Opinion
NOT TO BE PUBLISHED
Marin County Super. Ct. No. CV063053
Swager, J.
In this action for rescission, appellants Lamonte and Regina Lawrence appeal from the judgment of dismissal entered after the trial court sustained without leave to amend the demurrer of respondent Deutsche Bank National Trust Company on the ground that the complaint failed to state a cause of action. We affirm.
ALLEGATIONS OF THE COMPLAINT AND PROCEDURAL BACKGROUND
On July 18, 2006, appellants filed a complaint against respondent alleging causes of action for “rescission and fraud in the concealment” in connection with the administration of their charitable trust. The essence of the complaint is that respondent deliberately failed to inform appellants that it had provided financial services to the Nazi regime during the time of the Holocaust in Germany. The complaint alleges that appellants, one of whom is of Jewish heritage, would not have allowed respondent to administer their charitable trust had they known of its past. The complaint further alleges that the trust corpus lost over $4 million during the time respondent administered it.
On September 12, 2006, respondent filed a demurrer to the complaint, alleging that it failed to state a cause of action. Respondent also filed a motion to strike portions of the complaint, and request for judicial notice of stock market indices between 1995 and 2005, and widespread media reports for the period between 1995 and 2002 pertaining to respondent’s World War II activities.
On December 15, 2006, the court granted respondent’s request for judicial notice, granted the motion to strike (in part), and sustained the demurrer on the basis that the complaint failed to state the element of causation. Appellants were granted leave to amend.
The following factual allegations are taken from appellants’ first amended complaint (FAC). In 1999, appellants created a charitable trust for the benefit of a charity called the Jewish Community Federation (JCF). Bankers Trust of California (Bankers Trust) was designated as the trustee and financial manager of the trust assets, which consisted of approximately $15 million in common stock. At the time, appellants were unaware that respondent had previously acquired Bankers Trust. The FAC alleges that bank employees intentionally concealed respondent’s ownership of Bankers Trust from appellants and other Jewish customers in order to retain their business.
Under the trust’s terms, appellants were to receive income from the trust until termination. Thereafter, the corpus of the trust would be given to the JCF as the remainder beneficiary.
Respondent resigned as trustee in 2004 and appellants terminated the trust shortly thereafter. By then, the trust corpus had lost over $4 million as a result respondent’s alleged mismanagement and overly aggressive investment strategy.
In early 2006, appellants learned that respondent had publicly acknowledged and taken moral responsibility for assisting the activities of the Nazi regime during World War II, including financing the construction of the Auschwitz death camp. Prior to this time, respondent had intentionally failed to inform appellants of its ties to the Nazi regime and appellants were otherwise unaware of this history. The FAC further alleges that respondent never contacted the JCF regarding a suitable investment strategy out of fear that the JCF would have advised appellants to terminate their relationship with respondent. Appellants would have terminated the relationship if they had been fully informed.
The FAC asserts causes of action for rescission and for fraud in the concealment. As to the claim for rescission, the FAC alleges that respondent breached its fiduciary duty to appellants by failing to disclose the material fact of its role in the Nazi Holocaust. Explicitly relying on the case of Earl v. Saks & Co. (1951) 36 Cal.2d 602, 611 (Earl), the FAC claims that appellants are entitled to rescind the trust agreement and recover lost trust assets, management fees paid to respondent, interest, and punitive damages. The fraud claim in the FAC is based on essentially the same facts.
On January 24, 2007, respondent filed its demurrer to the FAC, alleging that it failed to state a cause of action because it did not allege intentional concealment or that the allegedly concealed facts caused any loss to appellants. Respondent also requested that the court take judicial notice of several media articles concerning its acquisition of Bankers Trust in 1999.
On March 21, 2007, the trial court issued its order sustaining respondent’s demurrer to the FAC without leave to amend. The court also granted the request for judicial notice. The court found that appellants failed to show the allegedly concealed facts were a cause of any loss or legal injury. The court also found that appellants’ reliance on Earl was misplaced because the purpose of the trust was economic, not personal.
In light of the court’s ruling on the demurrer, an accompanying motion to strike was deemed moot.
Judgment in favor of respondent was filed on March 23, 2007. This appeal followed.
DISCUSSION
I. Standards of Review
On appeal from a judgment of dismissal after a demurrer is sustained without leave to amend, the reviewing court assumes the truth of all facts properly pleaded by the plaintiff. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We also accept as true all facts that may be implied or reasonably inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.) We do not assume the truth of “ ‘ “contentions, deductions or conclusions of fact or law.” ’ ” (Evans v. City of Berkeley, supra, at p. 6, citing Blank v. Kirwan, supra, at p. 318.) We review the trial court’s action de novo and exercise our own independent judgment whether a cause of action has been stated under any legal theory. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) We review the court’s refusal to allow leave to amend under the abuse of discretion standard. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)
II. The Claim for Rescission
A party to a contract is entitled to rescissionary relief if his “consent . . . was given by mistake, or obtained through duress, menace, fraud or undue influence, exercised by . . . the party as to whom he rescinds . . . .” (Civ. Code, § 1689, subd. (b)(1).) Appellants allege that their consent was obtained by fraud.
We analyze whether appellants state a claim for rescission with the following consideration in mind: “Concern for the effects of an overly indulgent rescission policy on the stability of bargains is not new. Our Supreme Court early on quoted with approval the sentiment: ‘ “The power to cancel a contract is a most extraordinary power. It is one which should be exercised with great caution, — nay, I may say, with great reluctance, — unless in a clear case. A too free use of this power would render all business uncertain, and, as has been said, make the length of a chancellor’s foot the measure of individual rights. The greatest liberty of making contracts is essential to the business interests of the country. In general, the parties must look out for themselves.” ’ ” (Reed v. King (1983) 145 Cal.App.3d 261, 266, fn. 6, citing to Colton v. Stanford (1890) 82 Cal. 351, 398.)
A. The Elements of Fraud Based on Concealment
“[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612–613.)
B. Earl Has No Application
Rather than addressing the issue of causation directly, appellants first claim that they are not required to plead or prove any pecuniary loss to rescind a contract procured by fraud. They argue that this case is controlled by Earl. A close reading of Earl reveals that it is based on a fact pattern that is significantly different from the case before us.
In Earl, a man sought to purchase a mink coat from a store in order to give it to a woman that he was courting. The coat was priced at $5,000 and the man offered to pay $4,000 for it. (Earl, supra, 36 Cal.2d 602, 605.) The store initially refused to sell him the coat for that price. Unbeknownst to him, the woman asked store employees to pretend to sell it for $4,000, with the understanding that she would return to the store and pay the remaining balance of $1,000. The employees secretly assented to this plan and the man signed a sales slip agreeing to pay $4,000 as the full price for the coat. The next day, he contacted the store to revoke the sales agreement unless the coat was delivered to him, not to the woman. The stores’ hands were tied, however, as the woman also demanded the coat and refused to accept a refund of the money she had paid. She thereafter sued the store for conversion. (Ibid.) The store, in turn, filed a complaint against the man, seeking payment for his share of the coat. (Id. at p. 606.) The man established at trial that he would not have purchased the coat if he had known of the secret arrangement between the store and the woman. (Id. at pp. 608–609.)
We have rounded off the actual dollar figures for the sake of simplicity.
The Supreme Court found that the man had the right to rescind the contract because his assent to the agreement was procured by fraud committed by the other two parties to the transaction. (Earl, supra, 36 Cal.2d 602, 610–611.) Countering the store’s argument that the man had paid the exact amount of money that he expected to pay for the coat and was therefore not harmed, the court observed “this ‘no injury, no rescission’ formula is not very helpful, because of disagreement in the authorities as to what is meant by ‘injury.’ In a sense, anyone who is fraudulently induced to enter into a contract is ‘injured’; his ‘interest in making a free choice and in exercising his own best judgment in making decisions with respect to economic transactions and enterprises has been interfered with.’ [Citation.]” (Id. at p. 611.) The court concluded that the man was entitled to rescission. (Id. at p. 613.)
Seizing upon this language, appellants argue that their charitable trust, like the man’s gift in Earl, was tainted by respondent’s deception, resulting in a frustration of their expectations and entitling them to rescission. When presented with appellants’ analogy to Earl, the trial court distinguished that case because “the purpose of the contract between plaintiffs and defendant was economic, not personal.” While the parties make much of the “economic” versus “personal” distinction, we simply believe that Earl does not apply to the present case.
Appellants contend that Earl stands for the proposition that an injury occurs “where a plaintiff’s expectations have been subverted, regardless of whether the disparity between expectation and reality resulted in financial harm.” Unlike appellants, however, the man in Earl did not seek to recover damages. Instead, he sought simply to negate his contractual obligation to pay for the coat. The store asserted that he did not have the right to rescind because he did not suffer a financial loss. The absence of pecuniary damages was therefore essential to the reasoning of the court’s opinion. In contrast, appellants’ FAC alleges a pecuniary loss in excess of $4 million. The present case is also distinguishable in that Earl involved active collusion between the donee and the store, whereas the FAC alleges no conduct whatsoever on the part of the JCF.
This fact also distinguishes this case from other cases cited by appellants, including Dunn v. Stringer (1940) 41 Cal.App.2d 638, 644, in which the court found a contract was properly rescinded even though the moving party incurred no financial loss.
Additionally, whereas the man in Earl did not receive the exact transaction he had bargained for, appellants do not allege that respondent did anything other than administer their charitable trust. They did not receive something “substantially different” from what they bargained for, namely, the services of a trust administrator. (Earl, supra, 36 Cal.2d 602, 612.) We also note the man in Earl was willing to pay what he owed for the coat provided that it was delivered to him. Thus, he was willing to abide by the terms of the contract notwithstanding the fact that he was perhaps morally offended by the conduct of the other parties. In contrast, appellants claim they are entitled to rescind the agreement and recover lost trust assets based solely on their moral offense.
In their reply brief, appellants contend that emotional and/or moral injuries constitute detriment sufficient to justify rescission. Appellants’ repeated emphasis on their nonpecuniary injuries is puzzling given that their FAC demands compensation for losses in excess of $4 million. In undertaking their position, appellants essentially concede that there is no causal relationship between respondent’s alleged fraudulent concealment and their financial losses.
To the extent that the holding in Earl was premised on an initial donative purpose, the present case is also distinguishable. While appellants insist that their purpose was “to make a complete, untainted gift to the charity,” this charitable trust was not analogous to the gift of the mink coat in Earl. The FAC reveals that appellants themselves derived income from the trust, in that they received the lesser of either 6 percent of the value of the trust corpus per year or the total income from the trust for 10 years. Only after that period would JCF receive any funds. Thus, it does not appear to us that the trust was created solely for purposes “other than pecuniary gain.”
In any event, as noted by respondent, many cases hold that a nexus between an alleged concealment and an alleged monetary loss is required in order to justify rescission by reason of fraud. “Deception which does not cause loss is not a fraud in the legal sense.” (Hill v. Wrather (1958) 158 Cal.App.2d 818, 825; see also Reed v. King, supra, 145 Cal.App.3d 261, 264 [real estate broker’s concealment from client of fact of past murders on subject property was grounds for rescission because the fact could have a significant and quantifiable effect on market value].)
In sum, given that the FAC asserts facts that are distinguishable in significant particulars from the facts that led to the Earl opinion, we conclude that Earl does not command the result appellants advocate.
Other cases cited by appellants do not assist them. For example, they cite to the following passage from Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 980: “A defrauded party has the right to rescind a contract, even without a showing of pecuniary damages, on establishing that fraudulent contractual promises inducing reliance have been breached. [Citations.] The rule derives from the basic principle that a contracting party has a right to what it contracted for, and so has the right ‘to rescind where he obtain[ed] something substantially different from that which he [is] led to expect.’ [Citation.] It follows that a defrauded party does not have to show pecuniary damages in order to defeat a petition to compel arbitration.” Appellants neglect, however, to include the passage that immediately follows: “Of course, the Engallas cannot defeat a petition to compel arbitration on the mere showing that Kaiser has engaged generally in fraudulent misrepresentation about the speed of the arbitration process. Rather, they must show that in their particular case, there was substantial delay in the selection of arbitrators contrary to their reasonable, fraudulently induced, contractual expectations.” (Ibid. at pp. 979–980, italics added.) The court found “ample evidence” to support the plaintiffs’ contention that the defendant had breached its arbitration agreement “by repeatedly delaying the timely appointment of an available party arbitrator and a neutral arbitrator.” (Ibid.)
Thus, in Engalla, the Supreme Court tied the actionable conduct to the alleged fraudulent misrepresentation. Appellants cannot do the same. Here, nothing in the trust document requires Bankers Trust or its controlling business entity to have a history void of any anti-Semitic activities. Moreover, appellants did not receive something substantially different from what they were led to expect. There are no allegations that respondent failed to administer the trust in accordance with the trust’s terms. Nor does it state this qualification as a requirement to become a trustee. Accordingly, we do not see how appellants’ claim qualifies as a “reasonable, fraudulently induced, contractual expectation” under Engalla.
C. Appellants’ Allegation of Causation is Insufficient
While most of appellants’ briefing is devoted to their discussion of Earl, they also claim they have satisfactorily stated the element of causation by alleging in the FAC that respondent intentionally failed to communicate with the JCF out of fear it would reveal respondent was a former Nazi collaborator and cause them to take their business elsewhere. This allegation is insufficient. The problem here is that the FAC does not set forth how respondent’s past caused the trust to underperform. While appellants allege that the trust failed to thrive due to respondent’s mismanagement and overly aggressive investment strategy, they do not allege how respondent’s ties to the former Nazi regime played a role in the trust’s poor performance. Importantly, the FAC does not allege that respondent intentionally mismanaged the trust because it harbored animus towards Jewish causes. Nor does it allege that appellants’ engagement of Bankers Trust was explicitly made conditional on the absence of a corporate history of anti-Semitic behavior. The FAC merely states in a conclusory fashion that respondent would not have invested so heavily in volatile technology stocks if it had communicated with the JCF and considered the trust’s charitable purpose.
It thus appears that respondent’s actions in the past have no causal relationship to its alleged inability to successfully administer appellants’ trust. Indeed, the FAC does not allege how respondent’s past renders it unqualified to administer a trust that exists for the benefit of Jewish causes. While appellants’ reluctance to do business with respondent is understandable, it does not appear to be actionable. Nor do we perceive any other basis upon which to conclude that the FAC states a proper claim for rescission. As appellants do not allege that respondent’s Nazi-affiliated past was a cause of their claimed harm, the complaint fails to state a necessary element of their cause of action for rescission.
More fundamentally, we question the premise that business entities should be required to disclose historical facts such as those at issue here to potential customers. To take a commonplace example, is it necessary for dealerships selling automobiles manufactured by Mitsubishi or Volkswagen either to disclose to every potential customer that they supplied machinery used against American forces during World War II or run the risk of having their sales contracts rescinded by buyers with relatives who perished during that War? Appellants essentially agree that such a result would be absurd, but argue that their situation is distinguishable because the purpose of the transaction was to benefit a Jewish cause, not to benefit themselves personally. In our view, appellants draw too fine a distinction. Moreover, as discussed above, the trust inured to the benefit of appellants as well as to the remainder beneficiary.
Appellants also allege that “moral outrage” is sufficient grounds for rescission, and claim that Earl so holds. As discussed above, we do not believe Earl can be read so broadly. History is replete with acts of atrocities committed against others. It is not uncommon for these acts to be facilitated by corporations, either directly or indirectly. While these atrocities should be acknowledged and accounted for, we do not believe they should be used as a means of voiding otherwise valid business contracts that have no direct relationship to the historically wrongful conduct. Even in the case of a direct causal relationship, the proper forum for addressing these issues is something other than in the context of business litigation involving private parties. As noted by the United States Supreme Court, “Since claims remaining in the aftermath of hostilities may be ‘sources of friction’ acting as an ‘impediment to resumption of friendly relations’ between the countries involved [citation], there is a ‘longstanding practice’ of the national Executive to settle them in discharging its responsibility to maintain the Nation’s relationships with other countries [citation]. The issue of restitution for Nazi crimes has in fact been addressed in Executive Branch diplomacy and formalized in treaties and executive agreements over the last half century, and although resolution of private claims was postponed by the Cold War, securing private interests is an express object of diplomacy today, just as it was addressed in agreements soon after the Second World War. Vindicating victims injured by acts and omissions of enemy corporations in wartime is thus within the traditional subject matter of foreign policy in which national, not state, interests are overriding, and which the National Government has addressed.” (American Ins. Assn. v. Garamendi (2003) 539 U.S. 396, 420–421, italics added.)
In this country, consumers are not ordinarily forced to do business with companies that they do not approve of. As long as their operations are conducted in a legal, non-discriminatory manner, any business, even a business with a checkered past, is entitled to participate in economic activities. Outside the context of governmental regulation, the burden falls on the consumer to investigate the background and values of the entities with which he or she does business.
III. Fraud in the Concealment
Appellants’ fraud claim fails for the same reason as its claim for rescission, namely, failure to properly allege the element of causation. Accordingly, respondent’s demurrer to this cause of action was properly sustained.
IV. Failure to Allow Leave to Amend
When a demurrer is sustained without leave to amend, “ ‘we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.’ [Citations.]” (Zelig v. County of Los Angeles, supra, 27 Cal.4th 1112, 1126.)
The demurrer should be sustained and leave to amend denied only “where the facts are not in dispute, and the nature of the plaintiff’s claim is clear, but, under the substantive law, no liability exists. Obviously no amendment would change the result.” (5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 946, p. 403; accord, Kilgore v. Younger (1982) 30 Cal.3d 770, 781.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967; 5 Witkin, supra, § 947, p. 405.)
To show abuse of discretion, plaintiff must show in what manner the complaint could be amended and how the amendment would change the legal effect of the complaint, i.e., state a cause of action. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388; accord, Hendy v. Losse (1991) 54 Cal.3d 723, 742.) This showing may be made either in the trial court or on appeal. (Careau & Co., supra, at p. 1386.)
Appellants suggest that they should have been granted leave to amend their complaint to more strongly allege their noneconomic motivations in creating the trust so as to bring their pleadings closer to the facts of Earl. However, as indicated above, we do not believe Earl is applicable to the facts of this case, regardless of whether appellants’ motives are characterized as economic or personal.
DISPOSITION
The judgment is affirmed.
We concur:
Marchiano, P. J., Stein, J.