1.Read Kaplan v. Coldwell Banker Residential Affiliates, Inc. Answer the questions at the end of the case.

Facts and Proceedings

Appellant purchased three parcels of agricultural property from Albert La Monte, Jr. and Helen La Monte for approximately $1 million. He later discovered that the property was not as represented. Appellant, a superior court judge, was an experienced investor and had employed real estate brokers in other transactions. Before purchasing the property, he has been involved in the purchase or sale of an office building, some storefront commercial property, five single family residences, an apartment building, and commercial property.

Appellant filed suit against the La Montes and their real estate broker, Gerald Adams and Land Marketing Inc., for fraud, misrepresentation, and breach of fiduciary duty. He also sued his broker, Eric L. Marsh dba Coldwell Banker Citrus Valley Realtors, and salesperson, Philip Davidson, who assisted him in the transaction.

Coldwell Banker was named as a defendant on a respondent superior theory. Appellant alleged that he ". . .placed great faith and trust in said defendants, and each of them, particularly because [Marsh] was part of the Coldwell Banker organization which had an established reputation for honesty, integrity and expertise."

However, Marsh independently owned and operated his real estate office, Coldwell Banker Citrus Valley Realtors, a Coldwell Banker franchise. The franchise agreement required Marsh to hold himself out to the public as "an independently owned and operated mem-ber of Coldwell Banker Residential Affiliates, Inc." This disclaimer language was printed on Marsh's advertising but much smaller than that touting Coldwell Banker.

Appellant testified that he "went for the sign," did not notice the disclaimer language, and trusted Cold-well Banker, a large reputable company with a national existence.

The first amended complaint alleged that "CB-CVR [Marsh] is the franchisee of Coldwell Banker pursuant to an agreement whereby, inter alia, CBCVR may use the name Coldwell Banker, thereby benefiting from Coldwell Banker's goodwill and reputation for expertise and integrity in the field of real estate broker-age; further, Coldwell Banker receives compensation and has the right to and does exercise control over the conduct of CBCVR."

Coldwell Banker moved for summary judgment. (Code Civ. Proc., 437c.) The evidence was undisputed that it did not control the day-to-day operation of Marsh's real estate office. Relying on Cislaw v. Southland Corp. (1992) 4 Cal.App.4th 1284, 6 Cal.Rptr.2d 386, the trial court granted the motion for summary judgment.

Franchisor-Franchisee Relationship

In determining whether a true agency relationship ex-ists between a franchisor and franchisee, the courts fo-cus on the right to control. (Wickham v. Southland Corp. (1985) 168 Cal.App.3d 49, 59, 213 Cal.Rptr. 825; Nichols v. Arthur Murray, Inc. (1967) 248 Cal.App.2d 610, 613, 56 Cal.Rptr. 728.) If the "franchise agreement gives the franchisor the right of complete or substantial control over the franchisee, an agency relationship exists. '[I]t is the right to control the means and manner in which the result is achieved that is significant in determining whether a principal-agency relationship exists.' " (Cislaw v. Southland Corp., supra, 4 Cal.App.4th 1284, 1288, 6 Cal.Rptr.2d 386.)

True Agency-Respondent Superior

The trial court correctly ruled there were no triable issues as to any material facts to hold Coldwell Banker liable on a respondent superior theory for Marsh's activities. In Cislaw, a minor purchased clove cigarettes from a 7-Eleven store and died of respiratory failure. The parents filed suit against Southland Corporation (7-Eleven), the franchisor, based on the theory that the franchise agreement created a principal-agent relationship. The trial court ruled that the store franchisees were independent contractors and granted summary judgment for Southland Corporation. The Court of Appeal affirmed, holding that a true principal-agency relationship exists only when the fran-chisor retains complete or substantial control over the daily activities of the franchisee's business. (Cislaw v. Southland Corp., supra, 4 Cal.App.4th at p. 1296, 6 Cal.Rptr.2d 386.)

The same principle applies here. The fact that Coldwell Banker received a royalty based on Marsh's gross receipts did not create true agency relationship. If the law was otherwise, every franchisee who independently owned and operated a franchise would be the true agent or employee of the franchisor.

Here it was undisputed that Marsh independently owned and operated the franchise. Marsh hired and fired employees, set office wages and commissions, and determined his business hours. The franchise agreement recited that he was an independent contractor and that Coldwell Banker could only terminate for cause. This was an important factor in determining whether Marsh was an agent or an independent contractor. (Id., at pp. 1294-1297, 6 Cal.Rptr.2d 386.)

The franchise agreement further required that Marsh hold his real estate office out as an independently owned and operated business. Marsh testified that his business cards and office letterhead contained the standard disclosure: "Independently Owned and Operated Member of Coldwell Banker Residential Affiliates Incorporated." The Coldwell Banker logo did not appear on any of the real estate forms or transactional documents used by Marsh.

Marsh was the actual broker in the transaction, not Coldwell Banker. Marsh, not Coldwell Banker, owed appellant a fiduciary duty. Absent a showing that Coldwell Banker controlled or had the right to con-trol the day-to-day operations of Marsh's office, it was not liable for Marsh's acts or omissions as a real estate broker on a true agency-respondeat superior theory. (E.g., Cislaw v. Southland Corp., supra, 4 Cal.App.4th 1284, 1290-1292, 6 Cal.Rptr.2d 386; Weiss v. Chevron, U.S.A., Inc. (1988) 204 Cal.App.3d 1094, 1100, 251 Cal.Rptr. 727.)

Ostensible Agency

The trial court erroneously rejected appellant's ostensible agency theory. Civil Code section 2300 provides: "An agency is ostensible when the principal intention-ally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him." Here, appellant tendered the issue of whether Coldwell Banker, by the want of ordinary care, could be responsible for Marsh's actions. (Walsh v. American Trust Co. (1935) 7 Cal.App.2d 654, 660, 47 P.2d 323.)"It is elementary that there are three requirements necessary before recovery may be had against a principal for the act of an ostensible agent. The per-son dealing with the agent must do so with belief in the agent's authority and this belief must be a reason-able one; such belief must be generated by some act or neglect of the principal sought to be charged; and the third person in relying on the agent's apparent author-ity must not be guilty of negligence." (Associated Credi-tors' Agency v. Davis (1975) 13 Cal.3d 374, 399, 118 Cal.Rptr. 772, 530 P.2d 1084.)

The ostensible authority of an agent cannot be based solely upon the agent's conduct. (Lindsay-Field v. Friendly (1995) 36 Cal.App.4th 1728, 1734, 43 Cal. Rptr.2d 71.) "Liability of the principal for the acts of an ostensible agent rests on the doctrine of 'estoppel,' the essential elements of which are representations made by the principal, justifiable reliance by a third party, and a change of position from such reliance resulting in injury." (Preis v. American Indemnity Co. (1990) 220 Cal.App.3d 752, 761, 269 Cal.Rptr. 617.)

Here Coldwell Banker made no specific representations to appellant personally. It did, however, make representations to the public in general, upon which appellant relied. We understand why appellant, and members of the public generally, might believe that Coldwell Banker "stood behind" Marsh's realty company. The venerable name, Coldwell Banker, the advertising campaign, the logo, and the use of the word "member" were and are designed to bring customers into Coldwell Banker franchises. As appellant stated at his deposition: Coldwell Banker's "outreach was successful. I believed they [Marsh and Davidson] were Coldwell Banker. They do good job of that.

"Appellant, a sophisticated real estate investor and superior court judge did not notice the small print dis-claimer language. Instead, he relied on the large print and believed that he was dealing with Coldwell Banker, i.e., that Coldwell Banker "stood behind" Marsh. An ordinary reasonable person might also think that Marsh was an ostensible agent of Coldwell Banker. We obviously express no opinion on whether a trier of fact will so conclude or whether appellant was himself neg-ligent. (Associated Creditors' Agency v. Davis, supra, 13 Cal.3d at p. 399, 118 Cal.Rptr. 772, 530 P.2d 1084.)

Whether ostensible agency exists "....is a question of fact...and may be implied from circumstances.(Citations.)" (Yanchor v. Kagan (1971) 22 Cal.App.3d 544, 550, 99 Cal.Rptr. 367; see also Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 999, 149 Cal.Rptr. 119.) For summary judgment purposes, it is sufficient to observe that a triable issue of material fact is present. Nothing in Cislaw v. Southland Corp., supra, 4 Cal.App.4th 1284, 6 Cal.Rptr.2d 386, compels a contrary determination because that case did not present an issue of ostensible agency. (Id. at p. 1288, 6 Cal.Rptr.2d 386.) Cases are not authority for an is-sue not considered in the court's opinion. (E.g., People v. Heitzman (1994) 9 Cal.4th 189, 209, 37 Cal.Rptr.2d 236, 886 P.2d 1229.)

Our holding is not a declaration that Coldwell Banker, or other large real estate franchise companies, are routinely fair game for any real estate transaction gone awry. However, where, as here, the plaintiff intro-duces some evidence raising a triable issue of fact on an ostensible agency theory, such is sufficient to with-stand summary judgment.

The judgment is reversed.

Case Analysis

a. Why did the appellate court refuse to apply the doctrine of respondent superior?

b. Why did the appellate court say that the theory of ostensible agency might apply?

2.Read Oakland Raiders v. National Football League. Answer the questions at the end of the case.

PREMO, Acting P.J.

The Oakland Raiders (hereafter, Raiders) football club has sued the National Football League (hereafter, NFL), 16 NFL clubs, and many other NFL-related persons and entities, generally alleging that NFL leadership has been marked by abuse of power, neglect of duties, misman-agement, discriminatory rule enforcement, inappropri-ate favoritism, and back room deal-making which has resulted in damage to the Raiders. The fourth amended and supplemental complaint alleges twenty-two causes of action. Defendants made several successful motions for summary adjudication. Because the orders dis-posed of all causes of action against the club defend-ants Austrian, and all but two of the entity defendants, the trial court entered judgment as to those defendants. The Raiders appeals, and we affirm the judgment.

Background

This matter arises from the complex web of for-profit and nonprofit organizations that carry out the business of the NFL, an unincorporated nonprofit association of 30 (now 31) football clubs, including the Raiders.

The NFL is governed by a constitution that gener-ally requires a three-quarters vote for action. The chief executive officer is the commissioner, who is appointed by a two-thirds vote of the clubs. (Tagliabue has been the commissioner at all relevant times.) The commissioner appoints other officers such as the president. (Austrian has been the president at all relevant times.)

The NFLP is a California corporation that mar-kets the NFL's commercial interests. The clubs own the corporation in equal shares. The board of directors consists of one director appointed by each club. Action generally requires a majority vote. Tagliabue manages the NFLP pursuant to an NFL resolution.Enterprises, L.P. is a Delaware limited partnership that manages satellite television broadcasts of NFL games. The limited partners are the clubs. The general partner is Enterprises, Inc., a Delaware corporation that is owned by the clubs in equal shares. Enterprises, Inc. also man-ages the World League. Its board of directors consists of six club owners. Action requires a majority vote. Ta-gliabue manages Enterprises, L.P. and Enterprises, Inc.

The World League is a joint venture between En-terprises, L.P. (51%) and Fox, Inc. (49%). It operates a European football league known as NFL Europe. Its board of directors consists of four club representatives and four Fox representatives.

The Raiders generally alleges that Tagliabue has wrongfully used his position to control a majority of the clubs so that his management of the web cannot be evaluated by independent business judgment. For ex-ample, the Raiders claims that Tagliabue permits certain clubs to operate in violation of the NFL's constitution and appoints certain clubs to key committees; in return for these favors, so the argument goes, the clubs give Tagliabue unquestioned allegiance and obedience. The other side of this coin, according to the Raiders, is that Tagliabue uses his control to treat it adversely because of antagonism stemming, in part, from nine years of litiga-tion between the Raiders and the NFL during the 1980's.There are 11 causes of action at issue in this appeal.

The first cause of action is a direct claim for breach of contract against the NFL and the club defendants, which essentially asserts that the operation of NFL Europe is contrary to the NFL's constitution.

The third, fourth, fifth, and sixth causes of action are derivative claims against Tagliabue and Austrian on behalf of the NFL, Enterprises L.P., and Enterprises, Inc. (and on behalf of the World League as to the fourth cause of action) concerning the management of the World League. The eighth and ninth causes of action are derivative claims against Tagliabue and Austrian on behalf of the NFL and the NFLP concerning the management of the NFLP. The 10th and 11th causes of action are derivative claims against Tagliabue and Austrian on behalf of the NFL, the NFLP, Enterprises L.P., and Enterprises, Inc. concerning the management of 2 employee benefit plans.

In the summary judgment proceedings, as to the breach of contract cause of action, the trial court found against the Raiders because of the abstention principle that courts should not interfere in intra association dis-putes. (California Dental Assn. v. American Dental Assn. (1979) 23 Cal.3d 346, 152 Cal.Rptr. 546, 590 P.2d 401.)

Concerning the 10 derivative causes of action, the Raiders alleged that making a demand upon the derivative entities to sue Tagliabue and Austrian would have been futile because the entities were dominated by Tagliabue and Austrian and, thus, lacked indepen-dent business judgment. As to these causes of action, the trial court found against the Raiders because it de-termined that (1) defendants had presented sufficient evidence to show that demand would not have been futile, and (2) the Raiders had failed to produce evi-dence that demand would have been futile.

Abstention doctrine

The rights and duties of members of a private voluntary association, between themselves and in their relation to the association, are measured by the terms of the association's constitution and bylaws. (California Dental, supra, 23 Cal.3d at p. 353, 152 Cal.Rptr. 546, 590 P.2d 401.) In California Dental, the court held that "when a private voluntary organization plainly contravenes the terms of its bylaws, the issues of whether and to what extent judicial relief will be available depend on balancing (1) the interest in protecting the aggrieved party's rights against (2) the infringement on the organization's autonomy and the burdens on the courts that will result from judicial attempts to settle such internal disputes." (Id. at p. 350, 152 Cal.Rptr. 546, 590 P.2d 401.) But the court also noted that "In many disputes in which [the rights and duties of the membership in relation to the association] are at issue...the courts may decline to exercise jurisdiction. Their determination not to intervene reflects their judgment that the resulting burdens on the judiciary outweigh the interests of the parties at stake. One concern in such cases is that judicial attempts to construe ritual or obscure rules and laws of private organizations may lead the courts into what Professor Chafee called the 'dismal swamp.' " (Id. at p. 353, 152 Cal.Rptr. 546, 590 P.2d 401.) The court held that the initial question in determining whether judicial action is appropriate is whether the challenged action "plainly contravenes" the association's bylaws. Only then does the balancing test noted above come into play. (Id. at p.354, 152 Cal.Rptr. 546, 590 P.2d 401.)

The NFL's Constitution provides that (1) the pur-pose of the league is to promote and foster the primary business of league members who are owners of aprofessional football club located in the United States, (2) no member of the league shall own any interest in a professional football team not a member of the league, and (3) no member shall own a financial interest in a minor league club.

The Raiders objects to being compelled to participate in NFL Europe. It takes the position a European football league falls outside the purposes of the NFL, the European teams are not members of the NFL, and the European teams are minor league teams. The other perspective is that the promotion and fostering of league-member business is an open-ended concept and the other-team ownership prohibitions can be interpreted as conflict-of-interest prohibitions that apply to individual clubs rather than the clubs' collective ownership of all of the European teams.

The Raiders tacitly accepts that the NFL has rejected its interpretation of the constitution and embraced the European football league. And it tac-itly accepts that the operation of NFL Europe does not plainly contravene the constitution. It simply contends that California Dental does not apply and the California courts should intercede in its dispute.The case language [California Dental] applies: "We conclude that when a private voluntary organization plainly contravenes the terms of its bylaws, the issues of whether and to what extent judicial relief will be available depend on [the balancing factors]." (Ibid.)

The case then stated that the threshold question in determining whether judicial action is appropriate was whether the challenged action "plainly contravenes" the association's bylaws. It undertook review in the case only because the challenged action plainly contravened the association's bylaws.

Operation of the World League does not plainly contravene the cited general bylaw. The abstention doctrine therefore applies.

Demand Futility

The Raiders contends that it raised a triable issue of fact as to demand futility in several different ways. The test for proving demand futility is whether the facts show a reasonable doubt that (1) the directors are disinterested and independent, and (2) the challenged transaction was otherwise the product of a valid exercise of business judg-ment. (Aronson v. Lewis (Del.1984) 473 A.2d 805, 814.)

According to the Raiders, the evidence showing the extraordinary influence of the commissioner and president over the NFL and the NFL entities shows the structural bias and therefore demand futility. In a similar argument that the Raiders urges shows specific facts, the Raiders argues that certain individual clubs were disabled from exercising independent judgment because those clubs needed favorable treatment from the commissioner concerning NFL rule interpretations.

The argument appears to be a non sequitur, however. This follows because the structure does not permit the commissioner to control the clubs; the commissioner is a nonshareholder officer who serves at the pleasure of the directors (clubs). In short, any structural bias stemming from the influence of the commissioner and his appointees naturally flows from the consent of the clubs.

The Raiders next argues that the failure of the various boards to appoint a special litigation com-mittee is itself evidence of demand futility. It relies on Zilker v. Klein (N.D.Ill.1981) 510 F.Supp. 1070 (Zilker). This reliance is erroneous.

In Zilker, the trial court denied a motion for sum-mary judgment in a derivative suit where the plain-tiff made no demand but argued that demand was futile because the complaint alleged "a long course of events involving many decisions either participated or acquiesced in by the entire Board." (Zilker, supra, 510 F.Supp. at p. 1073.) In response to the defendants' ar-gument that the corporation could have referred the suit to a special litigation committee if the plaintiff had made demand, the trial court offered that the argument "proves too much, for there is nothing to have prevented Defendants from taking precisely that action after [the plaintiff's] complaint was filed." (Ibid., original italics.) It then stated: "It should be remembered that on Defen-dants' motion for summary judgment all reasonable in-ferences are to be drawn in plaintiff's favor. Defendants' failure to deal with the matter independently for nearly four years supports the inference that a demand would in fact have been futile and thus defeats summary judg-ment on this score." (Id. at pp.1073-1074.)

Zilker is distinguishable because, in this case, the Raiders submitted no evidence that the various boards failed to deal with the derivative claims independently. A disinterested board can be informed of derivative claims via the derivative suit and, if it concludes that the claims have no merit, seek summary judgment. The Raiders' argument simply assumes that the vari-ous boards were not independent and therefore had to appoint a special litigation committee to investigate its derivative claims.In short, a board's failure to appoint a special litigation committee to investigate the claims made in a derivative suit cannot raise an inference of demand futility because there is no necessity to appoint a special litigation committee if the board itself is disinterested.

The Raiders next argues that the clubs as directors cannot exercise independent judgments on whether to sue Tagliabue and Austrian because they have divided loyalties. It relies on declarations submitted by 23 clubs to the effect that each club would have exercised business judgment to do what was best for the NFL and the respective club on any demand by the Raiders to investigate claims of wrongdoing by NFL employees. According to the Raiders, the clubs cannot have undivided loyalty to the NFL when they must also consider their individual interests.

Again, the argument is a non sequitur. All of the clubs are directors of the NFL, and there are no other directors. All of the clubs are owners of the NFL, and there are no other owners. Thus, in the context of wrongdoing by NFL employees, damage to the NFL is coextensive with damage to the clubs. There is there-fore no potential for a club, as a director, to divide loy-alties between the NFL and the club.

Disposition

The judgment is affirmed.

Case Analysis

a. Why did the abstention doctrine apply to this case?

b. Did the Oakland Raiders win or lose this case?

3.Explain the bankruptcy process in U.S. courts.

4.Compare and contrast the different types of corporations.