Case Name: Costa v. Krueger, et al.
Case No.: 2013-1-CV-247584
This action arises out of a business dispute. Carlos Costa (“Costa”) initiated this action against Cynthia Krueger (“Krueger”), Michael Formico (“Formico”), West Coast Collision Repair, Inc. (“WCCR”), and Wells Fargo Bank to recover a business investment. Krueger, Formico, and WCCR (collectively “Cross-Complainants”) then filed a cross-complaint against Costa and his wife, Nadine Costa (collectively “Cross-Defendants”). The second amended cross-complaint (“SACC”) is the pleading at issue here.
According to the SACC, Terry McMahon introduced Formico to Costa, the owner and operator of Dell Auto Body & Refinishing (“Dell Auto Body”). (SACC, ¶ 8.) Costa and Formico began discussing their businesses, and Costa informed Formico that although he earned approximately $400,000.00-$500,000.00 per year, he was in debt and owed money to the Internal Revenue Service (“IRS”). (SACC, ¶ 10.) Costa and Formico discussed the prospect of creating a joint venture or equal partnership with Nadine Costa and Krueger, Formico’s fiancée. (Ibid.) Before any agreement was made, Costa informed Formico that the IRS was in the process of shutting his business down and he needed to “move” it immediately. (Ibid.) Formico and Costa agreed to have Dell Auto Body and all related entities operate under WCCR, which Formico and Krueger had previously formed in June 2012. (Ibid.) Under the Agreement, Formico was to handle the finances of WCCR and Costa was to handle the day-to-day operations of the auto body shop. (Ibid.) They further agreed that Krueger would serve as WCCR’s president. (Ibid.)
Dell Auto Body and its related entities began operating as WCCR in February 2013. (SACC, ¶ 11.) In order to keep Dell Auto Body operating, WCCR and Krueger paid off a portion of its past debts and obligations. (Id. at ¶ 12.) Cross-Complainants paid various vendors and creditors from several sources, including WCCR’s profits, Krueger’s personal bank account, and their personal credit cards. (Ibid.) The distributions to Costa from WCCR’s profits were intended to cover IRS, credit card, and vendor obligations. (Ibid.)
Two asset purchase agreements were created on March 4, 2013 solely for the purpose of securing a loan with Heritage Bank to purchase a building located at 950 Camden Avenue in Campbell, CA. (SACC, ¶ 13.) The first agreement specified WCCR would pay $500.00 to Dell Auto Body for its assets and goodwill. (Ibid.) Krueger and Costa signed it. (Ibid.) The second agreement specified a purchase price of $1.5 million to Dell Auto Body for its assets and goodwill. (Ibid.) Neither Krueger nor Formico signed the second agreement. (Ibid.) Costa knew the asset purchase agreements were only to assist the parties in securing a loan and were in no way final agreements. (Ibid.)
Within six weeks, Formico discovered Cross-Defendants had spent $8,600.00 on Rolling Stones tickets, while Cross-Complainants were personally paying off Costa’s debt and WCCR’s obligations. (SACC, ¶ 14.) Because Cross-Complainants understood Costa was a reckless spender and had serious tax issues, they informed him he would not be allowed to participate in the purchase of the building in Campbell. (Id. at ¶ 15.) Costa subsequently became angry, kicking Formico out of the body shop and changing the locks and alarm system. (Ibid.) As a result, Formico was unable to collect WCCR’s business records and his personal belongings. (Ibid.)
Formico and Krueger subsequently discovered Cross-Defendants opened a Bank of America account and two Wells Fargo accounts under WCCR’s name, using its “EIN” without their knowledge. (SACC, ¶ 16.) Cross-Defendants placed “stop-payments” on checks that were intended for WCCR, took insurance checks made payable to it, and deposited them in the newly created bank accounts for their own personal benefit. (Ibid.) As a result, Cross-Complainants have lost approximately $130,000.00. (Ibid.)
Cross-Complainants assert five causes of action for: (1) “implied-in-fact contract;” (2) common count: money had and received; (3) conversion; (4) breach of fiduciary duty; and (5) fraud.
Cross-Defendants presently demur to the entire SACC on the ground of lack of capacity and the first and second causes of action on the grounds of failure to state sufficient facts to constitute a cause of action and uncertainty.
Cross-Defendants also bring a motion to continue the trial date.
For the reasons stated below, the demurrer is OVERRULED.
Addressing Cross-Defendants’ motion to continue the trial date, the motion is DENIED, without prejudice. It is continued for further hearing to the date and time set for the Mandatory Settlement Conference – September 6, 2017 at 9 a.m. in Department 6. Counsel for defendants shall present proof at that time of the reinstatement by the Franchise Tax Board of Defendant/Cross Complainant West Coast Collision Repair, Inc. Failure to present such proof may result in the court reconsidering and granting the motion to continue or vacate the trial date, or the court considering severing the suspended corporate defendant from the trial.
The Court denies the motion to continue, without prejudice, as it is represented by counsel for moving parties that West Coast has been suspended since December 1, 2014. Thus, there is no significant, unanticipated change in the status of the case that has been shown to have recently occurred. Counsel for both the individual defendants and for West Coast represents there is a strong probability the corporate status will be reinstated prior to the trial date. Further, the individual defendants/cross-complainants are parties who still may defend and maintain this action, regardless of the status of the corporation.
Again, absent proof of reinstatement of the corporation in advance of the trial date, the court will reconsider the motion to continue or vacate the trial, or consider other options such as severance.
As the only other basis for the motion to continue is the pending demurrer, which the court has overruled, the motion is denied, without prejudice, as explained above.
I. Requests for Judicial Notice
In support of their demurrer, Cross-Defendants request judicial notice of the cross-complaint and first amended cross-complaint filed in this action. The subject documents are proper subjects for judicial notice pursuant to Evidence Code section 452, subdivision (d), which allows courts to judicially notice court documents. In addition, the court records are relevant to the issues raised by the demurrer. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [any matter to be judicially noticed must be relevant to a material issue].) Accordingly, the request for judicial notice is GRANTED.
In support of their opposition, Cross-Complainants request judicial notice of the first-amended complaint filed in this action. For the same reasons stated above, the court record is a proper subject of judicial notice. (Evid. Code, § 452, subd. (d).) The document is also relevant to the issues raised by the demurrer. (See People ex rel. Lockyer v. Shamrock Foods Co., supra, 24 Cal.4th at p. 422, fn. 2.) The request for judicial notice is thus GRANTED.
In reply, Cross-Defendants request judicial notice of: (1) WCCR’s Business Entity Detail from the California Secretary of State website dated November 24, 2015; and (2) WCCR’s Statement of Information from the California Secretary of State website dated March 7, 2013. Cross-Defendants request judicial notice of the subject documents pursuant to Evidence Code section 452, subdivision (h), which provides judicial notice may be taken of facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. As to the Business Entity Detail, the search results page states “[t]he data provided is not a complete or certified record of an entity.” Thus, the contents of the website cannot be said to be reasonably indisputably accurate. As such, the Business Entity Detail is not a proper subject for judicial notice. (See Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 760–61 [judicial notice of the contents of webpages is permitted only if the information is not reasonably subject to dispute].) On the other hand, the print-out of the Statement of Information does not state it is an incomplete and uncertified record, and thus does not raise the same accuracy concerns. In addition, the Statement of Information is relevant to an issue under review in the demurrer. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [any matter to be judicially noticed must be relevant to a material issue].) Therefore, the Statement of Information is a proper subject for judicial notice.
Accordingly, the request for judicial notice is GRANTED as to the Statement of Information and DENIED as to the Business Entity Detail.
II. Merits of the Demurrer
A. Lack of Capacity
Cross-Defendants demur to the entire pleading on the ground WCCR lacks capacity to sue because its corporate status was suspended as of December 1, 2014. Cross-Complainants do not address this argument in opposition.
Cross-Defendants’ argument is problematic because it relies on extrinsic evidence. In ruling on a demurrer, the Court is limited to reviewing only the contents within the four corners of the pleading and any judicially noticeable material. (See Smiley v. Citibank (South Dakota) N.A. (1995) 11 Cal.4th 138, 146.) The SACC does not allege WCCR is a suspended corporation. In addition, Cross-Defendants did not request judicial notice of any documents reflecting WCCR’s status as a suspended corporation. The Court thus may not consider Cross-Defendants’ asserted fact that WCCR is suspended and, consequently, they fail to substantiate their argument that it lacks capacity to sue. Accordingly, the demurrer to the entire SACC on the ground of lack of capacity is OVERRULED.
B. Failure to State Sufficient Facts to Constitute a Cause of Action
Cross-Defendants argue both causes of action fail to state a claim on the basis the SACC is a sham pleading and advance arguments individual to each cause of action. The Court will first address the sham pleading argument.
1. Sham Pleading
For context, Cross-Complainants filed a first amended cross-complaint (“FACC”), asserting a cause of action for breach of contract of an executed asset purchase agreement for $1.5 million. (FACC, ¶ 15.) The agreement was attached to the FACC as an exhibit and was purportedly signed by Krueger and Costa. The SACC does not assert a cause of action for breach of contract and states a cause of action for “implied-in-fact contract,” in which Cross-Complainants allege the agreement for $1.5 million was never signed and was only for the purpose of obtaining Heritage Bank’s financing. (SACC, ¶ 13.)
Cross-Defendants assert the SACC is defective because it is inconsistent with the prior pleading because the FACC alleged the existence of an executed asset purchase agreement and the SACC alleges it was not executed or intended to be final.
The sham pleading doctrine holds that, as a general rule, an amended pleading contradicting an admission in an earlier complaint will not be allowed. (Hendy v. Losse (1991) 54 Cal.3d 723, 742-743.) Any inconsistency with a prior complaint must be explained, otherwise courts may ignore the inconsistent allegation. (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946.) If the court finds a harmful allegation of a superseded pleading has been omitted, the allegation is read into the amended pleading. (Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 384.)
While Cross-Defendants argue the SACC is “defective,” they do not articulate the consequence for finding the SACC is a sham pleading. Cross-Defendants do not contend the allegation in the FACC that the asset purchase agreement was executed should be read into the SACC or the allegation in the SACC that the agreement was not executed should be omitted. In addition, Cross-Defendants fail to address how either the inclusion or omission of the allegations would render the causes of action susceptible to demurrer. In any event, the sham pleading doctrine does not render the SACC “defective” here. The Court first observes the allegation in the SACC that the agreement was not executed contradicts the earlier allegations in the FACC that it was a fully executed agreement and was signed by Krueger and Costa. In opposition, Cross-Complainants persuasively explain the reason for this inconsistency. (See Vallejo Development Co. v. Beck Development Co., supra, 24 Cal.App.4th at p. 946 [stating party must explain inconsistent allegation].) Cross-Complainants state Costa produced the executed agreement to them in discovery, and only during his deposition did he admit the signatures were not supposed to have been attached to that document and it was inadvertently produced with the signatures attached thereto. Cross-Complainants insist that as soon as they discovered this information, they sought to amend the pleading to reflect the newly discovered information. As Cross-Complainants adequately explain the basis for the inconsistent allegation, the SACC is not a sham pleading.
2. Arguments Applicable to Individual Causes of Action
a. First Cause of Action – Implied-In-Fact Contract
Cross-Complainants allege they agreed to enter into a joint venture with Cross-Defendants whereby Cross-Complainants agreed to have Dell Auto Body and all related entities operate under WCCR. (SACC, ¶ 18.) Cross-Complainants plead Costa and Formico agreed Formico would handle the finances of the company and Costa would handle its day-to-day operations. (Ibid.) Cross-Complainants allege Cross-Defendants breached this agreement. (Id. at ¶ 21.)
Cross-Defendants assert Cross-Complainants fail to plead all elements of a joint venture. While not clearly articulated, Cross-Defendants appear to intend to argue Cross-Complainants must allege the existence of a joint venture in order to plead the existence of an implied-in-fact contract to operate one. Cross-Defendants advance no legal authority in support of this argument, and thus fail to substantiate it. As such, the demurrer is not sustainable on the basis Cross-Complainants fail to allege all elements of a joint venture.
b. Second Cause of Action – Common Count: Money Had and
Received
Cross-Complainants plead Cross-Defendants received money that was intended for WCCR and intended to be used for their own benefit. (SACC, ¶ 23.) Cross-Complainants allege the money was not given to them or used for their benefit. (Id. at ¶¶ 24-25.)
“A cause of action for money had and received is stated if it is alleged [that] 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.” (Avidor v. Sutter’s Place, Inc. (2013) 212 Cal.App.4th 1439, 1454, internal citations and quotation marks omitted.)
First, Cross-Defendants assert Cross-Complainants do not plead the amount claimed as damages. As aptly stated by Cross-Complainants in opposition, Cross-Defendants do not cite legal authority stating the “certain sum” must be a specific numerical value. In any event, the SACC alleges Cross-Defendants are in possession of approximately $130,000.00 of Cross-Complainants’ funds. (SACC, ¶ 16.) This allegation sufficiently identifies the sum of indebtedness.
Next, Cross-Defendants contend the SACC fails to plead they became personally obligated to Cross-Complainants. Cross-Defendants, however, fail to identify any legal authority providing this is a requirement to state a claim for money had and received. Indeed, the Court is not aware of any authority stating such. As a result, Cross-Defendants fail to substantiate their argument that Cross-Complainants must plead the existence of personal obligation.
Lastly, Cross-Defendants contend Cross-Complainants fail to plead “consideration.” Cross-Complainants do not address this argument in opposition. Instead, they generally contend they pleaded all the elements of the claim. Presumably, they contend consideration is not an element as they state “[a]ll that needs to be alleged is that money was not given to cross-complainants, which is exactly what is stated[.]” (Opp., p. 7: lis. 7-8.)
“Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him.” (Speirs v. Bluefire Ethanol Fuels, Inc. (2015) 243 Cal.App.4th 969, 987, citations omitted.) While legal authority does exist stating consideration is a requirement to pleading a claim for money had and received (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460), the overwhelming amount of authority provides that a common count is proper whenever there is a sum of money due either as an indebtedness or for the reasonable value of goods and services provided (Utility Audit Co. v. City of Los Angeles (2003) 112 Cal.App.4th 950, 958; Kawasho Internat., U.S.A., Inc. v. Lakewood Pipe Service, Inc. (1983) 152 Cal.App.3d 785, 793; Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 937).
The legal authority that does not require a plaintiff to plead consideration is more compelling than the alternative given the various bases for asserting a cause of action for money had and received. For example, a “claim for money had and received can be based upon money paid by mistake, money paid pursuant to a void contract, or a performance by one party of an express contract[,]” where there was not necessarily consideration given in the first instance, particularly where the sum was paid by mistake. (Utility Audit Co. v. City of Los Angeles, supra, 112 Cal.App.4th at p. 958.) Further, CACI No. 370 provides the elements of a claim for money had and received are: (1) the defendant received money intended to be used for the benefit of the plaintiff; (2) the money was not used for the plaintiff’s benefit; (3) the defendant has not given the money to the plaintiff. Although Cross-Defendants maintain consideration is an element to this cause of action, they explicitly cite to CACI No. 370 to identify the elements of this claim, thereby cutting against their argument. Cross-Complainants otherwise allege the element of indebtedness as they plead Cross-Defendants diverted their checks and misappropriated their funds. (SACC, ¶ 16.) As such, the Court finds Cross-Complainants were not required to plead the existence of consideration and, consequently, the demurrer is not sustainable on the basis they failed to plead it.
3. Conclusion
The demurrer to the first and second causes of action on the ground of failure to state sufficient facts to constitute a cause of action is OVERRULED.
C. Uncertainty
Cross-Defendants demur to both causes of action on the ground of uncertainty.
As to the first cause of action, Cross-Defendants argue “Defendants/Cross-Complainants did not plead what relationship FORMICO had to WEST COAST or if he was authorized to act on behalf of WEST COAST. Absent an allegation of that FORMICO [sic] was an director [sic], officer or otherwise authorized to act on behalf of WEST COAST the cause of action is uncertain[.]” (Mem. Ps. & As., p. 6: lis. 11-15.)
Cross-Defendants’ argument is problematic for two reasons. First, it appears Cross-Defendants conflate the ground of uncertainty with the ground of failure to state sufficient facts to constitute a cause of action. Uncertainty is a disfavored ground for demurrer and is typically sustained only where the pleading is so unintelligible and uncertain the responding party cannot reasonably respond or recognize the claims against it. (See Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) The law is settled that “[a] special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145–146.) Here, Cross-Defendants address the failure to plead certain facts, i.e. Formico’s authority, and do not address whether the pleading is unintelligible. Next, the Court otherwise finds the allegations are reasonably certain and apprise Cross-Defendants of the issues they must meet.
Turning to the second cause of action, Cross-Defendants state in the notice of motion and demurrer that they demur to this claim on the ground of uncertainty. However, they do not discuss the ground of uncertainty in connection with the second cause of action in their memorandum of points and authorities or otherwise argue the claim is uncertain. As such, the demurrer is not sustainable.
Accordingly, the demurrer to the first and second causes of action on the ground of uncertainty is OVERRULED.