Rutherford Holdings, LLC (Rutherford), appeals from a judgment of dismissal entered after the trial court sustained demurrers without leave to amend filed by defendants Plaza Del Rey (PDR) and Shereen Caswell (Caswell) (collectively defendants).
Rutherford contracted to purchase a mobilehome park from PDR. Pursuant to the purchase agreement, Rutherford delivered a $3 million deposit to PDR, which the agreement provided was nonrefundable unless PDR materially breached the purchase agreement or failed or refused to close. The closing date came and went and neither party performed; PDR never tendered the deed to Rutherford, and Rutherford never tendered the full purchase price to PDR. Rutherford sued to recover the deposit under various theories of recovery.
Defendants successfully demurred to Rutherford's initial complaint and first amended complaint, but Rutherford was — in large part — granted leave to amend those pleadings. The court sustained defendants' demurrers to Rutherford's second amended complaint without leave to amend. We reverse the judgment with directions and remand.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Purchase Agreement and the Parties' Failure to Tender Performance
On May 23, 2008, Rutherford and PDR entered into a purchase agreement under which Rutherford agreed to buy, and PDR agreed to sell, a parcel of
The purchase agreement also contained a liquidated damages provision in section 6.2, which provided that if Rutherford breached the purchase agreement, PDR would be "entitled, as [its] sole and exclusive remedy, to retain the deposit as liquidated damages," and that "[s]uch retention of the deposit by [PDR] is intended to constitute liquidated damages ... pursuant to sections 1671, 1676 and 1677 of the California Civil Code...."
The parties amended the purchase agreement to extend the closing date to January 15, 2009. In January 2009, Rutherford asked Caswell whether PDR was interested in providing "seller financing" to Rutherford in connection with the purchase. Caswell responded that PDR would consider providing seller financing, and the parties again amended the purchase agreement to extend the closing date, this time to March 31, 2009.
Prior to the March 2009 closing date and while the parties were in discussions regarding seller financing, Caswell told Rutherford that PDR could reduce its tax obligations if it was not in contract to sell the property. According to Caswell, if the purchase did not close and the closing date was not extended in writing, PDR could pay taxes on the property's appraised value, as opposed to the higher agreed purchase price. Caswell promised Rutherford that PDR would sell Rutherford the property after the closing date and after PDR had filed its tax returns in mid to late 2009. She explained that PDR did not want to document that in the agreement because doing so could undermine PDR's ability to use the property's appraisal value to obtain a tax benefit.
In reliance on Caswell's representations, Rutherford did not tender the full purchase price on March 31, 2009, but it "could have and would have" done so absent those representations. At a meeting about the seller financing option on April 6, 2009, Caswell again represented to Rutherford that PDR would sell Rutherford the property after filing its tax returns. On October 26, 2009, PDR informed Rutherford that the purchase agreement was no longer in place and that Rutherford had "lost" its $3 million deposit.
B. The Initial Complaint and Demurrer
On July 1, 2010, Rutherford filed its initial complaint against defendants, alleging causes of action for (1) money had and received; (2) unjust
C. The First Amended Complaint and Demurrer
Rutherford filed a first amended complaint on February 9, 2011, again alleging claims for (1) money had and received; (2) unjust enrichment; (3) conversion; (4) promissory estoppel; (5) declaratory relief; and (6) promissory fraud. Rutherford also added a claim for breach of contract, alleging that PDR breached its contractual obligation to return the deposit to Rutherford in the event PDR failed to close the sale.
Rutherford again alleged alter ego liability against Caswell, and the court concluded those allegations were sufficient. The trial court sustained PDR's demurrer without leave to amend the claims for conversion, promissory estoppel, and declaratory relief. The court's order granted Rutherford leave to amend its breach of contract, promissory fraud, money had and received, and unjust enrichment causes of action.
D. The Second Amended Complaint and Demurrer
In its second amended complaint, Rutherford asserted claims for (1) breach of contract; (2) promissory fraud; (3) money had and received; and (4) unjust enrichment. Defendants again demurred, and the court sustained the demurrers without leave to amend. On March 14, 2012, the trial court entered a judgment of dismissal against Rutherford. Rutherford timely filed its notice of appeal on May 7, 2012.
A. The Standard of Review
We review an order sustaining a demurrer de novo, exercising our independent judgment as to whether a cause of action has been stated as a matter of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125 [271 Cal.Rptr. 146, 793 P.2d 479].) Because a demurrer tests only the legal sufficiency of the pleading, the facts alleged in the pleading are deemed to be true. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034 [100 Cal.Rptr.3d 875].) We do not review the validity of the trial court's reasoning, and therefore will affirm its ruling if it was correct on any theory. (Ibid.) Nor are we "limited to plaintiff['s] theory of recovery in testing the sufficiency of [its] complaint against a demurrer, but instead must determine
"Where a demurrer is sustained without leave to amend, [we] must determine whether there is a reasonable probability that the complaint could have been amended to cure the defect; if so, [we] will conclude that the trial court abused its discretion by denying the plaintiff leave to amend. [Citation.] The plaintiff bears the burden of establishing that it could have amended the complaint to cure the defect." (Berg & Berg Enterprises, LLC v. Boyle, supra, 178 Cal.App.4th at p. 1035.)
B. Breach of Contract Claim
Rutherford contends that it can, however, sue PDR for breaching its separate contractual obligation to return the deposit where it "fail[s] or refus[es] to close" under section 1.2, and Rutherford is not in breach.
The parties' dispute reflects their competing interpretations of the purchase agreement. Though not apparent from the complaint, Rutherford's appellate brief clarifies that, in its view, the phrases "material breach" and "failure or refusal to close" in section 1.2 must be given independent meaning, such that PDR may be required to return the deposit not only when it is in material breach of the agreement (i.e., fails to deliver the deed), but also when it otherwise "fail[s] or refus[es] to close." Rutherford's brief also sets forth, somewhat inarticulately, its view that PDR's promise to return the deposit was independent of Rutherford's promise to tender the full purchase price, such that Rutherford's own nonperformance does not excuse PDR's failure to return the deposit. (Verdier v. Verdier (1955) 133 Cal.App.2d 325, 334 [284 P.2d 94] ["[i]f the [two] covenants are independent, breach of one does not excuse performance of the other"].) Defendants, by contrast, appear to equate the phrases "material breach" and "failure or refusal to close" in section 1.2. They also maintain that Rutherford's nonperformance excused all of PDR's contractual duties.
Here, the purchase agreement is reasonably susceptible of the meaning Rutherford ascribes to it. "While [that] interpretation ... ultimately may prove invalid," at the pleading stage, it is sufficient that the agreement is reasonably susceptible of this meaning. (Aragon-Haas, supra, 231 Cal.App.3d at p. 239.) That said, because Rutherford did not allege this interpretation in its complaint, the court correctly sustained the demurrer. (Ibid.) However, we conclude Rutherford should be given the opportunity to amend its complaint to allege its reasonable interpretation of the purchase agreement and facts showing that PDR "fail[ed] or refus[ed] to close" in some manner other than by materially breaching the agreement by not tendering the deed. If Rutherford can amend its complaint in this manner, it may be able to state
C. Money Had and Received Claim
For the foregoing reasons, we conclude the trial court erred in sustaining the demurrer as to the money had and received cause of action.
D. Unjust Enrichment Claim
"[A]n action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter." (Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203 [51 Cal.Rptr.2d 622].) However, "restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason." (McBride v. Boughton, supra, 123 Cal.App.4th at p. 388.) Thus, a party to an express contract can assert a claim for restitution based on unjust enrichment by "alleg[ing in that cause of action] that the express contract is void or was rescinded." (Lance Camper Manufacturing Corp. v. Republic Indemnity Co. supra, at p. 203.) A claim for restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1389 [137 Cal.Rptr.3d 293].)
In its claim seeking restitution, Rutherford does not allege that the deposit is not covered by the purchase agreement. Rather, it alleges that if the agreement "provided for a non-refundable deposit regardless of whether
Defendants respond that the deposit constitutes a forfeiture only if PDR was able to sell the property to another buyer for more than the $110 million purchase price set forth in the purchase agreement. For that argument, defendants rely on cases in which the seller profited from the buyer's breach by selling the property for more than the defaulting buyer had agreed to pay. In those cases, the courts reasoned that allowing the seller to retain the buyer's deposit would work a forfeiture because the amount of the deposit far exceeded the damages the seller suffered, if any. (See Kuish v. Smith (2010) 181 Cal.App.4th 1419, 1422 [105 Cal.Rptr.3d 475] [where plaintiff cancelled escrow, "defendants' retention of $600,000 of plaintiff's deposit constitutes an invalid forfeiture ..." because "defendants sold the property for $1 million more than plaintiff had agreed to pay ... [and did] not contend they suffered $600,000 in actual damages as a result of plaintiff's actions"]; Freedman v. The Rector (1951) 37 Cal.2d 16 [230 P.2d 629].) Those cases are inapposite here, as Rutherford is not in breach because PDR did not tender the deed. (Ninety Nine, supra, 113 Cal.App.4th at pp. 1134-1135.)
As noted above, defendants also suggest that the deposit was an option payment, in which case PDR's retention would not constitute an invalid forfeiture. While that interpretation of the purchase agreement may eventually prevail, we conclude that Rutherford stated a quasi-contract claim for restitution based on unjust enrichment. In particular, we conclude Rutherford adequately alleged a reasonable interpretation of the purchase agreement under which section 1.2 is void to the extent it permits PDR to retain the deposit when Rutherford has not breached, and that PDR has been unjustly enriched by retaining the deposit. Accordingly, we conclude the trial court erred in sustaining the demurrer as to the claim for restitution based on unjust enrichment.
E. Conversion Claim
Rutherford alleges that PDR converted the deposit when it refused to return it to Rutherford after failing to close. Rutherford did not have actual possession of the deposit at that time. Rather, it argues that it owned the deposit and had a right to possess it. According to Rutherford, title to the deposit never transferred to PDR because PDR never became entitled to liquidated damages. That theory differs from the complaint, where Rutherford premised its ownership right on PDR's breach, alleging that Rutherford "was the sole owner of the Deposit," "as of the passing of the close of escrow date." While that does not preclude us from considering the argument on appeal (B & P Development Corp. v. City of Saratoga (1986) 185 Cal.App.3d 949, 959 [230 Cal.Rptr. 192]), we conclude title did transfer to PDR, such that Rutherford cannot establish ownership.
F. Promissory Fraud Claim
Rutherford's allegations are insufficient to satisfy the heightened pleading standard for fraud actions. Rutherford adequately alleges misrepresentations. In particular, it alleges that in March 2009, prior to the closing date, PDR (through Caswell) "promised and represented to [Rutherford] ... that PDR would agree to sell the Subject Property and to close the Agreement after the scheduled Closing Date." Rutherford further alleges that in April 2009 Caswell again represented that PDR would sell the property to Rutherford in mid to late 2009. According to Rutherford's allegations, in October 2009 defendants reneged on those promises.
Rutherford also alleges scienter and intent to defraud, alleging that defendants knew these promises were false when they were made, and that defendants made them with the intent to deprive Rutherford of its deposit by inducing Rutherford not to tender performance.
However, Rutherford's reliance allegations lack sufficient factual content. Rutherford alleges that "[i]n reliance upon Defendants' representations, [it] did not tender payment of the purchase amount prior to the Closing Date," and that, "[b]ut for Defendants' representations ... [it] could have and would have" done so. With regard to its ability to perform, Rutherford also alleges that "at all times before the Closing Date, [it] could have obtained the necessary financing to perform its payment obligation under the Agreement prior to the Closing Date" but that it "continued to explore the most advantageous financing terms available." Rutherford fails to allege facts
For these reasons, we conclude the trial court correctly sustained the demurrers as to the promissory fraud claim. We also conclude the court did not abuse its discretion in denying Rutherford leave to amend its pleading with respect to its fraud claim as Rutherford has failed to meet its burden of demonstrating a reasonable possibility that an amendment could cure the pleading defects we have identified.
G. Rutherford's Alter Ego Allegations Were Sufficient
Defendants argue that even if we reverse the judgment as to PDR, we should not reverse it as to Caswell because Rutherford failed to adequately allege that Caswell and PDR are alter egos. We conclude that Rutherford made sufficient allegations of alter ego to avoid a demurrer.
Rutherford alleged that Caswell dominated and controlled PDR; that a unity of interest and ownership existed between Caswell and PDR; that PDR was a mere shell and conduit for Caswell's affairs; that PDR was inadequately capitalized; that PDR failed to abide by the formalities of corporate existence; that Caswell used PDR assets as her own; and that recognizing the separate existence of PDR would promote injustice. These allegations mirror those held to pass muster in First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915-916 [73 Cal.Rptr. 657]. As in First Western,
The judgment of dismissal is reversed and the cause is remanded to the superior court with directions to vacate its order sustaining defendants' demurrers to the second amended complaint without leave to amend and to enter a new order (1) sustaining the demurrers as to the second cause of action for promissory fraud, without leave to amend; (2) overruling the demurrers as to the third cause of action for money had and received and the fourth cause of action for unjust enrichment/restitution; and (3) sustaining the demurrers as to the first cause of action for breach of contract and granting Rutherford leave to file a third amended complaint with respect to that cause of action only. The parties shall bear their own costs on appeal.
Rushing, P. J., and Márquez, J., concurred.