Day v. Rosenthal

• Decision Date: 08 August 1985
• Citation: 217 Cal.Rptr. 89,170 Cal.App.3d 1125
• Court: California Court of Appeals Court of Appeals
• Parties: Doris DAY, etc., et al., Cross-Complainant and Respondent, v. Jerome B. ROSENTHAL, et al., Cross-Defendants and Appellants. Rose SAMET, Plaintiff and Appellant, v. Doris DAY, aka Doris Day Melcher, etc., et al., Defendants and Respondents. And Consolidated Cases. Civ. 50472.

Page 89

217 Cal.Rptr. 89

170 Cal.App.3d 1125

Doris DAY, etc., et al., Cross-Complainant and Respondent, v. Jerome B. ROSENTHAL, et al., Cross-Defendants and Appellants.

Rose SAMET, Plaintiff and Appellant, v. Doris DAY, aka Doris Day Melcher, etc., et al., Defendants and Respondents.

And Consolidated Cases.

Civ. 50472.

Court of Appeal, Second District, Division 3, California.

Aug. 8, 1985.

As Modified Sept. 3, 1985.

Review Denied October 16, 1985.

Certiorari Denied March 3, 1986.

See 106 S.Ct. 1267.

Gerald Goldfarb and James S. Tyre, Paul P. Selvin, Selvin and Weiner, Los Angeles, for appellants.

Irell & Manella and Robert L. Winslow, Peter J. Gregora, Hydee R. Feldstein, Los Angeles, for respondents.

GOLDIN, Associate Justice. ^*

This is an appeal from judgment entered on March 31, 1975 in 13 consolidated cases. Judgment was in favor of Doris Day Melcher, the estate of her late husband Martin Melcher, her son Terrence Melcher and various of their family corporations (collectively the Melchers) and against Jerome B. Rosenthal (the Melchers' former attorney), Harland Green (Rosenthal's law partner) and various law firms and business entities with which Rosenthal had been affiliated (collectively "Rosenthal"). The judgment held Rosenthal liable to the Melchers for legal malpractice, breach of fiduciary duty, fraud and abuse of process, and awarded them $26,396,511 including $1,000,000 in punitive damages. Green was held vicariously liable for compensatory damages only. ¹

The trial court also entered judgment against Rosenthal with respect to his affirmative claims against the Melchers on grounds, among others, that the purported contracts he relied upon never existed, were invalid or unenforceable because they had been procured by undue influence, or had been breached by Rosenthal. The trial court also awarded injunctive relief requiring Rosenthal to turn over trust funds and records belonging to the Melchers.

Rosenthal appeals from the judgment. ²

PROCEDURAL BACKGROUND

This appeal is the outgrowth of an 18 year relationship between the Melchers and Rosenthal. ³ The principal characters in the drama which has become the central theme of one of the longest continuous engagements in California civil litigation are Doris Day Melcher (sometimes Doris Day, sometimes just plain Day), at all times a singer, entertainer and actress; Martin Melcher (Melcher) at one time Day's agent and commencing in 1951, and ending with his death in 1968, her husband and surrogate in all her business and financial affairs; and Jerome B. Rosenthal, "Hollywood" attorney, the person without whose guidance Melcher would not make a move, from 1952 sole attorney for the Melchers and from 1956 until his termination by the Melchers in 1968, their attorney, accountant, business When Rosenthal's role was cut out of the Melcher production, he filed a lawsuit alleging breach of his 1956 retainer agreements with the Melchers. After they responded, he filed a host of others, in essence claiming the Melchers had breached various contracts with him. The Melchers answered, cross-complained and filed affirmative actions for breach of fiduciary duty, legal malpractice, fraud and abuse of process. ⁴

manager, investment advisor and record keeper.

The stage was set for the action which followed albeit most of it occurred more than five years later. ⁵

A nonjury trial ⁶ commenced on March 4, 1974, and continued uninterrupted until August 30, 1974.

In its oral statement of intended decision the trial court summarized its basis for entering judgment for the Melchers and against Rosenthal in each of the consolidated cases:

"The tragic drama in this case started to unfold back in the late "40's or early '50's when Jerome B. Rosenthal began to represent Doris Day and Martin Melcher.

It involves.... [p] an attorney so intent on doing business with his clients, with their money ... that he lost sight of ethical and legal principles.

"...

"The case from beginning to end oozes with attorney-client conflicts of interest, clouding and shading every transaction and depriving Doris Day and Martin Melcher of the independent legal advice to which they were entitled. It involves kick-backs, favored treatment of one client over others; it involves amateurish attempts to deal in the hotel and oil business that would be humorous but for the tragic consequences. It involves the extraction of fees from Doris Day and Martin Melcher and fees from other clients or entities for the same work performed. It involves an undertaking to provide financial and investment advice and a complete and utter failure to provide it. It involves a tortured effort by Rosenthal to maintain for years in the future the indentured position in which he had held Doris Day since 1956, even after she had ceased to permit him to act as her attorney. It involves a percentage retainer agreement that in the context of the facts of this case is void and against public policy because of the violation of the rules of professional conduct....

"The evidence so reeks of negligence, a violation of the Rules of Professional Conduct and all that is basic in the traditional relationship of attorney and client as to require that the court, as best it can, undo the transaction that occurred so as to attempt to put Doris Day and her late husband's estate back to a position as if they had not become enmeshed in the machinations of Rosenthal's twisted sense of professional responsibility."

FACTUAL BACKGROUND

A brief summary of the more significant facts will put Rosenthal's arguments on appeal into perspective. ⁷

Rosenthal was at all times throughout his relationship with the Melchers, a lawyer, licensed to practice in the State of California. The Melchers were successful in the make believe world of show business, but were uneducated and unsophisticated On May 11, 1956, the Melchers and Rosenthal signed written retainer agreements (the 1956 retainer agreements). These "simple" agreements gave Rosenthal a 10% interest in virtually everything the Melchers owned and earned. It obligated him to manage and give advice, but to litigate only for a separate, to-be-negotiated fee. Rosenthal had already represented the Melchers as an attorney for several years prior to May 11, 1956, and had an obligation to provide a full disclosure of the true implications of the agreements. He never adequately informed them, and he didn't advise them to obtain independent legal advice. They signed the agreements in all innocence and as a result of undue influence.

                in the real world of finance.  Day relied totally on Melcher to handle her business and financial affairs, and Melcher relied totally on Rosenthal to handle all the Melchers' business and financial affairs.  According to Day, "[Melcher] was so impressed ... with Mr. Rosenthal that anything Rosenthal said to him was law and had to be right.  He was in awe of the man."   Rosenthal didn't disagree, "they entirely relied upon and followed [my] recommendations....  [T]hey did nothing on their own ... nor did they ever go against the advice....  [They] did nothing independent or on their own."
                

For many years prior to his death, Melcher maintained an office adjacent to Rosenthal's. There were times during which he and Rosenthal had meetings, conferences, and conversations on a daily basis. By virtue of the attorney-client relationship, Rosenthal's status as an attorney, and his claim to business acumen, Melcher was awed and developed a false sense of security concerning his ability to rely and depend on the advice rendered by Rosenthal regarding Melcher's legal and business affairs. The 1956 retainer agreements converted Rosenthal from mere attorney into business advisor and tax planner. They gave him the contractual basis for ascendancy over the Melchers' financial affairs.

Rosenthal took to his role as the Melchers' business advisor with gusto. He created Phoenix Enterprises, Inc. (Phoenix), a Rosenthal dominated corporation, to package and promote oil and gas ventures, contract drilling operations and lease equipment, and Doanbuy Lease & Company, Inc. (Doanbuy), a Rosenthal alter ego, to operate oil wells. Between 1956 and 1962, Rosenthal involved the Melchers in various Phoenix promoted oil and gas ventures which were, uniformly, financial disasters for the Melchers and profitable for Rosenthal. ⁸ From 1956 to 1968, the Melchers lost in excess of $4,000,000 thanks to investments in Rosenthal's oil and gas promotions. From 1956 to 1968, Rosenthal gained secret profits of more than $400,000 thanks to his creatures Phoenix and Doanbuy.

In 1962, Melcher agreed to form an oil and gas exploration partnership with a promoter named Atkins. Two years later, when Rosenthal finally drafted the written agreements, it was a tripartite partnership, which included him. Melcher put up the money, an initial cash contribution of $328,000; Rosenthal and Atkins each put up a note, a promise to pay $110,000. The leases were for the exploration of unproven territory.

The partnership was in constant need of money. In the five years that followed, Melcher contributed an additional $740,000; his "equal" partner Rosenthal contributed under $74,000 (much of it borrowed from Melcher). Rosenthal's business management also cost the Melchers $230,000 in "legal fees," "overhead expenses" and "profit distributions" from the partnership to Rosenthal. The trial court found that Rosenthal's conduct with respect to the Melcher-Atkins-Oil partnerships was a breach of fiduciary and contractual duties owed to Melcher, and involved "repeated conflicts of interest" on Rosenthal's part.

During 1966, Rosenthal set in motion false transactions involving oil drillers through which, ultimately, he acquired $45,000 from Melcher and others. The trial court found the "transactions were designed by Rosenthal ... with a fraudulent intent.... [a]nd resulted in a misappropriation, misapplication and misuse...