Opinion
B309664
04-25-2022
CRAIG M. FIELDS et al., Plaintiffs and Appellants, v. LINDA YOUNG, Defendant and Respondent.
Glickfeld, Fields & Jacobson and Craig M. Fields for Plaintiffs and Appellants. Ferguson Case Orr Paterson and Wendy C. Lascher for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County. No. 19STCV39866, Lia Martin, Judge. Affirmed.
Glickfeld, Fields & Jacobson and Craig M. Fields for Plaintiffs and Appellants.
Ferguson Case Orr Paterson and Wendy C. Lascher for Defendant and Respondent.
HARUTUNIAN, J. [*]
Brothers Craig and Daren Fields, appellants and plaintiffs below, are the current co-trustees of their late father Gerald Fields's trust. Daren became co-trustee in 2019 after he, Craig, and Roberta Geller-Fields, their stepmother and Craig's former co-trustee, stipulated to a judgment terminating a probate action that Craig had brought against Roberta in 2017.
As is customary in disputes involving family members with common surnames, we refer to the members of the Fields family by first name in the interest of clarity and not out of disrespect. (See Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, 1136, fn. 1.)
Following this settlement, Craig and Daren sued Linda Young, respondent and defendant below. Young previously performed bookkeeping and accounting services with respect to trust assets, first for Gerald as trustee, then for Roberta as co-trustee, and finally for Craig and Roberta as co-trustees. Craig and Daren allege that Young breached her fiduciary duty and aided and abetted Roberta's breach of fiduciary duty vis-à-vis the trust.
Young filed a demurrer to Craig and Daren's first amended complaint on several grounds. The trial court sustained the demurrer on the grounds of "res judicata," explaining both that (i) the "primary right" underlying the probate action against Roberta was the same as that underlying the suit against Young; and (ii) the stipulated probate judgment established that no wrongdoing had occurred with respect to the administration of the trust such that no breaches of fiduciary duties could have occurred.
On appeal, Daren and Craig contend that the trial court misapplied the doctrine of issue preclusion. We agree with Daren and Craig. However, we find that Daren and Craig's claim against Young for aiding and abetting Roberta's breach of fiduciary duty is barred by claim preclusion and we find that Craig and Daren failed to state a direct claim for breach of fiduciary duty against Young. We therefore affirm.
Because we are reviewing a judgment after a demurrer, the operative factual background is drawn exclusively from the properly pleaded allegations in Craig and Daren's first amended complaint and matters judicially noticed by the trial court. (Heckart v. A-1 Self Storage, Inc. (2018) 4 Cal.5th 749, 753-754.) Our recitation of these facts is not an endorsement of their veracity.
Prior to his death, Gerald established the Amended and Restated Gerald Fields Living Trust. Gerald was the trustee of this trust until he became incapacitated in 2013. Upon his incapacity, Gerald ceased to be trustee and Roberta and Craig became successor co-trustees by operation of the trust instrument. While Roberta undertook management of the trust upon Gerald's incapacity, Craig was not notified that he was co-trustee until 2016, shortly after Gerald's death.
Young provided bookkeeping and accounting services with respect to trust assets during three time periods: (1) beginning in 2010 while Gerald was trustee; (2) between 2013 and 2016, while Roberta was unilaterally exercising the trustee's powers as co-trustee without Craig's knowledge or involvement; and (3) in 2017 after Craig, as co-trustee, hired Young to perform further services for the trust until her termination in September 2017.
At some point after Gerald's death, Craig discovered that Roberta had taken trust assets in contravention of Craig's interpretation of the terms of the trust instrument. After Roberta refused to return the disputed assets, Craig filed a petition in probate court in October 2017 for accounting, instructions, and fees. In the original probate petition, Craig alleged that Roberta had wrongfully taken, among others, the following trust assets: (a) proceeds of the sale of a home located at 623 Mesa Grande, Palm Desert, California; (b) proceeds of the sale of a Bentley automobile; and (c) a Genworth Financial life insurance death benefit (collectively, the Disputed Assets).
Craig filed a second probate petition against Roberta in February 2018, seeking (a) damages, (b) a constructive trust on distributions made to Roberta, and (c) instructions. The allegations underlying the second probate petition add detail to those underlying the original probate petition but largely cover the same ground and refer to the same assets.
In September 2019, Roberta and Craig (and Daren, who up until that point had been only a beneficiary of the trust) reached a settlement of the probate action. Their settlement was memorialized in a stipulated judgment, which was signed by Craig, Roberta, and Daren and entered by the superior court. The stipulated judgment contains several features the parties identify as relevant to this appeal. Most notably, it provides a broad release in favor of Roberta and certain of her associates, but certain claims against Young are specifically carved out of that release. The stipulated judgment further provides that Roberta is entitled to retain the Disputed Assets and that the judgment carries out the intent of the trust. Young did not sign the stipulated judgment and was never personally made a party to the probate action.
Two months after the superior court entered the stipulated probate judgment, Craig and Daren commenced the underlying lawsuit against Young. Their operative first amended complaint contains two counts against Young: (1) breach of fiduciary duty; and (2) aiding and abetting Roberta's breach of fiduciary duty. The key factual allegations underlying each are the same (a) that Young "aid[ed] and caus[ed] [Roberta] to distribute to herself [the Disputed Assets] in violation of the terms of the Trust . . .," (b) that Young "conceal[ed] from, and fail[ed] and refus[ed] to provide financial information regarding trust assets . . .," and (c)that Young "[f]ailed to timely inform Craig that he was Co-Trustee of the Trust."
Young filed a demurrer to the first amended complaint on six grounds: The affirmative defenses of both claim preclusion and issue preclusion, judicial estoppel, release, ratification or affirmation, and failure to state a claim. At Young's request, the trial court took judicial notice of the stipulated judgment and pleadings in the probate action. Based on Young's arguments and the papers in the probate action, the trial court sustained the demurrer without leave to amend on the ground of "res judicata."
This appeal followed.
DISCUSSION
A. Demurrer Standard and Standard of Review
A general demurrer challenges whether the allegations of a complaint are sufficient to state a cause of action. (Code Civ. Proc., § 430.10, subd. (e); SLPR, L.L.C. v. San Diego Unified Port Dist. (2020) 49 Cal.App.5th 284, 316 (SLPR).) In evaluating the sufficiency of the allegations, the trial court must accept the truth of all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law, and may also consider matters that may be judicially noticed. (Id. at p. 316.)
In appropriate cases the trial court may decide on the pleadings that claim or issue preclusion bars a complaint. "[I]f all of the facts necessary to establish that an action is barred on [preclusion] grounds appear on the face of the complaint," or are subject to judicial notice, "the complaint is subject to demurrer." (Brosterhous v. State Bar (1995) 12 Cal.4th 315, 324; Key v. Tyler (2019) 34 Cal.App.5th 505, 532 ["court may take judicial notice of court records in ruling on an issue of res judicata"]; Boyd v. Freeman (2017) 18 Cal.App.5th 847, 855 [claim preclusion "properly raised as a defense on demurrer when all relevant facts 'are within the complaint or subject to judicial notice' "].)
Our review of the trial court's judgment after sustaining a demurrer is de novo. (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43 (Rakestraw).) On appeal, it is the plaintiff's burden to show error by the trial court in sustaining a demurrer and we may affirm on any ground stated in the demurrer without regard to the trial court's basis for decision. (SLPR, supra, 49 Cal.App.5th at p. 317.) Thus, so long as there is some ground for affirmance, we must affirm even if the trial court relied on an improper ground. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 880, fn. 10.) Because a demurrer tests the legal sufficiency of a complaint, on appeal "the plaintiff must show the complaint alleges facts sufficient to establish every element of each cause of action." (Rakestraw, supra, at p. 43.)
We separately review for abuse of discretion a trial court's denial of leave to amend in connection with the sustaining of a demurrer. (SLPR, supra, 49 Cal.App.5th at p. 317.) In this regard, the plaintiff bears the burden to show that "there is a reasonable possibility that the defect in the complaint can be cured by amendment." (Ibid.)
B. Overview of "Res Judicata"
The doctrine of res judicata has been described as having two "aspects," the "primary" aspect being "res judicata," or "claim preclusion," and the "secondary" aspect being "collateral estoppel," or "issue preclusion." (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 823-824 (DKN).) To "avoid future confusion," our Supreme Court abrogated the labels "res judicata" and "collateral estoppel" in favor of "claim preclusion" and "issue preclusion," respectively. (Id. at p. 824; see also Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 91 [referring to res judicata as the "former[]" name of the claim preclusion doctrine].)
By deciding Young's demurrer on the basis of "res judicata," the trial court has sown precisely the confusion the Supreme Court sought to avoid. Indeed, Craig and Daren are adamant that the trial court's sole basis for decision was issue preclusion, whereas Young contends she prevailed on both claim and issue preclusion grounds. Preliminary clarification of these two doctrines is therefore in order.
As Witkin explains, "[t]he principle underlying the rule of claim preclusion is that a party who once has had a chance to litigate a claim before an appropriate tribunal usually ought not to have another chance to do so," whereas issue preclusion reflects the principle "that one who has actually litigated an issue should not be allowed to relitigate it . . . ." (7 Witkin, Cal. Procedure (6th ed. 2022) Judgment, § 365(1); see also Burdette v. Carrier Corp. (2008) 158 Cal.App.4th 1668, 1681.)
"Claim preclusion arises if a second suit involves (1) the same cause of action (2) between the same parties [or parties in privity with them] (3) after a final judgment on the merits in the first suit." (DKN, supra, 61 Cal.4th at p. 824.) For purposes of claim preclusion, a "cause of action" is not the same thing as a legal theory specified as a count in a complaint. (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 798 (Boeken).) Rather, it is "the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory . . . ." (Ibid.) California courts define a cause of action by reference to the "primary right," which is the right to be free from the injury suffered. (Cal Sierra Development, Inc. v. George Reed, Inc. (2017) 14 Cal.App.5th 663, 675 (Sierra Development) ["A primary right is the right to be free of a particular injury"].)
Because claim preclusion is concerned with common causes of action instead of specific issues, claim preclusion extends "not only [to] issues that were actually litigated in the prior proceeding, but also issues that could have been litigated in that proceeding." (Zevnik v. Superior Court (2008) 159 Cal.App.4th 76, 82 (Zevnik); see also Villacres v. ABM Industries Inc. (2010) 189 Cal.App.4th 562, 583 (Villacres); Gates v. Superior Court (1986) 178 Cal.App.3d 301, 308 (Gates).)
Whereas claim preclusion bars relitigation of the universe of issues implicated by the underlying cause of action, issue preclusion ordinarily applies only with respect to an issue that was "actually litigated." Moreover, it is not necessary that the party asserting issue preclusion be in privity with any party to the prior proceeding. (DKN, supra, 61 Cal.4th at p. 826.) As set forth in DKN, "issue preclusion applies (1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party." (Id. at p. 825.)
Even where each issue preclusion prerequisite is satisfied, "a court must consider whether application of the issue preclusion doctrine would comport with the doctrine's core policies, namely the preservation of the integrity of the judicial system, the promotion of judicial economy, and the protection of litigants from harassment by vexatious litigation." (Contreras-Velazquez v. Family Health Centers of San Diego, Inc. (2021) 62 Cal.App.5th 88, 100.)
C. The Trial Court's Analysis
The trial court began its analysis by enunciating the elements of claim preclusion. Rather than addressing these elements individually, however, the trial court proceeded to decide the matter by factual analogy to the decision in Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566 (Richard B. LeVine). Richard B. LeVine is a case in which the court left doubt about whether it applied claim or issue preclusion. (See id. at p. 573.) Here, the trial court obliquely invoked concepts of both claim and issue preclusion. For example, without defining the "primary right," the trial court concluded that "[t]he primary right at issue has been adjudicated, and res judicata applies." As discussed above, the "primary right" concept is unique to claim preclusion as it helps to define the cause of action. But the trial court also determined that Craig and Daren were bound by specific issues resolved by the stipulated judgment, including that Roberta is entitled to "keep the distributions and gifts she received under the trust" and "committed no wrongdoing as trustee," and "that the judgment carries out the intention of the trust."
Citing Zevnik, supra, 159 Cal.App.4th at pp. 82-83, the trial court stated: "Res judicata requires that the decision in the prior proceeding is final; and on the merits; the successor action is based on the same cause of action as the former one; and the parties to the former proceeding are: the parties in the successor action; or b. [sic] are in privity with them."
In conducting our de novo review, we separately address the applicability of issue preclusion and claim preclusion to the facts alleged in Craig and Daren's first amended complaint.
D. Claim Preclusion Bars Craig and Daren's Aiding and Abetting Count but Not Their Direct Count for Breach of Fiduciary Duty
Claim preclusion bars Craig and Daren from pursuing their count against Young for aiding and abetting Roberta's breach of fiduciary duty because such count is entirely derivative of claims against Roberta that Craig and Daren resolved in the stipulated judgment. However, claim preclusion does not bar their count against Young for direct breach of fiduciary duty.
1. Privity
The parties do not dispute that Daren is either a party or Craig's privy with respect to the stipulated judgment, which he signed, so we accept that he is. They disagree only as to Young's status.
Young asserts that she is a privy of Roberta's for claim preclusion purposes because "the only liability alleged against her [in the underlying action] is derivative of Roberta's actions [that were the subject of the probate action]." Young asserts no other basis for establishing privity. Craig and Daren respond that Young is not Roberta's privy because they have sued Young for "breach of her direct fiduciary duties to Gerald and Craig . . . ." As to the aiding and abetting count, Young is correct. As to the breach of fiduciary duty count, Craig and Daren are correct.
As explained in DKN, "[w]hen a defendant's liability is entirely derived from that of a party in an earlier action, claim preclusion bars the second action because the second defendant stands in privity with the earlier one." (DKN, supra, 61 Cal.4th at pp. 827-828.) Citing Richard B. LeVine, supra, 131 Cal.App.4th at page 579, Young urges that liability based on an aiding and abetting theory can only be derivative liability. Craig and Daren point us to no exceptions to this rule. Therefore, Young is Roberta's privy with respect to Craig and Daren's aiding and abetting breach of fiduciary duty count.
However, this rule does not shield the defendant in the second action from direct liability to the plaintiff that is not derivative of the liability of the defendant in the first action. (See DKN, supra, 61 Cal.4th at p. 828 ["None of these derivative liability cases [establishing privity] involves joint and several liability"]; Richard B. LeVine, supra, 131 Cal.App.4th at p. 578 ["all [cases cited as establishing privity through derivative liability] held a claim preclusion defense was available where the liability of one of the parties would be derivative only"].) This is true even if the liability is joint and several. Indeed, where two tortfeasors are jointly and severally liable for the same harm, the "injured party may . . . sue all those responsible together, or in separate actions, and may proceed to judgment against any or all of them until fully compensated for the injury." (DKN, supra, 61 Cal.4th at p. 821, fn. 7; see also Shuler v. Capital Agricultural Property Services, Inc. (2020) 49 Cal.App.5th 62, 69 (Shuler) [prior settlement with certain joint tortfeasors did not preclude recovery against remaining tortfeasors whose liability was joint and several as opposed to vicarious].)
Here, to the extent that Craig and Daren could establish that Young breached her own fiduciary duty, her liability for such breach would be direct and not derivative of Roberta's. Accordingly, Young is not Roberta's privy via derivative liability on Craig and Daren's direct breach of fiduciary duty count and claim preclusion cannot bar it.
However, since Young is Roberta's privy with respect to Craig and Daren's aiding and abetting Roberta's breach of fiduciary duty count, we must determine whether the other elements of claim preclusion are satisfied with respect to such count.
2. The Stipulated Judgment Is a Final Judgment on the Merits with Respect to Claims Against Roberta, and, by Extension, the Same Claims Asserted Derivatively Against Young
Young argues that stipulated judgments are final judgments on the merits as a matter of law with respect to matters included within their scope. Craig and Daren urge that their claims against Young are outside the scope of the stipulated judgment because they withdrew from its scope "the merits" of their claims and they expressly reserved all claims against Young.
Because Young can be Roberta's privy only with respect to the aiding and abetting breach of fiduciary duty count as to which Young's liability is derivative, we are concerned here only with whether the stipulated judgment is a final judgment on the merits of the direct claim against Roberta in the first instance. (See DKN, supra, 61 Cal.4th at p. 828 ["The nature of derivative liability so closely aligns the separate defendants' interests that they are treated as identical parties"].) It plainly is.
It is well settled in California that stipulated judgments constitute final judgments on the merits for purposes of claim preclusion. (See, e.g., Gates, supra, 178 Cal.App.3d at p. 309 [stipulated judgment is "res judicata, as a final judgment on the merits is binding on the parties, and bars the litigation of any cause of action arising out of the subject matter of that case"]; Villacres, supra, 189 Cal.App.4th at p. 569 ["A court-approved settlement in a prior suit precludes subsequent litigation on the same cause of action"].)
The stipulated judgment comprehensively resolves all direct claims that Craig and Daren had against Roberta. It recites that "Craig and [Roberta] have settled and resolved . . . all issues and disputes under the terms and conditions of this Judgment . . . ." Craig and Daren further agreed (i) to release Roberta from, among other things, all "claims" and "causes of action . . . of whatever kind or nature . . . whether or not alleged or that could have been alleged in the Petitions, contingent or fixed from the beginning of time to the date of the entry of th[e] Judgment"; (ii) to waive the protections of Civil Code section 1452; and (iii) that the "Judgment resolves all disputes in the Petitions . . . ." The broad release in favor of Roberta permits no argument that Craig and Daren reserved any cause of action as against her. (See, e.g., Needelman v. DeWolf Realty Co., Inc. (2015) 239 Cal.App.4th 750, 760 [broad settlement of claims bars attempt to relitigate the same claims].) Indeed, Craig and Daren's allegations in the first amended complaint confirm this: "Craig and [Roberta] settled all disputes between them, by Court Judgment . . . ." Craig not "admitting . . . the merits" of Roberta's position in the stipulated judgment does not change our analysis. Where the judgment states that it releases all causes of action against Roberta, it cannot be read as reserving any cause of action against Roberta for future litigation.
At oral argument, Craig and Daren asserted that Needelman is inapplicable because the parties in the two actions were the same in Needelman, whereas the current claims are not against Roberta. They ignore that their derivative claim, suing Young as Roberta's privy, causes Young to be treated the same as Roberta for claim preclusion purposes.
Nor does the exclusion of certain "claims or causes of action" against Young from the release of Roberta affect the stipulated judgment's preclusive effect on claims against Roberta or her privies. To be sure, the release does not waive claims against Young "arising out of [her] duties and responsibilities as agent for Gerald M. Fields or Craig, as trustees, or Craig and Daren [] as beneficiaries . . . ." But an express non-waiver of claims against Young does not amount to a waiver of any defenses by Young. Craig and Daren fail to explain how any such waiver by Young could be accomplished by an agreement to which Young was not a party.
Craig and Daren argue that "[w]hether Fields' claims in this lawsuit are barred by issue preclusion is based on the intent of the settling parties, not Young, a non-party, regarding the resolution of [the] settling parties' disputes, including whether the resolution was on the merits, and who is or is not released from liability." However, they point us to no authority, and we are aware of no California case so holding, that would allow parties to stipulate to judgment on direct claims but reserve the right to assert the same claims derivatively against a non-party for purposes of avoiding claim preclusion. The intent of the settling parties here was a full resolution and release of claims against Roberta. One consequence of this, intended or not, was to create a defense for privies sued derivatively through Roberta.
In short, the claim preclusion defense arises as a result of prior judicial resolution of common causes of action between parties or their privies. As the stipulated judgment resolved all direct claims against Roberta, Young is entitled to rely on it as a privy to establish a claim preclusion defense to claims asserting that Young is derivatively liable through Roberta.
3. The Action Below Embraces Causes of Action Involved in the Probate Action
As noted above, a "cause of action" for claim preclusion purposes is "the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory . . . ." (Boeken, supra, 48 Cal.4th at p. 798.) The right to be free of such harm is referred to as the primary right. (Sierra Development, supra, 14 Cal.App.5th at p. 675.) Therefore, the cause of action is reflected in" 'the facts from which the plaintiff's primary right and the defendant's corresponding primary duty have arisen, together with the facts which constitute the defendant's delict or act of wrong. [Citation.]' [Citation.] [¶]' . . . If the matter was within the scope of the action, related to the subject matter and relevant to the issues, so that it could have been raised, the judgment is conclusive on it despite the fact that it was not in fact expressly pleaded or otherwise urged . . . .'" (Tensor Group v. City of Glendale (1993) 14 Cal.App.4th 154, 160.)
Young asserts that the probate action and the action below involve a common primary right: the trust's right to the Disputed Assets. Craig and Daren's arguments in response are unpersuasive.
Comparing the allegations of the underlying first amended complaint and the probate petitions, there is no question that they embrace the same primary right. The probate petitions were necessary, they explain, because Roberta unilaterally distributed assets to herself in violation of the trust, failed and refused to account for trust assets, and refused to compensate the trust for damages it suffered as a result of the foregoing. Among the assets that Craig alleged Roberta wrongfully diverted in the probate action were the Disputed Assets.
In their first amended complaint below, Craig and Daren allege that Young was "personally involved in aiding and causing [Roberta] to distribute to herself Trust assets in violation of the terms of the Trust," specifically the Disputed Assets. Thus, both actions involved the primary right that Young identifies.
In their opening brief, Craig and Daren define the primary right by legal theory and named defendant. But a primary right derives from the harm, not the legal theory (Federation of Hillside & Canyon Assns. v. City of Los Angeles (2004) 126 Cal.App.4th 1180, 1202) and Roberta and Young are treated as the same party for the purposes of claims on which Young is derivatively liable through Roberta. (DKN, supra, 61 Cal.4th at p. 828.)
In their reply brief, Craig and Daren assert that the underlying action and the probate action did not involve the same primary right "as set forth above." We read this as a reference to Craig and Daren's argument that they did not seek to recover from Roberta on account of the disputed distributions in the probate action but sought only damages "limited to 'lost profits' caused by Roberta's mismanagement of specific trust real properties . . . ." This argument is contrary to the pleadings in the probate action. The second probate petition seeks "damages, including lost profits" caused by Roberta's "actions in violation of the Trust . . . ." Such damages necessarily also include those on account of Roberta's distribution of "Trust assets [to] herself in violation of the Trust" as alleged in the second probate petition. Indeed, the second probate petition seeks to impose a constructive trust on assets so distributed. But, even if the probate action did not seek damages on account of the Disputed Assets, such relief could have been included, given the allegations in that action that Roberta's unilateral distribution of the Disputed Assets to herself was "in violation of the trust."
In sum, the elements of claim preclusion are satisfied with respect to Craig and Daren's count for aiding and abetting Roberta's breach of fiduciary duty. Young's demurrer was therefore properly sustained as to that count.
E. Issue Preclusion Does Not Bar Craig and Daren from Asserting Claims Against Young for Direct Breach of Fiduciary Duty
As noted above, the prerequisites to the defense of issue preclusion are (1) a final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party. (DKN, supra, 61 Cal.4th at p. 825.) Here, there was no "actual litigation" of the issues on which Young rests her issue preclusion defense so we need not consider the other prerequisites or whether applying issue preclusion in this case would be consistent with the policies underlying it.
"A settlement which avoids trial generally does not constitute actually litigating any issues and thus prevents application of collateral estoppel. [Citations.]" (Rice v. Crow (2000) 81 Cal.App.4th 725, 736.) However, a stipulated judgment may be given preclusive effect if the parties thereto manifest an intent in the judgment to give it preclusive effect. (Landeros v. Pankey (1995) 39 Cal.App.4th 1167, 1172 (Landeros); California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1990) 50 Cal.3d 658, 664; see also Malkoskie v. Option One Mortgage Corp. (2010) 188 Cal.App.4th 968, 975 [parties may limit preclusive effect of stipulated judgment by expressly withdrawing issue from judgment].)
"' "The interpretation of the effect of a judgment is a question of law within the ambit of the appellate court." '" (Shuler, supra, 49 Cal.App.5th at p. 68.) We therefore review the trial court's interpretation of the stipulated judgment de novo. (Ibid.)
Here, the trial court relied on two findings in the stipulated judgment to conclude that Craig and Daren's claims against Young were precluded. These findings were in paragraph 3, whereby Roberta is "entitled to keep" the Disputed Assets, and in paragraph 21, which states that "th[e] Judgment carries out Gerald's Trust intent and is consistent with and carries out the terms of the Trust." According to the trial court, these findings conclusively established that Roberta "committed no wrongdoing as trustee" such that Young could not have committed any wrongdoing in assisting her.
Young identifies these same paragraphs of the stipulated judgment as the "controlling findings" that establish her issue preclusion defense. Reasoning as the trial court did, Young argues that "[a]cting in accord with the Trust's intent to help Roberta obtain assets that the Trust entitled Roberta to receive defeats the possibility of imposing liability on Young."
We find that issue preclusion does not bar Craig and Daren's claims for breach of fiduciary duty against Young because the stipulated judgment did not determine that the Disputed Assets were distributed to Roberta in accordance with the terms of the trust. That the stipulated judgment "entitled [Roberta] to keep" the Disputed Assets is not the same as saying she was entitled to take them in the first instance. Indeed, paragraph 3 expressly reserves on whether Roberta was entitled to receive the assets at the time of their distribution. It describes the assets as "claimed by Craig to be Trust assets" and permits Roberta to retain them "whether or not [Craig's] claim is accurate." Moreover, the stipulated judgment is by no means a surrender by Craig or renunciation of his allegations in the probate action. Instead, it reflects a reordering of rights with respect to the trust assets and financial arrangements between the parties on a go-forward basis. It is plainly a settlement of litigation positions by which the parties intended merely" 'to put an end to the litigation at hand'" (Landeros, supra, 39 Cal.App.4th at p. 1172); not bind themselves to a particular position in future litigation with a third party. And the stipulated judgment certainly does not establish that Roberta committed no wrongdoing.
Likewise, paragraph 19 provides that the stipulated judgment contains no "admission or waiver by the parties except as expressly set forth [t]herein" and the stipulated judgment contains no determination that Craig was not entitled to notice that he became co-trustee nor any limit on the financial information to which he may have been entitled to by law. Young does not assert otherwise.
Further, the statement that "th[e] Judgment . . . is consistent with and carries out the terms of the Trust" cannot be read as applying only to the disposition of the Disputed Assets in isolation from the other terms of the compromise. Those other terms include that the judgment reserved certain claims against Young (paragraph 11) and that the trust will indemnify Roberta against certain claims but not any claims relating to the Disputed Assets (paragraph 9).
In Shuler, our sister court found that a stipulated judgment in a prior federal action that settled claims against certain joint tortfeasors posed no bar to recovery against the non-settling joint tortfeasors in a subsequent state court action where the judgment released only the settling joint tortfeasors. (Shuler, supra, 49 Cal.App.5th at p. 69.) It explained: "In the [stipulated federal judgment], appellants did not waive their right to seek full compensation for their loss from other tortfeasors under the California rule of joint and several liability. They [only] waived their right to seek further compensation from the [settling defendants]. Therefore, the incorporation of the settlement into a judgment does not shield respondents from joint and several liability." (Ibid.)
So too here. The terms of the stipulated judgment retaining claims against Young and limiting the scope of Roberta's indemnification rights reflect that the parties anticipated the possibility of further litigation against Young and further litigation with respect to the Disputed Assets.
In sum, the stipulated judgment did not determine whether distributions of the Disputed Assets to Roberta were made in accordance with the terms of the trust or whether Craig was improperly denied notice and/or information to which he was entitled as a co-trustee. Issue preclusion therefore does not bar Craig and Daren's pursuit of direct claims against Young that rely on such theories.
We do not address what rights Young would have against Roberta (or anyone else) in the event Craig and Gerald were to prevail on any such claims or Young's right to offset the value of the consideration Roberta gave up pursuant to the stipulated judgment. (Cf. Rice v. Crow, supra, 81 Cal.App.4th at p. 741.)
F. Craig and Daren Failed to Meet Their Burden on Appeal to Show They Stated a Claim for Breach of Fiduciary Duty
Failing affirmance on the grounds stated by the trial court, Young urges us to affirm on the grounds of judicial estoppel and that Craig and Daren failed to state a claim. She further contends that, by failing to argue in their opening brief points relevant to Young's other demurrer grounds, Craig and Daren have forfeited them. To this last point, Craig and Daren respond that they were not obligated to address demurrer grounds not addressed by the trial court and that this court should not rule on any such grounds because Young did not file a cross appeal. We resolve this preliminary dispute before turning to the substance of Craig and Daren's claim for breach of fiduciary duty.
Young does not press on appeal her other demurrer grounds, i.e., release or the doctrine of ratification or affirmation. We therefore have the discretion to treat these grounds as abandoned. (Platner v. Vincent (1921) 187 Cal. 443, 447 [issues raised in demurrer but not mentioned in respondent's brief "will be regarded as abandoned"].)
1. Consideration of Alternative Grounds for Affirmance Is Mandatory
Appellate courts must affirm a judgment after a demurrer was sustained if it is correct for any reason, regardless of the trial court's basis for decision. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 72 ["It is the correctness of the trial court's action in sustaining a demurrer, not its reasons, which is reviewable"]; see also Martis Camp Community Assn. v. County of Placer (2020) 53 Cal.App.5th 569, 610 ["We review the correctness of the trial court's action in sustaining the demurrer, [not] the court's statement of reasons for its action"].)
Although we may consider any legal basis on which to affirm, whether or not included in the demurrer, we must consider the reasons the defendant advanced in the demurrer (subject to our discretion to treat those not reasserted on appeal as abandoned). (City of Industry v. City of Fillmore (2011) 198 Cal.App.4th 191, 205 [consideration of all demurrer grounds mandatory; grounds not raised in demurrer discretionary subject to opportunity to parties to brief on appeal]; see also Bichai v. Dignity Health (2021) 61 Cal.App.5th 869, 877 [appellate courts affirm on any basis stated in demurrer]; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [same].) Thus, it is Craig and Daren's appeal, and not any cross-appeal by Young, that puts into play the issues properly raised in Young's demurrer. (See, e.g., Furia v. Helm (2003) 111 Cal.App.4th 945, 948, fn. 2 [defendant's cross-appeal of trial court's failure to sustain demurrer on an alternative ground was "simply an alternative argument in support of the judgment and is not the proper basis for a cross-appeal"].)
As the appellants, it is Craig and Daren's burden to demonstrate the existence of reversible error. (Berman v. HSBC Bank USA, N.A. (2017) 11 Cal.App.5th 465, 471 (Berman).) Failure to meet that burden in an opening brief may result in waiver or forfeiture. (Ibid.; see also Hastaran v. Marchand (1913) 23 Cal.App. 126, 134 ["[E]very point relied upon for a reversal should have been stated and argued in the opening brief . . . and therefore points not so stated and argued may be deemed to be waived"].) Because showing merely that the trial court sustained a demurrer for the wrong reason is insufficient to show reversible error, an appellant must address in its opening brief each ground for demurrer argued to the trial court. (Cf. Weaver v. Shell Oil Co. (1933) 129 Cal.App. 232, 234 ["[T]he burden is upon appellants to show error in the ruling. In other words, it is incumbent upon appellants to overcome the presumption in favor of the order and this cannot be done by merely giving consideration to some of the grounds upon which the motion was based"].) Because Craig and Daren failed to address several grounds for the demurrer in their opening brief, we could affirm on this basis alone.
Craig and Daren assert in their reply brief that they did address in their opening brief the other grounds for demurrer, "albeit in cursory fashion." Their opening brief states only that "the FAC alleges sufficient facts to state causes of action for breach of fiduciary duty and aiding and abetting breach of fiduciary duty" and that "ratification and affirmation are inapplicable here." A brief must contain reasoned argument and legal authority to support its contentions or the court may treat the claim as forfeited. (Cal. Rules of Court, rule 8.204(a)(1)(B); United Grand Corp. v. Malibu Hillbillies, LLC (2019) 36 Cal.App.5th 142, 146, 153.) Craig and Daren's discussion of the other demurrer grounds in their opening brief falls short of this requirement.
However, "the rule that legal arguments made in the trial court but not addressed in an opening brief are forfeited is a discretionary one, and we may consider the merits of the arguments." (Barriga v. 99 Cents Only Stores LLC (2020) 51 Cal.App.5th 299, 321; see also Scott v. City of San Diego (2019) 38 Cal.App.5th 228, 243 [same].) Between the parties' arguments in the trial court and the arguments exchanged between Young's respondent's brief and Craig and Daren's reply brief, the dispositive issues here have been adequately addressed by both sides and are sufficiently framed and developed for us to decide.With this foundation, we exercise our discretion to consider, notwithstanding Craig and Daren's failure to address them in their opening brief, whether the demurrer was properly sustained on another demurrer ground not relied upon by the trial court. (Accord, Berman, supra, 11 Cal.App.5th at p. 471.)
We note Craig and Daren's acknowledgment that judicial estoppel and failure to state a claim for breach of fiduciary duty "were fully briefed on demurrer."
2. Craig and Daren Failed to Meet Their Burden to Show They State a Claim for Breach of Fiduciary Duty
As appellants, Craig and Darren bear the burden of showing that they have stated a valid claim. (Rakestraw, supra, 81 Cal.App.4th at p. 43 ["Because a demurrer tests the legal sufficiency of a complaint, the plaintiff must show the complaint alleges facts sufficient to establish every element of each cause of action"]; see also Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.App.4th 396, 404.)
To plead a cause of action for breach of fiduciary duty, the plaintiff must show the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. (McMillin v. Eare (2021) 70 Cal.App.5th 893, 911 [listing same elements].) Under California law, a fiduciary relationship may arise in one of two ways, either: (1) a person "knowingly undertake[s] to act on behalf and for the benefit of another," i.e., by agreement; or (2) a person "enter[s] into a relationship which imposes that undertaking as a matter of law." (Hasso v. Hapke (2014) 227 Cal.App.4th 107, 140) The mere allegation that a person is a fiduciary is a legal conclusion, not a well-pleaded fact. (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1558.) As such, a plaintiff must allege the particular facts giving rise to the claimed fiduciary duty.
The first amended complaint alleges that Young's fiduciary duty arose in favor of various trustees of the trust "because of her bookkeeping and accounting services" relating to trust assets. They allege that such duty was owed first to Gerald from 2010 to 2013 while he was trustee; then, upon Gerald's incapacity, to Roberta and Craig as co-trustees beginning in January 2013; and finally to Craig and Roberta when "Craig hired Young in or about January 2017, for a fee, to provide bookkeeping and accounting services for the then Co-Trustees . . . ." Nowhere in the first amended complaint do Craig and Daren allege that Young ever owed a fiduciary duty to Daren or to Craig and Daren as beneficiaries; rather, they assert only that, as co-trustees, Craig and Daren have standing to hold Young "responsible for [her] breaches of [her] duty to the predecessor trustees of the Trust, including Gerald, regarding Trust assets."
This allegation is contradicted by the stipulated judgment to the extent that it extends to breaches of Young's duty to Roberta as a predecessor trustee. The stipulated judgment releases all of Daren and Craig's claims against Roberta's bookkeepers and accountants excepting only claims against Young arising out of her "duties and responsibilities as agent for Gerald M. Fields or Craig, as trustees, or Craig and Daren as beneficiaries, only . . . ."
Craig and Daren have failed to meet their burden to show that their allegations establish a fiduciary duty owed by Young to any of the trustees or co-trustees. In their reply brief, Craig and Daren observe that Young offers no authority "that a bookkeeper or accountant as a matter of law does not have a fiduciary duty to his or her employer in this circumstance." Again, Craig and Daren misapprehend their burden on appeal. As appellants, they bear the burden of showing that they have stated a valid claim. (Rakestraw, supra, 81 Cal.App.4th at p. 43.)
During oral argument, Craig and Daren went further and argued that Young had admitted the existence of a fiduciary duty in her demurrer. The record contains no such admission. The demurrer asserted that the first amended complaint failed to allege a fiduciary relationship between Young and Craig and Daren and, in any event, no such duty could have existed when Craig and Daren allege their damages were incurred. Young further argued that any possible fiduciary relationship with Roberta could not have been breached. This falls far short of being an admission that Young owed fiduciary duties to the trustees as a matter of law.
Craig and Daren offer no discussion and just two citations that could be viewed as an effort to establish Young's fiduciary duty to the trustees by virtue of providing bookkeeping and accounting services. The first citation is to Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834, a professional negligence case, where the question was whether "the instruction given on the effect of a fiduciary relationship on respondents' exercise of diligence in discovering appellants' negligence" amounted to prejudicial error. (Id. at p. 854.) Electronic Equipment Express does not address the basis for any fiduciary duty that may have been found to have existed under the particular facts of the case and the existence of any such duty was not asserted as the basis for liability. The second citation is to the dissenting opinion in International Engine Parts v. Feddersen & Co. (1995) 9 Cal.4th 606, another professional negligence case, wherein the dissent's author broadly asserted that "all professionals are under a fiduciary duty to fully disclose to their clients facts materially affecting the client's interests." (Id. at p. 632.) These authorities are insufficient to establish that one providing any bookkeeping or accounting services becomes a fiduciary to their client as a matter of law. Craig and Daren have cited no case holding that a bookkeeper or accountant inherently stands in a fiduciary relationship to their client.
Indeed, we have located no California decision holding that merely providing bookkeeping and accounting services to a client makes the provider of such services a fiduciary to the client as a matter of law. Providing accounting and bookkeeping services is not one of the "technical, legal relationships" identified in as creating such a duty in Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 632, where the court attempted to catalog "many" of those relationships recognized in past California court decisions. Moreover, even if "accountant" or "bookkeeper" were a relationship recognized by California courts as creating a fiduciary duty, mere invocation of the label is insufficient to establish a fiduciary relationship. In Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 245, this court observed that the allegation that a defendant was a stockbroker, a status sometimes recognized as creating a fiduciary relationship with the stockbroker's client, was insufficient to plead a fiduciary duty because the nature of the particular stockbroker's services determines the scope of any duty. Whereas a stockbroker providing investment advice owes a fiduciary duty, one acting solely to implement its client's investment decisions may not. (See ibid., citing Petersen v. Securities Settlement Corp. (1991) 226 Cal.App.3d 1445, 1454; Brown v. California Pension Administrators & Consultants (1996) 45 Cal.App.4th 333, 348 (California Pension).)
Like those of stockbrokers, the roles of accountants and bookkeepers are varied. Here, the duties that Young allegedly performed appear ministerial in nature. The first amended complaint does not allege that Young had check signing authority; it alleges merely that she prepared and deposited checks. Likewise, it does not allege that Young negotiated property sales on Roberta's behalf; it alleges merely that she prepared invoices and communicated with purchasers as necessary to facilitate the sales. These allegations suggest that Young was merely carrying out Roberta's instructions with respect to property managed and controlled by Roberta, an arrangement that suggests a lack of fiduciary duty. (See California Pension, supra, 45 Cal.App.4th at p. 348 [no stockbroker fiduciary duty where "relationship was confined to [defendants'] performance of transactions selected by their customers"]; Vai v. Bank of America National Trust & Savings Association (1961) 56 Cal.2d 329, 338 ["The key factor in the existence of a fiduciary relationship lies in control by a person over the property of another"].)
Absent argument or authority from Craig and Daren to establish it, we are unprepared to accept that the allegation that Young provided bookkeeping and accounting services to the trustees of the nature described in the first amended complaint created a fiduciary relationship as a matter of law. In short, it is not enough to simply assert a fiduciary duty existed in this case. We decline to search for the legal authority or factual allegations that were Craig and Daren's duty to identify and discuss if they exist. (Mansell v. Board of Administration (1994) 30 Cal.App.4th 539, 545-546 [not role of reviewing court to act as "backup counsel" for the appellant].) Based on the showing made to this court, we cannot find that the demurrer was sustained in error.
We also note that Craig and Daren's oral argument was, in many respects, an improper attempt to belatedly raise arguments and allegations that should have been included in their briefs. They had two bites of the apple with their opening and reply briefs, and are not entitled to a third, absent good cause. The time for setting forth the contents of a proposed second amended complaint was when the briefs were filed, not during oral argument with no meaningful opportunity for Young to respond. We view Craig and Daren as having waived the new points raised during argument.
G. Leave to Amend
In order to show entitlement to leave to amend on appeal, a "plaintiff 'must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.' [Citation.] The assertion of an abstract right to amend does not satisfy this burden. [Citation.] The plaintiff must clearly and specifically set forth the 'applicable substantive law' [citation] and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, the plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action. [Citations.] . . . [¶] The burden of showing that a reasonable possibility exists that amendment can cure the defects remains with the plaintiff; neither the trial court nor [the appellate] court will rewrite a complaint. [Citations.] Where the appellant offers no allegations to support the possibility of amendment and no legal authority showing the viability of new causes of action, there is no basis for finding the trial court abused its discretion when it sustained the demurrer without leave to amend. [Citations]." (Rakestraw, supra, 81 Cal.App.4th at pp. 43-44.)
In their papers, Craig and Daren sought leave to amend only to offer an interpretation of the stipulated judgment that would help them to elude Young's defense of issue preclusion. We have determined that issue preclusion does not apply, rendering this request moot.
Craig and Daren have not otherwise carried their burden to show in their briefs an entitlement to amend in order to state a claim for breach of fiduciary duty. Not even in their reply, when belatedly arguing that they stated a claim for breach of fiduciary duty, did Craig and Daren indicate any additional facts that would fortify their claim against deficiencies Young identified in her demurrer. Nor did they do so below in opposing the demurrer. Following Rakestraw, supra, they have given us no basis for finding the trial court abused its discretion in denying them leave to amend. (Rakestraw, supra, 81 Cal.App.4th at pp. 43-44.)
Craig and Daren's attempt to present proposed amendments to the complaint in their oral argument, with no meaningful opportunity for Young to respond, was too little, too late, as we indicated above.
At oral argument, Craig argued that it would be impractical to suggest amendments to fortify a complaint against deficiencies that were not determined by a trial court that sustained the demurrer on an affirmative defense rather than for failure to state a claim. But Craig and Daren's predicament is largely of their own creation. Had they recognized our obligation to affirm on any proper ground stated in the demurrer, they would have included argument and authority in their opening brief as to why they believed they stated a claim. In matching their allegations to the elements of each claim, they could have acknowledged potential shortcomings and proposed additional allegations. Young, in turn, would have had an opportunity to respond, and any deficiencies she noted in her responding brief could have been addressed in Craig and Daren's reply, either by argument, proposed curative amendments, or both.
We do not suggest that an appellate court is obligated to consider curative amendments proposed for the first time in a reply brief. Indeed, the general rule is to the contrary. (See, e.g., Shimmon v. Franchise Tax Board (2010) 189 Cal.App.4th 688, 694 [rejecting request for leave to amend made for the first time on reply in absence of showing of good cause].) And we certainly have no obligation to consider amendments proposed for the first time during the oral argument, as we indicated above.
H. Request for Judicial Notice
Craig and Daren requested that we take judicial notice of certain pleadings and other documents concerning related attorney malpractice actions as evidence that, by the stipulated judgment, they did not intend for issue preclusion to apply to their claims against Young or to release Young from claims. As we find issue preclusion inapplicable and agree that Craig and Daren did not intend to affirmatively release Young from certain claims in the stipulated judgment, we deny the request for judicial notice as moot.
DISPOSITION
The judgment is affirmed. Young is entitled to her costs on appeal.
We concur: GRIMES, Acting P.J., WILEY, J.
[*] Judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.