Federici v. Gursey Schneider & Co. 9/28/06 CA2/5

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: B183945

Case Date: 01/24/2007

Preview:Filed 9/28/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE

KATHLYNN FEDERICI, Plaintiff and Appellant, v. GURSEY SCHNEIDER & CO., LLP et al., Defendants and Respondents.

B183945 (Los Angeles County Super. Ct. No. PC034883)

APPEAL from a judgment of the Superior Court of Los Angeles County. Michael J. Farrell, Judge. Affirmed. Law Offices of Nicholas A. Carlin and Nicholas A. Carlin for Plaintiff and Appellant. Chapman, Glucksman & Dean, Randall J. Dean and Michael Louis Newman for Defendants and Respondents.

Plaintiff Kathlynn Federici appeals from the judgment and order granting the demurrer of the accountancy firm of Gursey, Schneider & Co. and its employee David Blumenthal

(collectively, Gursey).1 Plaintiff alleged that Gursey committed professional negligence in providing her with forensic accounting services in connection with marital dissolution proceedings with her husband Danny Federici, a longtime keyboardist for Bruce Springsteen and the E Street Band. The trial court found plaintiff's professional negligence action was barred by her failure to assert that claim in a prior arbitration that Gursey had successfully brought against her to recover unpaid fees. We affirm. As explained below, an unambiguous provision in Gursey's retainer agreement required, as a prerequisite to any future malpractice action, that plaintiff raise existing professional negligence claims as an affirmative defense in any fee-related arbitration with Gursey. Under the retainer agreement, the issue of professional negligence was to be litigated initially through arbitration, so that any such damages would be offset against Gursey's fees--and only if that remedy failed to compensate plaintiff for all of her negligence damages could she pursue further relief through a separate litigation. Because that arbitration provision was valid and enforceable, plaintiff's failure to comply with it resulted in the forfeiture of her right to sue Gursey for malpractice.

FACTS AND PROCEDURAL BACKGROUND2

The Federicis married in 1987. At the time of marriage, Danny Federici already had a financially rewarding career as a rock musician. During their marriage and after, his annual earnings from live performances, as well as from record and merchandizing royalties, were "well into the mid six figures." The couple separated in July 2000. In December 2002, plaintiff retained Silberberg to represent her in the dissolution action. Silberberg Also named in the operative pleading, plaintiff's first amended complaint of February 10, 2005, were Fred Silberberg and the law firm of Silberberg & Ross (collectively, Silberberg). Silberberg's demurrer was overruled. Silberberg is not a party to this appeal, which solely concerns plaintiff's cause of action against Gursey. These facts in this section are taken from the allegations in the first amended complaint and documents properly before the trial court in accordance with the standard of review on appeal. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 2
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recommended that plaintiff retain Gursey to assist with forensic accounting in the dissolution proceedings--more specifically, Gursey was to assess the respective financial positions of plaintiff and her husband with regard to the identification and valuation of their separate and community property. A four-page, single-spaced letter from Blumenthal to plaintiff, dated December 28, 2000, sets forth the terms of the retainer agreement between plaintiff and Gursey, including the arbitration provision at the heart of this appeal. The retainer agreement's first two paragraphs describe the scope of Gursey's retention. The next five paragraphs describe Gursey's billing practices--the manner in which it will apply plaintiff's $5,000 retainer fee, how plaintiff will be billed for services, the interest penalty to be applied to overdue account balances, and a 30day deadline for contesting the fees or charges on periodic billing statements. The following three paragraphs addressed arbitration. Paragraph eight provided: "Any controversy, claim, or dispute relating to our unpaid fees for professional services and costs rendered under this Agreement shall be submitted for binding arbitration to the American Arbitration Association [AAA] . . . . Should you contend that any services were performed improperly or below the standard of care you must raise that defense in the arbitration proceeding as an offset to, or reduction, discharge or complete elimination of the fees we contend you owe. In the event the arbitrator eliminates all of our fees and you still believe you have a cause of action not yet satisfied you may bring such action in a Court of Law for affirmative relief. However, if the arbitrator determines that your claim does not exceed our contended fees you then will be prevented from bringing the same contention in any separate civil action." Paragraph nine further addressed the interplay between fee-related arbitration and a separate action by plaintiff for affirmative relief: "[I]n order to protect your rights and our rights to a trial on any such action in Court for affirmative relief, we agree that neither the findings of the arbitrator(s) [n]or any Judgment entered confirming such arbitration award shall be determinative of any issue in your action in Court for affirmative relief, nor shall they be admissible for the purpose of said trial. You may not assert such a claim as a defense in the

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arbitration proceeding and then again as a separate civil action for affirmative relief, if the arbitrator determined that your recovery was limited to your fee balance. Should you raise such a claim in the arbitration proceeding, and also file a separate civil action in Court, raising the same claim of improper services performed below the standard of care, we shall, in that instance only, be permitted to show the Court that this claim was made in the arbitration proceeding and therefore is a bar to prevent you from proceeding with the civil action." Paragraph ten discussed entry and collection of an arbitrator's award. The agreement's final page began: "If, after discussing this agreement with your attorney, you agree that the above accurately sets forth the terms of our engagement, please so indicate by signing below and returning this agreement to Gursey . . . ." Plaintiff signed the agreement on January 12, 2001. Ten days later, Silberberg signed and dated the agreement, representing that he had "reviewed the above agreement with" plaintiff, and that he was "in agreement with its terms." In the following spring, Silberberg negotiated a marital settlement agreement that plaintiff now considers highly unfavorable to her. In the underlying pleading, plaintiff alleged that Silberberg misrepresented the settlement's unfavorable terms, insisted that she agree to it, and instructed her to sign without reading it--which she did.3 On June 18, 2002, the final judgment of dissolution was entered pursuant to the terms of the settlement agreement. That settlement, plaintiff contends, allowed her husband to keep as his own, outside the marital community, approximately "$1.6 million in cash and the rights to virtually all of his Bruce Springsteen band royalties," while she received only $2,500 per month in child support for their two children and a house "with equity valued at under $200,000." In approximately June of 2003, Gursey sought to arbitrate its claim for unpaid fees against plaintiff. On July 15, 2003, the AAA sent notices to plaintiff and Gursey, confirming Silberberg contends that as part of the entry of judgment, plaintiff stipulated that counsel had not investigated the valuation of the parties' separate and community property assets, and that plaintiff was entering into the judgment freely and against counsel's advice, and releasing counsel from liability. Plaintiff acknowledges the existence of the stipulation and release, but alleges the recitals were false. 4
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the arbitrator's award of $29,884.40, plus interest and fees. On October 16, 2003, the superior court entered judgment for Gursey in its unopposed petition to confirm the arbitrator's award. On May 10, 2004, plaintiff, representing herself, filed a professional negligence complaint against Silberberg and Gursey. At a November 10, 2004 hearing, the trial court sustained Gursey's demurrer, ruling that plaintiff's claim against Gursey was barred by the doctrines of waiver and res judicata because plaintiff had failed to raise her malpractice allegations during the fee arbitration. The court granted plaintiff leave to amend, providing her with more time to retain counsel and "an opportunity to plead around those defenses." On February 10, 2005, still in propria persona, plaintiff filed the pleading here at issue, her first amended complaint. According to plaintiff, due to Silberberg's malpractice and breach of fiduciary duty (the first two causes of action) and Gursey's professional negligence (the third cause of action), she failed to receive any portion of various significant assets that should have been included in the marital community--her husband's royalties from Bruce Springsteen's most popular albums and her husband's cash, including a "tour bonus" payment of approximately $620,000 that her husband was to receive shortly after the dissolution. Plaintiff also alleged that her retainer agreement with Gursey did not require that all of plaintiff's professional negligence claims be submitted to arbitration. Plaintiff conceded that she did not counterclaim for professional negligence at the arbitration with Gursey, but alleged that she "was not aware of the facts constituting Gursey's negligence until October 2003, after the fee arbitration had concluded." Plaintiff discovered those facts when she retained an independent accountant to review the financial records used in connection with the dissolution action. Plaintiff further alleged that if the retainer agreement's arbitration provision were interpreted to foreclose her malpractice claim without a "full and fair hearing," it would be unenforceable as being unconscionable and contrary to public policy. Plaintiff alleged that she

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suffered at least $1 million in general and compensatory damages from Gursey's negligence, but did not specify her fees to Gursey as a component of those damages.4 On March 2, 2005, current appellate counsel became plaintiff's counsel in the trial court. Six days later, Gursey demurred to the new pleading, arguing that the arbitration award barred her malpractice claim. The demurrer was supported by the July 14, 2003 arbitrator's award, the judgment on petition to confirm that award (entered by the same court before which the demurrer was pending), and the December 28, 2000 retainer agreement with Gursey. The trial court granted Gursey's unopposed motion to take judicial notice of those documents. At the April 15, 2005 hearing, the trial court ruled that plaintiff's claim against Gursey was "barred by res judicata and waiver" and sustained Gursey's demurrer without leave to amend.5 Plaintiff timely appealed.

DISCUSSION

"`In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and
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Later, at the demurrer hearing, plaintiff's counsel conceded that, if her malpractice claim were permitted to go forward, she would be barred from recovering the fees awarded through the arbitration. The trial court overruled the Silberberg defendants' demurrer and granted them 30 days to answer the first amended complaint. 6
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we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.' (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) `To meet [the] burden of showing abuse of discretion, the plaintiff must show how the complaint can be amended to state a cause of action. [Citation.] However, such a showing need not be made in the trial court so long as it is made to the reviewing court.' [Citation.] `[W]e may affirm a trial court judgment on any basis presented by the record whether or not relied upon by the trial court.' [Citation.]" (Blumhorst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 999.) The substantive law governing this appeal is also well established. In Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1108-1109 (Powers ), we explained: "As a general rule, a written agreement to arbitrate a future controversy is valid and enforceable and requires no special waivers or provisions. Exceptions to the general rule may apply if the arbitration provision is included within an adhesion contract or the scope of the arbitration provision is ambiguous." In Powers, we addressed an arbitration dispute between an attorney and client, and found no ethical proscription against including "in an initial retainer agreement with a client a provision requiring the arbitration of both fee disputes and legal malpractice claims." (Id. at p. 1109.) The parties advance no reason why the same would not be true in the accountancy context. "`A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.' (Code Civ. Proc.,

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