Filed 4/20/21 Bishop v. Middleton CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from a judgment of the Superior Court of Los Angeles County, Clifford L. Klein, Judge. Affirmed.

Law Offices of Robert A. Brown and Robert A. Brown for Defendant and Appellant.

Holland & Knight, Vivian L. Thoreen, Roger B. Coven and Vivian M. Rivera for Plaintiff and Respondent.

__________________________

INTRODUCTION

Attorney Lyle Middleton claimed that in 1999 he was given a Deed of Trust on a piece of property in order to secure the owner’s obligation to pay his attorney fees. Prior to the owner’s death, the owner placed the property in a trust. In 2017, the trust agreed to sell the property. Attorney Middleton delivered his demand to escrow to collect on the obligation secured by the Deed of Trust. The trust responded by petitioning to have the Deed of Trust declared invalid pursuant to several statutes, one of which was Business and Professions Code section 6148 (section 6148), which requires that, in order for a contract for legal services to be valid certain terms must be in writing. The trial court found that the underlying agreement secured by the Deed of Trust did not comply with section 6148, and extinguished the lien. The issue on appeal is whether the trial court erred in its application of section 6148 to the facts of this case. We agree with the trial court and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Property

The property in this dispute is a parcel of vacant land (the Calabasas Property) purchased by Dr. Albert MacKenzie. On September 25, 1999, Dr. MacKenzie signed and acknowledged a written “Deed of Trust And Assignment of Rents” (Deed of Trust) as security for payment for legal services provided by Attorney Middleton.[1] The document also included within its text a Promissory Note secured by the Deed of Trust. The Promissory Note did not itself state the amount of the obligation due, indicating only that the amount to be paid was “[f]or legal fees as per agreement,” in the sum of “as per retainer agreement dated 12-20-98.”[2] As we shall discuss, Attorney Middleton was not able to produce in the trial court this purported written retainer agreement.

Before his passing in 2013, Dr. MacKenzie transferred the Calabasas Property to a trust.[3] Sometime around August 2017, the trust agreed to sell the Calabasas Property to a third party for $250,000.

The Deed of Trust contained a clause that, if the property were sold or transferred without Attorney Middleton’s consent, he could declare the obligation immediately due and payable. On December 12, 2017, some 20 years after obtaining the Deed of Trust, Attorney Middleton delivered his demand letter into the escrow established for the sale of the property. In his demand, Attorney Middleton asserted that he was owed $240,000, plus interest.

2. Pleadings

As escrow could not close without addressing Attorney Middleton’s claimed Deed of Trust, Beneficiary filed a petition with the probate court to invalidate the Deed of Trust. In the petition, Beneficiary relied on section 6148, which provides attorney retainer agreements must be in writing and contain certain specified terms, and may be voidable by the client if they do not.[4]

Beneficiary asserted in the petition that because the Deed of Trust secured payment for legal services, the retainer agreement referenced in the Promissory Note had to comply with section 6148. Because Attorney Middleton was unable to produce an underlying retainer agreement that complied with section 6148, the Deed of Trust was not enforceable. Beneficiary emphasized not only that the documentation produced by Attorney Middleton was not produced, but Attorney Middleton could not provide any invoices corroborating that he performed the legal services he claimed, or billed for them pursuant to the purported retainer agreement.

In his response to the petition, Attorney Middleton generally denied the allegations against him. However, he admitted “that the Deed of Trust does not refer to the specific amount owed on the underlying obligation.” He similarly conceded “that the Deed of Trust does not refer to invoices for legal services.”

3. Trial

The bench trial on the petition took place on April 17, 18, and 22, 2019. Attorney Middleton was unable to produce the retainer agreement. As evidence that he actually performed specific legal services, Attorney Middleton could only provide his own testimony. He produced no bills or other corroborating documents.[5] He testified as follows: Attorney Middleton met Dr. MacKenzie in 1995 or 1996 and performed legal work for him for 10 or 12 years. While Attorney Middleton rarely used retainer agreements, he entered into the 1998 retainer with Dr. MacKenzie at Dr. MacKenzie’s request. Attorney Middleton believed he prepared invoices for Dr. MacKenzie, but had no independent recollection of doing so, nor did he now possess copies of any invoices, or any time records. Dr. MacKenzie never paid Attorney Middleton for the legal services he provided. At some point after June 2004, there was over $300,000 in fees outstanding. At that time, Attorney Middleton and Dr. MacKenzie agreed to settle all outstanding debts in the amount of $240,000. When asked if he had any documents to confirm that Dr. MacKenzie owed him $240,000, Attorney Middleton relied only on the Promissory Note and Deed of Trust, which pre-dated, by some five years, the claimed 2004 agreement to resolve the outstanding fee obligation for $240,000.

Beneficiary, Trustee and Beneficiary’s Husband (Scott Bishop) each testified. The testimony essentially was that Attorney Middleton had admitted that the Deed of Trust did not secure a fixed obligation, and certainly not one for the now- pursued $240,000. The witnesses testified to the following: Around September 2017, Attorney Middleton told Trustee in a phone call that any debt secured by the Deed of Trust was for “a very small amount” of “less than $10,000.” At the time of that conversation, Attorney Middleton did not know the agreed-upon sales price for the Calabasas Property. Three months later, Beneficiary and her husband had a phone call with Attorney Middleton, in which it was apparent to the Beneficiary that Attorney Middleton never possessed a lien for any specific amount, and instead was trying to find out the value of the planned sale, presumably so that he could seek an amount that approximated the sales price. In that phone conversation, Attorney Middleton told Beneficiary in apparent candor that “he could make up any amount and there was nothing that they could do about it because he had written it without an amount on it.” Attorney Middleton used the phrase “he could put any amount on it that he wanted” multiple times, and also stated that he would be willing to share the proceeds with Beneficiary. While Attorney Middleton admitted to speaking to both Trustee and Beneficiary on the phone, he denied saying that he could write in “any amount he wanted”; rather, he said the call with Beneficiary regarded an accounting.

Attorney Middleton argued in his trial brief that section 6148 does not apply, because Beneficiary was estopped from claiming that there was no written retainer agreement. This estoppel argument was based on Evidence Code section 622, which provides that “facts recited in a written instrument are conclusively presumed to be true as between the parties thereto . . . .” Since the Deed of Trust referenced a “written retainer agreement,” Attorney Middleton argued that its existence was conclusively presumed, and, further, that his testimony regarding an agreement to a flat fee of $240,000 was admissible. Attorney Middleton also submitted a trial brief on the “one-action” rule, by which he argued that, since nonjudicial foreclosure is the only form of action to recover on a debt secured by a real property deed of trust (Code of Civ. Proc., § 726), his demand for relief through escrow was one for nonjudicial foreclosure, and procedural requirements for nonjudicial foreclosure governed.

The court found Attorney Middleton not credible in his testimony about the retainer agreement and billings. The trial court concluded that “any lien created by the Deed of Trust has been extinguished according to California law, specifically Business and Professions Code 6148.”

Attorney Middleton filed a timely notice of appeal.

DISCUSSION

1. Legal Framework

This appeal is at the intersection of California law on the requirements for attorney fee agreements and the enforcement of deeds of trust. We briefly address both fields of law.

Section 6148 is found in Division 3, Chapter 4 of the Business and Professions Code, which places professional obligations on attorneys in California. Section 6148 regards contracts for attorney’s fees and consequences for failing to comply with those requirements. Specifically, section 6148, subdivision (a) requires that an attorney include details such as the basis for compensation, the general nature of the service(s) provided, and the respective responsibilities of both the attorney and the client in the retainer agreement. Section 6148, subdivision (c) states that “[f]ailure to comply with any provision of this section renders the agreement voidable at the option of the client . . . .” (See Iverson, Yoakum, Papiano & Hatch v. Berwald (1999) 76 Cal.App.4th 990, 995 (Iverson).)

A deed of trust is a mortgage, with power of sale. (Peterson v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 844, 854.) A property subject to a deed of trust of trust can still be sold by its owner, without the consent of the holder of the deed of trust. However, the holder may be able to demand payment of the debt as the result of the transfer. Alternatively, the buyer may take the property subject to the existing deed of trust. (5 Miller & Starr, Cal. Real Estate (4th ed. 2020) § 13.38.) As applicable to this case, because the Trustee sought to sell the Calabasas Property, the issue of the enforceability of Attorney Middleton’s deed of trust had to be resolved.

A deed of trust has no separate validity if the underlying obligation which it purports to secure no longer exists. (Dameron Hospital Assn. v. AAA Northern California, Nevada & Utah Ins. Exchange (2014) 229 Cal.App.4th 549, 559–560 (Dameron) [“ ‘Because “[a] security interest cannot exist without an underlying obligation” [citation], a lien is typically “but an incident of the debt secured” [citation] and “presupposes the existence of a debt.” [Citations.]’ ”].)

Here, the trial court concluded that the underlying obligation – the alleged promise to pay attorney’s fees – was voidable by the Trustee under section 6148, and for that reason the court extinguished the Deed of Trust.

On appeal, Attorney Middleton makes two arguments: (1) the Deed of Trust is not wholly extinguished because section 6148 leaves standing a claim for “reasonable fees,” which itself was secured by the Deed of Trust; (2) his failure to produce the retainer agreement should have no effect on his right to recover.

2. Any Interest in the Deed of Trust is Extinguished

While Attorney Middleton does not concede that the agreement is voidable, he does not contest the point. Instead, he contends that even if the retainer agreement is voidable under section 6148, that fact does not extinguish the Deed of Trust entirely because he still retains the right by statute to collect a reasonable fee, and that obligation is secured by the Deed of Trust.

Section 6148, subdivision (c) provides that “[f]ailure to comply with any provision of this section renders the agreement voidable at the option of the client, and the attorney shall, upon the agreement being voided, be entitled to collect a reasonable fee.” The plain language “entitled to collect a reasonable fee” simply contemplates a quantum meruit suit. “[W]here services have been rendered under a contract which is unenforceable [under section 6148] because not in writing, an action generally will lie upon a common count for quantum meruit.” (Iverson, supra, 76 Cal.App.4th at p. 996.) The trustee agrees that Attorney Middleton could have, at one point, sought recovery in quantum meruit under this provision. But Attorney Middleton did not bring a quantum meruit claim before the probate court or otherwise argue or demonstrate that he was entitled to any specific reasonable fees aside from the $240,000 he demanded through escrow.[6]

More importantly, even if Attorney Middleton had pursued a right to recover attorney fees in quantum meruit, the amount recovered would not have been secured by the Deed of Trust. The plain wording of the Deed of Trust did not secure an obligation to Attorney Middleton under any possible theory; it only secured an obligation to pay the Promissory Note for fees “as per the retainer agreement.” Once the court voided the retainer agreement for failure to comply with section 6148, the Deed of Trust no longer secured an obligation and was without effect. (Dameron, supra, 229 Cal.App.4th at p. 559.) Attorney Middleton provides no authority for his proposition that he can simply replace the Promissory Note’s obligation to pay “as per the retainer agreement” with the equitable obligation to pay a reasonable fee.

3. Attorney Middleton’s Remaining Arguments are Inapt

Attorney Middleton next argues that his failure to produce the retainer agreement should not bar his recovery. He suggests two theories. First, he posits that the Trustee is estopped to claim there was no written retainer agreement, because of the conclusive presumption granted factual recitals found in written instruments. (Evid. Code, § 622.) Second, he argues that, as his pursuit of relief is essentially nonjudicial foreclosure, and provision of the promissory note is unnecessary to proceed in nonjudicial foreclosure, his failure to produce the retainer agreement – which is part of the promissory note – is also unnecessary.

Before we reach the merits of these arguments, we address their potential effect. The probate court extinguished the Deed of Trust not because Attorney Middleton failed to produce the retainer agreement, but because Attorney Middleton failed to establish factually that the retainer agreement met the statutory requirements of section 6148. Even if Attorney Middleton is correct and we were to presume a retainer agreement existed, that would not undermine the trial court’s factual findings and conclusion that the agreement failed to comply with section 6148. More fundamentally, Attorney Middleton’s legal arguments are meritless.

1. The Conclusive Presumption of Section 622 Does Not Apply

Evidence Code section 622 (section 622) provides that “facts recited in a written instrument are conclusively presumed to be true as between the parties thereto, or their successors in interest; but this rule does not apply to the recital of a consideration.”

Attorney Middleton argues that the language in the Promissory Note stating, “as per the written retainer agreement” constitutes a recital entitled to this presumption. Even if we assume, without deciding, that the reference to the written retainer agreement constitutes a recital, Attorney Middleton’s reliance on section 622 is still misplaced.

Any “recital” relating to the “retainer agreement dated 12-20-98” goes to the issue of consideration and therefore is excluded from the operation of section 622 by the plain language of the statute. (Cf. Stoneridge Parkway Partners, LLC v. MW Housing Partners III, L.P. (2007) 153 Cal.App.4th 1373, 1382 [language which identified the loan broker, for the purpose of avoiding usury laws, related to interest and thus consideration, and was therefore outside the scope of section 622].)

2. The Procedures of Nonjudicial Foreclosure Do Not Apply

Arguing that his failure to produce the retainer agreement should not be fatal, Attorney Middleton relies on a number of cases to support the proposition that he need not possess the promissory note to initiate nonjudicial foreclosure: Debrunner v. Deutsche Bank National Trust Co. (2012) 204 Cal.App.4th 433, 440–442 (Debrunner); Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 84, fn. 5, citing Debrunner, at p. 440; Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1004, citing Debrunner, at p. 440; Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 42, citing Debrunner, at p. 441, and “numerous other authorities.”

The short answer is that Attorney Middleton did not attempt to foreclose. Instead, Beneficiary successfully petitioned to invalidate his Deed of Trust. Even if this judicial proceeding involved nonjudicial foreclosure – as oxymoronic as that sounds – Attorney Middleton’s claim would fail. Nonjudicial foreclosure cannot be sustained when the underlying obligation is void. (E.g., Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 108, 111–112 [nonjudicial foreclosure sale may be set aside when the underlying obligation is void for unconscionability or illegality].) Here, Attorney Middleton’s failure to comply with section 6148 makes the Promissory Note voidable, and Beneficiary has opted to void it.[7]

DISPOSITION

The judgment is affirmed. Attorney Middleton shall pay Beneficiary’s costs on appeal.

RUBIN, P. J.

WE CONCUR:

BAKER, J. KIM, J

[1] The legitimacy of Dr. MacKenzie’s signature is not in dispute.

[2] The Promissory Note was a form with blanks to be filled in. The language of the agreement stated that Dr. MacKenzie agreed to pay, on demand, “the sum of as per retainer agreement dated 12-20-98 DOLLARS, with interest from date of demand on the unpaid principal at the rate of 10 percent per annum, payable all inclusive at time of final payment.” The retainer agreement itself was not attached, nor is it found anywhere in the record.

[3] The trust appears in this court through Trustee Esther P. Hayon (Trustee), whose interests in this appeal align with those of the sole residuary Beneficiary Alysa MacKenzie Bishop (Beneficiary). A separate appeal is pending between the Trustee and Beneficiary (B302751). The issues presented in that appeal do not involve Attorney Middleton.

[4] Beneficiary also asserted that California Code of Civil Procedure section 337 [contractual statute of limitations], California Code of Civil Procedure section 366.2 [statute of limitations for contractual action after a party’s death], and California Civil Code section 2911 [lien statute of limitations] were independent bases to invalidate the lien. The trial court did not make findings on these points. Because we resolve the appeal under section 6148, we do not address these other arguments.

[5] He did, however, testify to his usual hourly rates during the time he provided services for Dr. MacKenzie.

[6] Had Attorney Middleton brought a quantum meruit cause of action, he would have had to overcome the two-year statute of limitations, which had expired some 15 years before the filing of the probate petition. (Code Civ. Proc., § 339.)

[7] To the extent Attorney Middleton’s statement, “on the face of 6148, respondent’s argument has no merit whatsoever” suggests the trial court’s conclusion that the retainer agreement did not comply with statutory requirements is unsupported by substantial evidence, we disagree. The trial court’s factual finding that the Deed of Trust did not comport with section 6148 is supported by substantial evidence in the form of Beneficiary’s oral testimony. As Attorney Middleton candidly conceded to the trial court, his inability to produce the retainer agreement or any corroborating evidence meant that “the only issue in this case [was] whether the court finds Mr. Middleton’s testimony credible that in the subject litigation and non-litigation matters over the course of 10 to 12 years he and his very close friend, Dr. MacKenzie, agreed to a flat $240,000 for all of the work.” The court considered the testimony of Attorney Middleton and Beneficiary, and did not find Attorney Middleton credible. At trial, Attorney Middleton conceded that he could not recall the details of the retainer agreement, or whether it complied with section 6148.