Middleton v. L&J Assets

Filed 7/17/08 Middleton v. L&J Assets CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 EIGHT

APPEAL from a judgment of the Los Angeles Superior Court. Mark V. Mooney, Judge. Reversed and remanded.

Law Office of David M. Brandon and David M. Brandon for Appellant.

Gonzalez & Associates and Rosendo Gonzalez for Respondents.

_______________________

SUMMARY

Plaintiff and respondent Valerie Middleton got a Citibank credit card, bought things with it, and then stopped paying on June 5, 2001. She owed Citibank nearly $13,000. Defendant and appellant L&J Assets acquired the debt that Middleton owed Citibank. On June 2, 2005, L&J sued Middleton and her husband, plaintiff and respondent Matthew Livermore, for breach of contract. L&J also claimed that -- to avoid her creditors -- Middleton had fraudulently transferred to Livermore her ownership interest in the condominium where they both lived. L&J recorded a lis pendens against the property. While that lawsuit was pending, Livermore tried to sell the condominium. To complete the sale, about $37,000 had to be put into an escrow account. It was distributed to L&J on close of escrow. L&J then dropped its lawsuit.

Middleton and Livermore then filed this lawsuit against L&J for conversion and unjust enrichment. Based on a mistaken allegation in the complaint in the 2005 contract action, the trial court concluded that that lawsuit had been time-barred, and that L&J was not entitled to the funds it got from the escrow. The court entered judgment for Middleton and Livermore on both claims. We reverse. L&Js contract action was timely. We remand the matter for trial and a determination whether Middleton and Livermore can prove conversion and/or unjust enrichment.

FACTUAL AND PROCEDURAL BACKGROUND

We take our factual summary from the parties joint trial statement of undisputed material facts and the evidence (testimony and documents) admitted or established at trial. In June 2000, Middleton received and accepted an offer for a pre-approved credit card from Citibank. Middleton signed and returned to Citibank a one-page document entitled Citibank Platinum Select Pre-Approved Acceptance Form (the application), stating she had read and agree[d] to all of the Citibank Credit Terms and me[t] the Conditions of Offer on the reverse side.[1] Middleton and Livermore each received a credit card, and they transferred the balances they owed on other credit card accounts to the Citibank account to take advantage of the low (1.9 percent) interest rate Citibank offered.

When it mails a new credit card to a customer it is Citibanks custom and practice to include a 10-page document called Citibank Card Agreement (the Card Agreement) in the same envelope. The Card Agreement contains a choice of law provision: The terms and enforcement of this Agreement shall be governed by federal law and the law of South Dakota, where we are located. Unlike the Card Agreement, the application did not contain a choice of law provision. Neither Middleton nor Livermore recalls ever having received or read the Card Agreement.

Middleton and Livermore used the Citibank credit card at stores, restaurants, and hotels. They received statements and made monthly payments. Middleton made her last on-time monthly payment on April 21, 2001. Citibank posted the payment on April 26, 2001. Middleton failed to make the next payment due June 5, 2001 or any more payments on the Citibank account. At that point, Middleton owed about $12,000 on the Citibank credit card. Citibank continued to send monthly statements through December 2001. In its June 2001 statement Citibank informed Middleton she was in default and [t]he Annual Percentage Rate on [her] account [had] been increased [to 24.99 percent] due to one of the following reasons stated in [the] Card Agreement with us: you failed to make a payment to us or any other creditor when due, you exceeded your credit line or you made a payment to us that was not honored by your bank.

L&J is Citibanks successor-in-interest on the debt Middleton owed on her Citibank credit card.[2]

On June 2, 2005, L&J sued Middleton and Livermore alleging Middleton was in default and had breached her contract with Citibank as of April 26, 2001,[3] and the damages had mounted to some $32,000 (the contract action). In addition to common counts, L&J further alleged that, in 2004, Middleton fraudulently conveyed her interest in real property (a condominium in Santa Clarita) to Livermore in order to keep the property out of reach of her creditors. On June 24, 2005, L&J filed an amended complaint in the contract action. In that pleading, L&J alleged Middleton was in default as of December 12, 2001. Middleton and Livermore filed an answer.[4] In conjunction with the contract action, L&J recorded a lis pendens as to the Santa Clarita property.

In August 2005, while the contract action was pending, Livermore entered into an agreement to sell the Santa Clarita property. However, he was unable to close escrow on the sale without expunging the lis pendens. About $37,000 was retained in an escrow account and distributed to L&J upon close of the sale of the Santa Clarita property. L&J then voluntarily dismissed the contract action.

Middleton and Livermore filed this lawsuit against L&J for conversion and unjust enrichment. They alleged that Californias four-year statute of limitations for actions on a written contract had barred the contract action: L&J filed its complaint on June 2, 2005, on a contract allegedly breached in April 2001. Accordingly, the lis pendens filed by L&J was unfounded. They alleged that L&J had no right of ownership or possession in the proceeds it wrongfully recovered from the escrow company handling the sale of Livermores property.

The trial court conducted a bench trial on January 8, 2007. The court found in favor of Middleton and Livermore on both claims, and awarded them damages of $36,800.20, prejudgment interest of $13,288.93 (calculated at an annual interest rate of 24.99 percent from August 15, 2005, the date the escrow funds were seized, to trial), and postjudgment interest (accruing at a rate of 10 percent per annum). L&J asked the court to reduce the interest rate for the award of prejudgment interest to 10 percent, in accordance with Code of Civil Procedure section 685.010, subdivision (a), a request with which Middleton and Livermore concurred. The court denied the request and entered judgment. This appeal followed.

DISCUSSION

The trial court concluded that L&J had failed to prove that South Dakota law governed the contract between Middleton and Citibank because it had not shown that Middleton actually received the Card Agreement containing the choice of law provision. On appeal, L&J contends the trial court erred by shifting the burden of proof to it, the defendant. L&J also argues that the trial court erred when it found the contract action untimely under California law, and awarded respondents damages based on L&Js allegedly improper seizure of the funds in escrow. We agree with the second contention. As a result, we need not address the first.

1. L&Js contract action was timely.

The trial court correctly observed that the initial complaint L&J filed in the contract action alleged that Middleton was in default for the payment due April 26, 2001, and all subsequent payments. However, undisputed evidence at trial established Middleton was not in default on her Citibank account on that date. Rather, that was the date on which her last timely monthly payment on the account was posted. That payment was credited to Middletons account, as reflected on her May 11, 2001 monthly statement that, in turn, informed her Citibank must receive her next payment no later than 1:00 PM . . . on 06/05/2001. It is also undisputed that Middleton and Livermore made no payment on the account by the June 5, 2001 deadline, or anytime after that date.

Until Middleton defaulted on her debt, Citibank had no claim and no right to bring an action against her. Breach is an essential element of a cause of action for breach of contract. (Regan Roofing Co. v. Superior Court (1994) 24 Cal.App.4th 425, 434-435 [elements of a claim for breach of contract are a contract, plaintiffs performance, defendants breach, and damages from the breach].) [A] cause of action accrues at the time when the cause of action is complete with all of its elements. [Citations] (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.) Citibank had no right to pursue Middleton until she failed to perform under a contract she admits existed,[5] i.e., failed to make a payment by June 5, 2001. The contract action, filed June 2, 2005, within four years of the date of that breach, was timely. (Code Civ. Proc., 337.)

2. Respondents have not proved conversion or unjust enrichment.

Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiffs ownership or right to possession of the property; (2) the defendants conversion by a wrongful act or disposition of property rights; and (3) damages. (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066; Greka Integrated, Inc. v. Lowrey (2005) 133 Cal.App.4th 1572, 1581.) Money can be the subject of an action for conversion if a specific sum capable of identification is involved. [Citation.] (Farmers Ins. Exchangev. Zerin (1997) 53 Cal.App.4th 445, 451-452.)

The elements of unjust enrichment are receipt of a benefit and unjust retention of the benefit at anothers expense. (Hirsch v. Bank of America (2003) 107 Cal.App.4th 708, 717.) The theory of unjust enrichment requires one who acquires a benefit which may not justly be retained, to return either the thing or its equivalent to the aggrieved party so as not to be unjustly enriched. (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 460.) It is not, strictly speaking, a theory of recovery,  but an effect: the result of a failure to make restitution under circumstances where it is equitable to do so. [Citation.]  . . . It is synonymous with restitution. (Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793.) Ordinarily, restitution is required only if the benefits were conferred by mistake, fraud, coercion, or request. (Nibbi Brothers, Inc. v. Home Federal Sav. & Loan Assn. (1988) 205 Cal.App.3d 1415, 1422.) Benefits conferred under a contract may be subject to restitution if the contract is found unenforceable. (See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts,  1042, pp. 1132-1133.)

The trial court concluded L&J had no right to proceed on a lis pendens premised on a pleading time-barred on its face. As a result, it also found L&J had no legal claim to and thus had converted or unjustly recovered the funds it received from the escrow company. However, having found L&Js contract action timely, there remain many disputed factual issues on the conversion and unjust enrichment claims. For example, because the contract action was not fully litigated, we cannot say whether the lis pendens was valid and/or or whether Middleton and Livermore had viable defenses to that action. It has not yet been established which party if any had a right to the funds L&J received from escrow.[6] To establish a conversion, plaintiff must establish an actual interference with his ownership or right of possession . . . .  Where plaintiff neither has title to the property alleged to have been converted, nor possession thereof, he cannot maintain an action for conversion. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 610-611.)

Our conclusion that L&Js lawsuit was timely eviscerates the bases for the trial courts judgment and its damages and interest awards. Accordingly, remand is necessary so the matter may be retried to determine whether Middleton and Livermore can establish their claims.[7]

DISPOSITION

The judgment is reversed. The matter is remanded for retrial. Appellant is awarded its costs of appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

EGERTON, J.*

We concur:

RUBIN, Acting P. J.

FLIER, J.

Publication courtesy of San Diego pro bono legal advice.

Analysis and review provided by Poway Property line Lawyers.

San Diego Case Information provided by www.fearnotlaw.com

[1] Text from the reverse side (or second page) of the application is not part of the record, and Middleton does not recall ever receiving or reading that part of the application.

[2] Citibank assigned its interest in Middletons account to Unifund CCR Partners in August 2003. Unifund, in turn, assigned the right to recover that debt to L&J on July 1, 2005. L&Js standing to bring the contract action in June 2005 is not in dispute.

[3] Undisputed facts establish this allegation was clearly wrong. Middletons Citibank account was current when her last timely payment was posted April 26, 2001. The next payment due date and the first possible date after which Middletons nonpayment could be deemed a default was June 5, 2001. This issue was not clarified in the contract action which was never prosecuted to conclusion. Even if a 30-day payment date applied, on an account stated or open book theory as Middleton and Livermore contend, L&Js action was timely. Middleton last used the card on May 2, 2001. Payment therefore was due by midnight on June 1, 2001. When Middleton did not make the payment, L&Js cause of action accrued on June 2, 2001. L&J sued four years from that date.

[4] Middleton and Livermore assert that they raised the statute of limitations as an affirmative defense in the contract action. Apart from representations in letters their attorney wrote, that assertion finds no support in the record.

[5] The parties agree Middleton and Citibank had a contract. They disagree as to whether its terms were dictated by the Card Agreement, as L&J contends which would make South Dakotas six-year statute of limitations applicable or by the monthly statements Middleton received, as respondents assert, which would be governed by California law. This dispute is not material in light of our conclusion that the contract action was timely even under Californias shorter statute of limitations.

[6] L&J insists it cannot be liable for conversion because Middleton and Livermore chose to pay the money in order to sell their property (rather than to litigate the contract action), or because the funds deposited in escrow never belonged to Middleton and Livermore in the first place, but to the buyer of the Santa Clarita property or the buyers lender. L&Js first assertion amounts to a contention that respondents waived any conversion claim by voluntarily depositing the funds into escrow to satisfy an acknowledged debt, or by failing to object or to prevent L&J from taking possession of those proceeds upon the close of escrow. A showing of waiver requires the establishment of an existing right, knowledge of the right, and an actual intention to relinquish the right. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053, superseded by statute on other grounds, as stated in DeBerard Properties, Ltd. v. Lim (1999) 20 Cal.4th 659, 668; see also Farrington v. A. Teichert & Son (1943) 59 Cal.App.2d 468, 474 [there can be no conversion where an owner either expressly or impliedly assents to or ratifies the taking, use or disposition of his property].) Whether there has been a waiver is a question of fact. It cannot be resolved on this record. (Bickel v. City of Peidmont, supra, 16 Cal.4th at p. 1052.) L&Js second contention raises a similarly fact-based issue: no party presented evidence at trial as to the actual source of the funds L&J recovered from the escrow company handling the sale of the Santa Clarita property.

[7] Middleton and Livermore, as plaintiffs, bear the burden of proof on the essential elements of their claims for relief, just as L&J must prove any affirmative defense it asserts. (Evid. Code, 500.) Should Middleton and Livermore receive another prejudgment interest award, the parties agree the appropriate rate of interest for such awards is 10 percent.

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.