Judge: Mark A. Young, Case: 20SMCV08839, Date: 2024-10-22 Tentative Ruling
Case Number: 20SMCV08839 Hearing Date: October 22, 2024 Dept: M
CASE NAME: Ashworth, et
al., v. J. Arthur Greenfield & Co., LLP, et al.
CASE NO.: 20SMCV08839
MOTION: Motion
for Summary Judgment/Adjudication
HEARING DATE: 10/22/2024
Legal
Standard
A party may move for summary judgment in any action or proceeding
if it is contended the action has no merit or that there is no defense to the
action or proceeding. (CCP, § 437c(a).) “The purpose of the law of summary
judgment is to provide courts with a mechanism to cut through the parties'
pleadings in order to determine whether, despite their allegations, trial is in
fact necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal.4th 826, 843.)
“A party may move for summary adjudication as to one or
more causes of action within an action, one or more affirmative defenses, one
or more claims for damages, or one or more issues of duty, if the party
contends that the cause of action has no merit, that there is no affirmative
defense to the cause of action, that there is no merit to an affirmative
defense as to any cause of action, that there is no merit to a claim for
damages, as specified in¿Section 3294 of the Civil Code, or that one or more defendants
either owed or did not owe a duty to the plaintiff or plaintiffs.”¿(CCP,¿§
437c(f)(1).)¿If a party seeks summary adjudication as an alternative to a
request for summary judgment, the request must be clearly made in the notice of
the motion. (Gonzales v. Superior Court¿(1987) 189 Cal.App.3d 1542,
1544.)¿ “[A] party may move for summary adjudication of a legal issue or a
claim for damages other than punitive damages that does not completely
dispose of a cause of action, affirmative defense, or issue of duty
pursuant to” subdivision (t). (CCP,¿§ 437c(t).)¿
To prevail, the evidence submitted must show there is no
triable issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.¿(CCP, §¿437c(c).)¿The motion cannot succeed unless
the evidence leaves no room for conflicting inferences as to material facts;
the court has no power to weigh one inference against another or against other
evidence. (Murillo v. Rite Stuff Food Inc. (1998) 65 Cal.App.4th
833, 841.) In determining whether the facts give rise to a triable issue of
material fact, “[a]ll doubts as to whether any material, triable, issues of
fact exist are to be resolved in favor of the party opposing summary judgment…”
(Gold v. Weissman (2004) 114 Cal.App.4th 1195, 1198-99.) “In other
words, the facts alleged in the evidence of the party opposing summary judgment
and the reasonable inferences there from must be accepted as true.” (Jackson
v. County of Los Angeles (1997) 60 Cal.App.4th 171, 179.) However, if
adjudication is otherwise proper the motion “may not be denied on grounds of
credibility,” except when¿a material fact is the witness’s¿state of mind and
“that fact is sought to be established solely by the [witness’s] affirmation
thereof.” (CCP, § 437c(e).)¿
Once the moving party has met their burden, the burden
shifts to the opposing party “to show that a triable issue of one or more
material facts exists as to that cause of action or a defense thereto.” (CCP §
437c(p)(1).) “[T]here¿is no
obligation on the opposing party... to establish anything by affidavit unless
and until the moving party has by affidavit stated facts establishing every
element... necessary to sustain a judgment in his favor.”¿(Consumer Cause,
Inc. v.¿SmileCare¿(2001) 91 Cal.App.4th 454, 468.)¿
¿
“The pleadings play a key role in a summary judgment
motion. The function of the pleadings in a motion for summary judgment is to
delimit the scope of the issues and to¿frame¿the outer measure of materiality
in a summary judgment proceeding.” (Hutton v. Fidelity National Title Co.¿(2013)
213 Cal.App.4th 486, 493, quotations and citations omitted.) “Accordingly, the
burden of a defendant moving for summary judgment only requires that he or she
negate plaintiff's theories of liability¿as alleged in the complaint;
that is, a moving party need not refute liability on some theoretical
possibility not included in the pleadings.” (Ibid.)¿
EVIDENTIARY ISSUES
Plaintiffs’ objection to paragraph 11 of the Derian
declaration is OVERRULED.
Defendant’s objection nos. 1-3 (to Opp. Exhibits 5-7) are
OVERRULED. The remaining objections are not objections to evidence, but objections
to Plaintiffs’ arguments. As to the
exhibits, Plaintiffs’ counsel declares that the exhibits were produced in
discovery. As such, the custodian of
records would authenticated the email as genuine.
Defendant J. Arthur Greenfield
& Co., LLP (“JAG”) moves for summary judgment/adjudication of each cause of
action of Plaintiffs Virginia Coats Ashworth, Nancy Coats Routh and Christy
Lynn Coats’s complaint, including for professional negligence, breach of
fiduciary duty, and constructive fraud. Specifically, JAG noticed the following
issues: 1) the undisputed material facts demonstrate Plaintiffs cannot
establish a cause of action for professional negligence; 2) the undisputed
material facts prove Plaintiffs cannot establish a
cause of action for breach of fiduciary duty; and 3) no
alleged breach of duty by JAG caused plaintiffs any harm or certain damage.
Duty and Professional Negligence
JAG contends
in their motion that the element of duty fails as to the professional
negligence and fiduciary duty causes of action. The elements for a claim of
professional negligence are: 1) the duty of the professional to use such skill,
prudence, and diligence as other members of his profession commonly possess and
exercise; (2) a breach of that duty; (3) a proximate causal connection between
the negligent conduct and the resulting injury; and (4) actual loss or damage
resulting from the professional's negligence. (Simmons v. West Covina
Medical Clinic (1989) 212 Cal. App. 3d 696, 701-02.) The elements for a
breach of fiduciary duty cause of action are “the existence of a fiduciary
relationship, its breach, and damage proximately caused by that breach.” (Thomson
v. Canyon (2011) 198 Cal.App.4th 594, 604.) “‘[B]efore a person can be
charged with a fiduciary obligation, he must either knowingly undertake to act
on behalf and for the benefit of another, or must enter into a relationship
which imposes that undertaking as a matter of law.’” (Hasso v. Hapke
(2014) 227 Cal.App.4th 107, 140.) It is a question of fact whether a defendant is
party to a confidential relationship that gives rise to a fiduciary duty under
common law. (Id.) It is further a question of fact for a jury whether a
party breached such a duty. (See Id. at 151-154 [substantial evidence
existed to support jury's findings of breach where hedge fund's managing member
and member’s CEO breached their fiduciary duties as investment advisers to
trustee of family trusts, where plaintiff presented expert testimony
that in a meeting with the trust beneficiary where the managing member and CEO did
not provide a balanced presentation as to the advantages and disadvantages of
the proposed investment and ensure the prospective client fully understood the
nature of the services being proposed, that their presentation understated the
risks, and that the materials presented at the meeting failed to disclose the
amount of leverage].)
JAG argues that Plaintiffs lack
standing and that it did not owe any duty to Plaintiffs because they were not its
clients. JAG notes that although Plaintiffs were beneficiaries, they were not
intended beneficiaries of the Trustees’ relationship with JAG (i.e., the
accountant-client relationship), and cannot invoke third-party beneficiary
standing. Generally, when a cause of action is prosecuted on behalf of an
express trust, the trustee is the real party in interest. (Pillsbury v.
Karmgard (1994) 22 Cal.App.4th 743, 753; Saks v. Damon Raike & Co.
(1992) 7 Cal.App.4th 419, 427.) Generally, the beneficiary of a trust, having
no legal title or ownership interest in the trust assets, is not the real party
in interest and may not sue in the name of the trust. (Id. at 427.) A
trust beneficiary's “right to sue is ordinarily limited to the enforcement of
the trust, according to its terms.” (Ibid.) Courts have recognized an
exception to this general rule. (Wolf v. Mitchell, Silberberg & Knupp
(1999) 76 Cal. App. 4th 1030, 1036-1040.) For example, there is a
“well-established common law rule that a beneficiary of a trust may bring an
action against a third party to recover property transferred to the third party
by the trustee in breach of trust.” (Id. at 1036.) Further, trust
beneficiaries may bring an action where the trustee has failed to bring suit
against a third party on behalf of a trust. (Id., citing Pillsbury
and Saks.) Courts have recognized that beneficiaries may pursue independent
claims against third parties that “actively participate” in or “knowingly
benefits” from a trustee's breach of trust. (See Est. of Bowles, (2008) 169
Cal. App. 4th 684, 692-694 [remaindermen beneficiary stated a claim against other
beneficiary and third party that induced the trustee to sell trust property at
less than fair market value to third party, while knowing that the transactions
breached the trustee’s duties].)
JAG asserts that there are no
allegations of intentional, willful, or fraudulent conduct as against JAG, or
that JAG assisted, intentionally participated, aided or abetted the other
Defendants. The complaint, however, alleges that JAG “intentionally” engaged in
a conflict of interest and promotion of their own and the trustee-beneficiary’s
interests over Plaintiffs’ interests. The complaint alleges that on December
12, 2009, Laura Coats, in her capacity as the QTIP trustee, appointed Nancy B.
Derian ("Derian"), a certified public accountant and partner at JAG,
as a replacement qualified disinterested individual co-trustee. (Compl., ¶ 21.)
Ms. Derian remained as a co-trustee until December 2019. (Id.) During this
period, Derian was responsible for the QTIP Trust's reviews, annual accountings
and preparation of its income tax returns in compliance with the applicable
professional standards for certified public accountants. (Id.) Plaintiffs
allege that the appointment of Derian as co-trustee of the QTIP Trust created a
conflict of interests that was never disclosed to Plaintiffs. (Id.) Beginning
before April 2005, and continuing to the present, JAG provided certified public
accounting services to the QTIP Trust and its co-trustees, “including the
performance of annual accounting reviews and the preparation of tax returns.” (¶
26.) JAG owed a duty of care to Plaintiffs to exercise the degree of knowledge
and skill common to accounting firms/accountants within their community. (¶
28.) The complaint alleges that JAG negligently breached the professional
duties owed to Plaintiffs by failing to obtain the requisite
conflict-of-interest waiver for the following: for Derian’s selection as
co-trustee; for Hromadka’s employment as legal counsel for the Trust and
accountants; for REC Management’s employment as an investment advisor and
manager for the Trust; and for Cadmus’s selection as co-trustee. (¶ 29a-f.)
Derian’s appointment was a conflict of interest because she and her firm (JAG)
were already the trust's certified public accountants and remained in those
dual roles to the present. (¶ 29a.) The complaint further alleges that these
same breaches were done “wrongfully, unlawfully, unethically, and intentionally”
and in violation of JAG’s fiduciary duties to the remainder beneficiaries under
the Trust. (¶ 34.) Thus, the complaint pleads an independent claim
against JAG for intentionally participating in the Trustee’s breach of the
Trust.
In any event, JAG also asserts that
its agreement with the Trustees and the Trust itself could not have been
intended to benefit Plaintiffs (as remaindermen beneficiaries of the Trust) and
was only intended to benefit Laura Coats as the principal beneficiary. (UMF 26-27.)
JAG does not cite terms of any agreement which show that there was no intent
to benefit Plaintiffs. (UMF 2-3.) JAG cites the terms of the Trust which state
that the Trustee had the right to “invest the funds of the Trust Estate
including the proceeds from the disposition thereof…as Trustee shall deem to be
for the best interests of the Trust Estate and the
beneficiaries thereof… [¶] In balancing the portfolio of investments
hereunder, the needs of the current beneficiary or beneficiaries shall be of primary
importance and the rights of the remaindermen shall be considered of secondary
significance.” (UMF 3, emphasis added.) The first excerpt shows an intent to
benefit the remainder beneficiaries, as it expressly requires the trustee to
act for the benefit of the Trust Estate and for its beneficiaries.
The second excerpt shows that the Trustee had to consider the rights of the
remaindermen, even if secondary. Thus, the Court does not conclude that the
Trustee did not have any intent to benefit Plaintiffs with JAG’s tax services
for the Trust, or for the Trust itself.
Breach
JAG fails to present competent
evidence of the applicable standard of care for accountants to negate the
alleged breach. Because the standard of care of a professional is an area beyond
common experience, the standard of care must normally be established by expert
testimony. (Avivi v. Centro Medico Urgente Medical Center (2008)
159 Cal. App. 4th 463, 467.) As recognized by JAG’s authorities in reply, in
cases involving a professional’s negligent conduct, expert opinion testimony is
required to prove or disprove that the defendant performed in accordance with
the prevailing standard of care, or to establish breach of a fiduciary duty. (Kelley
v. Trunk (1998) 66 Cal.App.4th 519, 523; Miller v. Los Angeles County
Flood Control Dist. (1973) 8 Cal.3d 689, 702; Flowers v. Torrance
Memorial Hosp. Medical Ctr. (1994) 8 Cal.4th 992, 1001; Mosier v.
Southern Ca. Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022; Stanley
v. Richmond (1995) 35 Cal.App.4th 1070.)
JAG argues that, assuming a duty of
care existed, it did not breach any duty because there was no conflict of
interest by any accountant here, including Ms. Derian. JAG points to evidence
that Ms. Derian was appointed and confirmed co-trustee as a qualified
disinterested trustee where she handled “tax compliance issues.” (UMF 12, 14; Derian
Decl., ¶¶ 9-11.) Ms. Derian took no fees in her role as co-trustee until the
death of Laura Coats in 2017. (Id., ¶ 14.) JAG, for its part, charged the QTIP
Trust its standard rates for tax preparation services, and billed their time
based upon hourly rates. (UMF 13.) JAG reasons that Ms. Derian therefore had no
financial conflict or gain from this arrangement, and that further independence
was not required because it did not perform any audits, reviews, or
compilations for the Trust, and never provided any business management
services, financial forecast projections, business projection planning,
investment review, and never provided estate planning or tax planning services
in connection with the QTIP Trust. (UMF 15-16.) JAG only prepared the QTIP
Trust tax returns. (UMF 17.) Ms. Derian also notes that her tax plans, in
actuality, benefitted Plaintiffs (Decl., ¶¶ 25-29), that she used her best
judgment and relied on the prior trustee’s plans (¶¶ 30-31), and that the Trust
administration fees and distributions were reasonable (¶¶ 32-33).
JAG contends that, under the
applicable standards, Ms. Derian did not engage in a conflict of interest in
light of the above conduct (and, moreover, did not cause Plaintiffs’ damages).
JAG believes that Ms. Derian met her standard of care by conducting research,
speaking with partners, advisors, and attorneys, and reviewing applicable AICPA
Rules to evaluate any conflicts of interest, and personally finding no conflict
“by virtue of JAG performing tax preparation while [she] was engaged in
trusteeship.” (Derian Decl., ¶ 11.) This testimony does not establish the
applicable standard of care. Ms. Derian does not address what an accountant, exercising
the skill, prudence, and diligence that members of her profession commonly
possess, would do in this scenario, or whether her conduct was in accordance
with such a standard. Instead of presenting the necessary expert testimony, JAG
attempts to establish the standard of care through counsel’s opinions on which
standards apply to determine whether an accountant engaged in a conflict of
interest requiring a written waiver. (See Memo at pp. 16-19.) However, JAG
presents no evidence demonstrating that her compliance with the cited assortment
of standards was performed in accordance with the prevailing standard of care
for accountants.
Here, JAG has not provided the
necessary expert testimony establishing the applicable standard of care for
accountants regarding tax preparation services or conflicts of interest. As JAG
admits, expert-opinion testimony is required to disprove that the
defendant performed in accordance with the prevailing standard of professional care
or fiduciary duty. As the party moving for summary judgment, JAG has this
burden but failed to meet it.
Damages
JAG argues that Plaintiffs must
still prove they were harmed by Ms. Derian as co-
trustee to a certain sum of damages. The Court is unaware of
any authority requiring Plaintiffs to prove “sum certain” damages at all, or
its applicability to professional negligence which awards all consequential
damages. (See Teselle v. McLoughlin (2009) 173 Cal.App.4th 156,
179.) Plaintiff alleges JAG’s authorities do not recognize this point of law. Instead,
the authorities recognize the necessity of damages as an element of negligence,
and how this affects the accrual of the statute of limitations. “If the
allegedly negligence conduct does not cause damage, it generates no cause of action
in tort.” (Filbin v. Fitzgerald (2012) 211 Cal.App.4th 154, 166.) “The
mere breach of a professional duty, causing only nominal damages, speculative
harm, or the threat of future harm—not yet realized—does not suffice to create
a cause of action for negligence.” (Jordache Enterprises, Inc. v. Brobreck,
Phleger & Harrison (1998) 18 Cal.4th 739, 749-750, citations and
quotations omitted.) No authority provided requires a plaintiff to prove a “sum
certain” at the summary judgment stage.
In any event, JAG argues that Ms.
Derian, as successor co-trustee, continued the same methodology the previous
institutional and professional trustees employed. (UMF 34.) Ms. Derian claims
to have had no reason to believe they intentionally or negligently chose poor
investment strategies or allowed improper allocations or elections. (Derian Decl.,
¶¶ 17, 22, 31, 32.) JAG argues that no harm could occur because under the
express terms of the Trust, remaindermen interests could not considered above
Laura Coat’s interests, citing again to the terms of the Trust.
JAG’s arguments, for the most part,
retread their prior arguments concerning their alleged duty and breach. JAG
merely rephrases them as a lack of damages stemming from duty and breach. Again,
to support such arguments, JAG needs to present well-reasoned expert testimony
on the underlying factual points of professional accounting, including damages
calculations, to show that there were no damages caused by Ms. Derian’s alleged
malpractice. As discussed above, JAG has not done so with the declaration of
Ms. Derian. Thus, JAG has also failed to meet its burden as to damages.
Critically, JAG does not assess
whether the various categories of damages it cites encompass all of
Plaintiffs’ claimed damages. JAG claims that Plaintiffs have provided no
documentation supporting any damages calculation, but fails to present
sufficient evidence to show that, despite the opportunity for discovery, Plaintiffs
do not possess and cannot reasonably obtain the needed evidence to support
their damages claim.¿(See Union Bank v. Superior Court (1995) 31
Cal.App.4th 573, 590 [factually-devoid responses to discovery requests may show
that one or more elements of their claim “cannot be established”]; see also Andrews
v. Foster Wheeler LLC (2006) 138 Cal.App.4th 96, 107 [initial burden
shifted because plaintiff's “all facts” answers clearly showed that he did not
have specific evidence of exposures to defendant’s products].) JAG does not
point to any discovery admissions showing that Plaintiffs are unable to present
evidence of damages. At best, JAG cites evidence that Plaintiffs admitted they were
unaware of any issues with the trust prior to Laura Coat’s death, that they
have no personal knowledge of any wrongdoing by the QTIP trustees or agents,
that they have no estimate or belief as to the damages, never made objections
to the investment strategies, and that they were reliant on what their counsel told
them. (See NOL, Ex. 11 [Ginny Depo., at 260:13-20]; Ex. 12 [Christy Depo., at
222:2-3; 224:7-11; Ex. 13 [Nancy Depo., at 79:11-16; 89-90:22-2; 109:4-17;
271:5-24; 272:7-24].) These are not comprehensive discovery admissions showing
that Plaintiffs have no damages or are not reasonably able to obtain such
evidence.
Accordingly, JAG’s motion for
summary judgment and/or adjudication is DENIED.