(PS) Fitzpatrick v. Fitzpatrick, et al., No. 2:2012cv02938 - Document 58 (E.D. Cal. 2014)
Court Description: FINDINGS and RECOMMENDATIONS signed by Magistrate Judge Allison Claire on 5/23/2014 RECOMMENDING that Defendants' 49 motion to dismiss be granted in part. Plaintiff's fraud claim be dismissed without leave to amend. Plaintiff's brea ch of fiduciary duty based on a confidential relationship be dismissed without leave to amend. This matter proceed on plaintiff's remaining claims (breach of implied contract, breach of fiduciary duty based on a fiduciary / partnership relationship, breach of implied covenant of good faith and fair dealing, resulting trust, and unjust enrichment). Motion referred to Judge Garland E. Burrell, Jr.. Objections to F&R due within 14 days. (Zignago, K.)
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(PS) Fitzpatrick v. Fitzpatrick, et al. Doc. 58 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 MICHAEL FITZPATRICK, 12 Plaintiff, 13 14 No. 2:12-cv-2938 GEB AC PS v. FINDINGS & RECOMMENDATIONS BRIAN FITZPATRICK, ET AL., 15 Defendants. 16 Pending before the court is defendants’ motion to dismiss plaintiff’s Second Amended 17 18 Complaint (“SAC”). Plaintiff opposes the motion. On review of the motion, the briefs filed in 19 support and opposition, and good cause appearing therefor, THE COURT FINDS AS 20 FOLLOWS: RELEVANT FACTUAL BACKGROUND 21 22 23 A. Allegations in Second Amended Complaint Plaintiff, Michael Fitzpatrick, brings this diversity action against his brother, Brian 24 Fitzpatrick, and his brother’s wife, Dianne Fitzpatrick, for claims related to the purchase, 25 development, and eventual sale of a family winery, the Fitzpatrick Winery and Lodge (“the 26 FWL”), located in El Dorado County, California. 27 28 At issue in this case is defendants’ failure to repay plaintiff for his investments in the FWL. As best as the Court can determine, these investments are outlined here: 1 Dockets.Justia.com 1 2 3 Between 1978 and 1985, plaintiff invested approximately $101,000 in the FWL. SAC ¶ 16. In 1981, plaintiff purchased 40 acres of property in El Dorado County (“the 4 property” or “the El Dorado County property”) for the development of the FWL, 5 and he remained the sole owner of this parcel until 1987. SAC ¶ 5. This parcel 6 was purchased by Brian Fitzpatrick, acting as an agent for plaintiff, in the amount 7 of $132,000, with a $25,000.00 down payment and monthly payments ranging 8 from $1070.00 to $1357.83. See SAC, Ex. E (ECF No. 48 at 50). At various 9 times, plaintiff deeded and/or temporarily transferred portions of this property to 10 the defendants and to plaintiff’s parents for financial purposes. SAC ¶ 5. These 11 transfers were without consideration. Id. 12 13 14 15 16 Between 1984 and 1987, plaintiff invested an additional $150,000 to improve the property for the development of the FWL. SAC ¶¶ 6, 16. In 1985, plaintiff sent a container of antique Irish pine furniture from Ireland for furnishing the lodge. SAC ¶ 16. In 1987, when the construction of the FWL was completed, plaintiff contributed 17 the El Dorado County property to the Fitzpatrick Winery partnership at its fair 18 market value as a portion of his capital contribution. SAC ¶ 18. 19 20 21 In 1999, plaintiff loaned an antique original pew from Saint Patrick’s Cathedral in New York City to be displayed in the FWL. SAC ¶ 16. Funding for the FWL that was provided by plaintiff was funneled through a partnership 22 called the Fitzpatrick Winery. SAC ¶ 7. The predecessor of the Fitzpatrick Winery, the FBF 23 Winery, was established in 1978 by plaintiff, Brian Fitzpatrick, and a third individual. Id. The 24 FBF Winery was later renamed the Fitzpatrick Winery in light of the substantial investments 25 made by plaintiff. Id. A second partnership, the Hill Winery Partnership, was also established 26 for the acquisition and development of the FWL property. Id. ¶¶ 31-32. While this partnership 27 did not generate income, its investments were to be capitalized by the plaintiff. Id. By 1987, 28 plaintiff’s approximate ownership interest in the Hill Winery Partnership was valued at 2 1 2 $250,000.00. Id. ¶ 33. Brian Fitzpatrick controlled the bank accounts for these entities. Id. ¶ 8. In addition to these investments and partnerships, Brian Fitzpatrick operated as an officer / 3 agent for a legal entity, California Connection Corporation (“CCC”), established and owned by 4 plaintiff for the purpose of advancing the FWL. SAC ¶ 7. Brian Fitzpatrick exercised full control 5 over the CCC bank account and exercised his own discretion in making use of plaintiff’s funds. 6 Id. Plaintiff was the party licensed and bonded by the Bureau of Alcohol, Tobacco and Firearms 7 for both the FBF Winery and the FWL up through 1986, when defendants assumed both the bond 8 and license in connection with the FWL. Id. ¶ 38. Plaintiff stopped making financial 9 contributions to the winery in 1986. SAC ¶ 21. 10 Plaintiff claims he made these investments and entrusted Brian Fitzpatrick with his 11 finances in reliance upon oral promises, an implied contract, and various written letters indicating 12 that plaintiff would be repaid for his investments and that he would cash in on the appreciation of 13 the FWL in the event of a sale. SAC ¶ 16. For example, in 1987, plaintiff received a letter from 14 the defendants seeking to purchase the El Dorado County property from plaintiff and assuring 15 him that, “As a co-landlord you would not be responsible for any activities associated with 16 operating the lodge business. You’ll enjoy monthly income and eventually cash in on the 17 appreciation of this asset (lodge) when we or our children . . . decide to sell, lease or whatever.” 18 Id. Plaintiff rejected this offer. Id. ¶ 18. 19 Following the completion of the FWL in 1987, plaintiff did not make a demand for 20 payment or attempt to capitalize on his interest at that time out of concern for his brother’s 21 financial difficulties, to avoid a family dispute, and because defendants assured him that he would 22 receive payment on sale of the FWL. SAC at 2, ¶ 9; see also id. ¶¶ 16, 24. Plaintiff thus believed 23 that he could not “cash-in” until the property was liquidated. SAC ¶ 24. 24 In late-2011, plaintiff became aware through his mother that the defendants were planning 25 to sell the FWL to Gold Mountain Winery, Inc., without first informing plaintiff. SAC at 9. 26 Brian Fitzpatrick promised his and plaintiff’s mother that if she did not tell plaintiff about the 27 pending sale, he would settle with plaintiff for his large investment after the sale went through. 28 SAC ¶¶ 10-11. 3 1 The sale to Gold Mountain Winery, Inc., has now been accomplished, and plaintiff has not 2 received any proceeds from the sale. 3 B. 4 Defendants’ Request for Judicial Notice With their motion to dismiss, defendants have submitted for judicial notice the following 5 documents that were filed in the County Recorder’s Office in El Dorado County, California: (1) a 6 grant deed of 40 acres from Sue Hicks to Michael Fitzpatrick and Brian Fitzpatrick, recorded 7 May 15, 1981; (2) a grant deed of 15 acres from Brian Fitzpatrick to Michael Fitzpatrick, 8 recorded September 1, 1981; (3) a grant deed of 24.37 acres from Michael Fitzpatrick to Brian 9 Fitzpatrick, recorded November 1, 1981; (4) a warranty deed of the 15 acres from Michael 10 Fitzpatrick and Mary Burke to CCC, recorded November 14, 1988; (5) a warranty deed of the 15 11 acres from CCC to Joseph Fitzpatrick and Eileen Fitzpatrick, recorded November 14, 1988; (6) a 12 grant deed of five acres from Joseph Fitzpatrick and Eileen Fitzpatrick to Brian Fitzpatrick, 13 recorded March 15, 1996; (7) a record of survey, filed March 15, 1996; (8) a grant deed of 10 14 acres from Joseph Fitzpatrick and Eileen Fitzpatrick to William Schuyler, recorded Nov3ember 15 28, 2000; (9) a grant deed of 30 acres from Brian Fitzpatrick to the Brian Fitzpatrick and Dianne 16 Fitzpatrick Family Trust, recorded August 18, 2005; (10) a deed of trust in favor of Sacramento 17 Valley Farm Credit executed by Brian Fitzpatrick, recorded July 28, 2003; (11) a grant deed of 18 thirty acres from the Fitzpatrick Family Trust to Gold Mountain Winery, Inc., recorded October 19 28, 2011; and (12) a grant deed of 10 acres from William Schuyler to Gold Mountain Winery, 20 Inc,, recorded October 28, 2011. Request for Judicial Notice (“RJN”), Exs. 1-12. Defendants 21 also seek judicial notice of plaintiff’s opposition to defendants’ motion to dismiss plaintiff’s first 22 amended complaint. RJN, Ex. 13. 23 “A judicially noticed fact must be one not subject to reasonable dispute in that it is either 24 (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate 25 and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” 26 Fed. R. Evid. 201(b). “A court shall take judicial notice if requested by a party and supplied with 27 the necessary information.” Fed. R. Evid. 201(d). The court may take judicial notice of court 28 records. Valerio v. Boise Cascade Corp., 80 F.R.D. 626, 635 n.1 (N.D. Cal. 1978), aff’d, 645 4 1 F.2d 699 (9th Cir.), cert. denied, 454 U.S. 1126 (1981). “Judicial notice is an adjudicative device 2 that alleviates the parties’ evidentiary duties at trial, serving as a substitute for the conventional 3 method of taking evidence to establish facts.” York v. American Tel. & Tel. Co., 95 F.3d 948, 4 958 (10th Cir. 1996) (internal quotations omitted); see General Elec. Capital Corp. v. Lease 5 Resolution Corp., 128 F.3d 1074, 1081 (7th Cir. 1997). 6 Other than the last document, of which a formal request is unnecessary since it is a part of 7 the Court’s own docket in this matter, plaintiff’s request for judicial notice is granted. These 8 judicially noticed documents establish the following facts in this case: 9 On May 15, 1981, Sue Hicks granted to plaintiff and Brian Fitzpatrick each an undivided 10 one-half interest, as tenants in common, of certain property located in El Dorado County. RJN, 11 Ex. 1. On August 31, 1981, the brothers gift deeded 15 acres of the property to plaintiff and 12 24.37 acres of the property to Brian Fitzpatrick.1 Id., Exs. 2-3. 13 On October 28, 1988, plaintiff and his wife transferred the 15 acres held in plaintiff’s 14 name to CCC. RJN, Ex. 4. On the same day, CCC transferred the same 15 acres to the brothers’ 15 parents, Joseph and Eileen Fitzpatrick. Id., Ex. 5. 16 On March 15, 1996, Joseph and Eileen Fitzpatrick deeded 5 of their 15 acres to Brian 17 Fitzpatrick. RJN, Ex. 6. Per the Record of Survey filed the same date, Brian Fitzpatrick came to 18 own 29.37 acres, and Joseph and Eileen Fitzpatrick owned the remaining 10 acres. Id., Ex. 7. 19 Joseph and Eileen Fitzpatrick deeded their remaining 10 acres to William H. Schuyler on 20 November 21, 2000. RJN, Ex. 8. William Schuyler held this parcel until November 15, 2011, 21 when he conveyed it to Gold Mountain Winery, Inc. Id. Ex. 12. 22 As for Brian Fitzpatrick’s 29.37 acres, he refinanced the loan secured against the property 23 in July 2003. RJN, Ex. 10. He thereafter conveyed this property to his family trust, the Brian 24 Fitzpatrick and Dianne Fitzpatrick Family Trust, on August 18, 2005. Id. Ex. 9. On October 28, 25 2011, this property was conveyed by the family trust to Gold Mountain Winery, Inc. Id. Ex. 11. 26 1 27 28 Though not entirely clear, it appears that this land is the same as those 40 acres that plaintiff claims he purchased in 1981 and possessed as a sole owner until 1987. See, e.g., SAC ¶ 5, Ex. B. Per plaintiff, the transfers to his brother and parents were intended solely for financial purposes. Id. ¶ 5. 5 1 2 PROCEDURAL HISTORY A. 3 The Original Complaint On December 5, 2012, plaintiff filed a complaint against defendants Brian and Dianne 4 Fitzpatrick and Gold Mountain Winery alleging breach of an implied contract, breach of the 5 implied covenant of good faith and fair dealing, breach of fiduciary duty, fraud, theft by 6 deception, constructive trust, unjust enrichment, and conspiracy to defraud. Plaintiff sought 7 accounting and recovery of his loans and investments in the property. On May 7, 2013, this 8 pleading was dismissed with leave to amend for lack of specificity. ECF No. 23. 9 B. 10 The First Amended Complaint Plaintiff filed an amended complaint on May 28, 2013, and a modified first amended 11 complaint on June 4, 2013,2 asserting these claims: fraud, conspiracy, breach of fiduciary duty, 12 constructive trust, theft by deception, breach of implied contract, breach of implied covenant of 13 good faith and fair dealing, and unjust enrichment. 14 On June 5, 2013, Gold Mountain Winery filed a motion to dismiss for failure to state a 15 claim. Subsequently, on request of the plaintiff, the Court dismissed Gold Mountain Winery with 16 prejudice and accordingly denied its motion as moot. 17 On June 13, 2013, Brian and Dianne Fitzpatrick filed a motion to dismiss for failure to 18 state a claim, or, alternatively, for a more definite statement. In response, plaintiff filed a motion 19 for leave to file a supplemental pleading. On August 29, 2013, the first amended complaint was 20 dismissed for lack of specificity, and plaintiff’s motion for leave to amend was granted. 21 C. 22 The Second Amended Complaint This matter is now proceeding on plaintiff’s second amended complaint, filed September 23 26, 2013, in which plaintiff asserts the following claims: fraud, breach of implied contract, breach 24 of fiduciary duty, breach of implied covenant of good faith and fair dealing, resulting trust, and 25 unjust enrichment. Defendants filed the instant motion to dismiss on October 16, 2013. Plaintiff 26 opposes the motion. 27 28 2 A second copy of the first amended complaint was filed to include a page that was omitted from the first filing. The pleadings are otherwise identical. 6 1 2 LEGAL STANDARDS “Federal Rule of Civil Procedure 8(a)(2) requires only a ‘short and plain statement of the 3 claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of 4 what the claim is and the grounds upon which it rests.’” Bell Atlantic Corp. v. Twombly, 550 5 U.S. 544, 554 (2007) (quoting Federal Rule of Civil Procedure 8(a)(2)). A motion to dismiss 6 tests the sufficiency of a complaint or counterclaim, facilitating dismissal to the extent the 7 pleading fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The 8 pleading is construed in the light most favorable to the non-moving party and all material 9 allegations in it are taken to be true. Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). 10 However, even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2), “a 11 plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels 12 and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 13 Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986) (internal brackets 14 and quotation marks omitted)). Hence, the Court need not assume unstated facts, nor will it draw 15 unwarranted inferences. Ashcroft v. Iqbal, 556 U.S. 662 (2009) (“Determining whether a 16 complaint states a plausible claim for relief . . . [is] a context-specific task that requires the 17 reviewing court to draw on its judicial experience and common sense.”); Cousins v. Lockyer, 568 18 F.3d 1063, 1067 (9th Cir. 2009); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 19 2001) (“Nor is the court required to accept as true allegations that are merely conclusory, 20 unwarranted deductions of fact, or unreasonable inferences.”). 21 Under Twombly, a plaintiff must allege “enough facts to state a claim to relief that is 22 plausible on its face.” 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads 23 factual content that allows the court to draw the reasonable inference that the defendant is liable 24 for the misconduct alleged.” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556). “The 25 plausibility standard is not akin to a probability requirement, but it asks for more than a sheer 26 possibility that a defendant has acted unlawfully. . . . When a complaint pleads facts that are 27 merely consistent with a defendant’s liability, it stops short of the line between possibility and 28 plausibility of entitlement to relief.” Id. (quoting Twombly, 550 U.S. at 556–57) (internal 7 1 quotation marks omitted). In sum, if the facts alleged raise a reasonable inference of liability— 2 stronger than a mere possibility—the claim survives; if they do not, the claim should be 3 dismissed. See Iqbal, 129 S. Ct. at 1949-50. 4 DISCUSSION 5 Defendants Brian and Dianne Fitzpatrick move to dismiss the operative pleading on 6 several grounds, including failure to state a claim, untimeliness, and the doctrine of laches. 7 A. Failure to State a Claim 8 1. 9 As he had done previously, plaintiff asserts a claim for fraud based on “numerous Fraud 10 promises made over the years by defendants Brian and Dianne Fitzpatrick that all of his 11 investments would be treated properly and in accordance with standings of accounting and 12 business ethics which pertain to any partnership relationship.” Plaintiff asserts that if not for 13 these oral and written promises, he would not have invested money into the purchase of land or 14 the construction of the winery. Defendants seek dismissal of plaintiff’s fraud claim for lack of 15 specificity. For the reasons set forth here, the Court will recommend that plaintiff’s fraud claim 16 be dismissed. 17 “[T]o establish a cause of action for fraud a plaintiff must plead and prove in full, 18 factually and specifically, all elements of the cause of action.” Conrad v. Bank of America, 45 19 Cal. App. 4th 133, 156 (1996). See also Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) 20 (setting forth the elements of a fraud claim under California law). There must be a showing “that 21 the defendant thereby intended to induce the plaintiff to act to his detriment in reliance upon the 22 false representation” and “that the plaintiff actually and justifiably relied upon the defendant’s 23 misrepresentation in acting to his detriment.” See Conrad, 45 Cal. App. 4th at 157. The absence 24 of any one of these required elements will preclude recovery.” Wilhelm v. Pray, Price, Williams 25 & Russell, 186 Cal. App. 3d 1324, 1332 (1986). 26 Additionally, Federal Rule of Civil Procedure 9(b) requires a plaintiff to plead with 27 particularity, a requirement which “applies to state-law causes of action.” Vess v. Ciba-Geigy 28 Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). See also Roberts v. Ball, Hunt, Hart, Brown & 8 1 Baerwitz, 57 Cal. App. 3d 104, 109 (1976) (maintaining that “the facts constituting the fraud must 2 be alleged with sufficient specificity to allow defendant to understand fully the nature of the 3 charge made”). Fraud claims stating mere conclusory allegations are not sufficient. Moore v. 4 Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989). Fraud claims must state “the 5 who, what, when, where, and how” of the misconduct alleged, as well as “what is false or 6 misleading about a statement, and why it is false.” Vess, 317 F.3d at 1106. The pleading must 7 identify the circumstances constituting fraud so that defendants might have notice of the 8 particular misconduct alleged, allowing preparation of “an adequate answer from the allegations.” 9 Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993). 10 Turning to the first element of a fraud claim—misrepresentation—“[a] promise to do 11 something necessarily implies the intention to perform; hence, where a promise is made without 12 such intention, there is an implied misrepresentation of fact that may be actionable fraud.” Lazar, 13 12 Cal. 4th at 638 (citation omitted). Thus, to sufficiently allege that defendant made a 14 misrepresentation in a promissory fraud action, the complaint must allege that (1) the defendant 15 made a representation of intent to perform some future action, i.e., the defendant made a promise, 16 and (2) the defendant did not really have that intent at the time that the promise was made, i.e., 17 the promise was false. Id. at 639. 18 To sufficiently plead the first requirement, that the defendant made a promise, the 19 complaint must state “facts which ‘show how, when, where, to whom, and by what means the 20 representations were tendered.’” Lazar, 12 Cal. 4th at 645 (citation omitted). As for the second 21 requirement, the falsity of that promise is sufficiently pled with a general allegation the promise 22 was made without an intention of performance. See Tyco Industries, Inc. v. Superior Court, 164 23 Cal. App. 3d 148, 156 (1985). “The representation (implied) is that of the intention to 24 perform. . . .; the truth is the lack of that intention. Purely evidentiary matters—usually 25 circumstantial evidence or admissions showing lack of that intention—should not be pleaded. 26 Hence, the only necessary averment is the general statement that the promise was made without 27 the intention to perform it, or that the defendant did not intend to perform it.” 5 Witkin, Cal. Pro. 28 (5th ed. 2008) Pleading § 725, p. 142 (citation omitted). 9 1 Here, plaintiff’s fraud claim is founded on an allegation that defendants never intended to 2 repay plaintiff for his investments despite oral and written statements to the contrary that were 3 intended to induce plaintiff to invest in the family venture. But the only statement identified by 4 plaintiff in support of this claim is one made by defendants in mid-1987 in a letter in which they 5 offered to purchase the El Dorado County property from plaintiff and, in return, plaintiff would 6 cash in on the appreciation of the FWL when it was sold or leased. See SAC, Ex. B (ECF No. 48 7 at 36-37). Plaintiff admits, however, that he rejected this offer. SAC ¶ 18 (“Defendant’s offer to 8 purchase the land was not accepted by the Plaintiff due to the large financial loss which he would 9 have suffered.”). Moreover, plaintiff admits that he made financial contributions to the family 10 venture through 1986, before this letter was sent to plaintiff. As plaintiff has failed to identify 11 any other promises made by defendants with the specificity required for a fraud claim, and 12 because the only statements identified by plaintiff were made by the defendants after plaintiff 13 invested in the family venture, plaintiff’s fraud claim must be dismissed. 14 Plaintiff also claims that defendants “engage[d] in fraud by scheming from the outset to 15 acquire the Fitzpatrick Winery and Lodge without honoring the ownership rights of the Plaintiff.” 16 SAC ¶ 14. Again, plaintiff fails to identify any statements or promises with specificity in support 17 of this claim. Because this was plaintiff’s third attempt to state a viable fraud claim, the 18 undersigned will recommend that this claim be dismissed without leave to amend. 19 2. 20 Defendants next seek dismissal of plaintiff’s breach of fiduciary duty. Breach of fiduciary Breach of Fiduciary Duty 21 duty is established with: (1) the existence of a fiduciary duty; (2) a breach of the fiduciary duty; 22 and (3) resulting damage. Pellegrini v. Weiss, 165 Cal. App. 4th 515, 524 (2008). Plaintiff 23 alleges breach of this duty based on a fiduciary / partnership relationship and on a confidential 24 relationship. 25 26 a. Fiduciary Relationship A fiduciary relationship exists when one of the parties has a duty to act with the utmost 27 good faith for the benefit of the other party. Gilman v. Dalby, 176 Cal. App. 4th 606 614 (2009). 28 In California, a partnership is defined as “the association of two or more persons to carry on as 10 1 coowners a business for profit . . . , whether or not the persons intend to form a partnership.” Cal. 2 Corp. Code § 16202. With regard to the existence of a fiduciary relationship, California law 3 provides that partners owe fiduciary duties to the partnership and to other partners. See Cal. 4 Corp. Code. § 16404(a). With regard to the breach of this fiduciary duty, Section 16404(d) of the 5 California Corporations Code provides that “[a] partner shall discharge the duties to the 6 partnership and the other partners . . . and exercise any rights consistently with the obligation of 7 good faith and fair dealing.” Cal. Corp. Code. § 16404(d). See also Brown v. Wells Fargo Bank, 8 NA, 168 Cal. App. 4th 938, 959-60 (2008) (“[f]iduciary . . . relationships are relationships 9 existing between parties . . . bound to act with the utmost good faith for the benefit of the other.”). 10 “Like partners, joint venturers are fiduciaries with a duty of disclosure and liability to account for 11 profits.” Weiner v. Fleischman, 54 Cal. 3d 476, 482 (1991) (en banc) (internal citations omitted). 12 “A joint venture or partnership may be formed orally or assumed to have been organized from a 13 reasonable deduction from the acts and declarations of the parties.” Id. 14 Plaintiff asserts that the existence of two partnerships— the Fitzpatrick Winery and Hill 15 Winery partnerships—support this claim. In furtherance of these partnerships, defendants 16 knowingly undertook the obligations of a fiduciary by acting as plaintiff’s agent during the 17 purchase of the El Dorado County property in 1981 and thereafter in exercising control over 18 plaintiff’s financial investments. Plaintiff, in turn, purchased the El Dorado County property, 19 provided funding for the development of the FWL, and served as the bonded party with the 20 Bureau of Alcohol, Tobacco and Firearms for the State of California until 1986. In light of these 21 partnerships, in which both plaintiff and the defendants were partners, the latter owed plaintiff a 22 fiduciary duty to correctly and properly account for the funds that plaintiff invested in the FWL. 23 Defendants argue that plaintiff’s claim fails because he fails to assert the essential terms of 24 a partnership. In the absence of any authority hold that a plaintiff must allege the essential terms 25 of a partnership before proceeding with a breach of fiduciary duty claim, this argument fails. In 26 any event, California Corporation Code Section 16404(b)(1) provides an essential term of all 27 partnership contracts that plaintiff claims was breached here, namely, that a partner’s duty of 28 loyalty to the partnership and the other partners includes a duty “[t]o account to the partnership 11 1 and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and 2 winding up of the partnership business or derived from a use by the partner of partnership 3 property or information . . . .” Defendants next argue that, once plaintiff was removed from the 4 title to the El Dorado County property in 1988, he no longer had any interest in either parcel. 5 This argument, however, is more properly asserted in a motion for summary judgment, not at this 6 initial pleading stage. The Court thus finds that plaintiff has adequately asserted the elements of 7 this claim. 8 9 b. Confidential Relationship In the alternative, plaintiff asserts the breach of a confidential relationship that existed 10 between him and the defendants. Breach of a confidential relationship is established when: (1) 11 one party is vulnerable to the other; (2) this vulnerability results in the empowerment of the 12 stronger party; (3) empowerment has been solicited or accepted by the stronger party; and (4) 13 prevents the weaker party from effectively protecting itself. Richelle L. v. Roman Catholic 14 Archbishop, 106 Cal. App. 4th 257, 272 (2003). Plaintiff asserts that a confidential relationship 15 existed as evidenced by his vulnerability once the defendants took over control of the FWL. This 16 language, though, mirrors that which was rejected by the undersigned on consideration of 17 defendants’ motion to dismiss the first amended complaint. ECF No. 46. Thus, the undersigned 18 will recommend that this claim be dismissed without leave to amend. 19 3. 20 Lastly, defendants argue that plaintiff’s breach of the implied covenant of good faith and Breach of Implied Covenant of Good Faith and Fair Dealing 21 fair dealing claim should be dismissed as superfluous because plaintiff has not made any 22 allegations that go beyond a breach of contract claim. 23 Every contract contains an implied covenant of good faith and fair dealing providing that 24 no party to the contract will do anything that would deprive another party of the benefits of the 25 contract. Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 720 (2007); Kransco v. American 26 Empire Surplus Lines Ins. Co., 23 Cal. 4th 390, 400 (2000). The implied covenant protects the 27 reasonable expectations of the contracting parties based on their mutual promises. Carma 28 Developers (Cal.), Inc. v. Marathon Development California, Inc., 2 Cal. 4th 342, 373-74 (1992); 12 1 Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990). The 2 scope of conduct prohibited by the implied covenant depends on the purposes and express terms 3 of the contract. Carma Developers, 2 Cal. 4th at p. 373. Although breach of the implied covenant 4 often is pleaded as a separate count, a breach of the implied covenant is necessarily a breach of 5 contract. Careau, 222 Cal. App. 3d at 1393-94. 6 Considering the allegations asserted in the SAC as to both this claim and the breach of 7 contract claim, the Court finds that the gravamen of the two counts differs. The gravamen of the 8 breach of contract claim is that defendants failed to comply with their contractual obligation to 9 repay plaintiff for his investments, while the gravamen of the count of breach of the implied 10 covenant of good faith and fair dealing is defendants’ alleged efforts to hide the sale of the FWL 11 from plaintiff. As these two claims are sufficiently different from each other, dismissal is not 12 warranted. 13 B. 14 Statute of Limitations Defendants next seek dismissal of all of plaintiff’s claims as barred by the statute of 15 limitations. A statute of limitations “prescribes the period[ ] beyond which an action may not be 16 brought.” See generally 3 Witkin, Cal. Procedure (5th ed. 2008) Actions, § 430, p. 546. “The 17 statute of limitations usually commences when a cause of action ‘accrues,’ and it is generally said 18 that ‘an action accrues on the date of injury.’ Alternatively, it is often stated that the statute 19 commences ‘upon the occurrence of the last element essential to the cause of action.’” Bernson 20 v. Browning–Ferris Indus., 7 Cal. 4th 926, 931 (1994) (internal citations omitted). “These 21 general principles have been significantly modified by the common law ‘discovery rule,’ which 22 provides that the accrual date may be ‘delayed until the plaintiff is aware of her injury and its . . . 23 cause.’” Id. Now, under the discovery rule, “‘the statute of limitations begins to run when the 24 plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has 25 done something wrong to her.’” Id. at 932. 26 The statute of limitations for plaintiff’s various causes of action are as follows: (1) fraud, 27 3 years (Cal. Civ. Proc. § 338(d)); (2) breach of implied contract, 2 years (Cal. Civ. Proc. § 28 339(1)); (3) breach of fiduciary duty, 4 years (Cal. Civ. Proc. § 353); (4) breach of implied 13 1 covenant of good faith and fair dealing, 2 years (Cal. Civ. Proc. § 339(1)); (5) resulting trust, 4 2 years (Cal. Civ. Proc. §343), and (6) unjust enrichment, 2 years (Cal. Civ. Proc. § 339). 3 Defendants argue that plaintiff’s claims are barred because he unreasonably delayed in 4 making a demand for payment. In California, “[i]t is established law that one whose right of 5 action is dependent upon his making a demand cannot postpone the running of the statute of 6 limitation by failing for an unreasonable period to thus assert his right, and unless the demand is 7 made within such period the cause of action is barred.” Phillis v. City of Santa Barbara, 229 Cal. 8 App. 2d 45, 55 (1964). On the other hand, “several California cases indicate that Appellants’ 9 cause of action accrued not when a demand could have been made but when a demand was 10 made.” Huynh v. Chase Manhattan Bank, 465 F.3d 992, 999 (9th Cir. 2006) (citing cases). 11 “[T]he linch-pin of the demand requirement is that the demand must be made within a reasonable 12 time after it can lawfully be made.” Id. (internal quotations omitted). 13 According to defendants, plaintiff’s right to demand arose when they allegedly failed to 14 comply with contractual obligations that required them to “periodically account and, by inference, 15 make payment” to plaintiff. Defs.’ Mot. Dismiss at 11. But plaintiff’s claims here are not 16 premised on defendants’ duty to provide periodic accounting, but instead on defendants’ promises 17 that plaintiff’s investments in the FWL would be apportioned properly when the FWL was sold. 18 For each of plaintiff’s surviving causes of action, plaintiff’s injury occurred when the defendants 19 sold the FWL to Gold Mountain Winery, Inc. in late-2011 and did not make payment to plaintiff. 20 Plaintiff initiated this action on December 5, 2012, well within the statute of limitations as to all 21 claims. 22 Even assuming a demand could have been made earlier, plaintiff argues that equitable 23 estoppel should prevent a finding of untimeliness. Generally, equitable estoppel “addresses the 24 circumstances in which a party will be estopped from asserting the statute of limitations as a 25 defense to an admittedly untimely action because his conduct has induced another into forbearing 26 suit within the applicable limitations period.” Lantzy v. Centex Homes, 31 Cal. 4th 363, 383 27 (2003) (internal quotations omitted). 28 14 1 One aspect of equitable estoppel is codified in Evidence Code section 623, which provides that “[w]henever a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it.” But an estoppel may arise although there was no designed fraud on the part of the person sought to be estopped. To create an equitable estoppel, it is enough if the party has been induced to refrain from using such means or taking such action as lay in his power, by which he might have retrieved his position and saved himself from loss. Where the delay in commencing action is induced by the conduct of the defendant it cannot be availed of by him as a defense.” 2 3 4 5 6 7 8 Lantzy, 31 Cal. 4th at 383 (internal citations and quotations omitted). Here, plaintiff argues that any delay in making a demand was based on defendants’ 9 10 requests for a delay and on their assurances that payment would be made on sale of the FWL. 11 See, e.g., SAC ¶ 12 (“Although Plaintiff never made a demand Defendants knew well that 12 Plaintiff expected to be paid the value of his interest in the property if it were ever disposed”), ¶ 13 24 (“Plaintiff at all times relied upon these promises of protection of his ownership interest in 14 [FWL] which were renewed from time to time by the Defendants . . . . Plaintiff never made a 15 demand because he knew that, as promised by the Defendants, he could not ‘cash in’ until the 16 property was liquidated in one way or another.”); see also Pl.’s Opp’n at 2 ¶ 5 (“Plaintiff, upon 17 written and verbal requests from the Defendants, agreed to wait until liquidation of the assets or a 18 lease which would generate positive cash flow to make a claim for his equity share.”). Because 19 plaintiff has pled facts indicating that defendants’ conduct directly prevented him from making a 20 demand earlier, defendants’ motion to dismiss on this ground should be denied. 21 C. 22 Doctrine of Laches Lastly, defendants argue that plaintiff’s claims for an accounting, quantum meruit, and a 23 resulting trust are barred by laches. “Laches is an equitable defense.” Rouse v. Underwood, 242 24 Cal. App. 2d 316, 323 (1966). “‘The defense of laches requires unreasonable delay plus either 25 acquiescence in the act about which plaintiff complains or prejudice to the defendant resulting 26 from the delay.’” Johnson v. City of Loma Linda, 24 Cal. 4th 61, 68 (2000); Conti v. Board of 27 Civil Service Commissioners, 1 Cal. 3d 351, 359 (1969). Laches does not apply in an action of 28 law. Barkley v. City of Blue Lake, 47 Cal. App. 4th 309, 315 (1996). 15 1 “‘Generally speaking, the existence of laches is a question of fact to be determined by the 2 trial court in light of all the applicable circumstances. . . .’” City of Coachella v. Riverside 3 County Airport Land Use Com., 210 Cal. App. 3d 1277, 1286 (1989). However, the issue may be 4 addressed as one of law if the facts are undisputed. San Bernardino Valley Audubon Society v. 5 City of Moreno Valley, 44 Cal. App. 4th 593, 607 (1996), overruled on other ground, San 6 Bernardino Valley Audubon Society v. Metropolitan Water Dist., 71 Cal. App. 4th 382, 402-03 7 (1999). 8 9 Defendants seek dismissal on the ground that, due to plaintiff’s allegedly unreasonable delay in demanding repayment for his investments, they would be substantially prejudiced by the 10 excessive passage of time since they built, ran and sold a successful business without any input 11 from plaintiff since 1987. Although the defense of laches can be raised by a motion to dismiss 12 where the laches is apparent upon the face of the complaint, see King v. Los Angeles Co. Fair 13 Ass’n, 70 Cal. App. 2d 592, 596 (1945), the Court finds this matter not subject to resolution at 14 this stage because factual disputes exist regarding the reasonableness of plaintiff’s delay and the 15 prejudice to defendants.3 See Sefton v. Sefton, 206 Cal. App. 4th 875, 895 (2012). 16 Accordingly, IT IS HEREBY RECOMMENDED that: 17 1. Defendants’ motion to dismiss (ECF No. 49) be granted in part; 18 2. Plaintiff’s fraud claim be dismissed without leave to amend; 19 3. Plaintiff’s breach of fiduciary duty based on a confidential relationship be dismissed 20 without leave to amend; and 21 4. This matter proceed on plaintiff’s remaining claims (breach of implied contract, 22 breach of fiduciary duty based on a fiduciary / partnership relationship, breach of 23 implied covenant of good faith and fair dealing, resulting trust, and unjust 24 enrichment). 25 3 26 27 28 Alternatively, the problem with defendants’ argument is that plaintiff asserts in the SAC that he complied with defendants’ requests for a delay in demand and relied on assurances that he would be repaid when the FWL was sold. Thus, the delay was principally due to defendants’ alleged false assurances rather than plaintiff’s neglect. Additionally, other than a bare, generalized assertion of prejudice, defendants have not in fact shown any prejudice. 16 1 These findings and recommendations are submitted to the United States District Judge 2 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days 3 after being served with these findings and recommendations, any party may file written 4 objections with the court and serve a copy on all parties. Such a document should be captioned 5 “Objections to Magistrate Judge’s Findings and Recommendations.” Any response to the 6 objections shall be filed and served within fourteen days after service of the objections. The 7 parties are advised that failure to file objections within the specified time may waive the right to 8 appeal the District Court’s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991). 9 DATED: May 23, 2014 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17
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