Stueve v. Berger Kahn , 165 Cal. Rptr. 3d 877 ( 2013 )

Filed 12/18/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
RUTH MCCLAMMA STUEVE et al.,
Plaintiffs and Appellants, G046253
v. (Super. Ct. No. 30-2010-00411651)
BERGER KAHN, OPINION
Defendant and Respondent.
Appeal from an order of the Superior Court of Orange County, Nancy
Wieben Stock, Judge. Reversed.
Daily Law Group, James D. Daily; Keobopha Keopong; Barnes Law and
Robert E. Barnes for Plaintiffs and Appellants.
Gladstone Michel Weisberg Willner & Sloane and Allen L. Michel for
Defendant and Respondent.
This is one of three appeals concerning a purported Ponzi scheme set up by
Attorneys Raymond A. Novell and Jay Wayne Allen to siphon off the assets of the
Stueve family—the “heirs” (in lay terms) to the Alta Dena Dairy fortune (Stueves). This
particular appeal challenges the order granting the Civil Code section 1714.10 motion of
Attorney Allen’s law firm, Berger Kahn, to strike the conspiracy allegations of the
Stueves’s second amended complaint.1
Civil Code section 1714.10 was enacted to combat “the use of frivolous
conspiracy claims that were brought as a tactical ploy against attorneys and their clients
and that were designed to disrupt the attorney-client relationship. [Citations.]” (Berg &
Berg Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 816.) To
achieve this goal, the statute 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 a civil conspiracy with his or her client arising from any
attempt to contest or compromise a claim or dispute.” (Civ. Code, § 1714.10, subd. (a).)
The statute does not impede a plaintiff’s pursuit of the type of claims we have here—
potentially meritorious claims against a law firm that allegedly conspired to abscond with
its clients’ assets. We reverse.
I
FACTS
The Stueves filed a 331-page second amended complaint against Attorney
Novell, Attorney Allen, Berger Kahn, and dozens of others. The causes of action against
Berger Kahn included fraud by intentional misrepresentation, fraud by concealment,
negligent misrepresentation, constructive fraud, conversion, breach of fiduciary duty,
1 The related appeals are Case No. G047121, having to do with the demurrer to the
second amended complaint, with respect to the claims of the trust and entity Stueves, and
Case No. G047382, having to do with the demurrer to the third amended complaint, with
respect to the claims of the individual Stueves.
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professional negligence, violations of the Racketeer Influenced and Corrupt
Organizations Act (RICO) (18 U.S.C. § 1961 et seq.), violations of the prudent investor
rule, financial elder abuse, and negligent hiring and supervision.
Berger Kahn filed a Civil Code section 1714.10 motion to strike portions of
the second amended complaint and demurrers to the second amended complaint. In the
motion to strike, Berger Kahn argued that the Stueves had failed to obtain court approval,
as required by section 1714.10, to file a complaint alleging that Berger Kahn conspired
with its clients.
The court granted Berger Kahn’s motion in part, due to the Stueves’s
failure to comply with Civil Code section 1714.10. It concluded that the exceptions set
forth in section 1714.10, subdivision (c) were inapplicable. The court ordered that all
conspiracy allegations involving Berger Kahn be stricken.
At the same time, the court sustained, without leave to amend, Berger
Kahn’s demurrers to the second amended complaint as to the causes of action brought by
the trust and entity Stueves, and sustained Berger Kahn’s demurrers to the second
amended complaint, some with leave to amend and some without, as to the causes of
action brought by the individual Stueves. The appeal before us in this Case No. G046253
involves only the ruling on the motion to strike.
II
DISCUSSION
A. Civil Code Section 1714.10:
(1) Introduction—
The Stueves argue that the court erred in its ruling because Civil Code
section 1714.102 is inapplicable. “We review the trial court’s interpretation of section
2 All subsequent statutory references are to the Civil Code unless otherwise
specifically stated.
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1714.10 de novo. [Citations.]” (Favila v. Katten Muchin Rosenman LLP (2010) 188
Cal.App.4th 189, 207, fn. 12.)
Section 1714.10, subdivision (a) provides in pertinent part: “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 or 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. . . .” (Italics added.) Subdivision (b) of that statute states in pertinent part:
“Failure to obtain a court order where required by subdivision (a) shall be a defense to
any action for civil conspiracy filed in violation thereof. . . .” (§ 1714.10, subd. (b).)
Subdivision (c) of section 1714.10 provides: “This section shall not apply
to a cause of action against an attorney for a civil conspiracy with his or her client, where
(1) the 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.”
(2) Analysis—
As is plain from the face of the statute, “[s]ection 1714.10 prohibits the
unauthorized filing of an action for nonexempt civil conspiracy against an attorney based
on conduct arising from the representation of a client that is in connection with any
attempt to contest or compromise a claim or dispute.” (Berg & Berg Enterprises, LLC v.
Sherwood Partners, Inc., supra, 131 Cal.App.4th at p. 815.) “Applying section 1714.10
thus requires the court to initially determine whether the pleading falls either within the
coverage of the statute or, instead, within one of its stated exceptions.” (Berg & Berg
Enterprises, LLC v. Sherwood Partners, Inc., supra, 131 Cal.App.4th at p. 818.) Once it
is determined that the pleading falls within the coverage of subdivision (a) of the statute,
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the next step is to ascertain whether the pleaded claims fall within either of the exceptions
set forth in subdivision (c) of the statute. (Berg & Berg Enterprises, LLC v. Sherwood
Partners, Inc., supra, 131 Cal.App.4th at p. 824.)
The Stueves argue that the section 1714.10 prefiling requirement is, quite
simply, inapplicable, because none of the claims set forth in their second amended
complaint fell within the coverage of the statute, inasmuch as none of them arose from an
“attempt to contest or compromise a claim or dispute.” (§ 1714.10, subd. (a).) Rather,
they say, the claims arose from transactional activities—the siphoning off of assets
through fraudulent estate planning, including the misappropriation of the Stueves’s assets
through the diversion of those assets to entities created and controlled by the defendants,
including Berger Kahn’s other clients.
We must agree that the alleged schemes do not fall within the plain
wording of section 1714.10, subdivision (a), which requires court permission to file an
attorney-client conspiracy claim “arising from any attempt to contest or compromise a
claim or dispute.”
Berger Kahn nonetheless characterizes the Stueves’s argument concerning
the plain language of section 1714.10, subdivision (a) as an argument that the subdivision
precludes application of the statute “to conspiracies involving anything other than
litigated claims.” It also says the Stueves did not raise this argument in the trial court
and, thus, cannot raise it now.
We disagree on several levels. First, the Stueves’s argument is very simply
that the conspiracy allegations of the second amended complaint “did not implicate Civil
Code section 1714.10 because [the] claims [did] not arise from any ‘attempt to contest or
compromise a claim or dispute.’” Their argument is centered around the plain wording
of the statute, nothing more.
Second, the Stueves clearly raised this argument in their opposition to
Berger Kahn’s motion to strike. It is not new on appeal.
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Third, what the Stueves have done in their opening brief is cite a case that
they also cited in their opposition to Berger Kahn’s motion to strike—Favila v. Katten
Muchin Rosenman LLP, supra, 188 Cal.App.4th 189. In their opening brief, they simply
quote a different sentence from that case than they did in their opposition. On appeal,
they make reference to the language in Favila wherein the court quoted the phrase from
section 1714.10, subdivision (a) concerning a conspiracy “‘arising from any attempt to
contest or compromise a claim’” and went on to state: “This phrase suggests section
1714.10, subdivision (a)’s pleading hurdle applies only to situations in which the alleged
conspiracy arose from the attorney’s representation of his or her client in a previous or
current legal dispute or litigation with the plaintiff.” (Favila v. Katten Muchin Rosenman
LLP, supra, 188 Cal.App.4th at p. 209 & fn. 16.) While this language may be
inconvenient to Berger Kahn, the Stueves do not violate any rules of appellate procedure
by quoting it.
Continuing on, Berger Kahn maintains that section 1714.10 has been
employed to block claims in many situations outside of the context of litigation or
contested claims. However, the cases it cites do not convince us that case law has
abrogated the language of subdivision (a) of the statute. Rather, we construe a statute so
as to give meaning to all its parts. (Schubert v. Reynolds (2002) 95 Cal.App.4th 100,
105.)
In some of the cases Berger Kahn cites, the courts addressed only section
1714.10, subdivision (c), not subdivision (a), based on the way the parties framed the
issues, or for apparent ease of analysis. (See, Pavicich v. Santucci (2000) 85 Cal.App.4th
382, 396 [attorney argued § 1714.10, subd. (c) exception was inapplicable and court
responded exception applied, so prefiling requirements did not]; Panoutsopoulos v.
Chambliss (2007) 157 Cal.App.4th 297, 301, 303-306 [trial court granted plaintiff
tenants’ petition to join as defendants attorneys who represented landlord in prelitigation
disputes; following Pavicich, appellate court proceeded directly to analysis of § 1714.10,
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subd. (c) exception without analysis of subd. (a)].) But as we know, “‘“[q]uestions which
merely lurk in the record, neither brought to the attention of the court nor ruled upon, are
not to be considered as having been so decided as to constitute precedents.”’
[Citations.]” (California Eye Institute v. Superior Court (1989) 215 Cal.App.3d 1477,
1482; see also People v. Ault (2004) 33 Cal.4th 1250, 1268, fn. 10.) Neither Pavicich nor
Panoutsopoulos shows that subdivision (a) is irrelevant or has been excised from the
statute.
Berger Kahn also cites two cases in which the courts addressed section
1714.10, subdivision (c) at length, following only a minimal discussion of subdivision
(a). In those cases, there was no need for an in-depth analysis of subdivision (a), because
it was readily apparent that the alleged conspiracies did indeed arise from an “attempt to
contest or compromise a claim.” (See, Berg & Berg Enterprises, LLC v. Sherwood
Partners, Inc., supra, 131 Cal.App.4th at pp. 811-814, 824 [lawyers representing
assignee for benefit of creditors contested the claim of plaintiff creditor in bankruptcy
proceedings]; Evans v. Pillsbury, Madison & Sutro (1998) 65 Cal.App.4th 599, 604 [in
investor dispute, law firm sued investors “to coerce them into abandoning their rights”].)
Inasmuch as we have determined that section 1714.10 is inapplicable, given
the plain wording of subdivision (a) thereof, we need not also address whether any of the
exceptions of subdivision (c) apply.
B. Other Issues:
Furthermore, given that section 1714.10 is inapplicable, we also need not
address the Stueves’s arguments that the statute is unconstitutional and conflicts with the
provisions of RICO. Berger Kahn entreats us to address RICO anyway. It says that by
the time the second amended complaint was filed, the Stueves had consolidated all of
their conspiracy allegations into the RICO cause of action and that they had failed to state
a viable RICO claim in any event. To the contrary, we observe that the second amended
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complaint was, in essence, riddled with conspiracy allegations throughout and that many
causes of action were based upon a purported joint plan concocted by Attorneys Novell
and Allen and effectuated with the assistance of Berger Kahn. Ordering the Stueves to
eliminate all conspiracy allegations undermined not only the RICO cause of action, but
all other causes of action based upon the theory that Attorneys Novell and Allen had
conspired together to effectuate the various wrongs.
Finally, we note that Berger Kahn contends any error in the granting of its
motion to strike was not prejudicial, and thus did not warrant reversal, because the court
sustained without leave to amend the demurrer to the second amended complaint, with
respect to the claims of the trust and entity Stueves, and also the demurrer to the third
amended complaint of the individual Stueves. However, in our opinions in Case Nos.
G047121 and G047382, we reverse the orders sustaining the demurrers and the related
judgments of dismissal. Consequently, we cannot say that the ruling on the motion to
strike was not prejudicial.
III
DISPOSITION
The order on the motion to strike is reversed. The Stueves shall recover
their costs on appeal.
MOORE, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
THOMPSON, J.
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