Opinion
G054238
08-15-2018
CARLOS BRAIN, Plaintiff and Appellant, v. EMILIO LAW GROUP, APC, et al., Defendants and Respondents.
The Law Offices of Edward P. Kerns and Edward P. Kerns for Plaintiff and Appellant. Justin G. Schmidt, Daniel G. Emilio, Laurie M. Cortez, in pro. per.; and Emilio Law Group for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00841283) OPINION Appeal from a judgment of the Superior Court of Orange County, Deborah C. Servino, Judge. Affirmed. The Law Offices of Edward P. Kerns and Edward P. Kerns for Plaintiff and Appellant. Justin G. Schmidt, Daniel G. Emilio, Laurie M. Cortez, in pro. per.; and Emilio Law Group for Defendants and Respondents.
* * *
Plaintiff Carlos Brain, a minority shareholder in two limited liability companies, brought a lawsuit for the involuntary dissolution and winding up of the companies. The majority shareholders and the companies were jointly represented in the corporate dissolution action by defendants Emilio Law Group, APC, Justin G. Schmidt, Daniel G. Emilio, and Laurie M. Cortez (collectively, Emilio). While the dissolution action was still pending, Brain brought the present shareholder derivative action on behalf of the companies against Emilio, alleging in the operative second amended complaint (SAC) causes of action for conversion, claim and delivery, two counts of breach of contract, and professional negligence. The court sustained Emilio's demurrer to the SAC without leave to amend and granted Emilio's motion to strike the claim and delivery cause of action. Brain appeals from the judgment entered after the demurrer was sustained.
In its summary of the ruling, the court also sustained the demurrer to this cause of action, but also stated it was moot. This may have resulted in some confusion as to form, but not as to substance. The court made clear in its subsequent analysis that it was treating the demurrer to the claim and delivery cause of action as moot because it did not engage in further analysis of that issue.
Brain raises several issues on appeal. His principal contention is that the court erred in applying McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378 (McDermott) to sustain the demurrer. McDermott held that the attorney-client privilege bars shareholders from proceeding with a derivative action against a corporation's outside counsel. According to Brain, the present case did not require consideration of privileged communications and, in any event, the attorney-client privilege was waived and the crime-fraud exception applied. Second, Brain contends he properly alleged a cause of action for conversion. Third, the court should have allowed him to amend the SAC to allege a cause of action for claim and delivery instead of striking that cause of action. And fourth, he contends the court erred in granting Emilio's request for judicial notice. We reject these contentions and affirm the judgment.
FACTS
We take the facts from the SAC, earlier complaints, their exhibits, and matters judicially noticed. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank); McBride v. Smith (2018) 18 Cal.App.5th 1160, 1173 (McBride).)
This is the latest in a series of lawsuits arising out of Brain's effort to force the involuntary dissolution of JohnRe Care, LLC and JohnRe Management LLC (collectively the LLCs). Brain owned 25 percent of the shares in the LLCs, while husband and wife Johnny Sicat and Rebecca Sicat (the Sicats) jointly owned 75 percent. In 2014, Brain filed a lawsuit in Riverside Superior Court, for the involuntary dissolution and winding up of the LLCs (dissolution action). Pursuant to a written retainer agreement, Emilio answered the complaint on behalf of the LLCs and gave notice that the Sicats had elected to purchase Brain's interest under Corporations Code section 17707.03, subdivision (c).
The value of Brain's interest was appraised (JohnRe Care, LLC v. Sicat (Dec. 11, 2017, E065191) [nonpub. opn.]) and the LLCs moved to have the valuation approved and to buy Brain's shares. Before that could be done, Brain filed a dismissal of the dissolution action. The LLCs objected to the request for dismissal and moved the court to appoint appraisers to ascertain the fair market value of Brain's minority shares. The LLCs also filed several other motions and opposition to motions in the dissolution action. Allegedly, Emilio filed all of these documents "by and on behalf" of the LLCs, although they were "for the sole and personal benefit of" the Sicats. "[O]n February 3, 2017, judgment was entered in [the dissolution action]. Brain filed a notice of appeal in that case on April 4, 2017 (case No. E068045). That appeal remains pending." (JohnRe Care, LLC v. Sicatt, supra, E065191.)
Appeal No. E065191 is the related appeal from the granting of an anti-SLAPP motion filed by Emilio on behalf of the Sicats in Brain's derivative action against the Sicats (Riv. Super. Ct. case No. RIC1509818). After briefing in the present case was completed, Division Two of the Fourth District Court of Appeal reversed the court's ruling. (Johnre Care v. Sicat, supra, E065191.) Emilio requests that we take judicial notice of appeal No. E065191, the related appeals in case Nos. E065892, E067367, and E068045, and the California State Bar case against Brain's attorney. We deny Emilio's request for judicial notice of the State Bar case and appeal Nos. E065892, E067367, and E068045, as they are not relevant to our determination of the issues in this appeal. We grant the request for judicial notice of appeal No. E065191 despite Emilio's failure to comply with the California Rules of Court regarding judicial notice, which require a separate motion (Cal. Rules of Court, rule 8.252(a)(1)), as it provides factual background relevant to this case. (Pacific Gas and Electric Co. v. City and County of San Francisco (2012) 206 Cal.App.4th 897, 907, fn. 10 [appellate courts may appropriately cite an unpublished "decision to explain the factual background of the case"].)
In March 2016, Brain filed the current derivative action in the Superior Court of Orange County on behalf of the LLCs against Emilio. The initial complaint asserted causes of action for breach of fiduciary duty, breach of contract, and professional negligence, alleging that by jointly representing the LLCs and the Sicats, Emilio breached its contract with, and its fiduciary duty owed to, the LLCs, and committed legal malpractice.
Following a demurrer by the LLCs, Brain filed a first amended complaint (FAC), alleging three causes of action for conversion, two causes of action for breach of contract, and a cause of action for professional negligence. The court sustained the LLCs' demurrer and granted Brain leave to amend.
Earlier that month, the court had denied Brain's motions to disqualify Emilio, to disgorge fees and costs paid by the LLCs, and to close the case or alternatively stay all proceedings.
Brain served and filed his SAC, asserting five causes of action: (1) conversion; (2) claim and delivery; (3) breach of contract — count 1; (4) breach of contract — count 2; and (5) professional negligence. The SAC alleges Emilio prepared and filed various pleadings, and performed additional tasks and services, on behalf of the LLCs and accepted payment from them despite knowing these services were for the Sicats' personal benefit. In doing so, Emilio allegedly took the LLCs' money without authorization and converted it to its own use (conversion); wrongfully took possession of the money without consent (claim and delivery); breached the written retainer agreement between Emilio and the LLCs by representing the Sicats in their individual capacities and converting the LLCs' money to pay itself for services performed solely for the Sicats' benefit (breach of contract — count 1); breached its fiduciary duty and duty of loyalty to the LLCs by filing a special motion to strike the complaint in the derivative action against the Sicats, which sought to prevent the LLCs from pursuing claims against the Sicats (breach of contract — count 2; see fn. 2, ante); and failed to exercise reasonable care and skill by undertaking the above actions (professional negligence).
Emilio demurred, and moved to strike portions of the SAC. As relevant here, Emilio moved to strike the second cause of action for claim and delivery on the ground Brain had not sought leave of court to add it. In its demurrer, Emilio argued (1) under McDermott, shareholders may not bring a derivative action against the corporation's outside counsel; (2) the litigation privilege barred Brain's claims; and (3) each cause of action failed to state facts sufficient to state a cause of action. In connection with the demurrer, Emilio requested judicial notice of the complaint and answer in the dissolution case, as well as the complaint, anti-SLAPP motion, and notice of ruling in Riverside Superior Court case No. RIC1509818 (see fn. 2, ante).
The court issued a tentative ruling but Brain did not appear at the hearing. The court granted the motion to strike the cause of action for claim and delivery but denied it in all other respects. It sustained the demurrers to the remaining causes without leave to amend. The court found the cause of action for conversion failed to state sufficient facts to constitute a cause of action because the necessary element that property was taken without the owner's consent was belied by allegations in the SAC that Emilio's "accepted" payment from the LLCs, which implied the payments were offered and authorized. The court also found Emilio was not the proper defendant on the conversion cause of action because an allegation that payments were unauthorized is different from allegations that management should not have authorized them. As to the two counts for breach of contract and the one for professional negligence, the court found Brain had not stated sufficient facts to state a cause of action despite having had ample opportunity to amend his pleadings. The court further found they were barred by the McDermott rationale in that Emilio's "communications with their clients, the LLCs, would be highly material to their defenses."
DISCUSSION
Standard of Review
"'A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the superior court's ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. [Citations.] We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken. [Citations.]' [Citation.] 'Because only factual allegations are considered on demurrer, we must disregard any "contentions, deductions or conclusions of fact or law alleged [in the complaint]." [Citations]' [Citation.]
"'We liberally construe the pleading with a view to substantial justice between the parties [citations]; but, "[u]nder the doctrine of truthful pleading, the courts 'will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed.'" [Citations.]' [Citation.] 'If the allegations in the complaint conflict with the facts included in exhibits attached to or referenced in the complaint, "we rely on and accept as true the contents of the exhibits. However, in doing so, if the exhibits are ambiguous and can be construed in the manner suggested by plaintiff, then we must accept the construction offered by plaintiff." [Citations.]' [Citation.]
"'Further, because the demurrer at issue is to an amended complaint, we may properly consider allegations asserted in the prior complaints: "'[A] plaintiff may not discard factual allegations of a prior complaint, or avoid them by contradictory averments, in a superseding, amended pleading.'"'" (McBride, supra, 18 Cal.App.5th at pp. 1172-1173.)
Failure to Designate a Reporter's Transcript Forfeits Certain Claims
As a preliminary matter, Emilio contends we should refuse to reach the merits of Brain's arguments on appeal because he failed to designate a reporter's transcript. Our determination of most of the issues raised in this appeal do not require consideration of the oral proceedings in the trial court because we review de novo an appeal from a judgment after an order sustaining a demurrer. Denial of leave to amend, however, is reviewed for an abuse of discretion (Los Angeles Memorial Coliseum Com. v. Insomniac, Inc. (2015) 233 Cal.App.4th 803, 819) and a plaintiff forfeits a challenge to the denial of leave to amend by failing to provide a record of the oral proceedings at the demurrer hearing (McAllister v. Los Angeles Unified School Dist. (2013) 216 Cal.App.4th 1198, 1210-1211 (McAllister)). Accordingly, by failing to provide an adequate record of the oral proceedings at the demurrer hearing, Brain has forfeited any claim that he should be granted leave to amend. We also do not consider references to statements purportedly made by the court during oral argument, or matters asserted without citation to the record.
There is No Record of the Court Improperly Considering Matters Outside of the Pleading
Turning to Brain's contentions, we first address his argument that the court improperly took judicial notice of matters outside of the pleadings. He complains that "the Court allowed the Respondents to present a demurrer in the form of an evidentiary pleading much like a motion for summary judgment including declarations and arguments of ultimate findings of fact." It is true that the Emilio's demurrer attached two declarations. The first declaration, by defendant Justin Schmidt, related counsel's efforts to meet and confer on the substance of the demurrer, and attached copies of the documents for which judicial notice had been requested. The second declaration, by defendant Laurie Cortez, contained improper evidentiary material. But the record does not support Brain's argument, because there is no indication in the record that the court considered any of this material. The minute order sustaining the demurrer is silent regarding the request for judicial notice, and makes no reference to matters outside the allegations of the SAC.
The court had earlier taken judicial notice of the same documents in ruling on the demurrer to the FAC. To the extent the court had implicitly relied on these same documents in ruling on the demurrer to the SAC, no error has been shown. We evaluate the court's grant of judicial notice for abuse of discretion. (See Evans v. California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549.)
A court may take judicial notice of any court record. (See Evid. Code, § 452, subd. (d).) This includes the fact "that pleadings were filed containing certain allegations and arguments" (Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1055) and "any orders, findings of facts and conclusions of law, and judgments within court records. [Citations.] However, while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files." (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882.)
Emilio requested judicial notice of the complaint and answer in the dissolution action, as well as the complaint, the anti-SLAPP motion, and the notice of ruling in the Brain's derivative action against the Sicatts. Under the above authorities, these were all matters of which judicial notice may properly be taken. Error must be affirmatively shown. Thus, even if the court implicitly took judicial notice of this material, there is simply no record that judicial notice was taken for an improper purpose.
McDermott Bars the Claims for Breach of Contract and Professional Negligence
Brain contends that the rationale of McDermott, supra, 83 Cal.App.4th 378, does not apply to bar his claims against Emilio. It is curious that Brain devotes so much of his opening brief to his argument that McDermott is inapt. The court's ruling on the demurrer mentioned McDermott only in passing. After conducting a straightforward analysis of the SAC to determine whether the alleged facts constituted a cause of action, the court made only a passing reference to its ruling on an earlier demurrer, saying, "Finally, as this court ruled in the previous demurrer, these causes of action[] [breach of contract and professional negligence] also are barred by McDermott . . . . The Defendants' confidential communications with their clients, the LLCs, would be highly material to their defenses."
In his opening brief on appeal, Brain does not respond to the court's principal analysis — namely, that the facts alleged in the SAC do not state a cause of action. Thus, Brain has waived any argument that the alleged facts sufficiently stated a cause of action. "[B]ecause it is not a reviewing court's role to construct theories or arguments which would undermine the judgment [citation], we consider only those theories advanced in the appellant's briefs." (Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 564.) The only theory advanced in Brain's briefing is the asserted inapplicability of the McDermott rationale. We could easily affirm the judgment on the breach of contract and professional negligence claims based solely on Brain's failure to brief the principal ground for the court's ruling. We nevertheless will exercise our discretion to discuss McDermott in view of the extensive briefing on this issue by both parties.
In McDermott, the Court of Appeal held that absent a waiver of the attorney-client privilege by the corporation, a shareholder's derivative action against the corporation's outside counsel for legal malpractice could not proceed because counsel would be effectively foreclosed from mounting any meaningful defense. (McDermott, supra, 83 Cal.App.4th at p. 381.) The court explained that while shareholders "'stand in the shoes'" of the corporation for most purposes, "the one notable exception is with respect to the attorney-client privilege." (Id. at p. 383.) Thus, although filing a legal malpractice action normally results in a waiver of the privilege, the derivative action does not; only the corporation itself can waive the privilege. (Id. at pp. 383-384.) This is because "[i]t is the corporation, and not the shareholder, who is the holder of the privilege" and shareholders do not "obtain the right to waive the privilege simply by virtue of filing [a derivative malpractice] action on the corporation's behalf." (Id. at p. 383) The McDermott court concluded that to permit the lawsuit to proceed would unfairly deprive the defendant attorney of the ability to present a viable defense: "We simply cannot conceive how an attorney is to mount a defense in a shareholder derivative action alleging a breach of duty to the corporate client, where, by the very nature of such an action, the attorney is foreclosed, in the absence of any waiver by the corporation, from disclosing the very communications which are alleged to constitute a breach of that duty." (Id. at p. 385; see Solin v. O'Melveny & Myers (2001) 89 Cal.App.4th 451, 467 ["because this [professional malpractice] lawsuit 'is incapable of complete resolution without breaching the attorney-client privilege, the suit may not proceed'"].)
Brain argues the McDermott rationale does not apply because the causes of action alleged do not involve privileged communications. He asserts Reilly v. Greenwald & Hoffman, LLP (2011) 196 Cal.App.4th 891 (Reilly)) "is consistent with this distinction." Under facts substantially similar to this case, however, Reilly shows why this case does involve privileged communications.
As here, Reilly arose out of the dissolution of a corporation (BRI). The minority shareholder (Reilly) brought a shareholder derivative action against BRI, the majority shareholder (Brion), and the corporation's outside counsel (Greenwald). As against Greenwald, Reilly asserted causes of action for constructive fraud, negligent misrepresentation, legal malpractice, and breach of contract (the written agreement with BRI for legal services). (Id. at pp. 897-898.) Among other things, the complaint alleged "Greenwald 'counseled and advised BRI that defendants Brion and BDI were entitled to appropriate such assets of BRI to their own use without any duty . . . to distribute to plaintiff his proportionate share of such assets,'" "Greenwald breached the standard of care owed BRI, and violated rules of professional conduct, by facilitating Brion's misconduct" (id. at p. 897), and "Greenwald's conduct was a breach of his written agreement with BRI for legal services" (id. at p. 898).
Greenwald demurred to the complaint on the basis it was barred as to him under McDermott "because BRI has not waived the attorney-client privilege covering communications between him and Brion during his representation of BRI, and thus he cannot mount any meaningful defense." (Reilly, supra, 196 Cal.App.4th at p. 898.) The trial court agreed and sustained the demurrer without leave to amend and entered a judgment of dismissal. (Id. at p. 896.)
In affirming the judgment, the Reilly court stated: "To dismiss a case at the pleading stage, a court must determine whether (1) the evidence at issue is the client's confidential information, and the client insists that it remain confidential; (2) given the nature of plaintiff's claim the confidential information is highly material to the defendants' defenses; (3) there are 'ad hoc' measures available to avoid dismissal such as '"sealing and protective orders, limited admissibility of evidence, orders restricting the use of testimony in successive proceedings, and, where appropriate, in camera proceedings"'; and (4) it would be fundamentally unfair to proceed." (Reilly, supra, 196 Cal.App.4th at p. 904.)
Here, Brain focuses solely on the second factor. He notes that the McDermott court held dismissal was proper in that case because the very nature of the plaintiff's claim required the defendant to disclose privileged or confidential information such that a meaningful defense could be presented. (McDermott, supra, 83 Cal.App.4th at p. 383.) Brain claims, "[u]nlike McDermott, and consistent with [Reilly], there is no claim in the [SAC] that "'by its very nature, necessitated that the defendant discloses [sic] privileged or confidential information in order to present a meaningful defense.'" Brain misapprehends the Reilly court's decision.
The Reilly court concluded the situation before it was the same as that in McDermott. "The complaint alleges Greenwald's negligence and tortious conduct facilitated Brion's conversion of BRI's assets to her own use. Obviously, his confidential communications with her are highly material to his defenses. Further, the complaint does not allege any waiver by BRI, and thus the client insists on confidentiality. Under the circumstances, it would be fundamentally unfair to proceed against Greenwald." (Reilly, supra, 196 Cal.App.4th at p. 904.)
In this case, the SAC essentially makes the same allegations, namely that Emilio's tortious conduct facilitated the Sicats' conversion of LLCs' assets to pay their personal legal fees. (Reilly, supra, 196 Cal.App.4th at p. 904.) Among other things, Brain asserts, "Nothing should ever have been filed by Emilio on behalf of the LLCs, other than the answer, as every other service Emilio performed was for the exclusive pursuit of the rights of the Sicats. Emilio's entire bill should only have been directed to the Sicats and should only have been paid by the Sicats." As in Reilly, therefore, Emilio's conversations with the Sicats, including its opinions on the proper course of action and how those actions would benefit the LLCs as opposed to the Sicats or vice versa, "are highly material to his defenses." (Ibid.)
Resolution of the allegations in the SAC would also require an examination of the retainer agreement between Emilio and the LLCs to determine the scope of Emilio's representation. "[A] written fee contract between an attorney and a client" is "subject to the duty of confidentiality and the attorney-client privilege." (Dietz v. Meisenheimer & Herron (2009) 177 Cal.App.4th 771, 786; Bus. & Prof.Code, § 6149 ["A written fee contract shall be deemed to be a confidential communication within the meaning of subdivision (e) of Section 6068 and of Section 952 of the Evidence Code"].) Review of the billing statements issued by Emilio would also be required to establish what actions it took and who paid for the services. But those too are protected by the attorney-client privilege. (Los Angeles County Bd. of Supervisors v. Superior Court (2016) 2 Cal.5th 282, 297 ["billing information" that "inform[s] the client of the nature or amount of work occurring in connection with a pending legal issue" "lies in the heartland of the attorney-client privilege"]; see Evid. Code, §§ 952-954.)
Brain maintains the only issues that must be resolved are "whose rights were being pursued by virtue of the services provided by" Emilio and "whether or not the money taken by [Emilio] came from the LLCs or came from the Sicats," neither of which "requires the introduction of evidence of a privileged communication."
According to Brain, first "it must be determined whose rights were being pursued by virtue of the services provided by the defendants. If the services provided only pursued the rights that were personal to the majority members of the LLCs, then none of the services were provided for the LLCs. The LLCs were therefore not responsible for payment." Brain's argument is premised on the flawed presumption that the interests of the LLCs and the Sicats are necessarily adverse, and that the LLCs had no interest in preserving their own existence against Brain's effort to dissolve them. Our opinion in Coldren v. Hart, King & Coldren, Inc. (2015) 239 Cal.App.4th 237 (Coldren), explains why the interests are not adverse.
In Coldren, a 50 percent shareholder of a corporation (Coldren) sued his law firm (HKC) and the continuing partner (Hart) for involuntary dissolution, breach of contract, and conversion, among other things. One law firm (Grant) represented both HKC and Hart. The trial court granted Coldren's motion to disqualify Grant. (Coldren, supra, 230 Cal.App.4th at pp. 240, 242.) We reversed in part on the ground Coldren lacked standing to disqualify Grant. (Id. at pp. 245-248, 252.) As relevant here, we rejected Coldren's attempt to analogize his action to a derivative cause of action because, among other things, "absent a factual scenario suggesting a conflict exists, an involuntary dissolution action does not necessarily pit the corporation against the defendant owner in the manner of a derivative action. To the extent HKC has any interest at all in the outcome of the dissolution action, its interest is in its continued existence. If Hart also wants HKC to continue, then there is no conflict. Illustrating this point, Corporations Code section 2000, subdivision (a), permits HKC to elect to buy out Coldren's shares and specifically provides that this election 'may be made by the approval of the outstanding shares [(i.e. Hart)] [citation] excluding shares held by the moving parties [(i.e. Coldren)].' [Citation.] In other words, at that stage, Coldren's interests are irrelevant and HKC's interests are whatever Hart chooses to do—there can be no conflict. And that is precisely the stage this lawsuit is in. If, on the other hand, Hart does not want HKC to continue by declining the purchase of Coldren's shares at the appraised price under Corporations Code section 2000, then the shareholders unanimously agree HKC should be dissolved and HKC's interests fall by the wayside. Thus, a dissolution cause of action does not, by its nature, create the sort of conflict a derivative action creates." (Id. at p. 247, first set of italics added, fn. omitted.)
Although the Coldren case concerned a motion to disqualify counsel, it is nevertheless instructive in addressing Brain's contentions. To the extent the LLCs had any interest in the outcome of the dissolution action, it was in their continued existence. The Sicats also wanted the LLCs to continue and elected to buy Brain's membership interest in the LLCs pursuant to Corporations Code section 17707.03, subdivision (c). It follows that the services provided by Emilio to pursue the LLCs' continued existence were not "personal to the" Sicats, as Brain claims, but instead were provided for the joint interest of the Sicats and the LLCs.
Contrary to Brain's contention, his purported dismissal of the dissolution action does not mean the interests of the LLCs and the Sicats were no longer aligned after that. Rather, their joint interest remained the same—to buy out Brain's interests in the LLCs. To this end, Corporations Code section 17707.03, subdivision (c)(6) "permits the corporate buyout remedy to proceed even when a plaintiff seeking dissolution of a limited liability company dismisses his or her cause of action." "'[O]nce the buyout procedure is commenced, the moving party cannot, by dismissing the judicial dissolution action, prevent the buyout procedure from going forward. The purchasing party has the right to pursue the buyout procedure by compelling a sale (if the valuation is favorable) or walking away (if it is not).'" (Kennedy v. Kennedy (2015) 235 Cal.App.4th 1474, 1487.) Thus, Emilio's actions after the purported dismissal, including seeking relief from the dismissal and moving the court to appoint appraisers to determine the fair market value of Brain's minority shares, were taken in pursuit of the joint interest of the LLCs and the Sicats to obtain the buyout.
Corporations Code section 17707.03, subdivision (c)(6) reads, "A dismissal of any suit for judicial dissolution by a manager, member, or members shall not affect the other members' rights to avoid dissolution pursuant to this section."
Accordingly, we reject Brain's argument that McDermott does not apply because this action is not based on Emilio's representation of the LLCs but "upon the fact that Defendants were paid by the LLCs for work performed for someone OTHER than the LLCs." Emilio's work was done for the joint interest of the Sicats and the LLCs.
The Attorney-client Privilege Was Not Waived
In a further effort to avoid the McDermott rationale, Brain contends he alleged the attorney-client privilege had been waived because an "attorney cannot have privileged communications with a Manager about a lawsuit involving the LLC and then have the same communication with a non-manager member about the same matters." According to Brain, the SAC alleges Rebecca Sicat "is a only a member." But in the derivative action against the Sicats, the complaint, attached as an exhibit to Emilio's request for judicial notice in the trial court, alleged that both Johnny Sicat and Rebecca Sicat were members and sole managers of the LLC. Brain cannot avoid that allegation now by alleging in the SAC that "Rebecca Sicat was not a manager of" the LLCs. "'If the allegations in the complaint conflict with the facts included in exhibits attached to or referenced in the complaint, "we rely on and accept as true the contents of the exhibits."'" (McBride, supra, 18 Cal.App.5th at p. 1173.)
Moreover, under Evidence Code section 952, communications between attorney and client remain confidential so long as the information is disclosed "to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship." (Italics added.) On its face, the pleading shows the applicability of the statute, where the alleged communications were made to further the interest of the client, the LLCs, and not disclosed to anyone "other than those who are present to further the interest of the client," the Sicats, in the consultation with Emilio.
The Crime-fraud Exception Does Not Apply
Brain also seeks to avoid the McDermott rationale by claiming the statutorily created crime-fraud exception to the attorney-client privilege. In rejecting his contention, we first note Brain's failure to present this argument under a separate heading as required by California Rules of Court, rule 8.204(a)(1)(B). "Failure to provide proper headings forfeits issues that may be discussed in the brief but are not clearly identified by a heading." (Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, 179.)
Brain's contention also fails on its merits. Evidence Code section 956 declares, "[t]here is no privilege . . . if the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit a crime or a fraud." (Id., subd. (a).) But since this exception is intended to preclude a client from abusing the privilege, it applies "'only when a client seeks or obtains legal assistance "to enable or aid" one to commit a crime or fraud.'" (People v. Clark (1990) 50 Cal.3d 583, 623; see BP Alaska Exploration, Inc. v. Superior Court (1988) 199 Cal.App.3d 1240, 1249; Glade v. Superior Court (1978) 76 Cal.App.3d 738, 746.) Here, Brain argues the LLCs, the clients, were the ones from which money was improperly taken — the LLCs are alleged to be victims, not clients. Thus, Evidence Code section 956 does not apply in this case.
Brain Failed to State a Cause of Action for Conversion
Brain contends he properly stated a cause of action for conversion. Neither the court, nor the parties on appeal specifically address whether the McDermott rationale applies to the cause of action for conversion. But it does not matter, since Brain failed to state a cause of action for conversion and does not request leave to amend on appeal.
"'"'Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages.'"'" (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.) Implied consent is an absolute defense to conversion claims. (Klett v. Security Acceptance Co. (1952) 38 Cal.2d 770, 789; Wade v. Southwest Bank (1962) 211 Cal.App.2d 392, 406.) "The law is well settled that there can be no conversion where an owner either expressly or impliedly assents to or ratifies the taking, use or disposition of his property." (Farrington v. A. Teichert & Son, Inc. (1943) 59 Cal.App.2d 468, 474 [holding that plaintiff did not have a viable cause of action for conversion because he had consented to the removal of the material from his property]; see Reno v. A.L. Boyden Co. (1931) 115 Cal.App. 697, 701 [no conversion where the defendant "sold [honey] with plaintiff's consent"]; CACI No. 2100 [including lack of consent as element of plaintiff's case of conversion].)
Here, Brain takes issue with the court's determination that "[a]lthough Plaintiff has alleged that the LLCs did not authorize or approve the payments to the Firm, this general allegation is belied by the specific allegations that the Firm accepted the payments, which necessarily implies that the payments were offered. Further, it can be reasonably inferred that the payments were authorized by the management of the LLCs, i.e., Johnny, although Plaintiff contends it was improper for Johnny to authorize the payments." Brain contends the conversion cause of action alleges Emilio "took possession" of money from the LLCs "without [their] authorization and approval and converted [it] for [its] own use," not that Emilio "accepted" it. The contention lacks merit.
Brain omits the fact the SAC also contains specific allegations that Emilio billed for and "accepted payment" from the LLCs. The FAC also alleges, in the cause of action for conspiracy, that Emilio "accepted payment from the" LLCs. In California, "specific allegations in a complaint control over an inconsistent general allegation." (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1236.) Additionally, "[u]nder the sham pleading doctrine, plaintiffs are precluded from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers . . . ." (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425.) "If a party files an amended complaint and attempts to avoid the defects of the original complaint by either omitting facts which made the previous complaint defective or by adding facts inconsistent with those of previous pleadings, the court may take judicial notice of prior pleadings and may disregard any inconsistent allegations." (Colapinto v. County of Riverside (1991) 230 Cal.App.3d 147, 151.) Here, the specific allegation that Emilio accepted payment from the LLCs controls over the general and inconsistent allegation that it took possession of money. Thus, we agree with the trial court that the alleged fact Emilio accepted payments implies the LLCs had authorized and offered such payments.
Brain also raises a new issue for the first time in his opening brief. He argues that under Corporations Code section 310, interested managers, officers, and directors cannot vote to approve a contract which benefits their own interests. But Brain's "failure to raise the issue below precludes him from raising it now." (Schellinger Brothers v. Cotter (2016) 2 Cal.App.5th 984, 996.)
The Court Did Not Err in Implicitly Denying Leave to Amend to Add a Cause of Action
Lastly, Brain argues the court should have granted him leave to add a new cause of action for claim and delivery to the SAC. He does not otherwise request leave to amend. The court granted in part Emilio's motion to strike by striking Brain's attempt to add the claim and delivery cause of action to the SAC.
First, "claim and delivery" is a provisional remedy invoked before trial and judgment in an action for specific recovery of property. (See 6 Witkin, Cal. Procedure (5th ed. 2008) Provisional Remedies, § 245.) It is not an independent cause of action. But even if the provisional remedy could be paired with another cause of action, the law is that "[f]ollowing an order sustaining a demurrer or a motion for judgment on the pleadings with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court's order." (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) Under these circumstances, "such granting of leave to amend must be construed as permission to the pleader to amend the cause of action which he pleaded in the pleading to which the demurrer has been sustained." (People ex rel. Dept. of Pub. Wks. v. Clausen (1967) 248 Cal.App.2d 770, 785.) A "plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend." (Harris, at p. 1023.) An amended complaint that exceeds the scope of an order granting leave to amend may be stricken by a trial court in its own discretion or upon a motion to strike by the opposing party. (Code Civ. Proc., §§ 435, 436.)
To obtain leave of court to add new causes of action, a noticed motion is generally required. (Code Civ. Proc., § 473, subd. (a)(1).) A motion for leave to amend must be supported by a declaration specifying the effect of the amendment, why the amendment is necessary and proper, when the facts giving rise to the amended allegations were discovered, and reasons why the request for amendment was not made earlier. (Cal. Rules of Court, rule 3.1324 (rule 3.1324).)
Here, Brain did not file a noticed motion. He merely requested permission to add the claim and delivery cause of action in his opposition to Emilio's motion to strike. In doing so, Brain did not provide any of the information required by rule 3.1324. Nor does he do so on appeal. As in his opposition to the motion to strike, Brain's opening brief argues only that Emilio was not prejudiced and no privileged communication is involved in the cause of action. Given Brain's failure to comply with rule 3.1324, the court did not err by implicitly denying his request to add the cause of action.
Brain also contends that "[i]f the Court had not granted the motion to strike and then additionally granted [sic] the demurrer to the same cause of action without leave to amend, Appellant could file another lawsuit on this theory. Based on the contradiction in the Court's ruling, Appellant's right to bring another action on that cause of action alone is precluded." This argument is based on the court's minute order regarding the cause of action for claim and delivery, which states, "The motion to strike the second cause of action is granted. The Demurrer as to the second cause of action is sustained without leave to amend. The Demurrer as to the second cause of action is rendered moot by the granting of the motion to strike."
To the extent Brain is claiming the court erred in sustaining the demurrer to the cause of action for claim and delivery without leave to amend, he forfeited any denial of leave to amend by failing to provide a reporter's transcript of the hearing on the demurrer. (McAllister, supra, 216 Cal.App.4th at pp. 1210-1211). He also has not carried his burden to "'show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.'" (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; see Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 ["The plaintiff has the burden of proving that an amendment would cure the defect"].) "The appellant has the burden to identify specific facts showing the complaint can be amended to state a viable cause of action. [Citation.] An appellant can meet this burden by identifying new facts or theories on appeal." (Minnick v. Automotive Creations, Inc. (2017) 13 Cal.App.5th 1000.) Here, Brain failed to identify any specific facts showing he could make the requisite allegations to state a supposed cause of action for claim and delivery. He thus failed to satisfy his burden on appeal. (Ibid.)
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
IKOLA, J. WE CONCUR: O'LEARY, P. J. MOORE, J.