Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. 37-2007-00072806- CU-FR-CTL, William R. Nevitt, Jr., Judge.
NARES, J.
Plaintiff EBS Concrete, Inc. (EBS) appeals from a dismissal entered after the court sustained defendants Target Financial & Insurance Services (Target) and Carl Savoia's general demurrer without leave to amend. EBS asserts that the court committed reversible error by (1) sustaining the demurrer and (2) sustaining it without leave to amend. We conclude that the trial court was correct in sustaining the demurrer to the causes of action for fraud and negligent misrepresentation, but erred in sustaining the demurrer to the causes of action for conversion, constructive trust, and unjust enrichment. Accordingly, we reverse the trial court's order sustaining the demurrer as to the claims for conversion, constructive trust, and unjust enrichment, but affirm in all other respects.
FACTUAL AND PROCEDURAL BACKGROUND
On August 8, 2007, EBS filed a complaint against Target and Savoia alleging fraud, conversion, negligent misrepresentation, constructive trust and unjust enrichment. Target and Savoia demurred to all the causes of action except unjust enrichment on grounds that EBS failed to allege sufficient facts in accordance with Code of Civil Procedure section 430.10, subdivision (e). The court sustained the general demurrer with leave to amend as to those four causes of action. EBS then filed a first amended complaint (FAC) alleging the same five causes of action.
Though the original complaint treated Target and Savoia as separate entities, the FAC united the defendants into a single entity: "Carl Savoia dba Target Financial & Insurance Services."
The FAC alleged that EBS, a construction company, applied for insurance through Savoia, a professional insurance broker. EBS's application requested insurance coverage for masonry work and "sub-out" insurance of at least $1.5 million. In response, Savoia submitted a quote to EBS providing the requested coverage for a premium of $88,142 and a deposit of $29,986. EBS accepted the quote and sent Savoia the deposit.
The complaint is unclear as to the precise amount of the deposit. One paragraph in the complaint states that only $29,461 was required and paid for, but the rest of the complaint lists the deposit amount as $29,986. For simplicity, we refer to the deposit amount as $29,986.
Approximately one month later, EBS received the insurance statement. The statement indicated only $800,000 (rather than $1.5 million) in sub-out cost insurance, did not mention masonry coverage, and required a premium of only $58,336 (instead of $88,142). Upon receiving this statement, EBS called Savoia and asked him why the quoted premium was higher than the actual premium and why the sub-out insurance coverage was less than promised. Savoia explained that although he had found a less expensive policy provider, EBS still had to pay him the higher premium. Savoia conceded that the finance company had not provided all of the sub-out insurance coverage that EBS had requested, but explained that Savoia would be personally liable for the extra $700,000. EBS then asked the insurance carrier why there was no coverage for the masonry work, and the insurance carrier stated that it never insured masonry work. After these conversations, EBS sent a notice of cancellation to Savoia.
Target and Savoia filed a second demurrer challenging the legal sufficiency of all five causes of action alleged in the FAC, and the court sustained it without leave to amend. As for Target, the court found "(1) none of the five causes of action are directed against Target and (2) the FAC [] alleges that Target is merely a recorded fictitious business name of defendant Carl Savoia." As for Savoia, the court ruled that EBS failed to plead fraud and negligent misrepresentation with the specificity required under Lazar v. Superior Court (1996) 12 Cal.4th 631. As for the conversion claim, the court held that the FAC failed to adequately plead the "wrongful act or disposition" element and EBS's ownership or right to the property converted. Lastly, the court held that the FAC failed to adequately plead the "underlying cause of action" element of the constructive trust claim, and the "equitable basis" for the unjust enrichment claim.
DISCUSSION
I. Standard of review
Whether a complaint has alleged facts sufficient to state causes of action is a question of law. (Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497.) We therefore review the sustaining of a demurrer de novo and treat the facts alleged in the complaint as true. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) In contrast, we give substantial deference to a trial court's decision to grant or deny leave to amend a complaint. (Berman v. Bromberg (1997) 56 Cal.App.4th 936, 945.) When a general demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) "And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.]" (Ibid.)
II. FRAUD
To state a fraud cause of action, EBS must adequately allege (1) a misrepresentation as to a material fact; (2) knowledge of its falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. (See Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) "In California, fraud must be pled specifically; general and conclusory allegations do not suffice." (Id. at p. 645.) The normal policy of liberally construing pleadings against a demurrer will not be invoked to sustain a fraud cause of action that fails to set forth such specific allegations. (Ibid.) The heightened pleading standard for fraud requires "'pleading facts which "show how, when, where, to whom, and by what means the representations were tendered."' [Citation.]" (Ibid.) Thus, "every element of the cause of action for fraud must be alleged in full, factually and specifically." (Wilhelm v. Pray (1986) 186 Cal.App.3d 1324, 1331.) The specificity requirement serves two purposes: (1) to furnish the defendant with certain definite charges that can be intelligently met, and (2) to ensure the complaint is specific enough so that the court can "weed out nonmeritorious actions on the basis of the pleadings." (Committee on Children's Television, Inc. v. General Foods Corporation (1983) 35 Cal.3d 197, 216-217.)
Here, we reject EBS's contention that the trial court should not have sustained the demurrer to its fraud cause of action. EBS has failed to specifically plead the "when," "to whom," "how," and "where" of the alleged fraud. The FAC alleges that "within the last two years Plaintiff and Defendant Savoia entered into a written contract," and Savoia "thereafter submitted a quote for insurance" to EBS. A two-year window is too broad for a fraud cause of action based on a single misrepresentation. (See Vaughn v. Certified Life Ins. Co. (1965) 238 Cal.App.2d 177, 182.) Regarding "to whom" the alleged fraud was made, the FAC makes no reference to any particular individual within EBS who received the quote from Savoia or who subsequently discussed with Savoia the alleged misrepresentations of the quote. Although "[l]ess specificity is required when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy," the date the quote was received and who of EBS's employees received the quote are facts squarely within the purview of EBS. (Committee on Children's Television, Inc. v. General Foods Corporation, supra, 35 Cal.3d at p. 217.)
Likewise, the FAC does not explain how or by what means the fraudulent representations were conveyed to EBS. The FAC only provides that Savoia "submitted a quote" for insurance. This vague reference fails to explain whether the submission was in person, by mail, or electronic.
In addition, the FAC never discusses the "where" of the alleged fraud. This omission is significant because EBS's pleadings and filings give conflicting accounts of where the fraud may have taken place. EBS alleged that Savoia does business in both San Diego County and Orange County. EBS also originally filed the complaint in Riverside County. Accordingly, we conclude the court did not err in sustaining Savoia's demurrer to the fraud cause of action.
III. NEGLIGENT MISREPRESENTATION
The tort of negligent misrepresentation does not require knowledge of falsity (or "scienter") or intent to defraud. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) A claim for negligent misrepresentation arises when a person makes a false statement with the honest belief that the statement is true, but without a reasonable basis for that belief. (Id. at pp. 173-174; 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 818, p. 1181.)
Whether claims for negligent misrepresentation are held to the same heightened pleading standard as claims for fraud is less than clear. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2008) ¶ 6:151.5, p. 6-46 (rev. #1, 2008) ["It is unclear whether the same specificity required in pleading fraud actions is required in pleading actions for negligent misrepresentation generally."].)
In Small v. Fritz Companies, Inc., supra, 30 Cal.4th at page 184, the Supreme Court held that the pleading standard for negligent misrepresentation in an action for securities fraud brought by a shareholder should adhere to the same heightened pleading standard as fraud due to the risk of false claims in such suits. In doing so, the high court first recognized the guiding policy behind requiring specificity in pleading fraud allegations: "Ideally, what is needed is some device to separate meritorious and nonmeritorious cases, if possible in advance of trial. California's requirement for specific pleading in fraud cases serves that purpose. [Citation.] 'In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] "Thus '"the policy of liberal construction of the pleadings... will not ordinarily be invoked to sustain a pleading defective in any material respect."' [Citation.] This particularity requirement necessitates pleading facts which 'show how, when, where, to whom, and by what means the representations were tendered.'"' [Citation.]" (Ibid.)
Recognizing that no California court had thus far held that the specific pleading requirement applies to negligent misrepresentation actions, the Small court held it applies to a shareholder's action for negligent misrepresentation. (Small v. Fritz Companies, Inc., supra, 30 Cal.4th at pp. 184.) In so holding, the Supreme Court suggested that, if squarely presented with the issue, it might hold that the specific pleading requirement applies in other negligent misrepresentation actions as well:
"California courts have never decided whether the tort of negligent misrepresentation, alleged in the complaint here, must also be pled with specificity. But such a requirement is implied in the reasoning of two decisions (Committee on Children's Television, Inc. v. General Foods Corp., supra, 35 Cal.3d at p. 216; B.L.M. v. Sabo & Deitsch (1997) 55 Cal.App.4th 823, 835-837) and was asserted expressly in Justice Mosk's dissenting opinion in Garcia v. Superior Court (1990) 50 Cal.3d 728, 748. Because of the potential for false claims, we hold that a complaint for negligent misrepresentation in a holder's action should be pled with the same specificity required in a holder's action for fraud. (We express no view on whether this pleading requirement would apply in other actions for negligent misrepresentation.)" (Small v. Fritz Companies, Inc., supra, 30 Cal.4th at p. 184.)
Statutory law provides further support for requiring a heightened pleading standard for negligent misrepresentation claims. Civil Code section 1709 provides that deceit occurs where one "willfully deceives another with intent to induce him to alter his position to his injury or risk." Civil Code section 1710 provides, "[a] deceit, within the meaning of the last section, is either: [¶]... [¶] 2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true." This is the very definition of a negligent misrepresentation. By equating negligent misrepresentation with deceit, the Legislature recognized that both claims involve comparable stigma to the accused.
We conclude that if presented with the question, our high court would hold that claims for negligent misrepresentation must adhere to the same heightened pleading standards as claims for fraud. In short, "[t]he only significant difference from the standpoint of pleading is in the element of 'scienter.'" (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 727, p. 143.) As stated by the high court in Small, both claims contain the inherent dangers of false accusations and severe reputational stigma, the policy bases for requiring specificity in pleadings. We discern no rational basis for distinguishing between the two claims in this regard.
EBS's claim of negligent misrepresentation relies entirely upon the allegations set forth in the cause of action for fraud. Therefore, the negligent misrepresentation cause of action fails as a matter of law for the same reasons as the fraud cause of action. We therefore affirm the trial court's order sustaining the demurrer to the negligent misrepresentation cause of action.
IV. CONVERSION
"Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages." (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.)
Savoia points out that the FAC expressly negates the second element of a conversion claim. It reads, "at the time Plaintiff remitted the sum of $29,986 to Defendant, Defendant owned and held title to said money." As a result, the FAC fails to establish EBS's ownership of the property allegedly converted. In its reply brief, EBS confesses that "[EBS's] counsel will plead guilty for not having proof read the allegations... of the amended complaint." EBS argues that such an oversight can be cured by amendment and should not result in a dismissal without leave to amend.
In general, complaints are to be liberally construed in favor of the pleading party. (Green v. Obledo (1981) 29 Cal.3d 126, 143-144.) A mere typographical error should not prohibit an otherwise meritorious pleading from surviving a demurrer. (Cf. Thompson v. Southern Pac. Co. (1919) 180 Cal. 730, 734 (holding that a complaint that erroneously spells the defendant's name may be amended before judgment).) This is particularly true in a case such as this, where the alleged facts stated in the earlier part of the FAC make clear that EBS used the $29,986 to make a deposit on the insurance from Savoia. We can reasonably infer that EBS could not have made a deposit for the insurance from Savoia with money already owned by Savoia. More importantly, a subsequent portion of the FAC alleges that the $29,986 "is right fully [sic] due and owing to Plaintiff." We reverse the trial court's order sustaining the demurrer to the conversion cause of action.
V. CONSTRUCTIVE TRUST
The FAC seeks the equitable remedy of constructive trust. "A constructive trust is an involuntary equitable trust created by operation of law as a remedy to compel the transfer of property from the person wrongfully holding it to the rightful owner. [Citations.]... [¶]... [A] constructive trust may only be imposed where the following three conditions are satisfied: (1) the existence of a res (property or some interest in property); (2) the right of a complaining party to that res; and (3) some wrongful acquisition or detention of the res by another party who is not entitled to it." (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990.)
Savoia argues that because EBS did not adequately allege fraud, its claim for constructive trust must also fail. However, "the wrongful act giving rise to a constructive trust need not amount to fraud or intentional misrepresentation. All that must be shown is that the acquisition of the property was wrongful and that the keeping of the property by the defendant would constitute unjust enrichment." (Calistoga Civic Club v. City of Calistoga (1983) 143 Cal.App.3d 111, 116.)
We have held, ante, that the FAC states a viable conversion claim, therefore the elements of constructive trust have been met. (See Burlesci v. Petersen, supra, 68 Cal.App.4th at p. 1069 [holding that constructive trust is a remedy for conversion].) We reverse the trial court's order sustaining the demurrer to the constructive trust cause of action.
VI. UNJUST ENRICHMENT
"An individual is required to make restitution if he or she is unjustly enriched at the expense of another." (First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1662.) "The recipient of the benefit is liable only if the circumstances are such that, as between the two persons, it is unjust for the recipient to retain it." (California Federal Bank v. Matreyek (1992) 8 Cal.App.4th 125, 131.)
In this case, EBS alleges it paid Savoia $29,986 in reliance on Savoia's alleged misrepresentations. Savoia has not returned this sum to EBS. This adequately states a claim for unjust enrichment. Accordingly, we reverse the trial court's order sustaining the demurrer to the unjust enrichment cause of action.
VII. LEAVE TO AMEND
Last, EBS contends the trial court abused its discretion by denying leave to amend the FAC. This contention is unavailing.
When the trial court sustains a demurrer without leave to amend, this court decides whether a reasonable possibility exists that amendment may cure the defect; we reverse if it does, but if does not we affirm. (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 43.) The plaintiff bears the burden of proving there is a reasonable possibility of amendment. (Ibid.) To satisfy that burden on appeal, the plaintiff "must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading." (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) The plaintiff must set forth factual allegations that sufficiently state all required elements of the challenged causes of action, and the allegations "must be factual and specific, not vague or conclusionary." (Rakestraw, supra, 81 Cal.App.4th at pp. 43-44.) Where the appellant offers no allegations to support the possibility of amendment, there is no basis for finding the trial court abused its discretion when it sustained the demurrer without leave to amend. (Id. at p. 44.)
Here, EBS failed to show on appeal, either in its briefs or at oral argument, specifically how it could amend the FAC to meet the heightened pleading standards for fraud and negligent misrepresentation and cure all of the various pleading defects (discussed, ante) with respect to those causes of action. In its appellant's opening brief, EBS merely asserts it could "easily amend the pleading to state within 1-2 months the time the misrepresentations by... Savoia occurred" and "whether all the conversations were in person or via telephone." In its reply brief, EBS claims in a conclusory manner that it can amend the FAC to meet the heightened pleading standard. At oral argument, counsel indicated the FAC could be amended to state within 1 to 2 months when the alleged misrepresentations occurred, as well as the number of calls and where Savoia was during those calls. Such conclusory statements are insufficient to meet EBS's burden on appeal. Accordingly, we conclude the trial court did not abuse its discretion in denying leave to amend.
DISPOSITION
The judgment is reversed as to the causes of action for conversion, constructive trust, and unjust enrichment. In all other respects the judgment is affirmed. EBS shall recover its costs on appeal.
WE CONCUR: HUFFMAN, Acting P. J., AARON, J.