Case Name: County Legal Service, Inc. v. Miles, Bauer, Bergstrom & Winters, LLP, et al.
Case No.: 1-14-CV-271802

This action arises out of defendant Miles, Bauer, Bergstrom & Winters, LLP’s (“MBBW”) alleged failure to pay for services provided by plaintiff County Legal Service, Inc. (“Plaintiff”) pursuant to the parties’ contract in the amount of $115,631.78. (See Complaint, ¶¶ 11-15.) Defendants Douglas E. Miles (“Mr. Miles”), Fred Timothy Winters (“Mr. Winters”), and Richard J. Bauer (“Mr. Bauer”) are partners in MBBW. (See Complaint, ¶¶ 3, 5-6.)

On October 14, 2014, Plaintiff filed the operative complaint against various defendants, including MBBW, Mr. Miles, Mr. Winters, and Mr. Bauer, alleging causes of action for: (1) breach of contract (against MBBW); (2) account stated (against MBBW); (3) goods and services rendered (against MBBW); and (4) constructive fraudulent conveyance (against all defendants).

On December 23, 2014, MBBW, Mr. Miles, and Mr. Winters filed a joint demurrer to the complaint. On December 31, 2014, Mr. Bauer filed a demurrer to the complaint. Plaintiff filed papers in opposition to the demurrers on January 23, 2015. Mr. Bauer filed a reply on January 29, 2015.

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

I. Demurrer by MBBW, Mr. Miles, and Mr. Winters

MBBW, Mr. Miles, and Mr. Winters (collectively “Defendants”) demur to the first, second, third, and fourth causes of action on the grounds of failure to allege facts sufficient to constitute a cause of action and uncertainty. (See Code Civ. Proc., § 430.10, subds. (e), (f).) Defendants also demur on the ground that it cannot be ascertained from the complaint whether the contract is written, oral, or implied by conduct. (See Code Civ. Proc., § 430.10, subd. (g).) Defendants do not indicate in their notice of motion which cause and/or causes of action they are demurring to on the ground of failure to allege whether the contract is written, oral, or implied by conduct. However, in their memorandum of points and authorities they assert that ground only as to the first, second, and third causes of action. Thus, the Court finds that the demurrer on the ground of failure to allege whether the contract is written, oral, or implied by conduct is made as to the first, second, and third causes of action alone.

The demurrer to the first, second, and third causes of action by Mr. Miles and Mr. Winters, is OVERRULED. Those causes of action are only asserted against MBBW and, therefore, Mr. Miles and Mr. Winters lack standing to demur to those claims. (See Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1004; Code Civ. Proc., § 430.10 [a demurrer may be filed only by “[t]he party against whom a complaint … has been filed”].)

The demurrer by MBBW to the first cause of action for breach of contract is OVERRULED. MBBW’s argument that the first cause of action is uncertain lacks merit because uncertainty is a disfavored ground that is sustained only where the pleading is so unintelligible that the defendant cannot reasonably respond and Plaintiff’s breach of contract claim is alleged clearly enough to enable MBBW to provide a response. (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”].)

Additionally, MBBW’s argument that the first cause of action fails to allege facts sufficient to constitute a cause of action because it does not clearly state whether the contract is written, oral, or implied by conduct is not well-taken. The complaint expressly states that the agreement between Plaintiff and MBBW, providing that MBBW would pay for Plaintiff’s services, was implied by conduct. (See Complaint, ¶¶ 12-13, 18-20 [describing the parties’ course of conduct and stating that “[i]n or about 2006, [Plaintiff] and [MBBW] entered into an implied agreement in San Jose, California”].)

The demurrer by MBBW to the second cause of action for account stated and the third cause of action for goods and services rendered is OVERRULED. MBBW asserts the same arguments with respect to the second and third causes of action as it did to the first cause of action for breach of contract. As articulated above, all of MBBW’s arguments lack merit. The Court notes that MBBW also states that the Court should sustain the demurrer to the second and third causes of action as to defendants Tami S. Crosby and Cori B. Jones because they did not have an ownership interest in MBBW. First, MBBW does not have standing to demurrer to the complaint on behalf of those defendants. (See Patrick v. Alacer Corp., supra, 167 Cal.App.4th at p. 1004; Code Civ. Proc., § 430.10.) Second, on December 3, 2014, Plaintiff voluntarily dismissed those defendants, without prejudice, such that they are no longer defendants in this litigation.

The demurrer by Defendants to the fourth cause of action for constructive fraudulent conveyance is OVERRULED. Defendants’ argument that the fourth cause of action is uncertain lacks merit because uncertainty is a disfavored ground that is sustained only where the pleading is so unintelligible that the defendant cannot reasonably respond and Plaintiff’s constructive fraudulent conveyance claim is alleged clearly enough to enable Defendants to provide a response. (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”].)

Additionally, Defendants’ argument that the fourth cause of action fails to allege facts sufficient to state a cause of action lacks merit. Defendants argue that the fourth cause of action seeks to circumvent the well-established rule that partners of a limited liability partnership are not jointly and severally liable for the debts of the partnership (see Corp. Code § 16306, subds. (c), (g)) by asserting “the novel theory that partners in a limited liability partnership are not permitted to take normal partner draws [and non-equity employee attorneys with the ‘partner’ title are not permitted to receive salary payment] so long as money is owed to any creditor.” (Mem. Ps & As., pp. 4:27-28, 5:1.) However, as Plaintiff persuasively argues, the complaint does not seek to hold the individual partner defendants, such as Mr. Miles and Mr. Winters, liable for the debts of MBBW, but seeks to set aside any fraudulent transfers that were made by MBBW to the individual partners “during the period of time that [MBBW] understood that it could not pay its debts as they became due, and where those Individual Partners failed to provide reasonably equivalent value for the monetary draws.” (Opp’n., p. 7:3-9; see also Complaint, ¶¶ 31-37.)

Moreover, the fourth cause of action alleges sufficient facts to state a claim for fraudulent transfer. The Uniform Fraudulent Transfer Act set forth in Civil Code section 3439 et seq. provides: “A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows: [¶] (a) With actual intent to hinder, delay, or defraud any creditor of the debtor. [¶] (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: [¶] (1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or [¶] (2) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.” Civil Code section 3439.04 is construed to mean a transfer is fraudulent if the provisions of either subdivision (a) or subdivision (b) are satisfied. (See Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1635.) The fourth cause of action pleads facts establishing the necessary elements as it states that: prior to August 1, 2013, and continuing to the present date, MBBW distributed monetary draws to the individual partners; MBBW received less than a reasonably equivalent value in exchange for the distribution of the draws to the individual partners; at the time the draws were made MBBW intended to incur or believed it would incur debts that would be beyond its ability to pay, MBBW engaged in business or a transaction for which the remaining assets of MBBW were unreasonably small in relation to the business or transaction, and/or MBBW was either insolvent or became insolvent as a result of the distribution of the draws. (See Complaint, ¶¶ 34-36; see also 5 Witkin, California Procedure (4th ed. 1997) Pleading, §684, p. 143 [“Intent, like knowledge, is a fact. Hence, the averment that the representation was made with the intent to deceive the plaintiff, or any other general allegation with similar purport, is sufficient.”]; see also Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.)

Furthermore, the Court notes that Defendants also state that the Court should sustain the demurrer to the fourth cause of action as to defendants Tami S. Crosby and Cori B. Jones because they did not have an ownership interest in MBBW. As articulated above, Defendants do not have standing to demurrer to the complaint on behalf of those defendants (see Patrick v. Alacer Corp., supra, 167 Cal.App.4th at p. 1004; Code Civ. Proc., § 430.10) and, more importantly, Plaintiff voluntarily dismissed those defendants, without prejudice, such that they are no longer defendants in this litigation.

II. Demurrer by Mr. Bauer

Mr. Bauer demurs to the complaint in its entirety and the fourth cause of action for constructive fraudulent conveyance on the ground of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

Mr. Bauer’s demurrer to the complaint in its entirety is OVERRULED. Mr. Bauer argues that the Court should sustain the demurrer to the complaint in its entirety because he cannot be held individually liable for the debts of MBBW. The first, second, and third causes of action are only asserted against MBBW and, therefore, Mr. Bauer lacks standing to demur to those claims. (See Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1004; Code Civ. Proc., § 430.10 [a demurrer may be filed only by “[t]he party against whom a complaint … has been filed”].) In addition, the complaint does not seek to hold Mr. Bauer liable for the debts of MBBW, but seeks to set aside any fraudulent transfers that were made by MBBW to the individual partners “during the period of time that [MBBW] understood that it could not pay its debts as they became due, and where those Individual Partners failed to provide reasonably equivalent value for the monetary draws.” (Opp’n., p. 7:3-9; see also Complaint, ¶¶ 31-37.)

Mr. Bauer’s demurrer to the fourth cause of action is OVERRULED. Mr. Bauer’s argument that the fourth cause of action fails to allege sufficient facts to state a claim for fraudulent transfer because modest draws received by law partners in return for their legal work cannot be set aside as fraudulent conveyances, citing Annod Corp. v. Hamilton & Samuels (“Annod”) (2002) 100 Cal.App.4th 1286, lacks merit. In Annod, the defendant partners demonstrated that they provided “reasonably equivalent value” for the monetary draws that they received by admissible evidence submitted in connection with their motions for summary judgment. (See id. at pp. 1291-1292, 1295-1296.) On demurrer, the allegation of the complaint that Mr. Bauer and the other individual partner defendants did not provide MBBW reasonably equivalent value in exchange for the draws must be accepted as true. (See Complaint, ¶ 34; see also Committee on Children’s Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at pp. 213–214.)

Furthermore, Mr. Bauer’s argument that the allegations of the fourth cause of action fail to state a claim because they are conclusory and lack specificity is not well-taken. While specificity in pleading is required to state a cause of action for fraud, the fourth cause of action does not set forth a claim for fraud, but for fraudulent transfer. Thus, the ultimate facts alleged are sufficient to state a claim. (See Complaint, ¶¶ 31-37; see also Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550 [a pleading need only allege ultimate facts]; see also 5 Witkin, California Procedure (4th ed. 1997) Pleading, § 684, p. 143 [“Intent, like knowledge, is a fact. Hence, the averment that the representation was made with the intent to deceive the plaintiff, or any other general allegation with similar purport, is sufficient.”]; see also Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.)

For the reasons set forth above, the Demmurers are OVERRULED.