Opinion
G052723
06-05-2017
JAMES A. ZACHMAN, Plaintiff and Appellant, v. PAYPAL, INC., Defendant and Respondent.
James A. Zachman, in pro. per., for Plaintiff and Appellant. Holland & Knight, Shelley G. Hurwitz, Kyong M. Kim, Craig S. Weinstein and John A. Canale 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2014-00752346) OPINION Appeal from a judgment of the Superior Court of Orange County, Linda S. Marks, Judge. Affirmed. James A. Zachman, in pro. per., for Plaintiff and Appellant. Holland & Knight, Shelley G. Hurwitz, Kyong M. Kim, Craig S. Weinstein and John A. Canale for Defendant and Respondent.
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INTRODUCTION
James A. Zachman sued PayPal, Inc. (PayPal), for negligence and aiding and abetting fraud stemming from a dispute between Zachman and his former business partner over control of the business's PayPal account. The trial court sustained PayPal's demurrer to Zachman's complaint without leave to amend. We affirm.
Zachman's cause of action for negligence was filed more than two years after his claim accrued, and it was therefore barred by the statute of limitations. Zachman's cause of action for aiding and abetting fraud failed to allege PayPal's substantial assistance or encouragement of the alleged intentional tort. Zachman failed both in the trial court and on appeal to show how he might amend the complaint to overcome these failures.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
In 2006, Zachman and Sangeeta Chhabra entered into a business agreement to operate Real Time Data Services, LLC (Real Time Data). In May 2012, a dispute arose between Zachman and Chhabra, and Chhabra locked Zachman out of the company's operations. The same month, Zachman learned that Real Time Data had received $300,544.35 in merchant payments and income through PayPal; Zachman had never received any of that money. Zachman immediately contacted PayPal, and on June 12, 2012, sent PayPal a letter detailing the misrepresentations and fraud allegedly committed by Chhabra.
On October 22, 2014, Zachman filed a complaint against PayPal alleging negligence. PayPal filed a demurrer and motion to strike, which were rendered moot when Zachman filed a first amended complaint alleging 10 causes of action, all sounding in negligence. PayPal demurred to the first amended complaint, arguing both the complaint's failure to state a cause of action and the applicable statutes of limitations. The trial court sustained the demurrer with 20 days' leave to amend.
Zachman voluntarily dismissed four of those causes of action, as they "would be better investigated by the proper Federal and State Regulatory agencies."
Zachman filed a second amended complaint alleging two causes of action against PayPal for (1) negligence, and (2) aiding and abetting fraud. PayPal again demurred.
The trial court sustained PayPal's demurrer without leave to amend, and judgment was entered.
Zachman's notice of appeal is valid, although it was filed before entry of the judgment, because it was filed after the court's minute order containing the rendition of judgment. (In re Marriage of Zimmerman (2010) 183 Cal.App.4th 900, 906.)
DISCUSSION
I.
STANDARDS OF REVIEW
We independently review the ruling on a demurrer and determine de novo whether the pleading alleges facts sufficient to state a cause of action. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) We construe the pleading in a reasonable manner and read the allegations in context. (Ibid.) "We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court's stated reasons. [Citation.]" (Las Lomas Land Co., LLC v. City of Los Angeles (2009) 177 Cal.App.4th 837, 848.)
When the trial court sustains a demurrer 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." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
II.
THE FIRST CAUSE OF ACTION FOR NEGLIGENCE WAS BARRED BY THE
TWO-YEAR STATUTE OF LIMITATIONS.
The two-year limitations period of Code of Civil Procedure, section 339 applies to the first cause of action for negligence. The second amended complaint makes clear that Zachman's negligence claim accrued, at the latest, in June 2012 when he notified PayPal in writing of Chhabra's alleged fraudulent acts regarding the disputed PayPal account. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806-807 [cause of action accrues when all elements are complete].) The statute of limitations expired in June 2014, before Zachman originally filed his complaint four months later. Neither in the trial court nor on appeal does Zachman explain how he could amend this cause of action to avoid the statute of limitations problem. The trial court did not err in sustaining the demurrer on the first cause of action for negligence without leave to amend.
III.
ZACHMAN FAILED TO STATE A CAUSE OF ACTION FOR AIDING AND ABETTING FRAUD.
To state a cause of action for aiding and abetting an intentional tort, a plaintiff must allege actual knowledge that a tort is being or will be committed, that the defendant provided substantial assistance or encouragement to the actor, and that the defendant's conduct was a substantial factor in causing the plaintiff harm. (Casella v. SouthWest Dealer Services, Inc. (2007) 157 Cal.App.4th 1127, 1140-1141; CACI No. 3610; see American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1475-1476 [aiding and abetting breach of fiduciary duty]; Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, 95 [claim for unfair competition based on PayPal's aiding and abetting the operation of an illegal lottery]; Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1145-1146 [aiding and abetting breach of fiduciary duty].) The failure to prevent a fraud from occurring, even if the defendant has knowledge the fraud is being committed, is not sufficient to state a cause of action for aiding and abetting the fraud. (Austin B. v. Escondido Union School Dist. (2007) 149 Cal.App.4th 860, 879; CACI No. 3610.)
The second amended complaint adequately pleads PayPal's knowledge of the alleged fraud, based on Zachman's written complaints to PayPal in June 2012; PayPal does not argue to the contrary in its respondent's brief. As to PayPal's substantial assistance or encouragement, the second amended complaint alleges: "The Defendant participated in aiding and abetting in the wrongful conduct in the following ways: (a) allowed Chhabra to continue using Plaintiff's taxpayer identification (b) allowed Chhabra to retain the Data Services account/name, even though, the Defendant was 'fully aware' that Chhabra was not authorized to manage any financial accounts in the U.S. (c) knew that Chhabra had previously provided materially false representations regarding her personal information (d) knowledge that Chhabra was ineligible to hold the account because she is/was a non-resident of the U.S." Further, the second amended complaint alleges: "41. The Defendant was aware in June 2012 that Chhabra had provided the following misrepresentations in order to establish the Data Services account: (1) Plaintiff's taxpayer identification (b) Plaintiff's home address (c) Plaintiff's bank account information. [¶] 42. Additionally, when the Defendant being fully aware of the Plaintiff[']s assertions, desired to continue to conduct transactions with Chhabra — 'We want to work with you to get your account back to normal as quickly as possible' clearly illustrating that the Defendant was aiding and abetting Chhabra. [¶] 43. By the Defendant 'assisting' Chhabra with a U.S. payment gateway, she was able to 'secretly and unilaterally' transfer funds owed to Data Services and divert the funds directly to India. [¶] 44. The Defendant was aware, that one way or another, the Data Services account was part of Chhabra's 'scheme' to defraud the Plaintiff and deprive him of his rightful assets." The question before us on appeal is whether these allegations constitute substantial assistance or encouragement of Chhabra's fraud by PayPal.
In Schulz v. Neovi Data Corp., supra, 152 Cal.App.4th 86, we addressed a similar procedural issue arising from similar facts. EZ Expo ran the equivalent of an online pyramid scheme, where participants could win "free" prizes after paying a fee to enter a prize matrix, and having a sufficient number of other participants enter the matrix after him or her. (Id. at p. 89.) The complaint alleged that PayPal was a payment processor whose customers could do business with EZ Expo by transferring money through PayPal, which would take a commission from that payment before transmitting it to EZ Expo. (Id. at p. 90.) The complaint alleged that another defendant, Neovi Data Corporation, provided billing services for EZ Expo, allowing customers to participate by paying with a virtual check. (Id. at pp. 89-90.)
The plaintiff sued PayPal and Neovi for unfair competition for aiding and abetting EZ Expo in its operation of an illegal lottery and/or an endless chain scheme, in violation of Penal Code sections 319 and 327. (Schulz v. Neovi Data Corp., supra, 152 Cal.App.4th at p. 90.) The trial court sustained PayPal's and Neovi's demurrers to the complaint for failure to state a cause of action without leave to amend. (Id. at pp. 90-91.)
Another panel of this court affirmed the trial court's judgment, holding in part that the complaint's allegations that PayPal and Neovi allowed EZ Expo to use their regular services to run its matrices did not plead substantial assistance or encouragement. "As to PayPal and Neovi, however, the complaint is deficient. It pleads only that PayPal knew the site was an illegal lottery but agreed EZ could use its payment system with the knowing intent to aid and abet EZ's operation because it could be profitable for PayPal. As to Neovi the complaint alleges only that it 'knew of [EZ's] unlawful operations' 'but knowingly and intentionally aided and abetted the operation by setting up a system' for consumers to use its electronic check system, and, as a result, received a fee. This does not sufficiently allege PayPal's or Neovi's knowledge of the alleged illegal lottery or facts showing 'substantial assistance or encouragement.' These mere conclusions do not save the causes of action. [Citation.]" (Schulz v. Neovi Data Corp., supra, 152 Cal.App.4th at p. 97.)
Similarly, in the present case, Zachman alleges that PayPal agreed that Chhabra could continue using its payment system, despite its knowledge that Chhabra was making misrepresentations by doing so. This is not sufficient to assert substantial assistance or encouragement of a known intentional tort.
Zachman cites Neilson v. Union Bank of California, N.A. (C.D.Cal. 2003) 290 F.Supp.2d 1101, 1120-1121, for the proposition that knowledge of a fraud may be inferred from the allegation of atypical banking procedures. In the present case, no atypical procedures on the part of PayPal have been alleged. Zachman also relies on In re First Alliance Mortgage Co. (9th Cir. 2006) 471 F.3d 977, 995 for the proposition that "if a plaintiff can show a bank had actual knowledge then providing ordinary banking services can constitute substantial assistance." That case involved an appeal from a jury's verdict of aiding and abetting fraud (id. at p. 983), and so presents a different framework for analysis of the issues. Further, the evidence of aiding and abetting fraud in that case was substantially more significant than what Zachman alleged in his second amended complaint. "It appears that the jury found, as did the district court [citation], that Lehman satisfied all of First Alliance's financing needs and, after other investment banks stopped doing business with First Alliance, kept First Alliance in business, knowing that its financial difficulties stemmed directly and indirectly from litigation over its dubious lending practices. That was enough to conclude that Lehman was providing the requisite substantial assistance. Lehman admits that it knowingly provided 'significant assistance' to First Alliance's business, but distinguishes that from providing substantial assistance to fraud. In a situation where a company's whole business is built like a house of cards on a fraudulent enterprise, this is a distinction without a difference. The jury was not precluded as a matter of law from finding that Lehman substantially assisted First Alliance in its fraud." (Id. at p. 995, original italics.)
IV.
THE TRIAL COURT DID NOT ERR IN DENYING LEAVE TO AMEND.
When asked how he would amend the complaint if permitted to do so, Zachman responded: "The question in my mind is this. When PayPal became aware of the fraud and yet continued for another eight months allowing that fraud to continue . . . why did they not just at that one moment say, we're going to shut this thing down, and you guys can go about your business and we will deal with it. [¶] But they didn't do that. They didn't shut it down. They had every opportunity to shut it down. In fact, they . . . suspended the account four times." Neither at the hearing on his demurrer, nor in his appellate briefs, does Zachman articulate how he might amend his complaint to avoid the statute of limitations on his negligence claim, or to state a cause of action on his aiding and abetting claim. The trial court did not err in sustaining the demurrer without leave to amend.
V.
RES JUDICATA
PayPal contends that even if the second amended complaint states a cause of action for aiding and abetting, that cause of action would be barred by the doctrine of res judicata. "Res judicata bars a cause of action that was or could have been litigated in a prior proceeding if: '(1) the present action is on the same cause of action as the prior proceeding; (2) the prior proceeding resulted in a final judgment on the merits; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding. [Citation.]' [Citation.]" (Federal Home Loan Bank of San Francisco v. Countrywide Financial Corp. (2013) 214 Cal.App.4th 1520, 1527.)
In November 2012, Zachman sued PayPal (among others) in the Riverside County Superior Court. Judgment was entered in favor of PayPal and against Zachman after PayPal's motion for summary judgment was granted. The only question is whether the present action is on the same cause of action as was the Riverside case. In that case, Zachman raised a single cause of action against PayPal for co-conspiracy in the fraud committed by Chhabra. The fraud committed by Chhabra included misrepresentations as to the following: (1) the commitment to share the profits of their business venture 50/50 with Zachman; (2) the commitment to provide accountings of money received and expenses incurred; and (3) the PayPal account would be established in Zachman's name and all money received through the PayPal account would be deposited into a Wells Fargo Bank account.
PayPal argues that the cause of action for conspiracy in the Riverside case is the same as the aiding and abetting fraud cause of action in the present case because they are based on the same primary right. "Causes of action are considered the same if based on the same primary right." (Citizens for Open Government v. City of Lodi (2012) 205 Cal.App.4th 296, 325.) "'[T]he primary right is simply the plaintiffs right to be free from the particular injury suffered.'" (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 904.) A "cause of action" is comprised of a "primary right" of the plaintiff, a corresponding "primary duty" of the defendant, and a wrongful act by the defendant constituting a breach of that duty. (McKee v. Dodd (1908) 152 Cal. 637, 641.) A primary right is indivisible—the violation of a single primary right gives rise to but a single cause of action. (Slater v. Blackwood (1975) 15 Cal.3d 791, 795.) "[U]nder the primary rights theory, the determinative factor is the harm suffered." (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 798.) "When two actions involving the same parties seek compensation for the same harm, they generally involve the same primary right." (Ibid.)
The cause of action for conspiracy to commit fraud and the cause of action for aiding and abetting fraud, when the fraud in both matters involves misrepresentations relating to the disputed PayPal account and the proceeds from that account, involve the same primary right. Therefore, the doctrine of res judicata would have required the trial court to sustain PayPal's demurrer in any event.
DISPOSITION
The judgment is affirmed. Respondent to recover costs on appeal.
FYBEL, J. WE CONCUR: O'LEARY, P. J. THOMPSON, J.