Source: http://www.calejl.com/forum/viewtopic.php?f=117&t=831&p=841&sid=c4fce6ae83992c36902fac91e2d29055
Timestamp: 2017-12-13 03:17:39
Document Index: 765515946

Matched Legal Cases: ['§ 9505', '§ 9620', '§ 9620', '§ 9610', '§ 9504', '§ 9504', '§ 870', '§ 956', '§ 1714', '§ 1714']

California Creditor Debtor Law Forum • View topic - FT - Miller Avenue Services v. Koss (10/27/2005)
FT - Miller Avenue Services v. Koss (10/27/2005)
Post subject: FT - Miller Avenue Services v. Koss (10/27/2005)
Posted: Thu Feb 26, 2009 7:01 pm
Miller Avenue Professional and Promotional Services Inc.
v. Charles A. Koss, et al.
No. A105874 (Cal.App. 10/27/2005)
MILLER AVENUE PROFESSIONAL AND PROMOTIONAL SERVICES, INC.,
Plaintiff and Appellant, v.
CHARLES A. KOSS et al., Defendants and Respondents.
2005 Cal. App. Unpub. LEXIS 9813
October 27, 2005, Filed
PRIOR HISTORY: Contra Costa County Super. Ct. No. MSC 003-00783.
JUDGES: STEVENS, J.; JONES, P.J., GEMELLO, J. concurred.
OPINION: Miller Avenue Professional and Promotional Services, Inc. (MAPPS) appeals from a judgment of dismissal entered after respondents' demurrer to its amended complaint was sustained without leave to amend. MAPPS contends the court erred because the amended complaint stated facts sufficient to constitute a cause of action based on theories of conspiracy and aiding and abetting. We agree and reverse the judgment.
In March 2003, MAPPS sued respondents, attorney Charles A. Koss (Koss) and his law firm, for conspiracy to defraud and breach of fiduciary duty. Koss filed a demurrer, which was sustained with leave to amend. MAPPS's amended complaint followed. n1
n1 The amended complaint was served and sent to the court for filing before the demurrer hearing, but was not actually filed until after the hearing. Believing the demurrer was moot, counsel did not appear at the hearing. Seeing neither an opposition to the demurrer nor the amended complaint, the court sustained the demurrer to the original complaint with leave to amend.
The amended complaint asserts causes of action for conspiracy to defraud, breach of fiduciary duty, and breach of an attorney's duty to creditors. According to its allegations, MAPPS made a $ 125,000 loan to Enterprise Acquisition Partners, Inc. (EPI) in July 2001. As security for the loan, EPI granted MAPPS a security interest in EPI's accounts receivable.
Andrew Coy (Coy) was president of EPI, a member of its board of directors, and its majority shareholder. At the time of MAPPS's loan to EPI, Coy claimed to have loans outstanding to EPI as well. As part of the MAPPS loan agreement, Coy and EPI agreed that MAPPS would be repaid before Coy.
In December 2001, EPI failed to repay the $ 125,000 loan when due. MAPPS filed a UCC-1 to perfect its security interest in the collateral in January 2002.
In February 2002, Coy allegedly devised a plan to divert EPI's assets, including the collateral for the loan from MAPPS, to himself. He formed a corporation named Clayton Holdings, Inc. (Clayton), which he owned through a nominee. He then created documents falsely indicating he had a security interest in all of EPI's assets, as well as documents purporting [*3] to transfer this security interest to Clayton. He caused an attorney for Clayton to prepare a "notice of loan foreclosure," in which Clayton sought to foreclose on EPI's assets. The foreclosure notice offered EPI the option of satisfying the purported debt by transferring the EPI assets to Clayton. (See former Cal. U. Com. Code, § 9505; current Cal. U. Com. Code, § 9620.) Because the foreclosure notice did not comply with notice requirements under California Uniform Commercial Code section 9621 (no notice was given to the other secured creditor), the foreclosure notice was allegedly invalid.
Coy had the Clayton attorney direct the notice of foreclosure to respondent Koss, who was allegedly assisting Coy in his plan. Koss was EPI's attorney, and he had also acted as Coy's personal attorney at various times including February 2002.
When the foreclosure notice was directed to Koss on March 1, 2002, "Koss was personal attorney for Coy" but allegedly accepted the notice of foreclosure "apparently acting as the sole officer or managing agent of EPI." Koss then approved the transfer of EPI's assets to Clayton by accepting the "offer" under [*4] former California Uniform Commercial Code section 9505 (current Cal. U. Com. Code, § 9620) and waiving the requirement of former California Uniform Commercial Code section 9504 (current Cal. U. Com. Code, §§ 9610-9615) that the collateral be sold. At the time, Koss purportedly knew that neither Coy nor Clayton had a valid security interest in any of the EPI assets, but MAPPS did have a valid and perfected security interest in the EPI accounts receivable. He also purportedly had actual or constructive knowledge of the agreement that Coy would not receive payments on his loans to EPI until MAPPS was repaid.
On March 28, 2002, in separate litigation between MAPPS and EPI, MAPPS obtained a temporary protective order prohibiting EPI from transferring any of its assets. Koss appeared at the hearing and was aware of the order. Coy thereafter transferred $ 25,000 in EPI receivables to himself as part of the overall plan to divert all of EPI's assets. After stripping EPI of its assets, Coy caused EPI to file for bankruptcy protection on April 24, 2002.
With respect to the first cause of action for conspiracy, Koss's alleged [*5] wrongdoing is summarized in paragraph 17 of the amended complaint: "Defendants COY and KOSS developed a plan to attempt to wrongfully transfer all the assets of EPI out of EPI, so as to prevent EPI from repaying any part of the monies it owed to Plaintiff. As part of this plan, COY had Clayton Holdings formed and purported to transfer his alleged loan and security interest to Clayton Holdings. As a further part of this plan, KOSS and COY had Clayton Holdings direct a defective notice of foreclosure to KOSS, who would act on behalf of EPI. KOSS and COY agreed that KOSS would assist COY in the plan to transfer the assets to Clayton Holdings. KOSS and COY agreed that KOSS would take no steps to protect EPI, and that KOSS would provide no notice of the purported foreclosure to EPI's shareholders or to Plaintiff, who had a superior lien on the receivables of EPI. In furtherance of the agreement and conspiracy, KOSS acted as agent or general manager of EPI in agreeing to transfer assets of EPI to Clayton Holdings. KOSS also waived the requirements of Comm. Code § 9504, so that all the assets could be transferred to Clayton Holdings rather than sold. As a result of the agreement and conspiracy [*6] of KOSS and COY, EPI acted as if it had no assets and stopped all business operations."
The causes of action for breach of fiduciary duty and breach of an attorney's duty to a creditor are purportedly based on paragraph 25 of the amended complaint. According to paragraph 25, EPI was insolvent as of late February 2002, such that the duties of EPI officers and directors to shareholders flowed to creditors, such as MAPPS.
B. DEMURRER TO AMENDED COMPLAINT
Koss demurred to the amended complaint. n2 Koss argued that, because he was EPI's attorney, as a matter of law he owed no duty to MAPPS, which was EPI's creditor. He further contended, inter alia, that MAPPS had failed to obtain a prefiling order required by Civil Code section 1714.10 for certain conspiracy claims against attorneys. As to the second and third causes of action, he argued that the duties of an attorney for a corporation, unlike those of an officer or director, are not owed to the shareholders and, therefore, do not pass to creditors in the event of the corporation's insolvency.
n2 MAPPS asks us to take judicial notice of records of the Contra Costa County Superior Court showing that MAPPS separately sued EPI and Coy and the case settled, thereby explaining why EPI and Coy are not parties to the present suit. We accept this representation. To the extent MAPPS actually wants us to take judicial notice, however, it has failed to comply with the requisite procedure and the request is denied.
At the demurrer hearing, MAPPS's attorney generally conceded that the second and third causes of action failed, but insisted that the first cause of action for conspiracy should survive.
The trial court sustained Koss's demurrer without leave to amend. The court held that Koss had no independent duty to his client's creditor. Further, the court ruled, MAPPS had not obtained the Civil Code section 1714.10 prefiling order. Judgment was entered against MAPPS accordingly.
MAPPS contends the court erred in sustaining the demurrer because the allegations of the amended complaint stated causes of action for conspiracy and aiding and abetting. In addition, MAPPS argues, the court erred in denying leave to amend. We need only address the first issue to resolve the appeal.
In reviewing an order sustaining a demurrer, we assume the truth of all well-pleaded material facts, as well as those facts that may be implied or inferred from the express allegations. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal. Rptr. 718.) We consider as well any matters that may be judicially noticed. (Ibid.) We [*8] then determine de novo whether the allegations stated any cause of action as a matter of law. (Ibid.) Applying these well-established rules, we conclude the allegations of MAPPS's amended complaint were sufficient to state a causes of action, under both a conspiracy theory and an aiding and abetting theory. n3
n3 Koss perceives a change from the original complaint, in which he claims the conspiracy was based on his mere receipt of the foreclosure notice, and the amended complaint, which contains a new paragraph alleging a more active role in that "KOSS approved the transfer of the assets to Clayton Holdings, and KOSS waived the requirement of Comm. Code § 9504 that the collateral be sold rather than transferred to Clayton Holdings." Koss also suggests that the original complaint more clearly spelled out his capacity as an attorney for EPI and Coy, including the allegation that Koss was attorney for EPI "at all times relevant herein" and personal counsel for Coy the month the alleged wrongdoing occurred, while MAPPS paints its amended complaint as contending Koss was acting as an inside person and de facto officer of EPI rather than as EPI's attorney. From this Koss argues that the allegations of the amended complaint were inconsistent with those in the original complaint, and the prior allegations must be read into the amended complaint and inconsistent allegations should be disregarded. (Citing Owens v. Kings Supermarket (1988) 198 Cal. App. 3d 379, 243 Cal. Rptr. 627; Pierce v. Lyman (1991) 1 Cal.App.4th 1093.) However, we do not find the allegations of the original and amended complaints so inconsistent as to warrant application of the rule asserted; even in the original complaint it was alleged that Koss was "apparently acting as the sole officer or managing agent of EPI," and in the amended complaint it was acknowledged that Koss had been the attorney for EPI and, at times, Coy.
"Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. [Citation.] By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. [Citation.] In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors." (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511 (Applied Equipment).) Thus, "'"the major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity."'" (Id. at p. 511.) As an example of the application of conspiracy theory, where no single defendant has committed all of the elements of a tort, but together all elements have been committed by codefendants possessing a common [*10] motive, all of the codefendants may be jointly liable for damages caused by the resulting tort.
To establish a civil conspiracy, the plaintiff must show: (1) the formation and operation of a conspiracy; (2) wrongful conduct in furtherance of the conspiracy; and (3) damages arising from the wrongful conduct. (Applied Equipment, supra, 7 Cal.4th at p. 511; Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581 (Kidron).) The conspiring defendants must have actual knowledge that a tort is planned, concur in the tortious scheme with knowledge of its unlawful purpose, and intend to aid in its commission. (Kidron, supra, at p. 1582.)
Paragraph 17 of the amended complaint alleges that Koss and Coy formed and operated a conspiracy, in that they: developed a plan to wrongfully transfer all the assets of EPI out of EPI; agreed Koss would assist Coy in the plan to transfer the assets and would take no steps to protect EPI or provide notice of the purported foreclosure to EPI's shareholders or MAPPS; and caused Clayton to send a notice of foreclosure to Koss on EPI's behalf. In furtherance of the conspiracy, Koss [*11] allegedly acted as EPI's representative in agreeing to transfer EPI assets to Clayton and waived the requirements of sale so that EPI's assets were transferred to Clayton rather than sold. Resulting damage was alleged as well.
In sustaining the demurrer to the conspiracy cause of action, the trial court ruled, and Koss urges here, that Koss nevertheless could not be liable for conspiracy as a matter of law because, as EPI's attorney, he had no independent duty to MAPPS. As our Supreme Court has ruled, "tort liability arising from conspiracy presupposes that the coconspirator is legally capable of committing the tort, i.e., that he or she owes a duty to plaintiff recognized by law and is potentially subject to liability for breach of that duty." (Applied Equipment, supra, 7 Cal.4th at pp. 511, 515.)
There is potentially a two-fold significance to Koss being an attorney. First, parties who do not owe the plaintiff a duty cannot be liable for a conspiracy to breach it. Second, agents generally cannot be held liable for conspiring with their own principals. (See 1-800 Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 592.) Thus, Koss argues: [*12] (1) as attorney for EPI he could not have a duty to MAPPS; and (2) as an attorney for Coy, he was Coy's agent. Neither contention has merit.
1. Duty as an Attorney
Conspiracy liability requires that the alleged conspirator owe the same duty to the plaintiff as is owed by his coconspirators. Koss's argument-that he had no duty to MAPPS because an attorney is not liable to third persons for the torts of his client-is unpersuasive.
An attorney is generally not liable to third persons for acts committed in the good faith performance of his professional representation of his client. (Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 71 (Shafer).) An exception exists, however, if the attorney acted with fraudulent or malicious intent. (Shafer, supra, at p. 71 [insurer's lawyer may be liable for his misrepresentations to non-client].) Consequently, an attorney may not, with impunity, engage in intentional tortious conduct toward a third person, or conspire with a client to defraud or injure a third person. (Shafer, supra, at p. 71; Roberts v. Ball, Hunt, Hart Brown & Baerwitz (1976) 57 Cal. App. 3d 104, 109, 128 Cal. Rptr. 901.) [*13]
Furthermore, "'lawyers are subject to the general law. If activities of a nonlawyer in the same circumstances would render the nonlawyer civilly liable . . ., the same activities by a lawyer in the same circumstances generally render the lawyer liable . . . .'" (Shafer, supra, 107 Cal.App.4th 54 at p. 69.) Whether the defendant committed fraud in his capacity as an attorney or not, the mere fact he is an attorney does not relieve him of liability. (Ibid.) n4
n4 MAPPS directs our attention to Morganroth & Morganroth v. Norris, McLaughlin (3rd Cir. 2003) 331 F.3d 406 (Morganroth). Morganroth was based on the law of New Jersey, not California. (Id. at p. 411.) There, it was alleged that a judgment debtor's attorneys intentionally interfered with the judgment creditor's collection on a judgment, by creating a corporation and legal documents purporting to transfer property to it. Although the attorneys merely assisted their client and made no misrepresentations to the judgment creditor, the court held the attorneys could be liable directly for creditor fraud as well as conspiracy. (Id. at p. 417.) The court observed: "[The facts alleged], if proven, would establish that the [attorneys] went beyond the bounds of permissible advocacy; they allege that [the attorneys] were active participants and planners in the scheme to obstruct the plaintiffs' efforts to execute on their judgment." (Id. at p. 412.)
In maintaining that Koss had no duty to MAPPS because he was an attorney, Koss and the trial court relied on Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal. App. 3d 692, 282 Cal. Rptr. 627 (Skarbrevik). In Skarbrevik, a minority shareholder sued the majority shareholders, the corporation, and the corporation's attorneys, charging they defrauded him by wrongfully diluting his shareholder interest. Although there was evidence the attorneys for the corporation knowingly participated in the majority shareholder's fraud, the court held that the attorneys had no duty to protect the minority shareholder, because their duty was to the corporation, not the shareholders. (Id. at p. 703.) Because the attorneys had no fiduciary duty to the minority shareholder, they could not be liable for conspiracy to breach a fiduciary duty to the minority shareholder.
Skarbrevik stands for the proposition that a corporation's attorney owes a fiduciary duty to its client (the corporation), rather than the corporation's shareholders. However, the case is inapposite to the matter at hand and unhelpful to our analysis. In the first place, unlike the [*15] purported duty of the corporate attorneys to the minority shareholder in Skarbrevik, Koss's duty to MAPPS is not based on a fiduciary duty between lawyer and client. In addition, Skarbrevik did not preclude as a matter of law the possibility that an attorney might owe some other kind of legal duty, from some other source, to the creditor of his client.
Moreover, according to the allegations of the amended complaint, Koss did not commit the conspiratorial acts in his capacity as an attorney, but as an insider at EPI and as its ostensibly authorized agent or signatory. The fact that Koss was an attorney by profession does not insulate him from liability for torts perpetrated in another capacity, or preclude him as a matter of law from having a legal duty to MAPPS. To the extent the trial court sustained the demurrer on this ground, it erred.
The question remains, however, whether Koss did have a legal duty to MAPPS that he shared with Coy and which could form the basis of a conspiracy. MAPPS states generally that Koss "owed MAPPS, Inc. the duty not to 'engage in intentional tortuous [sic] conduct' that harmed MAPPS, Inc." Because the existence of Koss's duty to MAPPS [*16] is a critical point, the nature of this duty is worth further examination.
In its briefs on appeal, MAPPS contends that Coy defrauded a creditor. Indeed, the first cause of action is styled as a claim for conspiring to defraud creditors. MAPPS, however, was not a creditor of Coy, and Coy was allegedly not acting on behalf of the debtor, EPI. Nor is it alleged that Coy made any fraudulent misrepresentation directly to MAPPS. And although MAPPS refers us to Penal Code section 531, which makes "every person who is a party to any fraudulent conveyance made . . . to . . . defeat, hinder, or delay creditors . . . guilty of a misdemeanor (italics added)," MAPPS provides no authority that Coy was a party to the fraudulent conveyance between EPI and Clayton within the meaning of Penal Code section 531.
Nevertheless, a number of legal theories potentially apply to the situation at hand. Some specie of fraud is likely available, notwithstanding our discussion in the preceding paragraph. (See, e.g., Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 605, 608; Varwig v. Anderson-Behel Porsche/Audi, Inc. (1977) 74 Cal. App. 3d 578, 580, 141 Cal. Rptr. 539.) [*17] Under the "prima facie tort" doctrine, "one who intentionally causes injury to another is subject to liability to the other for that injury, if his conduct is generally culpable and not justifiable under the circumstances." (Rest.2d Torts, § 870.) One who is not a party to a contract may have a duty not to intentionally interfere with it. And the tort of conversion lies where a defendant has actually and substantially interfered with the plaintiff's ownership or other right in property, including intangible property. (See Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-453 (Zerin).) Based on the allegations of the amended complaint, therefore, Coy had a legal duty to not interfere substantially with MAPPS's security interest in EPI account receivables, by transferring the receivables out of EPI. Koss presents no argument to the contrary.
The next question is whether Koss had the same duty to MAPPS. Again, other than asserting that attorneys cannot be liable to third parties, Koss does not refute that he, like Coy, had a duty not to defraud MAPPS or substantially interfere with MAPPS's security interest in EPI's [*18] collateral. (See Zerin, supra, 53 Cal.App.4th at pp. 451-453 [summarizing cases].)
Based on the allegations of the amended complaint, Koss could be liable for conspiracy even though he was an attorney, and the elements of conspiracy were met.
2. Agent Immunity Rule
Koss next argues that an attorney is an agent for his client, and as a matter of law an agent cannot conspire with his principal. This concept, however, does not preclude a conspiracy cause of action based on the allegations of MAPPS's amended complaint.
The amended complaint alleges that Koss was an attorney for EPI. But it is not alleged that Koss was conspiring with EPI. Rather, the amended complaint alleges that Koss was conspiring with Coy. MAPPS does plead that Koss acted as personal attorney for Coy from time to time, including "in February 2002" (paragraph 9) and when the foreclosure notice was directed to Koss on March 1, 2002 (paragraph 11). Nevertheless, the amended complaint alleges in paragraphs 11 and 17 that in perpetrating the alleged wrongdoing Koss was "apparently acting as the sole officer or managing agent of EPI" and as "agent or general manager of EPI." MAPPS contends [*19] that its allegations therefore should be interpreted to mean that Koss was not acting as Coy's attorney at the time of the purported wrongdoing. Furthermore, MAPPS argues, allegations of Koss's representation of Coy refer to a separate lawsuit, not the alleged wrongful conduct.
Although not crystal clear, the allegations of the amended complaint are susceptible to the interpretation MAPPS asserts. Accordingly, for purposes of demurrer, it cannot be said that the conspiracy cause of action is precluded as a matter of law by the agent immunity rule.
The court erred in sustaining the demurrer for failure to state a cause of action on a conspiracy theory.
Although framed in the amended complaint (and in its opposition to the demurrer) as a claim for conspiracy, MAPPS now argues that the allegations were sufficient to state a cause of action for aiding and abetting. Because the allegations of the amended complaint state some cause of action, MAPPS points out, the trial court erred in sustaining the demurrer even if conspiracy theory did not apply. (Pavicich v. Santucci (2000) 85 Cal.App.4th 382, 389 [court errs in sustaining [*20] demurrer if complaint states a cause of action under any possible theory] (Pavicich).) Koss does not specifically address MAPPS's arguments concerning aiding and abetting liability; nor does he object that the aiding and abetting theory was not asserted in the trial court. (See Dudley v. Department of Transportation (2001) 90 Cal.App.4th 255, 259 [on appeal from a demurrer dismissal, appellant may advance a new legal theory to demonstrate the complaint stated a cause of action].)
Liability for aiding and abetting an intentional tort arises if the defendant substantially assists or encourages another party to act, with the knowledge that the other party's conduct constitutes a breach of duty. (Casey v. United States Bank Nat. Assn. (2005) 127 Cal.App.4th 1138 (Casey); Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846 (Saunders); Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1325-1326.) Unlike civil conspiracy, aiding and abetting liability does not require that the abettor have any independent duty to the third person. A party need not owe any duty, let alone the same duty, to be subject [*21] to liability for aiding and abetting another's breach. (Casey, supra, 127 Cal.App.4th at p. 1145, fn. 2 [bank could be liable for aiding and abetting breach of fiduciary duty to a company, even though it had no fiduciary duty of its own to the company]; Neilson v. Union Bank of California, N.A. (C.D.Cal. 2003) 290 F. Supp. 2d 1101, 1133 ["No California case . . . holds that a party must owe the plaintiff a duty before he or she can be held liable as an aider and abettor."].)
Instead, "liability may also be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person. [Citations.]" (Saunders, supra, 27 Cal.App.4th at p. 846.)
The elements of aiding and abetting liability were satisfied by the allegations of MAPPS's amended complaint. Paragraph 12 alleged in effect that Koss knew Coy was [*22] stealing MAPPS's collateral, since he purportedly knew Coy had no valid or perfected security interest and MAPPS did have a valid and perfected security interest. (He also allegedly had actual or constructive knowledge that the loan contract barred Coy from obtaining payments from EPI before MAPPS was fully paid.) Thus, Koss purportedly knew Coy had no right to interfere with MAPPS's security interest or the subject collateral, and knew Coy by his actions would breach a duty to MAPPS.
Paragraphs 11 and 17 of the amended complaint alleged that with this knowledge, Koss gave substantial assistance to Coy, receiving the foreclosure notice from Clayton's attorney, waiving EPI's right to have the collateral sold in the marketplace, and approving the transfer of EPI assets to Clayton.
The amended complaint states a cause of action based on aiding and abetting liability. The demurrer should have been overruled for this reason as well.
C. KOSS'S OTHER ARGUMENTS HAVE NO MERIT
Koss contends that the demurrer was properly sustained because: (1) he cannot defend against MAPPS's allegations without disclosing communications protected by the attorney-client privilege; (2) MAPPS did [*23] not comply with the prefiling requirements of Civil Code section 1714.10; and (3) MAPPS lacks standing to pursue its claims.
Koss contends MAPPS cannot maintain his conspiracy cause of action as a matter of law, because he could not defend against it without disclosing attorney-client confidences. Disclosure of such confidences would be necessary, he asserts, to defend against charges that he failed to advise EPI that the foreclosure notice was invalid, agreed with Coy to allow the transfer of EPI assets to Clayton, and agreed with Coy that Koss would take no steps to protect EPI.
Koss's argument lacks merit, at least at the demurrer stage. First, according to the allegations of the amended complaint, there is no indication his communications with Coy would be privileged, since Coy was neither Koss's client in connection with the purported wrongdoing nor speaking on EPI's behalf. Second, there is no apparent danger that Koss would have to disclose EPI's client confidences in defending himself, since it was alleged that Koss did not advise EPI or its shareholders of the facts underlying the conspiracy. Third, attorney-client [*24] communications are not privileged where the client was seeking the attorney's advice to perpetrate a fraud or crime, as alleged here. (Evid. Code, § 956.) Lastly, the cases on which Koss relies, McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378 (McDermott) and Solin v. O'Melveny & Myers (2001) 89 Cal.App.4th 451 (Solin), are inapposite. Both were malpractice cases brought against attorneys in atypical circumstances. (McDermott, supra, at pp. 381, 384 [plaintiff shareholders could not maintain derivative action against corporation's outside counsel, because counsel could not defend itself without disclosing corporate client's confidences]; Solin, supra, at p. 467 [attorney's malpractice lawsuit against law firm could not proceed because the law firm could not defend itself without violating the attorney-client confidences of the attorney's clients].) The matter before us does not give rise to the same obvious need to disclose client confidences in order to mount a defense.
Based on the face of the amended complaint, it cannot be said that Koss will be unable [*25] to defend himself without disclosing confidential attorney-client communications. The demurrer therefore could not be sustained on this ground.
2. Civil Code Section 1714.10
Koss also contends that MAPPS cannot pursue his conspiracy claim because it failed to obtain an order pursuant to Civil Code section 1714.10 before filing the lawsuit. Civil Code section 1714.10 provides in part: "No cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute, and which is based upon the attorney's representation of the client, shall be included in a complaint . . . unless the court enters an order allowing the pleading that includes the claim for civil conspiracy to be filed after the court determines that the party seeking to file the pleading has established that there is a reasonable probability that the party will prevail in the action." The failure to obtain the order is a ground for a demurrer or motion to strike. (Civ. Code, § 1714.10, subd. (d).)
Based on the allegations of the amended [*26] complaint, Civil Code section 1714.10 does not apply. In doing the acts complained of, Koss was said to be acting as an EPI insider and coconspirator with Coy, not as Coy's attorney. The conspiracy was therefore not "based upon the attorney's representation of the client." Furthermore, Civil Code section 1714.10, subdivision (c), sets forth exceptions to the prefiling rule where the attorney (1) had an independent legal duty to the plaintiff or (2) does not fall within the agent's immunity rule because the attorney violated "a legal duty in furtherance of the attorney's financial gain." As we have explained ante, Koss had an independent duty to MAPPS. Accordingly, the prefiling requirement of Civil Code section 1714.10 did not apply. (Pavicich, supra, 85 Cal.App.4th at p. 394 [Civ. Code § 1714.10 does not bar any valid attorney-client conspiracy claim].)
Lastly, Koss claims that MAPPS does not have standing. The essence of the amended complaint, he argues, is that EPI's assets were transferred to Clayton to avoid payment of the creditors' [*27] claims, and as a result of the transfer EPI was unable to pay MAPPS and other creditors, and filed for bankruptcy. Relying on Practice Service Corp. v. HCA Health Services (1995) 37 Cal.App.4th 1003 (Practice Service), Koss asserts that creditors of a bankrupt corporation do not have standing to sue the officers or directors for mismanagement, looting, or other acts causing the corporation's bankruptcy, since such claims belong only to the corporation and may be pursued only by its bankruptcy trustee.
MAPPS counters that Practice Service actually confirms MAPPS's standing, claiming Practice Service held that secured creditors directly harmed by the intentional torts of those who operated a corporation had standing to sue them despite the corporation's bankruptcy. Koss does not explain the application of Practice Service to the matter before us, and MAPPS outright misrepresents it.
In Practice Service, PSC and CMS were creditors of a medical corporation (WHA) and obtained a security interest in WHA's accounts receivable. (Practice Service, supra, 37 Cal.App.4th at p. 1005.) WHA defaulted on its obligations to PSC and CMS. WHA [*28] and its doctors then formed a new corporation (PCA) and operated under the new corporation, without informing PSC and CMS. Misled in this regard by WHA, the doctors, and agents of HCA (the general partner of a hospital with whom WHA had a service agreement), PSC and CMS deferred enforcing their claims against WHA. After WHA became subject to an involuntary bankruptcy petition, PSC and CMS sued the doctors, PCA (their new corporation), and HCA for fraud, fraudulent omission, conspiracy to defraud, and other causes of action. HCA and one of the doctors contended PSC and CMS lacked standing, because only the WHA bankruptcy trustee could assert the claims. (Ibid.) The trial court sustained HCA's demurrer. On appeal, all respondents were dismissed except HCA. (Id. at pp. 1005-1006.)
The Court of Appeal in Practice Service recognized that only the bankruptcy trustee could recover for a corporation's looted assets or conduct detrimental to the corporation, where "the defendant was a director or owner of a bankrupt company and liable to that company for the very conduct relied upon by the plaintiff." (Practice Service, supra, 37 Cal.App.4th at p. 1006.) [*29] "But when a cause of action does not belong to the party in bankruptcy, an ordinary plaintiff may proceed against a culpable associate of the bankrupt party." (Ibid.) The court held that creditors PSC and CMS could pursue their fraud claim against HCA, because their fraud claim did not belong to WHA. (Ibid.) The creditors' fraud claim was apparently not based on the fraudulent transfer of WHA's assets, but on affirmative misrepresentations leading them to believe WHA was still operating when it was actually insolvent.
Under Practice Service, MAPPS could not sue Coy (EPI's president and director) for diverting EPI's assets, because such a claim could only be brought by EPI's bankruptcy trustee. It is less clear whether MAPPS is precluded from suing Koss as a joint tortfeasor, under conspiracy or aiding and abetting theory, for the monetary damages MAPPS suffered as a result of the elimination of the collateral securing its loan.
In Practice Service, the creditors' fraud claim was based on a misrepresentation to the creditors that led them to postpone enforcement of their rights against the corporation, rather than the fraudulent transfer of the corporation's [*30] assets. As such, the conduct underlying the creditors' claim was plainly not one that would be held by the bankrupt corporation. Here, by contrast, as alleged in the amended complaint, the conduct underlying MAPPS' claim-transfer of the assets out of EPI-is the same general conduct underlying a claim EPI could have against Coy (and against Koss as his accomplice).
On the other hand, MAPPS's claim against Koss is distinct, for several reasons. First, it is not based on the fact that Coy (and Koss) caused EPI to become insolvent (and thus unable to pay any creditors), but on the direct harm Coy and Koss allegedly caused MAPPS in rendering unavailable the security for MAPPS's specific loan. Second, according to the pleading, MAPPS was the intended victim of Koss's wrongdoing. Third, while a corporate officer or director owes a fiduciary duty to the corporation-and thus the corporation owns causes of action based on the breach of such a duty-Koss was not an actual officer or director of EPI.
In the end, we conclude that Koss has not established that MAPPS lacks standing to assert its claims. Based on the allegations of the amended complaint, MAPPS's cause of action for recovery [*31] of the harm it suffered as a direct result of Koss's purported actions is MAPPS's property, not the property of the bankruptcy estate. (See Cumberland Oil Corp. v. Thropp (2nd Cir. 1986) 791 F.2d 1037, 1042.)
The trial court erred in sustaining the demurrer to the amended complaint. n5
n5 MAPPS's opening brief on appeal acknowledges that its counsel generally conceded in the trial court that its second and third causes of action would fail. The opening brief does not challenge the court's sustaining the demurrer as to the second and third causes of action, and we consider any assertion of error in this regard as waived. Furthermore, although MAPPS argues in its reply brief that an attorney should not assist his client in committing a crime, this abbreviated argument has not convinced us that the amended complaint fails to allege causes of action for breach of fiduciary duty or breach of an attorney's purported duty to a creditor.
The judgment, and the order sustaining [*32] the demurrer to MAPPS's amended complaint, is reversed. MAPPS shall recover its costs on appeal.