Seto v. Szeto
| Citation | 86 Cal.App.5th 76,302 Cal.Rptr.3d 243 |
| Decision Date | 12 December 2022 |
| Docket Number | A163846, A164849, A164925 |
| Parties | Jean SETO et al., Plaintiffs and Appellants, v. Kwok Hung SZETO et al., Defendants and Respondents. |
| Court | California Court of Appeals |
Welty, Weaver & Currie, Jack W. Weaver, Healdsburg; Haroche Law, Bob Haroche, Santa Rosa, for Plaintiffs and Appellants.
Vogl Meredith Burke, Michael S. Burke, Mark D. Fenske, San Francisco, for Defendants and Respondents Kwok Hung Szeto, Nikki So-Kuen Szeto, and Patrick Szeto.
JRA Law Partners, Robert O. Divelbiss, San Francisco, for Defendants and Respondents ARP-I, LLC, and ARP-II, LLC.
These consolidated appeals concern the trial court's dismissal of a shareholder derivative complaint for failure to bring the action to trial within five years ( Code Civ. Proc., §§ 583.310, 583.360 ) and two subsequent awards of attorney's fees.1 Plaintiffs argue the trial court erred by dismissing their complaint because its calculation of the five-year deadline improperly failed to exclude a period of approximately six months between when the parties signed a settlement agreement and when defendants abandoned it.
Determination of the five-year deadline in this case requires us to analyze the distinction between contract formation and conditions precedent to contract performance. As explained below, we agree with plaintiffs that the court miscalculated the five-year period under sections 583.310 and 583.340 because it erroneously viewed the failure to satisfy a condition precedent to performance as a bar to valid contract formation . We shall therefore reverse the dismissal order and the subsequent fee awards.
On September 28, 2015, Jean W. Seto, in her capacity as the trustee of a trust, filed a shareholder derivative complaint on behalf of ARP-I, LLC and ARP-II, LLC against Kwok Hung Szeto. About eight months into the case, Seto, together with HM Wong Group, Tina Wong Chin, Alexander Hans Wong, and Eric Kim Wong (collectively, plaintiffs) filed a first amended complaint that added Nikki So-Kuen Szeto and Patrick Szeto as defendants and named the LLCs as nominal defendants. About three years and eight months into the case, plaintiffs filed a fourth amended complaint, which added as defendants Charles M. Thompson and Thompson Welch Soroko & Gilbert, LLP (attorney defendants), who were alleged to have provided legal advice to the nominal defendants.
While this litigation was proceeding, the trial court stayed the proceedings for various reasons for a total of 127 days. In January 2020, about four years and four months into the case, the attorney defendants moved to dismiss the action for failure to serve them within three years of the filing of the original complaint.
Later that same month, the parties participated in a mediation. At the end of the mediation, the parties drafted a document titled, "Settlement Agreement Following Mediation." The settlement stated, "By execution of this Settlement Agreement the Parties confirm that it is their intention that this Agreement shall be valid, binding, and enforceable in connection with the resolution of their dispute." Representatives of all of the parties except the attorney defendants signed the agreement, although the representative of the nominal defendants signed it three days after the end of the mediation.2 In the agreement, the signatories represented and warranted that they were duly authorized to execute it and to bind the parties they represented to its terms.
The settlement terms were that the nominal defendants would purchase the plaintiffs’ membership interests in the nominal defendants as well as two non-party partnerships for a specified price. In exchange, plaintiffs promised that, within two business days, they would file with the trial court a notice of settlement and a dismissal of the attorney defendants without prejudice. They also promised to move for dismissal of the rest of the defendants with prejudice within 30 days of execution of the agreement. However, the agreement provided that "[p]ayment and this settlement shall be conditioned upon approval of (a) the Superior Court because it is a derivative action, (b) Medicare/Medical/child support because there are claims of financial elder abuse, (c) USLI confirms that there are no liens, (d) the unanimous consent of the members of ARP-I and ARP-II respective[ly], (e) the unanimous consent of the limited partners and the general partner of WAA-I and WAA-II; and any reasonable execution of documents required by the insurance carrier USLI, and (f) and subject to the right of first refusal as may be required by non-parties CSC and Alexander Hans Wong Associates."3 (Sic. ) The agreement also stated that if any disagreement arose regarding the agreement, then the mediator would have binding authority to determine the issue and all parties would be bound by the mediator's decision, without the ability to appeal to any judicial or arbitral authority.
Pursuant to the agreement and with defendants’ cooperation, on January 27, 2020, plaintiffs filed a notice of conditional settlement with the trial court that stated a request for dismissal would be filed by March 6, 2020. The trial court took off calendar a discovery motion and the attorney defendants’ motion to dismiss, and it removed the action from the master jury calendar. Defendants hired a law firm to draft agreements to effectuate the nominal defendants’ purchase of plaintiffs’ membership interests.
Nominal defendants’ members did not unanimously consent to purchase plaintiffs’ membership interests. By February 15, 2020, some of the members had filled out forms indicating that they did not consent, although there is no indication that nominal defendants told plaintiffs of this at the time. Counsel for nominal defendants apparently believed it was still possible to achieve unanimity, so he told plaintiffs’ counsel in early March 2020 that he would be able to sign a declaration stating that the members had approved the settlement. Not until April 9, 2020, did counsel for the nominal defendants inform plaintiffs that he had not achieved unanimous consent. Even then, however, he stated that the nominal defendants wanted to wait for 90 to 120 days to monitor the development of the COVID-19 pandemic emergency, which had begun in March 2020. In response, plaintiffs threatened to file a motion in court to enforce the settlement under section 664.6.
Meanwhile, in May 2020, the trial court issued an order to show cause why the case should not be dismissed in light of the prior notice of settlement and set a hearing for June 30, 2020. In June 2020, plaintiffs realized the settlement agreement gave the mediator authority to resolve disputes related to enforcement of the agreement. Plaintiffs therefore contacted the mediator to ask him to resolve the dispute. At the same time, plaintiffs filed a new notice of conditional settlement stating that the case would be dismissed by July 16, 2020. In response, the trial court rescheduled the hearing on the order to show cause for August 25, 2020.
On July 31, 2020, about four years and ten months into the case, the mediator ruled, consistent with both sides’ arguments, that he had binding authority under the settlement agreement to resolve the dispute. He further ruled that the agreement was not enforceable against the nominal defendants. The mediator reasoned that the signature of nominal defendants’ representative on the agreement did not mean that the condition precedent had been met. The mediator also found that none of the communications between the parties’ counsel was sufficient to bind the parties to performance of the settlement agreement.
Over the course of the next few months, plaintiffs asked counsel for defendants and nominal defendants for trial dates, with little response. On August 5, 2020, on its own motion, the trial court continued the hearing on the order to show cause until October 27, 2020.
On August 27, 2020, the attorney defendants re-filed their motion to dismiss, in which they notified the court that the settlement had stalled. The trial court granted this motion on October 8, 2020. Over the course of the following eight months, the trial court repeatedly set and continued hearings on the order to show cause regarding dismissal of the case, with the final hearing scheduled for August 2021. Plaintiffs twice filed notices of appearance asking to be heard about the need for trial, to no effect. Finally, in late June 2021, about five years and nine months after they filed the complaint, plaintiffs filed a motion to vacate the conditional settlement and reset a case management conference. In late July 2021, the trial court granted the motion and set a case management conference for October 6, 2021, which would have been a little over six years after the start of the case.
In September 2021, defendants filed a motion for mandatory dismissal of the action for failure to bring it to trial within five years under sections 583.310 and 583.360. Defendants argued that after taking into account the periods during which the action was stayed and emergency orders that had extended the five-year period due to the pandemic, the five-year period expired on August 2, 2021, about five years and ten months after plaintiffs filed the complaint. Plaintiffs countered that the five-year period had to be extended by an additional 196 days, which was the length of the period between January 17, 2020, when most parties signed the settlement agreement, and July 31, 2020, when the mediator issued his ruling that the settlement could not be enforced. Plaintiffs also suggested that at a minimum the five-year deadline should be extended by the period from January 17 to April 9, 2020, which was when nominal defendants’ counsel first notified plaintiffs that the condition to the settlement was not met.
The trial court granted defendants’ motion, ruling that the deadline to bring the case to...
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