Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of San Diego County Super. Ct. No. GIC 847993, Steven R. Denton, Judge.
O'ROURKE, J.
Between 1997 and 2004 plaintiff Harriet Fowler invested over $3 million in promissory notes and securities in companies recommended by William J. Zures, her financial advisor. Defendant LaSalle Bank acted as custodian of Fowler's accounts. After Zures died of an apparent suicide, Fowler learned that most of the money she had invested with him was gone.
Fowler filed a complaint which alleged 26 causes of action against LaSalle and other individuals and entities who are no longer defendants in the case. LaSalle successfully demurred to the fourth amended complaint's cause of action for aiding and abetting breach of fiduciary duty, and the court granted summary judgment in favor of LaSalle on the remaining causes of action for breach of contract, negligence and breach of fiduciary duty set forth in the fifth amended complaint. The court entered judgment for LaSalle, but denied its request for over $500,000 in attorney fees from Fowler.
Fowler appeals, arguing the court erred in sustaining LaSalle's demurrer to the fourth amended complaint and granting summary judgment. She also asserts that the court abused its discretion in denying her request for leave to reinstate the aiding and abetting cause of action in the fifth amended complaint. LaSalle cross-appeals, contending that the court erred in rejecting its request for attorney fees on a point not raised or briefed by the parties. Alternatively, LaSalle argues that properly interpreted, its written agreement with Fowler supports an award of attorney fees. We reject the parties' arguments and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
In 1991, at age 61, Harriet Fowler received several million dollars as part of a divorce settlement. By 1998 she held approximately $6 million in bonds and treasury notes at First American Trust and individual retirement accounts (IRA's) at Jack White & Company.
Fowler worshiped at the Church of the Nativity in Rancho Santa Fe after her divorce. She discussed many things, including finances, with the pastor, Father Dennis Clark. Father Clark recommended that Fowler talk with Zures, who served as an investment advisor to Clark and other parishioners.
Fowler met with Zures in early 1997. He promised to select safe and comfortable investments that would preserve her capital. Fowler hired Zures as her investment advisor in April 1997. She also followed Zures's recommendation to move her assets to Security Trust, a licensed trust company that provided custodial services for nontraditional or alternative investments. Defendant LaSalle is the successor in interest Chicago Trust which was successor in interest to Security Trust.
Fowler opened two accounts with Security Trust: an IRA account and a custodial account. In April 1997 Fowler executed a document titled "CUSTODIAL SERVICES AGREEMENT and APPOINTMENT OF INVESTMENT ADVISOR" (Custodial Services Agreement) under which she appointed Zures her financial advisor for purposes of directing the investment and reinvestment of assets held in the custodial account. Fowler agreed to terms and conditions of the Custodial Services Agreement which included:
"3. Investment Authority, Responsibility and Direction:
I . . . have appointed the above referenced Investment Advisor to direct the investment and reinvestment of the assets in my Account. Security Trust Company is hereby authorized and directed to act upon any and all investment directions given by the above referenced Investment Advisor without obtaining my . . . approval. Security Trust Company is not acting as an Investment Advisor or Counselor, and is not offering any opinion or judgment on any matter pertaining to the nature, value, potential value or suitability of any investment, and shall not be responsible for the results of the acts or omissions of the Investment Advisor's directions.
"4. Statements of Account:
Quarterly, or more frequently if requested by the Principal, the Custodian shall render to the Principal statements of account showing all receipts and disbursements of the Custodian under the terms hereof.
" . . . .
"9. Indemnification of Custodian:
The Principal agrees to indemnify the Custodian for, and to hold it harmless against any loss, liability, claim or expense incurred without fraud, gross negligence or willful misconduct by the Custodian, arising out of or in connection with the acceptance or administration of this Custodial Services Agreement, including without limitation, the costs and expenses of defending against any such loss, liability, claim or expense."
Pursuant to the Custodial Services Agreement, Security Trust held the investments and cash in Fowler's accounts, paid her monthly bills, and bought and sold Fowler's account assets at the direction of Zures and/or Fowler. Security Trust also kept track of interest and principal payments made in connection with the various limited partnerships and promissory notes that Zures advised Fowler to invest in.
Between April 1997 and March 2004 Zures placed Fowler's money in 48 separate investments involving at least 30 different entities. Zures was a principal, managing agent, managing member, director or officer of at least 22 of these entities. After Zures's death in May 2004 Fowler discovered that roughly half of her wealth had dissipated.
Fowler filed her original complaint for damages a year later. The first amended complaint named as defendants the various business entities that Zures had advised Fowler to invest in, as well as Zures's widow Margaret Ann Zures, the estate of William J. Zures, Dennis Clark, the Hartford Life and Annuity Insurance Company and LaSalle. Fowler represents that by June 2007 Hartford and Margaret Zures had settled, and she had dismissed Father Clark and all the remaining defendants except LaSalle.
The second amended complaint alleged that LaSalle violated California securities laws, aided and abetted Zures's breach of fiduciary duty, and aided and abetted elder financial abuse. The court sustained LaSalle's demurrers with leave to amend. Citing Casey v. U.S. Bank National Association (2005) 127 Cal.App.4th 1138, 1144-1145 (Casey), the court stated that to succeed in a cause of action for aiding and abetting breach of fiduciary duty, Fowler must prove defendant had actual knowledge of the specific primary wrong and that defendant substantially assisted in committing the primary wrong. It noted that the primary wrong alleged in the second amended complaint was "William Zures' fraudulent scheme to bilk plaintiff out of her money by 'investing' the money on her behalf in sham corporations that he controlled." Thus, Fowler was required to allege facts showing that "LaSalle had actual knowledge that Zures (1) made false representations regarding the overall investment worth of the various companies; and (2) concealed from plaintiff the fact that he controlled the various companies."
Fowler filed a third amended complaint which added and renumbered the causes of action against LaSalle. The complaint alleged that LaSalle violated California securities laws, breached its fiduciary duty, breached the Custodial Services Agreement, aided and abetted Zures's breach of fiduciary duty, and aided and abetted elder financial abuse. Before the hearing on LaSalle's demurrer and motion to strike the third amended complaint, the court granted Fowler leave to file a fourth amended complaint and ruled LaSalle's demurrer and motion moot.
LaSalle renewed its demurrers to Fowler's claims. The court overruled LaSalle's demurrers to the 22nd, 23rd and 24th causes of action. It sustained the demurrers to the aiding and abetting claims set forth in the 25th and 26th causes of action without leave to amend. Citing its previous ruling, the court ruled that "[t]he allegations contained within paragraphs 270, 272, 274, 275, 281 and 282 [were] insufficient and [did] not allege facts meeting [the standard set forth in Casey, supra, 127 Cal.App.4th at pages 1144-1145]. Plaintiff's allegations described negligent conduct, but not that defendant had actual knowledge of Zures' fraudulent scheme." (Italics omitted.) The court denied Fowler leave to amend because she "[had] not demonstrated that additional facts [could] be pled."
LaSalle moved for summary judgment and summary adjudication on the remaining causes of action in November 2006 and the court set the hearing on February 9, 2007. Before those motions were heard, Fowler sought leave to amend the fourth amended complaint to renumber the causes of action against LaSalle and reinstate the cause of action for aiding and abetting breach of fiduciary duty. After hearing argument, the court allowed Fowler to file a fifth amended complaint, but denied her leave to assert the aiding and abetting claim against LaSalle.
LaSalle's motion for summary judgment now focused on Fowler's fifth amended complaint without the cause of action for aiding and abetting breach of fiduciary duty. After Fowler filed her opposition papers, LaSalle submitted a reply brief that included reference to volume two of the deposition testimony of William Exeter (former operational head of Security Trust and Chicago Trust in San Diego). Fowler objected to the introduction of new evidence and arguments. She also argued in "sur reply" that under new case law, Exeter's deposition testimony established the actual notice required to state a cause of action for aiding and abetting breach of fiduciary duty.
The court granted summary judgment in favor of LaSalle. The court stated in its tentative ruling that it "did not consider any of the evidence submitted with the reply." At oral argument, Fowler argued that the Exeter testimony she earlier sought to exclude justified reconsideration of her aiding and abetting claim. The court took the matter under submission, but issued an order which confirmed the tentative ruling and once again rejected Fowler's attempt to allege a claim for aiding and abetting breach of fiduciary duty.
Undaunted, Fowler sought leave to file a sixth amended complaint by motion after entry of the summary judgment order but before entry of judgment. The court denied the motion as an untimely motion for reconsideration or, alternatively, that the court lacked jurisdiction to entertain the amended pleading. LaSalle unsuccessfully sought $501,942.29 in attorney fees under the Custodial Services Agreement.
The court entered final judgment in favor of LaSalle. This appeal and cross-appeal followed.
DISCUSSION
Fowler's Appeal
I
Fowler's Cause of Action for Aiding and Abetting Breach of Fiduciary Duty
As we explained, Fowler made numerous attempts to plead a cause of action for aiding and abetting Zures's breach of fiduciary duty. On appeal she contends that the court erred in sustaining LaSalle's demurrer to the fourth amended complaint and denying her leave reinstate the aiding and abetting cause of action in her fifth amended complaint. Fowler also argues that if the aiding and abetting cause of action had been part of the fifth amended complaint, she presented triable issues of material fact on that claim. We conclude there is no merit in Fowler's contentions.
A. LaSalle's Demurrer to the Fourth Amended Complaint:
On appeal of an order sustaining a demurrer, ". . . we exercise our independent judgment about whether the complaint states a cause of action as a matter of law. [Citation.] We deem to be true all material facts properly pled [citation] and those facts that may be implied or inferred from those expressly alleged [citation]." (Montclair Parkowners Ass'n. v. City of Montclair (1999) 76 Cal.App.4th 784, 790 (Montclair Parkowners).)
A common law claim for aiding and abetting an intentional tort such as breach of fiduciary duty must allege that: (1) defendant knew the other person's conduct constituted a breach of duty and gave substantial assistance or encouragement to the other to so act, or (2) the defendant gave substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constituted a breach of duty to the third person. (Casey, supra, 127 Cal.App.4th at p. 1144; see also Rest.2d Torts, § 876.) The question here is whether Fowler adequately pleaded knowledge and substantial assistance.
What constitutes substantial assistance turns on the extent of defendant's knowledge of the underlying tort. Casey explains that "even 'ordinary business transactions' a bank performs for a customer can satisfy the substantial assistance element of an aiding and abetting claim if the bank actually knew those transactions were assisting the customer in committing a specific tort. Knowledge is the crucial element." (127 Cal.App.4th at p. 1145.) Knowledge in the context of liability for aiding and abetting a breach of fiduciary duty "depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted." (Ibid., italics added.)
Although Fowler acknowledges that she must plead actual knowledge and substantial assistance to state a cause of action for aiding and abetting breach of fiduciary duty, she asserts that the ultimate facts she alleged are sufficient to survive a demurrer and detailed allegations are not required. As we shall explain, the sufficiency of the pleading does not necessarily turn on the detail of the allegations but whether the facts alleged demonstrate defendant's actual knowledge of the specific underlying wrong.
Casey involved a lawsuit by a bankruptcy trustee to hold several banks liable for aiding and abetting a fraudulent scheme to loot the debtor corporation. (127 Cal.App.4th at p. 1141.) The court found that the trustee's allegations fell "far short" of the requirements for pleading a cause of action for aiding and abetting breach of fiduciary duty. (Id. at p. 1148.) Although the complaint provided "ample details of the banks' improper conduct in their business dealings with [the perpetrator of the fraud], the complaint fail[ed] to establish that the banks had actual knowledge of the primary violation in which they purportedly participated." (Ibid.) It was insufficient for the trustee to allege that "the banks knew something fishy was going on . . . ." (Id. at p. 1149.)
Schultz v. Neovi Data Corp (2007) 152 Cal.App.4th 86 (Schultz) provides a concrete example of the difference between a sufficient and insufficient pleading where the specific primary violation was the operation of an illegal on-line lottery. The court overruled the demurrers where plaintiff pleaded knowledge by alleging that defendants Ginix and PaySystems "reviewed EZ's Web site and 'recognized that the site was an illegal lottery, but also realized that it generated substantial revenue and could be very profitable for [them].' He also alleges Ginix and PaySystems 'knew they were facilitating orders for an unlawful pyramid scheme and/or lottery, and that the EZ . . . website made false, misleading and deceptive claims and engaged in unfair business practices'; and '[knew] the money being paid by the consumer [was] for purposes of participation in the lottery.' [¶] . . . The complaint also satisfies the element of substantial assistance or encouragement. It alleges Ginix and PaySystems authorized EZ to configure its site to display their respective logos so that consumers could link directly to their sites to process credit card payments. It further pleads Ginix and PaySystems did this 'with the knowledge and specific intent of aiding and abetting and facilitating [EZ's] illegal lottery operations . . . . PaySystems and Ginix hoped and believed that by allowing EZ . . . to take credit card orders, more persons would be able to participate in the illegal lottery, resulting in more revenue for [them]. PaySystems and Ginix also realized that . . . providing their services to EZ . . . [,] would lend an aura of respectability and further encourage participation.' " (Id. at p. 94.)
At the same time, the Schultz court sustained the demurrers to the aiding and abetting cause of action against defendants PayPal and Neovi where plaintiff pleaded only that "PayPal knew the site was an illegal lottery but agreed EZ could use its payment system with the knowing intent to aid and abet EZ's operation because it could be profitable for PayPal. As to Neovi the complaint alleged only that it 'knew of [EZ's] unlawful operations' 'but knowingly and intentionally aided and abetted the operation by setting up a system' for consumers to use its electronic check system, and, as a result, received a fee." (152 Cal.App.4th at p. 97.) The court ruled that plaintiff failed to allege the requisite knowledge of the alleged illegal lottery or facts showing substantial assistance or encouragement and rejected the allegations as "mere conclusions" that did not save the aiding and abetting causes of action. (Ibid.)
Two federal pleading cases support the conclusion that plaintiff must allege detailed facts showing actual knowledge of the specific primary wrong. In In re Sharp Intern. Corp. (Bankr. E.D.N.Y. 2002) 281 B.R. 506 (Sharp), the debtor corporation sued the lender of a $26 million line of credit in bankruptcy court on various theories, including common law aiding and abetting breach of fiduciary duty by the corporation's officers. (Id. at pp. 509, 510 & 512.) In New York, as in California, plaintiff was required to allege "the defendant knowingly induced or participated in the breach." (Id. at p. 513.) The lender challenged the complaint on grounds the corporation did not adequately allege that the lender had actual knowledge of the officers' breach of fiduciary duty. On appeal, the court identified the breach as the officers' unlawful diversion of money from the corporation. Thus, in assessing the allegations of knowledge and substantial assistance, the court had to consider whether the complaint adequately pleaded that the lender had knowledge of, and induced or participated in the officers' looting of the debtor corporation. (Id. at p. 514.) In language instructive in the case before us, the court concluded that the debtor's pleading fell short of alleging actual knowledge. "Even if the facts pleaded concerning the [Dun & Bradstreet] reports [were] accepted as providing the requisite factual support for the otherwise conclusory allegation that [the lender] 'confirmed its long-held suspicions that the [officers] were engaged in fraudulent conduct on a major scale,' these facts at most support[ed] an inference that [the lender] had actual knowledge that the [officers] were fraudulently inflating [the debtor's] receivables. The fact that a company is inflating its receivables does not necessarily mean that the company's principals are looting it. [] Although it is possible that [the lender] suspected that the [officers] were engaged in this activity in order to cover up the fact that they were siphoning monies from [the debtor], suspicion and surmise do not constitute actual knowledge." (Id. at p. 515; italics added.)
Neilson v. Union Bank of California, N.A. (C.D. Cal. 2003) 290 F.Supp.2d 1101 (Neilson), was a class action against several banks alleged to have assisted private investment adviser Reed Slatkin in operating a classic Ponzi scheme. The court ruled that plaintiff investors adequately pleaded aiding and abetting breach of fiduciary duty against the banks under California law. (Id. at pp. 1120, 1131-1132.) The complaint detailed the manner in which the Ponzi scheme operated, described the Slatkin's fraudulent transactions, and outlined the banks' involvement in those activities. The allegation that the banks utilized atypical banking procedures in handling the accounts was sufficient to raise the inference "that they knew of the Ponzi scheme and sought to accommodate it by altering their normal ways of doing business." (Id. at p. 1120.) The court concluded that "[w]hile it is true the complaint does not directly state that the Banks knew Slatkin was running a Ponzi scheme and stealing investor funds, this is the net effect of allegations that the Banks knew of Slatkin's 'fraud,' 'actively participated' in the Ponzi scheme with knowledge of his 'crimes,' and accommodated him by using atypical banking procedures to service his accounts." (Id. at p. 1121.) Allegations that a bank officer substantially assisted Slatkin by vouching for his investment club and promoting his skills as an investment advisor satisfied the pleading requirements. (Id. at pp. 1129-1130.)
With these principles in mind, we consider the adequacy of Fowler's fourth amended complaint. Although Fowler details LaSalle's knowledge of facts that caused it to suspect "something fishy" was going on with the investments in Fowler's accounts (Casey, supra, 127 Cal.App.4th at p. 1149), she does not allege facts to show that LaSalle actually knew Zures was operating a scheme to defraud Fowler by "selling her unregistered, unsuitable securities" based on "fraudulent misrepresentations and omissions. . . ." "[S]uspicion and surmise do not constitute actual knowledge." (Sharp, supra, 281 B.R. at p. 515.)
In reaching this conclusion, we reject Fowler's claim that the court erred in identifying the underlying wrong as fraud rather than simple breach of fiduciary duty. She herself alleged that she was the victim of "fraud and elder financial abuse." We also reject as unsupported Fowler's attempt to distinguish Casey on grounds the defendant bank in that case owed no fiduciary duty to the depositor who perpetrated a fraud on the debtor corporation. The cited cases demonstrate that aiding and abetting liability turns on the knowledge and actions of defendant, not on the nature of the relationship between the defendant and the perpetrator of the specific primary wrong.
We also conclude that Fowler failed to allege substantial assistance on the part of LaSalle. Her allegations on this element are conclusory and taken almost verbatim from Neilson, supra, 290 F.Supp.2d at page 1109. But unlike Neilson, the pleading in this case fails to describe in meaningful detail how LaSalle's actions provided substantial assistance to Zures in carrying out his fraudulent scheme. Even if we were to conclude Fowler properly alleged that LaSalle had knowledge of Zures's scheme, which we do not, "[m]ere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting." (Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1326.)
B. Denial of Leave To Reinstate the Aiding and Abetting Cause of Action:
Fowler based her motion for leave to amend the fourth amended complaint on "new information" obtained in the deposition of Exeter. She argued at the motion hearing that the proposed fifth amended complaint alleged "facts from the testimony of Mr. Exeter and [trust administrator] Ms. Eskildsen in their deposition in February where they talked specifically about the fact that they knew of fiduciary duties and they knew there were problems and didn't do anything." Rejecting this argument, the court stated that its "previous rulings on two separate demurrers found that such a claim was impermissible. The new facts proffered in plaintiff's memorandum of points and authorities in support of this motion (statements made during the deposition of Bill Exeter) do not compel a different result."
"While a decision to sustain or overrule a demurrer is subject to de novo review on appeal, a grant or denial of leave to amend calls for an exercise of discretion on the part of the trial court. [Citation.] Denial of leave to amend is reviewed for abuse of discretion. [Citation.] The trial court abuses its discretion in denying leave to amend only if the plaintiff shows a reasonable possibility of curing any defect by amendment." (Montclair Parkowners, supra, 76 Cal.App.4th at p. 790.)
We reject Fowler's argument that the court abused its discretion in denying leave to include an amended cause of action for aiding and abetting breach of fiduciary duty in the fifth amended complaint. The court did not ignore Exeter's deposition testimony, but simply concluded it added nothing of substance to the facts already pleaded. We agree with that assessment. And although courts may liberally grant leave to amend prior to trial (Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761), in this case the court had already given Fowler two opportunities to perfect her aiding and abetting claim. She was unable to do so. There was no abuse of discretion on this record.
C. The Argument at the Hearing on LaSalle's Motion for Summary Judgment:
Having concluded that the court did not err in sustaining LaSalle's demurrer to the aiding and abetting cause of action in the fourth amended complaint and did not abuse its discretion in denying leave to add that cause of action to the fifth amended complaint, we need not address Fowler's claim that she presented triable issues of material fact on motion for summary judgment. Although the court allowed Fowler to argue her point during the summary judgment hearing in what was effectively a motion for reconsideration, there was no cause of action for aiding and abetting breach of fiduciary duty before the court in the summary judgment motion.
II
LaSalle's Motion for Summary Judgment
Fowler argues that the court erred in granting summary judgment in favor of LaSalle on the causes of action for breach of contract, breach of fiduciary duty and negligence. We conclude that Fowler failed to show any triable issues of material fact and there was no error.
The summary judgment procedure and standard of review are well-established. "Any party may move for summary judgment in any action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding." (Code Civ. Proc., § 437c, subd. (a).) The court shall grant the motion for summary judgment "if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Code Civ. Proc., § 437c, subd. (c).)
A defendant moving for summary judgment "has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action. Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The plaintiff . . . may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto." (Code Civ. Proc., § 437c, subd. (p)(2).)
We review de novo the trial court's decision to grant summary judgment, reviewing the ruling, not the rationale. In reviewing the judgment, we apply the same three-step analysis used by the trial court by: (1) identifying the issues framed by the pleadings; (2) determining whether the moving party has negated the opponent's claims; and (3) determining whether the opposition has demonstrated the existence of a triable, material issue of fact. (Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261.)
Here, LaSalle negated the element of causation — a necessary element of Fowler's causes of action for breach of contract, breach of fiduciary duty and negligence. Fowler did not counter with substantial evidence of the existence of a triable issue of material fact regarding causation and therefore failed in her attempt to defeat LaSalle's motion for summary judgment.
A. Breach of Contract:
Fowler based her cause of action for breach of contract on two sets of contracts — the Custodial Services Agreement and the documents relating to the IRA accounts — which outlined written obligations and included an implied covenant of good faith and fair dealing. She alleged that with respect to the IRA accounts, LaSalle promised to comply with federal and state regulations.
La Salle argued in its amended motion for summary judgment and summary adjudication that the contracts between LaSalle and Fowler did not create a duty of the bank to monitor Fowler's investments or Zures's actions. It also asserted that LaSalle did not cause any loss that Fowler suffered. LaSalle identified four undisputed facts to support its argument: (1) Fowler had an independent investment advisor who was unaffiliated with LaSalle; (2) Fowler repeatedly signed documents stating that she was not relying on LaSalle for advice regarding her investment decisions; (3) LaSalle never gave Fowler any investment advice; and (4) Fowler could not identify a single investment, even in retrospect, that she would not have made if LaSalle had acted differently at the time. The last fact is determinative.
Fowler asserted in opposition to the motion that LaSalle breached its contractual obligation as custodian to "hold for safekeeping . . . the property of the Principal" because "it stood by and watched Zures take [her] money . . . ." She maintained that LaSalle breached its contractual duty to keep her property safe by failing to keep accurate account statements. Fowler did not expressly dispute the last three points cited by LaSalle, but responded with facts that attempted to explain or qualify the deposition testimony cited by LaSalle. She also filed a declaration which stated: "[I]f someone at LaSalle would have alerted me there were potential problems, I would have taken the necessary steps to correct the problem. . . . [¶] . . . If someone at LaSalle had explained to me why it was a bad idea for me to invest in companies that Mr. Zures had an interest in, I would have changed investment advisors and would not have continued to use Mr. Zures." We conclude that Fowler's declaration does not raise a triable issue of material fact.
A party may not create an issue of fact by submitting a declaration which contradicts prior discovery responses. In determining whether any triable issue of material fact exists, the trial court may, in its discretion, give great weight to admissions made in depositions and disregard contradictory and self-serving affidavits of the party. (Nunez v. R'Bibo (1989) 211 Cal.App.3d 559, 563.) As the California Supreme Court explained in D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, "[W]hen discovery has produced an admission or concession on the part of the party opposing summary judgment which demonstrates that there is no factual issue to be tried, certain of those stern requirements applicable in a normal case are relaxed or altered in their operation. . . . 'Where . . . there is a clear and unequivocal admission by the plaintiff . . . in [her] deposition . . . [the trial court is] forced to conclude there is no substantial evidence of the existence of a triable issue of fact [notwithstanding a contradictory declaration in opposition to summary judgment]' [Citation.] . . . [¶] . . . [A]dmissions against interest have a very high credibility value. This is especially true when, as in this case, the admission is obtained not in the normal course of human activities and affairs but in the context of an established pretrial procedure whose purpose is to elicit facts. Accordingly, when such an admission becomes relevant to the determination, on motion for summary judgment, of whether or not there exist triable issues of fact (as opposed to legal issues) between the parties, it is entitled to and should receive a kind of deference not normally accorded evidentiary allegations in affidavits." (11 Cal.3d, at pp. 21-22.)
B. Breach of Fiduciary Duty:
Fowler alleged that LaSalle "assumed a duty to Fowler to ensure that her investments were suitable to an elderly woman on a fixed income with no other earnings or ability to recover from investment losses" and "that [her IRA account] followed Federal and State regulations." She alleged that as a result of LaSalle's breach of these duties, she suffered additional substantial losses, continued to invest in Zures's companies, and was unable to recover investments she had previously made.
Again, Fowler's deposition testimony — that she could not recall a single investment that she would not have made if LaSalle had acted differently — negated the causation element of her breach of fiduciary duty claim.
C. Negligence:
Finally, Fowler alleged that by virtue of their relationship, LaSalle owed her a duty "to oversee the suitability of the investments in her accounts and in her self-directed IRA account to assure that said investments were both suitable investments for a person like [her] and to assure that said investments were eligible investments for a self-directed IRA account." She also alleged that LaSalle voluntarily assumed the duty to monitor and supervise her accounts and ensure compliance with State and Federal regulations, but concealed its reservations about Zures's actions "in order to continue to receive fees on overvalued assets in the account." Fowler claimed that as a result of LaSalle's failure to comply with the standard of care imposed by these duties, she suffered financial loss.
Once again, Fowler's deposition testimony negates any claim that LaSalle's alleged breach of the duty of care resulted in the losses she suffered.
II
LaSalle's Cross Appeal
LaSalle moved for an award of costs, including attorney fees, as the prevailing party on summary judgment. It argued that the Custodial Services Agreement obligated Fowler "to indemnify LaSalle Bank for . . . 'the costs and expenses of defending against any . . . loss, liability, claim or expense' 'arising out of or in connection with the acceptance or administration of this Custodial Services Agreement[.]' " Citing Civil Code section 2778, subdivision (3), LaSalle contended that "costs and expenses" included attorney fees. Fowler did not challenge the reasonableness of the fees, but argued: (1) the Custodial Services Agreement lacked a specific attorney fee provision as required by Code of Civil Procedure section 1033.5, subdivision (a)(10)(A) and Civil Code section 1717; and (2) recovery under the indemnity clause required a counterclaim or separate lawsuit for indemnity.
Civil Code section 2778, subdivision (3) reads: "In the interpretation of a contract of indemnity, the following rules are to be applied, unless a contrary intention appears: . . . [¶] 3. An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion. . . ."
Code of Civil Procedure section 1033.5, subdivision (a)(10)(A) provides: " (a) The following items are allowable as costs under Section 1032: . . . [¶] (10) Attorney fees, when authorized by any of the following: [¶] (A) Contract."
Civil Code section 1717, subdivision (a) reads in part: " In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." (Italics added.)
The court denied LaSalle's motion for attorney fees. Although the court found that the indemnity provision of the Custodial Services Agreement pertained to actions brought by third parties, not actions between the parties to the agreement, it denied attorney fees on a different ground. Because LaSalle and Fowler disagreed on whether the provision applied to disputes between them, the court found that the provision was ambiguous, interpreted it against LaSalle as the party who drafted it, and denied the requested attorney fees.
On appeal, LaSalle argues the court denied it due process by rejecting the attorney fee request on a point not raised or argued by the parties. LaSalle also asserts that the indemnity clause in the Custodial Services Agreement supported recovery of attorney fees in this suit between the contracting parties. We reject LaSalle's arguments for reasons we explain.
Indemnity provisions are subject to the same rules of construction as other contracts. (Hillman v. Leland E. Burns, Inc. (1989) 209 Cal.App.3d 860, 866.) Unless resolution depends on the credibility of conflicting extrinsic evidence, the interpretation of a written contract — including the question whether the writing was ambiguous — is a question of law subject to our de novo review. (Mayer v. C.W. Driver (2002) 98 Cal.App.4th 48, 57, citing Parsons v. Bristol Development Co. (1965) 62 Cal. 2d 861, 865-866; and Hillman, supra, 209 Cal.App.3d at p. 866.) We conclude that the indemnity provision of the Custodial Services Agreement was clear, applied only to actions involving third parties, and did not authorize an award of attorney fees in this case.
We begin by rejecting LaSalle's claim that the court violated due process by denying the attorney fee request on a ground not raised or briefed by the parties. The court set forth its rationale for denying attorney fees in the first paragraph of the tentative ruling posted the day before the hearing on LaSalle's motion. (Super. Ct. San Diego County, Civil Rules, rule 2.1.19, Tentative Ruling Policy.) LaSalle did not object at oral argument or request leave to provide additional briefing on the question whether the indemnity provision was ambiguous and should be construed against the maker. Instead, it simply challenged the court's reading of the cited cases. In any event, we have rejected the court's finding that the contract language was ambiguous.
Turning to the merits, we consider whether the indemnity provision of the Custodial Services Agreement entitled LaSalle to attorney fees in a direct action by Fowler. The rules regarding attorney fee awards are well-established. " 'Unless authorized by either statute or agreement, attorney's fees ordinarily are not recoverable as costs.' [Citation.] Where a contract accords a right to attorney fees to one party but not the other, Civil Code section 1717 creates a statutory reciprocal right to attorney fees in all parties to the contract. [Citations.] Where a contract provides for attorney fees in an action to enforce the contract, the attorney fees provision is made applicable to the entire contract by operation of Civil Code section 1717." (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 968 (Myers).) "One purpose of [Civil Code] section 1717 is to avoid uncertainty and clarify the issue of fees, so both sides can make rational evaluations about the case, including prospects of settlement . . . ." (Internat. Billing Services v. Emigh (2000) 84 Cal.App.4th 1175, 1186-1187.)
Indemnity provisions provide the basis for two distinct types of attorney fee awards: first, classic indemnification for expenses incurred in defending against actions by third parties; and second, expenses incurred in actions to enforce the indemnity agreement itself. Attorney fees are routinely awarded in the former, even in the absence of language specifically referring to attorney fees. (See, e.g., Continental Heller Corp., v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 504-507 (Continental Heller); Myers, supra,13 Cal.App.4th at p. 968; County of San Joaquin v. Stockton Swim Club (1974) 42 Cal.App.3d 968, 973 (Stockton Swim Club).) Attorney fees are awarded in the latter only where the requirements of Civil Code section 1717 are satisfied by a separate attorney fee clause which applies to actions between the contracting parties (Continental Heller, supra,53 Cal.App.4th at pp. 508-509) or the language of the indemnification provision references enforcement of the underlying contract (Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal.App.4th 1339, 1345). LaSalle maintains that the indemnity provision at issue here satisfied the requirements of Civil Code section 1717.
"Under California law, an 'indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties or of some other person.' (Civ. Code, § 2772.) 'An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion . . . .' (Civ. Code, § 2778, subd. 3.) An indemnitor in an indemnity contract generally undertakes to protect the indemnitee against loss or damage through liability to a third person." (Myers, supra,13 Cal.App.4th at p. 968.) The language of the contract determines the extent of the duty to indemnify, and we construe the indemnity provisions under the same rules that govern other contracts "with a view to determining the actual intent of the parties. [Citation.] [¶] A clause which contains the words 'indemnify' and 'hold harmless' is an indemnity clause which generally obligates the indemnitor to reimburse the indemnitee for any damages the indemnitee becomes obligated to pay third persons." (Ibid.)
We need not go beyond the clear language of the indemnity provision to conclude that it applies to third party claims. The provision contained in the Custodial Services Agreement contains the words "indemnify" and "hold harmless." The language is almost identical to the language in the form indemnification clauses described in Continental Heller and Myers. Citing Brown v. Cal. Pension Admin. & Consultants (1996) 45 Cal.App.4th 333, 337, and Swim Club, supra, 42 Cal.App.3d 968, LaSalle argues that the indemnity provision applies to actions between the contracting parties as well as third parties. Neither case supports LaSalle's argument.
As we explained, the provision in question contains the following wording: "9. Indemnification of Custodian: The Principal agrees to indemnify the Custodian for, and to hold it harmless against any loss, liability, claim or expense incurred without fraud, gross negligence or willful misconduct by the Custodian, arising out of or in connection with the acceptance or administration of this Custodial Services Agreement, including without limitation, the costs and expenses of defending against any such loss, liability, claim or expense."
In Continental Heller the clause obligated the subcontractor "to indemnify [the general contractor] from all loss, damage, etc., 'including attorney's fees' which 'arises out of or is in any way connected with the performance of work under this Subcontract.' " (53 Cal.App.4th at p. 508.) The indemnity provision in Myers read: " 'To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner and the Architect and their agents and employees from and against all claims, damages, losses and expenses, including but not limited to attorney's fees, arising out of or resulting from the performance of the Work . . . .' " (13 Cal.App.4th at pp. 963-964.)
Like the case before us, Brown was an action between by investors in self-directed IRA's against the trustee bank and a company that administered the investments. (45 Cal.App.4th at p. 337.) The court granted defendants' motion for summary judgment and awarded them attorney fees and costs based its reading of a set of contracts that governed the relationship between the parties. (Id. at pp. 339, 349.) On appeal, the investors challenged the award on grounds the attorney fee provision covered obligations under just one of those contracts, the provision was adhesive, and the amount of attorney fees was unreasonable. The appellate court affirmed. (Id. at pp. 348-350.) LaSalle concedes that Brown "did not directly discuss the applicability of indemnification to direct suits between the contracting parties."
Stockton Swim Club, a typical indemnity case, is similarly inapplicable. The court construed the broad indemnification clause to include an award of attorney fees as a "cost or expense" of defending the underlying personal injury action. (42 Cal.App.3d at p. 973.) The contracting parties did not raise the issue of attorney fees in the proceedings between them. Consequently, on appeal, the court elected "to follow the general rule that the defendant in a contract suit is not liable for his opponent's attorney fees unless the contract expressly provides for it." (Id. at p. 974.)
Taking a different tack, LaSalle argues that the court erred in focusing on indemnification clauses in construction contracts where there are typically an abundance of third parties ready to sue. LaSalle contends "the indemnity provision of the Custodial Services Agreement naturally could only address one issue — the indemnification of LaSalle Bank from claims made against it by Ms. Fowler because no other party could have asserted such a claim against LaSalle Bank." It maintains that the provision at issue here "contemplates an insular relationship between Ms. Fowler and LaSalle Bank." LaSalle's argument is unsupported. In its request for attorney fees, LaSalle offered no evidence regarding the circumstances surrounding execution of the Custodial Services Agreement that might support its characterization of the parties' intent. (See Civ. Code, § 1647.) Instead, LaSalle attempts to shift the burden of showing entitlement to attorney fees by stressing that "Ms. Fowler had repeatedly failed to identify to the trial court (as well as in her brief in this cross-appeal) any claim she could have had in mind [in agreeing to the indemnity provision] other than a claim by her." LaSalle's argument begs the question why it had Fowler sign a contract containing a form indemnification clause if LaSalle did not want to be protected from third party claims — anticipated, unanticipated, legally justified or meritless. Moreover, there were potential third party litigants close at hand, including Zures, the limited partnerships, and the various individuals and businesses that received monthly payments from LaSalle on behalf of Fowler.
Civil Code section 1647 provides: "A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates."
DISPOSITION
The judgment is affirmed. Each party shall bear its own costs on appeal. (Cal. Rules of Court, rule 8.278 (a)(1) & (5).)
WE CONCUR: McCONNELL, P. J., HALLER, J.