Reilly v. Greenwald & Hoffman CA4/1 (2013) · DecisionDepot
Reilly v. Greenwald & Hoffman CA4/1
California Court of Appeal Sep 10, 2013 No. D062046Unpublished
Filed 9/10/13 Reilly v. Greenwald & Hoffman CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
MARK S. REILLY, D062046
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2011-00059543- CU-FR-NC) GREENWALD & HOFFMAN, LLP et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of San Diego County,
Jacqueline M. Stern, Judge. Affirmed.
John F. Bannon for Plaintiff and Appellant.
Gordon & Rees and Richard R. Spirra for Defendants and Respondents.
Mark S. Reilly appeals the judgment entered against him on claims he asserted
against Greenwald & Hoffman, LLP and Paul E. Greenwald (collectively, Greenwald) in
a shareholder derivative action against Greenwald and others. The trial court sustained
Greenwald's demurrer to the complaint without leave to amend on the ground the
judgment we affirmed in Reilly v. Greenwald & Hoffman, LLP (2011) 196 Cal.App.4th
891 (Reilly) bars Reilly's claims. We affirm.
I.
FACTUAL BACKGROUND
"This case comes to us after the sustaining of a general demurrer; accordingly, the
rule is that we accept as true all the material allegations of the complaint." (Shoemaker v.
Myers (1990) 52 Cal.3d 1, 7.) The pertinent facts alleged in Reilly's complaint are as
follows.
Reilly and Lena Brion agreed to operate Brion Reilly, Inc. (BRI) to provide
architectural and interior design services. Brion owned 51 percent of the shares of BRI
and Reilly owned 49 percent, but they agreed to share BRI's income and profits equally.
After Brion informed Reilly she intended to terminate their business relationship, she
wrongfully excluded him from BRI's premises and misappropriated BRI's assets.
Greenwald, who had been retained to provide legal services to BRI, assisted Brion in her
misconduct.
II.
PROCEDURAL BACKGROUND
A. Reilly's Prior Action Against Greenwald
Reilly filed a prior action against Greenwald, which was the subject of our
decision in Reilly, supra, 196 Cal.App.4th 891. As pertinent to this appeal, we described
the claims in the prior action as follows:
2
"In August 2009 Reilly filed an amended complaint . . . against BRI; Brion and an
entity of hers, Brion Design, Inc. (BDI); Greenwald, who was BRI's outside counsel; [and
other defendants]. The first [count], titled 'Shareholder Derivative Action,' names all
defendants. It alleges that between June 2006 and the end of 2008, Brion excluded Reilly
from BRI's premises 'and converted and misappropriated to herself the monies,
receivables, personal property, and work in progress of BRI'; Brion engaged in this
conduct with the cooperation and assistance of defendants; and as a result of defendants'
misconduct BRI has suffered damages.
"The seventh through ninth [counts] are solely against Greenwald. The seventh
[count], for constructive fraud and negligent misrepresentation, alleges Greenwald, while
acting as BRI's counsel, 'advised BRI that . . . Brion and BDI had no duty or obligation,
in connection with the termination of the business and dissolution of BRI, to account for
the monies, receivables, personal property and work in progress of BRI as of the date of
the termination of the business by BRI.' Further, it alleges Greenwald 'counseled and
advised BRI that defendants Brion and BDI were entitled to appropriate such assets of
BRI to their own use without any duty . . . to distribute to [Reilly] his proportionate share
of such assets.' The eighth [count], for legal malpractice, alleges Greenwald breached the
standard of care owed BRI, and violated rules of professional conduct, by facilitating
Brion's misconduct. The ninth [count], for breach of contract, alleges Greenwald's
conduct was a breach of his written agreement with BRI for legal services.
"The 14th [count], for conspiracy, is against Brion, BDI, and Greenwald. It
alleges they conspired to exclude Reilly from the business premises of BRI, and
3
misappropriated to their own use the monies, receivables and work in progress of BRI,
and as a consequence BRI was damaged." (Reilly, supra, 196 Cal.App.4th at pp. 897-
898.)
Greenwald demurred to the complaint on the ground it was barred as to him under
McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378 (McDermott),1
"because BRI has not waived the attorney-client privilege covering communications
between him and Brion during his representation of BRI, and thus he cannot mount any
meaningful defense." (Reilly, supra, 196 Cal.App.4th at p. 898.) The trial court agreed,
sustained the demurrer, and entered a judgment of dismissal. (Ibid.) We affirmed. (Id.
at p. 906.)
B. Reilly's Present Action Against Greenwald
Reilly filed the present action against Greenwald and others on November 8, 2011.
The counts alleged against Greenwald are very similar to those alleged against him in the
prior action.
In the first count, again entitled "Shareholder Derivative Action," Reilly alleged
that Brion, "with the cooperation and assistance of [Greenwald and other defendants],
excluded [Reilly] from the business premises of BRI . . . and subsequently converted and
misappropriated to herself and [BDI] the monies, receivables, personal property, work in
1 The issue in McDermott was whether a shareholder's derivative action against the corporation's outside counsel for legal malpractice could go forward. (83 Cal.App.4th at p. 380.) The Court of Appeal held that in the absence of a waiver of the attorney-client privilege by the corporation, the action could not proceed because counsel would be effectively foreclosed from mounting any meaningful defense. (Id. at p. 381.) 4
progress and goodwill of BRI." Reilly further alleged that Brion, again with Greenwald's
cooperation and assistance, had filed with the California Secretary of State a certificate of
dissolution that falsely stated that BRI's debts had been paid and its assets distributed to
those entitled to them. According to Reilly, this alleged misconduct of Greenwald
damaged BRI.
In the fourth count, entitled "Fraud and Deceit," Reilly alleged that Greenwald
prepared for Brion "majority shareholder consents" and other documents that terminated
Reilly's authority to act on behalf of BRI and permitted Brion to convert BRI's assets.
Reilly further alleged that the preparation and use of these documents was "part of a
conspiracy" among Brion, Greenwald, and other defendants that damaged BRI. For relief
on this count, Reilly sought damages for "the monetary losses resulting from the
unrestricted use and misappropriation by [Brion] of the funds in the accounts of BRI."
In the fifth count, entitled "Aiding and Abetting Breach of Fiduciary Duty," Reilly
alleged that Greenwald violated his own fiduciary duty to BRI and assisted other
defendants in violating their fiduciary duties to BRI by "collaborati[ng]" with them in the
preparation of false and misleading documents concerning the dissolution of BRI. Reilly
further alleged that such "collaboration" was "part of a conspiracy among [Greenwald
and other defendants] . . . for the exclusion of [Reilly] from the business premises of BRI
and the misappropriation of monies, receivables, personal property, work in progress and
goodwill of BRI." On this count, Reilly sought damages for "the monetary losses
resulting from the misappropriation by [Brion] of the monies, receivables, personal
property, work in progress and goodwill of BRI."
5
Greenwald demurred to the complaint on the ground, among others, that Reilly's
claims were barred by the doctrine of res judicata. Greenwald requested the trial court
take judicial notice of the amended complaint, the order sustaining the demurrer, the
judgment, and the appellate opinion that were filed in the prior action. The court granted
the request for judicial notice, sustained the demurrer without leave to amend, and
entered a judgment against Reilly.
III.
DISCUSSION
Reilly contends the judgment against him in his prior action against Greenwald,
which we affirmed in Reilly, supra, 196 Cal.App.4th 891, does not bar this action.
Specifically, he argues the prior judgment has no preclusive effect in this action because
the prior judgment was not on the merits and the present action involves facts and
remedies different from those involved in the prior action. As we shall explain, these
arguments have no merit.
A. Standard of Review
Res judicata is a defense that may be raised by demurrer where, as here, the
judgment and pleadings from the prior action are presented to the court by a request for
judicial notice. (Code Civ. Proc., § 430.30, subd. (a); Estate of Dito (2011) 198
Calhoun v. Vallejo City Unified School Dist. (1993) 20 Cal.App.4th 39, 42.)
DISPOSITION
The judgment is affirmed.
IRION, J.
WE CONCUR:
BENKE, Acting P. J.
MCINTYRE, J.
17
AI Brief
AI-generated · verify before citing
Holding. The court held that the plaintiff's current action is barred by the doctrine of res judicata because it asserts the same primary right and involves the same harm as a prior action that resulted in a final judgment on the merits. Additionally, the court held that the action cannot proceed because it would require the defendant attorney to disclose privileged information to mount a defense without a waiver of the attorney-client privilege.
Issues
Does the doctrine of res judicata bar a subsequent derivative action when the prior action was dismissed for failure to state a claim due to the inability to mount a defense without violating attorney-client privilege?
Does the addition of new legal theories and factual allegations regarding the same underlying harm constitute a new cause of action for res judicata purposes?
Does the crime-fraud exception to the attorney-client privilege apply when the alleged fraud was directed at third parties rather than the plaintiff?
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“Under the doctrine of res judicata, . . . a judgment for the defendant serves as a bar to further litigation of the same cause of action.”
“The two actions therefore assert the same cause of action for purposes of res judicata.”
“We hold the judgment in Reilly's prior action against Greenwald bars this action under principles of res judicata.”