PDTW, LLC v. Kring & Chung, LLP

PDTW, LLC, Plaintiff and Appellant, v. KRING & CHUNG, LLP et al., Defendants and Respondents.

G059293

California Court of Appeals, Fourth District, Third Division

May 31, 2022

NOT TO BE PUBLISHED

Appeal from a judgment of the Superior Court of Orange County, No 30-2019-01115265, William D. Claster, Judge.

LDT Consulting, Inc. and Dimitrios P. Biller for Plaintiff and Appellant.

Long & Levit, Glen R. Olson, Jessica R. MacGregor, and Jonathan Rizzardi for Defendants and Respondents.

OPINION

GOETHALS, J.

In 2015, Paula Thomas and her company, PDTW, LLC (PDTW) retained the law firm of Kring & Chung, LLP (Kring &amp Chung) to file a lawsuit for various employment and business claims. While that lawsuit was pending, PDTW filed for chapter 7 bankruptcy. PDTW did not disclose any potential claims against Kring & Chung on its initial bankruptcy schedule of assets, nor did it ever supplement its schedules to add those claims.

In the present action, PDTW attempts to sue Kring & Chung for legal malpractice, fraud, and related claims arising out of its handling of the underlying action. The trial court sustained Kring & Chung's demurrer to PDTW's complaint, finding, among other things, that PDTW's failure to disclose the present claims in the bankruptcy proceedings judicially estopped it from pursuing the subject action. We agree and therefore affirm the judgment.

FACTS

The facts underlying this action are convoluted; they involve multiple prior lawsuits and judicial rulings. Below we summarize the portions of those proceedings relevant to the issues on appeal.

"For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice." (Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924.) In addition, "we accept as true . . . the contents of any exhibits attached to the complaint, and in the event of a conflict between the pleading and an exhibit, the facts contained in the exhibit take precedence over and supersede any inconsistent or contrary allegations in the pleading." (Jibilian v. Franchise Tax Bd. (2006) 136 Cal.App.4th 862, 864, fn. 1.)

Subject to these principles, the following facts are taken from the complaint in this action, including the attached exhibits, and the voluminous judicially noticed court filings from four other cases.

1. The Thomas Wylde Brand

Paula Thomas is a fashion designer. In 2006, she founded a brand of luxury women's apparel and accessories called Thomas Wylde, and she created PDTW to distribute the line. Thomas served as PDTW's president, chief executive officer, and chief creative director, and at all relevant times she has been a 99.5 percent owner of PDTW.

In 2013, Thomas created another company, Thomas Wylde Holdings, LLC (TWH), and she assigned her trademark and copyright rights in the Thomas Wylde line to TWH. TWH in turn licensed those rights to PDTW, which continued to distribute the Thomas Wylde line. Thomas owns 100 percent of TWH.

2. The 2014 Deal

Thomas's business underwent major structural changes in 2014. The parties dispute why and how those changes were made. According to Thomas, she decided to bring in a new person to handle the financial aspect of her business so she could focus on the creative side. Other parties maintain the changes were made to rescue the business from financial difficulties.

Whatever the reason for the change, a new company called Thomas Wylde, LLC (TW) was formed in July 2014, and through a series of agreements, including various intellectual property assignments, Thomas transferred her business to TW. TW took over PDTW's role as distributor of the Thomas Wylde line, and TWH eventually filed a certificate of cancellation with the California Secretary of State. Thomas acquired a minority interest in TW in late 2014; she also became a salaried employee of TW and served as its chief creative officer and creative director.

3. The Original Action

In early 2015, months after TW's creation, Thomas's relationship with TW soured. TW terminated her employment in April 2015.

Thomas and PDTW retained Kring & Chung to sue TW and its leadership. In October 2015, Thomas and PDTW filed a verified complaint in Los Angeles County Superior Court against TW and others (the Original Action). (Thomas v. Thomas Wylde, LLC (Super. Ct. L.A. County No. BC596495).) The complaint, filed by Kring & Chung, asserted numerous employment claims, as well as causes of action for breach of contract, breach of fiduciary duty, conversion, and related claims. In essence, Thomas and PDTW accused TW of mistreating Thomas during her tenure at TW, wrongfully terminating her employment, improperly ousting Thomas from the company, and misappropriating corporate funds.

In response, TW and two of its members filed a cross-complaint against Thomas and PDTW, asserting causes of action for breach of fiduciary duty, breach of contract, unjust enrichment, and related claims. Among other things, they alleged Thomas had failed to perform her job duties and was now attempting to undermine TW and the Thomas Wylde brand.

4. PDTW's Bankruptcy

In June 2016, while the Original Action was still pending, PDTW filed a voluntary chapter 7 bankruptcy petition. (In re PDTW, LLC, Bankr. C.D. Cal. No. 6:16-bk-15889-SY.) According to PDTW, it did so at the recommendation of Kring & Chung, who had allegedly conspired with PDTW's bankruptcy counsel and with PDTW's accountants, KF Professional Group (KFP), to put PDTW into bankruptcy proceedings even though PDTW was actually debt free.

In its initial bankruptcy schedules, which Thomas signed under penalty of perjury on PDTW's behalf, and which were filed with the bankruptcy court, PDTW reported that it then had about $1 million worth of personal property and over $2.7 million in unsecured debts. In the section of the schedules listing all "[c]auses of action against third parties (whether or not a lawsuit has been filed)," PDTW disclosed the Original Action as property of the estate. PDTW listed no other pending or potential claims, and PDTW never filed updated schedules disclosing any such claims.

The bankruptcy trustee filed an adversary action against Thomas, TW, and TWH in 2017. The trustee alleged PDTW was the rightful owner of Thomas's copyrights and trademarks, accused Thomas of self-dealing in her management of PDTW, and sought repayment of PDTW's loans to Thomas.

5. The Original Action, Continued

Meanwhile, in the Original Action, Thomas and PDTW fired their counsel, Kring & Chung. Their current counsel, Dimitrios P. Biller, substituted in as their counsel of record in May 2017. A few months later, the trial court stayed the proceedings due to PDTW's pending bankruptcy.

Thomas later dismissed her claims against TW and its management with prejudice. PDTW's claims against TW and its management, and their cross-complaint against Thomas and PDTW, all remained pending but were stayed.

6. The First Malpractice Action

In October 2017, evidently dissatisfied with the 2014 deal, the initial handling of the Original Action, and PDTW's bankruptcy, Thomas (still represented by attorney Biller) filed a complaint in Los Angeles County Superior Court for legal malpractice and fraud against Kring & Chung and the attorneys who had represented Thomas and PDTW in the Original Action (collectively, the Kring & Chung Defendants)^[1] and against PDTW's former in-house counsel David Schnider and his law practice (collectively, the Schnider Defendants)^[2] (the First Malpractice Action). (Thomas v. Schnider (Super. Ct. L.A. County No. BC679247).) In her 172-page first amended complaint, which was filed that same month, Thomas asserted causes of action for legal malpractice, fraud, unfair business practices, defamation, and related claims, alleging defendants had fraudulently induced her to transfer PDTW's business to TW, improperly represented her despite multiple conflicts of interest, and conspired to push her out of TW and force PDTW into bankruptcy.

The bankruptcy trustee filed a notice in the First Malpractice Action concerning PDTW's bankruptcy, advising the court and parties in that case that any malpractice claims by PDTW belonged to the bankruptcy estate and that Thomas could not pursue claims for damages on PDTW's behalf.

Thomas settled her individual claims against the Kring & Chung Defendants in the First Malpractice Action in August 2018. After the trial court dismissed those claims with prejudice, Thomas's claims against the Schnider Defendants remained.

Around that same time, Thomas and TWH filed a second amended complaint, adding as defendants certain attorneys who had represented Thomas and TWH in 2014 and 2015 (collectively, the Greenberg Defendants).^[3]

7. The Second Malpractice Action

Meanwhile, in November 2018, while the Original Action and the First Malpractice Action were still pending, Thomas and TWH (again represented by attorney Biller) filed a second malpractice case in Los Angeles County Superior Court, this time asserting claims against the Kring & Chung Defendants, the Greenberg Defendants, KFP and certain of its employees (collectively, the KFP Defendants), ^[4] and others (the Second Malpractice Action). (Thomas v. Kring & Chung (Super. Ct. L.A. County No. 18STCV05667).) The case was deemed related to the First Malpractice Action and was therefore assigned to the same judge who was presiding over that action.

The complaint in the Second Malpractice Action, which is nearly 500 pages long, again alleged that defendants had conspired to defraud Thomas in 2014 and force PDTW into bankruptcy, and again asserted causes of action...