Wine Education Council, Inc. v. San Pasqual Fiduciary Trust Company et al

MEMORANDUM in Opposition to NOTICE OF MOTION AND MOTION to Dismiss defendant Jane Rodgers and Memorandum of Points and Authorities in Suppor Thereof 20 , NOTICE OF MOTION AND MOTION to Dismiss defendant Peter Hilf and Memorandum of Points and Authorities in Support 26

C.D. Cal.October 27, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS QUINN EMANUEL URQUHART & SULLIVAN, LLP Harry A. Olivar, Jr. (Bar No. 143089) harryolivar@quinnemanuel.com Sarah Dubina (Bar No. 301627) sarahdubina@quinnemanuel.com 865 South Figueroa Street, 10th Floor Los Angeles, CA 90017-2543 Telephone: (213) 443-3000 Facsimile: (213) 443-3100 Attorneys for Plaintiff WINE EDUCATION COUNCIL, INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION WINE EDUCATION COUNCIL, INC., a Delaware corporation, Plaintiff, vs. SAN PASQUAL FIDUCIARY TRUST COMPANY, a California corporation; PETER HILF, an individual; and JANE RODGERS, an individual, Defendants. CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF WINE EDUCATION COUNCIL, INC.’S COMBINED OPPOSITION TO DEFENDANTS JANE RODGERS’ AND PETER HILF’S MOTIONS TO DISMISS FOR FAILURE TO STATE A CLAIM [FRCP 12(B)(6)] [Declaration of Sarah Dubina filed concurrently herewith] Hearing Date: November 17, 2017 Hearing Time: 9:30 a.m. Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 1 of 24 Page ID #:695 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -i- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS TABLE OF CONTENTS Page INTRODUCTION ....................................................................................................... 1 RELEVANT FACTUAL BACKGROUND ............................................................... 2 LEGAL STANDARD ................................................................................................. 5 ARGUMENT ............................................................................................................... 5 I. WEC HAS STANDING TO BRING A BREACH OF FIDUCIARY DUTY CLAIM .................................................................................................. 5 A. WEC Has Article III Standing to Pursue the Individual Trustees’ Breaches of Duty and Its Resultant Damages ......................................... 6 B. WEC Qualifies as a Beneficiary of the Foundation for Purposes of Pursuing the Distributions It Is Owed and the Individual Trustees’ Breaches of Duty ..................................................................... 9 II. WEC HAS ADEQUATELY ALLEGED A CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST THE INDIVIDUAL TRUSTEES ........ 11 III. WEC’S CLAIM AGAINST THE INDIVIDUAL TRUSTEES IS NOT SUBJECT TO ARBITRATION ...................................................................... 15 A. WEC Is Not a Party to the Arbitration Clause and Mr. Winthrop Is Not WEC’s “Agent” .......................................................................... 15 B. WEC’s Breach of Fiduciary Duty Claim Falls Outside the Arbitration Clause ................................................................................. 17 IV. MS. RODGERS’ MOTION TO STRIKE SHOULD BE DENIED ............... 18 CONCLUSION .......................................................................................................... 19 Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 2 of 24 Page ID #:696 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -ii- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS TABLE OF CONTENTS Page Cases Ariz. Students’ Ass’n v. Ariz. Bd. of Regents, 824 F.3d 858 (9th Cir. 2016) ................................................................................. 19 Asdar Grp. v. Pillsbury, Madison & Sutro, 99 F.3d 289 (9th Cir. 1996) ................................................................................... 15 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ................................................................................................. 5 Bermingham v. Wilcox, 120 Cal. 467 (1898) ......................................................................................... 13, 14 Blackmon v. Hale, 1 Cal. 3d 548 (1970) .............................................................................................. 12 Bono v. David, 147 Cal. App. 4th 1055 (2007) .............................................................................. 18 Chastain v. Union Sec. Life Ins. Co., 502 F. Supp. 2d 1072 (C.D. Cal. 2007) ................................................................. 17 City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445 (1999) .................................................................................. 12 Comer v. Micor, Inc., 436 F.3d 1098 (9th Cir. 2006) ............................................................................... 17 De La Cruz v. Tormey, 582 F.2d 45 (9th Cir. 1978) ..................................................................................... 5 Edwards v. Freeman, 34 Cal. 2d 589 (1949) ............................................................................................ 16 Estate of Hensel, 144 Cal. App. 2d 429 (1956) ................................................................................. 12 Gbur v. Cohen, 93 Cal. App. 3d 296, 303 (1979) ........................................................................... 13 Granite Rock Co. v. Int’l Broth. of Teamsters, 561 U.S. 287 (2010) ............................................................................................... 17 Holt v. Coll. of Osteopathic Physicians & Surgeons, 61 Cal. 2d 750 (1964) .............................................................................................. 7 Hooker v. Edes Home, 579 A.2d 608 (D.C. 1990) ....................................................................................... 8 Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 3 of 24 Page ID #:697 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iii- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Knutsson v. KTLA, LLC, 228 Cal. App. 4th 1118 (2014) .............................................................................. 17 L.B. Research & Educ. Found. v. UCLA Found., 130 Cal. App. 4th 171 (2005) .................................................................................. 7 Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) ................................................................................................. 6 Naton v. Bank of Cal., 72 F.R.D. 550 (N.D. Cal. 1976) ............................................................................ 19 New Line Prods., Inc. v. Thoene, No. CV 07-5655-GW, 2008 WL 11342567 (C.D. Cal. Feb. 22, 2008) ................ 18 New v. New, 148 Cal. App. 2d 372 (1957) ................................................................................. 16 Patrick v. Alacer Cop., 167 Cal. App. 4th 995, as modified on denial of reh’g (Nov. 21, 2008) .............. 11 Patton v. Sherwood, 152 Cal. App. 4th 339 (2007) .............................................................................. 7, 9 Price v. Akaka, 928 F.2d 824 (9th Cir. 1990), as amended (Mar. 21, 1991) .................................... 8 Pub. Lands for the People, Inc. v. U.S. Dep’t of Agric., 697 F.3d 1192 (9th Cir. 2012) ................................................................................. 6 San Diego Cnty. Council, Boy Scouts of Am. v. City of Escondido, 14 Cal. App. 3d 189 (1971) ............................................................................. 6, 7, 8 Scheuer v. Rhodes, 416 U.S. 232 (1974) ................................................................................................. 5 Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393 (9th Cir. 1986) ............................................................................... 19 Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002) ................................................................................................. 5 Van Buskirk v. Cable News Network, Inc., 284 F.3d 977 (9th Cir. 2002) ................................................................................. 15 Van’t Rood v. Cnty. of Santa Clara, 113 Cal. App. 4th 549 (2003) ................................................................................ 16 Vesta Corp. v. Amdocs Mgmt. Ltd., No. 3:14-CV-1142-HZ, 2016 WL 3436415 (D. Or. June 16) ............................... 15 Williams v. Gerber, 552 F.3d 934 (9th Cir. 2008) ................................................................................... 5 Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 4 of 24 Page ID #:698 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iv- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Rules, Statutes, and Regulations 26 C.F.R. § 53.4945-4(a)(2) ...................................................................................... 11 26 U.S.C. § 170(c) ............................................................................................. 4, 7, 10 26 U.S.C. § 501(c)(3) .............................................................................................. 4, 7 26 U.S.C. § 509 .................................................................................................. 4, 8, 10 26 U.S.C. § 2055(a) ................................................................................................... 10 26 U.S.C. § 4942 ........................................................................................................ 10 26 U.S.C. § 4945 ........................................................................................................ 10 C.D. Cal. L.R. 6-1 ...................................................................................................... 19 Cal. Prob. Code § 24 .............................................................................................. 9, 10 Cal. Prob. Code § 15620 ............................................................................................ 12 Cal. Prob. Code § 16013(b) ................................................................................. 12, 15 Cal. Prob. Code § 16040(b) ....................................................................................... 12 Cal. Prob. Code § 16402(b) ................................................................................. 12, 15 Fed. R. Civ. P. 4(m) ..................................................................................................... 6 Fed. R. Civ. P. 7(b)(1) ............................................................................................... 19 Fed. R. Civ. P. 12(b)(6) ................................................................................... 5, 15, 18 Fed. R. Civ. P. 12(f) ............................................................................................. 18, 19 Additional Authorities Restatement (Second) of Trusts § 214 (1953) ............................................................. 8 Restatement (Third) of Trusts § 28 (2007) .................................................................. 7 Restatement (Third) of Trusts § 81 (2007) .......................................................... 12, 13 Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 5 of 24 Page ID #:699 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS INTRODUCTION More than a year ago, a public charity known as the Wine Education Council, Inc. (“WEC”) was designated as the charitable distributee to receive funds from a Foundation (the “Foundation”) pursuant to a November 2013 settlement agreement (the “Settlement Agreement”). The funds WEC was to receive totaled millions of dollars. Although WEC met the limited criteria provided for in the Settlement Agreement, and although more than two years had passed before WEC was even designated, the trustees of the Foundation made WEC wait another full year. They made WEC engage in extensive, fruitless correspondence-often ignoring its letters. They put WEC to the expense of having its counsel prepare a formal opinion stating that WEC qualified as a public charity. They line-edited and, finally, approved the opinion. And still WEC received nothing. When WEC asked for an accounting of the amounts it was supposed to receive, WEC again was rebuffed. Having waited more than a year after its designation-and nearly four years after the Settlement Agreement-without receiving a cent, WEC was forced to file this action against the trustees. Now, two trustees have responded with motions, claiming they have no duties to WEC, and that they had an absolute right to turn a blind eye toward the fiduciary misconduct of their cotrustee, San Pasqual Fiduciary Trust Company (“San Pasqual”), and its predecessors. The two trustees, Jane Rodgers and Peter Hilf (collectively, the “Individual Trustees”), have moved to dismiss WEC’s breach of fiduciary duty claim against them, effectively asking the Court to find they are shielded from liability after a year (really, four years) of stringing WEC along. Hoping that something might stick, they have thrown up several meritless arguments: First, the Individual Trustees argue incorrectly that WEC has no standing to assert a claim for the distributions it is owed and the harm the trustees’ conduct has caused it. Of course WEC has standing: as a distributee pursuant to the Settlement Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 6 of 24 Page ID #:700 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -2- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Agreement, it has an interest in receiving substantial distributions from a charitable foundation, distributions which have been withheld because of the actions and inaction of the trustees. These facts more than suffice to confer Article III standing and standing under California trust law. (One wonders, if WEC lacks standing, who else can hold the trustees accountable for their misconduct toward WEC?) Second, the Individual Trustees claim that, because trustee duties at the Foundation are divided between the Individual Trustees and San Pasqual, they owe no duties at all to WEC and cannot be liable for the misconduct of their cotrustee San Pasqual. This argument is contrary not only to California trust law-which absolutely imposes a duty upon trustees to address the fiduciary breaches of a cotrustees in these circumstances-but also to common sense: imagine the implications if two trustees could sit back with impunity and allow the remaining trustee to disregard its duties and gorge itself on the assets of a charitable trust unchecked. Finally, Ms. Rodgers argues that WEC’s claims are subject to arbitration pursuant to an arbitration clause in the Settlement Agreement. Not only is WEC not a party to the arbitration clause, but Grant Winthrop, who designated WEC to receive distributions from the Foundation pursuant to the Settlement Agreement, is not WEC’s “agent,” as Ms. Rodgers claims. By definition, WEC could not be Mr. Winthrop’s principal because it exercises no control over Mr. Winthrop. And WEC’s breach of fiduciary duty claims are not covered by the arbitration clause: they are not claims with regard to the interpretation and enforcement of the Settlement Agreement. The latest impediments the trustees have tried to place in the way of WEC receiving its distributions and recovering the funds it wrongfully has been forced to spend should be removed. The Individual Trustees’ Motions should be denied. RELEVANT FACTUAL BACKGROUND Although the history of The MacDonald Living Trust (the “Trust”) and attendant litigation is long and complex, the facts relevant to these Motions are not: Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 7 of 24 Page ID #:701 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS The Individual Trustees have served as Grantmaking Trustees of The MacDonald Family Foundation (the “Foundation”) for more than twenty years. Complaint (“Compl.,” ECF No. 1) ¶ 18(b). Under the terms of the Trust, see generally Compl. Ex. A, ECF No. 1-1, the Foundation’s Grantmaking Trustees have “authority to determine the amounts and identities of the charitable beneficiaries of the Foundation and no authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation.” Compl. ¶ 18(b). Administrative matters are under the authority of the Foundation’s Investment Trustee, a position initially held by Roxanne B. Chapman and David S. Wang. Id. ¶ 18(a). For twenty years, Ms. Chapman and Mr. Wang abused their positions, charging excessive fees and improperly allocating expenses of other trusts to the Foundation. Id. ¶¶ 18(a), 19, 21-23, 26-27 & n.15, 31-32, 35, 44, 70, 86, 91. The Individual Trustees sat by idly, even after Ms. Rodgers was warned by counsel that Ms. Chapman and Mr. Wang were charging excessive amounts and that the Individual Trustees could be personally liable for their inaction. Id. ¶¶ 20-26, 91. In 2012, Ms. Rodgers finally exercised her right as the sole surviving daughter of the settlors to remove Ms. Chapman and Mr. Wang. Id. ¶ 31. They were succeeded by San Pasqual. Id. ¶ 32. Unfortunately, San Pasqual has not been much of an improvement. See, e.g., id. ¶ 35. It, too, has mismanaged the Foundation and sub- trusts, entrenching and enriching itself with excessive fees and questionable expenses. Id. ¶¶ 33-37, 54, 56, 70, 86, 91. Following years of litigation arising from these improprieties, id. ¶¶ 37-45, a global settlement was reached in November 2013. Id. ¶¶ 46, 52; see also generally Compl. Ex. B (ECF No. 1-2). Pursuant to the Settlement Agreement, Grant Winthrop-himself a former Grantmaking Trustee-obtained the right to designate one or more charitable distributees to Foundation funds. Compl. ¶¶ 46-50. The Settlement Agreement set forth limited criteria based on which San Pasqual was supposed to approve Mr. Winthrop’s proposed distributees: they were to be “qualified charities as Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 8 of 24 Page ID #:702 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -4- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS described in I.R.C. § 170(c), . . . tax exempt organizations under I.R.C. § 501(c)(3), . . . not ‘private foundations’ under I.R.C. § 509, and [were to] provide such acceptances, assurances, and confirmations that San Pasqual and its professional advisors deem prudent.” Id. ¶¶ 47, 50. On July 26, 2016, Mr. Winthrop designated WEC as his proposed distributee. Id. ¶¶ 4, 59; see also generally Compl. Ex. C (ECF No. 1-3). Although WEC met the criteria in the Settlement Agreement, see, e.g., Compl. ¶ 59; Compl. Ex. C, San Pasqual delayed “approving” WEC for well over a year. See Compl. ¶¶ 5, 66. All the while, it continued to pay itself fees from the funds that should have gone to WEC as distributions, and from the Foundation’s other assets. Id. ¶¶ 56, 60-66, 86, 95. Predictably, the Individual Trustees again failed to do anything to ensure that San Pasqual fulfilled its duties or conserved the Foundation’s assets. Id. ¶ 91. Rather, they joined with San Pasqual in its stonewalling, even joining in San Pasqual’s request that WEC provide an unqualified tax opinion-at WEC’s expense-supposedly as an additional assurance of WEC’s eligibility to receive distributions under Settlement Agreement. Id. ¶¶ 65-66; see also generally Compl. Ex. D (ECF No. 1-4). Although WEC provided the requested opinion letter to San Pasqual and the Individual Trustees, and revised again and again as San Pasqual and the Individual Trustees fly-specked it to their satisfaction, see generally id., San Pasqual continued to fail to make any distributions, Compl. ¶¶ 66, 68, forcing WEC to file this action nearly four years after the Settlement Agreement was signed. Id. ¶¶ 2, 52.1 And the Individual Trustees, with the apparent belief that they are litigation-immune, continue to allow San Pasqual to profit at WEC’s expense. See, e.g., id. ¶ 91. 1 On October 26, 2017-the day before WEC was to file this Opposition, see ECF Nos. 25, 28-San Pasqual made an initial distribution to WEC. WEC believes that several million dollars are still owed to it. See, e.g., Compl. ¶ 67. Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 9 of 24 Page ID #:703 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS LEGAL STANDARD Motions to dismiss under Rule 12(b)(6) are disfavored. See De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). Rule 8 requires only notice pleading, i.e., “a short and plain statement of the claim.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). On 12(b)(6) motions, courts take as true all material factual allegations and construe them in the light most favorable to the plaintiff. Williams v. Gerber, 552 F.3d 934, 937 (9th Cir. 2008). The issue is “not whether [the] plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). ARGUMENT I. WEC HAS STANDING TO BRING A BREACH OF FIDUCIARY DUTY CLAIM The Individual Trustees argue that WEC lacks standing to assert a breach of fiduciary duty claim because it is not a beneficiary of the Foundation, ECF No. 20 (“Rodgers Motion”) at 17-20; ECF No. 26 (“Hilf Motion”) at 17-21,2 and because they claim the California Attorney General must sue “to enforce the trust.” Rodgers Motion at 20-21. These arguments do nothing to diminish WEC’s Article III standing; because WEC has been designated to receive distributions from the Foundation that have been withheld for well over a year, it plainly has Article III standing to hold accountable those responsible for WEC not receiving its distributions. The Individual Trustees’ more technical trust law arguments are also without merit: WEC’s special interest in distributions from the Foundation confers standing upon it to enforce the Foundation’s 2 Mr. Hilf also argues that “WEC lacks standing to claim a breach of fiduciary duty, as well as a breach of contract, against Mr. Hilf under the Settlement Agreement.” Hilf Motion at 19. WEC is not asserting any causes of action for breach of contract against Mr. Hilf, under the Settlement Agreement or otherwise. See Compl. ¶¶ 75-78 (breach of contract claim against San Pasqual only). Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 10 of 24 Page ID #:704 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS obligations to make distributions to WEC and renders it a beneficiary of the Foundation under relevant law. See, e.g., San Diego Cnty. Council, Boy Scouts of Am. v. City of Escondido (“Boy Scouts”), 14 Cal. App. 3d 189, 195-96 (1971) (recognizing that the Attorney General’s authority to enforce a charitable trust is not exclusive because other responsible individuals, including beneficiaries, have standing).3 A. WEC Has Article III Standing to Pursue the Individual Trustees’ Breaches of Duty and Its Resultant Damages Article III standing requires three basic elements: “(1) an injury in fact that (2) is fairly traceable to the challenged conduct and (3) has some likelihood of redressability.” Pub. Lands for the People, Inc. v. U.S. Dep’t of Agric., 697 F.3d 1192, 1195-96 (9th Cir. 2012) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). These elements are adequately alleged here, where WEC was designated to receive certain distributions from the Foundation, see Compl. ¶¶ 4, 59, and-although WEC meets the limited criteria for approval, see id. ¶¶ 3, 5, 47, 50, 59, 64-66, 72, 76- 77; Compl. Exs. C-D-the vast bulk of the distributions continue wrongfully to be withheld. See Compl. ¶¶ 1-2, 5-6, 66, 68, 86, 91, 94. WEC has also alleged that the Individual Trustees are responsible for WEC’s damages because they have failed to take reasonable steps to prevent the misconduct of their cotrustee, San Pasqual. See id. ¶¶ 5-7, 33-37, 59-69, 81-82, 86, 91, 94-96. These allegations suffice to afford WEC standing to pursue claims in federal court. See Public Lands, 697 F.3d at 1196. The Individual Trustees’ challenges to WEC’s standing under trust law are also without merit. For example, Ms. Rodgers claims that WEC lacks standing because “the Attorney General stands in the place of beneficiaries of a charitable trust for purposes of trust enforcement.” Rodgers Motion at 20-21. The California Supreme Court, 3 WEC served the California Attorney General with the Complaint on September 5, 2017, see Rodgers Motion at 21 n.16, well before WEC’s service deadline. See Fed. R. Civ. P. 4(m). Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 11 of 24 Page ID #:705 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS however, has long recognized that the Attorney General’s power of enforcement is not exclusive: Although the Attorney General has primary responsibility for the enforcement of charitable trusts, the need for adequate enforcement is not wholly fulfilled by the authority given him. The protection of charities from harassing litigation does not require that only the Attorney General be permitted to bring legal actions in their behalf. Holt v. Coll. of Osteopathic Physicians & Surgeons, 61 Cal. 2d 750, 755 (1964) (en banc) (emphasis added). Consequently-and despite the Individual Trustees’ claims that WEC needs to sit idly by until such time (if ever) as the Attorney General takes up the sword and pursues WEC’s distributions-“[t]here is no rule or policy against supplementing the Attorney General’s power of enforcement by allowing other responsible individuals to sue in behalf of the charity.” Id. Sensibly, anyone with a sufficient “special interest” may bring an action to enforce the assets of a charitable trust. See, e.g., id. at 753; see also Restatement (Third) of Trusts § 28, cmt. c (2007) (“Charitable trusts are ordinarily enforceable upon suit by the Attorney General, as representative of the community, although there may also be beneficiaries with a special interest in the trust who can maintain a suit to enforce it.”). Courts have concluded that settlors, donors, trustees, and beneficiaries with a sufficient interest all may sue to enforce a trust’s obligations. See, e.g., Holt, 61 Cal. 2d at 757 (1964) (trustees); Patton v. Sherwood, 152 Cal. App. 4th 339, 347 (2007) (settlor); L.B. Research & Educ. Found. v. UCLA Found., 130 Cal. App. 4th 171, 180 (2005) (donor); Boy Scouts, 14 Cal. App. 3d at 196 (beneficiaries). It should go without saying that WEC has alleged a sufficient special interest in the assets of the Foundation. Mr. Winthrop designated WEC to receive certain distributions from the Foundation pursuant to the Settlement Agreement. See, e.g., Comp. ¶¶ 2, 4, 46, 59. Under the Settlement Agreement, San Pasqual was supposed to approve any distributee that is a qualified charity as described in I.R.C. § 170(c), is a tax exempt organization under I.R.C. § 501(c)(3), and is not a private foundation under Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 12 of 24 Page ID #:706 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS I.R.C. § 509. See, e.g., Comp. ¶¶ 3, 47, 50, 72, 76. WEC has amply demonstrated that it meets all three of these criteria, see, e.g., Comp. ¶¶ 5, 59, 72, 77; Compl. Ex. C, including by complying at its expense with defendants’ (in WEC’s view, unreasonable) request that it provide an unqualified opinion letter to all three trustees to that effect, and make sure the language of the unqualified opinion letter met with all three trustees’ express approval. See, e.g., Comp. ¶¶ 5, 64-66, 72; Compl. Ex. D. Further, WEC is the only designated recipient of these funds from the Foundation, and the only entity with any incentive to address defendants’ delay and wrongful failure to make distributions. To WEC’s knowledge, Mr. Winthrop has not designated any other distributee pursuant to the Settlement Agreement since designating WEC in July 2016. See, e.g., Comp. ¶¶ 4, 59. There is no other known beneficiary of these funds, which total millions of dollars. See, e.g., id. ¶¶ 47-50, 67. WEC has a strong, unique interest in the millions of dollars from the Foundation to which it is entitled (on which San Pasqual continues to sit and pay itself fees), as well as in San Pasqual’s management of those and other assets of the Foundation. In addressing San Pasqual’s mismanagement, self-dealing, and waste of the Foundation’s assets-and the Individual Trustees’ acquiescence in such misconduct-WEC promotes not only its own special interests, but also the interests of any other beneficiaries who might be interested in preserving assets being wasted by San Pasqual and the Individual Trustees. See, e.g., Comp. ¶¶ 5-7, 33-37, 59-70, 81-82, 86, 88, 91, 94-96. Under these circumstances, there is “no more responsive or responsible party to represent” the interests of WEC and the other as-of-yet unidentified beneficiaries of the Foundation. See Boy Scouts, 14 Cal. App. 3d at 196. The Individual Trustees’ arguments against WEC’s standing are particularly inappropriate given that, in their view, WEC’s “status as a beneficiary depends upon the discretion of the trustee.” Price v. Akaka, 928 F.2d 824, 827 (9th Cir. 1990), as amended (Mar. 21, 1991) (citing Restatement (Second) of Trusts § 214(1), cmt. a (1953); id. § 391); see also Hooker v. Edes Home, 579 A.2d 608, 614 (D.C. 1990) (“We Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 13 of 24 Page ID #:707 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS reject a ‘current beneficiary’ restriction which, at least as alleged in this case, would reserve to the Trustees the power to confer or deny standing to question their actions by refusing to act on applications.”). It would be a neat trick if, as defendants apparently claim, defendants retain sole discretion to determine who will have standing to sue them. B. WEC Qualifies as a Beneficiary of the Foundation for Purposes of Pursuing the Distributions It Is Owed and the Individual Trustees’ Breaches of Duty The Individual Trustees also argue incorrectly that WEC lacks standing because it is not a beneficiary of the Foundation, see Rodgers Motion at 17-20; Hilf Motion at 17-18, an argument that should be rejected for reasons similar to those set forth above. WEC’s special interest in the distributions to which it is entitled from the Foundation renders it a beneficiary of the Foundation under California law: “Beneficiary” means a person to whom a donative transfer of property is made or that person’s successor in interest, and: . . . (d) As it relates to a charitable trust, includes any person entitled to enforce the trust. Cal. Prob. Code § 24(d) (“Section 24”); see also Cal. Prob. Code § 24(c) (“As it relates to a trust, means a person who has any present or future interest, vested or contingent.”). California courts have interpreted the beneficiary provision expansively: The word “includes” is ordinarily a word of enlargement, not limitation. . . . Here the phrase “includes any person,” as used in section 24, subdivision (d), expands the class of persons who may bring an action to enforce a charitable trust. One such person is the Attorney General. . . . Section 24, subdivision (d), includes other interested persons, otherwise it would be redundant with section 17210 which provides that the Attorney General may stand in the place of the beneficiaries to enforce the charitable trust. Patton, 152 Cal. App. 4th at 346. Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 14 of 24 Page ID #:708 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Recognizing that WEC certainly qualifies as an “interested person,” the Individual Trustees nonetheless argue that WEC should not be viewed as a beneficiary under Section 24 because the distributions to which WEC is entitled under the Settlement Agreement are not “donative transfers” pursuant to Section 24. See Rodgers Motion at 17-20; Hilf Motion at 18-19. The Individual Trustees, however, cannot have it both ways: they want the distributions to WEC to qualify as donative transfers for tax purposes, see Compl. ¶ 66 & Ex. D, but not to be donative transfers when it comes to facing WEC’s claims addressing their misconduct. The Individual Trustees’ narrow view of WEC’s ability to enforce its rights is mistaken, and the distributions owed to WEC, to the extent that matters, do qualify as “donative transfers.” The Foundation is a private foundation under Internal Revenue Code Section 509. See Compl. ¶17; Compl. Ex. D at 2. Pursuant to the Trust, “[t]he general purposes of the Foundation shall be to operate exclusively for charitable, religious, educational, scientific, and literary purposes by making grants to appropriate charitable, religious, educational, scientific, and literary organizations that are qualified charities.” Compl. ¶ 17; Compl. Ex. A Section A, Article XI, ¶ A. A “qualified charity” is “an organization described in . . . Internal Revenue Code Sections 170(c) and 2055(a) so that the gift to such organization qualifies for the charitable deduction for federal income and estate tax purposes.” Compl. Ex. A Section A, Article XI, ¶ A (emphasis added). To meet what Ms. Rodgers herself characterizes as “the legal limitations on donees,” see Rodgers Motion at 13 (emphasis added), all three of the Foundation’s trustees required WEC to provide an unqualified tax opinion that any distributions from the Foundation would be a qualifying distribution pursuant to Internal Revenue Code Section 4942 and not a taxable expenditure pursuant to Section 4945. See Compl. ¶¶ 65-66; see also generally Compl. Ex. D. For tax purposes, the trustees want to characterize the distributions for tax purposes as “grant[s],” see 26 U.S.C. § 4945(d)(4), defined by the tax regulations as “such expenditures as scholarships, fellowships, Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 15 of 24 Page ID #:709 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -11- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS internships, prizes, and awards.” 26 C.F.R. § 53.4945-4(a)(2). Conspicuously absent from the definition of “grants” are settlements and contractual obligations. Because defendants seek to characterize the distributions as “donative transfers” for tax purposes, they cannot now argue (and certainly cannot do so persuasively at the pleading stage) that the distributions owed to WEC are not “donative transfers.” The one case upon which the Individual Trustees rely, Patrick v. Alacer Cop., 167 Cal. App. 4th 995, as modified on denial of reh’g (Nov. 21, 2008), see Rodgers Motion at 19; Hilf Motion at 18-19, has no relevance here. Not only did that case not involve a charitable trust, it also involved a community property transfer. See Patrick, 167 Cal. App. 4th at 1000. Unlike here, the assets in Patrick were not being distributed from a charitable trust to fulfill a charitable purpose, cf. Compl. ¶ 17 (alleging that the Foundation was intended to operate exclusively for charitable purposes by making grants to qualified charities such as WEC), but rather to comply with the settlor’s community property obligations under California law. See Patrick, 167 Cal. App. 4th at 1000, 1012-13 (“If plaintiff has a community property interest in the trust’s [Company] stock, then her husband, by directing the trustees to issue [Company] shares to plaintiff to satisfy her community property interest (if any), would not be giving plaintiff anything to which she is not already entitled.”). WEC would not be “already entitled” to the distributions at issue here but for the existence of the Foundation, which the settlors intended to operate exclusively for charitable purposes, and but for WEC’s qualification as a public charity. See Compl. ¶ 17. There can be no question that WEC is a beneficiary with standing to pursue its claims, including its claim against the Individual Trustees. II. WEC HAS ADEQUATELY ALLEGED A CLAIM FOR BREACH OF FIDUCIARY DUTY AGAINST THE INDIVIDUAL TRUSTEES As the parties agree, to state a claim for breach of fiduciary duty, WEC must plead (1) the existence of a fiduciary relationship between WEC and the defendant; (2) a breach of the defendant’s fiduciary duties, and (3) damages proximately caused by Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 16 of 24 Page ID #:710 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -12- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS the breach. Rodgers Motion at 14-15 (citing City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445, 483 (1999)); Hilf Motion at 13 (same). The Individual Trustees maintain only the first element is not properly alleged, arguing that WEC has failed to plead a fiduciary relationship and corresponding duty between themselves and WEC. See Rodgers Motion at 14-17; Hilf Motion at 13-17. The disagreement between the parties reduces to whether the Individual Trustees’ lack of “authority regarding the selection and management of assets or the routine administrative matters regarding the Foundation” under the Trust equates to freedom from liability to WEC for failure to prevent breaches of duty by their cotrustee, San Pasqual. Contrary to the Individual Trustees’ arguments that California Probate Code Sections 15620 and/or 16040(b) insulate them from liability, “the Trust, California trust law, [and] common sense” do impose duties on the Individual Trustees, see Hilf Motion at 14, and liability for breaching those duties. Under California law, “[i]f there are several trustees, each trustee is under a duty to the beneficiary to use reasonable care to prevent a cotrustee from committing a breach of trust or to compel a cotrustee to redress a breach of trust.” Estate of Hensel, 144 Cal. App. 2d 429, 438 (1956); see also Cal. Prob. Code §§ 16013(b), 16402(b)(5); Blackmon v. Hale, 1 Cal. 3d 548, 559 (1970) (“A trustee must exercise reasonable supervision over the conduct of a cotrustee in relation to the trust.”); Restatement (Third) of Trusts § 81(b) & General Comment d (2007). Where the settlor divides functions between or among various trustees, each trustee still has the duty to take reasonable steps to prevent fiduciary misconduct of the others: The settlor’s limiting of a trustee’s functions or allocation of functions among the trustees usually, either explicitly or as a matter of interpretation, has the effect of relieving the trustee(s) to whom a function is not allocated of any affirmative duty to remain informed or to participate in deliberations about matters within that function. . . . Even in matters for which a trustee is relieved of responsibility, however, if the trustee knows that a co-trustee is committing or attempting to commit a Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 17 of 24 Page ID #:711 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -13- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS breach of trust, the trustee has a duty to take reasonable steps to prevent the fiduciary misconduct. Restatement (Third) of Trusts § 81, General Comment b (2007) (emphasis added). There is no question that WEC has alleged that each of the Individual Trustees knew San Pasqual was committing a breach of trust with respect to the distributions WEC is owed. See Bermingham v. Wilcox, 120 Cal. 467, 472-73 (1898); see also Gbur v. Cohen, 93 Cal. App. 3d 296, 301, 303 (1979). The California Supreme Court held well over a century ago that a cotrustee, such as the Individual Trustees, who had no authority over funds managed by his cotrustee and even had no knowledge of the transaction at the time it was made, was nonetheless liable for his cotrustee’s waste of trust assets where the first cotrustee failed to exercise due care. See Bermingham, 120 Cal. at 472. In Bermingham, two cotrustees each separately managed and controlled different portions of the testator’s property, with the first overseeing property in Los Angeles and the second overseeing property in San Francisco. Id. at 468-69. The second trustee purchased $10,000 of bonds in a company of which he was both a stockholder and director, using the trust funds he managed. Id. at 470-71. The Court held that “investment of the trust funds in these bonds by [the second cotrustee] was, in effect, a dealing by the trustee with the funds of his beneficiary for his own advantage,-a loan of the money to himself,-which is forbidden.” Id. at 471. After the second cotrustee passed away, the first cotrustee acted as the sole trustee. Id. at 469. When the beneficiary challenged the second trustee’s investment as unauthorized two years later, the issue arose as to whether the first cotrustee-even though he had no knowledge of the investment when it was made- was liable to the beneficiary. Id. at 469-70. The California Supreme Court concluded that the cotrustee was liable. Id. at 471-73. Although the Court recognized that “the [first cotrustee] was not authorized to withdraw from the control or custody of [the second] any of the trust moneys in his hands,” it recognized that the first cotrustee’s “obligation to the trust has been defined Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 18 of 24 Page ID #:712 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -14- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS . . . to require him to exercise the same measure of diligence that a man of ordinary prudence would be expected to exercise in the care of his own property under the same circumstances.” Id. at 472. Consequently, “his duty towards the beneficiary required him to make himself acquainted with the fund, and t[o] examine into its condition and investment.” Id. This he failed to do: either he “must have learned about this investment and its character, . . . or . . . he had been negligent in failing to make the investigation.” Id. at 473. As the Court held, “[w]here an executor, by his negligence, suffers his co-executor to receive and waste the estate, when he has the means of preventing it by proper care, he is liable to the beneficiaries . . . for the estate thus wasted.” Id. at 472. Here, as in Bermingham, WEC has alleged that the Individual Trustees failed to exercise reasonable supervision over San Pasqual; they failed to do anything at all to address San Pasqual’s known breaches of duty. Compl. ¶ 91. Although not themselves charged with management or administration of assets under the Trust, see id. ¶ 18(b), or approval of WEC, see id. ¶¶ 47, 50, the Individual Trustees both failed to address and actually assisted in San Pasqual’s breaches of duty by, among other things, requiring that WEC spend money to procure an unqualified opinion letter from tax counsel and then failing to act after WEC procured and revised the letter to their satisfaction. See id. ¶¶ 65-66. By allowing San Pasqual to place its own interest in delay, holding WEC’s funds, and collecting fees on them ahead of the well-being of the Foundation and its beneficiaries, the Individual Trustees themselves breached their fiduciary duties. Unlike in Bermingham, the Individual Trustees have been well aware of San Pasqual’s alleged breaches of fiduciary duty. See, e.g., Compl. ¶¶ 23 & 34 (alleging that San Pasqual charges fees in excess of those known by Ms. Rodgers to be excessive), 61-66 (alleging receipt of correspondence that addressed San Pasqual’s breaches); Declaration of Sarah Dubina (“Dubina Decl.”) ¶¶ 2-7 & Exs. A-F; Compl. Exs. E-G; see also, e.g., Compl. ¶¶ 38-43; Request for Judicial Notice in Support of Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 19 of 24 Page ID #:713 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -15- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Rodgers Motion (ECF No. 21) ¶ 6 & Ex. 64 ¶¶ 19-21 (prior petition alleging San Pasqual was not acting in the best interests of the Foundation). The Individual Trustees were also well aware of the consequences of failing to address San Pasqual’s breaches. See Compl. ¶¶ 24-25; Dubina Decl. ¶ 3 & Ex. B at 2; Compl. Ex. F at 9. The Complaint’s allegations are more than sufficient to state a cause of action for breach of fiduciary duty against the Individual Trustees under California Probate Code Sections 16013(b) and/or 16402(b). III. WEC’S CLAIM AGAINST THE INDIVIDUAL TRUSTEES IS NOT SUBJECT TO ARBITRATION Ms. Rogers’ contention that WEC’s claim against her must be dismissed because it is subject to arbitration is without merit. See Rodgers Motion at 21-22.5 Even if this argument were the proper subject of a Rule 12(b)(6) motion (it is not, see, e.g., Vesta Corp. v. Amdocs Mgmt. Ltd., No. 3:14-CV-1142-HZ, 2016 WL 3436415, at *4 (D. Or. June 16) (“A motion to compel arbitration is appropriately raised pursuant to Rule 12(b)(1).”)), it would lack merit because WEC is not a party to the referenced arbitration agreement, Mr. Winthrop is not WEC’s agent, and WEC’s claim against Ms. Rodgers involves extra-contractual duties, not a subject matter that falls within the arbitration clause. A. WEC Is Not a Party to the Arbitration Clause and Mr. Winthrop Is Not WEC’s “Agent” Ms. Rodgers’ assertion-made without citing any authority-that WEC is bound by the arbitration clause because “Mr. Winthrop . . . effectively adopted the position of 4 These records are subject to judicial notice, see, e.g., Asdar Grp. v. Pillsbury, Madison & Sutro, 99 F.3d 289, 290 n.1 (9th Cir. 1996), and-as with the exhibits to the Dubina Declaration-are also incorporated by reference into WEC’s complaint. See, e.g., Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). 5 Mr. Hilf’s motion does not argue that WEC’s claims must be arbitrated pursuant to the Settlement Agreement. See generally Hilf Motion. Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 20 of 24 Page ID #:714 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -16- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS agent for the designees under paragraph 6(e) of the Agreement,” Rodgers Motion at 22, lacks merit. Although it is not clear what authority or basis for agency on which Ms. Rodgers is attempting to rely, it is clear under established California law that Mr. Winthrop does not qualify as WEC’s “agent” under any recognized theory. First, “one cannot be an agent and a trustee at the same time, with respect to the same subject matter.” New v. New, 148 Cal. App. 2d 372, 381 (1957). Mr. Winthrop, who served as Grantmaking Trustee of the Foundation from August 20, 2011, through November 27, 2013, see Compl. ¶¶ 18(b), 52; Compl. Ex. B ¶ 7, was acting as a trustee and not as an agent (for any beneficiary, let alone WEC, which was not incorporated until October 9, 2014, see Compl. Ex. C at 7) when he signed the Settlement Agreement on November 22, 2013. See Compl. Ex. B at 48. Second, “[i]n the absence of the essential characteristic of the right of control, there is no true agency.” Van’t Rood v. Cnty. of Santa Clara, 113 Cal. App. 4th 549, 572 (2003) (Edwards v. Freeman, 34 Cal. 2d 589, 592 (1949)). WEC exercises no control over Mr. Winthrop,6 and certainly none is evident from the face of the Complaint or anything submitted by Ms. Rodgers. To the contrary, it was Mr. Winthrop who had the power pursuant to the Settlement Agreement to designate a beneficiary of his choosing. See, e.g., Compl. ¶¶ 2-4, 46-47, 50, 53-55, 59-60, 63; Compl. Ex. B ¶¶ 6(e)-(g) (outlining the mechanism for Mr. Winthrop’s “proposal” or “selection” of a designee); Compl. Ex. D at 1 (“Our client Wine Education Council, Inc. . . . has been designated as the recipient of a distribution . . . by Grant Winthrop.”); see also Van’t Rood, 113 Cal. App. 4th at 572 (“Control may not be inferred merely from the fact that one person’s act benefits another.”). 6 Ms. Rodgers insinuates that it is Mr. Winthrop who controls WEC, and not the other way around. See Rodgers Motion at 7 n.6 (“Ms. Rodgers is concerned that this litigation is the latest iteration of Mr. Winthrop’s legal campaign against the Trust and members of his extended family.”). But cf. Compl. Ex. D at 3 (“WEC is not controlled by Grant Winthrop.”). Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 21 of 24 Page ID #:715 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -17- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Accordingly, Mr. Winthrop does not qualify as WEC’s “agent,” and had no authority (apparent or otherwise) to bind WEC to the Settlement Agreement’s arbitration clause. See, e.g., Comer v. Micor, Inc., 436 F.3d 1098, 1104 n.11 (9th Cir. 2006) (when evaluating whether a party is bound by an arbitration agreement, “the liberal federal policy regarding the scope of arbitrable issues is inapposite”); Chastain v. Union Sec. Life Ins. Co., 502 F. Supp. 2d 1072, 1075 (C.D. Cal. 2007). B. WEC’s Breach of Fiduciary Duty Claim Falls Outside the Arbitration Clause Ms. Rodgers also claims that “WEC lacks standing because the Settlement Agreement - the document this Complaint purports to vindicate - has contractually binding dispute resolution procedures.” Rodgers Motion at 21. In so arguing, Ms. Rodgers fails to inform the Court that WEC’s claim against her plainly falls outside the scope of those “binding dispute resolution procedures.” The Settlement Agreement explicitly limits the scope of the arbitration clause to “disputes with regard to the interpretation and enforcement of this Agreement.” Compl. Ex. B ¶ 18. WEC is not suing Ms. Rodgers with regard to either the interpretation or enforcement of the Settlement Agreement, but rather for breach of her fiduciary duties under the Trust. See Compl. ¶¶ 89-92; see also id. ¶ 90 (“Hilf and Rodgers, as Grantmaking Trustees of the Foundation, have owed fiduciary duties to WEC.”). That WEC’s claim falls outside the scope of the arbitration clause is a second reason to reject Ms. Rodgers’ argument that WEC’s claim against her must be sent to arbitration. “[A] court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute.” Granite Rock Co. v. Int’l Broth. of Teamsters, 561 U.S. 287, 297 (2010) (emphasis in original); Knutsson v. KTLA, LLC, 228 Cal. App. 4th 1118, 1130 (2014).7 7 California law governs Ms. Rodgers’ arbitration challenge, which is a matter of contract law. See Granite Rock Co., 561 U.S. at 296. Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 22 of 24 Page ID #:716 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -18- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS Courts have routinely found that extra-contractual claims such as WEC’s claim against Ms. Rodgers do not involve interpretation or enforcement of a contract. See, e.g., New Line Prods., Inc. v. Thoene, No. CV 07-5655-GW, 2008 WL 11342567, at *5 (C.D. Cal. Feb. 22, 2008) (“Because, again, the purported duties that are the subject of this claim are extra-contractual, the fiduciary breach claim is not arbitrable.”); see also Bono v. David, 147 Cal. App. 4th 1055, 1067 (2007) (“[B]ecause [plaintiff]’s defamation action does not involve the construction or application of any provision of the . . . Agreement, the mandatory mediation and arbitration clause of that agreement does not apply.”). Because WEC’s claim against Ms. Rodgers is outside the scope of the arbitration clause, and because WEC is not even a party to the arbitration clause, Ms. Rodgers’ arguments about arbitration should be rejected. IV. MS. RODGERS’ MOTION TO STRIKE SHOULD BE DENIED Ms. Rodgers asks the Court to strike paragraphs 20 through 27 and paragraph 31, lines 17 through 19 of the Complaint pursuant to Federal Rule of Civil Procedure 12(f), maintaining that “[t]hese allegations are . . . utterly irrelevant[,] . . . impertinent[,] . . . [and] included only to disparage and embarrass Ms. Rodgers.” Rodgers Motion at 7 n.6. This request-not a properly noticed Rule 12(f) motion and relegated to a single footnote of Ms. Rodgers’ Rule 12(b)(6) motion-is procedurally improper. See, e.g., Fed. R. Civ. P. 7(b)(1) (“A request for a court order must be made by motion.”); C.D. Cal. L.R. 6-1 (“[E]very motion shall be presented by written notice of motion.”). More importantly, it should be denied, even if considered as a Rule 12(f) motion, as without basis. Ms. Rodgers’ indifference to the long-standing breaches of fiduciary duty by the Foundation’s Investment Trustees (San Pasqual and its predecessors) are relevant to WEC’s claim against Ms. Rodgers, which asserts that Ms. Rodgers breached her own duties “by failing to exercise reasonable supervision over San Pasqual and of the Foundation . . . and . . . by, among other things, allowing Chapman and Wang to collect Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 23 of 24 Page ID #:717 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -19- CASE NO. 2:17-CV-05879 DMG (JCx) PLAINTIFF’S COMBINED OPPOSITION TO DEFENDANTS RODGERS’ AND HILF’S MOTIONS TO DISMISS unreasonable fees for over twenty years.” Compl. ¶ 91. Although Ms. Rodgers’ lack of oversight may be “embarrass[ing],” see Rodgers Motion at 7 n.6, the allegations she challenges establish a pattern of neglect and indifference on the part of Ms. Rodgers, and her discomfort with them does not render them “redundant, immaterial, impertinent, or scandalous.” See Fed. R. Civ. P. 12(f); see also Naton v. Bank of Cal., 72 F.R.D. 550, 552 (N.D. Cal. 1976) (“[Rule 12(f)] motions are disfavored by the courts, and should not be granted unless it is clear that the matter to be stricken can have no possible bearing upon the subject matter of the litigation.”). CONCLUSION WEC respectfully requests that the Court deny the Individual Trustees’ Motions.8 DATED: October 27, 2017 QUINN EMANUEL URQUHART & SULLIVAN, LLP By: /s/ Harry A. Olivar, Jr. Harry A. Olivar, Jr. Attorneys for Plaintiff Wine Education Council, Inc. 8 Should the Court grant the Individual Trustees’ Motions in any respect, WEC respectfully requests that it be granted leave to amend. As the authorities cited by the Individual Trustees recognize, see Rodgers Motion at 22-23; Hilf Motion at 21, “[i]f a complaint is dismissed for failure to state a claim, leave to amend should be granted unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986); accord Ariz. Students’ Ass’n v. Ariz. Bd. of Regents, 824 F.3d 858, 871 (9th Cir. 2016) (trial court abused its discretion by dismissing complaint without leave to amend). Case 2:17-cv-05879-DMG-JC Document 34 Filed 10/27/17 Page 24 of 24 Page ID #:718