Mauctrst, LLC v. Traux CA3 ( 2014 )

Filed 7/11/14 Mauctrst, LLC v. Traux CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(San Joaquin)
MAUCTRST, LLC, et al., C069486
Plaintiffs and Appellants, (Super. Ct. No. 39-2010-
00253617-CU-PN-STK)
v.
DANIEL TRAUX et al.,
Defendants and Respondents.
Plaintiffs Richard C. Sinclair (Sinclair),1 Brandon Sinclair (Brandon), Gregory
Mauchley, Mauctrst, LLC (Mauctrst), Capstone, LLC, and Lairtrust, LLC (Lairtrust) sued
their former attorneys Daniel Truax and Lisa Blanco Jimenez and the law firm Neumiller
& Beardslee (sometimes collectively referred to herein as Neumiller) for professional
malpractice arising from Neumiller’s representation of plaintiffs in an underlying real
estate action. In the real estate action the trial court found against plaintiffs on their
1 Sinclair also serves as counsel for the plaintiffs in this action, both in the trial court and
on appeal.
1
complaint and concluded plaintiffs’ unclean hands barred their recovery as well. In this
action Neumiller demurred to plaintiffs’ first amended complaint on the ground that the
malpractice claims asserted therein are barred by collateral estoppel to the extent the
judgment in the prior action relates to the alleged mishandling of the real estate action.
The trial court sustained the demurrer without leave to amend (Code of Civ. Proc.,
§ 430.10, subd. (e)),2 and judgment was entered in favor of Neumiller and against
plaintiffs.
We shall dismiss the appeal as to plaintiffs Lairtrust and Mauctrst because
Lairtrust’s powers, rights, and privileges have been suspended, and Mauctrst’s have been
cancelled. We shall reverse the judgment as to the remaining plaintiffs because the
doctrine of collateral estoppel does not apply for the reason the malpractice claim of
mishandling the real estate action alleged in plaintiffs’ first amended complaint was not
actually litigated or necessarily decided in the prior real estate action.
FACTUAL AND PROCEDURAL BACKGROUND3
A. The Litigation Underlying Plaintiffs’ Instant Legal Malpractice Action
In 2003, plaintiffs Sinclair, Lairtrust, Brandon, Capstone, LLC, and Mauchley
sued Andrew Katakis, his company California Equity Management Group, Inc. (CEMG)
(collectively referred to herein as Katakis), and the Fox Hollow of Turlock Owners
Association (FHOA) in Stanislaus County Superior Court case No. 332233 (the Fox
2 Further undesignated statutory references are to the Code of Civil Procedure.
3 “Because this appeal arises in connection with a demurrer, we look to the ‘properly
pleaded factual allegations’ of the operative complaint ‘read in light of’ any ‘judicially
noticeable facts’ and ‘factual concessions’ of the plaintiff.” (Hernandez v. City of
Pomona (2009) 46 Cal. 4th 501, 506, fn. 1.)
2
Hollow litigation). (Sinclair v. Katakis (Jan. 23, 2013, F058822) [nonpub. opn.].)4 The
Fox Hollow litigation involved the ownership of eight lots in the Fox Hollow subdivision.
Katakis acquired properties plaintiffs had lost through foreclosures; plaintiffs sued
Katakis claiming they were deprived of the properties through wrongful foreclosures and
Katakis’s tortious acts. Katakis denied the allegations and asserted that plaintiffs’
unclean hands precluded recovery.
On July 5, 2007, the date set for trial, the parties discussed settlement and
executed a document entitled “Preliminary Settlement Terms of Settlement Agreement
for State of California Superior Court Case Number 332233, and all other actions
between the parties . . . .” The agreement provided “[t]hese terms are skeletal, with the
final details to be provided by the parties through mutual constructive engagement.
Nevertheless, these are the material terms of the agreement, with all parties using their
best efforts to accomplish the goals of this Agreement.” The agreement further provided:
“This settlement agreement will be subject to supervision of the State of California
Superior Court, until its completion, and the parties may enforce this agreement under the
terms of California Code of Civil Procedure [section] 664.6.”5 Under the agreement,
plaintiffs were to receive eight duplexes, valued at approximately $3.5 million, and, in
4 Defendants’ unopposed March 21, 2013, request for judicial notice of the Fifth
Appellate District’s unpublished opinion in Sinclair v. Katakis, supra, F058822, the
proceeding underlying plaintiffs’ instant legal malpractice action, is granted. (Evid.
Code, § 452, subd. (d).) We incorporate some of the background from that decision here.
5 Section 664.6 provides: “If parties to pending litigation stipulate, in a writing signed
by the parties outside the presence of the court or orally before the court, for settlement of
the case, or part thereof, the court, upon motion, may enter judgment pursuant to the
terms of the settlement. If requested by the parties, the court may retain jurisdiction over
the parties to enforce the settlement until performance in full of the terms of the
settlement.”
3
turn, were to transfer several garage lots to Katakis and pay Katakis approximately
$1 million.
On July 6, 2007, Neumiller, along with Katakis’s counsel, advised the trial court
“ ‘that the matter had been settled,’ ” and the trial was vacated.
On July 12, 2007, Katakis, through counsel, filed a notice of settlement in a related
federal action pending in the United States District Court, Eastern District of California.
Katakis advised the district court that “the parties hereto have entered into a global
settlement of all matters now pending between them in this court . . . or that are pending
in any other court.”
Over the next five months, the parties were unable to work out the final details of
the agreement, and after retaining new counsel, Katakis “refused to perform saying that
there was never a meeting of the minds.”
In January 2008, at plaintiffs’ insistence, Neumiller filed a motion to enforce the
agreement pursuant to section 664.6. Katakis opposed the motion, arguing the agreement
was not enforceable because, among other things, the parties had failed to agree on
several material terms. The trial court determined the agreement was not enforceable
“because there was no meeting of the minds . . . .”
Thereafter, the matter was tried to the court, which “found against plaintiffs on
their complaint and concluded plaintiffs’ unclean hands barred their recovery as well.”
Plaintiffs appealed to the Fifth Appellate District, which affirmed the judgment.6
6 Plaintiffs’ January 31, 2013, request for judicial notice is denied for failure to comply
with Evidence Code section 459 and California Rules of Court, rule 8.252(a)(1). In
addition, exhibits 1 and 5 to that request (the July 5, 2007, agreement and the statement
of decision in the Fox Hollow litigation are already part of the record on appeal, and
exhibits 2 through 4 (various posttrial briefs filed in the Fox Hollow litigation) are
irrelevant to our determination of the issues raised on appeal.
4
B. The Instant Legal Malpractice Action
Meanwhile, in November 2010, plaintiffs initiated the instant action against
Neumiller in San Joaquin County Superior Court for professional negligence, breach of
contract, and breach of fiduciary duty. Neumiller’s demurrer to the original complaint
was sustained with leave to amend, and plaintiffs filed a first amended complaint,
alleging Neumiller breached various duties owed to plaintiffs by failing to draft a binding
settlement agreement and failing to timely submit the agreement for approval. According
to plaintiffs, but for Neumiller’s breach, the trial court would have enforced the July 5,
2007, agreement, obviating the need for a trial. The first amended complaint also alleges
that Neumiller breached its duties to plaintiffs by failing to present certain evidence
related to plaintiffs’ damages, adequately refute Katakis’s unclean hands defense, or
object to certain documents the trial court relied upon in finding plaintiffs were guilty of
unclean hands. According to plaintiffs, but for Neumiller’s breach, the trial court would
have found in plaintiffs’ favor on their complaint and rejected Katakis’s unclean hands
defense.
Neumiller demurred to the first amended complaint, arguing collateral estoppel
precluded plaintiffs from asserting that they would have obtained a better result but for
Neumiller’s acts and omissions because there had already been a finding that plaintiffs’
unclean hands barred their recovery. Neumiller also asserted that plaintiffs could not
claim as a matter of law that Neumiller breached any duty owed to plaintiffs by failing to
submit the July 5, 2007, agreement for approval “when the judicially noticeable minute
order establishe[d] that no settlement agreement was ever reached . . . .” The trial court
agreed and sustained the demurrer without leave to amend. The trial court found “the
doctrine of collateral estoppel prohibits Plaintiffs from maintaining any cause of action to
the extent it relates to Defendants’ alleged mishandling of the [Fox Hollow] litigation.”
The trial court reasoned that “the present lawsuit arises out of the Defendants’ alleged
mishandling of Plaintiffs’ state court action involving Fox Hollow properties, and the
5
nature of Plaintiffs’ conduct with respect to those properties was directly at issue and
adjudicated fully in that prior action. In that earlier Court’s Statement of Decision dated
8/18/09, which this Court has taken judicial notice of, that court determined that
Plaintiffs’ unclean hands barred them from any recovery. . . .” As for Neumiller’s failure
to timely submit the July 5, 2007, agreement for approval, the trial court found “that was
clearly an impossible [feat] since the court ruled there was no meeting of the minds and
thus, no settlement agreement existed as contemplated pursuant to . . . § 664.6.”
Judgment was entered in favor of Neumiller and against plaintiffs.
DISCUSSION
Plaintiffs contend the trial court erred in sustaining the demurrer because (1) the
first amended complaint states facts sufficient to state causes of action for professional
negligence, breach of contract, and breach of fiduciary duty, and (2) the complaint is not
barred under the doctrine of collateral estoppel because the issues raised in the present
litigation are not identical to those previously decided in the Fox Hollow litigation.
I
Plaintiffs Lairtrust and Mauctrst Lack the Capacity to Pursue this Appeal
As a preliminary matter, Neumiller contends plaintiffs Lairtrust and Mauctrst lack
the capacity to pursue this appeal because Lairtrust’s powers, rights, and privileges have
been suspended, and Mauctrst’s have been cancelled. As a result, Neumiller asserts the
appeal must be dismissed as to those plaintiffs. Neumiller is correct.
On November 1, 2011, the California Franchise Tax Board suspended Lairtrust’s
powers, rights, and privileges for failure to pay taxes. (Rev. & Tax. Code, § 23301.)
According to a certificate of status issued by the Secretary of State on September 20,
2012, Lairtrust’s “powers, rights and privileges remain suspended.”7
7 Defendants’ unopposed November 16, 2012, request for judicial notice of the
certificates of status issued by the Secretary of State on September 20, 2012, and related
6
On June 13, 2011, following dissolution by a vote of all of its members, Mauctrst
filed a certificate of cancellation. According to a certificate of status issued by the
Secretary of State on September 20, 2012, Mauctrst’s status is “cancelled” and its
“powers, rights and privileges have ceased.”
It is well established that “a ‘corporation may not prosecute or defend an action,
nor appeal from an adverse judgment in an action while its corporate rights are suspended
for failure to pay taxes.’ [Citation.]” (Bourhis v. Lord (2013) 56 Cal. 4th 320, 324.) “A
corporation whose powers have been suspended may apply with the Franchise Tax Board
for reinstatement after satisfying its obligations. ([Rev. & Tax. Code,] § 23305.) If the
statutory requirements are met, the Franchise Tax Board issues a ‘certificate of revivor.’
([Rev. & Tax. Code,] § 23305.) ‘Upon the issuance of the certificate [of revivor] by the
Franchise Tax Board the taxpayer therein named shall become reinstated . . . .’ ([Rev. &
Tax. Code,] § 23305a.)” (Ibid.)
There is no indication in the record on appeal that the Franchise Tax Board has
issued a certificate of revivor or that Lairtrust otherwise has been reinstated. As a
suspended company, Lairtrust lacks the capacity to pursue this appeal. (See Cal-Western
Business Services, Inc. v. Corning Capital Group (2013) 221 Cal. App. 4th 304, 310-312.)
Accordingly, the appeal is dismissed as to it.
Turning to Mauctrst, on June 13, 2011, plaintiff Gregory Mauchley, as manager of
Mauctrst, filed a “certificate of cancellation,” indicating Mauctrst was dissolved “by a
vote of all of the members.”8 Although “[a] limited liability company that is dissolved . .
records, for plaintiffs Lairtrust and Mauctrst is granted. (Evid. Code, §§ 452, subd. (c),
459.)
8 “If a dissolution pursuant to subdivision (b) of Section 17707.01 is made by the vote of
all of the members and a statement to that effect is added to the certificate of cancellation
of articles of organization pursuant to subdivision (b), the separate filing of a certificate
of dissolution pursuant to this subdivision is not required.” (Corp. Code, § 17707.08,
subd. (a)(3).)
7
. continues to exist for the purpose of winding up its affairs,” (Corp. Code, § 17707.06,
subd. (a)), the filing of a certificate of cancellation marks the completion of that process
(id., § 17707.08, subd. (b)(1) [“The persons who filed the certificate of dissolution shall
cause to be filed in the office of, and on a form prescribed by, the Secretary of State, a
certificate of cancellation of articles of organization upon the completion of the winding
up of the affairs of the limited liability company pursuant to [Corporations Code] Section
17707.06 . . . .”].)
Here, Mauchley filed a certificate of cancellation on June 13, 2011. At that point,
the articles of organization of Mauctrst were cancelled, and its powers, rights, and
privileges, including its ability to appeal from an adverse judgment, ceased. (Corp. Code,
§ 17707.08, subd. (c).) Thus, like Lairtrust, Mauctrst lacks the capacity to pursue this
appeal, and the appeal is dismissed as to it.
II
Plaintiffs’ First Amended Complaint States a Claim for Professional
Negligence/Legal Malpractice
A demurrer tests the sufficiency of a complaint. (Los Altos El Granada Investors
v. City of Capitola (2006) 139 Cal. App. 4th 629, 650.) On appeal from an order of
dismissal after an order sustaining a demurrer, our standard of review is de novo, i.e., we
exercise our independent judgment about whether the complaint states a cause of action
as a matter of law. (Ibid.) “ ‘ “We treat the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of fact or law.
[Citation.] We also consider matters which may be judicially noticed.” [Citation.]
Further, we give the complaint a reasonable interpretation, reading it as a whole and its
parts in their context. [Citation.] When a demurrer is sustained, we determine whether
the complaint states facts sufficient to constitute a cause of action. [Citation.]’ ”
(Herrera v. Federal National Mortgage Assn. (2012) 205 Cal. App. 4th 1495, 1501.)
8
In addition to a cause of action for professional negligence plaintiffs also purport
to allege causes of action for breach of fiduciary duty and breach of contract arising out
of Neumiller’s representation in connection with the Fox Hollow litigation. “However,
‘the nature of a cause of action does not depend on the label the plaintiff gives it or the
relief the plaintiff seeks but on the primary right involved.’ [Citation.] Here, it is clear
that the primary right involved in all of [plaintiffs’] claims is ‘the right to competent legal
representation’ [citation], and thus, . . . all are properly characterized as claims for legal
malpractice.” (Khodayari v. Mashburn (2011) 200 Cal. App. 4th 1184, 1190.)
Accordingly, we shall analyze plaintiffs’ claim as such.
“The failure to provide competent representation in a civil or criminal case may be
the basis for civil liability under a theory of professional negligence. In a legal
malpractice action arising from a civil proceeding, the elements are (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.) To show damages proximately caused by the breach, the plaintiff
must allege facts establishing that, “but for the alleged malpractice, it is more likely than
not the plaintiff would have obtained a more favorable result.” (Viner v. Sweet (2003) 30
Cal. 4th 1232, 1244, italics omitted.)
Here, the first amended complaint alleges (1) “. . . Truax, Jiminez, and Neumiller
were specialists and had a duty at all times to act in conformance with the standard of
care for the legal profession and to act with reasonable care and skill,” (2) “. . . Truax and
Jiminez and Neumiller’s actions, as alleged above, breached the standard of care for the
legal profession in the community in which Truax and Jiminez and Neumiller practice,”
and; (3) “[a]s a direct and proximate result of Truax and Jiminez and Neumiller’s
breaches of their duties to Plaintiffs, plaintiffs suffered actual damages in the loss of the
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Settlement value including the 8 duplexes, loss of the attorneys’ fees accrued and
presently being billed as attorney’s fees accrued after the Settlement, the fees that may be
owed to Katakis for failure of Truax and Neumiller to be successful in the [Fox Hollow
litigation], the cost of the appeal and Federal Action, and other potential damages in an
amount to be determined.” The actions “alleged above,” include Neumiller’s failure to
(1) draft an enforceable settlement agreement; (2) timely submit the July 5, 2007,
agreement for approval or draft an enforceable agreement; (3) present evidence of
damages in the form of appraisals in plaintiffs’ possession or the testimony of an expert
they had retained; (4) adequately refute Katakis’s unclean hands defense by presenting
contrary information about Katakis which would negate unclean hands against the
plaintiffs; and (5) object to certain documents the trial court relied upon in finding
plaintiffs were guilty of unclean hands defense.
These allegations are sufficient to state a cause of action for legal malpractice.
(Coscia v. McKenna & Cuneo, supra, 25 Cal.4th at p. 1199; Viner v. Sweet, supra, 30
Cal.4th at p. 1244.) Neumiller does not contend otherwise. Rather, Neumiller asserts
that collateral estoppel bars plaintiffs from litigating whether it mishandled the
underlying Fox Hollow litigation because there has already been a finding that plaintiffs
are barred from recovering anything in that litigation under the doctrine of unclean hands.
Neumiller also asserts that plaintiffs’ allegations concerning Neumiller’s “failure to
enforce the settlement agreement” likewise are barred because there has already been a
finding that there was no meeting of the minds, and thus, no settlement to enforce.
“The doctrine of collateral estoppel provides that a party to an action, or one in
privity with a party, is barred from subsequently relitigating issues actually litigated and
finally decided in a prior proceeding. [Citation.] ‘ “Traditionally, collateral estoppel has
been found to bar relitigation of an issue decided at a previous proceeding ‘if (1) the issue
necessarily decided at the previous [proceeding] is identical to the one which is sought to
be relitigated; (2) the previous [proceeding] resulted in a final judgment on the merits;
10
and (3) the party against whom collateral estoppel is asserted was a party or in privity
with a party at the prior [proceeding].’ . . .” [Citations.]’ [Citation.]” (Martorana v.
Marlin & Saltzman (2009) 175 Cal. App. 4th 685, 694.)
The doctrine of collateral estoppel is inapplicable here because the malpractice
claim raised in plaintiffs’ first amended complaint was not actually litigated or
necessarily decided at a previous proceeding. By alleging Neumiller committed
malpractice, plaintiffs do not claim that the trial court erred in determining that there was
not a meeting of the minds with respect to the July 5, 2007, agreement or that plaintiffs
had unclean hands based on the evidence and arguments presented. Instead, plaintiffs
claim that but for Neumiller’s acts and omissions -- namely Neumiller’s failure to draft
an enforceable agreement, delay in presenting the agreement to the trial court for
adoption, and failure to present certain evidence or adequately refute that presented by
Katakis at trial -- the trial court would more likely than not have reached different
conclusions. Whether Neumiller was negligent has not and could not have been litigated
previously.
Contrary to Neumiller’s assertion, this court’s decision in Blain v. Doctor’s Co.
(1990) 222 Cal. App. 3d 1048 (Blain) does not hold otherwise. There, the plaintiff, a
physician-defendant in a medical malpractice action, sued his attorney for legal
malpractice. (Id. at p. 1052) The plaintiff alleged that he had suffered damages by lying
at a deposition, allegedly on the advice of his attorney. (Ibid.) The question was whether
unclean hands precluded the plaintiff’s action against his lawyer for legal malpractice.
(Ibid.) Having reviewed the amended complaint in conjunction with more candid
allegations in his original complaint, we determined: The plaintiff “alleges that he
committed serious misconduct which was the cause of his injuries. This leads to
consideration of the law of unclean hands.” (Id. at p. 1058.) We found that under the
doctrine of unclean hands, the plaintiff had no cause of action for injuries necessarily
caused by his own misconduct: “[The plaintiff’s] emotional distress, if any, is
11
attributable to his own knowing misbehavior. Even the most naive must know that lying
under oath is illegal. . . . [T]he relationship of misconduct to harm in this case is direct
and not incidental. The misconduct was, so it is alleged, the instrumentality of harm.”
(Id. at p. 1063.) We similarly disposed of the plaintiff’s claim to have lost the ability to
practice medicine, finding his misconduct “inherently involved” that risk. (Id. at p.
1064.)
The present case is distinguishable. Unlike the defendant attorney in Blain,
Neumiller bases its assertion that “[t]he defense of unclean hands bars Plaintiffs from
asserting claims against [Neumiller] as a matter of law” not on any specific misconduct
but on the trial court’s finding in the Fox Hollow litigation that plaintiffs were guilty of
unclean hands. Neumiller does not refer to any incidents of misconduct in its
respondent’s brief; rather, Neumiller relies solely upon the trial court’s finding in the Fox
Hollow litigation: “[Plaintiffs] cannot get around the undisputed fact that they were
barred from recovery in the [Fox Hollow litigation], not because of [Neumiller’s]
handling of their case, but instead because of their own unclean hands.” As previously
discussed, plaintiffs claim that but for Neumiller’s alleged malpractice, there would have
been no such finding. That issue has not yet been litigated.
Neumiller also cites Peregrine Funding, Inc. v. Sheppard Mullin Richter &
Hampton LLP (2005) 133 Cal. App. 4th 658 (Peregrine) for the proposition that “[t]he
defense of unclean hands bars Plaintiffs from asserting claims against [it] as a matter of
law.” That case likewise is inapposite to the circumstances of this case. There, a
bankruptcy trustee who had succeeded to the interests of a corporation used to perpetrate
a Ponzi scheme sued a law firm for malpractice and for aiding and abetting the Ponzi
scheme. (Id. at p. 665) The court held that the doctrine of unclean hands barred both the
corporation and its successor in interest (the bankruptcy trustee) from pursuing claims
against the law firm. (Id. at pp. 679-680.) The court reasoned that the individual who
owned and controlled the corporation was the primary architect of the Ponzi scheme and
12
applied the doctrine of unclean hands to impute the owner’s fraud to the corporation. (Id.
at p. 679.) In doing so, the court found the corporation and the owner’s “orchestration of
the Ponzi scheme that defrauded investors is intimately related to the professional
malpractice claims before the court,” which “are based entirely on the assertion that [the
law firm’s] professional advice and tactics enabled [the corporation and the owner] to
perpetuate their fraud on investors. . . . For [the corporation]--the company plaintiffs
allege was controlled by [the owner] and used by him to operate the Ponzi scheme--to
now complain of [the law firm’s] role in enabling it to commit the fraud is unfair, and it
is precisely this sort of unfairness the unclean hands doctrine seeks to address.” (Id. at p.
681.)
Again, unlike the defendant law firm in Peregrine, Neumiller does not point to
any specific instances of misconduct in support of its assertion that plaintiffs’ malpractice
action against it is barred by unclean hands. Rather, it asserts that the trial court’s finding
in the Fox Hollow litigation that plaintiffs’ claims against Katakis were barred due to
plaintiffs’ unclean hands collaterally estops plaintiffs from pursuing their malpractice
action against Neumiller as a matter of law. According to Neumiller, “There can be no
dispute that the present lawsuit arises out of [Neumiller’s] alleged mishandling of
Plaintiffs’ State Court Action involving the Fox Hollow properties, and the nature of
Plaintiffs’ conduct with respect to the same Fox Hollow properties was a matter directly
at issue and adjudicated in full in the underlying action.” Neumiller’s assertion ignores
plaintiffs’ allegation that but for Neumiller’s alleged malpractice, there would have been
no finding in the Fox Hollow litigation that plaintiffs’ were guilty of unclean hands.
Whether that is the case has yet to be determined.
While plaintiffs can no longer challenge the trial court’s rulings in the Fox Hollow
litigation, they may still attempt to prove that had Neumiller included certain additional
terms in the July 5, 2007, agreement, submitted the agreement for approval on July 6,
2007, or shortly thereafter, presented evidence of plaintiffs’ damages in the form of
13
appraisals in plaintiffs’ possession or the testimony of an expert they had retained, and
presented information about Katakis’s unclean hands, a different result would have
ensued. Accordingly, plaintiffs are not barred by the doctrine of collateral estoppel from
pursuing their malpractice claim. “To hold otherwise would be to rule that where an
attorney’s negligence has caused a court to make an erroneous adjudication of an issue,
the fact that the court had made that adjudication absolves the attorney of all
accountability and responsibility for his negligence. That cannot be and is not the rule.”
(Ruffalo v. Patterson (1991) 234 Cal. App. 3d 341, 344 (Ruffalo).)
This case is analogous to Ruffalo. There, the plaintiff sued her former counsel for
malpractice arising out of a marital dissolution action. According to the plaintiff’s
malpractice complaint, in the dissolution action her counsel advised her to characterize
certain property as community property. However, when she retained new counsel, she
contended she had a separate interest in the property. (Ruffalo, supra, 234 Cal.App.3d at
pp. 342-343.) The trial court found the property to be community property. In plaintiff’s
subsequent malpractice action, she alleged the trial court would not have found the
property to be community property had her counsel properly advised her of her separate
interest in the property. (Ibid.) The trial court granted summary judgment on the ground
that collateral estoppel barred the plaintiff from relitigating the character of the
challenged property. (Id. at p. 343.) The reviewing court reversed, explaining: “The
sense of this legal malpractice case is plaintiff’s claim that she was precluded by her
attorney’s negligence from fully and fairly litigating the character of the [challenged]
property in the previous dissolution action. Moreover, she does not seek a
redetermination as to the character of the property; rather, she seeks to recover for her
attorney’s alleged negligence in instructing and causing her to characterize the property
as community property in the dissolution action. Her contention is that the court’s
decision therein would have been different absent the negligence of her attorney, who is
the defendant in this action.” (Id. at p. 344.)
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The court’s reasoning in Ruffalo is equally applicable here. Plaintiffs contend the
outcome of the underlying litigation would have been different absent Neumiller’s
negligence in drafting the July 5, 2007, agreement, failing to timely submit the settlement
agreement to the court for approval, presenting plaintiffs’ case at trial, and defending
against the Neumiller’s unclean hands defense. Because of the nature of legal
malpractice cases which require case-within-case determinations, there will often be
some overlap of issues between the malpractice action and the underlying proceeding.
But as Ruffalo demonstrates, despite such overlap, the same issue is not being litigated.
The central purpose of plaintiffs’ malpractice action is not to challenge the trial court’s
findings in the Fox Hollow litigation. Instead, plaintiffs claim Neumiller breached its
duty of care to plaintiffs culminating in an unfavorable decision against them in that
action.
Whether plaintiffs will be able to prove their malpractice claim remains to be seen.
At this stage of the proceedings, however, plaintiffs have alleged facts sufficient to state
such a claim.9 (Pete v. Henderson (1954) 124 Cal. App. 2d 487, 490 [“[T]he fact that it
may be difficult to make such proof is no ground to deny the right to present such proof if
it can be made.”].)
9 In light of our conclusion, we need not address plaintiffs’ contention that the trial court
erred in sustaining the demurrer without leave to amend. Neumiller’s motion to strike
plaintiffs’ reply brief on the grounds “the brief contains no citation to the record and no
pertinent or intelligible argument” is denied. To the extent portions of the brief are
unintelligible, we decline to consider them. (McComber v. Wells (1999) 72 Cal. App. 4th
512, 522-523.)
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DISPOSITION
The judgment is reversed. The demurrer is overruled. Plaintiffs shall recover
their costs on appeal. (Cal. Rules of Court, rule 8.278.)
BLEASE , J.
We concur:
RAYE , P. J.
BUTZ , J.
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