Nichols v. Canoga Industries

CourtCalifornia Court of Appeals
Citation148 Cal.Rptr. 459,83 Cal.App.3d 956
Decision Date17 August 1978
PartiesRobert G. NICHOLS, Plaintiff and Appellant, v. CANOGA INDUSTRIES, INC., Defendant and Respondent. Civ. 50639.

Page 459

148 Cal.Rptr. 459
83 Cal.App.3d 956
Robert G. NICHOLS, Plaintiff and Appellant,
CANOGA INDUSTRIES, INC., Defendant and Respondent.
Civ. 50639.
Court of Appeal, Second District, Division 1, California.
Aug. 17, 1978.
Hearing Denied Oct. 12, 1978.

[83 Cal.App.3d 958]

Page 460

Belcher, Henzie & Biegenzahn and J. Gary Hastings, Los Angeles, for plaintiff and appellant.

Page 461

Kindel & Anderson, Manuel S. Klausner and George L. O'Connell, Los Angeles, for defendant and respondent.

THOMPSON, Associate Justice.

On December 22, 1977, we filed our opinion in the case at bench. Our Supreme Court granted respondent's petition for hearing, thereby wiping the jurisprudential slate clean of the blot of our opinion. 1 On July 5, 1978, our high court retransferred the matter to us "for refiling of (our) opinion with appropriate references to Addison v. State of California (1978) 21 Cal.3d 313 (146 Cal.Rptr. 224, 578 P.2d 941)," a case arising out of the First District in which hearing was granted at about the same time as the hearing grant in the case at bench.

We here seek to carry out the Supreme Court's mandate. At the outset, we face respondent's contention that the order of the high court places the case at large and subject to rebriefing and presumably further oral argument. Concluding that we cannot "refile" our earlier opinion with an "appropriate reference to Addison " if we in fact rewrite the earlier opinion in any way other than to include the reference we deny respondent's request for further briefing and argument. Because the mandate from the Supreme Court makes no reference to publication per rule 976, California Rules of Court, we do not modify out prior order for publication although the case at bench does not meet the criteria of rule 976 in light of Addison.

We hence refile our earlier opinion in its original form, deleting only the one paragraph which referred to and distinguished the First District's opinion in Addison which reached a result different from ours. As so modified with the "appropriate reference" to Addison which appears in this preamble, our opinion follows.

[83 Cal.App.3d 959] This appeal raises, primarily, the issue of the scope of the California rule of equitable tolling of the statute of limitations by the filing of an action in another forum. Specifically, we consider the effect upon the California statute of limitations of: (1) an action filed in the federal district court within the California limitations period which asserts a federal claim together with a cause of action based solely upon state law; and (2) dismissal by the federal court of the latter cause of action for lack of pendent jurisdiction upon its determination that the federal cause is barred by the statute of limitations applicable to it.

Applying the rule of Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 154 P.2d 399, as expanded in Elkins v. Derby (1974) 12 Cal.3d 410, 115 Cal.Rptr. 641, 525 P.2d 81, we conclude that a complaint which alleges the timely filing of a federal action under the described circumstances sufficiently asserts tolling of the statute of limitations upon the California cause of action so that the state cause is not barred. Accordingly, we reverse a judgment of dismissal entered after a demurrer was sustained and return the matter to the trial court to permit amendment of the portions of the complaint to which a motion to strike was properly granted.


Because the case at bench reaches us on a judgment of dismissal based upon an order sustaining a demurrer to the complaint, we accept as true the facts alleged in that pleading. We also accept as true facts of which the trial court took judicial notice.

Statute of Limitations. In 1968, plaintiff, Robert G. Nichols, was the sole stockholder of Reeves Electronics, Inc. On November 15 of that year, Nichols entered into a written agreement with defendant, Canoga Industries, Inc., by which Nichols and Reeves agreed to transfer substantially all the assets and business of Reeves subject to its liabilities to Canoga in return for 20,000 shares of Canoga stock. The transaction was to be consummated in early 1969. All shares to be delivered were "lettered stock," i. e., not freely transferable by Nichols although Canoga shares were listed

Page 462

on stock exchanges. The agreement provides that if between January 4 and January 14, 1971, the 20,000 shares of Canoga should be of a value less than $20 per share, Canoga will deliver to Nichols additional shares of Canoga stock to make up the deficiency but sets a maximum of 12,000 on the additional shares to be delivered.

[83 Cal.App.3d 960] In article V of the agreement, Canoga warranted: (1) that its audited balance sheet and income statement as of October 31, 1967, and its unaudited income statement as of July 31, 1968, fairly represented its financial condition; and (2) that there had been no material adverse change in its condition since October 31, 1967, and no "change, destruction or loss . . . materially and adversely affecting" its properties, business or prospects.

Nichols carried out his part of the agreement. The transaction was consummated on February 14, 1969, by the delivery by Canoga of 20,000 shares of its stock with an additional 12,000 shares delivered in February of 1971. As of January 14, 1971, the 32,000 shares were worth only $100,000.

Canoga breached the warranties of its financial condition. Because of the breaches of the warranties, Nichols was damaged in the amount of $300,000.

On November 6, 1972, Nichols sued Canoga in the federal district court. Nichols' district court complaint asserts a cause of action for violation of section 10(b), Securities Exchange Act of 1934, and one for breach of the contract. 2 The cause of action for breach of contract included in the complaint filed in the federal court is based upon the same facts as the complaint which commenced the case at bench.

On September 7, 1973, the defendants in the federal court suit moved for summary judgment, asserting that the cause of action for violation of section 10(b) was barred by a three-year statute of limitations. The motion sought dismissal of the breach of contract cause of action for lack of pendent jurisdiction. On January 17, 1974, the federal district court granted the motion for summary judgment on the 10(b) cause of action because of the bar of the statute of limitations and dismissed the other cause of action. Nichols appealed the summary judgment and dismissal to the Court of Appeals for the Ninth Circuit. The complaint at bench was filed on January 3, 1975, while the federal appeal was pending. 3

Motion to strike. The November 15, 1968, agreement is attached to the complaint and incorporated by reference.

[83 Cal.App.3d 961] Paragraph 7 of the complaint alleges that Canoga agreed to pay Nichols "the sum of $400,000.00 in the form of 20,000 shares of CANOGA stock, valued at $20.00 per share . . . CANOGA further agreed to deliver to plaintiff additional shares of stock in CANOGA, not to exceed 12,000 additional shares, in the event the value of CANOGA stock between January 4, 1971 and January 14, 1971 was less than $20.00 per share. . . ." Paragraph 10 of the complaint alleges damages in the approximate amount of $300,000 measured by the difference between $400,000 and the fair market value of 32,000 shares of Canoga at the closing date of the transaction.

Paragraph 1.04.1 of the Nichols-Canoga agreement states: "In consideration of the sale, transfer and delivery to Canoga of the properties, assets and business of Reeves . . . Canoga agrees that on the Closing Date it will sell and issue to Reeves a stock certificate(s) representing 20,000 shares of Canoga Common Stock." Paragraph 1.04.2 of the contract states: "In the event the average closing market price on the principle exchange on which Canoga is listed for the ten trading days commencing on January 4, 1971, for Canoga Common Stock, is less than $20.00 per share, Canoga will issue and deliver such additional number of shares valued at the average closing market price to make up the difference between the then closing market price and

Page 463

$20.00 per share for only those shares still held as part of the original issuance and delivery of 20,000 shares hereunder. However, in no event shall such additional number of shares exceed 12,000."

Proceedings in the Trial Court

On January 3, 1975, Nichols filed his complaint in the case at bench naming Canoga and four of its officers as defendants. Defendant Canoga filed a general demurrer to the complaint asserting that it was barred by the four-year statute of limitations of Code of Civil Procedure section 337, subdivision (1). Defendant...

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