Case Number: KC069647 Hearing Date: May 29, 2018 Dept: O

Cathay Bank v. Ace Hardware Corporation, et al. (KC069647)

Defendant Ace Hardware Corporation’s DEMURRER TO FIRST AMENDED VERIFIED COMPLAINT

Respondent: Plaintiffs Cathay Bank and Robb Evans & Associates LLC

TENTATIVE RULING

Defendant Ace Hardware Corporation’s demurrer to first amended verified complaint is SUSTAINED as to the 3rd (Conversion-Implied Contract) and 6th causes of action and OVERRULED as to the remaining causes of action. The court will hear from Plaintiffs regarding any grounds warranting leave to amend.

If leave to amend is granted, and Ace files another demurrer, Ace is reminded of its duty to meet and confer by telephone or in person for each successive demurrer. (See CCP 430.41 and Poltrock Decl., Par. 5.)

Defendant Ace Hardware Corporation (“Ace”) demurs to all causes of action on the ground that they fail to state facts sufficient to constitute a cause of action.

STANDING

Defendant contends Cathay Bank lacks standing to sue because the Receiver is the real party in interest since it was empowered to pursue all claims related to the collateral.

None of Defendant’s case authorities prohibit a corporation and a receiver from maintaining joint rights in the same collateral. Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995 is distinguishable because it concerns assets administered by a bankruptcy trustee, and governed by comprehensive federal Bankruptcy Law. Carsten v. Psychology Examining Com (1980) 27 Cal.3d 793 and City of Chula Vista v. Gutierrez (2012) 207 Cal.App.4th 68 recite general rules of standing and receiverships, but do not address the specific issue of standing of receivers vis-à-vis the corporation over the same collateral.

By contrast, North v. Cecil B. De Mille Productions, Inc. (1934) 2 Cal.2d 55 allowed a suit maintained by both a corporation and a receiver because the corporation had underlying ownership rights to the claim upon which suit was brought.

This authority is persuasive, and Defendant’s demurrer is OVERRULED.

1st CAUSE OF ACTION

ENFORCEMENT OF SENTRON’S ACCOUNT RIGHTS:

(a) If so agreed, and in any event after default, a secured party may do all of the following: (1) Notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party. (2) Take any proceeds to which the secured party is entitled under Section 9315. (3) Enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral. (4) If it holds a security interest in a deposit account perfected by control under paragraph (1) of subdivision (a) of Section 9104, apply the balance of the deposit account to the obligation secured by the deposit account. (5) If it holds a security interest in a deposit account perfected by control under paragraph (2) or (3) of subdivision (a) of Section 9104, instruct the bank to pay the balance of the deposit account to or for the benefit of the secured party. (Comm. Code 9607(a).)

Par. 53 alleges that Ace became obligated to pay Sentron. Pars. 54-55 allege that Ace was served with the Receivership Order, but refused to pay the Receiver the amounts due, and instead purported to make payments to Smith Barnett.

Ace contends it did not owe Sentron anything because it paid Smith Barnett. However, such is a triable issue, and as alleged, Ace was obligated to pay Sentron sums due, but instead paid Smith Barnett.

The court finds the allegations are sufficiently pled. Demurrer is OVERRULED.

3RD CAUSE OF ACTION

CONVERSION – IMPLIED CONTRACT:

The elements are: 1) Plaintiff’s ownership or right to possession of personal property; 2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and 3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119; Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072; Farmers Ins. Exchange v. Zerin (1997) 53 Cal. App. 4th 445, 451.)

The court finds the claim is defective. It is unclear what implied contract is at issue, who the parties are, what performance is expected, and how this implied contract leads to a conversion claim.

The court notes that Plaintiffs have already pled a sufficient Conversion claim in the 2nd cause of action, and it is unclear what additional remedy is sought by this conversion claim in the 3rd cause of action.

The court is inclined to SUSTAIN the demurrer without leave to amend, but will hear from the parties.

4TH – 5TH CAUSES OF ACTION
BREACH OF FIDUCIARY DUTY:
The elements are: 1) fiduciary duty; 2) breach of the duty; and 3) damage caused by the breach. (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 182; Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.)

Pars. 19-48 allege facts supporting Plaintiffs’ theory that Ace aided and abetted Sentron’s fiduciary duty to the Bank and to the Receiver. The allegations at Pars. 38-40 support Ace’s actual knowledge of Sentron’s fiduciary duty, and if Ace requires further facts, it may obtain those facts through discovery. Demurrer is OVERRULED.

6TH CAUSE OF ACTION

INVOLUNTARY AND CONSTRUCTIVE TRUST:

A constructive trust may only be imposed where the following three conditions are satisfied: (1) the existence of a res (property or some interest in property); (2) the right of a complaining party to that res; and (3) some wrongful acquisition or detention of the res by another party who is not entitled to it. (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990.)

The FAC acknowledges that Ace paid Smith Barnett. Therefore, Plaintiffs failed to identify a res currently in the hands of Ace to which they are entitled to a remedial trust. Plaintiffs’ claim is a claim for damages, not a trust. The court is inclined to SUSTAIN the demurrer without leave to amend, but will hear from the parties.

7TH CAUSE OF ACTION
TORT IN ESSENCE/VIOLATION OF INJUNCTION:
It is the rule that there can be no disobedience of an injunction by a person who is not included in the mandate of the court, either by name or as a member of the classes of persons properly included, or who is not active as an aider or abettor of one so included in the assertion of his claims. In some jurisdictions, where the disobedience of an injunction has resulted in pecuniary loss or injury to the plaintiff, the court, by reason of statute, may, in imposing punishment, award an amount sufficient to indemnify him for his loss, while in others relief is given in an independent action. But whatever the form of the proceeding for relief, the right to recover as against one who, in disobedience of the mandate of the court, violates a right sought to be protected thereby, to the damage of another, or who knowingly aids and abets such violation, is generally recognized. (Kirby v. San Francisco Sav. & Loan Soc. (1928) 95 Cal. App. 757, 759.)

Plaintiffs have properly alleged that Ace violated this Court’s Receivership Order, causing damages to Plaintiffs. Demurrer is OVERRULED.

8TH CAUSE OF ACTION

COMMON COUNT:

Par. 100 alleges that Ace became indebted to the Bank and the Receiver for goods sold and delivered to Ace and for money had and received by Ace in an amount subject to proof.

Ace complains that the FAC does not allege facts necessary to support the claims. However, additional specific facts may be had through discovery. The current allegations satisfy the general pleading requirements for a claim for Common Count. Demurrer is OVERRULED.