Opinion
B225288
09-19-2011
RICHARDSON & PATEL, LLP et al., Plaintiffs, Cross-defendants and Respondents, v. DAVID COLORIS et al., Defendants, Cross-complainants and Appellants.
Crowell & Moring, J. Daniels Sharp and Jason M. Horst for Defendants, Cross-complainants and Appellants. Nemecek & Cole, Jonathan B. Cole, Michael W. Feenberg and Susan S. Baker for Plaintiffs, Cross-defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC393259)
APPEAL from a judgment of the Superior Court of Los Angeles County, James R. Dunn, Judge. Reversed and remanded with directions.
Crowell & Moring, J. Daniels Sharp and Jason M. Horst for Defendants, Cross-complainants and Appellants.
Nemecek & Cole, Jonathan B. Cole, Michael W. Feenberg and Susan S. Baker for Plaintiffs, Cross-defendants and Respondents.
In the underlying action, respondent Richardson & Patel, LLP (R&P), sought to recover unpaid legal fees from appellant Provatek Acquisition Corp. (PAC), and also requested a declaration that it had never acted as legal counsel for appellants David Coloris and Graham Phillips. Appellants asserted claims against R&P and respondent Brandon Rath for legal malpractice and breach of fiduciary duty; in addition, appellants sought a declaration that respondents were entitled to no fees for their legal representation. After the trial court granted summary adjudication in favor of respondents on all of appellants' claims, R&P dismissed its claims without prejudice, and judgment was entered in respondents' favor. We conclude the trial court erred in granting summary adjudication on appellants' claims for legal malpractice and breach of fiduciary duty, as well as on PAC's claim for declaratory relief. Accordingly, we reverse the judgment with respect to these claims.
RELEVANT FACTUAL AND PROCEDURAL BACKGROUND
There are no disputes regarding the following facts: Coloris is an investor and business consultant whose holdings include Aberdare Star, Inc. (Aberdare), a company that Coloris often uses in his consulting business. Phillips conducts business through his personal entity, Kayhan Capital, LLC (Kayhan).
In April 2006, Rath, an attorney, was hired by The Catalyst Law Group (Catalyst) in San Diego. Rath was then licensed to practice law only in Washington, and he remained unlicensed to practice law in California through July 2008, while he was attempting to pass the California State Bar examination. While employed by Catalyst, Rath learned of a business opportunity involving Provatek, Inc. (Provatek), a corporation formed by Romaine Maiefski to develop a device based on his patents concerning a process useful in the pharmaceutical industry. After Maiefski's death in April 2007, Maiefski's widow, Carol Forsyth, sought advice from Catalyst regarding Provatek. In June 2007, Rath told Coloris and Phillips that there was an opportunity to acquire Provatek's assets. Coloris and Phillips became involved in efforts to purchase Provatek's assets through the creation and development of PAC.
In late 2007, Rath executed several agreements as "'Attorney' for PAC," which had not then been incorporated. On October 15, 2007, he signed a "letter of intent," stating PAC's "serious intent" to buy Provatek's assets. The letter of intent was also executed by Forsyth as Provatek's "sole shareholder."
On behalf of PAC, Rath also entered into employment contracts with William Farrell and Ron Giannotti, and consulting contracts with Aberdare and Kayhan. Rath and Farrell executed a letter of intent, stating PAC's "serious intent" to employ Farrell as PAC's president. Under the letter of intent, Farrell was to receive compensation, including five percent of PAC's shares, subject to the condition that PAC obtain $7,000,000 in funding. Rath also executed a "[n]on-[b]inding [e]mployment [t]erm [s]heet" for Giannotti as PAC's chief executive officer and chairman, which offered him compensation, including five percent of PAC's shares, subject to PAC's securing $7,000,000 in funding. Under the consulting contracts, Aberdare and Kayhan were each to advise PAC in several matters in exchange for ten percent of PAC's shares and other compensation, subject to PAC's obtaining $7,000,000 in funding.
On March 17, 2008, Rath left Catalyst. On March 28, 2008, he filed a certificate of incorporation for PAC in Delaware that named Giannotti, Farrell, and himself as PAC's directors. Although the certificate authorized 1,500 shares, no shares were issued and no director meetings occurred.
On April 7, 2008, R&P hired Rath. In late April 2008, R&P entered into an attorney-client fee contract with PAC. The contract was executed by Giannotti on behalf of PAC, and Addison Adams on behalf of R&P. Under the contract, R&P was entitled to charge fees at specified rates, but agreed to defer the payment of $25,000 fees in exchange for four and a half percent of PAC's shares. On this matter, the contract stated that because PAC was "an early-stage company," R&P would defer the payments until PAC raised $1,000,000 in funding, but not beyond a specified deadline. The contract also disclosed certain potential conflicts of interest, including that Rath had "formerly represented [Provatek], while employed at [Catalyst]."
In May or June 2008, a dispute arose whether Coloris and Phillips were entitled to control the issuance of PAC's stock to Giannotti and Farrell. On June 24, 2008, Coloris and Phillips, together with Aberdare and Kayhan, filed an action against Giannotti, Farrell, R&P, Rath, and Provatek under Corporations Code section 709, which permits shareholders in a corporation to challenge the appointment of directors (section 790 action). Coloris, Phillips, and their business entities sought a determination that Aberdare and Kayhan "are the sole lawful shareholders of PAC, with the right to appoint the company's directors." The complaint contained the following allegations: In September 2007, Coloris and Phillips decided to create PAC to acquire Provatek's assets. Rath provided legal services to Coloris and Phillips in connection with the acquisition. They instructed Rath to incorporate PAC and issue its shares in equal portions to Aberdare and Kayhan, but Rath did not do so. Although R&P became Coloris's and Phillips's counsel when Rath joined R&P, it had wrongfully taken the position that Coloris, Phillips, and their business entities were not the "founding shareholders of PAC."
Subdivision (a) of Corporations Code section 709 provides in pertinent part: "Upon the filing of an action . . . by any shareholder or by any person who claims to have been denied the right to vote, the superior court of the proper county shall try and determine the validity of any election or appointment of any director of any domestic corporation, or of any foreign corporation if the election was held or the appointment was made in this state."
On the same day the section 709 action was filed, R&P initiated the underlying action against Coloris, Phillips, and their business entities. R&P's original complaint sought a declaration that it did not represent Coloris, Phillips, or their business entities. On July 2, 2008, Coloris and Phillips filed a cross-complaint against R&P, seeking damages for professional negligence and breach of fiduciary duty, and a declaration that R&P was not entitled to compensation for services rendered to Coloris, Phillips, or PAC. On July 15, 2008, the section 709 action was resolved by a settlement under which Giannotti and Farrell relinquished their claims to PAC's stock.
On March 30, 2009, R&P filed its first amended complaint, which supplemented its claim for declaratory relief with claims for interference with contractual relations and prospective economic advantage against Coloris, Phillips, and their business entities, and claims for the recovery of approximately $265,000 in unpaid legal fees against PAC. On the same date, appellants filed their first amended cross-complaint against R&P and Rath, which asserted claims for professional negligence, breach of fiduciary duty, and declaratory relief. In connection with the claim for declaratory relief, appellants alleged that neither R&P nor Rath were entitled to compensation for legal services due to their violation of professional obligations and Rath's unauthorized practice of law.
R&P and Rath sought summary judgment on appellants' first amended cross-complaint, asserting that they were entitled to summary adjudication on each of appellants' claims. Regarding the claims for professional negligence and breach of fiduciary duty, R&P and Rath maintained that appellants could not show that R&P's and Rath's conduct caused appellants' alleged damages. Regarding the claim for declaratory relief, R&P and Rath asserted that appellants could identify no violations of professional obligations and that Rath had always acted under the supervision of a California attorney.
On April 14, 2010, the trial court granted summary judgment in favor of respondents on the ground that all of appellants' claims were properly subject to summary adjudication. On June 8, 2010, after R&P voluntarily dismissed its first amended complaint without prejudice, the trial court entered judgment in favor of respondents and against appellants.
DISCUSSION
Appellants contend that the trial court erred in granting summary adjudication on their claims for professional negligence and breach of fiduciary duty. In addition, PAC contends that the trial court erred in granting summary adjudication on its claim for declaratory relief. For the reasons explained below, we agree with these contentions.
As Coloris and Phillips do not challenge the summary adjudication with respect to their claims for declaratory relief, they have forfeited any contention of error regarding this ruling. (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1177.)
A. Standard of Review
Generally, "[a] summary adjudication motion is subject to the same rules and procedures as a summary judgment motion." (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 819.) "A defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiff's asserted causes of action can prevail. [Citation.]" (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.)
"[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) In moving for summary judgment, "[a]ll that the defendant need do is to . . . show that the plaintiff cannot establish at least one element of the cause of action for example, that the plaintiff cannot prove element X." (Id. at p. 853.) Alternatively, the defendant may show the existence of a "'complete defense.'" (Id. at p. 850, quoting Code Civ. Proc., § 437, subd. (o)(2).)
"'Review of a summary judgment motion by an appellate court involves application of the same three-step process required of the trial court. [Citation.]'" (Bostrom v. County of San Bernardino (1995) 35 Cal.App.4th 1654, 1662.) The three steps are (1) identifying the issues framed by the complaint, (2) determining whether the moving party has made an adequate showing that negates the opponent's claim, and (3) determining whether the opposing party has raised a triable issue of fact. (Ibid.)Following a grant of summary judgment, we review the record de novo for the existence of triable issues, and consider the evidence submitted in connection with the motion, with the exception of evidence to which objections were made and sustained. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.)
In the present case, the parties raised numerous evidentiary objections to the showing proffered by their adversary, which the trial court sustained in part and overruled in part. These evidentiary rulings are reviewed for an abuse of discretion. (Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal.App.4th 1158, 1169; see Caloroso v. Hathaway (2004) 122 Cal.App.4th 922, 928-929.) To the extent appellants do not attack the rulings on appeal, they have forfeited all contentions of error regarding them. (Wall Street Network, Ltd. v. New York Times Co., supra, 164 Cal.App.4th at p. 1182, fn. 5.) Accordingly, as elaborated below (see pt. B.6., post), we limit our inquiry to the evidentiary rulings that are subject to a challenge by appellants and material to our analysis.
B. Professional Negligence and Breach of Fiduciary Duty
We begin with the summary adjudication of appellants' claims for professional negligence and breach of fiduciary duty. At the outset, we observe that the limited nature of respondents' attack on the claims circumscribes the questions before us. As respondents acknowledge, they raised no challenge to appellants' allegations regarding the existence of relevant duties, the breach of the duties, and the existence of damages; they contended only that there were no triable issues whether their conduct caused appellants' alleged damages. For the reasons explained below (see pt. B.6., post), we conclude that summary adjudication was improper, as triable issues exist with respect to the causation of one category of the alleged damages.
1. Governing Principles
Because respondents' challenges focused exclusively on the issue of causation, we first clarify the causation elements of the claims and the showing required of respondents on summary adjudication.
a. Causation Elements
Generally, professional negligence is distinct from the tort of breach of fiduciary duty. (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.) To state a cause of action for professional negligence or legal malpractice, "a plaintiff must plead '(1) the duty of the attorney to use such skill, prudence, and diligence as members of his or her profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the breach and the resulting injury; and (4) actual loss or damage resulting from the attorney's negligence.'" (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 179, quoting Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.) Here, the attorney's duty "is not limited to his failure to use the skill required of lawyers. Rather, it is a wider obligation to exercise due care to protect a client's best interests in all ethical ways and in all circumstances." (Day v. Rosenthal (1985) 170 Cal.App.3d 1125, 1147 (Day), italics omitted.)
In contrast, in actions against attorneys, the elements of a cause of action for breach of fiduciary duty are: "(1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach. [Citation.] [¶] The scope of an attorney's fiduciary duty may be determined as a matter of law based on the Rules of Professional Conduct which, 'together with statutes and general principles relating to other fiduciary relationships, all help define . . . the fiduciary duty which an attorney owes to his [or her] client.' [Citations.]" (Stanley v. Richmond, supra, 35 Cal.App.4th at pp. 1086-1087.)
Notwithstanding the differences between the duties associated with the two torts, they require the identical showing of causation: the plaintiff must demonstrate that the misconduct "'"was a substantial factor in the result."'" (Stanley v. Richmond, supra, 35 Cal.App.4th at pp. 1086, 1095, quoting Lysick v. Walcom (1968) 258 Cal.App.2d 136, 153.) As our Supreme Court has explained, absent unusual situations, this standard "produces the same results as does the 'but for' rule of causation which states that a defendant's conduct is a cause of the injury if the injury would not have occurred 'but for' that conduct. [Citations.]" (Rutherford v. Owens-Illinois, Inc. (1997) 16 Cal.4th 953, 969; see Viner v. Sweet (2003) 30 Cal.4th 1232, 1239-1240 (Viner).)
Here, appellants' first amended cross-complaint alleges legal malpractice that was "transactional" rather than "litigational" in nature, as it occurred during PAC's creation and development, and not while respondents represented appellants in any litigation. (Viner, supra, 30 Cal.4th at pp. 1242-1243.) As our Supreme Court has explained, in transactional malpractice cases, as in litigational malpractice cases, the "but for" test of causation governs the determination of causation, that is, the plaintiff must show that "but for the alleged malpractice, it is more likely than not that the plaintiff would have obtained a more favorable result." (Id. at p. 1244.) Because legal malpractice and breach of fiduciary duty are subject to the same requirements regarding causation, we conclude that the "but for" test also applies to appellants' claim for breach of fiduciary duty, with an appropriate change in focus (where necessary) from acts of malpractice to breaches of fiduciary duty.
b. Required Showing
We turn to the showing required of respondents on summary adjudication. As causation is a question of fact for the jury, it ordinarily cannot be resolved on summary judgment. (Vasquez v. Residential Investments, Inc. (2004) 118 Cal.App.4th 269, 288.) In the context of legal malpractice claims, the absence of causation may be decided on summary judgment "only if, under undisputed facts, there is no room for a reasonable difference of opinion." (Kurinij v. Hanna & Morton (1997) 55 Cal.App.4th 853, 864.) This is because the question of what would have happened had a lawyer acted otherwise "'is one of fact unless reasonable minds could not differ as to the legal effect of the evidence presented.'" (Ibid.)
In view of these principles, attorneys cannot secure summary adjudication on malpractice-related claims against them merely by offering an account of their conduct that displays an absence of the requisite causation. To prevail, the attorneys' account must be undisputed and unequivocal in its import regarding causation. For this reason, summary adjudication is improper if the plaintiffs' evidence supports a different account of the attorneys' conduct disclosing specific improper acts that caused damages. (See Lombardo v. Huysentruyt (2001) 91 Cal.App.4th 656, 666-667 [in legal malpractice action, trial court erred in granting nonsuit when plaintiff's evidence supported inference that his damages would have been averted had his counsel taken certain reasonable steps in litigation].)
Under the circumstances of the instant case, respondents were also subject to another requirement in seeking summary adjudication. The summary judgment statute provides that "[a] motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty." (Code Civ. Proc., § 437c, subd. (f)(1), italics added.) As we elaborate below (see pt. B.2., post), appellants alleged that respondents engaged in several acts of misconduct during PAC's creation and development, causing them to incur compensatory damages of different kinds, including lost profits from PAC and legal fees for the action under Corporations Code section 709. Because the alleged damages arose from a single -- albeit lengthy -- transaction involving PAC, respondents were entitled to summary adjudication only if they showed that no item of the alleged damages was attributable to their conduct.
Subdivision (f)(1) of Code of Civil Procedure section 437c states: "A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if that party contends that the cause of action has no merit or that there is no affirmative defense thereto, or that there is no merit to an affirmative defense as to any cause of action, or both, or that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty."
In DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 413-414 (DeCastro), the plaintiffs sued a law firm for professional negligence, alleging the following facts: He engaged the defendants to assist in the sale of a hotel and related matters, including the development of a plan to reduce taxes from income arising from the sale. Under the terms of the sale, the plaintiff was to purchase his business partner's share of the hotel. (Ibid.)In the course of the transaction, which spanned a four-year period, the defendants made several errors in the tax plan and its implementation, and acted for the benefit of the plaintiff's business partner, rather than the plaintiff. (Ibid.)As a result, the plaintiff was forced into arbitration against his business partner, the hotel sale was rescinded, and the plaintiff lost the opportunity to refinance the hotel on favorable terms. (Id. at p. 415.) The plaintiff sought several items of compensatory damages, including the legal costs of the arbitration and lost profits from the sale. (Ibid.)
When the defendants sought summary adjudication on the ground that the plaintiff could not demonstrate lost profits, the trial court ruled that although there were no triable issues regarding the existence of lost profits, it could not grant summary adjudication. (DeCastro, supra, 47 Cal.App.4th at p. 415.) The appellate court agreed, concluding that the summary judgment statute prohibits "[the] summary adjudication of a single item of compensatory damage which does not dispose of an entire cause of action." (Id. at p. 422.) In view of DeCastro, summary adjudication is improper on appellants' claims if there is a triable issue whether respondents' conduct caused any item of the alleged compensatory damages.
As the appellate court noted, the statute permits only the summary adjudication of claims for punitive damages. (DeCastro, supra, 47 Cal.App.4th at p. 421.)
Pointing to Lilienthal & Fowler v. Superior Court (1993) 12 Cal.App.4th 1848, 1851-1855, respondents suggest that summary adjudication may be granted on portions of appellants' malpractice-related claims, that is, to the extent there are no triable issues regarding the causation of some of the alleged compensatory damages. We disagree. In Lilienthal & Fowler, the plaintiffs' complaint asserted malpractice-related claims, each of which encompassed two separate and unrelated transactions involving the defendant attorneys. (Id. at pp. 1850-1851.) The appellate court held that summary adjudication was proper on the claims insofar as they concerned one of the transactions, reasoning that the transactions involved "different and distinct obligations, and distinct and separate alleged damages." (Id. at p. 1854.) These special circumstances do not obtain here, as respondents' alleged misconduct occurred in connection with a single transaction involving the creation and development of PAC.
2. Appellants' First Amended Cross-Complaint
As the issues on summary adjudication are framed by the operative complaint, we examine appellants' first amended cross-complaint, which alleges the following facts: Coloris became Rath's client in Seattle, and remained Rath's client when Rath joined Catalyst. In September 2007, after Rath told Coloris about the business opportunity involving Provatek, Coloris and Phillips decided to create PAC to acquire Provatek's assets, and they relied on Rath's legal services in connection with the acquisition. In October 2007, Coloris and Phillips instructed Rath to incorporate PAC with Aberdare and Kayhan as equal shareholders, and to prepare the agreements regarding the purchase of Provatek's assets and the hiring of Farrell, Giannotti, Aberdare, and Kayhan.
On the basis of Rath's conduct and communications, Coloris and Phillips believed that Rath had carried out their instructions. However, in December 2007 and again in March 2008, they learned that Rath had not incorporated PAC. On each occasion, they directed him to do so. In March 2008, without Coloris's and Phillips's knowledge, Rath filed a certificate of incorporation that named Rath, Giannotti, and Farrell as directors, even though Coloris had told him not to name any directors.
To assist Rath in finding a new job, Coloris introduced Rath to R&P. After Rath joined R&P, he continued to provide advice and assistance regarding PAC to Coloris and Phillips, who regarded him as their attorney. However, Rath and R&P pursued a course of action that disadvantaged Coloris and Phillips. R&P did nothing to rectify Rath's errors regarding PAC's incorporation, and instead "sought to exploit the situation for its own benefit."
In May and June 2008, when PAC secured binding rights to buy Provatek's assets and negotiated with a potential investor, namely, the Bohemian Companies (Bohemian), Addison Adams of R&P presented proposals regarding the allocation of PAC's shares that would have rendered Aberdare and Kayhan minority shareholders. The proposals allocated 40 percent or less of the shares to Aberdare and Kayhan, and the remainder to R&P, Giannotti, Farrell, and -- on one proposal -- Rath. Coloris and Phillips rejected the proposals, asserting that Aberdare and Kayhan were entitled to all the shares, with the exception of the shares accorded to R&P under its fee agreement with PAC. They were told that "they were powerless to prevent [R&P] from issuing millions of shares . . . to itself."
The first amended cross-complaint alleges that respondents engaged in malpractice by failing to form PAC in accordance with Coloris's and Phillips's instructions; in addition, it alleges that they engaged in malpractice and breached their fiduciary duties by seeking to benefit themselves at the expense of Coloris's and Phillips's interests in PAC. The complaint further alleges that this conduct impaired PAC's ability to secure investors, and compelled Coloris and Phillips to incur legal expenses in the section 709 action.
3. Respondents' Showing
In seeking summary adjudication, respondents contended that there were no triable issues regarding the causation of appellants' alleged damages. To identify the purported damages, respondents pointed to appellants' discovery responses, which attributed most of the alleged damages to lost business opportunities. Appellants asserted that the uncertainties surrounding PAC's ownership deterred Bohemian from investing $5,000,000 in PAC and impaired PAC's purchase of Provatek's assets. As a result, Coloris's and Phillips's interests in PAC diminished at least $30 million in value, they were denied $580,000 in compensation from Aberdare's and Kayhan's consulting agreements, and they suffered at least $1,260,000 in out-of-pocket losses related to their efforts to arrange a transaction between PAC and Provatek. In addition, appellants attributed some damages to the section 709 action. Their discovery responses asserted that Coloris and Phillips incurred $216,000 in legal fees, and suffered other damages through the settlements that ended the action.
With respect to the claimed damages for lost business opportunities, respondents maintained that the alleged misconduct was not the "but-for" cause of PAC's failure to secure an investment from Bohemian. According to respondents' showing, in 2008, Bohemian was PAC's sole potential investor, despite PAC's vigorous efforts to attract other investors. Respondents submitted a declaration from Brian Klemsz, Bohemian's Chief Investment Officer, who stated that he believed Giannotti and Farrell controlled PAC when he negotiated with PAC. Klemsz further stated: "Had I known that . . . Coloris and Phillips were claiming to be the founders, owners, sole shareholders, majority shareholders of PAC, or in any way in control of [PAC], that would have significantly and detrimentally changed Bohemian's evaluation of the potential investment in PAC, and eventually did." Respondents thus argued that if they had complied with appellants' purported instructions to make Aberdare and Kayhan PAC's chief shareholders, Bohemian would never have invested in PAC.
Respondents also contended that their alleged misconduct was not the "but for" cause of PAC's failure to buy Provatek's assets. They presented a declaration from Tom Jurgensen of Catalyst, which represented Provatek after Maiefski's death. Jurgensen asserted that Provatek could not sell its assets until Forsyth secured her position as sole shareholder in Provatek, obtained the authority to act on behalf of Maiefski's estate, and acquired "clear title" to certain patent applications. According to Jurgensen, as late as December 2008, these obstacles to a sale had not been fully resolved.
Regarding the alleged damages related to the section 709 action, respondents denied the existence of a causal link between their actions and the damages. They maintained that the section 709 action or its equivalent was inevitable regardless of their conduct, as there was no evidence that "there ever (sooner, later, under different circumstances) would have been an agreement between Giannotti, Farrell, Coloris, Phillips, [and] R&P as to [the] ownership of PAC." The crux of their argument was that since June 2007, Giannotti, Farrell, Coloris, and Phillips had acted informally as PAC's "promoters" without specifying a structure for PAC's ownership.
In support of this contention, respondent submitted evidence supporting the following version of the underlying events: In June 2007, when Catalyst learned that Provatek wanted to sell its assets, it invited Giannotti and Farrell to act as PAC's executive officers. Through Rath, Catalyst also introduced the business opportunity involving Provatek to Coloris, who alerted Phillips to it. Giannotti, Farrell, Coloris, and Phillips then promoted PAC to prospective investors. In late 2007 and early 2008, prior to PAC's incorporation, they also arranged for the employment contracts regarding Giannotti and Farrell and the consulting contracts regarding Aberdare and Kayhan, but never agreed on PAC's ownership.
Later, after PAC engaged R&P as its counsel, R&P advised Giannotti, Farrell, Coloris, and Phillips to resolve the outstanding issues regarding PAC's incorporation and ownership structure; in addition, R&P asked to increase its interest in PAC from 4.5 percent of the shares -- as stated in the fee agreement -- to 15 to 20 percent of the shares, as PAC's unpaid fees then exceeded $100,000 and were increasing. In May 2008, Coloris and Phillips claimed for the first time that Aberdare and Kayhan were PAC's sole owners with the authority to control the issuance of shares to Giannotti and Farrell. Giannotti and Farrell were shocked by this announcement. After R&P tried unsuccessfully to resolve the ensuing dispute regarding PAC's ownership, Coloris and Phillips filed the section 709 action.
4. Appellants' Showing
In an effort to raise triable issues regarding the causation of the alleged damages related to lost business opportunities, appellants submitted declarations from Kurt von Emster and Ronald H. Schmidt, who have expertise in valuing investment opportunities. On the basis of a May 2008 financial assessment of PAC prepared by Bohemian, they opined that independent of any investment by Bohemian, PAC would have had substantial value in early 2008 if respondents had incorporated PAC pursuant to Coloris's and Phillips's instructions. In view of these declarations, appellants maintained that there were triable issues whether respondents' conduct diminished the value of their interest in PAC.
Furthermore, to raise triable issues regarding the causation of the damages related to the section 709 action, appellants relied primarily on a declaration from Coloris, whose account of the underlying events closely tracked the allegations in appellants' first amended cross-complaint. According to Coloris, Rath provided him legal services and advice on many matters before and after Rath joined Catalyst. In April 2007, after Rath began working for Catalyst, Coloris hired Catalyst to provide legal services. In June 2007, Rath told Coloris about the opportunity to buy Provatek's assets. Later, in September 2007, Coloris and Phillips met with Rath and Jurgensen in Catalyst's offices regarding the opportunity. Also present was Farrell, a scientist familiar with Maiefski. According to Coloris, he and Farrell discussed only Provatek's technology at the meeting.
After the meeting, Coloris and Phillips decided to set up PAC, with Aberdare and Kayhan as equal co-owners. Coloris stated: "From September 2007 through early June 2008, Rath treated me and Phillips as his clients and as the decision-makers with regard to PAC. We believed that on every major decision, contract or material issue relating to PAC, Rath took his instructions from us." Coloris and Phillips devised a business plan for PAC that involved recruiting Farrell and Giannotti as PAC's employees; under the plan, Farrell and Giannotti were to receive limited interests in PAC only when it obtained sufficient funding. At Rath's recommendation, they also agreed to the consulting contracts regarding Aberdare and Kayhan.
In December 2007, Rath told Coloris -- to his surprise -- that PAC had not been incorporated. Coloris instructed Rath to incorporate PAC, but he did not do so. When Coloris discovered this fact, he again directed Rath to incorporate PAC. In March 2008, after Rath left Catalyst, he emailed Coloris and Phillips a draft certificate of incorporation that authorized 10,000,000 shares and named no directors. The draft certificate was consistent with Coloris and Phillip's prior instructions. However, without Coloris's and Phillips's knowledge, Rath filed a certificate that authorized only 1,500 shares and named Rath, Giannotti, and Farrell as directors.
To help Rath find employment at R&P, Coloris met with R&P attorneys and called Rath, "my attorney." After Rath joined R&P in April 2008, he continued to advise Coloris and Phillips regarding PAC, as did other R&P attorneys, including Addison Adams. Prior to June 2008, R&P never stated that it was not Coloris's counsel. Furthermore, neither Rath nor R&P suggested that there was an actual or apparent conflict of interest between their representation of PAC and their representation of Coloris and Phillips. Coloris trusted R&P to complete PAC's incorporation in accordance with the business plan devised by Coloris and Phillips.
On May 12, 2008, R&P began what Coloris described as a "power grab." Adams proposed to Coloris that PAC's shares be divided equally among R&P, Giannotti, Farrell, Coloris, and Phillips. Although Coloris rejected the proposal and directed Adams not to discuss it with Giannotti, Adams also presented the proposal to Giannotti. In early June, after Coloris conducted negotiations with Bohemian in R&P's offices, Adams and other R&P attorneys again presented the proposal to Coloris and Phillips, who responded in the negative. Coloris and Phillips also rejected other proposals that rendered them collectively minority shareholders, including a proposal that allocated 50 percent of PAC's shares to Rath.
Following these discussions, Coloris and Phillips hired a different law firm. On June 9, 2008, R&P created corporate governance documents for PAC, and issued most of PAC's shares to Giannotti and Farrell. Although R&P received 7.5 percent of the shares, Coloris and Phillips received none. On June 24, 2008, Coloris and Phillips initiated the section 709 action.
5. Trial Court's Rulings
In ruling on the summary judgment motion, the trial court sustained respondents' evidentiary objections to significant portions of appellants' showing. The trial court concluded that the declarations from Kurt von Emster and Ronald H. Schmidt were inadmissible in their entirety because they addressed the amount of damages, not causation. In addition, the trial court sustained respondents' objections to a portion of Coloris's declaration, namely, his account of R&P's stock allocation proposals in May and early June 2008. The trial court ruled that Coloris's description of R&P's so-called "power grab" was irrelevant to the issue of causation (Evid. Code, § 350), and that its probative value was outweighed by its potential to create prejudice, confusion, or delay (Evid. Code, § 352).
The trial court further concluded that appellants' claims for professional negligence and breach of fiduciary duty failed for want of triable issues concerning causation. Regarding the alleged damages related to lost business opportunities, the court determined that regardless of Rath's and R&P's conduct, it was speculation that PAC would have attracted investment funds and that Provatek would have sold its assets to PAC in a timely manner. Regarding the alleged damages related to the section 709 action, the court stated: "[T]here were ongoing disputes, which were not caused by R&P or Rath, between Coloris and Phillips, on . . . one hand, and . . . Giannotti and . . . Farrell, on the other hand, as to what the split in ownership would be in PAC and there is no evidence that they would have ever agreed to an ownership structure."
6. Analysis
We conclude that summary adjudication was improper because there are triable issues regarding the causation of the alleged damages associated with the section 709 action. In transactional malpractice cases, plaintiffs may recover as damages attorney fees and other costs incurred in litigation they were forced to initiate due to the defendants' legal errors. (See Sindell v. Gibson, Dunn & Crutcher (1997) 54 Cal.App.4th 1457, 1470.) This is an application of the so-called "tort of another" theory of damages. (Orrick Herrington & Sutcliffe v. Superior Court (2003) 107 Cal.App.4th 1052, 1059-1060 (Orrick); Sindell v. Gibson, Dunn & Crutcher, supra, 54 Cal.App.4th at p. 1470.) As our Supreme Court has explained, "[a] person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred." (Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 620.)
Here, the key issue concerns the existence of triable issues regarding whether respondents' alleged misconduct caused appellants to initiate the section 709 action, for purposes of the "tort of another" theory of damages. In seeking summary adjudication, respondents maintained that according to their account of the underlying events, the section 709 action (or its equivalent) was inevitable regardless of their conduct, as Giannotti, Farrell, Coloris, and Phillips had acted as PAC's "promoters" without agreeing on an ownership structure for PAC. The trial court apparently relied on respondents' account in granting summary adjudication.
Because summary adjudication was appropriate only if appellants' alternative account of the underlying events failed to establish the requisite causation (see pt. B.2., ante), the propriety of the trial court's ruling hinges on appellants' showing. In assessing it, we view the evidence "in the light most favorable to [appellants]." (Aguilar v. Atlantic Richfield, supra, 25 Cal.4th at p. 843.) As explained below, there are triable issues whether respondents' misconduct made it necessary for appellants to initiate the section 709 action in order to protect their interests in PAC.
In view of this conclusion, and notwithstanding respondents' substantial showing that they were not responsible for PAC's failure to attract investors and buy Provatek's assets, we need not address whether appellants raised triable issues regarding the causation of the other items of damages.
In Viner, our Supreme Court clarified the application of the "but for" test of causation in transactional malpractice cases: "Determining causation always requires evaluation of hypothetical situations concerning what might have happened, but did not. In both litigation and transactional malpractice cases, the crucial causation inquiry is what would have happened if the defendant attorney had not been negligent. This is so because the very idea of causation necessarily involves comparing historical events to a hypothetical alternative. [Citations.] [¶] . . . In transactional malpractice cases, as in other cases, the plaintiff may use circumstantial evidence to satisfy his or her burden. An express concession by the other parties to the negotiation that they would have accepted other or additional terms is not necessary. And the plaintiff need not prove causation with absolute certainty. Rather, the plaintiff need only '"introduce evidence which affords a reasonable basis for the conclusion that it is more likely than not that the conduct of the defendant was a cause in fact of the result."' [Citations.]" (Viner, supra, 30 Cal.4th at pp. 1242-1243.)
In view of Viner, we look to appellants' showing to identify the pertinent acts of misconduct and the "hypothetical alternative" relevant to determining their causal effect. According to appellants' account of the underlying events, Coloris and Phillips were PAC's founders and developers; Giannotti and Farrell were only PAC's employees. Prior to joining R&P, Rath acted as Coloris's and Phillips's attorney in connection with PAC, but failed to incorporate PAC and issue stock to Aberdare and Kayhan as equal shareholders, in accordance with Coloris's and Phillips's directions. Instead, Rath incorporated PAC in a manner that made Rath, Giannotti, and Farrell its directors. According to Coloris, R&P knew that Rath was his attorney when it hired Rath, and R&P also acted as counsel for himself and Phillips after Rath joined R&P. However, R&P did not correct Rath's errors or implement Coloris's and Phillips's business plan for PAC. Instead, R&P and Rath advocated proposals that made Coloris and Phillips minority shareholders in PAC, completed governance documents that disregarded Coloris's and Phillips's interests in PAC, and denied that Coloris and Phillips were their clients. As a result, Coloris and Phillips initiated the section 709 action.
In connection with the identification of misconduct, we recognize that the trial court excluded a declaration from John Steele, appellant's expert on legal ethics, on the ground that the declaration was not properly executed under penalty of perjury. As explained below, this ruling was not fatal to appellants' showing.
Expert testimony is ordinarily required to establish an attorney's duty in a specific set of circumstances, unless "the attorney's negligence is readily apparent from the facts of the case." (Goebel v. Lauderdale (1989) 214 Cal.App.3d 1502, 1508; see Day, supra, 170 Cal.App.3d at p. 1147; Wilkinson v. Rives (1981) 116 Cal.App.3d 641, 647648.) However, respondents have never disputed that the allegations in appellants' first amended crosscomplaint depict breaches of professional and fiduciary duties. Because Coloris's declaration closely tracks the factual allegations in the complaint, appellants were not obliged to supplement his declaration with evidence that the events he described constituted professional misconduct. (See Slovensky v. Friedman (2006) 142 Cal.App.4th 1518, 1535 [when defendant seeks summary judgment, plaintiff's allegations are ordinarily accepted as true to the extent defendant does not controvert them].)
Regarding this showing, we conclude that the trial court erred in excluding Coloris's account of R&P's "power grab," that is, the series of stock allocation proposals that R&P advanced in May and June 2008. Under Viner, to show causation, appellants were obliged to identify respondents' purported misconduct in order to "compare[] historical events to a hypothetical alternative." (Viner, supra, 30 Cal.4th at pp. 1242-1243.) Because the "power grab" was integral to appellants' account of the misconduct, it was not inadmissible as irrelevant (Evid. Code, § 350), and its probative value outweighed any potential to create prejudice, confusion, or delay (Evid. Code, § 352).
We further conclude that under this account, respondents' alleged misconduct is reasonably viewed as the "but for" cause of the section 709 action, for purposes of recovering damages under the "tort of another" theory. According to the account, Coloris and Phillips founded and controlled PAC; Giannotti and Farrell were employees entitled solely to a limited share of PAC's stock once PAC became adequately funded. Only through Rath's and R&P's misconduct did Giannotti and Farrell become PAC's directors and majority shareholders. Accordingly, if Rath and R&P had refrained from the alleged misconduct, the section 709 action would have been unnecessary, and no other ownership dispute of similar magnitude would have occurred, as Giannotti and Farrell lacked any credible basis to claim control of PAC. Had Rath and R&P implemented Coloris's and Phillips's plans for PAC in a timely manner, rather than promoting plans that gave control of PAC to Giannotti, Farrell, and themselves, no significant dispute would have occurred.
Respondents do not question whether appellants' account of the underlying events alleges breaches of professional and fiduciary duties; instead, they contend that appellants' showing does not raise triable issues regarding causation. To begin, they argue there is no evidence Giannotti and Farrell ever agreed with the description of their interests in PAC found in appellants' account. However, as explained in Viner, to establish causation, appellants were not obliged to present an "express concession" from Giannotti and Farrell that appellants' account accurately described PAC's true ownership structure. (Viner, supra, 30 Cal.4th at pp. 1242-1243.) Coloris's declaration is sufficient to support appellants' account.
In addition, respondents maintain that the record contains "undisputed" evidence that Giannotti and Farrell had significant ownership interests in PAC. They point primarily to (1) PAC's 2008 promotional materials, which identified Giannotti and Farrell as PAC's officers, but did not mention Coloris, Phillips, or their business entities, and (2) Klemsz's declaration, which states that he understood PAC to be under Giannotti's and Farrell's control when he negotiated with PAC. This contention fails because the evidence in question does not conclusively establish the nature of Giannotti's and Farrell's interests. As Coloris's declaration provides an alternative account of the interests, the evidence shows only that there are triable issues regarding them.
Respondents also suggest that Coloris and Phillips cannot recover the litigation expenses they incurred to secure their interests in PAC because respondents' evidence clearly showed that "PAC was doomed from the outset despite any action by R&P." We disagree. Generally, under the "tort of another" theory of damages, a plaintiff cannot create a basis for damages by pursuing litigation to secure an interest that is subject to no third-party threat and is of patently speculative value. (Orrick, supra, 107 Cal.App.4th at p. 1060.) In Orrick, the plaintiff alleged that due to his attorney's errors in crafting a marital dissolution settlement, he was forced to engage in litigation to overturn the settlement. (Id. at pp. 1054-1055.) The appellate court held he could not recover his litigation expenses under the "tort of another" theory because the settlement had triggered no third-party claims against the plaintiff, and there was no evidence a more favorable settlement could have been achieved. (Ibid.)
Here, unlike Orrick, appellants provided evidence that they initiated the section 709 action to resolve third-party claims to their interests in PAC. Furthermore, respondents never attempted to show that PAC was worthless or of merely speculative value when the section 709 action occurred. Generally, in seeking summary judgment, a defendant cannot rely on the plaintiff's failure to present evidence regarding a material issue when the defendant made no initial showing on the issue. (Slovensky v. Friedman, supra, 142 Cal.App.4th at p. 1535; see Consumer Cause, Inc. v. SmileCare (2001) 91 Cal.App.4th 454, 473.)
Here, appellants' first amended cross-complaint alleges that as of May 2008, PAC had secured binding rights to buy Provatek's assets, including intellectual property which the complaint characterizes as "valuable." In seeking summary adjudication, respondents submitted no evidence that PAC's right to buy the assets was valueless or that PAC was worthless. Instead, as noted above, respondents confined their summary judgment motion to the issue of causation: for purposes of the motion, they conceded that appellants suffered damages, and argued only that their conduct caused none of the alleged damages. On this matter, they offered evidence to show that they were not responsible for PAC's failure to secure investors and buy Provatek's assets. Furthermore, they successfully objected to the declarations from von Emster and Schmidt, which addressed PAC's value independent of Bohemian's investment, on the ground that the declarations were irrelevant to the summary judgment motion. As respondents made no showing regarding PAC's worth and objected to evidence proffered to establish its worth, they failed to demonstrate the absence of triable issues regarding PAC's worth at the time of the section 709 action. In sum, the trial court erred in granting summary adjudication on appellants' claims for professional negligence and breach of fiduciary duty.
C. Declaratory Relief
We turn to the summary adjudication in favor of respondents on appellants' claim for declaratory relief. Because Coloris and Phillips do not challenge this ruling, we limit our analysis to PAC's request for a declaration that respondents are not entitled to compensation for their legal services to PAC. As explained below, respondents failed to show that this claim fails as a matter of law on undisputed facts.
PAC sought the declaration on two theories. Pointing to Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119 (Birbrower),PAC alleged that respondents were barred from compensation because Rath was not a member of the California State Bar during the pertinent period, and thus "Rath and [R&P], through the activities of Rath, ha[d] engaged in the unauthorized practice of law." Moreover, PAC alleged that respondents' violations of ethical and professional obligations precluded compensation. (Goldstein v. Lees (1975) 46 Cal.App.3d 614, 618 ["It is settled in California that an attorney may not recover for services rendered if those services are rendered in contradiction to the requirements of professional responsibility."]; see also Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135, 1150 [attorney who violated rule of professional conduct could not recover for value of services in quantum meruit].) In view of these allegations, summary adjudication was proper only if respondents showed that the claim failed under both theories.(Anderson v. Metalclad Insulation Corp. (1999) 72 Cal.App.4th 284, 289-290 [in seeking summary judgment, "[t]he defendant must demonstrate that under no hypothesis is there a material factual issue requiring trial].) Respondents did not do so.
In response to the first theory, respondents submitted evidence that Rath, while employed at Catalyst and R&P, was supervised by California attorneys who were responsible for his work product. However, this contention is insufficient to establish respondents' entitlement to compensation. Business and Professions Code section 6125 provides: "No person shall practice law in California unless the person is an active member of the State Bar." In Birbrower, our Supreme Court held that section 6125 renders fee agreements unenforceable to the extent they involve the practice of law by out-of-state attorneys in California. (Birbrower, supra, 17 Cal.4th at pp. 137-140.)
This rule is ordinarily applicable only to the provision of legal services to a "'California client,'" that is, "one that either resides in or had its principal place of business in California." (Estate of Condon (1998) 65 Cal.App.4th 1138, 1145.) On this matter, respondents raised no challenge to the allegation in appellants' first amended cross-complaint that PAC's primary place of business is in Los Angeles County.
This rule is subject to certain exceptions, as the California Rules of Court permit out-of-state attorneys to practice law in California under the supervision of members of the State Bar in specified circumstances. (1 Witkin, Cal. Procedure (5th ed. 2008) Attorneys, §§ 392-393, pp. 504-508.) These exceptions involve the provision of services through certain qualifying institutions (Cal. Rules of Court, rules 9.45, 9.46), excluding for-profit "entit[ies] that provide[] legal services to others" (Cal. Rules of Court, rule 9.46(a)(1)). In addition, law students preparing for the bar examination may practice law in limited circumstances under the supervision of members of the State Bar, provided that certain registration requirements are satisfied. (1 Witkin, Cal. Procedure, supra, Attorneys, §§ 383-385, at pp. 493-496; Cal. Rules of Court, rule 9.42.) Because respondents made no showing that any of these exceptions were applicable to Rath, they failed to demonstrate their entitlement to summary adjudication.
In seeking summary adjudication, respondents relied on a treatise stating that a California lawyer may hire out-of-state attorneys to prepare pleadings and conduct research, provided that "the California lawyer remains ultimately responsible for the final work product." (Vapnek et al., Cal. Practice Guide: Professional Responsibility (Rutter Group 2010) [¶] 1:157.8, p. 1-50.3.) Nonetheless, the authorities underlying this statement clarify that out-of-state attorneys engage in the unauthorized practice of law when they "directly" performed services for the client. (San Diego County Bar Assn., Ethics Opn. No. 2007-1, p. 3, available at < http://www.sdcba.org/index.cfm?P=ethicsopinion07-1.> [as of September 19, 2011].) Here, Coloris's declaration, together with the documents Rath executed on behalf of PAC, raise triable issues whether Rath provided services directly to PAC before and after he joined R&P. (See People v. Landlords Professional Services (1989) 215 Cal.App.3d 1599, 1603, 1604-1610 [nonlawyer who provided legal services and advice directly to evicted tenants engaged in the unauthorized practice of law, notwithstanding her testimony that she was always supervised by an attorney].)
In response to the second theory underlying PAC's claim for declaratory relief, respondents relied exclusively on their account of the underlying events submitted in connection with appellants' claims for professional negligence and breach of fiduciary duty. Respondents maintained that under this version of events, they engaged in no violations of professional ethics. In addition, they noted that PAC's fee agreement with R&P contained an express waiver of the potential conflict of interest arising from Rath's prior representation of Provatek. However, as explained above (see pt. B.3., ante), respondents have never disputed that appellants' alternative account of the underlying events describes violations of professional ethics by respondents unrelated to the waiver in PAC's fee agreement. As triable issues exist under this account, there remain triable issues regarding the second theory underlying PAC's claim for declaratory relief.
On appeal, respondents contend that summary adjudication on PAC's claim for declaratory relief is properly affirmed on an alternative ground. Code of Civil Procedure section 1060 provides that "[a]ny person . . . who desires a declaration of his or her rights or duties with respect to another, . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties . . . . " Respondents argue that no "actual controversy" exists regarding their entitlement to compensation, as they have voluntarily dismissed their first amended complaint, which sought compensation for their services. We disagree.
Generally, declaratory relief is improper when the underlying matter has become moot and no actual or justiciable controversy exists. (Pittenger v. Home Savings & Loan Assn. (1958) 166 Cal.App.2d 32, 35-36.) "An issue becomes moot when some event has occurred which 'deprive[s] the controversy of its life.'" (Giraldo v. Department of Corrections & Rehabilitation (2008) 168 Cal.App.4th 231, 257, quoting Boccato v. City of Hermosa Beach (1984) 158 Cal.App.3d 804, 808.) However, a party's voluntarily cessation of allegedly wrongful conduct does not render a controversy moot when "there was a reasonable expectation" that the conduct will be repeated. (Pittenger v. Home Savings & Loan Assn., supra, 166 Cal.App.2d at p. 37.) That is the case here.
Prior to the filing of appellants' first amended cross-complaint, there was an "actual controversy" regarding respondents' entitlement to compensation, as their first amended complaint sought to recovery unpaid fees from PAC. Only after summary judgment was granted on appellants' first amended cross-complaint did respondents voluntarily dismiss their first amended complaint without prejudice. Because summary judgment was improperly granted, a remand is necessary for further proceedings, the existence of which may prompt respondents to renew their claims for unpaid compensation. For this reason alone, the underlying controversy regarding PAC's unpaid fees is not moot. In sum, the grant of summary adjudication on appellants' claim for declaratory relief must be reversed.
In a related contention, respondents suggest that considerations of due process support the affirmance of summary adjudication on PAC's claim for declaratory relief. They argue that because they raised no duty-related issues in seeking summary adjudication on appellants' malpractice-related claims, they did not "fully brief" their position on the alleged violations of professional obligations in connection with PAC's claim for declaratory relief. We see no denial of due process in reversing the summary adjudication with respect to the claim for declaratory relief. To obtain summary adjudication, respondents had the burden of showing that PAC's claim failed as a matter of law on undisputed facts; as explained above, they failed to carry this burden.
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DISPOSITION
The judgment is reversed, and the matter is remanded to the trial court with directions to (1) vacate the grant of summary adjudication on appellants' claims for professional negligence and breach of fiduciary duty and PAC's claim for declaratory relief, and (2) enter a new order denying summary adjudication with respect to these claims. Appellants are awarded their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
MANELLA, J. We concur: EPSTEIN, P.J. SUZUKAWA, J.