Case Name: American Anchorpoint Academies, Inc., et al. v. Liou, et al.
Case No.: 16CV297293

Defendants Bethany Liou (“Liou”), Oak Meadow Plaza, LLC (“Oak Meadow”) and Monterey Dynasty LLC (“Monterey Dynasty”) (collectively, “Defendants”) demur to the third amended complaint (“TAC”) filed by plaintiffs American Anchorpoint Academies (“AAA”), Stephen White (“White”) and Constance Malone Trouard (“Trouard”) (collectively, “Plaintiffs”).

I. Factual and Procedural Background

A. Allegations of TAC

This is an action for fraud and breach of contract arising out of loans made by Plaintiffs to Defendants. According to the allegations of the TAC, on or about March 2, 2012, and for valuable consideration, Oak Meadow, delivered a promissory note in favor of AAA in the amount of $3.6 million (the “2012 AAA Note”). (TAC, ¶ 27.) Contained within the note was a personal guaranty executed by Liou for “all monies owed under this note to AAA” (“2012 AAA Guaranty”). (Id. and Exhibit A.)

On that same day, Oak Meadow delivered, for valuable consideration, a promissory note in favor of the Stephen Malone Sr. Trust (the “Trust”), in the original amount of $1 million (the “2012 Trust Note”) to trustees Stephen White and Constance Malone (the “Trustees”). (TAC, ¶ 29.) Contained within the 2012 Trust Note was a personal guaranty executed by Liou for “all monies owed under the note to [the] Trust.” (Id. and Exhibit B.)

The 2012 AAA Note and the 2012 Trust Note both indicated that the obligation of Oak Meadow was secured by recorded trust deeds on various properties in Santa Clara County (the “Original Security Parcels”). (TAC, ¶ 31.)

Subsequently, Oak Meadow was periodically late in its obligations under the notes and, as a result, Oak Meadow and Liou, as Oak Meadow’s guarantor, incurred significant late charges and accrued interest. (TAC, ¶ 32.) In 2014, with Oak Meadow and Liou having failed to keep up with the payment schedule as promised, the 2012 AAA Note and the 2012 Trust Note were in default. (Id., ¶ 33.) Liou was aware that AAA and Constance Malone, the primary beneficiaries of the Trust, were reliant on timely and full periodic payments under the Notes. (Id.)

Plaintiffs allege, on information and belief, that in late 2014 Liou was desperate to remove the Original Security Parcels as security for the 2012 AAA Note and the 2012 Trust Note so that she could use them to obtain further financing for development projects. (Id., ¶ ¶¶ 35-36.) Liou owned, though defendant Monterey Dynasty LLC (“Monterey Dynasty”), a 12.99 acre parcel on Edmundson Avenue (“Edmundson Property”) which she wanted to substitute as security for the 2012 AAA Note and the 2012 Trust Notes. (TAC, ¶ 36) Liou was aware, however, that the Edmundson Property was less desirable and valuable than the Original Security Parcels. (Id.)

In a scheme to convince AAA and the Trust to reconvey the deeds of trust on the Original Security Parcels and substitute the Edmundson Property, Liou represented to Plaintiffs that, in addition to providing a security interest in the Edmundson Property, she would execute a personal guarantee and specifically covenant that she would not pledge, hypothecate, mortgage, sell or otherwise transfer any of her assets including those which she had specifically identified. (TAC, ¶ 37.) As part of the inducement for Plaintiffs to reconvey the Original Security Parcels, on November 21, 2014, Liou and Monterey Dynasty, as trustors, executed a deed of trust for the Edmundson Property securing the principal sum of $4.6 million for the benefit of Plaintiffs, as collective beneficiaries. As part of the inducement for Plaintiffs to reconvey the Original Security Parcels, on November 21, 2014, Liou and Monterey Dynasty, as trustors, executed a deed of trust for the Edmundson Property securing the principal sum of $4.6 million for the benefit of Plaintiffs, as collective beneficiaries. (Id., ¶ 48.) Jointly documented with the deed was an amendment to the 2012 notes (the “2014 Amendment to Notes”) affirming the principal balance of $4.6 million, which, among other things, (1) affirmed Monterey Dynasty as an additional obligor for the debt amount, (2) specified monthly installments of $36,000 due on the 15th of each month, (3) set interest at 10% and (4) set a maturity date of December 31, 2015, at which time all remaining principal and interest would be due. (Id.) The deed was recorded on February 11, 2015 and encumbers, among other things, the Edmundson Property. (Id.) The deed created a security interest in the Edmundson Property and also conveys and assigns to Plaintiffs all rents and profits, etc. arising from it. (Id.)

To further induce AAA and the Trust to refrain from declaring the notes in default and foreclosing on the Original Security Parcels, Liou executed an additional personal guarantee for the 2012 notes, as amended (“2014 Personal Guarantee”). (TAC, ¶ 42.) In paragraph 2 of the guarantee, Liou specifically promised as follows:

The Guarantor agrees not to pledge, hypothecate, mortgage, sell, or otherwise transfer any of the Guarantor’s assets without the prior written consent of the Lender.

(TAC, ¶ 19.)

Liou informed Plaintiffs that the “assets” as referenced in the foregoing paragraph were 100% owned by her and consisted of real properties that she personally owned or were owned by her three 100% owned alter ego LLCs- Diamond Creek Villa, LLC, Oak Meadows and Monterey Plaza. (TAC, ¶ 43.) Liou provided Plaintiffs with a list of these properties in a document entitled “Schedule E.” (Id.) During this entire period of time, Plaintiffs were unaware that Liou had no intention of honoring her promise not to “pledge, hypothecate, mortgage, sell, or otherwise transfer any of Grantor’s assets” after Plaintiffs issued a full reconveyance of the Original Security Parcels and in fact intended to “flagrantly disregard” such promise. (Id., ¶ 46.) Liou actually intended to sell, mortgage or pledge her other property to secure additional funds, and had Plaintiffs been aware of this fact, they would not have reconveyed the Original Security Parcels and instead would have foreclosed on them. (Id.)

Ultimately, Liou breached the 2014 Personal Guarantee’s promise not to mortgage the guarantor’s assets without Plaintiffs’ approval. (TAC, ¶ 47.) Liou secretly mortgaged the Original Security Parcels and obtained millions of dollars in loans. (Id.)

After Defendants ultimately failed to pay installments due under the 2014 Deed of Trust and were therefore in default as of January 1, 2016, Plaintiffs filed the instant action on June 6, 2016. The First Amended Complaint (“FAC”) was filed just shy of a year later, asserting claims for (1) judicial foreclosure of the Edmundson Property; (2) judicial foreclosure of equitable mortgages; (3) fraud; (4) promissory fraud; and (5) breach of contract. After a round of attacks on the pleadings, the Second Amended Complaint (“SAC”) was filed on September 8, 2017, with Plaintiffs asserting the following causes of action: (1) for judicial foreclosure of the Edmundson Property (against Monterey Dynasty and Liou); (2) judicial foreclosure of property pledged by Liou pursuant to 2014 Personal Guarantee (against all defendants); (3) fraud (against Liou); (4) promissory fraud (against Liou); and (5) breach of contract- 2014 Personal Guarantee (against Liou).

B. Defendants’ Motion for Summary Judgment/Summary Adjudication and Subsequent Request by Plaintiffs for Leave to Amend

In March 2018, Defendants filed a motion for summary judgment/summary adjudication as to the SAC primarily based on their contention that Plaintiffs’ claims could not succeed because a condition subsequent in the agreement executed between Oak Meadow and AAA in 2004 for the purchase and sale of real property in Morgan Hill did not occur and therefore Oak Meadow was no longer obligated to perform its obligations under the 2012 AAA Note and 2012 Trust Note. The Court’s tentative order on the motion was to deny it to the extent that Defendants’ requested summary judgment, but to grant summary adjudication as to the third cause of action for fraud, which was predicated on allegations that in November 2014, Liou falsely represented that she owned 100% of the properties listed in Schedule E, either by herself, or through her three 100% owned LLCs. Plaintiffs alleged that these misrepresentations were material to their decision to accept a deed of trust on the Edmundson property to secure the 2012 Notes and to accept Liou’s 2014 Personal Guarantee, and that they suffered damage as a result. The Court indicated that summary adjudication of the claim was appropriate because Defendants had demonstrated that Plaintiff could not establish reasonable reliance on Liou’s alleged misrepresentations in Schedule E because she provided an amended schedule thereafter which corrected the misrepresentations before the personal guarantee was executed.

In their opposition to the motion, Plaintiffs argued that the removal of the Atherton property from the amended Schedule E still made it an inaccurate representation of her assets because she was in fact the true owner of that property. They further argued that Liou failed to disclose all properties that she owned 100% in the amended schedule and that she misrepresented the mortgage values in Schedule E, whether original or amended. The Court, however, found Plaintiffs’ assertions problematic because the allegations of the fraud claim in the SAC were that Liou falsely represented that she herself, or her wholly-owned LLCs, owned the properties listed on Schedule E 100%. However, Plaintiffs were suddenly arguing that she failed to disclose all properties that she owned 100% in the amended Schedule and that this was the misrepresentation at issue. This was inconsistent with what was pleaded in the SAC. Also inconsistent was Plaintiffs’ assertion in their opposition that Liou misrepresented the mortgage values in Schedule E, whether original or amended. But Plaintiffs did not plead this as a basis for their fraud claim in the SAC and this was critical because, as the Court explained in its order, “[i]t is well established that the pleadings determine the scope of relevant issues on a summary judgment motion.” (Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 74.) The Court continued, “the burden of a defendant moving for summary judgment only requires that he or she negate plaintiff’s theories as alleged in the complaint; that is, a moving party need not refute liability on some theoretical possibility not included in the pleadings.” (Hutton v. Fidelity National Title Company (2013) 213 Cal.App.4th 486, 493 [emphasis in original].)

During oral argument, Plaintiffs requested leave to amend the third cause of action to allege a different theory of fraud, particularly that Liou failed to accurately and truthfully set forth in Schedule E all of the encumbrances that existed against the Properties listed therein. After providing Defendants with an opportunity to submit a brief addressing the propriety of Plaintiffs’ request, the Court ultimately denied the requested amendment as a sham pleading in its order on the motion for summary judgment/adjudication, explaining that it was likely “a subterfuge” on Plaintiffs part that was “prompted by … [its] tentative ruling and motivated as an attempt to avoid summary adjudication,” and that a proposed amendment which contradicts allegations in an earlier pleading will not be allowed in the absence of “very satisfactory evidence upon which it is clearly shown that the earlier pleading is the result of mistake or inadvertence.” (Court’s Order at 15:1-6.) The Court’s order was entered on June 27, 2018.

Approximately three weeks later, on July 19, 2018, Plaintiffs filed a motion to consolidate or, in the alternative, for leave to file a third amended complaint. Plaintiffs sought to consolidate the instant action with another case they filed the day prior on July 18, 2018 (Case No. 18CV331801) that asserted a fraud claim based on several of the theories raised in their opposition to Defendants’ motion for summary judgment/adjudication. The motion, which was heard on shortened time, was granted by the Court on August 9, 2018. Defendants did not object to Plaintiffs’ request for leave, recognizing California’s policy of favoring liberal amendment of pleadings, but reserved their rights to challenge the proffered TAC, which they now do. The TAC asserts the following causes of action: (1) declaratory relief (against all defendants); (2) action for accounting (against all defendants); (3) imposition of constructive trust (against all defendants); (4) fraud (Schedule E and Revised Schedule E) (against Liou); (5) fraud (2014 Personal Guarantee) (against Liou); (6) promissory fraud (against Liou); (7) breach of contract (2014 Personal Guarantee) (against Liou); (8) breach of contract (2014 Amendment to Notes) (against Monterey Dynasty, Oak Meadow and Liou); (9) breach of contract (2014 Deed of Trust Guarantee) (against Liou); (10) elder financial abuse (Trouard against Liou); (11) for judicial foreclosure of the Edmundson Property (against Monterey Dynasty and Liou); and (12) for judicial foreclosure of the property pledged by Liou pursuant to the 2014 Personal Guarantee (against all defendants). The TAC also names three new entity defendants: Diamond Creek Villa LLC (“Diamond Creek LLC”), Diamond Creek Villa A Corporation (“Diamond Creek Corp.”) and Golden California Regional Center, LLC (“Golden California”) (collectively, “Entity Defendants”). Defendants filed the demurrer to the TAC on September 13, 2018. Plaintiffs oppose the motion.

II. Plaintiffs’ Request for Judicial Notice

In support of their opposition to Defendants’ demurrer, Plaintiffs request that the Court take judicial notice of the following: (1) Plaintiffs’ Memorandum of Points and Authorities in Support of Plaintiffs’ Motion to Consolidate Cases, or in the Alternative, for Leave to File Third Amended Complaint (Exhibit A); (2) a copy of the red-lined version comparing the [Proposed] TAC and the SAC (Exhibit B); (3) Defendants’ Responses [sic] to Plaintiffs’ Motion for Leave to Amend (Exhibit C); and (4) the Court’s order granting Plaintiffs’ leave to file the TAC (Exhibit D). As all of the foregoing items are court records, they are all proper subjects of judicial notice pursuant to Evidence Code section 452, subdivision (d). Consequently, Plaintiffs’ request for judicial notice is GRANTED.

III. Defendants’ Demurrer

Defendants demur to the first and third causes of action as to Diamond Creek LLC, Diamond Creek Corporation and Golden California and to the second, fourth, fifth and tenth causes of action as to Liou, all on the ground of failure to state facts sufficient to constitute a cause of action.

A. Demurrer as to First and Third Causes of Action as to Entity Defendants

Defendants first contend that no claim for declaratory relief has been or can be stated against the Entity Defendants because no justiciable controversy exists.

Any person claiming rights with respect to property, a contract, or a written instrument (other than a will or trust) may bring an action for a declaration of the party’s rights or duties with respect to another. (Code Civ. Proc., § 1060; Market Lofts Community Association v. 9th Street Market Lofts, LLC (2014) 222 Cal.App.4th 924, 931.) “The fundamental basis for a declaratory relief is the existence of an actual, present controversy over a proper subject. [Citation.]” (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79 [emphasis in original].) A plaintiff’s complaint for declaratory relief complaint must specifically allege that an actual, present controversy exists, and must state the facts of the respective claims concerning the disputed subject matter. (City of Cotati, supra, 29 Cal.4th at 79.) Defendants maintain that no justiciable controversy exists between Plaintiffs and the newly-added Entity Defendants because they are not parties to any contract with Plaintiffs, did not make payments to Plaintiffs on any of those agreements, and are not alleged to have made any representations to Plaintiffs, much less false representations. Defendants suggest that the Entity Defendants have been named for no other reason than they are owned and operated by Liou.

The extent of Plaintiffs’ allegations regarding the Entity Defendants in particular in the declaratory relief cause of action is that they are Liou’s 100% owned alter ego LLCs. With this claim, Plaintiffs seek a declaration of their rights of recovery pursuant to the various guarantees executed by the parties, but as Defendants contend, the Entity Defendants are not alleged to be parties to any of these agreements and it is otherwise not clear what actual, present controversy exists between Plaintiffs and the Entity Defendants specifically. To reiterate, a complaint for declaratory relief must state the facts of the respective claims concerning the disputed subject matter. (City of Cotati, supra, 29 Cal.4th at 79.) Plaintiffs appear, as Defendants suggest, to have added the Entity Defendants only in order to obtain access to assets in their possessions to collect on the monies owed by Liou. This approach by Plaintiffs seems to be an attempt by them to engineer a reverse piercing of the corporate veil, a doctrine which to this point has been rejected by California courts. (See Postal Instant Press v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, 1521-1522.)

Ultimately, with Plaintiffs having failed to do state facts demonstrating the existence of an actual, present controversy with the newly added Entity Defendants, the demurrer to the first cause of action for declaratory relief on the ground of failure to state facts is SUSTAINED WITHOUT LEAVE TO AMEND.

Defendants next assert that the third cause of action for imposition of a constructive trust fails to state a cause of action against the newly-added Entity Defendants because they are essentially seeking a pre-judgment writ of attachment on assets held by these defendants, who have nothing to do with Plaintiffs’ claims against their contractual counterparties: Liou, Oak Meadow and Monterey Dynasty.

A constructive trust is a remedy used by a court of equity to compel a person who has property to which he or she is not justly entitled to transfer it to the person entitled to it. (Pacific Lumber Co. v. Superior Court (1990) 226 Cal.App.3d 371, 378.) Three conditions are required for the creation of a constructive or involuntary trust: (1) the existence of a res (property or some interest in the property); (2) the plaintiff’s right to that res; and (3) the defendant’s acquisition of the res by fraud, accident, mistake, undue influence, violation of a trust or other wrongful act. (Kraus v. Willow Public Golf Course (1977) 73 Cal.App.3d 354, 373.)

Here, Defendants persuasively argue that this claim fails because Plaintiffs have not pleaded a basis which entitles them to property held by the newly-added Entity Defendants, i.e., there are no facts pleaded which demonstrate that these parties obtained the loan proceeds they are alleged to possess through their own wrongful conduct as opposed to Liou’s. Without such allegations, no basis for the imposition of a constructive trust against property possessed by the Entity Defendants has been stated. Consequently, Defendants’ demurrer to the third cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

B. Demurrer as to Second, Fourth, Fifth and Tenth Causes of Action

Turning to the claims as stated against Liou, Defendants first assert that no claim for an accounting has been stated by Plaintiffs. In this cause of action, Plaintiffs seek an accounting to determine amounts due under the 2012 AAA Note, the 2012 Trust Note and the 2014 Amendment to Notes. (TAC, ¶¶ 60-62.)

An action for an accounting is equitable in nature and may be brought to compel a defendant to account to the plaintiff for money or property where (1) a fiduciary relationship exists between the parties or (2) even though no fiduciary relationship exists, the accounts are so complicated that an ordinary legal action demanding a fixed sum is impracticable. (Civic Western Corp. v. Zila Industries (1977) 66 Cal.App.3d 1, 14.) A complaint does not state a cause of action for an accounting where is shows on its face that none is necessary, i.e., where the plaintiff alleges a right to recover a sum certain or a sum that can be made certain by calculation. (St. James Church of Christ Holiness v. Superior Court (1955) 135 Cal.App.2d 352, 359.)

Here, Defendants contend that Plaintiffs’ accounting claim fails because (1) the amounts that Plaintiffs seek to determine under the various written agreements can be made certain by calculation and (2) it is clearly an improper attempt by Plaintiffs to conduct irrelevant pre-judgment discovery into Defendants’ assets. These arguments are well taken because Plaintiff can undoubtedly determine the amounts that are owed to them under the 2012 AAA Note, the 2012 Trust Note and the 2014 Amendment to Notes by resort to their own records reflecting payments received from Liou and any other signatories to these agreements. In other words, there are fixed amounts of indebtedness between Liou and Plaintiffs based on payments made or not made, and therefore no cause of action for an accounting can be stated. (See, e.g., Kinley v. Thelen (1910) 158 Cal. 175, 182.) The allegations in the TAC make it clear that Plaintiffs are concerned about where the loan proceeds they provided to Liou were transferred (they allege to the Entity Defendants), but this is not the purpose of an accounting claim. An accounting is a “species of disclosure, predicated upon the plaintiff’s legal inability to determine how much money, if any is due.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 180 [internal citation omitted] [emphasis added].) While relevant to collecting on a potential judgment, where the loan proceeds are currently located has no relevance to how much money is owed by Liou under the 2012 AAA Note, the 2012 Trust Note and the 2014 Amendment to Notes. Consequently, Defendants’ demurrer to the second cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE.

Next, Defendants assert that the fourth cause of action for fraud should be dismissed as a sham pleading, arguing that by including this claim in the TAC, Plaintiffs are attempting to flout the Court’s June 27, 2018 order on Defendants’ motion for summary judgment/summary adjudication.

In the SAC, Plaintiffs asserted a single cause of action for fraud that was predicated on allegations that Liou falsely represented, by and through Steve White, that she owned 100% of the properties listed in Schedule E, either by herself, or through her three 100% owned LLCs, and that Plaintiffs’ reliance on such a representation caused them to suffer damages. (SAC, ¶¶ 35-40.) As explained above, in opposing the motion for summary adjudication of this claim, however, Plaintiffs maintained that the actionable fraud by Liou was actually her failure to disclose all properties that she owned, and that she misrepresented the mortgage values in Schedule E, whether original or amended. To reiterate, the inconsistencies between what was pleaded in the SAC and what was argued by Plaintiffs in their opposition concerning alleged fraud by Liou in connection with Schedule E were deemed problematic because “the pleadings determine the scope of relevant issues on a summary judgment motion.” (Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 74.) As the parties moving for summary judgment/adjudication, Defendants were only required to negate Plaintiffs’ theories “as alleged in the complaint,” and not refute liability on “some theoretical possibility not included in the pleadings.” (Hutton v. Fidelity National Title Company (2013) 213 Cal.App.4th 486, 493.) The Court denied Plaintiffs’ request at the hearing to amend the SAC to comport with the altered theory of fraud they asserted in their opposing papers, concluding that it was likely subterfuge to avoid summary adjudication of the fraud claim and thus a sham pleading.

After receiving permission to file the TAC on a noticed motion, Plaintiffs’ fourth cause of action for fraud is now predicated on allegations that Liou misrepresented in Schedule E and the Revised Schedule E that the real property assets listed therein were owned by her, personally, or were owned by her 100% alter ego LLCs, that she did not own the Atherton property but that it was owned by her “uncle,” and that the encumbrances on the properties were of a much lower amount than they actually were. (TAC, ¶¶ 72-77.) Defendants maintain that the new theory underlying Plaintiffs’ fraud claim implicates the sham pleading doctrine, which precludes parties from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment. (See, e.g., Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425.) Generally, “[i]f a party files an amended complaint and attempts to avoid the defects of the original complaint by either omitting facts which made the previous complaint defective or by adding facts inconsistent with those previous pleading, the court may take judicial notice of prior pleadings and may disregard any inconsistent allegations.” (Colapinto v. County of Riverside (1991) 230 CAL.App.3d 147, 151.) Nothing has changed, Defendants explain, since the Court determined that Plaintiffs’ earlier proposed amendment of the fraud claim, initially requested at the hearing on Defendants’ motion for summary judgment/adjudication, was held to be a sham and therefore the Court should dismiss the fraud claim in the TAC.

The Court is not persuaded by Defendants that the fourth cause of action implicates the sham pleading doctrine, despite its prior conclusion in its order on Defendants’ motion for summary judgment/adjudication. Of critical importance is the fact that Plaintiffs’ prior request to amend the fraud claim was raised at the hearing on that motion and therefore, had it proved successful, would have defeated the Court’s intention to grant summary adjudication of that claim. The timing of Plaintiffs’ request for leave was the primary motivator behind the Court’s conclusion that the proposed amendment was a sham; post-motion for summary judgment/adjudication, the issue of an amendment purely to defeat such a motion is no longer as glaring. Upon review of the actual allegations of the fourth cause of action, it does not appear to the Court that any “harmful’ facts have actually been omitted from the pleading. Instead, additional facts have been added to broaden the scope of the misrepresentations alleged to have been made by Liou on Schedule E, both the original and amended versions. Because of this, the Court is not persuaded that the fraud claim as pleaded in the TAC is a sham. As this is the only argument asserted by Defendants in support of their demurrer to this claim and the Court finds that it lacks merit, the demurrer to the fourth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

With regard to the fifth cause of action, also for fraud, Defendants contend that their demurrer should be sustained because the claim is not pleaded with the requisite specificity. The fifth cause of action is predicated on allegations that Liou made misrepresentations in the 2014 Personal Guarantee, particularly that she was both the “debtor” and “guarantor,” when in fact she was only the latter and Oak Meadow was the former. In their motion for summary judgment/adjudication, Defendants questioned the validity of the 2014 Personal Guarantee, noting that a debtor cannot guarantee his or her own debt, and Plaintiffs now present the theory that Liou endorsed the 2014 Personal Guarantee despite being aware of the “error” it contained listing her as both “debtor” and “guarantor” and used it to avoid the effect of the document in her “scheme” to defraud Plaintiffs. (TAC, ¶¶ 81-87.)

The general elements of a fraud claim are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or “scienter”); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Fraud must be pleaded with particularity and the doctrine of liberal construction of the pleadings does not apply; thus a plaintiff must plead facts that demonstrate how, when, where, to whom, and by what means the representations were tendered. (Id.; see Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 73.) Defendants insist that this theory is a sham on the Court, with Plaintiffs not having advanced it until it was argued as a defense in Defendants’ motion for summary judgment/adjudication, and further argue that Plaintiffs have not pleaded the element of scienter on Liou’s part with sufficient specificity.
Neither of Defendants’ arguments is well taken. First, the mere fact that this theory of fraud did not emerge until now does not mean it is a sham on the Court, especially given the fact that a party cannot allege fraud until it has actual knowledge of it. Second, because scienter, i.e., knowledge of the falsity of a representation, is a fact, it is sufficiently pleaded by the general averment that the defendant knew the representation was false. (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 726.) Here, Plaintiffs have made such an averment. (TAC, ¶ 87.) Accordingly, Defendants’ demurrer to the fifth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

Lastly, Defendants contend that the demurrer to the tenth cause of action for financial elder abuse must be sustained because it lacks sufficient specificity. This claim is based on allegations that in failing to pay plaintiff Trouard the 2012 Trust Note and/or 2014 Mortgage payments, and in failing to pay off the 2012 Trust Note when it was due, Defendants intended to defraud Trouard and violated Welfare and Institutions Code section 15610.30 (“Section 15610.30”).

“The elements of a cause of action under the Elder Abuse Act [Welfare and Institutions Code sections 15600 et seq.] are statutory, and reflect the Legislature’s intent to provide enhanced remedies to encourage private, civil enforcement of laws against elder abuse and neglect.” (Intrieri v. Super. Ct. (2004) 117 Cal.App.4th 72, 82.) “The purpose of the [Elder Abuse Act] is essentially to protect a particularly vulnerable portion of the population from gross mistreatment in the form of abuse and custodial neglect.” (Delaney v. Baker (1999) 20 Cal.4th 23, 33.)

As provided in Welfare and Institutions Code section 15610.30, subdivision (a)(1), financial abuse of an elder occurs when a person “takes, secretes, appropriates, or retains real property of an elder” for a wrongful use or with intent to defraud, or both. A person is deemed to have taken, secreted, appropriated, or retained property for a wrongful purpose if the person takes, secretes, appropriates, or retains possession the property in bad faith. (Welf. & Inst. Code, § 15610.30, subd. (b).) A person acts in bad faith if the person knew or should have known that the elder had the right to have the property transferred or made readily available to the elder. (Id., § 15610.30, subd. (b)(1).)

Generally, statutory claims must be pleaded with particularity. (See Lopez v. Southern California Rapid Transit District (1985) 40 Cal.3d 780, 795.) Defendants again insist that this is a sham pleading, noting that until the TAC, Plaintiffs, including Trouard, have for years asserted their claims in their fiduciary capacities, the capacity in which they interacted with Defendants. Only now, Defendants explain, several years into the proceedings, is Trouard attempting to assert an elder abuse claim in her individual capacity, despite not being a contracting party in such a role.

The Court is again not persuaded that the instant cause of action is a sham, or that the fact that Trouard was involved in the transactions at issue in her capacity as a co-trustee of the Stephen Malone Senior Trust operates to bar her from asserting a claim for elder abuse in her individual capacity. It is alleged that Liou was aware that Trouard relied upon income from the trust, that the payments Oak Meadow was to make on the 2012 Trust Note represented that income, and that she intended to defraud and deprive Trouard of those funds. (TAC, ¶¶ 115, 118.) Thus, Plaintiffs have pleaded the requisite components of this claim for financial elder abuse. Defendants offer no authority which suggests to the contrary with respect to the effect of different capacities. Consequently, Defendants’ demurrer to the tenth cause of action on the ground of failure to state fact sufficient to constitute a cause of action is OVERRULED.