Opinion
No. 1 CA-CV 16-0404
10-05-2017
JOSEPH L. BALDINO, et al., Plaintiffs/Appellants, v. ROGER ASHKENAZI, et al., Plaintiffs/Appellees, GREENBERG TRAURIG LLP, et al., Defendants/Appellees.
COUNSEL Wilenchik & Bartness, PC, Phoenix By Dennis I. Wilenchik, Brian Hembd Counsel for Plaintiffs/Appellants Evans Scholz Williams & Warncke, LLC, Atlanta, GA By Rickman P. Brown Co-Counsel for Plaintiffs/Appellees Ross Orenstein & Baudry, LLC, Minneapolis, MN By Jeff I. Ross Co-Counsel for Plaintiffs/Appellees Tiffany & Bosco, PA, Phoenix By Robert D. Mitchell, Sarah K. Deutsch Co-Counsel for Plaintiffs/Appellees Galbut & Galbut, PC, Phoenix By Martin R. Galbut, Michaile J. Berg Co-Counsel for Defendants/Appellees Williams & Connolly, LLP, Washington, D.C. By Kenneth C. Smurzynski, Colette T. Connor Co-Counsel for Defendants/Appellees
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV 2010-020851
The Honorable Arthur T. Anderson, Judge
AFFIRMED
COUNSEL Wilenchik & Bartness, PC, Phoenix
By Dennis I. Wilenchik, Brian Hembd
Counsel for Plaintiffs/Appellants Evans Scholz Williams & Warncke, LLC, Atlanta, GA
By Rickman P. Brown
Co-Counsel for Plaintiffs/Appellees Ross Orenstein & Baudry, LLC, Minneapolis, MN
By Jeff I. Ross
Co-Counsel for Plaintiffs/Appellees Tiffany & Bosco, PA, Phoenix
By Robert D. Mitchell, Sarah K. Deutsch
Co-Counsel for Plaintiffs/Appellees Galbut & Galbut, PC, Phoenix
By Martin R. Galbut, Michaile J. Berg
Co-Counsel for Defendants/Appellees Williams & Connolly, LLP, Washington, D.C.
By Kenneth C. Smurzynski, Colette T. Connor
Co-Counsel for Defendants/Appellees
MEMORANDUM DECISION
Judge Margaret H. Downie delivered the decision of the Court, in which Presiding Judge Michael J. Brown and Judge Jennifer B. Campbell joined. DOWNIE, Judge:
¶1 Plaintiffs/Appellants (collectively, "the Baldino Group") appeal from grants of summary judgment in favor of Plaintiffs/Appellees (collectively, "the Ashkenazi Plaintiffs") and Defendants/Appellees (collectively, "Greenberg Traurig"). For the following reasons, we affirm.
The Baldino Group consists of Joseph and Helen Baldino, Eva Sperber-Porter, and three entities they control. References to "Baldino" in the singular are to Joseph Baldino. Joseph and Helen Baldino are both attorneys, and Sperber-Porter — a businesswoman — is married to an Arizona attorney.
FACTS AND PROCEDURAL HISTORY
¶2 Joseph Baldino is one of many investors who purchased securities sold by Mortgages Ltd., a now-bankrupt company. In December 2009, Baldino contacted attorney Rickman P. Brown about representing investors in a lawsuit to recover their losses. Baldino advised Brown he was organizing a group of plaintiffs. Brown, in turn, asked attorney Jeff Ross to serve as co-counsel.
¶3 Baldino e-mailed dozens of individuals in February 2010, stating, in pertinent part:
I want to invite you to an important meeting next week on February 25, as a significant step toward bringing claims to recover losses in the Mortgages Ltd matter. It is our intention to bring a sizeable lawsuit against certain professional advisers of Mortgages Ltd to recover our investment losses. This is not a class action lawsuit. A class action lawsuit is planned in the Mortgages Ltd matter. Our group thinks it is preferable to seek to recover our losses separately, and not as part of the approximately 1500 other class members who will be plaintiffs in the class action lawsuit. In many cases, people who opt out of class action[] suits and bring suits like we are considering do significantly better than the class action members, and we are hopeful that it will be the result in this case.
¶4 Two days before the February 25 meeting, Baldino sent potential plaintiffs several documents, including a "Letter Agreement Among All Clients" ("Intra-Client Agreement") and an "Engagement Agreement." Baldino advised that the documents "deal with the details of the potential weighted distribution of any settlement proceeds" and explained that, "[f]or ethical reasons, the attorneys could not be involved in [the Intra-Client Agreement]. It was created in consultation among the several investors who largely initiated this undertaking."
¶5 On February 27, Baldino sent potential plaintiffs final versions of the Intra-Client Agreement and Engagement Agreement, directing them to sign and return each document to Brown. The Intra-Client Agreement was signed by each plaintiff and states, in pertinent part:
[T]here has been discussion about whether there are different strengths among the claims depending upon when the investments in the various Mortgages, Ltd. Vehicles were made. It appears that Mortgages Ltd.'s financial problems and resultant non-disclosures accelerated from 2006 until Scott Coles's death on June 2, 2008. Therefore, it also appears that those persons who made later investment decisions have stronger liability claims than those persons who made earlier investment decisions in Mortgages Ltd. Thus, it is agreed that earlier investors may have some
advantage of being paired with the stronger claim investors. Even though we realize that it is difficult to quantify the potentially stronger claim, to avoid controversy in the future, the undersigned Claimant under the Engagement Agreement with your firms agrees as follows:The Intra-Client Agreement also dictated how any settlement proceeds would be allocated among the plaintiffs.
1. Generally, settlement decisions shall be made by Clients holding a majority of the total Net Losses (as defined below) of all Clients, except that if an offer is made to some, but not all Clients, that Client or those Clients may make the settlement decision.
¶6 The Engagement Agreement each plaintiff signed also included a provision regarding settlement approval and day-to-day decision-making, stating:
Claimant's Right to Approve a Settlement and Appointment of A Committee.
In circumstances where a lump sum group settlement offer is made to settle the Claims of the plaintiff group, Claimant agrees to be bound by any settlement which is accepted by plaintiffs holding the majority of recoverable "Net Losses" asserted in the Claim. "Net losses" means the cash you invested (excluding so-called reinvested interest and any investments in the Value to Loan Fund) less any cash (interest, principal or otherwise) you received back from Mortgages Ltd or its pertinent affiliates. Unless there is an agreement among Claimants providing for distribution of net Recovery proceeds, such proceeds will be distributed pro rata, based upon the Net Losses of all Claimants. . . .
Claimant and other plaintiffs shall appoint a Committee to make day to day decisions in the upcoming litigation on behalf of the plaintiff group and to work with the Firms as needed to assist with the litigation. However, the Committee shall not be entitled to decide whether to accept an offer made to settle the Claims of the plaintiff group as this decision is to be made as provided in the preceding paragraph. The Committee shall consist of no more than
three of the plaintiffs, one of whom shall be Joseph Baldino . . . .
¶7 Ninety plaintiffs (collectively, the "Claimant Group") signed the Intra-Client Agreement and Engagement Agreement. Brown, Ross, and local counsel ("Plaintiffs' Counsel") thereafter filed a complaint in July 2010 against several defendants, including Greenberg Traurig LLP. Generally speaking, the complaint alleged that Greenberg Traurig, as counsel for Mortgages Ltd., prepared false and misleading securities-related documents and assisted Mortgages Ltd. and related entities in an illegal enterprise. Extensive litigation activity ensued, including a removal to and remand from bankruptcy court, an appeal of the remand order, and dispositive motion practice.
¶8 In April 2012, Plaintiffs' Counsel met with members of the Claimant Group in advance of a scheduled mediation. They discussed the pending class action trial and the risk that a sizeable award in that proceeding could exhaust all sources of monetary recovery for the Claimant Group. Baldino attended the meeting with Sperber-Porter's power of attorney, and Sperber-Porter listened by telephone. Plaintiffs' Counsel recommended that the Claimant Group give them settlement authority at a specified minimum dollar amount. A majority of the Claimant Group voted to approve that recommendation, though the Baldino Group objected. The Baldino Group did not, however, challenge the authority of Plaintiffs' Counsel to bind its members to a settlement approved by the weighted majority or seek to revoke the directives set forth in the Intra-Client Agreement.
¶9 Plaintiffs' Counsel thereafter negotiated a settlement with Greenberg Traurig. On April 20, 2012, Brown advised the Claimant Group that, "after two marathon days of mediation, we have reached a tentative settlement [with] Greenberg Traurig. . . . Clients in our group have a share of the settlement proceeds that is 16.14% greater than you would have as a class member." The Baldino Group did not reply to this e-mail or indicate any objection to the settlement. Nearly a month later, on May 18, Baldino sent an e-mail to Plaintiffs' Counsel, copying Sperber-Porter, and requesting "a detailed update on the status of any ongoing negotiations" and addressing a "rumor" that another plaintiff group was "likely to get more than our group." Baldino did not question counsel's authority to enter into the settlement.
¶10 On June 5, 2012, Brown advised the Claimant Group of a "hitch" that required revision of the settlement amount. The new figure — a 4.96% reduction — was still greater than the minimum amount a majority of the Claimant Group had authorized Plaintiffs' Counsel to accept. Once again, the Baldino Group did not object or assert that Plaintiffs' Counsel lacked authority to bind it. Baldino and Sperber-Porter, though, communicated with each other about whether they should give up on getting "more money" from Greenberg Traurig, noting, "we have leverage now."
¶11 On June 15 and 18 respectively, Brown and counsel for Greenberg Traurig signed the settlement agreement. Plaintiffs' Counsel filed a notice of settlement in the superior court on June 21.
¶12 Brown e-mailed the Claimant Group on July 2, attaching the settlement agreements reached with Greenberg Traurig and Quarles and Brady. Brown stated, inter alia, that "after you authorized our settlements . . . the lead attorneys for the settling parties signed the Settlement Agreements on behalf of their clients." Brown asked each client to sign an acknowledgement "simply add[ing] your written consent to the consent already given for you by your attorneys."
The Quarles and Brady settlement is not at issue in this appeal, though it was also finalized and allocated pursuant to a majority rule provision.
¶13 On July 13, the Baldino Group moved to substitute counsel, asserting that the substitution would "not impact the upcoming status of the case." Plaintiffs' Counsel objected, stating:
By all appearances, the substitution of counsel at this late stage is intended to undermine settlements achieved on behalf of [the Claimant Group] and other parties. . . . Presently the [Baldino Group] have refused to sign operative settlement documents and are refusing to make known their intentions with respect to the [Quarles and Brady and Greenberg Traurig] settlements.The Baldino Group replied that it had "not decided whether to accept the proposed settlement," but it did not assert that Plaintiffs' Counsel lacked authority to bind its members. The superior court granted the motion to substitute, noting that such action would not "alter or negate any prior agreements by these parties to settle."
¶14 Thereafter, the Ashkenazi Plaintiffs and Greenberg Traurig jointly moved for entry of judgment based on the settlement agreement. The Baldino Group opposed the motion. After briefing and oral argument, the superior court granted the motion, declining to address whether Plaintiffs' Counsel had actual authority to enter into the settlement agreement, but concluding they had apparent authority to do so. After an unsuccessful motion for new trial, the Baldino Group appealed. Labeling it a "close case," this Court concluded there was a genuine issue of fact as to whether Plaintiffs' Counsel had apparent authority to bind the Baldino Group and remanded the matter to the superior court. Baldino v. Greenberg Traurig, LLP, 1 CA-CV 13-0717, 2015 WL 157250 at *3-4, ¶¶ 15, 22 (Ariz. App. Jan. 13, 2015) (mem. decision).
To the extent the Baldino Group contends the superior court violated this Court's mandate on remand, we disagree. Our mandate did not preclude the superior court from considering the issue of actual authority or other substantive arguments the parties advanced on remand, including the Baldino Group's condition precedent theory and contention that majority rule provisions are per se unenforceable.
¶15 On remand, the Ashkenazi Plaintiffs, Greenberg Traurig, and the Baldino Group all moved for summary judgment on various grounds. The superior court denied the Baldino Group's motion for summary judgment premised on the contention that majority rule provisions are per se unenforceable as against public policy, stating:
The Baldino Group also unsuccessfully moved to disqualify Plaintiffs' Counsel from representing the Ashkenazi Plaintiffs.
As a condition to joining this lawsuit, all Ashkenazi plaintiffs agreed, to be bound by the settlement decision of the weighted majority of the plaintiff group. This agreement appears in two written documents, both signed by the Baldino Group: a client created "Intra-client Agreement" and an "Engagement Agreement" between plaintiffs and their counsel. Ultimately a weighted majority voted to authorize a settlement with GT and counsel for the Ashkenazi plaintiffs then executed the settlement agreement on their behalf.
. . .
The Ashkenazi Plaintiffs[] independently developed criteria for membership in the Ashkenazi Group. That criterion included a majority rule provision and formulas for the disbursement of settlement proceeds. Joseph Baldino participated in the drafting of the Inter-Client Agreement and the Baldinos acknowledged their approvals with their signatures. The executed Intra-Client Agreement was then submitted to the lawyers as part of the Engagement Agreement.The court also denied the Baldino Group's motion seeking to declare the settlement agreement unenforceable based on the failure to satisfy a condition precedent. The court granted the Ashkenazi Plaintiffs' motion to enforce the settlement agreement and Greenberg Traurig's motion for summary judgment on the issue of actual authority. After final judgment was entered, the Baldino Group timely appealed.
The Court believes that Baldino Group's reliance on certain majority provision case law is misapplied to this client prepared directive. The Court does not believe that this client driven provision is contrary to an identifiable public policy. This challenge springs from the Baldinos' frustration over the amount they were to receive based on an agreed allocation. This disappointment does not a public policy make.
Even if there was a public policy that was in play, it must be measured against the well-established right of freedom to contract.
DISCUSSION
¶16 The Baldino Group identifies three arguments in its opening brief: (1) majority rule provisions are unenforceable as a matter of law; (2) the Ashkenazi Plaintiffs and Plaintiffs' Counsel failed to follow the majority rule provisions; and (3) the settlement agreement is unenforceable due to the failure of a condition precedent. We do not consider the second argument because the Baldino Group failed to preserve it in the superior court. See Harris v. Cochise Health Sys., 215 Ariz. 344, 349, ¶ 17 (App. 2007) (appellate court will not consider arguments raised for the first time on appeal); Cahn v. Fisher, 167 Ariz. 219, 221 (App. 1990) (a party may not raise new theories on appeal to seek reversal of summary judgment).
The Baldino Group relies on an assertion in its motion for summary judgment that the majority rule provision "seeks to bind dissenters, it does not seek to change their minds or opinions such that they no longer can dissent." The motion argued the provision could not "force the Baldino Group to [sign] the Settlement Agreement." This argument is materially different from the contention the Baldino Group attempts to raise on appeal: that the Ashkenazi Plaintiffs and Plaintiffs' Counsel failed to comply with the terms of the majority rule provisions. Moreover, the Baldino Group conceded in the superior court that "[a] weighted majority of the Ashkenazi plaintiffs voted to authorize their counsel to enter a lump-sum settlement of their claims against [Greenberg Traurig]. The Baldino Group also avowed that "Brown, acting on behalf of the Ashkenazi Plaintiffs, signed a Settlement Agreement to settle the plaintiffs' claims against [Greenberg Traurig]. As of June 15, 2012 a majority of the net losses of the plaintiffs approved a settlement . . . ."
¶17 As to the remaining arguments, we view the facts "in the light most favorable to the party against whom summary judgment was entered" and consider the grant of summary judgment de novo. See Emmett McLoughlin Realty, Inc. v. Pima County, 212 Ariz. 351, 353, ¶ 2 (App. 2006). We will affirm the superior court's judgment if it is correct for any reason. See Wertheim v. Pima County, 211 Ariz. 422, 424, ¶ 10 (App. 2005).
I. Actual Authority
¶18 The Intra-Client Agreement — which the Baldino Group never sought to revoke or amend — gave Plaintiffs' Counsel actual authority to sign the settlement agreement with Greenberg Traurig based on a vote of the weighted majority. See Escareno v. Kindred Nursing Centers West, 239 Ariz. 126, 130, ¶ 10 (App. 2016) ("Actual authority . . . is created by a principal's manifestation to an agent that, as reasonably understood by the agent, expresses the principal's assent that the agent take action on the principal's behalf.").
¶19 Baldino concedes Plaintiffs' Counsel were not involved in drafting or proposing the settlement directives included in the Intra-Client Agreement for "ethical reasons" and that the agreement "was created in consultation among the several investors who largely initiated this undertaking." The Baldino Group cites no authority for the proposition that the Arizona Rules of Professional Conduct nevertheless govern that independent Intra-Client Agreement, and we are aware of none.
The Baldino Group filed ethics complaints against Brown and Ross in their resident states of Georgia and Minnesota, as well as in Arizona, alleging violations relating to the majority rule provisions and the settlement with Greenberg Traurig. The complaints were dismissed. The Baldino Group appealed, but the dismissals were affirmed.
¶20 None of the cases the Baldino Group cites involve a client-prepared directive instructing counsel how plaintiffs have independently agreed — without counsel's involvement — to confer settlement authority and allocate settlement proceeds. See, e.g., Quintero v. Jim Walter Homes, Inc., 709 S.W.2d 225, 227 (Tex. Ct. App. 1985) (formula for apportioning settlement proceeds created by plaintiffs' counsel); In re Hoffman, 883 So. 2d 425, 427-28 (La. 2004) (attorney representing three plaintiffs failed to communicate with two clients about allocation of settlement proceeds, resulting in substantially larger distribution to one client); Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046, 1048-49 (D. Colo. 1999) (200-plus-member plaintiff group signed retainer agreement providing that steering committee would make all litigation decisions, including settlement, and permitting steering committee to alter formula for allocating proceeds); Tax Authority, Inc. v. Jackson Hewitt, Inc., 898 A.2d 512, 523 (N.J. 2006) (noting that "[p]laintiffs' counsel . . . successfully sought to have all plaintiffs agree in advance to be bound by a weighted majority," but applying prohibition against such terms in a retainer agreement prospectively only).
¶21 Nor do the concerns that have led other courts to disapprove of lawyer-drafted majority rule provisions exist here. Plaintiffs' Counsel did not exploit clients in a weaker bargaining position by imposing limitations on their right to settle, dictate how settlement proceeds would be allocated, or offer less-than-full disclosure regarding material settlement terms. It would advance no cognizable public policy to strike down provisions Baldino himself required all 90 plaintiffs to accept and which the Baldino Group never attempted to rescind. On the contrary, doing so would permit the very parties who insisted on including those provisions as a condition of joining the litigation to avoid them in an after-the-fact attempt to gain "leverage" to "get more money" from Greenberg Traurig than other members of the Claimant Group. It would also be contrary to the presumption that "private parties are best able to determine if particular contractual terms serve their interests," 1800 Ocotillo, LLC v. WLB Group, Inc., 219 Ariz. 200, 202, ¶ 8 (2008), and the law's respect for contractual agreements by partners in joint undertakings designed to meet their distinctive needs. See Cohen v. Lovitt & Touché, Inc., 233 Ariz. 45, 47, ¶ 7 (App. 2013) ("[O]ur supreme court has emphasized the societal benefits arising from the freedom of parties to contract and warned that courts must therefore be hesitant to declare contractual provisions invalid on public policy grounds."). "Society . . . broadly benefits from the prospect that bargains struck between competent parties will be enforced." 1800 Ocotillo, 219 Ariz. at 202, ¶ 8.
¶22 The record amply supports the superior court's observation that the Baldino Group's "frustration over the amount they were to receive based on an agreed allocation . . . does not a public policy make." Because the Intra-Client Agreement conferred actual authority on Plaintiffs' Counsel to settle with Greenberg Traurig, we need not determine whether the majority rule provisions included in the Engagement Agreement are enforceable.
¶23 The superior court properly granted Greenberg Traurig's motion for summary judgment on the issue of actual authority.
II. Condition Precedent
¶24 The Baldino Group also contends that signing and returning the Acknowledgements attached to the settlement agreement was a condition precedent to an enforceable settlement agreement. A condition precedent "is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due." Althaus v. Cornelio, 203 Ariz. 597, 601, ¶ 16 (App. 2002), quoting Restatement (Second) of Contracts § 224 (1981).
¶25 The Baldino Group relies on cases holding that an enforceable contract does not exist when formation is conditioned on a missing signature or approval of a third party. See, e.g., Johnson Int'l, Inc. v. City of Phoenix, 192 Ariz. 466, 471, ¶ 31 (App. 1998) (agreements with language of intent not to be bound absent third-party approval not effective until approval given); Martinez v. Rocky Mountain Bank, 540 F. App'x 846, 848 (10th Cir. 2011) (settlement agreement between bank and employee not enforceable until Federal Reserve approval given). But members of the Baldino Group are not third parties to the settlement agreement. More fundamentally, unlike the cited cases, where the agreements were expressly deemed invalid without third-party approval, the settlement agreement at issue here states that it is "effective as of the last date executed" by the plaintiffs and Greenberg Traurig, which was June 18, 2012. See Robertson v. Alling, 237 Ariz. 345, 348, ¶ 14 (2015) ("Nothing requires clients to separately assent in writing to a written agreement brokered by their attorney."); Hays v. Fischer, 161 Ariz. 159, 163 (App. 1989) ("The execution of the release and stipulation was not a condition precedent to the settlement agreement, but was an obligation [plaintiff] undertook when she entered into the settlement agreement through [counsel].").
¶26 The settlement agreement enumerated certain conditions, the non-occurrence of which would permit Greenberg Traurig to terminate the agreement. Return of the signed Acknowledgements is not one of those conditions. The Acknowledgement the Baldino Group refused to sign is relevant only to the "Settlement Payment Date."
¶27 The superior court properly granted the Ashkenazi Plaintiffs' motion for summary judgment regarding enforceability of the settlement agreement.
CONCLUSION
Our decision is not influenced by the underlying arbitration award against the Baldino Group in its malpractice action against Brown and Ross, the judgment in the United States District Court case of Brown v. Sperber-Porter, 2:16-cv-02801-SRB, or the superior court's rulings in Ashkenazi v. Baldino, CV 2014-000071. We therefore deny Appellees' requests to take judicial notice of those proceedings. --------
¶28 For the foregoing reasons, we affirm the judgment of the superior court. We deny the Baldino Group's request for an award of attorneys' fees pursuant to Arizona Revised Statutes section 12-341.01 because it has not prevailed. As the successful parties on appeal, Greenberg Traurig and the Ashkenazi Plaintiffs will be awarded their taxable costs upon compliance with Arizona Rule of Civil Appellate Procedure 21.