Opinion
H035886
01-23-2012
LAURIE E. HAMMER, Plaintiff and Appellant, v. THE TAW, LP et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Santa Clara County Super. Ct. No. 1-06 CV062080)
Appellant Laurie E. Hammer appeals from the superior court's judgment in her civil action for declaratory relief and breach of fiduciary duty against respondents The Taw, LP, RDJ, LLC, David A. Fry, William R. Fry, and John C. Fry (defendants). The superior court sustained without leave to amend defendants' demurrer based on res judicata arising from a prior judgment in a dissolution action between Hammer and William R. Fry. Hammer contends that the dissolution judgment, which found valid and enforced a postnuptial agreement between Hammer and William R. Fry, did not preclude her from pursuing this civil action. We disagree and affirm the judgment.
I. Factual Background
Hammer married William R. Fry in 1985. The Taw, LP (the Taw) was established in 1996. RDJ, LLC (RDJ) is a limited liability company, and it is the general partner of the Taw. The three Frys are the only shareholders in RDJ. The three Frys transferred portions of their shares in their family business, Fry's Electronics (a privately held corporation), and other holdings, to RDJ and the remainder of their shares to the Taw. RDJ then contributed its shares to the Taw.
RDJ appears to be named for the first initials of the three Frys.
The Taw is governed by a limited partnership agreement (the Taw LPA). Article 19 of the Taw LPA provides: "Neither title nor beneficial ownership of a Limited Partnership interest may be transferred or encumbered without the consent of the General Partner and at least 80 percent (80%) of the Limited Partners." Article 20 of the Taw LPA provides: "[E]ach calendar year, each Limited Partner shall have the right to require the Partnership to purchase not more than 5 percent of the Limited Partner's largest interest in the Partnership ever owned by the Limited Partner on the following terms and conditions: [¶] A. The purchase price for the Partnership interest shall be the book value of all of the Partnership's assets, less all of the Partnership's liabilities, determined according to generally accepted accounting principles by the firm of accountants regularly employed by the Partnership as of the valuation date multiplied by the percentage interest in the Partnership of the Partnership interest being purchased. . . . The determination of the purchase price by the firm of accountants . . . shall be final and conclusive on all parties." Article 20 of the Taw LPA also provides that the partnership has the option "to pay its purchase money obligation not to exceed 15 equal annual installments . . . with interest thereon at market rates . . . ." Thus, a limited partner who wishes to sell all of his or her interest would be paid for that interest by the Taw over a 35-year period.
In November 2002, Hammer and William R. Fry executed a postnuptial agreement. The eight-page postnuptial agreement, which was accompanied by exhibits setting forth the parties' assets, transferred to Hammer as her separate property 165,003 units in the Taw effective January 1, 2003. The postnuptial agreement stated that this transfer was intended "to satisfy whatever community property claims [Hammer] has and would have in the future to Fry's Electronics, The Taw, and related entities. [Hammer] shall be subject to all of the rights and responsibilities of a limited partner under The Agreement of Limited Partnership The Taw, LP, dated December 28, 1996." The postnuptial agreement limited the parties' "discovery rights regarding Fry's and the Taw" in any dissolution action "to the financial statements of those entities."
The postnuptial agreement also contained the following provisions. "The parties agree that their interests in The Taw shall be valued according to the terms [of] The Taw's Operating Agreement, which currently provides for a book valuation. The parties agree to be bound by that valuation even in the event of a marital dissolution proceeding. The parties agree that no other method of valuation (including but not limited to a fair market valuation) of The Taw or its related entities (including but not limited to Fry's Electronics) will be necessary or pursued." "The parties agree that The Taw is a valid partnership. Neither party shall challenge the validity of The Taw or its agreements." "The parties agree that if either should become dissatisfied with the operation of The Taw or its management that their exclusive remedy is [to] withdraw from the partnership pursuant to the terms of The Taw."
Hammer and William R. Fry separated less than four months after they signed the postnuptial agreement, and William R. Fry filed an action for dissolution of their marriage in family court.
II. Procedural Background
In April 2006, while the dissolution action was pending, Hammer initiated this civil action. She subsequently filed an amended complaint for declaratory relief and for breach of fiduciary duty.
Hammer's declaratory relief cause of action sought a declaration: (1) "That the provision in the post-nuptial agreement providing that [Hammer] would not contest the validity of THE TAW Agreement is invalid, and unenforceable in that said provision is against the public policy of the State of California"; (2) "That the provision in the postnuptial agreement that [Hammer]'s sole remedy in the event [Hammer] became dissatisfied with the operation of THE TAW or its management is and was to divest herself of all of her units is unenforceable as a provision that is intended to and has the direct effect of preventing [Hammer] from bringing an action or claim for breach of fiduciary duty against defendants in violation of California Corporations Code sections 16103(b)(3) and 16404(c) and (d)"; (3) "That Articles 19 and 20 of THE TAW Agreement . . . are invalid and unenforceable as an unreasonable restraint on alienation"; and (4) "That the determination of value of THE TAW units based on book value as determined exclusively by the accountant's [sic] for THE TAW is invalid, unenforceable and in breach of the implied covenant of good faith and fair dealing . . . ."
Hammer's breach of fiduciary duty cause of action asserted that defendants had breached their fiduciary duty to Hammer by engaging in business transactions "for their personal benefit without a compelling business purpose," including purchasing real estate for use by Fry family members.
In May 2006, defendants filed a motion in the family court asking it to stay the civil action as it was "duplicative" of issues before the court in the pending dissolution action. Hammer opposed the stay request. In their reply to her opposition to their motion to stay, defendants stated: "[The] motion to stay the civil action neither requests nor requires that this Court exercise its jurisdiction to resolve any matter that [Hammer] has not admitted is properly before this Court. . . . Although this Court has primary (and therefore exclusive) jurisdiction over the validity of the Marital Agreement and the parties' interests in the Taw, this Court need not resolve all the claims presented in [Hammer]'s civil action. Instead, this motion [to stay] asks only that resolution of those issues briefly await the determination by this Court as to the validity of the Marital Agreement and the extent and characterization of the parties' interests in the Taw." In September 2006, the family court issued an order staying the civil action "pending further proceedings" in the dissolution action on the ground that both actions involved the validity of the postnuptial agreement.
In June 2008, the family court issued a "STATEMENT OF DECISION AND ORDER ON THE VALIDITY OF THE MARITAL AGREEMENT." The court's 42-page order refused to "set aside" the agreement, as requested by Hammer based on undue influence, duress, and fraud, and instead granted William R. Fry's "motion to enforce" and "declare . . . valid" the postnuptial agreement. The family court terminated its stay of the civil action.
In August 2008, defendants moved in superior court to stay Hammer's civil action pending finality of the judgment in the dissolution action. In September 2008, the superior court stayed the civil action. Both Hammer and William R. Fry thereafter waived their rights to appeal from the family court's decision on the validity of the postnuptial agreement. Final judgment was entered in the dissolution action in January 2010.
In March 2010, defendants filed a demurrer to Hammer's amended complaint. They contended that the postnuptial agreement precluded Hammer from challenging the Taw LPA, and the family court's ruling on the validity of the postnuptial agreement precluded Hammer from challenging the postnuptial agreement. Hence, she could challenge the provisions of neither agreement and therefore could not succeed on either of her causes of action. Defendants also contended that the Taw LPA's restraints on alienation were enforceable as a matter of law.
In June 2010, the court sustained the demurrer without leave to amend. "Plaintiff's claim that portions of the post-nuptial agreement violate public policy is barred by res judicata. The family court ruled that the post-nuptial agreement is valid and enforceable. The post-nuptial agreement contains provisions that prohibit Plaintiff from challenging the validity of The Taw or its agreements as well as the operation of The Taw." In July 2010, the court entered judgment for defendants. Hammer timely filed a notice of appeal from the judgment.
III. Discussion
"The burden of proving that the requirements for application of res judicata have been met is upon the party seeking to assert it as a bar or estoppel." (Vella v. Hudgins (1977) 20 Cal.3d 251, 257.) Since this case is before us after the sustaining of a demurrer, our standard of review is de novo. (Leko v. Cornerstone Bldg. Inspection Service (2001) 86 Cal.App.4th 1109, 1114; Smiley v. Citibank (1995) 11 Cal.4th 138, 146.)
"The doctrine [of res judicata] has a double aspect, a prior judgment is a bar in a new action on the same cause of action, and in a new action on a different cause of action the former judgment is a collateral estoppel, being conclusive on issues actually litigated in the former action." (Lewis v. Superior Court (1978) 77 Cal.App.3d 844, 851.) This first aspect of the doctrine is often referred to as claim preclusion or res judicata while the second aspect of the doctrine is referred to as issue preclusion or collateral estoppel. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896, fn. 7 (Mycogen).) The case before us involves only the claim preclusion aspect of res judicata.
"For purposes of [claim preclusion] res judicata, California applies the primary right theory to define cause of action as: (1) a primary right possessed by the plaintiff, (2) a corresponding duty imposed upon the defendant, and (3) a wrong done by the defendant which is a breach of such primary right and duty. [Citation.] Thus, a single cause of action is based on the harm suffered, rather than on the particular legal theory asserted or relief sought by the plaintiff." (Balasubramanian v. San Diego Community College Dist. (2000) 80 Cal.App.4th 977, 991.)
"'The most salient characteristic of a primary right is that it is indivisible: the violation of a single primary right gives rise to but a single cause of action. [Citation.] . . . [¶] As far as its content is concerned, the primary right is simply the plaintiffs right to be free from the particular injury suffered. [Citation.] It must therefore be distinguished from the legal theory on which liability for that injury is premised: "Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief." [Citation.] The primary right must also be distinguished from the remedy sought: "The violation of one primary right constitutes a single cause of action, though it may entitle the injured party to many forms of relief, and the relief is not to be confounded with the cause of action, one not being determinative of the other." [Citation.]' " (Mycogen, supra, 28 Cal.4th at p. 904.)
"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. The reason for this is manifest. A party cannot by negligence or design withhold issues and litigate them in consecutive actions. Hence the rule is that the prior judgment is res judicata on matters which were raised or could have been raised, on matters litigated or litigable." (Sutphin v. Speik (1940) 15 Cal.2d 195, 202.)
In both the family court action and the civil action, Hammer sought to invalidate the terms of the postnuptial agreement in order to increase the value of her interest in the Taw. In the family court action, she sought to invalidate the postnuptial agreement in toto on grounds of undue influence, duress, and fraud. She challenged the postnuptial agreement's restriction of her interest in the Taw to 165,003 units and claimed that all or nearly all of William R. Fry's interest in the Taw was community property. In the civil action, she sought to invalidate some of the terms of the postnuptial agreement. She asserted that these terms improperly restricted her ability to benefit from her interest in the Taw. Although her legal theories and the remedies associated with those theories were different in the two actions, the "harm suffered" arose from a single primary right: Hammer contended that she had been deprived of the full value of her interest in William R. Fry's business ventures. Consequently, the family court's judgment had res judicata effect in the civil action.
Hammer contends that res judicata cannot apply here to preclude her claims in the civil action because the family court lacked jurisdiction to decide "on how or in what manner she could dispose of her separate property units in The TAW" or to "determine her rights as a limited partner in The TAW." She maintains: "The family court had no jurisdiction to issue orders affecting Appellant's right to dispose of her separate property partnership interests post-dissolution."
Family Code section 2010, which governs the jurisdiction of the family court, provides that, in a dissolution action, the family court "has jurisdiction to inquire into and render any judgment and make orders that are appropriate concerning the following: [¶] . . . [¶] (e) The settlement of the property rights of the parties." (Fam. Code, § 2010.) A determination of the validity of the postnuptial agreement was necessary to "settlement of the property rights of the parties." (Fam. Code, § 2010, subd. (e).) If the family court had not found the postnuptial agreement to be valid, the family court would have been required to determine whether all or part of William R. Fry's interest in the Taw was community property and to divide any community property interest between Hammer and William R. Fry.
Hammer argues that the family court's judgment on the validity of the postnuptial agreement was purely declaratory and therefore the bar of res judicata does not apply. Res judicata does not apply to purely declaratory judgments, but it does apply to a judgment that grants both declaratory and other relief. (Mycogen, supra, 28 Cal.4th at pp. 902-903 [prior judgment granting both declaratory relief and specific performance had res judicata effect].) As defendants note, the family court did not merely grant declaratory relief. It identified the parties' community and separate property, divided the community property, and confirmed the separate property to each party. Thus, the family court's judgment was not limited to simply declaring that the postnuptial agreement was valid. The family court granted William R. Fry's "motion to enforce" the postnuptial agreement. (Italics added.) The family court had jurisdiction to enforce the postnuptial agreement because enforcement was necessary for the family court to rule that there was no community property interest in the Taw that needed to be divided, and to confirm to each of the parties as their separate property their individual interests in the Taw. Had the court merely granted declaratory relief, it would have been unable to perform its duty to characterize and divide the couple's community property as required to enter a final dissolution judgment. Because the family court had jurisdiction to enforce the postnuptial agreement, its judgment doing so was not purely declaratory, and therefore res judicata precluded Hammer from challenging any of the terms of the postnuptial agreement in the civil action.
Hammer insists that the family court lacked jurisdiction to enforce the postnuptial agreement because she was never notified that the family court was considering enforcing the agreement or given an opportunity to oppose enforcement of the agreement. The record does not support this claim. Hammer could not have lacked notice that resolution of the dissolution action required the family court to characterize and divide the couple's community property, which could not be done without enforcement of the postnuptial agreement. Hence, she was aware that the family court's ruling on the validity of the postnuptial agreement would necessarily result in its enforcement, and she therefore had the opportunity to challenge both the validity and the enforcement of the postnuptial agreement in the family court proceedings.
Hammer seems to be contending that the family court's judgment nevertheless did not preclude her from challenging the terms of the Taw LPA in the civil action. "The rule of res judicata does not apply to causes or issues which were not and could not be before the court in the first proceeding." (Strangman v. Duke (1956) 140 Cal.App.2d 185, 191.) The validity and enforceability of the Taw LPA could not have been before the family court in the dissolution proceeding as the family court had no jurisdiction over that matter. Nevertheless, the family court's judgment enforcing the postnuptial agreement precluded Hammer from challenging the Taw LPA because the terms of the postnuptial agreement precluded Hammer from challenging the Taw LPA. By enforcing the postnuptial agreement, the family court was not ruling on the validity of the Taw agreement or its terms, but it was ruling on the validity of the postnuptial agreement's terms barring Hammer from challenging the Taw LPA and the management of the Taw. In other words, the family court's enforcement of the postnuptial agreement itself precluded Hammer from making any of the challenges that she claims the family court lacked jurisdiction to entertain. Consequently, the family court's judgment enforcing the postnuptial agreement precluded Hammer from challenging the Taw LPA and the management of the Taw in the civil action.
Hammer contends that she was deprived of procedural due process because she was never able to make her claims regarding the Taw LPA. Yet Hammer explicitly gave up in the postnuptial agreement for valuable consideration her right to challenge the Taw LPA and the management of the Taw. She was not deprived of procedural due process in being precluded from litigating claims that she had explicitly released.
Hammer maintains that defendants were "judicially estopped" from asserting that her civil claims were barred because, in their motion for a stay of the civil action, they conceded that the family court would not be resolving all of the claims in the civil action. Not so. There was nothing inconsistent between the position taken by defendants in their motion to stay and the position taken by defendants in their demurrer. The family court could not and did not adjudicate Hammer's challenges to the Taw LPA and the management of the Taw. It did adjudicate her challenge to the validity of the postnuptial agreement, and its judgment enforcing that agreement precluded her from making the challenges to the Taw LPA and the management of the Taw that she sought to litigate in the civil action. As the two positions were not inconsistent, no judicial estoppel could possibly have arisen.
Hammer claims that an exception to res judicata applies here because she and William R. Fry "consented" to the family court not considering the issues that she raises in her civil action. The bar of res judicata does not apply where the parties to the prior action expressly agreed to withdraw an issue from the prior court's consideration. (Miller & Lux v. James (1919) 180 Cal. 38, 44.) This exception does not apply here. Hammer fails to recognize the distinction between the issues she raises in her civil action regarding the Taw LPA and the management of the Taw, which were not before the family court, and the issues she raises regarding the terms of the postnuptial agreement, which were within the scope of the family court's jurisdiction to rule on the validity of, and enforce, the postnuptial agreement. Nowhere in the record is there any indication that William R. Fry ever agreed to withdraw from the family court, which he was asking to rule on his motion to enforce the postnuptial agreement, any issues about the validity of the terms of the postnuptial agreement. The family court could not enforce the postnuptial agreement without validating its terms, so such a withdrawal would have been impossible. It is irrelevant that Hammer never "tendered" these issues to the family court and that the family court did not decide them, as res judicata applies to any "matter [that] was within the scope of the action" that "could have been raised . . . despite the fact that it was not in fact expressly pleaded or otherwise urged." (Sutphin v. Speik, supra, 15 Cal.2d 195, 202.)
Hammer argues that the provision of the postnuptial agreement by which she agreed not to challenge the Taw LPA was "void as against public policy." The problem with this contention is that, because it is a challenge to the validity of a term of the postnuptial agreement, Hammer was required to make it in family court or be precluded by the family court's judgment enforcing the postnuptial agreement from raising it thereafter. Due to her failure to challenge the postnuptial agreement on this ground in family court, res judicata precluded her from pursuing this claim in her civil action. "It is the general rule that a final judgment or order is res judicata even though contrary to statute where the court has jurisdiction in the fundamental sense, i. e., of the subject matter and the parties." (Pacific Mut. Life Ins. Co. v. McConnell (1955) 44 Cal.2d 715, 725, italics added.) "[J]udgments enforcing contracts are a bar to the defense of illegality in subsequent litigation." (Id. at p. 726.) Because Hammer failed to challenge the postnuptial agreement on these grounds in the family court action, the family court judgment enforcing the postnuptial agreement precludes her from making these claims in her civil action.
IV. Disposition
The judgment is affirmed.
__________
Mihara, J.
WE CONCUR:
______________________________
Bamattre-Manoukian, Acting P. J.
_________________
Judge of the Santa Clara County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
--------