Judge Peter A. Hernandez, Case Number: 23STCV20864, Date: 2024-08-27 Tentative Ruling

The Demurrer to the Sixth and Seventh, Ninth and Tenth Affirmative Defenses in Cross-Complainants’ Verified Answer is OVERRULED

On August 30, 2023, Plaintiffs The Law Offices of William I Rothbard and The Altman Law Group (collectively, the “Plaintiffs”) filed suit against defendants Intermarketing Media LLC, David Klein and David A. Klein P.C. (collectively, the “Defendants”).

On April 17, 2024, Cross-Complainants Intermarketing Media, LLC (Intermarketing), Jason Krieck (Krieck), David Klien (Klien), and the Law Offices of David Alan Klein, P.C., (Klein P.C. and collectively the “Cross-Complainants”) filed the operative second amended cross complaint against Cross-Defendants the Law Offices of William I Rothbard (Rothbard Law), and the Altman Law Group (Altman Law and collectively “Cross-Defendants”). Plaintiff/Cross-Defendants are alleged to be sole proprietorships run by William Rothbard (Rothbard) and Bryan Altman (Altman) respectively.

Cross-Complainants allege that Cross-Defendants charged excessive legal fees and cost during their representation in the case, Intermarketing Media, LLC et al. et al. v. Brent David Barlow et al. No. 8:20-cv-00889 (C.D. Cal.) (hereinafter Intermarketing Case). Some of the fees Cross-Defendants charged were for the purpose of correcting their own errors, fraudulent misrepresentations of their service, unethical billing practices, and sanctions awarded against them due to negligence.

Cross-Complainants allege they were experiencing issues with Brent Barlow (Barlow), a person in their former employ. They hired Rothbard Law to address these issues with Barlow.

Cross-Complainants allege that prior to Intermarketing employing Rothbard Law, Rothbard verbally represented to Krieck and Klien that the cost of proceeding in the Intermarketing case would be between $50,000 -$100,000. In another call prior to retaining Rothbard Law, Rothbard told Krieck and Klien that he was a solo practitioner, that he could utilize Altman Law to save them money since Altman Law had more support staff and charged less per hour. Rothbard also stated that he needed Altman Law’s support and expertise specifically to address the criminal complaints.

Cross-Complainants allege Cross-Defendants proceeded to overcharge, double bill and improperly bill them for over $840,000. This improper billing included passing a sanction onto cross-complainants despite the sanctionable conduct being entirely attributable to Cross-Defendants. It also included double billing repetitive work as between Rothbard and Altman Law.

Cross-Complainants bring three claims (1) Intermarketing and Krieck against all cross-defendants for breach of contract, (2) all Cross-Complainants against “Rothbard” for fraud and misrepresentation, and (3) all Cross-Complainants against all Cross-Defendants for breach of fiduciary duty.

Cross-Defendants demurrer to the first and third causes of action as barred under the one-year statute of limitations. Cross-Defendants also demurrer to certain affirmative defenses in Defendants’ Answer to the complaint to the extent they are based on allegations of malpractice or other professional negligence.[1]

Though Cross-Defendants do not attach a declaration regarding the parties’ meet and confer efforts and instead explains them in the motion, the court finds the explanation of compliance sufficient.

Cross-Defendants’ request for judicial notice of order granting the substitution of Rothbard and Altman as attorneys of record in the Intermarketing Case, the order granting a motion for attorneys’ fees in the Intermarketing Case, the order dismissing the action with prejudice in the Intermarketing Case, is granted. (Evid. Code, §452.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering demurrers, courts read the allegations liberally and in context. (See Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1622 (Schultz), as modified on denial of reh’g (Sept. 29, 1994).) The court “take[s] as true all properly pleaded material facts, but not conclusions of fact or law asserted in the complaint.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 916.)

At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against them. (Semole v. Sansoucie (1972) 28 Cal.App.3d 714, 721.) “The allegations of the pleading demurred to must be regarded as true.” (South Shore Land Co. v. Peterson (1964) 266 Cal.App.2d 725, 732.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (Ibid. [internal citations omitted].)

Breach of Contract: Whether the claim is premised on a breach of professional duties.

The first issue is whether, as alleged, the breach of contract claim is premised upon an attorney’s wrongful conduct arising in the performance of professional services, such that Code of Civil Procedure section 340.6 (Section 340.6) applies.

“To establish a cause of action for breach of contract, the plaintiff must plead and prove (1) the existence of the contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) resulting damages to the plaintiff.” (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97-98 [internal citation omitted].)

In turn, Section 340.6’s statute of limitations applies to “claims whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services. In this context, a ‘professional obligation’ is an obligation that an attorney has by virtue of being an attorney, such as fiduciary obligations, the obligation to perform competently, the obligation to perform the services contemplated in a legal services contract into which an attorney has entered, and the obligations embodied in the Rules of Professional Conduct.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1236–37.)

Here, Cross-Complainants have tied their breach of contract claim to conduct which falls within the purview of professional negligence. Cross-Complainants allege they entered into a written fee agreement with Cross-Defendants. Cross-Defendants, in turn, violated their written fee agreement. First, they allege that “[i]ncorporated into the agreements with [Intermarketing] and Krieck were Cross-Defendants’ contractual duty and obligation to perform legal services with the requisite degree of care, skill, and diligence, incumbent upon them as [Intermarketing] and Krieck’s attorneys’.” (Second Amended Complaint [SACC], ¶38.)

They further allege that by virtue of breaching these duties, Cross-Defendants breached the fee agreement. “While not a model of pleading, such an allegation is sufficient to charge an act of professional negligence.” (Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1621, as modified on denial of reh'g (Sept. 29, 1994) [finding a claim that negligent handling of legal service and charging and unlawful and excess fee could be sufficient to allege professional negligence].) They also allege that the billing included double billing which violated the terms of the fee agreement because it was billing “for deficient work” or to correct “their own pleading errors.” (SACC, ¶40.) The claims are all premised on professional duties.

One could argue that the complaint attempts to allege conduct outside of Cross-Defendants’ professional duties such as the double billing. (See also, Charnay v. Cobert (2006) 145 Cal.App.4th 170, 186.) However, the allegations then tie the double billing directly to Cross-Defendants professional obligation. They explicitly allege the billing irregularities violated the agreement because Cross-Defendants were not exercising the appropriate level of care. (SACC, ¶40.)

Accordingly, the court agrees that the breach of contract claim is premised on professional duties and subject to Section 340.6.

Breach of Contract: Whether the statute of limitations under Section 340.6 is a bar

The issue is whether the claim is barred by the statute of limitations in Section 340.6.

“An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first.” (Code Civ. Proc., §340.6, subd. (a).)

Section 340.6 tolls if the plaintiff has not sustained an actual injury, the attorney continues to represent the plaintiff in the subject matter, the attorney conceals the facts constituting the wrongful acting, the plaintiff has a legal or physical disability restricting their ability to commence a legal action, or there is a pending dispute regarding fees.

Here, the complaint does not allege the date upon which the claim accrued, i.e. the date Cross-Complainants became aware of the professional misconduct. For example, they do not allege when they started receiving the allegedly excessive billing, when they determined the billing was excessive, or when they became aware that the excessive rates were the product of misconduct.

Cross-Defendants assert that Cross-Complainants claim accrued as early as the date that Cross-Defendants were substituted out as counsel (May 21, 2021) or as late as the date that the Cross-Complainants complaint in the Intermarketing Case was dismissed (May 3, 2022). There are several issues with their arguments.

First, with respect to substitution date, that is the date which a claim tolls under Section 340.6, not the date on which a claim accrues. Cross-Defendants cite Engel v. Pech (2023) 95 Cal.App.5th 1227 (Engel), but the court finds Engel distinguishable. Engel states that the “limitations period begins to run when the attorney client relationship ends, which happens when the attorney is formally substituted out as counsel or completes the task for which he was retained.” (Id., at p. 1236 [internal quotations and brackets omitted].) But in Engel, the court was not asked to examine the other provisions of Section 340.6, which explicitly account for situations where the claim either is tolled or is subject to delayed accrual for lack of discovery. The primary issue in Engel was whether an amended complaint related back to the original complaint for purposes of the statute of limitations, not when the statute of limitations accrued.

Second, Cross-Defendants are relying on interrogatories, evidence which is not properly considered on a demurrer. Based on the interrogatories, Cross-Defendants argue that Cross-Complainants had all the information necessary to bring a claim in 2021. Whether this is true or not requires a factual investigation outside the four corners of the complaint.

Third, Cross-Defendants argue the billing alone was sufficient to put Cross-Complainants on notice; however, that is not a categorical rule. While that can be the case, here it is not clear on the face of the complaint. (See Levin v Graham & James (1995) 37 Cal.App.4th 798, 805 [“In some cases, a client exercising reasonable diligence might not discover that the fees charged for legal services were excessive until after they were paid. In that event, the statute of limitations would be tolled until discovery.”])

In opposition, Cross-Complainants argue the representation continued after the substitution of attorney. However, this argument is entirely unsupported by the allegations of the complaint. Cross-Complainants do not allege that the representation continued. Nevertheless, for the reasons previously discussed, the demurrer is overruled.

Breach of Fiduciary Duty: Whether the claim is premised on a breach of professional duties

The issue is whether the breach of fiduciary duty claim is premised upon an attorney’s wrongful conduct arising in the performance of professional services. It does.

To establish a cause of action for breach of fiduciary duty, plaintiff must plead “(1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Gutierrez v. Girardi (2011) 194 Cal. App. 4th 925, 932.) A fiduciary relationship requires that a relation existing between parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party. (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29 [internal citations omitted].) A relationship ordinarily exists when “a con¿dence is reposed by one person in the integrity of another, and . . . the party in whom the con¿dence is reposed, if he voluntarily accepts or assumes to accept the con¿dence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent.’” (Ibid.)

Here, Cross-Complainants allege that as a result of the contractual relationship (which was one for legal services) Cross-Defendants owed them certain fiduciary duties, e.g., loyalty and to exercise the requisite level of care. This qualifies as duties arising from the professional relationship and thus, “necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services.” (Lee, supra, 61 Cal.4th at pp. 1236–37.) Accordingly, Section 340.6 applies.

The court incorporates by reference its prior discussion of the statute of limitations under Section 340.6. As previously discussed, the allegations regarding the impropriety of the billing hinge on dates which are not set out in the complaint. The court is unable to conclude from the face of the complaint that the statute of limitations is a bar.

Defendants first argue that the demurrer to the answer is untimely. Assuming the time to demurrer to the answer has expired, Cross-Defendants could simply refile a motion for judgment on the pleadings. (Code Civ. Proc., §438, subd. (f)(1).) Accordingly, the court, in its discretion, considers the arguments as the parties have had the opportunity to brief the issue.

Plaintiffs/Cross-Defendants argue the affirmative defenses are barred by the statute of limitations: negligence/professional malpractice; breach of contract; offset, credit, set off; and breach of fiduciary duty. As previously set forth above, Plaintiffs/Cross-Defendants have not demonstrated the statute of limitations for professional misconduct is a bar. There is no additional briefing or explanation as to why these defenses are also barred by the statute of limitations.

[1] Cross-Defendants include two motions in one filing. The court admonishes Cross-Defendants/Plaintiffs that the court will not address the merits of multiple motions under one reservation unless the appropriate fees are paid.