Property Cal. SCJLW One Corp. v. Leamy ( 2018 )

Filed 8/9/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
PROPERTY CALIFORNIA SCJLW ONE
CORPORATION,
Plaintiff and Respondent, A152959
v. (Contra Costa County
KRIS LEAMY et al., Super. Ct. No. MSC1600657)
Defendants and Appellants.
Defendants Robin and Kris Leamy appeal from a final judgment entered in favor
of plaintiff Property California SCJLW One Corporation. The judgment was entered
based on an order granting plaintiff’s motion for summary judgment regarding a
settlement agreement (Agreement) involving attorney fees that contained a standard
general release. Defendants contend summary judgment was improperly granted because
the Agreement is unenforceable. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Defendants entered into a contract with J.T. Holmes to purchase a home in
Lafayette. They waived contingencies under the contract, but discovered prior to close of
escrow that there were matters with the house that had not been disclosed. They
terminated the contract and sought to recover their deposit of $116,220, but Holmes
refused. Their attorney, David Bowie (who also represented them below and in this
appeal), negotiated an agreement to recover half of their deposit, or $58,110, but they
refused to accept this resolution because they wanted to recover the entire deposit.
Bowie declined to represent them for that claim.
In 2009, defendants hired the law firm of Morgan Miller Blair (MMB), which
represented them for approximately two and a half years in connection with the failed
real estate transaction. Defendants made claims against Holmes, including claims for
consequential damages, that proceeded to arbitration. Holmes advanced counterclaims,
including claims for breach of contract and fraud. MMB represented defendants in the
arbitration and in two related lawsuits.
On August 24, 2011, as the matters were approaching final resolution, MMB
informed defendants that they owed $431,141.92 in unpaid legal fees. MMB provided
defendants with a draft settlement agreement, whereby the firm agreed to accept a
discounted payment of $331,000 for its legal services. The draft includes an affirmative
representation that the parties each had received the advice of independent counsel.
On August 26, 2011, Robin1 sent MMB revisions to the draft settlement
agreement. The revised draft retains the provisions regarding consultation with
independent counsel. It also adds a provision stating that “Clients further contend that
Law Firm failed to adhere to the Clients’ direction on one or more occasions and further
question the Law Firm’s handling, strategy and representation of Clients in various
ways.”
On September 6, 2011, Robin sent an e-mail to Steven Holland, an MMB attorney
who presently is counsel for plaintiff in this matter. The e-mail states: “My attorney is
asking for the original contract we signed with MMB. Do you have that? If so, can you
scan and send please.”
On October 17, 2011, Holland sent defendants an e-mail with a revised draft
settlement agreement attached. The parties negotiated further revisions to the draft over
the following weeks.
1
We use the defendants’ first names for clarity. No disrespect is intended.
2
On October 23, 2011, Kris sent an e-mail to Holland stating, in part: “Robin is
still seeking final approval from our attorney which he expects to hear back from
tomorrow.”
On October 27, 2011, Robin e-mailed Holland stating, in part: “I am in Florida
currently, and have not been able to get feedback to my satisfaction from David Bowie
due to his schedule. I am trying to communicate electronically with him today and
tomorrow, but do not anticipate being able to close with him until early next week.”
On October 28, 2011, the arbitrator in the real estate dispute issued a final
arbitration award, awarding Holmes $116,250 on his breach of contract claim, and
$75,000 in attorney fees and costs.
On November 4, 2011, defendants executed the Agreement. Defendants also
submitted substitution of attorney forms, identifying Bowie as their new legal
representative. Under the terms of the Agreement, defendants agreed to pay MMB a total
of $150,000 in two $75,000 payments.
The Agreement contains mutual general releases. Each party agreed to fully
release and discharge the other “from any and all rights, liabilities, claims, demands,
causes of action, obligations, damages, losses, costs, attorneys’ fees and/or expenses . . .
which they or either of them, respectively, had, now have, or may after the signing of this
Agreement have, against such Released Parties based on or arising out of the Dispute, the
attorney-client relationship between Clients and Law Firm, and/or any other source, from
the beginning of time to the Effective Date of this Agreement.” The parties also
explicitly waived all claims against each other “whether now known or unknown, and
whether now existing or which may result in the future.”
The parties further certified that they had been advised of and understood the
provisions of Civil Code section 1542 (section 1542), and agreed to expressly waive its
3
protections.2 They also warranted that, in executing the agreement, they had relied on
their attorney of choice.
On April 20, 2012, Robin sent an e-mail to Holland stating that he anticipated
receiving payment on a project in May, which would allow him to make the first
settlement payment. It is undisputed that no payments were ever made. MMB dissolved
as a law firm in the summer of 2012.
On April 8, 2016, MMB’s assignee, plaintiff Property California SCJLW One
Corporation, filed a complaint for breach of contract and to enforce the terms of the
Agreement.
On July 1, 2016, defendants filed their answer to the complaint.
On April 18, 2017, plaintiff filed a motion for summary judgment, or in the
alternative, summary adjudication. Plaintiff attached declarations of Holland and
Christopher J. Hunter, another former MMB attorney, in support of its motion, as well as
a separate statement of undisputed material facts.
Defendants filed their opposition on July 5, 2017. They asserted the agreement
was unenforceable for lack of consideration because MMB and Holland had committed
legal malpractice. Defendants also claimed the Agreement was subject to rescission
because their signatures were fraudulently induced, and because MMB and Holland had
failed to disclose their own malpractice exposure in violation of their ethical duties and in
violation of multiple provisions of the California Rules of Professional Conduct. In their
response to plaintiff’s statement of facts, they admitted the Agreement had required them
to pay MMB $150,000. They also admitted they had failed to make any payments under
the Agreement.
2
Section 1542 provides: “A general release does not extend to claims which the
creditor does not know or suspect to exist in his or her favor at the time of executing the
release, which if known by him or her must have materially affected his or her settlement
with the debtor.”
4
With their opposition, defendants attached the declarations of Robin, Kris, Bowie,
and Charles A. Koss, an expert witness hired by defendants to “analyze the legal
representation of [defendants] by [MMB in the underlying real estate matter], as well as
the facts and circumstances surrounding the apparent execution of a purported Settlement
Agreement at the conclusion of the matter.” Plaintiff filed evidentiary objections to all
four declarations.
On July 19, 2017, the trial court issued a tentative ruling requesting further
briefing.
Plaintiff’s summary judgment motion was heard on September 13, 2017.
Defendants have not provided to this court a reporter’s transcript of that hearing.
On September 13, 2017, the trial court filed its order granting plaintiff’s motion.
In its ruling, the court sustained several of plaintiff’s evidentiary objections to the
declarations submitted by defendants, including its objection to the entire declaration of
Koss. A judgment for $150,000, plus $81,460.20 in interest, was filed that same day.
This appeal followed.
DISCUSSION
I. Summary Judgment Standard of Review
We review de novo the trial court’s decision to grant plaintiff’s motion for
summary judgment. (Sangster v. Paetkau (1998) 68 Cal. App. 4th 151, 163.) The trial
court’s stated reasons for granting summary relief are not binding on the reviewing court,
which reviews the court’s ruling, not its rationale. (Kids’ Universe v. In2Labs (2002)
95 Cal. App. 4th 870, 878.)
Summary judgment must be granted if all the papers and affidavits submitted,
together with “all inferences reasonably deducible from the evidence” and uncontradicted
by other inferences or evidence, show “there is no triable issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc.,
§ 437c, subd. (c).) Where, as here, the plaintiff is the moving party, he or she may meet
5
the burden of showing there is no defense to a cause of action by proving each element of
the cause of action entitling the party to judgment. (See id., subd. (p)(1).) Once the
plaintiff has met that burden, the burden shifts to the defendant to show that a triable
issue of one or more material facts exists as to the cause of action or a defense thereto.
(Ibid.) We must consider all evidence in the light most favorable to the nonmoving
parties, which in this case are defendants. (Aguilar v. Atlantic Richfield Co. (2001)
25 Cal. 4th 826, 843.)
II. Plaintiff’s Prima Facie Showing
The elements of a cause of action for breach of contract are: “ ‘(1) the contract,
(2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and
(4) damage to plaintiff therefrom.’ ” (Wall Street Network, Ltd. v. New York Times Co.
(2008) 164 Cal. App. 4th 1171, 1178.) A settlement agreement is governed by the same
rules applicable to other contracts. (Winet v. Price (1992) 4 Cal. App. 4th 1159, 1165.)
In its motion for summary judgment, plaintiff set forth a prima facie case for
breach of contract. Plaintiff showed the existence of the Agreement, which provided that
MMB agreed to accept $150,000 in settlement of its claim that it was owed in excess of
$381,538 for legal services. Plaintiff showed that MMB performed its obligation under
the agreement by accepting the compromise in lieu of any other monies claimed due, and
by cooperating in the orderly transition to new representation. Plaintiff also provided
evidence defendants failed to pay the $150,000 owed to MMB, and that plaintiff has been
damaged in this amount. Having set forth a prima facie case for breach of the
Agreement, the burden shifted to defendants to raise a triable issue of fact.
III. Defendants Have Failed to Raise a Triable Issue of Material Fact
A. Exclusion of Koss Declaration
Below, defendants relied almost entirely on their expert witnesses’ declaration to
support their claim of legal malpractice as a basis for their lack of consideration defense.
6
As noted above, the trial court excluded that declaration. On appeal, defendants assert
that the court erred.
We review the trial court’s ruling on the admissibility of expert testimony for
abuse of discretion. (Sargon Enterprises, Inc. v. University of Southern California (2012)
55 Cal. 4th 747, 773 (Sargon).) A court abuses its discretion if its ruling is “ ‘so irrational
or arbitrary that no reasonable person could agree with it.’ ” (Ibid.) “When applying the
deferential abuse of discretion standard, ‘the trial court’s findings of fact are reviewed for
substantial evidence, its conclusions of law are reviewed de novo, and its application of
the law to the facts is reversible only if arbitrary and capricious.’ ” (In re C.B. (2010)
190 Cal. App. 4th 102, 123.) “It is the appellant’s burden on appeal to show the trial court
abused its discretion.” (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal. App. 4th
939, 957.)
“A properly qualified expert may offer an opinion relating to a subject that is
beyond common experience, if that expert’s opinion will assist the trier of fact.”
(Bushling v. Fremont Medical Center (2004) 117 Cal. App. 4th 493, 510 (Bushling).)
“However, even when the witness qualifies as an expert, he or she does not possess a
carte blanche to express any opinion within the area of expertise. [Citation.] For
example, an expert’s opinion based on assumptions of fact without evidentiary support
[citation], or on speculative or conjectural factors [citation], has no evidentiary value
[citation] and may be excluded from evidence. [Citations.] Similarly, when an expert’s
opinion is purely conclusory because unaccompanied by a reasoned explanation
connecting the factual predicates to the ultimate conclusion, that opinion has no
evidentiary value because an ‘expert opinion is worth no more than the reasons upon
which it rests.’ ” (Jennings v. Palomar Pomerado Health Systems, Inc. (2003)
114 Cal. App. 4th 1108, 1117.) “An expert who gives only a conclusory opinion does not
assist the jury to determine what occurred, but instead supplants the jury by declaring
what occurred.” (Id. at pp. 1117–1118.)
7
These rules apply to expert witness declarations submitted in connection with a
motion for summary judgment. (Powell v. Kleinman (2007) 151 Cal. App. 4th 112, 123;
Bushling, supra, 117 Cal.App.4th at p. 510.) “Cases dismissing expert declarations in
connection with summary judgment motions do so on the basis that the declarations
established that the opinions were either speculative, lacked foundation, or were stated
without sufficient certainty.” (Sanchez v. Hillerich & Bradsby Co. (2002)
104 Cal. App. 4th 703, 718.) “[U]nder Evidence Code section 801, the trial court acts as a
gatekeeper to exclude speculative or irrelevant expert opinion.” (Sargon, supra,
55 Cal.4th at p. 770.) “[T]he gatekeeper’s role ‘is to make certain that an expert, whether
basing testimony upon professional studies or personal experience, employs in the
courtroom the same level of intellectual rigor that characterizes the practice of an expert
in the relevant field.’ ” (Id. at p. 772.)
In sustaining plaintiff’s objection to the entire declaration, the trial court found
that Koss’s opinions lacked adequate foundation and adequate analysis. Because it made
this finding, the court concluded that plaintiff’s specific objections were moot and did not
address them. As to the lack of foundation, the court observed that most of the
unidentified documents Koss reviewed appear to have been unverified court filings
and/or the declarations of defendants and Bowie, which the court had ruled were largely
inadmissible. The court also specifically mentioned two “startling gaps” in Koss’s
opinion: (1) his “failure to review MMB’s invoices and (2) failure to seek out any
information concerning defendants’ reasons for rejecting the $58,000 settlement offer
negotiated by Mr. Bowie, before defendants fired Mr. Bowie and hired MMB to pursue
their claims more aggressively.” We find no abuse of discretion.
Koss states that he reviewed the pleadings from the arbitration and the related
court proceedings, as well as the Agreement and the declarations of Robin, Kris, and
Bowie, relying on the representations made in those declarations. As the trial court
indicated, he did not review MMB’s invoices. Nor does the declaration reflect that he
8
inquired as to why defendants rejected the settlement offer negotiated by Bowie. Koss
opines that MMB breached the standard of care because “it appears the legal and
economic realities of the dispute were entirely misanalysed.” He relates that defendants
retained MMB solely because they wished to pursue the recovery of the entire deposit
from Holmes, rather than accept half of the deposit as negotiated by Bowie. He then
faults MMB for pursuing extensive litigation and by bringing multiple causes of action
against Holmes, though Koss does not address whether defendants authorized MMB to
pursue this strategy.
Defendants attack the trial court’s reasoning, claiming they do not have copies of
MMB’s invoices,3 merely echoing Koss’s conclusion that “[t]o invoice close to $600,000
in fees for a case worth $58,110 is ludicrous.” This simplistic view does not
satisfactorily address the lower court’s finding. For example, the court noted that Koss
“says nothing about MMB successfully defending against the seller’s claim for attorney
fees; the seller sought approximately $834,000, but was awarded only $75,000.”
Defendants do not dispute this finding and other similar findings, instead arguing that
disagreement with an expert’s opinion is not grounds for excluding the entire declaration.
However, the court was not merely disagreeing with Koss’s conclusions. Instead, it was
pointing out why Koss’s opinions lacked foundation. In sum, defendants fail to show that
the court’s ruling was “so irrational or arbitrary that no reasonable person could agree
with it.”4 (People v. Carmony (2004) 33 Cal. 4th 367, 377.)
It does appear that defendants desired an aggressive approach in litigating the
failed real estate transaction. We note Robin states in his declaration that he not only
3
There is no explanation as to why these invoices could not have been obtained
through discovery.
4
In light of our conclusion that the trial court did not commit an abuse of
discretion when it excluded Koss’s declaration, we need not consider the remainder of the
court’s evidentiary rulings.
9
wanted the full deposit back, he and Kris wanted to pursue “consequential damages,”
including damages for fraud and emotional distress. However, Koss’s analysis avoids
this point, merely stating that “any reasonable attorney with reasonable experience and
understanding in this area would conclude that [defendants] never had any possibility of
obtaining any relief beyond the return of their deposit—i.e. $166,220.” Beyond faulting
MMB for filing an ex parte application for a writ of attachment, Koss broadly opines that
MMB violated the standard of care by over-litigating the case and generating excessive
legal fees.
Further, defendants’ expert added nothing beyond declaring that MMB’s billing
constituted malpractice because it was excessive. In short, he “was advocating, not
testifying.” (Summers v. A. L. Gilbert Co. (1999) 69 Cal. App. 4th 1155, 1185, italics
omitted.) He reached what in this case was an ultimate conclusion of law, a point on
which expert testimony is not allowed. (West v. Sundown Little League of Stockton, Inc.
(2002) 96 Cal. App. 4th 351, 358–359.) “Courts must be cautious where an expert offers
legal conclusions as to ultimate facts in the guise of an expert opinion.” (Benavidez v.
San Jose Police Dept. (1999) 71 Cal. App. 4th 853, 865.) The trial court was well within
its discretion to exclude Koss’s declaration.
B. Lack of Consideration Defense
Defendants assert the trial court erred by failing to properly analyze their defense
of lack of consideration.5 Consideration is present when the promisee confers a benefit
or suffers a prejudice. (Steiner v. Thexton (2010) 48 Cal. 4th 411, 420–421, citing
Civ. Code, § 1605.) Although “either alone is sufficient to constitute consideration,” the
benefit or prejudice “ ‘ “must actually be bargained for as the exchange for the
promise.” ’ ” (Id. at p. 421.) “Put another way, the benefit or prejudice must have
5
In their answer, they stated lack of consideration as their first affirmative
defense, claiming the Agreement is “unenforceable against [them] in that their execution
of the terms thereof was not supported by adequate consideration.”
10
induced the promisor’s promise.” (Ibid. [“ ‘ “The fact that the promisee relies on the
promise to his injury, or the promisor gains some advantage therefrom, does not establish
consideration without the element of bargain or agreed exchange.” ’ ”].) It is established
that “the compromise of disputes or claims asserted in good faith constitutes
consideration for a new promise.” (Nesbitt Fruit Products, Inc. v. Del Monte Beverage
Co. (1960) 177 Cal. App. 2d 353, 361; see Miller v. Johnston (1969) 270 Cal. App. 2d 289,
299; Kaufman v. Goldman (2011) 195 Cal. App. 4th 734, 742 (Kaufman).)
Defendants argue that “[c]ompromise of a wholly invalid claim is inadequate
consideration to support a contract.” (Italics added.) The argument is based on the claim
that MMB breached the standard of care and committed legal malpractice during its
representation, such that, at a minimum, “a question of fact exists as to whether MMB’s
representation fell so far below the standard of care such that no consideration could exist
for the compromise of any claim for additional attorneys fees.” Essentially, defendants
argue that MMB gave them nothing in exchange for their promise to pay $150,000
because the law firm was not entitled to any additional fees due to its commission of
gross malpractice. Preliminarily, we note the cases defendants rely on are inapposite.
In Orange County Foundation v. Irvine Co. (1983) 139 Cal. App. 3d 195, 201
(Orange County Foundation), the Court of Appeal reversed the grant of summary
judgment on a taxpayer’s gift clause action stemming from a settlement between a private
party (Irvine) and the State of California. In that case, the state and Irvine disputed title
to three islands in upper Newport Bay. Pursuant to a settlement agreement, the state paid
money to Irvine to clear the state’s title to those islands. The Orange County Foundation
for the Preservation of Public Property (Foundation) sued Irvine and the state to set aside
the settlement agreement. The Foundation alleged that Irvine knew the islands were
tidelands and submerged lands protected by a public trust in which Irvine had no legal
claim or disputable interest. (Id. at p. 199.)
11
The trial court sustained the state’s demurrer without leave to amend, and granted
Irvine’s summary judgment motion. (Orange County Foundation, supra,
139 Cal.App.3d at p. 199.) The Court of Appeal reversed the summary judgment granted
to Irvine, concluding there was a triable issue as to “whether [its] compromised title
claims to certain islands were knowingly spurious.” (Id. at p. 198.) The court observed,
“[T]he settlement of a good faith dispute between the State and a private party is an
appropriate use of public funds, neither wasteful within the meaning of [Code of Civil
Procedure] section 526a, nor a gift barred by [California Constitution] article XVI,
section 6, because the relinquishment of a colorable legal claim in return for settlement
funds paid by the State is good consideration and accomplishes a valid public purpose.”
(Orange County Foundation, at p. 200.)6 The court also noted that a promise to
compromise an invalid or unfounded claim is not valuable consideration. (Id. at p. 201.)
The present case does not involve the use of public funds. Our research has
disclosed no cases applying Orange County Foundation to a private settlement
agreement. Accordingly, the case does not provide persuasive authority for defendants’
legal theory. To the extent it holds that there is no consideration for the release of an
invalid claim, the opinion does not hold that a released claim must be absolutely valid,
but rather that it must be at least “colorable.” (Orange County Foundation, supra,
139 Cal.App.3d at p. 200.) While we will address defendants’ legal malpractice
6
Section 6 of article XVI of the California Constitution provides that the
Legislature has no power “to make any gift or authorize the making of any gift, of any
public money or thing of value to any individual, municipal or other corporation . . . .”
The term “gift” in the constitutional provision “includes all appropriations of public
money for which there is no authority or enforceable claim,” even if there is a moral or
equitable obligation. (Conlin v. Board of Supervisors (1893) 99 Cal. 17, 21–22.) “An
appropriation of money by the legislature for the relief of one who has no legal claim
therefor must be regarded as a gift within the meaning of that term, as used in this
section, and it is none the less a gift that a sufficient motive appears for its appropriation,
if the motive does not rest upon a valid consideration.” (Id. at p. 22.)
12
assertions in more detail below, suffice it to say we have little difficulty in concluding
that MMB possessed at least a “colorable claim” to its fees.7
Union Collection Co. v. Buckman (1907) 150 Cal. 159, 164 (Buckman) (cited to
by Orange County Foundation and also referenced in defendants’ brief) is also
inapposite. In Buckman, the defendant (Buckman) lost $1,300 while participating in an
unspecified “gambling game” and gave the winner (McMahon) three promissory notes
that were transferred to the plaintiff’s assignor (Reid) for collection. (Buckman, at
p. 160.) After Reid commenced an action against Buckman upon one of the notes, the
parties entered into a settlement agreement under which Buckman gave four new notes in
consideration for dismissal of the action and cancellation of the original three notes.
When Buckman defaulted on his payment obligations under the new notes, Reid brought
another lawsuit upon two of the new notes, and the parties again settled the matter upon
Buckman’s execution of two new written instruments promising to pay the sum of $410
plus interest. (Id. at pp. 160–161.) When Buckman apparently defaulted again, Reid
assigned his rights to the plaintiff, which brought an action upon the new written
instruments. (Id. at p. 160.) Following a trial, the trial court entered judgment in favor of
Buckman on the ground the original notes were based on illegal consideration because
Buckman gave them to McMahon solely to evidence an alleged indebtedness for
gambling money he lost to McMahon. (Id. at p. 161.) In the present case, there are no
allegations that the Agreement was based on illegal consideration. Thus, Buckman does
not support defendants’ legal assertions.
Murphy v. T. Rowe Price Prime Reserve Fund, Inc. (1993) 8 F.3d 1420, also cited
to by defendants, actually supports plaintiff’s position. In that case, the Ninth Circuit
Court of Appeals held: “An oral agreement is not enforceable without consideration.
7
To be colorable, a claim must be asserted in good faith and must be legally
tenable under the theory advanced. (See Rogers v. Platt (1988) 199 Cal. App. 3d 1204,
1212.)
13
Compromise of a wholly invalid claim, one with no foundation, is not valid
consideration. [Citations.] However, surrender of a possibly meritless claim which is
disputed in good faith is valid consideration. [Citations.] The rationale of these cases is
that parties who settled in order to avoid litigation should be given the benefit of their
bargain.” (Id. at p. 1423, italics added.) Here, defendants essentially allege that MMB’s
fee claim was meritless because the firm committed legal malpractice. Even if true, that
assertion was (and is) clearly disputed by MMB,8 and defendants do not argue that MMB
lacked good faith in pursuing settlement of the dispute.
Finally, Jordan v. California Department of Motor Vehicles (2002)
100 Cal. App. 4th 431, 450 (Jordan) is also distinguishable. Similar to Orange County
Foundation, in Jordan, the appellate court reviewed and vacated an arbitration award as
an unconstitutional gift of public funds. The Legislature had, by legislative enactment,
authorized a certain maximum amount of attorney fees that could be awarded in
connection with a lawsuit involving the state’s smog impact fee. (Id. at pp. 438–439.)
The arbitrator’s award substantially exceeded the amount authorized by the Legislature.
(Id. at pp. 439–441.) While the settlement of the attorney fee dispute was found to have
served a public purpose, awarding fees in excess of the state’s maximum exposure was
deemed “akin to payment of a wholly invalid claim and violates the gift clause.” (Id. at
p. 450, citing to Orange County Foundation, supra, 139 Cal.App.3d at pp. 200–201.)
The Jordan court found the award was invalid because the attorneys “had no colorable
claim” to the excess fees. (Jordan, at pp. 450–451.) Again, this matter does not concern
the gift clause of the California Constitution.
On appeal, defendants essentially seek the opportunity to litigate their claim for
malpractice, the same claim that they agreed to settle and to which the statute of
8
The Agreement expressly states that MMB denied defendants’ contentions
regarding its allegedly deficient performance while serving as counsel for defendants.
14
limitations has long since expired (see Code Civ. Proc, § 340.6). They contend they
“deserve their day in court for these issues to be fully heard with a trier of fact.” They
further argue that “because of MMB’s breaches of its duty of care, [defendants] could
have sued MMB for breach of contract at the conclusion of the [Holmes matter] and
would have been entitled to return of most if not all of the legal fees they had already
paid.” However, it is clear defendants were aware they were settling their potential legal
malpractice claim when they negotiated the Agreement. As noted above, the Agreement
recites that defendants “contend that Law Firm failed to adhere to the Clients’ direction
on one or more occasions and further question the Law Firm’s handling, strategy and
representation of Clients in various ways.” We note there is a strong public policy
favoring settling of disputes, especially pretrial settlements, because they diminish the
expense of litigation. (Kaufman, supra, 195 Cal.App.4th at p. 745.)
Defendants argue consideration is not present every time a law firm reduces the
fees billed in exchange for a general release, because law firms that commit “gross
malpractice” are entitled to nothing. However, our task is not to reach an ex post
conclusion as to the merits of the claim for attorney fees in order to determine whether
there was consideration for the release ex ante. Unlike Jordan, and the other cases
defendants rely on, even if MMB’s claim for attorney fees was meritless, there is no
evidence that MMB pursued its fees in bad faith or that it lacked a “colorable claim” to
the fees. Therefore, even if Koss’s declaration had been admissible, defendants still fail
to make even a prima facie case for lack of consideration.
C. The Defense of Rescission
Defendants argue that there is a triable issue of material fact as to whether the
Agreement can be rescinded. The argument is based on the theory that MMB failed to
properly disclose to defendants the circumstances of the law firm’s own potential legal
malpractice.
15
In their answer, defendants state this affirmative defense as follows: “The
settlement Agreement violates California Professional Conduct Rule 3-400,[9] in that it
fails to properly advise Defendants regarding rights to independent representation and
Defendants were fraudulently induced into executing it in reliance on Law Firm’s
representations that the legal strategies pursued and services rendered were necessary and
reasonable such that the monies Law Firm sought to collect were actually due and owing
notwithstanding the prior payment of significant monies. In actual fact, Law Firm had
already been paid more monies for legal services than were reasonably due at the time of
entry into the Settlement Agreement. By reason of the foregoing, Defendants are entitled
to a rescission of the Settlement Agreement.”
In support of this defense, defendants first argue that MMB had an ethical
obligation under the California Rules of Professional Conduct (CRPC) to disclose in
writing the facts and circumstances of their potential malpractice. While defendants also
assert they were “fraudulently induced” into entering into the settlement agreement, the
claim is based solely on MMB’s alleged failures to disclose its malpractice in accordance
with the conduct regulations.
Even if MMB failed to adhere to the CRPC, punishment for violation of these
rules is a matter within the purview of the State Bar, not of a court presiding over the
affected case. (See Bus. & Prof. Code, § 6077; Noble v. Sears, Roebuck & Co. (1973)
33 Cal. App. 3d 654, 658–659.) The issue here, however, is whether the alleged violation,
failing to inform defendants of MMB’s malpractice, is sufficient to nullify the
Agreement. However, defendants do not cite to any authority holding that failure to
comply with the ethical rules entitles a client to rescind a settlement agreement for
9
California Rules of Professional Conduct, rule 3-400(B) provides that an attorney
may not “[s]ettle a claim or potential claim for the member’s liability to the client for the
member’s professional malpractice, unless the client is informed in writing that the client
may seek the advice of an independent lawyer of the client’s choice regarding the
settlement and is given a reasonable opportunity to seek that advice.”
16
attorney fees. Moreover, as the trial court recognized, “[i]t makes no sense to argue that
MMB concealed the theoretical possibility of legal malpractice when the release of all
claims for any such legal malpractice was the consideration MMB bargained for and
received in exchange for accepting less than half the fees [it] had billed defendants.”
Defendants also allege on appeal that they were not represented by independent
counsel, and were not properly advised by MMB to do so. This allegation flies in the
face of the references in the Agreement’s drafts and final version to independent counsel,
as well as defendants’ e-mail representations to Holland during the Agreement’s drafting,
in which they repeatedly indicated that their attorney (Bowie) was reviewing and revising
the drafts. To explain this discrepancy, in his opposition declaration Robin admits he
falsely represented that Bowie had redlined the Agreement’s drafts: “I redlined certain
items within the Settlement Agreement myself and suggested it was an attorney’s request
to change the item in order to have the changes accepted.” (Italics added.) Further, it
does appear Bowie was representing defendants during this time as he admits that he
“ghost wrote” an opposition to the petition to confirm the Holmes arbitration award that
was filed on October 28, 2011, 11 days prior to the execution of the Agreement.10 Even
if MMB was somehow deficient in informing defendants of their right to independent
counsel, a point we need not decide, defendants were obviously aware of their right and,
accordingly, suffered no prejudice.
DISPOSITION
The judgment is affirmed.
10
Plaintiff offered evidence from Bowie’s privilege log that defendants had
engaged in over 20 “privileged” communications with Bowie as to “Complaints
Regarding Amount of Fees Charged” and an “Incredulous Response Regarding Amounts
of Fees Charged.”
17
_________________________
Dondero, J.
We concur:
_________________________
Margulies, Acting P. J.
_________________________
Banke, J.
18
Trial Court: Contra Costa County Superior Court
Trial Judge: Hon. Judith Craddick
Counsel:
Bowie & Schaffer, David J. Bowie and Eric C. Schaffer, for Defendants and
Appellants
Ring, Hunter Holland & Schenone, LLP, Steven N. Holland and Justin Schnitzler,
Plaintiff and Respondent
19