Complaint Unlimited Fee Applies

Cal. Super. - 6th Dist.November 5, 2020

GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 E-FILED 11/5/2020 8:42 PM Clerk of Court GRELLAS SHAH LLP Superior Court of CA, DHAIVAT H. SHAH, ESQ. (SBN 196382) County of Santa Clara (ds@grellas.com) ZOCV3731 45 DAVID 1. SIEGEL, ESQ. (SBN 264247) Reviewed By: M Vu (dsiegel@grellas.com) ERIN M. ADRIAN, ESQ. (SBN: 228718) (ema@grellas.com) 20400 Stevens Creek Blvd, Suite 280 Cupertino, CA 95014 Telephone: (408) 255-6310 Facsimile: (408) 255-6350 Attorneys for Plaintiffs MAGNOLIADRHOMESLLC, a California limited liability corporation, and YOULIN WANG, an individual SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SANTA CLARA MAGNOLIADRHOMES LLC, a California Case No. 2°CV373145 limited liability corporation, and YOULIN WANG, an individual COMPLAINT Plaintiffs, JURY TRIAL DEMANDED VS. GUIDANCE LAW, APC, a California professional corporation, DEREK LONGSTAFF, an individual, and Does 1-50, inclusive Defendants. Plaintiffs Magnoliadrhomes LLC (“Magnolia”) and Youlin Wang (“Wang”) (collectively with Magnolia, “Plaintiffs”) bring this action against Defendants Guidance Law APC (“Guidance Law”), and Derek Longstaff (“Longstaff’) and allege as follows: PARTIES 1. Magnolia is a limited liability company formed in California, With its principal 1 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 place of business in Los Altos, California. 2. Wang is an individual residing in China. Wang owns 100% 0f Magnolia. 3. Longstaff is an attorney licensed in the state of California. Upon information and belief, Longstaff resides in Santa Clara. 4. For periods of time relevant to this Complaint, Guidance Law was a California professional corporation. Upon information and belief, Longstaff was the “Managing Attorney” of Guidance Law with offices in Palo Alto, California. 5. Plaintiffs are ignorant of the true names and capacities, Whether individual, corporate or otherwise, of defendants named herein as Does 1 through 50 and Plaintiffs sue said defendants by their fictitious names. Plaintiffs Will seek leave t0 amend this complaint t0 assert allegations against the Doe defendants When their true involvement in these matters and capacities are ascertained. Plaintiffs are informed and believe, and on that basis allege, that each of the defendants sued herein as Does 1 through 50 inclusive, is in some way legally responsible and liable to Plaintiffs With respect to the matters set forth herein. VENUE 6. Venue of this action in the County of Santa Clara in the State 0f California is proper pursuant t0 California Code 0f Civil Procedure Sections 395 and 395.5 because many of the services, representations and negotiations provided in connection With the relevant agreements occurred in or from Santa Clara. Further, the attorney-client relationship was entered into in Santa Clara and legal services were to be performed in Santa Clara. Upon information and belief, Longstaff resides in Santa Clara. FACTUAL BACKGROUND 7. Guohua “Greg” Xiong (“Xiong”) is an authorized agent for Magnolia and Wang. 8. Wang developed 2 new single family residences in Palo Alto, California, at 3878 Magnolia Drive and at 3880 Magnolia Drive. Wang subsequently transferred 3880 2 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Magnolia Drive to Magnolia. 9. In October 2017, Wang sold 3880 Magnolia Drive for $4.1M. In May 2018, Magnolia sold 3880 Magnolia Drive for $4.1M. 10. Because Wang is a foreign national, there was significant tax Withholding, over $1 million, from the proceeds of these sales by both the federal government and the State of California pending filing of Wang’s tax returns for the calendar year of each sale. 11. Acting on behalf 0f Magnolia and Wang, Xiong retained Longstaff and Guidance to provide legal services t0 Wang in connection With Wang’s tax refunds for the 2017 and 2018 calendar year and to provide legal services to Magnolia in connection with Magnolia’s use 0f proceeds from 3880 Magnolia Drive and 3878 Magnolia Drive. 12. Longstaff represented that he was the Managing Attorney at Guidance Law, with offices in Palo Alto. A. Longstaff and Guidance Law Represent Wang In Connection With The DAT Agreement 13. Longstaff and Guidance Law introduced Xiong to Joseph Libkey (“Libkey”). Libkey did business through Peak Financial Company (“Peak”), an entity that, upon information and belief, Libkey Wholly owned. 14. Libkey proposed that Magnolia use a tax deferral vehicle he called a Deferred Asset Trust (“DAT”) to defer taxation 0n the proceeds of the sale 0f 3880 Magnolia Drive into a future tax period. Magnolia would retain Peak t0 hold these proceeds in a Deferred Asset Trust (“DAT”) account under the terms 0f a Deferred Asset Trust and Management Agreement (“Agreement”) created by Libkey and/or Longstaff and Guidance Law. 15. Longstaff and Guidance Law were retained to provide legal advice with respect to the sales 0f 3880 Magnolia Drive, the DAT Agreement, and tax issues for tax years 2017 and 2018. Longstaff and Guidance held themselves out to have expertise With respect t0 real estate and tax matters. 16. Libkey represented t0 Xiong that, after the funds were held for one calendar 3 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 quarter, Magnolia would always have access t0 distribution of the funds held in the DAT account. After 5 days’ notice, the funds would be delivered by Peak t0 Magnolia. 17. Longstaff advised Xiong that the DAT Agreement was a lawful and legitimate tax deferral vehicle and recommended that Magnolia use the DAT Agreement t0 defer taxes 0n the proceeds from sale 0f the two Magnolia properties. 18. In fact, the DAT Agreement is against public policy and not a lawful tax deferral vehicle. 19. On May 7, 2018, $3,130,953.66 from the proceeds 0f the sale of 3880 Magnolia Drive were wired into an account established by Peak and Libkey at US Bank in Colorado. 20. In October 2019, Xiong requested that Libkey and Peak return Magnolia’s funds held in the DAT account. Despite numerous requests, Libkey and Peak have not returned the funds. B. Longstaff and Guidance Law Represent Wang In Connection With His 2017 And 2018 Tax Returns 21. During this same time period, Libkey also introduced Richard Kahn (“Kahn”) and his associate Luis Bulas-Felix (“Bulas-Felix”) as individuals that provided tax services that would help maximize refunds of taxes Withheld by the federal government and the State 0f California in accordance with statutes governing profits received on the sale of real estate by foreign nationals like Wang. Longstaff represented t0 Xiong that Kahn and Luis Bulas-Felix would facilitate and maximize the amount 0f Withheld taxes that would be recovered, and that the services of Kahn and his company Forensic Professionals Groups, Inc. (“FPG”) and Bulas- Felix should be utilized. 22. Kahn and Bulas-Felix prepared and filed Wang’s 2017 and 2018 tax returns. The DAT Agreement was not used as a tax deferral vehicle and not reflected in Wang’s tax returns in any way. Thus, Without Plaintiffs” knowledge, Kahn and Bulas-Felix abandoned the DAT Agreement, and no tax deferral was sought 0r obtained. 23. Longstaff advised Xiong that Kahn and Bulas-Felix were preparing Wang’s tax 4 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 returns properly and consistent With a goal of properly discharging Wang’s tax obligations t0 the U.S. government and the State 0f California and the goal of ensuring that any tax withholding amounts from the two Magnolia Drive transactions were properly credited to Wang. Longstaff also represented that Kahn and Bulas-Felix would file tax returns in such a manner as t0 capture the lawful tax deferral benefits of the DAT Agreement. 24. Upon information and belief, Longstaff created a fraudulent power of attorney (“POA”) dated November 13, 2017, purportedly from Wang and conferring on Longstaff and Guidance Law broad authority t0 act 0n Wang’s behalf. Wang did not sign this POA and did not give Longstaff the authority to act on his behalf as stated in the fraudulent POA. 25. In the Fall 0f 2018, Longstaff subsequently executed a series of contractual agreements between Wang and FPG. Longstaff signed these agreements as Wang’s attorney- in-fact, and the contracts stated that Longstaffs authority t0 d0 so came from the fraudulent POA. The agreements purported t0 give FPG a nearly 50% contingency fee 0n the tax refunds that Wang obtained on the returns that Kahn and Bulas-Felix executed. 26. Neither Xiong nor Wang authorized Longstaff to sign these agreements and were unaware at the time that these agreements existed. 27. In 1ate-2019, Longstaff disclosed to Xiong that Kahn was claiming hundreds 0f thousands of dollars 0f fees for his services in connection with the preparation 0fWang’s tax returns. Longstaff further disclosed that Kahn was withholding a federal tax refund check 0f $593,851 for Wang’s 2018 federal return that he would refuse t0 surrender t0 Xiong 0r Wang unless Kahn’s purported fees were first paid. 28. Longstaff represented t0 Xiong, however, that he had negotiated With Kahn and that Kahn was Willing t0 release the federal tax refund check if Xiong Wired t0 Kahn $107,500 towards payment of Kahn’s fees. Longstaff advised Xiong to wire $107,500 to Kahn to obtain his refund. 29. On Longstaff’ s advice, Xiong Wired $107,500 to Kahn 0n October 25, 2019. 30. Unknown t0 Xiong or Wang at the time, upon information and belief, in 5 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 October 2018, Kahn and Bulas-Felix had also received $ 1 36,530 in Wired funds from the Franchise Tax Board, representing Wang’s 2017 state tax refund. Neither Longstaff, Kahn, nor Bula-Felix disclosed this receipt 0f funds t0 Xiong 0r Wang, and Kahn and Bulas-Felix converted these funds t0 their own use. C. Longstaff and Guidance Law Purport t0 Act As Wang’s Attorney In Fact In A Pending Florida Arbitration 3 1. In 0r about November 2019, Kahn and FPG commenced arbitration proceedings before the American Arbitration Association in Miami, Florida against Wang (the “Arbitration”), in part arising from the contractual agreements Longstaff and Guidance Law purported t0 enter into 0n Wang’s behalf under the purported authority granted by the POA. 32. Wang did not receive notice of the Arbitration. Instead, it appears that Kahn and FPG served only Longstaff. 33. Beginning in December 2019, Longstaff began purporting t0 represent Wang in the Arbitration as Wang’s attorney-in-fact under the POA and the Second POA (discussed below). 34. A11 the while, Longstaff and Guidance Law concealed the existence of the Arbitration from Wang over nine months. D. The Relationship Between Longstaff and Guidance Law 35. Upon information and belief, at all relevant times, Longstaff was the agent 0r employee of Guidance Law, and Guidance Law authorized Longstaff t0 hold himself out as practicing law as an affiliate of Guidance Law. 36. Upon information and belief, Longstaff’ s legal services 0n behalf ofWang were Within the scope 0f his authority and/or were Within the scope 0f his employment. 37. Longstaff held himself out to Xiong and Plaintiffs as the Managing Attorney of Guidance Law. Longstaff’ s letterhead stated that he was working at Guidance Law’s Palo Alto offices. Longstaff also used an email address associating him With Guidance Law. 38. Longstaff continued holding himself to Xiong as Managing Attorney of 6 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Guidance Law through the year 2019. This included continuing t0 use Guidance Law letterhead and his Guidance Law email address. In fact, upon information and belief, in 2019, Longstaff created a second fraudulent power 0f attorney, dated February 1, 2019, purportedly from Wang and conferring on Longstaff and Guidance Law continuing broad authority t0 act on Wang’s behalf (the “Second POA”). FIRST CAUSE OF ACTION (Professional Negligence By An Attorney) (Against All Defendants) 39. Plaintiffs incorporate by reference each of the allegations in Paragraphs 1-38 0f this Complaint as though fully set forth here. 40. Longstaff and Guidance Law had an attorney-client relationship with Wang and Magnolia. As such, they owed Wang and Magnolia a duty to meet the appropriate standard 0f care for attorneys in the State 0f California in providing advice to clients such as Plaintiffs. 41. Longstaff and Guidance were professionally negligent and breached their duty of care t0 Plaintiffs because the legal services they provided in connection with the DAT Agreement and the filing of the 2017 and 2018 tax returns, including retention 0f Kahn and Bulas-Felix to obtain tax refunds, fell far below the standard of care. 42. Wang and Magnolia suffered damages that were proximately caused by Longstaff’ s and Guidance Law’s breaches of their duties of care in an amount to be proved at trial, but Which is estimated to be in excess 0f $5 million. 43. Guidance Law is liable for Longstaff’ s conduct because he was a principal, agent and/or employee 0f Guidance Law. SECOND CAUSE OF ACTION (Breach of Fiduciary Duty By An Attorney) (Against All Defendants) 44. Plaintiffs incorporate by reference each 0f the allegations in Paragraphs 1-43 of 7 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 this Complaint as though fully set forth here. 45. Longstaff and Guidance Law had an attorney-client relationship with Wang and Magnolia. As such, they owed Wang and Magnolia a fiduciary duty. Even after Wang and Magnolia terminated the attorney-client relationship, Longstaff and Guidance continued t0 owe Wang and Magnolia a fiduciary duty With respect t0 the subj ect matters of the representation. 46. Longstaff and Guidance Law intentionally 0r recklessly breached their fiduciary duty 0f loyalty towards Wang and Magnolia. Upon information and belief, Longstaff and Guidance Law entered into a civil conspiracy with Libkey, Peak, Kahn, FPG, and FeliX-Bulas With the object 0f defrauding Wang and Magnolia of the proceeds of the sale of 3880 Magnolia Drive and 0f hundreds of thousands 0f dollars 0f tax refunds from the U.S. Government and the State 0f California. 47. Longstaff and Guidance Law also intentionally 0r recklessly breached their fiduciary duty 0f loyalty towards Wang because, starting in December 2019, Longstaff masqueraded as Wang’s attorney-in-fact in an arbitral proceeding before the American Arbitration Association in Miami, Florida. Wang was sued in this arbitral proceeding in November 2019, after Wang had already terminated Longstaff and Guidance Law and notified them that they had no authority to act on Wang’s behalf. Nevertheless, neither Longstaff nor Guidance Law disclosed t0 Wang that he had been sued. Instead, Longstaff purported t0 act as Wang’s attorney-in-fact in the arbitration Without any authority t0 do so and committed acts and omissions in the arbitration that caused Wang harm. 48. Longstaff and Guidance Law intentionally 0r recklessly breached their fiduciary duty 0f confidentiality to Wang and Magnolia. As part of the conspiracy, Longstaff repeatedly disclosed client confidential communications t0 Libkey and, upon information and belief, other co-conspirators, so that they could better conspire 0n how t0 achieve the ends of the conspiracy. 49. Wang and Magnolia suffered damages in an amount t0 be proven at trial that 8 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 7 CUPERTINO. CA 95014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 were proximately caused by Longstaff” s and Guidance Law’s breaches 0f their fiduciary duties. 50. Guidance Law is liable for Longstaff’ s conduct as its principal, agent and/or employee. 5 1. Longstaff’ s and Guidance Law’s conduct was willful, oppressive and malicious, giving rise to punitive damages. THIRD CAUSE OF ACTION (Unfair Competition Under California Business & Profession Code § 17200 et. seq) 52. Plaintiffs hereby incorporate by reference each and every allegations from paragraphs 1 through 51 of this Complaint as though said paragraphs were fully set forth herein. 53. As is more fully alleged above, Longstaff and Guidance Law have engaged in unlawful and unfair business acts and/or practices that constitute unfair competition under California Business & Professions Code section 17200, et seq. 54. As a direct and proximate result 0f Longstaff’s and Guidance Law’s unfair competition, Longstaff and Guidance Law have been improperly and unjustly enriched at Wang’s and Magnolia’s expense. The amount 0f such unjust enrichment shall be established according to proof at trial. Prayer for Relief WHEREFORE, plaintiffs respectfully pray for judgment against defendants and in their favor as follows: (1) For pre-judgment and post-judgment interest as provided for by law; (2) For an award 0f all actual and compensatory damages in an amount t0 be proven at trial; (3) For an award of costs 0f suit; (4) For an award of all attorney’s fees paid by Plaintiffs to Longstaff and Guidance Law; 9 COMPLAINT GRELLAS SHAH LLP 20400 STEVENS CREEK BLVD SUITE 280 CA 95014 CUPERTINO. \OOOQONUI-tht-t N t-tl-Ih-Iv-tr-Iv-tu-Ir-In-ur-t afigafiamfigomqamgw~_o (5) For an award of all attorney’s fees and costs incurred by Magnolia and Wang in litigation instituted or defended arising out of Longstafl’s and Guidance Law’s tortious conduct; (6) For an award of equitable indemnification for any judgment or award issued against Magnolia or Wang rwulfing fiom Longstafi‘ and Guidance Law’s conduct, including any award in a pendingAAA arbitral proceeding in Miami, Florida. (6) For mfitutionary disgorgement; (7) For exemplary and punitive damages; and (8) For such other, further, and difi'erent relief as the Court deems just and proper. DEMAND FORJURY TRIAL Magnolia and Wang demand a trial byjury on all claims asserted herein. Respectfiflly Submitted, Dated: November 5, 2020 GRELLAS SHAH LLP By:Mw W Dhaivat H. Shah Attorneys for Plaintifl 10 COMPLAINT