Judge: Gregory Keosian, Case: 20STCV18455, Date: 2023-09-07 Tentative Ruling

Case Number: 20STCV18455    Hearing Date: February 20, 2024    Dept: 61

Defendant Blair Stover’s Demurrer to the Second Amended Complaint is OVERRULED.

Plaintiffs to give notice.

I.                DEMURRER

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) 39 Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

Defendant Blair Stover (Defendant) demurrers to the Second Amended Complaint (SAC) on the grounds that it is barred by the statute of limitations and not supported by allegations of delayed discovery. (Demurrer at pp. 5–7.) Defendant argues that the allegations of fraudulent misrepresentation and concealment are not pleaded with specificity. (Demurrer at pp. 8–9.) He further argues that Plaintiffs Forest and Lina Smith, trustees of the Forest G. Smith IV Revocable Living Trust and the Lina D. Smith Revocable Living Trust (Plaintiffs) lack capacity to sue, as their claimed injuries are to the corporation Apex Events, LLC. (Demurrer at pp. 9–11.) Defendant finally argues that the allegations of fraud rely on Rules of Professional Conduct which were not in effect when the alleged fraudulent transactions were entered into in 2009 and 2010. (Demurrer at pp. 11–13.)

Defendant has brought something like the present demurrer before. This court on November 5, 2020, sustained Defendant’s demurrer to the original Complaint’s first through third and fifth causes of action for fraud and declaratory relief, on the grounds that the pleading had not alleged reasonable diligence in failing to discover the alleged wrongdoing sooner. This court overruled the demurrer as to the fourth cause of action for breach of fiduciary duty, on the grounds that the claim alleged wrongful conduct closer to the time of filing. This court then on April 6, 2021, granted Plaintiffs’ motion for leave to file a first amended complaint, and on October 9, 2023, granted their motion for leave to file the SAC. The present demurrer follows.

Because the fraud alleged in the SAC occurred in the context of various oral and written agreements made in 2009 and 2010 — ten years before this case was filed in May 2020 — the timeliness of most of Plaintiffs’ claims rests upon the delayed discovery rule. The “discovery rule. . . postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) “A plaintiff has reason to discover a cause of action when he or she ‘has reason at least to suspect a factual basis for its elements.’” (Ibid..) Courts “look to whether the plaintiffs have reason to at least suspect that a type of wrongdoing has injured them.” (Ibid.) The accrual of a cause of action in relation to the discovery rule is normally a question of fact. (Id. at p. 810.)

On a demurrer, the court must take as true statements such as that as plaintiff “did not discover, nor suspect, nor was there any means through which her reasonable diligence would have revealed, or through which she would have suspected,” the cause of an injury was the defendant in question. (Id. at p. 811.) However: “A plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (Id. at p. 808.) The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer. (Ibid.)

The SAC remedies the defects that marred Plaintiffs’ original complaint. That pleading supported Plaintiffs’ allegation of reasonable diligence with the bare conclusion that Defendant had “concealed and withheld” relevant documentation that would have revealed his deception. (Complaint ¶ 42.) However, the SAC pleads additional and specific facts supporting the existence of reasonable diligence. The SAC goes into greater detail concerning the position of trust occupied by Defendant in relation to Plaintiffs “as a trusted legal, accounting, and business advisor and close family friend.” (SAC ¶ 15.) The SAC recounts Plaintiffs’ reliance on Defendant’s “professed expertise” in preparing the transactions at issue (SAC ¶ 23) and his repeated assurances that “it was a part of his job to protect their legal and financial interests.” (SAC ¶ 30.) The SAC alleges that Plaintiffs from time to time asked Defendant about the status of their investments made pursuant to these transactions, and that Defendant assured them that their investments were safe and meeting their business goals. (SAC ¶ 33.)

Defendant argues that these allegations are insufficient because Plaintiffs could not have delegated any responsibility for overseeing trust assets to Defendant, and because the SAC discloses that Plaintiff Forest Smith devoted his time to the “day-to-day leadership of APEX’s front office or creative operations,” and that Lina Smith had “little or no involvement in APEX’s day-to-day operations.” (SAC ¶ 44.)

Both arguments fail. Defendant relies on Probate Code § 16012, which states:

(a) The trustee has a duty not to delegate to others the performance of acts that the trustee can reasonably be required personally to perform and may not transfer the office of trustee to another person nor delegate the entire administration of the trust to a cotrustee or other person.

(b) In a case where a trustee has properly delegated a matter to an agent, cotrustee, or other person, the trustee has a duty to exercise general supervision over the person performing the delegated matter.

(Prob. Code § 16012, subd. (a), (b).) Although Defendant highlights subdivision (b)’s requirement to exercise “general supervision” over matters delegated to an agent, the SAC pleads such supervision when it alleges that Plaintiffs’ asked Defendant for updates concerning the status of their investments, and he reported that they were healthy. (SAC ¶ 33.) Moreover, this section is of doubtful applicability to the allegations here, as Defendant was charged with overseeing Plaintiffs’ investments in various businesses, and subdivision (c) of the same statute, states that the section “does not apply to investment and management functions under Section 16052.” (Prob. Code § 16012, subd. (c).)[1] Finally, the allegation that Plaintiff Forest Smith relied on Defendant to oversee these investments because he was occupied with the day-to-day operations of another trust-owned company does not establish that Plaintiffs were negligent in making the delegation. The arguments relating to the statute of limitations therefore furnish no basis for sustaining the demurrer.

Defendant’s argument as to the lack of specificity supporting the fraud allegations is unsupported, save by a bare denial of the pleadings. Defendant contends that the Plaintiffs allege an investigation of Defendant beginning in 2018, but do not plead the results of their investigation. (Demurrer at p. 8.) Defendant cites no authority for the proposition that such facts post-dating the alleged fraud need be pleaded. Defendant identifies one instance in the SAC in which the pleading states that Defendant “induced FOREST and/or the SMITHS to invest.” (Demurrer at p. 9; SAC ¶ 37.) But prior allegations state affirmatively that Defendant’s agreements were with both Plaintiffs. (SAC ¶¶ 17, 21, 22, 25.) There is no basis to sustain the demurrer on this point.

Defendant’s argument that the real party in interest is not the Plaintiff trusts, but rather the company they own, Apex Events, LLC, is also unavailing. This argument is based on allegations that Defendant stole money from Apex, and requests for relief that include the invalidation of contracts with both Plaintiffs and Apex. (Demurrer at pp. 9–10.) Defendant does not explain how the presence of requests for relief pertaining to Apex deprive Plaintiffs of capacity to sue for injuries sustained by them, as is repeatedly alleged in the SAC. Even if such allegations were defective, “[a] demurrer must dispose of an entire cause of action to be sustained.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) This argument is again no basis to sustain the demurrer to any cause of action.

Defendant finally argues that the entire SAC  relies on Rules of Professional Conduct 1.7 and 1.8.1, when neither were in effect in 2009 and 2010, when the contracts were framed. (Demurrer at pp. 11–13.) Yet this argument has no merit, because although the rules then in existence were not called Rules 1.7 and 1.8, they did exist, specifically as Rules of Professional Conduct 3-310 [“Avoiding the Representation of Adverse Interest”] and 3-300 [“Avoiding Interests Adverse to a Client”]. As to whether Defendant was lawfully able to practice law in California, Defendant does not identify what element of any cause of action this the existence or nonexistence of this fact negates. (Demurrer at pp. 12–13.)

The demurrer is therefore OVERRULED.