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Olson v. Automobile Club of Southern California

California Court of Appeals, Second District, Fifth Division
Apr 20, 2009
No. B201428 (Cal. Ct. App. Apr. 20, 2009)

Opinion

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. BC334646, William F. Fahey, Judge.

Law Offices of Thomas K. Bourke, Thomas K. Bourke and Rizwan R. Ramji; Mark Kester Brown; and Michael A. Lotman for Plaintiffs and Appellants.

Morrison & Forester, Charles E. Patterson, John Moleskin and Howard B. Solo way for Defendants and Respondents.


MOSK, J.

INTRODUCTION

The Automobile Club of Southern California (Club) is a nonprofit mutual benefit corporation (Corp. Code, § 7110 et seq.). In 2003, the Club’s board of directors (the Board) recommended to the Club’s members that they approve an amendment to the Club’s bylaws (the bylaws amendment) providing that the Club’s directors would be selected by the Board rather than elected by the members. Such a procedure is permitted by Corporations Code section 7220, subdivision (d). The members voted overwhelmingly to approve the amendment (the bylaws election).

Corporations Code, section 7220, subdivision (d) provides, “Subdivisions (a) through (c) notwithstanding, all or any portion of the directors authorized in the articles or bylaws of a [nonprofit mutual benefit] corporation may hold office by virtue of designation or selection as provided by the articles or bylaws rather than by election by a member or members. Such directors shall continue in office for the term prescribed by the governing article or bylaw provision, or, if there is no term prescribed, until the governing article or bylaw provision is duly amended or repealed, except as provided in subdivision (e) of Section 7222. A bylaw provision authorized by this subdivision may be adopted, amended, or repealed only by approval of the members (Section 5034).”

Plaintiffs and appellants Carl Olson (Olson), Hugh Littleton (Littleton) and Gerald E. Luann, Jr. (Luann) (collectively, plaintiffs) sued the Club to overturn the results of the bylaws election. Plaintiffs asserted seven claims for relief in their operative second amended complaint (SAC), alleging that the bylaws amendment and the bylaws election violated a variety of statutory provisions, and that the Club improperly had obtained its members’ approval of the bylaws amendment by making false and misleading statements. The trial court disposed of five of plaintiffs’ claims by demurrer or summary adjudication. Plaintiffs’ two remaining claims—for breach of fiduciary duty and unfair competition (Bus. & Prof. Code, § 17200)—were tried to the trial court. The trial court ruled for defendants, concluding that (1) the Club did not owe fiduciary duties to its members; (2) even if the Club did owe fiduciary duties to its members, it did not violate any such duties; and (3) plaintiffs lacked standing to assert an unfair competition claim.

Plaintiffs also sued the Interinsurance Exchange of the Automobile Club (Exchange). We refer to the Club and the Exchange collectively as defendants. The Board’s individual members were not named as defendants.

On appeal, plaintiffs assert that the trial court erred by: (1) excluding plaintiffs’ expert witnesses because plaintiffs failed timely to exchange expert witness information; (2) improperly considering the testimony of defendants’ experts, whose testimony invaded the province of the trier of fact; (3) improperly striking testimony on attorney-client privilege grounds after having found that the Club had waived the privilege; (4) erroneously concluding that the Club had no fiduciary duties to its members; (5) erroneously concluding that plaintiffs lacked standing to assert an unfair competition claim; (6) erroneously sustaining the Club’s demurrer to plaintiffs’ cause of action for “inequitable solicitation”; and (7) erroneously granting summary adjudication in favor of defendants on plaintiffs’ claims under various provisions of the Insurance and Corporations Codes.

We conclude that none of plaintiffs’ contentions has merit. We therefore affirm the judgment.

BACKGROUND

A. Factual Background

We state the facts in the light most favorable to the trial court’s decision, resolving all conflicts and indulging all reasonable inferences to support the judgment. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053, abrogated on another ground as stated in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100.) To the extent the trial court’s findings of fact are not challenged on appeal, we accept the facts set forth in the trial court’s statement of decision. (See City of Merced v. American Motorists Ins. Co. (2005) 126 Cal.App.4th 1316, 1322-1323.)

The Club was founded in 1900 and is a nonprofit mutual benefit corporation. It provides services to its members, including roadside assistance, insurance and travel planning. By 2003, the Club had approximately 3.5 million “primary” members who were eligible to vote. Primary members paid dues of $47 per year. A membership expired at the end of each year. Memberships could not be sold, transferred or renewed indefinitely. The parties stipulated that members joined the Club to obtain the services the Club provides.

Prior to the bylaws amendment, the Club’s directors were to be elected to serve three year terms. Four of the Club’s 12 directors were elected each year. The Board’s nominating committee would propose four candidates for each election. If the Board’s candidates were not opposed, the unopposed candidates would be declared elected without an election. Opposing candidates could be nominated by the Club’s members by a petition signed by 1/20th of one percent of the Club’s voting members.

In the first 102 years of the Club’s existence, only four Board elections were contested—the first in 1971, and three consecutive elections in 2001, 2002 and 2003. No opposition candidate was ever elected.

The 1971 contested election resulted in a trio of appellate decisions resulting in various judicially mandated changes to the Club’s procedures for electing directors. (Braude v. Havenner (1974) 38 Cal.App.3d 526 (Braude I); Braude v. Automobile Club of Southern Cal. (1978) 78 Cal.App.3d 178 (Braude II); Braude v. Automobile Club of Southern Cal. (1986) 178 Cal.App.3d 994 (Braude III).) These cases are referred to collectively as the Braude cases.

Olson was a losing opposition candidate in the 2001 election. He filed a lawsuit concerning the 2001 election and obtained a declaratory judgment relating to some of the Club’s procedures for contested elections. He was awarded no monetary damages, however, and did not succeed in having the results of the 2001 election overturned. The judgment was affirmed with modifications by Division Two of this court in an opinion certified for partial publication that was subsequently superseded by the Supreme Court’s grant of review on a limited issue. (Olson v. Automobile Club of Southern Cal. (2006) 139 Cal.App.4th 552, superseded and afford. on expert fee issue (2008) 42 Cal.4th 1142.)

The trial court took judicial notice of the Court of Appeal’s full slip opinion in Olson v. Automobile Club of Southern Cal. (Apr. 21, 2006, B168730) [partial pub. opn.] (Olson I), superseded and affd. (2008) 42 Cal.4th 1142. On our own motion, we do the same. (Evid. Code, §§ 452, 459, subd. (a); see Deschene v. Pinole Point Steel Co. (1999) 76 Cal.App.4th 33, 37, fn. 2.) All further references to Olson I are to the slip opinion.

The three contested elections between 2001 and 2003 cost the Club, in total, more than $9 million and consumed a great deal of time. The Board considered various options to avoid such expenditure of money and time in the future, and unanimously decided to recommend the bylaws amendment to the Club’s members. The Club sent three mailings to its members with respect to the bylaws amendment: (1) a ballot and a letter dated August 4, 2003 from the Club’s president, Thomas McKernan, Jr.; (2) an Information Statement, also dated August 4, 2003, setting forth the reasons for and intended effects of the bylaws amendment; and (3) another ballot and a second letter from Thomas McKernan, Jr., urging members to vote. Of the 1.1 million members who voted, 82 percent voted in favor of the bylaws amendment.

B. Procedural Background

Plaintiffs filed this action in mid-2005. In July 2006, after the trial court sustained demurrers to both their original and first amended complaints, plaintiffs filed the SAC. Plaintiffs alleged seven causes of action:

1. The 2003 bylaws election was void because it constituted the “sale” of a “security” under Insurance Code section 821.5, such that the Club was required but had failed to obtain a permit from the Insurance Commissioner (Ins. Code, §§ 827, 831).

2. The Club violated Corporations Code section 7220, subdivision (d) and “the common law” by soliciting members’ consent to the bylaws amendment through the use of misleading statements and omissions of material facts.

3. The Club breached fiduciary duties to its members and aided and abetted the breach of fiduciary duties by its officers and directors and the Exchange by, among other things, disseminating the Information Statement, which was misleading.

4. Defendants violated Insurance Code section 1308 by refusing to hold an election to permit the Exchange’s subscribers to adopt rules for selecting members of the Exchange’s Board of Governors.

5. The Exchange’s Subscriber’s Agreement was unconscionable under Civil Code section 1670.5 because it required the Exchange’s subscribers “to agree to unknown, unusual, and secret provisions in the Exchange Board of Governors Rules and Regulations” with respect to the distribution of the Exchange’s surplus in the event of the Exchange’s dissolution.

6. The Club violated Corporations Code section 8322 by failing to disclose “annually the indemnifications and advances of expenses for” its directors.

7. Defendants violated Business and Professions Code section 17200 by using misleading statements and material omissions to deceive “thousands” of the Club’s members into voting to approve the bylaws amendment.

In August 2006, defendants demurred to plaintiffs’ second and fifth causes of action. The trial court sustained the demurrers without leave to amend. In October 2006, defendants moved for summary adjudication of plaintiffs’ first, fourth and sixth causes of action. The trial court granted summary adjudication for defendants on all three causes of action.

Plaintiffs make no claim of error with respect to their fifth cause of action.

Plaintiffs’ third (breach of fiduciary duty) and seventh (unfair competition) causes of action were tried to the trial court over seven days in February 2007. On May 9, 2007, the trial court issued a written statement of decision finding for defendants on both of plaintiffs’ claims. With respect to plaintiffs’ claim for breach of fiduciary duty, the trial court concluded as a matter of law that the Club (as distinct from its directors, who were not defendants) owed no relevant fiduciary duties to its members. In the alternative, the trial court found that, even if the Club did owe fiduciary duties to its members, plaintiffs had failed to prove a breach of those duties. With respect to plaintiffs’ unfair competition claim, the trial court found that (1) plaintiffs had failed to demonstrate that they had suffered any injury in fact because the Club had not made any deceptive statements and plaintiffs were not misled by any statement disseminated by the Club; (2) absent deception by the Club, plaintiffs could not have been “injured” by the outcome of a fairly contested election; (3) the right to vote in contested director elections was not “money or property” under Business and Professions Code section 17204; (4) plaintiffs had failed to prosecute their claim as a class action, as required for representative actions by Business and Professions Code section 17203; and (5) the balance of the equities “conclusively” favored the Club and its members who voted to approve the bylaws amendment.

The trial court entered judgment in favor of defendants. Plaintiffs timely appealed.

Plaintiffs elected to proceed by appendix rather than a clerk’s transcript. (Cal. Rules Ct., rule 8.124(a)(1).) Plaintiffs have not followed the applicable appellate rules by including in their appendix a substantial amount of material that is unnecessary for proper consideration of the issues raised on appeal (rule 8.124(b)(2)(A)), and by failing to include their notice of election (rule 8.124(b)(1)(C)), the register of actions (rules 8.122(b)(1)(F), 8.124(b)(1)(A)) and their notice of appeal (rules 8.122(b)(1)(A), 8.124(b)(1)(A)). The notice of election and notice of appeal are in the court’s file, and we order the record augmented to include them. (Rule 8.155(a)(1)(A).) Although we do not condone plaintiffs’ failure to follow the applicable rules of court, we do not sanction plaintiffs for their noncompliance. (Rule 8.124(g).)

DISCUSSION

A. Evidential Rulings

1. Exclusion of Plaintiffs’ Experts

a. Additional Background

On November 21, 2006, defendants served on plaintiffs a demand for the simultaneous exchange of expert witness information pursuant to Code of Civil Procedure section 2034.230. The demand called for the exchange to occur on December 18, 2006. On that date, defendants designated five expert witnesses and served on plaintiffs the information required by Code of Civil Procedure section 2034.260. Plaintiffs, however, neither designated expert witnesses nor provided a statement that they did not presently intend to offer expert testimony, as required by Code of Civil Procedure section 2034.260, subdivision (b). Plaintiffs concede that they thus violated section 2034.260.

On December 20, 2006, Howard Solo way, counsel for defendants, telephoned counsel for plaintiffs, Michael Lotman. Mr. Solo way informed Mr. Lotman that defendants had designated experts, and asked Mr. Lotman if plaintiffs had designated any experts. Mr. Lotman told Mr. Solo way that they had not. Mr. Lotman confirmed by email that same day that he had “informed [Mr. Solo way] that plaintiffs had not designated any experts.”

On January 5, 2007, plaintiffs served a Supplemental Expert Witness List in which they purported to designate two “supplemental” experts pursuant to Code of Civil Procedure section 2034.280. The first of plaintiffs’ experts was D. Gerald Spearfish, an accounting professor at the University of Utah who had served as an expert witness in Olson I. Professor Spearfish was designated to testify on six specified topics “or [to] provide rebuttal testimony to some or all of the testimony given by lay or expert witnesses, including but not limited to” all five of the experts designated by defendants. The specific topics Professor Spearfish was designated to testify about included (1) whether membership in the Club is a security under California law; (2) whether the Information Statement was adequate; (3) whether the Club’s Board had complied with its fiduciary duties; (4) whether Club members were interested in “the financial operation or management of the group”; (5) whether members would have been likely to vote differently had the Information Statement included “additional information”; and (6) “[a]ll financial or accounting issues.”

Plaintiffs’ other expert was Jesse M. Fried, a law professor at Bo alt Hall School of Law. Professor Fried was designated to testify regarding “the adequacy of the Information Statement and regarding other information submitted to the members of the Auto Club in connection with the bylaw amendment proposal. In addition, he may be asked to testify in rebuttal to some, or all of the testimony given by lay or expert witnesses, including but not limited to” all five of defendants’ experts.

On January 12 and 13, 2007, plaintiffs offered to make their experts available for deposition on Thursday, January 25 and Friday, January 26, 2007. Trial was scheduled to commence on Monday, February 5, 2007.

On January 16, 2007, defendants moved to strike plaintiffs’ supplemental expert designation and plaintiffs cross-moved for leave to submit a tardy expert designation, stating that as of the date of the initial expert information exchange, they did not intend to offer expert testimony. Plaintiffs argued that, as of the December 18, 2006 expert information exchange, they did not intend to call any expert witnesses, and their failure to serve notice to that effect pursuant to section 2034.260, subdivision (b)(2) was inadvertent.

The trial court rejected plaintiffs’ argument and struck plaintiffs’ expert designation. The trial court found that, by delaying their expert witness designation by 17 days and by not offering their experts for deposition until January 25 and 26, 2007, “[p]plaintiffs have seriously prejudiced defendants [sic] ability to prepare for trial.”

b. Applicable Principles and Standard of Review

Code of Civil Procedure section 2034.210 provides that “any party may obtain discovery by demanding that all parties simultaneously exchange information concerning each other’s expert trial witnesses....” The demand must be in writing (Code Civ. Proc., § 2034.230, subd. (a)) and “specify the date for the exchange of lists of expert trial witnesses, expert witness declarations, and any demanded production of writings.” (Code Civ. Proc., § 2034.230, subd. (b).) On or before the date specified, all parties to the action must provide either “[a] list setting forth the name and address of any person whose expert opinion that party expects to offer in evidence at the trial” (Code Civ. Proc., § 2034.260, subd. (b)(1)), or “[a] statement that the party does not presently intend to offer the testimony of any expert witness.” (Code Civ. Proc., § 2034.260, subd. (b)(2).)

Furthermore, “[w]within 20 days after the exchange described in Section 2034.260, any party who engaged in the exchange may submit a supplemental expert witness list containing the name and address of any experts who will express an opinion on a subject to be covered by an expert designated by an adverse party to the exchange, if the party supplementing an expert witness list has not previously retained an expert to testify on that subject.” (Code Civ. Proc., § 2034.280, subd. (a).) Parties designating supplemental experts must “make those experts available immediately for a deposition....” (Code Civ. Proc., § 2034.280, subd. (c).) If a party unreasonably fails, among other things, to designate an expert or make an expert available for deposition, the trial court must exclude that expert’s opinions from evidence. (Code Civ. Proc. § 2034.300, suds. (a), (d); see generally, 2 Weil et al., California Practice Guide: Civil Procedure Before Trial (The Rutter Group 2008) ¶¶ 8:1708-8:1719.6, pp. 8J-30 to 8J-35.)

A party who has failed to make a timely expert witness designation may move for “leave to submit that information on a later date,” provided the motion is made sufficiently in advance of the expert discovery cutoff to permit the expert to be deposed within that time limit. (Code Civ. Proc., §§ 2034.710, 2024.030 [expert discovery cutoff 15 days prior to trial].) The trial court may grant such a motion only if it determines, among other things, that the opposing party will not be prejudiced; the moving party’s failure timely to submit expert information was the result of mistake, inadvertence, surprise, or excusable neglect; and the moving party acted promptly to rectify its error. Any order granting such a motion must be “conditioned on the moving party making the expert available immediately for a deposition....” (Code Civ. Proc., § 2034.720.)

We review the trial court’s order excluding plaintiffs’ experts for abuse of discretion. (Stanch field v. Namer Toyota, Inc. (1995) 37 Cal.App.4th 1495, 1504; see also DePalma v. Rodriguez (2007) 151 Cal.App.4th 159, 164.) It is the appellant’s burden affirmatively to demonstrate error and, where the evidence is in conflict, we will not disturb the trial court’s findings. (Sinaiko Healthcare Consulting, Inc. v. Pacific Healthcare Consultants (2007) 148 Cal.App.4th 390, 401.) We will reverse only if the trial court’s ruling was arbitrary or capricious. (Ibid.)

c. Discussion

Plaintiffs argue, in essence, that as of December 18, 2006, they did not intend to call expert witnesses. Because of a miscommunication among plaintiffs’ co-counsel, they failed to serve a statement to that effect in a timely manner, as required by Code of Civil Procedure section 2034.260. But for that error, plaintiffs contend, their supplemental designation of experts pursuant to section 2034.280 would have been timely. Plaintiffs’ counsel had informed defense counsel on December 20, 2006 that plaintiffs had not designated experts, which was the same day that plaintiffs received defendants’ expert designation in the mail. Thus, plaintiffs argue, defendants learned of plaintiffs’ initial intent not to call expert witnesses and plaintiffs’ supplemental designation of experts at the same time they would have had plaintiffs been in technical compliance with the statute. Plaintiffs thus assert that defendants suffered no prejudice. As a result, plaintiffs contend, the trial court excluded their experts because of a mere “hyper-technical” violation of section 2034.260.

Although plaintiffs’ argument might have some superficial appeal, our review of the entire record indicates that it is based on a faulty premise. It appears that the trial court excluded plaintiffs experts not because plaintiffs failed timely to service notice that they did not intend to designate experts, but because plaintiffs improperly attempted to use a supplemental expert designation pursuant to Code of Civil Procedure section 2034.280 to designate experts that reasonably should have been designated in plaintiffs’ initial exchange of expert information pursuant to section 2034.260. (Fairfax v. Lords (2006) 138 Cal.App.4th 1019, 1021.)

This was the gist of defendants’ argument in the trial court, and the trial court’s remarks during the hearing indicate that the trial court found this argument persuasive. The trial court stated, “[T]here’s no question that you [plaintiffs’ counsel] missed that meeting [to designate experts] that was properly noticed, and there’s no question, it seems to me, that as of December 20 you were on notice that... you had not properly designated, and yet you waited 15 days to file what was denominated by you a so-called supplement [sic] expert witness list. [¶] I think that probably violates the literal language of the Code of Civil Procedure 2034, et seq., but also, the spirit of it as well, because what it does is not only delays the proceeding, were it late in the pretrial process here, but it gave you effectively 15 additional days to try to obtain experts in response to the defendants’ designation.” In response to plaintiffs’ argument that the error was inadvertent, the trial court stated, “With all the lawyers you [plaintiffs’ counsel] have working on your team, I’m just, frankly, surprised that, A, you didn’t make the meeting, B, you waited another 15 days, because I think a reasonable inference is that you took your time to try to respond to their designation. And that’s not what the Code is about. And that effectively gives you the right... for them to have to depose your witnesses late in the proceeding on the eve of trial, and I just don’t think that’s what the purpose of the Code is.” (Italics added.)

The trial court also was unimpressed by plaintiffs’ argument that they had designated experts only in response to defendants’ designations: “This case was filed on June 8, ’05, so you’re telling me that it wasn’t until the 5th or immediately preceding the 5th of January, ’07 that the question of experts and identifying them arose?” In its minute order granting defendants’ motion, the trial court concluded, “Defendants persuasively have shown that plaintiff[s] violated CCP 2034.260. Further, by waiting until 01-05-07 to ‘designate’ experts—some 17 days after defendants designated their experts—and by not offering their experts for deposition until January 25, and 26, 2007, Plaintiffs have seriously prejudiced defendants [sic]ability to prepare for trial.”

The trial court did not abuse its discretion. “[T]he very purpose of the expert witness discovery statute is to give fair notice of what an expert will say at trial. This allows the parties to assess whether to take the expert’s deposition, to fully explore the relevant subject area at any such deposition, and to select an expert who can respond with a competing opinion on that subject area.... ‘[T]he need for pretrial discovery is greater with respect to expert witnesses than it is for ordinary fact witnesses [because]... [¶]... the other parties must prepare to cope with witnesses possessed of specialized knowledge in some scientific or technical field. They must gear up to cross-examine them effectively, and they must marshal the evidence to rebut their opinions.’ [Citation.] ‘Late disclosure of experts... frustrates the very purposes of the discovery statutes, and should be permitted, with appropriate safeguards and limits, only when absolutely necessary to avoid a miscarriage of justice.’ [Citation.]” (Bonds v. Roy (1999) 20 Cal.4th 140, 146-147.)

The statute therefore requires the simultaneous exchange of expert witness information. (Code Civ. Proc., § 2034.210, subd. (a); Fairfax v. Lords, supra, 138 Cal.App.4th at p. 1021.) “‘The rules of discovery contemplate two-way disclosure and do not envision that one party may sit back in idleness and savor the fruits which his adversary has cultivated and harvested in diligence and industry. Mutual exchange of data provides some protection against attempted one-way disclosure; the party seeking discovery must be ready and willing to make an equitable exchange. [Citations.]’ [Citation.]” (City of Fresno v. Harrison (1984) 154 Cal.App.3d 296, 301.)

Although not directly on point, we find the decision in Fairfax v. Lords, supra, 138 Cal.App.4th 1019, instructive. In that case, the plaintiff brought a medical malpractice claim against a physician. (Id. at p. 1022.) The physician made a demand for the exchange of expert witness information, and thereafter timely served a “First Designation of Expert Witness” in which he stated that he was “not designating any retained experts” at that time, but that he “expressly reserve[d] the right to designate experts in rebuttal to [the plaintiff’s] designations.” The plaintiff timely designated one expert witness. (Ibid.) The physician then served a “Second Designation of Expert Witnesses” in which he purported to designate two expert witnesses. (Id. at p. 1023.) The plaintiff moved in liming to strike the physician’s expert designation (ibid.), but the trial court denied the motion. (Id. at p. 1025.) The physician called one of the experts so designated to testify, and the physician prevailed at trial. The plaintiff appealed, arguing inter leviathan the trial court erred by not striking the physician’s expert designation. (Ibid.)

The Court of Appeal reversed. “In this case,” the court stated, “we conclude that ‘simultaneous’ means ‘occurring at the same time.’ We recognize the folks at Merriam Webster reached that same conclusion some time ago, but in light of what occurred in this case, it apparently bears repeating.” (Fairfax v. Lords, supra, 138 Cal.App.4th at p. 1021.) The statute governing the exchange of expert information “require[s] a ‘simultaneous’ exchange of information, in which each side must either identify any expert witnesses it expects to call at trial, or state that it does not intend to rely upon expert testimony. When it comes to issues that both sides anticipate will be disputed at trial, a party cannot merely ‘reserve its right’ to designate experts in the initial exchange, wait to see what experts are designated by the opposition, and then name its experts only as purported ‘rebuttal’ witnesses.” (Ibid., italics added.) “The effect of [the physician’s] expert designation,” the court reasoned, “was to delay his own list of ‘expected’ witnesses until after he had seen the list put forth by [the plaintiff].” (Id. at p. 1026.) “[The plaintiff] designated only one retained expert, to address the only real disputed issue in this case.... Because [the physician] had every reason to anticipate such a designation, he had a corresponding obligation to designate whatever expert he expected to have testify on the issue at the same time.” (Id. at p. 1027.) The physician “had no right to simply delay his designation of retained experts until after he had the opportunity to view the designation timely served by [the plaintiff],” and the trial court erred by refusing to strike his designation. (Id. at p. 1027.)

In this case, the trial court reasonably concluded that plaintiffs had violated both the letter and the spirit of the statutes governing the exchange of expert witness information. There is no dispute that plaintiffs violated Code of Civil Procedure section 2034.260 by failing timely to respond to defendants’ demand for the exchange of expert witness information. Because plaintiffs did not “engage[] in the [initial] exchange,” plaintiffs were disqualified from designating supplemental experts under Code of Civil Procedure section 2034.280, subdivision (a).

Further, even if plaintiffs had timely served a statement that they did not intend to offer expert testimony pursuant to Code of Civil Procedure section 2034.260, subdivision (b)(2), a supplemental expert designation is permitted only to designate “experts who will express an opinion on a subject to be covered by an expert designated by an adverse party to the exchange, if the party supplementing an expert witness list has not previously retained an expert to testify on that subject.” (Code Civ. Proc., § 2034.280, subd. (a), italics added.) The so-called supplemental designation by plaintiffs in this case, however, stated that plaintiffs’ experts were to testify as to numerous specified matters, or in the alternative that they “may be asked to testify in rebuttal to some, or all of the testimony” given by any lay or expert witness, including all five of defendants’ experts. Plaintiffs’ designation thus indicates that plaintiffs intended their “supplemental” experts to provide affirmative testimony in support of plaintiffs’ case in chief, and not merely testimony to rebut defendants’ experts. The declarations submitted by plaintiffs to the trial court in connection with their motion confirm this. Professor Fried, for example, submitted a detailed 15-page declaration stating that he was prepared to opine that the information provided by the Club to its members was materially misleading on at least five different topics, yet not once did Professor Fried reference either the experts he was supposedly rebutting or the opinions to which they would testify. Similarly, Professor Spearfish submitted a declaration that he was prepared to testify that the Club had failed to provide members with adequate information, yet he mentioned neither the experts he was supposedly rebutting nor any of their opinions. The trial court could thus reasonably conclude that plaintiffs’ “supplemental” designation exceeded the scope of supplemental expert testimony permissible under section 2034.280, subdivision (a).

Further still, the areas of testimony specified by plaintiffs in their designation—such as the “adequacy” of the Information Statement, whether the Club’s Board had complied with their fiduciary duties, and “[a]ll financial and accounting issues”— encompassed almost every disputed issue in the case, on most of which plaintiffs bore the burden of proof. Indeed, in their opening brief on appeal, plaintiffs contend that Professors Fried and Spearfish “would have provided key testimony” in support of plaintiffs’ case. Plaintiffs thus “had every reason to anticipate” the need for expert testimony on those issues, and accordingly “had a corresponding obligation to designate whatever expert [they] expected to have testify on the issue at the same time” as defendants. (Fairfax v. Lords, supra, 138 Cal.App.4th at p. 1027.)

The trial court also reasonably concluded that defendants were prejudiced. As the trial court noted, by delaying their expert designation, plaintiffs gained an unfair advantage. In addition, plaintiffs’ failed to make their “supplemental” experts available for deposition “immediately,” as required by Code of Civil Procedure section 2034.280, subdivision (c). Plaintiffs served their designation on January 5, 2007, but did not make Professors Spearfish and Fried available for deposition until January 25 and 26, 2007—only ten calendar days before trial. The expert designations were extremely broad, and there is no indication in the record that plaintiffs provided expert reports. It was thus questionable whether defendants could complete the expert depositions in the one day allotted, and defendants would have had little time before trial to seek relief if a discovery dispute arose.

Plaintiffs rely on Stanch field v. Namer Toyota, Inc., supra, 37 Cal.App.4th 1495 (Stanch field)and Plunker v. Spalding (1997) 52 Cal.App.4th 114 (Plunker), disapproved on another ground in Prescriber v. Estate of Kaiser (1999) 22 Cal.4th 31, 39-40. Neither case assists plaintiffs.

In Stanch field, supra, 37 Cal.App.4th 1495, the defendant properly designated a damage expert. During his deposition, the damage expert stated that he needed additional time to complete his analysis because he had not yet examined the conclusions of the plaintiff’s damage expert, who had been deposed only that morning. (Id. at p. 1503.) The plaintiff made no attempt thereafter to complete the expert’s deposition, nor did he move prior to trial to exclude the expert’s testimony. (Ibid.) Two weeks into the trial, when the expert was scheduled to testify, the plaintiff made an oral motion to exclude the expert’s testimony on the ground that his deposition was never completed. (Id. at pp. 1503, 1504.) The trial court denied the motion, finding that plaintiff had failed to make reasonable arrangements to continue the deposition or seek appropriate relief prior to trial. (Id. at p. 1503.) The Court of Appeal affirmed, finding that defendant had not “unreasonably” failed to make the expert available for deposition. (Id. at p. 1504.) The issue in Stanch field was thus materially different than the issue in this case. Contrary to plaintiffs’ assertion, the court in Stanch field did not hold that a finding of “gamesmanship” is required to justify the exclusion of an improperly designated expert witness. Moreover, as discussed above, the record in this case supports an implied finding by the trial court that, by delaying their designation of expert witnesses, plaintiffs had engaged in such “gamesmanship.”

In Plunker, supra, 52 Cal.App.4th 114, the plaintiff listed one of her treating physicians as an “retained” expert witness, but she did not provide an expert witness declaration because she believed in good faith that no such declaration was required for an “retained” expert witness. (Id. at pp. 121-122, 135-136.) The trial court refused to let the plaintiff’s treating physician testify regarding standard of care because the plaintiff had not provided an expert witness declaration. (Id. at p. 122.) The plaintiff moved under former section 2034, subdivision (l) to submit a tardy expert witness declaration for her treating physician. (Id. at pp. 122-123.) The trial court denied the plaintiff’s motion; the Court of Appeal reversed, holding that the trial court had abused its discretion. (Id. at pp. 134-137.)

We note that, in their reply brief, plaintiffs argue that Plunkett, supra, 52 Cal.App.4th 114 is controlling, yet in their opening brief plaintiffs cite Plunkett only in a footnote with no discussion.

The Court of Appeal in Plunkett, supra, 52 Cal.App.4th 114, affirmed the trial court’s ruling that a litigant must submit an expert declaration for a treating physician expected to render expert opinion testimony on standard of care. (Id. at pp. 131-132.) That aspect of the court’s holding was overruled in Schreiber v. Estate of Kiser, supra, 22 Cal.4th at pp. 39-40.

Plunker, supra, 52 Cal.App.4th 114, is distinguishable. Unlike the situation in Plunker,the trial court in this case did not make an express finding that plaintiffs acted in good faith (see id. at p. 136), but instead, as explained above, made an implied finding that plaintiffs unreasonably delayed their expert witness designation to gain an unfair advantage. Also unlike the situation in Plunker, the trial court in this case made an express finding that defendants were prejudiced. (Ibid.) Plunker does not control here. The trial court did not abuse its discretion in excluding plaintiffs’ expert witnesses.

2. Defendants’ Experts

Plaintiffs argue that the trial court erred by permitting testimony from two of defendants’ expert witnesses, Professors Lawrence Reichenberg and Robert M. Danes, because such testimony “usurped the province of the trier-of-fact.” Plaintiffs failed to object to the testimony of these witnesses on this basis in the trial court. “‘[A] reviewing court ordinarily will not consider a challenge to a ruling if an objection could have been but was not made in the trial court. [Citation.] The purpose of this rule is to encourage parties to bring errors to the attention of the trial court, so that they may be corrected.’ [Citation.] The critical point for preservation of claims on appeal is that the asserted error must have been brought to the attention of the trial court. (See Evid.Code, § 353, subd. (a) [evidentiary objection must be timely made and articulate specific ground for objection].)” (Boyle v. CertainTeed Corp. (2006) 137 Cal.App.4th 645, 649.) “‘It is unfair to the trial judge and to the adverse party to take advantage of an alleged error on appeal where it could easily have been corrected at trial. [Citations.]’” (Cabrini Villas Homeowners Assn. v. Hanoverian (2003) 111 Cal.App.4th 683, 693.) Plaintiffs therefore forfeited any such contention on appeal.

In their reply brief, plaintiffs urge this court to consider an argument raised in a footnote in their opening brief with respect to whether the trial court erred in excluding as hearsay “hundreds of comments and inquiries received by Defendants from Members with respect to the Election....” We decline to do so because that argument is not stated under a separate heading or subheading, nor do plaintiffs cite authority to support their contention. (Cal. Rules Ct., rule 8.204(a)(1)(B); Sierra Club v. City of Orange (2008) 163 Cal.App.4th 523, 542-543.) In any event, even if we were inclined to consider the argument, plaintiffs have not included in the record on appeal the documents at issue, and therefore have not provided an adequate record to permit review of this issue. (Pacific Hills Homeowners Assn. v. Prun (2008) 160 Cal.App.4th 1557, 1567; Roman Catholic Archbishop of Los Angeles v. Superior Court (2005) 131 Cal.App.4th 417, 462.) Plaintiffs asserted at trial that the evidence should have been admitted under the state of mind exception to the hearsay rule (Evid. Code, § 1250, subd. (a)(1)), but plaintiffs have not articulated on appeal any rationale for applying that exception in this case.

3. Waiver of Attorney-Client Privilege

a. Additional Background

The approval of the bylaws amendment by the Club’s Board was memorialized in a Unanimous Written Consent in Lieu of Meeting, dated as of August 4, 2003 (the Consent). The Consent recites that, during an executive session on May 15, 2003, the Board solicited and received the advice of counsel concerning the Board’s fiduciary duties, the legality of the bylaws amendment, and the adequacy of the Information Statement. The Consent also refers to executive sessions of the Board held on June 19 and July 17, 2003.

Plaintiffs called one of the Club’s directors, Janet Davidson, to testify during their case in chief. During the Club’s examination of Ms. Davidson, the Club elicited testimony about the Consent and about discussions that took place during the executive sessions. Ms. Davidson did not specify in her testimony that counsel was present at the executive sessions.

Later in the trial, the Club’s general counsel, Avery Brown, testified that he was present at the executive sessions of the Board. Plaintiffs sought to inquire of Mr. Brown regarding discussions at the executive sessions. The Club asserted the attorney-client privilege. After reviewing a transcript of Ms. Davidson’s testimony, the trial court overruled the Club’s privilege objection on the ground that Ms. Davidson had waived the privilege by testifying to discussions at the executive sessions, and ordered Mr. Brown to respond to plaintiffs’ inquiries. Over defendants’ objection, plaintiffs thereafter elicited testimony from Mr. Brown regarding discussions at the executive sessions in the presence of counsel.

During trial, the Club brought a written motion to strike all testimony regarding attorney-client communications between Mr. Brown and the Club’s Board. The Club argued that Ms. Davidson had not disclosed a “significant part” of any attorney-client communication for purposes of the waiver provision of Evidence Code section 912, subdivision (a). Defendants argued that Ms. Davidson had testified to discussions among the directors that had been observed by counsel, but she had not testified regarding communications with counsel. Because there was no evidence that counsel was present at the executive sessions for the purpose of providing legal advice, the discussions among Board members did not constitute attorney-client communications.

The trial court observed that Ms. Davidson had testified “extensively” regarding discussions at the executive sessions, and later witnesses had revealed that lawyers were present at those sessions. It would be unfair, the trial court stated, to permit defendants to proffer the testimony of Ms. Davidson regarding the executive sessions, but foreclose plaintiffs from inquiring of others who participated in those meetings. On the other hand, the trial court agreed with defendants that there had been no explicit testimony regarding attorney-client communications. The trial court proposed that one solution would be to strike the testimony of both Ms. Davidson proffered by defendants, and the testimony of Mr. Brown elicited by plaintiffs.

Defendants acquiesced in the trial court’s proposal. Plaintiffs objected, arguing that the testimony the trial court proposed to strike was favorable to plaintiffs. In particular, plaintiffs argued, Ms. Davidson and Mr. Brown had both testified that the Board had only considered one alternative to the bylaws amendment to reduce election costs—specifically, raising the number of signatures required to nominate an opposition candidate—when plaintiffs contended that the Board should have considered other alternatives. The trial court disagreed, observing that there was no dispute that many alternatives to reduce election costs identified by plaintiffs had not been discussed by the Board, and that the Information Statement did not specify any alternatives at all. The trial court therefore granted the motion, and struck all of the testimony of Ms. Davidson and the testimony of Mr. Brown with respect to his participation in the executive sessions.

As discussed post, this is not entirely accurate, as the Information Statement discussed the alternative of lowering the number of votes required to constitute a quorum.

b. Discussion

Whether there is a waiver of the attorney-client privilege is a mixed question of law and fact and is reviewed de novo. (McKesson HBOC, Inc. v. Superior Court (2004) 115 Cal.App.4th 1229, 1236.) Whether the trial court erred in striking testimony is reviewed for an abuse of discretion. (Sarena v. Geoffrey (2008) 159 Cal.App.4th 316, 332.) The appellant has the burden to demonstrate it is reasonably probable a more favorable result would have been reached absent the error. (Cal. Con st., art. VI, § 13; Code Civ. Proc., § 475; Sarena v. Geoffrey, supra, 159 Cal.App.4th at p. 332.)

Even if the trial court erred in reversing its waiver ruling, plaintiffs have failed to identify how they were prejudiced. Although plaintiffs argue that, by striking the testimony of Ms. Davidson and Mr. Brown, the trial court “foreclose[d] Plaintiffs’ opportunity to utilize such testimony,” plaintiffs do not identify the particular testimony that they wished to “utilize,” nor do they explain how it is reasonably probable that such testimony would have produced a more favorable result. Similarly, plaintiffs assert that the trial court “improperly” precluded plaintiffs from inquiring with respect to certain “attorney-related documents” considered by the Board in the executive sessions, but do not identify how they were prejudiced by that ruling. “As stated, we cannot presume prejudice and will not reverse the judgment in the absence of an affirmative showing there was a miscarriage of justice. [Citations.] Nor will this court act as counsel for appellant by furnishing a legal argument as to how the trial court’s ruling was prejudicial. [Citations.] Because [plaintiffs have] failed to establish prejudice, [their] claim of error fails.” (Century Surety Co. v. Polis so (2006) 139 Cal.App.4th 922, 963.) The trial court did not strike the Consent, or the testimony of another member of the Board—including testimony elicited by plaintiffs—concerning the Consent, the Information Statement and the Board’s consideration of the bylaws amendment.

In any event, we have reviewed the testimony of Ms. Davidson and Mr. Brown, and contrary to plaintiffs’ assertions, we find that testimony generally favorable to the Club. The only theory that plaintiffs have articulated to the contrary was the argument of counsel in the trial court that Ms. Davidson’s and Mr. Brown’s testimony demonstrated that the Board had failed to consider alternatives to the bylaws amendment other than raising the number of signatures required to nominate an opposition candidate. But, as the trial court noted, it was undisputed that some of the alternatives to reduce election costs proposed by plaintiffs had not been discussed by the Board, and that the Information Statement did not disclose any such alternatives. The trial court nevertheless found after trial that the Information Statement contained no material omissions or misstatements, and that the Club had satisfied any fiduciary duties it might have owed to its members. (See post Discussion, Part B.1.)

In fact, there was testimony from Steve Lenzi, the Club’s Senior Vice President for Public Affairs, that the Club had considered and rejected other alternatives to the bylaws amendment.

Plaintiffs point to the trial court’s statement that members of the Board relied upon the advice they received from the Board’s attorneys in making their decision. But defendants did not rely upon an advice of counsel defense. And it is unclear how this statement by the trial court could be determinative. We therefore conclude that plaintiffs have failed to demonstrate that it is reasonably probable that the trial court would have reached a more favorable result had it not struck the testimony of Ms. Davidson and Mr. Brown.

B. Trial Findings

1. Breach of Fiduciary Duty Claim

a. Additional Background

Plaintiffs’ third cause of action alleged that the Club owed and breached fiduciary duties to its members and aided and abetted breaches by the Club’s officers and directors. As submitted to the trial court in plaintiffs’ post-trial brief, the alleged breaches consisted of (1) the Club’s failure reasonably to investigate alternatives to the bylaws amendment to reduce the costs of contested elections; and (2) disseminating an Information Statement to members that was “misleading, contained half-truths, and omitted material facts....”

The trial court found for defendants on two alternative grounds. First, the trial court concluded as a matter of law that the Club did not owe fiduciary duties to its members. The trial court noted that plaintiffs had not sued the Club’s individual directors, and plaintiffs had failed to cite statutory authority imposing a relevant fiduciary duty on the Club with respect to its members. The relevant sections of the Corporations Code imposed no such duties on the Club, nor did it impose such duties on the Club’s directors with respect to members. (Corp. Code, § 7231, subd. (a).) This, the trial court reasoned, was in contrast to the corresponding provisions of the Corporations Code applicable to for-profit corporations, which expressly imposed fiduciary duties on directors with respect to a for-profit corporation’s shareholders. (Corp. Code, § 309.) This distinction was consistent with the differences between nonprofit mutual benefit corporations, whose members are not owners of the corporation, and for-profit corporations, whose shareholders are owners of the corporation.

Second, the trial court found that, even assuming that the Club or its directors owed its members common law fiduciary duties with respect to the bylaws election, plaintiffs had failed to prove a breach of those duties. There was evidence that the directors adequately considered the bylaws amendment issue, having devoted three meetings to the issue and sought the advice of outside counsel concerning the bylaws amendment. The Information Statement was not misleading, but provided “copious detail” about the history of the contested elections and the reasons why the Board recommended the bylaws amendment. The Information Statement included condensed financial statements and advised members that more detailed financial statements could be obtained. It included a red-lined version of the bylaws showing the proposed amendments, and biographical information about the directors who had recommended the bylaws amendment to the members. Plaintiffs testified that they had not been deceived by the Information Statement, and plaintiffs had submitted no evidence that anyone else had been deceived. The omissions that plaintiffs alleged were not material and omitting such information represented a reasonable exercise of the directors’ business judgment. The trial court’s findings in this regard were also set forth in its judgment.

b. Discussion

Plaintiffs’ principal argument on appeal is that the trial court erred in concluding as a matter of law that the Club owed no fiduciary duties to its members with respect to the bylaws election. We need not resolve that question, however, because the trial court’s judgment is supported by its findings that, if the Club owed its members fiduciary duties, the Club did not breach those duties. (See Merlin v. Fountain View Management, Inc. (2008) 163 Cal.App.4th 657, 663-664 [judgment will be affirmed if correct on any basis].)

Plaintiffs have forfeited any challenge to the sufficiency of the evidence supporting the trial court’s findings. Plaintiffs’ opening brief contains no direct challenge the sufficiency of the evidence. Moreover, even if we were to interpret Part III of plaintiffs’ opening brief—entitled “Defendants’ omissions and misleading statements to Members”—as a challenge to the sufficiency of the evidence, plaintiffs cite no authority and make no argument that the trial court’s findings were not supported by substantial evidence. “The requirements that issues be raised in the opening brief and presented under a separate argument heading, showing the nature of the question to be presented and the point to be made, are part of the ‘“[o]obvious considerations of fairness”’ to allow the respondent its opportunity to answer these arguments [citation] and also ‘“to lighten the labors of the appellate [courts] by requiring the litigants to present their cause systematically and so arranged that those upon whom the duty devolves of ascertaining the rule of law to apply may be advised, as they read, of the exact question under consideration, instead of being compelled to extricate it from the mass”’ [citation].” (People v. Roscoe (2008) 169 Cal.App.4th 829, 840 ; see also Cal. Rules Ct., rule 8.204(a)(1)(B); Consumer Advocacy Group, Inc. v. ExxonMobil Corp. (2008) 168 Cal.App.4th 675, 694.) “This principle is especially true when an appellant makes a general assertion, unsupported by specific argument, regarding insufficiency of evidence.” (People v. Stanley (2005) 10 Cal.4th 764, 793.)

In Part III of their opening brief, plaintiffs assert that they “demonstrated that Defendants engaged in numerous breaches of fiduciary duty and related misconduct—including distributing [the Information Statement] that was materially misleading and defective by reason of its failures to disclose....” (Footnote omitted.)

In addition, plaintiffs also forfeited any challenge to the trial court’s findings of fact by their failure to set forth all of the material evidence, both favorable and unfavorable to their position. “‘It is well established that a reviewing court starts with the presumption that the record contains evidence to sustain every finding of fact.’ [Citations.] [Plaintiffs’] contention herein ‘requires [them] to demonstrate that there is no substantial evidence to support the challenged findings.’ [Citations.] A recitation of only [plaintiffs’] evidence is not the ‘demonstration’ contemplated under the above rule. [Citation.] Accordingly, if, as [plaintiffs] here contend, ‘some particular issue of fact is not sustained, they are required to set forth in their brief all the material evidence on the point and not merely their own evidence. Unless this is done the error is deemed to be waived.’ [Citations.]” (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881; accord, Oarlock Sealing Technologies, LLC v. NAK Sealing Technologies Corp. (2007) 148 Cal.App.4th 937, 951.)

In footnotes, plaintiffs refer us to their post-trial brief for additional argument and summaries of the evidence on several points. Incorporation of trial court argument by reference in an appellate brief is improper, and we will not consider such matter. (Cal. Rules Ct., rule 8.204(a)(1)(B); Parker v. Wolters Kluwer United States, Inc. (2007) 149 Cal.App.4th 285, 290; Eisenberg, et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2008) ¶ 9:162.5, p. 9-45.)

In any event, even if we were to consider the merits of a challenge to the sufficiency of the evidence, substantial evidence supported the trial court’s findings. Whether a fiduciary has made full disclosure is generally a question of fact. (Toomey v. Mitch um, Jones & Templeton, Inc. (1968) 262 Cal.App.2d 690, 715.) Whether a misstatement or omission is material also is generally a question of fact. (Person v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1163; see also Bengali v. Permanent Medical Group, Inc. (1997) 15 Cal.4th 951, 977.) We review challenges to the sufficiency of the evidence supporting the trial court’s findings of fact under the substantial evidence rule. (Brewer v. Murphy (2008) 161 Cal.App.4th 928, 935.) “Where findings of fact are challenged on a civil appeal, we are bound by the ‘elementary, but often overlooked principle of law, that... the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or contradicted,’ to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor.” (Jes sup Farms v. Baldwin (1983) 33 Cal.3d 639, 660; Brewer v. Murphy, supra, 161 Cal.App.4th at p. 935.) “Substantial evidence” is evidence that is reasonable, credible and of solid value. (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.) “The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record.” (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 652.) We must affirm the judgment if it is supported by substantial evidence, even though substantial contrary evidence also exists. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.)

In their opening brief, plaintiffs identify eight specific misstatements or omissions that they contend were proved at trial:

During oral argument, plaintiffs also argued that the Club should have disclosed to members their potential interest in the Club’s equity and the Exchange’s surplus, the possibility that the Exchange might pay dividends to subscribers, and losses sustained by a Club subsidiary, AAA Texas. Plaintiffs argued these issues at trial, but did not raise them in their opening brief. We therefore do not address them.

(1) mis characterization of the effect of Olson I

Plaintiffs argue that the Club “fail[ed] to disclose the findings of unreasonable practices leading to an election that was ‘essentially meaningless’.” As defendants correctly point out, it is plaintiffs who mis characterize the trial court statement of decision in Olson I by taking the phrase “essentially meaningless” out of context. That phrase was not used by the trial judge in Olson I to refer to the election practices at issue in that case. Rather, the trial judge in Olson I was characterizing a statement made by the trial judge in Brade III with respect to the 1971 election procedures at issue in that case.

See ante, fn. 4.

The Information Statement contained a two-paragraph description of Olson I, stating that the lawsuit was “a broad assault on the Auto Club containing hundreds of allegations, including charges of fraudulent business practices.” The Club disclosed that “[t]he litigation resulted in several procedural changes to the Auto Club’s election process, including the requirement that the proxy materials and candidate statements that must be published in WESTWAYS® magazine also must be separately mailed to every member household.” The Club accurately reported that the court in Olson I refused to overturn the 2001 election results and found against Olson on his allegations of fraudulent misconduct. The Information Statement adequately and accurately disclosed information regarding Olson I.

(2) failure to disclose the election practices that were the subject of the Brade cases

Plaintiffs cite no evidence that the election practices utilized by the Club in 1971 at issue in the Brade cases were relevant to the bylaws election 32 years later. There is no suggestion in the Brade cases that the Club’s directors in 1971 engaged in willful misfeasance or fraudulent misconduct. Moreover, we have seen no evidence in the trial record that the persons managing the Club in 1971 were the same as those managing the Club in 2003. The 1971 election practices at issue in the Brade cases thus do not give rise to any reasonable inference—favorable or unfavorable—with respect to “the competency and integrity of [the Club’s] management” at the time of the 2003 bylaws election.

(3) (a) overstating the costs of contested director elections, and failure to disclose (b) the alternatives to the amendment to reduce the costs of those elections and (c) the costs of the bylaws election itself

The Information Statement stated that “mailings and other activities associated with [contested director] elections have cost the Auto Club in the aggregate over $9 million in out-of-pocket expenses.” John Boyle, an Executive Vice President of the Club and its former Chief Financial Officer, testified that the $9 million cost figure was accurate. Mr. Boyle testified that the Club had tried “to identify what were the direct costs of the elections and would be the ongoing costs of the elections on an ongoing basis so the members had a good understanding of what the economic value or cost would be to hold elections on a prospective basis.” Election costs that would necessarily recur included such items as printed materials, mailing and the tabulation of ballots. The Club excluded from the estimate costs that were either unique to a particular election or impossible to calculate, such as legal fees relating to election challenges, costs incurred in the 2001 election with respect to reprinting and mailing solicitations that the Superior Court had ruled improper, consultants’ fees, and overhead. Defendant’s accounting expert, John Dross O’Bryan, Jr., testified that disclosure of the $9 million figure was both adequate and appropriate. Plaintiffs cite no evidence that the cost of contested director elections was substantially overstated, or that the decision to exclude certain costs from the estimate was not a reasonable exercise of the Club’s business judgment. Accordingly, there was substantial evidence from which the trial court could conclude that the $9 million figure was not misleading.

See ante, fn. 14.

Plaintiffs are incorrect that the Information Statement failed to disclose alternatives to the bylaws amendment. The Information Statement expressly discussed the alternative of reducing election costs by lowering the quorum requirement, and explained why the Board had rejected that alternative. In any event, plaintiffs cite no authority that the Club was required to disclose to its members either (b) alternatives to the bylaws amendment or (c) the costs of the bylaws election. Plaintiffs do not explain how the omission of such information rendered the Information Statement misleading, nor do they cite evidence that, or explain how, such information would have been material to the Club’s members. In the context of an election by members of a nonprofit mutual benefit corporation, the only disclosure affirmatively required by the Corporations Code is that the “ballot shall set forth the proposed action, provide an opportunity to specify approval or disapproval of any proposal, and provide a reasonable time within which to return the ballot to the corporation.” (Corp. Code, § 7513, subd. (a).) Indeed, the Court of Appeal in Olson I expressly affirmed the trial court’s conclusion that the Club was not required to disclose the cost of elections. (Olson I, supra, (Apr. 21, 2006, B168730) slip op. p. 24, affd. on other grounds, (2008) 42 Cal.4th 1142.) The trial court could thus reasonably conclude that these were not material omissions.

(4) failure to disclose that “leading experts” considered the members’ ability to elect directors a “crucial part of the checks and balances of modern corporate governance”

The Information Statement stated:

● “If the bylaws amendments are approved by the primary members, directors will be appointed by a majority vote of the board and the Auto Club will no longer hold director elections.”

● “You will no longer have the right nominate directors by petition or vote in director elections.”

● “The bylaw amendments that the Auto Club directors are recommending will give those directors, as a group, the power to continue themselves in office and appoint their successors.” The Information Statement repeated this admonition twice, including once with the preface, “You should carefully consider the following important factors before making a decision on the proposed bylaw amendments.

● “Primary members would no longer have the opportunity to influence the Auto Club through elections of directors.” The Information Statement repeated this admonition in substantially similar form three times, once with the aforementioned preface.

In addition, the Information Statement stated that the Club was subject to oversight by the California Department of Insurance and was required to meet the accreditation standards of the national AAA. There was substantial evidence to support the conclusion that the Club adequately disclosed the impact of the bylaws amendment on the “checks and balances” of the Club’s governance structure.

Moreover, plaintiffs cite no evidence that, or explain how, this fact would have been material to the Club’s members. The parties stipulated to the facts that the Club’s primary members paid $47 per year for a one-year, nontransferable membership, and that members joined the Club to obtain the services that the Club provides, such as roadside assistance. Defendants’ expert, Professor Robert Danes of Stanford Law School, testified without objection that members of nonprofit mutual benefit corporations such as the Club—who receive no dividends, cannot transfer their memberships, and cannot aggregate votes—have little economic stake with respect to corporate governance matters, and so have little incentive to take an interest in and become informed about matters of corporate governance. There was therefore substantial evidence that any disclosures regarding the opinions of “leading experts” on matters of corporate governance would not have been material to members.

(5) failure to disclose that the directors had a conflict of interest because the amendment would reduce member oversight and permit the directors to maintain control over the Club

The disclosures cited immediately above were sufficient to put members on notice that the directors had an interest in the bylaws amendment insofar as it would “give those directors, as a group, the power to continue themselves in office and appoint their successors.” Plaintiffs cite no authority or evidence that additional disclosures were required or would have been material.

(6) misstating the Club’s finances, including failure to disclose poor performance at the Club’s Pleasant Holidays subsidiary

Plaintiffs cite no evidence that the Information Statement misstated the Club’s financial information. Mr. Boyle testified that the financial information included in the Information Statement was consistent with the Club’s 2002 audited financial statements. Mr. O’Bryan also opined that the financial information was “more than adequate and more than appropriate” and was “exactly the same as the audited financial statements” except that footnotes had been omitted. There was accordingly substantial evidence to support a finding that the financial information in the Information Statement was not inaccurate or misleading.

See ante, fn. 14.

Plaintiffs argued at trial that the Club should have disclosed financial losses sustained in the early part of 2003 by one of the Club’s subsidiaries, Pleasant Holidays, and plaintiffs refer to the Club’s failure to disclose those losses in their opening brief. Mr. O’Bryan, however, was aware of the financial condition of Pleasant Holidays when he opined at trial that the Club’s financial disclosures were accurate and adequate. Moreover, the bylaws election concerned the Club, not its subsidiary, and the Club chose to present consolidated financial information to its members. Plaintiffs cite no authority that this was an improper exercise of the Club’s business judgment. In fact, Mr. Boyle testified that Pleasant Holidays had been profitable in 2001 and 2002, and that its losses in 2003 were the result of an industry-wide dip in the travel market due to the Iraq War. Pleasant Holidays returned to profitability in 2004, and remained profitable through 2006. There was thus substantial evidence to support the conclusion that the losses at Pleasant Holidays were not material.

(7) failure to disclose “excessive compensation and perquisites for the Control Group”

The compensation received by the directors was disclosed in the Information Statement. Plaintiffs cite no evidence, and none was presented at trial, that the compensation paid to the Club’s executives was “excessive,” nor do they cite evidence or authority that such information would have been material to members voting in the bylaws election. The evidence at trial was undisputed that, as a group, the Club’s members show little interest in its financial or administrative affairs, but are primarily concerned about the quality of service the Club provides. Indeed, the court in Olson I also found that to be the case. (Olson I, supra, (Apr. 21, 2006, B168730) slip op. pp. 22-23, affd. on other grounds, (2008) 42 Cal.4th 1142.) There was substantial evidence to support the conclusion that no further disclosure was required.

(8) failure to disclose a conflict of interest created by the Club’s control over the Exchange’s surplus

Plaintiffs argue, in essence, that the Exchange’s surplus—if the Exchange were dissolved—would belong to the Exchange’s subscribers, but for an assignment of the surplus to the Club contained in the Exchange’s rules and regulations. Plaintiffs argued at trial that the Club’s contingent future interest in the surplus created a conflict of interest between the Club and its members who are also subscribers of the Exchange, and that the Club should have disclosed this conflict. As defendants correctly point out, however, the Court of Appeal in Lee v. Interinsurance Exchange (1996) 50 Cal.App.4th 694 (Lee), expressly held that “[t]he Club’s contingent future interest in the surplus remaining upon dissolution of the Exchange is simply too remote and speculative to create a conflict of interest as to the disposition of present surplus in the absence of any showing or allegation the Exchange is at all likely to be dissolved within the foreseeable future.” (Id. at p. 717.) The parties stipulated that “[n]either the Board of Governors nor management of the Exchange has adopted plans or is considering plans to dissolve the Exchange.” Accordingly, there was no evidence of a conflict of interest between the Club and its members who are also subscribers, and thus there was nothing to be disclosed.

For the reasons stated above, we conclude that plaintiffs have forfeited any challenge to the trial court’s findings that the Club did not breach any fiduciary duties to its members, and in any event substantial evidence supported those findings. We affirm the judgment as to plaintiffs’ claim for breach of fiduciary duty.

2. Unfair Competition Claim

a. Additional Background

Plaintiffs’ seventh cause of action alleged that the Club violated Business and Professions Code section 17200 by disseminating the Information Statement, which contained misleading statements and material omissions. After trial, the trial court found for defendants on several alternative grounds.

All statutory references in this Discussion, Part B.2 are to the Business and Professions Code unless stated otherwise.

First, the trial court found that defendants lacked standing under section 17204 to assert a claim under section 17200 because (1) plaintiffs had suffered no injury in fact because the Information Statement was not misleading and plaintiffs themselves were not misled; (2) the fact that plaintiffs disagreed with the results of an election in which there was no deception did not constitute “injury”; (3) the right to vote in a Club contested director election did not constitute “money or property.” Second, the trial court found that, to the extent plaintiffs were prosecuting their action in a representative capacity, they had failed to comply with section 17203 by seeking to certify a class action. Third, the balance of equities favored the Club because it would be unreasonable to invalidate an election result favored by an overwhelming majority of those who voted merely because the three plaintiffs would have preferred a different outcome.

b. Discussion

The purpose of California’s Unfair Competition Law (§ 17200 et seq.) (UCL) “is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. [Citation.]” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949 (Kasky); McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1470.) The UCL “defines ‘unfair competition’ to mean and include ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false advertising law (§ 17500 et seq.) ].’ (§ 17200.)” (Kasky, supra, 27 Cal.4th at p. 949.)

A party’s standing to bring a section 17200 claim is governed by section 17204. That section provides in pertinent part, “Actions for relief pursuant to this chapter shall be prosecuted exclusively in a court of competent jurisdiction by [specified government attorneys] upon their own complaint or upon the complaint of a board, officer, person, corporation, or association, or by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” Accordingly, “only plaintiffs who have suffered actual damage may pursue a private UCL action. A private plaintiff must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition.” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1590.)

Plaintiffs argue that they have standing to assert a section 17200 claim because (1) they have “associational” standing, i.e., they asserted their claims as members of an “association,” and (2) their right to vote in contested director elections was intangible “property.” We review for substantial evidence the trial court’s factual determinations with respect to plaintiffs’ standing, and we review de novo the relevant issues of statutory interpretation. (Daro v. Superior Court (2007) 151 Cal.App.4th 1079, 1092.)

Plaintiffs’ claim to “associational” standing is based on a misreading of section 17204. As noted above, section 17204 states that a claim under the UCL “shall be prosecuted exclusively... by [specified governmental attorneys] upon their own complaint or upon the complaint of a board, officer, person, corporation, or association, or by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (Italics added.) In other words, (1) a specified government attorney may prosecute a UCL claim on his or her own complaint or upon the complaint of another person or entity, or (2) a private person may prosecute a UCL action provided he or she suffered injury in fact and lost money or property. The statute does not state that private persons—including plaintiffs—may prosecute a UCL action on behalf of the members of an association, regardless of whether he or she suffered injury in fact. Such a conclusion would be both inconsistent with the plain language of the statute and contrary to purposes of section 17204’s requirement of injury in fact, which are “necessary to prevent abusive UCL actions by attorneys whose clients had not been ‘injured in fact’..., and to ensure ‘that only the California Attorney General and local public officials [are] authorized to file and prosecute actions on behalf of the general public.’ [Citation.]” (Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, 812-813; see Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 228.) Furthermore, to the extent that plaintiffs were—as they assert—“acting in their representative capacities as Members of [the Club],” then they were required by section 17203 both to “meet[] the standing requirements of Section 17204and to prosecute their claims as a class action. (§ 17203; R & B Auto Center, Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 360.) They did not do so. Plaintiffs’ claim of purported “associational” standing thus lacks merit.

We need not address plaintiffs’ argument that their right to vote in the Club’s contested director elections constituted “money or property” under section 17204 because the trial court also found that plaintiffs had failed to show injury in fact. Section 17204 confers standing only to “a person who has suffered injury in fact and has lost money or property.” (Italics added.) The UCL’s requirement that a private plaintiff demonstrate injury in fact is thus distinct from the requirement that the plaintiff show he or she lost money or property. (Peterson v. Cellco Partnership, supra, 164 Cal.App.4th at p. 1590; Daro v. Superior Court, supra, 151 Cal.App.4th at p. 1098; see also Hall v. Time, Inc. (2008) 158 Cal.App.4th 847, 855 [although plaintiff expended money, he suffered no injury in fact when he received goods in exchange].) Plaintiffs do not challenge on appeal the trial court’s finding that they suffered no injury in fact, and have therefore forfeited any claim of error.

In any event, even if were to address the merits of the trial court’s ruling, we would agree with it. An “injury in fact” under section 17204 is “‘an invasion of a legally protected interest which is (a) concrete and particularized, [citations]; and (b) “actual or imminent, not ‘conjectural ‘ or ‘hypothetical,’” [citations].’” (Buckland v. Threshold Enterprises, Ltd., supra, 155 Cal.App.4th at pp. 814-815, quoting Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560.) In this case, Corporations Code section 7220, subdivision (d) authorized the Club to amend its bylaws, with member approval, to eliminate contested director elections. The bylaws amendment terminated any interest plaintiffs might have had in voting in such elections. Because the Club engaged in no unfair or deceptive practices in connection with the bylaws election, plaintiffs were not deprived of a legally cognizable right and therefore suffered no injury in fact. As the trial court observed, the mere fact that plaintiffs disagree with the outcome of the election is not a legally cognizable injury. The trial court correctly concluded that plaintiffs lacked standing to prosecute a section 17200 claim.

C. Asserted Pretrial Errors

1. Demurrer to Second Cause of Action

Plaintiffs’ entitled their second cause of action as one “for violation of duty to solicit shareholder votes without using false and misleading information, half truths, and omission of material facts, for violation of the common law, by creating Bylaws, notice, and election procedures that are unreasonable in operation, and for violation of Corporations Code § 7220(d) by obtaining invalid member consent.” On appeal, plaintiffs denominate the claim as one for “inequitable solicitation.” Whatever its label, the gravamen of the claim was that the Club “solicited votes for the [bylaws] election... using materials... containing statements that... were false or misleading with respect to material facts, and omitted material facts necessary to make the statements which were included not false or misleading or to correct a previous misstatement.” The trial court sustained defendants’ demurrer to the second cause of action on the ground that plaintiffs had alleged, in essence, a common law fraud claim, but had failed to allege actual reliance on the alleged misstatements.

Plaintiffs argue that reliance is not a necessary element of a claim for “inequitable solicitation” in the context of corporate elections. We need not resolve that argument because, again, plaintiffs have failed to demonstrate prejudice. Plaintiffs pleaded their third cause of action for breach of fiduciary by incorporating by reference the “breaches of fiduciary duty alleged above”—that is, the misrepresentations and omissions alleged in their second cause of action for “inequitable solicitation.” As discussed above, plaintiffs tried their breach of fiduciary duty claim on the theory that the Information Statement was materially misleading. The trial court found that plaintiffs failed to prove their case, and we affirm that finding. Accordingly, plaintiffs’ claim for “inequitable solicitation” necessarily would have been resolved against plaintiffs after trial. As a result, any error by the trial court in sustaining the demurrer was harmless. (Cal. Const., Art. VI, § 13; see Curtis v. 20th Century-Fox Film Corp. (1956) 140 Cal.App.2d 461, 464-465 [when two claims were based on the same factual allegations, the plaintiff was not prejudiced by erroneous ruling sustaining a demurrer to one claim when the second claim was resolved against plaintiff after trial]; Grell v. Laci Le Beau Corp. (1999) 73 Cal.App.4th 1300, 1307 [error harmless when subsequent summary judgment on statute-of-limitations grounds would have disposed of claims erroneously dismissed on demurrer]; see also Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 800 [“‘[A] “miscarriage of justice” should be declared only when the court, “after an examination of the entire cause, including the evidence,” is of the “opinion” that it is reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error’”].)

2. Summary Adjudications

a. Standard of Review

On an appeal from a grant of summary adjudication, we examine the record de novo to determine whether triable issues of material fact exist. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 767; Avila v. Continental Airlines, Inc. (2008) 165 Cal.App.4th 1237, 1245-1246.) We view the evidence in a light favorable to, and resolve any evidentiary doubts or ambiguities in favor of, the non-moving party. (Saelzler v. Advanced Group 400, supra, 25 Cal.4th at pp. 768-769.) The moving party bears the burden to demonstrate “that there is no triable issue of material fact and that [it] is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, fn. omitted.) If the moving party makes a prima facie showing, the burden shifts to the party opposing summary judgment “to make [its own] prima facie showing of the existence of a triable issue of material fact.” (Ibid.) “There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Ibid., fn. omitted.)

b. First Cause of Action

(1) Additional Background

Plaintiffs’ first cause of action alleged that the bylaws election was void because the Club failed to obtain a required permit from the Insurance Commissioner. Plaintiffs’ theory was as follows:

● The Club was a motor club, so that pursuant to Insurance Code section 12160, subdivision (b), the “sale” of the Club’s “securities” is governed by the Insurance Code (Ins. Code, § 820 et seq.) rather than the Corporations Code.

● Upon dissolution or liquidation of the Club, members would be entitled to share in the distribution of the Club’s equity. Members thus had a “beneficial interest in title” to that property. Memberships in the Club were therefore “securities” as defined in Insurance Code section 821.5 (the “beneficial interest theory”). Plaintiffs also alleged, in effect, that memberships were “securities” as defined in Insurance Code section 821 because they were (1) commonly known as securities, (2) analogous to shares of stock, (3) investment contracts, and (4) securities under the so-called “risk capital” theory (collectively, the “other securities theories”).

● The bylaws election constituted a “sale” of members’ “securities” under Insurance Code section 822 because the election effected a “change in the rights, preferences, privileges or restrictions on outstanding securities”—i.e., memberships.

● Because the bylaws election was a “sale” of “securities,” Insurance Code section 827 required the Club to obtain a permit from the Insurance Commissioner prior to holding the bylaws election.

● Because the Club had not obtained a permit, Insurance Code section 831 rendered the bylaws election void.

Defendants moved for summary adjudication of plaintiffs’ first cause of action on the ground that memberships were not securities. Defendants argued that plaintiffs were collaterally estopped to assert the other securities theories because Olson had litigated those issues in Olson I. In that case, Olson had alleged that memberships were securities under Corporations Code section 25019, which encompassed each of the other securities theories. The Court of Appeal in Olson I affirmed the trial court’s conclusion that memberships “‘are not securities or financial investments and are not analogous to shares of stock for a for-profit corporation.’” (Olson I, supra, (Apr. 21, 2006, B168730) slip op. p. 22, affd. on other grounds, (2008) 42 Cal.4th 1142.)

Defendants also argued that memberships were not securities under the beneficial interest theory embodied in Insurance Code section 821.5 because there was no evidence that the Club would dissolve in the foreseeable future. As a result, any interest of individual members in the Club’s equity was too remote and speculative to constitute a “beneficial interest in title to property.”

The trial court granted summary adjudication. The trial court concluded that the Court of Appeal’s holding in Olson I was “sufficient to constitute collateral estoppel” as to the other securities theories. With respect to the beneficial interest theory, the trial court reasoned that membership fees were more analogous to payments for services than to investment vehicles. The purchase of a membership, the trial court observed, carried no “reasonable expectation of participation in, or return from” a for-profit enterprise. The trial court therefore concluded that memberships were not securities.

Plaintiffs assert that the trial court “improperly weigh[ed] conflicting facts on whether [Club] memberships are securities.” Plaintiffs refer generally to seven different declarations—including declarations as to which evidentiary objections were sustained—but they do not specify what the conflicting evidence was or explain how such conflicts gave rise to triable issues of fact. Plaintiffs have therefore forfeited any such contention.

(2) Discussion

(a) collateral estoppel

The doctrine of collateral estoppel, or issue preclusion, prevents the relitigation of issues that were argued and decided in prior judicial proceedings. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341; Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1516.) Traditionally, five requirements must be met for collateral estoppel to apply: (1) the issue decided in the previous proceeding must be identical to the issue sought to be relitigated; (2) the issue must have been actually litigated in the previous proceeding; (3) the issue necessarily must have been decided in the previous proceeding; (4) the previous proceeding must have resulted in a final judgment on the merits; and (5) the party against whom issue preclusion is sought must be the same party as, or a party in privity with, the party in the previous proceeding. (Lucido v. Superior Court, supra, 51 Cal.3d at p. 341; Pacific Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 943; Johnson v. GlaxoSmithKline, Inc. (2008) 166 Cal.App.4th 1497, 1507-1508 (Johnson).) “‘[I]n deciding whether to apply collateral estoppel, the court must balance the rights of the party to be estopped against the need for applying collateral estoppel in the particular case, in order to promote judicial economy by minimizing repetitive litigation, to prevent inconsistent judgments which undermine the integrity of the judicial system, or to protect against vexatious litigation.’” (Johnson, supra, 166 Cal.App.4th at p. 1508.)

On appeal, plaintiffs do not contest that the other securities theories were actually litigated and finally resolved against Olson in Olson I. Nor do plaintiffs contend that Olson himself is not collaterally estopped from asserting the other securities theories in this case. Rather, plaintiffs argue only that principles of collateral estoppel cannot bar “other shareholders”—presumably, Lyttleton and Lunn—“from bringing corporate-governance claims.” The only issue, therefore, is whether Lyttleton and Lunn were in privity with Olson such that they were estopped from asserting the other securities theories in this case.

Plaintiffs forfeited that contention, however, by failing to raise it in the trial court. In opposing defendants’ motion for summary adjudication, plaintiffs argued only that the opinion of the Court of Appeal in Olson I was limited to whether memberships were securities under the Corporations Code and did not address whether they were securities under the Insurance Code. They did not argue that Lyttleton and Lunn were not in privity with Olson.

In any event, even if we were to address the merits of plaintiffs’ argument, we would find no error. The evidence on summary adjudication was undisputed that Olson prosecuted Olson I “as a representative action on behalf of the members of the Auto Club.” The trial court’s judgment in Olson I stated as follows: “This Action is a Representative Action. The members of the Club have a well defined community of interest in the issues of fact and law raised by the second amended complaint and cross-complaint in this action, and plaintiffs and the Auto Club are properly acting in a representative capacity on behalf of the members of the Club in prosecuting and defending the complaint and cross-complaint.” That judgment is final, and plaintiffs do not attack it. Under California law, “‘[i]t is... settled that when a party acts in a representative capacity, and as such is lawfully authorized to litigate the questions at issue for those whom he represents, they as well as he are bound by the judgment.’” (King v. Internat. Union Etc. Engineers (1952) 114 Cal.App.2d 159, 164; see Weaver v. Pasadena Tournament of Roses (1948) 32 Cal.2d 833, 842 [“In cases properly falling within the category of representative litigation, the judgment or decree would be res judicata for or against the class sought to be represented”]; see also Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1236-1237; Kelly v. Vons Companies, Inc. (1998) 67 Cal.App.4th 1329, 1338.)

The decision in Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282 (Vega), is not to the contrary. In that case, the Court of Appeal held that Vega, a corporate shareholder, was not barred by the doctrine of res judicata from prosecuting his securities fraud claim against a law firm even though the law firm previously had obtained summary judgment in a similar action brought by other shareholders in the same corporation relating to the same transaction. (Id. at pp. 298-299.) The court concluded that, because “[t]he only relationship between Vega and the prior lawsuit [was] that he and the plaintiffs in those suits were shareholders in the same company,” Vega could not “‘reasonably have expected to be bound by the prior adjudication.’ [Citation.]” (Id. at p. 299.)

Unlike this case, the previous lawsuits at issue in Vega, supra, 121 Cal.App.4th 282, were not representative actions. Also unlike Vega, Lyttleton and Lunn have a closer relationship with Olson than mere common membership in the Club. They are coplaintiffs in this action with Olson, the party in the previous lawsuit. They are represented by the same attorney as Olson in this case—and that same attorney also represented Olson in Olson I. (See Alvarez v. May Dept. Stores Co., supra, 143 Cal.App.4th at p. 1237 [“similarity of counsel is one factor that may be considered”]). In addition—and again unlike Vega—holding that Lyttleton and Lunn could assert the other securities theories in this case would lead to the absurdity that those issues would be deemed resolved conclusively against Olson in this lawsuit, but Lyttleton and Lunn would be free to advocate for a contrary and inconsistent result. As noted above, one fundamental purpose of collateral estoppel is “‘to prevent inconsistent judgments which undermine the integrity of the judicial system....’” (Johnson, supra, 166 Cal.App.4th at p. 1508.)

Also unavailing is plaintiffs’ reliance in their reply brief on Taylor v. Sturgell (2008) — U.S. —, 128 S.Ct. 2161 (Taylor). The Supreme Court in Taylor expressly stated that it addressed only issues of federal common law applicable in federal courts in federal question cases. (Id. at p. —, 128 S.Ct. at p. 2171.) The Court did not purport to fashion a rule of federal constitutional law binding on state courts. Moreover, the Court in Taylor approved claim preclusion against a nonparty when the previous action was a representative action and the party’s interests were adequately represented. (Id. at p. —, 128 S.Ct. at p. 2173.) Also relevant is the Court’s conclusion that “a party bound by a judgment may not avoid its preclusive force by relitigating through a proxy”—which suggests that plaintiffs may not avoid the preclusive effects of Olson I merely by adding different Club members as jointly represented coplaintiffs with Olson in this action. (Ibid.)

Finally, even if plaintiffs were not collaterally estopped from relitigating the other securities theories, we agree with the analysis and conclusion of the Court of Appeal in Olson I. The trial court thus properly concluded that Club memberships are not securities under the other securities theories. (Olson I, supra, (Apr. 21, 2006, B168730) slip op. p. 22, affd. on other grounds, (2008) 42 Cal.4th 1142.)

(b) the beneficial interest theory

Plaintiffs assert that Club memberships are securities under Insurance Code section 821.5 because they constitute a “beneficial interest in the title to property”—specifically, a “present contingent interest” in the Club’s equity in the event the Club is dissolved or liquidated.

We note the logical conundrum engendered by plaintiffs’ position. The Club submitted undisputed evidence in the summary adjudication proceeding that, at least since 1977, the Insurance Commissioner has not required the Club to hold a permit to sell its memberships. Under plaintiffs’ theory, plaintiffs’ own memberships in the Club would be void—not voidable, but void—pursuant to Insurance Code section 831. As a result, if plaintiffs are correct, they had no right to vote for the Club’s directors and no claim to the Club’s equity in the event the Club is dissolved. They would own no security and would have no standing to challenge the bylaws election as a securities law violation.

Theoretically, plaintiffs might have some sort of equitable claim to restitution of their membership fees, but even that is doubtful if the Club continued to provide services.

But we do not believe that Club memberships are securities under the beneficial interest theory. In Silver Hills Country Club v. Sobieski (1961) 55 Cal.2d 811 (Silver Hills), the California Supreme Court considered whether a membership in a for-profit country club was a security under former Corporations Code section 25008. The organizers of the country club had paid $400 as a down payment against the $75,000 purchase price of a 22-acre ranch and had made certain improvements to the property. (Id. at p. 812.) They sought to finance further improvements, including the construction of swimming pools and a golf course, through the sale of memberships in the club. (Id. at pp. 812-813.) Members had “no rights in the income or assets of the club. A member and his immediate family, however, [had] the right to use all of the club facilities except the golf course, for which special membership [was] required. A member [could not] be expelled except for misbehavior or failure to pay the monthly dues. The membership [was] transferable, but only to persons approved by the board of directors of the club.” (Id. at p. 813.)

Former Corporations Code section 25008 was repealed as of January 2, 1969 (Stats. 1968, c. 88, § 1, p. 243) and replaced by section 25019 (Stats. 1968, c. 88, § 2, p. 247).

Former section 25008 included among its definitions of “security” any “beneficial interest in title to property, profits, or earnings.” (Silver Hills, supra, 55 Cal.2d at p. 813.) The Supreme Court noted that “[t]he purchaser of a membership in the present case has a contractual right to use the club facilities that cannot be revoked except for his own misbehavior or failure to pay dues. Such an irrevocable right qualifies as a beneficial interest in title to property within the literal language of subsection (a) of section 25008.” (Id. at p. 814.) That, however, was not dispositive, for “[t]he crucial question nevertheless remain[ed] whether the sale of such a membership comes within the regulatory purpose of the Corporate Securities Act.” (Ibid.; see People v. Figueroa (1986) 41 Cal.3d 714, 735 [regardless of whether an instrument falls within literal definition of a security in the statute, the “‘critical question’... is whether a transaction falls within the regulatory purpose of the law”].)

Section 25019 contains no such definition of a security. As a result, the beneficial interest theory was not at issue in Olson I.

The Supreme Court held that it did. “‘[A]s a general rule, the sale of “securities”... involves an attempt by an issuer to raise funds for a business venture or enterprise; an indiscriminate offering to the public at large where the persons solicited are selected at random; a passive position on the part of the investor; and the conduct of the enterprise by the issuer with other people’s money.’ [Citation.] [¶] We have here nothing like the ordinary sale of a right to use existing facilities. Petitioners are soliciting the risk capital with which to develop a business for profit. The purchaser’s risk is not lessened merely because the interest he purchases is labelled a membership. Only because he risks his capital along with other purchasers can there be any chance that the benefits of club membership will materialize.” (Silver Hills, supra, 55 Cal.2d at p. 815.)

Further, it was not dispositive that members did not expect to earn a profit when purchasing their memberships. “Since the act does not make profit to the supplier of capital the test of what is a security, it seems all the more clear that its objective is to afford those who risk their capital at least a fair chance of realizing their objectives in legitimate ventures whether or not they expect a return on their capital in one form or another. Hence the act is as clearly applicable to the sale of promotional memberships in the present case as it would be had the purchasers expected their return in some such familiar form as dividends. Properly so, for otherwise it could too easily be vitiated by inventive substitutes for conventional means of raising risk capital.” (Silver Hills, supra, 55 Cal.2d at pp. 815-816.)

We agree with the trial court that Silver Hills, supra, 55 Cal.2d 811, though instructive, is not dispositive in this case. A Club members’ right to share in the Club’s equity does not vest merely because one becomes a member. Club memberships are for a specified term of one year, and they may not be transferred or renewed indefinitely. As a result, the right of a present member to share in the Club’s equity is contingent on whether he or she remains a member until such time as the Club dissolves, liquidates or converts to a for-profit venture (assuming, of course, that he or she should live so long). The evidence was uncontroverted that there is no likelihood of any of those eventualities in the foreseeable future. A Club member’s contingent future interest in the Club’s equity is thus not analogous to the present, immediate and irrevocable right of a country club member to use the country club’s facilities.

Furthermore, the evidence is clear that Club members join the Club—an established concern with a long, stable history—and pay their modest annual dues not with the expectation that they are purchasing a contingent future interest in the Club’s equity, but for the immediate purpose of obtaining the Club’s roadside assistance and other services. Club members thus assume no risk analogous to that assumed by the country club members in Silver Hills, supra, 55 Cal.2d 811, who purchased memberships in a for-profit venture with the expectation that the club would use their membership fees, along with those of other members, to develop the very improvements the members hoped to use.

Plaintiffs also rely on Federal Employees Dist. Co. v. Franchise Tax Bd. (1968) 260 Cal.App.2d 937 (Fedco). That case held that membership fees paid to Fedco, a nonprofit membership store, were not taxable as income because they constituted proceeds from the sale of stock. (Id. at pp. 940-941.) The court’s conclusion in Fedco, however, was expressly premised on former Corporations Code section 115, which defined “shares” and “shares of stock” to include memberships in nonstock corporations. (Id. at pp. 940-941, 946.) Former section 115 was repealed in 1975. (Stats. 1975, ch. 682, § 6, p. 1516.) Corporations Code section 5057, enacted in 1978 and operative January 1, 1980 (Stats. 1978, ch. 567, § 4, pp. 1740, 1748), does not define memberships in a nonprofit corporation as “shares of stock,” but to “refer[] to the rights a member has pursuant to a corporation’s articles, bylaws and [the Nonprofit Corporation Law].”

In their opening brief and during oral argument, plaintiffs referred to two Attorney General opinions they claim support their position. But plaintiffs did not provide the citation to or discuss the substance of either. We presume plaintiffs refer to 24 Ops.Cal.Atty.Gen. 33 (1954) and 33 Ops.Cal.Atty.Gen. 146 (1959), mentioned (but not relied upon) by the court in Fedco, supra, 260 Cal.App.2d at p. 939. Although we accord opinions of the Attorney General great respect, they are not controlling. (Wenke v. Hitchcock (1972) 6 Cal.3d 746, 751-752.) The first opinion (24 Ops.Cal.Atty.Gen. 33) addressed the circumstances in which a membership in a nonprofit corporation might be a security under former Corporations Code section 25008. That opinion was essentially superseded by the Supreme Court’s later discussion of the same issue in Silver Hills, supra, 55 Cal.2d at p. 813. The second opinion (33 Ops.Cal.Atty.Gen. 146) also predated Silver Hills, and it relied on the first in opining that memberships in a nonprofit political association were not securities. Accordingly, neither opinion is dispositive of the issue here.

We therefore conclude that Club memberships are not securities under Insurance Code section 821.5. The trial court properly granted summary adjudication on plaintiffs’ first cause of action.

c. Fourth Cause of Action

In a claim unrelated to the bylaws election, plaintiffs, in their fourth cause of action, alleged that the Club and the Exchange violated Insurance Code section 1308. Plaintiffs alleged that the Exchange required its subscribers to execute a Subscriber’s Agreement which provided that the Exchange’s Board of Governors would be composed of persons who are members of the Club’s Board. This violated Insurance Code section 1308, plaintiffs asserted, because that provision required the Board of Governors to be “selected under such rules as the subscribers adopt,” which plaintiffs construed to require an election. Moreover, plaintiffs alleged, because the bylaws election foreclosed the Club’s members from choosing the Club’s directors, it disenfranchised the Club’s members who are also the Exchange’s subscribers (member subscribers) in the selection of the Exchange’s Board of Governors, which injured member subscribers because the Club’s Board had a conflict of interest with respect to the disposition of the Exchange’s surplus. Plaintiffs sought to void the bylaws election and to obtain a mandatory injunction requiring the Exchange to hold an election to adopt procedures for selecting its Board of Governors.

(1) The Summary Adjudication Evidence

The evidence submitted on summary adjudication established the following undisputed facts. The Exchange is a California reciprocal insurer. (Ins. Code, § 1300 et seq.) The Exchange was organized by the Club in 1912 and offers insurance to both members and nonmembers of the Club. People who apply for insurance policies from the Exchange (other than assigned risk policyholders) are known as the Exchange’s “subscribers” and are required to sign a Subscriber’s Agreement, authorizing the Exchange’s attorney-in-fact to exchange insurance contracts with other subscribers. The Exchange’s attorney-in-fact is ACSC Management Services, Inc. (ACSC Management), a wholly-owned subsidiary of the Club.

“A reciprocal or interinsurance exchange is an aggregation of persons, called subscribers, who, through an attorney-in-fact, cooperate to furnish themselves and each other insurance against a designated risk, and the subscribers are both the insured and the insurers.” (3 Couch on Insurance (2008) § 39:48, pp. 39-48 to 39-500.)

The Exchange’s board of directors is called its Board of Governors. The Exchange’s bylaws provide that there shall be seven Governors, consisting of the chair and vice chair of the Club’s Board and five Governors appointed by the Club’s Board. From 1973 through 1987, the Subscriber’s Agreement provided that the Governors would be members of the Club’s Board or persons appointed by the Club’s Board. From 1988 through 1997, the Subscriber’s Agreement provided that the Governors would be persons who were members of the Club’s Board. That same Subscriber’s Agreement also provided that the Board of Governors would exercise all rights reserved to the subscribers. Since October 1, 1997, the Subscriber’s Agreement has provided that the Board of Governors “shall be composed of persons who are members of the [Club’s Board], and members of this Board [of Governors] shall be appointed by the [Club’s Board].” As of May 2006, more than 75% of the Exchange’s subscribers had signed one of these three versions of the Subscriber’s Agreement.

There is no showing that there is a likelihood that the Exchange will be dissolved, sold or converted into a for-profit corporation in the foreseeable future. There are no reasons provided why the Exchange cannot continue to provide insurance to its subscribers for the foreseeable future.

Plaintiffs purported to dispute these particular facts, but they cited no contrary evidence in their separate statement and no evidentiary objections to defendants’ evidence on these points were sustained by the trial court.

(2) Defendants’ Motion for Summary Adjudication

Defendants moved for summary adjudication on the fourth cause of action, arguing that the Subscriber’s Agreement satisfied the requirement of section 1308 that subscribers adopt rules to select the Board of Governors. Defendants also argued that plaintiffs’ conflict-of-interest claim was foreclosed by Lee, supra, 50 Cal.App.4th 694, which held that the Club’s interest in the Exchange’s surplus did not create a conflict of interest between the Club and the Exchange’s subscribers and that the Subscriber’s Agreement was not an invalid adhesion contract.

See ante Discussion Part B.1.b. (8).

In their opposition, plaintiffs argued that the Subscriber’s Agreement did not set forth any “rules,” but only stated the qualification that a member of the Board of Governors must be a member of the Club’s Board. Further, the Exchange’s subscribers had not “adopted” anything, but had merely signed the Subscriber’s Agreement. Further still, plaintiffs argued, the requirement that members of the Exchange’s Board of Governors be members of the Club’s Board violated Insurance Code section 1310. That section provided that “[n]ot more than one-third of the [Governors] shall be agents, employees or shareholders” of the Exchange’s attorney-in-fact, ACSC Management. Finally, plaintiffs argued that Lee, supra, 50 Cal.App.4th 694, was not controlling because it expressly declined to consider whether the method of selecting the Exchange’s Board of Governors violated Insurance Code section 1308.

Plaintiffs did not allege and there is no evidence that the Exchange’s Board of Governors was not “composed of subscribers or agents of subscribers.” (Ins. Code, § 1310.)

The trial court granted defendants’ motion. The trial court reasoned that the general terms “adopt” and “rules” in section 1308 were broad enough to encompass the methodology for selecting the Exchange’s Board of Governors set forth in the Subscriber’s Agreement, and that when the Legislature intended similar language in other statutes to require particular procedures it had so specified. The trial court refused to consider plaintiffs’ arguments with respect to violations of Insurance Code section 1310 because plaintiffs had pleaded no such claim. The trial court also agreed that Lee, supra, 50 Cal.App.4th 694, was controlling on the conflict-of-interest issue, notwithstanding that the court had not considered Insurance Code section 1308.

In their Respondents’ Brief, defendants address plaintiffs’ conflict-of-interest allegation as though it stated a claim independent of plaintiffs’ claim under Insurance Code section 1308. We do not believe a fair reading of the SAC supports that conclusion, but in any event plaintiffs have raised no challenge to the trial court’s ruling on the conflict-of-interest issue.

(3) Discussion

The trial court refused to consider whether defendants had violated Insurance Code section 1310 in connection with the summary adjudication motion because plaintiffs had pleaded no violation of that provision. The trial court was correct. “A party cannot resist summary judgment by raising issues outside the pleadings.” (Prince v. Sutter Health Central (2008) 161 Cal.App.4th 971, 978.) “The complaint limits the issues to be addressed at the motion for summary judgment. The rationale is clear: It is the allegations in the complaint to which the summary judgment motion must respond. [Citation.]” (Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1258; accord, Millard v. Biosources, Inc. (2007) 156 Cal.App.4th 1338, 1353; Lockhart v. County of Los Angeles (2007) 155 Cal.App.4th 289, 303-304.) No fair reading of plaintiffs’ fourth cause of action would lead one to conclude that plaintiffs had alleged a violation of section 1310. Plaintiffs’ fourth cause of action does not mention section 1310, nor does it allege facts sufficient to establish a violation of that provision. Plaintiffs’ vague allegation that defendants “violated the Insurance Code generally” did not suffice to put defendants on notice that plaintiffs asserted a violation of section 1310.

If plaintiffs intended to assert a violation of Insurance code section 1310, then plaintiffs should have sought to amend their pleading to so allege. “Upon a motion for summary judgment, amendments to the pleadings are readily allowed. [Citation.] If plaintiff wishes to expand the issues presented, it is incumbent on plaintiff to seek leave to amend the complaint either prior to the hearing on the motion for summary judgment, or at the hearing itself. [Citation.] To allow a party to expand its pleadings by way of opposition papers creates, as it would here, an unwieldy process.” (Laabs v. City of Victorville, supra, 163 Cal.App.4th at p. 1258.) Plaintiffs provide no record citation to establish that they sought leave to plead such a claim, nor do they argue that the trial court abused its discretion in refusing such leave. Accordingly, we consider only whether plaintiffs’ summary judgment evidence raised a triable issue with respect to their section 1308 claim.

Insurance Code section 1308 provides in relevant part, “The body exercising the subscribers’ rights [i.e., the Exchange’s Board of Governors] shall be selected under such rules as the subscribers adopt.” On appeal, plaintiffs’ only cogent argument with respect to section 1308 is that the Exchange’s subscribers did not “adopt” any rules regarding the selection of Governors because those procedures were prescribed by the Subscriber’s Agreement rather than “adopt[ed]” through an election. No court has construed the term “adopt” in the context of section 1308.

In construing a statute, we seek to ascertain the Legislature’s intent so as to give effect to the law’s purpose. (In re Corrine W. (2009) 45 Cal.4th 522, 529.) We first examine the words of the statute, giving them their usual and ordinary meaning, because the language of a statute is usually the most reliable indicator of legislative intent. (Musaelian v. Adams (2009) 45 Cal.4th 512, 516.) “If the statutory language is unambiguous, we presume the Legislature meant what it said, and the plain meaning of the statute controls.” (Miklosy v. Regents of University of California (2008) 44 Cal.4th 876, 888.)

In the context of Insurance Code section 1308, the term “adopt” is not ambiguous. As relevant here, the ordinary meaning of “adopt” is “to accept formally.” (Webster’s 3d New Internat. Dict. (1981) p. 29, col. 1.) The undisputed evidence established that the vast majority of the Exchange’s subscribers have entered into a Subscriber’s Agreement. The Subscriber’s Agreement has provided since 1997 that members of the Board of Governors would be appointed by the Club’s Board. This is a rule that has been “adopt[ed]”—that is, accepted—by the Exchange’s subscribers by the act of entering into the Subscriber’s Agreement. As the trial court correctly pointed out, when the Legislature has intended to require a specific procedure—such as a vote by members—the Legislature has so specified. (See, e.g., Ins. Code §§ 1540, 4090-4096; Corp. Code, § 7140.)

Plaintiffs cite Streets and Highways Code section 8302 for the proposition that “[s]tatutory law suggests that the word ‘adopt’ requires voting.” That section provides that—as used in the Public Streets, Highways, and Service Easements Vacation Law (Sts. & Hy. Code, § 8300 et seq.)—“‘Adoption’ of a resolution includes passage or enactment of a resolution.” Plaintiffs’ argument is not persuasive. The Public Streets, Highways, and Service Easements Vacation Law concerns the procedures by which legislative bodies may vacate street, highway, or public service easements. (See, e.g., Sts. & Hy. Code, § 8324, subd. (b).) There is no indication that the Legislature intended to “suggest” in the Streets and Highways Code how the word “adopt” should be construed in provisions of the Insurance Code concerning the governance of reciprocal insurers. The trial court properly granted summary adjudication on plaintiffs’ fourth cause of action.

d. Sixth Cause of Action

Plaintiffs’ sixth cause of action alleged that the Club violated Corporations Code section 8322 by failing to disclose its expenditures (1) on the contested director elections in 2001, 2002 and 2003; (2) on the bylaws election; and (3) on defending its directors in Olson I. The trial court summarily adjudicated these claims and stated its reasons in a written minute order. On appeal, plaintiffs argue only (and only obliquely, in connection with their argument on the first cause of action) that the trial court erred in applying principles of collateral estoppel to foreclose the claims of Lyttleton and Lunn. We have already held that the trial court did not err in doing so. As plaintiffs do not argue the merits of the summary adjudication, they forfeit any claim of error. We therefore affirm the summary adjudication on the sixth cause of action.

DISPOSITION

The judgment is affirmed. Defendants are to recover their costs on appeal.

We concur: TURNER, P. J., KRIEGLER, J.


Summaries of

Olson v. Automobile Club of Southern California

California Court of Appeals, Second District, Fifth Division
Apr 20, 2009
No. B201428 (Cal. Ct. App. Apr. 20, 2009)
Case details for

Olson v. Automobile Club of Southern California

Case Details

Full title:CARL OLSON, et al., Plaintiffs and Appellants, v. AUTOMOBILE CLUB OF…

Court:California Court of Appeals, Second District, Fifth Division

Date published: Apr 20, 2009

Citations

No. B201428 (Cal. Ct. App. Apr. 20, 2009)