Coombs et al v. Munoz

Filing 106

ORDER by Judge Jeffrey S. White GRANTING 94 Motion to Dismiss; finding as moot 98 Motion to Dismiss. (jswlc3, COURT STAFF) (Filed on 6/22/2011)

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NOT FOR CITATION

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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MALCOLM COOMBS, et al.,

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For the Northern District of California

United States District Court

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No. C 09-00192 JSW

Plaintiffs,

ORDER RESOLVING MOTIONS
TO DISMISS

v.
RICHARD M. MUNOZ, et al.,

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Defendants.
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INTRODUCTION
This matter comes before the Court upon consideration of the Motion to Dismiss filed

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by Defendant Richard Daly, Inc., A.P.C. (“Daly”) (Docket No. 94), and the Motion to Dismiss

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filed by Scott H. Guild and Aalfs, Evans & Company (“Accountant Defendants”) (Docket No.

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98). Having considered the parties’ papers, relevant legal authority, and the record in this case,

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the Court finds this matter suitable for disposition without oral argument and VACATES the

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hearing set for June 24, 2011. See N.D. Civ. L.R. 7-1(b).

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For the reasons set forth in the remainder of this Order, the Court GRANTS Daly’s

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motion to dismiss for failure to join an indispensable party, and dismisses the Second Amended

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Complaint. In light of that ruling, the Court need not address the Accountant Defendants’

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motion.

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BACKGROUND

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Plaintiffs, Malcolm Coombs (“Mal”), Judith Coombs Jones (“Judy”), and Barton

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Coombs (“Bart”) (collectively “Plaintiffs”), are the natural born children of Rogan Mal Coombs

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(“Rogan”).1 Coombs Tree Farms, Inc. (“CTF”), which is not a party to this case, owns

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approximately 12,000 acres of land in Humboldt, Mendocino and Shasta Counties and is

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engaged in the harvesting and planting of trees to ensure a steady supply of merchantable

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timber. Mac, Judy, and Bart each hold approximately 24 % total shares in Coombs Tree Farms,

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Inc. (“CTF”). (Second Amended Complaint (“SAC”) ¶¶ 13-14.) Prior to his death, Rogan held

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approximately 26 % of CTF’s total shares. (Id. ¶ 14.)

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According to Plaintiffs, between 1982 and 1993, “an from time to time thereafter, Daly

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was one of the attorneys for CTF and Rogan.” (Id. ¶ 18.) Plaintiffs also allege that between

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1984 and 2006 Daly was an attorney for the Hillside Development Company (“Hillside”) (Id.)
Plaintiffs allege that, in 1984, Rogan decided to develop a parcel of real property in Arcata,

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For the Northern District of California

United States District Court

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California into residential properties. Daly is alleged to have prepared an Agreement of Limited

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Partnership between the “Coombs Hillside Trust” and the McMillan Hillside Trust to form

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Hillside, the purpose of which was to develop the Arcata property. (Id. ¶ 27.) Daly also is

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alleged to have prepared the Coombs Hillside Trust, which was executed in 1984 (the “1984

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Coombs Hillside Trust”). (Id. ¶ 28, Ex. A (1984 Coombs Hillside Trust.)

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Rogan and the Plaintiffs are identified as the beneficiaries of the 1984 Coombs Hillside

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Trust, the sole asset of which is the partnership interest in Hillside. (Id. at Schedules B-D.) The

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1984 Coombs Hillside Trust “provided that it could only be altered, amended or revoked by the

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‘Current Income Beneficiary and only to the extent of that beneficiary’s own respective share of

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the trust income and principal.’ It also provided that the trust would terminate on April 13,

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1994, and that all the assets would be distributed to Rogan” and the Plaintiffs on that date. (Id.

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at 1-2. )

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Plaintiffs further allege that “[s]ubsequent to the execution of the 1984 Coombs Hillside

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Trust but before September 8, 1998, Rogan, with Daly’s advice, encouragement, and assistance,

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attempted to unilaterally revoke ab initio the 1984 Coombs Hillside Trust.... ... Daly stamped

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the trust instrument ‘VOID’ and marked it ‘Signed by Mistake’ and Rogan and Daly placed

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The Court has used the Plaintiffs’ shortened first names because that is how
Plaintiffs chose to identify themselves in their papers.
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their signatures beside these markings.” (Id. ¶ 31.) Plaintiffs allege that Rogan did not inform

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them of any of these events or of the terms of the 1984 Coombs Hillside Trust, and that Rogan

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and Daly then prepared a 1998 Coombs Hillside Trust, which named Rogan as the income and

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principal beneficiary. (Id. ¶ 31, 109.)

1984 Coombs Hillside Trust either by “misappropriating for his own personal advantage profits

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from the sale of lots in the Arcata subdivision, which should have been distributed to the 1984

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Coombs Hillside Trust, as a Hillside partner, and then as income to the beneficiaries of the trust

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in equal shares,” or by distributing solely to himself any profits that the 1984 Coombs Hillside

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Trust did receive to the exclusion of Plaintiffs. (Id. ¶¶ 32-33, 98-99.) In the Seventh Claim for

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For the Northern District of California

In their Sixth Claim for Relief, Plaintiffs allege that Rogan breached his duties under the

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United States District Court

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Relief, Plaintiffs allege that Daly knew of the terms of the 1984 Coombs Hillside Trust and

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aided and abetted Rogan’s breach of the 1984 Coombs Hillside Trust by assisting Rogan in his

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attempts to unilaterally revoke it in favor of the 1998 Coombs Hillside Trust.

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The Court addresses specific additional facts, as necessary, in the remainder of this
Order.

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ANALYSIS

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Daly raises three arguments in support of his motion to dismiss. Because the Court

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finds his argument that CTF is an indispensable party to be dispositive, the Court does not

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address his alternative arguments Plaintiffs failed to comply with California Code of Civil

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Procedure § 1714.10 and that Plaintiffs’ allegations are insufficient to state a claim for aiding

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and abetting Rogan’s alleged breach of trust.

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A.

The Court Grants Daly’s Request for Judicial Notice.

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Daly asks the Court to take judicial notice of the Second Amended Complaint filed in in

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Coombs Tree Farms, Inc. v. Munoz, et al., Case No. DR90142, which is pending in the Superior

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Court of the State of California, County of Humboldt, in which CTF has brought similar claims

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against Daly and the Accountant Defendants. (See Daly’s Request for Judicial Notice, Ex. A

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(CTF Second Amended Complaint (“CTF SAC”), ¶¶ 19-20, 28-33, 45, 88-101).) The Court

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GRANTS Daly’s request to take judicial notice of the Second Amended Complaint in the state
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court action. See Nielson v. Union Bank of California, 290 F. Supp. 2d 1101, 1113 (C.D. Cal.

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2003).

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B.

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Daly’s Motion to Dismiss For Failure to Join and Indispensable Party is Granted.
Daly moves to dismiss under Federal Rule of Civil Procedure 12(b)(7) for failure to join

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CTF, which it argues is an indispensable party under Rule 19. Although the Court previously

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denied a similar motion filed by Defendant Munoz, the Court finds the circumstances raised by

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Daly’s motion compel a different result. Accordingly, the Court GRANTS Daly’s motion on

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this basis and dismisses this action.

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In order to determine whether dismissal is appropriate under Rule 19, the Court engages
in “three successive inquiries.” EEOC v. Peabody Western Coal Co., 400 F.3d 774, 779 (9th

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For the Northern District of California

United States District Court

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Cir. 2005) (“Peabody Western”). First, the district court must determine whether the absent

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party is a “required” party. Id.; see also Fed. R. Civ. P. 19(a). A party is “required” in two

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circumstances: (1) when complete relief is not possible without the absent party’s presence; or

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(2) when the absent party claims a legally protected interest in the action such that (i)

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disposition of the action may “impair or impede” the person’s ability to protect that interest or

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(ii) “leave any of the persons already parties subject to a substantial risk of incurring double,

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multiple, or otherwise inconsistent obligations by reason of the claimed interest.” Fed. R. Civ.

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P. 19(a); see also Peabody Western, 400 F.3d at 779.

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The Ninth Circuit has held that “‘inconsistent obligations,’ are not ... the same as

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inconsistent adjudications or results. Inconsistent obligations occur when a party is unable to

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comply with one court’s order without breaching another court’s order concerning the same

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incident. Inconsistent adjudications or results, by contrast, occur when a defendant successfully

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defends a claim in one forum, yet loses on another claim arising from the same incident in

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another forum.” Cachil Dehe Bend of Wintun Indians of the Colusa Indian Community v.

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California, 547 F.3d 962, 976 (9th Cir. 2008) (quoting Delgado v. Plaza Las Americas, Inc.,

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139 F.3d 1, 3 (1st Cir. 1998)). “Moreover, where two suits arising from the same incident

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involve different causes of action, defendants are not faced with the potential for double

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liability because separate suits have different consequences and different measures of

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damages.” Delgado, 1 F.3d at 3.

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Daly argues that CTF is a required party because Plaintiffs, in this case, and CTF, in the

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state court action, contend that they each are entitled to the same profits Hillside should have

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received from the Arcata subdivision. Daly argues that if Plaintiffs are entitled to the profits,

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then CTF is not, and vice versa. Thus, according to Daly the “multiple liability” clause of Rule

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19(b) compels joinder of CTF and, because CTF is non-diverse, joinder is not feasible.

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Plaintiffs, in response, argue that Daly is not subject to the possibility of double damages or

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multiple liability because their claims are limited to the time period between 1984 and 1994,
when the 1984 Coombs Hillside Trust terminated, whereas CTF only seeks damages from 1994

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For the Northern District of California

United States District Court

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onward. Plaintiffs also argue that they and CTF have separate claims based on different

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theories of recovery. (See Opp. Br. at 13:3-9.) The flaw in the former argument is that neither

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Plaintiffs nor CTF have limited their claims to Hillside profits to a specific time period.

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(Compare SAC ¶¶ 27-33, 41, 55, 96-104, 105, 108-109 with CTF SAC ¶¶ 28-31, 45, 88-101).

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The flaw in the latter argument is that Plaintiffs’ argument elevates form over substance. The

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crux of the claims against Daly in both actions is that he is alleged to have assisted Rogan in

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misappropriating the same funds to which CTF and Plaintiffs claim they are entitled. Thus, this

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is not a case where Plaintiffs and CTF do, in fact, have separate claims based on different

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theories of recovery. As such, Daly has demonstrated that CTF is a “required” party.

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The Court next determines whether joinder is feasible. Peabody Western, 400 F.3d at

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779. Pursuant to Rule 19(a), joinder is not “feasible” when, inter alia, when joinder would

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destroy subject matter jurisdiction. Id.; Fed. R. Civ. P. 19(a)(1). CTF is a California

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corporation, and the named defendants also are California residents. Thus, if CTF is joined as a

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party, the parties would no longer be completely diverse, and the Court would be deprived of

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subject matter jurisdiction. Therefore, joining CTF is not feasible.

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Where, as here, CTF is “required” and joinder is not feasible, the Court must determine

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whether in “equity and good conscience” the action can continue without the absent party. Id.

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at 780; Fed. R. Civ. P. 19(b). To make the indispensability determination, the Court balances
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four factors: (1) prejudice to any party or to the absent party; (2) whether relief can be shaped to

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lessen prejudice; (3) whether an adequate remedy, even if not complete, can be awarded without

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the absent party; and (4) whether there exists an alternative forum. Quileute Indian Tribe v.

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Babbitt, 18 F.3d 1456, 1460 (9th Cir. 1994); see also Rule 19(b). The moving party has the

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burden of proving that dismissal is warranted. Shermoen v. United States, 982 F.2d 1312, 1317

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(9th Cir. 1992). The inquiry is a fact-specific one, designed to avoid the harsh results of rigid

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application. Dawavendewa v. Salt River Project Agricultural Improvement and Power District,

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276 F.3d 1150, 1154-55 (9th Cir. 2002) (citing Confederated Tribes v. Lujan, 928 F.2d 1496,

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1498 (9th Cir. 1991)).
It is clear that Plaintiffs have an adequate alternative forum and could assert these claims

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For the Northern District of California

United States District Court

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in state court. Similarly, although Plaintiffs have argued in their brief that their claims are

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limited to the period between 1984 and 1994, and argue that CTF limits its claims to the period

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1994 onward, the CTF Complaint, which is verified, does not limit CTF’s claims to a particular

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time period. Thus, the Court concludes that, on these facts, CTF would be prejudiced if this

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case proceeded without it. Finally, the Court is not persuaded that CTF’s interests could be

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protected by “shaping the relief awarded to Plaintiffs,” in light of the fact that Plaintiffs and

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CTF have raised competing claims to the same funds. Because these three factors all weigh in

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favor of a finding that CTF is indispensable, the Court concludes that “in equity and good

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conscience” this action should be dismissed.

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CONCLUSION

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For the foregoing reasons, Daly’s motion to dismiss is granted, and this case shall be

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dismissed. The Court’s ruling is without prejudice to Plaintiffs pursuing their claims in state

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court. A separate judgment shall issue, and the Clerk shall close this file.

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IT IS SO ORDERED.
Dated: June 22, 2011
JEFFREY S. WHITE
UNITED STATES DISTRICT JUDGE

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