Case Name: Zhang v. Battistella, et al.
Case No.: 1-15-CV-279949

After full consideration of the arguments and authorities submitted by each party, the court makes the following rulings:

This case arises from an allegedly unpaid debt and conspiracy to hide assets. In the first amended complaint (“FAC”), plaintiff Yi Wei Zhang (“Plaintiff”) alleges the following:
Defendant Ronald Nick Battistella (“Ronald”) fraudulently induced Plaintiff to loan him and his company, defendant Thrifty Car Sales (“TCS”), a total of $75,000 to be repaid with 10% interest pursuant to three written contracts in 2010-2011. (FAC, ¶¶ 7, 12-15, 19-33, 36, 38, 41, & 44-46.) Ronald also owed several million dollars to other creditors. (Id., ¶ 93.) Ronald stopped making payments on Plaintiff’s loan in early 2012. (Id., ¶¶ 85.) Ronald petitioned for bankruptcy in May 2012, was arrested in 2013, admitted to engaging in a fraudulent scheme in 2014, and has been convicted and sentenced to five years in prison. (Id., ¶¶ 15, 91-92, 94, & 96.) Ronald stated that he will not repay Plaintiff’s loan and the funds he borrowed were transferred to his companies in furtherance of his car sale business. (Id., ¶¶ 93-96.) The companies, however, are insolvent, and Plaintiff believes that Ronald transferred assets to others, including his wife defendant Janice Battistella (“Janice”) and the trusts she controls, the RB/JB Trust and defendant Janice Rose Battistella Trust (“JB Trust”). (Id., ¶¶ 2-4, 49, 74–82, & 94-95.) Janice ratified in the fraud, conspired to illegally take Plaintiff’s money, and caused Plaintiff to lose the funds she loaned to Ronald. (Id., ¶¶ 147 & 149.) “Formal discovery will be necessary to try to locate where the money went, but it is logical that at least some may have gone to one or more of the named Defendants.” (Id., ¶ 48.)

Plaintiff asserts claims for (1) breach of contract, (2) unfair business practices, (3) fraud, (4) constructive trust, (5) unjust enrichment, (6) vicarious liability, and (7) conspiracy. The only claims against Janice are the fourth, fifth, and seventh causes of action, and the only claims against the Trust are the fourth and fifth causes of action.

Janice—as an individual and as trustee for the Trusts —demurs to the fourth, fifth, and seventh causes of action for failure to state a claim. (See Code Civ. Proc., § 430.10, subd. (e).)
On demurrer, courts “give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) If the facts alleged state “a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Ibid.) A demurrer admits “material facts properly pleaded” and matters subject to judicial notice. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Facts asserted in the parties’ supporting memorandums are not considered. (See Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.) If a demurrer is sustained and “the plaintiff has not had an opportunity to amend the complaint,” then “leave to amend is liberally allowed as a matter of fairness, unless the complaint shows on its face that it is incapable of amendment.” (City of Stockton v. Super. Ct. (2007) 42 Cal.4th 730, 747.)

In Plaintiff’s opposing memorandum, she requests judicial notice of unspecified pleadings filed in an unrelated case. (Plaintiff’s Opp’n, at p. 4:13-19.) The request is procedurally improper because it is not made in a separate document listing specific items as required by California Rules of Court, rule 3.1113(l). In any event, only relevant matters are judicially noticeable. (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301.) The items subject to Plaintiff’s request are not relevant. Therefore, her request is DENIED.

With the reply papers, Janice and the Trusts refer to the Ulescu Case, and assert that Plaintiff was originally a plaintiff in that action. However, they do not make a request for judicial notice, and they do not explain how that case is relevant to this demurrer. The Court therefore declines to take judicial notice of the Ulescu Case.

Turning to the merits of the demurrer, Janice and the Trusts argue that claims for constructive trust, unjust enrichment, and conspiracy are not independent causes of action. Rather, they are dependent on Plaintiff having stated some other viable cause of action. The merits of the demurrer are discussed below.

I. Conspiracy

The seventh cause of action is for conspiracy against Janice. “Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511 & 14.) “Standing alone, a conspiracy does no harm and engenders no tort liability,” no matter how atrocious; rather, “[i]t must be activated by the commission of an actual tort.” (Id., at p. 511.) A conspiracy claim requires allegations showing (1) “the formation and operation of the conspiracy” and (2) “damage resulting to plaintiff from an act or acts done in furtherance of the common design.” (Ibid.) In addition, participants in a conspiracy must know that their conduct is wrongful and concur in the “tortious scheme with knowledge of its unlawful purpose.” (People v. Beaumont Inv., Ltd. (2003) 111 Cal.App.4th 102, 137.) In order to properly plead a conspiracy theory, the plaintiff may not rely on “bare legal conclusions, inferences, generalities, presumptions, and conclusions.” (State of California ex. rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 419.)

Plaintiff alleges that Ronald and his company fraudulently induced her to execute three contracts and loan him $75,000 in 2010-2011. (FAC, ¶¶ 7, 12-15, 19-33, 36, 38, 41, & 44-46.) However, Plaintiff does not allege that Janice conspired with Ronald to fraudulently induce her to execute these contracts, or that Janice knew of his fraud with respect to those contracts. Thus, Plaintiff has not stated a conspiracy claim based on Ronald’s alleged fraud.

Next, Plaintiff alleges that, in an effort to defraud Ronald’s creditors and conceal assets, Ronald and Janice executed a pre-nuptial agreement (“Marital Contract”) and created the Trusts. (FAC, ¶ 49.) Notably, however, Plaintiff also alleges that the Marital Contract and the Trusts existed before Ronald married Janice. (Id., ¶¶ 2-4 & 79.) Other allegations show that, in 2008, Ronald, Janice, and the Trusts were named as defendants in another case. (Id., ¶ 77.) This shows that the Marital Contract and Trusts necessarily existed in or before 2008. Plaintiff allegedly first met Ronald and loaned him money in 2010. (Id., ¶ 19.) Plaintiff does not explain how the execution of the Marital Contract and the Trusts—which occurred at least two years before Plaintiff loaned money to Ron—are part of a conspiracy to defraud her. Thus, she has not stated a claim for conspiracy based on the existence of the Marital Contract and the Trusts.

Finally, Plaintiff alleges that Ronald, in violation of the Marital Contract, comingled community and separate property and transferred assets to Janice and the Trusts—with Janice’s knowledge and approval—in an effort to hide assets. (FAC, ¶¶ 49, 79-82, & 95.) Plaintiff believes that Janice allowed him to make such transfers in order to help him avoid paying his debts. (Id., ¶ 82.) In addition, she believes that Ronald took Janice to entertainment venues, bought her food, contributed to the maintenance of the house that Janice owned as her separate property, and paid for her other expenses. (Id., ¶ 81.) Plaintiff also believes that Janice converted some of Ronald’s separate property into the Trusts’ property and her separate property in order to reduce the money or assets available to pay Ronald’s debts. (Id., ¶ 79.) Plaintiff alleges that Janice knew that Ronald and his companies had been sued in 2008, and that a collections action had been commenced against him in 2009. (Id., ¶¶ 74-77 & 146.) Janice allegedly knew or reasonably should have known that Ronald defrauded lenders because he spent and owed more money than he reasonably could have earned. (Id., ¶¶ 74-77.) Janice was fully aware that Ronald intended to commit and later performed “fraudulent activities,” but “did nothing” and “went along” with the scheme by spending money or “allow[ing]” Ronald to spend “money she knew was tainted” without informing Plaintiff of her “knowledge, beliefs, and/or suspicions.” (Id., ¶¶ 74 & 147.) “[Ronald] would not have been able to spend, transfer, and/or hide all the money he diverted from his businesses and debts” without help from his wife, Janice. (Id., ¶ 79.) Thus, Janice ratified in the fraud, conspired to illegally take Plaintiff’s money, and caused Plaintiff to lose her investment. (Id., ¶¶ 147 & 149.)

However, the fact that Ronald spent money on his wife does not suggest that his conduct was wrongful. Plaintiff does not specify what “fraudulent activities” are supposedly part of Ronald’s fraudulent conspiracy that Janice allegedly knew her husband intended to and later did commit. (See FAC, ¶ 147.) Also, the fact that Janice knew of her husband’s debts and spending habits and allowed him to spend money does not show that she conspired to engage in a tortious scheme. Essentially, the alleged conspiracy is based entirely on bare legal conclusions, inferences, generalities, presumptions, and conclusions that cannot be used to support a conspiracy theory of liability. (See State of California ex. rel. Metz v. CCC Information Services, Inc., supra, 149 Cal.App.4th 402, 419.) Plaintiff’s allegations are therefore insufficient to support a claim for conspiracy to commit fraud.

In light of the foregoing, Janice’s demurrer to the seventh cause of action for failure to state a claim is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.
II. Constructive Trust & Unjust Enrichment

The fourth cause of action is for constructive trust and the fifth cause of action is for unjust enrichment against Janice and the Trusts. A constructive trust is a remedy “to prevent a person from taking advantage of his or her own wrongdoing”; the mere fact that a defendant obtained the plaintiff’s property is insufficient to show wrongdoing. (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1069; PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 398.) “Unjust enrichment is not a cause of action, however, or even a remedy”; rather, it is “a general principle, underlying various legal doctrines and remedies.” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.) It describes “the result of a failure to make restitution under circumstances where it is equitable to do so.” (Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793.) Thus, the issue is whether a plaintiff asserting a purported cause of action for unjust enrichment has pled facts to support a claim giving rise to a right of restitution. (McBride v. Houghton (2004) 123 Cal.App.4th 379, 387.) Restitution may be sought under a quasi-contract theory of liability when the parties had an express contract procured by fraud, or “where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct.” (Id., at p. 338.) The “mere fact that a person benefits another is not of itself sufficient to require the other to make restitution therefore.” (Dinosaur Development, Inc. v. White (1989) 216 Cal.App.3d 1310, 1315.)

Plaintiff alleges that Ronald and his company fraudulently induced her to executed three contracts and loan him $75,000 in 2010-2011. (FAC, ¶¶ 7, 12-15, 19-33, 36, 38, 41, & 44-46.) Plaintiff further alleges that Ronald used that some of that money “to support Janice’s and his own life style.” (Id., ¶ 135.) She alleges on information and belief that some of the funds she loaned to Ronald were transferred to Janice and/or the Trusts “in some unknown fashion” that is “subject to discovery.” (Id., ¶¶ 135 &142.) Plaintiff further alleges that she reasonably “expected to get [the money] back from [Ronald]” and the money should in fairness be returned. (Id., ¶ 142.) Janice allegedly knew or reasonably should have known that the funds were illegally obtained, and thus, the Court should impose a constructive trust over Janice’s and the Trusts’ property. (Id., ¶ 137.) However, Plaintiff does not allege sufficient facts to show that Janice and the Trusts wrongfully obtained her money. Therefore, Plaintiff has not stated a viable cause of action to support claims for constructive trust and unjust enrichment.

Accordingly, Janice and the Trusts’ demurrer to the fourth and fifth causes of action for failure to state a claim is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.
The Court will prepare the order.