Olivet v. Frischling

• Decision Date: 21 April 1980
• Citation: 164 Cal.Rptr. 87,104 Cal.App.3d 831
• Parties: Gerald T. OLIVET, M. Bennett Marcus and Edgar Lucidi, Plaintiffs and Appellants, v. Frederick FRISCHLING, James P. Akins, Dan Blechman, Irene Cushman, et al., Defendants and Respondents. Civ. 56128.
• Court: California Court of Appeals Court of Appeals

Page 87

164 Cal.Rptr. 87

104 Cal.App.3d 831

Gerald T. OLIVET, M. Bennett Marcus and Edgar Lucidi, Plaintiffs and Appellants, v. Frederick FRISCHLING, James P. Akins, Dan Blechman, Irene Cushman, et al., Defendants and Respondents.

Civ. 56128.

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

April 21, 1980.

Walter P. Christensen, San Diego, for plaintiffs and appellants

Haight, Dickson, Brown & Bonesteel, Roy G. Weatherup and John W. Sheller, Los Angeles, for defendant and respondent Frischling.

Williard M. Reisz, Los Angeles, for defendants and respondents Akins, et al.

KAUS, Presiding Justice.

Plaintiffs Olivet, Marcus and Lucidi appeal from a judgment of dismissal of all causes of action alleged against defendants Frischling, et al.

Plaintiffs' fourth amended complaint alleges as follows: Plaintiffs and all named defendants are members of Whittier Leasing Company, a general partnership formed to assist Whittier Hospital in its remodeling program and general financial well-being. To this end, the partnership has engaged in a number of sale/lease-back transactions with the hospital, whereby the partnership first purchases from the hospital certain pieces of medical equipment owned by it, and then leases these purchases back to the facility at rates lower than those obtainable through normal competitive bidding processes. Between 1975 and 1977, fifty-four such contracts were negotiated; the Sometime before February 1977, defendants Frischling, Taylor, Kraushaar (I) and Kraushaar (B), Akin, Hanten, Kurz, Springer and Jackson formed a competing partnership known as Friendly Hills Leasing Company ("Friendly Hills"). Together, these nine constituted the total Board of Directors of the hospital. ² Further, defendant-partner-attorney Frischling also acted as attorney for this new entity. Thereafter, Whittier Hospital acting, of course, through its board concluded all of its lease-back transactions with Friendly Hills, to the total exclusion of Whittier Leasing Company.

partnership's success ¹ was due entirely to the fact that defendant-partners Frischling, Taylor Kraushaar (I), Akin, Hanten, Kurz and Springer were members of the "governing Board of Directors" of Whittier Hospital. Defendant-partner, Frischling was counsel to both Whittier Leasing Company and Whittier Hospital.

Eventually, plaintiffs filed the lawsuit before us. In their first cause of action, they alleged that the nine defendants previously mentioned wrongfully conspired to interfere with Whittier Leasing's business relationship with Whittier Hospital. Their second count, against defendant Frischling only, sought damages for his participation in the conspiracy schemes, as well as for his alleged breach of fiduciary duty as counsel to Whittier Leasing, and for fraud. The third cause of action, directed against the previously mentioned defendants, as well as about thirty additional partners, sought dissolution of the Whittier partnership, as well as an accounting, and recovery of damages, i. e., profits lost to Friendly Hills Leasing Company.

Defendants demurred generally and specially ³ as to all causes of action. Their pleas were sustained without leave to amend and dismissal was thereupon ordered. This appeal ensued.

DISCUSSION

On appeal, plaintiffs contend that the trial court misapplied the law in sustaining defendants' contention that no cognizable claims were, or could be stated against them. We agree.

Plaintiffs' first cause of action is predicated on the doctrine of civil conspiracy. We keep in mind, of course, that the real gist of such an action is not the conspiracy itself, but rather the damages suffered thereby: "It is the long established rule that a conspiracy, in and of itself, however atrocious, does not give rise to a cause of action unless a civil wrong has been committed resulting in damage. (Citations)" (Wise v. Southern Pacific Company (1963) 223 Cal.App.2d 50, 64, 35 Cal.Rptr. 652, 660.) Hence, to state an action for conspiracy, the complaint must allege (1) its formation and operation, (2) wrongful acts done pursuant thereto and (3) damages arising therefrom. (Id., p. 64, 35 Cal.Rptr. 652.)

Accordingly, the real substance of plaintiffs' complaint is the injury suffered as a result of defendants' intentional interference with their plaintiffs prospective economic advantage. "This is a tort theory of recovery . . . based on interference with a 'relationship' between parties irrespective of the enforceability of the underlying agreement. . . . The actionable wrong lies in the inducement to break the contract or to sever the relationship . . .." (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 822, 122 Cal.Rptr. 745, 748, 537 P.2d 865, 868.) This cause of action requires five essential components: (1) an economic relationship containing the probability of future economic benefits accruing to the plaintiffs, (2) defendants' knowledge of the existence of that relationship, (3) defendants' intentional commission of acts designed to disrupt the relationship, (4) actual disruption thereof and (5) damages proximately caused thereby. (Id., p. 827, 122 Cal.Rptr. 745, 537 P.2d 865.) Thus, plaintiffs here insist that defendants unlawfully interfered with Whittier Leasing's on-going business relationship with Whittier Hospital by first conspiring to form and then in fact so forming a competing enterprise, and thereafter intentionally disrupting and severely harming plaintiffs' valuable economic advantage.

Defendants' primary argument in support of the court's ruling on their demurrer is that plaintiffs may not pursue this action because essentially it attempts to hold the Board of Directors of Whittier Hospital liable for interference with its own economic relations. Defendants note that while it is true that plaintiffs have apparently sued the partners of Friendly Hills, it is nevertheless the case that Friendly Hills is made up of no one but those who constitute the Whittier Hospital Board of Directors. They point out that the board or at least its governing board is by law entrusted with the hospital's basic management and control, has primary responsibility for all acts taken in the hospital's ordinary course of business, and is in fact the only conduit through which Whittier Leasing's sale/lease-back transactions could be and were consummated. They thus contend that plaintiffs' error lies in having directed their complaint against the very individuals upon whom their putative on-going business relationship depends, thereby contravening the rule that a cause of action for the tort of interference with a prospective economic advantage will not lie against a party to the relationship upon which the advantage is based. (Cf., Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 999, 135 Cal.Rptr. 720; Prosser, Law of Torts (4th ed. 1971) § 129.)

Assuming, arguendo, that Whittier Hospital and its board of directors cannot be viewed as separate legal entities a question we need not decide here defendants' contention with regard to the straight tort of "interference" may be correct. We are, however, not only faced with an underlying wrong, but confront an independent action for civil conspiracy. The distinction is crucial, for it is accepted, at least in California, that an action for conspiracy to induce a breach of contract will in fact lie against a party to the agreement, regardless of the fact that the party would not be directly liable for its breach as such. (Wise, supra, at p. 71, 35 Cal.Rptr. 652.) In so holding, the court observed that to hold a contracting party liable in tort not only comports with the general principle that all who are involved in a common scheme are jointly and severally responsible for the ensuing wrong, but also reenforces good morals. (Id., at pp. 71-72, 35 Cal.Rptr. 652. But see 8 Loyola L.A.L.Rev. 302 (1975): Civil Conspiracy And Interference With Contractual Relations.) In sum, defendants' primary point is fatally infirm.

Defendants also maintain, however, that because plaintiffs' proposed action is one at law, it may not be prosecuted until the partnership has been equitably dissolved and its affairs completely accounted for. They reason that "(i)f the damages claimed belong to the partnership as a whole as they would in the present first cause of action for interference no action at law may be brought by only some partners for their own benefit before dissolution and an accounting (because) until an accounting is had it cannot be known whether the (partners) suing may not in fact be indebted to the partnership, or to the other members of the (partnership) or that there may not be outstanding (partnership) debts sufficient to exhaust the (partnership) assets."

Defendants correctly state the general rule of law denying legal actions with respect to partnership transactions; however, the rule is subject to a number of exceptions (see generally, 6 Witkin, Summary of Cal.Law (8th ed. 1974) Partnership, § 33, pp. 4282-4283), including one to the effect that an action at law against a copartner may be maintained when its gravamen is a claim of conspiracy. (Witkin, Id p. 4282; 14 Cal.Practice § 248:1; 168 A.L.R. 1088.) The rationale for this exception lies in the fact that the injurious behavior is thought of as completely beyond the pale of any proper partnership activity: while the partnership may furnish the stage for the tortious conduct, its scenario does not encompass the acts which constitute the instant wrongs. (See Laughlin v. Haberfelde (1946) 72 Cal.App.2d 780, 790, 165 P.2d 544.)

Next, defendants insist that no cause of action for "interference" was stated because plaintiffs failed to allege the existence of a continuing economic relationship between Whittier Leasing and Whittier Hospital giving rise to the probability that in the future the partnership would in fact reap real economic benefits therefrom. They assert that "(t)here is not even a contract for...