Case Number: BC663068 Hearing Date: February 23, 2018 Dept: 46

Case Number: BC663068
STEPHEN L JONES VS TODD E MILLS

Filing Date: 05/26/2017
Case Type: Othr Breach Contr/Warr-not Fraud

02/23/2018
Hearing on Demurrer To Cross-Complaint

TENTATIVE RULING

Demurrer is OVERRULED. However, Tricia H. Mills is an improper party who is stricken and dismissed from the Cross-Complaint pursuant to CCP §§428.10 and 436.

DISCUSSION

On 11/3/17, P Stephen L. Jones (hereinafter “Jones”) filed his FAC for Breach of K against D Todd E. Mills (hereinafter “Todd”) and DOES 1-25. On 12/7/17, D Mills filed his Answer.

On the same date, D Mills and Tricia Mills (hereinafter “Tricia”) filed their Verified Cross-Complaint for (1) Constructive Fraud; (2) Intentional Misrepresentation; (3) Concealment; (4) Negligent Misrepresentation; (5) Declaratory Relief; (6) Quiet Title; and (7) Cancellation of Deed against Cross Defendants Jones; Overton, Lyman & Prince LLP (hereinafter “Firm”); Chicago Title Company (hereinafter “Chicago Title”); and ROES 1-10.

Plaintiff alleges that he contracted with Defendant to file a lawsuit which would obtain access to undeveloped property belonging to Defendant, for a fee of $250,000, to be paid upon sale of the property. Plaintiff won the lawsuit for Defendant, but alleges that Defendant is offering the property at a sale price which is far above reasonable value, thereby guaranteeing non-sale. Defendant in turn alleges that there was a second agreement for a lesser fee, but that Plaintiff tricked Defendant into believing that the earlier agreement was still effective.

Tricia H. Mills’ (“Tricia”)’s Cross-Complaint

A Cross-Complaint may only be filed by a party who has been named as a defendant in a complaint or cross-complaint. CCP §428.10. Cross-Complainant Tricia was not named as a defendant in the original complaint, and Plaintiff/Cross-Defendant Jones has not asserted a cause of action against her. Therefore, she cannot be party to the Cross-Complaint in the first instance.

If Cross-Complainant Tricia wishes to assert claims against Jones in this case, she must either move to intervene under CCP §387(c), or file a separate action and seek to have the cases consolidated.

Therefore, pursuant to CCP §436, Tricia is ordered STRICKEN from the Cross-Complaint, without prejudice to her use of either of the proper avenues of entry outlined above.

The Cross-Complaint may proceed only as to claims asserted by Defendant Todd Mills.

The Alleged Agreements

The allegations of the Cross-Complaint hinge on two agreements:

“22. On or about August 5, 2005, Jones, acting in his capacity as partner of Overton, Lyman & Prince, provided Todd Mills with a fee agreement for legal services (the “2005 Fee Agreement”). The 2005 Fee Agreement, which was already signed by Jones, was a contract for legal services between Overton, Lyman & Prince, on the one hand, and Todd Mills and Tricia Mills, on the other. The 2005 Fee Agreement opened with the following language: “Dear Todd: This letter will confirm our agreement that the law firm of Overton, Lyman & Prince, LLP, will represent you and Tricia in connection with the above referenced lawsuits [the Mellone Action and the DeCou Action].” A true and correct copy of the 2005 Fee Agreement is attached as Exhibit B.

23. The 2005 Fee Agreement was a “hybrid” fee agreement that included both contingent and flat-fee components. As relevant to this Cross-Complaint, the 2005 Fee Agreement provided that payment of attorney’s fees to Jones for the Representation “will be contingent upon the earlier of (1) your sale of [the Property] prior to obtaining an easement through the lawsuits or (2) your prevailing in the lawsuits, thereby obtaining an easement across both Mellone’s and DeCou’s properties.” The 2005 Fee Agreement further provided that if

Cross-Complainants obtained such an easement after trial, Jones would receive $250,000 as attorney’s fees upon sale of the Property.

24. On or about August 11, 2005, Todd Mills signed the 2005 Fee Agreement and returned a copy to Jones.

…

25. A bench trial was held in the Mellone Action from June 24, 2008 to July 8, 2008. Oral argument was held on August 29, 2008. Cross-Complainants are informed and believe, and on that basis allege, that during the August 29, 2008 oral argument, the trial court suggested that it would hold in favor of Mellone and against Todd Mills and Tricia Mills.

26. Beginning on or about September 23, 2008, Jones and Todd Mills discussed a modification to the 2005 Fee Agreement whereby Jones would receive payment of attorney’s fees even if Cross-Complainants did not prevail in the Mellone Action.

27. Todd Mills and Jones negotiated the modification via email on September 23, 2008 and September 24, 2008. During the course of these negotiations, Jones, in an email sent on September 24, 2008 at 11:20 a.m., represented to Todd Mills that Cross-Complainants were likely to prevail in the Mellone Action. Specifically, Jones stated, “although the court is taking so much time that it makes me uncomfortable, I still think our chances are very good (maybe 75-25 or greater) of winning an easement.”

28. On September 24, 2008 at 12:56 p.m., Todd Mills and Jones reached an agreement to modify the 2005 Fee Agreement (the “2008 Amendment”). Under the 2008 Amendment, Jones would be paid $200,000 if Cross-Complainants obtained an easement as a result of the Mellone Action, and $100,000 if they did not. Jones confirmed this agreement in an email to Todd Mills sent on September 24, 2008 at 4:47 p.m. A true and correct copy of Jones’ September 23-24, 2008 email correspondence with Todd Mills is attached as Exhibit C.

…

33. Trial resumed in 2011. After trial, on September 10, 2012, the trial court entered judgment in the Mellone Action, holding that Cross-Complainants and the other plaintiffs were entitled to an equitable easement.

…

34. Approximately four-and-a-half months later, on January 25, 2013 at 3:24 p.m., Jones sent an email to Todd Mills in which Jones requested that Cross-Complainants execute a note secured by a deed of trust in favor of Jones to secure Cross-Complainants’ payment obligation. Three days later, on January 28, 2013, Jones sent another email to Todd Mills in which Jones falsely represented: “[a]s a result of the judgment, you now owe me $250,000.” Jones’ January 28, 2013 email attached the 2005 Fee Agreement. A true and correct copy of Jones’ January 25-28, 2013 email correspondence, including the attachment to Jones’ January 28, 2013 email, is attached as Exhibit D.

35. During these email discussions, and continuing thereafter, Jones concealed from Cross-Complainants the 2008 Amendment. Specifically, on April 3, 2013 at 11:53 a.m., Todd Mills asked Jones via email to send him the deed of trust Jones wanted Cross-Complainants to sign. In that same email, Todd Mills asked Jones to confirm that the 2005 Fee Agreement “is the entire agreement and there are no other agreements regarding your legal fee.” Jones responded via email on April 3, 2013 at 2:49 p.m. In his response, Jones stated “[t]he underlying fee agreement dated August 5, 2005 and signed by you on August 11, 2005, is the entire agreement and there are no other agreements regarding my legal fee.” Jones attached to his email a deed of trust (“Deed of Trust”) for Cross-Complainants to sign. The Deed of Trust purported to name Jones as beneficiary, Cross-Complainants as trustors, and Chicago Title Company as trustee. The Deed of Trust purported to grant the trustee power to sell the Property “[f]or the purpose of securing. . . payment of the sum of $250,000.00 in according to the terms of that certain agreement dated August 5, 2005 and signed by Todd Mills on August 11, 2005 between beneficiary Stephen L. Jones and Trustor Todd Mills.. .“ Cross-Complainants are informed and believe and on that basis allege that Jones drafted the Deed of Trust. The Deed of Trust did not mention the 2008 Amendment. A true and correct copy of Jones’ April 3, 2013 email correspondence with Todd Mills attaching the Deed of Trust is attached as Exhibit E.

36. On April 12, 2013, Todd Mills executed the Deed of Trust. He did so in reliance on:

a. Jones’ misrepresentation that “[a]s a result of the judgment [in the Mellone Action] you now owe me $250,000”;

b. Jones’ misrepresentation that the 2005 Fee Agreement “is the entire agreement and there are no other agreements regarding [Jones’] legal fee”;

c. Jones’ misrepresentation in Deed of Trust that Todd Mills owed Jones

$250,000 under the 2005 Fee Agreement;

d. Jones’ concealment of the 2008 Amendment during the parties’ correspondence in January and April 2013; and

e. the confidence and trust Todd Mills placed in Jones as his attorney to accurately recite and interpret the legal status of their payment arrangement.” (Cross-Complaint ¶¶ 22-28, 33-36).

The emails forming the alleged 2008 agreement read in relevant part as follows.

9/23/08, Todd to Jones –

“Hi Steve,

Here are the numbers. I propose $175,000 as the total fee for representation on Malibu, payable upon sale; or $75,000 in the event we loose [sic], also upon sale.

Todd”

9/24/08, 11:20 am, Jones to Todd –

“Todd,

After giving your offer much thought, I am declining it.

But your offer morally gets you off the hook as far as any payment if you do not receive the right to use Carbon Canyon Road to access your property as a result of the litigation. And that would be OK. I went into the contingency fee arrangement with full knowledge of the risks.

There are two reasons for declining your offer. First, if we lose the case and end up with no easement, I do not know when, if ever, you will sell the property. Without access you have been trying to sell it for twenty years without success. On the other hand, if we win the easement, the realistic possibility La sell the property increases vastly. Therefore, if we lose, the $75,000 might not be collected in my lifetime, while the money, if we win, should be collectible in the reasonably foreseeable future.

Second, although the court is taking so much time that it makes me uncomfortable, I still think our chances are very good (maybe 75-25 or greater) of winning an easement. Therefore, under the theory of “expected return” I would be giving up an expected return worth $56,250 ($75,000 x 75%) In exchange for an expected return worth $18,750 ($75,000 x25%).

In any event, your efforts to bring in the other owners have heled in two ways: (1) having so many plaintiffs enabled us to allege the public use theory which is the best theory for everyone, including yourseIf and (2) even though the majority of them haven’t been paying, some have been paying. As to the others, none of them are on a contingency fee basis. Even if we lose, I am entitled to collect from them. And I am so angry at their freeloading that I can and will bring lawsuits against each of the non-paying owners if necessary.

Steve”

9/24/08, 11:44 am, Todd to Jones –

“Steve,

But consider, we have a rather good chance of selling the property linked to Penn’s. In fact, Lisa sent over 2 separate one-party agreements this week. She thinks she can sell the two together. This makes sense because it may give Tom some upside. It is not impossible that we could be in escrow before there is a verdict on Public Use.

Would you go $200,000 I $75,000?

Todd”

9/24/08, 12:50 pm, Jones to Todd –

“Todd,

Going back to the doctrine of expected return. Even if we reduce your chances of winning from 75% to 66.6 %, the expected return of your offer means that I am giving up something ($50,000) with an expected return worth $33,333 ($50,000 x 213) and receiving something ($75,000) with art expected return worth $25,000 ($75,000 x 1/3). Not a good deal. How about this — $200,000 if we obtain an easement and $100,000 if we don’t. Under the doctrine of expected return, that means I am giving up something ($50,000) with an expected return of $33,333 and getting something ($100,000) with an expected return of $33,333. Thus, if we assume our chances are 2/3 of winning, the expected returns exactly balance out. No one is losing a theoretical nickel.

Do you want to go for that deal?

Steve”

9/24/08, 12:56 pm, Todd to Jones –

“okay”

9/24/08, 4:47 pm, Jones to Todd –

“Todd,

It is agreed that Judy will prepare a supplement for our signatures to the contingency agreement stating that the sum payable out of a sale is $200,000 if you obtain an easement as a result of the litigations and $100,000 if you do not.

However, as a decision may come from the Court any day now, we have both agreed that, with or without the signed supplement prepared by Judy, the above is our agreement as of today. If necessary, these exchanged [sic] emails shall constitute evidence of the agreement between ourselves.

Stephen Jones”

9/24/08, 9:28 pm, Todd to Jones –

“Agreed Steve. I will ask Judy to prepare the document.

Todd” (Cross-Complaint Exhibit C).

Apparently “Judy” never prepared such a document, or if she did, it was never signed.

1st-4th COAs: Constructive Fraud, Concealment, Intentional Misrepresentation, and Negligent Misrepresentation

Constructive fraud “ ‘ “ ‘is a unique species of fraud applicable only to a fiduciary or confidential relationship.’ ” ‘ ” (Michel v. Moore & Associates, Inc. (2007) 156 Cal.App.4th 756, 763, 67 Cal.Rptr.3d 797.) “Constructive fraud ‘arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice.’ [Citation.] Actual reliance and causation of injury must be shown. [Citation.]” (Tyler v. Children’s Home Society (1994) 29 Cal.App.4th 511, 548, 35 Cal.Rptr.2d 291, italics omitted; see also Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14, 169 Cal.Rptr. 478 [elements of constructive fraud cause of action are “(1) a fiduciary or confidential relationship; (2) nondisclosure (breach of fiduciary duty); (3) intent to deceive, and (4) reliance and resulting injury (causation)”].) “ ‘ “In its generic sense, constructive fraud comprises all acts, omissions and concealments involving a breach of legal or equitable duty, trust, or confidence, and resulting in damages to another. [Citations.] Constructive fraud exists in cases in which conduct, although not actually fraudulent, ought to be so treated—that is, in which such conduct is a constructive or quasi fraud, having all the actual consequences and all the legal effects of actual fraud.” [Citation.]’ ” (Estate of Gump (1991) 1 Cal.App.4th 582, 601, 2 Cal.Rptr.2d 269; see Civ.Code, § 1573; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 981–982, fn. 13, 64 Cal.Rptr.2d 843, 938 P.2d 903.) “[W]hether a fiduciary duty has been breached, and whether [conduct] constitutes constructive … fraud, depends on the facts and circumstances of each case.” (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 415, 98 Cal.Rptr.2d 176.).” Prakashpalan v. Engstrom, Lipscomb and Lack (2014) 223 C.A.4th 1105, 1131.

The elements of a cause of action for fraud are: (1) a false representation, actual or implied, or concealment of a matter of fact material to the transaction which defendant had a duty to disclose or defendant’s promise made without the intention to perform; (2) defendant’s knowledge of the falsity; (3) defendant’s intent to deceive; (4) plaintiff’s justifiable reliance thereon; and (5) resulting damage to plaintiff. Mosier v. Southern Calif. Physicians Ins. Exchange (1998) 63 C.A.4th 1022, 1045. Fraud must be specifically pled, and the particularity requirement necessitates the pleading of facts that “show how, when, where, to whom, and by what means the representations were tendered.” Stansfield v. Starkey (1990) 220 C.A.3d 59, 73.

The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage. Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 C.A.4th 226, 243. “[R]esponsibility for negligent misrepresentation rests upon the existence of a legal duty, imposed by contract, statute or otherwise, owed by a defendant to the injured person.” Bock v. Hansen (2014) 225 C.A.4th 215, 228 (internal quotation and citation omitted). “Each element in a cause of action for…negligent misrepresentation must be factually and specifically alleged. (Small[ v. Fritz Companies, Inc. (2003)] 30 C.4th [167,] at p. 184).” Cadlo v. Owens-Illinois, Inc. (2004) 125 C.A.4th 513, 519.

Jones makes two main arguments regarding the fraud theories. First, he argues that the 2008 Agreement is invalid, and that therefore there was no concealment. Second, he argues that there is no justifiable reliance because Todd should know what contracts he has entered into. Neither argument defeats the fraud cause of action.

Validity of the 2008 Agreement

Bus. & Prof. Code § 6147 governs contingency fee contracts. It states in relevant part as follows:

“(a) An attorney who contracts to represent a client on a contingency fee basis shall, at the time the contract is entered into, provide a duplicate copy of the contract, signed by both the attorney and the client, or the client’s guardian or representative, to the plaintiff, or to the client’s guardian or representative. The contract shall be in writing and shall include, but is not limited to, all of the following…

(b) Failure to comply with any provision of this section renders the agreement voidable at the option of the plaintiff, and the attorney shall thereupon be entitled to collect a reasonable fee.”

Jones argues that the 2008 agreement is not in writing and has not been signed by either party. But if an email is not a “writing,” what is it? Parties are entitled to conduct transactions by electronic means as long as they both agree to do so, and whether or not they agree to do so “is determined from the context and surrounding circumstances, including the parties’ conduct.” Civ. Code § 1633.5. Jones argues that the agreement to conduct a transaction by electronic means must be made separately and in advance. This reading of the statute is incorrect. Jones relies on a portion of the statute which only applies to a standard-form contract, and the 2008 Agreement is certainly not that. The surrounding circumstances and the language of the emails are all but unequivocal that they had agreed electronically, and the emails were to constitute the agreement. The writing and signature requirements have been met. Further the purpose of the signature requirement is authentication, which can also be served by reference to the email origination address and the name subscribed to the email. See In re Estate of Williams (2007) 155 C.A.4th 197, 207-211.

Additionally, Section 6147 is designed to protect clients, not attorneys (Chodos v. Borman (2014) 227 C.A.4th 76, 101-103), and it expressly provides that a non-compliant agreement is voidable only at the option of the plaintiff. Jones’ proffered counter to that explicit statutory rule is his own moral assessment, unsupported by authority, that the Bus. & Prof. Code is not to be used as an unfair weapon by the client. This bare assertion cannot provide a basis for the court’s ruling, and in any event it was Jones who drafted the unequivocal language in the email chain which created the 2008 Agreement.

The 2008 Agreement is valid.

Todd’s Knowledge

Jones next argues that Todd knew of the 2008 Agreement, and that therefore any reliance on Todd’s part is unjustifiable. While this may be a strong factual argument, it is a factual argument, and therefore cannot be resolved on demurrer. While it is a generally dubious proposition that a reasonable person would forget his own contracts, particularly where they are more favorable to him, it is not utterly inconceivable. And Jones, as Todd’s attorney, had a fiduciary duty to, when asked, to make the most full disclosure of their relative positions. Therefore, an evidentiary motion is the only way to dispose of the reliance question.

Jones also argues that the deed of trust executed in his favor constitutes payment of the $250,000 due under the 2005 agreement with full knowledge of the facts. This argument has no merit: If the deed of trust is proper payment, Jones has no damages on his complaint and would never have needed to initiate this lawsuit.

Jones makes the ancillary argument that the allegations are insufficiently specific. This contention is also unmeritorious. The Cross-Complaint details exactly what happened, with records that are not only dated but time-stamped. The representation that is the precise locus of the fraud allegations is provided, in toto, on the first page of Exhibit E.

For all these reasons, the demurrer is OVERRULED as to these Causes of Action.

5th COA: Declaratory Relief

“A complaint for declaratory relief should show the following: (a) A proper subject of declaratory relief within the scope of CCP 1060; [and] (b) An actual controversy involving justiciable questions relating to the rights or obligations of a party.” 5 Witkin, Cal. Procedure (5th Ed. 2008), Pleading, § 853, p. 268. “The action is unusual in that it may be brought to determine and declare rights before an actual invasion of those rights has occurred. Thus, it operates prospectively, rather than merely to redress past wrongs. (Gafcon v. Ponsor & Associates (2002) 98 C.A.4th 1388, 1403, 1 Cal. Proc. (5th), Attorneys, § 386; Canova v. Trustees of Imperial Irr. Dist. Employee Pension Plan (2007) 150 C.A.4th 1487, 1497).” Id. at § 850, p. 265 (emphasis added). “The existence of an actual present controversy must be pleaded specifically. General statements about a controversy are useless; the facts of the respective claims concerning the subject must be given…” Id. at § 862, p. 277.

Declaratory relief is not available when the rights of the complaining party have crystallized into a cause of action for past wrongs, all relationship between the parties has ceased and there is no conduct of the parties subject to regulation by the Court. Osseous Technologies of America v. Discovery Ortho Partners (2010) 191 C.A.4th 357, 367.

Jones argues that the COA for declaratory relief must fail because the 2008 Agreement is invalid, and therefore there is no contractual provision for the court to interpret. However, as discussed above, the 2008 Agreement is valid, so there is a contract with prospective application for the court to interpret.

The demurrer is therefore OVERRULED as to this cause of action

6th-7th COAs: Quiet Title and Cancellation of Deed

CCP § 761.020 states as follows:

“The complaint shall be verified and shall include all of the following:

A description of the property that is the subject of the action. In the case of tangible personal property, the description shall include its usual location. In the case of real property, the description shall include both its legal description and its street address or common designation, if any.

The title of the plaintiff as to which a determination under this chapter is sought and the basis of the title. If the title is based upon adverse possession, the complaint shall allege the specific facts constituting the adverse possession.

The adverse claims to the title of the plaintiff against which a determination is sought.

The date as of which the determination is sought. If the determination is sought as of a date other than the date the complaint is filed, the complaint shall include a statement of the reasons why a determination as of that date is sought.

A prayer for the determination of the title of the plaintiff against the adverse claims.”

Civil Code § 3412 states that “[a] written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.”

“[A]n action to remove a cloud on title, under Civil Code section 3412, is aimed at a particular instrument, or piece of evidence. (Ephraim v. Metropolitan Trust Co. (1946) 28 Cal.2d 824, 833 [172 P.2d 501].) To state a cause of action to remove a cloud, instead of pleading in general terms that the defendant claims an adverse interest, the plaintiff must allege, inter alia, facts showing actual invalidity of the apparently valid instrument or piece of evidence. (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, § 537-538, pp. 2184-2185.).” Wolfe v. Lipsy (1985) 163 Cal.App.3d 633, 638 (disapproved on other grounds in Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 35ff).

Jones’ argument with regard to these causes of action is the same as the argument regarding the claim for Declaratory Relief. Cross-Complainant has stated a claim that at the least he may be entitled to have the current Deed of Trust canceled and replaced with a Deed of Trust for only $200,000, the amount due under the 2008 Agreement.

The demurrer to these causes of action is therefore OVERRULED.