Filed 1/21/20 Shuk-Han Kwok v. Kwong CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 FOUR

JENNIFER SHUK-HAN KWOK,

Plaintiff and Appellant,

v.

LAU KWONG et al.,

Defendants and Respondents.

A155893

(City & County of San Francisco

Super. Ct. No. CGC185649432)

Plaintiff Jennifer Shuk-Han Kwok (Jennifer) appeals a judgment of dismissal entered after the trial court sustained a demurrer to the complaint by which she sought to extend protracted litigation over the estate of her late husband Stanley Kwong (Stan), a successful real estate broker who died in 2009. Several years ago, in an unpublished opinion, this court decided Estate of Kwong (July 7, 2016, Nos. A140437, A141290) [nonpub. opn.] (Kwong I), resolving disputes between Jennifer and Stan’s mother Lau Kwong (Mother) and brother Larry Kwong (Brother). Stan, who had managed all of Mother’s finances for nearly 30 years before his untimely death, left his entire estate to Jennifer and nothing to Mother. In Kwong I, Mother requested an accounting of Stan’s management of her assets and sought to recover title to three properties on a resulting-trust theory. The trial court rejected Mother’s resulting-trust theory but found that she had “a loan relationship with Stan” that entitled her to recover interest on loans made to purchase the properties and proceeds from their rental and refinancing—a total of more than $4.5 million. Jennifer appealed, contending that the court had erred by, inter alia, failing to make certain deductions from the amount that Stan’s estate owed Mother. This court rejected Jennifer’s arguments and affirmed the judgment, which she then satisfied.

Apparently not satisfied with that outcome, Jennifer filed the current action seeking to recover funds from Mother and Brother on three theories: that the judgment in Kwong I gave Mother a double recovery on two promissory notes payable to Mother and Stan; that Mother never repaid a 2008 loan from Stan; and that Mother breached an ongoing duty to pay imputed rent to Stan’s estate for that portion of a jointly owned property that she occupied. The trial court held that the judgment in Kwong I bars all these claims on the grounds of either issue or claim preclusion. We conclude that the court’s ruling is correct as to the first two claims and that, while the third claim may not be precluded in full, it fails on its merits. We will thus affirm the judgment.

Factual and Procedural History

Mother emigrated from China to San Francisco in 1948 to join her husband. They had four children: Larry (i.e., Brother), Jeanne, Harry, and Stan (deceased). Mother and her husband lived frugally and saved small amounts of money allowing them ultimately to purchase two apartment buildings in San Francisco: the Walnut building and later the Union building. Mother, Brother, and Jeanne all believed that Mother solely owned the Union building. Evidence conflicted as to how much the children, including Stan, had contributed to the down payment. The title to the Walnut building and Union building transferred many times among the family members. At the time of Stan’s death, the title to the Walnut building was held one-third by Mother, one-third by Stan, and one-third by Jeanne. Stan held a one-twentieth interest in the Union building and Mother held the rest. Stan accumulated a large real estate portfolio worth as much as $20 million. He bequeathed all of his holdings to his wife Jennifer.

In the present action, Jennifer’s complaint alleges additional facts, not mentioned in this court’s opinion in Kwong I, about certain transactions from January 2008. At that time, Stan refinanced the Walnut property, deriving $734,000 that he deposited in a joint account held by Mother and himself. Stan loaned $523,000 of those funds to two couples—the Klestoffs and Stacks—who executed promissory notes payable to Mother and Stan for $273,000 (the Klestoff note) and $250,000 (the Stack note), respectively. When Stan died in July 2009, Jennifer succeeded to his half interest in each note as executor of his estate. In December 2009, the Stacks paid the balance due on their note. Mother demanded all the proceeds; Jennifer paid her 50 percent and put the rest in escrow. In 2012, Jennifer began directing 50 percent of the Klestoffs’ monthly payments to Mother and Brother. In 2014, the Klestoffs paid the balance due on their note into escrow. The parties disputed how to distribute the amounts paid into the escrow account.

Those disputes were among the disagreements that had led to Kwong I and other litigation. Initially, Mother and Brother filed a probate action. They both filed claims against Stan’s estate that were rejected. Thereafter, Mother and Brother filed Kwong I. As noted above, they alleged causes of action to establish a resulting trust and for an accounting.

At the bench trial in Kwong I, Betty Kwong, who is Brother’s wife and a certified public accountant, testified as an expert witness. She reviewed Stan’s records to try to determine Stan and Mother’s investments. She determined the sources of the down payments for the Walnut and Union buildings. Based on a cash flow analysis, she determined that Mother was entitled to $2,448,000. Mother was owed an additional $273,000 from the refinancing of the Walnut building. Betty Kwong explained that when she analyzed the numbers under a different accounting approach, the disbursement method, she reached a total owed to Mother that was significantly more—$2,966,000. She documented that Stan used money from Mother’s accounts to pay expenses on his own properties. She also accounted for money Stan deposited into Mother’s accounts. Betty calculated the total value of Mother’s claims as $4,571,000.

Mother’s second expert, Everett Harry, calculated that Stan’s estate owed Mother roughly $3.2 million, not including interest, using a third accounting method, the portfolio approach. He explained that both he and Betty determined money that should be credited to Mother for cash flows from the Walnut and Union buildings.

Jennifer’s accounting expert, Sander Stadtler, performed a cash flow analysis similar to that performed by Betty Kwong. Despite the difficulty in performing a complete accounting given the more than 30-year time period and incomplete records, he agreed with the “total bucket” of assets determined by Betty Kwong.

The court appointed a probate referee, who was a CPA, to independently review the financial information. The referee prepared a report for the court in which he relied on Betty’s summary of cash flow. The referee concluded that Mother had loaned Stan $1,218,000 for the Walnut building, $423,000 on the Union building, and $187,000 on a third building. The grand total owed with interest was $4,583,000. Brother had loaned Stan $40,000 for a total owed with interest of $196,000.

The court tentatively adopted the referee’s accounting analysis. In its final statement of decision, the court found that Mother and Brother had failed to show that the properties were subject to a resulting trust. Instead, the court found that the transfers from Mother to Stan were investment loans. It held that Mother was entitled to: her transfers of funds to Stan, proceeds from rents according to her share of ownership in the Walnut and Union properties, and proceeds from refinancing of those properties according to her share of ownership, plus interest. The court awarded Mother $4,583,000.

Jennifer filed a motion to vacate the decision, or in the alternative for a new trial. The motion argued, among other things, that the court had failed to deduct funds received by family members, including funds distributed over the 30-year period. The court denied Jennifer’s motion. The court noted that Mother was clearly owed some amount of money and that it had exercised its equitable powers to determine there was a loan relationship. Given that decision, the referee was charged with determining the amount owed.

In January 2014, the trial court entered a judgment in Kwong I awarding Mother $4,583,000 and Brother $196,000. Jennifer appealed, and in February 2016 this court affirmed in Kwong I.

Jennifer’s complaint in this action alleges that, in March 2016, she agreed to release half of the Klestoff note proceeds from escrow to Mother and Brother. Two months later, however, Mother and Brother filed a new action against Jennifer, San Francisco Superior Court No. CGC-16-549958 (the Klestoff note action), seeking to compel her to immediately release all proceeds of the note to them. The parties settled that action in July 2016 by agreeing to disburse the remaining $275,000 from escrow in equal shares, while reserving the right to litigate the proper division at a later time. In December 2017, Jennifer paid the final portion of the $4.8 million due under the judgment in Kwong I.

Jennifer initiated this action in March 2018. Her complaint alleges that Mother received a double recovery on her interest in the notes: when the Klestoffs and Stacks paid off the notes, Mother received half the proceeds, yet when Jennifer paid the judgment in Kwong I, Mother again received funds equal to half the note proceeds because the referee had included 50 percent of those proceeds in calculating the amount due her.

The complaint also alleges that Mother owns 95 percent of the Union Property and has lived in an apartment there since 1995; that Stan paid a contractor $41,000 in 2008 to remodel Mother’s apartment and make repairs in the building; and that Mother agreed to reimburse him but has not done so. Finally, the complaint alleges that, since Stan owned 5 percent of the Union Property, he (and later his estate) was entitled to 5 percent of the revenue it generates. While Mother and Brother paid Stan and his estate 5 percent of the revenues generated by the units rented to others, they failed to pay him imputed rent equal to 5 percent of the rental value of the unit occupied by Mother.

Based on the alleged double recovery, the complaint seeks declaratory relief and restitution (on a theory of unjust enrichment), and also alleges conversion. The cause of action for restitution also encompasses Jennifer’s claims to recover the alleged unrepaid 2008 loan and imputed rent for Mother’s occupancy of the Union property.

Mother and Brother demurred, arguing that Jennifer’s claims for recovery of the double payment and loan amount are barred by “res judicata”—i.e., by issue preclusion (as to the double recovery) and claim preclusion (as to the loan) —and that the imputed-rent claim fails because cotenants in possession need not pay rent to cotenants out of possession.

The trial court took judicial notice of the transcript of the hearing on Jennifer’s motion to vacate the statement of decision in Kwong I, her opening brief on appeal in that action, and this court’s opinion resolving that appeal, and sustained the demurrer without leave to amend. It held that issue preclusion bars the claims based on double recovery, as this issue was raised and decided in Kwong I, and that claim preclusion bars the loan and rent claims, as Jennifer could have raised those claims in Kwong I. Jennifer has timely appealed.

Discussion

We review de novo an order sustaining a demurrer, assessing on our own whether the complaint states a cause of action as a matter of law. (Walgreen Co. v. City and County of San Francisco (2010) 185 Cal.App.4th 424, 433.) “ ‘ “ ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ ” ’ ” (Ibid.) “ ‘We affirm if any ground offered in support of the demurrer was well taken but find error if the plaintiff has stated a cause of action under any possible legal theory.’ ” (Ibid.) We “ ‘are not bound by the trial court’s stated reasons, if any . . . ; we review the ruling, not its rationale.’ ” (Ibid.)

1. Issue preclusion bars Jennifer’s claim of double recovery.

“Issue preclusion prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action. [Citation.] . . . [T]he prior judgment conclusively resolves an issue actually litigated and determined in the first action.” (DKN Holdings LLC v. Faerber, supra, 61 Cal.4th at p. 824.)

After the trial court issued a final statement of decision in Kwong I, Jennifer moved to vacate the decision or for a new trial. At the ensuing hearing, Jennifer’s counsel began his argument by contending that the statement reflected “arithmetic errors,” asserting double recovery on the notes as his prime example: “The first [error] I want to address concerns two notes: A Stack note for $250,000 and . . . the Klestoff note for $272,000 . . . . It’s undisputed that the Stack note was paid off in 2009. [Mother] received half of that note at that time. The other half has been sitting in an escrow since 2009 . . . . That’s undisputed. [¶] . . . [T]he Klestoff note for $272,000 is . . . being paid off. [Mother] will receive 50 percent of that note . . . and she’s also been receiving . . . interest payments continuously since Stan’s death. . . . [¶] [N]one of the facts I’m aware of are disputed [about] those two notes; however, the referee’s report . . . [has] a loan notation for December 31st, 2008 of $518,760. [¶] Now it is also undisputed that most of [the proceeds] from this refinancing of Walnut in 2008 were used in making . . . these two loans, the Stack note and the Klestoff note. And here the referee has apportioned this out to [Jennifer]. . . . The problem . . . is that [Mother and Brother] already received $125,000 of this amount in 2009 and are about to receive . . . their 50 percent share of the Klestoff note. . . . This is a double recovery. They’re getting the same money twice. [¶] . . . [T]here was substantial testimony . . . about the Stack note and the Klestoff note. . . . They’re not a mystery, and yet here it is getting charged twice to defendants.” (Italics added.)

Mother’s counsel responded by noting that, while the parties had advocated three competing accounting methods—the cash flow, disbursement, and portfolio approaches—the “arithmetic errors” argument focused solely on the cash flow approach, which the court had not adopted. Turning specifically to the “Klestoff and Stack notes,” Mother’s counsel said, “it is true that those notes are half in [Mother]’s name” and “true that she received half of the principal on the Stack note and might at some time receive part of the principal on the Klestoff note,” but he maintained that the claimed deductions “are not proper . . . [under] the disbursement approach or the portfolio approach.”

After further argument, the court noted that when it had rejected the resulting-trust theory and “exercised its equitable powers [to find] a loan relationship,” the referee became “charged with saying, ‘well, what does that add up to?’ ” The court viewed Jennifer’s motion as asking the court to “do a new accounting by myself, which I don’t think I can do.” A retrial “would just land us in a dispute over a different set of numbers, . . . and I think we have to move on.” Jennifer’s counsel persisted: “I didn’t hear anybody say, ‘oh, no you’re not double counting those.’ They are. It’s the same money,” and Mother’s counsel responded that the court’s decision “is supported by the disbursement approach and the portfolio approach and you’re exercising your discretion in the numbers that you’ve come up with . . . with the help of the referee.” Ultimately the court concluded the argument by stating, “I think we need to proceed to judgment on this and I’m prepared to do that. I’m going to deny the motion.”

When Jennifer appealed the ensuing judgment, her first contention was that the trial court had “adopted [Mother and Brother’s] cash flow accounting method, but without [making] deductions required by law and [by their] concessions.” Her brief stated: “[The award] includes a windfall of double recovery. . . . [Mother and Brother] conceded receipt of substantial sums from Stan. But they also conceded that those sums should reduce their recovery . . . . Nonetheless, the court ignored all such reductions.” The brief quoted Mother and Brother’s alleged concessions that Jennifer was entitled to deductions for payments they had received, including “payments to [Mother] for her interest in . . . the Stack and Klestoff notes.” The brief also described a chart of deductions Mother had submitted below; a copy of that chart appended to the brief includes a $353,000 deduction labeled “Less Klestoff & Stack Notes.” Jennifer added that Mother’s written closing argument had conceded a need for deductions including one for payments to her on the two promissory notes. Jennifer’s brief asked this court to order the award reduced to account for the assertedly conceded deductions for the notes and other matters.

This court did not do so and instead affirmed the judgment. The opinion in Kwong I rejects Jennifer’s contentions that the trial court adopted a cash-flow approach and that Mother and Brother made binding “judicial admissions concerning . . . deductions or credits.” The opinion states that Jennifer “misidentifies [some] statements as admissions,” citing the notes as an example: “In reference to the Klestoff and Stack notes, [Mother and Brother] stated they ‘agree with this credit in princip[le],’ but because [Jennifer] has collected the monthly payments on the notes and not turned them over to [Mother], [Jennifer] is not entitled to a credit.” This court held that “[Jennifer]’s claim for credits and deductions was considered by the trial court prior to its statement of decision,” and substantial evidence supports its judgment.

In the current action, the trial court correctly held that Jennifer litigated her contention that the award incorrectly gave Mother a double recovery on the notes, and that the trial court and this court rejected that contention. Jennifer describes the double-recovery issue as “briefly discussed in post-trial arguments” in Kwong I but not “fully litigated or actually decided,” noting that the trial court based its award on the existence of a loan relationship, a theory of liability that Mother and Brother had not asserted. But after the court issued its statement of decision relying on a loan theory to award Mother a sum of money that may well include a double recovery on the notes, Jennifer objected to the award on that basis in her motion to vacate, and the court acknowledged and rejected her argument. She prominently renewed the argument on appeal, and this court rejected it.

Jennifer contends that, because she raised the issue in a posttrial motion, it does not qualify as “actually litigated” or “necessarily determined” in Kwong I. She cites Groves v. Peterson (2002) 100 Cal.App.4th 659, but that opinion concerns whether issue preclusion applies “where the issue is whether the prior denial of a motion in [an] underlying case to set aside a . . . default judgment should be given [issue-preclusive] effect so as to bar a subsequent independent action in equity to set aside the prior judgment.” (Id. at p. 667.) It is long settled that “such prior order does not [trigger issue preclusion in] the subsequent action.” (Ibid.) The procedure on a motion to set aside a judgment “does not involve all the aspects of full litigation” that are available in a subsequent equitable action to set aside a judgment. (Id. at p. 668.) The rule noted in Groves v. Peterson thus enables parties “to resort first to the convenient and expeditious remedy [of a motion to set aside], without penalty of the bar of [issue preclusion] if the motion is denied.” (Ibid.)

The present situation is not analogous. The factual aspects of the double-recovery issue were fully litigated during the previous nine-day trial. In Kwong I, Jennifer’s counsel stressed that the facts supporting her double-recovery claim were settled: “[T]here was substantial testimony at trial from Betty Kwong, [Mother’s] expert, and from others about the Stack note and the Klestoff note. We heard about those. They’re not a mystery, and yet here it is getting charged twice to defendants.” Indeed, the facts were undisputed: “I didn’t hear anybody say, oh, no you’re not double counting those. They are. It’s the same money.” Mother’s counsel never disputed Jennifer’s counsel’s repeated statements that the facts were undisputed, arguing instead that any double recovery from a cash-flow perspective was irrelevant. On appeal, Jennifer listed Mother’s asserted concessions about the notes and reiterated that the facts were settled. Her failure to prevail on the double-recovery issue in Kwong I did not result from any procedural limitations that precluded her from fully litigating the issue.

Jennifer contends that because the statement of decision in Kwong I did not discuss the notes, it is impossible “to determine that the court in [Kwong I] actually made a final ruling as to [their] ownership.” Although the statement of decision does not discuss the notes, Jennifer raised the double-recovery issue in her motion to vacate that statement; at the hearing, the trial court acknowledged the argument, yet denied the motion. Jennifer cites no authority indicating that the court must have resolved an issue in writing for preclusion to arise, and that is not the law.

Finally, Jennifer contends that Mother and Brother’s subsequent filing of the Klestoff note action shows that even they did not “believe[] the matter had been adjudicated.” The point is irrelevant. Had the court relied on their claim in that litigation, they presumably would have been barred from arguing otherwise by the doctrine of judicial estoppel. (See ABF Capital Corp. v. Berglass (2005) 130 Cal.App.4th 825, 832.) But the court did not do so. Because the parties settled the Klestoff note action before the court could award any relief, the filing of that action does not give rise to a judicial estoppel.

2. Claim preclusion bars Jennifer’s claim regarding the alleged 2008 loan.

“Claim preclusion . . . acts to bar claims that were, or should have been, advanced in a previous suit involving the same parties.” (DKN Holdings LLC v. Faerber, supra, 61 Cal.4th at p. 824, citing Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797.) “To determine whether two proceedings involve identical causes of action for purposes of claim preclusion, California courts have ‘consistently applied the “primary rights” theory.’ ” (Boeken, supra, at p. 797.) Under that theory, “ ‘[a] cause of action . . . arises out of an antecedent primary right and corresponding duty and the delict or breach of such primary right and duty . . . . “Of these elements, the primary right and duty and the delict or wrong combined constitute the cause of action.” ’ ” (Id. at pp. 797–798.) For purposes of claim preclusion, the “cause of action” is thus “the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory . . . advanced.” (Id. at p. 798.) If a cause of action “was within the scope of [a prior] action, related to the subject-matter and relevant to the issues, so that it could have been raised, the [prior] judgment is conclusive on it despite the fact that it was not in fact expressly pleaded or otherwise urged.” (Sutphin v. Speik (1940) 15 Cal.2d 195, 202.)

These principles make clear that claim preclusion bars Jennifer’s cause of action for restitution based on Mother’s failure to repay the alleged 2008 loan. The complaint alleges that Mother has been unjustly enriched because Stan paid a contractor $41,000 to remodel her unit and to repair the Union building, and she breached her duty to repay him. The complaint also alleges that “[t]hese funds are . . . reflected in the accounting performed by the [referee] in support of the [judgment in Kwong I]” and were “overpaid to [Mother and Brother] as the judgment creditors, and should be returned and reimbursed to [Jennifer].” The complaint thus shows on its face that in Kwong I Jennifer could have raised her claim that Stan’s estate was entitled to a credit or offset for the loan against Mother’s recovery on her accounting cause of action. In litigating that cause of action, both sides offered expert financial testimony analyzing the flow of loans, revenues, and payments between Mother, Stan, and other relatives with regard to the Union building. Ultimately, the court found Mother entitled to recover sums reflecting her share of ownership of that building.

Jennifer contends that her cause of action for Mother’s failure to repay the loan “arise[s] out of different transactions and involves different rights than the [prior] action” because Mother and Brother brought that action “to assert they were the owners of three properties held in Stan[’s] name, under a resulting trust theory,” and Mother’s failure to repay a loan related to one of those properties is irrelevant to whether she was the beneficial owner of that property. Nevertheless, Mother’s alleged failure to repay a loan used to remodel the Union building was related to her cause of action for an accounting—a cause of action that was litigated to judgment in Kwong I. Jennifer could and should have asserted the estate’s right to a credit based on the loan as part of the accounting in Kwong I.

3. Jennifer’s cause of action for imputed rent fails on the merits.

Jennifer alleges that, because Stan (and then his estate) owned 5 percent of the Union building, as adjudicated in Kwong I, Mother was obliged to pay Stan imputed rent on his 5 percent share of the unit that she occupies in that building. The trial court held that claim preclusion also bars this cause of action. While that ruling appears correct insofar as Jennifer seeks unpaid rent for periods preceding the judgment in Kwong I, it is less clear that the judgment precludes litigation of that cause of action as to periods following that judgment. Arguably, each passing month gives rise to a new cause of action for unpaid imputed rent. (See generally Gilkyson v. Disney Enterprises, Inc. (2016) 244 Cal.App.4th 1336, 1341 [“Under the continuous accrual doctrine each breach of a recurring obligation is independently actionable.”].)

We need not explore how the doctrines of claim preclusion and continuous accrual interact because the cause of action for imputed rent fails on its merits as to all time periods. As Mother argued below, tenants in common are simply not obliged to pay one another rent. (Nevarov v. Nevarov (1953) 117 Cal.App.2d 581, 585 [“It seems to be well settled that each tenant in common has a right to occupy the property, and that in the absence of an agreement one cannot collect rent from another who has exercised that right.”].) “The reason of the doctrine is obvious,” as our Supreme Court explained in one of its earliest opinions: “Each tenant is entitled to the occupation of the premises; neither can exclude the other; and if the sole occupation by one co-tenant could render him liable to the other, it would be in the power of the latter, by voluntarily remaining out of possession, to keep out his companion also, except upon the condition of the payment of rent.” (Pico v. Columbet (1859) 12 Cal. 414, 419–420.) That rule plainly bars Jennifer’s claim, as she has implicitly conceded.

Disposition

The judgment is affirmed. Respondents shall recover their costs on appeal.

_________________________

POLLAK, P. J.

WE CONCUR:

_________________________

STREETER, J.

_________________________

BROWN, J.

A155893