Hung v. Wang, B054487

Citation11 Cal.Rptr.2d 113,8 Cal.App.4th 908
Decision Date06 August 1992
Docket NumberNo. B054487,B054487
CourtCalifornia Court of Appeals
PartiesHak Fu HUNG, Plaintiff and Appellant, v. Warren WANG, et al., Defendants and Respondents, David L. Sharp, Objector and Appellant.

Robie & Matthai, James R. Robie, Pamela E. Dunn, and Laura K. Legge, Lum, Roberts & Gutierrez and Michael W. Roberts, Los Angeles, for defendants and respondents Tilles, Webb, Kulla & Grant and Ronald J. Grant.

Lum, Roberts & Gutierrez and Michael W. Roberts, South Pasadena, for defendants and respondents Wang & Yu, Warren Wang and Edward Yu.

EPSTEIN, Associate Justice.

This appeal arises from a dispute surrounding the wind up and dissolution of a closely held accounting corporation. Hak Fu Hung, a shareholder of the corporation, filed a complaint alleging that respondent Hung appeals from a trial court order dismissing his complaint for failure to obtain court approval to file a complaint containing conspiracy allegations against attorneys as required by Civil Code section 1714.10. 1 He raises three constitutional challenges to the validity of the statute. We conclude that only his argument that section 1714.10 violates the right to jury trial raises a substantial question.

attorneys conspired with their clients, also shareholders of the corporation, to loot the corporate assets.

In the published portion of this opinion, we conclude that section 1714.10, properly construed, does not require judicial factual determinations which infringe on the right to jury trial. We also hold that the statute does not offend the constitutional rights to due process and equal protection of the law. Having concluded that section 1714.10 is valid, we must also conclude that appellant was required to follow the petition procedure specified by the statute before filing an action alleging a conspiracy between an attorney and the attorney's client. We reject appellant's challenge to the propriety of an earlier trial court order denying a petition for leave to allege the conspiracy causes of action, because we have no jurisdiction to review that order.

In the unpublished portion of this opinion we reject appellant's several arguments directed at application of section 1714.10 to the instant case. We also find no abuse of discretion in the trial court's order dismissing the complaint in its entirety rather than striking only the conspiracy allegations. Finally, we conclude that the trial court did not make the finding of bad faith required for a monetary sanctions order against an attorney under Code of Civil Procedure section 128.5. On that basis, we reverse the award of sanctions.


In 1982, Warren Wang, David Wong, Hak Fu Hung and Edward Yu organized the accountancy corporation of Wang, Wong, Hung & Yu. (We refer to this entity as "the corporation.") Wang and Wong each owned 32.5 percent of the shares, appellant owned 25 percent, and Yu owned 10 percent.

Until the dissolution of the corporation in December, 1989, Wang served as president In June 1985, appellant took a leave of absence from the corporation to travel to Hong Kong, remaining there for more than a year. The corporate officers had agreed that if he stayed in Hong Kong for more than one year, appellant would relinquish his ownership interest in the firm, and would receive compensation based on the value of his interest when he left.

and Yu as secretary. Wong served as vice-president until his resignation and Hung, the appellant, served as treasurer until his resignation.

In January 1988, Wong decided to leave the corporation and entered into negotiations with Wang and Yu for the purchase of his interest. In June, 1988, while these negotiations were still in progress, Wong resigned from the firm.

At the same time, Wang and Yu retained respondents Ronald J. Grant and the firm of Tilles, Webb, Kulla & Grant to represent them in the negotiations with Wong. Shortly thereafter, Wang, acting as president of the corporation, retained Grant and his firm to represent the corporation. (We refer to Grant and the law firm as "the lawyers.")

In July 1988, appellant learned that the other officers were considering dissolution of the corporation, and retained L. David Sharp to represent his interests. The shareholders and their respective counsel met several times in August and September to discuss the winding up and dissolution of the corporation. In August, Sharp asked that Grant withdraw as counsel for the corporation because of a conflict of interest arising from his dual representation of Wang and Yu. Grant refused to withdraw.

On September 28, 1988, Grant prepared a Written Consent of the Shareholders to the Election to Wind Up and Dissolve the Corporation pursuant to Corporations Code section 1900, subdivision (a). This document was sent to counsel for Wong, but not to appellant's attorney. Wong gave written consent to wind up and dissolve the corporation. Sharp and counsel for Wong received copies of the dissolution documents in October 1988.

Grant hired an appraiser who determined the value of the corporation's office furniture and equipment. An acrimonious round of correspondence between Grant and Sharp ensued. Sharp renewed his demand that Grant withdraw as corporate counsel. After Sharp threatened to seek appointment of a receiver for the corporation and to disqualify Grant, the lawyers withdrew from representation of the corporation in February, 1989.

In early March 1989, Grant withdrew from the settlement negotiations following continuing demands for his resignation by Sharp. Wang and Yu retained new counsel to represent them in the settlement negotiations, which were fruitless.

In September 1989, appellant filed a verified petition under section 1714.10 for an order allowing him to file a complaint which would include causes of action alleging that Grant and his law firm had conspired with Wang and Yu to defraud appellant and the corporation.

Attached to the petition was the complaint appellant proposed to file. The proposed complaint contained two causes of action against the lawyers for conspiracy to defraud: one by plaintiff in his individual capacity, and one on behalf of the corporation as a shareholder's derivative action. The petition was supported by declarations of Hung and Sharp and by extensive exhibits.

The lawyers opposed the petition, submitting a declaration by Grant and voluminous exhibits. The lawyers argued that they had committed no civil wrong by advising their clients on the dissolution and windup of the corporation. Appellant filed a reply supported by a supplemental declaration by Sharp and an additional 44 pages of exhibits.

The petition came on for hearing on October 6, 1989. The court denied the petition. In its minute order, the court explained that "Petitioner has failed to show even a possibility (let alone a 'reasonable probability') that a civil conspiracy could be proved. (See Civil Code section 1714.10.) [p] To suggest that an attorney advising On December 4, 1989, appellant filed a petition for writ of mandate seeking appellate review of the trial court's ruling. We denied the petition for absence of facts showing entitlement to extraordinary relief.

his clients is per se guilty of conspiracy is to explain why Civil Code section 1710.10 [sic ] was enacted. [p] Majority shareholders have a right to dissolve their corporation and the attorneys assisting them towards achieving that goal are not doing anything wrong. [p] Assuming there was ever a conflict of interest, it has been resolved by the [8 Cal.App.4th 918] attorney's withdrawal and its prior existence does not support a conspiracy theory."

Before we issued our denial of appellant's petition for writ of mandate, appellant filed a complaint for damages against Wang, Yu, Wong & Yu, and the lawyers, and unnamed Doe defendants. In his opening brief, appellant explains "This was done to challenge the constitutionality and applicability of Civil Code § 1714.10." This complaint initiated the lawsuit from which the present appeal was taken. The complaint was brought on behalf of appellant in both his individual capacity and as a shareholder on behalf of the corporation, but was never served on the lawyers.

Shortly after we denied the petition for mandate, appellant filed and served a first amended complaint for damages against the lawyers and their clients. In his individual capacity, appellant alleged causes of action for bad faith dissolution (against the clients only), "concert of action," fraud and deceit, constructive fraud, breach of fiduciary duty, professional negligence, and intentional infliction of emotional distress. The derivative causes of action alleged conspiracy to defraud, fraud and deceit, and professional negligence. With the exception of the cause of action for bad faith dissolution, each cause of action incorporated the allegations of the cause of action for "concert of action."

The lawyers moved to strike the complaint on the ground that appellant had violated the mandate of section 1714.10. They argued that the allegations of the cause of action for "concert of action" were virtually identical to the conspiracy cause of action alleged in the proposed complaint previously reviewed by the trial court in the section 1714.10 proceedings.

Appellant opposed the motion to strike and the lawyers filed a reply. The trial court took the matter under submission following lengthy argument. Ultimately, the trial court issued an order granting the motion to strike the complaint and dismissing the action. 2

The lawyers filed a memorandum of costs in the amount of $163. Appellant moved to tax costs, arguing that the lawyers were not "prevailing parties" within the meaning of Code of Civil Procedure...

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