RICHARD SEEBORG, District Judge.
In 2007, the Cakebreads contracted Berkeley Millwork to design, manufacture, and deliver custom furniture for their compound in Wyoming. Their plans changed and, at some point, the Cakebreads ultimately cancelled their order. They now seek a refund of their deposit. They argue that a refund is due under the contract because the order was cancelled prior to fabrication and, on that basis, move for partial summary judgment on their breach of contract and conversion claims. At the same time, Berkeley Millwork moves for summary judgment, arguing that this action is time-barred and that the Cakebreads fail to state a claim for conversion. For the reasons that follow, Berkeley Millwork's motion is granted and the Cakebreads' motion is denied.
Berkeley Millwork designs, manufactures, and sells custom furniture. In 2006, the Cakebreads retained Berkeley Millwork to produce designs for custom furniture for their commercial cattle ranch compound in Wyoming. They paid $15,000 for this service. The next year, the parties entered into an agreement for the sale of the furniture.
On or about January 26, 2007, the parties signed a contract, in which Berkeley Millwork agreed to build custom furniture for the Cakebreads' kitchen, closet, hallway, and pantry for $310,400. At that time, the Cakebreads paid a deposit of $155,200, fifty percent of the total purchase price. The remainder would be due when Berkeley Millwork gave notice that the order had been built. The Sales Order had a target delivery date of June 2008.
The front page of the Sales Order states that cancellations are permitted prior to fabrication with a 15% fee. Shaw Decl., Ex. 1 ("There will be a 15% handling and design fee for any cancellation of orders. Cancellation may only be made prior to fabrication of your order.") It also provides, in Section Two: "All deposits are nonrefundable unless otherwise stated herein" and "ALL SALES ARE FINAL." Id., Ex. 2. It further provides that the Sales Order and the Terms and Conditions "set forth all promises, agreements, conditions and understandings, whether written or oral, between the parties hereto with respect to the subject matter hereof." Id.
In July 2007, the Cakebreads notified Berkeley Millwork that they selected a new architect for the Wyoming project. They said the change might require some "re-working" of Berkeley Millwork's plans. Shaw Decl., Ex. 4. In August 2007, the Cakebreads notified Berkeley Millwork that they were again switching architects and requested a "temporary hold on the cabinet making." Id. In early 2008, the Cakebreads resumed the project and introduced Berkeley Millwork to the new architects. On May 8, 2008, Berkeley Millwork e-mailed the Cakebreads stating:
Id., Ex. 6. On May 12, 2008, the Cakebreads signed the quote for the second design agreement. On October 15, 2008, the Cakebreads sent an email saying they had reviewed the samples sent to the architects, which were "very close in color," and asking for a "revised cost" estimate for the project. Id., Ex. 9. On November 2, 2008, the Cakebreads again "put [the] Wyoming project on hold," stating they would "let [Berkeley Millwork] know when [they] start it up again — hopefully in the spring." Id., Ex. 10. In July 2009, the Cakebreads advised Berkeley Millwork that they were "starting to spin up" their project again and asked for the current drawings. Id., Ex. 11.
On September 5, 2009, Berkeley Millwork sent a new purchase order proposal to the Cakebreads. It provided for the sale of custom furniture, including a kitchen, pantry, bench, and closet, according to the new 2009 drawings. Shaw Decl. Ex. 12. Per its terms, that quote was "valid for thirty days." Id. Even though the Cakebreads said they would respond the week of September 20, 2009, they never did. In fact, Berkeley Millwork never heard back. Finally, on November 3, 2009, Berkely Millwork contacted the Cakebreads to inquire about the status of the project. In response, the Cakebreads said they would respond before Thanksgiving. They never did. In or around March 2011, the Cakebreads ordered kitchen cabinets from some other source.
On June 25, 2015, the Cakebreads emailed Berkeley Millwork saying: "Apologies for the long delay but we have been closing out our records regarding our project in Star Valley Wyoming and realized we have an unused balance of $330,000.00 that was not consumed because we cancelled the project. Can you please work on returning our unused deposit." Shaw Decl., Ex. 16. Berkeley Millwork's CEO, Gene Agress, responded by noting that the "standing deposit" was actually "around $140,000" but offering to "make things right." Forrest Opp. Decl., Ex. 2. He also forwarded the Cakebreads an e-mail from Berkley Millwork's accountant, which listed the various payments they made and concluded that "the net remaining deposit available for use is $140,200." Id., Ex. 3. When the Cakebreads asked for a refund of the "open amount," Agress responded: "I made a copy of the back section of contract you signed. Please read section two, it describes the deposit terms. That said, you are very good people, and we intend to make things right." Shaw Reply Decl., Ex. 1. He later sent them a proposed "repayment proposal," which included certain monthly payments and additional payments "whenever possible," totaling $91,390.00. Forrest Opp. Decl. Ex. 4. He expressed that he was not "holding back on paying." Shaw Decl., Ex. 8. In January 2016, when efforts to compromise or arbitrate were unsuccessful, the Cakebreads initiated the present action. They bring claims for: (i) breach of contract; (ii) breach of the implied covenant of good faith and fair dealing; and (iii) conversion.
Summary judgment is proper "if the pleadings and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex v. Catrett, 477 U.S. 317, 323-24 (1986). The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings and admissions on file, together with the affidavits, if any which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323 (citations and internal quotation marks omitted). If it meets this burden, the moving party is then entitled to judgment as a matter of law when the non-moving party fails to make a sufficient showing on an essential element of the case with respect to which he bears the burden of proof at trial. Id. at 322-23.
The non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The non-moving party cannot defeat the moving party's properly supported motion for summary judgment simply by alleging some factual dispute between the parties. To preclude the entry of summary judgment, the non-moving party must bring forth material facts, i.e., "facts that might affect the outcome of the suit under the governing law . . . . Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 588 (1986).
The court must draw all reasonable inferences in favor of the non-moving party, including questions of credibility and of the weight to be accorded particular evidence. Masson v. New Yorker Magazine, Inc., 501 U.S. 496 (1991) (citing Anderson, 477 U.S. at 255); Matsushita, 475 U.S. at 588 (1986). It is the court's responsibility "to determine whether the `specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 631 (9th Cir. 1987). "[S]ummary judgment will not lie if the dispute about a material fact is `genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. However, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'" Matsushita, 475 U.S. at 587.
Each party has filed its own motion for summary judgment. Berkeley Millwork moves for summary judgment on the grounds that the Cakebreads' claims are time-barred and also that no conversion claim exits on the facts present here. The Cakebreads move for partial summary judgment on the ground that they are entitled to a refund of their deposit because they cancelled the order prior to fabrication.
Berkeley Millwork argues that the Cakebreads' breach of contract claims are barred by the applicable statute of limitations. "Statute of limitations" is the collective term applied to acts or parts of acts that prescribe the periods beyond which a plaintiff may not bring a cause of action. Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797, 806 (2005). There are several policies underlying such statutes. One purpose is to give defendants reasonable repose, thereby protecting parties from "defending stale claims, where factual obscurity through the loss of time, memory or supporting documentation may present unfair handicaps." Id. (citation omitted). A statute of limitations also stimulates plaintiffs to pursue their claims diligently. Id. A countervailing factor, of course, is the policy favoring disposition of cases on the merits rather than on procedural grounds. Id.
Under California law, "[a]n action for breach of any contract for sale must be commenced within four years after the cause of action has accrued." Cal. Comm. Code §2725. Generally, an action accrues "at the time when the cause of action is complete with all of its elements." Fox, 35 Cal.4th at 806 (citation omitted). The elements for a breach of contract action under California law are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages to plaintiff as a result of the breach. See CDF Firefighters v. Maldonado, 158 Cal.App.4th 1226, 1239 (2008). "When damages are an element of a cause of action, the cause of action does not accrue until the damages have been sustained." City of Vista v. Robert Thomas Sec., Inc., 84 Cal.App.4th 882, 886 (2000); see also Walker v. Pacific Indemnity Co., 183 Cal.App.2d 513, 517 (1960) ("mere possibility, or even probability, that an event causing damage will result from a wrongful act does not render the act actionable").
The parties dispute when the action for breach of contract accrued in this case. The Cakebreads argue that the claims did not accrue until 2015 when Berkeley Millwork refused their refund request. Berkeley Millwork advances several alternative accrual dates: (i) in May 2008, when the Sales Order became inoperative because the parties agreed to enter into a new design agreement; (ii) in October 2009, when the Cakebreads failed to accept the new sales order quote within the thirty day window in which the offer was valid; (iii) in November 2009, when the Cakebreads abandoned the contractual relationship; or (iv) in January 2011, when the Cakebreads' window to demand a refund expired. Under any theory, Berkeley Millwork argues, the claims accrued more than four years ago.
Berkeley Millwork's contention that the claims accrued before the Cakebreads demanded a refund is problematic. Under California law, "the [limitations] period cannot run before plaintiff possesses a true cause of action, [which means] that events have developed to a point where plaintiff is entitled to a legal remedy." Davies v. Krasna, 14 Cal.3d 502, 513 (1975). "Where a demand is an integral part of a cause of action, the statute of limitations does not run until demand is made." Stafford v. Oil Tool Corp., 133 Cal.App.2d 763, 765 (1955). Under the terms of the Sales Order, the Cakebreads had to make the demand before a refund was due. Specifically, the Sales Order provides: "There will be a 15% handling and design fee for any cancellation of orders. Cancellation may only be made prior to fabrication of your order." Berkeley Millwork argues that "this provision is self-executing" in that whenever the contract might be deemed cancelled, even without an express cancellation and irrespective of "whether the Cakebreads knew it or not," a refund is owed and no further demand for a refund is required for the claim to accrue. Mot. at 13. The plain language of the contract, however, does not support that interpretation. The Sales Order says that the cancellation must "be made." Moreover, given that there are two possible interpretations of the provision, the one that avoids forfeiture is preferred. See Milenbach v. C.I.R., 318 F.3d 924, 936 (9th Cir. 2003) ("Where there are two possible interpretations of a contract, one that leads to a forfeiture and one that avoids it, California law requires the adoption of the interpretation that avoids forfeiture, if at all possible.") Accordingly, the Cakebreads could not have incurred damages until the refund demand was made and rejected.
Given that a demand was required, this dispute centers primarily on whether the Cakebreads' demand was timely. Where the defendant's obligation to perform arises when the plaintiff demands performance, the demand must be made within a "reasonable time" and the statute of limitations will begin to run after that time has elapsed. See 3 Witkin, Cal. Proc. 5th Actions § 532 (2008); Bass v. Hueter, 205 Cal. 284, 287 (1928). The reason for this rule is that "[t]he plaintiff cannot [] indefinitely suspend the running of the statute by delaying to make a demand." Stafford, 133 Cal. App. 2d at 765. "[W]here a right has fully accrued, except for some demand to be made as a condition precedent to legal relief, which the claimant can at any time make, if he so chooses, the cause of action has accrued for the purpose of setting the statute of limitations running. . . . Otherwise, . . . he might indefinitely prolong his right to enforce his claim or right by neglecting to make the demand until it suited his convenience so to do.'" Huynh v. Chase Manhattan Bank, 465 F.3d 992, 998 (9th Cir. 2006) (citing Taketa v. State Bd. of Equalization, 104 Cal.App.2d 455, 231 P.2d 873, 875 (1951)).
The Cakebreads contend that the "reasonable time" requirement is inapplicable here because it only applies to contracts that do not specify deadlines for performance. As they note, California Civil Code Section 1657 provides: "If no time is specified for the performance of an act required to be performed, a reasonable time is allowed." See also Stafford, 133 Cal. App. 2d at 765 ("The general rule is that where demand is necessary to perfect a right of action and no time therefor is specified in the contract, the demand must be made within a reasonable time after it can lawfully be made."). The Cakebreads argue that the Sales Order specified a deadline for performance because it states: "Cancellations may only be made prior to fabrication of your order." Shaw Decl. Ex. 1. In practice, however, this provision does not provide a specific deadline. The "reasonable time" requirement applies when the time for performance is either "not specified" or "indefinite." Bass, 205 Cal. at 287. Here, the deadline is indefinite. The term "fabrication" is sufficiently vague that the parties can and do dispute its meaning. Accordingly, the contract is not clear as to the deadline for performance. Moreover, the Cakebreads argue resolutely in their motion for summary judgment that fabrication had not begun in August 2007 when they put the cabinet making on hold. As such, under their own theory, the Cakebreads could have cancelled their order at any time after the Sales Order was signed in January 2007. Nothing in the Sales Order specifies any definite deadline for the Cakebreads to request a refund. In fact, to the extent the Sales Order included a specific deadline—i.e., the target delivery date of June 25, 2008—that deadline was rendered inoperative at the Cakebreads' own request.
The Cakebreads also argue that the "reasonable time" requirement contradicts a line of California cases which hold that when an insurance broker fails to provide insurance, the cause of action for professional negligence will not accrue until the plaintiff actually suffers injury. They rely heavily on Buschman v. Anesthesia Bus. Consultants LLC, 42 F.Supp.3d 1244, 1251 (N.D. Cal. 2014). There, an anaesthesiologist sued a consultancy group alleging that it erroneously cancelled his group disability insurance policy. The policy was cancelled in 2006, but the plaintiff did not realize that fact until 2012, when he became disabled as a result of a surgery. In light of the aforementioned line of insurance cases, the court concluded that the plaintiff's claims were not time-barred. This case, however, is different. In Buschman, plaintiff had no control over the timing of the insurance policy cancellation, which happened due to the defendant's negligent and careless handling of his policy. Here, the Cakebreads fully controlled the timing of the agreement. They decided when to demand performance either by requesting the manufacture of furniture or by demanding repayment of their refund. It was their negligence and delay that lead to years of inaction.
Additionally, the Cakebreads argue that the "reasonable time" requirement does not apply because Berkeley Millwork controlled the timing of fabrication. It is true that the reason for the requirement disappears when the demand is not under the plaintiff's control, but depends upon the act of another. "If the condition of the obligation is some other person's act, and the plaintiff's demand would merely bring pressure on that person, failure to make the demand does not start the running of the statute." 3 Witkin, Cal. Proc. 5th Actions § 534 (2008). This exception is premised on the notion that the statute should not run if the delay is caused by some other person's lack of diligence. See Williams v. Pac. Mut. Life Ins. Co., 186 Cal.App.3d 941, 951 (1986) (citing Williams v. Bergin, 116 Cal. 56, 61 (1897)). Here, the only party lacking in diligence was the Cakebreads. Moreover, as explained above, their argument that Berkeley Millwork controlled the timing of fabrication is inconsistent with their behavior and with the theory of liability advanced in their own motion for summary judgment.
Finally, the Cakebreads argue that imposing the "reasonable time" requirement here would create an unlawful penalty because they would forfeit their entire deposit without regard to actual damage. They rely on the rule that "`any provision by which money or property would be forfeited without regard to the actual damage suffered would be an unenforceable penalty.'" Freedman v. The Rector, 37 Cal.2d 16 (1951). That rule relates to contractual forfeiture provisions, but the issue here is the application of the statute of limitation. Thus, while the argument may have some appeal as a matter of equity, there is no law to support it.
Having found that the "reasonable time" requirement is applicable, the only remaining question is how to apply it. Generally, "the reasonableness of time for performance is a question of fact, which depends on the circumstances of the particular case." Eidsmore v. RBB, Inc., 25 Cal.App.4th 189, 198 (1994). "But . . . the courts have added the qualification that, in the absence of peculiar circumstances, a period equal to that of the statute of limitations is reasonable. Under this theory the plaintiff has at most a double statutory period (4 plus 4 years on written contracts)." 3 Witkin, Cal. Proc. 5th Actions § 533 (2008); see also Caner v. Owners' Realty Co., 33 Cal.App. 479, 481 (1917) ("[A]s no demand was made within four years after the contracts in suit were executed, all of the causes of action arising therefrom and pleaded in the plaintiff's complaint were. . . barred by the statute of limitation."); Stafford v. Oil Tool Corp., 133 Cal.App.2d 763, 766 (1955) ("in the absence of peculiar circumstances, a time coincident with the running of the statute will be deemed reasonable, and if a demand is not made within that period, the action will be barred"); Ginther v. Tilton, 206 Cal.App.2d 284, 286 (1962) (same).
The Cakebreads do not suggest an alternative calculation, nor do they argue that any peculiar circumstance exists here. Rather, they maintain that their demand came at a reasonable time. Of course, their demand could have come at any time because there was no tether between the date they made the demand and any element of the parties' negotiations. The Cakebreads made their demand, admittedly, when they decided to look at their records. They could have done so sooner or much later and, under their theory, any time would have been fine. This theory is unsupportable.
Even viewed in the light most favorable to the Cakebreads, there is no disputed fact which necessitates departure from the well-established rule that a demand period equal to the statute of limitations is reasonable. There is nothing in the Sales Order which would indicate that it was the intention of the parties that the refund demand should be delayed indefinitely. See Bass, 205 Cal. at 288. To the contrary, the Sales Order reflects the parties' intention that the performance would be completed by June 2008. If anything, the record here evidences delay and negligence by the Cakebreads, facts which do not support a finding that the application of the statute of limitations would work an injustice. Under the circumstances, the Cakebreads' demand for performance made more than eight years after entering the agreement was unreasonable as a matter of law.
The Cakebreads argue that, even if the statute of limitations had expired prior to May 2015, it was then revived. They rely on California Code of Civil Procedure § 360, which provides: "No acknowledgment or promise is sufficient evidence of a new or continuing contract, by which to take the case out of the operation of this title, unless the same is contained in some writing, signed by the party to be charged thereby. . ." Cal. Code Civ. Proc. § 360.
The Cakebreads argue that, in a series of emails discussing their refund request, Berkeley Millwork "acknowledged" an existing debt within the meaning of section 360. Those e-mails, however, do not constitute "a distinct and unqualified admission of an existing debt." Outwaters v. Brownlee, 22 Cal.App. 535, 539 (1913).
In support of their position, the Cakebreads rely on Buescher v. Lastar, 61 Cal.App.3d 73 (1976). In Buescher, the plaintiff recovered on a demand note the defendant signed despite the expiration of the statute of limitations. The court found the facts there "constituted an unequivocal acknowledgment of the debt evidenced by the note; no new terms or conditions were requested or suggested by [the defendant]." Id. at 76. This case is different. Here, Agress indicated a disagreement, or at the least a potential disagreement, about the debt when he directed the Cakebreads to the limitations of liability under the contract. There was no unequivocal acknowledgement of a specific debt. Rather, there was an offer of compromise or, potentially, a substituted, conditional promise. Either way, the debt alleged in the complaint was not revived in 2015.
Berkeley Millwork argues that the Cakebreads fail to state a claim for conversion and that such claim, if any, is time-barred. The basic elements of conversion are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. Fremont Indem. Co. v. Fremont Gen. Corp., 148 Cal.App.4th 97, 119 (2007). "[A] mere contractual right of payment, without more, will not suffice." Rutherford Holdings, LLC v. Plaza Del Rey, 223 Cal.App.4th 221, 233 (2014).
Berkeley Millwork contends that the Cakebreads cannot satisfy the first element because they lost their ownership interest in the deposit, even if they maintained a contractual right to repayment after cancellation. Rutherford Holdings is instructive. There, the plaintiff contracted to purchase a mobilehome park from defendants. He delivered a $3 million deposit to defendants, which their agreement provided was non-refundable unless defendants materially breached or refused to close. Neither party performed on the closing date and plaintiff sued to recover the deposit under various theories, including conversion. The court of appeal found that title to the deposit transferred to defendants, such that plaintiff could not establish ownership. In reaching that decision, the court distinguished cases where buyers were entitled to the return of their deposits pursuant to express escrow instructions. "[I]n the absence of escrow instructions to the contrary—title to a deposit vests in the seller when the seller `accept[s] the contract.'" Id. at 233 (citations omitted). There, as here, the deposit was not paid into escrow and the complaint did not allege any escrow instructions. The Cakebreads argue that Rutherford is distinguishable because the Sales Order here includes a cancellation provision that purportedly entitles them to their deposit, and also because the Rutherford contract specified that the deposit could be kept as liquidated damages if the plaintiff breached or failed to close.
B. The Cakebreads' Motion for Partial Summary Judgment
In light of the resolution of Berkeley Millwork's motion, the Cakebreads' motion for partial summary judgment is denied.
Berkeley Millwork's motion for summary judgment is granted and the Cakebreads' motion for partial summary judgment is denied.
