Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County Super. Ct. No. BC362826. Joanne B. O’Donnell, Judge.
Linton & Bogorad, Tanya K. Linton and Vladimir A. Bogorad for Plaintiffs and Appellants.
Lewis Brisbois Bisgaard & Smith and Stephen H. Turner for Defendants and Respondents.
WOODS, J.
SUMMARY
In an underlying action, the plaintiffs’ complaint was dismissed as a terminating sanction for the attorneys’ admittedly repeated failures to respond to discovery and the trial court’s orders. The plaintiffs then sued their attorneys for malpractice. The defendant attorneys moved for summary judgment on the ground the plaintiffs had no evidence they had been damaged. Over the plaintiffs’ opposition, the trial court granted the motion and entered judgment in the attorneys’ favor. The plaintiffs appeal. We reverse.
FACTUAL AND PROCEDURAL SYNOPSIS
In December 2006, HJF, Inc. and Sitara Management Corporation filed a complaint against their former attorneys Bleau, Fox and Associates, Thomas P. Bleau, Martin R. Fox and Nikki Fong (hereinafter Bleau, Fox unless otherwise indicated), asserting claims for professional negligence, breach of fiduciary duty and constructive fraud. According to the complaint, beginning in May 2000, Bleau, Fox represented HJF and Sitara in three cases, including Valu Gas, Inc. v. Equilon Enterprises, LLC (Super. Ct. Los Angeles County, 2001, No. BC260592) and Jerry’s Shell v. Equilon Enterprises, LLC (Super. Ct. Los Angeles County, 2002, No. BC 271208).
HJF and Sitara further alleged Bleau, Fox negligently handled the Jerry’s Shell case to their damage. More particularly, without HJF’s and Sitara’s knowledge, Bleau, Fox failed to prepare timely discovery responses and comply with civil discovery rules, violated the discovery referee’s orders and violated the trial court’s subsequent discovery orders. As a result, the trial court imposed terminating sanctions, precluding HJF’s and Sitara’s claims based on Equilon’s fraudulent conduct and wrongful interference with HJF’s and Sitara’s prospective economic advantage. HJF and Sitara were unaware of their attorneys’ negligent handling of their case. On December 12, 2005, the trial court’s decision was affirmed on appeal.
In Jerry’s Shell, HJF and Sitara (among others) sued Equilon, alleging Equilon, a joint enterprise of Shell and Texaco, developed a plan to convert independent franchise dealers’ stations into company-operated stations or put them in the hands of “favored” dealers (named as individual defendants). According to the operative complaint, Equilon gave preferential treatment to these favored dealers and made it difficult or impossible for them to compete through such practices as predatory pricing, delayed payment for credit card sales and failure to make station repairs and improvements as promised. In addition, Equilon intentionally interfered with sales of HJF’s and Sitara’s franchises. HJF and Sitara had engaged in significant efforts to sell their franchises to third parties, and third party purchasers had agreed to purchase HJF’s and Sitara’s franchises on mutually acceptable terms and were ready, willing and able to complete the sales, contingent upon Equilon’s approval pursuant to the existing franchise agreements. Although all necessary paperwork had been submitted, Equilon improperly withheld its consent and engaged in a deliberate course of conduct (for example, delaying meetings with purchasers and intentionally dissuading purchasers from proceeding through false and fraudulent misrepresentations) designed to prevent HJF and Sitara from selling the franchises to anyone other than Equilon or its favored dealers at a substantially reduced price. Equilon sought to wrongfully diminish the market value of the franchises and frustrate the sales so HJF and Sitara would “walk away” for a nominal sum, resulting in substantial savings to Equilon in “dealer buyouts.”
Months after the issuance of terminating sanctions, the defendant attorneys filed a motion for relief from the subsequent dismissal, supported by Fong’s declaration acknowledging her responsibility for the case and attempting to explain her failures (from December 2002 to January 2004) to comply with discovery obligations as well as the discovery referee’s and the trial court’s orders (despite prior warning such sanctions would result), to oppose the motion for terminating sanctions and to seek relief from the dismissal, citing health issues and erroneous assumptions about an associate’s and law clerk’s assistance. (In opposition, Equilon presented a declaration Fong had filed in another case seeking relief from default suffered by another client in which she cited the same health issues but said they had occurred on different dates, and in his own declaration, Equilon’s counsel identified various dates on which Fong had been present for court appearances but claimed in her declaration she had been hospitalized.) The trial court’s denial of the motion for mandatory and discretionary relief from default (Code Civ. Proc., § 473, subd. (b)) was affirmed. (Jerry’s Shell v. Equilon Enterprises, LLC (2005) 134 Cal.App.4th 1058.)
About two days later, HJF and Sitara were informed for the first time about the terminating sanctions and the decision of the Court of Appeal.
In the Valu Gas case, HJF and Sitara further alleged, they were suing essentially the same defendants as in the Jerry’s Shell case. On September 1, 2006, the trial court in Valu Gas granted Equilon’s motion in limine to exclude evidence of Equilon’s fraudulent and wrongful conduct (in interfering with prospective sales) on the basis of res judicata because of the decision in Jerry’s Shell. As a result, HJF’s and Sitara’s claims based on the Equilon defendants’ fraudulent and wrongful acts in the underlying cases were lost and they incurred additional attorneys’ fees and costs.
In Valu Gas, HJF and Sitara sued Equilon and several of its employees, alleging Equilon (and Burke Albelda) had concealed and misrepresented the existence of a program (the Interim Rent Challenge) available to reduce their contract rent to keep the rent paid to Equilon at a higher level and diminish the goodwill value of their franchises.
The jury returned a special verdict with the following findings: Equilon and Albelda made a false representation of an important fact to HJF and Sitara; Equilon and Albelda knew the representation was false and made recklessly and without regard for the truth and intended HJF and Sitara rely on the representation; Equilon and Albelda intentionally failed to disclose an important fact that HJF and Sitara did not know and could not reasonably have discovered; and HJF and Sitara reasonably relied on the representation and their reliance was a substantial factor in causing them harm. On the claims for intentional misrepresentation, HJF was awarded $97,240 and Sitara was awarded $123,760 in compensatory damages. (Sitara Management Corporation v. Equilon Enterprises, LLC (Sept. 8, 2008, B196641) [nonpub. opn.].)
Bleau, Fox answered, and the parties conducted discovery.
On November 8, 2007, pursuant to the parties’ stipulation, the trial court entered the following order: “IT IS HEREBY ORDERED that [HJF and Sitara] can only seek damages as a result of:
“1. The ruling in the retrial of the [Valu Gas] case... precluding Sitara... and HJF... from introducing evidence that Equilon Enterprises, LLC, Burke Albelda, Milton Price, and George Radici interfered with the attempts of Sitara... and HJF... to sell or otherwise transfer their interest in the businesses which they operated; and
“2. The dismissal of the third [violation of Bus. & Prof. Code, § 21140 et seq.], fourth [intentional interference with prospective economic advantage], fifth [negligent interference with prospective economic advantage] and sixth [breach of implied covenant of good faith and fair dealing] causes of action in the [Jerry’s Shell] case....”
In February 2008, Bleau, Fox filed a motion for summary judgment on the ground HJF and Sitara could not establish they suffered damages as a result of Bleau, Fox’s conduct, supported by the declarations of two prospective purchasers HJF and Sitara had identified in discovery. In his half-page declaration, Leonard Elbaum stated as follows: (1) he entered into negotiations with HJF for the purchase of the Simi Shell Foodmart in January 2000, (2) based on information HJF provided, he concluded the price was “significantly more” than he wanted to spend so he decided not to go forward with the purchase; (3) his decision was solely based on his analysis HJF was asking for more money than he was willing to pay; and (4) he reviewed the caption of the first amended complaint in the Jerry’s Shell case, and none of the named defendants were involved in his decision not to go forward with the purchase.
Similarly, in Herbert Boks’s half-page declaration, he said: (1) he entered into negotiations with Sitara for the purchase of the Camarillo/Tonga Shell in North Hollywood; (2) during the course of negotiations, on several occasions, he requested financial information from Sitara which he believed he needed to evaluate the purchase; (3) Sitara never provided the requested information so he decided not to go forward with the purchase; and (4) no one other than Sitara had any involvement in his decision not to proceed with the purchase.
In opposition, HJF and Sitara presented the declaration of Shaila Mantri, stating she was the Vice President, Secretary and Treasurer of HJF and Sitara at the relevant times and personally participated in every event giving rise to this lawsuit. Mantri said Sitara used Ronald Raville as its real estate broker in connection with the sale of its North Hollywood station. Raville performed a complete economic analysis of the business, including a goodwill valuation and estimated future financial condition, and located buyers (Herbert and Lisa Boks) for the location. The Bokses initially offered $385,000; then Sitara and the Bokses entered into an agreement specifying the Bokses would pay $450,000 to purchase the franchise plus inventory. On July 27, 1998, the Bokses made a deposit in escrow, escrow was opened and instructions were issued on August 5.
At that time, Burke Albelda was Equilon’s sales representative working with Sitara. On August 8, Sitara sent Albelda a letter informing him about the Bokses, providing their contact information and requesting an interview as soon as possible, noting time was of the essence. According to Mantri, in her presence, Albelda told Mr. and Mrs. Boks “they were paying too much for the station, at least $75,000 more than the business was worth.” During the conversation, Albelda told the Bokses the rent would increase substantially with the termination of the Variable Rent Program (VRP) when he knew the IRC program replacing it would reduce the rents although Sitara did not know this at the time. Albelda never mentioned the existence of this program and the lower rents available to new assignees. In a letter to the Bokses dated August 31, which Boks forwarded to Mantri, Albelda reiterated that the rent figures in the Bokses’ application for assignment of the station were based upon the VRP which was terminated on July 3. Albelda stated he could not approve the assignment until the Bokses corrected the errors in its projections.
The real estate broker (Raville) also stated in his declaration he heard Equilon’s representative make such a statement.
Referencing the Valu Gas case, Mantri said she was present at Albelda’s deposition when he admitted he knew the IRC program was available at the time the VRP program was terminated. Albelda withheld these facts from Sitara as well as Boks. Further, Boks never indicated that the information Sitara had provided was insufficient. Instead, he backed out of the sale.
Similarly, with respect to HJF’s proposed sale to Elbaum, Mantri recounted various delays in the proceedings attributable to Equilon representatives. After Raville located Elbaum as a buyer for the Simi Valley station, Elbaum entered into an agreement with HJF to purchase the station for $795,000 plus inventory, and escrow was opened. Robert Scrivener was one of Equilon’s sales representatives working with HJF, and on December 15, 1999, HJF sent Scrivener a letter informing him about Elbaum, providing his contact information and requesting an interview as soon as possible, noting time was of the essence. On January 6, 2000, Scrivener wrote HJF advising it would provide Elbaum with the rental terms, without mention of the IRC. Scrivener passed Elbaum’s application to another Equilon sales representative (Bill Kumer) who did not meet with Elbaum until February 18.
On February 21, Kumer told Mantri that Elbaum needed further proof of financing and said there were unresolved training issues as to Elbaum although Equilon knew Elbaum was a successful Unocal and ARCO dealer, owner and franchisee, and refused to allow Elbaum to go to dealer school. Although Elbaum provided evidence of liquid assets to cover the purchase price, Kumer kept asking Elbaum for more information; Kumer never arranged a meeting with Equilon’s sales manager Terry Runnels as Elbaum had requested. Mantri complained to Kumer in writing that, as of March 3, Elbaum had not heard back from Equilon since the February 18 meeting although he had left messages for Kumer, emphasizing the importance of the deal and the concern for the buyer’s frustration due to Equilon’s delay.
Mantri knew Elbaum was concerned with the excessive rent amounts as they were incorrectly communicated to him, and he became frustrated with Equilon’s non-cooperation, refusal to send him to dealer school and continuing delay. On March 23, he sent a letter stating that, after meeting with Equilon’s franchise representatives, he was cancelling escrow.
Mantri said she never told Boks or Elbaum about Equilon’s resistance despite her continuing efforts to close the deals. Further, as now confirmed in the Valu Gas case, she said, Equilon intentionally failed to disclose and misrepresented the availability of the IRC program to reduce rents, and Boks and Elbaum were unaware of these facts.
In reply, Bleau, Fox agreed that many of HJF’s and Sitara’s facts in their separate statement (supported by Mantri’s declaration) were undisputed and acknowledged Mantri had “personally participated on behalf of Sitara and HJF in every event giving rise to this lawsuit,” but objected to much of her declaration on foundation and hearsay grounds, arguing the statements of Equilon’s representatives (and some of Boks’s and Elbaum’s statements) were hearsay.
Bleau, Fox filed objections to the declarations of real estate broker Ronald Raville and plaintiff’s counsel Tanya Linton as well.
At the hearing, counsel for Bleau, Fox argued, “I’m not aware of any exception that would allow statements made by Equilon to somebody out of court to come in and say, ‘This now raises a question of fact.’” Counsel for HJF and Sitara argued the “standard of admissibility has to be the same as it would be in an action against Equilon.” “Given that we are proving up the underlying case against Equilon, that’s [the statement of Albelda] a party admission.” The trial court rejected the argument, “You can’t turn the law firm into the party below for purposes of this motion.” After noting “the court’s ruling is based principally on the sustaining of all of [Bleau, Fox’s] evidentiary objections,” the trial court granted the motion, and judgment was entered in favor of Bleau, Fox.
HJF and Sitara appeal.
DISCUSSION
According to HJF and Sitara, the trial court erred in excluding those statements that would have been admissible in the underlying case. As explained in Kessler v. Gray (1978) 77 Cal.App.3d 284, 291, “Whether or not the statement is admissible as a hearsay exception in the [legal malpractice] litigation is thus not significant. Viewed in the perspective of its relevance, the evidence of the statement is admissible if it would have been received in the [underlying] litigation.” Accordingly, to the extent the trial court misapplied this rule, it erred.
Moreover, Albelda’s statement the Bokses were paying $75,000 more than Sitara’s business was worth was not offered for the truth of this statement, but rather to establish Equilon’s representative had made such statements to prospective buyers. Mantri’s declaration stating Albelda made this (and other statements) in her presence defeats Bleau, Fox’s foundation objections.
As for HJF’s efforts to sell the Simi Valley station to Elbaum, it was undisputed that after Elbaum entered into an agreement to purchase the station and Equilon was notified in December 1999 that time was of the essence in proceeding with the sale, Mantri contacted Equilon representative Kumer, stating that as of March 3, although Elbaum had left messages for Kumer, he (Elbaum) had not heard anything from Equilon since his meeting on February 18, and expressed concern for the buyer’s frustration “due to the delay on Equilon’s part.”
Bleau, Fox’s summary judgment motion rested solely on its argument HJF and Sitara could not establish damages as evidenced by Boks’s and Elbaum’s declarations. It was undisputed that the Bokses and Elbaum had entered into agreements for the purchase of Sitara’s and HJF’s stations. Notwithstanding Boks’s and Elbaum’s declarations to the contrary (and leaving to one side the validity of some of Bleau, Fox’s evidentiary objections), Sitara and HJF nevertheless presented admissible evidence raising a triable issue of material fact as to Equilon’s interference with the proposed sales and thus whether HJF and Sitara could have proven damages in the underlying litigation. Accordingly, Bleau, Fox’s summary judgment motion should have been denied.
Indeed, as HJF and Sitara argued, the allegations of the complaint were not necessarily within Boks’s or Elbaum’s knowledge such that their declarations were sufficient to meet Bleau, Fox’s initial burden on summary judgment. (We also note Elbaum’s declaration references the first amended complaint in Jerry’s Shell, but the operative complaint was the second amended complaint.)
DISPOSITION
The judgment is reversed. The matter is remanded to the trial court with directions to enter a new and different order denying Bleau, Fox’s motion. HJF and Sitara are entitled to their costs of appeal.
We concur: PERLUSS, P. J. ZELON, J.