Parness v. Abrams Garfinkel Margolis Bergson, LLP

MICHAEL PARNESS et al., Plaintiffs and Appellants,

v.ABRAMS GARFINKEL MARGOLIS BERGSON, LLP, et al., Defendants and Respondents.

B234762

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

Dated: August 14, 2012

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County

Super. Ct. No. SC105302)

APPEAL from a judgment of the Superior Court of Los Angeles County, Jacqueline Connor, Judge. Reversed.

Tesser, Ruttenberg & Grossman, Brandon M. Tesser and Brian M. Grossman for Plaintiffs and Appellants.

Manning & Kass, Ellrod, Ramirez, Trester, Fredric W. Trester, Christopher Kanjo, David M. Gruen and Kevin H. Louth for Defendants and Respondents.

Michael Parness and Full Glass Capital, LLC sued Michael J. Weiss and his law firm, Abrams Garfinkel Margolis Bergson,¹ for fraud arising out of the financing of the film Gospel Hill. After appointing a referee to evaluate Weiss's contention he could not defend himself without disclosing protected lawyer-client communications and reviewing the referee's report, the trial court dismissed the claims against Weiss. We reverse and remand for a new hearing on Weiss's motion.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Loans to Gospel Hill Productions, LLC²

Freddy Braidy, one of the Gospel Hill's producers and a principal of Gospel Hill Productions, LLC, asked Parness in early 2007 for a short-term $500,000 loan. Braidy told Parness the loan would be repaid from the proceeds of a $1 million loan from Cold Fusion Media Group, which Braidy expected to be funded in 10 days. During a series of teleconferences Braidy, Weiss, who was production counsel, and other producers involved with the film told Parness that Gospel Hill Productions had "good 'chain of title'" to the screenplay.

On June 6, 2007 Parness, on one hand, and Braidy and Scott Rosenfelt, both as managing members of Gospel Hill Productions and individually, on the other hand, agreed Parness would make the $500,000 loan, to be repaid by June 18, 2007, in exchange for a fee, interest and executive producer credit. As partial security for the promissory note, Gospel Hill Productions assigned all its rights in the film to Parness.

In mid-June 2007 Michael Roban, a principal of Cold Fusion Media Group, told Parness his company was not ready to make the $1 million loan to Gospel Hill Productions. As a result of this delay, Gospel Hill Productions asked Parness for anadditional loan of $150,000 to prevent the production from shutting down. Parness agreed. The original note was also modified, so both loans were due on June 20, 2007. Soon thereafter, however, Parness learned Cold Fusion Media Group would not make the $1 million loan to Gospel Hill Productions; and Gospel Hill Productions defaulted on the notes.

In mid-July 2007 Gospel Hill Productions told Parness production would have to shut down because it could not meet payroll and other financial obligations. During discussions about the projected revenue for the film, the producers and Weiss told Parness that Gospel Hill Productions had entered into a written distribution agreement with Twentieth Century Fox in which the studio had agreed to pay $1.5 million upon delivery of the movie and guaranteed a theatrical release on at least 350 screens. They also told Parness Samuel L. Jackson was starring in the movie, which would greatly increase its value to distributors, and they had sold the foreign distribution rights for approximately $6.5 million.

Parness agreed to make an additional loan to Gospel Hill Productions to preserve his collateral. Parness then formed Full Glass Capital to be the lending entity and transferred all his rights in the notes and under the various agreements to it. On July 13, 2007 Full Glass Capital loaned Gospel Hill Productions $360,000. This note was also personally guaranteed by Braidy and Rosenfelt.

On August 10, 2007 Full Glass Capital agreed to loan Gospel Hill Productions up to an additional $1,140,000 with a maturity date for the note of December 15, 2007. Gospel Hill Productions borrowed $267,000 of the sum available, bringing the total principal balance to $1,277,000.

2. The Pleadings

On October 16, 2009, after Gospel Hill Productions had failed to repay the loans, Parness and Full Glass Capital filed a lawsuit for fraud and breach of contract against Gospel Hill Productions, the producers, Weiss and others. A first amended complaint was filed in March 2010 and the operative second amended complaint on July 19, 2010.

The sixth cause of action alleged Parness and Full Glass Capital had been fraudulently induced to loan money based on Weiss and the producers' misrepresentation they had a good chain of title to the screenplay. It further alleged the producers and Weiss failed to disclose there was no written agreement between the writers of Gospel Hill and Gospel Hill Productions transferring the copyright for the screenplay; the producers and Weiss failed to disclose the writers had not been paid for their screenwriting services; and the producers and Weiss presented Parness with a letter from the writers confirming they had been paid in full while simultaneously sending a letter to the writers from the producers stating, "We the undersigned hereby confirm that we have not paid you for your services as writers for the screenplay 'Gospel Hill.' We will pay all the writers for their services upon all the financing being in place."³

The seventh cause of action alleged Weiss and the producers had fraudulently concealed the fact that the $1.5 million Fox paid had been based on Gospel Hill Productions's written representation Samuel L. Jackson would star in the movie. In fact, Jackson only had a "cameo" role and was refusing to permit his name or likeness to be used to promote or advertise the film, thus greatly diminishing its value.

3. The Motion To Dismiss and Order of Reference

Relying in large part on Dietz v. Meisenheimer & Herron (2009) 177 Cal.App.4th 771 (Dietz), on Weiss moved to dismiss the second amended complaint on the ground he could not defend himself without divulging confidential communications between client and lawyer in violation of that privilege and his duty of loyalty. (See id. at p. 792 [identifying four factors that must be considered "before a court may dismiss a case on the ground that a defendant attorney's due process right to present a defense would be violated by the defendant's inability to disclose a client's confidential information if the action were allowed to proceed"].) Weiss contended his clients had refused to waive the privilege and argued the court was not permitted to review the privileged documents pursuant to Evidence Code section 915, subdivision (a).

At the December 7, 2010 hearing on the motion the court indicated it was inclined to appoint a referee to review the purportedly privileged documents because the motion was supported by "a lot of assumptions" the court could not make: Weiss's counsel explained, "We purposely left the motions with a level of uncertainty because to make these any more certain would breach the attorney-client privilege." The court responded, "You need to get a special master or a referee or something to sit down and deal with it because I can't." Specifically, the court indicated it intended to appoint a referee to "go through every single one of those [purportedly privileged documents] . . . . I don't know if you have a hundred or four. . . . We're going to cut through the assumptions and find out what's really there, to see if there's any basis." Counsel for Weiss, as well as counsel for Gospel Hill Productions and Braidy, agreed to the reference after the court clarified, "[The privileged information] will not be revealed. It's just a ruling as to whether or not there truly is something within the attorney-client privilege and if there's anything left." Counsel for Parness and Full Glass Capital, however, resisted the proposal and engaged in the following exchange with the court:

"The Court: You have a better idea?

"Mr. Grossman: Yes, your Honor. That the motion be denied with prejudice.

"The Court: No. Okay, what's Plan B?

"Mr. Grossman: Well, if—

"The Court: They have—I'm going to give them a shot at—

"Mr. Grossman: My concern is this, your Honor.

"The Court: The answer's no. What's Plan B? Give me a Plan B.

"Mr. Grossman: I think Plan B is that we should . . . proceed to trial. If . . . they wish to bring another motion or perhaps a motion for summary judgment, they are certainly permitted to do that.

"The Court: I'm going to go ahead and order the referee."

A written order prepared by Weiss's counsel and signed by the court on December 28, 2010 stated, "The interested parties shall select a mutually agreeable referee to evaluate the relevant documentary and testimonial evidence, and thereaftermake recommendations to the Court for its ruling on Defendants' Motion to Dismiss. Said evaluation may be made by way of offers of proof, in camera review (either directly or through questions to a person most knowledgeable) or some other mechanism the referee may deem appropriate." A status conference was set for February 24, 2011 to review the referee's findings.

4. The Motion for Leave To File a Third Amended Complaint

On February 7, 2011 Parness and Full Glass Capital moved to amend the complaint to assert a claim for negligent misrepresentation (eighth cause of action) against Weiss. They explained their discovery had indicated Weiss may not have had the requisite knowledge of falsity to support a claim for intentional fraud and his misrepresentations may have simply been negligent.

5. The Procedure Followed by the Referee and the Referee's Report

The...