Opinion
A127928
08-16-2011
WINES CENTRAL, LLC et al., Plaintiffs, Appellants and cross-defendants, v. PAUL HUTCHINSON et al., Defendants, Respondents and cross-complainants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Marin County Super. Ct. No. 022528)
Paul Hutchinson and Jack Lair obtained a judgment in their favor during litigation involving their former business associates, Jacobo Krystal and Russell Lugli, and their former business enterprise, Wines Central, LLC. Krystal, Lugli and Wines Central appealed. The parties have now reached a settlement agreement and have filed a "Motion for Order Vacating Trial Court Judgment;" i.e., a request for a stipulated reversal. We deny the request, because the parties have failed to make the showing required by Code of Civil Procedure section 128, subdivision (a)(8).
Further statutory references are to the Code of Civil Procedure.
I. BACKGROUND
The facts quoted below are taken from a joint declaration filed by counsel in support of the motion before us:
"2. The underlying action involved four individuals and certain entities related to Krystal, and concerned the parties' ownership and participation in the start-up, operation and ownership of a wine storage business located at Mare Island, in the City of Vallejo, California. The business was known as Wines Central.
"3. As originally conceived, Krystal, Lugli, Hutchinson and Lair were to hold equal ownership interests in the subject wine storage business. The parties also proposed an equal dilution of their ownership interests in favor of investors who would supply capital for the business. No investors were successfully brought into the business.
"4. The parties formed an entity known as Wines Central, LLC, with which to operate the business. The parties later disputed whether Wines Central[,] LLC was properly formed as a California limited liability company or was imperfectly formed, resulting in a partnership. In an initial phase of the underlying case, the trial court, sitting without a jury, found that the parties' business arrangement was a partnership.
"5. A primary dispute among the parties originated in a disagreement over the terms of a proposed Operating Agreement for Wines Central, LLC. Krystal and Lugli were proponents of provisions that provided for certain compensation for the manager of the limited liability company and that provided the manager with the authority to make capital calls upon the members, with membership interests adjusted according to the members' contributions in response to the capital calls. Hutchinson and Lair opposed those provisions.
"6. Wines Central[,] LLC entered into a long-term lease for a building at Mare Island. Krystal executed the lease on behalf of Wines Central[,] LLC, in his capacity as President of Diversified Capital Investments, Inc. ("DCI"), a California corporation, Manager of Wines Central[,] LLC.
"7. Krystal also negotiated the terms of the lease, through his company Diversified Realty Services, Inc. (DRS), a California corporation, and a real estate
licensee. Krystal was President of DRS and its Designated Officer for purposes of [the] Department of Real Estate licensure.
"8. One item in controversy in the underlying action concerned DRS's receipt of a real estate commission. In connection with negotiating and consummating the Mare Island lease, DRS received a commission in the sum of $68,000 from the listing broker, as a cooperating broker. Krystal contended that Hutchinson and Lair were at all times aware that DRS would receive a commission upon execution of the lease; Hutchinson and Lair contended that they were not aware of this fact, and contended that the commission should have been shared among all of the parties.
"9. Sometime after Wines Central[,] LLC entered into the Mare Island lease, the parties' initial capital contribution of $80,000 each was exhausted. Owing to the parties' disagreement over the terms of the operating agreement, no investors could be located for the business, issues related to obtaining the necessary licensing from the California Alcoholic Beverage [C]ommission and the U.S. Bureau of Alcohol, Tobacco and Firearms could not be resolved such that licensure could not be obtained for the business, and the parties could not agree on a mechanism for continuing to fund the business.
"10. Hutchinson and Lair would not agree to invest additional capital without an Operating Agreement which contained provisions to which they would agree. Krystal and Lugli continued to contribute money to the ongoing expenses of the business.
"11. The parties reached impasse. Krystal and Lugli contended they owned a majority of the membership interest in Wines Central[,] LLC due to what they contended were larger capital contributions. Hutchinson and Lair disputed these contentions.
"12. Krystal and Lugli contended that, as owners of the majority of the membership interest in Wines Central[,] LLC, they could dissolve the entity, and took steps they contended accomplished such dissolution. Krystal and Lugli also took steps to reformulate Wines Central[,] LLC as a California limited liability company in which Krystal and Lugli were the sole members. Hutchinson and Lair disputed these contentions.
"13. These disputes led to the claims and cross-claims in the underlying action. The action was tried in two phases, with the first phase, consisting of the Complaint of Wines Central[,] LLC tried to the court sitting without a jury. The second phase, consisting of the severed cross-actions of Hutchinson and Lair, was tried to a jury.
"14. The judgment in the underlying action is attached hereto as Exhibit A."
The judgment, filed on January 11, 2010, provides that Wine Central, LLC would take nothing on its complaint, that Hutchinson would take $194,200 against Krystal and $194,200 against Lugli for past economic loss, that Hutchinson and Lair would each recover $17,000 against Krystal for their proportionate share of the real estate commission received by Krystal, and that as a result of an accounting of Wines Central that was performed by the court, both Hutchinson and Lair would receive their initial $80,000 investment, plus interest, from Krystal and Lugli.
A notice of appeal was filed on behalf of Wines Central, LLC, Krystal and Lugli on March 12, 2010. On April 26, 2011, counsel for appellants filed a "Notice of Settlement, Stipulation and Prayer for Order Vacating Trial Court Judgment and Dismissing Appeal and Cross-Appeal," stating that the parties had settled the case through this court's mediation program and stipulated that the underlying judgment should be reversed . We denied the motion to vacate the trial court judgment without prejudice to the submission of a proper motion for stipulated reversal. The instant motion to vacate the superior court judgment was filed on July 22, 2011, and is supported by a joint declaration by counsel that makes the following representations:
"15. Inasmuch as the judgment concerns a private dispute among former business partners, it does not involve significant issues of public rights or torts affecting a significant number of persons.
"16. The judgment includes a recovery for Hutchinson and Lair, consisting of one-fourth each of the real estate commission DRS received upon consummation [of the lease]. The judgment has the potential to expose DRS and Krystal to investigation and/or discipline, in particular with regard to whether DRS failed to provide written disclosure to its principal concerning the possibility of receiving a commission. The parties
acknowledge there was a good faith dispute as to whether such a disclosure was made in the course of circulating drafts of the proposed lease. The lease negotiations proceeded over several months, and several drafts were exchanged between the Lessor and Wines Central[,] LLC. The drafts and final version of the lease contained provisions identifying DRS as [the] real estate broker representing Wines Central[,] LLC, and a provision stating that the Lessor's broker and the Lessee's broker would receive a commission upon consummation of the lease. Hutchinson and Lair acknowledge that DRS and Krystal provided copies of drafts to Hutchinson and Lair, but contended that no other disclosure was provided.
"17. To the best of the undersigned[s'] knowledge, the judgment will have no collateral estoppel [effect] or other effect on future litigation. All controversies among the parties have been resolved by settlement."
"18. To the best of the undersigned[s'] knowledge, there is no reasonable possibility that vacating the underlying judgment will adversely affect the interests of nonparties or the general public.
"19. Cooperation among the parties in seeking the vacation of the underlying judgment was a material factor in the parties' reaching settlement."
In the special verdict forms on Hutchinson's and Lair's cross-actions, attached as exhibits to the motion to vacate the judgment, the jury determined that Krystal had breached his fiduciary duty to Hutchinson and Lair, had intentionally failed to disclose important facts to Hutchinson and Lair, and had made false representations to Hutchinson and Lair.
II. DISCUSSION
Section 128, subdivision (a)(8) requires us to make two findings before reversing a superior court judgment upon the stipulation of the parties: "(A) There is no reasonable possibility that the interests of nonparties or the public will be adversely affected by the reversal; [and] (B) The reasons of the parties for requesting reversal outweigh the erosion of public trust that may result from the nullification of a judgment and the risk that the availability of stipulated reversal will reduce the incentive for pretrial settlement."
This provision, as amended in 1999, was designed to supersede the Supreme Court's decision in Neary v. Regents of the University of California (1992) 3 Cal.4th 273, 284 (Neary), which had held that that motions for stipulated reversal should be granted absent extraordinary circumstances. (Hardisty v. Hinton & Alfert (2004) 124 Cal.App.4th 999, 1005 (Hardisty).)The amendment "reverse[d] Neary's presumption in favor of accepting stipulated reversals and instead creates a presumption against stipulated reversals." (Hardisty, at p. 1005.) "The judicial inquiry is no longer whether 'extraordinary circumstances' warrant a denial of a request for stipulated reversal, an enterprise not likely to receive much enthusiastic assistance from the parties, but whether the parties have satisfactorily demonstrated that reversal would not adversely affect the interests of nonparties or the public, erode the public trust, or reduce the incentive for pretrial settlement." (Id. at p. 1006.)
To effectuate section 128, subdivision (a)(8), rule 4 of this District's local rules provides: "A motion filed in this court for stipulated reversal of a judgment of a trial court must include a joint declaration of counsel that (1) describes the parties and the factual and legal issues presented at trial; (2) indicates whether the judgment involves important public rights or unfair, illegal or corrupt practices, or torts affecting a significant number of persons, or otherwise affects the public or a significant number of persons not parties to the litigation (if the judgment is against a state licensee, the declaration must also disclose whether it exposes such person to any possible disciplinary proceeding); and (3) discloses whether the judgment sought to be reversed may have collateral estoppel or other effects in potential future litigation and, if so, whether any third parties who might be prejudiced by stipulated reversal of the judgment have received notice of the motion therefor. A copy of the judgment must accompany the motion. [¶] The parties must provide a sufficient showing to support the findings required by Code of Civil Procedure section 128, subdivision (a)(8)." (Ct. App., First Dist., Local Rules of Ct., rule 4.)
Further references to rules are to the local rules of the First Appellate District.
The parties in this case have complied with rule 4 by filing a joint declaration describing the factual and legal issues relevant to the motion to vacate. This declaration fails to "satisfactorily demonstrate[] that reversal would not adversely affect the interests of nonparties or the public, erode the public trust, or reduce the incentive for pretrial settlement." (Hardisty, supra, 124 Cal.App.4th at p. 1006.) The parties state that the judgment does not involve important public rights or concerns and would not have collateral estoppel effect in other cases. But this is squarely inconsistent with their averment that as a result of the judgment, Krystal and his real estate company could be subject to discipline based on the their retention of the full real estate commission on the lease of the building for Wines Central. The public has an interest in seeing that holders of real estate licenses behave ethically and competently, and are investigated when allegations are made that they have failed to do so. (See Norman I. Krug Real Estate Investments, Inc. v. Praszker (1994) 22 Cal.App.4th 1814, 1821-1822 (Krug) [stipulated reversal not approved when it could interfere with discipline of licensed real estate broker]; contrast Union Bank of California v. Braille Inst. Of America, Inc. (2001) 92 Cal.App.4th 1324, 1329 [motion for stipulated reversal granted where there was no evidence the parties' settlement would affect the interests of the public or nonparties and the case did "not involve any allegations of corruption or conduct which would be reportable to licensing and disciplinary agencies"].)
While we express no opinion about the nature of Krystal's conduct, or the likely outcome of any investigation or discipline that might be initiated as a result of this case, a stipulated reversal under the circumstances presented here would " 'erode[] public confidence in the judiciary by fostering the perception that litigants having sufficient wealth may buy their way out of the ordinary collateral consequences of public adjudications.' " (Hardisty, supra, 124 Cal.App.4th at p. 1006, quoting Neary, supra, 3 Cal.4th at p. 294 (dis. opn. of Kennard, J.).) " '[I]t would be unconscionable to make it possible for a [state licensee] who may have acted unethically to purchase disciplinary immunity from one of the consequences of his impropriety.' " (Hardisty, at pp. 1010-1011, quoting Krug, supra, 22 Cal.App.4th at p. 1822.)
We are cognizant that the settlement agreement leading to the request for stipulated reversal was reached as part of this court's appellate mediation program. "Promoting settlement during the appellate phase of a case has its virtues, but encouraging settlement prior to trial—when it is most salutary, and which the Legislature wanted to encourage—is not among them. . . . .[T]he idea that stipulated reversal should be made available whenever it would assist parties in resolving their disputes is the very idea repudiated by the 1999 amendment to section 128. If stipulated reversal could be justified by no more than the fact that the settlement was reached in the course of mediation that was judicially facilitated, and because the availability of stipulated reversal will assist settlement. . . stipulated reversal would be the norm in California, not the exception the Legislature clearly intended." (Hardisty, supra, 124 Cal.App.4th at p. 1010.)
In any event, we have no reason to conclude that our denial of this motion will undo the parties' settlement agreement. The joint declaration states that "[c]ooperation among the parties in seeking the vacation of the underlying judgment was a material factor in the parties' reaching settlement," but it does not describe the settlement agreement as contingent upon this court's entry of a stipulated reversal. As Justice Kennard observed in her dissent in Neary (which has now become the law): "Parties are free at any time to settle their private dispute on terms mutually agreeable, and should be encouraged to do so. What they should not be free to do is to include within those terms of settlement the destruction of a judgment, a public product fashioned at the cost of public resources, and to require an appellate court to accomplish that destruction merely to facilitate resolution of their private dispute." (Neary, supra, 3 Cal.4th at p. 295 (dis. opn. of Kennard, J.).)
Finally, we note that the parties have not alleged that the award of the real estate commission was erroneous or that the judgment would be reversed if addressed by this court on the merits. (See Hardisty, supra, 124 Cal.App.4th at pp. 1011-1012; contrast In re Rashad H. (2000) 78 Cal.App.4th 376, 380-382 [stipulated reversal in dependency matter approved where respondent agreed that reversal was required due to improper notice to appellant parents].) Absent such a showing, and in light of the parties' apparent agreement that Krystal's conduct might be reportable to licensing and disciplinary agencies, we decline to grant the parties' motion for stipulated reversal.
III. DISPOSITION
The request for stipulated reversal of the judgment is denied. Appellants shall have 30 days from the date of this order to file the opening brief in the event this appeal is not dismissed before that date. The remainder of the briefing sequence shall be in accordance with this court's order issued March 9, 2011.
NEEDHAM, J. We concur.
JONES, P. J.
SIMONS, J.