Avetisyan v. Azinian

 

 

 

 

 

 

 

 

 

Filed 8/12/13  Avetisyan v. Azinian CA2/5

 

 

 

 

 

 

 

 

>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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  This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.

 

 

 

IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

 

SECOND
APPELLATE DISTRICT

 

DIVISION
FIVE

 

 
>

AVETTIS AVETISYAN, et al.,               Plaintiffs and Appellants,               v.   ROBERT AZINIAN, et al.,               Defendants and Respondents.

B240309         (Los Angeles County       Super. Ct. No. BC459263)

 

            APPEAL from
an order of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County.  Rita Miller,
Judge.  Affirmed.

            Law Offices
of Richard M. Foster, Richard M. Foster, Sylvia Sultanyan and Arutyun Topchyan
for Plaintiffs and Appellants.

            Steckbauer
Weinhart, William W. Steckbauer, James M. Gilbert and Sean A. Topp for
Defendant and Respondent.

 

_______________

            Avettis Avetisyan, Garo Ghevondian and Masis Ghevondian
(plaintiffs) appeal the February 24, 2012 order sustaining the demurrer of
defendant Robert Azinian (defendant) to plaintiffs’ first amended
complaint.  Finding no error, we affirm
the order.

 

I.  FACTUAL AND PROCEDURAL BACKGROUND

 

            According to the first
amended complaint filed on September 12, 2011, defendant “induced”
plaintiffs to loan money to Sanitec Industries (Sanitec), and have not been
repaid.  The complaint alleges that in
May 2007, plaintiffs disbursed $200,000 to Sanitec by wire transfer and
personal check pursuant to an oral loan agreement (the “Loan Agreement”)
entered into between plaintiffs and defendant. 
Under the terms of the Loan Agreement, Sanitec was to repay the loan
principal, with interest at the rate of 12 percent per year, by making eight
monthly payments of $28,000, starting in June 2007.  Delinquent payments would incur a fee equal
to 10 percent of the amount due.  In
addition, plaintiffs were to receive 500,000 shares of Sanitec stock as well as
options to purchase an additional one million shares of stock at $1 per
share.  Sanitec and its principal, James
Harkness, executed a “guarantor agreement” by which Harkness and Sanitec’s
related companies guaranteed the loan, provided security for the loan and
memorialized the terms of the loan (the “Guarantor Agreement”).href="#_ftn1" name="_ftnref1" title="">^[1]  

            Plaintiffs
were not mentioned in the written materials documenting the Guarantor
Agreement.  Plaintiffs described
defendant as their “point person” acting for them in the transaction, based on
his personal relationship with Sanitec and Harkness.  Defendant was to collect the loan payments
from Sanitec and disburse them to plaintiffs. 
Defendant stated that he would invest $100,000 of his own money in
Sanitec concurrently with the plaintiffs’ loan, but, as plaintiffs learned in
June 2007, he did not do so.

            In early
July 2007, Sanitec filed for Chapter 11 bankruptcy
protection.  Plaintiffs received no
notice of the bankruptcy filing and were not included in Sanitec’s list of
creditors; indeed, they did not learn that Sanitec had filed for bankruptcy
until well after the bankruptcy was concluded and Sanitec’s plan of
reorganization was confirmed in May 2009. 
Throughout this time period, in response to plaintiffs’ numerous queries
regarding the status of the loan payments, defendant made excuses for why
plaintiffs were not receiving the promised monthly payments.  Defendant represented that Sanitec “just
needed a little more time” to start making the payments.  

            In December
2009, defendant informed plaintiffs that Sanitec had been in bankruptcy.  At a meeting with James Harkness, it was
agreed Sanitec would return to plaintiffs their $200,000 investment plus 5
percent interest, and transfer 500,000 shares of Sanitec stock.  Plaintiffs received the 500,000 shares of
stock.  However, plaintiffs received no
payments of principal or interest.

            Based on
the foregoing, plaintiffs filed their complaint against defendant, as well as
Sanitec and Harkness, alleging four causes of action:  breach of the Loan Agreement, negligent
misrepresentation, constructive fraud, and unjust enrichment.  The negligent misrepresentation claim,
addressed solely to defendant, was based on defendant’s statements that he
intended to invest $100,000 in Sanitec, together with his misrepresentations
regarding the status of the loan and the financial status of Sanitec, while the
constructive fraud cause of action was based on defendant’s confidential
relationship with plaintiffs. 

            Defendant
demurred to all four causes of action of the complaint.  He argued plaintiffs had failed to adequately
state a cause of action against him for breach
of contract because he was not alleged to have been a party to either the
Loan Agreement or the Guarantor Agreement.  Defendant challenged the two fraud causes of
action, based on the statute of limitations and the absence of facts showing an
intent to defraud, as well as an absence of showing that defendant’s alleged
misrepresentations, rather than Sanitec’s bankruptcy, proximately caused
plaintiffs’ damages.  Finally, defendant
maintained the unjust enrichment claim failed because the href="http://www.mcmillanlaw.com/">statute of limitations had expired and
because, as alleged in the complaint, defendant never had possession of the
$200,000, and thus was not enriched by it.

            The trial
court sustained without leave to amend defendant’s demurrer to the breach of
contract and unjust enrichment causes of action and sustained with leave to
amend the two fraud causes of action. 
With respect to the latter, the court noted the problem of causation and
damages:  “[T]he big problem with the
second and third causes of action is damages, and it does not necessarily
appear from the complaint that plaintiffs were damaged by Azinian’s acts.  For them to have been damaged, they would
have to show that they would have recovered from Sanitec and [Harkness] if
Azinian had not made his representations . . . .”  

            Plaintiffs
filed an amended complaint alleging causes of action for intentional
misrepresentation and constructive fraud against defendant.  The amended complaint added new facts
regarding the parties’ negotiations in December 2009, but did not explain how
defendant’s conduct caused Sanitec to fail to repay the loan.

            Defendant
demurred to the amended complaint, contending, among other things, that both
fraud claims failed to state a cause of action because they lacked the
specificity required of fraud claims, failed to allege defendant knew or should
have known of Sanitec’s bankruptcy filing and had an affirmative duty to notify
plaintiffs of that fact; and failed to explain how defendant caused Sanitec’s
breach of its obligations under the Loan Agreement or Harkness’s breach of his
obligations under the Guarantor Agreement.

            The trial
court sustained the demurrer without leave to amend.  Plaintiffs’ timely appealed that ruling.

 

II.  STANDARD OF REVIEW

 

            “In
reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules.  ‘We treat the
demurrer as admitting all material facts properly pleaded, but not contentions,
deductions or conclusions of fact or law. 
[Citation.]  We also consider
matters which may be judicially noticed.’ 
(Serrano v. Priest (1971) 5
Cal.3d 584, 591.)  Further, we give the
complaint a reasonable interpretation, reading it as a whole and its parts in
their context.  (Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34,
42.)  When a demurrer is sustained, we
determine whether the complaint states facts sufficient to constitute a cause
of action.  (See Hill v. Miller (1966) 64 Cal.2d 757, 759.)  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.  (>Kilgore v. Younger (1982) 30 Cal.3d 770,
781; Cooper v. Leslie Salt Co. (1969)
70 Cal.2d 627, 636.)  The burden of
proving such reasonable possibility is squarely on the plaintiff.  (Cooper
v. Leslie Salt Co., supra, at p.
636.)”  (Blank v. Kirwin (1985) 39 Cal.3d 311, 318.)

 

III.  DISCUSSION

 

            Plaintiffs
contend the trial court erred in ruling that their original and amended
complaints failed to adequately state causes of action for breach of contract,
intentional misrepresentation and constructive fraud against defendant.  We review each cause of action below.

 

1.  Breach of contract

 

            In order to
survive a demurrer on the breach of contract cause of action, plaintiffs were
required to plead:  (1) the terms of the
contract; (2) their performance or excuse for nonperformance; (3) defendant’s
breach; and (4) the damage sustained by plaintiffs as a result of the
breach.  (Acoustics, Inc. v. Trepte Constr. Co. (1971) 14 Cal.App.3d 887,
913.)  While the complaint adequately
pleads a cause of action for breach of contract against Sanitec (for breach of
the Loan Agreement), and against Harkness (for breach of the Guarantor Agreement),
it fails to identify the contractual obligations which they contend defendant
breached.

            As alleged
by plaintiffs, the Loan Agreement obliged defendant to undertake certain
actions:  “The terms of this loan were
that Defendant Sanitec would pay directly to Defendant [Azinian] interest at
12% per year and make monthly payments starting in June 2007.”  Azinian was to collect the monthly payments
on behalf of plaintiffs and disburse the payments to them.  Thus, contrary to defendant’s argument, the
complaint alleges that he was a party to the Loan Agreement.  However, because there is no allegation that
Sanitec made any payments required under the Loan Agreement, defendant’s
obligation to collect and disburse them to plaintiffs was never triggered. 

            The
allegation regarding defendant’s statement that he intended to invest $100,000
of his own money in Sanitec does not amount to a covenant on his part to do
so.  There is no allegation the parties
agreed that plaintiffs would loan Sanitec $200,000 only if defendant
concurrently made a $100,000 loan to Sanitec, nor do plaintiffs allege that
Sanitec’s failure to repay its loan to them was caused by defendant’s failure
to loan Sanitec $100,000.  In short, the
trial court properly sustained defendant’s demurrer to the breach of contract
claim.

 

2.  Intentional
misrepresentation

 

            “To
establish a claim for deceit based on intentional misrepresentation, the
plaintiff must prove seven essential elements: 
(1) the defendant represented to plaintiff that an important fact was
true; (2) that representation was false; (3) the defendant knew that the
representation was false when the defendant made it, or the defendant made the
representation recklessly and without regard for its truth; (4) the defendant
intended that the plaintiff rely on the representation; (5) the plaintiff >reasonably relied on the representation;
(6) the plaintiff was harmed; and (7) the plaintiff’s reliance on the
defendant’s representation was a substantial factor in causing that harm to the
plaintiff.”  (Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486,
1498; see also Perlas v. GMAC Mortgage, LLC
(2010) 187 Cal.App.4th 429, 434.)

            Intentional
misrepresentation, like all fraud claims, must be pleaded with
specificity.  (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152
Cal.App.4th 115, 132.)  To meet this
requirement, the complaint must plead facts that “‘“show how, when, where, to
whom, and by what means the representations were tendered.”’”  (Lazar
v. Sup. Ct. (1996) 12 Cal.4th 631, 645; Linear
Technology Corp. v. Applied Materials, Inc., supra, 152 Cal.App.4th at p.
132.)  In addition, although
circumstantial evidence may be used to infer fraudulent intent, “‘something
more than nonperformance is required to prove the defendant’s intent not to
perform his promise.’  [Citation.]”  (Tenzer
v. Superscope (1985) 39 Cal.3d 18, 30.)

            Plaintiffs
identify the misrepresentations of fact to be defendant’s statement he would
invest $100,000 in Sanitec concurrently with plaintiffs, and that, in return
for their loan to Sanitec, plaintiffs would be repaid in eight months’ time,
earn interest at the annual rate of 12 percent and receive shares of stock in
Sanitec.href="#_ftn2" name="_ftnref2" title="">^[2] 

            As to the
former representation, plaintiffs do not explain why defendant’s statement of
intention to invest his own funds was a material fact, or why they were
justified in relying on it.  More
importantly, plaintiffs do not allege that, had defendant made good on his
stated intention, Sanitec would have honored the Loan Agreement or Harkness
would have satisfied his obligations under the Guarantor Agreement, or even
that they would not have loaned the money to Sanitec. 

With regard to defendant’s alleged
misrepresentation of the loan terms, plaintiffs appear to take the position
defendant’s description of the proposed loan terms was the equivalent of a
guarantee that the lenders would receive the full benefit of their
bargain.  But, plaintiffs acknowledge
that defendant did not sign the Guarantor Agreement.  Plaintiffs have not articulated any legal
theory which would hold defendant liable as a guarantor of Sanitec’s
obligations in the absence of his express promise to do so.

 

3.  Constructive fraud

 

            The
elements of an action for a constructive fraud claim are:  (1) a fiduciary or confidential relationship
between the plaintiff and defendant; (2) nondisclosure by the defendant; (3)
justifiable reliance; and (4) resulting injury. 
(See Assilzadeh v. California
Federal Bank (2000) 82 Cal.App.4th 399, 415; Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 517, fn.14.)

            “‘“[F]iduciary”
and “confidential” have been used synonymously to describe
“‘. . . any relation existing between parties to a transaction
wherein one of the parties is in duty bound to act with the utmost good faith
for the benefit of the other party.  Such
a relation ordinarily arises where a confidence is reposed by one person in the
integrity of another, and in such a relation the party in whom the confidence
is reposed, if he [or she] voluntarily accepts or assumes to accept the
confidence, can take no advantage from his [or her] acts relating to the
interest of the other party without the latter’s knowledge or
consent. . . .’” 
[Citations.]  Technically, a
fiduciary relationship is a recognized legal relationship such as guardian and
ward, trustee and beneficiary, principal and agent, or attorney and client
[citation], whereas a “confidential relationship” may be founded on a moral,
social, domestic, or merely personal relationship as well as on a legal
relationship.  [Citations.]  The essence of a fiduciary or confidential
relationship is that the parties do not deal on equal terms, because the person
in whom trust and confidence is reposed and who accepts that trust and
confidence is in a superior position to exert unique influence over the dependent
party.’  [Citation.]”  (Richelle
L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 270-271.)

            The
first amended complaint contained no factual allegations which would impose a
fiduciary duty upon defendant.  Defendant
did not hold a fiduciary relationship with plaintiffs, such as principal/agent
or trustee/beneficiary, and the complaint did not allege any facts upon which a
trier of fact could conclude that the parties shared a confidential
relationship founded upon a moral, social, domestic or personal
relationship.  To the contrary,
plaintiffs alleged defendant’s personal relationship was with Harkness and
Sanitec.  The complaint did not allege
the parties dealt on unequal terms, or that defendant was in a position to
exert unique influence over plaintiffs. 
Rather, the complaint described defendant’s role vis-a-vis plaintiffs as
that of a “point person.”  In sum, the
factual allegations in the amended complaint did not support a finding that
defendant held a fiduciary or confidential relationship, a necessary element of
a cause of action for constructive fraud.

            Finally,
plaintiffs maintain the trial court erred in sustaining the demurrer without
leave to amend.  Plaintiffs rely on the
general rule that it is an abuse of discretion for a trial court to sustain a
demurrer without leave to amend if it is reasonably possible the fatal defects
in the complaint can be cured by amendment. 
(Aubry v. Tri-City Hospital
District (1992) 2 Cal.4th 962, 971-972.) 
However, there exists an important corollary to this principle:  “It is the
plaintiff’s burden on appeal to show in what manner it would be possible to
amend a complaint to change the legal effect of the pleading; >we otherwise presume the pleading has stated
its allegations as favorably as possible. 
[Citations.]  At this stage in the
proceedings, we are concerned only with whether a plaintiff has stated a
hypothetical case; whether or not it can be proven is beyond our review.  [Citations.]” 
(Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App. 4th 955, 962-963,
italics added, fn. omitted.)  Plaintiffs
have not met their burden and it is beyond the scope of our review to speculate
that they may have the ability to allege facts necessary to cure the defects in
the complaint to prove their case.  

 

 

 

 

 

 

IV.  DISPOSITION

 

            The order is affirmed. 
Defendant, Robert Azinian, is awarded his costs on appeal from
plaintiffs, Avettis Avetisyan, Garo Ghevondian and Masis Ghevondian.

                        NOT TO BE
PUBLISHED IN THE OFFICIAL REPORTS

 

 

                                    KUMAR,
J.^*

 

 

We concur:

 

 

 

            MOSK,
J., Acting P. J.

 

 

 

            KRIEGLER,
J.

 

 

 

 

 

^{__________________________________}

            >^*Judge of the Los Angeles
Superior Court, assigned by the Chief Justice pursuant to article VI, section 6
of the California Constitution.