Cassel et al v. Globerson et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
THEODORE A. KOLB,
Debtor.
Case No. 97-32321
Chapter 11
ROBERT M. CASSEL, on behalf of
this Chapter 11 Estate, and
UECKER & ASSOCIATES, INC.,
Liquidating Trustee,
Plaintiffs,
v.
RUTH P. GLOBERSON, FELIX O. KOLB,
THEODORE A. KOLB, JONATHAN KOLB,
RICHARD KOLB, and DOUGLAS KOLB,
Defendants.
Adv. No. 99-3144
AMENDED MEMORANDUM DECISION ON MOTIONS
FOR PARTIAL SUMMARY JUDGMENT AND
TO DISMISS, AND DECISION ON MOTIONS FOR
RECONSIDERATION AND TO AMEND SUPPLEMENTAL COMPLAINT
Signed and Filed: May 29, 2007
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
May 31, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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The following discussion constitutes the court’s findings	1
of fact and conclusions of law. Fed. R. Bankr. P. 7052
(incorporating by reference Fed. R. Civ. P. 52(a)). Unless
otherwise indicated, all chapter, section and rule references are
to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and to the Federal
Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and
promulgated prior to the effective date of The Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119
Stat. 23.
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I. Introduction1
On April 26, 2006, the court issued its Memorandum Decision
Regarding Judicial Estoppel that describes the background of this
lengthy dispute in more detail (the “Judicial Estoppel Decision”).
Terms not defined herein have the meanings given in that decision.
The rightful ownership of Ted’s share of his father’s trust
was disputed. Notwithstanding that dispute, Ted and his siblings,
acting as Successor Trustees of the trust, distributed Ted’s share
(the “Property”) to his sons and not to Cassel as representative
of Ted’s creditors, who turned out to be the rightful owners.
This is an action to recover the Property or its value. The
Successor Trustees and Ted’s sons (collectively, “Defendants”)
previously argued that they were protected from liability because
the California probate court approved the distributions and
discharged the Successor Trustees. The Judicial Estoppel Decision
holds that they are estopped from raising the probate court orders
as a defense in this action.
Defendants now argue that the distributions were properly
made in reliance on this court’s earlier judgment that Ted’s
disclaimer of any interest in the Property was valid (the
“Disclaimer Judgment”) even though the true ownership of the
Property was still disputed and had yet to be finally resolved by
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The MTD treats the Supplemental Complaint as subsuming the	2
original Complaint. The court will treat the MTD as seeking
dismissal of both the original Complaint and the Supplemental
Complaint.
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the Ninth Circuit. The court rejects this and other arguments
raised by Defendants and holds that the Successor Trustees are
jointly and severally liable for the amount of all distributions
to Ted’s sons, plus interest, and Ted’s sons are liable for what
they received individually, plus interest. The court makes no
determination on Cassel’s claim for punitive damages or his
asserted rights to consequential damages and attorneys’ fees, and
declines to enter any judgment on fewer than all claims pursuant
to Fed. R. Civ. P. 54(b) (incorporated by Fed. R. Bankr. P.
7054(a)), for the reasons stated on the record at the hearing on
December 14, 2006.
II. Procedural background
After the Judicial Estoppel Decision the court issued orders
that among other things permitted Cassel to add the Successor
Trustees as named defendants and to file a supplemental complaint
regarding the distributions made by the Successor Trustees to
Ted’s sons. Cassel’s supplemental complaint states (in ¶ 25):
This Supplemental Complaint concerns facts
occurring after the [original] Complaint in this
adversary proceeding was filed on April 19, 1999.
A copy of the Complaint is attached hereto and
incorporated herein as if set forth in full. The
numbering of paragraphs and the claims for relief
herein follows sequentially the numbered paragraphs
and the claims for relief in the Complaint.
In July of 2006 Defendants filed a motion to dismiss the
Supplemental Complaint (the “MTD”). In October of 2006, Cassel	2
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filed his Motion for Summary Judgment on less than All Claims for
Relief under Rule 54(b) (the “Partial MSJ”). The parties filed
opposition and reply papers and the motions came on for hearing on
December 14, 2006.
On January 26, 2007, the court issued a Memorandum Decision
on the MTD and the Partial MSJ. The parties filed cross-motions
for reconsideration and plaintiffs filed a motion for leave to
amend the Supplemental Complaint. Those matters came on for
hearing on April 20, 2007. Appearances at the hearings are noted
in the record. This Amended Memorandum Decision and orders issued
concurrently dispose of those motions.
III. Discussion
A. Defendants have not established that the Disclaimer
Judgment protects them from liability
Ted’s sons cannot use the Disclaimer Judgment as a shield
from liability. It is well established that a party who
previously obtained funds based on a court order or judgment must
make restitution after reversal on appeal, even though the party
was entitled to the funds at the time. See generally Arkadelphia
Milling Co. v. St. Louis SW Ry. Co., 249 U.S. 134, 145 (1919);
5 Cal.Jur.3d, App. Review §§ 715, 720; Levy v. Drew, 4 Cal.2d 456,
50 P.2d 435 (1935) (under California law the restitution
obligation is in the nature of a trust obligation and is without
any right of setoff). Ted’s sons have cited no authority to the
contrary.
The Successor Trustees also have not established that they
can use the Disclaimer Judgment as a shield. They had an
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obligation to determine who should receive the funds that they
held. Under the Judicial Estoppel Decision they cannot rely on
the state court’s orders approving their distributions and
discharging them. They must be treated as if they made
distributions favoring Ted’s sons over Ted’s creditors
(represented by Cassel) without the protection of those orders.
The Successor Trustees claim that under state law, even
without authorization from the probate court, they had no duty to
withhold distributions pending determination of Cassel’s appeal.
They rely principally on Arluk Med. Ctr. Indus. Group, Inc. v.
Dobler, 116 Cal.App.4th 1324, 11 Cal.Rptr.3d 194 (2 Dist. 2004).
Arluk is inapposite. It involved a competition between
creditors and beneficiaries, not a dispute among alleged
beneficiaries. The majority in Arluk held that in proper
circumstances a trustee can make a distribution to beneficiaries
without incurring personal liability to unpaid creditors, some of
whom may be unknown, because under the Probate Code the trustee’s
sole duty is to beneficiaries. Arluk, 116 Cal.App.4th 1324, 11
Cal.Rptr.3d 194. That holding has nothing to do with a trustee’s
personal liability for making distributions to persons who turned
out not to be beneficiaries at all (Ted’s sons), leaving the true
beneficiaries (Ted’s creditors through Cassel) with nothing.
The Successor Trustees claim that if Ted’s sons had demanded
distributions on the strength of the Disclaimer Judgment then they
would have had to comply with such demands, but that is not what
happened and they have not established that this is the law. The
Disclaimer Judgment might have been strong evidence that Ted’s
sons were the proper parties to receive distributions, but that
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judgment was subject to reversal on appeal as the Successor
Trustees knew. This court had no jurisdiction to authorize the
Successor Trustees to make distributions out of Leon’s trust
estate, and was never asked to do so. The probate court was never
told that there was still a live controversy let alone asked to
rule on it when the distributions were made. Instead it was told
unequivocally that Ted’s sons were entitled to the distributions.
The Judicial Estoppel Decision prevents the Successor Trustees
from using as a shield the state court orders authorizing
distributions and discharging them. Cassel has established
various theories under which a person who distributes contested
funds to the wrong party is liable, as discussed below.
The Successor Trustees claim, relying on Glass v. Najafi, 78
Cal.App.4th 45, 92 Cal.Rptr.2d 606 (2000), that they are protected
because they acted consistent with the Disclaimer Judgment before
it was reversed. That reliance is misplaced. Glass held that a
landlord was entitled to act upon a writ of possession and to use
self-help to evict a tenant before the writ was quashed. Id., 78
Cal.App.4th at 50-51. It says nothing about whether the landlord
had to return possession after the writ was quashed. See id. at
48 (issue of possession bifurcated from other issues). Cf.
Schubert v. Bates, 30 Cal.2d 785, 185 P.2d 793 (1947) (tenant
dispossessed in unlawful detainer action was entitled to be
restored to possession after judgment was reversed). Glass has no
bearing on whether the Successor Trustees have to return the
distributions, or the value of the distributions, that they made
to the wrong parties. The Successor Trustees have not met their
burden to establish a defense to Cassel’s claims based on the
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Defendants also argue (in their opposition to the Partial	3
MSJ, p. 4:25-26) that by implication Section 542 cannot be used
“when property has been transferred in derogation of one of the
avoiding powers” and that the Plan did not preserve any avoiding
powers (e.g., a claim under Section 549). The court disagrees
with the premise that the Plan needed to preserve any power to
avoid the distributions to Ted’s sons, which had not yet occurred
when the Plan was confirmed. In any event, Section 542(a)
provides an independent basis for recovery of the Property, wholly
apart from any avoiding powers.
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Disclaimer Judgment.
B. Defendants’ liability under Section 542(a) (second and
third claims)
Defendants argue that any claim under Section 542(a) is
barred because it was not expressly reserved in Ted’s confirmed
Plan. The court disagrees.
The principal economic aspect of the Plan is continuing
Cassel’s pre-confirmation action, and that action is based in
large part on Section 542. The original Complaint, filed before
confirmation, is entitled “Creditor’s Complaint to Avoid
Fraudulent Transfer, To Recover Property of the Estate and For
Other Related Relief.” (Emphasis added.) It cites Section 542 at
the top of the second page and it argues (second claim for relief)
that Ted’s disclaimer was invalid. The claim under Section 542(a)
survived confirmation and Cassel has standing to assert it.3
Section 542(a) provides:
542. Turnover of property to the estate
(a) Except as provided in subsection (c) or (d) of
this section [regarding entities without notice or
knowledge of the bankruptcy case, or insurance
companies], an entity, other than a custodian, in
possession, custody, or control, during the case,
of property that the trustee may use, sell, or
lease under section 363 of this title, or that the
debtor may exempt under section 522 of this title,
shall deliver to the trustee, and account for, such
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property or the value of such property, unless such
property is of inconsequential value or benefit to
the estate.
11 U.S.C. § 542(a).
Defendants had “possession, custody, or control, during the
case,” of the Property. They knew that according to Cassel this
was property of the estate (or, in the language of the statute,
that Ted’s beneficial interest in assets in his father’s trust was
“property that the trustee may use, sell, or lease under section
363”). They knew that the rightful owner of the Property had yet
to be finally determined on appeal. Yet they ignored Cassel’s
claims. The Successor Trustees distributed the Property and Ted’s
sons received it. Defendants must deliver and account for “the
value of such property.”
Under Section 542(a) it does not matter if Defendants
genuinely believed that Ted’s sons were entitled to the Property.
The statute does not require “actual knowledge” of the true
ownership of property but only “notice of circumstances that would
cause a reasonable person to inquire further” as to the true
ownership of the property at issue. Matter of USA Diversified
Prod’s, Inc., 100 F.3d 53, 57 (7th Cir. 1996). Defendants had
notice of such circumstances: Cassel’s adversary proceeding and
his appeal from the Disclaimer Judgment. As the bankruptcy court
in Diversified observed, any distribution notwithstanding such
notice is at the distributor’s “own peril.” In re USA Diversified
Prod’s, Inc., 193 B.R. 868, 879 (Bankr. N.D. Ind. 1995) (citation
omitted).
Nor does it matter that the Successor Trustees, and perhaps
Ted’s sons as well, no longer have possession, custody, or control
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Defendants argue that Section 542(a) is inapplicable	4
because (a) the statute allegedly only applies “during the case”
and (b) the case allegedly ends upon the effective date of the
plan of reorganization, citing In re Greater Jacksonville Transp.
Co., 169 B.R. 221 (Bankr. M.D. Fla. 1994). Defendants are wrong
on both counts.
What must occur “during the case” is the possession, custody,
or control of property (Diversified, 193 B.R. at 875) not the
resolution of the Section 542(a) claim. Nor does the case end
upon confirmation. Ted’s Chapter 11 case was open when the
distributions to Ted’s sons were made and it is still open today.
Greater Jacksonville held that the period for filing a UCC
continuation statement was extended until 60 days after the
effective date of the plan of reorganization, which was the
“termination” of insolvency proceedings for purposes of former UCC
§ 9-403(2) as enacted in Florida. Id. at 223. That decision has
nothing to do with whether a person must return property, or its
value, that was in the person’s possession, custody, or control
“during a case” under Section 542(a). Greater Jacksonville
specifically distinguishes “termination” of insolvency proceedings
under UCC § 9-403(2) from closing a case under Fed. R. Bankr. P.
3022. Id. at 224.
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of the Property. Section 542(a) speaks of delivering “the value
of such property” so it applies “not just to property presently in
someone’s possession, custody or control but to property in its
‘possession, custody or control during the case.’” Diversified,
193 B.R. at 875 (emphasis in original). Defendants may have
divested themselves of the Property but they certainly had
possession, custody, or control during the case. They must now
return the value of such Property.4
The Successor Trustees are jointly and severally liable for
the entire amount of what they distributed to Ted’s sons, even if
they did not receive or benefit from such distributions
themselves. In Diversified a law firm received $125,000 from a
Mr. Davis to fund a possible settlement involving him and the
company he owned, and after the company filed a Chapter 11
petition the law firm retained $14,000 for its services and
returned the balance to Mr. Davis, who claimed that the $125,000
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had come from his personal funds. That turned out to be wrong and
the law firm was held liable for the entire $125,000, not just the
$14,000 it had retained. Diversified, 100 F.3d at 56.
Ted’s sons are liable for what they received. They had
possession, custody, or control, during the case, of a portion of
the Property and they must return what they received or its value.
The court will grant Cassel’s Partial MSJ on his second claim
for relief (in the original Complaint) as against the Successor
Trustees as successors to named defendant Hilde and as against
Ted’s sons as named defendants. The court will also grant
Cassel’s Partial MSJ on the third claim for relief (in the
Supplemental Complaint) as against the Successor Trustees and
Ted’s sons.
C. Sections 549 and 550 (fourth claim)
Cassel argues that the Successor Trustees became transferees
of an avoidable postpetition transfer under Section 549 when they
“assumed Hilde’s role and took possession of property of the
probate estate, including the portion which should have been paid
to Ted’s bankruptcy estate, and transferred it to Ted’s sons.”
Opp. to MTD at 5:14-16. Cassel asserts that Ted’s sons are
immediate or mediate transferees from the Successor Trustees
within the meaning of Section 550(a)(2). The court does not
decide who is a transferee and whether Sections 549 and 550 are
applicable. Assuming without deciding that Cassel states a claim
under those sections, his fourth claim for relief is barred by the
two year statute of limitations in Section 549(d). See 11 U.S.C.
§ 549(d) (“An action or proceeding under this section may not be
commenced after the earlier of -- (1) two years after the date of
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the transfer sought to be avoided; or (2) the time the case is
closed or dismissed.”).
The Defendants did not raise the statute of limitations until
oral argument. The court’s initial view at the hearing on
December 14, 2006, was that Defendants had waived this defense by
not raising in it their opposition to Cassel’s MSJ as required by
Fed. R. Civ. P. 56(c) and (e) (incorporated by Fed. R. Bankr. P.
7056). See In re Pugh, 158 F.3d 530, 532-38 (11th Cir. 1998)
(Section 549(d) is a true statute of limitation that can be
waived). On further consideration the court is persuaded that the
defense of a time bar has not been waived.
Courts are not inclined to find a technical failure to raise
an affirmative defense when the plaintiff had adequate notice of
the defense and was not deprived of the opportunity to respond.
See, e.g., Camarillo v. McCarthy, 998 F.2d 638, 639 (9th Cir.
1993). After the hearing Defendants filed and served a letter
brief (docket no. 239) arguing the limitations issues and inviting
Cassel to respond should he wish to do so. Cassel has filed no
response and has not established any prejudice from Defendants’
lateness in raising their defense under Section 549(d). Cassel
concedes in his opposition to the MTD (pp. 7:25-8:2) that the
Defendants’ conduct was revealed on June 23, 2003, and that the
first supplemental complaint was not filed until almost three
years later, on June 19, 2006. Therefore Cassel’s fourth claim
for relief is barred by the two year statute of limitations in
Section 549(d).
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The court previously issued orders that erroneously denied	5
the MTD and granted the Partial MSJ as to Ted’s sons on the fifth
claim for relief. All parties agree that Ted’s sons were not
named in that claim, and the amended orders correct this error.
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D. Successor Trustees’ liability for breach of trust (fifth
claim)
Defendants argue that between the time of the Disclaimer
Judgment and the Ninth Circuit’s reversal the estate was not a
beneficiary so they had no fiduciary duty to the estate. That is
incorrect. The estate was always a beneficiary (according to the
Ninth Circuit’s binding determination). There were intermediate
rulings saying otherwise, but they were reversed. Defendants may
have tried to moot the Ninth Circuit decision by obtaining the
state court orders, but they are judicially estopped from using
those orders as a shield. As Cassel argues, there is no issue of
mootness both for this reason and because this court can fashion
effective relief in the form of restitution or damages.
Cassel has established a prima facie claim against the
Successor Trustees for breach of trust and the Successor Trustees
have not established any defense. The court will grant the Cassel
Partial MSJ against the Successor Trustees as to the fifth claim
for relief.5
E. Defendants’ liability for conversion (sixth claim)
“Conversion is any act of dominion wrongfully exerted over
another’s personal property in denial of or inconsistent with his
rights therein.” Susumu Igauye v. Howard, 114 Cal.App.2d 122,
126; 249 P.2d 558, 561 (1952). See also Cal. Civil Code §§ 1712,
1713. Defendants argue that a plaintiff must establish an
immediate right to possession as an element of conversion, citing
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Greka Integrated, Inc. v. Lowrey, 133 Cal.App.4th 1572, 1581; 35
Cal.Rptr.3d 684, 691 (2005). Defendants read too much into Greka.
Greka states that the elements of conversion include “the
plaintiff’s ownership or right to possession of the property at
the time of the conversion.” Greka, 133 Cal.App.4th at 1581
(citation omitted, emphasis added). See also, Aero Prop’s, Inc.
v. Gottlieb, 206 Cal.App.2d 711, 716; 24 Cal.Rptr. 277, 280 (1962)
(it was not conversion to hold collateral until debt was repaid).
As Cassel argues, the bankruptcy estate did have rights in the
Property “at the time of conversion” when the distributions were
made. The bankruptcy court and District Court did not think so,
but the Ninth Circuit reversed and held that Ted’s disclaimer was
never effective so the Property had always been property of the
estate.
Nothing in Greka suggests the opposite. An employee was
accused of converting Greka’s corporate documents but he stated in
his declaration that “he took the documents home at the direction
of Greka’s chief executive officer” and Greka “presented no
evidence to the contrary” so it failed to make “a prima facie
showing that [the employee’s] possession of the documents is
‘wrongful.’” Greka, 133 Cal.App.4th 1572, 1581 (citation
omitted). There is no similarity between Greka and this case.
Cassel never consented to the Successor Trustees’ transfer of the
Property to Ted’s sons.
Defendants argue that dominion over the Property was lawful
at the time so no conversion was committed, citing Kertz v. Paris,
168 Cal.App.2d 67, 335 P.2d 154 (1959). That case involved some
laundry equipment that had been left on the premises by evicted
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lessees and that was used by subsequent lessees and eventually
sold by them. The evicted lessees sued the landlord, who was held
not liable for conversion. The court stated:
In a very similar case, it has been held that
a lessor who secures possession of the leased
premises upon default by the lessee in payment of
rent, and transfers possession of the premises to
one who takes and holds with notice and knowledge
of lessee’s rights in the furnishings, is not
liable to the lessee for a tortious conversion of
the furnishings by the lessee, in the absence of a
showing that the lessor participated in the
conversion.
Kertz, 168 Cal.App.2d at 70 (citation omitted, emphasis added).
In this case the Successor Trustees did participate with
Ted’s sons in the conversion. They exercised dominion over the
Property that was inconsistent with the rights asserted by Cassel.
Defendants also cite Pullin v. Allen, 37 Cal.App. 218, 173 P.
772 (1918). That case involved a fee dispute in which the
attorneys withheld $500 to which they claimed they were entitled.
Pullin actually supports Cassel. It implies that if the proper
amount of fees had been any less than $500 then the attorneys
would have to turn over the difference or else be liable for
conversion:
Conceding, as we think must be admitted, that under
the facts of the case the defendants had the right
to retain possession of the five hundred dollars
until it was legally ascertained that a reasonable
compensation for their services amounted to a less
sum, then it must follow that until such
ascertainment was had there would be no ground for
the action of conversion.
Pullin, 37 Cal.App. at 220 (emphasis added).
Unlike the law firm in Pullin, the Successor Trustees did not
simply retain possession of the Property until it was legally
ascertained who was entitled to it. Instead they transferred the
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Property to Ted’s sons. That is conversion.
Defendants argue that the three year statute of limitations
for conversion has passed. See Cal. Code Civ. Pro. § 338(c).
Defendants claim that Cassel had actual notice of the probate
proceedings, should have filed a request for special notice, and
had constructive notice of the distributions. See Bono v. Clark,
103 Cal.App.4th 1409, 1433; 128 Cal.Rptr.2d 31, 49 (2002) (“if the
possessor acts in a manner inconsistent with the owner’s
interests, the owner’s cause of action for conversion accrues at
that time”). Cassel argues that the statute should be tolled
because the distributions were concealed and he did not discover
them until June 23, 2003.
The court is persuaded that the statute should be tolled.
In Bennett v. Hibernia Bank, 47 Cal.2d 540, 549; 305 P.2d 20, 26
(1957), the Hibernia Bank was reorganized from a “membership
corporation” to a “stock corporation . . . with stock in the
amount of $7,000,000 divided among” 15 members. The complaint
alleged that this was done without the consent or ratification of
a 16th member, whose heirs received only $363.54. On a general
demurrer the California Supreme Court rejected the statute of
limitations defense. The bank owed a fiduciary duty to make full
disclosure to the 16th member and not doing so was “akin to a
fraudulent concealment” that tolled the running of the statute:
Ordinarily the statute of limitations applying in
conversion actions, Code Civ. Proc., § 388, subd.
3, [begins] to run from the date of the conversion
even though the injured person is ignorant of his
rights. This rule, however, is not absolute; for
example, where there has been a fraudulent
concealment of the facts the statute of limitations
does not commence to run until the aggrieved party
discovers or ought to have discovered the existence
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of the cause of action for conversion.
Since a fiduciary has a duty to make a full
disclosure of facts which materially affect the
rights of the parties, it seems obvious that any
act by him amounting to a conversion of trust
property is akin to a fraudulent concealment.
Bennett v. Hibernia Bank, 47 Cal.2d 540, 560-61; 305 P.2d 20
(1957) (citations omitted).
The Successor Trustees had a fiduciary duty to make full
disclosure to Cassel, who stood in Ted’s shoes as a beneficiary of
his father’s trust. Cassel did not need to file any request for
special notice because he was entitled to rely on the Successor
Trustees’ duty to make full disclosure. The absence of that
disclosure is “akin to a fraudulent concealment” and it tolled the
running of the statute of limitations from the time of conversion
until the conversion was discovered on June 23, 2003. Id. The
Supplemental Complaint was filed less than three years later, on
June 19, 2006, and is therefore timely.
The fact that the probate proceedings were of public record
did not give Cassel constructive notice. Bennett held that “while
public records [are] constructive notice for certain purposes,
[they] are not sufficient to start the running of the statute in
favor of the fiduciary as to those of its members who had no
knowledge of them.” Id., 47 Cal.2d at 562.
Therefore the statute of limitations does not bar Cassel’s
conversion claim against the Successor Trustees. The next
question is whether it bars his conversion claim against Ted’s
sons.
Ted’s sons argue that the court should reconsider its holding
that Bennett is applicable to them because they are not
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Cassel argues that Ted’s sons are in fact fiduciaries.	6
Cassel’s theory is apparently that after the Ninth Circuit’s
decision became final (a) Ted’s sons had not just a restitutionary
obligation to return the distributions but a fiduciary duty to do
so, and (b) their failure to do so, or to reveal their conduct to
Cassel, tolled the running of the three year statute of
limitations for conversion.
Ted’s sons argue that any restitutionary obligation is
analogous to a constructive trust and therefore creates no
fiduciary relationship. See PCO, Inc. v. Christensen et al., LLP,
07 C.D.O.S. 4776, 4780 (2007); Haskel Engineering & Supply Co. v.
Hartford Acc. & Indem. Co., 78 Cal.App.3d 371, 144 Cal.Rptr. 189
(1978). Cassel cites cases that describe the restitutionary
obligation using language reminiscent of express or resulting
trusts, or that impose trust duties even on constructive trustees.
See Levy, 4 Cal.2d at 462, 50 P.2d at 437; Ward v. Sherman, 155
Cal. 287, 291; 100 P. 864, 865-66 (1909); Redke v. Silvertrust, 6
Cal.3d 94, 106-07; 98 Cal.Rptr. 293, 300-01 (1940).
The court need not decide these issues. Assuming for the
sake of argument that Cassel’s fiduciary theory is correct, any
tolling based on that theory (as opposed to Bennett, discussed in
the text) is too little too late.
Cassel did not file his Supplemental Complaint until June 19,
2006, which is more than four years after Ted’s sons received the
distributions. See Supplemental Complaint (docket no. 166, ¶ 33)
(alleging distributions as late as February 15, 2002). Under
Cassel’s fiduciary theory tolling does not begin until there was a
restitutionary obligation, which was approximately late April of
2003 when the Ninth Circuit’s decision became final. See Fed. R.
Bankr. P. 8002. Any tolling would end when Cassel discovered the
conversion on June 23, 2003. This is only a couple of months out
of a period of more than four years, which is inadequate to stop
the three year limitations period from expiring.
Cassel argues in the alternative that Ted’s sons should be
estopped to plead the statute of limitations. See Pashley v.
Pacific Elec. Co., 25 Cal.2d 226, 231-36; 153 P.2d 325, 328-30
(1944). The court is not persuaded. Among other things Cassel
could have been more diligent in monitoring the probate
proceedings and filing the Supplemental Complaint after the
conversion was discovered.
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fiduciaries. That misses the point. The court’s reasoning does
not depend on whether they are fiduciaries.6
In Bennett the defendants included the 15 individuals who
received the stock from Hibernia. The California Supreme Court
rejected their statute of limitations defense even though they may
not have been fiduciaries:
It does not follow from the fact that there
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may have been no fiduciary relationship between
[the heirs of the 16th member of the bank] and the
15 individual defendants that the statute has run
in their favor. The complaint alleges that the
individual defendants received their shares of
stock in 1947 with full knowledge of, and subject
to, the rights of [the 16th member] and his
successors as members. Accordingly, we must assume
that these defendants had notice of any breach of
fiduciary duty or trust upon the part of the
corporation. In analogous situations it has been
held that, if a trustee of an express trust
improperly transfers trust property to a third
person who has knowledge that the transfer is in
breach of trust, the statute of limitations does
not run on the beneficiary’s action against the
third person until such time as the beneficiary
learns of the breach of trust or of facts
sufficient to arouse his suspicion.
Bennett, 47 Cal.2d at 34, 305 P.2d at 34 (emphasis added,
citations omitted).
Ted’s sons had notice that the Successor Trustees were
distributing property to them that, according to Cassel, belonged
to Ted’s creditors. As stated in the Judicial Estoppel Decision
(p. 4:8-11), Cassel had served a notice of this claim on the state
court attorneys for Ted’s sons and those attorneys knew of
Cassel’s claims anyway because they “had been arguing for years in
federal court over whether Ted’s disclaimer was effective . . . .”
Ted’s sons nevertheless participated with the Successor Trustees
in misrepresenting to the state court that there was no dispute
that they were entitled to the Property. Therefore under Bennett
tolling applies to Ted’s sons despite the fact that there may have
been no fiduciary relationship between them and Ted’s creditors.
For all of these reasons Cassel has established his claim for
conversion and Defendants have not established that the claim is
time barred. The court will grant Cassel’s Partial MSJ on the
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Ted’s sons argue in their motion for reconsideration that	7
as a matter of law there could be no punitive damages assessed
against them because, if Cassel’s sixth claim is time barred,
there is no surviving tort claim to support punitive damages.
That argument now falls because the court has rejected their time
bar argument. Cassel may also be able to establish a tort of
aiding and abetting a breach of fiduciary duty by the Successor
Trustees as discussed below. That said, the burden is still on
Cassel to establish how punitive damages would be warranted.
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sixth claim for relief.7
F. Fraudulent transfer (first and seventh claims)
The court rejects these claims for the reasons stated at the
hearing on December 14, 2006.
G. Asserted defense of setoff for taxes
The Partial MSJ asserts that each of Ted’s three sons
received $224,251.76, for a total distribution of $672,755.28.
Defendants do not contest the amounts but argue that the net
distributions were only $180,955.30 to each of Ted’s sons after
payment of $129,889.37 in taxes. Defendants argue that they are
entitled to a setoff for this tax payment, because allegedly if
they had not paid these taxes then someone else would have had to
-- Leon’s trust estate, Ted’s bankruptcy estate (or its successor
the Liquidating Trust), or Ted’s creditors. According to
Defendants, the taxes were passed through to and paid by “the
Trust beneficiaries because one beneficiary, not involved in this
proceeding [i.e., one of Ted’s siblings], could make use of a net
loss carry forward.” Opp. to Partial MSJ p. 12:22-24. This pass-
through allegedly saved the probate estate from paying the taxes,
which ultimately benefits Ted’s creditors, according to
Defendants.
Cassel argues that just as one of Ted’s siblings had a net
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loss carry forward, so too some of Ted’s creditors might not have
tax liability, or at least Defendants have not established that by
paying their own taxes they have reduced the taxes that Ted’s
creditors would have to pay on a dollar for dollar basis. Cassel
argues that Defendants’ remedy is to file amended tax returns and
seek a refund.
The court rejects the setoff defense for a different reason.
Under California law the restitution obligation is without any
right of setoff. See Levy v. Drew, 4 Cal.2d at 461-63. The court
expresses no opinion whether Ted’s sons (or whoever paid their tax
obligations) would be entitled to a refund or could establish a
claim against the bankruptcy estate or the Liquidating Trust for
any alleged benefit from paying the taxes on the distributions to
Ted’s sons. Levy instructs that such claims must be kept separate
and cannot be used as a setoff. See Levy v. Drew, 4 Cal.2d at
461-63 (after reversal, restitution is a trust obligation and
creditor was obligated to return funds to insolvent debtor without
right of setoff). See also Annotation, Judgment Debtor’s Right to
Restitution upon Reversal or Vacation of Judgment as Subject to
Set-off in Favor of Judgment Creditor, 101 A.L.R. 1148 (“Though
the grounds of the decisions have been somewhat variant, the
ultimate question whether the right of a judgment debtor for
restitution upon reversal or vacation of the judgment is subject
to a set-off in favor of the judgment creditor has been uniformly
answered in the negative by all the courts which have had occasion
to pass upon that question.”).
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H. Asserted defense of litigation privilege
Defendants argue that the distributions to Ted’s sons are
protected by the litigation privilege. “A privileged publication
or broadcast is one made . . . (b) In any . . . (2) judicial
proceeding, . . . .” Cal. Civ. Code § 47(b)(2).
Defendants are correct that the litigation privilege has been
held to extend beyond the communication itself. The California
Supreme Court has stated:
we conclude that if the gravamen of the action is
communicative, the litigation privilege extends to
noncommunicative acts that are necessarily related
to the communicative conduct, which in this case
included acts necessary to enforce the judgment and
carry out the directive of the writ.
Rusheen v. Cohen, 37 Cal.4th 1048, 1065; 128 P.3d 713, 724; 39
Cal.Rptr.3d 516, 529 (2006) (party’s acts to enforce judgment,
which had allegedly been obtained using perjured proof of service,
were protected by litigation privilege).
The court explained:
modern public policy seeks to encourage free access
to the courts and finality of judgments by limiting
derivative tort claims arising out of
litigation-related misconduct and by favoring
sanctions within the original lawsuit.
37 Cal.4th 1048, 1063; 128 P.3d 713, 723; 39 Cal.Rptr.3d 516, 527.
The court assumes for the sake of argument that the gravemen
of any relevant claim is communicative. In that event the
litigation privilege might apply both to Defendants’
communications (e.g., their false and misleading assertions to the
probate court that all beneficiaries agreed to the distributions)
and also to the benefits that they derived from making those
assertions -- i.e., the probate court orders approving the
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distributions and discharging the Successor Trustees. Cassel’s
remedy ordinarily would be to return to the probate court and seek
sanctions or other relief in that case. This is not an ordinary
situation. In this case there is a separate federal litigation,
and there is a separate interest in protecting the integrity of
that litigation in federal court. The Judicial Estoppel Decision
bars the Defendants from asserting that their actions are
protected by the proceedings state court. The litigation
privilege does not protect Defendants.
I. Pre-judgment interest
Both Cassel and the Defendants have cited authority that pre-
judgment interest is within the court’s discretion, although in
his motion for reconsideration Cassel argues that in reality his
claims are based on state law and the court has no discretion.
The parties also dispute whether, if any interest is awarded, it
should be at the 10% rate applicable to California claims for
breach of fiduciary duty, the 7% rate applicable to non-fiduciary
California claims, or the federal post-judgment interest rate that
is often used as a guide to pre-judgment interest. In his motion
for reconsideration Cassel also argues that if the federal rate of
interest rate applies then it should be compounded, citing 28
U.S.C. § 1961(b), and multiple rates should apply based on when
each distribution was made to Ted’s sons, rather than the 1.22%
rate applicable when the Ninth Circuit rendered its opinion.
The court is persuaded that it has discretion whether to
award pre-judgment interest, and at what rate, because Cassel’s
claims have been preserved by federal judicial estoppel and
include claims under federal bankruptcy law. Defendants argue
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persuasively that any interest rate should be uniform as between
the Successor Trustees and Ted’s sons to avoid inconsistencies
between the Defendants’ obligations to Cassel and the claims among
them for indemnity or contribution. See Banks v. Gill
Distribution Centers, Inc., 263 F.3d 862, 871-72 (9th Cir. 2001).
Applying its discretion the court will award interest and will
apply a rate of 1.22% per annum without any compounding.
J. Amendment to the Supplemental Complaint
Plaintiffs seek leave to add what they call a “Fifth Claim 2d
for Relief (Aiding and Abetting Breach of Trust).” The entire
proposed claim, apart from allegations incorporated by reference,
consists of the following:
Ted’s children, for their own financial
advantage, actively participated with the Successor
Trustees in the breaches of trust alleged above, by
inducing, aiding and/or abetting one or more [of]
the breaches by receiving trust property from the
Successor Trustees in knowing breach of the trust.
[Emphasis added.]
Defendants argue that the court should not grant leave to
make this amendment because there has been substantial delay. The
court is not persuaded. Much of that delay is of their own doing.
They have also shown no prejudice. See generally Foman v. Davis,
371 U.S. 178 (1962); Fed. R. Bankr. P. 7015 (incorporating Fed. R.
Civ. P. 15).
Defendants argue in the alternative that it would be futile
to allow the amendment because “[a] non-fiduciary cannot conspire
to breach a duty owed only by a fiduciary.” Kidron v. Movie
Acquisition Corp., 40 Cal.App.4th 1571, 1597; 47 Cal.Rptr.2d 752,
768 (2d Dist. 1995, reh. den. 1996) (citing Applied Equipment
Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 510-11; 28
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The parties have not briefed whether California recognizes	8
a tort for “inducing” a breach of fiduciary duty, nor whether
“aiding” a breach is different from “abetting” a breach. The
court expresses no opinion on these issues, but assumes for the
sake of discussion Cassel’s proposed amendment comprises a single
tort known as aiding and abetting a breach of fiduciary duty. But
cf. 1-800 Contacts, Inc. v. Steinberg, 107 Cal.App.4th 568, 581 &
n.10, 588 & n.15; 132 Cal.Rptr.2d 789, 799-800 & n.10, 805 & n.15
(2d Dist. 2003) (on plaintiff’s concession, treating claim for
inducing breach of fiduciary duty as equivalent to claim for
conspiracy to breach fiduciary duty).
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Cal.Rptr.2d 475, 478 (1994)). Cassel argues that there is an
exception to this rule and that a non-fiduciary can be liable for
inducing, aiding, or abetting a breach of fiduciary duty if the
non-fiduciary actively participates in furtherance of his or her
own financial gain.
The court believes that both parties are confusing conspiracy
theories with aiding and abetting theories. Defendants are
correct that a non-fiduciary cannot conspire to breach a fiduciary
duty, but a non-fiduciary can aid and abet a breach of fiduciary
duty. The parties’ disagreement concerns what is, in the court’s	8
view, a largely irrelevant split among the California Courts of
Appeal that is properly limited to claims based on conspiracy.
It is well established that at common law a beneficiary may
recover from a transferee who receives trust property with notice
or knowledge of the trustee’s breach of fiduciary duty. See City
of Atascadero v. Merrill Lynch et al., Inc., 68 Cal.App.4th 445,
461; 80 Cal.Rptr.2d 340 (1st Dist. 1998) (“under long-established
trust law, trust beneficiaries retain the right to bring claims
directly against third parties who have induced the trustee to
commit a breach of trust, aided or abetted such a breach by the
trustee, or received and retained trust property from the trustee
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in breach of trust”) (citations omitted); Restatement (Second) of
Trusts § 291 (1959) (transferee with notice or knowledge of breach
of trust can be compelled to restore property or pay its value as
of various times, depending on when notice or knowledge occurred);
A.W. Scott & W.F. Fratcher, 4 The Law of Trusts § 291 (4th Ed.
1989 & 2006 Supp.) (“Scott on Trusts”) (“If a trustee in breach of
trust transfers trust property to a person who takes with notice
of the breach of trust, the transferee can be compelled to restore
the property to the trust, or to pay its value or its proceeds if
he has disposed of it.”); 13 Witkin, Summary of Cal. Law § 149(3)
(“The beneficiary may sue persons (other than bona fide
purchasers) to whom the trustee has wrongfully transferred trust
property, to recover the property or its product.”) (citations
omitted) and id. § 150 (same, specifically where third person
participates in breach of trust).
Recovery of wrongfully transferred property may be
appropriate even when the transferee acted in good faith. See
Restatement (Second) of Trusts § 291, Illustration 2 (transferee
who has not disposed of property can be compelled to restore it,
even though he thought trustee was empowered to sell “owing to a
misinterpretation of the terms of the trust”) and Comment g
(transferee with notice of breach of trust who has disposed of
property is liable for its value, “even though he did not have
knowledge of the breach of trust or act in bad faith”); Scott on
Trusts § 291.2 (transferee who did not receive property with
actual knowledge of breach of trust should have no liability
beyond returning property, and any income received from it). See
also 76 Am. Jur.2d Trusts § 532 (“Where a trustee wrongfully sells
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As stated in Applied Equipment, 7 Cal.4th at 510-11, 869	9
P.2d at 478, “Conspiracy is not a cause of action, but a legal
doctrine that imposes liability on persons who, although not
actually committing a tort themselves, share with the immediate
tortfeasors a common plan or design in its perpetration.”
(Citation omitted.)
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and transfers trust property, . . . the beneficiary may follow the
property or its proceeds, so far as it can be traced, into the
hands of the purchaser, assuming, of course, that the purchaser
does not have the status of a bona fide purchaser for value.”).
The above authorities generally do not distinguish between
conspiracy and other possible grounds for recovery of trust
property from a transferee. See Neilson v. Union Bank of Cal.,
N.A., 290 F.Supp.2d 1101, 1126 n.74 (C.D. Cal. 2003) (“The
Restatement speaks of ‘participation’ in a breach of trust, rather
than ‘conspiracy’ or ‘aiding and abetting.’”). Defendants treat
Cassel’s claim as one based on conspiracy. The court will address
conspiracy first and then turn to aiding and abetting.
Conspiracy-based claims have some advantages to a plaintiff.9
A conspiracy imposes vicarious liability and need not be limited
to transferees. Berg & Berg Enters., LLC v. Sherwood Partners,
Inc., 131 Cal.App.4th 802, 823 & n.10; 32 Cal.Rptr.3d 325, 339-40
& n.10 (6th Dist. 2005). Conspiracy-based claims also have some
disadvantages from a plaintiff’s point of view. One disadvantage
is that if the alleged conspirator is an attorney, agent, or
employee of the fiduciary then he or she is generally protected by
the “‘agent’s immunity rule,’ which establishes that ‘an agent is
not liable for conspiring with the principal when the agent is
acting in an official capacity on behalf of the principal.’”
Berg, 131 Cal.App.4th at 817; 32 Cal.Rptr.3d at 335 (following
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Doctors’ Co. v. Superior Court, 49 Cal.3d 39, 260 Cal.Rptr. 183
(1989)) (other citations omitted); Cal. Civ. Code § 1714.10
(codifying rule of Doctors’ Co. as to attorneys). An exception to
the agent’s immunity is when the agent actively participated in
the breach of the trustee’s fiduciary duty in furtherance of his
or her own financial gain. Berg, 131 Cal.App.4th at 818 and 834,
32 Cal.Rptr.3d at 335 and 348. This exception, and the agent’s
immunity rule as a whole, are irrelevant in the court’s view
because Ted’s sons are not alleged to be the Successor Trustees’
attorneys, agents, or employees. Nevertheless both the parties
and some reported decisions conflate the exception to the agent’s
immunity rule with a second limitation on conspiracy-based claims.
The second limitation is that conspiracy is not an
independent tort. It “allows tort recovery only against a party
who already owes [a] duty and is not immune from liability based
on applicable substantive tort law principles.” Applied
Equipment, 7 Cal.4th at 514, 28 Cal.Rptr.2d at 480 (emphasis
added). Some duties are nearly universal: “The law imposes the
obligation that every person is bound without contract to abstain
from injuring the person or property of another, or infringing
upon any of his rights.” Younan v. Equifax Inc., 111 Cal.App.3d
498, 511; 169 Cal.Rptr. 478, 486 (2d Dist. 1980). Other duties
apply only to certain classes of persons, or are inapplicable to
certain classes of persons. In Applied Equipment the California
Supreme Court held that a contracting party could not conspire to
interfere with its own contract because it “owes no general tort
duty to another not to interfere with performance of the contract;
its duty is simply to perform the contract according to its
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terms.” Id. The court was concerned that allowing a tort claim
for conspiracy would transform simple a contract breach into a
tort, which would allow recovery of tort damages and otherwise
blur the line between contract and tort claims. Id., 7 Cal.4th at
514-18, 28 Cal.Rptr.2d at 480-83. The court did not doubt that
the same conduct might give rise to both contract and tort claims,
including conspiracy-based claims, but it rejected conspiracy as a
means of creating a tort claim where none would otherwise exist.
Id., 7 Cal.4th at 520 n.8, 28 Cal.Rptr.2d at 484 n.8.
Following this reasoning many of the California Courts of
Appeal have held (correctly in this court’s view) that because a
non-fiduciary has no fiduciary duty he or she cannot be liable for
conspiring to breach such a duty. Berg, 131 Cal.App.4th 802; 32
Cal.Rptr.3d 325; 1-800 Contacts, 107 Cal.App.4th at 592; 132
Cal.Rptr.2d at 808; Everest Investors 8 v. Whitehall Real Estate
L.P. XI, 100 Cal.App.4th 1102, 1106; 123 Cal.Rptr.2d 297, 301 (2d
Dist. 2002); Kidron, 40 Cal.App.4th at 1597, 47 Cal.Rptr.2d at
768; Younan, 111 Cal.App.3d 498, 169 Cal.Rptr. 478 (non-fiduciary
can conspire to commit actual fraud, but not constructive fraud)
(discussed with approval in Applied Equipment, 7 Cal.4th at 512,
28 Cal.Rptr.2d at 479). See also 12 Cal.Jur.3d Civil Conspiracy
§ 5 (citing authority that, just as a party to contract cannot be
liable for conspiracy to interfere with same, a non-employer third
party cannot be liable for conspiracy wrongfully to terminate
employment).
Other decisions agree with this as a general rule, but they
state or imply that Doctors’ Co. establishes an exception -- an
affirmative basis for liability rather than a narrow exception to
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the agents’ immunity rule. Under this approach one who is legally
incapable of committing the underlying tort can nevertheless be
liable for conspiracy if he or she actively participated in the
fiduciary’s breach of duty in furtherance of his or her own
financial gain. See Pierce v. Lyman, 1 Cal.App.4th 1093, 1104 &
n.7; 3 Cal.Rptr.2d 236, 242 & n.7 (2d Dist. 1991) (attorneys for
former trustees had no fiduciary relationship with beneficiary,
but could be liable for conspiring to violate fiduciary duty “if
the attorney was acting in furtherance of his or her own financial
gain”); In re County of Orange, 203 B.R. 983, 997-1000 & n.15
(Bankr. C.D. Cal. 1996) (same, for non-fiduciary provider of
financial rating services), rev’d in part on other grounds, 245
B.R. 138 (C.D. Cal. 1997); Atascadero, 68 Cal.App.4th at 464 n.14,
80 Cal.Rptr.2d at 342 n.14 (same, for non-fiduciary financial
broker and advisor); Wolf v. Mitchell, Silberberg & Knupp, 76
Cal.App.4th 1030, 1033, 1039-42; 90 Cal.Rptr.2d 792, 793, 797-99
(2d Dist. 1999) (same, for trustee’s attorney).
This split has been recognized but not resolved by the more
recent cases. See Everest, 100 Cal.App.4th at 1108-09, 123
Cal.Rptr.2d at 302-03 (acknowledging “existence of language in
several Court of Appeal opinions that is not entirely reconcilable
with our analysis” and suggesting that “[p]erhaps it is time for
the [California] Supreme Court to revisit these issues.”); 1-800
Contacts, 107 Cal.App.4th at 592, 132 Cal.Rptr.2d at 808
(following Everest but acknowledging “contrary understanding” by
certain decisions).
The court believes that a non-fiduciary cannot conspire to
breach a fiduciary and that “the exception for conduct undertaken
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in pursuit of a personal interest or advantage applies only to the
agent’s immunity rule.” 1-800 Contacts, 107 Cal.App.4th at 592,
132 Cal.Rptr.2d at 808 (emphasis added). The alternative approach
would “effectively swallow up the rule” -- it would permit
conspiracy for essentially any claim, regardless whether the
alleged conspirator is legally capable of committing the
underlying tort -- “because personal interest or advantage is
generally the impetus or goal of conspiratorial conduct.” Id.
Cassel attempts to distinguish Everest and 1-800 Contacts by
arguing that the non-fiduciaries in those cases were former agents
who had lost their immunity and were not actual recipients of the
fruits of the breach of trust. That is inaccurate. The non-
fiduciary in Everest was a purchaser, not an agent, who allegedly
conspired with fiduciaries of a limited partnership to purchase
its assets at significantly less than fair market value, thereby
receiving the fruits of the alleged breach of trust. Everest, 100
Cal.App.4th at 1104, 123 Cal.Rptr.2d at 299. In 1-800 Contacts
the non-fiduciary was an attorney who never had an attorney-client
or other agency relationship with the plaintiff and he too had
allegedly obtained the fruits of the breach of trust -- his
“personal gain” was “to undertake a profitable legislative
consulting business” based on the use of information allegedly
obtained through the plaintiff’s former in-house counsel who had
shared that information in violation of his fiduciary duties.
1-800 Contacts, 107 Cal.App.4th at 591, 132 Cal.Rptr.2d at 807.
Cassel’s attempts to distinguish these cases are unavailing.
For all of these reasons the court agrees with Defendants
that Ted’s sons, who were not fiduciaries (at least at the time of
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the alleged breach, see footnote 6 above), could not conspire to
breach any fiduciary duties owed by the Successor Trustees.
Kidron, 40 Cal.App.4th at 1597, 47 Cal.Rptr.2d at 768. That does
not mean that Cassel’s claim for aiding and abetting a breach of
fiduciary duty is barred. In the court’s view, both the letter
and the spirit of Applied Equipment are consistent with
recognizing aiding and abetting a breach of fiduciary duty as a
separate tort claim from conspiracy to breach a fiduciary duty.
The differences between conspiracy and aiding and abetting
are not merely semantic. A conspiracy exposes the conspirators to
vicarious liability for all acts committed pursuant to an
agreement to commit a tortious act or acts, “irrespective of
whether or not he was a direct actor and regardless of the degree
of his activity.” Applied Equipment, 7 Cal.4th at 511, 28
Cal.Rptr.2d at 478 (citations omitted). See also Haning,
Flahavan, and Kelly, Cal. Pract. Guide Pers. Inj. Ch.2-E at
¶¶ 2:347-2:369 (Rutter Group, 2007) (“CPG Pers. Inj.”); Neilson,
290 F.Supp.2d at 1134-35. In contrast aiding and abetting
requires a substantial causal connection between the culpable
conduct of the aider and abettor himself or herself and the harm
to the plaintiff, and although it requires no advance agreement it
does require actual knowledge that the primary wrongdoer’s conduct
constitutes a breach of duty. CPG Pers. Inj. at ¶ 2:369.6;
Neilson, 290 F.Supp.2d at 1134-35. These differences have led
several courts to recognize that a non-fiduciary can aid and abet
a breach of fiduciary duty. Neilson, 290 F.Supp.2d at 1118-29,
1132-37; Casey v. U.S. Bank National Ass’n, 127 Cal.App.4th 1138,
1145 n.2, 26 Cal.Rptr.3d 401, 406 n.2 (4th Dist. 2005) (“aiding
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and abetting a tort differs fundamentally from liability based on
conspiracy to commit a tort” for the reasons “articulated so well
in the Neilson opinion”); Berg, 131 Cal.App.4th at 823, 835 &
n.10; 32 Cal.Rptr.3d at 339-40, 349 & n.10 (following Neilson);
Atascadero, 68 Cal.App.4th at 460-70 & n.14, 80 Cal.Rptr.2d at
340-46 & n.14 (non-fiduciary agent cannot conspire to breach duty
owed by fiduciary, but non-fiduciary can induce, aid, or abet
breach of fiduciary duty, disagreeing with Kidron to the extent it
“purports to establish an absolute rule barring any cause of
action against a nonfiduciary for aiding and abetting a breach of
fiduciary duty . . .”) (emphasis added). But see County of
Orange, 203 B.R. at 999 (“I see no reason for treating the
vicarious tort of aiding and abetting breach of a fiduciary duty
differently from that of conspiracy to breach a fiduciary duty”);
1-800 Contacts, 107 Cal.App.4th at 588 & n.15, 132 Cal.Rptr.2d at
805 & n.15 (plaintiff acknowledged that its claim for inducing
breach of fiduciary duty was properly equated to claim for
conspiracy to breach fiduciary duty).
The different elements of conspiracy to breach a fiduciary
duty and aiding and abetting such a breach persuade the court that
Cassel’s proposed amendment is not futile. The dangers that
Applied Equipment sought to avoid are not present: if there are
any tort damages they will arise because all the substantive
elements of a tort have been satisfied -- the tort of aiding and
abetting a breach of fiduciary duty -- not because a contract
claim has been bootstrapped into a tort claim. As stated by
Neilson:
[T]he court concludes that the analysis set
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forth in Applied Equipment does not mandate a
finding that California law implicitly requires
that a defendant owe plaintiffs a duty before she
can be held liable for aiding and abetting.
Neilson, 290 F.Supp.2d at 1134-36.
The court expresses no view whether Ted’s sons did in fact
aid and abet any breach of fiduciary duty by the Successor
Trustess. The court must accept Cassel’s allegations as true for
purposes of his motion to amend. Because Ted’s sons have not
established that Cassel’s proposed amendment is futile the court
will grant Cassel’s motion for leave to amend the Supplemental
Complaint.
IV. Conclusion
Amended orders are being issued concurrent with this
Memorandum Decision reflecting the disposition of Cassel’s Partial
MSJ, Defendants’ MTD, and Cassel’s motion to amend the
Supplemental Complaint. No judgment is being issued at this time.
Cassel has not requested a ruling on punitive or consequential
damages or attorneys’ fees in his Partial MSJ, but neither have
Defendants established that those damages are barred as a matter
of law. Those issues, the newly added claim for aiding and
abetting breach of trust, and other matters remain to be resolved.
The court will hold a status conference on July 2, 2007, at
1:30 p.m.
** END OF MEMORANDUM DECISION **
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COURT SERVICE LIST
John Poppin, Esq. for Robert M. Cassel
Law Offices of John Poppin
130 Sutter St. 7th Fl.
San Francisco, CA 94104
Matthew J. Shier, Esq. for Robert M. Cassel
Pinnacle Law Group LLP
425 California St., Suite 1800
San Francisco, CA 94104
Neil R. Bardack, Esq. for Theodore M. Kolb,
Naz Roudiani, Esq. Ruth Globerson, Felix
McQuaid Bedford & Van Zandt LLP Kolb, Jonathan Kolb,
221 Main St., 16th Floor Richard Kolb, and
San Francisco, CA 94105 Douglas Kolb
Iain A. Macdonald, Esq. bankruptcy counsel to
Law Offices of Iain A. Macdonald Theodore M. Kolb
Two Embarcadero Center, Suite 1670
San Francisco, CA 94104
Robert A. Franklin, Esq. for Uecker & Assoc’s, Inc.
Murray & Murray
19400 Stevens Creek Blvd, Ste 200
Cupertino, CA 95014
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