Opinion ID: 1446228
Heading Depth: 1
Heading Rank: 8

Heading: Future Profits

Text: In order to demonstrate conclusively that the findings do not follow the law of the case as set forth by the District Court of Appeal, I will summarize that court's holdings and compare them with the trial court's findings: 1. The District Court held that the Transfer and Assumption Agreement constituted a purchase by Company of Exchange and that such Agreement was illegal and void. It was specifically held that Exchange was not in liquidation. Finding IV recites that Underwriters hold the property and assets of Exchange for distribution to the subscribers of the Exchange in liquidation of its business and affairs. ... Company contended on the first appeal that the Agreement was actually an agreement to liquidate. The District Court of Appeal said: However, that is not the case.... Another circumstance which shows that the Company did not act merely as liquidator is of greater importance from a practical point of view. By taking over all assets, assuming all liabilities, including all outstanding policies of the Exchange and becoming directly liable thereon to the policyholders, the Company acquired the whole business of the Exchange as a going concern and would therefore benefit by the increase of its clientele. (117 Cal. App.2d at 528, 529.) 2. The District Court of Appeal held the Transfer and Assumption Agreement illegal, void and of no effect. Finding VI is to the effect that under the Agreement no adjustment was to be made to Exchange with respect to the experience on the portion of the 1948 policies taken over thereunder; that because of the invalidity of the Agreement, the loss thereon must be charged up to Exchange. That loss experience amounted to $156,600.53. Finding V recites that no policies written after December 31, 1948, for or on behalf of any former subscribers of Exchange form any part of the net worth of Exchange. These findings are in direct conflict with the express holding of the District Court of Appeal that Company illegally and unlawfully took over the whole going business of Exchange. Findings XIII and XIV are to the effect that policies of insurance were placed voluntarily with either Exchange or Company on a year to year basis and that all policies placed with Company after December 31, 1948, on behalf of persons who had formerly been policyholders of Exchange were voluntarily placed with Company as new items of business by insurance agents who were free to place such policies with such insurance carrier as they chose. Finding XIV concluded that no policy was placed with Company by reason of or as a consequence of activities of Company being performed under, or arising as a consequence of, the Transfer and Assumption Agreement or because Company was regarded in any sense as being the successor of Exchange. The District Court of Appeal held firmly and unequivocally that due to Company's conduct in sending solicitors out and in mailing a letter to all Exchange subscribers it obtained an increase in its clientele to which it would not otherwise have been entitled. Finding XVIII recites that Company did not use or receive any information from Exchange as a consequence of the illegal agreement. Company had the information due to the interlocking relationship between it and Attorney and it was due to that information that it was able to contact all Exchange subscribers and obtain their business on the theory that the business placed with it would be serviced with the same personnel and from the same offices as it had been when Exchange was a going business concern. Furthermore, the solicitation and letters were both accomplished while Exchange was still a going concern. Finding XXXI recites in effect that it is not true that Exchange was entitled to any future profits. This of course directly belies the mandate of the District Court of Appeal that Company illegally took over the whole going business of Exchange; that an accounting should be had to determine the value thereof; that Company increased its clientele through its illegal tactics. The evidence also showed indisputably that Company had collected over 20 million dollars in gross premiums due to the increased business it had obtained because of the illegal take-over of Exchange. The only effort made in the majority opinion to comply with the law of the case is to set forth the findings on the retrial and state without amplification that they are within the issue ordered to be retried and that they are supported by the evidence. The District Court of Appeal (117 Cal. App.2d 519 [256 P.2d 677]) did not hold that Exchange was not entitled to the profits accruing by reason of the illegal take-over of its business by Company. It did hold that Exchange subscribers were not entitled to the profits made from both Exchange and Company business. The court had this to say (p. 539): Under these circumstances it is not for us to say that the ultimate findings of the court below are necessarily improper inferences nor can we hold as a matter of law, contrary to said findings, that the Attorney breached its fiduciary duty to subscribers when it engaged in the writing of workmen's compensation insurance through the medium of Company or that the business of Company was in equity the property of Exchange. We are the more satisfied that this result is not unjust because the gain by Exchange of all the profits of the business of Company without participation in them by any of Company's insureds would have given the subscribers of the Exchange a windfall wholly out of line with the setup of such Exchange. (Emphasis added.) The emphasized portion shows clearly that the District Court was referring to the business of Company as distinguished from the profits made by Company from the business taken away from Exchange subscribers since the statement was in answer to a contention made by Exchange that it was entitled to all of Company's business in the compensation insurance field before the unlawful take-over as well as all of its own business and the profits made therefrom after the take-over. This argument was based upon the theory that Company had breached its fiduciary duty by going into competition with Exchange in the compensation insurance field before the unlawful take-over. As I have shown, the findings do not comply with the law of the case (117 Cal. App.2d 519 [256 P.2d 677]). Although I do not believe that the evidence does support the findings that were made, and certainly very little effort is made in the majority opinion to recite any of the evidence said to be sufficient, it is immaterial in any event since the findings are not in accord with the law of the case. The very fact that the trial court's findings and conclusions show, indisputably, that it considered that Exchange was in liquidation shows the error since liquidation is the antithesis of a going business concern. It is also obvious that the judgment permitting Company to obtain all assets of Exchange for a lower figure than that provided for in the void Agreement is in contravention of the holding of the District Court of Appeal that Company and Attorney stood in a fiduciary relationship so far as Exchange was concerned and that a fiduciary may not benefit by a breach of its duties to its beneficiary. So far as business profits are concerned, the law is that where there has been a breach of a fiduciary duty, a constructive trust is imposed upon a person in order to prevent his unjust enrichment. In most cases where a constructive trust is imposed, the result is to restore to the injured person property of which he has been unjustly deprived and to take from the wrongdoer property, the retention of which by him, would result in a corresponding unjust enrichment of the wrongdoer. ( Koyer v. Willmon, 150 Cal. 785 [90 P. 135]; Broder v. Conklin, 121 Cal. 282 [53 P. 699]; Johnson v. Clark, 7 Cal.2d 529 [61 P.2d 767]; Forman v. Goldberg, 42 Cal. App.2d 308 [108 P.2d 983]; Rest., Restitution, §§ 160, 190.) It follows logically from the foregoing that before Exchange may be made whole for what has been illegally taken from it by Company, the latter must be forced to return to Exchange that which was taken together with the profits made therefrom. Exchange introduced evidence showing that it was possible to trace former Exchange business for the five-year period subsequent to the execution of the illegal Agreement. The majority would have us assume that had the illegal Agreement not been executed all of Exchange subscribers would have ceased being Exchange subscribers and placed their business with Company. This assumption is neither logical nor probable; Exchange had been a prosperous going concern for many years prior to the execution of the Agreement and would, in all probability, have continued as one. The majority holding that Exchange subscribers are entitled to no reimbursement from Company after the expiration of the last yearly policy issued by Exchange is a judicial sanction of something which the law has always abhorred  that a wrongdoer be permitted to profit from his own wrong. Company-Attorney stood in a fiduciary relation to Exchange (117 Cal. App.2d 519 [256 P.2d 677]) and should therefore be held to the same standards as the law imposes on the trustee of an express trust (117 Cal. App.2d 519 [256 P.2d 677]). (See also Clapp v. Vatcher, 9 Cal. App. 462, 466 [99 P. 549]; Edgar v. Bank of America, 50 Cal. App.2d 827, 833 [123 P.2d 885]; The Fiduciary Principle, 37 C.L.R. 539-555.) It is an elementary principle of the law of trusts that a trustee is forbidden to make use of the trust property for his private or individual purposes or to derive any profit therefrom (Civ. Code, § 2229; Purdy v. Johnson, 174 Cal. 521, 529 [163 P. 893]; Rest., Trusts, § 205(b); Crenshaw v. Roy C. Seeley Co., 129 Cal. App. 627 [19 P.2d 50]; 25 Cal.Jur., § 190, p. 342) and if he does derive profit from such a breach of trust he is liable to the beneficiary therefor ( Estate of Piercy, 168 Cal. 755 [145 P. 91]; Burns v. Clark, 133 Cal. 634, 639 [66 P. 12, 85 Am.St.Rep. 233]; Tobin Grocery Co. v. Spry, 204 Cal. 247 [267 P. 694]; 2 Scott on Trusts, § 170.2, p. 1199; Rest., Trusts, § 205(b); Civ. Code, § 2237). The policy of the law has always been, up until this case, to put fiduciaries beyond the reach of temptation by making it unprofitable for them to yield to it. ( MacIsaac v. Pozzo, 81 Cal. App.2d 278, 285 [183 P.2d 910]; Miller v. McKinnon, 20 Cal.2d 83 [124 P.2d 34, 140 A.L.R. 570]; Hoyt v. Hampe, 206 Iowa 206 [214 N.W. 718, 724].) The breach of the fiduciary duty in the case at bar has proved very profitable to Company and a majority of this court has placed its stamp of approval thereon. The rule which should be applied here is that stated in the Restatement of Restitution, section 160, Comment (d): There are some situations, however, in which a constructive trust is imposed in favor of a plaintiff who has not suffered a loss or who has not suffered a loss as great as the benefit received by the defendant. In these situations the defendant is compelled to surrender the benefit on the ground that he would be unjustly enriched if he were permitted to retain it, even though that enrichment is not at the expense of the plaintiff. Thus, if the defendant has made a profit through the violation of a duty to the plaintiff to whom he is in a fiduciary relation, he can be compelled to surrender the profit to the plaintiff, although the profit was not made at the expense of the plaintiff. The following cases from California [] which are in accord with the Restatement rule just set forth must, under the majority holding, be deemed overruled. The majority opinion, however, in totally ignoring the facts, the law of the case, and the far-reaching effects its ill-advised decision will have on one of California's major industries, does not even discuss the law of restitution, and trusts, but holds, simply and without amplification, that the evidence supports the findings! One would never know from reading the majority opinion that any law was involved; one would never know the enormity of the theft committed as the result of the unlawful conduct of the officers of Company which is here judicially sanctioned.