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Shalant v. Smith

California Court of Appeals, Second District, Fourth Division
Mar 19, 2008
No. B197243 (Cal. Ct. App. Mar. 19, 2008)

Summary

In Shalant v. Smith (Mar. 19, 2008, B197243) [nonpub. opn.], Division Four of this Court affirmed the dismissal of Shalant's unjust enrichment claim against Smith as time-barred.

Summary of this case from Shalant v. Client Sec. Fund Comm'n for the State Bar of California

Opinion


JOSEPH SHALANT, Plaintiff and Appellant, v. STUART SMITH, et al., Defendants and Respondents. B197243 California Court of Appeal, Second District, Fourth Division March 19, 2008

NOT TO BE PUBLISHED

APPEAL from a judgment (order of dismissal) of the Superior Court of Los Angeles County No. BC346539, Rita J. Miller, Judge.

Biesty, Garretty & Wagner and James T. Biesty for Plaintiff and Appellant.

Jeffrey S. Flashman for Defendant and Respondent Stuart Smith.

Steven A. Ehrlich for Defendant and Respondent Richard Booth.

WILLHITE, Acting P. J.

INTRODUCTION

Stuart Smith retained Joseph Shalant to prosecute a medical malpractice action pursuant to a written contingency agreement. Smith later fired Shalant and retained Richard Booth. Booth settled the action for $500,000. At some point, the State Bar initiated disciplinary proceedings against Shalant based upon his professional relationship with Smith. The California Supreme Court ultimately disbarred Shalant, finding that his contingency agreement with Smith was illegal and the result of coercive bargaining tactics.

Shalant sued Smith and Booth to recover his (Shalant’s) proportionate share of the $500,000 settlement proceeds. Shalant’s second amended complaint alleged a breach of contract cause of action against both Smith and Booth and a cause of action against Booth for unjust enrichment. The trial court sustained both defendants’ demurrers without leave to amend. It concluded that as a matter of law Shalant could not allege a claim for breach of contract against either defendant and that Shalant’s unjust enrichment claim was time barred. This appeal by Shalant challenges those rulings. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Traditionally, appellate review of a trial court ruling sustaining a demurrer without leave to amend is confined to the properly pled allegations of the complaint. Here, however, before the trial court made its ruling, it granted the defense request to take judicial notice of the State Bar records related to Shalant’s disbarment for conduct directly related the matters alleged in his complaint. We therefore base our statement of facts upon the allegations of the operative pleading (the second amended complaint) and the State Bar records. Taken together, they establish the following.

Shalant does not challenge the propriety of the ruling granting judicial notice of the State Bar records.

In February 1998, Smith retained Shalant (who was then a licensed attorney) to research the viability of a medical malpractice claim Smith was considering prosecuting. Smith paid Shalant $5,000 for this service. A signed contract reflects this agreement.

Thereafter, Shalant, without Smith’s knowledge or consent, sent a document entitled “Notice of Claim for Medical Malpractice” to two physician defendants and, two months later, filed a lawsuit. When, in August 1998, Shalant told Smith he had filed the action, Smith asked him to explain the fee basis for Shalant’s services. Shalant responded that he would represent Smith on a contingency basis, subject to the maximum fee permitted by the Medical Injury Compensation Reform Act (MICRA). This oral agreement was never reduced to writing.

Business and Professions Code section 6146 governs contingency fee agreements in medical malpractice actions.

Business and Professions Code section 6147 requires, among other things, that a contingency fee contract be in writing.

Smith’s deposition in his medical malpractice suit was ultimately set for Tuesday, June 22, 1999. On Friday, June 18, Shalant sent Smith a FAX stating that Smith needed to pay him more money if Smith wanted him to continue to represent him. Smith responded that he did not intend to change the original contingency fee agreement. The deposition went forward as scheduled, with Shalant appearing for Smith. In the next few days, the two continued to discuss Shalant’s fee. Shalant insisted that Smith pay him a $25,000 non-refundable fee (to be credited against any contingency fee in the event Smith recovered) plus $10,000 for costs. Shalant stated that if Smith did not pay him the $25,000, he would ask to be relieved as counsel. Smith’s attempts to negotiate with Shalant were unsuccessful. On July 1, Smith, who was about to leave for an out-of-state medical appointment he had scheduled many months earlier, sent Shalant a check for $25,000.

Smith was going to Virginia for a six-to-eight week period to obtain treatment at Johns Hopkins University Hospital.

On September 1, 1999, Smith and Shalant signed a written retainer agreement. The agreement, a copy of which was attached to Shalant’s complaint, provided for the maximum contingent fee allowed by MICRA, a $25,000 nonrefundable fee, and $10,000 for expert witness fees. In addition, the agreement provided: “Client hereby gives the attorney a lien on any recovery made in this case to the extent that the attorney is entitled to legal fees and reimbursement for costs advanced on client’s behalf.”

In December 2000, Smith discharged Shalant as counsel. Shalant’s responsive letter stated that Smith would “owe me no more money for services rendered.” In March 2001, counsel for Smith wrote Shalant demanding return of the $25,000 retainer because the September 1999 fee agreement violated the MICRA limits. Shalant refused to return the money.

Smith ultimately retained Booth as counsel. In June 2002, Booth settled Smith’s medical malpractice action for $500,000. On December 17, 2002, Shalant wrote to Booth, demanding additional attorney fees and costs for his work on Smith’s case. In February 2003, Shalant wrote Smith, demanding that Smith and Booth agree to arbitrate Shalant’s claim for quantum merit fee entitlement. The demand was rejected.

Meanwhile, the State Bar had filed two disciplinary charges against Shalant based upon his professional relationship with Smith. First, the State Bar alleged that Shalant had entered into an illegal fee agreement on September 1, 1999. Second, it alleged that Shalant had committed an act involving moral turpitude, dishonesty or corruption. Following a hearing, a State Bar Judge found both charges to be true. Shalant requested review of that decision.

Rules of Professional Conduct, rule 4-200(A) provides that a member of the State Bar “shall not enter into an agreement for, charge, or collect an illegal or unconscionable fee.”

In an opinion filed on May 18, 2005, the Review Department of the State Bar Court upheld the hearing officer’s decision on both counts. It explained that Shalant had entered into an agreement “for, charging, and collecting an illegal fee” because Business and Professions Code “section 6146 does not allow a contingent fee agreement in a medical malpractice case to provide for a non-refundable flat fee in addition to the statutory maximum contingent fee.” As to the second count, the Review Department found that Shalant had engaged in abusive conduct because a mere three business days before Smith’s June 1999 deposition, Shalant had insisted upon modifying the August 1998 oral retention agreement by adding the $25,000 nonrefundable fee and had threatened to withdraw if Smith did not consent. The Review Department concluded that “the demand was abusive of Smith and constituted a coercive act involving moral turpitude.” The Review Department recommended that Shalant, who had been disciplined on four previous occasions, be disbarred.

See Yates v. Law Offices of Samuel Shore (1991) 229 Cal.App.3d 583.

By an order filed on December 14, 2005, the California Supreme Court denied Shalant’s petition for writ of review and ordered him disbarred. In addition, the Client Security Fund reimbursed Smith for the illegal $25,000 fee Shalant had collected and had refused to return.

California Rules of Court, rule 9.16(b) states: “Denial of a review of a decision of the State Bar Court is a final judicial determination on the merits and the recommendation of the State Bar Court will be filed as an order of the Supreme Court.”

On January 27, 2006, Shalant filed suit against Smith and Booth. The pleading was labeled “Complaint for Quantum Meruit Fee for Legal Services Rendered.” Two months later, Shalant filed a first amended complaint against the two defendants, still relying solely on the theory of quantum meruit. Smith filed a demurrer, raising multiple grounds including that the action was barred by the two-year statute of limitations applicable to a quantum meruit claim. The trial court, finding that the quantum meruit claim was time barred, sustained the demurrer with leave to amend.

On October 10, 2006, Shalant filed his second amended complaint, abandoning his claim for quantum meruit. The new pleading alleged causes of action for breach of a written contract and unjust enrichment.

The cause of action for breach of contract names both Smith and Booth as defendants. It is based entirely upon the September 1, 1999 written retainer agreement. The pleading makes no reference to the oral August 1998 contingency contract or Shalant’s efforts, made in June 1999, to modify the oral agreement. The pleading alleges that upon settling the case, Booth “paid himself a full MICRA fee.” Shalant further alleged that when the settlement was reached, he (Shalant) had “performed about 85% of the total services rendered[,]” so that both defendants were liable “for [Shalant’s] fee entitlement for services rendered under the September 1, 1999 written fee agreement.” Hence, Shalant sought recovery of 85 percent of the “full MICRA fee” Booth had received.

The cause of action for unjust enrichment names only Booth. It alleges that Booth is “hold[ing] in trust the excess fee that he collected from Smith (out of the $500,000 settlement) for the benefit of [Shalant], i.e. the beneficiary of said constructive trust.”

Both Smith and Booth filed demurrers to the second amended complaint. The trial court sustained each defendant’s demurrer without leave to amend and dismissed the action. This appeal by Shalant follows.

DISCUSSION

1. Cause of Action Against Smith for Breach of Contract

The trial court properly sustained without leave to amend Smith’s demurrer to the breach of contract cause of action. A client (Smith) has the absolute right to discharge his attorney (Shalant) at any time and cannot be liable for breach of contract for exercising the right. “Such a discharge does not constitute a breach of contract for the reason that it is a basic term of the contact, implied by law into it by reason of the special relationship between the contracting parties, that the client may terminate that contract at will. It would be anomalous and unjust to hold the client liable in damages for exercising that basic implied right.” (Fracasse v. Brent (1972) 6 Cal.3d 784, 790 (Fracasse); see also Jalali v. Root (2003) 109 Cal.App.4th 1768, 1777, and Kroff v. Larson (1985) 167 Cal.App.3d 857, 860.)

Once the contract is terminated by the client’s discharge of counsel, the attorney’s only remedy is to sue in quantum merit for the reasonable value of services rendered, assuming the contingency contemplated by the contract (e.g., recovery by the client) has occurred. (Fracasse, supra, 6 Cal.3d at pp. 791-792.) Here, Shalant is time barred from pursuing that claim. A cause of action for quantum meruit accrues when the contingency has occurred. (Id. at p. 792.) Hence, Shalant’s action against Smith for quantum meruit accrued when Booth settled Smith’s medical malpractice action in June 2002. The statute of limitations for a quantum meruit claim is two years. (Code Civ. Proc., § 339; Iverson, Yoakum, Papiano & Hatch v. Berwald (1999) 76 Cal.App.4th 990, 996; Maglica v. Maglica (1998) 66 Cal.App.4th 442, 452-453.) Shalant filed his complaint in January 2006, far too late to raise a timely quantum merit claim, a conclusion Shalant does not seriously dispute.

One case explains: “In the case of an attorney who has been granted a lien pursuant to a contingent fee contract and who has rendered services called for by such contract, but who has been discharged prior to the happening of the contingency stated in the contract, all that remains to be done by him, once the contingency has occurred (i.e., recovery by settlement or judgment), is to seek an adjudication in an independent action of the reasonable amount of the attorney fees due him for his services in the light of his former client’s recovery and the reasonable amount of the costs advanced by him. He is also entitled, upon such determination and in the same action, to seek enforcement of his lien.” (Bandy v. Mt. Diablo Unified Sch. Dist. (1976) 56 Cal.App.3d 230, 235.)

Shalant, instead, argues that the four-year statute of limitations applicable to an action on a written contract (Code Civ. Proc., § 337) applies because “[d]amages are not sought for breach of contract, which did not occur, but for reasonable attorney fees rendered pursuant to that written contract and while it was in effect. [Shalant’s] suit assumes the existence of the terminated contract, as occurs whenever an attorney sues for fees under a written retainer contract and is no longer the client’s attorney because that relationship was previously terminated.” The argument is not persuasive. The written contract is relevant only because it establishes Shalant’s right to recover for the reasonable value of his services because it shows that, in representing Smith, he had acted not as a volunteer but pursuant to an attorney-client relationship created by contract. However, that does not mean that the statute of limitations for an action on a written contract applies. As explained above, Shalant’s only viable cause of action is for quantum meruit, not an action on the contract (written retention agreement).

Furthermore, Shalant’s argument attempts to do an “end run” around Fracasse’s holding that because a client has an absolute right to terminate an attorney, the discharged attorney may not use the terms of the contract (e.g., the contingency fee provision) to measure his damages. But that is what Shalant seeks. The second amended complaint alleges that Shalant’s agreement with Smith gave him the maximum fee allowed by MICRA; that Booth received the maximum fee permitted by MICRA; and that he (Shalant) is entitled to his proportionate (85%) share of that full MICRA fee based upon the amount of work he did. In light of these allegations, it is apparent that Shalant’s claim, no matter how styled, is a claim for damages for Smith’s breach of his contractual promise to pay on a contingency basis. Fracasse bars that claim.

Shalant also argues that the statute of limitations has been tolled although it is not clear to which cause of action this argument applies. If it applies to a breach of contract claim, it is of no moment because, as explained above, Shalant is barred as matter of law from suing Smith on that theory. If it applies to his abandoned claim for quantum meruit, it is incorrect. The factual basis of Shalant’s tolling argument is Smith’s effort (ultimately successful) to have the State Bar Client Security Fund reimburse him for the unlawful $25,000 fee he had paid to Shalant. Shalant posits that the pendency of that request “tolled” any statute of limitations applicable to him. Not so. This doctrine, as explained in Addison v. State of California (1978) 21 Cal.3d 313, allows for tolling of a statute of limitations if a plaintiff chooses first to pursue an administrative remedy before filing suit. The doctrine does not, as Shalant seems to suggest, toll a cause of action for anyone other than the party who pursues the alternative remedy. Hence, the time Smith spent in securing from the Client Security Fund the $25,000 has no legal impact on the limitations period(s) applicable to any rights Shalant may have had against Smith.

Shalant raised his “tolling” theory in his second amended complaint.

2. Cause of Action Against Booth for Breach of Contract

The trial court properly sustained without leave to amend Booth’s demurrer to the cause of action for breach of written contract. To bring suit upon a contract, the plaintiff (Shalant) must be in privity of contract with the defendant (Booth). Shalant and Booth never entered into an agreement, ergo, Shalant cannot sue Booth for breach of contract. Further, Booth never assumed any contractual duties to perform to Shalant, and Shalant was not the intended third party beneficiary of any agreement entered into by Smith and Booth. In sum, Shalant has no standing to sue Booth for breach of contract.

3. Cause of Action Against Booth for Unjust Enrichment

The trial court properly sustained without leave to amend Booth’s demurrer to the cause of action for unjust enrichment based upon the statute of limitations.

The limitations period for an unjust enrichment cause of action is three years. (Code. Civ. Proc., § 338, subd. (d); First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1670.) That Shalant seeks to impose a constructive trust does not change that conclusion. The statute of limitations on a constructive trust is the statute of limitations on the underlying substantive right. (Embarcadero Mun. Improvement Dist. v. County of Santa Barbara (2001) 88 Cal.App.4th 781, 793 .) Here, the substantive right is unjust enrichment; it is not breach of contract because Shalant had no contract with Booth.

Shalant’s cause of action for unjust enrichment accrued, at the latest, on December 17, 2002 when Shalant wrote to Booth, demanding payment for his work on Smith’s case. Shalant filed his complaint more than three years later, January 27, 2006. The claim is untimely as a matter of law.

To argue for a contrary conclusion, Shalant suggests that a four-year statute of limitations applies because his claim against Booth is derivative of his claim against Smith for breach of the written retainer agreement. The argument fails. As already explained, Shalant has no cause of action against Smith for breach of a written contract. Similarly, there is no validity to Shalant’s argument, advanced without citation to any relevant authority, that his cause of action against Booth did not accrue until the State Bar Client Security Fund awarded Smith $25,000. (See, e.g., Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785 [an appellant’s failure to support a point with reasoned argument and citations to authority constitutes a forfeiture of the claim].)

Lastly, Shalant relies upon the September 1999 retainer agreement’s creation of a lien in his favor to argue the validity of his claims against Booth. The argument misses the mark because it overstates the import of the lien. “Having entered into a contract creating such a lien, a client still has the absolute power and right to discharge the attorney at any time, with or without cause. [Citation.] When discharge occurs, if a lien exists, it survives, but it is for quantum meruit, the reasonable value of services rendered to the time of discharge, rather than for the full contract fee. [Citations.]” (Hansen v. Jacobsen (1986) 186 Cal.App.3d 350, 355-356, italics added; see also Weiss v. Marcus (1975) 51 Cal.App.3d 590, 598 [the lien entitles the discharged attorney to recover from the settlement proceeds the reasonable value of services provided prior to discharge].) Hence, the lien does not create a cause of action; it merely provides for a device to enforce a cause of action against the former client for quantum meruit, assuming such a cause of action exists. The lien adds nothing to any claim Shalant may have had against Booth.

DISPOSITION

The judgment (order of dismissal) is affirmed. Respondents are to recover their costs on appeal.

We concur: MANELLA, J. SUZUKAWA, J.


Summaries of

Shalant v. Smith

California Court of Appeals, Second District, Fourth Division
Mar 19, 2008
No. B197243 (Cal. Ct. App. Mar. 19, 2008)

In Shalant v. Smith (Mar. 19, 2008, B197243) [nonpub. opn.], Division Four of this Court affirmed the dismissal of Shalant's unjust enrichment claim against Smith as time-barred.

Summary of this case from Shalant v. Client Sec. Fund Comm'n for the State Bar of California
Case details for

Shalant v. Smith

Case Details

Full title:JOSEPH SHALANT, Plaintiff and Appellant, v. STUART SMITH, et al.…

Court:California Court of Appeals, Second District, Fourth Division

Date published: Mar 19, 2008

Citations

No. B197243 (Cal. Ct. App. Mar. 19, 2008)

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