Judge: Teresa A. Beaudet, Case: 23STCV11906, Date: 2024-09-03 Tentative Ruling

Case Number: 23STCV11906    Hearing Date: September 3, 2024    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

On May 25, 2023, Plaintiffs Shawn O’Connor and Yelena Ostrovsky in their capacities as trustees of The Alliance 401(k) Profit Sharing Plan and Trust (jointly, “Plaintiffs”) filed this action against Defendants Steffanie Stelnick and The Law Offices of Steffanie Stellnick.  On June 20, 2023, Plaintiffs filed the operative First Amended Complaint for Legal Malpractice (the “FAC”).

The FAC alleges, inter alia, that “Plaintiffs, and each of them, retained the services of Stelnick no later than May 2022 to provide legal advice in connection with the purchase of investment real estate commonly known as 3732 Townshend Circle, Stockton, CA 95212 (the ‘Property’).” (FAC, ¶ 11.) “Plaintiffs, by and through their pension plan The Alliance Roth 401(k) Profit Sharing Plan and Trust (the ‘Roth Trust’) purchased the Property from one Roy Holmes.” (FAC, ¶ 13.) “Stelnick advised that the deed held by Holmes, documenting a transfer from the prior owner Bertha Valentine, had an error and would need to be corrected. Stelnick advised that the deed was not a barrier to the purchase of the Property, but that a quiet title action would need to be filed and that it would take about a year to get good title pursuant to that procedure...” (FAC, ¶ 15.) “Stelnick filed the quiet title action in or about June 2022 and an unlawful detainer action in or about July 2022 to secure title and possession of the Property.” (FAC, ¶ 16.)

Plaintiffs allege in the FAC that “[a]fter receiving the deed from Holmes, Plaintiffs were informed that Valentine had filed a bankruptcy petition in the United States Bankruptcy Court for the Eastern District of California…Pursuant to a certificate of service dated June 15, 2022, Stelnick’s office was served with a Notice of Automatic Stay in the matter of Valentine’s bankruptcy petition from Valentine’s bankruptcy counsel…Plaintiffs asked Stelnick what they should do about the Valentine bankruptcy and Stelnick advised them that it had no impact on the sale because Plaintiffs had received the deed from Holmes before Valentine filed the bankruptcy petition.” (FAC, ¶¶ 19-21.) Plaintiffs allege that “Stelnick’s advice was wrong because the automatic stay pursuant to the Valentine bankruptcy petition stayed the actions filed by Stelnick in light of Valentine’s lis pendens on the Property.” (FAC, ¶ 23.)

Plaintiffs allege that “[s]ubsequently, Plaintiffs, in their individual capacities and in their capacities as trustees of the Roth Trust and the Non-Roth Trust, were hauled into bankruptcy court pursuant to a petition filed on or about August 9, 2022, in an action for violation of the automatic bankruptcy stay pursuant to the Valentine bankruptcy petition pursuant to a petition filed on or about August 9, 2022. Plaintiffs now face extraordinary liability for violation of the automatic bankruptcy stay.” (FAC, ¶ 24.)

 Steffanie Stelnick and Law Offices of Steffanie Stelnick (jointly, “the Stelnick Parties”) now move for leave to file a proposed cross-complaint. The motion is opposed.[1]

Discussion

Pursuant to Code of Civil Procedure section 428.50, subdivision (a), “[a] party shall file a cross-complaint against any of the parties who filed the complaint or cross-complaint against him or her before or at the same time as the answer to the complaint or cross-complaint.” Pursuant to Code of Civil Procedure section 428.50, subdivision (b), “[a]ny other cross-complaint may be filed at any time before the court has set a date for trial.” Pursuant to Code of Civil Procedure section 428.50, subdivision (c), “[a] party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b). Leave may be granted in the interest of justice at any time during the course of the action.”

Pursuant to Code of Civil Procedure section 426.50, “[a] party who fails to plead a cause of action subject to the requirements of this article, whether through oversight, inadvertence, mistake, neglect, or other cause, may apply to the court for leave to amend his pleading, or to file a cross-complaint, to assert such cause at any time during the course of the action. The court, after notice to the adverse party, shall grant, upon such terms as may be just to the parties, leave to amend the pleading, or to file the cross-complaint, to assert such cause if the party who failed to plead the cause acted in good faith. This subdivision shall be liberally construed to avoid forfeiture of causes of action.”
            The Stelnick Parties submitted a proposed cross-complaint in this matter on August 2, 2024. The proposed cross-complaint is brought by Cross-Complainants Steffanie Stelnick and Law Offices of Steffanie Stelnick against Cross-Defendants Shawn O’Connor and Yelena Ostrovsky, individually, and in their capacities as trustee of The Alliance 401(k) Profit Sharing Plan and Trust and the Alliance Roth 401(k) Profit Sharing Plan and Trust

 The proposed cross-complaint alleges causes of action for (1) breach of written contract, (2) open book account, (3) account stated, and (4) quantum meruit. The proposed cross-complaint alleges, inter alia, that “[o]n or about June 15, 2022, CROSS-DEFENDANTS entered into a written fee agreement (the ‘Fee Agreement’) whereby CROSS-DEFENDANTS retained STELNICK LAW to represent them quite title action (‘the Underlying Action’)….After the Fee Agreement was executed, STELNICK LAW represented CROSS-DEFENDANTS in connection with the Underlying Action….Pursuant to the terms of the Fee Agreement, STELNICK LAW was provided regular billing statements of all fees incurred….To date, CROSS-DEFENDANTS have an outstanding balance owing to STELNICK LAW of $8,208.79 plus late charges and interest pursuant to the terms of the Retainer Agreement.” (Proposed cross-complaint, ¶¶ 8-11.)

The Stelnick Parties’ counsel’s declaration in support of the motion provides, inter alia, that Steffanie Stelnick and Law Offices of Steffanie Stelnick (jointly, “Stelnick”) “maintain a claim against Plaintiffs for attorney fees and costs for legal services provided during the prior representation. To recover these fees and costs, Stelnick seek leave to file the concurrently submitted proposed Cross-Complaint against Plaintiffs, which includes Causes of Action for: (l) Breach of Written Contract; (2) Open Book Account; (3) Account Stated; and (4) Quantum Meruit.” (Brooks Decl., ¶ 2.) The Stelnick Parties assert that the issues in the proposed cross-complaint are inter-related with the issues in the FAC, and that the Court should grant them leave to file the proposed cross-complaint.

In the opposition, Plaintiffs assert that the motion fails to address the standard set forth in Code of Civil Procedure section 426.50 because the motion “fails to demonstrate grounds for a finding of good faith.” (Opp’n at p. 3:13-14.) Plaintiffs assert that the Stelnick Parties do not explain why the proposed cross-complaint was not filed at the time of answering, and that there no explanation for the delay.

In the reply, the Stelnick Parties contend that “the delay was caused by Plaintiffs.” (Reply at p. 2:1.) The Stelnick Parties’ counsel states in his declaration in support of the motion that “[a]s counsel for Stelnick, I attempted to obtain a stipulation to file the proposed Cross-Complaint. On January 22, 2024 I sent an email to counsel for Plaintiffs Joshua Furman (‘Mr. Furman’) to request a stipulation to file a Cross-Complaint for the recovery of outstanding attorney fees and costs owed to Stelnick…Mr. Furman responded by asking for the amount owed for the outstanding fees and costs…On January 22, 2024 I sent two (2) additional emails to Mr. Furman which included a copy of the proposed Cross-Complaint against Plaintiffs…After not hearing back, on February 13, 2024 I sent Mr. Furman another email over the [sic] stipulation to file the proposed Cross-Complaint…Mr. Furman responded by asking for another copy of the proposed Cross-Complaint…On February 14, 2024 I sent Mr. Furman another copy of the proposed Cross-Complaint…On July 19, 2024 I sent another email to Mr. Furman (which forwarded the prior email correspondence) to address the stipulation for leave to file the Cross-Complaint…The email made clear that if Plaintiffs failed to respond or would not provide the requested stipulation within a week, Stelnick would bring a Motion for Leave to file the proposed Cross-Complaint…” (Brooks Decl., ¶¶ 3-6.) The Stelnick Parties’ counsel states that “Plaintiffs’ counsel failed to respond making this motion necessary.” (Brooks Decl., ¶ 7.)

In addition, as to Plaintiffs’ argument that “Defendants do not demonstrate good faith” (Opp’n at p. 3:22), the Court notes that in Silver Orgs. v. Frank (1990) 217 Cal.App.3d 94, 100, cited by the Stelnick Parties in the motion, the Court of Appeal noted that “[s]ubstantial evidence of bad faith will obviously negate good faith, the latter being the sine qua non to the granting of a section 426.50 motion. It is therefore necessary to examine the amorphous concept of bad faith. Bad faith is defined as [t]he opposite of good faith, generally implying or involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake…but by some interested or sinister motive[,]…not simply bad judgment or negligence, but rather…the conscious doing of a wrong because of dishonest purpose or moral obliquity;…it contemplates a state of mind affirmatively operating with furtive design or ill will.” (Internal quotations omitted.) Here, the Court does not find that Plaintiffs have shown the Stelnick Parties’ “conscious doing of a wrong because of dishonest purpose or moral obliquity.” (Ibid.)

Plaintiffs also assert that even if the motion is in good faith, not all claims and parties in the proposed cross-complaint are proper. In the reply, the Stelnick Parties assert that “at this stage, the merits of the Cross-Complaint are not before this Court. Once the Cross-Complaint is filed…Plaintiffs will have the opportunity to test the merits of the Cross-Complaint.” (Reply at p. 3:3-5.) Indeed, in in Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048, the Court of Appeal noted that “even if the proposed legal theory is a novel one, the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings.” (Internal quotations omitted.)

            As discussed, pursuant to Code of Civil Procedure section 428.50, subdivision (c), “[a] party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b). Leave may be granted in the interest of justice at any time during the course of the action.” The Court finds that the Stelnick Parties have demonstrated that it is in the interest of justice to file the proposed cross-complaint.  

Conclusion

Based on the foregoing, the Stelnick Parties’ motion for leave to file a cross-complaint is granted. The Court orders the Stelnick Parties to file and serve the proposed cross-complaint within 3 days of the date of this Order. 

The Stelnick Parties are ordered to give notice of this Order. 

DATED:  September 3, 2024                   ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court