Wade Hover v. Brian Hannon

Case Name: Hover v. Hannon, et al.
Case No.: 16-CV-302436

Defendants Greenfield Draa & Harrington (the “Greenfield Firm”) and Brian Hannon (“Hannon”) (collectively, “Defendants”) demur to the complaint (“Complaint”) filed by plaintiff Wade Hover (“Plaintiff” or “Hover”).

This is an action for legal malpractice. According to the allegations of the Complaint, Plaintiff, Trustee of the Wade H. Hover Family Trust, is the owner and voting member of fifty percent in Casa Alondra Mobile Home Park, LLC (the “LLC”) and brings the instant action in both a derivative and representative capacity on behalf of the LLC and in his own right as an intended beneficiary. (Complaint, ¶ 1.)

On June 12, 2014, the Defendants entered into a written agreement to provide legal services to the LLC. (Complaint, ¶ 4.) Defendants continued to render legal services to the LLC until they were discharged on March 25, 2015. (Id.) On November 2, 2015, Defendants again undertook to render legal services to the LLC and are still doing so as of the date of this Complaint. (Id.) The other members of the LLC, with the ownership percentage indicated in the parenthesis are: Linda Lester (25%), Fred Lester as trustee for his mother (12.5%) and Jean Denning (12.5%). (Id., ¶ 5.) All of the Lester members have been represented by their own counsel. (Id., ¶ 6.)

The only asset of the LLC is a mobile home park located in San Jose. (Complaint, ¶ 7.) The LLC is a tenant of several parcels of land totaling approximately 25 acres zoned only for mobile home park use by the City of San Jose. (Id.) The largest ownership of the leased land is now held by the heirs of Pauline Di Tomaso. (Id.) After leasing the parcels, first as partners and then by the LLC for approximately 45 years, on June 15, 2014, the members of the LLC adopted a written form of consent to purchase the Di Tomaso leased property. (Id., ¶ 8 and Exhibit 8.) Defendants were hired by the LLC to assist with the process of the exercise of the options to purchase in the lease and to advise on the risks that the LLC might experience in the purchase process. (Id., ¶ 9.)

On December 14, 2014, Hannon wrote a 15 page memo to the members of the LLC in which he declared that they were at an “impasse” and the LLC faced dissolution. (Complaint, ¶ 10.) The members had last met on December 2, 2014, a meeting Hannon attended, at which time they had unanimously declared (in a written consent document) that the purchase should be completed as soon as possible. (Id.) In his notes of the meeting on January 5, 2015, Hannon converted the resolution to purchase as soon as possible into a new unapproved or authorized definition of “the purchase would be made after all further diligence is completed.” (Id., ¶ 11.) No membership vote was taken to adopt the rewrite. (Id., ¶ 12.) Hannon was advised not to deal with “financial matters” and to confine his service to “legal matters” to which he responded that his legal services depended on financial facts. (Id., ¶ 13.)

One of the issues discussed by the members was whether the LLC might file a declaratory relief action to seek judicial action to prepay the purchase price of the leased land instead of using “seller financing” in order to secure “commercial financing” with a much lower rate. (Complaint, ¶ 15.) Hannon made no plans to commence such a proceeding.

On March 31, 2015, Defendants were suspended by the LLC’s general manager from rendering legal services. During the period of October 25 through November 2, 2015, the LLC’s sole manager contacted Defendants and provided them with instructions that have since been withheld from Plaintiff and all other members of the LLC. (Complaint, ¶ 16.) In November 2015, the LLC’s general manager, Fred Lester, and Plaintiff met to discuss the purchase offer on the property. (Id. and Exhibit B.) Plaintiff had been making efforts to move the purchase process forward since early October 2015. (Id., ¶ 17.)

On October 5, 2015, the LLC’s general manager signed and sent Plaintiff’s proposals to the lessor. (Complaint, ¶ 18.) The lessor’s attorney responded that the LLC had exercised the option and had only five and a half months to complete the purchase, which was a perversion of the lease terms. (Id.) That same month, the general manager received a letter stating an interest by a third party in purchasing the LLC. (Id., ¶ 19.) The general manager advised Defendants of the letter before re-engaging them and they were also informed that Plaintiff was preparing documents to present to the lessors as part of negotiations to recommence the purchase of the leased land. (Id.)

On November 11, 2015, Plaintiff, Fred Lester and Hannon met to discuss the content of the actions to be set in motion. (Complaint, ¶ 22.) Fred Lester stated that the purpose of the meeting was to settle his concerns about signing various letters regarding the purchase process which had been prepared by Plaintiff. (Id.) The meeting ended by Plaintiff and the general manager expressing acceptance of Hannon’s recommendation that a portion of one of the letters should be rewritten. (Id., ¶ 22.) Several hours after the meeting concluded, the LLC’s general manager sent to Plaintiff a copy of his letter dated September 1, 2015 to the LLC’s attorney, Donald Dougherty, asking for an opinion as to the power of a member to revoke unanimous acceptance of the written consent document to purchase the lease parcels owned by the Di Tomaso heirs adopted on June 15, 2014. (Id., ¶ 23.) The reply was dated September 14, 2015 and addressed to Fred Lester as the general manager of the LLC. (Id.) This letter had not been shared with the LLC members until almost two months after negotiations were carried out. (Id.) Two days later, Plaintiff received an email from Hannon advising him that Plaintiff’s November 10 letters to restart the purchase as specified in the June 15, 2014 uniform written consent would not be sent because of LLC policy. (Id., ¶ 24.) Hannon advised Plaintiff on November 20 that he was of the opinion that the land purchase was not in the best interests of the LLC, and subsequently sent out a memorandum to that effect. (Id.) At that time and since, no member who had signed the June 15, 2014 written consent had acted to revoke that members consent. (Id.)

Hannon, as the LLC’s counsel, acting on his own without any authority, declared the purchase process was concluded because the members were “unable to settle a matter of major influence on the future LLC operations.” (Complaint, ¶ 25.) On November 15, 2015, the general manager sent out an email stating that he had suspended all land lease purchase processes based on Donald Dougherty’s letter and the “impasse” declared by Hannon. (Id., ¶ 26.) Plaintiff by that time had lost confidence in Defendants’ assistance, and Hannon advised the general manager to ignore an email authored by Plaintiff that requested resumption of the land purchase. (Id., ¶ 27.) Hannon then sent a letter to the lessor’s attorney requesting that the lessor’s and their attorney withdraw their October 20 “option exercised” demands. (Id.) The lessor’s attorney immediately withdrew, stating that the lessors were happy with the rent increase and did not want to sell. (Id.) Hannon then advised the members of the LLC via written correspondence that he agreed with Donald Dougherty’s advice and would only be satisfied with a new vote of the members to purchase the leased land. Plaintiff alleges that Hannon and Fred Lester contacted Linda Lester and secretly obtained an agreement not to vote for or against the renewal of the June 15, 2014 uniform written consent and the LLC’s objective to purchase the property. (Id., ¶ 28.) Linda Lester allegedly agreed not to do so in fear that Fred Lester would retaliate against her. (Id., ¶ 29.) Hannon then wrote another letter to the LLC members in which he falsely stated that Plaintiff had approved of his December 4 letter to the lessor’s attorney to cut off the purchase process. (Id.)

Plaintiff alleges that Defendants acted to further the schemes of Fred Lester in violation of the express wishes of the LLC, their client, as reflected in the June 15, 2014 uniform written consent. (Complaint, ¶ 30.) Defendants inhibited, prevented and delayed the purchase of the of the property by the LLC which has resulted in substantial damage to it and Plaintiff because of the increase in the purchase price from the time the LLC members unanimously approved the purchase of the property in 2014 until the date of the filing of this action. (Id.)

Plaintiff filed the Complaint on October 8, 2016, asserting a single cause of action for legal malpractice against Defendants. On May 11, 2017, Defendants filed the instant demurrer to the Complaint on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) On July 21, 2017, Plaintiff filed his opposition. On August 1, 2017, Defendants filed their reply.

I. Requests for Judicial Notice

Both parties make various requests for judicial notice.
A. Defendants’ Requests

In connection with their moving and reply papers, Defendants request that the Court take judicial notice of the following items:

(1) The email from Fred Lester, the general manager of the LLC, to all LLC members on November 17, 2015 (Exhibit 1);
(2) Agreement for Lease of Acreage for Mobile Home Park (November 12, 1970) (“Ground Lease”) (Exhibit 2);
(3) The California Court of Appeals Unpublished Opinion in Leland E. Lester, et al. v. The Pauline DiTomaso Trust (April 15, 1997, H015259) (Exhibit 3);
(4) The Operating Agreement of the Casa Alondra Mobile Home Park (January 1, 1999) (“Operating Agreement”) (Exhibit 4); and
(5) The Master Legal Agreement for Year 2014 Legal Services (June 20, 2014) between the LLC and Defendants (“Master Legal Agreement”) (Exhibit 5).

Of the five items listed, the only one which the Court may potentially take judicial notice of is the fourth as a court record pursuant to Evidence Code section 452, subdivision (d). (See, e.g., Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474, 1485.) However, none of the remaining items come within the ambit of subdivision (h) of Evidence Code section 452, the authority cited by Defendants for their request. (See, e.g., Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145 [stating that existence of contract cannot be between private parties cannot be established by judicial notice under Evidence Code section 452, subdivision (h)].) No authority is cited for the proposition advanced by Defendants that the Court may properly take judicial notice of documents not physically attached to the complaint merely because their contents are alleged within the pleading. This is not an evidentiary hearing, with the demurrer limited to what is pleaded in the Complaint and those matters which are proper subjects of judicial notice. (Blank v. Kirwan (1985) 39 Cal.3d 311, 216.)

Thus, the Court will not consider the email from Fred Lester, the Ground Lease, the Operating Agreement or the Master Legal Agreement when evaluating the merits of Defendants’ motion. If Defendants wish to have these materials evaluated, they must file an evidentiary based motion such as a motion for summary judgment. As for the unpublished opinion, although it comes within the scope of subdivision (d) of Evidence Code section 452, the Court will not take judicial notice of it because it is not readily apparent how this item is relevant to the disposition of the motion currently before the Court. (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [stating that judicial notice is confined to only those matters which are relevant to the issue at hand].)

Accordingly, Defendants’ request for judicial notice is DENIED.

B. Plaintiff’s Request

In connection with his opposition to Defendants’ demurrer, Plaintiff request that the Court take judicial notice of the following items:

(1) A letter by Hannon dated January 12, 2016 to Fred Lester and forwarded to Plaintiff, among others (Exhibit 1); and
(2) A letter by Hannon dated April 30, 2016 to Plaintiff (Exhibit 2).

The Court will not take judicial notice of these materials. Not only does Plaintiff not cite any authority for his request, but there is no category under Evidence Code sections 451 and 452 that these items clearly fall into. Plaintiff, similar to Defendants, is attempting to turn this motion into an evidentiary hearing. The Court will not sanction these efforts. Accordingly, Plaintiff’s request for judicial notice is DENIED.

II. Defendants’ Demurrer

The thrust of Defendants’ demurrer to the Complaint is that Plaintiff cannot maintain his claim for legal malpractice for the following reasons: (1) Plaintiff has not and cannot truthfully allege that he was ever a client of the Greenfield Firm in any capacity, and consequently, there was never any attorney-client relationship between Plaintiff and Defendants; and (2) Plaintiff must comply with Civil Code section 1714.10, subdivision (a), which requires him to file a verified petition accompanied by supporting affidavits stating the facts upon which he bases his allegation that the Greenfield Firm conspired with other individuals in order to obstruct the purchase of the leased land. These arguments will each be addressed in turn.

As a general matter, in order to state a cause of action for legal malpractice, a plaintiff must plead “(1) the duty of the attorney to use such skill, prudence, and diligence as members of his or her profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the breach and the resulting injury; and (4) actual loss or damage resulting from the attorney’s negligence.” (Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.) As relevant here, the existence of an attorney-client relationship is essential to the “duty” element of attorney malpractice. (Moore v. Anderson Zeigler Disharoon Gallagher & Gray (2003) 109 Cal.App.4th 1287, 1294.) Generally, attorneys have no professional obligation to nonclients and thus cannot be held liable to them for the consequences of their professional negligence. (Borissoff v. Taylor & Faust (2004) 33 Cal.4th 523, 529 [“[A]n attorney will normally be held liable for malpractice only to the client with whom the attorney stands in privity of contract, and not to third parties”].)

Defendants contend that the requisite attorney-client relationship does not exist between themselves and Plaintiff and therefore he has not pleaded and cannot plead a claim for legal malpractice because no duty was owed to him. As they note in their supporting memorandum, Plaintiff alleges that Defendants were retained to provide legal services to the LLC, specifically. (Complaint, ¶ 4.) Under Rule 3-600(A) of the Rules of Professional Conduct, an attorney representing an organization is required to “conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body or constituent overseeing the particular engagement.” A corporate counsel’s direct duty is to the client corporation, and not its individual shareholders/members, even though the advice rendered to the corporation may affect those individuals. (Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal.App.3d 692.) There are no facts pleaded in the Complaint which otherwise establish the existence of an attorney-client relationship between Defendants and Plaintiff individually or the Wade Hover Trust, which he is alleged to be the trustee of. Instead, Defendants assert, it conformed its representation of the LLC acting through its highest authorized officer, general manager Fred Lester, and Plaintiff cannot maintain this cause of action.

In his opposition, Plaintiff responds that he was a “constituent overseeing the particular engagement” (see Rule 3-600(A), supra), specifically the purchase of the leased property, and therefore Defendants were obligated to conform their representation of LLC as per his requests regarding the purchase. This argument is unavailing for two reasons. First, there are no facts pleaded by Plaintiff which suggest that he was the highest authorized constituent overseeing a particular engagement, particularly the land purchase process. Second, even if he was the highest authorized constituent, the duty owed by Defendants would still be to the LLC itself and not Plaintiff individually or as trustee of the Wade H. Hover Trust. Thus, as currently alleged, Plaintiff has failed to plead the existence of an attorney-client relationship between himself and Defendants in the Complaint. Consequently, no duty is owed and he has not stated a claim for legal malpractice.

With their second argument, Defendants contend that Plaintiff violated Civil Code Section 1714.10 (“Section 1714.10”) by filing the Complaint without first obtaining the Court’s permission. This code section provides in pertinent part that:

No cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim of dispute, and which is based upon the attorney’s representation of the client, shall be included in a complaint or other pleading unless the court enters an order allowing the pleading that includes the claim for civil conspiracy to be filed after the court determines that the party seeking to file the pleading has established that there is a reasonable probability that the party will prevail in the action.

(Civ. Code, § 1714.10, subd. (a).)

The purpose of this section is to discourage frivolous claims that an attorney conspired with his or her client to harm another. (Klotz v. Milbank, Tweed, Hadley & McCloy (2015) 238 Cal.App.4th 1339, 1349.) In practice, it performs a “gatekeeping” function and requires a plaintiff to establish a reasonable probability of prevailing before he or she may pursue a cause of action against an attorney for civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute. (Stueve v. Kahn (2013) 222 Cal.App.4th 327, 329.)

Defendants assert that Plaintiff is obligated to comply with Section 1714.10 based on his allegations that the Greenfield Firm has “acted in concert to provide cover for [the LLC]’s General Manager failing to perform his duties as required by the laws of the State of California and by [the LLC]’s Operating Agreement and supporting [the LLC]’s General Manager in his attempt to obstruct the leased land purchase.” (Complaint, ¶ 31.) This alleged conspiracy among Fred Lester and the LLC’s attorneys, Defendants explain, is the very heart of Plaintiff’s theory of liability.

Plaintiff responds that that the only cause of action alleged in the Complaint is one for professional negligence and therefore he need not comply with Section 1714.10. Defendants respond that it is elementary that a cause of action is not defined by the label a plaintiff puts on it and instead the validity of a cause of action is determined by an examination of the allegations themselves, and a determination of whether those facts state any cause of action at all. (Barquis v. Mechants Collection Assn. (1972) 7 Cal.3d 94, 101.) Applying these rules here, they contend, it is clear that the claim for professional negligence against them is predicated on their alleged participation in a conspiracy with Fred Lester and Donald Doherty to obstruct the land lease purchase and “create the illusion of an even diversion of the LLC voting power.” (Complaint, ¶¶ 28, 31.)

Defendants’ argument is well taken. Although Plaintiff is correct that no claim for civil conspiracy is expressly stated in the Complaint, Defendants’ liability as alleged therein is predicated on their participation in such a conspiracy. As Plaintiff has not pleaded any facts which suggest that his claim falls within any of the exceptions to the pre-filing requirement set forth in Section 1714.10, he must comport with its requirements or otherwise plead facts establishing such an exemption.

In accordance with the foregoing analysis, Defendants’ demurrer to the Complaint on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

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