Judge: Daniel S. Murphy, Case: 22STCV00816, Date: 2023-05-01 Tentative Ruling

Case Number: 22STCV00816    Hearing Date: May 1, 2023    Dept: 32

BACKGROUND

            Plaintiff Lilly Darvish initiated this action on January 7, 2022. Plaintiff filed the operative Second Amended Complaint on February 16, 2023 against Defendants Michael K. Lanning, Michael K. Lanning, a Professional Law Corporation, and Allen Brumer. The SAC asserts causes of action for (1) legal malpractice, (2) accounting malpractice, (3) breach of fiduciary duty, (4) fraudulent concealment, and (5) financial elder abuse.

Defendant Lanning and his law firm represented Plaintiff for over thirty years in connection with estate planning. However, unbeknownst to Plaintiff, Defendants also began representing Plaintiff’s son, Shervin. Defendants did not disclose this conflict of interest and allegedly colluded with Shervin to help Shervin obtain Plaintiff’s shares in the family business, Annex. Defendants allegedly failed to properly advise Plaintiff with regards to the sale and failed to protect Plaintiff’s interests. Defendants allegedly failed to prepare a proper accounting in connection with the sale of Annex assets and helped hide the transactions from Plaintiff.  

Defendant Brumer was allegedly part of this scheme. Brumer is a certified public accountant who allegedly performed accounting and tax services for Plaintiff. (SAC ¶ 4.) Brummer represented Plaintiff before the Franchise Tax Board, resulting in over $800,000 in taxes and penalties. (Id., ¶ 44.) Brummer allegedly “conspire[ed] with Shervin and Lanning to hide important and significant financial information from [Plaintiff] so that Shervin could misappropriate [Plaintiff’s] community property assets.” (Id., ¶ 66.)   

On March 20, 2023, Defendant Brumer filed the instant demurrer and motion to strike against the SAC.

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.)

Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part of that pleading. (Code Civ. Proc., § 435, subd. (b).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike (1) any irrelevant, false, or improper matter inserted in any pleading and (2) all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id., § 437.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Defendant has complied with the meet and confer requirement. (See Chang Decl. ¶¶ 5-6.)

DISCUSSION

I. Accounting Malpractice

            A cause of action for accounting malpractice has the following elements: (1) the duty of the accountant to use such skill, prudence, and diligence as other members of the profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the professional's negligence. (Mattco Forge. Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 833.)

            Brumer argues that he did not personally provide services to Plaintiff because his CPA company provided services. Brumer insists that he was only retained to provide tax preparation services and argues that the SAC does not contain any facts to the contrary. Brumer also argues that there are no facts establishing a breach of duty and that the SAC makes conclusory allegations without distinguishing between the multiple defendants. Brumer claims that he relied on Plaintiff’s prior representatives to relay relevant information to Plaintiff and had no duty to directly communicate with Plaintiff.

            These are all factual contentions that cannot be resolved on a demurrer. The SAC alleges that Brumer, not his company, provided services to Plaintiff. The SAC does not reveal on its face that Brumer’s role was limited to tax preparation. On the contrary, it alleges that Brumer provided accounting and tax services to Plaintiff and represented Plaintiff before the FTB. (SAC ¶¶ 4, 44.) The SAC attributes conduct to Brummer specifically. (Id., ¶¶ 81-100.) The SAC does not reveal on its face that Plaintiff had prior representatives who acted as middlemen for communications. The SAC alleges that Brumer intentionally hid critical information from Plaintiff to obscure the scheme with Lanning and Shervin. (Id., ¶¶ 66, 83, 92, 93.) Brumer allegedly forged documents and provided false information to the FTB relating to Plaintiff’s finances. (Id., ¶¶ 85-89.) Brumer took instruction from Shervin and prioritized helping Shervin execute unauthorized transfers of Plaintiff’s property. (Id., ¶ 94.)

            On a demurrer, these facts must be assumed true, and they adequately establish a breach of duty. Therefore, the demurrer is OVERRULED as to the second cause of action.

II. Breach of Fiduciary Duty

“The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 932.)  

Brumer first argues that accountants are not fiduciaries as a matter of law. However, Brumer cites nonbinding caselaw that is also not on point. (See Dem. 6:23-7:2.) On the other hand, Brumer’s own definition of a fiduciary suggests that an accountant may be a fiduciary. (See Dem. 7:5-7, quoting Recorded Picture Co. Ltd v. Nelson Entm't (1997) 53 Cal.App.4th 350, 370 [“A fiduciary relationship is created where a person reposes trust and confidence in another and the person in whom such confidence is reposed obtains control over the other person’s affairs”].) The allegations in the SAC support a reasonable inference that Plaintiff trusted Brumer with control over her financial affairs such that Brumer owed a fiduciary duty to manage those affairs properly and keep Plaintiff apprised.

Brumer reiterates his claim that he merely provided tax preparation services and argues that if he had been retained to do anything more, there would be a retainer agreement or communications to that effect. Again, these are factual contentions unsuitable for demurrer. Pleading a breach of fiduciary duty claim does not require the attachment of a retainer agreement or other documents outlining the scope of representation. Plaintiff has alleged that Brumer represented her as a CPA and handled her financial affairs, which is sufficient for pleading purposes.  

Lastly, Brumer contends that there is no causal nexus between the alleged breach and Plaintiff’s damages. Brumer argues that the SAC only offers conclusory allegations that Brumer colluded with Shervin and Lanning. As discussed above, the allegations attribute conduct specifically to Brumer and provide sufficient detail. Therefore, the demurrer is OVERRULED as to the third cause of action.

III. Fraudulent Concealment

“The elements of fraud that will give rise to a tort action for deceit are: ‘(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974, quoting Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Fraud generally must be pleaded with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) However, the rule “is intended to apply to affirmative misrepresentations.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384.) “[I]t is harder to apply this rule to a case of simple nondisclosure. How does one show ‘how’ and ‘by what means’ something didn't happen, or ‘when’ it never happened, or ‘where’ it never happened?” (Ibid.) “Less specificity should be required of fraud claims when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy.” (Ibid.)  

The SAC adequately alleges that “Brumer never disclosed to Lilly that she was being audited by the FTB. Brumer never disclosed that he agreed to Lilly paying over $800,000 in taxes and penalties to the FTB for calendar year 1996. Brummer never disclosed to the FTB the terms and conditions of the 1006 Irrevocable Trust and that Shervin had control of the Promissory Note.” (SAC ¶ 120.) The SAC alleges that Brumer intended to conceal facts concerning matters with the FTB and IRS. (Id., ¶ 121.) This was presumably done to help Shervin and Lanning take control of Plaintiff’ assets and hide the scheme from Plaintiff. (Id., ¶¶ 66, 110.)

The SAC contains sufficient allegations to inform Brumer of the nature of the claim. Therefore, the demurrer is OVERRULED as to the fourth cause of action.

IV. Elder Abuse

For a plaintiff to prevail on a cause of action for financial elder abuse, a plaintiff must show that a defendant assisted in taking, secreting, appropriating, or retaining real or personal property of an elder to a wrongful purpose or with the intent to defraud or both. (Welf. & Inst. Code, §15610.30(a)(2).)  

Brumer argues that the SAC is conclusory because it merely alleges that “Brumer was also aware of Shervin’s plan to flip the shares but remained silent.” (See SAC ¶ 126.) Brumer argues that the SAC fails to show he was aware of the plan or intentionally concealed it, and that the disclosure of such a plan is outside the duties of a tax preparer.

However, the SAC consists of more than just paragraph 126. When read as a whole and interpreted liberally, the SAC sufficiently establishes that Brumer was aware of Lanning and Shervin’s plan to take Plaintiff’s assets and that Brumer intentionally concealed information to prevent Plaintiff from discovering the scheme. (See, e.g., SAC ¶¶ 54-66.) Once again, Brumer’s role as a mere tax preparer is a factual issue. As discussed above, the SAC adequately demonstrates that Brumer had a duty to keep Plaintiff informed of her financial affairs.

The SAC details Shervin and Lanning’s scheme to secrete Plaintiff’s assets and alleges that Brumer aided and abetted this scheme. (SAC ¶¶ 124-126.) Therefore, the SAC adequately establishes that Brumer assisted in taking, secreting, appropriating, or retaining real or personal property of an elder to a wrongful purpose or with the intent to defraud. (See Welf. & Inst. Code, §15610.30(a)(2).) The demurrer is OVERRULED as to the fifth cause of action.

V. Punitive Damages

“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (Civ. Code, § 3294, subd. (a).) “‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (Id., subd. (c)(1).) “‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Id., subd. (c)(2).) Fraud is “intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” (Id., subd. (c)(3).)

The allegations discussed above adequately demonstrate that Brumer acted fraudulently and with conscious disregard for Plaintiff’s rights. Therefore, the SAC properly pleads a basis for punitive damages. The motion to strike is DENIED.

CONCLUSION

            Defendant Allen Brumer’s demurrer to the Second Amended Complaint is OVERRULED. Brumer’s motion to strike is DENIED.