Judge Jill Feeney, Case Number: 22STCV33447, Date: 2024-05-09 Tentative Ruling

Plaintiff is reminded that Plaintiff must serve all named defendants. This case has been pending for well over one year and Plaintiff has yet to file a proof of service with respect to Defendants International Pacific University and International Pacific Investment LLC.

This is an action for declaratory relief, breach of contract, promissory estoppel, fraud, fraud under Civ. Code, section 1709, conversion, and constructive trust. Plaintiff alleges that he was a paralegal student at Defendant International Pacific University, Inc. (University), which was owned and operated by Defendant Howard Lee (H. Lee). H. Lee offered classes on house flipping and began recruiting investors among students for a project. A common fund was to be established by students to purchase a house at 152 Serrano Avenue, Los Angeles, California 90004. The students would renovate the house and resell it for profit to be shared among the students. The students purchased the property in H. Lee’s name only in August 2017. H. Lee made no effort to remodel the house. In April 2018, H. Lee resold the house without consulting any of the student investors. H. Lee offered to give Plaintiff a mobile home roughly equal to her investment.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “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. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

The elements for a breach of fiduciary duty cause of action are “the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.) “Before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 246.)

A party filing a demurrer “shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., section 430.41(a).) “The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer.” (Code Civ. Proc., section 430.41(a)(2).) A failure to meet and confer does not constitute grounds to sustain or overrule a demurrer. (See Code Civ. Proc., sections 430.41 (a)(4).)

Here, H. Lee filed a form CIV-140 and checked the box stating he met and conferred with Plaintiff at least five days before the date the responsive pleading was due. However, H. Lee failed to check whether the parties met and conferred via telephone or in person. Nevertheless, failure to meet and confer is not a basis for overruling or sustaining a demurrer.

A demurrer is generally not an appropriate means to test the merits of a declaratory relief action unless the issues are solely ones of law. (Arroyo v. Regents of University of California (1975) 48 Cal.App.3d 793, 797.) “A demurrer is not the appropriate vehicle to challenge a portion of a cause of action demanding an improper remedy.” (Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, 384-85; see PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682-83 (“A demurrer does not lie to a portion of a cause of action.”).) “The appropriate procedural device for challenging a portion of a cause of action seeking an improper remedy is a motion to strike.” (Caliber Bodyworks, Inc., supra, 134 Cal.App.4th at 385.)

Here, Plaintiff alleges that an actual controversy exists between Plaintiff and defendants with respect to the parties’ rights, obligations, and duties. (SAC ¶18.) Plaintiff was not paid back her $135,000 investment as promised. (SAC ¶21.) Plaintiff demands a judicial declaration of the parties rights, duties, and obligations. (SAC ¶22.) The issues here are factual because the parties dispute whether Defendants were obligated to pay Plaintiff her investment.

“[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

A Plaintiff is permitted to plead a written contract according to its legal effect. However, this is more difficult because it requires careful analysis of instrument, comprehensiveness in statement, and avoidance of legal conclusions. (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 993.)

When an action is founded upon a contract, the complaint is subject to demurrer if it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct. (Code Civ. Proc., section 430.10(g); Maxwell v. Dolezal (2014) 231 Cal.App.4th 93.)

Here, Plaintiff alleges H. Lee recruited students to invest in a project where the students would buy a property in Los Angeles, the property would be renovated and sold, and the students would share the profits. (SAC ¶10.) H. Lee failed to remodel the property, resold the property without the students’ consent in 2018, and refused to pay the students their investments. (SAC ¶¶13-14.)

The SAC does not state whether the contract was written, oral, or implied. Additionally, the SAC alleges that H. Lee breached the contract by selling the property and refusing to pay investors in 2018. It appears that the statute of limitations for Plaintiff’s breach of contract claim with respect to the original investment has run.

An action upon a contract, obligation or liability founded upon a writing is subject to a four-year statute of limitations. (Code Civ. Proc., section 337, subd. (a).) The statute of limitations for breach of an oral contract is two years. (Code Civ. Proc., section 339, subd. (1).)

“The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 (Fox); Nelson v. Indevus Pharms, Inc. (2006) 142 Cal.App.4th 1202, 1206 (Nelson).) “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. The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer.” (McKelvey v. Boeing N. Am. (1999) 74 Cal.App.4th 151, 160 (McKelvey), superseded by statute on unrelated grounds as stated in Grisham v. Philip Morris U.S.A., Inc. (2007) 40 Cal.4th 623, 637 (Grisham).)

Here, the SAC alleges Plaintiff only just discovered Plaintiff had a cause of action against H. Lee because he has failed to perform, and H. Lee assured her in 2024 that he was building mobile homes and would give Plaintiff a mobile home of roughly equal value to her investment. (SAC ¶¶15-17.) However, Plaintiff knew or should have known that H. Lee breached the agreement when he sold the property and refused to pay out investors in 2018. Therefore, regardless of whether the contract was written or oral, the statute of limitations with respect to the original investment ran in 2020 or 2022. The demurrer is sustained as to the original agreement.

However, H. Lee’s representations that he would give Plaintiff a free mobile home to compensate her for her investment is a different contract. Because the SAC alleges H. Lee made this promise as recently as 2024, the statute of limitations has not run. However, the Court cannot ascertain whether this contract was written or oral from the facts alleged. Therefore, the demurrer must be SUSTAINED as to this cause of action.

“Promissory estoppel applies whenever a ‘promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance’ would result in an ‘injustice’ if the promise were not enforced.” (Advanced Choices, Inc. v. State Dept. of Health Servs. (2010) 182 Cal.App.4th 1661, 1671-1672.) “The elements of a promissory estoppel claim are ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’” (Ibid.) The party claiming estoppel must specifically plead all facts relied on to establish its elements. (Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 48 (Smith).) “Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.” (Ibid.)

Here, the SAC alleges that H. Lee and Plaintiff entered into a contract in April 2017. (SAC ¶32.) H. Lee led Plaintiff to believe he would pay her back either by providing a mobile home of comparable value or by returning her $135,000 investment. (Id.)

This cause of action arises from a contract. As discussed above, the statute of limitations is two years for oral contracts and four years for written contracts. Here, H. Lee breached these contracts in 2018. Therefore, the statute of limitations has run as to this cause of action. Although there may have been a different, more recent contract where H. Lee promised to give Plaintiff a mobile home to compensate her for the investment, there are also no facts in the SAC which state that Plaintiff relied on H. Lee’s representations that she would be paid back when she entered into the house flipping contract.

A claim for fraud must plead all of the following elements: (1) misrepresentation; (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1332.)

Here, the SAC alleges that H. Lee induced investors, including Plaintiff, to invest in a house flipping project in 2017. (SAC ¶10.) There are no facts in the FAC which state that Plaintiff relied on H. Lee’s representations that she would be paid back when she entered into the house flipping contract. Additionally, because the alleged fraud took place about seven years ago, the causes of action for fraud are time-barred. Even if Plaintiff did not discover the fraud until later, Plaintiff should have discovered through reasonable diligence that the fraud had taken place when H. Lee failed to remodel the property, sold it, and refused to pay investors in 2018.

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

“‘Conversion is any act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with his rights therein.’” (Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 747 (quoting Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329).) “‘It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.’” (Id.)

The statute of limitations for a cause of action for conversion is three years. (Code Civ. Proc., section 338(c); AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 639.) The limitations period begins to accrue when the property is wrongfully taken. (AmerUS at p.639.)

The weight of authority in California is that there is no cause of action for a constructive trust. Under California law, "[a] constructive trust . . . is an equitable remedy, not a substantive claim for relief." (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, (2007) 150 Cal. App. 4th 384, 398; Glue-Fold, Inc. v. Slautterback Corp. 82 Cal. App. 4th 1018, 1023 (stating that a constructive trust is not an independent cause of action).)