Franklin v. Appel

• Decision Date: 06 August 1992
• Docket Number: No. B044548,B044548
• Court: California Court of Appeals Court of Appeals
• Parties: Bernard FRANKLIN et al., Plaintiffs, Cross-defendants and Appellants, v. Eliezer APPEL, Defendant, Cross-complainant and Respondent.

Page 759

10 Cal.Rptr.2d 759

8 Cal.App.4th 875

Bernard FRANKLIN et al., Plaintiffs, Cross-defendants and Appellants, v. Eliezer APPEL, Defendant, Cross-complainant and Respondent.

No. B044548.

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

Aug. 6, 1992.

Horvitz & Levy, George P. Schiavelli and Gregory R. Ellis, Encino, for plaintiffs, cross-defendants and appellants.

Rapkin, Gitlin, Moser & Schwartz, Michael J. Schwartz, Tarzana, and Constantin Marcou, Van Nuys, for defendant, cross-complainant and respondent.

KLEIN, Presiding Justice.

Plaintiffs, cross-defendants and appellants Bernard Franklin and Judith Franklin (the Franklins) appeal a judgment awarding $705,000 in damages to their former attorney, defendant, cross-complainant and respondent Eliezer Appel (Appel), in an action to recover attorney fees.

The central question presented is whether the Franklins may avoid their contingency fee agreement with Appel on the ground the contract lacked a statutory recital the fee was not set by law but was negotiable. (Bus. & Prof.Code, § 6147.) ¹ Said statute allows a client to void an agreement which fails to comply with its requirements.

We conclude section 6147 is inapplicable because it only applies to contingency fee agreements involving plaintiffs in litigation matters, rather than to all contingency fee arrangements. ² Accordingly, the

Franklins cannot assert the lack of the prescribed recital to avoid the contract. Because the fee [8 Cal.App.4th 880] agreement is not voidable, we uphold the trial court's decision which awarded Appel his full attorney fees, albeit in quantum meruit, rather than on the contract.

FACTUAL AND PROCEDURAL BACKGROUND ³

1. Prior representation.

Appel had represented the Franklins in 1980-1981 in connection with their real estate and video business. Appel's representation of the Franklins in these matters ceased when he commenced action against them to collect unpaid legal fees therefor.

2. Legal arrangement in issue and work performed.

On June 3, 1983, the day set for trial in Appel's prior action against the Franklins, they agreed to pay Appel's legal fees and sought to re-engage him to represent them on another matter. Although the Franklins had at least five other attorneys representing them in various legal matters, they apparently preferred to retain Appel to handle their latest financial difficulties.

Appel proposed to be retained on an hourly basis. It was the Franklins who insisted on a contingency fee arrangement. In view of their recent fee dispute, Appel drafted a comprehensive contingency fee agreement. He presented the Franklins with a draft in early July 1983, three or four weeks before the signing of the agreement. The terms of the agreement were negotiated at length. The parties executed the final 34-page contingency fee agreement on July 31, 1983.

The agreement stated Appel had advised the Franklins to seek the advice of independent counsel before entering into the agreement and that the Franklins "represent and warrant that they have done so prior to signing it." In the agreement, the Franklins "recognize the fact that the value of [Appel's] services is not necessarily a function of time invested in the rendering [sic] said services," and that Appel's compensation for his legal and financial consulting services would be 25 percent of the Franklins' " 'Economic profit.' " The agreement defines "Economic profit" as "[a]ny 'transaction' that results in the 'Increase' in the 'Equity' the Franklins have in each 'property or business.' "

Appel's services largely were concerned with two parcels of real property: a commercial building at 5419 Sunset Boulevard (the Gribbit building) and a parking lot in Hollywood (the parking lot).

Ms. Franklin had leased 6,000 square feet in the Gribbit building for her video production facility and had made approximately $200,000 in improvements to the premises.

The Franklins held a questionable 25 percent interest in Lidtke-Whorf Properties (LWP), a partnership which owned the Gribbit building. The Franklins had acquired said interest from Dennis Lidtke who had transferred it to them in violation of the LWP partnership agreement which restricted transfers by partners. Lidtke retained a 50 percent interest in LWP and Robert Weiner held the remaining 25 percent interest.

The Gribbit building had been encumbered by Lidtke, acting as managing partner, in a sum exceeding $2.7 million, with trust deeds held by four beneficiaries, including a first trust deed to Wells Fargo Bank of $1.6 million. In addition, there were tax liens and a perfected security interest in favor of Christopher Whorf of $84,000. Wells Fargo had scheduled a foreclosure sale for July 27, 1983, curable only by payment of $500,000 in cash, and neither the Franklins nor the other partners possessed the funds to cure the default.

The parking lot was owned by the Hollywood Horizon Partnership (HHP), in which the Franklins and Lidtke held interests of 49 percent and 51 percent, respectively. This property also was encumbered by four trust deeds amounting to about $930,000. Crocker Bank, the holder of the $475,000 first trust deed, had commenced foreclosure proceedings and the other encumbrances also were delinquent. Lidtke, on behalf of HHP, had signed a letter of intent with a developer to construct a 350-room hotel on the parking lot site in a $30 million project.

Summarizing Appel's efforts on behalf of the Franklins with respect to the Gribbit building, he negotiated a postponement of the foreclosure sale. Appel then obtained Lidtke's agreement to transfer full ownership of the Gribbit building to the Franklins, free and clear of the junior trust deeds. Appel persuaded the junior lienholders to accept substitute collateral as a replacement for the lienholders' tenuous interest in the building which otherwise would have been lost due to foreclosure. Appel secured a new loan from Wells Fargo, incorporating all arrearages. At that time, the bank appraised the building at $3,565,000.

As a result of Appel's efforts, on November 18, 1983, the Franklins owned 100 percent of the Gribbit building, subject only to a first trust deed to Wells Fargo of $1,625,000, and an $82,000 second trust deed to Whorf, the latter obligation to be repaid by the Lidtkes.

As for the parking lot, Appel persuaded Lidtke to assign his interest to the Franklins to avert foreclosure, and in exchange Lidtke could retain an interest in the hotel project on the property. Thereupon, Marathon Bank refinanced the property for the Franklins.

With full ownership of the parking lot, appraised at $2.8 million and encumbered for $1 million, the Franklins had $1.8 million in equity in said property, which represented a $900,000 increase in their equity.

During the relevant time, Appel's efforts on behalf of the Franklins consumed most of his time to the exclusion of other clients.

Appel sought an advance for services rendered in order to meet his living expenses. The Franklins paid him $5,000 by a check dated August 27, 1983. Unable to advance additional funds, the Franklins also gave Appel a 12.5 percent ownership interest in the Gribbit building, representing $100,000 in earned fees. The August 27, 1983 memorandum from the Franklins to Appel stated in relevant part: "Your election to receive the above 12.5% shall not serve or be construed to supercede [sic], amend, modify or otherwise detract from any of the rights to which you are entitled to [sic] under our above referenced [fee] agreement." Pursuant to the memorandum, the Franklins executed a grant deed on September 26, 1983, which Appel subsequently recorded.

3. Franklins' fee reduction efforts against Appel and Appel's cross-complaint.

The Franklins engaged the law offices of Wasserman, Comden & Casselman to obtain a reduction of Appel's fees in this matter. The Franklins wanted Appel to continue providing them with legal services and simply retained the Wasserman firm to renegotiate the contingency fee agreement. Appel refused to accept any reduction in his fee.

On August 3, 1984, the Franklins filed suit against Appel for fraud, rescission, breach of contract, breach of fiduciary duty, quiet title, cancellation and setting aside of deed, and injunctive relief. Appel The matter was tried before the court sitting without a jury.

answered and brought a cross-complaint against the Franklins for breach of contract, fraud, quantum meruit, partition, accounting and appointment of receiver, and an injunction.

4. Trial court rulings.

a. No recovery on the contingency fee agreement.

The trial court rejected each of the Franklins' theories. It found insufficient evidence to support causes of action for fraud, rescission, breach of contract and injunctive relief. There was no breach of fiduciary duty because Appel's conduct and performance were not improper. The causes of action for quiet title and cancellation of instrument similarly failed. The deed was given to Appel in partial payment of his fees and not as security for fees. Appel therefore had a right to receive and record the deed.

On the cross-complaint, the trial court denied Appel's breach of contract claim. It held that because a client may terminate a contract with an attorney at will, such termination by the Franklins did not constitute a breach of contract.

The trial court went on to hold the contingency fee agreement itself was infirm because it lacked a statement " 'the fee is not set by law but is negotiable,' " and the failure to include such a statement rendered the contract voidable at the client's option pursuant to section 6147. Due to that omission, the contract was voidable "even though, ... the contingency fee contract was a negotiated contract."

The trial court also held there was no subsequent contract entered into, there had been no modification of the original fee arrangement as set forth in the contingency fee agreement, and the $5,000...