Sacramento Housing & Redevelopment Agency v. Small Business Chamber of Commerce

Filed 12/19/08 Sacramento Housing & Redevelopment Agency v. Small Business Chamber of Commerce CA3

NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

Plaintiff Sacramento Housing & Redevelopment Agency (SHRA) entered into an agreement with the Meadowview Community Action (MCA) that provided $100,000 in federal Community Development Block Grant funds for the purchase of real property on which MCA promised to build a public service facility to serve low-income residents of the Meadowview neighborhood of Sacramento, including the provision of Headstart services.

The agreement provided that the property purchased would revert to SHRA if the facility was not constructed by December 31, 1996, or MCA ceased to operate Headstart services with a capacity for 40 children during the 10 years following its execution.

When MCA purchased the property with the block grant funds but failed to build a facility or conduct the promised services during a 10-year period, SHRA filed this action on October 19, 2006, against MCA to quiet title and for equitable relief and damages. SHRA recorded a lis pendens. Shortly thereafter MCA conveyed the property to Small Business Chamber of Commerce, Inc. (SBCC) who conveyed it to PTS Business Investments, LLC (PTS). SHRA then amended its pleading to join SBCC and PTS as defendants.

SBCC and PTS, as successors in interest to MCA, filed a demurrer to SHRAs complaint on the ground the statute of limitations had run on SHRAs various causes of action against MCA and the trial court granted it without leave to amend. The court dismissed the action as to SBCC and PTS and this appeal followed.

As we will explain, the demurrer was properly sustained. However, SHRA proposed to amend the complaint to assert that MCA continuously agreed to provide and MCA accepted further time to perform under the terms of the agreement, continuing until June 9, 2006. In its opening brief, SHRA asserts that it offered, and MCA accepted, extensions of time to develop the real property and MCA represented to SHRA that the development would proceed under federal guidelines. . . . In exchange, SHRA agreed not to pursue recovery of the grant funds or the property and continued to assist with development plans. This proposal leaves open the reasonable possibility that SHRA can amend its complaint to assert that SBCC and PTS are equitably estopped to assert the statute of limitations on the claims against MCA.

We will reverse the judgment of dismissal as to five of the six causes of action and remand the matter to give SHRA the opportunity to amend its complaint.

FACTUAL AND PROCEDURAL BACKGROUND

On an appeal from a judgment of dismissal after a demurrer has been sustained, we accept the material allegations of the complaint as true, but do not assume the truth of contentions, deductions, or conclusions of law. (City of Dinuba v. County of Tulare(2007) 41 Cal.4th 859, 865.)

SHRA filed its original complaint against MCA on October 19, 2006, and a first amended complaint to quiet title and for equitable relief and damages on December 22, 2006. The amended complaint alleges the following: On August 22, 1995, SHRA entered into a written Agreement to Provide Community Development Services (the agreement) with Meadowview Community Action, Inc. A copy of the agreement is attached to the complaint and incorporated by reference.^[1] Under the agreement SHRA agreed to pay MCA $100,000 in federal Community Development Block Grant funds (block grant funds), and MCA agreed to use the funds exclusively for the purpose of implementing its approved activity . . . .

The agreement provides that [a]ny real property under [MCAs] control which was acquired . . . with [block grant] funds in excess of $25,000 must be . . . used to meet one of the national objectives in 24 CFR 570.208 for five years after the expiration or termination of this [a]greement, or disposed of in a manner that results in [SHRA] being reimbursed in the amount of the current fair market value of the property . . . .

MCAs approved activity is detailed in a second Agreement to Provide Community Development Services, a copy of which is attached as Exhibit A to the standard agreement and incorporated therein by reference.^[2] Pursuant to this agreement, MCA agreed, among other things, to use the $100,000 in block grant funds to purchase real property described as Sacramento County APN 047-0164-004 [sic] located on 24th Street Bypass, California and to construct a facility on the site for the purpose of providing Headstart and other services for the Meadowview community.

The property [was to] be acquired and the facility . . . constructed in a timely manner, with completion no later than December 31, 1996. MCA would own the complete site, and maintain the completed site without reimbursement from [SHRA]. In the event that work [was] not completed by December 31, 1996, or in the event that [MCA] cease[d] to operate Headstart services with capacity for 40 children at any time during the ten years following execution of this contract; ownership of the real property . . . [would] revert to . . . [SHRA]. The agreement further provides that no alteration or variation in its terms is valid unless made in writing and signed by the parties.

In accordance with the agreement, on August 22, 1995, SHRA provided $100,000 in block grant funds to MCA, and on August 25, 1995, MCA purchased the real property described as APN 047-014-004. WhenMCA failed to construct a Headstart facility by December 31, 1996, or at all, or operate Headstart services on the property, SHRA filed this action against MCA on October 19, 2006.^[3] Less than two months later (December 4, 2006) MCA transferred the property to SBCC by grant deed. Two days later, on December 6, 2006, SBCC transferred the property to PTS by grant deed.

The first amended complaint asserts causes of action against MCA, SBCC, and PTS for quiet title (first), injunctive relief (second), resulting trust (third), fraud (fifth), and violation of Californias False Claims Act (sixth). It asserts a cause of action for breach of contract (fourth) against MCA. SHRA seeks to establish a resulting trust, quiet title, and obtain declaratory relief, injunctive relief, compensatory damages, treble damages, and attorney fees.

The quiet title cause of action alleges that under the agreement, the property automatically reverted to SHRA upon MCAs failure to construct the Headstart childcare facility; thus, SHRA is the owner of the property, and defendants have no right, title, estate, lien, or interest in the property.

The injunctive relief cause of action alleges defendants have wrongfully threatened to interfere and continue to interfere with SHRAs use of the property by failing to return the property to SHRA and threaten[ing] to sell or otherwise encumber the property.

The resulting trust cause of action alleges SHRA informed MCA it was not in compliance with the terms of the agreement and demanded MCA return the property to SHRA; and MCA not only failed to return the property, but transferred it to SBCC, which in turn transferred it to PTS.

The breach of contract cause of action alleges MCA breached the agreement by failing to construct and maintain a Headstart childcare facility on the property.

The fraud cause of action alleges MCA falsely represented that it was going to construct a Headstart childcare facility when it entered into the agreement with [SHRA], [d]efendants intended to defraud [SHRA] of the gran[t] funds through their misrepresentations that they intended to use the property for a Headstart childcare facility, and SHRA justifiably relied on MCAs representations when it provided $100,000 in grant funds to MCA . . . .

The cause of action for violation of the False Claims Act alleges MCA falsely filed for grant funds . . . by misrepresenting that the funds were intended to acquire a site to construct a public service facility that would serve low-income residents of the Meadowview neighborhood, and [d]efendants knowingly presented and/or conspired to get a false claim paid by [SHRA].

SBCC and PTS demurred to the first amended complaint on the grounds: the first through fourth causes of action were barred by the four year limitations period for action[s] upon any contract (Code Civ. Proc.,  337), the fifth cause of action was barred by the three year limitations period for fraud actions (id., 338, subd. d)), and the sixth cause of action was barred by the three year limitations period for civil actions brought under the False Claims Act (Gov. Code, 12652, 12654, subd. (a)).^[4]

SBCC and PTS also urged the fifth and sixth causes of action were insufficient because they failed to allege that either SBCC or PTS made any statements to SHRA or submitted a false claim to a government entity.^[5]

SHRA responded by seeking leave to file a proposed second amended complaint which it claimed included allegations that cured any perceived defects in the first amended complaint.^[6] With respect to the timeliness of the action, the proposed complaint alleges that [a]lthough the [December 31, 1996] deadline under the agreement lapsed, SHRA continuously agreed to provide and MCA accepted further time to perform under the terms of the agreement, continuing until June 9, 2006. It also alleges that [t]he agreement entered into between SHRA and MCA provides that in the event that MCA ceased to operate Headstart services with capacity for 40 children at any time during the ten years following the execution of the agreement, ownership of the property would revert to SHRA. SHRA argued MCAs failure to operate Headstart services on the property constituted a continuing breach at least until 2005.

With respect to the fraud cause of action, the proposed complaint includes the following additional allegation: Each [d]efendant transferred the real property and/or accepted ownership of the real property even though they had knowledge that SHRA had a rightful claim to the real property and/or payment related to the real property. SHRA argued this allegation, along with those in the first amended complaint, stated a claim under the Uniform Fraudulent Transfer Act (UFTA) (Civ. Code, 3439 et seq.)

SBCC and PTS opposed SHRAs motion for leave to file a proposed second amended complaint, arguing the allegation the agreement was modified by an oral agreement should be disregarded as a sham pleading; the alleged oral agreement was void under Civil Code section 1698 because SHRA failed to allege, and could not allege, the agreement was executed by the parties; and SHRAs theory MCA continuously breached the agreement until at least 2005 by failing to operate Headstart services was unsupported by the agreement because the facility was never built.

The trial court denied SHRAs motion to file a second amended complaint. It ruled the proposed new allegations of an oral extension of time to perform until 2006 appear[ed] to . . . be sham amendments intended to avoid the statute of limitations bar, and the newly alleged oral modification contradict[ed] the written agreement, and therefore [would not] state a cause of action. In doing so, the court noted the written agreement . . . expressly prohibit[ed] any modification except by writing.^[7]

SHRA filed its opposition to the demurrer the next day. It again asserted that MCA continuously breached the agreement until at least 2005 by failing to operate Headstart services during that time, and thus, the first through fourth causes of action were timely. With respect to the fraud cause of action, SHRA argued the first amended complaint sufficiently alleged a violation of the UFTA, and because the claim was predicated on the transfers of the property in 2006, it, too, was timely. With respect to the cause of action for violation of the False Claims Act, SHRA asserted the first amended complaint adequately alleged SBCC and PTS, along with MCA, conspired to defraud SHRA of the block grant funds, and because SHRA did not discover SBCC or PTSs involvement until 2006, that claim was timely as well. In the event the trial court sustained the demurrer, SHRA requested leave to amend.

The trial court sustained the demurrer without leave to amend. Referring to its prior ruling denying SHRAs motion for leave to file a proposed second amended complaint, the court determined MCAs breach of the written contract occurred more than nine years prior to the filing of the complaint, and [SHRA] is not able to amend to allege an oral modification that would bring this action within the statute of limitations. The factual basis for the first cause of action for quiet title is the alleged breach of contract by MCA, which is now time-barred. The causes of action for injunction and resulting trust are remedies for the breach of contract cause of action, and are likewise time-barred. [] The causes of action for fraud and violation of [the False Claims Act] are based on representations made in 1995 by defendant MCA concerning its intent to build the childcare center. No facts are alleged showing defendants PTS or [SBCC] had any involvement with respect to those representations. Even if [SHRA] could allege such facts, these causes of action are barred by the three-year statutes of limitation under [Code of Civil Procedure] section 338 and [Government] Code section 12654 as [SHRA] knew in 1996 that MCA did not build the childcare center.

DISCUSSION

SHRA contends the trial court erred in sustaining the demurrer without leave to amend. More particularly, it asserts the court erred in (1) determining the first through fourth causes of action were time barred because MCA continuously breached the agreement until 2005, and (2) denying it leave to amend to allege an oral modification extending MCAs time to perform under the agreement until June 2006 and to state a cause of action under the UFTA. As we shall explain, the demurrer was properly sustained, but SHRA should have been given leave to amend because there is a reasonable possibility it can amend its complaint to state a cause of action.

I

When a demurrer is sustained, we examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory . . . . (McCall v. PacifiCare of California, Inc. (2001) 25 Cal.4th 412, 415.) [W]hen a complaint shows on its face . . . that a pleaded cause of action is apparently barred by the statute of limitations, plaintiff must plead facts which show an excuse, tolling, or other basis for avoiding the statutory bar [citation], at least in order to avoid a successful demurrer. (Spray v. Associated Intl. Ins. Co. (1999) 71 Cal.App.4th 1260, 1266, fn. 4.)

As a preliminary matter, while the parties agree and the trial court assumed, the first through fourth causes of action are subject to the four year statute of limitations set forth in Code of Civil Procedure section 337, it could persuasively be argued that the first through third causes of action are subject to the five year statute of limitations set forth in Civil Code section 885.050 insofar as SHRA asserts a reversionary interest in the property based upon MCAs failure to construct the Headstart facility or operate Headstart services as required under the agreement. (Civ. Code, 885.010, 885.020, 885.050.) We need not decide which statue of limitations applies because, as we will explain, the action is untimely under both.

The first through fourth causes of action in the first amended complaint are predicated upon MCAs alleged failure to construct a Headstart facility or operate Headstart services. Under the agreement, MCA was required to complete construction of the Headstart facility no later than December 31, 1996. It failed to do so, and SHRA failed to commence the instant action until October 2006, well beyond the four or five year statutes of limitation.

Nevertheless, SHRA asserts the first through fourth causes of action are timely because [t]he relevant breach occurred continuously up to August 2005. According to SHRA, the agreement . . . expressly required that MCA operate Headstart services . . . for ten years following the execution of the [agreement], the agreement was executed in August 1995; thus, MCA was required to operate Headstart services until August 2005. Because MCA failed to operate Headstart services on the property, SHRA asserts MCA continuously breached the agreement until at least August 2005. We are not persuaded.

Considering the contract as a whole, as we must (Civ. Code, 1641), we conclude construction of the Headstart facility was a condition precedent to MCAs obligation to operate Headstart services. Because the facility was never constructed, MCAs obligation to operate Headstart services never arose. The agreement provides in relevant part:

VI. GOALS AND OBJECTIVES

The goal and objective of the [a]greement is to improve public services in the Meadowview community by providing resources to [MCA] to acquire a site to construct a public service facility that will serve low-income residents of the Meadowview neighborhood. Services shall include, but are not limited to, Headstart child care services with the capacity for at least 40 children. This goal and objective will be achieved through the following procedure:

Purchase of Real Property

[MCA] shall perform and execute all necessary procedures under the attached option agreement for the purchase and sale of real property . . . .

Operation

1. [MCA] shall own the complete site, and maintain the completed site without reimbursement from [SHRA].

2. [MCA] shall construct a facility on the site for the purpose of providing Headstart and other services for the Meadowview community.

. . . . . . . . . . . . . . . .

VIII. TIME AND PERFORMANCE CONSIDERATION

Under this agreement, the property will be acquired and the facility will be constructed in a timely manner, with completion no later than December 31, 1996.

In the event that work is not completed by December 31, 1996, or in the event that [MCA] ceases to operate Headstart services with capacity for 40 children at any time during the ten years following execution of this contract, ownership of the real property . . . will revert to [SHRA].

A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful. (Civ. Code, 1636.) As set forth in the agreement, SHRA and MCAs intent in entering into the agreement was to improve public services in the Meadowview community by providing resources to MCA to acquire a site to construct a public service facility . . . . The purpose of that facility was to provide Headstart and other services to members of the community. That being the case, MCAs obligation to provide such services did not arise until the facility was constructed. Insofar as the facility was never constructed, MCAs obligation to provide Headstart services never arose.

Under the interpretation urged by SHRA, MCAs obligation to operate Headstart services not only arose before the facility was to be constructed, but prior to MCAs acquisition of the property. (The agreement was executed on August 22, 1995, and the property was acquired on August 25, 1995.) Such an interpretation is both unreasonable and inconsistent with the parties intent in entering into the agreement.

SHRA also urges the time for performance ultimately extends to 2010 based on the provision in the standard agreement that [a]ny real property under [MCAs] control which was acquired . . . with [block grant] funds in excess of $25,000 must be either used to meet one of the national objections in 24 CFR 570.208 for five years after the expiration or termination of this [a]greement, or disposed of in a manner that results in [SHRA] being reimbursed in the amount of the current fair market value of the property . . . . While SHRA fails to explain how this provision extends the time for performance to 2010, its assertion appears to be premised upon the assumption that the agreement did not expire or terminate until 2005, when it contends MCAs obligation to provide Headstart services expired; thus, MCA was obligated to continue to use the property to meet one of the national objectives or dispose of the funds as specified for five years thereafter, until 2010. There are at least two problems with SHRAs assertion.

First, the agreement expressly provides that it is for a period commencing on the date it is executed and ending upon completion of activities or exhaustion of funds described in EXHIBIT A, or on, April 30, 1996, whichever is sooner. Second, even if the agreement reasonably could be construed as expiring on some date beyond April 30, 1996, as previously discussed, MCAs obligation to operate Headstart services was contingent upon the construction of the Headstart facility, which was never built. (See ante, p. 13.) Thus, the agreement cannot be said to have expired in 2005 or to have been extended to 2010, as urged by SHRA. Accordingly, the trial court properly sustained the demurrer as to the first through fourth causes of action.

On appeal, SHRA does not challenge the trial courts sustaining of the demurrer as to the fifth cause of action; rather, it contends the trial court abused its discretion in refusing to allow it to amend the fifth cause of action to state a cause of action under the UFTA.^[8] We address SHRAs contentions concerning the trial courts failure to grant it leave to amend below.

II

Although the demurrer was properly sustained, we conclude SHRA should have been given leave to amend.

When a demurrer 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. (City of Dinuba v. County of Tulare, supra, 41 Cal.4th at p. 865.) The burden of proving such reasonable possibility is on the plaintiff. (Zelig v. County of Los Angeles(2002) 27 Cal.4th 1112, 1126.)

SHRA asserts the trial court abused its discretion in sustaining the demurrer without leave to amend because the court was presented evidence that a cause of action could be stated

. . . . SHRA argues that while defects in the [f]irst [a]mended [c]omplaint required correction and the proposed second amended complaint still failed to adequately address the statute of limitations issues, the briefing on the motion to amend the [f]irst [a]mended [c]omplaint and the opposition to [the] demurrer sufficiently put the court on notice that a cause of action could be stated.^[9] We agree, but for somewhat different reasons than those asserted by SHRA.

A

SHRA argues that if [g]iven an opportunity to file an amended complaint, [it could] allege, and eventually prove, that MCA and SHRA orally modified the grant agreement to continuously extend the deadline for completion of the Headstart facility and the other requirements of the agreement.

The proposed second amended complaint alleges that [a]lthough the [December 31, 1996] deadline [to construct the Headstart facility] under the agreement lapsed, SHRA continuously agreed to provide and MCA accepted further time to perform under the terms of the agreement, continuing until June 9, 2006.

Where, as here, a written agreement prohibits oral modifications, an oral modification nevertheless is enforceable to the extent it has been executed by the parties. (Civ. Code, 1698, subd. (b); see also Cal. Law Revision Com. com., 9 Wests Ann. Civ. Code (1985 ed.) 1698, p. 722 [The introductory clause of subdivision (c) recognizes that the parties may prevent enforcement of executory oral modifications by providing in the written contract that it may only be modified in writing. [Citation.] Such a provision would not apply to an oral modification valid under subdivision (b).].) An oral modification is executed when both parties have performed the terms of the modification. (Coldwell Banker & Co. v. Pepper Tree Office Center Associates (1980) 106 Cal.App.3d 272, 280-281, disapproved on another ground in Barrett v. Bank of America (1986) 183 Cal.App.3d 1362, 1371; Civ. Code,  1661; 1 Miller & Starr, Cal. Real Estate (3d ed. 2000) 1:101, p. 344.)

Even assuming SHRA performed its part of the agreement by failing to assert its rights under the agreement, MCA did not. The performance contemplated by MCA under the alleged oral modification was development of the property -- which SHRA acknowledges never occurred. Accordingly, the alleged oral modification is void under Civil Code section 1698. (Morton v. Albers Bros. Milling Co. (1924) 66 Cal.App. 391, 397 [an unexecuted oral agreement altering a written contract by extending the time for performance is void]; see also Platt v. Butcher (1986) 112 Cal. 634, 636 [an oral agreement simply extending time cannot be executed, for there is nothing to execute].)^[10] Accordingly, there is no reasonable possibility SHRA could amend its complaint to allege an enforceable oral modification extending the date of performance; thus, the trial court did not abuse its discretion in refusing to allow SHRA to amend its complaint to allege such a modification.

B

Although SHRA cannot allege an enforceable oral modification to the agreement, there is a reasonable possibility it can amend its complaint to state facts which would estop defendants from relying on the statute of limitations as a defense.

Under the doctrine of equitable estoppel, a party [may] be estopped from asserting the statute of limitations as a defense to an admittedly untimely action because his conduct has induced another into forbearing suit within the applicable limitations period. [Equitable estoppel] is wholly independent of the limitations period itself and takes its life . . . from the equitable principle that no man [may] profit from his own wrongdoing in a court of justice. [Citation.] (Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 384.) While [a]n estoppel may arise although there was no designed fraud on the part of the person sought to be estopped, (ibid.) [t]he defendants statement or conduct must amount to a misrepresentation bearing on the necessity of bringing a timely suit; the defendants mere denial of legal liability does not set up an estoppel. . . . (Id. at p. 384, fn. 18.)

In other words, if (1) MCA represented it would construct the Headstart facility or otherwise develop the property in a manner permitted under the agreement and agreed to by SHRA if it was given additional time to do so while the applicable limitations period was still running, (2) SHRA reasonably relied on the representation in refraining from bringing a timely action, (3) the representation proved false after the limitations period expired, and (4) SHRA proceeded diligently once the truth was discovered, MCA, as well as SBCC and PTS, as MCAs successors,^[11]may be equitably estopped to assert the statute of limitations defense to the action. (Lantzy v. Centex Homes, supra, 31 Cal.4th at p. 384; Roper v. Smith (1919) 45 Cal.App. 302, 306 [It is a general rule that an estoppel operates not only on the parties to the transaction but also on their privies in blood, estate, and contract. (10 R.C.L. 837)].)

The proposed second amended complaint alleges that SHRA continuously agreed to provide and MCA accepted further time to perform under the terms of the agreement, continuing until June 9, 2006. While not precisely in point, this allegation leaves open the possibility that MCA represented it would construct the Headstart facility or otherwise develop the property in a manner permitted under the agreement if it was given additional time to do so.^[12] Indeed, in its opening brief, SHRA states that it offered, and MCA accepted, extensions of time to develop the real property and MCA represented to SHRA that the development would proceed under federal guidelines. In exchange, SHRA agreed not to pursue recovery of the grant funds or the property and continued to assist with development plans. These averments are sufficient to satisfy SHRAs burden of showing a reasonable possibility the complaint can be amended to state facts sufficient to set forth an equitable estoppel.

C

SHRA also asserts it should have been granted leave to amend its fifth cause of action to state facts sufficient to allege a violation of the UFTA. We agree.

A fraudulent conveyance under the UFTA involves a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim. (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829.) A transferee who knowingly receives assets or notes from a debtor in violation of the statute is liable to the creditor. (Id. at p. 830; see Pedro v. Soares (1937) 18 Cal.App.2d 600, 605; Civ. Code, 3439.08, subd. (b).) A defrauded creditor may seek to have such a transfer voided to the extent necessary to satisfy the creditors claim, or apply for [a]ny other relief the circumstances may require. (Civ. Code, 3439.07, subds. (a)(1), (a)(3)(C).)

SBCC and PTS argue SHRA cannot establish it is a creditor under the UFTA because any claim it had regarding the property was time barred at the time the transfers were made. Thus, according to SBCC and PTS, SHRA cannot amend to state a claim under the UFTA.

Under the UFTA, [c]reditor means a person who has a claim . . . . (Civ. Code, 3439.01, subd. (c).) Person includes a government or governmental subdivision or agency (id., 3439.01, subd. (g)), and [c]laim, means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. (id., 3439.01, subd. (b).)

If SHRA is able to amend its complaint to state facts which would estop defendants from relying on the statute of limitations as a defense to the first through fourth causes of action, SHRA would have a claim, and thus, would qualify as a creditor under the UFTA. Moreover, given the timing of MCAs transfer of the property to SBCC -- less than two months after this action was commenced -- it could reasonably be inferred that MCA transferred the property to SBCC with the intent of preventing SHRA from reaching it to satisfy its claim against MCA.

Moreover, because MCAs transfer to SBCC and SBCCs transfer to PTS took place after a lis pendens had been recorded, it also reasonably could be inferred that SBCC and PTS were aware of SHRAs claims concerning the property at the time the transfers were made. Indeed, the proposed second amended complaint alleges [e]ach [d]efendant transferred the real property and/or accepted ownership of the real property even though they had knowledge that SHRA had a rightful claim to the real property and/or payment related to the real property. These averments are sufficient to satisfy SHRAs burden of showing a reasonable possibility the complaint can be amended to state facts sufficient to state a cause of action under the UFTA.

Hence, the denial of leave to amend was an abuse of discretion, and the judgment of dismissal must be reversed.

DISPOSITION

The judgment of dismissal is reversed as to the first, second, third, fourth, and fifth causes of action and affirmed as to the sixth cause of action. The matter is remanded to the trial court with directions to grant SHRA leave to amend its complaint. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

BLEASE , Acting P. J.

We concur:

NICHOLSON , J.

CANTIL-SAKAUYE , J.

Publication Courtesy of California attorney directory.

Analysis and review provided by Oceanside Property line attorney.

San Diego Case Information provided by www.fearnotlaw.com

^[1] To the extent the allegations in the first amended complaint conflict with the facts appearing in the agreement, we accept as true the factual contents of the agreement. (Holland v. Morse Diesel Intl, Inc. (2001) 86 Cal.App.4th 1443, 1447.)

^[2] Unless otherwise indicated, we shall refer to the standard agreement and Exhibit A thereto collectively as the agreement.

^[3] On October 25, 2006, less than one week after filing its original complaint, SHRA caused a notice of pendency of action, commonly known as a lis pendens, to be recorded. (Code Civ. Proc., 405.20.) The original complaint named only MCA as a defendant. SHRA filed its first amended complaint, which added SBCC and PTS as defendants, on December 22, 2006. Contrary to SBCC and PTSs assertion, the first amended complaint did not plead additional causes of action.

^[4] MCA did not participate in the demurrer and is not a party to the appeal.

^[5] PTS simultaneously filed a motion to expunge the lis pendens, arguing the first amended complaint was time barred.

^[6] While styled as a motion to amend first amended complaint, SHRAs moving papers included a proposed second amended complaint which it sought to file.

^[7] That same day, the trial court granted PTSs motion to expunge the lis pendens. The court ruled SHRA failed to show the probable validity of its real property claim, as any right to the property by reversion upon breach of the written agreement occurred more than four years prior to the filing of this action.

^[8] Nor does SHRA challenge the trial courts order sustaining the demurrer without leave to amend as to the sixth cause of action for violation of the False Claims Act. Thus, we shall affirm the judgment as to that cause of action.

^[9] SHRA argues it should have been granted leave to amend to allege that MCA continuously breached the agreement until at least 2005 and the time to perform was extended to 2010. For the reasons previously discussed, such amendments would not have cured the deficiencies in the first amended complaint. (See ante, pp. 13-16.)

^[10] Because we conclude the alleged oral modification is void, we need not consider SHRAs assertion that the trial court erred in determining SHRAs proposed allegations concerning such an agreement amounted to a sham pleading.

^[11] The agreement provides that it shall bind and inure to the successors in interest of [SHRA] and [MCA] in the same manner as if such party ha[d] been expressly named herein.

^[12] The conclusion is consistent with SHRAs assertions in its opening brief, wherein it stated: MCA expressly indicated that it still planned to provide services and MCAs conduct induced SHRA to take such a position that it would cause significant injury to SHRA if MCA should be permitted to repudiate its acts.