FAVILA V. KATTEN MUCHIN ROSENMAN LLP Part-I
<script src="http://www.google-analytics.com/urchin.js" type="text/javascript"> </script> <script type="text/javascript"> _uacct = "UA-1698443-1"; urchinTracker(); </script> <html ><br /> <head><br /> <title>FAVILA V</title><br /> </head><br /> <body><br /> <div><br /> <br/> <br /> <br/><b >FAVILA V. KATTEN MUCHIN ROSENMAN LLP</b><br /> <br/><b > </b><br /> <br/><b > </b><br /> <br/><b > </b><br /> <br/><b > </b><br /> <br/><b > </b><br /> <br/> <br /> <br/> <br /> <br/> <br /> <br/>Filed 9/3/10<br /> <br/><b > </b><br /> <br/><b > </b><br /> <br/><b > </b><br /> <br/><b >CERTIFIED FOR PUBLICATION</b><br /> <br/>IN THE COURT OF<br /> APPEAL OF THE STATE OF CALIFORNIA<br /> <br/>SECOND APPELLATE<br /> DISTRICT<br /> <br/>DIVISION SEVEN<br /> <br/> <br /> <table class=MsoNormalTable border=1 cellspacing=0 cellpadding=0<br /> ><br /> <tr ><br /> <td width=319 valign=top ><br /> <br/>SANDRA CORRALES FAVILA, as<br /> Executor, etc., <br /> <br/> <br /> <br/> Plaintiff and Appellant,<br /> <br/> <br /> <br/> v.<br /> <br/>KATTEN MUCHIN ROSENMAN LLP<br /> et al.<br /> <br/> <br /> <br/> Defendants and Respondents.<br /> <br/> <br /> </td><br /> <td width=319 valign=top ><br /> <br/> B215096<br /> <br/> <br /> <br/> (Los Angeles<br /> County<br /> <br/> Super. Ct.<br /> No. BC379462)<br /> </td><br /> </tr><br /> <tr ><br /> <td width=319 valign=top ><br /> <br/> <br /> <br/>SANDRA CORRALES FAVILA, as<br /> Executor, etc.,<br /> <br/> <br /> <br/> Plaintiff and Appellant,<br /> <br/> <br /> <br/> v.<br /> <br/> <br /> <br/>KATTEN MUCHIN ROSENMAN LLP<br /> et al.<br /> <br/> <br /> <br/> Defendants and Respondents.<br /> <br/> <br /> </td><br /> <td width=319 valign=top ><br /> <br/> <br /> <br/> B216822<br /> <br/> <br /> <br/> (Los Angeles<br /> County<br /> <br/> Super. Ct.<br /> No. BC399377)<br /> <br/> <br /> </td><br /> </tr><br /> </table><br /> <br/> <br /> <br/> APPEALS<br /> from orders of the Superior Court<br /> of Los Angeles<br /> County, Mary Ann Murphy, Judge. <br /> Reversed and remanded with directions.<u></u><br /> <br/> Sands &<br /> Associates, Leonard S. Sands, Heleni E. Suydam and Diallo K. Scott; James K.<br /> Cameron & Associates and James K. Cameron for Plaintiff and Appellant.<br /> <br/> Katten<br /> Muchin Rosenman, Daniel A. Platt and Gloria C. Franke for Defendants and<br /> Respondents.<br /> <br/>_____________________<br /> <br/> The assets<br /> of Motion Graphix, Inc. were sold to Get Flipped, Inc. after the death of<br /> Motion Graphix's founder and shareholder, Richard Corrales. The Estate of Richard Corrales (Estate) through<br /> its executor Sandra Corrales Favila, Corrales's sister, sued Get Flipped and<br /> its founder, Raleigh Souther, who was Motion Graphix's only other shareholder,<br /> for claims including conversion, breach of fiduciary duty and fraud (the<br /> individual action). The Estate appeals<br /> from the trial court's order denying its petition and motion for leave to amend<br /> the complaint in the individual action to allege a conspiracy claim against<br /> Motion Graphix's corporate counsel, Katten Muchin Rosenman LLP (Katten Muchin),<br /> and two attorneys at the Katten Muchin firm, Gavin Galimi and James Thompson<br /> (collectively attorneys). <br /> <br/>The Estate also filed a separate derivative action against the attorneys,<br /> Souther and Get Flipped on behalf of Motion Graphix asserting claims for<br /> professional negligence, breach of fiduciary duty and unjust enrichment arising<br /> from the asset sale transaction (the derivative action). That action was dismissed as to the attorneys<br /> after the trial court sustained their demurrer and the Estate elected not to<br /> amend its complaint. The Estate appeals<br /> from that order, as well.<br /> <br/>We reverse the order denying the<br /> Estate's petition and motion in the individual action and remand with direction<br /> to permit the Estate to file a revised first amended complaint, alleging a<br /> cause of action against the attorneys for conspiracy to commit fraud. We reverse the order dismissing the<br /> derivative action as to the attorneys and remand with directions to redetermine<br /> whether the lawyer-client privilege prevents the attorneys from meaningfully<br /> defending the action or whether, because of the crime-fraud exception or waiver<br /> by the privilege holder, the privilege is no bar to the derivative action.<b<br /> ></b><br /> <br/><b >FACTUAL AND PROCEDURAL BACKGROUND</b><br /> <br/>1. <i<br /> >The Sale of Motion Graphix's Assets to Get<br /> Flipped</i><br /> <br/>In February 2000 Corrales, an<br /> inventor, organized and incorporated Motion Graphix to license and sell<br /> photographic and imaging technologies he had developed or improved. In May 2000 the company issued 51 percent of its<br /> 1,000 shares of common stock to Corrales (510 shares) and 49 percent (490<br /> shares) to Souther, and the board of directors approved bylaws requiring the<br /> approval of a majority of the shares represented and voting to validate an<br /> action taken by the company unless a greater number was required by law.<sup><sup>[1]</sup></sup> In 2001 Corrales assigned to Motion Graphix<br /> his rights in two pending patents. In<br /> August 2004 Katten Muchin began representing Motion Graphix. <br /> <br/>In early August 2005, following a<br /> dispute between Corrales and Souther over Corrales's right to engage in<br /> personal business uses of Motion Graphix software codes, Corrales agreed to<br /> sell 80 percent of his shares in Motion Graphix to the company and resign from<br /> his positions as director and officer. <br /> Corrales, on behalf of himself, and Souther, on behalf of himself and as<br /> chief executive officer of Motion Graphix, signed a ratification and release<br /> agreement drafted by Galimi that incorporated a term sheet providing,<br /> â€