Filed 8/22/14 The Joint Equity Committee v. Genovese CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

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or ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

THE JOINT EQUITY COMMITTEE, as

Bankruptcy Representative, etc.,

 Plaintiff and Appellant,

v.

MICHAEL GENOVESE et al.,

 Defendants and Respondents.

 G048238

 (Super. Ct. No. 30-2009-00295919)

 O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, Steven L. 

Perk, Judge. Affirmed.

Engstrom Lipscomb & Lack, Walter J. Lack, Paul A. Traina, Jared W. 

Beilke and Steven J. Lipscomb for Plaintiff and Appellant.

Sedgwick, Curtis D. Parvin, Frederick B. Hayes and Douglas J. Collodel 

for Defendants and Respondents.

* * *
2

The Joint Equity Committee For the Benefit of the Bankruptcy Estates of 

Real Estate Partners, Inc. and its related entities (plaintiff) appeals from a summary 

judgment awarded in favor of defendants Michael Genovese (Genovese) and Grant, 

Genovese & Baratta LLP (GGB; collectively defendants) on plaintiff’s complaint for 

professional negligence, breach of fiduciary duty, and violation of Business and 

Professions Code section 17200. Plaintiff contends the trial court erred in granting 

summary judgment based on defendants’ in pari delicto affirmative defense. We disagree 

and affirm.

FACTUAL AND PROCEDURAL HISTORY

Real Estate Partners, Inc. (REP) is a real estate company. Between 2003 

and 2006, REP raised more than $50 million from about 1,600 private investors through 

seven securities offerings. The investors lost all of their money. 

In September 2007, REP was sued by the Securities and Exchange 

Commission (SEC) for securities fraud. The SEC lawsuit alleged REP’s investment funds 

and salespeople were not properly registered, and its solicitation materials contained 

inaccurate and misleading statements. 

In October 2007, REP and its related entities filed for bankruptcy. The 

bankruptcy trustee appointed plaintiff as the representative of the bankruptcy estates.

Plaintiff and REP also executed and filed in the bankruptcy court a stipulation that 

purported to “transfer” standing to plaintiff to pursue REP’s claims against various 

persons and entities. 

In December 2008, plaintiff filed suit in the United States District Court 

against certain officers, directors and affiliates of REP, seeking to recover more than $50 

million, based on an alleged scheme to defraud the investors by misrepresenting material 

investment terms, misappropriating investors’ monies, engaging in self-dealing, and 

paying extravagant commissions.
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In March 2009, plaintiff commenced adversary proceedings in the 

bankruptcy court against REP, seeking recovery of monies misappropriated in a 

fraudulent scheme, and alleging REP enticed investors to invest millions in unregistered 

securities, premised on fraudulent misrepresentations. 

In August 2009, plaintiff filed this action against accountants and lawyers, 

including defendants, who provided professional services to REP. Genovese is a real 

estate transactional partner in GGB, a law firm. 

In April 2010, plaintiff filed suit in the United States District Court against 

Coldwell Banker Real Estate Corporation and its affiliates, alleging CBC/REP, a 

Coldwell Bankers franchisee majority owned by REP, actively participated in a scheme 

to defraud approximately 1,600 investors. 

In March 2011, plaintiff filed a second amended complaint in this action, 

alleging professional negligence, breach of fiduciary duty, and violation of Business and

Professions Code section 17200. Defendants’ answer asserted various affirmative 

defenses, including unclean hands and in pari delicto.

In August 2012, defendants moved for summary judgment on the second 

amended complaint, based on the “in pari delicto (also known as ‘unclean hands’)” 

affirmative defense, and on the alternative grounds that legal malpractice claims are not 

assignable. The motion was supported by a separate statement and a declaration from 

Genovese stating GGB was retained to prepare real estate transaction documents only, 

was not involved in any securities offerings, and only disbursed money from GGB’s 

client-trust account pursuant to REP’s express instructions. The motion was also 

supported by voluminous exhibits, including copies of private placement memoranda, 

correspondence and pleadings related to the SEC action, and pleadings from other actions 

in which plaintiff alleged REP engaged in securities fraud and other unlawful activities. 
4

Plaintiff filed opposition to the motion, supported by a declaration from 

Dawson Davenport, REP’s former president, a responsive separate statement, and 

objections to defendants’ evidence.

Defendants filed a reply, also supported by a declaration from Davenport, 

who affirmed GGB was retained only as real estate counsel, was not involved in REP’s 

securities offerings and fund raising activities, and accounted to REP for all funds 

deposited into GGB’s client trust account. And defendants responded to plaintiff’s 

evidentiary objections. 

In January 2013, the court granted summary judgment in favor of 

defendants based on the in pari delicto affirmative defense. The court found: 

“Defendants have presented sufficient proof of the existence of the ‘in pari delicto’

defense. . . . The burden of proof is, thus, shifted to plaintiff to present sufficient 

evidence of a triable issue. [¶] A triable issue is not created by the evidence submitted 

by the Joint Equity Committee . . . .” This appeal followed. 

GENERAL PRINCIPLES AND STANDARD OF REVIEW

A defendant may bring a motion for summary judgment on the ground 

there is a complete defense to the action. (Code Civ. Proc., § 437c, subd. (o).) The 

motion shall be granted if the papers submitted show there is no triable issue as to any 

material fact and the moving party is entitled to a judgment as a matter of law. (Id., subd. 

(c).) Every element of the affirmative defense must be established. (Consumer Cause, 

Inc. v. SmileCare (2001) 91 Cal.App.4th 454, 468.) If the defendant meets that initial 

burden, then the burden shifts to the plaintiff to produce evidence showing a triable issue 

of material fact. (Dollinger DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 

Cal.App.4th 1132, 1144.) We review a summary judgment de novo. (Aguilar v. Atlantic 

Richfield Co. (2001) 25 Cal.4th 826, 860.)
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DISCUSSION

Plaintiff contends the court improperly relied on the allegations in the 

second amended complaint and in the three other actions it initiated. Plaintiff also 

contends defendants did not establish the elements of the in pari delicto affirmative 

defense, and there are triable issues regarding each element. We are not persuaded.

1. Plaintiff’s Judicial Admissions in the Second Amended Complaint

“A defendant moving for summary judgment may rely on the allegations 

contained in the plaintiff’s complaint, which constitute judicial admissions. As such they 

are conclusive concessions of the truth of a matter and have the effect of removing it 

from the issues.” (Uram v. Abex Corp. (1990) 217 Cal.App.3d 1425, 1433; see Minish v. 

Hanuman Fellowship (2013) 214 Cal.App.4th 437, 456.) 

The court ruled defendants met their initial burden, based in part upon 

judicial admissions in the allegations of the second amended complaint. The court found: 

“In the pleadings of the 2d Amended Complaint is the admission by plaintiff that Real 

Estate Partners (REP) committed the wrongful acts and made fraudulent statements.

(UMF [Unisputed Material Facts] #6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 21, 22, and 

23)”

The relevant allegations are set out in paragraphs 23 through 44 of the 

second amended complaint, and may be summarized as follows: REP engaged in 

wrongful conduct including (1) offering and selling investments without proper SEC 

registration, (2) employing salespersons as broker-dealers without proper registration, (3) 

making fraudulent statements about REP’s relationship to Coldwell Banker, (4) sending 

written materials to investors, including private placement memoranda, that contained 

misleading statements and numerous inaccuracies, (5) paying monies to REP insiders and 

outsiders in excess of the limits established in the private placement memoranda, (6) 

misusing investment proceeds, and (7) other improper conduct. 
6

Plaintiff argues these allegations are not judicial admissions because they 

concern only “wrongful conduct consistent with professional negligence” on the part of 

defendants, not intentional or fraudulent conduct on the part of REP. However, plaintiff 

also concedes these allegations are “susceptible to the theory that REP acted mistakenly, 

or negligently.” 

What plaintiff fails to acknowledge is intentional or fraudulent conduct is 

not required for the in pari delicto defense. “Not every wrongful act constitutes unclean 

hands. But, the misconduct need not be a crime or an actionable tort. Any conduct that 

violates conscience, or good faith, or other equitable standards of conduct is sufficient 

cause to invoke the doctrine. [Citations.]” (Kendall-Jackson Winery, Ltd. v. Superior 

Court (1999) 76 Cal.App.4th 970, 979.) Thus, even mistaken or negligent conduct on the 

part of REP is enough to bring the doctrine into play, since it “relate[s] directly to the 

cause at issue.” (Ibid.) So the court did not err on this point.

2. Plaintiff’s Evidentiary Admissions in the Three Other Actions

The court also ruled defendants met their initial burden, based in part upon 

the allegations of the pleadings in the 2008 and 2010 district court actions and in the 2009 

bankruptcy court adversary proceedings. The court declared: “Evidentiary support for 

REP’s commission of the wrongful acts is added by allegations in prior pleadings. (UMF 

5, 6, 32, 38, 39, 40, 41, 42, 43, 44, 46, 47, 48, 49)” In each of these prior pleadings, 

plaintiff essentially alleged REP participated in what plaintiff itself characterized as a 

“scheme” to defraud investors.

Plaintiff correctly observes these allegations are rebuttable evidentiary 

admissions, not conclusive judicial admissions. An admission in a pleading is admissible 

against the pleader in a subsequent case. (Dolinar v. Pedone (1944) 63 Cal.App.2d 169, 

176.) “The rationale underlying this principle is that the allegations of fact in a pleading 

are presumed to be those of the party, and are therefore accepted as admissions, subject to 

the right of the party to controvert them by showing that they were not authorized by him 
7

or were made inadvertently or under a mistake of fact. [Citations.]” (Fibreboard Paper 

Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 707.) 

And, because the person against whom the pleading is offered may “explain 

the admission and thereby, in effect, controvert it or at least avoid being held to the fact 

apparently admitted, reliance by a moving party on evidentiary admissions generally 

precludes summary judgment.” (Minish v. Hanuman Fellowship, supra, 214 Cal.App.4th 

at pp. 457-458.) But plaintiff made no showing and does not even argue these

admissions were unauthorized, inadvertent or mistaken. Instead, plaintiff avers these

admissions were rebutted by “contrary evidence (consisting of a Declaration of Dawson 

Davenport and the testimony of Michael Genovese).” We disagree.

The Davenport declaration opposing GGB’s motion for summary judgment 

merely stated REP did not engage in any fraudulent activity, and he relied on the advice 

of (unspecified) counsel in connection with REP’s securities offerings.

With respect to this evidence, the court found: “The single declaration of 

Davenport is insufficient to rebut the culpability of REP in making false statements in the 

SEC filings and other acts alleged.” This finding was correct for two reasons. First, the 

declaration conflicts with the conclusive judicial admissions discussed above. Second,

judicial estoppel prevents plaintiff from now asserting a position contrary to the positions

it previously took in this case and in the three other cases initiated by plaintiff. (Jackson 

v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.) 

Plaintiff’s reliance on Genovese’s deposition testimony fares no better. 

Genovese testified that while he was representing REP, he did not believe it was violating 

securities laws or engaged in fraudulent activity. But his belief is immaterial. The 

uncontroverted Genovese declaration states he was not aware of and did not participate in 

any of REP’s securities offerings or fundraising activities. Thus, Genovese’s belief is 

insufficient to rebut plaintiff’s admissions of REP misconduct.
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3. Defendants’ In Pari Delicto Defense

‘“The doctrine of in pari delicto dictates that when a participant in illegal, 

fraudulent, or inequitable conduct seeks to recover from another participant in that 

conduct, the parties are deemed in pari delicto, and the law will aid neither, but rather, 

will leave them where it finds them.’ [Citation.]” (Casey v. U.S. Bank Nat. Assn. (2005) 

127 Cal.App.4th 1138, 1143, fn. 1.) 

In pari delicto is an unclean hands defense, founded in the maxim that one 

who comes into equity must come with clean hands. (See generally, 13 Witkin, 

Summary of Cal. Law (10th ed. 2005) Equity, § 9, pp. 289-290.) “This maxim is far 

more than a mere banality. It is a self-imposed ordinance that closes the doors of a court 

of equity to one tainted with inequitableness or bad faith relative to the matter in which 

he seeks relief, however improper may have been the behavior of the defendant.” 

(Precision Inst. Mfg. Co. v. Automotive M. M. Co. (1945) 324 U.S. 806, 814.)

The defense was applied in Peregrine Funding, Inc. v. Sheppard Mullin 

Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 679-682 (Peregrine). While the 

Peregrine decision concerned an anti-SLAPP motion rather than a summary judgment 

motion, the underlying facts are analogous to this case. In an action arising from a 

collapsed Ponzi scheme, the Sheppard Mullin law firm (Sheppard) was sued by aggrieved 

investors and a bankruptcy trustee for some of the firm’s former clients. Those former 

clients included Hillman and Fanghella, the individuals who planned the scheme; several 

funding entities which were used to perpetrate the scheme; and Peregrine, a corporation 

owned by Hillman, which was used to manage the funding entities. The action alleged

professional negligence and breach of fiduciary duty, based on Sheppard’s representation 

of its former clients in an action by the SEC.

The trial court denied Sheppard’s anti-SLAPP motion and Sheppard 

appealed. In portions of the opinion not relevant here, the Court of Appeal held the 

claims arose out of partially protected activity, so the burden shifted to the plaintiffs to 
9

show a reasonable probability of success on the merits. In that context, the court held, 

“Because Sheppard established the trustee’s claims on behalf of Peregrine are barred by 

the unclean hands doctrine, plaintiffs did not establish a likelihood of prevailing on 

them . . . .” (Peregrine, supra, 133 Cal.App.4th at pp. 681-682.) 

The Peregrine court’s analysis of Sheppard’s unclean hands affirmative 

defense is instructive. The court stated: “This issue requires us to address three 

questions: (1) whether Hillman and Fanghella’s misconduct in running a Ponzi scheme 

can be imputed to the corporate entity Peregrine [citation]; (2) whether Peregrine’s 

misconduct can be imputed to the bankruptcy trustee [citations]; and (3) whether the 

misconduct is sufficiently related to the causes of action asserted in this case [citation].” 

(Peregrine, supra, 133 Cal.App.4th at p. 679.) Answering yes to all three questions, the 

appellate court agreed “that Peregrine’s claims present a classic case for the unclean 

hands defense.” (Id. at p. 681.) 

Furthermore, the Peregrine court observed, “Although plaintiffs are correct 

that application of this defense generally rests on questions of fact [citation], this does not 

mean the defense can never prevail at the pleading stage or on a motion to strike. Where, 

as here, a plaintiff’s own pleadings contain admissions that establish the basis of an 

unclean hands defense, the defense may be applied without a further evidentiary hearing. 

[Citations.]” (Peregrine, supra, 133 Cal.App.4th at p. 681.) 

Applying Peregrine’s unclean hands defense analysis to the present case 

leads us to the same conclusions. To paraphrase the issues as framed in Peregrine, the

applicability of this defense here requires us to address three questions: (1) whether the 

misconduct of the individuals can be imputed to the corporate entity REP (see Casey v. 

U.S. Bank Nat. Assn., supra, 127 Cal.App.4th at p. 1143); (2) whether REP’s misconduct 

can be imputed to plaintiff as the appointed representative of REP (see Official Commitee

v. R.F. Lafferty & Co. (3d Cir. 2001) 267 F.3d 340, 356-357 (Lafferty); In re HedgedInvestments Associates, Inc. (10thCir. 1996) 84 F.3d 1281, 1284-1286); and (3) whether 
10

the misconduct is sufficiently related to the causes of action asserted (Kendall-Jackson 

Winery, Ltd. v. Superior Court, supra, 76 Cal.App.4th at p. 979). 

Here, as in Peregrine, “The first question is not complicated.” (Peregrine,

supra, 133 Cal.App.4th at p. 679.) It is settled California law that “[k]nowledge of an 

officer of a corporation within the scope of his duties is imputed to the corporation. 

[Citation.]” (United California Bank v. Maltzman (1974) 44 Cal.App.3d 41, 51-52.) “On 

the other hand, an officer’s knowledge is not imputed to the corporation when he has no 

authority to bind the corporation relative to the fact or matter within his knowledge.

[Citations.]” (Meyer v. Glenmoor Homes, Inc. (1966) 246 Cal.App.2d 242, 264.) Nor is 

a corporation “chargeable with the knowledge of an officer who collaborates with an 

outsider to defraud [the corporation].” (Ibid.)

This entire case, and the three other cases involving REP’s securities 

offerings, are all based on REP’s conduct in defrauding investors, misusing investor 

funds, violating securities laws, and causing investors to lose over $50 million. The 

judicial and evidentiary admissions discussed ante establish the misconduct was carried 

out by REP and the officers, directors, and other persons who dominated and controlled 

REP. Plaintiff has admitted these facts time and again. Furthermore, it is undisputed the 

officers had the authority to bind REP, and plaintiff offered no evidence any officer 

collaborated with outsiders to defraud REP. Thus, there is no triable issue on the first 

Peregrine factor—the misconduct of the individuals can be imputed to REP. 

Plaintiff’s purported distinctions of Peregrine on this point are unavailing.

It is irrelevant that Davenport here, unlike Hillman in Peregrine, has not yet been charged 

with any crimes. It is equally irrelevant that in a 2007 letter to the SEC Davenport’s then 

lawyer, Mr. Giovannone, placed some of the blame on an outsider, Michael Owens. This 

is not evidence of “collaboration” within the meaning of the authorities cited above and, 

in any event, is not evidence that REP itself rather than the investors were defrauded. 

And once again, although Genovese testified that while he was representing REP, he did 
11

not believe it was violating securities laws or engaged in fraudulent activity, his belief is 

immaterial.

We also agree with defendants’ alternative argument concerning the first 

Peregrine factor. It is probably not even necessary to analyze whether the misconduct of 

the individuals can be imputed to the corporate entity in this case. The reason is simple. 

In Peregrine, the first level imputation analysis was necessary because there were no 

admissions by the bankruptcy trustee that Peregrine itself (as distinguished from the 

individuals) had committed misconduct. By way of contrast here, plaintiff has repeatedly 

admitted that REP itself “participated in the scheme to defraud” and “defrauded the 

Victims . . . out of approximately $55 million.”

“Our answer to the second question is also straightforward.” (Peregrine,

supra, 133 Cal.App.4th at p. 680.) Plaintiff is the appointed representative of REP’s

bankruptcy estate, and in that capacity acts in the place and stead of the trustee. 

Moreover, “‘in actions brought by the trustee as successor to the debtor’s interest . . . , the 

‘trustee stands in the shoes of the debtor and can only assert those causes of action 

possessed by the debtor. [Conversely, t]he trustee is, of course, subject to the same 

defenses [such as in pari delicto] as could have been asserted by the defendant had the 

action been instituted by the debtor.’” [Citations.]” (Lafferty, supra, 267 F.3d at pp. 356, 

358-360.) And finally, the court-approved stipulation between REP and plaintiff

“transferred” standing from REP’s bankruptcy estate to plaintiff. Therefore, there is no 

triable issue on the second Peregrine factor either—the misconduct of REP can be 

imputed to plaintiff. 

Turning to the third Peregrine factor, the asserted misconduct is 

sufficiently related to the matter currently before the court. (Fibreboard Paper Products 

Corp. v. East Bay Union of Machinists, supra, 227 Cal.App.2d at p. 728.) Plaintiff here 

has consistently taken the position REP orchestrated a massive fraudulent investment 

scheme that covered all aspects of REP’s business. And the claims plaintiff asserted 
12

against defendants are all based upon that same fraudulent scheme. In essence plaintiff 

contends defendants failed to protect REP from itself, thereby enabling REP to 

orchestrate the fraud. 

Plaintiff admits all of the money deposited to or disbursed from defendants’ 

client trust account was money REP obtained through the securities offerings, which 

were the cornerstone of REP’s fraudulent scheme. Plus the allegations of the second 

amended complaint and plaintiff’s verified discovery responses confirm the relationship

between the misconduct and the claims. Thus, there is no triable issue on the third and 

final Peregrine factor—REP’s “misconduct is sufficiently related to the causes of action 

asserted in this case.” (Peregrine, supra, 133 Cal.App.4th at p. 679.) 

Plaintiff attempts to avoid this unavoidable conclusion by arguing 

defendants were only retained for real estate transactions, and REP’s misconduct 

involved securities violations. However, plaintiff fails to recognize, “The question is 

whether the unclean conduct relates directly ‘to the transaction concerning which the 

complaint is made,’ i.e., to the ‘subject matter involved’ [citation], and not whether it is 

part of the basis upon which liability is being asserted. [Citations.]” (Peregrine, supra,

133 Cal.App.4th at p. 681.) Once more the answer to this question is undoubtedly yes.

Under these circumstances the court properly granted summary judgment. 

Defendants met their initial burden with respect to the elements of the in pari delicto 

affirmative defense, and plaintiff failed to produce any evidence showing a triable issue 

of material fact. REP’s undisputed participation in the fraudulent scheme affects the 

equities between plaintiff and defendants. For plaintiff, standing in the shoes of REP—

the company which plaintiff itself alleges was at the very heart of that scheme—to now 

complain of defendants’ alleged role in enabling REP to commit the fraud is unfair, and it 

is precisely this sort of unfairness the unclean hands doctrine seeks to address. 
13

4. Other Issues 

Because we conclude the court properly granted summary judgment based 

upon the in pari delicto affirmative defense, the standing and Business and Professions 

Code section 17200 issues are moot.

DISPOSITION

The judgment is affirmed. Defendants are entitled to costs on appeal

THOMPSON, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

IKOLA, J.