THE LAW MAN GROUP, APC, ET AL. VS MERCURY INSURANCE COMPANY, ET AL.

The Law Man Group v. Mercury, et al.

DEMURRER TO AND MOTION TO STRIKE FIRST AMENDED COMPLAINT

(CCP §§ 430.10, 436)

TENTATIVE RULING:

Defendants’ Demurrer to the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND AS TO DEFENDANTS BETH PENTICOFF AND JACK HAGEMAN AND OVERRULED AS TO DEFENDANT MERCURY INSURANCE COMPANY. DEFENDANT MERCURY INSURANCE COMPANY TO ANSWER WITHIN TEN (10) DAYS.

Defendants’ Motion to Strike Portions of the Complaint is DEEMED MOOT AS TO DEFENDANTS BETH PENTICOFF AND JACK HAGEMAN AND GRANTED WITHOUT LEAVE TO AMEND AS TO DEFENDANT MERCURY INSURANCE COMPANY.

ANALYSIS:

On October 26, 2018, Plaintiffs The Law Man Group, APC and Shawn Gozarkah filed this action for damages resulting from an attorney’s lien against Defendants Mercury Insurance Co. (“Mercury”), Beth Penticoff (erroneously sued and served as “Beth Penticoff”) (“Penticoff”), and Jack Hageman (“Hageman”) (collectively, “Defendants”). On October 31, 2019, the Court sustained and granted Defendants’ Demurrer to and Motion to Strike the Complaint with leave to amend. On November 19, 2019, Plaintiffs filed the First Amended Complaint.

Defendants filed the instant Demurrer to, and Motion to Strike Portions of, the First Amended Complaint on December 23, 2019. Plaintiffs untimely filed and served oppositions on January 24, 2020. Defendants filed replies on January 28, 2020.

The Court finds the Demurer and Motion to Strike are accompanied by a proper meet and confer declaration as required by Code of Civil Procedure sections 430.41 and 435.5. (Van Vo Decl., ¶¶4-6.)

Demurrer to First Amended Complaint

Allegations in the First Amended Complaint

As with the Complaint, the First Amended Complaint alleges causes of action for (1) breach of attorney’s lien; (2) intentional interference with contractual relations; (3) intentional interference with prospective economic relations; and (4) negligent interference with prospective economic relations. Plaintiffs allege that on December 29, 2016, they were retained by Julia Derrick (“Derrick”) to represent her in a motor vehicle negligence action against Penticoff and Hageman. (FAC, ¶7.) Penticoff and Hageman were insured by Mercury on the date of the subject accident. (Ibid.) Derrick signed a lien directing Plaintiffs to pay the medical provider from proceeds she received from the case against Penticoff and Hageman, thereby making Plaintiffs responsible to the medical provider for payment. (Id. at ¶8.)

On January 2, 2017, Plaintiff sent a letter informing Mercury of the lien it had on any proceeds in payment of Derrick’s claim and that Plaintiffs’ name must appear on any checks issued. (Id. at ¶9 and Exh. A.) Per Plaintiff, in accordance with Mercury’s reputation for lowballing, it offered Derrick only $1,000.00 despite damage to her vehicle, $13,000.00 in medical bills, and Penticoff and Hageman being 100 percent at fault. (Id. at ¶11.) Knowing that Mercury would respond to any attempt to litigate Derrick’s claims by dragging out the case to run up Plaintiffs’ fees and make the case uneconomical, Plaintiffs advised Derrick to file an action in Small Claims Court. (Id. at ¶12.) In fact, it was Mercury’s intention that Plaintiffs would spend extensive time and money filing a lawsuit. (Ibid.) Plaintiffs assisted, prepared, and coached Derrick in the work up and presentation of her Small Claims case per the fee agreement. (Ibid.) At no time did Plaintiff cease their representation of Derrick or indicate to Mercury that their representation was withdrawn. (Ibid.)

Derrick prevailed in her Small Claims action against Penticoff and Hageman in the principal amount of $10,000.00. (Id. at ¶13.) Mercury was fully aware of Plaintiffs’ continuing representation of Derrick. (Id. at ¶14.) Hageman and Penticoff also harassed Derrick and were incensed she made a claim against the. (Ibid.) They closely monitored the Small Claims action, illegally obtained Derrick’s Social Security Number and other private records, and conspired with Mercury to void Plaintiffs’ attorney lien by issuing the settlement check to the Court instead of to Derrick. (Id. at ¶15.) Despite being aware of Plaintiffs’ lien, Mercury paid the judgment directly to the Court, which then paid Derrick. (Id. at ¶16.) Plaintiffs allege that by paying the Small Claims judgment to the Court, Mercury knowingly breached the lien and interfered with Plaintiff’s contractual and economic relations. (Id. at ¶17.) In fact, Plaintiffs allege that Mercury’s check generating system does not allow a check to be issued without the lienholder’s name unless an affirmative step is taken to remove the lienholder’s name. (Ibid.)

Demurrer to First Amended Complaint

There are two bases for the demurrer. First, all Defendants demur to each cause of action in the First Amended Complaint on the grounds that there is no allegation of wrongful or unjustified conduct, a required to state a cause of action for tortious interference with contractual relations. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1154.) Specifically, they argue that they were within their rights to pay the Small Claims judgment to the Court instead of making payment to Plaintiffs as required by the terms of the lien agreement. Defendants’ reliance on the statute that allows payment of the Small Claims judgment directly to the Court, however, does not absolve them of their responsibility to honor the lien agreement when they had notice of the same, as explained below. 

In Levin v. Gulf Ins. Group (1999) 69 Cal.App.4th 1282, 1287-1288, the Court of Appeal held:

[A]n insurer and the attorneys retained to defend the insureds are liable for intentional interference with the prospective economic advantage of a discharged attorney when, after receiving a notice of lien for attorney fees and costs filed in the case by the discharged attorney, they pay his former client and the latter's new attorney in settlement or in satisfaction of a judgment with knowledge of the lien.

(Levin v. Gulf Ins. Group (1999) 69 Cal.App.4th 1282.) This case is on point with the facts of this case, where Defendants allegedly paid the Court in satisfaction of the Small Claims judgment despite having knowledge of the lien held by Plaintiffs. In Levine, the plaintiff hired an attorney who spent time working on the case and was thereafter discharged. (Id. at 1284.) Upon the plaintiff’s retention of a new attorney and obtaining a favorable judgment, the defendant’s insurer and its attorneys paid the judgment to the plaintiff and his new counsel. (Id. at 1284-1285.) As in Levine, the wrongful conduct was not the payment of the judgment to the prevailing party, which in a vacuum is proper. Rather, the wrongful conduct was the payment in derogation of a noticed lien. (Id. at 1286-1287.)

Second, Defendant Penticoff and Hageman demur on the grounds that there are insufficient allegations of their involvement in paying the judgment to the Court to be liable for breach of the lien. The Court of Appeal in Levine makes clear that “it is the act of payment in derogation of the lienholder's rights that creates liability.” (Id. at 1287.) Regardless of allegations that Penticoff and Hageman’s monitored the Small Claims action and agreed that the Small Claims judgment should be paid to the Court to void the attorney lien, that is insufficient to assert a basis for liability. The case on which Plaintiffs heavily rely, Siciliano v. Fireman's Fund Ins. Co. (1976) 62 Cal.App.3d 745, 750, only brought claims against the attorney’s client and the defendant’s insurer. There is no authority that the insureds (Penticoff and Hageman here) can be liable for breach of the lien when they did not make the payment for the Small Claims judgment.

Based on the foregoing, the Demurrer to the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND AS TO DEFENDANTS BETH PENTICOFF AND JACK HAGEMAN AND OVERRULED AS TO DEFENDANT MERCURY INSURANCE COMPANY. DEFENDANT MERCURY INSURANCE COMPANY TO ANSWER WITHIN TEN (10) DAYS.

Motion to Strike

Irrelevant or Inflammatory Allegations

Defendants move to strike certain allegations they contend are irrelevant or inflammatory, and allegations in support of the request for punitive damages on the grounds that the factual allegations are insufficient. To the extent the demurrer is sustained without leave to amend as to Defendants Penticoff and Hageman, the Motion to Strike is moot as to them. The Motion to Strike remains only as to Defendant Mercury.

A motion to strike allegations Defendant Mercury contends are irrelevant or inflammatory is improper in a court of limited jurisdiction. “Motions to strike are allowed only on the ground that the damages or relief sought are not supported by the allegations of the complaint.”

(Code Civ. Proc., § 92, subd. (d).) The Motion to Strike the allegations at pages 4:9-25 and 6:14-7:17 of the First Amended Complaint is DENIED.

Punitive Damages

Punitive damages are authorized by Civil Code section 3294 in non-contract cases “where the defendant has been guilty of oppression, fraud, or malice, express or implied . . . .”  (Civil Code, § 3294, subd. (a).) The facts alleged in the First Amended Complaint do not support a request for punitive damages based on oppression or fraud. There are no still no allegations of fraud, nor are there allegations that Plaintiffs were subject to cruel and unjust hardship as a result of not being paid under the lien as required to show oppression. (Civil Code, § 3294, subd. (c)(2)-(3).)

Malice means conduct “which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (Civil Code, § 3294, subd. (c)(1).) As there are no allegations that Defendants intended to injure Plaintiffs, facts must be alleged to show Defendants’ disregard of Plaintiffs’ right to recover under the lien was willful and despicable.

While the allegations show that Mercury acted willfully in making the check out to the Court, they do not show that its conduct was despicable. Despicable conduct is conduct that is “so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by most ordinary decent people.” (Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 330.) Such conduct has been described as having the character of outrage frequently associated with crime. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1287.) The Court does not find that Defendant Mercury’s allegedly intentional circumvention of an attorney’s lien rises to the level of criminal conduct or conduct that is “vile.” The allegations in support of the request for punitive damages, therefore, are insufficient. The Motion to Strike the punitive damages allegations at pages 11:3-4, 14:5-7, 15:21-23, and 17:15 of the First Amended Complaint is GRANTED WITHOUT LEAVE TO AMEND.

Attorney’s Fees

As pointed out in the Motion to Strike and undisputed by the opposition, attorney’s fees are only recoverable when authorized by contract, statute or law. (Code Civ. Proc., §§ 10221, 1033.5, subd. (a)(10).) The First Amended Complaint does not allege a basis for the attorney’s fees in contract, statute or law. (FAC, Prayer, ¶¶4-5.) Therefore, the First Amended Complaint lacks sufficient allegations to make a claim for attorney’s fees.

The Motion to Strike the request for attorney’s fees at page 17:17-18 of the First Amended Complaint is GRANTED WITHOUT LEAVE TO AMEND.

Conclusion

Defendants’ Demurrer to the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND AS TO DEFENDANTS BETH PENTICOFF AND JACK HAGEMAN AND OVERRULED AS TO DEFENDANT MERCURY INSURANCE COMPANY. DEFENDANT MERCURY INSURANCE COMPANY TO ANSWER WITHIN TEN (10) DAYS.

Defendants’ Motion to Strike Portions of the Complaint is DEEMED MOOT AS TO DEFENDANTS BETH PENTICOFF AND JACK HAGEMAN AND DENIED IN PART AND GRANTED IN PART AS TO DEFENDANT MERCURY INSURANCE COMPANY. SPECIFICALLY, THE MOTION TO STRIKE IS DENIED AS TO PAGES 4:9-25 and 6:14-7:17, AND GRANTED WITHOUT LEAVE TO AMEND AS TO PAGES 11:3-4, 14:5-7, 15:21-23, 17:15 AND 17:17-18.

Moving party to give notice.