Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment (order) of the Superior Court of Los Angeles County, Super. Ct. No. BC392676 John P. Shook, Judge.
Law Offices of John A. Belcher, John A. Belcher, and Nicholas W. Song for Plaintiff and Appellant.
Loeb & Loeb, Mark D. Campbell, and Robert J. Catalano; and Sherrill Johnson for Defendant and Respondent.
SUZUKAWA, J.
The parties to this litigation are defendant City National Bank (CNB or the bank) and its former account holder, plaintiff Dietz International Public Adjusters of California, Inc. (Dietz). After Dietz discovered that its employee had embezzled funds from its accounts, Dietz sued CNB for compensatory damages on a breach of implied contract theory. CNB prevailed on its motion for summary judgment after Dietz’s evidence was excluded because it raised a new theory (breach of duties arising from an express agreement) that was not alleged in the complaint.
In this appeal from the judgment, Dietz contends that its evidence was admissible because the complaint, properly construed, alleged a claim for breach of both express and implied agreements. We conclude that because the complaint did not allege the existence or breach of an express agreement, the disputed evidence was properly excluded. Finding no triable issues of material fact, we affirm the judgment.
BACKGROUND
Dietz, a licensed public adjuster, opened three business accounts (a line of credit, an operating account, and a trust account) with CNB in 1999. Dietz’s principals, Donald Lettiere and David Lettiere, and Dietz’s bookkeeper and controller, Jessica Estrada, were authorized to sign on the accounts.
According to the first amended complaint, the operative pleading, Estrada began embezzling funds from the accounts in early 2005. Estrada forged the endorsements of Dietz’s clients on insurance settlement checks that were payable to Dietz and its clients, deposited the checks into Dietz’s trust account, and then diverted the funds to herself “through a variety of schemes and artifices. Estrada hid her illegal activities by, inter alia, constantly moving money between Dietz’s accounts, creating forged statements, creating forged endorsements, making excessive wire transfers, writing excessive numbers of checks and improperly accessing the [line of credit].”
Dietz discovered the embezzlement in April 2006, after learning that a $91,000 check drawn on Dietz’s account and a replacement check drawn on Dietz’s line of credit had bounced. When the Lettieres met with CNB to discuss the bounced checks, they were informed “that there were virtually no funds available from the credit line, ... that certain banking documents were forgeries, and that an enormous and inordinate number of checks had been rejected due to insufficient funds. This was not characteristic of Dietz’s banking history with CNB, but until Dietz actually confronted CNB, it had never been notified by CNB of activity which CNB conceded was suspicious.” After meeting with the bank, the Lettieres “immediately confronted Estrada who confessed that she had been embezzling money for at least the last 2-3 years and had finally gotten to the point where she could no longer cover it up; she also confessed that she had been forging statements and third party payee signatures. Estrada has since been indicted and convicted of embezzling $2,068,151.93 from Dietz and ordered to pay this same amount in restitution.”
On October 10, 2007, Dietz filed the present action against CNB for compensatory damages based on a theory of breach of implied contract. The complaint’s principal allegations were that: (1) Dietz had opened the accounts in reliance upon CNB’s warranties made in advertisements, brochures, and verbal statements that it “possessed special expertise and was uniquely positioned to detect and prevent fraudulent transactions and embezzlement”; (2) as a result of Dietz’s reliance on CNB’s warranties, the parties had an implied contract that CNB would detect and prevent fraudulent transactions and embezzlement; (3) Dietz “depended and relied upon CNB to communicate with its principals concerning any discrepancies, red flags, suspicious transactions, and/or questions regarding its account(s) activity, consistent with CNB’s express and implied representations, warranties and promises to detect and prevent fraudulent transactions and embezzlement”; (4) CNB breached the implied contract when, “despite acknowledging awareness of a prolonged period of suspicious activity in Dietz’s accounts, [CNB] failed to question the activity, or make any effort whatsoever to perform consistent with its obligations under the implied contract between itself and Dietz, which Dietz and its principals understood included, as part of CNB’s business banking services, the detection and prevention of fraudulent transactions and embezzlement”; and (5) as a result of CNB’s failure to perform in a manner consistent with its obligations under the implied contract, Dietz was entitled to compensatory damages for “CNB’s breach of agreement.”
Although the complaint was not actually filed on October 10, 2007, the parties have stipulated to that date pursuant to a tolling agreement.
CNB moved for summary judgment on several theories. Given that the trial court did not rule on all of them, we will focus our discussion accordingly. In particular, we will not discuss CNB’s statute of limitations defense, which the trial court did not reach.
I. CNB’s Motion for Summary Judgment
The first ground for CNB’s summary judgment motion was Dietz’s fatal admission that there was no implied contract between the parties. CNB argued that the complaint had alleged only one theory of liability, which was based on CNB’s warranties “that it possessed special expertise and was uniquely positioned to detect and prevent fraudulent transactions and embezzlement” (the warranty allegation). CNB contended that Dietz abandoned the warranty allegation when Donald Lettiere testified at his deposition that CNB had never represented or warranted that it possessed special expertise and was uniquely positioned to detect and prevent fraudulent transactions and embezzlement. Based on Lettiere’s disavowal of the warranty allegation, CNB argued that Dietz had made a fatal admission that the complaint was meritless. CNB stated that, “In light of Dietz’s admissions at deposition, Dietz’s cause of action for breach of implied contract fails as a matter of law because the purported ‘conduct’ on which this cause of action is based is nonexistent.”
The second ground for CNB’s summary judgment motion was Dietz’s inability to prove the existence of an implied agreement that was at odds with the parties’ express agreements. In support of this contention, CNB submitted the 1997 and 2003 agreements (neither of which was mentioned in the complaint), which allegedly governed the parties’ relationship and set forth the terms and conditions for the accounts. CNB argued that any attempt by Dietz to establish a violation of implied terms and conditions not expressed in the 1997 and 2003 agreements must fail as a matter of law, because there “cannot be a valid, express contract and an implied contract, each embracing the same subject matter, existing at the same time. [Citations.]” (Wal-Noon Corp. v. Hill (1975) 45 Cal.App.3d 605, 613.) CNB argued that Dietz’s “clever pleading” had ignored “the parties’ express agreements, and duties under those agreements, ” in order to allege “the existence of an implied contract.”
CNB contended that under the express terms and conditions of the 1997 and 2003 agreements, the bank was not liable for Estrada’s fraud and embezzlement as a matter of law, because Dietz had expressly agreed that CNB “would not physically examine each item presented for payment to determine if it was properly signed, drawn, indorsed or dated, ” and that CNB “would rely on mechanical processing using MICR figures encoded along the bottom strip of the checks. [Record citation omitted.]” In addition, CNB argued that Dietz had expressly agreed that “‘the system employed by [CNB], including paying checks by use of a MICR line, and as the process may change from time to time, represents ordinary care [by CNB], is not negligent, is commercially reasonable and in good faith.’ [Record citation omitted.]” CNB asserted that, “In light of the parties’ express agreements acknowledging that CNB would not physically review checks, and... that CNB’s check processing is ‘commercially reasonable, ’ any claim by Dietz that CNB breached an alleged implied agreement for failing to discovery [sic] forged or altered checks fails as a matter of law.”
II. Dietz’s Opposition to the Motion
In opposition to the motion, Dietz denied that it was bound by the 1997 and 2003 agreements, which, according to the declarations of Donald Lettiere and David Lettiere, were neither shown nor given to the Lettieres prior to this litigation.
In order to create a triable issue of material fact, Dietz submitted the 1999 account agreements, which it contended were the controlling agreements that the Lettieres had signed when they opened the accounts. Dietz relied on the following provision in the 1999 account agreements to establish that it was entitled to select the applicable security procedures for the accounts: “The person(s) listed as Authorized Signer(s) on this form are authorized to withdraw funds, initiate and confirm payment orders pursuant to the security procedure selected, and otherwise give instructions on behalf of the customer with respect to its deposit accounts.” (Italics added.) Dietz submitted Donald Lettiere’s declaration to show that when the 1999 account agreements were signed, the Lettieres had selected numerous security procedures that the bank allegedly did not follow.
Based on its evidence that the Lettieres did not receive the 1997 and 2003 agreements prior to this litigation, Dietz contended that the terms and conditions in those agreements were not controlling and, therefore, did not preclude Dietz from relying on the security procedures that were selected pursuant to the 1999 account agreements that were signed when the accounts were opened. Given that each side had presented different sets of controlling agreements, Dietz stated: “Both parties agree that express written terms control. The parties, however, disagree on which documents constitute written contracts. Dietz contends that Business Account Agreements, Exhibits A and B, are the only written contracts. The breach of Exhibits A and B was a breach of express contracts, not a breach of implied contracts.”
III. The Trial Court’s Ruling
In granting the summary judgment motion, the trial court did not determine which set of agreements governed the parties’ relationship. Instead, it determined that Dietz had failed to establish the existence of a triable issue of material fact for the following reasons: (1) the warranty allegation, which was the sole factual basis for the breach of implied contract claim, had been repudiated by Donald Lettiere’s testimony; and (2) the 1999 account agreements and security procedures were inadmissible because they raised a new theory of liability-the bank’s failure to comply with the security procedures that were selected under the 1999 agreements-that exceeded the scope of the complaint.
The trial court explained its exclusion of the 1999 account agreements and security procedures as follows. “The [complaint] is based upon an ‘implied agreement and warranties, ’” but Dietz’s opposition is based upon the “‘express terms’ of the ‘agreed security procedure’ of requiring endorsement guarantees on checks with multiple payees as set forth in the Business Account Agreements. [Record citation omitted.] It is well-established that ‘[t]he pleadings serve as the “outer measure of materiality” in a summary judgment motion, and the motion may not be granted or denied on issues not raised by the pleadings.’ (See Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2008) [¶] 10:17, p. 10-3.) Plaintiff’s new theory of liability therefore does not defeat defendant’s motion for summary judgment.”
Given Dietz’s repudiation of the sole factual basis of the complaint and the inadmissibility of the 1999 account agreements and security procedures, the trial court stated that Dietz had failed to raise “a triable issue as to the existence of an implied-in-fact contract.” After granting the summary judgment motion on this basis, the trial court entered judgment for CNB. Dietz timely appealed from the judgment.
DISCUSSION
Summary judgment is appropriate only where no material issue of fact exists or where the record establishes as a matter of law that none of the causes of action has merit. After examining the facts before the trial judge on a summary judgment motion, an appellate court independently determines their effect as a matter of law. (Nicholson v. Lucas (1994) 21 Cal.App.4th 1657, 1664.)
Dietz contends that the trial court erroneously excluded the 1999 account agreements and security procedures based on an unduly narrow reading of the complaint. Dietz argues that the complaint, properly construed, stated a claim for breach of duties arising under an express agreement (the security procedures selected under the 1999 account agreements). In opposition, CNB argues that the trial court properly excluded Dietz’s evidence based on a correct interpretation of the complaint, which, in any event, was not timely filed. For the reasons that follow, we conclude that the 1999 account agreements and security procedures were properly excluded because they raised a new theory that was not alleged in the complaint, and that the remaining evidence failed to create a triable issue of material fact concerning the existence of an implied contract.
I. The General Relationship Between the Pleadings and the Factual Submissions of the Parties in Summary Judgment Proceedings
The general relationship between the pleadings and the factual submissions of the parties in a summary judgment proceeding was discussed in FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367 as follows:
“In a summary judgment proceeding the factual submissions of the parties must track [the facts put in issue by the pleadings] by providing evidence of the ultimate facts averred. Because of this relationship, in the absence of an appropriate objection, some defects in the pleading of an ultimate fact may be remedied by resort to a factual showing in the summary judgment proceeding. In this manner the pleadings may be read together with the factual showings in the summary judgment proceeding for purposes of discerning what is in issue.
“The procedure for resolving a summary judgment motion presupposes that the pleadings are adequate to put in issue a cause of action or defense thereto. [Citation.] However a pleading may be defective in failing to allege an element of a cause of action or in failing to intelligibly identify a defense thereto. In such a case, the moving party need not address a missing element or, obviously, respond to assertions which are unintelligible or make out no recognizable legal claim. The summary judgment proceeding is thereby necessarily transmuted into a test of the pleadings and the summary judgment motion into a motion for judgment on the pleadings. In these circumstances it has been said that a defendant’s ‘motion for summary judgment necessarily includes a test of the sufficiency of the complaint and as such is in legal effect a motion for judgment on the pleadings.’ [Citation.] Similarly, a plaintiff’s motion for summary judgment necessarily includes a test of the sufficiency of the answer. [Citation.]” (FPI Development, Inc. v. Nakashima, supra, 231 Cal.App.3d at p. 382.)
The principle that a plaintiff may not raise a new theory of liability in opposition to a summary judgment motion was applied in City of Hope Nat. Medical Center v. Superior Court (1992) 8 Cal.App.4th 633. In that case, the appellate court held that because the complaint did not directly or indirectly allege a claim of fraud, the plaintiff could not oppose the defendant’s summary judgment motion “with a claim of fraud. (Robinson v. Hewlett-Packard Corp. (1986) 183 Cal.App.3d 1108, 1132 [a plaintiff opposing summary judgment may not advance a new unpleaded legal theory to defeat the motion]; [citation].)” (City of Hope Nat. Medical Center v. Superior Court, supra, 8 Cal.App.4th at p. 639.)
II. The Complaint Did Not Allege a Claim for Breach of Duties Arising From an Express Contractual Relationship
Dietz contends that notwithstanding the label-breach of implied contract-that was used in the complaint, the complaint’s allegations were sufficient to state a claim for breach of duties arising from the parties’ express agreements. Dietz argues that, “[d]isregarding the labels, the First Amended Complaint ‘minimally’ advised the defendants of the theory of plaintiff. Through both express and implied representations, Defendant had an ‘agreement’ to impose certain security procedures which were breached.” “The facts unequivocally allege that the security procedure was established by express and implied representations.”
Dietz relies on the following allegations to allege a claim for breach of duties arising from the parties’ express agreements: (1) CNB made “express and implied representations, warranties and promises to detect and prevent fraudulent transactions and embezzlement”; (2) Dietz “depended and relied upon CNB to communicate... any discrepancies, red flags, suspicious transactions, and/or questions regarding its account(s) activity, consistent with CNB’s express and implied representations, warranties and promises to detect and prevent fraudulent transactions and embezzlement in exchange for Dietz’s business, ” and (3) as a result of CNB’s failure to perform in a manner consistent with its obligations under the parties’ implied contract, Dietz is entitled to compensatory damages for “CNB’s breach of agreement.”
We are not persuaded. In our view, the above allegations do not allude to the existence of an express agreement between the parties, nor do they state a claim for breach of an express agreement. We therefore conclude that the sole theory of liability alleged in the complaint was the claim for breach of implied contract.
In light of our determination that the complaint did not allege a claim for breach of express contract, we find that Dietz’s evidence in opposition to the summary judgment motion raised a new cause of action-breach of duties or obligations arising from the parties’ express agreements-that was not alleged in the complaint. As the trial court correctly held, a plaintiff may not oppose a summary judgment motion with evidence of a new theory of liability that was not alleged in the complaint. (City of Hope Nat. Medical Center v. Superior Court, supra, 8 Cal.App.4th at p. 639 [because the complaint did not directly or indirectly allege a claim of fraud, the plaintiff could not oppose the summary judgment motion with a claim of fraud]; Robinson v. Hewlett-Packard Corp., supra, 183 Cal.App.3d at p. 1132 [the plaintiff may not oppose a summary judgment with a new unpleaded legal theory].)
In light of Dietz’s repudiation of the warranty allegation and the exclusion of the 1999 account agreements and security procedures, we conclude the remaining evidence was insufficient to create a triable issue of material fact concerning the existence of an implied contract to detect and prevent fraud and embezzlement.
III. There Was No Waiver by CNB
Dietz alternatively argues a theory of waiver. It contends that CNB waived its objection to the defect in the complaint by arguing below that the claim for breach of implied contract must fail in light of the complete defense provided by the 1997 and 2003 agreements.
We conclude that the waiver theory lacks merit. By seeking summary judgment on the ground that Dietz was incapable of prevailing on its claim for breach of implied contract, which was the sole claim alleged in the complaint, CNB did not waive the objection that Dietz’s new theory of liability was not alleged in the complaint.
Contrary to the assertion in Dietz’s opening brief, CNB did not argue the merits of the new theory, nor did it address the security procedures that allegedly were selected when the accounts were opened. Instead, CNB argued that the new theory must be disregarded because it was not alleged in the complaint. CNB stated below: “In an effort to create triable issues of fact, and ignoring well-settled law, Dietz presents no fewer than five new legal theories in its Opposition. None of these theories is alleged in, or otherwise suggested by, the [first amended complaint]. Those theories include breach of written contract...; breach of oral contract...; negligence (i.e., breach of duty of care)...; unconscionability...; and aiding and abetting breach of fiduciary duty (i.e., ‘substantial assistance’).... [¶] The law in California is clear. Dietz may not use these new legal theories to create triable issues of fact. Distefano v. Forester, 85 Cal.App.4th 1249, 1264-1265 (2001). ‘To allow a party to expand its pleadings by way of opposition papers creates, as it would here, an unwieldy process.’ Laabs v. City of Victorville, 163 Cal.App.4th 1242, 1258 (2008). Rather, the pleadings delimit the issues to be considered on a motion for summary judgment. Turner v. State of California, 232 Cal.App.3d 883, 891 (1991).”
Stalnaker v. Boeing Co. (1986) 186 Cal.App.3d 1291 supports our determination that the facts in this case do not support a waiver. In Stalnaker, the plaintiffs had opposed the defendants’ summary judgment motion with a new theory of fraud that was then addressed on the merits by the defendants in their reply papers. The appellate court found that by addressing the new theory on the merits, the defendants had forfeited any objection to “plaintiffs’ irregular mode of pleading and argument. Plaintiffs could clearly have moved the court for leave to amend and to defer ruling on the summary judgment motion until the amendment had been granted. [Citations.]” (Id. at p. 1302.) We distinguish this case from Stalnaker because, unlike the defendants in that case, CNB did not address the merits of Dietz’s new theories. Similarly, we distinguish this case from Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175, which is cited by Dietz for the proposition that by addressing on the merits a defense that was not alleged in the answer, the plaintiff had waived the defendant’s pleading defect. There was no waiver of the pleading defect in this case.
DISPOSITION
The judgment and the order granting the motion for summary judgment are affirmed. CNB is awarded its costs on appeal.
We concur: EPSTEIN, P.J.WILLHITE, J.