Filed 12/9/19 Yue v. Atlas Resources CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

DONGXIAO YUE,

Plaintiff and Appellant,

v.

ATLAS RESOURCES, LLC,

Defendant and Respondent.

A154921

(Alameda County

Super. Ct. No. HG15768190)

Dongxiao Yue appeals from a judgment entered after he was unsuccessful on all counts of his complaint. He contends the court erred by (1) granting respondent’s motion for judgment on the pleadings as to his intentional misrepresentation claim; (2) granting respondent summary adjudication as to his unfair competition claim; (3) denying his motion for sanctions based on respondent’s purported spoliation of evidence; (4) declining to admit certain evidence at trial; (5) granting respondent’s motion for nonsuit as to his breach of fiduciary claim; and (6) allowing respondent’s counsel at trial to accuse another of its clients, who had settled with Yue before trial, of wrongdoing, so as to shift the blame away from respondent. We will affirm.

I. FACTS AND PROCEDURAL HISTORY

In April 2015, Yue sued respondent Atlas Resources, LLC (Atlas), as well as MetLife Securities, Inc. and Metropolitan Life Insurance Company (collectively, MetLife), for fraud and breach of fiduciary duty in inducing him to invest $335,000 in “Atlas Resources Series 30-2011 LP” (Series 30), a Delaware limited partnership formed for the purpose of drilling and developing oil and natural gas wells. Yue sought damages, interest, attorneys’ fees, punitive damages, and injunctive relief.

In his verified complaint, Yue alleged that he was induced to invest in Series 30 based on oral representations by Yuda Jiang—a MetLife representative—that the return on investment from Series 30 would be about 12 percent per year, and Yue could expect to recover his full investment in seven years. Yue further alleged that MetLife was his agent in the Series 30 transaction, he trusted and relied on MetLife’s representations and judgment regarding Series 30, and MetLife breached the standard of care by “failing to verify Atlas’[s] claims of return” and “the production and proven reserve data in Series 30.” In addition, Yue alleged that “Atlas” represented to him that investing in Series 30 “could bring an average return of 12%” when “it already had production and other data which would show that the return was and would be substantially lower than 12%.”

Yue thereafter filed his Verified First Amended Complaint, asserting claims against Atlas for intentional misrepresentation, fraud by concealment, and breach of fiduciary duty; a claim against Atlas and MetLife under the Unfair Competition Law (UCL; Bus. & Prof. Code, § 17200); and a new claim against MetLife for fraud. Yue alleged that, before he invested in Series 30, MetLife repeatedly represented to him that “(1) the investment in [Series 30] would generate an annual return of about 12%; (2) Atlas was a Chevron Company and thus could be trusted; [and] (3) the investment in Atlas would be safe.” Yue asserted he would not have invested in Series 30 but for MetLife’s misrepresentations.

A. Judgment on the Pleadings as to Intentional Misrepresentation Claim

In December 2016, Atlas and Metlife filed a motion for judgment on the pleadings, contending that the first amended complaint failed to allege facts sufficient to state a cause of action for (1) intentional misrepresentation, fraud by concealment, or violation of the UCL by Atlas, or (2) fraud or a UCL violation by MetLife.

In January 2017, the court granted the motion without leave to amend as to Yue’s claim against Atlas for intentional misrepresentation, removing that claim from the case. The court also granted the motion with leave to amend as to both his claim against Atlas for fraud by concealment and his fraud claim against MetLife. The court denied the motion as to the UCL claims.

B. Summary Judgment on UCL Claim; Yue’s Motion for Sanctions

Yue filed a second amended complaint in February 2017, alleging a claim against Atlas for fraud by concealment (failing to disclose “production data and proven reserve data,” which purportedly would have shown that the rate of return was going to be substantially lower than 12 percent), as well as claims against Atlas and MetLife for breach of fiduciary duty and violation of the UCL.

In February 2018, Atlas filed a motion for summary judgment or, in the alternative, summary adjudication as to each claim.

Yue thereafter took Atlas’s deposition, during which an Atlas representative explained that some documents related to the reserves that had been established for certain wells, before Yue made his investment in 2011, would have been destroyed pursuant to Atlas’s document retention policy.

In April 2018, Yue filed an opposition to Atlas’s summary judgment motion. He also filed a motion for terminating sanctions against Atlas, on the ground that Atlas had spoliated evidence—namely, the documents purportedly destroyed pursuant to its document retention policy.

The court granted Atlas summary adjudication as to Yue’s UCL claim, but otherwise denied its summary judgment motion. The court denied Yue’s motion for sanctions.

C. Yue’s Settlement with MetLife and Motion to Disqualify Atlas’s Counsel

On April 26, 2018, Yue and MetLife entered into a settlement agreement, conditioned on a good faith settlement determination for which MetLife applied.

At 5:47 on the evening of May 17, 2018, Yue e-mailed the court and Atlas’s counsel a motion to disqualify counsel for Atlas and MetLife—the law firm of Maynard Cooper & Gale PC (Maynard Cooper).

At the pretrial hearing the next day, the court approved MetLife’s Application for Good Faith Settlement and denied Yue’s motion to disqualify Maynard Cooper.

D. Nonsuit as to Breach of Fiduciary Duty; Jury Verdict on Other Claims

After Yue completed his case-in-chief, Atlas moved for a nonsuit on his claims for fraud by concealment and breach of fiduciary duty. The court granted a nonsuit as to Yue’s breach of fiduciary claim to the extent it was predicated on pre-investment conduct; the court otherwise denied Atlas’s motion.

The jury thereafter rendered a verdict for Atlas on all remaining claims—fraud by concealment and breach of fiduciary duty based on post-investment conduct. Using the special verdict form to which the parties had agreed, the jury found 11-1 that Atlas had not intentionally failed to disclose a fact Yue did not know and could not have discovered through reasonable diligence. It also found, by a 12-0 margin, that Atlas did not fail to act as a reasonably careful managing general partner would have acted under the same or similar circumstances.

The court entered judgment accordingly, and this appeal followed.

II. DISCUSSION

A. Judgment on the Pleadings as to Intentional Misrepresentation

“A judgment on the pleadings in favor of the defendant is appropriate when the complaint fails to allege facts sufficient to state a cause of action.” (People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777; Code Civ. Proc.

§ 438(c)(3)(B)(ii).) “A motion for judgment on the pleadings is equivalent to a demurrer and is governed by the same de novo standard of review. [Citation.] All properly pleaded, material facts are deemed true, but not contentions, deductions, or conclusions of fact or law.” (People ex rel. Harris, at p. 777.)

Yue’s first amended complaint alleged that Jiang—an employee of MetLife—told Yue that the return for Series 30 would be “about 12% per year.” It also alleged that, through MetLife, Yue obtained a brochure about Atlas and Series 30. In his intentional misrepresentation claim, Yue incorporated these allegations and alleged, in a conclusory manner, that “Atlas represented to Plaintiff that the investing in Series 30-2011 could bring an average return of 12%” and that this representation was false.

In granting judgment on the intentional misrepresentation claim, the court explained that Yue’s allegations “simply never refer to any Atlas representative making a representation—to [Yue], [MetLife’s] Jiang, or otherwise—as to the level of return that the investment would bring.” (Italics added.) The court denied leave to amend because, although Yue offered to allege that Vicki Burbridge was Atlas’s Regional Marketing Director, Atlas’s brochure was backed by top Atlas executives, and Atlas filed for bankruptcy in 2016, “[n]one of these proposed allegations involves an express representation by any Atlas representative as to the level of return that [Yue’s] investment would or could bring.”

The trial court did not err. “In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1991) 12 Cal.4th 631, 645 (Lazar).) To allege a fraud claim against an entity such as Atlas, the plaintiff must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157 (Tarmann); Lazar, supra, 12 Cal.4th at p. 645.) Yue did not allege who at Atlas made a representation of a 12 percent return, when the representation was made, or how it was conveyed to him. Although he alleged obtaining a “brochure” about Atlas and Series 30, he did not identify the brochure, who authored it, or any specific misrepresentation. Even Yue’s proposed amendments did not state with specificity that Atlas authored the brochure, what the brochure misrepresented, or how he reasonably relied upon any misrepresentation.

Yue contends his allegations were sufficient because he only had to “set forth in his complaint the essential facts of his case with reasonable precision and with particularity sufficiently specific to acquaint the defendant of the nature, source, and extent of his cause of action,” and “need not particularize matters presumptively within the knowledge of the demurring defendant.” (Quoting Smith v. Kern County Land Co. (1958) 51 Cal.2d 205, 209.) His argument is unavailing. “[T]he policy of liberal construction of the pleadings does not apply to fraud causes of action.” (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 989.) And while the specificity requirement may be relaxed when the allegations indicate that the defendant has greater knowledge of the facts than the pleading party, that rule does not apply where a defendant employer has no more reason to know than the plaintiff which of its employees purportedly made the mispresentation. (Tarmann, supra, 2 Cal.App.4th at p. 158.) Here, Yue’s first amended complaint did not identify what employee purportedly promised a 12 percent return, and although there may be a finite number of Atlas employees who could have made a misrepresentation in the brochure, Yue does not identify any statement in the brochure that misrepresented a 12 percent return.

Yue also tells us that Atlas’s private placement memorandum (PPM) stated: “The partnership is structured to provide you and the other investors with cumulative cash distributions, including all distributions from operations to you and the other investors before the first 12-month subordination period begins, based on a subscription price of $20,000 per unit regardless of the actual subscription price you paid for your units, equal to at least 12% of capital (which is $2,400 per $20,000 unit) in the first 12-month subordination period, 10% of capital (which is $2,000 per $20,000 unit) in each of the next three 12-month subordination periods, and 8% of capital (which is $1,600 per $20,000 unit) in the fifth 12-month subordination period.”

However, Yue did not allege the PPM’s representations in his first amended complaint. And even if he had leave to add them to his pleading, the passage he cites did not represent that Yue “could bring an average return of 12%” (as alleged in paragraph 27 of the first amended complaint) during the cumulative subordination period or annually throughout the investment: to the contrary, the average of the stated returns (12%, 10%, 10%, 10%, and 8%) is less than 12 percent. Moreover, the PPM explicitly warned that “even with subordination your cash flow may be very small and you may not receive the return of capital described above during the . . . subordination period.” (Italics added.)

Finally, Yue argues that amendments to pleadings should be liberally allowed, and if he had been given leave to amend, “he could have added detailed facts such as the representations in the Atlas sales materials and by Atlas persons.” But Yue still fails to state precisely what facts he would allege or how they would cure the defects in his pleading. The court did not err in dismissing Yue’s intentional misrepresentation claim without leave to amend.

B. Summary Judgment on UCL Claim

Atlas moved for summary judgment or adjudication on Yue’s UCL claim, contending that an award of monetary damages, as sought by his claims for breach of fiduciary duty and fraud, would provide Yue with an adequate remedy at law. (See Prudential Home Mortgage Co. v. Superior Court (1998) 66 Cal.App.4th 1236, 1249 [to obtain equitable relief, plaintiff must establish there is no adequate remedy at law]; Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144 [relief under UCL is generally limited to equitable remedies of injunction and restitution].) In granting Atlas’s motion, the court observed that Yue had failed to oppose Atlas’s argument, “rendering his claims for relief under Business and Professions Code section 17200 superfluous.”

Yue contends the court erred because he sought injunctive and equitable relief in his first amended complaint and, in his opposition to the summary judgment motion, said he “has no adequate remedy at law to compel [Atlas] to cease their wrongful acts, and therefore seeks injunctive relief and remedies in equity.” However, Yue did not allege facts to support this conclusion or present evidence that a damage award would not suffice.

Yue now acknowledges that a damage award might compensate him for his losses, but he urges that this amount would not adequately protect the general public from Atlas’s unlawful conduct, and that he was actually seeking public injunctive relief to prevent Atlas from defrauding other investors.

Yue’s argument is unavailing. Neither Yue nor his pleading informed the trial court that he was seeking public injunctive relief. (Aleksick v. 7-Eleven, Inc. (2012) 205 Cal.App.4th 1176, 1185–1186 [affirming summary judgment on UCL claim where plaintiff cited the statute purportedly underlying her claim “for the first time on appeal”].) Moreover, the second amended complaint did not allege the factual predicate for public injunctive relief—that Atlas was continuing to engage in fraudulent, unlawful, or unfair conduct impacting other investors or the general public. Nor did he allege facts or submit evidence showing that the stated fraud—misrepresenting the potential return or concealing production or reserves for the Series 30-2011 wells—was continuing as of the time of the summary judgment proceeding in 2018.

The court did not err in dismissing Yue’s UCL claim.

C. Yue’s Motion for Sanctions Due to Spoliation

Based on a theory that Atlas intentionally destroyed “detailed documents supporting the reserve values of the Series 30 wells” before or as of the time of his November 2011 investment, Yue insists the court erred in denying his motion for terminating sanctions or issue sanctions. We disagree.

1. Background

In August 2015, Yue served Atlas with requests for documents such as Atlas’s communications regarding Series 30, as well as all documents relating to the production volumes of Series 30, the financial value of Series 30, and Series 30 reserves.

Atlas produced thousands of pages of documents, but no detailed documents supporting the reserve values of the Series 30 wells. Atlas’s attorneys allegedly told Yue that reserve-related information was contained in a software system called “OGRE.”

In response to Yue’s further discovery requests in April 2016, Atlas continued to assert that proved reserve calculations were performed with the OGRE software and Atlas did not know of any responsive documents. In an interrogatory response, Atlas stated: “The ATLAS 2011 PROVED RESERVE NUMBERS were calculated by inputting raw data into software developed and licensed by Oil and Gas Reserve Evaluation Systems, Inc. (“OGRE”). Atlas is not aware of any DOCUMENTS containing ‘calculations’ related to the ATLAS 2011 PROVED RESERVE NUMBERS, other than the ‘Reserves and Economics’ report (bates labeled ATL000598).” The Reserves and Economics report was a one-page document without information as to individual wells; however, Atlas’s interrogatory response further explained that the report “is the summary report produced by OGRE/Wright & Co. and relied on by Atlas when drafting 2011 NOTE 9.” (Italics added.)

Atlas made clear elsewhere that the reserve calculations were prepared by or with the assistance of Wright & Company, Inc. Its April 2016 response to Yue’s Special Interrogatory No. 3 stated that the proved reserve calculation in the 2011 Annual Report “was generated by a number of independent, third-party reserve engineers and support staff employed by Wright & Company Inc.,” providing the company’s address, phone number, and fax number.

Atlas later produced to Yue a spreadsheet listing the proved reserve value of each of the 115 wells as of December 31, 2011. Each row of the spreadsheet provided the summary reserve information for a particular well, totaling $14,392,300. After Yue sought discovery of documents supporting each individual well’s value, Atlas produced an email dated October 17, 2011, with an attachment setting forth details for certain wells.

In February 2017, Yue took Atlas’s deposition. Atlas’s first representative, Trevor Mallernee, confirmed that Atlas contracted Wright & Company, Inc. (Wright) to perform a reserve analysis for Series 30. According to Mallernee, Atlas uploaded data files to a shared site, notified Wright to download the files, and communicated with Wright by phone and email.

Atlas’s second representative for deposition, Mike Downs (Atlas’s vice-president of operations), testified that Atlas received emails from Wright regarding the wells, with attachments like the one accompanying the October 17, 2011 email. Downs testified that such emails were provided to Yue in discovery to the extent they were still available, but Atlas would no longer have other such documents because of Atlas’s two-year email retention policy. Under that policy, Downs explained, documents on the e-mail server were “wiped” (destroyed) after two years, and he did not believe Atlas had a back-up for the email server for the period. (Atlas’s counsel later confirmed that no backup existed, and the data files Atlas shared with Wright were no longer available.)

In April 2018, Yue filed a motion for sanctions against Atlas for spoliation of evidence, claiming that Atlas destroyed documents that would have provided material information. Specifically, Yue claimed, emails and attachments predating Yue’s November 2011 decision to invest in Series 30 would have shown what Atlas then knew about production levels and reserves for the individual wells included in Series 30. Yue sought terminating sanctions or, in the alternative, “an adverse inference ruling against Atlas to hold that Atlas knew that the proved reserve of Series 30 was only $14 million prior to Plaintiff’s investing in Series 30.”

Atlas opposed the motion and provided a declaration from its Director of Information Technologies, Richard T. Norton, attaching Atlas’s Electronic Email Retention Policy (EERP) as an exhibit. The EERP document was dated December 15, 2015 and had a revision date of January 1, 2016, but stated that the retention policy was instituted on July 31, 2014. As averred in Norton’s Declaration and stated in the EERP, emails three years or older were to be automatically purged on a rolling basis between August 1, 2014 and December 31, 2014, and emails two years or older were to be automatically purged on a rolling basis beginning January 1, 2015.

The court denied Yue’s sanctions motion, finding that Yue presented “no evidence that, when Atlas instituted this policy in August 2014, it was motivated to do so by a threat to sue that Plaintiff had made in a letter from April 2013 on which he does not contend that he had followed up in any way of which Atlas was aware in the ensuing 15 months (a letter, moreover, written by a disgruntled individual investor on his own behalf, and not by litigation counsel retained by such an investor in anticipation of an imminent lawsuit).”

2. Law

Destroying evidence in response to a discovery request after litigation has commenced is a violation of the Discovery Act. There is no indication here, however, that Atlas destroyed any responsive Series 30 documents after litigation began in April 2015, let alone after an inspection demand was served in August 2015.

Destruction of evidence in anticipation of a discovery request may also constitute a misuse of the discovery process or otherwise give rise to sanctions. (Williams v. Russ (2008) 167 Cal.App.4th 1215, 1223 (Williams) [spoliation includes the destruction of evidence or failure to preserve evidence in pending or future litigation]; Reeves v. MV Transportation, Inc. (2010) 186 Cal.App.4th 666, 681 (Reeves) [spoliation includes the destruction of evidence in pending or reasonably foreseeable litigation].) We therefore consider whether Atlas destroyed emails and attachments pertaining to Series 30 reserves in anticipation of a discovery request in future litigation and, if so, what sanctions might be appropriate. We review the trial court’s ruling for an abuse of discretion. (Williams, supra, 167 Cal.App.4th at p. 1224.)

3. Obligation to Preserve the Documents

The threshold inquiry is whether, at the time Atlas purportedly destroyed the documents pursuant to its document-retention policy, it had the obligation to preserve them. (Reeves, supra, 186 Cal.App.4th at p. 681.) That obligation arises if litigation was pending or reasonably foreseeable. (Ibid.)

Atlas began implementing its document retention policy in August 2014, and by January 2015 would have destroyed any emails dated January 2013 or earlier; by January 2015 at the latest, therefore, emails and attachments related to the Series 30 production and reserves before Yue’s November 2011 investment would have been destroyed.

Substantial evidence supports the court’s conclusion that Atlas had no obligation to preserve the documents as of the time it instituted its retention policy in August 2014, let alone by the time the documents were destroyed in or around January 2015. Yue had not filed his lawsuit by those dates, and the evidence does not suggest that Yue’s lawsuit was reasonably foreseeable.

In this regard, Yue argues that assuming the retention policy was established in August 2014, it was instituted after he accused Atlas of fraud in November 2012, after he sent Atlas a letter accusing it of nondisclosure of production data and proven reserve data in March 2013, after Atlas’s chief legal officer responded to his letter, and after Yue told Atlas that its nondisclosure would be the basis of a lawsuit.

Yue’s purported November 2012 accusation of fraud was an email he sent to Jiang at MetLife and Rebecca Hood at Atlas, in which he complained about his monthly return but stated he did not “want to make open accusations right now.” Yue’s March 2013 letter to Hood requested the return of his investment on the ground it was induced by misrepresentation or non-disclosure of material facts, including production data and proven reserve data, and noted the “advertised 12% per annum return for seven years.” In April 2013, Atlas declined to return his investment but replied to Yue’s concerns, drawing Yue’s attention to the PPM and noting that Atlas did not provide investment advice, the subscription agreement that Yue signed had disclosed the investment’s high degree of risk, the partnership did not advertise a 12 percent per annum return, and the managing general partner’s subordination was not a guarantee of Yue’s return. In April 2013, Yue wrote to Atlas, stating that Atlas’s letter had not explained the “non-disclosure of the available production data,” and “[s]uch material non-disclosure will be the [basis] of a fraud action against [your] company and affiliates in a court of law.” As the trial court observed, however, this letter was not sent by counsel. And after sending this letter in April 2013, Yue did not follow up with Atlas or take any legal action during the 16 months between his letter and Atlas’s implementation of the email destruction policy.

From this evidence, it was reasonable for the court to conclude that Atlas had not enacted its August 2014 retention policy for the purpose of destroying emails germane to Yue’s case. After all, the initial retention period was three years—meaning emails dating back to August 2011 were not initially purged as part of the EERP; that would make no sense if Atlas had wanted to destroy the evidence relating to Yue’s threatened claims.

Moreover, the record supports the court’s conclusion that Yue’s April 2013 letter did not obligate Atlas to preserve potential evidence relating to Series 30 as of the time any responsive documents were actually destroyed. By January 2015, 20 months had passed since Yue’s April 2013 threat to file a lawsuit, and most claims based on 2011 representations would have been time-barred. Under those circumstances, Yue’s April 2015 lawsuit was not reasonably foreseeable when the documents were purportedly destroyed in January 2015.

4. No Basis for Terminating Sanction

Even if Yue had established spoliation, he failed to establish entitlement to a terminating sanction. A terminating sanction is generally available under the Discovery Act only if the destruction (non-production) of documents is in violation of a court order. (New Albertsons, Inc. v. Superior Court (2008) 168 Cal.App.4th 1403, 1423–1424 (New Albertsons).) Otherwise, terminating sanctions may be imposed only in egregious cases of intentional spoliation or where it is reasonably clear a party would violate a production order. (Id. at pp. 1424–1426; Williams, supra, 167 Cal.App.4th at p. 1223.) Here, Yue never obtained an order compelling Atlas to produce the e-mails, and there was no indication that Atlas was refusing to comply with the court’s orders. The question is therefore whether Atlas perpetrated an egregious case of intentional spoliation.

Ample evidence supported the conclusion that the purported destruction of emails and attachments was not sufficiently egregious to justify terminating sanctions. In the first place, the destruction of the documents was performed pursuant to a document retention policy in the ordinary course of business. Moreover, Atlas’s discovery responses pointed to Wright as a potential alternative source of the documents Yue sought, but Yue never pursued Wright for the documents. Atlas’s 2011 Annual Report, which Yue received in the spring of 2012, notified him that Series 30 “retained Wright & Company . . . to prepare a report of proved reserves” for the period ending December 31, 2011. Atlas’s April 2016 response to special interrogatories informed Yue that the proved reserve calculation in the annual report was generated by Wright employees, told Yue that the summary report was produced by Wright, and gave Yue Wright’s contact information. In Atlas’s deposition in February 2018, Mallernee confirmed that Atlas contracted Wright to perform reserve analysis for Series 30. Even with all this information, and receiving the EERP two months before the close of discovery, Yue did not seek discovery from Wright.

Yue contends terminating sanctions would have been proper as they were in Doppes v. Bentley Motors, Inc. (2009) 174 Cal.App.4th 967. There, the defendant’s flagrant discovery misconduct included failing to produce relevant and responsive evidence despite repeated court orders, to the severe prejudice of the opposing party, and lesser sanctions had not deterred the defendant’s antics. (Id. at pp. 993–996.) Those circumstances are not present here.

5. Yue Received an Adverse Inference Instruction

Aside from remedies under the Discovery Act, evidence of spoliation may warrant an instruction that the jury may draw an adverse inference from the intentional destruction of documents. CACI No. 204 informs the jury: “You may consider whether one party intentionally concealed or destroyed evidence. If you decide that a party did so, you may decide that the evidence would have been unfavorable to that party.”

Despite Yue’s failure to prove spoliation, he still received the benefit of the CACI No. 204 instruction.

After the court denied Yue’s sanctions motion, Yue proceeded to trial on the continued theory that Atlas intentionally destroyed reserve and production data related to Series 30 wells. Yue proposed jury instructions on Willful Spoliation of Evidence (CACI No. 204) and Failure to Explain or Deny Evidence (CACI No. 205). The court revised CACI No. 204, without objection from Yue, and instructed the jury as follows: “Mr. Yue contends that Atlas Resources intentionally concealed or destroyed e-mails in order to make them unavailable for use in this litigation. [¶] Atlas Resources contends that if any e-mails were unavailable in this litigation, it is because they had been discarded in the ordinary course of business pursuant to its e-mail retention policy. [¶] If you decide that Atlas Resources intentionally concealed or destroyed e-mails in order to make them unavailable for use in this litigation, you may decide that the e-mails would have been unfavorable to Atlas Resources. [¶] However, if you decide Atlas Resources merely discarded e-mails in the ordinary course of business pursuant to its e-mail retention policy, then you may not draw any inference from that fact as to whether the e-mails would have been unfavorable to Atlas Resources.” The court also instructed the jury pursuant to CACI No. 205, as Yue requested. In light of these jury instructions, Yue fails to establish prejudice from Atlas’s purported spoliation of evidence.

D. Exclusion of EERP Document

After the parties had each rested their cases, Yue asked the court to admit Atlas’s EERP document into evidence. The court denied his request. Yue contends this was error, claiming he had no chance to introduce the EERP document through Atlas because Atlas decided not to call its president as a witness, and other Atlas witnesses were beyond the court’s subpoena power.

Yue fails to establish an abuse of discretion. He does not demonstrate that he laid a proper foundation for admission of the EERP document—let alone move it into evidence—before the parties had rested their case. Nor does he establish that he needed testimony from Atlas employees to lay that foundation. And finally, he does not explain how the exclusion of the EERP document was prejudicial, in light of his opportunity to present other evidence and argument to the jury about Atlas’s email retention policy and destruction of documents.

E. Nonsuit as to Yue’s Claim for Breach of a Pre-Investment Fiduciary Duty

A nonsuit is proper where the plaintiff failed to present substantial evidence from which a jury might reasonably find in the plaintiff’s favor. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291 (Nally).) In making this determination, the court accepts as true the evidence most favorable to the plaintiff and disregards any conflicting evidence. (Ibid.)

After Yue rested his case, Atlas moved for nonsuit on his fiduciary duty claim, contending he failed to introduce sufficient evidence that Atlas owed him a fiduciary duty before he invested in Series 30, what that duty was, or how Atlas breached it. In response, Yue argued that Atlas owed him a pre-investment fiduciary duty because it was the “promoter” of the Series 30 partnership, relying on a statement in Eisenbaum v. Western Energy Resources, Inc. (1990) 218 Cal.App.3d 314, 321 (Eisenbaum) that a “promoter or insider or seller of a limited partnership interest owes a fiduciary duty to the prospective purchaser of such interest.” The court granted Atlas’s motion for nonsuit on “the breach of fiduciary duty cause of action” to the extent it was premised on a “pre-investment obligation.” The record supports the court’s ruling.

1. Fiduciary Duty

A claim for breach of fiduciary duty cannot survive unless, of course, the defendant owed a fiduciary duty to the plaintiff. Here, Yue argues that Atlas owed a pre-investment fiduciary duty to Yue under Eisenbaum as a prospective purchaser of Series 30 interests, because Atlas was the Series 30’s promoter in that it founded and organized the Series 30 partnership and was its managing general partner.

Yue’s argument is unavailing. In the first place, he fails to support his argument with record citations for his factual assertions. On that basis, his argument is waived.

In addition, Yue fails to demonstrate that Eisenbaum applies to the matter at hand. The court in Eisenbaum addressed whether the holding in Sherman v. Lloyd (1986) 181 Cal.App.3d 693 (Sherman) delayed the accrual of the plaintiff’s statutory cause of action for rescission. (Eisenbaum, supra, 218 Cal.App.3d at pp. 322–324.) Assuming that delayed accrual required a fiduciary duty between the plaintiff (prospective buyer) and the defendant (promoter of the partnership, who made the misrepresentations), the court examined whether the facts in that case warranted a finding of a fiduciary relationship. (Id. at p. 321.) In concluding the evidence was sufficient, the court noted that “[a] promoter or insider, or a seller of a limited partnership interest, owes a fiduciary duty to the prospective purchaser of such an interest.” (Id. at p. 322.)

Yue, however, did not introduce evidence from which the jury could reasonably conclude that Atlas was a promoter of the Series 30 partnership, such that a fiduciary duty arose. Although in Eisenbaum the managing general partner of the partnership was found to be a promoter under the facts of that case, Eisenbaum did not hold that all managing general partners are necessarily promoters. Indeed, the facts in Eisenbaum are distinctly different from the facts here. In Eisenbaum, the president of the managing general partner had directly solicited the plaintiff to invest in the partnership in several telephone conversations. (Eisenbaum, supra, 218 Cal.App.3d at p. 319.) But here, Yue learned about Series 30 not from Atlas, but from his friend and long-time investment advisor—Jiang—who was affiliated with MetLife and was not an Atlas corporate insider. Before investing in Series 30, Yue and Jiang had several conversations and exchanged

e-mails about the Series 30 investment opportunity. Yue admittedly relied upon Jiang’s (and MetLife’s) recommendation to invest in Series 30 and Jiang’s alleged representations regarding the Series 30 returns in deciding to invest in Series 30. Yue never spoke to any officer, director, employee, or any “insider” at Atlas before investing in Series 30; he asked no questions of Atlas before investing in Series 30; and he requested no production or “proved reserve” information from Atlas before investing in Series 30. As the trial court observed, MetLife, not Atlas, was the promoter of Series 30.

In his appeal, Yue now relies on the following definition of “promoter” in Black’s Law Dictionary: “A founder or organizer of a corporation or business venture; one who takes the entrepreneurial initiative in founding or organizing a business or enterprise . . . .” (Citing Black’s Law Dict. (9th ed. 2009) p.1333).) He also tells us that the word “promoter” in securities law is defined to include “[a]ny person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer.” (17 C.F.R. § 230.405.) However, Yue did not make this argument to the trial court in opposition to the nonsuit motion. He cannot establish that the court erred based on an argument he never made.

Because Yue failed to present evidence that Atlas was a promoter, he failed to establish that Atlas owed him a fiduciary duty under Eisenbaum.

2. Scope of Fiduciary Duty

Even if Atlas owed Yue a pre-investment fiduciary duty, Yue failed to offer evidence or argument that the scope of this duty encompassed the disclosure of reserve data or production data. Neither Eisenbaum nor Sherman held that a promoter had a fiduciary duty to disclose specific “proved reserve” or production data to prospective investors. Yue did not present evidence showing how managing general partners (or promoters) in the oil and gas exploration industry acted or would have acted under the same or similar circumstances. He presented no evidence of how Atlas acted under the same or similar circumstances regarding prior or subsequent oil and gas partnerships. And he presented no expert witness testimony regarding the nature or scope of Atlas’s alleged duty to disclose to prospective investors either preliminary production volumes or proved reserves, when Atlas would have to disclose that information, why the information would be material, or how the disclosure should have been made.

3. Breach

Because Yue failed to demonstrate the scope of Atlas’s duty, he necessarily failed to demonstrate that such a duty was breached. Moreover, even if Atlas had a duty to disclose proved reserve and production data, Yue failed to produce evidence that Atlas had such information yet failed to disclose it.

In fact, Yue’s “pre-investment” breach of fiduciary duty claim rested on the same purported misconduct underlying his fraud by concealment claim. Because the jury found on his concealment claim that Atlas had not intentionally failed to disclose a fact Yue did not know and could not have discovered through reasonable diligence, Yue fails to demonstrate how he would have prevailed on his breach of fiduciary duty claim.

F. Yue’s Motion to Disqualify Atlas’s Attorneys

Both Atlas and MetLife were represented in this litigation by Maynard Cooper. After MetLife had entered into a settlement with Yue and a good faith settlement motion was pending, Maynard Cooper served a motion in limine on Atlas’s behalf, indicating an intent to use a MetLife confidential internal disciplinary letter against Jiang at trial. Maynard Cooper also proposed, on Atlas’s behalf, jury instructions to the effect that Atlas was not responsible for Yue’s harm because of the misconduct of MetLife or Jiang. Yue sought an order disqualifying Maynard Cooper from the case or, alternatively, prohibiting Maynard Cooper from acting adversely to MetLife and Jiang. After a hearing, the court denied Yue’s motion on the ground that he lacked standing to challenge the representation, Maynard Cooper had no conflict of interest cross-examining Jiang because it never represented him in his individual capacity, and MetLife was not exposed to liability because the court had granted MetLife’s motion for a good faith settlement determination.

We review an order denying a disqualification motion for an abuse of discretion. (In re Complex Asbestos Litigation (1991) 232 Cal.App.3d 572, 585.)

1. Lack of Standing

Before seeking disqualification of another party’s attorney, the moving party must establish standing—the invasion of a legally cognizable interest. (Great Lakes Construction, Inc. v. Burman (2010) 186 Cal.App.4th 1347, 1356–1357 (Burman).) Typically, the moving party satisfies this obligation by showing a current or prior attorney-client relationship with the attorney targeted for disqualification. (e.g., Dino v. Pelayo (2006) 145 Cal.App.4th 347, 352 (Dino).) Outside of the attorney-client relationship, standing may be present if the attorney whose disqualification is sought owes the moving party a duty of confidentiality and the disqualification motion is based on an actual or potential disclosure of confidential information. (DCH Health Services Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 (DCH); Dino, supra, 145 Cal.App.4th at p. 353.) In this regard, however, “a lawyer owes no general duty of confidentiality to nonclients.” (DCH, supra, at p. 832.) More broadly, a nonclient may have standing to bring a disqualification motion based on the attorney’s ethical violation, if the violation is manifest, glaring, and impacts the moving party’s interest in a just and lawful determination of his or her claims. (Burman, supra, 186 Cal.App.4th at p. 1357.)

Yue’s motion to disqualify Atlas’s attorneys did not allege any attorney-client, confidential, or fiduciary relationship between Yue and Maynard Cooper. Instead, he based his motion on duties of loyalty and confidentiality Maynard Cooper purportedly owed to MetLife or Jiang. And as discussed post, he failed to establish that Maynard Cooper perpetrated a manifest and glaring breach of those duties that threatened to deprive Yue of a fair trial. The court correctly concluded that Yue lacked standing.

Yue points us to Kevlik v. Goldstein (1st Cir. 1984) 724 F.2d 844, in which the court held that a party has standing to disqualify opposing counsel because “[t]he Model Code of Professional Responsibility, DR 1-103(A) clearly requires that an attorney come forward if he has knowledge of an actual or potential violation of a Disciplinary Rule.” (Id. at p. 847.) Here in California, however, the California Rules of Professional Conduct do not require an attorney to report another attorney’s misconduct.

In his reply brief, Yue argues that he has standing based on Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197, 1204. There, in a child custody dispute between a mother and father, the court granted the mother’s motion to disqualify the child’s paternal grandfather from representing the child’s father. The mother had standing even though she had not been a client of the grandfather’s law firm, because the attorney’s continued representation threatened an opposing litigant with cognizable injury and could undermine the integrity of the judicial process. (Id. at p. 1205.) Specifically, disqualification was appropriate because (1) the paternal grandfather might have acquired confidential facts about the mother and her family’s situation, since his firm had represented the maternal grandfather in his own custody dispute, in which the mother had filed a declaration; and (2) the paternal grandfather would be a percipient witness in the dispute. (Id. at pp. 1205–1211.) Here, Yue does not show that confidential facts were acquired about Yue or that Maynard Cooper was going to be a material witness.

Yue also argues he has standing because “defense counsel was about to betray MetLife and Jiang to exonerate Atlas,” so Yue was going to be “deprived of a fair trial.” He does not explain how the trial was going to be unfair, and there is no indication that it was. Although Maynard Cooper impeached Jiang at trial with the confidential warning letter from MetLife, Yue was aware of the letter, since MetLife had produced it to Yue in discovery, and Yue marked it as an exhibit to his deposition of MetLife. Maynard Cooper’s use of the disciplinary letter did not disclose any attorney-client communications and was consistent with the court’s protective order regarding the use of documents produced in discovery.

Yue complains that Atlas’s attorney elicited from him on cross-examination that he previously accused MetLife of wrongdoing based on confidential information provided in discovery. However, the questions were in line with the court’s rulings about Atlas’s use of Yue’s verified pleadings and sworn declarations. Yue also argues that Maynard Cooper assigned blame in closing argument to MetLife and Jiang, convinced the court to instruct the jury that it could find Yue “was harmed by Yuda Jiang and/or MetLife’s breach of fiduciary duty to use reasonable care,” obtained a jury instruction that Atlas claimed “the negligence of Yuda Jiang and/or MetLife contributed to Mr. Yue’s harm,” and included three special interrogatories in the verdict form asking whether liability should be assigned to MetLife and Jiang. Yue, however, did not object to the court’s proposed special verdict form. Moreover, none of these things prejudiced Yue, since the jury did not apportion responsibility to MetLife or Jiang.

2. No Proven Ethical Violation or Basis for Disqualification

Yue does not identify any specific ethical rule that Maynard Cooper violated. Nor did Yue produce any evidence that Maynard Cooper represented Jiang in his individual capacity. Although Maynard Cooper did represent MetLife in this litigation, Yue did not present any evidence that Maynard Cooper failed to comply with the applicable ethical rules, such as, for example, obtaining MetLife’s informed written consent. As the trial court observed, Yue was not privy to the communications between Maynard Cooper, MetLife, and Atlas, and conflict waivers “happen[] all the time” in the context of joint representation. Indeed, Yue’s co-counsel assumed Maynard Cooper had obtained conflicts waivers from Atlas and MetLife.

III. DISPOSITION

The judgment is affirmed.

NEEDHAM, J.

We concur.

JONES, P.J.

SIMONS, J.

Yue v. Atlas Resources / A154921