5 6 7 1 1 1 0 1 5 6 7 DAVID H. SCHWARTZ (SBN 66 LAW OFFICES OF DAVID H. SCHWARTZ, INC. Washington Street, Sixth Floor San Francisco, CA 1 Tel: ( -01 Fax: ( -7 E-mail: dhs@lodhs.com ATTORNEYS FOR PLAINTIFF JONATHAN POOL SUPERIOR COURT OF THE STATE OF CALIFORNIA JONATHAN POOL, on behalf of BERKELEY TOWN HOUSE COOPERATIVE CORPORATION, a California Cooperative Corporation VS. Plaintiff, ALMALEE HENDERSON, JUDITH WEHLAU, CHARLES TUGGLE, KATHERINE MILES, NANCY EPANCHIN, RAYMOND DIRODIS, RITA ZWERDLING, DOES 1 THROUGH, INCLUSIVE, Defendants. I. SUMMARY OF OPPOSITION COUNTY OF ALAMEDA UNLIMITED JURISDICTION Case No.: RG 770 Related to Case RG 00 PLAINTIFF'S OPPOSITION TO DEMURRER Date: October 1,0 Time: :0 a.m. Dept.: 1 Defendants demur to the Complaint in this action contending that the cause of action for breach of an alleged settlement agreement reached between the Plaintiff, personally, and the individual defendants belongs solely to Berkeley Town House Cooperative Corporation ("BTHCC" because BTHCC was a beneficiary under the terms of the settlement agreement. Under Defendants' theory, since the action belongs solely to BTHCC, Plaintiff may not assert it except in a derivative capacity, which Defendants assert he has failed to do. The alleged settlement agreement was made between Plaintiff personally and the defendants in this action through their counsel. Plaintiff was the promisee, and the agreement provided that in return for the requested consideration by the Defendants Plaintiff would settle all of the monetary PLAINTIFF'S OPPOSITION TO DEMURRER- 1
claims alleged in the underlying derivative action (including claims belonging to Plaintiff personally, and cease any further prosecution of the First Cause of Action in the underlying suit. While BTHCC would be a third-party beneficiary in that Defendants' monetary payment would go to BTHCC, Plaintiff would also benefit individually by being relieved of the cost of further prosecution of the 5 First Cause of Action and creating a benefit for BTHCC that would assist him in attempting to obtain 6 a court order for reimbursement of the attorney's fees and costs he had previously expended. 7 California statutory and case law permits the promisee under a contract with a third party beneficiary to sue to enforce the contract in his own name and without naming the third-party beneficiary as a party. (C.C.P. 6, Alpha Beta Food Markets, Inc. v. Retail Clerks Union, (55 5 Cal. " d 76, 77 The causes of action in the complaint in this action do not belong exclusively to BTHCC, but also to Plaintiff. The action is not derivative in nature. Plaintiff has standing to 1 maintain this action in his own name and without naming BTHCC as a party. 1 II. 1 0 1 5 6 7 THE COMPLAINT AND THE PROCEDURAL BACKGROUND TO THE RELATED CASE Plaintiff filed Action RG 00 acting in both his individual capacity and as a member of BTHCC in a derivative capacity. In his First Cause of Action in the Complaint in that action, Plainti alleged a cause of action on behalf of BTHCC against the individual defendants and one other person seeking money damages from them for the $, that they had paid out to an unlicensed, unbonded contractor, Garry Secrest, without a contract, to perform water sealing work on the BTHCC building. The Complaint in RG 00 also sought certain monetary relief for Plaintiff personally. (Complaint in RG 00, - (see Complaint attached as Exhibit B to Plaintiffs Request for Judicial Notice ("RJN" Prior to making the complaint Plaintiff had made a demand on the Board of Directors of BTHCC to have BTHCC bring the action against the individual defendants itself, which demand was refused. In addition, the demand was futile since a majority of the Board of Directors at the time of the demand were named defendants. BTHCC took no action to have the demand considered by a disinterested committee, but simply rejected the demand outright. PLAINTIFF'S OPPOSITION TO DEMURRER -
In their answer Defendants did not challenge Plaintiffs right to act as a derivative plaintiff for BTHCC. Since the filing of the Complaint no motion has ever been filed challenging Plaintiffs standing as a derivative plaintiff, and Plaintiff has proceeded to litigate the case. A trial of the case is set for May of 0. (See the General Denial filed by Defendants in RG 00 attached as 5 Exhibit C to the RJN. 6 In response to the Complaint in RG 00 BTHCC filed a cross-complaint against Garry 7 Secrest and Esteban Cardiel seeking damages for the money paid to Secrest for the work and for the cost of remedial work to correct faulty work that Secrest and Cardiel had performed. On October, 01, Plaintiff made an offer using C.C.P. to the named defendants "to agree to resolve all monetary claims against them in Action No. RG 00 by agreeing to a judgment against them in the amount of$, and that they waive all right to indemnification for 1 that amount and for any attorney's fees and costs from BTHCC. Plaintiff also sent Defendants' 1 counsel a set of terms to settle the non-monetary claims in the complaint indicating that settlement of 1 the nonmonetary terms was tied to acceptance of the Section monetary offer." (Instant Complaint, The named Defendants, through their counsel, accepted that offer but then breached it by purporting to use settlement funds from the settlement of the claim by BTHCC against Secrest to satisfy their obligation under the agreement. (Instant Complaint, The Court in RG 00 ministerially entered a judgment pursuant to C.C.P., but 0 subsequently vacated that judgment on the grounds, inter alia, that no judgment could be entered 1 before the Court approved the settlement of a derivative claim, and because the Court found that the Defendants had fraudulently promised to forego any claim for indemnity from BTHCC when they entered into the settlement. (Instant Complaint, -1 ; the Court's Order vacating the Section judgment is attached as Exhibit D to the RJN., 5 Defendants appealed the order vacating the judgment. That order was affirmed by the Court 6 of Appeals in an unpublished decision filed April 0, which is attached as Exhibit A to the 7 RJN. The appellate decision sets forth the procedural history relating to the offer to settle and the subsequent vacation of the judgment. PLAINTIFF'S OPPOSITION TO DEMURRER -
Following the affirmance of the order vacating the Section judgment, Plaintiff filed this action seeking to enforce the offer and acceptance as a binding contract between Plaintiff and Defendants. Defendants now demur to Plaintiffs complaint in this action asserting that only BTHCC has the right to enforce the alleged contractual settlement agreement and hence the action is 5 necessarily derivative in nature. 6 III. THE COMPLAINT DOES NOT STATE A DERIVATIVE CAUSE OF ACTION, BUT RATHER THE BREACH OF A CONTRACT ENTERED INTO BETWEEN 7 JONATHAN POOL AND THE INDIVIDUAL DEFENDANTS WITH BTHCC AS A THIRD-PARTY BENEFICIARY 1 1 1 0 1 5 6 7 A. As the Promisee on the Offer to Settle that Is the Subject of the Instant Breach of Contract Action, Plaintiff Has Standing to Sue in His Individual Capacity and Without Naming BTHCC as a Party. Defendant's demurrer is predicated upon the assumption that the causes of action for breach of contract stated in the Complaint in this action belong solely to BTHCC, and that hence Plaintiff may assert them only on a derivative basis. Defendants contend that the Complaint "fail[s] to show that Plaintiff has standing to bring this derivative action." (Memorandum of Points & Authorities in Support of Defendants' Demurrer, ("Defendants' MPA" page. The Defendants go on to say that the action is derivative because a derivative suit "is one in which the shareholder seeks redress of the wrong to the corporation." (Defendants' MP A, page. Defendants contend the breach of contract is one for which "there are no individual claims, but merely derivative claims. In addition, all of the relief sought in this action is for the benefit of the corporation." (Defendants' MPA, page. Using the assumption that the action is necessarily derivative in nature, Defendants then premise their demurrer on a failure to plead facts necessary for Plaintiff to establish standing as a derivative plaintiff. Defendants' demurrer fails because the predicate assumption is false. The action is not a derivative action, but an action asserting personal claims for breach of a contract that has BTHCC as a third-party beneficiary. The complaint alleges that Plaintiff was also the Plaintiff in Action RG 00 which sought damages on behalf of BTHCC against the named defendants. (Complaint in instant action, 1. Each of the Defendants in RG 00 answered and proceeded to litigate on the merits, with PLAINTIFF'S OPPOSITION TO DEMURRER-
5 6 7 "no formal challenge to Plaintiffs position as a derivative plaintiff for BTHCC [having] ever been made... " (Complaint in instant action,, The complaint in this action goes on to state that "On October, 01, Plaintiff served an Offer to Compromise pursuant to Code of Civil Procedure Section on Fred Feller, counsel for the individual Defendants." (Id,,, emphasis supplied, and that "On November, 01, Fred Feller, acting as counsel for Defendants, signed a written acceptance of the Section Offer by Plaintiff and filed said acceptance with the Court. Plaintiff is informed and believes that each Defendant expressly authorized Fred Feller to accept the Section Offer." (!d., at, The complaint thus alleges an offer and acceptance of a contract between Plaintiff, (but not BTHCC and the Defendants. Paragraph 1 of the complaint alleges that "a binding agreement between Plaintiff and Defendants was created obligating Defendants to pay to third-party beneficiary BTHCC the sum of 1 $, without recoupment or indemnification from BTHCC as settlement of all non-monetary 1 claims against Defendants." (emphasis supplied 1 Plaintiff is the promisee under the alleged contract, and a promisee, even for a contract that is 0 1 5 6 7 made for another's benefit, has standing to "sue with like effect as if principal." The rule that every action must be prosecuted in the name of the real party in interest (sec. 67, Code Civ. Proc. is subject to the further rule that a person with whom or in whose name a contract is made for the benefit of another, is a trustee of an express trust which permits him to sue with like effect as though he were the principal. Baumgarten v. California Pacific Title & Trust Co., ( Cal. App. 6, 660 (See also: Allen v. Chatfield, ( Cal. App. 75, 76: "The defendant contracted directly with plaintiff as a principal, and in such a case the law allows the agent treated as a principal to sue in his own name on the contract, whether the fact of agency was or was not known to the other contracting party;." Alpha Beta Food Markets, Inc. v. Retail Clerks Union, (55 5 Cal. " d 76, 77: Agent who makes contract in his own name for benefit of principal may sue to enforce contract. As promisee, Plaintiff was not required to name the third-party beneficiary as a party to the litigation. Code of Civil Procedure 6 expressly states that "(a The following persons may sue without joining as parties the persons for whose benefit the action is prosecuted:... ( A trustee of PLAINTIFF'S OPPOSITION TO DEMURRER - 5
5 6 7 1 1 1 0 1 5 6 7 an express trust." (emphasis supplied As the preceding cases hold, the promisee on a contract entered into for the benefit of another is a trustee of an express trust. Witkin concurs in this analysis: The promisee of a third-party beneficiary contract, like an agent (supra,, is a person "with whom, or in whose name, a contract is made for the benefit of another" and is entitled to sue "without joining as parties the persons for whose benefit the action is prosecuted." (C.C.P. 6 (a. (See Allen v. Chatfield ( C.A. 75, P. ; Olson v. Sacramento (6 7 C.A. d, 5, 7 C.R. ; Rest. d, Contracts 05, 0 7, ; Corbin 1; 1 Williston th, 7:. Witkin, Cal. Proc. 5th (00 Plead, 1, p. This action for breach of contract is maintainable by Plaintiff in his individual capacity. He was a party to the alleged contract to settle the First Cause of Action in the derivative suit. Even though BTHCC is a major third-party beneficiary under that contract, California law permits Plaintiff to bring the suit in his own name without naming third-party beneficiary BHTCC. B. The Settlement Agreement Which Is the Subject of this Action also Provided Consideration to Plaintiff Part of the basis for Defendants' assumption that the cause of action for the breach of the settlement agreement between Plaintiff and Defendants is a derivative action is their incorrect assumption that only BTHCC was to receive consideration under the settlement. Plaintiff also will receive valuable consideration through enforcement of the settlement agreement which is the subject of this action. Plaintiff, in his capacity as derivative plaintiff in Action RG 00, is under a fiduciary obligation to prosecute that action unless and until he obtains a judgment or favorable negotiated resolution. Pursuing the First Cause of Action on behalf of BTHCC required Plaintiff to expend attorney's fees and costs to litigate the claim. The settlement of the First Cause of Action for one-hundred percent of the alleged damages suffered by BTHCC, (assuming it is approved by the Court in the derivative action, would benefit Plaintiff both by relieving him of the obligation to continue funding the cost of litigating the claim and provide a basis for his seeking an order from the Court in RG 00 for an award for reimbursement of his attorney's fees and costs for the benefit he had conferred on BTHCC through his efforts. PLAINTIFF'S OPPOSITION TO DEMURRER - 6
Thus, in making his offer and entering into the contract for the settlement of the First Cause o Action, Plaintiff was acting not only for the benefit ofbthcc, but also for his own benefit. While the consideration to be received by BTHCC and the consideration to be received by Plaintiff personally were not in conflict, it is apparent that Plaintiff has a personal interest in the contract, not 5 just an interest as an agent for BTHCC. 6 Plaintiffs personal interest in the contract also gives him standing to enforce the contract. 7 IV. CONCLUSION For the reasons stated, Plaintiff respectfully urges the Court to overrule Defendants' demurrer. Dated: October, 0 LAW OFFICES OF DAVID H. SCHWARTZ, INC. r 1 1 DAVID H. SCHWARTZ 1 Counsel for Plaintiff Jonathan Pool 0 1 5 6 7 PLAINTIFF'S OPPOSITION TO DEMURRER- 7