REPORT AND RECOMMENDATION

THOMAS C. HOLMAN, Bankruptcy Judge.

This matter was deemed submitted on June 10, 2014. The following constitutes the court's proposed findings of fact and conclusions of law, pursuant to 28 U.S.C. § 157(c) (1) and Federal Rule of Bankruptcy Procedure 7052.

I. BACKGROUND

Before the court is a motion for summary judgment filed by defendant Joseph Neri ("Neri"). The subject matter of this litigation is a transaction between the debtor and an entity known as 2040 Fairfax, Inc. ("2040 FF") which occurred in and around December 2008 and the effects of that transaction on the debtor's financial condition. Individual defendants Harley Delano and Dennis Delano were the sole members of the debtor and the sole shareholders of 2040 FF. Prior to the transaction, the debtor leased a property located at 2040 Sir Francis Drake Boulevard, Fairfax, California (the "Fairfax Store"), at which the debtor operated a grocery store. The store was one of several owned and operated by the debtor at that time. In and around December 2008 the debtor entered into a transaction pursuant to which the debtor transferred assets to 2040 FF, including the debtor's leasehold interest in the Fairfax Store. Neri, as attorney for the debtor and 2040 FF, drafted the legal documents which effectuated the transaction. Two years later in late 2010 the debtor deposited $560,000.00 to Neri's attorney trust account and entered into an attorney-client fee agreement with Neri which included a provision for a $500,000.00 retainer.

The plaintiff C&S Wholesale Grocers, Inc. alleges in the first amended complaint filed on December 23, 2013 (Dkt. 97) (the "FAC") that the transaction between the debtor and 2040 FF and the later transfer of funds to Neri were designed and carried out by defendants as a means of transferring assets of the debtor to 2040 FF so as to put them beyond the reach of the debtor's creditors, including the plaintiff. The plaintiff alleges that these transfers were fraudulent. The plaintiff also alleges that Neri and the Delanos breached fiduciary duties owed to the debtor, that Neri committed legal malpractice in his representation of the debtor and that the Delanos and Neri converted the debtor's assets. This motion is brought by Neri for summary judgment on the plaintiff's claims against Neri. The FAC alleges the following specific claims for relief against Neri:

The plaintiff brings these claims as an assignee of the chapter 7 trustee, having reached a court-approved agreement with the chapter 7 trustee in the parent bankruptcy case to prosecute the claims on behalf of the bankruptcy estate. Of the foregoing claims, the claims for avoidance of fraudulent transfer are "core" claims which arise under the Bankruptcy code pursuant to 11 U.S.C. §§ 544(b) and 548, and the court may make a final determination of those claims. The claims for breach of fiduciary duty, legal malpractice and conversion are "non-core" or "related to" claims which are before the court by way of supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a), and of which the court lacks constitutional authority to make a final determination. The court makes this report and recommendation because it is recommending a final determination as to the plaintiff's non-core claim of conversion against Neri.

For the reaons set forth herein, the motion should be granted in part so that moving defendant Joseph Neri ("Neri") shall have summary judgment that the plaintiff shall take nothing by its claim for relief for conversion against Neri. Neri's request for summary judgment in his favor on the plaintiff's other claims should be denied.

II. ANALYSIS

A.) Summary Judgment Standard

Fed. R. Bankr. P. 7056, incorporating Fed. R. Civ. P. 56, provides that the court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The burden of proof on a motion for summary judgment is linked to the burdens of the respective parties at trial:

Dzung Chu v. Oracle Corp. (In re Oracle Corp. Sec. Litig.), 637 F.3d 376 (9th Cir. 2010)

B.) In Pari delicto defense

Neri first argues that the doctrine of in pari delicto, meaning, literally, "in equal fault" applies as a bar to all of the plaintiff's claims in this adversary proceeding. Neri argues that the Delanos participated in the alleged wrongdoing that is the subject of this action and as the sole members of the debtor their actions are imputed to the debtor. Neri argues that CSWG, standing in the position of the chapter 7 trustee, is subject to all defenses that Neri could raise against the debtor itself, and that the wrongful conduct imputed to the debtor bars recovery against Neri as another participant in the wrongful conduct.

Pinter v. Dahl, 486 U.S. 622 (1988). The Supreme Count in Pinter went on to note that the broadened construction of the doctrine was not appropriate in litigation arising under federal regulatory statutes, an issue not relevant to this adversary proceeding.

CSWG does stand in the shoes of the chapter 7 trustee in this matter, having reached an agreement with the trustee to prosecute the claims asserted in this adversary proceeding on behalf of the estate. The issue arises as to whether a party suing in the position of the trustee on behalf of the bankruptcy estate is subject to the doctrine of in pari delicto. This issue has not been directly decided by the Ninth Circuit Court of Appeals. The most oft-cited case at the circuit level on the issue of the applicability of the doctrine of in pari delicto to actions prosecuted on behalf of an estate in bankruptcy is Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340 (3d. Cir. 2001), in which the Third Circuit Court of Appeals held that a committee of unsecured creditors was subject to the doctrine of in pari delicto with respect to claims to which the trustee succeeded under 11 U.S.C. § 541(a) (1):

Lafferty, 267 F.3d at 356-57. It is important to note, however, that Lafferty addressed only the applicability of the defense to claims to which the estate succeeded pursuant to 11 U.S.C. § 541. Lafferty points out that it does not address claims brought by a trustee under avoiding powers given to the trustee by the Bankruptcy Code. Id. at 356 (The trustee's "avoiding powers are not implicated here. . .") . Two years after Lafferty, the Third Circuit addressed the applicability of in pari delicto to a claim for avoidance of fraudulent transfer pursuant to 11 U.S.C. § 548, and concluded that in such a case a court could consider the post-petition event of the appointment of a bankruptcy trustee for the purposes of evaluating the doctrine in In re Personal and Business Ins. Agency, 334 F.3d 239 (3d Cir. 2003) ("PBI". In PBI, the Third Circuit concluded that the replacement of the debtor's principal with the trustee as the individual with control over the debtor rendered a defendant's assertion of in pari delicto based on the principal's unlawful acts to be inapplicable:

PBI, 334 F.3d at 245-47 (citations omitted). Other courts have extended PBI's analysis to include claims brought by a trustee under the avoiding powers bestowed by 11 U.S.C. § 544. See In re Maui Indus. Loan & Finance Co., 454 B.R. 113, 136 ("The in pan delicto defense is inapplicable when a trustee brings an action under sections 544(b) and 548."); In re Norvergence, Inc., 405 19 B.R. 709, 742 (Bankr.D.N.J.2009); In re Fuzion Technologies 20 Group, Inc., 332 B.R. 225, 232 (Bankr.S.D.Fla.2005).

Neri's argument that the doctrine of in pari delicto operates as a complete bar to all of the plaintiff's claims is not persuasive. In this action the plaintiff, standing in the shoes of the chapter 7 trustee, alleges claims for avoidance of a fraudulent transfer of $560,000.00 from the debtor to Neri under 11 U.S.C. § 548(a) (1) (A) and (a) (1) (B). For the reasons stated in PBI, in pari delicto is not a defense to those claims. Neri cannot use alleged participation in wrongdoing by the Delanos as a defense because the Delanos were replaced by the chapter 7 trustee, in whose shoes the plaintiff now stands.

The plaintiff also alleges claims for avoidance of fraudulent transfer of $560,000.00 from the debtor to Neri pursuant to Cal. Civ. Code §§ 3439.04 (a) (1) and (a) (2) and 3439.05. California law allows claims under Cal. Civ. Code § 3409.04 and 3439.05 to be asserted by creditors who seek to avoid fraudulent transfers by debtors to third parties. A trustee in 3439.04 and 3439.05 by virtue of 11 U.S.C. § 544(b), which gives the trustee the power to avoid any transfer of an interest of the

This leaves, however, claims remaining in the FAC which are not based on trustee avoiding powers under the Bankruptcy Code pursuant to 11 U.S.C. § 541. Those claims include breach of fiduciary duty, legal malpractice and conversion. The defense of in pari delicto is potentially applicable to those claims. California law treats the in pari delicto doctrine as part of the doctrine of "unclean hands."

Bank of America, N.A. v. Roberts, 217 Cal.App.4th 1386, 1400 (2013)

The defense may be invoked against a corporate plaintiff if under California law one or more agents of the plaintiff participated in the wrongful conduct and the conduct may be imputed to the corporation. The exception to the foregoing is the case where the action of the agent was adverse to the interest of the corporation, called the "adverse interest" exception. See, e.g., Bankruptcy Services, Inc. v. Ernst & Young (In re CBIHolding Co.), 247 B.R. 341, 365 Bankr.S.D.N.Y.2000). There is a further exception to the adverse interest exception called the "sole actor" exception under which the actions of the corporation's agent may be imputed to the corporation even if the agent acts adversely to the interest of the corporation, if the agent and the corporation are "one and the same." See, e.g., Lafferty, 267 F.3d at 359.

"As a general rule, application of the unclean hands doctrine remains primarily a question of fact. . . . As such, it is not properly determined either on a summary judgment motion or by reference to collateral estoppel principles." Mattco Forge, Inc. v. Arthur Young & Co., 5 Cal.App.4th 392, 407-08 (1992). This is because the doctrine relies heavily on an examination of intent of the plaintiff and the relative culpability of the parties. See Blain v. Doctor's Co., 222 Cal.App.3d 1048, 1060-62 (1990)

The doctrine of unclean hands is an affirmative defense. At trial, "the defendant generally bears the burden of proving its affirmative defenses." Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP, 133 Cal.App.4th 658 (2005). Therefore, for the purposes of sumary judgment, Neri bears the initial burden of showing that the elements of his defense are present, after which the burden shifts to the plaintiff to show that there is a dispute of material fact as to one or more of the elements of the defense.

In this case, the element over which the parties argue is that of unconscionable, bad faith or inequitable conduct by the Delanos. Neri's reply states that the evidence in support of this element consists of allegations made by plaintiff in the FAC which state that the Delanos, together with Neri, conspired together and orchestrated a scheme by which the debtor transferred assets to 2040 FF, to the detriment of the debtor and for the benefit of themselves and 2040 FF and for the purpose of delaying, hindering or defrauding the interests of the debtor's creditors. Neri argues that these allegations are admissible evidence and may serve as the basis for summary judgment because the allegations state that Neri and the Delanos engaged in equally culpable bad faith conduct.

In response, the plaintiff has shown evidence which shows a dispute of material fact regarding the Delanos' culpability relative to Neri. It is for that reason that the court will not grant Neri summary judgment on the plaintiff's claims for breach of fiduciary duty, legal malpractice and conversion based on his assertion of the in pari delicto defense.

The court finds that there is a material dispute of fact regarding the degree to which the Delanos engaged in bad faith conduct equally culpable to Neri's conduct. Specifically, the plaintiff has presented evidence in the form of deposition of testimony of Harley Delano and Dennis Delano that they asked Neni 14 to make sure that a new lease of the Fairfax Store under which a new entity called 2040 Fairfax, Inc. ("2040 FF") would act as tenant in place of the debtor would be done "legally and properly" and that they did not have any intention to harm DRP in connection with the transaction and that Neri proposed to them scenarios which included a transfer of assets between the debtor and 2040 FF. Neri does not dispute that DRP and the Delanos relied on him for legal advice. The plaintiff has also presented evidence in the form of deposition testimony of Neri in which Neri states that he never considered whether the Delanos owed fiduciary duties to the debtor, he was not familiar with the fiduciary duties of members of an LLC, and that he did not advise the Delanos or the debtor to obtain an independent manager or attorney to review the transaction between the debtor and 2040 FF. The court finds that based on this evidence a fact finder or jury could reasonably render a verdict in the plaintiff's favor on the issue of Neri's unclean hands defense. Therefore, there is a dispute of material fact on the issue of the relative culpability of the Delanos and Neri which precludes summary judgment.

To the extent that Neri argues that the plaintiff should be estopped from arguing in oppositon to this motion that there is a dispute of material fact regarding the Delano's intent and their culpability relative to Neri because it contradicts the plaintiff's allegations in the FAC, the argument is not persuasive. The doctrine of judicial estoppel requires a party to have previously prevailed on a prior inconsistent position. New Hampshire v. Maine, 532 U.S. 742, 748-49 (2001). Neri shows no evidence that the plaintiff has previously prevailed on the prior allegedly inconsistent position.

Based on the foregoing, Neri is not entitled to summary judgment that the defense of in pari delicto bars all of the plaintiff's claims against him.

Having determined that the defense of in pari delicto is not a complete bar to the plaintiff's claims, the court now turns to his arguments regarding the individual claims alleged against him in the FAC.

C.) Fraudulent transfer claims under 11 U.S.C. § 548 and Cal. Civ. Code §§ 3439.04 and 3439.05

Neri argues that he is entitled to summary judgment on the plaintiff's claims for avoidance of fraudulent transfer pursuant to 11 U.S.C. § 548 and Cal. Civ. Code §§ 3439.04 and 3439.05 because there is no dispute of material fact that he was not an "initial transferee," as that term is used for the purposes of 11 U.S.C. § 550(a), of the $560,000.00 transferred from the debtor to Neri's attorney trust account in late 2010.

11 U.S.C. § 550(a) provides that to the extent that a transfer is avoided under 11 U.S.C. §§ 544 or 548, the trustee may recover "the property transferred, or, if the court so orders, the value of such property from — (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made." 11 U.S.C. § 550(a) (1) (emphasis added). The plain language of the statue does not require that the initial transferee benefit from the transfer.

In the Ninth Circuit, an initial transferee is one who has "dominion" over the money. In re Incomnet, Inc., 463 F.3d 1064, 1069-70 (9th Cir.2006). One who has dominion has the "legal authority over the money and the right to use the money however [one] wishe[s]." Id. at 1070.

Neri presents evidence in the form of his declaration (Dkt. 140), the declaration of Harley Delano (Dkt. 141) and the declaration of Dennis Delano (Dkt. 160) in which each states that in late 2010 the Delanos authorized the debtor to make a series of deposits totaling $560,000.00 into Neri's attorney trust account. The Delanos and Neri each state that the debtor maintained complete control over the use of the funds while they were in Neri's trust account and Neri did not establish dominion over the funds or mismanage them in any way. Neri also argues V. that of the $560,000.00 transferred to him, all of the funds were subsequently transferred to other parties "entirely in accordance with [the debtor's] own wishes" including a transfer of $384,000.00 to the chapter 7 trustee and $116,000.00 to pay another attorney to represent the debtor in state court litigation.

The burden shifts to the plaintiff to show evidence that raises a dispute of material fact as to whether Neri had dominion over the transferred funds. The plaintiff points to an Attorney-16 Client Fee Agreement between Neri and the debtor, dated January 21, 2011, which is filed as Exhibit G to the FAC and identified in paragraph 45 of the FAC. The Attorney-Client Fee Agreement is also filed as Pursuant to the fee agreement, the debtor agreed to pay Neri $500,000.00 as a retainer and authorized Neri to deduct his own hourly billings against the retainer and authorized him to "utilize . . . the Retainer to pay co-counsel based on co-23 counsel's written Attorney-Client Agreement with [the debtor]." The plaintiff has also submitted evidence in the form of Neri's deposition testimony, wherein Neri states that he had not previously had any retainer agreement with the debtor during the time that the debtor was his client. The plaintiff also submits the declaration of John V. Marklin, who served as a financial consultant for the plaintiff from 2005 to 2012. He states that in November 2010 several grocery stores operated by the debtor throughout the San Francisco Bay Area were suffering substantial losses of revenue and were expected to close. He states that the plaintiff requested that he oversee liquidation sales at the stores and he understood that the debtor had agreed to use the proceeds of the liquidation to pay the debtor's creditors, including the plaintiff. He states that he learned of the transfer of $560,000.00 of the proceeds of the liquidation sales to Neri's attorney trust account on or about December 21, 2010, after the transfer had already occurred. He also states that Neri wrote to him to make it clear that Marklin was only to contact Neri regarding the funds in the trust account and that no representative of the debtor would respond to requests from Marklin.

Neri argues that Marklin's declaration should be stricken in its entirety because Marklin has not been previously disclosed by the plaintiff as a witness, pursuant to Fed. R. Civ. P. 37(c)(1). Neri's request is denied. Pursuant to Fed. R. Civ. P. 7037, incorporating Fed. R. Civ. P. 37(c) (1), a party who fails to provide information or identify a witness as required by Fed. R Civ. P. 26(a) or (e) is not allowed to use that information or witness to supply evidence on a motion, at a hearing or at a trial unless the failure as substantially justified or is harmless. Additionally, Fed R. Bankr. P. 9013 requires that request for an order, such as a request for an order striking Marklin's declaration, be made by motion. Given the nature of the relief sought, such a motion would be a contested matter. under Fed. R. Bankr. P. 9014. Neri's request that Marklin's delaration be stricken, set forth in his ieply to the plaintiff's opposition, does not satisfy the requirement that a request to strike be made by motion:

The court finds that the plaintiff has shown evidence sufficient to establish a dispute of material fact regarding Neri's dominion over the $560,000.00 transferred to his attorney trust account. The plaintiff has shown evidence that the circumstances surrounding the transfer, including execution of a retainer agreement which provided for a $500,000.00 retainer which Neri was allowed to utilize to pay himself and co-counsel when he had previously had no retainer agreement with the debtor, and Neri's response to Marklin's inquiry that no representative of the debtor would respond to requests regarding the funds could lead a reasonable finder of fact to conclude that Neri was more than a mere conduit for the funds and exercised dominion over the funds. The fact that some of the funds may have been subsequently transferred to other parties does not eliminate a dispute of material fact over whether Neri exercised dominion over the funds at the time that the transfer was made.

D.) Breach of fiduciary duty.

Stanley v. Richmond, 35 Cal.App.4th 1070, 1086 (1995).

The FAC alleges that Neri, as the debtor's attorney, owed fiduciary duties to the debtor including a duty of loyalty and a duty of care. The FAC alleges that Neri violated these duties by deliberately participating in a scheme to transfer an asset belonging to the debtor to 2040 FF and to impose obligations on the debtor for the benefit of 2040 FF without consideration and by transferring funds from the debtor to Neri. The FAC also alleges that Neri violated his duty of due care to the debtor by failing to make written disclosure to the debtor of his simultaneous representation of both the debtor and 2040 FF, by failing to obtain the debtor's written consent to the simultaneous representation, by accepting employment adverse to the debtor, by disclosing confidential and privileged information belonging to the debtor, by failing to disclose to the debtor that he did not have professional liability insurance, by failing to execute a written fee agreement with the debtor at the time he began to serve as the debtor's attorney in 2006 and by charging an "unconscionable" retainer of $500,000.00 when he did enter into a written fee agreement with the debtor in January, 2011.

Neri argues that the plaintiff cannot show evidence to prove causation of damages. In support, he submits the declarations of Harley Delano (Dkt. 141) and Dennis Delano (Dkt. 160) who each state that even if Neri had disclosed to the debtor and the Delanos the alleged conflict in his representation of the debtor and 2040 FF, had provided a written fee agreement and had disclosed that he did not have professional liability insurance that they would have done nothing differently and still would have retained him as counsel for the debtor. Both Delanos also state in their declarations that at no time did Neri make any business decisions on behalf of the debtor or 2040 FF.

The burden shifts to the plaintiff to show a dispute of material fact. With respect to Neri's failure to make various disclosures regarding simultaneous representation his lack of liability insurance and the absence of a written fee agreement the plaintiff presents no evidence to show that if these disclosures had been made and a written fee agreement provided that the debtor, through the Delanos, would have taken any other action. On this aspect of the plaintiff's claim for breach of fiduciary duty, the plaintiff has not carried its burden.

However, the substance of the plaintiff's claim for breach of fiduciary duty does not solely concern Neri's failure to make disclosures or provide a written fee agreement. The plaintiff also accuses Neri of violating a duty of loyalty and care to the debtor by participating in a scheme to transfer assets of the debtor to 2040 FF without consideration. On that aspect of the plaintiff's claim for breach of fiduciary duty, the court finds that the plaintiff has submitted sufficient evidence to create a dispute of material fact. Specifically, the plaintiff has presented evidence in the form of deposition of testimony of Harley Delano and Dennis Delano that they asked Neri to make sure that a new lease of the Fairfax Store under which a new entity called 2040 Fairfax, Inc. ("2040 FF") would act as tenant in place of the debtor would be done "legally and properly" and that they did not have any intention to harm DRP in connection with the transaction and that Neri proposed to them scenarios which included a transfer of assets between the debtor and 2040 FF. Neri does not dispute that DRP and the Delanos relied on him for legal advice. The plaintiff has also presented evidence in the form of deposition testimony of Neri in which Neri states that he never considered whether the Delanos owed fiduciary duties to the debtor, he was not familiar with the fiduciary duties of members of an LLC, and that he did not advise the Delanos or the debtor to obtain an independent manager or attorney to review the transaction between the debtor and 2040 FE'. A fact finder or jury could reasonably conclude from the foregoing that Neri, without considering whether he owed a duty to the debtor as its attorney, devised and effectuated a scheme by which the debtor was divested of assets without consideration, thus causing damage to the debtor.

Based on the foregoing, Neri is not entitled to summary judgment on the plaintiff's claim for breach of fiduciary duty.

E.) Leal malpractice

The elements of a claim for legal malpractice under California law are:

Coscia v. McKenna & Cuneo, 25 Cal.4th 1194, 1199 (2001).

The FAC alleges that as attorney for the debtor, Neri owed the debtor a duty to use such skill prudence and diligence as other members of his profession commonly possess and exercise. The FAC alleges that Neri breached those duties by failing to make written disclosure to the debtor of his simultaneous representation of both the debtor and 2040 FF, by failing to obtain the debtor's written consent to the simultaneous representation, by accepting employment adverse to the debtor, by disclosing confidential and privileged information belonging to the debtor, by failing to disclose to the debtor that he did not have professional liability insurance, by failing to execute a written fee agreement with the debtor at the time he began to serve as the debtor's attorney in 2006 and by charging an "unconscionable" retainer of $500,000.00 when he did enter into a written fee agreement with the debtor in January, 2011. The FAC also alleges that but for Neri's breach of his duties of care, the debtor would not have entered into the transaction with 2040 FE' whereby it transferred its assets to 2040 FE' and undertook obligations for the benefit of 2040 FE' for no consideration.

As with the plaintiff's claim for breach of fiduciary duty Neri argues that the plaintiff cannot show evidence to prove causation of damages, again pointing to the declarations of Harley Delano and Dennis Delano, who state that they would have hired Neri even if he had provided them with disclosures and a written fee agreement. Neri also argues that the plaintiff cannot show evidence to establish what level of skill, prudence and diligence Neri failed to possess in performing the legal tasks required of him by the Delanos and the debtor.

The burden shifts to the plaintiff to show a dispute of material fact. As with the claim for breach of fiduciary duty, with respect to Neri's failure to make various disclosures regarding simultaneous representation his lack of liability insurance and the absence of a written fee agreement the plaintiff presents no evidence to show that if these disclosures had been made and a written fee agreement provided that the debtor, through the Delanos, would have taken any other action. On this aspect of the plaintiff's claim for breach of fiduciary duty, the plaintiff has not carried its burden.

However, the substance of the plaintiff's claim for legal malpractice does not solely concern Neri's failure to make disclosures or provide a written fee agreement. The plaintiff also accuses Neri of violating a duty of loyalty and care to the debtor by participating in a scheme to transfer assets of the debtor to 2040 FT without consideration. On that aspect of the plaintiff's claim for breach of fiduciary duty, the court finds that the plaintiff has submitted sufficient evidence to create a dispute of material fact. Specifically, the plaintiff has presented evidence in the form of deposition of testimony of Harley Delano and Dennis Delano that they asked Neri to make sure that a new lease of the Fairfax Store under which a new entity called 2040 Fairfax, Inc. ("2040 FF") would act as tenant in place of the debtor would be done "legally and properly" and that they did not have any intention to harm DRP in connection with the transaction and that Neri proposed to them scenarios which included a transfer of assets between the debtor and 2040 FF. Neri does not dispute that DRP and the Delanos relied on him for legal advice. The plaintiff has also presented evidence in the form of deposition testimony of Neri in which Neri states that he never considered whether the Delanos owed fiduciary duties to the debtor, he was not familiar with the fiduciary duties of members of an LLC, and that he did not advise the Delanos or the debtor to obtain an independent manager or attorney to review the transaction between the debtor and 2040 FF. A fact finder or jury could reasonably conclude from the foregoing that Neri devised and effectuated a scheme by which the debtor was divested of assets without consideration, thus breaching his duty of prudence and diligence as the debtor's attorney and causing damage to the debtor.

F.) Conversion

Farmers Ins. Exchange v. Zerin 53 Cal.App.4th 445, 452 (1997)

The FAC alleges that by intentionally orchestrating a scheme under which the debtor would operate the Fairfax Store for the benefit of 2040 FF, and at the same time pay 2040 FF Rent and 25% of the profit from the Fairfax Store, the defendants (presumably including) Neri wrongfully and intentionally exercised control over the debtor's property and that the debtor could not consent to that control because the Delanos and Neri conspired to dominate and control the debtor.

Neri argues that the plaintiff cannot show evidence of a wrongful exercise of dominion over the property of the debtor because the debtor, through the Delanos, consented to the transaction between the debtor and 2040 FF and the transfer of $560,000.00 to Neri. Neri submits the declarations of Harley Delano and Dennis Delano in support, who each state that they, as the sole members of the debtor, authorized the transaction between 2040 FF and the debtor and authorized the debtor to transfer $560,000.00 to Neri's attorney trust account.

The plaintiff argues in opposition that the debtor did not consent because it was impossible for the Delanos to consent on behalf of the debtor to a transaction in which they had an interest. The plaintiff cites California Rule of Professional Conduct 3-600(E) and Forrest v. Baeza, 58 Cal.App.4th 65 (1997). Those authorities, however, concern the dual representation by an attorney of a organization and a director, officer, employee, member, shareholder or other constituent of the organization. Those authorities have nothing to do with whether the debtor's consent through the Delano.s was ineffective because the Delanos had an interest in the transaction. The court finds that the plaintiff has not carried its burden of showing that there is a dispute of material fact with respect to the debtor's consent to the transfer of funds to Neri. Neri is entitled to summary judgment that the plaintiffs shall take nothing by their claim for conversion against Neri.

III. RECOMMENDATION

For all of the above reasons, IT IS HEREBY RECOMMENDED that Neri's motion for summary judgment be granted in part such that Neri shall have summary judgment that the plaintiff shall take nothing by its claim for relief for conversion, and that it be denied as to Neri's request for summary judgment on the plaintiff's claims for avoidance of fraudulent transfer, breach of fiduciary duty and legal malpractice.

These findings and recommendations are submitted to the United States District Judge assigned to the case, pursuant to the provisions of 28 U.S.C. § 157(c) (1). Although section 157(c) (1) does not contain the procedural provisions found in 28 U.S.C. § 626(b) (1), the court recommends utilizing the same procedure. Accordingly, within fourteen days after being served with these findings and recommendations, any party may file written objections with the court and serve a copy on all parties. Such a document should be captioned "Objections to Bankruptcy Judge's Report and Recommendation." Failure to file objections within the specified time may waive the right to appeal the District Court's order. Turner v. Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991)