Opposition ObjectionsCal. Super. - 6th Dist.July 28, 20201 2 J 4 5 6 7 8 9 10 l1 t2 13 I4 15 t6 I7 18 I9 20 2l 22 23 24 25 26 27 28 WALTER J. LACK, ESQ. (SBN 57550) STEVEN C. SHUMAN, ESQ. (SBN 82828) ENGSTROM, LIPSCOMB & LACK, P.C. 10100 Santa Monica Boulevard, Suite 1200 Los Angeles, CA 90067-4113 Telephone: (3 1 0) 552-3800 Facsimile: (3 l0) 552-943 4 Attorneys for Plaintiff ALLISON HUYNH ALLISON HUYNH, MORzuSON & FOERSTER, LLP; PAUL L. LION, III; and DOES 1-20, Inclusive, Defendants. SUPERIOR COURT OF THE STATE OF CALIFORNIA F'OR THE COUNTY OF SANTA CLARA CASE NO. 20CV368776 Plaintiff, VS [Assigned to the Hon. Peter H. Kirwan, Dept. lel PLAINTIFF''S OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT; MEMORANDUM OF POINTS AND AUTHORITIES DATE: June29,202l TIME: 9:00 a.m. DEPT: 19 Action Filed: July 28,2020 [Filed Concurrently with Request for Judicial Notice and Notice of Lodging Documents Under Seall TO DEFENDANTS AND TO THEIR ATTORNEYS OF RECORD: Plaintiff Allison Huynh, hereby submits her Opposition to Defendants' Demurrer to Complaint as follows: 446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT Electronically Filed by Superior Court of CA, County of Santa Clara, on 6/16/2021 5:48 PM Reviewed By: A. Floresca Case #20CV368776 Envelope: 6665630 20CV368776 Santa Clara - Civil A. Floresca 1 2 J 4 5 6 7 8 9 10 11 t2 13 I4 15 I6 t7 t8 T9 20 2l 22 23 24 25 26 27 28 TABLE OF CONTENTS Page I. INTRODUCTION 1 II. ru LEGAL STANDARD THE STATUTE OF LIMITATIONS DOES NOT BAR ALL PLAINTIFF'S CLAIMS 2 The Statute of Limitations Commences on Discovery and is Tolled When Plaintiff Has SufferedNo Injury. .....................2 Plaintiff Discovered the Wrongful Acts and Omissions Causing Injury Within One Year of Filing This Action J Plaintiff Did Not Suffer Actual Injury in Connection With the Motion to Disquali$, so That Motion Did Not Trigger the Statute of Limitations. .... The Statute of Limitations Does Not Run Because Defendants are Committing a Continuing Tort.... IV. HYUNH DOES NOT NEED TO BRING HER CLAIMS AS DERIVATIVE CLAIMS.. 6 V. DEFENDANTS OWE FIDUCIARY DUTIES TO PLAINTIFF.. DEFENDANTS CAN BE LIABLE FOR INTERFERING WITH PLAINTIFF'S PROSPECTIVE ECONOMIC ADVANTAGE...... 11 DEFENDANTS ARE NOT AGENTS OF A PARTY TO THE ECONOMIC RELATIONSHIP AND CANNOT AVOID LIABILITY ON THAT BASIS. ................ 13 CONCLUSION 15 A. B. 4 5 D C 8 u. VII. VM I446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT I 2 3 4 5 6 l 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHO California Cases Aaroe v. First American Title Insurance Co. (1990) 222 Cal. App.3 d 124 ........ Adams v. Paul (1995) 11 Cal.4th 583 .... Adelman v. Associated Int'l Ins. Co. (2001) 90 Cal.App.4th352 Asahei Kasei Pharma Corp. v. Actelion (2013) 222 Cal.App.4Ih 945...... Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962 ........... Blankv. I(irwan (1985) 39 Ca1.3d 311......... CrossTalk Productions, Inc. v. Jacobson(1 998) 65 Cal.App.4th 631 Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1 1 50............ Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Ca1.4h376 Denevi v LGCC, LLC (2004) 121 Cal. App.4th 121 1 ............ People ex rel. Dept. of Corporations v. SpeeDee Oil Change Sts. ( 1999) 20 Cal.4th 1135 ......... Donabedian t,. Mercury Ins. Co. (200a) 116 Cal.App.4th968.. Goldstein v. Lees (1975) 46 Cal.App.3d 614... 11 Page(s) 13,74 5 4 ',..,,.14 13 8 446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT ......9, 10 1 2 J 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2l 22 23 24 25 26 27 28 Gong v. RFG Oil, Inc. (2008) 1 66 Cal.App.4th 209........ Grosset v. Wenaas (2008) 42 Cal4th 1100 ......... Ivano.ffv. Bank of America (2017) 9 Cal.App. 5th I 19...... Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93 Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134 .... Lee v. Escrow Consultants, Inc. (1989) 21 0 Cal.App.3d 91 5............... Lee v. Hanley (2015) 61 Cal.4th 1225 ........... Livett v. F.C Financial Assoc., Ltd. (1981) 124 Cal.App.3d 413 McCann v. Welden (1984) 153 Cal. App. 3d 814.. McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App .4th 31 8..... PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680... Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 Cal'.4th26 . Redfearn v. Trader Joe's Co. (2018) 20 Cal. App.sth 989..... Schifando v. City of Los Angeles (2003) 31 Cal.App.4th 1074... Schnabel v. Superior Court (1994) 30 Cal.App,4th 7 58..... Schuster v. Gardner (2005) 127 Cal.App.4th 305.... lll ',.,.,7 10 13 7 6 2 6 2 5 4 2 1, 74 10 6 446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 7 8 9 10 11 12 13 14 15 16 11 18 19 20 21 22 23 24 25 26 2l 28 Sheehanv. San Francisco 49ers, Ltd. (2009) 45 Cal.4th992 Stella v. Asset Mgmt. Consultants, Inc. (2077) 8 Cal.App.sth 181 Stueve Bros. Farms, LLC v. Berger, Kahn (2013) 222 Cal. App.4th 303............ (Jnion Carbide Corp. v. Superior Court (1984) 36 Cal.3d 15 United Western Medical Centers v. Superior Court (1996) 42 Cal.App.4th 500.......... Woods v. Superior Court (1983) | 49 Cal.App.3d 93 1 ............. Wyatt v. Union Mortgage Company (1979) 24 Cal.3d 7 13................... Other State Cases Granewich v. Harding (1999) 329 Or.47 ... Jesse by Reineclce v. Danforth (1992) 169Wis.2d229 Reynolds v. Schrock (2006) 341 Or. 338.................. California Statutes California Code of Civil Procedure $ 340.6(a) CCP $ 3a0.6(a)(1) ccP $ 4s2............ Other Authorities Mark L. Tuft, et al., California Practice Guide, Professional Responsibility (Rutter Group, 2020 Update) .............. Rules of Professional Conduct, Rule 1.7(b) Rules of Professional Conduct, Rule 1.18... lv 2 6 2 2 2 9,10 5 17, 72 9 17,72 2 15 't " 10 9 8 446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT I 2 J 4 5 6 7 8 9 10 11 12 13 I4 15 16 17 18 l9 20 2t 22 23 24 25 26 27 28 Restaternent (Third) of the Law Governing Lawyers$57(3) (Am. Law. Inst. 2000), l1 446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT \OOOQQLI‘ILUJNH NNNNNNNNNr-Ib-lwv-tr-IHp-th-tu-np-A WQQM$WNHO©OOQONUI#WNHO est em i 0 h overni yer §57( . . t. 00), ................... 11 V OSI ON NTS’ PL N 1 2 a J 4 5 6 7 8 9 10 11 12 13 t4 15 t6 t7 18 I9 20 2I 22 23 24 25 26 27 28 I. INTRODUCTION After having represented Allison Huynh, her ex-husband Scott Hassan, and their many jointly owned companies over several years, and after then getting disqualified when they tried to represent Hassan in the divorce case between Hyunh and Hassan based on conflicts of interest arising from that joint representation, an utterly unrepentant Morrison & Foerster LLP and Paul L. Lion now seek to avoid liability for assisting Hassan in various machinations designed to deprive Huynh, their former client, of her rightful share of the community property she owned with Hassan. The arguments that defendants have advanced suffer from numerous flaws. Defendants' statute of limitations argument ignores the tolling provisions of the very statute on which it relies, as well as the discovery rule and the nature of their conduct as a continuing tort. The derivative claim argument disregards the fact that plaintiff is suing for attorney fees that she as an individual, not any corporation, incurred, and the fact that plaintiff seeks damages for wrongs directed at her by a controlling shareholder. Defendants' argument that they owe plaintiff no duties overlooks their own disqualification from representing Hassan against plaintiff and the law underlying that disqualification, as well as some allegations in the complaint. And the argument against the interference claims relies on allegations of attorney and agent status not pled in the Complaint. II. LEGAL STANDARD A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. Blankv. Kirwan (1985) 39 CaI.3d 311, 3181, Donabedianv. Mercury Ins. Co. (200$ 116 Cal.App.4th968,994. Courts must liberally construe the pleading with a view to substantial justice between the parties. Code of Civil Procedure ("CCP") $ 452; Redfearn v. Trader Joe's Co. (2018) 20 CalApp.sth 989, 996; Ivanoff v. Bank of America (2017) 9 Cal.App.sth7I9,726. A complaint must be read in context and given a reasonable interpretation. Schifando v. City of Los Angeles (2003) 31 Cal.App.4th 107 4, 108 1. Where the complaint is defective, "[i]n the furtherance ofjustice great liberality should be exercised in permitting a plaintiff to amend his [or her] complaint. Aubry v. Tri-City Hospital Dist. (1992) 2 Cal. th962,970-g7l; Redfearn, sl;pra,20 Cal.App .5th at996. 1446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 7 8 9 10 1t t2 13 t4 15 I6 t7 18 19 20 2l 22 23 24 25 26 27 28 A general demurer does not lie to only parl of a cause of action. If there are sufficient allegations to entitle plaintiff to relief, other allegations cannot be challenged by general demumer. Daniels v. Select Portfulio Servicing, hc. (2016) 246 Cal.App.4th 1 150, 1167 . In PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682-1683, one of the several distinct acts of legal malpractice alleged was not malpractice as a matter of law. This was not ground for demurrer to the complaint because the malpractice cause of action was supporled by the other acts. Moreover, any valid cause of action overcomes a demurrer. It is not necessary that the cause of action be the one intended by plaintiff. The test is whether the complaint states any valid claim entitling plaintiff to relief. If the essential facts of some valid cause of action are alleged, the complaint is good against a general demurrer. Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 998 (general demuffer rnay be upheld "only if the complaint fails to state a cause of action under any possible legal theory"); Quelimane Co., Inc. v. Stewart Title Guar. Co. (1998) 19 Cal.4th26,38-39; Adelman v. Associated Int'l Ins. Co. (2001) 90 Cal.App.4th352,359; A demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. In order for the bar to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the cornplaint; it is not enough that the complaint shows that the action may be barred. Lee v. Hanley (2015) 61 Cal.4Ih 7225, 1232, quoting Committee For Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42; Stueve Bros. Farms, LLC v. Berger, Kahn (2013) 222 Cal. App.4t" 303,327. A statute of limitations demurrer lies only where the dates in question are shown on the face of the complaint. If they are not, there is no ground for general or special demurrer as dates are not essential to the cause of action. Union Carbide Corp. v. Superior Court (1984) 36 Ca1.3d 75,25; United Western Medical Centers v. Superior Court (1996) 42 Cal.App.4th 500, 505. ilI. THE STATUTE OF LIMITATIONS DOES NOT BAR ALL PLAINTIFF'S CLAIMS A. The Statute of Limitations Commences on Discovery and is Tolled When Plaintiff Has Suffered No Injury. CCP $340.6(a) provides that an action against an attomey for a wrongful act or omission in the performance of professional services must be commenced within one year after the plaintiff 2446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 1 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years fiom the date of the wrongful act or omission, whichever occurs first. However, the running of the lirnitations period is tolled whenever plaintiff has not suffered actual injury. CCP $340.6(aX1). B. Plaintiff Discovered the Wrongful Acts and Omissions Causing Injury Within One Year of Filing This Action. Plaintiff has pled that she did not discover the wrongful conduct giving rise to the damages she is claiming until less than one year fi'om the July 28,2020 filing of this action, i.e. after the July 28,2019 "critical date" defendants identifiz for statute of lirnitations purposes. The primary item of damages plaintiff seeks to recover is the $ 1 .1 million plaintiff spent to successfully litigate a halt to the underpriced sale of the assets of Suitable Technologies ("Suitable") in Delaware.l Complaint ("Compl.") n1144-41. Suitable did not even enter the Asset Purchase Agreement that spawned that litigation until August22,2079. Compl. fl40. Plaintiff first leamed about that Agreement in discovery in the divorce case in late 2019. Id. l5l . Plaintiff did not file her Delaware derivative action, and start incurring the fees that cornprise her injury from defendants' wrongful conduct, until November 5,2019, well within ayear of filing this action. Id.n44. Plaintiff did not receive, or have any way to obtain, documentation, showing defendants' continued involvement in other transactions until Hassan produced them in discovery in the divorce case in early 2020. Id. n57. Even now, plaintiff does not know if those other transactions will produce actual injury to plaintiff, because that will depend on whether she establishes in the divorce case that the assets with which defendants were involved were community property and on whether plaintiff fully recovers the value of her comrnunity interest via the divorce action. That action is set for trial commencing August 23,2021. Thus, to the extent plaintiff is seeking in this action recovery of the $1.1 million in attomey fees she incurred in Delaware, the action is not bared because the injury did not occur, and plaintiff I While defendants assert that the Delaware Court in that litigation denied plaintiff s application for a preliminary injunction, that Court, at plaintiff s urging, declined to approve the sale, and court approval was a condition of the sale. Compl. fl46. The subsequent sale for the same price in a fire-sale bankruptcy auction, if anything, vindicates J446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 7 8 9 10 11 12 13 14 15 16 l7 l8 I9 20 21 22 23 24 25 26 27 28 did not discover it, until after July 28,2019. Even if the Court cornpletely credits defendants' statute of lirnitations argument, which it should not for the reasons below, at best defendants would only have shown a portion of the claim to be barred by the statute of limitations, and they cannot successfully demur to part of a cause of action. Plaintiff has sufficiently pled a claim for that $ I .1 million, and other relief, that arose within the statute of limitations, and to the extent it is based on the statute of limitations, the demurer should be ovemrled. C. Plaintiff Did Not Suffer Actual Injury in Connection With the Motion to Disqualify, so That Motion Did Not Trigger the Statute of Limitations. When plaintiff suffers actual injury is generally a question of fact, unless the facts are undisputed and plaintiff suffered manifest and palpable injury as a matter of law. Adams v. Paul (1995) 1 1 Cal.4tL 583, 593. Plaintiff rnust have suffered "definite and cefiain" injury, something more than nominal or insubstantial damages. Id. at 589-591. Because actionable harm may occur at any one of several points in time subsequent to an attorney's negligence, the determination of when it occurred is generally a question of fact. McCann v. Welden (1984) 153 Cal. App. 3d 874, 824. Plaintiff has not pled, or incurred, any actual injury as a result of the Motion to Disqualifu. By order of the Court in the divorce case, Hassan has been paying plaintiff s attomey fees, including the fees for the battle resulting in defendants' disqualification as counsel in that case. The statute of limitations bar must appear on the face of the complaint, as shown in $II above. On this demurer, defendants have not identified any allegation of damages arising out of the Motion to Disqualifli, and they cannot do so. For example, even though plaintiff has alleged that defendants' representing Hassan in the divorce case breached defendants' fiduciary duty to her, and that she knew about that particular breach as early as March, 2019, the only damages alleged for breach of fiduciary duty are the $1.1 million in attorney fees and the lost value of community assets that defendants facilitated for Hassan. None of those damages are attributable to the Motion to Disqualify, and defendants sirnply miss the mark in arguing that plaintiff adrnitted in Compl. 157 that she knew of defendants' plaintiff s position, and the Delaware Court's conclusion, that the fair market value was higher. R.IN Ex.5, Ex.A 4446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 7 8 9 10 11 12 13 I4 15 16 17 18 19 20 2t 22 23 24 25 26 27 28 wrongdoing based on her notice of their involvement in the Dissolution Action in March, 2019. Knowledge of wrongdoing--even if it existed that early without the later infonnation fl57 alleges provided that knowledge--does not create actual injury, and without actual injury, the statute is not running. The mere existence of the conflict of interest, while a breach of fiduciary duty and important to the other legal claims, did not create the monetary loss claimed in this case. Accordingly, under CCP $340.6(a)(1), no statute of limitations could be triggered by the Motion to Disqualiflz or the appearance of defendants on behalf of Hassan in the Dissolution Action per se. With no actual injury, i.e. monetary damage, alleged in the cornplaint based on facts, events, or knowledge more than one year before this action, defendants' statute of limitations demurer fails. D. The Statute of Limitations Does Not Run Because Defendants are Committing a Continuing Tort. Plaintiff has pled that defendants' conduct is part of a pattern of structuring, negotiating and documenting transactions designed to deprive her of her community interest, or the value of her community property, that has continued at least into December,2079 with the Suitable transaction that failed to close after the Delaware Courl opined there was reason to believe Hassan's conduct was not motivated by Suitable's best interests and the assets were wofih far more than the proposed sale price, and the couft in the Dissolution Action declined to approve the sale. Compl. t1fl37-a8; RJN, Ex.5, Ex.A, pp.6-7 of 714.2 The statute of limitations does not start running on a continuing tort until it is cornpleted. Wyatt v. Union Mortgage Company (1979) 24 Cal.3dl73,186-188; Aaroe v. First American Title Insurance Co. (1990) 222 Cal.App.3d 124, 128; Livett v. F.C Financial Assoc., Ltd. (1981) 124 Cal.App.3d 413,427. Thus, regardless of when defendants clairn the statute should have started running, their own continuing wrongful conduct prevented the statute from being triggered. Also, any duty to investigate or inquire about suspicious facts is relaxed where defendant owed plaintiff fiduciary duties. If the nature of the relationship was such as to cause plaintiff to rely on the fiduciary, there is no duty to inquire until the relationship is repudiated or plaintiff becornes 2 References to RJN with exhibit numbers (including this reference) are to defendants' RIN; references to RJN with 446606 5 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 7 8 9 10 11 12 13 14 15 16 t7 18 t9 20 21 22 23 24 25 26 27 28 aware of facts that would make a reasonably prudent person suspicious of the fiduciary. Stella v. Asset Mgntt. Consultants, Inc. (2017) 8 Cal.App.5th 187,191 fn. 13; Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 921. As argued below, defendants owe fiduciary duties to Huynh both by vifiue of representing her and by virtue of representing family-owned companies that she co-owns. Hence, even absent the continuing tort doctrine, the pre-2019 facts defendants cite would not trigger a duty to inquire of a fiduciary so as to commence the running of the statute of limitations. In any event, at most those facts might show a conflict of interest, but not damage- causing conduct. IV. HYUNH DOES NOT NEED TO BRING HER CLAIMS AS DERIVATIVE CLAIMS. Hyunh personally incurred the $1.1 rnillion in attomey fees in the Delaware action. They are not damages suffered by Suitable, nor are they merely incidental to the darnage Suitable suffered. While the relief sought in Delaware-preventing a below-value asset sale--would benefit Suitable as distinguished from its shareholders, and thus required a derivative action in Delaware, the fees for that action were neither incurred nor reimbursed by Suitable, and the burden of them did not fall on either the corporation or the shareholders as a body in proportion to their percentage of ownership. That burden fell entirely on Hyunh, so Hyunh can pursue recovery of those fees individually. McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th3l8,384 cited by defendants, is inapposite. Defendants cited it not for any actual holding in the case but for a proposition that the case indicated was just a characterization of a holding from another state. Even at that, the holding involved only the unremarkable proposition that a shareholder who is suing colporate counsel for darnage to the corporation must sue derivatively. Plaintiff in the present case is suing for darnage she suffered personally, not damage to Suitable. Schuster v. Gardner (2005) 127 Cal.App.4th 305, 312-313, the other case defendants cite, really proves plaintiff s point. It holds that a claim for loss of value of stock or loss of investment value that is incidental to the harm suffered by the corporation and that affects all shareholders must be asserted derivatively. exhibit letters are to Hyunh's RJN 446606 6 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 aJ 4 5 6 l 8 9 10 11 12 13 14 15 16 l7 18 19 20 21 22 23 24 25 26 27 28 Plaintiff s attorney fees do not comprise hann to the corporation, nor are they incidental to hann suffered by the corporation such that they affect all shareholders. As stated in Grosset v. lVenaas (2008) 42Cal.4tt' 1100, 1108and Jonesv.H.F.Ahmanson&Co. (1969) I Cal.3d93, 106-l07,an action is derivative if "the gravamen of the cornplaint is injury to the corporation, or to the whole body of its stock." On the other hand, "[i]f the injury is not incidental to ar-r injury to the corporation, an individual cause of action exists." Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1222. Neither the corporation nor the whole body of its stock suffered the attorney fees claimed in this case. Only Huynh did. Her claim for those fees is not a derivative claim. As to the damages for other transactions, this case parallels the fact pattem in Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93. In Ahmanson, a minority shareholder brought an action for breach of fiduciary duty against a holding company and present or fonner holders of stock in a savings and loan association who had transferred a control block of shares in the association to the holding company, for breach of fiduciary responsibility. The Courl ruled that the action did not need to be asserted derivatively because the complaint did not seek recovery on behalf of the corporation for injuries to the corporation or for injury incidental to any injury to the corporation but rather sought recovery for injury to the shareholder herself and other minority stockholders. She complained that the majority shareholders formed a new corporation whose major asset was to be the control block of association shares but from which minority stockholders were excluded, whereby the rnajority became holders of stock more marketable than the association shares. The Courl found that although the plaintiff alleged the value of her stock had been dirninished by defendants' actions, she did not contend the dirninished value reflected an injury to the corporation and resultant depreciation in the value of the stock. Thus the gravamen of her cause of action was injury to herself and the other minority stockholders. Accordingly, the Court ruled that her suit was not derivative, and could be rnaintained without showing injury that was unique to her. Hyunh is alleging that one controlling shareholder, with defendants' assistance, breached his fiduciary duty by siphoning off corporate value for his benefit and to her detriment. Compl. flfll0, 72, 48-50,55(c)-(e), 56. In this regard, she is alleging conduct by one shareholder and corporate counsel against another shareholder, not damage to the corporation and its whole body of 446606 7 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT I 2 a J 4 5 6 7 8 9 10 11 12 13 t4 15 16 17 18 19 20 21 22 23 24 25 26 27 28 shareholders. Hassan was a shareholder as well, and he benefited fi'orn the conduct alleged. Where the effect or-r a plaintiff/shareholder is not the salne as on the other shareholders, the damage is not incidental to damage suffered by the corporation, but rather is personal to the shareholder suing. To the extent the demurrer is based on plaintiff having to sue derivatively, it should be ovemrled. V. DEFENDANTS OWE FIDUCIARY DUTIES TO PLAINTIFF. Defendants' contention that they never had an attomey-client relationship with Huynh, and therefore owe her no duties, is specious. An attorney-client bond encompasses the earliest moments of the relationship. "The fiduciary relationship existing between lawyer and client extends to prelirninary consultations by a prospective client with a view to retention of the lawyer, although actual employment does not result. People ex rel. Dept. of Corporations v. SpeeDee Oil Change Sys. (l 999) 20 Cal.4tr' 1 135, 1 147-48; Califomia Rules of Professional Conduct ("RPC"), Rule 1.18. Huynh and defendants exchanged many confidential communications before MyDream was ever fonned. During that time, Huynh, not MyDream-which did not even exist yet-was the client. The communications between defendants and Huynh about contemplated financing, fonnation, and operation of a business that Huynh wanted to start were pafi of a confidential attorney-client relationship between them, as was the advice that defendant Paul Lion provided about the structuring, financing, and fonnation of MyDream. Defendants could not be counsel to just the corporation when the corporation did not exist and defendants were advising the principal on the very subject of what legal form the business should take. Defendants did not even transmit a retainer agreement to plaintiff until after they had fonned MyDream. Cornpl. fl26. Plaintiff has alleged she discussed her plans for an educational software and gaming company with Lion, and before the company was ever incorporated, conveyed confidential information and received personal legal counsel and advice frorn Lion with respect to that yet-to-be- formed entity, including with respect to her own relationship and involvernent with the not-yet- fonned entity. Compl. tl25; Declaration of Allison Huynh, RJN, Ex. A.3 This allegation concerning advice relating to her personal circumstances and relationship vis-d-vis the proposed business, 3 Huynh's RJN, Ex. A is the same Request to Disqualify Counsel as Defendants'R.IN, Ex. 1, except Huynh's RJN, 446(to6 8 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 3 4 5 6 7 8 9 l0 l1 l2 13 14 15 16 t7 18 t9 20 21 22 23 24 25 26 27 28 especially in light of Hassan's reference to defendants as "our farnily lawyers", makes Huynh's belief that defendants were representing her objectively reasonable, and provides the facts concerning personal advice and the rationale for Huynh's understanding that she was defendants' client which defendants erroneously argue on demurrer is rnissing from the complaint. Compl. fl28. Defendants rest their argument that they were not counsel for Huynh when they were advising her on her future business on the thin reed of two out-of-state cases, frorn Minnesota and Wisconsin, cited in Mark L. Tuft, et al., Califtrnia Practice Guide, Professional Responsibility (Rutter Group, 2020Update), one of which, Jesse by Reinecke v. Danforth (1992) 169 Wis.2d 229,240-42, involved 23 doctors who retained a firm specifically to organize a corporation, just two of whom were later sued for malpractice by that same lawfirm. Defendants' duties to Huynh derive not only from their representation of her and their advising her concerning her nascent business, but also from representing family companies. An attomey representing a presumptively community entity cannot later choose sides and act on behalf of one spouse against the other, as defendants have done by first attempting to represent Hassan in the Dissolution Action and then assisting and facilitating Hassan's campaign to deprive Huynh of her community property interest in the family businesses for which defendants were and are counsel. This is the lesson of Woods v. Superior Court (1983) 149 Cal.App.3d 93 7,933,931 where the Courl of Appeal disqualified an attorney who had been representing the family business from appearing as counsel for the husband in a divorce proceeding. In holding that the attorney of a farnily-owned business could not represent one owner against the other in a dissolution action, Woods rejected the argument that the attorney was representing only the farnily business and therefore owed no duties to the wife. The Court held that "the proper focus should be on the fact that in representing an ongoing farnily corporation, fcounsel] in a very real sense continues to represent wife." Id. at935. Woods cited Goldstein v. Lees (1915) 46 Cal.App.3d 614,622 for the principles that a "corporation's legal adviser must refrain from taking parl in controversies among shareholders as to Ex. A includes Huynh's Declaration, pp. 16-17 of the document, which Defendants chose to omit. 446606 9 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT I 2 aJ 4 5 6 7 8 9 10 11 12 13 14 15 16 t7 18 t9 20 2t 22 23 24 25 26 21 28 its control, and when his opinion is sought he must give it without bias or prejudice." Iiloods, supra, 149 Cal.App.3d at 936. Goldsteinheld that even after an attorney ceases to be ernployed by a corporation, the attorney "must refrain frorn taking part in any controversies or factional differences which may exist among shareholders as to its control." Goldstein, supra,46 Cal.App .3d at 622. Thus "[w]hen fthe attomey's] opinion is sought by those entitled to it, or when it becomes his duty to voice it, he must be in a position to give it without bias or prejudice and to have it recognized as being so given...Unless he is in that position, his usefulness to his client is impaired...This duty to act without bias or prejudice does not dissolve merely because the attorney has been discharged." Id. Applying these principles, Woods explained that allowing the attorney for a family company, co-owned by a husband and wife, to represent the husband against the wife on matters relating to the family company would create "serious problems" because (l) the attomey owes "undivided loyalty" to the family company and "cannot take sides in a serious dispute between its owners" and (2) there is a presumption that the attomey obtained confidential and/or otherwise protected information through its prior representation that might be disclosed in the successive representation. Woods, supra, 149 Cal.App.3d at 934-936. Other cases have reiterated the principle that an entity's lawyer cannot choose sides between competing owners. Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4tt'209,2l4held "A cotporation's legal advisor must abstain from taking part in controversies among the corporation's directors and shareholders." In Schnabel v. Superior Court (1994) 30 Cal.App.4't'J58,159-60, the Courl in a dissolution proceeding found joinder of a corporation of which the couple owned 30Yo to be necessary because the corporation and the husband were represented by the same law firm, the corporation had paid the husband's attorney fees, and the cotporation exhibited favoritism toward the husband. Id. at763-64. Citing liloods, the court expressed "concern" that the husband was being represented by the same lawyers as the corporalion. Id. at763, n.5. See RPC, Rule 1.7(b). This is the same authority that already persuaded the Court in the Dissolution Action to disqualify defendants from representing Hassan in that action. RJN Ex. A, pp.9-13; and Ex. B. Thus, in addition to the duties defendants have to Huynh deriving from having represented and 10446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 a J 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 2l 28 advised herbefore MyDrearn existed, the duties of loyalty arising fi'orn defendants'representing farnily companies require that defendants not act so as to facilitate the diverting of corporate value, or the devaluing of assets, in farnily companies in a manner that favors one spouse to the detriment of the other, and if they do, to answer for doing so in damages. VI. DEFENDANTS CAN BE LIABLE FOR INTERFERING WITH PLAINTIFF'S PROSPECTIVE ECONOMIC ADVANTAGB. According to the Restatement (Third) of the Law Governing LawyeLs$57(3) (Am. Law. Inst. 2000), as quoted by defendants, a lawyer advising his client is not liable to a non-client for interference with contract or prospective contractual relations if the lawyer acts to advance the client's objectives without using wrongful means. Under that standard, defendants actually can be liable for interfelence with prospective econornic advantage because they did use wongful means. They have acted in breach of fiduciary duties and the duty of loyalty they owe to plaintiff as her fonner counsel and as counsel for farnily-owned businesses, as set forth in $V above. Cornpl. fl65. This wrongful conduct, this breach of defendants' own independent duties to the plaintiff, is absent from Reynolds v. Schrock (2006) 341 Or. 338, and every other case defendants cite for the purported existence of a privilege on the part of the attomeys to aide and assist in their own client's breach of fiduciary duties. In Reynolds, for example, Reynolds and Schrock jointly owned two properties, and to settle differences, agreed that Reynolds would transfer his interest in one of the two jointly owned properties to Schrock and that Schrock and Reynolds would sell the second property. If the second properly sold for less than $500,000 then Schrock would grant Reynolds a security interest in the first property. Schrock's attorney then advised Schrock to sell the first property first and thereafter revoke the consent to sell the jointly owned second properly. Reynolds sued both Schrock and Schrock's attorney for breach of fiduciary duty. The court found that Schrock's attorney could not be held jointly liable with a client for the client's breach of fiduciary duty unless the third parly showed that the lawyer was acting outside the scope of the lawyer-client relationship. The court distinguished the case Reynolds had relied on, Granewich v. Harding (1999) 329 Or. 47 , which allowed an action against an attorney for assisting others in breaching the fiduciary duties they owed as majority shareholders to the plaintiffs as 44(t(t06 1 1 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 a J 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 rninority shareholders. In Granewiclt, according to Reynolds, the lawyer being sued was the attonrey for the corporation, not the individuals that owed the fiduciary duties. 341 Or. at344. Huynh has alleged that defendants represented the various farnily corporations, not Hassan individually. Cornpl. flfl4, 5, 9,10,29,38,39, and 50. Indeed, defendants themselves spent a porlion of their demurrer drawing this very distinction, clairning to have represented MyDrearn but not Huynh. Demurer, pp. 9-10. Huynh has alleged an advantageous economic relationship with Hassan, not with the companies she has alleged defendants represented. Cornpl. fl61. Thus, this case falls within the category of Granewich, where the Oregon court allowed an action against the attorney for aiding a non-clients' breach of fiduciary duty, and is unlike Reynolds, where the court found a privilege for the lawyer advising his own breaching client, but specifically distinguished the situation of the corporation's lawyer aiding in the breach by the corporation's shareholder. No privilege applies here based on defendants' own authority. Reynolds does not apply to the present case for another reason. In Oregon, one is liable for harm resulting to a third person from the tortious conduct of another, if he (a) does a tortious act in concert with the other or pursuant to a cornmon design with hirn, or (b) knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct hirnself, or (c) gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to the third person. Reynolds, supra, 341 Or. at 345. Howevet, the parties in Reynolds agreed that Reynolds had not alleged a claim under subsection (c) because Reynolds did not assefi that the attomey's own conduct, separately considered, constituted a breach of duty to Reynolds. Consequently, the holding of Reynolds finding a privilege on the part of the attorney does not apply where the attomey breached a separate duty to the plaintiff. Huynh alleges that defendants' conduct in aiding Hassan did, separately considered, breach a duty to Huynh. Cornpl. fl1152-56,65-66,74-75. For this additional reason, the authority in Oregon and other states, and the Restatement cited above, does not establish that a privilege would apply to defendants' conduct in this case. Defendants admit that no California couft has ever held such a privilege exists, and given the requirements in California for the torl itself, such a privilege would be superfluous. In California, 44660(t 12 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT I 2 J 4 5 6 l 8 9 10 11 12 13 14 15 16 t7 18 I9 20 21 22 23 24 25 26 27 28 the tort of interference with prospective econornic advantage, interitional or negligent, requires that the conduct of the defendant be indeper-rdently wrongftil. Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Ca7.4t1' 1134, 1158-59; Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 1 1 Cal.4tr' 376,392-393. If the attorney's conduct is independently wrongful apart from just the interference itself, such as in this case where it breaches independent fiduciary duties owed to Huynh, there is no justification for cloaking the attorney's conduct in a privilege. Based on the distinctions between this case and defendants' cited authority, the specific requirements of the tort in Califomia, and the conspicuous absence of any California authority supporting defendants' demurrer on this point, the demurrer should be denied to the extent it is based on a purpofied privilege exempting defendants from liability for interference. VII. DEFENDANTS ARB NOT AGENTS OF A PARTY TO THE BCONOMIC RELATIONSHIP AND CANNOT AVOID LIABILITY ON THAT BASIS. In Asahei l{asei Pharma Corp. v. Actelion (2013) 222 Cal.App.4th 945,961-968, Actelion acquired a compally that had a contract with Asahei to run trials on a new medication that would threaten the market dominance of a medication Actelion made. Actelion and its offtcers then directed its new subsidiary to terminate the contract. Actelion acknowledged it was not a party to the contract. The coufi detennined that both Actelion and its officers could be sued for interference with contract and with prospective economic advantage. As to the officers, they had no insulation as agents because they were agents of a non-contracting party, Such is the case here. Hyunh's econornic relationship was with Scott Hassan. Complflfl61, 63,64. Huynh has alleged that defendants represented the various family corporations, not Hassan individually. Cornpl. fln4,5,9,70,29,38,39,50, and 66. All of those allegations are incorporated into the causes of action for interference with prospective econotnic advantage. Defendants ignore all those clear allegations that they repr"esented various entities who were not parties to the economic relationship and seize on sorne adrlittedly irnprecise language in]162 of the Cornplairrt asserting they had the requisite knowledge of the advantageous econornic relationship while they were "representing and advising Hassan and the cotnpanies he established". The language quotecl can be interpretecl a number of ways, but in context the clear intent of l3446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 aJ 4 5 6 l 8 9 10 11 12 13 t4 15 t6 17 18 t9 20 21 22 23 24 25 26 2l 28 the language is to refer to aclvising Hassan in the course of representing the companies plaintiff has alleged throughout the Complaint that defendants represent. It certainly was not plaintiff s intent to plead that defendants were representing Hassan individually so as to exonerate thern as agents of the party to the economic relationship, when plaintiffhad scrupulously to that point only alleged defendants represented the cornpanies. Such an interpretation would violate the principles that courts must liberally construe the pleading with a view to substantial justice between the parties and must read a complaint in context and give it a reasonable interpretation. In any event, courts cannot sustain demurrers without leave to amend based on ambiguities. CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App .4th 637, 635 (Complaint ambiguous as to whether "secure" meant "bribe", showing an unclean hands defense, orjust "protect or safeguard"). Both Redfearn and Asahei make clear'that rnerely having an economic interest in a contract or a relationship of others does not insulate a parly frorn liability for interfering with that contract or relationship. Thus, a parent company can be liable for interfering with its subsidiary's contract. Asahei, supro, 222 Cal.App.4th at 961-965. Likewise, a nonpafty to a contract that contemplates the nonparly's perfonnance, by that fact alone, is not immune from liability for contract interference. Red.fearn, supro,20 Cal.App.5th at 1003 (supermarket could be liable for interfering with contract between food processor and broker, even though it had to buy from broker fol that contract to be effective). Defendants do not even have a monetary interest in the economic relationship between Huynh and Hassan. There is no allegation or inference that defendants or any of the companies to which they are counsel would suffer economically if Hassan did not breach his duties in managing and preseruing the community properly. Even if they did, though, it would not defeat the claim against defendants because they would still be agents of strangers to the Huynh/Hassan relationship. Plaintiff has not clearly pled that defendants are agents of Hassan, and in light of the numerous, overshadowing allegations that defendants represent the companies, any ambiguity in pleading their status should be disregarded. To the extent the demurrer is based on defendants' purported agency of a parly to the relationship, it should be denied. 14446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT 1 2 J 4 5 6 l 8 9 10 11 12 13 14 15 16 17 18 19 20 2l 22 23 24 25 26 27 28 VIII. CONCLUSION. Plaintiff has filed this action within one year of discovery of the facts giving rise to her claim, or one year of the occuffence of those facts, and certainly within one year of her suffering injury, so the statute of lirnitations should not bar this claim. Plaintiff is suing on her own behalf for damages she personally suffered, so the claim is not derivative. Defendants owe fiduciary duties to plaintiff based on having represented her and having represented family companies of which she was and is co-owner. Defendants are not immune from liability as either counsel or an agent for Hassan as a parly to the relationship because plaintiff has alleged defendants are counsel for the companies, and her economic relationship was with Hassan individually. The Court shouid ovemrle the demurer in its entirety. If it sustains any part of the demurrer, plaintiff requests leave to amend. Dated: June 16,2021 ENGSTROM, LIPSCOMB & LACK B WALTER J. LACK STEVEN C. SHUMAN Attorneys for Plaintiff 15446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT I 2 aJ 4 5 6 l 8 9 10 11 12 13 14 15 t6 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE STATE OF CALIFORNIA COUNTY OF LOS ANGELES I am ernployed in the County of Los Angeles, State of California. I am over the age of 18 and not apafiy to the within action;rny business address is 10100 Santa Monica Boulevard, l2th Floor, Los Angeles, Californi a 90067 -4113. On June 16,2021, I served the foregoing document described as PLAINTIFF'S OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT; MEMORANDUM OF POINTS AND AUTHORITIES the interested party(ies) in this action as follows Ragesh K. Tangri, Esq. David McGowan, Esq. Bethany D. Bengfort, Esq. DURIE TANGRI LLP 277 Leidesdorff S. San Francisco, CA 94111 Tel: 415-362-6666 Email : rtaneri@durietangri.com drnc gowan@duri etan qri. corn bb en efort@ duri etan eri. corn (BY MAIL) I deposited such envelope in the mail at Los Angeles, Califomia. The envelope was mailed with postage thereon fully prepaid. I am readily familiar with the firm's practice of collection and processing corespondence for mailing. It is deposited with the U.S. postal service on that same day in the ordinary course of business. I am aware that on motion of the party seled, service is presumed invalid if postal cancellation date or postage meter date is more than 1 day after date of deposit for mailing in affidavit. X (BY E-MAIL/ELECTRONIC TRANSMISSION): Based on a court order or an agreement of the parties to accept service by e-mail or electronic transmission, I caused the documents to be sent to the persons at the e-rnail addresses listed below. I did not receive, within a reasonable time after the transmission, any electronic message or other indication that the transmission was unsuccessful. (TO ALL NOTED ON SERVICE LIST) SS, ) ) ) X the (STATE) I declare under penalty of perjury under the laws of the State of Califomia that above is true and correct. Executed on June 16,2021, at Los Angeles, fornia. Merl Fletcher r6446606 OPPOSITION TO DEFENDANTS' DEMURRER TO COMPLAINT
