Flores v. Kendall
Filed 5/8/06 Flores v. Kendall CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
JOE FLORES, et. al., Plaintiffs and Appellants, v. PRESCOTT J. KENDALL, et. al., Defendants and Respondents. | H027795 (Monterey County Super. Ct. No. M68145) |
In this litigation arising out of an agricultural business dispute, the trial court sustained a demurrer to appellants' complaint. On appeal, they contend that they should have been permitted to pursue their action notwithstanding respondents' assertions of untimeliness and res judicata, and that the court should have at least granted them leave to amend their first amended complaint. Finally, appellants contest the order of sanctions imposed by the trial court under Code of Civil Procedure section 128.7. We will modify the order and otherwise affirm.
Background
Our summary of the facts is limited by the parties' failure to provide an adequate record. Respondents describe a detailed history of the litigation between the parties, but they supply no record references to support their account of numerous events. We will disregard any statements in the briefs that do not comply with California Rules of Court, rule 14(a).[1]
Because we are reviewing an order sustaining a demurrer, however, we have relied in large part on the factual assertions in appellants' First Amended Complaint. We thus accept as true all " properly pleaded material facts and the reasonable inferences that may be drawn therefrom." (Reynolds v. Bement (2005) 36 Cal.4th 1075,1083; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
Appellants are Juan and Sylvia Atayde, who are produce farmers in Monterey County, and Joe Flores, who was retained to collect money due the Ataydes for the sale of their crops. The primary defendants in appellants' action are a number of entities (collectively referred to by the parties as " Sala" or " Del Sala" ) who operated as merchant broker, dealer, and shipper of agricultural products, including those grown by the Ataydes. Also named in appellants' lawsuit were attorneys Richard West and Prescott Kendall, who had represented Sala during prior litigation between Sala and the Ataydes.
Acting in propria persona, appellants filed a First Amended Complaint on January 15, 2004, asserting 15 causes of action related to business dealings between them and Sala. In the 64-page complaint appellants generally alleged that from 1996 to 2000 Sala " failed to protect their property and interest and failed to provide a bona fide account in the handling and selling of Plaintiff[s'] farm product."
The complaint included a history of the prior litigation between the parties. The original complaint, appellants explained, had been filed by Del Sala against the Ataydes in January 2001. Appellants had responded with a cross-complaint on March 1, 2001. On February 5, 2002, in an effort to resolve their dispute before the impending trial date, the parties entered into an oral " Settlement Statement," which was transcribed by a court reporter. They agreed that a retired judge, the Honorable Harkjoon Paik, would have jurisdiction over the case. They further agreed that the complaint and cross-complaint would be dismissed " without waiver of prejudice [sic] to both sides continuing in discovery, and also to attempt to come to a resolution." While they were " desirous of exploring their settlement negotiations," the parties nevertheless intended to " preserve all rights that were in existence on the date of the filing of the complaint by Del Sala. It is without waiver by Del Sala of any claims that he then had, including any of the defenses stated to the cross-complaint, or any claims that have arisen since the complaint, or were in existence beforehand."
The Settlement Statement further specified how the case could be revived in the event that the parties were unable to resolve their differences. The case could be reinstituted within 90 days, upon 14 days' written notice " from the other side." Del Sala would file a complaint, which could include new causes of action or be an entirely new pleading. The Ataydes could file a cross-complaint, which also could be new or could simply add causes of action. All defenses, however, except " after-accruing defenses," would be dated back to the original pleadings, in order to " have everything resolved in one case, one litigation." Meanwhile, discovery would continue, with Judge Paik retaining jurisdiction over any future discovery disputes.
Del Sala's lawsuit was dismissed by stipulation on February 7, 2002. The parties did not resolve their disputes, however, and the 90-day period expired with no new complaint having been filed by Del Sala. On May 9, 2002, appellants' then counsel, Henry Nunez, wrote to Prescott Kendall, attorney for Del Sala, advising Kendall that if Del Sala did not file a complaint by May 23, 2002, then Nunez would initiate a new action against those who had been previously named as cross-defendants. Kendall requested an additional two weeks to file a complaint, and he renewed a previous suggestion that the parties engage in mediation before filing any action. There was no reply to Kendall's request and suggestion.
On May 28, 2002, appellants filed a complaint in the United States District Court, alleging violations of federal and state law.[2] Upon respondents' motion to dismiss, the district court recognized that the parties had agreed to reserve jurisdiction to Judge Paik. The federal claims, the court found, were essentially a means to establish federal court jurisdiction and were unsupported by any facts. Accordingly, the district court dismissed appellants' action.
The Ataydes' further attempts to engage in discovery failed, and they decided to re-file their action in federal court. Again the district court dismissed the action, and this time the court imposed sanctions for appellants' " purposefully and willfully attempting to evade state court jurisdiction by raising claims before this Court which the Court has already found need to be raised in state court." The district court noted that it had not granted leave to amend on the prior occasion. It found that the Ataydes had " misrepresented the prior findings made by the Court, as well as misrepresented the fact that they [had] attempted to sue these same Defendants in the prior action filed in this Court." Their only new federal claim, for " involuntary servitude," was, in the court's view, unfounded and brought in bad faith. The court further stated that the Ataydes were attempting to evade not only the prior dismissal but also their settlement agreement with respondents. It emphasized that the Ataydes could not return to federal court regarding their business dispute with respondents, but must litigate it in state court.
Together with Flores, the Ataydes then filed the present action in Monterey County Superior Court, adding attorneys Kendall and West to the list of defendants.[3] The 15 causes of action encompassed claims for breach of fiduciary duty; breach of contract and the covenant of good faith and fair dealing during the years 1996 to 2000; breach of the Settlement Statement of February 5, 2002; unpaid accounts; intentional misrepresentation; negligent performance of contractual and statutory duties; emotional, physical, and financial distress; conversion; and multiple acts of unfair competition and unfair business practices (Bus. & Prof. Code, § 17200).
Respondents demurred on several grounds, including the unavailability of a conspiracy claim against Del Sala's attorneys, res judicata, and the statute of limitations. Respondents further asserted that only Del Sala was entitled to bring an action under the terms of the Settlement Statement; but even if appellants were entitled to sue, they had failed to do so within the agreed-upon 90-day period. Appellants agreed to dismiss attorneys Kendall and West from the action, and dismissal of these defendants was entered on April 13, 2004. Appellants insisted, however, that the agreement allowed either party to file an action, that respondents were estopped from asserting any time bars, and that appellants had " good cause" to file the federal actions and the current state action because Del Sala had failed to renew his own lawsuit.
At the hearing on April 16, 2004, Flores and the Ataydes characterized their lawsuit not as a reinstitution of the old cross-complaint, but as a new action based on breach of the parties' settlement agreement.[4] That breach, according to the Ataydes, occurred in October or November of 2002, when respondents failed to comply with the discovery contemplated by the Settlement Statement. Appellants also argued, however, that the breach occurred when Del Sala " did not reinstitute the complaint when properly noticed by [the] Atayde's [sic], thereby freeing Atayde's [sic] to bring this action against Del Sala." As to the allegations incorporated from the prior cross-complaint, appellants argued that the applicable statutes of limitations had been tolled.
The trial court sustained respondents' demurrer without leave to amend " based on each and every reason stated in the demurrer." As requested by respondents, the court further ordered appellants to pay $2,500 in sanctions. After the court denied appellants' request for a statement of decision and Flores's motion to vacate the order, appellants filed this appeal.
Discussion
1. Appealability
At the outset respondents urge dismissal of this appeal because it is taken from a nonappealable order sustaining a demurrer and no judgment of dismissal has been entered. Respondents are correct that an order sustaining a demurrer " is interlocutory and thus not appealable. Any appeal must be taken from the subsequently entered judgment of dismissal." (Forsyth v. Jones (1997) 57 Cal.App.4th 776, 780.) However, the trial court did state in its order that " a dismissal is granted with prejudice to the entirety of plaintiffs' first amended complaint . . . ." In the interests of judicial economy, and seeing no prejudice to respondents, we will deem the order to incorporate a judgment of dismissal. (Hudis v. Crawford (2005) 125 Cal.App.4th 1586, 1590; Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 290; Smith v. Hopland Band of Pomo Indians (2002) 95 Cal.App.4th 1, 3.)
2. Demurrer
" When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm." (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)
Appellants contend that the trial court erred as a matter of law by sustaining the demurrer and that it abused its discretion by failing to grant leave to amend. They argue that they had the right to " cause reinstatement of the original lawsuit" by demanding that Sala refile the original complaint or file an amended complaint. Appellants rely on Kendall's recitation in the Settlement Statement that the parties intended to " preserve all rights that were in existence on the date of the filing of the complaint by Del Sala." They point out that the Ataydes were assured that " all their defenses and claims" would be preserved, and that neither party would be prejudiced by the anticipated dismissal. Notwithstanding the sentence specifying the manner of reinstituting the action--that is, by Del Sala beginning the process by filing a complaint--appellants further note that no restriction to Del Sala was contained in the stipulation that if the parties were unable to resolve their dispute, the case could be reinstituted upon 14 days' notice " from the other side." Instead, appellants maintain, the only reasonable interpretation of the parties' agreement is that " both parties had the right to give 14 days['] notice and require the reinstitution of the lawsuit in the form specified by the agreement."
Respondents insist that the terms of the Settlement Statement permitted only Del Sala to file a complaint. Even if appellants were entitled to sue, however, the agreement did not contemplate repeated actions, but allowed only one lawsuit to be instituted within 90 days. Respondents further assert the bar of res judicata and collateral estoppel based on the federal court's dismissal of appellants' two federal actions.
Although appellants' arguments appear to be directed at the viability of the underlying allegations regarding their business relationship with Del Sala, they nonetheless maintain that the essence of their current action is breach of the parties' settlement agreement. Although this statement is only partially reflected in the First Amended Complaint,[5] we accept it for purposes of the appeal. Even in that light, however, the complaint is subject to demurrer. The parties' agreement was that the existing action would be reinstituted within 90 days. Assuming, as appellants contend, that they had the right to sue if respondents failed to do so, we nonetheless observe that appellants did not bring their action in a timely way as contemplated by the agreement. Appellants gave respondents until May 23, 2002 to proceed with their complaint; otherwise, appellants advised, they would file their own complaint against the parties they had previously named as cross-defendants. The proper forum in which to file that new action was, of course, Monterey County Superior Court. Appellants, however, chose instead to avoid the proper forum and bring a lawsuit in federal court. Undeterred by the district court's dismissal of the first lawsuit (without leave to amend), they filed another federal action, which the district court found to be a bad-faith attempt " to avoid state court and evade their agreement with Defendants." Only after dismissal of the second suit with sanctions did appellants file their new action in state court-- on December 22, 2003, according to appellants. This was more than one and a half years beyond the filing period contemplated by the Settlement Statement, even with the parties' extensions. Thus, whether the First Amended Complaint is read to incorporate the allegations of the prior cross-complaint or only to allege breach of respondents' contractual obligation to file a new action, the contract on which the pleading depends did not permit appellants to file an action at this late date.
Demurrer was also properly sustained because liability for breach of contract could not have been established under the terms of the Settlement Statement. The parties agreed that " the case can be reinstituted if we have not come to a resolution." Their agreement did not require either party to sue the other. No breach can be found by examination of the Settlement Statement.
We further find no abuse of discretion in the court's refusal to grant leave to amend the First Amended Complaint. Whether to permit amendment of a complaint is a matter within the discretion of the trial court. (Reynolds v. Bement, supra, 36 Cal.4th at p. 1091.) As a general rule, if there is a reasonable possibility the defect in the complaint could be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend. (Campbell v. Regents of University of California (2005) 35 Cal.4th 311, 320.) Nevertheless, where the nature of the plaintiff's claim is clear, and under substantive law no liability exists, a court should deny leave to amend because no amendment could change the result. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459; accord, Zipperer v. County of Santa Clara (2005) 133 Cal.App.4th 1013, 1020.) It is the plaintiff's burden to demonstrate that an amendment would cure the defect. (Campbell v. Regents of University of California, supra, 35 Cal.4th at p. 320.)
Appellants have not demonstrated how their action can withstand further demurrer. Their focus is on amending their complaint to clarify their right to sue and to respond to the defenses of res judicata, statutes of limitations, and Flores's lack of standing. Success on these issues, however, could not save this untimely action. Because the complaint is fatally defective, demurrer was properly sustained without leave to amend.
3. Sanctions
Appellants' objection to the sanctions order is twofold: First, they say, it was based on a " doubly wrong" order; and second, the court failed to comply with the procedural requirements set forth in Code of Civil Procedure section 128.5.[6] The first reason is unavailing, as we have already concluded that the demurrer was properly sustained without leave to amend. As to the second, appellants cite an inapposite statute. Sanctions in this action were governed by Code of Civil Procedure section 128.7, [7] which " imposes a lower threshold for sanctions than . . . under . . . section 128.5." (Guillemin v. Stein (2002) 104 Cal.App.4th 156, 167.) Section 128.7 no longer requires a showing of bad faith; now the conduct under scrutiny need only be " objectively unreasonable" to justify sanctions. (Ibid.)
Nevertheless, we agree with appellants that the order did not comply with the procedural requirements of the applicable statute. Citing section 128.7, respondents requested sanctions against plaintiffs. In contrast to section 128.5, however, " under section 128.7, only an attorney or unrepresented party may be sanctioned. It does not authorize sanctions against the represented party." (In re Marriage of Reese & Guy (1999) 73 Cal.App.4th 1214, 1221.) Thus, while Flores, as a pro per litigant, could be sanctioned, the Ataydes could not.
Furthermore, the requirements of notice and opportunity to be heard, which appellants claim were unmet in this case, are reflected in section 128.7 as well as section 128.5. The party seeking sanctions must file a motion separate from other motions and requests (such as demurrers), and notice must be served on the offending party at least 21 days before filing the motion with the court. (§128.7, subd. (c)(1); see, e.g., Barnes v. Department of Corrections (1999) 74 Cal.App.4th 126, 130-131.) This " safe harbor" period enables a party to avoid sanctions by withdrawing an offending pleading, " thus saving the court and the parties time and money litigating the pleading as well as the sanctions request. '[S]anctions under section 128.7 are [designed not] to be punitive in nature but rather to promote compliance with statutory standards of conduct.' [Citation.]" (Malovec v. Hamrell (1999) 70 Cal.App.4th 434, 441.) Finally, the statute requires the court to " describe the conduct determined to constitute a violation of this section and explain the basis for the sanction imposed." (§ 128.7, subd. (e).) As appellants point out, no such explanation was provided in the trial court's order. The sanctions award was therefore unauthorized.
Disposition
The Order On Demurrer, which we construe to incorporate a judgment of dismissal, is modified to strike the $2,500 sanctions award. As so modified, the judgment is affirmed. The parties shall bear their own costs on appeal.
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ELIA, J.
WE CONCUR:
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RUSHING, P. J.
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PREMO, J.
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[1] The repeated violation of this rule makes appellate review more cumbersome and is alone a sufficient reason to deny respondents their costs on appeal.
[2] Appellants asserted causes of action under the Perishable Agricultural Commodities Act (7 U.S.C. § 499a, et. seq.), and the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. § 1962).
[3] In June 2004 appellants filed another action against the Sala defendants. That case is the subject of a separate appeal in H027885, of which we take judicial notice.
[4] Flores, arguing on his own behalf, told the court that this was " a new complaint alleging new facts and incorporating the old complaint, the issues of the old complaint because they were brought into the settlement agreement. They quite simply breached the settlement agreement that we had. And that is what the new complaint alleges, your Honor." Counsel for the Ataydes agreed that the gravamen of the present action was breach of contract, although he also argued that the statutes of limitations on the original allegations had been tolled.
[5] Only one section within the second cause of action is directed at breach of the Settlement Statement, along with one allegation of breach of the covenant of good faith and fair dealing. The additional claims, nearly 20 of them, pertain to the prior business dealings between appellants and Del Sala.
[6] All further statutory references are to the Code of Civil Procedure.
[7] Section 128.7, like section 128.5, permits the imposition of sanctions when a pleading has been presented " for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation," or when claims or arguments are frivolous. (§ 128.7, subds. (b)(1), (b)(2).)