Rutherford Holdings, LLC v. Plaza Del Rey , 223 Cal. App. 4th 221 ( 2014 )

Filed 1/23/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
RUTHERFORD HOLDINGS, LLC, H038303
(Santa Clara County
Plaintiff and Appellant, Super. Ct. No. 1-10-CV175989)
v.
PLAZA DEL REY et al.,
Defendants and Respondents.
Rutherford Holdings, LLC (Rutherford) appeals from a judgment of dismissal
entered after the trial court sustained demurrers without leave to amend filed by
defendants Plaza Del Rey (PDR) and Shereen Caswell (Caswell) (collectively
defendants).
Rutherford contracted to purchase a mobile home park from PDR. Pursuant to the
purchase agreement, Rutherford delivered a $3 million deposit to PDR, which the
agreement provided was nonrefundable unless PDR materially breached the purchase
agreement or failed or refused to close. The closing date came and went and neither
party performed; PDR never tendered the deed to Rutherford, and Rutherford never
tendered the full purchase price to PDR. Rutherford sued to recover the deposit under
various theories of recovery.
Defendants successfully demurred to Rutherford’s initial complaint and first
amended complaint, but Rutherford was--in large part--granted leave to amend those
pleadings. The court sustained defendants’ demurrers to Rutherford’s second amended
complaint without leave to amend. We reverse the judgment with directions and remand.
I. FACTUAL AND PROCEDURAL BACKGROUND1
A. The Purchase Agreement and the Parties’ Failure to Tender
Performance
On May 23, 2008, Rutherford and PDR entered into a purchase agreement under
which Rutherford agreed to buy, and PDR agreed to sell, a parcel of real property in
Sunnyvale, California, for $110 million. Caswell signed the agreement as PDR’s vice
president of operations. Section 1.2 of the purchase agreement required Rutherford to
deliver a $3 million “deposit” to PDR by May 27, 2008, and provided that the deposit
“shall be nonrefundable to [Rutherford], except only in the event of [PDR’s] material
breach . . . or [PDR’s] failure or refusal to close.” Rutherford timely delivered the
deposit.
The purchase agreement also contained a liquidated damages provision in section
6.2, which provided that if Rutherford breached the purchase agreement, PDR would be
“entitled, as [its] sole and exclusive remedy, to retain the deposit as liquidated damages,”
and that “[s]uch retention of the deposit by [PDR] is intended to constitute liquidated
damages . . . pursuant to sections 1671, 1676 and 1677 of the California Civil Code . . . .”
The parties amended the purchase agreement to extend the closing date to January
15, 2009. In January 2009, Rutherford asked Caswell whether PDR was interested in
providing “seller financing” to Rutherford in connection with the purchase. Caswell
responded that PDR would consider providing seller financing, and the parties again
amended the purchase agreement to extend the closing date, this time to March 31, 2009.
1
Because this matter comes to us following a judgment sustaining demurrers
without leave to amend, we assume the truth of the material facts properly pleaded in
Rutherford’s complaints. (Blank v. Kirwan (1985) 39 Cal. 3d 311, 318.) Facts appearing
in exhibits attached to the complaint also are accepted as true and are given precedence,
to the extent they contradict the allegations. (Dodd v. Citizens Bank of Costa Mesa
(1990) 222 Cal. App. 3d 1624, 1627.)
2
Prior to the March 2009 closing date and while the parties were in discussions
regarding seller financing, Caswell told Rutherford that PDR could reduce its tax
obligations if it was not in contract to sell the property. According to Caswell, if the
purchase did not close and the closing date was not extended in writing, PDR could pay
taxes on the property’s appraised value, as opposed to the higher agreed purchase price.
Caswell promised Rutherford that PDR would sell Rutherford the property after the
closing date and after PDR had filed its tax returns in mid to late 2009. She explained
that PDR did not want to document that in the agreement because doing so could
undermine PDR’s ability to use the property’s appraisal value to obtain a tax benefit.
In reliance on Caswell’s representations, Rutherford did not tender the full
purchase price on March 31, 2009, but it “could have and would have” done so absent
those representations. At a meeting about the seller financing option on April 6, 2009,
Caswell again represented to Rutherford that PDR would sell Rutherford the property
after filing its tax returns. On October 26, 2009, PDR informed Rutherford that the
purchase agreement was no longer in place and that Rutherford had “lost” its $3 million
deposit.
B. The Initial Complaint and Demurrer
On July 1, 2010, Rutherford filed its initial complaint against defendants, alleging
causes of action for (1) money had and received; (2) unjust enrichment; (3) conversion;
(4) promissory estoppel; (5) declaratory relief; and (6) promissory fraud. Rutherford
alleged Caswell was liable under an alter ego theory. The trial court sustained
defendants’ demurrers to the complaint with leave to amend.
C. The First Amended Complaint and Demurrer
Rutherford filed a first amended complaint on February 9, 2011, again alleging
claims for (1) money had and received; (2) unjust enrichment; (3) conversion; (4)
promissory estoppel; (5) declaratory relief; and (6) promissory fraud. Rutherford also
3
added a claim for breach of contract, alleging that PDR breached its contractual
obligation to return the deposit to Rutherford in the event PDR failed to close the sale.
Rutherford again alleged alter ego liability against Caswell, and the court
concluded those allegations were sufficient. The trial court sustained PDR’s demurrer
without leave to amend the claims for conversion, promissory estoppel, and declaratory
relief. The court’s order granted Rutherford leave to amend its breach of contract,
promissory fraud, money had and received, and unjust enrichment causes of action.
D. The Second Amended Complaint and Demurrer
In its second amended complaint, Rutherford asserted claims for (1) breach of
contract; (2) promissory fraud; (3) money had and received; and (4) unjust enrichment.
Defendants again demurred, and the court sustained the demurrers without leave to
amend. On March 14, 2012, the trial court entered a judgment of dismissal against
Rutherford. Rutherford timely filed its notice of appeal on May 7, 2012.
II. DISCUSSION
A. The Standard of Review
We review an order sustaining a demurrer de novo, exercising our independent
judgment as to whether a cause of action has been stated as a matter of law. (Moore v.
Regents of University of California (1990) 51 Cal. 3d 120, 125.) Because a demurrer tests
only the legal sufficiency of the pleading, the facts alleged in the pleading are deemed to
be true. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal. App. 4th 1020, 1034.)
We do not review the validity of the trial court’s reasoning, and therefore will affirm its
ruling if it was correct on any theory. (Ibid.) Nor are we “limited to plaintiff[’]s theory
of recovery in testing the sufficiency of [its] complaint against a demurrer, but instead
must determine if the factual allegations of the complaint are adequate to state a cause of
action under any legal theory.” (Barquis v. Merchants Collection Assn. (1972) 7 Cal. 3d
94, 103.)
4
“Where a demurrer is sustained without leave to amend, [we] must determine
whether there is a reasonable probability that the complaint could have been amended to
cure the defect; if so, [we] will conclude that the trial court abused its discretion by
denying the plaintiff leave to amend. [Citation.] The plaintiff bears the burden of
establishing that it could have amended the complaint to cure the defect.” (Berg & Berg
Enterprises, LLC v. Boyle, supra, 178 Cal.App.4th at p. 1035.)
B. Breach of Contract Claim
“A cause of action for damages for breach of contract is comprised of the
following elements: (1) the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.”
(Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371,
1388.)
“In a contract for the sale of real estate the delivery of the deed and the payment of
the purchase price are dependent and concurrent conditions.” (King v. Stanley (1948) 32
Cal. 2d 584, 590.) Where the parties’ contractual obligations constitute concurrent
conditions, “neither party is in default until one party performs or tenders performance.”
(Ninety Nine Investments, Ltd. v. Overseas Courier Service (Singapore) Private, Ltd.
(2003) 113 Cal. App. 4th 1118, 1135 (Ninety Nine).) Here, both parties failed to perform
the concurrent conditions before closing, “result[ing] in a discharge of both parties’ duty
to perform.” (Pittman v. Canham (1992) 2 Cal. App. 4th 556, 560.) Thus, as Rutherford
concedes, it cannot argue that PDR breached the purchase agreement by failing to
perform its duty to tender the deed.2
Rutherford contends that it can, however, sue PDR for breaching its separate
contractual obligation to return the deposit where it “fail[s] or refus[es] to close” under
2
PDR is likewise precluded from arguing that Rutherford breached the purchase
agreement by failing to tender the full purchase price.
5
section 1.2, and Rutherford is not in breach.3 Defendants respond that Rutherford cannot
state a breach of contract claim because (1) the contract does not obligate PDR to return
the deposit unless PDR is in breach of the contract and (2) in any event, Rutherford’s
nonperformance precludes it from stating any breach of the purchase agreement.
The parties’ dispute reflects their competing interpretations of the purchase
agreement. Though not apparent from the complaint, Rutherford’s appellate brief
clarifies that, in its view, the phrases “material breach” and “failure or refusal to close” in
section 1.2 must be given independent meaning, such that PDR may be required to return
the deposit not only when it is in material breach of the agreement (i.e., fails to deliver
the deed), but also when it otherwise “fail[s] or refus[es] to close.” Rutherford’s brief
also sets forth, somewhat inarticulately, its view that PDR’s promise to return the deposit
was independent of Rutherford’s promise to tender the full purchase price, such that
Rutherford’s own nonperformance does not excuse PDR’s failure to return the deposit.
(Verdier v. Verdier (1955) 133 Cal. App. 2d 325, 334 [“[i]f the [two] covenants are
independent, breach of one does not excuse performance of the other”].) Defendants, by
contrast, appear to equate the phrases “material breach” and “failure or refusal to close”
in section 1.2. They also maintain that Rutherford’s nonperformance excused all of
PDR’s contractual duties.
“Where a complaint is based on a written contract which it sets out in full, a
general demurrer to the complaint admits not only the contents of the instrument but also
any pleaded meaning to which the instrument is reasonably susceptible.” (Aragon-Haas
v. Family Security Ins. Services, Inc. (1991) 231 Cal. App. 3d 232, 239 (Aragon-Haas).) “
‘[W]here an ambiguous contract is the basis of an action, it is proper, if not essential, for
a plaintiff to allege its own construction of the agreement. So long as the pleading does
3
Section 1.2 of the purchase agreement provides that the deposit “shall be
nonrefundable to [Rutherford], except only in the event of [PDR’s] material breach . . . or
[PDR’s] failure or refusal to close.”
6
not place a clearly erroneous construction upon the provisions of the contract, in passing
upon the sufficiency of the complaint, we must accept as correct plaintiff’s allegations as
to the meaning of the agreement.’ ” (Ibid.)
Here, the purchase agreement is reasonably susceptible of the meaning Rutherford
ascribes to it. “While [that] interpretation . . . ultimately may prove invalid,” at the
pleading stage, it is sufficient that the agreement is reasonably susceptible of this
meaning. (Aragon-Haas, supra, 231 Cal.App.3d at p. 239.) That said, because
Rutherford did not allege this interpretation in its complaint, the court correctly sustained
the demurrer. (Ibid.) However, we conclude Rutherford should be given the opportunity
to amend its complaint to allege its reasonable interpretation of the purchase agreement
and facts showing that PDR “fail[ed] or refus[ed] to close” in some manner other than by
materially breaching the agreement by not tendering the deed. If Rutherford can amend
its complaint in this manner, it may be able to state a cause of action for breach of
contract. Therefore, we conclude the trial court erred by sustaining the demurrer on this
cause of action without leave to amend.
C. Money Had and Received Claim
To prevail on a common count for money had and received, the plaintiff must
prove that the defendant is indebted to the plaintiff for money the defendant received for
the use and benefit of the plaintiff. (Pike v. Zadig (1915) 171 Cal. 273, 276; Farmers Ins.
Exchange v. Zerin (1997) 53 Cal. App. 4th 445, 460.) In an action on an express contract,
a claim for money had and received is permitted where there has been a total failure of
consideration. (Brown v. Grimes (2011) 192 Cal. App. 4th 265, 281.) “ ‘Failure of
consideration is the failure to execute a promise, the performance of which has been
exchanged for performance by the other party.’ ” (Taliaferro v. Davis (1963) 216
Cal. App. 2d 398, 410.) “[T]he failure of the consideration is total . . . [where] nothing of
value has been received under the contract by the party” seeking restitution. (Richter v.
Union Land etc. Co. (1900) 129 Cal. 367, 373 (Richter).) Where the failure of the
7
consideration is total, “the law implies a promise on the part of the other to repay what
has been received by him under the contract.” (Ibid.) Such a promise is implied because
the “defendant cannot in equity and good conscience retain the benefits of the agreement
and repudiate its burdens.” (Holt v. Ravani (1963) 221 Cal. App. 2d 213, 216.)
Rutherford alleges it paid the $3 million deposit to PDR as part of the purchase
price for the property. Read liberally, the complaint alleges that Rutherford paid the
deposit in consideration of PDR’s promise to transfer the deed at closing. This is a
reasonable reading of the purchase agreement, and therefore we deem it admitted on
demurrer. (Aragon-Haas, supra, 231 Cal.App.3d at p. 239.) Under that interpretation of
the agreement, PDR’s failure to perform its promise to transfer the deed resulted in a total
failure of consideration and supports a claim for money had and received.
Defendants argue that Rutherford’s failure to tender payment bars it from relying
on failure of consideration. While it is true that a party who is in default “cannot rescind
for the other party’s breach or failure of consideration” (Nelson v. Spence (1960) 182
Cal. App. 2d 493, 499), here neither party is in default because neither performed. (Ninety
Nine, supra, 113 Cal.App.4th at pp. 1134-1135.) Therefore, we conclude Rutherford can
rely on the alleged total failure of consideration to state a claim for money had and
received. (See Cleary v. Folger (1893) 33 P. 877, 878 [“when both parties have failed to
perform the contract, either may elect to consider it rescinded and recover moneys paid
upon it.”].)
Defendants also suggest that the deposit was akin to an option to purchase the
property and was paid in consideration for that option, which Rutherford did not exercise
by the closing date. In that case, the money would be for PDR’s use and benefit and
would not support a claim for money had and received. Defendants may ultimately
prevail on that point, but at this stage we credit Rutherford’s interpretation. (Aragon-
Haas, supra, 231 Cal.App.3d at p. 239.) Defendants also suggest that Rutherford was
required to seek rescission to state a claim for money had and received, but the Supreme
8
Court has held that “where the failure of the consideration is total, . . . [it is not] necessary
that a formal rescission be made before bringing suit.” (Richter, supra, 129 Cal. at p.
373.)
For the foregoing reasons, we conclude the trial court erred in sustaining the
demurrer as to the money had and received cause of action.
D. Unjust Enrichment Claim
Rutherford’s fourth cause of action is labeled as one for “unjust enrichment.”
“Unjust enrichment is not a cause of action, however, or even a remedy, but rather ‘ “ ‘a
general principle, underlying various legal doctrines and remedies’ ” . . . . [Citation.] It
is synonymous with restitution.’ ” (McBride v. Boughton (2004) 123 Cal. App. 4th 379,
387.) Like the trial court, we will construe the cause of action as a quasi-contract claim
seeking restitution.
“[A]n action based on an implied-in-fact or quasi-contract cannot lie where there
exists between the parties a valid express contract covering the same subject matter.”
(Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal. App. 4th
194, 203.) However, “restitution may be awarded in lieu of breach of contract damages
when the parties had an express contract, but it was procured by fraud or is unenforceable
or ineffective for some reason.” (McBride v. Boughton, supra, 123 Cal.App.4th at p.
388.) Thus, a party to an express contract can assert a claim for restitution based on
unjust enrichment by “alleg[ing in that cause of action] that the express contract is void
or was rescinded.” (Lance Camper Manufacturing Corp. v. Republic Indemnity Co.
supra, at p. 203.) A claim for restitution is permitted even if the party inconsistently
pleads a breach of contract claim that alleges the existence of an enforceable agreement.
(Klein v. Chevron U.S.A., Inc. (2012) 202 Cal. App. 4th 1342, 1389.)
In its claim seeking restitution, Rutherford does not allege that the deposit is not
covered by the purchase agreement. Rather, it alleges that if the agreement “provided for
a non-refundable deposit regardless of whether [Rutherford] was in breach,” as
9
defendants contend, then “the Agreement is contrary to public policy and is unlawful as
the Deposit provision of the Agreement acts as an unlawful penalty and forfeiture
provision.”
“[A]ny provision by which money or property would be forfeited without regard
to the actual damage suffered would be an unenforceable penalty.” (Ebbert v. Mercantile
Trust Co. (1931) 213 Cal. 496, 499.) Rutherford argues that PDR did not suffer any
damages because Rutherford was not in breach, and thus any provision allowing PDR to
retain any of the deposit would be an unenforceable penalty.
Defendants respond that the deposit constitutes a forfeiture only if PDR was able
to sell the property to another buyer for more than the $110 million purchase price set
forth in the purchase agreement. For that argument, defendants rely on cases in which
the seller profited from the buyer’s breach by selling the property for more than the
defaulting buyer had agreed to pay. In those cases, the courts reasoned that allowing the
seller to retain the buyer’s deposit would work a forfeiture because the amount of the
deposit far exceeded the damages the seller suffered, if any. (See Kuish v. Smith (2010)
181 Cal. App. 4th 1419, 1422 [where plaintiff cancelled escrow, “defendants’ retention of
$600,000 of plaintiff’s deposit constitutes an invalid forfeiture” because “defendants sold
the property for $1 million more than plaintiff had agreed to pay . . . [and did] not
contend they suffered $600,000 in actual damages as a result of plaintiff’s actions.”];
Freedman v. The Rector (1951) 37 Cal. 2d 16.) Those cases are inapposite here, as
Rutherford is not in breach because PDR did not tender the deed. (Ninety Nine, supra,
113 Cal.App.4th at pp. 1134-1135.)
As noted above, defendants also suggest that the deposit was an option payment,
in which case PDR’s retention would not constitute an invalid forfeiture. While that
interpretation of the purchase agreement may eventually prevail, we conclude that
Rutherford stated a quasi-contract claim for restitution based on unjust enrichment. In
particular, we conclude Rutherford adequately alleged a reasonable interpretation of the
10
purchase agreement under which section 1.2 is void to the extent it permits PDR to retain
the deposit when Rutherford has not breached, and that PDR has been unjustly enriched
by retaining the deposit. Accordingly, we conclude the trial court erred in sustaining the
demurrer as to the claim for restitution based on unjust enrichment.
E. Conversion Claim
“To establish a conversion, plaintiff must establish an actual interference with his
ownership or right of possession.” (Del E. Webb Corp. v. Structural Materials Co.
(1981) 123 Cal. App. 3d 593, 610.) To do so, the plaintiff must have “either ownership
and the right of possession or actual possession [of the property] at the time of the alleged
conversion thereof.” (General Motors A. Corp. v. Dallas (1926) 198 Cal. 365, 370.)
“[A] mere contractual right of payment, without more, will not suffice” to support a claim
for conversion. (Farmers Ins. Exchange v. Zerin, supra, 53 Cal.App.4th at p. 452.)
Rutherford alleges that PDR converted the deposit when it refused to return it to
Rutherford after failing to close. Rutherford did not have actual possession of the deposit
at that time. Rather, it argues that it owned the deposit and had a right to possess it.
According to Rutherford, title to the deposit never transferred to PDR because PDR never
became entitled to liquidated damages. That theory differs from the complaint, where
Rutherford premised its ownership right on PDR’s breach, alleging that Rutherford “was
the sole owner of the Deposit,” “as of the passing of the close of escrow date.” While
that does not preclude us from considering the argument on appeal (B & P Development
Corp. v. City of Saratoga (1986) 185 Cal. App. 3d 949, 959), we conclude title did transfer
to PDR, such that Rutherford cannot establish ownership.
The cases Rutherford relies on for its claim that it retained ownership of the
deposit are distinguishable. In some, the buyers were entitled to the return of their
deposits pursuant to express escrow instructions. (Hastings v. Bank of America (1947) 79
Cal. App. 2d 627, 629; Widess v. Title Ins. etc. Co. (1931) 112 Cal. App. 343, 347-348.)
But here the deposit was not paid into escrow and the complaint does not allege any
11
escrow instructions. In Rutherford’s other cases, the buyers were entitled to the return of
their deposits because no contract ever was formed between the parties. (Christy v.
Drapeau (1937) 22 Cal. App. 2d 582, 588; Sarten v. Pomatto (1961) 192 Cal. App. 2d 288,
294.) That is not the case here. Rutherford also relies on Miller and Starr’s commentary
that “[w]hen the buyer’s deposit is merely given to the seller’s agent pursuant to the usual
terms of the deposit receipt without any additional and specific direction that it be placed
into the purchase escrow by the broker, the buyer retains the title to the deposit and is
entitled to its return until such time as the seller’s obligation to sell becomes
unconditional.” (1 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 2:4, p. 15, fn.
omitted.) But the cases do not appear to support that statement. Rather, they indicate
that--in the absence of escrow instructions to the contrary--title to a deposit vests in the
seller when the seller “accept[s] the contract.” (Holloway v. Thiele (1953) 116
Cal. App. 2d 68, 72; see also Norris v. San Mateo County Title Co. (1951) 37 Cal. 2d 269,
273; Landfield v. Cohen (1948) 89 Cal. App. 2d 177, 179 [buyer’s act of paying “a portion
of the purchase price at the time of his agreement to buy . . . is as complete a transfer of
the money paid as if he had made a gift thereof.”].) Accordingly, we conclude title to the
deposit transferred to PDR. Because Rutherford cannot allege that it owned or possessed
the deposit at the time of the alleged conversion, it cannot state a conversion claim.
Therefore, the trial court correctly sustained the demurrers without leave to amend.
F. Promissory Fraud Claim
“ ‘The elements of fraud, which give rise to the tort action for deceit, are (a)
misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of
falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance;
and (e) resulting damage.’ ” (Lazar v. Superior Court (1996) 12 Cal. 4th 631, 638.) “
‘Every element of the cause of action for fraud must be alleged in the proper manner (i.e.,
factually and specifically), and the policy of liberal construction of the pleadings . . . will
not ordinarily be invoked to sustain a pleading defective in any material respect.’ ”
12
(Committee On Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197,
216.)
Rutherford’s allegations are insufficient to satisfy the heightened pleading
standard for fraud actions. Rutherford adequately alleges misrepresentations. In
particular, it alleges that in March 2009, prior to the closing date, PDR (through Caswell)
“promised and represented to [Rutherford] . . . that PDR would agree to sell the Subject
Property and to close the Agreement after the scheduled Closing Date.” Rutherford
further alleges that in April 2009 Caswell again represented that PDR would sell the
property to Rutherford in mid to late 2009. According to Rutherford’s allegations, in
October 2009 defendants reneged on those promises.
Rutherford also alleges scienter and intent to defraud, alleging that defendants
knew these promises were false when they were made, and that defendants made them
with the intent to deprive Rutherford of its deposit by inducing Rutherford not to tender
performance.
However, Rutherford’s reliance allegations lack sufficient factual content.
Rutherford alleges that “[i]n reliance upon Defendants’ representations, [it] did not tender
payment of the purchase amount prior to the Closing Date,” and that, “[b]ut for
Defendants’ representations . . . [it] could have and would have” done so. With regard to
its ability to perform, Rutherford also alleges that “at all times before the Closing Date,
[it] could have obtained the necessary financing to perform its payment obligation under
the Agreement prior to the Closing Date” but that it “continued to explore the most
advantageous financing terms available.” Rutherford fails to allege facts showing that it
could have obtained the necessary financing from a source other than PDR. “The
conclusory allegation [it] would have obtained [such financing] does not state a cause of
action.” (Rossberg v. Bank of America, N.A. (2013) 219 Cal. App. 4th 1481, 1500.)
Rutherford also alleges that, in reliance on defendants’ representations, it did not
terminate the purchase agreement and request a return of the deposit. Rutherford cannot
13
state a fraud claim based on this theory because the allegations show that its damages
were not caused by its failure to terminate the purchase agreement. (Beckwith v. Dahl
(2012) 205 Cal. App. 4th 1039, 1064 [“The fraud plaintiff must also allege his damages
were caused by the actions he took in reliance on the defendant’s misrepresentations.”].)
Had Rutherford requested its deposit back after PDR failed to tender the deed on the
closing date, it would have been in the very same position it is today--neither party would
have performed their mutually dependent, concurrent conditions, and defendants would
be taking their current position that PDR is entitled to retain the deposit. Thus,
Rutherford “would have suffered the alleged damage even in the absence of the
fraudulent inducement [not to terminate the agreement], [and therefore] causation cannot
be alleged and a fraud cause of action cannot be sustained.” (Ibid.)
For these reasons, we conclude the trial court correctly sustained the demurrers as
to the promissory fraud claim. We also conclude the court did not abuse its discretion in
denying Rutherford leave to amend its pleading with respect to its fraud claim as
Rutherford has failed to meet its burden of demonstrating a reasonable possibility that an
amendment could cure the pleading defects we have identified.
G. Rutherford’s Alter Ego Allegations Were Sufficient
Defendants argue that even if we reverse the judgment as to PDR, we should not
reverse it as to Caswell because Rutherford failed to adequately allege that Caswell and
PDR are alter egos. We conclude that Rutherford made sufficient allegations of alter ego
to avoid a demurrer.
Rutherford alleged that Caswell dominated and controlled PDR; that a unity of
interest and ownership existed between Caswell and PDR; that PDR was a mere shell and
conduit for Caswell’s affairs; that PDR was inadequately capitalized; that PDR failed to
abide by the formalities of corporate existence; that Caswell used PDR assets as her own;
and that recognizing the separate existence of PDR would promote injustice. These
allegations mirror those held to pass muster in First Western Bank & Trust Co. v.
14
Bookasta (1968) 267 Cal. App. 2d 910, 915-916. As in First Western, “[a]ssuming these
facts can be proved, [Caswell] . . . may be held liable . . . under the alter ego principle.”
(Id. at p. 916.)
Defendants argue that Rutherford failed to allege specific facts to support an alter
ego theory, but Rutherford was required to allege only “ultimate rather than evidentiary
facts.” (Doe v. City of Los Angeles (2007) 42 Cal. 4th 531, 550.) Moreover, the “less
particularity [of pleading] is required where the defendant may be assumed to possess
knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff,”
which certainly is the case here. (Burks v. Poppy Construction Co. (1962) 57 Cal. 2d 463,
474.) Therefore, we affirm the trial court’s ruling that Rutherford sufficiently pled an
alter ego theory of liability.
III. DISPOSITION
The judgment of dismissal is reversed and the cause is remanded to the superior
court with directions to vacate its order sustaining defendants’ demurrers to the second
amended complaint without leave to amend and to enter a new order (1) sustaining the
demurrers as to the second cause of action for promissory fraud, without leave to amend;
(2) overruling the demurrers as to the third cause of action for money had and received
and the fourth cause of action for unjust enrichment/restitution; and (3) sustaining the
demurrers as to the first cause of action for breach of contract and granting Rutherford
leave to file a third amended complaint with respect to that cause of action only. The
parties shall bear their own costs on appeal.
Premo, J.
WE CONCUR:
Rushing, P.J.
Márquez, J.
15
Trial Court: Santa Clara County Superior Court
Superior Court No. 1-10-CV175989
Trial Judge: Hon. Patricia M. Lucas
Counsel for Plaintiff/Appellant: Hamrick & Evans
Rutherford Holdings, LLC James M. Pazos
George Knopfler
Counsel for Defendants/Respondents: Stein & Lubin
Plaza Del Rey, Shereen Caswell Jonathan E. Sommer
Frank R. Petrilli
Rutherford Holdings, LLC v. Plaza Del Rey et al.
H038303