Filed 1/31/20 M.E.D. Holdings Co. v. Muscat CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

M.E.D. HOLDINGS CO., LLC,

Cross-complainant and Appellant,

v.

MONIQUE MUSCAT,

Cross-defendant and Respondent.

A154833

(San Mateo County

Super. Ct. No. CIV531325)

This appeal arises out of an unsuccessful business arrangement for the conditional sale of a bar pursuant to an oral contract. In early 2012, Edwin Elliott and Ron Glass entered an oral agreement for Elliott’s limited liability company, M.E.D. Holdings Co., LLC (MED) to transfer ownership of Clooney’s Pub (Clooney’s or the pub) to Glass following the satisfaction of several conditions precedent to the sale. Pending the sale, Elliott and Glass agreed Glass would manage the pub and Glass’s romantic partner, Monique Muscat, would serve as a bookkeeper.

Glass died in May 2014, before the sale of Clooney’s was completed. After Glass died, Muscat served as manager of the pub. It appears the relations of the parties soured significantly and, in August 2014, Elliott “ejected” Muscat from the pub. Muscat filed suit against MED, alleging, among other claims, breach of an oral contract to sell Clooney’s to her and unpaid wages for work performed for which she was not compensated. MED filed a cross-complaint against Muscat for breach of fiduciary duty, negligence, and conversion, alleging Muscat misappropriated cash deposits from the pub and mismanaged the business finances during her tenure.

After a bench trial, the trial court entered judgment against Muscat on all claims in her complaint, except the claim for unpaid wages, and judgment against MED on all claims in the cross-complaint. The judgment awarded Muscat $9,000 in unpaid wages. MED appealed, contending the trial court erroneously determined that MED failed to meet its burden to establish a breach of fiduciary duty by Muscat. We affirm.

I. BACKGROUND

Edwin Elliott, a “member/manager” of MED, entered an oral conditional sales agreement with Ron Glass in January 2012. The agreement provided for the gradual transfer of ownership of Clooney’s from MED to Glass. The agreed sales price was $65,000, with $3,000 to be credited toward the sale every month based on $2,000 for Glass to serve as manager of the pub and $1,000 for Muscat to serve as a bookkeeper. Elliott and Glass both agreed Glass would manage the pub pending completion of the sale.

Muscat, who was romantically involved with Glass, worked as a bookkeeper at Clooney’s at Glass’s insistence from February 2012 until Glass died in May 2014. After Glass died, Muscat took over management of the pub. A short time later, she and Elliott had heated e-mail exchanges regarding the management and finances of the pub. Muscat believed Elliott was not honoring a contract he made with her and Glass by refusing to sell her the pub, and Elliott claimed Muscat mismanaged the finances of Clooney’s and stole cash that should have been deposited at the bank. In August 2014, Elliott “ejected” Muscat from the pub.

Shortly thereafter, Muscat sued Elliott and MED for breach of an oral contract to sell her the pub, fraud, unjust enrichment, unfair competition, and unpaid wages for services provided as an hourly employee. MED cross-complained, alleging breach of fiduciary duty, negligence, and conversion.

The court held a bench trial. Elliott and Muscat both testified at length, offering generally conflicting accounts of the nature and terms of the agreement to purchase the pub, the roles of Glass and Muscat in operating the pub, and which of them (Elliott or Muscat) was harmed by the other’s conduct. Maria Rachel St. Onge, an associate tax auditor from the State Board of Equalization, testified about the State Board of Equalization’s audit of Clooney’s. Barry Van Otten, a friend of Glass’s, and Jeff Jahnke, a Clooney’s patron, both testified about their knowledge of the pub’s management. Martin Reitinger, MED’s former bookkeeper and a certified public accountant, testified about his projection of MED’s losses based on unreported quarterly sales at the pub during Muscat and Glass’s tenure.

Following the bench trial, the trial court delivered an oral tentative ruling from the bench, and asked plaintiff’s counsel to prepare a statement of decision. Elliot, MED, and Triple E Holdings, LLC submitted objections to the proposed statement of decision and a request for additional findings. Muscat filed a response, defendants filed a reply, and Muscat filed a sur-reply.

After holding a hearing on the objections, the trial court issued its statement of decision and order granting some and overruling some objections to the proposed statement of decision. The court’s statement of decision began with a comment that the case had “presented the Court with significant difficulties,” specifically because the court had a problem “finding credibility with respect to the parties.”

With respect to Muscat, the court was “troubled by Ms. Muscat’s handling of cash received at the pub and for the pub; her failure to report cash income and to pay the vendors with cash.” The court also had difficulty with “that period of time when there was zero cash income reported,” was “further troubled by Ms. Muscat’s destruction of the cash register tapes,” and was “not at all persuaded by the myriad of receipts that were presented as alleged purchases made by Ms. Muscat through personal funds for the sole benefit of the pub.” With respect to Elliott, the court was “disturbed by, and found quite offensive, his initial treatment of Ms. Muscat in [the] courtroom.” The court was also troubled by his explanation of alterations made to a check from Muscat, and found his testimony in that regard untruthful. The court was also bothered that he placed the check into an account other than one belonging to MED. Finally, the court was not persuaded that Elliott was truly concerned about defrauding Glass’s family.

The court then observed that it began the statement of decision with those concerns “because there is a provision in the law (reflected in CACI 5003) that tells the trier of fact how he may deal with witnesses and testimony that he finds to be untrustworthy. Specifically, CACI 5003 says that if the trier of fact finds that a witness has deliberately lied about something important during their testimony, the trier of fact may choose to disbelieve that witness’ testimony in its entirety.” The court found “without question, that both Ms. Muscat and Mr. Elliott lied during their testimony, and that they lied about something important and material during their testimony.” The trial court stated it did not believe the testimony of either Muscat or Elliott.

The court specifically found, among other things: (1) Elliott and Glass entered into an oral agreement regarding the sale and purchase of Clooney’s; (2) Muscat was not a party to their oral agreement; (3) Glass served as manager of the pub from February 2012 until his death in May 2014; (4) Muscat served at Glass’s insistence as the bookkeeper for the pub from February 2012 until Glass’s death in May 2014; (5) Muscat served as the manager and bookkeeper of the pub from Glass’s death in May 2014 until she was “ejected” from the pub by Elliott on August 19, 2014; (6) Muscat had a separate arrangement and understanding with Glass that she and Glass would jointly own Clooney’s, an arrangement to which Elliott was not a party; (7) Muscat was the defendants’ employee following Glass’s death; and (8) no new contract was formed between Muscat and Elliott regarding the sale and purchase of the pub following Glass’s death.

Finally, the court concluded Muscat had failed to sustain her burden with respect to her breach of contract and unjust enrichment claims, but that she prevailed on her claim for unpaid wages and was entitled to $9,000 from defendants for three months of managerial and bookkeeping services. In finding Muscat was an employee, the court specifically noted, “Mr. Elliott said something to the effect that he didn’t know why Ms. Muscat was at Clooney’s Pub or what she was doing,” testimony the court concluded was a “further indication to the Court that Mr. Elliott has difficulty with veracity.” The court found MED had failed to meet its burden with respect to any of the claims in the cross-complaint and would take nothing on the cross-complaint. The court overruled objections and denied requests from MED for further findings of fact, including, among others: (1) a request to find that Muscat acted as “ ‘manager, co-manager, and bookkeeper’ ” from February 2012 until the pub was closed and owed a fiduciary duty to MED during that time; and (2) a request to find Muscat was responsible for most, if not all, of the cash deposits made for the pub and knew cash sales were not being reported.

The court entered judgment for Muscat on her unpaid wages claim, against Muscat on her other claims, and against MED on the cross-complaint in its entirety. MED timely appealed from the court’s judgment.

II. DISCUSSION

A. Standard of Review

In reviewing a trial court’s decision following a bench trial, we review issues of law de novo and issues of fact for substantial evidence. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981 (Thompson).) Under the deferential substantial evidence standard of review, “findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings.” (Ibid.) On appeal, we presume the correctness of the trial court’s judgment, “ ‘and all intendments and presumptions are indulged in favor of its correctness.’ ” (Ibid.)

B. Muscat’s Role

MED first argues the trial court erred because it found Muscat was a bookkeeper, not a manager or comanager, from February 2012 until Glass’s death in May 2014. As MED acknowledges, we review this finding for substantial evidence. (Thompson, supra, 6 Cal.App.5th at p. 981.)

MED asserts no substantial evidence supports the finding Muscat was not a manager because she admitted in her complaint, trial testimony, and exhibits that she was “ ‘manager, co-manager, and bookkeeper.’ ” But MED does not support this argument with any citations to the record, and has therefore waived it. (Cal. Rules of Court, rule 8.204(a)(1)(C); see Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246.) It also cites Elliott’s testimony that Muscat was managing the pub, but the trial court expressly ruled it did not believe Elliott’s testimony. Finally, MED cites to an e-mail from Elliott to Muscat in July 2014, in which he stated: “The cash deposits in the bank are very light and the liquor pour costs very high all under your watch as bookkeeper and manager, partially with Ron.”

Other evidence in the record, however, supported the trial court’s finding that Glass, not Muscat, was managing the pub and Muscat was serving as a bookkeeper for Glass from February 2012 to May 2014. For example, in a December 2012 e-mail, Elliott wrote to Muscat, “I hope half ownership for take over/work equity was a good and fair offer for Ron as well as partner and operations manager appointment.” In a March 2013 e-mail chain, Muscat wrote, “[I]t has been over a year since [Glass] has started to run the pub.” In the same e-mail chain, Elliott asked Glass if Muscat was a “bkkeeper/CFO,” asked how much she was charging monthly, and said he (Elliott) had “given [Glass] unsupervised management of all cash and business.” In another e-mail, Elliott wrote to Muscat that he had returned money he had taken from “MY (*Ron’s) business.” Other e-mails Elliott sent Muscat reference private conversations he had with Glass about the conditional sale of the pub and management of the business and suggest Elliott considered Glass, not Muscat, the manager of Clooney’s. In a December 2013 e-mail, Elliott wrote to Muscat, “Ron Glass has made it clear that you are the ‘impartial neutral bookkeeper’ (?) until the sale is finalized and for the record I have been talking only to Ron Glass confidentially about the sale issues . . . .” In another e-mail Muscat wrote to Elliott: “I am taking care of Clooneys [sic] stuff because I am helping [Glass]. . . . [¶] . . . The pub is between you and [Glass] so you dont [sic] need to worry about me getting involved.” Finally, Jeff Jahnke testified Glass managed the pub, and Barry Van Otten testified Glass said he was “running the bar” and Muscat was the bookkeeper. Though we recognize other evidence in the record may also support a contrary finding, sufficient evidence and reasonable inferences to be drawn from it show Muscat was serving as a bookkeeper during the February 2012 to May 2014 time frame under Glass’s direction. Accordingly, we must defer to the trial court on this factual finding. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.)

C. Breach of Fiduciary Duty

We next address MED’s contention the trial court erred because whether Muscat’s title was “manager” or “bookkeeper,” and whether she was hired by MED or not, Muscat owed fiduciary duties to MED from and after February 2012.

A cause of action for breach of fiduciary duty has three elements: (1) existence of a fiduciary duty, (2) breach of that duty, and (3) damages proximately caused by the breach. (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.) “There are two kinds of fiduciary duties—those imposed by law and those undertaken by agreement. [Citations.] Fiduciary duties are imposed by law in certain technical, legal relationships such as those between partners or joint venturers [citation], husbands and wives [citation], guardians and wards, trustees and beneficiaries, principals and agents, and attorneys and clients [citation].” (GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 416 (GAB), disapproved on other grounds by Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1153–1154.) This first type of fiduciary relationship, “in which a fiduciary duty is imposed as a matter of law, [is] a ‘legally recognized fiduciary relationship.’ ” (GAB, at p. 416.) The second type of fiduciary duty is one “undertaken by agreement when one person enters into a confidential relationship with another.” (Id. at p. 417.)

As an initial matter, we note it is unclear from MED’s briefing which of these two types of fiduciary duty it claims defined its relationship with Muscat. MED argues while it did not hire Muscat, either as a bookkeeper or a manager, she owed MED fiduciary duties as a matter of law because she “undertook cash management activities for the benefit of MED.” Specifically, it asserts she served as a “bookkeeper” and “admittedly handled the cash income, admitted (in an email) that she personally made all of the deposits of cash to the bank, and prepared the accounting rendered to MED which the SBOE [(State Board of Equalization)] audit found to be materially inaccurate.”

If MED is asserting Muscat owed a fiduciary duty as a matter of law based on a legally recognized fiduciary relationship, it does not expressly state or discuss which legally recognized fiduciary relationship it claims to have had with Muscat. MED does cite three cases in which courts found the existence of a fiduciary duty based on an agent-principal relationship: Michelson v. Hamada (1994) 29 Cal.App.4th 1566 (Michelson), Kennard v. Glick (1960) 183 Cal.App.2d 246 (Kennard), and San Pedro Lumber Co. v. Reynolds (1898) 121 Cal.74 (San Pedro Lumber). But those cases are readily distinguishable.

In Michelson, a surgeon sued another surgeon with whom he had contracted to share office space and provide billing services for his medical practice. (Michelson, supra, 29 Cal.App.4th at p. 1574.) The appellate court concluded sufficient evidence showed the defendant and his professional corporation had become agents of the plaintiff and his professional corporation in part because they entered written agreements that disclosed an agency relationship. (Id. at pp. 1575, 1580.) Those agreements specifically stated the defendant would provide billing and collection services, representing the plaintiff in his dealings with his patients. The defendant also promised to keep “ ‘full, true and accurate records and books of accounts showing all of your billings and collections.’ ” (Id. at p. 1580.) Further, the plaintiff retained the right to terminate the defendant’s services upon specified notice, evidencing the right of control and supervision, which also supported the existence of an agency relationship. (Ibid.) Moreover, the circumstances and conduct of the parties reflected their acceptance of the agency relationship because the record showed the plaintiff was inexperienced in managing a medical practice, possessed little business acumen, and placed complete trust in the defendant to handle his affairs. (Id. at pp. 1580–1581.)

In Kennard, the defendant was the prior owner of a wholesale-retail bird store purchased by the plaintiffs. (Kennard, supra, 183 Cal.App.2d at p. 248.) The defendant stayed on after the plaintiffs acquired the business to assist them with operations. The trial court found “upon ample evidence” that the defendant represented he would record all entries of cash receipts and disbursements, make all deposits of cash receipts, and that the plaintiffs authorized him to perform those acts, believing he would make true and accurate entries in the books and deposit all monies received in the plaintiffs’ bank account. (Ibid.) The defendant admitted he misappropriated funds. (Id. at p. 250.) The issue on appeal in Kennard was not whether the defendant was an agent of the plaintiffs, but whether an agent who admits he or she misappropriated money must prove how much was taken. (Id. at pp. 250–251.)

In San Pedro Lumber, the California Supreme Court affirmed the judgment of a trial court finding that a general manager of a lumber yard, as an agent of the corporation, had breached his fiduciary duty by embezzling funds and concealing his actions through deceptive and fraudulent entries in the corporate books maintained by a bookkeeper under the manager’s immediate supervision. (San Pedro Lumber, supra, 121 Cal. at pp. 78, 81–83.) There, the manager’s duties were prescribed by the company by-laws, were known to the manager, and were incorporated in his contract of employment. (Id. at pp. 78–79, 82.) Moreover, the general manager in San Pedro Lumber, like the defendant in Kennard, admitted his wrongdoing and promised restitution of all the company had lost. (San Pedro Lumber, at p. 81.) The court concluded that as an agent of the corporation, he was responsible to the principal for failure to act in the highest good faith. (Id. at p. 82.)

Generally, the existence of agency is a question of fact, unless the evidence is susceptible of but a single inference. (Harley-Davidson, Inc. v. Franchise Tax Bd. (2015) 237 Cal.App.4th 193, 214.) Importantly, in all three of the cases relied upon by MED, it was undisputed or the finder of fact determined that the defendant was an agent of the plaintiff. (Michelson, supra, 29 Cal.App.4th at p. 1582; Kennard, supra, 183 Cal.App.2d at pp. 250–251; San Pedro Lumber, supra, 121 Cal. at pp. 81–82.) Here, by contrast, the trial court made no such finding. MED does not set forth facts (with citations to the record) showing an agency relationship, nor is there uncontradicted evidence in the record clearly supporting the existence of one. (See Civ. Code, § 2295 [“An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency.”].) Unlike in Michelson, Kennard, and San Pedro Lumber, Muscat did not have a contract or agreement with MED or Elliott at any time. Further, as discussed above, substantial evidence supports the trial court’s finding Muscat worked for Glass as a bookkeeper, but MED points to no evidence showing the scope of her duties or that Muscat was authorized to represent MED. (See Violette v. Shoup (1993) 16 Cal.App.4th 611, 620 [chief characteristic of agency relationship is “ ‘ “that of representation, [i.e.] the authority to act for and in the place of the principal for the purpose of bringing him or her into legal relations with third parties” ’ ”].)

If MED is asserting Muscat owed a fiduciary duty to MED because she undertook by agreement a confidential relationship with MED, it does not cite evidence that Muscat and MED ever had an agreement or the nature of their relationship was confidential. A confidential relationship arises when (1) confidence is reposed by one person in the integrity of another and (2) the party in whom the confidence is reposed voluntarily accepts or assumes to accept the confidence. (GAB, supra, 83 Cal.App.4th at p. 417.) In other words, such a fiduciary must knowingly undertake to act on behalf of and for the benefit of another. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221.) This, too, is a factual question, and we must defer to the trial court’s ruling and affirm if it is supported by any substantial evidence in the record. (GAB, at p. 417.)

Here, the task of determining whether the parties had entered a confidential relationship was made more difficult because the trial court determined it could not rely on the testimony of either Muscat or Elliott because neither of them was credible. We may not disturb that determination on appeal. (Thompson, supra, 6 Cal.App.5th at p. 981 [reviewing court does not reweigh evidence or assess witness credibility].) Thus, the only evidence left on this subject is exhibits admitted at trial, which largely consist of e-mails between Muscat and Elliott offering ambiguous and conflicting information about the nature of their relationship, what kind of control Muscat had over the business and finances until Glass’s death, and whether Elliott or MED placed trust in or relied on Muscat to manage the business and its finances or not. Other witnesses did not attest to what (if any) arrangement or relationship MED had with Muscat, but testified about the day-to-day operations of the pub, the State Board of Equalization audit, the estimated amount of cash that should have been deposited, and the state of the recordkeeping for the pub. There is substantial evidence in the record, as was referenced by the trial court and discussed above, that Muscat worked for Glass, had no legal or contractual relationship with MED, and served as a bookkeeper at Glass’s insistence until he died in May 2014. After Glass died, Elliott was confrontational and hostile with Muscat, accusing her of mismanaging the pub’s finances, insisting that all of their communications happen through lawyers and accountants, and expressly directing her not to speak with the property owner. Such evidence reasonably supports an inference Elliot did not consider Muscat an agent of MED in whom he placed trust and confidence to handle matters on MED’s behalf.

“In the absence of a fiduciary relationship, there can be no breach of fiduciary duty as a matter of law.” (O’Byrne v. Santa Monica-UCLA Medical Center (2001) 94 Cal.App.4th 797, 812.) MED has not shown the trial court erred in refusing to find the existence of a fiduciary duty and imposing judgment against MED on its cross-complaint. Accordingly, we need not reach MED’s other claims of error, including that the trial court erred in failing to shift the burden of proof to Muscat to demonstrate she did not breach a fiduciary duty in her handling of Clooney’s cash deposits, and in refusing to award damages.

III. DISPOSITION

The judgment is affirmed. Muscat is to recover her costs on appeal.

 

____________________________

Margulies, J.

We concur:

_____________________________

Humes, P. J.

_____________________________

Sanchez, J.

A154833