Freedman v. Pacific Gas & Electric Co.

• Decision Date: 26 October 1987
• Citation: 242 Cal.Rptr. 8,196 Cal.App.3d 696
• Court: California Court of Appeals Court of Appeals
• Parties: David FREEDMAN et al., Plaintiffs and Appellants, v. PACIFIC GAS AND ELECTRIC COMPANY et al., Defendants and Respondents. A035641.

Page 8

242 Cal.Rptr. 8

196 Cal.App.3d 696

David FREEDMAN et al., Plaintiffs and Appellants, v. PACIFIC GAS AND ELECTRIC COMPANY et al., Defendants and Respondents.

A035641.

Court of Appeal, First District, Division 2, California.

Oct. 26, 1987.

Daniel J. Furniss, Khourie, Crew & Jaeger, San Francisco, for plaintiffs and appellants.

Barry S. Landsberg, Casson, Calligaro & Mutryn, Los Angeles, for Mut. Petroleum Marketing.

David H. Fleisig, San Francisco, for P.G. & E. & R.P. Benton.

SMITH, Associate Justice.

Plaintiffs David Freedman (Freedman) and I.M.S. (U.S.A.), Inc. (IMS), appeal from an order granting a motion to dismiss their fifth amended complaint against defendants Pacific Gas and Electric Company (PG & E), Mutual Petroleum Marketing Co., Inc. (MPM), and R.P. Benton (Benton) for plaintiffs' failure to diligently prosecute the action (Code Civ.Proc., § 583.420).

The issue is whether there was an abuse of discretion by the superior court. Finding none, we will affirm.

BACKGROUND

The allegations

Plaintiffs are oil brokers suing over commissions allegedly due them under two 1974 agreements. Underlying those agreements is an April 1974 contract (the sales contract) by which MPM, a New York corporation, agreed to sell crude oil to PG & E, a California corporation, through December 1975 with month-to-month extensions continuing beyond that term until canceled by either party. In a related contract (the exchange contract), PG & E agreed to pay MPM a service fee of 27.5 cents per barrel for having crude oil sold and delivered under the sales contract exchanged for refined oil.

There were two commission agreements. Under one executed in March 1974 (the MPM commission agreement), MPM promised to pay plaintiffs an aggregate commission of 13.75 cents for every barrel of crude sold under the sales contract (including any renewals or extensions). Under one executed in May (the PG & E commission agreement), PG & E (through defendant Benton, its materials department manager) promised to pay IMS 17 cents for each barrel, also for the life of the sales contract.

In mid-1975, plaintiffs executed releases of all claims against MPM and PG & E, as to both commission agreements, in return for payment of commissions on contract sales projected for the remainder of 1975. The releases recite that MPM advised plaintiffs that it had "negotiated to conclude" the sales contract with PG & E.

Plaintiffs filed an original complaint on August 24, 1981. As currently framed in the fifth amended complaint, their allegations are set out in three causes of action: (1) that PG & E breached its commission agreement with IMS by presenting plaintiffs with a final commission statement and yet continuing, to the present, to take deliveries pursuant to the sales and exchange contracts; (2) that PG & E and Benton intentionally interfered with plaintiffs' rights under the MPM commission agreement by advising that PG & E was no longer taking deliveries under the sales contract, delivering a final commission statement and ceasing commissions after December 1975; and (3) that all defendants breached the MPM commission agreement by their acts. Each cause of action states that defendants' acts and concealment prevented plaintiffs from discovering the alleged wrongs until plaintiffs became aware of the continued sales in February 1981 through certain PG & E reports.

In a cross-complaint filed in January 1986, MPM alleged that plaintiffs breached the MPM commission agreement and their fiduciary duties to MPM when they subsequently entered and earned commissions under the PG & E commission agreement without MPM's knowledge or consent.

The litigation

We glean the events material to defendants' motion to dismiss from a record that is in many respects incomplete or vague, and without the aid of a comprehensive statement of the relevant facts (Cal.Rules of Court, rule 13) from any party. Also, we will note some factual conflicts in the declarations but, for purposes of review, resolve them in favor of the judgment as the trial court apparently did. (Gunner v. Van Ness Garage (1957) 150 Cal.App.2d 345, 348, 310 P.2d 32.)

Freedman and former IMS president Harry Banks, since deceased, retained San Francisco attorney Seymour Ellison (Ellison) in August 1981, and he filed the original complaint on their behalf that same month. Over the next 14 months, Ellison filed first, second, third and fourth amended complaints, each time after the superior court granted a demurrer or a motion to strike by PG & E and Benton, with leave to amend. MPM was not served until August 1982, about one year after the action was commenced.

The litigation stalled after then, for reasons that are not fully apparent from the record. PG & E demurred and moved to strike portions of the fourth amended complaint, and at a hearing on February 10, 1983, the superior court ordered parts of the complaint stricken and certain other modifications made. Unsatisfied with a proposed order drafted by PG & E, the court ordered preparation of a revised and interlineated complaint that would better reflect its ruling. Plaintiffs failed to do so, however, until their fifth amended complaint, filed about two and a half years later, on September 5, 1985. It appears from a series of letters from defendants' attorneys to plaintiff's attorney, Ellison, that defendants at some point reached an understanding with Ellison that until he either filed a new or revised complaint, or elected to stand on the old one, all discovery plaintiffs had sought would be suspended indefinitely and defendants would not attempt to file answers. Ellison announced in November 1984 that he would be filing a fifth amended complaint but did not follow through, and the prior understanding remained in effect. MPM had not yet demurred to the complaint but refrained from doing so on representations from Ellison that the existing pleading did not accurately state plaintiffs' claims against MPM.

Meanwhile, Ellison was placed on probation by the State Bar in February 1985 for misuse of client funds, a matter not involving these plaintiffs. He told Freedman about it and assured him that there was no reason to worry--that he could continue practicing law and representing the plaintiffs in this case. When MPM's president, Sanford Brass, also advised Freedman of the situation in a February 1985 phone call, Freedman replied that he already knew and that there was no problem with Ellison continuing in the case. According to Brass, Freedman said he still had " 'plenty of time under the five years to try the case.' " Freedman evidently did most of plaintiffs' interacting with Ellison. Janet S. Banks, the widow of IMS's former president, had apparently succeeded to her husband's office by then, but there is no record of her being involved in the litigation beyond signing documents.

Ellison's troubles escalated. He was arrested in July or August 1985 on a grand theft charge, again unrelated to his handling of these plaintiffs' case. An attorney named Arthur Groza was assigned by the State Bar in August to monitor funds and assist Ellison, where needed, with pending cases. Ellison did not tell plaintiffs about the arrest or criminal charges. However, he did tell Freedman in an August phone call that he was having some trouble with respect to his use of client funds and that it "would be worked out and would not affect his representation" of them.

Ellison was unsure at that point what the outcome of the charges or his standing with the State Bar would be, and he continued representing plaintiffs. He filed the fifth amended complaint on September 5 and conducted discovery against PG & E and Benton, who answered the complaint in October.

During this same time, Ellison deliberately refrained from pressing the case against MPM. According to him, Freedman "told me [in mid-1985] that he was engaged in settlement discussion with MPM's president, Sanford Brass, and asked me not to put pressure on MPM for the time being." MPM was contemplating changing counsel, and plaintiffs had agreed to extend the time in which MPM could answer the new complaint. On November 18, while in San Francisco on other business, Brass met for an hour and a half with Freedman and Ellison, and the three reached an agreement to settle with MPM. Ellison agreed to draw up the formal agreement but, within a week or 10 days, called Brass to say that the agreement was off. Brass accordingly went ahead and retained new counsel for MPM, who filed MPM's answer and cross-complaint on January 6, 1986. According to Brass, the November 18 meeting was the only settlement effort, despite any contrary inference in what Freedman had told Ellison.

Ellison's involvement ended later that month. He tendered his resignation to the State Bar on January 17, after pleading guilty to the grand theft charges, and told Freedman he could no longer represent him. He also advised Freedman of the five-year statute and the need to bring a motion to advance the case to trial. On the 23d, all files in the case were turned over to the firm of Coblentz, Cahen, McCabe & Breyer, who agreed to take over the case. Freedman had already begun looking for new counsel the month before, after Ellison told him in a December phone call that he was having problems with the State Bar. Freedman had contacted the Coblentz firm himself, on the advice of a New York attorney. The State Bar filed Ellison's resignation on January 23 and, although the final disposition does not appear from the record, issued an interim suspension order in April. The Coblentz firm formally substituted in before then, on March 12. Meanwhile, attorney Groza filed an at-issue memorandum for plaintiffs on February 6.

On March 24, exactly four years and seven months after the commencement of the action, MPM filed a motion to dismiss for lack of diligent prosecution (Code Civ.Proc., § 583.410 et seq.), and the other defendants joined in the...