Judge: Frank M. Tavelman, Case: 23BBCV02551, Date: 2024-04-05 Tentative Ruling

REQUESTING ORAL ARGUMENT PER CRC 3.1308

The Court will attempt to post all Tentative Rulings at least the day prior to the hearing by 3:00 p.m.; however, the Court does not post Tentative Rulings for all matters.  

The Court will indicate in the Tentative Ruling whether the Court is requesting oral argument.  For cases where the Court is not requesting argument, then the Court is guided by California Rules of Court, Rule 3.1308(a)(1) where the Court requests notice of intent to appear.  Unless the Court directs argument in the Tentative Ruling, a party seeking argument should notify "all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue."  The tentative ruling will become the ruling of the court if no argument is requested.   

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

Notice of the ruling must be served as indicated in the tentative.  Remote appearances are permitted for all law and motion unless otherwise indicated by the Court.  

Case Number: 23BBCV02551    Hearing Date: April 9, 2024    Dept: A

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

DEMURRER

NOTICE:

The Court is not requesting oral argument on this matter.  The Court is guided by California Rules of Court, Rule 3.1308(a)(1) whereby notice of intent to appear is requested.  Unless the Court directs argument in the Tentative Ruling, no argument is requested and any party seeking argument should notify all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue.  The tentative ruling will become the ruling of the court if no argument is received.  

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

ALLEGATIONS: 

Precise MRI Corporation (Plaintiff) brings this action against Edward Shkolnikov dba EFS Law Center (Defendant). Plaintiff argues that Defendant failed to pay amounts owed under 34 separate medical liens Defendant executed with Plaintiff. Plaintiff alleges that they rendered medical services for Defendant’s clients yet have received no compensation pursuant to their agreements.

Plaintiff’s Complaint contains causes of action for (1) Breach of Contract, (2) Conversion, (3) Breach of Fiduciary Duty, (4) Declaratory Judgment as to Past Due Balances, (5) Declaratory Judgment as to Future Transactions, (6) Constructive Trust, (7) Resulting Trust, (8) Unjust Enrichment, and (9) Legal Malpractice.

Defendant now demurs to causes of action two through nine. Plaintiff opposes and Defendant replies.

The Court notes that despite Defendant’s filing being labeled “Demurer with Motion to Strike”, no motion to strike was filed. As such, this tentative ruling addresses solely the demurrer.

ANALYSIS:

I.            LEGAL STANDARD

The grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (C.C.P. § 430.30(a); Blank v. Kirwan (1985) 39 Cal. 3d 311, 318.) A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) The only issue involved in a demurrer hearing is whether the complaint states a cause of action. (Id.)

A demurrer assumes the truth of all factual, material allegations properly pled in the challenged pleading. (Blank v. Kirwan, supra, 39 Cal. 3d at p. 318.) No matter how unlikely or improbable, the plaintiff’s allegations must be accepted as true for the purpose of ruling on the demurrer. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.  App. 3d 593, 604.) But this does not include contentions; deductions; conclusions of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to facts of which a court may take judicial notice.  (Blank, supra, 39 Cal. 3d at 318.)

Pursuant to Code of Civil Procedure (“C.C.P.”) §§ 430.10(e) and (f), the party against whom a complaint has been filed may demur to the pleading on the grounds that the pleading does not state facts sufficient to constitute a cause of action, or that the pleading is uncertain, ambiguous and/or unintelligible. It is an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable probability that the defect can be cured by amendment. (Schifando v. City of Los Angeles (2003) 31 Cal. 4th 1074, 1082.)

II.            MERITS

Meet and Confer

C.C.P. §§ 430.41(a) requires that the moving party meet and confer with the party who filed the pleading that is subject to the demurrer. Upon review the Court finds the meet and confer requirements were met. (Shkolnikov Decl. ¶ 5.)

Second COA – Conversion – Overruled

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.)

Normally, money cannot be converted. (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1491.) However, money can be the subject of a conversion action when a specific sum capable of identification is involved. (See SP Investment Fund I LLC v. Cattell (2017) 18 Cal.App.5th 898, 907.)

The simple failure to pay money owed does not constitute conversion, otherwise the tort of conversion would swallow the category of contract claims based on the “mere contractual right of payment. (Voris v. Lampert (2019) 7 Cal.5th 1141, 1151.) Cases recognizing claims for the conversion of money “typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others.” (Id. at 1152.)

The Court finds that Plaintiff has sufficiently stated a cause of action for conversion. Defendant’s primary argument is that a cause of action for conversion cannot be stated for money unless an exact some is specified, citing McKell. The Court agrees that the law does not permit an action for conversion without a specified sum, however the Court finds that such a sum has been sufficiently alleged in the Complaint. Plaintiff’s Exhibit A to the Complaint contains an accounting of all 34 medical liens which are the subject of this action. Exhibit A contains an “Amount Due” next to each listing, showing the specific sum of money to which Plaintiff alleges they are entitled. Taking the pleadings as true, as the Court must do on Demurrer, it appears Plaintiff has sufficiently alleged a specified sum such that they can state a claim for conversion.

Accordingly, the demurrer to this cause of action is OVERRULED.

Third COA – Breach of Fiduciary Duty – Sustained without Leave to Amend

“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)

Defendant argues that Plaintiff has not alleged the existence of a fiduciary duty. Defendant states that the existence of a contractual agreement between parties is insufficient to create a fiduciary duty (See Gonsalves v. Hodgson, 38 Cal. 2d 91, 99; Faverly Productions, Inc. v. RKO General, Inc., 217 Cal. App. 2d 721, 732.)

Plaintiff argues that the law specifically creates a fiduciary duty between the holders of funds in escrow and the parties to an escrow agreement. Plaintiff cites Kangarlou v. Progressive Title Co., Inc., which held that an escrow holder assumes a fiduciary duty when he agrees to execute the escrow. (See Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1179.) The court in Kangarlou noted that this fiduciary duty was to “comply strictly with the parties’ instructions” (Id.)

The Court finds that Plaintiff’s argument misstates the meaning of escrow for purposes of determining a fiduciary duty.  “An escrow involves the deposit of documents and/or money with a third party to be delivered on the occurrence of some condition.” (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711.) Kangarlou concerned the holding of escrow funds by a real estate agent who refused to comply with the purchaser’s request to back out of the deal. (Kangarlou supra, 128 Cal.App.4th at 1176.) In Kangarlou the existence of funds held in escrow was without doubt, the plaintiff clearly alleged that she had deposited funds with the escrow holder to be paid on the occurrence of a condition.

In many ways the situation in Kangarlou is the reverse of the situation here. Here, Plaintiff has not deposited any funds with Defendant that were to be paid out on a certain condition. The funds to which Plaintiff claims they are entitled are predicated on the occurrence of a condition (the success of the underlying lawsuit), but Plaintiff did not deposit funds with Defendant with specific instruction as to how they should be paid out. Plaintiff is arguing they are entitled to funds that were to be held in trust, not that Plaintiff deposited funds into escrow and Defendant subsequently ignored their wishes.

A cause of action for breach of fiduciary duty requires plaintiff to plead that defendant knowingly undertook to act on behalf of or for the benefit of another or entered into a relationship which imposes that undertaking as a matter of law. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221.) Here, Plaintiff has not alleged any duty outside of that created by contract. Plaintiff’s argument that Defendant did not disburse funds held in trust speaks explicitly to the provisions of the agreement and not any special relationship between the parties, nor can the Court foresee facts supporting this cause of action.

Accordingly, the demurrer to this cause of action is SUSTAINED without leave to amend.

Fourth COA – Declaratory Judgment as to Past Due Balances – Sustained Without Leave to Amend

“The declaratory relief statute should not be used for the purpose of anticipating and determining an issue which can be determined in the main action. The object of the statute is to afford a new form of relief where needed and not to furnish a litigant with a second cause of action for the determination of identical issues.” (General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 470.)

Plaintiff’s Complaint presents no allegations which are specific to the cause of action for Declaratory Judgment. It appears the relief sought in this cause of action, a determination of past due balances, is already requested in Plaintiff’s claim for breach of contract.  Further, the Court finds Plaintiff’s argument that they have been unable to determine balances to be unlikely in light of their inclusion of Exhibit A, which lists the amounts due for each lien.

Accordingly, Defendant’s demurrer to this cause of action is SUSTAINED without leave to amend. 

Fifth Cause of Action – Declaratory Judgment as to Future Transactions – Overruled

“To qualify for declaratory relief, a party would have to demonstrate its action presented two essential elements: (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets omitted.)

In Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC the Court of Appeals created a conceptual framework classifying declaratory relief into three types for the purpose of determining whether the trial court erred by dismissing a declaratory relief cause of action.

A “Type 1” declaratory relief cause of action, the complaint alleges only a past breach of contract, a breach of contract remedy is available, and declaratory relief is unnecessary to guide future conduct. (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 365 & 366-368.) The court must dismiss the Type 1 type of declaratory relief claims. (Id.)

A “Type 2” declaratory relief cause of action alleges an actual and ongoing controversy, such as a continuing contractual relationship, and future consequences that depend on the court’s interpretation of the contract. (Id. at 369-371.) A trial court must not dismiss a Type 2 declaratory relief cause of action. (Id. at 365.)

A “Type 3” declaratory relief cause of action alleges a current controversy over a past breach of contract and the potential a declaration of the parties’ rights under a contract might be necessary to guide the parties’ future conduct in a continuing contractual relationship. (Id. at 374-376.) A trial court has discretion to dismiss a Type 3 declaratory relief cause of action. (Id. at p. 365.)

Here, Plaintiff’s fifth cause of action is for declaratory relief specifically concerning any medical liens which are still pending. As opposed to the fourth cause of action seeking a determination of contracts already alleged to be breached, this cause of action is concerned with the contracts where Defendant’s client has not achieved resolution. As such, it appears to the Court that the declaratory relief sought is “Type 2” under Osseous and cannot be dismissed. Plaintiff has alleged a controversy has arisen as to Defendant’s obligations to notify them when a client is paid out and Defendant’s obligation to disburse funds to Plaintiff.

Accordingly, the demurer to this cause of action is OVERRULED.

Sixth Cause of Action – Constructive Trust – Sustained without Leave to Amend

Defendant argues that the sixth cause of action is improper because Constructive Trust is an equitable remedy and not a cause of action. Plaintiff’s opposition contains no argument regarding he sixth cause of action.

A constructive trust is not a cause of action; it is a remedy. (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 277, fn. 4; American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1485 [constructive trust is not a substantive claim for relief].)

Imposition of “[a] constructive trust is an equitable remedy to compel the transfer of property by one who is not justly entitled to it to one who is.” (Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1332.) It is not “a substantive claim for relief.” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 398.) The issue of whether to impose a constructive trust is an equitable issue for the court. (See Fowler v. Fowler (1964) 227 Cal.App.2d 741, 747 [“it is for the trial court to decide whether” the plaintiff has proven entitlement to a constructive trust].) The trial court erred by submitting the issue of whether to impose a constructive trust to the jury.” (American Master Lease supra, 225 Cal.App.4th at 1485.)

As the Court understands, Defendant does not claim a remedy of a constructive trust would not be proper should Plaintiff prove the allegations of the Complaint. All that appears to be accomplished by this demurrer is to remove the heading of the sixth cause of action. Nothing precludes Plaintiff from including allegations of constructive trust as part of another cause of action or in their prayer for relief.

This cause of action is SUSTAINED without leave to amend.

Seventh COA – Resulting Trust – Sustained with Leave to Amend

Defendant similarly asserts that no cause of action exists for Resulting Trust. As with constructive trusts, the Court of Appeal has clearly ruled that a resulting trust is only a remedy, not a cause of action. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 76, [citation omitted].)

Accordingly, the demurer to this cause of action is SUSTAINED without leave to amend.

Eighth COA – Unjust Enrichment – Sustained with Leave to Amend

Defendant argues Unjust Enrichment is not a recognized cause of action in California. Plaintiff makes no argument regarding this cause of action in their opposition.

Some California courts have held unjust enrichment is a principle of relief, not an independent cause of action. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370.) Other courts, including the Supreme Court, treat unjust enrichment as an independent cause of action. (Hartford Casualty Ins. Co. v. J.R. Marketing LLC (2014) 61 Cal.4th 988, 995.) Restitution based on unjust enrichment can be alleged when services were provided under an express contract that is void or rescinded. (Rutherford Holdings, LLC (2014) 223 Cal.App.4th 221, 231.)

While the Court understands the split in authority, it elects to follow the Supreme Court’s  holding in Hartford Casualty. However, the Court still finds the cause of action is subject to demurrer. “[A]s a matter of law, a quasi-contract action for unjust enrichment does not lie where, as here, express binding agreements exist and define the parties’ rights.” (California Medical Ass’n, Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172; see also Wal-Noon Corp. v. Hill (1975) 45 Cal.App.3d 605, 650) Here, the rights and obligations of the parties are expressly governed by written agreement. Plaintiff has alleged no obligation of Defendant which does not derive from the contract between them. As such, Plaintiff’s cause of action for unjust enrichment is subject to demurrer.

Accordingly, the demurrer to the eighth cause of action is SUSTAINED with 20 days’ leave to amend.

Ninth COA – Legal Malpractice – Sustained Without Leave to Amend

“To state a cause of action for legal malpractice, a plaintiff must plead (1) the duty of the attorney to use such skill, prudence, and diligence as members of his or her profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the breach and the resulting injury; and (4) actual loss or damage resulting from the attorney’s negligence.” (Kumaraperu v. Feldsted (2015) 237 Cal.App.4th 60, 66, [quotation marks omitted].)

Defendant’s argument on demur is simple. Defendant asserts that because Plaintiff was not his client, they cannot allege Defendant owed them a duty to exercise skill, prudence, and diligence in rendering legal services.

Plaintiff argues that, although they are not clients, Defendant still owed them a duty to exercise legal services with due care. Plaintiff argues that when an attorney agrees to hold third party funds in trust, they are considered to be practicing law. In support of this argument Plaintiff cites Johnstone v. State Bar. Plaintiff argues that the Johnstone court held that an attorney who misappropriates trust funds held on behalf of a non-client third party is “engaging in the practice of law” (See Opp. p. 7, citing Johnstone v. State Bar (1966) 64 Cal.2d 153, 155-156.) 

The Court finds Johnstone contains no such language. Johnstone contains no aversion to a civil claim for legal malpractice, rather the case specifically concerned a State Bar disciplinary action. The Johnstone court found that violation of a fiduciary duty to a non-client third-party was sufficient to support the issuance of disciplinary action from the State Bar. (Id.) Nowhere in the ruling of Johnstone does the court state that the disciplined attorney was engaging in the practice of law. Nor does the Court opine that such behavior is civilly actionable by a non-client third party.

Plaintiff’s reliance on Rule 1.15 “Safekeeping Funds and Property of Clients and Other Persons” is similarly unpersuasive. While Rule 1.15 does define mishandling of funds as sanctionable, it does not follow that violation of the rule creates a civil cause of action.

Further, Plaintiff cannot allege legal malpractice as a non-client. “With certain exceptions, an attorney has no obligation to a non-client for the consequences of professional negligence—that is, the attorney is not burdened with any duty toward non-clients merely because of his or her status as an attorney. The imposition of a duty of professional care toward non-clients has generally been confined to those situations wherein the non-client was an intended beneficiary of the attorney’s services, or where it was reasonably foreseeable that negligent service or advice to or on behalf of the client could cause harm to others.” (Fox v. Pollack (1986) 181 Cal.App.3d 954, 960.) Here, any benefit Plaintiff could be entitled to would be based on Defendant’s agreement to provide legal services to his clients. Plaintiff cannot reasonably claim that they were the “intended beneficiary” of these legal services such that Defendant would be liable to them.

In short, the Court does not find that Johnstone and Rule 1.15 create a legal duty which Defendant owed Plaintiff. In the absence of authority to the contrary, it does not appear that Plaintiff could ever adequately plead a cause of action for legal malpractice.

Accordingly, the demurrer to this cause of action is SUSTAINED without leave to amend.

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RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records. 

ORDER 

Edward Shkolnikov dba EFS Law Center’s Demurrer came on regularly for hearing on April 9, 2024 with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows: 

THE DEMURRER IS OVERRULED AS TO THE SECOND AND FIFTH CAUSES OF ACTION.

THE DEMURRER IS SUSTAINED WITH 20 DAYS’ LEAVE TO AMEND AS TO THE SEVENTH, AND EIGHTH CAUSES OF ACTION. 

THE DEMURRER IS SUSTAINED WITHOUT LEAVE TO AMEND AS TO THE THIRD, FOURTH, SIXTH, AND NINTH CAUSES OF ACTION.

UNLESS ALL PARTIES WAIVE NOTICE, DEFENDANT TO GIVE NOTICE.

IT IS SO ORDERED. 

DATE:  April 9, 2024                            _______________________________ 

                                                                        F.M. TAVELMAN, Judge 

Superior Court of California 

County of Los Angeles