Case Name: Greenlee’s Cinnamon Bread and More, Inc., et al. v. DLA Piper, LLP, et al.

Case No.: 19CV348173

Defendant DLA Piper, LLP’s Demurrer to First Amended Complaint

Factual and Procedural Background

Plaintiffs Greenlee’s Cinnamon Bread and More, Inc., Deron Robertson, and Janette Robertson (“Plaintiffs”) own and operate Greenlee’s Best Cinnamon Bread and More (“Greenlee’s”), producing baked goods for sale on the retail food market. (First Amended Complaint (“FAC”), ¶18.)

On or about January 2013, Plaintiffs retained defendant DLA Piper, LLP (“DLA Piper”) to represent them as defendants in Santa Clara County Superior Court, case number 112CV238292, entitled Garrett v. Robertson, et al. filed on or about December 2012 (“Garrett Complaint”). (FAC, ¶19.) The Garrett Complaint stemmed from an inter-family business dispute over Greenlee’s and the right to utilize the proprietary formulas and recipes commercially. (FAC, ¶20.) The Garrett Complaint contained allegations related to the wrongful termination of Garrett from his employment at Greenlee’s. (FAC, ¶22.) Plaintiffs informed DLA Piper that Bryan Garrett was an employee of Greenlee’s. (FAC, ¶24.)

DLA Piper began representing Plaintiffs in the Garrett Complaint in January 2013 without a written and executed fee agreement. (FAC, ¶23.) DLA Piper attorneys orally represented to Plaintiffs that the representation would cost approximately $250,000 to $1 million in total fees and costs. (FAC, ¶25.) A written fee agreement wasn’t presented to Plaintiffs until December 9, 2013, after DLA Piper had already amassed over $1,300,000 in legal fees and costs. (FAC, ¶26.)

On December 17, 2015, the court issued a Corrected Final Statement of Decision on the claims asserted in the Garrett Complaint and various claims asserted in the cross-complaint. (FAC, ¶27.) In relevant part, the court found Garrett’s discharge was warranted. (FAC, ¶28.) The Garretts prevailed on their third cause of action for breach of contract for which the court awarded the Garrett’s damages in the amount of $550,000 plus interest. (FAC, ¶30.) The court denied the Garretts any relief on their other claims. (Id.) The court ruled in favor of the Robertsons on their cross-claims for defamation and injunctive relief. (Id.) The final judgment included an award of punitive damages against Bryan Garrett in the amount of $75,000. (FAC, ¶31.)

Throughout the course of the litigation, DLA Piper grossly block billed, overbilled, overstaffed, and billed for repetitive work among attorneys. (FAC, ¶¶32 – 35.) Plaintiffs regularly raised the issue of excessive legal invoices to DLA Piper and was always assured by DLA Piper, “Not to worry. We will take care of it.” (FAC, ¶36.) Plaintiffs understood DLA Piper’s assurance as DLA Piper’s intent to reduce the total fees to a more reasonable total and closer in scope to DLA Piper’s original estimate. (FAC, ¶37.) DLA Piper did not consider Plaintiffs’ inability to pay millions of dollars in legal fees, despite having examined Plaintiffs’ financial statements and understanding that Plaintiff was a relatively small business. (FAC, ¶38.) DLA Piper’s strategic decisions during litigation of the Garrett Complaint were made with an intent to create and collect a calculatedly increased and substantially inflated amount of legal fees and costs from Plaintiffs. (FAC, ¶40.)

As a result of DLA Piper’s mismanagement, and predatory billing/ staffing/ strategic recommendation, and lack of expertise, Plaintiffs incurred $4.5 million in attorney’s fees—more than four times DLA Piper’s original estimate. (FAC, ¶42.) DLA Piper devised a plan where Plaintiffs could sell their business to pay its fees to DLA Piper. (FAC, ¶43.)

Despite Plaintiff’s disclosure to DLA Piper that Bryan Garrett was an employee of Greenlee’s and that Greenlee’s was having employment issues and claims made, DLA Piper failed to actively seek out whether Greenlee’s had any Employment Practices Liability insurance to cover the claims. (FAC, ¶¶46 and 49.) At the time the Garrett Complaint was filed, Plaintiffs had a Commercial General Liability (“CGL”) Insurance policy and an Employment Practices Liability Insurance (“EPLI”) policy with Farmers/Truck Insurance (“Farmers”). (FAC, ¶47.) The EPLI policy provided Plaintiff with up to $1 million in insurance coverage for Employment Practices related claims. (FAC, ¶48.)

Plaintiffs tendered the Garrett Complaint directly to Farmers under the CGL policy, upon instruction of DLA Piper, on or about mid-September 2013. (FAC, ¶52.) Farmers denied coverage under the CGL policy on October 7, 2013. DLA Piper did not ever tender the claim, or instruct Plaintiff to tender the claim, under the EPLI policy. (FAC, ¶52.) An insurance coverage specialist at DLA Piper instructed the lead attorney at DLA Piper to explore a re-tender under the EPLI policy and requested a copy of said policy to review for coverage from the lead attorney. (FAC, ¶53.)

On or about August 1, 2017, in preparation for the Fee Dispute Arbitration, potential coverage under the EPLI policy was identified and a tender to Famers under the EPLI policy, post-trial and post-DLA Piper representation was sent to Farmers. (FAC, ¶56.)

On October 24, 2017, Farmers denied coverage under the EPLI policy based on untimely reporting, while acknowledging coverage would have been provided if made within the requisite policy claim reporting period and noted that Farmers had attempted to contact DLA Piper to discuss the claim and potential coverage, but DLA Piper did not respond or follow up with the Farmers adjuster. (FAC, ¶57.) It was at this time that Plaintiffs first learned that DLA Piper failed to make a timely tender to Farmers under the EPLI policy. (Id.) Had DLA Piper pursued a timely tender under the $1 million EPLI policy, Farmers would have defended Plaintiffs in the Garrett Complaint and Plaintiffs would not have incurred any legal fees and costs. (FAC, ¶60.)

On May 16, 2019, Plaintiffs filed a complaint against DLA Piper. On June 19, 2019, Plaintiffs filed the operative FAC against DLA Piper asserting causes of action for:

(1) Professional Negligence
(2) Breach of Fiduciary Duty

The FAC also alleges DLA Piper billed Plaintiffs over $4.5 million in legal fees and costs for representation of Plaintiffs in the Garrett Complaint. (FAC, ¶3.) Plaintiffs disputed the fees and on or about September 27, 2016, Plaintiffs submitted a request to the Palo Alto State Bar Association for non-binding arbitration. (FAC, ¶4.) Arbitration was held on April 4, 2018 and September 21, 2018. (FAC, ¶5.) An Arbitration Findings and Award was served on April 16, 2019 ordering Plaintiffs to pay DLA Piper $2 million in attorney fees and costs plus interest at the prevailing legal rate per annum from July 11, 2018. (FAC, ¶¶6 – 7.) Plaintiffs reject the Arbitration Award and request a trial.

On September 9, 2019, DLA Piper filed the motion now before the court, a demurrer to Plaintiffs’ FAC.

I. Procedural violation.

As a preliminary matter, the court notes that Plaintiffs’ opposition is untimely filed and served. Code of Civil Procedure section 1005, subdivision (b) states, “All papers opposing a motion … shall be filed with the court and a copy served on each party at least nine court days … before the hearing.” Based on a hearing date of November 12, 2019 and a court holiday on November 11, 2019, Plaintiffs’ opposition had to be filed and served no later than October 29, 2019. Plaintiffs did not file and serve opposition until October 31, 2019, two court days late.

California Rules of Court, rule 3.1300, subdivision (d) states, “No paper may be rejected for filing on the ground that it was untimely submitted for filing. If the court, in its discretion, refuses to consider a late filed paper, the minutes or order must so indicate.” Since the court has discretion to consider a late filed paper, since DLA Piper has not claimed any prejudice from the late filing, and to avoid the expenditure of any further judicial resources, the court will look past this procedural violation and consider the opposition on its merits. However, Plaintiffs and their counsel are hereby admonished for the procedural violation. Any future violation may result in the court’s refusal to consider the untimely filed papers.

II. Requests for judicial notice.

In support of the demurrer, defendant DLA Piper requests judicial notice of the existence and content of various documents. The first document is a Substitution of Attorney filed in the action encompassed by the Garrett Complaint. Evidence Code section 452, subdivision (d) states that the court may take judicial notice of “[r]ecords of any court of this state.” This section of the statute has been interpreted to mean that the trial court may take judicial notice of the existence of the court’s own records. Evidence Code section 452 and 453 permit the trial court to “take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached—in the documents such as orders, statements of decision, and judgments—but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact.” (People v. Woodell (1998) 17 Cal.4th 448, 455.) Accordingly, defendant DLA Piper’s request for judicial notice, exhibit A, is GRANTED.

The court, however, does not take judicial notice of the other documents. (See Duarte v. Pacific Specialty Insurance Company (2017) 13 Cal.App.5th 45, 51, fn. 6—denying request where judicial notice is not necessary, helpful or relevant.) Accordingly, defendant DLA Piper LLP’s request for judicial notice in support of demurrer to FAC is otherwise DENIED. Likewise, Plaintiffs’ request for judicial notice in support of opposition to demurrer to FAC is DENIED.

III. Defendant DLA Piper’s demurrer to the FAC is SUSTAINED.

“Where the dates alleged in the complaint show the action is barred by the statute of limitations, a general demurrer lies.” (Weil & Brown et al., CAL. PRAC. GUIDE: CIV. PROC. BEFORE TRIAL (The Rutter Group 2019) ¶7:50, p. 7(I)-31 citing Iverson, Yoakum, Papiano & Hatch v. Berwald (1999) 76 Cal.App.4th 990, 995, et al.) “The running of the statute must appear ‘clearly and affirmatively’ from the dates alleged. It is not enough that the complaint might be barred.” (Id. citing Committee for Green Foothills v. Santa Clara County Board of Supervisors (2010) 48 Cal.4th 32, 42, et al.)

Defendant Wall demurs to plaintiff Sutherland’s complaint on the ground that it is barred by Code of Civil Procedure section 340.6 which sets forth the statute of limitations for an action against an attorney. That section states, in relevant part:

(a) An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first. In no event shall the time for commencement of legal action exceed four years except that the period shall be tolled during the time that any of the following exist:
(1) The plaintiff has not sustained actual injury;
(2) The attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred;
(3) The attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except that this subdivision shall toll only the four-year limitation; and
(4) The plaintiff is under a legal or physical disability which restricts the plaintiff’s ability to commence legal action.

DLA Piper identifies two distinct factual bases for the claims being asserted against it by Plaintiffs. The first involves overbilling and the second involves the failure to obtain insurance coverage.

“It is well settled that the one-year limitations period of section 340.6 is triggered by the client’s discovery of the facts constituting the wrongful act or omission, not by his discovery that such facts constitute professional negligence, i.e., by discovery that a particular legal theory is applicable based on the known facts. It is irrelevant that the plaintiff is ignorant of his legal remedy or the legal theories underlying his cause of action.” (Peregrine Funding, Inc. v. Sheppard, Mullin, Richter & Hampton, LLP (2005) 133 Cal.App.4th 658, 685; punctuation omitted.) “[D]iscovery of facts essential to malpractice and the suffering of actual harm from the malpractice establish a cause of action and start the statute of limitations.” (Pompilio v. Kosmo (1995) 39 Cal.App.4th 1324, 1328.)

In the FAC, Plaintiffs allege, “Throughout the course of the representation, Plaintiff regularly raised the issue of the excessive legal invoices to DLA Piper….” Such an allegation is sufficient to trigger the statute of limitations, but DLA Piper also acknowledges that the limitations period is tolled while DLA Piper “continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” However, DLA discontinued representation on August 21, 2016, the date Plaintiffs’ new counsel substituted in. Plaintiffs had until one year after that date (August 21, 2017) to commence this action. Since Plaintiffs did not commence this action until May 16, 2019, the FAC (to the extent based on overbilling) is barred.

Plaintiffs’ complaint, however, is not limited to claims of professional negligence and breach of fiduciary duty based upon overbilling. As DLA Piper acknowledges, Plaintiffs’ FAC is also based upon allegations that DLA Piper failed to tender the claim (Garrett Complaint) to Plaintiffs’ insurance company for available insurance defense and indemnity coverage. (See FAC, ¶¶64, 68, and 72.)

DLA Piper contends Plaintiffs’ FAC, to the extent based upon the failure to pursue available insurance coverage, accrued on October 7, 2013 when it is alleged that Farmers denied the tender under the coverage provided in the CGL policy and DLA Piper did not ever tender the claim, or instruct Plaintiff[s] to tender the claim, under the EPLI policy. (See FAC, ¶52.) DLA Piper contends Plaintiffs should have known at that time that DLA Piper had made some wrongful act/omission. Where Plaintiffs were expecting insurance coverage, but did not receive insurance coverage, DLA Piper contends Plaintiffs should have known something was awry.

Plaintiffs, however, deny knowing of any wrongdoing and specifically allege that they first learned that DLA Piper had failed to make a timely tender to Famers under the EPLI policy on October 24, 2017. (See FAC, ¶57.) The court agrees with Plaintiffs that a determination of whether Plaintiffs should have known earlier is a question of fact.

Furthermore, “ ‘ “[t]he question of when there has been a belated discovery of the cause of action, especially in malpractice cases, is essentially a question of fact… [and] [i]t is only where reasonable minds can draw but one conclusion from the evidence that the question becomes a matter of law.” [Citations.]’ [Citations.] Further, ‘where there is a professional relationship, the degree of diligence in ferreting out the negligence for the purpose of the statute of limitations is diminished. [Citation.]’ [Citations.]” (Baright v. Willis, supra, 151 Cal.App.3d at p. 311, 198 Cal.Rptr. 510.)

(Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303, 315.)

Still, Plaintiffs concede that the FAC, to the extent based upon DLA Piper’s failure to timely pursue insurance coverage under the EPLI policy, accrued on October 24, 2017. To avoid the statute of limitations, Plaintiffs would have had to commence this action by October 24, 2018. Plaintiffs did not commence this action until May 16, 2019. In their opposition, Plaintiffs contend the claims asserted in the FAC survive because the parties entered into a tolling agreement(s). However, the court does not take judicial notice of the existence of the tolling agreements and Plaintiffs have not pleaded their existence in the FAC.

Accordingly, defendant DLA Piper’s demurrer to the Plaintiffs’ FAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)], i.e., the FAC is barred by the statute of limitations, is SUSTAINED with 10 days’ leave to amend.