Opinion
NOT TO BE PUBLISHED
San Francisco County Super. Ct. No. 318820
Kline, P.J.
This appeal follows our remand after reversing a summary judgment in favor of Phoenix American Incorporated and other defendants on W. Corey West’s claims of fraud and successor-in-interest liability. After trial, the court rejected the claim of successor-in-interest liability and found West’s fraudulent transfer claim barred by the doctrine of collateral estoppel. West challenges both determinations. We affirm.
STATEMENT OF THE CASE AND FACTS
Phoenix American Incorporated (PAI) is a privately held corporation owned approximately 75 percent by the Gus and Mary Jane Constantin 1978 Living Trust (Trust), of which Gus Constantin is one of two beneficiaries, and 25 percent by Constantin’s son. Lease Management Associates (LMA) is a privately held corporation solely owned by the Trust. As described by Constantin, at times relevant here LMA was not an operating company but “just an investment company,” with no employees. ResourcePhoenix.com (RPC) was a publicly-traded company in which the Trust owned about 60 percent of the shares and the general public owned the remaining 40 percent. RPC was the holding company for Resource/Phoenix, Inc. (RPI), the operating company and wholly owned subsidiary of RPC. Gus Constantin was the president, chairman of the board of directors and chief executive officer of PAI, LMA, RPC and RPI. West worked for RPI and RPC, initially in sales and marketing and, from April 2000 to November 21, 2000, as president and chief operating officer of RPC and RPI.
The early history of this case is described in detail in our opinion in Phoenix American Inc. v. West (Dec. 20, 2004, A101946) [nonpub. opn.]. Our recitation of facts is drawn from that opinion as well as from the record on the present appeal.
The focus of RPI’s business was offering “back office services,” including payroll, accounting, financial reporting and human resources, over the internet to dotcom and start up companies. RPI’s main offering was its ReFOCOS product. RPI had originally been a division of another Constantin company, Phoenix Leasing, and was established as a separate entity in 1996 with all its stock owned by the Trust. Among the assets RPI acquired from Phoenix Leasing were the MARS (marketing and reporting system) and STAR (syndication tracking reporting) software systems. When RPC was formed and went public in 1999, RPC, rather than the Trust, owned RPI’s stock.
In June 2000, LMA loaned RPI $3 million, secured by virtually all RPI’s assets except the MARS software, with repayment guaranteed by RPC. The terms of the loan required RPI to make monthly payments of $90,000 on the first of the month. Constantin testified that LMA extended this loan because he believed RPI had “good products” and was a good business. The RPC board of directors—West, Roger Smith, Glenn McLaughlin and Jim Barrington—voted to accept the loan. To avoid a conflict of interest, Constantin did not participate in the vote and was not present when it was taken. West voted in favor of the loan, the proceeds of which were used for working capital.
During the summer of 2000, West and RPC entered into a retention agreement providing that West would be paid a year’s salary if his employment was terminated. The agreement expressly stated that RPC would require any successor to all or substantially all of its assets to assume and agree to perform the agreement, and that if RPC failed to obtain such an assumption, the managers would be entitled to severance benefits as if they were terminated on the effective date of the succession. Constantin voted with the RPC board to enter the agreement with West and other senior management.
Around this time, according to Constantin, RPI was continuing to lose about $1.8 million a month. In August 2000, LMA made another loan to RPI, in the form of a line of credit with a maximum amount of $7 million. This second loan was secured by virtually all RPI’s assets, including MARS, and was guaranteed by RPC. Again, the RPC board approved the loan with Constantin not participating in the vote and West voting in favor.
On November 21, 2000, West and about 10 to 15 other employees were laid off. Constantin did not believe West and other senior management were entitled to 12 months’ salary under the retention agreements. West, like the approximately 95 other employees laid off in November, was paid two months’ salary plus accrued vacation and sick time.
On November 28, 2000, RPC board members Constantin, Barrington and McLaughlin met and agreed to wind up the affairs of RPI and RPC. Constantin proposed a plan under which PAI would acquire the assets of RPC and RPI and, in consideration, assume RPI’s debt to LMA. Constantin excused himself and the remaining directors approved the transaction.
Constantin testified that he did not participate in this vote. The minutes from the meeting indicate Constantin absented himself from the vote on the proposed transfer of assets, but not from the decision to wind up the affairs of the companies.
PAI, LMA, RPC and RPI then executed a letter agreement and Asset Purchase Agreement on November 28, 2000, documenting the transaction. Constantin referred to the transaction as a “consensual foreclosure” and testified that he viewed it as an assignment of assets rather than a sale. Constantin explained at trial that RPI’s assets were transferred to PAI because LMA, as an investment company, did not need them and they could be put to use at PAI. The Asset Purchase Agreement specified that PAI would not assume RPI’s liability other than for the LMA debt, including any employee claims. The Asset Purchase Agreement recited that “[t]he parties acknowledge that the fair market value of the Purchased Assets is less than the outstanding indebtedness owing by RPI to LMA.”
Asked at trial whether he specifically excluded West’s claim from the asset transfer, Constantin testified that he excluded “all employee claims,” then when pressed acknowledged that this included the claims of West, MacKenzie and Thornton.
On November 28 or the day after, LMA entered a loan agreement with RPC providing for a $3,000,000 line of credit; according to the testimony of Olsen and Constantin, $1.2 million was actually extended to RPC and was used to pay severance to the employees who had been laid off. The text of the loan agreement specifies that the loan proceeds “shall be used by Borrower for its working capital purposes.” Disbursements were to be “always subject to the sole discretion, judgment and opinion of Lender, and Lender may refuse at any time or times and for any reason to make a particular Advance or Advances requested by Borrower.” The loan was guaranteed by PAI.
Appellant asserts that the trial court ignored the fact that this third loan was from LMA to PAI “for operation of the MARS and STARS businesses and to purportedly wind down the failing RPC/RPI ReFocus operation.” The testimony is clear that the loan was from LMA to RPI, guaranteed by PAI. Constantin initially testified that its purpose was to pay severance. Shown language in the loan document stating that the loan proceeds “shall be used by borrower for its working capital purposes,” Constantin testified that he must have been mistaken and that this must have referred to the transition period when the company was still trying to service existing accounts while also trying to sell RPI, MARS and other assets. Later, Constantin clarified that he gave this last testimony because the reference to “working capital” “threw” him, and the purpose for the loan was to pay severence.
In early 2001, West demanded arbitration with RPC and PAI pursuant to the arbitration provision of the retention agreements, claiming RPC and/or its successor had failed to pay the separation benefits required by the retention agreements. PAI filed a complaint for declaratory relief, seeking a determination that it was not obligated to submit to binding arbitration under the retention agreements because it was neither a signatory to the agreements nor a successor to RPC. West filed a cross-complaint against PAI, RPC, RPI, LMA and Constantin, alleging that each of the cross-defendants was the alter ego of the others, as well as a cause of action for fraudulent transfer, claiming the transfer of RPC and RPI’s assets to PAI was intended to hinder, delay or defraud RPC’s nonsecured creditors. The trial court resolved West’s claims against him by summary adjudication and summary judgment. We reversed the summary judgment on West’s fraudulent-transfer claim, finding West had raised a triable issue of fact as to the equivalence in value of the assets transferred to PAI and the debt assumed in exchange. Meanwhile, West had prevailed in his arbitration against RPC, obtaining an award for a total of $409,666.67. This award has not been paid.
Among the assets transferred to PAI under the Asset Purchase Agreement was a promissory note for $20,000 RPC had lent to West. After West asked for the $20,000 to be offset against the sum he claimed he was due under the retention agreement, PAI sued to collect on the note. Judicial arbitration resulted in an award for PAI and West requested a trial de novo. West subsequently stipulated to have judgment entered against him and made payment to PAI.
This award represented, in addition to West’s claim, the claims of Thornton and Betty MacKenzie, other senior management who had signed the same retention agreement as West and been fired along with him, and had assigned their claims to West.
After our remand, West’s fraudulent-transfer claim was set for jury trial on November 7, 2005. PAI filed numerous motions, including a motion to sever, arguing that West’s alter ego and successor-liability claims were equitable in nature and should be tried before the fraudulent-transfer claim because a finding in PAI’s favor could be dispositive of the fraud claim. PAI urged that the fraudulent-transfer issue would be moot if the trial court decided the successor-liability issue in West’s favor or if it found in PAI’s favor and also found there was adequate consideration for the transfer of RPC’s assets.
After a continuance, on March 21, 2006, PAI filed additional motions, including a motion to strike West’s demand for a jury trial on his fraudulent-transfer claim on the ground that the relief West sought was primarily equitable. On March 23, the court denied both this motion and PAI’s amended motion to sever. The discussion on the motion to sever focused on whether it would be more efficient to try the successor-liability issue first, before putting the fraudulent-transfer issue before a jury, or to present the issues in one trial, with the court deciding the equitable ones. The issues at stake included evidence to be presented on the various issues, accommodation of the court’s vacation schedule and convenience of potential jurors. After lengthy discussion, the court noted it felt like a “Ping-Pong ball . . . going back and forth on what the most efficient way to do this is” and ultimately ordered a single trial of the issues.
On March 24, in an email to the court, PAI’s attorney raised a number of questions about proceeding with a single trial. At the hearing on March 27, after further argument from the parties, the court changed its mind and ordered a court trial on all the issues in the declaratory relief action. Jury trial of the fraudulent-conveyance claim was set for June 5, 2006.
Presentation of evidence for the court trial began on April 3. Constantin testified that as RPI evolved, MARS and STAR played a minimal role in its business plan. In June of 2000, when the first LMA loan was made, RPI was doing “terribly” as a result of the market having “dried up” and throughout the summer, West and Gregory Thornton, RPC’s vice president and chief financial officer, were unsuccessful in finding sources of financing. With respect to the retention agreements, Constantin explained that he felt if the management team was able to save the company, the money would be there to pay the severance, while if the company was not successful, “the money wouldn’t be there and you can’t get blood out of a stone.”
In September or October 2000, Constantin suggested to West the possibility that Constantin help the company by buying some of its assets. Constantin testified that he dropped this idea because West thought it would be inappropriate and might be viewed as self-dealing.
By November 2000, RPI’s financial condition of the company was “dire.” NASDAQ had indicated the company was going to be delisted and its share price had fallen from $8 per share to below $1 per share.
Constantin testified that he thought of the concept of consensual foreclosure as an alternative to bankruptcy, which he believed would be bad for the company, the employees, and the customers. When he first thought of this plan, he had no idea RPI was in default on the LMA loan; he conceived of the idea, then discovered RPI was in fact behind in its payments. According to Constantin, on November 28, 2000, RPI had $800,000 in the bank and, so, could have made its November 1st loan payment. At this time, RPC and RPI owed about $5 million to other unsecured creditors, who did not receive anything.
Greg Thornton and Dave Brunton, who had been financial officers at RPC and RPI, testified that the monthly payments on the first LMA loan would have been regularly scheduled payments, probably handled electronically. Thornton, who was the chief financial officer at the relevant time, testified that “some intervention in the normal process” would have to have happened for the November payment on the LMA loan not to have been made. Prior to his termination on November 21, 2000, Thornton did not know of any nonpayment or default on the LMA loan. Thornton testified he would have been “very sensitive” to a default because that would have been a “highly disclosable event.”
Although the Asset Purchase Agreement recited that the value of the assets was less than the debt to LMA, the assets had not been appraised: Independent directors McLaughlin and Barrington testified that it would not have been prudent to have the assets appraised because the company was failing, West had been unable to find buyers for the assets, the proprietary software had limited resale value, and an appraisal would have delayed the process of winding down the company. In order to ensure fairness in the transaction, at the insistence of the independent directors, the purchase agreement also provided that if the transferred assets were sold within a two-year period for an amount exceeding the amount then owed to LMA, excess sale proceeds would be remitted to RPI.
Barrington testified that he was not aware of any expressions of interest in acquiring some of the company’s assets, and testified that an expression of interest “doesn’t mean anything” and there were no “viable offers to buy” the assets. He was not aware that a company called PFPC had expressed interest in acquiring the MARS division and estimated its value at between $3,000,000 and $5,000,000. McLaughlin was also not aware of an expression of interest from PFPC. He testified that if this was the case, it was management’s responsibility to inform the independent directors, because this might have provided another alternative.
The “Form 8-K” that RPC filed with the Securities and Exchange Commission on November 30, 2000, reported that RPC had announced it “agreed to sell substantially all of its assets to Phoenix American Incorporated (PAI), an RPC affiliate, as part of an orderly winding down of the company’s operations.” The Form 8-K further stated that PAI would assume RPC’s obligations to its secured creditors and no recovery to general unsecured creditors or shareholders was anticipated. Constantin testified that the transaction was reported as a sale of assets rather than a default and foreclosure because this was the way the attorneys drafted the document. The loan default was not reported in the Securities and Exchange Commission Form 10-Q either: Constantin felt the defaults were “immaterial” because the Form 10-Q indicated the company would likely go out of business and its stock had already been delisted from NASDAQ.
After the asset transfer, according to Constantin, PAI did not engage in the same type of business as RPI had. PAI was focused on a different market, the “narrow” niche of syndicators, and was not looking to deliver products over the internet. Two wholly owned subsidiaries of PAI, were formed: Phoenix American Financial Services, Inc. (Phoenix Financial) was formed to “house” the STAR system, and Phoenix American Sales Focus Solutions, Inc. (Phoenix Sales) was formed for the MARS system. The subsidiaries did not make money from the software but rather lost $2.8 million between November 2000 and November 2001, and about $3.35 million over the next year. Constantin acknowledged that a number of companies that had been clients of RPI/RPC remained clients of Phoenix Financial or Phoenix Sales, their contracts having been assigned after November 28, 2000.
Neal Divver, had worked for the Phoenix companies since 1988, had been chief operating officer of RPI and RPC from late November 2000 until March 2001, and then became the chief operating officer of Phoenix Financial, which took over the STAR system, and, for one year, the chief financial officer of Phoenix Sales, which took over MARS. Divver testified that Phoenix Financial did not make any money in 2001 or 2002, and Phoenix Sales did not make any money in 2001. David Brunton, who had been chief financial officer and head of operations at RPI and RPC, however, testified that in 2001, about a year after he had left the company, he spoke with Divver and learned that “under the current organization . . . STAR was profitable. . . .”
West testified that he understood his retention agreement to mean that in the event RPC’s business or assets were sold or transferred, the successor company would be obligated to pay his severance benefits. When he discussed the agreement with Constantin, West was aware of Constantin’s position as controlling shareholder of RPC and his interest in LMA. He never asked Constantin to personally guarantee the retention agreement.
West testified that when he voted in favor of the LMA loan, he understood that in the event of a default LMA would look to RPC’s assets to secure repayment. West agreed that the financial situation of RPC was “challenging” in the month or two before his termination. He testified that he and Greg Thornton discussed several options with Constantin, including bankruptcy, “going private” and cutting costs in various ways. When Constantin suggested transferring RPC’s assets to one of his companies in exchange for forgiveness of the LMA debt, West said he did not think it was a good idea to have a public company transfer its assets to a private company in exchange for debt forgiveness, but said he would talk to legal counsel about it. After doing so, West told Constantin he thought the proposed transaction would amount to insider dealing and Constantin said he had talked to an attorney and gotten the same opinion. West testified that he did not believe the loan from LMA to RPI or granting LMA the security interest in RPC’s assets constituted self-dealing. He believed the LMA loan in August 2000 was fair because “it was an arm’s length negotiation . . . that we presented to the board to evaluate.” In August, according to West, the value of the assets was “quite a bit higher than the debt.”
After his conversation with Constantin, in early November, West learned that Neil Divver had been calling people on West’s team, saying Constantin had directed him to “collect information and put a plan together.” West called Constantin to ask what was happening and Constantin did not return his calls.
From November 1 through his termination, including when he signed the November 14 Form 10-Q, West had no information that the LMA loans were in default. At the time of his termination, West understood there to be between one and two million dollars in RPC’s bank account. According to West, in October and November, the company’s net burn rate—the amount it was spending over its revenues—was slightly over one million dollars. West acknowledged on cross-examination that in a January 2002 deposition he stated that it was “possible” the amount owed to LMA was “more than the value of the collateral that secured repayment of that amount.” He also acknowledged having stated in his deposition that he understood employees did not have a superior right to assets over a secured creditor. West agreed that on the day he was laid off, he did not believe there had been a change in control of the company.
Daniel Monberg, managing partner of asset management firm GGP Global, with 20 years experience appraising “high tech” assets, testified for PAI as an expert on the value of the collateral transferred in the case. Monberg testified that in the last quarter of 2000, “the dot-com burst and the subsequent failure of hundreds and hundreds of companies flooded the marketplace with high tech assets,” to the extent that “ ‘new in the box’ thousand dollar computers were selling for $200.” Because of the “volatile conditions” in 2000, Monberg’s appraisal was based on the market value of the assets. He did not value “soft costs” such as maintenance agreements for hardware, freight, sales tax, and software, items which the American Society of Appraisers described as “non-recoverable costs that should not be included in the value.” Monberg explained that software manufacturers imposed very restrictive licensing that generally precluded reselling the software, so it would not be valued in the secondary market. Monberg concluded the fair market value of the transferred assets was $907,180. The “orderly liquidation value” (liquidation over a reasonable time period, usually six months) of the equipment was $597,325, and the “forced liquidation value” (a forced sale within 45 days) was $433,070.
Brian Napper, a senior managing director at F.T.I. Consulting, Inc., whose career had focused on valuation of intellectual property, testified for PAI as an expert on valuation of intangible assets. Napper concluded that, as of November 28, 2000, the fair market value of the MARS software had a range of $0 to $230,000, and the fair market value of the STAR software was $549,000. Napper considered several approaches to valuing these assets and concluded the most appropriate was the income approach, which looks at historical and future forecasts for revenue and costs, discounted to present value. Napper noted that he learned from questioning PAI personnel that the MARS product currently being offered was the result of “a significant amount of investment and research and development” as compared to what it was in 2000. In reviewing the historical performance of the systems, Napper reviewed RPI’s Securities and Exchange Commission filings, which showed a “smaller loss” in 1997, growing to a loss of a little over $20 million in the third quarter of 2000. For the quarter ending September 30, 2000, STAR resulted in about a $3 million operating loss. Neither STAR nor MARS made any money from December 1998 through the end of September 2000, except for the quarter ending June 1999, when MARS revenue exceeded operating expenses. The Securities and Exchange Commission filings demonstrated that the company did not consider MARS a core offering and was not continuing to invest in it. RPI never made any money. STAR was a DOS-based system, not Windows based, and used a comparatively uncommon programming language; it was not as user-friendly as other software available in 2000 and it did not allow use of a mouse. Napper was aware that a company, PFPC Worldwide, had expressed interest in purchasing the MARS system but did not consider this as a good indicator of value because the transaction was not consummated, the company would have acquired assets in addition to the software rights, and the broker had contacted some 40 companies but found only one with any interest in MARS.
West’s expert on valuations, Marc Margulis, did not do a formal appraisal but reviewed Monberg’s and Napper’s work, performed a number of analyses, and concluded that the value of the RPI/RPC assets exceeded the amount of the forgiven LMA debt. Margulis criticized various aspects of Monberg’s and Napper’s analyses. Margulis viewed RPC and RPI as “late development stage or early grow stage companies,” a stage in the life cycle of companies in which costs are “excessive” relative to revenue; eventually, if a company succeeds, the revenue increases to make the company profitable.
The court trial concluded on April 17, and the court announced its tentative decision finding no successor liability.
The trial court had denied West’s motion for judgment pursuant to Code of Civil Procedure section 631.8 at the conclusion of PAI’s case.
The parties subsequently filed competing proposed statements of decision. PAI’s included a section stating the trial court’s determination that PAI was not the successor to RPC rendered West’s claim of fraudulent transfer moot, and the court’s factual findings were binding on the parties, obviating the need for a trial on West’s claim. West’s opposition maintained that this argument was an improper and untimely motion to reconsider the court’s prior ruling that West was entitled to a jury trial. At the May 25 hearing on the proposed statements of decision, after further argument on this issue, the court stated it was not ready to decide whether to proceed with the jury trial, was not going to continue the trial date, and would entertain additional input the parties chose to submit.
PAI filed an additional brief on the preclusive effect of the court’s findings the next day, and West then filed a reply brief. The court, by email, advised the parties the trial would not proceed on June 5, requested briefing on additional issues, and set a hearing for June 5. After the hearing, the court requested further briefing, which the parties submitted.
On July 12, the court filed its statement of decision, finding that there was no successor liability and that collateral estoppel applied, thereby obviating the need for trial on the fraudulent-transfer claim. The court held that inadequate consideration was a prerequisite to both the merger and continuation exceptions to the rule of no successor liability, that the consideration did not necessarily have to be cash, and that RPC received adequate consideration because the value of the assets transferred did not exceed the amount of the loan being forgiven. With respect to fraud, the court found that the transfer of assets was driven by “economic and market realities”: RPC was in dire financial straits and was unsuccessful in seeking sources of funding, and the RPI assets were transferred to wind down the company’s operations, avoid the cost of a bankruptcy proceeding, and allow PAI to continue the MARS and STAR business and enable LMA to recover its funds. The court noted it was common for a secured creditor to take control of collateral if the debtor could realize more value this way than through a foreclosure, and for a debtor to cooperate if the value of the collateral is less than the debt. Thus, despite its effect of leaving unsecured creditors unpaid, the court found the purpose of the transaction was not to avoid such payment.
In finding West’s cross-complaint for fraudulent transfer barred by collateral estoppel, the court explained that in the context of determining PAI was not the successor in interest to RPC, it had reached and resolved the question whether there was a fraudulent transfer of assets, concluding that the debt exceeded the value of the assets transferred, the transfer was not undertaken in order to defraud creditors or preclude West from recovering his claim against RPC, and the transfer was the exercise of a secured creditor’s rights, which could not be considered fraudulent. The court found this issue was identical to that raised in West’s fraud claim, the declaratory judgment was a final and binding judgment, West was a party to the declaratory relief action, and Constantin and LMA were in privity with PAI and had a proprietary interest in the court finding PAI was not the successor in interest to RPC. It further found West was represented by counsel and was not deprived of a full and fair opportunity to litigate the issues in the declaratory relief action. Finally, the court held application of collateral estoppel would decrease repetitive litigation; prevent the possibility of an inconsistent judgment; and promote public policy by affording PAI repose from vexatious litigation. Additionally, the court found the alter ego issues raised in West’s cross-complaint were moot.
Judgment was entered in favor of PAI on July 12, 2006. The trial court found that PAI was not the successor in interest to RPC, was not a party to the retention agreements and was not obligated to submit to binding arbitration under those agreements, and that West would recover nothing on his complaint.
West filed a timely notice of appeal on September 8, 2006.
DISCUSSION
I.
West has chosen not to challenge the trial court’s factual findings but only its legal determinations. Accordingly, our review is de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799 [where decisive facts undisputed, question of law subject to independent review]; Roos v. Red (2005) 130 Cal.App.4th 870, 878 [application of collateral estoppel reviewed de novo].) To the extent review of disputed factual issues comes into play, of course, we apply the substantial evidence test, affirming if there is “ ‘ “substantial evidence, contradicted or uncontradicted, which will support the determination.” ’ ” (Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1489.)
II.
West challenges the trial court’s determination that PAI was not liable to him as successor to RPC. As a general rule, a corporation purchasing the principal assets of another corporation does not assume the seller’s liabilities “unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller’s debts. (See Ortiz v. South Bend Lathe (1975) 46 Cal.App.3d 842, 846; Schwartz v. McGraw-Edison Co. (1971) 14 Cal.App.3d 767, 780-781; Pierce v. Riverside Mtg. Securities Co. (1938) 25 Cal.App.2d 248, 255; Golden State Bottling Co. v. NLRB (1973) 414 U.S. 168, 182, fn. 5; Kloberdanz v. Joy Manufacturing Company (D.Colo. 1968) 288 F.Supp. 817, 820 (applying California law); 15 Fletcher, Cyclopedia Corporations, § 7122.)” (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28.)
The trial court found West failed to establish successor liability under any of these four alternative tests. On this appeal, West challenges only the court’s finding under the third test that PAI was not a “mere continuation” of RPC. “California decisions holding that a corporation acquiring the assets of another corporation is the latter’s mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation’s assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations. (See Stanford Hotel Co. v. M. Schwind Co. (1919) 180 Cal. 348, 354; Higgins v. Cal. Petroleum etc. Co. (1898) 122 Cal. 373; Economy Refining & Service Co. v. Royal Nat. Bank of New York (1971) 20 Cal.App.3d 434; Blank v. Olcovich Shoe Corp. (1937) 20 Cal.App.2d 456; cf. Malone v. Red Top Cab Co. [(1936)] 16 Cal.App.2d 268.)” (Ray v. Alad Corp., supra, 19 Cal.3d at p. 29.)
In Franklin v. USX Corp. (2001) 87 Cal.App.4th 615, 625 (Franklin), the court viewed the “mere continuation” theory of successor liability as “merely a subset” of the “consolidation or merger” theory, stating: “The crucial factor in determining whether a corporate acquisition constitutes either a de facto merger or a mere continuation is the same: whether adequate cash consideration was paid for the predecessor corporation’s assets.” As described in Ray v. Alad Corp., supra, 19 Cal.3d at pages 28-29, the “consolidation or merger” theory “has been invoked where one corporation takes all of another’s assets without providing any consideration that could be made available to meet claims of the other’s creditors (Malone v. Red Top Cab Co. (1936) 16 Cal.App.2d 268, 272-274) or where the consideration consists wholly of shares of the purchaser’s stock which are promptly distributed to the seller’s shareholders in conjunction with the seller’s liquidation (Shannon v. Samuel Langston Company (W.D.Mich. 1974) 379 F.Supp. 797, 801.)”
West argues that the trial court ignored the requirement stated in Franklin that to avoid successor liability under the “mere continuation” theory, the acquiring corporation must make sufficient consideration available to the former corporation’s creditors to provide them a viable remedy. He points out that Franklin repeatedly referred to “cash” consideration in finding no successor liability: “No California case we have found has imposed successor liability for personal injuries on a corporation that paid adequate cash consideration for the predecessor’s assets. . . . We . . . perceive a very sound reason for the rule of nonliability in adequate cash sales: predictability. . . . [A] sale for adequate cash consideration ensures that at the time of sale there are adequate means to satisfy any claims made against the predecessor corporation.” (Franklin, supra, 87 Cal.App.4th at p. 625.)
Despite his focus on the word “cash,” West agrees that the critical issue is not cash per se but consideration made available to creditors. Franklin itself involved a cash sale: The assets of the corporation alleged to be responsible for personal injuries sustained by the plaintiff sold its assets to Consolidated Steel Corporation of California (Con Cal) for over $6.2 million in cash; this corporation contracted to sell certain assets to Columbia Steel Company, a division of U.S. Steel, which later assigned its purchase rights to a newly formed subsidiary of U.S. Steel, Consolidated Western Corporation of Delaware (Con Del). Con Cal sold the assets to Con Del for over $17 million in consideration, almost $8.3 million of which was cash. Con Del later merged into U.S. Steel, which changed its name to USX Corporation, the defendant named in the suit; Con Cal changed its name, then dissolved several years after the sale of assets. (Franklin, supra, 87 Cal.App.4th at pp. 619-620.) Despite the fact that the president and chairman of the board of Con Cal at the time of the sale continued as president of Con Del and Columbia and chairman of Columbia’s board, Franklin found USX was not liable as successor to the original corporation because there was no claim the $17 million was inadequate consideration for the business assets transferred or “that there were insufficient assets available at the time of the predecessor’s dissolution to meet the claims of its creditors.” (Id. at p. 627, italics omitted.)
As the trial court recognized, the fact that Franklin (and other cases) referred to “cash” does not mean cash is invariably required to avoid successor liability. Franklin, supra, 87 Cal.App.4th at page 626, focused on the “type and adequacy” of the consideration: “As our Supreme Court noted in Ray v. Alad, the de facto merger exception to the general rule of nonliability ‘has been invoked where one corporation takes all of another’s assets without providing any consideration that could be made available to meet claims of the other’s creditors . . . .’ (Ray v. Alad [Corp.], supra, 19 Cal.3d at p. 28, italics added [in Franklin].) And, in Maloney v. American Pharmaceutical Co. (1988) 207 Cal.App.3d 282 (Maloney), the court held, in the context of the ‘mere continuation’ exception to the rule of successor nonliability, that ‘ “[b]efore one corporation can be said to be a mere continuation or reincarnation of another, it is required that there be insufficient consideration running from the new company to the old.” ’ (Id. at p. 287, quoting Ortiz v. South Bend Lathe, supra, 46 Cal.App.3d at p. 847.)”
In the present case, the consideration for RPC’s transfer of assets to PAI was forgiveness of LMA’s loan to RPC. As of November 28, 2000, the loan amount was approximately $6,875,000. After hearing testimony from two experts presented by PAI and one expert presented by West, the trial court concluded the fair market value of RPC’s assets at that time was approximately $1,686,000. Since the value of the assets was less than the consideration received by RPC, the court concluded successor liability had not been established. The trial court made an alternative finding that if cash consideration was required, the third LMA loan, which neither Constantin nor LMA expected to be repaid, constituted a transfer of cash to RPC.
West, on this appeal, expressly refrains from challenging the trial court’s factual findings as to the value of the RPC assets, although he clearly disagrees with them. Rather, he challenges the legal conclusion that adequate consideration was given for the RPC assets, arguing that no consideration was given because forgiveness of RPC’s debt did not provide assets from which West and other creditors could satisfy their claims. In his reply brief, West argues that the third LMA loan did not provide adequate consideration because “loans made and controlled by LMA on behalf of PAI do not constitute ‘adequate consideration made available for the benefit of creditors’ ” as required by McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746 (McClellan) and Franklin, supra, 87 Cal.App.4th 615. West’s fundamental argument is that neither forgiveness of the original loans nor payment of the third loan made cash or other consideration available to West or other RPC creditors.
As the trial court noted, none of the cases discussing adequacy of consideration involve a secured creditor extinguishing a debt as consideration for the transfer of the secured assets or hold that such loan forgiveness cannot satisfy the requirement of adequate consideration. Franklin, as just discussed, involved a transfer of assets for cash and found no successor liability. In McClellan, a contractor obtained an arbitration award against a homeowner’s association that had failed to pay him for work he performed under contract. The board of the homeowners’ association caused the filing of articles of incorporation for a new corporation, which became the homeowners’ association for the condominium complex. McClellan found the new corporation to be a “mere continuation and hence liable for the acts of its predecessor,” following the principle that “ ‘[c]orporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old. Especially is this well settled when actual fraud or the rights of creditors are involved, under which circumstances the courts uniformly hold the new corporation liable for the debts of the former corporation. [Citations.]’ ” (McClellan, supra, 89 Cal.App.4th at p. 754, quoting Blank v. Olcovich Shoe Corp., supra, 20 Cal.App.2d at p. 461, italics added by Blank court.)
Several of the other cases discussed by the parties involved transfers of assets for cash consideration. (E.g., Ray v. Alad Corp., supra, 19 Cal.3d 22, 28-30 [no successor liability under merger or continuation theories because adequate cash consideration; Maloney, supra, 207 Cal.App.3d at pp. 285-286 [transfer of 10 percent of corporate assets, plus name, goodwill and trademarks to new corporation for cash; no claim of inadequate consideration; no successor liability]; Ortiz v. South Bend Lathe, supra, 46 Cal.App.3d 842, 846 [adequate cash consideration; no successor liability]; Katzir’s Floors and Home Design v. M-MLS.COM (9th Cir 2004) 394 F.3d 1143, 1147 [assets sold by receiver to separate corporation for cash exceeding appraised value; no successor liability].)
Ray v. Alad Corp. did hold the successor corporation liable for strict liability claims raised by a customer of the original corporation, holding that “a party which acquires a manufacturing business and continues the output of its line of products under the circumstances here presented assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired.” (Ray v. Alad Corp., supra, 19 Cal.3d at p. 34.)
Others were products liability cases decided under a test developed by the court in Ray v. Alad Corp. uniquely for successor liability in strict products liability cases, based on the “purpose of the rule of strict liability ‘ . . . to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves.’ ” (Ray v. Alad Corp., supra, 19 Cal.3d at p. 30, quoting Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 63.) Under this “ ‘product line successor’ rule” (Fisher v. Allis-Chalmers Corp. Product Liability Trust (2002)95 Cal.App.4th 1182, 1188), “[j]ustification for imposing strict liability upon a successor to a manufacturer . . . rests upon (1) the virtual destruction of the plaintiff’s remedies against the original manufacturer caused by the successor’s acquisition of the business, (2) the successor’s ability to assume the original manufacturer’s risk-spreading role, and (3) the fairness of requiring the successor to assume a responsibility for defective products that was a burden necessarily attached to the original manufacturer’s good will being enjoyed by the successor in the continued operation of the business.” (Ray v. Alad Corp., supra, 19 Cal.3d at p. 31.) As these justifications do not apply to West’s contractual claim, the relevance of these product liability cases to the present case is primarily as further illustration that inadequate consideration is a factor in finding successor liability. (E.g., Chaknova v. Wilbur-Ellis Co. (1999) 69 Cal.App.4th 962, 971 [assets purchased for cash; original corporation continued to exist for 15 months, then dissolved by sole shareholder with no connection to purchasing corporation; no successor liability]; Rosales v. Thermex-Thermatron, Inc. (1998) 67 Cal.App.4th 187, 192-193 [purchase price for assets of original corporation paid to creditor of that corporation, which itself had neither assets nor bank account; same business continued, successor liability found].
Fisher v. Allis-Chalmers Corp Product Liability Trust., supra, 95 Cal.App.4th 1186, another products liability case, found evidence of an express assumption of liability by the successor corporation.
The only case of which we are aware involving a loan situation at all similar to that in the present case is Kaminski v. Western MacArthur Co. (1985) 175 Cal.App.3d 445 (Kaminski). Kaminski was a products liability action against Western MacArthur, which was held to be the corporate successor to Western Asbestos Company (Western), the supplier of the asbestos responsible for the plaintiff’s injuries. In need of operating capital, Western’s shareholder/directors offered to sell the company to the MacArthur Company (MacArthur). MacArthur agreed to assume control of Western under a memorandum of agreement for a fee of 50 percent of Western’s net profits. MacArthur also agreed to loan Western $300,000 as operating capital, with loans to Western from its original directors subordinated to this loan. MacArthur received an option to purchase Western’s ownership stock, which was placed in escrow, for $300,000. When it was determined Western could not continue operations, MacArthur was relieved of its management contract in exchange for waiver of its rights to subordinate the loans of Western’s directors, and MacArthur formed a new corporation, Western MacArthur Company, to distribute asbestos. MacArthur was given the right to purchase at least $200,000 of products in Western’s inventory and at least $100,000 other noncash assets, and took over Western’s outstanding contracts. The new company, Western MacArthur, continued the same business as Western’s with most of the same employees. (Kaminski, at pp. 451-453.)
Kaminski found successor liability under Ray v. Alad Corp.’s product line successor test. The loan from MacArthur to Western was relevant to the court’s analysis of the first prong of this test, the “ ‘virtual destruction of the plaintiff’s remedies against the original manufacturer caused by the successor’s acquisition of the business.’ ” (Kaminski, supra, 175 Cal.App.3d at p. 454, quoting Ray v. Alad Corp., supra, 19 Cal.3d at p. 31.) Kaminski held that MacArthur caused Western’s dissolution, thereby destroying the plaintiffs’ remedies against Western, because MacArthur had financial and managerial control over Western. Since Western was indebted to MacArthur in the exact amount of Western’s escrowed stock, and MacArthur had the right to subordinate other loans, it could have forced Western into bankruptcy; MacArthur dictated Western’s decision making, including the decision to dissolve; and MacArthur was able to use its position to assume Western’s assets and continue its business.
PAI makes no mention of Kaminski in its briefs. As West asserts, the transaction by which MacArthur assumed Western’s assets and business could be viewed as a “consensual foreclosure” similar to the one with which we are faced. The policy considerations at issue in Kaminski, however, are very different than those involved here. Kaminski, as a products liability case, applied a test aimed at ensuring compensation for an injured third party. The present case, by contrast, involves no injury to a member of the public but only the contractual obligations between the parties.
West’s argument that forgiveness of the LMA loan could not constitute adequate consideration for the transfer of assets falters, as the trial court found, on the fact that LMA was a secured creditor. As the trial court noted, West voted in favor of obtaining the loans from LMA that resulted in LMA having a lien on RPI’s assets. West acknowledged that he understood the loans and lien gave LMA a right to look to RPC’s assets to secure repayment, and that he did not view the loans or lien as self-dealing. The trial court, citing Lyons v. Security Pacific Nat. Bank (1995) 40 Cal.App.4th 1001 (Lyons), held that “the exercise by a secured creditor of its legal rights cannot be considered to be fraudulent.”
In Lyons, Lyons fully paid a judgment obtained by the bank on a promissory note for which he and two business partners, the Yuroseks, were jointly and individually liable, then obtained a judgment for contribution from the Yuroseks. Meanwhile, the Yuroseks had negotiated a plan with the bank for payment on a series of loans upon which they had defaulted, as part of which the bank was given a security interest in various of the Yuroseks’ assets. When Lyons executed on the contribution judgment, seizing certain of the Yuroseks’ property, the bank obtained a judgment determining that its liens were superior to Lyons’s. The Yuroseks sold their business, settled with the bank and satisfied Lyons’s lien. Lyons then sued the Yuroseks and the bank, alleging a conspiracy to commit a fraudulent conveyance pursuant to which the bank sought to collect on the joint debt from Lyons alone and cooperated with the Yuroseks to hinder, delay and prevent Lyons from obtaining and collecting on a judgment of contribution.
Lyons found Lyons’s argument that the bank had acted illegally had been raised and rejected in the arbitration resulting in the bank’s judgment on the promissory note, and the doctrine of res judicata precluded Lyons from relitigating either this issue or the subsequent judicial determination that the bank’s liens were superior to Lyons’s. (Lyons, supra, 40 Cal.App.4th at pp. 1015-1017.) The court then applied the established rule that “an insolvent or failing debtor can prefer one creditor over another. (Wyzard v. Goller [(1994)] 23 Cal.App.4th [1183] 1188, 1190 [(Wyzard)].) Civil Code section 3432, enacted in 1872, provides, ‘A debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another.’ This is because ‘ “. . . it is difficult to perceive how the payment of a debt which [is] justly owed, and which was past due, can be tortured into an act to hinder, delay, and defraud creditors[.]” [Citation.]’ (Wyzard, supra, at p. 1188.) Therefore, a preferential transfer, made for proper consideration, although made with the recognition that the transfer will prevent another creditor from collecting on his debt, ‘is not for that reason a transfer made to “hinder, delay or defraud” ’ that creditor. (Id. at p. 1191.)” (Lyons, at pp. 1019-1020.)
West argues that Lyons has no applicability to this case because the lien that was enforced in Lyons had been judicially determined to be valid before it was exercised, stressing that the Lyons court recognized its conclusion applied only in the absence of fraud. We are not persuaded: While there had not been a previous determination of the validity of the lien, the trial court in the present case found it was valid. The court concluded that the “transactions evidenced by the Letter Agreement and Asset Purchase Agreement were a function of the economic reality of the dotcom collapse in 2000 and the lack of sufficient funding to make the planned business of RPC a reality.” In other words, the court found the transaction was not undertaken with the intent to defraud West, that is, with the “purpose of escaping liability” for RPC’s debt to West. (Ray v. Alad Corp., supra, 19 Cal.3d at p. 28.)
West expressly states that he is not, for purposes of this appeal, challenging the trial court’s conclusion that successor liability was not established under the fraud prong of the test or the trial court’s factual findings underlying this conclusion. He takes this position because he believes fraudulent intent is a jury issue and did not need to be established in the successor liability case. We will consider below the propriety of the trial court’s decision to give collateral estoppel effect to its determinations on the fraud issue. For present purposes, the effect of West’s decision not to challenge the trial court’s factual findings is that we accept its conclusions that the transfer of assets was made for adequate consideration and without fraudulent intent.
As stated above, the trial court also found that the third LMA loan constituted a transfer of cash consideration to RPC. West challenges this finding on the basis that the loan was controlled by Constantin, PAI failed to offer documentary evidence to support the trial testimony that proceeds of this loan were used to pay employee severance, no explanation was offered as to why LMA would loan RPC money for severance payments when the asset purchase agreement excluded liability for RPC employee claims, and West was prevented from impeaching the testimony on this point by the trial court’s deferral of ruling on West’s subpoenas. The trial court was well aware of Constantin’s role, as reflected in pretrial comments about the facts giving the appearance that all was not right with the transaction. (See infra, fn. 17, p. 34.) Nonetheless, the court concluded there was a sound business reason for the asset transfer. Having chosen not to challenge the trial court’s factual findings, West cannot prevail on this point.
West states that his subpoenas sought “general ledgers of PAI and its subsidiaries post asset transfer.”
III.
West argues the trial court denied his due process rights by applying collateral estoppel to deny him a jury trial on his fraudulent transfer claim. He contends the fraud issue the court resolved in the context of determining the successor liability issue is not identical to that posed by the fraudulent transfer claim, he did not have a full and fair opportunity to litigate the fraud issue, and application of collateral estoppel is not fair in the circumstances of this case.
The doctrine of res judicata has two aspects. “In its narrowest form, res judicata ‘ “precludes parties or their privies from relitigating a cause of action [finally resolved in a prior proceeding].” ’ (Teitelbaum Furs, Inc. v. Dominion (1962) 58 Cal.2d 601, 604, quoting Bernhard v. Bank of America (1942) 19 Cal.2d 807, 810.) But res judicata also includes a broader principle, commonly termed collateral estoppel, under which an issue ‘ “necessarily decided in [prior] litigation [may be] conclusively determined as [against] the parties [thereto] or their privies . . . in a subsequent lawsuit on a different cause of action.” ’ (Teitelbaum Furs, supra, 58 Cal.2d at p. 604, italics added.) [¶] Thus, res judicata does not merely bar relitigation of identical claims or causes of action. Instead, in its collateral estoppel aspect, the doctrine may also preclude a party to prior litigation from redisputing issues therein decided against him, even when those issues bear on different claims raised in a later case. Moreover, because the estoppel need not be mutual, it is not necessary that the earlier and later proceedings involve the identical parties or their privies. Only the party against whom the doctrine is invoked must be bound by the prior proceeding. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341; Teitelbaum Furs, supra, 58 Cal.2d 601, 604; Bernhard, supra, 19 Cal.2d 807, 810-813.)” (Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 828.)
The requirements for application of collateral estoppel are as follows: “First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. ([People v.] Sims [(1982)] 32 Cal.3d 468, 484; People v. Taylor (1974) 12 Cal.3d 686, 691.) The party asserting collateral estoppel bears the burden of establishing these requirements. (See, e.g., Vella v. Hudgins (1977) 20 Cal.3d 251, 257.)” (Lucido v. Superior Court, supra, 51 Cal.3d at p. 341.)
The trial court found that the issue raised by West’s fraudulent conveyance claim was identical to the issue it resolved in rejecting successor liability under the fraud exception: The court found there was no fraudulent transfer of assets because the debt forgiven exceeded the value of the transferred assets, the transfer was not undertaken for the purpose of defrauding creditors or precluding West from recovering on his claim against RPC, and the transfer was a valid exercise of a secured creditor’s rights.
As described above, the question the court resolved in the context of the successor liability issue was whether “the transfer of assets to the purchaser [was] for the fraudulent purpose of escaping liability for the seller’s debts.” (Ray v. Alad Corp., supra, 19 Cal.3d at p. 28.) West’s cross-complaint for fraudulent conveyance alleged that the Asset Purchase Agreement was entered with intent to “hinder, delay, or defraud the collection” of West’s claims under the retention agreement. Civil Code section 3439.04, subdivision (a), provides that a “transfer made or obligation incurred by a debtor is fraudulent as to a creditor . . . if the debtor made the transfer or incurred the obligation” either “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor” or, under specified circumstances, “[w]ithout receiving a reasonably equivalent value in exchange for the transfer or obligation.”
West contends the trial court’s determination that the transaction was not entered with intent to “defraud” him does not resolve the question whether it was entered with intent to “hinder or delay” his claim against RPC. As PAI points out, in his seventh affirmative defense to PAI’s complaint for declaratory relief establishing it was not the successor to RPC, West alleged that PAI knowingly participated in the “fraudulent transfer of assets” from RPC and was aware that RPC intended this transfer to “hinder, delay or defraud” its nonsecured creditors, including West. Thus, the trial court necessarily resolved against West the claim that RPC and PAI intended to “hinder, delay or defraud” West. West offers no support for his contention that the definition of fraud in these two contexts differs. To the contrary, in discussing successor liability, the court in Strahm v. Fraser (1916) 32 Cal.App. 447, 448, noted: “It is well settled that the identity of a corporation is not destroyed, nor are its legal obligations obliterated, by the mere fact of reincorporation under the same or a different name, and a transfer of the corporate assets from the old to the new corporation will, when warranted by the pleadings and proof, be considered as having been done to hinder, delay and defraud creditors of the old corporation.”
As PAI points out, many cases hold that when a case includes both equitable and legal issues, the former properly may be tried first as they may obviate the need for trial of the legal issues. (Nwosu v. Uba (2004) 122 Cal.App.4th 1229; Golden West Baseball Co. v. City of Anaheim (1994) 25 Cal.App.4th 11, 50; Strauss v. Summerhays (1984) 157 Cal.App.3d 806, 813; Veale v. Piercy (1962) 206 Cal.App.2d 557, 562-563; Dills v. Delira Corp. (1956) 145 Cal.App.2d 124, 128-129.) As noted in Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 487, a case involving bifurcated trial of legal issues, “[i]ssues adjudicated in earlier phases of a bifurcated trial are binding in later phases of that trial and need not be relitigated. (See Golden West Baseball Co. v. City of Anaheim, supra, 25 Cal.App.4th 11, 50 [bench resolution of bifurcated equitable issues eliminated need for a second phase jury trial on legal issues]; Estate of Kennedy (1982) 135 Cal.App.3d 676, 682-683] [bench resolution of bifurcated legal issues eliminated need for second phase jury trial on factual issues].) No other rule is possible, or bifurcation of trial issues would create duplication, thus subverting the procedure’s goal of efficiency. (Code Civ. Proc., § 598.)”
West argues these cases are distinguishable because they involved plaintiffs raising both equitable and legal issues, whereas here, PAI raised equitable claims but West raised only legal ones. West’s view appears to be that binding effect can be given to findings on equitable issues in an early phase of trial only where the subsequent legal issues are raised by the same party. West offers no support for this distinction, nor any case in which equitable claims were tried before legal ones and factual findings from the first phase of trial were not given binding effect.
West urges that collateral estoppel could not bar his cause of action for fraudulent conveyance under the exception to res judicata principles contained in Code of Civil Procedure section 1062. That statute provides that “no judgment under [the declaratory relief] chapter shall preclude any party from obtaining additional relief based upon the same facts.” Under this provision, a judgment awarding solely declaratory relief will not bar a subsequent action seeking different relief on the same facts. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 898-899 (Mycogen).) By contrast, where a plaintiff seeks both declaratory and coercive relief in one action, the judgment is subject to the usual rules of res judicata. (Id. at p. 900.)
West draws on the Mycogen court’s reliance on comment c to section 33 of the Restatement Second of Judgments to explain why a judgment awarding solely declaratory relief does not bar pursuit of additional relief: “ ‘When a plaintiff seeks solely declaratory relief, the weight of authority does not view him as seeking to enforce a claim against the defendant. Instead, he is seen as merely requesting a judicial declaration as to the existence and nature of a relation between himself and the defendant. The effect of such a declaration, under this approach, is not to merge a claim in the judgment or to bar it. Accordingly, regardless of outcome, the plaintiff or defendant may pursue further declaratory or coercive relief in a subsequent action.’ (Rest.2d Judgments, § 33, com. c, p. 335, italics added.)” (Mycogen, supra, 28 Cal.4th at pp. 899-900.) Mycogen further noted the Restatement’s distinction between such cases and those in which plaintiffs “ ‘interpolate declaratory prayers redundantly in standard actions,’ ” which for res judicata purposes “should be treated as an adversary personal action concluded by a personal judgment with the usual consequences of merger, bar, and issue preclusion.’ (Rest.2d Judgments, § 33, com. d, p. 337.)” (Mycogen, at p. 900.)
From this distinction, West argues he should not be bound by the declaratory judgment and denied a jury trial on his cause of action for fraudulent conveyance because he did not frame the issues in the declaratory relief action. To a limited extent, West may be correct: PAI sought purely declaratory relief and the judgment it obtained therefore would not preclude further relief on the same facts. But a declaratory judgment is conclusive “as to the matters declared as well as any issues actually litigated and determined in the action.” (Aerojet-General Corp. v. American Excess Ins. Co. (2002) 97 Cal.App.4th 387, 403; Rest.2d Judgments, § 33, p. 332.) While Code of Civil Procedure section 1062 exempts declaratory judgments from the usual rules of claim preclusion, it does not eliminate issue preclusion as to matters actually litigated and determined in the declaratory relief action. (Aerojet-General Corp., at p. 403.) Mycogen makes the same distinction, noting that “declaratory judgments are issue preclusive” although “not necessarily claim preclusive.” (Mycogen, supra, 28 Cal.4th at p. 898.) Accordingly, West had no basis for believing that a factual issue litigated and determined in the declaratory relief case would be subject to relitigation in a subsequent jury trial.
Section 33 of the Restatement Second of Judgments provides: “A valid and final judgment in an action brought to declare rights or other legal relations of the parties is conclusive in a subsequent action between them as to the matters declared, and, in accordance with the rules of issue preclusion, as to any issues actually litigated by them and determined in the action.”
This brings us to the nub of the matter at hand: Did West have a full and fair opportunity to litigate, in the context of the declaratory relief phase of trial, the issues that would be conclusive of his fraudulent conveyance claim? If he did, the trial court properly determined that claim was barred under principles of collateral estoppel. If he did not, the trial court erred in denying him a jury trial.
West offers several reasons why he was not given a full and fair opportunity to litigate the issue of fraudulent intent. One of these is that he was denied access to numerous records he had subpoenaed because the court deferred ruling on PAI’s objections to the subpoenas until commencement of the jury trial. West offers two examples of matters affected by putting off decision on the subpoenas. First, West argues he sought to demonstrate through redacted invoices that PAI’s attorneys had been working on the asset transfer since shortly after West’s employment was terminated on November 21, 2000, in order to controvert Constantin’s November 15, 2001 declaration stating that the concept of the consensual foreclosure was created within one day of the November 28, 2000 board meeting. In fact, Constantin’s declaration states that Constantin proposed the asset transfer at the November 28 board meeting but is silent as to when the asset transfer was first conceptualized. In any event, West’s position is that evidence that PAI formed the intent to transfer assets and deprive West of a remedy at the time West made his demand for severance would be circumstantial evidence of PAI’s intent to “hinder, delay or defraud” West.
As another example, West argues his subpoenas sought evidence to support West’s testimony that “there should have been ‘a couple million dollars’ in the bank on November 28th.” West argues that the amount of cash available to satisfy his claim for severance, combined with Constantin’s testimony that he specifically intended to exclude West’s claim in the asset transfer, is circumstantial evidence of fraudulent intent.
West’s citation to the record does not reflect this quotation. West did testify at trial, however, that he recalled there being “between a million and $2 million in the bank” at the time his employment was terminated.
As PAI points out, West’s attorney acquiesced in the court’s decision to defer consideration of PAI’s motion to quash West’s subpoenas. At the point the court decided to hear the declaratory relief issues first, with the fraudulent conveyance claim put off for a future jury trial, discussion turned to PAI’s argument that West’s subpoenas did not describe with sufficient particularity the items to be produced. The court said it would “deal with those at some point here before we get to—you know, somewhere in the next couple weeks,” and West’s attorney responded, “Okay. That makes sense.” The court then stated that “the jury trial would be on June the 5th, with motions in limine on the morning of June the 2nd.”
Clearly, from this exchange, all the parties contemplated that a jury trial would follow the court trial of the declaratory relief issues. Equally clearly, West’s attorney agreed that the court need not resolve the subpoena issues immediately. West offered no suggestion that the material sought by the subpoenas was required for the court trial, despite the fact that fraud would be an issue in resolving the question of successor liability. If the material was relevant to the question of fraud in one context, however, it was relevant in both. Indeed, according to the representation in West’s briefing in this court, some of the subpoenas addressed potential evidence on the issue of adequacy of consideration, an issue all agreed was central in the successorship trial. That West’s choice to proceed without pursuing his subpoenas may have proved an unsuccessful trial strategy does not entitle him to relief. (See Amoco Chemical Co. v. Certain Underwriters at Lloyd’s of London (1995) 34 Cal.App.4th 554, 562 [failure to conduct certain pretrial discovery]; Mid-Wilshire Associates v. O’Leary (1992) 7 Cal.App.4th 1450, 1455 [appeal from nonappealable order].)
West’s argument, of course, assumes he would have prevailed against PAI’s motions to quash the subpoenas. We offer no opinion on the merits of this assumption.
West also argues that he was not required to present any evidence on fraudulent intent in the declaratory relief action, and had no incentive to litigate this issue, because any one of the four alternative tests identified in Ray v. Alad corp., supra, 19 Cal.3d 22 would suffice to establish successor liability and he could prevail without proving fraud. But West did litigate the fraud prong and argued to the trial court that successor liability was established under all four of the exceptions. In arguing for judgment at the conclusion of PAI’s case, West specifically delineated the circumstantial evidence he believed established the asset transfer was entered fraudulently, to escape liability for debts, arguing that West had told Constantin a transfer of assets between entities controlled by Constantin would constitute self-dealing; that Constantin did not inform the board or corporate officers about an outside expression of interest in acquiring the MARS system; the board was not informed that the default on payment of the LMA loan was readily curable, if in fact there was a default; that Constantin testified he intended to exclude West’s claim; and that West’s promissory note was transferred as part of the asset transfer and PAI immediately acted to collect on it. The trial court found none of the alternative bases for successor liability had been established. While the court could have ruled in West’s favor on any single one of the four exceptions to the rule against successor liability, once West put all four bases for liability at issue, the court could not find in PAI’s favor without rejecting all four. Thus, having sought a determination from the court that the asset transfer was entered with fraudulent intent, West could not expect to relitigate this factual issue in a second phase of trial.
In this respect, West’s briefs mischaracterize the position he took at trial. West’s reply brief states that in his Code of Civil Procedure section 631.8 motion he argued “there was sufficient evidence at that point for the court to find successor liability under any three of four alternative prongs and any one was sufficient.” In fact, as stated above, West argued that all four prongs of the test for successor liability had been established.
We are not persuaded by West’s argument that he did not have incentive to litigate the fraud issue in the declaratory relief case because his damage award would be against only PAI, not Constantin, and he could not recover punitive damages in the equitable action. Had West prevailed in this initial phase of the trial, with the trial court determining PAI was the successor to RPC because the asset transfer was accomplished with fraudulent intent, PAI would have been liable for West’s judgment against RPC. Nothing in the record suggests PAI would not have been able to satisfy that judgment. Moreover, in a subsequent trial for fraudulent conveyance, West would have been able to pursue punitive damages with the benefit an already established finding of fraud. Surely if the declaratory relief action had been resolved in this manner, West would be arguing the trial court was required to instruct the jury that it had to accept the fact of fraud in the transaction as established. The applicability of collateral estoppel is not undermined by the fact that West’s fraud claim was addressed to other parties in addition to PAI, since West—the party against whom the doctrine was applied—was a party to both actions. (See People v. Sims, supra, 32 Cal.3d at p. 484; People v. Taylor, supra, 12 Cal.3d at p. 691.)
West argues the trial court gave no indication the jury trial would not proceed as scheduled prior to the conclusion of evidence in the declaratory relief action and, after hearing the parties’ arguments on the proposed statements of decision, ordered jury trial to commence on June 5. This latter point is not accurate. After the arguments, the court noted that jury trial was scheduled for June 5 and asked West’s attorney whether, if the court disagreed with him on the issue of fraud, there would be “anything to try”? West’s attorney answered in the affirmative, noting that the court had agreed West had a right to jury trial on the issue of fraudulent conveyance. Responding to a further question from the court, counsel stated the fraud issue would not be subject to collateral estoppel because the court was required to afford West the jury trial to which he was entitled, subject only to the court’s power to grant a nonsuit or judgment notwithstanding the verdict if the evidence presented was insufficient to support a jury verdict of fraud. The court then stated it was not “prepared to decide” whether to proceed with the jury trial and that it would decide either that the case was “over” or that the trial should go forward.
West is correct that the suggestion the jury trial of the fraudulent conveyance action should not proceed was not raised until after presentation of evidence in the declaratory relief case had concluded. As we have said, this precise suggestion first was raised in PAI’s proposed statement of decision filed on May 5, 2006. But the concept of collateral estoppel and its relevance to the anticipated jury trial was explored before the court trial, in the context of the issue of adequate consideration, during the discussions as to whether the parties’ claims should be tried together or separately. At the hearing on March 23, West argued that the issue of adequate consideration did not have to be resolved in order to decide the successor liability question, while PAI urged that inadequate consideration was a condition precedent to successor liability. In the course of discussion, PAI’s counsel agreed with the court’s statement that if the court found in West’s favor on the value of the asset transfer in the context of the declaratory relief cause of action, it would have to instruct a jury on the fraudulent transfer claim that the value issue had been established. Later, West’s attorney asked whether, if the court concluded there was adequate consideration for the transfer of assets, he would be barred from relitigating the issue before the jury; the court responded that relitigation of the issue by either party would be barred by the doctrines of collateral estoppel and res judicata. There is no reason a different result should obtain because the factual question at issue was fraudulent intent rather than adequacy of consideration. Clearly West had no reason to expect a factual determination made in the context of the declaratory relief case would not be binding in the subsequent jury trial. Further, West offers no suggestion what different evidence he might produce in the fraudulent conveyance action. Rather, the essence of his argument is that he has a right to have a jury determine fraudulent intent regardless of the court’s prior determination, and to have the jury’s verdict control as long as it is supported by substantial evidence. (See Hansen v. Sunnyside Products, Inc. (1997) 55 Cal.App.4th 1497, 1510 [standard for judgment notwithstanding the verdict].) Having tried the issue of fraudulent intent to the court in the first part of this trial, West is not entitled to this second bite of the apple.
West’s attorney’s understanding that factual findings by the trial court in the declaratory relief trial could result in foreclosing a subsequent jury trial—albeit in the context of the adequacy of consideration issue—is reflected in his question to the court, during discussion of the potential bifurcation: “When do you envision, assuming that this miracle doesn’t happen, that you decide that I don’t ever get to see a jury? When are we going to have a jury trial? Because it’s clear that we can’t have a jury trial before the 26th or 27th, if you’re going to do the . . . .”
The present case differs significantly from Smith v. ExxonMobil Oil Corp. (2007) 153 Cal.App.4th 1407, in which a different panel of this court recently found a party against whom collateral estoppel was applied did not have a full and fair opportunity to litigate the issue in a prior trial. There, the party was prevented from putting on a full defense in the first trial because, through no fault of the party’s, a critical witness suddenly became unavailable during the trial. Here, West made a tactical decision not to more vigorously pursue the fraud issue in the declaratory relief case. West correctly notes that the trial court, before the trial, expressed concern about permitting him to present his case as he wished and indicated the fraudulent conveyance claim was “viable.” In announcing its misgivings about holding a single trial, the court explained: “On the one hand, I really don’t want to prejudice Mr. West’s opportunity to present the evidence in the way Mr. West wants to present it. [¶] Because, you know, there’s the old expression, you know, where there’s smoke there’s fire. And I certainly think that was the perception of the Court of Appeals and certainly just parading out these facts, all of which may have a perfectly innocuous explanation, but there’s a lot of stuff going on here, a lot of stuff. [¶] . . . [¶] So on the one hand I’m not anxious to prejudice Mr. West’s rights to present the case the way Mr. West wants. I really view Mr. West here as the plaintiff here, even though technically RPC’s group filed the declaratory relief action. I just am really, really, really concerned about being able to actually do this the way I’ve structured it, plus the timing, okay.”The court’s recognition, before trial, that West had a potentially viable claim has no bearing on its subsequent determinations after the presentation of evidence. If anything, the court’s pretrial inclination to view the facts sympathetically for West works against him now, as the court found itself convinced that West was wrong despite its initial inclination.
PAI additionally argues that we should affirm the judgment on a ground not reached by the trial court, urging that the need for trial of the fraudulent conveyance claim was obviated by the trial court’s finding that the amount of the loan forgiven in the asset transfer exceeded the value of the transferred property. PAI argues that West could not prevail under the Uniform Fraudulent Transfer Act (UFTA), because the UFTA applies to fraudulent “transfer” of an “asset” but excludes from the definition of “asset” property “to the extent it is encumbered by a valid lien” (Civ. Code, §§ 3439.04, 3439.01, subds. (a), (i)), or under the common law, which, according to PAI, requires proof that the transferred property has value from which the aggrieved creditor can satisfy his or her claim. Given our conclusion that properly determined jury trial of the fraudulent conveyance claim was precluded under principles of collateral estoppel, we need not resolve PAI’s alternative arguments. The same is true of PAI’s argument that the judgment can be affirmed simply on the ground the transfer of assets was an exercise of the rights of a secured creditor. (Civ. Code, § 3432 [debtor may pay one creditor in preference to another]; Lyons, supra, 40 Cal.App.4th 1001.)
The judgment is affirmed.
I concur: Lambden, J.
Dissenting Opinion
Haerle, J.
I respectfully dissent for two reasons. First of all, I think application of collateral estoppel in these factual circumstances is contrary to both California statutes and legal principles articulated by our Supreme Court and, secondly, also “unfair” and “inappropriate” pursuant to this court’s recent decision in Smith v. ExxonMobil Oil Corp. (2007) 153 Cal.App.4th 1407 (Smith).
A.
On the first point, I believe the majority’s decision pays insufficient attention to two sentences, one appearing in a critical provision of our Code of Civil Procedure and the other in our Supreme Court’s important decision in Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888 (Mycogen).
Section 1062 of the Code of Civil Procedure, one of the seven provisions of that code dealing with declaratory relief actions, provides: “The remedies provided by this chapter are cumulative, and shall not be construed as restricting any remedy, provisional or otherwise, provided by law for the benefit of any party to such action, and no judgment under this chapter shall preclude any party from obtaining additional relief based upon the same facts.” (Code Civ. Proc., § 1062, italics added (hereafter section 1062).) The majority’s opinion quotes this provision (maj. opn. at p. 27), but then unfortunately proffers no consideration of its meaning, moving instead to a discussion of the holding in Mycogen, an action in which the plaintiff sought both declaratory and “coercive” (i.e., damages) relief.
The second thing the majority neglects to note or discuss is an explicit holding in Mycogen regarding the impact of section 1062 in a pure declaratory relief action, such as that involved here. After discussing the difference, for res judicata and collateral estoppel purposes, of actions which (1) seek both declaratory and coercive relief and (2) seek only the former, the court declared in three very pregnant––for purposes of this case––sentences: “We are not convinced that parties will be penalized by such a rule limiting section 1062 to cases in which a party seeks only a declaratory judgment. A party may easily avoid the preclusive effect of a judgment by bringing an initial suit requesting purely declaratory relief. If necessary, the party may subsequently bring a suit for coercive relief.” (Mycogen, supra, 28 Cal.4th at p. 903, italics added.)
If, I ask my colleagues, such is the rule for the party bringing the initial suit requesting purely declaratory relief (here Phoenix American Incorporated (PAI)), is it not also the same––if not more so––for a party asserting only a defense to such an action? And I stress the word “defense” because, as the as the trial court’s Statement of Decision makes clear, the cross-complaints of West, including that alleging fraud, were specifically severed prior to the trial of the declaratory relief action. What was tried to the court was “only the equitable issue of successor liability.” As one of his four defensesto the declaratory relief action, West asserted that, pursuant to Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28, “the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller’s debts.” (Id. at p. 28.)
Other authority calls into question the majority’s rather harsh result. The first derives from section 33 of the Restatement Second of Judgments, cited by our Supreme Court in Mycogen. Several of the comments to that section support the italicized principle quoted above from that case. For example, comment c to section 33 includes this statement: “The effect of [a pure judicial declaration] is not to merge a claim in the judgment or to bar it. Accordingly, regardless of outcome, the plaintiff or defendant may pursue further declaratory or coercive relief in a subsequent action.” (Rest.2d Judgments, § 33, com. c., italics added.)
Comment d to section 33 also contains pertinent language with respect to the suggestion of the majority that, regardless of whether there was or was not “claim preclusion,” there was “issue preclusion.” (Maj. opn., p. 28.) That comment deals with an action that is, in reality, a “standard action” but “cast in declaratory form.” In such an action, “[f]or res judicata purposes the action should be treated as an adversary personal action concluded by a personal judgment with the usual consequences of merger, bar, and issue preclusion.” (Rest.2d Judgments, § 33, com. d.) If, I suggest, such is the rule with respect to something not in reality a declaratory relief action, the rule must be the converse when, as here, it is a declaratory relief action, i.e., in such a case there is no issue preclusion. This would seem to be particularly true here because, per another section of the Code of Civil Procedure, a cross-complaint is never mandatory in a declaratory relief action. (See Code Civ. Proc., § 426.60, subd. (c) and Industrial Indemnity Co. v. Mazon (1984) 158 Cal.App.3d 862, 866.)
But going back to the matter of issue preclusion, I submit that the majority gives that principle much broader breadth than it warrants. The rule itself is articulated in section 27 of the Restatement Second of Judgments thusly: “When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” (Rest.2d Judgments, § 27.) There are two obvious reasons why this rule does not apply here. First of all, the “parties” are different in the severed jury-trial action. Second, and as explained in comment h to that section: “If issues are determined but the judgment is not dependent upon the determinations, relitigation of those issues in a subsequent action between the parties is not precluded.” (Rest.2d Judgments, § 27, com. h, italics added; cf. also, County of Santa Clara v. Deputy Sheriffs’ Assn. (1992) 3 Cal.4th 873, 879, fn. 7 and In re Marriage of Rabkin (1986) 179 Cal.App.3d 1071, 1082-1083.)
Contrary to the trial court and the majority, I submit that applying collateral estoppel against a defendant in a declaratory relief action who, after a judgment against him therein, seeks affirmative relief against the successful declaratory relief plaintiff and other defendants runs contrary to the language of (1) the last clause of section 1062, (2) the language italicized above from Mycogen, (3) comments c and d to the Restatement Second of Judgments, section 33, and (4) that Restatement’s section 27 and comment h thereto.
Another precedent from this court also supports this conclusion. In Ho Gate Wah v. Fong Wan (1953) 118 Cal.App.2d 159 (Ho), this court had before it a declaratory relief action by a Chinese actress who had been brought to this country by the defendant night club owner. As the plaintiff in a declaratory relief action, she sought a declaration that the period of her employment had expired. The trial court ruled for the defendant night club owner, finding that the contract of employment was still in force and effect when the plaintiff sought to seek different employment. In affirming the superior court’s denial of declaratory relief, we noted: “It appears from the record that there is another action pending wherein respondent is suing appellant for damages. It is because of this other litigation that the points heretofore discussed have been pressed in the present case. Appellant’s counsel so indicate, and in support of their position they invoke several familiar rules of equity: (1) That the court should have determined the entire controversy between the parties and left nothing for future litigation; (2) that he who seeks equity must do equity, and (3) that the court should either have settled the entire controversy between the parties or should have withheld all equitable relief and remitted plaintiff to her remedy at law. [¶] We have already pointed out that the plaintiff in this proceeding sought a declaration of rights and duties ‘alone’ and not ‘with other relief’ (Code Civ. Proc., § 1060); she did not elect to join herein any claim she might have for damages as section 1060 permitted her to do. The answer herein was filed on April 20, 1951, but defendant did not seek by cross-complaint or otherwise to enlarge the issues which plaintiff tendered, but merely joined issue as tendered, apparently in recognition of the provisions of section 1062, already quoted. [¶] It is true that ‘An action . . . for declaratory relief is an equitable proceeding’ [citations] but appellant’s contention that the controversies between these parties should not be tried piecemeal is answered by the case of Giese v. City of Los Angeles [1946] 77 Cal.App.2d 431, 436, where the court said: [¶] ‘We fail to perceive wherein the well-known precept that equity abhors litigation by piecemeal and will prevent a multiplicity of suits by, whenever possible, settling and determining all differences between the parties and leaving nothing further to be litigated between them upon the same subject matter, can be successfully invoked in the instant proceeding. . . .’” (Ho, supra, 118 Cal.App.2d at pp. 164-165, italics added.)
I respectfully submit that, under all these various statements of the law, there can be no successful invocation of that principle here, either.
B.
Just last year, a panel of this court––not including me––published a thoughtful and, I believe, correct decision in Smith. There, we reversed a judgment of the San Francisco Superior Court in favor of plaintiffs in a wrongful death case. The trial court had held that the defendant oil company’s liability had been “established by application of the doctrine of collateral estoppel [based on] findings of liability in an earlier personal injury action against it . . . .” (Smith, supra, 153 Cal.App.4th at p. 1410.) We reversed because, in the earlier action, the defendant “was unable to present a full defense” (id. at p. 1410) through no fault of its own but, rather, because a crucial defense expert was absent due to the unexpected sudden death of his only daughter. (Id. at p. 1420.) We held that use of collateral estoppel in such circumstances was “inappropriate” (id. at pp. 1417-1418) and “unfair and must be set aside.” (Id. at p. 1420.)
I concede that the factual circumstances here are much more subjective compared to a case involving a key witness suddenly becoming unavailable due to personal tragedy. But I still think that, for the reasons articulated in Smith, they compel the same result.
Before getting to those facts, however, I think it is appropriate to add to the authority noted by this court in Smith in support of the application of the “fairness” principle. In addition to the main Supreme Court case cited there for that principle, Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 835, another supporting precedent for that principle is Consumers Lobby Against Monopolies v. Public Utilities Com. (1979) 25 Cal.3d 891, 902, disapproved on another point in Kowis v. Howard (1992) 3 Cal.4th 888, 896, 899, where our Supreme Court held that collateral estoppel will not be applied “if injustice would result or if the public interest requires that relitigation not be foreclosed.” (See also, to the same effect, Lucido v. Superior Court (1990) 51 Cal.3d 335, 343, and City of Los Angeles v. City of San Fernando (1975) 14 Cal.3d 199, 230, disapproved on other grounds in City of Barstow v. Mojave Water Agency (2000) 23 Cal.4th 1224, 1248.)
Also interestingly––although I do not pretend to have kept anything close to a complete score––it seems that many of the appellate cases discussing the application of collateral estoppel end up by reversing trial court applications of that doctrine. Indeed, such was the case in two appellate decisions cited by the trial court in its explication of the doctrine of collateral estoppel. Those cases are Le Parc Community Assn. v. Workers’ Comp. Appeals Bd. (2003) 110 Cal.App.4th 1161 and the second an opinion by Division One of this court, Rodgers v. Sargent Controls & Aerospace (2006) 136 Cal.App.4th 82. Both cases were cited by the trial court for the general principles of the doctrine of collateral estoppel relied on by it. But, interestingly, in both cases, the appellate courts found that either those principles did not apply, or an exception to the collateral estoppel rule did, and thus reversed the respective trial courts.
Which is what I think we should do here based on these specific facts which, I submit, make it “unfair” to apply collateral estoppel here:
1. Probably the most important is, as both the majority and the trial court point out, the multiple adverse parties, including especially the only clearly solvent one, Constantin, have not paid one nickel of the $409,000 (now, according to appellant’s counsel at oral argument, over $800,000, including interest) arbitration award in favor of West and against them. (See maj. opn. at p. 5.)
2. Up until the Statement of Decision and the subsequent judgment entered by the trial court on the declaratory relief action, everyone clearly anticipated that a jury trial against the defendants named in the cross-complaints would follow the court trial. This included the trial court which, as the majority opinion notes, first ordered a combined trial of all issues and, even after the court trial had concluded and draft statements of decision were filed, declined to continue the jury trial date on the issues raised by West’s cross complaint. (Maj. opn. at pp. 6 & 12.)
3. As expressly noted by the trial court in its Statement of Decision, what had just been tried before it was “only the equitable issue of successor liability,” as “the issues raised in Mr. West’s First Amended Cross-Complaint” had been “severed” therefrom. And, at the risk of repeating myself, those cross-complaints were non-compulsory. (See Code Civ. Proc., § 426.60, subd. (c).)
4. The only plaintiff in the court-tried declaratory relief action was PAI. That court had, as just noted, “severed” the cross-actions against Constantin and his other two corporate entities, RPC and RPI. Thus, the trial court could only have considered whatever evidence of fraudulent intent appellant West introduced against PAI, not the other parties who were cross-defendants in the severed actions. Thus, is it really “fair” to collaterally estop West from pursuing a fraud action against those other parties?
5. As one of our sister courts has recently held, citing a United States Supreme Court case in the process: “[A]pplication of collateral estoppel is unfair where the second action ‘affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result.’” (Roos v. Red (2005) 130 Cal.App.4th 870, 880, fn. omitted (Roos), citing and quoting from Parklane Hosiery Company, Inc. v. Shore (1979) 439 U.S. 322, 330-331 (Parklane).) In the footnote to that quotation, the Roos court noted that the “only examples of ‘procedural opportunities’ cited in Parklane were: (1) where the defendant was forced to defend the first action in an inconvenient forum not of the defendant’s choosing; or (2) where in the first action the defendant was ‘unable to engage in full scale discovery or call witnesses.’” (Roos, supra, 130 Cal.App.4th at p. 880, fn. 8, quoting in part from Parklane, supra, 439 U.S. at p. 331, fn. 15.)
I submit that this type of unfairness exists here because, as the majority expressly notes, West was “denied access to numerous records he had subpoenaed because the court deferred ruling on PAI’s objections to the subpoenas until commencement of the jury trial.” (Maj. opn. at pp. 29.) The majority believes that this argument fails because West’s counsel had verbally “agreed that the court need not resolve the subpoena issues immediately.” (Maj. opn. at p. 30.) But, as the majority also notes, this was at a point in time when “all the parties [and, I would add, the trial court] contemplated that a jury trial would follow the court trial of the declaratory relief issues.” (Maj. opn. at p. 30.) But that point does not convince my colleagues, who assert that “[i]f the material was relevant to the question of fraud in one context, however, it was relevant in both.” (Maj. opn. at p.30.)
I respectfully disagree. I submit that “relevance” is very often a matter of degree in different, albeit related, lawsuits. That is particularly so here, bearing in mind the major differences between the two actions in terms of (a) the parties involved on the PAI-RPI-RPC-Constantin side of the litigation and (b) the fact that possible fraudulent conduct by PAI was but one of many, many issues in the successor liability/declaratory relief part of that litigation.