Opinion
B212269.
7-15-2009
DOUGLAS R. RING, INC., et al., Plaintiffs and Appellants, v. MARINA ADMIRALTY COMPANY et al., Defendants and Respondents.
Greenberg Traurig, Eric V. Rowen, Scott D. Bertzyk; Morrison & Foerster, Miriam A. Vogel and Benjamin J. Fox for Plaintiffs and Appellants. Hillel Chodos; and Michael A. Chodos for Defendants and Respondents.
Not to be Published in the Official Reports
This appeal arises from a dispute between cogeneral and limited partners of Marina Admiralty Company (partnership) regarding whether the partnership should sell Mariners Village Apartments (apartment complex). Douglas R. Ring, Inc., Douglas Ring and Cynthia Miscikowski (collectively the Ring parties) claim that because respondents Joseph A. Marasco, Suzanne Caplan, Jacqueline Morgen, and James R. Ring (collectively the Marasco parties) would not agree to sell the apartment complex, they damaged the partnership. The Ring parties filed a declaratory relief action (first action) and obtained an interlocutory judgment of dissolution. When the judgment was reversed, they filed a breach of fiduciary duty action (second action). The Marasco parties demurred to the pleading in the second action based on the res judicata effect of the first action. The trial court concluded that the first action barred the second action and dismissed it. On appeal, the Ring parties assign error to the ruling below because the second action was neither based on the same primary right as the first action nor barred by claim preclusion; breach of fiduciary duty was neither litigated nor necessarily decided in the first action, so issue preclusion was not triggered; and claim and issue preclusion do not bar a lawsuit based on breaches of fiduciary duty occurring after entry of judgment in the first action. We conclude that some of the alleged breaches of fiduciary duty in the second action occurred after judgment in the first action. Further, the trial court and appellate court in the first action did not necessarily decide whether the conduct alleged in the second action was actionable. Thus, the Ring parties are entitled to proceed on claims postdating the interlocutory judgment.
The partnership was named as a nominal defendant.
Res judicata has two aspects. "It applies to both a previously litigated cause of action, referred to as claim preclusion, and to an issue necessarily decided in a prior action, referred to as issue preclusion. [Citations.]" (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 556.)
We reverse.
FACTS
The Ring parties informed the Marasco parties that the apartment complex should be sold because it had substantial sale value over and above its cash flow, the sale value had reached its peak due to market conditions and a fast expiring ground lease with the County of Los Angeles, and the apartment complex was in imminent danger of losing its sale value. Despite this evidence, the Marasco parties prevented the Ring parties from selling the apartment complex.
As a result of the impasse, the Ring parties sued the Marasco parties for a declaration that the partnership should be dissolved. In a statement of decision, the trial court found that the partnership would lose $100 million by not selling the apartment complex. Subsequently, the trial court entered an interlocutory judgment of dissolution and ordered a judicially supervised sale. Even though the Marasco parties engaged in a covert campaign to depress the sale price and drive off bidders, the partnership received and accepted a stalking horse offer of $285 million as the floor for a public auction.
The Marasco parties filed a petition for writ of mandate. The Court of Appeal reversed the judgment because the Ring parties did not prove grounds for dissolution under Corporations Code former section 15032. In its opinion, the Court of Appeal explained that the partnership agreement required that all decisions affecting the business be made by the general partners, the Ellis Ring Trust and Douglas R. Ring, Inc. If they disagreed, they were required to preserve the status quo. The court noted: "However, if one general partner were to breach his, her or its fiduciary duty to the other generals partners in connection with decisionmaking concerning the partnership business, such conduct would take the impasse outside the contractual agreement for consensus and would be independently actionable and support a petition for dissolution under section [15032], subdivisions 1(c) or (d)." In a footnote, the court stated: "Similarly, if the partnership cannot be operated without a loss, nothing in the [partnership agreements] provisions for decisionmaking would preclude dissolution under section [15032], subdivision 1(e)."
All further statutory references are to the Corporations Code unless otherwise indicated. All references to section 15032 are to former section 15032.
The Ring parties filed the second action, this one for breach of fiduciary duty as well as dissolution of the partnership. As alleged, the Marasco parties breached their fiduciary duties by: failing to pursue a sale of the apartment complex; advocating a ruinous course of action to force the Ring parties to sell their interest to the Marasco parties at a fire sale; engaging in a covert campaign to drive off interested buyers and depress the apartment complexs sale price after entry of the interlocutory judgment; and failing to exercise reasonable business judgment and make prudent management decisions.
The Marasco parties demurred to the complaint and argued that it was barred by the res judicata effect of the first action. The trial court agreed and sustained the demurrer without leave to amend. It concluded that all of the claims in the second action could have been pleaded in the first action, and that the two actions involved the same primary right.
The second action was dismissed.
This timely appeal followed.
STANDARD OF REVIEW
An order sustaining of a demurrer without leave to amend is subject to independent review. We accept the truth of the challenged pleadings allegations and reject contentions, deductions or conclusions of fact or law. After giving the pleading a reasonable interpretation, we determine whether it states a viable cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
DISCUSSION
We are asked to decide whether the second action is barred by either claim preclusion or issue preclusion or, in the alternative, whether the second action adequately pleads breach of fiduciary duty. As we explain, the demurrer should have been overruled. Our analysis lies below.
I. Claim preclusion
Claim preclusion bars parties and their privies from vindicating the same cause of action that was resolved in a prior action. A cause of action, in its broad sense, refers to the primary right at stake. "[I]f two actions involve the same injury to the plaintiff and the same wrong by the defendant then the same primary right is at stake even if in the second suit the plaintiff pleads different theories of recovery, seeks different forms of relief and/or adds new facts supporting recovery." (Tensor Group v. City of Glendale (1993) 14 Cal.App.4th 154, 160.) Claim preclusion "promotes the public policies of giving certainty to legal proceedings, preventing parties from being unfairly subjected to repetitive litigation, and preserving judicial resources. [Citations.]" (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 77.) There are some exceptions to claim preclusion. For example, an action that is purely for declaratory relief does not give rise to claim preclusion unless coupled with coercive relief. (Mycogen, supra, 28 Cal.4th at p. 899.) When new rights have accrued "`since the rendition of the former judgment, there is no merger." (Coca-Cola Bottling Co., Inc. v. Lucky Stores, Inc. (1992) 11 Cal.App.4th 1372, 1380 (Coca-Cola).)
Claim preclusion is often referred to as res judicata even though res judicata encompasses claim and issue preclusion. (Mycogen Corp. v. Monsanto (2002) 28 Cal.4th 888, 896 (Mycogen).)
The Ring parties argue: The primary rights at stake in the first and second action were different. The first action involved their right to declaratory relief under Code of Civil Procedure section 1060 and dissolution under section 15032. The second involved their right to be free from the Marasco parties efforts to destroy partnership opportunities.
Below, we divide our analysis between issues subject to the merger rule and those saved by the Coca-Cola rule.
A. Claims predating the interlocutory judgment are subject to the merger rule.
Our task is to examine the nature of the injuries and duties in the first and second actions and determine whether, to the extent they predated the interlocutory judgment, they were the same. As we explain, we conclude that the injuries and duties were equivalent, which triggers the merger rule.
1. Injury.
In our view, both actions involved essentially the same injury: damage to the partnership because the apartment complex was not sold.
a. The first action.
The first action requested declaratory relief regarding the rights of the parties. While the Ring parties wanted to sell the apartment complex, the Marasco parties did not. According to the sole cause of action: "As a . . . result of the parties dispute, the economic purpose of the [p]artnership has been unreasonably frustrated, an irreconcilable conflict has been created rendering it unreasonably practicable to carry on the purpose of the [p]artnership, and the [p]artnership should be dissolved." In the prayer, the Ring parties requested consequential damages according to proof. To sum up the first action, the Ring parties argued that they and the partnership were harmed by the Marasco parties refusal to sell the apartment complex and that, as a result, the partnership should be dissolved and damages awarded. A dissolution would have forced a sale and made the Rings parties whole.
b. The second action
In the second action, the Ring parties requested dissolution and consequential damages. Additionally, they sought in excess of $195 million due to breach of fiduciary duty. The Ring parties alleged that the Marasco parties breached their fiduciary duties by failing to pursue a sale of the apartment complex, trying to force the Ring parties to sell their interest at a fire sale, engaging in a covert campaign to drive off interested buyers, and failing to exercise reasonable business judgment. Despite the new tort theories of liability and dissolution, the second action undeniably alleged harm due to the Marasco parties failure to go along with a sale. Either the tort damages or the forced sale would have remedied the loss.
c. Analysis
A primary right is "`plaintiffs right to be free from a particular injury suffered." (Mycogen, supra, 28 Cal.4th at p. 904.) Injury is not the equivalent of the legal theory "`on which liability for that injury is premised." (Ibid.) Given these considerations, both actions appear to involve the same injury, i.e., economic loss from the failure to sell the apartment complex. Case law dictates that our analysis must not be distracted by the fact that the first action was framed as one for declaratory relief and the second action sounded in tort. Our Supreme Court explained that "`[e]ven 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." (Ibid.) Thus, it does not matter if two actions request different remedies if the harm was the same.
To persuade us to analyze the primary rights issue the same way they do, the Ring parties advert and analogize to the following law. Race discrimination gives rise to a separate harm from defamation and intentional infliction of emotional distress despite the claims arising in conjunction. (Agarwal v. Johnson (1979) 25 Cal.3d 932, 955, disapproved on other grounds in White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 574, fn. 4.) Even though malpractice and sexual battery are part of a single transaction, they give rise to a different harm; while the former involves bodily injury, the latter involves harm to a plaintiffs dignitary and privacy interests. (Friedman Prof. Management Co., Inc. v. Norcal Mutual Ins. Co. (2004) 120 Cal.App.4th 17, 29.) Different primary rights are involved in an action between cohabitants to establish paternity versus an action between the same parties for breach of an agreement that promises parental rights. (Dunkin v. Boskey (2000) 82 Cal.App.4th 171, 182 (Dunkin).) A mandamus proceeding directing a police department to reinstate a discharged officer does not bar a subsequent action under title 42 United States Code section 1983 for discharging the officer in violation of his civil rights. (Mata v. City of Los Angeles (1993) 20 Cal.App.4th 141, 149.) A corporate agents statutory right to seek authorization for indemnity under section 317 is not the same cause of action as one for breach of an indemnity contract. (Branson v. Sun-Diamond Growers (1994) 24 Cal.App.4th 327, 343.) A cause of action seeking to collect on a nonrecourse promissory note is not the same as a cause of action seeking damages for conduct designed to wipe out the debt through a sham foreclosure of the property securing the note. (Sawyer v. First City Financial Corp. (1981) 124 Cal.App.3d 390, 403 (Sawyer).)
Analogy to this case law does not establish disparity of injury. Sawyer involved a similar injury but a different duty and is not helpful. Notably, the injury alleged in the first and second actions did not, for example, diverge like those in a race discrimination action (injury to employment interests) and defamation action (injury to reputation). Instead, the first and second action involved the identical economic harm. Langley v. Schumacker (1956) 46 Cal.2d 601 (Langley), also cited by the Ring parties, does not commend a contrary view. In Langley, the plaintiff obtained an annulment of her marriage based on proof that the defendant induced her to quit her job and marry him by falsely promising to cohabitate and maintain a normal marital relationship. She later sued for tort damages based on the same misrepresentations. In rejecting the defendants res judicata defense to the tort action, the court explained: "The harm remedied by the decree of annulment is not the same as the harm sought to be remedied by the present action. The suit for annulment was brought in equity to determine the plaintiffs marital status. In contrast, the [tort action] seeks damages at law as compensation for an injury to a property right." (Id. at pp. 602-603.) The instant case is distinguishable. Both actions were brought to make the Ring parties whole after the Marasco parties refused to agree to a sale and the apartment complex lost value due to a market decline and expiring ground lease. It cannot be said, ala Langley, that the first action was brought to determine the status of the partnership. Rather, it was brought to establish grounds for dissolution and force a judicially supervised sale. In other words, the first action involved injury to a property right, as did the second action.
Langley was superseded by statute on a different point as noted by Askew v. Askew (1994) 22 Cal.App.4th 942, 955.
We are not unmindful that the first action was framed as a narrower litigation than the second action. And there is some appeal to the idea that a declaratory relief action that requests dissolution is an action at equity which should not bar a subsequent damages action at law based on the same facts. But our Supreme Court exempts a declaratory relief action from the claim preclusion discussion only when it is not coupled with a request for coercive relief. (Mycogen, supra, 28 Cal.4th at p. 899.) The first action asked for, and led to, an order of dissolution and sale. By any definition, the first action involved coercive relief.
Aside from analogizing to case law, the Ring parties essentially argue that the two actions do not involve the same primary rights because the first involved the right to declaratory relief and dissolution and the second involved the right to be free from the loss of the proceeds from the sale of the partnership. This argument does not hold because the Ring parties are comparing apples to oranges, i.e., they compare the injury in the second action to the statutory remedies in the first action. But when analyzing primary rights, our Supreme Court instructs that a "primary right is simply the plaintiffs right to be free from the particular injury suffered. [Citation.]" (Crowley v. Katleman (1994) 8 Cal.4th 666, 681-682.)
2. Duty and wrong.
Similar to our inquiry above, we must decide whether to equate any of the duties and wrongs in the first and second actions. (Dunkin, supra, 82 Cal.App.4th at p. 182.) Sawyer illustrates why the issue is relevant. It involved similar injury in two actions—loss of money loaned—but there was no merger because the former action was premised on breach of a contractual duty to pay and the latter action on breach of a tort duty not to destroy the collateral. (Sawyer, supra, 124 Cal.App.3d at p. 403 ["While the monetary loss may be measurable by the same promissory note amount, and hence in a general sense the same `harm has been done in both cases, theoretically the plaintiffs have been `harmed differently by tortious conduct destroying the value of the note, than by the contractual breach of simply failing to pay it"].)
a. The first action.
In the first action, the Ring parties sought dissolution under section 15032. That statute provided that a court could dissolve a partnership if a partner was "guilty of such conduct as tends to affect prejudicially the carrying on of the business," a partner "so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business of partnership with him," or circumstances render a dissolution equitable. (§ 15032, subds. (1)(c), (d) & (f).) The conduct contemplated by section 15032 could be a breach of the fiduciary duty of care. The duty of care obligates a partner engaging in partnership business to refrain "from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law." (§ 16404, subd. (c).) Though the complaint in the first action did not allege a breach of fiduciary duty, it alleged that the Marasco parties actions unreasonably frustrated the economic purpose of the partnership. With proper evidence, it was possible for their conduct to be proven grossly negligent or reckless conduct, or intentional misconduct, that fell under section 16404, subdivision (c) as well section 15032, subdivisions (1)(c), (d) or (f). Further, the Ring parties sought consequential damages on an unnamed theory, and, as indicated by the papers below, the fiduciary duty issue loomed throughout the proceedings.
The opinion resolving the appeal in the first action indicated that section 15032 was repealed in 1996. (Stats. 1996, ch. 1003, § 1.2.) But insofar as the Uniform Partnership Act of 1994 did not cover a certain partnership—such as the partnership at issue here—it contemplated that those partnerships would be governed by former law, including section 15032. The parties do not dispute that section 15032 governs the partnerships dissolution.
In their revised trial brief, the Ring parties stated that "although [the Marasco parties] owe fiduciary duties to their fellow partners . . . to make sound economic decisions, [they] are ignorant of the salient facts, keep themselves uninformed, and tender their ignorance as a justification for refusing to act. Whether the [trial court] calls this breach of fiduciary duty, or simply conduct that `makes it not reasonably practicable to carry on the business in [p]artnership with [the Marasco parties] or conduct not `in conformity with the [p]artnership agreement, [the Marasco parties] ostrich-like behavior certainly rises to the level of conduct that no partner can be forced to tolerate." Elsewhere in the same brief, the Ring parties claimed that the Marasco parties "insistence upon pursuing a lease extension everyone else (including the County lessor) agrees would be foolhardy for the [p]artnership is a breach of [the Marasco parties] fiduciary duty to the partnership and provides an independent compelling ground for granting that relief."
The Marasco parties filed an in limine motion to exclude evidence that they breached their fiduciary duties. The Ring parties opposed the motion, arguing that breach of fiduciary duty evidence was admissible even though breaches were not alleged. In contradiction, the Ring parties then stated that they did not need to prove a breach of fiduciary duty to obtain dissolution. In their words, the first action was "designed to eliminate the tort/breach of fiduciary [duty] lawsuit that would be sure to follow if [the Marasco parties] are permitted to waste $100 million in enterprise value." The motion in limine was denied without prejudice "to the ability to offer evidence on the point and make appropriate argument at the appropriate time of trial."
The Marasco parties inform us that their motion in limine was denied. The Ring parties do not dispute this.
The briefs demonstrate that the Ring parties believed that a breach of fiduciary duty supplemented their proof.
The trial court found: (1) By refusing to consent to a sale of the apartment complex without a letter of intent from the County of Los Angeles regarding terms for a lease extension, the Marasco parties have been guilty of conduct that affects prejudicially the carrying on of the partnerships business. (2) The Marasco parties have willfully and persistently conducted themselves in matters relating to the partnership business so that it is not reasonably practicable to carry on the business in partnership. (3) Other circumstances render dissolution equitable. (4) "In addition, although it is not necessary to this courts decision, it is also true that [the Marasco parties] have engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business of the partnership with them, and the economic purpose of the partnership is likely to be unreasonably frustrated, and it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement." (5) The Marasco parties claimed that they had no idea of the value of the leasehold with or without an extension, and they did not know what terms the County of Los Angeles might impose as a condition of extending the leasehold. "If true, these claims mean that [the Marasco parties] are impermissibly unaware of information which they should have in the exercise of reasonable care to satisfy their obligations to the partnership and its various investors. . . . If these claims are not true, then that further reinforces this courts view that [the Marasco parties] have tried to force [the Ring parties] out of the partnership at a less-than-fair-value price." (6) The Marasco parties made two offers to buy out the Ring parties interests on "terms so unrealistic, unreasonable, and unfavorable to [the Ring parties] as to indicate that those offers are in bad faith—efforts to obtain [the Ring parties] interests in the partnership on a fire-sale basis." (7) "The parties agree that the property of the partnership has substantial value, but the position taken by [the Marasco parties] will result in the wasting of that value." (8) The parties "understood and intended [their letter agreement to seek sale of the apartment complex] to be in furtherance of the performance of their fiduciary duties, and not as a bar to them." Douglas Ring performed his obligations under the letter agreement, or his obligations were otherwise discharged.
The appellate court in the first action held that section 15032, subdivision (1)(e) did not mandate dissolution because the partnership was not operating at a loss. It went on to hold that section 15032, subdivisions (1)(c), (d) and (f) also did not mandate dissolution because the purpose of the partnership was to own and operate the leasehold as an apartment complex, and the partnership agreement required the general partners to maintain the status quo if they disagreed on a particular action. The court explained that the Ring parties could obtain dissolution if they proved a breach of fiduciary duty.
b. The second action.
The pleading in the second action alleged that the Marasco parties breached their fiduciary duty in the following ways: failing to pursue a sale of the apartment complex; advocating a ruinous course of action to force the Ring parties to sell their interest to the Marasco parties at a fire sale; engaging in a covert campaign to drive off interested buyers and depress the apartment complexs sale price after entry of the interlocutory decree of dissolution; and failing to exercise reasonable business judgment and make prudent management decisions.
c. Analysis.
The essence of both actions was the charge that the Marasco parties acted unreasonably by not going through with a sale of the apartment complex. The Ring parties nonetheless suggest that different wrongs were involved. They tell us that the second action involved fiduciary duties and imply that the Marasco parties breached those duties by destroying partnership opportunities. They do not, however, identify the duties implicated by the first action, or the conduct that constituted the wrong. Instead, they argue: "[The first action] did not allege that the cousins had committed any breach of fiduciary duty (or, for that matter, any tort at all), and it did not seek damages for any tort. . . . The declaratory relief claim sought only dissolution and consequential damages, and the dissolution claim was based entirely on sections [15032] and 16801—which do not require proof of a breach of [fiduciary] duty." The problem is that, as to the first action, the allegations suggest that the Marasco parties were required to agree to a sale of the apartment complex. Based on the appellate decision in the first action, there was no such duty unless it was fiduciary. As a practical matter, both actions were therefore premised on the same duty.
3. Conclusion.
The first and second actions involved the same injury and same wrong, which triggers the merger rule. Our analysis perhaps tests the outer boundaries of claim preclusion law. And, notably, the "`line dividing those situations compelling application of the doctrine [of claim preclusion] from those which . . . cannot be precisely drawn. [Citation.]" (Thibodeau v. Crum (1992) 4 Cal.App.4th 749, 758.) Nonetheless, we conclude that we have applied the law in a way that properly satisfies the public policy of bringing certainty and finality to legal proceedings. Though there were some ancillary issues, the primary issues revolved around whether to sell or not to sell, the Marasco parties duty to sell, and the damages from the failure to sell. This is a compelling reason to hold that the Ring parties should have pursued all related theories of liability and forms of relief in the first action.
B. Claims postdating the interlocutory judgment fall within Coca-Cola
Finally, as to claim preclusion, we must determine whether the Coca-Cola rule applies to any of the allegations. In applying the rule, we reject the Marasco parties argument that Coca-Cola is factually distinguishable. It held that a contribution claim arose after judgment in the former action and was not precluded. According to the Marasco parties, this holding is limited to situations in which a statutory right arises after entry of judgment in a prior litigation between the parties. We disagree. Coca-Cola merely applied a general rule to specific facts.
The question is whether the second action alleges breaches of fiduciary duty postdating the interlocutory judgment.
As alleged, the partnerships leasehold will be worth nothing 15 years from the date the second action was filed in August 2008. In 2003, the parties entered into a letter agreement to sell the apartment complex. Subsequently, the Marasco parties refused to honor their commitment. Instead, they manufactured false interpretations of the letter agreement to avoid their obligations, and they refused to educate themselves in order to obtain the most basic information needed to discharge their fiduciary duties. The Ring parties sued and the trial court ordered that the apartment complex be sold. "[A]fter entry of an interlocutory decree of dissolution, [the Marasco parties] breached their fiduciary duties to the [p]artnership by engaging in a covert campaign to drive off interested buyers for [the apartment complex] and affirmatively depress its potential sales value." Further, the Marasco parties continued to "oppose and frustrate realization of offers for [the] leasehold that dwarfed the most optimistic returns [the] [p]artnership ever could hope to achieve by continu[ing] to hold and operate the leasehold." In the first six months after the decree of dissolution, the partnership had an opportunity to sell the leasehold for a minimum of $285 million. In 2008, the value dropped to $230 million, and the value will certainly continue to decline.
The Ring parties alleged that, even after the interlocutory judgment, the Marasco parties engaged in intentional and reckless conduct to the detriment of the partnership. The trial court erred when it concluded that the rights arising from these allegations merged into the first action. If it were not otherwise, the law would operate to defeat justice by permitting the Marasco parties to injure the partnership with impunity. As one court explained, "Res judicata was never intended to be used as a vehicle for forever `immunizing any party in a continuing business relationship from liability for continuous or recurrent breaches of contract, conspiracy directed toward such breaches, or for continuous or recurrent tortious misconduct." (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 69 (Nakash).)
It is clear from the Marasco parties appellate brief that our conclusion will not sit well with them. They argue that "no new post-trial fiduciary duty—and no `new primary right—arose from [the trial courts] [i]nterlocutory [judgment] in [the first action] or the supposed `offers generated by Judge Sohigians Sale Orders." But we do not contend that the orders in the first action created a duty. We must accept the truth of the allegations in the second action, and, viewed in their best light, they establish that the Marasco parties recklessly or intentionally continue to refuse to sell the apartment complex in breach of their fiduciary duties.
Next, the Marasco parties argue that the Ring parties cannot save the second action by relying on a theory of successive breaches of fiduciary duty. To support this position, they cite Mycogen and Bay Cities Paving & Grading, Inc. v. Lawyers Mutual Ins. Co. (1993) 5 Cal.4th 854, 860-861 (Bay Cities).
Mycogen is distinguishable. It held that a breach of contract "gives rise to a single cause of action in which all remedies based on that breach must be requested." (Mycogen, supra, 28 Cal.4th at p. 906.) The case at bar involves continuing duties imposed by the Corporations Code. The holding in Nakash is therefore the more appropriate guidepost. Furthermore, Mycogen did not reject the Coca-Cola rule involving postjudgment rights.
In Bay Cities, the court interpreted the meaning of the term "claim" in an attorneys liability policy. The attorney and third party claimant argued that he was asserting two claims for benefits arising out of two breaches of duty, and that each claim was subject to the per claim limit of $250,000. The court applied the primary rights theory and held that the third party claimant only had one cause of action because it had "a single injury and thus a single cause of action against its attorney." (Bay Cities, supra, 5 Cal.4th at p. 860.) The court added that the third party claimant "had one primary right—the right to be free of negligence by its attorney in connection with the particular debt collection for which he was retained. He allegedly breached that right in two ways, but it nevertheless remained a single right." (Ibid.) Bay Cities did not apply claim preclusion, and it does not in any way derail Coca-Cola.
II. Issue preclusion.
Even though claim preclusion does not bar all the allegations in the second action, the doctrine of issue preclusion could. The test of its application is the following: (1) the issue presented is identical to one decided in the former proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the issue was necessarily decided in the prior proceeding; (4) the decision in the prior proceeding was final and on the merits; and (5) the person subject to preclusion was a party to the prior proceeding. (People v. Garcia (2006) 39 Cal.4th 1070, 1077.)
To determine whether an issue was actually litigated, "the court in the subsequent action cannot rely exclusively on the findings in the underlying action but must `carefully scrutinize the pleadings and proof. [Citation.] This scrutiny includes looking behind the findings at the evidence presented to determine what was actually decided. [Citation.] The party asserting collateral estoppel must prove the issue was raised, actually submitted for determination and determined and that contrary evidence on the issue was not restricted. [Citation.]" (Schaefer/Karpf Productions v. CNA Ins. Companies (1998) 64 Cal.App.4th 1306, 1314.) Further, the court must examine whether the party subject to collateral estoppel had a full and fair opportunity to litigate the issue. (Roos v. Red (2005) 130 Cal.App.4th 870, 880.)
To find that an issue was not necessary to a decision, the issue must be "`entirely unnecessary to the judgment in the initial proceeding. [Citations.]" (Lucido v. Superior Court (1990) 51 Cal.3d 335, 342.)
The Ring parties argue that breach of fiduciary duty was not actually litigated or necessarily decided in the first action. We cannot determine whether the issue was actually litigated because we have not been presented with the trial transcripts of the first action. Though breach of fiduciary duty was not pleaded in the first action, this does not establish that the Ring parties did not present their proof at trial. We agree, however, that the breach of fiduciary duty issue presented in the second action was not necessarily decided in the first. This is true because the trial court awarded relief but did not make any fiduciary duty findings.
In disputing the Ring parties position, the Marasco parties focus on the "necessarily decided" element of issue preclusion. They do not argue that breach of fiduciary duty was actually litigated, which is fatal to their argument. In any event, that issue was not reachable on this record because we were not provided with the trial transcripts. In other words, we cannot verify what was actually litigated and, if breach of fiduciary duty was litigated, whether the Ring parties had a full and fair opportunity to present their case.
Further, contrary to the Marasco parties argument, the Court of Appeal did not necessarily decide the issue. The Court of Appeal stated that a breach of fiduciary duty "would be independently actionable and support a petition for dissolution under section 15032, subdivisions (1)(c) or (d). . . . Here, although harshly critical of [the Marasco parties] conduct (their self-professed failure to educate themselves as to the financial realities of the proposed lease renewal/extension and the `ludicrous buyout proposal), the trial court did not find a breach of fiduciary duty. Instead, the [trial] court concluded that `If true, these claims mean that [the Marasco parties] are impermissibly unaware of information which they should have in the exercise of reasonable care to satisfy their obligations to the partnership and its various investors. . . . If the claims are not true, then that further reinforces [the trial courts] view that [the Marasco parties] have tried to force [the Ring parties] out of the partnership at a less-than-fair-value price. These alternative, mutually exclusive conclusions do not justify judicial intervention." The Court of Appeal added that "invocation of the [trial courts] equitable powers under section 15032, subdivision (1)(f) is not appropriate on these facts. Whether the actions of the partners may be inadvisable, they are not outside the boundaries the parties voluntarily imposed upon themselves. In the absence of a breach of duty, not shown here, the [trial court] may not impose a solution [to the parties disagreement] different from the one the parties chose."
Because the trial court did not find a breach of fiduciary duty, it was entirely unnecessary for the Court of Appeal to consider that issue when deciding to reverse. All the Court of Appeal needed to say was that the absence of a finding of breach of fiduciary duty meant there were no grounds for dissolution. Any pronouncement on breach of fiduciary duty was, accordingly, superfluous.
III. Factual sufficiency
Even though the trial court did not decide whether the Ring parties sufficiently alleged breaches of fiduciary duty, the issue was argued by the Marasco parties below and now they have tendered it on appeal. The issue is fair game because the Ring parties addressed it in their reply brief. As well, an appellate court will affirm a trial courts ruling "if it is correct under any legal theory raised in the demurrer, whether the court relied on the theory or not. [Citation.]" (Debro v. Los Angeles Raiders (2001) 92 Cal.App.4th 940, 946.)
The Ring parties contend that they stated a breach of fiduciary duty claim by alleging that the Marasco parties refused to sell the apartment complex, drove off potential buyers, and advocated a ruinous course of action for the express purpose of forcing the Ring parties out of the partnership at a fire-sale price. These allegations suggest intentional misconduct in violation of section 16404, subdivision (c). Further, they suggest a violation of section 16404, subdivision (d), i.e., a partner must discharge duties and exercise rights "consistently with the obligation of good faith and fair dealing." We must accept the allegations as true. If the Marasco parties advocated a ruinous course of conduct to force the Ring parties to sell their interests at a discount, then the Marasco parties acted in bad faith.
The Marasco parties argue that it was impossible for them to commit a tort by refusing to sell after entry of the interlocutory judgment in the first action because they had no power to object to the ordered sale. That may be true, but only while the interlocutory judgment was extant. Once it was reversed, and once the Marasco parties partnership rights were restored, they were again capable of committing a continuing breach of fiduciary duty.
All other issues are moot.
DISPOSITION
The order is reversed.
The Ring parties shall recover their costs on appeal.
We concur:
BOREN, P. J.
CHAVEZ, J.