Case Number: EC061888    Hearing Date: August 01, 2014    Dept: A

Lee v Lee

DEMURRERS (3)

Calendar: 9
Case No: EC061888
Date: 8/1/14

MP: Defendant, Wells Fargo Bank
Defendant, East West Bank
Defendant, Joseph Lee
RP: Plaintiffs, William Lee and Angela Quon

ALLEGATIONS IN FIRST AMENDED COMPLAINT:
The Plaintiffs formed Wilrub Enterprises, Inc. on November 30. 2002. The Plaintiffs then entered into an oral agreement with Defendant, Joseph Lee, under which Joseph Lee would manage real properties for Wilrub Enterprises, Inc.
On August 17, 2004, Joseph Lee forged William Lee’s signature on a promissory note and personal guaranty of a real estate business loan with Defendant, East West Bank. On April 28, 2005, Joseph Lee forged William Lee’s signature on a line of credit and personal guaranty with Defendant, Wells Fargo Bank. The Plaintiff, William Lee, had no knowledge of the forgery until January 21, 2011 when he was advised by an employee at Wells Fargo Bank that he was listed as a guarantor. The Plaintiff seeks declaratory relief regarding his duty under the personal guaranty.
Further, Joseph Lee took the jewelry collection from the Plaintiff, Angela Quon. She seeks damages for the conversion of her property.

CAUSES OF ACTION IN FIRST AMENDED COMPLAINT:
1) Fraud
2) Declaratory & Injunctive Relief
3) Conversion

RELIEF REQUESTED:
1. Defendant, Wells Fargo Bank
Demurrer to second cause of action

2. Defendant, East West Bank
Demurrer to second cause of action

3. Defendant, Joseph Lee
Demurrer to first, second, and third causes of action.

DISCUSSION:
This hearing concerns the demurrers of the Defendants, Wells Fargo Bank, East West Bank, and Joseph Lee, to the Complaint. The demurrers of Defendants, Wells Fargo Bank and East West Bank, were continued from July 25, 2014 to this hearing.

1. Demurrer of Defendant, Wells Fargo Bank
The Defendant argues that the second cause of action is barred by the statute of limitations. When the dates alleged in the complaint show the action is barred by the statute of limitations, a general demurrer lies. Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal.App.3d 292, 300.
The Defendant argues that this claim is based on fraud and that it has the three year statute of limitations for fraud. This argument is incorrect.
The Defendant cited to the correct case on this issue, but the court disagrees with its interpretation. The nature of the right sued upon, not the form of action nor the relief demanded, determines the applicable statute of limitations. Maguire v. Hibernia S. & L. Soc. (1944) 23 Cal. 2d 719, 733.
The Plaintiff does not seek declaratory relief based on a claim that he or the Defendant, Wells Fargo Bank, engaged in any fraudulent conduct. Instead, the Plaintiff alleges in paragraph 36 that an actual controversy has arisen over his personal liability under the personal guaranty with Wells Fargo Bank. The cause of action arises from a contract, i.e., the Plaintiff’s contractual liability to Wells Fargo Bank under the line of credit and guaranty agreement. Since the contract is written, the statute of limitations is four years under CCP section 337.
The Defendant makes arguments regarding the delayed discovery rule and the Plaintiff’s duty to have made an earlier discovery of the guaranty agreement. The arguments offer no basis to find that the claim is untimely because they are not based on a correct analysis of the manner by which the statute of limitations applies to a declaratory relief claim.
The application of the statute of limitations to a declaratory relief claim is based on whether the obligation at issue has been breached. If declaratory relief is sought with reference to an obligation which has been breached and the right to commence an action for “coercive” relief upon the cause of action arising is barred by the statute, the right to declaratory relief is likewise barred. Maguire, 23 Cal. 2d, at 734. However, if declaratory relief is sought before there has been a breach of the obligation in respect to which said declaration is sought or within the statutory period after the breach, the right to such relief is not barred by lapse of time. Id.
The Plaintiff’s claim arises from a line of credit and guaranty agreement. The Plaintiff’s declaratory relief claim seeks a determination on his contractual duty to make payments or guaranty the loan. This requires the Plaintiff to bring the declaratory relief action no later than four years after he allegedly breaches this obligation, i.e., after he fails to make payments.
A review of the First Amended Complaint reveals no allegation that the Plaintiff has breached the obligation to make payments or to guaranty the loan. There are no allegations indicating that the Defendant, Wells Fargo Bank, has demanded that the Plaintiff pay the loan and that the Plaintiff has refused to make the payment.
Instead, it appears from the pleadings that the Plaintiff has sought declaratory relief before there has been a breach of his alleged obligations on the line of credit. Since the pleadings indicate that the Plaintiff has sought declaratory relief regarding his duties under the agreement prior to a breach of his obligations, there is no basis in the pleadings to find that his claim is barred by the statute of limitations.

Finally, a demurrer is a procedurally inappropriate method for disposing of a complaint for declaratory relief. Lockheed Martin Corp. v. Continental Ins. Co. (2005) 134 Cal. App. 4th 187, 221. This is based on the reasoning that an order sustaining the demurrer would leave the parties where they were, with no binding determination of their rights, to await an actual breach and ensuing litigation. This would defeat a fundamental purpose of declaratory relief, which is to remove uncertainties as to legal rights and duties before breach and without the risks and delays that it involves. The object of declaratory relief is not necessarily a beneficial judgment; instead, it is a determination, favorable or unfavorable, that enables the plaintiff to act with safety. This reasoning has established the rule that the defendant cannot, on demurrer, attack the merits of the plaintiff’s claim.
Here, the Plaintiff’s declaratory relief claim seeks a determination on his obligations under the written line of credit and guaranty agreement. Sustaining a demurrer would leave the parties where they are, with no binding determination on their rights, and waiting for an actual breach and ensuing litigation. This would defeat the fundamental purpose of declaratory relief, which is to remove uncertainties as to legal rights and duties before breach and without the risks and delays that it involves.

Therefore, the Court will overrule the demurrer based on the statute of limitations.

2. Demurrer of Defendant, East West Bank
This Defendant also claims that the Plaintiff’s declaratory relief cause of action is based on his fraud claim. As discussed above in the analysis of Wells Fargo Bank’s demurrer, this is incorrect. Instead, the Plaintiff seeks a declaration of his contractual duty to make payments or guaranty a business loan. Since the claim arises from a duty in a written contract, the statute of limitations is four years under CCP section 338.
Further, the claim is not time barred. As discussed above, the applicability of the statute of limitations to a declaratory relief claim is based on the obligation at issue. If declaratory relief is sought before there has been a breach of the obligation in respect to which the declaratory relief is sought, the right to such relief is not barred by lapse of time. Maguire v. Hibernia S. & L. Soc. (1944) 23 Cal. 2d 719, 734. A review of the pleadings reveals no allegation that the Plaintiff has breached his alleged obligation to make payments or to guaranty the business loan. Instead, the Plaintiff appears to have pleaded his declaratory relief claim prior to the breach.
Accordingly, there are no grounds to find that the Plaintiff’s claim is barred by the statute of limitations.

The Defendant argues that the Plaintiff’s claim is uncertain. A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. Khoury v. Maly’s of California Inc. (1993) 14 Cal.App.4th 612, 616. A demurrer for uncertainty will be sustained only when the complaint is so bad that the defendant cannot reasonably respond because the defendant cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against the defendant. Id.
A review of the second cause of action reveals that the Defendant can reasonably determine that it is a declaratory relief cause of action and that it seeks a declaration of whether the Plaintiff has a contractual duty under guaranty agreement, i.e., whether the Plaintiff is personally liable. The Defendant can reasonably respond because it can reasonably determine whether to admit or deny the issues.
Accordingly, there are no grounds to find that the Plaintiff’s claim is uncertain.

3. Demurrer of Defendant, Joseph Lee
a. First Cause of Action for Fraud
The Defendant argues that this cause of action is uncertain. A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. Khoury v. Maly’s of California Inc. (1993) 14 Cal.App.4th 612, 616. A demurrer for uncertainty will be sustained only when the complaint is so bad that the defendant cannot reasonably respond because the defendant cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against the defendant. Id.
A review of the first cause of action reveals that the Defendant can reasonably determine that it is a fraud cause of action and that it seeks damages because the Defendant, Joseph Lee, fraudulently concealed that he had forged the Plaintiff’s name on a line of credit and personal guaranty. The Defendant can reasonably respond because he can reasonably determine whether to admit or deny the claims that he forged the documents or that he fraudulently concealed the information from the Plaintiff.
Accordingly, there are no grounds to find that the Plaintiff’s first cause of action is uncertain.

The Defendant then argues that the cause of action is barred by the statute of limitations. When the dates alleged in the complaint show the action is barred by the statute of limitations, a general demurrer lies. Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal.App.3d 292, 300. The statute of limitations for an action is three years under CCP section 338(d), which expressly state that the cause of action is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the
fraud or mistake.
The Plaintiff alleges in paragraphs 29 and 30 that the Defendant, Joseph Lee, forged the Plaintiff’s signature on a promissory note, a personal guaranty, and two lines of credit. In paragraphs 20 and 21, the Plaintiff alleges that he discovered the forgeries on January 21, 2011 when he was provided with information by a bank employee and a bank manger that he was listed as a guarantor on the lines of credit, loan documents, and guaranty documents. In paragraph 22, the Plaintiff alleges that the Defendant had never disclosed these personal guaranty obligations and that he had concealed the guaranty by forging the Plaintiff’s signature. These facts indicate that the Plaintiff discovered the fraud on January 21, 2011. Under CCP section 338(d), the Plaintiff had three years, or until January 21, 2014, to commence this action.
A review of the Court file reveals that the Plaintiff commenced this action on January 16, 2014. Since this was before January 21, 2014, the dates in the pleadings do not show that the action is barred by the statute of limitations.
The Defendant argues that the Plaintiff must “plead around” the affirmative defense of the statute of limitations. However, the Plaintiff need not plead around an affirmative defense that is not disclosed in the pleadings. As noted above, there are no dates in the pleadings that indicate that the statute of limitations bars the claim. Instead, the dates indicate that the Plaintiff commenced this action within the statute of limitations, i.e., within the three-year time period after he discovered the fraud.
The Defendant then argues that the Plaintiff must plead additional specific facts regarding the discovery of the fraud. It appears that the Defendant did not read paragraphs 20 to 22 of the First Amended Complaint because, as the following analysis reveals, these paragraphs contain specific, particular facts regarding the Plaintiff’s discovery of the alleged fraud.
Case law requires that a cause of action pleading the belated discovery of a fraud claim must allege

1) when the fraud was discovered;
2) the circumstances under which it was discovered; and
3) that the plaintiff was not at fault for failing to discover it or had no actual or presumptive knowledge of facts sufficient to put him on inquiry.
Community Cause v. Boatwright (1981) 124 Cal. App. 3d 888, 900.

The Plaintiff pleads in paragraphs 29 and 30 that the Defendant forged the Plaintiff’s signature on a promissory note, personal, guaranty, real estate business loan, and two lines of credit. The Plaintiff’s fraud claim is that the Defendant concealed that he had forged the Plaintiff’s name on the documents.
The Plaintiff alleges in paragraph 20 that on January 21, 2011, when he was depositing checks at Wells Fargo Bank, a bank employee informed the Plaintiff that he was listed as a guarantor on corporation lines of credit. Further, the Plaintiff alleges in paragraph 21 that he then contacted the corporation’s other bank, East West Bank, and requested documents from the bank manager, David Chan. The Plaintiff alleges that when he received the loan and guaranty documents a week later, he discovered the forgeries. These facts identify when the Plaintiff discovered the fraud, i.e., that the Defendant had concealed the material fact that the Defendant had forged the Plaintiff’s name on several loans and guaranties. Further, these facts identify the circumstances under which the fraud was discovered, i.e., the Plaintiff made the discovery when he was provided information and documents from a bank employee and a bank manager.
The Plaintiff alleges in paragraph 22 that the Defendant, Joseph Lee, did not disclose these obligations and that the Plaintiff had never agreed to guaranty any corporate debts. Further, the Plaintiff alleges that the Defendant forged the Plaintiff’s signature on the documents and that the Plaintiff did not discover the forgery pertaining to the bank debts earlier because the Defendant exclusively controlled the finances, bank accounts, loans, and loan payments for the corporation beginning from 2002. These facts indicate that the Plaintiff had no actual knowledge of the fraud and that he was not at fault for failing to discover it.
This review of the allegations reveals that the Plaintiff has pleaded sufficient, specific facts regarding his discovery of the Defendant’s alleged fraud.
Therefore, the Court will overrule the demurrer to the first cause of action.

b. Second Cause of Action for Declaratory Relief
The Defendant argues that this cause of action does not plead sufficient specific facts to identify the existence of a controversy. This argument lacks any persuasive force because a review of the pleadings reveals that the Plaintiff had expressly identified the actual controversy as arising over his obligation to guaranty the corporate loans and lines of credit.

It is general rule that in an action for declaratory relief the complaint is sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties under a contract or with regards to property and requests that the rights and duties be adjudged. City Of Tiburon v. Northwestern Pac. R.R. Co. (1970) 4 Cal. App. 3d 160, 170; see CCP section 1060 (identifying the remedy of declaratory relief). Declaratory relief is a broad remedy, and the rule that a complaint is to be liberally construed is particularly applicable to one for declaratory relief. Id.

The Plaintiff alleges in paragraph 36 that an actual controversy has arisen between the parties regarding his duties and obligations under the business loan and lines of credit because he contends that his signature was forged on the documents. In paragraph 37, the Plaintiff requests a judicial declaration regarding the rights and duties of the parties. This is sufficient because it identifies the actual controversy over the Plaintiff’s obligations under the guaranty for the business loans and lines of credit and requests a judicial determination.

The Defendant also argues that the cause of action is barred by the statute of limitations because it is based on the fraud. As discussed above in the analysis of Wells Fargo Bank’s demurrer, this is incorrect. Instead, the Plaintiff seeks a declaration of his contractual duty to make payments or guaranty a business loan. Since the claim arises from a duty in a written contract, the statute of limitations is four years under CCP section 338.
Further, the claim is not time barred. As discussed above in the analysis of the demurrers of Wells Fargo Bank and East West Bank, the applicability of the statute of limitations to a declaratory relief claim is based on the obligation at issue. If declaratory relief is sought before there has been a breach of the obligation in respect to which the declaratory relief is sought, the right to such relief is not barred by lapse of time. Maguire v. Hibernia S. & L. Soc. (1944) 23 Cal. 2d 719, 734. A review of the pleadings reveals no allegation that the Plaintiff has breached his alleged obligation to make payments or to guaranty the business loan. Instead, the Plaintiff appears to have pleaded his declaratory relief claim prior to the breach.
Accordingly, there are no grounds to find that the Plaintiff’s claim is barred by the statute of limitations.

Therefore, the Court will overrule the demurrer to the second cause of action.

c. Third Cause of Action for Conversion
The Defendant argues that this cause of action is barred by the statute of limitations. Under CCP section 338, the statute of limitations begins to run within three years from the taking of personal property. The statute of limitations begins to accrue on the conversion cause of action when the property is taken, even if the owner is ignorant of the wrong committed. Naftzger v. American Numismatic Society (1996) 42 Cal. App. 4th 421, 429. The statute is tolled when the defendant fraudulently conceals the facts. Id. For example, in Naftzger, the person who converted the coins at issue, fraudulently concealed the taking by substituting inferior coins of the same variety for the stolen Clapp coins.
The Plaintiff alleges in paragraph 39 that the Defendant took the jewelry collection of Angela Quon on October 23, 2010. There are no allegations indicating that the Defendant fraudulently concealed the conversion. Accordingly, the three year statute of limitations began to run on October 23, 2010. The Plaintiff had until October 23, 2013 to bring a conversion cause of action.
A review of the Court file reveals that the Plaintiff commenced this action on January 16, 2014. Since this was after October 23, 2013, the dates in the pleadings show that the action is barred by the statute of limitations.

Therefore, the Court will sustain the demurrer to the third cause of action. The Court will grant leave to amend because it is reasonably possible for the Plaintiff to add allegations to demonstrate that the Defendant fraudulently concealed the conversion.

RULINGS:
1. Defendant, Wells Fargo Bank
OVERRULE Demurrer to second cause of action

2. Defendant, East West Bank
OVERRULE Demurrer to second cause of action

3. Defendant, Joseph Lee
OVERRULE Demurrers to first and second causes of action.
SUSTAIN demurrer to third cause of action with leave to amend.