Myers v. Cresson CA1/4 ( 2016 )

Filed 2/25/16 Myers v. Cresson CA1/4
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
FIRST APPELLATE DISTRICT
DIVISION FOUR
MICHAEL MYERS et al.,
Plaintiffs and Respondents, A142687
v. (San Mateo County
GEORGE CRESSON et al., Super. Ct. No. CIV-518271)
Defendants, Cross-Complainants
and Appellants,
v.
LOANVEST XI, L.P. et al.,
Cross-defendants and Respondents.
I.
INTRODUCTION
Plaintiffs, limited partners of Loanvest XI, L.P. (Loanvest), filed the underlying
fraud case against the general partner of Loanvest, South Bay Real Estate Commerce
Group, LLC (South Bay) and the manager of South Bay, George Cresson (Cresson).
South Bay and Cresson (jointly the GP defendants) filed a cross-complaint for
indemnification against Loanvest. As the general partner of Loanvest, South Bay elected
not to defend Loanvest against the cross-complaint. But, after the GP defendants took
Loanvest’s default, the trial court set aside the default judgment on equitable grounds.
The GP defendants seek review of the order setting aside the default judgment. We hold
that order is not appealable and therefore dismiss this appeal.
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II.
BACKGROUND
A. The Complaint
In November 2012, plaintiffs filed this action against the GP defendants, and
against Sentinel Investment Management Company and its president Kenneth Miller (the
broker defendants). In their operative first amended complaint, plaintiffs sought damages
and equitable relief based on theories of fraud, breach of fiduciary duty and breach of
contract.
Plaintiffs alleged, among other things, that Cresson and the broker defendants
solicited them to become partners in a limited partnership that would make secured loans
to qualified borrowers. In reliance on allegedly false representations, each plaintiff made
substantial investments in and became limited partners of Loanvest. Plaintiffs alleged
that, in executing the limited partnership agreement, they also relied on express and
implied representations that Cresson would act as the general manager of Loanvest. Over
the next several years, the GP defendants allegedly violated their duties to the limited
partners by, among other things, making false representations about Loanvest’s
investments, and refusing to disclose material information about the operation and assets
of the limited partnership.
Plaintiffs also alleged that the individual defendants, Cresson and Miller, were
alter egos of and fully controlled their corporate counterparts, South Bay and Sentinel,
and that “[a]dherence to the fiction of the separate existence of South Bay and Sentinel as
a limited liability company or corporation, and as entities distinct from Cresson, Miller,
and Does 1-20 would permit an abuse of the corporate privilege and would promote fraud
and injustice by reason of the acts alleged” in the complaint.
In their respective answers to the complaint, Cresson and South Bay made general
denials and alleged dozens of affirmative defenses, including that the conduct about
which plaintiffs complain was a proper exercise of management discretion and was
performed by the GP defendants solely in their capacities as agents for another entity.
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B. The Cross-Complaint
On November 5, 2013, the GP defendants’ counsel, Mark Rushin, sent a letter to
plaintiffs’ counsel, Jeffrey Belote, in which Rushin purported to tender a demand to
Loanvest to provide a defense for and indemnity to the GP defendants with respect to all
of plaintiffs’ claims. Rushin also gave notice to plaintiffs that South Bay had made a
decision as the general partner of Loanvest that the GP defendants’ demands for a
defense and indemnity were “meritorious and that paying for a defense of these claims is
not a prudent use of [Loanvest’s] financial resources.” Anticipating that plaintiffs might
disagree with that decision, South Bay engaged a lawyer to provide Loanvest with a
defense in the event that plaintiffs decided to pay for it. Rushin also warned the plaintiffs
that “[w]ithout a prompt acceptance of the tender” from Loanvest, the GP defendants
would file a cross-complaint against Loanvest, take its default, and proceed to judgment.
On November 26, 2013, the GP defendants filed a cross-complaint against
Loanvest and against 10 ROE cross-defendants, whom the GP defendants described as
individuals and entities whose true names are unknown but who owe the GP defendants a
defense and indemnity obligations with respect to the claims in plaintiffs’ complaint. The
GP defendants then proceeded to allege causes of action against all cross-defendants
without distinguishing Loanvest from the ROE cross-defendants whose names they
claimed not to know.
General allegations in the cross-complaint included that South Bay is a limited
liability company in good standing, and the agent of Loanvest, and that Cresson is the
agent of South Bay and, therefore, a subagent of Loanvest. The GP defendants then
purported to incorporate by reference the plaintiffs’ complaint, without conceding the
truth of any of plaintiffs’ allegations. They alleged that all actions they took with respect
to matters discussed in the underlying complaint were within the scope of their agency
relationship with Loanvest and the unnamed cross-defendants. With these general
allegations, the GP defendants attempted to allege causes of action for common law
indemnity, total equitable indemnity, partial equitable indemnity, and declaratory relief.
3
In support of their cause of action for declaratory relief, the GP defendants added
this allegation: “On information and belief, an actual controversy has arisen and now
exists between Cross-Complainants and Cross-Defendants, and each of them, concerning
their respective rights and duties. Cross-Complainants contend, and on information and
belief, Cross-Defendants deny, that in the event Cross-Complainants are held liable to
Plaintiffs in this action, then Cross-Complainants will be entitled to be indemnified by
each of the Cross-Defendants herein for the full amount of any loss suffered by, or
judgment paid by Cross-Complainants, and for all other expenses which may be incurred
by Cross-Complainants in defense of the claims of Plaintiffs, and in the pursuit of this
Cross-Complaint.”
In their prayer for judgment, the GP defendants sought the following: (1) an order
and declaration that the GP defendants are entitled to indemnification from all of the
cross-complainants with respect to all of plaintiffs’ claims; (2) “In the event that
judgment is entered in favor of Plaintiffs, or any of them, herein, and against Cross-
Complainants, that judgment be entered in the same amount in favor of Cross-
Complainants and against the Cross-Defendants, and each of them”; and (3) damages
including fees and expenses incurred in the defense of plaintiffs’ claims and in
connection with the cross-complaint.
C. The Default Judgment
On December 31, 2013, the GP defendants filed a request for entry of default on
the cross-complaint against Loanvest, with a proof of service indicating the request was
served on plaintiffs. On January 2, 2014, the superior court clerk entered default against
Loanvest.
On April 8, 2014, the GP defendants filed a request for court judgment against
Loanvest, which was served on plaintiffs. That same day, the GP defendants requested
that a “prove up” hearing be scheduled on the court’s calendar for uncontested matters,
and obtained a hearing date of April 15, 2014. The GP defendants did not notify
plaintiffs that a prove-up hearing had been requested and scheduled.
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The record does not contain a transcript of the prove-up hearing, but it does
contain a declaration from Cresson that was executed and filed on April 15, 2014, the
date the hearing took place. In his declaration, Cresson represented to the court that
(1) South Bay is the general partner of Loanvest and (2) Cresson is the manager of South
Bay. Cresson also stated: “I have reviewed the First Amended Complaint, filed on
July 10, 2013 by Plaintiffs. All of the actions alleged in the complaint against me and
South Bay are actions that we took as part of South Bay’s agency relationship with
Loanvest and my sub-agency relationship with Loanvest. South Bay was acting as an
agent of Loanvest. I was acting as an agent of South Bay and a sub-agent of Loanvest,”
and “[a]s our principal, Loanvest XI, LP owes a duty to indemnify South Bay and me for
any current and future judgments.”
On April 15, 2014, the Honorable Don Franchi signed a proposed judgment that
had been drafted by the GP defendants’ counsel. That judgment (the Loanvest default
judgment) provides:
“1. With respect to claims asserted in [the] Cross-Complaint, Loanvest owes a
duty of defense and indemnity to Cross-Complainants South Bay and Cresson.
Therefore, Cross-Complainants are entitled to be indemnified and held harmless from all
of the claims of the Plaintiffs.
“2. In the event that judgment is entered in favor of Plaintiffs, or any of them,
herein and against Cross-Complainants or either of them, judgment shall be entered in
the same amount in favor of Cross-Complainants and against Loanvest.
“3. Loanvest shall pay all costs, expenses and attorneys’ fees incurred in
defense of Plaintiffs’ claims by Cross-Complainants and any fees and costs incurred after
that date shall he added to this judgment on a motion filed by Cross-Complainants.”
D. The Order Setting Aside the Default Judgment
On May 19, 2014, plaintiffs filed a motion to set aside the Loanvest default
judgment, arguing, among other things, that it was procured by fraud because the GP
defendants misled the court about the pertinent facts. Furthermore, plaintiffs argued they
were denied the opportunity to demonstrate to the court that the cross-complaint was a
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sham because the GP defendants did not give them notice of the prove-up hearing where
they convinced the court to sign the Loanvest default judgment.
In support of their motion, plaintiffs outlined pertinent facts that Cresson failed to
disclose in the declaration that he submitted at the prove-up hearing. Specifically,
Cresson did not advise the court that: “(1) all equity in Loanvest was put there by the
Limited Partners alone, and Plaintiffs own a 65% interest; (2) only South Bay had the
authority to act on behalf of Loanvest, and Cresson controlled South Bay; (3) South Bay
and Cresson tendered their defense to Loanvest and then proceeded to abandon Loanvest
by refusing to pay counsel to defend it against their own Cross-Complaint, for the
obvious purpose of obtaining a judgment against Loanvest’s assets (in which Plaintiffs
have a 65% interest); and (4) the terms of the Limited Partnership Agreement prohibited
the Limited Partners (including Plaintiffs) from retaining counsel to defend Loanvest or
taking any action on behalf of Loanvest.” (Italics omitted.)
Plaintiffs’ motion was also supported by a declaration of counsel and numerous
exhibits which included the pertinent pleadings, the November 5, 2013 letter purporting
to tender the GP defendants’ indemnity claims to Loanvest, and the limited partnership
agreement.
The GP defendants opposed the motion to set aside the Loanvest default judgment
on the grounds that (1) plaintiffs lacked standing to bring the motion because they are not
parties to the cross-complaint;1 (2) the GP defendants are entitled to indemnity from
Loanvest; and (3) plaintiffs had “repeated notice of this issue” and failed to act, thereby
waiving their right to challenge the Loanvest default judgment.
On June 18, 2014, the Honorable Lisa Novak held a hearing on the motion to set
aside the Loanvest default judgment. Prior to the hearing, the parties were informed of
the court’s tentative ruling to grant the motion, which the GP defendants challenged.
Defense counsel argued that the GP defendants made a sound business decision not to
1
Plaintiffs were not named in the cross-complaint. However, it appears they are
the ROE cross-defendants whose “true names” the GP defendants claim not to know.
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oppose the cross-complaint and that they did not breach any fiduciary duties. Counsel
argued that, putting aside the underlying claims of fraud and breach of fiduciary duty,
there was nothing untoward about the cross-complaint which would justify setting aside
“a properly obtained judgment that [plaintiffs’] had every opportunity to come in and
protest prior to the time judgment was entered.”
In response to these arguments, the trial court found that (1) plaintiffs did not have
the opportunity to protest entry of the Loanvest default judgment; (2) the GP defendants’
actions in filing the cross-complaint and then refusing to defend it were “abundantly
unfair,” and (3) the cross-complaint should be stayed pending resolution of the complaint
in light of the nature of plaintiffs’ underlying claims against the GP defendants. At the
conclusion of the hearing, the trial court signed a proposed order which incorporated its
tentative rulings and added a provision staying the cross-complaint (the April 2015
order).
The April 2015 order contains the following pertinent findings: (1) the GP
defendants’ actions in filing the cross-complaint against Loanvest, failing to provide a
defense for the partnership, and then obtaining a default judgment against the partnership
constituted breaches of the fiduciary duties “owed to the partnership and the limited
partners, including [p]laintiffs”; (2) the GP defendants also breached their fiduciary
duties by failing to give plaintiffs notice of the prove-up hearing; (3) plaintiffs had
standing in their capacity as limited partners to file a motion to set aside the Loanvest
default judgment because the general partner failed to do so; and (4) under the terms of
the limited partnership agreement, the obligation to defend the cross-complaint rested
solely with the general partner, and, indeed, plaintiffs were prohibited from providing
that defense.
III.
DISCUSSION
The GP defendants contend that the April 2015 order is appealable as an order
after judgment, pursuant to Code of Civil Procedure section 904.1, subdivision (a)(2).
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Plaintiffs contend the order is not appealable because the underlying Loanvest default
judgment was an interim judgment.2
An order vacating a default judgment is appealable as an order after a final
judgment. (E.g., County of Stanislaus v. Johnson (1996) 43 Cal. App. 4th 832, 834
[statutory motion to vacate]; Baske v. Burke (1981) 125 Cal. App. 3d 38, 43 [nonstatutory
motion to vacate].) However, this rule only applies when the underlying judgment is a
final judgment as opposed to an interim judgment. (Neilsen v. Saylors (1956) 146
Cal. App. 2d 139, 140; see also Misic v. Segars (1995) 37 Cal. App. 4th 1149, 1154.)
The requirement that the underlying judgment must have been a final judgment is
an application of the “one final judgment rule,” which is itself “a fundamental principle
of appellate practice that prohibits review of intermediate rulings by appeal until final
resolution of the case. ‘The theory is that piecemeal disposition and multiple appeals in a
single action would be oppressive and costly, and that a review of intermediate rulings
should await the final disposition of the case.’ [Citations.]” (Griset v. Fair Political
Practices Com. (2001) 25 Cal. 4th 688, 697.)
A judgment is a final judgment “ ‘ “ ‘when it terminates the litigation between the
parties on the merits of the case and leaves nothing to be done but to enforce by
execution what has been determined.’ ” ’ [Citation.] ‘ “It is not the form of the decree
but the substance and effect of the adjudication which is determinative. As a general test,
which must be adapted to the particular circumstances of the individual case, it may be
said that where no issue is left for future consideration except the fact of compliance or
noncompliance with the terms of the first decree, that decree is final, but where anything
further in the nature of judicial action on the part of the court is essential to a final
determination of the rights of the parties, the decree is interlocutory.’ ” [Citation.]’ ”
(Dana Point Safe Harbor Collective v. Superior Court (2010) 51 Cal. 4th 1, 5, italics
omitted.)
2
The question whether the April 2015 order is appealable was raised in the
plaintiffs’ opposition brief and addressed in the GP defendants’ reply brief. Therefore,
the issue is properly before us without the need for further briefing.
8
In this case, the Loanvest default judgment stated: “In the event that judgment is
entered in favor of Plaintiffs, or any of them, herein and against Cross-Complainants or
either of them, judgment shall be entered in the same amount in favor of Cross-
Complainant against Loanvest.” This conditional language establishes that the Loanvest
default judgment was interlocutory rather than final because the relief it afforded to the
GP defendants was dependent on a future event that may or may not happen.
Furthermore, if the future event contemplated in the Loanvest default judgment
were to occur, that judgment did not specify the amount of money damages that the GP
defendants could recover from Loanvest, but instead provided that such amount would
have to be determined at some future date. “It is the general rule that a judgment must be
sufficiently certain to permit enforcement. While some uncertainties may be eliminated
or resolved by reference to the pleadings [citation], that will not save a judgment for
money which fails to specify the amount. [Citation.]” (Imperial Casualty & Indemnity
Co. v. Sogomonian (1988) 198 Cal. App. 3d 169, 185.)
Despite these circumstances, the GP defendants contend the Loanvest default
judgment constituted a final judgment because “it will be easily ascertainable what relief
has been granted when judgment is entered in the main action.” They also argue that the
fact that the Loanvest default judgment provides for entry of judgment at a future date
does not “change the character of the Judgment or make it interlocutory and
nonappealable.” We disagree with these arguments, neither of which is supported by
citation to authority or by any reasoned analysis.
The GP defendants’ only substantive contention is that the Loanvest default
judgment should be deemed a final judgment because it resolved all of the claims that the
GP defendants alleged against Loanvest. In making this argument, the GP defendants
(1) characterize the cross-complaint as a declaratory relief action and then (2) construe
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the judgment as a declaration of the rights of the parties which is enforceable as a final
judgment under Code of Civil Procedure section 1060 (section 1060).3
First, the cross-complaint contained four causes of action, only one of which was
for declaratory relief. Thus, to the extent the Loanvest default judgment pertained only to
a single cause of action, it was not a final disposition of the GP defendants’ claims
against Loanvest. Second, and in any event, the Loanvest default judgment cannot
properly be construed as a declaratory relief judgment.
“ ‘ “[D]eclaratory relief is appropriate only where there is an actual controversy,
not simply an abstract or academic dispute.” [Citations.]’ [Citation.] ‘The “actual
controversy” language in Code of Civil Procedure section 1060 encompasses a probable
future controversy relating to the legal rights and duties of the parties. [Citation.] For a
probable future controversy to constitute an “actual controversy,” however, the probable
future controversy must be ripe. [Citations.] A “controversy is ‘ripe’ when it has
reached, but has not passed, the point that the facts have sufficiently congealed to permit
an intelligent and useful decision to be made.” [Citation.]’ [¶] Whether a claim presents
an “actual controversy” within the meaning of Code of Civil Procedure section 1060 is a
question of law that we review de novo.’ [Citation.]” (County of San Diego v. State of
California (2008) 164 Cal. App. 4th 580, 606, italics omitted (County of San Diego)); see
also Ferraro v. Camarlinghi (2008) 161 Cal. App. 4th 509, 539.)
3
Section 1060 states, in pertinent part: “Any person interested . . . who desires a
declaration of his or her rights or duties with respect to another, . . . may, in cases of
actual controversy relating to the legal rights and duties of the respective parties, bring an
original action or cross-complaint in the superior court for a declaration of his or her
rights and duties in the premises, including a determination of any question of
construction or validity arising under the instrument or contract. He or she may ask for a
declaration of rights or duties, either alone or with other relief; and the court may make a
binding declaration of these rights or duties, whether or not further relief is or could be
claimed at the time. The declaration may be either affirmative or negative in form and
effect, and the declaration shall have the force of a final judgment. The declaration may
be had before there has been any breach of the obligation in respect to which said
declaration is sought.”
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Here, the Loanvest default judgment was not a final declaratory relief judgment
because the GP defendants failed to allege, not to mention prove, that there was an actual
controversy between the GP defendants and Loanvest.
The cross-complaint contains allegations that any actions by the GP defendants
with respect to matters alleged against them in the complaint were undertaken as agents
of Loanvest. But it does not allege any facts to establish an actual controversy with
Loanvest regarding the GP defendants’ right to indemnity for acts that were undertaken
as agents of Loanvest. Instead, the GP defendants alleged only that “[o]n information
and belief an actual controversy has arisen and now exists between Cross-Complainants
and Cross-Defendants, and each of them, concerning their respective rights and duties.”
Arguably, this cryptic allegation refers to the controversy in the complaint that was
incorporated by reference into the cross-complaint. But that underlying controversy
(1) is between the GP defendants and plaintiffs, not between the GP defendants and
Loanvest; and (2) pertains to whether alleged conduct by the GP defendants was in fact
undertaken as agents of Loanvest, which is a distinct issue from whether Loanvest must
indemnify its agents.
Furthermore, as best we can tell from the record that the GP defendants have filed
in this court, the only evidence produced at the prove-up hearing was Cresson’s
declaration. Like the cross-complaint, Cresson’s declaration did not assert substantive
facts that showed an actual controversy between the GP defendants and Loanvest.
Instead, that declaration provided incomplete information about the relationship among
these parties which created a misleading impression about the nature of the dispute that is
driving this litigation and the parties involved in that dispute. The GP defendants cannot
sidestep their actual controversy with the plaintiffs by obtaining a default judgment based
on a manufactured controversy with Loanvest.
Finally, to the extent the GP defendants intended for their declaratory relief cause
of action to allege that an actual controversy is certain to arise in the future, the record
clearly demonstrates that any future controversy with Loanvest about the GP defendants’
indemnity rights is not sufficiently ripe to support a default judgment at this point in this
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litigation. The resolution of that potential controversy necessarily depends on the
outcome of the underlying complaint which will establish what the GP defendants did
and whether they acted within their agency as they contend in their cross-complaint.
Thus, the facts regarding the GP defendants’ right to indemnity from Loanvest have not
“ ‘ “sufficiently congealed to permit an intelligent and useful decision to be made.”
[Citation.]’ ” (County of San Diego, supra, 164 Cal.App.4th at p. 606.)
For all these reasons, we conclude that the Loanvest default judgment was an
interim decision, based on incomplete and misleading information, which was set aside
once the relevant facts were presented to the trial court. Accordingly, the April 2015
order setting aside the interim judgment is not appealable.
IV.
DISPOSITION
The appeal is dismissed. Plaintiffs are awarded their costs on appeal against the
GP defendants in their individual and personal capacities.
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_________________________
RUVOLO, P. J.
We concur:
_________________________
REARDON, J.
_________________________
RIVERA, J.
A142687, Myers v. Cresson
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