Ponchak v. I.P.S. Enterprises

Filed 2/11/10 Ponchak v. I.P.S. Enterprises CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County, Mary Thornton House, Judge. Affirmed.

Law Office of Terrance Ponchak, and Terrance Ponchak on behalf of Plaintiff and Appellant.

Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup, Joseph Campo and Caroline E. Chan, for Defendant and Respondent Lane Harrison.

Law Offices of Timothy T. Tierney, and Timothy T. Tierney, for Defendants and Respondents Lalat Pattanaik, I.P.S. Enterprises, Inc., and Sea Nine Associates.

Wilson, Elser, Moskowitz, Edelman & Dicker, Adrienne Publicover and Dennis J. Rhodes, for Defendant and Respondent AIG American General Life Insurance Company.

VanEtten Suzumoto & Sipprelle, and David B. VanEtten, for Defendant and Respondent Capital Trust Company of Delaware.

Plaintiff Terrance Ponchak appeals from the judgment dismissing this action following the sustaining of defendants demurrers to his third amended complaint. The principal issue on appeal is whether the trial court erred in sustaining the demurrers without leave to amend on the ground that Ponchak failed to establish a contract had been formed, and his ability to state the other claims rested on the existence of a viable contract. We find no error, and affirm.

BACKGROUND

The parties

Ponchak is an attorney. In 2005, he received an $800,000 contingent fee recovery from a lawsuit. He wanted to protect those funds from being subject to immediate income taxes. Defendants and respondents Lalat Pattanaik and Lane Harrison, whom Ponchak had never met before, somehow became aware Ponchak had received a large fee, and approached him in late 2005 to solicit his participation in a Voluntary Employees Beneficiary Association (VEBA) trust. Pattanaik is the owner and an employee of defendant and respondent IPS Enterprises, Inc. (IPS), a financial planning company and the organizer of the VEBA trust. Harrison is a consultant for and representative of IPS, a licensed insurance sales agent, and an authorized agent for defendant and respondent AIG American Life Insurance Company (AIG). Defendant and respondent Capital Trust of Delaware (Capital Trust) is the trustee for the VEBA trust, former defendant UBS Financial Services, Inc. (UBS), holds the trusts funds prior to distribution, and defendant and respondent Sea Nine Associates (Sea Nine) administers and manages the VEBA trust.

The allegations of the initial complaint and first round of demurrers

Ponchak filed his initial complaint in this action in March 2007. He claimed that Harrison and Pattanaik, acting individually and as agents of IPS and AIG, solicited him to become a member of a VEBA trust. Through Harrison and Pattanaik, IPS represented itself as a member of a team of global financial institutions working together to provide VEBA trust tax savings to its members. That team was composed of IPS, Capital Trust, Sea Nine, AIG, UBS, Harrison and Pattanaik. Ponchak alleged he was told he was qualified to enter the VEBA trust, once he deposited $800,000 with UBS. In exchange for that tax deductible contribution, life insurance would be purchased over the course of five years. When Ponchak reached retirement age, he would realize benefits of approximately $1.4 million, and death benefits of at least $387,000, tax free.^[1]

Ponchak claimed that prior to the end of 2005, he completed the required paperwork for the IRS-approved VEBA trust and paid UBS $800,000, as agreed. In January 2006, he received various documents requiring his signature to finalize the arrangement. Among those documents was a release agreement favoring Harrison (the release), and an indemnification agreement in favor of Capital Trust (the indemnification agreement). The indemnification agreement required that Ponchak indemnify Capital Trust for any liability it incurred as a result of acting as trustee for the VEBA trust. The release, in turn, freed Harrison from any liability if Ponchak relied on any of Harrisons statements. Ponchak refused to sign either document; he claimed they did not relate to or affect his qualifications to enter into the VEBA trust, and that no defendant had told him in 2005 that either document would be required.

In March 2006, Ponchak was told that due to his refusal to sign the release and indemnification agreement, defendants had decided to remove him from the VEBA trust and return his funds. Ponchaks $800,000 was returned to him in April 2006. He was forced to pay taxes on those funds, and lost expected retirement benefits.

In a cause of action for breach of contract,^[2]Ponchak alleged defendants had agreed to qualify and implement [Ponchak] as a member of the . . . VEBA Trust Plan in return for [Ponchak] depositing with them $800,000, paying their trust management fees, and buying their life insurance policies. He had deposited those funds, and agreed to pay the fees and purchase the policies, but defendants breached the agreement by withdrawing him from the VEBA trust. Ponchak sought reimbursement of taxes he paid on the $800,000, and the loss of the benefit of the bargain in excess of $1.8 million.

In the second cause of action, for intentional interference with contractual relations, Ponchak claimed that Capital Trust, Sea Nine and Harrison intentionally, and with knowledge of the tax exposure he would suffer as a result, conspired and caused Ponchak to be removed from the VEBA trust for which he was qualified, to which he had been accepted, and into which he had deposited the requisite funds.

In a claim for breach of fiduciary duty, Ponchak alleged the defendants created a special relationship with him by soliciting his membership in the VEBA trust. He claimed they requested and received $800,000 from him to manage and distribute as a 2005 tax deduction benefit fund for his future retirement. Defendants benefitted at Ponchaks expense, by mismanaging and disbursing his trust funds, and causing Ponchak to incur excessive taxes and lose retirement benefits. Defendants engaged in these unauthorized acts intentionally, and with the knowledge that Ponchak would suffer financial loss as a result.

Ponchak pleaded a cause of action for negligence, alleged against all defendants, in which Ponchak claimed he was solicited to join the VEBA trust, but that defendants failed to monitor the year-end deadline for the trust-qualifying documentation and signatures and failed to specify, prior to the end of 2005, which documents he would need to sign, particularly those requiring him to waive liability.

Defendants filed demurrers. The demurrers were sustained, and Ponchak was given leave to amend.

The first amended complaint and defendants responses

Ponchak filed a first amended complaint (FAC) alleging, in pertinent part, causes of action for breach of contract, intentional interference with contractual relations, breach of fiduciary duty and negligence. The basic factual allegations of the FAC were largely unchanged from those in the initial pleading.

In the contract claim, Ponchak alleged that Pattanaik and Harrison, sales agents for IPS and AIG, had verbally agreed to qualify and implement [Ponchak] as a member of an IRS approved VEBA Trust Plan. In order to participate, Ponchak was required to and did sign a December 30, 2005 document entitled Disclosure of Method of Benefits Under the ProPlan VEBA Welfare Benefit Trust, a copy of which was attached as an exhibit to the FAC. Ponchak claimed this document verified his acceptance of the VEBA trust for which he had been solicited by defendants.

Defendants also orally explained to Ponchak that to qualify for the VEBA trust benefits in 2005, he had to deposit $800,000 in a UBS account, pay annual management fees to Capital Trust and Sea Nine, and buy whole life insurance policies through AIG and IPS over the next five years. Ponchak accepted those terms, and tendered $800,000 to defendants. Ponchak completed the required AIG insurance application form provided by Pattanaik and Harrison, who confirmed [Ponchaks] insured status upon signing it. Ponchak claimed that a December 30, 2005 letter he wrote to IPS, Pattanaik and Harrison (and attached as an exhibit to the FAC) verified most of the contract terms and the parties understanding of the contract entered into between Ponchak and defendants. That letter contains approximately 13 handwritten interlineations made by Pattanaik which, according to his notation, were provided to clarify. Also attached as exhibits to the FAC are copies of Ponchaks check, a deposit receipt, and a January 3, 2006, fax from Pattanaik stating that Ponchak would soon receive the insurance application and plan documents that would effectivelu [sic] allow [Ponchaks] firm to adopt the VEBA plan. According to Ponchak, these documents verif[ied his] contribution into the VEBA Trust for the year 2005, thus providing the 2005 tax benefits intended. . . .

Defendants, however, breached their agreement to qualify Ponchak for and implement him into the VEBA trust, and interfered with and made impossible the sale of life insurance to him, by making the unauthorized return of his $800,000 in 2006. That act effectively withdrew him from the VEBA trust, and caused him to lose tax-exempt status for those funds in 2005 and over $1.4 million in future retirement benefits.

In a cause of action for intentional interference with contractual relations, Ponchak claimed that Capital Trust, Sea Nine and Harrison conspired to breach the contract. They did so both by causing his removal from the VEBA trust and the tax consequences that followed, and by insisting he sign the indemnification agreement and release in 2006, even though neither document was within the terms of the parties 2005 agreement. Defendants interference with Ponchaks previously executed contract, foreseeably cost Ponchak significant tax and retirement benefits.

Ponchak also alleged a cause of action for breach of fiduciary duty. He claimed that defendants had approached him in 2005, representing themselves as experts in tax and financial planning, representations on which he relied, and solicited his involvement in their VEBA trust. Ponchak claimed that defendants request for and receipt of his $800,000 contribution to their VEBA trust in 2005, gave rise to a special fiduciary duty on defendants part. Defendants breached that duty by mismanaging and returning the $800,000 VEBA trust funds, which caused Ponchak to lose his tax-exempt status, and by failing to provide Ponchak viable tax planning alternatives.

According to a sixth cause of action for negligence, defendants solicited Ponchaks participation in the VEBA trust, then negligently failed to specify all the documents he would have to sign prior to the critical 2005 year-end deadline. Specifically, they failed to inform him of the requirement, belatedly imposed in 2006, of the need that he sign the release and indemnification agreements. Defendants knew or should have known that neither document was required by the IRS to qualify Ponchak to participate in the VEBA trust. As a result of defendants negligence, Ponchak suffered damages including the loss of 2005 tax exemptions and retirement benefits.

Defendants variously filed demurrers, motions for judgment on the pleadings, and a motion to strike.^[3] Each of these motions was sustained or granted, with leave to amend.

The second amended complaint and defendants responses

The relevant claims in Ponchaks second amended complaint (SAC) were for breach of contract, intentional interference with contractual relations, breach of fiduciary duty and negligence.

The claim for breach of contract was alleged against all defendants. Ponchak claimed that he entered into a contract with Harrison, Pattanaik and IPS, who were acting both as individuals and as agents of AIG, Capital Trust and Sea Nine. The contract was created orally on December 30, 2005, and memorialized in a letter Ponchak wrote and delivered to defendants the same day. The terms of the contract called for Ponchak to deposit $800,000 into the VEBA trust created by IPS, in partnership with AIG, Capital Trust and Sea Nine. In return, defendants agreed AIG would provide life insurance policies to Ponchak, Capital Trust would maintain custody of and protect Ponchaks assets, and Sea Nine would administer the VEBA trust. Once Ponchak reached retirement age, he would realize life benefits of over $1.4 million and death benefits of about $387,000, tax-free. According to Ponchak, the December 30 letter reflects the parties acknowledgement both that his decision to participate in the VEBA trust was made in reliance on defendants experience, knowledge, presentations and assurances, and that defendants would not disclaim such reliance. A copy of Ponchaks December 30 letter, with Pattanaiks handwritten interlineations, was the sole exhibit attached to the SAC.

Ponchak performed his obligations under the contract by providing defendants $800,000, and completing the paperwork required to participate in the VEBA trust. In January 2006, however, Harrison and Pattanaik contacted Ponchak to inform him that he had to sign the indemnification agreement and release. Ponchak refused. He claimed neither document had been a part of the parties deal. Indeed, Ponchak claimed the new documents contradicted the prior agreement, were not relevant to his qualification to participate in the VEBA trust, and were adverse to his interests. In March 2006, Ponchak was told defendants planned to expel him from the VEBA trust and return his money, which they did in April 2006. As a result, Ponchak suffered damages in excess of $1.8 million.^[4]

In his claim for breach of fiduciary duty, Ponchak alleged that Harrison and Pattanaik, acting individually and as agents of the other defendants, approached him and held themselves out as financial and tax planners and experts in organizing and implementing individual memberships in IRS-approved VEBA trusts. They told Ponchak he was qualified to participate in the VEBA trust they had organized, and made a written presentation detailing the contributions he would make and the guaranteed benefits and rates of annual return he could expect to realize as a result. Ponchak claimed that by virtue of their superior knowledge and expertise in the fields of financial and tax planning and VEBA trusts, Harrison and Pattanaik assumed fiduciary duties to him, as did their principals, IPS, AIG, Capital Trust and Sea Nine. Ponchak relied on defendants collective expertise, knowledge, representations and assurances in deciding to contribute to defendants VEBA trust, rather than another VEBA trust or a different investment vehicle that could provide substantial tax benefits.

Defendants breached their fiduciary duties to Ponchak when they failed to act in his best interest and placed their own interests above his. Specifically, they solicited Ponchaks contribution to the VEBA trust without disclosing to him their intent later to demand that he execute the indemnification agreement and releaseor risk being expelled from their VEBA trustat a point when it would be too late for Ponchak to consider alternative tax-savings alternatives for 2005. And, when defendants were unable to serve their own interests by securing the indemnification agreement and release, they expelled Ponchak from the VEBA trust, even though they knew doing so would cause him significant financial consequences.

The final claim of the SAC is for negligence. Ponchak alleges defendants solicited him to join the VEBA trust but failed to specify all the documents he would be required to sign, including documents that were outside and in contradiction of the terms of the parties contract, not relevant to his qualifications to participate in the VEBA trust, against his interest and presented to him after year-end 2005. Defendants knew or should have known that the tax-exempt status of the funds in the VEBA trust was critical to Ponchak and that his expulsion from the trust in 2006 would cause him significant financial consequences. Nevertheless, defendants negligently demanded that he sign unnecessary documents, and expelled him from the VEBA trust when he refused to do so.

Defendants each demurred to all or some part of the SAC. The court found Ponchak failed to cure the defects of his prior pleadings, and sustained demurrers to each cause of action. The court observed that the most glaring problem with the SAC was that Ponchak had failed to allege sufficient facts to support his claim that a binding oral or written contract had been formed between him and any defendant. That court found that in the absence of an enforceable contract, no duty was owed to Ponchak. The court also found Ponchak failed to allege facts sufficient to state any tort claim. Ponchak was again given leave to amend.

The third amended complaint and defendants demurrers

In the operative third amended complaint (TAC), Ponchak alleged claims for breach of contract, intentional interference with contractual relations, breach of fiduciary duty and negligence.

In his claim for breach of contract, Ponchak alleged that in mid-December 2005, Pattanaik and Harrison, told him that IPS, in participation with the other defendants, could provide Ponchak an opportunity to participate in the VEBA trust, an investment and insurance product that would save him hundreds of thousands of dollars in taxes, yield guaranteed rates of annual returns, and provide retirement and death benefits. They told Ponchak he was qualified to participate in the trust, assured him of its validity, and said he must contribute $800,000 before the end of the calendar year to receive the tax savings. Ponchak claimed that on December 30, 2005, he entered into an oral contract with Harrison, Pattanaik, IPS and AIG. According to that contract, he agreed to provide defendants $800,000 by year-end 2005. Defendants, in turn, agreed to provide Ponchak membership in the VEBA trust. The purpose of the contract was to enable Ponchak to avoid paying taxes on the $800,000, and to realize benefits of over $1.4 million upon retirement, and death benefits of over $387,000. Ponchak was assured that he was qualified for life insurance and admission in the VEBA trust, and told his participation in the VEBA trust was contingent solely upon his agreement to submit to a medical examination the defendants would arrange for him.

On December 30, 2005, Ponchak provided defendants a check for $800,000, filled out all necessary paperwork and, since that point, has stood ready to submit to the medical examination required to confirm his admission into the VEBA trust. Ponchak claimed that in agreeing to participate in the VEBA trust and performing his obligations under the parties contract, he relied on Pattanaiks and Harrisons experience, knowledge, advice, representations and assurances. Pattanaik and Harrison were aware of Ponchaks reliance because he told them he would not participate in the VEBA trust unless and until they provided him proof that had adequate errors and omissions insurance to cover their advice to him, and Pattanaik and Harrison supplied him with that proof. In addition, on the same day Ponchak handed over his $800,000 check, he also provided [defendants] with a letter confirming the fact that his agreement to participate in the VEBA Trust was based on his reliance on their experience, knowledge, presentations and assurances and that defendants would not seek to disclaim Ponchaks reliance on defendants experience, [etc.]. That letter, which was counter-signed and includes handwritten changes and interlineations made by Pattanaik, was not attached as an exhibit to the TAC.

In January 2006, Harrison and Pattanaik asked Ponchak to sign the indemnification agreement and release. Neither document was part of parties oral contract. Ponchak refused. As a result, defendants renege[d] on their agreement to provide Ponchak with membership in the VEBA Trust, and his funds were returned. Ponchak performed his duties under the parties contract, but defendants breached their agreement to implement his participation in the VEBA trust, resulting in damages in excess of $1.8 million.

In a cause of action for intentional interference with contractual relations against Sea Nine, Capital Trust, Pattanaik and Harrison, Ponchak alleged these defendants counseled and encouraged AIG and IPS to breach their contract to implement his participation in the VEBA trust after he refused to sign the indemnification agreement and release.

The cause of action for breach of fiduciary duty was alleged against Harrison, Pattanaik, IPS and AIG. Ponchak claimed that after learning somehow that he had received a large contingent fee in late 2005, Harrison and Pattanaik contacted him and set up a meeting. At that meeting, Harrison and Pattanaik held themselves out as financial and tax planners and experts in organizing and implementing individual memberships in IRS-approved VEBA trusts. Harrison and Pattanaik told Ponchak he was qualified to participate in a VEBA trust they had organized, and made a detailed written presentation outlining the benefits Ponchak would realize as a result of the contribution solicited by defendants.

Harrison and Pattanaik, and their principals, IPS and AIG, were alleged to have assumed fiduciary duties to Ponchak by virtue of their purported expertise and superior knowledge and experience in tax and financial planning. Ponchak relied on defendants expertise, knowledge, representations and assurances in deciding to contribute $800,000 to defendants VEBA trust, rather than another VEBA trust, or investment vehicle that would provide substantial tax benefits. Defendants breached their fiduciary duties by their misconduct and failure to place his interests above their own. Specifically, they solicited his participation and secured his contribution to their VEBA trust in late 2005, knowing Ponchak was relying on their representations, assurances, superior knowledge and expertise, but failed to inform him they would demand that he execute the indemnification agreement and release until after they had secured his funds and it was too late for him to place those funds in another tax shelter or investment vehicle. Then, defendants returned Ponchaks funds a few months later, which cost Ponchak damages of over $1.8 million.

Finally, Ponchak alleged that Harrison, Pattanaik, IPS and AIG negligently held themselves out as experts and made specific representations with respect to the VEBA trust, in which they told him he was qualified to participate in the trust. However, they failed to specify which documents he would have to sign in time for him to avoid adverse tax consequences and financial loss.

Each defendant demurred to the TAC. The trial court found Ponchak had failed to cure fundamental defects of his prior pleadings, and had not pleaded facts sufficient to establish the existence of a contract. It also found no other cause of action was viable as each was predicated on a nonexistent contract. Each demurrer was sustained without leave. Ponchak appeals from the judgment subsequently entered in defendants favor.

DISCUSSION

1. Standard of review

When reviewing a judgment entered following the sustaining of a demurrer without leave to amend, the appellate court must assume the truth of all properly pleaded material facts, improbable or not, but may disregard contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We may also take notice of exhibits attached to the complaint. Although we take the factual allegations of a pleading as true, courts do not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents or allegations of fact contrary to facts which are judicially noticed. (Del. E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604; Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If the provisions of the exhibit are inconsistent with or contradict the allegations of the complaint, the facts in the exhibit control. (Holland v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447.) A plaintiff may not avoid self-destructive allegations of a pleading by making contradictory allegations in a subsequent pleading, or by omitting facts that rendered a prior pleading defective. (Berman v. Bromberg (1997) 56 Cal.App.4th 936, 946.) The policy against sham pleadings permits courts to disregard unexplained or inconsistent allegations, and read into the operative pleading the allegations of the superseded complaint. (Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 383384.) Our review is de novo; we exercise our independent judgment as to whether the complaint states a cause of action as a matter of law. (McCall v. PacificCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.)

2. Breach of contract

To state a claim for breach of contract, a plaintiff must allege: the existence of a contract, his or her performance or excuse for nonperformance, defendants breach and resulting damages. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) Ponchaks contract claim founders on the first prong of this analysis. Notwithstanding four attempts to do so, he has failed to plead facts sufficient to establish the existence of any contract, and does not claim he can amend the operative complaint to do so.

In the TAC, Ponchak alleges he entered into an oral contract on December 30, 2005 with Harrison and Pattanaik and their principals, IPS and AIG. Under that contract, Ponchak agreed to provide defendants $800,000 before the end of 2005. In return, defendants agreed that they would provide Ponchak with membership in the VEBA trust. This would enable Ponchak to avoid paying taxes on the $800,000 and, upon retirement, to realize living and death benefits of over $1.8 million. Defendants assured Ponchak he was qualified for life insurance and for admission to the VEBA trust. They said his participation was contingent only on [his] submission to a medical examination that defendants would arrange. Ponchak claims he performed his obligations under the agreement: he timely tendered an $800,000 check to defendants, completed all the paperwork and was, at all times, prepared to undergo a medical examination.

Ponchak also claims that at the time he contracted with Harrison and Pattanaik, they knew his agreement to participate in the VEBA trust was premised on his reliance on their presentation, experience, knowledge, advice, and assurances. Defendants were aware of Ponchaks reliance for two reasons. First, Ponchak required them to provide him proof of adequate insurance coverage for any errors or omissions they might commit in advising him, before he would agree to join the VEBA trust; they provided that information. Second, after Ponchak gave defendants his $800,000 on December 30, 2005, he also gave them a letter specifically confirming the fact that his agreement to participate in the VEBA Trust was based on his reliance on their experience, knowledge, presentations, and assurances and that defendants would not seek to disclaim Ponchaks reliance. . . .

Unlike the two preceding versions of the complaint, Ponchak chose not to attach a copy of the December 30 letter to the TAC. His reasons for doing so are obvious. The provisions of the letter contradict the allegations of the TAC, and when those provisions are taken into account it is clear Ponchak has failed to allege facts which establish the formation of a contract. As a result, he cannot state a cause of action for breach of contract.

Mutual consent or assent is an essential element of any contract. (Civ. Code,  1550, 1565; Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 141.) Consent cannot be mutual unless each party agrees on the same thing in the same sense. (Civ. Code, 1580; Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 358359 [The failure to reach a meeting of the minds on all material points prevents the formation of a contract even though the parties have orally agreed upon some of the terms, or have taken some action related to the contract].)

Acceptance of an offer, which may be manifested by conduct as well as by words, must be expressed or communicated by the offeree to the offerer. [Citation.] (Russell v. Union Oil Co. (1970) 7 Cal.App.3d 110, 114.) The existence of mutual consent is determined by objective criteria. The test is whether the outward manifestations would lead a reasonable person to find the parties have mutually consented, and thus formed a contract, the terms of which are reasonably certain. (Meyer v. Benko (1976) 55 Cal.App.3d 937, 942943; Civ. Code, 1550, 1565, 1580.) [T]he outward manifestation or expression of assent is controlling. (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 811.) It is those outward manifestations that establish whether the parties agreed upon the same thing in the same sense. (Civ. Code  1580.)

Ponchak first insists the breach of contract alleged in the TAC was for an oral contract of insurance. He claims the allegations of the TAC adequately establish that he paid $800,000 to defendants in response for their offer to sell him five future life insurance policies. For the first time on appeal, and almost as an aside, Ponchak adds that the oral contract also included his membership in the VEBA trust. There is no merit to this argument.^[5]

First, neither the TAC (nor any predecessor pleadings) alleges that AIG or any defendant orally agreed to provide Ponchak life insurance policies. Ponchak has not stated the terms of such a contract or coverage. By his own admission, no policy was ever issued because Ponchak never underwent the requisite medical examination. Moreover, Ponchaks claim of forgone tax benefits and lost future retirement benefits is not alleged to be linked at all to AIGs failure to issue an insurance policy or policies.

Ponchak claims his December 30 letter is merely evidence confirming the existence of a prior oral contract with defendants. He is mistaken. As evidenced by Pattanaiks interlineations to that letter, and even the initial terms in the letter itself, it is clear the parties were engaged in negotiations aimed at reaching an agreement but that no binding agreement had been formed. In the December 30 letter to IPS, Harrison and Pattanaik re his VEBA Investment (which Pattanaik changed to VEBA contribution), Ponchak wrote:

This letter is written to confirm, following your factual presentation and solicitation of tax-free investment, my entering into a VEBA trust and subsequent whole-life insurance policy.

It is my understanding, and reliance on your provided information, that the information provided on your POWERPlay Life Insurance Illustration is accurate and can be relied upon in entering this investment plan with you, IPS, UBS, AIG, Capital Trust, and Sea Nine Association.

Additionally, it is presented and my understanding that the VEBA is fully insured and that my $800,000 investment is fully refundable if I do not qualify for the insurance payouts outlined in the POWERPlay Life Insurance Illustration. And, it is understood that my VEBA investment of $800,000 is held by UBS and distributed over five years in five equal payments to AIG for the whole-life insurance which after ten years can be withdrawn (after the 5 year $64,000 only tax payment) at the $72,000 annual amounts as shown on the illustration. I also understand that Sea Nine Association and Capital Trust Company will assist over five years (costing me $2,250 per year) to execute this investment.

I have relied on your experience, knowledge, presentation and assurances and present my investment of $800,000. This letter cannot be later interpreted [sic] or voided by any other contractual entry by any entity, as to my expectations outlined herein or on your written presentations. Contractual entries of this contract if final and any previous understandings written or verbal cannot be used to disqualify this letter or my understandings. (Italics added.)

There are several respects in which this letterwhich Ponchak claims confirmed the terms of an extant oral agreementactually demonstrates it was no more than a unilateral opening offer and that there was, as yet, no mutual assent to the same thing in the same sense.

First, the letter refers to specific details defendants purportedly provided in a factual presentation and POWERPlay Life Insurance Illustration, the accuracy of which Ponchak claims to have relied on when entering into the agreement. This information, clearly a material provision of the contract to which Ponchak claims the parties agreed, is not set forth in the TAC, any prior complaint or any exhibit thereto.

Second, as the trial court pointed out, even without Pattanaiks changes, Ponchaks letter demonstrates that even he did not believe the parties would have a binding agreement in the event he failed to qualify for the insurance payouts. Indeed, his letter was written, in part, to ensure that his $800,000 investment [was] fully refundable in the event he failed to qualify for future insurance payments. Moreover, Ponchak was always aware his ability to participate in the VEBA trust was contingent upon submission to a medical examination that never occurred.

Third, Ponchak tendered his $800,000 to Pattanaik and Harrison before he gave them the letter. He did so even though defendants clearly disagreed with Ponchaks representation that he was simply confirming the terms of their deal, as evidenced by the numerous material changes to the language in his letter. For example, throughout the letter Pattanaik changed Ponchaks references to the investment he was making in the VEBA trust, to state that Ponchak would actually make a contribution to the VEBA trust. In the first sentence of the letter, Ponchak claimed he was writing to confirm, following [defendants] . . . solicitation of tax-free investment, my entering into a VEBA trust and subsequent whole-life insurance policy. (Italics added.) But, after Pattanaik finished, the sentence contained significantly altered language and conveyed a distinctly different meaning. It read: written to confirm, following your factual presentation and solicitation of tax-deductible contribution by entering into a VEBA trust and subsequent whole-life insurance policy purchased by the VEBA. (Italics added.) In addition, Ponchaks statement that he expected his funds would be fully refundable if he did not qualify for insurance payouts outlined in defendants presentation, was changed to projected payouts. And, Ponchaks representation that the parties understood his VEBA investment would be distributed in five equal annual payments to AIG for whole life insurance which after ten years can be withdrawn . . . at the . . . annual amounts as shown on the illustration, was changed to say that his VEBA contribution would be distributed in annual amounts to AIG for whole life insurance which after ten years canprovide loans (policy) . . .at the . . . annual amounts as projected on the illustration. Pattanaik then twice added the word approximately to sentences in which Ponchak had specified the exact amount of payments he expected to make, and once again changed Ponchaks reference to his monetary investment to a contribution of $800,000. At the bottom of the letter, Pattanaik wrote, above delineations provided to clarify, dated the changes December 30, 2005, and signed his name.

Based on Pattanaiks changes to pivotal terms in Ponchaks purported confirming letter, it is clear the parties had fundamentally different understandings of their prior discussions. Each had a very different idea of an agreement toward which they were moving, but which they had definitely not yet reached. Accordingly, the pleadings and exhibits reflect that as of December 30, 2005, there was no mutual assent on material terms of the contract; they had not agreed upon the same thing in the same sense. (Civ. Code, 1580.) Ponchak and defendants did not agree about whether Ponchak was making a tax free investment or a tax deductible contribution, or even whether it was Ponchak who would actually enter into the trust (Pattanaik struck Ponchaks reference to my entering from the letter, so the sentence read that Ponchak would contribute to a VEBA trust and the trust would purchase insurance). Pattanaik also made it clear that Ponchaks belief that after 10 years of making payments in amounts certain, he could make annual withdraw[als] of $72,000, was fundamentally mistaken. Rather, after 10 years of approximated payments, AIG would provide loans that were, at the time, projected to be about $72,000 annually. In sum, when the letter, with Pattanaiks changes is compared to the allegations of the TAC, it is apparent the parties had not agreed to the material contractual terms. The counteroffer, namely Pattanaiks interlineations, shows that defendants expectations and intentions with respect to Ponchaks participation in the VEBA trust and future payouts were starkly different from Ponchaks.

On this record, it is abundantly clear the parties did not achieve a meeting of the minds on pivotal terms, an essential prerequisite for the existence of a valid contract. (Civ. Code, 1550, 1565.) Incomplete negotiations will not support a claim for breach of contract. (See Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 59.) The pleadings and exhibits demonstrate the parties failed to agree upon the same thing in the same sense. (Civ. Code, 1580.) As the allegations of the TAC, particularly when considered in light of Ponchaks contradictory and inconsistent earlier pleadings and exhibits thereto, demonstrate as a matter of law that there was no mutual consent as to the terms of Ponchaks participation in the VEBA trust, no contract was formed.

We disagree with Ponchaks contention that the trial court abused its discretion by denying leave to amend because he may be able to state a valid claim. As appellant, Ponchak must show there is a reasonable probability he can amend the complaint to cure its defects. (McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal.App.4th 72, 78 [when demurrer is sustained without leave to amend, reviewing court will determine if there is a reasonable probability the defects can be cured, and plaintiff bears the burden to enumerate facts to demonstrate the possibility of a curative amendment]; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081; McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 792.) Ponchak has made no effort to demonstrate how he might amend the TAC to rectify its defects, and we see nothing in Ponchaks arguments to indicate a reasonable probability that he could successfully amend this claim. The trial court did not err by sustaining the demurrers without leave to amend.^[6]

3. No breach of fiduciary duty

Ponchak maintains the trial court erred when it sustained without leave defendants demurrers to the cause of action for breach of fiduciary duty. We disagree.

To state a claim for breach of fiduciary duty, a plaintiff must plead (1) the existence of a fiduciary duty, (2) breach of that duty, and (3) damage proximately caused by the breach. (Mendoza v. Rast Produce Co., Inc (2006) 140 Cal.App.4th 1395, 1405.) Although the issue whether a fiduciary duty has been breached is typically a question of fact, the question of whether a legal duty is owed in the first instance and its scope are questions of law. (Kirschner Brothers Oil, Inc. v. Natomas Co. (1986) 185 Cal.App.3d 784, 790; 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, 860, p. 85.) The key factor in establishing the existence of a fiduciary relationship lies in demonstrating control by one person or entity over the property of another. (Vai v. Bank of America (1961) 56 Cal.2d 329, 338.)

It is well established that the relationship between an investment advisor and his, her or its customer is fiduciary in nature, imposing on the former the duty to act in the highest good faith. (Twomey v. Mitchum, Jones & Templeton, Inc. (1968) 262 Cal.App.2d 690, 708709; Blankenheim v. E.F. Hutton & Co. (1990) 217 Cal.App.3d 1463, 1475.) However, no fiduciary relationship arises unless the principal has retained an agent to advise [him] in connection with [his] investments. (Twomey v. Mitchum, Jones & Templeton, Inc., supra, 262 Cal.App.2d at p. 695; see also Apollo Capital Fund LLC v. Roth Capital Partners LLC (2007) 158 Cal.App.4th 226, 244-246 [no fiduciary relationship between broker-dealer and buyer in the absence of allegation that buyer had an existing account with broker-dealer].)

Notwithstanding the fact that he has had four opportunities to do so, Ponchak never alleges defendants were retained to advise him in connection with his investment in the VEBA trust. Nor does Ponchak claim he had any preexisting business relationship or agreement with Harrison or Pattanaik, either as individuals, or in their capacity as agents of AIG or IPS. Rather, Ponchak claims only that Harrison and Pattanaik approached him and solicited his participation in their business investment, the VEBA trust. Defendants knew Ponchak was looking for a quick tax shelter for his funds, and held themselves out as investment advisors, tax planners and experts in organizing and implementing individual memberships in IRS-approved VEBA trusts. Ponchak claims that simply by virtue of their expertise and knowledge in matters related to financial and tax planning and VEBA trusts, Harrison and Pattanaik assumed a fiduciary duty to him. Ponchak trusted defendants, and relied on their expertise, advice and knowledge in choosing to invest his funds in the trust. Defendants are alleged to have breached their fiduciary duties to Ponchak by placing their own interests above his, and belatedly insisting that Ponchak sign a nonnegotiable indemnification agreement and release that benefited them, but which was against Ponchaks interest. As a result, Ponchak claims to have suffered significant financial consequences.

Although pleaded in tort, Ponchaks breach of fiduciary duty claim is squarely premised on the existence of a valid contract. (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 425-426 [no fiduciary relationship may exist between plaintiff and defendant broker prior to existence of a contractual relationship].) However, as discussed above, there was no meeting of the minds on the pivotal terms of an agreement, and no contract was ever formed. Ponchak thus failed to allege facts to establish the first essential element of a claim for breach of a fiduciary dutythe existence of that duty. The mere fact that Ponchak relied on, or reposed trust and confidence in Pattanaik and Harrison does not give rise to a corresponding duty on these defendants part. (Worldvision Enterprises, Inc. v. American Broadcasting Companies, Inc. (1983) 142 Cal.App.3d 589, 595 [no fiduciary relationship is established simply because one party reposes trust and confidence in another]; Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 13 [The mere placing of a trust in another person does not create a fiduciary relationship.].) The key factor in establishing the existence of a fiduciary relationship is establishing the defendant fiduciarys control over the property of another. (Vai v. Bank of America, supra, 56 Cal.2d at p. 338.) Ponchaks pleading alleges no facts that would establish such control on the part of any defendant, and he does not suggest on appeal how he might amend the operative complaint to cure this fatal defect. In addition, Ponchak failed to allege damages suffered as a result of defendants alleged breach. On the contrary, he concedes that, after he refused to sign the required waiver and indemnity agreements, his funds were returned in full. The trial court did not err in sustaining demurrers to the fiduciary duty claim without leave to amend.

4. Negligence

Demurrers were properly sustained as to the cause of action for garden variety negligence alleged against Harrison, Pattanaik, AIG and IPS. That claim rests on essentially on the same alleged acts and omissions by defendants as does the fiduciary duty claim. Nothing is alleged which would give rise to an independent duty on the part of any defendant. To prevail on a negligence claim, a plaintiff must show that the defendant owed the plaintiff a legal duty, that the defendant breached that duty, and that the breach was a proximate or legal cause of injuries suffered by the plaintiff. (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 673.) We have already found no contractual duty was owed or breached by any defendant. Under the circumstances alleged here, if defendants owed Ponchak a fiduciary duty, it may have encompassed the duty timely to advise him he would be required to sign the indemnification agreement and release in order to enjoy the advantages of the VEBA trust. However, no facts are pleaded which would give rise to a duty owed by a defendant independent of his or its alleged duties as a fiduciary. As appellant, it is Ponchaks responsibility to demonstrate a reasonable probability that he can amend the operative complaint to cure its defects. (Blank v. Kirwan, supra,39 Cal.3d at p. 318; Schifando v. City of Los Angeles, supra,31 Cal.4th at p. 1081.) The cases on which Ponchak relies arise in wholly different contexts, and are not relevant to the rulings on the demurrers, or his ability to amend to state a valid claim. (See Kemp Brothers Construction, Inc. v. Titan Electric Corp. (2007) 146 Cal.App.4th 1474, 14831484 [finding trial court erred by applying principles of collateral estoppel where contract-related issue had not been fully and fairly litigated in prior proceeding]; Lopez v. McDonalds Corp. (1987) 193 Cal.App.3d 495, 509 [concluding, on review from summary judgment in premises liability action, that failure of owner of fast food restaurant to foresee mass murder was not foreseeable].) Ponchak does not claim he can amend the TAC to state a viable cause of action for garden variety negligence. Accordingly, he has failed to satisfy his burden on appeal. (Blank v. Kirwan, supra,39 Cal.3d at p. 318.) The trial court did not err in sustaining the demurrers as to the fourth cause of action without leave to amend. (Cf. Curtis v. 20th Century-Fox Film Corp. (1956) 140 Cal.App.2d 461, 464465 [where two counts of complaint are based on the same allegations and the second adds nothing to the first, plaintiff is not prejudiced by a ruling sustaining a demurrer to the second count].)

5. Intentional interference with contractual relations

We need not devote much discussion to Ponchaks contention that the demurrer was improperly sustained on the claim for intentional interference with contractual relations alleged against Sea Nine, Capital Trust, Pattanaik and Harrison. First, Ponchak has failed to make any substantive argument to support his assertion that the trial court erred as to that ruling or to the dismissal of Capital Trust or Sea Nine. Indeed, Ponchaks only references to that ruling are his unsubstantiated pronouncements that he sufficiently plead[ed] facts in his [TAC] . . . to establish his . . . intentional interference with contractual relations . . . cause[] of action against the Defendants, and that Harrison somehow interfered. These will not suffice. On appeal, the appellant bears the burden of demonstrating error and, in the context of a demurrer sustained without leave to amend, the burden to prove there is a reasonable possibility of amendment. Ponchak has not satisfied either obligation.

Second, there can be no cause of action for interference with contractual relations as against Pattanaik or Harrison; both are alleged to be parties to the contract. (See Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126; Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 999 [cause of action for intentional interference with contractual relations does not lie against a party to the contract].)

Finally, and fundamentally, our conclusion that Ponchak failed to plead facts sufficient to establish a prima facie claim of breach of contract, by necessity, eviscerates this derivative claim that defendants intentionally interfered with that nonexistent agreement. The elements of a cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendants knowledge of the contract; (3) defendants intentional acts designed to induce a breach or disruption of that contractual relationship, (4) a breach or disruption of the contractual relationship, and (5) resulting damage. (Pacific Gas and Electric Co. v. Bear Stearns & Co., supra,50 Cal.3d at p. 1126. The existence of a contract is a pivotal and essential element of a viable claim for interference with that agreement. (Beck v. American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1567.) The demurrers to this cause of action were properly sustained without leave to amend.

DISPOSITION

The judgment is affirmed. Respondents are awarded their costs of appeal.

NOT TO BE PUBLISHED.

JOHNSON, J.

We concur:

ROTHSCHILD, Acting P. J.

CHANEY, J.

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^[1]The language of this pleadingand the three that followis ambiguous as to whether both the living and death benefits Ponchak expected to receive would be tax-free, or just the latter.

^[2]The initial, first and second amended complaints each allege a cause of action for intentional interference with prospective economic advantage. The initial and first amended complaints also contain causes of action for intentional infliction of emotional distress and fraud. None of these claims is alleged in the operative pleading or at issue on appeal.

^[3]UBS demurred to the FAC, but that motion is not in the appellate record. UBS was not named as a defendant in the second amended complaint, and is not a party to this appeal.

^[4]The factual allegations of the second cause of action for intentional interference with contractual relations alleged against Capital Trust and Sea Nine, were substantively the same as in the FAC, although the SAC did supply dates and damages amount not previously specified.

^[5]Ponchak relies on Toth v. Metropolitan Life Ins. Co. (1932) 123 Cal.App. 185, 188 to support his claim that an oral contract for insurance is permissible. Toth did so hold, but also stated that the existence of such agreements is quite rare and universally frowned upon. (Ibid.) In any event, Ponchak has not alleged the existence of such a contract nor does he seek recovery of damages solely for breach of an oral obligation to sell him life insurance.

^[6]Our conclusion that no contract was formed as a matter of law renders it unnecessary to address Harrisons assertion that the contract claim also fails because it violates the statute of frauds.