Credit Managers Assn. v. Superior Court

• Decision Date: 15 September 1975
• Citation: 51 Cal.App.3d 352,124 Cal.Rptr. 242
• Court: California Court of Appeals Court of Appeals
• Parties: CREDIT MANAGERS ASSOCIATION OF SOUTHERN CALIFORNIA, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, and the Honorable August J. Goebel, Respondents; SECURITY PACIFIC NATIONAL BANK, a national banking association, formerly known as Security First National Bank, a national banking association, et al., Real Parties in Interest. Civ. 46195.

Page 242

124 Cal.Rptr. 242

51 Cal.App.3d 352

CREDIT MANAGERS ASSOCIATION OF SOUTHERN CALIFORNIA, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, and the Honorable August J. Goebel, Respondents;

SECURITY PACIFIC NATIONAL BANK, a national banking association, formerly known as Security First National Bank, a national banking association, et al., Real Parties in Interest.

Civ. 46195.

Court of Appeal, Second District, Division 5, California.

Sept. 15, 1975.

Hearing Denied Nov. 12, 1975.

Roger K. Patterson for petitioner

Gibson, Dunn & Crutcher, Stephen M. Blitz and Robert A. Miller, Los Angeles for real party in interest Mordy Co.

No appearance for real parties in interest Security Pacific Nat. Bank and First Small Business Investment Co. of California.

No appearance for respondent.

LORING, ^* Associate Justice.

Credit Managers Association of Southern California (Credit Managers) filed a Petition for Writ of Mandate naming the Superior Court of Los Angeles County (Court) as respondent and Security Pacific National Bank, a national banking association, formerly known as Security First National Bank, a national banking association (Bank), First Small Business Investment Company of California (Investment Company), and Mordy and Company (Mordy) as the real parties in interest. We issued an alternative writ and Mordy appeared by answer and demurrer. Bank and Investment Company did not respond.

The petition alleges that on July 15, 1974, Credit Managers filed a complaint for 'Breach of Fiduciary Duty and Conspiracy' in respondent Court to which Bank and Investment Company filed an answer but Mordy filed a demurrer, Court sustained the demurrer and Credit Managers field a First Amended Complaint for 'Breach of Fiduciary Duty Negligence and Conspiracy' on October 23, 1974 (a copy of which is attached to the Petition). Bank, Investment Company and Mordy all demurrered and the demurrer of Mordy was sustained on December 9, 1974, with 30 days to amend. The demurrers of Bank and Investment Company were placed off calendar. Credit Managers served certain interrogatories (attached as an exhibit to the Petition and referred to in detail, Infra) on Mordy under the provisions of Code of Civil Procedure section 2030(a) and applied to the court for an extension of time to file its Second Amended Complaint because Credit Managers 'in order to amend the First Amended Complaint' 'must receive answers to interrogatories heretofore served upon defendant . . .' Mordy. Mordy applied for a protective order and the Court granted Credit Managers' request for an extension of time but also granted Mordy's request for a protective order relieving Mordy of any obligation to answer the interrogatories. Credit Managers then filed the instant Petition seeking a peremptory writ to compel court to vacate its protective order.

FACTS

It appears from the documents filed herein and from our own examination of the Court's original records in action No. C 94032 that Credit Managers First Amended Complaint alleged that it was the assignee by written assignment of the causes of action filed upon; ¹ that the true capacities of Bank, Investment Company and Mordy were unknown to Credit Managers; that on August 21, 1921, Jer Merai Lingerie Co., a corporation (Jer Merai), executed a promissory note to Security Bank in the sum of $210,000; that on November 18, 1971, Jer Merai was a solvent viable corporation with 'well established markets for its lingerie products and good will in the industry' and that it had a fair market value of $1,000,000. That the aforesaid promissory note became due on November 18, 1971, at which time Bank demanded that The second cause of action merely realleged the same facts with the further allegation that the three defendants (Bank, Investment Company and Mordy) 'agreed' to institute the aforesaid oppressive policies at the instance and request of Bank 'without heed or regard to the wishes or vote of the directors or shareholders of Jer Merai' and 'in complete disregard of the affairs of the corporation.' The third cause of action alleged that the defendants acted negligently and carelessly in the management of Jer Merai. The fourth cause of action alleged a conspiracy between the defendants to mismanage Jer Merai as alleged.

Jer Merai implement written management policies or Bank 'would foreclose the above alleged note and close down the operation of Jer Merai' that the policy set forth by Bank was that Jer Merai employ Mordy 'as its business consultant' that Mordy was the agent of Bank and everything done by Mordy was done 'in the scope of that agency' that as the result of Bank's demand Jer Merai employed Mordy to represent Bank in the management of Jer Merai that 'as a direct and proximate result of the above alleged facts 'Defendants and each of them' (i.e., Bank, Investment Company, and Mordy) 'owed' Jer Merai 'a fiduciary duty of good faith and fair dealing in the management of said corporation' that they 'breached their fiduciary duty of good faith and fair dealing in that they, over the objection of 'Jer Merai' implemented or caused to be implemented strict and oppressive credit policies sale procedures, and inventory policies towards the distributions of the products of said corporation' and by acting 'in disregard of the affairs of the corporation,' that as a proximate result of the acts of 'the defendants and each of them' the assets of Jer Merai 'were grossly mismanaged and wasted, rendering it insolvent, all to plaintiff's further damage in the sum of $1,000,000.'

The demurrers of Bank, Investment Company and Mordy were predicated, Inter alia, on the theory that the complaint failed to state a cause of action because it did not allege the wrongdoing or mismanagement by Mordy with sufficient particularity.

The interrogatories to which the court's protective order applied required Mordy to supply information regarding its own organization, i.e., details regarding whether it was a corporation, partnership, etc., the type of business it was engaged in and a series of questions requesting specific details regarding its conduct in managing the affairs of Jer Merai. These latter questions would appear to serve a dual purpose: (1) They would supply Credit Managers with information regarding Mordy's management of the affairs of Jer Merai, (2) they would also preclude Mordy from making other claims at time of trial. In other words the questions would 'box in' Mordy's defense.

Mordy seeks to uphold the protective order of Court on the ground that California law does not permit discovery by a plaintiff for the purpose of determining whether or not he has a cause of action or to discover facts to amend a pleading to allege a cause of action.

DISCUSSION

In its argument in response to the alternative writ herein Mordy relies on a line of cases which purportedly hold that a plaintiff is not entitled to resort to discovery to discover whether or not it has a cause of action. Mordy argues: 'As will appear, such (protective) order is entirely justified having been made in the context of (1) a series of successful general demurrers to petitioner's attempts to proceed upon the basis of wholly conclusionary and factually unsupported allegations of 'breach of fiduciary duty' which this very Court has held are insufficient as a matter of law (Zumbrun v. University of Southern California (1972), 25 Cal.App.3d 1, 13--14, 101 Cal.Rptr. 499; see also Gonsalves v. Hodgson (1951), 38 Cal.2d 91, 97--99, 237 P.2d 656); (2) multiple inconsistencies in verified pleadings as to the alleged factual relationships between the several defendants And plaintiff (see Mordy's Notice of Hearing of Demurrer and Notice of Motion and Motion to Strike, Exhibits 1 and 2 to this Memorandum, respectively) (3) petitioner's wholly unexplained and incomprehensible position (in Verified pleadings) that it Possesses a viable cause of action for an alleged breach of a claimed fiduciary duty while conceding that it knows of absolutely no facts to support such a charge and asserting that only defendants can furnish to it information sufficient to show (a) that Any fiduciary relationship existed between the several parties and (b) that one or more of the several defendants breached such duty (See, E.g., Mordy's Motion for Protective Order, Exhibit E to Petition and Mordy's Opposition to Petitioner's Motion for Extension of Time, Exhibit 19 hereto); (4) petitioner's refusal to amend in any manner its purported 'breach of fiduciary duty' count notwithstanding the sustaining of the original demurrer (See Mordy's Demurrer to the First Amended Complaint, Exhibit 1 hereto, at pp. 8--14); (5) petitioner's express Admission that it knows of No facts whatsoever to support its admittedly unfounded and highly questionable charges of defendant's alleged 'breach of fiduciary duty' and 'civil conspiracy' (See, e.g., Petition, paragraph 8); (6) petitioner's persistent failure to obtain even sufficient facts relative to such charges to even permit pleading upon information and belief; and, even assuming it is conceivable one allegedly injured by an alleged 'breach of fiduciary duty' can in fact be totally ignorant of Any facts to support such a charge, (7) the pendency since February, 1973 of a Prior action (L.A.S.C. No. C 32935) involving the Identical legal claim of Mordy's alleged 'breach of fiduciary duty' to plaintiff's assignor and its utter failure to pursue That opportunity for inquiry into the possible factual bases for petitioner's claim of Mordy's alleged wrongdoing.' (Emphasis in original.)

The prior action which Mordy refers to in part (7) (L.A.S.C. No. C 32935) appears (from the record before us) to have been an action by Bank against Gerold D. Lundahl and Marlene T. Lundahl, husband and wife, who were the sole stockholders of Jer Merai and who had guaranteed payment of the $210,000 promissory note. Mr. & Mrs....