Thursday, August 20, 2020
By a MetNews Staff Writer
The law firm of Mitchell Silberberg & Knupp has prevailed in the Court of Appeal for this district in its contention that two brothers who are sole owners of an ambulance company are bound by an arbitration clause in a client engagement agreement although the company, not they, is designated as the client.
The brothers, Avetis Avetisyan and Peter Avetisyan, are third party beneficiaries of the contract, Justice Dorothy C. Kim of Div. Five said in an unpublished opinion, filed Tuesday. She was joined by Justice Carl H. Moor; Acting Presiding Justice Lamar Baker dissented.
Kim’s opinion reverses an order by then-Los Angeles Superior Court Judge Elizabeth Allen White (now retired) denying the law firm’s motion to compel arbitration of an action in which it is accused of mishandling an equity deal on behalf of the brothers, who owned PRN Ambulance, Inc., based in North Hills.
Also a defendant in the action is Anthony A. Adler, a partner in Mitchell Silberberg. It was he who was contacted by Avetis Avetisyan in connection with the desire he and his brother had to acquire a medical transport business to boost the value of their company in anticipation of a sale of it.
Avetis Avetisyan, as president of PRN (his brother was vice president) executed the agreement with Mitchell Silberberg.
Although the brothers did not acquire another business, they did sell their company to ProTransport, with Adler representing the ambulance company, the brothers, and their holding company in the transaction. The brothers became parties to the transaction because it entailed the sale of their shares in PRN.
No new representation agreement was drawn up.
Under the terms of the transaction, the brothers gained equity in ProTransport—but which, according to their Superior Court complaint, they discovered “was essentially worthless.” They alleged malpractice.
White found the 2013 agreement between PRN Ambulance and Mitchell Silberberg amounted to a “preexisting retainer agreement” unrelated to the services ultimately provided by the firm that resulted in the malpractice claim. She rejected the firm’s argument that the shareholders were bound by the terms of the 2013 agreement under an agency theory.
“The corporation and the shareholders are distinct parties in contracts made by one or the other,” White declared.
Kim, in concluding that the company’s shareholders were intended third-party beneficiaries of the 2013 fee agreement and that they and their holding company, AVPET Corp., are compelled to arbitrate their malpractice claims, said:
“[T]he primary purpose of the legal advice rendered under the 2013 agreement was to increase the monetary value of Ambulance in anticipation of its ultimate sale….Indeed, as the only shareholders of Ambulance, Peter and Avetis were the parties who would primarily benefit from an increase in the value of Ambulance and from its ultimate acquisition by an investor.”
She observed that the agreement between the ambulance company and Mitchell Silberberg “expressly contemplated the provision of legal services beyond those related to Ambulance’s purchase of a medical transport business.” It provides:
“You have asked us and we agree to represent you with respect to possible acquisitions of one or more ambulance businesses. Unless you and we make a different agreement in writing, this Agreement will govern all future services we may perform for you on any other individual matter that you request us to handle and we agree to handle.”
AVPET, as well as the brothers, were third party beneficiaries, Kim said, explaining:
“[T]he complaint implicitly alleged that Ambulance and Mitchell intended the firm’s legal advice under the 2013 agreement to benefit not only Avetis and Peter, but also any company that was formed, pursuant to that advice, for the sole purpose of holding their shares in ProTransport.”
“I disagree with my colleagues’ decision to reverse the order denying the motion to compel arbitration. The client engagement agreements in this case were drafted by a sophisticated law firm that is surely capable of structuring client relationships to avoid stretching to rely on estoppel and third-party benefit concepts as a basis to compel arbitration. The law firm failed to do that, however, and I do not believe Peter Avetisyan and AVPET are intended beneficiaries of the 2013 engagement agreement—at best, they are incidental beneficiaries, which is not enough.”
The case is Avetisyan v. Michell Silberberg & Knupp, B299642.
Counsel on behalf of defendants were Joseph J. Ybarra and Kevin H. Scott of the downtown Los Angeles firm of Halpern May Ybarra Gelberg LLP. Representing the plaintiffs were David E. Rosen and Daniel N. Csillag of the Santa Monica firm of Murphy Rosen LLP.
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