Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: September 19, 2007
Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 04-50040-ASW, Adv. No. 05-05355-ASW. Hon. Arthur S. Weissbrodt, Bankruptcy Judge, Presiding.
Before: MARKELL, KLEIN, and DUNN, Bankruptcy Judges.
MEMORANDUM
This matter raises the issue of applicability of Cal. Civ. Code § 1714.10 to a complaint of civil conspiracy brought in an adversary proceeding by the appellee, Alexis Brigham (" Plaintiff"), against the appellant, attorney Thomas Spielbauer (" Appellant"). Section 1714.10 requires that a California plaintiff obtain judicial authorization prior to filing a qualifying complaint against an attorney if the complaint contains a claim of civil conspiracy between the attorney and his or her client (" Pre-Filing Requirement").
Unless otherwise indicated, all further section references are to the Cal. Civ. Code.
Plaintiff's multi-count complaint, which included an allegation of conspiracy between Appellant and his brother Dennis S. Spielbauer, who Appellant claims to be his client, was filed without seeking prior leave of the bankruptcy court. Appellant contends that the defense provided by the statute is controlling and therefore Plaintiff's failure to comply with the Pre-Filing Requirement is fatal. Appellant, however, ignores the threshold issue of whether section 1714.10 is applicable to trigger the Pre-Filing Requirement. It is on that basis that the bankruptcy court ruled in favor of the Plaintiff and that we AFFIRM.
I. FACTS
Plaintiff's complaint contains the following allegations, which at this stage of the proceedings we take as true. In September 2003, Plaintiff retained Appellant as counsel after receiving a solicitation from him offering hope and assistance in saving her home from foreclosure. The representation continued until Plaintiff terminated it in July 2004. There was no written retainer agreement initially.
In January 2004, Plaintiff retained a second attorney to represent her in filing for bankruptcy under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § § 101-1330. Appellant continued to represent her with respect to foreclosure.
In February 2004, Appellant drew up a retainer agreement which extended the representation to include Appellant's services as a broker for sale of Plaintiff's home. This was contrary to statements Appellant made to Plaintiff, in soliciting the representation, that he was not seeking to list Plaintiff's home for sale. The agreement included a contingency fee of up to 50% of any recovery for legal services and a fee of up to seven percent for brokerage services. Despite concerns over these terms, Plaintiff agreed because Appellant told her that no other attorney would take her case. Plaintiff's complaint recites a similar pattern of conduct by Appellant with others, with the core of such conduct being the luring of others in foreclosure to retain his services with false representations in order to allow Appellant to serve as broker for the sale of the client's home.
Plaintiff states she signed the retainer agreement naming Appellant as her attorney in February 2004. She also states that, in April 2004, Appellant required her to sign a retainer agreement and a listing agreement for continuation of legal services. Thereafter, in April 2004, Appellant filed an action against all of the lenders holding Deeds of Trust on Plaintiff's home. He also listed her home for sale.
It is unclear if there were, in fact, two separate retainer agreements; only one is provided in the record.
Two weeks later, the bankruptcy court instructed Appellant that he was not to represent Plaintiff as both legal counsel and real estate broker, and further, that he could have no interest in the sale of her home if he chose to serve as her legal counsel. Appellant agreed to serve only as her attorney, but he took no action to withdraw as the listing broker on her home. He left the listing in place until its natural expiration in October 2004. Appellant did, however, revise the listing by adding a statement that quoted Plaintiff as saying, " I am not selling my house and want you to remove it from your listing." Plaintiff believes this was done to prevent the sale of the home.
Appellant continued to represent Plaintiff as attorney of record, negotiating a " Settlement Agreement" with the lender in third position on her home. Plaintiff's complaint concludes that Appellant induced Plaintiff to sign the Settlement Agreement against her best interests in order to provide him control over the sale for his personal gain. The Settlement Agreement was later approved by the bankruptcy court, although Plaintiff does not remember either signing it on July 2, 2004 or even seeing it until well after the fact. Ultimately, Plaintiff lost her home, and substantial equity she claims to have held in it, at a foreclosure sale conducted after she was unable to perform on the Settlement Agreement.
On July 6, 2005, Plaintiff, in pro per, filed a multi-count complaint against Appellant and Dennis S. Spielbauer (Appellant's brother). The complaint included a cause of action for conspiracy between Appellant and his brother. Plaintiff did not seek leave of court prior to filing the complaint.
The cause of action for conspiracy incorporated all preceding causes of action; including a request for declaratory judgment, Fraud, Violation of California Business and Professions Code § § 17500 and 17200, Fraud under Cal. Civ. Code § § 1709, 1710, and 1572, Unfair Business Practices, Interference in Business Contract, and Breach of Fiduciary Duty. The conspiracy cause of action did not incorporate the last two causes of action, violation of 18 U.S.C. § § 1962-1968 and 18 U.S.C. § § 1341, 1342, 1346, and 1349, which though, in turn, incorporated all preceding claims.
On August 8, 2005, Appellant filed a motion to dismiss Plaintiff's complaint. On September 15, 2005, in a reply to Plaintiff's response to his motion, Appellant raised, for the first time, the defense that Plaintiff failed to comply with the Pre-Filing Requirement of section 1714.10.
The bankruptcy court found Plaintiff's complaint to be poorly drafted, insufficiently pled, and that it did not comply with federal pleading rules. It also found, however, that the complaint contained two basic theories, including legal malpractice based on dual representation. It then stated that either theory might entitle the Plaintiff to relief if the pleading defects were cured and if the facts alleged were proven.
On that basis the bankruptcy court granted the motion to dismiss in large part, but with leave to amend. It did not address Appellant's defense under section 1714.10, but dismissed the conspiracy claim along with the others as conclusory, because it did not allege the necessary elements of conspiracy.
Plaintiff retained new counsel and subsequently filed a first amended complaint. The amended complaint generally realleged the causes of action in the original complaint, although it was pled with greater specificity and proper form. It was, however, again filed without seeking prior leave of court.
The amended cause of action for conspiracy alleges that Appellant and his brother, Dennis, conspired to violate 18 U.S.C. § § 1962-1968 (Civil RICO). The amended complaint alleges that the brothers, as investment partners, agreed to solicit homeowners facing foreclosure to retain Appellant as their attorney. The complaint attributes their ultimate goal as having Appellant also being named as listing agent for the troubled property in order to provide the Appellant's brother with a first chance to buy the home.
The conspiracy claim again incorporates all preceding causes of action.
Appellant renewed his motion to dismiss, again asserting that the complaint should be dismissed for failure to comply with the Pre-Filing Requirement. The bankruptcy court denied the renewed motion in large part, dismissing only one of the ten claims, and that again, with leave to amend. The bankruptcy court specifically allowed the conspiracy cause of action as sufficiently pled and denied Appellant's contention that Plaintiff was subject to the Pre-Filing Requirement. The court found that section 1714.10 was not applicable to the claim because it is based on an investment relationship between the brothers, rather than on an attorney-client relationship as required by the statute.
II. ISSUE
Did the bankruptcy court err by denying Appellant's motion to dismiss Plaintiff's complaint containing an allegation of conspiracy between her attorney and his brother, who her attorney claims is also a client, on the basis of Plaintiff's failure to obtain judicial authorization prior to filing the complaint pursuant to Cal. Civ. Code § 1714.10?
III. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334, 157(b)(2)(O), and 157(c)(1). The Bankruptcy Appellate Panel granted leave to appeal on an interlocutory basis pursuant to 28 U.S.C. § 1292(b)and has jurisdiction under 28 U.S.C. § § 158(a)(3) and (b).
IV. STANDARDS OF REVIEW
" We review the bankruptcy court's conclusions of law and questions of statutory interpretation de novo, and factual findings for clear error." Village Nurseries v. Gould (In re Baldwin Builders), 232 B.R. 406, 410 (9th Cir. BAP 1999) (citations omitted). A factual finding is clearly erroneous if the appellate court, after reviewing the record has a firm and definite conviction that a mistake has been committed. Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 99 (9th Cir. BAP 2006).
V. DISCUSSION
Section 1714.10's Pre-Filing Requirement mandates that a party obtain judicial authorization prior to filing any complaint against an attorney that includes a cause of action alleging civil conspiracy between the attorney and his client arising from any attempt to contest or compromise a claim or dispute and based on the attorney's representation of the client. Cal. Civ. Code § 1714.10(a). The party seeking the authorization must establish a " reasonable probability" of prevailing on its complaint. Id . Failure to obtain prior judicial authorization when required is a defense to such actions. § 1714.10(b).
By exception, however, the Pre-Filing Requirement is not applicable to a cause of action if either 1) the attorney owes an independent legal duty to the plaintiff(" Independent Duty Exception") or 2) the attorney's acts go beyond the performance of a professional duty to serve the client and involve a conspiracy to violate a legal duty in furtherance of the attorney's financial gain. § 1714.10(c).
Section 1714.10 provides in full:
In reviewing decisions of the bankruptcy court we may affirm on any basis supported by the record. Heath v. Am. Express Travel Related Svcs. Co. (In re Heath), 331 B.R. 424, 431 (9th Cir. BAP 2005). Here, the bankruptcy court held that the statute was not applicable on the basis that the claim of conspiracy went to the relationship between brothers as investment partners rather than to any relationship they might have as attorney-client. Although we agree with the bankruptcy court, we will presume, without deciding, that Plaintiff alleges a valid claim of civil conspiracy with Dennis Spielbauer to which section 1714.10 would otherwise be applicable. We believe the more clearly determinative question is whether an exception applies to remove Plaintiff's complaint from application of the Pre-Filing Requirement.
We note also, that Appellant misinterprets Hung v. Wang, 8 Cal.App.4th 908, 11 Cal.Rptr.2d 113 (Ct. App. 1992), in contending that Plaintiff failed to meet her burden of proof that the statute is applicable. In Hung the court addressed the burden of proof not with respect to whether the statute is applicable, but with respect to a claim's reasonable probability of success, only after such determination is made. The burden of proof of applicability remains with the Appellant.
Independent Duty Exception
The exceptions, " mirror[ing] those carved out from the agent's immunity rule, " apply when the attorney acts as an individual rather than merely an agent to the client with whom the conspiracy is alleged. Berg & Berg Enters. v. Sherwood Partners, Inc., 131 Cal.App.4th 802, 824, 32 Cal.Rptr.3d 325, 341 (Ct. App. 2005). The Independent Duty Exception exempts a claim of conspiracy from the Pre-Filing Requirement when the attorney violates a duty owed to the plaintiff that is independent of any duty owed to the plaintiff by the attorney's client. Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, 107 Cal.App.4th 54, 84, 131 Cal.Rptr.2d 777, 800 (Ct. App. 2003) (finding attorney had a duty to provide truthful information to homeowner regarding claim against insured, independent of any duty attorney's client may have had as insurer).
Appellant does not argue that the claim, properly pled, would not fall within an exception, but rather that the exceptions were extinguished by Plaintiff's improperly pled original complaint. He contends that the bankruptcy court should have ruled on the inadequate original complaint, which clearly would not have survived under section 1714.10. He argues the Pre-Filing Requirement cannot be circumvented by giving a second bite at the apple by leave to amend an improper pleading.
Appellant's argument is misguided. " Leave to amend shall be freely given when justice so requires" in the sound discretion of the trial court. Fed.R.Civ.P. 15. " A pro se litigant must be given leave to amend his or her complaint, and some notice of its deficiencies, unless it is absolutely clear that the deficiencies of the complaint could not be cured by amendment." Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987).
The essential determination to the necessary finding of " reasonable probability" under the Pre-filing Requirement is whether the allegations had merit. Hung, 8 Cal.App.4th at 929, 11 Cal.Rptr. at 125. In granting leave to amend, the bankruptcy court found that the allegations had, or could have, merit, if properly pled. The court, therefore, acted within its discretion in granting leave to amend. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).
Appellant raises other issues, which he contends bear on an appropriate decision that Plaintiff's complaint should be dismissed for failure to comply with the Pre-Filing Requirement. We find these irrelevant under the statute. Beyond these issues however, the Appellant does not even attempt to argue that he did not owe independent duties to Plaintiff. It is unquestionable that, serving as both her attorney and her broker, he had duties to her and that those duties are independent of whatever duties he may have owed to Plaintiff on the basis of his representation of his brother. Given such duties, Plaintiff's complaint falls within the scope of the Independent Duty Exception making the statute inapplicable to invoke the protection of the Pre-filing Requirement.
Appellant's contention that Plaintiff's purpose in filing the complaint is to " pierce the attorney-client privilege, " bringing it squarely within the statute's intent to protect the attorney-client privilege, is also misguided. It is well settled that the legislative intent addressed creation of conflict of interest during an ongoing representation by frivolous conspiracy claims rather than attorney-client confidentiality or privilege. Pavicich v. Santucci, 85 Cal.App.4th 382, 393-396, 102 Cal.Rptr.2d 125, 134-136 (Ct. App. 2000); Castro v. Higaki, 31 Cal.App.4th 350, 356 n.5, 37 Cal.Rptr.2d 84., 31 Cal.App.4th 350, 37 Cal.Rptr.2d 84, 86 n.5 (Ct. App. 1994); Hung, 8 Cal.App.4th at 920, 11 Cal.Rptr. at 119.
VI. CONCLUSION
Even assuming arguendo that Plaintiff's claim of civil conspiracy against Appellant falls within the initial scope of section 1714.10, the bankruptcy court correctly held that Appellant is not entitled to the protections of section 1714.10. Plaintiff's filing of her complaint without prior court order does not warrant dismissal. We AFFIRM.
(a) No cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute, and which is based upon the attorney's representation of the client, shall be included in a complaint or other pleading unless the court enters an order allowing the pleading that includes the claim for civil conspiracy to be filed after the court determines that the party seeking to file the pleading has established that there is a reasonable probability that the party will prevail in the action. The court may allow the filing of a pleading claiming liability based upon such a civil conspiracy following the filing of a verified petition therefore accompanied by the proposed pleading and supporting affidavits stating the facts upon which the liability is based . . . . The filing of the petition, proposed pleading, and accompanying affidavits shall toll the running of any applicable statute of limitations until the final determination of the matter, which ruling, if favorable to the petitioning party, shall permit the proposed pleading to be filed. (b) Failure to obtain a court order where required by subdivision (a) shall be a defense to any action for civil conspiracy filed in violation thereof. The defense shall be raised by the attorney charged with civil conspiracy upon that attorney's first appearance by demurrer, motion to strike, or such other motion or application as may be appropriate. Failure to timely raise the defense shall constitute a waiver thereof. (c) This section shall not apply to a cause of action against an attorney for a civil conspiracy with his or her client, where (1) the attorney has an independent legal duty to the plaintiff, or (2) the attorney's acts go beyond the performance of a professional duty to serve the client and involve a conspiracy to violate a legal duty in furtherance of the attorney's financial gain. (d) This section establishes a special proceeding of a civil nature. Any order made under subdivision (a), (b), or (c) which determines the rights of a petitioner or an attorney against whom a pleading has been or is proposed to be filed, shall be appealable as a final judgment in a civil action. (e) Subdivision (d) does not constitute a change in, but is declaratory of, the existing law.
Appellant also asserts that Plaintiff has " unclean hands" and that the court must take this into consideration in applying the statute. While if true and proven, Appellant's charges would be serious, they are not directly relevant to our determination, and without the benefit of any evidence beyond Appellant's unsubstantiated statements, we decline to apply the doctrine.