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John J. Dacey v. William Taraday et al

May 19, 2011

JOHN J. DACEY, PLAINTIFF AND APPELLANT,
v.
WILLIAM TARADAY ET AL., DEFENDANTS AND RESPONDENTS,



(San Francisco City and County Super. Ct. No. CGC-06-448535)

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

CERTIFIED FOR PARTIAL PUBLICATION*fn1

JOHN J. DACEY, Plaintiff and Appellant, v. WILLIAM TARADAY, as Administrator, etc., Defendant and Appellant.

John J. Dacey and Burton J. Goldstein (Goldstein), who is now deceased, were partners at the law firm of Goldstein, Barceloux & Goldstein (GB&G). GB&G and the law firm of Desmond, Nolan, Livaich & Cunningham (Desmond) had been handling a number of inverse condemnation cases against the State of California (the flood cases) since 1986. Desmond and GB&G agreed to share equally in any fee recovery after payment of other attorneys. In 1990, the partners of GB&G signed an agreement for the dissolution and windup of GB&G (the dissolution agreement), and this agreement provided that the flood cases were "assign[ed]" to Goldstein and specified the percentages each former partner of GB&G would receive from the attorney fees recovered in the flood cases.

Goldstein died in 2001 and the flood cases finally settled in 2004, resulting in a substantial total fee recovery (the fee recovery). William Taraday, the administrator of the estate of Burton J. Goldstein (Taraday, the administrator, or the estate), settled with numerous attorneys participating on behalf of the plaintiffs in the litigation of the flood cases. Taraday agreed to reduce the estate's share in the fee recovery and to increase Desmond's share.

Dacey did not file a creditor's claim in the probate court and Taraday paid him nothing from the fee recovery. Dacey sued Taraday, as the administrator of the estate, for breach of the dissolution agreement and rescission of the dissolution agreement. He also sued Taraday, as an individual, Janet Cross Goldstein (Janet),*fn2 Barrie Taraday (Barrie), and Gail Hart (Hart) for, among other torts, replevin and conversion.*fn3 He also set forth claims against Desmond for conversion and "Distribution in Violation of a Lien[.]" All of the parties filed summary judgment and/or summary adjudication motions, and the lower court ruled, among other things, that the statute of limitations under Code of Civil Procedure section 366.2, subdivision (a)*fn4 did not apply to Dacey's claims against the estate because the administrator, not Goldstein, breached the dissolution agreement.

The matter proceeded to a bifurcated bench trial and the court found against Dacey on all of his claims against the individual defendants. It found in favor of Dacey in his breach of contract claim against the estate. Dacey appealed and Taraday, in his capacity as the administrator, filed a cross-appeal from that portion of the judgment finding in favor of Dacey on his breach of contract claim. At the estate's request, we consolidated the appeals.

The pivotal issue in Dacey's appeal is the interpretation of the dissolution agreement. The lower court ruled that the agreement expressly transferred the legal interest in the flood cases to Goldstein, and that the parties' course of conduct supported this interpretation of the agreement. The court therefore concluded that the administrator had the authority to renegotiate the fee agreement between Desmond and GB&G in the flood cases. Dacey objects to the lower court's interpretation of the dissolution agreement and maintains that the flood cases remained an asset of the partnership and therefore the administrator did not have the authority to modify the original 1986 fee agreement. He also makes various other challenges to the court's rulings on his claim of rescission, his tort claims against various defendants, and his request for punitive damages against Taraday, individually. We are not persuaded by any of Dacey's arguments.

The estate appeals from that portion of the judgment finding in favor of Dacey on his breach of contract claim. The estate maintains, among other things, that Dacey's claim was barred because he failed to file a creditor's claim as required by the Probate Code and his claim was untimely under the statute of limitations under Code of Civil Procedure section 366.2, subdivision (a). We conclude that the estate waived raising the creditor's claim issue on appeal and that section 366.2 does not apply to Dacey's breach of contract claim because Taraday, not the decedent, breached the contract. Accordingly, we affirm the judgment.

BACKGROUND

The Formation of GB&G

In 1985, Goldstein, Dacey and Joseph Ehrlich formed the law firm GB&G. About one year later, Jeffrey A. Baruh joined the law firm.

In 1986, 1,350 plaintiffs hired Goldstein and Desmond as co-lead counsel to handle their claims in flood cases, which involved actions for inverse condemnation and tort damages resulting from flooding caused by a break in the Yuba River Levee. A letter agreement in 1986 provided for Desmond and GB&G to share equally in any fee recovery after payment of other attorneys (the 1986 fee agreement). Desmond and GB&G also agreed, among other things, to split equally the costs of prosecuting the actions.

Dissolving GB&G

Ehrlich withdrew from the partnership on September 30, 1989. Primarily because of financial pressures being experienced by the law firm, the partners agreed to dissolve GB&G.

The partners of GB&G agreed that Goldstein, through his new firm Goldstein & Goldstein, would assume all responsibility for the representation and cost of the flood cases. At that time, according to Dacey, the parties estimated the flood cases to be worth "hundreds of millions of dollars." These estimates were based on client damage information, calculations prepared by GB&G, and the opinions of the partners and others. The parties also recognized that the flood cases would require significant resources, monetarily and in labor. Since Goldstein was to assume these costs, Baruh and Dacey agreed, among other things, to reduce their individual shares of the fee recovery in the flood cases.

Goldstein, Dacey, and primarily Baruh drafted the agreement for the dissolution and windup of GB&G. The partners signed the dissolution agreement on April 30, 1990, although they did not execute the agreement until August 19, 1992. The integrated agreement announced, "As a result of various changes in circumstances among the Partners, the Partners desire to dissolve and windup the affairs of the Partnership and liquidate the assets of the Partnership on the terms and conditions set forth herein." The agreement specified that Goldstein would be permitted to use the name "Goldstein & Goldstein" for his law firm after the dissolution of GB&G.

The dissolution agreement also provided the following: "As of May 1, 1990, no further professional services shall be rendered in the name of [GB&G], no further business transacted for the Partnership except action necessary for the winding up of its affairs, . . . , the distribution or liquidation of its assets, and the distribution of the proceeds of the liquidation. . . . Prior to April 30, 1990, the Partners shall assign every uncompleted Contingent Fee Case, to one or another of the Partners on such terms and conditions as shall be agreeable to the clients involved and the Partners; and the rendition of professional services from and after May 1, 1990[,] shall be by such individuals and other law firms, if any, in which they may respectfully become partners or otherwise be associated. With respect to those cases referred to as the [flood cases], the firm of Goldstein & Goldstein shall be substituted in place of the partnership." The agreement noted that the partners expressly agreed that the unfinished business doctrine "shall not be applicable for any purpose, including, without limitation, the division of proceeds collected on matters existing at the time of dissolution."

Attached to the dissolution agreement was the "Partnership Division of Certain Fees and Costs on Dissolution of [GB&G]" (exhibit 5).*fn5 The dissolution agreement incorporated exhibit 5 by reference. The dissolution agreement provided that exhibit 5 "specifically provided for the allocation and division of, as between the Partnership and themselves individually, of certain contingent and other non-hourly fee matters."

Exhibit 5 specified that GB&G was to receive "75% of the net contingent recovery" in the lawsuits involving "Monterey Hills." With regard to the Monterey Hills actions, exhibit 5 pointed out that the contract with another law firm had been amended to provide GB&G with 40 percent and the other law firm with 60 percent of the net contingent recovery, since the other law firm was "carrying the main burden of the litigation." Also mentioned was Safeway litigation, and the dissolution agreement stated the following: "The contract of GB&G with Safeway Stores, in addition to hourly charges, contains a percentage contingency of any recovery." It noted that Goldstein and Baruh assigned their interest in the contingent fees to Dacey. It added, "From any contingent recovery, GB&G shall receive the sum of $42,000, representing reimbursement for its contingent fee interest, unless the total contingent fee interest due to [Dacey] is equal to or less than $84,000, in which case, GB&G shall be entitled to fifty (50%) percent of any such recovery."

With regard to the flood cases, the dissolution agreement stated that GB&G was entitled to approximately 35 percent of the net contingent recovery as its portion of fees. It declared that Goldstein would "assume responsibility for continuing legal services in the cases, and the advancing of costs, disbursements and expenses, as necessary." It further specified that Dacey and Baruh would "not be required to advance further costs unless agreed in writing." Goldstein was to be repaid costs, disbursements, and expenses advanced by him after May 1, 1990.

Exhibit 5 further specified the following: Goldstein "shall receive 70.73% of the remaining total recovery (including without limitation, 70.73% of costs, disbursements and expenses advanced by GB&G). NOTE: This is intended to be a different formula than that used for Monterey Hills cases, by the allocation to [Goldstein] of 70.73% of all costs, disbursements and expenses, advanced by GB&G, in addition to his attorney's fees." With regard to Dacey and Baruh, exhibit 5 provided that they "shall receive 29.27%, divided between them in proportion to their share in GB&G."

Paragraph 7 in exhibit 5 set forth the following: "As to these fees and costs, disbursements, and expense allocation agreements, [Goldstein] and [Dacey] shall have the right to assign all or any part of their individual percentages to other attorneys who participate in the litigation."

Dacey and Baruh read the dissolution agreement, including exhibit 5, prior to executing the documents on August 19, 1992, and the agreement provided "that each is hereby bound and obligated" by the dissolution agreement's terms. The agreement also provided that it could not be amended or modified unless such amendment was in writing and approved by the partners.

Neither Dacey nor Baruh ever provided Desmond with a copy of the dissolution agreement. They also never contacted Desmond regarding the terms of the dissolution agreement and never indicated to Desmond that they retained any financial interest in the fee recovery from the flood cases.

The Flood Cases

After GB&G dissolved, Goldstein continued prosecuting the flood cases as co-counsel with Desmond. Goldstein hired David Collins as an associate of Goldstein & Goldstein to work on the flood cases, and Goldstein agreed to pay Collins 20 percent of his 70.73 percent share of the attorney fees for the flood cases.

The litigation in the flood cases "was protracted and bitterly fought." (Paterno v. State of California (1999) 74 Cal.App.4th 68, 76.) The matter proceeded to a trial and the plaintiffs lost on some theories, but won on an inverse condemnation (takings) theory. (Id. at p. 75.) In 1999, the Court of Appeal affirmed the defense jury verdict finding no dangerous condition of public property, reversed the inverse condemnation liability verdict in favor of the plaintiffs, and remanded for another trial on inverse liability. (Id. at pp. 75-76.)

Goldstein requested that his former partners Dacey and Baruh agree to reduce their share of the fee recovery. Dacey and Baruh rejected Goldstein's request.

In the fall of 2000, Goldstein became physically and financially unable to participate personally in the prosecution of the flood cases. With Desmond's consent, he retained the services of attorney Frederick Jacobsen to represent his interest in the cases.

Dacey was aware of Goldstein's inability to participate in the litigation of the flood cases, and knew that the cases were scheduled for retrial in early 2001. Goldstein died on January 2, 2001. Dacey did not contact any attorney to offer assistance. Neither Dacey nor Baruh ever contacted Desmond or any of the 1,350 clients in the flood cases at any time during the litigation.

The retrial in the flood cases occurred in 2001. A four-month court trial resulted in a judgment for the defendants. The plaintiffs appealed.

In January 2002, the probate court appointed Taraday, Goldstein's son-in-law, as administrator of the estate with will annexed. Taraday retained probate attorney Theodore Kolb. Kolb told Taraday to send Dacey and Baruh a notice of administration of the estate. Taraday mailed the notices on February 8, 2002. He mailed the notice to Dacey's former address and did not include the suite number in the address for Baruh; both Dacey and Baruh denied ever receiving the notices.

The Court of Appeal in Paterno v. State of California (2003) 113 Cal.App.4th 998 reversed the judgment in the flood cases as to the State of California and remanded with directions to the lower court to enter judgment for the plaintiffs and conduct any further necessary proceedings. A settlement followed in the spring of 2004, resulting in a substantial fee recovery. Taraday contacted Desmond and represented to Desmond that the estate was authorized to receive payment of Goldberg's share of the fee recovery.

After the settlement, Desmond claimed entitlement to more than the 50 percent share it had under the 1986 agreement. Desmond asserted that GB&G, Goldstein & Goldstein, and the estate had failed to meet their obligations under the 1986 agreement.

The estate executed a settlement with the Desmond firm in late July 2005, which modified Desmond's share to 60 percent and reduced the estate's share to 40 percent. Both agreed that Desmond would hold back one $1 million in a separate account until June 30, 2006, to cover various contingencies; the money would thereafter be paid out. Taraday testified that he settled because he preferred to settle rather than litigate disputes, he recognized that Desmond had more resources, and he appreciated the amount of work Desmond did after Goldstein died. After paying other attorneys, Desmond received $64,304,960.88. Desmond gave the estate approximately $24 million.*fn6

Kolb, in a letter dated September 7, 2005, advised the estate that Dacey's "failure to file a claim within the time allowed by law bars [his] right to receive any payment from the Estate."

Dacey's Complaint and Pretrial Motions and Stipulations

In letters dated November 17, 2005, Taraday notified Dacey and Baruh of the fee recovery. The letters declared that Dacey and Baruh would not receive any of the fee recovery because of their failure to file creditors' claims within the statutory period.

On January 12, 2006, Dacey and Baruh filed a civil action in the superior court against Taraday both as administrator and individually, alleging a cause of action for breach of contract. The original complaint did not identify the attorney fee recovery from the flood cases as a partnership asset. Dacey and Baruh filed an amended complaint on March 1, 2006, which also did not identify the fee recovery from the flood cases as a partnership asset. Taraday and the estate filed a demurrer to the amended complaint. They alleged that Dacey failed to file a creditor's claim and the statute of limitations under section 366.2 barred his claims. The trial court issued a tentative ruling sustaining the demurrer without leave to amend on the basis that the claims were time barred under section 366.2. The court permitted supplemental briefing after the hearing and, subsequently, overruled the demurrer.

On October 20, 2006, Dacey and Baruh filed the operative second amended complaint against Taraday, as administrator, for breach of the dissolution agreement and for rescission. They identified the fee recovery from the flood cases as a partnership asset. They also sued the Goldstein family for, among other torts, replevin and conversion. They added Desmond as a defendant under counts of conversion and "Distribution in Violation of a Lien[.]" They sought punitive damages against Taraday, as an individual. Prior to trial in the civil action, Baruh settled with the estate.

Dacey, the estate, and Desmond filed motions for summary judgment and summary adjudication. The estate argued, among other things, that the statute of limitations under the Code of Civil Procedure section 366.2 and Probate Code sections 9000, 9100, 9103, and/or 9352 barred Dacey's claims.

The trial court denied Desmond's motion for summary judgment. It also rejected Dacey's motions for summary judgment or summary adjudication against Desmond and against the estate.

Although the trial court denied the estate's motion for summary judgment, it granted in part its motion for summary adjudication. It granted the estate's motion as to Dacey's sixth cause of action for breach of fiduciary duty, fifth cause of action for fraud, and request for punitive damages. With regard to the request for punitive damages, the court found that the estate relied on counsel's advice in good faith after full disclosure of the facts and therefore exemplary damages were not recoverable against the estate.

The trial court denied the estate's motion for summary adjudication as to the remainder of Dacey's claims. The court explained that it did not agree with the estate that section 366.2 barred all of Dacey's causes of action for failing to file a creditor's claim within one year of Goldstein's death. It explained that Goldstein had not breached the dissolution agreement before he died and therefore Dacey did not have a cause of action at the time of Goldstein's death. The court found that it was Taraday, not Goldstein, who engaged in the alleged wrongdoing and therefore the statute of limitations did not begin to run when Goldstein died.

The parties stipulated to a bench trial that was bifurcated into a first phase regarding the dissolution agreement. The court was to determine whether the dissolution agreement assigned the flood cases to Goldstein with all rights, responsibilities, and liabilities or whether it provided for the flood cases to be a partnership asset following the dissolution of GB&G. The parties agreed that the material facts underlying this dispute were essentially undisputed and that the matter was an issue of contract interpretation and therefore within the sole province of the court.

The Bench Trial and Statement of Decisions

The first phase of the trial began on May 14, 2008, before Judge James McBride. The sole witnesses were Dacey and Baruh. At the end of the first phase of the trial, on May 19, 2008, the court orally ruled that the contracting parties did not intend for the flood cases to remain an ongoing partnership asset of GB&G following the firm's dissolution. On May 20, 2008, Desmond moved for judgment under section 631.8.

The bench trial continued on May 22, 2008, for the court to consider Dacey's remaining claims. Dacey and Taraday were the only witnesses during this phase of the trial.

On March 20, 2009, the trial court filed its amended and corrected statement of decision regarding Dacey's action against the estate. The court first addressed the dissolution agreement and whether it assigned the flood cases to Goldstein with all rights, responsibilities, and liabilities or whether the flood cases remained a partnership asset after GB&G dissolved. In deciding that the agreement made it clear that the parties did not intend the flood cases to be a partnership asset, the court found the language of the dissolution agreement to be "clear and unambiguous" and "not reasonably susceptible to any other interpretation." It stressed that section 6.1 of the agreement stated that the contracting parties' intended to "assign" the contingent fees cases listed in exhibit 5 to the agreement, and that included the flood cases, to one or more of the partners. The court noted that the partners expressly agreed to substitute the law firm of Goldstein & Goldstein in place of GB&G in the flood cases.

The court also found that the course of conduct of the parties was consistent with the express language of the dissolution agreement. The court pointed out that it was undisputed that after GB&G dissolved, Goldstein was solely responsible for the flood cases and it was undisputed that neither Dacey nor Baruh performed any legal services or contributed any costs to the flood cases after the dissolution of GB&G, including after the death of Goldstein. The court found that neither Dacey nor Baruh treated the flood cases like a partnership asset after dissolution, but treated these cases "in a manner consistent with the intent to maintain their contractual right to reduced percentage of the fee recovery and no attendant risk or responsibility following GB&G's dissolution. The former partners' were cognizant prior to and at the time of dissolution of the substantial potential value of the FLOOD CASES, but they also had an appreciation of the substantial labor and financial resources needed to pursue those cases to conclusion."

The court concluded that the dissolution agreement created a contractual right of recovery against Goldstein for a portion of the fees for the flood cases and that it was the intent of Dacey and Baruh, as evinced by their conduct and the clear language of the dissolution agreement, "to assign fully the rights and obligations" of the flood case to Goldstein in return for a reduction in their percentage of any recovery in the flood cases. The court ruled that the estate was liable to Dacey for breach of contract and that Dacey was entitled to damages in the amount of $4,330,708.64. The court also issued an order granting Dacey's motion for prejudgment interest.

With regard to Dacey's rescission claim, the court found that the estate's failure to pay Dacey his share of the fee recovery was not a material breach justifying the remedy of rescission.

The court also rejected Dacey's causes of action for conversion and replevin against the Goldstein family. The court found that Taraday had a good faith defense to his personal liability for conversion and replevin as set forth in Probate Code section 9651 because the evidence showed that he relied on the advice of his attorney. Attorney Kolb told Taraday that the failure of Dacey and Baruh to file timely creditors' claims prevented them from claiming any right to any of the fee recovery. With regard to the claims of Taraday and the other defendants, the court rejected the defense of unclean hands to defeat any and all of Dacey's causes of action.

On this same date, March 20, 2009, the court issued its statement of decision regarding Dacey's claims for conversion and distribution in violation of a lien against Desmond. The court rejected both of Dacey's claims, finding that Dacey failed to establish ownership or right to possession of the fee recovery at the time Desmond distributed a portion of the fee recovery to Taraday. The court also determined that GB&G's lien rights were assigned and transferred to Goldstein when GB&G dissolved and therefore Desmond properly distributed a portion of the fee recovery to Taraday. The court granted Desmond's motion for judgment under section 631.8. It entered a defense judgment in favor of Desmond and against Dacey.

In its statement of decision regarding Desmond, the court noted that Dacey argued for the first time that the flood cases were an asset allegedly held as a tenancy in common by all of the partners following GB&G's dissolution. After hearing argument on this issue, the court rejected this claim. The court found that this argument was "wholly inconsistent with the testimony, admissions, verified pleadings and exhibits offered" by Dacey. Additionally, this argument contradicted the dissolution agreement and the course of conduct of Dacey. The court also concluded that the authority cited by Dacey did not support this argument.

Appeals

Dacey appealed from the judgment involving the estate and the Goldstein family and the judgment in favor of Desmond. The estate filed a cross-appeal from the judgment entered in favor of Dacey's breach of contract claim. The estate filed an unopposed motion to consolidate the appeals and we granted that motion.*fn7

DISCUSSION

I. Dacey's Appeal

A. The Assignment of the Flood Cases under the Dissolution Agreement

1. Introduction

Dacey challenges the lower court's finding that the dissolution agreement assigned all rights and obligations to the flood cases to Goldstein and therefore the administrator had the authority to modify the 1986 fee agreement regarding the flood cases between GB&G and Desmond. Dacey contends that the flood cases remained an asset of the partnership under the dissolution agreement and, consequently, the administrator had no authority to modify the original 1986 fee agreement between GB&G and Desmond.

In the 1986 fee agreement, GB&G and Desmond agreed to split the recovery fee equally after payment of costs and other fees, including payment of a 15 percent share to the firm Coolidge & Gisi. Taraday, as the administrator of the estate, agreed to change the split to increase Desmond's interest in the recovery to 60 percent. Additionally, Taraday agreed that the estate's 40 percent would be based on payment of 15 percent to Coolidge & Gisi even though Desmond was able to get Coolidge & Gisi to agree to a lesser amount. Taraday agreed that Desmond could retain the benefit of the reduced fees paid to Coolidge & Gisi.

The trial court found that Taraday had authority to negotiate a different fee split because the dissolution agreement resulted in a contractual assignment of the flood cases to Goldstein. The court determined that the language of the agreement clearly set forth the parties' intent to permit Dacey and Baruh to "extricate themselves from the substantial responsibility and costs associated with the further prosecution of the flood cases, in consideration for Dacey's contractual right to recover from Goldstein a portion of the fees that all the contracting parties expected to receive out of the flood cases." The parties' course of conduct, according to the trial court, supported this construction of the dissolution agreement as ...


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