2013-00144979-CU-FR
Whal Properties, LP vs. David C. Pringle & Associates, Inc.
Nature of Proceeding:
Filed By:
Hearing on Demurrer
Gunn, Brian H.

Defendants David C. Pringle & Associates, Inc. (“DPA”) and David C. Pringle’s
(“Pringle”) demurrer to Plaintiff Whal Properties, L.P., Live Oak Legacy, LLC, Mary C.
Aronson, Carol Anderson Ward, and James F. Anderson’s First Amended Complaint
(“FAC”) is ruled upon as follows.

Plaintiffs allege that they retained DPA pursuant to a Management Agreement
whereby DPA would provide financial management and administrative services.
Pringle is alleged to be DPA’s president. Plaintiffs allege that Pringle ordered
unauthorized wire transfers and withdrawals of funds from Plaintiffs’ accounts. In their
original complaint, Plaintiffs asserted causes of action for concealment, fraud, breach
of fiduciary duty, conversion, breach of contract, and prohibitory injunction and
constructive trust.

On November 1, 2013, the Court sustained Defendants’ demurrer to the original
complaint with leave to amend. The demurrer was unopposed as Plaintiffs filed a
notice of intent to file an amended complaint. The amended complaint, which
contained causes of action that were not in the original complaint, specifically, for
negligent misrepresentation, negligence and unjust enrichment, was filed after the
Court’s ruling on the demurrer.

Third, Fifth, and Eighth Causes of Action (Negligence, Negligent Misrepresentation
and Unjust Enrichment)

Defendants’ demurrer to the third, fifth, and eighth causes of action on the basis that
these causes of action were not in the original complaint and thus exceeded the scope
of the permissible amendment when the Court sustained their demurrer to the original
complaint is sustained with leave to amend. Here, Defendants are correct that “[f]ollowing an order sustaining a demurrer…the
plaintiff may amend his or her complaint only as authorized by the court’s order.” (
Harris v. Wachovia Mortg. (2010) 185 Cal.App.4th 1018, 1023.) Addition of a new
cause of action is appropriate after a demurrer has been sustained with leave to
amend where it “directly responds to the court’s reason for sustaining the earlier
demurrer.” (Patrick v. Alacer Corp. (2008) 167 Cal.App.4th 995, 1015 [sustaining
demurrer to causes of action added that exceeded the scope of the court’s order].)
Absent an express statement of leave by the trial court to add entirely new causes of
action, when a demurrer is sustained with leave to amend, that leave is properly
construed as permission to amend the causes of action as to which the demurrer was
sustained. (People ex rel. Dept. Pub. Wks. v. Clausen (1967) 248 Cal.App.2d 770,
785).

When the Court sustained the demurrer to the original complaint, it only granted leave
to amend the existing causes of action in the complaint, not add additional causes of
action. In opposition, Plaintiffs argue that the negligent misrepresentation, negligence
and unjust enrichment causes of action are not truly new and are simply legal theories
arising from the same facts set forth in the original complaint. However, the authority
cited deals with the situation where a party was seeking leave to file an amended
complaint, not the situation where the party added causes of action following the
sustaining of a demurrer without leave of court. (Herrera v. Superior Court (1984) 158
Cal.App.3d 255.) Plaintiffs offer no argument that these causes of action which were
not present in the original complaint respond to the court’s reason for sustaining
Defendants’ original demurrer even if they are new legal theories based on the same
set of operative facts such that they were properly added in the FAC pursuant to the
Court’s order on Defendants’ original demurrer. (Patrick, supra, 167 Cal.App.4th at
1015.) As a result, the demurrer to the third, fifth and eighth causes of action is
sustained.

Leave to amend, however, is granted so that Plaintiffs can properly plead these
causes of action in an amended pleading. While simply overruling the demurrer would
seem to be the most efficient way to proceed with the instant litigation given that the
new causes of action are indeed based on the same set of operative facts as the
original complaint, the Court cannot do so as it would essentially condone Plaintiffs’
actions in improperly amending the complaint without leave of Court.

First Cause of Action (Concealment)

Defendants’ demurrer on the basis that the cause of action lacks the requisite
specificity is overruled.

The Court disagrees that Plaintiffs’ allegations are “far too vague.” For example,
Plaintiffs alleged that in a “covert manner” and with the intent to deceive, Defendants
transferred Plaintiffs’ assets into Defendants’ possession without seeking Plaintiffs’
approval. (FAC ¶ 26.) Defendants complain that Plaintiffs fail to identify the assets
which they allegedly transferred, which Defendants executed the transfers and what
was actually concealed, why Plaintiffs’ authorization was needed and what damages
they suffered. However, these details are present in the FAC. Indeed, Plaintiffs
alleged that Pringle authorized the improper withdrawal of approximately $2.3 million
from Plaintiff Whal Properties, LP’s account into DPA’s account and Pringle’s own
account in September 2012. (FAC ¶ 17, 25.) Pringle concealed the withdrawals from Plaintiffs until they were discovered in May 2013. (FAC ¶ 17, 25.) Plaintiffs allege that
Defendants owed them a fiduciary duty as their financial advisor and that Pringle
directed Defendants to suppress disclosure of the unauthorized transactions which
they would not have consented to. (FAC ¶ 26.) These details are not “far too vague”
and are sufficient to demonstrate the ultimate facts regarding the alleged concealment
of the unauthorized transfers of the approximately $2.3 million in funds. Further,
Plaintiffs adequately alleged damages as they have alleged that the concealment
caused the loss of use of the funds. (FAC ¶ 28.) The above are sufficient, especially
given the alleged fiduciary relationship between the parties. (Kruse v. Miller (1956)
143 Cal.App.2d 656, 659-660 [“It is very uniformly held, however, that where any
relation of confidence and trust exists between the parties which demands that the
information communicated respecting the subject of their dealings be full and
complete, any concealment or misrepresentation will amount to fraud sufficient to
entitle the party injured thereby to an action].”)

Given the above, the Court need not address whether any of the other allegations are
sufficient as the allegations regarding the concealment of the unauthorized transfer of
funds are sufficient to state a concealment cause of action.

Second and Third Causes of Acton (Fraud-Intentional Misrepresentation and Negligent
Misrepresentation)

Defendants’ demurrer to the second and third causes of action on the basis that they
lack the requisite specificity is sustained with leave to amend.

Defendants argues that Plaintiffs’ allegation that “Defendants misrepresented the
status of ownership that Plaintiffs had in certain investments” that “Defendants
misrepresented the status of certain company loans, including personal loans to
Pringle, “and that “Defendants misrepresented the cash flow position of the company
to Plaintiffs” are not allegations of specific misstatements of fact but rather “vague
descriptions of broad categories of misstatements.” (Dem. 6:25-7:2.) The Court
agrees. “[F]raud must be pled with specifically; general and conclusory allegations do
not suffice.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) As currently,
pled the allegations regarding the representations purportedly made by Defendants do
not meet the required level of specificity. For example, what about Plaintiffs’
ownership status in certain investments and/or the status of company loans and the
cash flow position of the company did Defendants misrepresent? These specifics are
lacking.

In addition, when alleging fraud against a corporate entity such as DPA, a plaintiff must
allege “the names of the person who made the allegedly fraudulent representations,
their authority to speak, to whom they spoke, what they said or wrote, and when it was
said or written.” (Tarmann v. State Farm Mut. Auo Ins. Co. (1991) 2 Cal.App.4th 153,
157.) Plaintiffs have not alleged these details in the FAC with respect to the above
identified representations (which themselves are insufficient). Nor do they argue in
opposition that they have.

As a result, the demurrer to the second and third causes of action are sustained with
leave to amend on the basis that they are not pled with the requisite specificity.
Ninth Cause of Action (Constructive Trust)Defendants’ demurrer on the basis that a constructive trust is not a cause of action is
overruled. While the authority cited by Defendants indicates a constructive trust is only
a remedy, numerous cases recognize it as a cause of action. (Teselle v. McLoughin
(2009) 173 Cal.App.4th 156, 176-177 [finding that plaintiff could “establish a cause of
action for constructive trust based upon transfer” of property]; Michaelian v. State
Comp. Ins. Fund (1996) 50 Cal.App.4th 1093, 1114.) Indeed, a constructive trust
cause of action is properly pled where the plaintiff alleges facts setting forth an
underlying wrong and identifying the specific property to which defendant has a duty to
transfer to plaintiff. (Michaelian, supra, 50 Cal.App.4th at 1114.) Here, Plaintiffs set
forth facts constituting an underlying cause of action which would support the
imposition of a constructive trust, for example, concealment of funds, and breach of
fiduciary duty (not challenged by way of this demurrer) and the specific property upon
which a constructive trust is sought, specifically, the funds which Defendants are
alleged to have wrongfully obtained from Plaintiffs’ accounts. (FAC ¶¶ 83-86.)

Tenth Cause of Action (Prohibitory Injunction)

Defendants’ demurrer on the basis that injunctive relief is not a cause of action and
that a cause of action must exist before injunctive relief may be granted is overruled.
To obtain a prohibitory injunction, Plaintiffs were required to set forth an underlying tort
and irreparable injury. (Brownfield v. Daniel Freeman Marina Hospital (1989) 208
Cal.App.3d 405, 410.) They have done so. Indeed, here, Plaintiffs have sufficiently
alleged, for example, a cause of action for concealment of funds, conversion of funds
(not challenged by way of this demurrer) and seek to have Defendants enjoined from
transferring or disposing of the funds and allege that damages would not be adequate
if Defendants disposed of the funds and lack sufficient assets to compensate Plaintiffs.
(FAC ¶¶ 87-88.)

In sum, the demurrer is sustained with leave to amend as to the second, third, fifth,
and eighth causes of action and overruled as to the first, ninth and tenth causes of
action.

Where leave was given, Plaintiffs may file and serve an amended complaint no later
than March 17, 2014. Defendants shall file and serve their responses within 10 days
thereafter, 15 days if the amended complaint 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 amended complaint to facilitate the filing of the pleading.)

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