Berney Law Corp. v. ClubCorp Porter Valley Country Club, Inc.

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BERNEY LAW CORP., Cross-complainant and Appellant, v. CLUBCORP PORTER VALLEY COUNTRY CLUB, INC. et al., Cross-defendants and Respondents.

B313888

California Court of Appeals, Second District, Seventh Division

May 18, 2023

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

APPEAL from an order of the Superior Court of Los Angeles County Super. Ct. No. BC669520, Mel Red Recana, Judge.

Klapach & Klapach and Joseph S. Klapach for Crosscomplainant and Appellant.

Foley & Lardner, Thomas F. Carlucci and Jaime Dorenbaum for Cross-defendants and Respondents ClubCorp Porter Valley Country Club, Inc.; ClubCorp Club Operations Inc. CCA Club Operation Holdings, LLC; ClubCorp Holdings, Inc. and ClubCorp USA, Inc.

PERLUSS, P. J.

A qui tam plaintiff who prevails in or settles an action under California's False Claims Act (CFCA) (Gov. Code, § 12650 et seq.)^[1] is entitled to recover reasonable attorney fees from the defendant. (§ 12652, subd (g)(8).)^[2] If the qui tam plaintiff and defendant settle their action, agreeing to bear their own attorney fees, and the matter is dismissed with prejudice, may the qui tam plaintiff's counsel, who was not a party to the action or a signatory to the settlement agreement, bring a subsequent action against the settling defendant for statutory attorney fees under section 12652? The trial court said no, sustained the defendants' demurrer without leave to amend and dismissed the action by counsel for the qui tam plaintiff. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Qui Tam Lawsuit

Robert G. Bartlett, a former member of the Porter Valley Country Club in Los Angeles, sued the club and related entities (collectively ClubCorp)^[3] in 2011, alleging causes of action relating to the club's failure to refund his initiation deposit. Berney Law Corporation, Bartlett's counsel in that action, amended the complaint in 2012 to add a CFCA cause of action on behalf of Bartlett and the State of California, the qui tam claim, alleging ClubCorp had failed to escheat to the State unclaimed initiation deposits of ClubCorp's members and former members in violation of California's Unclaimed Property Law (Code Civ. Proc., § 1500 et seq.).^[4]

In accordance with CFCA requirements, Bartlett filed his amended complaint under seal and served it on the State to allow the State to decide whether to intervene and prosecute the CFCA claim on its own behalf. In response, the State moved to dismiss the qui tam claim as jurisdictionally barred under section 12652, former subdivision (d)(3)(A), arguing ClubCorp had publicly disclosed in filings with the United States Securities and Exchange Commission its failure to escheat unclaimed deposits to the State. The trial court granted the State's motion (styled as a motion to dismiss rather than a demurrer or motion for judgment on the pleadings) and dismissed the qui tam claim, prompting Bartlett to voluntarily dismiss his remaining causes of action without prejudice and appeal from the judgment entered.

Bartlett was represented on appeal by Howarth &Smith. We reversed, holding the trial court had applied an overly broad interpretation of section 12652, former subdivision (d)(3)(A)'s public disclosure bar (see State ex rel. Bartlett v. Miller (2016) 243 Cal.App.4th 1398, 1407-1408, 1410-1414) (State ex rel Bartlett), and remanded for further proceedings (id. at p. 1415).

2. Settlement and Dismissal of Bartlett's Action Against ClubCorp

In March 2017, following issuance of our remittitur in State ex rel Bartlett, Bartlett and ClubCorp settled the CFCA action for $3.1 million, with each side agreeing to bear its own attorney fees and costs. In accordance with the settlement terms, Howarth &Smith, on Bartlett's behalf, filed a request for dismissal with prejudice of all Bartlett's claims against ClubCorp.^[5] The request for dismissal, filed on April 12, 2017 and entered the same day, provided, "Each party is to bear its own respective fees and costs related thereto."

3. Post-dismissal Attorney Fee Agreement

On April 18, 2017, one day after Bartlett's action against ClubCorp was dismissed with prejudice, Bartlett entered into an agreement with Berney Law and Howarth &Smith to pay each firm a specified amount in attorney fees from the proceeds of the settlement, nearly $1 million to Howarth &Smith and nearly $1.2 million to Berney Law. When ClubCorp remitted the $3.1 million in settlement funds to Howarth &Smith, the firm transferred to Berney Law its share of the settlement proceeds in accordance with the April 2017 fee agreement.

4. Berney Law's and Bartlett's Competing Claims for Declaratory Relief

In July 2017 Bartlett repudiated the April 2017 fee agreement to the extent it required him to pay Berney Law any share of the settlement proceeds from the qui tam action and demanded Berney Law return the settlement monies it had obtained as fees. (Bartlett did not repudiate the agreement as to Howarth & Smith.)

After Bartlett's demand, Berney Law and Bartlett sued each other for declaratory relief. Berney Law, the first to file, sought a judicial declaration the April 2017 fee agreement was valid and enforceable. Alternatively, Berney Law requested "an award of attorney's fees and/or quantum meruit as deemed appropriate by the Court."

Bartlett cross-complained, requesting a judicial declaration the April 2017 attorney fee agreement with Berney Law was unenforceable as the product of fraud and elder abuse. Bartlett alleged he had retained Berney Law in 2011 on a contingency fee basis to sue ClubCorp on his behalf for matters relating to his membership. In February 2014, after Berney Law had amended Bartlett's complaint to add a qui tam cause of action and the State responded by filing a motion to dismiss, Bartlett entered into a new fee agreement with Berney Law and Howarth &Smith that expressly superseded his 2011 contingency fee agreement with Berney Law. According to Bartlett, the February 2014 agreement provided his attorneys would receive no fees if the State's then-pending motion to dismiss the qui tam cause of action was granted. In June 2014, after the State's motion was granted, Bartlett entered into a new agreement with Howarth &Smith for additional legal work on the qui tam action in exchange for a percentage of any recovery. After the court of appeal revived the qui tam action, the parties settled; and ClubCorp remitted $3.1 million in settlement funds for Howarth &Smith to distribute. Immediately thereafter, Bartlett alleged, Berney Law falsely told Bartlett it was entitled to 50 percent of the settlement proceeds based on their 2011 contingency fee agreement. When Berney Law presented Bartlett with a new attorney fee agreement on April 18, 2017 (a date Berney Law knew was the "busiest day of the year" for Bartlett, a tax accountant) and demanded that he sign it and agree to provide Berney Law with 39 percent of the settlement proceeds as attorney fees, Bartlett did so.

5. Berney Law's Cross-complaint and First Amended Crosscomplaint Against ClubCorp

Berney Law cross-complained against ClubCorp for declaratory relief, seeking a judicial declaration that, in the event the April 2017 fee agreement with Bartlett was declared legally invalid, ClubCorp was directly liable to Berney Law pursuant to section 12652, subdivision (g)(8), for Berney Law's statutory attorney fees.

In its original cross-complaint against ClubCorp, filed February 22, 2018, Berney Law alleged, "Pursuant to the March 27, 2017 settlement agreement between Bartlett and [ClubCorp], Bartlett agreed to pay [Berney Law]'s attorney's fees and costs. The amount of [Berney Law]'s attorney's fees and costs was agreed to by and between Bartlett and [Berney Law]" in an April 2017 agreement prepared by Berney Law's co-counsel in the qui tam action, Don Howarth of Howarth & Smith. In reliance on the March 27, 2017 settlement agreement and the April 18, 2017 fee agreement, Berney Law "did not pursue its statutory claim for attorney's fees and costs" against ClubCorp.

Berney Law acknowledged that paragraph 9 of the settlement agreement between Bartlett and ClubCorp provided, "The Parties to this Agreement shall bear their own attorneys' fees, costs, and expenses. ClubCorp shall not be liable to Bartlett's current or former counsel for attorneys' fees, costs, or expenses, and if Bartlett's current or former counsel asserts an attorney's lien or otherwise seeks any fees or costs from ClubCorp related to the Lawsuit, Bartlett shall indemnify and hold ClubCorp harmless." However, Berney Law continued, "[Berney Law] was not a party to" the settlement agreement and thus "never waived its claims or rights to recovery of attorney's fees and expenses from ClubCorp."

Berney Law also admitted it had received $1,193,133.63 in fees and costs from the settlement proceeds. However, because Bartlett had repudiated the April 2017 fee agreement and filed suit to have that agreement declared invalid, Berney Law had no choice but to file a protective cross-complaint seeking a judicial declaration that ClubCorp was directly liable to Berney Law for statutory attorney fees under section 12652, subdivision (g)(8), in the event the April 2017 fee agreement was nullified.

Berney Law's first amended cross-complaint included essentially the same allegations, except it deleted any reference to paragraph 9 of the confidential settlement agreement relating to attorney fees.

6. ClubCorp's Successful Demurrer to the First Amended Cross-complaint

ClubCorp demurred to Berney Law's first amended crosscomplaint asserting Berney Law had failed to allege facts sufficient to state a cause of action. ClubCorp argued section 12652, subdivision (g)(8), conferred on the qui tam plaintiff, not plaintiff's counsel,...