Case Number: BC478588 Hearing Date: May 12, 2014 Dept: 32

CASE NAME: Frank DuFour v. Robert Allen, et al.
CASE NO.: BC478588
HEARING DATE: 05/12/14
DEPARTMENT: 32
SUBJECT: Motion for Summary Judgment / Summary Adjudication
MOVING PARTY: Defendants Enlightened Wealth Institute International LC and Enlightened Wealth Institute LC
RESP. PARTY: Plaintiff Frank Dufour

TENTATIVE RULING

The Motion for Summary Judgment and the Motion for Summary Adjudication as to Issue 1 are GRANTED. Motion for Summary Adjudication as to Issues 2 and 3 are MOOT.

ANALYSIS

Defendants’ Request for Judicial Notice filed with the MSJ/MSA

(1) Exhibits 1 – 5: GRANT.

Plaintiff’s Evidentiary Objections to Declaration of TRP, LC in Opposition to Defendants’ MSJ/MSA

(1) OVERRULED. Declarant failed to attest that TRP, LC is the manager of Enlightened Wealth Institute, LC. The declaration mistakenly identified Enlightened Wealth Institute International, LC twice. (See pg 2, ¶2, lines 8-10). However, the declarant has rectified the mistake in the declarant’s supplemental declaration submitted with the Reply.

Defendants’ Request for Judicial Notice filed with the Reply

(1) Exhibit A: DENY.

Defendants’ MSJ/MSA

A motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law. (CCP § 437c(c).) There is a triable issue of fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) On its motion for summary judgment, the plaintiff maintains the burden that each of the elements has been proved and that there is no defense available, while on its motion the defendant must persuade the court that one of the elements in question cannot be established or that there is a complete defense. (Id.) Summary judgment motions are defined by the material allegations in the pleadings. (Baptist v. Robinson (2006) 143 Cal.App.4th 151, 159.) A motion for summary adjudication proceeds in all procedural aspects as a motion for summary judgment. (CCP § 437c(f)(2).)

Issue 1: EWI are entitled to summary judgment because Plaintiff’s First Cause of Action for Fraud against EWI is barred by the statute of limitations. [NOTE: “EWI” as identified in the MSA “issues” refers to EWII and EWI collectively. See Defendants’ separate statement pg 2:1-6]

Defendants contend that Plaintiff’s fraud claim is barred by the applicable statutes of limitations.

Statute of Limitations – First Cause of Action for Fraud

The first cause of action for fraud is directed at Defendant s EWI and EWII (among other defendants not at issue on this motion.)

Fraud is subject to a three-year statute of limitations (SOL). (CCP § 338(d).) The SOL does not accrue until the claiming party was entitled to prosecute an action, which is when the last element essential to the cause of action has occurred, including appreciable harm. (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal. App. 4th 292, 316-17.)

“An important exception to the general rule of accrual is the ‘discovery rule,’ which postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action…. A plaintiff has reason to discover a cause of action when he or she ‘has reason at least to suspect a factual basis for its elements.’… ” (Grisham v. Philip Morris U.S.A., Inc. (2007) 40 Cal. 4th 623, 634.) “Delayed accrual of a cause of action is viewed as particularly appropriate where the relationship between the parties is one of special trust such as that involving a fiduciary, confidential or privileged relationship.” (Moreno v. Sanchez (2003) 106 Cal. App. 4th 1415, 1424.)

“[T]he statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her.” (Vaca v. Wachovia Mortg. Corp. (2011) 198 Cal.App.4th 737, 743-745.) “Yet ‘ignorance of the identity of the defendant is not essential to a claim and therefore will not toll the statute.’ [Citation.] ‘Aggrieved parties generally need not know the exact manner in which their injuries were ‘effected, nor the identities of all parties who may have played a role therein.’” (Ibid.)

Plaintiff alleges the following in his first cause of action for fraud: “Unbeknownst to plaintiff, who did not learn of these facts until they were disclosed by Staggs orally during his deposition held on January 5, 2010, he learned for the first time that he was a victim of a mortgage fraud scheme originated by ALLEN and PROSPER in conjunction with defendants collectively known as EWI. These defendants’ perpetrated this scheme using defendant, ALLEN, PROSPER, EWI, and DOE 2-FREEDOM’s agents, employees and servants, Staggs and Gregg, as well as MERKLEY, who colluded amongst
themselves to intentionally defraud the plaintiff …. [¶] Unbeknownst to plaintiff, the true facts were that the wealth building program sold to plaintiff is nothing more then a sophisticated property ‘flipping’ scheme; whereby students of defendant and associates affiliated with ALLEN and PROSPER, namely MERKLEY, Staggs and Gregg, defendants ALLEN and PROSPER in this instance, buy and sell properties amongst themselves, inflating the true value of these properties and receiving ‘kick backs’ for phony referral fees. The program sold to plaintiff, relies upon the unwitting and unsuspecting new students who place trust and repose in the mentor and coaches supposedly personally selected by defendants, ALLEN, PROSPER and EWI….” (4AC ¶¶ 69-70.)

Plaintiff purchased educational materials regarding buying and selling real estate from Defendants Robert Allen, EWI and/or EWII. EWI/EWII is the supplier of the materials Plaintiff received. After the educational program and training, Plaintiff purchased a total of eleven properties in late 2006, of which three were sold to other persons. Plaintiff’s alleged damages arise from his financial losses associated with his purchase of the remaining eight properties (“the Properties”). (4AC ¶¶2-7, 30-34, 40, 44-45, 59-61, 73, 74)

In support of the SOL defense to the fraud claim, Defendants submit several pieces of evidence showing Plaintiff’s knowledge of the alleged misrepresentations. Defendants provide: (1) a May 6, 2008 letter from attorney Ralph Sherman (UMF 1-5; Perschon Dec., Ex B; Dufour 003398-3401), (2) a May 25, 2008 “Contact/Complaint Form” from the California Department of Corporations (UMF 7 & 9; Perschon Dec., Ex B; Dufour 003398-48), (3) a “Complaint Form” from the Mississippi Department of Banking and Consumer Finance (UMF 8 & 9; Perschon Dec., Ex B; Dufour 003332-37, Dufour 00339-48) and (4) a June 2008 letter to the Mississippi State Attorney General (UMF 12 – 13; Perschon Dec., Ex A&B; Dufour 003356-62, Dufour Depo 61:1-6). These letters and complaints outlined Plaintiff’s claims for a fraudulent real estate investment scheme herein.

Specifically, the May 25, 2008 letter by Attorney Sherman stated:
“Dr. Dufour and his wife, Dana, were solicited by email by Robert Allen to learn about investing in the stock market and real estate investing and Dr. Dufour and his wife signed up for such instruction and coaching with your company. Dr. Dufour was primarily the one involved in this coaching relationship with your company.”

Attorney Sherman’s letter goes onto allege that Prosper and its coaches defrauded Plaintiff into purchasing properties that were not what they were represented to be. Further, as relevant to Defendants EWI and EWII, Plaintiff has testified that he viewed EWI/EWII as the same with Co-Defendant Robert Allen, Prosper and others. (UMF 19 – 20; DuFour Dep. 76:12-24; 367:3-4; 63:13-14; 64:10-11, 13-14; 72:4-5, 8-9; 79:25-80:13)

The letter alleged the following details with respect to the scheme: “Your coach, Mr. Todd Benson, as part of his coaching my client, induced my client to invest in real estate properties, in Mississippi, with the assistance of a Mr. Trent Staggs, and Mr. Staggs’ colleague, Ms. Emily Merkley. Based upon information and belief, it appears that your company has or had an undislosed financial relationship with Mr. Staggs and Ms. Merkley, and their company in Mississippi, Investor Solutions. It is my understanding and belief that Prosper Inc. earned revenue from these parties by steering Dr. Dufour to them and inducing him to buy properties from them. Further revenues appear to have been earned by your company when my client hired Investor Solutions to manage such properties in Mississippi. [¶] Prosper Inc. and its coaches are in an unusually strong position to influence such clients, due to your creation of a relationship in which you are positioned as experts with the clients’ best interests in mind.” (UMF 1-5; Perschon Dec., Ex B; Dufour 003398-3401) Plaintiff further alleges that “these parties appear to have greatly misrepresented the value and condition of these properties, and misled my client into purchasing them, after portraying such properties as being sold at a discounted wholesale price.” (Ibid.)

An attachment to the Mississippi Department of Banking and Consumer Finance complaint states the following:

“In every case the individual who sold me the house worked for a mortgage company that had a financial interest with the lender that gave out the loan. In the case of Freedom Mortgage … that individual was Trent Staggs who was a branch manager for Freedom Mortgage Company. In every case I was told that I would be able to rent these houses and make a sufficient amount of money that they would pay the mortgage payment, the taxes, and the insurance and that I would make between 50 and $100 additional per month after all expenses were paid…. I was also told that the houses were totally rehabilitated and would require very few repairs. [¶] What actually turned out to be the case was that I was buying houses at double their real value because and in every case the middleman had been paid significant amounts of money during the purchase of these properties or just prior to the time when I purchased them.” (UMF 8 & 9; Perschon Dec., Ex B; Dufour 003332-37, Dufour 00339-48)

Based on the May 6, 2008 letter, the California DOC complaint, the Mississippi Dept. of Banking and Consumer Finance complaint, and the letter to the Mississippi Attorney General, Defendants have made a prima facie showing that Plaintiff had reason to suspect a factual basis for each element of his fraud claim as of May 6, 2008 at the latest. The allegations in the May 6, 2008 letter mirror those made in the 4AC. (See, e.g. 4AC ¶¶ 38-39, 44, 48, 68, 70-71.) The letter specifically identified and summarized various material misrepresentations, detrimental reliance, causation, and damages sustained by Plaintiff.

However, this letter only shows that Plaintiff suspected his claims for fraud against Co-Defendants Prosper and Allen. To connect these claims to moving party herein, Defendants EWI and EWII, Defendants provide evidence of Plaintiff’s perception of all the Defendants herein as one in the same. Plaintiff has testified that he viewed EWI/EWII as the same with Co-Defendant Robert Allen, Prosper and others. However, Plaintiff further testified therein that he had no knowledge as to the business relationships, if any, between EWI, EWII, Allen, Prosper and others. (UMF 19 – 20; DuFour Dep. 76:12-24; 367:3-4; 63:13-14; 64:10-11, 13-14; 72:4-5, 8-9; 79:25-80:13). The apparent sameness or lack thereof of the multiple defendants with EWI/EWII is of no relevance to the analysis of the statute of limitations. As provided above, “ignorance of the identity of the defendant is not essential to a claim and therefore will not toll the statute.’ [Citation.] ‘Aggrieved parties generally need not know the exact manner in which their injuries were ‘effected, nor the identities of all parties who may have played a role therein.’” Vaca v. Wachovia Mortg. Corp. (2011) 198 Cal.App.4th 737, 743-745. Moreover, a cause of action will accrue even if the plaintiff does not have reason to suspect the defendant’s identity. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807.) As such, even though the documentary evidence herein does not expressly identify EWI or EWII, the cause of action accrued against EWI or EWII.

Because Plaintiff did not file his complaint until February 2012, more than three years after May 6, 2008, Defendants met their moving burden of showing that the first cause of action for fraud is time-barred. (CCP § 338(d).)

Statute of Limitations. Plaintiff argues that under the doctrine articulated in Wyatt v. Union Mortgage Co. (1980) 24 Cal. 3d 733, the statute of limitations did not begin to run until the last overt act in furtherance of the civil conspiracy. In Wyatt, the Court held that where the fraud is of a continuing nature, equity is served by the “last overt act” doctrine. In that case the plaintiff alleged misrepresentations concerning the terms of loans entered into with defendant, and the defendants’ practices in administering the loans. Plaintiff presented evidence that it had to refinance the original loans due to the unfavorable and unexpected terms, and had to do so with the same financial institution. The Court concluded the last overt act of the conspiracy did not occur until the final payment on the subsequent loan. The Court noted that defendants “stood accused of continuing their tortious conduct in furtherance of the conspiracy up until – and even after – the filing of the complaint. It was their own conduct that kept the cause of action against them alive.” Id.. at 787. “When as here, the underlying fraud is a continuing wrong, a convincing rationale exists for delaying the running of the statute of limitations. Just as the statute of limitations does not run against an action based on fraud so long as the fraud remains concealed, so ought the statute to be tolled even after the fraud is discovered, for so long as the sheer economic duress or undue influence embedded in the fraud continues to hold the victim in place.” Id. at 788.

Here, the alleged misrepresentations concern, in part, the purported non-disclosure of the interrelationships between EWI and other defendants. Further, Plaintiff alleges misrepresentations concerning the value and marketability of the Mississippi properties Plaintiff purchased. Plaintiff does not allege any fraud or misrepresentation concerning the terms of the loans or how they were administered. While those facts arguably distinguish Wyatt, the Wyatt holding is broadly worded concerning the statute of limitations when a continuing wrong is alleged. Even if Wyatt applies to the instant case, however, the Court is unable to apply Wyatt to the facts of this case. Plaintiff failed to allege in his Fourth Amended Complaint what constituted the last overt act in furtherance of the alleged conspiracy, or present any admissible evidence in that regard in opposition to the motions for summary judgment. The Court has no admissible evidence regarding the date upon which loan payments were made or financial losses suffered by Plaintiff.

Plaintiff’s position is that the last overt act was or is Plaintiff’s last payment on any loans he took out to purchase the Mississippi properties. However, the Court has no admissible evidence on when those payments were made or completed. Under these circumstances, even if Wyatt applies, Plaintiff has not met his burden to show that the last overt act in furtherance of the conspiracy occurred within the statute of limitations.

The motion for summary judgment and the motion for summary adjudication as to Issue 1 are GRANTED.

Issue 2: EWII, LC is entitled to summary judgment because it did not exist until four years after Mr. DuFour purchased the educational program from Prosper.

Based upon the granting of the summary judgment due to the violation of the statute of limitations, the motion for summary adjudication as to Issue 2 is MOOT.

Issue 3: EWI is [sic] First Cause of Action against EWI for fraud fails because there are no disputed issues of material fact and Plaintiff is not entitled to judgment as a matter of law.

Based upon the granting of the summary judgment due to the violation of the statute of limitations, the motion for summary adjudication as to Issue 3 is MOOT.