Bank of Orient v. Superior Court of S.F.
136 Cal. Rptr. 741, 1977 Cal. App. LEXIS 1255, 67 Cal. App. 3d 588 (1977)
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Rule of Law:
Partial assignees or subrogees of a claim are indispensable parties who must be joined in a lawsuit as real parties in interest, and evidence of subsequent remedial measures is generally discoverable even if inadmissible at trial.
Facts:
- Quailand Tom, former manager of the Chinatown branch of San Francisco Federal Savings and Loan Association (SF Federal), embezzled large sums of money from his employer.
- Tom forged signatures on savings withdrawal applications and directed SF Federal employees to issue and sign checks drawn on SF Federal’s general operating account at Crocker National Bank.
- Tom caused these checks to be made payable to the order of Bank of the Orient, where he maintained a personal checking account.
- Tom deposited these checks into his personal account at Bank of the Orient and subsequently withdrew the entire amount.
- San Francisco Federal Savings and Loan Association was insured for losses of this nature by St. Paul Fire and Marine Insurance Company (St. Paul).
- On May 15, 1975, St. Paul paid SF Federal $449,829.27, for which it obtained a partial release and assignment of SF Federal's claims and demands.
- On June 16, 1975, St. Paul paid SF Federal an additional $124,082.48, for which it obtained a release in full and assignment of all claims related to the loss.
- On January 9, 1975, two days after discovering the embezzlement, SF Federal's board of directors requested a “Report to Management” from Coopers & Lybrand regarding the incident.
Procedural Posture:
- On May 15, 1975, San Francisco Federal Savings and Loan Association (plaintiff) instituted an action in state trial court against the Bank of the Orient (defendant), alleging conversion and negligence.
- During discovery, Bank of the Orient learned that St. Paul Fire and Marine Insurance Company had paid SF Federal's loss and received an assignment of claims.
- On July 14, 1976, Bank of the Orient moved the trial court for an order compelling joinder of St. Paul as a party plaintiff and for leave to amend its answer and file a cross-complaint against St. Paul.
- On July 29, 1976, the trial court denied Bank of the Orient's motion to compel production of a Coopers & Lybrand report and an internal document titled "Suggestions for Improvement to Our System of Internal Control," and to compel answers to related deposition questions.
- On August 18, 1976, after a hearing, the trial court denied Bank of the Orient's motion for joinder of St. Paul and for leave to file a cross-complaint, but granted permission to amend its answer.
- Bank of the Orient (petitioner) then sought a writ of mandate from the Court of Appeal to compel the trial court to order joinder and permit the cross-complaint, and to compel production of the documents and answers to questions.
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Issue:
Did the trial court abuse its discretion by refusing to compel the joinder of an insurer as an indispensable party plaintiff when the insurer became a partial and then full assignee/subrogee of claims, and by refusing to compel discovery of relevant internal audit reports based on claims of attorney work product or subsequent remedial measures?
Opinions:
Majority - Taylor, P. J.
Yes, the trial court abused its discretion by refusing to compel the joinder of St. Paul Fire and Marine Insurance Company as an indispensable party plaintiff and by denying discovery of the requested documents. The court held that under Code of Civil Procedure section 367, every action must be prosecuted in the name of the real party in interest, and partial assignees or subrogees, like St. Paul, are indispensable parties whose joinder is required to protect the defendant from multiple suits and to ensure complete relief among all interested parties under Code of Civil Procedure section 389, subdivision (a). St. Paul became a partial assignee and subrogee with a substantial interest in the claims due to its payments and assignments. The court further determined that Code of Civil Procedure section 385, subdivision (a), which allows an action to continue in the original party's name after a transfer of interest, does not apply where joinder of partial assignees/subrogees is otherwise required, as this would defeat the defendant's right to cross-complain. Allowing joinder would permit the Bank of the Orient to file its compulsory cross-complaint against St. Paul under Code of Civil Procedure section 428.10, subdivision (a). Regarding discovery, the court reasoned that the requested Coopers & Lybrand report and the internal control suggestions document were relevant to Bank of the Orient's defenses, which included allegations of San Francisco Federal's contributory negligence under California Uniform Commercial Code sections 3406 and 4406. The court clarified that the attorney work product privilege did not apply because the Coopers & Lybrand report was commissioned by San Francisco Federal's board of directors, not an attorney, and was completed before the lawsuit was filed. Additionally, Evidence Code section 1151, which makes evidence of subsequent remedial measures inadmissible at trial to prove negligence, does not limit the broader scope of discovery; relevant information is discoverable even if ultimately inadmissible at trial. Therefore, denying discovery effectively precluded Bank of the Orient from gathering essential evidence for its defenses.
Analysis:
This case significantly clarifies the application of indispensable party rules under California law, particularly for insurers acting as partial assignees or subrogees. It prevents plaintiffs from strategically omitting a true party in interest, ensuring all stakeholders are before the court and protecting defendants from piecemeal litigation. Additionally, the ruling reinforces the broad scope of discovery in California, distinguishing discoverability from trial admissibility and limiting the use of privileges like attorney work product and subsequent remedial measures, which will have a lasting impact on how parties conduct pre-trial investigation and litigation strategy.
