ARONSON, J.
Plaintiff and appellant Sarsenstone Corporation (Sarsenstone)
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.
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.
"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 (Lehman).)
"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." (Marshall, supra, 37 Cal.App.4th at p. 1403.) "`Further, we give the complaint a reasonable 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." (Jamulians Against the Casino v. Dougherty (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.]" (Fremont Indemnity Co. v. Fremont General 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.)
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.
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); Smith v. Superior Court (1990) 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"].)
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 Favila, supra, 188 Cal.App.4th at p. 225, fn. 26.)
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 any person or persons who participated 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.
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.
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 (Choate).) To state a civil conspiracy claim, a 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 (Jamulians, supra, 205 Cal.App.4th at p. 638).
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.
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." (Ibid., original italics; Fremont, supra, 148 Cal.App.4th at p. 113.) Courts may not judicially notice a fact that is reasonably subject to dispute. (Lockley, at p. 885 ["`"Judicial notice substitutes for formal proof only because the matters judicially noticed are not reasonably subject to dispute"'" (original 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 existence of each document in a court 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." (Jamulians, supra, 205 Cal.App.4th at p. 638, original italics.) "`On a demurrer a court's function is limited 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 after November 6, 2006. Accordingly, the Griffith Defendants' request 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 White v. Cridlebaugh (2009) 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. (Holland, at p. 1447.)
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.
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.
"`"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.]" (Hydro-Mill Co., Inc. v. Hayward, Tilton & 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.
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. (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 345 (Bancroft-Whitney); GAB Business Services, Inc. v. Lindsey & Newcom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 417 (GAB Business Services), disapproved 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 not allege Jewelinski conspired with 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 (Schneider) [when a fiduciary's conduct 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." (Fire Ins. Exchange v. Superior Court (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)
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]; Sangster v. Paetkau (1998) 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." (Hoover v. Galbraith (1972) 7 Cal.3d 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.
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.
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, supra, 6 Cal.App.3d at pp. 992-993.) If the principal elects to pursue a conversion claim, a three-year limitations period governs the claim. (§ 338, subd. (c); Bono v. Clark (2002) 103 Cal.App.4th 1409, 1432.) Accordingly, the trial court properly found a three-year limitations period barred Sarsenstone's conversion claim.
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 (Embarcadero); Davies v. Krasna (1975) 14 Cal.3d 502, 515-516.) Similarly, unjust enrichment is not an 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 (Dintino) [three-year limitations period 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 Dintino, supra, 167 Cal.App.4th at p. 348; Perry, supra, 11 Cal.App.4th at p. 1670; see also McBride v. Boughton (2004) 123 Cal.App.4th 379, 394 (McBride) ["A common count is not a 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. (Jefferson v. J.E. French Co. (1960) 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.
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.
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.
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., Bancroft-Whitney, supra, 64 Cal.2d at p. 345; GAB Business Services, supra, 83 Cal.App.4th at 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., Wolf, supra, 107 Cal.App.4th at p. 30; Evangelho v. Presoto (1998) 67 Cal.App.4th 615, 621 [trustee 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.
"`A constructive trust is an involuntary equitable trust created by operation of law as a remedy to compel the transfer of property from the person wrongfully holding it to the rightful owner. [Citations.] The essence of the theory of constructive trust is to prevent unjust enrichment and to prevent a person from taking advantage of his or her own wrongdoing. [Citations.] . . .' [Citation.] `[A] constructive trust may be imposed in practically any case where there is a wrongful acquisition or detention of property to which another is entitled.' [Citation.]" (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1069 (Burlesci).)
A constructive trust may be imposed "where the following three conditions are satisfied: (1) the existence of a res (property or some interest in property); (2) the right of a complaining party to that res; and (3) some wrongful acquisition or detention of the res by another party who is not entitled to it.' [Citation.]" (Burlesci, supra, 68 Cal.App.4th at p. 1069, original italics.) A court may impose a constructive trust over money, which qualifies as a res. (Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 134-135 (Heckmann); see also GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 877-879 [imposing constructive trust on rents and sales proceeds].)
Although constructive trust is not an independent cause of action, it may be sought as a remedy on other underlying claims when the foregoing conditions exist. (Embarcadero, supra, 88 Cal.App.4th at p. 793; Burlesci, supra, 68 Cal.App.4th at p. 1069.) Constructive trust is an available remedy on a breach of fiduciary duty claim. (Hicks v. Clayton (1977) 67 Cal.App.3d 251, 264 ["Where a breach of fiduciary duty occurs, a variety of equitable remedies are available, including imposition of a constructive trust, rescission, and restitution, as well as incidental damages"]; see also Heckmann, supra, 168 Cal.App.3d at p. 134.)
Here, Sarsenstone adequately alleged a breach of fiduciary duty claim as explained above. The second amended complaint's allegations also established the conditions for imposition of a constructive trust: (1) the existence of a res — that is, the money Griffith took from Old Canal and the investment trusts; (2) Sarsenstone's right to those funds as the successor in interest to Old Canal's bankruptcy trustee and the current trustee of the investment trusts; and (3) Griffith's wrongful acquisition of those funds by breaching his fiduciary duties to Old Canal and the investment trust beneficiaries.
A constructive trust claim also is proper against FCI even though Sarsenstone did not allege FCI breached any fiduciary duty owed to Old Canal or the investment trust beneficiaries. Sarsenstone alleged FCI received interests in some of the investment trusts without paying for those interests. It also alleged that Griffith transferred 11 investment trusts to FCI when he left Old Canal without paying adequate value for those trusts. Finally, Sarsenstone alleged Griffith controlled FCI as its dominant shareholder. These allegations establish FCI's wrongful acquisition and detention of funds to which it was not entitled. (See Dabney v. Philleo (1951) 38 Cal.2d 60, 68 [constructive trust may be sought against transferee who received property from wrongdoer with knowledge of the wrongdoing]; Civ. Code, § 2224 ["One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he or she has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it"].)
Neither the Griffith Defendants nor the trial court addressed the conditions necessary to state a constructive trust claim or why the foregoing allegations fail to state that claim. We therefore conclude the trial court erred in sustaining the Griffith Defendants' demurrer to this claim.
The Act "`declares rights and provides remedies for unsecured creditors against transfers that impede them in the collection of their claims.' [Citation.]" (Mejia v. Reed (2003) 31 Cal.4th 657, 664.) "A fraudulent conveyance under the [Act] 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."' [Citation.]" (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829.) "[T]he theory of the law is that it is fraudulent for a . . . debtor to divest himself of assets against which the creditor could execute . . . ." (Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13.)
"A transfer made . . . by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made . . ., if the debtor made the transfer . . . as follows: [¶] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor. [¶] (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: [¶] (A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction. [¶] (B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due." (Civ. Code, § 3439.04, subd. (a); Kirkeby, supra, 33 Cal.4th at p. 648.)
Sarsenstone alleged Griffith "transferred the Investment Trust's assets to [himself], with actual intent to hinder, delay and defraud creditors and beneficiaries of the Investment Trusts" and that "Griffith transferred such assets without tendering reasonably equivalent value in exchange for the transfer." Sarsenstone further alleged that Griffith, "with deliberate intent to hinder, delay and defraud the Investment Trusts and their beneficiaries, transferred funds belonging to such Trusts to . . . Griffith." Based on these allegations, Sarsenstone seeks an order voiding "the transfer(s) from Old Canal as well as the Investment Trusts to . . . Griffith."
These allegations do not state a claim under the Act. Sarsenstone failed to allege Old Canal or the investment trusts transferred their assets to prevent their creditors from collecting on a claim Old Canal or the investment trusts owed. Similarly, Sarsenstone failed to allege Griffith transferred his assets to prevent his creditors from collecting on a claim against him.
Instead, Sarsenstone alleged Griffith transferred Old Canal's and the investment trusts' assets to defraud the investment trusts and their beneficiaries. That allegation supports a claim for breach of fiduciary duty, conversion, or even common law fraud, but it is not a fraudulent transfer under the Act. A fraudulent transfer would occur if Griffith transferred the money he stole to a third person to prevent Old Canal and the investment trusts from recovering their money. A claim for fraudulent transfer under the Act is not an alternative theory or substitute for a breach of fiduciary duty, conversion, fraud, or other common law claim seeking damages for Griffith's theft. Rather, a fraudulent transfer claim is a means to undo any transfers Griffith made to prevent Old Canal and the investment trusts from collecting on those underlying claims.
The trial court did not err in sustaining the Griffith Defendants' demurrers to this cause of action.
"`"Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff's ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages."' [Citation.]" (Plummer v. Day/Eisenberg, LLP (2010) 184 Cal.App.4th 38, 45.)
"`Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment. [Citation.]' [Citations.]" (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395 (PCO).) "[A]ctions for the conversion of money have not been permitted when the amount of money involved is not a definite sum." (Id. at p. 396.)
Sarsenstone alleged Griffith and the other defendants "received funds belonging to the Investment Trusts" and "wrongfully retained possession of those funds." Sarsenstone, however, failed to allege an identifiable or definite sum of money that Griffith and the other defendants allegedly converted. Instead, Sarsenstone conceded the amount converted was "a presently unascertained amount" that it estimated "to exceed $35,000,000." Estimates and approximations, however, are insufficient to state a claim for conversion based on money. (PCO, supra, 150 Cal.App.4th at p. 397 [conversion claim failed because plaintiff only could estimate the amount of money allegedly converted]; Vu v. California Commerce Club, Inc. (1997) 58 Cal.App.4th 229, 231-232, 235 [allegations regarding "approximate" amount converted insufficient to state cause of action]; Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472, 485 [no conversion where money was allegedly misappropriated "over time, in various sums without any indication that it was held in trust for" plaintiff].)
The trial court sustained the Griffith Defendants' demurrers to this claim because Sarsenstone failed to allege specific, identifiable funds that the Griffith Defendants' allegedly converted. Sarsenstone provided no explanation how its allegations satisfied the foregoing standards and proposed no amendment to satisfy those standards. Accordingly, the trial court did not err in sustaining the demurrers to this cause of action.
Money had and received is a common count. (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 937 (Gutierrez).) "A common count is not a 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." (McBride, supra, 123 Cal.App.4th at p. 394.) "The common counts are in theory based on express or implied promises to pay money. [Citations.] The obligation to pay is rested upon the equitable principle of preventing unjust enrichment as applied to the particular circumstances which have arisen between the parties [citation]." (Moya v. Northrup (1970) 10 Cal.App.3d 276, 281.)
"`A cause of action is stated for money had and received if the defendant is indebted to the plaintiff in a certain sum "for money had and received by the defendant for the use of the plaintiff."' [¶] This common count is available in a great variety of situations [citation] and `lies wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter.' [Citation.]" (Gutierrez, supra, 194 Cal.App.4th at p. 937.) Because pleading common counts in generalized terms has long been accepted in California, the general rules of pleading do not apply and "it is settled that [common counts] are good against special as well as general demurrers." (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 553, p. 681.)
Here, Sarsenstone alleged the Griffith Defendants "received monies due and owing to the Investment Trusts" and "are indebted to the Investment Trusts beneficiaries for money had and received by [the Griffith] Defendants and each of them for the use of the beneficiaries." Sarsenstone also alleged investors overpaid for interests in the investment trusts because of Griffith's use of up-charging and phantom shares, and Griffith kept the overpayments for his own use. According to Sarsenstone, FCI also received interests in certain investment trusts that Griffith purchased with the overpayments. The fact investors paid their money to Old Canal rather than Griffith or FCI does not defeat this claim because Griffith and Fernandez were the sole owners of Old Canal and used the corporation to defraud the investors.
Neither the trial court nor the Griffith Defendants provided any ground for sustaining the demurrers to this cause of action other than the conclusion that Sarsenstone's allegations "are entirely conclusory." Based on the foregoing standards we find Sarsenstone adequately alleged this claim.
"Unjust enrichment is not a cause of action . . . or even a remedy, but rather `"`a general principle, underlying various legal doctrines and remedies'" . . . . [Citation.] It is synonymous with restitution. [Citation.]' [Citation.] Unjust enrichment has also been characterized as describing `"the result of a failure to make restitution . . . ."' [Citations.]" (McBride, supra, 123 Cal.App.4th at p. 387.)
Sarsenstone based its unjust enrichment claim on the same allegations and theory as its money had and received claim. Both claims alleged the Griffith Defendants knowingly received monies due and owing to the investment trusts that they in equity and good conscience could not be allowed to keep. Accordingly, Sarsenstone's unjust enrichment claim adds nothing to this action and the trial court properly sustained the Griffith Defendants' demurrers. (See Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 911 [unjust enrichment claim based on same allegations as common count claim was duplicative and subsumed by common count claim].)
"An action for an accounting is equitable in nature. It may be brought to compel the defendant to account to the plaintiff for money or property . . . ." (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 819, p. 236.) "To state a cause of action, only the simplest of pleading is required: [¶] (1) The fiduciary relationship or other circumstances appropriate to the remedy [citation]. [¶] (2) A balance due from the defendant to the plaintiff that can only be ascertained by an accounting." (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 820, p. 236.)
"[T]he nature of a cause of action in accounting is unique in that it is a means of discovery. An accounting is a `species of disclosure, predicated upon the plaintiff's legal inability to determine how much money, if any, is due.' [Citation.] Thus, the purpose of the accounting is, in part, to discover what, if any, sums are owed to the plaintiff, and an accounting may be used as a discovery device. [Citation.]" (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 180.)
As explained above, Griffith owed fiduciary duties to Old Canal and the beneficiaries of the investment trusts. Sarsenstone alleged a right to an accounting from the Griffith Defendants regarding the assets they received from Old Canal or the investment trusts, including all liabilities or debts Old Canal or the investment trusts paid on their behalf.
Again, the Griffith Defendants raised no specific challenge to this claim. Based on the foregoing, we conclude Sarsenstone alleged sufficient facts to state an accounting claim.
The judgment in the Griffith Defendants' favor is reversed in part and affirmed in part. We reverse the trial court's rulings sustaining the Griffith Defendants' demurrers to Sarsenstone's breach of fiduciary duty, constructive trust, money had and received, and accounting claims. We affirm the ruling sustaining the demurrers to the fraudulent transfer, conversion, and unjust enrichment claims.
The judgment in the Jewelinski Defendants' favor is reversed in part and affirmed in part. We reverse the trial court's ruling granting the Jewelinski Defendants' motion for judgment on the pleadings on Sarsenstone's breach of fiduciary duty, constructive trust, fraudulent transfer, unjust enrichment, money had and received, and accounting claims. We affirm the ruling granting the motion on the conversion claim.
In the interest of justice, each party shall bear their own costs on appeal.
O'LEARY, P. J. and BEDSWORTH, J., concurs.
