Fleischman v. Stanton
Filed 11/19/13 Fleischman v. Stanton CA2/8CA2/8
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
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as specified by rule 8.1115(b). This
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purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
DON U. FLEISCHMAN,
Plaintiff,
Cross-Defendant,
and Appellant,
v.
PAUL STANTON et al.,
Defendants,
Appellants and Cross-
Respondents;
PAUL L. STANTON,
Cross-Complainant
and Appellant.
B216898
(Los Angeles
County
Super. Ct.
No. BC254772)
APPEAL from
a judgment of the Superior Court of
County. Paul L. Gutman,
Judge. Affirmed in part, reversed in
part, and remanded.
Lewis Brisbois Bisgaard &
Smith, Roy G. Weatherup, Bartley L. Becker and Allison A. Arabian, for
Defendants and Appellants Paul L. Stanton and The Law Offices of Paul L.
Stanton.
Nemecek & Cole, Frank W.
Nemecek and Mark Schaeffer; Law Offices of Warren Nemiroff and Warren Nemiroff,
for Cross-Complainant and Appellant Paul L. Stanton.
Brown, Brown & Klass, Delos E.
Brown, Robert L. Kaufman and John J. Stumreiter for Defendant and Respondent
Don U. Fleischman.
__________________________
Attorney Paul Stanton and his law
firm, the Law Offices of Paul Stanton, appeal from the trial court’s judgment
denying them relief in their complaint for breach of a fee agreement against their
former client, Don Fleischman, and ordering them instead to return to Fleischman
several hundred thousand dollars in legal fees that Fleischman paid to Stanton
and his firm. Former client Fleischman
is satisfied with the trial court’s judgment, but filed a protective
cross-appeal in the event the judgment were reversed. We hold the trial court erred (1) in ordering
attorney Stanton to disgorge the fees he received from Fleischman and (2) in
awarding Fleischman his attorneys’ fees and costs. As for Fleischman’s cross-appeal protectively
alleging instructional error and error in the valuation date of real estate
that Fleischman recovered while Stanton represented him, we affirm.
FACTS AND PROCEEDINGS
1.
Fleischman Family History and Events Leading
to Don Fleischman’s Hiring of Attorney Paul Stanton
Joan
and Art Fleischman, who married in 1952, were the parents of respondent Don
Fleischman and his brother, Dan Fleischman.
(Because of the shared surname of the Fleischman family participants in
these proceedings, we will identify them by their given names.) In addition to rearing Don and Dan, Joan and
Art raised Joan’s son, Ken Kaplan, from her first marriage to Ken’s late-father,
who died decades ago. During Art and
Joan’s marriage, Art prospered in the janitorial supply business. Over the years, he and Joan acquired multiple
pieces of commercial and residential real estate, consisting of: a warehouse on Third Street in downtown Los
Angeles; a warehouse on Garey Street in downtown Los Angeles; a warehouse in
Vernon; a home in La Canada; and a condominium in Pasadena.
In
the early 1990’s, Dan took control of the personal and financial affairs of his
mother Joan, whose cognitive abilities were declining. In 1997, Joan, who by this time was living
apart from her husband, Art, drafted a will and created an inter vivos trust naming
Dan trustee with a power of attorney and leaving the great bulk of her estate
to him. (Exhibit 518.) The only property Joan did not give to Dan
was $100 in cash to Don and her former home in Hermosa Beach which she had
acquired before marrying Art, which she bequeathed to Ken.
In
light of evidence that Dan was physically and financially abusing Joan, Ken sought
a conservatorship for Joan. In 1998, the
probate court appointed two conservators (Sharon Woody and Sarah Kerley), who
retained the law firm Loeb & Loeb to represent them as they moved to
protect Joan’s interests. Dan resisted
the conservators’ attempts to wrest control of his mother’s affairs from him. Dan’s resistance was hard-fought, involving
multiple lawsuits including suits against Don and Ken. Among the lawsuits were
“Dan Fleischman v. Kenneth Kaplan, Don Fleischman, Arthur Fleischman, et
al., L.A.S.C. case No. BC214702; Dan Fleischman, trustee of the Joan M.
Fleischman Intervivos Trust v. Arthur Fleischman, the Arthur Fleischman Personal
Trust, Kenneth Kaplan and Don Fleischman et al, L.A.S.C. case No. YC
037205; In the Matter of the Joan M. Fleischman Revocable Intervivos Trust
u/a/d 7/8/97, L.A.S.C. case No. BP 060964; and In the Matter of the
Conservatorship of Joan Fleischman, L.A.S.C. case No. BP 061285.†But with the help of Loeb & Loeb, the
conservators took control of Joan’s affairs from Dan.
In conjunction with the
conservators’ efforts, conservator Sarah Kerley suggested to Don that an elder
abuse lawsuit be filed against Dan.
Consequently, Don and his father, Art, contacted attorney Paul Stanton,
whose law firm website advertised that Stanton specialized in elder abuse
law. After meeting Stanton, Don and Art
retained him to represent them in their claims against Dan personally and as
trustee of Joan’s trust.
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agreement. It stated in part:
“We [Stanton and his firm] agree to represent you in
connection with your claims against Dan Fleischman, individually and as Trustee
of the Joan Fleischman Trust. (In this
regard we are representing you as individuals only. In the event any of you are appointed the
conservator of the Joan Fleischman Conservatorship Estate, and we become your
attorneys in that capacity, the attorney’s fees for such services are
compensated as determined by the court for such services.)†(Exh 529.)
Although Don and Art retained Stanton at the
conservators’ suggestion, the conservators did not use Stanton’s legal
services. Indeed, before Don retained
Stanton in March 2000, the conservators and their law firm, Loeb & Loeb,
had successfully removed Joan from Dan’s care and placed her in a
convalescent home. They had also
achieved revocation of Dan’s power of attorney for Joan and his removal as
trustee for her inter vivos trust.
Art died a few weeks after signing Stanton’s retainer
agreement. Art’s will and trust
disinherited Dan and, except for about $100,000 to Ken, left Art’s estate to
Don.
2.
Stanton’s
Representation of Don
When Don
retained Stanton, Don believed Stanton would file an
elder abuse claim against Dan to recover property Dan had taken from Joan. Stanton never filed an elder abuse lawsuit against
Dan and did not tell Don that only Joan (or her conservators) could file such a
suit. Indeed, Stanton conceded under
cross-examination at trial that no such lawsuit was needed because Joan’s
conservators had ended Dan’s abuse of Joan. However, while Stanton was representing Don,
Stanton dissembled about his reason for not filing an elder abuse lawsuit by telling
Don that the “wheels of justice†moved slowly.
In
the conservatorship proceedings, Loeb & Loeb and the conservators proved
Dan had misappropriated about $600,000 of Joan’s money. Because of the misappropriation, which the
probate court found was in bad faith, the probate court entered against Dan a
judgment including statutory sanctions of about $1.2 million. The conservators also got a court order
ejecting Dan from Joan’s home in La Canada.
The
conservators’ probate court victory forced Dan in September 2000 to agree to
mediate his dispute with Don over their parents’ estates. As a result of the mediation, the conservators
agreed not to enforce the $1.2 million judgment against Dan in return for his
agreeing to the following: He
voluntarily disinherited himself by renouncing his interest in Joan’s and Art’s
estates and trusts. Additionally, he
dismissed lawsuits he had filed against Joan’s trust and Art’s estate,
including a $100 million creditor’s claim he had filed against Art’s estate. He disclaimed interest in Joan’s $500,000 life
insurance policy, the proceeds of which were to be split between Don and Ken. Finally, he vacated the warehouse on Third
Street through which he had asserted, to Don’s exclusion, control over Art’s
janitorial business. (Exhibits 538 &
625.)
A
few months later in February 2001, Joan died.
At Stanton’s insistence, Don and Ken in February 2001 mediated their
competing remaining interests in their mother’s estate. Under Joan’s estate plan, Ken was to receive
all Joan’s property if Dan predeceased her.
In the wake of Dan’s voluntary disinheritance in the September 2000
mediation, Ken sought to recover Joan’s property for himself, almost as if
Dan’s disinheritance amounted to his predeceasing Joan. As a result of the February mediation,
however, Ken agreed to let Don buy out Ken’s share of their mother’s estate for
$1,250,000. In
return for the services Stanton claimed he rendered to Don against Dan, Stanton
arranged for the February mediation settlement to contain a provision promising
him a fee of $430,000 to be paid from Joan’s or Art’s estates. The February mediation agreement stated: “The
parties agree that the sum of $430,000 shall be paid to Paul L. Stanton from
Joan’s Trust and/or Art’s Trust as the contingent fee portion of the attorneys’
fees for services rendered prior to the death of Joan M. Fleischman in
connection with litigation with Dan Fleischman.
This amount is inclusive of the fees payable to Paul L. Stanton from the
Massachusetts Mutual Life Insurance Policy . . . .â€
In April 2001, Stanton received a check payable to Don
and Ken in the sum of $487,754.95 as Joan’s life insurance proceeds from
Massachusetts Mutual Life Insurance Company.
Stanton endorsed the check purportedly on Don’s behalf. He paid Ken about $200,000 from the proceeds,
took $97,550.99 as his contingency fee, and deposited the rest – about $190,000
– into his client trust account which Don could not access.
Don thereafter dismissed
Stanton and on May 3, 2001, sent a
letter to Stanton disputing Stanton’s right to any of the life insurance
proceeds.
Don demanded Stanton
return to Don the funds Stanton withheld.
Up to the time of Don’s May 2001 letter, Don had never told Stanton that
he was unhappy with Stanton’s representation of him or the results of the
September and February mediations. Up to the time of the letter, Don had paid
Stanton’s bills charging Stanton’s reduced hourly rate without complaint. But in his May 2001 letter, Don wrote: “I intend to
retain counsel . . . to represent me in connection with our fee dispute. In the meantime, you are not authorized to
distribute any of my mother’s insurance proceeds in your trust account to
yourself or to any other person. Demand
is made that you restore to the trust account any funds which you have
previously withdrawn. [¶] I also demand that you deposit all of said
insurance proceeds into a separate interest bearing account in my name which I
will open. I will provide you with the
bank information for the account so that you can transfer the funds directly
into said account.†(Exh. 583.) Despite Don’s telling Stanton that Don disputed
Stanton’s right to pay himself his fees from Joan’s insurance proceeds, Stanton
conceded at trial that he nevertheless did exactly that: “Q. And you took the rest of it
that would have been Don's share [of the insurance proceeds] and you kept it in
your client trust account; correct? [¶] A. Yes. [¶] Q. And
that’s still there; isn’t it? [¶] A. No. [¶] Q. Where
is it now? [¶] A. In
my pocket.â€
In June 2001, Stanton asked the probate court to enforce
payment of his fees from Joan’s trust. Arguing
that he was entitled to $430,000 in fees under the February mediation
settlement agreement, Stanton’s probate court petition sought an order
authorizing Stanton to pay himself the additional sum of $190,203.96 from the
Joan life insurance proceeds in his trust account and an order instructing
Joan’s trust to pay him $142,245.05 as the remaining balance. The probate court dismissed Stanton’s
petition, a dismissal Division 4 of this court affirmed in 2004 in an
unpublished opinion. (
In the
meantime, in July 2001 Don filed a malpractice complaint against Stanton and
his law firm. Don alleged causes of action for professional
negligence, breach of fiduciary duty, and declaratory relief. In his claim for declaratory relief, Don
alleged that Stanton was demanding $430,000 in attorneys’ fees from Don but Don
believed that “any purported fee agreement†was invalid. According to the claim for declaratory relief,
the parties thus needed a determination of their rights, duties, and
obligations, and to “the extent that [Don] owes [Stanton] any money whatsoever
as attorneys’ fees, said fees would be reduced or eliminated by damages caused
to†Don by Stanton’s alleged negligence and breach of fiduciary duty.
Stanton
filed a cross-complaint against Don based on Don’s refusal to pay the
additional legal fees that Stanton claimed Don owed him. He alleged breach of the retainer agreement. He also alleged breach of the $430,000
payment promised him under the February mediation agreement. He further alleged two causes of action for
declaratory relief on the grounds actual controversies existed over the retainer
agreement’s validity and whether the February mediation agreement entitled him
to a $430,000 payment. Finally, he
alleged a cause of action for the reasonable value of the legal services he
provided to Don.
The
complaint and cross-complaint were tried to a jury. On October 31, 2008, both Don and Stanton
rested their cases. After the close of
evidence and before jury arguments began, Don filed a motion for judgment that
the retainer agreement was unenforceable.
restricted his right as a client to discharge Stanton. Don also asserted the retainer agreement unlawfully
restricted his right as the client to settle his lawsuit on whatever terms he
saw fit. Don thus requested that the
court enter judgment on Don’s third cause of action for declaratory relief or
on his affirmative defense that the retainer agreement was void.
On the day
the parties began their closing arguments and before the trial court submitted the
case to the jury, the court found Stanton’s retainer agreement with Don was
void and granted Don’s motion for judgment. The court concluded that the retainer
agreement was void against public policy because it created an “undisclosed,
unwaived, and irreconcilable†conflict of interest between Stanton and Don, and
the unlawful provisions could not be severed from the rest of the retainer
agreement. At the hearing on the motion,
the court stated “Any purported agreement to pay the sum sought by defendant
[Stanton] is invalid.â€
After the
court found the retainer agreement was void and closing arguments concluded,
the jury began deliberating on November 14, 2008. The jury reached its special verdict on November
20, 2008. The jury found Stanton had not
been professionally negligent, but had breached his fiduciary duties to
Don. However, Stanton’s breach of
fiduciary duties did not cause Don legal damages.
The court
entered judgment in April 2009. Judgment
was for Don on his complaint’s third cause of action for declaratory relief finding
the retainer agreement void and, because the retainer agreement was void, against
Stanton on his cross-complaint seeking to collect fees from Don. The court ordered Stanton to disgorge all the money that he had received or
retained in representing Don in the amount of $400,775.00 and to return that
money to Don with interest in the amount of $318,043.97. The court also awarded Don his reasonable
attorneys’ fees and costs incurred in the litigation between him and Stanton.
Stanton
filed a notice of appeal. Don accepts
the judgment in his favor as is, but filed a protective cross-appeal in the
event we reverse it.
DISCUSSION
1.
Court’s
Judgment That Retainer Agreement is Void
a.
Two Unlawful Restrictions on Don’s Rights as
a Client
i.
Restricting Don’s Right to Terminate Stanton
Stanton’s retainer agreement with
Don was a hybrid hourly-and-contingency fee agreement. In return for Stanton’s accepting a lower
hourly rate than his normal rate, Don promised to pay Stanton 20 percent of any
recovery from Dan. The agreement stated:
“[Stanton] will
be paid for the services rendered under this agreement a contingent fee of
twenty percent (20 [percent]) of any recovery whether it is in cash or in
kind.†The retainer agreement restricted
Don’s ability to terminate Stanton, however, by eliminating the discount in
Stanton’s hourly rate and restoring Stanton’s normal hourly rate if Don
discharged Stanton before Don’s litigation against Dan ended. The retainer agreement stated:
“In the event that prior to our substantial performance of
the services contemplated by this agreement, our services terminate for any
reason not covered above, then in lieu of the compensation provided above, and
without regard to the outcome of this matter, you shall pay us for all services
theretofore rendered at the hourly rates then charged by us, but in any event
not less than the following hourly rates: [¶] a. Paul
L. Stanton $350 [¶] b. Associate Counsel $250 [¶] c.
Paralegals $150 [¶] d. Secretarial/Clerical $50.â€
ii.
Restricting Don’s Right
to Settle
Stanton’s retainer agreement also restricted
Don’s ability to settle his claims against Dan.
The agreement stated:
“Remember, you are under no obligation whatsoever to ever make a
settlement that is not in your best interests.
If you choose not to settle and if the court or jury awards you nothing,
our fees will be limited to the hourly rate fees you have agreed to pay as set
forth above. [¶] The only exception would be a bad faith
termination of our services by you prior to a formal acceptance of a settlement
package to which we had significantly contributed or a bad faith acceptance of
a low settlement offer. For example, let
us assume that we have spent four months negotiating the terms of a settlement
which appears to be acceptable except for minor tuning and adjustment. If, at that time you were to discharge us in
order to avoid payment of our contingent fee as contained in this agreement and
either engaged new counsel or finished the settlement yourself with the help of
non-lawyers, we would be entitled to the greater of (i) the amount payable pursuant to this
agreement, based on the proceeds of any settlement or other disposition of the
matter, or (ii) compensation for services rendered at double the hourly rates
then charged by us.â€
b.
Court Finds Restrictions
Invalidate Retainer Agreement
The trial court found the foregoing
two restrictions Stanton imposed on Don’s right to terminate Stanton and to
settle his claims against Dan made the agreement unenforceable because the
restrictions created a conflict of interest between Stanton and Don.
agree that the provisions were unenforceable, but because Stanton did not try
to enforce them, we find the court’s disgorgement order, which we discuss
further in Part 3, was error.
“It
has long been recognized in this state that the client’s power to discharge an
attorney, with or without cause, is absolute.â€
(Fracasse v. Brent (1972) 6 Cal.3d
784, 790; Champion v. Superior Court
(1988) 201 Cal.App.3d 777, 783.) “The interest of
the client in the successful prosecution or defense of the action is superior
to that of the attorney, and he has the right to employ such attorney as will
in his opinion best subserve his interest.
The relation between them is such that the client is justified in
seeking to dissolve that relation whenever he ceases to have absolute
confidence in either the integrity or the judgment or the capacity of the
attorney . . . . The fact that the
attorney has rendered valuable services under his employment, or that the
client is indebted to him therefor, or for moneys advanced in the prosecution
or defense of the action, does not deprive the client of this right.â€
A
client also has the right to settle his case without his attorneys’ consent. (See e.g. Lemmer
v. Charney (2011) 195 Cal.App.4th 99, 103-104.)
Although
a client has the right to terminate his attorney and to settle his case, an
attorney may recover under quantum meruit for the reasonable value of his
services to the client. Thus, a client
who discharges an attorney under a contingency-fee agreement hoping to keep the
entire recovery to himself might nevertheless owe a fee to the attorney. (Fracasse,
supra, 6 Cal.3d at p. 791; Duchrow
v. Forrest (2013) 215 Cal.App.4th 1359, 1382; Rus, Miliband & Smith v. Conkle & Olesten (2003) 113 Cal.App.4th
656, 671-672.) As the Supreme Court
explained in Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, “Permitting quantum meruit recovery . . .
recogniz[es] that attorneys may recover from their clients the reasonable value
of
compensation agreements are found to be invalid or unenforceable for other
reasons.†(Id. at pp. 461-462; see also
97; Selten v. Hyon (2007) 152 Cal.App.4th
463, 471-472 [“When services are rendered under a contract that is unenforceable
as against public policy, but the subject services are not themselves
prohibited,
allowed.â€].)
Here,
however, despite the availability in principle of recovery under quantum
meruit, Stanton painted himself into a corner by waiving quantum meruit at
trial. At trial, he abandoned his effort
to collect the $430,000 fee he claimed under the February mediation agreement. Instead, he sought
recovery of fees solely under the terms of the retainer agreement for which he
sued for breach of contract, a trial stratagem he concedes in his appellate
briefs. He writes, “A motif of [Don’s]
brief is that Mr. Stanton cannot recover any fee because he waived his right to
a quantum meruit recovery. True. In reliance on the trial court's judicial
estoppel ruling two years before trial, Mr. Stanton abandoned his quantum
meruit, unjust enrichment, and declaratory relief causes of action, and
proceeded to trial on the single cause of action in his cross-complaint for
breach of contract.†Stanton claims he abandoned quantum meruit in detrimental
reliance on the court’s purported ruling that estopped Don from challenging the
retainer agreement’s validity – a claim, which we will explain below in section
4, that the record does not support. But
whatever the reason for Stanton’s decision to abandon quantum meruit, his recovery
under a breach-of-contract theory collapsed when the trial court found that the
contingency provision in the retainer agreement was void, leaving no other
provision in the retainer agreement by which to calculate a
the retainer agreement, Stanton’s only seeming recourse was to recover fees in
quantum meruit – but his trial strategy prevented that recovery.
2.
Don’s Motion on Enforceability of Retainer Agreement
Before the case was submitted to the jury,
Don moved for judgment on his claim that the retainer agreement was, as alleged
in his complaint’s cause of action for declaratory relief and in his 19th
affirmative defense to Stanton’s cross-complaint, unenforceable.
recited the procedural history as follows: “[Don] brought on for hearing [his]
Motion for judgment on [his] declaratory relief cause of action and/or [his] 19th
affirmative defense to [Stanton’s] cross-complaint. The parties fully briefed and argued the
Motion by and through their attorneys of record. Thereafter, the Court granted the Motion on
the ground that the Retainer Agreement upon which [Don’s] Complaint and
[Stanton’s] Cross-Complaint were based was void against public policy due to
undisclosed, unwaived, and irreconcilable conflicts of interest created by the
Retainer Agreement between the parties, which conflicts of interest were not
severable from the Retainer Agreement.â€
Stanton
contends Don’s third cause of action for declaratory relief concerned only the
February mediation agreement, not the retainer agreement. Thus, according to
Stanton, the retainer agreement’s validity was not properly before the court or
jury. Stanton suggests Don’s
motion blindsided him, because even though Don’s complaint had not requested a
bench trial, that is exactly what the court gave Don.
Stanton’s respondent’s brief states: “In the proceedings below, Mr. Fleischman said
nothing about trying an equitable cause of action to the court until one month
into the jury trial. Saying nothing, his
attorney impaneled a jury to try his legal malpractice cause of action and his
breach of fiduciary duty cause of action.
Then, Mr. Fleischman asked the court to ‘try’ his declaratory relief
cause of action after both sides had presented their evidence to the jury. . .
. [¶] [Fleischman] asked the court to render
judgment on the declaratory relief cause of action, sitting without the
jury, as if a court trial had already occurred . . . .†(Original Italics.)
The
record does not support Stanton. Don’s
complaint reasonably put Stanton on notice that Stanton’s fees under the retainer
agreement were at issue in the proceedings.
Don’s complaint alleged in a paragraph incorporated by all causes of
action that “[Don] retained [Stanton] to
represent him in connection with certain matters relative to the case of his
mother . . . . In connection with such
representation, there was purportedly a written retainer agreement between
[Don] . . . on the one hand, and [Stanton], on the other hand, pursuant to
which [Stanton and his law firm] now claim that they are entitled to both an
hourly fee and contingency fee . . . .†Elsewhere in his complaint, Don referred in
another paragraph incorporated by all causes of action that the February
mediation agreement was an additional agreement under which Stanton sought
recovery of fees. That paragraph alleged
“In or about February 2001, a mediation was held between [Don] and Ken Kaplan
to try to resolve disputes between them as to the allocation of the estate of
Joan Fleischman. . . . An agreement was
reached between [Don] and Ken Kaplan, which was memorialized in writing
(‘Mediation Agreement’) . . . [Stanton] caused to be inserted into the
Mediation Agreement a provision for the payment of Defendants’ purported
contingency fee.â€
Stanton notes that in an allegation contained
in Don’s cause of action for declaratory relief, Don specifically noted a
controversy existed over payment of $430,000 in fees. Don alleged, “[Stanton and his firm] contend that [Don] owes [Stanton] attorneys’ fees in the
amount of $430,000. [Don] is informed
and believes any purported fee agreement to pay the sum sought by [Stanton and
his firm] is invalid . . . .†Stanton’s
claim that this one allegation lulled him into thinking only the February
mediation agreement was at issue is belied by Stanton’s own
cross-complaint. Stanton himself sought
in his cross-complaint a declaratory judgment concerning the validity of the retainer
agreement. He alleged in his
cross-complaint, “An actual controversy now exists
between STANTON on the one hand and [Don] on the other hand, with respect to
the Fee Agreement. Stanton is informed
and believes and thereon alleges that [Don] contend[s] that the Fee Agreement
is void and unenforceable. Stanton
disputes such contention and contends that the Fee Agreement is valid,
enforceable and entitles Stanton to a contingency fee based upon the value of
assets obtained by [Don] due to Stanton’s efforts. Stanton hereby seeks a declaration of this
court as to the respective rights and obligations of Stanton and [Don] under
the Fee Agreement.†Thus Stanton cannot
reasonably claim he did not know the retainer agreement was at issue in the
trial. Moreover, Stanton did not object
to the court ruling on Don’s motion on the validity of the retainer agreement,
and therefore cannot now be heard to complain that he did not know the
agreement was at issue. (Accord
893, 900 [“a party cannot without objection try his case before a court
without a jury, lose it and then complain that it was not tried by juryâ€].)
Stanton
also contends the court’s ruling on Don’s motion amounted to an improper bench
trial within a jury trial. His
contention is unavailing. Don’s motion
expressly asked the court to rule on his equitable cause of action for
declaratory judgment. It is common for a
claim for declaratory relief to be tried separately from legal claims, and the
trial court has the discretion to decide the sequence in which to try equitable
and legal issues. (Evid. Code, § 320;
Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th
1265, 1285.) Because ruling on equitable
issues may, as happened here, dispose of issues that, depending on the ruling,
the jury will no longer need to consider, the court may decide those equitable
issues first. (Raedeke v. Gibraltar Savings & Loan Asso. (1974) 10 Cal.3d
665, 671; A-C Co. v. Security Pacific
Nat. Bank (1985) 173 Cal.App.3d 462, 473.) When a “case involves both legal and equitable issues the
court may in its discretion decide the equitable issues first. If the decision as to the equitable issues is
such as is determinative of the legal issues a jury trial as to the latter is
obviated. If not, the jury trial as to
the remaining issues will follow.†(
592, 609.)
Stanton
also contends the court erred in its declaratory judgment because declaratory
relief is available only prospectively before a party breaches a contract. Stanton argues declaratory relief is not
available to adjust past wrongs or to declare rights or remedies for past
harms. (See e.g. Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1404 [“Because
declaratory relief operates prospectively only, rather than to redress past
wrongs, Gafcon’s remedy as against Ponsor lies in pursuit of a fully matured
cause of action for money . . . .â€].) Stanton’s
contention overlooks, however, that the statute governing declaratory relief
permits a declaratory action when parties have an ongoing “actual controversyâ€
involving their rights and duties as to, among other things, a contract or
property in conjunction with seeking other types of relief. (Code Civ. Proc., § 1060.)
Stanton also contends the court’s
ruling finding the retainer agreement void conflicted with the jury’s findings.
Stanton reasons that the jury’s verdict
that he had breached his fiduciary duties toward Don necessarily meant the jury
concluded the retainer agreement had created a lawyer-client relationship
between him and Don, or else no fiduciary duty would exist to be breached. According to Stanton, the jury’s finding of a
valid retainer agreement barred the court from finding differently. In support, Stanton cites
146, for the proposition that the first fact-finder – which Stanton claims was
the jury – binds later fact-finders, such as, according to Stanton, the trial
judge here. As Hoopes explained, “The order of trial, in mixed actions with
equitable and legal issues, has great significance because the first fact finder
may bind the second when determining factual issues common to the equitable and
legal issues. [Citations.]
jurisprudence that ‘[t]he court may decide the equitable issues first, and this
decision may result in factual and legal findings that effectively
(Id. at pp. 156-157.) But Stanton’s reliance on
that the jury reached its verdict before the court ruled on Don’s motion. In fact, the court ruled the retainer
agreement was void before trial counsel had finished their closing arguments
and the case was submitted to the jury.
Thus, the jury was not the first fact-finder, and therefore its findings
concerning facts common to the causes of action it considered and the court’s
declaratory relief judgment did not bind the court.
3.
Severance of Provisions
Restricting Right to Terminate and Settle
Stanton contends the court went too
far by refusing to enforce the retainer agreement and in ordering him to
disgorge the fees Don paid to him.
According to Stanton, even if the court were correct that the retainer
agreement unlawfully restricted Don’s right to terminate Stanton and settle his
litigation with Dan, the proper remedy was to sever those provisions from the retainer
agreement and enforce the agreement’s remaining provisions. And according to Stanton, severance was
especially appropriate because he did not try to enforce the two provisions
involving termination of his services and settlement of the litigation because
they never came into play. We agree that
because Stanton did not try to enforce the termination and settlement
provisions, the court erred in ordering disgorgement.
Stanton cites decisions such as
(2008) 42 Cal.4th 974, 990-991, in support of severance. In that case, an actress’s personal manager
did not have a mandatory talent-agent license when the manager procured a
contract for the actress to work on a television show. (Id.
at p. 981.) When the manager sued
the actress for a percentage of her earnings from the show as promised under their
management contract, the trial court voided the management contract as an
illegal contract for unlicensed talent agency services. (Id.
at p. 982.) On review, the Supreme
Court reversed the trial court’s voiding of the entire contract. The Supreme Court remanded the matter to the
trial court to consider whether severability allowed the contract’s partial enforcement
to the extent legal provisions promoting lawful ends remained in the
contract. (Id. at pp. 990-991; see also Birbrower, Montalbano, Condon & Frank v. Superior Court (1998)
17 Cal.4th 119 [applied severability to attorney fee agreement where illegal
provision was New York lawyer trying to collect fees in California, which was
unauthorized practice of law, but otherwise permitting compensation for lawful services
outside of California]; Shopoff &
Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1523-1525 [applied
severability to illegal charging lien provision in contingent fee agreement].)
Severability exists to avoid the
hardship of forfeiture for the party seeking to enforce a partially illegal contract,
and to avoid an undeserved windfall for the party seeking to void the
contract. “Two reasons for severing or restricting
illegal terms rather than voiding the entire contract appear implicit in case
law. The first is to prevent parties
from gaining undeserved benefit or suffering undeserved detriment as a result
of voiding the entire agreement — particularly when there has been
of the contract.†(
Foundation Health Psychcare Servs. (2000)
24 Cal.4th 83, 123-124; accord Goldstein v.
Lees (1975) 46 Cal.App.3d 614, 617 [representing new client adverse to
former client is example of the sort of egregiousness needed to disgorge fees; disgorgement
of attorneys fees where attorney who had received confidential information
accepted employment adverse to former client].)
Here,
Stanton points to what he asserts was his extensive work successfully representing
Don, and for which Don paid him without complaint until Don discharged him. Stanton claims he provided a number of
valuable legal services, including representing Don at the September 2000
mediation against Dan and the February 2001 mediation against Ken; filing a
petition to probate Art’s estate; and preparing estate tax returns, including
“pro forma†returns prepared to analyze various tax strategies and hypotheticals. Bolstering Stanton’s claim, Don’s complaint
alleged Don retained Stanton on a wide range of legal issues. The complaint alleged: “[Don]
retained [Stanton] to represent him in connection with certain matters relative
to the case of his mother, Joan Fleischman, including, without limitation,
issues involved in the removal of [Don’s] brother, Dan Fleischman, from control
over their mother’s person and estate; disputes with Dan Fleischman arising out
of numerous legal actions and proceedings initiated by Dan’s conduct, including
a lawsuit against [Don], his half-brother (Ken Kaplan), his father (now
deceased) the conservators of their mother’s estate and others.â€
Among
the services Stanton claims he provided to Don, the most important in Stanton’s
mind appears to have been his representing Don in the mediations, a point
Stanton emphasized in examining Don at trial.
As to the September mediation, Stanton established from Don’s testimony
that “Q. You were represented by Mr. Stanton at this
[September 2000] mediation? [¶] A. He was the only one there that was
representing me; that’s correct. [¶] Q. And he was there because you wanted him to be
there; correct? [¶] A. . . . I can’t answer that yes
or no. [¶] Q. Did
he just show up? [¶] A. No. [¶] Q. You didn’t tell
him not to go, did you? [¶] A. No, I did not. [¶] Q. And
once you got there, you didn’t tell him to leave, did you? [¶] A. No, I didn’t. [¶] Q. And this was a mediation that started about
10:00 o’clock in the morning and ended the next day around 1:00 o’clock in the
morning; right. [¶] A. That’s correct. [¶] Q. So you and Mr. Stanton were together for about
13 hours. [¶] A. I was there until about I believe 9:00 or
10:00 p.m. [¶] Q. And all during
that time, Mr. Stanton was working on negotiations with the other lawyers to
resolve the issues with Dan? . . . [¶] A. . . . I believe
he was. [¶] Q. He was working on your behalf. . . . [¶] A. I believed that he was.†And according to Stanton, the benefits of his
legal work in getting Dan to disinherit himself at the September mediation flowed
into the February mediation, where Ken sold his interest in Joan’s estate to
Don. Don testified: “Q. Isn’t
it a fact that the only reason that Dan Fleischman was not able to seek an
inheritance right when your mother died was because by [the] terms of the
mediation agreement of September 2000, he gave up his rights to inherit from
your mother; correct? [¶] A. That’s how it happened. I don’t think that’s the only way it could
have happened. [¶] Q. That’s the way it happened, sir? [¶] A. That’s
correct. [¶] Q. And
you were being represented by Mr. Stanton during the September 2000 mediation? [¶] A. I
was being represented by him and only him because of the conversation that we
had, yes. [¶] Q. And
did you tell Mr. Stanton, Mr. Stanton after the mediation of September 2000,
Mr. Stanton continued to represent you? [¶] A. I believe that he did. [¶] Q. And
he represented you all the way to the so-called Ken mediation of February 2001?
[¶] A. Yes.â€
The evidence Stanton cites to
support his claim that the trial court should have severed the portions of the retainer
agreement that it found unlawful and enforced the rest creates a conflict in
the record involving disputed issues of fact.
For example, although Stanton appeared at both mediations, there was
testimony that his role in the February mediation involving Ken was limited to
drafting language for an agreement brokered by others. As for Stanton’s filing a probate proceeding
for Art’s estate, there was evidence probate was unnecessary because most of
Art’s property was in trust, and the probate proceeding was a self-inflicted
wound that served only to inflame Dan into filing his $100 million creditors
claim against Art’s estate at great expense to the estate.
But even if one views the evidence
in the light most favorable to Don, we conclude the trial court abused its
discretion in ordering Stanton to disgorge all fees that Don paid to him. “We review the trial court’s determination as to the
existence of an actual or potential conflict and whether such conflicts are
sufficiently egregious to require forfeiture of fees for abuse of discretion.†(Mardirossian
& Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257, 278.) Before a court may order forfeiture, the
court must find that the penalty is not too harsh for the offense. (Lewis
& Queen v. N.M. Ball Sons (1957) 48 Cal.2d 141, 151.) In support of the court’s disgorgement order
requiring Stanton to forfeit all fees he received from Don, Don relies on the
notion that legal services rendered in violation of professional ethics are
deemed to have no value. (
1125, 1162.) But that notion, which is a
legal fiction in its “deeming†such services to have no value regardless of the
reality of whether the client benefitted from the attorney’s services, finds
little support in the record here for at least two reasons. First, in finding Stanton did not negligently
perform his services, the jury found Stanton performed competently in
representing Don; competent legal services have some value greater than zero. Second, the most reliable evidence of the
value of Stanton’s legal work for Don are the fees that Don paid to him without
complaint until their dispute erupted.
The trial court correctly found Stanton could not rely on the unlawful
provisions of his retainer agreement to collect a contingency fee from Don’s
multi-million dollar recovery, but that does not mean Stanton wrongly received
the hourly fees that Don paid him.
Because Stanton did not try to enforce the unlawful provisions, they
were of no consequence in the hourly fees Stanton collected and therefore did
not taint those hourly fees. (
9, 12 [fees recoverable until ethical conflict arises between attorney and
client].) Consequently, the trial
court’s order compelling Stanton to disgorge those fees was unwarranted. (Armendariz
v. Foundation Health Psychcare Servs., supra, 24 Cal.4th at pp. 123-124
[party who performed under contract should not suffer for having performed, and
party who benefitted from the other’s performance should not enjoy an
undeserved windfall].)
Don
cites Goldstein
v. Lees (1975) 46 Cal.App.3d 614, for the proposition that an attorney
may not collect fees for “services rendered in contradiction to the
requirements of professional responsibility.â€
(Id. at p. 618.) That
proposition does not apply here because Stanton’s services did not violate his
professional responsibilities. Stanton’s
breach of professional responsibilities rested on his including two unlawful
provisions in his retainer agreement, but he did not try to enforce those
provisions. The difference between
Stanton’s conduct and the unprofessional conduct in Goldstein which Don
cites is illuminating. In Goldstein,
the attorney represented a new client who was adverse to a former client from
whom the attorney had received confidential information. (Id. at p. 617.) The court found the attorney’s conduct
sufficiently egregious to warrant disgorging fees because the essence of the
violation – representing adverse clients – went to the very core of the
representation. (See
compensation from a attorney-client relationship that professional rules
prohibited].) Here, in contrast, the essence of Stanton’s representation of Don was
proper – only his efforts to ensure his payment of his contingency fee were
wrongful. (See Fair v. Bakhtiari
(2011) 195 Cal.App.4th 1135, 1161 [drawing distinction between
attorney-client relationship where essence of representation is unlawful versus
relationship in which unlawful conduct exists].)
4.
Don Not Estopped From Challenging Retainer Agreement
The settlement agreement between Ken and Don resulting
from the February 2001 mediation ostensibly promised Stanton $430,000 in
fees. After the mediation, Don claimed
Stanton was not entitled to those fees because Stanton was not a party to the
mediation and therefore had no standing to seek fees from that process. In response, Stanton sought his fees from the
probate of Joan’s estate. In the probate
proceeding, Don resisted Stanton’s attempt to recover his fees, but argued as a
fallback position that, if the probate court awarded Stanton fees, the probate
court should apply the retainer agreement’s appraisal provision to calculate
the amount of those fees. Don argued: “The Retainer Agreement
specifically provides for the procedure to follow if there is a fee dispute: . . . [¶]
Paul Stanton drafted the Retainer
Agreement. He should be bound by that
agreement which is directly between him and his former client. Since the parties agreed through the Retainer
Agreement on the procedure for the resolution of any fee dispute, Don
Fleischman respectfully requests that the Court order that the Retainer
Agreement be enforced and the procedures specified therein to resolve fee
disputes be followed.†The probate court did not, however, resort to Don’s
fallback position that the retainer agreement’s appraisal provision should bind
Stanton because the probate court accepted Don’s contention that the February
mediation agreement did not entitle Stanton to fees. In an unpublished decision, our colleagues in
Division 4 affirmed the probate court. (
In the later trial court proceedings here, the
court ordered Don to participate in an appraisal of the commercial and
residential properties in Joan’s and Art’s estates.
the retainer agreement which
provided for an appraisal if Don and Stanton could not agree on the value of
Don’s recovery from Dan. The appraisal
provision stated: “Since
any settlement
[between Don and Dan] will
most likely be partially non-cash, we [i.e. Stanton and his law firm] are still
entitled to be paid our fee based on the value of the total recovery. If we are unable to agree regarding the value
of the non-cash assets (if any) received by virtue of any settlement or other
recovery, we agree to have the value of such non-cash assets determined by an
appraiser mutually selected by us (or if we cannot agree on an appraiser, upon an
appraiser selected by two appraisers, one of which would be selected by you and
the other which would be selected by us).
We agree in any event to be bound by the valuation of such appraiser.†Finding that Don was estopped from arguing the
appraisal clause was illegal, the court appointed an appraiser in May 2007.
The
court thereafter confirmed the appraised values as arbitration awards.
Stanton argues based on
the foregoing events that Don should be estopped from challenging the retainer agreement
because Don had urged enforcement of the retainer agreement in the probate
court. Stanton reads too much into the
record. Don only urged enforcement in
the probate court of the retainer agreement’s appraisal provision, and did so as a fallback position if the
probate court accepted Stanton’s claim for fees. Don did not address the retainer agreement’s
enforceability as a whole. Indeed, after
the trial court ordered Don to participate in the appraisal of the properties
in Joan’s and Art’s estates, Don moved for clarification of the court’s order.
The court denied Don’s motion for
clarification because it deemed it a thinly-disguised improper motion for
reconsideration. In finding that Don was
judicially estopped from challenging the appraisal
provision, the court expressly stated it had not ruled on the retainer agreement
as a whole. The court stated: “I will offer this for anybody’s
guidance. My ruling was intended only to
deal with the provision of the agreement that called for the appraisal of the
various properties in order to[,] if the agreement was otherwise enforceable,
implement the manner of calculating the fee.â€
We review the facts
supporting a trial court’s application of estoppel for substantial evidence,
and independently review questions of law involving its application. Applying those standards of review, we review
the court’s decision whether to apply estoppel for abuse of discretion. “The determination of whether judicial estoppel can apply to the
facts is a question of law reviewed de novo, i.e., independently, but the findings of fact upon which the application of judicial
estoppel is based are reviewed under the substantial evidence standard of
review.
. . . [¶]
if the necessary elements of judicial estoppel are found, because judicial
estoppel is an equitable doctrine [citation], whether it should be applied is a matter within the discretion
of the trial court. [Citations.]
determination is reviewed under an abuse of discretion standard.†(
argument only as to the appraisal provision.
Judicial estoppel reaches only those arguments that a court accepts. (The Swahn
Group, Inc. v. Segal (2010) 183 Cal.App.4th 831, 835;
60 Cal.App.4th 171, 183.) Hence,
the trial court did not abuse its discretion in finding Don was not judicially
estopped from challenging provisions of the retainer agreement other than the
appraisal provision, such as the termination and settlement provisions.
5.
Attorneys’ Fees to Don
After
the trial, Don moved for his attorneys’ fees. He argued he was entitled to them
as the prevailing party under the retainer agreement’s provision for attorneys’
fees. (Civ. Code, § 1717 [makes
attorneys’ fees reciprocal in action on contract when contract awards fees to
only one party].) The trial court found
that Don was the prevailing party under his complaint because, among other
reasons, the court’s declaratory relief and disgorgement order requiring
Stanton to return his fees gave Don a net monetary recovery, and Stanton was
awarded nothing against Don. (Code Civ.
Proc., § 1032, subd. (a)(4).) The court also found that as for Stanton’s
cross-complaint for breach of the retainer agreement, Don again was the prevailing
party because Stanton recovered nothing.
Don filed a memorandum
of costs requesting $688,624 in attorney’s fees and costs. Stanton
moved to tax as unreasonable the amount Don sought. The
court thereafter awarded Don $688,624. Stanton’s challenge on appeal to the award of
attorneys’ fees and costs boils down to the assertion that because Don sued
Stanton for malpractice and breach of fiduciary duty, but the jury awarded Don
no damages, Don cannot be the prevailing party.
But the trial court concluded otherwise, finding Don was the prevailing
party. Our reversal of the court’s
disgorgement order changes the factual underpinnings of the court’s fee and
cost award because Don no longer has a net monetary recovery on which to rest
his claim of being the prevailing party.
Accordingly, we remand the matter to the trial court to allow that court
in the first instance to determine if there is a prevailing party, and if so,
whether fees and costs should be awarded, and if so, the proper amount of fees
and what costs, if any, should be awarded in light of our partial reversal.
CROSS-APPEAL
Don filed a protective
cross-appeal in the event we reversed the judgment in his favor. Because we have partly reversed the judgment,
we address the contentions that Don raises in his cross-appeal.
1.
Valuation Date of Real Estate
To calculate the 20
percent contingency fee that Stanton sought from Don’s recovery of Art’s and Joan’s
estates against Dan and Ken, the court accepted Stanton’s assertion that the
property appraiser should assess the value of the recovered real estate as
close as practical to the time of trial in 2008. Don contends that the court erred and that
the appraiser should instead have assessed the properties’ values as of 2001,
when Stanton claims he was entitled to collect his contingency fee. Because our partial reversal of the trial
court’s judgment does not upset the trial court’s ruling that Stanton was not
entitled to collect any contingency fee at all, Don’s concern about the
properties’ valuation date is moot.
2.
Jury Instructions on
Fiduciary Duty
Don claimed a cause of action against Stanton for breach
of fiduciary duty. The jury found
Stanton breached his duty, but that the breach caused Don no damage. The court’s principal instructions to the
jury on breach of fiduciary duty included the following instructions:
â—
“Don Fleischman also seeks to recover damages based upon a claim of
breach of fiduciary duty. The essential elements of this claim are: [¶] 1. A
fiduciary relationship existed between Don Fleischman and Paul Stanton; [¶] 2. Paul
Stanton possessed information material to Don Fleischman’s interest; [¶] 3. Paul
Stanton knew or should have known that this information was material to Don
Fleischman’s interest; [¶] 4. Paul Stanton failed to disclose
this material information to Don Fleischman; and [¶]
5. This nondisclosure caused
Don Fleischman to suffer injury, damage, loss or harm. [¶] A
fiduciary relationship exists whenever under the circumstances trust and
confidence reasonably may be and is reposed by one person in the integrity and
fidelity of another. [¶] There was a fiduciary relationship between Don
Fleischman and Paul Stanton. [¶] A fiduciary’s duty requires the highest good
faith and undivided service and loyalty. [¶] A
fiduciary has a duty to make full disclosure and communicate to the person with
whom he has a fiduciary relationship, all information that is material to that
person’s interest.â€
◠“A fiduciary must tell
his principal of all information he possesses that is material to the principal’s
interests.â€
The court refused,
however, to instruct the jury with a number of additional instructions that Don
offered on fiduciary duty. We conclude
the court’s refusal was not error because the court’s other jury instructions
covered most of the same points of law stated in Don’s instructions. (Williams v. Carl Karcher Enterprises, Inc. (1986)
182 Cal.App.3d 479, 487 overruled on other grounds by Soule v.
General Motors Corp. (1994) 8 Cal.4th 548, 574 [“not error to
refuse instructions which are repetitious in substance and would serve only to
emphasize unduly a party’s theory of the caseâ€].) But even if the
court’s instructions did not cover every point of law that Don advanced, the
court’s refusal to give Don’s additional instructions did not prejudice Don.
For example, Don contends
the court erred by refusing to instruct the jury with Don’s special instruction
based on CACI 4106 that Stanton breached his fiduciary duty by representing
clients with conflicting interests. We
find the court did not err, however, because the court instructed the jury that
an attorney must not represent adverse clients except under certain conditions,
including disclosure to each client and each client’s written consent. Citing Professional Rules of Conduct, rule
3-310, the court instructed the jury: “Rule
3-310, titled ‘Avoiding the Representation of Adverse Interests’ states: A member shall not, without the informed
written consent of each client: Accept representation of more than one client
in a matter in which the interests of the clients potentially conflict.†The court’s instruction with Rule 3-310 was
sufficient because it covered the same points as Don’s special
instruction. The “duty of the court is fully discharged
if the instructions given by the court embrace all the points of the law
arising in the case. [¶]
instructed in any particular phraseology and may not complain on the ground
that his requested instructions are refused if the court correctly gives the
substance of the law applicable to the case.â€
(Hyatt
v. Sierra Boat Co. (1978) 79 Cal.App.3d 325, 335.)
Don also contends the
court erred in not submitting Don’s Special Instruction No. 3 to the jury,
which stated Stanton’s fiduciary obligation included offering a fee agreement
and billings that were “fair, reasonable, and fully explained to the
client.†We conclude the court did not
err, however, because the court instructed the jury with the requirements of
Business and Professions Code sections 6147 and 6148, which informed the jury
that an attorney must give a client a written fee agreement complying with
those statutes’ requirements that the agreement fully explain the fees.
Don also contends the
court erred in not submitting to the jury Don’s Special Instructions Nos. 5 and
6, which stated the contingency fee agreement and February mediation agreement
were invalid if they gave Stanton a pecuniary interest in Don’s property unless
Stanton disclosed his interest and Don waived the conflict. We find the court did not err, however,
because it instructed the jury with Rule 3-300.
The court told the jury: “Rule
3-300, titled ‘Avoiding Interests Adverse to a Client’ states: A member shall not enter into a business
transaction with a client, or knowingly acquire an ownership, possessory,
security, or other pecuniary interest adverse to a client, unless each of the
following requirements has been satisfied: [¶] (A)
The transaction or acquis
| Description | Attorney Paul Stanton and his law firm, the Law Offices of Paul Stanton, appeal from the trial court’s judgment denying them relief in their complaint for breach of a fee agreement against their former client, Don Fleischman, and ordering them instead to return to Fleischman several hundred thousand dollars in legal fees that Fleischman paid to Stanton and his firm. Former client Fleischman is satisfied with the trial court’s judgment, but filed a protective cross-appeal in the event the judgment were reversed. We hold the trial court erred (1) in ordering attorney Stanton to disgorge the fees he received from Fleischman and (2) in awarding Fleischman his attorneys’ fees and costs. As for Fleischman’s cross-appeal protectively alleging instructional error and error in the valuation date of real estate that Fleischman recovered while Stanton represented him, we affirm. |
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