Wilhelm v. Pray, Price, Williams & Russell

• Decision Date: 07 November 1986
• Citation: 186 Cal.App.3d 1324,231 Cal.Rptr. 355
• Court: California Court of Appeals Court of Appeals
• Parties: Frank C. WILHELM, as Conservator, etc., Plaintiff and Appellant, v. PRAY, PRICE, WILLIAMS & RUSSELL, Attorneys at Law, and William C. Price, III, Individually, Nellie Cohen, Individually, and Albert Leedy, Individually, Defendants and Respondents. Civ. B010724.

Page 355

231 Cal.Rptr. 355

186 Cal.App.3d 1324

Frank C. WILHELM, as Conservator, etc., Plaintiff and Appellant, v. PRAY, PRICE, WILLIAMS & RUSSELL, Attorneys at Law, and William C. Price, III, Individually, Nellie Cohen, Individually, and Albert Leedy, Individually, Defendants and Respondents.

Civ. B010724.

Court of Appeal, Second District, Division 3, California.

Nov. 7, 1986.

[186 Cal.App.3d 1328] George T. Kelly, Long Beach, for plaintiff and appellant.

Bottum, Rady & Feliton, Nancy L. Rady and Christopher Granville-Mathews, Los Angeles, for defendants and respondents.

KLEIN, Presiding Justice.

Plaintiff and appellant Frank C. Wilhelm (Wilhelm), conservator for the estate and person of Vona J. Goodman (Goodman), appeals from a judgment sustaining the demurrer without leave to amend to the third amended complaint interposed by defendant and respondent Nellie Cohen (Cohen), granting a motion to strike, and awarding sanctions.

Because the complaint does not, and cannot, state a cause of action, the judgment is affirmed.

PROCEDURAL AND FACTUAL BACKGROUND ¹

In March 1981, Goodman, who was 87 years old at the time, retained William C. Price, III (Price) and the firm of Pray, Price, Williams & Russell (Firm) to recover $104,000 she loaned Albert S. Leedy (Leedy) and for which she received a note. On or about April 1, 1981, the Firm filed an action against Leedy (Goodman v. Leedy, et al., Super.Ct. No. 61303). The Firm also petitioned the court for a voluntary conservatorship for Goodman.

After the initiation of the lawsuit, Goodman, accompanied by Leedy, met with Leedy's attorney, Cohen, in Cohen's office sometime in April 1981. Following Goodman's meeting with Cohen and Leedy, her lawsuit against Leedy was dismissed with prejudice by her counsel on May 19, 1981.

On November 17, 1982, Wilhelm was appointed conservator of the person and estate of Goodman. On November 2, 1983, Wilhelm filed the instant action against Price, the Firm, Leedy and Cohen.

In the original complaint, the first cause of action alleged malpractice against Price and the Firm based on the dismissal of the action against Leedy, especially in light of the petition to establish a conservatorship for Goodman filed at the same time as the lawsuit on her behalf. The second cause of action sought damages from Cohen for deceit under Civil Code section 1710. The third and fourth causes of action were for constructive fraud against Cohen and Leedy under Civil Code section 1573.

Cohen interposed successful demurrers to the original, the first and the second amended complaints.

The third amended complaint alleged malpractice against the Firm in the first cause of action. The second cause of action for fraud and deceit against Cohen alleged that when Goodman visited Cohen's office with Leedy, Cohen made certain false representations in order to convince Goodman to dismiss the lawsuit against Leedy. The prayer requested general and punitive damages against both the Firm and Cohen.

Cohen demurred to the second cause of action, and at the same time, filed a motion to strike both the punitive damages and a paragraph that alleged Cohen arranged the meeting in her office with Goodman without notifying Goodman's attorneys in violation of Rules of Professional Conduct of the State Bar, rule 7-103 (rule 7-103). Lastly, Cohen filed a motion for sanctions pursuant to Code of Civil Procedure section 128.5 (section 128.5), alleging Wilhelm's failure to make any significant changes in the complaints following the sustaining of three previous demurrers was in bad faith and caused her unnecessary delay and expense.

After a hearing on December 20, 1984, the trial court sustained Cohen's demurrer without leave to amend to the third amended complaint and granted her motion to strike. It then dismissed Cohen from the instant lawsuit and awarded $500 in sanctions pursuant to section 128.5 against Wilhelm in his representative capacity. ²

CONTENTIONS

Wilhelm contends the trial court erred: (1) in sustaining Cohen's demurrer to the third amended complaint; (2) in striking the punitive damages allegation; and (3) granting the motion for sanctions.

DISCUSSION

1. Scope of appellate review.

The function of a demurrer is to test the sufficiency of a plaintiff's pleading by raising questions of law. (Whitcombe v. County of Yolo (1977) 73 Cal.App.3d 698, 702, 141 Cal.Rptr. 189.) For purposes of appeal, factual allegations of the complaint, properly plead, are deemed admitted by defendant's demurrer. (Thompson v. County of Alameda (1980) 27 Cal.3d 741, 746, 167 Cal.Rptr. 70, 614 P.2d 728; Lopez v. Southern Cal. Rapid Transit Dist. (1985) 40 Cal.3d 780, 784, 221 Cal.Rptr. 840, 710 P.2d 907.)

Leave to amend is properly denied when the facts are not in dispute and the nature of the claim is clear, but there is no liability under substantive law. (Johnson v. County of Los Angeles (1983) 143 Cal.App.3d 298, 306, 191 Cal.Rptr. 704.) "[A]ll intendments weigh in favor of the regularity of the trial court proceedings and the correctness of the judgment. Unless clear error of abuse of discretion is demonstrated, the trial court's judgment of dismissal following the sustaining of defendants' demurrer will be affirmed on appeal [citation]." (Owens v. Foundation for Ocean Research (1980) 107 Cal.App.3d 179, 182, 165 Cal.Rptr. 571.)

It is this standard we apply to the instant appeal.

2. The complaint does not state a cause of action for either fraud or deceit.

Wilhelm contends he adequately stated a cause of action for some form of either fraud or deceit. ³

a. No "actual" or "justifiable" reliance on Cohen's representations.

The essential allegations for an action in fraud or deceit are false representation as to a material fact, knowledge of its falsity, intent to defraud, justifiable reliance and resulting damage. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109, 128 Cal.Rptr 901; Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 100-101, 237 P.2d 656.)

The absence of any one of these required elements will preclude recovery. (Gonsalves v. Hodgson, supra, 38 Cal.2d at p. 101, 237 P.2d 656.)

Wilhelm alleges in the third amended complaint that at their meeting, Cohen made the following representations to Goodman: (1) if Goodman would dismiss her action against Leedy, he would pay back the $104,000; (2) it would be in the best interests of Goodman to dismiss the suit because otherwise it would damage her longstanding and future relationship with Leedy; and (3) Goodman would save substantial monies in attorney's fees.

Wilhelm further alleged Cohen knew these representations were false and that they were made with intent to defraud Goodman, and that Goodman relied on these representations and caused the lawsuit to be dismissed with prejudice against Leedy and was thereby damaged because she no longer had a legal remedy.

While Wilhelm is correct that plaintiff's pleading must be taken as true (Douglas v. E. & J. Gallo Winery (1977) 69 Cal.App.3d 103, 114, 137 Cal.Rptr. 797), the allegations in a fraud action need not be liberally construed.

Instead, fraud must be specifically pleaded. This means: (1) general pleading of the legal conclusion of fraud is insufficient; and (2) every element of the cause of action for fraud must be alleged in full, factually and specifically, and the policy of liberal construction of pleading will not usually be invoked to sustain a pleading that is defective in any material respect. (Hall v. Department of Adoptions (1975) 47 Cal.App.3d 898, 904, 121 Cal.Rptr. 223.) "It is bad for courts to allow and lawyers to use vague but artful pleading of fraud simply to get a foot in the courtroom door." (Ibid.)

Here, the complaint fails to plead with specificity a factual basis for how Cohen "knew" the representations she communicated to Goodman on behalf of Leedy were false.

Moreover, reliance, one of the elements necessary to state a cause of action in fraud or deceit is not adequately pled. Plaintiffs must show "actual" reliance, i.e., that the representation was an " 'immediate cause' " that altered their legal relations. (4 Witkin, Summary of Cal. Law (8th ed. 1974) Torts, § 472, p. 2732.) Besides actual reliance, plaintiff must also show "justifiable" reliance, i.e., circumstances were such to make it reasonable for plaintiff to accept defendant's statements without an independent inquiry or investigation. (4 Witkin, supra, § 475, p. 2734.)

Here, Wilhelm's allegations, as a matter of law, preclude a showing of "actual" or "justifiable" reliance. Wilhelm clearly admits Goodman was represented by counsel at the time of the alleged misrepresentations. In the first cause of action for malpractice against the Firm, Wilhelm alleges the Firm dismissed the lawsuit against Leedy without properly investigating the facts. But in the second cause of action against Cohen, Wilhelm alleges Goodman, relying on Cohen's representations, caused the action against Leedy to be dismissed.

Because her counsel prepared and filed the dismissal, she must have consulted with Price and the Firm before hand. Also, it would not be "reasonable" for Goodman to accept Cohen's representations as an adversary without an independent inquiry.

Based on the above, the complaint does not, and cannot, show reliance by Goodman on Cohen's representations. Therefore, because an element of fraud is missing, recovery is precluded. (Gonsalves v. Hodgson, supra, 38 Cal.2d at p. 101, 237 P.2d 656.) b. The complaint does not state a cause of action for negligent misrepresentation, nor can it be amended to do so.

Wilhelm contends at length that Cohen had a duty to Goodman as a third party, even though she was not in privity with Goodman.

The question of duty is relevant in cases where a cause of action for negligent misrepresentation is alleged. (See § 1710, subd. (2).) Both cases cited by the parties discuss the issue of an attorney's duty to a third party in...