Case Number: EC062483??? Hearing Date: July 29, 2016??? Dept: NCB
14. EC062483
GABRIELA PAUL, et al v. THOMAS E. KENT
Motion for Summary Judgment
Motion to Consolidate
In their complaint, the Plaintiffs retained the Defendants to provide legal services to them in a Chapter 11 bankruptcy matter and to protect the Plaintiffs? interest in disbursing funds to creditors. Bruce Brusavich was a personal injury attorney for the Plaintiff, Gabriela Paul, and he is the managing partner of Agnew & Brusavich. Defendant, Kate Shin, was co-counsel in the bankruptcy proceeding. Thomas Kent is alleged to have been the agent of Defendant, Mark Markus.
Further allegations are that: the Defendant, Thomas Kent, engaged in legal malpractice when he withdrew funds from the Plaintiffs? client trust fund without permission; the Defendants engaged in legal malpractice when they drafted the bankruptcy petition, when they failed to file motions for revaluation or to avoid liens and turnover of assets, when they failed to contact financial institutions involved with the Plaintiffs? condominiums and home, and when they failed to file a viable bankruptcy plan. This caused the Plaintiffs? bankruptcy to be reclassified from a bankruptcy for reorganization of assets under Chapter 11 into a bankruptcy for liquidation of assets under Chapter 7 and this resulted in the loss of three residential condominiums.
CAUSES OF ACTION IN SECOND AMENDED COMPLAINT:
1) Legal Malpractice
2) Breach of Fiduciary Duty
3) Conversion
4) Civil Conspiracy to Commit Conversion
5) False Advertising and Unfair Business Practice
Trial is set for September 6, 2016.
This hearing concerns the motion for summary judgment of the Defendant, Mark Markus that is directed at the Second Amended Complaint. In addition, the Plaintiffs have filed a motion to consolidate this action with EC065242.
1. Motion for Summary Judgment of Defendant, Mark Markus
The Defendant requests summary judgment of the Second Amended Complaint. The only causes of action directed at the Defendant, Mark Markus, are the first cause of action for legal malpractice and the second cause of action for breach of fiduciary duty. Accordingly, the Defendant has the burden under CCP section 437c of offering facts that demonstrate that the Plaintiffs cannot establish an essential element in these causes of action or that an affirmative defense bars the causes of action.
a. Statute of Limitations
First, the Defendant argues that the affirmative defense of the statute of limitations bars the Plaintiffs? claims.
CCP section 340.6(a) provides that an action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first. For any wrongful act or omission of an attorney arising in the performance of professional services, an action must be commenced within one year after the client discovers or through the use of reasonable diligence should have discovered the facts constituting the wrongful act or omission. Levin v. Graham & James (1995) 37 Cal. App. 4th 798, 805. In all cases other than actual fraud, whether the theory of liability is based on the breach of an oral or written contract, a tort, or a breach of a fiduciary duty, the statutory period of CCP section 340.6 applies. Id.
Further, the one year time period of section 340.6 is triggered by the client’s discovery (or reasonably should have discovered) of the facts constituting the wrongful act or omission. Croucier v. Chavos (2012) 207 Cal. App. 4th 1138, 1146. It is not required that the client discover that the facts constitute professional negligence and it is irrelevant to the statute of limitations for section 340.6 that the plaintiff is ignorant of his or her legal remedy or the legal theories underlying his or her cause of action against the attorney. Id.
Generally, under section 340.6 the statute of limitations for legal malpractice actions commences on entry of adverse judgment or final order of dismissal. Laird v. Blacker (1992) 2 Cal. 4th 606, 615. Actual injury can also occur when the client suffers any loss or injury legally cognizable as damages in a legal malpractice action based on the asserted errors or omissions. Jordache Enterprises, Inc., 18 Cal. 4th at 743 (finding that the statute of limitations began when the client lost insurance benefits because the attorney failed to tender a timely claim to the insurance carrier).
In the Second Amended Complaint, the Plaintiffs claim that they suffered damages from the Defendant?s legal malpractice and breach of fiduciary duties because
1) the Defendant, Thomas Kent, withdrew funds from the Plaintiffs? client trust account without permission;
2) the Defendants failed to file motions in the bankruptcy proceedings, e.g., motion for revaluation of the Plaintiffs? home, motion to avoid lien, and motion to avoid lien and turnover of personal property;
3) the Defendants failed to contact financial institutions involved with the Plaintiffs? condominiums and home;
4) the Defendants provided legal services below the standard of care when they drafted the bankruptcy petition and failed to file a viable bankruptcy plan.
The Plaintiffs claim that the Defendant, Mark Markus, is liable for Thomas Kent?s conversion on the ground that Kent was an agent, partner or authorized representative of Marcus.(Second Amended Complaint (2C) para. 5, 13)
The Defendant provides evidence that the Plaintiffs knew that Thomas Kent had taken the funds in the client trust account no later than May 3, 2013 based on facts in text messages between the Plaintiffs and Thomas Kent. Copies of the text messages are in the document attached as exhibit X to Defendant?s Appendix of Evidence, in untabbed exhibit 1 to the document. Larger and easier to read copies of the text messages are in exhibit P in the reply papers. At a deposition on March 9, 2016, Gabriela Paul testified about the text messages sent on May 2, 2013 and May 3, 2013 (see deposition transcript in exhibit C to Defendant?s Appendix of Evidence.) In these text messages, the Plaintiffs asked ?What did you do with our money?? and Thomas Kent responded by first saying he would take care of it and then by asserting that it was his fault, stating that he was resigning as a lawyer, and that he had needed the money for a personal matter. These facts show that by May 3, 2013, the Plaintiffs had discovered facts constituting Thomas Kent?s wrongful act of taking their funds from a client trust account.
These facts address the Plaintiffs? claim that Thomas Kent engaged in legal malpractice. However, the Plaintiffs also allege in paragraphs 58 and 62 that the Defendant, Mark Markus, engaged in legal malpractice when he failed to file a viable bankruptcy plan and when he drafted the bankruptcy petition. The Defendant offers no facts in his Separate Statement of Facts to identify when the Plaintiffs discovered the facts constituting the Defendant?s wrongful act or omission with regards to the failure to file a viable bankruptcy plan or a defective bankruptcy petition.
Further, the Second Amended Complaint provides dates when the acts of malpractice and breaches of fiduciary duty took place between June 2012 and March, 2013. Other than the May 3, 2013 date of Plaintiff?s knowledge of Kent?s use of Plaintiff?s settlement funds, Defendant provides no evidence of when Plaintiff knew or should have known about the alleged malpractice. The Defendant argues that he did not provide any services after August 2012. This does not tend to prove that the Plaintiffs had discovered the alleged defects in the petition for bankruptcy that the Defendant had allegedly drafted or the Defendant?s failure to file a viable plan for reorganization.
As noted above, the Defendant has the burden of proof and must provide evidence identifying when the Plaintiffs discovered facts showing that the Defendant, Mark Markus, has engaged in wrongful conduct or omissions. The Defendant does not provide any facts that identify when the Plaintiffs discovered facts regarding Mark Markus? alleged wrongful conduct with regards to the claims about the drafting of the petition or the filing of a viable plan for reorganization.
Therefore, the Defendant has not met his burden of proof with regards to the affirmative defense of the statute of limitations because he has not demonstrated that the Plaintiffs had discovered facts identifying the Defendant?s wrongful conduct more than one year before they filed the pending action on May 7, 2014.
b. Element of Causation
The Defendant then argues that the Plaintiffs cannot establish the essential element of causation in their legal malpractice claim. In order to prevail on a legal malpractice claim, the Plaintiffs must show that but for the alleged malpractice, it is more likely than not that the Plaintiffs would have obtained a more favorable result. Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal. App. 4th 238, 248. The purpose of this requirement is to safeguard against speculative and conjectural claims and to ensure that damages awarded for the attorney?s malpractice actually have been caused by the malpractice. Id.
As noted above, the Plaintiffs allege that they suffered damages because 1) Thomas Kent withdrew funds from their client trust fund without permission and 2) the Defendants were negligent when they drafted the petition for bankruptcy, when they failed to file motions for revaluation or to avoid liens and turnover of assets, when they failed to contact financial institutions involved with the Plaintiffs? condominiums and home, and when they failed to file a viable bankruptcy plan.
The Defendant provides evidence in his own declaration and in the declaration of Thomas Kent that demonstrates that Thomas Kent withdrew funds from the Plaintiffs? client trust account and that the Defendant did not have access to the Plaintiffs? client trust account. Mark Markus also states in his declaration that he never received any funds from the Plaintiffs? client trust account and that he has never maintained any client trust account or bank account with Thomas Kent or the Law Offices of Thomas Kent. This evidence demonstrates that the Defendant, Mark Markus, did not cause the damages resulting from Thomas Kent?s withdrawal of funds.
The Defendant then provides evidence that he assisted Thomas Kent with some research and initial drafting of pleadings, but he did not file any documents on behalf of the Plaintiffs, he did not signed any documents submitted to the Court, and he did not appear at any Court hearing in the bankruptcy proceeding. This does not address each of the claims in the Second Amended Complaint, i.e., that the Defendant caused damages because he negligently drafted the pleadings, that the Defendant caused damages when he failed to file specific motions in the bankruptcy proceedings, e.g., motion for revaluation of the Plaintiffs? home, motion to avoid lien, and motion to avoid lien and turnover of personal property, that the Defendant caused damages when failed to contact financial institutions involved with the Plaintiffs? condominiums and home, and that the Defendant caused damages when he failed to file a viable bankruptcy plan, and that for purposes of Plaintiff?s Bankruptcy, Kent was offered to the Plaintiffs as the agent or partner of the Law offices of Mark J. Marcus .
For example, in paragraph 5 Plaintiff alleges that they made an appointment with Marcus to handle their bankruptcy and that at the meeting at Marcus? law offices, Kent represented that he was a partner of Marcus, who would still be involved in their bankruptcy. This remains a question of fact regarding Marcus? responsibility for the conduct of Kent. In Para 21 of the Second Amended Complaint, the Plaintiffs allege that Mark Markus failed to file necessary motions on their behalf and the resulting loss to the Plaintiff was $450,000. The Defendant?s pending motion for summary judgment does not address this allegation or offer evidence to show that he did not cause this loss.
In paragraph 25 of the Second Amended Complaint, the Plaintiffs allege that they visited Mark Markus? offices on October 27, 2012 and learned that the Defendant had failed or refused to contact financial institutions holding the mortgages on the Plaintiffs? properties, which were needed to obtain stipulations from the banks regarding the Plaintiffs? proposed plan of reorganization. Further, the Plaintiffs allege in paragraph 25 that after the properties were ?repossessed?, the Defendants stated that they would file the necessary documents to reverse the process. The Defendant?s pending motion for summary judgment does not address this claim or offer evidence to show that he did not cause this loss.
In paragraph 30 of the Second Amended Complaint, the Plaintiffs allege that Mark Markus did not attend a hearing on June 7, 2012 to protect the Plaintiffs? exempt settlement. The Defendant?s pending motion for summary judgment does not address this claim or offer evidence to show that he did not cause this loss.
Instead, the Defendant argues that the Plaintiff cannot establish that the Defendant caused the reclassification of their bankruptcy proceeding from a reorganization under Chapter 11 into a liquidation under Chapter 7. The Defendant?s theory is that the Plaintiffs did not qualify for a bankruptcy under chapter 11 and that this lack of qualifications, as opposed to his alleged negligence, was the cause of the reclassification from chapter 11 to chapter 7.
The Defendant argues that it is ?clear? that the Plaintiffs could not have satisfied the requirements of a reorganization under Chapter 11. This argument is not persuasive because the Defendant does not identify the requirements or facts to demonstrate that the lack of qualifications is ?clear? or why he drafted the Petition under Chapter 11 if it was so clear. The Defendant did not cite to any authority regarding the requirements necessary to qualify for chapter 11 reorganization. The Defendant did not direct the Court to the material facts demonstrating that the Plaintiffs did not meet the identified requirements.
Instead, the Defendant offers arguments that the Plaintiffs had insufficient income to pay off their debts and that at least one creditor, Bank of America, refused to agree to the Plaintiffs? request for a reduction in interest rates. It is unknown whether these are the only requirements for a chapter 11 reorganization because, as noted above, the Defendant failed to identify any requirements. Further, the Defendant failed to provide evidence that identifies the Plaintiffs? debts and their income to demonstrate that the Plaintiffs could not pay off their debts. Accordingly, it cannot be determined from the Defendant?s arguments or evidence that the Plaintiffs did not qualify for a chapter 11 reorganization and that the Defendant?s alleged negligence was not the cause of the reclassification.
Therefore, the Defendant has not met his burden of proof with regards to demonstrating that the essential element of causation cannot be established in the Plaintiffs? causes of action.
Therefore, the Court denies the Defendant?s motion for summary judgment because the Defendant did not meet his burden of proof under CCP section 437c by establishing that his affirmative defense of the statute of limitations bars all of the Plaintiffs? claims or that the Plaintiffs cannot establish the essential element of causation in their claims.
2. Motion to Consolidate of Plaintiffs, Gabriela Paul and James Seely
The Plaintiffs request that the Court consolidate their Complaint against the Defendant, Mark Markus, in EC065242, with the pending case. CCP section 1048(a) permits the Court to consolidate actions pending before the Court when the actions involve a common question of law or fact. Ordinarily, consolidated actions may be determined by a single set of findings and a single judgment, i.e., the allegations of the various complaints may be taken together and treated as one pleading and for the purposes of all further proceedings, the cases are to be treated as if the causes had been united originally. Stubblefield Construction Co. v. City of San Bernardino (1995) 32 Cal. App. 4th 687, 701. Consolidation may also be ordered for the purpose of trial of related issues. Id. This permits the evidence presented in one case to be deemed applicable in the other case, but separate findings and judgments must be made in each case in disposition of the particular issues as independently submitted. Id.
In this case, EC062483, the Plaintiffs claim that the Defendants caused them damages because Thomas Kent used the Plaintiffs? money for his own purposes and because the Defendants failed to provide adequate litigation services in the bankruptcy that would preserve their assets.
On May 9, 2016, the Plaintiffs commenced the second action in EC065242. This was soon after the Defendant had filed the pending motion for summary judgment in EC062483 on April 1, 2016. In the Complaint in EC065242, the Plaintiffs claim that Mark Markus entered into a contract to represent the Plaintiffs in their bankruptcy proceedings and the Plaintiffs claim that they suffered damages because the Defendant did not provide adequate litigation services in the bankruptcy proceeding that would preserve their assets. The Plaintiffs also allege that Mark Markus conspired with Thomas Kent to convert their money.
A comparison of the pleadings in EC062483 and EC065242 reveal that they are based on the same transaction, i.e., the Defendant?s legal services provided to the Plaintiffs in their bankruptcy proceeding. Further, both cases involve claims directed at the same Defendant, Mark Markus. The cases involve common questions of law and fact regarding the professional services provided by Mark Markus to the Plaintiffs with regards to their bankruptcy proceeding.
However, the trial in the pending action is September 6, 2016. There is no trial date in EC065242. The Plaintiffs? attorney, Gabor Szabo admits that she has not served the Complaint in EC065242. If the Court were to consolidate EC065242 with this case, it would cause a delay in the trial.
Further, Ms. Szabo provides facts showing that the Complaint in EC065242 was filed as an alternative to filing a request for leave to amend the pleadings in EC062483. Ms. Szabo states in paragraph 5 her declaration that she considered filing a motion for leave to amend the complaint in EC062483, but that she filed a separate action against the same Defendants to plead different theories of liability because this Court was dark. This statement indicates that Ms. Szabo decided not seek leave of Court to amend the Complaint in the pending action and instead, to commence a separate action against the Defendants and then request consolidation of the two actions. This identifies the intent to circumvent rules of civil procedure regarding the need to obtain leave to amend a pleading, to split improperly the Plaintiffs? claims among two actions, and to disrupt the calendars of the Court and the Defendants and increase litigation costs by attempting to consolidate a new pleading into this action.
In EC065242, the Defendants filed a motion for sanctions under CCP section 128.7, which is set for this date. As discussed in the analysis of the Defendants? motion for sanctions, the Court will stay the proceedings in EC065242 because they violate the primary rights theory and the Complaint in EC065242 was an improper attempt to split the Plaintiffs? cause of action between two actions. When the claims in EC062483 are resolved, then any adjudication of issues can be used for purposes of res judicata in EC065242. In light of that recommendation, the Court denies the Plaintiffs? motion to consolidate the two actions.
Further, if the Plaintiffs desire to add causes of action against the Defendant to the Second Amended Complaint in the pending case, EC062483, then the Plaintiffs must follow the rules of Civil Procedure and file a motion for leave to amend their pleadings.