Judge: Frank M. Tavelman, Case: 23BBCV00804, Date: 2023-11-17 Tentative Ruling

Case Number: 23BBCV00804    Hearing Date: November 17, 2023    Dept: A

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

DEMURRER

NOTICE:

The Court is not requesting oral argument on this matter.  Pursuant to California Rules of Court, Rule 3.1308(a)(1) notice of intent to appear is required.  Unless the Court directs argument in the Tentative Ruling, no argument will be permitted unless a “party notifies all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue.  The tentative ruling will become the ruling of the court if no notice of intent to appear is received.”  

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

ALLEGATIONS: 

Angelina Corona and Hermandad Mexicana Nacional (“HMN”) (collectively “Plaintiffs”) bring this action against Capital One, N.A. (“Capital One”), Genesis LA Economic Growth Corp. (“Genesis”) and Does 1 through 20 (collectively “Defendants”). This action stems from an attempt by Plaintiffs to pay back a loan provided by Genesis. Plaintiffs allege that they transferred the sum of $244,312.83 to a Capital One account purportedly maintained by Genesis in an attempt to pay the balance of their loan. Plaintiffs allege they received communication from a person purporting to represent Genesis instructing them to make this transfer. In actuality, the party contacting Plaintiffs was not affiliated with Genesis and intended to defraud Plaintiffs. After discovering this subterfuge, Plaintiffs attempted to recover the funds but were unsuccessful as Capital One allegedly allowed them to be transferred from the fraudulent account.

Plaintiffs’ First Amended Complaint (“FAC”) states causes of action for (1) Negligence (against all Defendants), (2) Violation of California Commercial Code § 11207 (against Capital One and Does), and (3) Breach of Fiduciary Duty (against all Defendants).

Genesis now demurs to the third cause of action on grounds that it fails to state sufficient facts to allege a fiduciary duty between the parties. Plaintiffs oppose and Gensis replies.

ANALYSIS: 

I.                    LEGAL STANDARD 

The grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (C.C.P. § 430.30(a); Blank v. Kirwan (1985) 39 Cal. 3d 311, 318.) A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) The only issue involved in a demurrer hearing is whether the complaint states a cause of action. (Id.)

A demurrer assumes the truth of all factual, material allegations properly pled in the challenged pleading. (Blank v. Kirwan, supra, 39 Cal. 3d at p. 318.) No matter how unlikely or improbable, the plaintiff’s allegations must be accepted as true for the purpose of ruling on the demurrer. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.  App. 3d 593, 604.) But this does not include contentions; deductions; conclusions of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to facts of which a court may take judicial notice.  (Blank, supra, 39 Cal. 3d at 318.)

Pursuant to Code of Civil Procedure (“C.C.P.”) §§ 430.10(e) and (f), the party against whom a complaint has been filed may demur to the pleading on the grounds that the pleading does not state facts sufficient to constitute a cause of action, or that the pleading is uncertain, ambiguous and/or unintelligible. It is an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable probability that the defect can be cured by amendment. (Schifando v. City of Los Angeles (2003) 31 Cal. 4th 1074, 1082.)

II.                 MERITS

“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)

Genesis argues that the FAC does not allege facts sufficient to establish the existence of a fiduciary duty.

In general, no fiduciary relationship exists between a lender and a borrower in an arm’s length transaction. (Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182, 206.) “[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096.)

Plaintiffs agree that normally such a fiduciary relationship does not exist and cite a number of cases reinforcing this point. Plaintiffs instead argue that Genesis’ role in providing them the loan was such that it did exceed the scope of an arm’s length transaction.

Plaintiffs first cite Wallis v. Superior Court, arguing that this case established the factors necessary to determine the existence of a fiduciary relationship in this case. The Court finds Wallis to be factually inapposite and its holding misapplied by Plaintiffs.  The parties in Wallis were not lender and borrower, rather employer and employee. (Wallis v. Superior Court (1984) 160 Cal.App.3d 1109, 1113.) The Court in Wallis was concerned with whether a “special relationship” existed between the employer and the employee such that claims could be sustained for tortious breach of contract. (Id. at 1116.) Plaintiffs’ relationship to Genesis is entirely dissimilar to that of the parties in Wallis.

Plaintiffs next cite Nymark v. Heart Fed. Savings & Loan Assn. The court in Nymark observed five factors in evaluating whether a financial institution owes a duty of care to a borrower. These factors are as follows:

1. the extent to which the transaction was intended to affect the plaintiff
2. the foreseeability of harm to him
3. the degree of certainty that the plaintiff suffered injury
4. the closeness of the connection between the defendant’s conduct and the injury suffered
5. the moral blame attached to the defendant’s conduct,
6. the policy of preventing future harm.

Defendants argue, and the Court agrees, that Nymark’s factors are inapplicable to the instant motion. Nymark concerned the determination of a duty of care owed to a borrower for purposes of a negligence action. (Nymark supra, 231 Cal.App.3d. at 1095.) The Nymark court specifically stated that the allegations in that case were not to be construed as that of breach of fiduciary duty. (Id. at fn.1.) The court clarified that, by law, the relationship between a lending institution and a borrower is not fiduciary in nature. (Id.)

In evaluating the sufficiency of Plaintiffs’ cause of action, the question that must be answered is whether Genesis’s involvement with Plaintiffs exceeded the scope of the conventional money lender. The Court finds the factual allegations in the FAC do not show Genesis did anything other than lend Plaintiffs money. Plaintiffs’ factual pleadings as to Genesis in the FAC are as follows:

·         Genesis LA exists to serve and enhance underserved communities by providing capital and building capacity assistance to nonprofits, small businesses, and women and minority owned enterprises. (FAC ¶ 5.)

·         On or about January 26, 2022, Genesis LA Economic Growth Corp provided a commercial loan to Plaintiffs, evidenced by a promissory note. (FAC ¶ 11.)

·         Genesis LA Economic Growth Corp, in permitting the fraudulent activity to occur, failed to safeguard Plaintiffs’ information, failed to protect the integrity of their own business information, and failed to ensure Plaintiffs were provided accurate and secure information regarding its monetary transactions. (FAC ¶ 14.)

The Court finds these facts are not indicative of Genesis exceeding the scope of the conventional lender role. A demurrer for sufficiency is concerned with whether a plaintiff has stated enough facts to sustain each element of its cause of action. Here, Plaintiffs have pleaded no facts as to the essential element of the existence of a fiduciary duty. The allegations of failure to safeguard information speak to a cause of action for negligence and not the existence of a fiduciary duty. The remaining allegations concerning Genesis consist of conclusory statements that a fiduciary duty did exist. These statements are insufficient upon a demurrer.

While it does not appear likely, the Court finds it is possible that Plaintiffs could allege additional facts speaking to Genesis having a role more than that of a mere lender. As such, the demurrer to the third cause of action is SUSTAINED with 20 days’ leave to amend.

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RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records. 

ORDER 

Genesis LA Economic Growth Corp.’s Demurrer came on regularly for hearing on November 17, 2023, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows: 

THE DEMURRER IS SUSTAINED WITH 20 DAYS’ LEAVE TO AMEND.

THE CASE MANAGEMENT CONFERENCE IS CONTINUED TO FEBRUARY 1, 2024 AT 9:00 A.M.

UNLESS ALL PARTIES WAIVE NOTICE, GENESIS TO GIVE NOTICE.

IT IS SO ORDERED. 

DATE:  November 17, 2023                          _______________________________ 

                                                                        F.M. TAVELMAN, Judge 

Superior Court of California 

County of Los Angeles