Klotz v. Milbank, Tweed, Hadley & McCloy

Klotz v. Milbank, Tweed, Hadley & McCloy

Opinion

 [**380] JOHNSON, J.—Defendants Milbank, Tweed, Hadley & McCloy (Milbank) and Deborah Festa (Festa) appeal the trial court's order overruling their demurrer and denying their motion to strike the first amended complaint under Civil Code section 1714.10.⁵ Plaintiffs SageMill LLC (SageMill), Adam M. Klotz (Klotz) and Richard Spitz (Spitz) alleged that a former business associate of theirs, Stephen Bruce (Bruce), who was a client of defendants, conspired with defendants to unlawfully withdraw from SageMill [***2]  and to usurp a nascent business opportunity of SageMill. Plaintiffs alleged claims for breach of fiduciary duty, conspiracy, and legal malpractice, and defendants moved to strike the entire complaint as to the individual plaintiffs Klotz and Spitz because defendants had no independent legal duty to plaintiffs nor did they  [**381]  act for their personal financial gain. The trial court denied the motion. We reverse the trial court's order on plaintiffs' second cause of action for conspiracy as to the individual plaintiffs Klotz and Spitz, finding that any advice defendants gave Bruce arose from an attempt to contest or compromise a claim or dispute, and thus was within the ambit of section 1714.10, and affirm the trial court's order on plaintiffs' other claims for breach of fiduciary duty and legal malpractice.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

1. Plaintiffs' Initial Complaint

Plaintiffs' complaint filed August 12, 2013, alleged claims for breach of fiduciary duty, conspiracy in breach of fiduciary duty, and legal malpractice [*1343]  against Festa and Milbank. Plaintiffs sought compensatory and punitive damages. The complaint alleged [***3]  that, in or around December 2009, Klotz, Spitz, and Stephen Bruce commenced working together in a partnership they named “SageMill.” The work of the partnership led to the formation of a limited liability company known as SageMill Capital Advisors LLC (SageMill), whose certificate of formation was filed with the Delaware Secretary of State on August 15, 2011. Klotz, Spitz, and Bruce were partners in the partnership until formation of SageMill, and are and have since formation been the sole managers of SageMill.⁶

In founding SageMill, Klotz, Spitz and Bruce sought to capitalize on their trading portfolio management, structured finance, and capital markets experience, and utilize their skills to benefit SageMill's clients. SageMill's primary focus was to craft tailored, short-term investment strategies, not available from leading banks or asset managers, for select investors holding large positions in cash and near-cash securities, and to achieve returns surpassing those of U.S. treasuries without taking risk exceeding [***4]  that of AAA-type corporate debt. SageMill also envisioned it would function as an investment advisor by drawing upon the collective expertise of Klotz, Spitz and Bruce and employing rigorous methodologies for identifying, selecting, and monitoring opportunities suitable for delivering carefully and conservatively targeted returns, as well as for crafting optimized blends of these opportunities based upon characteristics such as volatility and correlation.

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