Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
City & County of San Francisco Super. Ct. No. 459061
Siggins, J.
Appellants Chariot SVN, LLC (Chariot) and its managing member, Charles M. Sprincin, sued attorney Brian W. Newcomb for fraud and negligence, based on Newcomb’s professional efforts undertaken on behalf of his client William Garlock. The trial court sustained Newcomb’s demurrer to the complaint without leave to amend. Appellants argue they stated a valid claim for concealment, and it was reasonably foreseeable they would be harmed by Newcomb’s negligence in his representation of Garlock. Appellants further contend the trial court abused its discretion when it denied them leave to amend the complaint. We agree with the trial court that Newcomb owed no duty to appellants as a matter of law, and there was no reasonable possibility appellants could cure the defects in the complaint by amendment. We therefore affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Appellants sued Newcomb for fraud and negligence, based on Newcomb’s legal representation of William Garlock in Garlock’s action against appellants. Appellants claim as damages the attorney fees and costs allegedly incurred in that lawsuit. According to appellants’ complaint, Charles Sprincin was involved in a dispute with South Van Ness Partners (SVN) over certain real property that Chariot later developed as a condominium project. Sprincin, as Chariot’s managing member, negotiated with James Brennan, the president of American Partnership Services, the general partner of SVN, in order to reach a compromise. Newcomb’s client, Garlock, was a limited partner in SVN and was not initially involved in the negotiations.
On Garlock’s behalf, Newcomb approached the law firm of Honowitz & Shaw who represented SVN and Brennan. Newcomb sought to obtain for Garlock the payment of one-half of SVN’s proceeds from an agreement reached in the negotiations between Sprincin and Brennan. Newcomb represented Garlock in some negotiations with Honowitz & Shaw, but did not negotiate with Sprincin regarding the proposal. Appellants, in the course of negotiations with Brennan, “were given” a copy of a revised proposed release agreement that “contained the name of Garlock [as a signatory] and changed the unilateral release provisions to mutual release provisions. This was the first time [appellants] were aware that Garlock had any connection with the compromise negotiations.” Appellants changed the mutual release back to a unilateral release, and returned the revised document that included Garlock as a signatory to Honowitz & Shaw. The document was never fully executed.
Brennan later requested that SVN and Chariot compromise the dispute in an agreement “with the same terms as the previous drafts, with the exception of the terms proposed by Newcomb for a mutual release and Garlock’s name as a signatory.” SVN and Chariot executed the final release agreement and Chariot paid SVN $100,000.
Garlock sued Sprincin and Chariot for breach of contract, fraud and conversion, and we affirmed the trial court’s order sustaining a demurrer on the ground that Garlock lacked standing as a limited partner of SVN to sue Sprincin and Chariot for damages arising out of Chariot’s contractual dealings with SVN. Our opinion contains a detailed description of the dispute and negotiations between Chariot and SVN. (Garlock v. Sprincin (Oct. 17, 2007, A115130 [nonpub. opn.].)
Appellants’ complaint alleged a cause of action for fraud, based on Newcomb’s alleged concealment from them of Garlock’s claim to half the funds due SVN. The complaint also included a cause of action for negligence, based on Newcomb’s alleged failure “to use reasonable care in including terms in the Revised Proposed Release Agreement that would notify Plaintiffs of Garlock’s claims, or to advise Plaintiffs of the terms relating to Garlock.”
The court sustained Newcomb’s demurrer to the complaint without leave to amend. In doing so, the court adopted its tentative ruling as follows: “Defendant Brian Newcomb’s demurrer to complaint is sustained without leave to amend. Having had no dealings of any kind with plaintiff[,] defendant did not and could not misrepresent or conceal anything from plaintiff and defendant had no duty to plaintiff, whose interests were adverse to defendant’s client, to inject himself into plaintiff’s negotiations with a separately represented third party.” The court agreed “there should be freedom to amend but not when it’s a pointless act.” The court did not address the additional grounds for demurrer that there could be no concealment “based on the facts as plead.” Appellants timely appealed.
DISCUSSION
A. Standard of Review
“On appeal from a judgment after a demurrer is sustained without leave to amend, we review the trial court’s ruling de novo, exercising our independent judgment on whether the complaint states a cause of action.” (Lincoln Property Co., N.C. , Inc. v. Travelers Indemnity Co. (2006) 137 Cal.App.4th 905, 911.) “ ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . .’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] . . . [W]e decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; accord, Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
B. Fraud
Appellants contend their cause of action for fraudulent concealment of material facts is valid because they established a duty to disclose, concealment with intent to defraud, and appellants’ lack of knowledge of the concealed facts. (See Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.) We disagree.
In Goodman v. Kennedy (1976) 18 Cal.3d 335 (Goodman) our Supreme Court considered the scope of a lawyer’s duty to third parties who purchased shares of stock from the lawyer’s clients. The complaint alleged that the lawyer withheld certain material information regarding the proposed stock purchase from plaintiffs’ attorney. (Id. at p. 339.) The court concluded that a lawyer in such circumstances owes no general duty of disclosure to the third party. Accordingly, there would be no basis to hold the lawyer liable in fraud absent a confidential relationship, any representation otherwise likely to mislead for want of disclosure, or any active concealment of the undisclosed matters. (Id. at pp. 346-348.) A similar conclusion is warranted in this case.
The complaint alleged that Newcomb interjected himself on behalf of Garlock in the negotiations between Sprincin and Brennan via Brennan’s lawyers at Honowitz & Shaw. In doing so, Newcomb is alleged to have concealed from Sprincin Garlock’s claims “that he had to approve any distribution of funds by SVN Partners” and “that he was to receive one-half of any funds due SVN Partners under the Agreements and the Revised Proposed Release Agreement . . . .”, as well as “[s]everal fax communications between Newcomb and Honowitz & Shaw . . . regarding the Revised Proposed Release Agreement . . . .” It was specifically alleged that appellants “did not negotiate any aspects of the Proposed Release Agreement and Revised Proposed Release Agreement with Garlock or Newcomb . . . .” “At no time did Newcomb, Garlock or Honowitz & Shaw negotiate with Sprincin regarding the Proposed Release Agreement. Sprincin negotiated only with Brennan, and on information and belief, spoke to Melvin Honowitz . . . on only two occasions.” Thus, appellants alleged no confidential relationship between themselves and Newcomb, no representation made to them by Newcomb that was otherwise likely to mislead in the absence of disclosure, and no active concealment by Newcomb of undisclosed matters. (See Goodman, supra, 18 Cal.3d at pp. 346-347; see also Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216 [fraud must be pled with particularity].)
The Goodman court also noted: “The only other basis for a duty of disclosure is one which may exist when one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known to or reasonably discoverable by the other party.” (Goodman, supra, 18 Cal.3d at p. 347.) This basis does not apply here, because according to the allegations of the complaint, Newcomb was not a party to any transaction with appellants.
Appellants rely on Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282 to argue that Newcomb can be held liable for his concealment of Garlock’s interests. Appellant’s reliance on Vega is unwarranted. In Vega, a shareholder sued a law firm that represented a company trying to merge with the shareholder’s. He alleged the law firm concealed unfavorable terms of a financing transaction involving its client in order to deceive the shareholder into exchanging his stock in the merger. (Id. at p. 287.) The court determined the concealment was actionable because the law firm expressly undertook to disclose the terms of the financing transaction. It was, therefore, not entitled to conceal a material term by providing a “sanitized” version of the financing to plaintiffs’ attorneys during the acquisition. (Id. at p. 292.)
Appellants claim that “[i]n Vega, as here, an attorney document was given indirectly to the plaintiff.” But in Vega, the document was delivered directly to plaintiffs’ attorney by the defendant law firm which had prepared it. (Vega v. Jones, Day, Reavis & Pogue, supra, 121 Cal.App.4th 282.)
Unlike the law firm in Vega, Newcomb undertook no disclosure to Sprincin and never made an affirmative disclosure to appellants. According to their own allegations, he never negotiated with them and never contacted them. Newcomb’s alleged communications on behalf of Garlock with Honovitz & Shaw regarding the agreement, and Garlock’s interest in any proceeds, did not create a duty of disclosure to appellants simply because Brennan, Honowitz & Shaw’s client, was involved in adversarial settlement negotiations with Sprincin.
In their reply brief, appellants contend that “Newcomb undertook to disclose revisions to the proposed settlement by transmitting the Revised Proposed Release Agreement to Sprincin,” but their complaint contains no such allegation. The complaint alleges appellants “were given a copy of a revised agreement,” without identifying who was responsible for creating or transmitting the document. The additional claim in the reply brief that a “document containing changes requested by Newcomb was disseminated to Sprincin for review and approval” similarly fails to demonstrate an affirmative representation of fact made by Newcomb that could give rise to potential liability for concealment under Vega. Newcomb’s demurrer to appellants’ cause of action for fraud was therefore properly sustained.
In light of our conclusion that appellants failed to establish that Newcomb owed them a duty of disclosure, we will not discuss the adequacy of appellants’ showing on the remaining elements of their cause of action for fraudulent concealment.
B. Negligence
Appellants argue they stated a valid claim for negligence against Newcomb, because it was reasonably foreseeable that Newcomb’s negligent representation of Garlock would cause them harm. But “ ‘[a]s a general rule, an attorney has no professional obligation to nonclients and thus cannot be held liable to nonclients for the consequences of the attorney’s professional negligence . . . .’ [Citation.] . . . . [¶] As an exception to this general rule, it has been settled in California that an attorney may be liable to nonclients in limited circumstances where the nonclient was the intended beneficiary of the attorney’s services.” (Moore v. Anderson Zeigler Disharoon Gallagher & Gray (2003) 109 Cal.App.4th 1287, 1294-1295.)
The complaint alleged Newcomb had a duty to “ensure that the terms requested by Garlock were included in the Revised Proposed Release Agreement, and/or to contact Plaintiffs directly to advise them of those terms, given the facts that (a) Plaintiffs were not represented by counsel; (b) written communications between Newcomb and Honowitz and Shaw were copied only to Garlock or Brennan but not to Sprincin; and (c) Newcomb and Garlock did not trust Brennan or Honowitz, and therefore Newcomb could not reasonably rely on Brennan or Honowitz to advise Plaintiffs of all of the relevant facts.” The complaint further alleged that “Newcomb failed to use reasonable care in including terms in the Revised Proposed Release Agreement that would notify Plaintiffs of Garlock’s claims, or to advise Plaintiffs of the terms relating to Garlock.”
In Goodman, our Supreme Court also addressed the question of “whether or under what circumstances an attorney’s duty of care in giving legal advice to a client extends to persons with whom the client in acting upon the advice deals wholly at arm’s length.” (Goodman, supra, 18 Cal.3d at p. 339.) There, the plaintiffs alleged the defendant attorney negligently advised his clients regarding their sale of certain shares of stock to plaintiffs. (Ibid.) The court concluded the defendant attorney owed no legal duty to the plaintiffs “in the absence of any showing that the legal advice was foreseeably transmitted to or relied upon by plaintiffs or that plaintiffs were intended beneficiaries of a transaction to which the advice pertained.” (Ibid.) There was “no allegation that the [defendant attorney’s] advice was ever communicated to plaintiffs and hence no basis for any claim that they relied upon it . . . .” (Id. at p. 343.)
Thus, there could be no liability for plaintiff’s foreseeable economic damage “unless defendant owed a duty to plaintiffs to avoid the asserted wrongdoings.” (Goodman, supra, 18 Cal.3d at p. 342.) The court concluded the defendant attorney “had no relationship to plaintiffs that would give rise to his owing plaintiffs any duty of care in advising his clients . . . .” (Id. at p. 343.)
The Goodman court distinguished such cases as Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, where “an attorney gives his client a written opinion with the intention that it be transmitted to and relied upon by the plaintiff in dealing with the client. In that situation the attorney owes the plaintiff a duty of care when providing the advice because the plaintiff’s anticipated reliance upon it is ‘the end and aim of the transaction.’ ” (Goodman, supra, 18 Cal.3d at p. 343, fn. 1.)
In Roberts, the complaint alleged a law firm provided its client with a letter describing a general partnership, knowing the letter would be shown to a prospective lender, when the law firm was aware of a doubt as to the partnership entity’s correct status. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz, supra, 57 Cal.App.3d at pp. 107-108.) Despite the absence of privity of contract with the plaintiff, the court applied the rule that an attorney may be liable for damage caused by his negligence to a person intended to be benefitted by the attorney’s performance. (Id. at pp. 110-111.) The court observed that the law firm’s opinion regarding the status of the partnership “was rendered for the purpose of influencing [the prospective lender’s] conduct, and harm to him was clearly foreseeable.” (Id. at p. 111.)
Appellants rely on Roberts to argue that Newcomb’s “dissemination” of the revised proposed release agreement to Sprincin “through Honowitz & Shaw” created a duty to them. But Newcomb’s alleged communication with Honowitz & Shaw is not analogous to the conduct at issue in Roberts, where “it was held that a law firm could be liable to a third party lender for negligent misrepresentation in furnishing a letter containing incorrect and misleading data to its client, knowing the letter would be shown to prospective lenders in order to obtain a loan.” (Fox v. Pollack (1986) 181 Cal.App.3d 954, 961.) Here, Newcomb made no affirmative representations to appellants, and in fact the complaint alleges he had no contact with them.
Cicone v. URS Corp. (1986) 183 Cal.App.3d 194 is similarly distinguishable because the buyer’s attorney there made affirmative representations to the seller’s attorney during negotiations that were intended to induce the sellers to close the sale of a business. (Id. at pp. 208-211.) Appellants’ reliance on Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54 is also misplaced, because in that case plaintiffs adequately alleged the insurer’s attorney made a fraudulent statement about the scope of coverage in a letter to plaintiffs’ attorney. (Id. at p. 75.)
Roberts is very different from Goodman and different from this case. In Goodman, even though the defendant attorney’s advice was intended to affect the plaintiffs, and harm to them from the attorney’s negligence was foreseeable, the “plaintiffs were not persons upon whom defendant’s clients had any wish or obligation to confer a benefit in the transaction.” (Goodman, supra, 18 Cal.3d at p. 344.) The court concluded that potential buyers were not the intended beneficiaries of the attorney’s clients’ anticipated sales. The reasoning of Goodman supports the conclusion that Newcomb did not owe appellants a duty of care in this case.
Appellants also rely on Fox to argue that Newcomb should be liable because “it was reasonably foreseeable that negligent service or advice to or on behalf of the client could cause harm to others.” (Fox v. Pollack, supra, 181 Cal.App.3d at p. 957.) But the Fox court concluded an attorney owed no duty to offer advice to an unrepresented party about a real estate exchange transaction in which the attorney represented another, “in the absence of contrary representations by the attorney.” (Id. at p. 957.) “An attorney has no duty to protect the interests of an adverse party [citations] for the obvious reasons that the adverse party is not the intended beneficiary of the attorney’s services, and that the attorney’s undivided loyalty belongs to the client. [Citations.] The same principles apply to transactions wherein the nonclients deal at arm’s length with the attorney’s clients.” (Id. at p. 961, fn. omitted; see also B.L.M. v. Sabo & Deitsch (1997) 55 Cal.App.4th 823, 832 [mere fact that developer stood to benefit from project’s successful completion did not make developer a third party beneficiary of an employment agreement between a city and the law firm that acted as bond counsel for the project].)
The Fox court cited as illustrative of such a general principle an earlier case “wherein an attorney for a collection agency who allowed a complaint to be dismissed for lack of prosecution was held liable to the creditor who assigned the claim to the agency for collection.” (Fox v. Pollack, supra, 181 Cal.App.3d at p. 961.)
Since appellants were not intended beneficiaries of Newcomb’s professional services, we reject appellant’s arguments premised upon such a conclusion. Newcomb had no “obligation to contact Sprincin directly to notify him of the material terms, or to include those terms in the Revised Proposed Agreement.” Appellants were engaged in adversarial negotiations with the business partner of Newcomb’s client. (See Goodman, supra, 18 Cal.3d at p. 344 [“plaintiffs were not persons upon whom defendant’s clients had any wish or obligation to confer a benefit in the transaction”]; Fox v. Pollack, supra, 181 Cal.App.3d at p. 961 [attorney has no duty to protect the interests of nonclients who deal at arm’s length with his client]; see also Norton v. Hines (1975) 49 Cal.App.3d 917, 921 [“[c]learly, an adverse party is not an intended beneficiary of the adverse counsel’s client”].)
While appellants argue that Garlock’s interests were not adverse to theirs because they shared the ultimate goal of “compromis[ing] amounts potentially owed to SVN Partners”, their interests in the terms of any settlement were clearly adverse in the sense that each sought to maximize recovery in the negotiations to their own advantage.
Not only did Newcomb owe no legal duty to appellants, the policy factors considered by the courts do not support a finding of duty in this case. (Biakanja v. Irving (1958) 49 Cal.2d 647; Rowland v. Christian (1968) 69 Cal.2d 108.) Both Biakanja and Lucas v. Hamm (1961) 56 Cal.2d 583, 589, cited in appellants’ opening brief, involved the question of whether the preparer of a will owed a duty to the intended beneficiary to exercise due care. In Biakanja, the court held: “The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the forseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm. [Citations.]” (Biakanja, supra, at p. 650.) In that case, the court concluded “the ‘end and aim’ of the transaction” was to provide for the passing of the decedent’s estate to the plaintiff, and observed that the defendant notary public had engaged in the unauthorized practice of law by preparing the will, an activity which public policy should not protect by immunity from civil liability. (Id. at p. 651.)
In Lucas, the court applied the Biakanja factors to hold that an attorney owes an intended beneficiary a duty of care in drafting a will. The court concluded: “As in Biakanja, one of the main purposes which the transaction between defendant and the testator intended to accomplish was to provide for the transfer of property to plaintiffs . . . .” (Lucas v. Hamm, supra, 56 Cal.2d at p. 589; see also Heyer v. Flaig (1969) 70 Cal.2d 223, 228 [“[w]hen an attorney undertakes to fulfill the testamentary instructions of his client, he realistically and in fact assumes a relationship not only with the client but also with the client’s intended beneficiaries”].)
Here, the aim of Newcomb’s representation of Garlock, and his communication with Honowitz & Shaw, was to assert and secure his client’s interest in the assets of SVN, not to benefit appellants. The courts have declined to impose a duty to nonclients under such circumstances. (See Biakanja v. Irving, supra, 49 Cal.2d at p. 650 [liability for injuries to intangible interests has not been imposed “in the absence of privity where any potential advantage to the plaintiff from the performance of the contract was only a collateral consideration of the transaction”]; Goodman, supra, 18 Cal.3d at pp. 342-344 [distinguishing cases involving the drafting of wills, and declining to impose a duty to nonclients “upon whom defendant’s clients had [no] wish or obligation to confer a benefit” and whose “only relationship to the proposed transaction was that of parties with whom defendant’s clients might negotiate a bargain at arm’s length”].) The demurrer to the cause of action for negligence was properly sustained.
Because the cases are readily distinguishable, we will not address in detail the application of the remaining policy factors mentioned in Biakanja and applied in Lucas.
C. Denial of Leave to Amend
Finally, appellants contend it was an abuse for the trial court to sustain the demurrer without leave to amend. We disagree. The record demonstrates that before it concluded no amendment could cure the defective pleadings, the trial court gave appellants ample opportunity to explain how they would amend their complaint to state valid causes of action against Newcomb.
When appellants requested leave to amend, the trial court inquired: “How could you possibly—what is it that you would amend that could bridge the gap that you already positively pleaded, which is that Mr. Newcomb had—for that matter Mr. Newcomb’s client had no contact with your client during these negotiations?” After appellants’ counsel said she “would make it more clear how this indirect communication[] took place that is alleged by Mr. Garlock in his first complaint,” the court stated: “Anything anyone does in a connected society is going to have influences and possibly cause damages a million transactions out from there, but there has to be a direct duty between the plaintiff and the defendant. That’s what the law says, and that’s what even this offer of amendment that you’re suggesting doesn’t begin to address as far as I can see.”
When appellants’ counsel requested “an opportunity to detail more facts to tie in the context,” the court responded: “[E]verything you told me so far wouldn’t change the fact that there’s simply no connection here that could give rise to a duty. [¶] Is there something you haven’t mentioned to me that you would want to put into an amended complaint? Because you’re right, there should be freedom to amend but not when it’s a pointless act. So if there’s something you haven’t mentioned so far that you would want to put into an amended complaint, please tell me now.” Counsel replied, “That’s basically it, Your Honor, but when we’re drafting certainly I would pull in more things connected to those concepts. But again, the key really is the context o[f] how this transaction took place.” The court then observed: “Yes, I think that’s exactly correct, and I think that’s what destroys your claim.”
This court has held that “[l]eave to amend should be denied where the facts are not in dispute and the nature of the claim is clear, but no liability exists under substantive law.” (Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 436; accord, CAMSI IV v. Hunter Technology Corp. (1991) 230 Cal.App.3d 1525, 1539.) Here, appellants failed to show a reasonable possibility that the defects in the complaint could be cured by amendment. The trial court did not abuse its discretion when it denied leave to amend. (See Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081, citing Blank v. Kirwan, supra, 39 Cal.3d at p. 318; Goodman, supra, 18 Cal.3d at pp. 339-340, 349-350 [demurrer to complaint for negligence and fraud properly sustained without leave when alleged facts did not give rise to a duty to disclose, and plaintiffs failed to show how they could successfully amend.].)
Nor would the additional factual allegations to which appellants refer on appeal change the result. Facts regarding prior disputes between Garlock and Brennan, a prior lawsuit filed by Garlock against Honowitz & Shaw alleging an earlier fraud and unspecified deposition testimony given by Newcomb in Garlock v. Sprincin all have no bearing on Newcomb’s direct communication with Sprincin or alleged duty of full disclosure.
DISPOSITION
The judgment is affirmed.
We concur: McGuiness, P. J., Pollak, J.