International Evangelical Church of Soldiers of the Cross of Christ v. Church of Soldiers of the Cross of Christ of State of Cal.

• Decision Date: 28 April 1995
• Docket Number: 94-55067,Nos. 93-56210,s. 93-56210
• Citation: 54 F.3d 587
• Parties: INTERNATIONAL EVANGELICAL CHURCH OF The SOLDIERS OF THE CROSS OF CHRIST, Plaintiff-Appellant, v. CHURCH OF the SOLDIERS OF THE CROSS OF CHRIST OF the STATE OF CALIFORNIA; Defendant-Appellee, and Rolando Gonzalez, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 587

54 F.3d 587

INTERNATIONAL EVANGELICAL CHURCH OF The SOLDIERS OF THE CROSS OF CHRIST, Plaintiff-Appellant, v. CHURCH OF the SOLDIERS OF THE CROSS OF CHRIST OF the STATE OF CALIFORNIA; Defendant-Appellee and Rolando Gonzalez, Defendant.

Nos. 93-56210, 94-55067.

United States Court of Appeals Ninth Circuit.

Argued and Submission Deferred Feb. 10, 1995.

Resubmitted Feb. 17, 1995.

Decided April 28, 1995.

Barbara L. James, Whittier, CA, for plaintiff-appellant.

Barry A. Fisher, Fleishman, Fisher & Moest, Los Angeles, CA, for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before: BEEZER and NOONAN, Circuit Judges, and EZRA ^*, District Judge.

NOONAN, Circuit Judge:

International Evangelical Church of the Soldiers of the Cross of Christ (International Church), a Florida corporation, appeals from the judgment dismissing on the grounds of res judicata its complaint against Church of Soldiers of the Cross of Christ of the State of California, a California corporation (California Church). We have jurisdiction pursuant to 28 U.S.C. Sec. 1291.

We reverse the district court.

PROCEEDINGS

On November 1, 1991, International Church filed its second amended complaint in the Superior Court, County of Los Angeles, against the California Church and Rolando Gonzalez; the latter was never served and is not a party to this appeal. The complaint asserted that International Church held all its assets in an express trust for the religious and charitable purposes stated in its articles of incorporation, viz.:

[To] promote the cause of the Christian religion, to promulgate the doctrines and teachings of Jesus Christ and the Gideon Evangelistic Band International, to minister to the spiritual needs of the members of the church and the adherents of the Christian religion, to give counsel to said persons and guide them in their hours of misfortune, to direct them on the paths of righteous living and healthful endeavors, to lead them toward a spiritual life and to instill in them true practice of the Christian faith, without regard to race or creed and for no pecuniary gain. The adherents of this church follow in all respects the teaching of the learned scholar Ernest William Sellers who founded the church in Cuba, March 25, 1930, and of Arturo Rangel, his apostle in Cuba, at the present time.

The complaint further stated that on April 20, 1990, officers of International Church signed a corporate resolution purporting to authorize Rolando Gonzalez, the director of its California branch, to transfer all of its California assets to another legal entity and that pursuant to this purported authority Gonzalez had formed California Church on April 30, 1990, thereafter transferring title to it of a large number of parcels of International Church's real property in California as well as its bank deposits in California.

The complaint further asserted that these transfers of assets constituted an unlawful breach of the charitable trust under which the assets were held because the defendants had diverted the assets "to promote their own theology, religious teachings and doctrine" and had "publicly renounced their adherence to the theology, religious teaching and doctrine" of International Church.

The transfers were asserted to be without consideration. International Church sought a judgment rescinding the transfers and restoring title and possession to it; it also sought an injunction against further transfer or diversion of its assets. As a second cause of action International Church sought a declaratory judgment that the corporate resolution purporting to authorize the transfers was void and that the transfers themselves were void. As a third cause of action International Church sought a decree to quiet title to the real estate in question.

California Church demurred to the complaint. The Superior Court sustained the demurrer without leave to amend. The Superior Court stated: "Plaintiff's complaint alleging breach of trust is barred by California Code Sec. 9142(c) and Protestant Episcopal Church v. Barker, 115 Cal.App.3d 599, 171 Cal.Rptr. 541 (1981)." An appeal from this judgment was dismissed on May 12, 1992, for failure of International Church to procure the timely filing of the record.

On February 5, 1993, International Church filed a complaint in the federal district court against California Church alleging the following:

On April 19, 1990, the president of International Church received a telephone call in Florida from Rolando Gonzalez in California. Gonzalez told the president that the City of Bell Gardens, California, was instigating a law suit against International Church for violation of certain housing ordinances. In order to protect International Church's assets in California, Gonzalez proposed that a transfer of these assets be made to an independent corporation. Gonzalez stated that he had retained David Bow Woo to represent International Church in connection with Bell Gardens' law suit and that Woo would dictate the necessary resolutions for creation of the new corporation. Woo did so. The officers of the corporation executed the resolution as dictated by Woo and delivered it to Gonzalez. On receipt of the resolution Gonzalez formed California Church so that it was totally independent of International Church, gave himself complete control over it and, still acting as an officer of International Church, executed deeds transferring International Church's real property in California to California Church; he also transferred all of International Church's bank deposits in California to California Church. On the completion of these transfers, Gonzalez resigned as an officer of International Church on September 27, 1990, "due to an unspecific religious doctrinal dispute." Not until November 13, 1990, did the president of International Church discover the transfers made by Gonzalez.

Gonzalez, according to the complaint's allegations, continued to represent to the public that California Church was "the regional branch" of International Church and continued to solicit donations in International Church's name and to use International Church's insignia, mark and uniforms; by reason of these solicitations California Church received donations averaging $300,000 per month.

After a recitation of these allegations International Church's federal complaint stated as its first claim that all of Gonzalez's representations in connection with the April 1990 corporate resolution, his story about the danger of losing International Church's property to Bell Gardens, and his claim that the transfer would assure International Church's continued control over its California assets were misrepresentations made with the intention of inducing International Church to rely upon them; that International Church relying on the fact that Gonzalez had been one of its officers and directors for over a decade justifiably relied on them, particularly as the transaction was said to have been advised by Woo who was represented to be acting as International Church's attorney. The first claim further alleged that all of the transfers to California Church made by Gonzalez were without any authorization by International Church. By reason of these misrepresentations and wrongful transfers, International Church alleged that California Church was unjustly enriched in the sum of at least $15,500,000.

As a second claim International Church alleged that the resolution of April 1990 was made under the mistaken belief that International Church would retain control of the assets; International Church sought restitution of the property transferred under this mistaken belief.

As a third claim International Church charged Gonzalez with fraud in his representations and intentionally concealing his secret intention to misappropriate its California properties. International Church sought damages in excess of $15,500,000 and punitive damages in an amount to be determined at trial.

As a fourth claim International Church asserted that at all relevant times prior to September 27, 1990, Gonzalez was an officer and director of International Church and owed it a duty to be loyal, truthful, and honest; his acts instead were characterized as oppressive, fraudulent, and malicious, subjecting him to damages in excess of $15,500,000 and punitive damages.

As a fifth claim International Church asserted that California Church's solicitations and use of International Church's name, insignia, mark and uniforms confused and deceived the public in California, Colorado, Arizona and New Mexico and thereby were in violation of the Lanham Act, 15 U.S.C. Sec. 1125(a). The damages were stated to be not ascertainable at this time, but substantial, and punitive damages were sought against Gonzalez. A sixth claim, pendent to the federal claims, asserted unfair competition by California Church by unlawful, unfair, fraudulent business practices and unfair, deceptive advertising in violation of California Business and Professions Code Sec. 17200.

International Church sought restitution of all the real property and funds transferred in April 1990, the profits and proceeds from the use of this property and funds, and in the alternative damages...