Bronstein v. Crowell, Weedon & Co.

Filed 4/3/07 Bronstein v. Crowell, Weedon & Co. CA2/2

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from a judgment of the Superior Court of Los Angeles County. Haley J. Fromholz, Judge. Affirmed in part; reversed in part.

Steiner & Libo and Leonard Steiner for Plaintiffs and Appellants.

Heller Ehrman, Jon L. Rewinski and Jesse Sisgold for Defendants and Respondents.

* * * * * *

Rabbi Sam Bronstein, individually and as trustee for the Sam and Molly Bronstein Family Trust (the Trust), and Ida Finkelstein, his wife, sued respondents Crowell, Weedon & Co. (Crowell) and Trennon J. Waters for damages arising from investment losses of approximately $4 million. Appellants alleged that the losses were from a scheme spearheaded by Keith Gilabert (Gilabert) and carried out through his companies, The GLT Venture Fund, LP (GLT) and CMG-Capital Management Group Holding Company, LLC (CMG). It was further alleged that respondents, as well as UBS Financial Services, Inc. (UBS), UBS Securities LLC and Justin Paperny (collectively the UBS defendants) and various Does participated in the wrongdoing.^[1]

The court granted respondents ex partemotion for the production of certain documents and imposed discovery sanctions of $750. The court subsequently granted respondents motion for summary judgment. Bronstein and Finkelstein have appealed from the judgment, and challenge the summary judgment, the order for production and the award of sanctions. Appellants contend (1) the court abused its discretion in sustaining objections to a declaration submitted by appellants in opposition to respondents summary judgment motion; (2) the court violated appellants due process rights by relying on a theory not raised in respondents motion and improperly shifting the burden of proof to appellants; (3) triable issues of material fact exist with respect to respondents liability on appellants claims of fraud, breach of fiduciary duty, negligence, violation of the Corporations Code, conversion, and elder abuse, and Crowells liability based on respondeat superior; and (4) the ex parte issuance of the discovery order and imposition of sanctions violated their due process right to be heard.

We find that appellants waived opposition to respondents evidentiary objections by failing to assert them below. Furthermore, we are satisfied that even if the challenged statements had been admitted, they would not have raised a triable issue of material fact to support denial of summary judgment. We further find that appellants failed to raise a triable issue of material fact as to any legal basis for holding Crowell or Waters liable for the damages alleged in their first amended complaint (FAC). But, we conclude the court acted in excess of jurisdiction in issuing the ex parte order for discovery sanctions and reverse the sanction order. In light of our affirmance of summary judgment, any appeal from the order for production is moot.

BACKGROUND

Factual Background

Crowell is a regional securities broker-dealer. Waters is one of its stockbrokers. In September 2000, Gilabert, a friend of Waters and a former Crowell stockbroker, formed GLT, a Delaware limited partnership, whose business consisted of pooling funds from its limited partner investors to invest and trade in securities and other financial instruments. CMG, a Delaware limited liability company, was GLTs general partner. At that time, Gilabert began offering GLT limited partnership interests to investors with the goal of raising $100 million for its fund. Neither Crowell nor Waters was a limited or general partner of GLT, nor did either recommend investment in GLT to any customer.

At about the same time, Gilabert opened a nonexclusive prime brokerage and custodial account for GLT with Bear Stearns Securities Corp. (Bear Stearns). Bear Stearnss role was to provide certain recordkeeping and payment services and perform clearing and custodial functions, including the delivery of securities.

Gilabert also opened various accounts in GLTs name at other brokerage firms, including Crowell. The role of Crowell and these other firms was to act as executing brokers to buy and sell securities upon Gilaberts instructions. These transactions were to be cleared through the Bear Stearns custodial account.

On September 29, 2000, the Bear Stearns GLT custodial account had a net equity of a little more than $2 million. But Gilaberts trading activities during the fall of 2000 yielded significant trading losses. The value of the custodial account fell to about $825,000 by October 27, 2000, $522,000 by November 30, 2000, and $212,000 by December 29, 2000. The custodial account was worthless and dormant by January 26, 2001.

In 2001, Gilabert opened two new GLT custodial accounts, one in April at ML Stern and the other in September at Horwitz & Associates (Horwitz).

Sometime in early 2002, Gilabert met with Bronstein and his then wife, Molly, regarding Gilaberts desire to manage the Trust assets then held in an account with the brokerage firm TD Waterhouse. In April of that year, pursuant to the signed written authorization of Bronstein and Molly, Cynthia Gilabert arranged the opening of a Horwitz Trust account into which all assets from the TD Waterhouse Trust account about $3.8 million were placed. On May 8, 2002, Cynthia transferred all assets from the Horwitz Trust account into a Horwitz GLT account at which time the Trusts funds were commingled with GLTs funds.

In July 2002, Gilabert opened a prime broker, custodial account for GLT (UBS GLT custodial account) at PaineWebber, Inc. (later acquired by UBS), through Paperny, then a PaineWebber stockbroker. Shortly thereafter, Gilabert transferred most of the Horwitz GLT account assets into the UBS GLT custodial account.

Molly died in October 2002, and in March 2003 Bronstein married Finkelstein.

The FAC alleged that in late 2002 and early 2003 Gilabert and Paperny misrepresented to appellants that the Trusts capital was increasing in value although the fund was actually performing poorly.

Sometime around July 2002, Gilabert sent appellants statements and confirmations, on CMG stationary, purportedly recounting what transpired with the Trust capital. In fact, the reported transactions never took place, the positions recited were never held, and the Trusts capital value had been grossly inflated.

The FAC alleged that in reliance on these fictitious statements and confirmations and the alleged misrepresentations by Gilabert and Paperny, in January 2004 Finkelstein gave CMG $18,000 to invest on her own behalf, and respondents gave CMG and GLT another $150,000 in July 2004.

Later in 2004, Gilabert prepared five letters on UBS letterhead, along with attachments, under Papernys purported signature. Three letters and attachments overstated the value of appellants holdings significantly.

As of December 31, 2004, GLTs UBS custodial account had a negative balance of about $178,000 and GLTs other UBS account had a balance of approximately $1.2 million.

In January 2005, the FBI seized all CMG office records, effectively suspending Gilaberts investment activities.

Procedural Background

Appellants filed suit in April 2005. After demurrers were sustained to the complaint and first amended complaint, appellants filed the verified FAC on August 11, 2005. The FAC pled nine causes of action against respondents seeking compensatory damages of at least $5 million and punitive damages for: (1) intentional misrepresentation; (2) concealment; (3) constructive fraud; (4) negligent misrepresentation; (5) breach of fiduciary duty; (6) negligence; (7) violation of the Corporations Code;^[2](8) conversion; and (9) elder abuse.

Respondents verified answer denied the material allegations of the FAC and pled fifteen affirmative defenses, including failure to state a cause of action and absence of a factual basis for punitive damages against Crowell. In October, the parties stipulated and the court ordered trial set in February 2006 on an expedited basis due to Mr. Bronsteins advanced age.

On January 5, 2006, respondents filed a motion for summary judgment or summary adjudication. In their opposition filed January 19, appellants relied primarily on the allegations in their verified complaint, otherwise submitting two fact declarations, one by Bronstein and the other by John Farrar. Respondents filed evidentiary objections to the Farrar declaration. Appellants motion to continue the hearing was granted to permit appellants to complete discovery, and the hearing was continued to May 23, 2006.

When the parties reached disagreement with respect to the production of certain income tax documents by appellants, respondents sought ex parterelief. On March 2, 2006, the trial court granted respondents ex parteapplication for production of documents and imposed sanctions of $750 jointly against appellants and their counsel.

On May 23, 2006, at the conclusion of the summary judgment hearing, the trial court took the matter under submission and on May 25, 2006, issued its order sustaining objections to the Farrar declaration and granting the summary judgment. Judgment was entered in favor of respondents on June 2, 2006.

DISCUSSION

I. Summary Judgment

The factual basis underlying appellants claims against respondents is not founded on any alleged personal misconduct on the part of Crowell or Waters. Rather, the gist of their claim against Waters is vicarious liability based primarily on his status as an alleged part owner of CMG, the general partner of GLT, and on the theories he is an alter ego, joint venturer, aider and abettor, and coconspirator. The alleged derivative liability of Crowell, Waterss employer, is based on the respondeat superior doctrine. Summary judgment was proper in that appellants failed to raise a triable issue of fact to refute the movants initial showing that, as a matter of law, appellants could not prevail on their claims against either Crowell or Waters. (Aguilar v. AtlanticRichfield Co. (2001) 25 Cal.4th 826, 849851 (Aguilar).)

A. Standard of Review

A defendant is entitled to summary judgment by establishing the action is barred by a complete defense (Aguilar, supra, 25 Cal.4th at p. 850, quoting Code Civ. Proc., 437c, subd. (o)(2)) or that one or more elements of the cause of action . . . cannot be established by the plaintiff. [Citation.] (Aguilar, supra, at p. 853.)

[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law. . . . There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Aguilar, supra, 25 Cal.4th at p. 850, fns. omitted.) Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. (Id. at p. 849.)

The reviewing court exercises its independent judgment in determining whether any triable issues of material fact exist and if the moving party is entitled to judgment as a matter of law. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334335.)

Because a summary judgment motion raises only questions of law, we review the supporting and opposing papers independently to determine whether there is a triable issue as to any material fact. [Citations.] In doing so, we apply the same analysis required of the trial court. First, we identify the issues framed by the pleadings . . . . [] Secondly, we determine whether the moving partys showing has established facts which negate the opponents claim and justify a judgment in movants favor. . . . [] . . . [T]he third and final step is to determine whether the opposition demonstrates the existence of a triable, material factual issue. [Citations.] [Citation.] (Benavidez v. San Jose Police Dept. (1999) 71 Cal.App.4th 853, 859.)

The general rule on summary judgment is that the evidence and the inferences reasonably to be drawn therefrom must be viewed in the light most favorable to the opposing party. [Citation.] (Everest Investors 8 v. McNeilPartners (2003) 114 Cal.App.4th 411, 423, review den.) But a party cannot rely on the allegations of his own pleadings, even if verified, to make or supplement the evidentiary showing required in the summary judgment context. [Citations.] The basic purpose of summary judgment is to provide a means by which the court determines whether the triable issues apparently raised by [the complaint and answer] are real or merely the product of adept pleading. [Citation.] Hence, the moving party must demonstrate the presence or absence of a genuine triable issue by affidavit or other competent means. [Citation.] (College Hospital Inc. v.Superior Court (1994) 8 Cal.4th 704, 720, fn 7.)

B. Respondents Summary Judgment Motion

In moving for summary judgment respondents proffered evidence that they did not know of or participate in meetings between appellants and any other respondents; that they did not help prepare or know of fictitious account statements and confirmations that Keith Gilabert allegedly sent to appellants; that they did not help prepare or know of the letters containing misrepresentation of the value of appellants investment; and that they did not participate in any way in or know anything about the fraud perpetrated on appellants. More specifically, respondents established the following: (1) that Gilabert admitted that he defrauded appellants of their almost $4 million investment; (2) that appellants never communicated with Waters, either orally or in writing, nor did appellants ever open or maintain an account with Crowell; (3) that Waters did not have discretionary authority over any of the three Crowell GLT accounts; (4) the first Crowell GLT account was opened in September 2000 and closed in May 2001, about a year before Bronstein transferred Trust assets to Gilabert; (5) the second Crowell account was opened in April 2001 and had no activity until May 2002 when it received a cash wire transfer of $300,000 from GLTs Horwitz account, not the Trust Horwitz account, and these funds were used to buy and sell securities pursuant to Gilaberts instructions over a three-month period until July 2002, during which Crowell wired funds into a GLT account at Spear Leeds & Kellog, as well as into appellants bank account, after which Gilabert closed the account on July 24 and directed all remaining assets be transferred to GLTs PaineWebber (later UBS) custodial account; and (6) the third Crowell account was opened on July 3, 2002 and pursuant to Gilaberts instructions, respondents executed a small percentage of GLT trades through this account, which were all cleared through GLTs PaineWebber (later UBS) custodial account, and in January 2005, upon learning about the FBI raid on CMGs offices, respondents closed this account.

C. Appellants Opposition

In opposition to the summary judgment motion, appellants submitted two fact declarations, one by appellant Bronstein, which did not mention respondents, and the other by John Farrar, who had been hired by Gilabert as marketing director for GLT in mid-2004. Respondents filed evidentiary objections to eleven of Farrars averments on various grounds, i.e., lack of relevancy, hearsay, overly broad, vague, ambiguous, conclusionary. Appellants filed no response to the objections and did not orally state opposition to the objections at the hearing on the summary judgment motion. Rather, when the court stated that its tentative ruling was to sustain all of the objections, appellants counsel merely asked the court to review the Farrar declaration again. After taking the matter under submission, on May 25, 2006, the court sustained the objections in accordance with its tentative ruling and granted the motion for summary judgment.

D. The Evidentiary Rulings

Appellants contend the court abused its discretion in sustaining the evidentiary objections to the Farrar declaration. We disagree.

1. The Hearsay Objections

Appellants have forfeited any claim of error regarding the hearsay objections by their failure to assert objections before the trial court. A hearsay statement is admissible if it comes within one of the established exceptions to the hearsay rule under the reasoning there are inherent traditional indicia of reliability ensuring the trustworthiness of the statement. [Citations.] (People v. Rios (1985) 163 Cal.App.3d 852, 863.) In People v. Witt (1975) 53 Cal.App.3d 154, the court explained: Appellants argue . . . on appeal that the statements were admissible under the state of mind exception to the hearsay rule (Evid. Code, 1250). However, [they] cannot raise this new ground for the first time in this court. [Citations.] (Id. at p. 174.)

Appellants are foreclosed from asserting for the first time on appeal the exceptions set forth in Evidence Code sections 1223 (admission of coconspirator), 1224 (statement of declarant whose liability or breach of duty is in issue), 1225 (statement of declarant whose right or title is in issue), 1230 (declarations against interest), and 1235 (inconsistent statements).

2. Other Objections Properly Sustained or Nonprejudicial

We find appellants remaining claims of reversible error to be without merit. The courts evidentiary rulings made on summary judgment are reviewed for abuse of discretion. [Citation.] (Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal.App.4th 1158, 1169; see generally Dart Industries, Inc. v. Commercial Union Ins. Co. (2002) 28 Cal.4th 1059, 1078.) To obtain reversal of a judgment based on the erroneous exclusion of evidence, the party must demonstrate a more favorable result probably would have ensued if that evidence had been admitted. (See, e.g., Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1223.)

Respondents did not object to Farrars averments that: In May 2004 Gilabert was present during the meeting at CMGs offices in Valencia at which Farrar first met and spoke to Waters; and at this meeting, Waters stated to Farrar that he and Gilabert had started CMG and that he owned 30% of the business. They did object to eleven other averments.^[3]

Relevant evidence is evidence having any tendency in reason to prove or disprove any disputed fact. . . . [Citation.] People v. Babbitt (1988) 45 Cal.3d 660, 681.) The trial court is vested with wide discretion in determining the relevance of evidence. [Citation.] The court, however, has no discretion to admit irrelevant evidence. [Citation.] (Ibid.)

The probative value of Farrars averments regarding how Waters developed the software program CMG used to select stocks and options was minimal, at best, in the absence of evidence regarding the particulars as to how such software was employed to defraud appellants and that Waters devised this software for a fraudulent purpose. The trial court therefore did not abuse its discretion in excluding these averments.

Also irrelevant, and thus properly excluded, were the Farrar averments about his telephone conversations concerning Jeff Bellamar, who purportedly referred his Chicago contact Dave Warran to CMG regarding guaranteed notes and about a subsequent Farrar telephone conference during which Warren discussed guaranteed notes with Waters, who could handle and knew very well about this subject according to what Gilabert purportedly told Farrar. None of these averments had anything to do with appellants or any fraud or knowledge of fraud on the part of respondents.

Farrars averment that Waters was working out of the CMG office in Encino until everything from that office could be moved to their new office in Valencia is ambiguous and vague in that it is unclear whether Waters was simply using CMG office space or he was providing services for CMG. This averment therefore was properly excluded.

Lastly, Farrars averment that Waters also told the group of us [he and Gilabert] had started CMG together and they were the two owners, with Gilabert owning 70% and with . . . Waters owning the remaining 30% was essentially the same as his averment to which respondents made no objections. Any error in its exclusion therefore was nonprejudicial, because the excluded averment was merely cumulative. (See Guardianship ofLevy (1955) 137 Cal.App.2d 237, 250; see also People v. Johnson (1989) 47 Cal.3d 1194, 1238; Vossler v. Richards Manufacturing Co. (1983) 143 Cal.App.3d 952, 960.)

E. No Triable Issues of Fact Raised As to Waterss Liability

Appellants contend triable factual issues exist as to whether Waters is liable for their alleged approximately $4 million loss based on theories of alter ego, joint venture, aiding and abetting, and conspiracy. They rely on averments in the Farrar declaration that Waters was a cofounder and 30 percent owner of CMG and Waters created the program CMG used to scan for stocks and options.^[4]

It is respondents position that appellants failed to raise a triable issue of fact regarding any liability on their part for their claimed loss. They assert that appellants have mischaracterized and misinterpreted the evidence on which they rely. Respondents argue that appellants improperly attempted to draw inferences that are unsupported by a review of Waterss actual deposition testimony. We agree.

For example, appellants evidence failed to show that the $3,000 Waters received from Gilabert in 2004 was anything but a loan and that this loan was in any way connected with appellants. Furthermore, Waters testimony that he executed trades on a Crowell GLT account on instructions from Gilabert does not support an inference that Waters executed trades on the account into which appellants assets were placed, as appellants claim.

Also, a plain reading of his deposition testimony does not support appellants assertion that Waters admitted participating in the management of CMG and GLT by advising Gilabert, CMG, and GLT regarding interviewing and hiring of personnel. Rather, as Waters explained in his declaration, in mid-2004, he attended a meeting at which Gilabert interviewed Farrar for the position as GLTs marketing manager. This meeting did not pertain to appellants, and Waters did not review, supervise, or oversee Farrars work. While there was evidence that on a single occasion Waters sat in the back of CMGs office as Farrar gave a presentation to a potential investor, this meeting had nothing to do with appellants.

In addition, appellants have failed to discredit respondents evidence that: (1) Waters did not participate in any meetings or telephone conversations between Gilabert or Paperny and appellants; (2) Waters had no knowledge of what Gilabert or Paperny planned to tell or told appellants; (3) Waters had no knowledge of, and no involvement in preparation of fictitious account statements and confirmations allegedly sent to appellants; and (4) Waters had no involvement in or knowledge of the letters under Papernys signature sent to appellants.

In conclusion, appellants have failed to present any evidence of personal wrongdoing on the part of Waters. Appellants argue that Waterss liability is vicarious based on alternative theories of alter ego, joint venture, aiding and abetting and conspiracy. Appellants arguments are without merit.

1. No Triable Issue as to Alter Ego Liability Established

The verified FAC alleged on information and belief alleges that Waters and Gilabert were co-owners of CMG and GLT and that Waters, Gilabert, CMG and GLT were the alter egos of each other.

It is appellants position that a triable issue exists as to Waterss alter ego liability based on evidence that Waters owned 30 percent of CMG. They argue that if Waters were an owner of CMG, then the records provided to the Delaware Secretary of State and the California Secretary of State were false and fraudulent in that they failed to disclose Waters[s] ownership interest. That fact alone supports a finding of alter ego liability. Appellants rely on Associated Vendors, Inc. v Oakland Meat Co. (1962) 210 Cal.App.2d 825, 839849 [concealment and misrepresentation of the . . . responsible ownership of entity a factor for finding alter ego].)

The purpose of alter ego liability is to disregard the fictional facade of the corporation and hold those individuals doing business under the corporate name liable for the corporation debts in order to prevent an injustice. (See, e.g., Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538; see also Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 301.)

The figurative terminology alter ego and disregard of the corporate entity is generally used to refer to the various situations that are an abuse of the corporate privilege. [Citations.] The equitable owners of a corporation, for example, are personally liable when they treat the assets of the corporation as their own and add or withdraw capital from the corporation at will [citations]; when they hold themselves out as being personally liable for the debts of the corporation [citation]; or when they provide inadequate capitalization and actively participate in the conduct of corporate affairs. [Citations.] (Minton v. Cavaney (1961) 56 Cal.2d 576, 579580.) This alter ego doctrine applies to tort as well as contractual claims. (Id. at p. 580.)

In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. [Citations.] Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other. [Citations.] Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. [Citations.] No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. [Citation.] Alter ego is an extreme remedy, sparingly used. [Citation.] (Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at pp. 538539; accord, Tucker Land Co. v. State of California (2001) 94 Cal.App.4th 1191, 1202.)

For purposes of analysis, we will assume that alter ego principles are applicable to CMG, a Delaware limited liability company. While generally members of a [California] limited liability company are not personally liable for judgments, debts, obligations, or liabilities of the company solely by reason of being a member (Corp. Code, 17101, subd. (a)), they are subject to liability under the same circumstances and to the same extent as corporate shareholders under common law principles governing alter ego liability and are personally liable under the same circumstances and extent as corporate shareholders. [Citations.] (People v. Pacific Landmark, LLC (2005) 129 Cal.App.4th 1203, 1212, second italics added.)

The alter ego doctrine is also applicable to Delaware limited liability companies. (See, e.g., Tristate Courier and Carriage, Inc. v. Berryman (Del.Ch., Apr. 15, 2004, No. C.A. 20574-NC) 2004 WL 835886.) Under California law, the liability of the members of a foreign limited liability company is governed by the law of the state in which it was formed. (Corp. Code,  17450, subd. (a).)

But, appellants have failed to present evidence raising a triable issue of fact as to whether Waters should be held liable to appellants as the alter ego of CMG. The fact that Waters purportedly had a 30 percent ownership interest, standing alone, is immaterial. Even if such ownership interest were established, it does not follow that there was such a unity of interest between CMG and Waters that the two should be considered one. As a matter of law, a 30 percent ownership interest is insufficient to make a controlling decision in a Delaware limited liability company. (Del. Code Ann., tit. 6, 18-402, p. 658.) Accordingly, it is of no import whether Waters had such ownership interest and concealed it. (Cf. Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at pp. 839840 [alter ego factors include concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities].)

2. No Triable Issue As to Joint Venture Liability

A joint venture is an undertaking jointly by two or more persons to carry out a single business enterprise for profit. (Weiner v. Fleischman (1991) 54 Cal.3d 476, 482483.) It has generally been recognized that in order to create a joint venture there must be an agreement between the parties under which they have a community of interest, that is, a joint interest, in a common business undertaking, an understanding as to the sharing of profits and losses, and a right of joint control. Such an agreement, however, need not be formal or definite in every detail relating to the respective rights and duties of the parties but may be implied as a reasonable deduction from their acts and declarations. (Holtz v. United Plumbing & Heating Co. (1957) 49 Cal.2d 501, 506507.)

Joint venturers are jointly and severally liable . . . for claims arising from activities of the adventure. (Ohio Cas. Ins. Co. v. Harbor Ins. Co. (1968) 259 Cal.App.2d 207, 216; see also Cahill Bros., Inc. v. Clementina Co. (1962) 208 Cal.App.2d 367, 387 [[A]ll members of a joint venture are jointly liable for injuries resulting from the negligent conduct of one of the parties thereto because the negligence of one joint venturer or his employee acting in connection with the joint venture is imputed to the other joint venturers].)

Partnership law is applicable, because joint ventures and partnerships are essentially identical. (Weiner v. Fleischman, supra, 54 Cal.3d at pp. 482483; see also Corp. Code, 16202.)

The trial court found a joint venture was adequately pled but not relevant because CMG, the joint venture asserted by appellants, was a limited liability company. The court then concluded that under California limited liability company law, the evidence had to demonstrate the owners personal participation in order to hold the owner liable for the misconduct of the company, which appellants failed to show.

Appellants acknowledge that the FAC did not allege a cause of action expressly based on the theory of joint venture liability.^[5]Rather, they raised this theory for the first time in their opposition to the summary judgment motion, identifying CMG as the joint venture. In their reply, respondents invoked CMGs limited liability company status.

Appellants failed to raise a triable issue of fact as to whether Waters should be held liable to appellants on the theory that CMG is a joint venture. To the extent any joint venture, i.e., partnership, existed between Waters and Gilabert, such joint venture terminated upon CMGs certification as a limited liability company. (See Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1157 [[A] partnership does not continue to exist after . . . formation of a corporation].)

Moreover, a member of a Delaware limited liability company, as such, cannot be held personally liable for any tortious misconduct committed by the company. Delaware law, which governs, expressly provides that with regard to the liabilities of a limited liability company, whether arising in contract, tort or otherwise, . . . no member or manager of a limited liability company shall be obligated personally [therefore] . . . solely by reason of being a member or acting as a manager of the limited liability company.^[6](Del. Code Ann., tit. 6, 18-303, subd. (a), p. 655, italics added.)

We find unpersuasive appellants claim they were denied due process. Appellants were afforded ample opportunity to counter respondents limited liability company defense raised in their reply filed January 26, 2006. On February 7, 2006, the trial court granted appellants request to reopen discovery and to submit additional briefing. They elected not to brief this issue in their supplemental opposition. At the May 23, 2006 hearing, appellants counsel noted the trial court had discussed the limited liability company provisions of the California Corporations Code in its tentative ruling, but he did not address the issue nor did he seek a continuance for an opportunity to do so.

3. No Triable Issue of Fact Raised As to Aider and Abettor Liability

Liability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person . . . knows the others conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act. (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846; accord, Richard B. LeVine, Inc. v.Higashi (2005) 131 Cal.App.4th 566, 579.) California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted. Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1145.) Moreover, while aiding and abetting may not require a defendant to agree to join the wrongful conduct, it necessarily requires a defendant to reach a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act. A plaintiffs object in asserting such a theory is to hold those who aid and abet in the wrongful act responsible as joint tortfeasors for all damages ensuing from the wrong. (Howard v. Superior Court (1992) 2 Cal.App.4th 745, 749.)

Appellants have failed to present any competent evidence that Waters had actual knowledge of the specific fraud perpetrated on them or that he substantially assisted in the commission of that fraud. Evidence that Waters and Gilabert discussed appellants and that Gilabert informed Waters several hours after Molly died that Bronsteins wife died; or that Waters closed the Crowell GLT account without Gilaberts authorization upon learning of the FBI investigation of Gilabert, CMG, and GLT; or that Waters had been aware that the assets in the Crowell GLT account he used to conduct trades belonged to appellants do not support a reasonable inference of Waterss knowledge or complicity in fraud. Furthermore, it is undisputed that Waters was conducting those trades pursuant to Gilaberts instructions rather than on his own.

In short, appellants evidence gives rise to nothing more than speculation, which cannot serve to meet their burden on summary judgment. (See, e.g., Leslie G. v. Perry & Associates (1996) 43 Cal.App.4th 472, 483; Brautigam v. Brooks (1964) 227 Cal.App.2d 547, 556.)

4. No Triable Issue of Fact Raised As to Coconspirator Liability

In order to maintain an action for conspiracy, a plaintiff must allege that the defendant had knowledge of and agreed to both the objective and the course of action that resulted in the injury, that there was a wrongful act committed pursuant to that agreement, and that there was resulting damage. [Citation.] Civil conspiracy is not an independent tort. [Citation.] Rather, it 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. [Citation.] [Citation.] The major significance of a conspiracy cause of action lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong . . . regardless of the degree of his activity. [Citations.] (Howard v. Superior Court (1992) 2 Cal.App.4th 745, 748.) The essence of the claim is that it is merely a mechanism for imposing vicarious liability; it is not itself a substantive basis for liability. Each member of the conspiracy becomes liable for all acts done by others pursuant to the conspiracy, and for all damages caused thereby. [Citations.] (Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 823.)

Here again, appellants have failed to submit evidence from which the trier of fact could draw an inference that Waters knew of the investment scheme to defraud appellants. Nor did they present any evidence from when an inference could reasonably be drawn that Waters agreed both to the objective and to the course of action that resulted in appellants injury. Appellants have failed to carry their burden in this regard as well.

F. No Triable Issue Raised As to Liability of Crowell

Appellants contend the trier of fact could determine that Crowell should be held accountable for their loss on a respondeat superiortheory, because any fraud on appellants committed by Waters was in his capacity as a Crowell employee. In the absence of any liability on the part of Waters for appellants loss, there can be no legal basis for holding Crowell accountable for such loss on the doctrine of respondeatsuperior. Nor is there any basis to support liability on Crowells part for punitive damages.

As a separate theory of liability, appellants argue that in opening the three GLT accounts, Crowell violated its own policies in that GLT, a limited partnership, was able to open these separate accounts without listing its limited partners, which was contrary to Crowells policy requiring identifying information about limited partners when a limited partnership account is opened. But the evidence does not support appellants argument. In his deposition, James Cronk, a Crowell partner and its Director of Operations, testified no violation occurred, because Crowell considered GLT to be a hedge fund.

II. Ex Parte Order Void for Want of Jurisdiction

On the ex parteapplication of respondents, the trial court directed appellants to produce certain tax returns and imposed $750 discovery sanctions jointly against appellants and their counsel. Appellants filed no written opposition to the motion, but sought to present oral argument which the court denied. The court found that appellants had no reasonable justification for their interference with respondents production demand.^[7] Appellants challenge this order on the ground they were not afforded an opportunity to oppose the ex parte application.

Monetary sanctions are available for the misuse of the discovery process. (Code Civ. Proc., 2023.010.) But prior to imposition of discovery sanctions, notice to any affected party, person, or attorney and an opportunity for hearing must be afforded. (Code Civ. Proc.,  2023.030.) A request for a sanction shall, in the notice of motion, identify every person, party, and attorney against whom the sanction is sought, and specify the type of sanction sought. The notice of motion shall be supported by a memorandum of points and authorities, and accompanied by a declaration setting forth facts supporting the amount of any monetary sanction sought. (Code Civ. Proc.,  2023.040.)

Although certain orders may be obtained through ex parte application, a statute silent on the question should not be interpreted as authorizing an ex parte application for an order. (St. Paul Fire & Marine Ins. Co. v. Superior Court (1984) 156 Cal.App.3d 82, 85.) Adequate notice prior to imposition of sanctions is mandated not only by statute, but also by the due process clauses of both the state and federal Constitutions. (Cal. Const., art. I, 7; U.S. Const., 14th Amend.) (OBrien v. Cseh (1983) 148 Cal.App.3d 957, 961; accord, Alliance Bank v. Murray (1984) 161 Cal.App.3d 1, 6.) Where the trial court acts contrary to a statutorily authorized procedure, the court acts in excess of its jurisdiction. (Rodman v. Superior Court (1939) 13 Cal.2d 262, 269.)

No particular time is prescribed for service of a noticed motion for monetary discovery sanctions. Accordingly, the motion must be served and filed at least 16 court days before the hearing. (Code Civ. Proc. 1005, subd. (b).) Nonetheless, [t]he court, or a judge thereof, may prescribe a shorter time. (Code Civ. Proc., 1005, subd. (b); see also Cal. Rules of Court, rule 3.1300(b) (formerly rule 317(a).) The Civil Discovery Act (Code Civ. Proc., 2016.010 et seq.) does not authorize an ex parte application for sanctions or for discovery. The trial court therefore acted in excess of its jurisdiction in considering the merits of the ex parte application and issuing an ex parte order for sanctions.

In light of our affirmance of summary judgment in favor of respondents, we need not reach the issue of the propriety of the order for production as it is moot.

DISPOSTION

The ex parte order imposing sanctions of $750 is reversed. In all other respects, the judgment is affirmed. Respondents are awarded costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

_____________________, J.

DOI TODD

We concur:

____________________________, P. J.

BOREN

____________________________, J.

CHAVEZ

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^[1] Prior to this appeal, the USB defendants settled for $2 million and appellants obtained default judgments against Gilabert, CMG, and GLT. The action remains pending against named Doe defendants, including Cynthia Gilabert, Gilaberts sister.

^[2] The seventh cause of action alleged respondents violated Corporations Code sections 25400 et seq., more specifically section 25401, which provides: It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. Any person who violates Section 25401 shall be liable to the person who purchases a security from . . . or sells a security to him, who may sue either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security). (Corp. Code, 25501.)

We note respondents presented evidence that Waters never communicated with appellants, and appellants do not claim that Waters made any such untrue statement(s). Moreover, as we shall discuss, appellants failed to present evidence from which a trier of fact could find that any false statements made by Gilabert should be imputed to respondents based on theories of vicarious or derivative liability.

^[3] These averments were: (1) At the May 13, 2004 meeting I was told by Gilabert that he owned 70% of CMG and that his partner and co-founder was a gentleman by the name of Trennon Waters, who owned the remaining 30%. Gilabert also stated that said [sic] he and . . . Waters started CMG together in January 1997 and that they had known each other when they worked as stockbrokers together previously. The objection was hearsay. (Evid. Code, 1200.)

(2) Finally, at the meeting Gilabert went on a [sic] length about how CMG uses option collars to prevent portfolio losses, and he told me that . . . . Waters had developed the software that selects the stocks and options. The objections were lack of relevance and hearsay. (Evid. Code, 350, 1200.)

(3) Gilabert and Waters both went into considerable detail about how . . . Waters had developed the software program that CMG was using to scan for appropriate stocks and options. They both further told me that this computer program used 18 specific criteria to scan the S&P-500 and the Nasdaq-100 indices each day to find superior fundamentals, option matches, etc. They also both told me about how CMG used option collars to protect portfolios. They objected on the grounds of lack of relevancy and, as to statements attributable to Gilabert, hearsay and further objected that the averment also was overly broad, conclusory, vague and ambiguous as to who said what.

(4) Also at the same meeting, both . . . Waters and Gilabert told me that . . . Waters was working out of the CMG office in Encino until everything from that office could be moved to their new office in Valencia. The objection was hearsay as to what Gilabert stated and further that the averment was overly broad, conclusory, vague and ambiguous.

(5) Waters and Gilabert also told the group of us they had started CMG together and they were the two owners, with Gilabert owning 70% and with . . . Waters owning the remaining 30%. The objection was hearsay as to Gilaberts statements, and further that the averment was overly broad, conclusory, vague and ambiguous.

(6) I received a telephone call from Rachel Taggart, who[m] I knew from my previous contacts to be employed by CMG as Mr. Gilaberts assistant. Ms. Taggart informed me that there was a man by the name of Jeff Bellamar who had called the CMG office and that Gilabert wanted me to return Mr. Bellamars call. The objections were lack of relevance and hearsay.

(7) I placed a call to Mr. Bellamar and found he was interested in putting a contract he had in Chicago by the name of Dave Warren together with CMG about something to do with guaranteed notes. I next telephoned Gilabert, described my telephone call with Mr. Bellamar, and told him I had no idea what Mr. Bellamar was talking about. Gilabert said he would need to involve Trennon Waters in this because, as Gilabert stated: This is something Trennon can handle and knows about very well. The objections were lack of relevance and hearsay.

(8) Waters telephoned me the following day. In that telephone conversation Mr. Waters gave me the exact spelling of his name and his telephone number. . . . Waters and I also spoke briefly about Mr. Bellamars request and I told him I didnt have any knowledge of guaranteed notes. On October 29, 2004, a telephone conference was held among myself, Dave Warren in Chicago, and . . . Waters in which . . . Walters and Mr. Warran discussed these guaranteed notes. The objections were lack of relevance and the averment was overly broad and conclusionary.

(9) I asked Gilabert for more background information and received the largely repetitive verbal statement from him that he and . . . Waters had started CMG together, and that Gilabert owned 70% and . . . Waters owned 30%. The objection was hearsay.

(10) Gilabert also explained to me again how and why . . . Waters had developed the software used by CMG. The objections were lack of relevance and hearsay.

(11) Gilabert also reiterated that he and . . . Waters had worked as stockbrokers together before starting CMG and they brought over some of their clients with a couple of million dollars to start CMG. The objection was hearsay.

^[4] Additionally, appellants urge the following facts could be drawn from the evidence they presented: (1) Waterss participation in meetings to bring in new investors to CMG; (2) Gilabert informing Waters of Mollys death two hours after she died; (3) Waters receiving $3,000 from Gilabert/CMG at the same time in July 2004 that appellants invested an additional $150,000 with Gilabert/CMG; (4) Waters communicating and meeting with Gilabert to discuss appellants; (5) Waters working out of CMGs Encino offices; (6) Waters participating in the operations of CMG and GLT and advising Gilabert, CMG and GLT regarding the interviewing and hiring of personnel; (7) Waters advising Gilabert regarding CMG/GLT personnel; (8) Waters representing CMG in presentations to potential investors in GLT/CMG; (9) Waterss knowledge that appellants money was used to conduct trades in the GLT/CMG accounts; (10) Waters trading in the GLT accounts without indicating whether the trades were solicited or unsolicitedin violation of both securities exchange trading rules and Crowells own internal regulations; (11) Waterss knowledge of the investment plan and strategies of CMG/GLT; and (12) Waters unilaterally closing GLTs Crowell account without Gilaberts consent or authorization when the FBI began to investigate Gilabert, CMG and GLT.

Any reference to a matter in the record must be supported to the volume and page of the record where it appears. (Cal. Rules of Court, rule 8.204(a)(1)(C) (formerly rule 14(a)(1)(C).) To the extent the briefs contain references to facts that are unsupported by appropriate citations to the record, we have ignored them. (E.g., Colt v. Freedom Communications, Inc. (2003) 109 Cal.App.4th 1551, 15601561.)

^[5] At the summary judgment hearing, appellants request for leave to amend the FAC to plead joint venture liability was denied. In their reply brief, appellants urge that if this court determines that a proper joint venture theory was not pled, they should be given the opportunity to amend their complaint to correct this defect. No entitlement for leave to amend has been established here.

^[6] Comparable exclusion of personal liability exists for members and managers of a California limited liability company. (See Corp. Code, 17101, subd. (a) which provides, as relevant here, no member of a limited liability company shall be personally liable . . . for any . . . liability of the limited liability company, whether that liability . . . arises in contract, tort, or otherwise, solely by reasons of being a member of the limited liability company; see also Corp. Code, 17158, subd. (a) [No person who is a manager or officer or both . . . of a limited liability company shall be personally liable . . . for any . . . liability of the limited liability company, whether that liability . . . arises in contract, tort, or otherwise, solely by reason of being a manager or officer or both . . . of the limited liability company].)

While generally members of a limited liability company are not personally liable for judgments, debts, obligations, or liabilities of the company solely by reason of being a member (Corp. Code, 17101, subd. (a)), . . . . the Act do[es] not relieve a member from liability arising from (1) the members tortious conduct, or (2) the terms of a members written guarantee or contractual obligation. [Citation.] (People v. Pacific Landmark, LLC,supra, 129 Cal.App.4th at p. 1212.)

^[7] On March 3, 2006, this court denied appellants petition for extraordinary relief to vacate or stay the March 2, 2006 ex parte order (No. B189407).