Tuesday, January 28, 2020
Court of Appeal:
Action Against Sheppard Mullin Barred by Release of Claims
By a MetNews Staff Writer
A lawyer who sued the law firm of Sheppard, Mullin, Richter & Hampton and a former partner in that firm, stemming from his having been defrauded by their client, yesterday failed to gain a reinstatement of his lawsuit, with the Court of Appeal for this district holding that any claim against the defendants have been released.
Presiding Justice Dennis Perluss wrote the opinion, which was not certified for publication. It affirms a judgment of dismissal that was entered after Los Angeles Superior Court Judge Daniel S. Murphy sustained a demurrer with leave to amend and the plaintiff, Westwood lawyer Robert Christopher Chatham, opted not to amend.
Chatham had entered into a business relationship in 2013 with Mary Carole McDonnell after Dean Matthew Richardson, then a partner in Sheppard Mullin, provided an assurance in writing that the value of her trust assets was “quite substantial” and her business holdings “should represent many millions of dollars’ worth of value.” He subsequently provided additional assurances of her wealth.
Claims Against Attorneys
After McDonnell defaulted on promissory notes, Chatham and McDonnell entered into a confidential agreement on July 25, 2016, to which Sheppard Mullin and Richardson were not privy. It provided for a schedule of repayments, and said in §4(B):
“Chatham will and hereby does release, discharge and waive any and all claims it may have, whether known or unknown, against McDonnell and all of her…attorneys ….”
McDonnell did not make the agreed-upon payments. Pursuant to the agreement, the parties entered into arbitration, and Chatham obtained a Superior Court order confirming a $3.4 million arbitration award.
Efforts to enforce the judgment failed. McDonnell was insolvent.
Causes of Action
Chatham sued Sheppard Mullin and Richardson (who left Sheppard Mullin in December 2018 and is now with the Orange County firm of Kadotani and Richardson.) His causes of action included for breach of fiduciary duty and negligent misrepresentation.
The plaintiff insisted that Sheppard Mullin and Richardson could not invoke the 2016 agreement because they were not parties to it. Perluss responded by pointing to Civil Code §1559 which provides that a “contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.”
The jurist noted:
“The third person need not be expressly identified in the contract….He or she must simply demonstrate membership in the class of persons for whose benefit the contract was made.”
Chatham argued that although the 2016 agreement released claims against McDonnell and “all of her...attorneys,” the confidentiality provision in the agreement precluded divulging the document to Sheppard Mullin and Richardson, thus limiting the release to the attorneys representing her in connection with the drafting of that accord.
“We agree with the trial court the July 25, 2016 settlement agreement is not reasonably susceptible to the interpretation advanced by Chatham,” Perluss wrote. “Under the plain and unambiguous language of section 4(B), Chatham released his claims against the Sheppard Mullin parties.”
The confidentiality provision, he said, “provides an unambiguous exception to confidentiality that permits McDonnell and her then attorneys to disclose the terms of the agreement to any of the McDonnell released parties (including the Sheppard Mullin parties) to enforce the release.”
Civil Code §1668
Chatham argued that if the release does apply to the defendants, it is invalidated by Civil Code §1668, which precludes exculpation for future torts. Perluss provided this discussion:
“Chatham argues any claims of fraudulent inducement against the Sheppard Mullin parties had not accrued prior to the execution of the release because the elements of reliance and resulting damage only occurred at or after the time Chatham executed the agreement. He is mistaken. The complaint is silent as to when the Sheppard Mullin parties first became aware of the settlement agreement and does not include allegations they knew about it prior to its execution, let alone made misrepresentations to induce Chatham to enter into it.”
“Any fraud claims alleged in the complaint are based entirely on the Sheppard Mullin parties’ (or Richardson’s) alleged misrepresentations regarding McDonnell’s assets. Those claims accrued well prior to Chatham’s execution of the July 25, 2016 settlement agreement: The last of the alleged misrepresentations concerning McDonnell’s assets identified in the complaint occurred in December 2014.”
The case is Chatham v. Sheppard, Mullin, Richter & Hampton, LLP, B292662.
Encino attorney Joshua R. Furman represented Chatham. Acting dire Sheppard Mullin were firm members Charles F. Barker, Michael D. Stewart and Jacqueline G. Luther.
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