Gelbard v.
AB Investments
Filed 9/6/12
Gelbard v. AB Investments CA2/3
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS
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opinion has not been certified for publication or ordered published for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
SECOND
APPELLATE DISTRICT
DIVISION
THREE
ALLEN W. GELBARD,
Plaintiff
and Appellant,
v.
AB INVESTMENTS, LLC, et al.,
Defendants
and Respondents.
B233155
(Los
Angeles County
Super. Ct.
No. LC088263)
APPEAL from a judgment of the Superior Court of
County, Bert Glennon, Judge. Affirmed in part and reversed in part.
Allen W. Gelbard, in pro.
per.; Fuchs & Associates, Inc., John R. Fuchs and Gail S. Gilfillan
for Plaintiff and Appellant.
Dion-Kindem & Crockett, William
E. Crockett and Steven R. Skirvin for Defendants and Respondents.
_______________________________________
Allen Gelbard (Gelbard) and Lisa Du
Boise (Du Boise)
title="">[1]
sued (1) Gelbard’s former business partners, Rodney Unger (Unger), individually
and through his company, Manatee Design Group, Inc.
(Manatee), and Robert Beaton (Beaton); (2) the company that they owned, AB
Investments, LLC (ABI); and (3) several other parties representing the business
partners in some way, including Michael Littman, an attorney who previously
represented ABI and Beaton.
name="_ftnref3" title="">[3] The complaint was based on ten causes of
action born of the business dealings between the parties. Defendants Unger,
demurred to Gelbard’s First Amended Complaint (FAC), the operative complaint in
this appeal. The trial court sustained
the demurrer without leave to amend with respect to all causes of action other
than the eighth cause of action for conversion.
Littman and Manatee with respect to the first through seventh and ninth through
tenth causes of action. Gelbard
appealed.
AND PROCEDURAL BACKGROUND
name="_ftnref7" title="">[7]
In
June of 1998, Gelbard and Beaton formed ABI as a holding company for their
investment portfolio of public and private equities. The two agreed to fund ABI through
contributions of their separate assets earning each a 50-percent interest in
ABI and in all present and future assets and proceeds. Gelbard was responsible for bringing in
business for ABI while Beaton was responsible for the “books, records, banking,
brokerage, accounting and tax responsibilities.” Beaton also managed the daily office
responsibilities of ABI. An operating
agreement was put in place and signed by both Gelbard and Beaton effective August 1, 1998.
In
January of 1999, ABI received proceeds of $15 million from the sale of certain
stock holdings, of which Beaton and Gelbard were each entitled to
50 percent. Gelbard used a portion
of his profits to purchase a seven-acre horse ranch property in Agoura,
California (the Ranch) for $1,860,000 in
April of 1999. Gelbard allegedly took
title to the Ranch in the name of ABI on advice of counsel as part of a
personal asset protection plan due to the “high risks of litigation in the
securities industry,” but claims he held and still holds equitable title to the
Ranch. He deducted the costs of
purchase, the property taxes and other deductible expenses on his personal tax
returns for the tax years 1999 and 2000.
In
2000 and 2001, Beaton and ABI’s accountant and attorney at the time, Engel,
represented to Gelbard that Gelbard owed money to ABI because he had taken more
than his 50-percent share of the $15 million in proceeds. As a result, Gelbard contributed stock from
his separate holdings valued at $4.5 million.
However, Gelbard later learned that the $4.5 million contribution was
never credited to his capital account.
Beaton also insisted that Gelbard take out a $1.3 million loan
secured by the Ranch, which he did, the proceeds of which were used to exercise
ABI stock warrants.
In
2003, Unger became involved with ABI. In
May of that year, Beaton entered into a separate partnership with Unger to form
Tymar Entertainment, LLC, which was used to pursue two movie projects. Beaton, allegedly assisted by Littman and
others, then turned over some of the duties he previously agreed to handle (the
management of the books and records for ABI) to Unger so that Unger could “restate
ABI’s books and records and re-file ABI’s tax returns.” Beaton represented to Gelbard that ABI did
not have the cash to pay the $1.3 million loan secured by the Ranch. In March of 2004, Beaton induced Gelbard to
agree to allow Unger to become a member of ABI by representing that Unger would
invest approximately $1 million.
However, the investment was actually a loan by Unger to ABI secured
by the Ranch. A lien for
$1.1 million was recorded against the Ranch in the name of Manatee,
Unger’s wholly‑owned business.
Later that year, the Ranch’s title was transferred from ABI to Unger
allegedly as a gift for no consideration, at which time the Ranch was valued at
$7.5 million, so that Unger could take out a $2.5 million loan against the
property for the benefit of ABI at a lower interest rate. At approximately the same time, Unger was
then removed as a member of ABI and his company, Manatee, was substituted in
his place without Gelbard’s knowledge or consent. Unger took out another loan for
$3.7 million secured by the Ranch while contending and reporting to the
IRS that he did not own the Ranch but that it was owned by ABI.
Beaton
and Unger removed Gelbard as a signatory to ABI’s accounts in early 2005. Gelbard was then told to have his companion,
Du Boise, open a separate bank account so that he could continue to
receive distributions from ABI through her account. Beaton and Unger again represented to Gelbard
that he had received more money than he was entitled to from ABI and that his
capital account was negative $2.6 million as a result. Beaton and Unger then represented to Gelbard
that they, as solvent members of ABI, needed him to file for bankruptcy so that
they could “write off” his debt. On
October 14, 2005, Gelbard filed a chapter seven bankruptcy petition and
scheduled the $2.6 million as a debt.
The bankruptcy court discharged Gelbard’s debts on November 19,
2007. Unger purchased Gelbard’s
one-third interest in ABI from his bankruptcy estate in 2009. Gelbard later requested that the
petition. His request was granted on
January 8, 2010.
In
his complaint, Gelbard alleged that, “[b]ased on portions of deposition
transcripts that Gelbard believes he may have first obtained in late 2006, and
more particularly, based on partial accounting documents and records of ABI
that were finally turned over to Gelbard during his bankruptcy in November [of]
2009,” Gelbard discovered, “in late 2009,” that Beaton had breached ABI’s
operating agreement by “making undisclosed and illegal transfers of some of the
restricted S8 securities beneficially owned by ABI, and then by continuing to
sell and transfer ABI assets, that were then worth tens of millions of dollars,
to various persons and entities who were friends, relatives and/or associates
of Beaton. . . . ”
Gelbard claims he was able to piece together information from the
documents above and various lawsuits and SEC investigations brought against
Beaton to reveal that Beaton and his alleged co‑conspirators “were able
to generate over $150 million in fraudulent profits for themselves, from stock,
cash and other assets that were actually or constructively owned by
ABI. . . . [Also,] Beaton and his co-conspirators
were successfully able to conceal their illegal stock trading, manipulation and
transfer of ABI’s assets[] from Gelbard and from state and federal taxing
authorities[] so that these illegal profits could be intentionally concealed
from, and never shared with, Gelbard, and so that very few, if any taxes would
have to be paid by Beaton and his co-conspirators.”
Gelbard
further alleged that some of Beaton’s colleagues were indicted for conspiring
to conceal their profits and with under-reporting income directly arising out
of shares and money “belonging to ABI that was illegally sold, gifted or
otherwise transferred to them . . . by
Beaton . . . without Gelbard’s knowledge or
consent. . . . ” In
addition, Gelbard alleged that Beaton, after the “formation of ABI in August of
1998[] through at least 2003, . . . diverted, embezzled
and/or stole from ABI’s investment portfolio over $150 million worth of
stock, cash and other assets, while engaging in multiple violations of state
and federal securities and tax laws, including S8 registration
restrictions, insider trading preclusions, illegal buying and selling of
securities and significant tax fraud, all without Gelbard’s knowledge or
consent. . . . ”
(Emphasis removed.)
Gelbard’s
complaint described an unlawful detainer action against Gelbard and Du Boise by
Unger that had resulted in their eviction from the Ranch in October of
2008. Unger and his attorneys at the
time, Hummer and Peterson, were alleged to have “converted, stole and disposed
of, among other things, boxes and boxes of legal and business documents
belonging to Gelbard and Du Boise, that [they] were attempting to use to
discover the nature and extent of the fraudulent conduct complained of [in the
FAC]” depriving Gelbard of the ability to discover the extent of the conduct
earlier than he did in November of 2009.
It was also alleged that Unger had filed a lawsuit against Du Boise
alleging that she had breached her fiduciary duties to Unger and had converted
$1.3 million of Unger’s funds. In
addition, it was alleged that Unger had later destroyed nearly the entire
interior of the Ranch without obtaining any permits and making the Ranch unfit
for occupancy.
The
complaint alleged that, in addition to the unlawful detainer action, Unger had
filed a few other actions against Gelbard.
In either 2008 or 2009, Unger filed an “Adversary Proceeding” against
Gelbard seeking to revoke his bankruptcy discharge by falsely asserting that
Gelbard had committed fraud. Also in
2009, Unger sued Gelbard on behalf of ABI asserting that ABI was the true owner
of Gelbard’s shares of stock in two separate companies. On the day that Gelbard’s bankruptcy was
dismissed, Unger filed yet another action against him in Colorado allegedly for
the express purpose of increasing the cost of litigation for Gelbard.
Based
on these alleged facts, Gelbard and Du Boise filed their original complaint on
January 15, 2010. Unger, Beaton,
ABI, Littman and Manatee demurred on February 24, 2010. The trial court sustained the demurrer with
leave to amend and Gelbard and Du Boise filed the FAC on June 1,
2010.
The
FAC included the following causes of action:
(1) fraud by intentional misrepresentation; (2) fraud by intentional
concealment of material facts; (3) breach of fiduciary duty; (4)
conspiracy to defraud; (5) conversion relating to ABI’s assets;
(6) fraudulent transfer of real property (Civil Code section 3439 et
seq.); (7) fraudulent transfer of real property (common law);
(8) conversion relating to possessions at the Ranch;
operating agreement); and (10) quiet title to the Ranch. Unger, Beaton, ABI, Littman and Manatee again
demurred on July 6, 2010.
As
part of their demurrer, Unger, Beaton, ABI, Littman and Manatee requested that
the trial court take judicial notice of the schedules Gelbard had attached to
his 2005 bankruptcy petition, among other things. Gelbard opposed the request on the ground
that it was improper to take notice of the truth of factual statements made in
the schedules. Taking into consideration
the parties’ oppositions and replies, the trial court again sustained the
demurrer with respect to causes of action one through seven and nine through
ten, this time without leave to amend, but overruled the demurrer with respect
to the eighth cause of action. (See
fn. 6, ante.)
Although
the trial court did not expressly rule on the respondent’s request for judicial
notice, it is clear from the transcript of the hearing that such notice was
taken because the trial court based its ruling in part on factual statements
asserted in Gelbard’s bankruptcy schedules.
It stated that “Gelbard denied any legal or equitable interest in the
Ranch during [his] bankruptcy.” Because
the court found that his denial of any interest in the Ranch for bankruptcy
purposes, which had been made under penalty of perjury, conflicted with his
assertion of equitable ownership in the Ranch in the FAC, it sustained the
demurrer with respect to all claims based on such ownership.
The
court also stated that the fraud-based claims were barred by the three‑year
statute of limitations period found in Code of Civil Procedure section 338
because Gelbard pled “that he knew of the fraud in 2006” in the FAC. It sustained the demurrer with respect to all
causes of action which were based on fraud.
With
respect to the ninth cause of action for breach of the operating agreement, the
trial court found that it was barred by the four-year statute of limitations
period in Code of Civil Procedure section 337 because the last alleged breach
occurred in 2005. It then sustained the
demurrer as to that claim. After entry
of judgment of dismissal,
name="_ftnref10" title="">[10]
Gelbard filed a timely appeal.
ON APPEAL
Gelbard
contends that it was improper for the trial court to take judicial notice of
the factual statements asserted in his bankruptcy schedules filed in 2005. He also contends that the statute of
limitations periods for the fraud and breach of contract actions were tolled
because he was not able to discover the issues constituting either fraud or
breach until late 2009. Finally, he
contends that the trial court abused its discretion in failing to grant him
leave to amend his complaint.
1.
“In
reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules. ‘We treat
the demurrer as admitting all material facts properly pleaded, but not
contentions, deductions or conclusions of fact or law. [Citation.]
We also consider matters which may be judicially noticed.’ [Citation.]
Further, we give the complaint a reasonable interpretation, reading it
as a whole and its parts in their context.
[Citation.] When a demurrer is
sustained, we determine whether the complaint states facts sufficient to
constitute a cause of action.
[Citation.] And when it is
sustained without leave to amend, we decide whether there is a reasonable
possibility that the defect can be cured by amendment: if it can be, the trial court has abused its
discretion and we reverse; if not, there has been no abuse of discretion and we
affirm. [Citations.] The burden of proving such reasonable
possibility is squarely on the plaintiff.”
(Blank v. Kirwan (1985) 39
Cal.3d 311, 318.)
“To
meet [the] burden of showing abuse of discretion, the plaintiff must show how
the complaint can be amended to state a cause of action. [Citation.]
However, such a showing need not be made in the trial court so long as
it is made to the reviewing court.” (
Planning Com. (1991) 226 Cal.App.3d 1612, 1621.)
2. Causes
of Action Relating to the Ranch: (6) Fraudulent Transfer
(Civil Code
Section 3439 et seq.), (7) Fraudulent Transfer (common law),
and (10) Quiet
Title
Although
Gelbard’s real estate claims are not the first asserted in the FAC, we start
our discussion here because the analysis of the judicial estoppel question
important to these causes of action plays a small role in our later
discussions.
Gelbard
contends that it was improper for the trial court to take judicial notice of
the factual statements asserted in his bankruptcy schedules filed in 2005
regarding his interest in the Ranch. He
states that trial courts cannot take judicial notice of facts pursuant to
Evidence Code section 452, subdivision (d).
Gelbard is wrong. Clearly, the
court may take judicial notice of pleadings filed in other courts as well as
the fact that Gelbard had asserted certain claims therein. It is not the taking of judicial notice that
controls here, however, but rather, it is the doctrine of judicial estoppel.
Evidence
Code section 452, subdivision (d), allows a trial court to take judicial notice
of the “Records of (1) any court of this state or (2) any court of record of
the United States or of any state of the United States.” It is important to distinguish between a
court’s properly taking judicial notice of the existence of such records,
including all that is stated therein, and the court’s improperly taking
judicial notice of the truth of any
facts asserted therein. “ ‘ [A]
court cannot take judicial notice of
because they are part of a court record or file. A court may take judicial notice of the
file, but can only take judicial notice of the truth of facts asserted in documents such as orders,
law, and judgments[,]’ ” with certain limitations. (Sosinsky
v. Grant (1992) 6 Cal.App.4th 1548, 1564.)
In
this case, the trial court properly took judicial notice of the bankruptcy
schedules in which Gelbard did not include any mention of legal or equitable
title to the Ranch. Those schedules did
not include any reference to the Ranch or any claimed interest therein by
Gelbard. Had he had any interest in that
property when he filed the schedules, he would have been required by law to
include the property in those schedules.
As he did not, the noticed schedules demonstrated a direct conflict with
statements Gelbard made in his complaint.
Whether his assertion in those schedules that he did not own the Ranch
is true is not relevant.
“The
doctrine of judicial estoppel precludes a party from taking inconsistent
positions in separate judicial proceedings.
[Citation.] It ‘ “ ‘is
invoked to prevent a party from changing its position over the course of
judicial proceedings when such positional changes have an adverse impact on the
judicial process. . . . “The policies underlying
preclusion of inconsistent positions are ‘general consideration[s] of the
orderly administration of justice and regard for the dignity of judicial
proceedings.’ ” . . . Judicial estoppel is “intended
to protect against a litigant playing ‘fast and loose with the
courts.’ ” ’ ”
[Citation.] “It seems patently
wrong to allow a person to abuse the judicial process by first [advocating]
one position, and later, if it becomes beneficial, to assert the
opposite.” [Citation.]’ ” (The
Swahn Group, Inc. v. Segal (2010) 183 Cal.App.4th 831, 841.)
For
the doctrine of judicial estoppel to apply, five requirements must be met: “ ‘(1) the same party has taken two
positions; (2) the positions were taken in judicial or quasi-judicial
administrative proceedings; (3) the party was successful in asserting the first
position (i.e., the tribunal adopted the position or accepted it as true); (4)
the two positions are totally inconsistent; and (5) the first position was not
taken as a result of ignorance, fraud, or mistake.’ [Citation.]” (The
Swahn Group, Inc. v. Segal, supra,
183 Cal.App.4th at p. 842.) “We may
decide the issue of judicial estoppel if [the] facts indicate the doctrine
should be applied on demurrer.” (
Clearly,
Gelbard has taken two directly opposing positions with respect to the Ranch,
both of which were under oath.
name="_ftnref12" title="">[12] He did not assert either a legal or an
equitable interest in the Ranch in his bankruptcy schedules. Now, however, he has alleged that he holds
equitable title to the Ranch and has held such title since the Ranch was
purchased in 1999. These positions are
wholly inconsistent. A bankruptcy proceeding
is a judicial proceeding. Thus, the
first, second and fourth requirements for judicial estoppel have been met.
Gelbard
argues that the third requirement was not met because he requested and received
a dismissal of his bankruptcy petition on January 8, 2010. As a result, he was not successful in
asserting the first position. The record
indicates, however, that Gelbard’s request for dismissal followed his prior
discharge on November 19, 2007. For
purposes of the third requirement for judicial estoppel to apply, the term
“ ‘ “acceptance” in the bankruptcy context is construed broadly to
“protect[] the integrity of the bankruptcy
process.” . . . Among other possibilities, the grant of
a discharge (even if later revoked) . . . may
constitute sufficient “acceptance” of the accuracy of
schedules . . . . ’ ” (Gottlieb
v. Kest (2006) 141 Cal.App.4th 110, 141.) Despite the fact that Gelbard’s bankruptcy
was ultimately dismissed at his own request, the prior discharge is a
sufficient basis for concluding that the bankruptcy court accepted his
schedules as true. As a result, the
third requirement has been satisfied.
With
respect to the fifth requirement, Gelbard states in the FAC that he never held
legal title to the Ranch and that it was held by ABI as part of a personal
asset protection plan but that he was the equitable owner of the Ranch. He claims that he failed to include the Ranch
in his original bankruptcy schedules filed in 2005 because he believed the
representations of Beaton, Unger and others that his capital account in ABI was
negative $2.6 million and therefore he assumed he no longer held equitable
title to the Ranch. As a result, he
concludes that the fifth requirement has not been satisfied. This argument is without merit.
Gelbard
failed to allege any facts showing that, at the time Gelbard filed for
bankruptcy in 2005, he had reason to believe he no longer held equitable title
to the Ranch. First, nothing had changed
with respect to his possession of the Ranch.
Gelbard continued to live at the Ranch until late 2008 when he and Du
Boise were evicted as a result of Unger’s unlawful detainer action. According to the FAC, Unger did not seek rent
from Gelbard at any time after title to the Ranch was transferred to him, nor
did ABI ever seek rent from Gelbard.
discover that the Ranch was transferred to Unger until sometime in May of 2008
when the unlawful detainer action was filed.
Second, although he alleged that he was fraudulently induced into believing
his capital account with ABI was negative $2.6 million, he included no
allegations in the FAC as to why such negative balance automatically
extinguished his equitable title to the Ranch.
Gelbard
also asserted that as soon as he learned of the various alleged fraudulent
activities, he amended his bankruptcy schedules showing his initial claim was
made in good faith based on the representations of Beaton, Unger and
others. Gelbard’s amendments
years after his debt was discharged and one year after he was evicted from the
Ranch. He failed to explain how such
amendments speak to his belief at the time he originally filed his petition,
however.
Based
on the foregoing, it appears that despite believing he held equitable title to
the Ranch at the time of his initial bankruptcy filing, he chose to avoid
including it as an asset in his schedules thereby making it unavailable to his
creditors. As a result, he cannot argue
that his taking the position in his bankruptcy proceeding that he does not own
any interest in the Ranch was the result of ignorance, fraud, or mistake. “ ‘ “The courts will not permit
a debtor to obtain relief from the
bankruptcy court by representing that no claims exist and then subsequently
to assert those claims for his own benefit in a separate
proceeding. . . . ” ’ [Citation.]” (Gottlieb
v. Kest, supra,
141 Cal.App.4th at p. 140.)
Thus,
we conclude that the trial court did not err in sustaining the demurrer with
respect to Gelbard’s claims relating to the Ranch. Additionally, there is no reasonable
possibility that this defect can be cured by amendment. Therefore, the trial court’s decision denying
Gelbard leave to amend was not an abuse of discretion. (Blank
v. Kirwan, supra, 39 Cal.3d at p.
318.)
3. Causes
of Action Based on Fraud: (1) Fraud by Intentional
Misrepresentation,
(2) Fraud by Intentional Concealment of Material
Facts, (3) Breach
of Fiduciary Duty, (4) Conspiracy to Defraud, and
(5) Conversion
Gelbard
contends that the statute of limitations
period for the fraud-based actions was tolled because he did not actually
discover the facts constituting the fraud until late 2009. Although he stated that he obtained portions
of a deposition transcript in 2006, he asserts that the transcript was not
sufficient to arouse his suspicions triggering a duty to investigate as there
was a fiduciary relationship between respondents and him. As a result, he need not allege an
excuse as to why he did not investigate further in 2006. We agree.
Code
of Civil Procedure section 338, subdivision (d), states that an action for
relief on the ground of fraud must be brought within three years of discovery
of the facts constituting the fraud.
“Under the [so-called] discovery rule, the
statute of limitations begins to run when the plaintiff suspects or should
suspect that [his or] her injury was caused by
wrongdoing . . . . [T]he limitations period
begins once the plaintiff ‘ “ ‘has notice or information of
circumstances to put a reasonable person on inquiry . . . . ’ ” ’ [Citations.]
A plaintiff need not be aware of the specific ‘facts’ necessary to
establish the claim; that is a process contemplated by pretrial discovery. Once the
plaintiff has a suspicion of wrongdoing, and therefore an incentive to
sue, [he or] she must decide whether to file suit or sit on [his or] her
rights. So long as a suspicion exists,
it is clear that the plaintiff must go find the facts; [he or] she cannot wait
for the facts to find [him or] her.” (Jolly
v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110-1111, fn. omitted.)
This
rule, however, is applied differently in the context of fiduciary and
confidential relationships. “In
Gelfand (1971) 6 Cal.3d 176, our Supreme Court stated: ‘The duty of a fiduciary embraces the
obligation to render a full and fair disclosure to the beneficiary of all facts
which materially affect his [or her] rights and interests. “Where there is a duty to disclose, the
disclosure must be full and complete, and any material concealment or
misrepresentation will amount to fraud. . . . ” [Citation.]’
[Citation.] [¶] Where a fiduciary relationship exists,
facts which ordinarily require investigation may not incite suspicion
[citation] and do not give rise to a duty of inquiry [citation]. Where there is a fiduciary relationship, the
usual duty of diligence to discover facts does not exist. [Citation.]
[¶] Thus, a plaintiff need not establish that [he or] she exercised
due diligence to discover the facts within the limitations period unless [he
or] she is under a duty to inquire and the circumstances are such that
failure to inquire would be negligent.
[Citations.] Where the plaintiff
is not under such duty to inquire, the limitations period does not begin to run
until [he or] she actually discovers
the facts constituting the cause of action, even though the means for obtaining
the information are available.
[Citation.]” (
Inc. (1985) 164 Cal.App.3d 174, 201‑202.)
Respondents
argue that the partial deposition Gelbard received in 2006 put him on notice
and he was under a duty to investigate any potential fraud, triggering the
running of the statute of limitations.
Therefore, his failure to do so was negligent and he should be deemed to
have discovered any fraud as of 2006, making his complaint untimely. We disagree.
Gelbard has sufficiently alleged that a fiduciary relationship existed
between Beaton, Unger, Manatee and himself as all were members or former
members of ABI. (Corp. Code,
§§ 17153, 17001, subd. (w), 16404, subds. (b) and (c) [fiduciary
duties of loyalty and care owed by each member of an LLC].) He also stated that Littman owed him
fiduciary duties as the former attorney for ABI. As a result, the latter rule, applicable
in situations involving fiduciary relationships, applies here. He need only to have pled when he actually
discovered the fraud and need not have alleged any excuse for not investigating
in 2006.
Respondents
point to Gelbard’s deposition testimony
submitted with his request for dismissal in the bankruptcy case in which he
stated, “starting in 2006 I began to discover the magnitude of the frauds,” as
evidence that he actually discovered the fraud in 2006 and, as a result, his
fraud claims are barred by the statute of limitations. However, it is not clear from this statement
or Gelbard’s allegations in the FAC that, as a matter of law, Gelbard
constituting the fraud alleged in the FAC.
He does not dispute that he obtained deposition documents in 2006 that
were relevant to his claims. Rather, he
alleged that it wasn’t until 2009 when he received documents pursuant to his
bankruptcy proceedings that he actually discovered all of the facts
constituting the fraud. “In order for
the bar of the statute of limitations to be raised by demurrer, the defect must
clearly and affirmatively appear on the face of the complaint; it is not enough
that the complaint shows merely that the action may be barred. [Citation.]”
(McMahon v. Republic Van &
Storage Co. (1963) 59 Cal.2d 871, 874.)
Neither the bankruptcy deposition nor the FAC stated that the partial
deposition Gelbard obtained in 2006 contained sufficient information such that,
based on it alone, it could be said that Gelbard had actually discovered the
fraud at that time. Thus the question of
whether the statute of limitations commenced running in 2006, despite Gelbard’s
claims that he did not discover the fraud until 2009, presents an issue that
cannot be resolved on demurrer. (
As a result, we find that the trial court erred in sustaining the
demurrer with respect to Gelbard’s claims based on fraud.
4. Cause
of Action Based on Breach of Contract: (9) Breach of the
Operating
Agreement
Gelbard
contends that the statute of limitations period for his breach of contract
action (i.e., breach of the operating agreement) was tolled because he did not
actually discover the breach until late 2009.
He asserts that he was under no duty to investigate the possibility of
such breach as there was a fiduciary relationship between respondents and
him. We agree with Gelbard.
Code
of Civil Procedure section 337 provides that contract-based claims must be brought
within four years. “California courts
have often stated the maxim that [for] ‘[i]n ordinary tort and contract
actions, the statute of limitations . . . begins to run
upon the occurrence of the last element essential to the cause of action. The plaintiff’s ignorance of the cause of
action . . . does not toll the
statute. . . . ’
[Citation.] [¶] ‘The harshness of this rule has been
ameliorated in some cases [however,] where it is manifestly unjust to deprive
plaintiffs of a cause of action before they are aware that they have been
injured.’ [Citation.] Accordingly, ‘a cause of action under the
discovery rule accrues when the plaintiff discovers or should have discovered
all facts essential to his cause of action . . . ; this has
been interpreted under the discovery rule to be when plaintiff either
(1) actually discovered his injury and its negligent cause or
(2) could have discovered injury and cause through the exercise of
reasonable diligence.’ [Citations.] It is well‑settled that the discovery
rule applies to causes of action involving the breach of a fiduciary
relationship. [Citations.]” (April
Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 826-827.)
As
with his fraud claims, Gelbard alleged that respondents were fiduciaries as
other members of ABI. He has also
alleged that he actually discovered
their breach of the operating agreement in 2009. Again, the facts as to the timing of his
discovery appear to be the subject of dispute.
Thus, it is not an issue to be resolved on demurrer. (National
Auto. & Casualty Ins. Co. v. Payne (1968) 261 Cal.App.2d 403,
409.) Gelbard’s breach of contract
allegation in the FAC is thus sufficient to survive demurrer. As a result, the trial court erred in
sustaining it with respect to the breach of contract claim.
The
judgment is reversed with respect to the first, second, third, fourth, fifth
and ninth causes of action and is otherwise affirmed. The parties shall each pay their own costs on
appeal.
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS
CROSKEY,
Acting P. J.
We Concur:
KITCHING, J.
ALDRICH, J.
name="_ftn1" title="">[1]
Boise was not a plaintiff in the nine causes of action that were dismissed by
the trial court. As a result, she is not
a party to this appeal.
name="_ftn2" title="">[2]
There are two Manatee Design
Group, Inc. companies. One is
incorporated in Nevada and the other is incorporated in Colorado. For convenience, we have grouped the two
together and refer to both as “Manatee.”
Unger wholly owns Manatee.
. . . . Any award rendered therein shall be
