Opinion
A149298
04-24-2018
CULTURED GOURMET LLC, ET AL., Plaintiffs and Respondents, v. ERIC A. KLEIN, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC-15-544613)
Defendant Eric A. Klein appeals from a judgment for plaintiffs Karen W. Diggs and Cultured Gourmet LLC (LLC, collectively plaintiffs) following a bench trial. Klein claims the trial court erred by denying his motion to dismiss the LLC or, in the alternative, to disqualify plaintiffs' attorneys.
We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The LLC
Diggs and Klein formed the LLC to manufacture and market "Kraut Source," a vegetable fermenting device. Diggs and Klein were the LLC's only members; they had an oral agreement governing their role as LLC members and the LLC's activities. The Kraut Source concept was Diggs's idea, and she contributed over $96,000 to the LLC, while Klein contributed only " 'a few hundred dollars.' " A June 2014 trademark application for Kraut Source listed the LLC as the sole owner of the mark.
Unbeknownst to Diggs, and using the LLC's funds, Klein filed another trademark application for the same Kraut Source mark, naming himself as the sole owner and stating " 'no other person has the right to use the mark in commerce.' " Without notifying Diggs, Klein also filed a design patent application naming himself as the sole inventor. In October 2014—and again without Diggs's knowledge or consent—Klein transferred $55,021.03 from the LLC's bank account to his personal bank account. After the transfer, the LLC did not have enough money to pay its expenses and obligations, forcing Diggs to contribute tens of thousands of dollars to keep the LLC afloat. From 2014 to 2016, Diggs worked approximately 200 hours per month on the LLC's operations.
The Litigation
In March 2015, plaintiffs—represented by E. Jeffrey Banchero—filed a complaint against Klein. When plaintiffs filed the operative first amended complaint in November 2015, John D. O'Connor represented the LLC, and Banchero represented Diggs. In the operative complaint, the LLC alleged claims for expulsion of Klein from the LLC; improper distribution from the LLC; breach of fiduciary duty; conversion; and money had and received. Diggs alleged claims for breach of fiduciary duty; breach of contract; and fraud.
In late 2015, Klein answered the complaint and asserted affirmative defenses. Trial was scheduled to begin on Monday, May 9, 2016. On Wednesday, May 4, Klein served a motion to dismiss the LLC or, in the alternative, to disqualify O'Connor and Banchero. According to the motion, the LLC was not "authorized to initiate this action" and O'Connor was not "authorized to represent the LLC" because the LLC was jointly managed, and because Klein did not agree to the lawsuit or authorize an attorney to represent the LLC.
Klein filed the motion on May 10, 2016. That same day, Klein also moved for purchase of Diggs's interest in the LLC and stay of proceedings pursuant to Corporations Code section 17707.03. The court denied the motion, and Klein appealed. We affirmed. (Cultured Gourmet, LLC v. Klein (Jul. 21, 2017, A148469) [nonpub. opn.].) We concluded the court did not err by denying the motion, based in part on the doctrine of laches, observing Klein "waited over a year [after the complaint was filed] and filed his motion less than a week before trial. If the trial court had granted the motion and stayed the proceedings for a determination of the fair market value of Diggs' membership interest . . . it would have prejudiced [plaintiffs], who sought to recover substantial funds that [Klein] allegedly wrongfully took from the LLC." (Id. at p. 1.) We grant plaintiffs' unopposed request for judicial notice of the opinion in Klein's prior appeal.
In the alternative, Klein sought to disqualify O'Connor, for "taking an adversarial position toward one of the LLC's [two] members (Klein)" and for "advocating the position of the other member (Ms. Diggs)." Klein also moved to disqualify Banchero, claiming he had access to the LLC's confidential information, and had taken a position adverse to Klein, a member of the LLC. In a supporting declaration, Klein averred he possessed a 50 percent interest in the LLC, and that "any actions taken on behalf of the LLC" required his vote because the LLC did not have an "exclusive manager" or an "operating agreement." Klein also stated he did not authorize the LLC to file a lawsuit or hire an attorney.
Plaintiffs' opposition argued the motion was not properly noticed or brought in the law and motion department as required by the Superior Court of San Francisco County, Local Rules (local rules). Plaintiffs also claimed Klein waived the attorney disqualification argument "due to unreasonable delay," noting he provided "no explanation" for the delay in filing the motion, and no evidence of a breach of confidentiality. Additionally, plaintiffs contended they would be extremely prejudiced if the court granted the motion. Finally, plaintiffs urged the court to deny the motion because Diggs had "full power to manage the LLC and hire attorneys."
The court denied the motion on May 10, 2016. It determined the motion was not "properly noticed," under Code of Civil Procedure section 1005, and not brought in the law and motion department as required by local rules 8.1 and 8.2. Next, the court concluded there was "an implied waiver by failing to bring . . . the motion in a timely manner, and that the plaintiffs would be grossly prejudiced were the Court to consider granting the motion. And furthermore, . . . under the offer of proof that's being made, evidence will be presented at trial that Ms. Diggs had power to manage the LLC and to hire attorneys."
Following a bench trial, the court awarded judgment for plaintiffs. It made numerous factual findings including, as relevant here, that Diggs contributed the vast majority of the capital for the LLC, that Kraut Source was "Digg's idea," and that she "handled the vast majority" of the business operations and often worked "around the clock" for the LLC. In addition, the court found Diggs was the LLC's chief executive officer and was named as the LLC's manager in documents filed with the Secretary of State, and that she contributed "tens of thousands of dollars more to the LLC than Klein, and contributed far more than Klein in 'services performed,' . . . and at all other relevant times, Diggs lawfully controlled and operated the LLC." The court determined "Diggs had authority to manage the LLC and hire attorneys on its behalf, and the LLC had authority to assert claims in this matter."
The court expelled Klein as a member of the LLC and ordered him to pay "$55,346.03 (consisting of the $55,021.03 Klein converted, plus the fee for a personal trademark application which he paid for with company funds)," plus interest.
DISCUSSION
Klein contends the court erred by denying his motion to dismiss. As he did in the court below, Klein claims the LLC "had no standing" to file a lawsuit against him, and "no authority to hire any attorney to prosecute" that lawsuit. We uphold the trial court's denial of the motion to dismiss for several reasons. First, the motion was untimely under Code of Civil Procedure section 1005, which requires "moving and supporting papers . . . be served and filed at least 16 court days before the hearing." (Code Civ. Proc., § 1005, subds. (b) & (a)(13).) Klein served his motion only four court days before the hearing, and filed his motion on the day of the hearing. Second, pretrial motions in "general civil cases not assigned to a single judge" must be heard in the law and motion department. (Local Rules, rule 8.1.A.1.) Klein did not file his motion in the law and motion department.
Third, the doctrine of laches bars "relief in equity to those who neglect their rights" where—as here—"such neglect operates to the detriment of others." (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1417.) Klein could have moved to dismiss at any point after March 2015, when plaintiffs filed the original complaint. Instead, Klein waited over a year, and filed his motion less than a week before trial. Dismissing the LLC a few days before trial would have severely prejudiced plaintiffs. We reject Klein's contentions, raised for the first time in his reply, that the LLC's "standing" is a jurisdictional issue that can be raised at any time, and that he "tendered" the standing issue in his answer to the operative complaint. "Obvious reasons of fairness militate against our considering this poorly developed and untimely argument." (Garcia v. McCutchen (1997) 16 Cal.4th 469, 482, fn. 10.) We also disagree with Klein's claim at oral argument that the timing of the motion is "irrelevant."
Klein's challenge to the denial of his motion also fails on the merits. Klein's briefs ignore the ample evidence adduced at trial establishing Diggs had full authority to manage the LLC and to hire attorneys on its behalf, as well as evidence the LLC had authority to assert claims in this matter. (Corp. Code, § 17704.07.) Klein's disagreement with the court's factual findings does not establish the court erroneously denied his motion to dismiss under any standard of review. We conclude the court did not err by denying Klein's motion to dismiss the LLC, or in the alternative, to disqualify plaintiffs' counsel.
The court was well within its discretion to deny Klein's request to disqualify plaintiffs' attorneys. "[A]ttorney disqualification can be impliedly waived by failing to bring the motion in a timely manner." (Liberty National Enterprises, L.P. v. Chicago Title Ins. Co. (2011) 194 Cal.App.4th 839, 844.) Klein's delay in bringing the motion was undoubtedly "unreasonable" because he filed his motion more than a year after the litigation commenced, and only a few court days before the start of trial. (Id. at pp. 845, 846.) In the trial court, Klein made no effort to explain or justify the delay. The prejudice to plaintiffs would have been extreme had the court disqualified their attorneys on the eve of trial. (Id. at p. 848.)
DISPOSITION
The judgment is affirmed. Plaintiffs Karen W. Diggs and Cultured Gourmet LLC are entitled to costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
/s/_________
Jones, P. J. We concur: /s/_________
Simons, J. /s/_________
Bruiniers, J.