Judge: Mark A. Young, Case: 21SMCV01994, Date: 2025-01-22 Tentative Ruling
Case Number: 21SMCV01994 Hearing Date: January 22, 2025 Dept: M
CASE NAME: Surrey,
et al. v. Zukin, et al.
CASE NO.: 21SMCV01994
MOTIONS: Zukin
Defendants’ Motions for Summary Judgment/Adjudication as to (1) Plaintiffs
Shahin Ghadir, M.D. and Mark W. Surrey, M.D.’s Claims; (2) Plaintiff Hal C.
Danzer’s Claims; and (3) Plaintiff Kyle Francis’ Claims.
HEARING DATE: 01/22/2025
Legal Standard
The purpose of a motion for summary judgment or summary
adjudication “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. Atl.
Richfield Co. (2001) 25 Cal. 4th 826, 843.) “Code of
Civil Procedure section 437c, subdivision (c), requires the trial judge to
grant summary judgment if all the evidence submitted, and ‘all inferences
reasonably deducible from the evidence’ and uncontradicted by other inferences
or evidence, show that there is no triable issue as to any material fact and
that the moving party is entitled to judgment as a matter of law.” (Adler
v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)
“The
supporting papers shall include a separate statement setting forth plainly and
concisely all material facts which the moving party contends are
undisputed. Each of the material facts
stated shall be followed by a reference to the supporting evidence. The failure to comply with this requirement
of a separate statement may in the court's discretion constitute a sufficient
ground for denial of the motion.” (Code
Civ. Proc., § 437c(b)(1); see also Cal. Rules of Court, rule 3.1350(c)(2) &
(d).)
“The
opposition papers shall include a separate statement that responds to each of
the material facts contended by the moving party to be undisputed, indicating
if the opposing party agrees or disagrees that those facts are undisputed. The
statement also shall set forth plainly and concisely any other material facts
the opposing party contends are disputed. Each material fact contended by the
opposing party to be disputed shall be followed by a reference to the
supporting evidence. Failure to comply with this requirement of a
separate statement may constitute a sufficient ground, in the court's
discretion, for granting the motion.”
(Code Civ. Proc., § 437b(b)(3) (emphasis added).)
“On a motion for summary judgment [or summary adjudication],
the initial burden is always on the moving party to make a prima
facie showing that there are no triable issues of material
fact.” (Scalf v. D. B. Log Homes, Inc. (2005)
128 Cal.App.4th 1510, 1519.) The moving party is entitled to summary
judgment or summary adjudication if they can show that there is no triable
issue of material fact or if they have a complete defense thereto. (Aguilar
v. Atlantic Richfiend Co. (2001) 25 Cal.4th 826, 843.) In analyzing motions for summary judgment, courts must
apply a three-step analysis: “(1) identify the issues framed by the pleadings;
(2) determine whether the moving party has negated the opponent's claims; and
(3) determine whether the opposition has demonstrated the existence of a
triable, material factual issue.” (Hinesley
v. Oakshade Town Center (2005)
135 Cal.App.4th 289, 294.)
When deciding whether to grant summary judgment,
the Court must consider all of the evidence set forth in the
papers, except evidence to which the Court has sustained an
objection, as well as all reasonable inferences that may be drawn from
that evidence, in the light most favorable to the party opposing summary
judgment. (Avivi v. Centro Medico
Urgente Medical Center (2008) 159 Cal.App.4th 463, 467.)
A motion for summary adjudication
shall be granted only if it completely disposes of a cause of action, an
affirmative defense, a claim for damages, or an issue of duty. (Code Civ. Proc., § 437c(f)(1).)
EVIDENTIARY ISSUES
Plaintiffs’ objections are
OVERRULED.
Defendants’ objections are
OVERRULED.
Defendants’ request for judicial
notice is GRANTED. (Evid. Code § 452(c),
(d), (h).)¿
Analysis
Defendants seek summary judgment or
in the alternative, summary adjudication as to Plaintiffs Shahin Ghadir, M.D.,
Mark W. Surrey, M.D., Hal C. Danzer, and Kyle Francis’ claims. Given the
substantial overlap between each motion, the court will address the common
issues together, unless otherwise noted.
Release
Defendants first argue that any
liability has been released by contract. For an express release of liability to
be enforceable against a plaintiff (1) the release agreement “must be clear,
unambiguous and explicit in expressing the intent of the parties (citation
omitted);” (2) the injury-producing act “must be reasonably related to the
object or purpose for which the release is given (citation omitted); and (3)
the release cannot contravene public policy.” (Sweat v. Big Time Auto
Racing, Inc. (2004) 117 Cal.App.4th 1301, 1304-5.)
Defendant cites the SPA, which states in part that the Sellers (the doctor-plaintiffs)
agreed to release the Company (WCE CA FERTILITY, INC.), and “its employees,
agents and other representatives” from “any and all actions, suits, claims . .
. or liabilities of any kind whatsoever in law or circumstances existing or
arising prior to the Closing Date.” (Defendants’ Compendium of Evidence, Exh.
E, SPA Section 4.4(a).) This section states in full:
Each Seller Party, for itself, and its heirs,
personal representatives, successors and assigns (collectively, the “Seller
Releasors”), hereby forever fully and irrevocably releases and discharges
Buyer, the Company, the Practice and each of their respective predecessors,
successors, direct or indirect subsidiaries and past and present unitholders,
members, managers, directors, officers, employees, agents, and other
representatives (collectively, the “Buyer Released Parties”) from any and all
actions, suits, claims, demands, debts, agreements, obligations, promises,
judgments, or liabilities of any kind whatsoever in law or equity and causes of
action of every kind and nature (including, claims for damages, costs, expense,
and attorneys’, brokers’ and accountants fees and expenses), or otherwise
arising out of or related to events, facts, conditions or circumstances
existing or arising prior to the Closing Date, which the Seller Releasors can,
shall or may have against the Buyer Released Parties, whether based on
ownership interest or otherwise, and whether known or unknown, absolute or
contingent, suspected or unsuspected, unanticipated as well as anticipated
(collectively, the “Seller Released Claims”), and hereby irrevocably agree to
refrain from directly or indirectly asserting any claim or demand or commencing
(or causing to be commenced) any suit, action, or proceeding of any kind, in
any court or before any tribunal, against any Buyer Released Party based upon
any Seller Released Claim. Notwithstanding the preceding sentence of this
Section 4.4, “Seller Released Claims” does not include, and the provisions of
this Section 4.4 shall not release or otherwise diminish (i) the rights or
obligations of any Party set forth in or arising under any provisions of this
Agreement or the Ancillary Agreements, (ii) any right to or claim for
indemnification, advancement or reimbursement that any Seller Releasors may
have under the Organizational Documents of the Company of the Practice or
otherwise including, but not limited to, California Labor Code section 2802,
(iii) with respect to any Seller Party who is a service provider to any Buyer
Released Party, obligations or liabilities in respect of any accrued
compensation or benefits for the current calendar year through the Closing
Date, or (iv) with respect to any Seller Party who has a commercial
relationship with any Buyer Released Party that is set forth on Section 3.20 of
the Disclosure Schedule, obligations and liabilities directly related to such
activities that arise in the ordinary course of such commercial relationship.
Defendants contend that the Zukin Partners
represented the Company and thus are covered under the release. (UMF 1-6.) Defendants, however, have failed to meet their burden to show that
they are a third-party beneficiary in order to enforce the release as
non-signatories. Generally, a person who is
not a party to a contract has no standing to enforce the contract or to recover damages for wrongful
withholding of benefits to the contracting party. (See, e.g., Republic
Indemnity Co. v. Schofield (1996) 47 Cal.App.4th 220, 227; Gantman
v. United pacific Insurance Co. (1991) 232 Cal.App.3d 1560, 1566.) A third-party beneficiary may enforce a contract made
for its benefit. However, "[a] putative third party's rights under a
contract are predicated upon the contracting parties' intent to benefit"
it. (Garcia v. Truck Ins. Exchange (1984) 36 Cal. 3d 426, 436.)
“‘The test in deciding whether a
contract inures to the benefit of a third person is whether an intent to so
benefit the third person appears from the terms of the agreement . . ..’” (Id.
(quoting Schonfeld v. City of Vellejo (1975) 50 Cal.App.3d 401,
420.) “The fact that a third party is incidentally named in the contract, or
that the contract, if carried out according to its terms, would inure to his
benefit, is not sufficient to entitle him to enforce it.” (Id.)
“Reading the agreement as a whole in light of the circumstances under which it
was made, the terms of the agreement must clearly manifest an intent to make
the obligation inure to the benefit of the third party.” (Id.)
In making this determination, the court should examine “the
express provisions of the contract at issue, as well as all of the relevant
circumstances under which the contract was agreed to, in order to determine not
only (1) whether the third party would in fact benefit from the contract, but
also (2) whether a motivating purpose of the contracting parties was to provide
a benefit to the third party, and (3) whether permitting a third party to bring
its own breach of contract action against a contracting party is consistent
with the objectives of the contract and the reasonable expectations of the
contracting parties.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th
817, 830.) “All three elements must be satisfied to permit the third
party action to go forward.” (Id. at 133.)
Furthermore, the “[T]he contracting parties must have a
motivating purpose to benefit the third party, and not simply knowledge that a
benefit to the third party may follow from the contract.” (Id.) “[T]he third element does not
focus upon whether the parties specifically intended third party enforcement
but rather upon whether, taking into account the language of the contract and
all of the relevant circumstances under which the contract was entered into,
permitting the third party to bring the proposed breach of contract action
would be ‘consistent with the objections of the contract and the reasonable
expectations of the contracting parties.’” (Id.)
“[T]his element calls for a judgment regarding the potential effect that
permitting third party enforcement would have on the parties’ contracting
goals, rather than a determination whether the parties actually anticipated the
third party enforcement at the time the contract was entered into.” (Id.)
Defendants have submitted no
initial briefing on the third party beneficiary doctrine or provided any
evidence as to its application. “[T]he party claiming third party beneficiary status”
bears “the burden of proof” to establish such status. (Hess, supra,
27 Cal.4th at 525.) Strictly speaking, the plain language of the release does
not release the Seller’s claims against its own agents. Without briefing or evidence of a motivating purpose to benefit
Defendants, Defendants have not shown their initial standing to enforce
the release as an agent of WCE. Therefore, Defendants fail to meet their
initial burden as to this issue.
Collateral
Estoppel
Defendants
contend that the issue of whether the release bars Plaintiffs’ claims has
already been decided. However, Plaintiffs are not
collaterally estopped from denying the effect of the release as to Defendants. Collateral
estoppel, or issue preclusion, “precludes relitigation of issues argued and
decided in prior proceedings.” (Lucido v. Superior Court (1990) 51
Cal.3d 335, 341.) “ ‘The threshold requirements for issue preclusion are:
(1) the issue is identical to that decided in the former proceeding, (2)
the issue was actually litigated in the former proceeding, (3) the issue was
necessarily decided in the former proceeding, (4) the decision in the former
proceeding is final and on the merits, and (5) preclusion is sought against a
person who was a party or in privity with a party to the former proceeding.
[Citation.]’ (Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477,
481.)” (Murphy v. Murphy (2008) 164 Cal.App.4th 376, 398-399, emphasis
added.) "`The "identical issue" requirement addresses whether
"identical factual allegations" are at stake in the two proceedings,
not whether the ultimate issues or dispositions are the same.'" (Williams
v. Doctors Medical Center of Modesto, Inc. (2024) 100 Cal.App.5th 1117,
1132.)
Defendants provide evidence that Ghadir, Surrey, and
Danzer sued the Company’s counsel, Paul Hastings, for negligence and breach of
fiduciary duty arising out of the same facts as this case in Danzer, et al.
v. Paul Hastings LLP, Case No. 20STCV49239. (COE, Ex. J.) After two
demurrers, that court in that matter dismissed their case without leave to
amend. It ruled that because Paul Hastings was the Company’s attorney, the
release Plaintiffs signed as part of SCRC’s SPA releasing the Company’s agents
and representatives barred their claims. (COE, Ex. K.)
Here, the factual issues
between the two cited cases are not identical, and as such, do not give rise to
collateral estoppel. While
true that the Plaintiffs in this matter were the plaintiffs in the Paul Hastings
case, and Defendants pose a similar legal issue, the factual issues are
not identical. In the Paul Hastings action, the release applied to the
attorneys as the Company’s representatives. Such a holding could not estop
Plaintiffs from asserting that the release does not apply to other people who
may or may not be the company’s representatives. Defendants argue that they also
represented the Company and should be released by the same logic, but not
on the same facts. Thus, Defendants are not entitled to summary adjudication on
collateral estoppel grounds.
Disclaimed
Duties in Retention Agreement
Defendants argue the clear and unequivocal language
of the written retention agreements contradict the pled contractual and
fiduciary duties.
The elements of 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.) “Before a party can be charged
with a fiduciary obligation, the party ‘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.” (Apollo Capital Fund,
LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 245-246.) “A
fiduciary duty under common law may arise ‘when one person enters into a
confidential relationship with another.’” (Hasso v. Hapke (2014) 227
Cal.App.4th 107, 140.) Moreover, “the investment adviser/client
relationship is one such relationship, giving rise to a fiduciary duty as a
matter of law.” (Id.)
Defendants proffer the following agreement as the
relevant disclaimer:
The parties understand that Zukin is being engaged
hereunder as an independent contractor to provide the services described
above solely to the Company, and that Zukin is not acting as an agent or
fiduciary of the Company, the security holders or creditors of the Company or
any other person or entity in connection with this engagement, and the
Company agrees that it shall not make, and hereby waives, any claim based
on an assertions of such an agency or fiduciary relationship. Any duties of
Zukin arising by reason of this Agreement or as a result of the services
to be rendered by Zukin hereunder will be owed solely to the Company.
Zukin is operating solely in the capacity as a financial advisor.
(COE
Exh. B, ¶ 7, underlined emphasis added.)
Defendants argue that the above language shows Defendants
were not assuming any obligations whatsoever to any “person or entity in
connection with this engagement” and that all such duties were owed “solely to
the Company;” and that Defendants were disavowing any fiduciary relationship
with the Company, as acknowledged by Plaintiffs. Read strictly, the language in
Exhibit B does not apply to the implied contract and fiduciary duties at issue.
A careful review of the underlined terms quoted above demonstrates that
Defendants disclaimed any duties with Plaintiffs (and others) “in connection
with this engagement.” That is, Zukin’s engagement as an independent contractor
with the Company. Zukin disclaimed acting as an agent of Plaintiffs in the
context of that engagement. Thus, Defendants disclaimed all
duties to Plaintiffs arising from the written agreements with the Company.
This is not disclaiming any pre-existing contracts or duties between Plaintiffs
and Defendants, such as the implied agreement alleged in the FAC. The FAC
alleges that prior to signing the above agreement, Defendants and
Plaintiffs entered into an independent implied contact for Defendants to act as
the Doctors’ fiduciary and to act in the Doctors’ best interests in connection
with the Transaction. (FAC ¶¶ 19-27, 61-25.) None of Exhibit B’s terms
disclaimed any of these pled duties owed to Plaintiffs. Thus, Defendants do not
meet their initial burden on this issue.
However, Plaintiffs also submit a dispute of fact as to
whether Defendants voluntarily entered into the implied contract and fiduciary
relationship. Notably, the WCE
Transaction was for the benefit of the shareholders. (PMF 116, 158-162,
372-377.) The only persons who stood to gain or exchange anything by the
transaction were Dr. Ghadir and the other doctors because they held the equity
interests that were being sold to WCE. (Id.) Zukin admits that he worked
solely to maximize the proceeds to the shareholders, not the company itself. (Id.,
161.) Zukin provided Dr. Ghadir with personal financial advice including
dozens, if not hundreds, of spreadsheets and models showing how much money Dr.
Ghadir stood to make personally if the WCE Transaction was completed. (Id.,
166, 170, 173-185, 204, 211-12, 214.) Zukin told Dr. Ghadir that he was acting
in his best interests and told him that he was acting as his representative. (Id.,
194.) When Dr. Ghadir protested to certain reallocations of profits interest
because he did not want to be diluted, Zukin updated their analysis to include
his ask. (Id., 195.) Zukin negotiated Dr. Ghadir’s post-transaction
employment and compensation agreements (id., 198-99) and gave Dr. Ghadir
advice on how those agreements would impact him personally if the WCE
Transaction went forward. (Id., 171-73, 198.) Zukin told Dr. Ghadir that
the WCE Transaction would make him “rich” and further told Dr. Ghadir that he
would be the primary beneficiary of the deal and come out in the best position
in a matter of years once the more senior doctors retired. (Id., 186-188,
201.) Zukin was responsible for the accuracy the financial information he
provided to Dr. Ghadir and Dr. Ghadir relied on him to provide accurate
information to help him decide whether the WCE Transaction was in his best
interest. (Id., 180-81, 203, 321.) Zukin frequently reassured Dr. Ghadir
and urged him to go through with the deal by representing how much money he
would make by signing the deal. (Id., 186, 200.) When Dr. Ghadir
expressed reservations about the WCE Transaction Zukin convinced him to stay in
the deal by touting the supposed short and long term personal financial
benefits Dr. Ghadir would receive. (CSF 190-93, 202, 215-216.) Defendants gave Danzer and Surrey individualized financial analyses
and projections, controlled the negotiations over the Transaction’s terms,
urged them to sign the deal on the basis of individualized financial analyses
prepared for the benefit of each of the individual Plaintiffs, and omitted
essential disclosures about minority protections and conflicts of interest.
(PMF 24, 35, 40, 112.) With this evidence, there are triable issues of material fact as to
whether the parties entered into a confidential relationship.
Meeting
of the Minds
Defendants also argue that they are entitled to
summary adjudication as to these four claims (breach of implied contract,
breach of fiduciary duty, negligence, and negligent misrepresentation) because
Plaintiffs lacked the requisite meeting of the minds necessary to establish any
enforceable agreement with Defendants. Defendants also argue that there was no
meeting of the minds due to the retention agreement’s disclaimers.
“An implied-in-fact contract is
one, the existence and terms of which are manifested by conduct (Civ. Code,
section 1621).” (Chandler v. Roach (1957) 156 Cal.App.2d 435,
439.) Both types of contracts are identical in that they require a meeting of
minds or an agreement. (Allied Anesthesia Medical Group, Inc. v. Inland
Empire Health Plan (2022) 80 Cal.App.5th 794, 808.) “The existence of mutual consent
is determined by objective rather than subjective criteria, with the test being
what the outward manifestations of consent would lead a reasonable person to
believe.” (Meyer v. Benko (1976) 55 Cal.App.3d 937, 943.)
As discussed infra, Plaintiffs have submitted
sufficient evidence to create a dispute of material fact as to whether Defendants
provided individual financial advice to Plaintiffs. From such facts, a
reasonable fact finder could conclude that Defendants showed outward
manifestations of consent, and as such, that there was a meeting of the minds.
Consideration
Defendants argue the claims for
breach of implied contract, breach of fiduciary duty, negligence, and negligent
misrepresentation fail because Plaintiffs never gave Defendants anything of
value.
The
essential elements of a contract are: “(1) Parties capable of contracting; (2)
Their consent; (3) A lawful object; and (4) A sufficient cause or
consideration.” (Civil Code, § 1550.) A contract is supported by sufficient consideration if
there is some benefit to the promisor or detriment to the promisee regardless of the
amount of the benefit or detriment. (Harris v. Time, Inc. (1987)
191 Cal. App. 3d 449, 456.) For example, it may be said that all the law
requires for sufficient consideration for a contract is the proverbial
peppercorn or that a consideration of $1 is ordinarily sufficient to support a
contract at law. (San Diego City Firefighters, Local 145, AFL-CIO v.
Board of Admin. of San Diego City Employees' Retirement System (2012) 206
Cal.App.4th 594, 619; Abers v. Rounsavell (2010) 189 Cal.App.4th 348, 362.) Further, past consideration is insufficient. (Passante
v. McWilliam (1997) 53 Cal.App.4th 1240, 1247 [i.e.
acts or forbearances previously performed cannot be consideration for a new
promise].)
Defendants provide evidence that
Plaintiffs verified written discovery responses confirm that they were not
required to do anything under their alleged contract or even to compensate
Defendants for undertaking their supposed fiduciary obligations—all that
Defendants were entitled to is what they received: Zukin Partners’ fee. (UMF 39-42,
75-79.)
Plaintiffs show a dispute of fact as to whether there
was sufficient consideration to support the implied contract. Plaintiffs cite the
fact that their acquiescence was still required to consummate the deal.
If Plaintiffs moved forward with the deal, then Defendants would be able to
realize a potential increase in the value of their investment which could be
considered something of value. (PMF 117, 118, 122-124.) Plaintiffs note that SCRC
never paid the “Transaction Fee” contemplated by Defendants’ Retainer Agreement
because all funds paid to Defendants were paid out of the proceeds of the
Transaction, which would have otherwise been payable to the Doctors and not to
SCRC or any other corporate entity. (PMF 41.) The Doctors assumed the
responsibility to pay for Defendants’ professional fees once it became clear
that the Transaction under consideration was not one where SCRC would be a
party or receive anything of value. The Doctors would ensure that Defendants
were paid their professional fees out of their own Transaction proceeds, or
else Defendants would have ended up with nothing other than a claim against
SCRC (which, at that point, had no assets left to pay Zukin’s fee). Accordingly,
there are conflicting material facts as to whether there was sufficient
consideration given.
Economic
Loss Rule: Negligence and Negligent Misrepresentation
Defendants also move for summary adjudication of the negligence-based
causes of action, arguing that the economic loss rule bars them because Danzer
is seeking only economic losses. In Rattagan v. Uber
Technologies, Inc. (2024) 17 Cal.5th 1, 20, 22, the Court held that tort recovery for breach of
contractual duty is barred unless a defendant’s conduct violated a duty that is
independent of the duties and rights assumed by the parties when they
entered the contract and the conduct caused injury to the person not
reasonably contemplated by the parties when the contract was formed.
Defendants presents evidence that Danzer admitted he
has suffered no serious emotional distress caused by Defendants. (UMF 63, 64.) However, Rattagan does
not stand to limit tort recovery to damages for physical injury or damage.
Rather, the court in Rattagan noted that where a defendant breaches an
independent tort duty, the defendant also exposes a plaintiff to a risk of harm
beyond those contemplated in the parties’ contract. (Rattagan, supra, 17
Cal.5th at 1233.) Here, Plaintiff alleges that Defendants had the duty to
provide accurate information in a commercial setting as well as a fiduciary
duty to disclose. These are alleged breaches of independent duties. The causes
thus fall within an exception of the economic loss rule.
Fraud
Defendants argue they are entitled
to summary adjudication of the causes of action for negligent misrepresentation
and fraud because Plaintiffs did not have justifiable reliance, and they
separately move on the ground that there was no false statement as to Dr. Danzer.
The elements of fraud are: “(a)
misrepresentation (false representation, concealment, or nondisclosure); (b)
knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce
reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v.
Cobert (2006) 145 Cal.App.4th 170, 184.)
The elements of negligent
misrepresentation are: (1) misrepresentation of a past or existing material
fact, (2) without reasonable ground for believing it to be true, (3) with
intent to induce another’s reliance on the fact misrepresented, (4) ignorance of
the truth, (5) justifiable reliance on the misrepresentation by the party to
whom it was directed, and (6) resulting damage. (Hydro-Mill Co., Inc.
v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115
Cal.App.4th 1145, 1154.) “As is true of negligence, responsibility for
negligent misrepresentation rests upon the existence of a legal duty, imposed
by contract, statute or otherwise, owed by a defendant to the injured
person.” (Eddy v. Sharp (1988) 199 Cal.App.3d 858, 864.)
Defendants show that Drs. Ghadir and Surrey both
testified that long before the transaction closed, they did not trust Defendant
Jim Zukin. (UMF 53, 68.) At the same time, Plaintiffs had their attorneys
reviewing the transaction, and Defendants argue that Plaintiffs both had a
financial advisor as well. Defendants argue that both Plaintiffs had
professionals repeatedly reviewing their proposed compensation from the deal,
the draft and final letters of intent, the Notice of Proposed Transaction, and
then the final deal documents. Ghadir and Surrey’s professionals identified “major”
issues with the deal and/or reassessed the deal terms, even before the final
letter of intent was signed. (UMF 16, 52, 61-68.) Their advisors repeatedly and
in writing notified them that there would be no tag- along rights and one even
expressly recommended—again in writing—that they give up such rights. (UMF 54-55.)
Defendants fail to show Plaintiffs could not have justifiably
relied on the alleged misrepresentations, as they have not addressed all the
pled bases for the fraud causes of action. Defendants only submit evidence that
Plaintiffs were advised the doctors had “no tag-along rights,” among other
things. The FAC, on the other hand, alleges that Zukin deliberately misrepresented
the amount of up-front deal consideration, even including profit distributions
that Plaintiffs had already received months earlier in the normal course of
business, unrelated to the pending transaction. (FAC ¶4.) Zukin also failed to
include certain deal terms that would have protected the Plaintiffs’
expectations in the deal, including anything that required Lindsay Goldberg to
take any particular actions to help grow the Fertility Practice, increase
Plaintiffs’ compensation, or increase the “back end” value of ART or Roxbury,
among other things. (Id.) As such, the evidence provided does not completely
dispose of the entirety of either cause of action. Moreover, Plaintiffs did not
have other financial advisors representing them; they had attorneys and
an accountant. A reasonable fact finder could find that Plaintiff reasonably relied
on the financial advice of their financial advisors, despite the other
professional advice they received.
False
Statement
Defendants contend that at deposition, Dr. Danzer
testified that he cannot recall any specific false statement ever made to him
by any of Defendants’ agents. Defendants also contend that Danzer also
testified that he cannot recall any specific false statement made to him by
Zukin either. (UMF 67.) The fact that Danzer could not recall at deposition certain
false statements does not show that there were no false statements at all.
Moreover, the same issues discussed with the reasonable reliance element also
preclude summary adjudication here. Again, Defendants have not addressed each
false statement, including the omissions pled. Thus, Defendants have
failed to meet their burden.
Quantum
Meruit
The elements of a claim for quantum
meruit are: 1) performance of services, work or labor; 2) at defendant’s
request; and 3) circumstances inferring defendant’s promise to pay a reasonable
value. (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449-450.) “Quantum meruit refers to the well-established principle
that ‘the law implies a promise to pay for services performed under
circumstances disclosing that they were not gratuitously rendered.’” (Chodos
v. Borman (2014) 227 Cal.App.4th 76, 96 (quoting Huskinson &
Brown v. Wolf (2004) 32 Cal.4th 453, 458).) “To recover in quantum
meruit, a party need not prove the existence of a contract [citations], but it
must show the circumstances were such that ‘the services were rendered under
some understanding or expectation of both parties that compensation therefor
was to be made [citations].’” (Id.) ““[I]n order to recover under a quantum meruit theory, a
plaintiff must establish both that he or she was acting pursuant to either an
express or implied request for such services from the defendant and that the
services rendered were intended to and did benefit the defendant.” (Day
v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 248.) “[W]hen
the services are rendered by the plaintiff to a third person, the courts have
required that there be a specific request therefor from the defendant . . .
.” (Id. at 249.)
Defendants contend that Plaintiffs’
quantum meruit claim fails because they did not personally pay any amount to
Zukin Partners or Jim Zukin (UMF 74-82), and therefore, they cannot sue
Defendants to recover the reasonable value of something that they never gave. Defendants
contend that Plaintiffs’ claim against Jim Zukin is especially frivolous. Jim
Zukin did not personally receive the fee paid under the retainer agreements.
The Court concurs that the theory of quantum meruit fails
as a matter of law. Simply put, the theory does not apply to the case at hand. Here,
Plaintiffs were not the ones who rendered a service for Defendants, for which
they seek payment (quantum meruit). Instead, Defendants performed
a service for Plaintiffs, which Plaintiffs paid for indirectly. Thus,
the FAC fails to state a cause of action for quantum meruit. Accordingly, the
quantum meruit claim may be adjudicated as a matter of law.
Punitive
Damages
Defendants move against the claim for punitive damages. Civil
Code § 3294 provides, in pertinent part, as follows:
(a)¿In an
action for the breach of an obligation not arising from contract, where it is
proven by clear and convincing evidence that the defendant has been guilty of
oppression, fraud, or malice, the plaintiff, in addition to the actual damages,
may recover damages for the sake of example and by way of punishing the
defendant.
***
(c)¿As used in this section, the following definitions
shall apply:
(1)¿“Malice”
means conduct which is intended by the defendant to cause injury to the
plaintiff or despicable conduct which is carried on by the defendant with a
willful and conscious disregard of the rights or safety of others.
(2)¿“Oppression”
means despicable conduct that subjects a person to cruel and unjust hardship in
conscious disregard of that person’s rights.
(3)¿“Fraud”
means an intentional misrepresentation, deceit, or concealment of a material
fact known to the defendant with the intention on the part of the defendant of
thereby depriving a person of property or legal rights or otherwise causing
injury.
While “the ‘clear and convincing’
evidentiary standard is a stringent one, it does not impose on a plaintiff the
obligation to ‘prove’ a case for punitive damages at summary judgment.” (Spinks
v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th
1004, 1053.) However, where the plaintiff's ultimate burden of proof will be by
clear and convincing evidence, the higher standard of proof must be taken into
account in ruling on a motion for summary judgment or summary adjudication,
since if a plaintiff is to prevail on a claim for punitive damages, it will be
necessary that the evidence presented meet the higher evidentiary standard. (Basich
v. Allstate Ins. Co. (2001) 87 Cal.App.4th 1112,
1118–1120.) Further, summary judgment “on the issue of punitive damages is
proper” only “when no reasonable jury could find the plaintiff’s evidence to be
clear and convincing proof of malice, fraud or oppression.” (Id.)
Defendants argue that Plaintiffs support their
allegation of “oppression, fraud and/or malice” with just one factual
assertion: that Defendants provided false and fraudulent information because
they wanted “to close the Transaction at all costs so that [they] could earn
[their] professional fee without regard to the injuries to the Plaintiffs that
would foreseeably result.” (FAC, ¶ 90.) Defendants argue that conclusory
characterizations of a defendant’s conduct as malicious, oppressive, or
fraudulent are insufficient. Defendants contend to support an award of punitive
damages Plaintiffs must present clear and convincing evidence that Defendants
supposed fraudulent misrepresentations were “intending to harm” Plaintiffs. With
this argument, Defendants attempt to reverse the burden on summary judgment. The
moving parties have the burden on summary judgment to present evidence
negating the pled facts concerning malice, fraud and oppression. Defendants
have not presented evidence. Rather, they contend that the FAC fails to state a
claim. (UMF 84.) Therefore, Defendants fail to meet their burden on this issue.
Francis
and the Statute of Limitations
Defendants move for summary judgment/adjudication of
Plaintiff Francis’s second cause of action for breach of fiduciary duty, third
cause of action for negligence, and fifth cause of action for negligent
misrepresentation, on the ground that they are barred by each claims’ two-year
statute of limitations.
The statute of limitations for
breach of fiduciary duty is three years or four years, depending on whether the
breach is fraudulent or nonfraudulent. (See Fuller v. First Franklin
Financial Corp. (2013) 216 Cal.App.4th 955, 963 [“limitations period is
three years ... for a cause of action for breach of fiduciary duty where the
gravamen of the claim is deceit, rather than the catchall four-year limitations
period that would otherwise apply...”]; William L. Lyon & Associates,
Inc. v. Superior Court (2012) 204 Cal.App.4th 1294, 1312 [“[b]reach of
fiduciary duty not amounting to fraud or constructive fraud is subject to the
four-year ‘catch-all statute’ of Code of Civil Procedure section 343”]; Thomson
v. Canyon (2011) 198 Cal.App.4th 594, 606–607 [same]; City of Vista v.
Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 889 [four-year
statute of limitations applies to breach of fiduciary duty, unless the gravamen
of the claim is actual or constructive fraud, in which case the statute of
limitations is three years].)” (American Master Lease LLC v. Idanta
Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1479.) A claim for breach of
fiduciary based on alleged professional negligence is covered by the two-year
statute of limitations. (Hydro-Mill Co., supra 115 Cal.App.4th
1145, 1156-58 [gravamen of the complaint against a broker was professional
negligence therefore the claim for breach of fiduciary duty was controlled by
the two-year statute of limitations].)
The third cause of
negligence is subject to the two-year statute of limitations. (CCP § 335.1.) The fifth cause for negligent
misrepresentation is subject to the three-year statute of limitations. (CCP §
338(d).) A cause of action for negligent misrepresentation begins to run when the aggrieved party discovers “the facts
constituting the fraud.” (Broberg v. Guardian Life Ins. Co. of America
(2009) 171 Cal.App.4th 912, 920.) The discovery rule delays the start
of the statute of limitations until the plaintiff discovers, or is on inquiry
notice (i.e., has reason to discover) facts supporting a cause of action.¿(Fox v. Ethicon Endo-Surgery, Inc. (2005) 35
Cal. 4th 797, 807.)¿
Here,
Francis admitted that he became aware of his claims on December 27, 2019, yet
he did not join this action until more than two years later, on December 14,
2022 (when the FAC was deemed filed per order). Defendants quote Plaintiffs’
discovery responses, which state as follows:
“Shortly after closing, Plaintiffs realized that the
Defendants’ front- end compensation calculations were wildly inaccurate, as
Plaintiffs received less up-front compensation than promised by Defendants.
Plaintiffs notified Defendants of this breach by December 27, 2019.”
(COE
Exh. N.) Thus, by December 27, 2019, Plaintiffs, including Francis, were aware
of the front-end compensation issues. This would reasonably place Francis and
the other Plaintiffs on-notice of their claims against Defendants.
As to the cause of action for breach of fiduciary
duty and negligent misrepresentation, Defendants have not shown that a two-year
statute of limitations applies, rather than the three-year period for actions based
in fraud. If the three-year statute of limitations applies, Francis’s action
would be timely since three years from December 27, 2019, is December 27, 2022.
The FAC was filed on December 14, 2022. Thus, Francis’s inclusion was timely
when considering the three-year period. As a result, Defendants have not met
their burden to show that these causes of action are barred.
As to the negligence cause of action, Plaintiff
presents no evidence in dispute. At best, Plaintiff references the fact that,
at some unknown point, Plaintiffs “realized that Defendants had failed to
negotiate the contractual protections necessary to protect the value of their
retained minority interests, to ensure that Lindsay Goldberg would assist in
the growth of the fertility practice, and to be able to sell their retained
equity interests in SCRC in the event that Lindsay Goldberg sold the practice
when Lindsay Goldberg sold the practice to BC Partners in or about December
2020.” (UMF 162.) This does not explain how Francis belatedly discovered such
facts, such that the statute of limitations did not accrue until after December
27, 2019. Based on the undisputed facts on the
record, Francis had actual knowledge or inquiry notice of the
negligence-based claims against Defendants at that time.
Accordingly, summary adjudication is granted against
Francis’s negligence cause of action only.
Conclusion
Defendants’ motion for
Summary Adjudication against Plaintiffs Shahin Ghadir, M.D. and Mark W. Surrey,
M.D. is GRANTED as to issue no. 4 (Quantum Meruit).
Defendants’ motion for
Summary Adjudication as to Plaintiff Hal C. Danzer is GRANTED as to issue no. 4
(Quantum Meruit).
Defendants’ motion for
Summary Adjudication as to Plaintiff Kyle Francis is GRANTED as to issue no. 1
(as to the negligence cause of action only).
The remaining issues and
sub-issues are DENIED.