serve to demonstrate that [the firm] actually undertook representation that breached its professional duties to Kmart.”

Also on the panel were judges Dennis Perluss and Fred Woods.

Representing Kmart was Lorenzo Gasparetti, a partner in the Los Angeles office of Reed Smith. He was unavailable for comment.

Leigh Jones can be contacted at ljones@alm.com.