Judge: Gail Killefer, Case: BC722874, Date: 2022-08-22 Tentative Ruling

Case Number: BC722874    Hearing Date: August 22, 2022    Dept: 37

HEARING DATE:                 August 22, 2022

CASE NUMBER:                  BC722874

CASE NAME:                        Spiderworx Media LLC v. Harris e. Tulchin, et al.

TRIAL DATE:                        September 20, 2022

MOTION:                               Motion for Summary Judgment, or Summary Adjudication in the alternative

MOVING PARTIES:             Cross-Defendant, Alex Nazarenko

OPPOSING PARTY:             Defendant and Cross-Complainants, Harris Tulchin and Harris Tulchin & Associates, Ltd.

PROOF OF SERVICE:          OK

OPPOSITION:                       June 16, 2022

REPLY:                                  June 24, 2022

TENTATIVE:                         Cross-Defendant Nazarenko’s motion is denied. Cross-Complainants to provide notice.

Background

This case arises in connection with Defendants Harris E. Tulchin (“Tulchin”) and Harris Tulchin & Associates (“HTA”)’s alleged legal representation of Plaintiffs Spiderworx Media, LLC (“Spiderworx”); An L.A. Minute, LLC (“ALAM”); and Daniel Adams (“Adams”).  Plaintiffs allege that Defendants’ legal work included obtaining additional funding for the Film and that the need for a bridge or gap loan arose before the additional funding was available in the form of a loan from Pacific Mercantile Bank Loan (the “PMB Loan”).  According to Plaintiffs, a bridge loan funder was located, but Tulchin offered to provide $885,000 in funding for the gap loan instead and convinced Plaintiffs to abandon other bridge financing in favor of his own deal.  Tulchin allegedly demanded a security interest in the Film, the elements of the Film, and the proceeds of the Film; interest on the loan; a pledge of membership interests in ALAM; producer credit; legal services credit; and $1,000 for costs of providing the funding.   

Tulchin allegedly acted as Spiderworx’ lawyer in preparing the loan documents and charged Plaintiffs $10,000 in legal fees for doing so.  Tulchin allegedly also demanded power of attorney for the loan.  According to Plaintiffs, Tulchin did not advise them that the loan created a conflict of interest advise them that they had a right to seek independent legal counsel or provide them with adequate time to seek independent legal counsel.   

Plaintiffs allege that Tulchin subsequently made it impossible for Plaintiffs to obtain a commitment from the new lender because Tulchin’s loan allegedly provided him with irrevocable first position on the collateral and because he refused to enter into a subordination agreement with any lender.  Plaintiffs further allege that Tulchin’s terms were predatory and worse than the terms of the bridge loan that he had convinced Plaintiffs to abandon.  According to Plaintiffs, they were able to obtain private funding to complete production in May 2017 based on Tulchin’s agreement to enter into a subordination agreement with a private financier, Cross-Defendant Alex Nazarenko (“Nazarenko”).  Tulchin, however, allegedly refused to sign the subordination agreement he had prepared after the private financier was engaged and promised first position on the Film.   

Plaintiffs further allege that Tulchin has breached fiduciary duties by sending Plaintiffs’ counsel a notice of disposition of collateral on September 13, 2018, indicating his intent to proceed with a sale of the Film; refusing to execute the proper union agreements for the Film; negotiating side deals to his favor over elements of the Film; making misrepresentations that prevented the Film’s distributor from preparing promotional materials in time for the Cannes Film Festival; making misrepresentations to the Film’s distributor cancelling the U.S. theatrical release to his benefit but the detriment of Plaintiffs and the other investors; and attempting to negotiate a side deal with the distributor to allow him to receive all the gross income from the Film. 

In the Complaint, Plaintiffs allege three causes of action for: (1) legal malpractice, (2) breach of fiduciary duty; and (3) declaratory relief. 

Defendants have filed a Cross-Complaint alleging ten causes of action for: (1) intentional misrepresentation; (2) concealment; (3) breach of fiduciary duty; (4) tortious interference with contractual relations; (5) breach of contract; (6) breach of the implied covenant of good faith and fair dealing; (7) civil conspiracy; (8) accounting; (9) common count: money had and received; and (10) violation of Business and Professions Code, §§ 17200, et seq. (the Unfair Competition Law, “UCL”).  Defendants assert the cross-claims against Cross-Defendants Michael Flanders (“Flanders”), Nazarenko, Adams, Spiderworx, and ALAM.  Defendants assert the first through third and seventh through tenth causes of action against all Cross-Defendants; the fourth cause of action against Nazarenko; and the fifth and sixth causes of action against Spiderworx, ALAM, Adams, and Flanders. 

According to Defendants, Tulchin was a long-term friend of Adams who agreed to provide his entertainment contacts to Spiderworx and ALAM and their managers and members to support the film.  Defendants allege that Tulchin was fraudulently induced to provide a bridge loan on terms comparable to an offer made by BondIt Media Capital (“BondIt”) after BondIt requested information from Cross-Defendants, including information concerning the status of the closing of the principal loan and the financial status of ALAM and Spiderworx.   

On April 23, 2019, the court sustained cross-defendants’ demurrers to the third cause of action on the cross-complaint and to the fifth and sixth causes of action of the cross-complaint as to cross-defendant Adams. 

Tulchin and HTA filed a First Amended Cross-Complaint (“FACC”) on May 13, 2019. The FACC added causes of action for conversion and fraudulent transfer in violation of Civil Code §§ 3429, et seq. against all cross-defendants.  

On November 5, 2019, the court sustained cross-defendants’ demurrers to the fourth, fifth, sixth, seventh and eighth causes of action of the FACC. The cross-defendants’ demurrers were otherwise overruled, as well as cross-defendants’ motions to strike. Cross-complainants were granted leave to amend as to the breach of contract cause of action. On March 11, 2020, the court sustained Spiderworx Defendants and Nazarenko’s demurrers to the sixth cause of action of the SACC, with leave to amend.

Nazarenko now moves for summary adjudication as to Tulchin and HTA’s (“Cross-Complainants”) cross-complaint, as follows: 

1.      Issue 1: Nazarenko will move this Court for an order granting summary adjudication as to his affirmative defense of unclean hands pursuant to Code Civ. Proc. § 437c(t), on the grounds that there is no merit to the third, seventh, and ninth causes of action of the SACC based on Nazarenko’s affirmative defense of unclean hands.   

Nazarenko’s Notice in support of the motion for summary judgment is not proper under CCP § 437c(f)(1), which provides: “A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty.” Issue 1 address both the affirmative defense of unclean hands, and the three causes of action of the SACC where Nazarenko asserts the unclean hands affirmative defense. Thus, the court will address the parties’ arguments as to Nazarenko’s affirmative defense of unclean hands.   

Evidentiary Objections 

Cross-Complaints Objections to Nazarenko’s Declarations, Evidence, and Materials 

Sustained: 1-4 

Objection 1: sustained. Already ruled above.  

Objection 2: overruled. Declarant has foundation to speak to what constitutes privileged and confidential attorney-client communications as an attorney licensed in California. Cross-Complaints also provide a declaration to explain how privilege was waived after HTA’s requests for admissions were deemed admitted. However, Cross-Complainants fail to explain how that has waived privilege here.  

Objection 3: sustained-in-part as to “Flanders did not authorize Stallings to waive the attorney-client privilege protecting their communications,” hearsay without exception.

Objection 4: sustained. Declarant does not establish foundation.

Objection 5: overruled. This is not an evidentiary objection, but rather a contention regarding the waiver of privilege here.

Nazarenko’s Objections to Declaration of Sincerai Stallings 

Objection 1: sustained. Lacks personal knowledge.

Objection 2: sustained. Attorney-client privilege.

Objection 3-5: overruled. Not an invasion of attorney-client privilege to have Declarant explain the services provided.   

Objection 6-10: sustained. Declarant lacks personal knowledge.

Objection 11: overruled. see objection 3-5.

Objection 12-14: sustained. see objection 2.

Objection 15: sustained. see objection 6-10.

Nazarenko’s Objections to Declaration of Harris Tulchin

Objection 1-4: overruled. Not irrelevant.

Objection 5: sustained, legal conclusion.

Objection 6-8: sustained, lacks personal knowledge or foundation.

Objection 9: overruled. see objection 1-4.

Nazarenko’s Objections to Declaration of David Samani

Objection 1: overruled, does not lack personal knowledge or foundation.

Request for Judicial Notice 

Nazarenko requests that the court take judicial notice of the following in support of their motion: 

1.      Exhibit 66: Complaint for promissory estoppel and negligent misrepresentation filed by Tulchin and HTA against defendants Pacific Mercantile Bank, a California corporation, Pacific Mercantile Bancorp, a California corporation, and Does 1 through 25, inclusive, on November 20, 2018, as Los Angeles County Superior Court Case No. 18SMCV00254.

2.      Exhibit 67: this court’s Minute Order, dated March 11, 2020, sustaining Nazarenko’s demurrer to the sixth cause of action for conversion of the SACC without leave to amend.

3.      Exhibit 68: this court’s entry of dismissal, on June 23, 2020, of the SACC’s ninth cause of action by Tulchin as an individual.

4.      Exhibit 69: Nazarenko’s Affirmative Defenses to the SACC, including the thirty-third affirmative defense of unclean hands.

Cross-Complaints object to RJN No.1, contending that allegations from a separate lawsuit are not judicial admissions in this lawsuit, and further contending Nazarenko asks this court to take judicial notice of several legal conclusions and arguments from a separate lawsuit. (Cross-Complainants Objections, 2; citing Minish v. Hanuman Fellowship (2013) 214 Cal.App.4th 437, 456.) The court agrees.

Nazarenko’s request is granted as to requests No. 2-4. The existence and legal significance of these documents are proper matters for judicial notice. (Evid. Code § 452(d), (h).)  

Cross-Complainants also request that the court take judicial notice of the following in support of their opposition:

1. The docket report for the matter styled as Securities and Exchange Commission v. Adams, United States District Court, Central District of California, Case No. 2:19-cv-01412-FMO-RAO. (Exhibit 181)

2. The Complaint filed on February 26, 2019 in the matter styled as Securities and Exchange Commission v. Adams, United States District Court, Central District of California, Case No. 2:19-cv-01412-FMO-RAO. (Exhibit 182)

Cross-Complainants have failed to show how they have complied with Cal. Evid. Code § 452 and 453, have failed to authenticate the documents, and have failed to attach the documents to the request altogether, instead asking the court to conduct a fishing expedition to find the documents they are referencing. Further, to the extent Cross-Complainants ask this court to take judicial notice of legal conclusions or findings from another matter, the requests are improper for judicial notice. The court refuses to waste further judicial resources on such matters. The request is therefore denied.

Discussion 

        I.            Legal Authority 

“The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)  CCP § 437c(a) provides: 

A party may move for summary judgment in any action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding.  The motion may be made at any time after 60 days have elapsed since the general appearance in the action or proceeding of each party against whom the motion is directed or at any earlier time after the general appearance that the court, with or without notice and upon good cause shown, may direct….  The motion shall be heard no later than 30 days before the date of trial, unless the court for good cause orders otherwise.  The filing of the motion shall not extend the time within which a party must otherwise file a responsive pleading. 

A motion for summary judgment may be granted “if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”  (CCP § 437c(c).)   

“The motion shall be supported by affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice shall or may be taken.  The supporting papers shall include a separate statement setting forth plainly and concisely all material facts that the moving party contends are undisputed.  Each of the material facts stated shall be followed by a reference to the supporting evidence.  The failure to comply with this requirement of a separate statement may in the court’s discretion constitute a sufficient ground for denial of the motion.”  (CCP § 437c(b)(1); see also Cal. Rules of Court, rule 3.1350(c)(2) & (d).)   

In analyzing motions for summary judgment, courts must apply a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent's claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.”  (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294 (Hinsley).)  CCP § 437c(p)(2) provides: 

A defendant or cross-defendant has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action.  Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.  The plaintiff or cross-complainant shall not rely upon the allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto. 

The court must “view the evidence in the light most favorable to the opposing party and accept all inferences reasonably drawn therefrom.”  (Hinesley, 135 Cal.App.4th at p. 294; Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389 [Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.”].)  A motion for summary judgment must be denied where the moving party’s evidence does not prove all material facts, even in the absence of any opposition (Leyva v. Sup. Ct. (1985) 164 Cal.App.3d 462, 475) or where the opposition is weak (Salasguevara v. Wyeth Labs., Inc. (1990) 222 Cal.App.3d 379, 384, 387).   

     II.            Factual Summary 

Here, the parties agree that Cross-Complainants Tulchin and HTA sued Nazarenko for tortious inference with contractual relations, conversion, accounting, and for unfair competition law claims. (UMF 1.) Nazarenko further contends that HTA and Tulchin are barred from any recovery by reason of their unclean hands. (UMF 4.)  Tulchin is “successful entertainment lawyer and business consultant, author, and film producer with over 30 years of experience in the business and entertainment industry.” (UMF 7.) The parties further agree that in 2015, Tulchin, on behalf of Malabar Films, LLC, made a proposal for the potential engagement of an actor in a film entitled “An LA Minute” to be directed by Daniel Adams, an HTA client and longtime friend of Tulchin. (UMF 8-9.)

The parties here also agree that in 2015, “Tulchin received emails from Adams advising him that “the Nashville guys” created Spiderworx Media LLC (“Spiderworx”), which would be the company making offers and that Spiderworx had opened an account at Bank of America.” (UMF 10.)

As part of the project, Cross-Defendant Flanders was the managing member of Spiderworx, which in turn, was the managing member of ALAM. (UMF 15.) Here, while Nazarenko contends Spiderworx engaged HTA for legal services, Cross-Complainants contend they were engaged to provide “producorial and business affairs services.” (MF 16.) “On September 6, 2016, Tulchin received an email from Adams, copied to Flanders, asking Tulchin, among other things, to “(e)stablish us with Pac Merc Bank” and “(f)acilitate the closing of financing.”” (UMF 17.) Tulchin further worked with Adrian Ward of Pacific Mercantile Bank to procure a production loan for the film. (UMF 18-20.) The parties dispute the terms of the loan Pacific Mercantile Bank provided, which ultimately was not executed. (MF 21-30.) In the meantime, Tulchin approached short-term bridge lenders to help finance the film which was in pre-production already. (MF 26-30.)

Ultimately, “Tulchin loaned $750,000 to HTA to fund a bridge loan to Spiderworx but Tulchin was not a party to the loan.” (UMF 34.) “The bridge loan agreement entered into by HTA as Lender, and by Spiderworx and ALAM, as Borrowers, was dated November 10, 2016 and entered into on or about November 14, 2016 (the “HTA Bridge Loan Agreement”).” (UMF 35.) The parties dispute the interpretations of the terms and fees as part of this Bridge Loan Agreement. (MF 36-39.)

“The HTA Bridge Loan Agreement granted HTA a first priority security interest and lien in all right, title, and interest in and to the Picture; any gross receipts arising therefrom; any and all tax credits, subsidies, and rebates; and any and all assets of ALAM or Spiderworx arising from or related to the Picture.” (UMF 41.) It also “provided that all gross revenues and other receipts from the exploitation of the Picture and all tax credits, rebates, and subsidies were assigned to HTA until” all expenses and the loan was paid in full. (UMF 42.) “HTA required ALAM, by its managing member, Spiderworx, to appoint HTA as ALAM’s attorney-in-fact pursuant to the HTA Bridge Loan Agreement.” (UMF 45.) “HTA required Spiderworx, to pledge and assign its managing membership interest in ALAM to HTA as a condition of the HTA Bridge Loan Agreement.” (UMF 46.) The parties dispute whether this created a conflict of interest for Tulchin. (MF 47-49.) The parties dispute the nature of Nazarenko’s investment into ALAM, following the film’s default and shutting down of production. (MF 54-64.)

The parties further agree “HTA had nothing to do with the formation or organization of Spiderworx, and had no interactions with any supposed investors until after the Film shut down in December 2016.” (CCUMF 3.) “HTA never entered into any legal engagement agreement with Spiderworx or ALAM. HTA always understood its role to be serving as a producer on the Film and to provide business affairs services.” (CCUMF 4.) However, the parties dispute the interpretation of the term “legal services” paid to HTA on some invoices for the services HTA and Tulchin provided. (CCUMF 4.)

“The only written agreement HTA had with Spiderworx and/or ALAM was a producer agreement,” and “HTA never reached an agreement to represent Adams or Flanders in connection with the Film.” (CCUMF 5-6.)

  III.            Analysis  

A.    Affirmative Defense: Unclean Hands  

“The doctrine of unclean hands requires unconscionable, bad faith, or inequitable conduct by the plaintiff in connection with the matter in controversy.” (Mendoza v.¿Ruesga¿(2008) 169 Cal.App.4th 270, 279.) “Unclean hands applies when it would be inequitable to provide the plaintiff any relief, and provides a complete defense to both legal and equitable causes of action.” (Id.) Whether the unclean hands doctrine applies depends on whether the unclean conduct directly relates to the transaction upon which the complaint is made, i.e., the subject matter involved. (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP¿(2005) 133 Cal.App.4th 658, 681.)¿¿ 

Rule 3-300 of the California Rules of Professional Conduct provides:

"A member shall not enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied:

(A) The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood by the client; and (B) The client is advised in writing that the client may seek the advice of an independent lawyer of the client's choice and is given a reasonable opportunity to seek that advice; and (C) The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition."

Rule 3-310(B)(4) of the California Rules of Professional Conduct provides:

“(B) A member shall not accept or continue representation of a client without providing written disclosure to the client where:

(1) The member has a legal, business, financial, professional, or personal relationship with a party or witness in the same matter; or

(2) The member knows or reasonably should know that:

(3) The member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter; or

(4) The member has or had a legal, business, financial, or professional interest in the subject matter of the representation.

·         the member previously had a legal, business, financial, professional, or personal relationship with a party or witness in the same matter; and (b) the previous relationship would substantially affect the member's representation; ...”

Nazarenko contends his alleged unclean hands affirmative defense will act as a complete defense to all causes of action alleged against him. (Motion, 13-14.) Nazarenko further contends that “the undisputed facts establish that a defendant is entitled to judgment as a matter of law.” (Id.) Nazarenko cites Pond v. Insurance Company of North America (1984) 151 Cal.App.3d 280,289-292, which states in relevant part:

“The equitable principles underlying the clean hands doctrine do not require a finding that Pond was guilty of perjury, concealment or other illegal conduct, "[f]or it is not only fraud or illegality which will prevent a suitor from obtaining equitable relief. Any unconscientious conduct upon his part which is connected with the controversy will repel him from the forum whose very foundation is good conscience." (Italics added; DeGarmo v. Goldman (1942) 19 Cal. 2d 755, 765; Seymour v. Cariker (1963) 220 Cal. App. 2d 300, 305.)

At the least, Pond's conduct in bringing the malicious prosecution action could be characterized as classic "chutzpah." (Behan v. Alexis (1981) 116 Cal. App. 3d 403, 406; In re Messerschmidt 151 Cal. App. 3d 292 (1980) 104 Cal. App. 3d 514, 517.) At the most, it is something more.” (Motion, 15.)

In elaborating on the application of the unclean hands defense, Nazarenko further cites Blain v. Doctor's Co., (1990) 222 Cal.App.3d 1048, 1060, to assert that the relevant inquiry looks at: “the analogous case law, the nature of the misconduct, and the relationship of the misconduct to the claimed injuries.” (Motion, 16.) Here, Nazarenko first shows that unclean hands has operated as an affirmative defense to interference actions, accounting claims, and UCL claims. (Id.)

Second, Nazarenko contends Tulchin and HTA violated Rules 3-300 and 3-310(B)(4) of the California Rules of Professional Conduct. (Motion, 17-18.) Nazarenko argues the bridge loan Tulchin, and HTA, made to Spiderworx and ALAM “favored HTA and Tulchin to the clients’ disadvantage,” more so than loan terms offered from other bridge lenders. (Motion, 17.) Nazarenko contends that HTA and Tulchin had entered an attorney-client relationship with Spiderworx and ALAM, and as such, taking on a transaction which was allegedly unfair and unreasonable to the client was misconduct. (Id.)

Nazarenko then contends “HTA and Tulchin then compounded their error by continuing to represent Spiderworx and ALAM while taking a conflicting adverse business position,” which Nazarenko argues violates Rule 3-310(B)(4). (Motion, 17-18.) Nazarenko then argues:

“once their bridge loan was in default and HTA had the right to exercise and foreclose on its security and possessory interests, Tulchin was obligated to provide a written disclosure in order to continue representing Spiderworx and ALAM. Instead, HTA and Tulchin continued to represent Spiderworx and ALAM them while refusing to provide a producer guarantee required by a possible lender, Producer Capital Fund, LLC.” (Motion, 18.)

Lastly, Nazarenko contends “HTA and Tulchin's misconduct relates directly to their causes of action against Nazarenko because HTA and Tulchin entered into an unfair and unreasonable contract with Spiderworx and ALAM in breach of the fiduciary duty owed to them.” (Motion, 18.)

In opposition, Tulchin and HTA first contend that the application of the above-mentioned rules “requires an actual attorney-client relationship,” which Cross-Complainants contend did not exist between them and Spiderworx and ALAM. (Opp., 12-13.) They further contend “[t]his is fatal to Nazarenko’s motion for summary judgment because a material dispute of fact exists as to whether an attorney-client relationship existed between Plaintiffs and HTA when the bridge loan transaction occurred. ... In particular, HTA never reached an agreement to serve as legal counsel for Plaintiffs.” (Opp., 13.) Cross-Complainants further contend “a triable issue of fact exists as to whether any agreement to provide legal services existed.” (Opp., 15.)

Further, Tulchin and HTA argue that even if the above-mentioned rules are in effect here, Cross-Complainants complied with Rule 3-300 with respect to the bridge loan transaction “with respect to the transaction containing fair and reasonable terms which are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood,” given several factors, namely “the sophistication and presence of separate counsel.” (Opp., 15.)

Further, Cross-Complainants contend the unclean hands doctrine does not act as a complete bar here, where the balancing of the equities necessary for such a complete bar do not exist as Nazarenko had no attorney-client relationship with HTA. (Opp., 17.)

“Here, the alleged (and disputed) rule violations involve an alleged attorney-client relationship between Plaintiffs and HTA. It is undisputed that Nazarenko never had an attorney-client relationship with HTA. HTA’s alleged technical violation of an ethical rule vis-à-vis a supposed client does not affect the equitable relations between HTA and Nazarenko, a non-client (and stranger) to the alleged attorney-client relationship.” (Id.)

As such, Cross-Complainants contend any alleged conduct did not bear upon the equitable relations between HTA and Nazarenko. (Opp., 17-18; citing Brown v. Grimes (2011) 192 Cal.App.4th 265, 282-284.) Cross-ComplainanBCts further allege, “none of the alleged unconscientious conduct here was ‘directed at’ Nazarenko. Nazarenko is a stranger to that transaction and thus the possibility of a technical violation of Rule 3-300 did not prejudice or affect Nazarenko’s rights. In fact, Nazarenko benefited from HTA’s loan, insofar as the $750,000 HTA lent—which has never been repaid—was used to help finance and complete the film, enabling Nazarenko to subsequently recoup tax credits after Nazarenko interfered with HTA’s security interest.” (Opp., 19.) Further, HTA and Tulchin contend there is no unconscientious conduct here which makes it inequitable to grant any relief to Cross-Complainants, as HTA is still entitled to repayment for its bridge loan and several triable issues of material fact exist as to whether HTA can rebut the presumption of undue influence. (Opp., 19-22.) Also, as unclean hands is an equitable doctrine, HTA and Tulchin argue a weighing of the equities is necessary here, which “cannot be adjudicated via motion. A factfinder must weigh the evidence to determine where the equities lie.” (Opp., 23.) Cross-Complainants also affirm that this court cannot weigh evidence on this motion. (Opp., 12.) Lastly, Cross-Complainants contend any theoretical violation of Rule 3-310(B)(4) cannot serve as the basis for unclean hands here as the alleged violation has no causal connection “to any of the alleged harm.” (Opp., 23-24.)

In reply, Nazarenko contends he “has standing to assert an unclean hands defense based on their violation of the California Rules of Professional Conduct because their causes of action against him fail absent a valid contract with Spiderworx and ALAM.” (Reply, 3.) Nazarenko further explains that the alleged conduct interferes with the equitable relations between the parties as Cross-Complainants alleged misconduct affects ownership and security interests in the alleged transactions. (Id.) “[T]he enforceability of the subject contract will directly affect HTA and Tulchin’s causes of action against Nazarenko because they cannot recover damages against him absent such contract; thus he has standing to assert an unclean hands defense based on a Rule 3-300 or Rule 3- 310 violation arising their attorney-client relationship with Spiderworx and ALAM.” (Reply, 4.) Nazarenko further points to invoices produced by Tulchin and HTA for “legal services” to Spiderworx and ALAM. (Reply, 5-6.) “The issue is not HTA and Tulchin’s failure to immediately withdraw from representation. The issue is their ethical violation in putting their own interest before their clients’ interest for several months during the conflicted representation.” (Reply, 7.) However, Nazarenko fails to explains how Cross-Complainants conduct with their own clients has affected the equities in relation to Nazarenko, a third party.

The parties heavily dispute the existence of an attorney-client relationship, the formation and terms of any bridge loans provided, as well as the conduct of Tulchin and HTA in putting forth and executing their bridge loan to Spiderworx and ALAM.

As such, the court has found that there are triable issues with regard to whether an attorney-client relationship existed, whether Cross-Complainants engaged in any misconduct in violation of the Rules of Professional Conduct, whether any such misconduct affected the equities between the parties, and whether any such misconduct has caused harm to Cross-Defendant in such a manner that justifies imposing a complete defense at this stage of the litigation. The court cannot weigh evidence to make such determinations at this junction. Thus, viewing the evidence submitted in the light most favorable to Cross-Complainants, the court agrees that there are several triable issues with respect to Cross-Defendant’s unclean hands affirmative defense. 

For these reasons, Cross-Defendant Nazarenko’s motion is denied.

Conclusion

Cross-Defendant Nazarenko’s motion is denied. Cross-Complainants to provide notice.