Filed 4/3/13 M.N. Mansour v. Spolin, Silverman et al. CA4/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
M.N. MANSOUR, INC., et al.,
Plaintiffs and Appellants, G046654
v. (Super. Ct. No. 30-2011-00462556)
SPOLIN, SILVERMAN, COHEN & OPINION
BOSSERMAN, LLP, et al.,
Defendants and Respondents.
Appeal from a judgment of the Superior Court of Orange County, Linda S.
Marks, Judge. Affirmed.
Law Offices of William B. Hanley and William B. Hanley; Law Offices of
Laura Sullivan and Laura M. Sullivan, for Plaintiffs and Appellants.
Bingham McCutchen, Bruce A. Friedman and Robert A. Brundage, for
Defendants and Respondents.
INTRODUCTION
This appeal involves a claim of transactional malpractice against a law
firm, Spolin, Silverman, Cohen and Bosserman, LLP, and two of its lawyers, Scott Spolin
and Stephen Silverman (collectively, Spolin). Their former client, M.N. Mansour, Inc.
(Mansour), and its principal, M.N. Mansour, allege that Spolin committed malpractice
when it failed to include a provision in an asset purchase agreement requiring the buyer
to continue to pay Mansour if the assets it purchased from Mansour were sold to another
company.
Spolin moved for summary judgment on the malpractice claim, asserting
that the buyer would not have agreed to the provision appellants now assert was
negligently omitted from the purchase agreement. The court granted the motion and
dismissed the action.
We affirm. Appellants did not present evidence to create a triable issue of
fact as to whether they would have received a “better deal” if the omission had not
occurred. Without this evidence, appellants could not establish “but for” causation, and
the legal malpractice claim fails.
FACTS
Mansour, formerly known as Applied Utility Systems, Inc. (AUS),
developed a system for removing pollutants from power plants and other fossil-fuel-
burning equipment. In early 2006, AUS entered into negotiations with Catalytic
Solutions, Inc. (CSI), to sell its assets. CSI created a subsidiary, AUS Acquisition, Inc.
(Acquisition), to purchase these assets.
In May 2006, CSI and AUS executed a letter of intent, which was expressly
made nonbinding. The parties contemplated structuring the purchase and sale to include
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an earn-out.1 The letter of intent also stated, “The parties shall mutually agree on the
liquidated amount earn-put payments to be paid to the shareholders of AUS in the event
of acquisition, change in control or sale of substantially all of the assets of CSI prior to
the end of the [earn-out period].”
Spolin came on board to represent Mansour in negotiations with CSI in July
2006. The parties entered into an asset purchase agreement on August 28, 2006. At
some point before that date, the structure of the transaction had changed. The letter of
intent contemplated that CSI would buy AUS’s assets. The asset purchase agreement,
however, identified Acquisition, a CSI subsidiary, as the purchaser. The provision
regarding a liquidated earn-out amount in the event of acquisition, change in control, or
sale of CSI’s assets was not included in the final agreement.
The first installment of earn-out payments was due on May 1, 2010. On
October 1, 2009, AUS’s assets were sold to an unrelated company. This company
refused to assume the earn-out payments to Mansour. CSI apparently took the position
that it too was exempted from any obligation to pay earn-out amounts to Mansour now
that it no longer owned the AUS assets.2
Mansour understandably disagreed, and it sued CSI in Orange County
Superior Court. The case went to arbitration and ultimately settled in October 2010 with
CSI paying Mansour over $3 million and releasing M.N. Mansour from an obligation to
pay CSI $1.2 million. The total value of the settlement to appellants was $4.275 million.
Mansour and its principal then sued Spolin for failing to secure a provision
in the asset purchase agreement requiring payment to Mansour if CSI sold the acquired
1 An earn-out transaction usually involves a lump sum payment up front, with the remainder of the
purchase price payable over time and dependent on the financial performance of the acquired company. (See Irving
v. Ebix Software India Private Ltd. (S.D.Cal. Apr. 12, 2011, Civ. No. 10-CV-762 JLS) 2011 U.S.Dist. Lexis 39467
at *2-3.)
2 This is not entirely certain. During his deposition, Spolin’s counsel asked M.N. Mansour whether
CSI took the position in the litigation between CSI and Mansour that it did not have to pay the earn-out amounts.
He replied, “Not to my knowledge.”
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assets before the end of the earn-out period. As damages, appellants alleged the amount
Mansour would have received through the end of the earn-out period.
Spolin filed a summary judgment motion, which the court heard on March
9, 2012. Accompanying Spolin’s motion was a declaration from Charles Call, CSI’s
chief executive officer. The court granted the motion on the ground that plaintiffs had
presented no evidence to counteract Call’s statement that he would not have agreed to
make CSI responsible for paying Mansour’s earn-out if the AUS assets were sold to some
other company. Accordingly, Mansour could not show it would have obtained a “better
deal” had Spolin not made the alleged mistake. Appellants therefore could not recover
for transactional malpractice. The court dismissed the case, and judgment was entered
for Spolin on March 12, 2012.
DISCUSSION
“A trial court properly grants summary judgment where no triable issue of
material fact exists and the moving party is entitled to judgment as a matter of law.
[Citation.] We review the trial court’s decision de novo, considering all the evidence the
parties offered in connection with the motion (except that which the court properly
excluded) and the uncontradicted inferences the evidence reasonably supports.
[Citation.] In the trial court, once a moving defendant has ‘shown that one or more
elements of the cause of action, even if not separately pleaded, cannot be established,’ the
burden shifts to the plaintiff to show the existence of a triable issue; to meet that burden,
the plaintiff ‘may not rely upon the mere allegations or denials of its pleadings . . . but,
instead, shall set forth the specific facts showing that a triable issue of material fact exists
as to the cause of action . . . .’ [Citations.]” (Merrill v. Navegar, Inc. (2001) 26 Cal.4th
465, 476.)
The leading case on transactional malpractice is Viner v. Sweet (2003) 30
Cal.4th 1232, in which our Supreme Court held that a client suing for this kind of
negligence must prove “‘but for’” causation, “meaning that the harm or loss would not
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have occurred without the attorney’s malpractice.” (Id. at p. 1235.) If the client’s harm
or loss would have been sustained even if the attorney had not erred, then the attorney has
not committed malpractice. (Id. at p. 1240.) Showing attorney error is not enough. The
client must also show that “but for the alleged malpractice, it is more likely than not that
the [client] would have obtained a more favorable result.” (Id. at p. 1244.) This showing
is usually referred to as the “better deal” requirement.3
In this case, CSI’s chief executive officer, Charles Call, stated he would not
have signed an agreement that included a provision requiring CSI to keep paying
Mansour if CSI sold the assets to another company. This declaration presents admissible
evidence that Mansour would not have done better with respect to this particular aspect of
the purchase agreement. Even if Spolin had brought it up, CSI would not have agreed to
it. (See Dang v. Smith (2011) 190 Cal.App.4th 646, 665.)
Accordingly it was appellants’ responsibility to present evidence to create a
triable issue of fact as to whether CSI would have agreed to such a provision or to some
other provision that would have resulted in a net benefit to Mansour. (See Orrick
Herrington & Sutcliffe v. Superior Court (2003) 107 Cal.App.4th 1052, 1058 [client
failed to present evidence that ex-wife would have settled for less].) The only evidence
appellants presented to counterbalance the Call declaration was the nonbinding letter of
intent, one of the terms of which was a promise to mutually agree on a liquidated earn-
out payment if “substantially all” of CSI’s assets were sold before the earn-out period
ended. As the trial court pointed out, this letter is nonbinding, and, in any event, CSI’s
assets were not sold. According to the complaint, the assets sold were the ones CSI’s
subsidiary, Acquisition, had obtained from Mansour. Even if that term of the letter of
3 Under some circumstances a “better deal” could be “no deal”; in other words, the parties do not
reach an agreement, the status quo is preserved, and the status quo is better for the client than the actual deal would
have been.
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intent had been included in the final purchase agreement, it would not have applied to the
situation about which appellants now complain.4
Appellants maintain the presence of the paragraph in the letter of intent is
evidence that CSI would have agreed to some kind of an earn-out protection provision in
the final purchase agreement if only Spolin had thought to negotiate one, even if it was
not the exact one in the letter of intent. Perhaps so. But Mansour did not need just any
liquidated earn-out provision. In order to prevent the specific harm it alleges, it needed
one that would apply if the AUS assets were sold to a third party. The liquidated earn-out
payment that appellants insist Spolin should have sought, which would have applied in
this situation, is precisely the one Call unequivocally stated he would not have approved.
Whether some other earn-out protection might have been obtainable is, at this point,
moot. Appellants were unable to present evidence that the kind of provision they fault
Spolin for not getting, the provision that would have required payment if the assets were
sold, could have been negotiated.
Appellants asserted that Mansour would have walked away from the deal
had it known that CSI might sell the assets before the earn-out period was over.5 M.N.
Mansour’s deposition testimony, however, paints a different picture. Mansour (then
AUS) lost $700,000 during the first six months of June 2006. As M.N. Mansour testified
in deposition, he needed an agreement, and anything that would prevent the agreement
from closing was not an option. In late July 2006, M.N. Mansour specifically told Spolin
(by e-mail) that he did not want any more negotiating or introducing of new terms into
4 For this reason, the expert declaration of Linn Crader also does not assist appellants. Crader stated
that it is common practice in transactions including an earn-out component to include a provision protecting the
earn-out in case the purchasing company, CSI, was later acquired by another company, changed control, or sold
substantially all its assets. None of those contingencies happened in this case. Crader expressed no opinion about
provisions in an asset purchase agreement regarding subsequent sale of the acquired assets.
5 At oral argument, appellants’ counsel told us that the trial court agreed with Mansour that it could
have walked away from the deal. We have scoured the record for evidence of this agreement, to no avail. The trial
court credited Call’s declaration testimony that CSI would have walked away from the deal if Mansour had insisted
on a liquidation clause like the one appellants now propose. But whether CSI would have walked away if the clause
was included has no bearing on whether Mansour would have walked away if it was not.
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the deal, because it was about to close. The company was losing money, and he and his
wife no longer wanted to be responsible for it. If the deal with CSI did not happen,
Mansour was going to be shut down. Although Mansour could have theoretically walked
away from the CSI deal, by M.N. Manour’s own admission, walking away would have
meant corporate suicide.
A declaration that contradicts prior deposition testimony cannot create a
triable issue of fact. (Archdale v. American Internat. Specialty Lines Ins. Co. (2007) 154
Cal.App.4th 449, 473.) From the deposition evidence Spolin presented, it is clear that
“no deal” would not have been a “better deal” for Mansour. Appellants gave the trial
court nothing to counteract this evidence except for M.N. Mansour’s statement that he
would have walked away from the deal had he been told that the purchase agreement
lacked a provision regarding subsequent sale of AUS’s assets, because he would have
realized that CSI was operating in bad faith and had no intention of paying him in the
future. Even if this were true, it would not change the fact that no deal was not a better
deal. Mansour was losing over $100,000 a month in 2006 and would have gone out of
business had the deal not closed. Apparently Mansour received something under the
asset purchase agreement; something is better than nothing.6
Appellants presented no evidence to create a triable issue of fact as to either
the “better deal” or the “no-deal” aspect of transactional malpractice causation. The court
properly granted Spolin’s summary judgment motion.
6 According to appellants, they were paid $1.5 million when the deal was signed, $250,000 in
December 2006, and $1.5 million after the closing of qualified financing, in addition to the $4.725 in settlement
payments. Given that Mansour was going under in 2006, it is hard to see how “no deal” would have been a better
deal.
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DISPOSITION
The judgment is affirmed. Respondent is to recover its costs on appeal.
BEDSWORTH, J.
WE CONCUR:
O’LEARY, P. J.
RYLAARSDAM, J.
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M.N. Mansour v. Spolin, Silverman CA4/3
Combined Opinion