Filed 9/30/19 Berger v. Losch CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

ARKADY BERGER,

Plaintiff, Cross-Defendant and Appellant,

v.

RONALD LOSCH,

Defendant, Cross-Complainant and Appellant.

A156222

(San Francisco City & County

Super. Ct. No. CGC-17-557446)

I. BACKGROUND

This appeal and cross-appeal arise out of a fee dispute in a collection matter. Ronald Losch (Losch) represented Arkady Berger (Berger) in litigation seeking to collect on a judgment in Berger’s favor (the Varum Judgment) pursuant to a partial contingency agreement. Losch achieved total victory, collecting 100% of the $2,152,856.61 debt owed to Berger on the Varum Judgment, which included $75,355.86 in costs.

The written fee agreement (the Agreement) between Berger and Losch (dba Losch & Ehrlich) provided that 1) Losch was to be paid hourly on an ongoing basis at a “discounted” rate, and if and to the extent he collected on the Varum Judgment, Losch would receive out of the proceeds the difference between his “discounted” rate and his “standard” rate as an “excess fee award,” to be taken from the amount collected; and 2) Losch was entitled to retain any sanctions collected “to compensate for extraordinary time spent by counsel compelling the opposing side to do that which they are required to do but refuse to do.”

In the course of the collection action, Losch collected $32,602.70 in sanctions awards—twice—once from the defendants in the underlying action, and once from the defendants’ lawyers. These sanctions, which were based on a showing from Losch of how much time he spent pursuing certain discovery motions, ran jointly and severally against the defendants and the defendants’ law firm in the underlying litigation. How the “double collection” of the $32,602.70 in sanctions awards occurred is not clear. Presumably, there was no objection from the defendants in the underlying case, or from their lawyers, because due to a failure of communication none of them was aware of the double payment.

By the conclusion of the collection litigation in the Spring of 2016, Berger had paid Losch a total of $305,344 in hourly fees at the agreed discounted rate. After the defendants in the underlying action lost on appeal and made their final payment in satisfaction of the Varum Judgment, Losch deposited the collected funds into his trust account. Losch then paid over to Berger all of the funds he had collected, except for $209,200.18, the amount he calculated to be due as a final payment. He retained the withheld funds in his trust account, and a dispute between client and counsel ensued.

On May 3, 2016, Berger wrote Losch an email stating that according to his “preliminary calculation,” Losch was due $130,711.25 out of the withheld funds; but he also stated that he did not authorize the withdrawal of any of the remaining money in the trust account until they resolved the dispute. Without Berger’s knowledge and contrary to Berger’s instruction, Losch withdrew $142,912 anyway, leaving $71,287.59 in the trust account.

Berger sued for breach of contract, breach of the covenant of good faith, conversion, fraud, fraudulent inducement, and breach of fiduciary duty, based on the unauthorized withdrawals from the trust account and various alleged violations of the rules of professional conduct. To establish his right to retain the $71,287.59 in his trust account and to collect the remainder of what he claimed to be owed, Losch counterclaimed on breach of contract, fraud, and quantum meruit theories.

The case proceeded to a bench trial before Hon. James Robertson, who decided the case in a tentative statement of decision filed October 22, 2018, which became final on November 7, 2018 with the overruling of all objections to it. Judge Robertson ruled largely for Berger on the counterclaim, finding that Losch and his law firm “breached the written fee agreement with Berger by overcharging Berger and by paying themselves more than they were entitled to, which resulted in an overpayment” to Losch of $20,746. He ruled that Losch was entitled to none of the $71,287.59 in the trust account.

With respect to Berger’s affirmative claims, on the other hand, Judge Robertson ruled for Losch, finding that his withdrawal of money from the trust account contrary to Berger’s instructions did not amount to conversion or a breach of the covenant of good faith and fair dealing, was not in breach of Losch’s fiduciary duty to Berger, and was in substantial compliance with the rules of professional conduct. The legal position on which Losch acted, Judge Robertson ruled, was taken in good faith.

Losch appeals the rulings against him on his cross-complaint, and Berger cross-appeals the rulings against him on his operative complaint.

II. DISCUSSION

Losch’s first contention on appeal is that Judge Robertson erred in concluding as a matter of contract interpretation that Losch was not entitled to retain the amount of $32,602 paid twice by the judgment debtors. According to Losch, the plain language of the Agreement entitles him to keep any sanctions he recovered. Period. Sanctions are sanctions, he argues, so there was nothing for Judge Robertson to do but enforce the plain contractual language.

Judge Robertson’s contrary determination turns on a finding of ambiguity. He reasoned as follows: “One of the central issues in this case is reconciling two sections of the Agreement, namely, the ‘excess fees’ described on the first page of the Agreement and section 6 of the Agreement part of the standard terms attached and under part of the fee agreement concerning the recovery of attorney fees as sanctions. The court finds that the inclusion of these two provisions created an ambiguity.”

“The ambiguity results from several factors,” Judge Robertson ruled. First, facially, “section 6 seems to imply that the award of sanction fees, since they are described as belonging to the law firm, should not have been billed to Berger,” but “such fees were billed to, and paid by, Berger albeit at a discounted rate.” Second, “there is no provision dealing with how the recoveries of sanction fees are to be credited. There is no indication of whether sanction fees are to be considered excess fees. Section 6 does state that sanction fees are not to be considered the recovery in the case, but that does not resolve the question of whether they are excess attorney fees.”

Third, when Berger asked Losch how the sanctions clause would be applied, Losch explained that Berger would be billed for hours spent on discovery motions at the agreed discounted rates, but that, if sanctions were recovered, he would be given a credit for payments on payment of those bills for the hours on which the sanctions awards were based. Fourth, “the conduct of the parties did not track either the terms of [Paragraph] 6 or Losch’s explanation of how the recovery of sanction fees would be credited to Berger.”

On the threshold issue of ambiguity—a matter we review de novo (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165)—we agree with Judge Robertson’s analysis of the governing language. Given this ambiguity, Judge Robertson was correct to resort to extrinsic evidence. (Ibid.) And at that second step of his contract interpretation analysis, we defer to his factual findings as to the parties’ contracting intent so long as they are based on substantial evidence. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 987.) We are satisfied that there is substantial evidence supporting those findings.

Looking to extrinsic evidence outside the four corners of the Agreement, Judge Robertson found that the evidence of expressly communicated intent (Losch’s explanation to Berger of how the sanctions clause would apply) and the evidence of the parties’ practical construction (Losch’s failure to bill and credit for Berger in accordance with his explanation) justified the conclusion that the parties did not intend either the “excess fees” clause or the “sanctions” clause to allow double recovery for time spent on discovery motions that resulted in a sanctions award.

That is a reasonable construction of the Agreement. Accordingly, we conclude that Judge Robertson correctly rejected Losch’s claim to the $32,602 sanctions double payment.

Losch’s second contention on appeal is that Judge Robertson erred in concluding that Losch was not entitled to charge Berger for $27,899 in interest on the “excess” fee award to compensate him for payment delay from the time the discounted fees were billed to the time the “excess” fees were ultimately paid. Losch begins from the premise that, to the extent he recovered on the attorney’s fees award to Berger, Losch owns that portion of the fee award representing the “excess” over the amount he had been paid at discounted rates. Citing Hernandez v. Siegel (2014) 230 Cal. App.4th 165 (Hernandez), Losch then argues that “interest on an attorney fee award is attorney fees,” and since “interest is part of the award,” the Agreement “directs that it belongs to Losch.”

We agree with Judge Robertson that Hernandez is distinguishable. As he explained in his statement of decision, Losch overlooks “a crucial difference in that case. In Hernandez, attorney fees were collected from the judgment creditors some time after judgment. Since the attorneys had to wait to receive payment until the fees were received, it made sense to award interest on that amount to the attorneys. Here, to the contrary, Berger was obligated to pay—and did pay—[Losch’s] fees as the case progressed.”

To the extent there was a delay in payment to Losch, that is inherent in the contingency arrangement we have here. If Losch wanted a higher premium for delayed payment on the contingency component of his compensation, he should have negotiated a more generous contingency formula. Hence, Judge Robertson was correct to conclude that, “[b]ecause there is nothing in the Agreement calling for [Losch’s] recovery of interest and Berger had the ultimate obligation to pay attorney’s fees (and fees were paid in the amount of $305,344), the recovery of interest in the amount of $27,899 belongs to Berger.”

Third, and finally, Losch argues in the alternative, accepting the above construction of the Agreement, that Judge Robertson’s math was nonetheless wrong. According to Losch, the second line in Judge Robertson’s “true up” calculation of amounts recovered and amounts owing incorrectly deducted the sanctions fees of $32,602, which, according to Losch, results in him not being paid at all for any of the time he spent on discovery motions that resulted in sanctions awards. Losch presents an alternative calculation in which he “zero[es] out” rather than deducts the $32,602, showing a net underpayment by Berger rather a net overpayment by Losch.

We are not persuaded there was an error in this respect. Judge Robertson found that “[t]he $421,881 paid by the judgment debtors”—which is the starting point of his calculation—“included payment for the hours [Losch] had based the sanctions of $32,602 awarded by the court in the Varum Matters.” Based on Losch’s trial testimony, he also found that “when the judgment was finally and fully paid off,” Losch “on the one hand gave Berger a dollar-for-dollar credit, but they then charged him again for the full amount of the sanctions.” (See fn. 1, ante.) And “[t]hey did so even though they had already recovered from the judgment debtors the $32,602 sanctions twice—once in direct payment of the sanctions fees and a second time through the recovery of fees included in the Memorandum of Costs After Judgment.” (Ibid.) These findings are supported by substantial evidence in the record.

Turning to Berger’s cross-appeal, we see no merit in his challenges to Judge Robertson’s ruling in favor of Losch on the various claims Berger alleged by counterclaim.

Judge Robertson found that (1) because Losch’s legal position was taken in good faith and its billing practices were fair and reasonable, he is not liable for breach of the covenant of good faith and fair dealing; (2) because Losch did not transfer to himself any “disputed” amounts within the meaning of then applicable Rule 4-100 of the Rules of Professional Conduct, Losch’s withdrawal of $142,912 from his trust account after May 2, 2016, contrary to Berger’s instruction, was not a breach of fiduciary duty; (3) Losch did not violate then applicable Rule 3-300 of the Rules of Professional Conduct, governing attorney’s liens, because it is not relevant to the alleged breach of fiduciary duty and in any event Berger failed to prove he was damaged; and (4) absent a breach of fiduciary duty, Berger’s claim for unjust enrichment fails. Suffice it to say we agree with each point.

III. DISPOSITION

Affirmed. The parties shall bear their own costs.

 

_________________________

STREETER, J.

We concur:

_________________________

POLLAK, P.J.

_________________________

BROWN, J.

A156222