Court Opinion

ID: 9911739
Source: CourtListenerOpinion
Date Created: 2023-12-20 19:02:22.665195+00
Date Added: 2024-06-11T12:54:15.628229
License: Public Domain

Filed 12/20/23 Schoenmann v. Orrick, Herrington & Sutcliffe CA1/5

       NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for pur-
poses of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         FIRST APPELLATE DISTRICT

                                    DIVISION FIVE

 E. LYNN SCHOENMANN, as
 Trustee in Bankruptcy, etc.,
                                                                  A165552
          Plaintiff and Appellant,
 v.
                                                                  (San Francisco City and County
 ORRICK, HERRINGTON &                                             Super. Ct. No. CGC-20-585193)
 SUTCLIFFE, LLP et al.,
          Defendants and Respondents.

      Orrick, Herrington & Sutcliffe, LLP represented Anshan Li
and his company TA Home, Inc. in a San Mateo County Superior
Court action that, following a bench trial, resulted in a $72
million judgment against them.

      A couple years later, the court granted a motion to amend
the judgment and add two new entities—Li’s Capital, LLC and
Sunrock Capital, LLC—as additional judgment debtors upon
finding they were part of a single enterprise owned and
controlled by Li. Involuntary petitions for bankruptcy were filed
against the LLCs.

      Bankruptcy trustee E. Lynn Schoenmann then filed the
instant action against Orrick and its partner Robert Varian,
alleging they had committed malpractice and breached a
fiduciary duty to the LLCs by failing to preserve their rights to a
jury trial in the San Mateo action.
                                                1
      The trial court granted defendants’ motion for summary
judgment. The trustee had introduced no evidence showing
Orrick represented the LLCs during the relevant time period in
the San Mateo action. We affirm.

                         BACKGROUND

                                 A.

      In 2011, Zhize Huang and his company Wuxi Luoshe
Printing and Dyeing Co., Ltd. filed an action in San Mateo
County Superior Court naming Li and TA Home as defendants.
They alleged that Huang and Li jointly owned a business
(Standard Fiber) and Li committed fraud when he sold Standard
Fiber without notice or compensation to Huang. They also
alleged that TA Home was the “successor-in-interest” and
“continuation” of Standard Fiber. The complaint did not mention
the LLCs.

      Orrick (with lead partner Varian) represented Li and TA
Home in this action. According to Orrick, it entered into a
written engagement agreement with Li in January 2011 to
represent him “regarding [his] dispute with Huang and Wuxi
Luoshe.”

       At the outset of the case, Huang and Wuxi Luoshe
requested a jury trial, but Li and TA Home requested a bench
trial. In 2013, however, Huang and Wuxi Luoshe waived their
right to a jury. Orrick filed an ex parte application seeking relief
from its prior jury waiver, which was denied. The matter
proceeded to a bench trial in March 2013.

       Meanwhile, from August 2012 to May 2013, Orrick
represented one of the LLCs (Li’s Capital) in arbitration
proceedings. According to Orrick, these proceedings were
“initiated by third parties” and “related to alleged
misrepresentations in connection with the sale of Standard Fiber,
LLC assets.” Neither Huang nor Wuxi Luoshe was a party to the
                                 2
arbitration. There was no written engagement agreement
between Orrick and the LLC for this representation.

      In September 2015, more than two years after the
conclusion of the bench trial in the San Mateo action, the judge
issued a proposed statement of decision awarding $68 million in
damages to Huang (including prejudgment interest) and
$470,000 to Wuxi Luoshe.

       In December 2015, Orrick entered into a revised written
engagement agreement to represent both Li and TA Home
“regarding the claims by Wuxi Luoshe and Huang.” According to
the trustee, Orrick executed this revised agreement because the
proposed statement of decision foreshadowed “a huge judgment
that created an actual conflict of interest between [TA Home] and
Li as to payment of the judgment.”

      Orrick has objected to the trustee’s requests for production
of both the 2011 and 2015 written engagement agreements based
on attorney-client privilege.

      The final statement of decision and judgment were entered
in July 2016. Neither refers to the LLCs. The judgment
ultimately awarded $72,560,730 to Huang and $876,315 to Wuxi
Luoshe against Li and TA Home.

       Li appealed the judgment. Among other things, he argued
that the trial court abused its discretion in denying him relief
from his jury waiver. The judgment was affirmed in Wuxi Luoshe
Printing & Dyeing Co. v. Anshan Li (June 25, 2019, A149522)
[nonpub. opn.], determining that the record “amply supports the
trial court’s conclusion that the waiver was deliberate, and
defendants had simply changed their minds.” (Id. at p. 14.)

                                3
                                B.

     Huang filed another action in San Mateo County Superior
Court against Li and TA Home seeking Li’s removal from TA
Home’s board of directors.

      In December 2016, Huang amended the complaint and
added the LLCs as defendants. The amended complaint alleged
that Li had transferred assets to the LLCs to evade the $72
million judgment and sought to void those transfers.

      In January 2017, Li sent Orrick an email stating: “For the
amended new case, I think we should defense [sic] my LLCs.”
Orrick subsequently filed an answer to the amended complaint
on behalf of Li and the LLCs.

      Two months later, Orrick withdrew as counsel in both San
Mateo actions after the production of bank records showed
certain assets had been inappropriately transferred.

                                C.

       About two years after the $72 million judgment, in 2018,
Huang and Wuxi Luoshe moved to amend the judgment to add
the LLCs as additional judgment debtors. The court stated that,
“given the representation and participation of Defendants
Anshan Li and TA Home Inc. in the Court Trial in this action
resulting in the Judgment,” the LLCs “were virtually represented
in this action and in the Court Trial, and are deemed to have had
control of the underlying litigation as there is such a unity of
interest and ownership that the separate personalities of the
entities do not exist; and an inequitable result will follow if the
acts are treated as those of TA Home Inc. alone.” The court
granted the motion to add the LLCs to the judgment against TA
Home under the “single enterprise theory,” as TA Home and the
LLCs “are sister companies under common control and constitute
a Single Enterprise owned and controlled by Anshan Li.”

                                 4
      After involuntary petitions for bankruptcy were filed
against the LLCs, the trustee was appointed for their bankruptcy
estates.

                                D.

       In 2020, the trustee filed this action against Orrick and
Varian asserting causes of action for (1) professional legal
malpractice and (2) breach of fiduciary duty. The complaint
alleged that defendants had failed to preserve the LLCs’ rights to
a jury trial in the first San Mateo action. The trustee sought $72
million in damages, $14 million in attorney fees paid to Orrick,
and “additional interest that accrued as a result of the additional
time between trial and judgment as a result of the case being
tried to a judge rather than the jury.”

      Defendants demurred, arguing that the trustee could not
show they owed a duty to the LLCs because they did not
represent them when the purported malpractice (jury trial
waiver) occurred. The trial court overruled the demurrer,
explaining it must take allegations from the complaint as true at
the demurrer stage, including the allegation that Orrick
represented the LLCs from 2011 to 2017.

       The trial court later granted defendants’ motion for
summary judgment. The court explained there was no evidence
establishing that Orrick represented the LLCs during the
relevant time period in the action or that an attorney-client
relationship was established by court order, express agreement,
or implied agreement.

                          DISCUSSION

                                A.

       Summary judgment is properly granted when there is no
triable issue as to any material fact and the moving party is
entitled to judgment as a matter of law. (Code Civ. Proc., § 437c,

                                 5
subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826,
850.)1 A defendant moving for summary judgment has the
burden of demonstrating that either an essential element of each
cause of action cannot be established or that there is a complete
defense. (§ 437c, subds. (b)(1), (p)(2); Aguilar, supra, at pp. 850,
854.) Once the moving party has met its burden, the burden
shifts to the opposing party to present evidence that
demonstrates a triable issue of material fact. (§ 437c, subd.
(b)(3); Ochoa v. Pacific Gas & Electric Co. (1998) 61 Cal.App.4th
1480, 1485.)

      The existence of a triable issue of material fact is a legal
question that we review de novo. (Limited Stores, Inc. v.
Franchise Tax Bd. (2007) 152 Cal.App.4th 1491, 1495–1496.) On
review, we accept as true all facts and reasonable inferences
shown by the losing party’s evidence and resolve evidentiary
ambiguities in their favor. (Saelzler v. Advanced Group 400
(2001) 25 Cal.4th 763, 768.) But to establish a triable issue, the
opposing party must do more than attack the credibility of the
moving party’s evidence. (§ 437c, subd. (e).) A triable issue of
material fact “can be created only by a conflict in the evidence.”
(Lewis v. County of Sacramento (2001) 93 Cal.App.4th 107, 116.)

                                 B.

      The trustee argues there are three triable issues of
material fact as to whether Orrick owed a duty to the LLCs that
supports the malpractice and breach of fiduciary claims in this
action.2

      1 Undesignated statutory references are to the Code of Civil

Procedure.
       2 Defendants ask us to reject these arguments outright for

failure to raise them below. (California Restaurant Management
Systems v. City of San Diego (2011) 195 Cal.App.4th 1581, 1593,
fn. 7.) In the trial court, the trustee argued that the LLCs were
represented by Orrick in the arbitration proceedings and “at
                                 6
                                 1.

      First, the trustee argues there is a triable issue as to
whether each LLC was a “de facto third party beneficiary” of the
2011 written engagement agreement between Orrick and Li. The
trustee suggests that this can be inferred from Orrick’s
representation of TA Home in the first San Mateo action (from
2011 to 2015) and the LLCs in the second San Mateo action (from
February to March 2017) without written agreements.

       “California courts have uniformly settled upon the
following rule: A lawyer has a duty to a nonclient third party only
if the client’s intent to benefit that third party (in the way the
third party asserts in their malpractice claim) is ‘clear,’ ‘certain’
and ‘undisputed.’ ” (Gordon v. Ervin Cohen & Jessup LLP (2023)
88 Cal.App.5th 543, 556.) The trustee has presented no evidence
showing that Li (or Orrick) intended to benefit the LLCs under
the 2011 written engagement agreement.

      Nor is it reasonable to infer such intent from Orrick’s other
representations. “An issue of fact is not created by speculation,
conjecture, imagination, or guesswork[.]” (Lewis v. County of
Sacramento, supra, 93 Cal.App.4th at p. 116.) Here, the record
shows that Orrick eventually formalized its agreement to
represent TA Home in the first San Mateo action, and Li told
Orrick he wanted to “defense” [sic] the LLCs in the second San
Mateo action. This evidence supports the opposite inference: that
the 2011 written engagement agreement did not cover the LLCs.

every step” of the first San Mateo action through its
representation of Li. On appeal, the trustee now argues that
Orrick represented the LLCs through its representation of TA
Home. Even if arguably forfeited, the arguments also fail on
their merits.

                                 7
                                2.

      Next, the trustee argues there is a triable issue as to
whether Orrick’s representation of TA Home created an
“[i]mplied” attorney-client relationship between Orrick and the
LLCs. (Fox v. Pollack (1986) 181 Cal.App.3d 954, 959 [“Except
for those situations where an attorney is appointed by the court,
the attorney-client relationship is created by some form of
contract, express or implied, formal or informal”].)

      The trustee contends that the San Mateo County Superior
Court’s addition of the LLCs as debtors to the $72 million
judgment is “prima facie evidence” of this implied relationship.
Defendants challenge the evidentiary use of this ruling as
hearsay (Evid. Code, § 1200), while the trustee responds that the
ruling establishes facts via issue preclusion.

      We are not persuaded that the ruling creates a triable issue
of material fact, let alone issue preclusion. (Samara v. Matar
(2018) 5 Cal.5th 322, 327 [issue preclusion applies after final
adjudication of identical issue, actually litigated and necessarily
decided, asserted against party to first suit or in privity with
party].)

       The San Mateo County Superior Court addressed a motion
to treat the LLCs as alter egos of TA Home for the purpose of
adding them as judgment debtors under section 187. To succeed
on such a motion, judgment creditors must show by a
preponderance of the evidence that “ ‘(1) the parties to be added
as judgment debtors had control of the underlying litigation and
were virtually represented in that proceeding; (2) there is such a
unity of interest and ownership that the separate personalities of
the entity and the owners no longer exist; and (3) an inequitable
result will follow if the acts are treated as those of the entity
alone.’ ” (Highland Springs Conference & Training Center v. City
of Banning (2016) 244 Cal.App.4th 267, 280.) The San Mateo
County Superior Court concluded Huang and Wuxi Luoshe had
                                 8
demonstrated that the LLCs were “virtually represented” in the
first action, and found that the LLCs were “sister companies”
with TA Home “under common control and constitute a Single
Enterprise owned and controlled by Anshan Li.”

       The trustee cites no authority to support her position that
this ruling somehow demonstrates Orrick had an attorney-client
relationship with the LLCs. Instead, the trustee relies on case
law discussing conflicts of interest: specifically, that related
corporations should not be treated as the same entity for conflict
purposes unless one is the alter ego of the other. (Brooklyn Navy
Yard Cogeneration Partners v. Superior Court (1997) 60
Cal.App.4th 248, 257; Morrison Knudsen Corp. v. Hancock,
Rothert & Bunshoft (1999) 69 Cal.App.4th 223, 240–241.) But a
conflict of interest does not create an attorney-client relationship
giving rise to a duty to preserve the rights of that entity in a
court action. (See Morrison, supra, at p. 232 [“[A] conflict of
interest ‘ “ . . . may arise from an attorney’s relationship with a
nonclient” ’ ”].)

       Nor are we otherwise persuaded that the San Mateo
County Superior Court’s ruling supports such a position. The
alter ego doctrine is an exception to the general rule that a
corporation’s liability is limited to the corporation and does not
extend to shareholders or other separate legal entities. (See
Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 510.) The
doctrine is founded on equitable principles, and it may apply
when limiting a corporation’s liability would be unfair to a
creditor. (Ibid.) It does not supply evidence on the specific
question here—whether a client (Li or TA Home) and an attorney
(Orrick) agreed, expressly or impliedly, that the attorney would
represent other legal entities (the LLCs) in a particular matter.
Given the (apparent) risk that a court would later apply the alter
ego doctrine to the LLCs, maybe Li should have hired Orrick to

                                 9
represent the LLCs, too. But the alter ego doctrine tells us
nothing about whether he did.

                                 3.

       Finally, the trustee argues there is a triable issue as to
whether Orrick had an implied attorney-client relationship with
the LLCs based on Orrick’s representations of Li and TA Home in
the first San Mateo action, and the LLCs in the second San
Mateo action. The trustee contends that these representations
create an inference that Orrick “recognized a duty to look after”
the interests of “all Li’s companies and entities, including [the]
LLCs, as they would be affected by the litigation.” (See Guz v.
Bechtel National, Inc. (2000) 24 Cal.4th 317, 336–337 [contract
may be implied in fact contract from conduct and circumstances].)

      As explained above, the trustee has not presented any
evidence showing that the parties intended to create an implied
attorney-client relationship between Orrick and the LLCs. The
circumstances also contradict any such inference. The LLCs were
not named in the first San Mateo action. The addition of the
LLCs as judgment debtors occurred five years after Li and TA
Home waived a jury trial in that action. Orrick’s brief
representation of Li, TA Home, and the LLCs in the second San
Mateo action also occurred years after the jury waiver.

      In sum, we conclude that the trial court did not err in
granting summary judgment. We need not reach the parties’
other issues.

                         DISPOSITION

       The judgment is affirmed. Respondents are entitled to
their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)

                                10
                                                                      BURNS, J.
WE CONCUR:

SIMONS, ACTING P.J.
CHOU, J.

Schoenmann v. Orrick, Herrington & Sutcliffe, LLP, et al. (A165552)

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