Opinion
B188528
4-20-2007
SEA PLANES, INC., Plaintiff and Appellant. v. MICHAEL TSE-WEN SUN, Defendant and Respondent.
Nemecek & Cole, Jonathan B. Cole and Susan S. Baker for Plaintiff and Appellant. Yee & Belilove, Steven R. Yee, Steve R. Belilove and Frank E. Marchetti for Defendant and Respondent.
NOT TO BE PUBLISHED
INTRODUCTION
Plaintiff and appellant Sea Planes, Inc. (Sea Planes), an operator of a commercial ferry service, sued defendants Investment Advantage Group (IAG) and its president Randy Glessner (Glessner), as well as the attorney for IAG and Glessner, defendant and respondent Michael Tse-Wen Sun (Sun), for return of approximately $ 145,000, among other damages. Sea Planes deposited approximately $ 130,000 into Suns client trust account and provided $15,000 to IAG as a brokers fee as part of a plan to finance Sea Planess purchase of a passenger ferry. After IAG executed a promissory note in favor of Sea Planes in the approximate amount of $145,000, Sun dispersed the $130,000 in the client trust account according to directions from Glessner. When the plan to purchase the ferry failed, IAG and Glessner did not refund or repay any amount to Sea Planes.
Defendants Glessner and IAG are not parties to this appeal.
Following a bench trial, the trial court entered judgment in favor of Sea Planes against defendants Glessner and IAG. The trial court, however, entered judgment in favor of defendant Sun. The trial court found that Sun did not breach a duty of care to Sea Planes. The trial court denied Sea Planess post-verdict request to amend the pleadings to add a negligence cause of action against Sun.
Sea Planes appealed the portion of the judgment in favor of Sun, as well as the order denying the request to amend the pleadings. We affirm the judgment and the order denying the motion to amend. Substantial evidence supports the trial courts finding that Sun did not breach a duty of care to Sea Planes. For this reason, the trial court did not abuse its discretion by denying the request to amend the pleadings.
FACTUAL AND PROCEDURAL BACKGROUND
1. Sun Incorporates and Represents IAG
Defendant Sun was a lawyer licensed to practice law in California since 1979. Sun was IAGs and Glessners attorney.
On April 3, 2003, Sun filed IAGs articles of incorporation with the California Secretary of State. The articles of incorporation identified Glessner as the president of IAG and Sun as the secretary of IAG. There were no other corporate officers. At trial, Sun testified that he designated himself as secretary to sign any necessary documents because Glessner lived in Washington State. Sun further testified that it was his intention to resign as the secretary shortly after incorporation of IAG.
IAGs capitalization was $1,000. IAG did not issue stock certificates. IAG did not have any bylaws or corporate minutes signed by the officers. IAG did not file a statement of information with the California Secretary of State.
2. Sea Planes Seeks to Purchase a Ferry
Plaintiff Sea Planes was a start-up company. Its business plan included providing ferry service to Catalina Island, as well as up and down the California coast as an alternative to congested coastal highways. At some point, Sea Planes decided to purchase a ferry called the Grey Lady II, which it had been leasing. Sea Planes had difficulty obtaining a $ 4 million loan to complete a purchase/lease agreement for the vessel.
To accomplish the purchase of the ferry, Sea Planes sought financing pursuant to which a lessor would purchase the vessel and lease it to Sea Planes on a long term finance lease. Sea Planess then president and CEO, Tony Elliott-Cannon (Elliott-Cannon), had discussions with defendant Glessner, the president of IAG. Glessner represented himself as a leasing expert. Glessner told Elliott-Cannon that IAG could obtain lease financing for Sea Planes to purchase the Grey Lady II.
Glessner informed Elliott-Cannon that IAG intended to finance the deal "in-house." Glessner told Elliott-Cannon that IAG would need a bond to protect itself in the event of a default by Sea Planes.
On May 9, 2003, Glessner sent Elliott-Cannon a letter setting forth proposed terms of the lease arrangement. The lease proposal was written on IAGs letterhead, which listed IAGs address as 3304 Pico Boulevard, Suite D, Santa Monica, California 90405. This was also the address of Suns law office.
The lease proposal designated a lease purchase amount of $4 million. It required Sea Planes to pay IAG a non-refundable $ 5,000 retainer, and to make a deposit of $50,668 to be held in IAGs attorneys trust account. The deposit was intended to allow IAG to perform due diligence and documentation. The deposit was refundable if IAG failed to obtain bonding or if IAG could not otherwise obtain financing.
The lease proposal also required Sea Planes to make payments of approximately $55,000 per month for 120 months. Sea Planes had the option of purchasing the remainder of the lease in the 13th month. Sea Planes paid the $5,000 retainer to IAG.
Glessner then informed Elliott-Cannon that the bonding company required a larger deposit than the amount designated in the May 9, 2003 lease proposal. According to Glessner, the bonding company wanted to ensure itself that Sea Planes had sufficient capital, equal to the first and last months lease amounts, plus the security deposit under the proposed lease. The requested deposit amounted to $145,592.12. The deposit was refundable if IAG did not complete the lease transaction.
Elliott-Cannon told Glessner that he was concerned about making such a large deposit. Elliott-Cannon had already lost over $ 700,000 in a previous scam. In response, Glessner suggested that the deposit for the bonding company (i.e., the $145,591.12 amount), be deposited into the client trust account of IAGs attorney, defendant Sun. As additional security, Glessner suggested that he execute a promissory note in favor of Sea Planes in the amount of $145,593.12. After conferring with counsel, on behalf of Sea Planes, Elliott-Cannon agreed to the financing arrangement.
3. Sea Planes Makes Deposit to Obtain Financing
On May 14, 2003, Sea Planes made a wire transfer of $40,667.58 into the client trust account of IAGs attorney, defendant Sun. Sea Planes also made a wire transfer of $15,000 into an IAG account. On May 22, 2003, Sea Planes wire transferred the remainder of the deposit, $89,925, into the client trust account of Attorney Sun.
On behalf of IAG, Glessner executed a promissory note in favor Sea Planes for the total amount of the deposits, $145,593.12. Sun drafted the promissory note. The promissory note was to be repaid by July 19, 2003, sixty days after execution.
The promissory note provided in pertinent part: "[IAG] (`Borrower), hereby promises to repay to [Sea Planes] (`Lender), or order, the principal sum of [145,593.12], as provided below. Said principal sum shall bear no interest hereunder."
4. Sun Transfers Sea Planess Funds to an IAG Account
On May 23, 2003, at the direction of Glessner, Sun transferred the amount of $130,592.58 from his client trust account into an IAG account. At trial, Sun testified that Glessner informed him that the $130,592.58 amount was a loan from Sea Planes to IAG. Glessner then showed Sun a copy of the executed promissory note. According to Sun, Glessner stated that the promissory note permitted IAG to withdraw the money from Suns client trust account.
Sun and Glessner had signature authority over the IAG account into which the deposit was made. At trial, Sun testified, however, that he was not to sign any checks absent express instructions from Glessner.
5. Sea Planess Deposit Is Depleted
On May 23, 2003, Sun transferred $57,000 from the IAG account to Muirfield Investments, a Washington State company organized by Sun. At trial, Sun testified that on behalf of Glessner, he formed Muirfield Investments for the purpose of purchasing a single family residence in Washington State for a person named Beverly Chaney. At trial, Sun testified that Glessner did not inform Sun why the money from Sea Planes was being used to fund the purchase of real property in Washington State.
On May 23, 2003, Sun wrote another check to "Cash" in the amount of $8,720. At trial, Sun testified that he used the cash to purchase money orders for Glessner. Some of the money orders were payable to Glessner, others were payable to a person named Debbie Wilson.
By mid-August 2003, Glessner depleted the balance of the IAG account by several transfers to his own personal account in Washington State. Glessner then reported to Sea Planes that he was unable to obtain financing for the lease of the vessel. Sea Planes demanded return of the approximate $145,000 amount. The promissory note also became due. IAG did not return the money.
6. Sea Planes Files Suit
On August 13, 2003, Sea Planes filed suit against Glessner, IAG and Sun. By the first amended complaint, Sea Planes alleged against Glessner and IAG causes of action for breach of promissory note, money had and received, and fraud. Against Sun, by its first amended complaint, Sea Planes alleged causes of action for conversion, breach of fiduciary duty, and money had and received.
7. The Bench Trial
In October and November 2005, the trial court conducted a bench trial. IAG and Glessner did not appear for trial.
Sea Planess president Elliott-Cannon testified at trial. According to the trial courts statement of decision, Elliott-Cannon testified that he had a conversation with Sun during which Sun acknowledged that Sea Planess money deposited into Suns trust account would not be withdrawn absent authorization from Sea Planes.
In addition, according to the trial courts statement of decision, Sea Planess corporate secretary and shareholder, Neil Lerner, testified at trial. Lerner testified that he did not recall giving Sun any instructions with respect to Sea Planess funds deposited into Suns client trust account.
Sun testified that no one told him anything about the terms of the transaction between Sea Planes and IAG. Sun acknowledged that he was aware that the money Sea Planes deposited into his client trust account was to be used for the finance of the vessel. According to Sun, Glessner told him that the money was to be used to leverage the financing. Glessner did not inform Sun how he (Glessner) intended to accomplish the leveraging of the financing.
Sun also understood that the approximate $130,000 amount which Sea Planes deposited into his trust account was a loan to IAG. Sun further stated that no one from Sea Planes and no one from the Sea Planess law firm provided Sun with any instructions limiting when or why Sun could disburse the funds to IAG. According to Sun, no one with Sea Planes told him that the money in his client trust account was not to be distributed absent express permission from a Sea Planes representative.
Sun also testified that he was aware that IAG was a fledgling company. He acknowledged that when Sea Planes deposited the approximate sum of $130,000 into his client trust account that IAG was a company which had not been funded.
8. Trial Counts Finds in Favor of Sun
On February 17, 2005, the trial court issued a tentative decision against IAG and Glessner, but in favor of Sun. The trial court found that Sea Planes had failed to establish that Sun violated a fiduciary duty to Sea Planes.
The trial court explained that there was no evidence of written instructions to Sun restricting Sun from disbursing Sea Planess funds to IAG. The trial court also explained that the testimony from Sea Planess president, Elliott-Cannon, that Sun assured him that Sea Planess money could not be withdrawn from Suns client trust account absent authorization from Sea Planes conflicted with Suns testimony that no such conversation occurred. The trial court noted that in a prior written declaration explaining the circumstances which led to the loss of Sea Planess funds, Elliott-Cannon did not mention the alleged conversation during which Sun assured him (Elliott-Cannon) that Sea Planess money could not be withdrawn from Suns client trust account absent authorization from Sea Planes.
The trial court concluded that both Sun and Elliott-Cannon had equally compelling reasons to be less than forthright concerning whether Sun assured Elliott-Cannon that Sea Planess money would not be dispersed absent authorization from Sea Planes. The court found that neither individuals testimony constituted a preponderance of the evidence. The trial court concluded that Sea Planes failed to carry its burden of proof to establish the existence of oral or written instructions to Sun not to disburse Sea Planess funds absent authorization from Sea Planes.
On March 3, 2005, Sea Planes made a request for a written statement of decision. In its request for a statement of decision, Sea Planes sought to amend the pleadings to conform to proof, to add a negligence cause of action against Sun.
On September 19, 2005, the trial court entered a statement of decision finding against IAG and Glessner, but in favor of Sun. The trial court found that Sea Planes did not establish that Sun breached a duty of care to Sea Planes. The trial court explained that Sea Planes offered no reliable evidence that it provided oral or written instructions to Sun not to disperse to IAG the approximate $130,000 amount in Suns client trust account absent authorization from Sea Planes.
The trial court denied Sea Planess request to amend. The trial court concluded that Sea Planes could not show that Sun breached a duty of care. The trial court entered judgment. Sea Planes timely filed a notice of appeal.
CONTENTIONS
Sea Planes asserts that substantial evidence does not support the judgment. Sea Planes also contends that the trial court abused its discretion by denying the request to amend the pleadings to add the negligence cause of action against Sun.
STANDARD OF REVIEW
We review the trial courts factual findings for substantial evidence. (Ninety Nine Investments, Ltd. v. Overseas Courier Service (Singapore) Private Ltd. (2003) 113 Cal.App.4th 1118, 1127.) Under the substantial evidence standard of review, we "view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor." (Ibid.) We review the order denying the motion to amend for abuse of discretion. (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 296-297.)
DISCUSSION
Sea Planes asserts that the trial court erred by entering judgment in favor of Sun. Specifically, Sea Planes argues that Sun owed it a duty of care and that he breached the duty of care by disbursing at Glessners request the approximate sum of $130,000, which Sea Planes had deposited into Suns client trust account. We conclude that substantial evidence supports the trial courts finding that Sun did not breach a duty of care to Sea Planes.
In Johnstone v. State Bar (1966) 64 Cal.2d 153, the Supreme Court adopted a recommendation by the California State Bar Board of Governors to suspend Johnstones license to practice law for three months. (Id. at p. 154.) There, the court explained: "When an attorney receives money . . . of a third party who is not his client, he nevertheless is a fiduciary as to such third party." (Id. at p. 155; see also Wasmann v. Seidenberg (1988) 202 Cal.App.3d 752 [attorneys acceptance of a deed from a non-client created a duty of care].) Thus, we conclude that Sun may have owed Sea Planes a duty of care.
However, we also conclude that substantial evidence supports the trial courts conclusion that Sun did not breach a duty of care to Sea Planes. In factually analogous escrow-type cases in which an attorney was found to have breached a duty of care to a non-client with respect to the handling of money or other property from the non-client, the attorney was subject to written or oral instructions from the non-client as to when or how to disperse the money or other property. (See Guzzetta v. State Bar (1987) 43 Cal.3d 962 [attorney in dissolution action breached duty of care to non-client by dispersing proceeds from sale of restaurant in violation of express instructions not to disperse funds absent an order of the court or a stipulation from the parties]; Crooks v. State Bar (1970) 3 Cal.3d 346 [attorney acting as escrow holder for sale of beer bar business breached a duty of care to non-client by disbursing non-clients funds in violation of express escrow instructions]; and Wasmann v. Seidenberg, supra, 202 Cal.App.3d 752 [attorney in dissolution action breached duty of care to non-client (former husband) by allowing recordation of a real estate deed (received from husband) without obtaining $70,000 in cash or a promissory note from his client, the former spouse, in violation of a marital settlement agreement].)
In this case, it is undisputed that Sea Planes did not provide any written instructions to Sun imposing any restrictions upon when or why Sun was to disperse the approximate $130,000 amount that Sea Planes deposited into his client trust account. In addition, the trial court concluded that Sea Planes had not established that it provided oral instructions to Sun restricting when or why Sun might disperse Sea Planess funds. Sea Planes does not dispute these findings on appeal. Thus, the record shows that Sun did not violate any oral or written instructions from Sea Planes with respect to dispersing the approximate $130,000 sum in Suns client trust account.
Instead, Sea Planes asserts that under the totality of circumstances Sun should have known that dispersing the funds for use by IAG and Glessner was not reasonable and that it was in violation of a general duty of care owed to Sea Planes. Sea Planes bases this theory of liability upon the fact that Sun incorporated IAG; he knew that IAGs capitalization was only $1,000; he knew that he was IAGs secretary and there were no other corporate officers; he knew that the funds deposited into his account were intended to assist with the financing of a passenger ferry vessel; and he knew that some of the withdrawals were for uses other than the financing of the vessel, such as the $ 57,000 wire transfer to Muirfield Investments, the Washington State company created to purchase real property in Washington State.
We reject Sea Planess argument that Sun breached a duty of care based upon a totality of circumstances. While Sun knew of the general financing deal, there is no evidence that Sun was part of the lease negotiations between Elliott-Cannon and Glessner. Thus, there is no evidence that Sun was aware of the specifics of deal. For example, there is no evidence that Sun knew that the approximate $130,000 sum deposited by Sea Planes into his client trust account was intended to constitute a showing of the financial strength of Sea Planes for a prospective bonding company.
Instead, there is evidence that Sun was instructed to prepare a general promissory note in favor of Sea Planes. That promissory note indicated that Sea Planes made a short term no interest loan to IAG. The promissory note contained no restrictions upon when or why Sun could disperse to IAG the approximate $ 130,000 amount in the client trust account.
At trial, Sun testified that Glessner informed him that the approximate $130,000 amount in Suns client trust account was a loan from Sea Planes to IAG. Glessner further informed Sun that the promissory note permitted IAG to withdraw the money from Suns client trust account.
Thus, the $57,000 wire transfer and the $8,720 in money orders, while inconsistent with the underlying purpose of the deal to finance the purchase of a vessel, were consistent with the written terms of the promissory note, as well as the oral representations of Glessner to Sun that the money in the client trust account was a loan to IAG. Given that there is no evidence that Sun knew that Sea Planess deposit was intended to satisfy a bonding company as to the financial strength of Sea Planes, Sun acted in accord with the terms of the promissory note by giving IAG unrestricted use of Sea Planess funds deposited into his client trust account.
Finally, there is no evidence that Sun conspired with Glessner with respect to the events at issue. There is also no evidence that Sun benefited in any material way by what happened to Sea Planes.
In conclusion, Sea Planes has failed to show that Sun breached a duty of care. For this reason, we conclude that the trial court did not abuse its discretion by denying Sea Planess request to amend the pleadings to add a negligence cause of action against Sun. Under the facts presented at trial, Sea Planes did not present sufficient evidence to show a breach of the duty of care.
We therefore do not have occasion to address the parties competing contentions with respect to whether the trial court abused its discretion by denying the request to amend, including the timing of the request and whether the request to amend was made in a properly noticed motion.
DISPOSITION
The judgment is affirmed. Sun is to recover costs on appeal.
We concur:
KLEIN, P. J.
ALDRICH, J.