## Facts

- A performer and her husband retained an attorney in the early 1950s; from 1956 to 1968 he functioned as their lawyer and also as business manager, investment adviser, accountant, and recordkeeper, exercising broad control over their finances.
- In 1956 the parties executed retainer agreements giving the attorney a 10% interest in nearly everything the clients owned and earned, without the attorney ensuring independent counsel or making full disclosure of material risks and alternatives.
- Over years, the attorney commingled client trust funds and other clients’ funds, with significant amounts unaccounted for, and withheld client funds for extended periods.
- The attorney steered client money into ventures he organized or controlled, obtained undisclosed profits and ownership interests, and failed to document or protect the clients’ interests in various investments.
- The attorney arranged transactions that concealed the source, purpose, or beneficiaries of transfers (including “triangle loans”), and participated in false invoicing arrangements that diverted investment funds back to himself as purported “legal fees.”
- The attorney mishandled tax and business matters, failed to take available tax measures, and failed to protect client interests in distressed investments.
- After the attorney was discharged in 1968, he sued the clients for alleged fees and business rights; the clients asserted cross-claims for malpractice, breach of fiduciary duty, fraud, and related theories.
- Multiple actions were consolidated and tried to the court; the trial court entered judgment for the clients, awarding substantial compensatory damages, punitive damages, and injunctive relief requiring turnover of trust funds and records; the attorney’s partner was held vicariously liable for compensatory damages only.

## Issues

1. Whether substantial evidence supported findings of legal malpractice, breach of fiduciary duty, fraud, undue influence, and abuse of process arising from the attorney’s representation and business dealings with the clients.
2. Whether the percentage-based retainer and related arrangements were void or voidable due to conflicts of interest, inadequate disclosure, and undue influence.
3. Whether the attorney’s affirmative fee and business-contract claims (including an alleged later agreement expanding his rights) were enforceable.
4. Whether the compensatory damages, punitive damages, and injunctive relief were legally and evidentially supported.

## Decision

- The Court of Appeal affirmed the judgment in all material respects.
- It upheld liability for legal malpractice, breach of fiduciary duty, fraud, and abuse of process, and upheld vicarious liability of the attorney’s partner for compensatory damages.
- It affirmed that the asserted percentage retainer and related agreements were invalid or unenforceable based on undue influence, conflicts of interest, and fiduciary breaches.
- It rejected the attorney’s affirmative claims premised on alleged fee or “empire” agreements, deferring to the trial court’s credibility findings and evidentiary determinations.
- It upheld the compensatory award, the $1,000,000 punitive damages award, and injunctive orders requiring surrender of client trust funds and records.

## Legal Principles

- An attorney owes fiduciary duties of the highest loyalty and good faith; transactions in which the attorney obtains an advantage or an interest potentially adverse to the client require full and fair disclosure and informed consent.
- When an attorney enters business or fee arrangements that materially benefit the attorney, the arrangement is subject to heightened scrutiny and may be presumed the product of undue influence unless the attorney proves fairness and informed client consent.
- Fee contracts and related arrangements procured through fiduciary violations, inadequate disclosure, or undue influence may be void or voidable as contrary to public policy, and the attorney cannot recover on claims grounded in such misconduct.
- An attorney may be liable in tort for professional negligence where failures in competence, diligence, and prudent advice cause client loss, including in tax planning, dispute strategy, and protection of client interests in investments.
- Intentional concealment, self-dealing, misuse of client funds, and bad-faith conduct can support fraud findings and punitive damages; appellate review defers to trial-court credibility findings when supported by substantial evidence.
- Injunctive relief may be granted to compel an attorney to return client property and records, including trust funds, where continued possession is wrongful.

## Conclusion

The court affirmed a sweeping judgment against an attorney who combined legal representation with conflicted business promotion and control of client finances, holding that nondisclosed self-dealing and misuse of client funds supported tort liability, invalidated fee and business agreements obtained through undue influence, justified punitive damages, and warranted orders requiring return of client funds and records.


Day v. Rosenthal, 170 Cal. App. 3d 1125, 217 Cal. Rptr. 89 (Cal. Ct. App. 1985)