Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County Super. Ct. No. LC075563, Richard A. Adler, Judge. Judgment is reversed and remanded with directions.
Law Offices of Leon Small and Leon Small for Plaintiff and Appellant.
Law Offices of Ronald Richards and Associates, Ronald Richards and E. Christine Hehir for Defendants and Respondents.
CROSKEY, J.
Shlomo Goldberg, the plaintiff in this case (plaintiff), has appealed from a judgment of dismissal with prejudice entered after the trial court sustained, without leave to amend, demurrers to plaintiff’s second amended complaint that were filed by the defendants. The defendants are Yuval Stelmach (Stelmach) and REM, LLC (REM).
REM, LLC is a limited liability company. “A limited liability company is a hybrid business entity that combines aspects of both a partnership and a corporation. It is formed under the Corporations Code and consists of ‘members’ who own membership interests. Members may be individuals, corporations, partnerships, or other limited liability companies. [Citation.] [¶] The company has a legal existence separate from its members. It provides members with limited liability to the same extent enjoyed corporate shareholders, yet allows members to actively participate in management and control. [Citations.]” (9 Witkin, Summary of Cal. Law (10th ed. 2005) Partnership, § 136, p. 697.)
The demurrers were sustained on grounds of res judicata, failure to join indispensible parties, failure to state a cause of action and uncertainty. We will reverse the judgment because the second amended complaint states a cause of action and can be made to state others by the addition of necessary parties.
BACKGROUND OF THE CASE
1. The Prior Suit
a. The Original Parties and the Complaint
Defendants’ res judicata claims in the instant case arise from a prior suit brought by plaintiff which was filed on August 15, 2003. The persons and business entities initially named as defendants in that earlier suit included, among others, plaintiff’s daughter Taly Stelmach, plaintiff’s son-in-law Yuval Stelmach, and Tul Investments, Inc. The complaint in the prior suit describes the Stelmachs as the “prime actors and managers” of the various business entities in which plaintiff has an interest.
The complaint in the prior suit also alleges the following. Between 1995 and 2002, plaintiff, a resident of Israel, invested monies with the Stelmachs and the Stelmachs created the above mentioned several business entities, the purpose of which was to acquire, manage and eventually sell parcels of improved real property. Approximately 12 months before plaintiff filed the prior suit, he began to realize that (1) the Stelmachs were not providing him with proper and timely accountings regarding the income and expenses of the properties; (2) they had failed to tell him which properties remained under the ownership and control of their management company or Tul Investment, Inc.; (3) they had failed to make an account of net funds available for distribution and had stopped paying him monies from the companies in which he had an interest; (4) they deliberately misrepresented and hid facts from him regarding these matters; and (5) his requests for accountings were ignored. On that basis plaintiff sued the Stelmachs for breach of fiduciary duty, fraud, and accountings, and he sued several business entities for accountings and dissolution of the entities.
b. The Doe Defendants, Inter pleader Complaint, Cross-Complaint in Intervention, Requests for Dismissal and Judgment
When plaintiff named Glendora Plaza, LLC (Glendora) as a Doe defendant in the prior suit, it filed a cross-complaint in inter pleader against plaintiff and plaintiff’s ex-wife, Lea, respecting $418,779 that was being held by Glendora. This sum was claimed by plaintiff to be his money to the exclusion of his ex-wife. Indeed, plaintiff claimed that all of the investments he had made with the Stelmachs were his to the exclusion of Lea. Lea filed a cross-complaint in intervention in the prior suit to protect her claim that, contrary to plaintiff’s assertion, one-half of the inter pleaded funds (and the other interests) actually belonged to her.
During the trial, the trial court issued an order (on November 8, 2005), returning the inter pleaded funds to Glendora. The order was made after plaintiff dismissed Glendora from the suit and after Glendora filed a request for dismissal of its inter pleader cross-complaint against plaintiff and Lea. The court ordered that upon distribution by Glendora to plaintiff and Lea of the returned inter pleaded funds, Glendora must provide an exact accounting of any deductions made from those funds. The order further states that such distributions by Glendora “shall be without prejudice to any contention by [plaintiff] and/or Lea Goldberg respecting membership percentages owned by them or either of them in [Glendora].” That provision was apparently made because the trial in the prior action was then ongoing and the court had not yet decided whether plaintiff’s claim that Lea owned none of the inter pleaded funds was valid. However, the order does not explicitly state that Glendora was required to make a distribution to the Goldbergs prior to the conclusion of the trial in the original case.
Trial in the prior suit ended on November 28, 2005 and the case was submitted. The trial court issued an 80-page statement of decision on February 16, 2006, and on March 9, 2006, the court signed and filed a judgment against plaintiff, in favor of the defendants, and in favor of plaintiff in intervention Lea Goldberg. The judgment incorporates by reference the factual findings made by the court in its statement of decision, including the finding that plaintiff and Lea each have a 50% interest in the investments that plaintiff made with the Stelmachs.
According to the statement of decision in the prior case, Tul Investments was formed in 1995 when plaintiff and Stelmach decided to invest money together. Tul Investments was initially a partnership and its stated purpose was to purchase, hold and lease improved and unimproved real property and do all things that are incidental or in furtherance of those purposes. Later it was decided to change the form of the business into a corporation and Tul Investment, Inc. was created. While Tul Investments and Tul Investments, Inc. (collectively, Tul Investments) were engaged in purchasing/developing commercial real estate, the entity REM was created by Stelmach to manage the properties associated with Tul Investments. The defendants in the prior action did not dispute plaintiff’s claim that he owns a percentage interest in each and every property in which Tul Investments has an ownership interest.
2. Plaintiff’s Contentions in the Instant Suit
a. The Alleged Failure to Distribute Glendora Funds to Plaintiff
The instant suit was filed on August 22, 2006. Stelmach and REM were named as defendants in the complaint, and in both of the subsequently filed amended complaints. As noted in footnote 2, ante, the trial court in the prior case found that REM was created by Stelmach to manage the properties associated with Tul Investments.
In the operative (second amended) complaint, plaintiff alleged there is such a unity of interest in the relationship between Stelmach and REM that they are not really separate entities. Plaintiff alleged that “Stelmach is believed to be the sole member, officer, director, manager, bank signatore, decision maker and operator of [REM],” and thus the notion of Stelmach and REM being separate entities is illusory and does not exist. Plaintiff also alleged that REM, as the manager of certain entities in which plaintiff has an interest (Glendora, La Puente Plaza, LLC, and a “Balboa-Chats worth” property), breached its fiduciary duties to plaintiff by means of the actions and omissions of Stelmach, and Stelmach and REM should be treated as one entity with respect to liability to plaintiff because it would be inequitable to insulate Stelmach from the activities of REM with respect to plaintiff’s claims in the second amended complaint.
Based on those allegations, plaintiff’s second amended complaint thereafter referred to REM and Stelmach collectively as “Stelmach.”
Plaintiff alleged that Stelmach breached fiduciary duties owed to plaintiff, and breached them in his (Stelmach’s) capacities as majority shareholder, president, director, and manager or co-manager of various entities in which plaintiff has an equity interest. Plaintiff alleged that Stelmach failed to abide by his obligation to distribute to plaintiff in a timely manner his pro-rata share of distributable net proceeds, and to make an accurate accounting regarding the distributions, when such distributions are made to other owners. Plaintiff alleged one such failure to distribute and make an accounting concerns the inter pleaded funds from the sale of the Glendora property. Plaintiff alleged that although the sale of the Glendora property occurred prior to March 9, 2006, the date of the judgment in the prior case, and although the percentage of the funds to which plaintiff is entitled from that sale was adjudicated in the prior action, the matter of the right of plaintiff to a distribution of his adjudicated percentage share was not addressed or embraced within the prior suit, nor could it have been addressed or embraced in the prior case for the following several reasons.
Plaintiff alleged that in Glendora’s inter pleader complaint in the prior suit, which Stelmach verified, it was alleged that Glendora had already distributed all of its funds to all of its owners except for plaintiff and Lea, who were the only equity owners disputing over the percentages due them. When Stelmach caused Glendora to inter plead funds, the question whether plaintiff was entitled to some distribution, whether half or all of the inter pleaded funds, was not addressed in the inter pleader complaint, and not addressed in the prior suit, and hence not decided in the prior suit, because it was conceded in the cross-complaint for inter pleader that plaintiff would receive half or all of the funds. Stelmach and Glendora disavowed any interest in the inter pleaded funds. Thus, whether plaintiff was entitled to at least half of the funds was not an issue and did not need to be an issue, and thus plaintiff did not make a request for distribution of one-half of the funds because Stelmach never disputed that plaintiff was entitled to one-half of the funds; a demand by plaintiff for one-half of the funds would have been unnecessary.
Plaintiff alleged that after the interpleaded funds were returned to Stelmach’s control, and after the judgment was entered in the prior suit, Stelmach distributed one-half of the funds to Lea, but has refused to distribute the other half to plaintiff despite the fact that Stelmach has a fiduciary duty to distribute the funds, which he controls, and despite the fact that after judgment was entered in the prior case, plaintiff made many written demands on Stelmach for distribution and an accounting. Instead of distributing the remainder of the inter pleaded funds to plaintiff and providing an accounting, Stelmach applied the funds to his own use. On April 1, 2006, Stelmach wrote to plaintiff stating his refusal to distribute to plaintiff the remaining inter pleaded funds and “citing his own expenses as purportedly justifying his pocketing and withholding plaintiff’s distribution.”
Plaintiff alleged that because plaintiff’s entitlement to at least one-half of the inter pleaded funds was conceded, but immediate distribution to Lea and plaintiff was not ordered, the timing and amount of distribution was left by the court to the discretion of Stelmach, as manager of Glendora. The question as to whether Stelmach has violated his fiduciary duty to not favor Lea over plaintiff by giving Lea her distribution, but using for his (i.e., Stelmach’s) own benefit the funds to which plaintiff was entitled, is one that is not precluded by the doctrine of res judicata.
b. Alleged Issuance of False and Damaging Tax Documents
The second amended complaint alleges that on or about August 7, 2006, Stelmach caused false federal and state tax documents to be issued on behalf of Tul Investments, acting as its president and majority shareholder, and Stelmach knew the documents were false when they were issued. The tax documents assert that Stelmach, “via various entities,” has distributed tens of thousands of dollars to plaintiff since the judgment in the prior case was rendered, for which taxes are owing. The tax documents have subjected plaintiff to tax liability by state and federal authorities, including claims and levies, for allegedly back due taxes. In fact, however, Stelmach allowed no such distributions to plaintiff, but instead acted to make it appear on the books of the various entities that distributions to plaintiff had been made and the distribution responsibilities of Stelmach and the entities had been fulfilled, all of which violated Stelmach’s fiduciary duties to plaintiff. Additionally, Stelmach persisted in listing his own address as plaintiff’s address such that Stelmach mailed tax documents for plaintiff to himself, which prevented plaintiff from being aware of the documents until after the time for paying the taxes asserted to be owed by plaintiff, which resulted in penalties being imposed on plaintiff by taxing authorities.
“Directors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they participate in the wrong or authorize or direct that it be done. They may be liable, under the rules of tort and agency, for tortious acts committed on behalf of the corporation [citations].” (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595.)
Plaintiff alleged he is not pursuing criminal prosecution of Stelmach for filing false documents, but rather is pursuing civil suit remedies stemming from Stelmach’s manipulation of California entities, and thus federal jurisdiction is not an issue.
c. Alleged Failure to Distribute to Plaintiff Rental Income
Lastly, the second amended complaint alleges that between the date of the judgment in the prior suit and the present time, Stelmach has collected hundreds of thousands of dollars in rental income for various properties in which plaintiff has an equity interest, and plaintiff is informed and believes that Stelmach has distributed to himself (Stelmach) and other equity owners net distributable proceeds but has not distributed to plaintiff his (plaintiff’s) pro rata share of such distributable proceeds.
2. Demurrers to the Second Amended Complaint
REM demurred to the second amended complaint on several grounds. On the ground of res judicata, it asserted that plaintiff’s cause of action for failure to distribute funds could have been litigated in the prior suit.
On the ground of indispensible parties, REM asserted the court could not render a fair adjudication without Glendora as a party to explain why it allocated its assets as it did. REM also argued that plaintiff’s having dismissed Glendora from the prior suit prevents Glendora from now being named as a defendant in this suit. REM further asserted that Tul Investments is also an indispensible party because plaintiff alleged that it is the party that issued the contested tax documents, and thus it is the party that would explain why it issued its tax documents as it did. REM speculated that plaintiff did not name Tul Investments as a party because of “attorney’s fee provisions in the [Tul Investment], operating agreement.” REM also argued that a November 2, 2006 order in the instant case prevents plaintiff from naming Tul Investment as a party.
Such order, however, is not in the appellate record.
Additionally, REM asserted that the second amended complaint is uncertain in that it is not possible to ascertain the nature of the alleged wrongs committed by REM since plaintiff alleged in the second amended complaint that REM is the alter ego of Stelmach and the complaint referred to REM and Stelmach collectively as Stelmach. REM asserted that “[a]lthough it may be permissible to allege that everything done by REM should be construed as being done by Stelmach individually, the converse is not true. REM cannot ascertain from the [second amended complaint] what conduct Plaintiff is attributing to REM.”
The grounds of res judicata and indispensible parties were also asserted by Stelmach in his demurrer to the second amended complaint. Stelmach also challenged the claims plaintiff makes regarding failures to make distributions to him from properties other than Glendora. Stelmach argued the claims lack specificity, and the entities from which the distributions and accountings were to come were not made parties to the instant suit.
The hearing on the demurrers was held on February 6, 2007, and on February 8, 2007, the trial court filed a 16-page ruling. Based on the following several grounds, the trial court sustained the demurrers without leave to amend: (1) the doctrine of res judicata precludes adjudication of plaintiff’s claims; (2) plaintiff failed to join indispensible parties—Glendora because it is the entity from which plaintiff claims he should have received a distribution of the inter pleaded funds, and Tul Investments because (a) it issued the tax documents alleged to be false and damaging to plaintiff, and (b) it is responsible for the alleged failure to make distributions from, and provide accountings for, the unnamed entities which plaintiff alleges he is a member or shareholder of; and (3) plaintiff did not allege he suffered damage from the allegedly false tax documents.
An attorney order and judgment of dismissal were signed and filed on May 1, 2007. Thereafter plaintiff filed this timely appeal.
DISCUSSION
1. Standard of Review
A demurrer tests the sufficiency of the allegations in a complaint as a matter of law. (Pacifica Homeowners’ Assn. v. Wesley Palms Retirement Community (1986) 178 Cal.App.3d 1147, 1151.) We review the sufficiency of the challenged complaint de novo. (Coopers & Ly brand v. Superior Court (1989) 212 Cal.App.3d 524, 529.) We accept as true the properly pleaded allegations of fact in the complaint, but not the contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We also accept as true facts which may be inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.) We consider matters which may be judicially noticed, and we “give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) We do not concern ourselves with whether the plaintiff will be able to prove the facts which she or he alleges in the complaint. (Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1521.) The judgment or order of dismissal must be affirmed if any of the grounds for demurrer raised by the defendant is well taken and disposes of the complaint. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) It is error to sustain a general demurrer if the complaint states a cause of action under any possible legal theory. (Ibid.) It is an abuse of the trial court’s discretion to sustain a demurrer without leave to amend if there is a reasonable possibility the plaintiff can amend the complaint to allege any cause of action. (Ibid.) To prove abuse of discretion, the plaintiff must demonstrate how the complaint can be amended. Such a showing can first be made to the reviewing court. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1386.)
2. The Doctrine of Res Judicata Does Not Bar the Cause of Action for Breach of Fiduciary Duty Based on an Alleged Failure to Distribute Glendora Funds and Provide an Accounting
a. Nature of the Doctrine of Res Judicata
“[I]n California ‘res judicata is said to have two aspects, its primary aspect of bar and merger and the secondary aspect of collateral estoppel.’ [Citation.]” (Aerojet-General Corp. v. American Excess Inc. Co. (2002) 97 Cal.App.4th 387, 401.) “Res judicata, or claim preclusion, prevents re litigation of the same cause of action in a second suit between the same parties or parties in privity with them. Collateral estoppel, or issue preclusion, ‘precludes re litigation of issues argued and decided in prior proceedings.’ [Citation.] Under the doctrine of res judicata, if a plaintiff prevails in an action, the cause is merged into the judgment and may not be asserted in a subsequent lawsuit; a judgment for the defendant serves as a bar to further litigation of the same cause of action.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896-897.) “Under the merger-and-bar aspect of res judicata, a matter is deemed to be conclusively decided by a prior judgment ‘if it is actually raised by proper pleadings and treated as an issue in the cause . . . . But the rule goes further. If the matter was within the scope of the action, related to the subject-matter and relevant to the issues, so that it could have been raised, the judgment is conclusive on it despite the fact that it was not in fact expressly pleaded or otherwise urged.” (Aerojet-General Corp. v. American Excess Inc. Co., supra, 97 Cal.App.4th at p. 402.)
b. Res Judicata Does Not Apply to Plaintiff’s Claim to a Distribution of Proceeds and Accounting from Glendora
Our review of the appellate record convinces us that the doctrine of res judicata does not apply to plaintiff’s claim of a right to a distribution of proceeds and accounting from Glendora respecting the funds that were inter pleaded in the prior case. For purposes of the instant case, there are two relevant adjudications concerning those inter pleaded funds. First, plaintiff owns half of the inter pleaded funds and Lea owns the other half (less any valid deductions made upon distribution of those funds). That adjudication is contained in the trial court’s finding in the prior suit that plaintiff owned half of the 15% “Goldberg” share of the various business entities in which plaintiff had invested over the years and Lea owned the other half. Indeed, plaintiff’s complaint alleges that in the prior suit, neither Stelmach nor Glendora ever questioned plaintiff’s right to at least half of the inter pleaded funds, and the inter pleader cross-complaint that was filed by Glendora and verified by Stelmach conceded that plaintiff should receive at least half of those funds.
As noted above, in the second amended complaint plaintiff alleged that REM is the manager of some of the entities in which plaintiff has an interest, including Glendora. Plaintiff also alleged that REM, in its capacity as the manager of those entities, breached its fiduciary duties to plaintiff “via the actions, omissions and the decisions of Stelmach,” by “initiating, directing and guiding the actions or inactions of the entities to withhold monies due plaintiff.” Rounding out those connections between Glendora, REM and Stelmach, plaintiff also essentially alleged that Stelmach is the alter ego of REM, and the second amended complaint states that for purposes of that pleading, REM and Stelmach would be collectively referred to simply as “Stelmach.” Thus, plaintiff’s complaint alleges that Glendora was and still is under Stelmach’s direction and control, and using that control, Stelmach distributed to himself the Glendora funds to which was he was entitled.
Second, the November 8, 2005 order that returned the inter pleaded funds to Glendora directed that when a distribution of the inter pleaded funds was made to plaintiff and to Lea, Glendora was required to provide an “exact accounting which supports any proposed deductions and distributions to both parties.” By “both parties,” the court meant plaintiff and Lea. The order did not direct that the distribution had to be made before judgment was entered in that suit. When the court made that order, Glendora was still a party to the prior suit in its capacity as a cross-complainant in inter pleader.
Assuming, arguendo, that the trial court in the instant case was correct when it ruled that any claim plaintiff might have had against defendants before the judgment in the prior case was entered is barred by the doctrine of res judicata, the cause of action for breach of fiduciary duty in the instant case (insofar as that cause of action concerns the inter pleaded Glendora funds), did not materialize until after the judgment in the prior action was entered. Specifically, plaintiff’s second amended complaint alleges that Glendora did not make a distribution to Lea from the inter pleaded funds until after judgment was entered in the prior action. Thus, it was not until that post-judgment distribution was made to Lea that plaintiff had cause to complain that although a distribution of inter pleaded funds had been made to Lea, none of the inter pleaded funds had been distributed to him, nor had an accounting been provided to him regarding the inter pleaded funds. According to plaintiff’s second amended complaint, Glendon alleged in its cross-complaint for inter pleader in the prior action that it had already made distributions to the other owners of Glendora and the only two owners who had not received a distribution were plaintiff and Lea. Thus, when Lea received a distribution after judgment was entered in the prior action but plaintiff did not, plaintiff sued and alleged that he was entitled to the remaining inter pleaded funds and an accounting.
Moreover, even if Stelmach, through REM, had caused Glendora to make a distribution to Lea of inter pleaded funds prior to the judgment in the prior case, plaintiff’s claim for the remainder of the funds plus an accounting would not be precluded on res judicata grounds. “Res judicata serves as a bar to all causes of action that were litigated or could have been litigated in the first action. [Citations.] This determination is made as of the date the first complaint is filed. ‘The scope of litigation is framed by the complaint at the time it is filed. [Citation.]’ [¶] Res judicata is not a bar to claims that arise after the initial complaint is filed. These rights may be asserted in a supplemental pleading, but if such a pleading is not filed a plaintiff is not foreclosed from asserting the rights in a subsequent action. [Citation.]” (Allied Fire Protection v. Diede Construction, Inc. (2005) 127 Cal.App.4th 150, 155.) “Using the date of filing of the original complaint as the cut-off for determining what claims could have been brought results in a workable rule; otherwise, courts would get bogged down in determining whether an amendment was possible or practicable when the new claims arose.” (Ibid.)
Here, in the original suit plaintiff litigated his assertion that he is entitled to all of the “Goldberg” interest in the various entities that Stelmach has purchased in part with money that plaintiff gave him, including Glendora. The court’s conclusion that plaintiff is only entitled to half of that interest resulted in a judgment against plaintiff. His current claim is that unlike Lea, he was not given his interest in the inter pleaded funds; that claim arose after the complaint in the original suit was filed.
We reject defendants’ assertion that res judicata applies here because plaintiff could have kept Glendora in the prior case, filed a writ to contest the release of the inter pleaded funds, and addressed his claims in that suit, or appealed the judgment in the prior case. That analysis is not relevant to the rule that the doctrine of res judicata is limited in scope and “ ‘[t]he scope of litigation is framed by the complaint at the time it is filed.’ ” (Allied Fire Protection v. Diede Construction, Inc., supra, 127 Cal.App.4th at p. 155.) The focus of the instant complaint is the refusal to distribute funds to plaintiff and provide him with an accounting after the inter pleaded funds were returned to Glendora and a distribution was made to Lea. That refusal occurred after the complaint in the prior suit was filed.
We also reject defendants’ assertion that Allied Fire Protection is not applicable to this case because Allied Fire Protection concerned a fraud on the plaintiff that was committed by the defendant prior to the plaintiff’s first suit against the defendant but which the plaintiff was not aware of when he filed his first suit. Defendants assert that here, there is no evidence of concealment because plaintiff was aware of the contested funds when he filed his first suit. Defendants’ analysis is flawed. The overlay of an undiscovered fraud in Allied Fire Protection still operated under the rule that res judicata does not apply to claims that arise after the initial suit is filed. The court in Allied Fire Protection ruled that the fraud claim need only to have been included in the first suit if, with diligence on the part of the plaintiff, it could have been discovered prior to filing the first suit. (Allied Fire Protection v. Diede Construction, Inc., supra, 127 Cal.App.4th at p. 157.) The facts of Allied Fire Protection do not in any manner impact the rule of law set out in that case concerning causes of action that arise after the initial suit is filed.
3. Plaintiff’s Other Claims Are Not Barred by Res Judicata
Plaintiff’s claims asserting the wrongful filing of false tax documents with state and federal tax authorities, and wrongful failure to distribute to plaintiff rental proceeds and provide him with accountings, are based on alleged activities of Stelmach and/or REM that took place after judgment in the prior case was entered, and thus after the prior case was filed. Therefore, res judicata does not bar those claims.
4. The Indispensible Parties Issue
a. Statutory Provisions Regarding Indispensible Parties
Code of Civil Procedure section 389 states in relevant part: “(a) A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. [¶]
“(b) If a person as described in paragraph (1) or (2) of subdivision (a) cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensible. The factors to be considered by the court include: (1) to what extent a judgment rendered in the person’s absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person’s absence will be adequate; (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder.” (Italics added.)
Subdivision (a) of section 389 describes what are often referred to as “necessary parties,” persons who should be joined if possible. Subdivision (b) of section 389 describes indispensible parties. (County of Imperial v. Superior Court (2007) 152 Cal.App.4th 13, 26.) In determining whether a person is indispensible, a court considers the four factors listed in subdivision (b). “The subdivision (b) factors are not arranged in a hierarchical order, and no factor is determinative or necessarily more important than another.” (Id. at p. 35.)
Defendants contend, and the trial court so found, that Glendora and Tul Investments are indispensable parties. Rulings on claims of indispensible party status are reviewed under an abuse of discretion standard. (County of Imperial v. Superior Court, supra, 152 Cal.App.4th 13, 25, 35.)
b. Glendora Is Not a Necessary Party
We note two things at the outset of our discussion of the necessary/indispensable parties issue. First, at the hearing on the demurrers to the second amended complaint, the attorney representing plaintiff informed the court that he did not name Glendora as a defendant in this case because that entity “contains a number of innocent members who I didn’t think . . . had to be implicated.”
Plaintiff alleged that REM manages Glendora (and two other named entities in which plaintiff claims an interest). As the manager of Glendora, REM owes the same fiduciary duties to Glendora and to plaintiff and Glendora’s other members, as a partner owes to a partnership and to the partners of the partnership. (§ 17153.) Thus, REM owes plaintiff fiduciary duties in the actions that it undertakes to manage Glendora, including in distributing funds determined by the court in the prior case to belong to plaintiff. Further, a manager of an LLC is its agent for the purpose of the LLC’s business or affairs. (§ 17157, subd. (b)(2).)
Plaintiff alleged, on information and belief, that Stelmach manages REM and is its sole officer. Section 17154 provides that officers of a LLC may, but need not be, a member or manager of the LLC and the same person may hold “any number of offices.” As noted above, a manager of an LLC is its agent for the purpose of the LLC’s business or affairs.
Plaintiff contends that it is the alleged positions that REM occupies in Glendora that make it unnecessary to name Glendora as a party to this suit since REM is already a named defendant. Further, as discussed below, plaintiff contends that Stelmach is also liable to plaintiff in a position as the alter ego of REM and thus having both REM and Stelmach to look to for relief, Glendora need not be named as a party defendant.
Citing Civil Code section 2343, as well as Perkins v. Blauth (1912) 163 Cal.782, 787, and Holt v. Booth (1991) 1 Cal.App.4th 1074, 1080, fn. 5, plaintiff contends that an agent may be sued without also suing the agent’s principal. In Perkins v. Blauth, trustees of a Reclamation District were sued but not the District. The court stated that when a tortious act is committed by agent acting under authority of his principal, the fact that the principal becomes liable does not exonerate the agent from liability. In Holt, the principal (employer) was sued, but the court observed that agents and employees are liable for their own torts whether their employer is liable or not. (Accord 5 Wit kin, Summary of Cal. Law (10th ed. 2005) § 30, p. 92.)
Civil Code section 2343 states in relevant part that “[o]ne who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, in any of the following cases, and in no others: [¶s] 3. When his acts are wrongful in their nature.”
We note that in People v. Pacific Landmark, LLC (2005) 129 Cal.App.4th 1203, 1212 et seq., the court held that “whereas managers of limited liability companies may not be held liable for the wrongful conduct of the companies merely because of the managers’ status, they may nonetheless be held accountable under Corporations Code section 17158, subdivision (a) for their personal participation in tortious or criminal conduct, even when performing their duties as manager.” Section 17158, subdivision (a) states: “No person who is a manager or officer or both a manager and officer of a limited liability company shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation, or liability of the limited liability company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a manager or officer or both a manager and officer of the limited liability company.” (Italics added.) “Person” is defined in section 17001, subdivision (ae) as “an individual, partnership, limited partnership, trust, estate, association, corporation, limited liability company, or other entity, whether domestic or foreign.”
Here, plaintiff alleges that REM’s involvement in Glendora’s not distributing to him his share of the inter pleaded funds and not providing an accounting (alleged to be a breach of fiduciary duty by REM), was achieved by Stelmach controlling REM, as REM’s manager and sole officer. Plaintiff observes that it was Stelmach who verified Glendora’s cross-complaint for inter pleader wherein Glendora acknowledged that plaintiff had either a 50% or a 100% interest in the inter pleaded funds, and REM was operating through its manager, officer/agent Stelmach. Thus, plaintiff’s analysis goes, since plaintiff named REM and Stelmach as defendants, there is no need to also name Glendora as a defendant because plaintiff’s claims against Glendora are based on actions taken by its manager/agent REM, which were in turn taken by and through REM’s manager/officer/agent, Stelmach.
It is in that manner that plaintiff has addressed defendants’ assertions that (1) Glendora can only be held accountable if it is named as a defendant, something which plaintiff has repeatedly refrained from doing, and (2) Stelmach and REM can only be held accountable for the actions of Glendora if there is a determination of alter ego.
In their joint appellate brief, defendants cite to pages in the reporter’s transcript to support their assertion that plaintiff has conceded that there are no facts to support an alter ego theory. However, the pages to which defendants cite do not support that assertion. What plaintiff did say to the trial court is that Stelmach is the alter ego of REM but is not the alter ego of Glendora.
Because plaintiff is asserting that a recovery of damages is owed not from Glendora but rather from its manager/agent REM and from REM’s manager/agent Stelmach, we do not find that Glendora is a necessary party. “[C]omplete relief can[] be accorded among those already parties.” (Code Civ. Proc., § 389.) Because Glendora is not even a necessary party, it obviously is not an indispensable party. The distributable money that Glendora received from the sale of its asset was already distributed to all but two of its members (Lea and plaintiff) by the time judgment was rendered in the prior action. That action had determined that plaintiff and Lea are both entitled to half of the remaining distributable funds, and Lea has already received her half. Plaintiff alleges that all that was left to be accomplished after Lea received her share was to distribute plaintiff’s share to him and provide an accounting. But as plaintiff clearly has alleged, such funds were wrongfully distributed by Stelmach to himself, not to plaintiff. Such action constituted a breach of fiduciary duty owed to plaintiff. Glendora itself is not alleged to have done anything wrong. Since the issue in this matter is whether money was wrongfully withheld from plaintiff, re-adjudication of that issue would be precluded by the doctrine of collateral estoppel if plaintiff attempted to sue Glendora in a subsequent suit for failure to distribute the funds.
c. The Other Entities from Which Plaintiff Claims a Right to Distribution Are Necessary Parties
In addition to alleging that Stelmach directed REM to withhold Glendora’s funds from plaintiff, plaintiff also alleged that REM as the “manager of some of the [other] entities in which plaintiff has an interest, i.e. . . . La Puente Plaza, LLC and the Balboa-Chats worth property . . ., breached its fiduciary duties to plaintiff via the actions, omissions and decisions of Stelmach, initiating, directing and guiding the actions or inactions of the entities to withhold monies due plaintiff as described hereinafter.” Plaintiff alleged that between the date the judgment was entered in the prior case and the date this case was filed, Stelmach has distributed to himself and other equity owners net distributable rental income proceeds from these entities but has not distributed any proceeds to plaintiff and has given plaintiff no accountings.
Plaintiff contends that the above stated analysis regarding the interconnection between REM as manager of Glendora and Stelmach as the manager and officer of REM, and their respective fiduciary duties, is applicable to this claim regarding La Puente Plaza, LLC and Balboa-Chats worth property, and therefore makes naming those parties unnecessary since Stelmach is alleged to be the actor, not the two entities, and plaintiff is not seeking recovery from those entities, only from Stelmach. We disagree.
The members of these two entities obviously have an interest in the adjudication of monetary claims that affect the entities, and with respect to these entities, plaintiff is not claiming that money owed to him was pocketed by Stelmach and therefore should come from the pocket of Stelmach. Thus, the entities are necessary parties. However, because there is no indication that they cannot be made parties to the case, they are not indispensible parties. Therefore, the trial court should order that plaintiff must either join them or be precluded from pursuing claims against their assets.
Finally, to the extent plaintiff is claiming a right to net distributable rental income proceeds of other entities in which plaintiff has an interest, plaintiff has failed to provide sufficient detail to identify such other entities and his claim respecting those entities fails for uncertainty.
d. Tul Investments Is a Necessary Party
Plaintiff alleges that on or about August 7, 2006, Stelmach, acting on behalf of Tul Investments, caused K’1’s and various other tax documents to be issued to California and federal taxing authorities and Stelmach did so in his capacity as Tul Investments’ major shareholder and president. The tax documents are alleged to be false in that they state that after judgment was rendered in the prior suit, Stelmach, through various entities, distributed tens of thousands of dollars to plaintiff for which taxes are due and owing when in fact no such distributions have been allowed by Stelmach. Plaintiff alleges the falsely stated distributions make it appear that the entities’ distribution duties have been carried out, and the false tax documents subject plaintiff to tax liabilities.
Plaintiff contends that because these allegations focus on Stelmach as the “bad actor,” Tul Investments need not be named as an indispensible party. However, while plaintiff’s second amended complaint may define Stelmach as the guilty party, Tul Investments, nonetheless, has an interest in preserving its name against charges of tax fraud. Therefore, it is a necessary party, and because there is no indication it cannot be named as a party in the suit, it is not an indispensible party. The trial court should order that plaintiff either join Tul Investments as a necessary party, or be precluded from pursuing claims against it.
We disagree with Stelmach’s contention that plaintiff did not allege damages as a result of the issuance of false tax documents. Plaintiff alleged the documents falsely stated that tens of thousands of dollars were distributed to him for which taxes are owing, and the documents “subjected the Plaintiff to tax exposure and liability including claims and levies by the [federal and state taxing authorities] for allegedly back due taxes.” Further plaintiff alleged that Stelmach persisted in listing his own address as plaintiff’s address such that Stelmach mailed tax documents for plaintiff to himself, which prevented plaintiff from being aware of the documents until after the time for paying taxes asserted to be owed by plaintiff, which resulted in penalties being imposed on plaintiff by taxing authorities.
Lastly, plaintiff should be given the opportunity to file, if he can truthfully do so, a third amended complaint that conforms to the views expressed in this opinion. In such third amended complaint, however, plaintiff should not refer to Stelmach and REM collectively as Stelmach. We agree with REM’s contention that while it may be permissible to allege that what was done by REM should be construed has having been done by Stelmach individually, the reverse is not necessarily true.
DISPOSITION
The judgment of dismissal is reversed and the cause is remanded for further proceedings consistent with the views expressed herein. Costs on appeal to plaintiff.
We Concur: KLEIN, P. J., KITCHING, J.
LLC’s are subject to the provisions in Corporations Code section 17000 et seq. Unless otherwise indicated, all references herein to statutes are to the Corporations Code.
Second, although defendants asserted in the trial court that because Glendora was dismissed by plaintiff in the prior suit, it cannot be named as a defendant in the instant case, that conclusion does not follow from the mere fact of Glendora’s previous dismissal. As discussed above, plaintiff brings a new claim in this suit—a failure to distribute plaintiff’s claimed share of the interpleaded money that was returned to Glendora in a case where the trial court determined, and Glendora so conceded, that plaintiff has an interest in the various business entities in which Stelmach invested the money that plaintiff gave to Stelmach for investment.
Whether a corporate entity will be disregarded under the doctrine of alter ego “will depend on the circumstances of each particular case. There are, nevertheless, two general requirements: ‘(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.’ ” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.)
In Mesler v. Bragg Management Co., supra, 39 Cal.3d 290, the court cited a dissolution of marriage case when it observed that when a claim of alter ego is addressed, “ ‘[t]he issue is not so much whether, for all purposes, the corporation is the “alter ego” of its stockholders or officers, nor whether the very purpose of the organization of the corporation was to defraud the individual who is now in court complaining, as it is an issue of whether in the particular case presented and for the purposes of such case justice and equity can best be accomplished and fraud and unfairness defeated by a disregard of the distinct entity of the corporate form.’ ” (Id. at pp. 300-301.)
Regarding plaintiff’s allegation that Stelmach is the alter ego of REM, besides alleging that Stelmach is REM’s sole manager and sole officer and in those capacities he dominates and controls REM, and any separation between Stelmach and REM is illusory, plaintiff also alleged that Stelmach took the funds that REM was holding for plaintiff in Glendora and refused to permit REM to distribute those funds to plaintiff; and instead used those funds for his (Stelmach’s) own personal benefit. Additionally, plaintiff alleged it would be unjust and inequitable “to insulate Stelmach from the activities and obligations of [REM] vis-à-vis the plaintiff’s claims [and t]hus [REM] and Stelmach are, and should be treated as one and the same with respect to liability towards the plaintiff.” Such allegations are sufficient.