Opinion
NOT TO BE PUBLISHED
Alameda County Super. Ct. No. RG09466814
POLLAK, Acting P.J.
Plaintiff Kevin Halpern appeals from an adverse judgment entered after the court sustained without leave to amend a demurrer to his first amended complaint against defendants Anu Shukla and Mitch Liu. The amended complaint alleges causes of action for breach of fiduciary duty and fraud, to which four- and three-year limitation periods apply, but the trial court, purporting to apply the “primary rights doctrine, ” characterized the claims as being for breach of an oral contract and held the claims barred by the two year statute of limitations that applies to such claims. We agree that the applicable limitations period is determined by the substance or “gravamen” of plaintiff’s causes of action, but we do not believe that the trial court properly characterized plaintiff’s claims as grounded on a breach of contract. We shall therefore reverse the judgment and remand the matter for further proceedings in which the truth of plaintiff’s allegations can be appropriately determined.
Background
The trial court’s order sustaining defendants’ demurrer summarizes the gist of the amended complaint as follows: “Plaintiff alleges that he and defendant Shukla had an oral agreement as of May 2006 to work together to develop a viable product and business model, and then to establish a company and ultimately take the company public. Shukla and Halpern invited Mitch Liu to join them in June 2006. Plaintiff alleges that in July 2006, he, Shukla and Liu agreed that they would launch the company as Offerpal. In September 2006, according to plaintiff, defendant Shukla repudiated the agreement and told plaintiff that he would not be a founder of the corporation as promised and would not receive between 15 and 20 percent of the equity of the corporation as promised.”
In an introductory section, the amended complaint spells out these facts in greater detail, alleging that in April 2006, “Shukla contacted Halpern and insisted that he join her in starting a new company in the social-networking space, ” that he had certain knowledge and connections that Shukla did not that were essential to the formation of a new company in the field of electronic social networking, that after he and Shukla had agreed to begin work on a new company subsequently named “Offerpal Media, Inc.” (Offerpal) in which he would hold “a stake of between 15 to 20% equity, ” he “pushed the venture forward and injected a substantial amount of passion and energy to move the company ahead.” In June 2006, Liu was “invited... to join the venture.” After Halpern had “spent countless hours on the project, attended more than 50 meetings, and was putting together with Liu and Shukla plans for the incorporation of the venture, product management and feature lists, marketing plans, fundraising strategy, employee hiring, and the technical milestones that would be needed, ” Liu told him that “rather than be a founder and partner as had been promised by Shukla prior to Liu’s involvement, that Halpern now would simply be a ‘friend of the company.’ ” Shukla then confirmed that “he would get no equity in the company and no compensation for any of his work over the prior five months.” Shukla and Liu proceeded to incorporate Offerpal and “wrongfully refused to permit Halpern to participate further in Offerpal.”
The first cause of action, labeled “Breach of Fiduciary Duty, ” begins as follows: “In May of 2006, Halpern and Shukla entered into a partnership or joint venture agreement with the intent to carry on a business for profit. The partnership between Halpern and Shukla provided that they would build a technology company offering services in the developing social-networking space. Halpern agreed to contribute money, time, product ideas, and access to his network of contacts on... behalf of the venture. Shukla contributed money, time and access to her contacts in furtherance of the venture.” After repeating much of the introductory allegations, the pleading concludes that by “freezing out Halpern in late September of 2006” Shukla and Liu “breached the duty of care owed to the business and to Halpern” and that Halpern consequently “suffered damages in the loss of the time and money invested in Offerpal and the loss of the value of the shares in Offerpal Media, Inc. equal to his ownership interest.” The prayer seeks, inter alia, “special and general damages, ” “past and future lost income and benefits, ” imposition of a constructive trust on those shares in Offerpal that Plaintiff was entitled to, ” and punitive damages.
The second cause of action is entitled “Intentional Misrepresentation” and the third cause of action is labeled “False Promise.” Both name only Shukla as a defendant and allege that her statements to Halpern that “he would be a partner and considered a founder” of Offerpal, that he “was entitled to 15 to 20% equity, ” that “they were partners in a social-networking technology venture” and that “she was giving Halpern a 15-20% ownership interest in exchange for joining the business as a partner” were false when made and were promises made with no intention of performing them.
The three causes of action unquestionably arose in September or October 2006 and Halpern’s original complaint was not filed until August 4, 2009. After having sustained a demurrer to the original complaint with leave to amend, the trial court sustained a demurrer to the first amended complaint without leave to amend. The court’s order explains in part: “Although plaintiff has not pled a breach of contract cause of action, the court holds that the two-year statute of limitations set forth in [Code of Civil Procedure section 339, subdivision (1)] applies to plaintiff’s first amended complaint under the ‘primary rights doctrine.’ See Stoll v. Superior Court (1992) 9 Cal.App.4th 1362, 1364-1366; Hatch v. Collins (1990) 225 Cal.App.3d 1104, 1109-1111; Ponti v. Farrell (1961) 194 Cal.App.2d 676, 682-683; and Jefferson v. J. E. French Co.(1960) 54 Cal.2d 717, 718-719.” Halpern timely appealed from the subsequent judgment that followed this order.
All statutory references are to the Code of Civil Procedure unless otherwise noted.
Discussion
Halpern contends that the trial court erred in applying to this action the two-year statute of limitations in section 339, subdivision (1). This section applies to “[a]n action upon a contract, obligation or liability not founded upon an instrument of writing....” Halpern asserts that the first cause of action for breach of fiduciary duty is instead subject to the four-year provision in section 343, which applies to “[a]n action for relief not hereinbefore provided for.” (Stalberg v. Western Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1230 [“The statute of limitations for breach of fiduciary duty is four years. (§ 343.)”]; David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 893 [“where a cause of action is based on a defendant’s breach of its fiduciary duties, the four-year catchall statute set forth in Code of Civil Procedure section 343 applies”].) He contends that the second and third causes of action are subject to the three-year limitation imposed by section 338, subdivision (d) for “[a]n action for relief on the ground of fraud or mistake.”
Although the “primary rights” terminology used by the trial court to explain its decision normally applies in a different context (see Hamilton v. Asbestos Corp. (2000) 22 Cal.4th 1127, 1146), the court was correct that the substance rather than the label of a claim governs the applicable statute of limitations. “ ‘To determine the statute of limitations which applies to a cause of action it is necessary to identify the nature of the cause of action, i.e., the “gravamen” of the cause of action. [Citations.] “[T]he nature of the right sued upon and not the form of action nor the relief demanded determines the applicability of the statute of limitations under our code.” ’ ” (Marin Healthcare Dist. v. Sutter Health (2002) 103 Cal.App.4th 861, 874-875.) That is the sole point made in three of the four cases cited by the trial court in support of its decision that has any application to the present situation. (Hatch v. Collins, supra, 225 Cal.App.3d at p. 1110; Ponti v. Farrell, supra, 194 Cal.App.2d at p. 683; Jefferson v. J. E. French Co., supra, 54 Cal.2d at p. 718.)
Hatch v. Collins, supra, 225 Cal.App.3d at page 1111does also recognize, in a different context, that “[w]here property is acquired by a breach of fiduciary duty not amounting to actual fraud, the four-year ‘catch-all statute, ’ section 343, is applicable.”
In the other case, Stoll v. Superior Court, supra, 9 Cal.App.4th 1362, the court disagreed with the decision in David Welch Co. v. Erskine & Tulley, supra, 203 Cal.App.3d 884, and held that the limitations period on a claim for legal malpractice is governed by the explicit provisions of section 340.6, rather than section 343, even if the attorney’s misconduct also involved a breach of fiduciary duty.
As indicated above, Halpern’s first cause of action alleges that he and Shukla “entered into a partnership or joint venture agreement with the intent to carry on a business venture for a profit” and that Liu subsequently became a member of the joint venture. “ ‘A joint venture... is an undertaking by two or more persons jointly to carry out a single business enterprise for profit.’ [Citation.] ‘There are three basic elements of a joint venture: the members must have joint control over the venture (even though they may delegate it), they must share the profits of the undertaking, and the members must each have an ownership interest in the enterprise. [Citation.]’ [Citation.] ‘Whether a joint venture actually exists depends on the intention of the parties. [Citations.] [¶]... [¶]... [W]here evidence is in dispute the existence or nonexistence of a joint venture is a question of fact to be determined by the jury.’ ” (Unruh-Haxton v. Regents of University of California (2008) 162 Cal.App.4th 343, 370; see also, e.g., Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 637-638; Epstein v. Stahl (1959) 176 Cal.App.2d 53, 57.) “ ‘ “Such a venture or undertaking may be formed by parol agreement, or it may be assumed as a reasonable deduction from the acts and declarations of the parties.” ’ ” (580 Folsom Associates v. Prometheus Development Co. (1990) 223 Cal.App.3d 1, 16.) Like the pleading in Unruh-Haxton v. Regents of University of California, supra, 162 Cal.App.4th at pp. 370-371, the amended complaint here explicitly alleges a sufficient agreement to form a for-profit entity and, though not explicitly, alleges facts suggesting joint control over the enterprise. Moreover, the facts alleged also indicate the creation of a partnership, defined in the Uniform Partnership Act of 1994 simply as “the association of two or more persons to carry on as coowners a business for profit... whether or not the persons intend to form a partnership.” (Corp. Code, §§ 16202, subd. (a), 16101, subd. (9); see Holmes v. Lerner (1999) 74 Cal.App.4th 442, 453-457.)
If Halpern establishes that a joint venture or partnership was formed as he alleges, the parties became subject to fiduciary responsibilities to each other. (Manok v. Fishman (1973) 31 Cal.App.3d 208, 213.) “If there was an agreement for a joint venture, the parties assumed the status of fiduciaries.” (Epstein v. Stahl, supra, 176 Cal.App.2d at p. 57.) The first cause of action alleges that Shukla and Liu violated fiduciary obligations to Halpern. In order to prevail on this claim Halpern must prove, among other things, that there was in fact a joint venture or partnership agreement, but that does not convert his claim for breach of fiduciary duties into a claim for breach of contract. The existence of the facts giving rise to the fiduciary relationship is one of the elements that must be proven to prevail on the breach-of-fiduciary-duty claim, but that does not mean that breach of that agreement is the “gravamen” of the claim, even if the alleged breach of fiduciary duty was also a breach of the agreement. “In the case at bench, the original contract by which the partnership allegedly began is not the primary right sued upon. This action is based upon the alleged relationship of the parties, the carrying on of a jointly owned business, and the fiduciary duties which the law imposes upon such parties.... The action... is not governed by the statute relating to actions on a contract, but by the four-year catchall statute provided in section 343.” (Manok v. Fishman, supra, 31 Cal.App.3d at p. 213; see also Buick v. World Savings Bank (E.D.Cal. 2008) 565 F.Supp.2d 1152, 1158-1159, citing and following Manok; Federal Deposit Ins. Corp. v. McSweeney (S.D.Cal. 1991) 772 F.Supp. 1154, 1156-1157 [“a cause of action for breach of fiduciary duty is its own ‘right sued on’ and cannot be compartmentalized into another rubric for time-bar purposes”].)
The trial court purported to distinguish Manok v. Fishman, supra, 31 Cal.App.3d 208on the basis that in that case the parties had invested $40,000 in the partnership and operated the business for eight years, and that during this period the defendant had falsely represented that the business was earning no profits. These factual differences do not affect the applicability of the principle that parties who have created a partnership relationship may be held responsible for the breach of their fiduciary duties and that such a claim is subject to the four-year statute of limitations. The trial court here also stated that Halpern “has not pled any facts showing that he and Shukla formed a partnership to operate a business”but as noted above, “ ‘[s]uch a venture or undertaking may be formed by parol agreement, or it may be assumed as a reasonable deduction from the acts and declarations of the parties.’ ” (580 Folsom Associates v. Prometheus Development Co., supra, 223 Cal.App.3d at p. 16; see also Unruh-Haxton v. Regents of University of California, supra, 162 Cal.App.4th at pp. 370-371.)
There is no justification for holding the second and third causes of action barred by the statute of limitations. Both causes of action are governed by the three-year limitation period in section 338, subdivision (d) and the original complaint was filed within three years of the accrual of the causes of action. While there may be some uncertainty as to the precise statements on which Halpern bases his misrepresentation claim – a defect that can be corrected in several ways short of dismissal – there is no uncertainty that his third cause of action alleges that, with no intention of fulfilling such a promise, Shukla assured him that he would receive a 15 to 20 percent interest in the company to be formed. As with all three causes of action, we intimate no view as to whether Halpern will be able to prove this claim, but it is sufficiently pleaded and should not be dismissed on demurrer.
Disposition
The judgment is reversed and the matter is remanded for further proceedings consistent with this opinion.
We concur: SIGGINS, J., JENKINS, J.
Halpern also relies on the decision in Holmes v. Lerner, supra, 74 Cal.App.4th 442. That case is factually similar to the situation pleaded here—a plaintiff frozen out of a business she developed jointly with the defendant, who recovered under breach of an oral contract and breach of fiduciary duty claims. In distinguishing this case, the trial court correctly observed that it did not raise a statute of limitations issue or question the existence of fiduciary duties. Nonetheless, the case did hold that the creation of a partnership—which unquestionably does give rise to fiduciary obligations—under the current Uniform Partnership Act does not require an agreement to share profits but only to carry on business together, and may be established by deciding to work together to develop an idea and to form a company to produce and market the product.