Court Opinion

ID: 9411064
Source: CourtListenerOpinion
Date Created: 2023-07-25 18:04:41.900436+00
Date Added: 2024-06-11T17:21:02.557895
License: Public Domain

Filed 7/25/23 Tsutsui Enterprises v. Anderson CA3
                                           NOT TO BE PUBLISHED
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 This opinion has not been certified for publication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
                                      THIRD APPELLATE DISTRICT
                                                     (Sacramento)
                                                            ----

 TSUTSUI ENTERPRISES, INC.,                                                                    C095693

                    Plaintiff and Appellant,                                        (Super. Ct. No. 34-2018-
                                                                                    00229418-CU-PN-GDS)
           v.

 MICHAEL J. ANDERSON,

                    Defendant and Respondent.

         Plaintiff Tsutsui Enterprises, Inc. (TEI), sued its former corporate attorney,
defendant Michael J. Anderson, for legal malpractice and breach of fiduciary duty. After
TEI made its opening statement at trial, the trial court granted Anderson’s motion for
nonsuit on the ground that TEI could not prove its claims without expert testimony on the
applicable standard of care. TEI appeals, contending that it was error to grant the motion
for nonsuit because the “common knowledge” exception to the general rule requiring
expert testimony applies. We disagree with TEI and affirm the judgment.

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                  FACTUAL AND PROCEDURAL BACKGROUND
       A.     The facts1
       TEI is a small farming business established by the Tsutsui family. The business
remained in the family and, eventually, Thelma Tsutsui took over the principal role at
TEI. Thelma was assisted by her two sons, Donald Tsutsui and Fred Tsutsui. Donald,
the elder son, was the operations manager, while Fred, the younger son, managed the
field work. Thelma, Donald, and Fred served as the three members of TEI’s board.
       In the late 1980’s, Thelma retired from TEI and stepped down from the board.
Although TEI’s bylaws required the board to have three members, TEI’s attorney,
Anderson, did not advise Donald or Fred of this requirement. After Thelma retired,
Donald and Fred remained on the board as president and vice president, respectively, but
they did not choose a third board member. At the time of Thelma’s retirement, TEI
owned two pieces of property. The first parcel, “County Road 24,” included housing
structures for workers, storage, a workshop, and an office for TEI business. The second
parcel was a piece of farmland, which TEI leased to a larger entity for farming.
       In 1997, Donald asked Anderson, as TEI’s attorney, to prepare a stock purchase
agreement (the agreement) meant to ensure that TEI would pass to subsequent
generations, which he did. The agreement was binding on Donald, Fred, and their family
members and heirs. It granted Donald 5,100 shares of TEI stock and granted Fred 4,900
shares. The agreement further addressed Donald and Fred’s life insurance policies,
which were owned by TEI and purchased for the express purpose of fulfilling the
agreement. As relevant here, the agreement provided that in the event of Donald or
Fred’s death, TEI would use the insurance proceeds to purchase the decedent’s stock
from his estate. The stock purchase price was to be determined by TEI’s accountant

1     We rely solely on facts drawn from the operative complaint and TEI’s opening
statement at trial. (See Paul v. Layne & Bowler Corp. (1937) 9 Cal.2d 561, 564.)

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within 45 days of a request. If the insurance proceeds exceeded the purchase price, TEI
would retain the excess insurance proceeds.2
         While representing TEI, Anderson simultaneously represented Donald personally.
In this role, Anderson created testamentary documents, including a trust, providing that
Donald’s estate would be passed to Donald’s daughter, Michelle Uchiyama, upon his
death.
         On November 23, 2015, Donald passed away. This left Fred as the sole remaining
director. However, Fred was unaware that TEI’s bylaws granted him the authority to step
in as president and appoint two new board members, and Anderson did not advise him of
these bylaws. Accordingly, Fred took no action to do so.
         In response to Donald’s death, Fred’s son, Daryl Tsutsui, who worked for TEI,
initiated the stock buyout procedure delineated in the agreement. Specifically, Daryl
asked Richard Kadoya, TEI’s longtime accountant, to prepare the book value of TEI’s
shares of Donald’s stock, which Kadoya determined to be approximately $62,000. This
meant that once TEI purchased the stock with Donald’s life insurance payment, the
balance of approximately $487,000 from Donald’s life insurance would be left for TEI.
To facilitate TEI’s purchase of Donald’s shares, Daryl asked Anderson to make a claim
under Donald’s life insurance policy. However, around this same time, Donald’s
daughter Michelle, who was the successor trustee of Donald’s trust, instructed Anderson
to fire Kadoya. Anderson complied with Michelle’s request and sent Kadoya a
termination letter without informing Fred.
         In January 2016, also without informing Fred, Anderson issued Donald’s 5,100
shares of stock to Michelle. Michelle purchased the shares based on the market value of
TEI’s real estate, rather than the book value of the company as determined by Kadoya.

2     As TEI’s attorney, Anderson prepared minutes from meetings that did not occur.
He fabricated theses minutes for approximately 12 years.

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This gave Michelle a 51 percent stake in TEI. On January 26, 2016, Michelle used her
majority status to appoint herself and her husband to TEI’s board of directors without
notice to Fred. They also designated themselves president (Michelle) and vice president
(Michelle’s husband) of TEI. Michelle then used the proceeds from Donald’s life
insurance, intended to go to TEI, to instead pay off TEI’s and Donald’s debts on the
County Road 24 property.
       In response to Michelle’s actions, Fred filed a derivative suit against Michelle and
her husband. Fred, unable to pay the attorney fees required to continue litigation, agreed
to an “unfavorable” settlement in August 2017, the details of which are unclear from the
record. The settlement appears to have provided for the buyout of Donald’s shares of
TEI’s stock from Michelle based on the market value of TEI’s property, rather than the
value of the company. As a result of the settlement, Michelle sold TEI’s property, which
put TEI approximately $1 million in debt. Without its real property, and saddled with
debt, TEI could no longer operate as a farm. Michelle resigned from TEI. TEI
terminated Anderson from representing the corporation in August 2017.
       B.     Procedural history
       In March 2018, TEI filed this lawsuit against Anderson for breach of fiduciary
duty and professional negligence. TEI alleged that Anderson breached his common law
and fiduciary duties to TEI by failing to advise Fred of his rights upon Donald’s death,
including the right to appoint two board members, and by helping Michelle and her
husband acquire control of TEI in violation of TEI’s bylaws, allowing Michelle to
improperly act as a shareholder and repudiate the agreement, failing to maintain TEI’s
minutes and hold corporate meetings, and disclosing corporate information without
notice or consent, all to the detriment of TEI. TEI alleged that Anderson’s breaches
caused TEI to suffer damages by, in part, preventing TEI from retaining a fair portion of
its assets, and by causing TEI to reach an unfavorable settlement in the resulting
derivative suit.

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       The case proceeded to jury trial. After TEI gave its opening statement, Anderson
moved for nonsuit. Anderson argued that because TEI would not have an expert at trial
to testify on the standard of care, TEI could not prove duty, breach, or causation for either
cause of action. The trial court agreed with Anderson and granted the motion. In doing
so, it found that the “common knowledge” exception to the rule requiring expert
testimony in malpractice actions did not apply in this case. TEI appeals.
                                       DISCUSSION
       The sole question presented is whether the scope of Anderson’s duty and his
resulting breach were so clear from the facts of the case that expert testimony on the
standard of care was not required. TEI contends that expert testimony was not required
because Anderson’s negligence would be obvious to a layperson, and any potential
questions regarding the scope of Anderson’s duty could be addressed via jury instructions
on California’s Rules of Professional Conduct. In response, Anderson contends this case
does not fall within the common knowledge exception, as it presents complex issues
regarding corporate matters, shareholder disputes, estate planning, trusts, and conflicts of
interest, such that expert testimony was required. We agree with Anderson.
                                              I
                                     Motion for Nonsuit
       “A defendant is entitled to a nonsuit if the trial court determines that, as a matter
of law, plaintiff’s evidence does not permit a jury to find in plaintiff’s favor.” (Unigard
Ins. Group v. O’Flaherty & Belgum (1995) 38 Cal.App.4th 1229, 1234.) Code of Civil
Procedure section 581c, subdivision (a)3 provides that a defendant may move for nonsuit
after a plaintiff has presented his or her opening statement. “ ‘The standard of review for
a nonsuit after [the] conclusion of the opening statement is well settled. Both the trial

3      Undesignated statutory references are to the Code of Civil Procedure.

                                              5
court in its initial decision and the appellate court on review of that decision must accept
all facts asserted in the opening statement as true and must indulge every legitimate
inference which may be drawn from those facts. [Citations.]’ ” (Galanek v. Wismar
(1999) 68 Cal.App.4th 1417, 1424.) “Such judgment will be affirmed if from all the facts
alleged in the complaint and stated by counsel and all the favorable inferences to be
deduced therefrom, it is plainly apparent that a case cannot be maintained by the plaintiff.
[Citation.]” (Paul v. Layne & Bowler Corp., supra, 9 Cal.2d at p. 564.)
                                              II
                                           Analysis
       Plaintiff alleges claims of legal malpractice and breach of fiduciary duty. “ ‘In
civil malpractice cases, the elements of a cause of action for professional negligence are:
“(1) the duty of the attorney to use such skill, prudence and diligence as members of the
profession commonly possess; (2) a breach of that duty; (3) a proximate causal
connection between the breach and the resulting injury; and (4) actual loss or damage.
[Citations.]” [Citation.]’ [Citations.]” (Blanks v. Seyfarth Shaw LLP (2009) 171
Cal.App.4th 336, 356-357.) Similarly, to prove breach of fiduciary duty, a plaintiff must
show “(1) the existence of a fiduciary relationship, (2) its breach, and (3) damage
proximately caused by that breach.” (Mendoza v. Continental Sales Co. (2006) 140
Cal.App.4th 1395, 1405.)
       “As a general rule, the testimony of an expert witness is required in every
professional negligence case to establish the applicable standard of care, whether that
standard was met or breached by the defendant, and whether any negligence by the
defendant caused the plaintiff’s damages. [Citation.]” (Scott v. Rayhrer (2010) 185
Cal.App.4th 1535, 1542; Unigard Ins. Group v. O’Flaherty & Belgum, supra, 38
Cal.App.4th at p. 1239.) However, there is a narrow “common knowledge” exception to
this rule. “ ‘[W]here the failure of attorney performance is so clear that a trier of fact
may find professional negligence unassisted by expert testimony, then expert testimony is

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not required.’ [Citations.] In other words, if the attorney’s negligence is readily apparent
from the facts of the case, then the testimony of an expert may not be necessary.”
(Goebel v. Lauderdale (1989) 214 Cal.App.3d 1502, 1508.)
       There are two primary legal malpractice cases that apply the common knowledge
exception. In one, an attorney advised his client to take actions that violated the Penal
Code (Goebel v. Lauderdale, supra, 214 Cal.App.3d at pp. 1508-1509), and in the other,
the attorney failed to perform basic research on a settled area of law prior to advising his
client. (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1093-1094.) “These cases
demonstrate a high standard for legal malpractice matters that may bypass the need for
expert testimony on the standard of care. This exception only applies to malpractice that
is ‘so clear’ as to be unmistakable, or obvious malpractice resulting from an utter failure
to undertake ‘basic research.’ ” (O’Shea v. Lindenberg (2021) 64 Cal.App.5th 228, 238
[analyzing Goebel and Stanley to conclude that malpractice case where attorney only
briefly examined a witness, allowed testimony via telephone, and failed to explain
inconsistencies in a declaration and “ ‘apparent forgeries’ ” required expert testimony]
(O’Shea).)
       In other professional negligence cases, courts have found expert testimony
unnecessary where the negligence was similarly self-evident. For example, Flowers v.
Torrance Memorial Hospital Medical Center (1994) 8 Cal.4th 992 references the classic
case in which a doctor left a scalpel in a patient’s body following surgery. (Id. at p.
1001.) And in Ryan v. Real Estate of Pacific, Inc. (2019) 32 Cal.App.5th 637, a real
estate broker failed to disclose a planned development on neighboring property that
would adversely affect the value of the plaintiff’s property. (Id. at pp. 645-647.)
       Unlike those cases, here, the questions regarding the scope of Anderson’s duty to
TEI, whether the duty was breached, and any resulting damages, are not so “clear and
uncontroversial” (Ryan v. Real Estate of Pacific, Inc., supra, 32 Cal.App.5th at p. 646)
that the rarely used exception applies. The scope of duty owed by Anderson to a

                                              7
corporation, as its corporate attorney, is not obvious to a layperson. More specifically,
without an expert, the jury would be left to determine nuanced questions such as whether
Anderson had a unilateral duty to counsel TEI to comply with the corporate bylaws, to
ensure TEI complied with the agreement, or to advise and assist Fred in appointing
replacement directors. It would further be tasked with deciding complicated issues of
breach, such as whether Anderson breached his duties to TEI by permitting Michelle, as
the trustee to Donald’s estate, to acquire Donald’s stock, and by failing to involve himself
when Michelle and her husband appointed themselves to the board and conducted
corporate business. Thus, Anderson’s actions (and inactions) are not examples of
“unmistakable malpractice,” but rather are akin to “tactical decisions” and “judgment
calls” that require expert testimony to compare to the applicable standard of care. (See
O’Shea, supra, 64 Cal.App.5th at p. 238.) Indeed, these questions of duty and breach are
particularly thorny here, where Anderson purported to also represent Donald’s estate, and
where Michelle was the beneficiary of Donald’s trust.
       Further, whether Anderson caused TEI’s damages is also not readily apparent.
TEI argues that Anderson facilitated Michelle’s takeover of TEI through his conduct,
resulting in a settlement providing for the buyout of Donald’s stock based on an
unfavorable metric, plus the liquidation of TEI’s real estate assets at a financial loss to
TEI. It is not obvious whether, and to what extent, Anderson’s alleged breaches caused
these claimed damages. These questions are made murkier still because Michelle, not
Anderson, did many of the alleged wrongful acts that TEI contends caused its damages,
though perhaps with Anderson’s assistance or acquiescence. Accordingly, this is not a
case where “the alleged malpractice is so utterly egregious and obvious that no expert
testimony is needed.” (O’Shea, supra, 64 Cal.App.5th at p. 237.)
       Nor could TEI have remedied its lack of expert testimony by asking the trial court
to instruct the jury on various California Rules of Professional Conduct. Such
instructions are only useful as a proxy for expert testimony where, again, the attorney’s

                                              8
duty and breach are manifest. (Stanley v. Richmond, supra, 35 Cal.App.4th at pp. 1086-
1087.) As discussed, this is not such a case.
       As TEI failed to retain an expert to testify at trial, TEI could not prove its claims
for legal malpractice and breach of fiduciary duty as a matter of law had the trial
proceeded. We accordingly affirm the grant of nonsuit. We reach this conclusion with
the recognition, as TEI asserts on reply, that nonsuits are disfavored, particularly
following opening argument. However, TEI’s lack of proof could not be cured by
anything but expert testimony on the standard of care. With this glaring evidentiary gap,
there is no doubt that TEI would have been unable to prove its claims at trial.
       The nonsuit was thus properly granted.
                                         DISPOSITION
       The judgment is affirmed. Anderson is entitled to his costs on appeal. (Cal. Rules
of Court, rule 8.278(a)(1).)

                                                         KRAUSE                 , J.

We concur:

      EARL                     , P. J.

      ROBIE                    , J.

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