Judge Mark H. Epstein, Case 20SMCV01766 2023-04-07 Tentative Ruling

Judge: Mark H. Epstein, Case: 20SMCV01766, Date: 2023-04-07 Tentative Ruling

Case Number: 20SMCV01766 Hearing Date: April 7, 2023 Dept: R

These are (hopefully) the last of the pleading motions. And there are two. One is brought by Pryor Cashman and the other is brought by everyone else.

Plaintiffs Carlos Arias and Cuzzi Consulting, Inc., individually and derivatively on behalf of Khalifa Kush Joint Venture and Khalifa Kush Enterprises, LLC (collectively “plaintiffs”) filed this action against various defendants for issues arising out of a joint venture in the cannabis business. According to the operative Third Amended Complaint (“TAC”), defendant Thomaz (also known as Wiz Khalifa, a well-known rap artist) created a signature strain of cannabis in 2014. (TAC, ¶¶29-31.) To support his business endeavors, Thomaz worked with a core group of associates, defendants William Dzombak, Timothy Hunkele, and Constance Schwartz-Morini, all of whom have long-standing business and financial ties with Thomaz. (Id. at ¶¶33-34.) Plaintiffs claim that Schwartz-Morini’s husband approached Arias for advice about the licensing business because the other members of Thomaz’s circle had little or no experience in the industry, but Arias did. (Id. at ¶44.) Arias purportedly suggested a licensing agreement with RiverRock, which certain defendants signed. However, that business venture failed allegedly due to defendants’ inexperience and inability to execute the plan. (Id. at ¶¶45-47.) Plaintiffs assert Schwartz-Morini then reached out to Arias and implored him for help in managing Thomaz’s cannabis business endeavors due to his specialized experience and in controlling defendants Dzombak and Hunkele due to his temperament. (Id. at ¶¶48-52.)

Arias claims that he agreed to join Thomaz and his associates but advised that they move away from licensing deals and instead create a joint venture of mutually reinforcing domestic and international cannabis-related businesses that leveraged the brand and Thomaz’s rapper reputation and would straddle the cannabis and media spaces (“JV”). (TAC, ¶¶54-55.) The members of the JV were allegedly Khalifa, Arias, Hunkele, Dzombak, Schwartz-Morini, and another party who has since been dismissed. (Id. at ¶¶10-12, 55.) Plaintiffs assert that various JV members were wary of having their names attached to the underlying cannabis business so the JV plan included the use of alter ego entities to carry out JV-related activities. (Id. at ¶¶67(b), 68-75.) Plaintiffs allege that to follow through with the licensing arm of the JV, the members formed Khalifa Kush Enterprises, LLC (“KKE”). (Id. at ¶¶56, 82.) Its function was to own and license the Khalifa Kush trademark and other IP controlled by the JV. (Id. at ¶¶82, 84.) KKE’s members signed an Operating Agreement, which governed KKE’s internal affairs.

Plaintiffs claim that in or around late 2017, Arias conceived of a strategy to enter Canada’s federal cannabis field through a licensing deal with a Canadian cannabis company named Supreme. (TAC, ¶91.) Arias claims that he introduced the other members to a pioneer in the Canadian cannabis industry and that resulted in a deal to provide consulting, licensing, and brand-advisory services by KKE and Thomaz, with a minimum payment to KKE of $10 million Canadian. (Id. at ¶¶92-93.) Arias alleges that he was crucial to securing the deal. (Id. at ¶¶91, 95-98.) According to Arias, none of the other members of the JV did as much work as did he and after sharing some of his frustrations with Schwartz-Morini and the others he was appointed KKE’s sole manager in April 2018. (Id. at ¶¶99-102.) Plaintiffs claim, however, that the April 2018 meeting also marked a shift in the parties’ relations and Hunkele, Dzombak, and Schwartz-Morini thereafter (and in secret) attempted to freeze Arias and his company, Cuzzi, out from the deal. (Id. at ¶¶103-105.) Plaintiffs claim that the other defendants disingenuously had Dzombak “step up” to take a more central role in Supreme negotiations, which Arias honored in good faith. (Id. at ¶¶107-108.) Defendants allegedly then attempted to buy plaintiffs out, but when that overture failed, defendants purportedly created new entities (KKE Canada and KKE Brands) in which they had their proportionate shares but in which Arias had no interest. Through those entities the other defendants diverted the deal with Supreme away from KKE, Arias, and the JV. (Id. at ¶¶108-109). Plaintiffs assert that through this self-dealing scheme, KKE’s assets were transferred to the new entities, which allowed them to funnel the full range of monies from the Supreme deal to them, to the plaintiffs’ exclusion. (Id. at ¶¶111-127.)

Plaintiffs claim that in the summer of 2020, they learned of the material assistance that Pryor Cashman, Nathanson, and Buckley (“the Attorney defendants” or “Pryor”) provided to the alleged self-dealing scheme. (TAC, ¶132.) Pryor was allegedly counsel for KKE and the JV, as well as the other KKE-related entities. (Id. at ¶133.) (Pryor agrees it was counsel for KKE, but denies it was ever counsel to the more amorphous JV.) Plaintiffs allege that the Attorney defendants therefore represented both sides of what they call the sham sale in which KKE sold its assets to KKE Canada and KKE Brands for grossly inadequate consideration. (Id. at ¶134.) Plaintiffs contend that this dual representation on both sides of an adverse non-arms-length transaction was a conflict of interest, but no proper conflict waiver was secured beforehand. (Ibid.) Plaintiffs insist that the Attorney defendants were motivated by self-profit and greed because Arias had initially retained another law group. (Id. at ¶137.) The Attorney defendants purportedly executed the self-dealing scheme to push out that other group and establish Pryor Cashman as lead counsel for KKE, the other KKE entities, and the JV. (Ibid.)

Currently before the court is a demurrer to the TAC by defendants Cameron Jibril Thomaz a.k.a. Wiz Khalifa, SMAC Entertainment, LLC, William G. Dzombak, Timothy Hunkele, Constance Schwartz-Morini, KKE Brands, LLC, KKE Holdings Canada LLC, Khalifa Kush Enterprises Canada ULC, Wiz Khalifa, LLC, Oakst Holdings, LLC, Cobden 779, LLC, Raymond Street LLC, and CSM 314, LLC (collectively “the Non-Attorney defendants”). Plaintiffs oppose. The Attorney defendants have also filed a demurrer, which is opposed. The court previously granted the Non-Attorney defendants’ motion for judgment on the pleadings as to the civil conspiracy claim only. (10/13/21 Order.) The court also granted the Attorney defendants’ motion as to plaintiff Arias’ direct claims and the civil conspiracy claims, but took the McDermott issue under submission following further briefing. The court later issued a ruling denying the Attorney defendants’ motion on the McDermott issue. (11/29/22 Order.)

The Non-Attorney defendants demur in whole or in part to the third, fourth, eighth, ninth, tenth, thirteenth, fourteenth, fifteenth, twenty-fourth, twenty-fifth causes of action. (See Code Civ. Proc., § 430.10, subd. (e).) They also demurrer to the latter two causes of action on the grounds of uncertainty. (Id., subd. (f).) The Attorney defendants demur to the eighteenth, nineteenth, twentieth, twenty-first, twenty-second, twenty-third, and twenty-sixth (yes, twenty-sixth) causes of action solely on the ground of failure to state sufficient facts. (Id., subd. (e).)

The court preliminarily addresses two issues. First, a demurrer for uncertainty does not address whether the pleading fails to “incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145-146.) Rather, a demurrer is intended to address whether a pleading is so incomprehensible that a defendant cannot understand the allegations actually made. (Id. at p. 146.) The Non-Attorney defendants only raise arguments related to the failure to plead certain facts. The demurrers on this ground are unsubstantiated and OVERRULED.

Second, the TAC was filed without permission, as Code of Civil Procedure section 472 does not apply to any pleadings after the First Amended Complaint. “Under the generic understanding of the term ‘pleading,’ section 472 is reasonably viewed as limiting the right to amend ‘the complaint’ as a matter of right to the complaint as originally filed, that is, the version of the complaint that commences the action.” (Hedwall v. PCMV, LLC (2018) 22 Cal.App.5th 564, 574.) The Hedwall Court provides an exhaustive discussion with its reasoning and the court finds it persuasive. Here, plaintiffs had the right to file their FAC and they did. But that was their only chance to amend as a matter of right. That right did not extend to the subsequent pleadings. With that said, the court deems the TAC as of February 8, 2023 because it seems the parties essentially stipulated to the TAC’s filing.

The court turns first to the non-attorney parties’ demurrer. The third cause of action for breach of fiduciary duty is a direct claim by Cuzzi against the individual defendants and their corporate alter ego members. The cause of action alleges a violation of the “KKE USA Fiduciary Duties.” (TAC, ¶158.) The fourth cause of action is much the same, except it is a derivative claim by KKE USA. (Id. at 163.)

Defendants Thomaz, Schwartz-Morini, Oakst, Cobden, and Raymond Street demur to this cause of action on the basis that they do not owe Cuzzi or KKE any fiduciary duties under Colorado law. They refer to Colo. Rev. Stat. Ann. § 7-80-404, which sets for the duties that members and managers of an LLC owe to each other and the LLC itself. There is no mention of fiduciary duties in that section. Thomaz, Schwartz-Morini, Oakst, Cobden, and Raymond Street infer that there is no fiduciary duty owed to other members of a manager-managed LLC like KKE (which is a Colorado entity).

The court first deals with the statute generally. The statute sets forth “the duties that each member in a limited liability company in which management is vested in the members and that each manager owes to the limited liability company.” To the court’s reading, this follows the general two-path governance structures of an LLC in Colorado. Some LLC’s are “member-managed,” meaning that the members run the day-to-day operations. Other LLC’s are “manager-managed,” meaning that the members appoint one or more managers who run the day-to-day operations. In the former, each member owes a number of duties to the LLC directly. In the latter, it is the manager(s), not the members, who owe the duties to the LLC. KKE was a manager-managed entity. That means that only the managers owed the duties listed in subdivision (1) of this statute. That said, the court is unsure whether a member who exercises managerial power by virtue of special provisions in the OA (by which the court is referring to Thomaz and his entity) might also owe duties similar to the managers. At this point, and without the benefit of briefing pertaining to Colorado law, the court will presume that one who has a manager’s essential powers is a manager whether or not that person or entity holds the formal title. The court is also willing, for pleading purposes, to credit the alter ego allegations as they pertain to the defendants. That means that even though an entity might be the technical manager, the entity’s owner, by virtue of the alter ego doctrine, is equally liable. That extends the cause of action to some of the parties, but not all of them.

As set forth above, the list in subdivision (1) does not include “fiduciary” as a word. But the court does not read this statute as being designed to limit the general obligations owed by those who manage an entity to the entity. Rather, the court’s view is that the specific list illustrates prohibitions or requirements to account for things that would be violations of fiduciary duties. In other words, the court believes that at least the managers, their alter egos, and Thomaz (through his entity) did owe KKE a fiduciary duty. (Gagne v. Gagne (Colo. App. 2019) 459 P.3d 686.)

Yet there are some entities (and their alter egos) that are members but not managers in name or power. Subdivision (1) does not extend to them. However, the statute goes on. Subdivision (3) states that “each member and each manager shall discharge the member’s or manager’s duties to the limited liability company and exercise any rights consistently with the contractual obligation of good faith and fair dealing.” To some extent, this subdivision does not do too much; the “member’s or manager’s duties to the limited liability company” could easily be read as a reference to the duties in subdivision (1), not a general obligation. But critically the subdivision also requires that members and managers “exercise any rights consistently with the contractual obligation of good faith and fair dealing.” At issue here is the decision by a super-majority of members to exercise their right to vote to sell KKE’s assets for what is alleged to be grossly inadequate consideration to entities that they controlled in a proportion similar to their control of KKE but in which plaintiffs were frozen out. Thus, even if not a strictly fiduciary duty, it is a duty nonetheless (of good faith and fair dealing) and that is sufficient to survive demurrer. California law (which governs the procedural aspects of this motion) is clear that the title of a cause of action does not control. “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Steward Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) Here, the court believes that the third and fourth causes of action state derivative claims for breach of the implied covenant of good faith and fair dealing and perhaps fiduciary duty, which, after all, is alleged in the TAC. Which one, and its contours, need not be resolved today.

There does remain one problem, though. The foregoing discussion is sufficient for purposes of the derivative causes of action. It is less clear as to the direct causes of action. The court believes that generally subdivision (1) does not give plaintiffs a direct cause of action. It specifically defines a duty a manager “owes to the limited liability company,” not to each individual member thereof. However, subdivision (3) is at least arguably broader. The language at issue is that the members and managers shall discharge their duties “to the limited liability company and exercise any rights consistently with” good faith and fair dealing. But the last clause does not say to whom the duty is owed. The court is inclined to read the statute broadly, at least for now. The duty of good faith and fair dealing is a real one, and it has bite. But it is not as strong as a fiduciary duty. It is in that light that the court interprets the statute. The statute discusses duties, but the duties at issue in subdivision (3) fundamentally arise from contract. KKE’s Operating Agreement is, at bottom, a contract among its members. It is not a contract between members and managers; it is among the members themselves directly. And the covenant of good faith and fair dealing is a contractual doctrine, not a tort doctrine. Read in that light, the court believes that the good faith and fair dealing requirement, though more limited than the fiduciary duties, applies directly to the members with regard to other members and a violation thereof can be sought in a direct action, not just a derivative one.

Accordingly, plaintiffs have stated a claim as against all of the defendants. In some cases it is a fiduciary duty (and that is limited to managers, their alter egos, Thomaz, and his entity) and in other cases it is a duty of good faith and fair dealing (which applies to all of the non-attorney defendants). The former claim is derivative only—that is, only KKE can bring a claim for breach of fiduciary duty because the duties in subdivision (1) are not owed to the members directly. The latter claim is direct (and potentially also derivative) because it goes to duties imposed upon contracting parties to one another.

And that leads to the final point. The court agrees with the defense that Arias has no claim at all under these causes of action. He is neither a member nor a manager of KKE and he never was. Rather, it is Cuzzi who is both. Arias tries to mount some kind of alter ego argument to assert that he stands in Cuzzi’s shoes. But that is not how alter ego works. Alter ego is a doctrine used by a plaintiff (or creditor) against a defendant (or debtor) to pierce the corporate veil to prevent the entity from achieving an inequitable result when the entity is truly no different than the individual that owns it. Alter ego is not a doctrine that a plaintiff can use against itself.

Thus, the demurrer is OVERRULED as it relates to Cuzzi and is SUSTAINED WITHOUT LEAVE TO AMEND as it relates to Arias as to these causes of action.

The court now turns to the conversion causes of action. Arias and Cuzzi bring the eighth cause of action, while the JV and KKE bring the ninth and tenth causes of action, respectively. “The elements of a claim for conversion are (1) ‘ “the plaintiff's ownership or right to possession of the property at the time of the conversion,” ’ (2) ‘ “the defendant's conversion by a wrongful act or disposition of property rights,” ’ and (3) damages. (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1135, citing Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451.) “ ‘To establish a conversion, plaintiff must establish an actual interference with his ownership or right of possession. . . . Where plaintiff neither has title to the property alleged to have been converted, nor possession thereof, he cannot maintain an action for conversion.’ ” (Moore v. Regents of the University of California (1990) 51 Cal.3d 120, 136, emphasis in original.) Colorado law is in accord with California law on this point of ownership/possession.

The demurrer is SUSTAINED as to the eighth and ninth causes of action. Arias, Cuzzi, and the JV all lack any ownership or possessory right in the KKE assets that are the subject of these causes of action. First, the Operating Agreement for KKE contains an integration clause. (TAC, Exh. 1, § 13.2 [“This Agreement constitutes the entire understanding and agreement between the Members with respect to the subject matter of this Agreement. No agreements, understandings, restrictions, representations, or warranties exist between or among the members other than those in this Agreement or referred to or provided for in this Agreement. No modification or amendment of any provision of this Agreement will be binding on any Member unless in writing and signed by all the Members. Amendments to this Agreement may be proposed by any Member”].) To the extent the JV agreement indicated that the JV itself had an interest in KKE’s assets, that is at odds with this integration clause. (This does not mean the integration clause defeats the entire JV agreement, only the portion that concerns the KKE assets.) Thus, for plaintiffs to argue that KKE’s assets were ultimately the JV’s assets, they need to explain why the integration clause does not apply, and they have not.

As for Cuzzi (and by extension, Arias), they only hold membership interests in KKE. That is not the same as an ownership interest in KKE’s assets. The OA makes that clear: “Title in and to all assets of the Company shall be held in the name of the Company, and no Member shall have any (i) individual ownership interest or rights in any assets of the Company, (ii) right to seek or obtain a partition of the Company’s assets, or (iii) right to any specific assets of the Company upon the liquidation or, or any distribution from, the Company.” (TAC, Exh. 1, § 1.3.) As far as the court can tell, the TAC ultimately only pleads the conversion of KKE USA’s assets, whether money, IP, or opportunities. The demurrer is therefore SUSTAINED as to the eighth and ninth causes of action. The court does not believe that this defect can be cured and therefore LEAVE TO AMEND IS DENIED.

The derivative claim by KKE is different. KKE does, of course, have a possessory and ownership right in the assets at issue (or at least it did until they were sold to KKE Canada and KKE Brands). Thus, it has standing. The problem is that conversion does not lie to remedy the sale of an asset for inadequate consideration. Plaintiffs do not assert that KKE Canada or KKE Brands stole the assets in the dead of night; they allege that KKE was forced (by the other defendants acting against KKE’s interests) to sell those assets for a fraction of their actual value. There is a tort there—it is the tort discussed above. But the tort is not conversion. Accordingly, the demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.

The remainder of the motion can be dealt with quickly. As to tortious breach of contract, defendants are correct. There is no such thing, not in California and (so far as the court can tell) not in Colorado. Plaintiffs can, and have, sued for various torts. But tortiously breaching a contract is not a cause of action. The demurrer as to that cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Finally, the court turns to conspiracy. As the court has said in the past, conspiracy is not a tort. There must be an underlying tort that is separate and apart from the conspiracy. Once that is alleged, all who conspired to commit that tort are liable for it whether they took an active role or not. The court construes this cause of action in the latter context. The complaint is alleging the underlying tort; the conspiracy moniker is there only to explain the scope of liability for that underlying tort. Accordingly, the demurrer is OVERRULED.

The court now turns to the demurrer brought by attorneys Pryor Cashman. The eighteenth and nineteenth causes of action are for aiding and abetting breach of fiduciary duty. The former is brought by the JV, while the latter is by KKE. The twenty-sixth cause of action is for conspiracy.

The court OVERRULES the demurrer to the twenty-sixth cause of action for the same reasons discussed in the Non-Attorney defendants’ demurrer. The conspiracy claim states a claim for at least corporate waste, and the defendants are all implicated in that. Further, the court is not convinced by the Attorney defendants’ argument that their actions were authorized under the Operating Agreement, which permitted certain actions as long as 87.5% of the percentage interest and Thomaz agreed. The court is far from convinced that all of the members of an LLC can do the functional equivalent of forcing a member out without cause or buy the member out for less than the value of the member’s interest without any reason other than to take that value for themselves. (Again, the court is not saying that such is what actually happened here; it is merely what is alleged to have happened here.) It could well be that such an action violates the covenant of good faith and fair dealing. For this reason, at least at this juncture, Pryor cannot rely on the super-majority provision as a shield providing them with immunity for their role in the transaction.

Pryor also asserts that Cuzzi, Inc. lacks standing here. Pryor relies on the KKE Operating Agreement, which recites that Cuzzi, LLC is the member. If so, Pryor contends, Cuzzi, Inc. is simply the wrong party. Plaintiffs allege that this is a typographic error. Plaintiffs allege that the OA should have listed Cuzzi, Inc. as the member and everyone knew that to be the case. That is (obviously) sufficient for purposes of demurrer. Pryor notes that the “scrivener’s error” doctrine allowing for contract reformation poses a high proof bar. Maybe so, but the court is not here concerned with difficulties of proof. Plaintiffs have so alleged (and they have made a number of arguments that have at least facial appeal), and that is enough to easily defeat a pleading motion.

On the remaining causes of action, the Attorney defendants argue that plaintiffs’ claims are barred under the agent immunity rule. “It has long been the rule in California that ‘[a]gents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage.’ (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 72.)” (Black v. Bank of America (1994) 30 Cal.App.4th 1, 4, parallel citations omitted; see also, Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514.) This rule applies to attorneys as agents and clients as their principals. (Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, superseded by statute.)

The Attorney defendants assert they cannot be liable for aiding and abetting because they were acting in their representative capacity as attorneys for their clients. They further claim none of the exceptions to the agent immunity rule have been pled. In opposition, plaintiffs assert that the Attorney defendants have not cited the controlling statute, Civil Code section 1714.10. Section 1714.10 was codified in response to Doctors. (See Pavicich v. Santucci (2000) 85 Cal.App.4th 382 [extended discussion on agent immunity rule, conspiracy, and section 1714.10].) “Ultimately, it was decided that the statute should be amended to apply when an attorney engaged in a civil conspiracy with his or her client ‘ “arising from any attempt to contest or compromise a claim or dispute.” ’ It was also decided to except from the statute's scope the two situations detailed in Doctors' Co. The author of the proposed amendment stated that ‘This bill would limit [the statute] to civil conspiracies between an attorney and client arising from any attempt to contest or compromise a claim or dispute, and which involve the attorney's representation of the client, excluding causes of action where (1) the attorney has an independent legal duty to the plaintiff, or (2) the attorney's acts go beyond the attorney's duties to the client, and involve conspiracy to violate a legal duty in furtherance of the attorney's financial gain.’ (Sen. Mike Thompson, letter to Gov. Pete Wilson, Sept. 17, 1991.)” (Id. at pp. 393–394.) Consistent with that history, the statute provides that “No cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute, and which is based upon the attorney's representation of the client, shall be included in a complaint or other pleading unless the court enters an order allowing the pleading that includes the claim for civil conspiracy to be filed after the court determines that the party seeking to file the pleading has established that there is a reasonable probability that the party will prevail in the action.” (Civ. Code, § 1714.10, subd. (a).) Here, the allegations are that the Attorney defendants conspired with their clients, the individual defendants, against their other clients, the JV and KKE. (See, e.g., TAC, ¶¶259-260.) But this statute is off point. Pryor is not being sued for any attempt to “contest or compromise a claim or dispute.” It is being sued for its role in the transaction by which KKE’s assets were transferred to other entities for inadequate consideration. Thus, this statute does not provide Pryor with a defense, but neither is Pryor required to adhere to its procedural requirements.

Pryor does not contest as much. Pryor’s claim is under the more general agent immunity rule. And therefore the court must look to the more general doctrine. The problem with Pryor’s argument is that it would only extend to its role with regard to advising party’s other than KKE (or Cuzzi or Arias). In other words, to the extent Pryor (for example) represented Schwartz-Morini and her alone, one might argue that its role in providing her with advice and in drafting the transactional documents would be protected. After all, it was acting only as her agent and the only compensation it received was its fee. But the allegations go beyond that. It is alleged that Pryor also represented KKE. To the extent that Pryor’s actions violated a duty to KKE, the agent immunity rule provides no comfort. The demurrer is OVERRULED.

The Attorney defendants also demur to the two professional negligence claims, asserting that plaintiffs cannot allege a breach of the duty by merely alleging a violation of the California Rules of Professional Conduct. “A violation of the Rules of Professional Conduct subjects an attorney to disciplinary proceedings, but does not in itself provide a basis for civil liability. (Noble v. Sears, Roebuck & Co. (1973) 33 Cal.App.3d 654, 658.) But the rules, ‘together with statutes and general principles relating to other fiduciary relationships, all help define the duty component of the fiduciary duty which the attorney owes to his or her client.’ (David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 890.)” (BGJ Associates v. Wilson (2003) 113 Cal.App.4th 1217, 1227, parallel citations omitted.)

The Attorney defendants overstate BGJ. A violation of a Rule of Professional Conduct does not, by itself, mean there is a basis for civil liability. But where the violation of a Rule lines up with a tort, the underlying actions form the basis of the violation of the Rule and the tort claim. And here, plaintiffs allege multiple instances actions that, if true, would constitute a tort. As noted previously, the allegation that the Attorney defendants worked with the Non-Attorney defendants to strip the JV and KKE via the sale to the other entities is a breach of the duty of loyalty owed to a client to the extent that the client is KKE. “It is fundamental to the attorney-client relationship that an attorney have an undivided loyalty to his clients. (See ABA Code of Professional Responsibility, Canon 5.)” (Mason v. Levy & Van Bourg (1978) 77 Cal.App.3d 60, 66.) The Attorney defendants are alleged to have divided loyalty. Put another way, it is not the failure to get written consent that underlies the tort (in fact, such consent would be worthless here, where the person signing the consent for both parties would be the same person). It is the actual conflict of interest in which Pryor, as counsel for KKE, aided in a transaction that it knew inured to KKE’s detriment. And, for the reasons discussed above, Pryor cannot rely (at least at the pleading stage) on the supermajority provision in the KKE OA to immunize it. The demurrers are OVERRULED.

The twenty-second and twenty-third causes of action are for breach of fiduciary duty. The Attorney defendants argue that they are duplicative of the malpractice claim. On the question of whether the claim is duplicative, the court generally believes that it is best for a duplicative cause of action to be resolved on an evidentiary motion or at trial. “This is the sort of defect that, if it justifies any judicial intervention at all, is ordinarily dealt with most economically at trial, or on a dispositive motion such as summary judgment.” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 890.) The court agrees with the analysis in Blickman at least in this case and therefore OVERRULES the demurrer.

Because, in all instances, the demurrers were either overruled or sustained without leave, the pleading is now final. Defendants who have not already done so have 20 days to answer the complaint. They may not demur.