Atascadero Factory Outlets, Inc. v. Augustini & Wheeler LLP

[719]Opinion

YEGAN, J. Augustini & Wheeler LLP (A&W) appeals from a judgment in interpleader, entered after the trial court found that its lien for attorney fees was subordinate to the claims of two secured creditors. The trial court concluded that the doctrine of unjust enrichment, a recognized exception to the Uniform Commercial Code lien priority system, did not apply. (See Knox v. Phoenix Leasing Inc. (1998) 29 Cal.App.4th 1357 [35 Cal.Rptr.2d 141].) We affirm.

In 1994, Camino Real Fashion Outlets, Ltd. (Camino) borrowed $400,000 from Santa Lucia National Bank (Bank) to complete a mall project. Thereafter, Camino sold the mall to Atascadero Factory Outlets, Inc. (AFO) and agreed to pay the broker, Wallace Moir Company (Broker), a $250,000 commission. The sale generated no cash. Instead, Camino received a “Contingent Payment Obligation Note Secured By Deed of Trust” (note) estimated to be worth $3.5 million. The note provided that the sales price would be determined after the mall opened based on a formula that took into account construction costs, rents, operating expenses, and other items.

Camino assigned the note to Bank as security on the loan. Camino executed a pledge agreement providing that Bank would receive the first $400,000 and Broker would receive the next $100,000 on the note.1

In January 1996, AFO claimed the payoff amount was zero. Camino retained the law firm of A&W and sued on the note for $3.5 million. (Camino Real Fashion Outlets, Ltd. v. Atascadero Factory Outlets, Inc. (Super. Ct. Santa Barbara County, No. SB212640).) After the action was ordered to arbitration, Camino signed a retainer agreement which gave A&W a lien on the case. A&W knew about the pledge agreement but did not ask Bank and Broker to subordinate their security interests.

The arbitrator awarded $360,359 on the note plus $140,000 attorney’s fees. Neither Bank nor Broker participated in the arbitration. While they received a favorable result, A&W did not go forward on the arbitration with the intent of benefiting them.

[720]AFO interpled the $500,359 based on the conflicting claims of Bank ($400,000), Broker ($100,000), and A&W ($176,000).2 Citing Knox v. Phoenix Leasing Inc., supra, 29 Cal.App.4th 1357, A&W argued that it should be paid first. It theorized that but for its legal services, AFO would have paid nothing. Bank and Broker contended that they had lien priority as secured creditors under the Uniform Commercial Code. (Cal. U. Com. Code, § 9102 et seq.)