Case Name: Meridian Financial Services, Inc., et al. v. Phan, et al.
Case No.: 1-13-CV-254908

Defendant Chicago Title Company (“Chicago Title”) moves to strike portions of the first amended complaint (“FAC”) filed by plaintiffs Meridian Financial Services, Inc. and Mark Yazdani (collectively, “Plaintiffs”).

On January 31, 2014, Plaintiffs filed the FAC against Chicago Title, Lananh Phan (“Phan”) and Diane Do (“Do”) asserting claims for (1) breach of contract, (2) fraud, (3) fraud in the inducement, (4) negligent misrepresentation, (5) violation of unfair business practices act, (6) escrow negligence, (7) negligent supervision, (8) breach of fiduciary duty and (9) breach of contract. According to the allegations of the FAC, from April 12, 2012 to June 26, 2013, Plaintiffs invested over $5 million with Phan in a gold investment scheme that she touted. (FAC at ¶ 18.) Phan purportedly guaranteed Plaintiffs a monthly return of 5%-6% plus full return of their principal. (Id. at ¶ 16.) After they reinvested their guaranteed monthly returns, the total amount of money invested with Phan was over $9 million as of October 22, 2013. (Id. ¶ 18.)

Plaintiffs’ investments operated without incident throughout 2012, during which time Phan verbally confirmed that their monthly returns were “reinvested” into the venture. (FAC at ¶ 23.) However, in 2013, Phan informed that she could not return their money to them because it was in offshore accounts controlled by her unidentified colleagues. (Id. at ¶ 24.)

Plaintiffs allege that Phan, Do and Do’s employer, Chicago Title, formed and operated a conspiracy to defraud them out of their money. (FAC at ¶¶ 43-45.) Plaintiffs further allege that the deeds of trust and promissory notes purportedly executed by certain property owners as security for a portion of the funds invested that were notarized and processed by Chicago Title as escrow holder were not in fact signed by those individuals. (Id. at ¶ 26.)

On March 5, 2014, Chicago Title filed the instant motion to strike portions of the FAC, particularly Plaintiffs’ punitive and/or exemplary damages allegations and claims for attorney’s fees.

In moving to strike Plaintiffs’ request for punitive and/or exemplary damages, Chicago Title asserts that there are no facts pleaded in the FAC which support their allegations that Chicago Title was engaged in a conspiracy to defraud with Phan and Do that entitles them to recover punitive damages. Chicago Title also insists that Plaintiffs’ insistence that it is liable to them for such damages is conclusory. Finally, Chicago Title contends that Plaintiffs have failed to demonstrate entitlement to attorney’s fees.

Pursuant to Civil Code section 3294, punitive damages are recoverable where the defendant is guilty of malice, oppression or fraud. For pleading purposes, merely alleging that a defendant acted with malice, oppression, or fraud in a conclusory manner is insufficient to support a claim for punitive damages. (See Blengen v. Superior Court (1981) 125 Cal.App.3d 959, 963.) Ultimate facts supporting a claim for punitive damages must be specifically pled. (See Clausen v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Here, Chicago Title’s liability is predicated on the wrongful acts of its employee, Do. Accordingly, Civil Code section 3294, subdivision (b) provides that

An employer shall not be liable for damages [] based on the acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.

Considering the foregoing standard, Plaintiffs have failed to allege any of the necessary elements to establish a claim for punitive damages against Chicago Title, i.e., facts sufficient to satisfy the advance knowledge or ratification requirements of the subdivision (b) of Civil Code section 3294. While Plaintiffs have included a declaration from Mr. Yazdani which purportedly corrects these deficiencies, a motion to strike is confined to the face of the pleading under attack or from matters which the court may judicially notice. (See Code Civ. Proc., § 437, subd. (a).) The declaration is not a proper subject of judicial notice. (See Evid. Code, §§ 451, 452.) Consequently, the Court did not consider the contents of the declaration when analyzing the sufficiency of the FAC.

With regard to Plaintiffs’ request for attorney’s fees, as a general matter, each party in litigation is required to bear his own attorney fees unless a statute or the agreement of the parties provides otherwise. (See Code Civ. Proc., § 1021 [“[e]xcept as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys … is left to the agreement, express or implied, of the parties …”].) Chicago Title asserts that Plaintiffs have not pleaded a statutory or contractual entitlement to attorney’s fees; indeed, no statute or contract is identified in the FAC as the basis for Plaintiffs’ request. Nevertheless, Plaintiffs insist in their opposition that they are so entitled pursuant to the “tort of another” doctrine and Code of Civil Procedure section 1021.6, which essential codifies that doctrine for claims of implied indemnity.

The “tort of another” doctrine is an exception to the general rule that a party must bear its own attorney’s fees as set forth in Code of Civil Procedure section 1021. (See Gray v. Don Miller & Assocs., Inc. (1984) 35 Cal.3d 498, 504.) Its genesis lies in Prentice v. North Am. Title Guaranty Corp. (1963) 59 Cal.3d 618, in which the California Supreme Court enunciated the general rule of Section 1021 and then went on to create an exception to this rule:

A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney’s fees, and other expenditures thereby suffered of incurred.

(Prentice v. North Am. Title Guaranty Corp., supra, 59 Cal.2d at 620.)

Plaintiffs insist that they are entitled to attorney’s fees against Chicago Title under the “tort of another” doctrine because they have been forced to sue Do and Phan because of torts committed by Chicago Title, including breach of fiduciary duty. (See Plaintiffs’ Opposition at 8:5:7.) However, as Chicago Title asserts, the allegations of the FAC describe a situation involving multiple tortfeasors, Do, Phan and Chicago Title; attorney’s fees under the “tort of another” doctrine are not available in such cases. (See Vacco Industries v. Van Den Berg (1992) 5 Cal.App.4th 34, 57 [“[t]he rule of Prentice was not intended to apply to one of several joint tortfeasors in order to justify additional attorney fee damages. If that were the rule there is no reason why it could not be applied in every multiple tortfeasors case with the plaintiff simply choosing the one with the deepest pocket as the ‘Prentice’ target. Such result would be a total emasculation of Code of Civil Procedure section 1021 in tort cases”]; see also Gorman v. Tassajara Dev. Corp. (2009) 178 Cal.App.4th 44, 78, 81 [holding that the “tort of another” doctrine does not apply where a plaintiff has been damaged by the joint negligence of multiple codefendants].) Given this fact, and the absence of any other contractual or statutory basis for the recovery of attorney’s fees, the FAC fails to demonstrate an entitlement to such fees.

In accordance with the foregoing analysis, Chicago Title’s motion to strike is GRANTED WITH 10 DAYS’ LEAVE TO AMEND.