California Court of Appeal, Fourth District, Third Division
STUEVE BROS. FARMS, LLC et al., Plaintiffs and Appellants,
BERGER KAHN, Defendant and Respondent.
Appeal from a judgment of the Superior Court of Orange County, Nancy Wieben Stock, Judge. Reversed. (Super.Ct. No. 30-2010-00411651).
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[166 Cal.Rptr.3d 120] Keobopha Keopong; Barnes Law and Robert E. Barnes for Plaintiffs and Appellants.
Gladstone Michel Weisberg Willner & Sloane, Marina Del Rey, and Allen L. Michel for Defendant and Respondent.
The plaintiffs in this lawsuit are the " heirs" (in lay terms) to the Alta Dena Dairy fortune built by the Stueve family. They include a multitude of individuals and entities and a successor trustee of numerous trusts (collectively, the Stueves). The Stueves have sued many parties, including several attorneys and law firms, on a plethora of grounds. The Stueves generally assert that they have been wrongfully deprived of their fortunes through a seemingly endless series of nefarious devices. In short, Attorney Raymond A. Novell, a lifelong friend of the Stueve family, allegedly teamed up with estate planning Attorney Jay Wayne Allen to drain off the family assets through a Pandora's box of actionable wrongs. Over the years, Attorney Allen jumped from one law firm to another, perchance to avoid detection or perhaps because of detection. One of the law firms to which Attorney Allen took his tantalizing book of business was Berger Kahn. If the allegations are to be believed, Berger Kahn turned its back and happily collected fees while allowing Attorney Allen to help himself to its clients' assets.
Berger Kahn filed two demurrers to the second amended complaint, one of which was sustained without leave to amend, as to the trust and entity Stueves, and the other of which was sustained in part with leave to amend and in part without, as to the individual Stueves. In this opinion, we address only the ruling on the demurrer to the second amended complaint as it affects the trust and entity Stueves. We reverse.
We cannot conclude that the Stueves alleged no facts sufficient to state a viable cause of action against Berger Kahn, when they alleged that Attorney Novell, as the original trustee of the trusts, engaged in acts tantamount to breach of trust and that Attorney Allen and Berger Kahn knowingly participated in those acts to their benefit. Furthermore, as stated in our opinion in the companion appeal, Case No. G046253, the court erred in striking all of the Stueves's conspiracy allegations, which formed the primary underpinnings of their fraud and misrepresentation causes of action. It is premature to conclude that the Stueves are unable to allege facts sufficient to state a viable cause of action based on fraud or misrepresentation. Finally, we cannot agree that the statute of limitations bars all causes of action as a matter of law.
The Stueves filed a 331-page second amended complaint against Attorney Novell, Attorney Allen, Berger Kahn, and dozens of others. The Stueves described therein a spider web of nefarious transactions so thick as to block out the sun, and detailed how the defendants purportedly drained $25 million off the composite family estate. The eleven causes of action against Berger Kahn included fraud by intentional misrepresentation, negligent misrepresentation, fraud by concealment, constructive fraud, breach of fiduciary duty, conversion, professional negligence, negligent hiring and retention, violation of the prudent investor rule, violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. § 1961 et seq.), and financial elder abuse.
[166 Cal.Rptr.3d 121] Berger Kahn filed a motion to strike and a demurrer to the second amended complaint. The court granted, in part, Berger Kahn's motion to strike all conspiracy allegations against it, due to the Stueves's failure to comply with Civil Code section 1714.10. It also sustained Berger Kahn's demurrer, without leave to amend, as to the claims of the trust and entity Stueves. An order of dismissal of Berger Kahn was filed with respect to the trust and entity Stueves.
Appeals were taken from the order granting the motion to strike and from the order of dismissal. This opinion addresses only the appeal from the order of dismissal. The appeal from the ruling on the motion to strike is at issue in companion Case No. G046253.
A. Standard of Review:
" The standard of review on an appeal from judgment of dismissal following sustaining of a general demurrer is guided by long settled rules. We treat the demurrer as admitting all material facts properly pleaded, as well as those which reasonably arise by implication, but not contentions, deductions or conclusions of fact or law. [Citations.] ‘ Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’ [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action on any theory. [Citations.] Moreover, ‘ " the allegations of the complaint must be liberally
construed with a view to attaining substantial justice among the parties." ’ [Citations.] A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations. [Citation.]" ( Yue v. City of Auburn (1992) 3 Cal.App.4th 751, 756-757, 4 Cal.Rptr.2d 653.) Consequently, " [t]he reviewing court assumes the truth of the allegations in the complaint that have been properly pleaded.... [Citations.]" ( Estate of Bowles (2008) 169 Cal.App.4th 684, 690, 87 Cal.Rptr.3d 122.)
B. Allegations of Second Amended Complaint:
The allegations of the second amended complaint include the following:
Brothers Harold, Edgar and Elmer Stueve founded the Alta Dena Dairy in 1945. Attorney Novell was a friend of the Stueve family since 1947. He became legal counsel for the Stueve family in the 1990's.
In 2001, Attorney Novell teamed up with Attorney Allen and devised a complex plan to defraud the Stueves. They convinced the Stueves that their fortunes would be eaten up by taxes unless they set up a multitude of trusts. Attorney Allen then drafted the trusts and the Stueves's assets were transferred to Attorney Novell as trustee. The trusts were drafted so as to provide Attorney Novell, as trustee, with the discretion to do whatever he chose with the assets, thereby giving the defendants the means to liquidate the assets for their own benefit. In practice, Attorneys Novell and Allen used the trust assets to engage in business transactions benefitting themselves, and thereby obtained undisclosed profits, and they also transferred trust assets to entities they owned or controlled.
To facilitate the plan, various non-trust entities were also established beginning in 2001. Attorneys Allen and Novell became the attorneys for these entities and Attorney Novell became their manager. Through the use of these entities, together [166 Cal.Rptr.3d 122] with the trusts, Attorneys Novell and Allen operated a Ponzi scheme based on money laundering activities and the issuance of sham loans. Stueve monies were loaned to various entities, and the loans were repaid, if at all, with other monies also taken from the Stueves.
From February 1, 2006 through June 2007, Attorney Allen was employed by, and was an agent of, Berger Khan. While he was at that firm, Attorney Allen provided legal representation to all of the Stueves except Michael Meyer and SBF Delano. The actions of Berger Kahn were taken by and through Attorney Allen as its partner, attorney and employee, and Attorney Allen had actual and/or ostensible authority to act on behalf of Berger Kahn.
Berger Kahn undertook the representation of the Stueves in February 2006, when Attorney Allen joined the firm. Soon afterward, Berger Kahn acquired
actual or constructive knowledge that serious allegations of misconduct had been leveled at Attorney Allen previously and that three lawsuits had been filed against him. An attorney who testified in one of those lawsuits specifically told Berger Kahn managers not to keep Attorney Allen, because it was " too risky" to do so. Berger Kahn failed to inform its clients of the allegations against Attorney Allen.
In April 2006, Attorney Allen, as president of a limited liability company, took out a $400,000 loan from SBF Partners, GP— which was his client and was owned by certain of the Stueve trusts, which were also his clients. He did not disclose this loan to the Stueves either in their individual capacities or as owners of beneficial interests in the trusts and SBF Partners, GP. A title company satisfied the note in October 2006. In January 2007, Attorney Allen borrowed $425,000 from SBF Partners, GP, due and payable in June 2007. The loan was secured by property in Anaheim, California. Shortly after he borrowed the money, Attorney Allen transferred title to the security to his wife as her sole and separate property. He defaulted on the loan on June 30, 2007.
Also while at Burger Kahn, Attorney Allen conspired with Attorney Novell and other defendants to further defraud the Stueves of hundreds of thousands of dollars or more via a series of transactions effectuated through a 12- to 17-step plan. To facilitate the plan, in December 2006, Attorney Allen formed an entity known as GSF Acquisitions Inc., of which he was chief executive officer, chief financial officer, and treasurer. He also formed Clarke-Novell LLC, in December 2006, and Firma Funding LLC, in June 2007. These three entities were among those formed as vehicles to siphon off Stueve assets. In addition, Attorney Allen prepared promissory notes, loan purchase agreements, loan assignments and other documents used to effectuate the plan. Furthermore, Attorney Allen and Berger Kahn participated in mail and wire fraud.
In furtherance of the Ponzi scheme, Attorneys Novell and Allen and Berger Kahn intentionally concealed both the nature of the transactions and the conflicts of interest, with the intention that the Stueves rely upon the concealments and omissions. Attorneys Novell and Allen and Berger Kahn, on various occasions, advised members of the Stueve family not to disclose information about the estate plan to outsiders for privacy reasons. The Stueves reasonably relied upon the concealments and omissions, with the result that they suffered both financial harm and delay in the discovery of the facts giving rise to their claims.
After June 2007, Attorney Allen left Berger Khan and went to work for Buchalter Nemer. In December 2009, Earl ...