Judge: Peter Wilson, Case: 30-2016-00861757, Date: 2023-05-11 Tentative Ruling
Defendants Douglas Manchester, Manchester Financial Group, L.P. (MFG) and Cloverleaf Media, LLC (CL) seek an order granting partial summary judgment, or in the alternative, summary adjudication as to the First Cause of Action for Breach of Fiduciary Duty, Fifth Cause of Action for Conversion, Sixth Cause of Action for Misappropriation of Trade Secrets and Seventh Cause of Action for Constructive Fraud as against each moving defendant and the Fourth Cause of Action for Usury and Loan Sharking as against Manchester and MFG.
Standard. “[F]rom commencement to conclusion, the party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) “A prima facie showing is one that is sufficient to support the position of the party in question.” (Id. at 851.) A defendant moving for summary judgment satisfies his or her initial burden by showing that one or more elements of the cause of action cannot be established or that there is a complete defense to the cause of action. (Code Civ. Proc., § 437c, subd. (p)(2).) The scope of this burden is determined by the allegations of the plaintiff’s complaint. (FPI Development v. Nakashima (1991) 231 Cal.App.3d 367, 381-382 [pleadings serve as the outer measure of materiality in a summary judgment motion]; 580 Folsom Associates v. Prometheus Development Co. (1990) 223 Cal.App.3d 1, 18-19 [defendant only required to defeat allegations reasonably contained in the complaint].)
A cause of action cannot be established if the undisputed facts presented by the defendant prove the contrary of the plaintiff’s allegations as a matter of law. (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1597.) Alternatively, a moving defendant can show that a cause of action cannot be established by submitting evidence, such as discovery admissions and responses, that plaintiff does not have and cannot reasonably obtain evidence to establish an essential element of his cause of action. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at pp. 854-855; Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 590 [finding moving defendant may show plaintiff’s lack of evidence by factually devoid discovery responses after plaintiff has had adequate opportunity for discovery]; see Scheiding v. Dinwiddie Constr. Co. (1999) 69 Cal.App.4th 64, 80-81 [finding Union Bank rule only applies where discovery requests are broad enough to elicit all such information].) Once a defendant meets its prima facie showing, the burden shifts to the plaintiff to show by reference to specific facts the existence of a triable issue as to that affirmative defense or cause of action. (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 850.)
“A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if the party contends that the cause of action has no merit, that there is no affirmative defense to the cause of action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c(f)(1).)
First Cause of Action for Breach of Fiduciary Duty. In support of the breach of fiduciary duty cause of action, Plaintiff alleges Manchester and MFG owed it fiduciary duties as “majority shareholders”. ROA 1232, 7AC, ¶48. The 7AC also alleges Manchester owed Plaintiff fiduciary duties as its director or officer. 7AC, ¶50.a. Plaintiff alleges Manchester breached his fiduciary duty by refusing to negotiate commercially reasonable investment terms to repay the note due to MFG, negotiated for himself and / or his corporation a new class of “preferred” stock, caused MFG to falsely represent that Plaintiff would have additional time to generate capital and repay the loan while at the same time MFG planned to execute on Plaintiff’s collateral and take control of its assets. 7AC, ¶50.a-c. Plaintiff alleges CL aided and abetted the other defendants’, including Manchester’s, Howard’s, and Van Horn’s breaches of fiduciary duty, by consciously deciding to take over the purported assignment of Plaintiff’s assets from MFG and holding itself out as Plaintiff’s successor. 7AC, ¶50.e and d.
MFG. Manchester Defendants argue that Plaintiff cannot establish MFG owed Plaintiff any fiduciary duty because there was no fiduciary relationship between them. Manchester Defendants contend that MFG is a secured lender to and preferred stockholder of Plaintiff, and a minority shareholder. ROA 1469, UMF Issue 1, Nos. 1 and 9. These facts do not give rise to a fiduciary relationship.
“[A] fiduciary relationship is a recognized legal relationship such as guardian and ward, trustee and beneficiary, principal and agent, or attorney and client [citation].” (Oakland Raiders v. Nat'l Football League (2005) 131 Cal. App. 4th 621, 631.) Other recognized fiduciary relationships include corporate officers and directors, on the one hand, and the corporation and its shareholders, on the other hand, and controlling shareholders versus minority shareholders. (Id. at 632.)
California courts reject attempts to extend the fiduciary obligation in relationships where the imposition of such an affirmative duty is unwarranted. For example, in general, no fiduciary relationship is found when other legal relationships exist between the parties that cover the transaction at issue and is inconsistent with the existence of a fiduciary duty. (Oakland Raiders v. Nat’l Football League, supra, 131 Cal.App. 4th at 634.) “A mere contract or debt does not constitute a trust or create a fiduciary relationship”. (Id.)
As such, MFG’s status as Plaintiff’s secured lender does not create a fiduciary relationship. (See also, Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 655 [“parties to a contract, by that fact alone, have no fiduciary duties toward one another”].) Additionally, contrary to the allegations in the 7AC, Manchester Defendants present evidence that MFG was a minority shareholder, not majority or controlling shareholder and not a director or officer. ROA 1469, UMF Issue 1, No. 9; ROA 1472, Manchester Decl., ¶27. Manchester Defendants also show that MFG did not have voting control since it was only permitted to appoint one of the four board members. ROA 1469, UMF Issue 1, No. 2; ROA 1472, Manchester Decl., ¶26. Consequently, Manchester Defendants have met their initial burden of demonstrating there is no fiduciary relationship between MFG and Plaintiff.
In Opposition, Plaintiff does not dispute that MFG is its lender and preferred shareholder, that MFG is a minority shareholder, not majority or controlling shareholder or that MFG did not have voting control. ROA 1542, Opp. SS, UMF Nos. 1, 2 and 9. Plaintiff’s sole argument is that as a preferred stockholder, so long as a share of Preferred Stock remained outstanding, MFG had the ability to (1) control whether Plaintiff could increase or decrease the authorized number of Common Stock or Preferred Stock, (2) liquidate, dissolve or wind-up Plaintiff’s business and affairs, effect any merger consolidation or Deemed Other Liquidation Event, or (3) amend, alter or repeal the Amended and Restated Articles of Incorporation or bylaws in a manner that alters or changes the voting or powers, preferences, privileges, restrictions or rights of the Preferred Stock. ROA 1542, Additional Material Facts (AMF) No. 18; ROA 1540, Opp., p. 13.
Neither of the cases relied on by Plaintiff support its position. None considered the rights of a preferred stockholder, and both found that the majority, dominant or controlling shareholder owed fiduciary duties to the minority shareholders. (See Lynch v. Cook (1983) 138 Cal.App.3d 1072, 1082 [dominant or controlling shareholders have fiduciary duty to corporation and minority shareholders; finding minority shareholder did not owe any fiduciary duty]; Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108 [issue was fiduciary duty of majority shareholder to minority shareholder].)
Further, preferred stock has been described as “those which have a preference over other shares either as to distribution of assets on liquidation or as to payment of dividends, or some other combination of rights, preferences, privileges, and restrictions. Since the relation between the holders of preferred stock and the corporation is contractual, the extent of their right to share in the corporate profits and of their preference over common stockholders depends upon the terms of their contract. In this state, the articles of incorporation and the certificate of determination define the rights, preferences, and privileges granted to preferred shareholders.” (Kirschner Bros. Oil, Inc. v. Natomas Co. (1986) 185 Cal. App. 3d 784, 795–96.) Preferred stock has been “compared to debt securities, since practically they represent only a preferential claim to a specified rate of return and return of capital ... rather than a meaningful ownership interest ....” (Id.)
Plaintiff has identified only three contractual rights that MFG held as a preferred stockholder, that Plaintiff argues should give rise to a fiduciary duty. However, these rights are limited, and do not give MFG control over Plaintiff.
Since the relationship between MFG as a preferred stockholder and Plaintiff are defined by their contract, and Plaintiff has presented no authority imposing a fiduciary duty on a preferred stockholder, there is no basis to find MFG owed a fiduciary duty to Plaintiff. (Oakland Raiders v. Nat’l Football League, supra, 131 Cal.App. 4th at 634.)
Summary adjudication is GRANTED is favor of MFG on the breach of fiduciary duty cause of action.
Manchester. Manchester Defendants contend that Plaintiff cannot establish Manchester owed Plaintiff a fiduciary duty because there was no fiduciary relationship between them at the time of his alleged wrongful acts and/or he did not breach any fiduciary duty.
Contrary to Plaintiff’s allegations, Manchester was not a majority or controlling shareholder. ROA 1472, Manchester Decl., ¶¶24, 27, 31 and Ex. 9, Capitalization Table. Manchester was a Board member of Plaintiff from July 22, 2015 to November 10, 2015 but was never an officer. ROA 1469, UMF Issue 1, No. 12 and 14; ROA 1472, Manchester Decl., ¶26. Thus, contrary to Plaintiff’s allegations, Manchester did not owe any fiduciary duties to Plaintiff at the time the Loan, the First Amendment, the Second Amendment or the Third Amendment were negotiated, or when the Preferred Stock Agreement was negotiated. ROA 1469, UMF Issue 1, Nos. 10, 12; ROA 1472, Manchester Decl., ¶¶2, 7, 10, 11, 12, 26 and Ex. 1.
Moreover, as part of the Second Amendment, Plaintiff gave an expansive general release in favor of MFG and its shareholders of any and all claims that may arise in any way out of or are connected to actions or omissions with respect to the Loan and Note, among other things. ROA 1469, UMF Issue 1, Nos. 4 and 5; ROA 1472, Manchester Decl., ¶10 and Ex. 1, Waiver and Second Amendment. Plaintiff also expressly stated that it would not rely on any assurances made “on or after” the Preferred Stock Agreement regarding financing or investment in Plaintiff and acknowledged that an obligation to provide financing or investment could only be created by a written agreement between the parties. ROA 1469, UMF Issue 1, No. 6; ROA 1472, Manchester Decl., ¶11 and Ex. 2.
Manchester represents that on or about October 9, 2015, he and MFG engaged in discussions with Plaintiff regarding paying off its debt and continued to engage with Plaintiff until informed by Kevin Howard, Plaintiff’s CEO at the time, that Plaintiff would “go to the street to raise capital” to pay off MFG. ROA 1469, UMF Issue 1, No. 7; ROA 1472, Manchester Decl., ¶¶13, 15 and Ex. 3.
Further, Manchester represents that he recused himself and did not participate in any Board deliberations regarding the $2 million loan between MFG and Plaintiff, preferred stock, MFG, restructuring Plaintiff’s debt, whether to seek outside financing, or whether to file for bankruptcy. ROA 1469, UMF No. 15.
Accordingly, Manchester Defendants presented sufficient evidence to satisfy their initial burden of showing Manchester did not owe any fiduciary and that he did not breach any fiduciary duty to Plaintiff.
In their Opposition, Plaintiff argues that there are triable issues of material fact regarding Manchester’s fiduciary duty. Plaintiff contends Manchester may be held liable for abuse of confidential information after he resigned from the Board. Plaintiff contends there are issues of material facts as to whether Manchester abused confidential information obtained as a Board member related to Plaintiff’s finances and business operations that were used to his advantage in negotiations between MFG and Plaintiff to repay the Loan in October 2015. Alternatively, Plaintiff argues Manchester may be vicariously liable for aiding and abetting MFG’s breach of fiduciary duties. Plaintiff contends Manchester Defendants did not present evidence at to these two issues, which leave triable issues of material fact.
The Court disagrees. As to the confidential information, there are no allegations in the 7AC that Manchester breached his fiduciary duty by abusing confidential information. This is fatal to Plaintiff’s argument. The pleadings determine the material facts. Since there are no allegations regarding Manchester’s abuse of confidential information, Plaintiff may not rely on an unpled theory. (Jacobs v. Coldwell Banker Residential Brokerage Co. (2017) 14 Cal.App.5th 438, 443-444 [party may not oppose summary judgment based on a claim, theory or defense not alleged in the pleadings; evidence of unpled claim or theory is irrelevant because it is outside the pleadings].)
Additionally, Plaintiff has not presented evidence that Manchester abused any confidential information. Plaintiff points to communications between the parties showing they were in negotiations regarding repayment of the Loan in October but does not identify any abuse of confidential information. See ROA 1542, AMF No. 23.
Plaintiff’s aiding and abetting theory fails because MFG did not breach its fiduciary duty. As a result, Plaintiff cannot establish the elements for aiding and abetting breach of fiduciary duty: (1) third party’s breach of duty owed to plaintiff, (2) defendant’s actual knowledge of the breach, (3) substantial assistance or encourage by defendant to the third party’s breach and (4) defendant’s conduct was a substantial factor in causing plaintiff’s harm. (Nasrawi v. Buck Consultants LLC (2014) 231 Cal. App. 4th 328, 343.)
Summary adjudication is GRANTED in favor of Manchester on the breach of fiduciary duty cause of action.
CL. Manchester Defendants have not met their initial burden as to CL. Plaintiff’s theory of liability against CL is that it is vicariously liable for aiding and abetting Defendants, which includes Howard, Van Horn and Mirgoli. 7AC, ¶¶47-54. For the reasons discussed above, CL could not aid and abet MFG and Manchester because they did not owe any fiduciary duties. But the moving papers do not address whether CL aided and abetted Howard, Van Horn and Mirgoli’s breaches of fiduciary duty.
Summary Adjudication is DENIED as to CL on the breach of fiduciary duty cause of action.
Fourth Cause of Action for Usury and Loan Sharking. In its operative complaint, Plaintiff alleges on December 12, 2013, it entered into the $2 million loan agreement with MFG at a usurious interest rate of 10% per annum plus payment of additional consideration for the loan of 100,000 warrants to purchase Plaintiff’s stock for $.01 per share. 7AC, ¶81. MFG renewed the loan on October 28, 2014 at an usurious interest of 10% per annum plus an additional 400,000 warrants to purchase common stock for $.01 per share. 7AC, ¶82. The loan was renewed again on April 14, 2015 at an usurious rate of 10% per annum and another 500,000 warrants to purchase common stock for $.01 per share. 7AC, ¶83. Further, Plaintiff alleges MFG collected at least $692,744.94 in interest and warrants for the purchase of 1,000,000 shares of common stock at $.01 per share. 7AC, ¶87. Plaintiff contends MFG is an instrumentality of Manchester. 7AC, ¶84.
Manchester Defendants contend Plaintiff cannot prove usury since the interest rate for the Loan did not exceed the statutory maximum of 10% per annum, and that stock warrants are not included in the calculation of interest. Further, since the usury claim is without merit, so is the loan sharking claim.
The essential elements of usury are: (1) The transaction must be a loan or forbearance; (2) the interest to be paid must exceed the statutory maximum; (3) the loan and interest must be absolutely repayable by the borrower; and (4) the lender must have a willful intent to enter into a usurious transaction. … Intent is relevant, however, in determining the true purpose of the transaction in question because “... the trier of fact must look to the substance of the transaction rather than to its form.... ‘[I]t is for the trier of the fact to determine whether the intent of the contracting parties was that disclosed by the form adopted, or whether such form was a mere sham and subterfuge to cover up a usurious transaction.’ ” A transaction is rebuttably presumed not to be usurious. The borrower bears the burden of proving the essential elements of a usurious transaction.
(Ghirardo v. Antonioli (1994) 8 Cal. 4th 791, 798–99, as modified on denial of reh'g (Feb. 2, 1995), citations omitted.)
The original Note and Loan, First Amendment, Second Amendment and Third Amendment provide for a rate of interest of 10% per annum. ROA 1469, UMF Issue 4, Nos. 1, 2.
Manchester Defendants cite authority for the proposition that warrants are not factored into the interest rate analysis when there is no consistent and reliable market for the sale of the stock, the company is not publicly trade and the future sale of stock is contingent. (E.g., Chassman v. Shipley (2nd Cir. 2017) 695 Fed. Appx. 630, 633 [warrants are not included in interest]; Sandell, Inc. v. Bailey (1963) 212 Cal. App. 2d. 920 [at the time option was given unlisted stock had no value and sale was speculative; not usurious]. Manchester Defendants present evidence that there was no consistent and reliable market for sales of Plaintiff’s unlisted stock since it was not publicly traded, the future sale of the stock was speculative and the value not reasonably certain. ROA 1469, UMF No. 3.
This evidence was sufficient to satisfy Manchester Defendants’ initial burden.
In Opposition, Plaintiff does not dispute that the Loan and amendments provide for an interest rate of 10% per annum. Nor does Plaintiff dispute that the warrants should not be included in the calculation of interest.
Instead, Plaintiff argues that Manchester Defendants incorrectly fail to take into account all the relevant terms of the Loan to determine the true interest rate. Specifically, Plaintiff argues Manchester Defendants did not take into account that the amendment to the Loan increased the interest rate to 15%, that MFG obtained additional warrants in common stock and an “Amendment Fee” of $100,000. ROA 1542, AMF No. 13. However, these allegations were not made in the 7AC. 7AC, ¶¶80-87. As previously discussed, unpled claims or theories are insufficient to overcome summary adjudication.
Plaintiff attempts to create a triable issues of material fact by arguing that in 2015 Plaintiff projected ‘cloverleaf” to yield three-year revenues exceeding $200 million (ROA 1542, Opp. SS No. 3), but that is mere speculation and does not demonstrate that there was a marketplace for its stock or that its stock could be sold and its value was reasonably ascertainable.
Summary adjudication is GRANTED on the usury claim.
Fifth Cause of Action for Conversion. “ ‘Conversion is the wrongful exercise of dominion over the property of another.’ ” (Citations omitted.) The elements of a claim for conversion are (1) “ ‘the plaintiff's ownership or right to possession of the property at the time of the conversion,’ ” (2) “ ‘the defendant's conversion by a wrongful act or disposition of property rights,’ ” and (3) damages. (Ibid.) “ ‘It is not necessary that there be a manual taking of the property,’ ” only “ an assumption of control or ownership over the property, or that the alleged converter has applied the property to his [or her] own use.’ ” (Id. at pp. 451–452, 61 Cal.Rptr.2d 707.)” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal. App. 4th 1105, 1135, as modified on denial of reh'g (Feb. 27, 2014).)
Manchester Defendants argue that Plaintiff cannot prove conversion because it did not own or have the right to possess the foreclosed assets at the time of the conversion, i.e. the foreclosure, or that MFG willfully and without legal justification interfered with that right. Manchester points to the undisputed fact that Plaintiff defaulted on the loan on October 28, 2015. ROA 1469, UMF Issue 1, No. 11; ROA 1472, Manchester Decl., ¶16. Written notice of the default was provided on November 4, 2015. ROA 1472, Manchester Decl., ¶16 and Ex. 4.
Pursuant to the Loan, MFG obtained a “security interest of first priority in all right, title and interest” of Plaintiff and the property described in Attachment 1. ROA 1472, Manchester Decl., Ex. 1, Loan Agreement, ¶2. Upon default, MFG had available all remedies of a secured part under the UCC. Id., ¶3. Manchester Defendants contend the UCC permits a secured party to take possession of the collateral after default, but the UCC also sets forth requirements for the disposition of the collateral if the secured party does not take possession of the collateral (UCC § 9-609 and 9-610) and there are issues of triable material fact regarding whether Manchester Defendants disposed of Plaintiff’s property in accordance with the UCC. ROA 1542, AMF Nos. 24, 26, 28, 29, 30, 31, 34, 35, 36, 37. Manchester Defendants do not challenge Plaintiff’s claim for illegal foreclosure. See 7AC, ¶¶91, 93.
Accordingly, summary adjudication is DENIED on the conversion cause of action.
Sixth Cause of Action for Misappropriation of Trade Secrets. Plaintiff alleges Manchester, MFG and CL wrongfully obtained its trade secrets through the illegal foreclosure and since then have controlled those trade secrets. 7AC, ¶¶103-104. Those trade secrets relate to Plaintiff’s methods of operation or business practices, including its software code, product specifications, design architecture, manufacturing processes, customers’ account information, purchase histories, payment histories, sale histories, price lists, marketing plans, product development, billing procedures, confidential employee information, prospective customers including the names of decision-makers and details regarding the status of negotiations with prospective customers. 7AC, ¶102. The trade secrets also include “technology for providing pixel mapped content to the smart shelf technology, specific hardware parameters of the smart shelf technology, invention directed to using demographics and emotion to drive smart shelf technology content, invention directed to collecting demographic information to compile census information, which can be used to select content, information relating to methods of doing business, customers and potential customers, the pricing information, cost information, inventory management, tracking on-shelf availability of products, gauging product count, on-shelf stocking applications for high accuracy, matching products to the appropriate shelf, managing SKU lever products to shelf, managing product pricing and advertising, remote access, configurable and customizable LED displays, and technical secrets and know-how”. 7AC, ¶107.
Manchester Defendants argue the misappropriation of trade secrets claim fails because Plaintiff has not identified any trade secrets that Manchester Defendants have misappropriated. In support, Manchester Defendants points to Plaintiff’s discovery responses. See ROA 1469, UMF Issue 4, No. citing to ROA 1417, Hanle Decl., Ex. A, Nos. 1-4, 9, 11, 13, 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, and 35 (Van Horn) and Ex. B, No. 2 (Howard). However, these responses do not assist Manchester Defendants because they do not ask whether any trade secrets were misappropriated by Manchester and seek information regarding Howard and Van Horn’s actions.
Additionally, Manchester Defendants argue that this claim fails for the same reason the conversion claim fails, i.e. Plaintiff’s default entitled MFG to possession of Plaintiff’s intellectual property and Plaintiff does not seek to void the foreclosure. ROA 1469, UMF Issue 4, No. 4, 5, 6. For the same reasons as discussed in the conversion claim, there are triable issues of material facts on whether Manchester Defendants properly disposed of these assets.
Summary adjudication on the misappropriation of trade secrets claims is DENIED.
Seventh Cause of Action for Constructive Fraud. Plaintiff alleges that between July 22, 2015 and October 28, 2015, Manchester and MFG falsely represented MGF would renegotiate and extend the loan in accordance with their custom and practice. 7AC, ¶122. Plaintiff further alleges Manchester made these representations in order to induce Plaintiff’s reliance on his representations so that Plaintiff would not seek other financing. 7AC, ¶124. Plaintiff did actually rely on these assurances and the parties past conduct and did not seek other financing before the due date of the loan. 7AC, ¶123.
Plaintiff also alleges that Manchester, MFG and CL offered Howard and Van Horn employment in exchange for going along with the illegal foreclosure sale and defraud Plaintiff of its asserts. 7AC, ¶¶126-127. Plaintiffs alleges Defendants engaged in a conspiracy to defraud it in violation of Defendants’ duties as Plaintiff’s shareholders. 7AC, ¶¶127-129.
Additionally, Plaintiff alleges Manchester and MFG made false representations about the amount, particularly the interest, due on the loan. Plaintiff contends Manchester and MFG made these representations in order to induce Plaintiff’s reliance and Plaintiff did actually rely on the representations regarding the amount due on the loan. 7AC, ¶124.
Constructive fraud “ ‘ “ ‘is a unique species of fraud applicable only to a fiduciary or confidential relationship.’ ” ’ ” (Michel v. Moore & Associates, Inc. (2007) 156 Cal.App.4th 756, 763, 67 Cal.Rptr.3d 797.) “Constructive fraud ‘arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice.’ [Citation.] Actual reliance and causation of injury must be shown. [Citation.]” (Tyler v. Children's Home Society (1994) 29 Cal.App.4th 511, 548, 35 Cal.Rptr.2d 291, italics omitted; see also Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14, 169 Cal.Rptr. 478 [elements of constructive fraud cause of action are “(1) a fiduciary or confidential relationship; (2) nondisclosure (breach of fiduciary duty); (3) intent to deceive, and (4) reliance and resulting injury (causation)”].) “ ‘ “In its generic sense, constructive fraud comprises all acts, omissions and concealments involving a breach of legal or equitable duty, trust, or confidence, and resulting in damages to another.
[Citations.] Constructive fraud exists in cases in which conduct, although not actually fraudulent, ought to be so treated—that is, in which such conduct is a constructive or quasi fraud, having all the actual consequences and all the legal effects of actual fraud.” [Citation.]’ ” (Estate of Gump (1991) 1 Cal.App.4th 582, 601, 2 Cal.Rptr.2d 269; see Civ.Code, § 1573; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 981–982, fn. 13, 64 Cal.Rptr.2d 843, 938 P.2d 903.) “[W]hether a fiduciary duty has been breached, and whether [conduct] constitutes constructive ... fraud, depends on the facts and circumstances of each case.” (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 415, 98 Cal.Rptr.2d 176.)
(Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal. App. 4th 1105, 1131, as modified on denial of reh'g (Feb. 27, 2014).)
Manchester Defendants contend Plaintiff cannot establish reasonable reliance, and as such, the fraud claim fails.
However, as discussed, Plaintiff did not have fiduciary relationship with MFG and Manchester did not breach any fiduciary duty. Similarly, CL has no direct relationship with Plaintiff, was not a shareholder, board member, or creditor of Plaintiff, and was created after Plaintiff’s defaulted on the Loan. ROA 1469, Issue 5, No. 8. Plaintiff has not alleged any fiduciary relationship with CL or breach of fiduciary duty by CL.
Additionally, Manchester Defendants present evidence that Plaintiff agreed it could not rely on any oral statements by Manchester Defendants to give financial assistances unless the agreement was in writing. ROA 1469, Issue 5, No. 1. Moreover, Manchester Defendants show that Plaintiff had decided to look for other financing. ROA 1542, Issue 5, No. 2.
Plaintiff argues there are material issues of fact regarding whether Plaintiff reasonably relied on MFG’s representations because MFG twice previously entered default on the Loan but did not take action for significant periods of time. Other evidence of the parties’ communications and history show there are material issues of fact regarding reliance. However, this does not overcome the lack of fiduciary duty or breach of fiduciary necessary to support a constructive fraud claim.
Summary adjudication is GRANTED in favor of Manchester Defendants on the constructive fraud claim.
Manchester Defendants are ordered to give notice.
The status conference remains on calendar.