Opinion
G059293
05-31-2022
PDTW, LLC, Plaintiff and Appellant, v. KRING & CHUNG, LLP et al., Defendants and Respondents.
LDT Consulting, Inc. and Dimitrios P. Biller for Plaintiff and Appellant. Long & Levit, Glen R. Olson, Jessica R. MacGregor, and Jonathan Rizzardi for Defendants and Respondents.
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, No. 30-2019-01115265, William D. Claster, Judge.
LDT Consulting, Inc. and Dimitrios P. Biller for Plaintiff and Appellant.
Long & Levit, Glen R. Olson, Jessica R. MacGregor, and Jonathan Rizzardi for Defendants and Respondents.
OPINION
GOETHALS, J. 1
In 2015, Paula Thomas and her company, PDTW, LLC (PDTW), retained the law firm of Kring & Chung, LLP (Kring & Chung) to file a lawsuit for various employment and business claims. While that lawsuit was pending, PDTW filed for chapter 7 bankruptcy. PDTW did not disclose any potential claims against Kring & Chung on its initial bankruptcy schedule of assets, nor did it ever supplement its schedules to add those claims.
In the present action, PDTW attempts to sue Kring & Chung for legal malpractice, fraud, and related claims arising out of its handling of the underlying action. The trial court sustained Kring & Chung's demurrer to PDTW's complaint, finding, among other things, that PDTW's failure to disclose the present claims in the bankruptcy proceedings judicially estopped it from pursuing the subject action. We agree and therefore affirm the judgment.
FACTS
The facts underlying this action are convoluted; they involve multiple prior lawsuits and judicial rulings. Below we summarize the portions of those proceedings relevant to the issues on appeal.
"For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice." (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924.) In addition, "we accept as true . . . the contents of any exhibits attached to the complaint, and in the event of a conflict between the pleading and an exhibit, the facts contained in the exhibit take precedence over and supersede any inconsistent or contrary allegations in the pleading." (Jibilian v. Franchise Tax Bd. (2006) 136 Cal.App.4th 862, 864, fn. 1.) 2
Subject to these principles, the following facts are taken from the complaint in this action, including the attached exhibits, and the voluminous judicially noticed court filings from four other cases.
1. The Thomas Wylde Brand
Paula Thomas is a fashion designer. In 2006, she founded a brand of luxury women's apparel and accessories called Thomas Wylde, and she created PDTW to distribute the line. Thomas served as PDTW's president, chief executive officer, and chief creative director, and at all relevant times she has been a 99.5 percent owner of PDTW.
In 2013, Thomas created another company, Thomas Wylde Holdings, LLC (TWH), and she assigned her trademark and copyright rights in the Thomas Wylde line to TWH. TWH in turn licensed those rights to PDTW, which continued to distribute the Thomas Wylde line. Thomas owns 100 percent of TWH.
2. The 2014 Deal
Thomas's business underwent major structural changes in 2014. The parties dispute why and how those changes were made. According to Thomas, she decided to bring in a new person to handle the financial aspect of her business so she could focus on the creative side. Other parties maintain the changes were made to rescue the business from financial difficulties.
Whatever the reason for the change, a new company called Thomas Wylde, LLC (TW) was formed in July 2014, and through a series of agreements, including various intellectual property assignments, Thomas transferred her business to TW. TW took over PDTW's role as distributor of the Thomas Wylde line, and TWH eventually filed a certificate of cancellation with the California Secretary of State. Thomas acquired a minority interest in TW in late 2014; she also became a salaried employee of TW and served as its chief creative officer and creative director. 3
3. The Original Action
In early 2015, months after TW's creation, Thomas's relationship with TW soured. TW terminated her employment in April 2015.
Thomas and PDTW retained Kring & Chung to sue TW and its leadership. In October 2015, Thomas and PDTW filed a verified complaint in Los Angeles County Superior Court against TW and others (the Original Action). (Thomas v. Thomas Wylde, LLC (Super. Ct. L.A. County No. BC596495).) The complaint, filed by Kring & Chung, asserted numerous employment claims, as well as causes of action for breach of contract, breach of fiduciary duty, conversion, and related claims. In essence, Thomas and PDTW accused TW of mistreating Thomas during her tenure at TW, wrongfully terminating her employment, improperly ousting Thomas from the company, and misappropriating corporate funds.
In response, TW and two of its members filed a cross-complaint against Thomas and PDTW, asserting causes of action for breach of fiduciary duty, breach of contract, unjust enrichment, and related claims. Among other things, they alleged Thomas had failed to perform her job duties and was now attempting to undermine TW and the Thomas Wylde brand.
4. PDTW's Bankruptcy
In June 2016, while the Original Action was still pending, PDTW filed a voluntary chapter 7 bankruptcy petition. (In re PDTW, LLC, Bankr. C.D. Cal. No. 6:16-bk-15889-SY.) According to PDTW, it did so at the recommendation of Kring & Chung, who had allegedly conspired with PDTW's bankruptcy counsel and with PDTW's accountants, KF Professional Group (KFP), to put PDTW into bankruptcy proceedings even though PDTW was actually debt free.
In its initial bankruptcy schedules, which Thomas signed under penalty of perjury on PDTW's behalf, and which were filed with the bankruptcy court, PDTW reported that it then had about $1 million worth of personal property and over 4 $2.7 million in unsecured debts. In the section of the schedules listing all "[c]auses of action against third parties (whether or not a lawsuit has been filed)," PDTW disclosed the Original Action as property of the estate. PDTW listed no other pending or potential claims, and PDTW never filed updated schedules disclosing any such claims.
The bankruptcy trustee filed an adversary action against Thomas, TW, and TWH in 2017. The trustee alleged PDTW was the rightful owner of Thomas's copyrights and trademarks, accused Thomas of self-dealing in her management of PDTW, and sought repayment of PDTW's loans to Thomas.
5. The Original Action, Continued
Meanwhile, in the Original Action, Thomas and PDTW fired their counsel, Kring & Chung. Their current counsel, Dimitrios P. Biller, substituted in as their counsel of record in May 2017. A few months later, the trial court stayed the proceedings due to PDTW's pending bankruptcy.
Thomas later dismissed her claims against TW and its management with prejudice. PDTW's claims against TW and its management, and their cross-complaint against Thomas and PDTW, all remained pending but were stayed.
6. The First Malpractice Action
In October 2017, evidently dissatisfied with the 2014 deal, the initial handling of the Original Action, and PDTW's bankruptcy, Thomas (still represented by attorney Biller) filed a complaint in Los Angeles County Superior Court for legal malpractice and fraud against Kring & Chung and the attorneys who had represented Thomas and PDTW in the Original Action (collectively, the Kring & Chung Defendants) and against PDTW's former in-house counsel David Schnider and his law 5 practice (collectively, the Schnider Defendants) (the First Malpractice Action). (Thomas v. Schnider (Super. Ct. L.A. County No. BC679247).) In her 172-page first amended complaint, which was filed that same month, Thomas asserted causes of action for legal malpractice, fraud, unfair business practices, defamation, and related claims, alleging defendants had fraudulently induced her to transfer PDTW's business to TW, improperly represented her despite multiple conflicts of interest, and conspired to push her out of TW and force PDTW into bankruptcy.
Specifically, the Kring & Chung Defendants are Kring & Chung, Kenneth W. Chung, Laura C. Hess, Allyson K. Thompson, and Laura Booth.
Specifically, the Schnider Defendants are David Schnider, the Law Offices of David Schnider, and Nolan Heimann, LLP.
The bankruptcy trustee filed a notice in the First Malpractice Action concerning PDTW's bankruptcy, advising the court and parties in that case that any malpractice claims by PDTW belonged to the bankruptcy estate and that Thomas could not pursue claims for damages on PDTW's behalf.
Thomas settled her individual claims against the Kring & Chung Defendants in the First Malpractice Action in August 2018. After the trial court dismissed those claims with prejudice, Thomas's claims against the Schnider Defendants remained.
Around that same time, Thomas and TWH filed a second amended complaint, adding as defendants certain attorneys who had represented Thomas and TWH in 2014 and 2015 (collectively, the Greenberg Defendants).
Specifically, the Greenburg Defendants are Greenberg Glusker Fields Claman & Machtinger LLP (Greenberg Glusker), Andrew Apfelberg, Olivia Goodkin, Lee Dresie, and Joanna Blyth.
7. The Second Malpractice Action
Meanwhile, in November 2018, while the Original Action and the First Malpractice Action were still pending, Thomas and TWH (again represented by attorney Biller) filed a second malpractice case in Los Angeles County Superior Court, this time 6 asserting claims against the Kring & Chung Defendants, the Greenberg Defendants, KFP and certain of its employees (collectively, the KFP Defendants), and others (the Second Malpractice Action). (Thomas v. Kring & Chung (Super. Ct. L.A. County No. 18STCV05667).) The case was deemed related to the First Malpractice Action and was therefore assigned to the same judge who was presiding over that action.
Specifically, the KFP Defendants are KFP, Norman Ko, and Joseph Foster.
The complaint in the Second Malpractice Action, which is nearly 500 pages long, again alleged that defendants had conspired to defraud Thomas in 2014 and force PDTW into bankruptcy, and again asserted causes of action for legal malpractice, fraud, negligence, breach of fiduciary duties, and related claims. The complaint also accused defendants of concealing evidence in the First Malpractice Action.
The Kring & Chung Defendants demurred and moved for terminating sanctions. The trial court sustained their demurrer without leave to amend in April 2019 based on (1) the expired statute of limitations, (2) TWH's lack of capacity to sue as a cancelled limited liability company, and (3) res judicata, citing Thomas's dismissal of Kring & Chung with prejudice in the First Malpractice Action. The court also granted terminating sanctions, finding the allegations against Kring & Chung were objectively unreasonable given their settlement of the First Malpractice Action. The court then dismissed the Kring & Chung Defendants from the Second Malpractice Action with prejudice.
8. The PDTW Bankruptcy, Continued
Meanwhile, in May 2019, the trustee and Thomas settled the adversary proceeding in the PDTW bankruptcy case with court approval. As part of the settlement, Thomas agreed to pay the trustee $30,000, and the trustee assigned PDTW's "litigation rights" on an "AS-IS, WHERE-IS BASIS" to Thomas. 7
Two months later, the bankruptcy court lifted the automatic stay of Thomas's claims in state and federal court so that "[Thomas] can pursue her litigation rights . . . that the Trustee . . . assigned to [Thomas]."
9. The Third Malpractice Action
That brings us to the present action. In December 2019, Thomas (individually and as the last known representative of TWH), TWH, and PDTW (collectively, Plaintiffs) filed the present action in Orange County Superior Court, asserting causes of action for legal malpractice, fraud, breach of contract, breach of fiduciary duty, and related claims against the Kring & Chung Defendants, the KFP Defendants, the Greenberg Defendants, the Schnider Defendants, and others (the Third Malpractice Action). (PDTW v. Kring & Chung (Super. Ct. Orange County No. 30-2019-01115265.)
Thomas did not assert any claims against the Kring & Chung Defendants; only TWH and PDTW asserted those claims.
As to the Third Malpractice Action, the Greenberg Defendants include only Greenberg Glusker and Andrew Apfelberg.
The current complaint is over 350 pages long and includes more than 900 pages of exhibits. Although the caption identifies 14 causes of action, the body of the pleading asserts 25 causes of action. The complaint includes a 15-page table of contents, followed by nearly 100 pages of disjointed facts and stream-of-consciousness legal arguments, and the actual causes of action do not begin until page 115. The allegations throughout the complaint are rambling, convoluted, nonchronological, and at times incoherent. As the trial court aptly put it, "if Plaintiffs' goal was to confuse [and] overwhelm the reader, then they have succeeded."
We have reviewed the complaint. At the risk of oversimplifying Plaintiffs' allegations, its gravamen seems to be that defendants were professionally negligent in 8 representing Plaintiffs in the 2014 deal and the Original Action, improperly represented Plaintiffs despite numerous conflicts of interest, and engaged in an extensive "scheme" and conspiracy to transition PDTW's business to TW, steal Thomas's intellectual property, undervalue and destroy PDTW, dilute Thomas's interest in TW, undervalue and sabotage Thomas's claims in the Original Action, and force PDTW into bankruptcy when it was actually debt free. The complaint seeks over $31 million in compensatory damages for PDTW, $250 million in damages for the loss of intellectual property, and punitive damages.
10. The Demurrers in the Third Malpractice Action
Defendants all filed demurrers to the Third Malpractice Action on various grounds and sought judicial notice of what had transpired in the earlier lawsuits. In July 2020, the trial court issued a 73-page minute order granting their requests for judicial notice and sustaining their demurrers, largely without leave to amend.
As is relevant here, the trial court sustained the Kring & Chung Defendants' demurrer without leave to amend based on (1) TWH's lack of capacity to sue and principles of collateral estoppel (TWH's lack of capacity having been fully litigated in the Second Malpractice Action), and (2) judicial estoppel as to PDTW based on its failure to schedule its present claims in the bankruptcy action. The court later entered a judgment of dismissal in favor of the Kring & Chung Defendants.
As discussed more fully in our opinion in the companion appeal, the trial court also sustained demurrers on various grounds by the KFP Defendants, the Greenberg Defendants, and the Schnider Defendants, and it entered judgments in their favor.
Plaintiffs filed two notices of appeal: one concerning the trial court's "decision" in favor of the Kring & Chung Defendants (the present case), and another 9 concerning the judgments entered in favor of the KFP Defendants, the Schnider Defendants, and the Greenberg Defendants (the companion appeal, No. G059821).
The notice of appeal in this case, much like the complaint, is no model of clarity. Although the notice suggests that PDTW and Thomas are both appealing the "decision" in favor of Kring & Chung, that does not make any sense considering Thomas did not bring any claims in the Third Malpractice Action against Kring & Chung. In any event, the opening and reply briefs in this appeal were filed on behalf of only PDTW, and counsel confirmed at oral argument that PDTW is the only appellant in this proceeding. The notice of appeal also purports to appeal the trial court's July 2020 "decision" sustaining the demurrer, which is not an appealable order. (Hill v. City of Long Beach (1995) 33 Cal.App.4th 1684, 1695.) In the interests of judicial economy, we deemed the appeal to be from the October 9, 2020 judgment of dismissal in favor of the Kring & Chung Defendants, which is appealable. (See Gu v. BMW of North America, LLC (2005) 132 Cal.App.4th 195, 202.)
DISCUSSION
1. Governing Standards
"'The function of a demurrer is to test the sufficiency of a pleading by raising questions of law.'" (Nealy v. County of Orange (2020) 54 Cal.App.5th 594, 599 (Nealy); see Code Civ. Proc., § 430.10.) "On an appeal from a judgment of dismissal entered after a demurrer has been sustained, the issue is whether, assuming the truth of all well pleaded facts and those subject to judicial notice, the complaint alleges facts sufficient to state a cause of action." (Nealy, at p. 600.)
Our standard of review is well settled. "When the trial court sustains a demurrer, we review the complaint de novo to determine whether it alleges facts stating a cause of action on any possible legal theory." (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1490 (Rossberg).) "'"[W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context."' [Citation.] 'When conducting this independent review, [we] "treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law."'" (Kahan v. City of Richmond (2019) 35 Cal.App.5th 721, 730 (Kahan).) 10
"We also 'consider matters that must or may be judicially noticed.'" (Rossberg, supra, 219 Cal.App.4th at p. 1490; see Evid. Code, § 452, subd. (d) [permitting judicial notice of records of any state or federal court]; id., § 459 [reviewing court must take judicial notice of each matter properly noticed by the trial court and may take judicial notice of records of any state or federal court].) In this case, those matters include the voluminous pleadings and filings from the Original Action, the bankruptcy case, the First and Second Malpractice Actions, and the record in the companion appeal.
"Although we review the complaint de novo, '"[t]he plaintiff has the burden of showing that the facts pleaded are sufficient to establish every element of the cause of action and overcoming all of the legal grounds on which the trial court sustained the demurrer . . . . [Citation.] We will affirm if there is any ground on which the demurrer can properly be sustained, whether or not the trial court relied on proper grounds or the defendant asserted a proper ground in the trial court proceedings."' [Citation.] It is the trial court's ruling we review, not its reasoning or rationale." (Kahan, supra, 35 Cal.App.5th at p. 730; see Rossberg, supra, 219 Cal.App.4th at p. 1490.)
2. Judicial Estoppel of PDTW's Claims
As noted, in sustaining the Kring & Chung Defendants' demurrer, the trial court concluded PDTW's failure to disclose its present claims in its bankruptcy schedules judicially estopped it from pursuing the claims in the present action. We agree.
a. Bankruptcy Disclosures
A bankruptcy debtor has an express, affirmative duty to file with the bankruptcy court a schedule of assets and liabilities, which must disclose under penalty of perjury, among other things, all causes of action the debtor has or may have against third parties. (11 U.S.C. § 521(a)(1)(B)(i); Fed. Rules Bankr. Proc., rule 1007(b)(1)(A); Official Form 206A/B, § 74 [requiring debtor to list all "[c]auses of action against third parties (whether or not a lawsuit has been filed)," and to specify the "[n]ature of [the] claim" and the "[a]mount requested"].) "'[I]t is very important that a debtor's bankruptcy 11 schedules and statement of affairs be as accurate as possible, because that is the initial information upon which all creditors rely.'" (Hamilton v. State Farm Fire & Cas. Co. (9th Cir. 2001) 270 F.3d 778, 785 (Hamilton).)
The debtor's duty to disclose any claims against third parties includes not only pending claims, but also contingent and unliquidated claims. (Hamilton, supra, 270 F.3d at p. 785.) "'"The debtor need not know all the facts or even the legal basis for the cause of action; rather, if the debtor has enough information . . . prior to confirmation to suggest that it may have a possible cause of action, then that is a 'known' cause of action such that it must be disclosed."'" (In re Coastal Plains, Inc. (5th Cir. 1999) 179 F.3d 197, 208 (Coastal Plains).)
"The debtor's duty to disclose potential claims as assets does not end when the debtor files schedules, but instead continues for the duration of the bankruptcy proceeding." (Hamilton, supra, 270 F.3d at p. 785.) If the debtor acquires an interest in a claim after filing its original schedule, the debtor must file a supplemental schedule within 14 days of discovering it has acquired that interest. (Fed. Rules Bankr. Proc., rule 1007(h).)
b. Judicial Estoppel
A debtor's failure to disclose actual or potential claims to the bankruptcy court can later bar the debtor from pursuing those claims under the doctrine of judicial estoppel. "'"[J]udicial estoppel is an equitable doctrine aimed at preventing fraud on the courts."'" (Thomas v. Gordon (2000) 85 Cal.App.4th 113, 118.) The doctrine "precludes a party from relying upon a theory in a legal proceeding inconsistent with one previously asserted." (Nist v. Hall (2018) 24 Cal.App.5th 40, 48.) In other words, it "'"precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position."'" (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986 (Aguilar).) 12
Our Supreme Court has articulated the following test for applying judicial estoppel: "[t]he doctrine applies when '(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.'" (Aguilar, supra, 32 Cal.4th at pp. 986-987.) "[T]he trial court may sustain a demurrer on the ground of judicial estoppel where the facts pleaded and judicially noticed indicate as a matter of law the doctrine should be applied . . . ." (The Swahn Group, Inc. v. Segal (2010) 183 Cal.App.4th 831, 844.)
In the bankruptcy context, "[j]udicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset." (Hamilton, supra, 270 F.3d at p. 784.) The debtor's failure to disclose such claims to the bankruptcy court in his original or supplemental schedules estops him from pursuing those claims later on down the road. (See, e.g., Thomas v. Gordon (2000) 85 Cal.App.4th 113, 120 [party who signed documents under oath in bankruptcy case claiming to list all her assets, but who did not mention shares in two corporations, was judicially estopped from claiming ownership interest in those corporations in suit against accountants for breach of duty of care].)
The reason for applying judicial estoppel in such circumstances is "the plaintiff-debtor represented in the bankruptcy case that no claim existed, so he or she is estopped from representing in the lawsuit that a claim does exist." (Ah Quin v. County of Kauai Dept. of Transp. (9th Cir. 2013) 733 F.3d 267, 271.) The doctrine "'prevent[s] a party who failed to disclose a claim in bankruptcy proceedings from asserting that claim after emerging from bankruptcy'" because "'the integrity of the bankruptcy system 13 depends on full and honest disclosure by debtors of all of their assets.'" (Hamilton, supra, 270 F.3d at p. 785; see Payless Wholesale Distrib. v. Alberto Culver (1st Cir. 1993) 989 F.2d 570, 571 ["Conceal your claims; get rid of your creditors on the cheap, and start over with a bundle of rights. This is a palpable fraud that the court will not tolerate, even passively"].)
"The courts will not permit a debtor to obtain relief from the bankruptcy court by representing that no claims exist and then subsequently to assert those claims for his own benefit in a separate proceeding. The interests of both the creditors, who plan their actions in the bankruptcy proceeding on the basis of information supplied in the disclosure statements, and the bankruptcy court, which must decide whether to approve the plan of reorganization on the same basis, are impaired when the disclosure provided by the debtor is incomplete.'" (Coastal Plains, supra, 179 F.3d at p. 208.)
c. Application
Applying those principles here, we conclude PDTW is judicially estopped from pursuing this action. The judicially noticed documents in the record demonstrate that PDTW filed for bankruptcy in June 2016. In its bankruptcy schedules, which Thomas signed under penalty of perjury as a member of PDTW, in the section listing all 14 "[c]auses of action against third parties (whether or not a lawsuit has been filed)," PDTW disclosed the Original Action as property of the estate. PDTW did not list any other pending or potential claims, and PDTW never filed updated schedules disclosing such claims. PDTW failed to disclose the subject claims against the Kring & Chung Defendants. That omission was tantamount to an affirmative assertion that no such claims existed.
PDTW contends the trial court erred in taking judicial notice of the contents of the filings in the bankruptcy case. However, PDTW did not oppose Kring & Chung's request for judicial notice in the trial court, thereby waiving any objection. (Shuster v. BAC Home Loans Servicing, LP (2012) 211 Cal.App.4th 505, 512, fn. 4.) And in any event, judicial notice of the filings in the bankruptcy court was proper. (Evid. Code, § 452, subd. (d); see Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1608-1609, fn. 3 [in sustaining demurrer on judicial estoppel grounds, trial court properly took judicial notice of filings in bankruptcy case, including "the fact the documents were filed 'and that they say what they say'"]; Patel v. Crown Diamonds, Inc. (2016) 247 Cal.App.4th 29, 36, fn. 3 [taking judicial notice of debtor's bankruptcy filing]; see also Hawkins v. SunTrust Bank (2016) 246 Cal.App.4th 1387, 1393 ["Although a court cannot take judicial notice of hearsay allegations in a court record, it can take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments"].)
PDTW settled the bankruptcy adversary proceeding in May 2019 with court approval, and as part of that settlement, the trustee assigned PDTW's litigation rights to Thomas in exchange for a payment of $30,000. Six months later, PDTW filed the instant action, seeking over $280 million in damages from Kring & Chung and the other defendants.
The settlement agreement reads as follows: "In full and complete resolution of all disputes pending between Thomas and the Trustee, including the disputes at issue in the Adversary Proceeding, defendant Thomas shall pay to the Trustee, in good and sufficient funds, the sum of $30,000 (the 'Settlement Payment'). [¶] . . . In exchange for the Settlement Payment, the Trustee agrees to: [¶] . . . [¶] b. Assign to Thomas, on an AS-IS, WHERE-IS BASIS, without any representations or warranties, all of the Estate's right, title, and interest in and to the following (collectively, the 'Assignment'): [¶] . . . [¶] . . . any litigation rights not at issue in the pending Adversary Proceeding."
These facts demonstrate that PDTW took two inconsistent positions in two different judicial proceedings: in the bankruptcy case, PDTW represented that it had no pending or anticipated claims aside from the Original Action, while in the present case PDTW has sued defendants claiming over $280 million in damages stemming from defendants' fraud, malpractice, and other malfeasance. The first, second, and fourth elements of judicial estoppel-i.e., that the same party has taken two totally inconsistent positions in judicial proceedings-are therefore satisfied. (See Hamilton, supra, 270 F.3d at p. 784 [finding chapter 7 debtor "clearly asserted inconsistent positions" 15 because "[h]e failed to list his claims against State Farm as assets on his bankruptcy schedules, and then later sued State Farm on the same claims"].)
Apparently misunderstanding the trial court's ruling on judicial estoppel, PDTW devotes much of its briefing to arguing that it had no obligation to identify its intellectual property rights on the bankruptcy schedule. PDTW's intellectual property rights and whether or not those were listed on the schedule have absolutely no bearing on PDTW's present claims against defendants for fraud and legal malpractice.
The third element-that the party was successful in asserting the first position-is also satisfied. The trustee's motion to approve the settlement indicated he had determined based in part on PDTW's schedules "that entry into settlement with Thomas was the best way to maximize value to the Estate while minimizing ongoing administrative costs." And in approving the settlement, the bankruptcy court expressly "found that the relief sought by the Trustee" (which included assigning PDTW's litigation rights to Thomas in exchange for $30,000) was "just and proper under the circumstances of this case."
We infer from these statements that both the trustee and the bankruptcy court accepted as true PDTW's representations concerning its lack of any other anticipated claims. Indeed, if the trustee had known about PDTW's anticipated claims for over $280 million against defendants, we cannot imagine he would have agreed to the settlement terms, nor would the bankruptcy court have found the settlement "just and proper under the circumstances." As the trial court in this case aptly put it, "The paramount interest of PDTW's creditors would hardly be served by a settlement that signs away the right to $250 million or more in damages in exchange for a $30,000 check, particularly when the trustee cited depletion of the estate's assets as a reason to 16 approve the settlement." We agree with the trial court's conclusion that the third element of judicial estoppel is satisfied.
The bankruptcy court need not "actually discharge debts before the judicial acceptance prong may be satisfied. The bankruptcy court may 'accept' the debtor's assertions by relying on the debtor's nondisclosure of potential claims in many other ways. See, e.g., In re Coastal Plains, 179 F.3d at 210 (finding that judicial acceptance was satisfied when the bankruptcy court lifted a stay based in part on the debtor's nondisclosure in its bankruptcy schedules and in a lift-stay stipulation); Donaldson v. Bernstein, 104 F.3d 547, 555-56 (3rd Cir.1997) (holding that judicial acceptance was satisfied when the court approved the debtor's plan of reorganization)." (Hamilton, supra, 270 F.3d at p. 784.)
PDTW argues in passing that the trustee "clearly" knew about the potential claims against defendants because it assigned those litigation rights to PDTW in the settlement. That argument misconstrues the record: the settlement agreement in the adversary action did not specify any contemplated malpractice claim by PDTW against defendants; it merely stated that the trustee assigned PDTW's unspecified "litigation rights" on an "AS-IS, WHERE-IS BASIS" to Thomas. And in any event, even if the trustee was aware of PDTW's potential claims against defendants, that does not excuse PDTW's failure to file a supplemental disclosure identifying the precise causes of action, the nature of the claims, and the amounts requested. (See Official Form 206A/B, § 74; Hamilton, supra, 270 F.3d at p. 784 [trustee's alleged awareness of debtor's claims was "insufficient to escape judicial estoppel" because 11 U.S.C. § 521(1) expressly required debtor to supplement his schedules, and because "both the court and [the debtor's] creditors base their actions on the disclosure statements and schedules"].)
The final element of judicial estoppel-that the litigant's position was not taken as a result of ignorance, fraud, or mistake-is also satisfied. PDTW's 99.5 percent owner, Thomas, undoubtedly was aware of PDTW's potential claims against defendants while PDTW's bankruptcy case was pending and before PDTW settled the adversary claim, as evidenced by the multiple malpractice lawsuits she filed in Los Angeles County Superior Court asserting similar claims against the same defendants. Thomas filed the First Malpractice Action for legal malpractice, fraud, unfair business practices, defamation, and related claims against the Schnider Defendants and the Kring & Chung Defendants in October 2017, while the bankruptcy was pending. Thomas and TWH filed 17 the Second Malpractice Action against the Kring & Chung Defendants, the Greenberg Defendants, and the KFP Defendants in November 2018, again while the bankruptcy was pending.
Thus, Thomas knew about PDTW's potential claims against defendants while PTDW's bankruptcy was pending, and as PDTW's 99.5 percent owner, her knowledge was imputed to PDTW. Despite this knowledge, PDTW neglected to file a supplemental schedule in the bankruptcy case disclosing its claims against defendants. The fifth element required for judicial estoppel is present.
According to PDTW, the fifth element of judicial estoppel cannot be met here because PDTW's complaint in the Third Malpractice Action contains multiple causes of action for fraud. PDTW apparently misunderstands this element. The relevant question is not whether the plaintiff is bringing a claim for fraud in the pending action; it is whether the plaintiff took an inconsistent position in the earlier action as a result of fraud (or ignorance or mistake). PDTW has never argued that it failed to disclose its claims against defendants as a result of any ignorance, fraud, or mistake.
For these reasons, we conclude PDTW is judicially estopped from pursuing those nondisclosed claims in the present action. Because we affirm the judgment on judicial estoppel grounds, we need not address the other arguments raised by PDTW, such as the statute of limitations or collateral estoppel.
3. Leave to Amend
PDTW contends the trial court should have granted leave to amend the complaint. We cannot agree.
"'To determine whether the trial court should, in sustaining the demurrer, have granted plaintiff leave to amend, we consider whether on the pleaded and noticeable facts there is a reasonable possibility of an amendment that would cure the complaint's legal defect or defects.' [Citation.] "'The burden of proving such reasonable possibility is squarely on the plaintiff.'"" (Nealy, supra, 54 Cal.App.5th at p. 600.) 18
"[W]e review a decision not to grant further leave to amend for an abuse of discretion." (Nealy, supra, 54 Cal.App.5th at p. 600.) "Ordinarily, 'it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.'" (Id. at p. 608.) However, if the complaint shows on its face that it is incapable of amendment, and if there is no possibility of alleging facts under which recovery can be obtained, denial of leave to amend is appropriate. (Eghtesad v. State Farm General Ins. Co. (2020) 51 Cal.App.5th 406, 411-412.)
PDTW has failed to explain how the complaint could have been amended to avoid the fatal defects described above. The trial court did not abuse its discretion in sustaining the demurrer without leave to amend.
4. Judicial Bias
PDTW insists that the trial judge was biased against it. Accusing a judge of bias is usually the dying gasp of a losing litigant. And so it is here. We have thoroughly examined the record, and we see no evidence of bias on the part of Judge Claster. To the contrary, we commend him for his lengthy and thoughtful rulings, which demonstrate that he applied considerable judicial acumen to a very complex case.
We remind PDTW's counsel of his duty to "maintain the respect due to the courts of justice and judicial officers." (Bus. & Prof. Code, § 6068, subd. (b).) Both in the proceedings below and now on appeal, attorney Biller has used demeaning, insulting, and inappropriate language in reference to the trial judge. In a declaration filed below, attorney Biller described Judge Claster as "my worst enemy." In his opening brief in this court, attorney Biller accused Judge Claster of being "dishonest" and "grossly incompetent," and described his ruling as "a fraudulent piece of work" and a "shocking illegal act" that "goes well beyond judicial activism and enters the realm of judicial corruption." 19
Attacks on a trial judge's character are never well received in this court. As a widely read treatise on appellate practice advises, "[H]yperbole, exaggeration, belligerence, disrespect, and arguments belittling your opponent, the trial judge or the appellate court do nothing to advance your client's position; quite the contrary, a shrill and abusive tone is more likely to diminish the persuasive force of your brief and ultimately injure your client's case." (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2021) ¶ 9:29.) This is especially true of attacks on the trial court. "Disparaging the trial judge is a tactic that is not taken lightly by a reviewing court. Counsel better make sure he or she has the facts right before venturing into such dangerous territory because it is contemptuous for an attorney to make the unsupported assertion that the judge was 'act[ing] out of bias toward a party.'" (In re S.C. (2006) 138 Cal.App.4th 396, 422.) Attorney Biller's briefing places him squarely in the heart of this dangerous territory. We caution him that such conduct in a future case may subject him to sanctions harsher than the current admonition. 20
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
WE CONCUR: O'LEARY, P.J., ZELON, J. [*] 21
[*]Retired Justice of the Court of Appeal, Second Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.