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Mahaffey Law Group, P.C. v. Paganetti

United States District Court, C.D. California

September 4, 2019

MAHAFFEY LAW GROUP, P.C.
v.
STEVEN E. PAGANETTI ET AL.

          Present: The Honorable ANDREW J. GUILFORD

          CIVIL MINUTES - GENERAL

         Proceedings: [IN CHAMBERS] ORDER REGARDING MOTION TO REMAND AND MOTION TO DISMISS

         This matter is appropriate for resolution without oral argument. Fed.R.Civ.P. 78(b). The hearing set for September 9, 2019 is VACATED.

         Plaintiff Mahaffey Law Group, P.C. (“MLG”) sued Defendants Steven E. Paganetti (“Paganetti”) and Wild, Carter & Tipton (“WCT”) asserting the following claims: (1) recovery of foreclosure on attorney lien on escrowed settlement proceeds; (2) fraud; (3) fraud by ratification; (4) breach of contract; and (5) conversion. MLG now moves to remand this case back to Orange County Superior Court. (Mot. to Remand, Dkt. No. 24.) At the same time, Paganetti moves to dismiss MLG's claims under Federal Rule of Civil Procedure 12(b)(6). (Mot. to Dismiss, Dkt. No. 26.)

         The Court GRANTS Plaintiff's motion to remand. The Court REMANDS this case to Orange County Superior Court. All other pending matters, including Defendant's motion to dismiss, are VACATED.

         1. BACKGROUND

         The following facts come from Plaintiff's First Amended Complaint (“FAC”) and, at this stage, the Court assumes they're true. (See generally FAC, Dkt. No. 19.)

         Plaintiff MLG is a law firm based in Newport Beach, California. (Id. at ¶ 1.) Defendant WCT is a law firm based in Fresno, California. (Id. at ¶ 3.) Paganetti is an attorney who first worked for WCT and then for MLG. (Id. at ¶ 2.)

         MLG's claims stem from two fee disputes. Only the second dispute is relevant here. That dispute concerns a client of Paganetti's at WCT named John Sanford. (Id. at ¶ 31.) (It's unclear how to spell “Sanford” since it's spelled differently throughout both parties' briefs.) Once Paganetti started at MLG, he wanted to continue representing Sanford at MLG. (See Id. at ¶¶ 32-34.) MLG okayed this request based on Paganetti's representation that he'd be representing Sanford under a standard contingency fee agreement. (Id.) Paganetti then sent Sanford a letter memorializing the fee agreement, which Sanford signed and returned. (Id. at ¶ 43.)

         Some time later, Paganetti told MLG that the Sanford matter had settled, yielding a contingency fee award of $73, 326. (Id. at ¶ 47.) Of this amount, Paganetti took home $65, 993.36, while MLG pocketed only $7, 332.60. (Id.)

         Paganetti later resigned from MLG. (Id. at ¶ 52e.) And after Paganetti resigned, MLG discovered the Sanford matter hadn't fully settled. (Id. at ¶ 52.) MLG also found out that the fee agreement in place with Sanford wasn't the standard contingency agreement Paganetti described. Rather, the fee agreement also included an open-ended defense obligation that eventually cost MLG to incur more than $118, 000 in defense costs. (Id. at ¶¶ 51, 63.)

         MLG now claims that the $65, 993.36 in funds Paganetti received for “settling” the Sanford matter was supposed to be used to prepay these defense costs. (Other possible factors such as punitive damages raises the amount involved in this case to over $75, 000.) Consequently, MLG believes Paganetti defrauded MLG of fees rightfully owed to MLG. And because MLG claims Paganetti had partner-status at WCT when he originally had Sanford sign the fee agreement at issue here, MLG alleges WCT is jointly liable for Paganetti's fraud.

         2. LEGAL STANDARD

         The Constitution provides, in Article III, § 2, that “[t]he judicial Power [of the United States] shall extend . . . to all Cases . . . between Citizens of different States.” And Congress, in 28 U.S.C. Section 1132(a), has authorized district courts to exercise jurisdiction over “all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interests and costs, and is between . . . citizens of different States.” Principles of federalism and judicial economy require courts to “scrupulously confine their [removal] jurisdiction to the precise limits which [Congress] has defined.” See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 (1941). “Nothing is to be more jealously guarded by a court than its jurisdiction.” United States v. Ceja-Prado, 333 F.3d 1046, 1051 (9th Cir. ...


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