Reeve v. Meleyco ( 2020 )

Filed 3/24/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(San Joaquin)
----
ROBERT K. REEVE,
Plaintiff and Respondent, C085867
v. (Super. Ct. No. STK-CV-
UBC-2014-0012368)
KENNETH N. MELEYCO,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Joaquin County,
Barbara A. Kronlund, Judge. Reversed.
Esner, Chang & Boyer, Holly N. Boyer and Shea S. Murphy for Defendant and
Appellant.
Law Office of Stephanie J. Finelli and Stephanie J. Finelli for Plaintiff and
Respondent.
1
Attorney Robert Reeve sued attorney Kenneth Meleyco to enforce a referral fee
agreement after Reeve referred a client to Meleyco but Meleyco did not pay the referral
fee. A jury found that Reeve was entitled to recover for breach of contract and also under
a quantum meruit theory, and the trial court awarded Reeve prejudgment interest.
Meleyco appeals, arguing among other things that Reeve cannot recover for breach of
contract because the client did not provide written consent to the arrangement, the
quantum meruit claim is barred by the applicable statute of limitations, and Reeve is not
entitled to prejudgment interest.
Former rule 2-200 of the State Bar Rules of Professional Conduct (former rule 2-
200) was in effect during the relevant time period. It required an attorney to obtain
written consent from the client before sharing a fee, and case precedent renders
unenforceable as against public policy any attorney fee sharing agreement if the client did
not give informed, written consent consistent with former rule 2-200. In this case,
Meleyco wrote a letter to the client explaining that the referral fee would not come from
the client’s percentage of any settlement, and the client signed an acknowledgement at
the bottom of the letter indicating that he received the letter and understood its contents.
The client subsequently testified that his acknowledgement expressed his agreement that
the referral fee could be paid to Reeve.
We conclude the client’s written acknowledgement that he received and
understood the letter did not constitute written consent to the referral fee agreement under
former rule 2-200, and the client’s subsequent testimony did not remedy the deficiency.
The referral fee agreement is unenforceable as against public policy and Reeve cannot
recover for breach of contract.
In addition, we agree with Meleyco that Reeve’s quantum meruit claim is barred
by the two-year limitations period.
2
Because Reeve cannot recover on the referral fee agreement, the award of
prejudgment interest must be reversed, and we need not address Meleyco’s additional
arguments.
We will reverse the judgment and remand the matter for entry of judgment in
favor of Meleyco.
BACKGROUND
The underlying case resulted from a traffic accident in which James Luoma’s wife
died and his daughter was seriously injured. Luoma contacted his friend Reeve about
representation, and Reeve referred Luoma to Meleyco. Reeve and Luoma met with
Meleyco and the three individuals discussed a referral fee that Meleyco would pay to
Reeve. Luoma and Meleyco entered into a contingency fee agreement in which Luoma
agreed that Meleyco would earn a contingency fee of 35 percent of any settlement or
judgment in favor of Luoma and his daughter, but the contingency fee agreement did not
mention a referral fee for Reeve.
Although Reeve performed some tasks relating to Luoma’s case, Luoma began to
push back at Reeve’s further involvement and worried that Reeve’s referral fee would
come out of Luoma’s part of the judgment or settlement and not out of Meleyco’s fee.
Eventually, Luoma complained to Meleyco about Reeve’s involvement, and Meleyco
sent Reeve a letter stating: “This letter is to confirm our agreement . . . that your referral
fee will be 25 percent of my fee, and further that your involvement in the case will be
when I request it due to our client’s position regarding your involvement.” The letter did
not indicate that a copy was sent to Luoma. After Reeve received this letter, his
participation in the case ended except for responding to a couple of questions.
On September 20, 2007, Meleyco received a letter from Luoma, stating: “[A]s
you know any referral agreement made by you and Robert Reeve in this case was made
without my knowledge.” Meleyco responded on September 21, 2007: “[T]his letter is to
assure you that the twenty-five percent (25%) referral fee that I am paying to Bob Reeve
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will come out of my fee and will not increase the fees to either you or your daughter.” At
the bottom of the letter was typed: “I, JAMES G. LUOMA, acknowledge receipt of this
letter and understand the contents.” Luoma signed this acknowledgement. Luoma
testified at trial in 2017 concerning his signature on the September 21, 2007 letter.
Counsel for Reeve asked Luoma: “Is your signature here agreeing that the 25 percent
referral fee can be paid to [Reeve] if it will not increase the fees to either you or your
daughter?” Luoma responded, “Yes.” Luoma also testified that he had conversations
with Meleyco about the referral fee in September 2007.
Meleyco represented Luoma and his daughter in a 2007 mediation with Penske
Truck Leasing where a settlement was reached totaling $3,375,000. When Meleyco
prepared to distribute the funds, Luoma was dissatisfied with the low amount of cash he
would receive because of funds dedicated to attorney fees, costs, and annuities. The
proposed attorney fees included a referral fee of $177,187.50 to Reeve, and the amount
dedicated to annuities for Luoma was more than $1 million. To give Luoma more cash
from the settlement, Meleyco and Luoma agreed that Reeve’s referral fee would be
reduced to $20,000. Meleyco sent Reeve a check for $20,000, indicating it was a referral
fee amount that Luoma deemed appropriate. The referral fee to Reeve for the Penske
settlement is not at issue here because the jury found the limitations period had run on an
action by Reeve for the Penske settlement referral fee.
However, in 2011, Meleyco represented Luoma and his daughter in a settlement
with the State of California. The settlement totaled $900,000 and was split equally
between Luoma and his daughter. Meleyco prepared, and Luoma signed, a disbursement
sheet that included $180,000 in attorney fees to Meleyco but did not mention a referral
fee to Reeve. The money from the settlement was disbursed according to the
disbursement sheet.
On December 3, 2014, Reeve filed a complaint against Meleyco for breach of
contract based on the referral fee agreement, and Reeve later amended the complaint
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twice to include causes of action for breach of contract, quantum meruit, and promissory
estoppel. In a bifurcated trial on the preliminary issue of the statute of limitations, the
jury reached a special verdict, concluding that the limitations period had expired on the
referral fee for the 2007 Penske settlement but had not expired for the 2011 State of
California settlement.
The trial continued on the issue of Meleyco’s liability to Reeve resulting from the
2011 State of California settlement, and the jury reached a verdict in favor of Reeve for
$78,750, based on both the breach of contract and the quantum meruit causes of action.
On Reeve’s motion, the trial court awarded Reeve $49,364.35 in prejudgment interest.
Meleyco filed a motion for new trial or for judgment notwithstanding the verdict,
and the trial court denied the motion.
DISCUSSION
I
Meleyco argues Reeve cannot recover for breach of contract because Luoma did
not provide written consent for the referral fee agreement.
As a preliminary matter, Reeve counters that Meleyco forfeited his contention by
failing to provide a fair and accurate summary of the evidence. (See Myers v. Trendwest
Resorts, Inc. (2009) 178 Cal. App. 4th 735, 739, 745.) We disagree. As to the evidence
material to our review, Meleyco provided an adequate and appropriate summary of the
evidence.
We therefore turn to Meleyco’s arguments. Former rule 2-200(A) provided in
pertinent part: “A member shall not divide a fee for legal services with a lawyer who is
not a partner of, associate of, or shareholder with the member unless: [¶] . . . [t]he client
has consented in writing thereto after a full disclosure has been made in writing that a
division of fees will be made and the terms of such division . . . .” This rule was
superseded by rule 1.5.1 of the State Bar Rules of Professional Conduct operative
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November 1, 2018.1 All events pertaining to this case occurred while former rule 2-200
was in force.
A fee-sharing agreement between attorneys is unenforceable as against public
policy if the client did not give informed, written consent to the fee-sharing agreement.
(Chambers v. Kay (2002) 29 Cal. 4th 142, 147-161.) In Chambers, the California
Supreme Court denied recovery under a breach of contract theory to an attorney seeking
to enforce a fee-sharing agreement because there was no compliance with the written
disclosure and consent requirements of former rule 2-200. (Chambers, at pp. 147-161.)
In so deciding, the court held an attorney can protect his or her interests, and at the same
time fulfill the beneficial purposes of the rule, acting in the client’s best interests, by
requesting proof of the client’s written consent to the fee division. (Id. at pp. 162-163.)
Former rule 2-200 protected the public and promoted confidence in the legal profession.
(Chambers, at p. 158.) Chambers and other precedent “uniformly recognize that an
attorney cannot enforce a fee-sharing agreement if that attorney could have obtained
written client consent as required by [former] rule 2-200, but failed to do so.” (Barnes,
Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal. App. 4th 172, 181.)
Oral consent by the client to the fee-sharing agreement is not sufficient to satisfy
former rule 2-200. (Margolin v. Shemaria (2000) 85 Cal. App. 4th 891, 896, 899-903.)
“Requiring the client’s written consent to fee sharing impresses on the client the
importance of his or her consent, and of the right to reject the fee sharing. Additionally,
it benefits the attorneys themselves because it ensures that the client will not later claim
1 Under current rule 1.5.1 of the State Bar Rules of Professional Conduct (superseding
former rule 2-200 as of November 1, 2018), the client-consent element of a fee sharing
agreement requires that “the client has consented in writing, either at the time the lawyers
enter into the agreement to divide the fee or as soon thereafter as reasonably practicable,
after a full written disclosure to the client of: (i) the fact that a division of fees will be
made; (ii) the identity of the lawyers or law firms that are parties to the division; and (iii)
the terms of the division.” (Rules Prof. Conduct, rule 1.5.1(a)(2).)
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there was no consent, and it benefits the referring attorney who has additional proof of
the existence of the sharing agreement.” (Id. at p. 903.)
Here, there was a writing disclosing that a division of fees would be made and
providing certain terms of the division. The writing was Meleyco’s letter informing
Luoma “that the twenty-five percent (25%) referral fee that I am paying to Bob Reeve
will come out of my fee and will not increase the fees to either you or your daughter.” In
addition, the client signed the writing. Luoma signed a pretyped acknowledgement
stating: “I, JAMES G. LUOMA, acknowledge receipt of this letter and understand the
contents.” In signing the acknowledgment, Luoma merely confirmed that he received the
writing and that he understood what it said. Thus, even if the letter sufficiently disclosed
that a division of fees would be made and also sufficiently disclosed the terms of the
division -- questions we do not decide -- Luoma did not provide his written consent to the
referral fee agreement.
Consent is different from disclosure or receipt, and it is also different from
understanding. Disclosure is the “action of making something openly known . . . .”
(Oxford English Dict. [as of Mar. 18, 2020].) Receipt refers to “[s]omething received . . . .”
(Id. at [as of Mar. 18, 2020].) Understanding is “[t]o comprehend;
to apprehend the meaning or import of; to grasp the idea of.” (Id. at [as of Mar. 18,
2020].) Whereas consent is a “[v]oluntary agreement to or acquiescence in what another
proposes or desires . . . .” (Id. at [as of Mar. 18, 2020].) Written consent
requires written words expressing agreement or acquiescence, not just words expressing
receipt or understanding. Luoma’s acknowledgement was deficient in this regard.
7
We understand Reeve to suggest that Luoma’s acquiescence can be inferred from
his receipt of the letter, his understanding of the letter, and his lack of objection to the
referral fee. But because consent must be expressed in writing, silence cannot convey
written consent. “ ‘[C]onsent is active, while not objecting is merely passive. The old
adage, “Silence gives consent,” is not true in law; for there it only applies where there is
some duty or obligation to speak. [Citations.]’ [Citation.]” (Stanley v. Superior Court
(2012) 206 Cal. App. 4th 265, 283.)
In the alternative, Reeve argues that if Luoma’s acknowledgement was ambiguous
as to consent, the ambiguity was resolved by Luoma’s subsequent testimony that his
acknowledgement expressed his agreement that the referral fee could be paid to Reeve.
We agree that extrinsic evidence, such as later testimony, may be used to resolve
ambiguities or uncertainties in some circumstances of contract interpretation. (See
Cotran v. Rollins Hudig Hall Internat., Inc. (1998) 17 Cal. 4th 93, 112.) But here there is
no ambiguity or uncertainty in the language of the written acknowledgment. The
language of the acknowledgement demonstrates receipt and understanding, it does not
express consent to the referral fee agreement.
Reeve also seeks to support his position by referencing purported expert
deposition testimony from an attorney named Lindsay Slatter. Ms. Slatter is described in
the record as an ethics attorney, but the full transcript of her deposition is not in the
appellate record. Instead, a portion of her deposition testimony was read into the record
at trial. When asked if the September 21 letter complied with rule 2-200, Slatter replied:
“It refers to certain aspects of Rule 2-200, but I can’t say that it is complete because I
don’t have the full amounts of money. I don’t have the -- I mean, it’s not absolutely
complete for all the items, but it is arguable that it complies.” The testimony does not
help Reeve in this case. Among other things, Reeve does not provide us with details of
Slatter’s expertise, or information as to why Slatter thought the acknowledgement
8
arguably complied with former rule 2-200, or an explanation as to why Slatter’s opinion
should be more dispositive than our own analysis.
Reeve further argues the jury was properly instructed concerning the requirements
of former rule 2-200 and unanimously found in Reeve’s favor. Additionally, he argues
that the trial court denied Meleyco’s motion for new trial or judgment notwithstanding
the verdict. Indeed, the trial court opined that the jury “got it right.” Nevertheless, we
now determine as a matter of law that the evidence was insufficient to conclude that
Luoma consented to the referral fee agreement as required by former rule 2-200.
Accordingly, the referral fee agreement is unenforceable as against public policy, and
Reeve cannot recover for breach of contract.
II
Meleyco next argues the quantum meruit claim is barred by the applicable statute
of limitations.
When a referral fee agreement is unenforceable as against public policy, the
referring attorney may nevertheless recover the reasonable value of the legal services
under a quantum meruit theory. (Huskinson & Brown v. Wolf (2004) 32 Cal. 4th 453,
460-461.) The jury awarded Reeve $78,750 under a quantum meruit theory, as well as
under the breach of contract theory.
Reeve performed all services relating to the 2011 State of California settlement
before June 30, 2011, and on that date, Meleyco distributed the proceeds of the 2011
State of California settlement without paying Reeve. Reeve filed his complaint against
Meleyco on December 3, 2014, more than three years after Reeve last provided services
relating to the 2011 State of California settlement.
The statute of limitations for recovery under a quantum meruit theory is two years.
(Code Civ. Proc., § 339; Iverson, Yoakum, Papiano & Hatch v. Berwald (1999)
76 Cal. App. 4th 990, 996.) Meleyco demurred to Reeve’s quantum meruit cause of action
on the ground that the limitations period expired before Reeve filed his complaint, but the
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trial court overruled the demurrer as to the quantum meruit cause of action on the ground
that although the two-year limitations period applies to an agreement not in writing, the
four-year limitations period applies here because there is a writing. Meleyco now
contends that, contrary to the trial court’s ruling, the applicable limitations period is two
years and it expired on Reeve’s quantum meruit claim before Reeve filed the complaint.
Reeve does not dispute that his complaint was filed more than two years after he
ceased providing services relating to the 2011 State of California settlement; instead, he
argues that, because there was a writing -- the referral fee agreement between Meleyco
and Reeve -- the four-year statute of limitations under Code of Civil Procedure section
339, subdivision (a) applies. The argument fails because the referral fee agreement was
unenforceable as against public policy and the quantum meruit cause of action sought
recovery other than upon the unenforceable contract.
The four-year statute of limitations applies to “[a]n action upon any contract,
obligation or liability founded upon an instrument in writing . . . .” (Code Civ. Proc.,
§ 337, subd. (a).) But quantum meruit recovery is not based on a contract. The quantum
meruit theory allows recovery of the reasonable value of services if there is no
enforceable contract governing the relationship. (Leighton v. Forster (2017)
8 Cal. App. 5th 467, 490.) Therefore, because quantum meruit recovery is not an action
founded upon a contract or writing, the presence of an unenforceable contract does not
extend to four years the limitations period for a claim based on quantum meruit.
Reeve nevertheless posits policy reasons for applying the four-year limitations
period in this case. Moreover, he asserts it would be unfair to rule that the referral fee
agreement is unenforceable and also to rule that the two-year statute of limitations applies
to his quantum meruit cause of action. But we are bound by the law as written; Reeve’s
arguments are matters for the Legislature. (Krusesky v. Baugh (1982) 138 Cal. App. 3d
562, 566.)
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Reeve’s recovery under the quantum meruit theory is barred because he did not
file his complaint within the two-year limitations period. Having concluded, as a matter
of law, that the limitations period expired on Reeve’s quantum meruit claim for the 2011
State of California settlement, we need not consider Meleyco’s additional challenges to
the jury’s quantum meruit verdict.
III
In addition, Meleyco claims Reeve is not entitled to prejudgment interest.
We agree. Because the evidence does not support the judgment in favor of Reeve on
either breach of contract or quantum meruit, the trial court’s award of prejudgment
interest is also unsupported.
DISPOSITION
The judgment is reversed and the matter is remanded to the trial court with
directions to enter judgment in favor of Meleyco. Meleyco is awarded his costs
on appeal. (Cal. Rules of Court, rule 8.278(a).)
/S/
MAURO, J.
We concur:
/S/
RAYE, P. J.
/S/
ROBIE, J.
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