Harris v. Rudin, Richman & Appel

• Decision Date: 06 February 2002
• Docket Number: No. B142179.,B142179.
• Citation: 116 Cal.Rptr.2d 552,95 Cal.App.4th 1332
• Court: California Court of Appeals Court of Appeals
• Parties: Dennis A. HARRIS, Plaintiff and Respondent, v. RUDIN, RICHMAN & APPEL et al., Defendants and Appellants.

116 Cal.Rptr.2d 552

95 Cal.App.4th 1332

Dennis A. HARRIS, Plaintiff and Respondent, v. RUDIN, RICHMAN & APPEL et al., Defendants and Appellants.

No. B142179.

Court of Appeal, Second District, Division 7.

February 6, 2002.

As Modified on Denial of Rehearing March 5, 2002.

Heenan Blaikie, Jonathan J. Panzer and Lisa K. Skaist, Los Angeles, for Defendants and Appellants.

Parker, Mills & Patel, Jayesh Patel and Angeli Cuesta-Aragon, Los Angeles, for Plaintiff and Respondent.

JOHNSON, J.

In this action for breach of a settlement agreement, both sides moved for summary judgment. The trial court granted the plaintiffs motion and denied the defendants' motion. The defendants moved for reconsideration, for an order setting aside and vacating the judgment and for a new trial. The trial court denied those motions and awarded sanctions against defendants on the latter two motions. We reverse the judgment for plaintiff because defendants raised triable issues of fact as to whether they were entitled to rescind the agreement based on a mutual mistake of fact or law. We affirm the award of sanctions which arose from a different issue.

FACTS AND PROCEEDINGS BELOW

Plaintiff Dennis Harris retained the law firm of Rudin, Richman & Appel to prepare an irrevocable inter vivos trust for him. He subsequently brought a malpractice action against the firm and five of its members, Milton Rudin, Fredric Richman, Martin Appel, Raymond Kaplan and Jeffrey Berkowitz, alleging they had prepared the trust in such a way the trustees were exposed to personal liability for gift and estate taxes on distributions under the trust. Kaplan was dismissed from the malpractice action several months before the settlement negotiations which generated the present lawsuit.

The parties entered into settlement negotiations and, on August 30, 1996, counsel representing all the defendants wrote a letter to Harris's counsel stating, in relevant part, "I am writing to confirm the essential terms of the settlement which we reached today. The present defendants in this matter will pay a total of $205,000 in exchange for a general release of, and complete protection against, all claims and potential claims against them arising from or related to the Dennis A. Harris Irrevocable Inter Vivos Trust Agreement. This office will prepare the initial draft of the settlement documents, and your firm should inform the Court that the matter has been resolved as soon as is reasonably practicable."

Following this letter, the parties entered into negotiations over the language of a formal written agreement. In the meantime, counsel for the parties appeared at a pre-trial conference and on the scheduled trial date. On both occasions they told the trial court "that, with the exception of some additional drafting work, the matter had been resolved."

On October 25, 1996, defendants sent Harris a letter stating they had just discovered an amendment to the Probate Code which would take effect on January 1, 1997 and would eliminate the tax problem which had led to Harris's malpractice suit. In light of this amendment Harris would suffer no damage as a result of the way defendants prepared his trust and therefore, defendants announced, they were taking "the settlement arrangement off the table."

Harris responded to this letter by bringing a motion to enforce the alleged settlement agreement pursuant to Code of Civil Procedure section 664.6.¹ The trial court denied the motion on the ground the August 30 letter was not signed by all the parties as required by section 664.6. The court granted plaintiff leave to amend his complaint to add a new cause of action for breach of written contract. It then sustained defendants' demurrer to that cause of action without leave to amend.

In a reported decision, Harris v. Rudin, Richman & Appel² (Harris I) we affirmed the denial of the motion to enforce the settlement but reversed the judgment with respect to the cause of action for breach of contract. We held "[a]t a minimum, Harris's complaint alleges facts evidencing an oral agreement. . . . Whether the parties intended their communications to be a binding settlement agreement or an agreement to further negotiate after a formal draft was prepared is a factual question not properly the subject of a demurrer."³

Upon remand to the trial court, Harris amended his complaint to allege breach of an oral and written contract. Defendants answered and both sides moved for summary judgment. The trial court granted Harris's motion for summary judgment and denied defendants' motion. Defendants then moved for reconsideration, for vacation of the judgment and for a new trial. The trial court denied all three motions and imposed sanctions on defendants in the sum of $4,750. Defendants filed a timely appeal from the judgment and the sanctions awards.

DISCUSSION

I. STANDARD OF REVIEW.

In order to obtain summary judgment a plaintiff must prove each element of the cause of action on which he seeks judgment. Once the plaintiff meets this burden, the burden shifts to the defendant to show there is a triable issue of material fact as to that cause of action or a defense thereto.⁴ We review the trial court's decision de novo to determine whether those burdens were met.⁵

Defendants contend they have shown triable issues of fact exist as to whether the parties entered into a settlement agreement. They further contend even if there was an agreement they were entitled to rescind it on the basis of a mutual mistake of law or fact.

We conclude that although the undisputed facts appear to show the parties entered into an oral settlement agreement on August 30, there are triable issues of fact as to whether defendants properly rescinded the agreement on October 25.

II. DEFENDANTS RAISED TRABLE ISSUES OF FACT AS TO THEIR DEFENSE OF RESCISSION BASED ON A MUTUAL MISTAKE OF LAW OR FACT.

Defendants argue even if a settlement contract was formed they were entitled to rescind it once they learned of the amendment to Probate Code section 16081 which, in their view, negated the possibility the trustees would be exposed to personal tax liability for distributions pursuant to the trust, thereby removing the rationale for Harris's malpractice suit.⁶ We conclude defendants raised triable issues of fact as to their rescission defense. Therefore the trial court erred in granting summary judgment to Harris.

Initially we note there is no bar to considering defendants' rescission defense even though defendants did not specifically plead the defense in their answer. Hams did not object when defendants raised the rescission defense in their separate statement of disputed and undisputed facts and argued the defense in opposition to Harris's motion for summary judgment. Thus, any objection was waived.⁷

The evidence relating to the rescission defense is as follows.

Legislation to amend Probate Code section 16081 was introduced in February 1996 as Senate Bill 1907. The Senate passed the bill in May 1996 and sent it to the Assembly, which passed it with amendments in July 1996. The Senate concurred in the Assembly amendments and passed the bill on August 8, 1996. The governor signed the bill on August 17, 1996, thirteen days before the parties entered into their settlement agreement.⁸

When the parties agreed to settle the malpractice action on August 30, 1996 they were unaware of this amendment to the Probate Code which would take effect on January 1, 1997 and apply retroactively. Furthermore, each defendant claimed he first learned about the amendment a few days before sending the notice of rescission in October 1996 and he would not have agreed to the August 30 settlement had he known about the amendment.

Defendants contend this evidence raises triable issues of fact as to whether they and the plaintiff acted under a mutual mistake of law or fact in agreeing to the settlement.

The mutual mistake was the parties' belief the tax consequences of distributions from the trust would be governed by section 16081 as it existed when the malpractice action was filed in 1994 instead of under the 1996 amendment.⁹ This mutual mistake, defendants contend, went to an essential element of the contract—settlement of defendants' potential liability for malpractice—and thereby entitled them to rescind.

The triable issues of fact include the date on which the defendants discovered the amendment to Probate Code section 16081 and, if this date was after August 30, 1996, whether defendants would have entered into the agreement had they known of the amendment at the time.

We conclude defendants are entitled to a trial on their rescission defense.

Under Civil Code section 1689, subdivision (b)(1) a party may rescind a contract if the party's consent was given by mistake. A mistake may be either one of fact¹⁰ or law.¹¹

A mistake of law arises from "[a] misapprehension of the law by all parties, all supposing that they knew and understood it, and all making substantially the same mistake as to the law. . . ." ¹² According to defendants' declarations, this is what occurred here. When the parties entered into the settlement agreement on August 30th they were under the impression Probate Code section 16081 read as it had when the malpractice action was filed in 1994. Neither side knew that two weeks earlier the Governor had signed an amendment to that section.

Assuming the truth of defendants' declarations, their circumstances are analogous to those of the plaintiff in Hannah v. Steinman.¹³ In Hannah, the plaintiff leased a vacant lot from defendant for a three year period with an option to extend the lease for an additional two years. Both parties contemplated plaintiff would erect a wooden building on the lot; the construction of any other type of building being financially infeasible given the short lifespan of the lease. When the parties signed the lease neither knew that two days earlier the city had passed an ordinance which made it unlawful...