Molina v. Jeffery
Filed 6/21/12 Molina v. Jeffery CA2/8
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
EIGHT
MONICA R. MOLINA,
Plaintiff and Appellant,
v.
JANINE K. JEFFERY et al.,
Defendants and Respondents.
B225753
(Los Angeles
County
Super. Ct.
No. BC397213)
APPEAL from a judgment of the Superior Court of
County.
David L. Minning, Judge. Affirmed.
Salvato
Law Offices, Gregory M. Salvato and Joseph Boufadel for Plaintiff and
Appellant.
Nemecek
& Cole, Jonathan B. Cole, Susan S. Baker and Mark Schaeffer; Reily &
Jeffery and Janine K. Jeffery for Defendants and Respondents Janine K. Jeffrey
and Reily & Jeffery.
_____________________________
This matter stems from a
Monica Molina against Janine Jeffery and Reily & Jeffery (collectively
Jeffery) for failure to timely file an appeal in Molina’s underlying lawsuit
against her former law partner. In this
appeal, Molina challenges the summary judgment entered against her. We affirm.
FACTS
Molina was hired as an associate
attorney in October 2002 to work with Rita Ann Kahlenberg in her law
office. In January 2003, Kahlenberg
asked Molina if she was interested in becoming a partner in the law firm. It required a capital contribution of $50,000
for a full equity position in a firm to be called Kahlenberg & Molina
(K&M). Under the agreement, Molina
and Kahlenberg would take an equal salary base and capital accounts would be
paid back after a profit was earned.
Kahlenberg agreed to transfer all the money and assets from her existing
practice to the new firm, including an estimated $150,000 in accounts
receivable and $200,000 in other assets.
Kahlenberg later transferred substantially less than that to K&M. Molina borrowed $50,000 from her mother and
executed a partnership agreement in March 2003.
Molina believed her capital contribution would allow K&M to continue
to operate up to six months.
The partnership effectively terminated by August 2003.
Molina sued Kahlenberg for
constructive trust and accounting on November 25, 2003, alleging Kahlenberg misused her
capital contribution for personal expenses.
Kahlenberg counterclaimed for fraud and breach of contract, alleging
that Molina had falsely represented that she had been retained by several
fee-paying clients and despite having recently been admitted to the bar, had
substantial legal experience due to her work at other firms. Kahlenberg also alleged that Molina’s
billable hours dropped by half when she became a partner.
After discovery ended, Molina
switched lawyers on May 11, 2006,
and retained Jeffery to represent her at trial.
A bench trial before the Honorable Phillip J. Argento began on August 2, 2006. Judge Argento issued a tentative decision on December 28, 2006, and allowed the
parties to submit objections and comments on it. A final statement of decision and judgment
was filed on April 30, 2007,
awarding Molina $2,000 in emotional distress damages and costs of suit on her
breach of fiduciary duty claim.
Kahlenberg recovered nothing on her cross-complaint. As to the fraud-based claims, Judge Argento
found that the evidence was insufficient to prove Kahlenberg knew or should
have known her statements to Molina were false when made. He also found Kahlenberg breached her
fiduciary duties to Molina by using partnership funds for non-partnership
expenses and by failing to adequately maintain the records of the partnership. However, Judge Argento held that an
accounting would be futile as Molina’s $50,000 capital contribution would have
been lost even if no breach of fiduciary duty occurred. Both parties filed motions for new trial,
which were denied on August 7, 2007. The court awarded Molina costs in the sum of
$4,490.65. A
the parties dispute whether it was Molina’s or Jeffery’s obligation to file
one.
In August 2008, Molina filed suit
against Jeffrey for legal malpractice and breach of fiduciary duty in failing
to file a notice of appeal in the Kahlenberg action and sought damages of
$150,000. Jeffrey cross-claimed against
Molina for approximately $11,000 in unpaid legal fees. Jeffrey moved for summary judgment on
Molina’s claims on September 17, 2009. The trial court granted the summary judgment
motion on March 16, 2010. Following a bench trial on Jeffrey’s
cross-complaint for unpaid fees, the trial court issued a judgment awarding
Jeffrey $14,300.
title="">[1] Molina timely appealed from this
judgment.
DISCUSSION
The elements of a cause of action
for legal malpractice are: (1) the
attorney-client relationship or other basis for duty; (2) a negligent act or
omission; (3) causation; and (4) damages.
(Nichols v. Keller (1993) 15
Cal.App.4th 1672, 1682.) The parties
agree that “[t]he only issue before the Court is the element of causation in
the legal malpractice claim asserted by Molina against Jeffery: whether Judge Argento’s Statement of Decision
contains any reversible errors such
that, but for Jeffery’s failure to file a timely Notice of Appeal, Jeffery is
the proximate cause of Molina’s damages.â€
Thus, we are presented with “a trial within a trial to establish that,
but for the lawyer’s negligence, the client would have prevailed in the
underlying action.†(
231 Cal.App.3d 327, 334; Sukoff v. Lemkin
(1988) 202 Cal.App.3d 740, 744.)
Molina asserts she would have
prevailed on appeal in her action against Kahlenberg because Judge Argento:
“(1) incorrectly applied a heightened burden of proof for finding
[constructive] fraud, (2) fashioned equitable remedies rather than ordering an
accounting that was awarded because [he] erroneously determined that an
accounting would be ‘futile,’ and (3) narrowly and unjustly applied the benefit
of the bargain measure of damages under Civil Code section 3333 in assessing
Kahlenberg’s tortuous breach of fiduciary duty.†We disagree.
A. Standard of Review
Given the layered procedural
posture with which we are faced, we first consider the principles governing a
review of summary judgment on legal malpractice complaints. “[C]ausation . . . is
ordinarily a question of fact which cannot be resolved by summary
judgment. The issue of causation may be
decided as a question of law only if, under undisputed facts, there is no room
for a reasonable difference of opinion.
[Citation.]†(
at p. 1687.) “The question about what
would have happened had [the lawyer] acted otherwise is one of fact unless
reasonable minds could not differ as to the legal effect of the evidence
presented. [Citation.]†(United
Community Church v. Garcin, supra, 231 Cal.App.3d at p. 334.)
Here, the trial court considered
whether an appeal of these issues would have been successful. In determining that issue, the trial court
addresses the subject as though it were sitting as a Court of Appeal. The parties must address and argue the issues
as if they were addressing the Court of Appeal.
(United Community Church v.
Garcin, supra, 231 Cal.App.3d at p. 334.)
In this context there are legal concepts peculiar to appellate law which
must be considered. One of the essential
rules of appellate law is that “[a] judgment or order of a lower court is
presumed to be correct on appeal, and all intendments and presumptions are
indulged in favor of its correctness.
[Citations.]†(
51 Cal.3d 1130, 1133.) It is the duty of
the appellant to present an adequate record to the court from which prejudicial
error is shown. (Null v. City of Los Angeles (1988) 206 Cal.App.3d 1528, 1533.) Also, the appellant must present argument and
authorities on each point to which error is asserted, or else the issue is
waived. (Tiernan v. Trustees of Cal. State University & Colleges (1982)
33 Cal.3d 211, 216, fn. 4.)
Because these issues were presented
to the trial court in a motion for summary judgment, it was incumbent upon
Jeffery to first present a prima facie showing that Molina’s appeal would not
have been successful. To do so, she was
required to show that one or more elements of Molina’s cause of action could
not be established or that Jeffery had a complete defense to the
complaint. (Nichols v. Keller, supra, 15 Cal.App.4th at pp. 1681-1682; Code
Civ. Proc., § 437c.) If Jeffery meets
that burden, the burden of proof then shifts to Molina to show that a triable
issue of one or more material facts exists. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477; Code Civ.
Proc., § 437c, subd. (o).) In addition,
we are still guided by the traditional rules of summary judgment which direct
us to construe the evidence of the moving party strictly and that of the
opposing party liberally, and to make our own independent or de novo
determination of the construction and effect of the papers submitted. (Nichols
v. Keller, supra, 15 Cal.App.4th at p. 1682.)
B. Constructive Fraud
Molina first contends summary
judgment should have been denied because had Jeffrey filed an appeal, she would
have prevailed on a constructive fraud claim owing to Judge Argento’s error in
applying the standard of proof. We find
no merit to this contention.
Section 1573 of the Civil Code
provides: “Constructive fraud consists:
[¶] 1. In any breach of duty which,
without an actually fraudulent intent, gains an advantage to the person in
fault, or any one claiming under him, by misleading another to his prejudice,
or to the prejudice of any one claiming under him; or, [¶] 2. In any such act or omission as the law
specially declares to be fraudulent, without respect to actual fraud.†(See
also Solon v. Lichtenstein (1952) 39 Cal.2d 75, 82.)
The breach of duty referred to in Civil
Code section 1573 must be one created by the confidential relationship, which
is one of the facts constituting the fraud.
(Byrum v. Brand (1990) 219
Cal.App.3d 926, 937-938; Mary Pickford
Co. v. Bayly Bros., Inc. (1939) 12 Cal.2d 501, 525.) This distinguishes constructive fraud from
other forms of actual fraud, including negligent misrepresentation, which may
occur in any type of relationship. (Civ.
Code, §§ 1572, subd. (2), 1709, 1710, subd. (2); cf. Hayter v. Fulmor (1949) 92 Cal.App.2d 392, 398,
disapproved on another point in Gagne v.
Bertran (1954) 43 Cal.2d 481, 488, fn. 5.) “‘Constructive fraud exists in cases in which
conduct, although not actually fraudulent, ought to be so treated – that is, in
which such conduct is a constructive or quasi fraud, having all the actual
consequences and all the legal effects of actual fraud. [Citations.]’†(Efron
v. Kalmanovitz (1964) 226 Cal.App.2d 546, 560.) Once constructive fraud has been established,
the burden is shifted to the party gaining the advantage to show fairness and
good faith in all respects. (
272, 290-291.)
According to Molina, Judge
Argento’s findings support the conclusion that she established constructive
fraud by a preponderance of the evidence and thus the burden should have been
shifted to Kahlenberg to rebut this presumption by showing Kahlenberg acted
fairly and in good faith. Molino claims
Judge Argento misapplied the standard of proof, holding Molina to the
incorrect, higher clear and convincing standard. As a result, Molino claims Judge Argento
erroneously found she had not met her burden to establish constructive fraud
and the burden of proof never shifted
to Kahlenberg.
Jeffery argues that Molina never
raised this issue at the trial level and has forfeited it.
appears to abandon the issue. Our review
of the record shows Molina did not make the argument below, and has thus
forfeited it. (Hepner v. Franchise Tax Bd. (1997) 52 Cal.App.4th 1475, 1486.)
But even more importantly, Molina
never asserted constructive fraud as a substantive cause of action. Indeed, Molina’s fraud allegations solely
relate to statements made by Kahlenberg before any confidential relationship
was formed between them, that is, statements that induced Molina to make the
$50,000 capital contribution to K&M.
There is no indication that Molina asserted constructive fraud as a
substantive cause of action in the underlying case or raised the issue with
Judge Argento in her briefing on his tentative ruling. As a result, Judge Argento analyzed the issue
of constructive fraud solely within the context of punitive damages. Molina cannot raise this issue for the first
time on appeal after failing to allege constructive fraud as a cause of action
in her complaint in the Kahlenberg action or otherwise providing Judge Argento
or the court below an opportunity to address the issue.
We also note that Molina
mischaracterizes Judge Argento’s analysis.
Judge Argento did not find that she had established constructive fraud
by a preponderance of the evidence. Instead, he clearly presented the issue
“[f]or the sake of discussion.â€
He “assumed†that the presumption of fraud applied and “assumedâ€
that the presumption of fraud was established by a preponderance of the
evidence. If Molina had raised the issue
of constructive fraud in the Kahlenberg action, Judge Argento would have been
provided the opportunity to discuss the evidence supporting that claim rather
than make assumptions about it.
C. Accounting
Molina next contends she would have
prevailed in an appeal because Judge Argento erred by failing to order an
accounting by an outside entity. We
disagree.
In his analysis regarding Molina’s
breach of fiduciary duty claim, Judge Argento explained that Kahlenberg’s
record keeping was so shoddy that it was unlikely an accounting to the standard
of generally accepted accounting principles could be made. Accordingly, he declined to order an
accounting by an outside entity despite finding that Molina had established she
was entitled to one. Instead, Judge
Argento conducted his own analysis of the financial records admitted into
evidence and concluded that K&M would have suffered a loss in any
event.
Judge Argento’s Ruling
After trial, Judge Argento awarded
an accounting to Molina but then stated that he would not order it. Judge Argento explained, “In regard to the
fiduciary duty to account in such a manner as is ‘reasonably required for the
proper exercise of the partner’s right and duties under the partnership
agreement or this chapter’ Kahlenberg’s financial record keeping practices fell
grossly short. Indeed, Valle [a
certified public accountant retained to audit K&M’s records] described the
records kept as a ‘glorified check register.’
The records presented to Valle and the manner in which they were
presented were insufficient for Valle to derive an accounting of K&M that
would be consistent with generally accepted accounting
principles. . . . Thus, Molina could not reasonably
exercise her rights and duties as [] susceptible to presentation consistent
with general accounting principles. This
was not done during the partnership and has not been done to date. Indeed, it probably cannot be done because it
is reasonable that Valle would have done it.
There is an irony here in that, although a proper accounting is
justifiable as the remedy sought by Molina’s last cause of action, it does not
appear feasible.â€
After considering the evidence
presented at trial, including Valle’s and Kahlenberg’s testimony, Judge Argento
exhaustively conducted his own calculations, accounting for the legitimate and
illegitimate expenses that were deducted from Molina’s capital contribution.
entitled to any further monetary award.
Analysis
An accounting cause of action is
equitable in nature, and may be sought
“ ‘where . . . the accounts are so complicated that an
ordinary legal action demanding a fixed sum is impracticable.’ †(Civic
Western Corp. v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 14.) An accounting may be ordered where the
plaintiff establishes he has a relationship with the defendant that requires an
accounting, and that some balance is due to him that can only be ascertained by
an accounting. (Brea v. McGlashan (1934) 3 Cal.App.2d 454, 460; 5 Witkin, Cal.
Procedure (5th ed. 2008) Pleading, § 819, p. 236.)
Though Molina contends she was denied
an accounting, it is apparent that Judge Argento provided her with one.
to order an outside accounting to mean that no accounting was done. When read within the context of the 48-page
decision, we interpret his ruling to mean that Molina was awarded an accounting
but it was unnecessary to refer the accounting to an outside entity such as a
referee or accountant. As shown from our
extensive recital of the decision in footnote 3, ante, Judge Argento had a thorough understanding of K&M’s
financial records and conducted a detailed analysis of it from the evidence
produced at trial.
It is well settled that “[o]rdering
a reference is generally within the discretion of the trial judge and the judge
may take the accounting himself from the evidence as presented.†(Baxter
v. Krieger (1958) 157 Cal.App.2d 730, 732; Berkowitz v. The Kiener Co. (1940) 37 Cal.App.2d 419, 426.) In Berkowitz,
the defendant acted to deprive the plaintiffs of commissions owed under a contract. The court held that the evidence was
sufficient to support the trial court’s findings with regard to the amounts
that were due and that the transfers were made to deprive the plaintiffs of
their commissions. The trial court was
not obligated to refer the accounting to a referee. (Id.
at p. 426.) “The trial court may well
have concluded from the evidence in this case that reference to an accountant
would not help the court in a correct determination of the issues involved.†(Ibid.)
Molina acknowledges that an
accounting was done by Judge Argento but attacks it as “speculative,
incomplete, and inconsistent.†We
disagree. Judge Argento conducted his
accounting after the presentation of evidence at trial. The parties also submitted supplemental trial
briefs on the issue of K&M’s finances.
Jeffery (on behalf of Molina) provided extensive analysis of K&M’s
finances and submitted evidence supporting the contentions they make on appeal,
including that there existed receivables and income that should have been
attributed to K&M, that there were miscalculations regarding income
received by tenants and checks paid to the landlord, that Kahlenberg paid her
daughter and her housekeeper from K&M funds and that Molina paid certain
payroll taxes. Molina does not contend
that Jeffery’s arguments and calculations in the supplemental trial brief are
inconsistent or incomplete or speculative.
Having considered extensive briefing and trial evidence on the issue, it
is obvious the amounts at issue were given due consideration in Judge Argento’s
calculations. Molina argument is an
impermissible attempt to have us conduct an independent accounting. We find substantial evidence supports
Judge Argento’s calculations. (
at p. 732.) Therefore, Molina has failed
to establish a triable issue of fact on this point.
D. Damages Calculation
Lastly, Molina contends Judge
Argento improperly determined the amount of damages she suffered. Again, we
find her contention lacks merit.
In limiting
Molina to $2,000 in emotional distress damages on her breach of fiduciary
duties claim, Judge Argento applied Civil Code section 3333, and explained:
“Kahlenberg and
Molina bargained for the Partnership, with respect to which losses are as foreseeable
as profits, even when all capital contributions and fees generated and best
efforts are made. Thus, given best
efforts, the benefit of the bargain ranges from reasonably foreseeable profit
to reasonably foreseeable loss; a breach must be shown by at least gross
negligence with regard to a fiduciary duty and then that breach to have
resulted in less profit or higher loss than if the bargain had been properly
carried out. Assuming that the fiduciary
duty to properly use Partnership funds had not been breached, where is the
expert testimony, aside from Kahlenberg’s optimistic representations, to prove
by a preponderance of the evidence that the firm have been a financial success
for both Molina and Kahlenberg? Or that
it would have incurred less loss? And,
if so, in what amount that would count as damage to Molina. In other words, the present evidence is
insufficient to prove either loss of profit or mitigated loss if the bargain
had been properly carried out by best efforts including the avoidance of at
least gross negligence by both partners.â€
Molina contends Judge Argento erred
when he applied the benefit of the bargain approach to the breach of fiduciary
duty claim. Molina argues she is
entitled “[a]t a minimum, [to] the out-of-pocket loss†of her $50,000 capital
contribution and up to $108,221, representing Kahlenberg’s misappropriation of
funds and prejudgment interest.
Civil Code section 3333
states: “For the breach of an obligation
not arising from contract, the measure of damages, except where otherwise
expressly provided by this code, is the amount which will compensate for all
the detriment proximately caused thereby, whether it could have been
anticipated or not.†“[I]n cases
involving a breach of loyalty, “‘“the trier of the fact should have some
discretion to fix the damages in accordance with the nature and degree of the
breach . . . . Thus, what constitutes making
‘good’ the loss may vary according to the circumstances.’†[Citation.]â€
(Strebel v. Brenlar Investments,
Inc. (2006) 135 Cal.App.4th 740, 750.)
We find Judge Argento properly fixed the measure of damages.
None of the cases relied upon by
Molina stand for the proposition that out of pocket losses is always the proper
measure of damages in a breach of fiduciary duty claim. (See
Overgaard v. Johnson (1977) 68 Cal.App.3d 821 [out of pocket];
24 Cal.App.4th 555 [benefit of the bargain]; Pepitone v. Russo (1976) 64 Cal.App.3d 685, 688-689 [benefit of the
bargain].) Nor do they support the
contention that Molina is entitled to essentially rescind her contract with
Kahlenberg and recover her $50,000 capital contribution or reap the benefit of
a 100 percent return on her money.
Instead, the caselaw clearly furnishes a trial court with the discretion
to determine the proper measure of damages pursuant to Civil Code section
3333. (Strebel v. Brenlar, supra, 135 Cal.App.4th at p. 750.) We find no abuse of discretion in the trial
court’s damages award. As a result,
Molina has not established the underlying judgment would have been reversed on
this point. Summary judgment was
therefore properly granted in favor of Jeffery as no triable issue of fact has
been raised.
DISPOSITION
The judgment is affirmed.
BIGELOW, P. J.
We concur:
RUBIN,
J.
GRIMES,
J.
award of unpaid legal fees on Jeffery’s counter-claim. She argues only that she is entitled to an
offset should we reverse the trial court’s summary judgment on her claims. Because we affirm the summary judgment, no
offset is warranted.
also contends that the constructive fraud discussion was made only in the
context of addressing punitive damages and thus Judge Argento’s application of
the clear and convincing standard of proof was correct. Molina does not address this issue either.
