EDMON, J.
Gregory Burke, counsel for plaintiffs 1st American Warehouse Mortgage, Inc., doing business as Real Estate Specialists, Robert Sterling Castaneda, and Raj L. Champaneri (collectively, RES), appeals an order of sanctions awarded against him pursuant to Code of Civil Procedure section 128.7 (section 128.7). Finding no abuse of discretion, we affirm.
RES filed the present action against Topa Insurance Company (Topa) and Does 1 through 10
On May 4, 2012, plaintiffs filed amendments to the complaint substituting Superior Claims Services LLC (Superior) and CRES Insurance Services, LLC (CRES) for Doe defendants. Even before the complaint was served on them, on May 25, 2012, James Henshall, counsel for CRES and Superior, sent a letter to Burke, RES's attorney, requesting that Henshall's clients be dismissed from the action. Henshall noted that the complaint asserted causes of action only for breach of contract and breach of the implied covenant of good faith and fair dealing, and "[t]here are no allegations set forth indicating how CRES and Superior could have any liability related to these theories." Further, Henshall asserted there was no contractual relationship between RES and CRES, or RES and Superior, and thus there could not be a cause of action for breach of contract or breach of the implied covenant against CRES or Superior. Finally, he noted that California courts have held that no bad faith action lies against an insurer's officers, agents, and employees, such as adjusters, investigators, claim managers, or in-house counsel, even if they are responsible for the insurer's decision on a claim. Thus, Henshall requested that CRES and Superior be immediately dismissed from the action. He warned that if forced to defend the action, CRES and Superior "fully intend to seek reimbursement of any and all attorney's fees and costs incurred either by seeking appropriate sanctions under the California Code of Civil Procedure, or by filing a separate lawsuit for malicious prosecution and abuse of process after it has this lawsuit dismissed against them."
On August 7, 2012, Henshall sent a second letter to Burke noting that CRES and Superior recently had been served with the complaint, and warning that unless CRES and Superior were dismissed with prejudice by August 14, 2012, "CRES and [Superior] shall aggressively pursue being dismissed from this action. After they are dismissed, CRES and [Superior] intend to take all appropriate action against you and your clients in order to be reimbursed for all attorney's fees and costs related to their defense including pursuing an action against you and your clients for malicious prosecution and abuse of process." Henshall concluded: "We shall look forward to receiving a dismissal from the Plaintiffs related to CRES and [Superior]. Please note that since this frivolous lawsuit has now been served on CRES and [Superior], damages are being incurred by CRES and [Superior] at the present time, and these damages shall continue to be incurred in the future."
RES did not respond to Henshall's letters or dismiss Superior or CRES from the action. In August 2012, CRES and Superior answered the complaint and filed motions for summary judgment. RES did not oppose the summary judgment motions, and on November 26, 2012, it dismissed Superior and CRES.
Superior and CRES served and filed motions for sanctions pursuant to section 128.7.
RES filed opposition to the sanctions motions on January 7, 2013, the day before they were scheduled to be heard. RES contended that it added Superior and CRES as party defendants based on "information and belief that the Defendants are agents of each other, and/or alter-egos of each other, influence and control each other and there exists an ownership between them. Plaintiffs also allege the Defendants are joint tortfeasors in the bad faith breach of insurance contract." (Internal record references omitted.)
The trial court granted the sanctions motions on January 8, 2013. In its tentative ruling that was adopted as the order of the court, the court noted that although the sanctions motions were filed on October 16, 2012, they were unopposed as of January 3, 2013. The court explained its grant of sanctions as follows:
Burke timely appealed.
Section 128.7, subdivision (b) provides that by presenting a pleading to the court, an attorney or unrepresented party "is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met:
If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. In determining what sanctions, if any, should be ordered, the court shall consider whether a party seeking sanctions has exercised due diligence. (§ 128.7, subd. (c).)
Whether an action is frivolous under section 128.7 "is governed by an objective standard." (Burkle v. Burkle (2006) 144 Cal.App.4th 387, 401.) A sanction imposed under this section "shall be limited to what is sufficient to deter repetition of this conduct or comparable conduct by others similarly situated. . . . [T]he sanction may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorney's fees and other expenses incurred as a direct result of the violation." (§ 128.7, subd. (d).) Monetary sanctions may not be awarded against a represented party for a violation of subdivision (b)(2). (§ 128.7, subd. (d)(1).) Ordinarily, a ruling on a motion for sanctions brought under section 128.7 is reviewed under a deferential abuse of discretion standard. (Optimal Markets, Inc. v. Salant (2013) 221 Cal.App.4th 912, 921-922.)
Burke contends that the proofs of service attached to the motions are invalid because they do not identify the person making the service or provide an original signature. He contends that the sanctions motions therefore are "procedurally defective." We do not agree. "`It is the fact that service was made, rather than the proof of service, that vests the court with jurisdiction to act. (Morrissey v. Gray [(1911)] 160 Cal. 390, 395; Vail v. Jones [(1930)] 209 Cal. 251, 255; Lindley v. Lindley [(1920)] 49 Cal.App. 631, 633.) The jurisdiction of the court does not depend upon the preservation of the proof of service but upon the fact that service has been made. (Sichler v. Look [(1892)] 93 Cal. 600, 608; In re Newman [(1888)] 75 Cal. 213, 220.)'" (Call v. Los Angeles County Gen. Hosp. (1978) 77 Cal.App.3d 911, 917 (Call), quoting Otsuka v. Balangue (1949) 92 Cal.App.2d 788, 791.)
In the present case, Burke urges that the proofs of service were procedurally defective, but he does not dispute that he and RES were timely served with the sanctions motions. Because service of the motions was proper, an alleged technical defect in the proof of service did not divest the trial court of jurisdiction to enter the sanctions order and is not grounds for reversal. (Call, supra, 77 Cal.App.3d at p. 917.)
Burke contends that the evidence RES provided in opposition to the sanctions motions demonstrates contractual relationships among RES, Superior, and CRES that the trial court ignored. He urges that the trial court therefore erred in imposing sanctions for a frivolous pleading. For the reasons that follow, we disagree.
Under California law, insurance adjusters and agents cannot be held liable for breaches of insurance contracts because they are not parties to those contracts. In Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 (Gruenberg), after plaintiff's insurers denied his claims under fire insurance policies, the plaintiff brought claims for breach of the implied duty of good faith and fair dealing against (1) his insurers, (2) a company hired by the insurers to investigate and adjust plaintiff's insurance claims, and (3) the insurers' law firms and lawyers. (Id. at pp. 569, fn. 1, 573.) Plaintiff alleged that the adjusters and attorneys were agents and employees of the three insurers and were acting within the scope of their agency and employment when they committed the acts attributed to them. (Id. at p. 571.) The trial court sustained defendants' general demurrers, and plaintiff appealed. (Id. at p. 572.)
The California Supreme Court reversed the order of dismissal as to the three insurers, but affirmed as to the other defendants. As to the adjusters and attorneys, it explained: "Plaintiff alleges that Brown, the insurance adjusting firm, and its employee, Busching, and Cummins, the law firm, and its employee, Ricketts, were the agents and employees of defendant insurers and of each other and were acting within the scope of that agency and employment when they committed the acts attributed to them. However, plaintiff contends that these non-insurer defendants breached only the duty of good faith and fair dealing. . . . Obviously, the non-insurer defendants were not parties to the agreements for insurance; therefore, they are not, as such, subject to an implied duty of good faith and fair dealing. Moreover, as agents and employees of the defendant insurers, they cannot be held accountable on a theory of conspiracy. (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 72.) This rule, as was explained in Wise (at pp. 72-73) `derives from the principle that ordinarily corporate agents and employees acting for and on behalf of the corporation cannot be held liable for inducing a breach of the corporation's contract since being in a confidential relationship to the corporation their action in this respect is privileged.' (See also Mallard v. Boring (1960) 182 Cal.App.2d 390, 393.) Accordingly, the judgment of dismissal in favor of the non-insurer defendants must be affirmed." (Gruenberg, supra, 9 Cal.3d at p. 576, italics added; see also Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 512 [applying Gruenberg].)
The court reached a similar result with regard to insurance agents in Minnesota Mutual Life Ins. Co. v. Ensley, supra, 174 F.3d 977 (Minnesota Mutual). There, the plaintiff sued an insurance company and agent for breach of the insurance contract and breach of the implied covenant of good faith and fair dealing. The Ninth Circuit affirmed a grant of summary judgment for the agent, holding that under California law, an insurance agent cannot be held liable for breach of an insurance contract or breach of the implied covenant of good faith and fair dealing applicable to insurers. It explained: "The [agents] were acting as the agents of Minnesota Mutual; they were not a party to the insurance contract. The [agents] cannot be held liable for breach of contract or breach of the implied covenant of good faith and fair dealing as a matter of law." (Id. at p. 981; see also Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 1997) ¶¶ 12:98-12:99, pp. 12A-34.1 to 12A-35 (rev. # 1, 2012) ["Even if they are responsible for the insurer's decision to refuse settlement, no bad faith action lies against the insurer's officers, agents and employees (e.g., adjusters, investigators, claims managers, house counsel, etc.) . . . [¶] . . . The action based on breach of the implied covenant depends on a contractual relationship between the parties. The insurer's agents and employees are not parties to the insurance contract."].)
Burke apparently concedes that Gruenberg and Minnesota Mutual correctly state California law, but he urges that they do not apply here because the evidence "demonstrates a contractual relationship between appellant and respondent that the trial court ignored." In support, Burke relies on several documents produced to RES on February 27, 2012, along with a "better copy" of the insurance policy. These documents are:
Burke contends that these documents evidence a contract between CRES and RES to provide risk management services. The trial court correctly concluded otherwise. None of these documents evidences a contract between Superior and RES. As to CRES, the CRES Risk Management Program Member's Enrollment Certificate (certificate) purports to evidence a contract of some kind between CRES and RES, but it expressly is not evidence of a contract of insurance between these parties. Because the only actionable conduct alleged in the complaint are alleged breaches of an insurance policy—specifically, the E&O policy issued by Topa—the risk management certificate is irrelevant.
Burke also contends that the documents evidence a "CRES Insurance Policy" that "provides coverage
Finally, Burke contends that the documents demonstrate that Superior "is nothing more than the alter ego of CRES." We do not agree that the documents so demonstrate, but even if they did, an alter ego relationship between CRES and Superior does not suggest that either company can be liable for an alleged contractual breach by Topa.
Burke asserts that even if RES's contract claims were without merit, the trial court nevertheless erred in awarding sanctions because had RES been given more time, it would have conducted discovery that would have allowed it to amend the complaint to allege tort theories against CRES and Superior, including negligence, negligent misrepresentation, and fraud. For the reasons that follow, Burke's contention is without merit.
Reduced to its essentials, Burke's contention is that he should not have been sanctioned for asserting frivolous claims against CRES and Superior because, had he been given additional time to conduct discovery, he might have been able to discover facts that would have allowed him to assert other, nonfrivolous claims. But our legal system does not allow parties or their attorneys to sue first and investigate later. As our Supreme Court said in a different context, the law "cannot tolerate lawsuits by prospecting plaintiffs who sue multiple defendants on speculation" that their conduct caused harm and "who thereafter try to learn through discovery whether their speculation was well-founded." (Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th 71, 81.) Section 128.7 requires counsel to investigate before filing suit, not the other way around.
Burke also asserts that he was not given a reasonable opportunity to investigate the claims and amend the complaint before facing motions for summary judgment and for sanctions, and that his failure to investigate was reasonable under the circumstances. Burke does not explain why his failure to investigate before suing Superior and CRES was reasonable or, indeed, what "circumstances" made prefiling investigation impossible. Burke's assertion, moreover, wrongly assumes that he and RES could not have investigated the facts he says were relevant to potential claims against Superior and CRES—i.e., whether "CRES and [Superior] were members of an insurance group with Topa," "CRES and [Superior] were alter egos of Topa," "Respondents were acting outside the scope of [their] authority," or "Respondents acted with gross negligence in the unreasonable delay (
If Burke had sought discovery relevant to CRES and Superior prior to suing them, he could have ascertained whether there were grounds for asserting nonfrivolous claims against them. Regardless, his failure to have a factual basis for bringing the claims he brought, i.e., frivolous claims, supports the trial court's award of sanctions.
Citing section 128.7, subdivision (c)(1), Burke argues that the court erred in awarding Superior and CRES all fees and costs they incurred in defending the action. Subdivision (c)(1) provides that the court may award attorney fees incurred "in presenting or opposing the motion" for sanctions—and were it the only fee provision of section 128.7, we might agree with Burke that the fee award was improper. However, section 128.7, subdivision (d), which Burke does not discuss, provides that the court may also award "some or all of the reasonable attorney's fees and other expenses incurred as a direct result of the violation"—precisely what the trial court did in this case.
Burke also argues that the trial court erred in awarding duplicative attorney fees. Burke does not identify which fees he believes are duplicative or provide any factual support for his claim, and thus he has not met his appellate burden to affirmatively demonstrate error. (E.g., Overhill Farms, Inc. v. Lopez (2010) 190 Cal.App.4th 1248, 1272 ["`"An appellant must affirmatively demonstrate error through reasoned argument, citation to the appellate record, and discussion of legal authority."'"].) In any event, it is well established that the trial judge is the "`"best judge of the value of professional services rendered in his court."'" (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095.) Here, the trial court expressly considered the issue of duplicative fees and denied a portion of the fee request it found duplicative. The resulting award was not an abuse of discretion.
The sanctions order is affirmed. Respondents are awarded their appellate costs.
EPSTEIN, P. J. and WILLHITE, J., concurs.
