Opinion
D072326
03-26-2018
JAMES D. SALLAH, Plaintiff and Appellant, v. CHHATRALA BARSTOW, LLC, Defendant and Respondent.
Freeman Mathis & Gary, Theodore C. Peters and Jennifer R. Weatherup for Plaintiff and Appellant. Vivoli Saccuzzo, Michael W. Vivoli and Jason P. Saccuzzo for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 37-2016-00020073-CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Katherine A. Bacal, Judge. Affirmed. Freeman Mathis & Gary, Theodore C. Peters and Jennifer R. Weatherup for Plaintiff and Appellant. Vivoli Saccuzzo, Michael W. Vivoli and Jason P. Saccuzzo for Defendant and Respondent.
In 2016, James Sallah, a court-appointed corporate monitor (Monitor) for an investment entity, filed an action against Columbia Downtown, LLC (Columbia) and Chhatrala Barstow, LLC (Chhatrala Barstow), seeking repayment of funds borrowed from the investment entity in 2013. The Monitor asserted a breach of written contract cause of action against Columbia and a quasi-contract/unjust enrichment claim against Chhatrala Barstow. Chhatrala Barstow demurred on the basis of California's two-year statute of limitations. The court sustained the demurrer without leave to amend. The Monitor appeals. We affirm.
Background
On January 4, 2013, OM Global Investment Fund, LLC (OM Global), a Florida-based hedge fund, loaned $900,000 to Columbia (a California entity). The written promissory note (Note) provided that Columbia was required to pay $27,900 at the end of the first month, and make a "final balloon payment" of $930,000 on February 28, 2013. Although Columbia is the only entity defined as "Borrower" on the Note, a separate page setting forth "Borrower Information" identifies "Columbia Downtown, LLC (Chhatrala Group)" as the Borrower.
The Note was allegedly signed by Jenish Patel, using an electronic signature that read "Chhatrala." Patel was the alleged "Chief Investment Operator" of "Chhatrala Group," consisting of several related "Chhatrala" entities, allegedly including Chhatrala Barstow. In the record, "Chhatrala Group" is sometimes referred to as a trade name, and other times as a limited liability company.
About three months after the funds were due (but unpaid), on May 29, 2013, a Florida state court appointed the Monitor as a corporate monitor for OM Global, in an action in which OM Global had been sued for fraud by its own investors (including Florida and California residents). The court gave the Monitor broad powers to marshal OM Global's assets, including to investigate all claims and bring judicial actions to recover amounts owed to OM Global. The court also provided the Monitor with the authority to manage OM Global's business and gave him access to all of OM Global's property and records.
A corporate monitor is an independent third party akin to a court-appointed fiduciary, such as a receiver or bankruptcy trustee, charged with supervising a corporate entity. (See Sallah v. BGT Consulting, LLC (S.D. Fla., June 30, 2017, No. 16-81483-CIV-MARRA) 2017 WL 2833455, at *1, fn. 2; see generally The Corporate Monitor: The New Corporate Czar? (2007) 105 Mich. L. Rev. 1713.)
The court later appointed Sallah as monitor for OM Global's related entity, OM Global, LP. We include this entity in all further references to OM Global.
OM Global and its portfolio manager were also defendants in a separate federal action brought by the Securities and Exchange Commission (SEC) for alleged securities violations.
Immediately after his appointment in the Florida state court investor-fraud action, the Monitor made demands on numerous individuals and entities who allegedly owed funds to OM Global. In mid-June 2013, the Monitor made a written demand on "Dr. Jenish Patel/Chhatrala Group" for repayment of the Note. Two months later, the Monitor reported to the Florida state court that the loan payor on the Note (which he identified as "Chhatrala Group") was refusing to repay the amounts owed.
When no payment was made, in October 2013 the Monitor filed an action in Florida state court against Chhatrala Group and Columbia seeking repayment of the Note. The Monitor acknowledged that Chhatrala Group and Columbia were California limited liability companies with their principal place of business in San Diego, but claimed the court had personal jurisdiction because the parties "damaged OM Global . . . in Florida and breached a contract in Florida." The Monitor alleged the Chhatrala Group was jointly liable for the loan amount because it was included as the borrower on the loan identification sheet, and Patel signed the note on behalf of "Chhatrala."
Two months later, in December 2013, the Monitor obtained a default judgment against Columbia and Chhatrala Group in the Florida action. However, that judgment was later set aside and the Florida state court action was reopened.
In January 2015, Columbia and Chhatrala Group moved to dismiss the Monitor's Florida complaint against them, arguing (1) the court lacked personal jurisdiction over the California defendants; and (2) the Monitor failed to join two indispensable parties: the Note's signatory and "Chhatrala Barstow, LLC." With respect to Chhatrala Barstow (the defendant in the case before us), the pleading stated: "Plaintiff's Complaint fails to join an indispensable party—namely t[he] company to which [OM Global] conveyed the subject funds: Chhatrala Barstow, LLC. [The Monitor] has produced a purported bank statement from January 2013 showing a wire transfer of $930,000 from OM Global . . . to Chhatrala Barstow." A copy of this motion was served on the Monitor's attorneys.
In May 2016, the Florida state court dismissed the action on grounds that the court lacked personal jurisdiction over Columbia and Chhatrala Group.
Current Lawsuit
One month later, on June 14, 2016, the Monitor filed a complaint in San Diego County Superior Court against Columbia and Chhatrala Barstow, seeking repayment of the Note. The Monitor alleged that the purpose of the Note was to provide funding to Columbia, Chhatrala Group, and Chhatrala Barstow for real estate ventures "during a depressed real estate market," and that OM Global's president received "kickbacks as purported consulting fees." The Monitor alleged he was bringing the claim on behalf of Florida and California investors, who are "currently owed millions of dollars that were lost or improperly transferred to third parties in the OM Global [investment fraud] scheme."
As against Columbia, the Monitor alleged a breach of written contract cause of action.
As against Chhatrala Barstow, the Monitor alleged an unjust enrichment cause of action based on a quasi-contract theory. The Monitor alleged: (1) Chhatrala Barstow shares the same offices with, and is owned, operated and/or controlled by, the same group that operates Columbia and the Chhatrala Group; (2) "the monies loaned by [OM Global] were received directly by [Chhatrala Barstow] to purchase" an interest in a hotel; and (3) Chhatrala Barstow knew it received the funds "at the expense of" the OM Global investors. Based on these facts, the Monitor alleged "it is inequitable for [Chhatrala Barstow] to reap the benefit of" the loan without repaying OM Global the principal sum of $930,000.
Although the Note states this amount as $900,000, the parties describe the principal amount as $930,000. For purposes of this opinion, we will do the same.
Demurrer
Chhatrala Barstow demurred to the complaint, arguing the unjust enrichment/quasi-contract claim is barred by California's two-year limitations statute. (Code Civ. Proc., § 339, subd. (1).) It asserted that the Note was allegedly due and payable on February 28, 2013, more than three years before the Monitor filed the claim against it. Chhatrala Barstow requested the court to take judicial notice of numerous documents, and argued these documents established the Monitor knew or should have known of Chhatrala Barstow's alleged receipt of the funds more than two years before the Monitor filed the action in June 2016.
These documents included: (1) May and June 2013 billing records from the Monitor's accountant and attorney in which these professionals billed for time incurred in reviewing OM Global's Bank of America financial documents; (2) the Monitor's August 2013 report stating that he has retained a forensic accountant to review OM Global's financial records; and (3) a May 22, 2014 declaration by an SEC forensic accountant identifying Chhatrala Barstow as the recipient of the $930,000 loan wired from OM Global's Bank of America account.
This latter declaration was filed in the separate federal action brought by the SEC against OM Global and its portfolio manager. In the declaration, SEC accountant Tonya Tullis stated that based on her investigation of OM Global's bank accounts, she found that OM Global's portfolio manager made a $930,000 wire transfer from its Bank of America account to Chhatrala Barstow, and that Chhatrala Barstow has not repaid any of these borrowed funds. Tullis attached to her declaration a document that purports to show that on the date the Note was signed (January 4, 2013), OM Global wired $930,000 from its Bank of America account to Orange Coastal Title Company. The document identifies "Chhatrala Barstow, LLC" on the line below the name of the title company.
In response to the demurrer, the Monitor argued California's statute of limitations did not apply because the Note's choice-of-law provision required application of Florida law, which applies a four-year limitations period for unjust enrichment and quasi-contract claims. The Monitor argued that although Chhatrala Barstow was not a party to the Note, it was a third party beneficiary and therefore the Monitor was entitled to enforce the choice-of-law provision against Chhatrala Barstow. The Monitor further argued that even if the contractual provision did not apply, Florida laws should govern because of Florida's interest in the action, emphasizing that the Monitor was appointed by a Florida court and many of the victims of OM Global's alleged investor fraud live in Florida.
The Monitor alternatively requested an opportunity to amend the complaint to show he acted with reasonable diligence, but "did not discover the basis of his claim until late 2014 at the very earliest." He did not oppose Chhatrala Barstow's judicial notice request, but argued the submitted documents did not preclude the delayed discovery tolling doctrine. He said he could add allegations to the complaint showing that although he was aware of the SEC federal court action against OM Global, he was not aware of Tullis's declaration when it was filed in May 2014. He also said he did not have an opportunity to question OM Global's manager until after the manager's criminal plea agreement in the summer of 2015. The Monitor additionally said he could allege facts to demonstrate that Chhatrala Group's failure to cooperate in the investigation delayed his discovery of the claim. The Monitor related that although he served multiple demand letters on Chhatrala Group in 2013, Chhatrala Group never cooperated or disclosed Chhatrala Barstow's "involvement whatsoever." The Monitor also argued that his investigation was "hindered by settlement negotiations with [Chhatrala Group] and its principals . . . ."
In reply, Chhatrala Barstow argued: (1) the Florida choice-of-law provision was inapplicable because it was not a party to the Note; (2) under well-settled conflicts-of-law analysis, California's statute of limitations applies rather than Florida law; and (3) the judicially noticed documents establish as a matter of law that the Monitor knew or should have known Chhatrala Barstow was a recipient of the funds, and therefore "[a]ny amendment would be a sham."
At the hearing, the court gave the Monitor's counsel the opportunity to argue at length on all matters at issue in the demurrer. On the amendment request, counsel asked the court for an opportunity to amend the complaint to add "facts to—to indicate that—you know, basically to indicate that—regarding discovery and the act of secreting the monies away." Other than this general statement, the Monitor's counsel did not identify any particular facts that the Monitor would include in an amended complaint.
Chhatrala Barstow's counsel responded to each of the Monitor's counsel's points, including to argue that its proffered documents showed the Monitor knew or should have known of the elements of the quasi-contract claim more than two years before the complaint was filed. When the Monitor's counsel asked to respond to these assertions, the court declined to allow additional argument, explaining that the moving party gets the "last word."
After the hearing, the court granted Chhatrala Barstow's unopposed request for judicial notice, but stated it would take judicial notice only of the "existence of the documents," and not "the truth of their contents." The court then sustained the demurer without leave to amend. The court found the claim was governed by California's two-year statute of limitation, and rejected the Monitor's argument that Florida's four-year statute of limitations applies under a third party beneficiary theory or a "governmental interest" test. The court also rejected the Monitor's argument that he could allege sufficient facts to toll the limitations period, stating: "[The Monitor] contends the claim did not accrue until late 2014 at the earliest because he was busy investigating voluminous records and OM Global's portfolio manager was under criminal investigation and was not deposed until September 2015. However, [the Monitor] filed suit [in Florida state court] for the same loan on October 9, 2013. Plaintiff was certainly knowledgeable of the critical facts (that the loan was in default) by then. Plaintiff's ignorance of [Chhatrala] Barstow does not delay accrual of the cause of action because the identity of the defendant is not an element of a cause of action." The court stated: "Regardless of who used the money, the damage was done when the loan was not paid."
DISCUSSION
I. Review Standards
"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the 'reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded.' [Citation.] It 'is error for a trial court to sustain a demurrer [if] the plaintiff has stated a cause of action under any possible legal theory.' [Citation.] We apply a de novo standard in reviewing the court's ruling sustaining the demurrer." (Soto v. Motel 6 Operating, L.P. (2016) 4 Cal.App.5th 385, 389.) "[W]e do not review the validity of the trial court's reasoning but only the propriety of the ruling itself." (Orange Unified Sch. Dist. v. Rancho Santiago Community College Dist. (1997) 54 Cal.App.4th 750, 757.)
In evaluating the court's refusal to permit an amendment, we are governed by an abuse-of-discretion review standard. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 (Schifando).) The court abuses its discretion if there is a reasonable possibility an amendment would cure the defects. (Ibid.) The appellant has the burden to identify specific facts showing the complaint can be amended to state a viable cause of action. (Ibid.)
II. Nature of Claim Against Chhatrala Barstow
The Monitor sued Chhatrala Barstow for unjust enrichment based on a quasi-contract theory. To prevail on this claim, the Monitor must prove Chhatrala Barstow received a benefit from OM Global under circumstances making it inequitable for Chhatrala Barstow to retain that benefit without paying for it. (See Hernandez v. Lopez (2009) 180 Cal.App.4th 932, 938; Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593; Dunkin v. Boskey (2000) 82 Cal.App.4th 171, 195-196.)
Under California law, a two-year statute of limitation applies to an unjust enrichment claim based on a quasi-contract. (Code Civ. Proc., § 339, subd. (1); Filet Menu, Inc. v. Cheng (1999) 71 Cal.App.4th 1276, 1280; Bowden v. Robinson (1977) 67 Cal.App.3d 705, 718.) As a general rule, the limitations period begins to run when a claim accrues, i.e., " ' "when [it] is complete with all of its elements"—those elements being wrongdoing, harm, and causation.' [Citations.] This is the 'last element' accrual rule: ordinarily, the statute of limitations runs from 'the occurrence of the last element essential to the cause of action.' " (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191-1192.)
Applying these principles to the facts alleged here, the two-year period accrued on February 28, 2013, when Chhatrala Barstow—the entity that had allegedly received and benefited from the loan proceeds—failed to timely pay back the funds to OM Global. The Monitor (on behalf of OM Global) filed the action more than three years later, in June 2016.
The Monitor argues his claim was nonetheless timely because: (1) the contractual choice-of-law provision applies to this claim; (2) Florida law should apply under a governmental interests test; and (3) the accrual of the limitations period was tolled under the delayed discovery tolling rule. The Monitor alternatively contends the court erred in refusing to allow him to amend his pleading to add facts to establish the claim was timely under the delayed discovery rule. We reject those contentions for the reasons explained below.
III. Contractual Choice-of-law Provision
The Note states that it "shall be construed, governed and enforced in accordance with the laws of the State of Florida." Florida's statute of limitations for quasi-contract/unjust enrichment claims is four years. (See Fla. Stat. § 95.11(3)(k); Swafford v. Schweitzer (Fla.App. 2005) 906 So.2d 1194, 1195; Flatirons Bank v. Alan W. Steinberg L.P. (Fla.App. 2017) ___ So.3d___ .)
Generally, contractual choice-of-law provisions should be enforced and upheld. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 462, 464-465.) However, a contractual provision generally binds only the contracting parties. (See Berglund v. Arthroscopic & Laser Surgery Center of San Diego (2008) 44 Cal.4th 528, 536.) There are no allegations in the complaint that Chhatrala Barstow was a contracting party, and the Monitor has not asked for leave to amend the complaint to add Chhatrala Barstow to the breach-of-written-contract cause of action.
Moreover, to state an actionable quasi-contract cause of action, Chhatrala Barstow could not be a contracting party. The essential predicate underlying a quasi-contract action is that the parties do not have an enforceable contract, but the law implies the plaintiff's right to recover a benefit received by the defendant under circumstances that make it inequitable for the defendant to retain the benefit without paying for it. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 (Durell).) If we were to assume an express written agreement defines the parties' rights, the quasi-contract action fails as a matter of law. (Id. at p. 1370 ["[a]s a matter of law, an unjust enrichment claim [based on quasi-contract] does not lie where the parties have an enforceable express contract"]; California Medical Assn. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172-173 (California Medical); Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1419-1420.)
The Monitor argues he is nonetheless entitled to invoke the contractual choice-of-law provision because Chhatrala Barstow was a third party beneficiary of the Note. However, the Note does not identify Chhatrala Barstow as a third party beneficiary, nor are there any allegations in the complaint to support the assertion that the parties intended to confer a benefit on Chhatrala Barstow, a necessary requirement to impose third party beneficiary status. (See Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1022.) The Monitor argues the Note shows it was intended to benefit the class of "Chhatrala" parties, of which Chhatrala Barstow was a part. This conclusion is not supported by any reasonable reading of the Note terms.
Further, even assuming Chhatrala Barstow was a third party beneficiary, the Monitor misconstrues third party beneficiary law. Third party beneficiary status provides a noncontracting party with rights to enforce a contract intended for its benefit. (Civ. Code, § 1559.) But the right is not reciprocal. The Monitor cites no authority supporting that a contracting party's action against a third party beneficiary—a noncontracting party—is governed by the limitations period selected by the contracting parties.
In urging us to adopt this novel theory, the Monitor relies on Mercury Casualty Co. v. Maloney (2003) 113 Cal.App.4th 799. In Mercury, an automobile insurer paid medical expense benefits to the insured's passenger, and the issue was whether the insurer was entitled to enforce a policy provision against the passenger requiring reimbursement for third party settlements. (Id. at pp. 801-802.) The court held the passenger was required to reimburse the insurer, reasoning that the passenger was an express intended third party beneficiary on the policy and therefore any benefits received by the passenger were necessarily subject to the policy conditions for receiving that benefit. (Id. at pp. 802-804.) This holding reflects the unsurprising rule that a third party beneficiary's rights to the specific benefits intended for him or her are defined by the contractual provisions applicable to that benefit. But it does not stand for the broad proposition that a contracting party has a right to enforce a choice-of-law provision in a contracting party's action against the third party beneficiary.
Moreover, if Chhatrala Barstow was a third party beneficiary of the contract and had obligations under the contract terms, the quasi-contract claim would not be actionable as a matter of law. A "quasi-contract action for unjust enrichment does not lie where . . . express binding agreements exist and define the parties' rights." (California Medical, supra, 94 Cal.App.4th at p. 172; accord Klein v. Chevron U.SA., Inc. (2012) 202 Cal.App.4th 1342, 1388-1389; Durell, supra, 183 Cal.App.4th at p. 1370.) Although parties are entitled to plead inconsistent theories in different causes of action, the Monitor cannot recover on a quasi-contract claim based on a theory that he is entitled to enforce a contractual provision as part of that claim. (See Klein, at pp. 1388-1389.)
IV. Conflicts-of-law Analysis
The Monitor next contends that even if the Florida choice-of-law provision is inapplicable, Florida law should nonetheless govern under the governmental interest test of conflicts of law. (See McCann v. Foster Wheeler LLC (2010) 48 Cal.4th 68, 87 (McCann) [recognizing governmental interest test applies to determine applicable statute of limitations]; Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1543; Ashland Chemical Co. v. Provence (1982) 129 Cal.App.3d 790, 793-794 (Ashland).)
The governmental interest analysis involves three steps. "First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different. Second, if there is a difference, the court examines each jurisdiction's interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists. Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law 'to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state' [citation], and then ultimately applies 'the law of the state whose interest would be the more impaired if its law were not applied.' " (Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 107-108.) In applying this test, we presume a California court should apply California law unless a party demonstrates a valid reason not to do so. (See Hurtado v. Superior Court (1974) 11 Cal.3d 574, 581; see also CRS Recovery, Inc. v. Laxton (9th Cir. 2010) 600 F.3d 1138, 1142.)
Under the first step, California and Florida have different limitations periods for an unjust enrichment claim based on a quasi-contract theory. California law provides for a two-year limitations period (Civ. Code, § 339, subd. (1)), while Florida law provides for a four-year period (Fla. Stat. § 95.11(3)(k)).
Under the second step, California courts generally consider a foreign state to have no or minimal interest in applying its statute of limitations to actions in which its residents are not defendants. (See Ashland, supra, 129 Cal.App.3d at p. 794; see also Nelson v. International Paint Co. (9th Cir. 1983) 716 F.2d 640, 645 ["[o]nly California has an interest in having its statute of limitations applied" because "the forum is in California, and the only defendant is a California resident"].)
But even assuming Florida has some interest in applying its statute of limitations and we reach the third step, California's interest outweighs Florida's interest. "Where the conflict concerns a statute of limitations, the governmental interest approach generally leads California courts to apply California law . . . [citations], and especially so where California's statute would bar a claim. California's interest in applying its own law is strongest when its statute of limitations is shorter than that of the foreign state, because a 'state has a substantial interest in preventing the prosecution in its courts of claims which it deems to be "stale." Hence, subject to rare exceptions, the forum will dismiss a claim that is barred by its statute of limitations.' " (Deutsch v. Turner Corp. (9th Cir. 2003) 324 F.3d 692, 716-717.)
The Monitor's allegations do not show this case presents a "rare exception." The Monitor argues that Florida has a strong interest because he is bringing this case on behalf of defrauded investors, many of whom are Florida residents, who would benefit from having the court consider the claim on its merits. However, the Monitor was not appointed to represent the investors; he was appointed to act on behalf of OM Global. (See Sallah v. BGT Consulting, LLC, supra, 2017 WL 2833455, at p. *5.) Moreover, although Florida may have some interest in ensuring the Monitor has a forum to recover on OM Global's claims, when applying the conflicts-of-law analysis to differing limitations period, the primary focus is on "protect[ing] [California] residents and courts from the burdens associated with the prosecution of stale cases in which memories have faded and evidence has been lost [citation]." (Ashland, supra, 129 Cal.App.3d at p. 794.) A jurisdiction generally has the " 'predominant interest' in regulating conduct that occurs within its borders [citations], and being able to assure individuals and commercial entities operating within its territory that applicable limitations on liability set forth in the jurisdiction's law will be available to those individuals and businesses in the event they are faced with litigation in the future." (McCann, supra, 48 Cal.4th at p. 98.)
Chhatrala Barstow is a California-based entity; there is no evidence it has any ties to Florida; the loaned funds were wired to a California entity; and the Florida court determined it had no jurisdiction over the Chhatrala defendants. Chhatrala Barstow's purported wrongdoing—receiving and benefiting from the borrowed funds in California without repaying the loan—arose in California. On this record, California's interest is paramount. (See J. B. Painting & Waterproofing, Inc. v. RGB Holdings, LLC (9th Cir. 2016) 650 Fed.Appx. 450, 452-453 [holding in a fraud/strict liability/negligence action, California's shorter limitations period applied rather than Florida's longer statutory period because "California has a more substantial interest than Florida . . . to protect the California defendants from stale claims."].)
The Monitor asks for leave to amend his complaint to add allegations to show Florida law should apply under the conflicts of law analysis. However, by failing to explain and develop this assertion, or to identify the facts he seeks to add, the argument is without merit. (See Haley v. Casa del Ray Homeowners Assn. (2007) 153 Cal.App.4th 863, 867, fn. 1; Palm Springs Tennis Club v. Rangel (1999) 73 Cal.App.4th 1, 8.)
V. Delayed Discovery Tolling Rule
The Monitor next argues that, assuming the two-year statute of limitation applies and that the limitations period would generally accrue on February 28, 2013, the accrual period was tolled under the delayed discovery doctrine. This doctrine "postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807-809 (Fox).) "Discovery of the cause of action occurs when the plaintiff 'has reason . . . to suspect a factual basis' for the claim." (Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797.) "The discovery rule does not encourage dilatory tactics because plaintiffs are charged with presumptive knowledge of an injury if they have ' " 'information of circumstances to put [them] on inquiry ' " ' or if they have ' " 'the opportunity to obtain knowledge from sources open to [their] investigation.' " ' " (Fox, at pp. 807-808; see Pooshs, at p. 797; Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.)
The California Supreme Court has instructed that to avoid a demurrer based on the delayed discovery doctrine, " '[a] plaintiff whose complaint shows on its face that his [or her] claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.' " (Fox, supra, 35 Cal.4th at p. 808, first italics added; accord NBCUniversal Media, LLC v. Superior Court (2014) 225 Cal.App.4th 1222, 1232.)
The Monitor's complaint does not satisfy this standard. The complaint (which on its face is time-barred) does not contain any allegations showing the time and manner of discovery of the claim, or the inability to have made earlier discovery despite reasonable diligence. Thus, the court properly sustained the demurrer on grounds that the claim was untimely under California's two-year statutory period.
The Monitor contends the court erred in refusing to permit him to amend the complaint to show a basis for the delayed discovery tolling rule. An appellate court must reverse a judgment sustaining a demurrer if there is a reasonable possibility the defect can be cured by amendment. (Schifando, supra, 31 Cal.4th at p. 1081.) The plaintiff has the burden of proving a reasonable possibility of curing a defect by amendment. (Ibid.; Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 44.) The appellant must " ' " 'clearly and specifically set forth . . . [the] factual allegations' " ' " that will establish a viable cause of action. (Baldwin v. AAA Northern California, Nevada & Utah Ins. Exchange (2016) 1 Cal.App.5th 545, 559; accord, Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1118-1119; Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1504.) An appellant can meet its burden by identifying new facts or theories on appeal. (Code Civ. Proc., § 472c, subd. (a); Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1043-1044.)
In his opening appellate brief, the Monitor requests an opportunity to amend the complaint, but identifies no facts to support that he can amend to state a timely claim. He does not specify the time and manner in which he allegedly discovered the elements of the quasi-contract claim, nor does he explain the facts supporting why he could not have discovered the cause of action despite reasonable diligence. Instead, he argues only that Chhatrala Barstow's judicially-noticed documents did not establish that he knew or should have known that a third party received the benefits of the loan. (See Appellant's Opening Brief at p. 22 ["[Chhatrala Barstow] can only establish that [Monitor's] cause of action for quasi-contract accrued if the facts and properly judicially noticeable documents indicate that, as a matter of law, [he] knew or should have known that a party, other than the contracting party . . . 'obtained a benefit' in connection with the Note."].)
The Monitor has it backwards. To establish the applicability of the delayed discovery tolling doctrine, it is not Chhatrala Barstow's obligation to show that the Monitor knew or should have known about the cause of action. Rather, the Monitor has the initial appellate burden to identify facts that could be added to the complaint that would support tolling under a delayed discovery theory. (Fox, supra, 35 Cal.4th at pp. 808-809.) The Monitor did not meet this burden in his opening appellate brief.
In his reply brief, the Monitor argues "there were facts that [he] could have inserted into an amended Complaint to establish that a later accrual date was appropriate due to delayed discovery." In support of this assertion, the Monitor cites to his memorandum of points and authorities in opposition to the demurrer. Appellate courts generally disregard facts or arguments in the reply brief that were not discussed in the opening brief, and it is not appropriate appellate practice to assert arguments by incorporating by reference assertions in a document filed below. (See City of Merced v. American Motorists Ins. Co. (2005) 126 Cal.App.4th 1316, 1328-1329; Garrick Development Co. v. Hayward Unified School Dist. (1992) 3 Cal.App.4th 320, 334.) But even if we consider this argument, it is insufficient to show grounds for a viable amendment under the delayed discovery rule.
First, in the cited memorandum of points and authorities, the Monitor did not identify the time and manner that he allegedly discovered a third party obtained the borrowed funds. He said he was unaware of the Tullis declaration (identifying Chhatrala Barstow as the recipient of the borrowed funds) when the declaration was filed in the SEC federal court action (May 2014), and asserts he did not learn of Chhatrala Barstow's involvement in the Note "until late 2014 at the earliest." But he does not identify how or when he became aware of this fact in late 2014. Without facts showing the circumstances under which the Monitor discovered the elements of the cause of action (e.g. Chhatrala Barstow's receipt of the funds), the Monitor cannot reasonably explain how and why he could not have discovered the information earlier. (See Fox, supra, 35 Cal.4th at pp. 807-808.)
The Monitor also suggested below that he could add an allegation that he did not discover Chhatrala Barstow's involvement earlier because he was required to review "and understand the relevance of thousands of issues, documents and premonitor transactions," and that he was unable to speak with OM Global's portfolio manager until 2015, after the manager's guilty plea agreement. However, without an explanation as to the nature of his discovery of Chhatrala Barstow's involvement, these assertions are insufficient to show a basis for tolling. For example, the fact that the Monitor may have had numerous tasks to perform or could not speak with OM Global's principal does not explain the failure to reasonably discover information if it was readily available in OM Global's bank accounts that had been reviewed by the Monitor and/or his agents.
To successfully plead delayed discovery, the plaintiff has the "burden to plead not merely the ultimate fact of reasonable delay in discovery, but specific facts which allow a legitimate inference that the delay was reasonable." (Saliter v. Pierce Brothers Mortuaries (1978) 81 Cal.App.3d 292, 299, italics added, fn. omitted.) A general claim that the plaintiff was busy with other tasks or did not have the opportunity to speak with certain individuals is insufficient to meet this burden.
The Monitor argues that we cannot consider Chhatrala Barstow's submitted documents which Chhatrala Barstow asserts show the loan transfer to Chhatrala Barstow could have been discovered merely by reviewing OM Global's bank records. We agree that many of these submitted documents raise primarily factual issues (such as billing records from the Monitor's attorneys and accountant, and the meaning of the purported bank record attached to Tullis's declaration), and we cannot take judicial notice of the truth of the facts contained in these documents for purposes of evaluating the propriety of the demurrer.
But we can properly take judicial notice of the facts that: (1) in 2013 the Monitor was aware of the Note, the fact the amounts were due and owing, and that Chhatrala Group was allegedly a borrower on the Note; and (2) the SEC accountant filed a judicial declaration in May 2014 showing she found information in OM Global's bank records reflecting a wire transfer of $930,000 from OM Global to Chhatrala Barstow through Orange Coast Title Company. The Monitor also acknowledged in court filings he had access to, and subpoenaed, OM Global's bank accounts in 2013; he hired an attorney and forensic accountant in 2013 to assist him; he was aware of the SEC lawsuit filed in 2013; and he has since learned the bank account information disclosed that Chhatrala Barstow was the recipient of the borrowed funds.
Although this information does not necessarily establish that by June 2014 the Monitor knew or should have known that Chhatrala Barstow was a recipient of the funds under the Note, these judicially noticeable facts underscore the need for the Monitor to explain the time and manner of the alleged discovery and the specific reasons that the discovery could not have been made at an earlier time. Without an explanation, he has not met his burden to show he could plead facts to show his claim was timely.
In the court below, the Monitor also suggested he could amend his complaint to allege his delay was reasonable because the Chhatrala parties were unwilling to voluntarily cooperate with the Monitor and did not voluntarily disclose Chhatrala Barstow's involvement. This assertion is insufficient to toll the limitations period. The fact that a party does not voluntarily disclose information about another party's involvement in a loan transaction does not show an actionable misrepresentation necessary to toll the limitations period under a delayed discovery rule or equitable estoppel doctrine. The Monitor does not suggest Chhatrala Barstow or any of the related Chhatrala principals affirmatively misrepresented information, he merely faults them for failing to affirmatively disclose facts that would have assisted him in understanding Chhatrala Barstow's involvement earlier. The Monitor does not cite any authority supporting that the limitations period is tolled in such a situation.
The Monitor argues the court erred by refusing to permit him to speak a second time at the demurrer hearing. The court acted appropriately. The Monitor had a full opportunity to brief the issues in writing, and to assert his points at the hearing. The Monitor also had the opportunity in his appellate briefs to explain any factual theories supporting an amendment. The fact that he was not given more time at the demurrer hearing does not show prejudicial error.
During oral argument, we provided the Monitor's counsel with an additional opportunity to identify facts that would support a viable amendment to establish a basis for delayed discovery tolling. In response, the Monitor's counsel reaffirmed that by late 2013 the Monitor's forensic accountant had in his possession the subpoenaed Bank of America records for OM Global, and these records contained information showing the borrowed funds on the Note were sent by a wire transfer from OM Global to Orange Coast Title Company in January 2013. But the Monitor's counsel asserted that he could add an allegation that the Monitor was required to review thousands of documents and did not actually learn that Chhatrala Barstow was a recipient of this wire transfer until late 2014 when the Monitor's forensic accountant received Orange Coast Title Company's subpoenaed records.
This proposed allegation is insufficient to toll the limitations period. The fact that the Monitor and/or his accountant possessed OM Global's Bank of America records in 2013 and that the documents showed OM Global's January 2013 wire transfer to Orange Coast Title Company confirm the Monitor was on inquiry notice of Chhatrala Barstow's involvement more than two years before he filed the action against Chhatrala Barstow. (Fox, supra, 35 Cal.4th at pp. 807-808 [a plaintiff is "charged with presumptive knowledge of an injury" by having " ' " 'the opportunity to obtain knowledge from sources open to [its] investigation' " ' "].) This is particularly true because the appellate record shows that Chhatrala Barstow was in fact identified on the same Bank of America record that identified Orange Coast Title Company and which the Monitor acknowledges he had received in 2013.
DISPOSITION
Judgment affirmed.
HALLER, J. WE CONCUR: NARES, Acting P. J. DATO, J.