Judge: Michael Shultz, Case: 22CMCV00164, Date: 2022-08-30 Tentative Ruling
Case Number: 22CMCV00164 Hearing Date: August 30, 2022 Dept: A
22CMCV00164
David Crowe v. Kenneth S. Wrye
[TENTATIVE] ORDER
I.
BACKGROUND
The complaint alleges that the
parties have been business partners for 50 years. The parties created C & A
X-Ray (“C&A”) on April 13, 1983. Plaintiff believed he had an equal
interest in the company. The parties also created OSR Systems (“OSR”) which Plaintiff
believed to be another branch of C&A. Plaintiff alleges that Defendant used
C&A funds to purchase real property in Paramount, California, and took
title in his own name, although Defendant represented that both parties jointly
owned the property. Defendant agreed to buy out Plaintiff’s share of the real
property and gave Plaintiff $200,000 as a cash down payment. Defendant never
paid the balance owed to Plaintiff for the Paramount real property. Plaintiff
alleges claims for breach of fiduciary duty, fraud, constructive trust, and for
an accounting.
Defendant demurs to all causes of
action as they are barred by the applicable statute of limitations. None of
Plaintiff’s claims accrued within the last four years. The parties’ businesses
were sold over a decade ago.
Plaintiff’s opposition, filed on
August 16, 2022, argues that Plaintiff’s claims are not barred because the
claims accrued on the date Plaintiff discovered Defendant’s wrongful conduct.
However, Plaintiff concedes that additional facts could have been included to
allege the manner of Plaintiff’s delayed discovery. Plaintiff asks for leave to
amend. Whether Plaintiff should have discovered the facts for purposes of
accrual is a question of fact unless the allegations can support only one
conclusion.
In reply filed August 22, 2022,
Defendant argues that the Complaint does not allege delayed discovery. The
court should not grant leave to amend because Plaintiff will not be able to
change dates already alleged to avoid the defects.
II.
LEGAL STANDARDS
A demurrer tests the sufficiency of a complaint as a
matter of law and raises only questions of law. Schmidt v. Foundation Health (1995) 35 Cal.App.4th 1702, 1706. In testing the
sufficiency of the complaint, the court must assume the truth of (1) the
properly pleaded factual allegations; (2) facts that can be reasonably inferred
from those expressly pleaded; and (3) judicially noticed matters. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.
The court may not consider contentions, deductions, or
conclusions of fact or law. Moore v. Conliffe (1994) 7 Cal.4th 634, 638. Because a demurrer tests the legal
sufficiency of a complaint, the plaintiff must show that the complaint alleges
facts sufficient to establish every element of each cause of action. Rakestraw v. California Physicians Service (2000) 81 Cal.App.4th 39, 43. Where the complaint
fails to state facts sufficient to constitute a cause of action, courts should
sustain the demurrer. Code Civ. Proc., § 430.10(e); Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.
Sufficient facts are the essential facts of the case
"with reasonable precision and with particularity sufficiently specific to
acquaint the defendant with the nature, source, and extent of his cause of
action.” Gressley v. Williams (1961) 193 Cal.App.2d 636, 643-644. Whether the
Plaintiff will be able to prove the pleaded facts is irrelevant. Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610.
A demurrer may also be sustained if a complaint is
“uncertain.” Uncertainty exists where a complaint’s factual allegations are so
confusing, they do not sufficiently apprise a defendant of the issues it is
being asked to meet. Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2; Code Civ.
Proc., § 430.10(f).
For the court to sustain demurrer
to the complaint based on a statute of limitations defect, the defect must
clearly and affirmatively appear on the face of the Complaint; it is not enough
that the complaint might be barred.” Marshall v. Gibson Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.
III.
DISCUSSION
The statute of limitations for a
claim for breach of fiduciary duty is four years.
Stalberg v. Western Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1230. The claim is based on
concealment of facts, and the statute begins to run when plaintiffs discovered,
or in the exercise of reasonable diligence could have discovered the concealed
facts. Stalberg at 1230.
Plaintiff alleges
that Defendant violated his fiduciary duties by using C&A funds to purchase
the Paramount real property and taking title individually. Defendant also
failed to disclose the ownership interests in a separate company created by
Defendant and a third party (KBM). Plaintiff alleges that he learned “in or about
2021” that the Paramount property was never held in the name of C&A and
that Defendant treated it as his personal property since he subsequently
transferred the real property to his personal trust. Complaint 5:11-16.
Where a plaintiff
intends to rely on delayed discovery to avoid the statute of limitations, the
plaintiff "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." Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808. Plaintiff has not adequately raised delayed discovery in the
complaint.
The fraud claim
arises from the same facts supporting the breach of fiduciary duty claim. To
the extent Plaintiff intends to rely on delayed discovery, as the complaint
alleges that Plaintiff became aware in 2021 that the Paramount property was
never held in C&As name, Plaintiff has not alleged the facts articulated by
the court in Fox.
The claim for
constructive trust is inadequately alleged. A constructive trust is created
where "[o]ne [] gains a thing by fraud, accident, mistake, undue
influence, the violation of a trust, or other wrongful act, is,
unless he has some other and better right. Civ. Code, § 2223. That person
becomes an involuntary trustee of the thing gained, for the benefit of the
person who would otherwise have had it.” Martin v. Kehl (1983) 145 Cal.App.3d 228, 237.
This statute of
limitations begins to run “upon the time the beneficiary has notice or should
know of the wrongful holding of the property. (Ibid.) …
the cause of action for a constructive trust does not arise
until the transferee repudiates the oral promise or in some other way indicates
she is holding the property adversely to the plaintiff in violation of her
duty. " Martin at 240. As
previously stated, Plaintiff has not alleged the specific circumstances
surrounding Plaintiff’s delayed discovery of the wrongful holding of property.
A claim for
accounting is barred “when it appears that the statute has run against the
basic cause of action to which the accounting is a mere incident.” Phillis v. City of Santa Barbara (1964) 229 Cal.App.2d 45, 68. Plaintiff alleges that Defendant misappropriated profits from
the sale of C&A and failed to pay Plaintiff his share of the company. Plaintiff
also alleges he has never received compensation from the business operations of
the parties’ other company OSR. These facts are not alleged in support of the
claims for breach of fiduciary duty and fraud. Without additional allegations
relevant to Plaintiff’s delayed discovery, these claims are uncertain.
IV.
CONCLUSION
Based on the foregoing, demurrer
to the entire complaint is SUSTAINED. If
there is a reasonable possibility that the defects can be cured by amendment, “it
is an abuse of discretion to sustain a demurrer without leave to amend." Association of Community Organizations for Reform Now v.
Department of Industrial Relations (1995) 41
Cal.App.4th 298, 302. Accordingly, the court grants Plaintiff 10 days leave to
file an amended complaint.