Medallion Film LLC, et al. v. Loeb & Loeb LLP

DEFENDANT LOEB & LOEB LLP’S DEMURRER TO AMENDED COMPLAINT

 

MOVING PARTY: Defendant Loeb & Loeb LLP

RESPONDING PARTY(S): Plaintiffs Medallion Film LLC; Pelican Point Capital Partners, LLC; Jesse Kennedy; Shad Quraishi; and Ike Suri

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs Medallion Film LLC, Pelican Point Capital Partners LLC, Jesse Kennedy, Shad Quraishi, and Ike Suri (collectively “Plaintiffs”) bring this action against the law firm, Defendant Loeb & Loeb LLP. Plaintiffs allege that in its representation of its client, William Sadleir, Loeb & Loeb wrote a letter to Plaintiffs that misrepresented the ownership of Sadleir’s companies in order to avoid payment to Plaintiffs under a consulting fee agreement.  Plaintiffs bring causes of action for (1) Fraudulent Misrepresentation, (2) Deceit by Concealment, (3) Negligent Misrepresentation, (4) Aiding and Abetting Fraud, and (5) Violation of the UCL. 

Defendant now demurrers to each cause of action in the Amended Complaint.  [FN 1]  Plaintiff opposed the motion.

TENTATIVE RULING:

Defendant’s Demurrer to the First Amended Complaint is OVERRULED.  Defendant is ordered to file an Answer within 21 days.

Plaintiff is ordered to give notice, unless waived.  

DISCUSSION:

Demurrer

I. Judicial Notice

Pursuant to Plaintiffs’ request, the court takes judicial notice of the Docket Report for a Chapter 7 Bankruptcy for Aviron Capital, LLC before the United States Bankruptcy Court for the Central District of California (Bankruptcy Petition No. 2:20-bk-18815-BR).  

II. Meet and Confer

III. Legal Standard

A demurrer for sufficiency tests whether the complaint states a cause of action.  (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.)  When considering demurrers, courts read the allegations liberally and in context.  (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.)  In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice.  (CCP § 430.30(a).)  A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.  (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.)  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.  (Id.)  The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.  (Hahn, 147 Cal.App.4th at 747.)

IV. Background Allegations

Plaintiffs allege they contracted with William Sadleir to help him raise funding to market and distribute film projects developed through his company, Clarius Capital Group, LLC and its affiliated entities (together, the “Clarius Entities.”)  (FAC ¶ 22.)  On April 21, 2014, the parties executed a Consulting Fee Agreement, which provided that Plaintiffs Medallion and Pelican would introduce Sadleir to several third-party investor entities.  (Id. ¶ 23.)  In exchange for this brokering, Sadleir/Clarius would pay Medallion and Pelican according to a set fee schedule if funding was secured.  The Agreement provided that Sadleir would not “contravene [Medallion and Pelican] by directly conducting related business with any of the [third party entities] directly introduced by [Medallion and Pelican].”  (Id. ¶ 24.)  In essence, everything had to go through Medallion and Pelican.  As part of the Agreement, Medallion and Pelican introduced Sadleir to investors at BlackRock.  

It is further alleged that without informing Medallion or Pelican, Sadleir subsequently dissolved the Clarius Entities, and on July 8, 2015, with the assistance of Loeb & Loeb, registered a network of affiliate and successor entities under the “Aviron” moniker (together, the “Aviron Entities”) to continue marketing and distributing the Clarius Entities’ film projects.  (Id. ¶ 26.)  Sadleir then transferred all of the Clarius Entities’ assets to the Aviron Entities.  (Id. ¶ 27.)  

On October 20, 2015, Sadleir secured a $12 million dollar loan for the Aviron entities from the BlackRock Multi-Sector Income Trust.  (Id.)  The BlackRock Multi-Sector Income Trust was managed by Randy Robertson, who was introduced to Sadleir by Medallion and Pelican pursuant to the Consulting Fee Agreement.  (Id. ¶ 28.)  The credit arraignment was extended to $75 million on July 17, 2017. (Id. ¶ 29.)  

After learning of the funding in 2017, Pelican and Medallion inquired with Sadleir and BlackRock about their payment to which they would be entitled pursuant to the Consulting Fee Agreement.  Sadler responded that there was no affiliation between the Aviron and Clarius Entities, and that he was only an employee of Aviron Capital.  (Id. ¶ 31.) Thus, Pelican and Medallion were not entitled to payment.  

On March 25, 2018, Plaintiffs later sent an email to Randy Robertson at BlackRock, seeking his assistance in obtaining payment from Sadleir.  Plaintiffs allege that on March 28, 2018, Loeb & Loeb Partner Bernard R. Given II wrote to them on behalf of Loeb & Loeb’s client, Aviron Capital.  In this letter, Given wrote that “Aviron has no legal connection to Clarius Capital Group, LLC whatsoever…and [Sadleir] is an Aviron employee with no ownership interest in Aviron.”  (Id. ¶ 32.)  Plaintiffs allege that Given knew these statements were false, but intended for Plaintiffs to rely on said representations and believe they were not entitled to payment under the Consulting Fee Agreement.  (Id. ¶ 33.)  Plaintiffs allege that Loeb & Loeb was well aware of Sadleir’s true affiliation with the Aviron Entities—after all, it was Loeb & Loeb who assisted with the formation of the entities and advised Sadleir with regard to the entities’ business dealings.  (Id.)  Plaintiffs allege that Sadleir formed the Aviron Entities and controlled the entities as the sole member, and executed agreements for the Aviron Entities as their Principal or Manager. (Id. ¶ 31.)  They also allege that the Clarius Entities and Aviron Entities exhibit identical business models, promote the same film projects, and use the same personnel in key management positions.  (Id.)

Plaintiffs say it was not until the end of 2019—when BlackRock sued Sadleir in New York for his default on the loan—that Plaintiffs learned that the representations from Sadleir and Loeb & Loeb were false.  (Id. ¶ 44) Documents unearthed in that litigation “unquestionably reveal that Given and Loeb & Loeb knew that Sadleir controlled the Aviron Entities because the firm assisted with the formation of the entities and represented Sadleir with respect to BlackRock's funding.”  (Id.)  Sadleir later confirmed in a text to Jesse Kennedy of Medallion that he “still own[s] 100%” of the Aviron Entities.  (Id. ¶ 45.)  This suit followed.

V. Analysis

a. Demurrer to First, Second, Third and Fourth Causes of Action

1. Statue of Limitations

Defendant first argues the first through fourth causes of action are time-barred because Plaintiffs were aware of the alleged misrepresentation on March 28, 2018—the day Givens made the representations—and have not pled delayed discovery.  The statute of limitations on each of Plaintiffs’ first four causes of action for fraudulent misrepresentation, concealment, negligent misrepresentation, and aiding and abetting fraud, is three years.

“The statute of limitations usually commences when a cause of action ‘accrues,’ and it is generally said that ‘an action accrues on the date of injury.’ [Citation.]  Alternatively, it is often stated that the statute commences ‘upon the occurrence of the last element essential to the cause of action.’”  (Bernson v. Browning-Ferris Indus. (1994) 7 Cal. 4th 926, 931.)  As the California Supreme Court has explained: “In a long line of cases we have held that a cause of action for fraud or mistake accrues, and the limitations period commences to run, when the aggrieved party could have discovered the fraud or mistake through the exercise of reasonable diligence.” (Sun’n Sand, Inc. v. United Cal. Bank, 21 Cal. 3d 671, 701 (1978).

Here, Plaintiffs allege that “[t]hrough no fault of their own, Medallion and Pelican were unaware of the falsity of the representations made by Given in the March 28, 2018 letter, or that said representations were made solely to conceal Sadleir’s breach of contract and help Sadleir evade liability.”  (Compl. ¶¶ 42, 52.) Moreover, “[t]he falsity of these representations became evident at the end of 2019 because of the BlackRock lawsuit. The documents unearthed therein unquestionably reveal that Given and Loeb & Loeb knew that Sadleir controlled the Aviron Entities because the firm assisted with the formation of the entities and represented Sadleir with respect to BlackRock's funding.”  (Id. ¶ 44.)

For pleadings purposes, Plaintiffs have adequately pled delayed discovery.  This court cannot determinate, as a matter of law, that Plaintiffs would or should have discovered the alleged fraud prior to the BlackRock lawsuit.  Indeed, if Sadleir’s own attorney claims ignorance of Sadleir’s dealings, it is reasonable to conclude that Plaintiffs were also not aware until evidence of the alleged fraud was revealed in the BlackRock lawsuit.  This is ultimately a question of fact that cannot be resolved on demurrer. 

2. Pleading Claims with Requisite Particularity

Defendant next argues that under the heightened pleading requirements for fraud, Plaintiff has not pled actual and justifiable reliance.  “To allege actual reliance on misrepresentations with the required specificity for a fraud count, [t]he plaintiff must plead that he believed the representations to be true,” Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231–32, and must identify “the action he took or did not take because of his reliance on the alleged [misrepresentation].” (Glaski v. Bank of Am. (2013) 218 Cal.App.4th 1079, 1091.)

Here, Plaintiffs allege that they ended their efforts to collect the payment to which they were allegedly entitled for the BlackRock funding under the terms of the Consulting Fee Agreement because Given made them believe that Sadleir did not control the Aviron Entities.  Reliance on this false information caused Medallion and Pelican to believe that they were not entitled to payment under the Consulting Fee Agreement, and Plaintiffs stopped pursuing the same. (Compl. ¶ 46, 60, 61.)  For pleadings purposes, this constitutes actual reliance.  

As to justifiable reliance, Defendant contends it was not justifiable for Plaintiffs to rely on the representations of an adversary.  “[W]hether a party’s reliance was justified may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts.” (Hasso v. Hapke (2014) 227 Cal.App.4th 107, 132 [internal quotations omitted] [emphasis added].) 

Even assuming it was not justifiable for Plaintiffs to rely on Given’s representation, the court will not consider outside evidence that Plaintiffs’ own investigation could have reasonably revealed that Given’s representations were in fact false. Plaintiffs’ allegation that they “were unaware of the falsity of said representations and reasonably believed them to be true because Defendants had sole access to material facts regarding Sadleir’s business dealings and the relationship between the Aviron Entities and Clarius Entities,” is sufficient for pleading purposes. (Compl. ¶ 52.)  This presents a factual issue.

Defendant next argues that Plaintiffs have not adequately alleged causation. However, Plaintiffs allege that they initially “contacted Sadleir . . . to ask about their payment pursuant to the Consulting Fee Agreement,” (Compl. ¶ 30), but then abandoned those efforts after Given “told them about the lack of a relationship between Aviron and Clarius.” (Id. ¶ 46.) Plaintiffs relied on these representations because of Loeb’s sole access at the time to material facts regarding Sadleir’s business dealings and the relationship between the Aviron and Clarius Entities. (Id., ¶¶ 1, 8, 35, 52, 69-71, 76-78.) Given consequently “caused [Plaintiffs] to believe that they were not entitled to payment under the Consulting Fee Agreement.” (Id. ¶ 46 [emphasis added]; see also id. at ¶¶ 1, 8, 35, 52, 69-71, 76-78.)  This is sufficient to allege causation.

Finally, Defendants argue that Plaintiffs have not alleged damages.  However, Plaintiffs allege that they were to be compensated by Sadleir if the BlackRock funding was secured with a percentage of said funds. (Id. ¶ 22, Ex. A; ¶ 25.)  They further allege that they facilitated the execution of Sadleir’s financing arrangement with BlackRock, and that they are entitled to a percentage of these funds under the terms of the Consulting Fee Agreement, but that they ended their efforts to collect this payment because of the misrepresentations made by Given. (Id. ¶¶ 23, 27, 29.)  Accordingly, Plaintiffs have alleged damages.

b. Fourth Cause of Action - Agent’s Immunity Rule

Defendant argues the fourth cause of action fails because under the “agent’s immunity rule,” Defendant is immune from suit.  However, the rule does not apply when the attorney himself makes express misrepresentations.  Thus, because Given allegedly “commit[ted] actual fraud in his dealings with third parties, the fact that he did so in the capacity of attorney does not relieve him of liability.” (Pavicich v. Santucci (2000) 85 Cal.App.4th 382, 395.)  

Defendant’s second argument that this cause of action is duplicative of the first three need not be resolved at this point.  Defendant presents no authority showing that aiding and abetting is necessarily duplicative of the other fraud claims.  

c. Fifth Cause of Action

As stated in the opposition, Plaintiffs have withdrawn their UCL claim.

d. Defendant’s Ability to Defend Itself in Light of Attorney-Client Privilege

Finally, Defendant argues the demurrer should be sustained in full because Defendant cannot fully defend itself against Plaintiffs’ claims without violating the attorney-client privilege it owes to its former client.  

 “To dismiss a case at the pleading stage, a court must determine whether (1) the evidence at issue is the client's confidential information, and the client insists that it remain confidential; (2) given the nature of plaintiff's claim the confidential information is highly material to the defendants' defenses; (3) there are “ad hoc” measures available to avoid dismissal such as “ ‘sealing and protective orders, limited admissibility of evidence, orders restricting the use of testimony in successive proceedings, and, where appropriate, in camera proceedings' ”; and (4) it would be fundamentally unfair to proceed.”  (Reilly v. Greenwald & Hoffman, LLP (2011) 196 Cal. App. 4th 891, 904.)

Although it can be reasonably anticipated that the attorney-client privilege will arise in this matter, it is not grounds for dismissal at this stage.  Importantly, Defendant has not attempted to explain why “ad hoc” measures such as “sealing and protective orders, limited admissibility of evidence, orders restricting the use of testimony in successive proceedings, and, where appropriate, in camera proceedings” are unavailable here.  

Accordingly, Defendant’s Demurrer is OVERRULED in its entirety.  

IT IS SO ORDERED.

Dated:   October 18, 2024 ___________________________________