Opinion
G053047
08-07-2017
BILL BHASKAR et al., Plaintiffs and Appellants, v. FARMERS & MERCHANTS BANK, Defendant and Respondent.
Law Office of Foroozandeh and Majid Foroozandeh, for Plaintiffs and Appellants. Law Offices of Michael Leight, Michael Leight and John Gloger, for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2013-00682081) OPINION Appeal from an order of the Superior Court of Orange County, Kirk H. Nakamura, Judge. Affirmed in part and reversed in part, with directions. Law Office of Foroozandeh and Majid Foroozandeh, for Plaintiffs and Appellants. Law Offices of Michael Leight, Michael Leight and John Gloger, for Defendant and Respondent.
* * *
Bill Bhaskar and the medical practice he incorporated under his name, Bill Bhaskar, M.D., Inc., (collectively Bhaskar) appeal from an order of dismissal after the trial court sustained a demurrer by Farmers & Merchants Bank (F&M) without leave to amend certain causes of action in Bhaskar's third amended complaint. The court granted Bhaskar leave to amend to plead other causes of action in a fourth and then a fifth amended complaint before ultimately sustaining F&M's demurrer without leave to amend the fifth complaint. As we explain, Bhaskar's third amended complaint stated a cause of action for common law negligence under Sun 'n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671 (Sun 'n Sand) when a person not indebted to a bank writes or endorses substantial checks to the bank as the payee of the checks, but the bank deposits the funds to a third party's account without inquiry, enabling a fraud.
Bhaskar voluntarily dismissed with prejudice his putative sixth amended complaint after the trial court concluded it constituted under Code of Civil Procedure section 1008 an untimely motion for reconsideration of the court's order sustaining without leave to amend F&M's demurrer to the fifth amended complaint. While voluntary, dismissals with prejudice nevertheless support appellate jurisdiction when, as here, they are intended to expedite appeal and are "'not truly a voluntary relinquishment of the action.'" (Austin v. Valverde (2012) 211 Cal.App.4th 546, 551.) F&M does not contend otherwise. In his opening brief, Bhaskar asserted his sixth amended complaint properly pled causes of action in addition to those in his third amended complaint, but in his reply brief he expressly withdraws that contention.
But Bhaskar fails to meet his burden to show on the same basic facts that he stated causes of action in the third amended complaint for conversion under Commercial Code section 3420 (all further statutory references are to this code) and a common count for money had and received. We therefore reverse the entry of dismissal with respect to the negligence cause of action and direct the court to enter a new order overruling the bank's demurrer to that cause of action in the third amended complaint, and we affirm in all other respects.
I
DISCUSSION
"Because this appeal is from a pretrial ruling sustaining demurrers without leave to amend, our recitation of the facts assumes the truth of all facts properly pleaded by the plaintiff-appellant [citations], and likewise accepts as true all facts that may be implied or inferred from those [he] expressly alleges. [Citation.]" (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 264.) A demurrer tests the legal sufficiency of factual allegations in a complaint. (Title Ins. Co. v. Comerica Bank—California (1994) 27 Cal.App.4th 800, 807.) A trial court's ruling sustaining a demurrer is erroneous if the facts alleged by the plaintiff state a cause of action under any possible legal theory. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879 (Cantu).) On appeal from a judgment of dismissal after a demurrer has been sustained without leave to amend, the plaintiff has the burden of proving error. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 (Schifando).) "Because the trial court's determination is made as a matter of law, we review the ruling de novo." (Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1423.)
Preliminarily, we begin with a brief introduction to the arcane language of negotiable instruments, which involves many "terms of art." (HH Computer Systems, Inc. v. Pacific City Bank (2014) 231 Cal.App.4th 221, 227 (HH Computer Systems).) "'A few basic concepts are useful to facilitate the discussion. A check typically involves three parties, (1) the "drawer" who writes the check, (2) the "payee", to whose order the check is made out, and (3) the "drawee" or "payor bank", the bank which has the drawer's checking account from which the check is to be paid. In form, a check is an order to the drawee bank to pay the face amount of the check to the payee. After receiving the check, the payee typically indorses it on the back in the payee's own name, and then deposits it in the payee's account in a different bank, the "depositary bank". The depositary bank credits the check to the payee's account, and sends the check through the check clearing system to the payor bank for ultimate payment from the drawer's account. . . . Any bank handling the check for collection, including the depositary bank but excluding the payor bank, is referred to as a "collecting bank."'" (Mills v. U.S. Bank (2008) 166 Cal.App.4th 871, 881, fn. 10.)
We consider in turn each of the causes of action Bhaskar claims he properly pleaded below. A. Negligence
Bhaskar alleged in his third amended complaint that Abdul S. Walji and his company, Calpension, Inc., "solicited plaintiff's business as . . . Employee Benefit Consultants," representing "that they had the knowledge and experience to manage and maintain plaintiff's investments [and] that they would invest the funds with F&M, which paid minimum interest[] but said Bank was virtually risk-free . . . ."
Bhaskar agreed to use Walji's services to plan a secure retirement, but did not give Walji any investment funds directly. Instead, over a period of several years, Bhaskar made out checks totaling $1.4 million payable to F&M or, if Bhaskar was the payee on a check (as from his medical practice, for example), he endorsed the check on the back to F&M as the new payee. The initial check was in the amount of $172,500. An additional check for $222,500 followed approximately six months later. In total, Bhaskar made out or endorsed 17 checks payable to F&M, all in amounts for $50,000 or more, with one low outlier of $4,787, albeit in a month's span of checks totaling nearly $300,000. The checks all included on their face Bhaskar's personal address and phone number or his medical practice's contact information.
Walji hand-delivered the checks to an F&M branch in Lake Forest, where F&M acceded to "Walji's request to have the plaintiffs' checks diverted and thus credited to his account." According to the complaint, F&M, as the payee, "endorsed plantiffs' checks and then deposited plaintiffs' checks without plaintiffs' permission or consent into a third party account in the name of Abdul Walji." (Italics in original.) Specifically, F&M credited the deposit to a "Stone-Lamm Trust" bank account at F&M though the trust was not the named payee, nor was Bhaskar listed on the Stone-Lamm bank account, and nothing indicated he was associated with that account; instead, Walji was its sole authorized signor. For his part, "[i]n order to conceal the misappropriation," Walji then "provided false and fraudulent pension plan statements to plaintiff which purported to show that plaintiffs' capital accounts were increasing in value."
Bhaskar's third amended complaint alleged that "[w]hen a bank named as payee on a check receives and negotiates the check, as here, it holds the funds for the use of the drawer, (the plaintiffs) and if the bank diverts the funds to an unauthorized third party, as here, including a bank customer, it does so at its own risk/peril." In particular, closely tracking language in Sun 'n Sand, Bhaskar alleged F&M owed a duty of care that "was activated when dishonest and unfaithful Abdul Walji, according to F&M, instructed F&M to divert each check, not insignificant in amounts, and drawn payable to the order of F&M, and only F&M . . . . Those instructions suggest a possible fraud and misappropriation sufficiently suspicious to alert F&M that plaintiffs' funds were being unlawfully diverted so that F&M should have and could have made reasonable inquiries of the plaintiffs." Alternatively, Bhaskar noted F&M "could have refused to receive the checks." Quoting Sun 'n Sand, Bhaskar asserted, "By making reasonable inquiries, [the bank] could have discovered the fraudulent scheme and prevented its success." Bhaskar alleged that in failing to make even a cursory inquiry or refusing the checks, "F&M breached its duty and proximately caused the loss of $1,440,00.00."
Bhaskar discovered Walji's fraud when he unsuccessfully attempted to reach him, only to learn he had been arrested by the FBI, indicted by a grand jury for misappropriating pension funds, and later convicted and imprisoned in a Texas federal prison.
To state a cause of action for negligence, a plaintiff must plead that (1) the defendant owed a duty of care to the plaintiff, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff's injuries. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1145.) "'"The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion. [Citations.] Whether this essential prerequisite to a negligence cause of action has been satisfied in a particular case is a question of law to be resolved by the court." [Citations.]' [Citation.]" (Paz v. State of California (2000) 22 Cal.4th 550, 559.)
Bhaskar's negligence allegation falls squarely within the duty of care recognized in Sun 'n Sand. There, the plaintiff company had an employee prepare a number of checks payable to the defendant bank, duly signed by the plaintiff's corporate officer. (Sun 'n Sand, supra, 21 Cal.3d at p. 679.) The plaintiff believed it owed small sums to the defendant bank, although that turned out not to be true. Meanwhile, the employee altered the amounts on the checks and presented them for deposit into her personal account at the same bank. Though the bank was itself the named payee, it deposited the checks into the employee's account without inquiry. (Ibid.) The company sued the bank for common law negligence and other causes of action, contending the bank breached a duty of care in depositing the checks into the employee's account.
In reversing an order sustaining the bank's demurrer to the negligence claim, the Supreme Court concluded that "an attempt by a third party to divert the proceeds of a check drawn payable to the order of a bank to the benefit of one other than the drawer or drawee suggests a possible misappropriation." (Sun 'n Sand, supra, 21 Cal.3d at p. 694.) The court further concluded that the company's "allegations define circumstances sufficiently suspicious that [the bank] should have been alerted to the risk that [the] employee was perpetrating a fraud. By making reasonable inquiries, [the bank] could have discovered the fraudulent scheme and prevented its success." (Id. at pp. 694- 695.) However, the court also cautioned that "[t]he duty is narrowly circumscribed: it is activated only when checks, not insignificant in amount, are drawn payable to the order of a bank and are presented to the payee bank by a third party seeking to negotiate the checks for his own benefit." (Id. at p. 695.)
The trial court explained it sustained F&M's demurrer "on the basis that the facts pled . . . fail[ to] establish a relationship between Plaintff and Defendant Farmers & Merchants Bank that would give rise to a duty of due care." But as Sun 'n Sand expressly held, "We need not consider whether a special relationship exists between a collecting bank and the drawer of a check . . . . It is [the payee bank's] conduct in crediting the embezzler's account with checks drawn payable to [the payee bank] that forms the basis for relief herein." (Sun 'n Sand, supra, 21 Cal.3d at p. 693, original italics.)
F&M's attempts to distinguish Sun 'n Sand similarly fail. F&M points out Sun 'n Sand involved factors not present here, including that the employee there made alterations to the checks, increasing their amounts. But these alterations brought the checks within the high court's express limitation of its inquiry duty to checks "not insignificant in amount." (Sun 'n Sand, supra, 21 Cal.3d at p. 695.) Bhaskar's well-pleaded allegation of the high-dollar checks involved met this requirement.
F&M also observes that Bhaskar originally described Walji as the trustee of the account to which the deposit was made, but later sometimes characterized it in his amended complaint as Walji's "personal account[]" because he was an authorized signor. F&M cites the rule that "[a] plaintiff may not avoid a demurrer by pleading facts or positions in an amended complaint that contradict the facts pleaded in the original complaint . . . ." (Cantu, supra, 4 Cal.4th at p. 877.) But this distinction is not meaningful in light of Sun 'n Sand's negligence holding, which did not turn on the nature of the deposit account, but rather the fact that it was not the drawer's or his bank's.
Instead, the payee bank's duty arose from its own "affirmative[] risk-creating conduct" in crediting "the proceeds of a check drawn payable to the order of a bank to the benefit of one other than the drawer or drawee." (Sun 'n Sand, supra, 21 Cal.3d at pp. 693, 694, italics added.) Here, while the Stone-Lamm Trust account to which F&M credited Bhaskar's funds stated on its face it was a trust account, nothing in the account name or other objective criteria suggested Bhaskar as its beneficiary or that he otherwise was associated with the account. To the contrary, the complaint alleges Walji, not Bhaskar, was the account's authorized signor. As the Supreme Court explained, "when the bank is presented with checks naming it as the payee," it confronts "an obvious irregularity" if the "drawer's dishonest employee attempts to negotiate such checks for his own benefit. The bank does not have to be especially vigilant; its agent need only read what appears on the face of the check to be warned that a fraud may be in progress." (Id. at p. 696.)
F&M also argues variously that its status a "holder" enforcing a negotiable instrument under the Commercial Code (citing §§ 1201, subd. (20), 3301), Walji's position as Bhaskar's agent, not F&M's, and the fact Bhaskar was not an account-holding "customer" at F&M all exempt it from Sun 'n Sand. F&M further invokes isolated case quotations, like "'[B]ank's [sic] are not fiduciaries for their depositors'" (quoting Chazen v. Centennial Bank (1998) 61 Cal.App.4th 532, 537 (Chazen), without explaining how they apply.
These contentions are foreclosed under Sun 'n Sand. The court there expressly rejected the payee bank's argument that "as a holder in due course it took the checks free from Sun 'n Sand's common law cause of action for negligence" (Sun 'n Sund, supra, 21 Cal.3d at pp. 696-697), and F&M provides no reason to depart from this holding. The Supreme Court also explained that the bank's duty of care did not arise as a fiduciary's does from a "special relationship," but from "'the chief element in determining whether defendant owes a duty or an obligation to plaintiff,'" namely "that Sun 'n Sand's loss was reasonably foreseeable." (Id. at pp. 693, 695.) Additionally, the employee presenting the check in Sun 'n Sand was the plaintiff's agent, as F&M similarly asserts Walji was Bhaskar's agent, and, like Bhaskar, the plaintiff company there was not a customer or account holder at the payee bank. These considerations did not preclude the high court's duty finding, which it premised on "the weight of authority in this and other jurisdictions." (Id. at p. 693.) Accordingly, neither Walji's asserted agency relationship nor the fact Bhaskar did not bank at F&M persuades us to reach a different result than in Sun 'n Sand.
F&M asserts the common law negligence cause of action recognized in Sun 'n Sand has been displaced by code amendments. Section 1103 declares that the California Uniform Commercial Code is supplemented by common law "principles of law and equity," but only if not "displaced by the particular [code] provisions." Some of Sun 'n Sand's holdings on issues not pertinent here have been rejected in subsequent code amendments. For example, as described in Mills v. U.S. Bank (2008) 166 Cal.App.4th 871, 882, section 4208, subdivision (a), "sets forth presentment warranties, which apply when a check is presented for payment to the bank of the person who wrote the check." Those warranties include that the check or "draft has not been altered" and that the person, usually an intermediary bank, presenting the check to the drawee bank for payment "has no knowledge that the signature of the purported drawer of the draft is unauthorized." (§ 4208, subd. (a)(2), (3).) Finding no indication to the contrary in the code as it read at the time, Sun 'n Sand held that presentment warranties inured to the drawer's benefit and not just the drawee bank's. (Mills, at p. 883.) The official comment to the revised version of the applicable code section later bluntly stated, "The result in that case is rejected." (Official Comments on U. Com. Code, 23A Pt. 2 West's Ann. Cal. Com. Code (2002) com. 2 foll. § 3417, p. 483 (hereafter Official Comment).)
But in Sun 'n Sand, the plaintiff's code-based warranty causes of action were wholly distinct from its common law negligence claim. (Sun 'n Sand, supra, 21 Cal.3d at pp. 680, 692.) Changes to the code's warranty provisions therefore do not affect Sun 'n Sand's authority as governing precedent on a payee bank's inquiry duty in the circumstances here.
In Sun 'n Sand, the Supreme Court did acknowledge that former section 3405, which addressed embezzlement schemes in which an employee causes company checks to issue to fictional or imposter payees, contemplated that the risk of loss should be borne by the employer rather than its bank. (Sun 'n Sand, supra, 21 Cal.3d at p. 696; see Lee Newman, M.D., Inc. v. Wells Fargo Bank (2001) 87 Cal.App.4th 73, 80, fn. 6 & 81 (Newman).) As summarized by Newman, the Supreme Court in Sun 'n Sand concluded that former section 3405 "did not bar the plaintiffs' tort action for negligence because it was not intended to apply to the specific factual situation before it — that is, when [a] bank has been presented with checks naming itself as payee" (Newman, at p. 81, italics added). The purpose of former section 3405 was to relieve banks of the difficult task of discerning whether an indorsement by an imposter or fictional payee — contrived by the employee — was a forgery, and place that risk on the employer to supervise his or her employees in issuing checks. (See ibid.)
As Newman explained, code revisions effective in 1993 extended this allocation of risk to the employer in "a new section 3405, expressly governing the rights and liabilities of persons paying or taking an instrument [e.g., banks] bearing a fraudulent indorsement made by an employee who has been given 'responsibility' by his or her employer for such instruments." (Newman, supra, 87 Cal.App.4th at p. 82.) With the revision, section 3405 now "covers both forged indorsements made in the name of payees of instruments payable to the employer" and, as before, "indorsements made in the name of payees of instruments issued by the employer." (Newman, at p. 82, italics added.) In making such indorsements "'effective'" if made "by an employee entrusted with responsibility for the check," section 3405 adhered to "the fundamental principle that the risk of loss for fraudulent indorsements by employees entrusted with responsibility for checks should fall on the employer rather than the bank that takes the check or pays it." (Id. at pp. 82-83, italics added.)
Contending Sun 'n Sand is no longer good law, F&M relies on dicta by a panel of this court observing that "[a]fter the 1992 revisions to California's Uniform Commercial Code, courts have recognized a common law negligence action no longer exists in California," citing Newman. (HH Computer Systems, supra, 231 Cal.App.4th at p. 227, fn. 5.) But HH Computer Systems considered whether check-cashing outlets qualify as collecting banks, with corresponding inspection duties for fraudulent indorsements, and had nothing to do with the circumstances in which Sun 'n Sand held a bank named as a payee may face a negligence action. Nor did Newman, which HH Systems cited. To the contrary, as discussed above, Newman examined the code's allocation of risk for fraudulent indorsements, which was not at issue in Sun 'n Sand. (See Sino Century Development Limited v. Farley (2012) 211 Cal.App.4th 688, 696 ["Cases are not authority for propositions not decided"].)
Indeed, the very cases on which F&M relies to suggest Sun 'n Sand has been eroded in contexts not involving a payee bank's inquiry duty nevertheless recognize its continuing vitality on that point: "California courts have recognized one situation in which a bank has a duty to nondepositors to investigate a suspicious banking transaction. In Sun 'n Sand . . . the California Supreme Court held a bank has a 'minimal' and 'narrowly circumscribed' duty of inquiry 'when checks, not insignificant in amount, are drawn payable to the order of a bank and are presented to the payee bank by a third party seeking to negotiate the checks for his own benefit.'" (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1151, fn. 3, italics added; Chazen, supra, 61 Cal.App.4th at p. 545 [same].) In these circumstances, "[n]o provision of the Uniform Commercial Code displaces common law negligence recovery." (E.F. Hutton & Co. v. City National Bank (1983) 149 Cal.App.3d 60, 69.) Accordingly, Bhaskar's allegations of duty, breach, causation, and damages properly state a prima facie claim for common law negligence. (Sun 'n Sand, supra, 21 Cal.3d at pp. 692-697.) B. Statute of Limitations
At oral argument, F&M for the first time suggested section 3307 may absolve it of negligence liability in taking a check from a third party's fiduciary. F&M's brief is devoid of any mention of section 3307, forfeiting the argument. (People v. Pena (2004) 32 Cal.4th 389, 403; Roberts v. Assurance Co. of America (2008) 163 Cal.App.4th 1398, 1408.) Moreover, section 3307 specifies it applies when "the taker has knowledge of the [check presenter's] fiduciary status" (§ 3307, subd. (b)). But as the applicable comment observes, the relevant "taker of the instrument" who must have that knowledge on behalf of the receiving organization or bank often "is a clerk who has no knowledge of any fiduciary status of the person from whom the instrument is received." (Official Comment, 23A Pt. 2 West's Ann. Cal. Com. Code, supra, com. 2 foll. § 3307, p. 357.)
Additionally, the bank is held not to have notice of the fiduciary's alleged breach of fiduciary duty in misappropriating a check if the bank deposits the check to "an account of the fiduciary, as such." (§ 3307, subd. (b)(4), italics added.) In other words, the bank must deposit the instrument to an account the fiduciary holds as a fiduciary account, and presumably that account is for the benefit of the person entrusting the fiduciary with the check. Here, nothing in the complaint requires absolving F&M of its duty of ordinary care under Sun 'n Sand not to deposit a check made out to it as a payee to an account other than for Bhaskar's benefit because, under section 3307, it knew Walji was Bhaskar's fiduciary and it deposited Bhaskar's checks to an account held for Bhaskar. Thus, even assuming arguendo that section 3307 may have some bearing on remand — and we do not decide that it does — F&M's bare mention of it at oral argument on appeal furnishes no basis for sustaining F&M's demurrer. To the contrary, as with similar debates in Sun 'n Sand over the payee bank's notice of a potential fraud in depositing a drawer's check to someone else's account: "Of course [the bank] will have an opportunity at trial to show that it lacked the requisite notice [of fraud] by proving special circumstances justifying it in crediting the employee's account without making further inquiry." (Sun 'n Sand, supra, 21 Cal.3d at p. 690.)
Similarly unavailing is F&M's cursory briefing of section 4203. F&M quotes a portion of that code provision stating "a collecting bank is not liable to prior parties for any action taken pursuant to the instructions or in accordance with any agreement with its transferor." (§ 4203.) F&M asserts Walji is its transferor, and therefore it was entitled to rely on his directions to deposit the checks to his Stone-Lamm account. But even assuming Walji is F&M's transferor, F&M does not explain how Bhaskar is a relevant "prior part[y]" within the meaning of section 4203. More importantly, F&M overlooks that the code section's official comment expressly states it "does not relieve a collecting bank of its general obligation to exercise good faith and ordinary care." (Official Comment, 23B Pt. 1 West's Ann. Cal. Com. Code (2002) foll. § 4203, p. 79.) Accordingly, section 4203 does not aid F&M.
F&M also demurred to the negligence claim contending it was barred by the statute of limitations. The trial court did not sustain the demurrer on that ground, but having concluded Bhaskar stated a negligence cause of action, we examine the issue. "'In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows merely that the action may be barred.' [Citations.] 'The ultimate question for review is whether the complaint showed on its face that the action was barred by a statute of limitations, for only then may a general demurrer be sustained and a judgment of dismissal be entered thereon.' [Citation.]" (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-1316.)
Sun 'n Sand held the three-year statute of limitations for injury to personal property applies to a drawer's negligence cause of action against a depositing bank named as the payee on misappropriated checks. (Sun 'n Sand, supra, 21 Cal.3d at pp. 678, 697-698.) The court stated: "Our strong policy favors fault-based liability; negligent tortfeasors must compensate persons injured by their failure to exercise ordinary care. [Citations.] The rules governing negligence actions — including the normally applicable three-year statute of limitations of Code of Civil Procedure section 338, subdivision 3 — should not be varied so as to diminish fault-based liability absent a clear and specific legislative directive." (Id. at p. 698, fn. omitted.) In a footnote to that statement, the court noted: "The three-year statute of limitations applies to recovery for injury to property; for different reasons of policy, the limitations period for negligence actions based on personal injuries is one year. [Citation.])" (Id. at p. 698, fn. 22.) In 1988, the Legislature renumbered subdivision 3 of Code of Civil Procedure section 338 as subdivision (c) for an "action for taking, detaining, or injuring any goods or chattels, including actions for the specific recovery of personal property," but did not change the three-year limitations period. Consequently, the three-year period applies.
The governing statute of limitations begins to run when the cause of action accrues. (Code Civ. Proc., § 312; Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806 (Fox); Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397 (Norgart).) "Generally speaking, a cause of action accrues at 'the time when the cause of action is complete with all of its elements.'" (Fox, at p. 806.) "An exception to the general rule for defining the accrual of a cause of action — indeed, the 'most important' one — is the discovery rule." (Norgart, at p. 397.)
The discovery rule "postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action." (Norgart, supra, 21 Cal.4th at p. 397.) The discovery rule "may be expressed by the Legislature or implied by the courts" (ibid.); in particular, "judicial decisions have declared the discovery rule applicable in situations where the plaintiff is unable to see or appreciate a breach has occurred." (Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1423.)
The discovery rule "is based on the notion that statutes of limitations are intended to run against those who fail to exercise reasonable care in the protection and enforcement of their rights; therefore, those statutes should not be interpreted so as to bar a victim of wrongful conduct from asserting a cause of action before he could reasonably be expected to discover its existence." (Saliter v. Pierce Brothers Mortuaries (1978) 81 Cal.App.3d 292, 297.) Thus, in actions where the rule applies, the limitations period does not accrue until the aggrieved party has notice of the facts constituting the injury. (Fox, supra, 35 Cal.4th at p. 807.) Constructive notice or a duty of inquiry is triggered by suspicion. "Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit on her rights." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1111.)
"Resolution of the statute of limitations issue is normally a question of fact." (Fox, supra, 35 Cal.4th 797, 810.) As our high court has observed: "There are no hard and fast rules for determining what facts or circumstances will compel inquiry by the injured party and render him chargeable with knowledge. [Citation.] It is a question for the trier of fact." (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 597 [reversing judgment after demurrer].) "However, whenever reasonable minds can draw only one conclusion from the evidence, the question becomes one of law." (Snow v. A.H. Robins Co. (1985) 165 Cal.App.3d 120, 128.) Thus, when an appeal is taken from a judgment of dismissal after a sustained demurrer, "the issue is whether the trial court could determine as a matter of law that failure to discover was due to failure to investigate or to act without diligence." (Bastian v. County of San Luis Obispo (1988) 199 Cal.App.3d 520, 527 (Bastian).)
Here, Bhaskar endorsed his first check over to F&M for deposit in December 2000. Sixteen other checks followed in the next 11 years, with Bhaskar writing the last check in December 2011. He did not file his lawsuit until October 2013, which was within three years of only the last two checks he wrote, for $100,000 and $55,000, respectively. Anticipating F&M's statute of limitations defense, Bhaskar's complaint alleged he had no reason to suspect F&M had breached its inquiry duty under Sun 'n Sand until May 2013, when he could not locate Walji, learned he had been indicted for misappropriating pension funds, and attempted to meet with F&M's Lake Forest branch management, who "refused to discuss the status of his funds claiming he was not their customer." Specifically, Bhaskar alleged: "Neither Walji, F&M or anyone else ever contacted the plaintiffs to inform them of any irregularities or other suspicio[n]s so as to place the plaintiffs on notice of any possible wrong doings, thus plaintiffs had no actual or presumptive knowledge of facts sufficient to put them on notice of inquiry."
In Sun 'n Sand, the court held the plaintiff's failure to examine its bank statements barred recovery on its first three checks under a code section imposing a duty on bank customers to examine their statements (§ 4406), which would have exposed the employee's fraud by revealing her alteration of the checks to significantly higher amounts. (Sun 'n Sand, supra, 21 Cal.3d at pp. 702-703.) In contrast, there were no alterations here. Bhaskar alleged the bare F&M account number stamped or scrawled on the back of the checks when F&M accepted them for deposit matched the account number on the deposit slips Walji used, so if Bhaskar had a chance to review his canceled checks in perusing his bank statement, nothing revealed Walji's fraud. Bhaskar alleged F&M "did not mark the backside of the checks with any evidence that it diverted the checks into Walji's Stone-Lamm Trust account so as to avoid disclosing the same to the Payor Bank, for if it had, [Bank of America, Bhaskar's bank] would not have honored the checks, and in lieu thereof would have notified the plaintiffs that another person/entity other than the named payee received the funds from the checks, here Walji/Stone-Lamm Trust." Bhaskar also alleged Walji provided false pension plan statements "to plaintiff which purported to show [his] capital accounts were increasing in value."
F&M gives no answer to Bhaskar's allegations concerning delayed discovery, but instead in a cursory half-paragraph on appeal merely asserts the three-year limitations period excluded any cause of action on all but the last two checks. As noted, the issue of reasonable inquiry and delayed discovery is a question of fact and on these facts we cannot say as a matter of law that Bhaskar's failure to discover Walji's fraud earlier was due to a lack of diligence. (See Bastain, supra, 199 Cal.App.3d at p. 527.) Consequently, the facts as they now stand in the pleading stage do not support a demurrer on Bhaskar's negligence claim. C. Conversion and Money Had & Received
Bhaskar contends the trial court also erred in sustaining without leave to amend F&M's demurrer to his statutory conversion claim (§ 3420) and a common count for money had and received in his third amended complaint. Bhaskar based these causes of action on the same factual allegations he made regarding his negligence cause of action. He does not, however, support his bid for reversal by addressing the elements of either of these causes of action, nor does he provide authority or reasoned argument for how in his pleadings all the elements (or exclusions) of each are satisfied.
Specifically, Bhaskar attempted to plead a cause of action under section 3420 for conversion. That section provides in subdivision (a): "The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (1) the issuer or acceptor of the instrument . . . ." (Italics added.) Below and on appeal Bhaskar makes no attempt to address the express exclusion of issuers, though under his allegations he is plainly an issuer. (§§ 3105, subd (c) [defining "Issuer" as "a maker or drawer of an instrument"]; § 3103, subd. (a)(3) ["'Drawer' means a person who signs or is identified in a draft as a person ordering payment"].) We therefore affirm the order of dismissal with respect to the conversion cause of action.
Bhaskar does not identify any of the elements comprising a claim for money had and received, nor how his allegations establish them. He simply asserts this "common count must stand or fall with [his] first and/or second causes of action." But every legally tenable claim has elements the plaintiff must establish, and on appeal from a sustained demurer, the plaintiff has the burden of proving error. (Schifando, supra, 31 Cal.4th at p. 1081.) Moreover, if as Bhaskar claims a common count is merely derivative, he fails his appellate burden to show prejudice. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)
III
DISPOSITION
We reverse the entry of dismissal with respect to the cause of action for negligence and direct the court to enter a new order overruling the bank's demurrer to that cause of action in the third amended complaint, and we affirm in all other respects. Appellants are entitled to their costs on appeal.
ARONSON, J. WE CONCUR: O'LEARY, P. J. FYBEL, J.