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Court of Appeal, Second District, California.

LEON PALASSANIAN et al., Plaintiffs and Appellants, v. MERCEDES-BENZ USA et al., Defendants and Respondents.


    Decided: January 26, 2011

Burke and Associates, and Brian J. Burke for Plaintiffs and Appellants. Burke, Williams and Sorensen, Ronald F. Frank, and Brian I. Hamblet for Defendants and Respondents.



Leon Palassanian and his mother, Tamara Marchenko (appellants or Plaintiffs), appeal from two orders of the superior court.   One order denied their motion to rescind a settlement agreement that they entered into with respondents Mercedes-Benz USA (MBUSA) and Sage Auto Group.   The other order granted respondents' motion for sanctions against appellants for filing the rescission motion.   Finding no error, we affirm.


On April 1, 2008, appellants filed a complaint in Los Angeles Superior Court alleging that MBUSA and Sage Auto Group (respondents or Releasees) sold them a defective vehicle.   Subsequently, on May 1, 2009, the parties entered into a “FULL RELEASE, SETTLEMENT AGREEMENT AND CONFIDENTIALITY AGREEMENT” (Release or Settlement Agreement).   The Settlement Agreement stated that in return for “[t]he payment by Releasee MBUSA of $60,000.00 to Plaintiffs and Plaintiffs' counsel, an amount which is inclusive of all Plaintiffs' legal fees, costs, and expenses,” appellants would return the vehicle, execute the Settlement Agreement, and dismiss the action.

The Settlement Agreement also provided, in paragraph 10, that “Plaintiffs and Releasees each agree to pay their own attorneys' fees and costs incurred in connection with the prosecution or defense of the Action, and agree to hold each other harmless from any claims by their attorneys with respect to any fees, costs, or expenses arising out of the Action.   Plaintiffs acknowledge that the settlement payment includes a negotiated amount for attorneys' fees, court costs, expert fees, and litigation expenses, and that Plaintiffs are responsible for satisfying any claim of Plaintiffs' present and any former counsel or experts for fees regardless of the amounts indicated on any settlement check or checks.” 1

The Settlement Agreement also included several provisions indicating that it was an integrated document.   In paragraph 13, the agreement provided that “[t]he parties expressly agree that together with the Request for Dismissal, with prejudice, this Release is an integrated document, and that there are no prior or contemporaneous understandings or agreements of the parties not contained in or incorporated by reference in this Release, the terms of which are contractual and not a mere recital.”   The Settlement Agreement further provided, in paragraph 7, that “Plaintiffs warrant and represent that in executing this Release Plaintiffs do so with the advice and consent of legal counsel and with full knowledge of any and all rights which Plaintiffs may have with respect to Releasees, and that other than as expressly set forth in this Release, Plaintiffs are not relying on and have not relied on any representation or statement made by the Releasees or persons acting on behalf of the Releasees with respect to any of the facts involved in the controversy herein compromised or with regard to Plaintiffs' rights or asserted rights in that connection.”

On May 29, 2009, a check for $43,000 was made out to “Tamara Marchenko & Brian Burke Esq.” from an MBUSA escrow account.   Burke was and is appellants' counsel.   On June 2, 2009, Burke sent an e-mail to MBUSA's counsel, Jodi Chapin Lumsdaine, stating:  “I received a check today for $43,000.00.   The settlement was for $60,000.00.   This is a breach of the settlement agreement.   Please overnight the balance of $17,000.00 today with a proof of mailing or tracking number.”   The record shows a subsequent e-mail from Burke to Lumsdaine stating:  “The settlement was for $60,000 inclusive of fees and costs.   That was your specific demand.   I told you to segregate the settlement to $35000 and $25000 and you specifically declined.   There was no agreement to $43000 for anything.”   Lumsdaine responded with an e-mail apologizing for any misunderstanding and advising Burke that “[t]he balance of the money to be paid is enroute and will be overnighte[d] to you as soon as I have it from my client.”   Later that day, Lumsdaine sent an e-mail to Burke, stating:  “As discussed earlier today, MBUSA will pay you and your client the lump sum amount of $60,000.00, as agreed in the settlement agreement.   How that $60K is split up between you and your client is between you and your client.   The amounts were split into $43K and $17K checks due to MBUSA internal accounting procedures which do not in any way violate the terms of the settlement agreement.  [¶] I have just been informed that my client contact who is responsible for handling check requests was out of the office today.   She is expected back in tomorrow.   I will contact you tomorrow with additional information regarding the status of the second check.”   The second settlement check, made out to “Leon Palassanian, Tamar [sic ] Marchenko and Brian Burke” was sent on June 4, 2009.

On June 9, 2009, Burke sent a letter to his clients, stating:  “Please find enclosed with this letter your settlement proceeds in the amount of $43,000.00.   As I indicated to Leon on the telephone, given the manner in which the defendant revised the terms of the written settlement agreement negotiated and agreed to by all parties, my prior legal services agreement with you, my fiduciary obligations to you as your attorney, and the defendants' insistence that I get paid out [of] the amount ($43,000.00) they have re-characterized as the amount payable to you, I am endorsing the check over to Tamara, pursuant to Leon's suggestion.   I will pursue my attorney fees in excess of $17,000.00 against the defendants.   If to that end I need your assistance, I trust it will be forthcoming.”

On July 6, 2009, appellants moved to rescind the Settlement Agreement on the basis that defendants had breached the agreement by “paying Plaintiffs $43,000.00, Plaintiffs' attorney $17,000.00, and insisting that Plaintiffs' attorney take the remaining amount of his fees and costs from his clients' refund.”   According to appellants, respondents had initially accepted appellants' settlement offer of $35,000 to appellants and $25,000 to appellants' counsel but then had unilaterally insisted on paying appellants $43,000 and appellants' counsel $17,000.   Appellants contended that respondents' actions “violate[d] the negotiated settlement agreement and invite [d] Plaintiffs' attorney to either (1) violate his fiduciary obligations to his client (through silence), or (2) destroy his clients' trust ․ (by claiming $8,000.00 in fees from their refund), and, either way, (3) call the legal profession into disrepute.”

Respondents opposed the rescission motion on the ground that appellants improperly relied upon parol evidence that contradicted the Settlement Agreement.   They also filed a motion for sanctions seeking damages of $7,402.50 for legal fees incurred to defend against the rescission motion pursuant to Code of Civil Procedure section 128.7 on the ground, among others, that the rescission motion was frivolous.2

The superior court denied the rescission motion, finding it “did not set forth any valid basis to rescind” the Settlement Agreement, and awarded sanctions in the amount of $4,000 against appellants.   Appellants did not seek a written statement of decision.   A judgment of dismissal without prejudice of the underlying action was entered on September 2, 2009.   Appellants filed a timely notice of appeal.


A. Denial of Appellants' Rescission Motion.

Appellants first contend that the trial court erred when it denied their rescission motion.   Appellants moved to rescind the Settlement Agreement under Civil Code section 1689 on four grounds:  (1) that respondents had obtained their agreement to the settlement agreement by fraudulent promises, (2) that respondents had failed to meet their obligations in the agreement, (3) that the purpose of the agreement was illegal, and (4) that enforcement of the agreement would be against the public interest.  (Civ.Code, § 1689, subd. (b)(1), (2), (5) & (6).)   In support of their rescission motion, appellants produced evidence purporting to show (1) that respondents had accepted a presettlement offer to pay $35,000 separately to appellants and $25,000 separately to appellants' counsel, (2) that respondents had unilaterally modified the settlement offer by fraudulently promising to pay $60,000 in a lump sum, leaving the allocation of the settlement amount to appellants and their counsel, and (3) that respondents had breached the Settlement Agreement by writing checks of $43,000 and $17,000.   The trial court expressly or impliedly found (1) that the Settlement Agreement was an integrated document, (2) that appellants' evidence in support of their rescission motion constituted extrinsic evidence inadmissible under section 1856, the parol evidence rule, and (3) that respondents had fulfilled their obligations under the Settlement Agreement.   After an independent review, we conclude that the trial court's denial of the rescission motion was correct.

Under the parol evidence rule, extrinsic evidence is inadmissible to show a promise contradicting the terms of a written agreement.  (West v. Henderson (1991) 227 Cal.App.3d 1578, 1583[“[T]he California Supreme Court has declared the fraud exception [of section 1856] does not apply if the evidence is offered to show a promise contradicting the written agreement”].)   As our Supreme Court has observed, “the parol evidence rule effectively immunizes [a party] from liability for prior or contemporaneous statements at variance with the written ․ contract.”  (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 347.)   Here, the Settlement Agreement expressly provided for a sum of $60,000-inclusive of attorney fees and other litigation expenses-and expressly referred to “settlement check or checks.”   By its terms, it neither obligated MBUSA to write separate checks to counsel and his clients, nor compelled MBUSA to write a single check.   Appellants' insistence that MBUSA had agreed either to write separate checks to appellants and their counsel or to write a single check for the total amount thus constitutes an interpretation at odds with the agreement itself, making it one to which the language is not “ ‘reasonably susceptible.’ ”   Thus, appellants' proffered extrinsic evidence of respondents' allegedly fraudulent promises was inadmissible under section 1856 (See Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 [“The test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is ‘reasonably susceptible.’  [Citation.]”].) Because respondents complied with the express terms of the Settlement Agreement by writing checks totaling “$60,000 to Plaintiffs and Plaintiffs' Counsel,” there was no basis to rescind the agreement on grounds of promissory fraud or respondents' alleged failure to meet their contractual obligations.

Nor does the proffered evidence demonstrate that the purpose of the Settlement Agreement was illegal or that enforcement of the agreement would be against the public interest.   Appellants appear to contend that it would be illegal and/or against the public interest for respondents to draft an agreement that could create a potential ethical conflict for appellants' counsel, or to pay the settlement amount in a way that “invite[d]” appellants' counsel to breach his ethical obligations by taking a portion of the $43,000 settlement check to cover his legal fees.   However, nothing in the Settlement Agreement prohibits appellants and their counsel from divvying up the settlement amount in whatever manner is agreeable to them.   Moreover, respondents' actions did not create a potential ethical conflict between appellants and their counsel.   Both settlement checks were made payable jointly to appellants and their counsel.   Appellants' counsel was entitled to whatever portions of the $43,000 and the $17,000 settlement checks were provided for in his agreement with appellants.   Thus, there is no evidence from which a court could conclude that the Settlement Agreement should be rescinded for illegality or as being against the public interest.3

Because respondents did not breach the Settlement Agreement and appellants produce no admissible evidence in support of their rescission motion, the trial court properly denied the motion.4

B. Grant of Motion for Sanctions.

Appellants also contend that the trial court abused its discretion in awarding sanctions because their rescission motion was not frivolous.   We disagree.

Under section 128.7, the trial court has discretion to impose sanctions when an attorney files a frivolous motion. (§ 128.7, subd. (b)(2);  accord Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th 71, 82.)   Here, the trial court found that “[t]he motion [does] not set forth any valid basis to rescind the full release and settlement and confidentiality agreement.   I'm not sure why the motion was filed.”   After reviewing the rescission motion, we conclude that no reasonable attorney would have believed (1) that respondents breached the Settlement Agreement, or (2) that the extrinsic evidence filed in support of the rescission motion was admissible under section 1856.   Because there was no admissible evidence to support the rescission motion, the motion was frivolous as a matter of law.   Accordingly, the trial court did not abuse its discretion in imposing sanctions of $4,000 for legal fees.


The superior court's orders denying appellants' rescission motion and granting respondents' motion for sanctions are affirmed.   Costs are awarded to respondents.


We concur:


1.  FN1. We reject appellants' contention that respondents may not cite the language in paragraph 10 to support their arguments on appeal because respondents did not previously cite paragraph 10 in the trial court.   None of appellants' cases support this contention.   Moreover, given that the Settlement Agreement is undisputed evidence that is in the record on appeal, this court may rely upon any language in the agreement to determine the merits of the appeal.

2.  FN2. All further statutory citations are to the Code of Civil Procedure, unless otherwise stated.

3.  FN3. Appellants' arguments on appeal appear to be based upon a mistaken impression that the $43,000 settlement check was payable only to appellants and the $17,000 settlement check was payable only to appellants' counsel.   The record, however, shows that both checks were payable jointly to appellants and their counsel.   Furthermore, appellants' counsel's conduct after receiving the $43,000 settlement check belies appellants' arguments on appeal.   Counsel did not return the $43,000 check and request a single check for $60,000 or two checks in the amount of $35,000 and $25,000.   Instead, he demanded that respondents send the remaining $17,000 immediately.

4.  FN4. Our ruling also results in the denial of appellants' November 15, 2010 motion to admit documentary evidence because that evidence, which was not before the trial court, consists of extrinsic evidence inadmissible under section 1856.



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