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Dietz v. Meisenheimer & Herron

September 17, 2009

WILLIAM K. DIETZ, PLAINTIFF AND RESPONDENT,
v.
MEISENHEIMER & HERRON ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from a judgment of the Superior Court of San Diego County, Jeffrey B. Barton, Judge. Affirmed. (Super. Ct. No. GIC824375)

The opinion of the court was delivered by: Aaron, J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

In January 2004, Attorney William K. Dietz filed this action against Meisenheimer & Herron and Meisenheimer, Herron & Steele (Meisenheimer). In his complaint, Dietz alleged that he referred a bad faith insurance litigation matter involving Vital Services Company Inc. (Vital) to Meisenheimer. Dietz further alleged that Meisenheimer breached an agreement between Meisenheimer and Dietz to pay Dietz 25 percent of any contingency fee that Meisenheimer might receive in the Vital matter. Dietz contended that he suffered damages in excess of $260,000 as a result of this breach. Dietz subsequently filed an amended complaint in which he added an allegation that he was a third party beneficiary of a fee agreement between Vital and Meisenheimer, and that Meisenheimer had violated Dietz's rights as a third party beneficiary by failing to pay Dietz his portion of the contingency fee from the Vital matter. Dietz also alleged several related claims, including fraud, money had and received, and conversion.

Prior to trial, Meisenheimer filed a motion for a protective order in which it requested that the court dismiss Dietz's action on the ground that Meisenheimer could not present a complete defense to Dietz's claims without violating ethical duties that it owed to Vital, including the attorney-client privilege. Specifically, Meisenheimer contended that Vital had refused to waive its right to protect from disclosure certain confidential information that Meisenheimer would have to disclose in order to defend against Dietz's claims. After holding an evidentiary hearing on Meisenheimer's motion, the trial court dismissed Dietz's fraud claim, but allowed the remainder of his causes of action to proceed to trial.

A jury found Meisenheimer liable on claims of breach of contract, third party beneficiary breach of contract, money had and received, and conversion, as alleged in the first amended complaint, and awarded Dietz a total of $260,000 in damages. The trial court entered judgment in favor of Dietz pursuant to the jury's verdict.

On appeal, Meisenheimer claims that the trial court violated its right to due process by refusing to dismiss the action in its entirety since Meisenheimer could not present a defense without violating ethical duties it owed to Vital. Meisenheimer also maintains that Dietz's claims are barred as a matter of law due to Dietz's alleged violation of various ethical duties related to this matter. We conclude that the trial court did not violate Meisenheimer's right to due process by refusing to dismiss the action. We further conclude that Meisenheimer forfeited its contention that Dietz's claims are barred as a matter of law because Meisenheimer has not demonstrated that it preserved in the trial court any its arguments in support of this contention. Accordingly, we affirm the judgment.

II. FACTUAL AND PROCEDURAL BACKGROUND

In January 2004, Dietz filed this action against Meisenheimer. In his complaint, Dietz alleged that he had been retained by Vital to represent Vital in the defense of a workers' compensation claim. Dietz further alleged that Vital's insurer, Mid-Century Insurance Company (Mid-Century), had refused to provide Vital with a defense to the workers' compensation claim. Dietz alleged that he referred Vital to Matthew Herron, a principal at Meisenheimer. According to Dietz, on or about April 28, 1997, Vital entered into a written fee agreement with Meisenheimer (the 1997 Agreement). Dietz alleged that pursuant to the 1997 Agreement, Meisenheimer agreed to prosecute on Vital's behalf a claim for insurance bad faith against Mid-Century, and that, pursuant to the 1997 Agreement, Meisenheimer was to receive certain fees, including "40% of Vital's recovery from Mid-Century, if any." Dietz also alleged that, pursuant to the 1997 Agreement, he was "to receive 25% of the contingency fee and [Meisenheimer] was to receive 75% of the contingency fee."

Dietz alleged that in December 2002, Vital settled its action against Mid-Century and that the contingent portion of the fee from the settlement totaled $1,240,000. Dietz claimed that Meisenheimer paid Dietz only $50,000 rather than the $310,000 that Dietz alleged Meisenheimer owed him.Dietz claimed that as a result of these actions, Meisenheimer had breached a contract with Dietz. In addition, Dietz brought a fraud cause of action in which he alleged that Meisenheimer "never intended to pay [Dietz] 25% of the contingency fee on the Vital Matter as promised." In addition to the breach of contract and fraud claims, Dietz also brought claims for conversion, constructive trust, accounting, and money had and received.

In December 2006, Dietz filed the operative first amended complaint in which he alleged that Meisenheimer had breached an oral contract with Dietz to pay Dietz 25 percent of any contingency fee Meisenheimer might receive in the Vital matter.*fn1 Dietz also alleged that he was a third party beneficiary of the 1997 Agreement, and that Meisenheimer had breached the 1997 Agreement by failing to pay Dietz his portion of the contingency fee. Dietz alleged several related claims, including fraud, money had and received, and conversion.

In April 2007, Meisenheimer filed a motion for a protective order in which it claimed that Vital's assertion of its right to protect from disclosure certain confidential information precluded Meisenheimer from presenting "a full and complete defense" to Dietz's claims. Meisenheimer requested that the trial court dismiss the action in its entirety and preclude Dietz from any further prosecution of the case. On July 5, 2007, after the conclusion of an evidentiary hearing on Meisenheimer's motion, the trial court dismissed Dietz's fraud claim, but allowed the remainder of the claims to proceed to trial.

On July 17, 2007, after a trial, the jury returned a special verdict in Dietz's favor on the claims for breach of contract, third party beneficiary breach of contract, money had and received, and conversion alleged in the first amended complaint. As to each claim, the jury found that Dietz had suffered $260,000 in damages.

In December 2007, the trial court entered judgment against Meisenheimer in accordance with the jury verdict. The court awarded Dietz a total of $397,431.04, including $260,000 in damages, $129,216.44 in prejudgment interest, and $8,214.60 in costs.

Meisenheimer timely appeals.

III. DISCUSSION

A. The Trial Court's Refusal to Dismiss the Case on the Ground that Meisenheimer Could not Present a Defense Without Violating Ethical Duties owed to Vital, did not Deprive Meisenheimer of its Right to Due Process

Meisenheimer contends that the trial court deprived it of due process by refusing to dismiss the case on the ground that Meisenheimer could not present a defense without violating ethical duties it owed to Vital to preserve the confidentiality of Vital's information. Meisenheimer contends both that the trial court applied the wrong legal standard in determining whether to dismiss the case, and that due process required that the entire action be dismissed, because Meisenheimer was unable to present a complete defense to Dietz's claims at trial.*fn2

We will assume that the de novo standard of review applies to Meisenheimer's contentions. (See People v. Seijas (2005) 36 Cal.4th 291, 304 [stating that independent standard of review " 'comports with this court's usual practice for review of mixed question determinations affecting constitutional rights' "].)

1. Factual and Procedural Background

In April 2007, Meisenheimer filed a motion for a protective order requesting that the trial court dismiss Dietz's action in its entirety. In its brief in support of the motion, Meisenheimer contended that it could not defend itself "without obtaining discovery of privileged and confidential matters from Vital and its other nonparty lawyers which Vital is (understandably) not willing to permit [Meisenheimer] to obtain."

Meisenheimer supported this contention by describing the procedural history of its efforts to obtain discovery in the case. For example, Meisenheimer noted that Vital had entered into various waivers of its attorney-client privilege and its confidentiality rights, and that the trial court had entered a protective order to preserve the confidentiality of certain matters related to this action. However, Meisenheimer claimed that it was unable to obtain all of the discovery it needed to present its defense. Specifically, Meisenheimer noted that it had been unable to obtain discovery pertaining to Vital's tax planning strategies for the proceeds of the settlement in the bad faith action. Meisenheimer claimed that this evidence was relevant to prove Meisenheimer's contention that it was not liable to Dietz for any referral fee premised on Vital's having paid Meisenheimer the contingency fee specified in the 1997 Agreement, because Vital had not paid that contingency fee. Meisenheimer claimed, instead, that Vital had paid a different fee, which Meisenheimer had negotiated in 2002 during a dispute over fees that occurred near the time of the settlement of the bad faith litigation. Meisenheimer contended that dismissal was required pursuant to Solin v. O'Melveny & Myers, LLP (2001) 89 Cal.App.4th 451 (Solin), because, according to Meisenheimer, "[t]he client is clearly not willing to permit discovery of critically relevant, but nevertheless privileged, evidence and the defendants are just as clearly unable to present a full and complete defense."*fn3

Dietz opposed the motion, contending that Meisenheimer's motion was "the latest attempt by [Meisenheimer] to . . . hide behind the attorney/client privilege held by . . . [Vital]." As a threshold argument, Dietz argued that the court should deny the motion because Meisenheimer had not moved to compel any of the discovery that it claimed in its motion was critical to its defense. Dietz noted that Vital had executed several waivers of its attorney-client privilege and its right to protect confidential information. According to Dietz, these waivers encompassed "all information relevant to [Meisenheimer's] defense." Dietz argued that the waivers had been necessitated by the fact that Meisenheimer "continued to feign confusion on what [it] can and cannot disclose." Dietz further argued that, in light of these waivers, Meisenheimer should have moved to compel compliance with any discovery requests to which Vital had objected.

Dietz also argued that the court should deny Meisenheimer's motion because Meisenheimer had failed to demonstrate that information pertaining to Vital's taxes had any relevance to the issues in the case. For example, Dietz argued that even assuming that Vital had been motivated by tax considerations to breach the 1997 Agreement, any such motivation was irrelevant, because "the issue would be was there a breach, modification, or rescission that affected Mr. Dietz's right to a referral fee, not why there was a breach, modification, or rescission." Dietz supported its opposition with, among other documents, copies of several of Vital's waivers of the attorney-client privilege to which Dietz referred in his opposition.

Meisenheimer filed a reply brief in support of its motion. With respect to Dietz's contention that Meisenheimer should have filed a motion to compel, Meisenheimer argued that "it would be absurd to impose a duty on Mr. Herron to take any position adverse to Vital on any claim of confidentiality." Meisenheimer further argued that any contention that Vital had irrevocably waived its right to assert the attorney-client privilege and its right to insist that Meisenheimer protect its confidential information was contrary to well established case law. With respect to Dietz's relevancy argument, Meisenheimer explained the connection between this case and discovery pertaining to Vital's tax planning strategies, as follows:

"Craig Sapin at [Procopio] is Vital's tax attorney. Vital hired him after Mr. Herron and Harvey Levine*fn4 recovered $3.1 million for [Vital]. [Sapin] was simultaneously engaged in both tax planning and fee negotiations. He is a critical witness concerning the focal issues here, notably the fee Vital ultimately paid and the events and circumstances surrounding the negotiations that led to that payment. Significantly, Sapin began negotiating a new fee for Vital after Mr. Herron refused to go along with Sapin's 'tax planning.' Thus, Sapin's involvement in matters 'related to' taxes cannot be separated from his involvement in matters 'related to' the fee dispute."

Meisenheimer contended that its argument for dismissal was particularly strong with respect to Dietz's fraud claim because "all of the evidence regarding the intentions and motivations of everybody in the fee negotiations are highly relevant."

On June 12, the trial court entered an order setting an evidentiary hearing on Meisenheimer's motion. The order stated that at the hearing, the court would consider:

(1) the relationship between tax issues arising from the bad faith litigation and the fee dispute related to or arising from that litigation; (2) whether Vital had waived the attorney-client privilege and released its lawyers from the duties of confidentiality so as to permit disclosure and discovery of tax related issues and tax advice related to or arising from the bad faith litigation; and (3) whether Vital should be compelled to disclose records pertaining to tax related issues and tax advice related to or arising from the bad faith litigation. The court directed the parties to provide notice of the order to Vital and its attorneys.

On June 28, the first day of the evidentiary hearing, Meisenheimer's counsel gave an opening statement in which he further explained Meisenheimer's contentions regarding the relevance of the information pertaining to Vital's taxes. Counsel argued that the subject matter of the tax advice related to "how to handle the settlement proceeds." Counsel further argued that the tax advice had led to "Vital completely repudiating the [1997 Agreement]," and resulted in a "new fee at the end of the case." Meisenheimer's counsel stressed that the tax advice was "clearly relevant" to Mr. Herron's state of mind during the period in which Vital and Meisenheimer were engaged in a fee dispute, and that it was therefore relevant to defend against Dietz's contention that Herron "concocted a fee dispute" in an effort to avoid paying Dietz his referral fee.

In his opening statement, Dietz's counsel contended that the tax advice Vital received regarding the settlement proceeds had no relevance to any of the causes of action at issue in the case, and that Meisenheimer had made no showing to the contrary. Dietz's counsel also argued that the court had an obligation to determine the content of the confidential information that Meisenheimer was claiming was critical to its defense, and also to determine whether Vital would waive any remaining privileges as to that specific information.

During the evidentiary portion of the hearing, Herron testified that he would not be able to respond to numerous contentions that were at issue in the case without disclosing confidential information pertaining to Vital's tax planning strategies concerning the proceeds of the settlement in the bad faith litigation. For example, Herron testified that he could not explain the reasons for Meisenheimer's refusal to participate in the tax planning strategies without disclosing Vital's confidential information. Herron did explain that he believed that Vital's tax planning strategies would call into question the veracity of testimony that Vital had provided in the bad faith litigation. However, Herron testified that he could not further explain the basis of this contention without disclosing Vital's confidential information. Herron also testified that at the time of the fee dispute with Vital in late 2002, he wanted to avoid public disclosure of Vital's tax planning strategies because he believed that such disclosure could serve as a basis for setting aside the settlement of the bad faith litigation. Accordingly, Herron decided to "accommodate Vital" in the fee dispute.

During Herron's testimony, Vital's counsel explained that earlier in the litigation, Vital had waived the attorney-client privilege with respect to anything having to do with the fee dispute in the bad faith litigation. Meisenheimer subsequently sought discovery pertaining to tax advice that Vital had received in the bad faith litigation. However, because, in Vital's view, the tax advice had nothing to do with the fee dispute, Vital had refused to waive the attorney-client privilege with regard to this advice.

Vital's counsel also indicated that with respect to any tax information that Meisenheimer currently possessed, Vital was willing to consider waiving any applicable privilege. However, Vital's counsel stated that Meisenheimer's counsel had refused to reveal what information Meisenheimer was claiming it was prohibited from disclosing. After further discussion among the court and counsel for Vital, Dietz and Meisenheimer regarding the scope of Vital's waivers, the court stated that it was the court's "anticipation" that the parties would meet and confer over the weekend regarding the scope of Vital's assertion of the attorney-client privilege. At the close of the hearing, the court formally requested that counsel meet and confer regarding the issues discussed at the hearing.

On July 2, at the outset of the resumption of the evidentiary hearing, Dietz's counsel and Vital's counsel stated that Vital was willing to waive any and all applicable privileges regarding any statements made among Vital and the various attorneys involved in the Vital/Meisenheimer fee dispute concerning tax advice ─ including Herron.*fn5

Meisenheimer's counsel responded that he had attempted to discuss the matter with Vital's counsel over the weekend, but that Vital's counsel was not willing to discuss the matter without first being provided a substantive outline of Herron's anticipated testimony. According to Meisenheimer's counsel, Vital's counsel also indicated that Vital was not willing to provide assurances that it would not share the outline with Dietz.*fn6 In addition, Meisenheimer's counsel stated that over the weekend, he had attempted to obtain additional discovery from Vital, and that Vital's counsel had refused to provide any further discovery. Meisenheimer's counsel also filed a declaration documenting his efforts to meet and confer.

Upon resuming his testimony at the evidentiary hearing, Herron testified that he could not fully explain how the tax advice led him to conclude that Vital intended to repudiate the 1997 Agreement, without disclosing Vital's confidential information that Herron believed was still subject to Vital's assertion of privilege. Herron also testified that despite Vitals' waivers, he still could not fully explain how and why he responded to Vital's purported repudiation of the 1997 Agreement without disclosing Vital's confidential information.

On cross-examination, Herron clarified the purported relevance of evidence pertaining to the tax advice, testifying as follows, "The tax advice . . . caused a breakdown of the relationship with the client who eventually refused to perform on the agreement ...


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