Case Number: EC060154??? Hearing Date: June 17, 2016??? Dept: NCD
TENTATIVE RULING
DEMURRER
MOTION TO STRIKE
Calendar: 4
Date: 6/17/16
Case No. EC 060154 Trial Date: None Set
Case Name: Mouradian, et al. v. Jehdian, et al.
Moving Party: Defendants Michael J. Jehdian and Law Offices of Michael J. Jehdian, APC
Responding Party: Plaintiffs Lucy Mouradian, Arous Mouradian and Albert Shamamian
Pleading filed on: February 4, 2013 Demurrer filed on: March 25, 2016
Pleading served on: March 11, 2013; Stay lifted February 25, 2016
within 30 days?: ok
RELIEF REQUESTED:
Sustain demurrer to complaint
Strike allegations of punitive damages
RULING:
The parties are ordered to the jury room to meet and confer pursuant to CCP ? 430.41. The parties have not filed a meet and confer declaration.
Defendants? Demurrer to Complaint is SUSTAINED, with leave to amend. The first cause of action for attorney malpractice does not sufficiently allege facts supporting the existence of duty in these circumstances. In particular, there are no allegations that the requirements of Zenith Insurance Company v. Cozen O?Connor (2007) 148 Cal. App. 4th 998 are met or that this factual scenario allows for expansion of attorney malpractice liability to parties outside the context of a testamentary instrument. See Baranian v. Clark (2004) 123 Cal. App. 4th 1012; 1018-1019.
Demurrer is SUSTAINED with leave to amend as to the second cause of action for breach of contract and third cause of action for breach of fiduciary duty, as it appears from the pleading and concession in the opposition that plaintiffs Lucy Mouradian, Arous Mouradian and Albert Shamamian are not parties to the subject contract, and are accordingly owed no direct contractual nor fiduciary duties. The pleading does not allege facts establishing how these parties are entitled to enforce such duties, either as intended third party beneficiaries, or that a finding that these plaintiffs are entitled to recover under the first cause of action would make them actual clients of the defendant?s attorneys, giving use to a fiduciary duty.
Defendants? Motion to Strike portions of the complaint is Moot in light of the Court?s granting leave to amend and is DENIED without prejudice.
Thirty (30) days leave to amend, if possible.
The parties need to meet and confer per ? 430.41 (c) of the Code of Civil Procedure before filing any amended cross-complaint.
Pursuant to CCP ? 430.41(c), the court orders that before a demurrer to the complaint may be filed, the parties must meet and confer within five days of receipt of service of the amended pleading. The parties are ordered to file with any further demurrer an appropriate meet and confer declaration under CCP ? 430.41(a).
The parties are also expected to provide during their meet and confer, as well as to the court on any further challenges to the pleadings, detailed legal analysis of the current law governing the issues presented., in particular, the extension of attorney legal malpractice to non-clients.
CAUSES OF ACTION: From Complaint
1) Attorney Malpractice
2) Breach of Contract
3) Breach of Fiduciary Duty
SUMMARY OF FACTS:
Plaintiff Andranik Mouradian alleges that he retained defendant Michael V. Jehdian, an agent and employee of defendant Law Offices of Michael V. Jehdian, to represent him in a bankruptcy matter. Plaintiffs Lucy Mouradian, Arous Mouradian and Albert Shamamian are alleged to have been the heirs of plaintiff Andranik Mouradian with an interest in real property located on El Rio Avenue in Los Angeles. The complaint alleges that defendants negligently represented the interests of plaintiffs in the bankruptcy proceeding, as defendants sent an inexperienced, unlicensed paralegal to initially counsel plaintiff, and failed to take into account or report a recent conveyance by Mouradian of his El Rio Avenue home to his daughters, such that during the bankruptcy proceedings, because the conveyance had been made within four years of the filing date of the bankruptcy, the daughters were forced to seek counsel and defend against a challenge by the bankruptcy trustee, resulting in a settlement with the trustee of $137,500 in order to keep the property. The complaint alleges causes of action for attorney malpractice, breach of contract and breach of fiduciary duties.
The file shows that on September 6, 2016, the court, Judge Doyle presiding, heard a motion to compel arbitration brought by defendants, which was granted. The court order states that plaintiff Andranik Mouradian is ordered to arbitrate his controversy with both defendants in accordance with the Legal Services Agreement between those parties. The minute order further states:
?Pursuant to CCP section 1281.2(c), and the representations of plaintiffs in the opposition, this matter is stayed as to the sole cause of action asserted by the nonsignatory plaintiffs, Lucy Mouradian, Arous Mouradian and Albert Shamamian, the first cause of action for attorney malpractice, until an arbitration has been had according to this order.?
On February 25, 2016, at an OSC re Financial Capability of Plaintiffs Regarding Arbitration Fees, the counsel for plaintiff represented to the court that plaintiff could not afford to arbitrate, and counsel for defendant represented that where a party is unable to pay costs, defendants have the option to pay plaintiff?s costs or proceed to trial, and counsel elected to go to trial. The court accordingly set a CMC and granted a request by counsel for plaintiff to lift the stay imposed while the parties were in arbitration. The court ordered the stay lifted and answer or response due in thirty days.
Defendants demur and move to strike the complaint as brought by the nonsignatory plaintiffs, Lucy Mouradian, Arous Mouradian and Albert Shamamian.
ANALYSIS:
Procedural
No Meet and Confer Declaration
This demurrer was filed and served after January 1, 2016, the effective date of CCP ? 430.41, which requires that before filing a demurrer, the demurring party must meet and confer:
?(a) Before filing a demurrer pursuant to this chapter, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer. If an amended complaint, cross-complaint, or answer is filed, the responding party shall meet and confer again with the party who filed the amended pleading before filing a demurrer to the amended pleading.
(1) As part of the meet and confer process, the demurring party shall identify all of the specific causes of action that it believes are subject to demurrer and identify with legal support the basis of the deficiencies. The party who filed the complaint, cross-complaint, or answer shall provide legal support for its position that the pleading is legally sufficient or, in the alternative, how the complaint, cross-complaint, or answer could be amended to cure any legal insufficiency.
(2) The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer. The 30-day extension shall commence from the date the responsive pleading was previously due, and the demurring party shall not be subject to default during the period of the extension. Any further extensions shall be obtained by court order upon a showing of good cause.
(3) The demurring party shall file and serve with the demurrer a declaration stating either of the following:
(A) The means by which the demurring party met and conferred with the party who filed the pleading subject to demurrer, and that the parties did not reach an agreement resolving the objections raised in the demurrer.
(B) That the party who filed the pleading subject to demurrer failed to respond to the meet and confer request of the demurring party or otherwise failed to meet and confer in good faith.
(4) Any determination by the court that the meet and confer process was insufficient shall not be grounds to overrule or sustain a demurrer.?
There is no meet and confer declaration submitted with this demurrer, and the opposition indicates that no meet and confer was attempted prior to the demurrer being filed. This seems particularly alarming as the demurrer concedes that there is some confusion raised by the file with respect to whether two of the three causes of action demurred to were even intended to be asserted by the non-signatory plaintiffs. While the court cannot, under the statute, outright overrule the demurrer on this ground, as urged in the opposition, the court may continue the matter and require the parties to meet and confer.
Substantive
First Cause of Action?Attorney Malpractice
Defendants argue that the nonsignatory plaintiffs have failed to sufficiently allege this cause of action because defendants did not owe these parties a duty of care?the duty was owed only to the client, Andranik Mouradian.
To state a claim for professional negligence, a complaint must plead the following elements:
1) the duty of the professional to use such skill, prudence and dilgence as other members of the profession commonly possess and exercise;
2) a breach of that duty;
3) a proximate causal connection between the negligent conduct and the resulting injury;
4) actual loss or damage resulting from the professional’s negligence.
Budd v. Nixen (1971) 6 Cal.3d 195, 200.
While other elements of a legal malpractice claim are generally factual and cannot be challenged on demurrer, the existence of the attorney’s duty of care owing to the plaintiff is generally a question of law that may be addressed by demurrer. Goodman v. Kennedy (1976) 18 Cal.3d 335, 342.
The motion relies on Goodman, in which the California Supreme Court found that while an attorney owed no duty of care in giving advice related to a possible sale of stock to third parties to whom the stock was ultimately sold, such a situation was distinguishable from cases in which a duty to a non-client had been recognized, such as where an attorney?s duty of care in drafting a will extended to the intended beneficiary. See Goodman, at 345, citing Lucas v. Hamm (1961) 56 Cal.2d 583.
Plaintiffs argue that this is a case like Lucas, in which the Supreme Court found that in applying the Biakanja duty factors, the extension of liability to beneficiaries of wills negligently drawn by attorneys would not place an undue burden on the legal profession, and observed, ?the lack of privity between plaintiffs and defendant does not preclude plaintiffs from maintaining an action in tort against defendant.? Lucas, at 589.
Plaintiffs argue that the pleading here sufficiently alleges that when defendants were representing Andranik Mouradian, he clearly communicated to defendants that in effectuating bankruptcy, it was essential to preserve the 2009 transfer of the subject property to the other plaintiffs, and inquired into the possibility of waiting to file the bankruptcy presumably to a time after the four year time limit for fraudulent conveyance liability had expired, to preserve the transfer, such that this case is more in the nature of a case where a beneficiary?s interest is necessarily affected by the representation so that a duty arises. [See paras. 13, 14, 16]. Plaintiffs cite Zenith Ins. Co. v. Cozen O?Connor (2007) 148 Cal.App.4th 998, in which the Second District affirmed a judgment of dismissal entered by the trial court after it sustained a demurrer to a professional negligence action without leave to amend.
In Zenith , the Second District addressed a situation where a reinsurance company, Zenith, which had reinsured 100 percent of the limits of the underlying policies issued by an insurer. Royal, sought to bring a legal malpractice claim against the attorneys for Royal, Cozen O?Connor, based on advice Cozen had given to Royal. The Second District rejected the argument in that case that the reinsurer was an intended beneficiary of the attorney?s services:
?An essential predicate for establishing an attorney’s duty of care under an ?intended beneficiary? theory is that both the attorney, Cozen, and the client, Royal, must have intended Zenith to be a beneficiary of legal services Cozen was to render. (B.L.M. v. Sabo & Deitsch (1997) 55 Cal.App.4th 823, 832 [64 Cal. Rptr. 2d 335].) Even if the lawyer’s representation could incidentally benefit the claimant, that does not sufficiently satisfy this predicate. (Goldberg v. Frye (1990) 217 Cal. App. 3d 1258, 1268 [266 Cal. Rptr. 483]; Mason v. Levy & Van Bourg (1978) 77 Cal. App. 3d 60, 67?68 [143 Cal. Rptr. 389].) This rule governs the analysis, even if the attorney knows that third parties will be affected by his representation of his client. Without more, such knowledge is not sufficient to create a duty of care. (Burger v. Pond (1990) 224 Cal. App. 3d 597, 604?606 [273 Cal. Rptr. 709].)
Zenith’s factual allegations never materially changed through four prior versions of the complaint. Royal, not Zenith, hired Cozen. Cozen was retained to advise Royal regarding its coverage obligations and to avoid potential bad faith liability of Royal to its insured. Obviously, any advice given Royal by Cozen to settle or resolve a claim would be given in that context and such advice might not necessarily be in Zenith’s best interests. In resolving the claims against Foss, the interests of Royal and Zenith were not identical. Indeed, given Royal’s obligations under the policy, including duties to defend and indemnify Dillingham and its subsidiaries, and its exclusive and discretionary control over how those duties would be discharged, those interests were potentially adverse. Royal, but not Zenith, would be exposed to potential bad faith liability for the unjustified failure to fully discharge all of the obligations owed under the policy. Thus, Cozen could not ethically represent both Royal and Zenith in these matters. In such circumstance, it would be impossible to conclude that either Royal or Cozen ever intended to confer upon Zenith beneficiary status of Cozen’s legal services performed for Royal.
The clear absence of this mutual intent requirement is critical, indeed dispositive, in the context presented. An attorney’s undertaking should be the result of a conscious decision, so that the consequences of a duty to a third person can be considered and the undertaking declined if the risk of conflicts [*1009] or financial exposure is too great. Here, there is no allegation that Cozen agreed or intended to benefit Zenith.
Zenith, at 1008-1009 (italics in original).
The analysis in that case appeared particularly dependent upon the interests of the client and the reinsurer non-client were not aligned, but potentially adverse:
?Cozen thus cannot be held to be under a duty to protect the interests of Zenith, a nonclient, where, as here, the nonclient’s interests were, at the very least, potentially adverse to those of the client. This rule stems from salutary public policy considerations holding that an adverse party cannot be the intended beneficiary of the attorney’s services provided for his client, because any other rule would eradicate the attorney’s undivided, fiduciary duty of loyalty owed to his client. (Fox v. Pollack (1986) 181 Cal. App. 3d 954, 961 [226 Cal. Rptr. 532] [?an attorney has no duty to protect the interests of an adverse party [citation] for the obvious reasons that the adverse party is not the intended beneficiary of the attorney’s services, [***19] and that the attorney’s undivided loyalty belongs to the client?].)?
Zenith, at 1009.
Here, the allegations may be construed as more in the nature of the nonclient plaintiffs being intended beneficiaries of the advice, with their interests disclosed and communicated and not adverse to those of the client. However, the legal discussion provided by plaintiffs is very general, and the case primarily relied upon affirmed the sustaining of a demurrer for lack of allegations giving rise to a duty, and the facts alleged here do not appear to sufficiently allege an intended beneficiary situation. (Although not cited by the parties, the Second District has summarized the case law concerning intended beneficiaries in connection with attorneys preparing testamentary instruments, and narrowly construed the existence of duty, refusing to recognize a duty where there is a substantial question about whether a third party was an intended beneficiary. See Boranian v. Clark (2004) 123 Cal.App.4th 1012, 1018-1019. The Second District has further observed that the exception is limited to cases where a testamentary instrument has been executed and the issue is whether the will or trust had been negligently prepared so as to frustrate the testator?s intent. See Hall v. Kalfayan (2010) 190 Cal.App.4th 927, 935 (affirming granting of summary judgment in favor or attorney based on failure to establish duty to prospective beneficiary of a conservatee?s will). Before definitively making a determination on this matter, the court could use some responsible and thorough legal analysis on the part of the parties). The demurrer will be sustained with one opportunity to amend, with both sides ordered to present appropriate legal analysis.
Second Cause of Action?Breach of Contract
As an initial matter, it appears from the file that these plaintiffs indicated in their opposition to the motion to compel arbitration that they were not asserting any claims based on the written agreement between defendants and Andranik Mouradian, or the fiduciary duties arising from that relationship. It appears they have changed their minds. The moving papers do not establish grounds for imposing judicial estoppel or otherwise preventing these parties from now changing their position.
To plead a cause of action for breach of contract, plaintiff must plead the following elements: Contract formed and terms alleged verbatim or according to legal effect; plaintiff?s performance or excuse for nonperformance; defendant?s breach; and damage to plaintiff. Walsh v. Standart (1917) 174 Cal. 807; 4 Witkin, California Procedure (4th Ed.) Pleading, ?476; Judicial Council Forms 982.1(20) and (21)
Defendants argue that there are no allegations that the nonclient plaintiffs were parties to the contract, which is true. To the extent plaintiffs again argue that a duty arises under the cited case law, that case law generally relates to the imposition of a tort duty, not a contractual duty. See Lucas, at 589. Moreover, to the extent plaintiffs intend to allege that they were intended beneficiaries of the contract, the pleading does not allege facts supporting such a claim.
Under Civil Code ? 1559, ?A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.?
To claim entitlement to enforcement as a third party beneficiary “an intent to make the obligation inure to the benefit of the third party must have been clearly manifested by the contracting parties.” Shutes v. Cheney (1954) 123 Cal.App.2d 256, 262. None of this is alleged here, and the demurrer will be sustained with leave to amend.
Third Cause of Action?Breach of Fiduciary Duty
To plead a breach of fiduciary duty, a plaintiff must allege the existence of a fiduciary or confidential relationship, the breach of a duty arising under this relationship and resulting damages. Richelle L. v. Roman Catholic Archbishop of San Francisco (2003) 106 Cal.App.4th 257, 272.
Defendants again argue that in order to establish the existence of a fiduciary relationship with the attorneys as non-clients and non-parties to the contract, these plaintiffs must establish a fiduciary duty under a third party beneficiary theory, but have failed to do so. The cause of action does not attempt to establish any theory under which these plaintiffs are owed a fiduciary duty, when it is conceded they were not the clients of the attorneys and were not signatories to the agreement.
The demurrer to this cause of action will be sustained with leave to amend.
Since this is the initial pleading in the matter, the demurrer should be sustained with one opportunity to amend, but plaintiffs hereby are cautioned that any amendment should be evaluated in good faith and any meet and confer and further opposition to demurrer should provide appropriate legal analysis.
Motion to Strike
Since the demurrer should be sustained with leave to amend, the motion to strike is moot and is denied without prejudice
Order on Amendment
If the court is inclined grant leave to amend, CCP ? 430.31 provides, in pertinent part:
?(c) If a court sustains a demurrer to one or more causes of action and grants leave to amend, the court may order a conference of the parties before an amended complaint or cross-complaint or a demurrer to an amended complaint or cross-complaint, may be filed. If a conference is held, the court shall not preclude a party from filing a demurrer and the time to file a demurrer shall not begin until after the conference has concluded. Nothing in this section prohibits the court from ordering a conference on its own motion at any time or prevents a party from requesting that the court order a conference to be held.?
If the court grants leave to amend, it may want to require that the parties confer before a demurrer to the amended pleading may be filed. The court may want to set a time window within which a conference must be held to avoid a too long enlargement of time within which another demurrer must be filed.