KRIEGLER, J.
Plaintiffs and appellants are Franz Bader, Ivacation.com Investor Association, LLC, Bali Properties, Inc., International Vacations of Nevada, Ltd. (the Nevada Corporation), and International Vacations, Ltd., a Bahamian corporation (the Bahamas Corporation). The underlying litigation concerns the allegedly fraudulent misappropriation of plaintiffs' travel-related businesses by a "scheme spear-headed by defendants Brent Jay (`Jay'), Stewart Bim-Merle (`Bim Merle') and their cohorts." Those two defendants, however, are not parties to this appeal, which concerns defendants and respondents Wells Fargo Bank on the one hand, and Gelfand, Rennert & Feldman, LLC (GRF) and Norman Marcus (collectively, the GRF defendants) on the other. In essence, plaintiffs alleged Wells Fargo was negligent because it permitted Jay and Bim-Merle to substitute themselves for Bader as the authorized signatory for the Nevada Corporation's bank accounts, thereby enabling Jay and Bim-Merle to loot the corporate assets. As to the GRF defendants, it was alleged they conspired with Jay and Bim-Merle to operate the fraudulent scheme out of the GRF office by allowing them to store the property taken from plaintiffs in those premises.
The trial court sustained demurrers by Wells Fargo and the GRF defendants to the fourth amended complaint without leave to amend and entered judgments in favor of those parties. In their timely appeal, plaintiffs contend the trial court erred in sustaining the demurrers and abused its discretion by not granting leave to amend. As to the GRF defendants, we reverse the order sustaining the demurrers as to the sixth cause of action for conversion and the twelfth cause of action for constructive trust, but otherwise affirm. As to Wells Fargo, we affirm the order sustaining the demurrer.
On September 23, 2005, Bader filed a complaint for violations of the Racketeering Influenced and Corrupt Organizations Act (18 U.S.C. § 1962) (RICO) and related state law claims in federal district court. The complaint named Jay and Bim-Merle and others as individual defendants, along with the GRF defendants and Wells Fargo. Among the named defendants were various entities, including the Nevada Corporation that was referred to collectively as the LTD Companies. It was alleged that various defendants (including the GRF defendants and Wells Fargo) entered into agreements "to illegally seize" the LTD Companies. On March 15, 2007, the district court dismissed plaintiffs' second amended complaint, finding plaintiffs failed to state a claim for relief under the RICO statutes as to the GRF defendants and Wells Fargo. The district court therefore dismissed with prejudice the sole federal claim and declined to retain supplemental jurisdiction over the state law claims asserted in the federal pleading.
Plaintiffs filed their first California complaint on April 11, 2007. Demurrers were sustained with leave to amend as to that pleading, as well as the first, second, and third amended complaints. The operative fourth amended complaint was filed on July 9, 2009. It alleged claims of fraud, conversion, claim and delivery, and constructive trust against the GRF defendants and negligence against Wells Fargo.
More specifically, according to the fourth amended complaint, Bader formed the Bahamas Corporation on September 22, 1998. He formed the Nevada Corporation on April 20, 2000, as the "United States counterpart" to the Bahamas Corporation. Bader intended to solicit investments in the Bahamas Corporation so that he could take that company public. The Bahamas Corporation issued shares of non-voting class A stock and shares of voting class B stock. Among those who were issued shares of the class B stock were Bim-Merle and Bader himself.
In essence, plaintiffs alleged Jay and Bim-Merle fraudulently took over the various corporate entities, eliminated Bader as an officer, took over the business office, removed all the property, and moved all the property to the Century City office of the GRF defendants. As part of the fraudulent scheme to take over plaintiffs' businesses, Jay and Bim-Merle fraudulently replaced Bader as a signatory to the Wells Fargo Bank account of the Nevada Corporation. Despite Bader's informing Wells Fargo of his improper removal, the bank allowed Jay and Bim-Merle to operate the checking account and loot the assets of the Nevada Corporation.
In their demurrer to the fourth amended complaint, the GRF defendants argued plaintiffs failed to allege facts sufficient to state causes of action for all claims against them (fraud, conversion, constructive trust, and claim and delivery) and, alternatively, that the fraud and claim and delivery causes of action were barred by the applicable statute of limitations. Wells Fargo demurred on the ground that the negligence claim, alleged solely on behalf of the Nevada Corporation, was barred by the three-year limitations period and preempted by the Corporations Code. On December 9, 2009, the trial court, having taken the matter under submission on November 17, 2009, ruled that the demurrers to the fourth amended complaint by the GRF defendants and by Wells Fargo were sustained without leave to amend "on all grounds set forth in the motions."
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 [(Zelig)].) Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. (Ibid.; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967 (Aubry).) When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Zelig, supra, 27 Cal.4th at p. 1126.)" (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) "In ruling on a demurrer, the court may `"take judicial notice of a party's earlier pleadings and positions as well as established facts from both the same case and other cases. . . ." [Citations.]' (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1491.)" (Wilkinson v. Zelen (2008) 167 Cal.App.4th 37, 43.)
According to the fourth amended complaint, on April 16, 2003, Bim-Merle conspired with Jay to hold a fraudulent and secret shareholders meeting to issue a corporate resolution to remove Bader as a director and officer of the Bahamas Corporation, the Nevada Corporation, and another entity, International Vacation Homes, Inc. That resolution was invalid because it was issued without proper notice and in violation of the corporation's voting requirements. Ten days later, on April 26, Jay, Bim-Merle, and others entered the offices of the Nevada Corporation, where Jay announced "he and his accomplices were taking over the company." Jay and Bim-Merle converted and misappropriated the assets of Bader, the Bahamas Corporation, and the Nevada Corporation, including client files and customer lists, bank accounts, corporate minute books, and other corporate and business documents and properties, such as internet domain names, check registers, file cabinets, and equipment, along with intangible assets such as goodwill and Bader's own personal property valued at $300,000.
Jay and Bim-Merle transferred these assets to offices leased to GRF in Century City. At that time, there was no sublease by GRF to Jay or any entity associated with him. Plaintiffs alleged, on information and belief, that GRF subsequently created and back dated a "false lease" to make it appear that a valid landlord-tenant agreement existed between GFR and Jay. Meanwhile, John Farrow, the marketing director for the Bahamas and the Nevada Corporations, visited the GRF offices and met with Marcus, the managing partner of GRF. Farrow told Marcus about the "acts and events" leading up to Jay's fraudulent seizure of plaintiffs' assets. Jay injured Farrow by slamming the door to the GRF office suite on Farrow's hand and assaulted a Nevada Corporation investor by "throwing him out of the suite." It was alleged that GRF knew about those physical confrontations.
It was further alleged that "[w]ith knowledge of Jay's wrongful behavior of converting and wrongfully seizing plaintiffs' assets, [GRF] and Marcus hid and secreted Jay's occupancy in order to allow him to continue his illegal takeover of plaintiffs' businesses." It was alleged on information and belief that GRF allowed "Jay and his cohorts to occupy" GRF's office space to provide a "safe haven," from which Jay could operate plaintiffs' businesses "with impunity." GRF's conduct "created the suspicion" of its knowledge as to Jay's misappropriation of plaintiffs' assets, as well as the suspicion that GRF was assisting Jay in fraudulent activities. In connection with the fraud causes of action, it was further alleged the GRF defendants, "with knowledge of the wrongful conduct of" Jay and Bim-Merle "joined the conspiracy to defraud plaintiffs by assisting, aiding . . . and harboring" Jay and the Nevada Corporation in order to enable Jay and Bim-Merle to divert the Nevada Corporation's revenues.
The first conversion cause of action against the GRF defendants incorporated the prior allegations by reference and further alleged that Jay and Bim-Merle took shares of stock in the Bahamas Corporation and converted them to their own use. Once they took possession of those stock certificates, the GFR defendants "joined the conspiracy to convert that property." A separate conversion claim was alleged as to property of the Nevada Corporation, including its Wells Fargo Bank accounts, client files and customer lists, corporate minute books, and other corporate and business documents and properties, such as internet domain names, check registers, file cabinets, and equipment. Again, it was alleged Jay and Bim-Merle converted those properties to their own use and the GRF defendants "joined the conspiracy to convert that property."
The claim and delivery cause of action re-alleged the conversion allegations as to Jay, Bim-Merle, and the GRF defendants, adding that they remain in wrongful possession of plaintiffs' property in violation of plaintiffs' right to immediate and exclusive possession. Jay, Bim-Merle, and the GRF defendants refused plaintiffs' demand for the immediate return of their property.
We first consider plaintiffs' fraud claims. "`Fraud is an intentional tort, the elements of which are (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. [Citation.]'" (E.g., Intrieri v. Superior Court (2004) 117 Cal.App.4th 72, 85-86.) "`In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] "Thus `"the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any material respect."' [Citation.] This particularity requirement necessitates pleading facts which `show how, when, where, to whom, and by what means the representations were tendered.'"' [Citation.]" (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)
As below, plaintiffs argue they have alleged sufficient facts to establish fraud by the GRF defendants based on either a conspiracy or an aiding and abetting theory. Contrary to plaintiffs' assertion, however, neither of those closely-related theories of liability excuses them from alleging with particularity the elements of fraud. As the GRF defendants accurately point out, plaintiffs' specific factual allegations merely demonstrate the GRF defendants knew about Jay's and Bim-Merle's fraudulent taking of plaintiffs' personal property because Farrow told Marcus about the "acts and events" leading up to Jay's fraudulent seizure of plaintiffs' assets. However, there are no specifically pleaded facts to support the conclusory allegations that the GRF defendants knowingly assisted Jay and Bim-Merle in furthering the fraudulent scheme.
We "recogniz[e] the well-worn principle applicable to the civil conspiracy theory: `[T]here is no separate tort of civil conspiracy, and there is no civil action for conspiracy to commit a recognized tort unless the wrongful act itself is committed and damage results therefrom.' [Citations.] `[T]he only significance of the conspiracy charge is that each member may be held responsible as a joint tortfeasor, regardless of whether or not he directly participated in the act.' [Citation.]" (Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 574.) A civil conspiracy cannot exist absent "`the formation of a group of two or more persons who have agreed to a common plan or design to commit a tortious act.' [Citations.]" (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582.) It follows that "[t]he conspiring defendants must also have actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose." (Ibid.) "While knowledge and intent `may be inferred from the nature of the acts done, the relation of the parties, the interest of the alleged conspirators, and other circumstances' [citation], `"[c]onspiracies cannot be established by suspicions. There must be some evidence. Mere association does not make a conspiracy. There must be evidence of some participation or interest in the commission of the offense."' [Citation.]" (Ibid.) The same is true under an aiding and abetting theory. (Richard B. LeVine, Inc. v. Higashi, supra, at p. 574 ["The unifying principle under either theory of recovery, civil conspiracy or aiding and abetting, is that [the defendant's] liability depends upon the actual commission of a tort."].)
Here, as our summary of the fourth amended complaint has shown, plaintiffs' allegations can only support suspicions as to the GRF defendants' culpable knowledge for purposes of fraud. Of course, "[m]ere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting." (Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1326.) Indeed, in their opposition to the GRF defendants' demurrer, plaintiffs conceded the newest pleading "does not contain allegations beyond suspicions that GRF defendants knew or should have known of Jay's and other defendants' fraudulent activities . . . ."
Plaintiffs nevertheless assert the trial court abused its discretion in denying them leave to amend because they intend to use discovery to uncover evidence that the GRF defendants knowingly colluded with Jay and the others. However, plaintiffs offered the trial court no specifics about what facts it believed it would discover, much less any justification for failing to use discovery to that end during the pendency of this action. In fact, in their opposition papers, plaintiffs admitted their third amended complaint had been dismissed with leave to amend to remedy precisely these problems. Given that plaintiffs have failed to show either "an effective request for leave to amend in specified ways" and the existence of "a potentially effective amendment [that is] both apparent and consistent with the plaintiff's theory of the case,'" we find no abuse of discretion. (Dey v. Continental Central Credit (2008) 170 Cal.App.4th 721, 731 ["`"[D]iscretion is abused whenever the court exceeds the bounds of reason, all of the circumstances being considered."' [Citation.]"].)
We turn to the conversion causes of action—the fifth cause of action alleging the conversion of the shares of stock in the Bahamas Corporation, and the sixth cause of action alleging the conversion of the property contained in plaintiffs' offices. As they did below, the GRF defendants argue the demurrers were properly granted because the conversion claims were legally predicated on, and derivative of, the legally deficient claims for conspiracy to defraud. Review of the pleadings shows they are correct with regard to the fifth cause of action, but incorrect as to the sixth cause of action.
With regard to conversion of the stock certificates, plaintiffs alleged that Jay and Bim-Merle took the stock certificates and converted them to their own use. After they "took possession of the stock certificates," the GRF defendants "joined the conspiracy to convert that property." Although the fifth cause of action incorporated by reference the general allegations concerning fraud and the taking of property from plaintiffs' offices and the deposit of that property in the GRF office space, none of those allegations mentioned misappropriation of the stock certificates. That is, there was no allegation that the stock certificates were stored in the GRF office space or that the GRF defendants were ever apprised that the stock had been taken to their offices.
Our conclusion is different with regard to the sixth cause of action. The elements of conversion are: (1) plaintiff's ownership or right to possession of the property at the time of the conversion; (2) defendant's conversion by wrongful act or disposition of plaintiff's property rights; and (3) damages. (Hartford Financial Corp. v. Burns (1979) 96 Cal.App.3d 591, 598.) Conversion is a strict liability tort. (E.g., Moore v. Regents of University of California (1990) 51 Cal.3d 120, 144; Byer v. Canadian Bank of Commerce (1937) 8 Cal.2d 297, 300 [misdelivery by a person entrusted with property of another constitutes a conversion of property, even if such person acted innocently and by mistake]; see also City of Los Angeles v. Superior Court (1978) 85 Cal.App.3d 143, 149 ["Conversion is a species of strict liability in which questions of good faith, lack of knowledge and motive are ordinarily immaterial."].)
"It is settled that conversion is any act of dominion wrongfully exerted over another's personal property in denial of or inconsistent with his rights therein." (Gruber v. Pacific States Sav. & Loan Co. (1939) 13 Cal.2d 144, 148 (Gruber).) "[I]t is not necessary that there be an actual manual taking of the property." (Ibid.) "`"Where the conversion is the result of the acts of several persons, which, though separately committed, all tend to the same end, there is a joint conversion."' [Citation.]" (Plummer v. Day/Eisenberg, LLP (2010) 184 Cal.App.4th 38, 50.)
Here, plaintiffs alleged their right to possession of the specific items of property taken from their office at the time of the taking by Jay and Bim-Merle. They also alleged those properties were taken and stored in the Century City office space leased to GRF, that they informed the GRF defendants that the property had been illegally taken from them, and that the properties were retained in those premises, causing plaintiffs damage in the loss of value of those properties. Although the sixth cause of action also speaks in terms of the GRF defendants' joining in the conspiracy to convert those properties, a fair reading of the relevant allegations supports the interpretation that plaintiffs' allegations are not predicated on complicity in the overarching fraud, but merely a conspiracy to convert specific properties. Having been informed those properties had been illegally taken and stored in the GRF office space, the GRF defendants' continued retention of those properties, if proved, could be found to be an "act of dominion wrongfully exerted over another's personal property in denial of or inconsistent with his rights therein." (Gruber, supra, 13 Cal.2d at p. 148.)
The fourth amended complaint asserted the equitable remedies of a constructive trust and claim and delivery as the twelfth and thirteenth causes of action, as a means of obtaining the properties that allegedly had been taken from plaintiffs' offices in April 2003 and moved into the GRF offices no later than June 2003. Plaintiff Bader's original federal RICO complaint filed on September 23, 2005, contained a demand for imposition of a constructive trust, but did not mention claim and delivery—the latter was not alleged against the GRF defendants until the initial state complaint was filed on April 11, 2007, approximately one year after the applicable statute of limitations had expired. The GRF defendants argue that plaintiffs failed to allege facts sufficient to support imposition of both remedies and, alternatively, that the claim and delivery cause of action is time-barred.
"[I]n order to create a constructive trust as defined in [Civil Code] section 2224, three conditions must be satisfied: the existence of a res (property or some interest in the property); the plaintiff's right to that res; and the defendant's acquisition of the res by some wrongful act. [Citations.] . . . [T]he wrongful act giving rise to a constructive trust need not amount to fraud or intentional misrepresentation. All that must be shown is that the acquisition of the property was wrongful and that the keeping of the property by the defendant would constitute unjust enrichment." (Calistoga Civic Club v. City of Calistoga (1983) 143 Cal.App.3d 111, 116.) "Claim and delivery is a remedy by which a party with a superior right to a specific item of personal property (created, most commonly, by a contractual lien) may recover possession of that specific property before judgment." (Waffer Internat. Corp. v. Khorsandi (1999) 69 Cal.App.4th 1261, 1271.)
The GRF defendants argue that plaintiffs failed to allege that any of the GRF defendants possessed the property taken from plaintiffs' offices and allegedly moved into the GRF offices. We disagree. A reasonable interpretation, based on the pleading as a whole (Zelig, supra, 27 Cal.4th at p. 1126), shows the relevant allegations for both equitable remedies were adequately alleged. The constructive trust and the claim and delivery causes of action incorporated by reference the conversion allegations as to the GRF defendants. Those allegations implicitly contained the allegation of possession of the office equipment and personal property by the GRF defendants, based on their knowing retention of the specific items of plaintiffs' property in their own leased office space.
As the fourth amended complaint adequately pled facts sufficient for the two equitable remedies, we consider the statute of limitations argument concerning the claim and delivery cause of action. The three-year statute of limitations for claim and delivery is set forth in Code of Civil Procedure, section 338, subdivision (c), for "`action[s] for taking, detaining, or injuring any goods or chattels.'" (AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 639 (AmerUS Life Ins. Co.).) "Under California law, the general rule is well established: `[T]he statute of limitations for conversion is triggered by the act of wrongfully taking property.' [Citations.] [¶] To the extent our courts have recognized a `discovery rule' exception to toll the statute, it has only been when the defendant in a conversion action fraudulently conceals the relevant facts or where the defendant fails to disclose such facts in violation of his or her fiduciary duty to the plaintiff. In those instances, `the statute of limitations does not commence to run until the aggrieved party discovers or ought to have discovered the existence of the cause of action for conversion.' [Citations.]" (Ibid.)
Plaintiffs alleged they discovered the taking of their office property in late April 2003, and that by approximately June 1, 2003, all of the misappropriated assets had been moved into the GRF offices. We agree with the GRF defendants that plaintiffs' assertions as to late-discovered facts in April 2004 are wholly inadequate to support reliance on the discovery rule. "To obtain the benefit of the late-discovery exception to the statute of limitations, the complaint must allege facts showing that the cause of action could not with reasonable diligence have been discovered prior to three years before the suit." (Silver v. Watson (1972) 26 Cal.App.3d 905, 911.) Plaintiffs, in stark contrast, merely refer to their brief filed in opposition to the GRF defendants' demurrer. That pleading, however, contained nothing more than vague and unsupported assertions that plaintiffs' suspicions concerning the full extent of the GFR defendants' conduct were not confirmed until the later date.
Alternatively, plaintiffs argue their cause of action for claim and delivery is timely because it is subject to tolling from the original filing of their RICO complaint in federal court based on title 28, United States Code section 1367(a) (section 1367). That statute provides federal district courts with supplemental jurisdiction over state law claims "that are so related to claims in the action within [the court's] original jurisdiction that they form part of the same case or controversy . . . ." (§ 1367; Okoro v. City of Oakland (2006) 142 Cal.App.4th 306, 310 (Okoro).) "However, [under section 1367(c),] the federal court may decline to exercise this supplemental jurisdiction when the court dismisses all claims over which it had original jurisdiction." (Okoro, supra, at p. 310.) Section 1367(d) contains the following tolling provision: "The period of limitations for any claim asserted under subsection (a), and for any other claim in the same action that is voluntarily dismissed at the same time as or after the dismissal of the claim under subsection (a), shall be tolled while the claim is pending and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period."
As the GRF defendants point out, by its plain terms, the federal tolling provision applies to claims actually filed in the federal action. Here, however, plaintiffs did not mention claim and delivery as a separate cause of action or remedy in federal court. Plaintiffs cite no authority for the proposition that a state law claim that was not asserted in federal court can be subject to tolling under section 1367. Their reliance on Okoro, supra, 142 Cal.App.4th 306 is misplaced. There, the plaintiff filed a civil rights action in federal court that asserted six pendent state law claims. The federal court dismissed the federal claims and declined to exercise jurisdiction over the state claims. The plaintiff thereafter filed a new action in state court alleging those same state law claims, but adding two new defendants. The Okoro court held the relation-back doctrine generally allowed substitution of the true name for a person implicated by a preexisting cause of action, but originally designated by a fictitious name. (Okoro, supra, 142 Cal.App.4th at p. 313; cf. Addison v. State of California (1978) 21 Cal.3d 313, 319 [applying equitable tolling where "the federal court, without prejudice, declined to assert jurisdiction over a timely filed state law cause of action and plaintiffs thereafter promptly asserted that cause in the proper state court"] (italics added).)
Here, in contrast, plaintiffs never asserted the relevant state law claim in federal court and they did not rely on the procedure for substituting a fictitious defendant. Nor did they invoke the relation-back doctrine in opposition to the demurrer. "Points raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument." (American Drug Stores, Inc. v. Stroh (1992) 10 Cal.App.4th 1446, 1453.) We apply that general rule because the record suggests nothing that would excuse plaintiffs' failure to place the argument before the lower court.
Plaintiffs challenge the granting of the demurrer as to the sole claim against Wells Fargo—the negligence cause of action on behalf of the Nevada Corporation. That claim is untimely on its face, as it was brought after the three-year limitations period had expired. Plaintiffs nevertheless contend the dismissal on limitations grounds was improper because the cause of action "relates back" to the original federal action on September 23, 2005. As we explain, that argument fails because the judicially noticeable evidence presented below shows the Nevada Corporation's corporate status was suspended during the relevant time, and therefore, it could neither prosecute its action nor take advantage of any potential tolling of the statute of limitations.
Again, our review treats the demurrer as admitting all material facts properly pleaded, but does not assume the truth of contentions, deductions, or conclusions of law. In ruling on a demurrer, the court may take judicial notice of a party's earlier pleadings and positions as well as established facts from both the same case and other cases. (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 412 (Metz); McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1491.) "The time bar of a statute of limitations may be raised by demurrer `[w]here the complaint discloses on its face that the statute of limitations has run on the causes of action stated in the complaint, [for the reason that] it fails to state facts sufficient to constitute a cause of action. [Citation.]' [Citation.]" (County of Los Angeles v. Commission on State Mandates (2007) 150 Cal.App.4th 898, 912.) Nevertheless, "`[i]n 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 merely that the action may be barred.' [Citations.] `The ultimate question for review is whether the complaint showed on its face that the action was barred by a statute of limitations, for only then may a general demurrer be sustained and a judgment of dismissal be entered thereon.' [Citation.]" (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-1316, italics omitted; see also Metz, supra, 149 Cal.App.4th at p. 413.)
The parties agree that the longest limitations period applicable to the Nevada Corporation's cause of action is three years—either the general provision action for the taking or recovery of personal property (Code Civ. Proc., § 338, subd. (c)) or the more specific provision action for conversion of an instrument or to enforce an obligation, duty, or right under Commercial Code section 3118, subdivision (g).
In order to assess how the relation-back doctrine and statutory tolling bear on the limitations issue, we provide additional procedural history. The federal RICO complaint was filed on September 23, 2005. It named Jay and Bim-Merle and others as individual defendants, along with the GRF defendants and Wells Fargo, but the Nevada Corporation was not named as a plaintiff. Instead, it was listed as one of the defendants referred to collectively as the LTD Companies. It was alleged that the other defendants (including the GRF defendants and Wells Fargo) entered into agreements "to illegally seize" the LTD Companies.
The original federal complaint described Wells Fargo's role in the RICO conspiracy as follows: Wells Fargo, as the LTD Companies' bank, was grossly negligent, failed to exercise due diligence, and breached its fiduciary duty to Bader when the bank substituted Bim-Merle for Bader as the authorized signer for the company accounts. The bank's duty to act reasonably prior to making changes in the "signature card" arose out of the depositor agreement between the LTD Companies and Wells Fargo. Wells Fargo was negligent in failing to talk to Bader prior to making the change to the authorized signatory. Finally, despite being informed by Bader of the illegality of the seizure of the LTD Companies, the bank continued to support defendants' RICO activities. The sole state law claim alleged against Wells Fargo was for breach of contract arising out of the same conduct.
Following a motion to dismiss granted with leave to amend, the first amended federal complaint was filed on January 19, 2006. The same plaintiffs alleged they had standing to "bring this derivative civil action" on behalf of the shareholders of the Bahamas Corporation. The LTD Companies were still alleged as defendants. The specific allegations concerning Wells Fargo were very similar to those in the original complaint. Wells Fargo, however, was named as a defendant in a state law claim for negligence in connection with the transfer of plaintiffs' assets to defendants'"shell corporations." The LTD Companies were not named as defendants to that claim. Wells Fargo was also named as a defendant to the state law breach of contract claim arising from the transfer of assets out of the accounts held by the Nevada Corporation. By permitting the change in signatories, it was alleged the bank was grossly negligent and breached its fiduciary duty. That complaint was subsequently ordered dismissed with leave to amend.
On March 15, 2006, the district court dismissed the second amended complaint, filed solely on behalf of Bader as plaintiff, finding he failed to state a claim for relief under the RICO statutes as to Wells Fargo. The federal court found Bader failed to allege fraud with the requisite particularity and failed to show the bank owed Bader any duty. Accordingly, it dismissed with prejudice the federal claim and declined to retain supplemental jurisdiction over the state law claims.
On April 11, 2007, the original California complaint was filed. The first and second amended complaints on behalf of Bader individually and as assignee of the claims of Ivacation.com Investor Association, LLC and Bali Properties, Inc., were filed on July 27, 2007, and April 7, 2008, respectively. The Nevada Corporation was not named as a plaintiff in those pleadings. Wells Fargo moved for summary judgment as to the negligence claim on the primary ground that Bader, both personally and as assignee, had no standing to make the claim because he was not the bank's customer on the relevant account. (See Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1076 ["Absent extraordinary and specific facts, which Roy neither alleges nor claims that he can allege, a bank is liable only to its customer for its mishandling of that customer's account."].) On October 3, 2007, Judge Kenneth R. Freeman granted the motion on the lack of standing ground, finding Bader was not the bank's customer and that he had no assignment from the corporate entities that were customers.
Plaintiffs filed their third amended complaint on October 20, 2007. The negligence claim against Wells Fargo was brought by two new plaintiffs, "International Vacation Homes, Inc., a California corporation," and "International Vacation Homes of Nevada, Inc., a Nevada corporation," which were the customers holding the relevant bank accounts.
In opposition, plaintiffs argued the relation-back doctrine precluded application of the statute of limitations. They also argued the California entity was being revived while the Nevada Corporation had been reinstated and was "active" as of December 1, 2008. In its reply papers, Wells Fargo pointed out, among other things, that reinstatement in 2008 could not cure the prior running of the limitations period.
On January 13, 2009, Judge Freeman cancelled the scheduled mandatory settlement conference hearing and ordered plaintiffs to provide evidence of the corporate entities' capacity to sue. At the February 17, 2009 hearing, the court dismissed the third amended complaint as to the newly-named corporate plaintiffs based on the showing those corporations were not in good standing, with the lack of capacity not having been cured. The demurrer on the merits was taken off calendar on mootness grounds.
Judgment was entered in favor of Wells Fargo on March 24, 2009, based on the October 3, 2008 grant of summary judgment against Bader, the voluntary dismissal of the newly-named California corporation, and the February 17 dismissal as to the Nevada Corporation. At the hearing of May 24, 2009, Judge Judith C. Chirlin vacated the judgment as to the Nevada Corporation after plaintiffs presented judicially noticeable evidence showing reinstatement—a Certificate of Qualification from the California Secretary of State certifying that on January 22, 2009, the Nevada Corporation was qualified to transact intrastate business in California, based on a certificate of good standing of January 22, 2009, by the Nevada Secretary of State.
Plaintiffs filed their fourth amended complaint on July 9, 2009, again naming the Nevada Corporation as the plaintiff, and asserting the negligence cause of action against Wells Fargo in the seventh cause of action.
Wells Fargo demurred, arguing the claim was time-barred and plaintiffs could not take advantage of the relation-back doctrine and tolling because the corporate entity was suspended and not qualified to do business in California at the relevant time. It requested judicial notice of documents from the Nevada Secretary of State showing the Nevada Corporation had been in default and was not reinstated until December 1, 2008.
In their opposition, plaintiffs neither objected to the bank's evidence nor presented any evidence of their own. Plaintiffs did not attempt to controvert Wells Fargo's argument that tolling was unavailable due to the Nevada Corporation's suspension. Instead, newly retained counsel argued that if leave were granted to amend, it could show a discovery date for the negligence claim of 2005, thereby avoiding the three-year limitations bar.
On appeal, plaintiffs challenge sustaining of the demurrer on statute of limitations grounds by arguing the Nevada Corporation's negligence claim relates back to the filing of the initial federal RICO action on September 23, 2005. (See Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 243 ["[C]ourts have permitted plaintiffs who have been determined to lack standing, or who have lost standing after the complaint was filed, to substitute as plaintiffs the true real parties in interest."].)
However, as Wells Fargo points out, even assuming the relation-back doctrine applied such that the Nevada Corporation could be deemed as having made its negligence claim in 2005, the statute of limitations continued to run because the corporation was suspended: "In cases involving the suspension of a corporation as a result of the failure to pay taxes and fees (Rev. & Tax. Code, § 23301), courts have uniformly concluded that while the corporation's powers are suspended, the statute of limitations is not tolled. (Grell v. Laci Le Beau Corp. (1999) 73 Cal.App.4th 1300; Sade Shoe Co. v. Oschin & Snyder (1990) 217 Cal.App.3d 1509, 1512-1513; ABA Recovery Services, Inc. v. Konold (1988) 198 Cal.App.3d 720, 724-725.) `If the statute of limitations runs out prior to revival of a corporation's powers, the corporation's actions will be time barred even if the complaint would otherwise have been timely. [Citations.]' (Sade Shoe Co. v. Oschin & Snyder, supra, 217 Cal.App.3d at p. 1513.)" (Leasequip, Inc. v. Dapeer (2002) 103 Cal.App.4th 394, 403.)
Despite having been given every opportunity and incentive to show the Nevada Corporation was qualified to do business in California prior to the running of the statute, plaintiffs presented no evidence to rebut the evidence contained in Wells Fargo's request for judicial notice. Indeed, plaintiffs made no attempt to show anything other than the corporation's reinstatement long afterward. For instance, plaintiffs sought judicial notice of a Certificate of Qualification from the California Secretary of State certifying that on January 22, 2009, the Nevada Corporation was qualified to transact intrastate business in California as of that date, based on a certificate of good standing of January 22, 2009, by the Nevada Secretary of State.
On appeal, plaintiffs argue application of the rule that the statute of limitations continues to run against a corporation during the period of suspension applies only if the suspension is due to nonpayment of taxes under Revenue and Tax Code section 23301 or for failure to file a tax return under section 23301.5, and Wells Fargo failed to present evidence sufficient to establish the reason for the Nevada Corporation's suspension. Plaintiffs adduce no authority for such a rule. However, once the bank showed the negligence claim was facially barred by the applicable limitations period and presented evidence of the Nevada Corporation's suspension during the relevant time period, it became incumbent on plaintiffs to controvert the evidence of suspension. Plaintiffs not only failed to do so, but made no objection to Wells Fargo's request for judicial notice. At no time below did plaintiffs challenge the adequacy of the bank's evidence. The failure to object to evidence waives the objection for purposes of appeal. (Evid. Code, § 353, subd. (a).)
Plaintiffs' reliance on Kehrlein-Swinerton Con. Co. v. Rapken (1916) 30 Cal.App. 11 is misplaced. That decision construed an act of 1905, providing that a forfeiture of corporate status occurred 60 days after a proclamation by the Governor. Accordingly, the "proclamation was an essential element in establishing such forfeiture." (California Nat. Supply Co. v. Flack (1920) 183 Cal. 124, 125-126.) In Kehrlein-Swinerton, the defendant sought to prove the plaintiff had forfeited its charter in the State of California in 1907 for failure to pay its license tax. As evidence of forfeiture, the defendant introduced a certificate from the Secretary of State. Plaintiff objected, but the objection was overruled. (Kehrlein-Swinerton Con. Co., supra, at pp. 12-13.) The appellate court held the certificate was insufficient evidence of forfeiture: "[T]he proclamation of the Governor being an essential step in the procedure for the forfeiture of the charter of such corporation as the plaintiff was, we are constrained to hold that the certificate of the Secretary of State was incompetent to prove the forfeiture of the plaintiff's charter for the nonpayment of its license tax." (Id. at pp. 13-14.) Here, in contrast, there was no such additional statutory requirement, and plaintiffs forfeited their evidentiary argument by failing to object below.
As to defendants Gelfand, Rennert & Feldman, LLC and Norman Marcus, we reverse the order sustaining the demurrer as to the sixth cause of action for conversion and the twelfth cause of action for constructive trust, but otherwise affirm. As to Wells Fargo Bank, we affirm the sustaining of the demurrer as to the seventh cause of action, the sole claim against it. As to the appeal between plaintiffs and defendants Gelfand, Rennert & Feldman, LLC and Norman Marcus, the parties shall bear their own costs on appeal. Costs on appeal are awarded to Wells Fargo Bank.
TURNER, P.J. and ARMSTRONG, J., Concurs.
