Opinion
G052591
01-31-2017
BONNIE SWARBERG et al., Plaintiffs and Appellants, v. ONESOURCE DISTRIBUTORS, LLC, et al., Defendants and Respondents.
Law Offices of Allan E. Perry and Allan E. Perry, for Plaintiffs and Appellants Robert L. Shipley & Associates, Robert L. Shipley and Brandon S. Gray for Defendant and Respondent, OneSource Distributors, LLC. Procopio, Cory, Hargreaves & Savitch, Phillip L. Kossy and Kendra J. Hall, for Defendants and Respondents D&D Tool, LLC and Georgia Dutro.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2014-00707899) OPINION Appeal from a judgment of the Superior Court of Orange County, Deborah C. Servino, Judge. Affirmed in part and reversed in part, and remanded with directions. Law Offices of Allan E. Perry and Allan E. Perry, for Plaintiffs and Appellants Robert L. Shipley & Associates, Robert L. Shipley and Brandon S. Gray for Defendant and Respondent, OneSource Distributors, LLC. Procopio, Cory, Hargreaves & Savitch, Phillip L. Kossy and Kendra J. Hall, for Defendants and Respondents D&D Tool, LLC and Georgia Dutro.
Bonnie and George Swarberg appeal from the judgment entered after the court sustained the demurrers of defendants, D&D Tool, LLC, its principal, Georgia Dutro, and OneSource Distributors, LLC, to their third amended complaint. The Swarbergs also contend the court erred by denying their motion to compel arbitration of their claims against D&D.
The Swarbergs' complaint alleges D&D and Dutro conspired with OneSource, the company which purchased D&D's assets, to deprive them of the benefits of the five-year employment agreements they entered into with D&D in 2009, when they sold D&D the assets of their wood-tool sharpening business.
The Swarbergs pleaded causes of action for breach of their employment contracts and for declaratory relief (stated against D&D and OneSource); for fraud and fraudulent inducement of both their original agreement to sell their business to D&D and a later agreement by which they purportedly waived their rights under their employment agreements (stated against Dutro and D&D); and for conspiracy (stated against all defendants). Additionally, George Swarberg pleaded a cause of action for elder abuse against D&D and OneSource.
The court concluded all of those causes of action were fatally flawed. It rejected the breach of contract action against OneSource because it was not a party to the employment agreements, and against D&D because the Swarbergs had previously agreed to waive the very rights they were seeking to enforce. The court rejected the Swarbergs' causes of action for fraud and fraudulent inducement because (1) they failed to allege D&D breached its obligations under the agreement by which it purchased the assets of the Swarbergs' business, and (2) the facts alleged were insufficient to demonstrate the Swarbergs could have reasonably relied on the misrepresentation which allegedly induced them to waive their rights under their employment agreements. The court also rejected the declaratory relief cause of action because it was effectively duplicative of the breach of contract claim; rejected the Swarbergs' attempt to state a cause of action for conspiracy because no such cause of action exists; and rejected George's elder abuse cause of action because the type of wrongs alleged did not meet the statutory definition of elder abuse.
We conclude the trial court erred by sustaining D&D's demurrer to the cause of action for breach of contract without leave to amend, by sustaining Dutro's and D&D's demurrer to the causes of action for fraud and fraudulent inducement, and by sustaining OneSource's demurrer to the "cause of action" for civil conspiracy, but otherwise find no error in its ruling. The "waiver and acknowledgment" document signed by the Swarbergs operated as a modification of their employment agreements, and as such, it was required to be supported by consideration. The Swarbergs allege it was not supported by consideration and nothing in the document, which included an integration clause, suggests otherwise. Consequently, for purposes of demurrer, we must presume the waiver and acknowledgment was unsupported by consideration and thus is unenforceable.
Absent that waiver, the Swarbergs' employment agreements gave them specified rights in the event D&D decided to get out of the wood-tool sharpening business, which included two months' notice of termination and a right of first refusal to repurchase the assets of their former business. Their complaint alleges D&D breached the employment agreements by failing to accord them those rights before selling its assets to OneSource. Although the Swarbergs allege no specific facts demonstrating they were damaged by those breaches — e.g., an allegation that had they been given the opportunity, they would have exercised their right to repurchase the assets of their former business and continued their employment — we conclude they should be given leave to amend to allege such facts.
And the Swarbergs sufficiently pleaded their claim that Dutro and D&D defrauded them into signing the waiver and acknowledgment. They allege Dutro told them that OneSource's CEO, who was also her good friend, had explicitly promised to pay George their combined salaries, and to otherwise honor the terms of George's employment agreement, as an inducement to get them to sign the waiver. We cannot conclude their reliance on that promise, in the circumstances, was unreasonable as a matter of law. While it is true there is no such thing as a cause of action for civil conspiracy per se, the pleading denominated as a cause of action for civil conspiracy incorporated all of the allegations of the fraud and fraudulent inducement causes of action and adequately alleged that OneSource conspired with Dutro and D&D to commit the alleged fraud thereby extending the claim of liability for that conduct to OneSource.
However, we find no error in the court's denial of the Swarbergs' motion to compel arbitration of their claim against D&D. The court concluded the Swarbergs' motion amounted to forum shopping, reflecting a last-ditch effort to avoid what they feared would be a ruling that terminated their lawsuit with prejudice in the forum they initially chose. The evidence supports that conclusion, and we will not disturb it.
FACTS
The Swarbergs filed their initial complaint against defendants in February 2014. They alleged that in October 2009, they entered into an agreement to sell their 60-year-old family business, Atlas Saw and Grinding, Inc. (sometimes referred to as "the Brea Shop"), to D&D. In connection with that sale, the Swarbergs each entered into a written employment agreement with D&D, stating D&D would continue to employ them in the business for a period of five years.
In January 2011, just over a year after the Swarbergs sold their business to D&D, it allegedly sold Atlas to OneSource, and OneSource assumed all the debts and liabilities of Atlas. And in June 2011, the Swarbergs' employment was terminated without cause and they received no further compensation.
The complaint included causes of action for fraud and fraudulent inducement against D&D and Dutro, alleging they knowingly made false representations that the Swarbergs would be paid an annual salary and bonuses for a period of five years, without ever intending to fulfill that promise, and that D&D and Dutro induced the Swarbergs to execute the "waiver and acknowledgment" document releasing their rights under their employment agreements by falsely telling them that OneSource would continue their employment in accordance with the terms of their D&D employment agreements and it would be much better for the Swarbergs to be employed by OneSource. The Swarbergs allege they were paid no consideration for executing the waiver and acknowledgment, and did so based solely on the false representation that OneSource would continue to employ them in accordance with the terms of their D&D employment agreements.
The complaint also included a cause of action alleging breach of the employment agreements against all defendants, including OneSource as the alleged assignee of the agreements.
The complaint attached copies of the Swarbergs' two employment agreements, as well as the "waiver and acknowledgment" document signed by both of them. As pertinent here, the employment agreements specified that both Swarbergs had "special skills" and "knowledge of [D&D's] business" and D&D "desires assurance of the continuation of this association . . . ." Bonnie's agreement stated she would be employed in the position of "full time consultant to Accounts Receivable and to the Sharpening and Manufacturing manager of the Brea Shop" at a salary of $74,400 annually, while George's agreement stated he would be employed as the "Sharpening and Manufacturing manager of the Brea Shop" at a salary of $26,500 annually. However, George was also eligible for annual bonuses based on "any increase in EBITDA."
"EBITDA" is commonly understood to mean "Earnings Before Interest, Taxes, Depreciation, and Amortization."
The term of both employment agreements was five years, although both agreements stated the employment could be terminated for cause, and Bonnie's agreement specified her employment would automatically be terminated "on the same date as George Swarberg is no longer employed."
George's agreement also specified he could terminate it without cause "with two weeks written notice," but it gave D&D no right to terminate his employment without cause. Instead, both agreements gave D&D the unilateral option to terminate only "if [it] should decide to no longer be in the wood tool sharpening business," and then provided that if that occurred, the Swarbergs "shall receive two month's [sic] notice of termination, and George and Bonnie Swarberg shall have first right of refusal to purchase the assets of the Brea shop from Employer."
Both employment agreements also contain provisions prohibiting the Swarbergs from competing, directly or indirectly, with D&D, and prohibiting them from disclosing any of D&D's trade secrets, within five years after termination of their employment.
The waiver and acknowledgment, dated December 28, 2010, was signed by both Swarbergs and by Dutro on behalf of D&D. It references the provision in the employment agreements stating that if D&D decides to no longer be in the wood-tool sharpening business, the Swarbergs are entitled to notice of termination and a right of first refusal to purchase the assets of Atlas. It then recites that D&D "is now negotiating to sell substantially all of its assets, including the Brea Assets, which sale is anticipated to close on or around January 3, 2011 (the 'Closing'), at which time the employment of each of [D&D's] employees, including the Swarbergs, will be teriminated," and that "in order to facilitate the sale of [D&D's] assets, [it] has requested that each of the Swarbergs waive the Right of First Refusal and Notice."
The waiver and acknowledgement then states that the Swarbergs waive both the right of first refusal provision and any required notice of termination provision contained in their employment agreements. Moreover, both acknowledge that their employment with D&D will terminate as of the date of the closing, while also acknowledging all of their "continuing obligations to [D&D], including but not limited to non-disclosure of trade secrets or other confidential information of the Company for five years following termination of employment."
Finally, the waiver and acknowledgment document contains an integration clause, specifying it "contains the entire agreement of the parties with respect to the subject matter hereof, and supersedes any and all prior verbal or written agreements, understandings, commitments or practices between the parties."
D&D and Dutro demurred to the complaint, and the court sustained their demurrer with leave to amend. The court pointed out the Swarbergs had not pleaded facts sufficient to demonstrate they justifiably relied on Dutro's representation as to the intentions of OneSource to honor their employment agreements, and failed to plead fraud with specificity. With respect to the breach of contract cause of action, the court reasoned the Swarbergs had failed to allege facts showing any contract existed between themselves and Dutro, individually, and had failed to allege facts showing D&D had breached the terms of their employment agreements. And the court noted that contrary to the Swarbergs' allegation that their employment agreements had been assigned to OneSource, the waiver and acknowledgment document attached to their complaint stated those agreements had been terminated.
The Swarbergs filed their first amended complaint in September 2014, dropping Dutro from the cause of action for breach of contract and fleshing out some of the factual allegations. Among other things, they alleged that following D&D's purchase of Atlas, it moved into Atlas's Brea shop, and that the Swarbergs' employment agreements with D&D were "the primary consideration given by D&D for Atlas." They further alleged that D&D included the provision in their employment agreements allowing termination in the event D&D "should decide to no longer be in the wood tool sharpening business" with the intent to sell the Atlas business, and that D&D never intended to stay in the wood-tool sharpening business. Somewhat inconsistently, they alleged they were informed and believed that D&D was actually still operating the wood-tool sharpening business. At another point, the Swarbergs allege Dutro and D&D "concocted this elaborate scheme with the owners of OneSource to purchase Atlas and include[d] the clause related to selling the business in the employment agreements to successfully oust plaintiffs from their own business and take such business for virtually nothing."
With respect to the sale of the assets to OneSource, the Swarbergs alleged that Dutro informed them in late December 2010 that D&D was selling Atlas to OneSource; that Bob Zamporini, the vice president of marketing for OneSource, had agreed to continue their employment agreements; and it would be a very good opportunity for the Swarbergs because the OneSource business was larger and they would receive more bonuses. Dutro then allegedly gave the Swarbergs the waiver and acknowledgment document, telling them it needed to be signed that same day for the asset sale to be completed. They allegedly signed the document "reluctantly," believing Dutro's assurance that their employment agreements would be honored by OneSource.
The Swarbergs then allege that Bonnie's employment was terminated when D&D was sold to OneSource, but George's employment was continued for six months under OneSource's ownership. In June 2011, OneSource terminated George's employment, and no bonuses were paid to him.
D&D and Dutro once again demurred to the first amended complaint. The court again sustained the demurrer with leave to amend, explaining the Swarbergs' fraud cause of action was based on two distinct misrepresentations: first a misrepresentation about D&D's intentions to abide by the original employment agreements; and second a misrepresentation about OneSource's agreement to honor those employment agreements. The court noted the first assertion was unsupported by any allegation that D&D did not actually comply with the terms of the employment agreements, or that it failed to comply with some other promise made. As to the second assertion, the court again concluded the Swarbergs had pleaded insufficient facts demonstrating it was reasonable for them to rely on Dutro's promises about what OneSource would do in relation to their future employment.
The court again concluded the Swarbergs' fraudulent inducement cause of action was largely coextensive with their fraud cause of action, and it failed on the same basis. And the court concluded the breach of contract cause of action was still deficient because the waiver and acknowledgment signed by the Swarbergs expressly stated their employment was terminated as of the date D&D closed the sale of its assets to OneSource, which was inconsistent with the Swarbergs' contention those agreements had been assigned to OneSource. The court did note the Swarbergs had also argued the waiver and acknowledgment should be ignored in assessing their breach of contract cause of action because it was both fraudulently induced and lacked consideration, but concluded that "[t]o the extent [the Swarbergs'] breach of contract cause of action depends on the Plaintiffs' waiver being void for fraudulent inducement and/or lack of consideration, this should be alleged in the breach of contract action."
The Swarbergs' second amended complaint, filed in February 2015 included additional factual allegations intended to demonstrate their reliance on Dutro's representations about OneSource had been reasonable, and clarifying what she allegedly promised. Specifically, they alleged that (1) the Swarbergs "were informed and believed that pursuant to the sale [to OneSource] Dutro would become a principal owner of OneSource"—although they do not identify the source of that information; (2) they "were informed and believed that Dutro was very good friends with the principal owner of OneSource, Bob Zamarripa, [and that he] had helped Dutro and D&D over the years in many business-related matters" — although again they fail to identify the source of that information; (3) Dutro told George that Bonnie would be taken off the payroll when D&D's sale of assets to OneSource closed, but OneSource would continue to employ George at a total salary equal to the combined salaries he and Bonnie had been earning under their employment agreements with D&D; (4) Bob Zamarripa "had, in fact, agreed to continue [the] employment agreement of plaintiff George Swarberg with the increase salary of $100,900.00" when employed by OneSource; and (5) Dutro and D&D promised they would "ensure" that George would receive the full promised salary, plus commissions and profit sharing, and his duties and obligations would remain the same.
The reader is left to wonder whether Zamarripa, identified as the chief executive officer of OneSource, is the same person identified as "Bob Zamporini, the vice-president of marketing for OneSource" in the Swarbergs' first amended complaint.
Further, the second amended complaint again alleged Dutro and D&D never intended to abide by the employment agreements, and instead "concocted this elaborate scheme to 'sell' Atlas to Dutro's good friend, Mr. Zamarripa, and to void the employment agreements that were the primary consideration received by plaintiffs when they sold Atlas to Dutro and D&D." It also alleged the Swarbergs are "informed and believe that Atlas continues to be a viable, separate business as Atlas signs remain at the [Swarbergs'] former business location" and that contrary to the "sham" sale of Atlas to OneSource, D&D and Dutro "continue to operate Atlas at this location and . . . remain in the tool sharpening business to present day."
However, contrary to the allegation the sale to OneSource was a "sham," and D&D continues to operate the business, the second amended complaint also alleged the Swarbergs "are informed and believe that pursuant to the 'sale' from D&D to OneSource, OneSource purchased all of the debts and liabilities of Atlas."
The second amended complaint also alleged the Swarbergs signed the waiver and acknowledgment because they believed Dutro's representations that OneSource would honor George's employment agreement at the promised higher salary, and that "[t]here was [no] other consideration paid for their signature[s] on this document[] besides the aforementioned promises and representations made by Dutro."
The allegation actually reads, "There was other consideration paid for their signature[s]," but we presume this reflects a typographical error, and the Swarbergs intended to allege there was no other consideration paid - the same assertion they had been making all along.
Finally, the second amended complaint was expanded to include: (1) a cause of action for declaratory relief against D&D and OneSource, seeking a declaration that the employment agreements remained valid and enforceable, while the wavier and acknowledgment they signed was "null, void and/or unenforceable"; (2) a cause of action for elder abuse, alleged by George only against D&D and OneSource; and (3) a cause of action for "civil conspiracy" against all defendants.
This time, not only did D&D and Dutro demur, but OneSource demurred as well. OneSource's demurrer was heard first, and the court sustained it "with 15 days leave to amend one last time." The court explained the complaint failed to state a cause of action against OneSource for breach of contract because it did not allege the formation of any contract between the Swarbergs and OneSource; instead, the alleged representations that OneSource would honor the Swarbergs' employment agreements were allegedly made by Dutro, rather than by any representative of OneSource. Moreover, the court noted that the allegation a purchaser had assumed "the debts and liabilities" of a company did not bind the purchaser to the seller's employment contracts, and reiterated there were insufficient facts alleged to suggest Dutro had ostensible authority to bind OneSource to her alleged representations. The court also explained the declaratory relief cause of action was deficient because such a cause of action will not lie to determine an issue which can be determined "in the underlying tort action."
The court rejected George's cause of action for financial elder abuse because nothing defendants were alleged to have done qualified as "financial abuse" as defined in Welfare and Institutions Code § 15610.30, subd. (a). And finally, the court rejected the cause of action for "civil conspiracy" because a conspiracy is not an independent cause of action, but a doctrine to extend liability for wrongdoing, and the Swarbergs' claim had not been supported by allegations of any actionable wrongful conduct.
After the court sustained OneSource's demurrer to the second amended complaint, the Swarbergs filed their third amended complaint, thereby mooting D&D and Dutro's pending demurrer. However, on the same day the Swarbergs filed that third amended complaint, they also filed a one-page notice of intent to proceed by binding arbitration — citing the arbitration provisions included in their employment agreements with D&D — and included a conclusory request that the court stay the proceedings pending that arbitration.
The Swarbergs' third amended complaint did not attach a copy of the waiver and acknowledgment document, as each of the earlier versions had, and instead attached the agreement by which the Swarbergs sold the assets of Atlas to D&D. That agreement reflected D&D had paid the Swarbergs $200,000 for those assets. The Swarbergs again alleged their five-year employment agreements had been part of the consideration paid for their sale of the Atlas assets, and they would not have entered into the agreement to sell the business had they known D&D and Dutro did not intend to abide by the terms of those agreements.
However, the third amended complaint did not ignore the waiver and acknowledgment document. Instead, it again described the Swarbergs' execution of the document, expressly stating that no consideration had been paid to the Swarbergs in connection with it, and reiterated they signed the document in reliance on Dutro's false representation that Zamarripa had promised George would continue his employment with OneSource under the terms of his D&D employment agreement but at the increased salary of $100,900.00 The complaint alleged the Swarbergs would never have signed the waiver and acknowledgment document had they known Dutro and OneSource did not intend to honor that promise. Thus, the third amended complaint alleged D&D and Dutro committed fraud and fraudulent inducement in connection with both the Swarbergs' execution of their original agreement to sell the Atlas assets to D&D, and their execution of the waiver and acknowledgment document.
In their breach of contract cause of action, alleged against D&D and OneSource, the Swarbergs claim D&D breached their employment agreements by failing and refusing to pay the amounts due under the agreements for the full five-year term; failing to accord the Swarbergs their right of first refusal to repurchase the assets of Atlas before selling those assets to OneSource; by wrongfully terminating the employment agreements and failing to pay the required two months of salary due at termination. The Swarbergs further alleged that OneSource "purchased all of the assets and liabilities of Atlas, including the employment agreements. . . . Thus, [it was] the assignees and obliges [sic], under these agreements" and breached them when it terminated the Swarbergs' employment without cause. As part of their breach of contract cause of action, the Swarbergs' expressly alleged the waiver and acknowledgment "should be deemed null and void due to fraudulent representations made by Dutro and D&D [and because] there [was] no consideration paid for [it.]"
The third amended complaint's causes of action for declaratory relief, elder abuse, and civil conspiracy were essentially unchanged from those alleged in the second amended complaint.
All three defendants once again demurred, repeating many of the same arguments advanced in earlier demurrers. And on June 5, 2015, one day after those demurrers were filed, the Swarbergs filed a motion to compel only D&D to arbitrate their claims against it, and asked the court to stay the entire lawsuit pending the result of their arbitration with D&D. By that point, the Swarbergs' lawsuit had been pending for well over a year.
All defendants opposed the Swarbergs' motion to compel D&D into arbitration and stay the lawsuit. Dutro and D&D pointed out the motion reflected an effort to split the Swarbergs' lawsuit between two forums, raising the specter of inconsistent results, and argued the Swarbergs had waived their right to arbitrate by pursuing their claims against D&D in court for over a year and by participating in discovery. They also suggested the Swarbergs, faced with the likelihood of a final defeat on the demurrers, were engaged in forum shopping. In its opposition, OneSource acknowledged the Swarbergs were not trying to compel arbitration of any claims against it, but argued it would be prejudiced if the motion were granted, due to both the possibility of inconsistent results and the fact that a stay of the Swarbergs' claims against it would significantly delay resolution of those claims. OneSource also argued the Swarbergs had waived their right to arbitrate against D&D because it was they who voluntarily chose to proceed on their claims in court.
The court sustained all the demurrers without leave to amend. In doing so, the court reiterated many of the same concerns it had expressed about prior versions of the Swarbergs' complaint. The court relied on the Swarbergs' execution of the waiver and acknowledge document to establish they had previously abandoned the very rights they were seeking to enforce in their breach of contract cause of action. The court acknowledged the Swarbergs' allegation that the waiver and acknowledgment document had been unsupported by consideration and was thus unenforceable, but did not specifically address it. Instead, the court reasoned the document's enforceability made no difference. As the court explained, even "[w]ithout [the] waiver, D&D still could have gotten out of the employment contracts by giving [the Swarbergs] the right of first refusal — someone (whether [the Swarbers] or OneSource) would have bought Atlas, which — again — would result in termination of the employment agreements."
The court also denied the Swarbergs' motion to compel arbitration against D&D, concluding they had waived their right to arbitrate by first pursuing a strategy of courtroom litigation, and then seeking arbitration only as a means to avoid the likelihood of a court ruling that would terminate their lawsuit with prejudice.
DISCUSSION
Demurrer Standard of Review
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citation.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed 'if any one of the several grounds of demurrer is well taken. [Citations.]' [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment." (Aubry v. Tri-City Hospital District (1992) 2 Cal.4th 962, 966-967.)
Although Dutro and D&D point to inconsistencies among the claims alleged by the Swarbergs in their successive complaints, our review focuses on whether the allegations of the third amended complaint are sufficient to state a cause of action. "'Generally, after an amended pleading has been filed, courts will disregard the original pleading.'" (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946 (Vallejo Development Co.).) Moreover, a party is not precluded from pleading inconsistent claims. (Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 29 ["Where the exact nature of the facts is in doubt, or where the exact legal nature of plaintiff's right and defendant's liability depend on facts not well known to the plaintiff, the pleading may properly set forth alternative theories in varied and inconsistent counts"].) Nor is it automatically bound by every fact alleged. (See Barsegian v. Kessler & Kessler (2013) 215 Cal.App.4th 446, 452 ["not every factual allegation in a complaint automatically constitutes a judicial admission"].)
However, the content of prior pleadings may be considered in cases "'where an amended complaint attempts to avoid defects set forth in a prior complaint by ignoring them. The court may examine the prior complaint to ascertain whether the amended complaint is merely a sham.' [Citation.] The rationale for this rule is obvious. 'A pleader may not attempt to breathe life into a complaint by omitting relevant facts which made his previous complaint defective.' [Citation.] Moreover, any inconsistencies with prior pleadings must be explained; if the pleader fails to do so, the court may disregard the inconsistent allegations. [Citation.] Accordingly, a court is 'not bound to accept as true allegations contrary to factual allegations in former pleading in the same case.'" (Vallejo Development Co., supra, 24 Cal.App.4th at p. 946.) Further, "[u]nder the doctrine of truthful pleading, the courts 'will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts that are judicially noticed.'" (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400.)
Having reviewed all the versions of the Swarbergs' complaint, we are satisfied their third amended complaint does not qualify as a sham pleading. To the extent the different iterations of the complaint include inconsistent allegations, they seem to reflect either a refinement of known facts (e.g., the allegation that Dutro promised both Swarbergs would continue their employment with OneSource under the terms of their employment agreements, which was later changed to an allegation that she promised only George's employment would be continued, but at a salary equal to both prior salaries); an attempt to state alternative theories of liability based upon alleged facts within defendants' peculiar knowledge (e.g., the seemingly inconsistent allegations that OneSource actually purchased all the assets and liabilities of Atlas from D&D, and that the purported sale of those assets to OneSource was a sham transaction, intended to give the false impression D&D had left the wood-tool sharpening business); or a genuine struggle to identify the appropriate theory of recovery. Moreover, we see a fair amount of factual confusion in the pleadings (e.g., the Swarbergs' characterization of their employment agreements as constituting part of the "assets and liabilities" of their former business, Atlas, when those agreements were entered into between the Swarbergs and D&D, and their insistence on alleging their causes of action jointly, even though the factual circumstances of their claims are distinct). However, in the context of the causes of action the Swarbergs are attempting to state, none of that suggests to us an intentional sham pleading, and we make no such finding.
Notwithstanding that general conclusion, we agree with the court's implied finding that the Swarbergs' unexplained omission of the waiver and acknowledgment document from their third amended complaint suggests an attempt to avoid its provisions. This is particularly true because the waiver and acknowledgement was attached to each prior version of the complaint, it is central to the causes of action alleged in the third amended complaint, and its terms would automatically override any contrary allegations regarding its legal effect. (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 282 ["the terms of [a] written agreement take precedence over any contradictory allegations in the body of the complaint"]; Vallejo Development Co., supra, 24 Cal.App.4th at p. 946 ["as a matter of law, allegations in a complaint must yield to contrary allegations contained in exhibits to a complaint"].) Consequently, we conclude the Swarbergs are bound by the content of the waiver and acknowledgement document and its terms must be considered in evaluating the causes of action alleged in their third amended complaint.
The Breach of Contract Cause of Action
The court relied on the Swarbergs' execution of the waiver and acknowledgement document in concluding they could not state a cause of action for breach of their employment agreements. As the court reasoned, "the employment agreements with D&D terminated upon [the Swarbergs'] execution of the waiver and acknowledgement and the sale to OneSource." The Swarbergs contend that was error because, as they point out, they alleged the waiver and acknowledgment document was unsupported by any consideration, and was thus unenforceable. We agree.
The Swarbergs alleged that on December 28, 2010, Dutro requested they both sign the waiver and acknowledgment document with the express goal of facilitating D&D's sale of its assets to OneSource, which was anticipated to close less than a week later. They did so, allegedly in reliance on Dutro's assurance that OneSource had already agreed to continue employing George under the terms of his employment agreement with D&D, and at a salary equal to what both Swarbergs were being paid by D&D.
The terms of the waiver and acknowledgement document are consistent with these alleged circumstances of its execution. It specifically recites the Swarbergs are being requested to sign it "to facilitate the sale of [D&D's] assets" which is "anticipated to close on or around January 3, 2011." It then states the Swarbergs are waiving both their right to any notice of termination of their employment agreements and their right of first refusal to purchase the assets of Atlas. Further, it establishes the Swarbergs' employment with D&D will terminate as of the date D&D's asset sale closes, and reflects George's acknowledgement that no bonuses are due to him under the terms of his employment agreement. The document offers the Swarbergs no concessions in return — to the contrary, it expressly reaffirms the Swarbergs' continuing obligations under their employment agreements, and states those obligations will remain in effect for a full five years after the Swarbergs' employment is terminated as provided for in the waiver and acknowledgment.
As set forth in Civil Code section 1550, all contracts must be supported by consideration, and "[a] promise is not enforceable unless consideration was given in exchange for the promise." (US Ecology, Inc., v. State of California (2001) 92 Cal.App.4th 113, 128; Western Lithograph Co. v. Vanomar Producers (1921) 185 Cal. 366, 369 ["A naked promise unsupported by a consideration is not enforceable"].) Moreover, any alteration or modification of an existing contract, which is what the waiver and acknowledgement document amounts to, must be supported by additional consideration. (Western Lithograph Co., at pp. 369-371; Fairlane Estates v. Carrico Constr. Co. (1964) 228 Cal.App.2d 65, 71.)
In this case, however, the waiver and acknowledgment reflects no such consideration. As we have noted, the document appears entirely one-sided, specifying the Swarbergs alone will relinquish the rights they would otherwise be entitled to under their employment agreements, and that they are doing so for the express purpose of benefitting D&D. In return, the document reflects the Swarbergs will receive nothing.
Defendants do not dispute the Swarbergs' assertion that the waiver and acknowledgment was required to be supported by consideration. They contend instead that the document was adequately supported as a matter of law because a "'written instrument is presumptive evidence of consideration" (citing Civ. Code, § 1614), and because Dutro and D&D allegedly provided consideration in the form of Dutro's "facilitation of the employment of George Swarberg [by OneSource] after the sale." Neither contention is persuasive.
The presumption of consideration stated in Civil Code section 1614 merely "affects the burden of producing evidence." (Rancho Santa Fe Pharmacy, Inc. v. Seyfert (1990) 219 Cal.App.3d 875, 884.) When contrary evidence is introduced, the presumption disappears. (Evid. Code, § 604.) The allegation that the waiver and acknowledgment are unsupported by consideration is assumed true for purposes of the demurrer, and the document itself confirms the allegation. Thus, the presumption of Civil Code section 1614 cannot be relied upon to resolve the point in defendants favor at the demurrer stage. Moreover, the claim that Dutro's facilitation of George's employment with OneSource operated as consideration for the Swarbergs' execution of the waiver and acknowledgment fails because it directly contradicts the allegation of the third amended complaint — which alleges there was no consideration - and because it appears to contradict the integration clause included in the waiver and acknowledgment itself, which specifies that document "contains the entire agreement of the parties with respect to the subject matter hereof, and supersedes any and all prior verbal or written agreements, understandings, commitments or practices between the parties." (Italics added.) Dutro's supposed agreement to facilitate Gerorge's employment with OneSource appears nowhere on the document.
Based on the foregoing, we conclude the Swarbergs adequately pleaded that the waiver and acknowledgment document they signed was unsupported by consideration and was thus unenforceable and of no legal effect. Consequently, the trial court erred by relying upon that document as a basis for sustaining defendants' demurrers to their breach of contract cause of action.
Echoing a finding expressed by the trial court, D&D and Dutro also contend that even if the waiver and acknowledgement document was unenforceable, the Swarbergs' breach of contract claim would still fail because "the employment agreements were terminated by their own terms given [that] D&D was sold." We disagree for two reasons. First, the Swarbergs' employment agreements did not automatically terminate just because D&D sold its assets to OneSource. Instead, those agreements merely provide that D&D had a right to terminate the Swarbergs' employment in the event it chose to leave the wood-tool sharpening business, and state the Swarbergs were entitled to two months' notice of such a termination, and to exercise a right of first refusal to repurchase the Atlas assets. More fundamentally, D&D's contention ignores the fact that even if it did properly exercise its right to terminate the Swarbergs' employment, they were contractually entitled to receive that required period of notice and right of first refusal. The Swarbergs affirmatively allege they received neither, and it is D&D's alleged failure to accord them those rights which constitutes its breach of contract.
But having said that, we must also point out that the Swarbergs have not yet adequately alleged all the elements of that cause of action against D&D. Stated simply, it is not enough to allege the contract was breached; the Swarbergs must also allege facts demonstrating how they were harmed by that breach. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388 ["A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff"].) For example, if the Swarbergs wish to recover damages based on D&D's failure to accord them the promised right of first refusal, their cause of action must allege, at a minimum, they would have exercised that right if given the opportunity. Their third amended complaint contains no such allegation, but as we believe there is a reasonable possibility the Swarbergs could amend to state such a claim, we conclude it would be an abuse of discretion not to afford them leave to amend to do so. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967.)
On the other hand, we reject the Swarbergs attempt to allege a cause of action for breach of contract against D&D on the theory that its sale of the wood-tool sharpening business to OneSource was actually a sham, and designed to obscure the fact D&D is still operating the Brea shop. That allegation is wholly conclusory, and is fatally inconsistent with the Swarbergs' other allegations, including that they are informed and believe "OneSource purchased all the stock, assets and liabilities of Atlas," and that George continued to work at the shop, as an employee of OneSource, for a period of six months following the sale.
The single stray allegation that OneSource purchased the stock of Atlas is belied by the attachment of the "Agreement of Purchase and Sale of Assets" to the third amended complaint which unambiguously provides that D&D purchased the assets of Atlas, not its stock. Thus, D&D never owned the stock of Atlas and could not have conveyed it to OneSource.
And we likewise reject the Swarbergs' attempt to state a claim for breach of contract against OneSource. The Swarbergs alleged that OneSource was obligated to honor the terms of their employment agreements because it purchased all of the assets and liabilities of Atlas, and thus became "the assignee[] and obligee[], under these agreements." As noted, we do not "assume the truth of contentions, deductions or conclusions of law." (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 967.) The allegation that the "liabilities" purchased by OneSource included the employment contracts is just a contention and conclusion, unsupported by any other facts. And if other facts exist, they surely should have been discovered during the approximate one-year pendency of this case in the court below. Without more, we further assume that even if OneSource "purchased" the "liabilities" of Atlas, the word "liabilities" would have its usual meaning — the debts accrued by Atlas but not yet paid. The employment agreements were executory contracts, not "liabilities" as that term is normally understood. "'The general rule is that the mere assignment of rights under an executory contract does not cast upon the assignee the obligations imposed by the contract upon the assignor. . . . [However, a]ssumption of obligations may be implied from acceptance of benefits under the contract.'" (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1170.) To the extent the Swarbergs could argue (which they do not do) that the acceptance by OneSource of the benefits of George's services for six months would imply the assumption of the obligations of the employment contracts, the argument fails because the third amended complaint alleges that OneSource agreed to continue George's employment agreement with the increased salary of $100,900 and to take Bonnie "off of payroll." These were not the terms of the original employment agreements. These are the terms of alleged amended agreements. But both of the employment agreements specify that "[n]o amendments to this Agreement may be made except in writing signed by both parties." As we have already explained, the provisions of a contract attached to a complaint will govern over any contrary allegations in the complaint, and what these provisions establish is that the Swarbergs' employment agreements could not be "assigned" to OneSource, particularly with modified terms, in the absence of a writing signed by the parties. The Swarbergs do not allege any such writing exists, and in the context of this case, we conclude there is no reasonable likelihood it does. Nor is there any allegation that the Swarbergs are the intended third party beneficiaries of any assignment of assets and liabilities from D&D to OneSource. Consequently, we find no error in the trial court's ruling sustaining OneSource's demurrer to the breach of contract cause of action without leave to amend.
Of course, the purchase of the assets and liabilities of Atlas would technically not include the employment contracts because those contracts were between the Swarbergs and D&D, not between the Swarbergs and Atlas. But so as not to quibble about a technicality we assume the Swarbergs intended to refer to those assets and liabilities of D&D related to the Atlas wood-tool sharpening business.
The Fraud and Fraudulent Inducement Causes of Action
As we have already pointed out, the Swarbergs fraud and fraudulent inducement causes of action are largely duplicative, and each purports to state two distinct commissions of fraud. First, the Swarbergs allege they were fraudulently induced to enter into the original agreement to sell their company's assets to D&D, because a material part of the consideration paid for that agreement was D&D's agreement to "abide by the Employment Agreements and pay them annual salaries and bonuses for a span of five (5) years." They allege D&D "never intended to fulfill and comply with the Employment Agreements" and that they would not have "sold the business . . . had they known [Dutro's and D&D's] true intentions."
We conclude these allegations are insufficient to demonstrate that Dutro and D&D intended to defraud the Swarbergs when D&D entered into the agreement to purchase the assets of their business. The only allegation suggesting D&D had no intention of complying with the employment agreements at the time it purchased the Swarbergs' business is the assertion it breached those agreements over a year later. That is insufficient. As explained by our Supreme Court in Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1183, "promissory fraud is not easily established. Proof of intent not to perform is required. It is insufficient to show an unkept but honest promise, or mere subsequent failure of performance. [Citation.] '"[S]omething more than nonperformance is required to prove the defendant's intent not to perform his promise."'"
To the extent the Swarbergs' claim rests on the specific assertion D&D breached a promise to "pay them annual salaries and bonuses for a span of five (5) years," we would reject it as inconsistent with the terms of the Swarbergs' employment agreements. Those agreements expressly contemplate D&D might choose to leave the wood-tool sharpening business before the Swarbergs' employment agreements expire, and they provide that if D&D did so, the Swarbergs' employment could be terminated on two months' notice, and they would have the right to repurchase the assets of their former business. That is the remedy the Swarbergs negotiated to address the possibility D&D would cease operating their former business within the five-year period of their employment agreements. In light of those provisions, it would be unreasonable as a matter of law for the Swarbergs to claim a belief that D&D was promising to employ them for a full five years as part of the inducement for them to sell their business.
The Swarbergs' second allegation of fraudulent conduct alleges Dutro and D&D fraudulently induced them to enter into the waiver and acknowledgment document by telling them that OneSource's CEO — and Dutro's good friend — had promised OneSource would continue to employ George in accordance with the terms of his employment agreement with D&D. The trial court rejected this claim on the ground the Swarbergs had not alleged any facts suggesting they could have reasonably relied on Dutro's alleged representation. We disagree.
"'Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff's reliance is reasonable is a question of fact.'" (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239) The reasonableness of a plaintiff's reliance will depend on factors particular to that person, and the circumstances under which the promise or representation was made: "[T]he issue is whether the person who claims reliance was justified in believing the representation in the light of his own knowledge and experience." (Gray v. Don Miller and Associates, Inc. (1984) 35 Cal.3d. 498, 503.)
In this case, the Swarbergs had already been doing business with Dutro for over a year — since they sold her their business — when Dutro informed them she was selling Atlas's former assets to OneSource. There are no facts suggesting Dutro had demonstrated herself to be unworthy of their trust up to that point. And as the complaint alleges, she gave them no opportunity to investigate her representations for themselves. Instead, Dutro presented the Swarbergs with the waiver document and insisted it must be signed that same day. She gave them no opportunity to mull over their options or consult with any advisors. She not only assured the Swarbergs of her own belief that George would continue to be employed by OneSource as he had been by D&D, but also represented that the CEO of OneSource had personally confirmed to her that OneSource would honor the terms of George's employment agreement. Given those alleged facts, we could not say it was unreasonable for the Swarbergs to rely on Dutro's representations as a matter of law. While Dutro and D&D would be free to argue their reliance was unreasonable at trial, based upon the evidence admitted, we conclude the trial court erred by sustaining the demurrer on the basis that such reliance was foreclosed.
The Declaratory Relief Cause of Action
The Swarbergs also challenge the court's rejection of their cause of action for declaratory relief, but do so in an argument spanning only two paragraphs. In that argument, they set forth the elements of a declaratory relief cause of action, state their third amended complaint alleged all those elements, and then assert in conclusory fashion that the court erred in concluding otherwise.
What the Swarbergs do not do is address the court's reason for its ruling, which was that a separate declaratory relief action is improper if the issues sought to be resolved have already been raised in other causes of action, and it would merely "furnish plaintiffs with a second cause of action for determination of identical issues." And by failing to explain why the court's actual ruling was incorrect, the Swarbergs have waived the issue on appeal. "Issues do not have a life of their own: if they are not raised or supported by argument or citation to authority, we consider the issues waived." (Jones v. Superior Court (1994) 26 Cal.App.4th 92, 99.)
The Cause of Action for Elder Abuse
George alleged a cause of action for elder abuse, claiming the wrongs alleged in the third amended complaint amounted to "financial abuse" as defined in Welfare and Institutions Code section 15610.30, subdivision (a)(1). That statute specifies that financial abuse of an elder occurs when a person "[t]akes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both." (Ibid.)
In sustaining the demurrer to that cause of action without leave to amend, the trial court reasoned the allegations of the third amended complaint did not fit within the "financial abuse" definition. George asserts that ruling was erroneous, pointing out that the effective result of defendants' misconduct was that he "did not receive the agreed upon consideration for [his] business," which he characterizes as "5 years of employment." However, George does not explain how being deprived of "5 years of employment" actually meets the definition of elder financial abuse set forth in Welfare and Institutions Code section 15610.30, subdivision (a)(1), and he cites no authority suggesting it might. We consequently find no error in the court's ruling.
The Cause of Action for Conspiracy
The final cause of action alleged in the Swarbergs' third amended complaint is styled "conspiracy," and they again contend the court erred by sustaining the demurrers to that cause of action without leave to amend. We conclude the court erred. The court explained its ruling by noting that a civil conspiracy is not an independent cause of action and the Swarbergs' claim was unsupported by allegations of any actionable wrongful conduct.
But we have now reversed the court's ruling on one of the two fraud allegations, namely, that D&D and Dutro fraudulently induced them to execute the waiver and acknowledgment. As explained in Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, conspiracy is a doctrine that can be used to extend tort liability: "Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. [Citation.] By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. [Citation.] In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors." (Id. at pp. 510-511.) By incorporating the allegations of fraud into their cause of action for civil conspiracy, the Swarbergs have adequately alleged the extension of liability to OneSource for the alleged fraudulent inducement of the waiver and acknowledgment document.
We note that liability for D&D's breach of contract cannot be extended to OneSource through the civil conspiracy doctrine. "A cause of action for civil conspiracy may not arise . . . if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing . . . ." (Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 44, italics added.) Here, no party other than D&D was bound by its contractual obligations under the Swarbergs' employment agreements; thus the Swarbergs cannot state a viable claim against any of them for breach of contract.
The Motion to Compel Arbitration
The Swarbergs' final contention is that the court abused its discretion by finding they waived their right to compel arbitration of their lawsuit against D&D. However, as always, we are obligated to presume the trial court's ruling is correct (Denham v. Superior Court (1970) 2 Cal.3d 557, 564). And because waiver is a question of fact, it is "[o]nly '"in cases where the record before the trial court establishes a lack of waiver as a matter of law"'" that the appellate court can reverse a finding of waiver. (Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1450, italics added.) Thus, the Swarbergs must satisfy a heavy burden to justify reversal of the trial court's ruling.
Further, the Swarbergs have complicated their burden immeasurably by failing to include any significant argument on this issue in their brief. Instead, they recite that "[t]his matter has already been extensively briefed by Appellants in both their Motion to Compel and in their Reply and for the purposes of judicial economy, [they] incorporate those arguments, in their entirety, by reference here." But it is well established that such incorporation by reference is improper, and that the appellate court will not consider the referenced material as part of the appellate brief. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 294, fn. 20 ["the Court of Appeal does not permit incorporation by reference of documents filed in the trial court. [Citations.] The same principle bars defendants' attempts to incorporate by reference arguments advanced in other appellate briefs. We therefore disregard these purported incorporations by reference"].)
Turning to the only argument that is included in the Swarbergs' brief, we find it unpersuasive. The Swarbergs rely on St. Agnes Medical Center v. PacificCare of California (2003) 31 Cal.4th 1187, 1200, for the proposition that "the mere filing of a lawsuit does not waive contractual arbitration rights." But this case does not involve the "mere filing" of a lawsuit. Rather, it includes over a year of litigation, including several rounds of demurrers and motions to strike parts of the complaint and court rulings on the issues raised, all followed by the Swarbergs' abrupt decision to arbitrate when faced with the prospect of losing. As such, this case is similar to Christensen v. Dewor Developments (1983) 33 Cal.3d 778, in which the Supreme Court considered whether "whether a party retains the right to insist upon arbitration after he has filed a lawsuit over admittedly arbitrable disputes, for the asserted purpose of discovering his opponent's legal theories, and has pursued that litigation through successive demurrers, abandoning it only a day before a scheduled hearing on the adequacy of his amended complaint." (Id. at p. 780.) The Supreme Court answered that question in the negative.
As the court explained in Christensen, one of the factors relied upon in deciding a party has waived the right to arbitrate is whether that party "'has acted in "bad faith" or with "willful misconduct."'" (Christensen v. Dewor Developments, supra, 33 Cal.3d at p.782.) And the court reasoned the plaintiffs in that case had acted in bad faith by pursuing litigation as a means of gaining information about their opponents' case, while at the same time planning to invoke their right to arbitrate. In this case, the trial court concluded the Swarbergs' invocation of arbitration amounted to forum shopping, and that they had done so only "when confronted with the possibility of losing" in court. That also reflects a finding of bad faith, and the record amply supports the conclusion. We consequently affirm the trial court's ruling.
DISPOSITION
The judgment is reversed in part and affirmed in part. The judgment is reversed as to Dutro and D&D, and the cause is remanded with instructions to (1) overrule Dutro's and D&D's demurrers to the causes of action for fraud and fraudulent inducement; and (2) sustain D&D's demurrer to the Swarbergs' cause of action for breach of contract, with 30 days leave to amend. The judgment is also reversed as to OneSource and the cause is remanded with instructions to overrule its demurrer to the cause of action for civil conspiracy based upon the causes of action for fraud and fraudulent inducement. The judgment is otherwise affirmed. In the interest of justice, each party shall bear its own costs on appeal.
IKOLA, J. WE CONCUR: FYBEL, ACTING P. J. THOMPSON, J.