Case Name: Douglas Ross v. Scott Miley
Case No.: 16-CV-291554

I. Background

This lawsuit arises from a dispute over a loan made by plaintiff Douglass Ross (“Ross”) to defendant Scott Miley (“Miley”), his former employee. Ross runs a construction company and offered to help Miley buy a home in Pleasanton, California so he could live closer to the company’s office. In 2007, Ross loaned Miley $600,000 at an annual interest rate of 7 percent, which Miley was to pay back upon selling his home in Discovery Bay, California. When the subprime mortgage crisis unfolded the following year, Miley could not sell his home to pay back the loan. Miley resigned from Ross’s construction company in 2009 and has not made any loan payments since. Ross seeks to recover the principal amount of $600,000 as well as $336,023.98 in interest. In the second amended complaint, Ross asserts causes of action against Miley for: (1) breach of oral contract; (2) breach of written contract; (3) money lent; and (4) intentional misrepresentation.

Miley filed a cross-complaint naming Ross, Douglas Ross Construction, Inc. (“Ross Construction”), and Palisade Builders, Inc. (“Palisade”) as cross-defendants. In brief, Miley claims Ross failed to pay him his share of profit for a development project, part of which was to be applied to discharge his debt.

According to Miley, in 2012, he and the cross-defendants presented a proposal to nonparty developer Continuing Life Communities Pleasanton, LLC to perform two phases of work on a housing development. Ross offered to pay Miley $120 per hour and 50 percent of the buyout savings (anticipated to be at least $4 million in total) to work as a construction manager on the project. Eventually, the developer and Palisade reached an agreement on the proposal, and Palisade thereafter agreed to pay Ross and/or Ross Construction: (1) a guaranteed maximum price of $50,640,000; (2) a contractor fee of 3 percent of the project cost; and (3) 25 percent of the buyout savings. Miley alleges Ross never intended to pay him his share of these profits.

Several months later, the developer reached another agreement with Palisade to pay it $10,640,000 to complete the second phase of the project regardless of the actual cost. Palisade then agreed to pay Ross and/or Ross Construction the difference between the actual cost of completion and the additional $10,640,000. After this took place, Miley confirmed with Ross that he would still receive his 50 percent share of the buyout savings.

In 2013, when nearly all of the work was completed, Ross began excluding Miley from discussions about the project. Miley subsequently learned through others that the buyout savings for the project amounted to just over $2 million. Eventually, in 2015, Ross approached Miley about applying $105,000 in buyout savings to the balance of the loan, but Ross never paid out or credited this amount.

Miley asserts causes of action against Ross, Ross Construction, and Palisade (collectively, “Cross-Defendants”) for: (1) intentional misrepresentation; (2) negligent misrepresentation; (3) breach of oral contract; (4) breach of implied-in-fact contract; and (5) unjust enrichment.

Currently before the Court is Cross-Defendants’ demurrer to the entire cross-complaint as well as the third, fourth, and fifth causes of action. They filed a request for judicial notice in support.

II. Request for Judicial Notice

Cross-Defendants request judicial notice of court records, namely a complaint filed by Miley in a previous lawsuit in Alameda County, briefing on Miley’s motion for leave to file the cross-complaint in this action, a statement made to the Court at the hearing on that motion, and the Court’s order granting the motion.

In general, a court may take judicial notice of court records, including a record of a hearing, pursuant to Evidence Code section 452, subdivision (d). (See People v. Buckley (1986) 185 Cal.App.3d 512, 525.) In doing so, a court does not take judicial notice of the truth of statements or allegations in the records; rather, it takes judicial notice of the fact the records say what they say. (See Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1608, fn. 3; see also Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1564.)
With that said, a party requesting judicial notice “must provide the court and each party with a copy of the material” that is the subject of the request. (Cal. Rules of Court, rule 3.1306(c).) Alternatively, if the material is in the court file, the party may “make arrangements with the clerk to have the file in the courtroom at the time of the hearing or confirm with the clerk that the file is electronically accessible to the court.” (Ibid.) Ultimately, a court need not take judicial notice of a matter specified in Evidence Code section 452 if the requesting party does not “[f]urnish the court with sufficient information to enable it to take judicial notice of the matter.” (Evid. Code, § 453, subd. (b).)
Here, Cross-Defendants have not provided the Court with the complaint from the Alameda County lawsuit or a transcript of the hearing on the motion for leave to file the cross-complaint. Thus, Cross-Defendants have not furnished the Court with sufficient information to take judicial notice of these matters.
With respect to the briefing and order on the motion for leave to file the cross-complaint, which are not electronically accessible, Cross-Defendants’ request is accompanied by the briefing only. (See Index, Exs. A-B.) Despite the fact that Cross-Defendants did not submit the order on the motion, the clerk already provided the Court with the volume of the file containing the order. Accordingly, the Court possesses sufficient information to take judicial notice of these records.
In conclusion, Cross-Defendants’ request for judicial notice is GRANTED as to the briefing and order on the motion for leave to file the cross-complaint and DENIED as to the complaint filed in Alameda County and statement purportedly made at the hearing on the motion for leave.

III. Demurrer

Cross-Defendants demur to the entire cross-complaint on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action. They also demur to the third, fourth, and fifth causes of action on the purported ground they are barred by the statute of limitations. Cross-Defendants also identify violation of the statute of frauds as an additional ground for demurrer to the third cause of action.

The statutory grounds for demurrer are listed in Code of Civil Procedure section 430.10. Of the purported grounds asserted by Cross-Defendants, only failure to state sufficient facts and uncertainty are actual statutory grounds. (See Code Civ. Proc., § 430.10, subds. (e), (f).)

The statutory “grounds for a demurrer differ from the reasons for sustaining a demurrer on a particular ground.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.) A party may demur on the ground of failure to state facts sufficient to constitute a cause of action if “‘the complaint shows on its face that the statute [of limitations] bars the action.’ [Citation.]” (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315.) Additionally, “[t]he question of whether or not the pleaded contract meets the test of the statute of frauds may be posed by a general demurrer” on the ground of failure to state sufficient facts. (Malerbi & Associates v. Seivert (1961) 191 Cal.App.2d 760, 763.) Accordingly, the Court treats the demurrer to the third, fourth, and fifth cause of action as made on the ground of failure to state facts sufficient to constitute a cause of action.

A. Uncertainty

Cross-Defendants demur to the entire cross-complaint on the ground of uncertainty.

A party may demur on the ground of uncertainty to challenge a pleading as uncertain, ambiguous, or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Reg. Authority (2012) 208 Cal.App.4th 1125, 1135.)

Cross-Defendants argue the cross-complaint is uncertain “because it improperly alleges that [Palisade] and [Ross Construction] are substantive parties who are individually and separately liable.” (Mem. of Pts. & Auth. at p. 5:5.) The significance of this argument is not particularly clear, and the statements made in support do not add clarity. It appears Cross-Defendants’ position is that there are inconsistent allegations in the pleading because Miley alleges Ross agreed to partner with him but also alleges Ross communicated and negotiated the partnership “on behalf of himself, [Palisade], and [Ross Construction].” (Mem. of Pts. & Auth. at p. 5:8-10.) It is not obvious how these allegations are inconsistent. Furthermore, Cross-Defendants do not cite any legal authority to support and/or clarify their position. Cross-Defendants thus do not substantiate their argument.

Cross-Defendants also argue the cross-complaint is uncertain because Miley uses “chain letter” pleading, which occurs when “each claim for relief incorporates by reference all preceding paragraphs” (Internat. Billing Services v. Emigh (2000) 84 Cal.App.4th 1175, 1179). Miley does indeed use chain letter pleading. Additionally, Cross-Defendants are correct that this practice, although prolific, is disfavored and should be discouraged. (Ibid.; accord Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1041, fn. 14.) With that said, Cross-Defendants do not cite and the Court is otherwise unaware of any authority supporting the proposition that this style of pleading justifies sustaining a demurrer on the ground of uncertainty. Additionally, Cross-Defendants do not demonstrate this style of pleading, however inartful, renders the pleading so incomprehensible they cannot reasonably respond. For example, although Miley incorporates allegations by reference, he also labels his causes of action and identifies the facts upon which they are based; he does not provide a bare recitation of the elements such that it cannot be determined which incorporated facts are material. Thus, Cross-Defendants do not demonstrate the use of chain letter pleading justifies sustaining the demurrer.

Based on the foregoing, the demurrer on the ground of uncertainty is OVERRULED.

B. Failure to State Sufficient Facts

Cross-Defendants demur to the entire cross-complaint and the third, fourth, and fifth causes of action on the ground of failure to state facts sufficient to constitute a cause of action. Before addressing the arguments specifically advanced with respect thereto, it is necessary to discuss the final argument in Cross-Defendants’ memorandum of points and authorities, which is not clearly directed to the pleading as a whole or one of the challenged causes of action.

Cross-Defendants state the “cross-complaint fails to state facts sufficient to constitute any cause of action as to buyout savings allegedly owed for the [second] phase.” (Mem. of Pts. & Auth. at p. 9:15-16.) In support, Cross-Defendants do not cite any legal authority or argue no cause of action has been stated based on some articulable legal standard. Rather, they point out that Miley alleges Palisade received buyout savings for one phase of the project and that, with respect to the other phase, he simply alleges an amount of buyout savings but not that Palisade received that amount. To the extent Cross-Defendants’ position is that Miley must allege the developer paid Palisade and not just that there was a certain amount of buyout savings, they do not identify and it is not obvious there is any logical or legal justification for their position. Consequently, this argument is not a basis for sustaining the demurrer to the entire pleading or any cause of action therein.

The Court next considers the arguments advanced specifically with respect to the entire cross-complaint and the third, fourth, and fifth causes of action.

1. Entire Cross-Complaint

Cross-Defendants argue the demurrer to the entire cross-complaint is sustainable because “the doctrine of judicial estoppel precludes [Palisade] and [Ross Construction] from being individually or separately liable for the claims asserted in the cross-complaint.” (Mem. of Pts. & Auth. at p. 6:1-3.) It is not particularly clear what Cross-Defendants mean, and they do not cite any authority or identify any allegations in the pleading to support their argument.

Instead, Cross-Defendants simply assert “[t]he only basis on which [Palisade] and [Ross Construction] could be included [in the pleading] is under an alter ego theory of liability. . . .” (Mem. of Pts. & Auth. at p. 6:3-5.) Their position is apparently that the Court gave Miley leave to name Palisade and Ross Construction as cross-defendants based on an alter ego theory and that he somehow deviated from this. But Miley dedicates an entire section of the cross-complaint to alter ego allegations. (Cross-Compl., ¶¶ 6-8.) Accordingly, there is no basis for concluding the demurrer should “be sustained so that Mr. Miley’s Cross-Complaint is amended to allege that [Palisade] and [Ross Construction]’s liability only exists under an alter-ego theory.” (Mem. of Pts. & Auth. at p. 6:23-24.)

Otherwise, a demurrer to a pleading in its entirety must be overruled if any cause of action therein is properly stated. (Warren v. Atchison, Topeka & Santa Fe Railway Co. (1971) 19 Cal.App.3d 24, 36.) Cross-Defendants address only the third, fourth, and fifth causes of action. They do not address the sufficiency of the first and second causes of action. Consequently, Cross-Defendants do not substantiate their demurrer to the pleading as a whole on the ground of failure to state sufficient facts. The demurrer to the entire cross-complaint is therefore OVERRULED.

2. Third, Fourth, and Fifth Causes of Action

Cross-Defendants argue the statute of limitations bars the third, fourth, and fifth causes of action, and that the statute of frauds additionally bars the third cause of action.

i. Statute of Limitations

To demonstrate the third, fourth, and fifth causes of action are barred by the statute of limitations, Cross-Defendants must show (1) which statute of limitations applies and (2) when each cause of action accrued. (E-Fab, Inc., supra, 153 Cal.App.4th at p. 1316.) Ultimately, the demurrer is only sustainable if “‘the defect [ ] clearly and affirmatively appear[s] on the face of the complaint; it is not enough that the complaint shows merely that the [causes of] action may be barred.’ [Citation.]” (Ibid.)

As Cross-Defendants correctly articulate, the third cause of action for breach of contract is subject to a two-year statute of limitations under Code of Civil Procedure section 339 because it is based on an oral contract. (See Staniforth v. Judges Retirement System (2016) 245 Cal.App.4th 1442, 1450.) Cross-Defendants assert the same statute of limitations applies to the fourth and fifth causes of action for breach of implied-in-fact contract and unjust enrichment. With respect to the fourth cause of action, Cross-Defendants are correct that it is also subject to the two-year statute of limitations in Code of Civil Procedure section 339 because it is for breach of a contract “not founded upon an instrument of writing.” (See Thompson v. California Brewing Co. (1957) 150 Cal.App.2d 469, 476-77, citing Weitzenkorn v. Lesser (1953) 40 Cal.2d 778, 794 [distinguishing express contracts from implied-in-fact contracts].) But Cross-Defendants do not provide any explanation or authority to demonstrate the same is true relative to the fifth cause of action for unjust enrichment.

In actuality, “unjust enrichment is not a cause of action.” (Jogani v. Super. Ct. (2008) 165 Cal.App.4th 901, 911.) Unjust enrichment describes the “result of failure to make restitution under circumstances where it is equitable to do so.” (Lauriedale Associates, Ltd. v. Wilson (1992) 7 Cal.App.4th 1439, 1448.) It appears the fifth cause of action is simply a claim for restitution based on a quasi-contract theory. (See McBride v. Boughton (2004) 123 Cal.App.4th 379, 388.) A “quasi-contract” or “contract implied in law” is not a true contract; rather it is an “obligation[ ] created by law.” (Id. at p. 388, fn. 6.) With this clarification in mind, a claim based on a quasi-contract theory is subject to the two-year statute of limitations in Code of Civil Procedure section 339. (Filet Menu, Inc. v. Cheng (1999) 71 Cal.App.4th 1276, 1280.)

In summary, the third, fourth, and fifth causes of action are all subject to the two-year statute of limitations set forth in Code of Civil Procedure section 339.

Next, Cross-Defendants argue the causes of action accrued in March 2014 because that is when Palisade received its share of the buyout savings. Cross-Defendants do not cite any authority or provide a clear explanation to support their argument. Ordinarily, a cause of action for breach of contract accrues at the time of breach. (Professional Collection Consultants v. Lauron (2017) 8 Cal.App.5th 958, 966.) But Cross-Defendants do not demonstrate and it is not otherwise obvious that payment to Miley was necessarily due at the time Palisade received its money in March 2014. Cross-Defendants do not separately address the accrual of the fifth cause of action, and so the Court need not do so here. (See People v. Dougherty (1982) 138 Cal.App.3d 278, 282.) Accordingly, Cross-Defendants do not substantiate their argument and it is not otherwise clear from the allegations in the pleading that all three causes of action accrued in March 2014.

In conclusion, the demurrer to the third, fourth, and fifth causes of action is not sustainable based on the running of the statute of limitations.

ii. Statute of Frauds

Cross-Defendants argue the third cause of action is barred by the statute of frauds.

“The primary purpose of the [statute of frauds] is evidentiary, to require reliable evidence of the existence and terms of the contract and to prevent enforcement through fraud or perjury of contracts never in fact made.” (Sterling v. Taylor (2007) 40 Cal.4th 757, 766 [internal quotation marks and citations omitted].) It is codified in Civil Code section 1624, which lists the types of contracts that “are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent.” As relevant here, one type of contract subject to the statute of frauds is “[a]n agreement that by its terms is not to be performed within a year from the making thereof.” (Civ. Code, § 1624, subd. (a)(1).)

Cross-Defendants argue the oral contract upon which the third cause of action is based is invalid because construction was not completed until 2013, which was more than a year after Miley entered into the oral contract in early 2012. This argument is inapt for several reasons.

First, the determinative factor for purposes of the statute of frauds is not when the performance, as a matter of fact, occurred. (See Lacy v. Bennett (1962) 207 Cal.App.2d 796, 800.) Rather, the issue is whether the contract, by its very terms, was incapable of being performed within a year. (Ibid.) Cross-Defendants do not discuss the terms of the oral agreement. Rather, their argument is simply based on when events ultimately took place. Thus, Cross-Defendants’ argument is not persuasive.

Second, Cross-Defendants do not explain how the end of construction has anything to do with the time for performance, namely the payment of money to Miley. Cross-Defendants do not provide an explanation or identify allegations in the pleading to support the conclusion that buyout savings are only paid out at the end of construction and Miley would not be paid until that time. Thus, Cross-Defendants do not demonstrate performance could not have occurred within a year.

In conclusion, Cross-Defendants do not substantiate their statute of frauds argument.

iii. Conclusion

For the reasons set forth above, the demurrer to the third, fourth, and fifth causes of action on the ground of failure to state sufficient facts is OVERRULED.