No. D052612.

COAST INTELLIGEN, INC., Defendant, Cross-complainant and Appellant, v. DAVID LESSER, Defendant and Respondent; WAYNE RAFFESBERGER, Cross-defendant and Appellant.

Court of Appeals of California, Fourth District, Division One.



Wayne Raffesberger (Wayne) is an attorney. Wayne's father (Ray) and brother (Glenn) founded, owned, and operated a business known as Coast Intelligen (Coast), and Wayne performed various services, both as a lawyer and in nonlegal capacities, to assist his family in operating the business. In 1998 the business was sold to investors, and in late 2000 the investors sold Coast's assets to Coast Intelligen, Inc., a Delaware Corporation (Coast Delaware), a company formed by David Lesser. After Coast Delaware's acquisition of Coast's assets, Ray and Glenn remained with and operated the business for Coast Delaware through mid-2006, and Wayne continued to perform various services for Coast Delaware during the same period.

Lesser discovered Ray and Glenn had been diverting assets belonging to Coast Delaware for their personal benefit, and Lesser terminated their relationship with, and Wayne's legal representation of, Coast Delaware. This legal action was commenced by Ray and Glenn alleging various contractual claims against Coast Delaware, which cross-complained, alleging numerous claims against Ray, Glenn and Wayne.

After a lengthy trial, the court found in favor of Coast Delaware on numerous claims against Ray and Glenn, and awarded damages to Coast Delaware of nearly $950,000. The court also found in favor of Coast Delaware on its claims against Wayne for legal malpractice and breach of fiduciary duty, but concluded Wayne was not a coconspirator with Ray and Glenn in connection with their tortious conduct. The court's judgment in favor of Coast Delaware and against Wayne was limited to damages of $142,551, representing the disgorgement of the legal fees paid to Wayne during his tenure as Coast Delaware's attorney.

Although all parties originally appealed the judgment, with each party contending that various errors required reversal of discrete components, a settlement entered during the pendency of this appeal between Ray, Glenn, and Coast Delaware has limited the appeal to two parties—Wayne and Coast Delaware—and has potentially narrowed the issues remaining for appellate resolution. Wayne's appeal raises numerous arguments that fall into two broad categories. First, Wayne raises numerous arguments claiming the evidence was insufficient to support the conclusion he breached his fiduciary duties or committed legal malpractice. Second, Wayne raises numerous arguments that alternatively contend the separate damages award against him was unsupported by the evidence.1 Coast Delaware counters Wayne's arguments by asserting the evidence was sufficient to support the separate judgment against him, and Coast Delaware's appeal affirmatively contends the trial court was required as a matter of law to find Wayne was a coconspirator with, and was therefore liable for the separate judgment entered against, Glenn and Ray.2



A. The Parties and Related Entities

Coast3 was involved in the manufacture, sale, installation and maintenance of cogeneration units. Coast originated as a family business founded by Ray and Glenn. They owned and operated Coast for many years before selling their interest in the business to a group of investors in 1998. The new owners continued Coast's business and continued to employ Ray and Glenn to operate Coast.

Coast Delaware, a Delaware company formed by Lesser in 2001, acquired Coast's assets from the investors. Lesser, President of Coast Delaware and its sole director, relied on Ray's technical and business acumen to operate Coast Delaware's business. Ray wanted to retire but agreed to be a consultant to help Lesser find professional management and increase Coast Delaware's business.

Shortly before Coast Delaware was formed, Pete Bonacic (a former Coast employee and friend of Ray) formed Western Energy Marketers LLC (WEM). At various relevant times, Ray was involved in WEM as a half-owner and/or consultant. WEM acted as a middleman on many Coast Delaware projects, and received a 10 percent commission on projects outsourced for Coast Delaware.

B. The Raffesbergers' Employment by Coast Delaware

Coast Delaware initially employed Ray as a consultant, and agreed to pay him a monthly consulting fee and to reimburse him for expenses incurred in connection with his job performance. However, in the fall of 2001, Ray threatened to quit unless Lesser agreed to reemploy him as the Chief Operating Officer (COO) for the business, and Lesser yielded to Ray's demand. As part of Ray's obligations under the contract employing him as COO, he agreed to assist Lesser in locating and training Ray's successor.

Glenn was initially employed by Coast Delaware as Vice President of Engineering. However, in July 2004, Ray informed Lesser that he was retiring, Glenn would be the successor COO for the business, and Ray would shift back to the role of consultant with compensation paid to him on an hourly basis.

Wayne served as attorney for Coast Delaware from 2001 through April 2006. He received legal fees in the total amount of $142,551. Wayne had previously represented Coast, and did not obtain a conflict waiver before or during the time he provided legal representation to Coast Delaware.

C. Ray's and Glenn's Alleged Malfeasance

Coast Delaware alleged, and the trial court found, that Ray and Glenn engaged in numerous improprieties concerning Coast Delaware's assets and funds, including paying personal expenses using company credit cards and checks, using company personnel on outside business interests, using company assets and personnel to provide personal benefits for themselves and other family members, and selling company assets and keeping the proceeds.

The two specific transactions involving alleged malfeasance that remain relevant to this appeal4 are the "Fairmont Hotel" and "Custom Foods" transactions. In the Fairmont Hotel transaction, WEM hired Coast Delaware to install two cogeneration units in the Fairmont Hotel in San Jose, California. Rather than having Coast Delaware purchase (and profit from providing) two new cogeneration units, Glenn and Ray instead arranged for Coast Delaware to install two used engines Ray had purchased for himself several years earlier and had used for developmental testing. Ray used Coast Delaware's labor and materials to refurbish the engines, and Glenn committed Coast Delaware to warranty the engines as if they were new. The purchase price paid by Coast Delaware to Ray for these used engines was not negotiated by Glenn on Coast Delaware's behalf. The trial court found Coast Delaware's purchase of these used engines provided Ray with a profit of nearly $150,000.

In the Custom Foods transaction, WEM sold a turnkey installation of five cogeneration units to Custom Foods. Although WEM was to receive $2 million on the Custom Foods contract, Coast Delaware (which provided both the equipment and performed the installation) was only to receive $1.6 million. The additional profit was to be divided between Ray, at that time still acting as a consultant for Coast Delaware, and Bonacic. After disputes arose between Bonacic and Ray over the division of these additional profits, Glenn entered into a settlement agreement with WEM (without Lesser's knowledge) that lowered Coast Delaware's share for the project to only $1,525,000. Glenn entered into that agreement knowing Ray and WEM were splitting the additional profit. Ray ultimately received $250,000 of the additional profits.

D. Wayne's Alleged Malfeasance

Wayne provided legal representation to Coast Delaware from 2001 until April 2006. During that period, Wayne seldom talked with Lesser but instead took his direction from Ray and Glenn. Wayne did not seek or obtain any waiver of the conflicts of interest that may have arisen because of Ray and Glenn's involvement in Coast Delaware.

Wayne billed Coast Delaware a set amount each month regardless of the amount of work he performed, and either Ray or Glenn would sign the checks to pay Wayne's monthly bill. At trial, Wayne conceded his billing arrangement was loose and was between himself and his father, and Wayne was unable to tell what services, if any, he had provided for the retainer he received for any given month.

For the last couple of years before his services were terminated by Lesser, Wayne also assisted Ray and Glenn by inputting data for Coast Delaware into Quickbooks.5 Wayne was not asked to, and did not, investigate the propriety of any expenditures or bookkeeping entries. Instead, Wayne relied on the information given to him by either Ray or Glenn.

Wayne's involvement in the Fairmont Hotel and Custom Foods transactions, apparently limited to making certain bookkeeping adjustments, occurred in the spring of 2006 shortly before Lesser terminated Coast Delaware's relationship with Ray, Glenn and Wayne. In early April 2006, Glenn told Mr. Bellone (Lesser's East Coast manager of operations) that Coast Delaware needed an infusion of cash from Lesser because the business was having cash flow issues or was out of money. Lesser sent Bellone to investigate the problems, and Bellone questioned Glenn about a March 2006 invoice (which apparently included amounts due on the Fairmont Hotel and Custom Foods jobs) reflecting that WEM owed nearly $490,000 to Coast Delaware. Glenn told Bellone the amount shown was a mistake and that Bellone would have to talk to Ray.

Shortly thereafter, Wayne was directed by Ray to zero out the amount purportedly owed by WEM to Coast Delaware in connection with the Fairmont Hotel project.6 In the Custom Foods transaction, Wayne (again at Ray and Glenn's direction) made an upward adjustment to the amounts owed by WEM to Coast Delaware. The apparent result of these bookkeeping adjustments was that WEM (after paying approximately $258,000) only owed approximately another $20,000.7

E. Lesser Terminates the Raffesbergers

Because of Lesser's concerns over Ray's and Glenn's conduct, he decided to end their involvement with Coast Delaware. Lesser's termination of his relationship with Ray and Glenn effectively ended Wayne's representation of Coast Delaware.



Ray and Glenn filed an action against Coast Delaware and others alleging numerous claims sounding in both contract and tort. Coast Delaware's cross-complaint alleged numerous claims against Ray and Glenn, also asserted claims against Wayne for breach of fiduciary duty and legal malpractice, and alleged Wayne was a coconspirator with Ray and Glenn in connection with their misconduct.

After a lengthy trial to the court, the court entered a statement of decision that found in Coast Delaware's favor on numerous of its tort and contract claims against Ray and Glenn, and awarded Coast Delaware damages of nearly $950,000 against them. The court also found in Coast Delaware's favor on its claims that Wayne had breached his fiduciary duties and committed legal malpractice, and entered an award against Wayne in the amount of $142,551. However, the court rejected Coast Delaware's claim that Wayne was a coconspirator with Ray and Glenn.



Coast Delaware raises numerous claims of error insofar as the trial court limited its judgment against Wayne to an award of $142,551. However, most of Coast Delaware's arguments8 are predicated on its contention that there was no substantial evidence from which the trial court could have found Wayne was not a coconspirator with Glenn and Ray for purposes of joint and several liability as to the separate judgment entered against Glenn and Ray.

A. Legal Principles

A claim of civil conspiracy is not a separate cause of action, and its only significance is that each member may be held responsible as a joint tortfeasor for torts committed pursuant to the conspiracy, regardless of whether or not he or she directly participated in the act. (See, e.g., Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 574.) A claim of civil conspiracy requires proof that two or more persons, with actual knowledge that a tort is planned, concurred in the tortious scheme. Thus, even "actual knowledge of the planned tort, without more, is insufficient to serve as the basis for a conspiracy claim. Knowledge of the planned tort must be combined with intent to aid in its commission." (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582.) "The sine qua non of a conspiratorial agreement is the knowledge on the part of the alleged conspirators of its unlawful objective and their intent to aid in achieving that objective." (Schick v. Lerner (1987) 193 Cal.App.3d 1321, 1328.)

Although the requisite knowledge and intent "' "' may be inferred from the nature of the acts done, the relation of the parties, the interests of the alleged conspirators, and other circumstances'" '" (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785), "`[c]onspiracies cannot be established by suspicions. There must be some evidence. Mere association does not make a conspiracy. There must be evidence of some participation or interest in the commission of the offense.'" (Davis v. Superior Court (1959) 175 Cal.App.2d 8, 23.)

Whether the knowledge and intent elements of a civil conspiracy claim have been established are quintessential factual questions. (See, e.g., Peterson v. Cruickshank (1956) 144 Cal.App.2d 148, 163-166.) Because the trial court weighed the evidence and found in favor of Wayne, Coast Delaware must demonstrate there is insufficient evidence or no reasonable inference from the evidence to support the finding Wayne did not know of Ray and Glenn's planned torts, and there is insufficient evidence or no reasonable inference from the evidence supporting a finding Wayne did not have the intent to aid Ray and Glenn's planned misconduct. (Ibid.)

When evaluating a challenge to the sufficiency of the evidence, we review the whole record most favorably to the judgment to determine whether there is substantial evidence from which a reasonable trier of fact could have made the requisite findings. (In re Ryan N. (2001) 92 Cal.App.4th 1359, 1371.) We presume in support of the order the existence of every fact the trier of fact could reasonably deduce from the evidence. (Id. at p. 1372.) If the circumstances reasonably justify the findings, reversal is not warranted merely because the circumstances might also be reasonably reconciled with a contrary finding. (Ibid.) It is the exclusive province of the trier of fact to determine the credibility of a witness, and we defer to the trier of fact's credibility resolutions. (Ibid.) Resolution of evidentiary conflicts and inconsistencies is also the exclusive province of the trier of fact. (People v. Young (2005) 34 Cal.4th 1149, 1181.) Absent a showing that a witness's testimony is physically impossible or inherently improbable, the testimony of a single witness is sufficient to support a judgment. (People v. Keltie (1983) 148 Cal.App.3d 773, 781-782.)

B. Analysis

The trial court, addressing Coast Delaware's conspiracy allegations, found the pattern of conduct between Ray and Glenn over many years that resulted in personal benefits to themselves convinced the court they possessed the requisite knowledge and intent to establish coconspirator liability between them, but "the evidence is just not sufficient to conclude [Wayne] was a [coconspirator]." Coast Delaware argues this finding with regard to Wayne must be reversed.

To the extent Coast Delaware's argument is based on a claim that the evidence compelled a contrary conclusion, we reject this argument for two reasons. First, although Coast Delaware recites in detail the evidence from which an inference could be drawn that Wayne knew of Ray and Glenn's misconduct and intended to assist them, Coast Delaware is silent on the evidence that supports a contrary finding. Accordingly, Coast Delaware's challenge to the sufficiency of the evidence to support the finding is waived. (Doe v. Roman Catholic Archbishop of Cashel & Emly (2009) 177 Cal.App.4th 209, 218.)

Even assuming Coast Delaware's claim was preserved, there is evidence to support the finding. The only active participation by Wayne cited by Coast Delaware on appeal was that Wayne entered adjustments on Quickbooks for the amounts owed by WEM to Coast Delaware in connection with the Fairmont Hotel and Custom Foods transactions. However, Wayne testified he did so at Ray's and Glenn's direction, and the trial court was entitled to accept Wayne's innocent explanation (e.g. that he relied on the veracity of his father and brother) rather than Coast Delaware's more sinister inferences.9

On appeal, Coast Delaware's claim of error as to the coconspirator finding appears to largely overlook the trial court's express findings on that issue. Instead, Coast Delaware's appellate claim cites extensively from the trial court's findings on a distinct claim raised by Coast Delaware, i.e. that Wayne's conflicts of interest—in providing legal representation to both Coast Delaware and his family members without disclosure or obtaining waivers—breached his fiduciary duties and was negligent. Coast Delaware cites the trial court's findings that Wayne's conflicts violated his duties and was negligent because Lesser "relied on [Wayne] as the one who could look out for the best interests of [Coast Delaware]" but that Wayne instead "sat idly by while his family members were acting contrary to [Coast Delaware's] interests," and this "failure to perform his obligations . . . put him in the position of helping his father and brother deplete [Coast Delaware's] assets."

Although Coast Delaware now appears to contend that these findings on its different claim are inconsistent with the determination that Wayne was not a coconspirator, the appellate record contains no showing that Coast Delaware objected to the statement of decision or otherwise brought the alleged inconsistency to the trial court's attention. Accordingly, Coast Delaware has waived any contention that the alleged inconsistency mandates vacating the determination on the coconspirator claim. (See, e.g., In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134; Agri-Systems, Inc. v. Foster Poultry Farms (2008) 168 Cal.App.4th 1128, 1134-1135).

Moreover, we conclude the two sets of findings can be reconciled. Coconspirator liability requires both actual knowledge of the tort conduct and an intent to aid the tortfeasors in achieving their objectives. (Schick v. Lerner, supra, 193 Cal.App.3d at p. 1328.) The trial court's findings on the breach of fiduciary duty and negligence claims included the express finding that, notwithstanding the fact Wayne was negligent by "[sitting] idly by" while Ray and Glenn acted, "[t]he evidence, however, does not support the conclusion there was an intent to defraud." (Italics added.) We interpret the trial court's judgment (see In re Marriage of Arceneaux, supra, 51 Cal.3d at pp. 1133-1134 [appellate court may imply findings when party has not raised objection below]) as encompassing factual findings that, although Wayne's conflicts of interest induced inadequate vigilance that prevented him from discovering and thereby preventing Ray's and Glenn's misconduct, Wayne was not liable as a coconspirator because he did not actually know of or intend to aid their misconduct. Because coconspirator liability requires actual knowledge and intent, and Coast Delaware cites no authority for the contention that failure to discover and prevent misconduct (even if the failure can be characterized as the result of gross negligence) gives rise to coconspirator liability (contra, Schick v. Lerner, supra, 193 Cal.App.3d at p. 1328 [allegation that defendant "`should have known' " his conduct would harm plaintiff insufficient for coconspirator claim because that "allegation sounds in negligence while the main thrust of the [coconspirator claim] sounds in intentional tort"]), we hold the trial court's finding exonerating Wayne of coconspirator liability is supported by the evidence and is not fatally inconsistent with other findings.



Coast Delaware alleged, and the trial court found, Wayne was negligent and breached his fiduciary duties to Coast Delaware by (1) undertaking to represent Coast Delaware without disclosing to it the potential conflicts of interest and obtaining waivers from disinterested persons; (2) providing representation to Coast Delaware at the same time Wayne was engaged in representing others, which created actual conflicts of interest; (3) providing accounting assistance for Coast Delaware's business without disclosing to Lesser the financial issues in which Ray and Glenn were engaged; and (4) advocating positions on behalf of his family in direct conflict with the interests of Coast Delaware. The trial court concluded Wayne's conflicts of interest constituted serious breaches of his fiduciary obligations and warranted disgorgement of all fees paid to him by Coast Delaware.

On appeal, Wayne asserts (1) as a matter of law he did not breach his fiduciary obligations or violate any rules of professional conduct in representing Coast Delaware, (2) there was no evidence Coast Delaware suffered any harm from his conduct, (3) it was error to order disgorgement because any alleged breaches were not "serious" and did not cause any actual injury to Coast Delaware, and (4) the amount of the disgorgement was excessive.

A. Substantial Evidence Supports the Finding Wayne Committed Serious Breaches of His Fiduciary Obligations

Wayne contests the trial court's finding that he breached his fiduciary duty to Coast Delaware and was negligent. "It is fundamental to the attorney-client relationship that an attorney have an undivided loyalty to his clients. [Citation.] This loyalty should not be diluted by a duty owed to some other person . . . ." (Mason v. Levy & Van Bourg (1978) 77 Cal.App.3d 60, 66.) The scope of an attorney's fiduciary duty may be measured by the Rules of Professional Conduct that, "together with statutes and general principles relating to other fiduciary relationships, all help define the duty component of the fiduciary duty which an attorney owes to his [or her] client." Mirabito v. Liccardo (1992) 4 Cal.App.4th 41, 45.) Whether an attorney has breached a fiduciary duty to his or her client is generally a question of fact. (David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 890.) Expert testimony, although not required (id. at pp. 892-893), is admissible to establish the duty and breach elements of a cause of action for breach of fiduciary duty where the attorney conduct is a matter beyond common knowledge. (Id. at p. 893; Mirabito v. Liccardo, supra, 4 Cal.App.4th at pp. 45-46.) Accordingly, an expert's "testimony about the Rules of Professional Conduct and the common law of attorney fiduciary duty, and . . . opinions that [an attorney] violated [his or her] duties under each, were plainly sufficient to establish the first two elements of a cause of action for breach of fiduciary duty." (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1087 [expert's testimony that attorney had actual conflict of interest, and whether he or she obtained informed consent to continued employment as appellant's counsel of record after conflict arose and whether representation of appellant was compromised sufficient to show duty and breach].)

Here, Coast Delaware submitted expert testimony that Wayne undertook to represent Coast Delaware without satisfying his obligation to provide written disclosure to Lesser (or any other disinterested person at Coast Delaware) that Wayne's representation of Coast, as well as his continued relationship with and legal assistance to Ray and Glenn and their other businesses (as well as other family members), raised potential conflicts of interest from the inception of his representation of Coast Delaware. Additionally, the expert testified that (considering these potential conflicts) Wayne was required to disclose the potential conflicts and obtain a waiver by a disinterested person of those potential conflicts, and his failure to do so breached his fiduciary obligations.

Additionally, there was some evidence to support the conclusion that the dangers posed by those potential conflicts subsequently ripened into actual conflicts: Wayne represented WEM (in which Ray had some interest) during the same period he was representing Coast Delaware; Wayne charged Coast Delaware fees to draft certain vehicle leases in which Ray leased vehicles to Coast Delaware (and which Ray "agreed to" on his own behalf and on Coast Delaware's behalf) that allowed Ray to collect nearly $160,000 from Coast Delaware without disclosing his conflict or obtaining a waiver from Lesser; Wayne provided advice to Glenn concerning a separate company (Feedermates) that Glenn apparently owned and the business of which was conducted by Glenn on Coast Delaware time and using Coast Delaware's resources;10 Wayne provided assistance with accounting matters without questioning the propriety of the entries (which may have indirectly obscured Ray's and Glenn's activities); Wayne did not advise Lesser that there were potentially negative consequences of electing to enter an express employment contract with Glenn rather than hiring Glenn on an at-will basis;11 as well as other examples of potential and actual conflicts that arose.12

On this evidentiary showing, an expert (relying in part on Rules Prof. Conduct, rules 3-600, 3-310) provided uncontradicted opinion evidence that Wayne breached his fiduciary duties to, and was negligent in representing, Coast Delaware. Wayne asserts, however, that the trial court's finding must be reversed because, having represented Coast prior to its merger with Coast Delaware, he was entitled to continue representing Coast Delaware without any disclosures or waivers. We reject Wayne's claim because it is factually inaccurate, relies on legally inapt authority, and is largely irrelevant to whether substantial evidence supported the conclusion that he breached his fiduciary obligations. As a factual matter, Coast was not acquired by or merged into Coast Delaware; instead, the evidence showed Coast Delaware merely acquired many of Coast's assets.13 Moreover, the principal legal authority cited by Wayne—Venture Law Group v. Superior Court (2004) 118 Cal.App.4th 96—is legally irrelevant because it merely addresses the question of whether the successor entity holds the evidentiary attorney-client privilege after a merger with the entity that originally held the privilege. (Id. at pp. 102-103.) Most importantly, the expert testified that a principal potential conflict of interest existing from the outset of Wayne's representation, which should have been disclosed to and waived by Coast Delaware, was Wayne's representation of Coast Delaware despite the continued involvement of Wayne's family members in Coast Delaware's business, and the conflicting loyalties engendered by that situation.

We conclude the evidence supports the determination that Wayne breached his fiduciary duties to Coast Delaware and was negligent by (1) undertaking to represent Coast Delaware without disclosing the potential conflicts to Lesser or obtaining Lesser's agreement to continue using Wayne notwithstanding the potential conflicts, and (2) continuing to represent Coast Delaware despite the actual conflicts that arose during the course of Wayne's representation of Coast Delaware.

B. Substantial Evidence Supports the Remedy of Disgorgement of Fees

Wayne next raises a series of challenges to the court's determination that the appropriate remedy for his numerous and serious breaches of his fiduciary obligations and his negligent representation of Coast Delaware was to require him to refund all of the fees Coast Delaware paid to him during his tenure as its attorney.

It is well settled that when an attorney breaches his or her fiduciary obligations by representing a client despite serious conflicts of interest, and the client suffers harm, the attorney may be denied any fees for his or her services (Day v. Rosenthal (1985) 170 Cal.App.3d 1125, 1162; Conservatorship of Chilton (1970) 8 Cal.App.3d 34, 43), and a court may also order the return of fees previously collected by the attorney. (See, e.g., In re Fountain (1977) 74 Cal.App.3d 715, 719.) Although technical violations of professional standards causing no harm to the client may not warrant disgorgement as a remedy (Olson v Cohen (2003) 106 Cal.App.4th 1209, 1215 [disgorgement unwarranted where "disproportionate to the wrong"]; accord, Frye v. Tenderloin Housing Clinic, Inc. (2006) 38 Cal.4th 23, 48-49), serious violations that do result in potential or actual harm can warrant the remedy of disgorgement. (Cf. Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1536 [dicta].)

Wayne argues the evidence does not support disgorgement because there was no evidence his acts and omissions were "serious" violations of his fiduciary obligations. Wayne correctly notes that courts have approved orders requiring forfeiture of fees when the attorney committed serious ethical breaches (see, e.g., Cal Pak Delivery, Inc. v. United Parcel Service, Inc. (1997) 52 Cal.App.4th 1, 15-16; A.I. Credit Corp., Inc. v. Aguilar & Sebastinelli (2003) 113 Cal.App.4th 1072) but have concluded that mere technical violations of the Rules of Professional Conduct may not warrant forfeiture of fees. (See, e.g., Mardirossian & Associates, Inc. v. Ersoff (2007) 153 Cal.App.4th 257, 278-279; Sullivan v. Dorsa (2005) 128 Cal.App.4th 947, 963-966.) However, the determination of whether the ethical violations were sufficiently egregious to warrant forfeiture is "entrusted either to the trial court's discretion or its factfinding powers, [and] we cannot substitute our judgment for the trial court's except on a clear showing that those powers were abused." (Sullivan v. Dorsa, at pp. 965-966; accord, Mardirossian & Associates, Inc. v. Ersoff, at p. 278.) The trial court found Wayne's violations were serious and provided the milieu in which Ray and Glenn could harm Wayne's client, and we cannot conclude it was an abuse of discretion under these facts to conclude the violations were serious.

Wayne also argues disgorgement cannot be ordered because there was no evidence of actual harm from his acts and omissions. Even assuming some showing of actual harm is a predicate to obtaining a refund of the fees paid to Wayne,14 there was some evidence Coast Delaware did suffer appreciable harm from the potential and actual conflicts that plagued Wayne's representation of it. Lesser testified he was "not getting much cooperation or any cooperation from Ray," which was "very troubling," but agreed to keep Wayne as Coast Delaware's attorney because Lesser believed Wayne could be "the voice of reason within the family," and "as an attorney, he could protect my interest[s] and make sure, really, nothing would go wrong here, seriously wrong, in terms of conflicts and other things." A trier of fact could have concluded that, if Wayne had not been subjected to conflicting loyalties and had zealously protected Coast Delaware's interests, the excessive profits reaped by WEM might have been prevented, Glenn's use of corporate assets for Feedermates might have been discovered and preempted, Glenn's and Ray's misuse of Coast Delaware's credit cards and other assets for their personal benefit might have been discovered, and other harms to Coast Delaware might have been prevented. Although the court did not affirmatively award damages as against Wayne for these injuries, there was substantial evidence that could support the conclusion Coast Delaware was injured and Wayne's conduct played some role in contributing to those injuries.

Additionally, there was substantial evidence from which the trial court could have found Coast Delaware was harmed because it paid Wayne for legal services that, because of Wayne's conflicting loyalties, were effectively worthless. Although Wayne argues on appeal that previously paid attorney fees are not recoverable in tort but instead must be sought by a claim for breach of contract (Orrick Herrington & Sutcliffe v. Superior Court (2003) 107 Cal.App.4th 1052, 1060), other courts have suggested that attorney fees paid to the lawyer who was negligent can constitute a recoverable item of damage. (See, e.g., Pete v. Henderson (1954) 124 Cal.App.2d 487, 489-490; Budd v. Nixen (1971) 6 Cal.3d 195, 202 ["Plaintiff, for example, would have been entitled to recover, in whole or in part, the fees of $1,028 and $475.38 paid or advanced to defendant, to the extent that, in consequence of defendant's negligence, those fees exceeded the value of defendant's legal services."].) We need not reconcile this apparent tension, however, because we conclude there was substantial evidence from which a trier of fact could have concluded that, absent Wayne's conflicting loyalties, at least some of the actual harm to Coast Delaware from Ray's and Glenn's activities could have been prevented.

Wayne finally contends that, even if disgorgement of some amount was proper, it was error to require him to refund all fees but instead should have been limited to disgorging those fees earned after November 2002. The factual predicate for this contention is that Wayne's actual conflicts first arose when he represented WEM in November 2002, but his representation of Coast Delaware prior to that time involved no breach of any of his fiduciary obligations, and therefore he should be entitled to retain all fees up until November 2002. Wayne correctly notes that, in Cal Pak Delivery, Inc. v. United Parcel Service, Inc., supra, 52 Cal.App.4th 1, the court concluded a partial fee recovery could be available under some circumstances. The Cal Pak court, after noting 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' " (id. at p. 14, fn. 2, quoting Schaefer v. Berinstein (1960) 180 Cal.App.2d 107, 135), stated that partial fees recovery could be ordered "(1) where there was no objection by the client [citing Clark v. Millsap, supra, 197 Cal. 765]; (2) for services rendered before the ethical breach [citing Jeffrey v. Pounds (1977) 67 Cal.App.3d 6]; or (3) on an unjust enrichment theory where the client's recovery was a direct result of the attorney's services [citing Estate of Falco (1987) 188 Cal.App.3d 1004]." (Cal Pak, at p. 16.) However, the principles summarized by the Cal Pak court do not assist Wayne, because there were no services rendered before the ethical breach testified to by Coast Delaware's expert: undertaking to represent Coast Delaware without disclosing to it (and having it waive) the potential conflicts inherent in representing Coast Delaware notwithstanding Wayne's relationship (both personal and as legal counselor) to Ray and Glenn.

We conclude the trial court's determination that Wayne should disgorge all fees is supported by the facts and law, and affirm the judgment against Wayne.


The judgment is affirmed. Each party shall bear its own costs on appeal.


HUFFMAN, Acting P. J.



1. Wayne also apparently joins in the appellate arguments, originally directed at the damages awarded against Ray and Glenn, that asserted the damages award against Ray and Glenn was also unsupported by the evidence. We presume Wayne adopts those arguments because Coast Delaware on appeal contends Wayne is liable, under coconspirator principles, for any award against Ray and Glenn arising out of their tortious conduct. We conclude, however, that all challenges to the award against Ray and Glenn are moot because (1) as to Glenn and Ray the matter has been settled and the appeals dismissed, and (2) as to Wayne we reject Coast Delaware's claim that the trial court did not have evidence from which it could have concluded Wayne was not liable under coconspirator principles.
2. Coast Delaware's appeal also raises a series of contentions that the judgment entered against Ray and Glenn should have been supplemented by additional awards for (1) compensatory and punitive damages for fraud, (2) nearly $340,000 for credit card charges billed to Coast Delaware but for the sole personal benefit of Ray and Glenn, and (3) the excessive payments made by Coast Delaware to a third party through collusion with Ray and Glenn. Coast Delaware also asserts the portion of the judgment granting an offsetting award to Ray and Glenn, based on Coast Delaware's alleged conversion of certain personalty, should be reversed because it was erroneous. As previously discussed, those claims are moot as to Glenn and Ray by virtue of their settlement with Coast Delaware and dismissal of those appeals. Moreover, because we reject Coast Delaware's claim that Wayne was liable under coconspirator principles for the judgment against Ray and Glenn, we conclude Coast Delaware's additional attacks on the underlying judgment are also moot as to Wayne.
3. Prior to Coast Delaware's acquisition of Coast's assets, the business was also denominated as "Coast Intelligen." For ease of reference, we use the nomenclature "Coast" to refer to the entity that existed until its assets were acquired by Coast Delaware.
4. These appear to be the only relevant transactions for purposes of this appeal because it is only these two transactions on which Coast Delaware relies to support its claim that the trial court erred in rejecting Coast Delaware's claim that Wayne was a coconspirator. Coast Delaware cites no other transaction to support its assertion that Wayne knowingly aided either Ray or Glenn in siphoning off Coast Delaware's assets.
5. It appears Quickbooks was a computer program used to handle many of the business's bookkeeping needs. Wayne assisted Ray and Glenn with the Quickbooks program after a Mr. Harmon departed the company.
6. Wayne was also aware the cogeneration units used in the Fairmont Hotel job had been owned by Ray. However, Coast Delaware cites no evidence on appeal suggesting Wayne was aware Ray had used Coast Delaware resources to refurbish the units or obtained a substantial profit from selling those units for use in the job, or that Wayne was aware of any other improprieties in connection with that job.
7. Although Coast Delaware correctly notes that Wayne entered the adjustments without reviewing the contracts, Coast Delaware cites no evidence on appeal suggesting Wayne entered these bookkeeping adjustments knowing the adjustments were erroneous.
8. As previously noted (see fn. 2, ante), Coast Delaware's appeal raised a series of contentions claiming the judgment entered against Ray and Glenn should have been supplemented by additional awards for compensatory and punitive damages for fraud, credit card charges, and excessive payments made by Coast Delaware to a third party. Those appellate claims are now moot as to Glenn and Ray by virtue of the settlement and dismissal of their respective appeals. However, Coast Delaware's appellate claim that Wayne should have been held liable under coconspirator principles for the judgment against Ray and Glenn appears to have preserved those arguments as against Wayne if Coast Delaware's predicate argument of coconspirator liability is upheld.
9. Indeed, Coast Delaware cites no evidence (nor did the trial court find) these adjustments were erroneous, much less that Wayne knew those adjustments were false or intended to aid Ray or Glenn in making fraudulent entries.
10. On appeal, Wayne asserts he had no obligation to report Glenn's involvement with Feedermates because Lesser knew Feedermates was a side business of Glenn's. However, the fact Wayne provided legal help to Glenn about Feedermates placed Wayne in a conflicted position: he had the incentive to not investigate Glenn's use of Coast Delaware's assets for Feedermates' business because any knowledge Wayne may have acquired would have placed him in the untenable position of either telling Coast Delaware (to the detriment of Feedermates) or not disclosing the information (to the detriment of Coast Delaware). The trial court noted, in finding Wayne had engaged in serious misconduct in breach of his fiduciary obligations, Wayne knew Glenn was running Feedermates using Coast Delaware resources or, at a minimum, Wayne chose to "[look] the other way while his family engaged in significant misconduct." Accordingly, even were we to accept Wayne's appellate contention that there was no basis for the trial court to infer he in fact knew of Glenn's Feedermates defalcations, the evidence would still support the conclusion that Wayne's conflicts of interests breached his fiduciary duties by inducing him to refrain from diligence in protecting Coast Delaware's best interests.
11. Wayne asserts the employment contract problem should have been disregarded by the trial court because Wayne was not involved in negotiating or drafting the contract. However, Wayne admitted he knew (but did not advise Lesser) there were potentially negative consequences of electing to enter an express employment contract with Glenn. Although remaining silent and allowing his client to enter into a contract disadvantageous to Coast Delaware's best interests may have been an act of omission rather than commission, a trier of fact could well have concluded Wayne's conflicting loyalties caused him to stand mute rather than protect Coast Delaware's best interests.
12. For example, the court found Wayne provided advocacy in a worker's compensation matter, in which the worker was another family member working for Coast Delaware, in a manner potentially adverse to the best interests of Coast Delaware.
13. For this reason, Wayne's citation to cases such as Brooklyn Navy Yard Cogeneration Partners v. Superior Court (1997) 60 Cal.App.4th 248 and Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69 Cal.App.4th 223 is not helpful. Those cases address the circumstances under which an attorney could be disqualified from representing a third party against a corporation when the attorney had provided prior representation to another entity sufficiently related to the corporation to be the alter ego of the corporation. There is no evidence, much less a determination, that Coast Delaware wholly owned Coast so that Coast Delaware and Coast were alter egos.
14. The rationale of Clark v. Millsap (1926) 197 Cal. 765, a seminal case in the area of entitlement to attorney fees when the attorney has committed "`acts of impropriety inconsistent with the character of the profession, and incompatible with the faithful discharge of [the attorney's] duties' " (id. at p. 765), stated a court may refuse to allow the attorney to collect any sum under such circumstances (ibid.), without requiring proof of any actual injury to a client. Wayne does not articulate why two similarly situated attorneys, both of whom committed similar acts of serious breaches of fiduciary obligations, should be treated differently merely because one has already collected on his invoices to the client while the second has outstanding receivables from the client. Instead, as explained in Anderson v. Eaton (1930) 211 Cal. 113, the rule against undertaking conflicting representation "is designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting himself in a position where he may be required to choose between conflicting duties, or be led to an attempt to reconcile conflicting interests, rather than to enforce to their full extent the rights of the interest which he should alone represent." (Id. at pp. 116, 117-118 [holding attorney barred from collecting compensation for representing conflicting interests regardless of whether he actually used confidential information or impinged on the client's rights].)


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