Yijin Lu et al v. Daniel Hong Deng et al

Filing 65

MINUTES OF Motion Hearing held before Judge Christina A. Snyder RE: Daniel Deng's and Floyd Fountain's Motion to Dismiss 56 ; Evan Freed's Motion to Dismiss 59 . Freed's motion to dismiss is GRANTED. Deng and Fountain's mot ion to dismiss is GRANTED in part and DENIED in part. The motion is DENIED with respect to Lu's claim for fraud, Han's claim for fraud, Lu and Han's claim for violation of the UCL, Han and Yang's claim for declaratory relief again st Deng, Yang's claim for breach of fiduciary duty, Yang's claim for professional negligence, Zhai's claim for breach of fiduciary duty, and Zhai's claim for professional negligence. In all other respects, Deng and Fountain's motion to dismiss is GRANTED. The Court has previously dismissed the declaratory relief claim against Freed. Plaintiffs' failure to correct the deficiencies previously identified in the declaratory relief claim against Freed warrants dismissal of plaintiffs' claim against Freed with prejudice. Plaintiffs' remaining claims are dismissed without prejudice. The Court grants plaintiffs 14 days leave in which to file any amended complaint curing the deficiencies identified herein. Pla intiffs will not be permitted to add any additional claims other than those already alleged in the SAC. Furthermore, if plaintiffs choose to amend their RICO allegations, plaintiffs shall file an amended RICO Case Statement. Court Reporter: Laura Elias. (gk)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:16-cv-07283-CAS (RAOx)

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

Present: The Honorable

Date

‘O’
June 5, 2017

CHRISTINA A. SNYDER

Catherine Jeang

Laura Elias

N/A

Deputy Clerk

Court Reporter / Recorder

Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Steven Sugars

Fredric Trester
Edward Lear

Proceedings:

DANIEL DENG’S AND FLOYD FOUNTAIN’S MOTION TO
DISMISS (Filed May 8, 2017, Dkt. 57)
EVAN FREED’S MOTION TO DISMISS (Filed May 8, 2017,
Dkt. 59)

I.

INTRODUCTION

On or about September 2, 2016, Yijin Lu, Yunyao Zhai, Qian Han, and Yuhan
Yang filed a complaint against Daniel Hong Deng, Evan Philip Freed, Floyd Rayford
Fountain, Robert Cornforth, and Does 1 through 50 in the Los Angeles County Superior
Court. Dkt. 1, Ex. A. On September 23, 2016, plaintiffs filed an amendment in Los
Angeles Superior Court based upon plaintiffs’ discovery that Doe 1’s true name is
Patricia Hattersley. Dkt. 27 Ex. 1. On September 28, 2016, defendants filed a Notice of
Removal to the United States District Court for the Central District of California. Dkt. 1.
On September 30, 2016, Cornforth filed a motion to dismiss all claims for relief
alleged against him. Dkt. 7. On November 7, 2016, the Court dismissed all claims
against Cornforth without prejudice.1

On December 6, 2016, plaintiffs also filed a notice of dismissal with respect to
Cornforth and Hattersley. Dkt. 30.
1

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The initial complaint alleged eight claims against Freed. On December 20, 2016,
Freed filed a motion to dismiss the claims against him. Dkt. 37. On January 23, 2017,
the Court granted Freed’s motion and gave plaintiffs 30 days leave in which to file any
amended pleadings. Dkt. 40. In its January 23, 2017 order, the Court ruled that plaintiffs
had failed to satisfy Rule 8 by setting forth what relief, and on what theory, plaintiffs
sought to proceed against Freed. Id. at 11.
On February 22, 2017, plaintiffs filed a First Amended Complaint (“FAC”).
Dkt. 47. Plaintiffs did not reallege any of their original claims against Freed. Instead, the
FAC alleged a single, new claim against Freed for declaratory relief pursuant to
California Business and Professions Code § 6148, relating to contracts between attorneys
and clients. On March 8, 2017, Freed filed a motion to dismiss the FAC. Dkt. 50. On
April 10, 2017, the Court dismissed the sole claim against Freed without prejudice and
granted plaintiffs 14 days leave in which to file an amended complaint. Dkt. 53.
On April 24, 2017, plaintiffs filed a Second Amended Complaint (“SAC”).
Dkt. 54. In the SAC, all four plaintiffs allege the following claims against Deng:
(1) breach of contract;
(2) breach of fiduciary duty;
(3) breach of the implied covenant of good faith and fair dealing;
(4) racketeering activity in violation of 18 U.S.C. § 1962(c) (“RICO”);
(5) conspiracy to commit racketeering activity in violation of 18 U.S.C. §
1962(d) (“RICO Conspiracy”);
(6) common law fraud;
(7) unfair competition in violation of California’s Unfair Competition Law,
Cal. Bus. & Prof. Code § 17200 (“the UCL”);
(8) conspiracy.
Yang and Zhai also allege a claim for professional negligence against Deng. Plaintiffs all
join in a claim against Fountain, Freed, and Deng for declaratory judgment pursuant to
California Business and Professions Code section 6148. Plaintiffs’ declaratory judgment
claim is the only claim alleged against Fountain and Freed.
On May 8, 2017, Deng and Fountain jointly filed a motion to dismiss. Dkt. 57
(“Mot.”). On the same day, Freed filed a motion to dismiss. Dkt. 59. On May 15, 2017,
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plaintiffs filed an opposition to Deng and Fountain’s motion, dkt. 60 (“Opp’n”), as well
as Freed’s motion, dkt. 61. On May 22, 2017, Deng and Fountain filed a joint reply.
Dkt. 63. On the same day, Freed also filed a reply. Dkt. 64.
Having carefully considered the parties’ arguments, the Court rules as follows.
II.

BACKGROUND

This action is brought by two families. Lu and Zhai are one mother-daughter pair.
Han and Yang are another mother-daughter pair. Both daughters, Yang and Zhai, were
charged as co-defendants in Los Angeles County Superior Court Case Number
KA109395 (“the Criminal Case”).2 Han and Lu reside in China. However, after Zhai
and Yang were charged, their mothers, Han and Lu, traveled from China to support and
assist their daughters. Han and Lu both retained defense counsel on their daughters’
behalf and paid their daughters’ attorneys’ fees.
All three defendants are attorneys licensed to practice in the State of California. As
discussed in more detail below, in April 2015, both families retained Deng as defense
counsel in the Criminal Case. Plaintiffs allege that Deng and Freed agreed to represent
Zhai in the Criminal Case while Deng and Fountain represented Yang. This action stems
from the manner in which Deng obtained Zhai and Yang as clients, the manner in which
he represented Zhai and Yang in the Criminal Case, and the means by which he charged
both families fees.
A.

Lu Hires Deng and Freed to Represent Zhai

On or about April 5, 2015, Lu met, in person, with Deng to discuss her daughter
Zhai’s representation in the Criminal Case. Id. ¶ 25. Plaintiffs allege that, during the
April 5, 2015 meeting, Deng made several misrepresentations to Lu regarding his ability
to obtain a favorable result in the Criminal Case and the need for a large non-refundable
2

In the Criminal Case, Zhai and Yang were each charged with several felonies,
including torture in violation of California Penal Code § 206, multiple counts of
kidnapping in violation of California Penal Code § 207(a), and assault by force likely to
produce great bodily injury in violation of California Penal Code § 245(a)(4). SAC ¶ 12.
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fee. Deng allegedly told Lu that he “had special influence within the California judicial
system which would guarantee that her daughter [Zhai] would not be sentenced to any
significant period of incarceration.” Id. Deng also allegedly showed Lu a photograph of
himself with the Los Angeles County District Attorney (“DA”), adding that he had made
“significant contributions to the [DA’s] election . . . and that [the DA] is a close personal
friend of his.” Id. “[Deng] indicated that he would speak directly to [the DA] . . . [to]
ensure that [Zhai’s] sentence would fall within 2 to 3 years, and that under the worse
scenario [sic], would not exceed 4 years.” Id. Plaintiffs further allege that Deng
“represented . . . by strong implication, that the reason he was charging such a large nonrefundable retainer fee was that he needed the money in order to influence the California
judicial system in [Zhai’s] favor.” Id. ¶ 26. Deng allegedly told Lu that he believed a
reasonable fee would be $300,000, but that he was willing to give Lu and Zhai a discount
and charge only $200,000. Id. ¶ 27.
Three days later, on April 8, 2015, Lu, acting on behalf of her daughter who was in
jail at the time, signed a retainer agreement. Id. ¶ 13; SAC Ex. 1 (“Zhai Retainer
Agreement”). The contract Lu signed purports to be an “Attorney Retainer Agreement”
between Zhai and both Freed and Deng. SAC Ex. 1 at 1. It listed both Freed and Deng
as attorneys who would, “take all steps” necessary to represent Zhai in the Criminal Case
in exchange for a “flat-rate NON-REFUNDABLE retaining fee of Two Hundred
Thousand Dollars ($200,000.00).” Id. (emphasis in original). The Zhai Retainer
Agreement further provides:
CLIENT acknowledges that ATTORNEYS has [sic] made no guarantee
regarding the successful termination of said cause of action, and all
expressions relative thereto are matters of opinion only . . .
ATTORNEYS shall not settle or compromise this matter without the
approval of CLIENT. . .
ATTORNEYS may associate with other attorneys pertaining to this matter,
but at no additional cost to CLIENT.
SAC Ex. 1. The Zhai retainer agreement lists Zhai as the “CLIENT.” Id. At the bottom
of the Retainer Agreement is a signature block. The line for the client’s signature is
blank. Plaintiffs do not allege that Zhai ever signed the Zhai Retainer Agreement. It is
unclear when, if ever, Zhai saw the document. Under one line, Freed’s name is printed.
Id. at 2. Plaintiffs allege that Deng signed above Freed’s name. SAC ¶ 13.
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After signing the Zhai Retainer Agreement on April 8, 2015, Lu allegedly called
her husband in China from Deng’s office. Id. ¶ 29. At Deng’s instruction, Lu’s husband
wired the equivalent of $200,000 in Chinese Yuan to Deng’s sister in China. Id. On
April 10, 2015, Deng gave Lu a receipt for the payment of the $200,000 fee. Id. ¶31;
SAC Ex. 2.
Plaintiffs do not allege that, at the time Lu signed the Retainer Agreement, she had
ever met or communicated with Freed – Lu had only spoken with Deng. Id. ¶ 25. Nor do
plaintiffs allege that they entered into a contract with Freed or otherwise reached any
agreement with Freed for fees. Freed did not sign the Zhai Retainer Agreement, id. ¶ 15,
and was not aware of any of its terms, id. ¶ 16. Freed did not see or know the terms of
the Zhai Retainer Agreement until this suit began. Id. Plaintiffs allege that Freed never
authorized Deng to execute the Retainer Agreement on his behalf, id. ¶ 17, but that, on
April 8, 2015, Freed nonetheless began providing legal services to Zhai in connection
with the Criminal Case, id. ¶ 14.
Plaintiffs allege that, after Lu’s husband paid the $200,000 fee, Deng lied to Freed
about the amount of fees paid for Zhai’s representation. Id. ¶ 14. Deng allegedly told
Freed that Lu had only paid $20,000 and that Deng and Freed could divide the fees
equally.3 Id. ¶ 14. Freed allegedly received $10,000 from Deng for Freed’s legal work
representing Zhai in the Criminal Case. Id. Plaintiffs allege that the “reasonable value of
the legal services provided” by Freed was “substantially less” than the amount Freed
received from Deng. Id. ¶ 73.
It is unclear when, if ever, plaintiffs claim to have met Freed. Plaintiffs allege that
in “about early September 2015,” Deng and Freed recommended to Zhai that she accept a
plea bargain, which carried a sentence of 13 years. Id. ¶ 66. Zhai accepted the plea
bargain and was sentenced to a term of 13 years imprisonment. Id. ¶ 76.
B.

Han Hires Deng and Fountain to Represent Yang

Plaintiffs allege that on or about April 27, 2015, Han also met in-person with
Deng. Id. ¶ 49. During the April 27, 2015 meeting Deng allegedly made several
The SAC does not allege when Deng lied to Freed or when Deng paid Freed. The
SAC alleges that it was “apparently, at or around” April 8, 2017. SAC ¶ 14.
3

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misrepresentations to Han regarding his ability to obtain a favorable result in the
Criminal Case and the need for a very high fee. Deng allegedly told Han that he “had
special influence within the California judicial system which would guarantee that
[Yang] would not be sentenced to any significant period of incarceration.” Id. Deng also
allegedly showed Han a photograph of himself with the DA, adding that he had made
“contributions to the [DA’s] election . . . and that [the DA] is a close personal friend of
his.” Id. “[Deng] indicated that he would speak directly to [the DA] . . . [to] ensure that
[Han’s] sentence would not exceed 2 years, probably 1 year.” Id. Deng allegedly
guaranteed that Yang’s sentence would not exceed two years “at the absolute worst.”
Id. ¶ 51. Plaintiffs further allege that Deng “represented . . . by strong implication, that
the reason he was charging such a large non-refundable retainer fee was that he needed
the money in order to influence the California judicial system in [Yang’s] favor.”
Id. ¶ 50.
After Deng made the foregoing representations, Han, acting on behalf of her
daughter, Yang, who was in jail at the time, signed a retainer agreement. Id. ¶ 35. The
retainer agreement that Han allegedly signed on April 27, 2015, is attached to the SAC as
exhibit 4. See SAC Ex. 4 (“Version One of the Yang Retainer Agreement”). On April
28, 2015, Deng allegedly spoke with Yang, who was in custody. Id. ¶ 36. On April 28,
2015, Yang signed a retainer agreement that was slightly different from the retainer
agreement signed by her mother. Id.; SAC Ex. 5 (“Version Two of the Yang Retainer
Agreement”).
Both versions of the Yang Retainer Agreement contain language written in English
and in Mandarin. Most of the writing in Mandarin, which appears below and/or after
each section of writing in English, appears to be a translation of the English writing.4
1.

The Document Han Signed

On April 27, 2015, Han allegedly signed Version One of the Yang Retainer
Agreement. Version One provides:

4

Although the Court cannot discern the accuracy of the translations contained in
the retainer agreements, plaintiffs do not allege that the translations are inaccurate,
incorrect, or misleading.
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This ATTORNEY RETAINER AGREEMENT . . . is made on Monday,
April 27, 2015 . . . by and between Yang, Yuhan in California, hereinafter
designated as ‘CLIENT’ and, Rayford Fountain, Esq, hereinafter
designated as ‘ATTORNEYS,’ Witnesseth: [Unidentified Mandarin
Characters] Rayford Fountain Esq. [Unidentified Mandarin Characters]
CLIENT, in consideration of services rendered and to be rendered by
ATTORNEYS to CLIENT, retains ATTORNEYS to represent him/her as
his/her Attorney at law regarding: [Unidentified Mandarin Characters]:
[Unidentified Mandarin Characters]___________________.
CLIENT empowers ATTORNEYS to take all steps in said matter . . .
CLIENT agrees to pay to ATTORNEYS, for professional services, a flatrate NON-REFUNDABLE retaining fee of TWENTY THOUSAND_Dollars
($200,000). Payable as follows: [Unidentified Mandarin Characters]:
[Blank Line in Original]_____________________________.
...
CLIENT acknowledges that ATTORNEYS has [sic] made no guarantee
regarding the successful termination of said cause of action, and all
expressions relative thereto are matters of opinion only. CLIENT as also
advised that ATTORNEYS do not carry malpractice insurance.
[Unidentified Mandarin Characters].
...
ATTORNEYS may associate with other attorneys pertaining to this matter,
but at no additional cost to CLIENT. [Unidentified Mandarin Characters]
Client is advised that co-defendant _[Blank Line]_ has also retained
ATTORNEY Daniel Deng as his/her counsel, and Client agrees to waive the
potential conflict after being advised the potential conflict and having seeked
outside counsel for advice. [Unidentified Mandarin Characters].
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CLIENT has also agreed to allow ATTORNEYS to discuss and release
information to the following authorized parties: [Unidentified Mandarin
Characters]:
[Blank Line in Original]_____________________________
IN WITNESS WHEREOF, the parties set their hands the date first
mentioned. [Unidentified Mandarin Characters].
By: [Allegedly Deng’s Signature]_

____[Blank Line]____

Rayford Fountain, Esq.

CLIENT [Typed Mandarin]

2112 Walnut Grove Avenue

_[Handwritten Mandarin Characters]_

Rosemead, California 91770

FEES GUARANTEED BY:
[Typed Mandarin Characters]

SAC Ex. 4 at 1-2 (emphasis in original).
2.

The Document Yang Signed

On April 28, 2015, Yang signed Version Two of the Yang Retainer Agreement
from jail. Version Two includes certain statements that were not present in Version One.
Version Two provides:
This ATTORNEY RETAINER AGREEMENT . . . is made April 28, 2015,
in California, by and between YUHAN YANG___, in California,
hereinafter designated as ‘CLIENT’ and, RAY FOUNTAIN AND
DANIEL DENG hereinafter designated as ‘ATTORNEYS,’ Witnesseth:
[Unidentified Mandarin Characters] RAY FOUNTAIN AND DANIEL
DENG [Unidentified Mandarin Characters]:

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SAC Ex. 5 at 1 (emphasis in original). Version Two further provides the following
description of services, “DENG AS FAMILY ATTORNEY. RAY FOUNTAIN FOR MY
CRIMINAL CHARGES.” Id. The fee is described as:
TWO HUNDRED THOUSAND___ Dollars. ($200,000). Payable as
follows:
[Unidentified Mandarin Characters]:
PAID BY FAMILY_____________
Id. (emphasis in original). The “Trial fee” is described as “included” rather than “N/A.”
Id. (emphasis in original).
Version Two also omits certain statements that were present in Version One.
Version Two does not say that the fee is non-refundable, that the attorneys lack
malpractice insurance, that the attorneys may discuss or release information to authorized
parties, that Deng may represent an unidentified co-defendant, or that there may be a
conflict for Deng to represent two co-defendants. Lastly, Version Two has a different
signature block:
By: __[Signature]____
Daniel Deng, Esq.

___[Signature]________________
CLIENT [Mandarin Characters]
FEES GUARANTEED BY:

[Mandarin]: [phone]

___[Blank Line]________________
[Mandarin Characters]

[Mandarin]: [phone]

[Mandarin Characters]: __[Blank Line]__

SAC Ex. 5 at 2 (emphasis in original). Plaintiffs allege that Han never saw or received a
copy of Version Two of the Yang Retainer Agreement until it was turned over by
defendants in the course of this case.5 SAC ¶ 36.
5

The SAC is silent as to whether Yang was given a copy of Version Two of the
Yang Retainer Agreement after she signed it.
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On April 27, 2015, Han called friends and relatives in China to borrow the
equivalent of $200,000. Id. ¶ 53. While sitting in Deng’s office, Han and her husband
allegedly authorized an electronic transfer of funds from a bank account in China that
they controlled to a bank account in China controlled by Deng’s sister. Id.
Plaintiffs do not allege that, at the time Han and Yang signed the documents
described above, either of them had ever met Fountain. Nor do plaintiffs allege that they
entered into a contract with Fountain or otherwise reached any agreement with Fountain.
Fountain did not sign any version of the Yang Retainer Agreement and was not aware of
any of its terms. Id. ¶ 46. Fountain was not aware of the terms of either version of the
Yang Retainer Agreement until this action commenced. Id. ¶ 40. Plaintiffs allege that
Fountain never authorized Deng to execute a Retainer Agreement on his behalf. Id. ¶ 41.
Deng allegedly told Fountain that Han had only paid $20,000 and that Deng and
Fountain could divide the fees equally.6 Id. ¶ 71. Fountain allegedly received $10,000
from Deng for representing Yang in the Criminal Case. Id. Plaintiffs allege that the
“reasonable value of the legal services provided” by Fountain was “substantially less”
than the fees Fountain received from Deng. Id. ¶ 73.
It is unclear when, if ever, plaintiffs claim to have met Fountain. Plaintiffs allege
that in “about early September 2015,” Deng and Fountain recommended to Yang that she
accept a plea bargain, which carried a sentence of ten years. Id. ¶ 67. Yang accepted the
plea bargain and was sentenced to a term of ten years imprisonment. Id. ¶ 85.
III.

LEGAL STANDARDS
A.

Rule 12(b)(6)

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in a
complaint. “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not
need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitlement to relief’ requires more than labels and conclusions, and a formulaic
The SAC does not allege when Deng allegedly lied to Fountain or when Deng
paid Fountain.
6

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recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). “[F]actual allegations must be enough to raise a
right to relief above the speculative level.” Id.
In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all
material allegations in the complaint, as well as all reasonable inferences to be drawn
from them. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be
read in the light most favorable to the nonmoving party. Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Parks Sch. of Bus., Inc. v. Symington, 51
F.3d 1480, 1484 (9th Cir. 1995). However, “[i]n keeping with these principles a court
considering a motion to dismiss can choose to begin by identifying pleadings that,
because they are no more than conclusions, are not entitled to the assumption of truth.
While legal conclusions can provide the framework of a complaint, they must be
supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950
(2009); Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) (“[F]or a
complaint to survive a motion to dismiss, the non-conclusory ‘factual content,’ and
reasonable inferences from that content, must be plausibly suggestive of a claim entitling
the plaintiff to relief.”) (citing Twombly and Iqbal); Sprewell, 266 F.3d at 988; W.
Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Ultimately, “[d]etermining
whether a complaint states a plausible claim for relief will . . . be a context-specific task
that requires the reviewing court to draw on its judicial experience and common sense.”
Iqbal, 129 S.Ct. at 1950.
Furthermore, unless a court converts a Rule 12(b)(6) motion into a motion for
summary judgment, a court cannot consider material outside of the complaint (e.g., facts
presented in briefs, affidavits, or discovery materials). In re American Cont’l
Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev’d on
other grounds sub nom Lexecon, Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523
U.S. 26 (1998). A court may, however, consider exhibits submitted with or alleged in the
complaint and matters that may be judicially noticed pursuant to Federal Rule of
Evidence 201. In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999);
Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).
As a general rule, leave to amend a complaint which has been dismissed should be
freely granted. Fed. R. Civ. P. 15(a). However, leave to amend may be denied when “the
court determines that the allegation of other facts consistent with the challenged pleading
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could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture
Co., 806 F.2d 1393, 1401 (9th Cir. 1986); see Lopez v. Smith, 203 F.3d 1122, 1127 (9th
Cir. 2000).
B.

Rule 9(b)

Federal Rule of Civil Procedure 9(b) requires that the circumstances constituting a
claim for fraud be pleaded with particularity. Federal Rule of Civil Procedure 9(b) applies
not just where a complaint specifically alleges fraud as an essential element of a claim,
but also where the claim is “grounded in fraud” or “[sounds] in fraud.” Vess v. Ciba–
Geigy Corp. U.S.A., 317 F.3d 1097, 1103–04 (9th Cir.2003). A claim is said to be
“grounded in fraud” or “ ‘sounds in fraud’ ” where a plaintiff alleges that defendant
engaged in fraudulent conduct and relies on solely on that conduct to prove a
claim. Id. “In that event, . . . the pleading of that claim as a whole must satisfy the
particularity requirement of [Fed.R.Civ.P.] 9(b).” Id. However, where a plaintiff alleges
claims grounded in fraudulent and non-fraudulent conduct, only the allegations of fraud
are subject to heightened pleading requirements. Id. at 1104.
A pleading is sufficient under Fed.R.Civ.P. 9(b) if it “[identifies] the circumstances
constituting fraud so that the defendant can prepare an adequate answer from the
allegations.” Walling v. Beverly Enters., 476 F.2d 393, 397 (9th Cir.1973). This requires
that a false statement must be alleged, and that “circumstances indicating falseness” must
be set forth. In re GlenFed Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). Thus, Rule
9(b) requires a plaintiff to “identify the ‘who, what, when, where and how of the
misconduct charged,’ as well as ‘what is false or misleading about [the purportedly
fraudulent conduct], and why it is false.” Cafasso, ex rel. United States v. Gen. Dynamics
C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir.2011) (quoting Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993, 998 (9th Cir.2010)).
IV.

DISCUSSION
A.

Unclean Hands

In their joint motion to dismiss, Fountain and Deng argue that the SAC should be
dismissed pursuant to the doctrine of in pari delicto, or unclean hands. According to
Fountain and Deng, plaintiffs allege that they paid $400,000 in retainer fees to Deng so
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that Deng would bribe a judge of the Superior Court or district attorney on behalf of Zhai
and Yang.
The doctrine of unclean hands “bars relief to a plaintiff who has violated
conscience, good faith or other equitable principles in his prior conduct, as well as to a
plaintiff who has dirtied his hands in acquiring the right presently asserted.” Dollar Sys.,
Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 173 (9th Cir. 1989) (citations omitted).
“The doctrine of unclean hands also can bar a defendant from asserting an equitable
defense.” Seller Agency Council, Inc. v. Kennedy Ctr. for Real Estate Educ., Inc., 621
F.3d 981, 986 (9th Cir. 2010). Thus, the doctrine of unclean hands does not apply
“where the defendant is the one guilty of the greatest moral fault.” Jacobs v. Universal
Dev. Corp., 53 Cal. App. 4th 692, 700, 62 Cal. Rptr. 2d 446 (1997), as modified (Mar.
25, 1997). The “general rule” is “that application of the doctrine of unclean hands is a
question of fact.” CrossTalk Prods., Inc. v. Jacobsen, 65 Cal.App. 4th 631, 639 (1998).
Therefore, “[a] demurrer based on [unclean hands] cannot properly be sustained where
the action might be barred by the defense, but is not necessarily barred.” Id. at 635.
Based upon the pleadings alone, the Court is ill-situated to compare the fault of the
parties. Plaintiffs allege that Deng suggested, “that the judicial system could be corruptly
influenced.” SAC ¶ 116. Construing the allegations in plaintiffs’ favor, it appears that
Unclean Hands might apply to this case, but does not necessarily preclude any recovery.
Accordingly, defendants’ request that the SAC be dismissed by reason of the doctrine of
unclean hands is denied.
B.

Yang and Zhai’s Guilt

Deng and Fountain also argue that plaintiffs’ claims should be dismissed because
Zhai and Yang do not allege that they were wrongfully convicted of the charges in the
Criminal Case.
In a civil malpractice case against an attorney, the plaintiff must prove (1) the duty
of the attorney to use reasonable skill, prudence, and diligence; (2) a breach of that duty;
(3) that the breach of duty was the proximate cause of a resulting injury; and (4) actual
injury. Schultz v. Harney, 27 Cal. App. 4th 1611, 1621, 33 Cal. Rptr. 2d 276 (1994).
However, California has adopted an “additional element” where a plaintiff alleges “legal
malpractice in the course of defending a client accused of crime,” also known as
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“criminal malpractice.” Wiley v. Cty. of San Diego, 19 Cal. 4th 532, 536 n.1, 966 P.2d
983 (1998). “[I]n a criminal malpractice action actual innocence is a necessary element
of the plaintiff's cause of action.” Id. at 545.
The foregoing principle was established by the California Supreme Court in Wiley.
After surveying other states’ practices, the California Supreme Court in Wiley held that
“[o]nly an innocent person wrongly convicted due to inadequate representation has
suffered a compensable injury because in that situation the nexus between the malpractice
and palpable harm is sufficient to warrant a civil action, however inadequate, to redress
the loss.” Id. at 539. Even where defense counsel’s malpractice “may be the least
excusable, such as the lawyer’s failure to raise a defense . . . which would have prevented
the prosecution . . . a defendant’s own criminal act remains the ultimate source of his
predicament irrespective of counsel’s subsequent negligence.” Id. at 539-40. In light of
Wiley, California courts acknowledge that, “a criminal defense attorney [often may]
collect a large retainer fee from a client and neglect the client’s case with impunity”
unless that client can prove their innocence. Lynch v. Warwick, 115 Cal. Rptr.
2d 391, 396 (2002).
Even claims styled as a breach of contract may require proof of innocence. See
e.g. Lynch, 115 Cal. Rptr. 2d at 395 (“while couched in terms of breach of contract,”
plaintiff’s claim for disgorgement of attorneys’ fees requires proof of innocence);
Khodayari v. Mashburn, 132 Cal. Rptr. 3d 903, 908 (2011) (“although appellant gives
various labels to his causes of action, the alleged facts supporting the claims show that all
of them are based on legal malpractice”). However, not every action brought by a
convicted client against their former defense counsel requires proof of innocence.
Instead, courts determine what “primary right” is being asserted and determine whether
there are public policy reasons for requiring proof of innocence to support particular
allegations. Bird, Marella, Boxer & Wolpert v. Superior Court, 130 Cal. Rptr.
2d 782, 788 (2003). If the primary right being asserted is the “right to competent legal
representation,” then the convicted plaintiff must prove innocence. Id. at 788-89. But if
a former client claims to have been over-billed, he or she may not be required to prove
their innocence. Id.
Here, plaintiffs allege that “ZHAI and YANG are not asserting that their damages
stem from being sentenced to any term of imprisonment, nor are they, by this complaint,

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making any statement concerning their guilt or innocence.” SAC ¶ 68. Accordingly, any
claim which would require proof of innocence must be dismissed.
With the foregoing principles in mind, the Court proceeds to evaluate plaintiffs’
claims.
C.

Common Law Fraud and Violation of the UCL

Plaintiffs allege that Deng made several misrepresentations to Lu and Han during
meetings on April 5, 2015, and April 27, 2015, respectively. To state a claim for fraud,
plaintiffs must allege “(a) misrepresentation (false representation, concealment, or
nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to
induce reliance; (d) justifiable reliance; and (e) resulting damage.” Lazar v. Superior
Court, 12 Cal. 4th 631, 638 (1996). “An action for promissory fraud may lie where a
defendant fraudulently induces the plaintiff to enter into a contract.” Id.
As an initial matter, plaintiffs do not allege that Deng made any misrepresentations
to his clients, Zhai and Yang. Accordingly, Zhai and Yang cannot allege fraud and their
individual claims are DISMISSED.
Turning to Lu and Han’s claims for fraud, defendants do not offer any reason Lu
and Han should be required to prove that their daughters were wrongfully convicted in
order to pursue a fraud claim. As defendants correctly assert in their motion, Lu and Han
lack standing to bring a criminal malpractice claim against Deng because neither was
Deng’s client. Furthermore, none of the public policy concerns discussed in Wiley is
implicated by Lu and Han’s claims for fraud – neither mother alleges personal injury
resulting from their daughter’s sentence or conviction, nor can Lu or Han obtain any
relief in the criminal proceedings. The primary right being asserted by Lu and Han is a
claim for fraud. Neither mother is asserting, nor could they assert, their daughters’ rights
to competent counsel in the Criminal Case.
Han and Lu allege that Deng made numerous false or misleading statements to
them during their meetings with him, that Deng knew his own statements to be false, that
Deng intended to induce Han and Lu into executing the retainer agreements and paying
their daughters’ legal fees, that Han and Lu justifiably relied upon Deng’s
representations, and that Han and Lu suffered injury as a result of their reliance on
Deng’s misleading pitch. Han and Lu’s allegations also satisfy Rule 9(b) by setting forth
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the context of Deng’s false and misleading statements as well as the “circumstances
indicating falseness,” In re GlenFed Sec. Litig., 42 F.3d at 1548. Han and Lu have
therefore adequately pleaded claims against Deng for fraud.
Deng’s motion to dismiss plaintiffs’ fraud claims is GRANTED in part and
DENIED in part. The motion is GRANTED with respect to Zhai and Yang’s claims for
fraud, but DENIED with respect to Han and Lu’s claims for fraud.
Because Han and Lu have each stated a claim for fraud, they have also stated a
derivative UCL claim. See Ellis v. J.P. Morgan Chase & Co., 950 F. Supp. 2d 1062,
1085 (N.D. Cal. 2013) (fraud claim sufficient to maintain claim under the fraud prong of
the UCL); State Comp. Ins. Fund v. Drobot, Case No. 13-cv-956-AG, 2013 WL
12125748, at *6 (C.D. Cal. Nov. 20, 2013) (same). Accordingly, insofar as the UCL
claim is predicated upon the alleged fraud by Deng, Han and Lu have alleged a violation
of the UCL.
D.

Charging Unconscionable Fees

The SAC alleges several claims predicated, in part, upon Deng’s allegedly
unconscionable fees. Specifically, plaintiffs’ claims for breach of fiduciary duty,
professional negligence, breach of the implied covenant of good faith and fair dealing,
and violation of the UCL all include allegations about Deng’s allegedly unconscionable
fees.
As an initial matter, only Zhai and Yang’s claims for breach of fiduciary duty and
professional negligence may proceed under a theory that Deng breached his duty not to
charge unconscionable fees. As already discussed, Han and Lu were not Deng’s clients.
Therefore, Han and Lu cannot allege a claim for breach of fiduciary duty. See Goodley
v. Wank & Wank, Inc., 62 Cal. App. 3d 389, 395–96 (Ct. App. 1976) (“Because of the
inherent character of the attorney-client relationship, it has been jealously guarded and
restricted to only the parties involved”). Nor can plaintiffs’ claims for breach of the
implied covenant of good faith and fair dealing be predicated upon Deng’s allegedly
unconscionable fees because the retainer agreements expressly permitted a $200,000 fee
for each client. See Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342,
374 (1992) (The implied covenant of good faith and fair dealing may not “prohibit a
party from doing that which is expressly permitted by an agreement.”). Lastly, because
“the Rules of Professional Conduct do not constitute predicate laws for the purposes of
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the UCL,” Travelers Prop. Cas. Co. of Am. v. Centex Homes, Case No. 11-cv-3638-SC,
2013 WL 4528956, at *4 (N.D. Cal. Aug. 26, 2013), plaintiffs’ claim for violation of the
UCL cannot be predicated upon an attorney’s violation of the rule against charging
unconscionable fees. Thus, plaintiffs’ UCL and breach of implied covenant of good faith
and fair dealing claims are DISMISSED insofar as they rely on allegations that Deng
charged unconscionable fees. Han and Lu’s claims for breach of fiduciary duty are also
DISMISSED. In light of the foregoing conclusions, the Court proceeds to analyze Yang
and Zhai’s claims for breach of fiduciary duty and professional negligence based upon
Deng’s allegedly unconscionable fees.
Zhai and Yang’s claims for professional negligence and breach of fiduciary duty
are functionally the same. See Knight v. Aqui, 966 F. Supp. 2d 989, 1000 (N.D. Cal.
2013) (“they are, in the context of legal malpractice claims like this one, functionally the
same”); Rest. (Third) of Law Governing Lawyers § 49 (2000) (“Many claims brought by
clients against lawyers can reasonably be classified either as for breach of fiduciary-duty
or for negligence without any difference in result. For example, the duty of care enforced
in a negligence action is also a fiduciary duty. . . . Pleaders typically add a fiduciary-duty
claim to a negligence count for reasons of rhetoric or completeness”). Both allege that
Deng breached his obligation as their attorney not to charge them unconscionable fees.
In contrast to a claim that Deng’s representation of his clients was deficient, Zhai
and Yang’s claims that Deng charged them unconscionable fees are appropriately
characterized as a “fee dispute” wherein Zhai and Yang’s guilt is irrelevant. “The
fiduciary duty to charge only fair, reasonable and conscionable fees applies to all
members of the bar; criminal defense attorneys are not exempted. Nor . . . does any
California statute, rule or court decision expressing an attorney's fiduciary duty to the
client with respect to fees limit this duty to clients who are ‘actually innocent.’” Bird,
130 Cal. Rptr. 2d at 792; see also Winniczek v. Nagelberg, 394 F.3d 505, 508 (7th Cir.
2005), as amended (Feb. 3, 2005) (Posner, J.) (“[T]he logic of the ‘actual innocence’ rule
does not extend to a case in which the complaint is not that the plaintiff lost his case
because of his lawyer's negligence, but that he was overcharged”).
“Attorney fee agreements are evaluated at the time of their making and must be
fair, reasonable and fully explained to the client. Such contracts are strictly construed
against the attorney.” Severson & Werson v. Bolinger, 1 Cal. Rptr. 2d 531, 533 (Ct. App.
1991), reh'g denied and opinion modified (Dec. 18, 1991); see also Cal. Rules of Prof.
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Conduct Rule 4-200(A) (A finding of unconscionability is based upon “all of the facts
and circumstances existing at the time the agreement is entered into”). California Rule of
Professional Conduct 4-200(B) provides, in pertinent part:
Unconscionability of a fee shall be determined on the basis of all the facts
and circumstances existing at the time the agreement is entered into . . . .
Among the factors to be considered [are] . . . :
(1) The amount of the fee in proportion to the value of the services [to be]
performed.
(2) The relative sophistication of the member and the client.
(3) The novelty and difficulty of the questions involved and the skill
requisite to perform the legal service properly.
(4) The likelihood, if apparent to the client, that the acceptance of the
particular employment will preclude other employment by the member.
(5) The amount involved . . .
(6) The time limitations imposed by the client or by the circumstances.
(7) The nature and length of the professional relationship with the client.
(8) The experience, reputation, and ability of the member or members
performing the services.
(9) Whether the fee is fixed or contingent.
(10) The time and labor required.
(11) The informed consent of the client to the fee.
Here, plaintiffs allege that Deng has “no or substantially no skill in handling
criminal defense work.” SAC ¶ 99. Nonetheless, Deng charged Zhai and Yang a flat,
nonrefundable $200,000 fee for defense counsel in the Criminal Case. Plaintiffs’
allegations further suggest that all the parties to the retainer agreements expected Zhai
and Yang would plead guilty at the time they executed the retainer agreements. Thus, it
is reasonable to infer from the pleadings that Zhai, Yang, and Deng did not expect the
Criminal Case to proceed to trial or involve a lengthy attorney-client relationship
involving a prolonged effort by Deng or complex motions practice. Drawing all
reasonable inferences from the SAC in Zhai and Yang’s favor, both have stated a claim
for breach of fiduciary duty and for professional negligence based upon Deng’s allegedly
unconscionable fees and both claims withstand Deng’s motion to dismiss.

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E.

Date

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Claim for Violation of Section 6148

The only claim alleged against Fountain and Freed is plaintiffs’ claim for
declaratory relief pursuant to California Business and Professions Code section 6148.
Plaintiffs’ claim for violation of Section 6148 is alleged against all of the defendants and
requests a declaratory judgment that the retainer agreements executed between plaintiffs
and Deng are void. Section 6148 provides, in pertinent part:
(a) In any case . . . [except where a contingency fee is sought] in which it is
reasonably foreseeable that total expense to a client, including attorney fees,
will exceed one thousand dollars ($1,000), the contract for services in the
case shall be in writing. At the time the contract is entered into, the attorney
shall provide a duplicate copy of the contract signed by both the attorney and
the client, or the client's guardian or representative, to the client or to the
client's guardian or representative. The written contract shall contain all of
the following:
(1) Any basis of compensation including, but not limited to, hourly
rates, statutory fees or flat fees, and other standard rates, fees, and
charges applicable to the case.
(2) The general nature of the legal services to be provided to the
client.
(3) The respective responsibilities of the attorney and the client as to
the performance of the contract.
...
(c) Failure to comply with any provision of this section renders the
agreement voidable at the option of the client, and the attorney shall, upon
the agreement being voided, be entitled to collect a reasonable fee.
Cal. Bus. & Prof. Code § 6148. Declaratory judgment is appropriate where, (1) “the
judgment will serve a useful purpose in clarifying and settling the legal relations in issue,
and (2) when it will terminate and afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding.” McGraw-Edison Co. v. Preformed Line Prod.

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Co., 362 F.2d 339, 342 (9th Cir. 1966). Plaintiffs seek a judicial declaration that their
retainer agreements are void.
As an initial matter, Section 6148 has nothing to do with criminal malpractice or
Zhai and Yang’s guilt. Contrary to Deng and Fountain’s argument, plaintiffs’ assertion
of a right to void retainer agreements that do not appropriately set forth the basis for an
attorney’s fees is in the nature of a fee dispute that is unaffected by Wiley.
1.

Freed and Fountain

Insofar as plaintiffs seek declaratory relief, there does not appear to be any basis
for relief against Freed and Fountain. Plaintiffs do not allege an ongoing controversy
between plaintiffs and either Freed or Fountain.
Plaintiffs’ claim against Freed for violation of Section 6148 has not materially
changed since the Court dismissed it on April 10, 2017. Plaintiffs’ claim against
Fountain is functionally equivalent to their claim against Freed and warrants the same
outcome. Assuming arguendo that Freed and Fountain were each required to provide a
copy of a written retainer agreement to their respective client or client’s mother, Freed
and Fountain’s failure to do so would permit plaintiffs to void any contracts or oral
agreements they made with Freed and Fountain. However, plaintiffs do not allege any
such contracts or oral agreements with Freed or Fountain, nor did Freed or Fountain seek
any compensation from plaintiffs. Deng paid Freed and Fountain for the legal services
they each performed – not plaintiffs. Section 6148 does not permit plaintiffs’ to bring a
claim voiding Freed’s or Fountain’s agreement with Deng regarding compensation.
Plaintiffs acknowledge that Freed and Fountain were not parties to the retainer
agreements and were totally unaware of each agreements’ provisions until this action
commenced. No money was ever exchanged between plaintiffs and Fountain or Freed.
Accordingly, plaintiffs’ claims seeking to void their retainer agreements with Deng are
appropriately DISMISSED as against Fountain and Freed.
2.

Deng

Although the foregoing reasoning applies with equal force to both Freed and
Fountain, the claim against Deng is in a slightly different posture because plaintiffs
actually executed retainer agreements with Deng and paid Deng for legal services.
Section 6148 sets forth four requirements for a non-contingent retainer agreement:
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(1) it must state “any basis of compensation,” i.e. the amount of a flat fee or
hourly rates;
(2) it must state “[t]he general nature of the legal services to be provided;”
(3) it must state the “respective responsibilities” of both the client and
attorney “as to the performance” of the agreement; and
(4) the client, client’s guardian, or client’s representative must be provided
with a duplicate copy of the contract signed by “both the attorney and the
client.”
Cal. Bus. & Prof. Code § 6148. Plaintiffs allege that their retainer agreements violated
Section 6148 because plaintiffs did not receive copies signed by Fountain or Freed, the
agreements did not describe a fee splitting arrangement between Deng and the other
defendants, and the agreements did “not explain[] in writing the basis for the fees being
charged.” SAC ¶ 161.
In support of their argument that a retainer agreement must be signed by all of the
attorneys who may work on a client’s behalf or receive any compensation, plaintiffs rely
exclusively upon Section 6148(a)’s requirement that the client receive a copy signed by
“the attorney.” However, plaintiffs’ reliance is misplaced. The legislature’s use of the
definite article and singular noun form belie any argument that every attorney who will
work on a client’s case must sign the retainer agreement and explain the basis for their
personal compensation. Furthermore, the purpose of Section 6148 is not that every
attorney who will work on a client’s case sign the same document before the client gets
their copy of the retainer agreement. Section 6148 “requires attorneys in noncontingent
fee cases to procure signed, written contracts from clients reflecting rates, fees, and
charges whenever it is reasonably foreseeable that their legal expenses will exceed
$1,000.” Huskinson & Brown, LLP v. Wolf, 84 P.3d 379, 383 (2004). Section 6148’s
purpose is “to ensure that clients are informed of and agree to the terms by which the
attorneys who represent them will be compensated.” Id. (emphasis added). Nothing in
the language of Section 6148 or its legislative history suggests an intention to require
various signatures and additional disclosures that would be of little use to a client.
Plaintiffs’ only remaining argument is that the retainer agreements do not set forth
the basis for the fees. SAC ¶ 161. Construed in the light most favorable to plaintiffs,
plaintiffs appear to allege that the retainer agreements inadequately explained the
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“general nature” of the services to be provided and/or the attorneys’ “responsibilities” as
required by Section 6148. Satisfaction of the foregoing requirements turns upon the
content of the contracts at issue.
Turning to the retainer agreements themselves, neither Zhai nor Lu has stated a
claim for declaratory relief. The Zhai Retainer Agreement, of which the Court takes
judicial notice, explains the “general nature” of the legal services to be provided and the
attorneys’ responsibilities. The Zhai Retainer Agreement states that Deng and Freed
would “represent [Zhai] as [her] Attorney[s] at law regarding: . . . CRIMINAL CHARGE
IN LOS ANGELES SUPERIOR COURT,” and that Zhai empowered Deng and Freed to
“take all steps in said matter deemed by ATTORNEYS to be advisable, including, but not
limited to effecting a compromise, filing appropriate motions and taking all other
appropriate steps.” SAC Ex. 1 (emphasis in original). The Zhai Retainer Agreement
plainly required Deng to represent Zhai in relation to the criminal charges she faced at the
time and explained that to Deng’s client. Section 6148 does not require exacting
specificity. Neither Zhai nor Lu alleges that they misunderstood the foregoing language
or that it was insufficient to apprise them of the general nature of the legal services Deng
would provide. Furthermore, Zhai and Lu acknowledge having retained a copy of said
agreement, signed by Deng, which they attached to the SAC. Accordingly, Zhai and Lu’s
claim for declaratory relief is DISMISSED.
In contrast to the Zhai Retainer Agreement, the two versions of the Yang Retainer
Agreement do not appear to satisfy Section 6148’s requirements.7 On April 27, 2015,
Deng and Han both signed Version One of the Yang Retainer Agreement. The English
7

On April 27, 2015, Han executed a retainer agreement on her daughter’s behalf
and agreed to pay the flat fee on Yang’s behalf. On April 28, 2015, Yang executed a
different version of the retainer agreement, which stated that her fees would be “paid by
family.” SAC Ex. 5. Plaintiffs allege that Han was completely unaware that Yang signed
a different version and was not given a copy of the version executed by Yang until this
suit commenced. SAC ¶ 36.
For present purposes, the existence of two separate contracts executed by Yang and
Han is of no moment. The Court need not determine the legal effect if only one is
voidable. Plaintiffs have alleged a claim for declaratory relief from both versions of the
Yang Retainer Agreement.
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text in the document makes no mention of Yang’s criminal case or Deng’s
responsibilities. SAC Ex. 4. Unlike the Zhai Retainer Agreement or Version Two of the
Yang Retainer Agreement, Version One of the Yang Retainer Agreement states that it is
an agreement between Fountain and Yang for undetermined legal services. Id. at 1. The
only reference to Deng appears near the end of the document, where it states:
Client is advised that co-defendant _[Blank Line]_ has also retained
ATTORNEY Daniel Deng as his/her counsel . . . .
Id. at 2. Because the preceding paragraphs of the retainer agreement make no mention of
Deng or his having been retained for any legal services, there appears to be some
ambiguity regarding whether Version One imposes any responsibilities upon Deng.8 The
only signature is allegedly Deng’s, but Deng’s signature appears above Fountain’s name
in the signature block. At the pleading stage, the Court draws all reasonable inferences in
plaintiffs’ favor. Thus, insofar as Version One of the Yang Retainer Agreement does not
describe the legal services to be provided by any attorney and is not signed by the only
attorney whom the document unambiguously purports to bind, Han has stated a claim for
declaratory judgment that the Yang Retainer Agreement Version One is voidable.
Version Two of the Yang Retainer fares no better. Version Two does not appear to
explain the general nature of the legal services to be provided by Deng or set forth his
responsibilities. Instead, it states that Yang “retains [Deng and Fountain] to represent
[Yang] as [her] Attorney at law regarding: . . . DENG AS FAMILY ATTORNEY. RAY
FOUNTAIN FOR MY CRIMINAL CHARGES.” SAC Ex. 5 (emphasis in original).
The phrase “family attorney,” standing alone, does not provide a meaningful description
of the services to be provided by Deng or Deng’s responsibilities. Absent evidence, the
Court cannot conclude that the foregoing language satisfied Section 6148 as a matter of
law. By listing Fountain as Yang’s criminal attorney, Version Two of the Yang Retainer
Agreement appears to have carved out the only legal services Yang sought at the time.
Version Two of the Yang Retainer Agreement does not offer a description of Deng’s
responsibilities or the general nature of the services Deng would provide. Thus, Yang
8

There appears to be a portion of the document in Mandarin, which is not
translated into English. Deng does not argue that the Mandarin characters used in the
document set forth an adequate description of the legal services to be provided, let alone
describe Deng’s responsibilities.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Date

‘O’

Case No.

2:16-cv-07283-CAS (RAOx)

June 5, 2017

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

has stated a claim for declaratory judgement that the Yang Retainer Agreement Version
Two is voidable.
Since Han and Yang plausibly allege a claim for declaratory judgment that both
versions of the Yang Retainer Agreement are voidable, the motion to dismiss Yang and
Han’s claim for declaratory judgment against Deng is DENIED.
F.

Plaintiffs’ Remaining Claims

Other than those already discussed above, plaintiffs have not stated any other
claims for relief.
1.

Other Claims Predicated on Violations of the Rules of
Professional Conduct

In addition to Deng’s alleged violation of the rule against charging unconscionable
fees, discussed above, plaintiffs allege that Deng violated other rules of professional
conduct and that those violations also constituted breaches of Deng’s fiduciary duties,
professional negligence, violations of the UCL, and breaches of the implied covenant of
good faith and fair dealing. Plaintiffs accuse Deng of:
(1) violating a rule of professional conduct prohibiting false statements and
guarantees;
(2) splitting fees in violation of the rules of professional conduct;
(3) violating a rule of professional conduct prohibiting an attorney from revealing
confidential information to the public or other clients; and
(4) representing clients with adverse interests in violation of the rules of
professional conduct.
However, plaintiffs have not alleged any plausible claims for relief based upon the
foregoing conduct.
None of the plaintiffs allege any damages as a result of Deng’s alleged violation of
the foregoing rules of professional conduct. Furthermore, as already discussed, the Rules
of Professional Conduct do not describe Deng’s duties to Han or Lu, who were not his
clients. Thus, Han and Lu cannot bring a claim predicated upon a violation of the Rules
of Professional Conduct. As for Zhai and Yang’s claims, unlike Zhai and Yang’s claims
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UNITED STATES DISTRICT COURT
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CIVIL MINUTES - GENERAL
Date

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Case No.

2:16-cv-07283-CAS (RAOx)

June 5, 2017

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

relating to Deng’s fees, Deng’s other alleged violations of the Rules of Professional
Conduct relate to the adequacy of his representation in the Criminal Case.9 Accordingly,
in order to proceed in their claims that Deng violated other rules of professional conduct,
Zhai and Yang must allege their innocence and first obtain post-conviction relief. Wiley,
19 Cal. 4th at 545.
In light of the foregoing, plaintiffs’ claims predicated upon Deng’s alleged
violation of Rules of Professional Conduct other than the rule prohibiting unconscionable
fees are DISMISSED.
2.

Contract Claims

Plaintiffs’ breach of contract claims are predicated upon Deng’s alleged failure to
achieve a guaranteed sentencing outcome. Plaintiffs allege that Deng breached the
retainer agreements by not securing more favorable sentences. The SAC does not allege
any specific damages as a result of Deng’s alleged breach of each retainer agreement;
however, any injury caused by the sentences imposed in the Criminal Case is principally
due to Zhai and Yang’s commission of the underlying crimes. Insofar as plaintiffs do not
allege that Zhai and Yang were wrongfully convicted, Wiley precludes plaintiffs from
claiming injury as a result of the sentences they received.10

9

The one exception may be the allegations relating to fee-splitting between Deng
and the other defendants. However, even if this allegation might be characterized as a fee
dispute, it is appropriately dismissed for a different reason – Zhai and Yang do not claim
that Deng’s fee-splitting caused them injury.
10

Even if plaintiffs were not required to allege their innocence, plaintiffs have not
stated a claim for breach of contract. Plaintiffs’ breach of contract claims are based upon
Deng’s oral representations prior to the execution of the retainer agreements. “Under
California law, a written contract presumptively supersedes all prior or contemporaneous
oral agreements concerning the subject matter of the written contract,” unless the contract
is not fully integrated. Sullivan v. Massachusetts Mut. Life Ins. Co., 611 F.2d 261, 264
(9th Cir. 1979). Whether or not a contract is integrated is a question of law. In re
Ankeny, 184 B.R. 64, 70 (B.A.P. 9th Cir. 1995).
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Date

‘O’

Case No.

2:16-cv-07283-CAS (RAOx)

June 5, 2017

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

Because Zhai and Yang do not allege that they were wrongfully convicted and
because plaintiffs do not allege breach of any written provision of their contracts,
plaintiffs’ claims for breach of contract are DISMISSED.
A covenant of good faith and fair dealing is implied in every contract. Foley v.
Interactive Data Corp., 47 Cal.3d 654, 683, 254 Cal.Rptr. 211 (1988). “The implied
promise requires each contracting party to refrain from doing anything to injure the right
of the other to receive the benefits of the agreement. The precise nature and extent of the
duty imposed by such an implied promise will depend on the contractual purposes.”
Egan v. Mut. of Omaha Ins. Co., 620 P.2d 141, 145 (1979) (citations omitted).
Other than the alleged violations of Deng’s professional responsibilities and the
amount of Deng’s fees, discussed above, plaintiffs further allege that Deng breach the
implied covenant of good faith and fair dealing by making guarantees about Zhai and
Yang’s likely sentences and other misleading statements before the retainer agreements
were executed. Zhai and Yang cannot allege any such claim because they do not allege
that Deng made sentencing guarantees to them. With respect to Han and Lu’s claims,
Deng could not have breach a contractual duty to Han and Lu before any such duty
existed. See Human Res. Dev. Press, Inc. v. Ikon Office Sols. Co., Case No. 05-cv30068-KPN, 2006 WL 149043, at *9 (D. Mass. Jan. 12, 2006) (“Plaintiff's claim
for breach of the implied covenant of good faith and fair dealing concerns statements
made by Defendants before the contract was executed. While that may prove sufficient
for Plaintiff's claim of fraud and misrepresentation . . . it is inadequate” to state a claim
for breach of the implied covenant of good faith and fair dealing); Town Park Hotel Corp.
v. Priskos Investments, Inc., Case No. 1:02-cv-164-TC, 2006 WL 658896, at *5 (D. Utah
Mar. 14, 2006) (only tort duties precede contract formation). Because plaintiffs’ do not
allege any other basis for their breach of the implied covenant of good faith and fair
dealing claims, those claims are DISMISSED.

The retainer agreements expressly disclaim any guarantees or representations about
the sentencing outcome. Furthermore, the retainer agreements appear to be complete
agreements and plaintiffs’ do not allege otherwise. Thus, Deng’s alleged statements
before either contract was signed do not provide a basis for a breach of contract claim.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:16-cv-07283-CAS (RAOx)

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.
3.

Date

‘O’
June 5, 2017

Civil RICO

Plaintiffs allege two claims pursuant to the federal RICO statutes.11 Plaintiffs
allege a substantive violation of 18 U.S.C. § 1962(c) and a separate claim that Deng
conspired to violate sub-section 1962(c), in violation of 18 U.S.C. § 1962(d) (“RICO
Conspiracy”). “To establish a RICO claim, a plaintiff must show: (1) a violation of the
RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the
injury was caused by the violation of Section 1962.” Spool v. World Child Int'l Adoption
Agency, 520 F.3d 178, 183 (2d Cir. 2008).
Neither Zhai nor Yang alleges an injury to business or property resulting from
Deng’s conduct. Accordingly, neither Zhai nor Yang may bring a RICO claim and their
claims are DISMISSED.
Lu and Han both allege an injury to property (their payment of the retainer fees)
and that said injury was caused by a violation of 18 U.S.C. § 1962. However, neither Lu
nor Han alleges a substantive violation of the RICO statute. To state a claim for violation
of 18 U.S.C. § 1962, a plaintiff must allege that a person engaged, or conspired to
engage, in a “pattern” of “racketeering activity” in association with an “enterprise.” See
18 U.S.C. § 1962(c)-(d); see also Sanford v. MemberWorks, Inc., 625 F.3d 550, 557 (9th
Cir.2010). To allege a pattern, a plaintiff must allege “at least two acts of racketeering
activity,” 18 U.S.C. § 1961(5), as well as “a relationship between the predicates and of
the threat of continuing activity,” Howard v. Am. Online Inc., 208 F.3d 741, 750 (9th Cir.
2000) (quotation marks, citations, and brackets omitted) (quoting H.J. Inc. v. Nw. Bell
Tel. Co., 492 U.S. 229 (1989)). The threat of continuing activity is also known as the
continuity requirement. “Continuity is both a closed- and open-ended concept, referring
On November 7, 2016, the Court ordered plaintiffs to file a RICO case statement
in support of any RICO claims they allege. Dkt. 28. Plaintiffs filed such a statement in
support of the original complaint, dkt. 31, and the First Amended Complaint (“FAC”),
dkt. 48. Plaintiffs did not file a RICO case statement in support of the SAC. Both the
FAC and SAC only alleged RICO claims against Deng and those allegations do not
appear to have changed. In the interests of judicial economy, the Court addresses the
allegations of the SAC and will treat the RICO Case Statement filed on February 22,
2017, dkt. 48, as though it were also filed in support of the RICO claims in the SAC.
11

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UNITED STATES DISTRICT COURT
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Case No.

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June 5, 2017

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

either to a closed period of repeated conduct, or to past conduct that by its nature projects
into the future with a threat of repetition.” H.J., 492 U.S. at 241.
To satisfy the continuity requirement, Plaintiffs must prove either a series of
related predicates extending over a substantial period of time, i.e., closedended continuity, or past conduct that by its nature projects into the future
with a threat of repetition, i.e., open-ended continuity.
Howard, 208 F.3d at 750.
The Supreme Court has “stressed the importance of the finding of a ‘pattern of
racketeering activity,’ as distinguished from just a finding of the commission of two of
the predicate acts. Jarvis v. Regan, 833 F.2d 149, 153 (9th Cir. 1987). Accordingly,
“[t]his circuit has adopted a test for pattern which inquires whether the predicate acts are
sporadic or isolated. If they are isolated and sporadic, then they cannot form a ‘pattern.’”
Durning v. Citibank, Int'l, 990 F.2d 1133, 1138 (9th Cir. 1993). Even where a defendant
“may have committed numerous related predicate acts,” a RICO claim is appropriately
dismissed where those acts “arose from a single, isolated event.” Id. at 1139.
Assuming arguendo that Deng’s alleged predicate acts against Lu and Han are
adequately pleaded, plaintiffs have failed to allege a pattern.12 Here, Deng’s two alleged
predicate acts took place in April 2015, during Deng’s initial consultations about a single
criminal case. Plaintiffs do no allege predicate acts over a substantial period of time and
therefore have not alleged closed-ended continuity. See Metcalf v. Death Row Records,
Inc., Case No. 03-cv-1250-SC, 2003 WL 22097336, at *3 (N.D. Cal. Sept. 4, 2003)
(“Because Defendants' conduct occurred over a span of one or two months, Plaintiff
cannot establish closed-ended continuity”).

12

“Racketeering activity” is defined as certain criminally indictable acts,
commonly referred to as predicate acts, including wire fraud. 18 U.S.C. § 1961(1). Here
plaintiffs allege that Deng committed two acts of wire fraud. Because plaintiffs do not
allege a “pattern” within the meaning of the RICO statute, the Court does not reach
plaintiffs’ predicate act allegations.
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UNITED STATES DISTRICT COURT
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Date

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Case No.

2:16-cv-07283-CAS (RAOx)

June 5, 2017

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

Nor do plaintiffs allege open-ended continuity. The two alleged acts of fraud by
Deng are “insufficient to suggest that this practice had become a regular way of
conducting business.” Sever v. Alaska Pulp Corp., 978 F.2d 1529, 1535 (9th Cir. 1992).
Plaintiffs allege isolated activity during one month, in pursuit of two, related clients in a
single criminal case. The foregoing allegations are insufficient as a matter of law to
satisfy the requirements of the RICO statute. See id. (affirming the dismissal of RICO
claims where multiple predicate acts were “in a sense a single episode having [a] singular
purpose”); Durning, 990 F.2d at 1139 (affirming the dismissal of RICO claims where
fraudulent statements induced losses to a class of securities consumers); Jarvis, 833 F.2d
at 153 (affirming dismissal of RICO claim based upon multiple fraudulent attempts to
misappropriate federal grant money); Howard, 208 F.3d 741, 750 (affirming dismissal of
RICO claims where plaintiffs “present no facts indicating that [a misleading advertising
scheme] would continue into the future”); Schreiber Distrib. Co. v. Serv-Well Furniture
Co., 806 F.2d 1393, 1399 (9th Cir. 1986) (affirming dismissal where scheme “appears to
be an ‘isolated event’”).
Accordingly, plaintiffs’ RICO claims are DISMISSED.13
4.

Conspiracy

Plaintiffs allege a free-standing claim for civil conspiracy against Deng. Civil
conspiracy is a “legal doctrine that imposes liability on persons who, although not
actually committing a tort themselves, share with the immediate tortfeasors a common
plan or design in its perpetration.” Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7
Cal. 4th 503, 510-11 (1994). Plaintiffs do not allege that Deng conspired with any other
party. Instead, plaintiffs allege all of their claims against Deng directly. Plaintiffs’ only
claim against multiple defendants is their claim for declaratory relief against all three
defendants. However, the Court dismisses plaintiffs’ claim against Freed and Fountain.
Accordingly, plaintiffs do not allege any basis for civil conspiracy liability. Plaintiffs’
claim for conspiracy is DISMISSED.
13

“[T]he failure to adequately plead a substantive violation of RICO precludes a
claim for conspiracy.” Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir. 2000).
Accordingly, plaintiffs’ substantive RICO claim and RICO Conspiracy claim are both
dismissed.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:16-cv-07283-CAS (RAOx)

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.
G.

Date

‘O’
June 5, 2017

Summary

Most of plaintiffs’ claims are dismissed herein. Some claims survive, but may
only be brought by particular plaintiffs and proceed under specific theories of recovery.
In light of the foregoing, the following claims withstand both motions to dismiss:
Lu’s claim against Deng for fraud;
Han’s claim against Deng for fraud;
Lu and Han’s claim against Deng for violation of the UCL based upon Deng’s
alleged fraud;
Han and Yang’s claim against Deng for declaratory relief pursuant to
Section 6148;
Yang’s claims against Deng for breach of fiduciary duty and professional
negligence based upon Deng’s allegedly unconscionable fees; and
Zhai’s claims against Deng for breach of fiduciary duty and professional
negligence based upon Deng’s allegedly unconscionable fees.
The remainder of plaintiffs’ claims and theories of recovery are dismissed.
V.

CONCLUSION
Freed’s motion to dismiss is GRANTED.

Deng and Fountain’s motion to dismiss is GRANTED in part and DENIED in
part. The motion is DENIED with respect to Lu’s claim for fraud, Han’s claim for
fraud, Lu and Han’s claim for violation of the UCL, Han and Yang’s claim for
declaratory relief against Deng, Yang’s claim for breach of fiduciary duty, Yang’s claim
for professional negligence, Zhai’s claim for breach of fiduciary duty, and Zhai’s claim
for professional negligence. In all other respects, Deng and Fountain’s motion to dismiss
is GRANTED.
The Court has previously dismissed the declaratory relief claim against Freed.
Plaintiffs’ failure to correct the deficiencies previously identified in the declaratory relief
claim against Freed warrants dismissal of plaintiffs’ claim against Freed with prejudice.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Date

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Case No.

2:16-cv-07283-CAS (RAOx)

June 5, 2017

Title

YIJIN LU ET AL. V. DANIEL HONG DENG ET AL.

Plaintiffs’ remaining claims are dismissed without prejudice.14 The Court grants
plaintiffs 14 days leave in which to file any amended complaint curing the deficiencies
identified herein. Plaintiffs will not be permitted to add any additional claims other than
those already alleged in the SAC. Furthermore, if plaintiffs choose to amend their RICO
allegations, plaintiffs shall file an amended RICO Case Statement.
IT IS SO ORDERED.
00
Initials of Preparer

04
CMJ

14

Although plaintiffs’ claim against Fountain appears to be analogous to the claim
against Freed, out of an abundance of caution, the Court grants plaintiffs leave to amend
the claim against Fountain. This is the first time the Court has evaluated plaintiffs’
claims against Deng.
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