Rice v. Crow

• Citation: 97 Cal.Rptr.2d 110,81 Cal.App.4th 725
• Court: California Court of Appeals Court of Appeals
• Decision Date: 15 June 2000
• Parties: (Cal.App. 2 Dist. 2000) HARVEY RICE, Plaintiff and Appellant, v. ROBERT TRAMMELL CROW et al., Defendants and Respondents. B130074 Filed

97 Cal.Rptr.2d 110 (Cal.App. 2 Dist. 2000)

HARVEY RICE, Plaintiff and Appellant, v. ROBERT TRAMMELL CROW et al., Defendants

and Respondents.

B130074

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, SECOND APPELLATE

DISTRICT, DIVISION TWO

Filed 6/15/00

APPEAL from a summary judgment of the Superior Court of Los Angeles County. Marvin M. Lager, Judge. Reversed and remanded.

(Los Angeles County Super. Ct. No. BC 018358)

Burgee & Abramoff and John G. Burgee for Plaintiff and Appellant.

Dimascio & Berardo and Dianne Dimascio for Defendants and Respondents Robert T. Crow, Robert Rickard and Ronald Cox.

Sandler and Rosen and Charles L. Birke for Defendant and Respondent Neal Pardee.

******

CERTIFIED FOR PUBLICATION

MALLANO, J.^*

Plaintiff Harvey Rice (Rice) appeals from a summary judgment granted against him and in favor of Robert T. Crow (Crow), Neal Pardee (Pardee), Robert Rickard (Rickard) and Ronald Cox (Cox) (collectively Defendants). Relying on the decision in Arciniega v. Bank of San Bernardino (1997) 52 Cal.App.4th 213 (Arciniega), Defendants argued, and the trial court agreed, that Rice's settlement and dismissal with prejudice of a legal malpractice action against his former attorneys arising from their representation of him earlier in these proceedings constituted a retraxit barring Rice's suit against Defendants. We conclude that Arciniega is flawed in its reasoning and that the settlement and dismissal of the legal malpractice action does not bar Rice's action against Defendants. We therefore reverse the judgment.

FACTUAL AND PROCEDURAL HISTORY

A. The Transaction Which Gave Rise to The Underlying Action

Rice, in his declaration filed in opposition to Defendants' motion for summary judgment, provides the following description of the transaction which gave rise to the underlying action. On September 21, 1987, Crow, Rice and Pardee formed Crow, Rice, Pardee, Inc. (CRP) for the purpose of developing property located at 2539 Benedict Canyon Drive, Los Angeles, California (Property). Each owned one-third of its shares. Rice was the vice-president of CRP and primarily responsible for assisting with the design and marketing of a residence to be constructed on the Property. Crow was to oversee the financial aspects of the project, based upon his self-proclaimed experience as a developer. Crow insisted that Pardee, with whom he had a long-standing relationship, act as the general contractor. The three were directors of CRP along with Rickard, Crow's accountant and Cox, Crow's longstanding friend and business associate, both selected by Crow.

The Property was acquired by CRP in May of 1988. Although the construction was scheduled to be completed within one year at a cost of $750,000, it took over two years. During construction, Crow advanced money to CRP for the project in a magnitude unknown to Rice, which sum purportedly totaled over $1.5 million on which Crow claimed 10 percent interest.

In February of 1990, CRP entered an exclusive seven-month listing agreement with a real estate brokerage company with whom Rice was affiliated to sell the Property for $3.295 million. Rice undertook to market the property, even though construction was not completed until after the listing agreement expired on September 30, 1990. During the listing period, Crow indicated his intention to purchase the Property, although he did not indicate the price he was willing to pay, and sought to have Rice curtail his marketing efforts. After the listing expired, Crow refused to extend it.

Rice nonetheless, in November 1990, obtained an offer to purchase the Property for $2.8 million. At the same time, Crow made an offer of $2.75 million. Rice had obtained an appraiser who valued the Property at $3.2 million. CRP's board of directors voted to approve the sale of the Property to Crow at his initial offering price. Rice did not receive a commission for the sale, to which he contended he would have been entitled had the Property been sold to the offeror which he had procured. He also claimed that Crow owed him a commission because Crow manifested his intent to purchase the Property during the listing agreement, even though he had not made a specific dollar offer until after the listing had lapsed.

Although Rice contended that at the beginning of the project it was agreed that Crow, Rice and Pardee would not receive compensation for their services (except Rice's commission on sale), Pardee, with Crow's support, claimed that it was agreed that he would receive 10 percent of the sale price of the project for acting as contractor.

After the sale of the Property to him, Crow, allegedly without the knowledge or approval of the other directors or officers of CRP, caused CRP in 1992 to commence a Chapter 7 bankruptcy proceeding.

B. The Underlying Action

Rice commenced this action (underlying action) on January 4, 1991, alleging that he was suing both individually and derivatively on behalf of CRP. He alleged causes of action for breach of written contract, breach of fiduciary duties, declaratory relief and quiet title. His first amended complaint was similar. Rice filed a second amended complaint at which time CRP was added as a putative defendant on the derivative claims. Individual claims for breach of fiduciary duties, accounting, involuntary dissolution and appointment of receiver, quantum meruit, fraud, constructive fraud, negligent misrepresentation, and securities fraud and derivative claims for breach of fiduciary duties and accounting were pleaded.

CRP obtained an order for Rice to post a $50,000 bond. (See Corp. Code, 800, subd. (c).) Having been advised by his then counsel in the underlying action, the law firm of Agapay, Leving and Halling (ALH), that he need not be concerned about filing the bond and losing his derivative claims because his individual claims would provide him with an adequate remedy, Rice never posted the bond and instead dismissed the derivative claims. After Defendants successfully demurred to portions of the second amended complaint, Rice filed a third amended complaint on September 23, 1991 indicating that he was only asserting claims as an individual.

In January of 1993, ALH obtained an order allowing it to withdraw as counsel for Rice in the underlying action. In December 1993, represented by new counsel, Rice negotiated an agreement with CRP's bankruptcy trustee to purchase the claims of CRP against its officers and directors. In anticipation of that agreement, the bankruptcy trustee approved CRP's filing a cross-complaint in the underlying action claiming that the sale of the Property to Crow was invalid. Rice then obtained approval from the trial court to file a fourth amended complaint, asserting CRP's claims which had been assigned to him in the bankruptcy proceedings, as well as his individual claims which were contained in the previous complaint.

The underlying action went to trial and on December 21, 1995, the trial court entered a judgment of nonsuit against Rice on all of his claims. Rice then appealed to this court. We filed an unpublished decision on March 20, 1997, concluding that the trial court properly granted the nonsuit as to individual claims of Rice, but not as to the claims that Rice had been assigned out of the bankruptcy proceedings.

C. Rice's Malpractice Action Against ALH

ALH was the second counsel to represent Rice in the underlying action. ALH's representation was memorialized by a retainer agreement in which ALH agreed to represent Rice "through all litigation with Defendants." Rice paid ALH a retainer of $25,000. Before ALH represented Rice, he was represented by attorney Brian Oxman. During Oxman's representation, Rice was sanctioned in the amount of $12,000 for conduct which Rice ascribed to Oxman. ALH agreed to pursue the appeal that had been filed from that sanction order. However, on the advice of ALH, Rice abandoned the appeal and paid the sanction award. After CRP filed bankruptcy, ALH withdrew from representing Rice in the underlying action.

In April of 1994, Rice filed a malpractice action against ALH (the malpractice action). The first amended complaint contained causes of action for breach of contract, professional negligence, intentional and negligent misrepresentation and deceptive practices. It contained allegations that ALH failed to appeal the sanction order and complete the representation of Rice in the underlying action, including neglecting to take the required action in the bankruptcy court. Rice sought damages for, among other things, the $12,000 which he paid in sanctions, the cost of securing new counsel to replace ALH and impairment of his ability to recover from Defendants. Trial of the malpractice action was scheduled for March of 1996.

In early 1996, ALH brought a motion for summary judgment in the malpractice action based on the statute of limitations. According to Rice, he believed that his claims against ALH for its advice to dismiss the derivative causes of action against Defendants and its failure to take action in the CRP bankruptcy were weak (he was unable to obtain an expert to testify); not so with respect to his claims for breach of the retainer agreement and failure to pursue the Oxman sanction appeal. Rice settled the malpractice action for what he described as "a substantial discount from the amount of damages that [he] had sustained and was claiming."

The settlement agreement between Rice and ALH provided that Rice was to receive $60,000 "to settle the Civil Action." ("Civil Action" was defined in the settlement agreement as the malpractice action.) The settlement agreement did not allocate the settlement monies among the different claims asserted by Rice. It required dismissal of the malpractice action, with prejudice, on receipt of the settlement payment and contained a release of each of the parties "and . . . such other party's affiliated and subsidiary corporations, directors, officers, shareholders,...