TALLEY v. VALUATION COUNSELORS GROUP, INC








Filed 12/22/10

CERTIFIED FOR PUBLICATION


COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

BRUCE R. TALLEY, Plaintiff, Respondent and Appellant, v. VALUATION COUNSELORS GROUP, INC. et al., Defendants and Appellants, JOHN M. CLAREY et al., Defendants and Respondents.

D055894 (Super. Ct. No. GIC836807)

APPEAL and cross-appeal from postjudgment orders of the Superior Court of San Diego County, Judith F. Hayes, Judge. Reversed in part with directions; affirmed as to the balance of the orders.

Irell & Manella, Keith R. Heitz, Craig I. Varnen, Garland A. Kelley, and Christopher Cowan, attorneys for Defendant and Appellant Valuation Counselors Group, Inc.
Hill, Farrer & Burrill and Steven W. Bacon, attorneys for Defendant and Appellant Bank of America Corporation.
Dion-Kindem & Crockett, William E. Crockett and Steven R. Skirvin, attorneys for Defendant and Appellant Jerold V. Goldstein.
David A. Hahn Law Offices and G. Patrick Connors III, attorneys for Defendant and Appellant Victor P. Dhooge.
Gary A. Kurtz, attorney for Defendants and Appellants Robert Kasirer, Debra Kasirer and Leo Dierckman.
Dreher Law Firm, Robert Scott Dreher and Matthew R. Miller, attorneys for Plaintiff, Respondent and Appellant Bruce R. Talley.
Gordon & Rees, Kevin W. Alexander and Kimberly D. Howatt, attorneys for Defendants and Respondents John M. Clarey, Kenneth E. Dawkins, Paul R. Ekholm and James E. Iverson.

Since 2001, this long running dispute has traveled back and forth between state and federal courts at the respective trial and appellate levels. We now have before us the trial court's appealable orders vacating certain judgments of dismissal of an action, in which plaintiff, respondent and cross-appellant, Bruce R. Talley (Talley) asserted tort claims (fraud and related theories), based upon the different roles of several sets of defendants in alleged securities fraud activities in the 1990's, that allegedly ruined his career by drawing him into the schemes, in the role of a salesman of worthless bonds to private clients, who then sued him and the others.
We have previously visited these circumstances and related issues at the pleadings stage in this court's prior opinion in Talley v. Miller & Schroeder (Sept. 12, 2007, D048438 [nonpub. opn.]); our prior opinion). There, we reviewed three separate 2005 and 2006 demurrer dismissals with prejudice that were granted in favor of three sets of individual defendants who were involved in various ways in the securities transactions (here, sometimes the individual appellants).^[1] We upheld those dismissals with prejudice as proper, based upon the existence of certain binding good faith settlement approvals that included Bar orders against further litigation, issued by the federal district court in Talley's related cross-action.^[2]
In our prior opinion, we also acknowledged that a previous set of demurrer dismissals with prejudice existed as to another group of defendants (currently denominated the Clarey Respondents, who were previously officers of Talley's former employer, Miller & Schroeder).^[3] Talley had attempted to appeal those dismissals, but in an order dated July 13, 2006, we acknowledged that Talley had conceded that his appeal should be dismissed as to those parties, and we did so.
However, it is next important to note that in our prior opinion, we still had before us Talley's claims against two corporate defendants, Valuation Counselors Group, Inc. (Valuation), the appraiser for real property that was security for the bonds, and U.S. Trust Corporation (U.S. Trust, now known as Bank of America), the indenture trustee for the worthless bonds (here, the corporate defendants).^[4] In our prior opinion, we reversed, for appropriate further proceedings, additional demurrer dismissals as to those corporate defendants, finding that Talley should be given an opportunity to amend his complaint (in the absence of any showing that the Bar orders applied to the corporate defendants). However, in those further proceedings on remand, additional demurrers were filed by the corporate defendants (based on the same Bar orders in the underlying federal action), and were sustained without leave to amend. The corporate defendants accordingly, in February 2008, obtained dismissals with prejudice of Talley's complaint. No appeal was taken to this court from those later dismissals.
Meanwhile, from 2004 through 2009, Talley was proceeding with his related action in the federal courts, primarily dealing with the effect of the Bar orders and stays issued by the federal district court, after some clients settled their lawsuits against Talley and the others, and obtained several good faith settlement approvals and Bar orders. Our prior opinion, filed in September 2007, discussed the effect of those federal Bar orders in light of binding authority, as follows: "[Talley] has appealed that order to the Ninth Circuit Court of Appeals, and appeal is pending, but for our purposes, under the rule of Levy v. Cohen (1977) 19 Cal.3d 165, 172 (Levy), it is currently deemed to be final. We must consider ourselves bound by the broad language of that Bar order." That analysis led us to uphold the demurrer dismissals, except as to the corporate defendants, and that opinion became final in October 2007.
Our record now shows that those Bar order and stay issues in the federal courts were not fully resolved until February 2009, when the district court implemented the Ninth Circuit opinion by modifying and restricting the Bar orders as directed.
In April 2009, Talley filed a motion to set aside the five judgments and orders of dismissal after demurrer, that were previously entered in this action in favor of both the three individual appellants and also the two corporate defendants (here, sometimes the Group of Five Appellants). They now challenge the September 2009 ruling of the trial court that granted Talley's motion, and that allowed him to file a second amended complaint updating his allegations to conform them to prior demurrer rulings. (Code Civ. Proc., § 473; all statutory references are to the Code of Civ. Proc. unless otherwise indicated.) In these five appeals, each of the Group of Five Appellants contends the motion to set aside the dismissals was erroneously granted, because the trial court was correct in initially concluding that the final dismissals were not void or voidable, but then, the court erroneously went on to reinstate or revive the dismissed actions, in excess of its jurisdiction. (Grain Dealers Mutual Ins. Co. v. Marino (1988) 200 Cal.App.3d 1083 (Grain Dealers).)
Talley cross-appeals the portion of the ruling that denied his motion to set aside the dismissals as to the other set of defendants, the Clarey Respondents, arguing that they should be treated the same as all other defendants, and the trial court had extensive inherent power to control the proceedings before it.
To address all the arguments on appeal, we first set forth background for understanding the identity of these parties and contentions. (Pts. I & II, post.) We then set forth basic guidelines for review of these legal issues. (Pt. III, post.) We next discuss the common issues raised by the Group of Five Appellants and in the cross-appeal. (Pt. IV, post.)
Our review of the record leads us to reverse the order to the extent it granted Talley's motion to set aside the dismissals and granted his request for leave to file a second amended complaint (SAC), because the court had no statutory authority nor any inherent equitable ability to revive this dismissed case, for the reasons to be explained. We accordingly affirm the order to the extent that it denied the motion to set aside the dismissals as to the Clarey Respondents.
I
INTRODUCTION TO PARTIES, TRANSACTIONS AND LITIGATION
A. 2002 Origin of Action; Complaints; Related Federal District Court Activity
The issues raised on appeal are mainly legal and procedural in nature, so that specific details of the underlying disputes are not necessary. We quote from our prior opinion, endeavoring to set forth only those facts that are relevant to the issues on appeal concerning Talley's motion to set aside the dismissals of his lawsuit. Generally: "[Talley] was a securities sales representative who was previously employed by securities firm [Miller & Schroeder], the now bankrupt predecessor of [a former defendant, the Marshall Group, Inc. (Marshall)]. [Talley] alleges that in the scope of his employment by Miller & Schroeder, he sold worthless Heritage bonds to his investor clients, who then sued him and others, causing him to lose his livelihood and suffer from personal injury."^[5]
In the underlying federal action, Talley was sued by one of his clients, Betker, who had purchased millions of dollars in Heritage bonds (asserting the Private Securities Litigation Reform Act, 15 U.S.C. § 78a et seq.). As a defendant in that action, in 2001, Talley filed a cross-complaint for indemnity and contribution. Later, he participated in global settlements of those matters with the Betkers. Part of the good faith settlement approval process was the issuance by the district court of those Bar orders, preventing the parties from further litigation of the securities claims.^[6]
Talley's first state court complaint was filed in 2002, to sue the Group of Five Appellants and others on fraud and related theories, based upon their different roles in allegedly participating in the Heritage bonds transactions from 1996-1999. That state action was dismissed without prejudice during the settlement efforts in the federal action. (In re Heritage Bond, supra, 546 F.3d 667, 672-675.)
In the current action (a renewed version of Talley's state court allegations), the original complaint was filed in 2004 and amended in April 2005. Talley seeks to recover damages from the various defendants and respondents on different theories, based on the nature of their participation in the Heritage bonds securities fraud, and he claims financial loss of over $5 million. He contends he first learned of their breaches of duties toward him in October 2001. As to the corporate defendants, he claims they colluded with disloyal fiduciaries, to his direct injury.
Numerous demurrers were filed to the amended complaint, and were sustained without leave to amend, and dismissals with prejudice were entered. Talley appealed, leading to the issuance of our prior opinion, as we next outline.
B. Prior Opinion Filed in September 2007; Parallel Track of Federal
Appellate Activity from 2008-2009

Without totally recapping our lengthy prior opinion, we reiterate that we relied heavily upon the rule of Levy, supra, 19 Cal.3d 165, 172, that since federal court appeals were pending of the Bar orders on the same theories, for our purposes, we construed the Bar orders as final, leading us to uphold the demurrer dismissals, for those defendants that had supplied copies of the Bar orders (not including the corporate defendants).^[7] (§ 581, subd. (f)(2).) This disposed of the actions as against the individual appellants, Goldstein, Dhooge, and Kasirers.^[8]
However, in the prior appeal, we noted that the record did not include any such documentation to show the corporate defendants were also subject to such Bar orders. Therefore, the Bar orders did not form the basis for our prior opinion as to the two corporate defendants (now also members of this Group of Five Appellants). Instead, we analyzed the other grounds of demurrer, and concluded that Talley must be given leave to amend his pleading as to the corporate defendants only (aiding and abetting/fraud). The dismissals were set aside on appeal only as to the corporate defendants. Our approach for reaching the merits was expressly based upon the lack of any indication that the corporate defendants were subject to the federal court orders approving settlement agreements and imposing Bar orders, etc. The parties do not dispute that our prior opinion was not appealed to a higher court, and it became final in October 2007.
However, after remand, the corporate defendants brought a new set of demurrers, now supplying to the trial court copies of the Bar orders that prevented this state court litigation from proceeding on the same theories. These demurrers were sustained without leave to amend, and accordingly, in February 2008, dismissals with prejudice were ordered and notice given. (§ 581, subd. (f)(1).) No appeals were taken by Talley of those February 2008 dismissals.
In October 2008, the Ninth Circuit Court of Appeals issued its opinion analyzing, modifying and narrowing the Bar orders, and the district court implemented it in February 2009. (In re Heritage Bond, supra, 546 F.3d 667.) Specifically, the federal appellate court first ruled that Talley's appeal was not moot, simply because his state law claims had been dismissed and the dismissals were affirmed (as to the Group of Five Appellants, at different times, and the Clarey Respondents). (Id. at p. 675.) The federal appellate court read our prior opinion as clearly stating that our "reliance on the bar orders was premised on [the] view that [we were] bound by the broad language of the orders because the bar orders should be considered final while Talley's federal appeals were pending." (Ibid.) Thus, "[b]y specifying that it affirmed the dismissal of Talley's claims solely on this basis, [this] court implied that modification of the bar orders could revive Talley's claims." (Ibid.)
Next, the federal appellate court correctly read our prior opinion as not foreclosing Talley from pursuing remedial procedures in state court, "such as filing a motion under California Code of Civil Procedure section 473 to vacate the judgment or filing a new action in state court, once the bar orders are modified." (In re Heritage Bond, supra, 546 F.3d 667, 675.) The court continued, "We cannot order the superior court to reinstate Talley's claims, but by limiting the scope of the orders, we make it reasonably likely that he can succeed in obtaining reinstatement of his claims and, to the extent they are truly independent, have them heard on the merits," so the matter was not deemed to be moot. (Id. at p. 676.)
With respect to the merits of the Bar orders, the Ninth Circuit opinion analyzed them as overbroad, because "such bar orders may only bar claims for contribution and indemnity and claims where 'the injury is the non-settling defendant's liability to the plaintiff.' [Citation.] When we apply this standard to the bar orders at issue in this appeal, it is clear that they are impermissibly broad insofar as they bar any genuinely independent claims." (In re Heritage Bond, supra, 546 F.3d 667, 680-682; italics added.) This meant that the district court was responsible for issuing a modified Bar order, which it did in February 2009. The federal appellate court concluded: "Once the bar orders have been modified, Talley will be able to pursue reinstatement of his claims in the superior court through the available procedures outlined above." (Id. at p. 681.)
As we later explain, nothing in the above opinion of the Ninth Circuit operated to relieve Talley from the obligation to maintain the viability of this state court action, which could have been done by appealing the two February 2008 dismissals with prejudice as to the corporate defendants, or possibly appealing to the California Supreme Court our September 2007 prior opinion. On this record, it appears that the only portion of Talley's state action that survived all of the previous appellate proceedings would have been the claims against the corporate defendants, but even those have been allowed to become final. Talley nevertheless argues that his action can be resurrected, as follows.
II
2009 MOTION AND RULING; CURRENT APPEAL AND
SUMMARY OF COMMON ISSUES RAISED

A. Motion by Talley to Set Aside Dismissals/File SAC
In April 2009, Talley filed his motion to set aside the judgments/orders of dismissal previously entered in this action, and for leave to file the SAC, against the Group of Five Appellants. (§ 473.)^[9] In support, he provided an attorney declaration giving a history of the case and authenticating copies of the Bar orders and other pleadings. He argued that as a matter of law, the Ninth Circuit's decision on the Bar orders, expressly referencing our 2007 prior opinion, rendered the dismissals subject to vacatur because they were based upon "void" Bar orders. Talley also contended it would be in the furtherance of justice to vacate the prior state orders, allowing him to proceed with his case. (Grain Dealers, supra, 200 Cal.App.3d 1083 [interpreting Rest.2d Judgments, § 16, pp. 145-148].)
In his request to file an SAC against the Group of Five Appellants, Talley represented that he had limited the scope of those allegations in accordance with the previous rulings on the various demurrers, regarding the different sets of defendants. He also noted that he had added new allegations based on recent investigation, particularly as to the Kasirer defendants, and had also named several new defendants.
Each of the Group of Five Appellants filed opposition to the motions, arguing the previous judgments of dismissal were not void or voidable under section 473, and no other cognizable ground for vacating them on collateral attack had been shown. They each argued their dismissals with prejudice must remain in force, based on Talley's failure to appeal the dismissals with prejudice of the corporate defendants, and his failure to persuade this court to set aside the other dismissals in the prior appeal. They also argued there was no basis to allow the filing of a SAC in a dismissed action.
In reply and at the hearing, Talley argued he did not appeal the February 2008 dismissals with prejudice as to the corporate defendants, because he believed that the issues were all before the Ninth Circuit Court of Appeals, such that he would have been charged with frivolousness by making any further challenges of any kind to the Bar orders, while the federal appeal was still pending. He nevertheless contended the trial court had some inherent power to set aside the previous dismissals, and that the two appellate opinions in the matter had encouraged him to seek to have his case decided on the merits, since the basis for the previous orders (preclusive Bar orders) no longer existed.
B. Trial Court Ruling
The trial court heard argument and took the motion under submission. The request to set aside the judgments and orders of dismissal previously entered in this action, and for leave to file a SAC, was granted in part and denied in part. The court took judicial notice of various federal and state court pleadings, rulings, and documents, showing the history of the case. The court first observed that under section 473, "[t]he judgments/orders of dismissal that were based upon the Bar orders are not void on their face nor voidable." The court reasoned as follows:
" 'A court can lack fundamental authority over the subject matter, question presented, or party, making its judgment void, or it can merely act in excess of its jurisdiction or defined power, rendering the judgment voidable.' (Lee v. An (2008) 168 Cal.App.4th 558, 565 [(Lee)].) [¶] Here, the trial court and the Court of Appeal had fundamental authority over the subject matter, the question presented and the parties. There is no dispute that all parties were on notice of and participated in the appeals filed in the Court of Appeal and in the 9th Circuit court. The trial court and Court of Appeal did not act in excess of their jurisdiction or defined powers. There was no 'mistake, inadvertence, surprise, or excusable neglect.' Thus, neither CCP § 473(d) nor § 473(b) apply."^[10]
The trial court continued its analysis by stating: "This appears to be a question of first impression." It then analyzed cases on the finality of judgments, including Grain Dealers, supra, 200 Cal.App.3d 1083, which it found to be distinguishable on its facts, but "instructive." The court set out the analysis in Grain Dealers of the applicability of the text and comments to Restatement Second of Judgments, section 16, at pages 146 to 147, as follows: " 'If, when the earlier judgment is set aside or reversed, the later judgment is still subject to a post-judgment motion for a new trial or the like, or is still open to appeal, or such a motion has actually been made and is pending or an appeal has been taken and remains undecided, a party may inform the trial or appellate court of the nullification of the earlier judgment and the consequent elimination of the basis for the later judgment. The court should then normally set aside the later judgment.' We are satisfied that the principles enunciated in the passage just quoted are consistent with California law." (Grain Dealers, supra, 200 Cal.App.3d at pp. 1088-1089.) The Restatement Second of Judgments comment quoted above in Grain Dealers, about setting aside a judgment, continues with the following language, which was also considered by the trial court: "When the later judgment is no longer open to a motion for a new trial or the like at the trial court level, nor subject to appeal, the fact of the nullification of the earlier judgment may be made the ground for appropriate proceedings for relief from the later judgment . . . ." (Rest.2d Judgments, § 16, p. 147; italics added.)
Thus, the trial court noted that "the Grain Dealers decision is not precisely on point -- there, the appeal was still pending. However, similar to Grain Dealers, here the 9th Circuit's decision in In re Heritage Bond, [supra,] 546 F.3d 667 'effectively obliterated' the basis for the judgments/orders of dismissal." (The court went on to interpret our prior opinion, and we will defer discussion of that analysis until parts III & IV, post.)
In conclusion, as to the Group of Five Appellants, the ruling states: "The Court is mindful of the public policy regarding finality of judgments. However, this case is that rare but 'appropriate proceeding' for the relief requested. As noted, the Court of Appeal was aware of the pending appeal in the 9th Circuit. The purpose of the Federal Court appeal was to modify the bar orders so that this lawsuit could proceed. The issue of whether [Talley's] State claims could be revived following the 9th Circuit decision was briefed and discussed by the 9th Circuit. [¶] Therefore, as to those judgments/orders of dismissal that were based on the bar orders, those judgments/orders of dismissal shall be set aside [regarding the Group of Five Appellants]."

TO BE CONTINUED AS PART II….

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