Brown v. Freeman

Filed 3/6/07 Brown v. Freeman CA3

NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

THIRD APPELLATE DISTRICT

(San Joaquin)

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This case arises out of a business deal gone bad between plaintiff Jerry Brown and various defendants, including his former attorney and business partners. In a brief and succinct order, the trial court granted defendants petition to compel arbitration of Browns claims and their motion to stay proceedings pending completion of that arbitration. Apparently doubting the court could have meant what it said, Brown filed an ex parte application for clarification of the courts ruling. Thereafter, the court issued a further order, in which the court denied the petition to compel arbitration and motion to stay with respect to some of Browns claims. The court found the remaining claims had already been adjudicated in another case.

On appeal, defendants contend the trial court erred in granting Browns ex parte application for clarification because it was nothing more than a thinly disguised motion to reconsider that was not based on any new law or facts, as required by Code of Civil Procedure^[1]section 1008. We agree. Accordingly, we will reverse the trial courts further order granting Browns ex parte application and remand the case for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

According to the allegations in the first amended complaint, in 1992 Brown and his wife contracted to buy some property in Baja California. Brown consulted with his attorney, defendant Maxwell Freeman, about developing the property. Freeman was a partner in the law firm of Freeman, Brown, Hartman, Sperry & DAiuto, which later became defendant Freeman, DAiuto, Pierce, Gurev, Keeling & Wolf (the Freeman firm).

Ultimately, Freeman and defendant Robert Rishwain (also an attorney, but not part of the Freeman firm) advised Brown to enter into a partnership with them to develop, market, and sell the property. Freeman prepared a written agreement to form defendant Baja Investors, a partnership between Brown, his wife, and Freeman & Rishwain (F&R), a real estate investment business in which Freeman and Rishwain were the principals.

The parties signed the partnership agreement in June 1994. Brown and his wife contributed to the contract to buy the property and their initial payments on the contract (approximately $195,000) to the partnership, while F&R contributed the remaining $245,000 due under the contract.

Brown worked on developing the property for nearly six years. In April 2000, Brown wanted to sell three beachfront lots on the property for $450,000, but Freeman, Rishwain, and F&R would not agree because they wanted to sell the property as a whole. Freeman and Rishwain listed the property for sale in February 2001, but allowed the listing to expire.

In February 2002, Browns wife died. To wrap up the Baja Investors partnership, F&R demanded arbitration pursuant to the partnership agreement Freeman had prepared. As part of that arbitration, the property was sold at auction in December 2003. F&R bought the property at the auction for $100,000. Ultimately, Brown received $8,273.50 for his 25 percent interest in Baja Investors.

In November 2004, the arbitrator served the arbitration award, and F&R filed a petition to confirm the award and to enter judgment consistent with the award (case No. CV025235). In December 2004, while that petition was pending, Brown (representing himself) commenced this action (case No. CV025301) by filing a complaint against Freeman, Rishwain, F&R, Baja Investors, and the Freeman firm (jointly defendants) for legal malpractice, breach of fiduciary duties, breach of contract, and fraud.^[2]

In February 2005, the court, in case No. CV025235, confirmed the arbitration award and entered judgment on it.

In March 2005, defendants in this case filed a petition to compel arbitration and a motion to stay the proceedings until completion of arbitration. Defendants asserted that all matters alleged in Browns complaint fell within the scope of two arbitration agreements: one contained in an October 1993 retainer agreement between Brown and his wife and Freeman, Brown, Hartmann & Sperry,^[3]and the other contained in the Baja Investors partnership agreement.

The retainer agreement specified that Brown and his wife were hiring the Freeman firm to provide legal services in connection with matters involving the Internal Revenue Service and related matters. In petitioning to compel arbitration, defendants did not contend the legal services on which Browns complaint was based were related to matters involving the Internal Revenue Service. Instead, they apparently relied on the breadth of the arbitration provision in the agreement, which provided that [a]ny dispute involving or relating to this agreement or to the performance of services by Attorney [i.e., the Freeman firm], including . . . any dispute relating to any allegedly wrongful or negligent act or omission by [the Freeman firm] or any of its employees or officers shall be arbitrated . . . . (Italics added.)

Defendants petition to compel arbitration and motion to stay the proceedings were set for hearing on April 20, 2005. Brown did not file any opposition in advance of that date. On the morning of the hearing, however, Brown filed an ex parte application for a continuance, asserting he had not been properly served and that he had just been able to retain counsel. Defendants opposed the continuance, asserting Brown had been properly served. The court found good cause for a continuance and continued the matter to May 25.

On May 13, Brown filed an amended complaint. While the underlying facts remained the same, Browns complaint now set forth 13 causes of action where there had been six. Of particular interest here are five claims that largely related to Browns alleged attorney-client relationship with Freeman, Rishwain, and the Freeman firm (which, consistent with the parties, we will refer to jointly as the legal malpractice claims). The first of these was a cause of action for professional negligence/legal malpractice (the first cause of action); the second was a cause of action for breach of fiduciary duty (count one of the second cause of action); the third was a cause of action for fraud and deceit (count two of the fifth cause of action); the fourth was a cause of action for intentional infliction of emotional distress (eleventh cause of action); and the fifth was a cause of action for negligent infliction of emotional distress (twelfth cause of action).^[4]

At the same time as he filed his amended complaint, Brown filed a written opposition to the petition to compel arbitration and the motion to stay the proceedings. Brown contended the court should not grant the petition pursuant to the arbitration clause in the Baja Investors partnership agreement because in his complaint Brown was seeking to have that agreement declared void and reformed due to Defendants fraud. He also argued that defendants were trying to foreclose his claims against them by using the Judgment Upon Confirmation of Arbitration Award [in case No. CV025235] as res judicata in this case. Their basic position is that there is nothing left to arbitrate. Brown informed the court he had filed a motion to set aside the judgment in case No. CV025235, which was set for hearing in June, and he was going to seek to consolidate the two cases in the near future. Notably, Browns opposition did not address the arbitration clause in the retainer agreement.

On May 19 -- the same day defendants filed their reply -- Brown filed a supplemental memorandum of points and authorities in opposition to the petition to compel arbitration and the motion to stay the proceedings addressing the arbitration clause in the retainer agreement. Brown asserted there was no written retainer agreement between himself and Freeman or Rishwain. As to the retainer agreement with the Freeman firm, he asserted the Freeman firms services to him in connection with Baja Investors did not fall within the scope of that agreement because the agreement was limited to legal services related to matters involving the Internal Revenue Service.

At the hearing on May 25, the parties argued the matter at length and the court took it under submission. On August 22, the court issued its ruling, which simply stated that Defendants Petition to Compel Arbitration and Motion to Stay Proceedings until completion of arbitration is granted.

Two weeks later, on September 7, Brown filed an ex parte application for clarification of the courts ruling. Brown asserted it was not clear from the text of the Ruling whether the Court is ruling that the legal malpractice claims are encompassed by the arbitration provision in the Partnership Agreement. Brown asked for clarification on four specific points,^[5]followed by a short argument as to why his case against the attorneys [sic] was not subject to arbitration.

A hearing on Browns ex parte application for clarification was held on September 13. At the hearing, Brown insisted he was not asking the Court to change the ruling, only to clarify it and insisted this is not a motion for reconsideration. Defendants objected to the procedural aspect of th[e] hearing because Brown had filed [a] brief . . . ex parte which is wholly inappropriate. They also contended the request for clarification was simply an inappropriate and procedural[ly] defective motion to reconsider without new evidence or new law. Defendants argued there is no ambiguity in the order, and Browns request for clarification was simply a rehash of his earlier arguments. The court took the matter under submission.

On January 6, 2006, the court issued a Further Order On Defendants Petition To Compel Arbitration And Motion To Stay Proceedings Until Completion Of Arbitration. Apparently on its own motion, the court took judicial notice of a September 13 decision in case No. CV025235 denying Browns motion to vacate the judgment confirming the arbitration award that wound up Baja Investors. The court then found that all claims by [Brown] have been adjudicated in case No. CV025235 except the First Cause of Action (legal malpractice and negligence), the Second Cause of Action, Count One (breach of fiduciary duty), the Fifth Cause of Action, Count One (fraud and deceit), the Eleventh Cause of Action (intentional infliction of emotional distress), and the Twelfth Cause of Action (negligent infliction of emotional distress), as alleged in the First Amended Complaint in this action. The court ruled that [t]hese enumerated claims have not been adjudicated and the Petition to Compel Arbitration as to them is denied as they are not included as a subject of either of the arbitration clauses submitted to and considered by the Court. The court also denied the motion to stay proceedings on those claims and ordered defendants to file a responsive pleading in 30 days.

Defendants filed a timely notice of appeal from the courts order of January 6.^[6]

DISCUSSION

Defendants contend the trial court erred in granting Browns ex parte application for clarification of the courts initial ruling on the petition to compel arbitration and the motion to stay the proceedings because that application was, in substance, a motion for reconsideration that did not meet the requirements of section 1008. We agree.

Under subdivision (a) of section 1008, a motion for reconsideration must be based upon new or different facts, circumstances, or law. Subdivision (e) of the statute provides that [n]o application to reconsider any order . . . may be considered by any judge or court unless made according to this section.

In Le Francois v. Goel (2005) 35 Cal.4th 1094, our Supreme Court concluded that section 1008 constitutionally prohibit[s] a party from [seeking reconsideration] not based on new facts or law, but do[es] not limit a courts ability to reconsider its previous interim orders on its own motion, as long as it gives the parties notice that it may do so and a reasonable opportunity to litigate the question. (Le Francois,at pp. 1096-1097.)

Brown acknowledges that if a party bringing a motion for reconsideration under [section 1008] fails to meet the requirements of [the statute], the court lacks jurisdiction to grant the motion. He denies, however, that his application for clarification of the courts initial ruling was actually a motion for reconsideration. According to Brown, his application did not seek to have the August 22 Order reconsidered, modified, amended or revoked; only clarified (explained).

If the courts initial order had been ambiguous -- that is, reasonably susceptible to more than one meaning -- then Browns argument might carry some weight. For example, if the order had stated that defendants petition and motion were granted in part and denied in part, but had failed to specify what aspects of the petition and motion were granted and what aspects were denied, then the parties would have had good cause to seek clarification. As defendants point out, however, the courts August 22 order was clear, concise and unambiguous. It stated simply that Defendants Petition to Compel Arbitration and Motion to Stay Proceedings until completion of arbitration is granted. This ruling left no room for any confusion. In their moving papers, defendants had made it clear they were seeking an order compelling arbitration of allissues raised [in the] complaint and an order staying further proceedings herein until completion of arbitration of all issues raised [in the] complaint. (Italics added.) Thus, when the trial court granted the petition and the motion without qualification, Brown had no reason to question the scope of the courts ruling -- the court had ordered arbitration of all issues in the complaint and stayed further court proceedings pending completion of that arbitration.

By asking the trial court to clarify whether the legal malpractice claims were being ordered to arbitration, and providing the court with further argument about why those claims should not be ordered to arbitration, Brown was, for all intents and purposes, asking the court to reconsider its plain and unqualified order granting the petition to compel arbitration, without meeting the requirements of section 1008. This was improper.

Standing on his argument that he did not ask the court to reconsider its ruling, Brown asserts that if there was any reconsideration of the August 22, 2005 Order by the trial court, it could only have been on its own motion. Brown further asserts that this sua sponte ruling was proper because defendants had the opportunity to brief and be heard on the issue the court reconsidered, both before and at the May 25 hearing. This argument fails.

There can be no doubt the court reconsidered its August 22 order and, upon reconsideration, fundamentally modified that order. As we have noted, the August 22 order unambiguously granted defendants petition to compel arbitration and motion to stay the proceedings without qualification. The January 6 order, on the other hand, denied both the petition and the motion with respect to Browns legal malpractice claims.

As the Supreme Court explained in Le Francois, Unless the requirements of section . . . 1008 are satisfied, any action to reconsider a prior interim order must formally begin with the court on its own motion. To be fair to the parties, if the court is seriously concerned that one of its prior interim rulings might have been erroneous, and thus that it might want to reconsider that ruling on its own motion--something we think will happen rather rarely--it should inform the parties of this concern, solicit briefing, and hold a hearing. [Citations.] Then, and only then, would a party be expected to respond to another partys suggestion that the court should consider a previous ruling. This procedure provides a reasonable balance between the conflicting goals of limiting repetitive litigation and permitting a court to correct its own erroneous interim orders. (Le Francois v. Goel, supra, 35 Cal.4th at pp. 1108-1109.)

What this means is that section 1008 does not prevent a court from reconsidering an interim order on its own motion, even if the idea to reconsider the motion was sparked by an impermissible motion for reconsideration or, as here, a motion for reconsideration disguised as an ex parte application for clarification. However, if the court does decide to reconsider an interim order on its own motion, it should: (1) inform the parties of its intent to do so; (2) solicit briefing on whether it should do so; and (3) hold a hearing on whether it should do so.

None of that happened here. At no time did the trial court inform the parties that it intended to reconsider its ruling granting defendants petition to compel arbitration and motion to stay the proceedings, solicit briefing on that issue, or hold a hearing on that issue. Instead, the court held a hearing on Browns ex parte application for clarification of the August 22 ruling, without allowing defendants the opportunity to file any briefing beforehand and without ever indicating that it might reconsider -- as opposed to simply clarify -- that ruling. This procedure did not comply with Le Francois.^[7]

The fact that defendants had the opportunity at the May 25 hearing to present argument on whether the legal malpractice claims should be ordered to arbitration is of no moment. First, defendants did not have a full and fair opportunity to brief that issue prior to the May 25 hearing because Browns written arguments on that issue were contained in a supplemental opposition brief he filed belatedly on May 19. Browns belated filing of that brief deprived defendants of their opportunity to address the issue in their reply, which they filed the same day.

Second, and more importantly, even if the issue were thoroughly briefed and argued originally, Le Francois requires the opportunity to brief and argue the issue again, after the court has expressed concern about the propriety of its original ruling and a potential desire to reconsider that ruling on its own motion. Defendants were deprived of that opportunity here. Thus, the trial courts ruling cannot be affirmed as a valid ruling resulting from reconsideration on its own motion.

In a last-ditch effort to avoid remand, Brown contends that whether or not the trial court committed error [in reconsidering its prior ruling], it was harmless error because it made the correct decision. Under no circumstances, based upon the contractual evidence before the court, are Browns claims against his attorneys arbitrable.

In Le Francois, Justice Kennard filed a concurring and dissenting opinion in which she concluded the judgment should be affirmed, notwithstanding the trial courts error in granting an impermissible motion for reconsideration, because no miscarriage of justice had been shown. (Le Francois v. Goel, supra, 35 Cal.4th at pp. 1110-1111.) The majority disagreed that the judgment should be affirmed on the basis of harmless error because defendants have made no such harmless error argument, and thus plaintiffs have had no chance to argue against it. Moreover, the trial court did not inform the parties that it might change its previous ruling on its own motion and give them an opportunity to be heard, as it should have done. We do not know what would have occurred if it had done so. Under the circumstances, we think it best to remand the matter for the court and parties to follow proper procedure. (Id. at p. 1109, fn. 6.)

Brown attempts to avoid the fate of the respondents in Le Francois by arguing harmless error. But the lack of a harmless error argument was only part of the reason the majority in Le Francois decided to remand the case to allow the court and the parties to follow proper procedure. (Le Francois v. Goel, supra, 35 Cal.4th at p. 1109, fn. 6.) The Le Francois majority also acted as it did because the trial court did not inform the parties that it might change its previous ruling on its own motion and give them an opportunity to be heard, as it should have done, and the court did not know what would have occurred if it had done so. (Ibid.)

The same concerns are present here. The trial court in this case did not inform the parties it might change the previous ruling on its own motion and give them an opportunity to be heard, as it should have done. Moreover, it is far from clear that the trial courts error was harmless, as Brown contends.

For example, Brown contends he never agreed to the compelled arbitration of his claims against his attorneys Freeman and [the Freeman firm] arising from the dissolution and termination of [Baja Investors]. As we have noted, however, the arbitration provision in the retainer agreement provided that [a]ny dispute involving or relating to this agreement or to the performance of services by Attorney [i.e., the Freeman firm], including . . . any dispute relating to any allegedly wrongful or negligent act or omission by [the Freeman firm] or any of its employees or officers shall be arbitrated . . . . (Italics added.) This arbitration provision could be broad enough to cover any dispute involving or relating to any legal services Freeman or the Freeman firm provided to Brown, even those that did not directly relate to the retainer agreement itself, which, as we have noted, provided for legal services in connection with matters involving the Internal Revenue Service and related matters. If the arbitration provision is construed that broadly, then Browns legal malpractice claims against Freeman and the Freeman firm are subject to arbitration, and the trial courts error in reconsidering its initial ruling is not saved by the harmless error rule because the courts ruling on reconsideration would have the effect of denying defendants their right to arbitration.

Under these circumstances, we (like the majority of the Supreme Court in Le Francois)think it best to remand the matter for the court and parties to follow proper procedure. (Le Francois v. Goel, supra, 35 Cal.4th at p. 1109, fn. 6.) Of course, just as in Le Francois, On remand, nothing prohibits the court from reconsidering its previous ruling on its own motion -- provided the court gives the parties notice that it may do so and a reasonable opportunity to litigate the question.^[8] (Id. at pp. 1097, 1109.)

DISPOSITION

The Further Order On Defendants Petition To Compel Arbitration And Motion To Stay Proceedings Until Completion Of Arbitration filed January 6, 2006, is reversed, and the case is remanded to the trial court for further proceedings consistent with this opinion. Defendants shall recover their costs on appeal. (Cal. Rules of Court, rule 8.276(a).)

ROBIE , J.

We concur:

BLEASE , Acting P.J.

NICHOLSON , J.

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^[1] All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

^[2] Another defendant named in the complaint was Semax Development y Compaia, S. de R.L. de C.V., a company formed by Freeman and Rishwain under Mexican law to hold title to the property.

^[3] This law firm was apparently the predecessor to Freeman, Brown, Hartman, Sperry & DAiuto, which in turn was the predecessor to defendant Freeman, DAiuto, Pierce, Gurev, Keeling & Wolf. We will refer to all of the firms interchangeably as the Freeman firm.

^[4] The eleventh and twelfth causes of action actually alleged tortious acts committed during the attorney-client relationship and the joint venture relationship. (Italics added.)

^[5] The points were as follows:

1. Are Plaintiffs claims against Defendants FREEMAN, RISHWAIN and [the Freeman firm] sounding in legal malpractice and negligence (First Cause of Action), breach of fiduciary duty (second Cause of Action, Count One), fraud and deceit (Fifth Cause of Action, Count One), and intentional and negligent infliction of emotional distress (Eleventh and Twelfth Causes of Action), all of which relate to Plaintiffs claims against Defendants in their capacity as his attorneys (as opposed to joint-venture partners) included in the Courts Ruling granting Defendants Petition to Compel Arbitration?

2. Are Plaintiffs claims against Defendants FREEMAN, RISHWAIN and [the Freeman firm] sounding in legal malpractice and negligence (First Cause of Action), breach of fiduciary duty (second Cause of Action, Count One), fraud and deceit (Fifth Cause of Action, Count One), and intentional and negligent infliction of emotional distress (Eleventh and Twelfth Causes of Action), all of which relate to Plaintiffs claims against Defendants in their capacity as his attorneys (as opposed to joint-venture partners) stayed pending arbitration of Plaintiffs claims against Defendants arising from the BAJA INVESTORS partnership?

3. What is the basis for granting Defendants Petition to Compel Arbitration as to Plaintiffs claims against Defendants FREEMAN, RISHWAIN and [the Freeman firm] sounding in legal malpractice and negligence (First Cause of Action), breach of fiduciary duty (second Cause of Action, Count One), fraud and deceit (Fifth Cause of Action, Count One), and intentional and negligent infliction of emotional distress (Eleventh and Twelfth Causes of Action), all of which relate to Plaintiffs claims against Defendants in their capacity as his attorneys (as opposed to joint-venture partners), if the Court has granted Defendants Petition to Compel Arbitration as to these claims?

4. What is the basis for granting Defendants Motion to Stay as to Plaintiffs claims against Defendants FREEMAN, RISHWAIN and [the Freeman firm] sounding in legal malpractice and negligence (First Cause of Action), breach of fiduciary duty (second Cause of Action, Count One), fraud and deceit (Fifth Cause of Action, Count One), and intentional and negligent infliction of emotional distress (Eleventh and Twelfth Causes of Action), all of which relate to Plaintiffs claims against Defendants in their capacity as his attorneys (as opposed to joint-venture partners)[?]

^[6] That order is appealable under section 1294, subdivision (a), as an order denying a petition to compel arbitration.

^[7] It is true that at the end of the September 13 hearing the trial court asked defendants if they were going to file anything, but this did not comply with Le Francois, which suggests the court should solicit briefing before holding a hearing and after informing the parties of its concern that its prior ruling might have been erroneous. (See Le Francois v. Goel, supra, 35 Cal.4th at pp. 1108-1109.)

^[8] Because we reverse on the foregoing basis, we do not consider defendants alternate argument that the trial court exceeded its jurisdiction and abused its discretion in determining the res judicata effect of the judgment in case No. CV025235 on the claims asserted here.