Maggi v. Alkosser

Filed 10/12/06 Maggi v. Alkosser CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from an order of the Superior Court of Orange County, Robert H. Gallivan, Judge. Reversed and remanded.

Alexander & Yong and John J. Aumer for Plaintiffs and Appellants.

O’Melveny & Myers, Michael G. Yoder, Amy J. Laurendeau and Thorey M. Bauer for Defendants and Respondents.

* * *

Appellants seek review of an order granting the trial court’s motion to dismiss the action for failure to prosecute. We find the trial court’s failure to find the mandatory dismissal statute was tolled during a period it was impossible or impracticable to bring the matter to trial was a clear error of law and therefore an abuse of discretion. We reverse the order and remand the case for further proceedings.

I

FACTS

We draw the following facts from the prior writ in this matter. “Petitioners Carlos Maggi and James Montagano allege they invested in several limited partnerships involving real estate. Real parties in interest (real parties) David Alkosser and Israel Weinberg were the general partners. Petitioners were apparently made aware of the partnerships by their tax accountant, Ilan Brand, who was also a general or limited partner in real parties’ various endeavors. Brand served as tax preparer for the partnerships. In 1994, he asked real parties to buy out his partnership interests. (Real parties characterize Brand’s actions as an ‘attempt to extract monies’ from them.) Whatever the circumstances, real parties did buy out Brand, but he continued preparing the partnerships’ tax returns. Petitioners sold their interests in the partnerships to real parties in 1997.

“Three lawsuits, including the instant case, [^[1]] arose from the conduct of the partnerships. Essentially, petitioners allege real parties failed to provide relevant financial information regarding the partnerships, including a refinance transaction pending at the time petitioners sold their interests to real parties. They allege that had they remained in the partnerships for a short additional period, they would have been entitled to substantial cash disbursements as a result of the refinance. Petitioners’ complaint alleged claims for breach of contract, breach of fiduciary duty, and fraud. When the initial action was first filed in January 2000, Brand was also a party, but when the first amended complaint was filed, he was no longer a plaintiff.

“In July 2000, the parties entered into a stipulated protective order (Protective Order). Under the terms of the order, any document produced in discovery that was designated as ‘confidential’ by the producing party was not to be disclosed to any third party. Brand was specifically identified as a person to whom confidential documents were not to be disclosed. Sometime thereafter, pursuant to a subpoena, Chase Manhattan Bank produced approximately 6,500 pages of documents.

“In July 2001, some of the investors and/or limited partners in real parties’ partnerships received an anonymous letter. The letter discussed the circumstances surrounding the lawsuits and referred to two documents, a December 1997 balance sheet and a refinance escrow closing statement relating to one of the partnerships. Real parties believed petitioners’ counsel had provided copies of the documents referenced in the anonymous letter to Brand, in violation of the Protective Order. They also asserted that Brand then sent the anonymous letter in an attempt to ‘stir up’ litigation.

“Real parties applied for a temporary restraining order (TRO) and an order to show cause why petitioners’ counsel should not be disqualified (OSC). Real parties’ applications did not contain clear proof that petitioners were responsible for the anonymous letter. After a hearing, the court issued the TRO and OSC. The TRO prohibited petitioners’ counsel from discussing the lawsuit or the related actions with any third parties who were current or former investors in the partnerships. Petitioners’ counsel were further restrained from accepting representation of any new clients in lawsuits against real parties. Further, petitioners’ counsel were required to notify real parties and the court within 24 hours of being contacted by any investor who had received the anonymous letter. The OSC set a hearing on the disqualification motion.

“Petitioners’ responses to the TRO and OSC averred they knew nothing about the anonymous letter, had not provided any documents to Brand, and were not paying Brand to solicit additional plaintiffs. Brand submitted a declaration stating he was not provided with any information in violation of the Protective Order and was not attempting to solicit clients for petitioners’ counsel. He did not address the authorship of the anonymous letter.

“At the hearing on the OSC in August 2001, the court acknowledged real parties’ accusations lacked hard evidence. Indeed, real parties’ counsel acknowledged that Brand had access to the balance sheet prior to the Chase Manhattan document production, and he may also have had access to the escrow closing statement. Thus, assuming Brand was the author of the anonymous letter, he may have obtained the documents in a manner that did not involve violation of the Protective Order.

“Ultimately, the court concluded ‘someone on [petitioners’] side violated the Protective Order.’ The court denied the disqualification motion, but at real parties’ suggestion, decided to continue the TRO. On September 4, 2001, a new order (Restraining Order) was issued. The Restraining Order stated: ‘IT IS HEREBY ORDERED that Plaintiffs’ counsel are restrained from discussing this lawsuit or the [related lawsuits] with any third parties who are current or former investors in any partnership in which [real parties] are or were general partners without first applying for and receiving the Court’s permission. IT IS FURTHER ORDERED that any such application for the Court’s permission must be served on Defendants’ counsel. IT IS FURTHER ORDERED that Plaintiffs’ counsel are restrained from accepting representation of any new plaintiffs in any lawsuits against any of the Defendants, any corporate general partners of the partnerships in which [real parties] hold or formerly held partnership interests, or any of the partnerships themselves.’ Additionally, petitioners were ordered to immediately notify real parties and the court if any of the investors contacted them or their counsel.” (Maggi v. Superior Court (2004) 119 Cal.App.4th 1218, 1221-1223 (Maggi).)

To briefly summarize what followed, appellants attempted to abide by the order, but in June 2002, they filed a petition seeking a writ of mandate or other relief in this court.^[2] (Maggi, supra, 119 Cal.App.4th at p. 1223.) The case was delayed while settlement efforts were undertaken. (Ibid.) In January 2004, we issued an order directing real parties to show cause why mandate should not issue.

In June 2004, we granted the petition. (Maggi, supra, 119 Cal.App.4th

at pp. 1218, 1220-1221.) We held that the court’s orders amounted to an unjustified prior restraint on speech. (Id. at pp. 1224-1226.) Respondents sought rehearing in this court, which was denied July 21, 2004, as was a subsequent petition for review to the California Supreme Court (Sept. 29, 2004, S126920). This court issued the remittitur on October 6, 2004, and the case was assigned a new trial judge.

On August 6, 2004, while the petition for review was pending in the Supreme Court, respondents filed a “Statement re Review Hearing” in the trial court urging the court not to vacate the orders until the Supreme Court’s ruling on their request for review and an immediate stay. The trial court apparently agreed, as further briefing was conducted after the Supreme Court’s denial of review. On December 17, 2004, the trial court issued an order vacating the prior discovery orders. The court further noted: “This Court declines to make any replacement orders at this time and does not otherwise find either side was in violation of the Court’s prior order.”

On April 5, 2005, respondents filed a motion to dismiss the action under Code of Civil Procedure sections 583.310 and 583.360 (subsequent statutory references are to the Code of Civil Procedure.) These sections govern mandatory dismissal for failure to bring an action to trial within five years.

On April 29, 2005, the court granted the motion. The court found “no causal connection between the Writ proceedings and plaintiff’s failure to otherwise diligently conduct discovery and bring the case to trial within 5 years. The Court further finds plaintiff had a duty to exercise reasonable diligence to ensure that the case was brought to trial or other conclusion within the statutory time and plaintiff’s failure to bring [the] matter to trial after the disputed discovery orders were vacated precludes any finding of impracticability or impossibility warranting relief from the mandatory dismissal requirements of CCP 583.360.” An initial order was later amended and finally entered on June 21, 2005.

Appellants filed a timely appeal. They argue here, as they did below, that the statutory exception set forth in section 583.340, subdivision (c) applies.

II

DISCUSSION

Section 583.310 requires civil cases to be brought to trial within five years from their commencement. Section 583.360, subdivision (a) states that “[a]n action shall be dismissed” if not brought to trial within that time. Section 583.360, subdivision (b) states the requirements of this provision are mandatory and not subject to exception unless expressly provided by statute. One of the statutory exceptions provides that “[i]n computing the time within which an action must be brought to trial . . . there shall be excluded the time during which . . . [b]ringing the action to trial, for any other reason, was impossible, impracticable, or futile.” (§ 583.340.)

“The determination ‘of whether the prosecution of an action was indeed impossible, impracticable, or futile during any period of time, and hence, the determination of whether the impossibility exception to the five-year statute applies, is a matter within the trial court’s discretion. Such determination will not be disturbed on appeal unless an abuse of discretion is shown. [Citations.]’ [Citation.]” (Sanchez v. City of Los Angeles (2003) 109 Cal.App.4th 1262, 1271 (Sanchez).) An abuse of discretion “exists only if there is no reasonable basis for the trial court’s action, so that the trial court’s decision exceeds the bounds of reason. [Citations.]” (Ibid.)

“‘What is impossible, impracticable, or futile is determined in light of all the circumstances of a particular case, including the conduct of the parties and the nature of the proceedings. The critical factor is whether the plaintiff exercised reasonable diligence in prosecuting its case. [Citation.] The statute must be liberally construed, consistent with the policy favoring trial on the merits.’ [Citation.]” (Moss v. Stockdale, Peckham & Werner (1996) 47 Cal.App.4th 494, 502.)

Respondents urge a construction of the diligence requirement that demands the court examine not only appellants’ entire course of conduct, but the motives behind it, and to reach a conclusion about whether their actions were reasonable. They ask us to speculate whether the discovery appellants wished to conduct, but could not, due to the restraining order and writ proceedings, would have proved fruitless. This, however, is not what the law requires.

There is no question that it was impossible to bring the case to trial while the writ proceeding was pending. Despite respondents’ assertions to the contrary, the writ petition addressed issues critical to appellants’ ability to conduct meaningful discovery. While the trial court’s orders were in place, appellants were prohibited from contacting third party witnesses without compromising their work product. Respondents further claim appellants did nothing to move the case forward since April 23, 2001 -- which is clearly untrue, given the subsequent history of the case described above. “Diligence” does not merely apply to discovery, but to any action reasonably related to moving the litigation forward.

In Kaye v. Mount La Jolla Homeowners Assn. (1998) 204 Cal.App.3d 1476 (Kaye) the plaintiffs sued a condominium association and its owners. A trial date was set just before the five-year anniversary of the case’s initiation, but shortly before that date, the defendants moved for summary adjudication on the plaintiffs’ punitive damage claims. (Id. at p. 1481.) The motion was granted, and instead of proceeding to trial, plaintiffs sought writ review. Several weeks later, on a Friday, the last business day before the five-year anniversary, the appellate court issued a writ in plaintiffs’ favor. The following Tuesday, plaintiffs filed a motion to specially set the case for trial. The trial court found the five-year rule applied and dismissed the case.

The appellate court reversed. (Kaye, supra, 204 Cal.App.3d at p. 1485.) “[T]he Kayes acted reasonably in deferring trial of the case until their writ petition on the punitive damage issue had been resolved and it was therefore ‘impracticable’ within the liberal meaning of section 583.340 to bring the matter to trial within the five-year period. While [statute] would appear to allow for bifurcation of a punitive damages issue . . . a court must consider practical issues beyond the technical ability to conduct a separate trial. The record here suggests a separate trial of the punitive damage issue would require presentation of evidence already introduced in an earlier trial devoted to compensatory damages. This conclusion is supported by the very reason for our issuing the peremptory writ in the first place: our implied but necessary determination that the Kayes’ remedy by way of appeal was inadequate. A separate trial on the punitive damage issue would have been unnecessarily duplicative and wasteful.” (Ibid.)

As in Kaye, appellants’ decision to bring the writ petition was itself reasonable and diligent, and the writ petition’s pendency was the reason bringing the case to trial was impossible or impracticable. Appellants brought the petition in June 2002 and remittitur was not issued until October 2004. The five-year statute was tolled during the pendency of those proceedings because of the impossibility or impracticability of proceeding to trial during that time. (New West Fed. Savings & Loan Assn. v. Superior Court (1990) 223 Cal.App.3d 1145, 1152.) The fact that appellants could have done other discovery during this period does not alter the calculation -- even if they had, the case could not have been brought to trial until issues relating to appellants’ contact with third-party witnesses were resolved.

Appellants were thus entitled to tolling of the statute for the period of the excuse, in this case, from the date the writ was filed until the date the remittitur was issued. Respondents’ argument that appellants were not diligent and did not attempt to bring the case to trial after the case returned to the trial court also fails. Whatever period of time during which the excuse exists is added onto the five years, even if the plaintiff had adequate time after the excuse terminated to bring the action to trial within the five-year period (which is highly questionable in this case). (Chin v. Meier (1991) 235 Cal.App.3d 1473, 1477.)

The trial court’s failure to conclude that bringing the case to trial during the pendency of the writ petition was impossible or impracticable was a clear error of law, and therefore an abuse of discretion. We can understand the trial court’s frustration with the long delays in this matter. The longest one, however, was the writ petition, which was out of appellants’ control. Bringing that petition was, as evidenced by the fact it was granted, meritorious and therefore not unreasonable. While there have been other delays, and appellants might have done more to move the case forward during its pendency, their actions do not merit dismissal under precedent or the policy section 583.360 is meant to further. “The purpose of the statute is plain: to prevent avoidable delay for too long

a period. It is not designed arbitrarily to close the proceeding at all events in five

years . . . . “ (Christin v. Superior Court (1937) 9 Cal.2d 526, 532.) Such would be the result here. Appellants are entitled to their day in court.

III

DISPOSITION

The order dismissing the case is reversed. The matter is remanded for further proceedings, which, hopefully, will be coordinated with the related cases before the same judge. Appellants are entitled to costs on appeal.

MOORE, J.

WE CONCUR:

SILLS, P.J.

RYLAARSDAM, J.

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^[1] The two other cases are the companion cases in this matter, (Boon v. Alkosser (Oct. 12, 2006, G036585) and Buker v. Alkosser (Oct. 12, 2006, G036793) [nonpub. opns.].) The issue of consolidation of all three cases has been contentious, with respondents resisting consolidation in the trial court while urging we do so on this appeal. Given that the cases were never consolidated in the trial court, we find no benefit to doing so on appeal, and respondents’ motion to consolidate is denied.

^[2] Respondents’ request for judicial notice of the record in the writ proceeding is granted. Their request for judicial notice of documents that are part of the record below in the companion cases is also granted. We note that we take judicial notice of the documents themselves, and not the truth of any matters asserted therein. (Evid. Code, §§ 452, 459.)