2017-00209550-CU-PN

Sourcis, Inc. vs. Faryan Afifi

Nature of Proceeding: Hearing on Demurrer to Cross-Complaint

Filed By: Bacon, Kenneth E.

** If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel of the specific issue(s) on which oral argument is sought. **

The demurrer of Plaintiffs and Cross-Defendants Sourcis, Inc. (Sourcis) and Shahram Elli (Elli) (collectively “Cross-Defendants”) to the cross-complaint is OVERRULED.

Cross-Defendants’ request for judicial notice of court documents is GRANTED. Their further request for judicial notice of a “bill summary” is DENIED.

Cross-Defendants’ complaint contains allegations of legal malpractice. The defendants are Faryan Afifi, individually and dba Afifi Law Group (Afifi); and Samuel K. Swenson, individually and dba The Swenson Law Firm (Swenson) (collectively “Defendants”). According to Cross-Defendants, Defendants were its co-counsel in

Bravo Development Group, LLC et al. v. Shahram Elli et al., Sacramento County Superior Court Case No. 2012-133552 (the “Bravo Action”). The plaintiff in the Bravo Action sued Cross-Defendants to resolve claims arising from a business relationship. Cross-Defendants allege Defendants mishandled the Bravo Action in a variety of ways that were harmful. Cross-Defendants acknowledge that they did not pay fees Defendants sought for their representation in the Bravo Action. The parties conducted a non-binding arbitration, but Cross-Defendants were dissatisfied with the outcome and filed this case. Their complaint against Defendants contains causes of action for professional negligence, breach of contract, breach of fiduciary duties and “Request for Trial De-Novo Following Non-Binding Fee Arbitration Award and for Declaratory Relief.”

Afifi’s cross-complaint contains causes of action for breach of contract, “book account,” account stated, quantum meruit, declaratory relief, fraud and fraudulent transfer. Each cause of action arises directly or indirectly from Cross-Defendants’ alleged failure to pay fees incurred in the Bravo Action. Cross-Defendants now demur to the causes of action for quantum meruit, fraud and fraudulent transfer on grounds the allegations fail to state facts sufficient to state a valid cause of action. Afifi opposes.

Discussion

The Fourth Cause of Action for Quantum Meruit

The demurrer is overruled.

Cross-Defendants argue the fourth cause of action is defective because it is inconsistent with the first cause of action for breach of contract. Although Afifi agrees he cannot prevail on theories breach of contract as well as quantum meruit, he argues he is permitted to plead in the alternative. Because is Afifi is correct, (see Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1222-1223), the demurrer is overruled.

The Sixth Cause of Action for Fraud

The demurrer is overruled.

Afifi alleges Cross-Defendants committed fraud by way of Elli’s statements during the Bravo litigation that Cross-Defendants would pay fees to be incurred later in the case even though Cross-Defendants had no intention of paying, and even though Cross-Defendants had failed to pay timely so far. In reliance on these statements, Afifi continued the representation, but he has not been paid.

Cross-Defendants demur primary on grounds Afifi is attempting to convert a contract cause of action into a tort. Cross-Defendants argue Afifi cannot sue for fraud based on failures to pay fees pursuant to an existing attorney-fee agreement. To support their position, Cross-Defendants cite BFGC Architect Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal.App.4th 848. The court there stated that tort liability does not generally arise from failure to perform contractual obligations. But BFGC Architect Planners did not involve any false promises. Here, Afifi predicates liability on false assurances about future performance where past performance had been untimely. It is well-settled that promissory fraud arises from a false promise to perform in the future. (See Stockton Mortgage, Inc. v. Tope (App. 3 Dist. 2014) 233

Cal.App.4th 437, 458.) Cross-Defendants argue it is Afifi’s burden to cite authority extending this principal to pre-existing contractual relationships, but the burden is on them, the moving parties. Absent a case holding that promises to perform in the future cannot support fraud under the circumstances, the court rejects Cross-Defendants’ contrary argument.

Next, Cross-defendants argue the fraud allegations lack the requisite specificity. For the reasons stated in the opposition, the court disagrees. (See Opp. at 6:24-7:12.)

Finally, Cross-Defendants argue Afifi has failed to allege reasonable reliance. Among Afifi’s reliance allegations are that, had he known Cross-Defendants intended to increase their debt to him without ever paying, he would have substituted out of the case. In Cross-Defendants’ view, this allegation is speculative because an attorney may not unconditionally withdraw from a representation. At this juncture, however, the court must draw all inferences in Afifi’s favor. Whether he would have been allowed to withdraw depends on the likelihood a withdrawal would have prejudiced Cross-Defendants, and that question involves factual issues that cannot be resolved on demurrer.

The Seventh Cause of Action for Fraudulent Transfer

The demurrer is overruled.

Afifi brings the seventh cause of action under the Uniform Fraudulent Transfer Act, CC

§§ 3439 et seq. Afifi alleges Elli told him several times he and Sourcis were hiding and transferring assets to prevent the plaintiffs in the Bravo Action from collecting on any judgment. Afifi further alleges Cross-Defendants have made such fraudulent transfers with the intent to hinder him and others from collecting on debts.

First, Cross-Defendants reiterate their argument that this cause of action is an improper attempt to convert a contract case into a tort action. For reasons stated above, the court rejects Cross-Defendants’ theory that Afifi cannot plead in the alternative.

Next, Cross-Defendants argue the allegations are insufficiently specific for various reasons. The argument is unpersuasive, and the court rejects it.

Cross-Defendants argue next that the demurrer should be sustained because the allegation contains disclosures of confidential and/or privileged attorney-client communications. Afifi counters that, because his own rights are at stake in this legal malpractice action, the privilege has been waived. (See Opp. at 9:17-28, citing authorities.)

Assuming arguendo Afifi has breached a duty of confidentiality, Cross-Defendants fail to explain why the remedy is an order sustaining the demurrer. (Cf. General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1170 [legal claims can be dismissed where confidential information is needed to establish them, but the necessity of such information to establish a claim can rarely be decided at the pleading stage].) For that reason, the court rejects their position, and the demurrer is overruled.

Disposition

The demurrer is overruled.

Cross-Defendants are directed to file and serve their answer(s) no later than 4/09/18.