Sarsenstone Corp. v. Jewelinski
Filed 6/28/12 Sarsenstone Corp. v. Jewelinski CA4/3
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opinion has not been certified for publication or ordered published for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
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
SARSENSTONE CORPORATION,
Plaintiff and Appellant,
v.
JOHN JOSEPH “JACK” JEWELINSKI,
et al.,
Defendants and Respondents.
G044543
(Super. Ct. No. 30-2009-00318259)
O P I N I O N
Appeal
from judgments of the Superior Court
of
County, David C. Velasquez, Judge. Affirmed in part and reversed in part.
The
Dressler Law Group and Thomas W. Dressler for Plaintiff and Appellant.
Hood
& Reed and Thomas W. Hood for Defendants and Respondents Michael W.
Griffith and FCI Lender Services, Inc.
Beitchman
& Zekian, David P. Beitchman and Rouben Varozian for Defendants and
Respondents John Joseph “Jack” Jewelinski, Vicki Jewelinski, and Tri‑Hook
Investments, Inc.
* * *
Plaintiff
and appellant Sarsenstone Corporation (Sarsenstone)
appeals from two judgments dismissing its claims against (1) defendants
and respondents Michael W. Griffith (Griffith) and FCI Lender Services, Inc.
(FCI; collectively Griffith and FCI are referred to as the Griffith Defendants)
and (2) defendants and respondents John Joseph “Jack” Jewelinski
(Jewelinski), Vicki Jewelinski, and Tri-Hook Investments, Inc. (Tri-Hook;
collectively, Jewelinski, Vicki Jewelinski, and Tri-Hook are referred to as the
Jewelinski Defendants).
The
trial court sustained the Griffith Defendants’ demurrers to Sarsenstone’s
pleading without leave to amend, finding the statute of limitations barred all
claims against the Griffith Defendants and Sarsenstone failed to allege
sufficient facts to state a cause of action against the Griffith
Defendants. The court later found the
statute of limitations also barred Sarsenstone’s claims against the Jewelinski
Defendants and therefore granted their motion
for judgment on the pleadings without leave to amend.
We
reverse in part and affirm in part the trial court’s ruling sustaining the
Griffith Defendants’ demurrers.
Specifically, we reverse the trial court’s ruling sustaining the
demurrers to Sarsenstone’s breach of fiduciary duty, constructive trust, money
had and received, and accounting claims because Sarsenstone alleged sufficient
facts to state these claims and toll the statute
of limitations under the adverse domination doctrine. We affirm the trial court’s ruling sustaining
the demurrers to the fraudulent transfer, conversion, and unjust enrichment
claims because Sarsenstone failed to allege sufficient facts to support those
claims.
We
reverse in part and affirm in part the trial court’s ruling granting the
Jewelinski Defendants’ motion for judgment on the pleadings. Specifically, we reverse the trial court’s
ruling that Sarsenstone’s breach of fiduciary duty, constructive trust,
fraudulent transfer, unjust enrichment, money had and received, and accounting
claims are time-barred because the trial court erroneously applied a three-year
limitations period. We affirm the
court’s ruling granting the motion on the conversion claim because a three‑year
limitations period governs that claim and Sarsenstone failed to allege
sufficient facts to toll the statute of limitations.
I
Facts and Procedural History
In
July 2002, Griffith and Gregory Fernandez formed Old
Canal as a joint venture to solicit
investors to purchase at a discount portfolios of defaulted consumer
loans. Old
Canal pooled the consumer loans
into investment trusts and sold interests in those trusts to investors while
also carrying a proprietary interest. Old
Canal then sought to collect on the
defaulted loans and distribute any proceeds it recovered to the investors. In return for those efforts, Old
Canal paid itself substantial fees
or granted itself further equity interests in the trusts. Old
Canal also acted as trustee for
each of the investment trusts.
Griffith
owned 40 percent of Old Canal and served as chairman, director, executive
vice president, secretary, and chief financial officer. Fernandez owned 60 percent and served as
director, president, and chief executive officer. FCI, which Griffith owned, acted as the
servicing company for some of the consumer loans Old Canal acquired.
Shortly
after creating Old Canal, Griffith and Fernandez conspired to defraud investors
and divert investment trusts assets to themselves. One method they used was “‘up-charging’” for
the loan portfolios Old Canal purchased.
Specifically, Griffith and Fernandez purchased various loan portfolios
at a reduced price (e.g., 10 cents on the dollar), sold interests in the
portfolios to investors at significantly higher prices (e.g., 40 cents on
the dollar), and kept the difference for themselves. These undisclosed up-charges ranged from
30 percent to well over 100 percent of the actual purchase price and
exceeded a total of $11 million on 45 of the 71 trusts Old Canal created.
Griffith
and Fernandez also issued to themselves or to companies they owned, such as
FCI, interests in some of the investment trusts without paying for those
interests. These so-called “phantom
shares” diluted the holdings of investors who actually paid for their interests
and resulted in Griffith and Fernandez obtaining interests to which they were
not entitled. Using this scheme allowed
Griffith and Fernandez to pose as cash investors, which enhanced their
credibility when they encouraged other investors to purchase shares in the
investment trusts.
In
October 2004, Jewelinski became Old Canal’s president, chief operating officer,
and chief financial officer. In November
2004, Griffith and FCI severed their relationship with Old Canal. Griffith sold his company interest to
Fernandez, making him Old Canal’s sole owner.
Fernandez assumed Griffith’s former position as chairperson and remained
director and chief executive officer.
When he left Old Canal, Griffith transferred 11 investment trusts
to FCI without paying Old Canal adequate compensation.
Although
Griffith severed his “formal connection” with Old Canal, he and Fernandez
continued their conspiracy by agreeing to conceal their fraudulent practices
from the investors and others, and Fernandez continued to dominate Old Canal
and the investment trusts to prevent investors from taking any action against
Griffith and Fernandez. Fernandez also
continued “for his sole benefit” the fraudulent practices he developed with
Griffith.
By
the middle of 2005, Old Canal had halted its acquisition of new loan portfolios
because the investment climate had changed.
Deprived of the flow of funds from new investors, Fernandez began taking
funds directly from the trusts to fund general corporate overhead and his
extravagant lifestyle.
Upon
discovering Fernandez used investor funds to pay Old Canal’s expenses,
Jewelinski advised Fernandez that he could no longer do so and that Old Canal
must raise additional capital to pay investors their returns. Jewelinski and Fernandez successfully
leveraged the existing trusts and raised additional capital, but not enough to
pay the amount owed to previous investors.
Moreover, Fernandez used the funds for his own benefit rather than repay
investors.
Jewelinski
did nothing to stop Fernandez from using investor money to fund his own
lifestyle. Instead, Jewelinski began his
own campaign to use Old Canal’s funds for his personal benefit. Jewelinski paid an ever increasing amount of
his personal expenses with Old Canal’s funds and paid Tri‑Hook, a
separate company he and his wife owned, for services it did not perform. He also unilaterally doubled his salary and
began paying his wife a weekly salary for nonexistent services. By the time Jewelinski left Old Canal in
May 2006, he had “misallocate[d]” $1,021,382.35 for his own benefit.
Old
Canal and Fernandez sued Jewelinski in October 2006, alleging he converted more
than $1 million from Old Canal and misappropriated confidential information to
illegally compete with Old Canal after he left.
The record does not reveal the outcome or status of this lawsuit.
In
November 2006, FCI sued Fernandez and Old Canal, alleging it had an oral
agreement with them to purchase defaulted residential loans, collect on the
loans, and divide the proceeds. FCI
alleged Fernandez and Old Canal breached that agreement and defrauded FCI by
failing to pay FCI its share and misrepresenting the amount collected. The record also does not reveal the outcome
or status of this lawsuit.
The
Griffith Defendants and other Old Canal creditors filed an involuntary
bankruptcy petition in April 2007, seeking to force Old Canal into
Chapter 7 bankruptcy. In August
2007, before the bankruptcy court
acted on the petition, Fernandez and Old Canal sued Griffith for abuse of
process and other torts based on FCI’s lawsuit against them and the involuntary
bankruptcy petition. The trial court
dismissed that action on November 4, 2009, for failure to prosecute.
The
bankruptcy court approved a settlement between the bankruptcy trustee and Old
Canal’s creditors in September 2007. In
approving the settlement, the bankruptcy court (1) consolidated Old
Canal’s bankruptcy with the individual bankruptcies Fernandez and his wife
filed; (2) consolidated all of the Old Canal investment trusts into
one master trust and appointed Sarsenstone as trustee of the master trust and
successor in interest to the trustee for Old Canal’s bankruptcy estate; and
(3) appointed Sarsenstone as liquidation agent for the consolidated
bankruptcies to gather and liquidate the bankruptcy estates’ assets.
On
November 6, 2009, Sarsenstone filed this action on behalf of Old Canal and
the beneficiaries who invested in the trusts.
After a series of demurrers, the second amended complaint named
Jewelinski, Vicki Jewelinski, Tri-Hook, Griffith, and FCI as defendants. Sarsenstone omitted naming Fernandez because
of his pending bankruptcy. The second
amended complaint alleged separate breach of fiduciary duty claims against
Jewelinski and Griffith and claims for constructive
trust, avoidance of fraudulent transfer, conversion, unjust enrichment,
money had and received, and accounting against all defendants.
Sarsenstone
alleged it timely filed this action because Fernandez’s, Griffith’s, and
Jewelinski’s domination and control over Old Canal and the investment trusts
tolled the statute of limitations by preventing them from learning about
defendants’ misdeeds. Sarsenstone also
alleged Griffith and Fernandez continued the conspiracy after Griffith’s
departure by having Fernandez use his controlling interest in Old Canal to
prevent it from taking remedial action. Fernandez prevented Old Canal from pursuing
claims against Griffith because he feared doing so would expose his own
derelictions.
The
Griffith Defendants separately demurred to the second amended complaint,
arguing Sarsenstone failed to allege sufficient facts to state a cause of
action and the statute of limitations barred Sarsenstone’s claims. In support, the Griffith Defendants asked the
trial court to judicially notice (1) the involuntary bankruptcy petition
they filed against Old Canal in April 2007; (2) the complaint Fernandez
and Old Canal filed against Griffith in August 2007; and (3) the
complaint FCI filed against Fernandez and Old Canal in November 2006.
The
trial court granted the Griffith Defendants’ judicial notice request and
sustained their demurrers without leave to amend, finding the statute of
limitations was not tolled because Sarsenstone failed to allege sufficient
facts to establish Griffith’s domination and control over Old Canal. The trial court also found the facts alleged
in the second amended complaint failed to state a claim against the Griffith
Defendants because “[a]ll of the allegations of purported wrongdoing are entirely
conclusory.”
The
Jewelinski Defendants moved for judgment on the pleadings regarding the second
amended complaint, arguing the statute of limitations barred Sarsenstone’s
claims. In support, the Jewelinski
Defendants asked the trial court to judicially notice the complaint Old Canal
and Fernandez filed against Jewelinski in October 2006. The trial court granted the judicial notice
request and motion for judgment on the pleadings without leave to amend,
finding a three-year limitations period barred all claims against the
Jewelinski Defendants because the “gravamen of the complaint are claims based
on conversion, embezzlement and fraudulent concealment, rather than breach of
fiduciary duty.” The court also found
Sarsenstone’s domination and control allegations did not toll the statute of limitations.
The
trial court entered two judgments dismissing the second amended complaint
against the Griffith Defendants and the Jewelinski Defendants. Sarsenstone timely appealed.
II
Discussion
A. Standard
of Review
“A
demurrer based on a statute of limitations will not lie where the action may
be, but is not necessarily, barred.
[Citation.] In order for the bar
of the statute of limitations to be raised by demurrer, the defect must clearly
and affirmatively appear on the face of the complaint; it is not enough that
the complaint shows that the action may be barred. [Citation.]”
(Marshall v. Gibson, Dunn &
Crutcher (1995) 37 Cal.App.4th 1397, 1403 (Marshall); see also Lockley
v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001)
91 Cal.App.4th 875, 881 (Lockley).) The demurring party bears the burden to show
the statute of limitations necessarily bars the claims. (Lehman
v. Superior Court (2006) 145 Cal.App.4th 109, 122 (
“On
appeal from a judgment of dismissal following the sustaining of a demurrer
without leave to amend, the reviewing court must accept as true not only those
facts alleged in the complaint but also facts that may be implied or inferred
from those expressly alleged.” (
interpretation, reading it as a whole and its parts in their context. [Citation.]’”
(Sprinkles v. Associated Indemnity
Corp. (2010) 188 Cal.App.4th 69, 75.)
“A
demurrer tests the pleading alone; a court cannot sustain a demurrer on the
basis of extrinsic matter not appearing on the face of the pleading except for
matters subject to judicial notice.” (
(2012) 205 Cal.App.4th 632, 638 (Jamulians).) But “‘[t]he hearing on demurrer may not be
turned into a contested evidentiary hearing through the guise of having the
court take judicial notice of documents whose truthfulness or proper
interpretation are disputable.’
[Citation.]” (
Corp. (2007) 148 Cal.App.4th 97, 114 (Fremont).)
We
review Sarsenstone’s pleading de novo to determine whether it alleged facts
sufficient to state a cause of action under any legal theory. (Koszdin
v. State Comp. Ins. Fund (2010) 186 Cal.App.4th 480, 487.) In doing so, we look past the pleading’s form
to its substance and ignore any erroneous or confusing labels Sarsenstone
attached. (Richelle L. v. Roman Catholic Archbishop (2003)
106 Cal.App.4th 257, 266.)
A
motion for judgment on the pleadings “is equivalent to a demurrer and is
governed by the same standard of review.”
(Pang, supra, 79 Cal.App.4th at p. 989.)
B. The
Griffith Defendants Failed to Show the Statute of Limitations Barred
Sarsenstone’s Claims
The
trial court ruled the statute of limitations barred Sarsenstone’s claims
against the Griffith Defendants because Sarsenstone filed the action more than
five years after Griffith engaged in the alleged wrongdoing.
that Griffith dominated and controlled Old Canal after he left the company did
not toll the statute of limitations because Sarsenstone alleged that the
Griffith Defendants “severed their relationships” with Old Canal in November
2004 and therefore Griffith’s domination and control over the company
ended. The court also found that the
judicially noticed pleadings from other actions showed Griffith did not
dominate and control Old Canal after he left the company. Neither of these findings, however,
domination allegations and therefore the trial court erred in sustaining the
demurrers on statute of limitations grounds.
(Lockley, supra, 91 Cal.App.4th at p. 881 [a demurrer based on the
statute of limitations will not lie unless the action is necessarily time barred]; Marshall,
supra, 37 Cal.App.4th at
p. 1403 [“In order for the bar of the statute of limitations to be raised
by demurrer, the defect must clearly and affirmatively appear on the face of
the complaint; it is not enough that the complaint shows that the action may be
barred”].)
1. Sarsenstone’s Tolling Allegations Were Not Negated by Its
Allegation the Griffith Defendants Severed Their Relationships with Old Canal
in 2004
Under
the adverse domination doctrine, the statute of limitations is tolled when the
corporate wrongdoers continue to control or dominate the corporation and
prevent it from discovering the malfeasance and taking remedial action against
the malefactors. (Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th
189, 225, fn. 26 (Favila);
217 Cal.App.3d 950, 954 (Smith);
Admiralty Fund v. Peerless Ins. Co.
(1983) 143 Cal.App.3d 379, 387 (Admiralty
Fund); Burt v. Irvine Co. (1965)
237 Cal.App.2d 828, 867; San Leandro
Canning Co. v. Perillo (1931) 211 Cal. 482, 487 (San Leandro); Beal v. Smith
(1920) 46 Cal.App. 271, 279 (Beal)
[“But where, as alleged here, the corporation and its board of directors were
wholly under the domination of those who committed the original fraud the
corporation is deemed to be in the same position as an incompetent person or a
minor without legal capacity either to know or to act in relation to the fraud
so committed, and during such period of incapacity the statute of limitations
does not run, at least, against an innocent stockholder who was without
knowledge of the fraud”].)
name="_ftnref4" title="">[4]
Here,
the second amended complaint alleged Griffith and Fernandez conspired shortly
after they formed Old Canal to defraud investors and divert money from Old
Canal’s investment trusts to themselves.
The pleading explained how Griffith and Fernandez used up-charging,
phantom shares, and other means to divert investor funds from the investment
trusts to their own uses. Sarsenstone
acknowledged Griffith “severed his formal connection with Old Canal” in
November 2004 when he sold his interest in the company to Fernandez, but also
asserted the conspiracy continued as Griffith and Fernandez agreed to conceal
their prior wrongdoings and Fernandez used his position of dominance to prevent
Old Canal from taking steps to address their prior malfeasance. The second amended complaint further alleged
Fernandez prevented Old Canal from taking any action against Griffith
because he feared doing so would also expose his own misconduct. Finally, Sarsenstone alleged Fernandez’s
dominance continued until a bankruptcy trustee was appointed in 2007.
The
trial court’s finding that any domination or control Griffith exercised over
Old Canal ended when he left and sold his shares to Fernandez fails to account
for the allegations showing an ongoing conspiracy. In ruling on the demurrers, the trial court
was required to accept as true Sarenstone’s allegations regarding Griffith’s
conspiracy with Fernandez, Fernandez’s continuing domination of Old Canal, and
Fernandez’s inability to take action against Griffith without exposing his own
wrongdoings. (Marshall, supra,
37 Cal.App.4th at p. 1403.)
These allegations make Sarsenstone’s claim that the adverse domination
doctrine tolled the statute of limitations a question of fact the trial court
could not resolve on demurrer. (See
Moreover,
in sustaining the demurrers, the trial court assumed the adverse domination
doctrine would toll the statute of limitations only while Griffith remained in
control of Old Canal. None of the cases
applying the doctrine, however, distinguish between control by the individual
against whom the claim is alleged and control by someone else who engaged in
the same wrongdoing and shared the same interest in preventing the corporation
from taking any action to address the malfeasance. The doctrine’s rationale applies when
in the underlying misconduct remains in control and prevents the corporation
from discovering the wrongdoing or taking action to address it, even if the
specific individual against whom the claim is alleged is no longer an officer,
director, shareholder, or employee.
name="_ftnref5" title="">[5]
The
Griffith Defendants argue Fernandez’s continuing domination over Old Canal
after Griffith left cannot toll the statute of limitations because Sarsenstone
alleged Fernandez continued to use the fraudulent practices he developed with
Griffith for his “‘sole benefit.’”
According to the Griffith Defendants, the allegation that Fernandez
continued the fraudulent practices for his sole benefit negates Sarsenstone’s
allegation that the conspiracy between Griffith and Fernandez continued after
Griffith left Old Canal. This argument,
however, focuses on the wrong allegations.
The
relevant allegations are that Griffith and Fernandez conspired to divert
investor funds to their own uses while they ran Old Canal and the conspiracy
continued after Griffith departed because both Griffith and Fernandez agreed to
conceal their misconduct and Fernandez continued to dominate Old Canal to
prevent it from taking remedial action.
Whether Fernandez continued to loot Old Canal and its investment trusts
after Griffith left is irrelevant to the tolling question. We need not address whether the conspiracy
allegations make Griffith jointly liable for Fernandez’s malfeasance after
Griffith left the company.
name="_ftnref6" title="">[6]
As
the Griffith Defendants acknowledge, “civil conspiracy is so easy to allege,
[but] plaintiffs have a weighty burden to prove it.” (Choate
v. County of Orange (2000) 86 Cal.App.4th 312, 333 (
plaintiff need only allege “‘(1) the formation and operation of the
conspiracy; (2) the wrongful act or acts done pursuant thereto; and
(3) the damage resulting.
[Citations.]’ [Citations.]” (Mosier
v. Southern Cal. Physicians Insurance Exchange (1998) 63 Cal.App.4th
1022, 1048; c.f. Farr v. Bramblett
(1955) 132 Cal.App.2d 36, 47 [general allegations that defendants agreed
to commit a tortuous act sufficient to state claim based on conspiracy],
disapproved on other grounds in Field
Research Corp. v. Superior Court of San Francisco (1969) 71 Cal.2d
110, 114.) Sarsenstone adequately
alleged these elements and, because this action is before us following a demurrer,
we are not concerned with Sarsenstone’s ability to prove those allegations (
In
short, Sarsenstone alleged sufficient facts to toll the statute of limitations
based on the adverse domination doctrine.
The allegation Griffith left Old Canal five years before Sarsenstone
filed this action does not necessarily
prevent tolling because of the continuing conspiracy allegations and
Fernandez’s ongoing control over Old Canal.
2. The Judicially Noticed Pleadings Did Not Conclusively Negate
Sarsenstone’s Tolling Allegations
In
bringing their demurrers, the Griffith Defendants asked the trial court to
judicially notice the involuntary bankruptcy petition they filed against Old
Canal in April 2007, the complaint Fernandez and Old Canal filed against
Griffith in August 2007, and the complaint FCI filed against Fernandez and
Old Canal in November 2006. The
trial court granted the request and found the adverse domination doctrine did
not toll the statute of limitations because these documents are “evidence
showing the [Griffith] defendants did not prevent Old Canal from bringing the
instant lawsuit and that Old Canal was perfectly able to perfect its
rights by timely suing the [Griffith] defendants if it had chosen to do
so.” The trial court erred by using
judicial notice in this manner.
Judicial
notice is a substitute for formal proof.
When a fact is properly subject to judicial notice, the trier of fact
accepts the fact as true without requiring formal proof of the fact’s
existence. (Lockley, supra,
91 Cal.App.4th at p. 882.)
“The underlying theory of judicial notice is that the matter being
judicially noticed is a law or fact that is not
reasonably subject to dispute.” (
is reasonably subject to dispute. (
notice substitutes for formal proof only because the matters judicially noticed
are not reasonably
italics)].)
Care
must be taken to determine precisely what fact may be judicially noticed. For example, “the existence of a document may be judicially noticeable, [but] the
truth of statements contained in the document and its proper interpretation are
not subject to judicial notice if those matters are reasonably
disputable.” (Fremont, supra,
148 Cal.App.4th at p. 113.)
Similarly, “while courts are free to take judicial notice of the
file, including the truth of the results reached, they may not take judicial
notice of the truth of hearsay statements in decisions and court files.” (Lockley,
supra, 91 Cal.App.4th at
pp. 882, 886-887, original italics.)
Judicially
noticing one fact does not require the court to accept as true other facts
which “might be deduced therefrom” because “what is being noticed, and thereby
established, is no more than the existence of such [f]act[] and not, without
supporting evidence, what might factually be associated with or flow
therefrom.” (Cruz v. County of Los Angeles (1985) 173 Cal.App.3d 1131, 1134
(Cruz) [trial court erred in
judicially noticing governmental agency’s customary practice to show it
followed that practice in a particular instance when that was the principal
issue in dispute]; Unruh-Haxton v.
Regents of University of California (2008) 162 Cal.App.4th 343,
364-367 [trial court erred in judicially noticing widespread media coverage of
misconduct at a fertility clinic to conclusively negate the plaintiffs’ delayed
discovery allegations].)
Although
a court may consider judicially noticeable facts when ruling on a demurrer,
“‘“[a] demurrer is simply not the appropriate procedure for determining the
truth of disputed facts.” [Citation.] The hearing on demurrer may not be turned
into a contested evidentiary hearing through the guise of having the court take
judicial notice of documents whose truthfulness or proper interpretation are
disputable. [Citation.]’ . . . ‘“[J]udicial notice of matters upon demurrer
will be dispositive only in those instances where there is not or cannot be a
factual dispute concerning that which is sought to be judicially noticed.” [Citation.]’”
(Fremont, supra, 148 Cal.App.4th at pp. 113-114.) “It is immaterial that if the extrinsic
matter is true it would defeat the cause of action, because a demurrer is not
concerned with a party’s ability to prove
the allegations of the pleading.” (
to testing the legal sufficiency of the complaint. [Citation.] . . .’ [Citation.]”
(Fremont, supra, 148 Cal.App.4th at pp. 113-114.)
Here,
the trial court did not merely judicially notice undisputed facts such as the
existence of the bankruptcy petition and superior court complaints. Instead, the court judicially noticed those
pleadings and then accepted as true additional facts that might be deduced from those documents to conclusively negate
Sarsenstone’s adverse domination tolling allegations. Based on the Griffith Defendants’
April 2007 involuntary bankruptcy petition, the lawsuit Old Canal and
Fernandez filed against Griffith in August 2007, and FCI’s lawsuit against
Old Canal and Fernandez in November 2006, the trial court deduced that
(1) any control Griffith had over Old Canal necessarily ended when he left
Old Canal in November 2004 and (2) Griffith did not prevent Old Canal from
filing this lawsuit earlier as a matter of law.
These
deductions are disputed facts that simply cannot be established through
judicial notice. More fundamentally, the
pleadings the court judicially noticed did not conclusively establish the facts
on which the court relied. For example,
assuming Griffith’s April 2007 involuntary bankruptcy petition showed he did
not dominate or control Old Canal when he filed the petition, it does not
follow that any domination or control Griffith exercised over Old Canal
necessarily ended two and one-half years earlier when he left Old Canal. At best, Griffith’s petition showed he did
not dominate and control Old Canal when he filed the petition; it did not
necessarily show he lacked control over Old Canal at any earlier point in time.
Sarsenstone
filed this action on November 6, 2009, and therefore to show the statute of
limitations barred Sarsenstone’s claims the Griffith Defendants must
conclusively establish that Griffith’s domination and control over Old Canal
ceased before either November 6, 2006, or November 6, 2005, depending on
whether the claims are subject to a three- or four-year limitations
period. The involuntary bankruptcy
petition and both superior court complaints, however, were filed
for judicial notice did not establish any fact that precluded Sarsenstone’s
adverse domination allegations from tolling the statute of limitations at some
point less than three years before Sarsenstone filed this action. We need not decide whether the adverse domination
allegations tolled the statute until a bankruptcy trustee was appointed as
Sarsenstone alleged because that appointment occurred much closer to the filing
of this action than three years, and three years is the shortest limitations
period that could apply.
Finally,
based on Holland v. Morse Diesel
Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447 (Holland), superseded by statute on other grounds as stated in
178 Cal.App.4th 506, 521, the Griffith Defendants argue the factual
pleadings judicially noticed must be given precedence over the inconsistent
allegations in the second amended complaint and therefore the trial court
properly found the involuntary bankruptcy petition and superior court
complaints defeated Sarsenstone’s tolling allegations. The Griffith Defendants are mistaken. There are no facts regarding Griffith’s
domination or control over Old Canal appearing in those pleadings. Instead, the Griffith Defendants sought to
draw conclusions from those documents that are inconsistent with the second
amended complaint’s allegations. As
explained above, that is an improper use of judicial notice. Moreover, Holland
is inapposite because it involved inconsistent allegations in earlier
complaints and exhibits to complaints in the same action, not allegations by different
parties in separate actions. (
The
trial court erred by using judicial notice to decide disputed facts on demurrer
and therefore we reverse its ruling sustaining the Griffith Defendants’
demurrers based on the statute of limitations.
C. The Statute of
Limitations Barred Only Sarsenstone’s Conversion Claim Against the Jewelinski
Defendants
The
trial court granted the Jewelinski Defendants’ motion for judgment on the
pleadings because it found (1) a three-year limitations period barred
Sarsenstone’s claims because it filed this action more than three years after
Jewelinski stopped working for Old Canal, and (2) Sarsenstone’s adverse
domination allegations did not toll the statute of limitations. Although we agree the adverse domination
allegations did not toll the statute of limitations on the claims against the
Jewelinski Defendants, we nonetheless reverse the trial court’s ruling on all
claims except the conversion cause of action because the court applied an
incorrect limitations period. As
explained below, a four-year limitations period applied to all of the claims
against the Jewelinski Defendants except for conversion, and Sarsenstone timely
filed this action less than four years after Jewelinski left Old Canal.
1. The Trial Court Erred in Finding a Three-Year Limitations
Period Barred All Claims Against the Jewelinski Defendants.
“‘“To
determine the statute of limitations which applies to a cause of action it is
necessary to identify the nature of the cause of action, i.e., the ‘gravamen’
of the cause of action. . . .
‘[T]he nature of the right sued upon and not the form of action nor the
relief demanded determines the applicability of the statute of limitations
under our code.’ . . .”’
[Citations.] ‘What is significant
for statute of limitations purposes is the primary interest invaded by
defendant’s wrongful conduct.’
[Citation.]” (
& Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1153.)
“[A]
plaintiff is generally permitted to allege different causes of action — with
different statutes of limitations — upon the same underlying facts. [Citations.]
A complaint may allege facts involving several distinct types of harm
governed by different statutory periods and, where it does so, one cause of
action may survive even if another cause of action with a shorter limitations
period is barred. [Citations.]” (Thomson
v. Canyon (2011) 198 Cal.App.4th 594, 605-606 (Thomson).)
Accordingly,
courts must separately examine each cause of action to determine its gravamen
and whether the right on which the plaintiff based the cause of action was
distinct from the right on which the plaintiff based other causes of
action. There is no requirement the
entire action have only one gravamen or rely on a single right.
Here,
the trial court did not examine each cause of action Sarsenstone alleged. Instead, it concluded a three-year
limitations period applied to Sarsenstone’s entire action against the
Jewelinski Defendants because “the gravamen of the complaint are claims based
on conversion, embezzlement and fraudulent concealment, rather than breach of
fiduciary duty.” We disagree with this
characterization of Sarsenstone’s action as a whole and will examine each cause
of action to determine its gravamen and the controlling limitations period.
a. Breach of Fiduciary Duty Cause of Action
Sarsenstone’s
first and principal cause of action against Jewelinski is for breach of
fiduciary duty. The second amended
complaint alleged Jewelinski joined Old Canal as president in October 2004
and also served as its chief financial officer and chief operating officer
before leaving the corporation in May 2006.
As a corporate officer, Jewelinski owed Old Canal fiduciary duties to
affirmatively protect Old Canal’s interests, “refrain from doing anything that
would work injury to the corporation,” and refrain from self-dealing to benefit
himself at Old Canal’s expense. (
64 Cal.2d 327, 345 (Bancroft-Whitney);
GAB Business Services, Inc. v. Lindsey
& Newcom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 417 (
on other grounds in Reeves v. Hanlon
(2004) 33 Cal.4th 1140, 1154.)
Sarsenstone specifically alleged that Jewelinski owed a “fiduciary obligation
to act with the utmost care, integrity, honesty and loyalty” and also had an
“affirmative obligation to take steps to ensure the Investment Trusts above all
else were safeguarded.”
The
second amended complaint alleged Jewelinski breached these fiduciary duties in
two separate ways. First, it alleged he
“misallocate[d] $1,021,382.35” of Old Canal’s funds for his and the other
Jewelinski Defendants’ benefit. Second,
it alleged he looked the other way and did nothing to stop Fernandez from taking
more than $35 million from Old Canal and the investment trusts.
Jewelinski’s
failure to make any effort to prevent Fernandez from looting the company can be
characterized as nothing other than a breach of fiduciary duty. Jewelinski had a duty to protect Old Canal
and its assets, but he chose to look the other way while Fernandez took more
than $35 million. Contrary to both
Sarsenstone’s and Jewelinski’s contentions, the second amended complaint did
Fernandez to allow him to loot Old Canal or commit any other wrong. (See Rosen
v. St. Joseph Hospital of Orange County (2011) 193 Cal.App.4th 453,
456, fn. 1 [in reviewing trial court rulings sustaining demurrers,
appellate courts are limited to facts alleged in the challenged
pleadings].)
Neither
Sarsenstone’s conclusory allegation that Jewelinski adversely dominated and
controlled Old Canal with Fernandez and Griffith nor Jewelinski’s participation
in Old Canal’s capital raising efforts to repay the funds Fernandez previously
stole established a conspiracy.
Similarly, Jewelinski’s decision to start embezzling money after
discovering Fernandez’s ongoing looting does not establish a conspiracy. A conspiracy requires an agreement — express
or tacit — to achieve the conspiracy’s goals.
“Unless there is such a meeting of the minds, ‘“the independent acts of
two or more wrongdoers do not amount to a conspiracy.”’ [Citation.]”
(Choate, supra, 86 Cal.App.4th at p. 333.) The second amended complaint alleged no
agreement between Jewelinski and Fernandez to commit a civil wrong. The only conspiracy alleged was between
Griffith and Fernandez. Accordingly,
Jewelinski’s failure to stop, or attempt to stop, Fernandez’s looting is simply
a failure to perform his fiduciary duty to protect Old Canal.
The
allegation Jewelinski embezzled Old Canal’s funds for his own benefit could be
characterized as conversion, but conversion is not the gravamen of this
claim. Instead, the gravamen is that Old
Canal entrusted Jewelinski with the power to manage its business and rather
than do so honestly and for Old Canal’s benefit Jewelinski abused his position
to benefit himself. That is a breach of
the fiduciary duties he owed as a corporate officer. (See Schneider
v. Union Oil Co. (1970) 6 Cal.App.3d 987, 992-993 (
is both a breach of duty and a conversion, the plaintiff may elect which claim
to pursue and that election determines the gravamen of the cause of action and
governing statute of limitations].) Moreover,
Jewelinski could not separately attack this portion of Sarsenstone’s breach of
fiduciary duty claim because “a general demurrer does not lie as to a portion
of a cause of action, and if any part of a cause of action is properly pleaded,
the demurrer will be overruled.” (
(2004) 116 Cal.App.4th 446, 452; Pang,
supra, 79 Cal.App.4th at
p. 989 [motion for judgment on the pleading subject to same standards as
demurrer].)
The
statute of limitations on a breach of fiduciary duty claim is four years (Code
Civ. Proc., § 343)
name="_ftnref7" title="">[7]
unless the gravamen of the claim is actual or constructive fraud, in which case
the three-year limitations period for fraud governs (§ 338,
subd. (d)). (William L. Lyon & Associates, Inc. v. Superior Court (2012)
204 Cal.App.4th 1294, 1312; Thomson,
supra, 198 Cal.App.4th at
pp. 606-607; Hatch v. Collins
(1990) 225 Cal.App.3d 1104, 1111 [“Where property is acquired by a breach
of fiduciary duty not amounting to actual fraud, the four-year ‘catch-all
statute,’ section 343, is applicable”].)
The
second amended complaint did not allege Jewelinski committed actual fraud
through either affirmative misrepresentation or concealment. Indeed, nowhere does Sarsenstone allege that
Old Canal detrimentally relied on anything Jewelinski said or failed to
say. (See Lim v. The.TV Corp. Internat. (2002) 99 Cal.App.4th 684, 694
[elements for fraudulent misrepresentation include detrimental reliance];
68 Cal.App.4th 151, 168-170 [elements for fraudulent concealment include
detrimental reliance].) It simply
alleged he took money from Old Canal and looked the other way while Fernandez
did the same.
Moreover,
Jewelinski does not contend his alleged misconduct amounted to constructive
fraud. Without discussion, he cites the
following observation from Wyatt: “The gravamen of respondents’ cause of action
is that the appellants committed actual and constructive fraud by conspiring to
breach their fiduciary duties toward the respondents. Therefore, Code of Civil Procedure section
338, subdivision [d] states the applicable statute of limitations.” (Wyatt,
supra, 24 Cal.3d p. 786,
fn. 2.) Wyatt, however, is readily distinguishable because it was an appeal
following a trial, not a demurrer on which the court must accept the
plaintiff’s allegations as true, and substantial evidence established a
conspiracy among the mortgage broker defendants to defraud their
customers. (Id. at pp. 779-782.) As
explained above, there is no conspiracy alleged involving Jewelinski.
In
a final attempt to avoid a four-year limitations period for Sarsenstone’s
breach of fiduciary duty claim, Jewelinski argues we should apply the
limitations period section 359 prescribes.
That section establishes a three-year limitations period for “actions
against directors, shareholders, or members of a corporation, to recover a
penalty or forfeiture imposed, or to enforce a liability created by law
. . . .” (§ 359.) This statute, however, does not apply for two
reasons.
First,
section 359 applies only to claims against “directors, shareholders, or members
of a corporation” and Sarsenstone sued Jewelinski for breaching the duties he
owed as a corporate officer. Jewelinski
contends “‘members of a corporation’. . . by its nature would include
the position President of a corporation such as Jewelinski,” but he cites no
authority to support that position.
The
phrase “members of a corporation” in section 359 refers to the shareholders of
a nonprofit corporation. (Rylaarsdam
& Turner, Cal. Practice Guide: Civil
Procedure Before Trial, Statutes of Limitations (The Rutter Group 2012)
¶ 4:1625, p. 4-154; accord, Catholic
Healthcare West v. California Ins. Guarantee Assn. (2009)
178 Cal.App.4th 15, 27, fn. 9 [“Nonprofit public benefit corporations
do not have shareholders.
[Citation.] Instead, they may
(but are not required to) have members who are entitled to vote in the election
of a director, amend the articles of incorporation, and approve major corporate
changes”].) The Legislature enacted
section 359 at a time when the California Constitution made shareholders
liable to corporate creditors in proportion to their ownership interest. Its statutory purpose was to “place
reasonable limits upon the time within which the direct primary liability of
the shareholders could be enforced.” (
519, 525.) Section 359 does not
address an officer’s liability.
Second,
section 359 does not apply to claims for breach of fiduciary duty because
liability for breaching fiduciary duties existed at common law and therefore is
not a “‘liability created by law’” as required for section 359 to apply. (Lehman,
supra, 145 Cal.App.4th at
pp. 118-121.) The Jewelinski
Defendants therefore may not rely on section 359’s limitations period even
if we construe that section to apply to officers or assume Jewelinski also
served as a director.
Accordingly,
a four-year limitations period applied to Sarsenstone’s breach of fiduciary
duty claim against Jewelinski and Sarsenstone timely filed this action less
than four years after Jewelinski left Old Canal. The trial court erred by finding a three‑year
limitations period barred this claim.
b. Fraudulent Conveyance Cause of Action
The
fourth cause of action sought to void all transfers from Old Canal to the
Jewelinski Defendants under the Uniform Fraudulent Transfer Act (Act; Civ.
Code, § 3439 et seq.). Independent
of the underlying claim or debt, the Act provides a means for creditors to
reach assets a debtor transferred to someone else to prevent creditors from
collecting on the underlying claim or debt.
(See Kirkeby v. Superior Court
(2004) 33 Cal.4th 642, 648-649 (Kirkeby).) The Act establishes a four-year limitations
period on all causes of action brought under its provisions. (Civ. Code, § 3439.09, subds. (a)
& (b).) The trial court therefore
erred in finding a three-year limitations period barred this cause of action.
c. Conversion Cause of Action
Sarsenstone’s
fifth cause of action alleged the Jewelinski Defendants converted the Old Canal
funds that Jewelinski took in breach of his fiduciary duties. When a fiduciary breaches his or her duties
by converting a principal’s property, the principal may elect to sue for either
breach of fiduciary duty or conversion and the principal’s election determines
the governing statute of limitations.
(See Schneider,
pp. 992-993.) If the principal
elects to pursue a conversion claim, a three-year limitations period governs
the claim. (§ 338, subd. (c);
103 Cal.App.4th 1409, 1432.)
Accordingly, the trial court properly found a three-year limitations
period barred Sarsenstone’s conversion claim.
d. All Other Causes of Action
Sarsenstone’s
remaining causes of action alleged alternative theories or remedies to recover
the funds Jewelinski took from Old Canal.
Specifically, the second cause of action sought to impose a constructive
trust on the funds the Jewelinski Defendants received from Old Canal, the sixth
and seventh causes of action sought to recover those same funds based on an
unjust enrichment theory and a common count for money had and received, and the
eighth cause of action sought an accounting as an ancillary remedy to determine
precisely how much Jewelinski took. The
statute of limitations for each of these claims depends on the underlying
conduct or claim on which they are based.
“A
constructive trust is not a substantive device but merely a remedy, and an
action seeking to establish a constructive trust is subject to the limitation
period of the underlying substantive right.”
(Embarcadero Mun. Improvement
Dist. v. County of Santa Barbara (2001) 88 Cal.App.4th 781, 793 (
independent cause of action, but rather “‘“a general principle, underlying
various legal doctrines and remedies”’ . . . . [Citation.]”
(Melchior v. New Line Productions,
Inc. (2003) 106 Cal.App.4th 779, 793.)
“‘The phrase “Unjust Enrichment” does not describe 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.]”
(Ibid.) The limitations period on a request for
restitution depends on the underlying theory on which restitution is sought. (Federal
Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333, 348 (
for actions based on mistake applied to a restitution claim alleging defendant
mistakenly received the underlying property]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th
1657, 1670 (Perry) [three-year
limitations period for actions based on fraud applied to a restitution claim
alleging defendant fraudulently obtained the underlying property].)
A
common count for money had and received is an alternative, common law means of
pleading an unjust enrichment or quasi-contract cause of action and therefore
the applicable statute of limitations depends on the underlying theory on which
recovery is sought. (See
11 Cal.App.4th at p. 1670; see also McBride v. Boughton (2004) 123 Cal.App.4th 379, 394 (
specific cause of action, however; rather, it is a simplified form of pleading
normally used to aver the existence of various forms of monetary indebtedness,
including that arising from an alleged duty to make restitution under an
assumpsit theory”].)
Finally,
although accounting can be an independent cause of action subject to a separate
limitations period, when an accounting claim is ancillary to another cause of
action the limitations period governing the underlying claim also governs the
accounting cause of action. (
54 Cal.2d 717, 718‑719.)
Here,
each of these claims sought to recover or identify the Old Canal funds
Jewelinski obtained by breaching his fiduciary duties, and therefore the
four-year limitations period that governs Sarsenstone’s breach of fiduciary
duty claim also governs these claims.
(3 Witkin, Cal. Procedure (5th ed. 2008) Actions, § 680,
p. 898 [“Where property is obtained by breach of fiduciary duty without
actual fraud . . . the [four-year] catchall statute [in section 343
applies.] This section covers
miscellaneous equitable actions based on breach of fiduciary duty, and it
should be immaterial whether the plaintiff seeks the remedies of damages,
restitution, or constructive trust”].)
The trial court therefore erred in finding a three-year limitations
period barred these claims.
2. The Adverse Domination Allegations Did Not Toll the
Limitations Period on the Conversion Claim Against the Jewelinski Defendants
Sarsenstone
argues the adverse domination doctrine tolled the statute of limitations on its
claims against the Jewelinski Defendants in the same manner it tolled the
claims against the Griffith Defendants.
Specifically, Sarsenstone contends Jewelinski’s domination and control
over Old Canal tolled the statute of limitations even after he left the company. This argument fails because Sarsenstone did
not make the same tolling allegations against the Jewelinski Defendants that it
made against the Griffith Defendants.
We
concluded the adverse domination doctrine tolled the statute of limitations on
the claims against the Griffith Defendants because Sarsenstone alleged Griffith
and Fernandez formed a conspiracy to use Old Canal to defraud investors while
they both ran the company, that conspiracy continued after Griffith left Old
Canal because both Griffith and Fernandez continued to conceal their prior
fraudulent conduct, and Fernandez continued to dominate Old Canal after
Griffith left and prevent it from taking any action to address Griffith’s and
Fernandez’s fraudulent acts because he feared exposing his own fraudulent
conduct.
Sarsenstone,
however, failed to make those same or similar allegations against
Jewelinski. Griffith and Fernandez
formed and operated their conspiracy to defraud investors through up-charging
and phantom shares before Jewelinski joined Old Canal. Sarsenstone did not allege Jewelinski joined
that conspiracy or that he shared in the conspiracy’s illicit profits. Similarly, Sarsenstone did not allege
Jewelinski agreed to conceal anything Griffith and Fernandez did or that
Fernandez knew about Jewelinski’s wrongdoing.
The
second amended complaint alleged Jewelinski (1) discovered Fernandez used
investors’ money to pay Old Canal’s expenses; (2) told Fernandez he could
not continue “‘borrowing’” investor funds for that purpose; (3) helped
Fernandez raise additional capital to repay some investors; (4) discovered
Fernandez used that additional capital for his personal benefit rather than to
repay investors; (5) did nothing to stop Fernandez from taking money from
Old Canal and the investment trusts; and (6) began taking money from Old
Canal for his own and the other Jewelinski Defendants’ benefit. Nowhere does Sarsenstone allege Fernandez and
Jewelinski agreed to take money from Old Canal or agreed to hide one another’s
malfeasance. Without an agreement to
commit a civil wrong, “‘“the independent acts of two or more wrongdoers do not
amount to a conspiracy.”’ [Citation.]”
(Choate, supra, 86 Cal.App.4th at p. 333.)
Sarsenstone
alleged the conclusion that Jewelinski dominated and controlled Old Canal along
with Griffith and Fernandez and thereby prevented Old Canal from taking any
action to address Griffith’s, Fernandez’s, or Jewelinski’s misconduct. Sarsenstone, however, did not allege Jewelinski
engaged in any wrongdoing with Fernandez, although it made this allegation
against Griffith. Accordingly,
Fernandez’s continuing domination over Old Canal after Jewelinski left did not
toll the statute of limitations on the claims against the Jewelinski
Defendants, as it did on the claims against the Griffith Defendants, because
Jewelinski did not have the same relationship with Fernandez that Griffith
did. Any ability Jewelinski had to
prevent Old Canal from taking action against him ceased to exist when
Jewelinski left Old Canal and no longer was in a position to control Old
Canal’s actions.
Moreover,
unlike the Griffith Defendants’ demurrers, the pleading the trial court
judicially noticed when ruling on the Jewelinski Defendants’ motion for
judgment on the pleadings showed any domination and control Jewelinski may have
exercised over Old Canal after he left ended more than three years before
Sarsenstone filed this action. The
complaint the court judicially noticed from the lawsuit Old Canal filed against
Jewelinski showed Old Canal filed its action in October 2006 and alleged, as
Sarsenstone does in this action, that Jewelinski converted more than
$1 million while he worked for Sarsenstone. That lawsuit therefore showed Jewelinski
lacked sufficient control over Old Canal to prevent it from taking any
action against him more than three years before Sarsenstone filed this
action in November 2009. The involuntary
bankruptcy petition and the two superior court complaints the trial court judicially
noticed on the Griffith Defendants’ demurrers were filed less than three years
before Sarsenstone filed this action, were filed by someone other than Old
Canal, and did not relate to the same conduct alleged in this action.
Accordingly,
Sarsenstone’s adverse domination tolling allegations did not toll the
three-year limitations period that applied to Sarsenstone’s conversion claim
against the Jewelinski Defendants. The
trial court did not err when it granted the motion for judgment on the pleading
on the conversion claim.
D. Sarsenstone
Alleged Sufficient Facts to State Some Causes of Action Against the Griffith
Defendants
title="">[8]
The
trial court also sustained the Griffith Defendants’ demurrers because it found
Sarsenstone failed to allege sufficient facts to state any cause of action
against the Griffith Defendants.
Specifically, the court found the second amended complaint lacked
“allegations of wrongdoing by the [Griffith] defendants” because “[a]ll of the
allegations of purported wrongdoing are entirely conclusory
. . . .” Although we
agree Sarsenstone failed to allege sufficient facts to support claims for
fraudulent transfer, conversion, and unjust enrichment in the second amended
complaint, we disagree that Sarsenstone failed to allege a claim for breach of
fiduciary duty and other remedial causes of action.
1. Sarsenstone Adequately Alleged Its Breach of Fiduciary Duty
Claim
The
primary claim Sarsenstone alleged against Griffith was breach of fiduciary
duty. “The elements of a cause of action
for breach of fiduciary duty are the existence of a fiduciary relationship,
breach of fiduciary duty, and damages.”
(Oasis West Realty, LLC v. Goldman
(2011) 51 Cal.4th 811, 820.)
“A
fiduciary relationship is ‘“any relation existing between parties to a
transaction wherein one of the parties is in duty bound to act with the utmost
good faith for the benefit of the other party [and] . . . can take no
advantage from his acts relating to the interest of the other party without the
latter’s knowledge or consent. . . .”’ [Citations.]”
(Wolf v. Superior Court (2003)
107 Cal.App.4th 25, 29 (Wolf).) Sarsenstone alleged Griffith owed fiduciary
duties to Old Canal and the investment trust investors because he served as a
director and officer of Old Canal and directed Old Canal’s oversight of
the investment trusts. A corporation’s
relationship with its directors and officers is recognized as a fiduciary
relationship. (See, e.g.,
p. 417.) A beneficiary or
principal’s relationship with his or her trustee or agent also is recognized as
a fiduciary relationship. (See, e.g.,
and beneficiary]; Michelson v. Hamada
(1994) 29 Cal.App.4th 1566, 1580 [agent and principal].)
Sarsenstone
alleged Griffith breached his fiduciary duties to Old Canal and the investors
by (1) failing to disclose that he up-charged many of the investment trust
investors; (2) receiving interests in some of the trusts without paying
for them; and (3) taking secret profits from the investment trusts. Finally, Sarsenstone alleged Griffith’s
failure to perform his fiduciary duty damaged both Old Canal and the investors
in its investment trusts.
Neither
Griffith nor the trial court provided an explanation why the foregoing
allegations failed to state a cause of action against Griffith. Instead, they simply stated Sarsenstone’s
allegations were too conclusory. We
disagree. The second amended complaint
alleged sufficient facts to fairly apprise Griffith of the basis for
Sarsenstone’s breach of fiduciary duty claim and nothing more was
required. (Doheny Park Terrace Homeowners Assn., Inc. v. Truck Ins. Exchange
(2005) 132 Cal.App.4th 1076, 1099 [“‘What
is important is that the complaint as a whole contain sufficient facts to
apprise the defendant of the basis upon which the plaintiff is seeking relief. [Citations.]’
[Citation.] It has been
consistently held that ‘“a plaintiff is required only to set forth the essential
facts of his case with reasonable precision and with particularity sufficient
to acquaint a defendant with the nature, source and extent of his cause of
action”’” (original italics)].) The
trial court erred in sustaining Griffith’s demurrer to this cause of action.
2. Sarsenstone Adequately Alleged a Constructive Trust Claim
“‘A
constructive trust is an involuntary equitable trust created by operation of
law as a remedy to compel the transfer of property from the per
| Description | Plaintiff and appellant Sarsenstone Corporation (Sarsenstone)[1] appeals from two judgments dismissing its claims against (1) defendants and respondents Michael W. Griffith (Griffith) and FCI Lender Services, Inc. (FCI; collectively Griffith and FCI are referred to as the Griffith Defendants) and (2) defendants and respondents John Joseph “Jack†Jewelinski (Jewelinski), Vicki Jewelinski, and Tri-Hook Investments, Inc. (Tri-Hook; collectively, Jewelinski, Vicki Jewelinski, and Tri-Hook are referred to as the Jewelinski Defendants). The trial court sustained the Griffith Defendants’ demurrers to Sarsenstone’s pleading without leave to amend, finding the statute of limitations barred all claims against the Griffith Defendants and Sarsenstone failed to allege sufficient facts to state a cause of action against the Griffith Defendants. The court later found the statute of limitations also barred Sarsenstone’s claims against the Jewelinski Defendants and therefore granted their motion for judgment on the pleadings without leave to amend. |
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