Case Name:   Jatco, Inc. v. Fenn C. Horton, III, et al.

Case No.:       1-14-CV-268640

Demurrer by Defendants Fenn C. Horton, III and Pahl & McCay to the First Amended Complaint of Plaintiff Jatco, Inc.

This is an action for legal malpractice and breach of contract.  Plaintiff Jatco, Inc. operates a plastic molding factory in Union City, California, and employs molding operators (“Operators”).  (See First Amended Complaint (“FAC”), ¶ 7.)  On July 9, 2008, a class action complaint, Maria Martinez, et al. v. Jatco. Inc. (Alameda County Superior Court, Case No. RG08-397316) (the “Martinez case”), was filed against Jatco on behalf of all Operators.  (See FAC, ¶ 9.)  The class action complaint alleged several causes of action for violations of wage and hour laws and Business & Professions Code section 17200.  (See FAC, ¶ 10.)  Jatco hired defendants Fenn C. Horton and Pahl & McCay (collectively “Defendants”) to defend it in the Martinez case and provide general advice and guidance regarding compliance with the relevant labor laws and regulations.  (See FAC, ¶ 9.)  The trial in the Martinez case was bifurcated andthe Alameda County Superior Court issued a Statement of Decision Following Bench Trial on Liability Issues (the “Statement of Decision”) on February 22, 2012, finding in the Operators’ favor on almost every claim.  (See FAC, ¶¶ 18-24.)  The FAC alleges that Defendants breached their contract with and duty to Jatco by failing to advise it to “alter its time-keeping and reporting requirements,” among other things, and if Defendants had properly advised Jatco, it would have altered its practices and “thereby would have reduced by at least one-third the potential damages to the Plaintiffs in the [Martinez case].”  (FAC, ¶¶ 30, 31, 36.)  The FAC further alleges that, as a result of the Statement of Decision, Jatco was compelled to file for bankruptcy.  (See FAC, ¶ 26.)

Defendants demur to the first and second causes of action of the FAC on the ground that they fail to allege sufficient facts to constitute a cause of action.  (See Code Civ. Proc., § 430.10, subd (e).)  Specifically, Defendants assert that the FAC fails to allege any facts establishing the elements of causation or damages.

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules.  ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.  We also consider matters which may be judicially noticed.’”  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)  “A demurrer tests only the legal sufficiency of the pleading.  It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.”  (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

Defendants’ request for judicial notice is DENIED because the documents and facts identified are irrelevant to the issues that are raised in the pending demurrer.  (See Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063 citing Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301, overruled on other grounds in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1276 [“[J]udicial notice, since it is a substitute for proof …, is always confined to those matters which are relevant to the issue at hand.”].)   Furthermore, the facts of which Defendants seek to have the court take judicial notice are not facts that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.  (See Evid. Code, § 452, subd. (h); see also Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145 [stating that judicial notice under Evidence Code section 452, subdivision (h) is intended to cover facts which are not reasonably subject to dispute and are easily verified].)

Defendants’ demurrer to the first cause of action for legal malpractice and the second cause of action for breach of contract is SUSTAINED, with 10 days’ leave to amend, as the FAC fails to allege facts establishing that Jatco sustained actual damages as a result of Defendants’ conduct.  (See Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1621 [stating that the elements of a cause of action for attorney malpractice are the duty of the attorney to use such skill, prudence and diligence as members of the profession commonly possess, a breach of that duty, a proximate causal connection between the breach and the resulting injury, and actual loss or damage]; see also Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 921 [stating that the elements of breach of contract are the existence of a contract, plaintiff’s performance or excuse for nonperformance, defendant’s breach, and resulting damage to plaintiff].)

The FAC alleges that Jatco was “exposed” to “potential” damages in the approximate amount of $4,500,000 as a result of the Statement of Decision that issued in the Martinez case.  (See FAC, ¶¶ 25, 31; see also Budd v. Nixen (1971) 6 Cal. 3d 195, 200 superseded by statute on other grounds as stated in Laird v. Blacker (1991) 229 Cal. App. 3d 159 [“The mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm — not yet realized — does not suffice to create a cause of action for negligence.”]; see also Walker v. Pacific Indem. Co. (1960) 183 Cal. App. 2d 513, 517 [“the mere possibility that one will be required to pay damages to a third party does not warrant even nominal damages … [i]t is clear that the mere possibility, or even probability, that an event causing damage will result from a wrongful act does not render the act actionable”].)  In its opposition papers, Jatco asserts that it sustained actual damages in the amount of $1,600,000 because it was forced to settle with the Operators for that amount, but the FAC does not contain any allegations regarding the settlement.  Furthermore, while the FAC alleges that Jatco was compelled to file for bankruptcy as a result of the Statement of Decision, it does not allege fact indicating that Jatco incurred damages due to the filing.  Jatco states in its opposition that it will incur damages in the form of legal fees as a result of the bankruptcy proceeding, but the FAC does not contain any allegations that Jatco incurred attorneys’ fees and costs in connection with the bankruptcy matter.