Viewpoint at the Ridge Owners Association v. Herbert

Filing 23

STIPULATION AND ORDER GRANTING LEAVE TO DEFENDANT WALTER B. HERBERT TO FILE THIRD PARTY COMPLAINT re 21 Stipulation filed by Walter B. Herbert, Walter B. Herbert, Jr. Signed by Judge Phyllis J. Hamilton on 3/16/11. (nah, COURT STAFF) (Filed on 3/16/2011)

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ROBERT T. SULLWOLD (SBN 88139) JAMES A. HUGHES (SBN 88380) SULLWOLD & HUGHES 235 Montgomery Street, Suite 730 San Francisco, CA 94104 [phone] [phone] FAX Attorneys for WALTER B. HERBERT

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

VIEWPOINT AT THE RIDGE OWNERS ASSOCIATION, a California nonprofit corporation, Plaintiff,

Case No.: C 10-03414 PJH STIPULATION AND ORDER GRANTING LEAVE TO DEFENDANT WALTER B. HERBERT TO FILE THIRD PARTY COMPLAINT

14 15 16 WALTER B. HERBERT, 17 Defendant. 18 19 20 21 22 23 24 25 v.

IT IS HEREBY STIPULATED by the parties hereto, through their undersigned counsel, that Defendant Walter B. Herbert shall have leave to file the Third Party Complaint attached as Exhibit 1. DATED: February 11, 2011 JAMES A. HUGHES SULLWOLD & HUGHES

/s/ James A. Hughes 26 27 28
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STIPULATION AND ORDER GRANTING LEAVE TO FILE THIRD PARTY COMPLAINT

James A. Hughes Attorneys for Defendant and Third Party Plaintiff Walter B. Herbert

C 10-03414 PJH

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ORDER The parties having stipulated and good cause appearing therefor; IT IS ORDERED that Defendant Walter B. Herbert is granted leave to file the third party complaint in the form attached to the parties' stipulation. March 16 DATED: February ____, 2011
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STIPULATION AND ORDER GRANTING LEAVE TO FILE THIRD PARTY COMPLAINT

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ROBERT T. SULLWOLD (SBN 88139) JAMES A. HUGHES (SBN 88380) SULLWOLD & HUGHES 235 Montgomery Street, Suite 730 San Francisco, CA 94104 [phone] [phone] FAX Attorneys for WALTER B. HERBERT

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

VIEWPOINT AT THE RIDGE OWNERS ASSOCIATION, a California nonprofit corporation, Plaintiff,

14 15 16 WALTER B. HERBERT, 17 Defendant. 18 19 20 21 22 23 Third-Party Defendants. 24 25 26 27 28 THIRD-PARTY COMPLAINT OF WALTER B. HERBERT v. ADRIAN BARROW, JANE VAN EPPS, TONI WILSON, and JEAN BATES & ASSOCIATES, WALTER B. HERBERT, Third-Party Plaintiff, Case No.: C 10-03414 PJH v.

EXHIBIT 1
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THIRD-PARTY COMPLAINT C 10-03414 PJH

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Defendant and Third-Party Plaintiff Walter B. Herbert ("Herbert"), for his Third-party Complaint, alleges: BACKGROUND 1. Plaintiff Viewpoint at the Ridge Owners Association ("VATR") filed a complaint against Herbert in state court, which Herbert subsequently removed to this court. A copy of VATR's complaint is attached to this third-party complaint as Exhibit "A." Without admitting the truth thereof, the allegations of plaintiffs' complaint are incorporated herein by this reference. 2. In its complaint, VATR alleges that Herbert, who was engaged by VATR as its investment adviser, mishandled the investment of its funds, resulting in an alleged loss of $3 million. VATR's complaint alleges four counts: Negligence, Breach of Fiduciary Duty, Negligent Misrepresentation, and Fraud & Deceit. Herbert has filed an answer denying the material allegations of VATR's complaint. 3. If VATR were to establish Herbert's liability under any of the complaint's counts, then Third-Party Defendants, and each of them, are also liable to VATR for negligence, breach of fiduciary duty and/or breach of contract, as a result of their (1) approving investment of VATR's funds in instruments that were subject to market risk; (2) failing adequately to monitor the status of VATR's investments; (3) failing to require sale of investments subject to market risk upon discovery of the nature of such risk; and (4) preventing the taking of defensive measures at a time of market volatility. The actions of Third-Party Defendants caused, in whole or in part, the harm or losses alleged by VATR. As a result, if Herbert is found liable for any of the claims brought by VATR, then the Third-Party Defendants, and each of them, are liable for contribution or equitable indemnification in an amount proportionate with their share of fault. PARTIES AND JURISDICTION 4. Herbert is a resident of Massachusetts. 5. Herbert is informed and believes and on that ground alleges that third-party defendant Adrian Barrow is a resident of Brisbane, California. Barrow was a member of the board of directors of VATR during relevant period up to October 21, 2008. As a member of the board of directors, Barrow owed a fiduciary duty and duty of due care to VATR.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Defendants."

6. Herbert is informed and believes and on that ground alleges that third-party defendant Jane Van Epps is a resident of Brisbane, California. Van Epps was a member of the board of directors of VATR from September 18, 2007 to October 21, 2008. As a member of the board of directors, Van Epps owed a fiduciary duty and a duty of due care to VATR. 7. Herbert is informed and believes and on that ground alleges that third-party defendant Toni Wilson is a resident of Brisbane, California. Wilson was a member of the board of directors of VATR from July 15, 2008 to October 21, 2008. As a member of the board of directors, Wilson owed a fiduciary duty and a duty of due care to VATR. 8. Herbert is informed and believes and on that ground alleges that third-party defendant Jean Bates & Associates, Inc. ("Bates") is a California Corporation with its principal place of business in Danville, California. VATR and Bates entered into a contract in February, 2001 pursuant to which Bates was engaged to manage VATR's day-to-day affairs. A true and correct copy of the contract between VATR and Bates is attached hereto as Exhibit "B." Bates accordingly owed both contractual obligations and a duty of care to VATR. 9. Barrow, Van Epps, Wilson, and Bates are collectively referred to as the "Third-Party

10. The Court has original jurisdiction of this third-party complaint under 28 U.S.C. §1332, in that it is an action between citizens of different states and the matter in controversy, as alleged in the state court complaint, exceeds the sum of $75,000, exclusive of costs and interest. GENERAL ALLEGATIONS 11. As directors, Barrow, Van Epps and Wilson were charged with the ultimate responsibility of managing VATR's affairs. By virtue of their position, they were in a confidential and fiduciary relationship with VATR and owed VATR the highest obligations of good faith, fair dealing and candor recognized under the law. 12. Herbert served as investment adviser at the pleasure of VATR's board and in that role was at all times subject to its supervision and direction. Although a member of VATR's board, Herbert abstained from any decision concerning its investments. Decisions as to the nature of VATR's investments were ultimately the responsibility of VATR's board, including Barrow, Van Epps and
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Wilson, who were obligated to become informed and make knowledgeable decisions with respect to such investments. In discharging these obligations, Barrow, Van Epps and Wilson were required to act with at least such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. 13. Barrow and Van Epps approved an investment policy for VATR that contemplated placing a significant portion of its funds in positions that could fluctuate in value with the market. If, as VATR now contends, it was negligent and wrongful to invest its funds in such a manner, then Barrow and Van Epps were negligent in approving such approach and failed to satisfy their fiduciary obligations to VATR. 14. Herbert is informed and believes and on that ground alleges that Barrow at all times had complete access to information about the nature and status of VATR's investment account and therefore knew that it was invested in part in positions that bore market risk and approved of such investment strategy. If, as VATR now alleges, it was negligent and wrongful to have its funds invested in such a manner, then Barrow, who was VATR's President during most of this period, was negligent and failed to satisfy his fiduciary obligations to VATR in not bringing these facts to the attention of the entire VATR board or otherwise taking action to mitigate or eliminate such risk. 15. At the very least, based on VATR's allegations, Barrow, Van Epps, and Wilson failed to act with due care or to make reasonable inquiry in that they did not inform themselves of the nature of VATR's investment portfolio in a timely fashion. Had they done so, VATR's loss, if any, could have been avoided or mitigated in substantial degree. 16. At the point each of them became aware of the nature of VATR's investment portfolio, Barrow, Van Epps and Wilson failed to act with due care in that they took no action to avoid the very risks, by then known to them, that VATR alleges subsequently caused its investment loss. To the contrary, Barrow and Van Epps, in particular, took steps to prevent any action to reduce such risks by freezing VATR's investment account. Had Barrow, Van Epps and Wilson acted with reasonable care, VATR's loss, if any, could have been avoided or mitigated in substantial degree. 17. Bates failed to act with due care in discharging its duties as manager under its contract with VATR. Among other things, Bates (1) failed to provide accurate monthly financial reports
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to VATR's Board as required by its contract; and (2) failed to include statements from Ameritrade showing the nature and status of VATR's investments in the packets Bates distributed to VATR's board in preparation for each board of directors' meeting. Had Bates provided this documentation to VATR board members, the nature and status of VATR's investments would have been known to each director immediately and VATR's investment loss, if any, could have been avoided or mitigated in substantial degree. FIRST CAUSE OF ACTION (APPORTIONMENT OF FAULT/EQUITABLE INDEMNITY) 18. Herbert incorporates by this reference paragraphs 1 through 17, inclusive, and realleges such paragraphs as though fully set forth herein. 19. The Third-Party Defendants, and each of them, were responsible, in whole or in part, for the injuries, if any, suffered by VATR. 20. If Herbert is judged liable to VATR, each of the Third-Party Defendants should be required (1) to pay a portion of VATR's judgment which is in proportion to the comparative negligence of that cross-defendant in causing VATR's damages; and (2) to reimburse Herbert for any payments he makes to VATR in excess of his proportional share of all cross-defendants' liability. WHEREFORE, Herbert prays judgment as set forth below. SECOND CAUSE OF ACTION (DECLARATORY RELIEF) 21. Herbert incorporates by this reference paragraphs 1 through 17, inclusive, and realleges such paragraphs as though fully set forth herein. 22. An actual controversy has arisen and now exists between Herbert and the Third-Party Defendants concerning their respective rights and responsibilities because Herbert contends that the Third-Party Defendants are obligated to indemnify Herbert in whole or in part in proportion to the comparative fault attributable to each. Herbert is informed and believes and on that ground alleges that the Third-Party Defendants deny any such obligation. 23. Herbert desires a judicial determination of the respective rights and duties of Herbert and each of the Third-Party Defendants with respect to the damages and other monetary relief sought by
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VATR against Herbert. In particular, Herbert desires a declaration that each of the Third-Party Defendants is liable for any damages suffered by VATR in proportion to such Third-Party Defendant's comparative fault. 24. Such a declaration is necessary and appropriate at this time in order that Herbert may ascertain his rights and duties with respect to the damages and other monetary relief sought by VATR. Furthermore, the claim by VATR against Herbert and the claim by Herbert against the Third-Party Defendants arise out of the same transaction, and determination of both in one proceeding is necessary and appropriate in order to avoid the multiplicity of actions that would result if Herbert is required now to defend against the claim by VATR and then bring a separate action against the Third-Party Defendants for equitable indemnification of sums that Herbert may be compelled to pay as the result of any damages, judgment, or other awards recovered by VATR against Herbert. WHEREFORE, Herbert prays judgment as follows: 1. Judgment in a proportionate share from each Third-Party Defendant; 2. A judicial determination that Third-Party Defendants were the legal cause of any injuries or damages sustained by VATR and that Third-Party Defendants indemnify him, either completely or partially, for any sum of money that may be recovered against him by VATR; 3. For costs and expenses; 4. For such other and further relief as the Court deems just and proper. DATED: February , 2011. ROBERT T. SULLWOLD JAMES A. HUGHES SULLWOLD & HUGHES

James A. Hughes Attorneys for Walter B. Herbert

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EXHIBIT A

EXHIBIT B