Judge William A. Crowfoot, Case Number: 24NNCV00427, Date: 2025-01-10 Tentative Ruling

Judge: William A. Crowfoot, Case: 24NNCV00427, Date: 2025-01-10 Tentative Ruling

On March 22, 2024, plaintiffs James Matyas (“Matyas”) and Eugene Robison Company, Inc. dba Oxford Risk Management & Insurance Services (“Oxford”) (collectively, “Plaintiffs”) filed this action against defendants Weaver & Associates, Inc. (“Weaver”), Ralph Weaver, Matthew Weaver, Dana Dattola, and Denise Weaver (collectively, “Defendants”). On September 23, 2024, Plaintiffs filed the operative First Amended Complaint (“FAC”). Plaintiffs assert claims for: (1) specific performance, (2) breach of written contract, (3) breach of fiduciary duties, (4) fraudulent concealment, (5) negligent misrepresentation, (6) conversion, (7) breach of the implied covenant of good faith and fair dealing, and (8) restitution.

Matyas alleges that he was an independent insurance agent who provided brokerage services to his policyholders under the business entity of Oxford. (FAC, ¶ 16.) Eventually, Matyas (through Oxford) became affiliated with Weaver, an independent insurance services agency that provided services and resources to independent brokers like Matyas. (FAC, ¶¶ 16-7.) Oxford and Weaver entered into a written Management Services Agreement (“MSA”). In exchange for a portion of Matyas’ gross commission income, Weaver would perform certain services needed to maintain Matyas’ book of business. (FAC, ¶ 17-18.)

Plaintiffs allege that Matyas executed a final draft of the MSA on August 1, 1995, but that the countersigned and finalized executed MSA was kept exclusively within Weaver’s possession and control. (FAC, ¶ 20.) In or around November 2019, Weaver requested that Matyas sign a new agreement to replace the MSA. (FAC, ¶ 22.) At this time, Matyas was finally provided a copy of the original MSA and Matyas realized that Defendants had been in continuous breach of the MSA by withholding Matyas’s share of “Contingency Bonuses.” (FAC, ¶ 23.) Plaintiffs explain that, under the MSA, a Contingency Bonus is “a bonus received by Weaver directly from the insurance company for exceeding certain account-servicing benchmarks set by the insurance company.” (FAC, ¶ 24.) Under the MSA, Plaintiffs are entitled to 50% of these contingency bonuses paid to Weaver. While the MSA provided for Matyas to receive 50% of Weaver’s Contingency Bonuses as well as 50% of regular commission income based on “gross commissions received . . . on premiums collected from policyholders, plus brokerage fees” (“Commission Income”), Matyas was only paid his share of the Commission Income. (FAC, ¶¶ 24-26.) Matyas alleges he had no access to Weaver’s financial records and that Weaver only shared information about the Commission Income. (FAC, ¶ 27.) Matyas also alleges that, under the MSA, he was supposed to be provided monthly and annual statements and that the annual statements, in particular, “would have been key in determining any possible income and contingency bonus if it was produced to [him]”, but it was not. (FAC, ¶ 28.)

On October 23, 2024, Defendants filed this demurrer to Plaintiffs’ FAC arguing that it is barred by the statute of limitations and fails to state facts sufficient to constitute a cause of action.

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) In construing the allegations, the court is to give effect to specific factual allegations that may modify or limit inconsistent general or conclusory allegations. (Financial Corporation of America v. Wilburn (1987) 189 Cal.App.3rd 764, 769.)

Defendants argue that Plaintiffs’ claims for breach of contract, specific performance, or breach of the implied covenant of good faith and fair dealing are barred by the applicable statute of limitations and that the attempts to plead around the statute of limitations using the doctrines of delayed discovery, estoppel, continuous breach, and Emergency Rule 9 fail. An action on “any contract, obligation or liability founded upon an instrument in writing” must be commenced within 4 years after accrual of the action. (Code Civ. Proc., § 337, subd. (a).)

A claim begins to accrue when “the plaintiff has information of circumstances sufficient to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to his or her investigation.” (McGee v. Weinberg (1979) 97 Cal.App.3d 798, 803. In order to properly invoke the delayed discovery exception, a complaint must not only plead facts that show the time and manner of discovery, but also must plead facts showing plaintiff’s inability to have made an earlier discovery despite reasonable diligence. (See Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal.App.3d 292, 300.) The plaintiff must plead that he had no actual or presumptive knowledge of facts sufficient to put him on inquiry and conclusory assertions of reasonable delay are insufficient. (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 833; CAMSI IV v. Hunter Tech Corp. (1991) 230 Cal.App.3d 1525, 1536-37.)

Plaintiffs allege they were not in a position to detect Defendants’ breaches of the MSA because they did not possess a copy of the MSA or any of the financial information required to ascertain whether they were entitled to Contingency Bonuses. Defendants argue that since Plaintiffs were represented by counsel during the negotiation of the MSA, Plaintiffs could have obtained a copy of the MSA from their lawyers and the MSA was clearly not within their exclusive possession and control. Defendants argue that Plaintiffs could have easily determined whether the MSA allowed for Contingency Bonuses and Plaintiffs’ failure to file suit earlier was due to their ignorance of the terms of the MSA. Defendants argue that Plaintiffs fail to allege how they were prevented from discovering they were entitled to Contingency Bonuses for 25 years. The Court agrees.

Plaintiffs allege that Matyas requested an equal share of all Contingency Bonuses during negotiations of the MSA. (FAC, ¶¶ 21, 23.) Therefore, the failure to receive any Contingency Bonuses beginning in 1995 should have placed Matyas on inquiry notice that something was amiss. There are no allegations that the “finalized” countersigned agreement in Weaver’s possession had any changes from the agreement that Matyas signed. (FAC, ¶ 21.) Additionally, Section 6, page 4, of the MSA requires Weaver to produce a monthly statement showing “the activity and commissions received by Weaver on all Matyas’ accounts during the preceding months, along with payment of those commissions, as well as an annual statement showing “activity for all of Matyas’ accounts during the preceding fiscal year.” The MSA also requires Weaver to allow Plaintiffs to inspect Weaver’s financial records regarding Matyas’ accounts “at all reasonable times during usual business records” (FAC, Ex. A, p. 5.) The MSA also provides for a right of audit. (Ibid.) Plaintiffs only allege that Weaver hindered their attempts to inspect the records in or around November 2019, indicating that Plaintiffs never requested to inspect or audit Weaver’s records and were not prevented from doing so at any other point in time.

Plaintiff’s claims are partially saved, however, due to the doctrine of equitable estoppel. Equitable estoppel preserves an untimely action where a defendant’s conduct has induced a plaintiff not to sue. (Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 381 (2003).) Acts or conduct that wrongfully induce a party to believe an amicable adjustment of their claim will be made may create an estoppel against pleading the statute. (Industrial Indemnity Co. v. Industrial Accident Comm'n (1953) 115 Cal.App.2d 684, 690; Bertorelli v. City of Tulare (1986) 180 Cal.App.3d 432, 439.)

Here, Plaintiffs allege that Defendants are estopped from asserting a statute of limitations defense for the period that the parties were engaged in settlement communications. (FAC, p. 10, lns. 6-13.) Plaintiffs claim in their FAC that they were engaged in settlement discussions with Defendants to obtain Weaver’s records for purposes of calculating the Contingency Bonus payments owed and attaches a copy of a letter from Weaver dated April 14, 2023, as Exhibit B to the FAC.

Additionally, the continuous accrual doctrine provides that “[w]hen an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period.” (Hogar Dulce Hogar v. Community Development Commission (2003) 110 Cal.App.4th 1288, 1295, 2 Cal.Rptr.3d 497.) Because each new breach of such an obligation provides all the elements of a claim—wrongdoing, harm, and causation (Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797.) Here, Weaver was required to produce monthly income statements. Therefore, the statute of limitations was tolled for the claims based on each breach that occurred in the 4 years preceding April 14, 2023. The Court acknowledges that it is unclear from the FAC if and when the MSA terminated and if any Contingency Bonuses were, in fact, owed since April 2019. However, overall, since it is possible, under the doctrines of equitable estoppel and continuous accrual, that Plaintiffs possess some claims related to the MSA which are not time-barred, the demurrer to the First, Second, and Seventh Causes of Action based on the statute of limitations is OVERRULED. The existence of Plaintiffs’ surviving claims can be more fully explored in discovery.

Defendants demur to Plaintiffs’ breach of fiduciary duty claim on the grounds that Plaintiffs have not pleaded any facts establishing the existence of a fiduciary relationship.

Plaintiffs argue that the MSA necessarily required them to trust and rely on Defendants for “financial management and reporting” and contends that this is sufficient to establish a fiduciary relationship. Plaintiff cites to WA Southwest 2, LLC v. First American Title Insurance Company (2015) 240 Cal.App.4th 148, but this case is of limited value because it assumed the existence of a fiduciary obligation between parties to investment transactions. Rather, this Court looks to Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 31, in which the Second Appellate District stated that “the contractual right to contingent compensation in the control of another has never, by itself, been sufficient to create a fiduciary relationship where one would not otherwise exist.” The Wolf court also rejected the contention that a fiduciary relationship exists simply because a party “necessarily reposed ‘trust and confidence’” in the other to perform its contractual obligation because “[e]very contract requires one party to repose an element of trust and confidence in the other to perform.” (Wolf, supra, 107 Cal.App.4th at p. 31.) Therefore, the demurrer is SUSTAINED on the grounds that Plaintiffs fail to allege the existence of a fiduciary relationship with Defendants. Given this failure, the Court does not need to address whether any claim based on the alleged breach of a nonexistent duty is time-barred.

Defendants argue that Plaintiffs’ causes of action for fraudulent concealment and negligent misrepresentation fail to state sufficient facts because Plaintiffs fail to allege any specific conduct by each individual defendant. Specifically, Defendants claim that “Plaintiffs have essentially pled a complaint describing over 20 years of illegal conduct, yet have failed to identify or describe one act for which an Individual Defendant might actually have been liable.” (Demurrer, p. 17.)

Defendants rely on the general rule for pleading fraud with specificity. (See, e.g., Tarmann v. State Farm Mut. Auto Ins. Co. (1991) 2 Cal.App.4th 153, 157.) However, as Plaintiffs correctly state in opposition, this rule is inapplicable to claims of concealment. (Alfaro v. Community Housing Improvement System & Planning Association, Inc. (2009) 171 Cal.App.4th 1356, 1384 [“How does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?”].) Instead, such details, in the context of a fraudulent concealment claim, “are properly the subject of discovery, not demurrer.” (Id. at pp. 1384-85.) The specificity requirement is “relaxed when it is apparent from the allegations that the defendant necessarily possesses knowledge of the facts.” (Quelimane Co. v. Steward Title Guaranty Co. (1998) 19 Cal.4th 26, 27.)

As for Defendants’ argument that Plaintiffs’ claims should have been brought by June 2023, this contention ignores the allegation that Defendants made a settlement offer in April 2023, thereby effectively estopping them from relying on the statute of limitations defense from that point forward.

Nevertheless, Plaintiffs fail to allege a claim for negligent misrepresentation. Negligent misrepresentation requires a positive assertion, not merely an omission or implied representation. (Lopez v. Nissan North America, Inc. (2011) 201 Cal.App.4th 572, 596.) Here, Plaintiffs do not specify the actionable assertions each defendant allegedly made or state when those assertions took place. Rather, Plaintiffs mainly allege that Defendants negligently performed their duties under the MSA. (FAC, ¶ 77.) Therefore, the demurrer is OVERRULED as to the Fourth Cause of Action and SUSTAINED as to the Fifth.

Defendants demur to Plaintiffs’ conversion and restitution claims on the grounds that they are time-barred. (Demurrer, pp. 17-18.) While Plaintiffs may not recover all the money allegedly withheld since 1995, the Court rejects Defendants’ argument that Plaintiffs’ claims in their entirety are untimely for the reasons described in Part A (i.e., equitable estoppel and continuous accrual doctrine).

In light of the foregoing, Defendants’ demurrer is SUSTAINED as to the Third and Fifth Causes of Action and OVERRULED as to all other causes of action. Plaintiffs are afforded 20 days’ leave to amend.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.