A-Mark Found. v. Advanced Media Networks, LLC

A-MARK FOUNDATION, et al., Plaintiffs, Cross-defendants and Appellants, v. ADVANCED MEDIA NETWORKS, LLC, Defendant, Cross-complainant and Appellant.

B295234

California Court of Appeals, Second District, Third Division

December 21, 2021

NOT TO BE PUBLISHED

Order Filed Date 12/28/21

APPEALS from a judgment of the Superior Court of Los Angeles County, No. SC118390 Richard A. Stone and Mitchell L Beckloff, Judges.

Hawley Troxell Ennis & Hawley, Kurtz Law and John F. Kurtz for Plaintiffs, Cross-defendants and Appellants.

Law Offices of Harold J. Light, Harold J. Light and Bruce A Gilbert for Defendant, Cross-complainant and Appellant.

ORDER MODIFYING OPINION

THE COURT:

It is ordered that the opinion filed herein on December 21, 2021 be modified as follows:

1. On page 1, the superior court number is corrected to read SC118930.

[There is no change in the judgment.]

KALRA J. ^[*]

Although this matter originated with patent infringement litigation, these appeals have nothing to do with intellectual property. Rather, we are primarily tasked with interpreting Business and Professions Code section 6155, ^[1] which regulates lawyer referral services.

A-Mark Foundation (A-Mark) and AMAG, Inc. (AMAG) filed a breach of contract action against Advanced Media Networks, LLC (AMN) arising out of an underlying Patent Litigation Agreement (PLA). AMN, in turn, filed a cross-complaint against A-Mark, AMAG, and Steven C. Markoff (Markoff) (sometimes collectively referred to as A-Mark), alleging, inter alia, a cause of action under the Unfair Competition Law (UCL) (§ 17200 et seq.), as well as a cause of action for money had and received.

The trial court determined that the underlying contract, the PLA, violated section 6155. It therefore declared the contract unenforceable and granted summary judgment in favor of AMN on A-Mark's action for breach of contract. Thereafter, AMN proceeded on its cross-complaint. At the bench trial on the UCL claim, the trial court denied AMN's request for restitution, while granting AMN's request for injunctive relief. Then, after A-Mark unsuccessfully moved for summary adjudication on AMN's cause of action for money had and received, the jury awarded AMN $1, 197, 951.45 in damages on that cause of action.

A-Mark appealed the judgment insofar as the court granted summary judgment in favor of AMN on A-Mark's complaint, and denied A-Mark's motion for summary adjudication on AMN's cross-complaint for money had and received. AMN cross-appealed, contending the award of prejudgment interest was inadequate.

With respect to the grant of summary judgment in favor of AMN on A-Mark's complaint, A-Mark contends the trial court erred (1) in its construction of section 6155 and in finding that A-Mark operated as an unlawful attorney referral service; and (2) in concluding that the unlawful attorney referral clause could not be severed from the rest of the PLA.

With respect to the denial of A-Mark's motion for summary adjudication on AMN's cross-complaint for money had and received, A-Mark contends that ruling was erroneous because: (1) the PLA is not void; (2) the trial court's decision to deny restitution at the UCL bench trial precluded the money had and received claim from going to the jury; and (3) a claim for money had and received requires a total failure of consideration, which was not the case here.

On AMN's cross-appeal, it contends the trial court abused its discretion in failing to award prejudgment interest on $288, 330.28 of the damages award.

For the reasons discussed below, we conclude as follows:

First, the trial court properly granted AMN's motion for summary judgment on A-Mark's complaint for breach of contract because the PLA called for unlawful attorney referral services in violation of section 6155 and therefore was unenforceable.

Second, the portion of the PLA that called for unlawful attorney referral services cannot be severed from the balance of the agreement, making the PLA void in its entirety.

Third, because the PLA was void due to illegality, AMN was entitled to maintain a common count to recover the monies that it had paid to A-Mark pursuant to the PLA, irrespective of the trial court's exercise of its discretion to deny restitution of those monies under the UCL.

Fourth, with respect to the sole issue raised by AMN's cross-appeal, we conclude the trial court properly refused to award AMN prejudgment interest on $288, 330.28 of the damages award.

Therefore, the judgment is affirmed in its entirety.

FACTUAL AND PROCEDURAL BACKGROUND

1. The PLA.

AMN owned certain patents which allegedly had been infringed. On March 24, 2008, AMN, through its chief executive officer, Richard Agostinelli, and an entity identified as Precious Metals Finance, LLC (PMF), through Markoff, its sole manager, entered into the PLA which is the subject of this dispute.^[2] The PLA, a three-page document, stated that "AMN has requested that PMF become involved in the financing and management of the Patent Claims," and that the parties agreed, inter alia:

"1. PMF will use reasonable efforts to engage a law firm. specializing in litigating patent infringement claims ('PLLF') to represent AMN with regard to the Patent Claims ('Patent Litigation') on a contingency fee basis agreeable to both PMF and AMN. . . .

"2. PMF will use reasonable efforts to manage and administrate the Patent Litigation.

"3. PMF shall meaningfully consult with the Chief Executive Officer of AMN on a periodic basis regarding the status of the Patent Litigation, including any settlement of the Patent Litigation. . . .

"4. AMN shall at all times fully cooperate with PMF and PLLF regarding the Patent Litigation.

"5. Any settlement of the Patent Litigation shall be agreed upon by both AMN and PMF.

"6. Subject to the right of reimbursement described in this Agreement, PMF shall be responsible for the payment of all reasonable expenses owed to expert witnesses approved by PMF . . . to support their efforts related to the prosecution of the Patent Litigation. . . .

"7. The amount recovered from the Patent Litigation, including any settlement thereof, shall be distributed as follows:

"a. First, unless otherwise expressly modified by any attorney fee agreement entered into between AMN and PLLF, PMF shall be reimbursed for all reasonable expenses paid by PMF in relation to the Patent Litigation.

"b. Second, for the payment of any attorney fees, and costs, if any, to PLLF or other expenses incurred in the Patent Litigation and owed to any expert witness or other third party retained by AMN and/or PLLF in accordance with Section 6 above to pursue the Patent Litigation.

"c. Third, the remaining balance of any recovery from the Patent Litigation shall be shared with 60% of the remaining balance being paid to AMN and 40% of the remaining balance being paid to PMF.

"8. AMN acknowledges and agrees that this Agreement shall constitute an assignment of 40% of the proceeds of any recovery from the Patent Litigation to PMF . . . ."

Markoff contacted various law firms to discuss possible representation of AMN in connection with the patent litigation. Ultimately, the firm of Ostrow Kaufman & Frankl (Ostrow) agreed to represent AMN in the patent litigation for a contingency fee of between 25 and 45 percent, depending on the stage in the litigation that the action was resolved.

Following an initial settlement of certain patent litigation known as the Inmarsat lawsuit, the sum of $909, 621 was distributed to A-Mark in May 2012, representing 40 percent of the net settlement proceeds as provided in the PLA. AMN subsequently refused to split further settlement proceeds with A-Mark.

2. Pleadings.

On November 1, 2012, A-Mark and AMAG initiated this breach of contract action against AMN, seeking to recover 40 percent of any additional net proceeds received by AMN from infringement claims on the patents identified in the PLA.

AMN, in turn, filed a cross-complaint against A-Mark, AMAG and Markoff. AMN pled that the PLA was void pursuant to section 6155 because A-Mark, AMAG and Markoff were not registered with the California State Bar to provide attorney referral services.^[3] The cross-complaint included causes of action for declaratory relief as well as intentional fraud and negligent misrepresentation. The cross-complaint also pled a cause of action under the UCL that sought restitution of monies that AMN had paid to A-Mark pursuant to the PLA, as well as injunctive relief to preclude the cross-defendants from engaging in any acts constituting the provision of attorney referral services. AMN subsequently filed a first amended cross-complaint that added a cause of action for money had and received, to recover the $909, 621 that it had paid to A-Mark pursuant to the PLA.

3. AMN obtains summary judgment on A-Mark's action for breach of contract.

AMN moved for summary judgment on A-Mark's complaint. AMN contended the PLA called for PMF to provide lawyer referral services, which can only be provided by persons or entities registered with the State Bar pursuant to section 6155. AMN asserted that because Markoff, A-Mark, PMF and any other related entity were not registered with the State Bar of California to provide lawyer referral services, the PLA was void and unenforceable.

Additionally, AMN argued that PMF's fee under the PLA violated section 6155, subdivision (a)(2), which requires that the combined charges to the client by the referral service and the attorney to whom the potential client is referred not exceed the total cost that the client would pay if no referral service were involved.

In opposition, A-Mark denied that it had operated a lawyer referral service. It argued section 6155 "simply does not apply. ...