2018-00233339-CU-NP

Pamela J. Palmieri vs. Stephen Foondos

Nature of Proceeding: Hearing on Demurrer to First Amended Complaint

Filed By: Sargetis, John

Defendants Stephen Foondos, John Sargentis and United Law Center’s demurrer to Plaintiff Pamela Palmieri and Kayrinka Gilliland’s first amended complaint (“FAC”) is sustained with leave to amend.

This matter was originally continued from July 18, 2019 to August 13, 2019, allow Defendants to comply with CCP § 430.41(a). The Court issued a tentative ruling for the August 13, 2019 hearing. At the hearing Plaintiffs’ counsel contended that she was not served with a copy of the current demurrer but rather a previous version and that her opposition did not reflect the arguments set forth by Defendants. The matter was continued to today’s date to allow Plaintiffs to be served with a current version of the demurrer and file an updated opposition. After the hearing the Court notes that Defendants filed a declaration indicating that Plaintiffs’ counsel misrepresented that she was never served with the current demurrer and attached documents reflecting that she was. It does appear that Plaintiffs’ counsel was, in spite of her contrary representation in open court, served with the current version. Much of the Court’s rationale set forth in the original tentative ruling is applicable here even with the new opposition though it is supplemented where appropriate.

At the outset, Defendants 20 page memorandum violated the page limits set forth in CRC Rule 3.1113(d). Defendants did not obtain an order from the Court allowing them to file such an oversized opposition memorandum. To make matters worse, Plaintiffs’ 23 page memorandum also violates CRC Rule 3.1113(d) and they too failed to obtain an order allowing them to file an oversized brief. In the future counsel are cautioned that their failures to comply with the CRC could lead to the Court declining to consider their papers, or the entirety therof.

In this action, Plaintiff Pamela Palmieri alleges that she represented Plaintiff Kayrinkia Gilliland in a foreclosure related matter. She alleges that she had a contingency fee agreement allowing for a percentage of the gross recovery and also provided her a charging lien for any sums owing for unpaid fees and costs. Ms. Palmieri alleges that she associated with Defendants in June 2016 and recommended that Ms. Gilliland follow her. She alleges that Defendants agreed to a division of fees pursuant to which Ms. Palmieri would be paid a minimum of 20%. She alleges that she ultimately agreed to employment with the United Law Center based on the representations regarding the fee split. She alleges that she eventually left the United Law Center though both she and Defendants remained counsel of record on Ms. Gilliland’s foreclosure matter which they ultimately concluded. She alleges that she proposed an equal split of fees but Defendants only indicated they would give her 20% but then later indicated that she had no basis to any fees.

Based on the above, Ms. Palmieri alleges causes of action for declaratory relief, breach of fiduciary duty, conversion, breach of contract, imposition of a constructive

trust, and negligence. Ms. Gilliland is also a named Plaintiff as to the breach of fiduciary duty, imposition of a constructive trust, and negligence causes of action. Ms. Palmieri has also named Ms. Gilliland as a defendant in a declaratory relief cause of action in which it is alleged that Ms. Gilliland stipulates to the validity, value, and enforceability of Ms. Palmieri’s lien.

First Cause of Action (Declaratory Relief)

Defendants’ demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action. Ms. Palmieri alleges this cause of action against Ms. Gilliland in which she alleges that Ms. Gilliland stipulates to the validity, value and enforceability of the lien. She alleges that Defendants impermissibly determined that they were owed the entire fee recovery.

As discussed more fully below, Ms. Palmieri must bring a separate action to establish the existence, value, or enforceability of the lien. Moreover, it is improper for Ms. Gilliland to be a defendant in a declaratory relief cause of action and a plaintiff in other causes of action in the very same complaint. “It necessarily follows that the same party cannot be plaintiff and defendant in the same lawsuit, even though he [can] sue in one capacity and defend in another.” (Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, 165.) This underscores the need for a separate action to adjudicate the existence, value, or enforceability of the lien.

While Ms. Palmieri argues that Defendants have no standing to challenge this cause of action asserted only against Ms. Gilliland, the fact is that her remaining causes of action necessarily hinge on the existence, value, or enforceability of the lien. Given that this cannot be done in this action, Defendants certainly can challenge a cause of action in the complaint filed against them which seeks to establish the existence, value, or enforceability of the lien in this action.

Second Cause of Action (Breach of Fiduciary Duty-By Ms. Palmieri and Ms. Gilliland)

Defendants’ demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action. Plaintiffs essentially allege that Defendants as attorneys owed fiduciary duties to lienholders and breached those duties by failing to withhold the subject funds in trust.

As to Ms. Palmieri, the cause of action is deficient because case law makes clear that successor counsel do not owe fiduciary duties to predecessor counsel. (Mason v. Levy & Van Bourg (1978) 77 Cal.App.3d 60, 66-67.) In addition, the California Supreme Court has made clear that co-counsel do not owe each other fiduciary duties. “The better approach, we conclude, is a bright-line rule refusing to recognize such a fiduciary duty.” (Beck v. Wecht (2002) 28 Cal.4th 289, 298.) While Ms. Palmieri argues that the cases did not involve handling settlement funds, that does not change the result as she fails to cite a single case imposing a fiduciary duty between attorneys.

As to Ms. Gilliland, as discussed more fully below, she cannot be both a plaintiff and a defendant in this action. In any event, the allegations are premised on the contention that Defendants have improperly obtained the settlement funds which allegations are deficient for the reasons set forth below.

Third Cause of Action (Conversion-By Ms. Palmieri Only)

Defendants’ demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action. The elements of a conversion cause of action are “(1) the plaintiff’s ownership or right to possession of personal property; (2) the defendant’s disposition of the property in a manner that is inconsistent with the plaintiff’s property rights; and (3) resulting damages.” (Regent Alliance Ltd. v. Rabizadeh (2014) 231 Cal.App.4th 1177, 1181.) Ms. Palmieri alleges that she was entitled to 20% of the settlement proceeds and that despite acknowledging the same Defendants withdrew then entire amount from the trust account and assumed sole possession of the funds. She bases her right to recovery on the alleged charging lien language in her fee agreement with Ms. Gilliland. Such an action is not permissible under California law. (Mojtahedi v. Vargas (2014) 228 Cal.App.4th 974.) In that case, the plaintiff attorney alleged that he was hired to represent two clients in a motor vehicle case pursuant to a written fee agreement which allowed him to assert a lien against all claims. The plaintiff represented the clients for eight months when the defendant attorney substituted in as new counsel. Plaintiff alleged that the defendant settled the case and deposited settlement checks into the client trust fund account and that each check was made out to the clients and plaintiff and defendant as payees. Plaintiff demanded a certain amount of fees to be paid from the settlement proceeds and refused Defendant’s offer for a lower amount. After the attorneys could not agree on a final amount, plaintiff sued defendant and others for fraud, negligence, and other causes of action on the theory that the defendant attorney owed plaintiff a portion of the settlement checks. The defendant attorney’s demurrer was sustained without leave to amend because the plaintiff failed to establish the existence, amount, and enforceability of the attorney fees lien in an independent action against the clients. (Id .)

As Ms. Palmieri has alleged in this action, the plaintiff attorney in Mojtahedi alleged that he had a contract with his clients that created the lien. “Nonetheless, plaintiff failed to allege facts establishing that he adjudicated the existence, value, or enforceability of his lien….Plaintiff admits that he never brought a separate action

against his clients to litigate those issues. Therefore, he has yet to establish the value or validity of his purported lien.” (Mojtahedi, supra, 228 Cal.App.4th at 978.) The plaintiff argued that there was no actual dispute between himself and his clients regarding the amount owed to him. The Court of Appeal concluded that even if this were true it was irrelevant. (Id.) “Without first establishing a right to any portion on his clients’ settlement proceeds, plaintiff in this case lacks any basis to assert that defendant fraudulently withheld any money from him. (Id. at 979.) The failure to bring a separate declaratory relief action precluded the plaintiff attorney from establishing the existence, amount and enforceability of his lien and from asserting any cause of action against the defendant attorney for withholding funds. (Id.)

Here, there are no allegations that Ms. Palmieri has brought a separate action to establish the existence, value, or enforceability of her lien. Rather, she has improperly attempted to do that in this action by asserting a declaratory relief cause of action against Ms. Gilliland, who is named as a defendant in that cause of action and a plaintiff in other causes of action. There are numerous problems with this. First, Ms. Palmieri was required to bring a separate action for declaratory relief. While there is an allegation in the declaratory relief cause of action that Ms. Gilliland “hereby” stipulates to the validity of Ms. Palmieri’s lien, there still has been no separate action adjudicating the existence, value, or enforceability of the lien. Moreover, it is improper for Ms. Gilliland to be a defendant in a declaratory relief cause of action and a plaintiff

in other causes of action in the very same complaint. “It necessarily follows that the same party cannot be plaintiff and defendant in the same lawsuit, even though he [can] sue in one capacity and defend in another.” (Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, 165.) Ms. Palmieri cites nothing to contradict this principle. This underscores the need for a separate action to adjudicate the existence, value, or enforceability of the lien.

Ms. Palmieri’s opposition raises no persuasive argument. She argues that Defendants have “overread Mojtahedi.” The Court disagrees. Ms. Palmieri essentially argues that the complaint in Mojtahedi was only deficient because the former attorney did not name the clients in the lawsuit whereas she has done that here. The Court rejects that argument. Mojtahedi made clear that the adjudication of the attorney fee lien must be determined in a separate declaratory relief action against the clients, not in the same action as claims against the successor attorney. Indeed, if Ms. Palmieri were correct, than the Mojtahedi court would not have affirmed the trial court’s sustaining of the demurrer without leave to amend because the plaintiff could have simply amended the complaint to add the clients. Ms. Palmieri provides no support for her proposition. Weiss v. Marcus (1975) 51 Cal.App.3d 594 does not assist her. There, a plaintiff brought suit for conversion and other claims based on the alleged existence of an attorney fees lien. But Weiss did not involve any claim by a defendant that the validity and amount of the lien had to first be established by a suit against the former client. “[A]n opinion is not authority for a proposition not therein considered.” (Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2.) By contrast, the far more recent case of Mojtahedi directly involved that contention. Indeed, if Ms. Palmieri were correct, the language in Mojtahedi requiring a separate independent and separate action against the client would have no meaning.

Given that Ms. Palmieri has not alleged facts establishing that she adjudicated the

existence, value, or enforceability of her lien, there is no basis for her to allege that
Defendants have converted any settlement funds. Ms. Palmieri argues that even if the
Court agrees that Mojtahedi requires a separate and independent action that her
conversion claim survives because it is not dependent on the determination of any
attorney lien amount. The Court disagrees. Absent those allegations, her claim boils

to down to an alleged right to be paid those funds pursuant to an alleged contract with
Defendants. However, a mere right to contractual payment alone is not sufficient to
support conversion. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 452.)
Ms. Palmieri again attempts to rely on Weiss v. Marcus, (1975) 51 Cal.App.3d 594.
Again, it does not assist her. There a demurrer to a conversion cause of action to a
claim by a predecessor attorney against a successor attorney for a specific amount
($6,750) alleged to constitute the reasonable value of services was overruled. Weiss
recognized that a conversion cause of action could exist against a successor attorney

where the successor attorney disbursed the entire settlement amount to himself and
the client with knowledge of the predecessor attorney’s lien rights. But again, while
Weiss may have recognized a conversion cause of action, as discussed above, there
was no discussion of whether a separate and independent action against the client
was required to determine the existence, value, or enforceability and the later and
more recent cases make clear this is the case.

Ms. Palmieri’s argument that an equitable lien attaches to the settlement proceeds has no bearing on whether she has alleged a conversion cause of action under the principles articulated above.

Further, the allegations are not sufficient to demonstrate that any taking was wrongful. To that end Ms. Palmieri argues that Defendants acted in violation of CRPC 1.15 which provides that an attorney shall notify a client or other person of the receipt of funds which the lawyer knows or reasonably should know the client or other party has an interest. However, Ms. Palmieri points to no allegations in the FAC in which she alleged that she notified Defendants of her claimed lien.

Ms. Palmieri concedes that she can in fact file a separate action against Ms. Gilliland but believes it is not the most efficient way to proceed. The Court simply notes that whatever Ms. Palmieri may believe, a separate action is required by law.

Fourth Cause of Action (Breach of Contract-By Ms. Palmieri Only)

Defendants’ demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action.

The alleged contract for fee-splitting between Ms. Palmieri and Defendants is not alleged to be in writing and there is no allegation that the client (Ms. Gilliland) consented in writing as required by CRPC, either former Rule 2-200 or current Rule

1.51. While there are exceptions when attorneys are in the same law firm, at the time the alleged fee-splitting agreement was made, Ms. Palmieri was not employed by Defendants (FAC ¶¶ 16, 18) and thus any contract as currently alleged runs afoul of CRPC former Rule 2-200 or current Rule 1.51 and cannot support a breach of contract cause of action.

The Court need not address Defendants’ other arguments regarding whether the allegations establish mutual consent between Ms. Palmieri and Defendants as to fee-splitting and whether she was damaged.

Fifth Cause of Action (Constructive Trust-By Ms. Palmieri and Ms. Gilliland)

Defendants’ demurrer is sustained with leave to amend for failure to state facts sufficient to state a cause of action.

A constructive trust is only permissible where three conditions are met: “(1) the existence of a res (property or some interest in property); (2) the right of a complaining party to that res; and (3) some wrongful acquisition or detention of the res by another party who is not entitled to it.” (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990 [italics in original].)

The crux of this cause of action is premised on the contention that Defendants have impermissible withheld settlement proceeds and thus is contingent on the other causes of action. As to Ms. Gilliland, there are no allegations that she has any right to the attorneys’ fees allegedly not paid to Ms. Palmieri. Attorney fees generally belong to the attorney by default and only to the client is an agreement specifies. (Hernandez v. Siegel (2014) 230 Cal.App.4th 165, 174.) As to Ms. Palmieri, given that her other causes of action are insufficiently pled, there is no basis for a constructive trust.

Sixth Cause of Action (Negligence-By Ms. Palmieri and Ms. Gilliland)

Defendants’ demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action. These allegations are similar to the

allegations in the other causes of action. Again, as to Ms. Gilliland, she cannot be both a plaintiff and a defendant in this action. Regardless, as to both Ms. Gilliand and Ms. Palmieri, the allegations are premised on the contention that Defendants have improperly obtained the settlement funds which allegations are deficient as set forth above.

Given the above, the Court need not consider Defendants’ additional arguments, for example, that the FAC is uncertain.

The demurrer to the entire FAC is sustained with leave to amend. Leave to amend is given as this is the first challenge to the complaint on which the Court has ruled. This is true despite Defendants’ arguments that no amendment can be made. Nor will the Court entertain Defendants’ request to hold an evidentiary hearing to determine whether any new facts that could be alleged are true.

Where leave was given, an amended complaint may be filed no later than September 27, 2019. Defendants shall file and serve their response within 30 days thereafter, 35 days if the amended complaint is served by mail as modified by the CCP § 430.41 extension as necessary.

The minute order is effective immediately. No formal order pursuant to CRC rule 3.1312 or other notice is required.