Case Name: Susan Bassi v. Nat (Ned) E. Hales, Jr.
Case No.: 17-CV-320164

Currently before the Court is the demurrer by defendant Nat (Ned) E. Hales, Jr. (“Defendant”) to the second amended complaint (“SAC”) of plaintiff Susan Bassi (“Plaintiff”).

Factual and Procedural Background

This action arises out of a marital dissolution case, Robert A. Bassi v. Susan H. Bassi (Santa Clara County Superior Court, Case No. 2012-6-FL-009065) (“Dissolution Case”), in which Defendant was appointed as a referee. (SAC, ¶¶ 2-19.)

Plaintiff filed her original complaint against Defendant in December 2017. The same month, Plaintiff filed a first amended complaint (“FAC”) against Defendant, alleging causes of action for (1) constructive trust and (2) declaratory relief.

In March 2018, Defendant filed a demurrer to the FAC. With respect to the second cause of action for declaratory relief, Defendant argued that Plaintiff failed to state a claim because declaratory relief operates prospectively; declaratory relief is not available to redress past wrongs when there are no future relations between the parties; the claim only alleged a dispute regarding referee fees that had already been paid; and the claim is time-barred by the one-year statute of limitations set forth in Code of Civil Procedure section 340.6. As to the first cause of action for constructive trust, Defendant argued that Plaintiff failed to state a claim because constructive trust is a remedy not a cause of action; a claim for constructive trust is not independently viable when no cause of action has otherwise been stated; the only other claim alleged in the FAC failed; and the claim is time-barred by the one-year statute of limitations set forth in Code of Civil Procedure section 340.6.

Plaintiff opposed the demurrer, arguing that she properly alleged all of the elements of a claim for declaratory relief and, notwithstanding the fact that the first cause of action was labeled as one for constructive trust, the first cause of action stated a claim for constructive fraud.

In reply, Defendant argued that even if the Court construed the first cause of action as one for constructive fraud, Plaintiff failed to allege sufficient facts to state such a claim because, among other things, Plaintiff did not allege that she had a fiduciary or confidential relationship with him.

On May 1, 2018, the Court issued its order on Defendant’s demurrer to the FAC. The Court sustained the demurrer to the second cause of action for declaratory relief with leave to amend, finding that the claim merely sought to redress past wrong and did not suggest that parties’ relationship was ongoing or there was any possibility of a continued relationship between the parties. The Court also sustained the demurrer to the first cause of action for constructive trust with leave to amend. The Court pointed out that the claim, as pleaded, was one for constructive trust and Plaintiff asserted the requisite underlying wrongful act was Defendant’s alleged constructive fraud. The Court then determined that Plaintiff did not allege sufficient facts to state a claim for constructive fraud because such a claim requires the existence of a confidential or fiduciary relationship and there were no allegations of such a relationship in the FAC.

Two weeks later, Plaintiff filed the operative SAC against Defendant. According to the allegations of the SAC, Defendant was appointed as a referee in the Dissolution Case pursuant to a court order filed on April 28, 2014. (SAC, ¶ 2.) Defendant was appointed “to hear and determine all future discovery motions and judgments and to oversee the allocation of fees and costs” pursuant to Family Code section 2032, subdivision (b). (Ibid.) Subsequently, a court order containing the terms and conditions of Defendant’s appointment was filed on June 25, 2014. (Id., at ¶ 3.)

“The appointment” allegedly “gave rise to a number of legal duties Defendant was required to perform before he could legally begin to serve as a Referee.” (SAC, ¶ 4.) Specifically, Defendant had a duty to: “provide a [conflict of interest disclosure] to each party concurrently with their execution of the stipulation that contained the terms and conditions of his appointment”; certify in writing that he “would comply with the applicable provisions of Canon 6 of the Code of Judicial Ethics and with the California Rules of Court”; comply with Canon 6D(5) and make various disclosures regarding his personal or professional relationships; certify in writing that he consented to serve as provided in the order of appointment; and file that certification with the court. (Ibid.)

Defendant allegedly breached each and every one of these duties. (SAC, ¶ 5.) When Defendant breached these duties, he allegedly “gained an advantage over” Plaintiff “by misleading Plaintiff to her prejudice.” (Id., at ¶¶ 6-7.)

Additionally, Defendant did not “provide Plaintiff with a written contract containing a basis for Defendant’s compensation, the general nature of the legal services to be provided to Plaintiff by Defendant, and the respective responsibilities of Defendant and Plaintiff as to the performance of the contract.” (SAC, ¶ 8.) “As a result, the maximum Defendant was entitled to collect for services rendered was a reasonable fee.” (Ibid.) However, Plaintiff alleges that “Defendant was not entitled to collect anything for the services he rendered because every order he made that was filed and every recommendation or order he made that was adopted by the court and filed was void and therefore worthless and any fee charged for services rendered that were void and worthless could not possibly be reasonable.” (Id., at ¶ 9.) Plaintiff further alleges that Defendant “wrongfully acted as a referee, he wrongfully billed as a referee, and he wrongfully collected fees for services rendered as a referee, before he signed and filed his Notice Withdrawal as referee in [the Dissolution Case] on or about October 23, 2015.” (Ibid.)

Based on the foregoing allegations, the SAC alleges causes of action for: (1) constructive fraud; (2) fraudulent concealment; (3) unconscionable fee; (4) unjust enrichment; and (5) declaratory relief.

On May 21, 2018, Defendant filed the instant demurrer to the SAC. Plaintiff filed papers in opposition to the demurrer on August 31, 2018. On September 12, 2018, Defendant filed a reply.

Discussion

Defendant demurs to each and every cause of action of the SAC on the ground of failure to allege sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

I. Procedural Issue

As a preliminary matter, Defendant persuasively argues that the SAC improperly includes new claims for fraudulent concealment, unconscionable fee, and unjust enrichment.

“Following an order sustaining a demurrer … with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court’s order. [Citation.] The plaintiff may not amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend. [Citation.]” (Harris v. Wachovia Mortg., FSB (2010) 185 Cal.App.4th 1018, 1023 (Harris).)

Here, the Court sustained Defendant’s demurrer to the FAC, which alleged claims for constructive trust and declaratory relief. In its order, the Court sustained the demurrer to the second cause of action for declaratory relief with leave to amend, finding that the claim merely sought to redress past wrong and did not suggest that parties’ relationship was ongoing or there was any possibility of a continued relationship between the parties. The Court also sustained the demurrer to the first cause of action for constructive trust with leave to amend. The Court acknowledged that the claim, as pleaded, was one for constructive trust and Plaintiff asserted the requisite underlying wrongful act was Defendant’s alleged constructive fraud. The Court determined that Plaintiff did not allege sufficient facts to state a claim for constructive fraud because such a claim requires the existence of a confidential or fiduciary relationship and there were no allegations of such a relationship in the FAC. The court order on Defendant’s demurrer to the FAC did not allow Plaintiff to amend the pleading to include a new cause of action.

The SAC now alleges new causes of action for fraudulent concealment, unconscionable fee, and unjust enrichment. Plaintiff did not seek permission to include the new claims in her amended pleading.

Plaintiff appears to concede that the claims for unconscionable fee and unjust enrichment are improper as she does not oppose the demurrer as to those causes of action. With respect to the claim for fraudulent concealment, Plaintiff asserts that the claim is within the scope of the court order granting leave to amend. Plaintiff contends that “[t]he new cause of action for Fraudulent Concealment is just barely a factual variant to the breach of duty of disclosure that was the basis for the Constructive Trust cause of action.” (Opp’n., p. 29:12-15.)

Plaintiff’s argument is not well-taken. Fraudulent concealment is separate and distinct cause of action that was not alleged in the FAC. (Compare Michaelian v. State Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1114 [setting forth the requirements of a cause of action seeking to impose a constructive trust] and Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 517, fn. 14 [setting forth the elements of a claim for constructive fraud] with Hahn v. Mirda (2007) 147 Cal.App.4th 740, 748 [setting forth the elements of a claim for fraud and deceit based on concealment].) Furthermore, the new cause of action is not within the scope of the court order granting Plaintiff leave to amend the first cause of action of the FAC for constructive trust. A new cause of action may within the scope of a court order granting leave to amend if it “directly responds to the court’s reason for sustaining the earlier demurrer.” (Patrick, supra, 167 Cal.App.4th at p. 1015.) In this case, the demurrer to the claim for constructive trust was sustained because Plaintiff asserted the requisite underlying wrongful act was Defendant’s alleged constructive fraud, there were no allegations in the FAC regarding the existence of a confidential or fiduciary relationship, and the Court, consequently, determined that Plaintiff did not allege sufficient facts to state a claim for constructive fraud. The new cause of action for fraudulent concealment does not address the issue of the existence of a confidential or fiduciary relationship. Therefore it does not directly respond to the Court’s reason for sustaining the prior demurrer.

Accordingly, the Court, on its own motion, strikes the second, third, and fourth causes of action of the SAC as not having been filed in conformity with the law. (See Code Civ. Proc., § 436, subd. (b) [a court may, in its discretion, strike new causes of action when they are not drawn in conformity with its prior order]; see also Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528 [“[Section 436] is commonly invoked to challenge pleadings filed in violation of a deadline, court order, or requirement of prior leave of court”].)

The demurrer to the second, third, and fourth causes of action is, therefore, MOOT.

II. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) Consequently, “[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice.” (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, internal citations and quotations omitted; see also Code Civ. Proc., § 430.30, subd. (a).) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. [ ] Thus, [ ] the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.)

III. Declaratory Relief

Defendant argues that the fifth cause of action fails to state a claim for declaratory relief because declaratory relief operates prospectively; declaratory relief is not available to redress past wrongs when there are no future relations between the parties; Plaintiff’s claim only alleges a dispute regarding referee fees that have already been paid; he has absolute quasi-judicial immunity; the claim is barred by the litigation privilege; and the claim is time-barred by the one-year statute of limitations set forth in Code of Civil Procedure section 340.6.

In opposition, Plaintiff states that she does not oppose the demurrer as to this cause of action. (Opp’n., p. 6:2-5.)

Furthermore, the claim for declaratory relief still suffers from the same defects previously identified in the court order on Defendant’s demurrer to the FAC. Because Plaintiff previously had an opportunity to cure these defects and failed to do so, leave to amend the declaratory relief claim is not warranted. (See Melton v. Boustred (2010) 183 Cal.App.4th 521, 544 (Melton) [“the plaintiff must demonstrate a reasonable possibility that the complaint’s defects can be cured by amendment”]; see also Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1097 (Davies) [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had previous opportunities to amend the complaint].)

Accordingly, the demurrer to the fifth cause of action for declaratory relief is SUSTAINED, without leave to amend.

IV. Constructive Fraud

Defendant argues that the first cause of action for constructive fraud fails to allege sufficient facts to state a claim because Plaintiff has not alleged a confidential or fiduciary relationship between the parties; he has absolute quasi-judicial immunity; the claim is barred by the litigation privilege; and the claim is time-barred by the one-year statute of limitations set forth in Code of Civil Procedure section 340.6.

As Defendant persuasively argues, the SAC does not allege facts demonstrating that a confidential or fiduciary relationship existed between the parties. The absence of such allegations is fatal to the claim. (See Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1131 (Prakashpalan) [“Constructive fraud is a unique species of fraud applicable only to a fiduciary or confidential relationship. Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice.”], internal citation and quotation marks omitted; Feeney v. Howard (1889) 79 Cal. 525, 529 (Feeney) [stating that a claim for constructive fraud was not alleged in the pleadings as there were no allegations of a fiduciary or confidential relationship]; Peterson Dev. Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 116 (Peterson) [“[i]t is essential to the operation of the doctrine of constructive fraud there exists a fiduciary or special relationship”]; Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 129 (Odorizzi) [“Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice. (Civ. Code, § 1573.)”].)

In opposition, Plaintiff asserts that she is not required to plead the existence of a confidential or fiduciary relationship in order to state a claim for constructive fraud. In support her assertion, Plaintiff argues that the statements of law regarding the necessity of the existence of a fiduciary or confidential relationship in Prakashpalan and Peterson are dicta. Assuming for the sake of argument that the statements of law in Prakashpalan and Peterson are dicta, Plaintiff fails to cite any legal authority providing that the existence of a fiduciary or confidential relationship is not a required element of a claim for fiduciary duty. Furthermore, Plaintiff fails to discuss the wealth of case law setting forth the same principle articulated in Prakashpalan and Peterson where that principle was necessary to the court’s decision. As Plaintiff’s position is contrary to the weight of legal authority on this issue, the Court finds that it lacks merit.

Accordingly, the demurrer to the first cause of action for constructive fraud is SUSTAINED, without leave to amend. (See Melton, supra, 183 Cal.App.4th at p. 544 [“the plaintiff must demonstrate a reasonable possibility that the complaint’s defects can be cured by amendment”]; see also Davies, supra, 168 Cal.App.4th at p. 1097 [appellate court determined that trial court did not abuse its discretion in sustaining a demurrer without leave to amend after plaintiff had previous opportunities to amend the complaint].)