Ripped Off Scions Can Go After Lawyers' Bosses

Friday, December 20, 2013Last Update: 12:10 PM PT

Ripped Off Scions Can Go After Lawyers' Bosses By WILLIAM DOTINGA ShareThis        SANTA ANA, Calif. (CN) - Heirs of the Alta Dena Dairy fortune can pursue claims that their lawyer milked them with his firm's support, a California appeals court ruled.      Berger Kahn began representing the Stueves in 2006 when their lifelong family friend Jay Allen joined the firm.      The Stueves claim that attorney Raymond Novell teamed up with Allen to empty the $50 million estate under the guise of limiting the family's tax liability.      Their 121-page original complaint claimed the Berger Kahn knew everything Allen and Novell were doing with their estate, and kept the family in the dark about misconduct allegations and information about three lawsuits against Allen.      Allen left Berger Kahn for Buchalter Nemer, a co-defendant in the suit, in 2007.      The Stueves allegedly discovered the Novell and Allen scheme in 2009 when one of the patriarchs died and his wife asked about the life insurance proceeds. Novell told her there was no money.      After a court removed Novell as trustee of the Stueve family's trusts in 2010, an examination of the estate revealed that Novell and Allen caused at least $25 million in losses.      In their 2010 complaint, the Stueves and their various trusts and entities claimed that Berger Kahn looked the other way and collected fees while Novell and Allen schemed, "using the family's estate as their own personal piggy bank or petty cash drawer - engaging in self dealing, lending to themselves, their own family members, sham corporations and girlfriends millions of dollars while making egregious fees and taking undisclosed and unauthorized commissions."      The Stueves accused Novell and Allen in a 331-page second amended complaint of using the family money to operate a Ponzi scheme, based on money laundering and sham loans. Novell and Allen allegedly loaned the family's money to various entities and repaid - if at all - using more of the Stueve money.      Orange County Superior Court Judge Nancy Wieben Stock tossed the suit as untimely, however, after agreeing with Berger Kahn that, taken together, the family's entire action relied on the impossible notion that Allen had misled Novell.      A three-judge panel with California's Fourth Appellate District concluded otherwise Wednesday.      Though Berger Kahn had argued that the statute of limitations started running in 2001 when the sham began, the appellate court said the firm's clock could not have started running before it even "entered the picture."      The judges likewise declined to let Berger Kahn pass the buck to Buchalter Nemer.      "In every case where the client had no actual knowledge of the attorney's misdeeds, the own attorney's knowledge would be imputed first from himself or herself to the law firm and second from the law firm to the client, such that in all events it would be said that the client 'should have known' what his or her malfeasant attorney knew," Moore wrote. "Were that the correct application of the rule, the Legislature might as well have said that the one-year statute of limitation begins to run from the date the attorney commits the misdeed, whether the client has actual knowledge or not, at least in every case in which the attorney is not a sole practitioner."      The court also unraveled Berger Kahn's circular argument that Novell and Allen could not have possibly defrauded one another because they concocted the scheme themselves,      "Although they represented Novell, not the Stueves, Allen and Berger Kahn nonetheless had a duty not to commit an intentional tort, such as fraud, against the Stueves or anyone else," Judge Eileen Moore wrote for the panel.      The appeals court revived the Stueves' conspiracy claim in a separate ruling that rejected Berger Kahn's claim that state law bars filing conspiracy actions against attorneys without court approval.      "The Stueves argue that the prefiling requirement is, quite simply, inapplicable, because none of the claims set forth in their second amended complaint fell within the coverage of the statute, inasmuch as none of them arose from an 'attempt to contest or compromise a claim or dispute,'" Moore wrote. "Rather, they say, the claims arose from transactional activities - the siphoning off of assets through fraudulent estate planning, including the misappropriation of the Stueves's assets through the diversion of those assets to entities created and controlled by the defendants, including Berger Kahn's other clients."      She continued: "We must agree that the alleged schemes do not fall within the plain wording of the law, which requires court permission to file an attorney-client conspiracy claim 'arising from any attempt to contest or compromise a claim or dispute.'"      Finally, Moore criticized the trial court for chastising the Stueves for not providing enough detail in their 121-page original and 331-page amended complaints.      "We wonder whether some of the difficulties in this lawsuit arise not out of the Stueves' failure to have said enough to support their causes of action, but rather out of their having said too much," Moore wrote. "It is challenging, to say the least, to digest 331 pages and catalog the necessary details supporting each legal issue that may be raised. Nonetheless, after having been chastised for the failure to provide enough detail, the individual Stueves thereafter filed a 497-page third amended complaint. Be careful what you wish for. Sometimes more is less."