Opinion
A146746
03-14-2018
HENRY M. BURGOYNE III, Plaintiff and Appellant, v. CALEGARI & MORRIS et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco City and County Super. Ct. No. CGC-14-536581)
Plaintiff Henry M. Burgoyne III and Karl Kronenberger co-founded a law firm from which Kronenberger later ejected Burgoyne. In this action, Burgoyne brings professional negligence and other claims against the accountants whom the firm hired after his departure, alleging they made errors in calculating how much the firm owed him when he left. The accountant, Monique Tiger, and her firm, Calegari & Morris, moved for summary judgment on grounds that they owed Burgoyne no duty in performing this work and he was not a third-party beneficiary to their contract with the law firm. The trial court granted the motion, and we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are undisputed or, where disputed, are set forth in the light most favorable to Burgoyne as the party appealing summary judgment.
Kronenberger Burgoyne, LLP was a law firm with two equity partners, who agreed to equal ownership as of 2009. Before 2009, Kronenberger had owned a majority interest in the firm and when, in 2011, the partners were not working well together he decided to expel Burgoyne from their partnership. On October 28, 2011, Kronenberger emailed Burgoyne a termination notice, purporting to take effect immediately. Promoting another lawyer into a non-equity partnership position, he changed the name of the firm to Kronenberger Rosenfeld, LLP.
Kronenberger and Burgoyne had a written partnership agreement whose provisions addressed partner terminations. According to article 8.7 of the partnership agreement, when a partner is terminated "[t]he calculation of a Partner's Payout Amount shall be made by such outside certified public accountant as shall be selected by the Partnership and shall be delivered to the Former Partner, with reasonably detailed backup data if requested . . . . It shall be accompanied by a written statement of the Chairman on behalf of the Partnership certifying that the calculation was made in accordance with the principles set forth in this Article Eight." The partnership agreement had a separate provision, article 9, governing the distribution of firm proceeds upon liquidation of the partnership. Burgoyne asserts that he would have received a larger share of the partnership's assets if his payout had been calculated according to this provision.
A month after Burgoyne's expulsion from the firm, Kronenberger Rosenfeld hired Monique Tiger and Calegari & Morris (collectively "defendants") as the firm's tax accountants. On December 6, 2011, Kronenberger Rosenfeld emailed Tiger with an additional task. She should "take a first pass at the capital/payout amounts for Hank Burgoyne as required in the Partnership Agreement - a copy of which I will also send along tomorrow." Tiger studied and marked up the partnership agreement, and exercised considerable independent judgment in deciding how to approach her task. By January 26, 2012, Tiger's work was complete, and Kronenberger sent Burgoyne a letter accompanied by four pages of calculations. The letter stated that the attached "payout calculation was generated by Calegari & Morris, Certified Public Accountants," and that Kronenberger certified the calculation was "in accordance with the principles set forth in Article Eight of the Partnership Agreement." On August 10, 2012, Kronenberger sent an almost identical letter with a revised payout calculation.
Monique Tiger used a different surname in 2011, and the original list of defendants in this action included an additional set of tax accountants, who had worked for Kronenberger Burgoyne, LLP, Kronenberger Rosenfeld's predecessor. Burgoyne's appeal in the case against this earlier set of tax accountants is Burgoyne III v. GoldsteinEnright et al., case No. A148217, also decided today.
In preparing her payout calculation, Tiger communicated with several people at Kronenberger Rosenfeld, but not with Burgoyne. For example, on December 23, 2011, she sent an email to Kronenberger and one of his employees stating that she had calculated taxable income through October 31, including "a split between Karl and Hank based on [a] 55:45 ratio." When the employee emailed back to point out a specific section of the partnership agreement that referenced "a different split: Karl 65%; Hank 35%," Tiger volunteered to conform her calculations, until Kronenberger weighed in with this: "The different split was just for one case, and the rest should be 55-45." Tiger did not know, as she was preparing her payout calculations, that Burgoyne disputed the "55:45" split and thought it should be "50:50." She had never spoken with him, and neither she nor Calegari & Morris ever considered Burgoyne a client.
Burgoyne maintains that Tiger's payout calculations are fundamentally flawed. In January 2014, he filed the original complaint in this action and, on June 16, 2014, the second amended complaint that is the operative pleading. The complaint alleges defendants knew that with Burgoyne's departure the partnership's affairs should have been wound down, as there can be no "partnership consisting of one partner." It alleges defendants mistakenly calculated Burgoyne's payout on the basis that he owned 45 percent of the firm instead of 50 percent, and that they made various other mistakes in their calculation. The complaint includes causes of action against Tiger and Calegari & Morris for professional negligence in preparing the payout calculation, breach of the contract with Kronenberger Rosenfeld to which Burgoyne was a third-party beneficiary, and fraudulent concealment of facts including that Rosenfeld had no equity interest in Kronenberger Rosenfeld so that Burgoyne's payout should have been calculated based on the firm having dissolved when he left.
Defendants moved for summary judgment on the grounds that they owed no duty to Burgoyne and that he was not a third-party beneficiary of their contract with Kronenberger Rosenfeld. On September 16, 2015, the trial court granted defendants' motion in its entirety. As to the professional negligence cause of action, the court found defendants owed no duty to Burgoyne because (a) they were hired to benefit Kronenberger Rosenfeld, not Burgoyne; (b) their calculation was based on instructions from Kronenberger Rosenfeld; and (c) there is no evidence they knew Burgoyne did not agree to these instructions. As to the breach of contract cause of action, the court found that Burgoyne had raised no triable issue as to whether he was a third-party beneficiary of defendants' contract with Kronenberger Rosenfeld because Kronenberger testified he did not intend the engagement to benefit Burgoyne. That Kronenberger knew the results of defendants' work would affect Burgoyne did not raise a triable issue as to whether Burgoyne was an express beneficiary, the court found. Finally, on the fraudulent concealment claim the court found no triable issue of material fact as to whether defendants owed Burgoyne a duty to disclose, as Burgoyne could not establish a fiduciary relationship or any transaction between defendants and Burgoyne.
This appeal timely followed.
DISCUSSION
We review de novo the trial court's entry of summary judgment. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860.) As the moving parties, defendants bear "the burden of persuasion that there is no triable issue of material fact and that [they are] entitled to judgment as a matter of law." (Id. at p. 850.) We find defendants owed no duty to Burgoyne as a matter of law in the professional negligence cause of action and in the fraudulent concealment cause of action, and that there is no triable issue of material fact as to whether Burgoyne is a third-party beneficiary of defendants' contract with Kronenberger Rosenfeld.
A. No Professional Negligence Claim Because Defendants Owe Burgoyne No Duty
"The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another . . . ." (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397 (Bily).) Whether this element "has been satisfied in a particular case is a question of law to be resolved by the court." (Ibid.) In certain cases, accountants and other professionals may owe a duty of care to persons with whom they have no privity of contract. (Ibid.) In determining whether defendants owed a duty of care to Burgoyne, three decisions of the California Supreme Court inform our analysis.
Biakanja v. Irving (1958) 49 Cal.2d 647, 649-651 (Biakanja) is the first of these cases. In Biakanja, plaintiff's brother hired defendant, a notary public, to prepare a will leaving all of his property to her. (Id. at p. 648.) Because defendant negligently failed to have the will properly attested, plaintiff received by intestate succession only a fraction of her brother's estate. (Ibid.) The question before the court was whether she could recover the difference in a professional negligence case against the notary, even though she had not retained his services. (Ibid.) The court held that she could recover, as the " 'end and aim' of the transaction" between her brother and the notary was to provide for the passing of the brother's estate to her, and the notary would have known from the terms of the will itself that plaintiff would suffer the consequences of any negligence causing the will to be invalid. (Id. at p. 650.) The court explained that "[t]he determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are" (1) "the extent to which the transaction was intended to affect the plaintiff"; (2) "the foreseeability of harm to him"; (3) "the degree of certainty that the plaintiff suffered injury"; (4) "the closeness of the connection between the defendant's conduct and the injury suffered"; (5) "the moral blame attached to the defendant's conduct"; and (6) "the policy of preventing future harm." (Ibid.)
In Bily, supra, 3 Cal.4th 370, the second of the three cases, our Supreme Court considered whether an accountant hired to conduct an audit of a client's financial statements owed a duty to other persons to avoid professional negligence in the conduct of that audit. Applying the six Biakanja factors, the court declined to allow anyone but the auditor's client to recover on a theory of pure negligence. (Bily, at p. 398.) The court acknowledged that harm to "lenders, investors, and others who may read and rely on audit reports is certainly 'foreseeable,' " but found no duty because foreseeability "is but one factor to be considered." (Ibid.)
Weighing against liability were "three central concerns." (Bily, supra, 3 Cal.4th at p. 398.) First, allowing all whose injury was foreseeable to bring negligence claims would impose potential liability on an auditor "far out of proportion to its fault." An auditor plays a "secondary 'watchdog' role," while "the client retains effective primary control of the financial reporting process." (Id. at pp. 398, 400.) Then when an investment goes bad and the client heads off to bankruptcy court, the auditor becomes "the remaining solvent defendant." (Id. at p. 400.) Given the "potentially tenuous causal relationships between audit reports and economic losses from investment and credit decisions," an auditor could face "vast numbers of suits and limitless financial exposure." (Id. at pp. 398, 400.) The court's second reason for not finding a duty was that "the generally more sophisticated class of plaintiffs in auditor liability cases (e.g., business lenders and investors) permits the effective use of contract rather than tort liability to control and adjust the relevant risks through 'private ordering.' " (Id. at p. 398.) Unlike an ordinary consumer, the sort of person who reads and relies on auditor's reports would be able to commission his or her own review of the client's financial statements, or communicate and establish a direct relationship with the auditor, the court suggested. (Id. at p. 403.) Third, the court rejected arguments that imposing liability would lead to "more accurate auditing and more efficient loss spreading," concluding the more likely consequence would be to make auditing services more expensive and less available. (Id. at p. 398.)
Having refused to impose a duty to nonclients for acts of pure negligence, the Court in Bily went on to reach a different result where the cause of action is negligent misrepresentation. (Bily, supra, 3 Cal.4th at p. 407.) "Negligent misrepresentation is a separate and distinct tort," in which the defendant makes a false statement, believing it to be true but without a reasonable ground for such belief. (Ibid.) Plaintiff must prove actual and justifiable reliance on the misrepresentation, including that he is a person "to whom or for whom the misrepresentations were made." (Id. at pp. 408, 413.) This focus on justifiable reliance was dispositive for the court in concluding that a duty to avoid negligent misrepresentation exists, where a duty to avoid pure negligence does not. (Id. at p. 413.)
The third California Supreme Court case to address the issue of liability to a nonclient for professional negligence involved architects. Beacon Residential Community Assn. v. Skidmore, Owings & Merrill, LLP (2014) 59 Cal.4th 568, 571 (Beacon) holds that the principal architect of a residential building owes a duty of care to future homeowners to avoid design defects, even if the architect does not oversee the building's construction. The court applied the Biakanja factors and distinguished Bily. (Beacon, at pp. 582-586.) Unlike an auditor's secondary role, "defendants' primary role in the design of the Project bears a ' "close connection" ' to the injury alleged." (Id. at p. 581.) This was not a case where the defendants supplied design services to a client who then "applied its own architectural expertise to the plans and specifications supplied by defendants." (Id. at p. 587.) Unlike the open-ended liability that Bily sought to avoid, there was a "limited and wholly evident class of persons and transactions that [the architects'] conduct was intended to affect" —those who would purchase the units as condominiums after their construction. (Id. at p. 581.) And the prospect of private ordering was far less compelling than in Bily, since the general public was purchasing the condominiums. (Beacon, at p. 584.)
Burgoyne's case is distinguishable from each of these cases, but we analyze it by weighing the same factors. First, we consider the extent to which the defendants' accounting work was intended to affect the plaintiff. (Biakanja, supra, 49 Cal.2d at p. 650.) Burgoyne argues that the work was intended to benefit him because it was commissioned to fulfill the partnership agreement's requirement that an independent accountant's calculation be delivered to a departing partner, with backup data. Burgoyne also points to an email from Tiger to Kronenberger Rosenfeld acknowledging that the materials she was preparing would be "provide[d] to Hank [Burgoyne]'s people." This evidence establishes that defendants' accounting work was indeed intended to affect Burgoyne, in that it would address his finances and be provided to him, but it has this effect only indirectly. Tiger was to "take a first pass" at calculating Burgoyne's payout amount, but ultimately Kronenberger had to certify the calculations as compliant with the partnership agreement before transmitting them to Burgoyne. Tiger may have exercised professional judgment in doing her work, but Kronenberger's ultimate responsibility for the results distinguishes this case from Beacon, supra, 59 Cal.4th at page 587, where defendant was the principal architect on the building, and it weakens the force of this first factor in Burgoyne's favor.
The second factor is the foreseeability of harm to Burgoyne. (Biakanja, supra, 49 Cal.2d at p. 650.) Burgoyne argues that it was entirely foreseeable that any errors in defendants' work would harm him. This claim ignores two important aspects of the context in which Tiger performed her work. First, because she received all of her information from Kronenberger and his staff and had no communication with Burgoyne, she did not know that some of the assumptions she was employing were disputed, such as the question of whether Burgoyne owned 45 percent or 50 percent of the firm. Second, while Tiger was performing her calculations, Burgoyne filed a lawsuit in federal court against Kronenberger and his firm, seeking a judicial determination as to how much they owed him. Given that the relationship between former law partners had already disintegrated this far, it is hardly foreseeable that Burgoyne would rely on defendants' work without submitting it to rigorous examination. This case is the opposite of Biakanja, where the harm to the intended beneficiary of the will was a virtually unavoidable consequence of the notary's negligence (ibid.), or of Beacon, where the architect's negligent design foreseeably harmed the homeowners who purchased condominiums built to the architect's specifications. (Id. at p. 586.) Here, the foreseeability of harm to Burgoyne from defendants' work is a factor that weighs in defendants' favor.
The third and fourth Biakanja factors are the degree of certainty that Burgoyne suffered injury and the closeness of the connection between defendants' conduct and any injury to Burgoyne. (Biakanja, supra, 49 Cal.2d at p. 650.) The analysis on these factors parallels that for the foreseeability of harm. Burgoyne asserts a high degree of certainty that he suffered harm because the accountants should have understood their calculations were short-changing him. As an example, he argues they "robbed" him of his claim to certain partnership assets by performing a termination calculation under article 8.7 of the partnership agreement rather than a dissolution calculation under article 9. But assuming for the sake of argument that Burgoyne is right about how the calculations should have been performed, the worst that can be said of defendants' calculations is that they failed to support Burgoyne's position as to what he was owed. This may have made Burgoyne's litigation efforts more difficult (although we have no evidence on this), but the calculations did not "rob" him of anything. They simply explained to him in detail the basis for Kronenberger's claim that Burgoyne owed the partnership a certain amount upon departure. If Burgoyne disagreed with this calculation—for example because he believed that his departure from the partnership necessitated a dissolution calculation under article 9—he was free to press this position in negotiating with Kronenberger. The third and fourth factors accordingly weigh in defendants' favor.
The fifth Biakanja factor—the moral blame attached to the accountants' conduct—weighs in defendants' favor for similar reasons. (See Biakanja, supra, 49 Cal.2d at p. 650.) Burgoyne attaches moral blame because Kronenberger gave the accountants wide latitude to apply their professional judgment, and they misapplied it to Burgoyne's detriment. The evidence supports Burgoyne's argument that the accountants had wide latitude to apply their professional judgment, but if they negligently misapplied that judgment to Burgoyne's detriment that is not conduct to which we attach great moral blame. The accountants' role here is not that of a neutral arbiter. The partnership agreement specifies that the firm alone chooses the accountant to perform a payout calculation, and that the firm's chairman certifies the correctness of her work. The accountant's calculation must be shared with the departing partner, but the departing partner remains free to commission or perform his own competing calculation. This is not a joint retention. If it was negligently performed to Burgoyne's detriment, then Burgoyne can employ other means to protect himself.
The sixth Biakanja factor asks whether recognizing a duty furthers a policy of preventing future harm. (Biakanja, supra, 49 Cal.2d at p. 650.) Burgoyne argues that it does, for all cases in which a partnership agreement assigns an accountant a similar role. Burgoyne's argument ignores the preference for private ordering of risk that was important in Bily, and that we think is significant here as well. As in Bily, supra, 3 Cal.4th at page 403, we conclude that a person engaged in a dispute with his former partnership "should be encouraged to rely on [his] own prudence, diligence, and contracting power, as well as other informational tools" in determining whether the partnership owes him money, rather than relying on a duty of care owed him by the partnership's new accountant.
Weighing all of the Biakanja factors, we find defendants owed Burgoyne no duty to avoid pure negligence. Defendants' work would affect Burgoyne, in that it would inform and particularize Kronenberger Rosenfeld's view as to whether and how much money Burgoyne should receive as he departed the firm, but it would not necessarily or directly injure Burgoyne, who could reach his own conclusions on this subject and retain his own accountant to assist him in negotiating and litigating against his former firm. We express no opinion as to whether, as in Bily, we would reach a different result for a cause of action for negligent misrepresentation because Burgoyne has pleaded no such claim.
The parties discuss several court of appeal cases that confirm our conclusion that defendants owe Burgoyne no duty in pure negligence. Closest to the facts of our case is Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566 (LeVine). It affirms summary judgment in favor of an accountant hired by a medical partnership to calculate the payout amount for a former partner. Applying the Biakanja factors, LeVine holds that the accountant owed no duty to the former partner to avoid professional negligence. (Id. at p. 581.) The case is distinguishable in that the accountant in LeVine received pointed instruction from the partnership as to how the payout should be calculated (ibid.), whereas in this case Tiger had leeway to exercise her professional judgment, but for the reasons explained above that difference ultimately is not dispositive. Burgoyne relies on Giacometti v. Aulla, LLC (2010) 187 Cal.App.4th 1133 (Giacometti) to limit LeVine, but Giacometti was a case that found accountants owed no duty to employees of a client to avoid negligence, so it hardly supports Burgoyne here. Finally, Burgoyne relies on Nutmeg Securities Ltd. v. McGladrey & Pullen (2001) 92 Cal.App.4th 1435 and OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, but both of these cases adjudicate causes of action for negligent misrepresentation rather than pure negligence, and Bily teaches that the distinction between these two causes of action is important. (Bily, supra, 3 Cal.4th at p. 413.)
B. No Breach of Contract Claim Because Burgoyne is Not a Third-Party Beneficiary
In his next cause of action against Tiger and her firm, Burgoyne asserts breach of the accountants' contract with Kronenberger Rosenfeld, arguing that he is the contract's express beneficiary. The written contract between defendants and Kronenberger Rosenfeld does not mention Burgoyne, but in it the accountants promise to advise Kronenberger Rosenfeld on income tax matters as requested, and Kronenberger soon requested that Tiger calculate Burgoyne's payout amount to fulfill the firm's obligation under section 8.7 of the partnership agreement. Burgoyne cites to the undisputed evidence that Tiger knew her accounting work was required by the partnership agreement and would be transmitted to him, and that the final numbers would affect his financial interests, to argue that he is a third-party beneficiary of the contract. Applying the law to these same facts, we reach the opposite conclusion.
The facts in this sentence are undisputed. They appear, inter alia, at Nos. 99, 101, and 103 in defendants' separate statement. Although Burgoyne's response to the separate statement says each is "[d]isputed," the pages of text that follow this one-word characterization address other issues instead of substantiating a dispute with the enumerated facts.
" ' "The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. [Citation.] If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person." ' " (Souza v. Westlands Water Dist. (2006) 135 Cal.App.4th 879, 891 (Souza).) But "it is not enough that the third party would incidentally have benefited from performance." (Ibid.)
We conclude as a matter of law that Burgoyne is not a third-party beneficiary of the promises Tiger and her firm made to Kronenberger Rosenfeld. Their contract requires Tiger to perform calculations for the law firm, not for Burgoyne. With regard to the payout calculation, Kronenberger outlined the scope of Tiger's work. Kronenberger received and reviewed the results, and Kronenberger accepted the work as properly performed, certifying the calculation before transmitting it to Burgoyne. Burgoyne had no communication with Tiger, and Tiger did not give him any of her work. Certainly she knew from the partnership agreement that if Kronenberger was satisfied with her calculation he would transmit it to Burgoyne, but that does not convert her work for Kronenberger Rosenfeld into work for Burgoyne. It simply makes Burgoyne an incidental beneficiary of Tiger's work for the law firm.
Eastern Aviation Group, Inc. v. Airborne Express, Inc. (1992) 6 Cal.App.4th 1448 (Eastern Aviation) confirms this view. Eastern Aviation claimed to be a third-party beneficiary to a contract between Burbank Aeronautical Corporation (BAC) and BAC's customer ABX Air, Inc. (Id. at p. 1450.) In the contract, BAC agreed to sell aeronautical components to ABX, and ABX agreed to make periodic payments for the components to an account designated jointly by BAC and Eastern Aviation. (Id. at p. 1452.) According to Eastern Aviation's complaint, ABX made some of its payments directly to BAC, and BAC converted them to its own use. The court nonetheless affirmed summary judgment in ABX's favor. (Id. at p. 1451.) Even though Eastern Aviation was specifically named in the contract and would have benefited had ABX complied with its terms, the court declined to recognize ABX as a third-party beneficiary. Eastern Aviation was only an incidental beneficiary because the contract required ABX to pay BAC, and it had. The court distinguished a hypothetical case in which ABX instead promised to pay BAC's creditors in order to obtain BAC's performance. (Id. at p. 1453.) In support of this distinction, it cited an illustration from section 302 of the Restatement Second of Contracts: " 'B promises A to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D, and E. If the promise is interpreted as a promise that B will pay C, D and E, they are intended [i.e., third-party] beneficiaries . . . if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries. ' " (Eastern Aviation, at p. 1453 fn. 4, quoting Rest.2d Contracts, § 302, com. b, illus. 3.) By this logic, Burgoyne is an incidental beneficiary because Tiger ("B" in the illustration) gave her calculation to Kronenberger Rosenfeld ("A") so that the firm could transmit the calculation to Burgoyne ("C," "D," or "E"). Tiger undertook to provide nothing directly to Burgoyne.
Burgoyne argues that he is a particular kind of third-party beneficiary called a "creditor beneficiary." "A creditor beneficiary is a party to whom a promisee owes a preexisting duty which the promisee intends to discharge by means of a promisor's performance." (Souza, supra, 135 Cal.App.4th at p. 894.) Burgoyne argues that Kronenberger Rosenfeld is a promisee with a preexisting duty to arrange for an accountant to calculate his payout amount, and that the firm intended to discharge that obligation by means of Tiger's performance.
This argument conflates Kronenberger Rosenfeld's obligations under the partnership agreement with Tiger's obligations under the contract. Under article 8.7 of the partnership agreement, the law firm and its chairman have the following pre-existing duties. They must (a) select an outside accountant, (b) arrange for her to make the payout calculation, (c) certify that the calculation is in accordance with article 8, and (d) deliver the certified calculation to the former partner with backup data if requested. Kronenberger Rosenfeld performed each of these pre-existing duties. It did not contract any of these tasks out to Tiger. Tiger's contractual obligation was (in addition to other income tax-related work) to calculate Burgoyne's payout amount according to the principles of article 8. Her work enabled Kronenberger Rosenfeld to fulfill its own obligations to Burgoyne, but did not itself fulfill the firm's obligations.
This distinction is important. "A person cannot be a creditor beneficiary unless the promisor's performance of the contract will discharge some form of legal duty owed to the beneficiary by the promisee." (Martinez v. Socoma Cos., Inc. (1974) 11 Cal.3d 394, 400.) Souza, which is Burgoyne's lead case on what it means to be a creditor beneficiary, illustrates how important precision is in this analysis. In Souza, the promisees were tenant farmers who owed the would-be third-party beneficiaries, their landlords, a legal duty to pay water bills during their tenancy. (Souza, supra, 135 Cal.App.4th at p. 894.) The promisor was the defendant water district, which entered into a contract to provide water to the tenants. The court assumed for the sake of argument that the water district, in this contract, made a promise to collect payment up front for water services, a promise that would have worked to the landlords' benefit because it would have prevented what occurred in this case: the tenants never paid a portion of their water bill, so their debt was added to an assessment on the property that the landlords then had to pay. (Id. at pp. 883-884, 894.) The court found that, even though the promisees owed their landlords a legal duty (i.e., to pay their water bill), and even though the effect of the promisor water district complying with its contractual promise to collect full payment up front would have been the discharge of this duty, the landlords were not creditor beneficiaries. The difference is that the district's promise was not to perform the promisees' duty (i.e., to pay their water bill), but to collect payment in a manner that ensured the promisees would satisfy their own obligation to the third-party landowners. (Id. at p. 894.) By analogy here, Burgoyne is not a creditor beneficiary because the accountants' promise was not to perform Kronenberger Rosenfeld's duty (i.e., to commission, certify, and deliver a payout calculation) but to make the calculations that would enable Kronenberger Rosenfeld to satisfy its own obligations to Burgoyne.
Whether Burgoyne is a third-party beneficiary of the contract is a question of fact (Souza, supra, 135 Cal.App.4th at p. 891), but we find no triable issue of material fact here, where the undisputed facts admit to only one reasonable conclusion. (See Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 856.) Because the accountants performed their work for Kronenberger Rosenfeld and not for Burgoyne, and because the accountants facilitated Kronenberger Rosenfeld in complying with its own legal duties to Burgoyne but did not themselves discharge those duties, no reasonable jury could find that Burgoyne is a third-party beneficiary to the accountants' contract with Kronenberger Rosenfeld.
C. No Fraudulent Concealment Claim Because Defendants Owe Burgoyne No Duty to Disclose
Burgoyne's third cause of action against the accountants is for fraudulent concealment, specifically for concealing that with his departure Kronenberger held all the remaining equity in the firm, so Burgoyne's payout should have been calculated on the basis of the partnership's dissolution instead of one partner's termination. Burgoyne argues that the accountants undertook to disclose his payout amount, and in so doing actively communicated on an issue while suppressing material information. Burgoyne ignores that the accountants communicated not with him, but with Kronenberger, so these communications give rise to no duty to disclose facts to Burgoyne.
To maintain a cause of action for fraudulent concealment, a plaintiff must establish that a defendant had a duty to disclose. Fraudulent concealment can occur where a defendant " 'actively conceals a material fact from plaintiff' " or " 'makes partial representations but also suppresses some material facts,' " but only if "some other relationship between the plaintiff and defendant" gives rise to a duty to disclose. (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336-337 (LiMandri).) The requisite relationship "can only come into being as a result of some sort of transaction between the parties." (Id. at p. 337.) For example, "a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement." (Ibid.)
Here, the accountants had no relationship with Burgoyne, and the only transaction into which they entered was the contract with Kronenberger Rosenfeld. Under the rule of LiMandri, supra, 52 Cal.App.4th 326, the only duty to disclose to which such a transaction can give rise runs to Kronenberger Rosenfeld as the other participant in the transaction, not to Burgoyne. (See id. at pp. 336-337.)
The primary case on which Burgoyne relies, Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, does not teach otherwise. In Vega, the plaintiff owned shares in a company being acquired by defendant's client in a merger transaction. (Id. at p. 287.) Defendant law firm undertook to inform plaintiff about a financing transaction the acquiring company was negotiating while the merger was pending, but the disclosure that the firm made omitted allegedly material facts. (Id. at p. 288.) On demurrer, the defendant argued it owed no legal duty to the plaintiff, but the court disagreed. "[A] lawyer communicating on behalf of a client with a nonclient may not knowingly make a false statement of material fact to the nonclient." (Id. at p. 291.) Having undertaken to disclose the financing transaction to the plaintiff, the firm was "not at liberty to conceal a material term." (Id. at p. 292.) Two things distinguish Vega from our case. First, the defendant law firm in Vega communicated with the plaintiff, making the alleged misrepresentations directly to him. Here, the accountants had no communication with Burgoyne; they made no representations of any kind to him. Second, the defendant in Vega communicated on behalf of a client that was in the midst of a buyer-seller transaction with plaintiff. In our case, there is no buyer-seller relationship or any comparable transaction between the accountants and the plaintiff.
Burgoyne argues that it is not fatal to his case that the accountants' representations traveled to Burgoyne through Kronenberger because courts have imposed liability on a nondisclosing defendant whose relationship with the plaintiff is more tenuous than the relationship here. Burgoyne cites two cases, both involving residential real estate, in which courts found that a property seller had a duty to disclose running, not only to the immediate purchaser, but also to parties who purchased the property from the original purchaser in resale transactions. (See Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 605-609 (Geernaert); Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 191-193 (Barnhouse).) In Barnhouse, the court reversed a nonsuit in favor of defendant property developers, finding that the developers owed a duty to disclose property conditions upon sale of a home, and if they failed to disclose conditions that were also not disclosed when the purchaser resold the home to another, then they could in appropriate circumstances be liable to that subpurchaser. (Id. at pp. 190-191.) Appropriate circumstances include that the subpurchaser " 'act[ed] in justifiable reliance upon the misrepresentation.' " (Id. at p. 191, quoting Rest.2d Torts, § 533.) The court reasoned that "it would be anomalous if liability for damages resulting from fraudulent concealment were to vanish simply because of the fortuitous event of an intervening resale." (Barnhouse, at pp. 192-193.) It was "most important," said the court in Barnhouse, that "the rule we announce does not extend the vendor's liability at all—it merely fails to reduce it." (Id. at p. 193.) In Geernaert, the court followed the same analysis to the same conclusion, reversing a defense judgment entered on demurrer. (Id. at pp. 605-609.)
Geernaert and Barnhouse do not help Burgoyne because he is not an indirect purchaser, and his circumstances are otherwise not analogous to those of the plaintiffs in those cases. Burgoyne does not allege (and has produced no evidence to support) that the accountants fraudulently concealed anything from Kronenberger Rosenfeld, the entity to whom they had a duty to disclose. Kronenberger surely knew who held what equity in the law firm after Burgoyne departed, so the accountants could not have concealed this fact from the firm. And if the legal consequences of the equity distribution were that the partnership dissolved rather than continued without Burgoyne, that is a conclusion the law firm could have reached without relying on its accountants to disclose it. On these facts, defendants could not have been liable to Kronenberger Rosenfeld for fraudulent misrepresentation. Therefore, unlike in Barnhouse and Geernaert, if we were to find a duty owing to Burgoyne, we would be extending defendants' liability, not merely failing to reduce it. We decline to do so, especially because Burgoyne has also produced no evidence of justifiable reliance on the nondisclosures of which he complains.
In sum, we find as a matter of law that Tiger and her firm owed no duty of disclosure to Burgoyne. On the fraudulent concealment cause of action, as with the other two, we agree with the trial court that there is no triable issue of material fact and defendants have established they are entitled to prevail as a matter of law.
DISPOSITION
Summary judgment is affirmed. Defendants are entitled to their costs on appeal.
/s/_________
Tucher, J. We concur: /s/_________
Richman, Acting P.J. /s/_________
Miller, J.
Judge of the Alameda County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------