Judge: Cherol J. Nellon, Case: 22STCV34106, Date: 2023-08-18 Tentative Ruling


Case Number: 22STCV34106    Hearing Date: August 18, 2023    Dept: 14

Instant Hearing

 

            Defendants Barzilay and Hagel now demurs, per Code of Civil Procedure §§ 430.10(d)-(e), to the entire FAC, on the grounds that it fails to state facts sufficient to constitute a cause of action against them.

 

Decision

 

            The demurrer to the first cause of action is OVERRULED.

 

The demurrer to the second cause of action is SUSTAINED, without leave to amend.

 

The demurrer to the third, fourth, and fifth causes of action is SUSTAINED, with 20 days leave to amend.

 

First Cause of Action: Fraud

 

            Failure to disclose information may give rise to fraud liability. See Lovejoy v. AT & T Corp. (2004) 119 Cal.App.4th 151, 157-158. Where one party to a transaction has material information which is not available to the other party, there is a duty to disclose that information. LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336. Plaintiff has pled that Defendants Barzilay and Hagel were present in the relevant meetings, knew that Plaintiff was being fed false information about the finances, and did not disclose the correct information. (FAC ¶¶ 21-37).

 

            Plaintiff has properly pled a fraud claim against Defendants Barzilay and Hagel.

 

Second Cause of Action: Conversion

 

            The first element of a conversion claim is the plaintiffs “ownership or right to possession of the property at the time of conversion.” Prakashpalan v. Engstrom, Lipscomb and Lack (2014) 223 Cal.App.4th 1105, 1135. Plaintiffs have pled that a loan was fraudulently induced, and that the loan proceeds were not used for the purpose intended by the lender. But a lender does not retain ownership or the immediate right of possession over funds lent. They give up their funds in exchange for a right of repayment.

 

The mere contractual right to repayment will not support a conversion claim. See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 C.A.4th 221, 232-233; Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284. Therefore, Plaintiffs have no conversion claim here, and no realistic possibility of pleading one.

 

Third Cause of Action: Fraudulent Conveyance

 

            Claims for fraudulent conveyance (more commonly known as “fraudulent transfer”) are governed by Civil Code §§ 3439 et seq. To state a claim, Plaintiff must identify the transfer they seek to void; the proper defendants to the claim are the debtor and the transferee. Civil Code §§ 3439.04, 3439.05, 3439.07.

 

Here, Plaintiff has failed to specify any transfer from the debtor (identified as Lancaster, LLC in paragraph 4 of the FAC) to Defendants Barzilay and Hagel. Neither the court nor defendants can proceed without knowing what transaction(s) Plaintiff seeks to void.

 

Fourth Cause of Action: Constructive Trust

 

            A claim for constructive trust “is not an independent cause of action but merely a type of remedy for some categories of underlying wrong. (See 5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 796, p. 252.).” Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1023 fn.3.

 

            Plaintiff may include a request for this remedy in its prayer for relief. The propriety of that remedy is not a proper subject for demurrer.

 

Fifth Cause of Action: Unjust Enrichment

 

            While there is no formal cause of action for unjust enrichment, such a claim may be construed as a quasi-contract claim seeking restitution. Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231. The claim is available where one party has received funds from another based on a contract which has later turned out to be unenforceable. Id.

 

Plaintiff has failed to allege how Defendants Barzilay and Hagel personally received funds from Plaintiff based on a contract with Plaintiff.

 

Conclusion

 

            The demurrer to the first cause of action is OVERRULED.

 

The demurrer to the second cause of action is SUSTAINED, without leave to amend.

 

The demurrer to the third, fourth, and fifth causes of action is SUSTAINED, with 20 days leave to amend.

 

Plaintiff needs to explain, in more detail, what transfers it seeks to void and how Defendants Barzilay and Hagel came to personally benefit from its loan.