Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County, No. BC280456. Haley J. Fromholz, Judge.
Roger N. Golden for Plaintiff and Appellant.
Gibson, Dunn & Crutcher, Kevin S. Rosen and William E. Thomson for Defendants and Respondents Perkins Coie, David Biderman and Vick Mansourian.
Gipson Hoffman & Pancione and Kenneth I. Sidle for Defendant and Respondent Nicholas Rockefeller.
TURNER, P. J.
I. INTRODUCTION
This is the second appeal of rulings at the pleading stage of this legal malpractice case. Plaintiff, In4Network, Inc., appeals from an October 23, 2007 judgment in favor of defendants, David Biderman, Vick Mansourian, Nicholas Rockefeller, and the law firm Perkins Coie. The trial court dismissed plaintiff’s second amended complaint after sustaining a demurrer without leave to amend and granting a motion to strike. We reverse.
II. BACKGROUND
A. The Underlying Action
Plaintiff hired defendants to prosecute a lawsuit against the University of Southern California. The underlying case was filed in January 2001. Plaintiff alleged University of Southern California employees had orally misrepresented the expected performance of certain software licensed to plaintiff. (In4Network, Inc. v. University of Southern California (Super. Ct. L.A. County, 2002, No. BC244011).) Plaintiff amended its complaint several times. On February 19, 2002, plaintiff filed a third amended complaint. On March 8, 2002, defendants filed a motion to be relieved as counsel. The order to that effect was entered on or about April 4, 2002. Plaintiff then hired Roger N. Golden as its counsel. Mr. Golden has continued to represent plaintiff since that time, including in this appeal. On June 7, 2002, plaintiff filed a fourth amended complaint in the underlying action, to which the University of Southern California successfully demurred. The underlying action was dismissed on July 26, 2002, after plaintiff elected not to amend its fourth amended complaint. The trial court found plaintiff’s claims were barred by the parties’ fully integrated contract, which expressly negated the University of Southern California’s alleged misrepresentations. On appeal, Division Eight of the Court of Appeal for this appellate district affirmed the judgment of dismissal. (In4Network, Inc. v. University of Southern California (May 5, 2004, B164470) [nonpub. opn.].) Our Division Eight colleagues held plaintiff’s claims against the University of Southern California were barred as a matter of law. (In4Network, Inc. v. University of Southern California, supra, typed opn. at pp. 9-13.)
B. The Present Legal Malpractice Action
Plaintiff filed the present legal malpractice action on August 27, 2002, prior to the ruling on appeal in the underlying action. Plaintiff alleged defendants negligently prosecuted a meritorious lawsuit against the University of Southern California. This legal malpractice action was stayed pending the outcome of the appeal in the underlying action. In January 2005, following the decision on appeal in the underlying action, the parties to this legal malpractice action stipulated and acknowledged plaintiff was collaterally estopped to relitigate the viability of its claims against the University of Southern California. The parties further stipulated that plaintiff’s first amended legal malpractice complaint be deemed filed. The first amended complaint was filed on February 1, 2005. The first amended complaint alleged the University of Southern California action had been dismissed and the dismissal had been affirmed on appeal. The dismissal was affirmed on the ground the contract between the parties afforded the University of Southern California an absolute defense. The first amended complaint further alleged plaintiff incurred damages in that the University of Southern California recovered a judgment for $500,000 in attorney fees and costs. The first amended complaint alleged defendants had engaged in negligent conduct consistent with that alleged in the original complaint. It further alleged defendants: failed to advise plaintiff fully of the high degree of difficulty in obtaining a judgment in any amount against the University of Southern California; at all times assured plaintiff its claims were viable and worth hundreds of millions of dollars; knowingly and intentionally misrepresented the merits of the underlying action for the purpose and with the intent of inducing plaintiff to pursue the action in order to generate unreasonable and excessive fees solely for their benefit; and intentionally failed to disclose that Mr. Biderman, a senior litigator, bore extreme ill will toward plaintiff and its president. Finally, plaintiff alleged it was never advised of: the lack of likelihood of success on the merits in the University of Southern California action; the likely costs that would be incurred; and the likely amount, if any, of a recovery even if plaintiff could successfully overcome the legal and factual obstacles inherent in the underlying action. Further, the first amended complaint alleged that had defendants properly disclosed their opinion as to the University of Southern California action’s actual lack of merit and the extreme difficulty in proving damages, plaintiff would not have been damaged.
Defendants filed a judgment on the pleadings motion on sham pleading grounds; they asserted plaintiff’s allegations in the first amended legal malpractice complaint were irreconcilably at odds with those in the original complaint. The trial court agreed. The trial court found: Mr. Golden, plaintiff’s current counsel, replaced defendants in the underlying action before it was dismissed; Mr. Golden filed a fourth amended complaint in the underlying action, an appeal of the judgment of dismissal, and a review petition in the California Supreme Court; and the assertion that plaintiff had suffered $250 million in damages was not a mere prediction but was made an incontrovertible fact, verified under oath. The trial court ruled the allegation of the verified original complaint that the underlying action was meritorious was fatal to the amended complaint. Further, the trial court ruled Mr. Golden’s participation in the underlying action could only have enhanced and not mitigated a cause that lacked merit. The judgment on the pleadings motion as to the first amended complaint was granted without leave to amend.
Plaintiff appealed from the order granting judgment on the pleadings. In In4Network, Inc. v. Perkins Coie (Feb. 20, 2007, B187934 [nonpub. opn.]), we reversed the judgment. We concluded: the original complaint alleged defendants were negligent in prosecuting a meritorious action on plaintiff’s behalf; thus, the sham pleading doctrine applied with respect to allegations in the first amended complaint that defendants negligently induced plaintiff to file a meritless lawsuit; and no satisfactory explanation or showing of mistake or inadvertence had been made. (In4Network, Inc. v. Perkins Coie, supra, typed opn. at p. 11.) Our opinion was based on the inconsistent allegations in the two complaints. Our opinion did not avert to explanations for the inconsistent pleading offered in plaintiff’s briefs for the first time on appeal. Our opinion made no reference in the discussion to those explanations posited for the first time on appeal. We were reviewing the trial court’s orders.
However, we further held that both the original and first amended complaints contained allegations defendants engaged in a number of other actions that damaged plaintiff and that did not concern the merits of the underlying action. We held: “Both [the original and first amended] complaints allege that defendants engaged in a number of other actions which damaged plaintiff. Both pleadings contain allegations that plaintiff was injured as a result of defendants’ professional negligence in: engaging in and advising plaintiff to engage in conduct which led to the imposition of sanctions; threatening to withdraw and abandon the case if plaintiff did not acquiesce to defendants’ demands for a personal guarantee from ‘[p]laintiff’s principal’ for legal fees which were in excess of the fee estimate; assigning the responsibility of the analysis and prosecution of all of plaintiff’s claims to an associate after representing that senior attorneys at the firm were handling the underlying litigation; and charging excessive and unreasonable attorney fees without any benefit to plaintiff. Liberally construed, these allegations in both the original and amended complaints on their face are not inconsistent with the clai[m] that defendants should never have filed the legal malpractice claims.” (In4Network, Inc v. Perkins Coie, supra, typed opn. at pp. 11-12.) We concluded the judgment on the pleadings motion should have been denied because each count of the complaint stated a cause of action and potentially valid claims remained. (Ibid.)
C. The Operative Pleading: The Second Amended Legal Malpractice Complaint
Following remand, on July 20, 2007, the parties stipulated to allow plaintiff to file a second amended complaint and the trial court so ordered. Plaintiff’s allegations in its second amended complaint were consistent with those in the first amended complaint. However, plaintiff further alleged defendants: knowingly, intentionally, recklessly, and without a reasonable basis for believing their statements to be true failed to disclose that the senior litigation attorney principally responsible for the underlying action never believed the claim asserted in the underlying lawsuit was worth $250 million; never pled a viable legal theory supporting plaintiff’s damages; and represented, with knowledge it was untrue, that defendants could prove plaintiff’s damages. The second amended complaint alleged that when the present legal malpractice complaint was filed: plaintiff believed, based on defendants’ repeated representations in the various complaints, that there was a viable basis for proving lost profits of $250 million; plaintiff had no ability to determine whether defendants had in fact developed a viable basis for recovering $250 million in damages and, therefore, plaintiff believed defendants had mishandled a meritorious action against the University of Southern California. Plaintiff specifically alleged that: after the remittitur issued in the underlying action, it was able to depose Mr. Rockefeller for the first time; and during that deposition plaintiff first learned defendants had not, in fact, developed a viable claim for damages against the University of Southern California. The operative complaint alleged: “Following the remittitur being issued after [p]laintiff’s unsuccessful appeal of the dismissal of the [University of California] [a]ction [p]laintiff was able to take [d]efendant Rockefeller’s deposition for the first time. It was during that deposition that [p]laintiff first learned that [d]efendants had not, in fact, developed a viable basis, legal or factual, to prove the damages which they had represented to [p]laintiff and repeatedly alleged in the [University of California] [a]ction and that [p]lantiff had been mistaken in its belief that they had, in fact, done so. In addition, at the time the original complaint was filed, [p]laintiff was unaware that [d]efendant Biderman never believed the action was worth $250 million.”
D. Defendants’ Demurrer And Motion To Strike
In response to the second amended complaint, defendants filed a demurrer and a motion to strike on sham pleading and other grounds. Plaintiff’s opposition included a declaration by its counsel, Mr. Golden, explaining the inconsistent pleading. However, the trial court sustained defendants’ evidentiary objections to all the significant portions of Mr. Golden’s declaration. The trial court sustained defendants’ demurrer without leave to amend and granted their motion to strike. The trial court held, “[Plaintiff has] not offer[ed] an adequate explanation of the discrepancies between the original Complaint and the Second Amended Complaint.” This appeal followed.
III. DISCUSSION
A. The Motion To Strike
Defendants moved to strike portions of the second amended complaint that they claimed violated the sham pleading doctrine. An order granting a motion to strike is reviewed for an abuse of discretion. (Quiroz v. Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1282; CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1145; Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 612.) Plaintiff has the burden to establish an abuse of discretion. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566; Leader v. Health Industries of America, Inc., supra, 89 Cal.App.4th at p. 612.) We conclude the trial court did not have the discretion to grant defendants’ motion to strike because the second amended legal malpractice complaint asserts a satisfactory explanation for the inconsistent allegations.
The sham pleading doctrine holds that, as a general rule, an amended pleading that contradicts an admission in an earlier complaint will not be allowed. (Hendy v. Losse (1991) 54 Cal.3d 723, 742-743; Tognazzi v. Wilhelm (1936) 6 Cal.2d 123, 127; Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035, 1044-1045.) But a party should be allowed to amend a pleading to correct an allegation made as a result of mistake or inadvertence. (Hendy v. Loose, supra, 54 Cal.3d at p. 743; Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 836.) Any inconsistency with a prior complaint must be explained, otherwise the court may ignore the inconsistent allegation. (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946; Amid v. Hawthorne Community Medical Group, Inc. (1989) 212 Cal.App.3d 1383, 1390.) The Court of Appeal has explained: “The purpose of the [sham pleading] doctrine is to enable the courts to prevent an abuse of process. ([Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408,] 426.) The doctrine is not intended to prevent honest complainants from correcting erroneous allegations or to prevent the correction of ambiguous facts. (Ibid.)” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 751.) The Supreme Court has held, however: “‘If [an inconsistency] be proper in any case, it must be upon very satisfactory evidence that the party has been deceived or misled, or that his pleading was put in under a clear mistake as to the facts.’” (Tognazzi v. Wilhelm, supra, 6 Cal.2d at p. 127, citing Bank of Woodland v. Heron (1898) 122 Cal. 107, 109, 110; Harney v. Corcoran (1882) 60 Cal. 314; Spanagel v. Reay (1874) 47 Cal. 608; and Cox v. Rosenberg (1922) 58 Cal.App. 181, 188; accord, Meyer v. State Board of Equalization (1954) 42 Cal.2d 376, 386 [“[s]uch an amendment may be allowed where it is clearly shown that the earlier pleading is the result of mistake or inadvertence”]; American Advertising and Sales Co. v. Mid-Western Transport (1984) 152 Cal.App.3d 875, 879.) In Tognazzi, our Supreme Court held the trial court did not abuse its discretion when it denied leave to amend to allege no intent to defraud creditors in contravention of the original pleading. (Tognazzi v. Wilhelm, supra, 6 Cal.2d at p. 127.)
Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 383-384 is to the same effect. The plaintiff’s amended pleading alleged the location of his accident was on private rather than on public property. The Court of Appeal held: “It is... well established that, when reviewing a judgment entered following the sustaining of a demurrer without leave to amend, the appellate court must assume the truth of the factual allegations of the complaint. ([Baldwin v. Zoradi (1981) 123 Cal.App.3d 275, 278.]) However, an exception exists where a party files an amended complaint and seeks to avoid the defects of a prior complaint either by omitting the facts that rendered the complaint defective or by pleading facts inconsistent with the allegations of prior pleadings. (See, e.g., Hills Trans. Co. v. Southwest Forest Industries, Inc. (1968) 266 Cal.App.2d 702, 712-713; Kenworthy v. Brown (1967) 248 Cal.App.2d 298, 302.) In these circumstances, the policy against sham pleading permits the court to take judicial notice of the prior pleadings and requires that the pleader explain the inconsistency. If he fails to do so the court may disregard the inconsistent allegations and read into the amended complaint the allegations of the superseded complaint. (Hills Trans. Co. v. Southwest Forest Industries, Inc., supra, 266 Cal.App.2d at pp. 709-711; Kenworthy v. Brown, supra, 248 Cal.App.2d at p. 302.)” (Owens v. Kings Supermarket, supra, 198 Cal.App.3d at pp. 383-384.)
In American Advertising and Sales Co. v. Mid-Western Transport, supra, 152 Cal.App.3d at pages 877-880, the plaintiff moved to amend its complaint. In the original complaint, the plaintiff had alleged it entered into a contract with the defendant. The defendant filed a summary judgment motion arguing that the named plaintiff could not pursue a contract breach claim. The defendant presented evidence the plaintiff was not properly licensed by the Interstate Commerce Commission and was thus barred from recovering any damages. The plaintiff then sought leave to file an amended complaint which alleged the contract was actually between a subsidiary, National Carrier Service, and the defendant. (Id. at pp. 877-878.) Both complaints had been verified by the plaintiff corporation’s president and majority stockholder. The plaintiff corporation’s president declared in a motion for leave to amend that he had been “‘confused and mistaken’” as to the identity of the contracting corporation. (Id. at p. 879.) But there was evidence that for two and a half years the president had made repeated statements under oath that the contract was between the plaintiff and the defendant. The Court of Appeal held the trial court did not abuse its discretion when it denied the motion to file an amended complaint naming the subsidiary as the actual contracting party. (Id. at pp. 879-880.)
Plaintiff contends it offered a satisfactory explanation for the discrepancies between the original and the second amended complaints. We agree. In the original legal malpractice complaint, plaintiff alleged defendants negligently prosecuted a meritorious action. By contrast, in the operative pleading, plaintiff alleged defendants litigated the underlying claim even though they knew or should have known it had little or no chance of success; there was no viable legal theory. As noted, the operative complaint explicitly alleges that, after the remittitur issued in the lawsuit against the University of Southern California, Mr. Rockefeller’s deposition was taken. For the first time, plaintiff learned what is a material part of the operative complaint, that defendants never developed a viable legal or factual basis which could lead to the recovery of damages against the University of Southern California. Further, the operative complaint alleges defendants misled plaintiff as to the viability of the University of Southern California lawsuit. As occurred here, plaintiff may plead an honest correction of an erroneous allegation. (Hahn v. Mirda, supra, 147 Cal.App.4th at p. 751; Deveny v. Entropin, Inc., supra, 139 Cal.App.4th at p. 426.)
Defendants assert that once they ceased representing plaintiff in the underlying action, Mr. Golden and his client were charged with knowledge the University of Southern California lawsuit was meritless. But defendants presented no evidence of Mr. Golden’s knowledge as to the merits of the University of Southern California lawsuit before the demurrer dismissal was affirmed on appeal by our Division Eight colleagues. As noted, the original complaint in this case was filed before the Court of Appeal affirmed the demurrer dismissal. Defendants have presented no evidence as to whether Mr. Golden should have known the University of Southern California lawsuit was meritless. Had defendants presented such evidence, the result might be different; particularly given we are applying the abuse of discretion standard of review. But the only showing before us and the trial court is the allegation as to the mode and manner of discovery the underlying lawsuit lacked merit. Plaintiff has explained with specificity why it has now filed the operative complaint which asserts the underlying action was of questionable viability rather than meritorious. Plaintiff has sufficiently explained the contradiction between the original and the second amended complaints. Thus, the trial court did not have the discretion to apply the sham pleading doctrine.
There is no merit to defendants’ law of the case contention as it relates to the sham pleading issue. Defendants assert that our unpublished opinion held that no justification could be made for the inconsistent pleading in the two complaints. We merely held that no justification had been made in the trial court. We were referring to the papers filed in the trial court. The issue of whether there is a justification for inconsistent pleading, because it involves questions relating to the propriety of an amendment, is initially addressed to the discretion of the trial court. (Berman v. Bromberg (1997) 56 Cal.App.4th 936, 951 [“trial court erred and abused its discretion in applying the sham pleading rule to the proposed third amended complaint”].) It was not a necessary point in our unpublished opinion that plaintiff would never be able to convince the trial court there was a justification for the inconsistent complaints. Thus, the law of the case doctrine did not require the trial court to grant the motion to strike. (People v. Turner (2004) 34 Cal.4th 406, 417; People v. Shuey (1975) 13 Cal.3d 835, 841, rejected on another ground as recognized in People v. Bennett (1998) 17 Cal.4th 373, 389, fn. 5.)
B. The Demurrer
As noted above, in addition to their motion to strike, defendants demurred to plaintiff’s second amended legal malpractice complaint. Defendants asserted the sham pleading doctrine. The trial court sustained defendants’ demurrer without leave to amend. On appeal, defendants argue, “[O]nce the contradictory allegations are excised from the [second amended complaint], there is essentially nothing left from which [plaintiff] can cobble together causes of action”; the “four ‘potentially’ viable allegations” identified in this court’s prior opinion are insufficient, absent the excised allegations, to state a cause of action. We note that in our prior opinion, we held each cause of action in the first amended complaint—for professional negligence, contract and fiduciary duty breach, and fraud—contained allegations apart from those stricken pursuant to the sham pleading doctrine that sufficed to state a cause of action. (In4Network, Inc. v. Perkins Coie, supra, typed opn. at p. 12.) This is the law of the case. (People v. Boyer (2006) 38 Cal.4th 412, 441; Gore v. Bingaman (1942) 20 Cal.2d 118, 121.) In any event, we have now held the trial court had no discretion to grant the motion to strike as to the second amended complaint on sham pleading grounds. Therefore, we need not address defendants’ argument, which is premised on the motion to strike having been granted.
Defendants also argue plaintiff’s fraud cause of action was not pleaded with the requisite particularity—plaintiff has not pleaded facts which show how, when, where, to whom, and by what means the alleged representations were tendered. In addition, defendants assert, plaintiff failed to plead damages in that it never alleged it actually paid any unreasonable or unjustified fees. Our Supreme Court has held: “‘The elements of fraud... are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’ [Citations.]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638; accord, Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173.) Fraud must be pled with specificity; conclusory allegations will not suffice. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 993; Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.) Our Supreme Court has explained: “‘This particularity requirement necessitates pleading facts which “show how, when, where, to whom, and by what means the representations were tendered.”’ [Citation.]” (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645; accord, Robinson Helicopter Co., Inc. v. Dana Corp., supra, 34 Cal.4th at p. 993.) But, as the Court of Appeal has held, “A fraud claim against a lawyer is no different from a fraud claim against anyone else.” (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 291; accord, Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 69.)
We conclude plaintiff’s allegations are sufficient. Plaintiff expressly identified the defendants as a law firm and three individual members of that firm, Mr. Biderman, Mr. Mansourian, and Mr. Rockefeller, who were assigned to provide legal representation. The second amended complaint alleged defendants: failed to advise plaintiff there was a high degree of difficulty in obtaining a judgment against the University of California; failed to advise plaintiff they had not developed a method to prove plaintiff’s lost profits; told plaintiff they believed its claims were viable even though they had not developed a basis for recovery against the University of Southern California; repeatedly represented to plaintiff that its case against the University of Southern California was worth hundreds of millions of dollars even though Mr. Biderman, the partner ostensibly in charge of the litigation, never believed the case was worth that amount; failed to disclose that Mr. Biderman did not believe the action was worth the represented amount; failed to disclose that Mr. Biderman bore extreme ill will towards plaintiff and its president; and represented that senior attorneys were handling plaintiff’s case when in fact the matter had been assigned to an associate. Plaintiff alleged Mr. Rockefeller repeatedly represented that defendants had developed a viable basis upon which to prove lost profits in the amount of $250 million. Plaintiff further alleged that as a result of defendants’ conduct, plaintiff had incurred a judgment against it and in favor of the University of Southern California for more than $500,000 in attorney fees and costs. These allegations sufficed to state a fraud cause of action. (See Charnay v. Cobert (2006) 145 Cal.App.4th 170, 185; Vega v. Jones, Day, Reavis & Pogue, supra, 121 Cal.App.4th at p. 296.)
IV. DISPOSITION
The judgment is reversed. The underlying orders granting the motion to strike and sustaining the demurrer to the second amended legal malpractice complaint without leave to amend are reversed. Plaintiff, In4Network, Inc., is to recover its costs on appeal from defendants, David Biderman, Vick Mansourian, Nicholas Rockefeller, and the law firm Perkins Coie.
We concur: ARMSTRONG, J., KRIEGLER, J.