Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, Super. Ct. No. 07CC01254, Thierry Patrick Colaw, Judge.
Diana Spielberger for Plaintiffs and Appellants.
Sedgwick, Detert, Moran & Arnold, Gregory H. Halliday and Frederick B. Hayes for Defendant and Respondent.
OPINION
RYLAARSDAM, J.
The basis of this case is simple: plaintiffs Donald G. Parsons, Carl Reisman, Claire Reisman, Eve Blakemore, Mike Blakemore, Rob Blakemore, Theodore I. Botter, Leonardo Ledesma, Larry Lindstrom, and Dennis Goltz purchased shares from defendant South Coast Oil Corporation (South Coast), which refused to refund their money when it turned out the shares were void. The purchase was based on a private placement memorandum (PPM) that was drafted by John Holt Smith (Smith), a lawyer who was a partner in defendant Kelly, Lytton & Vann (defendant). Plaintiffs sued South Coast, Smith, defendant, and additional parties on several theories, including, as to Smith and defendant, fraud based on misrepresentations in the PPM and attorney malpractice. Plaintiffs appeal from an order and resulting judgment sustaining defendant’s demurrer without leave to amend. We affirm.
FACTS AND PROCEDURAL HISTORY
“‘On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend... we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.]’” (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 43.) Where exhibits are attached to the complaint, their contents supersede any contrary allegations in the body of the complaint. (Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505; see also Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on another ground as stated in White v. Cridlebaugh (2009) 175 Cal.App.4th 1535, ____, [97 Cal.Rptr.3d 504, 515].)
Although the premise of the action is simple, the complaint is not. Rather, it is a mishmash of allegations, often unclear, difficult to understand, and rambling, with some paragraphs more than a page long. Many paragraphs contain various allegations as to the different defendants without any organization or logic. It appears that after each demurrer was sustained, instead of rewriting the complaint to correct defects, plaintiffs merely added allegations to the existing complaint, making the claims muddled and confusingly repetitious. The complaint does not conform to the requirement to allege “[a] statement of the facts constituting the cause of action, in ordinary and concise language.” (Code Civ. Proc., § 425.10, subd. (a)(1).) We set out what we believe it states as relevant to this appeal.
Of the total of 14 causes of action, 8 are directed at defendant: intentional and negligent misrepresentation, conspiracy to defraud, attorney negligence, breach of warranty under Commercial Code section 8108, violations of Corporations Code sections 25504 and 25504.1, and unfair competition. (Plaintiffs do not appeal dismissal of the last cause of action and we do not discuss it.) The PPM is attached to and incorporated in the second amended complaint.
Plaintiffs purchased just over $590,000 worth of preferred stock of South Coast pursuant to the PPM drafted by Smith. Smith is corporate and securities counsel for South Coast as well as an officer, director, and shareholder.
In the intentional and negligent misrepresentation causes of action, plaintiffs allege that Smith, on behalf of defendant, made misrepresentations in the PPM as to the number of South Coast’s authorized shares and their par value, and that South Coast owned one-half of certain real property. Defendant and Smith allegedly represented in the PPM that they were South Coast’s corporate and securities counsel and had drafted the PPM in that capacity. The PPM does not contain the latter representations. Rather, it makes only two brief references to Smith. In a subsection in the general Management section entitled “Executive Compensation” (capitalization omitted) it shows Smith as “Secretary, SEC Legal.” In another portion under Management labeled Advisory Board, Smith is listed as “General Counsel[,] 1987-2004.” (Bold omitted). In the three-paragraph description he is shown as being a partner in defendant. There is no other reference to defendant.
The fraud causes of action also allege that before the PPM was disseminated, “all [d]efendants” attended a South Coast board meeting during which the board members discussed the accuracy of the representations and approved distribution of the PPM. They further allege the shares were not authorized, the par value was not as represented, and South Coast’s interest in the real property was less than stated. Plaintiffs pleaded they reasonably relied on the misrepresentations to purchase the stock.
In the conspiracy count plaintiffs allege Smith knew the shares described in the PPM had not been authorized by South Coast and had been paid by South Coast to amend its Articles of Incorporation to authorize them but failed to do so. Additionally he conspired with South Coast’s president to draft the PPM and sell the shares; he also issued an opinion to South Coast’s transfer agent that the shares could be issued. Each defendant disseminated or caused to be disseminated the PPM, and Smith signed stock certificates as South Coast’s secretary. The complaint alleges Smith and defendant were paid “substantial” fees for Smith’s work, Smith “directed” certain plaintiffs to wire the funds used to purchase the stock to defendant’s attorney trust account, and attorney fees were paid from such proceeds.
In the negligence cause of action against Smith and defendant, plaintiffs plead that by virtue of Smith’s position as general and securities counsel for several years before drafting the PPM, he knew the shares offered for sale in the PPM were not authorized and the status of ownership of the subject real property was not as represented in the PPM. South Coast retained Smith and defendant to prepare the PPM and conduct a due diligence review. Defendant had the duty to use care in its preparation, to ensure the shares being offered were authorized, and in the due diligence review. It also had the duty to prevent Smith from signing and sending out the stock certificates for the unauthorized shares.
According to the complaint defendant knew the information in the PPM was false and that it would be communicated to plaintiffs in the PPM to induce them to purchase the shares. It was foreseeable that the representation in the PPM that the stock was authorized “was intended to affect [p]laintiffs and to be communicated to [p]laintiffs – and only to [p]laintiffs and/or the class of investors that would include [p]laintiffs.” The description in the Advisory Board section of the PPM states Smith, a partner in defendant, had experience preparing PPM’s, leading plaintiffs to believe the PPM was prepared by an experienced securities lawyer who was a member of “a reputable law firm.” Thus they relied on the representations. “As such, [defendant] owed a duty of care to [p]laintiffs—the intended beneficiaries” of [Smith’s] and defendant’s “advice” that the shares were authorized. It was foreseeable that the “false legal advice” would be presented to plaintiffs with knowledge they would rely on it.
Defendant and Smith breached their duty by negligently advising South Coast’s board and preparing the inaccurate PPM, and Smith, on behalf of defendant, breached his duty by negligently preparing an investment contract sent to plaintiffs.
In the breach of warranty claim plaintiffs cite Commercial Code section 8108, subdivision (a), which states: “A person who transfers a certificated security to a purchaser for value warrants to the purchaser, [¶]... [¶] (2) The transferor... does not know of any fact that might impair the validity of the security. [¶]... [¶] (6) The transfer is otherwise effective and rightful.” Plaintiffs allege that by signing the stock certificates as secretary of South Coast, Smith was a transferor under section 8108 and defendant is liable for his acts under the theory of respondeat superior.
Plaintiffs plead two additional causes of action that defendant breached Corporations Code sections 25504 and 25504.1, which create joint and several liability for persons who control or aid and abet a person who sells stock by virtue of making false representations or where sale has not been qualified.
In sustaining defendant’s demurrer without leave to amend, the court ruled that as to the causes of action for intentional and negligent misrepresentation and attorney negligence there were no allegations as to defendant other than in its capacity as lawyers for South Coast. The complaint did not contain any “specific allegations of misrepresentations” by defendant. Further, defendant did not owe plaintiffs a duty as attorneys. The cause of action for conspiracy failed because it was based on the misrepresentation counts.
Additionally, as attorneys for South Coast, defendant would not be able to “mount a meaningful defense [to any of the causes of action] due to the attorney-client privilege which is held by [South Coast].” The counts for the alleged breaches of the Commercial Code and the Corporations Code failed for the same reason. Defendant was dismissed from the action and judgment was entered in its favor.
The court also sustained Smith’s demurrer as to the malpractice cause of action without leave to amend for the same reasons as applied to defendant: he owed no duty and he would not be able to defend himself because of the attorney-client privilege.
Regarding the fraud causes of action against Smith the court granted leave to amend but ruled plaintiffs had to plead them “very carefully and specifically against Smith in his capacity as officer or board member and not in his capacity as attorney for [South Coast]....” It could not allege those counts against Smith as a lawyer based on the attorney-client privilege theory, the basis for sustaining defendant’s demurrer to the same causes of action. For the same reason, the court gave plaintiffs leave to amend the conspiracy cause of action with the warning they could plead wrongdoing only in Smith’s “capacity as an officer, director or otherwise and not as an attorney for [South Coast]....”
Likewise, as to the two causes of action alleging violations of the Corporations Code, the demurrer was sustained with leave to amend to “clarif[y] and plead[] very precisely” to eliminate any allegations of wrongdoing by Smith in his role as a lawyer to avoid the attorney-client privilege defense.
The court overruled the demurrer as to the count for breach of warranty under the Commercial Code because the complaint alleged Smith transferred the securities in his capacity as corporate secretary.
Plaintiffs appeal only from the order as to defendant, not Smith.
DISCUSSION
We review de novo whether a complaint sufficiently pleads a cause of action. (Leonte v. ACS State and Local Solutions, Inc. (2004) 123 Cal.App.4th 521, 525.) “We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court’s stated reasons. [Citation.]” (Ibid.) Here the court relied on the two major grounds set out in the demurrer filed by Smith and defendant. As a result of that ruling there is one fundamental ground that supersedes all others and disposes of all causes of action.
The basis of defendant’s liability is the alleged misconduct of Smith acting on its behalf. “A law partnership, as any partnership, is vicariously liable ‘for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.’ [Citations.]” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 391.) To hold defendant in the action, then, there must be allegations of wrongdoing by Smith in his capacity as a lawyer.
But the court sustained Smith’s demurrer to the complaint as to all allegations of misconduct in his capacity as a lawyer. Plaintiffs were allowed to amend certain causes of action specifically to allege only claims against him as a director or officer, but not as a lawyer. The causes of action it allowed to stand were those complaining against Smith acting in a nonlegal capacity. Because there are no claims against Smith as a lawyer, any causes of action against defendant must also fail.
Plaintiffs repeatedly argue defendant is liable for Smith’s actions no matter the capacity in which he was acting, lawyer, director, or officer, stating “the hats are inseparable.” But the pleadings do not support this claim. Nowhere does the complaint allege defendant has any connection to South Coast other than as counsel or that Smith was employed by defendant in his capacity as a director or shareholder of South Coast. The general agency allegation that at all times all defendants were acting within the course and scope of the agency is not sufficient. In discussing a similar allegation the California Supreme Court referred to it as an “egregious example[] of generic boilerplate.” (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 134, fn. 12.) There, as here, there were no specific allegations of facts supporting a claim of agency. (Ibid.)
And plaintiffs have not cited any law showing that defendant, as a law firm, would be liable for acts undertaken by Smith in a nonlegal capacity. Rather, as stated above, potential liability attaches only when the agent, Smith here, acts in the ordinary course and scope of the principal’s business. (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, supra, 150 Cal.App.4th at p. 391.) The business of defendant is not as director or officer of South Coast. Thus, the complaint fails to state any cause of action against defendant.
Nor do we believe there is any possibility for plaintiffs to amend to cure this defect. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 [burden on the plaintiff to show “‘reasonable possibility’” of amending].) By the court’s order they may not plead any claims against Smith in his capacity as a lawyer. Nor do they allege or argue any facts showing defendant had any relationship to South Coast other than as counsel. Their insistence defendant is liable, no matter the capacity in which Smith acted, undercuts any claim that they have additional facts. Thus, the demurrer was properly sustained without leave to amend.
DISPOSITION
The judgment is affirmed. Respondent is entitled to costs on appeal.
WE CONCUR: SILLS, P. J., MOORE, J.