Judge: Holly J. Fujie, Case: BC512275, Date: 2023-01-09 Tentative Ruling

Case Number: BC512275    Hearing Date: January 9, 2023    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

            MOVING PARTY: Defendant Sheryl Rosenberg (“Moving Defendant”)

RESPONDING PARTY: Plaintiff

The Court has considered the moving, opposition and reply papers.[1]

BACKGROUND

            This action was initiated on June 17, 2013 and arises out of a dispute between sisters over the management and control of SD Sheryl Brigette, LLC (“SDSB”).[2]  The currently operative third amended complaint (the “TAC”), which was filed on July 16, 2019, alleges: (1) declaratory relief; (2) breach of fiduciary duty (individual); (3) breach of fiduciary duty (derivative); (4) accounting and constructive trust; and (5) judicial expulsion.  The TAC alleges that Plaintiff and Moving Defendant (collectively, the “Parties”) were transferred equal interests in SDSB by their father Stanley Diller prior to his death and that Moving Defendant has fraudulently deprived Plaintiff of her economic and management rights in SDSB.

            On December 13, 2022, Moving Defendant filed a motion to bifurcate the trial (the “Motion”).  The Motion requests that the trial in this matter be tried in up to three phases.

DISCUSSION

The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any cause of action, including a cause of action asserted in a cross-complaint, or of any separate issue or of any number of causes of action or issues, preserving the right of trial by jury required by the Constitution or a statute of this state or of the United States.  (CCP § 1048, subd. (b).)  CCP section 598 provides, in part, that the court may, when the convenience of witnesses, the ends of justice, or the economy and efficiency of handling the litigation would be promoted thereby, on motion of a party, after notice and hearing, make an order, no later than the close of pretrial conference in cases in which such pretrial conference in cases in which such pretrial conference is to be held, or, in other cases, no later than 30 days before the trial date, that the trial of any issue or any part thereof shall precede the trial of any other issue or any party thereof in the case.  (CCP § 598.)  Where trial of the issue of liability as to all causes of action precedes the trial of other issues or parts thereof and the decision of the court or jury is in favor of the allegedly liable party, judgment in favor of that party shall be entered and no trial of other issues in the action against that party will be had.  (Id.)  If the decision of the court or jury on the issue of liability is against the party allegedly liable, the trial of the other issues shall be had before the same or another jury as ordered by the court.  (Id.) 

Bifurcation frequently occurs when the determination of one issue, such as an affirmative defense, renders other issues moot.  (See, e.g., Buran Equipment v. H&C Investment Co. (1983) 142 Cal.App.3d 338, 343-44.)  Trial courts also often bifurcate equitable and legal issues, resolving the issues of equity first in order to promote judicial economy. (Darbun Enters, Inc. v. San Fernando Community Hosp. (2015) 239 Cal.App.4th 399, 408-09.)  While a litigant in a civil action generally has a constitutional right to jury trial on “legal” causes of action, there is no such right with respect to equitable causes of action.  (Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (2017) 8 Cal.App.5th 1, 19.)

            Moving Defendant argues that the trial in this matter should be split into at least three phases: (1) first, a bench trial on the issue of whether a 2016 stipulation for settlement (the “Settlement Stipulation”) entered into by the Parties earlier in the pendency of this action is enforceable and requires judgment to be entered in Moving Defendant’s favor; (2) in the event that Court finds that the Settlement Stipulation is not enforceable, a second bench trial on the first cause of action for declaratory relief; and (3) if any issues remain unresolved after the resolution of the first and second phases, a bench trial involving the remainder of Plaintiff’s claims which involve matters that occurred after 2012.[3]  Moving Defendant further argues that each potential phase of the trial is properly heard by the Court in a bench trial and should not be tried before a jury due to the nature of Plaintiff’s claims and potential remedies. 

Plaintiff argues that the issues in Moving Defendant’s proposed first and second phases of trial were resolved by the Court of Appeal and only the proposed third trial phase remains unresolved.  Plaintiff contends that the declaratory relief claim has been definitively disposed of by the Court of Appeal and the breach of fiduciary duty claim must be tried before a jury.  Plaintiff further contends that it would be more efficient to first resolve the breach of fiduciary claim before evaluating the rest of the claims in the TAC because Plaintiff’s entitlement to the remedies asserted in the remaining equitable causes of action stem from Moving Defendant’s alleged breach of fiduciary duty. 

Determination of Affirmative Defense

Under CCP section 597, when the answer pleads that the action is barred by the statute of limitations, or by a prior judgment, or that another action is pending upon the same cause of action, or sets up any other defense not involving the merits of the plaintiff’s cause of action but constituting a bar or ground of abatement to the prosecution thereof, the court may, either upon its own motion or upon the motion of any party, proceed to the trial of the special defense or defenses before the trial of any other issue in the case.  (CCP § 597.)

Moving Defendant contends that the Court should first conduct a bench trial on the issue of whether the Settlement Stipulation is enforceable and requires that judgment be entered in Moving Defendant’s favor.  The Opposition argues that this threshold issue does not require the Court’s determination in a distinct trial and refers to the Court of Appeal’s decision that reversed the Honorable Richard L. Fruin, Jr.’s orders granting two motions for summary judgment (the “MSJs”) in Moving Defendant’s favor.  (See Reid v. Rosenberg (2021) 2021 WL 4958868.)  In its decision, the Court of Appeal found that Plaintiff’s claims in this litigation are not barred by a settlement agreement entered into in a separate probate action (the “Probate Settlement”).  (See id. at * 8.)

The Court observes that the Opposition’s citation to the Court of Appeal’s ruling does not respond to the arguments raised by the Motion regarding a preliminary determination of the enforceability and effect of the Settlement Stipulation.  The Court of Appeal’s decision only discusses the Probate Settlement and does not address the Settlement Stipulation.

Moving Defendant’s answer to the TAC (the “Answer”), filed on August 14, 2019, pleads “Settlement Bars Claims” as the 24th affirmative defense.  Moving Defendant contends that the Settlement Stipulation entered into on December 20, 2016, precludes Plaintiff from recovering on her claims.  (See Declaration of Gary Lorch (“Lorch Decl.”) ¶ 13, Exhibit I.)  After the execution of the Settlement Stipulation, a Notice of Settlement was filed with the Court on December 30, 2016.  (Lorch Decl. ¶ 18, Exhibit K.)  On July 11, 2018, Moving Defendant filed a motion to enforce the Settlement Stipulation pursuant to CCP section 664.6 (the “Settlement Motion”).  (Lorch Decl. ¶ 25.)  After taking the matter under submission, Judge Fruin ultimately denied the Settlement Motion on May 28, 2019.  (Lorch Decl. ¶ 27, Exhibit L.)  In the May 28, 2019 order, Judge Fruin found that the then-existing record did not support a finding that Plaintiff exercised her right of due diligence as provided in the Settlement Stipulation in order to render the Settlement Stipulation enforceable.  (See Lorch Decl., Exhibit L. at 3.)  Judge Fruin further found that certain terms of the Settlement Agreement were too uncertain and ambiguous to constitute an enforceable agreement.  (Id.)  Judge Fruin clarified that while he declined to enforce the Settlement Stipulation pursuant to CCP section 664.6, the ruling was based, in part, on the Court’s understanding of the structure of SDSB and that the observations detailed in the order regarding SDSB’s structure were not intended to be judicial findings that would bind the Parties in later proceedings.  (See Lorch Decl., Exhibit L at 2.)  

The Court finds that the issue of whether the Settlement Stipulation is a viable affirmative defense to the claims in the TAC warrants a final determination by the Court in a bench trial before the claims in the TAC are resolved.  Although a settlement may not meet the procedural requirements of enforceability under CCP section 664.6, it may nonetheless be enforceable by alternative methods.  (Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1584.)  Here, while Judge Fruin denied the Settlement Motion under CCP section 664.6, the May 28, 2019 order noted that the decision was based on the state of the record at that time and that his findings regarding SDSB were not intended to be binding.  The Court therefore GRANTS the Motion as to the proposed first phase of trial.

Bifurcation of the Declaratory Relief Claim

            In her declaratory relief cause of action, Plaintiff seeks a determination of the Parties’ rights and obligations with respect to their interests in SDSB.  (See TAC ¶¶ 77-83.)  Specifically, Plaintiff seeks a determination that: (1) she is co-owner, member and manager of SDSB with a 50 percent membership interest; and (2) SDSB’s Operating Agreement is void or of no force.  (TAC ¶ 81.)

            Moving Defendant argues that trying the declaratory relief claim before the remainder of the claims in the TAC is in the interest of expediency because the resolution of the declaratory relief claims will establish the Parties’ respective rights and obligations to each other and to SDSB that are relevant to the remaining causes of action in the TAC. 

Plaintiff argues that a trial on this issue is unnecessary in light of the Court of Appeal’s decision overruling the MSJs.  In its ruling, the Court of Appeal found that Judge Fruin erred in granting the MSJs because there were triable issues of fact regarding the validity of the Operating Agreement.  The Court of Appeal also found that Judge Fruin erred in impliedly finding that Moving Defendant was empowered to unilaterally adopt the Operating Agreement.  (See Reid v. Rosenberg (2021) 2021 WL4958868 at *7.) 

Plaintiff contends that the Court of Appeal’s findings functionally resolved the declaratory relief claim in her favor.  The Court is not persuaded by Plaintiff’s arguments.  First, the Court of Appeal’s ruling was limited to reversing the orders granting the MSJs and a determination that the claims in the TAC were excluded from the Probate Settlement.  The Court of Appeal did not adjudicate the declaratory relief claim in Plaintiff’s favor.  For this reason, Plaintiff’s arguments regarding the law of the case doctrine are misplaced.

The law of the case doctrine deals with the effect of the first appellate decision on the subsequent retrial or appeal.  (State Farm General Insurance Company v. Lara (2021) 71 Cal.App.5th 197, 212.)  The decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in any subsequent retrial or appeal in the same case.  (Id.)  The law of the case doctrine governs only the principles of law laid down by an appellate court, as applicable to a retrial of fact, and it controls the outcome on retrial only to the extent the evidence is substantially the same.  (People v. Boyer (2006) 38 Cal.4th 412, 442.)  The doctrine does not limit the new evidence a party may introduce on retrial.  (Id.)

Here, the Court of Appeal found that there were triable issues of fact regarding the execution of the Operating Agreement.  The Court of Appeal further found that regardless of the document’s validity, Moving Defendant lacked the ability, as proscribed by then-applicable Corporate Code provisions, to unilaterally adopt the Operating Agreement.  The issue of whether this second determination constitutes the law of the case is premature, as the Court of Appeal’s decision was based on a consideration of the evidentiary record as submitted in the MSJs.  The law of the case doctrine is only applicable if the evidence presented during the trial is substantially the same as that presented in the MSJs.  (See People v Boyer, supra, 38 Cal.4th at 442.) 

The Court finds that holding a separate trial on the declaratory relief claim is appropriate since a determination of the Parties’ rights and duties with respect to SDSB will circumscribe the scope of the remaining causes of action.  The Court therefore GRANTS the Motion as to the second phase of trial and orders that the declaratory relief claim is to be resolved in second bench trial after the conclusion of the first phase on Moving Defendant’s affirmative defense. 

Given the impact that the resolution of the declaratory relief claim may have on the remaining causes of action, the Court declines to issue an order regarding the proper format for adjudicating the balance of Plaintiff’s claims.  After the trial on the declaratory relief claim has ended and a decision rendered, the Court will set a Status Conference and the parties will have the opportunity to brief and argue the issue of whether a bench or jury trial is appropriate for resolving the remaining claims, at which time the Court will calendar further proceedings. 

Moving party is ordered to give notice of this ruling. 

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar. 

  Dated this 9th day of January 2023