Court Opinion

ID: 9893576
Source: CourtListenerOpinion
Date Created: 2023-10-27 19:03:27.338218+00
Date Added: 2024-06-11T09:04:34.027916
License: Public Domain

Filed 10/27/23 Wagner v. Messana 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                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or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

 DEBORAH WAGNER,
           Plaintiff and Respondent,
                                                                        A165730
 v.
 RUSSELL C. MESSANA et al.,                                             (Sonoma County
                                                                        Super. Ct. No. SCV-267562)
           Defendants and Appellants.

         After the trial court granted respondent trustee’s motion to compel
documents, appellants refused to provide them on grounds they had not
raised in their opposition to the motion. Respondent then brought a motion
for terminating and monetary sanctions. The trial court declined to order
terminating sanctions but ordered monetary sanctions against appellants
and their attorneys. We affirm.

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                                     I.
                           FACTUAL AND PROCEDURAL
                                BACKGROUND
      The background of this dispute occurred in 1999 when Theresa
Messana Louvar created the Theresa Messana Louvar Trust (Trust).1 The
Trust included a 9.37-acre long lot on Santa Rosa Avenue in Santa Rosa. The
lot is the site of a boat-and-storage business, TJ RV & Boat Storage (TJRV).
Louvar named as Trust beneficiaries her three children: Charles Joseph
Messana (Jody, who is not a party to this appeal), and appellants Russell
Messana and Christine (Chris) Merkel.2 She later executed an amendment
that established a “Separate Share Trust” for Jody. That separate trust was
to pay Jody $1,000 each month, with discretion to provide additional support.
The separate trust is to terminate on Jody’s death, with any remaining trust
property to be distributed to Jody’s living issue or to his siblings if he dies
with no issue. Russell was appointed as trustee. Russell became the
manager of TJRV in 2004. Louvar died in May 2012.
      Respondent Deborah Wagner, a private professional fiduciary, was
appointed trustee of the Separate Share Trust in March 2016 after Russell
was removed as trustee following a court trial in a separate action. Wagner
encountered resistance from Jody’s siblings as soon as she assumed her role
and has attested that “every aspect of my duties has been unnecessarily

      1 Appellants have asked us to judicially notice the proceedings in this

court in Wagner v. Messana (Mar. 11, 2022, A159310) [nonpub. opn.]
(Wagner I). The unopposed request is granted. We decline, however, to take
judicial notice of certain representations that Wagner made in her appellate
briefing in Wagner I, as it appears that appellants are asking the court to
take judicial notice of the truth of the matters asserted.
      2 In the interest of clarity, we refer to the family members by their first

names. Chris died in April 2021 (after the start of litigation), and her
daughter (Amber Dee Merkel) and Russell were substituted in Chris’s place.

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problematic.” Russell and Chris tried to have Wagner removed as trustee
around two years after she was appointed, but their request was denied.
        The probate court in the separate action naming Wagner as trustee
also ordered that the Santa Rosa land be transferred to the trusts of each of
the three siblings so that each had a one-third undivided interest as tenants
in common. And it further ordered Russell to distribute TJRV out of the
Trust to its beneficiaries’ trusts, so that each would have a one-third
undivided interest as tenants in common.
        There is some dispute over exactly how the distribution of TJRV was
effectuated. Public records suggest that TJRV was conveyed from the Trust
into a limited liability company (LLC). Articles of incorporation were filed in
June 2016 with the Secretary of State establishing “TJRV & Boat Storage,
LLC.”
        Within a year of being appointed trustee of the Separate Share Trust,
in February 2017, Wagner filed a petition for instructions regarding trust
distributions. The petition asserted that the parties had discussed creating
an LLC for the business but had reached an impasse since Russell and Chris
insisted on majority rule for business and expenditure decisions, and Wagner
was concerned that would leave Jody with no say in those issues. Russell and
Chris opposed the petition. Although their opposition is not in the record,
they apparently contended that TJRV had been operating as a general
partnership and that the partners had filed articles of organization with the
Secretary of State to establish an LLC. In her reply, Wagner stated that she
had not signed any articles of organization and had not been made aware
that such articles had been filed. She further attested that the “formation of
the LLC ha[d] no effect currently on the business or the real property as the
LLC has no assets.” And she speculated it was “unlikely that the LLC will be

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funded with the business and real property as the parties have been
unsuccessful in reaching an agreement on the terms of the operating
agreement for the LLC.”
      In May 2019, TJRV filed a fictitious business name statement with the
Sonoma County clerk’s office stating that “TJ Recreational Vehicle Storage”
was owned by “TJRV & Boat Storage, LLC,” and that the business was
conducted by an LLC. “TJRV and Boat Storage LLC” files federal tax
returns, though the business’s accountant has attested that the Internal
Revenue Service “does not recognize an LLC as a taxable entity,” and that an
LLC and a partnership are treated the same for income tax purposes.
Wagner attested in this action that in her fiduciary capacity, she holds a one-
third membership in the LLC, along with Russell and Chris.
      Appellants dispute the business’s status as an LLC, though. According
to Russell, following the litigation that resulted in naming Wagner trustee,
“[n]o portion of the ownership of TJRV . . . has been transferred into any
limited liability company,” and it “has operated as a general partnership”
since it was distributed from the Trust to the Separate Share Trust, Russell,
and Chris. Appellants have claimed in this litigation that Wagner made
statements in a different case that TJRV was not, in fact, an LLC (an
apparent reference to the statements in connection with her 2017 petition for
instructions). They maintain that the “business TJRV has never been
transferred to the LLC and the LLC has no ownership interest in TJRV.”
There apparently is no dispute that the parties were not able to form an
operating agreement for TJRV. Russell claims this lack of agreement is why
he never transferred the business into the LLC. He attested that he “now
regret[s] ‘jumping the gun’ and taking these steps [to form an LLC] which I

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now know were mistakes, because the owners of TJRV were never able to
reach an agreement to have TJRV become a limited liability company.”
      As for the property that TJRV sits on, Wagner initiated partition
proceedings in May 2017 in order to meet distribution and expense
requirements of the Separate Share Trust. The court ultimately ordered that
the property be partitioned by sale, and this court affirmed. (Wagner I,
supra, A159310.)
      A dispute also arose over the management of TJRV, which led to this
current litigation. Quarterly reports summarizing the business’s expenses
showed that, as of the end of June 2020, TJRV had paid $250,000 for the
attorney fees and costs of Russell and Chris. While the Wagner I partition
action was pending, Wagner filed this separate suit in December 2020. She
sued Russell and Chris for (1) breach of fiduciary duty, (2) damages for
refusal to make distribution, (3) breach of fiduciary to company, (4) unjust
enrichment, (5) waste of corporate assets, (6) abuse of control, (7) accounting,
and (8) injunctive relief. Wagner alleged that Russell and Chris had
“effectively been using [TJRV] as their personal bank account to wage and
defend legal battles which they admit, including in pleadings before the
Court, have nothing to do with TJRV.” The complaint named TJRV as a
defendant for derivative claims brought by Wagner as a member of TJRV on
behalf of the company against the other members.
      Appellants demurred to the complaint. They also filed a motion to
strike allegations in the complaint regarding TJRV’s status as an LLC, its
assets, and whether Wagner was a member of TJRV. The trial court
overruled the demurrer and motion to strike. As for Wagner’s supposedly
inconsistent previous statement that she was not aware of TJRV’s articles of
incorporation, the trial court found that the present allegations were “not

                                       5
inherently contradictory and, moreover, do not take into account possible
innocent explanations which the allegations may support, such as ignorance,
or improper conduct by [appellants].” And as for the supposedly inconsistent
previous allegation that the LLC had no assets, the trial court concluded that
this statement also was “not inherently contradictory and may well be merely
what she believed at the time.”
      Wagner noticed the deposition of the person at TJRV most
knowledgeable (Code Civ. Proc., § 2025.230) to testify about (1) TJRV’s
payment of any attorney fees beginning in 2016, (2) agreements between
TJRV with any law firm or individual attorney, (3) TJRV’s form of legal
entity, (4) management of TJRV, and (5) the corporate governance of TJRV.
The notice also sought related documents. Appellants objected to the
production of payment information or agreements with law firms because
they claimed they were being asked to disclose information protected by the
attorney-client privilege. Wagner then filed a motion to compel the
information, which appellants opposed. The gravamen of their argument was
that the requested documents were covered by the attorney-client privilege.
      The trial court in January 2022 granted the motion to compel, which
we sometimes refer to as the underlying discovery order. The court rejected
appellants’ arguments that Wagner lacked standing to obtain the documents
because she was not a member/owner of TJRV, and it instead found that she
“ha[d] provided evidence that [she] holds a one-third interest in the LLC.”
And the court agreed with Wagner that absent an operating agreement, the
Corporation Code governs the operation of an LLC. (Corp. Code, § 17701.10,
subd. (b).) Under the code, every member has the right to inspect and copy
books and records related to the internal affairs of the LLC, including copies
of financial statements and the LLC’s books and records related to its

                                       6
internal affairs. (Corp. Code, §§ 11701.13, subd. (d) [documents LLC must
maintain], 17704.10, subd. (b) [each LLC member has right to inspect
records].) The trial court further concluded that none of the LLC members
could assert the LLC’s privilege against another, meaning that appellants
could not claim it against Wagner.
      Wagner then again noticed the deposition of the person most qualified
at TJRV to testify about the same topics Wagner previously noticed. TJRV
indicated it would not produce any invoices reflecting attorney fees TJRV had
paid or any agreements the business had with any attorneys or law firms.
Their attorney attested that in response to Wagner’s amended deposition
notice, she reviewed hundreds of pages of bank statements for both the LLC
and the partnership, which have separate bank accounts. She further
attested that there was no indication that the LLC paid for any of the
attorney fees or costs, and that “[a]ll such attorneys’ fees and costs were paid
by the Partnership, which is a separate entity and is not a party to this
lawsuit.” There were thus no responsive documents, according to the
attorney, since “the partnership,” and not the LLC, paid attorney fees.
Counsel maintained that “TJRV and Boat Storage, LLC” was not the same
entity as “TJRV and Boat Storage, the general partnership.” And counsel
said the trial court’s conclusion that Wagner was a member of the LLC was
based on Wagner’s “false assertion” that the Separate Share Trust’s interest
in the business had been transferred into the LLC.
      Wagner in February 2022 filed a motion for terminating and monetary
sanctions, the subject of this appeal. Appellants opposed the motion. They
argued for the first time that they were not producing documents because
TJRV was a partnership. Appellants further argued that Wagner had sued
the wrong entity since the LLC has paid no attorney fees, and they

                                       7
maintained they had not violated the previous court order since the court had
not ordered them “to produce records of the non-party partnership.”
(Formatting omitted.) And they sought sanctions against Wagner for
“false[ly] claim[ing]” that they had violated the trial court’s order and for her
“refusal to heed the law and the facts.”
      The trial court (the same judge who had issued the underlying
discovery order) issued a tentative ruling granting the motion for terminating
and monetary sanctions (though less than what Wagner had requested).3
But apparently a different trial judge conducted the hearing on the motion,
and said at the end of the hearing he would “have to think about it more” and
took the matter under submission.
      The trial court (the judge who considered the motion at the hearing)
was apparently concerned that Wagner had not gone forward with the
person-most-qualified deposition after she learned that appellants would not
be producing the disputed documents, and the court thus denied the request
for terminating sanctions without prejudice. But it found that appellants had
failed to comply with the underlying discovery order, and it ordered monetary
sanctions against both appellants and their attorneys in the amount of
$7,000, which was less than the $20,000 Wagner had requested in her
motion. The court noted that in appellants’ opposition to the original motion

      3 The tentative ruling was not included in the record on appeal, but

Wagner seeks to augment the record with it. Appellants oppose the motion
on the ground that a trial court’s tentative ruling is not binding on the court
and is superseded by the court’s final order. (E.g., Silverado Modjeska
Recreation & Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282,
300.) But that argument goes to the relevance of the document and not
whether it is the proper subject of augmentation, which it is. (Cal. Rules of
Court, rule 8.155(a)(1)(A) [reviewing court may augment record to include
“[a]ny document filed or lodged in the case in superior court”].)

                                        8
to compel, they interchangeably referred to TJRV as a partnership and a
corporation, “without actually making an assertion that there were two
different entities, or raising any arguments based on such a position.” The
court further stated that “it has been clear throughout that one factual issue
which [Wagner] has been trying to determine, and obtain through discovery,
is information on the nature of the TJRV business entity, making it more
clear that [appellants] knew of this and yet, instead of providing relevant,
requested information, have been engaged in obfuscation and improper
efforts to avoid discovery.” The court found that appellants had “knowingly
and willfully abused the discovery process in an apparent effort to maintain
confusion and uncertainty regarding the business entities identified as
‘TJRV’ or ‘TJRV & Boat Storage’ or some form thereof, and they have
willfully failed to comply with this court’s [underlying discovery order].”
Appellants appealed.4 (Code Civ. Proc., § 904.1, subd. (a)(12) [appeal may be
taken from order of monetary sanctions against party or attorney in amount
exceeding $5,000].)
                                      II.
                                  DISCUSSION
      Appellants argue that the trial court abused its discretion when it
imposed monetary sanctions on them. (O&C Creditors Group, LLP v.
Stephens & Stephens XII, LLC (2019) 42 Cal.App.5th 546, 561 [where there is
basis for trial court’s discovery ruling and evidence supports it, reviewing
court will not substitute its opinion for trial court’s].) We are not persuaded.

      4 Although the sanctions order was entered against both appellants and

their attorneys, it does not appear that the attorneys appealed from the
order. The initial notice of appeal did not list a party appealing, and the
amended notice filed the same day listed only Russell and Russell and Amber
in their representative capacities as co-trustees of the Trust. Appellants’ civil
case information statement likewise does not list the attorneys as parties.

                                        9
      Appellants devote the majority of their appellate briefing to an
argument that does not bear on the sanctions order from which they appeal:
whether the documents they were ordered to produce were covered by the
attorney-client privilege. When Wagner initially moved to compel the
production of these documents, she also sought her attorney fees and costs
since, according to her, appellants’ failure to produce the documents was
without substantial justification. The trial court denied the request for fees
and costs because it concluded that “there may be some justification for
[appellants’] position and that this matter [i.e., the attorney-client privilege
issue] is not wholly clear.” In other words, they were not sanctioned for
claiming the documents were privileged.
      Appellants ask this court to “reverse[]” or “overturn[]” the order
directing them to produce documents. But they did not challenge that order,
even though they could have sought relief by way of a petition for a writ of
mandate.5 (E.g., Los Angeles Gay & Lesbian Center v. Superior Court (2011)
194 Cal.App.4th 288, 299–300 [writ review appropriate where discovery order
will undermine a privilege].) Instead, they again refused to produce
documents, relying on an entirely new theory, one they hardly touch on in
their appellate briefing.

      5 Appellants rely on People v. Landers (2019) 31 Cal.App.5th 288, 310,

which considered whether an attorney had a substantial justification for
withholding what he argued was privileged material. But that appeal was
taken directly from the order sanctioning the attorney for withholding the
documents (id. at p. 295), as opposed to a subsequent order sanctioning the
attorney for failure to comply with an order to produce the documents.

                                        10
      Thus even if we agreed with appellants that the documents at issue
were privileged—an issue we need not and do not decide6—that is ultimately
irrelevant to the reasons the trial court sanctioned them and their attorneys
for failure to comply with the underlying discovery order. The trial court
issued sanctions because appellants “ha[d] clearly and knowingly refused to
comply with th[e] court’s order on grounds which they had never raised and
which on their face are not only clearly groundless but which appear spurious
and in bad faith.” Whether or not appellants initially had a valid argument
that the requested documents were privileged, they were ultimately
sanctioned for relying on a different, bad-faith argument why they were not
obligated to produce the documents after they were ordered to do so.
      Appellants ultimately do repeat on appeal the arguments they made
below when they declined a second time to produce documents. They claim it
was “impossible” for them to comply with the underlying discovery order
since it compelled them to produce documents from the LLC, and “those
documents do not exist.” Again, the trial court concluded that this argument
was raised “only . . . after the court order finding [appellants’] actual
objections to be invalid and inapplicable, [which] demonstrates . . . that
[appellants] have knowingly and in bad faith willfully failed to comply with
this court’s order and in bad-faith abuse of the discovery process.” According
to appellants, though, this was not “some new and spurious argument to
excuse noncompliance” with the underlying discovery order because they
“repeatedly and at every opportunity asserted their position that the LLC did
not own assets and did not pay attorneys’ fees, Wagner lacks standing to

      6 Because resolution of this issue is not necessary to this appeal, we

deny appellants’ request to take judicial notice of legislative history they
claim is relevant to their privilege argument.

                                        11
bring this action, and Wagner misjoined the LLC.” In support of this
assertion, they cite statements made in their pleadings filed in opposition to
Wagner’s application for a restraining order she sought early in these
proceedings, their demurrer and motion to strike portions of Wagner’s
complaint, and their answer. But the order overruling their demurrer and
denying the motion to strike made clear that Wagner’s complaint could go
forward even if there had been some confusion over the form of TJRV.
Appellants also cite to statements made in meet-and-confer correspondence
leading up to the current order (as opposed to the underlying discovery order),
as well as statements made in opposition to the motion for terminating
sanctions. Again, the whole reason appellants were sanctioned was because
they failed to raise this argument in opposition to Wagner’s original motion to
compel.
      True enough, in their opposition to Wagner’s initial motion to compel,
the facts section of their brief included statements that TJRV Boat & Storage,
LLC owned no assets. And that section further represented that “TJRV
Boat & Storage is a small, family-owned, unincorporated business.” Russell
similarly attested in his declaration supporting the opposition that no part of
the TJRV business had been transferred to the LLC. But appellants did not
argue that there were no responsive documents, only that such documents
were privileged. The four substantive headings in the argument section of
their original opposition were as follows: (1) “Wagner has the burden to show
she is entitled to confidential communications,” (2) “Wagner is not entitled to
communications between [appellants] and their counsel,” (3) “Wagner is not
entitled to privileged communications with TJRV Boat & Storage, LLC,” and
(4) “Wagner’s motion is without substantial justification.” It was not until
their opposition to the motion for terminating sanctions that appellants

                                      12
argued they could not comply with the deposition notice because the LLC had
no responsive documents. As the trial court noted when it imposed sanctions,
appellants merely argued in opposition to the original motion to compel that
“they did not need to produce the documents or provide the information due
to work product or privilege, and they appeared to be generally using
‘corporate or partnership’ interchangeably to refer to TJRV, without actually
making an assertion that there were two different entities, or raising any
arguments based on such a position.” (Italics added.)
      We also reject appellants’ argument that the trial court’s statement in
the underlying discovery order that Wagner had presented evidence she is an
owner of the LLC somehow deprives them of their “right to a jury trial on
their affirmative defense that Wagner lacks standing to bring this action.”
The trial court found in the order appealed from that “[a]t this stage, with the
information provided, it is impossible for the court to determine, and it is
evidently not clear to the parties, whether there actually is a TJRV LLC, a
TJRV partnership which has been formed but not named as a party in this
lawsuit, or another TJRV business entity altogether. It is also unclear
whether any party, or another TJRV business entity[,] is engaged in business
under a TJRV fictitious business name and, if so, who is doing so.” It
stressed, though, that the requested documents go to the heart of this
lawsuit. “Notably, even if there are no documents regarding payments by the
LLC to attorneys, or agreements between the LLC and attorneys, [Wagner]
also seeks documents on the ‘form of legal entity for TJRV & Boat Storage’ as
well as its management and governance, documents which on the face of
matters do seem likely to exist in some fashion. Even if they do not have
such documents [appellants] must do more than simply refuse to produce any
by saying that the LLC was not involved in the events at issue.” (Italics

                                       13
added.) In short, the court concluded that further discovery was crucial but
did not foreclose any affirmative defenses appellants may have.
      Because we affirm the trial court’s sanctions order, we reject
appellants’ argument that the trial court erred by not ordering sanctions
against Wagner for filing what they claim was a “frivolous and . . . bad faith”
sanctions motion. And as appellants apparently do not challenge the amount
of the sanctions awarded, any argument about the figure has been forfeited.
                                      III.
                                 DISPOSITION
      Wagner’s June 9, 2023 motion to augment the record is granted.
      Appellants’ April 21, 2023 request for judicial notice is granted in part
and denied in part as set forth in the opinion.
      The order imposing sanctions on appellants is affirmed. Wagner shall
recover her costs on appeal.

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                                            _________________________
                                            Humes, P.J.

WE CONCUR:

_________________________
Banke, J.

_________________________
Getty, J.*

      *Judge of the Superior Court of the County of Solano, assigned by the
Chief Justice pursuant to article VI, section 6 of the California Constitution.

Wagner v. Messana A165730

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