Lopes et al v. Vieira et al, No. 1:2006cv01243 - Document 298 (E.D. Cal. 2010)
Court Description: MEMORANDUM DECISION Granting Defendants Downey Brand and Genske Mulder's Motions For Summary Judgment Against Plaintiff Maria Machado As Trustee of the Machado Family Trust ( 245 & 246 ), signed by Judge Oliver W. Wanger on 9/27/2010. (Gaumnitz, R)
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Lopes et al v. Vieira et al Doc. 298 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT FOR THE 7 EASTERN DISTRICT OF CALIFORNIA 8 9 MANUAL LOPES, et al., 10 Plaintiffs, 11 12 vs. 13 GEORGE VIEIRA, et al., 14 15 16 Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. CV-F-06-1243 OWW/SMS MEMORANDUM DECISION GRANTING DEFENDANTS DOWNEY BRAND AND GENSKE MULDER'S MOTIONS FOR SUMMARY JUDGMENT AGAINST PLAINTIFF MARIA MACHADO AS TRUSTEE OF THE MACHADO FAMILY TRUST (Docs. 245 & 246) 17 Defendants Downey Brand LLP (“Downey Brand”) and Genske 18 Mulder & Company (“Genske Mulder”) respectively move for summary 19 judgment or summary adjudication against Plaintiff Maria Machado 20 as Trustee of the Machado Family Trust on the Fourth through 21 Eighth Causes of Action in the Second Amended Complaint (“SAC”). 22 Downey Brand seeks summary judgment or adjudication as to 23 the Fourth and Fifth Causes of Action on the ground that 24 Plaintiff’s predecessor in interest, Alvaro Machado (“the 25 Decedent”), did not purchase a security; as to the Fourth through 26 1 Dockets.Justia.com 1 Eighth Causes of Action on the grounds that Plaintiff cannot 2 establish that Downey Brand made an affirmative misrepresentation 3 to the Decedent and that Downey Brand owed no duty to disclose to 4 the Decedent; and on the Fourth through Eighth Causes of Action 5 on the ground that Plaintiff cannot establish reliance or 6 causation. 7 Genske Mulder seeks summary judgment or adjudication: A. Fourth Cause of Action for securities fraud in violation of the Securities Act of 1934 on the ground that Plaintiff Machado did not purchase Valley Gold LLC’s securities or any other securities; 8 9 10 B. Fifth Cause of Action for violation of California securities law on the ground that Plaintiff Machado did not purchase Valley Gold LLC’s securities or any other securities; 11 12 13 C. Sixth Cause of Action for negligence on the grounds that Plaintiff Machado was not a client of Genske Mulder and Genske Mulder did not owe him a duty of care; 14 15 16 D. Seventh Cause of Action for intentional misrepresentation on the grounds that Plaintiff Machado did not receive or rely on, any material misrepresentation or omission made by Genske Mulder; 17 18 19 E. Eighth Cause of Action for negligent misrepresentation on the grounds the Plaintiff Machado did not receive or rely on, any material misrepresentation made by Genske Mulder. 20 21 22 A. GOVERNING STANDARDS. 23 Summary judgment is proper when it is shown that there 24 exists “no genuine issue as to any material fact and that the 25 moving party is entitled to judgment as a matter of law.” 26 2 1 Fed.R.Civ.P. 56. 2 element of a claim or a defense, the existence of which may 3 affect the outcome of the suit. 4 Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th 5 Cir.1987). 6 governing a claim or a defense. 7 inferences drawn from it must be construed in the light most 8 favorable to the nonmoving party. 9 A fact is “material” if it is relevant to an T.W. Elec. Serv., Inc. v. Materiality is determined by the substantive law Id. The evidence and all Id. The initial burden in a motion for summary judgment is on 10 the moving party. The moving party satisfies this initial burden 11 by identifying the parts of the materials on file it believes 12 demonstrate an “absence of evidence to support the non-moving 13 party’s case.” 14 (1986). 15 summary judgment. 16 party “may not rely on the mere allegations in the pleadings in 17 order to preclude summary judgment,” but must set forth by 18 affidavit or other appropriate evidence “specific facts showing 19 there is a genuine issue for trial.” 20 may not simply state that it will discredit the moving party’s 21 evidence at trial; it must produce at least some “significant 22 probative evidence tending to support the complaint.” 23 question to be resolved is not whether the “evidence unmistakably 24 favors one side or the other, but whether a fair-minded jury 25 could return a verdict for the plaintiff on the evidence 26 presented.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 The burden then shifts to the nonmoving party to defeat T.W. Elec., 809 F.2d at 630. Id. The nonmoving The nonmoving party Id. The United States ex rel. Anderson v. N. Telecom, Inc., 3 1 52 F.3d 810, 815 (9th Cir.1995). 2 “mere existence of a scintilla of evidence in support of the 3 plaintiff’s position”; there must be “evidence on which the jury 4 could reasonably find for the plaintiff.” 5 implausible the claim or defense asserted by the nonmoving party, 6 the more persuasive its evidence must be to avoid summary 7 judgment.” 8 1769, 1776 (2007), the Supreme Court held: 9 10 11 Id. This requires more than the Id. The more In Scott v. Harris, ___ U.S. ___, 127 S.Ct. When opposing parties tell different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment. 12 As explained in Nissan Fire & Marine Ins. Co. v. Fritz Companies, 13 210 F.3d 1099 (9th Cir.2000): 14 15 16 17 18 19 20 21 22 23 24 The vocabulary used for discussing summary judgments is somewhat abstract. Because either a plaintiff or a defendant can move for summary judgment, we customarily refer to the moving and nonmoving party rather than to plaintiff and defendant. Further, because either plaintiff or defendant can have the ultimate burden of persuasion at trial, we refer to the party with and without the ultimate burden of persuasion at trial rather than to plaintiff and defendant. Finally, we distinguish among the initial burden of production and two kinds of ultimate burdens of persuasion: The initial burden of production refers to the burden of producing evidence, or showing the absence of evidence, on the motion for summary judgment; the ultimate burden of persuasion can refer either to the burden of persuasion on the motion or to the burden of persuasion at trial. 25 26 A moving party without the ultimate burden of persuasion at trial - usually, but not 4 always, a defendant - has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment ... In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party’s claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial ... In order to carry its ultimate burden of persuasion on the motion, the moving party must persuade the court that there is no genuine issue of material fact .... 1 2 3 4 5 6 7 8 If a moving party fails to carry its initial burden of production, the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial ... In such a case, the nonmoving party may defeat the motion for summary judgment without producing anything ... If, however, a moving party carries its burden of production, the nonmoving party must produce evidence to support its claim or defense ... If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment ... But if the nonmoving party produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats the motion. 9 10 11 12 13 14 15 16 17 18 210 F.3d at 1102-1103. 19 B. STATEMENT OF UNDISPUTED FACTS. 20 1. Downey Brand. 21 DBUDF 1. Downey Brand has never represented Central Valley 22 Dairymen, Inc. 23 Plaintiff’s Response: Although Plaintiff did not 24 respond specifically to this fact, in responses by other 25 Plaintiffs to Downey Brand’s motions for summary judgment, 26 5 1 Plaintiffs disputed this fact, asserting that, on February 28, 2 2003, Valley Dairymen LLC was formed. 3 CVD in creating that entity, which was a subsidiary of CVD. 4 Declaration of Plaintiffs’ counsel Douglas Applegate, avers that 5 an invoice, dated March 13, 2003, attached as Exhibit X, 6 demonstrates that Downey Brand was hired by CVD’s longstanding 7 counsel, Augustine & Colaw, to form an entity called Valley 8 Dairymen LLC and that Mr. Applegate’s “research indicates that 9 Valley Dairymen, LLC was formed as a wholly owned subsidiary of 10 Downey Brand represented The Central Valley Dairymen.” Downey Brand’s Reply: 11 In contending that Downey 12 Brand represented CVD in creating Valley Dairymen, Plaintiffs 13 rely on an “unauthenticated, inadmissible” Downey Brand bill sent 14 to Valley Dairymen on March 13, 2003 in care of the law firm, 15 Colaw & Augustine. 16 averment Colaw & Augustine was CVD’s longstanding counsel means 17 that CVD paid for these services is constructed out of thin air. 18 Downey Brand argues that Mr. Applegate’s assertion that Valley 19 Dairymen was a wholly owned subsidiary of CVD is speculative 20 hearsay. 21 fact, Downey Brand asserts that its client was the entity to be 22 formed, Valley Dairymen, LLC, not CVD. 23 California Practice Guide: Professional Responsibility, §§ 24 3:107.2 - 107.4, stating that “out-of-state authorities have 25 reasoned that an attorney-client relationship exists between the 26 attorney and the corporation (not with the individuals) Downey Brand asserts that Mr. Applegate’s Even if Mr. Applegate’s speculation is accepted as 6 Downey Brand cites 1 ‘retroactively’ from the time the attorney is retained and the 2 corporation is actually formed (by filing incorporation papers,” 3 § 3:107.2, because “[i]f the person who retains the attorney for 4 the purpose of organizing the corporation is considered the 5 ‘client,’ any subsequent representation of the corporation by 6 that lawyer would automatically amount to dual representation, 7 resulting in the lawyer’s possible disqualification.” § 3:107.3. 8 Downey Brand also cites Strasbourger Pearson Tulcin Wolff Inc. v. 9 Wiz Technology, Inc., 69 Cal.App.4th 1399, 1404 (1999), involving 10 an appeal of the trial court’s order disqualifying plaintiff’s 11 attorney based on the attorney’s having represented plaintiff in 12 connection with a stock offering: “[P]ayment of attorney fees 13 alone does not determine an attorney-client relationship; it is 14 merely a factor.” Plaintiffs also asserted that, on November 4, 2004, CVD paid 15 16 a $15,000 retainer to Downey Brand for Downey Brand’s work to 17 convert Valley Gold debt into equity. 18 Downey Brand’s Reply: Plaintiffs’ evidence does 19 not create an issue of fact that Downey Brand ever represented 20 CVD. 21 Jeffrey Koewler of Downey Brand to Tony Cary regarding “retainer 22 for Valley Gold, LLC:” 23 24 25 26 Downey Brand submits a letter dated November 12, 2004 from Enclosed please find check number 013378, which you delivered to Downey Brand, in the amount of $15,000. The check is made out to Downey Brand on a Central Valley Dairymen bank account. As Chris Delfino stated in his voicemail to you on November 12, 2004, we are returning the check to you because our client 7 is Valley Gold, and the matter which you have asked us to assist you involves Valley Gold and Central Valley Dairymen. To avoid any confusion as to who we represent, we cannot accept a check from Central Valley Dairymen. If Valley Gold would like to retain Downey Brand, please have Valley Gold provide us with the retainer check. 1 2 3 4 5 Downey Brand notes that the accounting report upon which 6 Plaintiffs rely in asserting that Downey Brand was paid $15,000 7 by CVD for work in creating CVD has the handwritten notation that 8 the check was not cashed. 9 Court’s Ruling: It is UNDISPUTED that Downey Brand 10 never represented CVD. Plaintiffs’ evidence does not create a 11 genuine issue of material fact.1 12 DBUDF 2. The Decedent did not invest in Valley Gold LLC. 13 Plaintiff’s Response: Undisputed as phrased. Over 14 several years, CVD withheld sums from the Machado dairy’s milk 15 checks, which were placed in a trust to be used for acquiring a 16 cheese plant. CVD ultimately used that trust money to acquire an 17 ownership interest in Valley Gold in CVD’s name. The Decedent 18 thus had a beneficial interest in CVD’s ownership. 19 Court Ruling: Plaintiff provides no evidentiary 20 support for this response. The fact is UNDISPUTED. 21 DBUDF 3. The Decedent did not read any of the documents 22 23 24 25 26 1 In Downey Brand’s statement of undisputed facts in support of its amended motion for summary judgment as to Joseph Lopes as Trustee of the Raymond Lopes Family Trust, Downey Brand asserted the same fact. (Doc. 277-2, DBUDF 1). Plaintiff Joseph Lopes as Trustee of the Raymond Lopes Family Trust responded “undisputed” in his response to Downey Brand’s statement of undisputed facts. (Doc. 282). 8 1 associated with the Valley Gold offering to investors or 2 documents prepared by Valley Gold’s accountants. 3 Plaintiff’s Response: Undisputed. 4 DBUDF 4: The Decedent has never retained Downey Brand to 5 represent him nor has he ever spoken to, or heard anything said 6 by, a Downey Brand attorney. Plaintiff’s Response: Undisputed. 7 2. 8 a. 9 10 11 12 15 Fourth Cause of Action for Federal Securities Fraud. GMUDF 1. The Decedent did not purchase Valley Gold securities. Plaintiff’s Response: Undisputed. 13 14 Genske Mulder. GMUDF 2. The Decedent did not receive or read the Valley Gold Offering Memorandum. 16 Plaintiff’s Response: Undisputed. 17 b. 18 19 20 Fraud. GMUDF 3. 23 The Decedent did not purchase Valley Gold securities. Plaintiff’s Response: Undisputed. 21 22 Fifth Cause of Action for State Securities GMUDF 4. The Decedent did not receive or read the Valley Gold Offering Memorandum. 24 Plaintiff’s Response: Undisputed. 25 c. 26 GMUDF 5. Sixth Cause of Action for Negligence. The Decedent was not a client of Genske Mulder. 9 Plaintiff’s Response: Undisputed. 1 GMUDF 6. 2 3 was a member of Central Valley Dairymen. Plaintiff’s Response: Not supported by the 4 5 The Decedent’s claim of duty is merely because he evidence cited by Genske Mulder. Court Ruling: 6 Genske Mulder relies on the 7 Decedent’s response to Genske Mulder’s Interrogatory No. 6, Set 8 One: 11 Interrogatory No. 6. State the dates during which YOU engaged Genske-Mulder to provide YOU ‘accounting, and consulting, management advisory and investment services’ as described in paragraph 38 of the [SAC]. 12 Response to Interrogatory No. 6 13 When I became a member of CVD cooperative. 9 10 14 Given that Plaintiff concedes that he was never a client of 15 Genske Mulder, this fact is UNDISPUTED. d. 16 17 Misrepresentation. 18 GMUDF 7. Seventh Cause of Action for Intentional The Decedent did not receive any representation 19 made by Genske Mulder, but received representations by Central 20 Valley Dairymen to continue to supply Valley Gold with milk 21 despite non-payment. Plaintiff’s Response: Undisputed. 22 23 24 GMUDF 8. personnel who were involved with CVD or Valley Gold. Plaintiff’s Response: Undisputed. 25 26 The Decedent could not identify any Genske Mulder GMUDF 9. The Decedent did not receive any documents from 10 1 Genske Mulder. 2 Plaintiff’s Response: Undisputed. 3 e. 4 Misrepresentation. 5 GMUDF 10. 6 from Genske Mulder. GMUDF 11. The Decedent’s only claim is for omissions. Plaintiff’s Response: Disputed and not supported 9 10 The Decedent did not receive any representations Plaintiff’s Response: Undisputed. 7 8 Eighth Cause of Action for Negligent by the evidence cited by Genske Mulder. Court Ruling: 11 Genske Mulder relies on the 12 Decedent’s responses to Genske Mulder’s Interrogatories Nos. 11- 13 15, Set One: 14 Interrogatory No. 11. 15 State all facts on which YOU allege that Genske-Mulder intentionally made misrepresentations to YOU or intentionally withheld material information from YOU in face of a duty of disclosure as alleged in paragraph 158 of the SAC. 16 17 18 Response to Interrogatory No. 11. 19 23 We were never informed by GM of any CVD investment in VG. We were never informed about the nature of George Vieira’s criminal involvement with Supreme Specialties. We were not informed of George Vieira’s use of CVD funds for his own purposes (for example, to pay his attorneys). At all stages, GM acted to protect George Vieira. 24 Interrogatory No. 12. 25 State all facts on which YOU allege that Genske-Mulder intended to cause damage to YOU, and intended to obtain benefits for 20 21 22 26 11 1 itself at YOUR expense as alleged in paragraph 165 of the SAC. 2 Response to Interrogatory No. 12. 3 See response to interrogatory eleven. 4 Interrogatory No. 13. 5 7 State all facts on which YOU allege that acts of Genske-Mulder constitute malice, oppression, and/or fraud as alleged in paragraph 165 of the SAC. 8 Response to Interrogatory No. 13. 9 10 I would have been given information and choices about my ‘VG investments’ had GM not been trying to hide something. 11 Interrogatory No. 14. 12 State all facts known by Genske Mulder to be false, or which were withheld but that Genske had a duty to disclose, as alleged in paragraph 169 of the SAC. 6 13 14 Response to Interrogatory No. 14. 15 16 17 (1) All information regarding CVD investment in VG (2) GM’s role in transactions and their relationship with George 18 Interrogatory No. 15. 19 22 State all the facts by which Genske Mulder knew the ‘matters they misrepresented were false’ and that the ‘matters they withheld was [sic] material information that they had a duty to disclose’ as alleged in paragraph 169 of the SAC. 23 Response to Interrogatory No. 15. 24 I feel that there are two ways to look at the situation. Either (1) GM lied about being experts in the dairy/agribusiness accounting consulting field and the statements, reports and opinions that they provided were terrible 20 21 25 26 12 guesses; or (2) GM knew what they were doing and instead of providing us with the actual facts, lied, withheld or misrepresented those facts in order to take our money. 1 2 3 These discovery responses establish that the Decedent’s claim for 4 negligent misrepresentation is based on the alleged omissions by 5 Genske Mulder described in the Decedent’s response to 6 Interrogatory No. 11. UNDISPUTED. 7 3. Plaintiff’s Statement of Additional Undisputed 8 Facts. 9 PUDF A. The Decedent was a member of CVD until June or July 10 of 2005. 11 PUDF B. In 2004, CVD began paying late for milk that the 12 Decedent delivered to Valley Gold. 13 PUDF C. The Decedent continued to ship milk to Valley Gold 14 because he believed that the Valley Gold cheese plant was going 15 to be successful. 16 PUDF D. The Decedent’s friends at the other dairies were 17 also having financial problems, but they continued to ship their 18 milk to Valley Gold. Friends like Raymond Lopes, Manuel Lopes 19 and Antonio Estevam said that they still believed the cheese 20 plant was going to be successful. Because they believed in the 21 plant and continued to ship their milk to Valley Gold, the 22 Decedent did too. 23 PUDF E. When Raymond Lopes and Manuel Lopes quit CVD and 24 stopped shipping their milk to Valley Gold, the Decedent quit 25 too. 26 13 1 C. FOURTH AND FIFTH CAUSES OF ACTION. 2 Plaintiff concedes that Downey Brand and Genske Mulder are 3 entitled to summary judgment as to the Fourth for securities 4 fraud in violation of the Securities Exchange Act of 19342 and 5 the Fifth Causes of Action for violation of California 6 Corporations Code § 25400(d) because the Decedent admits that he 7 did not purchase any Valley Gold security. 8 to the Fourth and Fifth Causes of Action is GRANTED as to Downey 9 Brand and Genske Mulder against Plaintiff Maria Machado as 10 Summary judgment as Trusteee of the Machado Family Trust 11 D. SIXTH CAUSE OF ACTION. 12 The Sixth Cause of Action is for negligence. 1. 13 Downey Brand. 14 Downey Brand moves for summary judgment as to the Sixth 15 Cause of Action on the grounds that Plaintiff cannot establish an 16 affirmative misrepresentation made by Downey Brand to the 17 Decedent and that Downey Brand owed no duty of disclosure to the 18 Decedent. 19 “The elements of a cause of action for negligence are (1) a 20 legal duty to use reasonable care, (2) the breach of that duty, 21 and (3) proximate [or legal] cause between the breach and (4) the 22 plaintiff’s injury.” 23 Cal.App.4th 1333, 1339 (1998). Mendoza v. City of Los Angeles, 66 “The existence of a legal duty to 24 2 25 26 The caption of the Fourth Cause of Action is “Securities Fraud: Securities Act of 1934.” However, the allegations of the Fourth Cause of Action make clear that the cause of action is for violation of the Securities Exchange Act of 1934 and Rule 10b-5. 14 1 use reasonable care in a particular factual situation is a 2 question of law for the court to decide.” 3 Investments, Inc., 118 Cal.App.4th 269, 278 (2004). 4 Vasquez v. Residential Downey Brand asserts that Plaintiff cannot point to an 5 affirmative misstatement made by Downey Brand to the Decedent. 6 Downey Brand quotes Anixter v. Home-Stake Production Co., 77 F.3d 7 1215, 1225 (10th Cir.1996), a case addressing a primary liability 8 claim under § 10(b): “Reliance only on representations made by 9 others cannot itself form the basis of liability.” “[F]or a cause 10 of action for negligent misrepresentation, clearly a 11 representation is an essential element.” 12 Plaintiff cites Lovejoy v. AT&T Corp., 92 Cal.App.4th 85 13 (2001), which addresses the concepts of indirect 14 misrepresentation and indirect reliance: 15 16 17 18 19 It is true that California courts recognize the principle of indirect misrepresentation, under which a knowingly false statement is no less actionable because it was made to an intermediary who then conveyed it to the party ultimately injured ... However, this doctrine requires that the defendant intend or has reason to expect that it will be ‘repeated and acted upon by the plaintiff.’ ... 20 21 22 23 24 25 26 ... Under the principle of indirect reliance, a fraudulent misrepresentation is actionable if it was communicated to an agent of the plaintiff and was acted upon by the agent to the plaintiff’s damage. A classic example of indirect reliance would be a drug manufacturer’s misrepresentation to physicians about the safety of its drug. A patient injured by the drug is permitted to sue the manufacturer for fraud without proof that his doctor repeated the falsehood to him, under the theory that the doctor was 15 1 acting as the plaintiff’s agent. 2 92 Cal.App.4th at 94. 3 liable under the theory of indirect misrepresentation and 4 indirect reliance. 5 6 7 8 9 10 11 Plaintiff argues that Downey Brand may be Plaintiff argues: Certainly, the defendants knew that the members of ... CVD were a tight-knit group that would share information among themselves. And although the Machado dairy did not invest in Valley Gold, it was a member of CVD; and Mr. and Mrs. Machado talked about the plant and its operations with their friends, including plaintiffs Raymond Lopes, Manuel Lopes and Antonio Estevam. (Decl. Mary Machado at ¶ 4.) And because these friends believed what they had been told and continued to ship milk to Valley Gold, so too did the Machado dairy. (Decl. Mary Machado at ¶¶ 4-5.) 12 13 14 15 The situation is thus not unlike a small investor who relies upon Warren Buffet’s investment decisions and mimics them on a smaller scale. If Warren Buffet is misled by a false prospectus, so too is the small investor - even without receiving the misleading document. 16 17 18 19 20 21 22 23 24 25 The defendants certainly knew that the noninvesting members of CVD would be heavily influenced by the decisions of those who did invest. Indeed, they relied upon it; for the Offering Memorandum stated that Valley Gold would ‘purchase from CVD all of the Company’s milk requirements used in the manufacture of the Company cheese products.’ (Index of Exhibits, Exhibit 1 at page 8, last sentence.) The defendants did not just have to convince the investors to invest; they also had to convince the other members of CVD to supply Valley Gold with milk. And they accomplished that task by convincing the core group of investors with incomplete and misleading statements, knowing that the core group would convince the other members of CVD to participate indirectly - by shipping their milk to CVD. 26 16 1 However, Plaintiff presents no evidence that Downey Brand 2 intended or had reason to expect that any misrepresentation 3 concerning Valley Gold would be repeated and acted upon by a 4 person who did not invest in Valley Gold and presents no evidence 5 that a friend of the Decedent such as Manuel Lopes was acting as 6 the Decedent’s agent. 7 Downey Brand also moves for summary judgment on the ground 8 that it did not have a duty to disclose running to the Decedent 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 As explained in Fox v. Pollack, 181 Cal.App.3d 954, 960 (1986): With certain exceptions, an attorney has no obligation to a nonclient for the consequences of professional negligence this is, the attorney is not burdened with any duty toward nonclients merely because of his or her status as an attorney. The existence of such a duty is a question of law dependent upon ‘a judicial weighing of the policy considerations for and against the imposition of liability under the circumstances ...’ ... The imposition of a duty of professional care toward nonclients has generally been confined to those situations wherein the nonclient was an intended beneficiary of that attorney’s services, or where it was reasonably foreseeable that negligent service or advice to or on behalf of the client would cause harm to others. ‘[T]he determination whether in a specific case the [attorney] will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of the harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the [attorney’s] conduct and the injury, and the policy of preventing future harm ...’.... 17 1 Downey Brand notes that Plaintiff concedes that the Decedent 2 was not a client of Downey Brand, but pleads that Downey Brand 3 represented CVD and Valley Gold. 4 Cove Motel and Hotel Apartments, Inc. v. Superior Court, 121 5 Cal.App.4th 773, 784 (2004): 6 7 8 Downey Brand cites La Jolla In representing a corporation, an attorney’s client is the corporate entity, not individual shareholders or directors, and the individual shareholders or directors cannot presume that corporate counsel is protecting their interests. 9 Rule 3-600(E), State Bar Rules of Professional Conduct, provides: 10 11 12 13 14 15 A member representing an organization may also represent any of its ... members, shareholders, or other constituents, subject to the provisions of rule 3-310. If the organization’s consent to the dual representation is required by rule 3-310, the consent shall be given by an appropriate constituent of the organization other than the individual or constituent who is to be represented, or by the shareholder(s) or organization members. 16 Downey Brand asserts that Plaintiff concedes there was no 17 agreement by either CVD or Valley Gold that Downey Brand 18 represent the Decedent. 19 Downey Brand asserts that it did not represent CVD. 20 Plaintiff responds that Downey Brand did not “exit the scene” 21 after the Offering: 22 23 24 25 Rather, on November 4, 2005, Downey Brand accepted a $15,000 retainer paid by CVD which was then owed $30 million in unpaid milk, and it then used that retainer to prepare an agreement to try to cram down the conversions of milk debt for equity, despite the lack of necessary consensus or corporate formalities. 26 18 However, the evidence is that Downey Brand was not paid by 1 2 CVD and that the $15,000 check was returned by Downey Brand to 3 CVD uncashed because Downey Brand’s client was Valley Gold, not 4 CVD. 5 Plaintiff presents no contrary evidence. Downey Brand further argues that, even if it did represent 6 CVD, a cooperative corporation is distinct from its members, 7 citing Schuler v. Meschke, 435 N.W.2d 156, 162 (Minn.App.1989): 8 9 10 11 An incorporated cooperative is a legal entity, separate and apart from its members. 18 Am.Jur.2d Cooperative Associations, § 3, page 263. North Dakota law governing cooperatives recognizes a distinction between a cooperative and its members ... Minnesota has similar laws. 12 Although Downey Brand represented Valley Gold, no duty to the 13 Decedent arises from this fact, Downey Brand contends, because 14 the Decedent did not purchase any Valley Gold security. 15 16 17 18 Downey Brand’s motion for summary judgment against Plaintiff as to the Sixth Cause of Action for negligence is GRANTED. 2. Genske-Mulder. Genske Mulder moves for summary judgment on the ground that 19 Plaintiff cannot establish that Genske Mulder owed the Decedent a 20 duty of care. 21 In Bily v. Arthur Young & Co., 3 Cal.4th 370 (1992), the 22 California Supreme Court held that an accounting firm can be held 23 liable for general professional negligence in conducting an audit 24 of financial statements only to the person or entity contracting 25 for the accountant’s services, and, in that case, the accounting 26 19 1 firm’s sole client was the company.3 [W]e hold that an auditor’s liability for general negligence in the conduct of an audit of its client financial statements is confined to the client, i.e., the person who contracts for or engages the audit services. Other persons may not recover on a pure negligence theory. 2 3 4 5 6 3 Cal.4th at 406. 8 9 10 11 12 13 14 15 16 18 The Supreme Court noted, however: In theory, there is an additional class of persons who may be the practical and legal equivalent of ‘clients.’ It is possible the audit engagement contract might expressly identify a particular third party or parties so as to make them express third party beneficiaries of the contract. Third party beneficiaries may under appropriate circumstances possess the rights of parties to the contract ... This case presents no third party beneficiary issue. Arthur Young was engaged by the company to provide audit reporting to the company. No third party is identified in the engagement contract. Therefore, we have no occasion to decide whether and under what circumstances express third party beneficiaries of audit engagement contracts may recover as ‘clients’ under our holding. 7 17 The Supreme Court stated: Id. at 406 n.16. Because it is undisputed that the Decedent never retained 19 Genske Mulder as his accountant or obtained professional services 20 from Genske Mulder and, Genske Mulder asserts, there is no 21 evidence that Genske Mulder is legally responsible for CVD’s 22 failure to pay the Decedent for his milk, Genske Mulder contends 23 that it is entitled to summary judgment as to the Sixth Cause of 24 3 25 26 The California Supreme Court further held that an accountant may be held liable for negligent misrepresentation to third parties who are known to the accountant and for whose benefit the audit report was rendered. 20 1 Action. 2 Plaintiff responds that the fact the Decedent was not a 3 client of Genske Mulder does not compel summary judgment in favor 4 of Genske Mulder: “The law is not, and never has been, that 5 rigid.” 6 Plaintiff cites no case authority for this proposition. 7 However, in Plaintiffs’ opposition to the motion to dismiss the 8 First Amended Complaint, Plaintiff cited Murphy v. BDO Seidman, 9 LLP, 113 Cal.App.4th 687 (2003), as authority that liability for 10 negligence does not depend on a contractual or professional 11 relationship. 12 In Murphy, scores of stockholders filed an amended complaint 13 alleging negligent and intentional misrepresentation against two 14 accounting firms for issuing financial statements overstating the 15 value of two corporations in the process of merging upon which 16 the stockholders relied in approving the merger, buying stock in 17 one or both of the corporations. 18 corporation went bankrupt causing the stockholders to lose their 19 investments. 20 demurrers without leave to amend. 21 firms argued that their liability for the inaccuracies in their 22 financial statements was only to their clients, the two 23 corporations, and therefore no duty of care was owed to third 24 parties. 25 26 Following the merger, the The trial court sustained the accounting firms’ On appeal, the accounting The Court of Appeal disagreed: Bily imposes on respondents a duty of care to more than just their clients. Respondents owed a duty to anyone whom they (1) should 21 10 have reasonably foreseen would rely on their intentional misrepresentations, or (2) knew with substantial certainty would rely on their negligent misrepresentations. (Bily, supra, 3 Cal.4th at pp.413-415.) The complaint alleges respondents knew the proposed merger of WIN and Struthers would induce investors in Struthers to rely on financial statements about WIN in anticipation of the two companies becoming one. In addition, the complaint alleges respondents knew Struthers investors would rely on WIN’s financial statements in deciding whether to approve the merger itself. The complaint therefore alleges a duty from respondents to Struthers’ shareholders, making respondents liable to those shareholders for their misrepresentation. 11 Plaintiff also cited Cabanas v. Gloodt Associates, 942 12 F.Supp. 1295, 1308-1309 (E.D.Cal.1996), aff’d, 141 F.3d 1174 (9th 13 Cir.1998), in their opposition to the motion to dismiss the First 14 Amended Complaint. 15 when conducting an appraisal of a going concern, owes a duty to 16 the manager or owner of the property not to negligently harm its 17 interests. 18 against recovery for negligent interference with contract or 19 prospective economic advantage is subject to one exception: where 20 there is a ‘special relationship’ between the parties.” 21 1308. 1 2 3 4 5 6 7 8 9 22 At issue in Cabanas was whether an appraiser, The District Court noted that the “general rule The District Court stated: Whether such a special relationship exists is determined by examining six factors: 23 24 (1) the extent to which the transaction was intended to affect the plaintiff; 25 26 (2) the foreseeability of harm to the plaintiff; 22 Id. at (3) the degree of certainty that the plaintiff suffered injury; 1 2 (4) the closeness of the connection between the defendant’s conduct and the injury suffered; 3 4 (5) the moral blame attached to the defendant’s conduct; and 5 (6) the policy of preventing future harm. 6 7 Id. 8 Here, there is no evidence that the Decedent relied on any 9 representations made by Genske Mulder; rather, the evidence is 10 that the Decedent relied on the opinions of his friends, such as 11 Plaintiffs Raymond Lopes and Manuel Lopes, that the cheese plant 12 was going to be successful, in continuing to ship milk to Valley 13 Gold. There is no evidence as to the basis of his friends’ 14 opinions, what they told the Decedent, that Genske Mulder knew 15 of the existence of the friends, or that would be reading and 16 relying on financial statements or projections. 17 Plaintiff cites Lovejoy v. AT&T Corp., supra, 92 Cal.App.4th 18 at 95 (2001), which addresses the concepts of indirect 19 misrepresentation and indirect reliance. Plaintiff argues that 20 Genske Mulder may be liable under the theory of indirect 21 misrepresentation and indirect reliance. However, Plaintiff 22 presents no evidence that Genske Mulder intended or had reason to 23 expect that any misrepresentation concerning Valley Gold would be 24 repeated and acted upon by a person who did not invest in Valley 25 Gold and presents no evidence that the Decedent’s friends were 26 23 1 acting as the Decedent’s agent. 2 Plaintiff asserts that Genske Mulder is subject to 3 negligence liability under the derivative claim asserted on 4 behalf of Valley Gold. 5 Plaintiff concedes that the Decedent did not purchase a 6 Valley Gold security, i.e., that he was not a shareholder of 7 Valley Gold. 8 shareholders on behalf of the corporation. 9 Corporations Code § 800(b); Rule 23.1, Federal Rules of Civil A derivative action must be brought by the See California 10 Procedure. 11 against Genske Mulder on derivative liability. 12 13 14 15 16 17 18 19 20 21 22 23 Therefore, he cannot base his claim of negligence Plaintiff further argues that the “whole range of facts is much more damaging” than Genske Mulder will admit: As the cheese plant faltered and lost money in the first six months, Paul Anema from Genske Mulder prepared a chart for a planned meeting showing that Valley Gold was selling its cheese at about half the established market rate. Mr. Vieira objected, and Mr. Anema complied, and he hid the chart from the light of day. Genske Mulder every month reconciled CVDs [sic] accounts and processed its bills, and saw every month the bills for Mr. Vieira’s criminal attorneys. Those bills leave no doubt that Mr. Vieira was actively negotiating a plea deal, was planning on going to prison, and was guilty of securities fraud in the operation of a cheese plant in Manteca, California. (See Plaintiffs’ Exhibits N through V.). None of these representations were made by Genske Mulder to 24 the Decedent. The evidence is undisputed that the Decedent never 25 received or read the Valley Gold Offering Memorandum, that he did 26 not receive any documents from Genske Mulder and did not receive 24 1 2 3 any representations from Genske Mulder. Genske Mulder’s motion for summary judgment against Plaintiff as to the Sixth Cause of Action is GRANTED. 4 E. 5 The Seventh Cause of Action is for intentional 6 7 SEVENTH CAUSE OF ACTION. misrepresentation. “‘The necessary elements of fraud are: (1) misrepresentation 8 (false representation, concealment, or nondisclosure); (2) 9 knowledge of falsity (scienter); (3) intent to defraud (i.e., to 10 induce reliance); (4) justifiable reliance; and (5) resulting 11 damage.’” Alliance Mortgate Co. v. Rothwell,, 10 Cal.4th 1226, 12 1239 (1995). 13 1. Downey Brand. 14 Downey Brand argues that summary judgment is appropriate as 15 to the Seventh Cause of Action because there is no evidence that 16 Downey Brand made any misrepresentation to the Decedent. 17 Decedent never read the Valley Gold Offering Memorandum or any 18 other document prepared by Downey Brand. 19 involved in the Milk for Equity transaction. 20 evidence to the contrary is the assertion that the Decedent 21 relied on the opinion of friends, two of whom invested in Valley 22 Gold in deciding to continue to ship milk to Valley Gold. 23 However, for the reasons stated above, this evidence is 24 insufficient to create a genuine issue of material fact as to the 25 Seventh Cause of Action as to Plaintiff Maria Machado as Trustee 26 of the Machado Family Trust. The Downey Brand was not Plaintiff’s only Downey Brand’s motion for summary 25 1 judgment as to the Seventh Cause of Action is GRANTED. 2. 2 Genske Mulder. 3 Genske Mulder moves for summary judgment as to the Seventh 4 Cause of Action on the ground that Plaintiff admits that Genske 5 Mulder made no representations to the Decedent. 6 argues: Genske Mulder Mr. Machado’s testimony and discovery responses disclose that merely because Genske Mulder provided professional services to CVD and/or Valley Gold, Genske Mulder should have informed him of Mr. Vieira’s criminal prosecution and the infeasibility of the Valley Gold cheese production ... Most importantly, Mr. Machado’s discovery response assert Ipsi Dixit that because Genske Mulder provided professional services to CVD and/or Valley Gold, Genske Mulder should have advised him (a non client) not to sell his milk to CVD, who ultimately sold his milk to Valley Gold. 7 8 9 10 11 12 13 14 Genske Mulder asserts that the Decedent’s discovery responses 15 fail to establish that the Decedent relied on any representation 16 or omission made by Genske Mulder and that this evidence fails to 17 establish that Genske Mulder had an intent to defraud the 18 Decedent. 19 Plaintiff again relies on the doctrine of indirect 20 representation. See discussion supra. For the reasons stated 21 above, Genske Mulder’s motion for summary judgment as to the 22 Seventh Cause of Action is GRANTED. 23 F. Eighth Cause of Action. 24 The Eighth Cause of Action is for negligent 25 misrepresentation, the elements of which are (1) a 26 26 1 misrepresentation of a past or existing material fact, (2) 2 without reasonable grounds for believing it to be true, (3) with 3 intent to induce another’s reliance on the fact misrepresented, 4 (4) ignorance of the truth and justifiable reliance thereon by 5 the party to whom the misrepresentation was directed, and (5) 6 damages. 7 8 9 10 11 Fox v. Pollack, 181 Cal.App.3d 954, 962 (1986). 1. Downey Brand. Downey Brand moves for summary judgment as to the Eighth Cause of Action on the ground that Downey Brand made no representations to the Decedent. The Decedent never read the Valley Gold Offering Memorandum 12 or any other document prepared by Downey Brand. 13 not involved in the Milk for Equity transaction. 14 only evidence to the contrary is the assertion that the Decedent 15 relied on the opinion of friends, two of whom invested in Valley 16 Gold in deciding to continue to ship milk to Valley Gold. 17 However, for the reasons stated above, this evidence is 18 insufficient to create a genuine issue of material fact as to the 19 Seventh Cause of Action. 20 judgment as to the Eighth Cause of Action is GRANTED. 21 22 2. Downey Brand was Plaintiff’s Downey Brand’s motion for summary Genske Mulder. Genske Mulder moves for summary judgment on the ground that 23 Genske Mulder made no representations to the Decedent and 24 contends that Plaintiff cannot rely on the alleged omissions 25 described in the Decedent’s discovery responses. 26 The tort of negligent misrepresentation requires a positive 27 1 assertion; an implied assertion or misrepresentation is not 2 enough. 3 297-298 (1997). 4 (1990), the Court of Appeals held that a financial advisor’s 5 failure to disclose material facts concerning a land investment 6 did not constitute negligent misrepresentation. Diediker v. Peelle Financial Corp., 60 CalApp.4th 288, In Byrum v. Brand, 219 Cal.App.3d 926, 942 7 Because Genske Mulder made no representations to the 8 Decedent and the Decedent’s discovery responses establish that 9 his claims against Genske Mulder are based on alleged omissions, 10 Genske Mulder’s motion for summary judgment as to the Eighth 11 Cause of Action is GRANTED. CONCLUSION 12 13 For the reasons stated: 14 1. Downey Brand and Genske Mulder’s motions for summary 15 judgment against Plaintiff 16 Machado Family Trust on the Fourth through Eighth Causes of 17 Action in the Second Amended Complaint (“SAC”) are GRANTED; 2. 18 Maria Machado as Trustee of the Counsel for Defendants shall prepare and lodge a form of 19 order consistent with this Memorandum Decision within five (5) 20 court days following service of this Memorandum Decision. 21 IT IS SO ORDERED. 22 Dated: 668554 September 27, 2010 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 23 24 25 26 28
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