Judge Lon F. Hurwitz, Case 22-01244379 2024-04-05 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 22-01244379, Date: 2024-04-05 Tentative Ruling

1. Motion to Be Relieved as Counsel of Record

2. Status Conference

Motion to be Relieved as Counsel

Moving Party: William J. Frimel of Seubert French Frimel & Warner LLP, counsel for Defendant OspreyData, Inc.

Responding Party: None (unopposed)

SERVICE: May 31, 2023, by electronic transmission

RELIEF SOUGHT: An order relieving Moving Counsel as counsel for Defendant OspreyData, Inc.

UPCOMING EVENTS: None

FACTS/OVERVIEW: This is a breach of contract / bad faith action against an insurer, Defendant Liberty Insurance Underwriters, Inc. (“Liberty”); insurance agent/broker, Woodruff-Sawyer & Co. (“Broker”); and six other corporations. This action arises from Colaco v. Frost, OCSC Case No. 30-2019-01063152-CU-SLCXC (“Underlying Action”), which was previously ordered to binding arbitration.

Underlying Action

This is an investment fraud complaint. Plaintiffs Michael Colaco and MSG Investment, Inc. allege that Defendants Stuart Frost and William Guerry defrauded “numerous” investors by “enticing them to invest in a corporate structure (comprised in large part of the Portfolio Defendants that Defendant Stuart Frost controlled), which they unlawfully and intentionally mismanaged, abused, and ultimately used to engage in classic fraud, personal enrichment to the exclusion of the investors, and blatant self-dealing.” Plaintiffs allege that the defendants are alter egos and/or a single business enterprise.

Plaintiffs asserted 17 Causes of Action for: (1) Fraud / Intentional Misrepresentation; (2) Concealment; (3) False Promise; (4) Negligent Misrepresentation; (5) Rescission; (6) Constructive Trust; (7) Securities Fraud; (8) Breach of Fiduciary Duty; (9) Constructive Fraud; (10) Breach of Contract; (11) Equitable Indemnity; (12) Conversion and Violation of California Penal Code § 496; (13) Accounting; (14) Violation of Uniform Fraudulent Transfer Act; (15) Unjust Enrichment; (16) Money Had and Received; and (17) Recovery/Repayment of Unlawful Distribution in Violation of Corporations Code section 17704.05.

The SEC Action

William Guerry served as Frost’s CFO for the Portfolio Defendants. Prior to the Underlying Action, the SEC initiated an investigation of both Frost and Guerry: In re the Matter of Frost Management Company, LLC, SEC No. LA-4872 (the “SEC Investigation”) before the United States Securities and Exchange Commission. The SEC filed a complaint in the USDC – Cent. Dist. of California, Case NO. 8:19-cv-01559-JLS-JDE containing essentially the same allegations as the Underlying Action.

Both the SEC Investigation and the action in the USDC were tendered to Defendant Liberty. Liberty provided Frost a defense to both matters.

Current Action

Liberty issued a Private Equity Fund and Management Liability Policy (“PEF Policy”) effective from March 31, 2015, to March 31, 2016, with a policy limit of $5,000,000. It also issued a Side A Only Executive Advantage Policy (“Side A Policy”) effective from March 31, 2016, to March 31, 2017, with a policy limit of $4,000,000 aggregate and $1,000,000 sublimit for each subsidiary or insured person.

Based on his status as the CFO, Plaintiffs are informed Guerry was insured under both policies for the SEC Investigation and Action as well as the Underlying Action. On June 27, 2019, Guerry tendered to Liberty. Liberty advised it had no duty to defend Guerry under either policy on August 1, 2019, but requested to participate in the defense. Liberty participated in the defense of both Frost and Guerry under the PEF Policy. However, once the PEF Policy was exhausted, Liberty declined to continue participating in the defense under the Side-A policy on March 9, 2021, premised on a “Dual Service Exclusion.”

Earlier on May 19, 2019, Plaintiffs made a written policy limits demand to Liberty with a copy of the DOE amendment joining Guerry. Liberty did not settle the Underlying Action on behalf of Guerry under the PEF Policy. This was in bad faith as the policy was exhausted under defense fees and costs.

As a result, Guerry was left to mitigate his personal exposure in the Underlying Action and entered into a settlement agreement in exchange for a Stipulated Judgment wherein Guerry assigned and transferred all claims and causes of action he had against Liberty, the Portfolio Defendants, and against Woodruff for failing to obtain proper coverage for Guerry.

On February 8, 2022, Plaintiffs filed a Complaint bringing causes of action for failure to defend, failure to indemnify, breach of the implied covenant of good faith and fair dealing for both failure to defend and failure to indemnify, indemnity, and declaratory relief, against Liberty and the Portfolio Defendants and professional negligence against Woodruff.

On June 1, 2023, William J. Frimel of Seubert French Frimel & Warner LLP, counsel for Defendant OspreyData, Inc. (one of the Portfolio Defendants), filed the current Motion to be Relieved as Counsel. (ROA 142). The motion is unopposed.

ANALYSIS:

Motions to be relieved as counsel are technical and governed by CRC Rule 3.1362.

1. Notice and motion must be directed to the client and on Judicial Council Form MC-051. No memorandum is required. (CRC, Rule 3.1362(a) and (b).)

Counsel has used the proper Judicial Council form.

2. Declaration on Form MC-052 stating the basis for the motion “in general terms and without compromising the confidentiality of the attorney-client relationship.” (CRC, Rule 3.1362(c).)

Counsel states that OspreyData, Inc. (“Client”) has failed to pay fees pursuant to the fee arrangement. Client has filed a Certificate of Dissolution with the Delaware Secretary of State, and counsel is no longer able to reach anyone from the Client. Counsel informed Client’s lead investor that Client needs to substitute new counsel. (ROA 140, Counsel Decl., ¶ 2.) This is a sufficient basis to grant relief requested.

3. Service on client and all other parties. (CRC, Rule 3.1362(d).)

CRC Rule 3.1362(d) permits service of the moving papers by “personal service, electronic service, or mail.” If the notice is served on the client by mail, it must be accompanied by a declaration stating facts showing either: (1) the service address is the current residence of business address of the client; or (2) the service address is the last known residence or business address of the client, and the attorney has been unable to locate a more current address after making reasonable efforts to do so within 30 days before the filing of the motion to be relieved. (CRC, Rule 3.1362(d)(1).) If notice is served on the client by electronic service, it must comply with Code of Civil Procedure section 1010.6 and CRC Rule 2.251. (CRC, Rule 3.1362(d)(2).)

The moving papers are in compliance. (ROA 140, Counsel Decl., ¶¶ 3.a. and 3.b.). Counsel attests he served Client by mail at the last known address. Counsel also attests he has been unable to confirm the address is current or to locate a more current address after he: (1) called the Client’s last known telephone number(s); (2) contacted the former CEO and former investor; (3) conducted a search on the Delaware Secretary of State website, Client’s website, and the internet; and (4) checked the address listed on Client’s Certificate of Dissolution. (Ibid.)

The moving papers were served on Client on May 31, 2023, via first-class mail at its San Juan Capistrano, CA address; Austin, TX address; and the Dover, DE address of the registered agent. (ROA 138). The moving papers were also served the same day via electronic service on counsel for all of the other parties. (Ibid.)

4. Proposed Order must be on Judicial Council Form MC-053 (CRC, Rule 3.1362(e).)

The Proposed Order was prepared on the proper Judicial Council form as required, is complete, and was filed with the Court with the moving papers. (ROA 143).

5. Prejudice

There is no prejudice in granting the motion since there is no trial date and no motions are pending. Client’s lead investor has been notified of the need to substitute in new counsel for Client, but neither Client nor the lead investor had identified new counsel as of May 31, 2023. (ROA 140, Counsel Decl., ¶ 2.) Since the corporate entity has dissolved, Client has essentially ceased to exist. Therefore, Client will not be prejudiced by allowing counsel to withdraw. If the lead investor or other investors attend the hearing to claim prejudice, the Court may continue the hearing.

RULING:

The Motion to Be Relieved as Counsel for Defendant OspreyData, Inc. is GRANTED.

The Status Conference is continued to October 4, 2023 at 1:30 p.m. in Dept. CX 103.

Moving counsel, William Frimel of Seubert French Frimel & Warner LLP is ordered to serve the signed Order Relieving Counsel on Plaintiffs and all other parties that have appeared in this action within five (5) court days; and Notice of Continuance of Status Conference. The Order will not be effective until the proof of service of the Order is filed with the Court.

Moving counsel is ordered to give notice.