Opinion
G056510
06-23-2020
WENDY SAWYER et al., Plaintiffs, Cross-Defendant, and Appellants, v. STEPHEN D. SAWYER, Defendant, Cross-Complainant, and Appellant; JASON SAWYER et al., Defendants and Respondents.
Buchalter, Michael W. Caspino, Robert M. Dato and Megan M. Holbrook for Plaintiffs, Cross-defendants and Appellants Wendy Sawyer, Sawyer Consulting, LLC, Sunset Coast Properties, LLC, WAW Consulting Inc., IWC Holdings, LLC, and Industrial Insurance Services, Inc.. Robie & Matthai, Edith R. Matthai and T. John Fitzgibbons for Defendant, Cross-complainant and Appellant, Stephen D. Sawyer. Klinedinst, Earll M. Pott, Harold C. Trimmer and Robert M. Shaughnessy for Defendants and Respondents, Jason R. Sawyer and Sawyer & Sawyer.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00855339) OPINION Appeal from a judgment of the Superior Court of Orange County, Thomas A. Delaney, Judge. Affirmed. Buchalter, Michael W. Caspino, Robert M. Dato and Megan M. Holbrook for Plaintiffs, Cross-defendants and Appellants Wendy Sawyer, Sawyer Consulting, LLC, Sunset Coast Properties, LLC, WAW Consulting Inc., IWC Holdings, LLC, and Industrial Insurance Services, Inc.. Robie & Matthai, Edith R. Matthai and T. John Fitzgibbons for Defendant, Cross-complainant and Appellant, Stephen D. Sawyer. Klinedinst, Earll M. Pott, Harold C. Trimmer and Robert M. Shaughnessy for Defendants and Respondents, Jason R. Sawyer and Sawyer & Sawyer.
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This appeal and cross-appeal arise out of a tragic embezzlement case in which a son with a gambling problem stole thousands of dollars from his mother while acting as her attorney. The mother sued her ex-husband, a retired attorney who once had been the son's law partner, for breach of fiduciary duty when he failed to warn her of their son's gambling and thievery.
The jury found for the ex-husband on the breach of fiduciary duty claim. The jury also found for him on his cross-complaint against his ex-wife for breaching their marital settlement agreement by suing him for claims released in that agreement.
In this appeal, the ex-wife challenges the trial court's order denying her motion for a directed verdict against her ex-husband for breach of fiduciary duty. She also challenges an order excluding certain evidence. In the cross-appeal, the ex-husband challenges only the amount of damages awarded on the cross-complaint. We find neither appeal well taken and, accordingly, affirm the judgment in all respects.
I
BACKGROUND
A. The Early Days
Stephen and Wendy Sawyer married in 1983. Together, they raised four children: Jason and Anne, Stephen's children from a prior marriage, and Matthew and Stephanie, the two children they had together. When he married Wendy, Stephen was an attorney with a solo practice. In 1999, son Jason was admitted to the Bar and joined Stephen's practice. In 2004, the firm became "Sawyer & Sawyer," a limited liability partnership. In approximately 2008, Stephen retired from the firm. Despite his retirement, Stephen continued to perform legal work for, and manage, several companies owned by Wendy. B. The 2012 Marital Separation
Because the parties and many of the witnesses in this case share the same surname, we will refer to them by their first names for clarity. No disrespect is intended.
In early 2012, Wendy and Stephan separated. Near the end of 2012, Stephen reduced his share in Sawyer & Sawyer to one percent, with Jason holding the remaining 99 percent. Because Stephen "was no longer working there," Stephen and Jason discussed dissolving Sawyer & Sawyer. When they learned the firm had to stay in existence to maintain its group medical insurance policy, however, Stephen decided to retain his one percent interest, ensuring he and other family members, including Wendy, would remain insured under the group policy.
In February 2013, Wendy fired Stephen and transferred to Jason all the legal and management work Stephen had been performing for her and her companies. By that point, Wendy and Stephen were no longer speaking to each other. From February 2013 onward, Wendy barred Stephen from access to any information about her, her finances, or her businesses. Wendy stated she had "lost trust in what he said he was doing to help" her. Wendy instructed their four children not to give Stephen any information about her. C. Jason's Embezzlement from Wendy and Her Companies
After taking over Stephen's management and law-related duties in 2013, Jason began embezzling from Wendy and her companies (collectively, plaintiffs). Between 2013 and 2016, Jason embezzled from plaintiffs a total of $558,371. Jason accomplished the embezzlement primarily by writing checks to Sawyer & Sawyer from the companies' accounts, depositing those checks in Sawyer & Sawyer's operating account, and then writing checks from that account to himself. Jason also took $121,600 in cash from Wendy's safe deposit box. Jason used the money to gamble and lost it all. D. Jason's 2015 Confessions to Stephanie and Stephen
In April 2015, Jason tearfully confessed to his sister Stephanie he had a gambling problem and had stolen an undisclosed amount of money from Wendy. He told Stephanie he was getting help from a counselor and from Gamblers Anonymous. Jason said he was working on paying Wendy back, and begged Stephanie not to tell Wendy about the gambling or theft. He promised to tell Wendy once he had repaid the stolen funds.
At trial, Stephanie testified she believed Jason was no longer gambling when he made this confession to her. She testified she believed then the amount Jason owed Wendy was between $20,000 and $30,000, and she thought Jason could repay the debt by foregoing the monthly retainer of $25,000 Wendy was paying him for his work.
In a telephone conversation in June 2015, Jason confided to Stephen his marriage was crumbling and he had a gambling problem. Jason also informed Stephen he had "received some advanced fees from Wendy." Jason told Stephen he was attending Gamblers Anonymous meetings, seeing a counselor for his gambling addiction, and working to catch up on the advanced fees he had taken. E. Jason's 2016 Confession to Wendy and Examination Under Oath
In late April 2016, just before leaving for a trip to China, Stephen met his children Jason and Anne for breakfast. During the meal, Jason confessed to Stephen and Anne he was gambling again and had stolen over $120,000 from Wendy's safe deposit box. Stephen testified he was "shocked and angry" at the news. Stephen left the breakfast with the understanding Jason and Stephanie "would be meeting with Wendy very soon" to discuss the situation. Days later, Stephen left for China.
The next week, Jason met with Wendy, accompanied by his siblings Stephanie and Matt. Jason told Wendy he had stolen over $100,000 in cash from her safe deposit box and thousands of dollars from her companies. He further admitted he lost all the money gambling. By all accounts, the meeting was an emotionally searing experience which left Wendy hurt and furious, and Jason frightened and desperate about the impact of his malfeasance on his future and on his children. Wendy demanded Jason prepare that night a written confession and a full accounting of everything he had stolen from her. She also insisted he submit to an examination under oath taken by her attorney, Michael Caspino, in which Jason would admit his guilt and confirm the details of the written confession and accounting. Jason complied with Wendy's demands.
When Jason appeared for the examination under oath, Stephen was still in China and received no notice of the examination. In his sworn testimony, Jason admitted stealing $558,371 from Wendy and her companies, and losing all the money gambling. Jason also authenticated the written accounting he had given Wendy detailing the amount he had stolen from each account, and the dates of the thefts.
During the examination under oath, Caspino asked Jason a series of questions focused on Stephen. Caspino asked Jason if he "had had discussions with [Stephen] in the past wherein you confessed to him that you had taken money illegally" from Wendy. Jason responded, "I had told him that I was - I believe in my conversation with him I indicated that I had paid myself more than I was entitled to get paid." When Caspino asked about "the amount" mentioned to Stephen, Jason said, "I don't remember if I told him a number." Caspino then asked, "Do you recall when you told [Stephen] that you had illegally taken money from [Wendy]?" Jason answered, "It would have been probably maybe mid 2015." This colloquy became the subject of an evidentiary ruling at trial which Wendy challenges in this appeal. (See below, at p. 16.)
Caspino also probed Stephen's relationship with Sawyer & Sawyer, asking whether Stephen was actively practicing law, billing time, receiving income, or coming into the office. Jason answered no to all these inquiries. F. Attempts at a Negotiated Settlement
After his confession to Wendy, Jason sent an e-mail to Stephen in China pleading for help. Jason feared Wendy would report him to the police and the State Bar, and implored Stephen to do what he could to prevent this. Responding while still in China, Stephen presented a plan for how he could help Jason begin to pay Wendy back the embezzled funds. Stephen offered to defer his receipt of a $1.5 million equalizing payment Wendy owed him from their divorce settlement. Stephen also offered to give Wendy $125,000 from his own funds toward repayment of Jason's debt, and to return to work at Sawyer & Sawyer to help Jason build up his practice so Jason could generate fees from which he could repay Wendy. Stephen suggested Jason also could forgo his large monthly retainer and provide free legal service to Wendy's companies.
Jason's siblings also e-mailed Stephen in China, pleading for Stephen to "rescue" Jason from the terrible consequences that would follow if Wendy reported his conduct to authorities.
There were two roadblocks to achieving a settlement. The first was Stephen's discovery he could not ethically condition his offer on Wendy's agreement not to report Jason to the police or the State Bar. The second was Wendy's demand Stephen agree to a stipulated judgment in Wendy's favor for $1.5 million. Caspino wrote, "Essentially, we are asking you to guarantee the proposal that you put forward that repays Wendy and keeps your son out of jail." Stephen refused.
Thereafter, Wendy filed a police report, a State Bar complaint, and the underlying lawsuit. F. The Complaint, Cross-Complaint, and Trial
Wendy and five of her businesses filed a complaint against Jason, Sawyer & Sawyer, and Stephen, essentially alleging, "During the time period of 2011 to 2015, Defendants misappropriated, embezzled or converted funds in excess of $1 million." The stated causes of action included breach of contract, conversion, and breach of fiduciary duties. Along with his answer, Stephen filed a cross-complaint against Wendy alleging she breached their marital settlement agreement by suing on claims she had released in the agreement.
Jason and Sawyer & Sawyer did not contest liability at trial. Jason refused to testify, invoking his Fifth Amendment privilege against self-incrimination. The only jury issue for these two defendants was damages.
Plaintiffs based their sole theory of liability on Stephen's alleged breach of his fiduciary duties by failing to warn Wendy of Jason's gambling and stealing. According to plaintiffs, had Stephen warned Wendy in mid-2015, when he purportedly learned Jason had a gambling problem and was stealing, Wendy could have acted to greatly reduce her losses, most of which occurred in late 2015. Consequently, a crucial disputed issue at trial was when Stephen discovered Jason had stolen from Wendy.
The only evidence on the issue came from two witnesses: Stephen, who testified he only learned of Jason's theft in 2016, and Stephanie, who testified Stephen knew about the theft in mid-2015. Stephanie testified she and Stephen had a telephone conversation in April 2015 in which they discussed Jason's "stealing and gambling." Stephanie said Stephen advised her in that conversation not to tell Wendy about "the embezzlement, the gambling," because "he thought it would shatter her and ruin the family and hurt Jason." G. Exclusion of Part of Jason's Prior Sworn Statement
Before trial, Stephen filed a motion in limine to exclude Jason's testimony at the prelitigation examination under oath as inadmissible hearsay, among other grounds for exclusion. The trial court agreed to exclude on hearsay grounds that portion of Jason's prior statement which concerned his mid-2015 conversation with Steven. Essentially, the court ruled inadmissible Jason's colloquy with attorney Caspino in which Jason said he had "indicated" to Stephen, in a "mid 2015" conversation, "that I had paid myself more than I was entitled to get paid." The court rejected plaintiffs' contention the prior statement was admissible under the hearsay exception for a "declaration against interest." (Evid. Code, § 1230.) The court additionally excluded the statement under Evidence Code section 352, finding it more prejudicial than probative.
At trial, plaintiffs renewed their effort to introduce into evidence Jason's excluded prior statement about his mid-2015 conversation with Stephen. Plaintiffs wanted Jason's prior statement admitted to bolster Stephanie's trial testimony she and Stephen had discussed Jason's "stealing and gambling" over the telephone in April 2015. In their opening brief, plaintiffs characterize the issue as a "classic 'he said, she said'" dispute, citing Stephen's testimony Stephanie lied when she testified the two of them talked in 2015 "about Jason stealing[.]" Stephen testified he knew nothing about Jason's "stealing" in 2015; Stephen insisted he first learned Jason had stolen from Wendy in late April 2016 when he, Jason, and Anne had breakfast together before his trip to China. Stephen testified that in 2015 he knew only that Jason had taken "advanced fees," which Stephen did not consider "stealing."
Stephen testified he did not consider Jason's taking advanced fees "to be a problem" because of his own experience receiving advanced fees in his "30-year legal career." Stephen stated he would put advanced fees in his firm's operating account and then "do work for the client and bill against the advanced fee." Stephen also testified Jason's admission of his gambling problem did not cause him to suspect Jason of stealing from Wendy. Stephen explained his own father had a serious gambling problem, but never stole from anyone.
Plaintiffs' counsel Caspino argued he should be allowed to use Jason's prior sworn statement to impeach Stephen's assertion he knew nothing in 2015 of Jason's "stealing." Caspino argued Jason's prior statement regarding what he told his father in mid-2015 "is clear-as-day impeachment of what [Stephen] just said up here." Caspino stated, "[Stephen] says Jason never said, 'I stole . . . .' . . . And I have a statement from Jason saying, 'I told my dad I illegally took money.'" The trial court, however, disagreed with Caspino's characterization of the excluded statement.
The trial court stated, "I don't see anything in this - from the part that was excluded . . . where Jason says . . . that he told his dad that he stole." The court went on, "There's no doubt that Jason admits to illegal conduct . . . throughout his examination under oath. What you're trying to do is get testimony where he said, 'I told my dad it was illegal.' . . . [¶] And that's the impeachment I don't see here." Accordingly, the court refused to allow Caspino to introduce the excluded statement into evidence by way of impeachment. The court stated, "So I am going to stick with my prior ruling that this is hearsay[.]"
Stephen's counsel pointed out Jason did not say in the excluded statement he told Stephen he had "illegally" taken the advanced fees, only that he had taken them: "The illegally taking money, of course, is Mr. Caspino's words."
H. Wendy's Motion for Directed Verdict
At the close of evidence, plaintiffs moved for a directed verdict on their breach of fiduciary claim against Stephen. Plaintiffs argued they had established their claim based solely on Stephen's testimony. The trial court denied the motion, finding Stephen had presented sufficient evidence to show he did not breach his fiduciary duty.
Plaintiffs also moved for a directed verdict against Jason and Sawyer & Sawyer, who did not oppose the motion. The trial court entered a directed verdict against both these defendants on the issue of liability, finding they breached fiduciary duties owed to plaintiffs.
I. The Verdict and Posttrial Motions
On the complaint, the jury awarded plaintiffs damages against Jason and Sawyer & Sawyer in the amount of $740,645.84. The jury found Stephen did not breach a fiduciary duty to any of the plaintiffs.
On the cross-complaint, the jury found Wendy breached the marital settlement agreement which was incorporated into the divorce judgment, and the breach caused harm to Stephen. The parties had stipulated during the trial that in the event the jury found Wendy had breached the agreement, the trial court would determine the damages owed to Stephen. The fees awarded as damages turned on the trial court's interpretation of the attorney fees clause of the agreement, discussed below. The trial court awarded Stephen attorney fees of $221,292.82 as damages on the cross-complaint, out of the $597,740.34 in attorney fees Stephen incurred in defending the action.
Plaintiffs moved for a new trial, arguing the trial court erred in excluding Jason's sworn statement about his mid-2015 conversation with Stephen. Wendy also filed a motion for judgment notwithstanding the verdict on Stephen's cross-complaint. Stephen opposed both motions, and the trial court denied both.
Wendy filed the instant appeal from the judgment, challenging the trial court's order denying the motion for directed verdict and the evidentiary ruling excluding Jason's prior statement about his mid-2015 conversation with Stephen.
Stephen also appealed from the judgment, challenging only the amount of damages awarded on the cross-complaint.
II
DISCUSSION
A. The Trial Court Properly Denied Plaintiffs' Motion for Directed Verdict
Plaintiffs contend the trial court erred in denying their motion for a directed verdict against Stephen on their breach of fiduciary duties claim. Essentially, plaintiffs argue "undisputed" evidence established both that Stephen as a partner of Sawyer & Sawyer owed them fiduciary duties, and that Stephen breached those duties by failing to warn Wendy of Jason's gambling and theft. Plaintiffs' argument lacks merit. As we explain below, substantial evidence supports the finding Stephen was not a partner with Sawyer & Sawyer. That finding necessarily dooms the breach of fiduciary duties claim because Stephen's purported partnership status was the only basis for plaintiffs' contention he owed them fiduciary duties. Consequently, the trial court properly denied plaintiffs' motion for directed verdict.
1. The Standard of Review
In an appeal challenging the denial of a directed verdict, our task is to determine whether substantial evidence supports the verdict. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630 (Howard).) "Only if there was no substantial evidence in support of the verdict could it have been error for the trial court earlier to have denied [appellant]'s motion for directed verdict." (Ibid.; accord, Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739, 757 [directed verdict is proper only if "'no other reasonable conclusion is legally deducible from the evidence'"].)
Our review is "governed by the well-established standard of review applicable to any claim that a judgment or finding is not supported by the evidence in the record. . . . [W]e must consider all of the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference, and resolving conflicts in support of the judgment. [Citations.] . . . [¶] . . . Our authority begins and ends with a determination as to whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, in support of the judgment." (Howard, supra, 72 Cal.App.4th at pp. 630-631.)
Sidestepping the rule we review the denial of a directed verdict for substantial evidence, plaintiffs argue we must review de novo the finding Stephen owed no fiduciary duties to plaintiffs because "'[t]he existence and scope of a fiduciary duty is a question of law[.]' [Citation.]" This argument fails to recognize that where the existence of a fiduciary relationship is a factual question upon which the parties offered conflicting evidence, the trier of fact's finding on that question is reviewed for substantial evidence. (Liodas v. Sahadi (1977) 19 Cal.3d 278, 284 (Liodas) [rejecting argument attorney was fiduciary as a matter of law because "it is clear that the existence of a fiduciary relationship, and the termination thereof, was a factual question upon which conflicting evidence was presented to the jury"].)
Plaintiffs argue in Liodas there was conflicting evidence on whether a fiduciary duty existed, but here the existence of Stephen's fiduciary duty can be decided as a matter of law based on three undisputed facts. As we explain in the next subpart of this opinion, the three facts plaintiffs cite do not compel a finding as a matter of law that Stephen was a partner of Sawyer & Sawyer at the relevant times.
2. The Factual Dispute Over Whether Stephen Was a Partner
Plaintiffs argued in their motion for directed verdict that undisputed evidence established Stephen was a partner of Sawyer & Sawyer when he admittedly learned in mid-2015 Jason had a gambling problem and had taken "advanced fees" from Wendy. Establishing Stephen was a partner was essential to the breach of fiduciary duties claim because, as plaintiffs explain, "[T]he source of Stephen's fiduciary duties is the fact that he was a partner of the law firm of Sawyer & Sawyer and all of the plaintiffs were firm clients." (Italics omitted.) In other words, if Stephen lacked partnership status, he owed no fiduciary duties to plaintiffs as clients of the firm.
Plaintiffs argued in their motion, and contend on appeal, three undisputed facts establish as a matter of law Stephen was a Sawyer & Sawyer partner at the relevant times. The three undisputed facts were as follows: Stephen was then a one percent owner of Sawyer & Sawyer; he was included on the firm's malpractice policy; and "Sawyer & Sawyer's website still described Stephen as senior partner."
Not surprisingly, plaintiffs cite no authority supporting their contention these three facts alone compel a finding Stephen was a law firm partner with fiduciary duties owed to firm clients. The law, of course, is otherwise.
3. The Law on What Constitutes a Partnership
The Corporations Code defines a partnership as "an association of two or more persons to carry on as coowners a business for profit formed under Section 16202, predecessor law, or comparable law of another jurisdiction . . . ." (Corp. Code, § 16101, subd. (9).) The case law holds the "defining attributes" of a partnership are co-ownership of partnership property and the sharing of profits and losses. (Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th 1181, 1193, fn. 6, citing Chambers v. Kay (2002) 29 Cal.4th 142, 151 (Chambers).) "Whether a partnership . . . exists is primarily a factual question to be determined by the trier of fact from the evidence and inferences to be drawn therefrom. [Citations.]" (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 364-365 [substantial evidence supported finding no partnership existed where purported partners did not share business losses and lacked "essential element of right to joint control" of business].)
Chambers, supra, 29 Cal.4th 142, involved a fee dispute between two attorneys who served as cocounsel on a contingency fee case. Only one of the two attorneys had been retained by the client. In Chambers the two attorneys maintained separate practices, although they shared office space and occasionally worked together. The lawyers agreed in writing to split the contingency fee on the client's case, but they failed to obtain the client's consent to the fee sharing arrangement in violation of Rule 2-200(A)(1) of the California Rules of Professional Conduct, which prohibits an attorney from splitting a legal fee "'with a lawyer who is not a partner of, associate of, or shareholder with the member,'" absent written consent from the client after full disclosure of the fee-splitting agreement. (Chambers, supra, 29 Cal.4th at p. 145.)
When the retained attorney refused to share the eventual fee with his "nonretained" cocounsel, the latter sued on a theory of quantum meruit. The trial court entered summary judgment for the defendant attorney on the ground noncompliance with the ethical rule barred court-ordered apportionment of the fee. The Supreme Court in Chambers, supra, 29 Cal.4th 142, affirmed. One of the issues on appeal was whether the two attorneys were "partners" and therefore exempt from the ethics rule. The Supreme Court concluded the evidence was to the contrary.
"Chambers and Kay were not in a partnership and were not each other's partner as those terms are commonly understood." (Chambers, supra, 29 Cal.4th at p. 150.) After quoting the Corporations Code provision defining a partnership as "'an association of two or more persons to carry on as coowners a business for profit,'" the high court summarized the case law on what makes a partnership: "Generally, a partnership connotes co-ownership in partnership property, with a sharing in the profits and losses of a continuing business. [Citation.] Here, no evidence suggests that Chambers and Kay acted as co-owners of a law firm or law office, or that they contemplated sharing in the profits and losses of a continuing business engaged in the practice of law." (Id. at pp. 150-151.)
Under the case law, Stephen's status as a Sawyer & Sawyer partner depended on proof Stephen and Jason shared profits and losses and otherwise "acted as coowners" of the firm at the relevant times. (Chambers, supra, 29 Cal.4th at pp. 150- 151.) We found no authority supporting plaintiffs' contention Stephen's one percent ownership interest in Sawyer & Sawyer, inclusion in the firm's malpractice policy, and website listing as a partner, established he was a partner as a matter of law.
3. Substantial Evidence Supports the Finding Stephen Owed No Fiduciary Duties to Plaintiffs
At trial, Stephen presented ample evidence disputing plaintiffs' assertion he was a Sawyer & Sawyer partner at the relevant times. Specifically, Stephen testified he had retired from the firm in 2008 and retained his one percent interest in the firm only to keep the firm in existence so it could continue offering its group medical insurance policy to his family members. Stephen testified since 2008 he received no income from the firm, paid none of its expenses, and did not work for firm clients. The evidence also showed Jason was the sole signatory on Sawyer & Sawyer's client trust account and operating account.
Though Stephen continued to provide legal services to his then-wife Wendy and her companies after his 2008 retirement, that attorney-client relationship ended when Wendy fired him in February 2013. From then on, Stephen performed no legal work for her or her businesses, and Wendy explicitly cut Stephen off from access to any information about her, her finances, or her businesses. Moreover, given Wendy's testimony she fired Stephen because she lost trust in him, there was no basis for implying a confidential relationship between them which could give rise to fiduciary duties.
Stephen also presented evidence showing that although in 2015 he remained listed as an insured on the firms' legal malpractice policy, in January 2014 he sent an e-mail to Sawyer & Sawyer's insurance broker confirming he had retired from the practice of law years earlier. Finally, in counterpoint to plaintiffs' evidence the firm's website still identified Stephen as a partner in 2016, Stephen testified he did not hold himself out as a partner, despite the representations on the website.
Without offering supporting authority or argument, plaintiffs flatly assert Stephen's testimony he "had retired from the practice of law by early 2013" and "did not share in the revenue or expenses of the firm" is "irrelevant" to determining whether he was a partner in the firm during the relevant times. The contention is meritless. As the Supreme Court held in Chambers, supra, 29 Cal.4th 142, attorneys are not partners unless they act as coowners of the law practice and share in the firm's profits and losses. (Id. at pp. 150-151.)
We conclude substantial evidence supports the finding Stephen was not a partner of the firm and, therefore, owed no fiduciary duties to plaintiffs. Accordingly, the trial court correctly denied plaintiffs' motion for a directed verdict on their claim for breach of fiduciary duties. (Howard, supra, 72 Cal.App.4th at p. 630.) B. Because Stephen Owed No Fiduciary Duties to Plaintiffs, the Exclusion of Jason's Prior Testimony Could Not Constitute Reversible Error
As stated above, plaintiffs maintain that "the source of Stephen's fiduciary duties is the fact that he was a partner of the law firm of Sawyer & Sawyer and all of the plaintiffs were firm clients." (Italics omitted.)
We need not discuss plaintiffs' additional argument "undisputed" evidence established Stephen breached his fiduciary duties as a matter of law. Stephen could not breach a nonexistent duty.
Plaintiffs argue, as an alternative basis for reversing the judgment, the trial court committed prejudicial error in excluding Jason's prior sworn statement about his 2015 conversation with Stephen. Plaintiffs contend the court wrongly excluded the prior statement as hearsay based on a "misunderstanding" of the law regarding the hearsay exception for a declaration against interest (Evid. Code, § 1230). Plaintiffs also argue the court abused its discretion in ruling the evidence inadmissible on the additional ground it was more prejudicial than probative (Evid. Code, § 352). We need not reach the merits of these arguments, however, because even assuming the trial court erred in excluding Jason's prior testimony, that ruling would not constitute reversible error.
Plaintiffs argue Jason's prior testimony was also admissible under the hearsay exception for a vicarious admission (Evid. Code, § 1224).
Appellate courts will reverse a judgment only if the error resulted in a miscarriage of justice. (F.P. v. Monier (2017) 3 Cal.5th 1099, 1107-1108 [California Constitution prohibits reversal for improper rejection of evidence or other procedural error "'unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice].)'" "[T]rial error is usually deemed harmless in California unless there is a 'reasonabl[e] probab[ility]' that it affected the verdict. (People v. Watson (1956) 46 Cal.2d 818, 836.)" (College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 715.)
In attempting to demonstrate reversible error here, plaintiffs argue Jason's prior sworn statement had significant probative value. Plaintiffs assert, "Besides Stephanie's testimony, Jason's declaration was the only other piece of evidence establishing that Stephen knew in mid-2015 of the acts of theft." Plaintiffs argue Jason's prior statement would have buttressed Stephanie's testimony she and Stephen discussed Jason's stealing in mid-2015, providing vital corroboration in a case that had devolved into a bitter "he said, she said" credibility contest between father and daughter. Plaintiffs argue Jason's corroboration would have swung the contest in Stephanie's favor. They assert, "Had Jason's statement been admitted, it is reasonably probable that the jury would have reached a different verdict."
Plaintiffs further contend the timing of Stephen's discovery of Jason's thefts was of "critical importance . . . in light of the uncontradicted expert testimony that Stephen's failure to act once he was on notice would be a breach of his fiduciary duties[.]" (Italics added.) Consequently, proof Stephen got that "notice" in mid-2015 would establish when Stephen breached his fiduciary duties to plaintiffs. That proof, in turn, was relevant to plaintiffs' damages claim because plaintiffs contend Wendy could have reduced her damages substantially had Stephen warned her of Jason's thievery when he learned of it in mid-2015 before her biggest losses occurred.
There is a fatal defect in plaintiffs' argument: It presumes Stephen had a duty to warn Wendy of Jason's gambling and stealing. As discussed in the preceding section, the jury found Stephen did not owe fiduciary duties to plaintiffs, and substantial evidence supports that finding. Because Stephen had no legal duty to warn Wendy of Jason's gambling and stealing, the wrongful exclusion of evidence on when Stephen learned about Jason's gambling and stealing could not have affected the verdict.
C. The Trial Court Applied the Proper Measure of Damages for Wendy's Breach of the Marital Settlement Agreement
In his cross-appeal, Stephen argues the trial court applied the wrong measure of damages for Wendy's breach of their marital settlement agreement (MSA). The MSA was incorporated into the family law judgment, which was entered on June 4, 2014. Essentially, Stephen argues the court erred in interpreting the attorney fees provision in the MSA as allowing an award of only the fees he incurred in defending claims released in the MSA, rather than his fees in defending the entire case. Stephen also argues, in the event we affirm that interpretation, we still must reverse the damages award because the trial court abused its discretion in excluding the attorney fees incurred during trial. Neither argument has merit.
1. Background Facts and Procedure
The MSA included a broad, comprehensive waiver of all claims, known and unknown, that Wendy and Stephen had against each other on the date the court entered the divorce judgment. The MSA also included an attorney fees provision which stated: "If either party brings an action against the other concerning or otherwise trying to [enforce] a right, matter or claim being released hereunder, then the moving party shall pay all reasonable attorney fees and costs of the other party to defend such action." (MSA, ¶ 10.)
The parties agree the MSA contained a typographical error in this provision, replacing the intended word "enforce" with the incorrect word "endorse."
In his cross-complaint, Stephen alleged Wendy breached the MSA's mutual release provision by suing him for released claims. Stephen further alleged Wendy's breach made her liable under the MSA for all his attorney fees and costs incurred in defending the lawsuit. After the jury found Wendy breached the MSA, and the breach caused damages to Stephen, the trial court decided the issue of damages pursuant to an earlier stipulation of the parties.
In his motion for attorney fees, Stephen requested all the fees and costs he incurred in the lawsuit, which amounted to $597,740.34. In opposition, Wendy argued Stephen was entitled under the MSA to recover only attorney fees incurred to defend waived claims, i.e., claims stemming from actions before entry of the divorce judgment. The court ordered supplemental briefing on the question of whether the word "action" in the attorney fees provision was ambiguous, and how the court should interpret "action" as used in the provision. The court also invited Stephen to "include a proposed apportionment(s) of attorney's fees and costs in light of the court's finding the term 'action' may be ambiguous."
Stephen argued in his supplemental brief the word "action" was unambiguous and meant "civil suit." Under the plain meaning of "action," Stephen argued, he was entitled to recover all his fees and costs in defending the entire lawsuit. Wendy challenged Stephen's assertion "the term 'action' includes the 'entire proceeding,' regardless of the breadth of said proceeding[.]" (Original italics.) She asserted Stephen's interpretation was "at odds with the terms of the MSA and the facts," and argued, "The terms of the MSA need to be read in context with common sense." Wendy contended Stephen was entitled to recover only attorney fees incurred in the defense of claims predating the judgment because, she explained, "The MSA unambiguously states that the only claims being released are those that had accrued at the time of signing."
The trial court received extrinsic evidence to resolve the ambiguity. Both parties relied on the correspondence their family law attorneys exchanged in negotiating the language of the attorney fees provision. There was no dispute regarding this evidence; the parties simply disagreed as to what the letters and e-mails meant. Both sides argued the correspondence supported their respective interpretation of the MSA. Wendy also submitted a recent declaration from her family law attorney, Cara Elkin, who stated it was never the parties' intent to release any claim for future acts performed after entry of the judgment.
Though Stephen insisted the word "action" as used in the MSA was unambiguous and entitled him to recover all his fees, he provided at the trial court's request a proposed apportionment of fees. Stephen based the apportionment on the damages awarded against Jason and Sawyer & Sawyer, 46 percent which applied to acts that predated the divorce judgment. Stephen argued in the event the court ruled apportionment was necessary, he should be awarded at least 46 percent of the total fees and costs he incurred in defending the case.
2. The Trial Court's Ruling
The trial court ruled Stephen could not recover all the fees and costs he incurred in the action. Of the nearly $598,000 Stephen sought as damages under the MSA, the court awarded Stephen $221,292.82.
The court explained its reasoning as follows: "Here, the term 'action' is susceptible to two reasonable interpretations when applied to the circumstances of this case. (See Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384.) Interpreting the term 'action' to broadly cover this entire civil action would not give effect to the parties' original intent, as evidenced by the agreement and extrinsic evidence. The indemnification clause is part of the larger release in Section 10 of the MSA. That release applies only to claims accruing 'before the date of execution of this Agreement.' The extrinsic evidence shows that in negotiating the release and indemnification in Section 10, the parties intended 'to protect both [sides] from the other one bringing any civil suit.' There is no evidence that the parties intended to prevent the other from bringing future claims that had not yet accrued as of the date of the agreement."
The trial court further found "the majority of time expended after February 2, 2018 was not reasonably incurred in the defense of released claims" because on that date the court had issued an in limine ruling which excluded evidence of damages released by the MSA. Accordingly, the court reduced Stephen's fee request by $116,633, and then applied Stephen's proposed apportionment of 46 percent. The result was an award of $221,292.82 in fees to Stephen.
3. The Trial Court Properly Interpreted "Action" in the MSA
Stephen contends the trial court erred in interpreting "action" to mean "less than the full lawsuit[.]" He asserts, "The word 'action' is unambiguous; it means a civil suit." In support, Stephen cites both the Code of Civil Procedure and Black's Law Dictionary. Stephen also contends "the California Supreme Court has observed that 'an "action" is synonymous with a lawsuit,'" citing Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 753. After citing this consensus on the meaning of "action," Stephen argues the court here "did not give the word 'action' in the parties' contract its usual meaning. . . . In interpreting 'action' to mean only 'released claims,' the trial court committed error."
Section 22 of the Code of Civil Procedure defines "action" to mean "an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense."
Stephen asserts, "Black's Law Dictionary . . . defines 'action' to mean '[a] civil or criminal judicial proceeding.' (ACTION, Black's Law Dict. (10th ed. 2014).)"
Stephen correctly asserts we must review the trial court's interpretation of the MSA's attorney fees provision de novo, given "there is no conflicting extrinsic evidence as to its meaning. [Citation.]" (Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1497-1498; accord, Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955 ["when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract"].) In our de novo review, we reach the same conclusion as the trial court.
Notwithstanding Stephen's assertion the attorney fees provision is "unambiguous," we note his interpretation depends on a subtle yet crucial rewriting of its terms. Stephen asserts, "Wendy and Stephen unambiguously agreed that if either party sued the other in a lawsuit that included released claims, the prty who sued would be liable for all fees reasonably incurred to defend that lawsuit." (Italics added.) Stephen's rewriting of the provision is telling; it betrays his comprehension the actual language of the MSA is more restrictive than he admits.
The MSA uses "action" twice in the same sentence, and the repeated use makes the intended meaning clear. "If either party brings an action against the other concerning or otherwise trying to [enforce] a right, matter or claim being released hereunder, then the moving party shall pay all reasonable attorney fees and costs of the other party to defend such action." (MSA, ¶ 10, italics added.) The "action" the fees provision refers to is an action to enforce a released claim, not an action "that include[s] released claims," as Stephen contends. Consequently, we conclude the language of the contract itself reveals the parties' intention only attorney fees incurred in defending released claims are recoverable.
The extrinsic evidence of the parties' written negotiations over the wording of the attorney fees provision also supports this interpretation. The correspondence between counsel makes clear Wendy wanted to discourage Stephen from suing over released claims. In the letter in which Wendy's attorney, Elkin, first suggested the attorney fees provision, Elkin proposed, "[I]f Mr. Sawyer brings any civil suit against [Wendy], for any claim that arose or would arise as of the date of entry of the Judgment, he agrees to pay for her attorneys' fees in that suit." Though these claims certainly would be covered by the mutual release, Elkin explained Wendy wanted "this extra protection."
When Stephen responded by requesting the attorney fees provision be made mutual by including a "'prevailing party'" provision, Wendy refused and insisted on a "'moving party'" provision instead. In an e-mail, Elkin explained Wendy insisted the award be against the "'moving party,'" rather than for a "'prevailing party'" "to protect both our clients from the other one bringing any civil suit. The intent is that regardless of who prevails, it is the moving party who must pay for the other's fees."
Stephen argues this same e-mail exchange supports his expansive interpretation of "action." Stephen contends the exchange proves "the provision means that in a lawsuit that included released claims, the plaintiff would have to pay the defendant's fees regardless of who prevailed. [The parties] bargained for specific consequences if that happened: the plaintiff would have to pay all fees and costs the defendant reasonably incurred to defend that lawsuit." (Italics added.)
Again, Stephen's argument attempts a subtle rewrite of the provision in issue. Nowhere in the e-mail exchange is there a statement the "action," which would trigger an attorney fees award was an action "that included released claims," as opposed to an action to enforce released claims. Nonetheless, Stephen argues Wendy's insistence fees be awarded to the "moving party" rather than "prevailing party" proves the term "action" includes "a lawsuit with a mixture of released claims and future claims," and this proper interpretation of "action" entitles him to recover all his fees incurred in defending the entire action, not just released claims.
Here is Stephen's argument: "In a lawsuit with only released claims, with either phrase the defendant would be awarded attorney's fees and costs. The plaintiff in such a case would be the 'moving party' and would be responsible for fees. The claims would be barred by the release, making the defendant the prevailing party. So if they agreed to a 'prevailing party' provision, the defendant would be awarded attorney's fees and costs.
"In a lawsuit with only future claims, the release would not apply, and the fees provision would not be triggered. With either phrase, there would be no award of fees.
"The difference between 'moving party' and 'prevailing party' would matter only in a case in which the plaintiff sued on both released claims and future claims. In such a lawsuit, the defendant would be the 'prevailing party' only if the defendant defeated the future claims. Because of that, Wendy and her counsel did not want a 'prevailing party' fee provision—they wanted the plaintiff to be responsible for all attorney's fees and costs. [¶] By choosing 'moving party,' there would be an award of fees regardless of who prevailed." (Italics added.)
Of course, Stephen's argument ignores the solution the trial court adopted here. In a case involving a "mixture" of released and future claims, a trial court could penalize the moving party for including the released claims in the case, regardless of which side prevailed, by awarding attorney fees for the defense of only the released claims based on an apportionment of fees between released and future claims. --------
In other words, Stephen argues Wendy wanted a "moving party" provision to ensure Stephen would be held liable for the attorney fees she incurred to defend against released claims regardless of whether the action Stephen filed stated only released claims or stated a "mixture" of released claims and future claims. Stephen suggests Wendy feared a "prevailing party" provision would allow Stephen to evade the contractual penalty for suing her on released claims by including in the action future claims upon which he was sure to prevail.
Even if Stephen correctly intuits Wendy's motivation for insisting on the "moving party" provision, the parties agreement on that provision does not prove Stephen's contention the parties intended "that in a lawsuit that included released claims, . . . the plaintiff would have to pay all fees and costs the defendant reasonably incurred to defend" the entire lawsuit. The extrinsic evidence actually supports the contrary conclusion that the attorney fees provision was intended to award only fees incurred to defend released claims. As Elkin, Wendy's family law counsel, stated in her declaration, "There was no discussion nor intent that the Moving Party Clause cover any claims that would potentially arise AFTER the Judgment for Dissolution was entered."
We conclude, based on our de novo review of the contractual language and the extrinsic evidence, the attorney fees provision in the MSA did not entitle Stephen to recover all his fees and costs in defending the action. The trial court properly concluded Stephen was entitled to recover only those fees and costs related to his defense of released claims.
4. The Trial Court Did Not Abuse its Discretion in Excluding from the Attorney Fees Award the Fees Incurred During Trial
Finally, Stephen argues that in the event we interpret the MSA as allowing the award of only fees and costs incurred in defending released claims (i.e., claims predating the June 4, 2014 divorce judgment), the trial court abused its discretion by the manner in which it calculated that award. Specifically, Stephen argues the court erred when it "excluded all attorney's fees incurred during trial." The argument lacks merit.
In calculating the attorney fees awarded as damages on the cross-complaint, the trial court excluded Stephen's attorney fees incurred during trial. The court based that decision on its in limine ruling excluding evidence of damages released in the MSA upon entry of the divorce judgment. The court reasoned "the majority of time expended after" the date of the in limine ruling "was not reasonably incurred in the defense of released claims."
Stephen argues it was error to exclude those fees incurred during trial "because Wendy pursued the released claims throughout the trial." In support of this assertion, Stephen contends that although plaintiffs' damages expert prepared a new report in response to the court's ruling on Stephen's in limine motion, the revised report "still included amounts Jason took in 2013 and early 2014." Stephen further asserts, "Though claims based on acts in 2013 and early 2014 were released and should not have been sought under the trial court's ruling, Plaintiffs continued to seek them."
The argument is entirely misleading. Stephen ignores the fact plaintiffs still had to litigate their damages claim against Jason and Sawyer & Sawyer. In his trial testimony, the expert explained his revised report segregated the amounts Jason owed from 2013 and early 2014, before entry of the divorce judgment, from the amounts Jason stole after the judgment, for which Stephen was potentially liable under plaintiffs' breach of fiduciary duties theory. Plaintiffs' counsel, in questioning the expert, made clear the purpose of segregating these amounts on the revised reports was to allow the jury to determine damages against Stephen separately from the damages the other defendants owed. Stephen is simply wrong in asserting plaintiffs continued to pursue against him at trial any released claims.
In his reply to the respondents' brief on the cross-appeal, Stephen raises an entirely new argument to show the trial court abused its discretion when it calculated the attorney fees award. Stephen asserts in his reply the court acted improperly "when it apportioned Stephen's fees between released and unreleased claims[,]" awarding him only 46 percent of the fees and costs he incurred in defending the entire action.
"'"[P]oints raised in the reply brief for the first time will not be considered, unless good reason is shown for failure to present them before . . . '" [Citations.]" (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10; see also Bay World Trading, LTD. v. Nebraska Beef, Inc. (2002) 101 Cal.App.4th 135, 138, fn. 3.) Stephen waived this additional argument by failing to raise it in his opening brief on the cross-appeal.
III
DISPOSITION
The judgment is affirmed. Stephen D. Sawyer, Jason Sawyer, and Sawyer & Sawyer are entitled to their costs on the appeal. Wendy Sawyer and her companies are entitled to their costs on the cross-appeal.
ARONSON, ACTING P. J. WE CONCUR: FYBEL, J. IKOLA, J.