Majority
Opinion
— Allyn Ferguson (Allyn)[1] and his wife, plaintiff Joline Ferguson (Joline), (collectively, the Fergusons) offered to sell to their attorney, defendant Robert M. Yaspan (Yaspan), and his wife (collectively, the Yaspans) an interest in a London flat they owned. At Yaspan’s suggestion, the Fergusons hired independent counsel and the parties exchanged five drafts before signing a written agreement in 1995. The trial court concluded that Joline’s 2011 petition to set aside the agreement as a product of Yaspan’s undue influence was untimely and without merit. We agree, and affirm the judgment.
FACTS AND PROCEDURAL HISTORY
In the 1980’s, Allyn and Joline bought a flat in London overlooking Hyde Park for approximately $200,000, and put title to the property in the Wellington Trust (Trust).
In the early 1990’s, the Federal Deposit Insurance Corporation (FDIC) sought to collect $2 million from Allyn and three others who had guaranteed a loan made to a music school. Allyn hired Yaspan, an attorney, to represent him. The FDIC agreed to settle for $800,000, with $200,000 coming from
1 Because the Fergusons and their daughter share the same last name, we use their first names for clarity. We mean no disrespect.
In 1995, Allyn approached Yaspan with a business deal. Yaspan and his wife would become 50 percent co-owners of the Trust with Allyn and Joline; in exchange, the Yaspans would assume half of the Note and pay Allyn the equivalent of $200,000. This proposal enabled the Fergusons to recover nearly all of their original purchase price for the flat and still own half of it. Both the Fergusons and the Yaspans wanted to be partners with each other and not each other’s children, so they agreed that whichever couple outlived the other would have the right to buy out the deceased couple’s interest in the Trust before that interest could pass to anyone else.
Recognizing the potential conflict of interest, Yaspan advised Allyn that he should hire independent counsel to advise him in drafting their tentative agreement. Allyn retained Keith Zimmet (Zimmet), who was an associate at the law firm of Lewitt, Hackman, Hoefflin, Shapiro, Marshall & Harlan' (Lewitt Hackman). Yaspan had nothing to do with Allyn’s selection of Zimmet. Because Lewitt Hackman had represented Allyn’s accountant, who still owned the Note, the Fergusons waived the conflict between themselves and the accountant in writing.
Zimmet and Yaspan started negotiating. Yaspan prepared the initial draft. Over the next five months, Zimmet produced five more drafts, including the final draft.
All of the drafts, as well as the final agreement (Agreement), contained a “buy-out” provision: The substance of that provision remained the same in every draft, but the language used to effectuate it changed (and became increasingly “complicated”). In the first two drafts, paragraph 7.0 explained that “[i]n the event of the death of both of the FERGUSON’S [sic] or both of the YASPAN’S [sic] then the Trust shall buy out their interest at 50% of a deemed total value of $650,000 [and] shall fund such buy-out with a 10-year . . . life insurance policy . . . .” Later drafts relied on two different sections (pars. 11, 13) to provide that (1) the Trust would buy insurance and fund a $325,000 payment upon the death of the second spouse of either couple (par. 11(d)), and (2) either couple had the right to buy the other’s share at $325,000 if the property was to be “sold” or “transferred” (par. 13), which Yaspan opined might apply to testamentary transfers as well. The Agreement also contemplated the simultaneous execution of a second amendment to the Trust itself, which contained the buyout and right of first refusal terms and also made the Trust irrevocable.
Neither couple took out the life insurance policies the Agreement contemplated. In 1999, Allyn and Yaspan asked the current trustee of the Trust to resign, and became cotrustees. That same year, Yaspan bought the Note. Sometime thereafter, both the Fergusons and the Yaspans lost their copies of the signed Agreement, although the Fergusons did have copies of the initial and penultimate drafts. In 2004, the Fergusons retained a trust and estates lawyer who explained these drafts to them.
A year after Allyn passed away in 2010, Joline filed a petition and an amended petition for an order rescinding the second amendment seeking, among other things, rescission of the Agreement, “general damages,” and an accounting. Yaspan filed a competing petition to enforce the Agreement. The parties agreed to try the issue of the Agreement’s validity first, and did so on eight days over the course of eight months.
The trial court upheld the Agreement. The court concluded that Joline’s petition was barred by the four-year statute of limitations. On the merits, the court ruled that (1) Yaspan had been representing the Fergusons at the time the Agreement was signed, (2) the transaction did not comply with the State Bar Rules of Professional Conduct, rule 3-300 and was presumptively unfair under Probate Code section 16004, but (3) Yaspan had rebutted that presumption by demonstrating that the Agreement was fair and reasonable, and that Zimmet had served as independent counsel who had explained the Agreement and its implications to the Fergusons. In making these determinations, the trial court found Yaspan and Zimmet to be credible, and some of the testimony of Allyn and Joline’s daughter Jillian Ferguson (Jillian) not to be credible.
The court entered judgment, and Joline timely appealed.
2 Joline is now in her 80’s. We accordingly grant the parties’ joint request for calendar preference. (Warren v. Schecter (1997) 57 Cal.App.4th 1189 , 1198-1200 [ 67 Cal.Rptr.2d 573 ]; Code Civ. Proc., § 36.)
I. Timeliness of Joline’s petition
T
he trial court ruled that Joline’s petition was barred by the statute of limitations for seeking rescission under Code of Civil Procedure section 337 because she did not file within four years of the end of her attorney-client relationship with Yaspan in 1999 or within four years of when her trust attorney in 2004 explained the buyout provision contained in the two drafts she possessed (and which were substantively identical to the final draft).
Joline argues that this ruling is incorrect for three reasons: (1) no statute of limitations applies because she is asserting rescission defensively and is not seeldng affirmative relief; (2) the limitations clock has yet to start running because it has been tolled while Yaspan has acted as a fiduciary to the Fergusons (as an attorney from 1995 to 1999, and as cotrustee of the Trust from 1999 until the present); and (3) Yaspan lulled the Fergusons into inaction by preventing them from obtaining a copy of the Agreement until 2010, and by misrepresenting to the Fergusons at a 2007 meeting that the Agreement contained no buyout provision.
We review the application of a statute of limitations de nova when the facts are undisputed. (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185 , 1191 [ 151 Cal.Rptr.3d 827 , 292 P.3d 871 ].) We review the trial court’s factual findings for substantial evidence by examining the whole record, including conflicting evidence, in the light most favorable to the ruling below to determine whether there is reasonable, credible evidence of solid value to support that ruling. (People v. Boyce (2014) 59 Cal.4th 672 , 692 [ 175 Cal.Rptr.3d 481 , 330 P.3d 812 ] (Boyce); People v. Jackson (2014) 58 Cal.4th 724 , 749-750 [ 168 Cal.Rptr.3d 635 , 319 P.3d 925 ] (Jackson).)
A. Rescission as a defense
The invalidity of a contract may be asserted either as a basis for affirmative relief or as a defense. (See Schuman v. Ignatin (2010) 191 Cal.App.4th 255 , 266 [ 119 Cal.Rptr.3d 318 ].) When a litigant seeks affirmative relief, her claim may be barred if filed outside the statute of limitations period. (Styne v. Stevens (2001) 26 Cal.4th 42 , 51-52 [ 109 Cal.Rptr.2d 14 , 26 P.3d 343 ].) However, where invalidity is raised solely as a defense, there is no limitations period because statutes of limitations are designed to “act as a bar to actions or proceedings” — not to individual claims or defenses. (French v. Construction Laborers Pension Trust (1975) 44 Cal.App.3d 479 , 485-486 [ 118 Cal.Rptr. 731 ].) Although the validity of the Agreement is germane as a defense to Yaspan’s competing petition, it is also a central
B. Delayed accrual
As a general rule, statutes of limitations begin to run once every element of a cause of action has occurred. (Strasberg v. Odyssey Group (1996) 51 Cal.App.4th 906 , 916 [ 59 Cal.Rptr.2d 474 ] (Strasberg).) But this rule does not apply when the putative defendant is in a fiduciary relationship with the putative plaintiff; in that situation, the statute of limitations clock does not begin to tick until “the [putative plaintiff] has knowledge or notice of the act constituting a breach of fidelity.” (Eisenbaum v. Western Energy Resources, Inc. (1990) 218 Cal.App.3d 314 , 324 [ 267 Cal.Rptr. 5 ] (Eisenbaum); see Strasberg, at p. 916.) The existence of the fiduciary relationship limits the plaintiff’s duty of inquiry by eliminating the plaintiff’s usual duty to conduct due diligence, but it does not empower that plaintiff to “ ‘sit idly by’ ” when “ ‘ “facts sufficient to arouse the suspicions of a reasonable [person] ...” ’ ” “ ‘come to his [or her] attention.’ [(Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834 ,] 855 [ 176 Cal.Rptr. 239 ]).” (Czajkowski v. Haskell & White, LLP (2012) 208 Cal.App.4th 166 , 176-177 [ 144 Cal.Rptr.3d 522 ], italics omitted; see Graham-Sult v. Clainos (9th Cir. 2014) 756 F.3d 724 , 743; Eisenbaum, at p. 325.)
Even if we assume Yaspan has been a fiduciary of the Fergusons since 1995,[3] the trial court did not err in concluding that the statute of limitations began to run by the time the Fergusons discussed the draft agreements with their trust attorney in 2004. Both drafts are substantively identical to the Agreement, and the language of the penultimate interim draft is nearly identical to the language in the Agreement. Once the Fergusons’ trust attorney explained the significance of that language, the Fergusons had before them sufficient facts to raise the voidability argument that Joline waited until 2011 to assert in her petition (and which we address below).
C. Tolling due to lulling
A limitations period that has started to run can nevertheless be tolled if the putative defendant engages in “fraud in concealing a cause of action.” (Grisham v. Philip Morris U.S.A., Inc. (2007) 40 Cal.4th 623 , 637 [ 54 Cal.Rptr.3d 735 , 151 P.3d 1151 ].) Joline contends that Yaspan lulled her and
3 Because of this assumption, we do not need to decide whether Yaspan’s status as a cotrustee of the Trust from 1999 until 2013 further invoked the delayed accrual rule.
II. Validity of Agreement
Substantial evidence supports the trial court’s ruling. Yaspan was never designated as the repository for the Agreement; Yaspan opened his files to the Fergusons when they asked him for a copy of the Agreement; and Zimmet, the Fergusons’ own lawyer, was the one who provided a copy of the Agreement when Yaspan inquired of him. This evidence adequately supports the trial court’s finding that Yaspan was not concealing the Agreement. The trial court also found credible Yaspan’s trial testimony that at most he said he was uncertain about the Agreement’s contents and that he did not himself draft or review the “restatement.” Because we are not at liberty to disagree with these credibility findings (Jackson, supra, 58 Cal.4th at p. 749), the trial court’s ruling on this ground is also supported by substantial evidence.
For these reasons, the trial court’s ruling that Joline’s claim is time-barred was not erroneous[4]
At
torneys are fiduciaries who owe their clients the “ ‘most conscientious fidelity.’ ” (Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135 , 1140 [ 125 Cal.Rptr.3d 765 ] (Fair).) The law accordingly takes a jaundiced view of business transactions between attorneys and their clients. (See Mayhew v. Benninghoff (1997) 53 Cal.App.4th 1365 , 1369 [ 62 Cal.Rptr.2d 27 ] (Mayhew) [“the law presumes” attorneys engaging in such transactions “wear” a “black” hat].) Such transactions are not prohibited, but they are disfavored. The State Bar Rules of Professional Conduct, rule 3-300 subjects a lawyer to discipline if he or she “enter[s] into a business transaction with a client” without first satisfying certain substantive and procedural prerequisites. (Rules Prof. Conduct, rule 3-300 (rule 3-300).) Rule 3-300 does not itself “provide a basis for civil liability” (BGJ Associates v. Wilson (2003) 113 Cal.App.4th 1217 , 1227 [ 7 Cal.Rptr.3d 140 ] (BGJ)), but its statutory counterpart — Probate Code section 16004 — erects a presumption that transactions between an attorney and client “by which the [attorney] obtains an advantage” are a breach of the attorney’s fiduciary duty and are the product of undue influence. (Prob. Code,
4 Joline also appears to attack the trial court’s ruling that the equitable doctrine of loches does not apply. We need not address this issue because the ruling favors Joline and because the statute of limitations bar makes it unnecessary to address the further bar of loches.
The trial court concluded that Yaspan was acting as the Fergusons’ lawyer when they entered into the Agreement in 1995, so the pertinent question is whether the trial court erred in concluding that Yaspan rebutted section 16004’s presumption of undue influence. The presumption is rebutted by a showing that (1) “ ‘the dealing was fair and just, and [(2)] the client was fully advised.’ ” (BGJ, supra, 113 Cal.App.4th at p. 1228, quoting Felton v. Le Breton (1891) 92 Cal. 457 , 469 [ 28 P. 490 ] (Felton); see Fair, supra, 195 Cal.App.4th at pp. 1152-1153.)
Joline argues that Yaspan failed to establish either requirement because (1) the Agreement was not fair and reasonable, and (2) she and Allyn were never fully advised of the terms of the agreement by Yaspan himself or by Zimmet, who was not truly “independent” counsel. We review the trial court’s factual findings for substantial evidence (Boyce, supra, 59 Cal.4th at p. 692), and the court’s assessment of the fairness of the deal and the adequacy of disclosures de nova because both are measured by an objective legal standard (see Haworth v. Superior Court (2010) 50 Cal.4th 372 , 385 [ 112 Cal.Rptr.3d 853 , 235 P.3d 152 ]).
A. Fairness of the Agreement
Joline argues that the Agreement is unfair and unjust because the buyout provision guaranteeing the surviving couple the right to buy the nonsurviving couple’s 50 percent interest in the Trust for a fixed price of $325,000 unfairly benefits the Yaspans over the Fergusons because (1) the value of the flat was more likely to appreciate than depreciate over time (making the $325,000 buyout price an unreasonably low price), and (2) the Fergusons were less likely than the Yaspans to be the beneficiaries of this windfall because they were older and thus statistically more likely to die first. Joline contends that the irrevocability of the Trust and the de facto requirement that both couples consent before either couple can sell its 50 percent interest to any third
5 All further statutory references are to the Probate Code unless otherwise indicated.
1. Focus on the Agreement as a whole
Contractual language is construed “ ‘ “in the context of [the] instrument as a whole ....”’ (Bay Cities Paving[ & Grading, Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854 , 867 [ 21 Cal.Rptr.2d 691 , 855 P.2d 1263 ] . . .].)” (Regional Steel Corp. v. Liberty Surplus Ins. Corp. (2014) 226 Cal.App.4th 1377 , 1390 [ 173 Cal.Rptr.3d 91 ].) There are good reasons to take the same approach in evaluating the fairness and reasonableness of contracts. Contracts contain many terms, with some terms favoring one party and other terms favoring the other party. Focusing on just the unfavorable terms would invariably lead to the conclusion that a contract is unfair, even though other terms a court would be required by Mine’s rule to ignore make the overall contract evenhanded and fair.
We agree with the trial court that Yaspan established that the Agreement, as a whole, is fair and reasonable to the Fergusons. Although it is not dispositive (Hawk v. State Bar (1988) 45 Cal.3d 589 , 599 [ 247 Cal.Rptr. 599 , 754 P.2d 1096 ]), it is worth noting that the idea to sell the fiat was Allyn’s. Allyn then set the price that was at fair market value in 1995 and at an amount that enabled the Fergusons to recoup their initial investment in the flat and retain a half interest in it. The Agreement reflected the couples’ mutual decision to keep the Trust’s ownership between the couples and not their children. Zimmet negotiated to have the Yaspans pay half of the insurance premiums even though the premiums were higher for the Fergusons than the Yaspans. And Allyn said he was “happy” with the Agreement before he signed it.
2. Focus on fairness at the time of signing
“ ‘It is blackletter law that whether a contract is fair ... is determined with reference to the time when the contract was made and cannot be resolved by hindsight ....’” (Coon v. Nicola (1993) 17 Cal.App.4th 1225 , 1238 [ 21 Cal.Rptr.2d 846 ], quoting Yeng Sue Chow v. Levi Strauss & Co. (1975) 49 Cal.App.3d 315 , 325 [ 122 Cal.Rptr. 816 ]; see O’Connell v. Lampe (1929) 206 Cal. 282 , 285 [ 274 P. 336 ] [looking to fairness at “the inception of the agreement”].) This case confirms why this focus makes sense. The buyout provision could be either a boon or a curse to the Fergusons depending on two variables unknown to the parties in 1995: (1) whether the
B. Adequacy of disclosures
Joline further contends that Yaspan did not sufficiently establish that he advised her and Allyn of the “pros and cons” of the Agreement and its buyout provision. More specifically, she argues that (1) Yaspan was himself personally required to counsel the Fergusons on the drawbacks of the buyout provision, whether or not they retained independent counsel, (2) Zimmet, the counsel the Fergusons hired, was not in actuality “independent,” and (3) Zimmet did not do a good job advising them about the Agreement’s benefits and drawbacks. The trial court rejected all three arguments. So do we.
1. Duty to advise
An attorney rebuts section 16004’s presumption of undue influence by showing that the client was “ ‘fully advised’ ” regarding the contract. (BGJ, supra, 113 Cal.App.4th at pp. 1227-1228.) Rule 3-300 similarly requires “full[] disclosure]” (Rules Prof. Conduct, rule 3-300(A)), and courts have interpreted this ethical rule (and its predecessor) to obligate the attorney to give “ ‘to his client “all that reasonable advice against himself that he would have given him against a third person.” ’ ” (Beery v. State Bar (1987) 43 Cal.3d 802 , 813 [ 239 Cal.Rptr. 121 , 739 P.2d 1289 ], quoting Felton, supra, 92 Cal. at p. 469; see Passante v. McWilliam (1997) 53 Cal.App.4th 1240 , 1248 [ 62 Cal.Rptr.2d 298 ]; Mayhew, supra, 53 Cal.App.4th at p. 1369.)
Yaspan made no such disclosures to the Fergusons in this case; instead, he followed rule 3-300’s requirement to advise the Fergusons to
6 For the same reasons, we reject Mine’s related argument that the 50/50 split in the costs of the Trust was unfair because of the small statistical likelihood that she would outlive both Yaspans.
Joline argues it cannot, while the trial court ruled it can. We agree with the trial court. Joline cites language in BGJ indicating that a client’s retention of independent counsel does not absolve the lawyer of his or her duty under rule 3-300 to obtain the client’s consent in writing to the terms of the transaction. (BGJ, supra, 113 Cal.App.4th at pp. 1226-1227.) From this, Joline extrapolates the principle that a client’s retention of independent counsel does not absolve the attorney of the duty to personally advise his or her clients of the pros and cons of the proposed transaction.
We reject this extrapolation for three reasons. First, BGJ was construing rule 3-300, not section 16004. Noncompliance with rule 3-300 triggers section 16004’s presumption (Fair, supra, 195 Cal.App.4th at p. 1153), but is not dispositive of section 16004; if it were dispositive, section 16004’s presumption would be conclusive rather than rebuttable. Second, and more to the point, BGJ did not deal with the interaction of the same two requirements of rule 3-300 as are at issue here. BGJ held that a client’s retention of independent counsel to give unbiased advice was not a substitute for having the client’s written consent to the terms of the transaction. Here, the issue is whether the client’s retention of independent counsel to give unbiased advice is a substitute for having the attorney entering into the transaction give advice. It is, at least where the attorney does not have any information bearing on the advisability of the transaction that is unavailable to independent counsel. Third, the alternative Joline proposes would disserve the purposes of rule 3-300 and section 16004 because it would not only permit — but require — the lawyer who is by law presumed to be exerting undue influence to give his or her clients advice about the proposed transaction even when those clients have retained a disinterested attorney to do the same. The potential for mischief arising when clients receive conflicting advice from their interested lawyer and their disinterested independent counsel is considerable.
2. Zimmet’s independence
Joline next argues that Zimmet did not, in fact, act as independent counsel because (1) he was just a “scrivener” who did not provide them with any substantive analysis of the Agreement, (2) he did little more than rubberstamp Yaspan’s initial draft, and (3) he labored under a conflict of interest.
Joline’s first argument is belied by the record. Joline cites two snippets of testimony in which Zimmet is characterized as a “scrivener,” but these pertain
Substantial evidence also supports the trial court’s finding that Zimmet acted as independent counsel. Zimmet drafted five of the six drafts of what eventually became the Agreement, and in those drafts substantially altered the language of the terms and also negotiated some of them to the Yaspans’ detriment. The trial court found Zimmet’s account of what he did to be “highly credible and compelling.”
The trial court also correctly determined that the conflict that the Fergusons waived between Zimmet’s firm’s representation of the Fergusons and Allyn’s accountant had “nothing to do” with Yaspan. In any event, that conflict was knowingly waived in writing by the Fergusons. Joline also cites a 1999 letter in which Yaspan indicates that Zimmet had been representing both himself and the Fergusons in 1995, but the contemporaneous evidence was to the contrary; Zimmet testified he only represented the Fergusons, and Yaspan “credibly” testified that his statement in the 1999 letter was incorrect.
3. Zimmet’s competence
Joline finally argues that Zimmet did a poor job representing them as independent counsel. Even if true, her remedy lies with a malpractice suit against Zimmet, not a finding that the Agreement is invalid. But the evidence does not reveal any deficiency: The Fergusons were properly advised and expressed their “happ[iness]” with the Agreement before they signed it.
Joline seeks to impeach that conclusion with Jillian’s testimony regarding Allyn’s understanding of the Agreement years later, and with Yaspan’s testimony that Allyn said he had unanswered questions before he signed the Agreement. However, the trial court found Jillian’s testimony not to be credible, and Yaspan testified that he advised Allyn to speak with Zimmet
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to Yaspan.
Boren, P. J., and Ashmann-Gerst, J., concurred.
A petition for a rehearing was denied January 20, 2015, and the opinion was modified to read as printed above. Appellant’s petition for review by the Supreme Court was denied March 25, 2015, S224512.
7 In light of these conclusions, it is not necessary to decide whether the Fergusons ratified the invalid Agreement or whether the Agreement is severable.
Cases cited
- Aryeh v. Canon Business Solutions, Inc. 55 Cal.4th 1185 at 1191 p. 682
- People v. Boyce 59 Cal.4th 672 at 692 p. 682
- People v. Jackson 58 Cal.4th 724 at 749-750 p. 682
- Schuman v. Ignatin 191 Cal.App.4th 255 at 266 p. 682
- Styne v. Stevens 26 Cal.4th 42 at 51-52 p. 682
- French v. Construction Laborers Pension Trust 44 Cal.App.3d 479 at 485-486 p. 682
- Strasberg v. Odyssey Group, Inc. 51 Cal.App.4th 906 at 916 p. 683
- Eisenbaum v. Western Energy Resources, Inc. 218 Cal.App.3d 314 at 324 p. 683
- Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. 122 Cal.App.3d 834 p. 683
- Czajkowski v. White 208 Cal.App.4th 166 at 176-177 p. 683
- Grisham v. Philip Morris U.S.A., Inc. 40 Cal.4th 623 at 637 p. 683
- Fair v. Bakhtiari 195 Cal.App.4th 1135 at 1140 p. 684
- BGJ Associates, LLC v. Wilson 113 Cal.App.4th 1217 at 1227 p. 684
- Felton v. Le Breton 92 Cal. 457 at 469 p. 685
- Haworth v. Superior Court 50 Cal.4th 372 at 385 p. 685
- Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Insurance 5 Cal.4th 854 at 867 p. 686
- Regional Steel Corp. v. Liberty Surplus Insurance 226 Cal.App.4th 1377 at 1390 p. 686
- Hawk v. State Bar 45 Cal.3d 589 at 599 p. 686
- Coon v. Nicola 17 Cal.App.4th 1225 at 1238 p. 686
- Yeng Sue Chow v. Levi Strauss & Co. 49 Cal.App.3d 315 at 325 p. 686
- O'Connell v. Lampe 206 Cal. 282 at 285 p. 686
- Beery v. State Bar 43 Cal.3d 802 at 813 p. 687