Opinion
G062005
04-24-2024
WILLIAM PARRISH et al., Cross-complainants and Appellants, v. STOLL, NUSSBAUM & POLAKOV, Cross-defendant and Respondent.
Cappello &Noel, A. Barry Cappello and Lawrence J. Conlan for Crosscomplainants and Appellants. Keathley &Keathley, H. James Keathley and Katherine D. Keathley for Cross-defendant and Respondent.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County No. 30-2011-00483570, Walter P. Schwarm, Judge. Affirmed.
Cappello &Noel, A. Barry Cappello and Lawrence J. Conlan for Crosscomplainants and Appellants.
Keathley &Keathley, H. James Keathley and Katherine D. Keathley for Cross-defendant and Respondent.
OPINION
BEDSWORTH, ACTING P. J.
INTRODUCTION
"Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties[.]" (Code Civ. Proc., § 1021.) This has long been the rule. There are, however, exceptions, and this case implicates one of them: tort of another damages. Under this doctrine, "[a] person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred." (Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 620 (Prentice).)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
The question to be resolved here is whether a client can recover attorney fees and costs "from a former lawyer which the client has incurred defending against that lawyer's attempt to collect or retain an unreasonable fee?" (See Schneider v. Friedman, Collard, Poswall &Virga (1991) 232 Cal.App.3d 1276, 1281 (Schneider).) Given the nature of the claims made by appellants, the damages alleged in their pleading, and their arguments on appeal, we, like the Schneider court, conclude they cannot, and we affirm the trial court's ruling sustaining respondent's demurrer without leave to amend.
FACTS
This is not our first brush with this litigation. It first came to us on appeal a decade ago, when we affirmed the trial court's denial of the appellants' motion to compel arbitration. (See Eagan Avenatti, LLP v. Stoll (Feb. 28, 2014, G048143) [nonpub. opn.].) As we detailed then, the conflict between the parties dates back to 2008 when appellants entered into an attorney-client fee agreement with Eagan Avenatti LLP (EA), Panish, Shea &Boyle LLP (PSB), and the respondent law firm Stoll, Nussbaum &Polakov (SNP). Appellants hired these firms to represent them in a malicious prosecution action against their former employer, FLIR Systems, Inc. (FLIR) (Eagan Avenatti, LLP v. Stoll, supra, G048143, p. 3). The three firms entered into a separate fee-sharing agreement in November 2009 which appellants acknowledged. If the case settled, the three firms would divide the attorney fee payment, with PSB and SNP receiving 35 percent each, and EA receiving 30 percent.
The malicious prosecution action settled in mediation for $39 million. By way of the executed settlement agreement, FLIR agreed to pay this amount by wire transfer to EA's trust account on or before May 31, 2011. However, EA never transferred the 35 percent owed SNP under the firms' fee-sharing agreement. Instead, it filed a declaratory relief action in 2011 against SNP and its principal, Robert Stoll, alleging the fee-sharing agreement was improper and that SNP was terminated by the clients in May 2011 after performing minimal legal work.
SNP filed a cross-complaint against EA, as well as the appellant clients, for breach of contract, conversion, and constructive trust based on the failure to pay its agreed-upon share of attorney fees. Still represented by EA, appellants filed their own cross-complaint against SNP and Stoll in response. The cross-complaint alleged fraud in the inducement, breach of fiduciary duty, breach of contract, and negligence. Appellants alleged SNP and Stoll had misrepresented their expertise in handling actions such as the one against FLIR, and also misrepresented to the other two law firms that appellants were existing SNP clients when they in fact were not. The trial judge then presiding sustained SNP's unopposed demurrer to appellants' cross-complaint without leave to amend on March 7, 2013. The trial court reasoned appellants had not alleged any damage to them which had occurred as a result of SNP's actions or as a result of the fee-sharing arrangement. Appellants' cross-complaint against SNP and Stoll was dismissed on March 14, 2013.
On or about January 15, 2019, SNP and Stoll amended their crosscomplaint against appellants, adding causes of action for aiding and abetting conversion, aiding and abetting breach of fiduciary duty, trespass to chattels, aiding and abetting the same, and theft pursuant to Penal Code section 496.
In the amended pleading, Stoll and SNP alleged appellants knew EA and its principal, Michael Avenatti, were going to convert SNP's share of the fees and assisted them in doing so. In response to these new allegations, appellants resurrected their previous cross-complaint against Stoll and SNP, alleging Stoll never told them he objected to the transfer of the settlement funds to EA's trust account, and that Stoll never disclosed his intention to sue them if the funds were indeed sent there. The new crosscomplaint contained causes of action for breach of fiduciary duty and negligence. The negligence claim reads like one for legal malpractice. Appellants state SNP "failed to exercise reasonable care and skill in performing legal services . . . and were negligent and careless in their representation" because they failed to tell appellants they did not want the fees deposited in the EA account. The damages alleged included the amount of any judgment entered against appellants in the litigation with SNP, and attorney fees and costs incurred from August 2018 onward.
Once again, SNP filed a demurrer. It offered several arguments in support: (1) the cross-complaint was time-barred, (2) the claims were barred by the litigation privilege, (3) res judicata and/or collateral estoppel applied to the claims, (4) the causes of action were actually for indemnity, and (5) lack of causation or damages. In their opposition, appellants clarified they sought damages in the form of the "substantial legal fees" they were forced to expend defending against Stoll and SNP's cross-complaints. The trial court sustained the demurrer with leave to amend, finding appellants could not recover their attorney fees as damages under the tort of another doctrine because they had not incurred such fees in bringing or defending litigation involving a third party.
Appellants did amend, but still, they sought any amount they might have to pay in a judgment, and any attorney fees, costs or expenses "incurred as the result of and to investigate Stoll's malpractice, including in preparing affirmative claims against Stoll, and in investigating the misconduct and malpractice on the part of Avenatti, his firm, and his law partners and associates that arose from Stoll's malpractice." This time, the trial court sustained SNP's demurrer without leave to amend.
SNP's cross-complaint against appellants proceeded to a trial on the merits, and appellants prevailed. Having been exonerated by a jury of any tortious conduct, appellants now appeal the trial court's ruling on the demurrer to their own crosscomplaint.
DISCUSSION
Appellants contend it was error for the trial court to sustain SNP's demurrer for lack of damages. They further contend SNP's other grounds for demurrer were defective. Since we agree with the trial court's ruling on the damages question, we need not reach the other grounds for demurrer.
I. Standard of Review on Demurrer
SNP's demurrer was based on failure to state facts sufficient to constitute a cause of action. (See § 430.10, subd. (e).) "'On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded.' (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) We review the complaint de novo to determine whether it alleges facts stating a cause of action under any legal theory. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)" (Brunius v. Parrish (2005) 132 Cal.App.4th 838, 849.) "We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court's stated reasons." (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.)
"When a trial court sustains a demurrer without leave to amend, the appellate court also reviews that ruling for abuse of discretion. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) A trial court does not abuse its discretion when it sustains a demurrer without leave to amend if either (a) the facts and the nature of the claims are clear and no liability exists, or (b) it is probable from the nature of the defects and previous unsuccessful attempts to plead that the plaintiff cannot state a claim. (Kately v. Wilkinson (1983) 148 Cal.App.3d 576, 581.)" (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 889-890.) Here, we find no error.
II. Attorney Fees as Damages
Generally, the party employing an attorney must pay his or her own attorney fees, and such amounts are not recoverable as damages against the other party in litigation. (See Roberts v. Ball, Hunt, Hart, Brown &Baerwitz (1976) 57 Cal.App.3d 104, 112.) When the courts create exceptions to this rule, they do so carefully, mindful of the Supreme Court's "reluctance to expand the common law exceptions to the 'American Rule,' which generally precludes the award of attorney's fees to a successful party[.]" (Schneider, supra, 232 Cal.App.3d at p. 1281.) In those cases in which exceptions have been ratified, the court is often "not dealing with 'the measure and mode of compensation of attorneys'" as stated in section 1021. In some, it is dealing "with damages wrongfully caused by defendant's improper actions." (Prentice, supra, 59 Cal.2d at p. 621; see also Brandt v. Superior Court (1985) 37 Cal.3d 813, 817 (Brandt).) In others, it is dealing with benefits conferred on others via the litigation, such as with the common fund doctrine or the private attorney general statute. (See Gray v. Don Miller &Associates, Inc. (1984) 35 Cal.3d 498, 505 (Gray).) But, as our Supreme Court recently stated in Pulliam v. HNL Automotive Inc. (2022) 13 Cal.5th 127, 141: "In California, 'attorney's fees qua attorney's fees' - that is, the fees 'attributable to the bringing of the . . . action itself' - are not an element of damages."
III. The Nature of Damages Sought by Appellants
In reading appellants' cross-complaint, it is clear the attorney fees they seek are attorney fees qua attorney fees. They feel they were harmed by having to incur fees, costs, and expenses investigating and uncovering the malfeasance or malpractice of EA, Avenatti, Stoll, and SNP. Paragraph 44 of the pleading well summarizes their theory of damages: "Cross-complainants have been harmed, including but not limited to incurring significant expenses investigating Stoll's misconduct and breach of duties to them, being compelled to incur and pay attorneys' fees and costs as the result of and to investigate Stoll's malpractice, including in preparing affirmative claims against him, and to investigate misconduct and malpractice on the part of Avenatti, his firm, and his law partners and associates that arose from Stoll's malpractice. The expenses incurred by Cross-complainants in extricating themselves from Stoll's misconduct, as well as the litigation that resulted from that misconduct, are the unwanted consequences of, and damages caused by, Stoll's actions, and the loss of the bargained-for benefit of his representation." The fact appellants circumlocute around, however, is that these expenses were incurred in this very same lawsuit, as a direct result of being sued by SNP and Stoll. To put it differently, appellants were not harmed at all by Stoll and SNP's conduct until they were sued by them. And the harm only takes the form of having to conduct the work any litigant would have to undertake to defend themselves in litigation. Because the fees incurred in conducting this work are not recoverable damages absent a statutory or contractual fee-shifting provision, there are no damages at all.
Appellants do not point to any expenses or costs they incurred outside of litigating this action against SNP, which is telling, because all of the cases on which they rely involve some other such expense.
In Contra Costa County Title Co. v. Waloff (1960) 184 Cal.App.2d 59 (Contra Costa), attorney fees were awarded to the seller of real property after the escrow company in her purchase transaction filed an interpleader action against her and the buyer over amounts buyer had put up as an initial payment on the property's purchase price. (Id. at pp. 61, 64.) After the trial court concluded the buyer had engaged in misconduct relating to the sale, it entered judgment for seller, awarding $1,500 in damages, including $500 "as attorney's fees necessarily incurred in quieting title to the . . . property[.]" (Id. at p. 67.) The appellate court found this award proper because it was "not a case where the court is awarding attorney's fees to a litigant in prosecuting a slander of title suit. Rather it is allowing as an element of damages therein the cost of removing from the title the cloud wrongfully placed thereon." (Id. at p. 67.) In other words, the attorney fees were recompense for other expenses resulting from the buyer's tortious conduct, not fees incurred in litigating the interpleader action.
In Manning v. Sifford (1980) 111 Cal.App.3d 7 (Manning), a real estate broker was sued by its clients after selling them a property which the broker had confirmed to have an access easement. However, once the purchase was complete, the owner of the land subject to the easement and his tenant blocked access. The clients sued not only the neighbors for blocking the easement, but also the broker for misrepresenting the easement. In response, the broker sued the neighbor and his tenant for attorney fees. (Id. at p. 9.) The trial court denied broker those fees, and broker appealed. The appellate court reversed the trial court, and allowed the fees as damages, holding the litigation "was a 'natural and proximate consequence' of" the neighbor's activities. Thus, the fees were allowable damages under Prentice. (Id. at p. 11.)
In Gray, the plaintiff had made an offer to purchase land through his real estate agent, and the agent represented that the offer had been accepted. After plaintiff had incurred expenses planning to move onto the property, he was told by the agent that the seller had decided not to sell. Plaintiff sued both the sellers and the agent. Against the sellers, he sought specific performance, and against the agent, he sought damages for fraud. The trial court awarded him attorney fees against the agent, and the agent appealed. (Gray, supra, 35 Cal.3d at p. 502.) Our Supreme Court upheld the award because plaintiff had incurred these fees to protect his interest in the transaction by suing the sellers for specific performance. (Id. at p. 507.)
In Brandt, the plaintiff had sued Standard Insurance Company for benefits under a disability policy which the insurer refused to pay. (Brandt, supra, 37 Cal.3d at pp. 815-816.) He brought claims for breach of the duty of good faith and fair dealing and for statutory violations, and the insurance company was able to strike the attorney fee portions of the complaint. (Id. at p. 816.) Our Supreme Court disapproved this ruling, holding that the insurer is liable for all damages resulting from a bad faith denial of insurance benefits, including attorney fees incurred to obtain such benefits through litigation. (Id. at p. 817.) The court reasoned "[t]he attorney's fees are an economic loss - damages - proximately caused by the tort." (Ibid.) This is to say, plaintiff was not seeking his fees qua fees, but rather his fees incurred in obtaining his insurance benefits.
In each of these cases, the fees were incurred for something other than litigating the action, or they were incurred in litigating claims against someone other than the person against whom fees are sought. In Contra Costa, it was clearing title. In Manning, it was having to defend a lawsuit by a third party. In Gray, it was having to bring a lawsuit against a third party. And in Brandt, it was insurance benefits. Appellants can point to no similar other objective or other person against whom they were forced to litigate by dint of SNP's conduct.
Appellants claim that tort of another damages have been permitted within the same lawsuit in which the fees were incurred. They are correct, but this point is irrelevant, because as we have just explained, the procedural posture of the case is not dispositive. It is the nature of the fees sought and why they were incurred. This is the missing element in appellant's case.
Appellants also contend their claim against SNP and Stoll was one for malpractice, and that the limitations period for a malpractice claim would have begun to toll when they began incurring fees to correct the errors, citing Sindell v. Gibson, Dunn & Crutcher (1997) 54 Cal.App.4th 1457 (Sindell). This argument rings hollow. The plaintiffs in Sindell sued their deceased father's law firm and estate planning attorney when the lawyers failed to obtain their father's spouse's consent to the estate plan, which later resulted in litigation between the children and their father's widow. (Id. at pp. 14601461.) The distinguishing factor from that case is immediately obvious: the presence of third-party litigation. In Sindell, any fees incurred in defending themselves in the litigation with their father's spouse would be tort of another damages against the lawyers who drafted the estate plan.
The trial court in Sindell sustained the lawyers' demurrer to the children's malpractice complaint as premature because the litigation with the widow was still ongoing and there had been no actual damages in the form of a judgment. The Court of Appeal reversed, holding that incurring fees to defend the litigation itself were actual damages. (Sindell, supra, 54 Cal.App.4th at p. 1460.) The litigation with the widow would not have occurred but for the lawyers' mistakes, and thus "the outcome of the pending litigation will not determine whether or not plaintiffs have suffered actual injury, it will only determine the amount of that injury." (Id. at p. 1470.)
Here, in contrast, appellants were not looped into any third party litigation because of SNP's or Stoll's lapses, if any. But perhaps more importantly on the malpractice point, appellants have suffered no injury at all. They obtained their settlement monies in the FLIR litigation. They do not argue that SNP/Stoll, or anyone else for that matter, should have or could have gotten them a better result than the one they got. We must ask: where is the actual malpractice? Appellants contend the malpractice occurred when Stoll failed to tell them he disagreed with the procedure given in the settlement agreement for deposit of the funds, and failed to tell them he would sue them if he did not get paid. Even if these actions fell below the standard of care, how were the appellants damaged? The only damage they can point to is that they were put to the task of investigating and defending/prosecuting cross-complaints in this action. There is nothing more. There are no recoverable damages. There is no claim for breach of fiduciary duty or negligence. The demurrers were properly sustained without leave to amend.
DISPOSITION
The order sustaining respondent's demurrer without leave to amend and subsequent dismissal thereon are affirmed. Respondent to recover costs on appeal.
WE CONCUR: MOORE, J. DELANEY, J.