GILBERT, P.J.
David S. Quintana appeals a judgment entered in favor of Berkley, Inc. and Gerard F. Kehoe.
In December 1996, Ventura County real estate broker Donald Lukens lent $7,500,000 to Security National Guaranty (SNG) to purchase and develop approximately 40 acres of oceanfront property in Monterey County. SNG executed a promissory note (Note) secured by deeds of trust against the property.
Lukens raised the money to lend to SNG from many individual investors—some sophisticated and wealthy, and some elderly and of modest means. He assigned a fractionalized interest in the Note to each investor. In 1997, Lukens created Shores LLC (Shores) to hold the beneficial interests in the Note. Some, but not all, of the investors transferred their interests to Shores.
The Note matured in January 1999, and was extended by agreement with a new loan balance of $8,445,000. In January 2000, the Note matured and was then in default. SNG made no interest payments over the course of the loan.
In 2001, the Shores investors replaced Lukens as the manager of Shores with Shores member, George Hall. In July 2001, Shores retained Quintana, a commercial law attorney, on a contingency basis to recover the sums lent on the Note. The legal retainer agreement provided for a 10 percent payment to Quintana of any sums recovered. Lukens was then under investigation by the authorities for criminal fraud and was uncooperative with the investors. Ed Ghandour, the owner of SNG, contested the validity, enforceability, and amount of the Note and proved to be litigious for years to follow. During the next two years, Shores investors attempted to settle the default with SNG or, alternatively, to sell their interests in the Note to third parties.
In May 2003, Carl G. Oblinger, trustee of the Carl G. Oblinger Trust, offered to sell his 100/7500 interest in the Note to Shores. Shores did not have funds to buy an interest in the Note from an investor who was not already a member. Quintana then purchased the Oblinger interest for $35,000 through Crown Motel LLC (Crown), an entity that he owned. Some months later, Crown transferred the interest to Shores for an equivalent 100/6200 interest in Shores. Hall held the voting and membership rights for the Crown interest acquired by Shores, which agreed to repay Quintana the equivalent 100/6200 interest from any eventual recovery.
In April 2003, Shores initiated foreclosure proceedings on the Note. In response, SNG brought an action in Monterey County Superior Court against Shores and others, challenging the validity, enforceability, and amount of the Note. SNG alleged that the loan was fraudulent, usurious, and had not been fully funded. SNG also sought to enjoin the foreclosure proceedings. The Monterey County Superior Court denied the request for a preliminary injunction, however, and foreclosure proceedings continued.
In August 2003, SNG filed for Chapter 11 bankruptcy in the United States Bankruptcy Court. Shores became a bankruptcy creditor and the Monterey County Superior Court action was moved to the bankruptcy court. In April 2004, SNG filed a second action in bankruptcy court challenging ownership of the Note.
In August 2003, Kehoe, the president and chairman of Berkley, a commercial real estate developer with worldwide holdings, contacted Quintana and discussed purchasing the Note in order to obtain the oceanfront property. Quintana met with Kehoe and provided documents regarding the Note, SNG foreclosure, and water rights to the property, among other things. During the next four months, Shores received written offers to purchase its interests in the Note from real property developers and SNG. The SNG offer, permitted by the bankruptcy court, was for $3,653,000, payable in installments over three years.
In January 2004, Berkley offered to purchase the Shores interests in the Note for $4,200,000 cash. Quintana had provided a written proposal form and informed Kehoe that the minimum bid was $4,000,000. Kehoe affirmed to Quintana during a telephone conference call that he had the financial wherewithal to purchase the Note, support the ongoing litigation with SNG, and indemnify Shores. At Quintana's urging, Berkley amended its offer to $4,625,000 to better a competing offer of $4,500,000 from a San Diego developer. Quintana and Hall submitted the offers, including SNG's offer, to the Shores members for consideration. The members voted overwhelmingly to accept Berkley's offer. Subsequently, Kehoe executed the "Monterey Note Sale Agreement" and purchased the Shores Note interests for $4,625,000. Pursuant to the agreement, Kehoe agreed to assume the bankruptcy litigation and defend and indemnify Shores, Hall, Oblinger, and Crown. The bankruptcy court later approved the sale over SNG's objections that the sale was fraudulent and a sham.
When the sale to Berkley was consummated, Quintana received 10 percent of the purchase price ($462,500) as his contingency legal fees in representing Shores. Quintana also received approximately $60,000 for Crown's interest in Shores pursuant to the Oblinger transaction.
On May 13, 2004, Kehoe executed a written retainer agreement authorizing Quintana to represent Berkley in the continuing SNG bankruptcy litigation. Berkley then instructed Quintana to complete the litigation in bankruptcy court and foreclose on the Monterey property. Based upon Quintana's estimate, Berkley believed the bankruptcy litigation would resolve in 90 to 180 days. Quintana prepared motions on behalf of Berkley, Hall, Crown, and Oblinger, provided Berkley with copies of the filed motions, and billed it for legal fees. The bankruptcy court granted Berkley's motions in whole or in part and later conducted a trial regarding the amounts owing under the promissory note. On November 1, 2005, the court entered judgment determining that the Note's principal balance was $6,761,784, interest due through September 30, 2005, was $2,714,161, and interest accrued at $1,296.79 daily thereafter until the Note was paid. The court entered judgment in favor of Shores and Berkley. In March 2008, SNG completed its bankruptcy reorganization by refinancing and paying Berkley the adjudicated balance of the note. Berkley received the net amount of $8,631,817, including $2,388.93 net attorney's fees.
Berkley did not pay Quintana's monthly billing invoices. Quintana later learned that Kehoe himself, and not his business organization, had purchased the Shores interests in the Note. Kehoe later informed Quintana that he would pay him when he prevailed in the bankruptcy court, but no payments were made.
On December 18, 2008, Quintana filed a first amended complaint seeking recovery of $301,446 attorney's fees, advanced costs, exemplary damages, and interest. Quintana alleged causes of action for breach of contract, account stated, unjust enrichment, quantum meruit, promissory estoppel, and fraud. Quintana also obtained a writ of attachment against SNG's payoff proceeds to Berkley in the bankruptcy court.
Berkley opposed Quintana's demand for attorney's fees and costs, asserting in part that Quintana had undisclosed conflicts of interest in violation of the Rules of Professional Conduct and that he had committed fraud. Berkley also filed a cross-complaint seeking rescission and damages for breach of contract, fraud, professional negligence, and wrongful attachment. At Berkley's request, the trial court held a court trial to first determine all conflict of interest issues. (Code Civ. Proc., § 592.)
Thereafter, the matter continued as a jury trial regarding Quintana's complaint for fees, costs, and interest, and Berkley's cross-complaint cause of action for fraud (the other allegations having been dismissed). Prior to jury instruction, however, Berkley requested the trial court to determine as a matter of law whether Quintana committed fraud against Berkley, warranting forfeiture of his fees and costs. (§ 592.) The court decided that Quintana's relationship with Berkley was tainted by fraud and that he should not recover under any theory.
Quintana appeals and contends that: 1) the trial court erred procedurally by granting a motion for judgment; 2) there is no substantial evidence of fraud or a representation tainted by fraud; 3) there is no conflict of interest because Berkley had a unity of interest with the other parties; 4) he disclosed the prior relationships to Berkley; 5) he may recover the reasonable value of his services because his conduct did not cause harm to Berkley; and 6) the trial court erred by dismissing his fraud cause of action.
Quintana argues that the trial court erred by granting Berkley's motion for judgment during the jury trial.
The trial court properly entered judgment pursuant to section 592 during the jury trial because the issues of fraud-based conflicts of interest and fraud as a defense to the fee collection case were legal issues that the court had not yet decided. Section 592 provides in part: "Where in [breach of contract] cases there are issues both of law and fact, the issue of law must be first disposed of." Indeed, when the court ruled earlier regarding conflicts of interest, it stated that its ruling was "without prejudice" to Berkley's right to present additional evidence regarding Quintana's fraud-based conflicts of interest or "evidence of alleged fraud as a defense to [the] fee collection case."
Quintana contends there is insufficient evidence of actual fraud regarding his relationship with Berkley. He asserts that he did not misrepresent the nature of the competing bids for the SNG note and that his memoranda regarding the amounts owing under the SNG note and the question of usury were expressions of non-actionable legal opinion. Quintana adds that he accurately billed Berkley for defense of the litigation and that he disclosed that Shores acquired an interest from Crown.
In certain circumstances, a violation of the Rules of Professional Conduct may result in a forfeiture of an attorney's right to fees. (Huskinson & Brown v. Wolf (2004) 32 Cal.4th 453, 463 [when attorney violates rules of professional conduct by engaging in simultaneously conflicting representation without sufficient informed consent, quantum meruit recovery to collect fees may be prohibited]; Mardirossian & Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257, 278.) "The rule that an attorney who engages in conflicting representation without obtaining informed consent is not entitled to compensation is not based on the premise that the attorney must pay a penalty so much as on the principle that `payment is not due for services not properly performed.'" (Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 14, fn. 2.) Although the breach of a rule of professional conduct may warrant a forfeiture of fees, forfeiture is not automatic but depends on the egregiousness of the violation. (Mardirossian & Associates, Inc., at p. 278.)
We review the trial court's determination regarding an actual or potential conflict and whether such conflict is sufficiently egregious to require forfeiture of fees for an abuse of discretion, and the factual findings in that context for substantial evidence. (Mardirossian & Associates, Inc. v. Ersoff, supra, 153 Cal.App.4th 257, 278.) "Insofar as these questions were entrusted either to the trial court's discretion or its factfinding powers, we cannot substitute our judgment for the trial court's except on a clear showing that those powers were abused." (Sullivan v. Dorsa (2005) 128 Cal.App.4th 947, 965-966.)
Sufficient evidence supports the trial court's ruling regarding Quintana's fraud-tainted relationship with Berkley. Among other things, Quintana misrepresented the nature of the competing offers to buy the Note, thereby driving up the purchase price of the Shores interests. Quintana falsely informed Kehoe that SNG itself had made an offer of $4,200,000. He also recommended that Berkley present an offer of $4,625,000 to better a competing bid that he described as "equivalent in all respects."
It matters not that Quintana did not represent Berkley at the time he received his contingency fee. Quintana's receipt of his contingency fee was occasioned by Berkley's purchase of the Note. "An officer of the court, such as an attorney, who finds himself enmeshed by the skeins which he has designedly woven to encompass another, will not be assisted by a court of equity from the peril of his position, if to do so would militate against the advantage of the client . . . ." (Clark v. Millsap (1926) 197 Cal. 765, 786.) Moreover, this rule is not limited to accomplished fraud. (Cal Pak Delivery, Inc. v. United Parcel Service, Inc., supra, 52 Cal.App.4th 1, 10-11 [attorney's attempted breach of fiduciary duty (selling out client for personal payment of $8-10 million) was unsuccessful].)
Quintana asserts that he is entitled to recovery of his fees and advanced costs pursuant to the theory of quantum meruit. He argues that his actions did not result in a serious breach of an ethical rule and that Berkley suffered no harm. (Sullivan v. Dorsa, supra, 128 Cal.App.4th 947, 965-966 [recovery of fees allowed despite violation of professional rule because client suffered no harm].)
The trial court did not abuse its discretion by denying Quintana recovery of his fees pursuant to quantum meruit. As a general rule, "`fraud or unfairness on the part of the attorney will prevent him from recovering for services rendered.'" (Goldstein v. Lees (1975) 46 Cal.App.3d 614, 618.) Our Supreme Court has long held that a court of equity will not assist an attorney "against the advantage of the client upon whom he had sinister designs." (Clark v. Millsap, supra, 197 Cal. 765, 786.)
Quintana contends that the trial court erred by dismissing his fraud cause of action against Berkley. This cause of action concerned allegations that Kehoe falsely represented that Berkley was providing the funds to purchase the SNG Note, when in fact it was Kehoe himself.
The trial court did not err because Quintana elected a contract remedy against Berkley when he obtained a writ of attachment on proceeds resulting from SNG's payment of the Note. (Roam v. Koop (1974) 41 Cal.App.3d 1035, 1039-1040 [where complaint sounds in contract and tort, obtaining writ of attachment constitutes election of contract remedy].) "`Whenever a party entitled to enforce two remedies either institutes an action upon one of such remedies or performs any act in the pursuit of such remedy, whereby he has gained any advantage over the other party, or he has occasioned the other party any damage, he will be held to have made an election of such remedy, and will not be entitled to pursue any other remedy for the enforcement of his right.'" (Ibid.)
Nevertheless, Berkley has been unjustly enriched by $2,388.93 net attorney's fees awarded by the bankruptcy court. The remedy of unjust enrichment requires that a defendant give back to the plaintiff that which he has received from the plaintiff's efforts. (Ajaxo Inc. v. E*Trade Group, Inc. (2005) 135 Cal.App.4th 21, 56 [general discussion of the law of unjust enrichment].) Here the bankruptcy court awarded SNG $2,388.93 less in attorney's fees than it awarded Berkley. Equitable principles require that Berkley pay the net attorney's fees with applicable interest to Quintana.
In view of our discussion, we need not resolve Quintana's remaining contentions. We reverse and order judgment entered in favor of Quintana in the amount of $2,388.93 with applicable interest. Quintana shall recover costs on appeal.
COFFEE, J. and PERREN, J., concurs.
