Preview
KuINeDINsT PC
801K STREET, SurTe 2100
SACRAMENTO, CALIFORNIA 95814
Natalie P. Vance, Bar No. 206708
J. Scott Miller, Bar No. 256476
KLINEDINST PC
801 K Street, Suite 2100
Sacramento, California 95814
(916) 444-7573/FAX (916) 444-7544
nvance@klinedinstlaw.com
Attorneys for Defendants
xxxxxxxxxxxxxxxx GROUP APC;
xxxxxxxxxxxxxxxx GROUP LLP; xxxx
xxxxx xxxxxxx; G. ARTHUR MENESES;
MONICA BALDERRAMA,; and JOSEPH S.
LIU
ELECTRONICALLY
FILED
Superior Court of California,
County of San Francisco
03/07/2016
Clerk of the Court
BY:VANESSA WU
Deputy Clerk
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SAN FRANCISCO
TERRI MAXON, as successor in interest
to David Mark Maxon,
Plaintiff,
Vv.
xxxxxxxxxxxxxxxx GROUP APC,
xxxxxxxxxxxxxxxx GROUP LLP,
xxxx xxxxx xxxxxxx (A/K/A/ xxxx.
xxxxx), G. ARTHUR MENESES,
MONICA BALDERRAMA, JOSEPH S.
LIU, and DOES 1 through 50, inclusive,
Defendants.
Case No. CGC-12-523966
COMPLEX LITIGATION
LEXISNEXIS EFILING
REPLY BRIEF IN SUPPORT OF
DEFENDANTS’ MOTION TO STAY THE
ACTION
Date: March 14, 2016
Time: 1:30 p.m.
Location: Dept. 305
Judge: Honorable Mary E. Wiss
Complaint Filed: 9/5/2012
Trial Date: None set
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLUINEDINST PC
801 K Street, Surte 2100
SACRAMENTO, CALIFORNIA 95814
I.
INTRODUCTION.
Plaintiff Terri Maxon’s Opposition cites no compelling reasons why this case should not
be stayed pending resolution of the related underlying case of Lofton v. Wells Fargo. Presenting
no new case law or evidentiary support, Plaintiff instead spends the majority of her brief casting
aspersions on Defendants and rehashing allegations in her complaint. Ultimately, however, the
Opposition fails to refute that this case, like the xxxxx malpractice cases ILG cited and discussed
in its moving papers, involves claims for damages that cannot be determined while issues in the
underlying Lofton case remain unresolved.
Maxon acknowledges that the Lofton court’s ultimate retention of the fees paid to ILG
would moot the remedy of disgorgement she seeks in this action. In addition, Maxon now claims
compensatory damages that arise from the Lofton court order currently on appeal. The
uncertainty of Maxon’s damages requires a stay to avoid the “premature filing of malpractice
claims” like this one, and minimize the “risk of inconsistent pleadings or judgments.” See
Adams v. Paul (1995) 11 Cal.4th 583, 593. Until final resolution of the Lofton court
proceedings, Maxon’s damage claims and causes of action are far from fixed. A stay will avoid
needless litigation on issues that may be ultimately resolved in Lofton and ensure that the parties
are not subject to inconsistent rulings involving jurisdiction, evidentiary issues, liability or
damages that are at issue either in Defendants’ pending appeal or that of class members’
Summers and Kaye.
Moreover, ILG’s appellate rights in this case have not been exhausted. A stay pending
appeal is valid until the appealing party has exhausted its appellate remedies, including a writ of
certiorari to the United States Supreme Court. See Rosenthal v. Wilner (1988) 197 Cal.App.3d
1327. The stay previously issued by this court must be maintained until ILG either fails to file a
writ of certiorari within the time permitted or any writ proceedings are exhausted.
-1-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLINEDINST PC
801 K Street, Surte 2100
SACRAMENTO, CALIFORNIA 95814
IL.
MAXON’S ARGUMENTS ONLY FURTHER SUPPORT THE NEED FOR A STAY
A. Maxon Acknowledges the Pending Appeal_in Lofton Will Affect the Damages
Sought in this Action
Maxon’s Opposition concedes that her damages claims in this action are uncertain in
light of the pending appeals in Lofton. First, as Maxon acknowledges, her claim for
disgorgement of the $5.5 million in fees received by ILG is potentially mooted by the final
resolution of the Lofion case, where ILG has deposited the $5.5 million in compliance with the
court order that is the subject ILG’s pending appeal. Opp. at 4:22-23 (“ILG would not be
required to disgorge the $5.5 million in fees twice”).
However, Maxon claims that resolution of the disgorgement issue will not moot all of her
claims because she a/so seeks compensatory damages in this lawsuit. This argument wholly
ignores that two of her three causes of action (for declaratory relief and violations of the
Business & Professions Code) are equitable in nature, and seek only disgorgement of the $5.5
million in fees. [Complaint, {{] 50-62.] Regardless, as even Maxon concedes, if the July 16,
2015 Lofion order is affirmed, Maxon’s remedy of disgorgement of those fees will be moot. This
fact alone presents a very real possibility of inconsistent rulings. For example, the court could
tule in this case that Maxon’s causes of action for declaratory relief and violation of the Business
and Professions Code be dismissed because ILG already disgorged those fees in Lofion. Yet, if
the Lofton order were subsequently reversed after a dismissal, Maxon could find herself without
aremedy. Alternatively, if the July 16, 2015 Lofion order is ultimately affirmed, the parties and
court would waste judicial resources litigating issues that would be resolved in the Lofion case
and that Maxon would be collaterally estopped from pursuing here. Furthermore, ILG could be
faced with the real risk of multiple judgments for the same fees, a result possible if Maxon were
allowed to proceed with and then prevailed on her claim for disgorgement in this action before
the orders in Lofion were final.
Maxon also admits that the amount of claimed compensatory damages at issue in this
case will be directly impacted by the resolution of the pending appeal in Lofton. Opp. at 4: 20-22
-2-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKunepinst PC
801 K STREET, SurTe 2100
SACRAMENTO, CALIFORNIA 95814
(“The Court of Appeal’s ruling in [the pending Lofton appeal] is likely to affect the amount of
damages recoverable by Plaintiff and the class in this matter” (emphasis original)). Maxon now
claims damages arising from the July 16, 2015 Lofton order currently on appeal, namely, the
balance of the alleged $10,000-per-client settlement the clients were according to Maxon
supposed to receive from the same $6 million settlement fund from which ILG originally
obtained payment for its $5.5 million in fees, to the extent those fees are distributed to Lofton
class members beyond the 600 ILG clients. Maxon acknowledges that this claimed damage is
based on the portion of the July 16, 2015 Lofion order which states that the $5.5 million in fees
will be distributed on a pro rata basis to the entire Lofion class, as opposed to just the 600 ILG
clients) — the same July 16, 2015 order that is the subject of the pending appeals in Lofton. Opp.
at 5:10-19, The fact that Maxon now bases a claim for damages on the very order that is the
subject of the pending appeals, is yet further if not conclusive evidence of the necessity of a stay.
If the order is ultimately reversed or subsequently modified, Maxon’s claimed damage could
evaporate, increase or decrease.
This uncertainty of claimed damages is the primary reason other courts stay xxxxx
malpractice and breach of fiduciary duty cases while the related underlying case is still ongoing.
See Rosenthal v, Wilner (1988) 197 Cal.App.3d 1327, 1333-1334 (noting that a stay was
mandated where proximate cause and damages issues would be affected by the outcome of the
pending appeal in the underlying case and holding that stay continued until all avenues of
judicial review—including petition for writ of certiorari to United States Supreme Court—were
exhausted); Adams v. Paul (1995) 11 Cal.4th 583, 592-593 (affirming that a stay of a malpractice
action is proper where actual injury and damages are in question, to assuage any concerns
regarding “premature filing of malpractice claims” or the “risk of inconsistent pleadings or
judgments”); Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 513-514
(encouraging the “liberal use of... stays in malpractice cases” to “reduce the impact on the
underlying litigation, ensure that plaintiffs do not have their claims prematurely barred... and
allow current counsel, to the extent practicable, to continue to work to ameliorate the
consequences of any past mistakes”); Jordache Enterprises Inc. v. Brobeck, Phleger & Harrison
rat
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLINeDINST PC
801 K Street, Surre 2100
SACRAMENTO, CALIFORNIA 95814
(1998) 18 Cal.4th 739, 749 (citing Adams, supra, in confirming the trial court’s “inherent
authority to stay a xxxxx malpractice action” where questions about actual injury and resulting
damages arise in simultaneous litigation); Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194,
1211 (Stay of xxxxx malpractice suit arising from an underlying criminal defense representation,
to allow the plaintiff to pursue post-conviction remedies, was proper).
Here, not only are Defendants appealing the operative Lofion order, but so are class
members Summers and Kaye, including their motion to vacate all of the settlements in their
entirety. Maxon provides no contrary authority, instead attempting to parse the procedural
posture of the cases cited and distinguish those cases, First, Maxon attempts to characterize
stays in xxxxx malpractice cases as somehow only generally applicable to situations in which
claims against the attorney are stayed pending final resolution of adverse underlying judgments
against the client, Opp. at 7:9-14. Setting aside this over generalization, Maxon wholly ignores
the fact that she now claims to be aggrieved by the Lofton court’s order requiring distribution of
the ILG xxxxx fees to the entire Lofion class. Thus, under Maxon’s rationale, it would be wholly
appropriate to stay the instant case against the attorneys, pending final resolution of the order that
Maxon claims is adverse to her.
Maxon goes on to concede that three California Supreme Court cases cited by ILG
discuss the policy that a stay pending the appeal of the underlying case is the appropriate remedy
to resolve the tension between a plaintiff's need to file a timely xxxxx malpractice lawsuit within
the statute of limitations and the attorney’s need for certainty with respect to causation and
damage.' Opp. at 7:6-8:7 (citing Adams v, Paul (1955) 11 Cal.4th 583, 592-93; Jordache
Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 758; Coscia v.
McKenna & Cunneo (2001) 25 Cal.4th 1194, 1210-11). Maxon’s criticism is that because these
cases hold that the statute of limitations accrues as soon as the client is injured by a judgment in
' 4 fourth California Supreme Court case cited by ILG, Beal Bank, SSB v. Arter & Hadden, LLP
(2007) 42 Cal.4th 503, 513, similarly discussed “the liberal use of stays” to balance plaintiffs’
interest in filing timely claims against the ability to mitigate damages through continued
litigation of the underlying case.
-4-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLUINEDINST PC
801 K Street, Surte 2100
SACRAMENTO, CALIFORNIA 95814
the underlying litigation, the courts’ attempt to balance that rule and conserve judicial resources
by universally encouraging stays until final resolution of the underlying action is merely “dicta.”
Yet, citing to Adams v. Paul and the risk of inconsistent results, the Coscia court went so far as
to advise the trial court that it “should” stay the xxxxx malpractice case pending resolution of the
underlying appeal rather than dismiss Plaintiff's suit. Coscia, 25 Cal.4th 1194, 1210-11, And,
whether dicta or otherwise, the policy behind the stay remedy encouraged by the California
Supreme Court for over six decades is as sound, and unchallenged as ever. Maxon does not cite
to a single case that suggests otherwise.
And, contrary to Maxon’s contention that no case cited by ILG involved a dispute
regarding the propriety of a stay (Opp. at 7:3-6), the case of Rosenthal v. Wilner, 197 Cal.App.3d
1327, squarely addressed the propriety of a stay in determining whether dismissal of a xxxxx
malpractice and breach of fiduciary duty lawsuit was appropriate under the rule requiring a suit
to be brought to trial within five years.” In Rosenthal, the appellate court was faced with the
question of whether a mandated stay ended following the California Court of Appeal’s remittitur
of the appeal of the underlying judgment or continued until the United States Supreme Court had
dismissed a subsequent writ of certiorari. Rosenthal, 197 Cal.App.3d at 1329. In its recitation of
the factual background of the case, the court first noted that the trial court had originally denied
the attorney defendants’ motion for a stay of the lawsuit while the underlying case was still being
litigated on appeal, but that the appellate court had issued a writ of mandate ordering the trial
court vacate its order denying the motion for stay and issue a stay pending appeal of the
underlying litigation. Jd. at 1331. The court quoted extensively from its order mandating a stay
of the action, reasoning that the stay was required because, until the underlying action was final,
the xxxxx malpractice plaintiff could not establish proximate causation of damage against the
attorney. /d. And central to its holding that the stay remained in effect until the appellant
? In a footnote, without analysis, Maxon claims that Rosenthal did not involve a dispute over the
propriety of a stay. (Opp. at 7, fn. 4), That same footnote similarly criticized a citation to Shopoff
& Cavallo LLP v,. Hyon (2008) 167 Cal.App.4th 1489, a case cited only for the proposition that
the elements of duty, breach, causation and damage applied equally to a xxxxx malpractice and
breach of fiduciary duty claim.
-5-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONK.INeDINST PC
801 K STREET, Surre 2100
SACRAMENTO, CALIFORNIA 95814
oOo Ia DW
exhausted its remedies through a subsequent writ of certiorari, the court reasoned that the very
purpose of the stay was because many issues related to causation and damages would be affected
by the ultimate determination of the judgment in the underlying case. /d. at 1333-34. Thus, so
long as it remained possible that the underlying judgment was not final, the stay should remain in
effect. Id.
Similarly, here, the resolution of the appeal of the July 16, 2015 order in the Lofton case
will impact liability, causation, damages and key evidentiary issues as to Maxon’s claims,
including her claim for disgorgement of the same $5.5 million in fees now deposited with the
Lofton court, and Maxon’s new theory claim for damages relating to how the Lofion court
ultimately distributes those fees. Until those issues are resolved, the claims are speculative and
the risk of needless litigation and inconsistent rulings is dispositive.
Lastly, Maxon criticizes the insurance cases cited by ILG (Montrose Chemical Corp. v.
Superior Court (1993) 6 Cal.4th 287, California Ins. Guarantee Ass’n v. Superior Court (1991)
231 Cal.App.3d 1617, and Haskel, Inc. v. Superior Court (1995) 33 Cal.App.4th 963) where
stays were ordered to prevent an insurance company from litigating its coverage defenses against
its insured through a declaratory relief action or conducting discovery while the underlying
lawsuit against the insured was still pending. Opp. at 8:8-16. Maxon acknowledges that the
stays in the insurance cases were justified to eliminate the risk of inconsistent factual
determinations that could prejudice the insured, but she claims no such risk is at issue here
because there is no existing litigation against or on behalf of Maxon or the ILG clients. /d.
Maxon baldly claims that her and the other ILG clients’ claims against Wells Fargo were
resolved years ago. At worst, this argument is disingenuous. At best, the statement wholly
ignores the ongoing proceedings and pending appeals in Lofton, including the fact that Maxon
subsequently intervened in the Lofton litigation as a plaintiff following the final judgment and
settlement with Wells Fargo, and that she continues to litigate issues related to ILG’s settlement
of its clients’ claims and receipt of attorney fees in the Lofton case to this day. Indeed, Maxon’s
attorneys still have a pending motion for attorney’s fees for their efforts in Lofton (yet another
item of potential “damage” they are claiming here), have indicated Maxon’s intent to file a
~6-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKunepinst PC
801 K Street, Surte 2100
SACRAMENTO, CALIFORNIA 95814
a nw
tespondent’s brief in response to the appeal, and actively appear in the action at every turn. And
unlike the typical underlying case in which only the plaintiff is involved, here, the Lofton case
involves both Maxon as a party and ILG, which is the subject of an order to disgorge its fees to
the court.? The Lofton case is far from concluded in light of the pending appeal and related
proceedings scheduled to take place following the appeal.
Maxon’s contention that the Lofion case and settlement is final also ignores pending
appeals filed by other class members in the Lofton court which seek to vacate the judgment and
settlement entered in Lofton. Moreover, just as the insurance cases involved the risk of
inconsistent factual determination if not stayed, there are numerous evidentiary privileges at
issue in the pending Lofton appeal, the resolution of which could impact fact discovery and
determinations in this action. Allowing this case to proceed before final resolution in Lofion
risks inconsistent rulings and judgments and litigation of issues that may ultimately be resolved
in Lofton.
B. Alternatively, the Current Stay Pending Appeal of the Denial of the Motion to
Compel Arbitration Should Remain in Effect Until All Appellate Remedies Related
to a Writ of Certiorari are Exhausted
Maxon’s sole argument in opposition to ILG’s request that a stay be enforced until it has
exhausted its right to appellate review of the order denying its motion to compel arbitration to the
United States Supreme Court is an unsupported diatribe regarding the potential delay such a
filing would cause. While it is true that appeals can prolong litigation, there is nothing nefarious
about a party exercising its due process rights to pursue appellate remedies available to it.
Moreover, such stays serve judicial economy precisely because they can effectively prevent
needless litigation on issues that may be completely resolved pending appeal. Rosenthal, supra,
197 Cal.App.3d 1323-1334.
3 The existence of other pending litigation involving the same parties and the same claim or
controversy provides an independent basis for a stay of one case while the other is litigated. See
Cal. Code Civ. Proc. § 430.10(c); Plant Insulation v. Superior Court (1990) 224 Cal.App.3d 781,
787-788; Hanrahan v. Superior Court (1947) 81 Cal.App.2d 432, 435.
-7-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLINEDINST PC
801 K Street, Surre 2100
SACRAMENTO, CALIFORNIA 95814.
With respect to appeals of denials of motions to compel arbitrations, stays are mandated
because the legislature has made such orders immediately appealable precisely to avoid litigation
in a forum that may not have jurisdiction over the dispute. Cal. Code Civ. Proc, §§ 1281.4,
1294(a), 1049; Smith v. Superior Court (1962) 202 Cal.App.2d 128, 131; but see Montano v. Wet
Seal Retail, Inc. (2015) 232 Cal.App.4th 1214 (rejecting automatic stay after denial of
arbitration). Moreover, if the action were not stayed pending ILG’s writ of certiorari, ILG would
be placed in a “Hobson’s Choice” of either refusing to participate in the litigation at its own peril
or participating in discovery and motion practice that could be construed as a waiver of its right
to compel arbitration. Zamora v. Lehman (2010) 186 Cal.App.4th 1, 6.
In any event, a stay “pending resolution” of an appeal continues even after a remittitur
until the appellant exhausts its remedy of a writ of certiorari to the United States Supreme Court.
Rosenthal, 197 Cal. App.3d at 1333-34. Here, the trial court stayed the action pending the ILG’s
appeal of the order denying its motion to compel arbitration. As in Rosenthal, so long as it is
possible that the United States Supreme Court could grant certiorari, the action should remain
stayed. Id.
Cc Maxon’s Unsupported “Undue Delay” Argument Does Not Defeat a Stay
Maxon next complains that the stay ILG seeks here would unnecessarily delay these
proceedings, speculating that this would result in another year of delay. Indeed, Maxon cites to
no case for the proposition that delay, an inherent consequence of any stay order, is grounds for
denying a stay. Indeed, Maxon does not cite to a single case in which a stay was denied for any
reason. Instead, Maxon chastises ILG for its exercise of its due process rights to appeal an
adverse order against it.4
4 Nor does Maxon offer any support for her argument, based on the Maxon v. Capstone
Law complaint, that the ILG attorneys have “taken advantage of these delays to deplete ILG’s
assets and shield themselves from liability by transferring most of the ILG attorneys, along with
ILG’s accounts receivable (its cases) to a newly created entity, Capstone law.” Opposition at
6:20-23. In that case, like this one, no discovery has been conducted, no depositions have been
taken and no evidence has been put forth to support any of the unverified allegations in the
complaint. See Cassady v. Morgan, Lewis & Bockius LLP (2006) 145 Cal.App.4th 220, 241
-8-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKuneDinst PC
801 K STREET, Surte 2100
SACRAMENTO, CALIFORNIA 95814
oN DW
In support of this argument, Maxon falsely accuses ILG of improperly using the appellate
process to delay discovery in this case and of filing appeals that lack merit based solely on the
fact that ILG’stwo appeals thus far have not resulted in reversals. While ILG does not intend to
relitigate its appeals here, it notes that its motion to compel arbitration was based on a written
arbitration agreement in an ILG fee agreement signed by Maxon and that decades of United
States Supreme Court cases have required enforcement of arbitration agreements in even void
contracts. Moreover, the issues in the Lofton court involve novel issues of class action court’s
jurisdiction over non-class lawyers, post-judgment powers to enforce or change settlement
agreements and issues surrounding mediation confidentiality and attorney-client privileges.
In any event, a court’s weighing of the relative merits or chances of success of a pending
appeal is vot the test for determining whether a stay is appropriate. Rather a stay is appropriate
to resolve uncertainty of the final outcome of an underlying case until “all avenues of judicial
review [have been] exhausted.” Rosenthal, 197 Cal.App.3d at 1334 (holding that an ultimately
unsuccessful writ of certiorari in underlying case stayed malpractice litigation until dismissed by
the Court). ;
As noted above, while stays pending resolution of malpractice cases necessarily delay the
litigation, they can also curtail it. To that end, rather than deride parties for filing appeals, the
California Supreme Court has for decades advocated “the liberal use” of stays to avoid needless
time and expense litigating issues that may be completely resolved by an appeal and to avoid the
risks of inconsistent ruling and judgments. Beal Bank, SSB y, Arter & Hadden, LLP, 42 Cal.4th
at 513; see also Adams v. Paul,11 Cal.4th at 592-93; Jordache Enterprises, Inc., 18 Cal.4th at
758; Coscia, 25 Cal.4th at 1210-11.
Additionally, plaintiff's Opposition, despite quoting other portions of the Lofton I opinion
extensively, ignores the Court’s express recognition of the potential prejudice to ILG in this case,
(allegations in a complaint do not constitute evidence of the truth of those allegations.) These
arguments do not support denying a stay of this action, Moreover, the attorneys that left [LG to
found or join Capstone taking their clients with them, did so over 3 years ago.
-9-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKuepinst PC
801 K Street, Surte 2100
SACRAMENTO, CaLiFoRNIA 95814
aya Dw
when it noted that “ILG would be within its rights to request a preliminary injunction prohibiting
Maxon from pursuing [this action] until the court has resolved the issues in this case.” Lofton v.
Wells Fargo Home Mortgage (“Lofton I’) (2014) 230 Cal.App.4th 1050, 1068.
Ii.
CONCLUSION
Maxon cannot change the facts that this action and the Lofton action deal with the same
dispute over disgorgement of ILG’s $5.5 million in attorneys’ fees, as plaintiff admits in her
Notice of Related Case [RJN, Ex. 2], and confirms in her Opposition. Both Lofton and this
action arise from the same facts and raise the same issues, and allowing both to proceed at once
presents a potential of inconsistent orders and rulings. The ultimate disposition of the fees held
by the Lofion Court and the motion to vacate the Lofton settlement will potentially moot causes
of action and remedies alleged by Maxon here. Allowing this case to proceed creates a very real
potential of a double recovery of the same fees or inconsistent orders and judgments, precisely
the types of results stays are designed to prevent.
KLINEDINST PC
ace
DATED: March 7, 2016 By:
Natalie P. Vance
J. Scott Miller
Attorneys for Defendants
xxxxxxxxxxxxxxxx GROUP APC;
xxxxxxxxxxxxxxxx GROUP LLP; xxxx
xxxxx xxxxxxx; G. ARTHUR MENESES;
MONICA BALDERRAMA; and JOSEPH S.
LIU
-10-
REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTION
Preview
KuINeDINsT PC 801K STREET, SurTe 2100 SACRAMENTO, CALIFORNIA 95814 Natalie P. Vance, Bar No. 206708 J. Scott Miller, Bar No. 256476 KLINEDINST PC 801 K Street, Suite 2100 Sacramento, California 95814 (916) 444-7573/FAX (916) 444-7544 nvance@klinedinstlaw.com Attorneys for Defendants xxxxxxxxxxxxxxxx GROUP APC; xxxxxxxxxxxxxxxx GROUP LLP; xxxx xxxxx xxxxxxx; G. ARTHUR MENESES; MONICA BALDERRAMA,; and JOSEPH S. LIU ELECTRONICALLY FILED Superior Court of California, County of San Francisco 03/07/2016 Clerk of the Court BY:VANESSA WU Deputy Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN FRANCISCO TERRI MAXON, as successor in interest to David Mark Maxon, Plaintiff, Vv. xxxxxxxxxxxxxxxx GROUP APC, xxxxxxxxxxxxxxxx GROUP LLP, xxxx xxxxx xxxxxxx (A/K/A/ xxxx. xxxxx), G. ARTHUR MENESES, MONICA BALDERRAMA, JOSEPH S. LIU, and DOES 1 through 50, inclusive, Defendants. Case No. CGC-12-523966 COMPLEX LITIGATION LEXISNEXIS EFILING REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTION Date: March 14, 2016 Time: 1:30 p.m. Location: Dept. 305 Judge: Honorable Mary E. Wiss Complaint Filed: 9/5/2012 Trial Date: None set REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLUINEDINST PC 801 K Street, Surte 2100 SACRAMENTO, CALIFORNIA 95814 I. INTRODUCTION. Plaintiff Terri Maxon’s Opposition cites no compelling reasons why this case should not be stayed pending resolution of the related underlying case of Lofton v. Wells Fargo. Presenting no new case law or evidentiary support, Plaintiff instead spends the majority of her brief casting aspersions on Defendants and rehashing allegations in her complaint. Ultimately, however, the Opposition fails to refute that this case, like the xxxxx malpractice cases ILG cited and discussed in its moving papers, involves claims for damages that cannot be determined while issues in the underlying Lofton case remain unresolved. Maxon acknowledges that the Lofton court’s ultimate retention of the fees paid to ILG would moot the remedy of disgorgement she seeks in this action. In addition, Maxon now claims compensatory damages that arise from the Lofton court order currently on appeal. The uncertainty of Maxon’s damages requires a stay to avoid the “premature filing of malpractice claims” like this one, and minimize the “risk of inconsistent pleadings or judgments.” See Adams v. Paul (1995) 11 Cal.4th 583, 593. Until final resolution of the Lofton court proceedings, Maxon’s damage claims and causes of action are far from fixed. A stay will avoid needless litigation on issues that may be ultimately resolved in Lofton and ensure that the parties are not subject to inconsistent rulings involving jurisdiction, evidentiary issues, liability or damages that are at issue either in Defendants’ pending appeal or that of class members’ Summers and Kaye. Moreover, ILG’s appellate rights in this case have not been exhausted. A stay pending appeal is valid until the appealing party has exhausted its appellate remedies, including a writ of certiorari to the United States Supreme Court. See Rosenthal v. Wilner (1988) 197 Cal.App.3d 1327. The stay previously issued by this court must be maintained until ILG either fails to file a writ of certiorari within the time permitted or any writ proceedings are exhausted. -1- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLINEDINST PC 801 K Street, Surte 2100 SACRAMENTO, CALIFORNIA 95814 IL. MAXON’S ARGUMENTS ONLY FURTHER SUPPORT THE NEED FOR A STAY A. Maxon Acknowledges the Pending Appeal_in Lofton Will Affect the Damages Sought in this Action Maxon’s Opposition concedes that her damages claims in this action are uncertain in light of the pending appeals in Lofton. First, as Maxon acknowledges, her claim for disgorgement of the $5.5 million in fees received by ILG is potentially mooted by the final resolution of the Lofion case, where ILG has deposited the $5.5 million in compliance with the court order that is the subject ILG’s pending appeal. Opp. at 4:22-23 (“ILG would not be required to disgorge the $5.5 million in fees twice”). However, Maxon claims that resolution of the disgorgement issue will not moot all of her claims because she a/so seeks compensatory damages in this lawsuit. This argument wholly ignores that two of her three causes of action (for declaratory relief and violations of the Business & Professions Code) are equitable in nature, and seek only disgorgement of the $5.5 million in fees. [Complaint, {{] 50-62.] Regardless, as even Maxon concedes, if the July 16, 2015 Lofion order is affirmed, Maxon’s remedy of disgorgement of those fees will be moot. This fact alone presents a very real possibility of inconsistent rulings. For example, the court could tule in this case that Maxon’s causes of action for declaratory relief and violation of the Business and Professions Code be dismissed because ILG already disgorged those fees in Lofion. Yet, if the Lofton order were subsequently reversed after a dismissal, Maxon could find herself without aremedy. Alternatively, if the July 16, 2015 Lofion order is ultimately affirmed, the parties and court would waste judicial resources litigating issues that would be resolved in the Lofion case and that Maxon would be collaterally estopped from pursuing here. Furthermore, ILG could be faced with the real risk of multiple judgments for the same fees, a result possible if Maxon were allowed to proceed with and then prevailed on her claim for disgorgement in this action before the orders in Lofion were final. Maxon also admits that the amount of claimed compensatory damages at issue in this case will be directly impacted by the resolution of the pending appeal in Lofton. Opp. at 4: 20-22 -2- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKunepinst PC 801 K STREET, SurTe 2100 SACRAMENTO, CALIFORNIA 95814 (“The Court of Appeal’s ruling in [the pending Lofton appeal] is likely to affect the amount of damages recoverable by Plaintiff and the class in this matter” (emphasis original)). Maxon now claims damages arising from the July 16, 2015 Lofton order currently on appeal, namely, the balance of the alleged $10,000-per-client settlement the clients were according to Maxon supposed to receive from the same $6 million settlement fund from which ILG originally obtained payment for its $5.5 million in fees, to the extent those fees are distributed to Lofton class members beyond the 600 ILG clients. Maxon acknowledges that this claimed damage is based on the portion of the July 16, 2015 Lofion order which states that the $5.5 million in fees will be distributed on a pro rata basis to the entire Lofion class, as opposed to just the 600 ILG clients) — the same July 16, 2015 order that is the subject of the pending appeals in Lofton. Opp. at 5:10-19, The fact that Maxon now bases a claim for damages on the very order that is the subject of the pending appeals, is yet further if not conclusive evidence of the necessity of a stay. If the order is ultimately reversed or subsequently modified, Maxon’s claimed damage could evaporate, increase or decrease. This uncertainty of claimed damages is the primary reason other courts stay xxxxx malpractice and breach of fiduciary duty cases while the related underlying case is still ongoing. See Rosenthal v, Wilner (1988) 197 Cal.App.3d 1327, 1333-1334 (noting that a stay was mandated where proximate cause and damages issues would be affected by the outcome of the pending appeal in the underlying case and holding that stay continued until all avenues of judicial review—including petition for writ of certiorari to United States Supreme Court—were exhausted); Adams v. Paul (1995) 11 Cal.4th 583, 592-593 (affirming that a stay of a malpractice action is proper where actual injury and damages are in question, to assuage any concerns regarding “premature filing of malpractice claims” or the “risk of inconsistent pleadings or judgments”); Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 513-514 (encouraging the “liberal use of... stays in malpractice cases” to “reduce the impact on the underlying litigation, ensure that plaintiffs do not have their claims prematurely barred... and allow current counsel, to the extent practicable, to continue to work to ameliorate the consequences of any past mistakes”); Jordache Enterprises Inc. v. Brobeck, Phleger & Harrison rat REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLINeDINST PC 801 K Street, Surre 2100 SACRAMENTO, CALIFORNIA 95814 (1998) 18 Cal.4th 739, 749 (citing Adams, supra, in confirming the trial court’s “inherent authority to stay a xxxxx malpractice action” where questions about actual injury and resulting damages arise in simultaneous litigation); Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1211 (Stay of xxxxx malpractice suit arising from an underlying criminal defense representation, to allow the plaintiff to pursue post-conviction remedies, was proper). Here, not only are Defendants appealing the operative Lofion order, but so are class members Summers and Kaye, including their motion to vacate all of the settlements in their entirety. Maxon provides no contrary authority, instead attempting to parse the procedural posture of the cases cited and distinguish those cases, First, Maxon attempts to characterize stays in xxxxx malpractice cases as somehow only generally applicable to situations in which claims against the attorney are stayed pending final resolution of adverse underlying judgments against the client, Opp. at 7:9-14. Setting aside this over generalization, Maxon wholly ignores the fact that she now claims to be aggrieved by the Lofton court’s order requiring distribution of the ILG xxxxx fees to the entire Lofion class. Thus, under Maxon’s rationale, it would be wholly appropriate to stay the instant case against the attorneys, pending final resolution of the order that Maxon claims is adverse to her. Maxon goes on to concede that three California Supreme Court cases cited by ILG discuss the policy that a stay pending the appeal of the underlying case is the appropriate remedy to resolve the tension between a plaintiff's need to file a timely xxxxx malpractice lawsuit within the statute of limitations and the attorney’s need for certainty with respect to causation and damage.' Opp. at 7:6-8:7 (citing Adams v, Paul (1955) 11 Cal.4th 583, 592-93; Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 758; Coscia v. McKenna & Cunneo (2001) 25 Cal.4th 1194, 1210-11). Maxon’s criticism is that because these cases hold that the statute of limitations accrues as soon as the client is injured by a judgment in ' 4 fourth California Supreme Court case cited by ILG, Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 513, similarly discussed “the liberal use of stays” to balance plaintiffs’ interest in filing timely claims against the ability to mitigate damages through continued litigation of the underlying case. -4- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLUINEDINST PC 801 K Street, Surte 2100 SACRAMENTO, CALIFORNIA 95814 the underlying litigation, the courts’ attempt to balance that rule and conserve judicial resources by universally encouraging stays until final resolution of the underlying action is merely “dicta.” Yet, citing to Adams v. Paul and the risk of inconsistent results, the Coscia court went so far as to advise the trial court that it “should” stay the xxxxx malpractice case pending resolution of the underlying appeal rather than dismiss Plaintiff's suit. Coscia, 25 Cal.4th 1194, 1210-11, And, whether dicta or otherwise, the policy behind the stay remedy encouraged by the California Supreme Court for over six decades is as sound, and unchallenged as ever. Maxon does not cite to a single case that suggests otherwise. And, contrary to Maxon’s contention that no case cited by ILG involved a dispute regarding the propriety of a stay (Opp. at 7:3-6), the case of Rosenthal v. Wilner, 197 Cal.App.3d 1327, squarely addressed the propriety of a stay in determining whether dismissal of a xxxxx malpractice and breach of fiduciary duty lawsuit was appropriate under the rule requiring a suit to be brought to trial within five years.” In Rosenthal, the appellate court was faced with the question of whether a mandated stay ended following the California Court of Appeal’s remittitur of the appeal of the underlying judgment or continued until the United States Supreme Court had dismissed a subsequent writ of certiorari. Rosenthal, 197 Cal.App.3d at 1329. In its recitation of the factual background of the case, the court first noted that the trial court had originally denied the attorney defendants’ motion for a stay of the lawsuit while the underlying case was still being litigated on appeal, but that the appellate court had issued a writ of mandate ordering the trial court vacate its order denying the motion for stay and issue a stay pending appeal of the underlying litigation. Jd. at 1331. The court quoted extensively from its order mandating a stay of the action, reasoning that the stay was required because, until the underlying action was final, the xxxxx malpractice plaintiff could not establish proximate causation of damage against the attorney. /d. And central to its holding that the stay remained in effect until the appellant ? In a footnote, without analysis, Maxon claims that Rosenthal did not involve a dispute over the propriety of a stay. (Opp. at 7, fn. 4), That same footnote similarly criticized a citation to Shopoff & Cavallo LLP v,. Hyon (2008) 167 Cal.App.4th 1489, a case cited only for the proposition that the elements of duty, breach, causation and damage applied equally to a xxxxx malpractice and breach of fiduciary duty claim. -5- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONK.INeDINST PC 801 K STREET, Surre 2100 SACRAMENTO, CALIFORNIA 95814 oOo Ia DW exhausted its remedies through a subsequent writ of certiorari, the court reasoned that the very purpose of the stay was because many issues related to causation and damages would be affected by the ultimate determination of the judgment in the underlying case. /d. at 1333-34. Thus, so long as it remained possible that the underlying judgment was not final, the stay should remain in effect. Id. Similarly, here, the resolution of the appeal of the July 16, 2015 order in the Lofton case will impact liability, causation, damages and key evidentiary issues as to Maxon’s claims, including her claim for disgorgement of the same $5.5 million in fees now deposited with the Lofton court, and Maxon’s new theory claim for damages relating to how the Lofion court ultimately distributes those fees. Until those issues are resolved, the claims are speculative and the risk of needless litigation and inconsistent rulings is dispositive. Lastly, Maxon criticizes the insurance cases cited by ILG (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, California Ins. Guarantee Ass’n v. Superior Court (1991) 231 Cal.App.3d 1617, and Haskel, Inc. v. Superior Court (1995) 33 Cal.App.4th 963) where stays were ordered to prevent an insurance company from litigating its coverage defenses against its insured through a declaratory relief action or conducting discovery while the underlying lawsuit against the insured was still pending. Opp. at 8:8-16. Maxon acknowledges that the stays in the insurance cases were justified to eliminate the risk of inconsistent factual determinations that could prejudice the insured, but she claims no such risk is at issue here because there is no existing litigation against or on behalf of Maxon or the ILG clients. /d. Maxon baldly claims that her and the other ILG clients’ claims against Wells Fargo were resolved years ago. At worst, this argument is disingenuous. At best, the statement wholly ignores the ongoing proceedings and pending appeals in Lofton, including the fact that Maxon subsequently intervened in the Lofton litigation as a plaintiff following the final judgment and settlement with Wells Fargo, and that she continues to litigate issues related to ILG’s settlement of its clients’ claims and receipt of attorney fees in the Lofton case to this day. Indeed, Maxon’s attorneys still have a pending motion for attorney’s fees for their efforts in Lofton (yet another item of potential “damage” they are claiming here), have indicated Maxon’s intent to file a ~6- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKunepinst PC 801 K Street, Surte 2100 SACRAMENTO, CALIFORNIA 95814 a nw tespondent’s brief in response to the appeal, and actively appear in the action at every turn. And unlike the typical underlying case in which only the plaintiff is involved, here, the Lofton case involves both Maxon as a party and ILG, which is the subject of an order to disgorge its fees to the court.? The Lofton case is far from concluded in light of the pending appeal and related proceedings scheduled to take place following the appeal. Maxon’s contention that the Lofion case and settlement is final also ignores pending appeals filed by other class members in the Lofton court which seek to vacate the judgment and settlement entered in Lofton. Moreover, just as the insurance cases involved the risk of inconsistent factual determination if not stayed, there are numerous evidentiary privileges at issue in the pending Lofton appeal, the resolution of which could impact fact discovery and determinations in this action. Allowing this case to proceed before final resolution in Lofion risks inconsistent rulings and judgments and litigation of issues that may ultimately be resolved in Lofton. B. Alternatively, the Current Stay Pending Appeal of the Denial of the Motion to Compel Arbitration Should Remain in Effect Until All Appellate Remedies Related to a Writ of Certiorari are Exhausted Maxon’s sole argument in opposition to ILG’s request that a stay be enforced until it has exhausted its right to appellate review of the order denying its motion to compel arbitration to the United States Supreme Court is an unsupported diatribe regarding the potential delay such a filing would cause. While it is true that appeals can prolong litigation, there is nothing nefarious about a party exercising its due process rights to pursue appellate remedies available to it. Moreover, such stays serve judicial economy precisely because they can effectively prevent needless litigation on issues that may be completely resolved pending appeal. Rosenthal, supra, 197 Cal.App.3d 1323-1334. 3 The existence of other pending litigation involving the same parties and the same claim or controversy provides an independent basis for a stay of one case while the other is litigated. See Cal. Code Civ. Proc. § 430.10(c); Plant Insulation v. Superior Court (1990) 224 Cal.App.3d 781, 787-788; Hanrahan v. Superior Court (1947) 81 Cal.App.2d 432, 435. -7- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKLINEDINST PC 801 K Street, Surre 2100 SACRAMENTO, CALIFORNIA 95814. With respect to appeals of denials of motions to compel arbitrations, stays are mandated because the legislature has made such orders immediately appealable precisely to avoid litigation in a forum that may not have jurisdiction over the dispute. Cal. Code Civ. Proc, §§ 1281.4, 1294(a), 1049; Smith v. Superior Court (1962) 202 Cal.App.2d 128, 131; but see Montano v. Wet Seal Retail, Inc. (2015) 232 Cal.App.4th 1214 (rejecting automatic stay after denial of arbitration). Moreover, if the action were not stayed pending ILG’s writ of certiorari, ILG would be placed in a “Hobson’s Choice” of either refusing to participate in the litigation at its own peril or participating in discovery and motion practice that could be construed as a waiver of its right to compel arbitration. Zamora v. Lehman (2010) 186 Cal.App.4th 1, 6. In any event, a stay “pending resolution” of an appeal continues even after a remittitur until the appellant exhausts its remedy of a writ of certiorari to the United States Supreme Court. Rosenthal, 197 Cal. App.3d at 1333-34. Here, the trial court stayed the action pending the ILG’s appeal of the order denying its motion to compel arbitration. As in Rosenthal, so long as it is possible that the United States Supreme Court could grant certiorari, the action should remain stayed. Id. Cc Maxon’s Unsupported “Undue Delay” Argument Does Not Defeat a Stay Maxon next complains that the stay ILG seeks here would unnecessarily delay these proceedings, speculating that this would result in another year of delay. Indeed, Maxon cites to no case for the proposition that delay, an inherent consequence of any stay order, is grounds for denying a stay. Indeed, Maxon does not cite to a single case in which a stay was denied for any reason. Instead, Maxon chastises ILG for its exercise of its due process rights to appeal an adverse order against it.4 4 Nor does Maxon offer any support for her argument, based on the Maxon v. Capstone Law complaint, that the ILG attorneys have “taken advantage of these delays to deplete ILG’s assets and shield themselves from liability by transferring most of the ILG attorneys, along with ILG’s accounts receivable (its cases) to a newly created entity, Capstone law.” Opposition at 6:20-23. In that case, like this one, no discovery has been conducted, no depositions have been taken and no evidence has been put forth to support any of the unverified allegations in the complaint. See Cassady v. Morgan, Lewis & Bockius LLP (2006) 145 Cal.App.4th 220, 241 -8- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKuneDinst PC 801 K STREET, Surte 2100 SACRAMENTO, CALIFORNIA 95814 oN DW In support of this argument, Maxon falsely accuses ILG of improperly using the appellate process to delay discovery in this case and of filing appeals that lack merit based solely on the fact that ILG’stwo appeals thus far have not resulted in reversals. While ILG does not intend to relitigate its appeals here, it notes that its motion to compel arbitration was based on a written arbitration agreement in an ILG fee agreement signed by Maxon and that decades of United States Supreme Court cases have required enforcement of arbitration agreements in even void contracts. Moreover, the issues in the Lofton court involve novel issues of class action court’s jurisdiction over non-class lawyers, post-judgment powers to enforce or change settlement agreements and issues surrounding mediation confidentiality and attorney-client privileges. In any event, a court’s weighing of the relative merits or chances of success of a pending appeal is vot the test for determining whether a stay is appropriate. Rather a stay is appropriate to resolve uncertainty of the final outcome of an underlying case until “all avenues of judicial review [have been] exhausted.” Rosenthal, 197 Cal.App.3d at 1334 (holding that an ultimately unsuccessful writ of certiorari in underlying case stayed malpractice litigation until dismissed by the Court). ; As noted above, while stays pending resolution of malpractice cases necessarily delay the litigation, they can also curtail it. To that end, rather than deride parties for filing appeals, the California Supreme Court has for decades advocated “the liberal use” of stays to avoid needless time and expense litigating issues that may be completely resolved by an appeal and to avoid the risks of inconsistent ruling and judgments. Beal Bank, SSB y, Arter & Hadden, LLP, 42 Cal.4th at 513; see also Adams v. Paul,11 Cal.4th at 592-93; Jordache Enterprises, Inc., 18 Cal.4th at 758; Coscia, 25 Cal.4th at 1210-11. Additionally, plaintiff's Opposition, despite quoting other portions of the Lofton I opinion extensively, ignores the Court’s express recognition of the potential prejudice to ILG in this case, (allegations in a complaint do not constitute evidence of the truth of those allegations.) These arguments do not support denying a stay of this action, Moreover, the attorneys that left [LG to found or join Capstone taking their clients with them, did so over 3 years ago. -9- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTIONKuepinst PC 801 K Street, Surte 2100 SACRAMENTO, CaLiFoRNIA 95814 aya Dw when it noted that “ILG would be within its rights to request a preliminary injunction prohibiting Maxon from pursuing [this action] until the court has resolved the issues in this case.” Lofton v. Wells Fargo Home Mortgage (“Lofton I’) (2014) 230 Cal.App.4th 1050, 1068. Ii. CONCLUSION Maxon cannot change the facts that this action and the Lofton action deal with the same dispute over disgorgement of ILG’s $5.5 million in attorneys’ fees, as plaintiff admits in her Notice of Related Case [RJN, Ex. 2], and confirms in her Opposition. Both Lofton and this action arise from the same facts and raise the same issues, and allowing both to proceed at once presents a potential of inconsistent orders and rulings. The ultimate disposition of the fees held by the Lofion Court and the motion to vacate the Lofton settlement will potentially moot causes of action and remedies alleged by Maxon here. Allowing this case to proceed creates a very real potential of a double recovery of the same fees or inconsistent orders and judgments, precisely the types of results stays are designed to prevent. KLINEDINST PC ace DATED: March 7, 2016 By: Natalie P. Vance J. Scott Miller Attorneys for Defendants xxxxxxxxxxxxxxxx GROUP APC; xxxxxxxxxxxxxxxx GROUP LLP; xxxx xxxxx xxxxxxx; G. ARTHUR MENESES; MONICA BALDERRAMA; and JOSEPH S. LIU -10- REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO STAY THE ACTION