ROBERT v. MOORES

Filed 3/20/09

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

STORY CONTINUE FROM PART III.

We conclude that the group pleading doctrine does not apply in determining whether a party has presented sufficient evidence of its claims to avoid summary judgment, under California law. We therefore further conclude that the trial court properly determined that that the group pleading doctrine did not apply to create a disputed issue of material fact in this case.

C. The trial court did not err in sustaining Noell's and Moores's demurrers

to plaintiffs' section 25504 claim in plaintiffs' second amended complaint

Plaintiffs claim that the trial court erred in sustaining Noell's and Moores's demurrers to plaintiffs' section 25504 claim. We conclude that plaintiffs have failed to provide an adequate record to permit appellate review of this claim.^[1]

1. Factual and procedural background

Plaintiffs filed a first amended complaint against defendants in which plaintiffs alleged, among other causes of action, that defendants were liable pursuant to section 25504.^[2] Section 25504 establishes civil liability for every person who "directly or indirectly controls a person liable under Section 25501 or 25503. . . ." Section 25501, in turn, establishes liability for persons who violate 25401, which generally prohibits making untrue statements in the purchase or sale of securities.^[3]

Defendants each filed separate demurrers to plaintiffs' first amended complaint.^[4] On July 8, 2004, the trial court entered an order granting defendant Cole's demurrer with leave to amend, on the ground that the allegations of the first amended complaint were conclusory. In the same order, the court stated "The demurrers to the fourth cause of action against the Peregrine defendants [including Moores and Noell] are overruled for violation of [section] 25504 (control person liability for Peregrine's violations of [section] 25401]). Plaintiffs have alleged sufficient facts to show that these defendants had control of day-to-day activities of Peregrine."

On October 28, the trial court entered a tentative order granting defendant Moores's and Noell's motions for reconsideration. Neither the motions nor the opposition to the motions are in the record on appeal. In its tentative order, the court further stated, "The demurrers of defendants [Moores] and [Noell] to the fourth cause of action [for a violation of section 25504] are sustained, with leave to amend, only if plaintiffs can establish they purchased their stock directly from defendants." The court noted that it had inadvertently overlooked the privity requirement for a section 25504 cause of action in its in July 8, 2004 order.

On November 15, the court stated that it had considered the motions to reconsider, the opposition to the motion, and Moores's and Noell's demurrers to the second amended complaint.^[5] The appellate record does not contain the briefing on the motions for reconsideration, the second amended complaint, or Moores's or Noell's demurrers thereto. In the November 15 order, the court also confirmed its tentative ruling sustaining the demurrers with leave to amend.

In December 2005, plaintiffs filed a fourth amended complaint. This complaint alleges a cause of action against Cole for a violation of section 25504. The complaint states, "THE PEREGRINE DEFENDANTS were each control persons of PEREGRINE and each other as defined by Corporations Code [section] 25504 and caused PEREGRINE to commit violations of Corporations Code [section] 25400 and [section] 25402, and are therefore jointly and severally liable with PEREGRINE." The claim also states, "This cause of Action is Only Pleaded Against . . . Cole, Based on this Court's Order of November 15, 2004. Plaintiffs Reserve All Rights for Appeal."

On February 15, 2006, the trial court entered a dismissal, without prejudice, of the fourth cause of action alleging a violation of section 25504 against Cole, pursuant to a stipulation of the parties. The stipulation and order essentially provides that in the event of a reversal of the November 14, 2004 order^[6]sustaining the demurrers of Moores and Noell to plaintiffs' section 25504 claim, the order of dismissal of the section 25504 cause of action against Cole would be vacated.

2. Standard of review

"In evaluating a trial court's order sustaining a demurrer, we review the complaint 'de novo to determine whether it contains sufficient facts to state a cause of action.' [Citation.]" (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1589.) Further, "we review the trial court's result for error, and not its legal reasoning. [Citation.]" (Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1090.) Finally, "It is well settled . . . that a party challenging a judgment has the burden of showing reversible error by an adequate record." (Ballard v. Uribe (1986) 41 Cal.3d 564, 574.)

3. Application

Plaintiffs seek reversal of the trial court's November 15, 2004 order sustaining Noell's and Moores's demurrers to plaintiffs' second amended complaint.^[7] However, plaintiffs have failed to include in the record either the operative complaint or the demurrers, thus making it impossible for this court to review the complaint de novo to determine whether it states a cause of action. On that basis alone, we must reject plaintiffs' claim. (See Ballard v. Uribe, supra, 41 Cal.3d at p. 574.)

Plaintiffs assert in their brief, consistent with the plain language of section 25504, that "To establish control person liability under [section] 25504, plaintiffs must plead that defendants were in control of a person liable under [sections] 25501, 25503."^[8] (Italics added.) However, the only complaint that is in the record ─ the fourth amended complaint ─ does not allege that any defendant was in control of a person liable pursuant to section 25501 or 25503.^[9] Rather, plaintiffs allege in the fourth amended complaint that Cole is liable for a violation of section 25504 based on Peregrine's alleged violations of sections 25400 and 25402. Plaintiffs provide no argument or authority to the effect that a plaintiff may establish control person liability pursuant to section 25504 for a company's violations of sections 25400 or 25402. Thus, even assuming that plaintiffs' second amended complaint contained allegations as to all defendants identical to those contained in the fourth amended complaint as to Cole, plaintiffs still have failed to demonstrate that they have, or could have, stated a section 25504 claim.

Finally, even assuming that plaintiffs had provided an adequate record of their claims, and assuming further that plaintiffs had alleged that one or more of the defendants were liable pursuant to section 25504 for Peregrine's violations of section 25501, plaintiffs concede that "privity is required between the buyer and seller under [section] 25501. . . ." (Quoting In re ZZZZ Best Securities Litigation (C.D. Cal.) 1990 WL 132715, *17 [ "controlled party is the one who must be in privity with the plaintiffs, not the controlling person"].) However, plaintiffs have not alleged, or demonstrated that they could allege, that they purchased stock from Peregrine. Thus, assuming that the trial court erred in suggesting in its July 8, 2004 order that plaintiffs were required to allege that they purchased securities from defendants, rather than from Peregrine, plaintiffs have not demonstrated that they could allege that they purchased securities from Peregrine.^[10] Plaintiffs have thus failed to demonstrate that they could amend their complaint to allege that defendants were in control of a person liable under 25501 or 25503, as plaintiffs themselves acknowledge is required for section 25504 liability to potentially attach. (See Davies v. Sallie Mae, Inc., supra, 168 Cal.App.4th at p. 1090 ["'The plaintiff has the burden of proving that an amendment would cure the defect. [Citation.]' [Citation.]].") We therefore affirm the trial court's November 15, 2004 order, and its related February 15, 2006 order.

D. The trial court did not abuse its discretion in refusing to stay the proceedings

Plaintiffs claim that the trial court erred in denying their motion to stay the case. We review the trial court's denial of plaintiffs' motion for a stay under the abuse of discretion standard of review. (See Avant! Corp. v. Superior Court (2000) 79 Cal.App.4th 876, 889 (Avant!) [applying abuse of discretion standard of review in determining whether trial court erred in denying party's motion to stay proceedings in light of pending related criminal proceeding].)

1. Factual and procedural background

On or about September 4, 2007, plaintiffs filed a memorandum of points and authorities in support of a request to stay all proceedings in the case.^[11] In their motion for a stay, plaintiffs requested that the court stay all proceedings in the case for a period of one year, or "until the primary witnesses who are unavailable due to the parallel criminal action are available." In their motion, plaintiffs noted that they had concurrently filed an affidavit seeking to continue the hearing on defendants' motions for summary judgment in order to allow plaintiffs to obtain additional evidence pursuant to Code of Civil Procedure section 437c, subdivision (h).^[12]

The gist of both the motion to stay the proceedings and the affidavit to continue the summary judgment hearing was that plaintiffs had been unable to gather important evidence from 28 witnesses, such as "key [Peregrine] employees and outside auditors. . . ." Plaintiffs noted that they had been unable to gather this evidence because these witnesses were exercising their privilege against self-incrimination and had refused to provide "any substantive testimony," in view of pending or potential criminal proceedings concerning the witnesses' knowledge of and/or participation in the fraud at Peregrine. Plaintiffs claimed that it would be unfair to force them to trial without the unavailable witnesses' evidence, and that it would be "patently unfair" to dismiss their case for having failed to bring the case to trial within five years pursuant to Code of Civil Procedure section 583.310.^[13]

Defendants filed a joint opposition to plaintiffs' motion to stay the proceedings.^[14] In their opposition, defendants contended that plaintiffs had identified nothing in the voluminous discovery already undertaken that demonstrated that defendants had been aware of the ongoing fraud, nor had plaintiffs identified anything that suggested that they could uncover such evidence if witnesses who were asserting their Fifth Amendment rights were to provide testimony in the case. Defendants asserted that they had a strong interest in concluding the litigation, and claimed that they would be prejudiced if the court were to enter an "indefinite stay." Defendants noted that they had already produced documents and had been deposed, and that plaintiffs' request for a stay was premised on nothing more than the "hope that material allegations not otherwise supported by a large and rich record will find support if and when witnesses with non-unique perspectives cease to assert their privilege against self-incrimination."

The trial court held a hearing on plaintiffs' motion to stay the proceedings and their motion to continue the hearing on defendants' motions for summary judgment. After hearing argument from all counsel, the court confirmed its tentative ruling denying both motions.^[15]

In denying the motion for a stay, the trial court noted that the case had been pending since February 2003, and that the court had granted previous requests by plaintiffs to continue the summary judgment proceedings. The court also noted that it had stayed the case for "multiple-year periods of time at the request of various parties . . . ." The trial court remarked that in delaying the proceedings on previous occasions, the court had acted with the hope that the parallel criminal proceedings would be "somewhere close to resolution," and added that "the criminal proceeding is still ongoing and when it will be completed is, I think, at best, speculative." The court further noted that some witnesses might not be available to provide substantive testimony in this case for as long as 10 years, given the applicable statutes of limitations on various potential criminal charges.

The court stated:

"I believe that we have reached the point in this case where the balance has swung in favor of moving forward with the litigation. The factors in [Pacers, Inc. v. Superior Court (1984) 162 Cal.App.3d 686, 689 (Pacers)] in terms of prejudice to those who may have to choose whether to exercise a Fifth Amendment privilege at the risk of financial penalty in the civil case has been a factor that's caused me to continue this case in the past, but counter-balancing that is the concern and right of those charged with significant wrongdoing, including fraud and punitive damages allegations to have a day in court.

"All the cases recognize the court's discretion under these circumstances, and also the cases note, particularly, the [Fuller v. Superior Court (2001) 87 Cal.App.4th 299 (Fuller)] case, the factors that are also at play in terms of the Delay Reduction Act [Gov. Code  68600 et seq.] and moving cases forward.

"The fact [is] that over time there's loss of memory, and thus, evidence, witnesses become unavailable either personally and/or by way of loss of memory and other evidence becomes more difficult to obtain or is lost. Under the entirety of the circumstances of this case, it does not appear to me that granting a stay for an additional year would get us anywhere meaningful [sic] in this case. I think we'd be where we are now after me having granted numerous stays in the past where the criminal process will be ongoing."

In denying plaintiffs' request to continue the summary judgment proceedings, the trial court ruled that plaintiffs had failed to establish the nature of the evidence that they contended was unavailable. The court also stated that plaintiffs had failed to demonstrate that there was a reasonable likelihood that such evidence actually existed, noting that voluminous discovery had already been undertaken, unimpeded by the criminal proceedings. The court further noted that "a great deal of information" had been generated regarding all of the "key periods" in the case, and that plaintiffs had still failed to demonstrate with "any specificity as to exactly who and what would be disclosed," if the court were to continue the hearing on defendants' motion for summary judgment.^[16]

2. The law governing the issuance of stays of civil proceedings in

light of pending related criminal proceedings

In Pacers, supra, 162 Cal.App.3d at page 689, defendants in a civil suit faced with a potential criminal proceeding arising out of the same alleged underlying incident sought to stay the taking of their depositions for approximately two years, until the statute of limitations for potential criminal charges would have lapsed. The Pacers court concluded that the trial court erred in denying defendants' request, reasoning, "An order staying discovery until expiration of the criminal statute of limitations would allow real parties to prepare their lawsuit while alleviating petitioners' difficult choice between defending either the civil or criminal case." (Id. at p. 690; see also Fuller, supra, 87 Cal.App.4th 299 [discussing request for stay of deposition by defendant who invokes his privilege against self-incrimination during discovery in civil litigation to avoid exposure to criminal prosecution].)

In Avant!, supra, 79 Cal.App.4th 876, a corporate defendant in a civil action sought a stay of proceedings during the pendency of a related criminal proceeding in which the corporation, as well as several its current or former employees, were defendants. In concluding that the trial court had not abused its discretion in denying the motion to stay, the Avant! court listed the factors that a trial court should consider in ruling on such a motion:

"'The decision whether to stay civil proceedings in the face of a parallel criminal proceeding should be made "in light of the particular circumstances and competing interests involved in the case." [Citation.] This means the decisionmaker should consider "the extent to which the [party seeking the stay's] fifth amendment rights are implicated." [Citation.] In addition, the decisionmaker should generally consider the following factors: (1) the interest of the [party opposing the stay] in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to [the party opposing the stay] of a delay; (2) the burden which any particular aspect of the proceedings may impose on [the party seeking the stay]; (3) the convenience of the court in the management of its cases, and the efficient use of judicial resources; (4) the interests of persons not parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation. [Citation.]' [Citation.]" (Id. at p. 885.)^[17]

With regard to the corporation's interests, the Avant! court noted that the corporation itself did not have any Fifth Amendment interests to protect. The court stated that the employees' interests in staying the proceedings were not to be "reviewed on Fifth Amendment grounds, but on abuse of discretion grounds even where the employees are defendants and the request for admissions and interrogatory are directed to those employees." (Avant!, supra, 79 Cal.App.4th at p. 886.) The Avant! court observed that the trial court had protected against any potential infringement on the employees' privileges against self-incrimination by limiting the scope of plaintiffs' discovery requests to non-privileged information. (Id. at pp. 886-887.)

With regard to the interest of the party opposing the stay, the Avant! court stated, "[T]here is hardly a question of the interest of [the party opposing the stay] in proceeding expeditiously with this litigation or any particular aspect of it," and observed that granting a stay would "'would increase the danger of prejudice resulting from the loss of evidence, including the inability of witnesses to recall specific facts, or the possible death of a party.' [Citation.]" (Avant!, supra, 79 Cal.App.4th at p. 887.) The Avant! court continued, "Clearly, denial of the stay motion promotes the convenience of the court in the management of its cases." (Id. at p.888.) Finally, the court noted that denial of the request for a stay promoted the public's interest's in maintaining "a system that encourages individuals to come to court for the settlement of their disputes." (Id. at p. 889.)

Pacers, Fuller, and Avant!, each involved defendant(s) who were facing potential criminal prosecution and sought to stay pending parallel civil litigation. The parties have not cited, and we are not aware of, any California authority that involves a plaintiff's motion to stay litigation against a defendant in order to allow the plaintiff to attempt to obtain evidence from witnesses (or other defendants) who have invoked their privilege against self-incrimination. Plaintiffs in this case cite County of Orange v. Superior Court (2000) 79 Cal.App.4th 759 (County of Orange), in which the parents of a murdered child brought an action that included claims for defamation and civil rights violations against the county and its sheriff's department arising from the criminal investigation into the murder. (Id. at p. 762.) While the murder remained unsolved, the parents alleged that the sheriff's department had publicly indicated that the parents were suspects in the murder. (Ibid.) Three days after filing their complaint, the parents sought "in effect . . . the entire investigative file relating to [the child's] murder." (Ibid.) The county refused to produce the file, contending that its contents were protected by the official information privilege codified in Evidence Code section 1040, subdivision (b)(2). (County of Orange, supra, 79 Cal.App.4th at pp. 762-763.) On the parents' motion to compel, the trial court ordered that the file be produced. (Id. at p. 763.) The county sought writ relief from the Court of Appeal. (Ibid.)

In issuing a writ of mandate to prevent disclosure of the file, the County of Orange court noted that "[T]he contents of police investigative files sought in civil discovery must remain confidential so long as the need for confidentiality outweighs the benefits of disclosure in any particular case." (County of Orange, supra, 79 Cal.App.4th at p. 765.) In considering whether the need for confidentiality continued to exist in that case, the County of Orange court stated:

"We conclude on the record before us that the public interest in solving [the child's] homicide and bringing the perpetrator(s) to justice outweighed the [parents'] interest in obtaining the discovery sought, at least at the time this matter was considered below. We recognize the rather arbitrary nature of this conclusion, but the order we review was made less than a year after this civil action was filed." (Id. at p. 767.)

The County of Orange court also commented that rather than immediately providing the parents with the contents of the file, the trial court should have stayed discovery or, if necessary, stayed the action, in order to allow the County the opportunity to investigate the murder:

"The appropriate remedy in this case is for the trial court to stay discovery of investigative information in the civil action in order to allow the sheriff's department the necessary time to investigate. (Pacers, [supra,] 162 Cal.App.3d [at p. 690].) And, should that become necessary, the trial court should stay the entire action in the interest of justice to avoid a potential statutory dismissal. [Citation.] We are cognizant of the [parents'] concern that the County not be allowed to 'immunize [itself from] any lawsuit by the [parents] forever simply by keeping the case open.' Our order is intended to preserve the confidentiality of the investigative file for some reasonable period of time, but not forever." (County of Orange, supra, 79 Cal.App.4th at p. 768.)

The County of Orange court reasoned that after a reasonable period of time, "the balance will have swung in favor of giving the [parents] limited access to that information in the file which may help develop their case against the County. In other words, with the passage of time, changing circumstances will inevitably reverse the balance of competing interests under [Evidence Code] section 1040, subdivision (b)(2). " (County of Orange, supra, 79 Cal.App.4th at pp. 768-769, italics omitted.)

3. Application

In their opening brief on appeal, plaintiffs argue in a conclusory fashion that the trial court "failed to fashion any remedy to meet the needs of the plaintiffs," by allowing defendants to "force plaintiffs to trial without the evidence from any of the key auditors or management who attended the board meetings."^[18] However, plaintiffs provide no argument regarding specific evidence that they contend was unavailable to them (failing to provide in their opening brief even the names of witnesses whose testimony they were unable to obtain), and do not address the likelihood that the related criminal proceedings would be resolved within a reasonable period of time so as to allow plaintiffs to obtain such evidence. Plaintiffs also do not discuss the alleged inadequacy of the other discovery they obtained in the case.^[19] Plaintiffs have failed to demonstrate that evidence favorable to their position even exists. (See Birge ex rel. Mickens v. Dollar General Corp. (W.D. Tenn.) 2005 WL 3448044, *4 [denying company's motion to stay proceeding until the resolution of related criminal proceeding where "there is simply no indication whether the 'unavailable evidence,' that is, the criminal defendants' testimony . . . will be favorable or unfavorable to [proponent of stay]"].)

Plaintiffs also fail to address the reasons the trial court gave for denying the motion to stay (see pt. III.D.1., ante), and thus fail to demonstrate that the trial court abused its discretion. In addition, applying the Avant!, supra, 79 Cal.App.4th at page 885factors to this case reveals that plaintiffs have no Fifth Amendment interests to protect, defendants' interest in proceeding with the litigation had become weightier given the length of time the case had been pending, plaintiffs failed to articulate with any particularity the burden they would face if the case were not stayed, and the interests of both the general public and the trial court in expeditiously dispensing justice weighed against further delaying the proceedings.

There is no California authority that even remotely suggests that the trial court abused its discretion under the circumstances of this case. The case on which plaintiffs rely most heavily, County of Orange, supra, 79 Cal.App.4th at page 768, endorsed a temporary stay so that plaintiffs who had been named as suspects in a murder investigation would not obtain access to the contents of the prosecution's criminal investigatory file through civil discovery. Nothing in that case suggests that a plaintiff is entitled to a stay of litigation based upon the difficulty of obtaining evidence from witnesses who are invoking their Fifth Amendment rights.

We conclude that the trial court did not abuse its discretion in denying plaintiffs' motion to stay the proceedings.

IV.

DISPOSITION

The judgment is affirmed.

AARON, J.

WE CONCUR:

McCONNELL, P. J.

HUFFMAN, J.

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^[1] Based on the limited record that we do have regarding this issue, the claim appears to have no merit.

^[2] The record on appeal does not contain the first amended complaint.

^[3] Section 25503, which does not appear to have any relevance to this case, establishes liability for persons who violate other sections of the Corporations Code, and specifies the damages that a plaintiff may recover for such violations.

^[4] Those demurrers also are not contained in the record. Cole apparently also joined in Moores's demurrer.

^[5] In its November 15 order, the trial court referred to a single "Motion to Reconsider." However, in its tentative order, the court indicated that Moores and Noell had each filed a motion for reconsideration.

^[6] The parties were referring to the court's November 15, 2004 order.

^[7] On November 15, 2004, the trial court granted Noell's and Moores's motions for reconsideration of its July 8, 2004 order in which it overruled Noell's and Moores's demurrers to the first amended complaint. In addition, the court sustained, with leave to amend, Noell's and Moores's demurrers to plaintiffs' second amended complaint. As noted previously, none of these demurrers or complaints are in the record.

^[8] As noted previously, section 25504 establishes liability for a person who "directly or indirectly controls a person liable under Section 25501 or 25503. . . ."

^[9] We omit any further discussion of section 25503, since there is nothing in plaintiffs' brief that suggests that plaintiffs ever sought to predicate their section 25504 claim on liability established under section 25503. Based on the trial court's July 8, 2004 order, it appears that plaintiffs may have predicated their section 25504 claim in their first amended complaint on alleged liability under 25501 for an alleged violation of section 25401.

^[10] Plaintiffs do not contest Noell and Moores's assertion in their appellate brief that plaintiffs "purchased their stock on the open market, not directly from [defendants] or Peregrine."

^[11] The file-stamped copy of the memorandum is not in the record. Further, no motion to stay is contained in the record. We refer to the memorandum in support of the motion to stay as the motion to stay.

^[12] Code of Civil Procedure, section 437c, subdivision (h) provides: "If it appears from the affidavits submitted in opposition to a motion for summary judgment or summary adjudication or both that facts essential to justify opposition may exist but cannot, for reasons stated, then be presented, the court shall deny the motion, or order a continuance to permit affidavits to be obtained or discovery to be had or may make any other order as may be just. The application to continue the motion to obtain necessary discovery may also be made by ex parte motion at any time on or before the date the opposition response to the motion is due."

^[13] In their motion to stay, plaintiffs noted that the five-year deadline was approximately one year away and that granting their motion would toll the running of the five-year period.

^[14] Noell and Moores also filed a joint opposition, and Cole filed a separate opposition, to plaintiffs' affidavit in support of their request to continue the summary judgment proceedings.

^[15] The record on appeal does not contain the court's tentative ruling.

^[16] Plaintiffs have not raised any claim on appeal regarding the trial court's denial of their motion to continue the summary judgment proceeding. Plaintiffs challenge only the trial court's denial of their motion to stay the proceedings.

^[17] In Avant!, the defendant sought the stay and the plaintiff opposed the defendant's request. (Avant!, supra, 79 Cal.App.4th at p. 885.) For the sake of clarity, given the procedural posture of this case, we have substituted the phrases "party seeking the stay" and "party opposing the stay" for "defendant" and "plaintiff" as appropriate within the quoted text.

^[18] The trial court's ruling did not have the effect of forcing plaintiffs to trial, given that the court subsequently granted defendants' motion for summary judgment. Further, plaintiffs have not appealed the trial court's denial of their request to continue the summary judgment proceedings.

^[19] Plaintiffs' opening brief on appeal was 13,938 words in length, just shy of the 14,000 word limitation that ordinarily applies in civil appeals. (Cal. Rules of Court, rule 8.204(c)(1).) However, such word limitations do not relieve a party of the requirement to adequately brief any argument that the party raises on appeal. Further, a party may file an application seeking permission to file a longer brief upon a showing of good cause. (Cal. Rules of Court, rule 8.204(c)(5).) Plaintiffs filed no such application in this case.