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Tentative Ruling
Judge Colleen Sterne
Department 5 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION

Leonard Himelsein v. Gary Gray

Case No: 1415636
Hearing Date: Mon Jul 08, 2013 9:30

Nature of Proceedings: Demurrer; Motion to Strike

Santa Barbara County Superior Court Department 5 Judge Colleen K. Sterne Tentative Ruling July 8, 2013 Case: Leonard Himelsein v. Gary V. Gray, Case #1415636 Matter: Demurrer Motion to Strike Complaint Tentative Ruling: The court overrules and denies defendant Gary V. Gray’s objection to and motion to disregard notice of unavailability. The court sustains defendant Gary V. Gray’s demurrer to plaintiff Leonard Himelsein’s complaint and orders this case stayed pending resolution of Gray v. Himelsein, Riverside Superior Court #1300135. The motion to strike is moot. Discussion: Complaint: Plaintiff Leonard Himelsein alleges: In or about 2003, Himelsein contracted with defendant Gary V. Gray, a Certified Public Accountant, to provide accounting and other services relating to the preparation of Himelsein’s personal and corporate tax returns, to be in charge of Himelsein’s books, to provide monthly financial statements, to prepare audits for each fiscal year and to be his personal and corporate bookkeeper, accountant and financial adviser. [Complaint ¶¶ 7, 21, 32, 43] Gray repeatedly assured Himelsein that all work was being performed and was of the highest quality. [¶ 8] Gray at no time made the required elections to adequately prepare and file Himelsein’s tax returns, returns were incomplete, returns were filed on the last day and whole entities went years with no filings at all. Gray had unfettered access to Himelsein’s office, books, staff and computer systems. [¶ 9] During or about February 2010, Himelsein and Gray entered into an oral agreement to form a general partnership conducted under the name Mercury Properties. Gray was to be the sole accountant and bookkeeper for the partnership. [¶ 11] Gray set up accounting software in his own name for Himelsein’s personal system of accounting and for National Pacific Corporation (NPC), a business entity Himelsein owned. Himelsein did not have access to his entire domestic portfolio and instead trusted Gray to satisfy the obligations as agreed under their contract as accountant and client. [¶ 12] Himelsein became aware of Gray’s professional deficiencies on or about August 2012 while attempting to resolve a question about the transparency of a business deal Himelsein had with Gray under their partnership, Mercury Properties. Gray refused to turn over contractually mandated documents and information for over a year. [¶ 13] Among Gray’s failures to perform are: a) Gray’s QuickBooks files for 2010 did not match tax returns for Himelsein, NPC and Santa Barbara Loan & Jewelry (SBL&J), another entity Himelsein owned. b) The SBL&J tax return for March 31, 2009 was the final partnership return because that business was closed out and has been wholly owned by Himelsein since then. “The 2010 year was improperly brought into the NPC return even though the the entities were not combined.” Nothing was properly “zeroed out” and nothing matched going forward. c) Himelsein’s 2010 tax return had numerous missing items, including an Unallocated Schedule E of $90,000, some of which was investment income that should have been set off against other investments. d) “Foreign reporting, for fiscal years 2010 and 2011 was inaccurate, including a non-existent $375,000 balance. e) “The transition to Paychex to Elite payroll services was inaccurate and did not agree with payroll.” f) “Western Union reporting was inaccurate and not reconciled. The SBL&J Daily Sales Sheets did not include the reporting of these loans.” g) Gray did not set up X-Pawn (pawn shop software for SBL&J) correctly, resulting in lack of meaningful inventory. h) Himelsein’s personal QuickBooks and brokerage accounts were out of date. i) There are no tenant deposits and no management reconciliation for any rental properties. j) Gray failed to prepare any tax filings for business entities, including Malibu Energy, Malibu Spring Estates, Camo Containers and System Industries. k) Gray failed to create basic amortization schedules for loans among Himelsein’s entities. l) Gray conducted no tax planning for numerous years for Himelsein’s complex business interests such that Himelsein’s tax portfolio was piecemeal. [¶ 13] Gray failed to properly file Himelsein’s personal and corporate tax returns with all the necessary documents, including, worksheets, statements and depreciation schedules. [¶ 29] Gray misappropriated $100,000 from Mercury Properties and attempted to misappropriate another $200,000. [¶ 36] The causes of action in Himelsein’s complaint are 1) professional negligence, 2) breach of contract for accounting services, 3) breach of fiduciary duties owed as CPA, business partner and “good social friends,” 4) unjust enrichment and 5) negligent misrepresentation. Notice of Unavailability: On May 29, 2013, counsel for Himelsein executed a Notice of Unavailability indicating he would be unavailable from June 12 to July 14, 2012 and from July 16 to July 21, 2013. (This document was not filed with the court.) The parties had previously stipulated to a hearing on demurrer on July 8, 2013. On May 31, Gray filed an objection to and motion to disregard notice of unavailability. On June 6, counsel for Himelsein executed an amended notice of unavailability and served it on June 7, 2013. (This document was not filed with the court.) In the amended notice, Gray’s counsel clarified that the notice did not apply to matters already scheduled before the court or previously arranged by and through counsel. The amended notice indicated unavailability from June 12, 2013 through July 4, 2013 (those dates have now passed) and July 16 through July 22, 2013. Non-statutory notices of unavailability arise out of Tenderloin Housing Clinic, Inc. v. Sparks, 8 Cal.App.4th 299 (1992), in which the court sanctioned an attorney for scheduling a deposition during a time when they knew opposing counsel would be unavailable. Gray says that Himelsein cannot call a litigation time-out delaying meet and confer efforts and prosecution and defense of this case until August. Gray cites Carl v. Superior Court, 157 Cal.App.4th 73 (2007). In that case, the court simply said that an attorney cannot unilaterally enjoin the superior court from issuing orders and notices of unavailability cannot be filed in the appellate court. Id. at 75-76. The only unavailability is for a single week. Counsel can work around that without delaying the course of the case. The court overrules and denies the objection and motion. Demurrer: Gray demurs to the complaint as follows: There is another case pending between the parties on the same cause of action in Riverside County and the demurrer should be sustained by plea in abatement and/or the doctrine of exclusive concurrent jurisdiction. In an action founded on a contract, Himelsein must plead whether the contract is written, oral or implied by conduct. The first, second, third and fifth causes of action are impermissibly uncertain. Himelsein has failed to plead facts sufficient to constitute the first, second, third, fourth and fifth causes of action. Abatement: On February 4, 2013, Gray and his wife Marsha Gray sued Himelsein in the Riverside County Superior Court for partition and accounting arising out of their joint investment in four properties in that county. On February 8, Himelsein filed this action. On March 1, in the Riverside action, Himelsein filed a cross-complaint against Gary and Marsha Gray for conversion, money had and received, fraudulent misrepresentation (promissory fraud), breach of fiduciary duty, breach of partnership agreement, negligence, quiet title, open book accounting, rescission and declaratory relief. A party may object by demurrer when “there is another action pending between the same parties on the same cause of action.” CCP § 430.10(c). “[T]he pendency of another action growing out of the same transaction … is a ground for abatement of the second action but never for abatement of the first. [Citations] The underlying theory of the plea of another action pending is that the first action will normally be an ample remedy, and the second action … is therefore unnecessary and vexatious.” California Union Ins. Co. v. Trinity River Land Co., 105 Cal.App.3d 104, 108-109 (1980). This statutory provision is narrowly construed. Childs v. Eltinge, 29 Cal.App.3d 843, 848 (1973). “Under the rule of exclusive concurrent jurisdiction, when two superior courts have concurrent jurisdiction over the subject matter and the parties, the first court to assume jurisdiction has exclusive and continuing jurisdiction until such time as all necessarily related matters have been resolved.” Lawyers Title Ins. Corp. v. Superior Court, 151 Cal.App.3d 455, 460 (1984). Exclusive concurrent jurisdiction, too, can and should be raised by demurrer. People ex rel. Garamendi v. American Autoplan, Inc., 20 Cal.App.4th 760, 771 (1993). While the plea in abatement is narrowly construed, courts apply a much more expansive interpretation of the rule of exclusive concurrent jurisdiction. Childs v. Eltinge, supra, 29 Cal.App.3d at 849. “Unlike the statutory plea of abatement, the rule of exclusive concurrent jurisdiction does not require absolute identity of parties, causes of action or remedies sought in the initial and subsequent actions. Plant Insulation Co. v. Fibreboard Corp., 224 Cal.App.3d 781, 788 (1990). It is not necessary that “the determination in the first suit would be res judicata in the second suit.” Id. at 789. Claims arising out of the same transaction with the same subject matter are the same for purposes of application of the rule of exclusive concurrent jurisdiction. Id. Here, Himelsein’s allegations overlap, particularly in the breach of fiduciary duty causes of action. Complaint (“C”) ¶ 32 and Cross-Complaint (“CC”) ¶ 58 are identical and read (in the cross-complaint, Himelsein uses the terms “plaintiff” and “defendant” instead of “cross- complainant” and “cross-defendant”): Plaintiff placed a great deal of trust with Defendant. Plaintiff and Defendant met one another during the mid-1980s while working in offices next to one another in Santa Barbara, California. Over the years, the social relationship between Plaintiff and Defendant flourished, eventually resulting in Plaintiff hiring Defendant to be his personal and corporate bookkeeper, accountant and financial advisor, a position which Defendant maintained until August 2012. CC ¶ 8 and C ¶ 7 are also identical and allege that Himelsein contracted with Gray to be his personal and corporate accountant. CC ¶ 9 and C ¶ 10 are identical and refer to Himelsein appointing Gray as executor and trustee of his will and trust and Gray’s role as trusted advisor, business partner, trustee, executor, accountant, bookkeeper and close friend. A similar identical allegation appears in C ¶ 33 and CC ¶ 59. Both pleadings allege the formation of the Mercury partnership. [C ¶ 11, CC ¶¶ 10, 11, 71] Both pleadings contain the same identical allegation of misappropriation from Mercury Properties. [C ¶ 36, CC ¶ 62] The allegations of breach of fiduciary duties are also virtually identical: Plaintiff placed his complete trust in Defendant, deferring to his professional judgment on many matters and relying on his expertise as a CPA. Defendant abused this trust when he made egregious errors and omissions with Plaintiff’s personal and corporate books and tax returns and steadfastly refused to acknowledge his own mistakes. As such, Defendant breached his fiduciary obligations as accountant to Plaintiff by failing to properly prepare and file tax returns, keep proper books, pay certain bills, and keep Plaintiff apprised of his current financial circumstance. [C ¶ 35, CC ¶ 61] In both C ¶ 37 and CC ¶ 63, Himelsein alleges the damages that resulted from Gray’s breach of fiduciary duties “as accountant and business partner.” The two actions involve the same subject matter and same transactions. The two breach of fiduciary causes of action are virtually identical. The fact that, in this case, Himelsein has added causes of action for professional negligence, breach of contract for accounting services, unjust enrichment and negligent misrepresentation does not make the cases substantially different because these causes of action all arise out of the same accountant services alleged in both cases. “‘California has consistently applied the 'primary rights' theory, under which the invasion of one primary right gives rise to a single cause of action.’” Bay Cities Paving & Grading v. Lawyers' Mutual Ins. Co., 5 Cal.4th 854, 860 (Cal. 1993). The allegations in this complaint all involve breach of duty by Gray as Himelsein’s accountant. The allegations and causes of action in this case are subsumed in the allegations in the Riverside cross-complaint. The fact that the case in Riverside is broader, including a breach of the partnership agreement, does not mean that the rule of exclusive concurrent jurisdiction does not apply. The court concludes that the rule of exclusive concurrent jurisdiction applies here. When successfully raised by demurrer, the rule requires a stay of the action. People ex rel. Garamendi v. American Autoplan, Inc., supra, 20 Cal.App.4th at 765. The court will not address the other grounds for demurrer as they may be rendered moot by the judgment in the Riverside action. Therefore, the court sustains the demurrer and orders this case stayed pending resolution of Gray v. Himelsein, Riverside Superior Court #1300135. Motion to Strike: The motion to strike is based on the failure to adequately plead the nature of the foundational contract and the lack of a ground for the prayer for attorney fees. This motion is moot in light of the ruling on the demurrer.