Junho Hyon v. Selten

• Decision Date: 22 June 2007
• Docket Number: No. B188665.,B188665.
• Citation: 60 Cal.Rptr.3d 896,152 Cal.App.4th 463
• Court: California Court of Appeals Court of Appeals
• Parties: JUNHO HYON, Cross-Defendant and Respondent, v. Eric SELTEN, Cross-Complainant and Appellant.

60 Cal.Rptr.3d 896 152 Cal.App.4th 463 JUNHO HYON, Cross-Defendant and Respondent,
v.
Eric SELTEN, Cross-Complainant and Appellant. No. B188665. Court of Appeal, Second District, Division 1. June 22, 2007.

[60 Cal.Rptr.3d 897]

Nunziato Buckley Weber, Tom A. Nunziato and Illece Buckley Weber, Los Angeles; Alfred B. Stedman, Granada, for Cross-Complainant and Appellant.

Law Offices of Harold J. Light, Harold J. Light, Santa Monica, and Bruce A. Gilbert for Cross-Defendant and Respondent.

ROTHSCHILD, J.

Eric Selten appeals from the summary judgment entered against him on his cross-complaint against Junho Hyon. The trial court granted summary judgment on the ground that all of Selten's claims were based upon a contract that was illegal in part, and that the illegal portions of the contract could not be severed. We agree that the contract was illegal in part and that the illegal portions cannot be severed, but we conclude that Selten should nonetheless be permitted to pursue his common count for the reasonable value of any lawful services rendered. We therefore reverse in part.

BACKGROUND

This appeal concerns a fee dispute arising out of litigation commenced in 1993

60 Cal.Rptr.3d 898

regarding the rights of Hyon and his business associate, Laurence Colangelo, in a sand-mining operation on Decker Island in the Sacramento River. The trial court originally dismissed Hyon and Colangelo's suit, but the Court of Appeal reversed the judgment of dismissal in 1996. Unhappy with their trial counsel, Hyon and Colangelo began looking for a replacement.

In 1997, Hyon and Colangelo entered into a contract with National Legal Network (NLN), of which Selten was then president. The express purpose of the contract was for NLN to act as Hyon and Colangelo's "agent, consultant, and case manager with regard to" the then-pending Decker Island litigation. The contract authorized NLN to retain counsel for Hyon and Colangelo and to provide other litigation support services, such as facilitating communication among Hyon, Colangelo, and counsel. In 1999, NLN assigned "all rights, title and interest" and "all the remaining and executory obligations" under the contract to Selten.

The contract provided that if "NLN [was] unsuccessful in arranging" for new counsel to represent Hyon and Colangelo in the Decker Island litigation, then "NLN shall not be entitled to compensation under this Agreement." If NLN did succeed in retaining new counsel for Hyon and Colangelo and performed the other services called for by the contract, NLN would receive a contingent fee of 10 percent of any recovery in the Decker Island litigation. In 1999, the parties agreed to increase the contingent fee to 12 percent.

NLN did succeed in retaining Eliot Disner of Erwin Cohen & Jessup to represent Hyon and Colangelo in the litigation. Disner's firm also brought in Jeffrey Kirk as local counsel to assist with the case. A jury returned a $42 million verdict in favor of Hyon and Colangelo, but the trial court granted a defense motion for judgment notwithstanding the verdict, leading to another appeal.

Hyon and Colangelo retained new appellate counsel, Elliot Bien, and again prevailed on appeal. Disner, who had been working on a contingency basis, refused to handle the retrial, so Hyon and Colangelo retained Maxwell Blecher as their new trial counsel. The relationship between Hyon, Colangelo, and Blecher quickly soured, however, and Blecher too withdrew. Hyon and Colangelo next retained Jeffrey Shopoff of Jeffer, Mangels, Butler & Marmaro. Shopoff later left Jeffer Mangels but continued to represent Hyon and Colangelo in the Decker Island litigation.

Shopoff retried the case and won a $7.6 million verdict for Hyon and Colangelo. On October 15, 2003, he negotiated a settlement of the litigation.¹

Further disputes quickly erupted between Hyon and Colangelo concerning their respective interests in the recovery under the settlement. Philip Putnam of Monteleone & McCrory was retained to assist in resolving those disputes, but with little success. On September 16, 2004, Hyon filed suit against his erstwhile allies. Hyon's second amended complaint named Selten, Colangelo, Putnam, and others as defendants, and it alleged 13 separate claims for relief including breach of contract, breach of fiduciary duty, legal malpractice, and various fraud theories.

Selten cross-complained against Hyon, Colangelo, and others. His first amended

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cross-complaint alleged claims for breach of partnership agreement, breach of fiduciary duty, and fraud, as well as common counts for the agreed price or, alternatively, the reasonable value of work, labor, and services rendered.

Hyon moved for summary judgment on Selten's first amended cross-complaint. Hyon argued that (1) all of Selten's claims were based on the 1997 contract; (2) the contract called for Selten to engage in the unauthorized practice of law and to provide attorney referral services that are unlawful under Business and Professions Code section 6155 (hereafter section 6155), which requires an individual or entity providing such services to be registered with the state bar and to meet certain other requirements; (3) pursuant to the 1997 contract, Selten did in fact engage in the unauthorized practice of law and did provide unlawful attorney referral services; and (4) the 1997 contract is therefore illegal and unenforceable.

In opposition to the motion, Selten argued that the contract did not call for, and he did not in fact engage in, the unauthorized practice of law. He introduced declarations from attorneys Disner, Kirk, Bien, and Shopoff, among others. Those four attorneys stated that they never witnessed Selten engaging in the unauthorized practice of law and that all legal work was performed by them or under their supervision or control, without Selten's interference. Selten also argued that his business, NLN, did not constitute an attorney referral service within the meaning of section 6155. But Selten did not dispute Hyon's contention that neither Selten nor NLN was registered with the state bar as an attorney referral service. Finally, in his declaration, Selten stated that from the time he entered into the 1997 contract until the Decker Island litigation settled in 2003, he spent approximately 8,000 hours working for Hyon and Colangelo pursuant to the contract.

The trial court granted Hyon's motion on the ground that the contract called for, and Selten did in fact provide, unlawful attorney referral services. The court further reasoned that the unlawful provisions of the contract could not be severed because the contract provided for a single consideration, namely, the contingent fee, in exchange for all of Selten's services, including attorney referrals. The court therefore concluded that the entire contract was unenforceable. The court further determined that because all of Selten's claims required proof of the unlawful contract and the consideration purportedly due under it, Hyon was entitled to judgment in his favor on Selten's entire first amended cross-complaint. The court did not reach the issue of the unauthorized practice of law.

Selten filed a motion for new trial, challenging the summary judgment ruling. The trial court denied the motion. Hyon's legal claims were tried to a jury, and the remaining equitable issues were briefed and argued to the court. The court entered judgment on November 14, 2005, resolving all causes of action as to all parties. Hyon recovered nothing on his complaint. Selten timely appealed from the judgment, challenging only the ruling on the motion for summary judgment on his first amended cross-complaint.

STANDARD OF REVIEW

Because Selten's appeal from the judgment challenges the trial court's ruling on Hyon's motion for summary judgment on Selten's first amended cross-complaint, "we independently examine the record in order to determine whether triable issues of fact exist to reinstate the action." (Wiener v. Southcoast Childcare Centers,

60 Cal.Rptr.3d 900

Inc. (2004) 32 Cal.4th 1138, 1142, 12 Cal. Rptr.3d 615, 88 P.3d 517.)

DISCUSSION I. The 1997 Contract Is Illegal and Unenforceable

Subdivision (a) of section 6155 provides: "An individual, partnership, corporation, association, or any other entity shall not operate for the direct or indirect purpose, in whole or in part, of referring potential clients to attorneys, and no attorney shall accept a referral of such potential clients, unless [the individual or entity meets all of the requirements of the statute, including registration with the state bar.]" There is no case law interpreting that provision.

The 1997 contract called for NLN to retain counsel to represent Hyon and Colangelo. The contract provided that NLN would not be entitled to any compensation unless NLN did succeed in recruiting counsel for Hyon and Colangelo. The contract further provided that NLN would be entitled to compensation if NLN did recruit counsel for Hyon and Colangelo and perform the other services called for under the contract. It follows as a matter of law that, under the contract, Hyon and Colangelo were paying NLN, in part, to refer them to an attorney.

Selten does not dispute that NLN recruited counsel for Hyon and Colangelo by introducing them to Disner. Indeed, Selten himself must contend, as part of any claim based on the contract, that he or NLN did recruit counsel for Hyon and Colangelo, because otherwise he would not be entitled to anything under the contract.

Because the contract called for NLN to "operate for the direct or indirect purpose, in whole or in part, of referring potential clients to attorneys," it violated section 6155. Nor do the parties dispute that NLN did so operate, pursuant to the contract.

"The consideration of a contract must be lawful within the meaning of section sixteen hundred and sixty-seven." (Civ.Code, § 1607.) "That is not lawful which is ......