Kaloustian v. Michael

Filed 3/19/07 Kaloustian v. Michael CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Richard G. Kolostian, Judge. Affirmed.

Bleau Fox, Thomas P. Bleau, H. Michael Song and James N. Kahn for Plaintiff and Appellant.

Law Office of Philip H. Dyson and Philip H. Dyson for Defendant and Respondent.

INTRODUCTION

Appellant Tina Kaloustian appeals from a judgment of dismissal entered after a demurrer was sustained without leave to amend. Respondent Dennis Michael had demurred on the ground that the action was barred by the doctrines of res judicata and collateral estoppel. Upon concluding that collateral estoppel is inapplicable and res judicata operates to bar the action, we affirm the judgment.

BACKGROUND

Appellant and her sister, Rene Michael, were the co-trustees and beneficiaries of their fathers trust, the Sooren Michael Trust. Upon the death of their father, the sisters each disclaimed a portion of the trust estate so that they and their brother, respondent Dennis Michael, would inherit in three equal shares.[1] The major trust asset, a shopping center on Tapo Canyon Road in Simi Valley, was transferred to a partnership formed in 2001 by the three siblings for the purpose of managing the property, and Dennis was designated managing partner.

In March 2003, appellant filed an action for dissolution of the partnership and an accounting, alleging that Dennis had failed to provide appellant with financial information for 2002, and had misappropriated partnership funds (Kaloustian v. Michael (Super.Ct. L.A. County, 2003, No. 290363)). In June 2003, appellant filed a petition in probate to transfer the Tapo Canyon property back to the trust, and to declare her disclaimer invalid (In re The Sooren Michael Trust (Super.Ct. L.A. County, 2003, No. 009056)). The two proceedings were consolidated under case No. LP009056 and assigned to Judge Kolostian, who tried the matters over two days in early 2004 and issued a minute order April 15, 2004, ruling that the disclaimers and the partnership agreement were both valid and enforceable.[2] Prior to trial, the parties had stipulated to an interim order transferring the real property back to the trust estate, and in June 2004, the court ordered the Tapo Canyon property reconveyed to the partnership.[3] An order approving final distribution was entered February 25, 2005, and appellant filed a notice of appeal from that order.[4]

On December 29, 2004, appellant brought the instant action by filing a complaint against Dennis in Ventura County, alleging fraud inducing appellant to enter into the partnership agreement, and mismanagement of the partnership business from 2001 through 2003. The action was transferred to Judge Kolostians department and respondents demurrer was sustained without leave to amend. Appellant timely filed a notice of appeal January 13, 2006, purporting to appeal from the order sustaining the demurrer. Judgment of dismissal was entered March 13, 2006.[5]

DISCUSSION

Appellant contends that the trial court erred in sustaining the demurrer. On appeal from a judgment of dismissal entered after a general demurrer is sustained, our review is de novo. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515.) Thus, we independently examine the allegations of the complaint to determine whether it states a cause of action, liberally construing its allegations with a view to substantial justice between the parties. (Code Civ. Proc.,  452; MacLeod v. Tribune Publishing Co. (1959) 52 Cal.2d 536, 542.) In the construction of a pleading, for the purpose of determining its effect, [w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . [W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Although we do not review the trial courts reasoning, we may uphold the order only if the demurrer was sustainable on any of the grounds stated in the demurrer. (Franchise Tax Board v. Firestone Tire & Rubber Co. (1978) 87 Cal.App.3d 878, 883-884.) The only ground stated in the demurrer was that the action was barred under principles of res judicata or collateral estoppel. If all of the facts necessary to show that an action is barred by res judicata are within the complaint or subject to judicial notice, a trial court may properly sustain a general demurrer. [Citation.] (Frommhagen v. Board of Supervisors (1987) 197 Cal.App.3d 1292, 1299.)[6] A record of all the proceedings in consolidated Superior Court case No. LP009056 were before the trial court, as Judge Kolostian presided over the trial and post-judgment hearings in the consolidated proceedings, as well as the instant case.

A valid final judgment upon the same cause of action will bar another action or proceeding. (Avery v. Avery (1970) 10 Cal.App.3d 525, 529.) Californias res judicata doctrine is based upon the primary right theory. . . . [] . . . It provides that a cause of action is comprised of a primary right of the plaintiff, a corresponding primary duty of the defendant, and a wrongful act by the defendant constituting a breach of that duty. [Citation.] (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 904.) After judgment is entered in an action based upon one primary right, a party may not bring a subsequent lawsuit based upon the same primary right, as it violates the rule against splitting a cause of action. (Crowley v. Katleman (1994) 8 Cal.4th 666, 681-682.)

A primary right is simply the plaintiffs right to be free from the particular injury suffered. [Citation.] (Crowley v. Katleman, supra,8 Cal.4th at p. 681.) Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. [Citation.] The primary right must also be distinguished from the remedy sought: The violation of one primary right constitutes a single cause of action, though it may entitle the injured party to many forms of relief, and the relief is not to be confounded with the cause of action, one not being determinative of the other. [Citation.] (Id. at pp. 681-682.)

Relying on federal authority, appellant contends that the test to determine whether res judicata bars a later action must include the question whether the transactions alleged in the later action involve the same nucleus of facts as those litigated earlier. (See, e.g., Costantini v. Trans World Airlines (9th Cir. 1982) 681 F.2d 1199, cert. den. (1984) 459 U.S. 1087 (Costantini).)[7] This transactional approach was followed by a few California appellate courts until 1994. (See, e.g., Mata v. City of Los Angeles (1993) 20 Cal.App.4th 141, 149; Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 68-69.) It was dropped when another court pointed out that the California Supreme Court has consistently applied the primary rights theory, under which the invasion of one primary right gives rise to a single cause of action. (Branson v. Sun-Diamond Growers (1994) 24 Cal.App.4th 327, 340, quoting Slater v. Blackwood (1975) 15 Cal.3d 791, 795 & fn. 6.) Thereafter, the Supreme Court reaffirmed the primary rights theory. (E.g., Mycogen Corp. v. Monsanto Co., supra, 28 Cal.4th at p. 904; Crowley v. Katleman, supra, 8 Cal.4th at pp. 681-682.) As we must follow California Supreme Court precedents (see Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455), we decline to follow Costantini, and review the allegations of the pleadings in the two actions to determine what primary rights and corresponding duties are alleged there.

Appellant commenced the probate matter in June 2003, as co-trustee of the trust estate, with a petition to transfer the Tapo Canyon property back to the trust estate, alleging, among other things, that Dennis had mismanaged the property and had misappropriated some of its income and profits. In the civil action consolidated with the probate matter under case No. LP009056, appellant sought dissolution of the partnership and an accounting, based upon the actions of Dennis and Rene in 2001 and 2002. In particular, the first amended complaint alleged that Dennis had failed to provide appellant with quarterly or year-end profit and loss statements or balance sheets for 2002, and that he had appropriated partnership funds without her approval or consent. In addition, as a separate reason to dissolve the partnership, it was alleged that the partnership agreement was defective due to the omission of essential terms and the partnerships failure to comply with Corporations Code sections 16105 (statement of property owned) and 16303 (statement of partnership authority).

The complaint in the instant action alleged that Dennis had fraudulently induced appellant to enter into the partnership agreement with the misrepresentation that he held a valid brokers license and would competently perform management duties necessary to protect appellants rights and those of the partnership. It also alleged that since February 2002, Dennis had been breaching the agreement and his fiduciary duties as managing partner, by drawing unauthorized profits and failing to provide 2002 financial reports. The complaint prayed for general and special damages according to proof, and an accounting of partnership income and expenses.

We conclude the same primary rights and corresponding duties are alleged in the probate matter, the dissolution action, and this action, viz., the appellants right to participate in the partnership free from fraud or mismanagement on the part of Dennis during the period from 2001 through 2003, and Denniss corresponding duties of care and loyalty under sections 16404 and 16405 of the Uniform Partnership Act of 1994 (UPA). (See Corp. Code, 16100 et seq.)[8] The fact that the legal theories upon which the actions are premised and the remedies sought are different does not transform the second action into a separate cause of action. (See Mycogen Corp. v. Monsanto Co., supra, 28 Cal.4th at p. 904.) All principles of law and equity are applicable to partnership actions, unless displaced by particular provisions of the UPA. (Corp. Code, 16104, subd. (a).) Further, the alleged wrongs do not constitute a separate cause of action merely because appellant now seeks to have them litigated at law instead of equity. (See Papineau v. Security-First Nat. Bank (1941) 45 Cal.App.2d 690, 693-694.)

As actions for partnership dissolutions and accounting are equitable in nature, they are subject to the general rule that a court of equity, having once acquired jurisdiction, will adjust all the differences between the parties arising from the cause of action in order to do complete justice and prevent further litigation, whether or not the particular relief was requested. [Citations.] (Sears v. Rule (1945) 27 Cal.2d 131, 149.) The power of the court to reach all controversies extends to ordinary breaches of the partnership agreement, fraud and other torts which would give rise to an action at law by one partner against another. (Prince v. Harting (1960) 177 Cal.App.2d 720, 736; Corp. Code, 16405, subd. (b).) Indeed, it is the courts duty to adjust all controversies, in order to prevent piecemeal litigation. (Bank of America Nat. T. & S. Assn. v. Feig (1937) 21 Cal.App.2d 247, 252.) It is presumed that the court regularly performed its duty (Evid. Code, 664), and that its judgments and orders are correct. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Thus, we turn to appellants remaining contentions with the presumption that the court in the consolidated proceedings reached all controversies between appellant and Dennis arising out of the partnership from 2001 through the time of trial in February 2004.

Appellant contends that the order of April 15, 2004 was not a final judgment on the merits, because some issues were not actually litigated or expressly resolved by the courts order in the consolidated proceedings. She invokes rules governing collateral estoppel, that aspect of res judicata which operates to preclude the relitigation of individual issues that have been actually litigated by the parties or their privies. (See Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 828.)[9] However, that aspect of res judicata which precludes the relitigation of an entire claim or cause of action is dispositive here; thus, it is unnecessary to apply principles of collateral estoppel. (See ibid.) Under this aspect of res judicata, a prior judgment bars not only the reopening of the original controversy, but also subsequent litigation of all issues which were or could have been raised in the original suit. [Citations.] (Gates v. Superior Court (1986) 178 Cal.App.3d 301, 311, italics added.) If the matter was within the scope of the action, related to the subject-matter and relevant to the issues, so that it could have been raised, the judgment is conclusive on it despite the fact that it was not in fact expressly pleaded or otherwise urged. The reason for this is manifest. A party cannot by negligence or design withhold issues and litigate them in consecutive actions. Hence the rule is that the prior judgment is res judicata on matters which were raised or could have been raised, on matters litigated or litigable. . . .  [A]n issue may not be thus split into pieces.  (Sutphin v. Speik (1940) 15 Cal.2d 195, 202.)

Appellant contends that she could not have raised the issues to be litigated in the instant action, because in the consolidated proceedings, the court prevented her from presenting evidence to prove respondents personal liability as managing partner. This so-called prevention consisted of nothing more than evidentiary rulings by the trial court.[10] If the rulings were incorrect and prejudicial, appellants remedy was to appeal from the judgment in that case, not to relitigate the same cause of action in a subsequent lawsuit.[11]

Finally, appellant contends that the policy underlying the doctrine of res judicata would not be served by applying it here. We disagree. The policy is to limit[] litigation by preventing a party who has had one fair trial on an issue from again drawing it into controversy. [Citations.] (Bernhard v. Bank of America (1942) 19 Cal.2d 807, 811.) Appellant claims that she did not have a fair trial, citing Estate of Charters (1956) 46 Cal.2d 227, for the principle that [t]he public policy underlying the principle of res judicata . . . must be considered together with the policy that a party shall not be deprived of a fair adversary proceeding in which fully to present his case. (Id. at p. 235, quoting Jorgensen v. Jorgensen (1948) 32 Cal.2d 13, 18.) This language, however, referred to a courts authority to set aside a judgment obtained by extrinsic fraud. (Id. at pp. 234-235.) The courts have required a showing of extrinsic fraud in order to accommodate both the policy in favor of resolving issues in a final judgment and the policy in favor of a fair adversary proceeding in which each party is provided an opportunity to fully present its case. [Citations.] (Estate of Sanders (1985) 40 Cal.3d 607, 614.) As appellant does not claim she was prevented from having her day in court due to extrinsic fraud, public policy does not favor relitigation of her claims.

We conclude that all partnership-related controversies that arose between appellant and Dennis prior to trial in 2004 were at issue in the consolidated probate and partnership dissolution proceedings. (See Sears v. Rule, supra, 27 Cal.2d at pp. 148-149.) Those issues could have -- and should have -- been raised at trial, and res judicata bars litigating them now. (Sutphin v. Speik, supra, 15 Cal.2d at p. 202.)

DISPOSITION

The judgment is affirmed. Respondent shall have his costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

MANELLA, J.

We concur:

WILLHITE, Acting P. J.

SUZUKAWA, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line attorney.

[1] As the two siblings share the surname Michael, we henceforth refer to them as Dennis and Rene. Dennis is the only respondent in this appeal.

[2] The trial court found no creditable evidence that Tina Kaloustian was coerced into dividing her fathers trust into three parts to include her brother, or that she was coerced into entering a business partnership with her brother and sister regarding the running of the family business. . . . The lawyer hired by Tina and her sister to bring her brother into the fold, so to speak, was a completely creditable witness. Sadly, Tina was not.

[3] One month after the trial, appellant filed a request for dismissal without prejudice of the first amended complaint, and the dismissal was entered by the clerk. There can be no voluntary dismissal without prejudice after trial, without the consent of the court or stipulation of the parties. (See Code Civ. Proc., 581, subds. (b), (i) & (j).) The record on appeal contains neither a stipulation nor a court order allowing a voluntary dismissal. Appellant does not claim the dismissal was effective for any purpose, and there is no mention of it in her procedural history.

[4] That nonpublished appeal was heard in Division One of this court in Kaloustian v. Michael (Feb. 27, 2007, B182622). We grant respondents request for judicial notice of the record in that appeal.

[5] We treat the premature notice of appeal as filed immediately after entry of judgment. (Cal. Rules of Court, rule 8.104(e).)

[6] Collateral estoppel will not bar an entire cause of action on demurrer, unless the issues dispose of all the elements of the subsequent cause of action or defense. (See Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1384.)

[7] The criteria used by the federal court were (1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts. [Citation.] (Costantini, supra, 681 F.2d at pp. 1201-1202.) The court considered the fourth criterion to be the most important. (See id. at p. 1202.)

[8] The UPA allows an individual partner to maintain an action against the partnership or another partner for legal or equitable relief, with or without an accounting of partnership business. (Corp. Code, 16405, subd. (b).) Such an action may be brought to enforce the partners rights under the partnership agreement or the UPA, including the right to have the partners share purchased upon withdrawal, to compel dissolution, gain access to books and records, redress a breach of fiduciary duties, and protect the interests of the partner, whether arising from partnership relationship or independently. (Ibid.)

[9] Appellants contention that certain issues were not litigated is based upon her argument that the absence of express findings on partnership issues establishes that they were not litigated. However, appellants request for a statement of decision was denied as tardy, and she withdrew her request for findings on partnership issues. (See Code Civ. Proc., 632; Prob. Code, 1000.) Thus, express findings were not required, as any necessary findings were implied in the courts order (see Tusher v. Gabrielsen (1998) 68 Cal.App.4th 131, 139-141), and presumed correct. (See In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.)

[10] Appellants attorney offered to prove through the testimony of accountant Terry Roemer that the partnership agreement and the disclaimers were obtained by duress and undue influence. When appellants counsel asked Roemer what he had said to appellant about the disclaimers, an objection was sustained on relevance and hearsay grounds. Counsel asked Roemer a second time what he had said to appellant regarding the disclaimers, and again, an objection was sustained. Counsel admitted that the questions were not directly relevant to the validity of the disclaimers, explaining that Roemers testimony was necessary to show that Dennis had mismanaged the trust estate, and if the court excluded the testimony at that time, Roemer would have to be recalled when that issue arose. The court replied, If its not relevant, then its not admissible. Its that simple. When counsel asserted that the subject was relevant to the determination of the partnership aspect, the court replied, Well, were not on that, are we? Appellant did not recall Roemer or claim an exception to the hearsay rule.

[11] All final orders regarding trust administration are appealable, except orders compelling the trustee to submit an account or report, and orders accepting the resignation of the trustee. (Prob. Code, 1304.) Prejudicial evidentiary rulings justify reversal on appeal. (See Cal. Const., art. VI, 13; Code Civ. Proc., 475.) Appellants notice of appeal (Kaloustian v. Michael (Feb. 27, 2007, B182622) [nonpub. opn.]), filed more than 180 days after April 15, 2004, came too late to perfect an appeal from that order. (See Cal. Rules of Court, rule 8.104.) Division One of this court came to the same conclusion in its opinion in that appeal. (Kaloustian v. Michael, supra, at p.8.).