Schultz v. Harney

• Decision Date: 01 September 1994
• Docket Number: No. B071678,B071678
• Citation: 27 Cal.App.4th 1611,33 Cal.Rptr.2d 276
• Court: California Court of Appeals Court of Appeals
• Parties: Christopher SCHULTZ, a Minor, etc., et al., Plaintiffs and Appellants, v. David M. HARNEY, et al., Defendants and Respondents.

Page 276

33 Cal.Rptr.2d 276

27 Cal.App.4th 1611

Christopher SCHULTZ, a Minor, etc., et al., Plaintiffs and Appellants, v. David M. HARNEY, et al., Defendants and Respondents.

No. B071678.

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

Sept. 1, 1994.

As Modified on Denial of Rehearing Sept. 29, 1994.

Review Denied Dec. 21, 1994.

[27 Cal.App.4th 1615] Harry Frank Scolinos, Pasadena, for plaintiffs and appellants.

David M. Harney, Thomas Kallay and Vincent McGowan, Los Angeles, Esner, Marylander, Zakheim & Higa, Stuart B. Esner and Rosalyn S. Zakheim, Santa Monica, for defendants and respondents.

CROSKEY, Associate Justice.

Alan Schultz and Marcia Schultz, guardians ad litem for the minor, Christopher Schultz (collectively, "Schultz") appeal from the judgment of the Superior Court dismissing Schultz's action for legal malpractice and fraud against David N. Harney, after Harney's demurrer to Schultz's first amended complaint was sustained without leave to amend. Harney, who was Schultz's attorney in an earlier action for medical malpractice, charged Schultz fees in excess of the fees allowable under Business & Professions Code section 6146, which limits the amount of attorney fees payable in such actions. ¹ In the case at bench, Schultz sued to We conclude that no basis for application of the doctrine of res judicata exists. The request for and allowance of an attorney's fee in connection with the approval of a minor's compromise is generally an uncontested proceeding which does not involve litigation between adversarial parties. That was certainly the case here. We also conclude that a cause of action for legal malpractice was sufficiently pled; therefore, the demurrer to that count was improperly sustained. The demurrer to the fraud count was well taken, but leave to amend should have been granted. Finally, we find it reasonably likely that Schultz can amend his complaint to state a cause of action for money had and received. We therefore reverse the order of dismissal.

recover the excess amounts. Because the challenged fees had been expressly approved by the probate court in proceedings under Probate Code section 3601 to approve successive [27 Cal.App.4th 1616] compromises of the minor Christopher's claims, ² the court sustained Harney's demurrer, holding that Schultz's collateral attack was barred by the doctrine of res judicata.

FACTUAL AND PROCEDURAL BACKGROUND

Christopher Schultz was born on December 19, 1977, at Verdugo Hills Hospital. In the course of his delivery, he sustained perinatal asphyxia, which has resulted in central nervous system damage, scoliosis and severe mental retardation. His parents retained Harney to file a medical malpractice action against the hospital, Roberts Medical Group and Joseph Mutch, M.D., based upon the events surrounding Christopher's birth.

The record reflects that Harney, unwilling to handle the case for those fees which would result from the application of limitations contained in Business and Professions Code section 6146, sought and obtained a written waiver of those limitations from Schultz prior to the time he agreed to accept the case. In obtaining this waiver, Harney necessarily represented, expressly or impliedly, that those statutory provisions could legally be waived by a prospective medical malpractice client. Harney then undertook the representation and, over a four year period, effected settlements with the several defendants totaling $1.6 million.

On August 23, 1982, an Order Approving Compromise of Minor's Claim was issued regarding Schultz's claim against Verdugo Hills Hospital. This order was for $650,000 for Christopher and $200,000 for his parents. Out of the total of $850,000, attorney's fees of $212,500 and litigation costs of $15,288.84 were approved. On September 21, 1982, an Order Approving Compromise of Minor's Claim was issued regarding the claim against Roberts Medical Group. This order was for $480,000 for Christopher and $20,000 for his parents, out of which $125,000 in attorney's fees and $16,633.33 in litigation costs were approved. On January 21, 1986, an Order Approving Compromise of Minor's Claim was issued with respect to the action against Joseph Mutch, M.D.. This order was for a total of $250,000, including $62,500 in attorney's fees and $10,680.16 in litigation costs. ³

In September of 1990, Schultz learned through a social conversation with a medical doctor that the attorney's fees which had been paid to Harney appeared too high. On March 11, 1991, the Schultzes consulted an attorney who informed them the fees they had paid to Harney exceeded the fees allowed under Business and Professions Code section 6146. On September 26, 1991, Schultz filed a complaint against Harney for malpractice, alleging that Harney had charged excessive and unlawful fees in the earlier medical malpractice action and had committed fraud by falsely representing that the fees he charged were legal.

Harney demurred to the complaint, contending that the issue of attorney's fees in the medical malpractice was barred under the doctrine of res judicata. The trial court agreed and sustained the demurrer without leave to amend. This timely appeal followed.

CONTENTIONS ON APPEAL

Schultz contends that: (1) the probate Court acted in excess of its jurisdiction in 1982 and 1986 by awarding fees in excess of those permitted by Business and Professions Code section 6146; and (2) the trial court in this action erred in sustaining Harney's demurrer on res judicata grounds, because res judicata does not apply if: (a) the judgment or order in the prior proceeding was entered without jurisdiction; or (b) the prior order involved only a question of law and will cause injustice or adversely impact the public interest if relitigation is foreclosed; or (c) the parties were not adversaries in the prior proceeding. ⁴

DISCUSSION

1. The Probate Court Had the Jurisdiction to Award Attorney's Fees as Part of the Approval of the Minor's Compromises.

We need not be detained long by Schultz's contention that the probate court was without jurisdiction to make fee awards in violation of Business & Professions Code section 6146. The probate court had jurisdiction over both the subject matter and the parties in those proceedings which led to the approval of the minor's compromises and their related fee awards. It is established beyond all reasonable dispute that a final judgment or order, even if erroneous or clearly contrary to a statute, is res judicata if the court had jurisdiction in the fundamental sense, that is, jurisdiction over the subject matter and the parties. (Moffat v. Moffat (1980) 27 Cal.3d 645, 655, 165 Cal.Rptr. 877, 612 P.2d 967; Hollywood Circle, Inc. v. Dept. of Alcoholic Beverage Control (1961) 55 Cal.2d 728, 733, 13 Cal.Rptr. 104, 361 P.2d 712; Signal Oil and Gas Co. v. Ashland Oil And Refining Co. (1958) 49 Cal.2d 764, 777, 322 P.2d 1; Pacific Mutual Life Ins. Co. v. McConnell (1955) 44 Cal.2d 715, 725, 285 P.2d 636.) In short, a court has jurisdiction to be wrong. Thus, if the doctrine of res judicata were otherwise applicable the fact that the trial court's orders were erroneous would not aid Schultz.

2. Schultz's Right to a Refund of Excessive Attorney's Fees is Not Barred by the Doctrine of Res Judicata.

There is no question whatever that the 1982 and 1986 orders approving compromise of Christopher's claims were erroneous insofar as they awarded attorney's fees greater than are allowed by Business & Professions Code section 6146. (Roa v. Lodi Medical Group, Inc. (1985) 37 Cal.3d 920, 925, 934, 211 Cal.Rptr. 77, 695 P.2d 164; Hathaway v. Baldwin Park Community Hospital (1986) 186 Cal.App.3d 1247, 1253, 231 Cal.Rptr. 334.) Further, the client in such an action cannot validly waive the statutory fee limitation and is entitled to recover In this case, Schultz not only agreed to pay a 25% contingency fee on the total recovery in the medical malpractice action, as did the plaintiff in Fineberg, supra, but the fee in this case was also expressly approved by the probate court, as required by Probate Code section 3601, in its Order Approving Compromise of Minor's Claim under Probate Code section 3600. Such an order is ordinarily entitled to preclusive effect if all other conditions to such effect exist. (Rico v. Nasser Bros. Realty Co. (1943) 58 Cal.App.2d 878, 881-882, 137 P.2d 861.) ⁵ Relying on Rico, Harney contends the attack on his entitlement to the contested fees is barred by the doctrine of res judicata. We disagree. ⁶

any fees paid beyond the statutory limit. (Fineberg v. Harney & Moore (1989) 207 Cal.App.3d 1049, 1050, 255 Cal.Rptr. 299.)

The doctrine of res judicata gives conclusive effect to a final judgment rendered upon the merits by a court having jurisdiction of the cause. (Goddard v. Security Title Ins. & Guar. (1939) 14 Cal.2d 47, 51, 92 P.2d 804.) "The rule is based upon the sound public policy of limiting litigation by preventing a party who has had one fair trial on an issue from again drawing it into controversy." (Bernhard v. Bank of America (1942) 19 Cal.2d 807, 811, 122 P.2d 892.) "Restatement Second of Judgments views the doctrine as a bar or merger applicable to subsequent litigation between the same parties concerning the same controversy with very few exceptions. The Restatement's approach is based on the assumption that there has been an opportunity in the first litigation for a fair and full hearing of the claim asserted. Once that opportunity has been afforded, the Restatement Second asserts, fairness dictates that the controversy in question be put to rest." (Emphasis added.) (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 68, 241 Cal.Rptr. 578.)

We emphasize, however, that the doctrine of res judicata applies only to the same controversy that was directly adjudged in a prior action between the same parties. (Code Civ.Proc., § 1908; Nakash v. Superior Court, supra, 196 Cal.App.3d at p. 67, 241...