Sargon Enters., Inc. v. Browne George Ross LLP

• Decision Date: 26 September 2017
• Docket Number: B271718
• Citation: 223 Cal.Rptr.3d 588,15 Cal.App.5th 749
• Court: California Court of Appeals Court of Appeals
• Parties: SARGON ENTERPRISES, INC., Plaintiff and Appellant, v. BROWNE GEORGE ROSS LLP, Defendant and Respondent.

15 Cal.App.5th 749

223 Cal.Rptr.3d 588

SARGON ENTERPRISES, INC., Plaintiff and Appellant,

v.BROWNE GEORGE ROSS LLP, Defendant and Respondent.

B271718

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

Filed September 26, 2017

Law Offices of Kyle P. Kelley and Kyle P. Kelley, Beverly Hills, for Plaintiff and Appellant.

Browne George Ross LLP, Eric M. George, Benjamin D. Scheibe and Ira Bibbero, Los Angeles, for Defendant and Respondent.

EDMON, P. J.

Respondent Browne George Ross LLP (BGR) represented appellant Sargon Enterprises Inc. (Sargon) in long-running litigation against the University of Southern California (USC). After that litigation concluded, Sargon filed the present legal malpractice action against BGR. BGR petitioned to compel arbitration, and the superior court granted the petition and ordered the parties to arbitrate.

The parties litigated two claims before the arbitrator: Sargon's claim against BGR for legal malpractice, and BGR's claim against Sargon for breach of contract. The breach of contract claim alleged that the parties' arbitration agreement precluded resort to the courts to resolve disputes, and thus that Sargon's filing of the malpractice action constituted a breach of the arbitration agreement.

The arbitrator found Sargon's legal malpractice claim was barred by a release of claims earlier entered into by the parties. The arbitrator also found that Sargon had breached the arbitration agreement by filing the malpractice action in superior court and ordered Sargon to pay BGR damages of $200,000. The trial court confirmed the arbitration award and entered judgment.

We reverse in part. We conclude that the arbitrator erred in finding that the parties' arbitration agreement included a promise to forego litigation, and thus in concluding that Sargon breached the arbitration agreement by filing a malpractice action in superior court. We further conclude that the arbitrator's award violated Sargon's statutory right, as articulated in the California Arbitration Act (the Act), Code of Civil Procedure ¹ section 1280 et seq., to seek a preliminary determination of arbitrability from a court . Therefore, notwithstanding the limited judicial review generally afforded arbitration awards, the present arbitration award is subject to correction.

We do not, however, vacate the arbitration award in its entirety. Because there is no basis for reversing the summary disposition of Sargon's legal malpractice claim against BGR—and because the breach of contract and legal malpractice claims depend on entirely separate facts and legal theories—we can strike the portion of the arbitration award adjudicating BGR's breach of contract claim without affecting the merits of the arbitrator's summary disposition of Sargon's malpractice claim. We therefore direct the trial court to correct the arbitration award and, as corrected, to confirm it.

FACTUAL AND PROCEDURAL BACKGROUND

I.The Sargon/USC Litigation

A. First Trial and Appeal

In 1991, Sargon patented a dental implant

developed by its president and chief executive officer, Dr. Sargon Lazarof (Lazarof). In 1996, Sargon contracted with USC to conduct a five-year clinical study of the implant. ( Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 754–755, 149 Cal.Rptr.3d 614, 288 P.3d 1237 ( Sargon ).)

In May 1999, Sargon sued USC and members of its faculty for breach of contract. USC cross-complained. ( Sargon , supra , 55 Cal.4th at p. 754, 149 Cal.Rptr.3d 614, 288 P.3d 1237.)

Before trial, the trial court excluded evidence of Sargon's lost profits on the ground that USC could not reasonably have foreseen them. A jury then found that USC had breached the contract, and it awarded Sargon $433,000 in compensatory damages. The jury also found in Sargon's favor on USC's cross-complaint. ( Sargon , supra , 55 Cal.4th at p. 754, 149 Cal.Rptr.3d 614, 288 P.3d 1237.)

Sargon appealed. The Court of Appeal reversed the judgment, holding that the trial court had erred in excluding evidence of Sargon's lost profits. ( Sargon , supra , 55 Cal.4th at p. 754, 149 Cal.Rptr.3d 614, 288 P.3d 1237.)

B. Sargon's Retention of Browne, Woods & George LLP

In 2005, Sargon retained Browne, Woods & George LLP (BWG) (now known as BGR) to represent it on remand.² The retainer agreement signed by Sargon and BWG in September 2005 contained an arbitration clause, which provided as follows: "Any and all disputes, claims, or proceedings between you and BWG arising out of or relating to any work or services performed by BWG, the nature, terms, or enforceability of this Agreement, any claims for malpractice or professional negligence, collection or payment of bills, fees, and costs, or any dispute of any nature between you and BWG shall be settled by binding and final arbitration held before a single arbitrator from JAMS.... [¶] The parties agree to split evenly the fees and costs of the arbitrator. Arbitration is final and binding on both BWG and you. You and BWG are waiving the right to seek remedies in court, including the right to jury trial. Pre-arbitration discovery is generally more limited than, and different from, court proceedings. An arbitration award is not required to include factual findings or legal reasoning, and your and BWG's right to appeal or to seek modification of arbitration rulings is strictly limited."

C. Second Trial

Sargon's case against USC proceeded to retrial. USC moved to exclude as speculative the proffered opinion testimony of one of Sargon's experts, James Skorheim. At the conclusion of an eight-day evidentiary hearing, the trial court excluded Skorheim's testimony. ( Sargon , supra , 55 Cal.4th at pp. 755–767, 149 Cal.Rptr.3d 614, 288 P.3d 1237.) Thereafter, in August 2007, the parties stipulated to entry of judgment for Sargon on the breach of contract claim in the amount of $433,000.

D. The Interpleader Action

In January 2008, following entry of the stipulated judgment, USC filed an interpleader action against Sargon and several law firms, including BGR, for the resolution of attorney fee disputes. Sargon asked BGR to represent it in the interpleader action.

Before accepting the representation, BGR sent Dr. Lazarof a letter stating that the firm's representation of Sargon presented a potential conflict of interest, as a result of which the firm "would not feel comfortable proceeding absent your written, informed consent indicating that there are no actual or potential disputes or claims between you and our firm accompanied by full mutual releases between my firm and you." The letter then stated as follows: "[O]ther than rights and responsibilities specifically set forth in the [September 2005 retainer agreement]—all of which shall bind the parties only from this point forward—there are no additional rights, claims, obligations, liabilities or responsibilities (whether past or present) between you and my firm. ... Thus, each party based on known facts accordingly represents and warrants that he/it hereby releases and absolutely forever discharges the other(s) of and from any and all claims ... and causes of action of every kind and nature whatsoever, by reason of any matter or thing that directly or indirectly is connected with the Action or the parties' relationship as of the date of this Agreement. ..." Lazarof signed the letter on behalf of himself and Sargon in February 2008.

E. The Second Appeal

Sargon appealed from the judgment entered after the second trial. In February 2011, the Court of Appeal reversed the judgment on the ground Sargon's expert's testimony should have been admitted, and it remanded for a new trial on lost profits; it also affirmed the trial court's $1.8 million attorney fee award to Sargon. ( Sargon , supra , 55 Cal.4th at pp. 767, 149 Cal.Rptr.3d 614, 288 P.3d 1237.) However, the Supreme Court granted review and reversed the decision of the Court of Appeal, effectively affirming the $433,000 stipulated judgment. ( Id. at p. 781, 149 Cal.Rptr.3d 614, 288 P.3d 1237.)

II.The Present Action

A. Sargon's Legal Malpractice Complaint Against BGR

Sargon filed a complaint for legal malpractice against BGR in May 2014. The complaint alleged that in August 2007, BGR advised Sargon to enter into a stipulated judgment with USC before appealing the order excluding the testimony of Sargon's lost profits expert. When that order ultimately was affirmed, Sargon allegedly was not permitted to offer alternative evidence of lost profits because BGR had failed to preserve the issue. Sargon asserted that BGR "knew or should have known that Sargon's entry into a stipulated judgment [might] preclude Sargon from introducing evidence relating to lost profits. [BGR], however, advised Plaintiff Sargon to enter into the stipulated judgment. [BGR's] advice, which precluded Sargon from introducing evidence relating to lost profits, fell below the standard of care."

B. BGR's Demand for Arbitration and Motion to Compel Arbitration

BGR filed a demand for arbitration with JAMS in June 2014. BGR asserted two claims: "(1) for damages resulting from [Sargon's] breach of the arbitration clause in the parties' September 2, 2005 engagement and fee agreement, and (2) to procure an award of declaratory relief establishing the lack of merit to [Sargon's] lawsuit entitled Sargon Enterprises, Inc. v. Browne George Ross , LASC Case No. BC546363 (filed May 20, 2014)." Sargon filed an "Answer and Counter-Claim for Legal Malpractice."

BGR then filed a petition to compel arbitration of Sargon's pending superior court action for legal malpractice. The petition asserted that under the terms of the 2005 retainer agreement, "[a]ny and all disputes between BGR and [Sargon] regarding BGR's representation of [Sargon] must be resolved in arbitration." Sargon opposed the petition to compel, contending that although it had agreed to arbitrate disputes with BWG , it had never entered into such an agreement with BGR .

On August 26, 2014, the trial court found that BGR "has met its burden of...