Vereecke v. Ziffren, Brittenham, Branca et al.

Filed 1/30/07 Vereecke v. Ziffren, Brittenham, Branca et al. CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Gerald Rosenberg, Judge. Affirmed.

Feldsted & Scolney and Peter N. Scolney for Plaintiff and Appellant.

Alschuler Grossman Stein & Kahan; Alschuler Grossman, Bruce A. Friedman, and David B. Dreyfus for Defendants and Respondents.

Plaintiff Arlett Vereecke (plaintiff) filed a complaint for legal malpractice, breach of fiduciary duty, and unfair competition against the law firm of Ziffren, Brittenham, Branca, Fischer, Gilbert-Lurie, Stiffelman & Cook LLP and three of its attorneys (collectively, the law firm). Plaintiff alleges that the law firm created, and then dissolved, a closely-held corporation for plaintiff and defendant Perla Hudson (Perla) without disclosing that it represented Perla and her husband, defendant Saul Hudson (Saul),[1] in other matters. The trial court sustained the law firms demurrer to the first amended complaint without leave to amend, concluding that plaintiff had not sufficiently pled the elements of any of her causes of action. Plaintiff appeals, and we affirm.

FACTS AND PROCEDURAL HISTORY

A. The Original Complaint

Plaintiff filed the present action against the law firm, Saul, and Perla on July 7, 2005. It alleged as follows. Plaintiff is a publicist and writer who represents contemporary musicians. In January 2003, she was retained by Saul, the former lead guitarist for the rock band Guns N Roses, to handle his personal publicity and promotions. When he retained her, Saul orally agreed to pay plaintiff a monthly stipend plus a finders fee of 15 percent of the gross proceeds of all promotions she secured (the First Agreement).

In about January 2004, Saul told plaintiff that he would continue to use her services only if she agreed to split her 15 percent finders fee with his wife, Perla, through a corporation in which plaintiff and Perla would be equal shareholders. Plaintiff agreed.

In July 2004, the law firm, which previously had done legal work for Saul and Perla, prepared the necessary paperwork to form a corporation called VHLA, Ltd. Plaintiff and Perla each were 50 percent shareholders of the corporation. The law firm did not disclose to plaintiff, orally or in writing, that it previously had done legal work for the Hudsons.

In March 2005, the law firm sent letters to various entities advising them that plaintiff was no longer the point person for creative design approvals for Saul. The same month, the law firm informed plaintiff on behalf of our client Saul Hudson that it had become necessary to terminate this ad-hoc business relationship as well as wind down and dissolve VHLA. Plaintiff never consented to wind up or dissolve VHLA.

The complaint alleged three causes of action against the law firm. First, it alleged that the law firm committed professional malpractice by failing to disclose in writing its prior professional relationship with Saul and Perla. Second, it alleged that the law firm breached its fiduciary duties by following Saul or Perlas directions to dissolve VHLA without plaintiffs consent. Third, it alleged that by its conduct, the law firm violated the unfair competition law, Business and Professions Code section 17200 et seq.

The law firm demurred to all three causes of action and the trial court sustained the demurrer with leave to amend. As to the causes of action for legal malpractice and breach of fiduciary duty, the court concluded that plaintiff could not establish the existence of a duty because she did not properly allege that she was a client of the law firm or that the law firm owed her a duty as a third party beneficiary. Moreover, even if plaintiff were owed a duty, there were insufficient facts to show breach of duty or proximately caused damages. The court explained: Plaintiff alleges in 16 that [Saul] persuaded her to enter into the yet to be formed corporation and to take a cut in her finders fee. This was before the Ziffren firm became involved. Also, the failure of the Ziffren firm to advise her to seek outside counsel or to attempt to waive the alleged conflict of interest did not cause any damages to Plaintiff under the facts alleged in the Complaint. Finally, there are no facts to support the alleged damages arising out of the closing down of the corporation. Plaintiff offers no facts or authority to support her contention that winding down the business was a breach of Defendants duty. The other 50% shareholder, Perla, wanted to do it.

The court concluded that the third cause of action, for unfair competition, also failed for failure to properly plead an attorney-client relationship. It explained: This cause of action is based on Defendants alleged violation of the Rules of Professional Conduct. However, since Plaintiff has not properly alleged an attorney-client relationship or any other duty owed her, this cause of action fails. [] Moreover, the remedy sought in 73 is phrased as a claim for money damages. Plaintiff admits in the opposition that her only possible remedy under this claim is for an injunction. However, since there are no allegations of continuing conduct, an injunction is not a proper remedy.

B. The First Amended Complaint

Plaintiff filed an amended complaint on September 29, 2005. The amended complaint omitted plaintiffs prior allegations that Saul insisted that a corporation be formed in which plaintiff and Perla would be equal shareholders and told plaintiff that if she did not agree to this new arrangement, [he] would cancel the First Agreement. Instead, it alleged the following: In or about January 2004, it became obvious to plaintiff that it was necessary to involve Perla in the project described herein because [Saul] was simply not cooperating in approving projects because he insisted on obtaining Perlas approval. It was agreed that a corporation would be formed in which plaintiff and Perla would be equal shareholders and that the services contemplated by the First Agreement would be thereafter performed by this yet to be formed corporation. It was anticipated that the as yet to be formed corporation would be known as VHLA, Ltd. The compensation to the yet to be formed corporation would be a finders fee of fifteen percent (15%) of the gross proceeds from the personal promotions which would be shared equally by plaintiff and Perla.

Additionally, the amended complaint added new allegations that the law firm advised plaintiff that she was not required to have a license or be registered with any government agency in connection with the new corporation because the Ziffren Firm would be representing [Saul] in all of the potential transactions; the law firm knew that plaintiff was not represented by independent counsel in connection with the creation of VHLA, Inc. [and] also that plaintiff was not advised that she could and should have been so represented; plaintiff was a client of the law firm because VHLA was created in part to provide benefits to plaintiff in her personal capacity; and the law firm had a custom and practice of violating the Rules of Professional Conduct. Further, it sought a permanent injunction against future unfair business practices.

The law firm demurred to the first amended complaint, and the court sustained the demurrer without leave to amend. With regard to the causes of action for legal malpractice and breach of fiduciary duty, the court found that plaintiff still had not pled facts demonstrating breach of duty or damages. Although plaintiff alleged she would have obtained separate counsel if the law firm had advised her to do so, she did not allege how the absence of separate counsel caused her any damage. Additionally, plaintiff failed adequately to plead that winding up the corporation was a breach of the law firms duty or caused plaintiff any damages.

With regard to the cause of action for unfair competition, the court found that plaintiff failed to allege a violation of a specific statute or to properly allege that she sustained damages. Moreover, while plaintiff prayed for an injunction, she had not pled sufficient facts to show that she is entitled to an injunction.

The trial court entered judgment for the law firm on January 19, 2006. Defendants served notice of entry of judgment on January 24, 2006, and plaintiff timely appealed.

DISCUSSION

I

Standard of Review

In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we 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.) To meet [the] burden of showing abuse of discretion, the plaintiff must show how the complaint can be amended to state a cause of action. [Citation.] However, such a showing need not be made in the trial court so long as it is made to the reviewing court. (William S. Hart Union High School Dist. v. Regional Planning Com. (1991) 226 Cal.App.3d 1612, 1621.) [W]e may affirm a trial court judgment on any basis presented by the record whether or not relied upon by the trial court. (Day v. AltaBatesMedicalCenter (2002) 98 Cal.App.4th 243, 252, fn. 1.) (Blumhorst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 999; Federici v. Gursey Schneider & Co., LLP (2006) 143 Cal.App.4th 606, 612-613.)

II

The Trial Court Properly Sustained the Demurrer

A. Legal Malpractice[2]

It is axiomatic that there is no cause of action for legal malpractice without damages proximately caused by the malpractice. (Budd v. Nixen (1971) 6 Cal.3d 195, 200; Ish[ma]el v. Millington (1966) 241 Cal.App.2d 520, 523.) (Sisco v. Cosgrove, Michelizzi, Schwabacher, Ward & Bianchi (1996) 51 Cal.App.4th 1302, 1307; see also Jalali v. Root (2003) 109 Cal.App.4th 1768, 1777 [a plaintiff in a legal malpractice action must still show a causal relationship between the legal malpractice and some actual loss or damage to prevail].)

In the present case, plaintiff does not allege any damages proximately caused by the law firms asserted legal malpractice. The first amended complaint alleged that if the law firm had disclosed that it had a prior professional relationship with Saul and Perla, plaintiff would have been advised to seek (and, indeed, would have sought) independent legal representation in connection with the creation of VHLA, Ltd. and plaintiffs relationships with [Saul] and Perla. As a direct and proximate result of the law firms failure to disclose the prior relationship, plaintiff has been specially damaged in that she consented to a reduction in her interest in the finders fee under the First Agreement, there was no written agreement between VHLA, Ltd. and [Saul] and there was no express term of the agreement between VHLA, Ltd. and [Saul] in an amount according to proof.

Plaintiffs damages theory, thus, is that if proper disclosures had been made, she would have obtained separate counsel who would have negotiated a better agreement for her than the one she ultimately entered. Specifically, she asserts, separate counsel would have insisted that any agreement between Saul and VHLA be in writing and for a specified term, and that it guarantee plaintiff the full 15 percent fee she received under the First Agreement, rather than the reduced fee she received under the agreement between Saul and VHLA. The problem with plaintiffs damages theory, however, is that the original complaint alleged that the only reason plaintiff agreed to split her 15 percent fee with Perla and to become a 50 percent shareholder in the yet-to-be-formed VHLA, Inc. is that Saul insisted that she do so and informed plaintiff that if she did not agree to this new arrangement, [he] would cancel the First Agreement.[3] If that allegation is trueand for purposes of this appeal we must presume it to be so (Taylor v. City of Los Angeles Dept. of Water & Power (2006) 144 Cal.App.4th 1216, 1228)then the law firms alleged breach of duty did not cause plaintiff any harm. To the contrary, if plaintiff had been separately represented, her counsel would have insisted on conditions that Saul would not accept, and thus plaintiffs professional relationship with Saul would have ended in January 2004, more than a year before plaintiff alleges it ultimately terminated. Indeed, accepting plaintiffs allegations as true, the consequence of the law firms breach was a benefit to plaintiff, not a loss: Because plaintiff and Saul continued to have a professional relationship after January 2004, plaintiff earned additional fees of $9,000.

In her first amended complaint, plaintiff attempts to plead around this fatal defect by omitting the allegations that Saul threatened to terminate his relationship with plaintiff if she did not agree to form VHLA and split her fees with Perla. Instead, as we noted above, she alleged she agreed to form the corporation and be an equal shareholder with Perla, as it was necessary to gain Sauls continued cooperation with project approval.

We recognize it is well established that when reviewing a judgment entered following the sustaining of a demurrer without leave to amend, the appellate court must assume the truth of the factual allegations of the complaint. (E.g., Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 383.) However, an exception exists where a party files an amended complaint and seeks to avoid the defects of a prior complaint either by omitting the facts that rendered the complaint defective or by pleading facts inconsistent with the allegations of prior pleadings. (Id. at pp. 383-384.) In these circumstances, the policy against sham pleading permits the court to take judicial notice of the prior pleadings and requires that the pleader explain the inconsistency. If he fails to do so the court may disregard the inconsistent allegations and read into the amended complaint the allegations of the superseded complaint. (Ibid.; see also Amid v. Hawthorne Community Medical Group, Inc. (1989) 212 Cal.App.3d 1383, 1386-1391; Kenworthy v. Brown (1967) 248 Cal.App.2d 298, 301-303.)

This exception is applicable to the pleadings in this case. The allegations of paragraph 17 of the first amended complaintthat plaintiffs fees were split with Perla at plaintiffs suggestion, not Saulsare fundamentally inconsistent with the allegations of paragraph 16 of the original complaint, that Saul insisted upon the fee-split as a condition of continuing his business relationship with plaintiff. Plaintiff offers no explanation for this inconsistency to the trial court or on appeal.

Accordingly, we shall assume, as alleged in plaintiffs original complaint, that Saul would have terminated his business relationship with plaintiff in January 2004 if she had not agreed to split her fees with Perla and to form VHLA. Plaintiff thus has not pled any damages proximately caused by the law firms alleged professional negligence, and hence the trial court properly sustained the demurrer to the legal malpractice cause of action.

B. Breach of Fiduciary Duty

Like a cause of action for legal malpractice, a cause of action for breach of fiduciary duty requires a showing of damages proximately caused by that breach. (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1405; see also Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1536 [plaintiffs fiduciary duty claim fails because she cannot establish damages].) Plaintiff fails to properly allege such damages.

Plaintiffs cause of action for breach of fiduciary duty alleges that by following Sauls or Perlas directions to dissolve VHLA, the law firm accepted employment adverse to plaintiffs interests. As a result, plaintiff alleges, she has been specially damaged in that she consented to a reduction of her interest in the finders fee under the First Agreement, there was no written agreement between VHLA, Ltd. and [Saul], there was no express term of the agreement between VHLA, Ltd. and [Saul] and VHLA, Ltd. is no longer in a position to generate any profit for plaintiff in an amount according to proof.

Most of plaintiffs alleged damages are identical to those alleged in the legal malpractice cause of action, and thus they fail for the same reasons discussed in the prior section. Moreover, these damages relate to the manner in which VHLA was created, and thus they cannot be the proximate result of the law firms alleged role in dissolving VHLA.

Plaintiffs remaining alleged damagesthat VHLA is no longer in a position to generate any profit for plaintiffdo not save plaintiffs breach of fiduciary duty claim because they result from Sauls termination of his agreement with VHLA, not from VHLAs alleged dissolution. That is, once Saul ceased doing business with VHLAsomething plaintiff concedes he legally could do, because his agreement with VHLA was at-willVHLA could not generate any profit for plaintiff even if it continued to exist. Thus, plaintiff has failed properly to allege any damages proximately caused by the law firms alleged breach of fiduciary duty.

C. Unfair Competition

Plaintiffs inability to plead damages also is fatal to her cause of action for unfair competition. To have standing to assert a claim under the unfair competition law, Business and Professions Code section 17200 et seq., a plaintiff must have suffered injury in fact and [have] lost money or property as a result of such unfair competition. (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 802, citing Bus. & Prof. Code, 17204, amended by Prop. 64, as approved by voters, Gen. Elec. (Nov. 2, 2004); see also Californiansfor Disability Rights v. Mervyns, LLC (2006) 39 Cal.4th 223, 228-229 [Proposition 64 accomplishes its goals in relatively few words. The measure amends section 17204, which prescribes who may sue to enforce the UCL, by deleting the language that had formerly authorized suits by any person acting for the interests of itself, its members or the general public, and by replacing it with the phrase, who has suffered injury in fact and has lost money or property as a result of such unfair competition]; State of California ex rel. Grayson v. Pacific Bell Telephone Co. (2006) 142 Cal.App.4th 741, 757.)

The first amended complaint does not allege any damages resulting from the asserted unfair competition. Moreover, for the reasons described in the prior section, plaintiff has not (and cannot) allege damages resulting from the law firms alleged breaches. Thus, her cause of action for unfair competition necessarily fails.

III

The Demurrer Was Properly Sustained Without Leave to Amend

Where a demurrer is sustained without leave to amend, as here, we must decide whether there is a reasonable possibility the plaintiff could cure the defect with an amendment. If we find that an amendment could cure the defect, we conclude that the trial court abused its discretion and we reverse; if not, no abuse of discretion has occurred. The plaintiff has the burden of proving that an amendment would cure the defect. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081; Tilton v. Reclamation Dist. No. 800 (2006) 142 Cal.App.4th 848, 853.)

Here, plaintiff has not met her burden to show that an amendment could cure any of the defects of her first amended complaint. Although she claims that the law firm is incorrect when it asserts that Ms. Vereecke has not stated how she could amend her pleading, neither her opening brief nor her reply brief describes any new damages allegations plaintiff could assert if given the opportunity to do so. Instead, she merely repeats the damage allegations of her first amended complaint. Accordingly, the trial court did not abuse its discretion in sustaining the law firms demurrer without leave to amend.

DISPOSITION

The judgment is affirmed. Defendants shall recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

SUZUKAWA, J.

We concur:

EPSTEIN, P.J.

WILLHITE, J.

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[1] We will refer to defendants Saul and Perla Hudson by their first names to avoid confusion, with no disrespect intended.

[2] The parties cited Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal.App.3d 692 and argued extensively whether the law firm engaged in the practice of law at the direction of and for the benefit of plaintiff. Based on respondents counsels concession at oral argument, we shall assume plaintiff was a client of the law firm. Thus, we do not discuss the issue whether the law firm owed plaintiff a duty in her individual capacity.

[3] Paragraph 16 of the complaint alleges: In or about January 2004, [Saul] informed plaintiff that he wanted Perla to share in the proceeds from the personal promotions plaintiff obtained for [him]. In this regard, [Saul] insisted that a corporation be formed in which plaintiff and Perla would be equal shareholders and that the services contemplated by the First Agreement be thereafter performed by this yet to be formed corporation. The compensation to the yet to be formed corporation would be a finders fee of fifteen percent (15%) of the gross proceeds from the personal promotions which would be shared equally by plaintiff and Perla. [Saul] informed plaintiff that if she did not agree to this new arrangement, [he] would cancel the First Agreement. Plaintiff acceded to [Sauls] demands which resulted in plaintiffs potential finders fees being reduced by fifty percent (50%).