United States District Court, N.D. California
November 10, 2005.
LORENZO VECCHIOLI, Plaintiff,
BOREL PRIVATE BANK & TRUST CO., a California corporation on its own behalf and as Trustee of Andre LeRoy Trust; DEUTSCHE BANK NATIONAL TRUST COMPANY, a U.S. subsidiary as Trustee of the Eugene LeRoy Trust; UNION OIL COMPANY OF CALIFORNIA, a California corporation. Defendants.
The opinion of the court was delivered by: PHYLLIS HAMILTON, District Judge
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS
Defendants Borel Private Bank & Trust Company ("Borel"),
Deutsche Bank ("DB"), and Union Oil Company of California
("Unocal") move to dismiss plaintiff's complaint pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). On
November 9, 2005, defendants' motions came on for hearing before
this court. Having read the parties' papers and carefully
considered their arguments and the relevant legal authority, the
court GRANTS all defendants' motions to dismiss pursuant to Rule
12(b)(1), and alternatively GRANTS defendants Borel's and
Unocal's motions to dismiss pursuant to Rule 12(b)(6), as follows
and for the reasons stated at the hearing. INTRODUCTION
This case has a long history in the state superior, appellate,
and probate courts. Plaintiff possessed property interests in the
Home Ranch ("the ranch"), a piece of real estate near the Santa
Maria Valley on the California coastline. The ranch was
originally owned by two brothers, one of whom was plaintiff's
grandfather, Andre Leroy. The other brother, Eugene, was
plaintiff's great uncle. Both Andre and Eugene had an undivided
one-half interest in the ranch. Andre died in 1980; and Eugene
passed away in 1984. Andre's one-half interest passed to his
widow and their descendants; and Eugene's one-half interest
likewise passed to his widow and descendants.
Andre's one-half interest is held in the Andre Leroy Trust,
which is administered by defendant Borel. Plaintiff's mother,
Nichole Vecchioli, along with his aunt, Jean Leroy, and his
grandmother, Annette Leroy, appear to be alive and are the
current income beneficiaries of the Andre Leroy trust. Plaintiff,
along with his siblings and cousins, is one of several contingent
remaindermen of the Andre Leroy Trust.
By comparison, plaintiff does not appear to have a present
interest contingent or otherwise in the Eugene Leroy trust.
Apparently, plaintiff will become one of the remaindermen under
that trust only if none of Eugene Leroy's descendants survive to
take under the trust. The Eugene Leroy Trust is currently
administered by defendant DB, formerly Bankers Trust.*fn1
Following the deaths of Andre and Eugene Leroy, in 1994, their
families discovered that the ranch had been contaminated by a
petroleum product, called a diluent, that defendant Unocal, had
injected into the oil field underlying the ranch. Unocal had been
leasing the oil field beneath the ranch, known as the "Guadalupe Oil Field," for
oil and gas production since approximately 1950.
That same year, in 1994, Unocal admitted responsibility for the
contamination, ceased production, and began remediation of the
site. The two trustees, Borel and Bankers' Trust (predecessor to
DB), commenced negotiations with Unocal, which included selling
the ranch to Unocal, settling the trusts' claims against Unocal,
and obtaining indemnity agreements from Unocal regarding the
I. Vecchiolis' Petition to Remove Borel as Trustee to Andre
The Vecchioli family, including plaintiff, opposed the Unocal
settlement talks, and any sale of the ranch to Unocal. As a
result of this disagreement, in October 1994, the Vecchiolis
filed a petition with the state probate court to remove Borel as
trustee. Following a two-day trial, the probate court denied the
Vecchiolis' petition in October 1994. However, in February 1996,
the state appellate court held that the probate court applied the
wrong legal standard and remanded the case for further
proceedings. In 1999, after an eight-day trial, the probate court
again denied the Vecchiolis' petition to remove Borel, and the
state appellate court affirmed in 2001.
II. Borel's Petition to Approve Settlement with Unocal
Meanwhile, while the Vecchiolis' petition was pending in the
probate court and the California Court of Appeal, Borel and DB
reached a settlement with Unocal on behalf of both the Andre and
Eugene Leroy trusts. Borel and DB petitioned the probate court
for approval of the settlement agreements, which the probate
court granted in September 1995. The Vecchioli family appealed
the order granting Borel's petition with respect to the Andre
Leroy Trust.*fn2 In October 1996, the state appellate court
remanded to the probate court in light of its February 1996
decision regarding the Vecchiolis' petition to remove Borel.
The probate court reconsidered Borel's petition for approval of
the settlement agreement in conjunction with the Vecchiolis' petition to remove
Borel. On remand, in 1999, the probate court again granted
Borel's petition for approval. In February 2001, in the same
decision in which it affirmed the probate court's second denial
of the Vecchioli's petition to remove Borel, the state appellate
court again remanded Borel's petition for approval to the probate
court with further instructions regarding the standards to be
applied by the probate court. For the third time, in March 2002,
the probate court granted Borel's motion. The Vecchiolis again
III. Borel and DB Reach New Settlement with Unocal/Sale of
However, in the meantime, in May 2002, Borel and DB entered
into new settlement agreements with Unocal. According to
defendants Borel and DB, these agreements, unlike the 1995
agreements, did not require probate court approval. The sale of
the ranch to Unocal closed on July 2, 2002 in accordance with
Accordingly, in November 2003, the state appellate court ruled
that the Vecchiolis' appeal was moot in light of the July 2002
sale, and remanded to the probate court for dismissal.
IV. Probate Court Trial
In May 2002, the Vecchiolis filed another petition against
Borel in the probate court seeking an injunction against the
closing of the 2002 settlement agreements. The probate court
denied the motion for a preliminary injunction, and the sale
proceeded. In April 2005, the Vecchioli family, with the
exception of plaintiff, dismissed the petition with prejudice
pursuant to another settlement agreement. In 2004, plaintiff
filed his fourth amended petition ("4AP") on his behalf only,
against Borel and Unocal, which the probate court denied on the
merits in May 2005. Plaintiff did not appeal.
V. Civil Lawsuit for Damages
At the same time that the parties were embroiled in litigation
before the probate court, the Vecchiolis filed a civil complaint
for damages in the San Mateo County Superior Court against Borel
and DB. The civil complaint alleged claims arising out of the
settlement and sale of the ranch, including breach of trust; breach of fiduciary
duty; negligence; and breach of duty of loyalty. The action lay
dormant until 2004.
In January 2005, plaintiff filed a third amended complaint
("3AC") in the state court lawsuit on his behalf only, which
included eighteen claims. That complaint was nearly identical to
the complaint filed in this court.
Subsequently, in April 2005, all of the Vecchiolis, with the
exception of plaintiff, settled the state court lawsuit and
dismissed it with prejudice. Thereafter, on April 25, 2005, May
2, 2005, and June 7, 2005, the state court sustained DB's,
Borel's, and Unocal's respective demurrers to plaintiff's
complaint, concluding that it lacked subject matter jurisdiction,
and dismissed the complaint in its entirety. Plaintiff did not
appeal the state court's dismissal. Instead, less than three
weeks after the state court's dismissal of the lawsuit, he filed
this federal lawsuit.
VI. Borel and DB's Retroactive Approval of 2002 Settlement
On April 15, 2005, Borel and DB filed a petition for
retroactive approval of the trustees' 2002 settlement agreement
with Unocal, which resulted in the sale of the ranch. Defendants
claim that the petition was served on plaintiff, but he
apparently did not oppose the petition. On May 20, 2005, the
probate court approved the petition. Plaintiff did not appeal.
CLAIMS FOR RELIEF
Plaintiff asserts nineteen claims before this court as follows:
(1) breach of trust under a written agreement (Andre
and Eugene Trusts) Borel and DB;
(2) breach of fiduciary duties under a written
agreement (Andre and Eugene Trusts) Borel and DB;
(3) negligence Borel and DB;
(4) breach of duty of loyalty Borel and DB
(5) professional negligence/destruction of capacity
of oil extraction Borel and DB;
(6) misrepresentation Borel and DB;
(7) restitution Borel and DB; (8) inducing breach of trust Unocal;
(9) fraud/false statement, conspiracy to defraud,
theft, misapplication all defendants;
(10) waste all defendants;
(11) private continuing nuisance all defendants;
(12) private permanent nuisance all defendants;
(13) public continuing nuisance all defendants;
(14) public permanent nuisance all defendants;
(15) negligence all defendants;
(16) permanent trespass all defendants;
(17) continuing trespass all defendants;
(18) unfair competition all defendants;
(19) declaratory relief all defendants;
Eighteen of Vecchioli's nineteen claims were raised in his
third amended complaint before the state superior court in the
civil action described above. See Exh. L, Request for Judicial
As noted above, the state court dismissed that
complaint for lack of subject matter jurisdiction, ruling that
jurisdiction lay exclusively in the state probate court. Exhs. N,
The only differences between the claims alleged in the 3AC and
the instant complaint are as follows:
Claim Nine appears to be a new claim, not raised
Claims Ten through Eighteen set forth above were
raised only against defendant Unocal in the state
court complaint. Vecchioli now raises the claims
against all three defendants;
Claim Three, which lists twenty-three statutory
provisions in support of Vecchioli's negligence
claim, now cites to four federal statutes in addition
to nineteen California provisions; and
Claims five, eighteen, and nineteen now also cite
to federal authority in addition to California law.
Additionally, Vecchioli also raised many of the claims
contained in the instant complaint in an action before the state
probate court seeking to remove Borel as a trustee. See Exh. R.
The claims before the state probate court were brought against
Borel and Unocal only not DB. They included:
breach of trust under a written agreement;
breach of fiduciary duty under a written agreement;
breach of duty of loyalty;
inducement of and participation in breach of trust;
See id. As discussed above, the state probate court held a
trial, and denied Vecchioli's petition on the merits on May 20,
2005. Exh. S.
The banks, Borel and DB, have filed a joint motion to dismiss.
Unocal has also filed a motion to dismiss. The motions are
similar in their arguments and consistent regarding the
underlying facts. The three defendants submit numerous theories
under which this court may dismiss Vecchioli's complaint.
However, only one theory appears to mandate dismissal of all
claims against all defendants the probate exception to federal
I. Probate Exception to Jurisdiction
For the reasons that follow and for the reasons stated on the
record, the court dismisses the entire complaint against all defendants pursuant
Rule 12(b)(1) and the probate exception to jurisdiction.
"Where a state has relegated jurisdiction over probate matters
to a special court and if that state's courts of general
jurisdiction do not have jurisdiction to hear probate matters,
then the federal courts also lack jurisdiction over probate
matters." In re Marshall, 392 F.3d 1118, 1136 (9th Cir. 2004),
cert granted, 2005 WL 1198459 (September 27, 2005). "A state
court's holding regarding its jurisdiction over probate matters
is binding on federal courts and is immune from collateral attack
under the doctrine of res judicata." Id.
Here, the state superior court's ruling that subject matter
jurisdiction lies with the state's probate court is binding on
this court pursuant to the Ninth Circuit's decision in
Marshall. 392 F.3d at 1136. Exhs. N, O, P. In Vecchioli's civil
case, the state superior court ruled that it:
ha[d] no jurisdiction of the subject matter of the
cause of action alleged in the pleading. The claims
made in Plaintiff Vecchioli's 3AC concern the
internal affairs of a trust. They may not be asserted
in a civil action at law, as in the 3AC, but fall
within the exclusive jurisdiction of the Probate
Court, Probate Code § 17000(a).
Vecchioli's 3AC, upon which the state court ruled, was nearly
identical to the complaint here. Thus, the state court's decision
that it lacked jurisdiction as to the eighteen claims contained
in the 3AC is binding on this court to the extent that Vecchioli
alleges those claims here.
Moreover, even if this court were not bound by the state
superior court's determination, it would nevertheless find that
the probate exception to jurisdiction applies in this case.
The Ninth Circuit employs a two-part inquiry in determining
whether the probate exception to jurisdiction applies. Id. at
1133. "The first part of the inquiry focuses on . . . whether the
matter is purely probate in nature, in that the federal court is
being asked directly to probate a will or administer an estate."
Id. The answer is usually no. Id. The second part of the
inquiry focuses on whether the matter is probate-related by
determining whether, by exercising jurisdiction over the matter,
the federal court would: (1) interfere with probate proceedings;
(2) assume general jurisdiction of the probate; or (3) assume
control over property in custody of the state court. Id. "The reach of the
probate exception encompasses not only direct challenges to a
will or trust, but also questions which would ordinarily be
decided by a probate court in determining the validity of the
decedent's estate planning instrument." Id.
All of the claims in Vecchioli's complaint before this court
fall within the second part of the Marshall inquiry, including
Vecchioli's ninth claim, which was not raised before the state
superior court. Accordingly, the court GRANTS defendants' motions
to dismiss for lack of subject matter jurisdiction pursuant to
II. Res Judicata
Federal courts are required to give full faith and credit to
state court judgments under 28 U.S.C. § 1738. Manufactured Home
Communities ("MHC") v. City of San Jose, 420 F.3d 1022, 1030
(9th Cir. 2005) (citing San Remo Hotel, L.P. v. City & County of
San Francisco, 125 S.Ct. 2491 (2005)). "Generally, under res
judicata, a final judgment on the merits of an action precludes
the parties or their privies from relitigating issues that were
or could have been raised in that action." Id. (quoting Allen
v. McCurry, 449 U.S. 90, 94 (1980)). A federal court is required
to look to state law to determine the preclusive effect of a
state court judgment. Id.
California's res judicata standard is based on a primary rights
theory. The California Supreme Court has explained that the
primary rights theory:
provides that a cause of action is comprised of a
`primary' right of the plaintiff, a corresponding
`primary duty' of the defendant, and a wrongful act
by the defendant constituting a breach of that duty.
The most salient characteristic of a primary right is
that it is indivisible: the violation of a single
primary right gives rise to but a single cause of
Id. (quoting Mycogen Corp. v. Monsanto Co., 28 Cal.4th 888,
903-04 (Cal. 2002)). "A party may bring only one cause of action
to vindicate a primary right." Id. "Claims not raised in this
single cause of action may not be raised at a later date." Id.
Defendants Borel and Unocal argue that all of the claims in the
complaint must be dismissed as to them under Rule 12(b)(6) as res
judicata. Their argument is essentially that the state probate court's denial of Vecchioli's 4AP on the merits
on May 20, 2005, see Exh. S., is res judicata as to the claims
currently raised by Vecchioli.
Claims one through eight and nineteen in the instant complaint
are nearly identical to the claims raised by Vecchioli in his 4AP
before the probate court. Exh. R. Therefore, these claims, which
were denied by the probate court after a trial and on the merits,
may be dismissed as res judicata.
Borel and Unocal further argue that the remaining claims before
this court claims nine through eighteen should also be
dismissed as res judicata because Vecchioli should have included
all of these claims in his 4AP before the probate court.
Defendants note that these remaining, primarily tort claims are
predicated on the release of the diluent by Unocal in its oil
production activities at the Home Ranch, activities that
Vecchioli admits terminated in 1994. Therefore, Vecchioli could
have included all of the tort claims in his 4AP filed with the
probate court in 2004, but chose not to do so.
Defendants' argument is supported by California law, the
applicable law in determining the scope of res judicata here. The
California Supreme Court has held that:
If [a] matter was within the scope of the action,
related to the subject-matter and relevant to the
issues, so that it could have been raised, the
judgment is conclusive on it despite the fact that it
was not in fact expressly pleaded or otherwise urged.
The reason for this is manifest. A party cannot by
negligence or design withhold issues and litigate
them in consecutive actions. Hence the rule is that
the prior judgment is res judicata on matters which
were raised or could have been raised, on matters
litigated or litigable.
Sutphin v. Speik, 15 Cal.2d 195 (Cal. 1940).
In construing the scope of res judicata under California law,
the Ninth Circuit has likewise held that where different legal
claims are simply relabelled under different legal theories of
recovery, a state court's prior decision will nevertheless be res
judicata. See MHC, 420 F.3d at 1032. "Different theories of
recovery are not separate primary rights." Id.
That is what has happened in the instant case. Claims nine
through eighteen merely assert different legal theories of
recovery from those asserted in Vecchioli's 4AP before the state
probate court. For these reasons, the court alternatively
dismisses Vecchioli's complaint against defendants Borel and Unocal with prejudice under Rule
12(b)(6) because it is barred by res judicata principles.
Because DB was not named as a party in the probate court action
discussed above, it does not move for dismissal based on the res
judicata effect of the probate court's dismissal of the 4AP.
Instead, DB argues that claims four, six, seven, and nine through
nineteen are barred by res judicata based on the probate court's
approval of 1995 settlement agreements with Unocal, Exh. G, and
the probate court's retroactive 2005 approval of the 2002
settlement agreements. Exh. U and V.
This court has reviewed the state court documents, and agrees
that the state court's orders approving the settlements are res
judicata as to claims four, six, seven, and nine through nineteen
as alleged against DB. California courts are clear that even a
default judgment is treated as a judgment "on the merits" and is
res judicata as to the related claims. Martin v. General Finance
Co., 48 Cal.Rptr. 773, 776 (Cal.App. 1966).
Accordingly, the court alternatively dismisses claims four,
six, seven, and nine through nineteen in Vecchioli's complaint
against defendant DB with prejudice under Rule 12(b)(6) because
they are barred by res judicata principles.
III. Defendants' Other Arguments
The court declines to reach defendants' other arguments in
support of dismissal, including defendant DB's argument regarding
the statute of limitations, Unocal's argument regarding the
settlement agreement's release, and Unocal's argument that
plaintiff lacks standing.
For the reasons set forth above, the court GRANTS defendants'
motions to dismiss the complaint in its entirety pursuant to Rule
12(b)(1) and the probate exception to jurisdiction.
Alternatively, the court dismisses the complaint in its entirety
with prejudice as to defendants Borel and Unocal only pursuant to
Rule 12(b)(6) on res judicata grounds; and dismisses claims four, six, seven, and nine through nineteen against
defendant DB with prejudice under Rule 12(b)(6).
This order fully adjudicates the matters listed at nos. 10, 12
of the clerk's docket and closes this case.
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