Rincon EV Realty LLC v. CP III Rincon Towers, Inc.

          City & County of San Francisco Superior Court No. CGC10496887 Hon. Harold E. Kahn Trial Judge.

          Counsel for Appellants: FOLEY & LARDNER LLP Kathleen Smalley

          Counsel for Respondents: MANATT, PHELPS & PHILLIPS, LLP Barry W. Lee, Benjamin G. Schatz, Christian E. Baker, Ana G. Guardado, Stephanie A. Roeser

          STREETER, J.

         After a bench trial in this commercial real estate dispute, the trial court (Hon. Marla Miller) entered judgment for defendants on all claims, some legal and some equitable.^[1] Plaintiffs appealed the judgment, and we reversed as to the legal claims (holding plaintiffs' demand for a jury trial as to those claims should not have been stricken), affirmed as to the equitable claims, and remanded for further proceedings. (Rincon I, supra, 8 Cal.App.5th at pp. 5, 22.) On remand, the trial court (Hon. Harold Kahn) granted summary judgment for defendants, concluding Judge Miller's findings pertaining to the equitable claims were binding and were dispositive of plaintiffs' legal claims.

         Plaintiffs appeal the ensuing judgment, contending that, on remand after Rincon I, they were entitled to a jury trial on their legal claims. Specifically, plaintiffs argue that (1) after this court's partial reversal in Rincon I, they were entitled to litigate anew all factual issues relevant to the legal claims, even if the same issues were determined by Judge Miller in connection with her resolution of the equitable claims, (2) by granting defendants' summary judgment motion, Judge Kahn violated this court's remittitur in Rincon I and the law of the case, (3) under the statutes governing judicial notice and summary judgment procedure, Judge Kahn, in ruling on defendants' motion, could not consider the “truth” of the facts found by Judge Miller, and (4) even if Judge Miller's findings were properly considered on remand and had binding effect, those findings do not dispose of plaintiffs' legal claims. We reject plaintiffs' arguments and will affirm the judgment.

         I. BACKGROUND

         “[Plaintiffs] borrowed $110 million in 2007 from Bear Stearns Commercial Mortgage, Inc. (Bear Stearns) to finance the purchase of Rincon Towers, a San Francisco apartment complex (the Property). In 2010, after plaintiffs failed to repay the loan and after changes in the ownership of the loan, defendant CP III Rincon Towers, Inc. (CP III) purchased the Property at a nonjudicial foreclosure sale. Plaintiffs sued CP III and seven other entities who were involved in administering the loan, unsuccessful workout negotiations, and the eventual foreclosure sale, alleging various causes of action, some legal (breach of contract, fraud, slander of title, trade secret misappropriation), and some equitable (unfair competition, to set aside the foreclosure sale, and for an accounting).” (Rincon I, supra, 8 Cal.App.5th at p. 5.)

         Specifically, plaintiffs' fifth amended complaint, the operative complaint at trial, asserted the following causes of action: (1) breach of a loan agreement (Loan Agreement) entered at the time of the loan (the Loan) in June 2007, (2) breach of a cash management agreement (Cash Management Agreement) entered into by plaintiffs and Bear Stearns concurrently with the Loan Agreement, (3) breach of a March 2009 prenegotiation agreement entered into by plaintiffs and the Maiden Lane Trust (an entity that became the lender after Bear Stearns's 2008 collapse) in connection with negotiations about a possible modification of the Loan, (4) fraud, (5) to set aside the foreclosure, (6) unfair competition (Bus. & Prof. Code, § 17200 et seq.) (the Unfair Competition Law (UCL)), (7) slander of title, (8) violation of the Uniform Trade Secrets Act (UTSA) (Civ. Code, § 3426 et seq.), and (9) accounting. (Rincon I, supra, 8 Cal.App.5th at p. 7.) In their UCL cause of action, plaintiffs alleged in part that the conduct supporting several of their other causes of action (including defendants' alleged breaches of contract, fraud, slander of title and violation of the UTSA) also violated the UCL.

         Plaintiffs sought a jury trial as to six of these claims-the three breach of contract claims, as well as the claims for fraud, slander of title and violation of the UTSA (the legal claims). (Rincon I, supra, 8 Cal.App.5th at p. 9.) As to their other three claims-to set aside the foreclosure, for unfair competition, and for an accounting (the equitable claims)-plaintiffs did not seek a jury trial and agreed those claims were “ ‘equitable in nature.' ” (Ibid.) In response to a motion by defendants, Judge Miller struck plaintiffs' jury demand based on jury waiver provisions in the three contracts at issue, the Loan Agreement, the Cash Management Agreement and the prenegotiation agreement. (Ibid.) According to the register of actions that is included in the appellate record, Judge Miller also denied or took off calendar two motions by defendants to bifurcate or sever certain issues to be tried separately (the second time on the ground that bifurcation was moot in light of the order striking the jury demand).

         Judge Miller held a bench trial, issued a detailed statement of decision rejecting all of plaintiffs' claims, and entered judgment for defendants. (Rincon I, supra, 8 Cal.App.5th at pp. 5, 10.) Plaintiffs appealed. (Id. at p. 5.)

         In Rincon I, we concluded Judge Miller erred by striking plaintiffs' jury demand as to the legal claims, and we therefore reversed the judgment as to those claims. (Rincon I, supra, 8 Cal.App.5th at pp. 5, 10, 18, 21-22.) We concluded, however, there was no error as to the equitable claims, and we affirmed the judgment as to those claims. (Id. at pp. 5, 18-19, 22.) We remanded for further proceedings as to the legal claims. (Id. at pp. 5, 22.)

         On remand, defendants filed a motion for summary judgment, contending in part that the findings Judge Miller made in connection with her resolution of plaintiffs' equitable claims were “binding on, and dispositive of, plaintiffs' remaining legal claims.” After a hearing, Judge Kahn granted the motion, concluding Judge Miller's findings in connection with plaintiffs' equitable claim for unfair competition (the UCL claim) necessarily resolved plaintiffs' legal claims. In reaching this conclusion, Judge Kahn relied on the principle that, in a case involving both legal and equitable claims, findings made in connection with one set of claims are binding in a subsequent disposition of the other set of claims.^[2] (E.g., Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 156-157 (Hoopes).)

         In his written ruling, Judge Kahn stated in part: “Both the fifth amended complaint and plaintiffs' post-trial brief... make clear, and plaintiffs do not dispute, that all of the substantive law allegations of their six legal claims are also alleged as grounds that defendants violated the UCL. [Citations.] Because the alleged substantive law violations of the six legal claims were subsumed within the UCL claim, Judge Miller's findings resolving the entirety of the UCL claim in favor of defendants necessarily also resolved all six of plaintiffs' legal claims in favor of defendants, and a plain reading of [Judge Miller's] Statement of Decision shows that this is what happened. [Citation.] Among other things, as part of her ruling on the UCL claim, Judge Miller found that defendants did not breach any of the three contracts that they were alleged to have breached, did not commit any fraudulent conduct against the plaintiffs, did not slander plaintiffs' title to the property and did not misappropriate any of plaintiffs' asserted trade secrets.”

         Judge Kahn entered judgment for defendants, and plaintiffs appealed.

         II. DISCUSSION

         A. When an Action Involves Both Legal and Equitable Claims, Findings Pertaining to One Set of Claims Are Binding in the Subsequent Resolution of the Other Set of Claims

         As we noted in Rincon I, “[w]hile a litigant in a civil action generally has a constitutional right to jury trial on ‘legal' causes of action, there is no such right with respect to ‘equitable' causes of action [citation], or ‘equitable' remedies [citation].” (Rincon I, supra, 8 Cal.App.5th at p. 19.) For that reason, we held that, although it was error to strike plaintiffs' jury demand as to their legal claims, Judge Miller did not err in deciding the equitable claims. (Id. at pp. 18-19.) We also noted that, under established California precedent, when a case involves both legal and equitable claims or issues, the trial court “ ‘ “may decide the equitable issues first, and this decision may result in factual and legal findings that effectively dispose of the legal claims.”' ”^[3] (Rincon I, supra, 8 Cal.App.5th at p. 19; accord, e.g., Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 671 (Raedeke); Alcoa, supra, 12 Cal.App.5th at p. 355; see Hoopes, supra, 168 Cal.App.4th at p. 158 [“The rule minimizes inconsistencies, and avoids giving one side two bites of the apple. [Citation.] The rule also prevents duplication of effort.”].)

         Judge Kahn concluded that this was in effect what happened here, i.e., the equitable claims were decided first, when Judge Miller addressed them in her statement of decision. On remand after our decision in Rincon I, with only the legal claims remaining for resolution, Judge Kahn noted that “[t]he present posture of this case is analogous to a bifurcated trial.” He therefore applied the preclusion principle noted above and concluded the findings Judge Miller made when resolving the equitable claims also disposed of the legal claims.

         On appeal, plaintiffs acknowledge the general applicability of the preclusion rule invoked by Judge Kahn. Plaintiffs state in their opening appellate brief that, “[a]bsent exceptional circumstances, factual findings by the factfinder in the first phase of the trial (either the judge or jury) are binding on the factfinder in the second phase. [Citations.] This may mean that findings from the first phase of trial obviate the need for the second phase.” As noted, however, plaintiffs argue that, for several reasons, this rule should not apply here, or, if it does apply, it does not entitle defendants to judgment. We initially address (in part II.B below) the parties' arguments as to whether Judge Miller's findings pertaining to the equitable claims (assuming they are binding) are dispositive of plaintiffs' legal claims. We then address (in parts II.C-II.E below) plaintiffs' contention that, in the circumstances of this case, the usual preclusion rule applied by Judge Kahn should not apply and Judge Miller's findings pertaining to the equitable claims should not be given binding effect.

         B. Judge Miller's Findings Pertaining to the Equitable Claims Are Dispositive of the Legal Claims

         Judge Kahn correctly determined that Judge Miller's findings in connection with plaintiffs' equitable UCL claim disposed of plaintiffs' six legal claims. The UCL prohibits “unfair competition, ” which includes “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200.) “The UCL's ‘unlawful' prong ‘borrows violations of other laws... and makes those unlawful practices actionable under the UCL.' [Citation.] ‘ “[V]irtually any law or regulation-federal or state, statutory or common law-can serve as [a] predicate for [an]... ‘unlawful' [prong] violation.”' ” (Candelore v. Tinder, Inc. (2018) 19 Cal.App.5th 1138, 1155.) A UCL claim ...