Filed 8/31/20 Lerner & Veit v. Power CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

LERNER & VEIT,

Plaintiff and Appellant,

v.

PATRICIA POWER,

Defendant and Respondent.

A158322

(Sonoma County Super. Ct.

No. SCV–263047)

Plaintiff and appellant law firm Lerner & Veit (Appellant) appeals from the trial court’s judgment following its order sustaining the demurrer of defendant and respondent Patricia Power (Respondent) without leave to amend. Because the trial court’s order is based on a misinterpretation of the written retainer agreement between Appellant and Respondent, we reverse.

BACKGROUND

On September 15, 2014, Appellant entered into a written “Retainer Agreement” (Retainer) with Respondent. Appellant agreed to represent Respondent in “collecting unpaid temporary spousal support” from a trust in her ex-husband’s name (Spousal Support Action).

In return, Respondent agreed to pay Appellant’s fees, costs, and expenses. The Retainer at the outset identifies Respondent as the sole “Client.” In paragraphs two and three, it describes Appellant’s attorney fees rates and possible costs and expenses, and states “[t]he Client agrees to pay for all such costs and expenses in addition to the hourly fees.” Paragraph four of the Retainer states, “The Client will be billed monthly for services rendered, costs and expenses advanced . . . and agrees to remit monthly payments in full upon receipt of said bill. It is expressly understood that each individual and related entity constituting ‘Client’ is responsible jointly and severally for payment.” Paragraph five of the Retainer states, “The Client agrees to abide by all terms of this Agreement including making payments to [Appellant] in accordance with this Agreement.”

Paragraph 14 of the Retainer, which was the basis for the trial court’s ruling, is entitled “Payment by Other Party.” It states in full: “Client acknowledges that Stephen Power has agreed to pay for legal services performed by [Appellant] and authorized [Appellant] to invoice and collect from Mr. Power. Client acknowledges that Client shall be responsible for any fees and costs not paid by Mr. Power or his designee.” Stephen Power (Mr. Power) is a cousin of Respondent by marriage who orally agreed with Appellant to pay Appellant’s fees and costs incurred in the Spousal Support Action.

Appellant performed legal services and incurred costs on behalf of Respondent in connection with the Spousal Support Action. Respondent was the prevailing party in the action and, in October 2015, the court that presided over the action determined $94,462.50 in Appellant’s fees and costs incurred in representing Respondent were necessary and reasonable. Respondent collected $110,000 for attorney fees and costs related to the Spousal Support Action but has refused to pay Appellant. Appellant’s unpaid legal fees and costs are $84,047.25.

In November 2015, Appellant filed an action against Mr. Power in Solano County Superior Court (Solano County Action), seeking payment for its attorney fees and costs in the Spousal Support Action based on the alleged oral contract. Mr. Power filed a cross-complaint against Appellant. Appellant alleged in the Solano County Action that it had received only $30,000 in payments from Mr. Power for its fees in the Spousal Support Action. In 2018, Appellant and Mr. Power settled the Solano County Action, and the action was dismissed with prejudice. Respondent was not a party to the Solano County Action, and the settlement did not expressly release claims against her.

In August 2018, Appellant filed the present breach of contract action against Respondent under the Retainer, seeking payment for $84,047.25 in legal fees and costs for the Spousal Support Action. Appellant also asserted a quantum meruit claim. Appellant filed a substantially similar First Amended Complaint in October, and Respondent filed a demurrer asserting the Solano County Action has res judicata effect in the present action. The trial court sustained the demurrer with leave to amend, and Appellant filed a Second Amended Complaint in March 2019. A copy of the Retainer was attached to the Second Amended Complaint (as well as the previous versions of the complaint).

Respondent demurred to the Second Amended Complaint, and the trial court sustained the demurrer without leave to amend. In July 2019, the court entered judgment in favor of Respondent. This appeal followed.

DISCUSSION

Appellant contends the trial court erred in concluding its contract claim against Respondent is barred under the res judicata doctrine. We agree.

I. Standard of Review

“ ‘In reviewing an order sustaining a demurrer, we examine the operative complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory.’ [Citation.] ‘ “ ‘ “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . We also consider matters which may be judicially noticed.” . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’ ” ’ ” (Mathews, supra, 8 Cal.5th at p. 768.)

Where, as in the present case, the alleged contract is attached as an exhibit to the complaint, “a general demurrer to the complaint admits not only the contents of the instrument but also [a] pleaded meaning to which the instrument is reasonably susceptible.” (Martinez v. Socoma Companies Inc. (1974) 11 Cal.3d 394, 400 (Martinez); accord Shine v. Williams-Sonoma, Inc. (2018) 23 Cal.App.5th 1070, 1081 (Shine); see also Hervey v. Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 962 (Hervey) [the court must deny a demurrer if the language of the contract “ ‘is reasonably subject to a construction sufficient to sustain a cause of action’ ”].) The trial court’s interpretation of the Retainer based on its language alone is subject to de novo review. (In re Electric Refund Cases (2010) 184 Cal.App.4th 1490, 1500.)

II. The Res Judicata Doctrine Does Not Bar Appellant’s Claims

The trial court concluded Appellant failed to state a claim against Respondent for breach of contract because of the res judicata effect of the Solano County Action. The court erred.

“As generally understood, ‘[t]he doctrine of res judicata gives certain conclusive effect to a former judgment in subsequent litigation involving the same controversy.’ [Citation.] The doctrine ‘has a double aspect.’ [Citation.] ‘In its primary aspect,’ commonly known as claim preclusion, it ‘operates as a bar to the maintenance of a second suit between the same parties on the same cause of action. [Citation.]’ [Citation.] ‘In its secondary aspect,’ commonly known as collateral estoppel, ‘[t]he prior judgment . . . “operates” ’ in ‘a second suit . . . based on a different cause of action . . . “as an estoppel or conclusive adjudication as to such issues in the second action as were actually litigated and determined in the first action.” [Citation.]’ [Citation.] ‘The prerequisite elements for applying the doctrine to either an entire cause of action or one or more issues are the same: (1) A claim or issue raised in the present action is identical to a claim or issue litigated in a prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding.’ ” (People v. Barragan (2004) 32 Cal.4th 236, 252–253 (Barragan).)

An interpretation of the Retainer is critical to applying the res judicata doctrine in the present case. The trial court concluded the present action is barred because the Retainer “only obligated [Respondent] to pay those fees that [Mr. Power] owed but did not pay.” That is, the court concluded Respondent’s obligation to pay fees under the Retainer was entirely “derivative” of Mr. Power’s obligation to pay fees under his alleged oral agreement with Appellant. Based on that interpretation of the Retainer, the trial court concluded dismissal of the Solano County Action was not only “a final adjudication that [Mr. Power] owed no fees,” but also a determination that Respondent owed no fees.

The trial court erred in interpreting the Retainer. “ ‘ “The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the ‘mutual intention’ of the parties. ‘Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.)’ ” ’ ” (Palp, Inc. v. Williamsburg National Ins. Co. (2011) 200 Cal.App.4th 282, 290.) “A contract is to be construed as a whole, ‘so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ ” (McCaskey v. California State Automobile Assn. (2010) 189 Cal.App.4th 947, 970, quoting Civ. Code, § 1641.)

In interpreting the Retainer, the trial court focused on paragraph 14, which states that Mr. Power “has agreed to pay for legal services performed by [Appellant]” and that Respondent “acknowledges” responsibility “for any fees and costs not paid by Mr. Power or his designee.” Respondent argues the trial court was correct in viewing her obligation as derivative of Mr. Power’s obligation because “[u]nder the plain language of the Agreement” she was only obligated to pay “to the extent [Mr. Power] fails to pay such fees.” Respondent construes paragraph 14 to mean she is only liable for fees Mr. Power was obligated to pay pursuant to his oral promise but failed to pay. But the language of paragraph 14 states no such thing, and Respondent’s interpretation ignores the various other paragraphs of the Retainer that independently describe Respondent’s responsibility to pay Appellant’s fees and costs. In light of that independent obligation, the Retainer is at least “ ‘reasonably susceptible’ ” to a construction under which paragraph 14 re-affirms Respondent’s obligation to pay any portion of the entirety of Appellant’s fees and costs not paid by Mr. Power. (Martinez, supra, 11 Cal.3d at p. 400.)

Under this construction, the Retainer as a whole makes Respondent responsible for payment of Appellant’s fees, acknowledges Mr. Power’s agreement to pay fees on Respondent’s behalf, and re-affirms Respondent’s ultimate responsibility to pay Appellant’s fees and costs to the extent not paid by Mr. Power. (See Civ. Code § 1641 [“The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”].) Respondent identifies no reason why the parties would have intended to condition her agreement to pay fees on the enforceability of Mr. Power’s separate oral promise, the consideration for which (if any) is not apparent from the record on appeal.

Accordingly, “the claim or issue raised in the present action”—Respondent’s obligation under the Retainer—is not “identical to a claim or issue litigated in” the Solano County Action, which addressed only Mr. Power’s obligation under the separate oral agreement. (Barragan, supra, 32 Cal.4th at pp. 252–253.) Respondent does not suggest the Solano County Action expressly determined whether Appellant has unpaid fees and costs in the amount of $84,047.25 for its work on the Spousal Support Action. Notably, the Second Amended Complaint alleges the court in the Spousal Support Action found Appellant reasonably incurred over $94,000 in fees and costs; the complaint also alleges Respondent “recovered fees and costs in the amount of $110,000 as the prevailing party to the Spousal Support Action.” Respondent fails to explain how the settlement in the Solano County Action reflects a determination on any issue regarding her obligation to pay Appellant under the Retainer.

The erroneous conclusion that the Retainer established only a derivative obligation on Respondent’s part also underpinned the trial court’s privity analysis. (See Cal Sierra Development, Inc. v. George Reed, Inc. (2017) 14 Cal.App.5th 663, 674 [“derivative liability is a form of privity”].) “As applied to questions of preclusion, privity requires the sharing of ‘an identity or community of interest,’ with ‘adequate representation’ of that interest in the first suit, and circumstances such that the nonparty ‘should reasonably have expected to be bound’ by the first suit. [Citation.] A nonparty alleged to be in privity must have an interest so similar to the party’s interest that the party acted as the nonparty’s ‘ “ ‘virtual representative’ ” ’ in the first action.” (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 826 (DKN Holdings).) A comparison to Cal Sierra is instructive. There, “The subject matter of the litigation . . . was the same as that at the center of [a prior] arbitration dispute: the placement of the asphalt plant and whether it infringed on Cal Sierra’s mining rights. As to this issue, [the licensor and licensee] had an identical interest; all were adversely and similarly impacted by the propriety (or impropriety) of the plant’s location.” (Id. at p. 674.) By contrast, the subject matter of the Solano County Action was Mr. Power’s obligation under the alleged oral agreement. Significantly, it was in Mr. Power’s interest to avoid the obligation, while it was in Respondent’s interest that the alleged oral agreement be enforced. Respondent was not “in privity with” Mr. Power in the Solano County Action. (Barragan, supra, 32 Cal.4th at pp. 252–253.)

Appellant argues the res judicata doctrine applies because both the present lawsuit and the Solano County Action involved the same “primary right”—Appellant’s entitlement to payment for its work in the Spousal Support Action. The primary rights theory is applied “[t]o determine whether two proceedings involve identical causes of action for purposes of” the claim preclusion aspect of the res judicata doctrine. (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797.) However, as explained previously, Appellant and Mr. Power are separate parties with differing interests and independent alleged obligations. (See Rice v. Crow (2000) 81 Cal.App.4th 725, 736 [“Because res judicata only applies between the same parties or their privies, and Defendants are neither, it would make no difference that the claims in the underlying action and the malpractice action arose from the same primary right.”]; see also Boeken, at p. 798 [“When two actions involving the same parties seek compensation for the same harm, they generally involve the same primary right.”].) Respondent cites no authority to the contrary, likely because her argument is premised on her erroneous interpretation of the Retainer as establishing only a derivative obligation.

Finally, Respondent argues, apparently as an alternate basis to affirm, that she was an “indispensable party” to the Solano County Action, and, therefore, she cannot be sued in the present action. She relies on Williams v. Reed (1952) 113 Cal.App.2d 195, which states the proposition “that joint obligors upon the same contract are indispensable parties. They may not be sued separately [citations]. If judgment is obtained in a separate action against one, it bars an action against the others.” (Id. at p. 204; see also DKN Holdings, supra, 61 Cal.4th at p. 821 [discussing Williams].) In the present case, Respondent and Mr. Power were not sued on the same contract. Mr. Power was sued on an oral agreement and Respondent was sued on the written Retainer. Although Appellant could not collect fees from Respondent to the extent those fees were paid by Mr. Power, that does not mean Respondent and Mr. Power were sued on the same obligation. Instead, the Retainer independently and separately obligated Respondent to pay attorney fees. Respondent cites to no authority supporting the proposition that a party in these circumstances is indispensable. Again, Respondent’s argument on the issue appears to be premised on the mistaken assumption that her obligation to pay attorney fees was derivative of Mr. Power’s obligation.

The trial court erred in sustaining Respondent’s demurrer.

DISPOSITION

The trial court’s order is reversed. Costs on appeal are awarded to Appellant.

SIMONS, Acting P.J.

We concur.

NEEDHAM, J.

BURNS, J.

(A158322)