WYLE v. ALIOTO

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Court of Appeal, First District, Division 2, California.

Frederick S. WYLE, Trustee in Bankruptcy of Pacific Far East Line, Inc., Bankrupt, and of American Bear Steamship Company, Bankrupt, Plaintiff and Appellant, v. Joseph L. ALIOTO, Joseph M. Alioto and John I. Alioto, Defendants and Respondents.

A029991.

Decided: May 11, 1987

Richard Harrington, James D. Pawlik, Athearn, Chandler & Hoffman, San Francisco, for plaintiff and appellant. Theodore F. Schwartz, Los Angeles, Gary D. Elion, Alioto & Alioto, San Francisco, for defendants and respondents.

This action was brought by Wyle, as trustee in Bankruptcy for PFEL, to recover money allegedly owed to PFEL by Freighters, Inc., a corporation without assets which defaulted in the action.   Wyle failed to have judgment entered against Freighters.   Instead, Wyle sought to recover the money owed by Freighters to PFEL from the Alioto defendants on the ground that Freighters was the alter ego of the Aliotos whose family members owned all the outstanding shares of Freighters.

In 1974, Freighters purchased a controlling 49 percent of the outstanding shares of PFEL.   John Alioto became president of PFEL in 1974.   In 1976, Joseph L. Alioto became chairman of the board of PFEL.   Both Aliotos held these positions with PFEL until it declared bankruptcy in 1978.

Wyle also sought to recover money from John Alioto on the ground that he breached his fiduciary duty as an officer and director of PFEL by using PFEL's assets to pay obligations of Freighters which the Aliotos had personally guaranteed and to pay other debts of Freighters.   Wyle sought to hold Joseph L. Alioto and his son, Joseph M. Alioto, liable for these acts of John Alioto on the grounds that as the alter egos of Freighters these defendants benefitted from John Alioto's acts.

Finally, Wyle sought compensatory and exemplary damages from John Alioto for breach of his fiduciary duty to PFEL based on the fact that he gave Commercial Bank a security interest in all PFEL accounts receivables seven days before PFEL declared bankruptcy when he knew PFEL was insolvent.   At the time this security was given, John Alioto was also a shareholder and director of Commercial Bank.

The action proceeded to jury trial and the jury returned a general verdict in favor of the Alioto defendants.   Judgment was entered on the jury verdict and Wyle appeals from that judgment on several grounds.   We need not address these grounds for the reasons set forth below.

After preliminary review of the matter, this court asked counsel for additional letter briefs on the issues of whether the jury verdict was advisory only as to the alter ego issue and whether the court was required to make a ruling and findings on that issue.

First, we must determine whether there was a right to a jury trial in this proceeding.  “The right to a jury trial is guaranteed by our Constitution.  (Cal. Const., art. I, § 16.)   We have long acknowledged that the right so guaranteed, however, is the right as it existed at common law in 1850, when the Constitution was first adopted, ‘and what that right is, is a purely historical question, a fact which is to be ascertained like any other social, political or legal fact.’  [Citations.]  As a general proposition, ‘[T]he jury trial is a matter of right in a civil action at law, but not in equity.’  [Citations.]”  (C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 8, 151 Cal.Rptr. 323, 587 P.2d 1136.)

Where the determination to be made is whether injustice can be avoided by the application of equitable relief, the task is for the trial judge, sitting as a chancellor in equity.  “The tradition and heredity of the flexible equitable powers of the modern trial judge derive from the role of the trained and experienced chancellor and depend upon skills and wisdom acquired through years of study, training and experience which are not susceptible of adequate transmission through instructions to a lay jury.”  (A–C Co. v. Security Pacific Nat. Bank (1985) 173 Cal.App.3d 462, 473, 219 Cal.Rptr. 62.)

 Alter ego is an equitable doctrine.   It is applied when adherence to the fiction of a corporation separate from its owners would sanction fraud and promote injustice.   Application of the doctrine requires the skill, training and experience of the trial judge.   Only the court of equity can ignore the corporate form and pierce its veil.   There is no right to jury trial of the alter ego issue.  (Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, 198 Cal.Rptr. 457.)

 Appellant also claims the issue of breach of fiduciary duty is an equitable issue which should have been tried to the court.   While it is true that equitable principles furnish the standard by which to measure whether an officer or director of a corporation has violated his duty of fair dealing to the corporation, it does not necessarily follow that an action to enforce that liability is equitable.   Courts of law recognize and apply many equitable principles and grant relief thereon where, as here, legal relief is sought in the form of monetary damages.   Since none of the extraordinary powers of the court of equity are required to grant the plaintiff the relief he seeks for breach of fiduciary duty, it is apparent the action is one at law.   (Mortimer v. Loynes (1946) 74 Cal.App.2d 160, 168–169, 168 P.2d 481.)

 On the other hand, an action for subrogation, which appellant claims was also placed at issue in this case, requires the equitable power of the court to substitute one creditor in the place of another.1  It is established that “ ‘ “ ‘Subrogation is equity's second method of compelling the ultimate payment by one who in justice and good conscience ought to make it—of putting the charge where it justly belongs.  [Citations.]  It is not an absolute right, but depends upon the superiority of the equities of him who asserts it over those of the one against whom it is sought.’ ․” '  [Citation.]”  (Fireman's Fund Ins. Co. v. Morse Signal Devices (1984) 151 Cal.App.3d 681, 686, 198 Cal.Rptr. 756, emphasis in original.)   Consequently, there is no right to a jury trial in an action based on equitable subrogation.

 Thus, the action as tried contained both legal and equitable causes of action.   Appellant was entitled to a jury trial on the legal cause of action.   Where an action contains both legal and equitable issues, either litigant is entitled to have the legal issues tried by a jury.   Ordinarily, the equitable issues are tried first by the court since this procedure may obviate the necessity for a subsequent jury trial.  (Veale v. Piercy (1962) 206 Cal.App.2d 557, 562, 24 Cal.Rptr. 91.)   The trial court has the power over the order of proof and may order the jury trial first.  (Bate v. Marsteller (1965) 232 Cal.App.2d 605, 617, 43 Cal.Rptr. 149.)

 The trial court, however, may permit a jury trial on equitable issues.   If it does so, the jury's verdict is merely advisory and does not bind the trial court.  (Cutter Laboratories v. R.W. Ogle & Co. (1957) 151 Cal.App.2d 410, 418, 311 P.2d 627.)   The trial court must issue its own decision on the equitable issues.   The court may accept or reject the jury's findings or adopt contrary findings of its own which are supported by the evidence.  (Woolsey v. Woolsey (1932) 121 Cal.App. 576, 581, 9 P.2d 605.)

 Where the jury has rendered only a general verdict, the verdict should be disregarded by the trial court in determining the equitable issues.   (Ruiz v. Ruiz (1980) 104 Cal.App.3d 374, 378, 163 Cal.Rptr. 708;  Meinecke v. Frasier (1924) 69 Cal.App. 688, 690, 232 P. 499.)   Even if the trial court decides to adopt the jury's findings, the court must make its own ruling so stating.  (Brichetto v. Raney (1926) 76 Cal.App. 232, 241, 245 P. 235.)

We asked the parties to brief the issue of whether the trial court had to issue findings of fact and conclusions of law with respect to the equitable issues.   Appellant takes the position the court is required to make findings of fact and conclusions of law.   Appellant cites De Arellanes v. Arellanes (1907) 151 Cal. 443, 449, 90 P. 1059 and Ruiz v. Ruiz, supra, 104 Cal.App.3d at page 377, 163 Cal.Rptr. 708, which held there is no decision in an action involving legal and equitable issues tried before a jury until the trial judge has entered a decision on the equitable issues.   The Alioto defendants assert Code of Civil Procedure section 632 is controlling and the duty of the court to make findings arises only if it is requested to do so by a party.   These defendants rely on Taylor v. Polackwich (1983) 145 Cal.App.3d 1014, 194 Cal.Rptr. 8, an equitable action tried to the court without a jury which held no findings of the court were required because none were requested.

 Where both legal and equitable issues are tried to a jury, we believe the better rule is to require a trial court to issue a tentative decision on the equitable issues and place the burden on the parties to request a statement of decision under Code of Civil Procedure section 632.   Although the court in Ruiz quoted from older cases which held findings of fact and conclusions of law were required, in fact the court issued a tentative decision and the defendants in that action requested a statement of decision.  (Ruiz v. Ruiz, supra, 104 Cal.App.3d at p. 377, 163 Cal.Rptr. 708.)   In our view, nothing is gained by requiring the old procedure of requiring findings by the court without a request.   To do so would merely complicate trial procedure by requiring two different practices depending upon the nature of the action.

 Here, the trial court submitted both legal and equitable issues to the jury.   The jury returned a general verdict in favor of the Alioto defendants.   The clerk entered judgment based on the jury's verdict.   This entry of judgment by the clerk was premature since there remained equitable issues which only the court could determine and the court had not then done so.   (Distefano v. Hall (1963) 218 Cal.App.2d 657, 662–663, fn. 7, 32 Cal.Rptr. 770.)   The duty of a party to request a statement of decision never arose since the court did not issue a tentative ruling.

 The parties are left with an incomplete trial.   The trial judge has died.   The purported judgment entered by the clerk is of no force and effect because the trial was not concluded.  (Distefano v. Hall, supra, 218 Cal.App.2d at p. 663, fn. 7, 32 Cal.Rptr. 770.)   Where the law allows an appeal from a judgment, it is appealable even though void.   Rather than dismiss the appeal, the proper procedure is to reverse the void judgment.   (Avery v. Associated Seed Growers, Inc. (1963) 211 Cal.App.2d 613, 630, 27 Cal.Rptr. 625.)

The judgment is reversed and the matter is remanded to the trial court for retrial.   Each side is to bear its own costs.

FOOTNOTES

1.   The trial court refused to instruct on the issue of subrogation in this action.

BENSON, Associate Justice.

KLINE, P.J., and SMITH, J., concur.