Judge Bruce G. Iwasaki

Department 58

Hearing Date: August 20, 2024

Case Name: AREPIII Property Trust, LLC v. Relevant Group, LLC

Case No.: 21STCV14241

Matter: Demurrer to Cross-complaint

Moving Party: Cross-defendant AREPIII Property Trust, LLC

Responding Party: Cross-complainant Relevant Group, LLC

Tentative Ruling: The demurrer is overruled

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Plaintiff and Cross-defendant AREPIII Property Trust (AREPIII or Cross-defendant) is a real estate investment firm. In April 2021 it brought suit against, among others, Defendant and Cross-complainant Relevant Group, LLC (Relevant or Cross-complainant), a real estate development firm, because of a failed loan transaction. The trial court dismissed AREPIII’s third amended complaint; the Court of Appeal reversed.

In March 2024, the matter was reassigned to this Department. AREPIII filed a fourth amended Complaint against Relevant for breach of contract, quantum meruit, and promissory fraud. Relevant answered. Relevant also cross-complained against AREPIII for (1) breach of contract, (2) money had and received, (3) conversion, and (4) promissory fraud. AREPIII demurred to the last three claims.

The Court overrules the demurrer.

Legal Standard for Demurrers

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading by raising questions of law. (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

Discussion

Money had and received.

AREPIII demurs to the second cause of action for money had and received.

“A cause of action for money had and received is stated if it is alleged the defendant “is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.’ ”” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.)

The Cross-complaint alleges that Cross-defendant “received $200,000 from Relevant for the use and benefit of Relevant,” “failed to use the funds for the benefit of Relevant,” and “refused to deliver the funds to Relevant despite demand.” (Cross-compl. ¶¶ 34-36.)

AREPIII argues that that this “claim fails as alleged due to the objective failure of Relevant to allege (or, to be able to allege) that AREPIII received any money for Relevant’s use.” (Demurrer, p. 13, original italics.) In fact, that is precisely what paragraph 34 of the Cross-complead pleads. Cross-defendant’s argument focuses not on the pleading, but on the parties’ different interpretations of their contract and the legitimacy of each party’s conduct in light of their interpretations. That is a matter of disputed evidence, not the adequacy of the pleading.

The demurrer to the second cause of action is overruled.

Conversion

AREPIII demurs to the Cross-complaint’s third cause of action for conversion. The Cross-complaint alleges that Cross-defendants received $200,000 as a “good faith deposit[]” to apply to costs of the loan when it closed, but otherwise to be returned. Relevant alleges that the loan did not close, but AREPIII refused to return the deposit. The Cross-complaint pleads that the $200,000 good faith deposit “is a specific fund capable of being converted.” (Cross-compl. ¶ 39.)

“Conversion is generally described as the wrongful exercise of dominion over the personal property of another. [Citation.] The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant’s disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

Thus, to establish a viable cause of action for conversion, Plaintiff must establish an actual interference with its ownership or right of possession of property. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 610.) To do that it must have “either ownership and the right of possession or actual possession [of the property] at the time of the alleged conversion thereof.” (General Motors Acceptance Corp. v. Dallas (1926) 198 Cal. 365, 370.) “ ‘To establish a conversion, plaintiff must establish an actual interference with his ownership or right of possession. . . . Where plaintiff neither has title to the property alleged to have been converted, nor possession thereof, he cannot maintain an action for conversion.’ ” (Moore v. Regents of the Univ. of Cal. (1990) 51 Cal.3d 120, 136.)

It is well-established that “a mere contractual right of payment, without more, will not suffice” to support a claim for conversion. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 452.) Moreover, “[m]oney cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment.” (Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1042 [italics in original]; see also Vu v. California Commerce Club, Inc. (1997) 58 Cal.App.4th 229, 235 [A “generalized claim for money [is] not actionable as conversion.”].)

Cross-defendant AREPIII argues that the economic loss rule bars this claim. As AREPIII states, “[t]he economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) Cross-defendant’s argument turns on its contention that Relevant “mischaracterizes” the $200,000 as a security deposit. (Demurrer, p. 18.) But this is a dispute over facts, not an argument that accepts the pleadings as true. Cross-complainant Relevant does not allege that the $200,000 represents its damages for disappointed expectations, but a specific sum it entrusted to AREPIII.

Relevant has pleaded the essential elements for conversion. The demurrer to the third cause of action is overruled.

Fraud

Relevant claims in the fourth cause of action of the Cross-complaint that AREPIII made promises to induce it to enter a loan agreement that it had no intention of honoring.

The elements of a cause of action for intentional misrepresentation are: (1) a misrepresentation; (2) knowledge of falsity; (3) intent to defraud or induce reliance; (4) actual reliance by the plaintiff; and (5) resulting damage. (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1255; Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173; Civ. Code, § 1709.) Further, fraud, unlike most claims in tort, requires that each element must be pled with specificity. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) That is, generally, “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (LazAREPIIIv. Superior Court (1996) 12 Cal.4th 631, 645.). “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Ibid.)

With respect to promissory fraud, a “promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citations.]” (LazAREPIIIv. Superior Court (1996) 12 Cal.4th 631, 638.) Thus, in a promissory fraud action, to sufficiently allege defendant made a misrepresentation, the complaint must allege (1) the defendant made a representation of intent to perform some future action, i.e., the defendant made a promise, and (2) the defendant did not really have that intent at the time that the promise was made, i.e., the promise was false. (Id. at pp. 638-639.)

AREPIII contends that the Cross-complaint fails to allege its knowledge or intent, or Relevant’s justifiable reliance. The Court disagrees. The Cross-complaint alleges specific representations and promises made by Cross-defendant’s CEO and when they were made. (Cross-compl. ¶ 46.) AREPIII’s knowledge and intent are alleged (Id. ¶¶ 48-49), as is Cross-complainant’s reasonable reliance. (Id. ¶¶ 50-51.)

The demurrer to the fraud cause of action is overruled.

Conclusion

Cross-defendant AREPIII’s demurrer to the Cross-complaint is overruled. AREPIII shall serve and file its Answer to the Cross-complaint on or before September 10, 2024.