Case Name: Hover v. Hannon, et al.
Case No.: 16CV302436

Defendants Greenfield Draa & Harrington (the “Greenfield Firm”) and Brian Hannon (“Hannon”) (collectively, “Defendants”) demur to the second amended complaint (“SAC”) filed by plaintiff Wade H. Hover, Trustee of the Wade H. Hover Family Trust (“Plaintiff” or “Hover”).

I. Factual and Procedural Background

This is an action for legal malpractice and civil conspiracy arising out of a property transaction. According to the allegations of the SAC, Plaintiff is the owner and voting member of fifty percent of Casa Alondra Mobile Home Park, LLC (the “LLC” of “CAMPH”) 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. (SAC, ¶ 1.)

On June 9, 2014, Defendants undertook to provide legal services for the LLC and its three named members until they were discharged on March 28, 2015. (SAC, ¶ 4.) Defendants thereafter undertook to provide legal services for the LLC from November 2, 2015 and continue to do so up to the present time. (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. (SAC, ¶ 6.) The LLC is a lessee 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 (20 acres) is now held by the heirs of Pauline DiTomaso (“DiTomaso”), who lease the land to the LLC pursuant to a long-term ground lease. (Id.) In the end of May 2014, the members agreed that they should purchase the lands leased from the DiTomaso heirs because of the increased costs of holding the lease. (Id., ¶ 8.) Defendants were hired by the LLC to assist with the process of exercising the option to purchase in the lease. (Id., ¶ 9.) In the same time period, Fred Lester contacted the attorney who had formed the LLC and requested that he draft a Unanimous Consent (“UC”) document which would order the purchase of the leased land. (Id. ¶ 10.) The UC document was signed by all members and a copy was provided to Defendants; prior to its execution, the LLC was forbidden to exercise the option to purchase the leased lands. (Id.)

Fred Lester instructed the Greenfield Firm to prepare an opinion outlining “the process and the risks to be faced by the LLC members” should the LLC purchase the leased land. (SAC, ¶ 11.) On August 11, 2014, the Greenfield Firm provided a 29-page opinion letter to the LLC members. (Id.) Subsequently, at a December 2, 2014 meeting, Plaintiff and the other members of CAMHP voted to exercise the option to purchase the leased land as soon as possible. (Id., ¶ 12.) At the end of the meeting, CAMHP’s members instructed the Greenfield Firm to prepare a memorandum of the proceedings. (SAC, ¶ 12.)

On December 31, 2014 and January 5, 2015, the LLC’s two co-general managers- Fred Lester and David Hover- and Hannon contacted and had lengthy conversations with the attorney who drafted the UC document and had represented CAMHP and its members since 1999, Donald Dougherty. (SAC, ¶ 13.) On January 12, 2015, Hannon wrote to CAMHP’s members stating that his notes from the December 2nd meeting indicated that the members had voted to purchase the land from the DiTomaso heirs, but “only after all further due diligence had been completed.” (Id., ¶ 14.) After receiving the foregoing correspondence, Plaintiff advised Hannon that his notes regarding further due diligence were inaccurate and that the LLC members had specifically voted to “purchase the leased lands as soon as possible.” (Id., ¶ 15.)

In late-March 2015, Plaintiff “suggested” to Hannon that an addendum to the long-term ground lease could be interpreted as allowing CAMHP members to avoid paying the full purchase price to the DiTomaso heirs at the close of escrow. (SAC, ¶ 19.) Without any investigation of the historical record for the addition of that particular undated addendum, Hannon sent Plaintiff a three-page memorandum dismissing Plaintiff’s suggestion on the basis that his testimony would not be believed at trial. (Id., ¶ 20.) The Greenfield Firm was fired that same day. (Id.)

Starting in February 2015, efforts were made by Fred Lester, who became the sole general manager of LLC, to sell the LLC and its assets to a third party. (SAC, ¶ 22.) No acceptable offer was produced and in August 2015, Fred Lester announced that he had no plan to carry forward the agreed land purchase. (Id.) In September 2015, after perceiving that the purchase process had stalled, Plaintiff offered to take it over. (Id., ¶ 23.) Plaintiff subsequently proposed a plan to recommence the process which was approved by Fred Lester and mailed to the landowners on October 7, 2015. (Id.) Fred Lester proposed to Plaintiff that Defendants be re-employed to help prepare for a declaratory relief action threatened by them to enable retraction of the exercise of the option. (Id., ¶¶ 24-25.)

Plaintiff and Fred Lester met with Hannon on November 11th, during which Plaintiff provided him with numerous letters he had drafted for the lessors to further the land purchase process. (SAC, ¶ 25.) Plaintiff and Fred Lester instructed Hannon to send the letters to the DiTomaso heirs. (Id.) On November 13, 2015, Hannon wrote to Plaintiff and stated that he “strongly advised” against sending the DiTomaso heirs the letters. (Id., ¶ 28.) On November 15, 2015, Plaintiff called Hannon and told him that it was legal malpractice for him to refuse to send the letters. (Id., ¶ 29.) Hannon responded that the LLC was at an impasse caused by disagreements over the leased land purchase, a characterization that Plaintiff believed was false. (Id.)

Plaintiff alleges that the Greenfield Firm has “prevented” and “delayed” the desired purchase of the leased lands from the DiTomaso heirs and that Hannon has acted in a manner not authorized by the LLC or in compliance with his fiduciary duties. (SAC, ¶¶ 35-36.) As a result of Defendants’ conduct, Plaintiff pleads, the cost to purchase the leased parcels has increased and will continue to increase until the date the option is exercised as provided in the lease. (Id.) Plaintiff further alleges that Defendants have acted in concert with Fred Lester to assist him in his efforts to sell the LLC’s assets to a third party and to obstruct the agreed leased land purchase so he could effectuate said sale. (Id., ¶ 37.)

Plaintiff initially filed his Complaint on October 8, 2016, asserting a single cause of action for legal malpractice against Defendants. Defendants subsequently demurred to the Complaint, which was sustained by the Court with leave to amend on April 15, 2017. On September 10, 2017, Plaintiff filed a First Amended Complaint (“FAC”) in which he alleged claims against Defendants for (1) legal malpractice and (2) civil conspiracy. Defendants against demurred to Plaintiff’s pleading, which the Court sustained with 90 days’ leave to amend on October 31, 2017, after Plaintiff filed no written opposition. On January 26, 2018, Plaintiff filed the pleading that is the subject of the instant motion, the SAC, again asserting claims for (1) legal malpractice and (2) civil conspiracy. On May 30, 2018, Defendants filed the demurrer to the SAC on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subds. (e) and (f).) Plaintiff opposes the motion.

II. Defendants’ Request for Judicial Notice

As an initial procedural matter, Defendants request that the Court take judicial notice of the following items: (1) the Court’s August 15, 2017 order on Defendants’ demurrer to the Complaint (Exhibit A); (2) the Court’s January 26, 2018 order on Defendants’ demurrer to the FAC (Exhibit B); and (3) the June 20, 2014 “Master Agreement for Year 2014 Legal Services” between the parties (the “Agreement”) (Exhibit C). As court records, the first two items are proper subjects of judicial notice pursuant to Evidence Code section 452, subdivision (d). However, the same cannot be said of the third item, which is purportedly a private agreement executed between the parties. California case law is clear that “[t]he existence of a contract between private parties cannot be established by judicial notice under Evidence Code section 452, subdivision (h),” as Defendants attempt to do here. (Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145.) Accordingly, Defendants’ request for judicial notice is GRANTED as to Exhibits A and B and DENIED as to Exhibit C.

III. Defendants’ Demurrer

In asserting that their demurrer to Plaintiff’s claims should be sustained in its entirety, Defendants make the following arguments: (1) Plaintiff’s allegations pertaining to Defendants’ representation during the period of June 9, 2014 through March 28, 2015, are time-barred under Code of Civil Procedure section 340.6, subdivision (a); (2) Plaintiff’s conclusory statement that he was a client of the Greenfield Firm is directly contracted by allegations in the preceding versions of his complaint and as a non-client, no duty of care was owed to him by Defendants and no claim for legal malpractice can be maintained; (3) Plaintiff’s allegations as to the existence of an attorney-client relationship based on his status as a purported third-party beneficiary have already been rejected by the Court and are not substantiated; (4) the Greenfield Firm did not commit malpractice because it properly conformed its representation of CAMHP to the instructions provided by Fred Lester; and (5) Plaintiff has violated Civil Code section 1714.10 by filing his Complaint without first obtaining the Court’s permission. Each of these arguments will be addressed in turn.

First, with regard to the issue of the timeliness of Plaintiff’s legal malpractice claim, the Court notes that in order to prevail on a demurrer based on the statute of limitations, a defendant must establish that the entire cause of action is untimely. (See Pointe San Diego Residential Comm., L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274.) This is because a demurrer challenges an entire cause of action and cannot be used to attack only a portion of it. (Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.365, 384-385.) Where there is a claim for legal malpractice, as there is here, and the claim is predicated on several distinct acts of professional negligence, a demurrer lies on the basis of the statute of limitations only if each alleged act of malpractice is time-barred. (Id. at 274-275.)

Here, Defendants allegedly represented Plaintiff and CAMHP over two different periods of time: June 9, 2014 to March 28, 2015 and November 2, 2015 to the present. (SAC, ¶ 4.) Several of the alleged acts of malpractice purportedly occurred during the latter period of time. (Id., ¶¶ 28-38.) An action against an attorney for a wrongful act or omission arising in the performance of professional services must be commenced within the earlier one year after the plaintiff discovers (or should have discovered) the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission. (Code Civ. Proc., § 340.6, subdivision (a).) This action was initially filed on October 8, 2016; accordingly, even if the shorter one-year limitations period is implicated, to the extent that Plaintiff’s first cause of action is predicated on conduct which took place during the second period of Defendants’ representation of Plaintiff/CAMHP, the claim is timely. Consequently, Defendants cannot prevail on their demurrer to the first cause of action based on the statute of limitations because at least a portion of it is timely.

Defendants’ next argument is based on their contention that Plaintiff was not their client- the LLC was- and therefore he cannot maintain his claim for legal malpractice. In their preceding demurrer, Defendants argued, and the Court found persuasive, that Plaintiff had not pleaded the existence of an attorney-client relationship between himself, individually, and Defendants, or between the Wade H. Hover Trust and Defendants, a necessary component of a claim for legal malpractice. (See Anderson Zeigler Disharoon Gallagher & Gray (2003) 109 Cal.App.4th 1287, 1294 [stating that the existence of an attorney-client relationship is essential to the “duty” element of attorney malpractice]; see Borissoff v. Taylor & Faust (2004) 33 Cal.4th 523, 529 [stating that attorneys have no professional obligation to nonclients and thus cannot be held liable to them for the consequences of their professional negligence].) This was because Plaintiff had pleaded in the Complaint that Defendants were retained to provide legal services to the LLC, specifically. 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.) Thus, a duty was owed to the LLC, and the Court concluded that there were no facts pleaded in the Complaint which otherwise established the existence of an attorney-client relationship between Plaintiff, individually or as trustee of the Wade H. Hover Trust, and Defendants.

In the SAC, Plaintiff alleges that he brings the instant action in multiple capacities, including as “a client who first employed Defendants in 1999 to organize an LLC to which the assets of ‘CAMHP’ a co-partnership existing of three partners were transferred.” (SAC, ¶ 1.) However, as Defendants point out in their supporting memorandum, Plaintiff pleads no facts to support the foregoing assertion, and in fact specifically pleads that a different attorney, Donald Dougherty, was the individual responsible for forming the LLC in 1999. Further, Plaintiff pleaded in the FAC that the “first” capacity he was bringing the action in was “as a client of Defendants being a member of the LLC, which employed Defendants.” Thus, in the preceding version of his complaint, Plaintiff based the existence of an attorney-client relationship on his status as a member of an LLC that is one of Defendants’ clients (i.e., Plaintiff did not allege such an attorney-client relationship directly, only through his association with the LLC). This allegation has now been omitted without explanation from the SAC which, as Defendants contends, is problematic, implicating the sham pleading doctrine.

“Under the sham pleading doctrine, plaintiffs are precluded from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment.” (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425; see also Colapinto v. Country of Riverside (1991) 230 Cal.App.3d 147, 151.) “If a party files an amended complaint and attempts to avoid the defects of the original complaint either by omitting facts which made the previous complaint defective or by adding facts inconsistent with those previous pleadings, the court may take judicial notice of prior pleadings and may disregard any inconsistent allegations.” (Colapinto, supra, 230 Cal.App.3d at 151.) Here, Plaintiff has omitted, without explanation, the harmful allegation that the basis for the attorney-client relationship between himself and Defendants was his membership in the LLC which employed them. Not only that, but he has also baldly asserted that he is a client who employed Defendants in 1999, an allegation which is completely inconsistent with the other portions of the SAC, as explained above. The Court finds this troublesome, and concludes that Plaintiff’s allegation that he is a client based on hiring Defendants in 1999 is insufficient to plead the necessary attorney-client relationship between himself, individually, and Defendants.

Plaintiff additionally pleads that he is filing suit as a third-party beneficiary of the LLC and alleges that a duty of care was owed to him by Defendants “by reason of their said conduct and that a duty of care had arisen by and from the multiple contacts Defendants had with Plaintiff which satisfy the legal requirement of ‘privity’ as an aspect of the existing relationship of attorney and client at all times referred to.” (SAC, Prayer for Relief, ¶ 3.) To the extent that a duty of care is allegedly owed by Defendants to Plaintiff based on his purported status as a third-party beneficiary of the arrangement between Defendants and the LLC, the Court agrees with Defendants that sufficient facts are not pleaded in the SAC to establish the existence of such a duty of care between Defendants and Plaintiff based on a third-party beneficiary theory. Generally, “[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.” (Borissoff v. Taylor & Faust (2004) 33 Cal.4th 523, 529.) “In order to show a duty was owed to a third party beneficiary of a legal services agreement the third party must show that ‘that was the intention of the purchaser of the legal services- the party in privity,’ and that ‘imposition of the duty carries out the prime purpose of the contract for services.’” (B.L.M. v. Sabo & Deitsch (1997) 55 Cal.App.4th 823, 832 [quoting Johnson v. Superior Court (1995) 38 Cal.App.4th 463, 472.) Plaintiff has not pleaded facts demonstrating that it was the LLC’s intention that Plaintiff be made a third party beneficiary of its arrangement with Defendants and that the imposition of a duty would carry out the prime purpose of the agreement for Defendants’ services. Thus, Plaintiff still has not pleaded facts which establish the existence of the necessary attorney-client relationship between himself and Defendants, and therefore he has not stated a claim for legal malpractice.

Next, Defendants contend that the demurrer should be sustained because they did not commit malpractice due to properly conforming their representation of CAMHP to the instructions provided by Fred Lester. This argument, however, requires a factual and evidentiary inquiry that is not appropriate on demurrer. Thus, it does not provide a basis upon which to sustain the demurrer.

Defendants lastly argue that their demurrer should be sustained because Plaintiff violated Civil Code section 1714.10 (“Section 1714.10”) by filing his complaint without first obtaining the Court’s permission. Section 1714.10 mandates that a plaintiff must obtain a prior court order before filing an action against an attorney that includes a claim for civil conspiracy with a client arising from any attempt to contest or settle a claim while representing the client. (Civ. Code, § 1714.10, subd. (a); see Hung v. Wang (1992) 8 Cal.App.4th 908, 924-925.) The purpose of this section is to discourage frivolous claims that an attorney conspired with his or her client to harm another. “Therefore, rather than requiring the attorney to defeat the claim by showing it is legally meritless, the plaintiff must make a prima facie showing before being allowed to assert the claim. (Stueve v. Kahn (2013) 222 Cal.App.4th 327, 329.) Thus, in practice, Section 1714.10 performs a “gatekeeping” function to conspiracy claims against attorneys. (Id.)

In their prior demurrer to the Complaint, Defendants asserted the Plaintiff was obligated to comply with Section 1714.10 based on his allegations that he Greenfield Firm “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.) Defendants maintained that the alleged conspiracy among Fred Lester and themselves was the very heart of Plaintiff’s theory of liability, an argument that the Court found persuasive, despite the fact that no individual claim for civil conspiracy had been pleaded in the Complaint. Thus, Plaintiff was ordered to either comply with Section 1714.10 by obtaining a pre-filing order from the Court or to plead facts demonstrating that his claim fell within the exceptions to that requirement.

However, as Defendants note, in filing the SAC, Plaintiff still has not abided by the pre-filing mandate provided by Section 1714.10, despite actually now pleading an explicit claim for civil conspiracy. Consequently, the only way Plaintiff’s pleading can survive demurrer is if he has set forth facts which establish that this action falls within an exception to Section 1714.10, subdivision (a). Per the statute, the pre-filing requirement does not apply:

[T]o a cause of action against an attorney against an attorney for a civil conspiracy with his or her client, where (1) an attorney has an independent legal duty to the plaintiff, or (2) the attorney’s acts go beyond the performance of a professional duty to serve the client and involve a conspiracy to violate a legal duty in furtherance of the attorney’s financial gain.

(Civ. Code, § 1714.10, subd. (c).)

Here, Plaintiff has not pleaded facts establishing either that (1) Defendants owed him an “independent legal duty” or (2) that Defendants’ acts went beyond the performance of their professional duty to serve the LLC and, instead, involved participation in a conspiracy to “violate a legal duty in furtherance of [Defendants’] financial gain.” Therefore, Plaintiff was required to obtain a court order prior to filing this action. Having failed to do so, and having failed to plead the existence of the necessary attorney-client relationship between himself and Defendants, the demurrer to the SAC is SUSTAINED WITHOUT LEAVE TO AMEND.