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Nelson v. Exxon Mobil Corp.

November 20, 2009; as modified November 30, 2009

D.J. NELSON, AS TRUSTEE, ETC., PLAINTIFF AND APPELLANT,
v.
EXXON MOBIL CORPORATION, DEFENDANT AND RESPONDENT.
COOK ENDEAVORS, PETITIONER,
v.
THE SUPERIOR COURT OF SACRAMENTO COUNTY, RESPONDENT; EXXON MOBIL CORPORATION, REAL PARTY IN INTEREST.



APPEAL from a judgment of the Superior Court of Sacramento County, Michael J. Virga, Judge. Affirmed. (Super. Ct. No. 02AS00535). ORIGINAL PROCEEDINGS: Petition for writ of mandate and request for stay. Michael J. Virga, Judge. Alternative writ dissolved, stay vacated, and peremptory writ issued.

The opinion of the court was delivered by: Cantil-sakauye, J.

CERTIFIED FOR PUBLICATION

In this consolidated proceeding, plaintiff and petitioner Cook Endeavors and its predecessor in interest, D.J. Nelson, as trustee for the D.J. Nelson Trust (the Trust), seek review of two orders of respondent superior court: one granting the motion of defendant and real party in interest Exxon Mobil Corporation (Exxon) to substitute Cook Endeavors for the Trust as plaintiff in the underlying action; the other granting Exxon‟s motion for summary adjudication on Cook Endeavors‟s punitive damages claim.*fn1 The evidence presented to the superior court established that, during the pendency of this action, the Trust transferred all of its assets, including its interest in this lawsuit, to the Trust beneficiaries, who in turn transferred those assets to Cook Endeavors, a newly-formed corporation of which the Trust beneficiaries are the sole shareholders. The superior court concluded the transfer of all assets to Cook Endeavors divested the Trust of standing to pursue this action. However, the court further concluded the Trust‟s punitive damages claim could not lawfully have been assigned to the corporation, Cook Endeavors.

Cook Endeavors and the Trust (hereafter plaintiffs) contend the superior court erred in one or the other of these rulings. Plaintiffs argue the court erred in concluding the punitive damages claim could not be transferred to Cook Endeavors, inasmuch as there was in fact no transfer of assets but merely a change in legal form of the single entity from a trust to a corporation. In the alternative, plaintiffs argue that if the punitive damages claim could not be transferred to Cook Endeavors, then such claim was retained by the Trust, in which case the Trust should not have been substituted out of the action.

We conclude the punitive damages claim was properly transferred to Cook Endeavors under the circumstances and, therefore, the trial court erred in granting Exxon‟s motion for summary adjudication. Whether viewed as a transfer of assets or simply a change in the legal form of a single entity, any pre-existing punitive damages claim held by the Trust was transferred, along with all other assets, to Cook Endeavors. We further conclude the Trust no longer has any interest in the action and the trial court properly granted Exxon‟s motion for substitution. We therefore affirm the judgment (order) substituting Cook Endeavors for the Trust but grant the petition for writ of mandate on the order granting summary adjudication of the punitive damages claim.

FACTS AND PROCEEDINGS

There is essentially no dispute over the facts of this matter. The dispute is over the legal impact of those facts.

In 1973, the Trust was created with Robert C. Cook as the settlor and his wife, Jane A. Cook, a.k.a. D.J. Nelson (Nelson), as the trustee. The beneficiaries under the Trust were Nelson and the settlor‟s son, Robert C. Cook, Jr. (Cook), with Nelson receiving a life estate in the income from one-half the Trust assets and Cook receiving everything else. The Trust also provided for its termination and distribution of the Trust assets at the discretion of Cook, subject to continuation of the life estate in Nelson over one-half of the Trust assets.

The only asset of the Trust was a parcel of real property designated in the Trust agreement as Parcel B. The Trust expressly prohibited the addition of other property to the Trust corpus. At the time the lawsuit was commenced in this matter, the Trust, doing business as Fruitridge Vista Water Company, was operating a business that supplied water to 4,800 homes in the Sacramento area utilizing the water underlying the Trust‟s real property.

In May 2001, the Trust initiated this action in the superior court against Exxon and others alleging contamination of its water supply with methyl tertiary butyl ether (MTBE) and tertiary butyl alcohol (TBA). The fifth amended complaint contained four causes of action: strict liability, negligence, trespass, and nuisance. In each cause of action, the Trust sought an award of punitive damages.

Cook Endeavors was incorporated on May 9, 2007. On June 5, 2007, Cook exercised his right to order distribution of the Trust assets to the beneficiaries. Nelson, as trustee, transferred one-half of the Trust assets to Cook and the other half to Cook subject to a life estate in Nelson. The same day, Cook and Nelson transferred their interests in the Trust assets to Cook Endeavors, as part of the capitalization of that corporation. In exchange, Cook received 50 shares of stock in the corporation and another 50 shares subject to a life estate in Nelson.

On April 4, 2008, Exxon filed a motion to substitute Cook Endeavors for the Trust as plaintiff. Exxon asserted that by assigning all of its assets to Cook Endeavors, including its interest in this lawsuit, the Trust no longer has standing. In response, the Trust moved to amend the complaint to add Cook Endeavors as an additional plaintiff and to further clarify its strict liability claim. The Trust also submitted a proposed sixth amended complaint. At the hearing on the motions, the Trust informed the court that Exxon contends assignment of the Trust‟s interest in the lawsuit to Cook Endeavors eliminated punitive damages from the case because such claim cannot be assigned. The Trust argued that, to the extent this is true, it should be retained as a plaintiff to pursue the punitive damages claim itself. The trial court granted Exxon‟s motion to substitute and denied that portion of the Trust‟s motion to amend that sought to add Cook Endeavors as an additional plaintiff. The Trust appeals.

On June 24, 2008, Cook Endeavors, as the sole plaintiff, filed a sixth amended complaint, this time against Exxon alone and containing only two causes of action, strict liability and negligence. The sixth amended complaint seeks punitive damages on each cause of action.

Exxon filed a motion for summary adjudication of the punitive damages claims. The trial court issued a tentative ruling, concluding Cook Endeavors cannot seek punitive damages in this action because this aspect of the Trust‟s claims against Exxon could not be assigned. On September 12, the court affirmed its tentative ruling. On October 30, 2008, Cook Endeavors filed a petition for writ of mandate in this court challenging this ruling.

We issued an alternative writ and consolidated the appeal and writ proceeding for purposes of argument and disposition. We also stayed all further proceedings in the superior court.

DISCUSSION

I. Motion to Dismiss Appeal

Exxon moves to dismiss the Trust‟s appeal, arguing the order substituting Cook Endeavors for the Trust is interlocutory in nature and, therefore, any appeal of that order must await final judgment in the action. The Trust responds that the order granting Exxon‟s motion to substitute constitutes a final judgment as to the Trust‟s rights in the action and therefore is appealable by the Trust. The Trust has the better argument.

Although interlocutory orders are generally not appealable, "[i]t is settled that the rule requiring dismissal does not apply when the case involves multiple parties and a judgment is entered which leaves no issue to be determined as to one party." (Justus v. Atchison (1977) 19 Cal.3d 564, 568, disapproved on another point in Ochoa v. Superior Court (1985) 39 Cal.3d 159, 171.) This exception to the general rule "better serves the interests of justice to afford prompt appellate review to a party whose rights or liabilities have been ...


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