Case Number: SC118326 Hearing Date: May 27, 2014 Dept: P

TENTATIVE RULING – DEPT. P

MAY 27, 2014 CALENDAR No: 2

SC118326 — SP INV. v. NEWMAN, et al.

DEMURRER TO THIRD AMENDED COMPLAINT

Evidentiary matters

Defendants’ request for judicial notice of the FAC is granted as to filing and existence only.

Merits

Plaintiff allege that defendants Nancy Newman and Julia Paul each breached an agreement to sell Plaintiff interests in a New Jersey limited partnership. Plaintiff has sued Newman as the trustee of the Stephen C. Marcus SGT Exempt Trust FBO Nancy Newman (“the Newman Trust”) and individually, and has sued Paul as the trustee of the Stephen C. Marcus SGT Exempt Trust FBO Julia Paul (“the Paul Trust”) and individually. The individual defendants have interposed special demurrers to all three claims alleged in Plaintiff’s third amended complaint for breach of contract, fraud, and conversion, and all four defendants have interposed general demurrers to the two tort claims.

The individual defendants’ special demurrers for misjoinder as to the cause of action for breach of contract are sustained without leave to amend.

Probate Code section 18000(a) specifically states that “[u]nless otherwise provided in the contract or in this chapter, a trustee is not personally liable on a contract properly entered into in the trustee’s fiduciary capacity in the course of administration of the trust unless the trustee fails to reveal the trustee’s representative capacity or identify the trust in the contract.” Section 18000 thus absolutely precludes personal liability for breach of contract where trustees are clearly and openly acting on behalf of a trust, unless the contract expressly imposes personal liability. Recommendation Proposing the Trust Law (Dec.1985) 18 Cal. Law Revision Com. Rep. (1986) p. 588 (“The proposed law adopts the modern rule which makes the trustee personally liable on contracts properly entered into only where the contract provides for personal liability or where the trustee fails to reveal its representative capacity and identify the trust estate in the contract”). The agreements attached to the TAC establish that the individual defendants dealt openly with Plaintiff as trustees of the trusts, that they signed all the agreements in the name of the trusts, and that the agreements did not impose personal liability on the individual defendants; in this regard, the curious allegations of para. 18 of the TAC do not assist Plaintiff. This clear bar to any liability suggests a reason why the agreements now attached to the complaint were omitted until the Court ordered plaintiff to do so. Such stratagems will ultimately fail and must be rigorously avoided.

The individual defendants’ special demurrers for misjoinder as to the second and third causes of action for fraud and conversion are overruled.

Section 18001 provides: “A trustee is personally liable for obligations arising from ownership or control of trust property only if the trustee is personally at fault.” Section 18002 provides that the “trustee is personally liable for torts committed in the course of administration of the trust only if the trustee is personally at fault.” The Courts have construed these sections to provide protection to trustees by treating them in a representative capacity, much like corporate officers. See, e.g., Haskett v. Villas at Desert Falls (2001) 90 Cal.App.4th 864, 877 (a trustee is “personally at fault” within the meaning of these sections only when it “either intentionally or negligently acts or fails to act”; trustee not personally liable under Prob.Code, § 18001 solely by virtue of having ownership or control of trust property; Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1348 (same).

Plaintiff’s assertion that the individual defendants are liable as to Plaintiff’s tort claims under Probate Code sections 18001 and 18002 is – this time – properly asserted, based on the (minimally) expanded allegations of the TAC, including paras. 2 and 3 thereof, and the Court’s rulings on the general demurrers to the tort claims, infra.

In this regard, the Court declines to apply the Owens “sham pleading” rule, as urged by the individual defendants. See generally, Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 384 (a plaintiff may not avoid a demurrer by pleading facts or positions in an amended complaint that contradict the facts pleaded in a prior complaint). Allegations which are not “fundamentally inconsistent” with the allegations contained in the prior pleadings do not trigger application of the sham pleading doctrine. See, e.g., Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1530 (distinguishing Owens; “The allegations of concealment do not contradict and are not inconsistent with the allegations of the original complaint”). The Court simply does not read Plaintiff’s allegations of individual liability as to the tort claims alleged in the TAC as being fundamentally inconsistent with its allegation, in its FAC, that the individual defendants were trustees of the trust.

All four defendants’ general demurrers to the second cause of action for fraud are overruled.

As an initial matter, the Court expressly granted Plaintiff leave to assert this claim (and the conversion claim) in the TAC; Defendants’ assertion that Plaintiff improperly included these claims in the TAC is entirely without merit.

While “[b]oth state and federal rules for pleading fraud require that fraud be alleged with specificity, … neither requires the pleader to go into minute detail ….” Gervase v. Superior Court (1995) 31 Cal. App. 4th 1218, 1244, n. 16 (emphasis added).

“‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citations.]” Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. When a defendant has fraudulently induced a plaintiff to enter into an agreement, a cause of action for promissory fraud may lie. Id. “[N]o public policy is served by permitting a party who never intended to fulfill his obligations to fraudulently induce another to enter into an agreement.” Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1238.

In a promissory fraud action, the essence of the fraud is the existence of an intent at the time of the promise not to perform it, and the claimant must specifically allege and prove, among other things, that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promisee to do or not do a particular thing. Building Permit Consultants, Inc. v. Mazur(2004) 122 Cal.App.4th 1400, 1414 (citations and quotations omitted).

To prove promissory fraud, a plaintiff must produce evidence showing that when the defendant made the subject promise, the defendant had no intention of performing it; thus, the mere fact that the promise is not kept does not prove there was no intention of keeping it when it was made. Jacobson v. Mead (1936) 12 Cal.App.2d 75, 81-82; accord Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30. Of course, here, the Court need not decide whether Plaintiff can prove a cause of action for promissory fraud. It need only decide whether it has alleged one.

For the reasons well-stated in the opposition brief, and the reasons stated above, the Court finds the demurrer lacking in merit.

All four defendants’ general demurrers to third cause of action for conversion are overruled.

As is asserted by Defendants, generally, unsegregated sums of money, in the possession of a defendant, are not subject to conversion. Vu v. California Commerce Club, Inc. (1997) 58 Cal.App.4th 229, 235; PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395-397 (citing Vu). However, an exception to this limitation arises where a defendant has received funds as the agent of a plaintiff and instead of paying the funds to the plaintiff, takes the funds for his own benefit or use. E.g., Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072- 1073. The TAC alleges that exception. E.g., TAC, para. 41. Any uncertainties as to the exact amounts at issue (and the nature of the allegedly converted documents) can be cleared up through discovery.

Answer is to be served and filed on or before June 29, 2013.

Defendants are to serve and lodge a proposed order pursuant to CRC 3.1312.

Other matters

Counsel on both sides continue to litigate this action in an unreasonable manner; the respective briefs submitted by both sides pertaining to the demurrers determined today contained highly questionable assertions and arguments. Counsel are reminded of their obligations under CCP 128.7(b).

CASE MANAGEMENT CONFERENCE

Re-set to August 13, 2014 at 8:30 a.m.

NOTICE

Defendants shall give notice of today’s rulings and orders and timely file proof of service thereof, pursuant to CCP 1019.5 and CRC 3.1312.