Jensen v. Charon Solutions, Inc.

PEACHES NONG JENSEN, Plaintiff and Respondent, v. CHARON SOLUTIONS, INC., et al., Defendants and Appellants.

B276050

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

December 20, 2017

ORDER MODIFYING OPINION AND DENYING REHEARINGNO CHANGE IN JUDGMENT

THE COURT:^*

It is ordered that the opinion filed herein on December 20, 2017, be modified as follows:

1. On page 24, line 4, insert a semi-colon after "38 Cal.4th 1252" and then insert the following language between that semicolon and the closing punctuation of that sentence:

Schlumberger Limited v. Superior Court (1981) 115 Cal.App.3d 386, 393 [no waiver of privilege as to current attorneys just because suing prior attorneys for malpractice].)

2. On page 24, line 22, the sentence beginning with "This impairment" is modified to read as follows:

This impairment was critical (and hence prejudicial) because Peaches is not legally entitled to damages for attorney's fees incurred for: (1) representing her in prosecuting her cross-claim in the underlying lawsuit (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 60 (Bertero)); (2) representing her in defending the four claims for which Charon and Segal had probable cause to bring (Crowley, supra, 8 Cal.4th at p. 690); and (3) any remaining fees that were unreasonable (Bertero, at p. 51) (although, as noted below, she might still recover those fees if they are inseparable from the fees for which she is entitled to recover).

There is no change in the judgment.

Respondent's petition for rehearing is denied.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. BC469884)

APPEAL from a judgment of the Superior Court of Los Angeles County. Kevin C. Brazile and Elizabeth Allen White, Judges. Affirmed in part, reversed in part and remanded.

Henry J. Josefsberg for Defendants and Appellants.

Law Offices of Yvonne M. Renfrew and Yvonne M. Renfrew for Plaintiff and Respondent.

* * * * * * After their venture to subdivide and develop a parcel of residential real estate fell apart, one venturer sued the other and lost. The other then turned around and sued for malicious prosecution of the prior lawsuit, and a jury awarded $1 million in compensatory damages and $500,000 in punitive damages. The party facing that verdict now appeals. Both parties' briefs on appeal misrepresent the facts and the law. Our careful review of approximately 5,000 pages of record spawned by the parties' near-decade of nonstop litigation nevertheless leads us to conclude that there is no basis to disturb the trial court's and jury's rulings on liability or the jury's award of punitive damages. However, the trial court prejudicially erred in allowing the malicious prosecution plaintiff to seek over $400,000 in attorney's fees while redacting, on the basis of attorney-client privilege, almost every line of content from the underlying fee bills. Accordingly, we affirm the finding of liability; remand the matter for a new trial on compensatory damages where the fee bills are not to be redacted on the basis of privilege; and, if upon retrial there is an award of compensatory damages of $25,000, affirm the punitive damages award.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

A. Formation of the LLC

In 2000, Peaches Nong Jensen (Peaches)¹ and her longtime friend Perry Segal (Segal) agreed to develop a parcel of property on Cass Avenue in Woodland Hills, California (the property). Peaches owned the property and was living in a house on one half of the property. Their agreement was to subdivide the property, build a home on the newly subdivided portion, and sell that home. Toward this end, Peaches and Segal formed P&P Holdings, LLC (the LLC) through their respective companies, Peachtree Financial Corporation (Peachtree) and Charon Solutions, Inc. (Charon). The companies were equal co-owners of the LLC, and each contributed approximately $21,000 in starting capital. Although Peaches and Segal discussed transferring the property to the LLC, they never did so, and Peaches remained the sole owner of the property during all times pertinent to this appeal.

B. Litigation Against Seller

In March 2004, Peaches learned that the foundation of her home was defective and would require repairs costing more than $300,000. She sued the person who sold her the property for concealing the defects in the property that led to the foundational damage; the seller cross-claimed for rescission. Peaches took out a loan to finance the litigation and secured it with the property. Segal moved to intervene in this litigation on the ground that he had an interest in the property, but the court rebuffed his request. Peaches and the seller eventually settled and dismissed their respective claims.

C. Charon Withdraws from the LLC

Upset because he was excluded from Peaches' litigation with the seller and because he felt Peaches should have consulted him before encumbering the property, Segal sent a letter to Peaches in December 2005 withdrawing Charon from the LLC, demanding a refund of his starting capital, and threatening to sue for $1.5 million in damages. Peaches offered to return the starting capital, but Segal refused her offer.

D. Underlying Lawsuit

1. Complaint and cross-complaint

In December 2008, Charon sued Peaches and Peachtree for: (1) fraud—intentional misrepresentation (Civ. Code, § 1710, subd. 1); (2) fraud—suppression of fact (Civ. Code, § 1710, subd. 3); (3) breach of fiduciary duty; (4) conversion of the property and the proceeds from the loan Peaches used to finance the litigation against the seller; (5) unjust enrichment for retaining Charon's starting capital; and (6) declaratory relief seeking a declaration that the LLC "is the owner" of the property and Charon is the owner of the as-yet-not-subdivided portion of the property.²

Peaches and Peachtree filed a cross-complaint for (1) breach of contract, (2) negligence, and (3) fraud.

2. Demurrers

Peaches and Peachtree demurred to Charon's complaint. As against Peaches, the trial court overruled the demurrer as to the two fraud claims, the breach of fiduciary duty claim, and the conversion claim. As against Peachtree, the court sustained thedemurrer with leave to amend as to those same claims. As against Peaches and Peachtree, the court sustained the demurrer without leave to amend as to the unjust enrichment and declaratory relief claims, stating: "[T]here is no unjust enrichment and nothing to declare."

Charon demurred to the cross-complaint. The trial court overruled the demurrer as to the breach of contract claim, but sustained the demurrer without leave to amend as to the remaining claims.

3. Trial

a. Claims at issue

Charon and Segal filed a first amended complaint against Peaches, realleging the claims that had survived demurrer—namely, (1) fraud—intentional misrepresentation, (2) fraud—suppression of fact, (3) breach of fiduciary duty, and (4) conversion. Because Charon and Segal did not name Peachtree as a defendant in the first amended complaint, the trial court dismissed it as a defendant. Peaches and Peachtree continued with their sole surviving cross-claim for breach of contract.

b. Voluntary dismissal

On the morning jury selection was to begin, Charon and Segal voluntarily dismissed their conversion claim.

c. Nonsuit

After Charon and Segal rested their case-in-chief, Peaches moved for a nonsuit under Code of Civil Procedure section 581c, subdivision (a). The trial court denied the motion, finding "there is sufficient evidence presented for the jury to decide."

d. Verdicts

The jury was provided with a special verdict form requiring it to make findings as to the elements of the various claims and cross-claim. As to each claim and cross-claim, the jury found some elements to be proven, and others not proven; as a result, the verdict was for Peaches on all of Charon's and Segal's claims, and was for Charon and Segal on the cross-claim.

II. Procedural Background

A. Complaint

In September 2011, Peaches and Peachtree sued Charon and Segal (as Charon's "sole owner" and "alter ego") for malicious prosecution of the underlying lawsuit. They sought compensatory damages (for out-of-pocket litigation expenses, Peaches' emotional and mental suffering, and injury to Peaches' and Peachtree's professional reputations) as well as punitive damages.³

B. Anti-SLAPP Motion

Charon and Segal moved to strike Peaches' and Peachtree's complaint under the anti-SLAPP statute (Code Civ. Proc., § 425.16).

After briefing and a hearing, the trial court granted the motion as to Peachtree (because Peachtree had been dropped from the underlying lawsuit prior to trial) but denied it as to Peaches. As to Peaches, the court ruled that her malicious prosecution action "clearly arises from protected activity" within the meaning of the anti-SLAPP statute because her "allegations directly relate to [Charon's and Segal's] filing of [the underlyinglawsuit] and [their] right to petition. However, the court found that Peaches had shown a probability of prevailing on the merits of her claim. The court noted that the denial of Peaches' nonsuit motion during trial in the underlying lawsuit established probable cause as to the three claims that went to trial and survived the motion, but ruled that Peaches had shown a probability of establishing lack of probable cause as to the unjust enrichment and declaratory relief claims that had been dismissed on demurrer without leave to amend, which was enough to support a malicious prosecution claim. The court also concluded that Peaches had made a sufficient preliminary showing of favorable termination as well as malice. Charon and Segal appealed...