Case Number: BC461937    Hearing Date: August 05, 2014    Dept: 58

Judge Rolf M. Treu
Department 58
Hearing Date: Tuesday, August 5, 2014
Calendar No.: 7
Case Name: Gallagher, et al. v. Elson
Case No.: BC461937
Motion: (1) Motion for Summary Judgment
(2) Motions to Compel Further Responses to Requests for Production of Documents
Moving Party: Defendant Michael K. Elson
Responding Party: Plaintiffs Tyler Gallagher and Regal Assets, LLC
Notice: OK

Tentative Ruling: (1) Motion for summary judgment is denied.

(2) Motions to compel further responses to requests for production of documents are granted in part: Plaintiff Tyler Gallagher is to provide a verification for his responses within 10 days. The motions are otherwise denied. Sanctions are awarded in favor of Plaintiff against Defendant and Defendant’s counsel of record, jointly and severally, in the total amount of $1,675.

On 5/19/11, Plaintiffs Tyler Gallagher and Regal Assets, LLC (“RALLC”) filed this action against Defendant Michael K. Elson arising out of Defendant’s involvement in the formation and operation of RALLC. Plaintiffs assert causes of action or (1) legal malpractice and (2) breach of fiduciary duties. On 3/14/13, this action was assigned to this Court. Trial is set for 9/15/14; FSC for 8/21/14.

Motion for Summary Judgment –
Defendant moves for summary judgment. In connection with the motion, Defendant requests judicial notice of various pleadings and orders filed in this action and in Kayamori v. Gallagher (Case No. BC445265 “Kayamori Action”). The RJN is granted.

1. Undisputed Facts
The following facts are undisputed for purposes of this motion, and all citations are to the Opposition Separate Statement (“OSS”).

Gallagher formed Regal Assets, Inc. (“RAI”) in December 2008 (¶ 1), which conducted business out of executive suite facilities operated by Coast Business Centers, LLC whose vice president of operations was Luna Kayamori (¶ 4). When RAI was formed, Gallagher was already acquainted with Kayamori who led Gallagher to believe that she had knowledge and experience in the precious metals business. ¶¶ 5-6.

During the next several months, Kayamori demanded a share from Gallagher and RAI for the use of the office space and an “800” number that RAI was using (¶¶ 7-8), promising to contribute capital and “sweat equity” to Gallagher’s business (¶ 9). Plaintiffs orally offered Kayamori a 25% stake in RAI (¶¶ 10-11), and in December 2009, Gallagher agreed to dissolve RAI and reform it as a LLC with Kayamori having a 30% membership interest (¶ 12).

In December 2009, Defendant, a co-tenant of the same executive suites occupied by Kayamori and RALLC, was retained to prepare corporate documents to form RALLC. ¶ 13. However, Defendant failed to include critical terms and conditions in the operative agreement (¶ 15) and failed to advise Gallagher that the incomplete and unexecuted operating agreement would lead to disputes with Kayamori (¶ 16). By mid-July and August 2010, Kayamori and Gallagher were seriously disagreeing with their respective roles, rights, and responsibilities at RALLC (¶ 20), with Plaintiffs alleging that Defendant advanced Kayamori’s position to the detriment of Plaintiffs (¶ 21).

In September 2010, Kayamori sued Plaintiffs (¶ 22), and Plaintiffs filed a cross-complaint against Kayamori and Coast Business Centers (¶ 29). Plaintiffs successfully moved to compel arbitration of the Kayamori Action (¶ 31), and the Kayamori Action was settled by RALLC paying Kayamori $100,000 pursuant to a settlement agreement (¶ 32).

2. Merits
Defendant’s moves for summary judgment on the ground that Plaintiffs cannot establish the proximate cause element of a legal malpractice claim. See, e.g., Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.

“In a legal malpractice claim, the method for proving the element of causation has been likened to a ‘trial within a trial’ or a ‘case within a case.’ ‘The case-within-a-case or trial-within-a-trial approach applied in legal malpractice cases [is] an objective approach to decide what should have been the result in the underlying proceeding or matter.’” Ambriz v. Kelegian (2007) 146 Cal.App.4th 1519, 1531 (citations omitted and original emphasis). Causation is ordinarily a question of fact what may be decision as a question of law only if under undisputed facts there is not room for a reasonable difference of opinion. Id. at 1531-32.

Defendant submits that Plaintiffs continued their operations of RALLC without a signed operating agreement pursuant to an oral agreement with Kayamori (Def.’s Sep. Statement [“DSS”] ¶¶ 17-19) and that Plaintiffs’ cross-complaint against Kayamori included separate wrongful conduct unrelated to the operating agreement (id. ¶ 30). Defendant argues that these facts establish that Plaintiff cannot prove that they would not have entered into business with Kayamori (Complaint ¶ 35) or that they would not have been subject to the Kayamori Action (id. ¶ 36).

However, part of Plaintiffs’ claim against Defendant is the failure to advise Plaintiffs of the dangers of conducting business without an executed operating agreement that set forth the parties duties and responsibilities. OSS ¶¶ 15-16. Plaintiffs’ claim is that if the parties’ duties and responsibilities were discussed and set forth in the operating agreement, Plaintiffs would not have entered into business with Kayamori because independent and competent counsel would have protected Plaintiffs’ interests (Complaint ¶ 35). Additionally, Plaintiffs’ claim is that Kayamori’s claims in the Kayamori Action would have been trumped by the terms of the operating agreement (id. ¶ 36). Based on these claims, Defendant’s showing does not establish that causation is a question of law. That the parties contemplated doing business prior to Defendant’s involvement and continued doing business notwithstanding the lack of an operating agreement does not conclusively establish a lack of causation as to Plaintiffs’ claim concerning Defendant’s failure to advise. That Plaintiffs asserted additional wrongful conduct in their cross-complaint against Kayamori does not conclusively establish a lack of causation as to Plaintiffs’ claim concerning Kayamori’s Action against Plaintiffs. Therefore, the motion for summary judgment is denied.

Motions to Compel Further Responses to Requests for Production of Documents –
Defendant moves to compel Plaintiffs to provide further responses to Requests for Production of Documents, Set Two, which sought all documents relating to payments to Kayamori for resolving Kayamori’s claim concerning RALLC and all attorney fees and costs incurred as a result of the Kayamori Action and Defendant’s conduct.

Defendant argues that Plaintiffs’ responses are unverified. This is correct only as to Gallagher’s responses (Cole Decl. [Gallagher] Ex. C) since Gallagher provided a verification for RALLC’s responses (Cole Decl. [RALLC] Ex. C). However, the Court notes that Gallagher’s responses included the same documents as in RALLC’s responses: therefore, Gallagher’s failure to verify his responses appears to be a technical violation without any real impact. Nevertheless, the Court will order Gallagher to provide a verification for his responses.

Plaintiffs’ responses to the RPDs at issue here included a balance sheet and a banking account activity summary. See Cole Decls. Ex. D. Defendant argues that these documents are unresponsive because they are speculative and do not establish a connection to Plaintiffs’ damages. However, this merely disputes Plaintiffs’ proffered evidence. Indeed, Defendant requests that the Court order Plaintiffs to provided amended responses that no documents supporting the RPDs exist. Whether Plaintiffs’ evidence is admissible or whether it supports Plaintiffs’ claim are not issues for a discovery motion. Therefore, the motions are otherwise denied.

Both parties have requested sanctions against the other. While there was no verification provided for Gallagher’s responses, it is undisputed that Gallagher’s responses were identical as RALLC’s for which Gallagher did provide a verification. However, technically, the motion was properly brought on the verification. The Court finds that the remainder of the issues raised by the motions were wholly, made without substantial justification. See CCP § 2031.310(h). Plaintiff has requested attorney fees of $1,675 (reflecting 6.7 hours at the hourly rate of $250). Crane Decl. ¶¶ 14-15. Based on the foregoing, the Court finds 75% of this amount is just under the circumstances and awards sanctions in favor of Plaintiff against Defendant and Defendant’s counsel of record, jointly and severally, in the amount of $1256.25, payable within 30 days.