Kahane v. Jansen

Filed 12/3/08 Kahane v. Jansen CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

Eight years ago, Lynn Jansen and Cindy Jansen sued Brent Tucker, Tuckers company T.A. Tucker Associates, Inc. (TATA), and their attorney Dennis Kahane. The lawsuit arose out of a dispute regarding a development project. Kahane ultimately prevailed in the litigation on all of the Jansens claims. Kahane then brought this action for malicious prosecution against the Jansens and all of their attorneys. Defendants filed special motions to strike, pursuant to Code of Civil Procedure^[1]section 425.16, which were granted. Kahane appeals the granting of the motions and the dismissal of his complaint.

According to Kahane, the Jansens unsuccessful lawsuit against him destroyed his law practice and resulted in the loss of many thousands of dollars in fees. He seeks compensation for those damages. We are not unsympathetic to the devastation that can result from legal claims alleging malpractice, fraud and breach of fiduciary duty against an attorney, even where those allegations are never proven. But our sympathies must end where the law begins. Based upon our thorough review of the record presented, we discern no error in the trial courts granting of the special motions to strike; and accordingly, we must affirm the judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Background Pertaining to the Underlying Litigation

1. Factual History

In 1996, TATA held an option to purchase certain property in Alamo. Tucker was pursuing a development plan and rezoning application for the property. Kahane had represented TATA and Tucker in various matters since 1991.

Tucker asked Kahane to prepare an operating agreement (the operating agreement) for Alamo Orchards, LLC, a limited liability company (the LLC). The purpose of the LLC was to purchase and develop the property on which TATA held the option. The intent was that TATA would assign its option to the LLC, which would exercise the option using funds invested by the LLCs members. The LLC would then transfer to TATA a portion of the property for a commercial-retail development, and the LLC would develop, build and sell new homes on the balance of the property.

Exhibit B to the operating agreement is a narrative statement that describes the history of the project and the terms under which development would proceed after formation of the LLC. It contemplated the following occurrences after the LLC exercised the option: After the development application was granted, upon close of escrow (or upon completion of lot line adjustments), the commercial parcels would be deeded to TATA, and the remainder of the parcel would be deeded to the LLC. In connection with its acquisition of the commercial lots, TATA would pay $250,000 to the LLC and the LLC could not require payment of any additional sums from TATA in consideration of its obligation to the Commercial Lots. TATA would thereafter develop The Commercial Lots as its own development, and TATA and the LLC would share (one-third/two-thirds, respectively) the cost of improving and landscaping the neighborhood open area.

The operating agreement prepared by Kahane provided that the business of the LLC would be managed under the direction and control of a management committee . . . , which shall initially consist of three (3) individuals . . . . The operating agreement went on to designate as The Management Committee . . . [TATA], and two or more other persons to be elected by the Members, said election to be held at the first formal meeting of the membership . . . . Until such additional persons are elected to the Management Committee, the functions of the Management Committee shall be vested in its sole member, [TATA].

With respect to membership meetings and voting, the operating agreement set forth how and by whom meetings can be called, and provided that [i]n lieu of holding a meeting, the Members may take action by written consents specifying the action to be taken, if the consent is signed by members whose combined voting power exceeds 51 percent. The operating agreement specified that [t]he election of an additional Member or Members to serve as members of the Management Committee requires the Vote or consent of 51 percent of the membership interests.

In August 1996, Lynn Jansen, doing business as Lynden Homes (Jansen), and TATA, acting on behalf of the LLC, entered into a letter of intent reflecting an agreement that Jansen would provide a host of services to the LLC, including project conceptualization, procurement of subdivision map approvals, acquisition and documentation of financing, construction management, sales and marketing, and warranty service and administration.^[2] The letter recites that TATA and Jansen together, shall provide all the development administrative effort and expertise required to take this project from its [sic] current undeveloped status to its [sic] completion, in an approximate 25% - 75% ([TATA] and [Jansen], respectively) split of the actual work load and time expenditure from hereon [sic] out . . . . In addition, Jansen was to serve as the licensed general contractor for the residential development. For his work, Jansen was to be compensated by a formula that included a minimum of $120,000 paid at $5,000 per month, plus 60 percent of any cost savings and 40 percent of revenues in excess of the revenues then projected, subject to the LLC receiving anticipated profits in a specified amount.^[3] Jansen also agreed to be an investor in the LLC, and ultimately invested $100,000, comprising a 10 percent equity position. Jansen reviewed and signed the operating agreement in September 1996. The other investor-members of the LLC (besides Jansen, Tucker and TATA) executed the operating agreement on various dates ranging from December 1995 to September 1997. In December 1997, a construction agreement was prepared by Kahane and signed by Jansen.

Also in December of 1997, the LLCs members holding more than 51 percent of membership interests executed a Borrowing Authorization which provided, inter alia, that [t]he undersigned [members] possess the full power and authority to designate Brent A. Tucker and Lynn M. Jansen, to act as the managing members of Borrower [the LLC] . . . and, in such capacity, to act in the name and on behalf of Borrower [the LLC] to: [] (a) Obtain credit . . . . During the same month, the LLC sought and obtained construction financing. The loan documentation was signed by Tucker and Lynn Jansen and each was designated as a managing member. One of the loan documents defined the term  Manager  as meaning, collectively Brent A. Tucker and Lynn M. Jansen, who are the sole managing members of [the LLC].

Disputes arose between Jansen and Tucker, beginning as early as 1997, concerning the appropriate allocation and reimbursement of costs as between the LLC and TATA for application and development costs benefiting both the LLC project and the commercial project. According to Tucker, there were continued discussions with and without the assistance of legal counsel regarding these disputes. According to Jansen, at these meetings Kahane was introduced as, and held himself out as, the attorney for the LLC and did not disclose his representation of TATA and Tucker.

Near the end of 1999, Jansen again developed concerns about whether TATA may have used the LLC monies to pay for costs related to the commercial project, and may have improperly made payments to itself from the LLC. Jansen held meetings with Tucker to discuss the improper payments and allocations. After further investigation, Jansen discovered numerous other allegedly improper actions by Tucker resulting in harm to the interests of the LLC members and/or to Jansen. Among these were Tuckers covert buyout of the other members interests in the LLC for $1.00, allegedly induced by misrepresentations, without providing the LLC or other members a right of first refusal as required by the operating agreement;^[4]and the election by written consent of Tucker and Terri Woodruff (Tuckers wife) to the management committee, without complying with the notice procedures required by the operating agreement. The election took place on November 29, 1999, and the buyouts took place between November 30, 1999, and April 1, 2000; but it appears Jansen did not learn of these events until June 2000, at which time they were disclosed in a letter from Kahane.

2. Procedural History

Jansen filed suit against Tucker, Woodruff, TATA, the LLC and Kahane in September 2000. (Jansen v. Tucker (Super. Ct. Contra Costa County, 2005, No. C00‑03810).) After Kahane interposed a demurrer, Jansen filed a first amended complaint (FAC). In the FAC, as against Kahane, Jansen alleged causes of action for breach of fiduciary duty, fraud (concealment), constructive fraud, unfair business practices, professional malpractice, conspiracy, constructive trust, accounting and restitution. These causes of action were predicated upon the allegations that Kahane had held himself out as the attorney for the LLC; had accepted payment of his fees from the LLC; had claimed to be a purported honest broker or neutral party at meetings regarding disputes between Jansen and Tucker; had failed to disclose to Jansen as co-manager of the LLC, or to the LLC members, that he was in fact representing Tucker and TATA, whose interests were adverse to Jansen and other LLC members; and that Kahane had failed to withdraw as counsel for the LLC or to seek and secure waivers for the conflict. Jansen alleged that it was not until June 2000 that Kahane disclosed he represented TATA, Tuckers corporation. According to the FAC, Kahane owed a duty to the LLC and its membersand specifically to Jansen as co-manager of the LLCto represent the interests of the LLC and of its members equally, and not to favor the interests of Tucker or of TATA over the interests of the other members. At minimum, Jansen alleged, Kahane was required to disclose to the LLC members all material facts, including Kahanes potential conflict of interest in representing the LLC while representing Tucker and TATA.

Kahane interposed a demurrer to the causes of action for fraud, unfair business practices, constructive trust, accounting and restitution. The court overruled the demurrer to the fraud cause of action, and sustained with leave to amend the demurrers to the other causes of action. Jansen did not amend the complaint within the time permitted, and Kahane filed an answer.

A few months later, Jansen dismissed the LLC as a defendant in the action and filed a cross-complaint in which the Jansens,^[5]on behalf of the LLC, sued Tucker, TATA, Oak Tree Plaza (TATAs commercial development), Kahane and others. A first amended cross-complaint was apparently filed and demurred to by Tucker and TATA, after which a second amended cross-complaint was filed. This amended cross-complaint essentially mirrored the allegations of the FAC (with some changes and additions) but was filed as a derivative action by the Jansens on behalf of the LLC and its members. Kahane interposed a demurrer and a motion to strike, resulting in the filing of a third amended cross-complaint.

Kahane filed a second demurrer, essentially repeating the arguments made in his previous demurrer. A key issue was whether Kahane, as attorney for the LLC, owed a fiduciary duty to the members of the LLC.^[6] Kahane argued: A limited liability company is akin to a corporation; and pursuant to corporate law, Kahanes fiduciary duty was owed to the LLC and not to its individual members. Accordingly, Kahane had no duty to disclose to the LLC members any potential conflicts of interest, and he cannot be liable to the members for professional negligence, nor for conspiracy to defraud the LLC members. Similarly, applying corporate law, the Jansens, as members of the LLC (akin to shareholders), cannot sue the LLCs attorney without a waiver of the attorney-client privilege by the LLC itself.

In opposition, the Jansens argued, inter alia, that partnership law, rather than corporate law should apply to limited liability companies; and under the former, the LLCs attorney would owe a duty of disclosure to the LLC members. The Jansens also argued that under certain precedents, Kahane could be found to have an attorney-client relationship with the members of the LLC as well as with the LLC itself; but even if he did not, at minimum, Kahane owed a fiduciary duty to all members of the LLC. The Jansens also contended that, regardless of whether Kahane owed a duty to the individual members of the LLC, Jansen was a co-manager of the LLC and, therefore, had standing to bring an action against Kahane on behalf of the LLC and had the authority to waive the attorney-client privilege in order to pursue the LLCs claims.

The court sustained without leave to amend the demurrer to all of the causes of action against Kahane, ruling that they were barred by the attorney-client privilege and that Kahane owed no fiduciary duty to the members of the LLC. The court concluded that corporate lawnot partnership lawapplied to the attorney-client relationship issue. The court also rejected the Jansens contention that Lynn Jansen was a co-manager of the LLC, concluding that, [u]nder the applicable provisions of the Corporations Code and the LLCs Articles of Incorporation and Operating Agreement, the managers are Brent Tucker, Terri Woodruff, and [TATA]. . . . Accordingly, there is no basis for asserting that Kahane owed a duty to Jansen or other members of the LLC, including by way of an attorney-client relationship or fiduciary relationship.

Shortly after the issuance of this order, Kahane filed a motion for summary judgment/summary adjudication of the remaining causes of action in the FAC (breach of fiduciary duty, fraud-concealment, constructive fraud, professional malpractice and civil conspiracy to defraud). He argued that certain facts were now undisputed, including the facts that the only managers of the LLC were Tucker, Woodruff and TATA, and that [t]he only contact between [Jansen] and Kahane involved meetings wherein the Operating Agreement [and the Construction] Contract . . . were discussed. Kahanes argument also focused on the absence of an express or implied attorney-client relationship between Kahane and Jansen, as well as the absence of any other fiduciary duty owed by Kahane to Jansen, based upon the courts previous ruling on demurrer that Jansen was not a co-manager of the LLC.

In opposition, Jansen argued there were numerous disputed and undisputed facts that would defeat Kahanes motion, including: Jansen was a co-manager of the LLC at least since December 1997; Kahane held himself out as the attorney for the LLC and never disclosed that he was actually representing his client, TATA; Kahane did work for the LLC and was paid out of LLC funds; Kahane drafted the LLCs operating agreement and the construction agreement to benefit Tucker and TATA; and Kahane, while representing the LLC, was also performing non-LLC legal work for Tucker and TATA and being paid with the LLCs funds. Jansen also argued that the courts prior ruling on the demurrerthat Jansen was not a co-manager of the LLCshould not control the motion for summary judgment as the law of the case because it was based only upon pleadings and fragmentary pieces of evidence and would result in [e]xtreme injustice.

Jansen also contended that the LLC members are comparable to partners and under partnership law the attorney representing the partnership also owes a duty of care to the partners; and, moreover, that irrespective of any attorney-client relationship, Kahane had an ethical duty to refrain from representing parties with potentially conflicting interests.

Finally, Jansen argued that Kahane was liable for fraud for falsely stating that he represented the LLC when in fact he represented Tucker and TATA, and he contested Kahanes assertion that there was no wrongful act upon which to predicate a civil conspiracy claim.

The court denied summary judgment but granted summary adjudication on all causes of action except fraud. In granting summary adjudication of the breach of fiduciary duty, constructive fraud and professional malpractice claims, the court concluded that it had already adjudicated the co-manager and duty issues in its ruling on the demurrer to the third amended cross-complaint. The court further concluded that whether [Jansen] was a co-manager of the LLC is immaterial to whether he had a personal attorney-client relationship with defendant Kahane. [Jansens] evidence, at most, shows that Kahane may have been the attorney for the LLC. The court granted summary adjudication of the civil conspiracy cause of action based upon plaintiffs failure to comply with Civil Code section 1714.10 (requiring a court order finding a likelihood of success before filing an action alleging conspiracy between attorney and client). The court allowed the fraud claim to proceed to trial, finding that [Jansen] raises a triable issue as to whether Kahane intentionally misrepresented the facts about whom he represented.

Jansen filed a petition for writ of mandate in the Court of Appeal seeking interim review and reversal of this order and the order sustaining the demurrer to the third amended cross-complaint. (Jansen v. Superior Court (Sept. 17, 2002, A100149) [nonpub. order].) The issue as presented was whether or not an attorney representing an LLC has an attorney-client relationship with individual members of the LLC and, accordingly, owes a fiduciary duty to the individual members of the LLC regarding the LLC business. If an LLC is treated like a partnership in this respect, then the attorney owes this duty to each member and is subject to liability to each member for breach of this duty. . . . If an LLC is treated like a corporation, however, then the attorney owes the fiduciary duty to the LLC itself and not to the members . . . . This issue appears to be one of first impression.

This court denied the petition; and a subsequent petition for review, filed in the California Supreme Court, was also denied. (Jansen v. Superior Court, supra, review denied Nov. 26, 2002, S110508.)

Eleven days after the court ruled on the first summary adjudication motion, Kahane filed a new motion for summary adjudication on the fraud cause of action, on shortened notice. In it, Kahane focused on the specific claims of misrepresentation raised in opposition to the first summary judgment motion.^[7]

In opposition, Jansen argued that the motion was an improper request for reconsideration, and was brought improperly on shortened notice. Jansen also requested the imposition of sanctions.

By order dated September 27, 2002, the court agreed with Jansen that the second motion for summary judgment was brought without any showing of  newly discovered facts or circumstances or a change of law supporting the issues reasserted  as required by section 437c, subdivision (f)(2). The motion was, therefore, denied and an order to show cause re sanctions issued.

Ten days later, on October 7, 2002, a court trial in the action apparently commenced.^[8] At the close of plaintiffs case, approximately three weeks later, Kahane made a motion for judgment pursuant to section 631.8, subdivision (a), which was granted.^[9]

For reasons that are not explained in the record, the trial courts decision with respect to the defendants other than Kahane was not issued until almost a year later, in November of 2003. Insofar as it pertains to the issues in this case, the court made these findings: The structure of this real estate transaction was problematical from its very inception. The two adjoining projects as conceived and designated by Defendants constituted an inherent potential for conflict of interest and misunderstanding since only Defendant Brent Tucker (through TATA) owned [the commercial project]. Brent Tucker then wore two badly mismatched hats. His first and foremost duty and loyalty is to the investor members of [the LLC]. Defendant Tucker repeatedly failed to maintain that standard. Therefore, any financial transactions between [the commercial project] and [the LLC] that were not specifically spelled out in the Operating Agreement, must not favor [the commercial project] over [the LLC] and damages are awarded accordingly. Despite the for[e]going conclusions by the Court, the Court finds that defendants conduct though often replete with very poor judgment and carelessness was not fraudulent.

Regarding the disputes between Tucker and Jansen concerning the appropriate allocation and reimbursement of costs as between the LLC and TATA for application and development costs, the court found that TATAs commercial project became responsible for its own costs as of May 14, 1997, the day after the development application was approved by the Contra Costa County Board of Supervisors. Tucker and TATA had argued the allocations should not commence until August 1998, when the lot line adjustments were completed and the deeds recorded. The court reallocated various amounts paid by the LLC, after May 14, 1997, for fees, costs, loan payments, site work, engineering and professional services, requiring TATA and Tucker to pay its share (one-third). This included legal fees paid to Kahane by the LLC from June 1997 to June 1998. The court was unable to make a ruling concerning additional payments made to Kahane (and other attorney fees paid) after project completion, out of the cash reserves. The issue, the court said, was whether Defendants are entitled to indemnification pursuant to [provisions] of the Operating Agreement. The court allowed further briefing and argument on this question.

Approximately nine months after this decision was issued, Kahane filed a motion for entry of judgment. Jansen objected, arguing that no judgment could then be entered because (1) the issue of indemnification of Kahanes attorney fees had not been resolved; (2) no proper notice of entry of the courts final order had been served and Kahanes memorandum of costs was previously objected to as premature; and (3) the court had not ruled on the request for sanctions made in connection with Kahanes second motion for summary adjudication. In reply, Kahane argued that the indemnification issues regarding the attorney fees related solely to the remaining parties to the action, and not to Kahane who had successfully moved for judgment in his favor prior to completion of the trial. Kahane did not address the other two issues.

On July 29, 2004, the court denied the motion for sanctions against Kahane, made preliminary rulings on the outstanding indemnification issues, and ordered counsel for Jansen and counsel for Tucker and TATA to meet and confer regarding certain disputed items.

It appears Kahane renewed his request for entry of judgment at some point after July 29.^[10] A second objection was interposed by Jansen, again arguing that judgment for Kahane could not be entered until the indemnity issues had been resolved or, alternatively, that any judgment entered should be subject to the courts subsequent order on indemnity.

On February 7, 2005, a judgment on motion for judgment as to Kahane was filed. After identifying the cause and the parties, the court made the following recitations: Evidence, both oral and documentary, having been presented by [Jansen]; [Jansen] having rested; [Kahane] thereafter having orally moved the Court for a judgment . . . on October 28, 2002; the Court having weighed the evidence; the Court having filed an Unreported Minute Order Re: Defendant Kahanes Motion for Non-Suit on December 20, 2002, thereby granting the motion . . . ; and the Court having made the following statement of decision . . . . [] . . . [] IT IS THEREFORE ADJUDGED, ORDERED, AND DECREED that the motion for judgment . . . be . . . granted.^[11]

In the statement of decision portion of the order, the court described Jansens evidence as showing the following representations by Kahane: At a May 1997 meeting, Kahane represented to Jansen that he was the attorney for the LLC, and opined that the LLCs operating agreement called for [the LLC] to bear all costs associated with entitlements for the commercial lots until the granting of the application for commercial development of [the project], and that the total amount due from [TATA] to the LLC for the commercial development would not exceed $250,000. The court then found that there was no misrepresentation because Kahane did represent the LLC, by and through its managing member, [TATA].

The court further found that the statementeven if falsedid not cause damage. According to the court, Jansen claimed that had he known the truth (that Kahane represented TATA and not the LLC), he would have hired an attorney to represent the interests of the LLC. The court found Jansen did not hold a managerial position with the LLC so he had no authority to hire one. The court further found that Jansen had already signed the operating agreement when he met with Kahane in May 1997; thus, no matter what Kahanes representation, Jansen was bound by the agreement and his only recourse was to file suit to seek enforcementwhich he did. The court concluded that Jansen, therefore, lost no rights as a result of Kahanes purported misrepresentation and opinion.

Finally, the court held that Kahanes opinion that the provisions of the operating agreement required the LLC to bear all costs related to the commercial development until the development application was granted, and that the total amount due from [TATA] to the LLC for the commercial development would not exceed $250,000 was not a misrepresentation, but was true, based on [the] Courts interpretation of the Operating Agreement. . . . Accordingly, judgment was entered in favor of Kahane.

On April 15, 2005, the Jansens filed a notice of appeal from the judgment of dismissal of the cross-complaint. The appeal was dismissed after the Jansens failed to procure the record on appeal and failed to respond to the courts inquiries. (Jansen v. Kahane (Aug. 19, 2005, A110072) [nonpub. order].)

B. Procedural History Pertaining to the Instant Litigation

Within a month of the issuance of the remittitur in the underlying litigation, Kahane filed this action for malicious prosecution, intentional infliction of emotional distress and negligent infliction of emotional distress. Defendants named were: Lynn Jansen; Cindy Jansen; and their attorneys, Craig Nevin (and his law office), James Schwartz (and his law office), Stephen Fuerch (and his law office), Bryce Anderson (and his law office), William Norman, and Cooper, White & Cooper LLP (Norman/Cooper White). Kahane filed a first amended complaint a few months later, deleting the emotional distress causes of action. All defendants filed special motions to strike pursuant to section 425.16. Kahane filed opposition, the defendants filed replies, and the motions were granted. After briefing on attorney fees, the court ordered Kahane to pay nearly $130,000 in fees and costs. Kahane appealed.

II. DISCUSSION

A. Standard of Review

Section 425.16 is commonly referred to as the anti-SLAPP law.^[12] It provides, in relevant part, that [a] cause of action against a person arising from any act of that person in furtherance of the persons right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. ( 425.16, subd. (b)(1).)

Under the statute, the court makes a two-step determination: First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. ( 425.16, subd. (b)(1).) A defendant meets this burden by demonstrating that the act underlying the plaintiffs cause fits one of the categories spelled out in section 425.16, subdivision (e) [citation]. If the court finds that such a showing has been made, it must then determine whether the plaintiff has demonstrated a probability of prevailing on the claim. ( 425.16, subd. (b)(1) . . . .) (Navellier v. Sletten (2002) 29 Cal.4th 82, 88 (Navellier).) Only a cause of action that satisfies both prongs of the anti-SLAPP statutei.e., that arises from protected speech or petitioning and lacks even minimal meritis a SLAPP, subject to being stricken under the statute. (Id. at p. 89.)

The standard of review on appeal from an order granting a special motion to strike under section 425.16 is de novo. (Scott v. Metabolife Internat., Inc. (2004) 115 Cal.App.4th 404, 413.) We, therefore, review the record and determine independently whether Kahanes malicious prosecution complaint arises out of the defendants exercise of a valid right of free speech or petition and, if so, whether Kahane has established a probability of prevailing on the cause of action. (Governor Gray Davis Com. v. American Taxpayers Alliance (2002) 102 Cal.App.4th 449, 456.)

It is undisputed that a malicious prosecution suit satisfies the first prong of the statute, because [b]y definition, [it] alleges that the defendant committed a tort by filing a lawsuit. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 734-735 (Jarrow Formulas).) Kahanes claim manifestly arises from defendants litigation, a protected activity. ( 425.16, subd. (e)(1), (2).) What is disputed is whether [Kahane] has demonstrated a probability of prevailing on the claim. (Navellier, supra, 29 Cal.4th at p. 88.)

 In order to establish a probability of prevailing on the claim ( 425.16, subd. (b)(1)), a plaintiff responding to an anti-SLAPP motion must  state[] and substantiate[] a legally sufficient claim.  [Citations.] Put another way, the plaintiff must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited. [Citations.] In deciding the question of potential merit, the trial court considers the pleadings and evidentiary submission of both the plaintiff and the defendant ( 425.16, subd. (b)(2)); though the court does not weigh the credibility or comparative probative strength of competing evidence, it should grant the motion if, as a matter of law, the defendants evidence supporting the motion defeats the plaintiffs attempt to establish evidentiary support for the claim. [Citations.] (Tuchscher Development Enterprises, Inc. v. San Diego Unified Port Dist. (2003) 106 Cal.App.4th 1219, 1235.) In making [its] assessment, the court must consider both the legal sufficiency of and evidentiary support for the pleaded claims, and must also examine whether there are any constitutional or nonconstitutional defenses to the pleaded claims and, if so, whether there is evidence to negate those defenses. [Citation.] (Ramona Unified School Dist. v. Tsiknas (2005) 135 Cal.App.4th 510, 519.)

B. Plaintiffs Burden of Proof in a Malicious Prosecution Action

In order to determine whether Kahane has demonstrated a probability of prevailing in this action, we apply settled law and principles governing a malicious prosecution claim.

A plaintiff in a malicious prosecution action must establish that the prior underlying action (1) was commenced by or at the direction of the defendant, or the defendant continued to prosecute it after discovering it lacked probable cause, and it was pursued to a legal termination in plaintiffs favor; (2) was brought without probable cause; and (3) was initiated with malice. (HMS Capital, Inc. v. Lawyers Title Co. (2004) 118 Cal.App.4th 204, 213.) [C]ourts have long recognized that the tort has the potential to impose an undue chilling effect on the ordinary citizens willingness to . . . bring a civil dispute to court, and, as a consequence, the tort has traditionally been regarded as a disfavored cause of action. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 872 (Sheldon Appel).) [T]he elements of the tort have historically been carefully circumscribed so that litigants with potentially valid claims will not be deterred from bringing their claims to court by the prospect of a subsequent malicious prosecution claim. (Ibid.) On the other hand, our Supreme Court has cautioned that although the tort is described as disfavored by the law, [t]his convenient phrase should not be employed to defeat a legitimate cause of action. . . . Public policy . . . does not limit the right to seek redress for the malicious abuse of the judicial process . . . . (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 53 (Bertero).)

The existence or absence of probable cause to bring the challenged claim presents a question of law: [T]he probable cause element calls on the trial court to make an objective determination of the reasonableness of the defendants conduct, i.e., to determine whether, on the basis of the facts known to the defendant, the institution of the prior action was legally tenable. (Sheldon Appel, supra, 47 Cal.3d at p. 878.)

Probable cause to initiate or to prosecute a lawsuit is viewed leniently by the courts. The lawsuit need only be legally tenable. (Sheldon Appel, supra, 47 Cal.3d at p. 878.) Only those actions that any reasonable attorney would agree are totally and completely without merit may form the basis for a malicious prosecution suit. (Zamos v. Stroud (2004) 32 Cal.4th 958, 970 (Zamos).) It is not enough that the action proves meritless or that at the time of its initiation some, or even most, attorneys would have thought the action meritless.  Probable cause may be present even where a suit lacks merit. Favorable termination of the suit often establishes lack of merit, yet the plaintiff in a malicious prosecution action must separately show lack of probable cause. Reasonable lawyers can differ, some seeing as meritless suits which others believe have merit, and some seeing as totally and completely without merit suits which others see as only marginally meritless. Suits which all reasonable lawyers agree totally lack meritthat is, those which lack probable causeare the least meritorious of all meritless suits. Only this subgroup of meritless suits present[s] no probable cause.  (Jarrow Formulas, supra, 31 Cal.4th at p. 743, fn. 13.)

In determining whether there was probable cause to institute or to prosecute an action, a court must make a sensitive evaluation of legal principles and precedents and consider the evolutionary potential of legal principles. (Sheldon Appel, supra, 47 Cal.3d at pp. 875, 886.) Thus, an actions tenability must be evaluated in light of legal precedent existing at the time of the underlying litigation and with added leeway for the development of precedent that litigants are entitled to advocate. (Id. at p. 886.)

A finding of probable cause ends the matter. If the court determines that there was probable cause to institute the prior action, the malicious prosecution action fails, whether or not there is evidence that the prior suit was maliciously motivated. (Sheldon Appel, supra, 47 Cal.3d at p. 875.)

C. Analysis

1. Jansens Claim That Kahane Owed Him a Fiduciary Duty

A central issue underlying the bulk of Jansens claims was whether Kahane, as attorney for the LLC, owed a fiduciary duty to Jansen. Jansen argued he did, under two theories: (1) Jansen was a managing member of the LLC; and (2) even if he was not, the attorney for a limited liability company owes a fiduciary duty to all members of the LLC. Kahane persuaded the trial court (1) that Jansen was not a co-manager of the LLC; and (2) that as attorney for the LLC, Kahane owed no fiduciary duties to its members. Having prevailed on these issues, Kahane defeated the causes of action in the both the FAC and the third amended cross-complaint for breach of fiduciary duty, constructive fraud, professional negligence (malpractice), as well as the fraud claim alleged in the third amended cross-complaint, prior to trial. We must therefore determine, independently, whether Jansen had probable cause to assert that (1) he was a manager of the LLC and (2) Kahane owed a duty to the members of the LLC.

a. Jansens Claim That He Was a Co-manager of the LLC

Our review of the record uncovered ample evidence to support a good faith claim that Jansen was a co-manager of the LLC.

The operating agreement for the LLC provides that a member can be elected to the management committee either by a vote of the members at a meeting or by written consent of the members holding at least 51 percent of the voting interests. The borrowing authorization signed by nearly all of the LLCs members in December of 1997 states, on its face, that Tucker and Jansen were designated to act as the managing members of Borrower [the LLC] and the construction loan documents clearly and uniformly identify Tucker and Jansen as managing members of the LLC.

There is more. The letter of intent signed by Tucker and Jansen recites that Jansen would be providing 75 percent of the development administrative effort and expertise required to take the project forward, while TATA was to provide only 25 percent. In keeping with this letter of intent, Jansen stated that he played the lead role in getting the project approved by the applicable governmental authorities, that he found the financing for the project, and that he was treated by all members and by Tucker as a manager, until he was denied access to the LLC information and frozen out of management decisions after he questioned irregularities in payment allocations and other matters. Given the very broad range of responsibility reposed in Jansenincluding project conceptualization, procurement of county approvals, acquisition and documentation of financing, construction management, sales and marketing and warranty service and administrationas well as his complete access to the LLC office, computer and financial information, Jansens belief that he was a co-manager both in fact and by written consent of the members cannot be described as untenable.

We do not ignore that many of these facts are disputed, or that the trial court ruled against Jansen on this issue. But this does not undermine our determination that Jansen had probable cause to make the argument. As stated in Jarrow Formulas,  [f]avorable termination of the suit often establishes lack of merit, yet the plaintiff in a malicious prosecution action must separately show lack of probable cause.  (Jarrow Formulas, supra, 31 Cal.4th at p. 743, fn. 13.)

Kahane disputes Jansens analysis; he argues that the only managing member of the LLC, from its inception until 1999, was TATA, and in 1999 an election was held adding Tucker and Woodruff as managing members. Kahane contends that the factual predicate for Jansens belief he was a co-manager is based on loan documents he asked Bank One to prepare listing him as a managing member.  And because a member cannot become a manager in this way, either under the law or under the terms of the operating agreement, Jansen had no probable cause to make this claim.

Kahanes argument ignores much of the evidence Jansen offered below to support his claim of managerial status, most significantly, the written consent by the LLC members conferring on him that status. Kahane argues, however, that Jansen cannot rely on this document because it gives him only limited authority to act on behalf of the borrower [to secure a loan] as specified in paragraphs 2(a)-(e). While Kahanes interpretation of the document is one rational interpretationthe document, after all, is entitled Borrowing Authorization and describes the authority of Jansen and Tucker to obtain credit, execute notes, and take other loan-related actionsthis does not render irrational a broader interpretation of the document. The plain language of the written consent states that the LLC members possess the full power and authority to designate Brent A. Tucker and Lynn M. Jansen, to act as the managing members of [the LLC] and, in such capacity, to act in the name and on behalf of [the LLC] to: [] (a) Obtain credit . . . [] (b) Execute notes . . . [] (c) Discount with Lender notes . . . [] (d) Execute and deliver . . . guarantees . . . [and] [] (e) Pledge, assign, mortgage . . . real . . . property of [the LLC] . . . . (Italics added.) The designation of Tucker and Jansen as managers is not limited or restricted. The consent simply spells out (presumably for the benefit of the lender) the powers they have in [their] capacity as managing members to complete the loan transaction. Had the members wished to limit the designated managers authority, they could easily have used restrictive language, such as designating Tucker and Jansen as managers for the sole purpose of obtaining credit or words to that effect. And, in the context of the other evidence proffered by Jansenalbeit disputedconcerning the nature of his work, access to the LLC records and accounts, and breadth of authority over the project, it was entirely plausible for Jansen to interpret the written consent as his election to the position of a managing member, as is permitted under the operating agreement, by written consent of 51 percent of the voting interests of the LLC.

b. Jansens Claim That the Attorney for a Limited Liability Company Owes a

Fiduciary Duty to the Members of the LLC

Kahane claims Jansen had no probable cause to sue him for any cause of action predicated on an attorney-client relationship or breach of a fiduciary duty, because the attorney for a limited liability company is the attorney for the entity, not its members and, therefore, he owed no fiduciary duty to Jansen, as a matter of law. Jansen argues that the law on this issue is far from settled and, in fact, favors Jansens theory that Kahane owed, at minimum, a fiduciary duty to the LLCs members.

In order to resolve this disputed issue we must first review the parties respective contentions and authorities.

(1) Jansen v. Tucker

Kahanes argument in the underlying action can be summarized as follows: A derivative action by a member of a limited liability company is akin to one brought by a shareholder of a corporation. (PacLink Communications Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 963.) Under corporate law, a shareholder cannot bring a derivative suit against the corporations counsel unless there is a waiver of the attorney-client privilege by the corporation. (McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378, 383 [[i]t is the corporation, and not the shareholder, who is the holder of the privilege].) Therefore, Jansens cross-complaint against Kahane is barred because a member cannot bring a derivative action against the LLCs counsel unless there is a waiver of the attorney-client privilege by the LLC. Jansens direct claims are also barred because, just as an attorney for a corporation owes no duties to the shareholders (Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal.App.3d 692, 703-707 (Skarbrevik)), the attorney for a limited liability company owes no fiduciary duties to its members.

In opposition, Jansen argued that partnership law, rather than corporate law, more properly applies to limited liability companies on the issue of attorney representation. Jansen noted that the law imposes upon the manager of a limited liability company the same fiduciary obligation toward the LLC and its members that is imposed upon a partner to the partnership and its constituent partners (Corp. Code,  17153), and that this fiduciary duty requires a partner to act in the highest good faith to his copartner and . . . not obtain any advantage over him in the partnership affairs by the slightest misrepresentation or concealment. (Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216 Cal.App.3d 1139, 1150; Corp. Code, 16404, subds. (a) & (b).) Therefore, Jansen argued, the attorney for a limited liability company should similarly be held to the fiduciary standard of an attorney for a partnership, whose obligation it is to protect the interests of the constituent partners. (Wortham & Van Liew v. Superior Court (1987) 188 Cal.App.3d 927, 933 (Wortham) [attorney for partnership also represents partners in matters of partnership business].) Jansen also cited Johnson v. Superior Court (1995) 38 Cal.App.4th 463, 479 (Johnson), which held that, under certain circumstances, an attorney for a partnership owes fiduciary duties to the partners, whether or not that attorney can be said to have an actual attorney-client relationship with them.^[13]

Jansen also pointed out that the statement in PacLinkthat corporate law applied to limited liability company derivative suitswas dictum because in PacLink the parties agreed that corporate law applied, so the court had no occasion to consider whether the application of partnership law might be better suited to LLCs.^[14] Further, Jansen argued, PacLink did not address at all the disputed question of whether the attorney for a limited liability company also represents its members. PacLink held only that a member of a limited liability company cannot bring a direct action for damages, but must bring a derivative actionan issue not in dispute in Jansens case.^[15]

(2) Kahane v. Jansen

In his subsequent malicious prosecution action, Kahane shifted the focus of his argument to a portion of California Rules of Professional Conduct,^[16]rule 3-600(A) that provides, [i]n representing an organization, [an attorney] shall conform his or her representation to the concept that the client is the organization itself, acting through its highest authorized officer, employee, body, or constituent overseeing the particular engagement. Kahane asserts that the cases discussing this rule, both in the corporate and partnership settings, all hold that the attorney represents the organization and not the members of the organization, citing Skarbrevik, supra, 231 Cal.App.3d 692, Responsible Citizens v. Superior Court (1993) 16 Cal.App.4th 1717 (Responsible Citizens) and Meehan v. Hopps (1956) 144 Cal.App.2d 284 (Meehan). Therefore, Kahane argues, [t]here is no uncertainty or conflict in the law concerning the attorney-client relationship when the client is an organization.

The defendants dispute Kahanes theory, pointing out first and foremost that rule 3-600(E) provides that an attorney representing an entity may also represent any of its directors, officers, employees, members, shareholders, or other constituents, subject to the provisions of rule 3-310. Consequently, as the court in Responsible Citizens concluded, the rule provides no bright line pronouncement that a partnership attorney always represents the partners, or that he or she never does. (Responsible Citizens, supra, 16 Cal.App.4th at p. 1731.) Defendants also fault Kahane for ignoring the Johnson case upon which Jansen relied in the underlying action, which held that a partnerships attorney had a duty to look out for all the partners interests. (Johnson, supra, 38 Cal.App.4th at p. 479.)

(3) Probable Cause

Having summarized the parties various contentions, we return to the basic question: Did Jansen have probable cause to claim that Kahane, as the attorney for the LLC, was also the attorney for its members or, at minimum, owed the members a fiduciary duty? The answer is clearly, yes. Contrary to Kahanes arguments, the cases neither preclude Jansens claims, nor do they address the question of the attorney-client relationship as between a limited liability companys attorney and its members.

At the outset, we reject Kahanes reliance on Meehan and Skarbrevik as controlling authority. In those cases the issue was whether the attorney for a corporation also represents either the officers (Meehan, supra, 144 Cal.App.2d at p. 290) or the shareholders (Skarbrevik, supra, 231 Cal.App.3d at p. 703) with respect to the business of the corporation. These cases do not even discuss whether the same rule applies to limited liability companies, that is, they do not address Jansens contention that partnership law, not corporate law, should apply to LLCs on this issue.

Kahanes reliance on Responsible Citizens is also misplaced. There, the issue was whether the attorney for a partnership also represented the partners for purposes of determining whether there would be a conflict of interest for the attorney to represent a third party, with interests adverse to the spouse of one of the partners, in a matter unrelated to the partnership business. (Responsible Citizens, supra, 16 Cal.App.4th at pp. 1721-1723.) Under those circumstances, the court concluded that the attorney represented only the partnership and not the partners. In doing so, however, the court expressly distinguished Wortham which held that the attorney for a partnership also represented the partners, with respect to matters of partnership business. (Responsible Citizens, at pp. 1727-1728.) The court in Responsible Citizens also pointed out that rule 3-600(E) provides that an attorney representing an entity may also represent its directors, officers, shareholders, members or other constituents subject to conflict of interest rules. (Responsible Citizens, at p. 1731.) Consequently, the court concluded, the rule neither proscribes nor requires an attorney-client relationship between the attorney for the partnership and the partners. (Ibid.)

Neither is there a bright line distinction based upon the type of entity involved. The court in Responsible Citizens analyzes the corporation and partnership cases interchangeably. (Responsible Citizens, supra, 16 Cal.App.4th at pp. 1726-1729.) As stated in Johnson, the primary factor in determining whether an attorney-client relationship exists is the nature of [the] representation that [is] rendered. (Johnson, supra, 38 Cal.App.4th at p. 478.) In Johnson the attorney was retained to perform legal services and give legal advice to the partnership with respect to the partnerships business. Under those circumstances, [h]ad [the attorney] then performed services benefiting [the general partners] to the detriment of the partnership, it is clear that he would have violated his duty of care and loyalty to the partnership. The partnership would have had a cause of action against [the attorney], and failing the institution of such, the limited partners could have brought a derivative action [citation] or a direct action in equity [citations]. (Id. at pp. 478-479; see also Wortham, supra, 188 Cal.App.3d at pp. 931-932 [attorney for partnership had fiduciary obligation to disclose to the partners all matters concerning the partnership, including . . . the transfer of partnership property . . . under circumstances claimed to be in breach of fiduciary obligations and fraudulent].)

This being the state of the law, Jansens contentionthat Kahane, as attorney for the LLC, owed a duty of care and loyalty to the LLC and its members with respect to LLC businesscan hardly be described as meritless. Making a sensitive evaluation of legal principles and precedents and considering the evolutionary potential of legal principles (Sheldon Appel, supra, 47 Cal.3d at pp. 875, 886), we conclude that Jansens contentions fall well within the development of precedent that litigants are entitled to advocate. (Id. at p. 886.)^[17]

Kahane briefly argues, on appeal, that in any event, there was no conflict of interest in his representation of Tucker and TATA on the one hand and of the LLC on the other. He argues that he accepted only two assignments from the LLC: preparation of the operating agreement and preparation of the construction agreement. As these presented no conflict with either Jansens or the members interests, Jansen had no claim against Kahane for this work. Kahanes argument, however, ignores Jansens primary claims against him, including the allegations that Kahane held himself out as the attorney for the LLC; accepted payment of his fees from the LLC; claimed to be a purported honest broker or neutral party at meetings regarding disputes between Jansen and Tucker; failed to disclose to Jansen or to the LLC members that he was, in fact, representing the interests of Tucker and TATA, whose interests were adverse to Jansen and other LLC members; and failed to withdraw as counsel for the LLC or to seek and secure waivers for the conflict. Jansen also sued Kahane for his part in the election, without notice to Jansen, of Tucker and Woodruff as managing members, and for his part in TATAs covert buyout of the interests of other members based upon alleged misrepresentations, without the notice required under the operating agreement, as well as for his part in other wrongful acts. As the trial court concluded, there was an inherent conflict between the interests of TATA and those of the LLC; Kahanes dual role as attorney for TATA and for the LLC with respect to the same business matters, ipso facto, mirrors that conflict.

2. Jansens Misrepresentation Claims

Kahane argues that Jansen had no probable cause to bring a fraud claim. He contends, first, that the misrepresentation cause of action was without basis because the facts actually asserted to support the claim were not the facts alleged in the FAC.

Kahanes lengthy argument on this point can be briefly summarized: Jansens FAC alleged that Kahane had a duty to disclose all material facts and that Kahane failed to disclose that he was actually representing Tucker and TATA while holding himself out as the attorney for the LLC. These allegations were limited to claims of concealment; no affirmative misrepresentations were alleged. Kahane filed a motion for summary adjudication of the fraud claim, arguing he had no duty to make any disclosures. In response to this motion, Jansen and his attorneys offered a different set of facts to prove that Kahane had made affirmative misrepresentations, including representations that he was the attorney for the LLC and its members, and that he was providing a neutral opinion for the benefit of the LLC, when in fact he was representing Tucker and TATA and his opi