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LAW OFFICE OF JOSEPH WM. KLOBAS Joseph Wm. Klobas, Esq. (SBN 91736) 16685 Mission Way Sonoma, Califomia 95476-3010 Tel: 707/933-1333 Fax: 707/933-1334 LAW OFFICE OF EUGENE P. HAYDU Eugene P. Haydu, Jr., Esq. (SBN 136174) 965 University Avenue, Suite 222 Sacramento, Califomia 95825-6736 Tel: 916/437-1650 Fax: 916/437-1655 Attomeys for Plaintiffs

FfLED Superior Court Of ^arifornia,Si&rdmentQ

06/18/2010 By K\ Caeu Number:Deputy

34-201 !}'00S}80612

Department Assignments Case Managemeni 45 Law and Motion 53 Minors Compromise 24

IN THE SUPERIOR COURT OF CALIFORNIA IN AND FOR THE COUNTY OF SACRAMENTO

RICHARD & TAMMY ARNO, GREG & CYNDEE PEART, JIM & MARILYN McCURDY, LORI TAVIN, MIKE MULLALY, SAMUEL WILLIAMS III, JOE fe HELEN SOPHIA, ZANE & TANIA ROESER, THULAN NGUYEN, LESLIE 8c ROB YOUNGSTROM, ROGER LOCKE, all individuals, Plaintiffs,

CaseNo.: COMPLAINT FOR: DAMAGES FOR LEGAL MALPRACTICE (NEGLIGENCE); BREACH OF FIDUCIARY DUTY; ACTUAL FRAUD (DECEIT) CONSTRUCTIVE FRAUD; BREACH OF CONTRACT; EQUITABLE RELIEF FOR UNJUST ENRICHMENT

vs.MILSTEIN, ADELMAN & KREGER, LLP, and DOES 1-25, inclusive. Defendants.

25 26 27 28

COME NOW PLAINTIFFS WHO COMPLAIN AGAINST DEFENDANT AS FOLLOWS: -1Complaint

1 2 3 4 5 6 7 8 9 10 11 I. 2

GENERAL ALLEGATIONS Plaintiffs are all individuals residing in the County of Sacramento. On information and belief, defendant law firm Milstein, Adeiman &. Kreger LLP

("MILSTEIN") is a limited liability partnership with its principal place of business in Santa Monica, Califomia. On further information and belief, at all times material hereto, Lee Jackson ("Jackson") was an associate attomey, agent and employees of MILSTEIN. Jackson was assigned to handle Plaintiffs case as set forth below In domg the things herein alleged Jackson was acting within the scope of such agency and employment and MILSTEIN is thus vicanously liable for Jackson's conduct as set forth herein 3. i Venue is proper in this court because MILSTEIN entered into contracts with Plaintiffs in

the County of Sacramento, which contracts were to be, and were, performed in the County of Sacramento, 12 breach ofsaid contracts occurred in the County ofSacramento, and the liability of MILSTEIN as set forth 13 herein arose in the County of Sacramento. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4. Plaintiffs are unaware ofthe true narnes and capacities ofthe persons sued herein as Does

1 through 25, inclusive, or of their involvement herein, or of the facts that constitute causes of action against them, and on that basis have sued said defendants by fictitious names. Plaintiffs will pray foi leave to amend this complaint to identify fictitious defendants and add appropriate charging allegations, or to add facts that constitute causes ofaction against known defendants, when the same are known. 5. Between in or about December 2006 and June 2007, Plamtiffs each entered into written

contingency fee agreements with MILSTEIN whereby MILSTEIN agreed to represent Plaintiffs in a single civil action against U.S. Home Corporation, the developer-contractor of defectively constructed homes owned by Plaintiffs, and numerous sub-contractor defendants to recover damages for construction defects in Plaintiffs' homes. Each fee agreement between each Plaintiff and MILSTEIN provided thai MILSTEIN would be paid a contingency fee of 33 1/3 percent ofali monies recovered in the litigation, oi 40 percent of any and all monies recovered in the event the matter proceeded to trial, arbitration oi mediation or resolved within 90 days of the date first set for trial, arbitration or mediation. The fee

agreements also provided that MILSTEIN would advance all costs of litigation and that Plaintiffs would -2 Complaint

not have to reimburse MILSTEIN for these costs in the event the case resolved in favor ofthe defendants 2 3 4 5 6 7 8 9 10 11 Home Corporation or any other defendants in the case; (7) would provide Plaintiffs with a copy of any 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 proposed settlement agreement and explain its terms and conditions to them before seeking their consent thereto, and (8) would not settle Plaintiffs' claims without the express, informed consent ofeach Plaintiff. 6 Pursuant to its contracts with Plaintiffs, on May 9, 2007 MILSTEIN filed a civil action Implicit terms ofthe fee agreements and the contractual relationship between Plaintiffs and MILSTEIN were, among others, that MILSTEIN, their respective partners, associate attomeys, agents, and employees- (1) would exercise the knowledge, skill, and ability ordinarily possessed and exercised by members ofthe legal profession in similar circumstances; (2) would discharge the duties of an attorney al law to the best of their knowledge and ability; (3) would provide competent representation to Plaintiffs; (4) would keep Plaintiffs fully informed about all significant developments related to the case; (5) would disclose to Plaintiffs all facts, documents, and circumstances necessary to enable Plaintiffs to make informed and intelligent decisions regarding the case and, in particular, settlement ofthe case; (6) wouldI

provide Plaintiffs with the amounts, terms and conditions of any written offer of settlement made by U S

against U.S. Home Corporation and numerous sub-contractor defendants on behalf of Plaintiffs and others in the Superior Court ofCaiifomia, County of Sacramento, case number 07AS02133, entitled Garry & Trish Tabor, et al. v. U.S. Home Corporation et al (hereafter "Underlying Action") in which MILSTEIN included causes ofaction sounding in tort, contract, ahd warranty. 7. On information and belief, sometime after filing the Underlying Action, MILSTEIN

retained construction experts to inspect Plaintiffs' homes, to detail the defects in each home, and to estimate the costs ofrepairing said defects Said expert produced and delivered to MILSTEIN reports on each of Plaintiffs homes, as follows: Home RICHARD & TAMMY ARNO GREG & CYNDEE PEART JIM & MARILYN McCURDY LORI TAVIN MIKE MULLALY ' $ 13 3,03 6 00 $156 052.50 $138,215.76 $153,645.83 $ 126,13 3 93 Estimated Cost of Repair

Complaint

SAMUEL WILLIAMS III 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 8. JOE & HELEN SOPHIA KEVIN & TANIA ROESER THULAN NGUYEN LESLIE & ROB YOUNGSTROM ROGER LOCKEI

$166,019.99 ' $133,564.92 $152,488 12 $145,385.41 \ $131,710.38 $160,814.75

A mandatory settlement conference ("MSC") was set in the Underlying Action foi

October 15, 2008. Jackson did not inform any Plaintiff of the upcoming MSC. About a week before the scheduled MSC, on October 9, 2008 ("October 9 letter"), Jackson contacted each Plaintiff in writing and informed them that progress was still being made toward an eventual settlement, informed them that not all ofthe defendants had yet agreed to settlement temis, and gave Plaintiffs Jackson's "projection" of what an eventual net settlement amount might be for each of Plaintiffs' homes if an eventual settlement could be reached with all defendants. That "projection" was between $5,620.70 and $8,804.09 per home In that same written communication, Jackson asked Plaintiffs' to sign bank pages that he said were "pages to the settlement agreement" although Plaintilfs had never been provided a copy of any settlement agreement, nor had the terms and conditions of any proposed settlement agreement been communicated or explained to them All Plaintiffs except Thulan Nguyen signed the blank pages and retumed them to MILSTEIN with the belief and expectation that the pages singed in blank would not be used to settle theii

19 claims without first having been provided by Jackson and/or MILSTEIN with all of the material 20 information necessary to enable Plaintiffs to make an informed decision regarding settlement, after having 21 had the opportunify to read and consider an actual proposed settlement agreement, and after having had 22 the opportunify to discuss the terms of an actual proposed settlement agreement, and the advisabilify ol 23 24 25 26 27 28 entering into such an agreement, with their attomeys. 9. At no time prior to requesting Plaintiffs to sign blank pages, as set forth above, did

Jackson inform Plaintiffs, in writing or otherwise, of: (1) the terms and conditions ofa settlement offer oi offers; (2) the amount ofany settlement offer by U.S Home Corporation and/or any other defendants; (3) the net recovery to any Plaintiff under an actual proposed settlement offer; (4) how costs and disbursements would affect the net amount payable to each Plaintiff under an actual proposed settlemeni -4Complaint

1 2 ' 3 4 5 6 7 8 9 10

offer; or (5) the amount of attomey's fees that would be paid to MILSTEIN under an actual proposed settlement agreement 10. i

After having received the blank pages, signed by all Plaintiffs except Thulan Nguyen,

and unbeknownst to Plaintiffs, and not having disclosed to Plaintiffs' their own expert's estimate of the costs ofrepairing each of their homes, MILSTEIN settled all of Plaintiffs' claims at the October 15, 2008 MSC (hereafter "unauthorized settlement"). The amount of the unauthorized settlement varied but in

each case is estimated to be less than approximately 10 percent ofthe amount ofthe estimated cost of repairs as detemiined by the expert retained by MILSTEIN. 11. After MILSTEIN agreed to the unauthorized settlement, Jackson contacted Plaintifi

Thulan Nguyen and threatened that her case would be dismissed if she did not sign and return the blank 11 pages, and told her "[i]t is our understanding from your lack of communications with our office that you 12 have no interest in participating in this lawsuit." 13 defendants would seek to have her claim dismissed with prejudice, and told her that the court would 14 dismiss her case if she did not sign and retum the blank pages. After having received these threats of 15 16 17 18 19 20 21 22 23 24 25 26 27 28 dismissal, Thulan Nguyen signed and retumed the blank pages out of fear that her case would be dismissed. Jackson never called Plaintiffto discuss the matter with her. 12 It was some eight months after Jackson settled Plaintiffs' claims that Plaintiffs were Jackson also informed Plaintiff that several of the

provided for the first time with the already fully-executed unauthorized settlement agreement. Piaintiffs did not consent to the terms of this settlement agreement. About the same time, Piaintiffs saw, for the first time, the expert's estimate of the costs to repair their homes, documents they received not from MILSTEIN or Jackson but from independent sources. 13. Defendants continued to represent Plaintiffs Helen and Joe Sophia in the Underlying

Action until June 29, 2009. Defendants continued to represent Piaintiffs Rob and Leslie Youngstrom in the Underlying Action until July 2, 2009. Defendants continued to represent all other Plaintiffs in the Underlying Action until September 2009. /// /// ' -5Complaint

FIRST CAUSE OF ACTION 2 3 4 5 6 7 8 9 10 11 would not have settled a client's claims without first providing the client with all material information 12 necessary to make an infomned decision whether to settle the case. Jackson negligently failed to provide 13 Plaintiffs with the information necessary for them to make an informed decision regarding settlement, and 14 settled Plaintiffs' claims without their informed consent by having them execute blank pages of paper that 15 16 17 18 19 20 21 22 23 24 25 26 27 28 were later attached to "the settlement agreement", as set forth herein, to which Plaintiffs never consented 18. Had Jackson not entered into the unauthorized settlement as set forth herein. Plaintiffs 14 forth herein. 15. 16. An attomey-client relationship existed between Plaintiffs and Jackson. By virtue of the attomey-client relationship between Plaintiffs and Jackson, Jackson (LEGAL MALPRACTICE - NEGLIGENCE) Plaintiffs incorporate herein by reference paragraphs 1-13 above as if each were fully set

owed a dufy of care and skill to Plaintiffs. 17 An attomey exercising the knowledge, skill, and abilify ordinarily possessed and

exercised by members ofthe legal communify in similar circumstances would not have settled a client's claims without first obtaining the client's informed consent to the terms and conditions of settlement; and

would have proceeded to trial against the defendants in the Underlying Action. 19. As a direct and proximate result of MILSTEIN's and Jackson's unauthorized settlement of

their claims. Plaintiffs received grossly inadequate settlement proceeds and were deprived of the right tc have their claims decided by ajury 20. Had Jackson not entered into the unauthorized settlement agreement, it is reasonably

foreseeable and likely that Piaintiffs would have prevailed in the Underlying Action and received a judgment against U.S. Home Corporation and other defendants far in excess of the unauthorized settlement amount, and in no event less than the approximate, collective total amount of $1,500,000 00; or, that Plaintiffs would have received a fair and reasonable settlement far in excess of the amount they received under the unauthorized settlement agreement, in an amount to be proved at trial. WHEREFORE, Plaintiffs pray forjudgment against Defendant as set forth below.

Complaint

SECOND CAUSE OF ACTION 2 3 4 5 6 7 8 9 10 11 24. 12 among other things: (1) failing to provide Plaintiffs with all ofthe material information in Jackson's and 13 MILSTEIN's possession regarding the costs to repair the defects in Plaintiffs' homes; (2) by seeking 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiffs' signatures on blank pieces of paper represented to be pages to "the settlement agreement" although their was in fact no settlement agreement at the time, (3) by thereafter attaching the pages signed in blank to a "settlement agreement" that had never been provided to Plaintiffs nor its terms and conditions explained to them; and (4) by settling Plaintiffs' claims against U.S. Home Corporation and the other sub-contractor defendants without first obtaining Plaintiffs' informed consent to a settlement; and (5) by interfering with Plaintiffs' efforts after the fact to set aside the unauthorized settlement agreement. 25. As a direct and proximate result of Jackson's breach of fiduciary dufy. Plaintiffs' claims For the reasons set forth herein, Jackson breached his fiduciary dufy to Plaintiffs by. 21. forth herein. 22. Jackson. 23. At all times relevant hereto, a fiduciary relationship existed between Plaintiffs and , Jackson's fiduciary dufy to Plaintiffs included, among others, the dufy to fully inform (Breach of Fiduciary Dufy) Plaintiffs incorporate herein by reference paragraphs 1-16 above as if each were fully set

Plaintiffs of all proposed terms of any binding or non-binding settlement offers, and to communicate to Plaintiffs' all information and/or documents necessary for Plaintiffs to make an informed decision regarding settlement of their claims.

against U.S. Home Corporation and other sub-contractor defendants were settled without Plaintiffs informed consent and for a grossly inadequate sum. As a further direct and proximate result of Jackson's breach of fiduciary dufy. Plaintiffs were deprived ofthe opportunify to proceed to trial in the Underlying Action and, had they been afforded that opportunify, it is reasonably foreseeable and likely that Plaintiffs would have prevailed against defendants and received ajudgment far in excess ofthe settlement amount, and in no event less than the approximate, collective total amount of $1,500,000.00; or, that Plaintiffs -1 Complaint

1 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

would have received a fair and reasonable settlement far in excess ofthe amount they received under theI

unauthorized settlement agreement, in an amount to be proved at trial. WHEREFORE, Plaintiffs pray forjudgment against Defendant as set forth below. THIRD CAUSE OF ACTION (Fraud - Deceit)I

26

Plaintiffs incorporate herein by reference paragraphs 1-13, 15-17, and 22-25 above as if

each were fully set forth hereinI

27.

Prior to the unauthorized settlement of Plaintiffs' claims, MILSTEIN had commissioned

and received written reports from a construction expert detailing the defects allegedly caused by U.S Home Corporation and other defendants, and the cost of repairing said defects, in each of Piaintiffs homes, as set forth more fully in Paragraph 7 above. At the time Jackson sought Plaintiffs' signatures on blank pages and advised them of progress toward settlement of their claims, as set forth herein, Jackson actively concealed the estimated costs of repairs frorh Plaintiffs, knowing that that information was highly material to Plaintiffs' decision whether to settle their claims. In so doing, Jackson intended to induce Plaintiffs' reliance on Jackson's representations that the projected range of a yet unconsummated settlement was reasonable, thereby inducing Plaintiffs to execute blank pieces of paper that Jackson would later attach to "the settlement agreement" to which Plaintiffs had never consented. Furthermore, in the October 9 letter Jackson further actively misled and deceived Plaintiffs by falsely telling them thaf their claims had been substantially weakened by a "recent case" that, if fact, had been decided seven years before being retained by Plaintiffs, and by intentionally misrepresenting the impact that case had on the settlement value of their claims. Finally, in the same| October 9 letter, Jackson sought to deceive, mislead, and frighten Plaintiffs by telling them that another presumably "similar" case (not handled by MILSTEIN attomeys) had gone to trial and that many ofthe homeowners received no recovery at all; and those who did obtained so little there was in fact no net recovery to them after deducting fees and costs. Jackson concluded' "We understand that this was a very disappointing result for the homeowners in that case " 28. As set forth above. Plaintiffs never intended the pages they signed in blank to be attachedt

to a settlement agreement to which they had never consented. Had Plaintiffs known the true facts [ [ Complaint -8

regarding the costs of repairing their homes, had the "recent case" not been misrepresented to them, and 2 3 4 5 6 7 8 9 10 11 collective total amount of $1,500,000 00, or, that Plaintiffs would have received a fair and reasonable 12 settlement far in excess ofthe amount they received; under the unauthorized settlement agreement, in an 13 amount to be proved at trial. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31. 30 The conduct of MILSTEIN and Jackson was fraudulent because they intentionally had Jackson not misled and frightened them into believing that their case was "similar" to another case that tumed out extremely unfavorably to the plaintiffs at trial. Plaintiffs would never have signed anything relating to a "settlement" in the range projected by Jackson 29. As a direct and proximate result of Jackson's deceit. Plaintiffs' claims against U.S. Home

Corporation and other sub-contractor defendants were settled without their informed consent and for a grossly inadequate sum As a further direct and proximate result of Jackson's deceit. Plaintiffs were

deprived ofthe opportunify to proceed to trial in the Underlying Action and, had they been afiforded that opportunify, it is reasonably foreseeable and likely that Plaintiffs would have prevailed against defendants and received ajudgment far in excess ofthe settlement amount, and in no event less than the approximate,

deceived Plaintiffs and concealed material facts from them with the intent of depriving Plaintiffs of properfy and legal rights and otherwise causing them damage. The conduct of Jackson, as set forth herein, was also malicious and oppressive because it was despicable conduct carried on in willful and conscious disregard for the rights of Plaintiffs and subjected Plaintiffs to an unjust hardship in conscious disregard of their rights. Piaintiffs are therefore entitled to an award of punitive damages in an amount to be proved at trial. FOURTH CAUSE OF ACTION (Constructive Fraud) Plaintlffs incorporate herein by reference paragraphs 1-13, 15-17, and 22-25 above as if

each were fully set forth herein. 32. By virtue ofthe fiduciary dufy owed by Defendant and Jackson to Plaintiffs, Defendani

and Jackson stood in a position of trust and confidence vis-a-vis Plaintiffs. As a result of Jackson's breach of fiduciary dufy as alleged herein, MILSTEIN gained an advantage over Piaintiffs by: (1) terminating the -9 Complaint

1 2 3 4 5 6 7 8 9 10 II

Underlying Action early on in the litigation process before any significant amount of discovery, if any at all, had been undertaken; (2) by receiving an excessive attomey's fee in light ofthe minimum amount of time spent on the case up to the time of settlement; and (3) by avoiding its contractual obligation to advance future litigation costs had the case proceeded to trial, which Jackson told Plaintiffs in the Octobei 9 letter was in the range of $500,000 - $700,000 The advantage gained by Defendant was to the extreme prejudice and detriment of Plaintiffs and was accomplished by, among other things, concealing from Plaintiffs the result of their expert's estimates ofthe costs ofrepairing Plaintiffs' homes, by falsely telling Plaintiffs that a "recent case" made it very unlikely that Plaintiffs would recover more than approximately $8,000.00 per home at the most; and by misleading and frightening Plaintiffs into believing that a recent "similar" case had gone to trial and tumed out very unfavorably to the plaintiff homeowners. 33. As a direct and proximate result of Jackson's fraud. Plaintiffs' claims against U.S. HomesI

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 they had with MILSTEIN. 34. forth herein. 35. 36.

Corporation and other defendants were settled without their informed consent and for a grossly inadequate sum. As a fiarther direct and proximate result of Jackson's fraud, Plaintiffs were deprived of the opportunify to proceed to trial in the Underlying Action and, had they been afforded that opportunify, it is reasonably foreseeable and likely that Plaintiffs would have prevailed against U.S. Home Corporation and other defendants and received ajudgment far in excess ofthe settlement amount, and in no event less than the approximate, collective total amount of $1,500,000 00; or that Plaintiffs would have received a fair and reasonable settlement far in excess ofthe amount they received under the unauthorized settlement agreement, in an amount to be proved at trial. WHEREFORE, Plaintiffs pray forjudgment against Defendant as set forth below FIFTH CAUSE OF ACTION (Breach of Contract) Plaintiffs incorporate herein by reference paragraphs 1-33 above as if each were fully set

Defendant entered into a written contract with Plaintiffs. Plaintiffs performed all ofthe conditions and promises required ofthem by the contract

-10 Complaint

1 2 3 4 5 6 7 8 910

37.

By virtue ofthe conduct described herein. Defendant breached the implied terms ofthose

contracts as set forth in Paragraph 5 above. 38. As a direct and proximate result of Defendant's breach of contract. Plaintiffs' claims

against U.S. Homes Corporation and other defendants were settled without their informed consent and foi a grossly inadequate sum. As a further direct and proximate result of Defendant's breach of contract, Plaintiffs were deprived ofthe opportunify to proceed to trial in the Underlying Action and, had they been afforded that opportunify, it is reasonably foreseeable and likely that Plaintiffs would have prevailed against U S. Home Corporation and other defendants and received a judgment far in excess of the settlement amount, and in no event less than the approximate, collective total amount of $1,500,000 00; or that Plaintiffs would have received a fair and reasonable settlement far in excess of the amount they

II

received under the unauthorized settlement agreement, in an amount to be proved at trial.12

SDCTH CAUSE OF ACTION13

(Unjust Enrichment)14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

39. forth herein. 40.

Plaintiffs incorporate herein by reference paragraphs 1-5 above as if each were fully set

The contracts herein referred to were entered into in violation of Section 6147(a)(2) of

the California Business & Professions Code ("BPC") and Plaintiffs hereby declare said contracts void pursuant to Section 6147(b) ofthe BPC. Accordingly, MILSTEIN is not entitled to retain the attorney fees collected from Piaintiffs under the terms of said contracts in the amount of 40% of the recovery, MILSTEIN IS entitled only to the reasonable value of their services and Plaintiffs allege, on information and belief, that MILSTEIN has been unjustly enriched by receiving a 40% fee that is far in excess ofthe reasonable value of their services to Plaintiffs in the Underlying Action. 41. Accordingly, Plaintiffs hereby seek to recoup the amount ofthe fees paid to MILSTEIN

in excess ofthe fair market value of their services, in' an amount to be detennined at the trial hereof. WHEREFORE, Plaintiffs pray forjudgment against MILSTEIN as follows: 1. 2. For damages in the collective minimum amount of $ 1,500,000.00, For pre-judgment interest thereon, \ Complaint -11-

3. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4. their services, 5. 6.

For punitive damages in an amount to be proved at trial, For recoupment of attomey's fees paid to MILSTEIN in excess ofthe fair market value of

For costs of suit herein, and For such other and further reliefas the court may deem just and proper.

DATED- June 18, 2010 LAW OFFICE OF EUGENE P. HAYDU

Eugene P Haydu Attomey for Plaintiffs

12Complaint