Sprengel v. Zbylut

• Decision Date: 13 October 2015
• Docket Number: B256761
• Court: California Court of Appeals Court of Appeals
• Parties: Jean E. SPRENGEL, Plaintiff and Respondent, v. Gregory A. ZBYLUT, et al., Defendants and Appellants.

241 Cal.App.4th 140

194 Cal.Rptr.3d 407

Jean E. SPRENGEL, Plaintiff and Respondent,

v.Gregory A. ZBYLUT, et al., Defendants and Appellants.

B256761

Court of Appeal, Second District, Division 7, California.

Filed 10/13/2015

As Modified on Denial of Rehearing October 29, 2015

Matthew J. Norrisfor Defendant and Appellant Gregory A. Zbylut.

Nemecek & Cole, Michael McCarthyand Susan S. Baker, for Defendants and Appellants Vincent Cox and Leopold, Petrich & Smith.

The Law Offices of Fred J. Knez and Fred J. Knez, for Plaintiff and Respondent.

Opinion

ZELON, J.

Jean Sprengel and Lanette Mohr created “Purposeful Press, LLC” to market and distribute a guidebook that Sprengel wrote about the side effects of chemotherapy

. Several years later, Sprengel and Mohr had a dispute about the management of the company. Sprengel filed an action to dissolve Purposeful Press and a separate action alleging that Mohr had infringed her copyrights to the guidebook. Mohr, purportedly acting as the manager of Purposeful Press, retained Gregory Zbylut, Vincent Cox and Leopold, Petrich & Smith (LPS) to represent the company in the actions. After the suits were resolved, Sprengel filed a malpractice action alleging that Zbylut, Cox and LPS had violated the duty of loyalty they owed to her under the Rules of Professional Conduct by pursuing Mohr's interests in the underlying dissolution and copyright actions. Sprengel alleged she had an implied attorney-client relationship with each defendant based on her status as a 50 percent owner of Purposeful Press.

Defendants filed a special motion to strike pursuant to Code of Civil Procedure section 425.16. The trial court denied the motion, concluding that Sprengel's claims did not arise from defendants' protected litigation activities, but rather from their alleged breach of professional and ethical duties that attorneys owe to their clients. We affirm.

FACTUAL BACKGROUND

A. Summary of Events Preceding Sprengel's Malpractice Action

1. Formation of Purposeful Press

In 2008, Jean Sprengel, a licensed anesthesiologist, wrote and published a guidebook for treating the side effects of chemotherapy

. In March of 2008, Lanette Mohr and Sprengel agreed to form a business to market the guidebook. They retained Kenneth Stream to assist them in forming “Purposeful Press,” a limited liability corporation that would develop and distribute Sprengel's work. Stream prepared an “Operation Agreement” stating that Sprengel and Mohr were each 50 percent owners of the company. Under the terms of the agreement, Sprengel was to provide an initial cash investment of $5,000 and Mohr was to provide “organizational and business planning services with an agreed-upon value of $5,000.” The agreement identified Mohr as “the sole manager of the company.”

In the fall of 2010, Mohr informed Sprengel she would not continue to manage the company unless her salary was increased. In response, Sprengel told Mohr she was willing to take over the managerial duties and requested that Mohr turn over the corporate records. Mohr, acting through her attorney Roger Rosen, “refused to surrender the books and records of the [c]ompany and instead asserted for the first time that she was the sole manager of the company and that [Sprengel] had no right to participate in any of the decisions affecting the [c]ompany.”

In March of 2011, Mohr, purportedly acting as manager of Purposeful Press, retained Gregory Zbylut to provide legal services related to the dispute with Sprengel. Zbylut and Mohr thereafter “arranged for” Vincent Cox and his firm, Leopold Petrich & Smith (collectively LPS), to enter into a retainer agreement with Purposeful Press. The agreement, which was signed by Cox and Mohr, stated that LPS had been retained to investigate and confirm the company's intellectual property rights in the guidebook.

2. Sprengel's lawsuits against Mohr and Purposeful Press

In September of 2011, Sprengel filed a complaint for involuntary dissolution against Mohr and Purposeful Press, which was described as “a nominal defendant” that had been named as “a necessary party to an action of dissolution.” The complaint alleged that Purposeful Press could no longer carry out its duties “in conformity with the Articles of Organization or Operating Agreement” because the “management of the company [had become] deadlocked or subject to internal dissension.”

One month later, Sprengel filed a separate action against Mohr alleging that she had infringed Sprengel's copyrights to the original guidebook and various derivative works. The complaint asserted that although Sprengel had initially granted Purposeful Press a revocable implied license to sell the original and derivative works, she had later revoked the license. The complaint further alleged that despite Sprengel's revocation, Mohr, acting through Purposeful Press, had continued to market and sell the works.

After the suits were filed, LPS and Mohr signed amendments to the original retainer agreement with Purposeful Press stating that the parties had agreed to expand the scope of legal services to: (1) address problems LPS had discovered in the copyright registrations that Kenneth Stream had prepared and filed on behalf of the company; (2) pursue a declaratory relief action to confirm Purposeful Press's “rights in its intellectual property”; and (3) pursue damage claims against Sprengel, who had allegedly transferred over $150,000 out of Purposeful Press's bank accounts without Mohr's authorization.

In December of 2012 and January of 2013, a federal district court presided over a five-day bench trial on Sprengel's copyright claims. After the trial was completed, the court issued its “Findings of Fact and Conclusions of Law,” which declared Sprengel as the sole author and owner of the intellectual property rights of the chemotherapy guidebook and various derivative works. The court further found, however, that Sprengel had provided Mohr and Purposeful Press an implied license to publish and sell the works, thereby “absolv[ing]” them of any “liability for copyright infringement.” The court's findings also noted that, prior to trial, it had ruled Purposeful Press “need not actively participate in [the] litigation” because the company “did not appear to have any interests independent of its two members” and “neither Sprengel nor Mohr could be trusted to retain independent counsel to provide Purposeful Press with neutral representation.”

B. Sprengel's Malpractice Action Against Zbylut and LPS

1. Summary of Sprengel's complaint

In September of 2013, Sprengel filed the current lawsuit against Zbylut and LPS. The complaint alleged that when Mohr retained defendants to represent Purposeful Press in the underlying dissolution and copyright actions, there was an understanding between them that defendants would “provide legal services for the benefit of Mohr, and to the prejudice of [Sprengel], under the pretext that the legal services were for the benefit of the [c]ompany.” The complaint further alleged that defendants had “solicited payment from the [c]ompany for their legal services in conjunction with the [d]issolution [c]ase and the [c]opyright [c]ase without [Sprengel's] knowledge or consent. The legal services provided by [d]efendants in the d]issolution [c]ase and the [c]opyright [c]ase were primarily devoted to the best interests of Mohr and assisting [Mohr's individual counsel Rose] in his representation of Mohr in those cases, at the [c]ompany's expense.”

Sprengel alleged four causes of action: (1) professional negligence (malpractice); (2) breach of fiduciary duties; (3) constructive fraud; and (4) “common count for money had and received.” In her malpractice claim, Sprengel asserted that “[b]y undertaking to provide legal services and soliciting payment from [Purposeful Press] in the [dissolution and copyright cases], [d]efendants became obligated to [Sprengel] to exercise reasonable care and skill with the standard of care for attorneys ... and in accordance with California Rules of Professional Conduct Rules 3–110; 3–200; 3–300; 3–310; 4–100; 4–101; and 4–200.” She further alleged defendants had breached the professional obligations they owed to her by “fail [ing] to provide reasonable care and skill in undertaking the legal services”; “fail[ing] to communicate with [Sprengel] and inform [her] of material facts and information relating to the legal services provided and charged to [Purposeful Press]”; and “fail[ing] to avoid conflicts of interest and violat[ing] Rules of Professional Responsibility governing representation involving conflicts of interest including the failure to obtain written waivers from [Sprengel] and Mohr.”

Sprengel's second claim for breach of fiduciary duty similarly alleged that “by undertaking to provide legal services regarding the affairs of [Purposeful Press] including the disputes between the [c]ompany's two 50 percent owners and causing the [c]ompany to pay for those legal services, a fiduciary relationship existed between [Sprengel] and [d]efendants such that [d]efendants owed to [Sprengel] the duties of honesty, good faith, undivided loyalty and full disclosure of material facts ... and were obligated to comply with all of the Rules of Professional Conduct ... including Rules 3–200(a); 3–300; and 4–200.” Defendants allegedly breached their fiduciary duties by, among other things, concealing material facts, engaging in and concealing a conflict of interest, charging Purposeful Press for legal services “calculated to benefit the interests of Mohr and prejudice [Sprengel]” and failing to obtain Sprengel's consent for payment of legal services.

Sprengel's third and fourth claims for constructive fraud and “common count for money had and received” were each based on defendants' breach of the professional obligations and fiduciary duties they allegedly owed to Sprengel. The constructive fraud claim asserted defendants' misconduct was “willful, malicious and done with a conscious disregard for plaintiff's...