Earls Mail Service v. Toone

Filed 8/6/08 Earls Mail Service v. Toone CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(San Joaquin)

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Earls Mail Service, Inc. (EMS) sought over $920,000 in damages from Lawrence O. Toone, and two corporations apparently owned by Toone, through a complaint alleging only common counts. After a court trial, EMS was awarded damages of $720,955 against Toone alone. Toone appeals contending the judgment lacks legal and factual bases. We agree in part. We shall reverse the portion of the judgment that awards damages for unpaid payroll and income tax liability, the assessed payroll tax penalty, accounting fees, and money due from Jerrys Delivery Service. We shall affirm the remaining portion of the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Toone has a masters degree in accounting from Brigham Young University with an emphasis in income taxation.^[1] Greg Masterson was a client of Toone when Toone had a practice as a certified public accountant. In January 1996, Masterson and Toone went into business together by purchasing from Ed Holley the stock of EMS, a corporation that had delivery contracts with the United States Postal Service, for the sum of $615,550. The sum of $25,000 in cash was paid by Masterson to Holley. Masterson and Toone paid the remainder of the purchase price through two promissory notes; one in the amount of $35,000 and the other in the amount of $555,550. At the time of the purchase, Masterson and Toone each held 50 percent of the stock in EMS. They were equally obligated (50/50) on the Holley note.

Later in 1996, Toone wanted to purchase another delivery company called Jerrys Delivery Service. Masterson did not want to purchase the new company. Nevertheless, Toone and Masterson formed a corporation called All-Cal Enterprises, Inc., which purchased Jerrys Delivery Service in August 1996. According to Toone, he and Masterson agreed Masterson would own and manage most of the interest in EMS and Toone would own and manage most of the interest in Jerrys Delivery Service. Toone held 80 percent of the stock of All-Cal Enterprises; Masterson held 20 percent. Masterson held 80 percent of the stock of EMS; Toone held 20 percent. Later Toone and Masterson transferred the assets of All-Cal Enterprises to a successor corporation called Jaguar Express, Inc. Toone owned 80 percent of the stock of Jaguar Express and Masterson owned 20 percent.

Masterson testified at trial the 80/20 split of the businesses was a scheme by Toone to manipulate the workers compensation insurance premiums and was meant to allow each of them to tell others that the respective business was theirs. Toone denied the scheme to manipulate workers compensation premiums.

Masterson and Toone never adjusted their 50-50 obligation to Holley.

Masterson testified he did not pay attention to the financial issues of the companies, but instead left all of these issues to Toone. At trial, Toone admitted he did not make the payroll tax payments that EMS owed to the government and that he did not initially tell Masterson of this failure. He testified the company had insufficient money to make the payments. When Masterson asked him about payroll taxes in 1999, Toone told him he was behind on the payments and that he was working on it. Toone testified the IRS can assess a penalty of up to 100 percent for withheld, but unremitted payroll taxes. The IRS did assess a penalty in the amount of approximately $118,000 against Toone and Masterson, jointly and severally, for the failure to make payroll tax payments.

Toone testified the profits of EMS were paid to Holley as payment on the $500,000 note used to buy EMS. Because the note was a personal obligation of Toone and Masterson, the payments to Holley were in effect advances to Toone and Masterson. According to Toone, they intended the payments would be recorded as loans and that after the obligation to Holley was satisfied, EMS would have sufficient funds to pay salaries to Toone and Masterson. EMS would then forgive the advances over a period of years. After he ceased being an officer and shareholder of EMS, Toone declared a forgiveness of a portion of his debt. According to Mastersons accounting expert, Christine James, EMS could have paid its taxes from its cash flow if Toone had not caused EMS to make payments on the Holley note.

According to Masterson, both he and Toone used corporate funds of EMS to pay personal expenses.

Masterson hired James, a certified public accountant, in early 2000 to assist with EMSs accounting. James was not aware that EMS kept any accounting records. She reconciled bank statements and reconstructed the financial activity of the corporation. She tried, using all available records, to create a true state of affairs for EMS. She found no evidence of consideration for the 80/20 stock split; everything was shared 50/50 between Toone and Masterson.

James developed a summary of amounts Toone owed to EMS. The summary was admitted in evidence as Plaintiffs exhibit 2.

The first item on exhibit 2 was Jamess calculation of the amount of EMSs unpaid payroll tax liability through June 30, 2001, not including any penalty or interest. James attributed 50 percent of this liability, $227,512, to Toone.

The second item on exhibit 2 was Jamess calculation of direct personal cash advances Toone took from EMS through December 31, 1999. She attributed the full amount, $43,686, to Toone.

The third through fifth items on exhibit 2 are Jamess calculation of certain advances EMS made to the shareholders. The sums of $35,000 and $9,302 were listed with the following heading: Advance to Shareholder - $35,000 First United Bank loan plus accrued interest (loan proceeds were used to pay for purchase of stock from Ed Holley, but all repayments were made through corporation; Shareholders must be charged personally) - as of 12/31/99[.] The sum of $285,845 was listed with the following heading: Stock Purchase payments paid from EMS to Ed Holley - through 12/31/00 (stock purchase payments were due from shareholders personally; corporation must be repaid or shareholders must be charged as compensation)[.] James attributed half of these amounts, $17,500, $4,651, and $142,923, to Toone.

The sixth item on exhibit 2 is Jamess calculation of the net amount Jerrys Delivery Service owes to EMS for cash advances between the two corporations. James attributed the full amount, $47,733, to Toone.

The seventh item on exhibit 2 is Jamess calculation of EMSs unpaid income tax liability through June 30, 2001. According to James, one of the factors causing the underpayment of taxes by EMS was the over-depreciation of assets on the returns prepared by Toone. James attributed half of the estimated amount or $58,950 to Toone.

The eighth and final item on exhibit 2 is Jamess estimate of the expense EMS incurred to reconstruct its books and records in order to calculate its tax liability. James attributed the full expense, $60,000, to Toone.

The parties stipulated Toone endorsed his shares of EMS to Masterson on July 25, 2001, at which point Masterson became the sole owner of the shares of EMS. The parties stipulated Masterson endorsed his shares of Jaguar Express, Inc. to Toone on the same date, at which point Toone became the sole owner of the shares of Jaguar Express, Inc.

In December 2002, EMS filed a complaint against Toone, All-Cal Enterprises, Inc. and Jaguar Express, Inc. alleging Toone owed $728,578 to EMS based on the common counts of (a) an open book account for money due, (b) money had and received by defendants for the use and benefit of EMS, (c) money lent by EMS to defendants at defendants request, (d) money paid, laid out, and expended to or for defendants at defendants request, and (e) for an as yet undetermined amount of interest and penalties due on unfiled and unpaid payroll tax returns. The complaint alleged All-Cal Enterprises, Inc. and Jaguar Express, Inc. owed $192,319.79 to EMS based on (a) an open book account for money due, and (b) work, labor, services and materials rendered at the request of defendants and for which defendants promised to pay EMS. Defendants denied the allegations and alleged numerous affirmative defenses. Defendants also filed a cross-complaint that is not at issue on appeal.

After a court trial, the trial court issued a tentative decision finding the damages suffered by EMS to be the amounts shown on exhibit 2, plus the penalties and interest suffered by EMS in the amount of $118,000, for a total of $720,955. The tentative decision awarded judgment in favor of EMS and against Toone in the amount of $720,955. The tentative decision granted judgment for cross-defendant^[2]on the second amended cross-complaint.

Toone requested a statement of decision pursuant to Code of Civil Procedure section 632^[3]and listed 31 different questions to be addressed. Toone proposed a statement of decision answering the 31 questions in a manner that changed the decision into one in his favor. EMS filed a counter proposal as to the content of the statement of decision and added 15 more proposed factual findings and five proposed conclusions of law. Toone filed an amended proposed statement. The trial court then issued a statement of decision adopting the suggestions of EMS and making its proposed findings of fact and conclusions of law. The term common counts nowhere appears in Toones request for a statement of decision, the parties proposed statements of decision or in the trial court final statement of decision.

The trial courts statement of decision found both Masterson and Toone expressly recognized the corporations [EMSs] existence at all times; and, at no time was the corporate veil of [EMS] pierced as to either Masterson or Toone. (Capitalization omitted.) The statement of decision stated Masterson and Toone were equal (50% each) owners of the shares of [EMS] and that assets and liabilities of [EMS] were split evenly between Toone and Masterson, individually, as equal owners of [EMS], a California corporation. (Capitalization omitted.) The statement of decision provided, among other things, that Toone intentionally chose not to pay the payroll tax liabilities of EMS knowing this subjected himself and Masterson to a 100 percent tax liability and that he kept this information secret from Masterson. The decision went on to state that Toone systematically defrauded the taxing authorities[,] [] [c]hronically violated his fiduciary duties to EMS[,] [] [c]hronically violated his fiduciary duties to Masterson[,] [] [s]ystematically concealed EMS tax notices from Masterson[,] [] [s]ecretly re-routed EMS money, through the First United bank account, . . . so that his personal checks would clear[, and] [] [r]egularly removed the face sheets of the monthly statements from the First United bank account. The statement of decision states Toones willful conduct caused specific actual harm to EMS in the sum of $720,955. Judgment was entered for EMS against Toone in that amount, plus costs. Toone did not file any objection or response to the courts statement of decision.

DISCUSSION

I.

Standard of Review

A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness. [Citations.] (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 (Arceneaux).) Specifically, [u]nder the doctrine of implied findings, the reviewing court must infer, following a bench trial, that the trial court impliedly made every factual finding necessary to support its decision. (Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 48 (Fladeboe).)

To avoid such implied findings, a party must follow the two-step process provided by sections 632 and 634. (Arceneaux, supra, 51 Cal.3d at pp. 1133-1134.) [F]irst, a party must request a statement of decision as to specific issues to obtain an explanation of the trial courts tentative decision ( 632); second, if the court issues such a statement, a party claiming deficiencies therein must bring such defects to the trial courts attention to avoid implied findings on appeal favorable to the judgment ( 634). (Id. at p. 1134.) The second step is critical. If a party fails to bring omissions or ambiguities in the statement of decision to the trial courts attention, that party waives the right to claim on appeal that the statement was deficient in these regards, and the reviewing court will infer the trial court made implied factual findings to support the judgment, even on issues not addressed in the statement of decision. (Ibid.; see Fladeboe, supra, 150 Cal.App.4th at pp. 48, 59-60.)

We review both express and implied findings of fact in a statement of decision for substantial evidence. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.) In applying the substantial evidence standard, we view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor . . . . (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660; Escamilla v. Department of Corrections & Rehabilitation (2006) 141 Cal.App.4th 498, 514-515.)

We independently review questions of law. (SFPP v. Burlington Northern & Santa Fe Ry. Co., supra, 121 Cal.App.4th at p. 461.) [A] party does not waive objections to legal errors appearing on the face of the statement of decision by failing to respond to it. (Fladeboe, supra, 150 Cal.App.4th at p. 59, citing United Services Auto. Assn. v. Dalrymple (1991) 232 Cal.App.3d 182, 186.)

II.

General Principles Regarding Common Counts

In the common law action of general assumpsit, it was customary to plead an indebtedness by using the common counts. These were statements to the effect that the defendant was indebted to the plaintiff in a particular sum, for some such generalized, formal reason as money had and received, goods sold and delivered, work and labor done, materials furnished, and the like. (4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, 514, pp. 603-604.) Although, [t]he averment of an indebtedness not by stating the actual ultimate facts in each particular case, but by using one of a series of generalized forms consisting in part of legal conclusions, is directly opposed to a basic principle of code pleading[,] . . . in nearly all code states and in the federal practice the common counts are permissible and widely used. (Id. at p. 604.) A common count is a simplified form of pleading used to allege the existence of various forms of monetary indebtedness. (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.) We describe several types of common counts.

One of the common counts is an action on an open book account for money due. A book account is a detailed statement of debit/credit transactions arising out of a contract or some fiduciary relationship that is kept by a creditor in the regular course of business, and in a reasonably permanent manner. ( 337a; Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579, fn. 5.)

A common count for money lent may be properly alleged by pleading the defendant became indebted to the plaintiff in a particular amount for money loaned by plaintiff to the defendant at defendants request. (See Moya v. Northrup (1970) 10 Cal.App.3d 276, 278.)

Another common count is an action for money paid. An action for money paid may be maintained by a person who is legally compelled to pay money which another is under legal obligation to pay, or who, to relieve himself from liability or to save himself from damage, pays money, not officiously, which another person ought to have paid. (Langford v. Eckert (1970) 9 Cal.App.3d 439, 443.)

Another common count is an action for money had and received. [A]an action for money had and received lies in cases where one person has in his possession money which in equity and good conscience he ought to pay over to another. (Rains v. Arnett (1961) 189 Cal.App.2d 337, 344.)

A common count for money due may be based on an express contract, an implied contract, or a quasi-contract (contract implied in law). (Utility Audit Co., Inc. v. City of Los Angeles(2003) 112 Cal.App.4th 950, 958.) The so-called contract implied in law in reality is not a contract. [Citations.] Quasi-contracts, unlike true contracts, are not based on the apparent intention of the parties to undertake the performances in question, nor are they promises. They are obligations created by law for reasons of justice. (Rest., Contracts, 5, com. a.) Quasi-contractual recovery is based upon benefit accepted or derived for which the law implies an obligation to pay. Where no benefit is accepted or derived there is nothing from which such contract can be implied. [Citation.] (Weitzenkorn v. Lesser (1953) 40 Cal.2d 778, 794.) [T]here must be something moving to the defendant, to support the implied promise to pay therefor. (Allen v. Powell (1967) 248 Cal.App.2d 502, 510.)

Quasi-contractual recovery under a common count may be based on an underlying tort. (Philpott v. Superior Court (1934) 1 Cal.2d 512, 518-525; McCall v. Superior Court of Imperial County (1934) 1 Cal.2d 527, 530-531.) For example, a common count may be used to recover for a conversion perpetrated by fraud. (Acme Paper Co. v. Goffstein (1954) 125 Cal.App.2d 175, 179, 181.) A common count for money had and received may be pled by a principal to assert a right to recover secret profits made by his or her agent, a form of breach of fiduciary duty. (Crogan v. Metz (1956) 47 Cal.2d 398, 404-405.) A misappropriation of funds or embezzlement may support an action for money had and received. (Hill v. Superior Court of Alameda County (1940) 16 Cal.2d 527, 530.) The quasi-contractual theory may be used to obtain restitution where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion or similar conduct. (McBride v. Boughton, supra, 123 Cal.App.4th at p. 388; see City Bank of San Diego v. Ramage (1968) 266 Cal.App.2d 570, 585.)

Of course, by pleading the action as a common count, the plaintiff waives the tort in favor of the quasi-contractual remedy. (Philpott v. Superior Court, supra, 1 Cal.2d at p. 518, 525; 4 Witkin, Cal. Procedure, supra, Pleading, 517, p. 607.) [A]ny tort damages are out. Likewise excluded are damages for a breach of an express contract. [Citation.] The relief is something in the nature of a constructive trust. (Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 14; see Souza & McCue Constr. Co. v. Superior Court of San Benito County (1962) 57 Cal.2d 508, 511-512 [tort measure of damages inapplicable to common count].) Pleading a common count invokes the remedy of restitution for unjust enrichment. (McBride v. Boughton, supra, 123 Cal.App.4th at p. 388, fn. 6.)

III.

Application Of These Principles To The Judgment Entered Against Toone

Toone contends the judgment here is unsupported both legally and factually. Toone points out the statement of decision completely fails to mention common counts, the only causes of action alleged in the complaint. Toone, however, failed to make any request that the statement of decision explain its conclusions regarding the common counts pled by EMS. Nor did he object to the statement of decision issued by the trial court. Thus he has forfeited^[4]any complaint the statement of decision is defective on that basis. (Arceneaux, supra, 51 Cal.3d at p. 1134; Fladeboe, supra, 150 Cal.App.4th at pp. 48, 59-60.) We will infer from the trial courts finding of liability and award of damages a finding that EMS proved its action for common counts. We will review such finding for its legal validity and substantial evidence. Toone has not forfeited his right to such review by failing to object to the statement of decision. (Fladeboe, supra, at p. 59; SFPP v. Burlington Northern & Santa Fe Ry. Co., supra, 121 Cal.App.4th at pp. 461-462.)

The tentative decision of the trial court expressly found the damages suffered by EMS to be the amounts shown on exhibit 2, plus the penalties and interest suffered by EMS in the amount of $118,000, for a total of $720,955. The statement of decision ultimately issued by the trial court does not include such a finding, but it awards the identical amount of damages. We infer, since no party brought this to the attention of the trial court, that the amount of damages was calculated from the amounts shown on exhibit 2, plus the payroll tax penalty. (Arceneaux, supra, 51 Cal.3d at p. 1134; Fladeboe, Inc., supra, 150 Cal.App.4th at pp. 48, 59-60.) We turn to a consideration of each item of damages to see whether it is legally appropriate and supported by sufficient evidence.

Item 1: EMSs Unpaid Payroll Tax Liability

The first item of damages listed on exhibit 2 is Jamess calculation of the amount of EMSs unpaid payroll tax liability through June 30, 2001, not including any penalty or interest. James attributed 50 percent of this amount, $227,512, to Toone.

Toone claims on appeal a corporation has no cause of action against one of its officers or shareholders for the amount of tax the corporation fails to pay. Moreover, the complaint here alleged only common counts, which, according to Toone, certainly did not state a legal basis for recovery against him. Toone also contends there is no factual basis for imposing liability on him for the payroll taxes because there is nothing in the record to suggest EMS was injured by Toones failure to pay its taxes.

In response, EMS argues the statement of decision adequately states the legal basis for this award. It claims that the statement of decision finds, among other things, that Toone and Masterson were equal owners of the shares of EMS, that the assets and liabilities of EMS were split evenly between them based on their ownership, and Toone chose not to pay the payroll tax liabilities of EMS. Further, the statement of decision provides that Toone knew he was subjecting himself and Masterson to tax penalties, that Toone defrauded the taxing authorities and that he violated his fiduciary duties to EMS and Masterson. EMS claims it can be inferred Toone was in possession of EMSs money because instead of paying the payroll taxes, Toone made cash advances to himself to make payments on the Holley notes. EMS argues the factual support for these claims is largely found in the uncontested testimony of James and exhibit 2.

To be entitled to this first item of damages against Toone, EMS needed to prove that Toone was personally liable for its corporate tax debt and that it could recover such debt through a common count. This it did not do.

EMS argues Toone is liable for half of its unpaid payroll taxes because Toone improperly made cash advances to himself instead of paying the taxes. In support of its argument EMS points to Toones various fraudulent acts and breach of fiduciary duties. EMSs argument, however, confuses the issue of whether the advances to Toone were inappropriate with the issue of Toones personal liability for the taxes. Here we are concerned with Toones personal liability for the corporations unpaid payroll taxes.

EMS points to the finding in the statement of decision that the assets and liabilities of EMS were split evenly between Toone and Masterson. Such finding ignores the corporate form of EMS and is completely at odds with another finding in the statement of decision that both Masterson and Toone expressly recognized the corporations [EMSs] existence at all times; and, at no time was the corporate veil of [EMS] pierced as to either Masterson or Toone. (Capitalization omitted.)

That is, evidence supports the trial courts finding that Toone and Masterson were equal owners of EMS. It was uncontradicted they each originally held 50 percent of the shares. Masterson then testified the later 80/20 split was a scheme by Toone to manipulate the workers compensation premiums. James testified that there was no evidence of consideration for the 80/20 split; everything was shared 50/50 between Toone and Masterson. A reasonable inference from this evidence is that Toone and Masterson remained equal owners of EMS despite the later paper division of the shares. But there is simply no factual support in the record for a finding that as equal shareholders (owners) of EMS, Toone and Masterson personally owned the assets of EMS or were personally liable for its corporate debts. After all, limited personal liability is one of the main reasons for operating a business through the corporate form. (See Ballantine & Sterling, Cal. Corporation Laws (4th ed. 2007) Form of Doing Business, 24.07[5], p. 2-66.) [A] corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. [Citations.] (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.)

Nor does EMSs payroll tax liability fall within any of the common counts alleged by EMS against Toone. There is no book account stating Toones liability for this corporate debt. The liability is for unpaid corporate payroll taxes, so there could be no possible action for money paid by EMS on behalf of Toone. There is no evidence Toone was lent or received this money separate from the shareholder advances, which we will consider next.

On this record, the trial court was legally and factually incorrect in attributing the tax liability of EMS to Toone. The judgment must be reduced by $227,512.

Item 2: Toones Taking of Personal Cash Advances From EMS

The second item on exhibit 2 is Jamess calculation of direct personal cash advances Toone took from EMS through December 31, 1999. She attributed the full amount of these advances, $43,686, to Toone.

Toone contends the claim was not proved at trial.^[5] Specifically, he claims the record contains no support for the conclusion that Toone owed EMS repayment of any funds distributed to him. We disagree.

The settled statement reflects Toone used corporate funds of EMS to pay his personal expenses. Item 2 appears to be Jamess calculation of such amount. The record does not reflect Toone ever disputed the amount, his receipt of the money, or his use of the money for personal expenses. The evidence in the settled statement and reasonable inferences therefrom support the conclusion Toone was choosing to use corporate funds for his personal expenses (Toone characterizes it as making a shareholder distribution) when the corporation owed, but did not have enough money to pay its payroll taxes. Restitution of these personal advances is appropriate under a quasi-contractual theory of money had and received based on Toones breach of fiduciary duty in failing to first pay the corporate payroll taxes instead of his personal expenses.

Items 3-5: EMSs Three Monetary Advances to Shareholders

The third through fifth items on exhibit 2 are Jamess calculation of certain advances EMS made to the shareholders. The sums of $35,000 (item 3) and $9,302 (item 4) were listed with the following heading: Advance to Shareholder - $35,000 First United Bank loan plus accrued interest (loan proceeds were used to pay for purchase of stock from Ed Holley, but all repayments were made through corporation; Shareholders must be charged personally) - as of 12/31/99[.] The sum of $285,845 (item 5) was listed with the following heading: Stock Purchase payments paid from EMS to Ed Holley - through 12/31/00 (stock purchase payments were due from shareholders personally; corporation must be repaid or shareholders must be charged as compensation)[.] James attributed half of these amounts, $17,500, $4,651, and $142,923, to Toone.

Again, Toone claims his liability for these amounts was not proved at trial. Toone argues that [a]ssuming that these funds were actually paid by [EMS] to Mr. Toone or for his benefit (items 3 through 5 were supposedly paid to lenders for the loans Mr. Masterson and Mr. Toone used to buy the corporation . . . ), it does not follow that Mr. Toone is obligated to pay them back. Toone contends the record shows without contradiction that he and Masterson intended the advances reflected in item 5 to be loans that EMS would later forgive. We reject Toones claims.

The record shows EMS made payments to lenders for notes Toone and Masterson gave as part of their purchase of EMS from Holley. Toone clearly received the financial benefit of such payments through the reduction of his personal liability on those notes. And contrary to Toones claim, the record does contain substantial evidence requiring the repayment of such advances from EMS.^[6]

As to items 3 and 4, we again conclude the evidence is sufficient to show Toone was choosing to use corporate funds (money EMS borrowed from First United Bank) for payment of his obligation to Holley at a time when EMS owed, but did not have enough money to pay its payroll taxes. Restitution of such amount is appropriate under a quasi-contractual theory of money had and received based on Toones breach of fiduciary duty in failing to use the corporate funds from the bank loan to pay the corporate payroll taxes first.

Item 5, the shareholder advances for payments to Holley, was also inappropriate for an additional reason. Toone testified it was the profits of EMS that were supposed to be used to make the payment on the Holley note. According to him, such profits would be recorded as loans, which would later be forgiven. Setting aside questions that might exist as to the appropriateness of this method of accounting for shareholder advances, there were no profits to be used in this manner. Toone testified he did not have EMS pay its payroll taxes because the company lacked sufficient money. James testified taxes could have been paid from the corporate cash flow if Toone had not caused the corporation to make payments on the Holley note. In this situation, the money used to pay the Holley note could not have been profits.

Toone contends that even if the claims were supported, he should have been charged for only 20 percent of these liabilities. On the contrary, the evidence shows Toone and Masterson agreed in the two promissory notes given to Holley to be jointly and severally liable to Holley for the bulk of the purchase price of EMS. Toone expressly testified they never adjusted their 50/50 obligation on the Holley note, apparently referencing the larger note reflected in item 5. There is no evidence that Toone and Masterson adjusted their obligation on the smaller note that was paid with the loan proceeds from First United Bank.

Item 6: Jerrys Delivery Service Debt To EMS

The sixth item on exhibit 2 are Jamess calculation of the net amount Jerrys Delivery Service owes to EMS for cash advances between the two corporations. James attributed the full amount, $47,733, to Toone.

Jerrys Delivery Service was owned at all times relevant here by either All-Cal Enterprises, Inc. or Jaguar Express, Inc. While both All-Cal Enterprises, Inc. and Jaguar Express, Inc. were named defendants in this action, the judgment was entered only against Toone individually. Item 6 is unambiguously a debt owed by one of the two defendant corporations to EMS. There is nothing in the record to support the imposition of Jerrys Delivery Service debt against Toone personally. The judgment against Toone must be reduced by exhibit.

Item 7: EMSs Unpaid Income Tax Liability

The seventh item on exhibit 2 is Jamess calculation of the unpaid income tax liability of EMS through June 30, 2001. According to James, one of the factors causing the underpayment of taxes by EMS was the over-depreciation of assets on the returns prepared by Toone. James attributed half of the unpaid income tax liability estimated amount or $58,950 to Toone.

For the same reasons given in our discussion of unpaid payroll taxes (item 1), we conclude the trial court was legally and factually incorrect in attributing the income tax liability of EMS to Toone. We also note the record does not reflect any actual determination by the taxing authorities that EMS owed the additional income tax James estimated. The judgment must be reduced by $58,950.

Item 8: Reconstruction Costs of EMSs Financial Records

The eighth item on exhibit 2 is Jamess estimate of the expense EMS incurred to reconstruct the books and records of EMS to calculate its tax liability. James attributed the full amount, $60,000, to Toone.

We need not consider what Toones responsibility might be in tort for EMSs cost of redoing the accounting and tax preparation that Toone was supposed to be doing for EMS.^[7] EMS sued only on common counts, thereby waiving any tort measure of damages. (Philpott v. Superior Court, supra, 1 Cal.2d at p. 518, 525; 4 Witkin, Cal. Procedure, supra, Pleading,  517, p. 607.) On a common count, even based on an underlying tort, EMS may recover only restitution. (Zumbrun v. University of Southern California, supra, 25 Cal.App.3d at p. 14; McBride v. Boughton, supra, 123 Cal.App.4th at p. 388, fn. 6.) [T]here must be something moving to the defendant, to support the implied promise to pay therefor. (Allen v. Powell, supra, 248 Cal.App.2d at p. 510.)

Here the record does not contain evidence that Toone received money, property, or financial benefit for his accounting. In the absence of any remuneration, there is nothing that couldbe considered unjust enrichment to Toone. The fact the corporation later had to pay James to redo the accounting does not require Toone to pay for the service of James. Although EMS claims Toone was paid a salary by EMS, no evidence was introduced that Toone was paid a salary, and if so, how much and for what services. Statements contained in argument or briefs presented to the trial court are not evidence. (Brown v. Boren (1999) 74 Cal.App.4th 1303, 1319; Ehrler v. Ehrler, supra, 126 Cal.App.3d at pp. 153-154.)

Nor can this damage award be justified as a recovery under the common count for money paid. An action for money paid may be maintained by a person who is legally compelled to pay money which another is under legal obligation to pay, or who, to relieve himself from liability or to save himself from damage, pays money, not officiously, which another person ought to have paid. (Langford v. Eckert, supra, 9 Cal.App.3d at p. 443.) In essence, an action for money paid is a claim for reimbursement when a person is required by law to pay the debt of another. Toone did not owe a debt to James. EMS hired James to perform accounting services. EMS paid her for her services to EMS. It did not pay James for a legal obligation owed by Toone or to prevent damage from being found liable for a legal obligation owed primarily by Toone. Arguably EMS was required to employ James because of Toones misfeasance as EMSs accountant. That, however, is a tort theory of recovery, not a common count.

On this record, the trial courts imposition of liability on Toone for the cost of Jamess services was unsupported both legally and factually. The judgment must be reduced by $60,000.

The IRS Payroll Tax Penalty

The final component of the judgment awarded against Toone was for the $118,000 penalty the IRS assessed for the failure to make payroll tax payments. The problem here is not that the judgment is against the wrong defendant, as in item 6 (Jerrys Delivery Service Debt to EMS), but that the judgment is in favor of a nonplaintiff. For some inexplicable reason Masterson was not a named plaintiff in the complaint filed in this action. The only evidence regarding the penalty assessed by the IRS for Toones admitted failure to pay the payroll taxes of EMS was that it was imposed against Toone and Masterson, jointly and severally. There is no evidence before us that the penalty was assessed against EMS, the only named plaintiff in this case. Therefore, the trial court was legally and factually incorrect in including this penalty in the judgment in favor of EMS. The judgment must be reduced by $118,000.

Summary

We conclude the portion of the judgment that awards damages for unpaid payroll tax liability ($227,512), income tax liability ($58,950), the assessed payroll tax penalty ($118,000), accounting fees ($60,000), and money due from Jerrys Delivery Service ($47,733) must be reversed. We will affirm the remaining amount of the judgment in the sum of $208,760.

DISPOSITION

The portion of the judgment awarding Earls Mail Service, Inc. damages against Lawrence O. Toone for unpaid payroll tax liability ($227,512), income tax liability ($58,950), payroll tax penalty ($118,000), accounting fees ($60,000), and money due from Jerrys Delivery Service ($47,733) is reversed. The remainder of the judgment, in the amount of $208,760, is affirmed. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

CANTIL-SAKAUYE , J.

We concur:

SCOTLAND, P.J.

DAVIS , J.

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^[1]The record on appeal does not contain a reporters transcript of the trial. Instead, we take our summary of the facts from the settled statement prepared for appeal (Cal. Rules of Court, rule 8.137) and the exhibits referenced in such settled statement. We will not summarize matters relating to Toones cross-complaint because Toone does not raise any issue on appeal regarding the trial courts denial of his claims in such cross-complaint.

^[2]Both the tentative decision and final judgment grant judgment for cross-defendant on the second amended cross-complaint. There were four cross-defendants named in the second amended cross-complaint. No issue has been raised about the discrepancy on appeal.

^[3]Hereafter, undesignated statutory references are to the Code of Civil Procedure.

^[4]The correct legal term for the loss of a right based on failure to assert it in a timely fashion is forfeiture, not waiver. (In re S.B. (2004) 32 Cal.4th 1287, 1293, fn. 2.)

^[5]Toone joins item 2 with items 3, 4, and 5 of exhibit 2. We discuss items 3-5 post.

^[6]EMS states in its respondents brief that Toone admitted the shareholder advances he received must be repaid. The only record reference EMS provides in support is a citation to its own trial brief. Such brief is not evidence. (Ehrler v. Ehrler (1981) 126 Cal.App.3d 147, 154.) We find substantial evidence supports repayment, but not based on any admission by Toone that the advances must be repaid.

^[7]Toone contends nothing in the record indicates he was employed by EMS to act as its accountant. To the contrary, Toone testified he created a general ledger for EMS. The testimony of James indicates she reviewed EMSs tax returns and financial statements, which had been prepared and maintained by Toone. EMSs tax return for 1997 contains Toones signature in the paid preparer box and lists Toone as CPA. The clear inference is that Toone acted as EMSs accountant and tax preparer.