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This case was last updated from Los Angeles County Superior Courts on 01/23/2020 at 08:10:07 (UTC).

MARION #2-SEAPORT TRUST, ET AL., VS TERRAMAR RETAIL CENTERS

Case Summary

On 07/17/2017 MARION 2-SEAPORT TRUST, filed a Contract - Other Contract lawsuit against TERRAMAR RETAIL CENTERS. This case was filed in Los Angeles County Superior Courts, Santa Monica Courthouse located in Los Angeles, California. The Judges overseeing this case are MITCHELL L. BECKLOFF and MARC D. GROSS. The case status is Pending - Other Pending.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****7822

  • Filing Date:

    07/17/2017

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Contract - Other Contract

  • Court:

    Los Angeles County Superior Courts

  • Courthouse:

    Santa Monica Courthouse

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judges

MITCHELL L. BECKLOFF

MARC D. GROSS

 

Party Details

Plaintiffs

SEAPORT VILLAGE OPERATIONG COMPANY LLC

MARION #2 SEAPORT TRUST U/A/D

Defendants

SEAPORT VILLAGE OPERATING COMPANY LLC

TERRAMAR RETAIL CENTERS LLC

Attorney/Law Firm Details

Plaintiff and Defendant Attorneys

KESSELMAN DAVID W.

WILLIAM H. FORMAN

PROCOPIA CORY HARGREAVES & SAVITCH LLP

VENABLE LLP

WHITE AND BRIGHT

FORMAN WILLIAM H.

WHITWELL BEN DAVID

PFISTER FREDERICK WILLIAM

MCLAUGHLIN MELISSA CAREN

RICHARD A. HELLER

HELLER RICHARD A.

WALTON EDWARD CARL

 

Court Documents

Case Management Statement

9/5/2019: Case Management Statement

Minute Order - MINUTE ORDER (CASE MANAGEMENT CONFERENCE)

6/18/2019: Minute Order - MINUTE ORDER (CASE MANAGEMENT CONFERENCE)

Minute Order - Minute Order (Case Management Conference)

1/15/2019: Minute Order - Minute Order (Case Management Conference)

Declaration - Declaration of M. McLaughlin ISO Oppos. to Motion to Compel Further Responses to FROGs

12/20/2018: Declaration - Declaration of M. McLaughlin ISO Oppos. to Motion to Compel Further Responses to FROGs

Minute Order - Minute order entered: 2018-03-21 00:00:00

3/21/2018: Minute Order - Minute order entered: 2018-03-21 00:00:00

Legacy Document - LEGACY DOCUMENT TYPE: Points and Authorities

4/10/2018: Legacy Document - LEGACY DOCUMENT TYPE: Points and Authorities

Ex Parte Application - Ex Parte Application DEFENDANT GENERAL MOTORS LLC'S

5/4/2018: Ex Parte Application - Ex Parte Application DEFENDANT GENERAL MOTORS LLC'S

Memorandum of Points & Authorities

6/8/2018: Memorandum of Points & Authorities

Motion to Compel - Further Responses

8/21/2018: Motion to Compel - Further Responses

Declaration - of Mary V.J. Cataldo

8/21/2018: Declaration - of Mary V.J. Cataldo

Motion to Compel -

9/13/2018: Motion to Compel -

Motion to Compel -

9/18/2018: Motion to Compel -

Case Management Statement -

10/4/2018: Case Management Statement -

Separate Statement - Separate Statement 1 of 2

10/17/2018: Separate Statement - Separate Statement 1 of 2

Notice of Lodging - Notice of Lodging OF EXHIBITS IN OPPOSITION TO MOTION TO COMPEL FURTHER RESPONSES TO REQUESTS FOR PRODUCTION, SET ONE, AND FOR MONETARY SANCTIONS

10/29/2018: Notice of Lodging - Notice of Lodging OF EXHIBITS IN OPPOSITION TO MOTION TO COMPEL FURTHER RESPONSES TO REQUESTS FOR PRODUCTION, SET ONE, AND FOR MONETARY SANCTIONS

Notice Re: Continuance of Hearing and Order

8/15/2018: Notice Re: Continuance of Hearing and Order

Memorandum of Points & Authorities - Memorandum of Points & Authorities IN OPPOSITION TO MOTION TO COMPEL FURTHER RESPONSES TO REQUESTS FOR PRODUCTION OF DOCUMENTS, SET ONE, AND FOR MONETARY SANCTIONS

10/29/2018: Memorandum of Points & Authorities - Memorandum of Points & Authorities IN OPPOSITION TO MOTION TO COMPEL FURTHER RESPONSES TO REQUESTS FOR PRODUCTION OF DOCUMENTS, SET ONE, AND FOR MONETARY SANCTIONS

95 More Documents Available

 

Docket Entries

  • 02/13/2020
  • Hearing02/13/2020 at 08:30 AM in Department M at 1725 Main Street, Santa Monica, CA 90401; Hearing on Motion to be Admitted Pro Hac Vice

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  • 02/13/2020
  • Hearing02/13/2020 at 08:30 AM in Department M at 1725 Main Street, Santa Monica, CA 90401; Case Management Conference

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  • 01/16/2020
  • DocketApplication to be Admitted Pro Hac Vice; Filed by TERRAMAR RETAIL CENTERS, LLC (Defendant)

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  • 01/16/2020
  • DocketNotice (of Application to Appear As Counsel Pro Hac Vice re Kenneth Nachbar); Filed by TERRAMAR RETAIL CENTERS, LLC (Defendant)

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  • 01/16/2020
  • DocketProof of Service by Mail; Filed by TERRAMAR RETAIL CENTERS, LLC (Defendant)

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  • 09/19/2019
  • Docketat 08:30 AM in Department M; Case Management Conference - Held - Continued

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  • 09/19/2019
  • Docketat 1:43 PM in Department M; Nunc Pro Tunc Order

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  • 09/19/2019
  • DocketMinute Order ( (Nunc Pro Tunc Order)); Filed by Clerk

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  • 09/19/2019
  • DocketMinute Order ( (Case Management Conference)); Filed by Clerk

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  • 09/05/2019
  • DocketCase Management Statement; Filed by MARION #2 SEAPORT TRUST U/A/D JUNE 21, 02 (Plaintiff)

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255 More Docket Entries
  • 09/13/2017
  • DocketNotice (OF LODGMENT OF EXHIBITS IN SUPPORT OF MOTION TO STRIKE PORTIONS OF COMPLAINT ); Filed by Attorney for Defendant

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  • 09/13/2017
  • DocketPoints and Authorities (IN SUPPORT OF MOTION TO STRIKE PORTIONS OF COMPLAINT ); Filed by Attorney for Defendant

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  • 09/13/2017
  • DocketNotice of Motion (AND MOTION TO STRIKE PORTIONS OF COMPLAINT ); Filed by Attorney for Defendant

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  • 08/15/2017
  • DocketProof-Service/Summons; Filed by MARION #2 SEAPORT TRUST U/A/D JUNE 21, 02 (Plaintiff); SEAPORT VILLAGE OPERATIONG COMPANY, LLC (Plaintiff)

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  • 08/15/2017
  • DocketProof-Service/Summons; Filed by MARION #2 SEAPORT TRUST U/A/D JUNE 21, 02 (Plaintiff); SEAPORT VILLAGE OPERATIONG COMPANY, LLC (Plaintiff)

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  • 08/15/2017
  • DocketProof-Service/Summons; Filed by Attorney for Plaintiff

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  • 07/17/2017
  • DocketComplaint; Filed by MARION #2 SEAPORT TRUST U/A/D JUNE 21, 02 (Plaintiff); SEAPORT VILLAGE OPERATIONG COMPANY, LLC (Plaintiff)

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  • 07/17/2017
  • DocketSummons; Filed by Plaintiff

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  • 07/17/2017
  • DocketSummons Filed; Filed by Attorney for Plaintiff

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  • 07/17/2017
  • DocketComplaint Filed

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Tentative Rulings

Case Number: SC127822    Hearing Date: November 04, 2020    Dept: M

CASE NAME: Marion #2 Seaport Trust U/A/D June 21, 2002, et al v. Terramar Retail Centers

CASE NO.: SC127822

MOTION: Motion for Summary Judgment or in the Alternative Summary Adjudication

HEARING DATE: 11/4/2020

Background

On March 8, 2018, Plaintiff Marion #2 Seaport Trust U/A/D June 21, 2002 (“the Trust”) filed a first amended complaint (FAC) against Defendant Terramar Retail Centers, LLC (“Terramar”), nominal defendant Seaport Village Operating Company LLC (“Operating Co.” or the “Company”), and Does l-10. In the FAC, the Trust brought claims for breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief against Terramar, and a derivative claim on behalf of the nominal defendant against Terramar.

The Trust alleges that it is a minority member of the Company. (See FAC ¶ 1.) Plaintiff alleges that the Company was formed to hold a ground leasehold interest in Seaport Village. (See id.) The ground lease was set to expire in 2018, which is termed the Phase I Lease. (Id. ¶ 2; see also id. ¶ 21.)

The Trust further alleges that the Port expressed “to Limited that a key element in obtaining a ground lease extension for Phase I was redevelopment by [San Diego Seaport Village, Ltd.] (on its own or with a partner) of property adjacent to Phase I, an old, vacated police station with environmental issues (“Phase II”).” (Id. ¶ 22.).] In 2003, “GMS acquired an interest in Seaport Village” and the company was formed. (Id. ¶ 23.). GMS, the Trust and Seaport Limited executed the operating agreement in 2002. (See FAC ¶ 24.) The Trust alleges “[a]s Operating Co.’s Manager, Terramar could have and should have been very aggressive in its efforts to secure a Phase 1 ground lease extension from the Port. Instead, however, Terramar acted in its own best interest, and contrary to its contractual and fiduciary duties.” (Id. ¶ 36.)

Plaintiff the Trust also alleges in footnote 1 of the FAC that it only asserts claims against Terramar for acts and omissions after the effective date of the settlement agreement. “With the exception of allegations relating to the allocation of phantom income, allegations of facts pre-dating the effective date [of the settlement] are offered for background purposes.” (See FAC ¶ 43. fn. 1.)

With respect to the first, second, and third causes of action in the FAC, the Trust alleged that the following conduct resulted in breaches of contract, breaches of fiduciary duties, and breaches of the covenant of good faith and fair dealing:

a. Intentionally withholding material information from the Cohen Family Trust relating to the Port’s consideration and proposed rejection of Operating Co.’s proposed Phase 1 ground lease extension in October 2015, while Terramar was negotiating for and securing the Trust’s settlement and release of claims;

b. Failing to challenge the Port’s decision to reject an extension of Operating Co.’s Phase I ground lease, or otherwise to take all appropriate actions following that decision to attempt to secure a Phase I ground lease extension;

c. Failing to pay off Terramar’s expensive funding to Operating Co. with third party financing, at much lower market rates, following the Port’s rejection of the Phase I ground lease proposal;

d. Improperly exercising the “put” right set forth in the Operating Agreement in an effort to sell Seaport Village without the Cohen Family Trust’s consent;

e. Frustrating the Cohen Family Trust’s ability to purchase Terramar’s 50% membership interest pursuant to Section 9.5 of the Operating Agreement; and

f. Attempting to force a liquidation of Operating Co. on terms that will secure for Terramar, to the Cohen Family Trust’s exclusion, all value in the Seaport Village project.

(See FAC ¶¶ 65, 70, 74.). The Trust’s fourth cause of action was for declaratory relief against Terramar. (See FAC. ¶¶ 76 – 77.) The Trust sought a declaration that “Terramar may not sell Seaport Village without the Cohen Family Trust’s consent, as required by Section 5.6 of the Operating Agreement.” (Id. ¶ 77(a).) The Trust alleged that Terramar “frustrated the intent of Section 9.5 of the Operating Agreement by preventing the Cohen Family Trust from purchasing Terramar’s 50% membership interest pursuant to Section 9.5 of the Operating Agreement and used the failure of such purchase as a means to circumvent Section 5.6 of the Operating Agreement and sell Seaport Village without the Cohen Family Trust’s consent.” (Id.)

The Trust also sought a declaration that the “Cut-Off Condition” is deemed satisfied and the Cohen Family Trust . . . is entitled to the next priority for cash flows and proceeds.” (Id. ¶¶ 77(b).)

The parties in this case also litigated a declaratory relief action in Delaware. (See Terramar’s RJN Exs. 1-21.) On November 4, 2016, Terramar filed the declaratory relief action (“the Delaware Action”). (See Terramar RJN Ex. 1.) Terramar filed an amended Delaware complaint on July 10, 2017. (Terramar RJN Ex. 2.) In Terramar’s declaratory relief action, Terramar sought a declaration that under section 9.5 of the Operating Agreement, “Terramar is entitled to unilaterally sell all of Operating’s property and assets to a third party in connection with Operating’s dissolution.” (See RJN Ex. 2 ¶ 32, p.11.) Terramar also sought a declaration that it correctly calculated the waterfall distribution as set forth in section 4 of the Operating agreement. (See id. ¶ 24.)

The Delaware action ultimately went to trial and resulted in a lengthy opinion by the Court of Chancery of the State of Delaware. (See Terramar RJN Ex. 17.) The Court “rule[d] in favor of Terramar on all claims.” (See id. at 1.) The Chancery Court summarized the parties’ positions:

Terramar contends that it complied with the requirements in the LLC Agreement for dissolving the Company, and it seeks to exercise its right to sell the Company’s assets. Terramar contends that its proposed allocation of the sale proceeds complies with the LLC Agreement.

The Trust argues that Terramar breached the requirements in the LLC Agreement for dissolving the Company. The Trust asserts that the Terramar Buy-Out Notice misrepresented Terramar’s opinion of Company Fair Market Value and overstated the Terramar Purchase Price. The Trust also contends that Terramar withheld financial information necessary for the Trust to decide whether to buy Terramar’s member interest. The Trust further argues that Terramar wrongfully insisted that the Trust and Limited jointly purchase Terramar’s interest, refused to cooperate with the Trust’s capital source, and negotiated with the Trust in bad faith.

(RJN Ex. 17, at pp. 21.) The Trust filed an answer to the amended Delaware complaint on June 28, 2018. The Trust asserted affirmative defenses of unclean hands and equitable estoppel. (See RJN Ex. 4 at pp. 24-26.)

The Court “reject[ed] the Trust’s theories. Terramar complied with the requirements of the LLC Agreement and is entitled to sell the Company’s assets to a third party.” (Ibid.). The Court found that “[w]ith one exception, the Settlement Agreement released all of the Trust’s challenges that arise from events that occurred before October 2, 2015. Challenges from that era are also time-barred. The few timely challenges crumble under the weight of the evidence.” The Court concluded that “Terramar complied with Section 9.5 of the LLC Agreement when it exercised the Put Right and the Dissolution Right. Terramar is entitled to a declaration that it may dissolve the Company and unilaterally sell its assets to a third party.” (See RJN Ex. 17 at p. 36.) The Court also found that many of the Trust’s claims were released. (See id. at pp. 38-40.)[1]

The Trust appealed the decision and the Supreme Court of Delaware affirmed on November 1, 2019. (See Terramar RJN Ex. 19.)

Basis for the Motion

Defendant argues that they are entitled to summary judgment or in the alternative, summary adjudication. Defendant moves for summary judgment on the grounds that the Trust’s FAC is barred in its entirety by the doctrine of res judicata. On May 22, 2019, the Chancery Court of the State of Delaware issued a detailed opinion in the Delaware Action -- Terramar Retail Centers, LLC v. Marion #2-Seaport Trust U/A/D June 21, 2002, Court of Chancery of the State of Delaware Case No. 12875-VCL. The Delaware court ruled in favor of Terramar, and adversely to the Trust, as to all claims and issues raised by the Trust in the FAC. Defendant argues that the Chancery Court has already adjudicated that Terramar has the right to dissolve Seaport Village Operating Company (the “Company”) (of which Terramar and the Trust are the sole members), unilaterally sell all of the Company’s property and assets to a third party in connection with the Company’s dissolution, and distribute the first-out proceeds from the dissolution to Terramar (the agreed “Waterfall Distribution”), without reduction for any unfounded allegations of mismanagement of the Company by Terramar in its role as managing member. Defendant asserts that the Trust now seeks to re-litigate these very claims in hopes of obtaining a different outcome, but it is barred from doing so by the doctrine of res judicata.

In the alternative, Defendant moves for summary adjudication on six issues based on collateral estoppel, as described in the notice of motion:

Issue 1:

The Trust is Collaterally estopped from re-litigating the issue of whether Terramar breached its fiduciary duties, the Company’s Operating Agreement, and/or the covenant of good faith and fair dealing by failing to challenge the Port’s decision to reject an extension of the Company’s Phase I ground lease, or otherwise to take all appropriate actions following that decision to attempt to secure a Phase I ground lease extension.

Issue 2:

The Trust is Collaterally estopped from re-litigating the issue of whether Terramar breached its fiduciary duties, the Company’s Operating Agreement, and/or the covenant of good faith and fair dealing by failing to pay off Terramar’s expensive funding to the Company with third party financing, at much lower rates.

Issue 3:

The Trust is Collaterally estopped from re-litigating the issue of whether Terramar breached its fiduciary duties, the Company’s Operating Agreement, and/or the covenant of good faith and fair dealing by improperly exercising the “put” right set forth in the Operating Agreement in an effort to sell Seaport Village without the Trust’s consent.

Issue 4:

The Trust is collaterally estopped from re-litigating the issue of whether Terramar breached its fiduciary duties, the Company’s Operating Agreement, and/or the covenant of good faith and fair dealing by frustrating the Trust’s ability to purchase Terramar’s 50% membership interest pursuant to Section 9.5 of the Operating Agreement.

Issue 5[2]:

The Trust is collaterally estopped from re-litigating the issue of whether Terramar breached its fiduciary duties, the Company’s Operating Agreement, and/or the covenant of good faith and fair dealing by intentionally withholding information relating to the Port’s consideration and rejection of the Seaport Lease (Phase One) during the negotiations of the Parties’ October 2, 2015 settlement agreement.

Legal Standard

The purpose of a motion for summary judgment or summary adjudication “is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”  (Aguilar v. Atl. Richfield Co(2001) 25 Cal. 4th 826, 843.)  “Code of Civil Procedure section 437c, subdivision (c), requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

“The supporting papers shall include a separate statement setting forth plainly and concisely all material facts which the moving party contends are undisputed. Each of the material facts stated shall be followed by a reference to the supporting evidence. The failure to comply with this requirement of a separate statement may in the court's discretion constitute a sufficient ground for denial of the motion.” (Code Civ. Proc., § 437c(b)(1); see also Cal. Rules of Court, rule 3.1350(c)(2) & (d).)

“The opposition papers shall include a separate statement that responds to each of the material facts contended by the moving party to be undisputed, indicating if the opposing party agrees or disagrees that those facts are undisputed. The statement also shall set forth plainly and concisely any other material facts the opposing party contends are disputed. Each material fact contended by the opposing party to be disputed shall be followed by a reference to the supporting evidence. Failure to comply with this requirement of a separate statement may constitute a sufficient ground, in the court's discretion, for granting the motion.” (Code Civ. Proc., § 437b(b)(3) (emphasis added).)

“On a motion for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.”  (Scalf (2005) 128 Cal.App.4th 1510, 1519.)  The moving party is entitled to summary judgment if they can show that there is no triable issue of material fact or if they have a complete defense thereto. (Aguilar v. Atlantic Richfiend

When a defendant moves for summary judgment or summary adjudication based on an affirmative defense “‘the defendant has the initial burden to show that undisputed facts support each element of the affirmative defense’.... If the defendant does not meet this burden, the motion must be denied.” (Consumer Cause, Inc. v. SmileCare (2001) 91 Cal.App.4th 454, 467–468 [quoting Anderson v. Metalclad Insulation Corp. (1999) 72 Cal.App.4th 284, 289–290] [citing Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2001) ¶¶ 10:241, 10:242, 10:246 to 10:249, pp. 10–77, 10–78, 10–83 to 10–85, rev. # 1, 2001.)])

In analyzing motions for summary judgment, courts must apply a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent's claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.) Pursuant to Code of Civil Procedure section 437c(p)(2):

A defendant or cross-defendant has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action. Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The plaintiff or cross-complainant may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto.

When deciding whether to grant summary judgment, the Court must consider all of the evidence set forth in the papers, except evidence to which the Court has sustained an objection, as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.  (Avivi, 159 Cal. App. 4th at 467.)  

“A moving defendant now has two means by which to shift the burden of proof under subdivision (o)(2) of section 437c to the plaintiff to produce evidence creating a triable issue of fact. The defendant may rely upon factually insufficient discovery responses by the plaintiff to show that the plaintiff cannot establish an essential element of the cause of action sued upon…. Alternatively, the defendant may utilize the tried and true technique of negating (‘disproving’) an essential element of the plaintiff's cause of action.” (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1598. See also Code Civ. Proc., § 437c(p)(2).) A moving defendant must show that plaintiff cannot reasonably obtain evidence to prove a cause of action, which is more than simply arguing that there is an absence of evidence. (Gaggero v. Yura (2003) 108 Cal.App.4th 884, 891.)

A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty. (Code Civ. Proc., § 437c(f)(1).)

requests for judicial notice

Terramar requests judicial notice of Exhibits 1-21. Exhibits 1-19 are the court records from the Delaware Action. Exhibits 20 and 21 are court records in this case. The existence of these documents are judicially noticeable. Therefore, Terramar’s request for judicial notice is granted.

The Trust requests judicial notice of exhibits A – D, F, H, M – P, S – V, and 1. All of the exhibits except for Exhibit 1 are court records in the Delaware Action. Therefore, the Court takes judicial notice of the existence of these documents, except for Exhibit 1. The Court denies judicial notice of Exhibit 1.

The Trust also requests judicial notice of Exhibits E and G as records of the State or records or official acts of a government. The motion is granted as to Exhibits E and G.

The Court declines to take judicial notice of documents on reply.

Joinder

Seaport Village Operating Company, LLC (“the Company”) filed a joinder on March 30, 2020. The joinder is timely.

The Company joins entirely in Terramar’s motion for summary judgment. In addition, the Company argues that summary judgment should be granted in its favor on the derivative cause of action against it. The Trust objects to the Company’s joinder. The Trust argues that since the Company is a nominal defendant, “[A] nominal defendant corporation generally may not defend a derivative action filed on its behalf. The corporation may assert defenses contesting the plaintiff’s right or decision to bring suit, such as asserting the shareholder plaintiff’s lack of standing or the [special litigation Committee] defense . . . [t]he corporation has no ground to challenge the merits of a derivative Claim filed on its behalf and from which it stands to benefit.” (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1004, as modified on denial of reh’g (Nov. 21, 2008).)

In reply, the company argues that it can oppose the derivative lawsuit on the procedural basis of res judicata, also citing Patrick, supra,167 Cal.App.4th 995. The court in Patrick limited its holding as follows:

The conclusion follows that a nominal defendant corporation generally may not defend a derivative action filed on its behalf. The corporation may assert defenses contesting the plaintiff's right or decision to bring suit, such as asserting the shareholder plaintiff's lack of standing or the [special litigation committee] SLC defense. (Corp.Code, § 800, subd. (b)(1); Desaigoudar, supra, 108 Cal.App.4th at p. 185, 133 Cal.Rptr.2d 408.) We need not now enumerate what other defenses a corporation may assert in a derivative action, if any. It suffices to hold the corporation has no ground to challenge the merits of a derivative claim filed on its behalf and from which it stands to benefit.

(Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1005, as modified on denial of reh'g (Nov. 21, 2008).)

While the joinder is timely, the Court does not consider the joinder since the Company asserts arguments as to the derivative action that are not specifically made by Terramar and seeks summary judgment on the merits.

Analysis

Terramar moves for summary judgment or, in the alternative, summary adjudication.

I. Whether Defendant has met its initial burden of establishing Res Judicata

 

A. Res Judicata under Delaware Law

Terramar argues that res judicata bars this action based on the Delaware judgment. “‘Res judicata’ describes the preclusive effect of a final judgment on the merits. Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.” (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896.) “Whether such a judgment is a bar res judicata as to another action on the same cause in this state is controlled by [that state’s] law. See Code Civ. Proc. § 1913; Rall v. Lovell, 105 Cal.App.2d 507, 233 P.2d 681; Smith v. Smith, 115 Cal.App.2d 92, 251 P.2d 720; In re Kimler, 37 Cal.2d 568, 233 P.2d 902; Goodrich on Conflict of Laws, pp. 630-634; Rest.Conflicts, s 450.” (Gagnon Co. v. Nevada Desert Inn (1955) 45 Cal.2d 448, 453–454 [applying Nevada law]; see also Martin v. Martin (1970) 2 Cal.3d 752, 761–762 [applying federal law]; Hawkins v. SunTrust Bank (2016) 246 Cal.App.4th 1387, 1391–1392, as modified on denial of reh'g (May 4, 2016) [applying South Carolina law].) “The rule is stated: ‘(1) The effect of a valid judgment upon the rights or other interests of the parties and persons in privity with them is determined by the law of the state where the judgment was rendered.” (Gagnon Co., 45 Cal.2d at 454.) Therefore, in order to meet its initial burden on its affirmative defense, Terramar must show that under applicable Delaware law, this action is barred by res judicata.

Terramar argues in a footnote that the preclusive effect of the Delaware declaratory judgment in a California court is governed by California law. (See fn. 7 to MSJ.) As explained above, that is not the law. Defendant further argues that “in any event, there is no conflict between Delaware law and California law on the principals governing application of res judicata” citing to Maldonado v. Flynn (1980) 417 A.2d 378. Maldonado, however, focused on federal securities claims and common law claims, and the issue of claim splitting. In addition, Terramar’s argument would have been more persuasive if Defendant cited to Delaware law, demonstrated throughout its motion for summary judgment how the laws were not in conflict, and also applied Delaware law to the facts. However, Defendant waited to present such arguments on reply, which prevented Plaintiff from meaningfully addressing these arguments in its opposition.

California follows a primary rights theory when deciding whether res judicata bars an action. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 904.) “The primary right theory . . . is invoked . . . when a plaintiff attempts to divide a primary right and enforce it in two suits. The theory prevents this result by either of two means: (1) if the first suit is still pending when the second is filed, the defendant in the second suit may plead that fact in abatement [citations]; or (2) if the first suit has terminated in a judgment on the merits adverse to the plaintiff, the defendant in the second suit may set up that judgment as a bar under the principles of res judicata.” (Ibid.) In Mycogen, the California Supreme Court was urged to “abandon the primary right theory and adopt the transactional approach of the Restatement Second of Judgments.” (Id. 908, fn. 13.) The California Supreme Court, however, declined to reconsider its long-standing approach to res judicata because the outcome would be the same. (Id.) While the outcome in Mycogen was the same under either theory, that cannot be said in all cases. “[U]nder the primary rights theory, the determinative factor is the harm suffered. When two actions involving the same parties seek compensation for the same harm, they generally involve the same primary right. (Agarwal v. Johnson (1979) 25 Cal.3d 932, 954.)” (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 798 [emphasis added].)

Terramar’s motion is focused entirely on res judicata under California law and not Delaware law. Under Delaware law, “Res judicata operates to bar a claim where the following five-part test is satisfied: (1) the original court had jurisdiction over the subject matter and the parties; (2) the parties to the original action were the same as those parties, or in privity, in the case at bar; (3) the original cause of action or the issues decided was the same as the case at bar; (4) the issues in the prior action must have been decided adversely to the appellants in the case at bar; and (5) the decree in the prior action was a final decree. [footnote omitted]” (LaPoint v. AmerisourceBergen Corp. (Del. 2009) 970 A.2d 185, 192.) As such, Delaware law follows the transactional approach to cases, and not a primary rights approach. The Delaware Supreme Court explained that:

[d]etermining whether two claims arise from the same transaction requires pragmatic consideration, with the fact finder “giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.” [Footnote omitted.] Two claims “derive[d] from a common nucleus of operative fact[s]” arise from the same transaction. [Footnote omitted.] As we explained in Kossol v. Ashton Condominium Association, Inc., to assert res judicata as a bar to a plaintiff's claim, in addition to showing that the same transaction formed the basis for both the present and former suits, the defendant must show that the plaintiff “neglected or failed to assert claims which in fairness should have been asserted in the first action.” [Footnote omitted.]

(LaPoint v. AmerisourceBergen Corp. (Del. 2009) 970 A.2d 185, 193–194.) Here, Terramar has not met its initial burden because Terrarmar has not demonstrated that the claims are barred by res judicata under Delaware law. In this motion, Terramar’s burden was to apply the appropriate law to its motion for summary judgment/adjudication.

II. Whether Defendant has met its initial burden of establishing collateral estoppel

Defendant cites Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, a California case, to argue that collateral estoppel, or issue preclusion, bars Plaintiff’s claims. “The threshold requirements for issue preclusion are: (1) the issue is identical to that decided in the former proceeding, (2) the issue was actually litigated in the former proceeding, (3) the issue was necessarily decided in the former proceeding, (4) the decision in the former proceeding is final and on the merits, and (5) preclusion is sought against a person who was a party or in privity with a party to the former proceeding. [Citation omitted].” (Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, 481 [emphasis added].). Under Delaware law, Courts consider whether:

(1) The issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action. [Citations omitted.]

(Betts v. Townsends, Inc. Defendants, however, relied solely on California law. Due to this failure, Terramar has not met their initial burden of showing that they have established the elements of collateral estoppel under Delaware law. Terramar cannot attempt to do so for the first time on reply.

Furthermore, Terramar seeks summary adjudication on issues that do not completely dispose of its affirmative defense of collateral estoppel. The Notice of Motion seeks summary adjudication of five issues. Although the notice of motion cites six issues, one of the issues is a duplicate. The five issues seem to track paragraphs (a) – (e) in some of the causes of action in the FAC but fail to track paragraph (f) or the other allegations in the fourth cause of action. Furthermore, there are additional allegations in the fifth (derivative cause of action) that are not addressed by the notice of motion. Terramar’s ninth affirmative defense states, “This answering Defendant is informed and believes and thereon alleges that Plaintiff is barred from recovery on each of the alleged causes of action and requests for relief by the doctrines of res judicata and/or collateral estoppel.” (See 07/02/2018 General Denial [emphasis added].)

The Court of Appeal explained, “Prior to the 1990 amendments to the summary judgment law, a party could move for “summary adjudication of issues” either by itself or as an alternative to summary judgment. (Former § 437c, subd. (f), Stats.1989, ch. 1416, § 16, pp. 6229–6230.) If the evidence supported a finding that there were no triable issues of fact as to some but not all of the issues involved in the action, the trial court was required to specify that those issues were ‘without substantial controversy.’ (Ibid.)” (Hindin v. Rust (2004) 118 Cal.App.4th 1247, 1255.) “In 1990 the Legislature amended former section 437c, subdivision (f) ‘to stop the practice of adjudication of facts or adjudication of issues that do not completely dispose of a cause of action or a defense.’ (Stats.1990, ch. 1561, § 1, p. 7330; see DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 418–419, 54 Cal.Rptr.2d 792 [motion for summary adjudication may not attack one particular compensatory damage claim if granting the motion would leave intact the cause of action containing claims for the remaining items of compensatory damages].)” (Id. at 1255–1256.) Here, a finding on all of the “issues” would not dispose of the collateral estoppel affirmative defense because Terramar explicitly raises that defense as to all causes of action and the notice does not cover all of the sub-issues raised by each of the causes of action.

For these reasons, the motion for summary adjudication is denied.


[1] The Chancery Court applied California law when it was interpreting the release in the settlement agreement. Although the Chancery Court does not explicitly say so, it appears that the Chancery Court ruled that the release in the settlement agreement was not procured by fraud. In addition, the Court explained that it denied leave to amend the answer to argue that the settlement agreement itself was procured by fraud. (See also RJN Ex. 17 at pp. 46-47 fn. 26.) The Court found that in 2016, the Trust knew the lease would not be extended but accepted the settlement funds anyway. (Ibid.)

[2] Issue 6 is verbatim identical to issue 5.

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