Opinion
G059083
09-09-2021
BNY MELLON BANK, Defendant, Cross-complainant and Appellant, v. FIRST FOUNDATION BANK et al., Plaintiffs, Cross-defendants and Respondents.
DLA Piper and Isabelle L. Ord for Defendant, Cross-complainant and Appellant. Shumener, Odson & Oh, Betty M. Shumener and Edward O. Morales for Plaintiff, Cross-Defendant and Respondent First Foundation Bank.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County No. 30-2016-00838262, William D. Claster, Judge. Affirmed.
DLA Piper and Isabelle L. Ord for Defendant, Cross-complainant and Appellant.
Shumener, Odson & Oh, Betty M. Shumener and Edward O. Morales for Plaintiff, Cross-Defendant and Respondent First Foundation Bank.
OPINION
BEDSWORTH, ACTING P. J.
INTRODUCTION
This is the second appeal by BNY Mellon (Mellon) in the long-running lawsuit concerning a bond portfolio belonging to San Miguel Equities, LLC (San Miguel). In the first appeal, we affirmed the court's order denying Mellon's anti-SLAPP motion, brought under Code of Civil Procedure section 425.16, to dismiss a cross-complaint filed by First Foundation Bank (First Foundation). After Mellon filed a cross-complaint in interpleader regarding the bond portfolio, First Foundation cross-complained against Mellon for breach of contract and fraud, based on actions taken by Mellon regarding the portfolio before it filed its interpleader cross-complaint. In 2018, we held that these actions were not protected activity under section 425.16. Eventually San Miguel also cross-complained against Mellon for the same actions regarding the bond portfolio.
All further statutory references are to the Code of Civil Procedure.
The interpleader cross-action continued until there were no competing claims for the portfolio. During this time, Mellon repeatedly asked the trial court to discharge it under section 386.5, and the trial court repeatedly denied this request, owing to the claims of wrongful conduct by First Foundation and, later, by San Miguel regarding Mellon's handling of the portfolio just before it filed its interpleader cross-complaint.
This appeal is from the last of these orders denying Mellon's request for discharge under section 386.5 and from an order denying attorney fees under section 386.6 and dismissing the interpleader cross-complaint. The trial court once again determined that Mellon might not be a “mere stakeholder, ” but had potential liability to First Foundation and to San Miguel stemming from its pre-interpleader conduct with respect to the bond portfolio. The trial court also concluded that it would be inequitable to award Mellon its attorney fees, given the facts of the case.
We affirm both orders. The trial court has discretion to grant a discharge under section 386.5, and we cannot say that the court abused this discretion when it decided that the still-pending claims against Mellon precluded a discharge. In addition, Mellon has not explained how getting a dismissal instead of a discharge prejudiced it. Nor can we say the court abused its discretion in determining that awarding attorney fees to Mellon would be inequitable.
FACTS
The antecedents of this appeal are recounted in our earlier opinion. In 2014, Michael LaMelza obtained a substantial judgment against J. Robert Gilroy, which LaMelza was at some pains to collect. He attempted to levy on a bond portfolio Mellon was holding as security for a credit line for San Miguel. Mellon rejected the levy in 2015 because San Miguel was not a judgment debtor.
The LaMelza claim on the bond portfolio was a long-running saga in its own right. LaMelza sued Gilroy and others in 2009 over a real estate transaction. LaMelza prevailed, garnering a $70,000 judgment in December 2014. Gilroy appealed, and we remanded it to the trial court in 2017. (LaMelza v. Lindsay (Jan. 13, 2017, G051506/G051514) [nonpub. opn.].) We charged the trial court to take another look at the damages and opined that they might be as low as one dollar. Upon remand, the trial court held another trial and concluded this time that LaMelza had failed to show a causal link between his alleged breach of fiduciary duty and the damages he claimed. The defendants' resale of the property to a developer for $110 million - $90 million more than LaMelza was paid for it - was owing to the efforts they had put into developing it, not to any breach of fiduciary duty. The trial court entered judgment for defendants in May 2019, and we affirmed. (LaMelza v. Lindsay (Oct. 28, 2019, G057421) [nonpub. opn.].) By that time, litigation had been ongoing for 12 years, including a 2007 Riverside case that was dismissed.
LaMelza asserted that the bonds actually belonged to Gilroy and had been fraudulently transferred to San Miguel, owned by Gilroy's children, in order to shield them from LaMelza's judgment.
In February 2016, First Foundation lent San Miguel $5.5 million, the loan to be secured by the bond portfolio. First Foundation contacted Mellon to arrange for the transfer of the bonds in return for the payment of $5.5 million. Mellon agreed to transfer the portfolio, and First Foundation wired the $5.5 million to Mellon on March 2, 2016. But Mellon did not transfer the bonds.
On February 29, 2016, LaMelza filed a lawsuit against Mellon and San Miguel, among other defendants, alleging that Gilroy had fraudulently transferred assets to San Miguel to frustrate LaMelza's judgment collection efforts. Mellon was a defendant in the causes of action based on voidable transfers. Mellon was served with the complaint on March 15, 2016.
Discovery later revealed a March 31, 2016, quid pro quo agreement between LaMelza and Mellon whereby Mellon would file a cross-complaint in interpleader, interpleading the bonds, and subsequently LaMelza would dismiss Mellon with prejudice from the complaint. The two parties also agreed about what kind and how much discovery would be propounded. Mellon filed its cross-complaint in interpleader on April 4, and Mellon's counsel filed LaMelza's request to dismiss Mellon from the complaint on April 8.
Mellon's interpleader cross-complaint alleged that both LaMelza and San Miguel claimed the bond portfolio and that San Miguel was demanding transfer of the portfolio to First Foundation. Mellon also asked for direction and discharge. First Foundation was not among the cross-defendants in the interpleader cross-complaint.
First Foundation cross-complained against Mellon on April 19, 2016. After the dust had settled through demurrers, First Foundation was left with a second amended cross-complaint (filed October 13, 2016) against Mellon for breach of contract and fraud. The basis of these causes of action was Mellon's accepting the $5.5 million wire transfer payoff from First Foundation but keeping the bonds.
Mellon repeatedly requested the trial court to discharge it in interpleader, claiming to be a “disinterested stakeholder.” The first time was on June 10, 2016, when the court held a hearing on Mellon's request for interpleader direction. The court ordered Mellon to hold and manage the portfolio “pending resolution of the disputes as to who ultimately should obtain final ownership and possession[.]” The court discharged Mellon from liability for holding the portfolio pursuant to the court's order, but refused to grant a complete discharge and to dismiss First Foundation's cross-complaint. The court ruled it was too soon to regard Mellon as “simply a stakeholder” in light of First Foundation's allegations of wrongdoing by Mellon.
Then Mellon moved to dismiss First Foundation's cross-complaint under the anti-SLAPP statute, section 425.16, asserting that First Foundation was suing it for protected activity, i.e., filing a cross-complaint in interpleader. The court denied the motion in September 2016, holding that the conduct upon which First Foundation based its cross-complaint was not “protected conduct” as defined by the anti-SLAPP statute. (§ 425.16, subd. (e).)
We affirmed the order denying Mellon's anti-SLAPP motion in BNY Mellon Bank v. First Foundation Bank (April 30, 2018, G054125) [nonpub. opn.]. The trial court regarded the anti-SLAPP motion as an improper motion to reconsider its first ruling, denying Mellon's request for discharge.
On August 17, 2018, referring to “multiple unsuccessful previous attempts” to secure discharge from liability, the trial court again denied Mellon's request for an interpleader discharge. The court held that Mellon “has not established that it would be appropriate for this court to partially dismiss [Mellon] only as to the interpleaded funds, award it attorney[]fees, and yet have it remain as a party in this action to defend against [First Foundation's] cross-complaint.” “[T]here are just too many outstanding factual questions remaining surrounding [Mellon's] alleged conduct.”
In 2018 and 2019, a material change in the LaMelza/Gilroy case undermined LaMelza's voidable transfer complaint, the pleading underlying all the cross-complaints in this action. In April 2018, the judge in charge of the LaMelza/Gilroy case ruled on remand that LaMelza had failed to show a causal connection between the alleged breach of fiduciary duty and the claimed damages. With the LaMelza judgment in jeopardy, on March 11, 2019, the court ordered the portfolio released to First Foundation as successor custodian in interpleader, pending the outcome of the expected appeal of the expected final judgment for the defendants in LaMelza/Gilroy. Final judgment was entered against LaMelza and in favor of Gilroy and the other defendants in May 2019. We affirmed the judgment on October 28, 2019.
LaMelza v. Lindsay, supra, G057421.
What the new judgment and its affirmance meant for this case was that there was no longer any judgment for LaMelza to collect and therefore no basis for his voidable transfer complaint. Accordingly, he dismissed his complaint on January 6, 2020.
The “last pleadings standing” as of the beginning of 2020 were Mellon's cross-complaint in interpleader and two cross-complaints against Mellon: one by First Foundation and the other by San Miguel. Now that LaMelza had no judgment, there were no longer competing claims to the bond portfolio. The trial court ordered First Foundation to release the portfolio to San Miguel in January 2020.
San Miguel dismissed its cross-complaint against Mellon on May 26, 2020. We grant First Foundation's request for judicial notice of the San Miguel cross-complaint.
Mellon moved again for discharge and also moved for attorney fees, on January 10, 2020. The court ordered briefing on the subject of Mellon's entitlement to fees, leaving aside the amount.
The January 31, 2020, order denied Mellon's request for attorney fees and dismissed its cross-complaint for interpleader. The court based its decision on attorney fees on equitable grounds. It called Mellon's keeping First Foundation's $5.5 million while interpleading the bonds “difficult to reconcile.” In addition, the court noted that Mellon had the use of the $5.5 million for four years, while San Miguel and First Foundation had to expend legal fees in a dispute over paying back San Miguel's loan (which the bonds were supposed to secure). “To now require attorney fees (currently estimated to be approximately $450,000) to be paid from the interpleaded portfolio will have the effect of rewarding... Mellon for retaining the money and punishing [San Miguel] for... Mellon's decision not to transfer the portfolio or return the money.” In a follow-up minute order (March 13, 2020), the court confirmed that it had merely dismissed Mellon's interpleader complaint (without a discharge) and ruled that Mellon was not entitled to an interpleader discharge.
Mellon has appealed from the order of January 31. Although the order does not specifically mention denying Mellon's request for an interpleader discharge, we may infer that dismissing the interpleader cross-complaint with prejudice without taking further action encompassed denying the discharge request. The follow-up order makes it clear that the court intended its silence on discharge to mean the request was denied.
DISCUSSION
Mellon has identified two issues on appeal. First, the trial court should have discharged it under section 386.5. Second, the court erred in denying the motion for attorney fees under section 386.6.
I. Discharge or Dismissal
Section 386.5 provides, “Where the only relief sought against one of the defendants is the payment of a stated amount of money alleged to be wrongfully withheld, such defendant may, upon affidavit that he is a mere stakeholder with no interest in the amount or any portion thereof and that conflicting demands have been made upon him for the amount by parties to the action, upon notice to such parties, apply to the court for an order discharging him from liability and dismissing him from the action on his depositing with the clerk of the court the amount in dispute and the court may, in its discretion, make such order.”
Contrary to Mellon's argument, depositing the contested property with the court and disclaiming an interest in it does not automatically result in the party “walk[ing] away from the action.” An interpleader action proceeds in two phases. In phase one, the court determines the plaintiff's right to interplead the asset. With that right established, the action moves into the second phase, mainly concerned with which party claiming the asset has the superior right. But an additional issue may have to be resolved in the second phase: “‘plaintiff's alleged position as a disinterested mere stakeholder[.]'” (Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1514, quoting Dial 800 v. Fesbinder (2004) 118Cal.App.4th 32, 43.) It is possible, therefore, for the “stakeholder” to be involved in phase two.
In this case, the interpleader cross-complaint was dismissed before the second phase came up for trial. But a hotly disputed issue was whether Mellon had used its possession of the portfolio and an offer to interplead it to secure a dismissal from LaMelza's initial complaint. Doing so would appear to make Mellon somewhat less than disinterested. (Cf. City of Morgan Hill v. Brown (1999) 71 Cal.App.4th 1114, 1126 [“[T]he unusual circumstances here suggest that the interpleader remedy was not being used solely as a means to protect the stakeholder.”]
The reasons Mellon has so frequently sought a discharge are not hard to fathom. In addition to opening the way for reimbursement of its attorney fees, Mellon wants to head off potential liability for not transferring the bond portfolio to First Foundation while keeping First Foundation's payment of $5.5 million for the portfolio.
Whether Mellon acted wrongfully in that regard is not before us.
Mellon's purported aim for seeking a discharge, however, has always been to cut off further expenditures on legal fees over possession of the bond portfolio. Dismissal of the interpleader cross-complaint has fulfilled that aim.
Mellon assumes it was entitled to a discharge once it put the bond portfolio in the court's hands and disclaimed any interest in it. Section 386.5, however, allows the court to exercise its discretion as to whether to grant a discharge, even if the defendant deposits the amount in dispute with the court.
Mellon does not advance its cause by quoting from the record in a misleading manner. One of Mellon's arguments is that First Foundation improperly sought to import separate allegations of wrongdoing into the interpleader. Criticizing this effort, Mellon stated, “As the superior court initially noted, [Mellon's] entitlement to discharge is ‘actually a fairly narrow issue that can be decided on a fairly straightforward basis.' 1 RT 123:14-22.” What the court actually said was “I'm wondering whether the scope of what you're talking about, Mr. Morales [counsel for First Foundation], is as broad as you're letting on, or whether it's actually a fairly narrow issue that can be decided on a fairly straightforward basis.” The court then gave counsel the opportunity to brief the issue. The full quote provides precious little succor to Mellon.
We cannot say the court abused its discretion in once again refusing to grant Mellon's request. Dismissing the interpleader cross-complaint stanched the flow of legal fees connected with the cross-complaint, Mellon's stated aim in seeking a discharge. At the same time, the court avoided anticipated arguments by Mellon that a discharge freed it from liability for its activities before filing its cross-complaint, which form the basis of First Foundation's cross-complaint against Mellon. As the court stated in August 2018, “[T]here are just too many outstanding factual questions remaining surrounding [Mellon's] alleged conduct.”
In addition to error, an appellant must show how the trial court's decision has prejudiced it. That is, it must show that if the error had not been committed, the appellant would have received a more favorable outcome. (WFG National Title Ins. Co. v. Wells Fargo Bank, N.A. (2020) 51 Cal.App.5th 881, 894-895.) Mellon has not articulated how a discharge would be an outcome more favorable to it than a dismissal. The interpleader cross-complaint no longer exists, so Mellon cannot incur more attorney fees relating to it. The only added benefit we can see is that a discharge could insulate Mellon from First Foundation's cross-complaint. In our view, that is a cogent reason for not granting a discharge.
Even if we were to disregard the rule that we do not consider arguments raised for the first time in a reply brief (see Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10), Mellon does not suggest who this other party might be. The other parties to the interpleader cross-complaint are LaMelza, his limited liability company, “J. Robert Gilroy” or “J. Gilroy” or just plain “Gilroy, ” and four Gilroy children, the alleged owners of San Miguel. Mellon does not offer any hint of a basis for recovering fees from these cross-defendants, especially as it has settled with San Miguel. In its reply brief, Mellon argues for the first time that the denial of its request for a discharge prevents it from going after some party other than San Miguel for its interpleader fees. Mellon has settled with San Miguel, so it presumably cannot get fees from it or from the bond portfolio, the usual source. (§ 386.6.)
II. Attorney Fees
Section 386.6, subdivision (a), provides, “A party to an action who follows the procedure set forth in Section 386 or 386.5 may insert in his motion, petition, complaint, or cross complaint a request for allowance of his costs and reasonable attorney fees incurred in such action. In ordering the discharge of such party, the court may, in its discretion, award such party his costs and reasonable attorney fees from the amount in dispute which has been deposited with the court. At the time of final judgment in the action the court may make such further provision for assumption of such costs and attorney fees by one or more of the adverse claimants as may appear proper.” We review the trial court's decision regarding awarding attorney fees in interpleader for abuse of discretion. (MDQ, LLC v. Gilbert, Kelly, Crowley & Jennett LLP (2019) 32 Cal.App.5th 702, 712.)
The statutory language conditions an award of attorney fees on the receipt of a discharge. Mellon did not receive an order of discharge, so for that reason alone an award of fees would have been improper. More importantly, however, an award of fees is subject to the court's discretion, which - as interpleader is an action in equity (see Southern California Gas Co. v. Flannery (2014) 232 Cal.App.4th 477, 486) - is in turn informed by equitable principles. (Hood v. Gonzales (2019) 43 Cal.App.5th 57, 71.)
The trial court in this case gave several equitable reasons for exercising its discretion to refuse an award of attorney fees, among them Mellon's decision to keep First Foundation's $5.5 million, of which it had the use for four years. Mellon also appears to have used interpleader as a bargaining chip to obtain a dismissal of the voidable transfer complaint from LaMelza. We cannot say that the trial court abused its discretion in light of the circumstances of this case.
DISPOSITION
The order of January 31, 2020, is affirmed. Respondent's request for judicial notice is granted. Respondent is to recover costs on appeal.
WE CONCUR: MOORE, J., THOMPSON, J.