Case Name: Sidhu, et al. v. Sidhu, et al.
Case No.: 19CV342731

Defendants Jagdeep Sidhu (“Jagdip”) and Parmjeet Kaur (“Kaur”) (collectively, “Defendants”) demur to the First Amended Complaint (“FAC”) filed by plaintiff Ranjit S. Sidhu (“Ranjit”) and Gurdip Singh (“Gurdip”) (collectively, “Plaintiffs”).

I. Background

A. Factual

This is an action for fraud, among other things, arising out of agreement between various parties to operate an Arco Franchise. In 2002, Plaintiffs and Jagdip, who are siblings, as well as Kaur, Jagdip’s wife, entered into an oral agreement to partner together to purchase an Arco consisting of a gas station and a workshop for automobile smog equipment inspection (“Arco”). (FAC, ¶ 11.) The agreement provided that: the parties would each pay $120,000 towards the purchase; Ranjit and Jagdip would secure a loan for $185,000 using their house as collateral; $55,000 would be borrowed from family and friends; once the Arco was operating, the parties would each pay their share of all franchise fees and operating expenses, if the net proceeds were insufficient to cover all expenses; the parties would each own an equal share of the Arco and would split the net proceeds equally; and the parties would also take a salary from Arco, with Plaintiffs paid $3,200 per month and Jagdip $4,700. (Id., ¶ 12.)

At the time of the purchase, Defendants represented to Plaintiffs that Arco only allowed one person to become the franchisee and therefore Jagdip was required to put the business in his name only. (FAC, ¶ 18.) Plaintiffs were under the impression that the parties were partners, with each owning a 1/3 share of the business (1/3 to each plaintiff and 1/3 owned jointly by Defendants). (Id., ¶ 21.) The parties opened a bank account in Ranjit’s name, where Plaintiffs and Jagdip would deposit the profits from the business and take out equal shares. (Id., ¶ 22.) All profits were equally distributed among the parties as per the terms of the oral agreement. (Id.) An additional account was opened in the names of Gurdip, with Jagdip and Gurdip authorized to write checks from the account. (Id., ¶ 23.)

After the purchase of the Arco, the parties went to an attorney to formalize the oral agreement by drafting a partnership agreement. (FAC, ¶ 24.) The attorney drafted what Plaintiffs believed was a formal partnership agreement that reflected the terms of the oral agreement as set forth above and the parties signed it. (Id., ¶ 25.)

After the agreement was formalized and executed, the attorney refused to provide Plaintiffs with a copy on the grounds that he would keep the executed agreement for safe keeping, and if a dispute arose the parties could return to him for assistance. (FAC, ¶ 27.) To date Plaintiffs have been unable to obtain a copy of the agreement. (Id., ¶ 28.)

In 2018, Plaintiffs learned from an Arco representative that the company did not prohibit more than one individual’s name from being placed on the ownership of a franchise. (FAC, ¶ 34.) Plaintiffs also learned that the $120,000 that each of them had given Jagdip had been deposited into his personal account, with Jagdip representing to Arco that those amounts were gifts from Plaintiffs. (Id., ¶ 35.) Plaintiffs contacted their attorney, who advised them that the business should be incorporated, with all parties being named as equal shareholders. The attorney represented that he would draft all of the paperwork and would push Jagdip to sign it. (Id., ¶ 37.) However, after Plaintiffs had initiated the incorporation process, the attorney represented that it was too difficult to make changes to the business ownership and that there was a risk that Arco would cancel the franchise if it discovered that there were three partners to the original purchase. (Id., ¶ 39.)

Gurdip subsequently had his power as an authorized signatory to the business bank account revoked by Defendants, who added Kaur to the account instead. (FAC, ¶ 42.) Defendants then defended their actions and threated Gurdip with the filing of a false criminal complaint against him if he attempted to do anything against them or the business. (Id., ¶ 43.) Gurdip was cut off from receiving business proceeds and Ranjit was threatened with his own removal from the business should he come to Gurdip’s aid. (Id., ¶ 45.) Further threats were made by Defendants to Plaintiffs to attempt to stop them from continuing their efforts to claim what is rightfully owed to them. (Id., ¶ 48.)

B. Procedural

Based on the foregoing, Plaintiffs initiated the instant action with the filing of the original complaint on February 6, 2019. Plaintiffs filed the FAC on May 24, 2019 asserting the following causes of action: (1) breach of contract; (2) fraud and deceit- promise without intent to perform; (3) intentional misrepresentation; (4) negligent misrepresentation; (5) conversion; (6) accounting; and (7) declaratory relief.

On October 22, 2019, Defendants filed the instant demurrer to the FAC on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Plaintiffs filed an opposition on October 31, 2019.

II. Defendants’ Demurrer

A. Timeliness

As a threshold matter, Plaintiffs contend that Defendants’ demurrer is untimely because it was not served and filed in compliance with applicable statutory deadlines.

A defendant is permitted to demur within the same period of time that it has to answer the complaint- i.e., 30 days after service, unless extended by stipulation or court order. (Code Civ. Proc., § 430.40, subd. (a).) As with most other motions, the hearing date specified in the notice on the demurrer must allow for service and filing of the moving papers in compliance with Code of Civil Procedure section 1005, i.e., at least 16 days before the court hearing, plus additional time based on the method of service. (Demyer v. Costa Mesa Mobile Home Estates (1995) 36 Cal.App.4th 393, 401 [disapproved on other grounds]; Cal. Rules of Court, rule 3.1320(c).)

Here, the demurrer to the FAC, which noticed a hearing date of November 12, 2019, was filed on October 22, 2019. No proof of service has been filed with Defendants’ motion papers, and therefore it is not clear what method of service was utilized to effectuate service on Plaintiffs. However, even excluding any potential additional time based on the method of service and just calculating timeliness based on the required 16 court days, Defendants’ demurrer is untimely, as 16 court days prior to November 12, 2019 (excluding holidays as provided by Code of Civil Procedure section 12b) is October 18, 2019. Plaintiffs’ counsel represents to the Court that the demurrer was not served via U.S. Mail on his clients until October 25, 2019.

The demurrer is therefore unequivocally untimely, although this does not necessary defeat the motion as the Court has the discretion to consider it. (See Jackson v. Doe (2011) 192 Cal.App.4th 742, 750 [stating that an untimely demurrer may be considered by the court in its discretion].) Had prejudiced been shown to have been suffered by Plaintiffs as a result of the untimely filing, the Court likely would have declined to consider it. However, in their opposition Plaintiffs do not endeavor to address the substance of the demurrer, instead arguing that it is moot because they filed a second amended complaint on October 30, 2019. Because of this, Plaintiffs do not appear to have suffered any prejudice. Problematically for Plaintiffs, however, the Court’s records do not reflect a second amended complaint having been filed, or even attempted to have been filed. If such an attempt was made, it would have been rejected for filing because a party has the right to amend its pleadings only once without leave of court and Plaintiffs already did so with the filing of the FAC. (Code Civ. Proc., § 472, subd. (a).) Thus, the FAC remains the operative pleading in this action and the demurrer is not moot. The Court will therefore consider the substantive merits of Defendants’ motion.

B. Substantive Merits

1. Statutes of Limitations

a. Fraud

The main thrust of Defendants’ demurrer is that all of the claims asserted in the FAC by Plaintiffs are untimely because they are predicated on events that took place over 17 years ago, far exceeding any of the applicable statutes of limitation.

A demurrer for failure to state sufficient facts lies where the dates alleged in the complaint show the action is barred by the statute of limitations. (E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1316.) 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. (Id.) “In assessing whether claims are time-barred, two basic questions drive [the] analysis: (a) [w]hat statutes of limitations govern the plaintiff’s claims? (b) [w]hen did the plaintiff’s causes of action accrue?” (Id. at 1316.) Generally speaking, a cause of action accrues at the time when the cause of action is complete with all of its elements. (Id. at 1317.)

Three out of the seven causes of action asserted in the FAC are for fraud. As Defendants note in their supporting memorandum, the limitations period for fraud is three years and such a claim accrues “upon the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” (Code Civ. Proc., § 338, subd. (d).) This rule of accrual is commonly referred to as the “discovery rule” and is an exception to the general rule that a cause of action accrues at the time with it is complete with all of its elements. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.) The rule “is based on the notion that statutes of limitations are intended to run against those who fail to exercise reasonable care in the protection and enforcement of their rights; therefore, those statutes should not be interpreted so as to bar a victim of wrongful conduct from asserting a cause of action before he could reasonably be expected to discover its existence.” (Saliter v. Pierce Brothers Mortuaries (1978) 81 Cal.App.3d 292, 297.)

Because a literal interpretation of the language which provides that a claim is not deemed to have accrued “until the discovery, by the aggrieved party of the facts constituting the fraud or mistake” would give a plaintiff an unlimited period to sue if he could establish ignorance of the facts, the courts have read into the statute a duty to exercise diligence to discover the facts. (Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915, 921.) A plaintiff seeking to rely on the discovery rule is therefore required to plead specific facts to show “(1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1319; see also Lee, supra, 210 Cal.App.3d at 921.) Conclusory allegations will not withstand demurrer. (McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160.)

Here, Plaintiffs’ fraud claims are predicated on misrepresentations made at the time the agreement to purchase an Arco franchise was initially formed and subsequently formalized in a written partnership agreement. These representations took place in 2002 and Plaintiffs allege that they did not discover their falsity until 2018, sixteen years later. (FAC, ¶ 34.) In arguing that Plaintiffs’ fraud claims are time-barred, Defendants assert that they have not sufficiently pleaded delayed discovery because there are no allegations relating to their inability to have made earlier discovery of the purported misrepresentations despite reasonable diligence, nor are there allegations which specifically set forth the time and manner of Plaintiffs’ discovery of these facts. This assertion is well taken, as there is a dearth of facts pertaining to the foregoing elements of the discovery rule. Accordingly, the fraud claims as currently pleaded are untimely due to the deficient pleading of delayed discovery.

b. Remaining Claims

Plaintiffs’ remaining claims for breach of contract, conversion, accounting and declaratory relief are not specifically discussed by Defendants, with no mention of the limitations periods particular to each claim or when they accrued based on what is pleaded in the FAC. For some of the claims, like conversion, this is not a problem because the claim is clearly predicated on events which occurred in 2002 and thus accrued at that time absent the benefit of the discovery rule, which has not been adequately pleaded. However, the issue of accrual is not as clear cut with respect to a claim like the first for breach of contract, which either has a two (oral) or four (written) year limitations period. (Code Civ. Proc., §§ 337, subd. (a) and 339(1).) This is complicated by the fact that this may be a situation which involves so-called “continuing wrongs,” behavior that implicates two different types of accrual rules: the continuing violation doctrine and the theory of continuous accrual. (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1197.) The former allows a plaintiff to recover not only for actions that took place during the statute of limitations period, but also for misconduct that occurred outside that period provided it is “sufficiently linked” to the conduct within the limitations period (see Richards v. CH2M Hill, Inc. (2001) 26 Cal.4th 798, 812), while the latter subjects a cause of action to continuous accrual where the wrong complained of is continual or recurring, with each wrongful act triggering a new limitations period (see Howard Jarvis Taxpayers Assn v. City of La Habra (2001) 25 Cal.4th 809, 821). Because the breach of contract claim asserted by Plaintiffs arguably includes recent breaches, including Defendants’ refusal in February 2019 to pay Gurdip money owed to him under the oral agreement, it is not clear when this claim accrued and therefore that it is affirmatively time-barred. The demurrer therefore cannot be sustained to this claim on this basis.

As for the declaratory relief claim, such a cause of action is subject to the same statute of limitations as the legal or equitable claim on which it is based. (Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 1155.) Because Plaintiffs seek a declaration based on the purported agreement amongst them to share ownership of the Arco franchise, the timeliness of the seventh cause of action would appear to be dependent on when the breach of contract claim accrued, which is not clear. It follows that because the breach of contract claim is not affirmatively time-barred, the declaratory relief claim also is not and therefore is not demurrable on the ground that it is untimely.

Finally, an action seeking an accounting is an action in equity, and generally may be governed by the four-year “catch-all” statute of limitations. (Code Civ. Proc., § 343; Estate of Peebles (1972) 27 Cal.App.3d 163, 166.) However, where the primary purpose of an accounting action is to recover money under a contract, as appears to be the case here, with Plaintiffs alleging that Defendants have retained profits owed to them pursuant to the terms of the parties’ agreement, the action is treated as a contract action. (Jefferson v. J.E. French Co. (1960) 54 Cal.2d 717, 719.) Thus, as with the declaratory relief claim, Plaintiffs’ cause of action is dependent on when the breach of contract claim accrued. Given that this is not clear, the demurrer to the accounting claim cannot be sustained on this basis.

In accordance with the foregoing analysis, Defendants’ demurrer to second, third, fourth and fifth causes of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND and OVERRULED as to the remaining claims.

2. Failure to Plead Sufficient Facts

In addition to them being untimely, Defendants also argue that Plaintiffs’ fraud claims are deficient because they are not pleaded with the requisite specificity.

Pleading fraud requires alleging the following: (a) misrepresentation; (b) knowledge of falsity; (c) intent to defraud/induce reliance; (d) justifiable reliance; and (e) resulting damage. (See Philipson & Simon v. Gulsvig (2007) 154 Cal.App.4th 347, 363.) It is well established that in order to state a claim for fraud, each of the foregoing elements must be pleaded with specificity. ((Committee on Children’s Television, Inc., (1983) 35 Cal.3d 197, 216-217.) This necessitates “pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, internal quotations omitted.)

Defendants maintain that Plaintiffs have not sufficiently pleaded their intent to deceive them, but this assertion is not well taken. Intent is a fact and therefore the averment that a representation was made with the intent to deceive the plaintiff, or any other general allegation with similar purport, is sufficient. (Woodroof v. Howes (1981) 88 Cal. 184, 190; Wennerholm v. Stanford University School of Medicine (1942) 20 Cal.3d 713, 716.) Such an averment has been made in the FAC. (See FAC, ¶¶ 63, 68-69, 75-76, 86-88.) Thus, the demurrer to the fraud claims will not be sustained on this basis.