Viner v. Sweet

• Decision Date: 28 September 2001
• Docket Number: No. B138149.,B138149.
• Citation: 112 Cal.Rptr.2d 426,92 Cal.App.4th 730
• Court: California Court of Appeals Court of Appeals
• Parties: Michael VINER et al., Plaintiffs and Respondents, v. Charles A. SWEET et al., Defendants and Appellants.

112 Cal.Rptr.2d 426

92 Cal.App.4th 730

Michael VINER et al., Plaintiffs and Respondents, v. Charles A. SWEET et al., Defendants and Appellants.

No. B138149.

Court of Appeal, Second District, Division 7.

September 28, 2001.

Certified for Partial Publication.^*

Review Granted Dec. 19, 2001.

Munger, Tolles & Olson, Dennis C. Brown, Mark B. Helm, Allison B. Stein, Steven W. Hawkins, Los Angeles; Kester & Isenberg and Charles F. Kester, Woodland Hills, for Defendants and Appellants.

Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, Patricia L. Glaser and Peter C. Sheridan, Los Angeles, for Plaintiffs and Respondents.

JOHNSON, J.

In this lawsuit for legal malpractice arising from advice relating to a business transaction, the trial court refused to require proof of a "case within a case" as generally would be required in a malpractice action arising in the context of litigation. Instead the court applied criteria traditionally used in negligence actions to the questions of causation and damages. This meant the plaintiffs in this transactional legal malpractice action were not required to prove the opposing side in the contract negotiations would have given them a better deal than the contract terms affected by their attorney's negligence, had the negligence not occurred. We affirm the trial court's disposition of this issue in the published portion of this opinion. In an unpublished portion of the opinion we find the testimony of respondents' expert admissible and also conclude substantial evidence supports the verdict with the exception of two major categories of damages. Because the evidence was insufficient as to the latter, we reduce the judgment from $13,291,532 to $8,085,732.

FACTS AND PROCEEDINGS BELOW

In this appeal challenging the sufficiency of the evidence to support the judgment in favor of respondents, we review the evidence in the light most favorable to the judgment below.¹

Plaintiffs and respondents Michael Viner and Deborah Raffin Viner launched Dove Audio, Inc. in 1984. Dove was one of the first companies to issue audio books read by their authors or celebrities. Dove was also involved in television and movie projects, as well as print books.

Dove went public in 1994. In 1995, Dove entered into long-term employment contracts with the Viners, guaranteeing large salaries, bonuses, fringe benefits, and indemnification. The Viners also received a large amount of Dove's common stock as well as all of its preferred cumulative dividend Series "A" stock.

David Povich, a partner in the Washington DC office of defendant and respondent law firm Williams & Connolly ("W & C"), was a long-time friend and attorney of Michael Viner. Viner and Povich discussed the possibility of selling the Viners' interest in Dove so they could concentrate on film and television projects. In the fall of 1996, the Viners received a proposal from Norton Herrick for the purchase of all their interest in Dove. This transaction would also involve ending the Viners' employment with Dove.

Viner had always consulted and relied upon lawyers in legal matters, and upon receiving the Herrick proposal, he asked for legal help from Povich. Povich assigned the transaction to his partner, defendant and appellant Charles A. Sweet, who was a corporate transactional lawyer. Although Dove was a California corporation, the Viners were California residents, and the Herrick agreement was negotiated in California, Sweet was not a member of the California bar and was not familiar with applicable California law. The Viners were not aware of these facts, nor were they aware Sweet had never drafted an employment termination agreement.

The Herrick transaction did not close. However, during the negotiations, Sweet learned of the Viners' employment agreements. He also learned substantial unpaid dividends were due to the Viners on their preferred stock, they desired to sell all of their stock, and they wanted to protect their right to engage in the television and movie business after leaving Dove.

After the Herrick deal fell by the wayside, the Viners were contacted by Ronald Lightstone of Media Equities International ("ME I"). In March 1997, ME I and the Viners executed a stock purchase agreement whereby MEI invested $4 million, and the Viners invested $2 million, to purchase Dove stock.

By early May 1997, "significant differences" had developed between MEI and the Viners. The parties threatened each other with litigation, and ultimately decided to enter into a transaction whereby the Viners would sell much of their stock to ME I and would be paid over time for the cancellation of their employment contracts. A "term sheet" dated May 29, 1997 was prepared, providing Dove would purchase specified shares of the Viners' stock. The Viners would resign from Dove, and Dove would pay the Viners $1.5 million over five years. According to the term sheet, the Viners would "not compete in any way in the audio book business for a period of three years from the date of the agreement," and would "not directly or indirectly contract with any author or, for purposes of audio books, reader, currently, under contract or included in the Company's book or audio catalogues for a period of three years." However, the Viners had not agreed to all the provisions in the term sheet.

The Viners asked Sweet to represent them in finalizing the deal. Sweet negotiated with Lightstone between Monday, June 2, and Thursday, June 5, 1997. Negotiations broke off before the agreement could be approved at a Dove board meeting on June 5. The impasse was broken over the following weekend, and Viner instructed Sweet to get the deal done "as soon as possible." The agreement was finally executed on Tuesday, June 10, 1997.

The agreement most crucial to this litigation is the Employment Termination Agreement, referred to by the parties as the "ETA." The ETA and contemporaneous agreements terminated the Viners' employment with Dove, sold a substantial portion of the Viners' common stock to MEI, and provided for Series E preferred stock to be held in escrow for distribution to the Viners if Dove defaulted on its monthly payment obligations.

Based on Sweet's advice, the Viners believed the ETA provided for monthly payments from Dove for three years, unchanged indemnity protection from Dove, and credit for work done before they left Dove. The Viners also understood under the ETA they could engage in film and television production and other business which did not interfere with Dove's audio book business. They also believed if Dove defaulted on the cash payments, the two non-compete clauses in the ETA would become void. The Viners had told Sweet repeatedly these terms were essential and non-negotiable, and Sweet had been instructed to take whatever time was necessary to obtain them. Sweet assured the Viners each of these goals had been accomplished.

The ETA contained a provision whereby disputes arising out of the agreement would be submitted to binding arbitration. After the ETA was executed, disputes arose between the Viners and Dove.² The parties engaged in arbitration proceedings relating to the validity of the ETA's noncompetition clause, the producer credits owed Raffin for work initiated during her tenure at Dove, and the Series E security provision in the ETA.

The Viners filed suit against Sweet and W & C on June 3, 1998, seeking damages for malpractice in connection with the ETA and related agreements. W & C cross-complained for $30,000 in unpaid legal fees. The trial of the action involved seven separate claims of malpractice, as follows:

1. The Non Solicitation Clause. The ETA contained a non-solicitation clause (section 1.10 of the ETA).³ Viner told Sweet he was concerned section 1.10 might forbid the Viners from soliciting their old contacts to work on television and feature film projects, and Sweet told him not to worry because the clause was limited to the book and audio book businesses. However, the language of section 1.10 was ambiguous and Dove took the position section 1.10 prohibited the Viners from soliciting Dove authors or readers for television or movie projects. The Viners alleged section 1.10 prevented them from doing projects with Dove authors Larry King, Carl Reiner, Andy Rooney, and Stephen King, as well as well-known author Frederick Forsythe.

2. Non Competition Clause. Section 1.8 of the ETA prohibited the Viners from competing in the audio book business for five years.⁴ The Viners contended Sweet was negligent in permitting section 1.8 to be included in the ETA, because it was arguably unenforceable under Business and Professions Code section 16600.⁵ Although section 1.8 was upheld by an arbitrator, the Viners' standard of care expert testified Sweet was negligent in not having knowledge of Business and Professions Code section 16600.

3. Attorney Fees. The Viners requested an attorney fees provision in the ETA, and believed such a provision was included. However the ETA did not permit the parties to recover attorney fees incurred in arbitrating disputes under the agreement, but only permitted them to recover fees incurred in enforcing an arbitration award.

4. Producer Credit. The Viners originally told Sweet they wanted Raffin to receive "Producer" credit for all audio books initiated during her employment with Dove. They later agreed to compromise and accept instead "Executive Producer" credit, "in accordance with normal practice." However, because Raffin had told Sweet she wanted Producer credit, he struck the word "Executive" from the last draft faxed to the Viners. This change created an ambiguity because it was not Dove's normal practice to give Producer credit to someone who had no hands-on involvement in a project. The Viners did not notice the change, so the final version contained the ambiguous term. Dove ultimately relied on the provision to give no credit to Raffin at all.

5. Series A Stock Dividends. The Viners were owed dividends...