2013-00148820-CU-BC

Lee Nelson vs. Ronald Cole

Nature of Proceeding:  Hearing on Demurrer to First Amended Complaint (Kelly

Filed By:  Rimmer, Kirk

Defendant Kelley Whalen-Palmer’s (“Whalen-Palmer”) demurrer to the second
amended complaint (“SAC”) of Plaintiffs Lee Nelson and Judith Nelson, as Trustees of
the Nelson Revocable Living Trust (“Plaintiffs”) is SUSTAINED in part with leave to
amend and OVERRULED in part as follows:

Overview

This case arises from an alleged personal loan.  Plaintiffs allege that Whalen-Palmer is
a paralegal who induced them, as trustees, to make the loan to Co-Defendant Ronald
Cole (“Cole”).  Although the allegations are somewhat unclear, it appears that Cole did
not repay the debt.  Plaintiffs have pleaded against Whalen-Palmer causes of action
for breach of contract, breach of fiduciary duty, money lent and money due.  Whalen-
Palmer demurs to each cause of action on grounds that the allegations fail to state fact
sufficient to state a valid cause of action.  The court sustained Whalen-Palmer’s
demurrer to the first amended complaint (“FAC”) and granted Plaintiffs leave to amend.

The court notes that the pleading to which Whalen-Palmer demurs is entitled “First
Amended Complaint.”  That title is incorrect, since Plaintiffs filed their FAC on August
27, 2013.  The court sustained demurrers to the FAC, and Plaintiffs filed their current,
misdenominated SAC on March 3, 2014.  Accordingly, the instant demurrer is directed
at the SAC, not the FAC.

Discussion

The First Cause of Action for Breach of Contract

The demurrer is SUSTAINED with leave to amend.

Whalen-Palmer argues that the first cause of action is defective because she did not
sign the promissory note in question.  Only Cole signed the note.  Similarly, although
the SAC adverts to other documents executed in connection with the loan, there are
no allegations that Whalen-Palmer signed those are was party to them either.

Plaintiffs’ response is that Whalen-Palmer drafted the note and initially received the
funds on Cole’s behalf.  Thus, Plaintiffs argue that Whalen-Palmer was “involved” in
the transaction and should be held liable for breach of contract.
Whalen-Palmer is correct.  There are no allegations that she was party to the
promissory note or any other contract.  Absent such allegations, Plaintiffs cannot
proceed against Whalen-Palmer on a theory that she breached a contract with them.

Although the court previously sustained Whalen-Palmer’s demurrer to Plaintiffs’ breach
of contract cause of action, it did so on grounds other than those above.  Accordingly,
the court will allow Plaintiffs an additional opportunity to allege that they entered into a
contract with Whalen-Palmer and that Whalen-Palmer breached that contract.  If
Plaintiffs are unable to allege in good faith the existence of such a contract and
breach, as well as the other elements of a breach of contract cause of action, then
they should not file a third amended complaint (“TAC”) containing a breach of contract
cause of action against Whalen-Palmer.

The Second Cause of Action for Breach of Fiduciary Duty

The demurrer is OVERRULED.

First, Whalen-Palmer argues that the demurrer should be sustained because the SAC
does not contain facts that could be construed to establish any fiduciary relationship.
The court disagrees.

Plaintiffs allege that Whalen-Palmer was their agent.  (SAC, ¶ 24.)  As Whalen-Palmer
acknowledges, a principal/agent relationship can constitute a fiduciary relationship.
(Moving Memo. at 2:21-26.)  Despite Whalen-Palmer’s further argument that Plaintiffs’
other allegations do not flesh out an agency relationship, the court must liberally
construe the allegations in favor of the SAC.  Because the court cannot rule out the
existence of an agency relationship, it rejects Whalen-Palmer’s first argument.

Next, Whalen-Palmer argues that the four-year statute of limitations at CCP § 343 bars
the second cause of action.  Characterizing the second cause of action as one for
failure to disclose the fact that the promissory note did not require monthly payments,
Whalen-Palmer argues that Plaintiffs should have known more than four years before
they commenced this action that no such payments were required.  The second cause
of action, however, is based at least in part on allegations that Whalen-Palmer failed to
disclose that the security Plaintiffs believed was associated with the loan was already
in foreclosure.  (SAC, ¶ 28.)  There are no allegations about when Plaintiffs learned of
the true nature of the security, and Whalen-Palmer does not explain why a legal claim
based on the allegedly misrepresented security is time-barred.  As a result, the court
rejects Whalen-Palmer’s second argument as well.

The Third and Fourth Causes of Action for Money Lent and Money Due

The demurrers are SUSTAINED with leave to amend.

Whalen-Palmer reasserts her argument, made in connection with the demurrer the first
cause of action, that because she did not sign the promissory note or any guaranty
associated with the loan to Cole, the demurrers should be sustained.  The argument is
meritorious because both the third and fourth causes of action are based solely on the
loan to Cole.  Absent further allegations establishing a legal basis upon which to hold
Whalen-Palmer liable for money loaned to Cole, Plaintiffs’ common counts fail to state
a valid cause of action.              The court grants Plaintiffs leave to amend their common counts.

Conclusion

The demurrer to the second cause of action is OVERRULED.  The balance of the
demurrer is SUSTAINED with leave to amend.

No later than July 14, 2014, Plaintiffs may file and serve a third amended complaint
(“TAC”) to remedy the defects in their first, third and fourth causes of action against
Whalen-Palmer; Whalen-Palmer to file and serve her responsive pleading(s) within 14
days thereafter, 19 days if the TAC is served by mail.  (Although not required by any
statute or rule of court, Plaintiffs are requested to attach a copy of the instant minute
order to the TAC to facilitate the filing of the pleading.)

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.

Item   11    2013-00148820-CU-BC

Lee Nelson vs. Ronald Cole

Nature of Proceeding:    Hearing on Demurrer to First Amended Complaint (Ronald Cole)

Filed By:   Cole, Ronald

Defendant Ronald Cole’s (“Cole”) demurrer to the second amended complaint (“SAC”)
of Plaintiffs Lee Nelson and Judith Nelson, as Trustees of the Nelson Revocable Living
Trust (“Plaintiffs”), is SUSTAINED with leave to amend as follows:

This case arises from an alleged personal loan.  Plaintiffs allege that Co-Defendant
Kelly Whalen-Palmer is a paralegal who induced them, as trustees, to make the loan
to Cole.  Although the allegations are somewhat unclear, it appears that Cole did not
repay the debt.  Plaintiffs have pleaded against Cole causes of action for breach of
contract, breach of fiduciary duty, money lent and money due.  Cole demurs to the
Second Cause of Action for Breach of Fiduciary Duty on grounds that the allegations
fail to state facts sufficient to state a valid cause of action.  The court sustained
Whalen-Palmer’s demurrer to the first amended complaint (“FAC”) and granted
Plaintiffs leave to amend.

The court notes that the pleading to which Cole demurs is entitled “First Amended
Complaint.”  That title is incorrect, since Plaintiffs filed their FAC on August 27, 2013.
The court sustained demurrers to the FAC, and Plaintiffs filed their current,
misdenominated SAC on March 3, 2014.  Accordingly, the instant demurrer is directed
at the SAC, not the FAC.

The demurrer is sustained because Plaintiffs’ allegations cannot be construed to
establish any fiduciary relationship between them and Cole.  Although Plaintiffs allege
that Cole was their agent, and thus might argue that he was their fiduciary in a
principal/agent relationship, Plaintiffs’ other allegations illuminate the real relationship
as one of debtor/creditor.  Relations between a debtor and creditor are not fiduciary in
nature.  (See Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1540, fn. 5
[citation omitted].)
The court grants Plaintiffs leave to amend in an effort to establish a relationship with
Cole that supports a cause of action or breach of fiduciary duty.

Because the court sustains the demurrer for the reasons above, it does not address
the parties’ further dispute whether the second cause of action is barred by the statute
of limitations.

In the future, Cole is advised to double-space papers he files with the court.  (See Cal.
R. Ct. 2.108(1).)

No later than July 14, 2014, Plaintiffs may file and serve a third amended complaint
(“TAC”) to remedy the defects in their second cause of action against Cole; Cole to file
and serve his responsive pleading(s) within 14 days thereafter, 19 days if the TAC is
served by mail.  (Although not required by any statute or rule of court, Plaintiffs are
requested to attach a copy of the instant minute order to the TAC to facilitate the filing
of the pleading.)

The notice of motion does not provide notice of the court’s tentative ruling system, as
required by Local Rule 1.06(D).  Cole is directed to contact counsel for opposing party
forthwith and advise counsel of Local Rule 1.06 and the court’s tentative ruling
procedure.  If Cole is unable to contact counsel for opposing party prior to hearing,
Cole shall be available at the hearing, in person or by telephone, in the event opposing
party appears without following the procedures set forth in Local Rule 1.06(B).

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.