Metropolitan News-Enterprise


Tuesday, June 20, 2006


Page 3


Court of Appeal Upholds Nearly $2 Million Award Against Attorney for Mishandling Escrow


By TINA BAY, Staff Writer


The Fourth District Court of Appeal yesterday affirmed a $1.985 million damages award in a conversion and breach of fiduciary duty action against Los Angeles attorney Christopher O’Connell and the firm of Parker Milliken, Clark, O’Hara & Samuelian over the mishandling of an escrow.

Div. Three also reversed Orange Superior Court Judge Gregory H. Lewis’ order denying a retrial on the issue of punitive damages as to O’Connell. but agreed with Lewis that no grounds existed for a punitive damages award against Parker Milliken. The jury had deadlocked as to punitive damages.

The case stems from negotiations between Jorma Virtanen and Richard Burstein for the sale of Virtanen’s Burstein Technologies, Inc. stock to a holding company Burstein co-owned with Gerald Goldstein, Burstein-Goldstein Investors LLC.  O’Connell, Burstein’s then-attorney, agreed to act as escrow holder for the transaction.

On April 24, 2001, Virtanen’s then-attorney delivered to O’Connell an executed stock purchase agreement for the sale of 1.4 million shares of his stock to Burstein-Goldstein for $1.75 million, along with stock certificates, stock assignments executed in blank and other closing documents.  Goldstein received a copy of the documents and told O’Connell he wanted until May 1 to review them, according to testimony.

The cover letter accompanying the purchase agreement stated that O’Connell was to hold each of the items until (1) he was in possession of fully executed closing documents and was authorized to deliver originals to Virtanen’s attorney; (2) Virtanen had confirmed to O’Connell that he had received the initial payment of $70,000; and (3) the stock certificates and stock assignments had been delivered to an escrow company that would hold them pur nosuant to a secured promissory note until Burstein-Goldstein paid the balance of the purchase price.

When Virtanen on April 30 sent a letter to O’ Connell stating that he had sent Burstein a notice of rescission and requesting the return of all pertinent documents, O’Connell responded by simultaneously requesting an extension and then telling Virtanen that the transaction was closed and he was forwarding the stock certificates for transfer.

The plaintiff presented evidence that Virtanen’s then-attorney demanded that O’Connell refrain from forwarding the stock certificates, but that O’Connell did so anyway and instructed Burstein Technologies, Inc.’s transfer agent to close the transaction. 

Justice Eileen C. Moore, writing for the appellate panel, called O’Connell’s course of action a “remarkable choice,” saying, “It could not be more clear that in taking this action, rather than continuing to hold the shares or interpleading them, he breached his duties as an escrow holder.”

O’Connell, on whose behalf the Los Angeles County Bar Association filed an amicus brief, failed to convince the panel that his act of forwarding the stock certificates with the expectation that Virtanen would sue was the “functional equivalent” of filing an interpleader action--which is the proper procedure for adjudicating the rights of stakeholders to disputed funds.

“O’Connell cites no authority to the effect that closing an escrow is the ‘functional equivalent’ of filing an interpleader action just because the closing results in a lawsuit,”  Moore wrote. “By definition, closing escrow, i.e., delivering property to parties on the completion of a transaction or the satisfaction of identified conditions, is not the same thing as filing an interpleader action, i.e., depositing property into the court until the rights thereto are resolved by judicial intervention.”

The panel also rejected as “strained,” “fantastical” and “off base” O’Connell’s arguments that holding him liable undermined his duty to provide his clients with legal advice pertaining to the transaction and his duty to protect privileged attorney-client communications.

“O’Connell’s action gave rise to liability irrespective of what advice he provided to his clients,” the justice said, adding that any communications O’Connell had with his clients was “irrelevant.”

With regard to the issue of punitive damages, the panel ruled that Lewis abused his discretion in denying a retrial as to O’Connell.

“While it is true that Virtanen did not get nine votes on the first attempt, it is also true that he is entitled to a resolution of the matter if one can be had,” Moore said.

Virtanen could not pursue punitive damages as to Parker Milliken, however, since there was no evidence that the firm had advance knowledge of O’Connell’s unfitness, authorized or ratified his wrongful conduct, or committed fraud or acted with oppression or malice, the justice explained.

“[W]e do not intend to discourage attorneys from acting as escrow holders.  Indeed, it is both useful and commonplace for attorneys to act as escrow holders with respect to closing documents, settlement agreements, releases, funds and other items.  However, we caution that an attorney should be aware of the duties of an escrow holder before agreeing to act as one,” Moore said.

Michael R. O’Neill, Virtanen’s attorney on appeal, told the METNEWS:

“We’re obviously very pleased that the Court of Appeal came down on the liability issue the way that it did. We are somewhat disappointed that the court ruled that we could not pursue Parker Milliken on the punitive damages claim, but we’re very pleased that the court is going to allow us to retry our punitive damages claim against Mr. O’Connell.  I’m glad that the Court of Appeal published this decision.  This is very important guidance for attorneys practicing in transactional areas to be aware of.”

O’Connell declined to comment. The case is Virtanen v. O’Connell, G034184.


Copyright 2006, Metropolitan News Company