FAVILA V. KATTEN MUCHIN ROSENMAN LLP

















Filed 9/3/10







CERTIFIED FOR PUBLICATION

IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE
DISTRICT

DIVISION SEVEN


>

SANDRA CORRALES FAVILA, as Executor, etc., Plaintiff and Appellant, v. KATTEN MUCHIN ROSENMAN LLP et al. Defendants and Respondents.	B215096 (Los Angeles County Super. Ct. No. BC379462)
SANDRA CORRALES FAVILA, as Executor, etc., Plaintiff and Appellant, v. KATTEN MUCHIN ROSENMAN LLP et al. Defendants and Respondents.	B216822 (Los Angeles County Super. Ct. No. BC399377)

APPEALS
from orders of the Superior Court
of Los Angeles
County, Mary Ann Murphy, Judge.
Reversed and remanded with directions.

Sands &
Associates, Leonard S. Sands, Heleni E. Suydam and Diallo K. Scott; James K.
Cameron & Associates and James K. Cameron for Plaintiff and Appellant.

Katten
Muchin Rosenman, Daniel A. Platt and Gloria C. Franke for Defendants and
Respondents.

_____________________

The assets
of Motion Graphix, Inc. were sold to Get Flipped, Inc. after the death of
Motion Graphix's founder and shareholder, Richard Corrales. The Estate of Richard Corrales (Estate) through
its executor Sandra Corrales Favila, Corrales's sister, sued Get Flipped and
its founder, Raleigh Souther, who was Motion Graphix's only other shareholder,
for claims including conversion, breach of fiduciary duty and fraud (the
individual action). The Estate appeals
from the trial court's order denying its petition and motion for leave to amend
the complaint in the individual action to allege a conspiracy claim against
Motion Graphix's corporate counsel, Katten Muchin Rosenman LLP (Katten Muchin),
and two attorneys at the Katten Muchin firm, Gavin Galimi and James Thompson
(collectively attorneys).

The Estate also filed a separate derivative action against the attorneys,
Souther and Get Flipped on behalf of Motion Graphix asserting claims for
professional negligence, breach of fiduciary duty and unjust enrichment arising
from the asset sale transaction (the derivative action). That action was dismissed as to the attorneys
after the trial court sustained their demurrer and the Estate elected not to
amend its complaint. The Estate appeals
from that order, as well.

We reverse the order denying the
Estate's petition and motion in the individual action and remand with direction
to permit the Estate to file a revised first amended complaint, alleging a
cause of action against the attorneys for conspiracy to commit fraud. We reverse the order dismissing the
derivative action as to the attorneys and remand with directions to redetermine
whether the lawyer-client privilege prevents the attorneys from meaningfully
defending the action or whether, because of the crime-fraud exception or waiver
by the privilege holder, the privilege is no bar to the derivative action. >

FACTUAL AND PROCEDURAL BACKGROUND

1. >The Sale of Motion Graphix's Assets to Get
Flipped

In February 2000 Corrales, an
inventor, organized and incorporated Motion Graphix to license and sell
photographic and imaging technologies he had developed or improved. In May 2000 the company issued 51 percent of its
1,000 shares of common stock to Corrales (510 shares) and 49 percent (490
shares) to Souther, and the board of directors approved bylaws requiring the
approval of a majority of the shares represented and voting to validate an
action taken by the company unless a greater number was required by law.^[1] In 2001 Corrales assigned to Motion Graphix
his rights in two pending patents. In
August 2004 Katten Muchin began representing Motion Graphix.

In early August 2005, following a
dispute between Corrales and Souther over Corrales's right to engage in
personal business uses of Motion Graphix software codes, Corrales agreed to
sell 80 percent of his shares in Motion Graphix to the company and resign from
his positions as director and officer.
Corrales, on behalf of himself, and Souther, on behalf of himself and as
chief executive officer of Motion Graphix, signed a ratification and release
agreement drafted by Galimi that incorporated a term sheet providing,
â€