Thursday, April 22, 2010
Court of Appeal Revives Malpractice Action Over Transfer of Pasadena Franchise
By Sherri M. Okamoto, Staff Writer
This district’s Court of Appeal has revived a legal malpractice action against an attorney who advised both the buyer and seller of a Bellini children’s furniture store franchise in Pasadena regarding the transfer of the business and commercial lease.
Div. Seven ruled that Los Angeles Superior Court Judge Jan A. Pluim had erred in granting summary judgment in favor of Indian Wells attorney Douglas Martin and his firm. Justice Frank Y. Jackson said in an unpublished opinion Tuesday that there was a triable issue of material fact as to the scope of Martin’s representation of Richard Dennis and Danny Alva.
After Alva agreed to purchase the Bellini business from Dennis, the two men jointly retained Martin to help them complete the transaction. They faxed a letter to Martin asking him to “make sure that we are not leaving any loopholes or pitfalls that would pose a liability for either party.”
Lease With Options
The store was then located on Fair Oaks Avenue, in the Old Town section of Pasadena. The lease for the property provided that the lessee would have two five-year options to renew, and Dennis had already exercised one of the options.
Although Alva later testified that his ability to assume the lease for the remaining lease term and the remaining five-year option were critical to the success of the deal, Alva and Dennis did not provide Martin with a copy of the lease agreement.
Martin then sent the men an engagement letter stating that the legal services provided would include “[r]eview of documents provided…in reference to the purchase and sale of Bellini, Pasadena” and “[a]dvice to all parties in connection therewith.”
He also asked Alva and Dennis to execute a waiver of “any conflict of interest that might otherwise exist now or in the future” due to Martin’s representation of each of them “on the sale…of the assets of the store….”
Several months later, an attorney for the landlord informed Alva that the lease he had assumed would be expiring shortly and that the renewal option in the original lease to Dennis was not assignable. Faced with an increased rent of about $12,000 per month, Alva moved the store to South Pasadena.
Alva eventually filed suit against Martin for breach of contract and legal malpractice, alleging that the attorney had failed to render services “in a careful and prudent manner” by neglecting to request and review a copy of the lease and to advise him that the option to extend the lease was personal to the original tenant.
He further contended that Martin had engaged in dual representation of adverse interests by failing to disclose the areas of potential conflict, the reasonably foreseeable adverse consequences of joint representation, and the possibility and desirability of seeking independent legal advice with respect to the conflict of interest waiver.
Martin filed a motion for summary judgment, arguing that he was not retained to advise Alva or Dennis generally about their transaction, but for the specific purpose of reviewing only the documents provided to him and to advise the clients regarding those particular documents, which did not include the lease.
Pluim granted the motion, finding Martin’s failure to review the lease and to advise Alvan and Dennis regarding the lease’s terms did not amount to a breach of duty as a matter of law since the lease had not been provided for his review.
The judge further determined that the dual representation did not create a conflict since Dennis and Alva did not have adverse interests in the limited representation they hired Martin to undertake since Martin was not representing them as buyer and seller.
Writing for the appellate court, Jackson noted that the engagement letter detailing the scope of Martin’s representation was reasonably subject to the interpretation advocated by the attorney and given to it by Pluim, but also could be read to mean that Martin was required to review documents pertaining to the purchase and sale of the franchise and to advise the parties with regard to the purchase and sale.
Since the letter was ambiguous, Jackson considered the parties’ conduct subsequent to the execution of the engagement letter.
He reasoned that Martin’s performance of legal services beyond reviewing documents—giving advice on the California Bulk Sales Law and proposed revisions to the sales agreement—tended to support Alva’s interpretation.
But, Jackson posited that Alva’s post-retention conduct indicated that he understood the limited nature of Martin’s representation since Alva negotiated directly with the landlord regarding the lease, told the landlord’s attorney he was not represented by counsel, and commenced operating the Bellini store before Martin had even completed review of the documents he was provided.
“Inasmuch as the engagement agreement is ambiguous on its face, and the parol evidence and the parties’ post-retention conduct relevant to the interpretation of the agreement is conflicting, we conclude that a question of fact exists precluding a grant of summary judgment,” Jackson said.
“[I]t follows necessarily that there is also a triable issue of material fact as to whether Martin represented the Alvas and the Dennises in their respective capacities as buyers and sellers and whether Martin caused the Alvas damage by failing to perform his ethical duties of disclosure regarding the representation of potentially adverse interests, in contravention of Rules of Professional Conduct, rule 3-310,” the justice added.
Presiding Justice Dennis M. Perluss and Justice Laurie D. Zelon joined Jackson in his decision.
The attorneys on the case, Alva v. Douglas Martin, a Law Corporation, B212327, were Clark Rivera of Gibson Rivera & Toms on behalf of the Alvas and Kevin S. Lacey of the Law Offices of Lacey, Dunn & Do for Martin.
Rivera said his clients were “gratified” they were “going to get their day in court,” adding that Martin “really dodged a bullet” since the case was not published and the court did not address any possibile ethical violations.
However, Rivera spoke highly of the attorney, who he said had called Tuesday to offer congratulations on the outcome of the appeal.
Lacey and Martin did not return calls for comment.
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