Case Number: BC696006 Hearing Date: May 23, 2018 Dept: 32

Robert chatham,

Plaintiff,

v.

sheppard mullin richter & hamptom llp, et. al.

Defendants.

Case No.: BC 696006

Hearing Date: May 23, 2018

[TENTATIVE] order RE:

defendant’s demurrer to the complaint

BACKGROUND

The complaint in this action was filed by Plaintiff Robert Chatham (“Plaintiff”) against Defendant Sheppard Mullin Richter & Hampton LLP and Dean Richardson (collectively, “Defendants”) on February 26, 2018. The Complaint alleges four causes of action: (1) legal malpractice; (2) negligent misrepresentation; (3) fraud; and (4) breach of fiduciary duty.

REQUEST FOR JUDICIAL NOTICE

The Defendant’s Request for Judicial Notice (“RJN”) is GRANTED. (Cal. Evid. Code §452, 453.)

DISCUSSION

A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff’s ability to prove those allegations. (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.) The court must treat as true all of the complaint’s material factual allegations, but not contentions, deductions or conclusions of fact or law. (Id. at 732–33.) The complaint is to be construed liberally to determine whether a cause of action has been stated. (Id. at 733.)

Defendant demurs to the complaint on the grounds that Plaintiff failed to state facts sufficient to constitute a cause of action for legal malpractice, negligent misrepresentation, fraud or breach of fiduciary duty pursuant to CCP §430.10. Defendant contends all of Plaintiff’s claims fail because they are barred by the Release Plaintiff gave in a Settlement Agreement. (RJN Exh. A.)

Release, indemnity and similar exculpatory provisions are binding on the signatories and enforceable so long as they are clear, explicit, and comprehensible in each of their essential details. (Powers v. Sup. Ct. (1987) 196 Cal.App.3d 318, 320.) Such an agreement, read as a whole, must clearly notify the prospective releaser of the effect of signing the agreement. (Ibid.) When a third party claims the right to benefit from an agreement, the burden is on the third party to establish that it is one of a class of persons for whose benefit the contract was made. (Westlye v. Look Sports, Inc. (1993) 17 Cal.App.4th 1715, 1728.)

Plaintiff alleges in the Complaint that Defendants induced him to enter into a series of investments with Mary McDonnell (“McDonnell”) by making representations to Plaintiff regarding McDonnell’s financial stability and assets. (Complaint ¶¶7, 17.) Plaintiff then entered into promissory notes with McDonnell, that McDonnell defaulted on in July 2016. (Complaint ¶¶18, 21, 22.) In order to resolve the default, on July 25, 2016, Plaintiff entered into a Settlement Agreement with McDonnell affirming the outstanding obligations, established new repayment terms and set a payment schedule (“the Settlement Agreement”). Defendant contends that Plaintiff expressly waived and relinquished every presently unknown, unanticipated, and unsuspected right or benefit he had through a wavier. (Settlement Agreement ¶4.) The operative language states:

“As of the Effective Date, Chatham…will and hereby does release, discharge and waive any and all claims it may have, whether known or unknown, against McDonnell and all her representatives, indemnitors, indemnitees, insurers, heirs, attorneys, agents, and spouses or domestic partners, if any (collectively, the “McDonnell Released Parties”), with respect to any losses, debts, charges, damages, demands, obligations, causes of action, claims, lawsuits, liabilities, breaches of duty, misfeasance, malfeasance, promises, controversies, contracts, judgments, awards, penalties, costs and expenses, of whatever nature, type, kind, description or character, whether known or unknown, which Chatham does, did, or might have, own, or hold, on or before the Effective Date, in connection with any matter, cause, fact, thing, act or omission whatsoever, and Chatham will not now or in the future accept any receovery in any forum from the McDonnell Released Parties with respect to such matters released herein.

…

The Parties each waive and relinquish every right or benefit that they had, have or may have under [CCP §]1542. In connection with the releases being granted hereunder, the Parties acknowledge that they are aware that they may discover facts in addition to or different from those that they may now know or believe to be true with respect to the Claims, or the subject matter of this Agreement, and that such facts may give rise to claims which are presently unknown, unanticipated and unsuspected. It is the Parties’ intention to hereby fully, finally, and forever settle and release all released claims and that, in furtherance of such intention, the releases given herein will be and remain full and complete releases notwithstanding the discovery or existence of any such additional or different facts.

…

The Parties each represent that they understand the foregoing releases and that they have been advised to consult, and have consulted with, their respective attorneys about these releases and waivers before executing this Agreement.”

(Settlement Agreement 4B-E, “the release”.)

Defendants contend they are a third party included in the explicit class of persons identified by the release. At the time Plaintiff executed the Settlement Agreement in July 2016, Plaintiff was fully aware of Defendant’s alleged representations made within the 2013 Letter, the 2014 Letter and the May 2014 Telephone Call but no claims based on these representations were preserved in the Settlement Agreement. (See In re Mission Ins. Co. v. Imperial Casualty and Indemnity Co. (1995) 41 Cal.App.4th 828, 839 citing Edwards v. Comstock Insurance Co. (1988) 205 Cal.App.3d 1164, 1169.)

Judicial estoppel “precludes a party from gaining an advantage by taking one position and then seeking a second advantage by taking an incompatible position. (Jackson v. County of L.A. (1997) 60 Cal.App.4th 171, 182.) The doctrine applies when (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position; (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud or mistake. (Id. at 183.)

Defendant further contends that judicial estoppel precludes Plaintiff from seeking to invalidate the release provisions in the Settlement Agreement. In order to enforce the Settlement Agreement, Plaintiff filed a demand for arbitration against McDonnell on or around February 2017. (Complaint ¶25.) In the Arbitration, the parties litigated the breach of the Settlement Agreement and McDonnell asserted various counter-claims. (RJN, Exh. B at 2.) Plaintiff successfully argued in the Arbitration that the release provisions in the Settlement Agreement were binding and enforceable to defeat McDonnell’s claims. (RJN Exh. B at 10.) The Arbitrator’s final award found that neither party could assert “any counterclaims or affirmative defenses “to the extent they are based on the promissory notes or the parties’ relationship leading up to the signing of the Settlement Agreement”. (RJN, Exh. B, Final Award at 11.) As such Plaintiff’s use of the release provision to shield himself from liability gives rise to judicial estoppel so that he cannot now say that the release provisions are ambiguous or not all encompassing.

In opposition, Plaintiff contends that Sheppard was not a party to the release, the release was confidential and Sheppard was not McDonnell’s attorney when the release was negotiated so the release is ambiguous. Plaintiff relies on Epic Communications, Inc. v. Richwave Technology, Inc. (2015) 237 Cal.App.4th 1342, 1352 for the proposition that if a confidentiality provision is included in the release, then other parties cannot use the release language even if they are a class of people included in the release. However, Plaintiff’s reliance is misplaced as the release in Epic Communications was ambiguous as to whether it released claims against a transferee’s former employee’s spin off corporation in its capacity as a shareholder of the transferee, since the literal reading of the release would suggest that anyone could buy the protection of the release through purchase of the stock. (Id. at 1349.)

Further, the release at issue here differs from that in Epic Communications as this one provides an exception to the confidentiality provision “as necessary to enforce the terms of this Agreement” (¶7A.) The Release is currently being used to enforce the terms of the Settlement Agreement and as such, the exception to confidentiality is explicitly allowed.

McDonnell was represented by Garvey Schubert & Barer in negotiating the release. Plaintiff contends the release is ambiguous as to the term “attorneys” and/or “agents”, but should be limited to this particular law firm. However, this is contrary to the literal interpretation of the words and the language of the release is not reasonably susceptible to the interpretation urged by Plaintiff. Further, this argument is barred by judicial estoppel because Plaintiff previous asserted the enforceability of these provisions in Arbitration and cannot now contend they are ambiguous.

For the foregoing reasons, Defendants demur is SUSTAINED WITHOUT LEAVE TO AMEND.