KLOPSTOCK v. SUPERIOR COURT IN AND FOR CITY AND COUNTY OF SAN FRANCISCO (1940)

A petition for a writ of mandate to compel respondent court to enter a dismissal of an action filed by Samuel M. Samter as executor of the will of Grace E. Klopstock, deceased, against the Klopstock Realty Co., a corporation, Frederick, Samuel and David Klopstock.

Plaintiff Samter, as executor of the estate of Grace E. Klopstock, deceased, widow of Isaac D. Klopstock, sought in a representative capacity to recover for the benefit of the Klopstock Realty Co. certain sums of money as set forth in the complaint. Judgment was rendered, based on the theory of fraud, not in favor of the Klopstock Realty Co., but for the “Estate of Isaac D. Klopstock, deceased, and the personal representative of said deceased and said estate” against Frederick and Samuel Klopstock, and in favor of David Klopstock. Frederick, Samuel and the Klopstock Realty Co. appealed. The judgment rendered in favor of David has become final.

On appeal, the court set forth the facts as follows (Samter v. Klopstock Realty Co. et al., 31 Cal.App.2d 532, 533, 534, 88 P.2d 250, 251): “For many years three brothers, Isaac, Frederick and Samuel Klopstock, were partners in a partnership known as Klopstock Bros. Said partnership was engaged in a manufacturing business. In 1926, they organized the defendant corporation, the Klopstock Realty Co., and transferred their joint real estate holdings to the corporation including the premises on which the partnership conducted its business. The brothers were equal owners of all of the issued stock of the corporation and constituted the board of directors thereof. The partnership and the corporation continued to do business thereafter and each of the three brothers drew a salary of $750 per month, apportioned $500 from the partnership and $250 from the corporation. The partnership was not charged any rental by the corporation for the use of the premises occupied by the partnership. Isaac became incapacitated in 1928, but his monthly salary of $250 per month was paid by the corporation until 1930. In that year, Frederick and Samuel decided that the salary payments to Isaac should cease but Frederick and Samuel continued to draw $250 per month each as salary from the corporation. In 1933, Isaac died and his will was admitted to probate. Grace E. Klopstock, the wife of Isaac, and Frederick were appointed executors of the will of Isaac D. Klopstock, deceased, and served as such until the death of Grace Klopstock in 1935. Thereafter plaintiff was appointed executor of the will of Grace E. Klopstock, deceased, and he brought this action. Frederick continued to act as executor of the will of Isaac D. Klopstock, deceased, after the death of Grace E. Klopstock and the estate is still in probate. * Regarding the status of the shares of the capital stock standing in the name of Isaac, it was alleged that ‘said shares do now constitute part of the estate of said Isaac D. Klopstock, deceased’. It was further alleged that ‘at the time of the death of said Grace E. Klopstock, she was entitled to all or part of the estate of said Isaac D. Klopstock, deceased’ including said shares. Plaintiff prayed for a judgment ‘that said defendants Frederick Klopstock and Samuel Klopstock do pay unto said defendant corporation’ a sum alleged to be due as rental and that said defendants ‘restore and repay to said defendant corporation’ a sum alleged to have been withdrawn by said defendants as above set forth.”

In reversing portions of the judgment from which the appeal was taken, the court said (31 Cal.App.2d page 536, 88 P.2d at page 252): “The point which appellants make is that a derivative action on behalf of a corporation may not be brought by an heir or legatee or by the representative of such heir or legatee of a deceased stockholder while the estate of the deceased stockholder is in probate and undistributed. We are of the opinion that this point is well taken. Neither appellants nor respondent have cited any authority directly in point but we can see no justification for extending the right accorded to a stockholder to bring a derivative action on behalf of a corporation to one who may never acquire the right to become a stockholder of record and whose rights as heir or legatee or as representatives of such heir or legatee of a deceased stockholder may be fully protected through the representative of the deceased stockholder.”

The effect of the above decision was an unqualified reversal, thereby placing the parties in a position to try the case anew, subject to the rule that the decision on appeal, if applicable, governs the conduct of subsequent action. Central Savings Bank of Oakland v. Lake, 201 Cal. 438, 257 P. 521; Heinfelt v. Arth, 4 Cal.App.2d 381, 41 P.2d 191. The gist of the decision was that plaintiff as executor of the will of Grace E. Klopstock, deceased, legatee under the will of Isaac D. Klopstock, deceased, whose estate is still in probate, was lacking in capacity to sue for the benefit of the corporation; that redress for the wrong, if any, lies with the estate of Isaac and not with a representative of a deceased heir of his estate. The decision was controlling to the extent that plaintiff in his designated representative capacity could not maintain a second action, and if no further proceeding was instituted a dismissal would be in order.

Subsequently in respondent court the defendants moved to dismiss upon the ground primarily that the decision held plaintiff was not entitled to maintain the cause of action alleged in the complaint. About the same time, Samter, through his attorney, moved the court to permit the filing of an amended and supplemental complaint, in which Flora E. Short was named as a plaintiff upon the ground that since the commencement of the action of Samter v. Klopstock, supra, said Flora E. Short had been duly appointed and qualified as administratrix with the will annexed of the estate of Isaac; that the filing of the proposed supplemental complaint was in furtherance of justice and pursuant to the provisions of sections 389 and 473 of the Code of Civil Procedure. The removal of Frederick as executor of Isaac's estate had been accomplished by the probate of a later will of Isaac. Estate of Klopstock, 31 Cal.App.2d 568, 88 P.2d 722. The motion to bring in such new party and to file such amended complaint was granted by the respondent court; the motion to dismiss was denied.

The vital question involved in the petition herein is whether, in an action instituted by one wholly without right or interest in the litigation, a new party may be substituted by amendment to the complaint, thereby conferring jurisdiction on the court to try the case anew. The contention of petitioners herein is that after the decision in Samter v. Klopstock, supra, plaintiff Samter had no right to appear in any way.

In the action, as filed originally, Samter did not seek redress for himself; he merely instituted the action to set the machinery of the court in motion. The judgment on the first appeal determined that a proper representative plaintiff had not appeared. The effect of the decision was that the demurrer should have been sustained upon the ground that plaintiff did not have legal capacity to sue. Code Civ.Proc., sec. 430, subd. 2. There was no direction by the appellate court to dismiss the action; simply an order reversing the portions of the judgment from which the appeal was taken. In other words, the decision indirectly ordered that the demurrer should be sustained. Had such action been taken by the trial court, it would have been proper to have permitted plaintiff to amend, and if the amendment showed the appearance of a proper party plaintiff, with legal capacity to sue, the main objection in Samter v. Klopstock, supra, would have been overcome. This same end has been accomplished by the filing of a notice of motion to amend prior to a ruling upon the demurrer. Code Civ.Proc., sec. 464.

It should be noted that while Samter, in his representative capacity as executor of the estate of Grace Klopstock, prospective beneficiary of the estate of Isaac, was not the proper legal party plaintiff in Samter v. Klopstock, supra, he did not occupy the position of an entire stranger who sought to plunge the parties into litigation “and then get out from under”, as petitioners herein claim “by asking the court to substitute the real party in interest in the place and stead of the meddling stranger”. There is nothing before us to indicate that Samter's purpose was “to vex and annoy”, Pen.Code, sec. 159, by “exciting groundless judicial proceedings,” Pen.Code, sec. 158. We are unable to pass upon the merits of the cause of action stated in Samter v. Klopstock, supra, but in the decision on appeal it was indicated, though not decided, that had the action been instituted by one entitled to appear as a party plaintiff “the pleading and proof would have been sufficient to sustain a judgment in favor of the defendant corporation”.

If the trial court upon hearing the demurrer had determined that Samter was not entitled to appear in his capacity as representative of the estate of one of the deceased heirs and legatees of the Isaac Klopstock estate, but that there was a proper available representative of Isaac's estate, then upon its own motion it could have ordered a substitution of the party plaintiff by amendment to the complaint. Toomey v. Toomey, 13 Cal.2d 317, 89 P.2d 634. After the appeal, the case was in the identical position and condition in which it stood prior to trial. If the court had the inherent power to make such an order before trial, in the interest of justice it could, with equal propriety, do so after appeal, unless it interfered with the rights of the defendants. From an evidentiary standpoint, it does not appear from the record before us that the defendant's constitutional rights will be diminished or infringed upon in this action for fraud by the appearance of the real and proper legal opponent as party plaintiff.

If the rights of parties are finally adjudicated upon appeal, as for instance in the establishment of the law of a case, by the court giving a direction to the trial court to enter a specific judgment or decree, the trial court is without authority to permit amended or supplemental pleadings. Lial v. Superior Court, 133 Cal.App. 31, 23 P.2d 795. It is the duty, however, of the court to determine completely any legal controversy between parties when it can be done without injustice to the rights of others, and where the determination requires the addition of parties plaintiff or defendant, amended, supplemental or additional pleadings may be filed upon motion of either party, or an intervening party, or upon the court's initiative if that becomes necessary, to serve the ends of justice. Code Civ.Proc., sec. 389. This rule is mandatory if the record shows that a correct determination cannot be had without the presence of other or additional parties (Ambassador Petroleum Co. v. Superior Court of Los Angeles County, 208 Cal. 667, 284 P. 445), and amendments to pleadings are to be liberally permitted providing the amendment does not state a different cause of action. Rabe v. Western Union Tel. Co., 198 Cal.2d 290, 244 P. 1077. It is immaterial whether the motion for the order be made by one litigant or the other, or by a previously unrepresented party as an intervener, or by the court of its own motion, so long as the amendment tends to a complete determination of the rights and interests of all parties concerned and does not contribute to the injury of others.

An order granting relief by the addition of parties plaintiff or defendant is remedial in its nature and will not be disturbed upon appeal unless it appears that there was an abuse of the court's discretionary powers. Hammond Lumber Co. v. Gilky, 120 Cal.App. 252, 7 P.2d 724; Nuckolls v. Bank of California, 10 Cal.2d 266, 74 P.2d 264, 114 A.L.R. 708. The added or substituted party's willingness to appear is a circumstance to consider (Tuller v. Superior Court, 215 Cal. 352, 10 P.2d 43), but “when a complete determination of the controversy cannot be had without the presence of other parties, the court must then order them to be brought in”. Code Civ.Proc., sec. 389. The provision is mandatory and the order directing the addition of an indispensable party may be made at any time (Hartman Ranch Co. v. Associated Oil Co., 10 Cal.2d 232, 73 P.2d 1163) and may be made upon the court's own motion. Loock v. Pioneer Title Ins., etc., Co., 4 Cal.App.2d 245, 40 P.2d 526; Mitau v. Roddan, 149 Cal. 1, 84 P. 145, 6 L.R.A.,N.S., 275; Gates v. Lane, 44 Cal. 392; Robinson v. Gleason, 53 Cal. 38; Rabe v. Western Union Tel. Co., supra; Bellon v. Silver Gate Theatres, Inc., 4 Cal.2d 1, 47 P.2d 462; Merchants' Trust Co. v. Bentel, 10 Cal.App. 75, 101 P. 31; O'Connor v. Irvine, 74 Cal. 435, 16 P. 236.

In Landis v. First National Bank, 20 Cal.App.2d 198, 207, 66 P.2d 730, 734, the court said: “* the general rule is that beneficiaries may not prosecute actions for the recovery of property belonging to the estate, and that it is the duty of the executor or personal representative to do so. This rule has its exceptions. In 23 Corpus Juris, p. 1193, § 426, we find the rule thus stated: ‘While the personal representative is the proper person to proceed for the recovery of assets of the estate, it is held that the beneficiary may prosecute claims where the personal representative cannot or will not act, or where the personal representative himself, by collusion with the debtor, or otherwise, obstructs the natural course which the law establishes for the transmission of the estate to the heirs.’ ”

Admitting that facts in the Landis case are different from those in Samter v. Klopstock, supra, we cannot hold that it was error to call the trial court's attention after appeal to the fact that at the time of filing the Samter action, one of the defendants (Frederick) was the sole surviving executor of the Isaac Klopstock estate and therefore unavailable as a plaintiff, but that subsequently one Flora E. Short had been appointed administratrix of Isaac's estate and was in a position legally to prosecute as plaintiff. In fact Samter, as the representative of an heir or legatee, in his motion to amend the pleadings, was simply carrying out, in substance, the direction in Samter v. Klopstock, supra, 31 Cal.App.2d at pages 536, 537, 88 P.2d at page 253 that “If the executor or administrator of the deceased stockholder refuses to exercise such rights or stands in an adverse position, the remedy of the heir or legatee or the representative of such heir or legatee is to seek the removal or suspension of the executor or administrator and the appointment of a special administrator with power to conduct the litigation. 11B Cal.Jur., p. 869, sec. 1343.”

In De Olazabal v. Mix, 24 Cal.App.2d 258, 74 P.2d 787, wherein a former wife brought suit upon certain promissory notes, the answer set forth that the notes were executed and delivered to plaintiff in trust for a minor daughter and that plaintiff could not prevail because she sued in her individual name and not in the representative capacity of trustee. The court, 24 Cal.App.2d at pages 261, 262, 74 P.2d at page 788, said: “However, a mere reading of the record before us at once indicates that during the trial of this action it developed that the purpose of the same was, among other things, to determine the rights as between the trustee and the beneficiary, and the latter, therefore, should have been brought in as a party. In this connection, the provision of section 389 of the Code of Civil Procedure is mandatory. This necessity of making all persons parties in actions under the trust where the relations of the trustees and beneficiaries are involved is in effect the rule laid down in this state in McPherson v. Parker, 30 Cal. 455, 89 Am.Dec. 129, O'Connor v. Irvine, 74 Cal. 435, 444, 16 P. 236, and Mitau v. Roddan, supra. Where, as in the instant case, it admittedly appeared to the court that it was essential to a full and complete determination of the controversy before it that the minor daughter of the parties, who was the beneficiary under the trust, should be made a party, it was the imperative judicial duty of the court to order her brought in. As was said by our Supreme Court in Mitau v. Roddan, supra, ‘It was not a matter of discretion but of duty for the court, even upon its own motion, to require their presence.’ ”

In McPherson v. Parker, 30 Cal. 456, 457, 89 Am.Dec. 129, the court said: “It is a principle of equity jurisprudence that where a decision is made upon any particular subject matter, the rights of all persons, whose interests are immediately connected with that decision and affected by it, shall be provided for, as far as they reasonably may be.” In O'Connor v. Irvine, supra, 74 Cal. at pages 443, 444, 16 p. at page 239, the court said: “If the necessary parties to a full determination are not before the court it is the duty of the court on its own motion to order them brought in; and this, although the defendants in the action have omitted to raise an objection of defect of parties by demurrer or answer. The failure of the court so to do is fatal to the judgment. Osterhoudt v. Board of Supervisors, 98 N.Y. 239; Settembre v. Putnam, 30 Cal. [490] 498; Gates v. Lane, 44 Cal. [[[[392] 396; Barb.Parties, 319.”

In Ginsberg Title Co. v. Faraone, 99 Cal.App. 381, 278 P. 866, a demurrer was interposed upon the ground of plaintiff's lack of capacity to sue. It was held that the demurrer was good, but the trial court in that case was directed to allow the complaint to be “again amended”. Curtis v. Nye & Nissen, 86 Cal.App. 507, 261 P. 747; Walsh v. Decoto, 49 Cal.App. 737, 194 P. 298; Reardon v. Balaklala Consol. Copper Co., C.C., 193 F. 189. See, also, American Bank v. Port Orford Cedar Products Co., 140 Or. 138, 12 P.2d 1014; Norton v. Ferguson, 203 Iowa 317, 211 N.W. 417; Turner v. Noble, 211 Mo.App. 656, 249 S.W. 103; Atlas Assur. Co. of London v. Fairchild, 171 Okl. 609, 43 P.2d 482; McDonald v. State of Nebraska, 8 Cir., 101 F. 171; Van Camp v. McCulley, 88 Ohio St. 1, 104 N.E. 1004.

Petitioners cite a number of cases, including Lial v. Superior Court, supra; Alpers v. Bliss, 145 Cal. 565, 79 P. 171, and Argenti v. City of San Francisco, 30 Cal. 458. They make the mistake of assuming that the controversy out of which this petition arises is between the plaintiff under any name, Samter or otherwise, and the Klopstock Company and certain shareholders. As a matter of fact it is not. The original action was brought by the executor of an heir and legatee of a deceased shareholder of the Klopstock Realty Co., for the benefit of the corporation, against the company, named as defendant because the corporation would not bring an action in its own behalf, and its alleged dominating directors or shareholders. The motion to amend is primarily to bring in the administratrix of the estate of such deceased shareholder, not a stranger, but one essentially necessary to the determination of the action. Alpers v. Bliss, supra.

In Argenti v. City of San Francisco, supra, relied upon by petitioners, considerable confusion arose relative to a judgment upon a former appeal and in connection with certain statements made by justices with reference to a petition for rehearing. As an introduction to the decision, the court, 30 Cal. at page 461, said: “The first question is, what was the judgment of this Court on the former appeal?” The former order was “Judgment reversed and cause remanded.” The court held (30 Cal. at page 462): “The judgment of the Court below was reversed. The consequence of a simple reversal usually is, that ‘the parties in the Court below have the same right which they originally had’. (Phelan v. San Francisco, 9 Cal. [15], 16; Stearns v. Aguirre, 7 Cal. 443.) But the reversal may practically end the controversy, and when such is the case it is usually accompanied by an order dismissing the action.” In the Argenti case the formal order was apparently confused with the portion of the original opinion (Argenti v. City of San Francisco, 16 Cal. 255, 275), wherein the court said: “Our conclusion is, that the right of the plaintiff to recover is limited to the amount specified in the contracts to which we have referred, and legal interest upon such amount. The judgment is for a larger sum than the plaintiff is entitled to recover, and must, therefore, be reversed. Upon the return of the cause, the Court below will render a judgment in accordance with this opinion.” In the light of the foregoing, the Argenti case ceases to be of assistance to the contention of the petitioners herein, that the reversal in the present case ended the controversy.

The alternative writ is discharged. The petition for a peremptory writ of mandate to compel the respondent court to dismiss the action so far as it relates to David Klopstock, whose judgment is final, is granted. It is denied as to Frederick Klopstock, Samuel Klopstock and the Klopstock Realty Co., a corporation.

WARD, Justice.

We concur; PETERS, P.J.; GOODELL, Justice pro tem.