2013-00141393-CU-PN

Tom H. Bailey vs. Steven A. Campbell

Nature of Proceeding:    Hearing on Demurrer

Filed By:   Fife, Paul D.

Defendants’ Demurrer to the 1st amended complaint is ruled on as follows:
Defendants acted as the CPA for the law firm Porter Scott.  Plaintiff was a partner at
Porter Scott.  Defendants also acted as plaintiff’s personal accountant. Plaintiff alleges
defendants had power of attorney and prepared his taxes for approximately 20 years,
representing him in two IRS audits.  In 2011, plaintiff retired from Porter Scott.  Porter
Scott was required, by a “restrictive stock agreement,” to buy Bailey’s shares when he
retired after their value was determined by an independent accountant.

A disagreement arose between Porter Scott and Bailey as to the value of his shares.
Plaintiff alleges defendants told him they could not and would not prepare the valuation
of plaintiff’s shares, but that an independent evaluation would occur.  However,
Defendants, while still allegedly Bailey’s accountant and holding his power of attorney,
in a conflict of interest, provided a letter on March 22, 2011 to Porter Scott which
calculated plaintiffs’ shares.  Plaintiff alleges that defendants breached their fiduciary
duty to him when they placed Porter Scott’s interests over plaintiff’s interest by
intentionally undervaluing his shares.  Plaintiff alleges that defendants improperly took
into account the firms deferred compensation obligations in calculating the net book
value and Bailey’s share value. Porter Scott has not paid plaintiff for his shares.

Defendants contend each cause of action is uncertain and fails to state facts sufficient
to constitute a cause of action

The demurrer for uncertainty is overruled. Demurrers for uncertainty are disfavored
and are only granted where the complaint is so muddled that the defendant cannot
reasonably respond.  The favored approach is to clarify theories in the complaint
through discovery.  (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612,
616; 1 Weil & Brown, Civil Procedure Before Trial (Rutter 2008), sec. 7:84, p. 7(l)-37.)

The general demurrer is also overruled.  Defendants contend that as to all causes of
action, they owed “no duty” to plaintiff with regard to the valuation of his shares.
Defendants contend their duty was only to Porter Scott, the law firm that hired them to
perform the calculation, and not the individual shareholders of the law firm.

1st cause of action Professional Negligence:  Overruled.  The allegations are
sufficient to support a duty to the plaintiff based on the alleged requirement that the
share valuation be “independent” and defendants’ promise to plaintiff that an
independent accountant would perform the valuation.  Defendant relies on Bily v.
Arthur Young & Co . (1992) 3 Cal.4th 370, 397, to support its argument that no duty
was owed to plaintiff.  Bily is distinguishable since that case concerned an independent
audit performed at the firm’s request.  This action alleges a non-independent valuation
by the in-house accountant, and an independent duty to the plaintiff based on his
relationship with the accountant and a promise to him that an independent valuation
would be obtained.

2nd cause of action Intentional Interference with Contract :  Overruled.  Defendant
contends that because there was an “ongoing dispute between contracting parties”
there can be no interference with contract.  This “ongoing dispute” is not apparent on
the face of the pleading, and moreover involves factual disputes that are not properly
determined at the demurrer stage.

3rd cause of action Breach of Fiduciary Duty: Overruled.  Accountants, like
lawyers, owe a fiduciary duty to their clients. Wolf v. Superior Court (2003) 107 Cal.
App. 4th 25, 32.   See ruling on negligence cause of action.  A fiduciary duty is alleged
based on the alleged relationship between moving parties and plaintiff, and the alleged
promise that an independent valuation would be determined.

4th cause of action Constructive Fraud: Overruled. A duty is alleged based on the
relationship between moving parties and plaintiff.

5th cause of action Violation of Business & Professions Code section 17200:
Overruled. Defendants contend that the “common interest privilege” defeats this cause
of action.  Defendants contend that the March 22, 2011 letter is conditionally privileged
and therefore cannot form the basis of an unfair competition claim.  This argument
presumes that the cause of action is focused on a communication.  However, this
cause of action is not based on the content of the communication, as would be a claim
for defamation, but rather the act of undervaluing the shares.

6th cause of action Unjust enrichment:  Sustained with leave to amend for failure to
state facts sufficient to constitute a cause of action.   There is no allegation that
Campbell obtained any benefit from or rightfully belonging to
plaintiff.  Plaintiff has not alleged any basis for a quasi-contract claim between plaintiff,
whether such claim is entitled restitution or unjust enrichment.  The nature and
character of a pleading is to be determined from the facts alleged, not the name given
by the pleader to the cause of action. (See Lovejoy v. AT&T Corp. (2001) 92 Cal. App.
4th 85, 98.)            Plaintiff may file and serve an amended complaint on or before January 3, 2014.

The minute order is effective immediately.  No formal order pursuant to CRC Rule
3.1312 or further notice is required.