Judge: Mark H. Epstein, Case: 23VECV03203, Date: 2024-08-07 Tentative Ruling

Case Number: 23VECV03203    Hearing Date: August 7, 2024    Dept: I

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND IN PART AND OVERRULED IN PART.  

This demurrer goes to Viridity’s cross-complaint filed against Miles.  The underlying facts are (in a nutshell and in an abbreviated fashion) as follows.  Miles and Viridity planned to embark on a business enterprise.  As part of that enterprise, certain legal documents were to be drawn up.  The Mashian Law Group (MLG) was retained to draw up the papers.  According to MLG, Viridity promised to pay MLG’s fees.  But that said, MLG’s retainer agreement was with Miles, and the retainer agreement requires that Miles, the client, pay the fee.  Viridity in fact did pay the initial $5000 retainer.  MLG did additional work, but the project never came to fruition.  Neither Viridity nor Miles paid the balance of the bill.  MGL sued both Miles and Viridity.  Viridity settled the case MLG brought.  The instant demurrer involves Viridity’s cross complaint against Miles.  The cross complaint seeks declaratory relief and also damages against Miles for breach of contract and fraud.  The contract Miles allegedly breached was his agreement with MLG.  The alleged fraud is that Miles did not tell Viridity that he had no intention of paying MLG’s bill.  Miles demurs, arguing that Viridity has no standing to sue for a breach of the Miles/MLG contract (as it is not a party to that contract) and that fraud is not sufficiently pled.  Viridity opposes.

The court agrees that Viridity is not a third party beneficiary of the Miles/MLG contract.  While it is certainly true that the legal work would aid Viridity in that if the documents had been drawn up and later signed there would have been a deal, that is not enough for a third party beneficiary claim.  To make such a claim, the plaintiff must show that the contracting parties mutually intended that the third party be a beneficiary of the contract.  Here, the Miles/MLG contract was a retainer agreement to provide legal services to Miles.  A lawyer’s sole duty runs generally only to the client—not to a third party, even if a third party agrees to pay the bill.  (There are some obvious nuances there.  The lawyer probably does have a duty with the payor not to pad the bill or the like.  But those duties are sharply limited.)  It is hard to see how both Miles and MLG intended that Viridity be a third party beneficiary under the retainer agreement, let alone that Viridity be allowed to sue for breach of that agreement.  The court can see no valid allegation of third party beneficiary status—even as a pleading matter—by which Viridity can sue Miles for breaching the Miles/MLG contract.

As to fraud, it is a bit murkier.  The allegation is that Miles secretly had no intention of ever paying MLG, but that Viridity understood that it was only going to pay Miles to reimburse Miles for fees Miles paid, and then, only if the deal got done.  More specifically, the cross complaint alleges that Virdity “has alleged that Cross-Defendant entered into an agreement for legal services and intentionally concealed his intention not to pay for the legal services rendered.  (FACC, ¶¶36-37.) . . . .  Therefore, Cross-Defendant was bound by a common law duty to negotiate in good faith, which included informing Viridity of his lack of intention to pay these legal fees . . . .  Cross-Defendant failed to disclose that he did not intend to pay Mashian’s legal fees and then seek reimbursement from Viridity only upon lease consummation and only for reasonable attorneys’ fees, pursuant to the LOI.  (FACC, ¶¶ 36-37.)  Viridity was induced to continue lease negotiations in justifiable reliance that Cross-Defendant would pay Mashan for its services, something it would not have done had Cross-Defendant disclosed his intentions.  (FACC, ¶¶ 35-39.)  Viridity sustained financial loss by paying the Retainer, by having to litigate against Mashian and incur legal fees and costs, and by having to pay the Settlement Payment to Mashian in order to get out of costly litigation.  (FACC, ¶ 39.)”   (Opp. at p. 8-9.)  The end result is that Viridity claims that had it known of Miles’s intentions, it would not have paid the $5000 retainer and it would have made it clearer to MLG that it would not pay MLG anything directly under any circumstances.  There are some issues with that theory, but it is stated with particularity.  If Miles wants to attack the theory on the grounds that there was no reliance on the alleged misstatement, summary judgment is a better way to do it.  The court understands that the fraud theory is thin at best, but this is only a pleading motion.

Therefore, the demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the second cause of action and OVERRULED as to the third cause of action.  Miles has 30 days’ leave to answer.