Welborne v. Ryman-Carroll Foundation ( 2018 )

Filed 4/25/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
MARTHA L. WELBORNE, B283656
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC552464)
v.
RYMAN-CARROLL FOUNDATION,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County. John P. Doyle, Judge. Reversed.
Pick & Boydston, Brian D. Boydston for Plaintiff and
Appellant.
Larson O’Brien, Stephen G. Larson, Paul A. Rigali, Ariana
E. Fuller for Defendant and Respondent.
___________________________________________________
Martha L. Welborne (Welborne) sued Ryman-Carroll
Foundation (Ryman) and others in an attempt to recover
$490,108.16 which she claimed had been taken by her then-
investment advisor, defendant Mark Foster (Foster), from
Welborne’s investment account at her investment advisory firm
which Foster then used to repay a loan which an entity he
controlled had obtained several years earlier from Ryman.
We hold that Welborne presented a sufficient prima facie
case to require that Ryman’s motion for summary judgment be
denied. Accordingly, we reverse the judgment.1
FACTUAL AND PROCEDURAL HISTORY
Between 1980 and 2014, Foster was a registered
investment advisor; during most of the time at issue, he worked
at Stern Fisher Edwards, Inc. (SFEI).2 Welborne and Ryman
were among his clients. Until August 2012, Foster was a member
of the board of directors of Ryman. He was also the sole member
and director of the Moira Byrne Foster Foundation (MBFF). In
2004, Ryman obtained a bank line of credit with a minimum
draw amount of $500,000. In turn, Ryman loaned $410,000 of
that amount to MBFF. Foster executed the note memorializing
this loan on behalf of MBFF. Although the note called for
quarterly payments, after approximately March 2011, payments
stopped, placing the note in default. In the spring of 2012,
1 In Welborne v. SFE Investment Counsel, Inc., B281957, a
companion case filed today, we affirm the judgment dismissing
SFE Investment Counsel, Inc. as a party to the Los Angeles
Superior Court action from which both appeals are taken (LASC
No. BC552464).
2 SFEI and SFE Investment Counsel, Inc. have similar
names but are distinct legal entities.
2
Ryman learned that Foster was no longer working at SFEI and
had resigned from his position at two limited liability companies.
It also learned that the Financial Industry Regulatory Authority
(FINRA) had opened an investigation into activities by Foster
and SFEI. Having learned of this information, Ryman demanded
Foster’s resignation from its board of directors. Ryman also
began an investigation of the circumstances of Foster’s
resignations, learning that SFEI was unable to account for
$630,000 of Ryman’s investments there. In March 2013, Ryman
made demand on MBFF and Foster for repayment of the note,
together with accrued and unpaid interest. Following
negotiations among counsel for the parties, in June 2013, Foster
executed a written settlement agreement on behalf of himself and
MBFF pursuant to which Foster agreed to pay Ryman
$483,775.58 plus interest due on a margin account which Ryman
also maintained.3 Using wire transfer instructions on which
Foster forged Welborne’s signature, he transferred $495,000 from
one of her accounts to MBFF. Once the funds were in the MBFF
account, Foster arranged for payment in full of his monetary
obligation under the settlement agreement. Ryman used these
funds to pay off its margin account debt at SFEI. Ryman had not
told or suggested to Foster from what source he might obtain
funds to satisfy his monetary obligation under the settlement
agreement, nor did Ryman ever inquire as to the source of the
funds Foster had used to satisfy that obligation.4
3 MBFF had no monetary obligation under the settlement
agreement.
4 Although in its separate statement of material facts,
Ryman claimed—and Welborne agreed—that Ryman did not
3
Welborne sued Foster, Ryman, MBFF and others, seeking
to recover the money Foster had taken without her permission
from her account, filing her second amended complaint on
November 21, 2016. Against Ryman she alleged claims for aiding
and abetting conversion (second cause of action), aiding and
abetting breach of fiduciary duty (fourth cause of action), and
quasi-contract (fifth cause of action). Ryman denied her
allegations and filed its motion for summary judgment, or in the
alternative, summary adjudication, on February 24, 2017. In her
April 27, 2017 opposition to that motion, Welborne conceded that
her second and fourth claims for relief were not sustainable.
Instead, she argued that there were sufficient disputed facts to
warrant trial on her quasi-contract claim.
The trial court granted Ryman’s motion for summary
judgment on June 1, 2017, noting in its ruling that Welborne had
conceded that it was “undisputed” that “there is no evidence to
establish that [Ryman] had any knowledge of [Foster’s]
wrongdoing.” Welborne filed this timely appeal.
CONTENTIONS
Welborne contends the trial court erred in granting
summary judgment to Ryman on her quasi-contract claim
because “the facts clearly establish that [Ryman] had every
reason to suspect that the money Foster mysteriously produced
[to pay the amount due under the settlement agreement] was ill-
gotten.” From this characterization of the facts, Welborne argues
(1) there was a dispute as to the facts that precluded the trial
have knowledge that Foster “may have” used Welborne’s money
to discharge his settlement obligation to Ryman until December
2013, Ryman had been aware that there was “an association”
between Welborne and Foster prior to 2012.
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court from granting summary judgment, or, in the alternative
(2) it was nevertheless “unjust to allow [Ryman] to keep all of
. . . Welborne’s stolen money.”
DISCUSSION
A. Standard of review
On appeal from a grant of summary judgment, we review
the record and the ruling of the trial court de novo. (Guz v.
Bechtel National, Inc. (2000) 24 Cal. 4th 317, 334 (Guz).) We
consider all the evidence presented by the parties in connection
with the motion, except that which was properly excluded, and all
uncontradicted inferences that the evidence reasonably supports.
(Merrill v. Navegar, Inc. (2001) 26 Cal. 4th 465, 476.) However,
“[w]e do not resolve conflicts in the evidence as if we were sitting
as the trier of fact. [Citation.] Instead, we draw all reasonable
inferences from the evidence in the light most favorable to the
party opposing summary judgment. [Citation.]” (Nadaf-Rahrov
v. Neiman Marcus Group, Inc. (2008) 166 Cal. App. 4th 952, 961.)
A grant of summary judgment is proper if the evidence
shows there is no triable issue as to any material fact and the
moving party is entitled to judgment as a matter of law. (Code
Civ. Proc., § 437c, subd. (c); see also Guz, supra, 24 Cal.4th at
p. 334.) “There is a triable issue of material fact if, and only if,
the evidence would allow a reasonable trier of fact to find the
underlying fact in favor of the party opposing the motion in
accordance with the applicable standard of proof.” (Aguilar v.
Atlantic Richfield Co. (2001) 25 Cal. 4th 826, 850, fn. omitted
(Aguilar).)
There are two burdens applicable to a motion for summary
judgment. The first is the burden of persuasion. A party moving
for summary judgment, “bears the burden of persuasion that
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there is no triable issue of material fact and that [it] is entitled to
judgment as a matter of law. That is because of the general
principle that a party who seeks a court’s action in [its] favor
bears the burden of persuasion thereon. [Citation.] There is a
triable issue of material fact if, and only if, the evidence would
allow a reasonable trier of fact to find the underlying fact in favor
of the party opposing the motion in accordance with the
applicable standard of proof.” (Aguilar, supra, 25 Cal.4th at
p. 850, fns. omitted.)
“Thus, a plaintiff bears the burden of persuasion that ‘each
element of ’ the ‘cause of action’ in question has been ‘proved,’ and
hence that ‘there is no defense’ thereto. [Citation.] A defendant
bears the burden of persuasion that ‘one or more element of ’ the
‘cause of action’ in question ‘cannot be established,’ or that ‘there
is a complete defense’ thereto. [Citation.]” (Aguilar, supra, 25
Cal.4th at p. 850.)
The second burden concerns the production of evidence.
“[T]he party moving for summary judgment bears an initial
burden of production to make a prima facie showing of the
nonexistence of any triable issue of material fact; if he carries his
burden of production, he causes a shift, and the opposing party is
then subjected to a burden of production of his own to make a
prima facie showing of the existence of a triable issue of material
fact.” (Aguilar, supra, 25 Cal.4th at p. 850.)
“A burden of production entails only the presentation of
‘evidence.’ [Citation.] A burden of persuasion, however, entails
the ‘establish[ment]’ through such evidence of a ‘requisite degree
of belief.’” (Aguilar, supra, 25 Cal.4th at p. 850.) “A prima facie
showing is one that is sufficient to support the position of the
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party in question. [Citation.] No more is called for.” (Id. at
p. 851.)
B. Relevant legal principles of quasi-contract
A cause of action for quasi-contract invokes consideration of
equitable principles, rather than of contract. ‘“. . . [It] is an
obligation . . . created by the law without regard to the intention
of the parties, and is designed to restore the aggrieved party to
[its] former position by return of the thing or its equivalent in
money. [Citations.]”’ (Unilab Corp. v. Angeles-IPA (2016) 244
Cal. App. 4th 622, 639; 1 Witkin, Summary of Cal. Law (11th ed.
2017) Contracts, § 1050; Rest.2d Contracts, § 4, com. b, p. 56.)
The doctrine focuses on equitable principles; its key phrase is
‘“unjust enrichment,”’ which is used to identify the “transfer of
money or other valuable assets to an individual or a company
that is not entitled to them.” (Rest.3d Restitution and Unjust
Enrichment, Foreword, vol. 1, p. XIII.)
In applying the principles of unjust enrichment, we do so to
determine whether a plaintiff is entitled to restitution of the
amount at issue. (First Nationwide Savings v. Perry (1992) 11
Cal. App. 4th 1657, 1663 (Perry).) “An individual is required to
make restitution if he or she is unjustly enriched at the expense
of another. [Citations.] A person is enriched if the person
receives a benefit at another’s expense. [Citation.]” (Perry,
supra, at p. 1662, citing Rest., Restitution, § 1, com. a; California
Federal Bank v. Matreyek (1992) 8 Cal. App. 4th 125, 131.) “The
fact that one person benefits another is not, by itself, sufficient to
require restitution. The person receiving the benefit is required
to make restitution only if the circumstances are such that, as
between the two individuals, it is unjust for the person to retain
it.” (Perry, supra, at p. 1663, citing Rest., Restitution, supra, § 1,
7
com. c.) “[A] bona fide purchaser is generally not required to
make restitution. (Rest., Restitution, supra, § 13.) [¶]
. . . [However,] a transferee with knowledge of the circumstances
giving rise to an unjust enrichment claim may be obligated to
make restitution. For example, ‘A person who has entered into a
transaction with another under such circumstances that, because
of a mistake, he would be entitled to restitution from the other,
. . . [¶] (b) is entitled to restitution from a third person who had
notice of the circumstances before giving value or before receiving
title or a legal interest in the subject matter.’ (Rest., Restitution,
supra, § 13.)” (Perry, supra, at p. 1663, original italics.) In Perry,
the court of appeal reversed, returning the case to the trial court
so that the plaintiff would “be given an opportunity to amend its
complaint to allege [] knowledge [there of an improper
conveyance by the defendant].” (Id. at pp. 1669-1670.)
Similarly, when the thing at issue is money, the person
who innocently accepts money from a thief or embezzler is not a
converter at all and is not liable to the original owner. (Kelley
Kar Co. v. Maryland Cas. Co. (1956) 142 Cal. App. 2d 263, 264
(Kelley), citing State Nat. Bank v. United States (1885) 114 U.S.
401, 409-410; cf. Swim v. Wilson (1891) 90 Cal. 126, 130-131.)
Conversely, the recipient of money who has reason to believe that
the funds he or she receives were stolen may be liable for
restitution. (Kelley, supra, at p. 264.)
“A transferee who would be under a duty of restitution if he
had knowledge of pertinent facts, is under such duty if, at the
time of the transfer, he suspected their existence.” (Rest.,
Restitution, § 10.)
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C. Application of principles
In the separate statement in support of its motion, Ryman
relied upon a series of undisputed facts to meet its burden to
produce sufficient evidence to establish a prima facie showing
that there were no triable issues of material fact. (See Aguilar,
supra, 25 Cal.4th at p. 850.) Among these were the following,
each of which Welborne conceded was undisputed: “Foster did
not make any representation to [Ryman]’s attorneys regarding
the source of the funds that he ultimately used to satisfy his
obligations under the Settlement Agreement”; “[Ryman] never
suggested or implied that Foster should obtain the money used to
pay the settlement proceeds from any particular source in any
particular manner, including by committing an unlawful or
tortious act, . . . including using funds entrusted to him by []
Welborne”; and “[Ryman] did not have any knowledge that Foster
may have used [] Welborne’s money to pay his settlement
obligations until John Welborne contacted [Ryman] . . . in or
about December 2013.”
The foregoing were among the facts that fully supported
shifting the burden to Welborne to adduce facts to establish a
prima facie showing that a triable issue of material facts exists.
(Aguilar, supra, 25 Cal.4th at p. 850.) As Aguilar makes clear, in
successfully defeating a defense motion for summary judgment,
the plaintiff ’s burden is to make such a prima facie showing.
And, Aguilar, supra, instructs us that “A prima facie showing is
one that is sufficient to support the position of the party in
question. (Cf. Evid. Code, § 602 [stating that a ‘statute providing
that a fact or group of facts is prima facie evidence of another fact
establishes a rebuttable presumption’].) No more is called for.”
(Aguilar, supra, at p. 851.) Ryman met this test. Thus,
9
Welborne’s responding party’s burden was to adduce facts
disputing those proffered by Ryman, not to disprove the facts
Ryman had presented.
To meet its responding party’s burden, Welborne submitted
a Separate Statement of Additional Undisputed Material Facts
that together with its accompanying declarations, established the
following facts, prima facie: Ryman was aware that, in 2011,
Foster had ceased making payments on the loan Ryman had
made to MBFF; Ryman learned by August 2012 that Foster had
been terminated by the brokerage firm at which he worked;
Ryman established a special committee to investigate Foster’s
conduct and termination; Ryman learned that Foster and the
brokerage firm were being investigated by FINRA and that
Foster had stolen $630,000 from Ryman and had stolen other
sums from other clients of the brokerage firm; Foster transferred
$490,108.16 to meet his monetary obligation under the
settlement agreement with Ryman; Ryman never asked Foster
about the source of the funds he used to pay the settlement
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amount;5 and Ryman was aware that Foster and Welborne were
“associated . . . in some way.”6
The gravamen of Welborne’s appeal is that these facts are
prima facie evidence that Ryman was on notice and had a duty to
inquire about the source of funds Foster used to discharge his
monetary obligation under the settlement agreement, and, had
Ryman either utilized the knowledge its special committee had
acquired, or with the information then in its possession, inquired
further, it would have determined earlier that Foster had
purloined from Welborne the funds used to satisfy his payment
obligation under the settlement agreement. Having established
that Foster had done so, Welborne would also establish that
Ryman was not an innocent transferee, and thus the trial court
would be called upon to determine whether it was equitable to
restore to Welborne the amount taken by Foster from her
accounts to pay his obligation to Ryman.
5 The underlying note which Foster signed on behalf of
MBFF and the Settlement Agreement were placed in evidence by
Ryman as part of its moving party’s burden. In its reply
memorandum in the trial court, Ryman argued that only MBFF
was obligated to repay Ryman and that MBFF was not a party to
the settlement agreement, citing SUF No. 18. However, while
both Foster and MBFF are parties to the settlement agreement,
its paragraph 2.b. clearly obligates only Foster to pay Ryman
$483,775.58 plus interest.
6 Ryman’s trial court response to Welborne’s submission of
these additional material facts was to consider many of them
“irrelevant” to determination of the motion, also challenging the
wording of some and disputing a few. We do not agree that these
additional undisputed material facts are irrelevant.
11
In this regard, we note that Ryman’s reliance on Kelley,
supra, 142 Cal.App.2d at page 264, and cases cited therein, is
misplaced. The rule discussed in these cases is that the “[o]ne
who receives stolen money in good faith and for good
consideration will prevail over the unfortunate victim of the
thief” (ibid., emphasis added) only applies when there is a
determination that the recipient accepted the money in good
faith. And, while a bona fide purchaser is generally not required
to make restitution, “a transferee with knowledge of the
circumstances giving rise to an unjust enrichment claim may be
obligated to make restitution.”7 (Perry, supra, 11 Cal.App.4th
p. 1663; Rest., Restitution, supra, § 13.)
Welborne has sufficiently placed material facts—the extent
of Ryman’s knowledge and of its good faith—in issue; thus, the
7 In Kelley, the court also stated, “Of course, if such
purchaser should have paid an unreasonably low price for the
article acquired, or if by any other means he was put on such
notice as a reasonably prudent man would have interpreted to be
tantamount to a declaration by the thief that the chattel had
been purchased with stolen money, he cannot retain the movable
against the innocent victim of the robber.” (Kelley, supra, 142
Cal.App.2d at p. 265; see also Perry, supra, 11 Cal.App.4th at
pp. 1667-1668 [“a transferee with knowledge of the circumstances
giving rise to an unjust enrichment claim may be obligated to
make restitution”].) (Perry, supra, at p. 1663.)
We observe that the principle that one with notice may
have a duty of further inquiry applies whether the subject is a
“moveable,” as in Kelley, or cash, as in the present case. (See,
Perry, supra, 11 Cal.App.4th at p. 1663.)
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matter requires trial rather than summary disposition.8 That is,
Welborne made a sufficient prima facie showing to support her
claim for recovery. As Aguilar makes clear, “[n]o more is called
for.”9 (Aguilar, supra, 25 Cal.4th at p. 851.)
8 Ryman also errs in its claim that this matter may not be
tried to a jury. The gist of an action in which a party seeks only
money damages is legal in nature even though equitable
principles are to be applied. (Paularena v. Superior Court of San
Diego County (1965) 231 Cal. App. 2d 906, 912.) As appellant
argues, this is an express holding of Lectrodryer v. SeoulBank
(2000) 77 Cal. App. 4th 723, 728. (See also, Jogani v. Superior
Court (2008) 165 Cal. App. 4th 901, 909.)
9 We recognize that Ryman changed its position by paying off
its own obligation to the brokerage firm after receiving payment
from Foster. However, as noted in the text, ante, that action may
not have been well considered given the information in Ryman’s
possession concerning Foster’s defalcations prior to it making
that payment.
13
DISPOSITION
The June 1, 2017 judgment is reversed. Appellant shall
recover her costs on appeal.
CERTIFIED FOR PUBLICATION.
________________________, J.*
GOODMAN
We concur:
_________________________, Acting P.J.
ASHMANN-GERST
_________________________, J.
CHAVEZ
* Retired Judge of the Los Angeles Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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