PEOPLE v. EISENBERG (1995)

The People appeal from the dismissal of 46 counts of a criminal indictment against respondent Jerome Eisenberg (respondent) based upon a settlement agreement between respondent and the Commissioner of the Department of Corporations.

INTRODUCTION

The civil action

Deidre Nulty owned and operated an escrow company named “Pavilion Escrow.”   Pavilion's corporate attorney was respondent Eisenberg.   Eisenberg was not a shareholder, officer or director of Pavilion.   Following a July 1989 audit of Pavilion by the Department of Corporations, and an administrative hearing, the Department revoked Pavilion's escrow license and barred Nulty from the escrow industry.¹

Subsequently, Nulty and Pavilion filed a civil lawsuit against the Commissioner of the Department of Corporations, and three employees of the Department, Di Aun Burns, Judy Harley, and Alan Weinger, alleging civil rights violations (the civil action).

The settlement

In April 1993, a settlement was reached between the parties to the civil action and a stipulated judgment was entered.   In addition, respondent, who was not a party to the civil action, also entered into a settlement agreement and Mutual Release between the Commissioner, Burns, Hartley, and Weinger, which provided, inter alia:

“3. Mutual Release of All Claims.   The parties hereto agree to release and absolutely and forever discharge each other of and from all of the claims and causes of action, known or unknown and including but not necessarily limited to claims for civil rights violations, or other matters which in any way pertain to, arise out of or in any way connected with the relationship of the parties from the beginning of time up to and including the date of this agreement.  [¶] Except with regard to the promises, agreements, warranties, and indemnities related to or arising out of this Agreement, the Parties fully and irrevocably release and discharge each other as follows:  [¶] (a) ․ each party forever releases and discharges each other party and each of the other party's attorneys, agents, employees, representatives, affiliates, successors, heirs, executors, administrators and principals and assigns, or and from any and all claims, demands, damages, debts, liabilities, accounts, reckonings, obligations, costs, expenses (including attorneys fees), liens, actions and causes of action of every kind, whether now known or unknown, suspected or unsuspected (collectively ‘Claims'), based on any matter described in this Agreement.”  (Italics added.)

The settlement agreement was signed by respondent, by the Assistant Commissioner of Corporations on behalf of the Commissioner, and was approved as to form and content by Senior Trial Counsel for the Department of Corporations, a Deputy Attorney General, and respondent's counsel.

The criminal action

Shortly after the settlement agreement was entered into, the District Attorney filed a criminal indictment (the criminal action) against respondent, for 34 counts of misstatements pertaining to escrow affairs, in violation of Financial Code section 17414, subdivision (a)(2) (counts 1–34);  12 counts of unauthorized disbursement of escrow funds, in violation of Financial Code section 17414, subdivision (a)(1) (counts 35–46);  3 counts of grand theft of personal property exceeding a value of $150,000, in violation of Penal Code section 487, subdivision (1) and 12022.6, subdivision (b) (counts 47, 50, 51);  2 counts of filing a false or forged document, in violation of Penal Code section 115, subdivision (a) (counts 48–49);  1 count of money laundering, in violation of Penal Code section 186.10 (count 52);  and 1 count of perjury, in violation of Penal Code section 118 (count 53).

Thereafter, respondent moved to dismiss the indictment based on the settlement terms of the civil action.   The Superior Court granted the motion to dismiss as to counts 1 through 46 of the indictment “pursuant to Penal Code section 1385.”

CONTENTIONS ON APPEAL

The People contend on appeal that (1) the trial court erroneously interpreted the settlement agreement to include criminal actions;  (2) the state cannot contract away its right to future police powers;  and (3) the People of California were not parties to the settlement agreement.

Additionally, the People contend the trial court's dismissal order is invalid because it does not accurately state the reasons for the dismissal.

DISCUSSION

 Preliminary, we note that the People are entitled to appeal an order dismissing some, but not all, of the counts of a criminal indictment.   (People v. Shirley (1978) 78 Cal.App.3d 424, 430, 144 Cal.Rptr. 282;  see In re Rottanak K. (1995) 37 Cal.App.4th 260, 271, 43 Cal.Rptr.2d 543.)

1. Was the dismissal order valid?

 We deal first with the People's contention that the superior court's dismissal order was invalid for failure to state accurately the reasons for dismissal.

Penal Code section 1385 provides in pertinent part:  “(a) The judge or magistrate may, either of his or her own motion or upon the application of the prosecuting attorney, and in furtherance of justice, order an action to be dismissed.   The reasons for the dismissal must be set forth in an order entered upon the minutes.   No dismissal shall be made for any cause which would be ground of demurrer to the accusatory pleading.”

Here, no reason for dismissal other than “Penal Code section 1385” was given in the court's minute order.²

The purposes behind the strict requirements of section 1385 “are clearly to protect the public interests against improper or corrupt dismissals and ‘to restrain judicial discretion and curb arbitrary action for undisclosed reasons and motives.’  [Citations.]”  (People v. Stephen (1986) 182 Cal.App.3d Supp. 14, 21, 227 Cal.Rptr. 380.)

 “ ‘The statement of reasons is not merely directory, and neither trial nor appellate courts have the authority to disregard the requirement.’ ”  (People v. Orin (1975) 13 Cal.3d 937, 944, 120 Cal.Rptr. 65, 533 P.2d 193.)  “The rationale behind requiring the reasons to be set forth in the minutes as contrasted with allowing them to be placed in a settled statement or to be transcribed from a reporter's notes is to ensure that the reasons are readily ascertainable and available to the public and the reviewing court.”  (People v. Stephen, supra, 182 Cal.App.3d Supp. at p. 22, 227 Cal.Rptr. 380.)

Respondent argues that the dismissal was based on a nonstatutory motion, and that no statement of reasons was necessary, citing People v. Sims (1982) 32 Cal.3d 468, 474, 186 Cal.Rptr. 77, 651 P.2d 321, footnote 3.   However, in Sims, it was clear from the record that the dismissal was not pursuant to Penal Code section 1385.   Here, that code section is clearly referenced in the record.

The order of dismissal is therefore invalid.  (People v. Stephen, supra, 182 Cal.App.3d Supp. at p. 23, 227 Cal.Rptr. 380.)

Having said as much, however, we also elect to address the contention that the trial court erred as a matter of law, since the defect in the minute order can easily be corrected.

2. Illegality

 The People argue that the settlement agreement does not specifically refer to criminal actions, and furthermore that the reference to “actions,” “causes of action,” and “claims” does not encompass criminal prosecutions, citing Code of Civil Procedure section 32.   That code section provides as follows:  “When the violation of a right admits of both a civil and criminal remedy, the right to prosecute the one is not merged in the other.”

 “In most instances, the civil and criminal law operate independently of one another so that resolution of a victim's civil rights and remedies has no effect upon criminal prosecution.  (15A Am.Jur.2d 798, Compromise and Settlement, § 26.)   Indeed, it is generally considered to be a criminal offense to condition settlement of a civil claim upon nonprosecution of a criminal action.  (Pen.Code, § 153;  Bowyer v. Burgess (1960) 54 Cal.2d 97, 100 [4 Cal.Rptr. 521, 351 P.2d 793].)  It is only when there has been compliance with a civil compromise statute authorizing a settlement [such as Penal Code sections 1377–1378, allowing dismissal of misdemeanor charges where restitution made to victim] under the supervision of the court that such a disposition is permitted.  (See Annot. (1972) 42 A.L.R.3d 315 et seq.)”  (People v. Moulton (1982) 131 Cal.App.3d Supp. 10, 19–20, 182 Cal.Rptr. 761;  see People v. Stephen, supra, 182 Cal.App.3d Supp. at p. 27, 227 Cal.Rptr. 380 [“It is not the function of a criminal court to determine issues of civil liability or damages.”].)

The People also argue that to enforce the settlement agreement so as to preclude a criminal prosecution would be to enforce an illegal contract.

 When a court determines that a contract is contrary to public policy, it has a duty to refrain from allowing parties to maintain an action based on that contract.  (Bovard v. American Horse Enterprises, Inc. (1988) 201 Cal.App.3d 832, 838, 247 Cal.Rptr. 340.)   Although this case does not present a civil action on a contract, respondent's position relies upon the contract with the Commissioner as an affirmative defense.   The effect is the same.

 It is settled law that the government cannot barter away or suspend its police powers, even by express contract.  (Carty v. City of Ojai (1978) 77 Cal.App.3d 329, 342, 143 Cal.Rptr. 506, and cases cited therein;  City of Glendale v. Superior Court (1993) 18 Cal.App.4th 1768, 23 Cal.Rptr.2d 305;  Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 55, 275 Cal.Rptr. 17.)

Were this court to allow dismissal of the criminal counts based on the settlement agreement, it would, in essence, recognize enforcement of an illegal contract.

3. Estoppel

 Respondent argues that the People should be prevented from pursuing this action based on the principles of equitable estoppel.   Although not raised in his appellate brief, he also argued to the trial court that the doctrine of collateral estoppel applied.   Neither doctrine will be applied if contrary to public policy.

 “Generally, four elements must be present for the doctrine of equitable estoppel to apply.   First, the party to be estopped must have been aware of the facts.   Second, that party must either intend that its act or omission be acted upon, or must so act that the party asserting estoppel has a right to believe it was intended.   Third, the party asserting estoppel must be unaware of the true facts.   Fourth, the party asserting estoppel must rely on the other party's conduct, to its detriment.  [Citation.]   Even when these elements are present, estoppel will not be applied against the government if to do so would nullify a strong rule of policy adopted for the benefit of the public.  [Citations.]”  (Lusardi Construction Co. v. Aubry (1992) 1 Cal.4th 976, 994–995, 4 Cal.Rptr.2d 837, 824 P.2d 643, italics added;  City of Glendale v. Superior Court, supra, 18 Cal.App.4th at pp. 1781, 23 Cal.Rptr.2d 305.)

 “Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings.  (Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd. (1962) 58 Cal.2d 601, 604, 25 Cal.Rptr. 559, 375 P.2d 439.)   Traditionally, we have applied the [collateral estoppel] doctrine only if several threshold requirements are fulfilled.   First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding.   Second, this issue must have been actually litigated in the former proceeding.   Third, it must have been necessarily decided in the former proceeding.   Fourth, the decision in the former proceeding must be final and on the merits.   Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.  [Citations.]”  (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341, 272 Cal.Rptr. 767, 795 P.2d 1223.)

 Even if the threshold requirements of Lucido were met,³ however, the doctrine of collateral estoppel still will not be applied if such application would not serve its underlying fundamental principles.  (Id. at p. 339, 272 Cal.Rptr. 767, 795 P.2d 1223.)  “ ‘[C]ollateral estoppel is not an inflexible, universally applicable principle;  policy considerations may limit its use where the limitation on relitigation underpinnings of the doctrine are outweighed by other factors.’  ․ Accordingly, the public policies underlying collateral estoppel—preservation of the integrity of the judicial system, promotion of judicial economy, and protection of litigants from harassment by vexatious litigation—strongly influence whether its application in a particular circumstance would be fair to the parties and constitutes sound judicial policy.  [Citation.]”  (51 Cal.3d at p. 343, 272 Cal.Rptr. 767, 795 P.2d 1223;  Gutierrez v. Superior Court (1994) 24 Cal.App.4th 153, 157–158, 29 Cal.Rptr.2d 376.)

 It is clear that criminal proceedings serve a unique public function.   There is a need, “paramount in any criminal proceeding, to vindicate society's insistence that every citizen obey the penal laws.”   (People v. Percifull (1992) 9 Cal.App.4th 1457, 1461, 12 Cal.Rptr.2d 331.)

 “ ‘Whatever the efficiencies of applying collateral estoppel in this case, they pale before the importance of preserving the criminal trial process as the exclusive forum for determining guilt or innocence as to new crimes.’  ( [Lucido, supra,] 51 Cal.3d at p. 351 [272 Cal.Rptr. 767, 795 P.2d 1223].)”  (Id. at p. 1463, 12 Cal.Rptr.2d 331.)  “[S]ubstantial differences in purpose between [an] earlier proceeding and [a] criminal action will suffice to justify the second proceeding and a risk of an inconsistent result.”  (Id. at p. 1462, 12 Cal.Rptr.2d 331.)  “[T]here is no consideration so compelling as to outweigh the public's right to have ․ criminal culpability separately and fully assessed in the criminal trial process, even if the result of that assessment may ultimately be, or be perceived to be, inconsistent with the conclusion [another] court [has] reached.”  (Id. at p. 1462, 12 Cal.Rptr.2d 331.)

Principles regarding the enforcement of settlement agreements that provide for stipulated reversals of judgment are also instructive.  “It would be unconscionable to make it possible for a real estate broker who may have acted unethically to purchase disciplinary immunity from one of the consequences of his impropriety.”  (Norman I. Krug Real Estate Investments, Inc. v. Praszker (1994) 22 Cal.App.4th 1814, 1822, 28 Cal.Rptr.2d 498.)  “[T]he precedent caused by a settlement-generated reversal in a case such as this would have dangerous public policy implications.   Permitting a licensee to ‘buy his way out’ from under a judgment which might form the basis for disciplinary action by settling at the appellate level would not only reduce incentives for wealthier licensees to conform their conduct to the standards imposed by their profession․”  (Id. at p. 1823, 28 Cal.Rptr.2d 498.)

Here, it is clear that public policy mandates against the application of collateral estoppel or equitable estoppel.

DISPOSITION

The order dismissing counts 1 through 46 of the indictment is reversed, and the matter is remanded for such further proceedings as the district attorney, in his or her sound discretion, considers appropriate.

FOOTNOTES

1.   The administrative law judge had issued a proposed decision suspending Pavilions' license for 90 days and barring Nulty from the escrow business for 90 days.   The Department of Corporations elected not to adopt this decision under Government Code 11517, subdivision (c) and issued its own decision.

2.   The reporter's transcript indicates the court stated the following at the hearing on the motion to dismiss:  “[T]he doctrine of collateral estoppel just does not apply because [respondent] was not a part of any kind of proceeding and I don't have to go beyond that.   My feeling is, however, that there is a binding contract with respect to [the settlement agreement], and I believe that it just will be grossly unfair to construe this where you have the Department of Corporations who within just a couple of months after signing this agreement wherein they have the Attorney General of the State of California [ap]proving the agreement both as to form and content for them within just a couple of months, less than that, I think, to be running to the District Attorney and getting an indictment.   I feel it is grossly unfair.  [¶] I feel that the contract bars contractually the State;  and, accordingly, counts 1 through 46 are dismissed.”

3.   We note that the issue of Eisenberg's wrongdoing was not actually litigated, it was settled, and was not necessarily decided, since he was not a party to the civil action.

HASTINGS, Associate Justice.

EPSTEIN, Acting P.J., and CHARLES S. VOGEL, J., concur.