Opinion
H036088
10-06-2011
RICHARD CARRIGAN, Plaintiff and Appellant, v. GOLDMAN, SACHS & CO., et. al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Santa Clara County Super. Ct. No. 1-07-CV-087219)
Plaintiff Richard Carrigan appeals from two judgments dismissing respondents Goldman, Sachs & Co. (Goldman Sachs), two of Goldman Sachs's employees, and 10 individual defendants originally named as Does. Plaintiff contends that the superior court erred in sustaining the demurrers of both the Goldman Sachs defendants and the Doe defendants. He maintains that he adequately pleaded a cause of action for aiding and abetting breach of fiduciary duty by Solectron Corporation (Solectron) and individuals associated with Solectron. We conclude, however, that the demurrers were properly sustained and must therefore affirm the judgments.
Background
Plaintiff is the class representative in a class action against Solectron and others, arising out of the acquisition of Solectron by Flextronics International, Ltd. (Flextronics). Plaintiff's original complaint was filed on June 4, 2007, essentially alleging that in the course of preparing for the acquisition, certain individual officers and directors associated with Solectron breached their fiduciary duties to the Solectron shareholders. Plaintiff also named Flextronics as a defendant. In his first amended complaint plaintiff added Solectron's interim chief executive officer. The Honorable Neil A. Cabrinha sustained these defendants' demurrers with leave to amend.
During the pendency of this appeal the superior court entered an order dismissing the underlying action as to the remaining defendants, those associated with Solectron and Flextronics. The order, which followed class counsel's withdrawal and plaintiff's failure to obtain substitute representation, was made without prejudice. We find no impediment to appellate review of the judgments dismissing the defendants before us.
Plaintiff's second amended complaint, filed in November 2007, added three officers of Flextronics and Goldman Sachs. Goldman Sachs's demurrer was sustained with leave to amend as to two causes of action: aiding and abetting the Solectron defendants' breaches of fiduciary duty and equitable fraud (alleged against all defendants). As to the remaining cause of action, unjust enrichment (also alleged against all defendants), Judge Cabrinha sustained Goldman Sachs's demurrer without leave to amend.
In February 2009 plaintiff filed a "Revised Third Amended Complaint Based Upon Self-Dealing and Breach of Fiduciary Duty" (RTAC). In this pleading he named additional defendants, including two Goldman Sachs vice presidents, Thomas A. Stokes and Colin Ryan. Stokes and Ryan together filed a demurrer to this pleading, as did Goldman Sachs. On July 9, 2009 the Honorable Joseph H. Huber sustained both of these demurrers without leave to amend.
In the same order the court overruled demurrers by the Solectron and Flextronics defendants challenging the first cause of action for breach of fiduciary duties.
On May 24, 2010, Judge Huber granted plaintiff leave to amend the RTAC to substitute 10 individuals originally named as Doe defendants. These defendants demurred, citing the relevant statutes of limitations for service of process, Code of Civil Procedure sections 583.210 and 583.250. On August 30, 2010, Judge Huber sustained that demurrer without leave to amend. The next day, the court entered judgment of dismissal as to Goldman Sachs, Stokes, and Ryan. A judgment dismissing the action against the Doe defendants was entered on September 21, 2010, followed that day by plaintiff's notice of appeal as to both judgments.
Discussion
A demurrer is properly sustained when the complaint "does not state facts sufficient to constitute a cause of action," or where the court "has no jurisdiction of the subject of the cause of action alleged in the pleading." (Code Civ. Proc., § 430.10, subds. (e), (a).) "On appeal from a dismissal following the sustaining of a demurrer, this court reviews the complaint de novo to determine whether it alleges facts stating a cause of action under any legal theory. . . . [¶] Because the function of a demurrer is not to test the truth or accuracy of the facts alleged in the complaint, we assume the truth of all properly pleaded factual allegations. [Citation.] Whether the plaintiff will be able to prove these allegations is not relevant; our focus is on the legal sufficiency of the complaint." (Los Altos Golf and Country Club v. County of Santa Clara (2008) 165 Cal.App.4th 198, 203; see also Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 243-244.) "Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Notably, however, in this case plaintiff does not assert abuse of discretion in the court's denial of leave to amend.
I. The Goldman Sachs Defendants
The principal defendants whose dismissal plaintiff challenges on appeal are Goldman Sachs, Stokes, and Ryan. The specific allegations against these defendants in the RTAC are under seal. Generally, in the fourth cause of action plaintiff complained that Goldman Sachs "aided and abetted [the Solectron defendants'] in breaching their fiduciary duties owed to public shareholders of Solectron, including plaintiff . . . ." Thus, plaintiff claimed, Goldman Sachs, Stokes, and Ryan were all "jointly and severally liable and equally culpable" with the Solectron defendants in the latter's breaches of fiduciary duty. As summarized in the public portion of his appellate brief, "the Goldman Respondents knowingly participated in the breaches of the Solectron defendants['] duties of candor, care, and loyalty so Goldman could collect the millions of dollars in fees that was contingent on the consummation of the acquisition. . . . In pursuing this payout, the Goldman Respondents did not just turn a blind eye to the Solectron defendants' breaches, but deliberately concealed material information from the Solectron Board of Directors . . . that showed the acquisition undervalued Solectron. This decision by the Goldman Respondents ensured that the Board could not fulfill its fiduciary duties of candor, care, and loyalty as the Board was unable to review and consider all reasonably available information and secure the best price for the Solectron shareholders."
Although counsel emphasized to Judge Huber that plaintiff was not asserting aiding and abetting by failing to act, on appeal plaintiff argues that "[t]he Goldman respondents misled the Solectron directors by remaining silent on various items, all [of] which would have allowed the Board to realize that the consideration offered by Flextronics was inadequate. The Goldman Respondents chose to withhold unfavorable analyses and hide [wrongful conduct by Ryan]." According to plaintiff, this "withholding [of] material information from the Board . . . spawned the basis for certain breaches of fiduciary duties by the Solectron defendants." In his view, the failings and "maneuvering" by the Goldman Sachs defendants "shows the extent that [sic][they] were willing to go to protect their fees and secured [sic] their fate as aiders and abettors."
At the hearing on the demurrer to the RTAC, plaintiff's counsel explained on the record his theory that Goldman Sachs "aided and abetted a breach of the duty of diligence" in that it "affirmatively manipulated discounted cash flow analyses. They manipulated premium analyses. They affirmatively decided to withhold from the board information." As for Ryan and Stokes, plaintiff's counsel argued that they were "the people who did the manipulation."
Closer examination of plaintiff's complaint reveals its fatal deficiencies. In order to prove aiding and abetting by the Goldman Sachs defendants, plaintiff had to show " ' "(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty . . . (3) knowing participation in that breach by the defendants," and (4) damages proximately caused by the breach.' . . . The critical element is 'knowing participation.' " (In re Del Monte Foods Co. Shareholders Litigation (Del.Ch.,2011) quoting Malpiede v. Townson (Del.2001) 780 A.2d 1075, 1096.) Aiding and abetting under California law requires a similar showing. (See, e.g., Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846; Casey v. U.S. Bank National Ass'n (2005) 127 Cal.App.4th 1138, 1144; Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318 [liability for aiding and abetting depends on proof of actual knowledge of the wrong and substantial assistance or encouragement in the act].)
In this case the superior court applied Delaware law in ruling on the demurrer.
Most of the allegations in the fourth cause of action pertained to failures in Goldman Sachs's performance of its duties to Solectron as its financial advisor. As recognized by both Judge Cabrinha and Judge Huber, these were not direct claims but derivative ones belonging to Solectron. (See Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108-1115 [distinguishing derivative and direct claims and explaining continuous ownership requirement under California and Delaware law].) Plaintiff does not challenge this conclusion or Judge Cabrinha's analysis on which the conclusion was based; nor does he take issue with Judge Huber's statement that those derivative claims were extinguished with the merger of Solectron and Flextronics. (See Grosset v. Wenaas, supra, 42 Cal.4th at p. 1115 [derivative plaintiff whose stockholder relationship terminates by corporate merger loses standing to continue the litigation "because he or she no longer has even an indirect interest in any recovery pursued for the corporation's benefit"].)
The point of both judges' observations was that the sole direct claims of breach against the Solectron defendants concerned disclosure violations, which consisted in "alleged misleading statements or disclosures in the joint proxy statement issued two months after Goldman Sachs ha[d] issued it[s] fairness opinion on the merger and had completed its work." Judge Cabrinha found these allegations "insufficient to establish that Goldman Sachs knowingly participated in the breach of fiduciary duty by the Solectron Defendants." On the last occasion Judge Huber concluded that nothing in the RTAC improved on the second amended complaint; plaintiff had still failed to assert "sufficient facts to support the allegation that Goldman Sachs knowingly participated in other defendants' breaches of fiduciary duties."
This ruling expressly applied the required elements of plaintiff's burden of proof. As both judges noted, the alleged breaches of fiduciary duty by the Solectron defendants occurred two months after Goldman Sachs had completed its work as financial advisor to Solectron. Plaintiff did not attribute misleading disclosures in the joint proxy statement of Solectron and Flextronics to any prior work by Goldman Sachs, Stokes, or Ryan; there is no allegation that these defendants helped draft or issue the joint proxy statement containing the alleged disclosure violations.
Thus, no viable assertion was made that the Goldman Sachs defendants had participated in its client's wrongdoing months before it occurred. Plaintiff offers no authority for the implicit assumption that Goldman Sachs was obligated to anticipate and correct misconduct by Solectron at the expense of the company's shareholders. (Cf. Fiol v. Doellstedt, supra, 50 Cal.App.4th at p. 1326 ["Mere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting"].)
Plaintiff's further complaints regarding the vagueness and inaccuracy of Goldman Sachs's fairness opinion again suggest a failure in performance by Goldman Sachs in its role as financial advisor—and again, they state claims belonging to Solectron, whether for professional malpractice or otherwise; they clearly do not suggest participation in the Solectron defendants' subsequent breaches of fiduciary duty in preparing and disseminating a document these defendants did not help create. The conduct described in these allegations could not have amounted to deliberate assistance or encouragement of the Solectron defendants to abandon or fail in the execution of their fiduciary duties to the company's shareholders.
II. The Doe Defendants
The only purpose of plaintiff's June 14, 2010 amendment was to substitute the names of 10 individuals for Does 1-20 in the RTAC. Thus, each of these new defendants was encompassed in the first two causes of action, for breach of fiduciary duties and aiding and abetting breach of fiduciary duties.
In their demurrer the Doe defendants cited Code of Civil Procedure section 583.210, which allows a plaintiff three years to serve the complaint. If a plaintiff designates some defendants as Does in the original complaint, he or she has three years to substitute named defendants for the Does and serve those parties with the complaint. (See Jolly v. Eli Lilly & Co. (1989) 44 Cal.3d 1103, 1118; see also Bernson v. Browning-Ferris Industries (1994) 7 Cal.4th 926, 932.) If service is not accomplished within the three-year period, then dismissal is mandatory unless a statute expressly states otherwise. (§ 583.250, subd. (b).) "The policy of the dismissal statutes is to promote trial of cases before evidence is lost and memories dim and to protect defendants from being subjected to the annoyance of unmeritorious actions that remain undecided for indefinite periods of time. [Citation.] The specific purpose behind §583.210 is to [en]sure that defendants receive prompt notice of the action." (Davis v. Allstate Ins. Co. (1989) 217 Cal.App.3d 1229, 1232.)
All further statutory references are to the Code of Civil Procedure unless otherwise specified.
Subdivision (a) of this statute provides: "The summons and complaint shall be served upon a defendant within three years after the action is commenced against the defendant. For the purpose of this subdivision, an action is commenced at the time the complaint is filed."
Section 583.250 states: "(a) If service is not made in an action within the time prescribed in this article: [¶] (1) The action shall not be further prosecuted and no further proceedings shall be held in the action. [¶] (2) The action shall be dismissed by the court on its own motion or on motion of any person interested in the action, whether named as a party or not, after notice to the parties. [¶] (b) The requirements of this article are mandatory and are not subject to extension, excuse, or exception except as expressly provided by statute."
It is the original complaint that starts the three-year clock running, not any amended pleadings. (Nelson v. A. H. Robins Co. (1983) 149 Cal.App.3d 862, 866.) "While ignorance of the existence of an injury or cause of action may delay the running of the statute of limitations until the date of discovery, the general rule in California has been that ignorance of the identity of the defendant is not essential to a claim and therefore will not toll the statute." (Bernson v. Browning-Ferris Industries, supra, 7 Cal.4th at p. 932.) In other words, our Supreme Court has explained, "because the identity of the defendant is not an element of any cause of action . . . [i]t follows that failure to discover, or have reason to discover, the identity of the defendant does not postpone the accrual of a cause of action, whereas a like failure concerning the cause of action itself does." (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 399.)
In opposing the demurrer, plaintiff asserted that he had substantially complied with section 583.210 by making "deliberate efforts in good faith to arrange for the service," notwithstanding the "bait and switch tactics of defense counsel and their best efforts to prevent actual compliance with the service deadline." He further contended that defendants had "waived their right to seek dismissal" by an "implicit oral agreement" to extend the three-year statutory period. Plaintiff pointed to defense counsel's failure to raise the issue of the filing deadline before the June 14, 2010 amendment was filed, attributing that silence to "consent to an extension." Plaintiff also argued that all of the defendants and their counsel had acted with unclean hands and in violation of their ethical obligation to the court, by using deceptive litigation tactics—namely, concealing counsel's intent to represent the Doe defendants until after the June 4 deadline had passed.
In support of these allegations plaintiff submitted a declaration from one of his attorneys, Julia Williams, who recalled that Benjamin Crosson, one of the defense counsel, had opposed the Doe amendment. On May 24, 2010, after the court granted leave to amend, Williams asked Crosson if defense counsel would accept service of the amended complaint on behalf of the Doe defendants. Crosson explained that they did not yet know if they were going to be representing the Doe defendants but he would inform her as soon as they knew. Williams then was out of the office through the filing deadline and did not speak to Crosson about representation until after that time. When they did speak again, sometime between June 7 and June 11, Crosson told Williams that his firm would not be representing the Doe defendants and therefore would not be accepting service for them, Consequently, plaintiff's counsel served the Doe defendants personally between June 20 and July 7, 2010. It was only after that, on July 9, 2010, that defense counsel informed Williams that they would be representing the Doe defendants after all.
In reply, the Doe defendants submitted Crosson's own declaration. He affirmatively stated the following: His firm, Wilson Sonsini Goodrich & Rosati (WSGR), had never agreed to accept service on behalf of the Doe defendants; before being served with the complaint, the Doe defendants were not represented by WSGR; and defense counsel had never agreed to extend the three-year deadline pursuant to section 583.230, which permits extensions by written stipulation or oral agreement in open court. Crosson called the court's attention to inaccurate and misleading statements by plaintiff regarding defense counsel's intention to accept service for the Doe defendants. Crosson emphasized that when contacted by Williams, he informed her that he would oppose the Doe amendment, and that "no representation was in place for the Doe Defendants, and thus we would not agree to accept service. At no time did I state that Defense Counsel would be representing the Doe Defendants." When asked again on May 24, 2010, Crosson repeated that defense counsel still did not represent the Doe defendants and therefore would not accept service for them. At that point, Crosson explained, WSGR "had not even endeavored to contact the Doe Defendants regarding their potential involvement in this lawsuit, let alone to discuss who their counsel would be." In their next conversation on June 8, Crosson told her that WSGR "did not intend to represent the Doe Defendants." It was not until they had been served in mid-June that a number of the Doe defendants "reached out to Defense Counsel" and an agreement for representation was reached. The earliest date of these representation agreements with the Doe defendants was July 3, 2010.
With these declarations before him, Judge Huber found it unnecessary to credit either attorney's account of the conversations. He acknowledged that defense counsel's actions "may have" been misleading; but it made no difference to the outcome. The "indisputable fact" was that plaintiff, having been granted leave to file the Doe amendment on May 24, 2010, waited until June 14, 2010, just to file that amendment, which was 10 days after the three-year deadline had passed.
On appeal, plaintiff does not explicitly renew his earlier claim that he substantially complied with section 583.210, but he does obliquely suggest that strict application of the statute was not necessary. Such an approach cannot succeed in this case. As this court explained recently in American Express Centurian Bank v. Zara (2011) _ Cal.App.4th _, _ (Zara), "We acknowledge that in Pasadena Medi-Center Associates v. Superior Court (1973) 9 Cal.3d 773, the court concluded that the service of process statutes should be ' " 'liberally construed to effectuate service and uphold the jurisdiction of the court if actual notice has been received by the defendant.' " ' (Id. at p. 778.) Actual notice of the action alone, however, is not a substitute for proper service and is not sufficient to confer jurisdiction. '[N]o California appellate court has gone so far as to uphold a service of process solely on the ground the defendant received actual notice when there has been a complete failure to comply with the statutory requirements for service.' (Summers v. McClanahan (2006) 140 Cal.App.4th 403, 414 (Summers).)"
We went on to quote the Summers court's explanation of the weakness of the plaintiff's rationale that if a defendant "somehow" received actual notice, then "any defects in the manner of service should be overlooked." (Summers, supra, 140 Cal.App.4th at p. 415.) "Adopting Summers' rationale would constitute a judicial repeal of California's statutory law governing service of process and the adoption of only one rule: A summons may be served on anyone, anywhere, by any means which results in actual notice of the action in time to defend. Clearly this is not what the Supreme Court had in mind [in Pasadena Medi-Center Associates v. Superior Court, supra, 9 Cal.3d at p. 778] when it held the revised service of process law should be liberally construed. One benefit of the liberal construction rule is its tendency to eliminate unnecessary, time-consuming, and costly disputes over service of process issues. An 'actual notice' rule would do just the opposite. It would create a standardless free-for-all in which defendants would bring motions to quash service claiming they never received actual notice and, in many cases, plaintiffs would be unable to prove otherwise. In addition, such a rule would put a premium on defendants developing creative ways of evading service thereby thwarting the fundamental principle [that] disputes should be resolved in courts, on the merits." (Summers, supra, 140 Cal.App.4th at p. 415; compare Davis v. Allstate Ins. Co. (1989) 217 Cal.App.3d 1229, 1234 [service of superseded complaint due to "clerical error" was in good faith and thus constituted substantial compliance with section 583.210].)
Plaintiff's chief focus is on his alternative contentions that the Doe defendants either waived "strict compliance" with section 583.210 or should be estopped from asserting this statutory bar because Crosson "induced" plaintiff to delay serving them. Both arguments appear to be premised on the further assumption that the Doe defendants were bound by the acts of defense counsel as their agent. Disregarding the fact that defense counsel did not represent the Doe defendants, plaintiff maintains that counsel waived any objection to the 20-day period in which to amend the RTAC. Plaintiff's estoppel argument likewise seems to be based on the suggestion that it was defense counsel's fault that he was late in serving the Doe defendants. He does not identify the precise acts that constituted counsel's "misleading actions"; he merely again cites the "failure to openly object" to the extension of the three-year deadline granted by the court.
These claims, too, are without merit. The record discloses a clear written objection to the amendment request. And even if defense counsel had not objected, or was somehow not vocal enough in their opposition, such failing made no difference, because the order allowing the amendment gave plaintiff 20 days, which was ample time in which to file the document. Similarly, as the court pointed out, any conduct by defense counsel in regard to accepting service was immaterial, since the amendment itself was untimely. It was not defense counsel's duty to keep track of the plaintiff's procedural obligations by reminding him or his attorney of upcoming due dates. No one except plaintiff, or his attorney, was responsible for meeting the June 4 deadline. (See, e.g., Ostrus v. Price (1978) 82 Cal.App.3d 518, 526 ["Responsibility for the failure to comply with the requirements of [former] section 581a rests solely with plaintiffs," and dismissal may be proper even if defendant was aware of the complaint].) Plaintiff nevertheless missed that date by 10 days, filing the amendment on June 14. Service on the Doe defendants, of course, was even later still. In any event, plaintiff offers no authority for the untenable proposition that an attorney may waive or otherwise forfeit the rights of individuals the attorney does not represent. The trial court properly dismissed the action as to the 10 Doe defendants.
Disposition
The judgments entered on August 31 and September 13, 2010 are affirmed.
ELIA, Acting P.J. WE CONCUR: DUFFY, J. WALSH, J.
Judge of the Superior Court of Santa Clara County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.