Klein v. Superior Court

• Decision Date: 25 January 1988
• Docket Number: H003579 and H003747,Nos. H003537,s. H003537
• Citation: 244 Cal.Rptr. 226,198 Cal.App.3d 894
• Court: California Court of Appeals Court of Appeals
• Parties: Arturo KLEIN, et al., Petitioners, v. The SUPERIOR COURT of Santa Clara County, Respondent; Diana THOMAS et al., Real Parties in Interest.

Page 226

244 Cal.Rptr. 226

198 Cal.App.3d 894

Arturo KLEIN, et al., Petitioners, v. The SUPERIOR COURT of Santa Clara County, Respondent Diana THOMAS et al., Real Parties in Interest.

Nos. H003537, H003579 and H003747.

Court of Appeal, Sixth District, California.

Jan. 25, 1988.

Review Denied April 6, 1988.

McCutchen, Doyle, Brown & Enersen, C. William Craycroft, Anne T. O'Meara, Richard B. Ulmer, John R. Reese, Paul G. Urla, San Jose, for petitioners.

No appearance for respondent.

Edmond C. Gregorian, Becky R. Hayworth, Cynthia C. Cannady, Michael D. Moradzadeh, Sally M. Abel, Fenwick, Davis & West, Palo Alto, for real parties in interest.

CAPACCIOLI, Associate Justice.

We consolidate these related petitions for writs of mandate which raise three questions: first, should the trial court have granted defendants' motion for a stay on the ground of forum non conveniens (Code Civ. Proc., § 410.30) because of an earlier filed pending action in Switzerland; second, should defendants' motion to recuse plaintiffs' counsel have been granted because a member of that law firm formerly represented defendant Arturo Klein; third, did the trial court err in ordering lis pendens notices on defendant Arturo Klein's property reinstated as a sanction for his assertion of Fifth Amendment privilege in refusing to answer discovery questions?

We have decided, for reasons we shall state, that a stay should have been granted; that counsel should have been recused; and that the issue of the lis pendens notices should be remanded to the trial court so that it may exercise its discretion, in light of our decision to order a stay, as to what security devices, if any, should appropriately be imposed to provide plaintiffs security in the event that the trial does eventually go forward and result in a judgment.

Petitioners, defendants below, are Arturo and Rebecca Klein (husband and wife) and three corporations organized under the laws, respectively, of Panama, Switzerland, and California. (Hereafter, collectively, Arturo.) Real parties in interest, plaintiffs below, are Diana Thomas and Rolando Klein, the sister and brother of Arturo. (Hereafter, collectively, Plaintiffs.) Plaintiffs filed this civil action in Santa Clara County April 22, 1987, for fraud, breach of fiduciary duty, conversion and breach of contract. Plaintiffs and Arturo are the children of decedent Jose Klein, an international businessman who died domiciled in Geneva, Switzerland in 1977, where he had lived since 1968. He died intestate, and pursuant to Swiss succession law, the estate passed to the three children. Diana and Rolando claim that their brother misappropriated family assets over approximately a seven-year period.

Specifically the complaint alleges after Jose's death in 1977, the children agreed Arturo would act as a fiduciary and liquidate and distribute the family assets, but instead he engaged in unauthorized and secret transactions which cheated Plaintiffs of their rightful portions.

A principal asset of the estate was shares representing 40 percent ownership of American Business Corporation (ABC), a Panamanian holding company for the Klein family interests, whose principal asset was shares in a Swiss banking concern, Sofincontal, S.A. (Sofincontal). ABC was dissolved in September 1981 as part of the liquidation of the Klein estate; Sofincontal continues in business in Switzerland, and all of its employees other than Arturo live in Switzerland or elsewhere in Europe.

None of the individual parties is an American citizen except Rolando Klein, who has lived in California since 1969. Arturo, after undertaking the liquidation of the Klein estate, moved with Rebecca to Saratoga, California where they received green cards evidencing permanent alien resident status in 1985. Diana Thomas and her husband moved to California in 1983; before that they had lived in Switzerland and in Chile.

In February 1987 before they filed this action, Plaintiffs asked criminal authorities in Switzerland to investigate their complaints against Arturo. Arturo characterizes Plaintiffs' conduct as the filing of a criminal complaint against Arturo in Geneva on February 16, 1987; but it is unclear under Swiss law whether the action was filed by the Swiss authorities in the name of Plaintiffs or whether Plaintiffs filed it, and it is likewise unclear to what extent the proceeding is civil and to what extent it is criminal. According to the expert declaration of one international lawyer (Junod), the action may be described as a Swiss criminal proceeding still in the investigative stage. A magistrate will investigate Arturo's conduct and determine whether or not an indictment will be issued. Even if it does issue, investigation will continue until the magistrate determines the case is ready for trial. It is highly unlikely the investigative phase will be completed before one to two years, and it is not highly unusual that criminal investigations in such matters can last three or four years. During that entire period, any civil action against Arturo in Switzerland based on these transactions would be stayed. At the end of such an investigation, Plaintiffs would have to institute a civil action to recover damages; however, the moving parties (Plaintiffs) have a right of participation in the criminal proceeding, in aid of the criminal prosecutor, with limited rights to question witnesses and examine the files, and in certain limited circumstances they can ask the criminal trial court to award them damages. Normally, according to Junod, this procedure is only used where there is no further investigation needed to establish the nature and amount of the loss.

Should Plaintiffs eventually institute a civil action against Arturo in Switzerland, it would differ from a California action in many important respects. Plaintiffs would have no right to jury trial; they could not recover punitive damages; they could not conduct any discovery; they could not compel production of documents by witnesses. Junod comments that in a complex proceeding such as this where most of the relevant records are in the defendant's control, such a limitation would put Plaintiffs at an obvious disadvantage.

The Swiss action was initiated by a letter from Diana Thomas and Rolando Klein to the Attorney General of Switzerland beginning with this paragraph: "We find ourselves under the painful duty of bringing this complaint against our brother Arturo Klein, ... for abuse of confidence, fraud, and breach of duty of loyalty." It then recites the history of the senior Klein's death and the alleged evidence of Arturo's mismanagement of the legacy and unauthorized dissolution of ABC, 40 percent of the shares of which corporation formed a principal asset of the estate. Arturo secretly and illegally dissolved ABC on September 18, 1981, withholding that information from Plaintiffs, who as shareholders were entitled to be told. Arturo misappropriated Plaintiffs' shares of ABC and of its principal asset, Sofincontal. The letter charges criminal violations of Swiss laws in the nature of embezzlement, fraud, and breach of the duty of loyalty. Pursuant to this letter of complaint, the Swiss examining magistrate has levied a search warrant against Arturo and has taken possession of and now holds all shares of Sofincontal.

The letter of complaint says each of the complainants has only received the sum of $550,000 from the estate and "[a]ll indications are that the balance, amounting to about $2,500,000 each, will not be remitted. Our brother at this very moment is directly or indirectly appropriating these sums."

Arturo has lodged a Request to Take Judicial Notice of Swiss law and Swiss decisions, including translations of Chapter 2 of the Swiss Contract Law from the Swiss Code of Obligations containing provisions analogous in many ways to California tort law. The general provision, Article 41, says whoever unlawfully causes damage to another shall be liable. Article 42 fixes the burden of proof of damages on the damaged party. Article 43 allows the judge to determine the nature and amount of compensation taking into account the circumstances and the degree of fault. Other provisions give the judge broad discretion to adjust the amount of damages, as where the consequences of the injury cannot be immediately established with certainty, or where "individual inherent rights" are injured. (Arts. 46, 49) The judge also may determine rights of contribution among joint tortfeasors (Art. 50) and may award other kinds of reparations in addition to damages. (Art. 49) There are also provisions providing for restitution of unjust enrichment, closely similar to California law. (Art. 62 et seq.)

Further, Arturo has lodged a translation of Article 7 of the Geneva Code of Criminal Procedure. That article provides that a civil action for damages caused by a crime may be brought at the same time and before the same court as the public action. If a civil action is brought separately, it will be stayed until completion of the criminal action. A civil party to a criminal proceeding in Geneva has the right to be represented by counsel, to be admitted to all hearings, and to have access to the file of the magistrate (Judge) and to ask questions of the Attorney General and the accused.

Also Arturo asks us to take judicial notice that Swiss case law holds that a plaintiff can only recover damages if he can establish a natural and direct causal relationship between the wrongful act and the damages; but the wrongful act need not be the sole or principal cause, but only a contributing cause, to authorize recovery.

Arturo argues that the allegations of the complaint in the California action and those of the Swiss complaint are identical. The three corporate defendants in the California action are not parties to the Swiss action; however, Arturo says they were sued solely as recipients of the alleged improper winding up of the Klein...