California

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT DIVISION THREE

G031172

2004.CA.0003883

April 29, 2004

MADELEINE DUNNE, PLAINTIFF AND APPELLANT,
v.
KEN BARACKMAN ET AL., DEFENDANTS AND RESPONDENTS.

Appeal from a judgment of the Superior Court of Orange County, Randell L. Wilkinson, Judge. Affirmed. (Super. Ct. No. 02CC03894)

Darryl J. Paul for Plaintiff and Appellant.

Burkhardt & Larson, Philip Burkhardt and Phoebe A. Gardiner for Defendants and Respondents.

The opinion of the court was delivered by: Fybel, J.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

OPINION

Introduction

Madeleine Dunne appeals from the judgment following the sustaining of a demurrer to her complaint without leave to amend. Dunne sued Ken Barackman (Barackman), Denille S. Barackman, Fantasia Animators, Inc., Nevada (FAN), Fil-Cartoons, Inc., and Fantasia Animators, Inc., Philippines (FAP) (collectively respondents) for breach of contract, constructive trust, declaratory relief, and violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C.S. § 1961 et seq.) (the Second Action). Dunne contends the trial court erred by sustaining the demurrer to her complaint in the Second Action on the ground another action was pending between the same parties on the same causes of action.

Judgment was entered on Dunne's original complaint (the First Action) before the order sustaining the demurrer to the complaint in the Second Action was filed, and even before the hearing on the demurrer was held. Dunne's breach of contract and alter ego claims were litigated in the First Action. Therefore, the cause of action for breach of contract and alter ego claims alleged in the Second Action were barred by the doctrine of res judicata. In addition, although Denille Barackman was not a party to the First Action, the only allegations against her in the breach of contract claim in the Second Action were as the alter ego of parties whose own liability was barred by res judicata. Therefore, the claims against Denille Barackman were also subject to demurrer.

The remaining causes of action in the Second Action were either barred by res judicata (to the extent they were based on allegations of alter ego), or failed to allege facts sufficient to state a cause of action, or both.

Therefore, we affirm.

Facts

A. The First Action

On May 22, 2001, Dunne *fn1 sued Barackman, FAN, Fil-Cartoons, and FAP (collectively defendants) for breach of contract. The complaint alleged Dunne entered into a stock purchase and sale agreement (the Agreement) with defendants, by which defendants would acquire Dunne's ownership interest in FAP. The complaint alleged Barackman and FAN breached the Agreement by (1) failing to pay Dunne $100,000 despite receiving a complete estate tax clearance regarding the estate of Dunne's late husband, and (2) failing to pay her $250,000 although neither FAN nor Fil-Cartoons had been sold by May 1, 2001. Dunne sought $350,000 in damages. *fn2

On December 21, 2001, approximately two months before the scheduled trial date of February 25, 2002, Dunne moved for leave to file a second amended complaint adding alter ego allegations and correcting the prayer for relief. In the motion, Dunne claimed she became aware of the possibility of the need for alter ego allegations during Barackman's deposition on September 4, 2001, and had "just recently concluded" her efforts to obtain additional documents supporting the alter ego claims.

After a hearing on January 23, 2002, the trial court granted the motion: "The motion for leave to file a 2nd[] Amended Complaint is Granted. Ten days to respond. Responding party to prepare an order or stipulation re discovery consistent with that was proposed and agreed to during argument." The court's minute order was formalized in an order prepared by counsel, which read in relevant part: "IT IS ORDERED that the Motion be, and it hereby is, granted and that plaintiff be allowed to file the Second Amended Complaint, a copy of which is attached to the Notice of Motion herein. IT IS FURTHER ORDERED that defendants shall have ten days from the date of service of the Second Amended Complaint in which to answer. IT IS FURTHER ORDERED that on or before February 13, 2002, plaintiff shall serve on defendants a verified statement specifying: (a) all facts upon which plaintiff bases its contention that any of the defendants are the alter egos of any of the other defendants; (b) the names, addresses, and telephone numbers of all persons who had knowledge of those facts; and (c) the description of all documents and other tangible things which support plaintiff's contention, and the name, address, and telephone number of the person who has each document or thing."

Before trial started, defendants filed a motion in limine to prevent Dunne from presenting any evidence regarding the alter ego allegations, on the ground Dunne had failed to provide the information required under the order granting the motion to file the second amended complaint. The trial court granted the motion in limine, explaining, "The court will here note that it was reluctant to grant [the] motion to amend only a month before trial, but did so with the understanding that the plaintiff would specify facts - and I mean, specify facts and name witnesses - given the addresses and phone numbers and cooperating in every way, so that the defendants would not be prejudiced. It always felt the motion to amend should have been made months earlier when the alleged facts ha been discovered. It appears that the facts weren't sufficiently specified, but for the most part, . . . raw statements, or conclusions were made; and names and addresses weren't provided, despite the fact that time was, obviously, of the essence. . . . [This] is a motion in limine, not a discovery motion. And the basis of the motion is an order of the court; and not the discovery provisions of the Code of Civil Procedure."

The case proceeded to trial before the court. No party requested a statement of decision. On March 7, 2002, the court issued its findings and rulings. The court found defendants Barackman, FAP and Fil-Cartoons were entitled to judgment against Dunne. The court also found judgment should be entered against FAN, which was properly served but chose not to appear. Judgment consistent with the court's findings and rulings was filed on April 8, 2002. Dunne did not move for a new trial, did not move for reconsideration of the order granting the motion in limine, and did not appeal from the judgment.

B. The Second Action

On March 27, 2002, Dunne sued respondents for breach of contract, constructive trust, declaratory relief, and violation of RICO. The cause of action for breach of contract was in all substantive ways identical to the cause of action for breach of contract in the second amended complaint in the First Action (other than the inclusion of Denille Barackman as a defendant).

The cause of action for constructive trust alleged Barackman and Denille Barackman caused FAN to be in default with the Nevada Secretary of State. The constructive trust claim was also based on the alter ego allegations included in the second amended complaint in the First Action.

The cause of action for declaratory relief alleged a dispute existed between Dunne on the one hand and respondents on the other, based on the same facts and claims alleged in connection with the cause of action for constructive trust.

The RICO cause of action alleged respondents formed a series of enterprises (including FAN, FAP, and Fil-Cartoons) through which they carried out a pattern of racketeering activity. The alleged racketeering activities included instructions by Barackman to transfer funds to and from the bank accounts of the corporate respondents, instructions by Barackman to make accounting entries in the books of the corporate respondents, Barackman's creation of service agreements involving the corporate respondents, and Barackman's instruction to use Fil-Cartoons's funds to buy computer equipment to be held as assets of FAN, although the assets were not reflected on the books of either company.

On or about April 5, 2002, respondents demurred to Dunne's complaint. Respondents raised two grounds in their demurrer: (1) on all causes of action, another action was pending between the same parties on the same causes of action; and (2) with respect to the constructive trust, declaratory relief, and RICO claims, the complaint failed to state facts sufficient to state a cause of action.

Following a hearing on May 8, 2002, the trial court sustained the demurrer without leave to amend because "there was another action pending between the same parties in the same cause of action, to wit, an action entitled Smith v. Barackman et al., Case No. 01 CC 02968 in which a Trial was concluded on March 7, 2002, and in which the same primary right was litigated by the plaintiff as in the present case." Judgment was entered in the Second Action in favor of respondents on August 12, 2002. Dunne appealed.

Discussion

A. Standard of Review

"In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

We may affirm the judgment following the demurrer on any ground, despite the fact the judgment itself specifies the demurrer was sustained because there was another action pending between the parties. (Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1451; Brown v. State of California (1993) 21 Cal.App.4th 1500, 1506; Lee v. Bank of America (1990) 218 Cal.App.3d 914, 919.)

B. The First Action is Res Judicata with Regard to the Cause of Action for Breach of Contract and the Alter Ego Allegations.

In their demurrer, respondents argued the Second Action should be dismissed because there was another action pending between the same parties on the same causes of action. Before the hearing on the demurrer, judgment was entered in the First Action. Although there was no longer another action pending, the judgment in the First Action had become res judicata, at least as to part of the Second Action.

"The effect of a judgment or final order in an action or special proceeding before a court or judge of this state . . . having jurisdiction to pronounce the judgment or order, is as follows: . . . . . . the judgment or order is, in respect to the matter directly adjudged, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing under the same title and in the same capacity, provided they have notice, actual or constructive, of the pendency of the action or proceeding." (Code Civ. Proc., § 1908, subd. (a)(2).) "In civil cases res judicata precludes parties or persons in privity with the parties from relitigating a cause of action that has been finally determined by a court of competent jurisdiction. In its aspect of collateral estoppel res judicata also postulates that any issue necessarily decided in civil litigation is conclusively determined as to the parties or their privies if it is involved in a subsequent lawsuit on a different cause of action. [Citations.] The doctrine of res judicata in civil matters rests upon the sound policy of limiting litigation by preventing a party who has had one fair adversary hearing on an issue from again drawing it into controversy and subjecting the other party to further expense in its reexamination. [Citations.]" (In re Crow (1971) 4 Cal.3d 613, 622-623.)

Dunne first argues that the cause of action for breach of contract in the Second Action differs from that in the First Action because different breaches of the Agreement were alleged. The only changes in the language between the two complaints were the additions of general language that respondents "were to perform certain duties and were proscribed from undertaking certain actions" by various paragraphs in the Agreement, and further general language that respondents "have significantly diluted the corporate-[respondents] and undertaken transactions through affiliates so as to render the corporate-[respondents] insolvent and defunct; have failed and refused to provide records to [Dunne]; and have violated the good faith provisions of the agreement and otherwise undertaken to deprive [Dunne] of her benefits under the agreement." Such general, conclusory statements are insufficient as factual allegations to withstand a demurrer in any case. For purposes of applying the doctrine of res judicata, those statements do not constitute sufficient allegations of additional breaches of the Agreement.

Dunne also argues the alter ego allegations were not litigated in the First Action because the trial court granted the motion in limine to prevent Dunne from offering evidence to prove those allegations. Once the trial court granted the motion for leave to amend the complaint in the First Action, Dunne's alter ego allegations became a part of the First Action. The trial court may allow a party to amend its pleadings on any "terms as may be proper." (Code Civ. Proc., §§ 473, subd. (a)(1), 576.) When the trial court here permitted Dunne to amend her complaint one month before the trial date, it determined the very late amendment required Dunne to provide the information that would have been obtained through discovery. The addition of these "terms" did not make the order granting leave to amend conditional; rather, it created a court-ordered requirement that Dunne provide necessary information supporting her new claims despite insufficient time for statutory discovery to be conducted.

The order granting the motion in limine, based on Dunne's failure to comply with the previous court order, did not remove the alter ego allegations from the First Action. Dunne's inability to prove the claims that were a part of the First Action was the result of her own failure to comply with the court's order; this inability did not remove the issues from the case. For these reasons, we reject Dunne's argument the alter ego claims were not litigated in the First Action.

Denille Barackman was never a party to the First Action. But the complaint in the Second Action did not allege Denille Barackman undertook any act or failed to perform any act constituting a breach of the Agreement. She is not a party to, or a signatory of, the Agreement. Denille Barackman's only involvement with the breach of contract claim is as an alleged alter ego of the other respondents. As explained above, no claim for breach of contract could be stated against the other respondents because any such claim was barred by the doctrine of res judicata. Thus, the only allegation against Denille Barackman in the Second Action relating to the breach of contract claim was that she was the alter ego of parties who cannot be sued for breach of contract. Although Denille Barackman herself was not a party to the First Action, the Second Action failed to allege facts sufficient to state a claim for breach of contract against her. The trial court properly sustained the demurrer on the first cause of action against all respondents.

We agree with the proposition expressed at oral argument that plaintiffs who act prudently by not raising claims for relief without necessary evidentiary support for them should not later be penalized for their caution. However, this is not the issue before us. In the First Action, Dunne sought to amend her complaint based on later developed facts, she was granted leave to amend, and the amended complaint was filed. Because Dunne failed to comply with a court order requiring her to provide specific information in the First Action, the court granted a motion in limine to exclude evidence of the alter ego allegations at trial. The judgment against Dunne in the First Action was on the second amended complaint, and therefore covered the alter ego allegations. The judgment in the First Action was not appealed; thus, res judicata principles apply.

C. The Demurrer Was Properly Sustained as to the Causes of Action for Constructive Trust and Declaratory Relief.

The causes of action for constructive trust and declaratory relief in the Second Action have two factual bases: (1) respondents were the alter egos of the corporate respondents and caused the corporate respondents to become insolvent; and (2) Barackman and Denille Barackman caused the resident agent of FAN to resign, placing the corporation in default status.

As to the first factual basis for these causes of action, as explained above, the alter ego allegations were litigated in the First Action. The factual allegations included in the causes of action for constructive trust and declaratory relief were the same as those included in the First Action. Therefore, these causes of action were barred by res judicata to the extent they rely on the alter ego allegations.

As to the second basis for these causes of action, respondents requested the trial court to take judicial notice of the Certificate of Existence with Status in Good Standing for FAN issued by the Nevada Secretary of State on March 1, 2002. This was a matter of which the trial court could take judicial notice. (Evid. Code, § 452, subd. (c).) Dunne did not object to the request for judicial notice and did not offer other judicially noticeable material disproving the accuracy of the good standing certificate. Therefore, the complaint and the matters that could be judicially noticed established there were insufficient facts to state a cause of action on this basis.

D. RICO

In the Second Action, Dunne alleged respondents violated and conspired to violate RICO (18 U.S.C.S. § 1962(c)). A RICO violation requires "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. The plaintiff must, of course, allege each of these elements to state a claim. Conducting an enterprise that affects interstate commerce is obviously not in itself a violation of § 1962, nor is mere commission of the predicate offenses." (Sedima, S.P.R.L. v. Imrex Co., Inc. (1985) 473 U.S. 479, 496, fn. omitted.) To establish a pattern of racketeering activity, Dunne must have alleged at least two predicate acts that "`are interrelated by distinguishing characteristics'" (H.J. Inc. v. Northwestern Bell Telephone Co. (1989) 492 U.S. 229, 240) and "amount to or pose a threat of continued criminal activity" (id. at p. 239). "he threat of continuity is sufficiently established where the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes" or "where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business . . . , or of conducting or participating in an ongoing and legitimate RICO `enterprise.'" (Id. at pp. 242-243, fn. omitted.)

Dunne did not allege any racketeering activity under these well-settled standards. Although Dunne alleged in conclusory terms that respondents committed wire fraud, mail fraud, tax evasion, and money laundering, she did not allege any specific facts supporting these allegations. Nor did Dunne's allegations that Barackman (1) caused money to be transferred to or from a corporate respondent, (2) caused certain accounting entries to be made in the books of the corporate respondents, (3) created service agreements, and (4) bought computer equipment for one corporate respondent with money from another corporate respondent sufficiently allege racketeering activity within the meaning of RICO.

E. The Trial Court Did Not Abuse Its Discretion by Sustaining the Demurrer Without Leave to Amend.

When a demurrer is sustained without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan, supra, 39 Cal.3d 311, 318.)

Dunne did not request an opportunity to amend her complaint in the Second Action, either in the trial court or before this court, much less show there was a reasonable possibility the defects in the complaint could be cured by amendment. We conclude the trial court did not abuse its discretion in sustaining the demurrer without leave to amend.

Disposition

The judgment is affirmed. Respondents to recover their costs on appeal.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

BEDSWORTH, J.

Opinion Footnotes

*fn1 Dunne filed the First Action under the name Madeleine Ramirez-Smith. Dunne filed the Second Action as Madeleine Dunne, but alleged she was also known as Madeleine Ramirez- Smith. We will refer to her throughout as Dunne to avoid any unnecessary confusion.

*fn2 The prayer for relief in the original complaint asked for $250,000 in damages, although the text of the complaint asserted Dunne had been damaged in the amount of $350,000. This discrepancy in the text was corrected in the second amended complaint.

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