Judge: Stephen I. Goorvitch, Case: 23STCV11060, Date: 2023-08-10 Tentative Ruling

Case Number: 23STCV11060    Hearing Date: February 8, 2024    Dept: 39

Erica Chavez v. Arash Khorsandi, et al.

Case No. 23STCV11060

Demurrer

            Plaintiff Erica Chavez (“Plaintiff”) filed this action against Arash Khorsandi, Esq. (“Khorsandi”) and his law firm (the “firm”) (collectively, “Defendants”) asserting a cause of action for breach of contract.  Plaintiff initially alleged as follows:

Plaintiff is an attorney and licensed to practice law in the State of California.  On or about August 22, 2019, Plaintiff referred a case to Defendants, and the parties had an oral agreement pursuant to which Defendants would pay her a referral fee of 50% of all proceeds from the case.  Plaintiff did not have a signed fee sharing agreement per the California Rules of Professional Conduct, rule 1.5.1.  Defendants allegedly stated that a signed agreement “would not be needed when she became an employee of the Law Firm of Arash Khorsandi, APC.”  These statements allegedly were made to induce Plaintiff to refer the case to Defendants.  Defendants earned $3 million from the case on or about November 30, 2021, entitling Plaintiff to $1.5 million, but Defendants did not pay the referral fee. 

Defendant demurred to the single cause of action for breach of contract.  The Court sustained the demurrer because Plaintiff did not comply with Rule 1.5.1.  (See Court’s Minute Order, dated August 10, 2023.)  Rule 1.5.1 states:

“Lawyers who are not in the same firm shall not divide a fee for legal services unless: (1) the lawyers enter into a written agreement to divide the fee; (2) the client has consented in writing, either at the time the lawyers enter into the agreement to divide the fee or as soon thereafter as reasonably practicable, after a full written disclosure to the client of: (i) the fact that a division of fees will be made; (ii) the identity of the lawyers or law firms that are parties to the division; and (iii) the terms of the division; and (3) the total fee charged by all lawyers is not increased solely by reason of the agreement to divide fees.” 

In this case, there was no fee splitting agreement in writing, and Plaintiff did not comply with the disclosure and consent requirements of Rule 1.5.1.  The Court granted leave to amend to permit Plaintiff to allege sufficient facts to demonstrate that Defendant is equitably estopped from relying on Rule 1.5.1.  Plaintiff filed an amended complaint, to which Defendants again demurred. 

 “It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.”  (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.)  In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint.  (Code Civ. Proc., § 452.)  “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.”  (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

In her first amended complaint, Plaintiff repeats the same allegations as in the original complaint.  Plaintiff also alleges that Khorsandi promised Plaintiff that “she would be hired to work at [the firm].”  Plaintiff alleges that Khorsandi provided her “corporate documents” that provided Plaintiff “would become a director and shareholder, holding 5 shares or 20% of the outstanding shares of [the firm] . . . .”  However, Plaintiff concedes that she “did not sign the corporate documents [Khorsandi] presented to her and [Plaintiff] never moved into the [firm’s] office to work for [Khorsandi] or act as a corporate director and shareholder.” 

Based upon Plaintiff’s own allegations, the following is the chronology: (1) Plaintiff referred the case to Khorsandi on or about August 22, 2019; (2) At that time, Khorsandi informed Plaintiff that a written fee splitting agreement would not be necessary “when she became an employee” of his firm; (3) Khorsandi received a fee on or about November 30, 2021; (4) Plaintiff attempted to have Khorsandi sign a fee splitting agreement on or about November 24, 2022; (5) At some point between August 22, 2019, and November 24, 2022, Khorsandi provided Plaintiff “corporate documents” to make her a member of his firm; and (6) At some point between August 22, 2019, and November 24, 2022, Plaintiff declined Khorsandi’s offer of employment and did not become a member of his firm.

Based upon Plaintiff’s allegations, she cannot assert a claim for breach of contract because this contract was required to be in writing.  Rule 1.5.1 states that lawyers who are not in the same law firm “shall not” divide a fee for legal services unless the lawyer enters into a written agreement to divide the fee.  The complaint alleges that there was an “oral agreement,” which does not satisfy this requirement.  It is undisputed that Plaintiff was not a member of Khorsandi’s firm when they made the fee splitting agreement (on or about August 22, 2019) or when Khorsandi earned the fee (on or about November 30, 2021). 

The Court has reviewed the text messages alleged in Plaintiff’s complaint and none establishes a written agreement that would satisfy Rule 1.5.1.  Plaintiff argues that her text message on November 30, 2023, at 7:21 a.m., evidences a written agreement to proceed to “the next chapter” which meant that “[she] would continue to refer valued cases to Arash Law in consideration of a fifty percent fee split . . . .”  Plaintiff did not attach the text message to the complaint, which complicates the Court’s analysis.  Based upon Plaintiff’s counsel’s description, this text message does not satisfy the requirements of Rule 1.5.1.  More important, Plaintiff admits in her complaint that “there was no response by [Khorsandi] about ‘the next chapter’ . . . .”  Silence does not constitute an agreement that would evidence a contract.     

However, the larger problem is that Plaintiff did not comply with the disclosure and consent requirements of Rule 1.5.1.  The rule states that the client must consent in writing “at the time the lawyers enter into the agreement to divide the fee or as soon thereafter as reasonably practicable.”  The complaint does not allege that the client gave written consent on August 22, 2019, when the parties reached their agreement, or “as soon thereafter as reasonably practicable.”  Nor does the complaint allege that the client gave written consent before the fees were paid on or about November 30, 2021.  Plaintiff attached a fee splitting agreement, signed by the client, to the first amended complaint, but it was dated November 24, 2022.  This was over three years after the parties agreed to split the fees, and approximately one year after the fees were earned. Non-compliance with the California Rules of Professional Conduct renders fee splitting agreements unenforceable as a matter of public policy.  (Chambers v. Kay (2002) 29 Cal.4th 142, 158-159.)

Plaintiff argues that Defendants are equitably estopped from relying on Rule 1.5.1, per Barnes, Crosby, Fitzgerald & Zeman, LLP v. Ringler (2012) 212 Cal.App.4th 172, 185-186.).  In that case, the Court held as follows:

“Indeed, Chambers, Margolin, and Mark hold that an attorney who willfully or negligently violates [the rules on fee splitting] will be denied judicial enforcement of a fee-splitting agreement.  These cases serve the important public policy objectives of (1) motivating attorneys to comply with the rules’ disclosure and consent requirements, and (2) protecting clients from excessive fees and unfavorable litigation tactics.  But those objectives are circumvented when one attorney refuses to comply with the rules’ disclosure and consent requirements and inequitably blocks the other attorney from doing so.  In such a case, the offending attorney is equitably estopped from wielding [the rule] as a sword to obtain unjust enrichment.”

(Id., p. 186.) 

            By contrast, in the instant case, Plaintiff alleges no facts suggesting that Khorsandi made any misrepresentations or otherwise deceived her concerning the applicability of Rule 1.5.1.  Plaintiff alleges that Khorsandi informed her that a written fee splitting agreement would not be necessary because they would be “in the same firm” after she joined his firm.  This is a correct interpretation of Rule 1.5.1.  Plaintiff does not allege that Khorsandi falsely promised to make her a partner to avoid signing a written fee agreement and then “pulled the rug out from under her” by reneging on his offer of employment.  To the contrary, Plaintiff alleges that Khorsandi honored his promise to make her a partner in his firm by giving her documents making clear that “she would be hired to work at [the firm] and become a director and shareholder, holding 5 shares or 20% of the outstanding shares of [the firm] . . . .”  Plaintiff alleges that she declined the offer, and she does not allege that she was forced to do so because Khorsandi sabotaged the deal to avoid splitting the fee or somehow acted in bad faith.  Simply, there is nothing in the complaint suggesting that Khorsandi should be equitably estopped from relying on Rule 1.5.1.

            Nor does Plaintiff allege facts suggesting that she was not negligent, which is necessary if she seeks to equitably estop Defendants from relying on Rule 1.5.1.  (See Barnes, supra, 212 Cal.App.4th at p. 186.)  To the contrary, Plaintiff is an attorney who is obligated to understand the California Rules of Professional Conduct.  Rule 1.5.1 is short and straightforward on its face.  Plaintiff should have known that she could not take advantage of the exemption if she did not join Khorsandi’s firm based upon the plain language of the rule.  The complaint alleges nothing suggesting that Plaintiff did not act negligently in failing to execute a written fee waiver agreement. 

            Plaintiff alleges that Defendants attempted to persuade the client to deny having signed the fee splitting agreement dated November 24, 2022.  Plaintiff alleges that this occurred on July 28, 2023, which is after this lawsuit was filed.  Accordingly, the litigation privilege precludes Plaintiff from predicating her case on this communication.  Regardless, whether the client consented in November 2022, is not dispositive.  Per Rule 1.5.1, Plaintiff was required to obtain her client’s consent on or about August 22, 2019, and certainly before November 30, 2021. 

            Plaintiff requests leave to amend, stating that she can “add allegations regarding other attorneys who [Khorsandi] has promised to split a fee without a payment in the end.”  This alleged “pattern of conduct” will not save Plaintiff from her failure to comply with Rule 1.5.1.  The relevant issue is whether Khorsandi deceived her to avoid signing a written fee agreement, and she alleges no such facts.  Nor do the facts support an amendment to add a fraud claim, i.e., Plaintiff does not allege that Khorsandi’s offer of employment was not genuine and was merely a ruse to avoid signing a fee splitting agreement.  Plaintiff cannot bring claims against Khorsandi based upon injuries to attorneys who are not plaintiffs themselves. 

            Based upon the foregoing, the Court orders as follows:

            1.         The Court sustains Defendants’ demurrer without leave to amend.

            2.         Defendants may lodge a judgment if necessary.

            3.         Defendants shall provide notice and file proof of such with the Court.