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RGIS, LLC v. Bank of America, N.A.

California Court of Appeals
May 24, 2011
B225640 (Cal. Ct. App. May. 24, 2011)

Opinion

         NOT TO BE PUBLISHED

         APPEAL from a judgment of the Superior Court of Los Angeles County Super. Ct. No. BC397265, David L. Minning, Judge.

          Sedgwick, Detert, Moran & Arnold, Frederick D. Baker, Michael F. Healy, Stephanie A. Sheridan and Kelly Savage Day for Plaintiff and Appellant.

          O’Melvey & Myers, Framroze Virjee, Adam Karr and Ryan Rutledge for Defendant and Respondent.


          KRIEGLER, J.

         In this action for damages for breach of a third party beneficiary contract, fraud, misrepresentation, and violation of the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.) (UCL), plaintiff and appellant RGIS, LLC appeals from a judgment of dismissal entered after the trial court sustained the demurrer of defendant and respondent Bank of America, N.A. to RGIS’s first amended complaint (FAC). RGIS contends the trial court erred in ruling that: (1) the contract claim is barred by the statute of limitations; and (2) RGIS failed to state a claim for fraud, misrepresentation, or unfair competition. We affirm.

         PROCEDURAL BACKGROUND

         Allegations of the FAC

         RGIS filed the FAC for damages, with class action allegations, against Bank of America on September 17, 2009. RGIS alleged it opened a checking account with Bank of America in 1993 to issue pay checks to its employees.

         In April 2002, Bank of America began to impose a check-cashing fee on persons who did not have a Bank of America account. This placed the bank’s employer customers in violation of Labor Code section 212, which “provides that employers must issue paychecks which are ‘negotiable and payable in cash, on demand, without discount, at some established place of business in the state.’”

         In April 2004, Karis House, Inc., an employer customer of Bank of America, filed a class action lawsuit against Bank of America, alleging the check-cashing fee subjected employer customers to liability for violating Labor Code section 212. On January 31, 2005, Karis House and Bank of America fully executed an agreement settling the litigation (Karis House agreement). In the consideration section of the agreement, the parties agreed that Bank of America included notice of a recent legal challenge to its check-cashing fee in the December 2004 account statements to its “small business customers.” RGIS was a “small business customer, ” as defined in the Karis House agreement, but Bank of America did not provide notice to it in its December 2004 statement.

The notice stated: “Bank of America charges a check-cashing fee of $5 to persons without an account with the Bank for any check drawn on a Bank of America business account. Recently, the check-cashing fee has been challenged based on an argument that the California Labor Code (section 212) requires that an employer make wage payments available to its employees ‘without discount.’ Bank of America disagrees with the challenge of charging a check-cashing fee to persons without an account with the Bank. As a reminder, we provide free checking accounts with direct deposit for which no monthly service charge fees are incurred. This enables employees to avoid paying the check-cashing fee.”

         In May 2007, in Knipe v. RGIS Inventory Specialist (“Knipe”), RGIS’s hourly employees filed a second amended class action complaint against RGIS for damages, alleging RGIS violated Labor Code section 212. Although it denied liability, RGIS settled the lawsuit for a substantial sum. Had RGIS known “the legal implications of the check-cashing fee, ” it would have protected itself from liability. Bank of America’s failure to provide notice to RGIS of the legal risk created by the check-cashing fee caused RGIS’s alleged violation of Labor Code section 212.

         In the first, second, and third causes of action for fraud by concealment of material facts, for negligent misrepresentation by concealment of material facts, and for violation of the UCL by systematic breach of contract, RGIS alleged Bank of America failed to notify RGIS, as required by the Karis House agreement, that the check-cashing fee subjected RGIS to a risk of liability for violation of the Labor Code. In the fifth cause of action, for breach of written contract, RGIS alleged the parties to the Karis House agreement intended to benefit RGIS and other third party beneficiaries, by requiring Bank of America to provide notice to them of the risk the check-cashing fee could cause them to violate the Labor Code. Bank of America violated the Karis House agreement by failing to notify RGIS of the legal challenge to its check-cashing fee, which caused RGIS to violate Labor Code section 212.

A fourth cause of action was alleged, but RGIS makes no appellate contention concerning its dismissal by the trial court.

         Demurrer to the FAC

         Bank of America demurred to each cause of action in the FAC on the ground of failure to state facts sufficient to constitute a cause of action. The contract claim is barred by the four-year statute of limitations for breach of written contract actions (Code Civ. Proc., § 337), because the FAC was filed in September 2009, more than four years after the Karis House agreement was executed in January 2005. In any event, the Karis House agreement provides: “This Agreement... is not intended to constitute a third party beneficiary contract.” RGIS cannot state a claim for fraud, because it was not reasonable to rely on Bank of America for legal advice about the legal risks attendant to the check-cashing fee. The cause of action for negligent misrepresentation fails, because RGIS did not allege a positive assertion. Concerning the cause of action for violation of the UCL, based on breach of the Karis House agreement, the claim is barred by the contract statute of limitations, breach of contract cannot by itself form the predicate for the claim, and RGIS did not allege unlawful, fraudulent, or unfair conduct as the predicate. Further, the relief RGIS seeks cannot be granted under the UCL.

“An action upon any contract, obligation or liability founded upon an instrument in writing” must be brought within four years. (Code Civ. Proc., § 337, subd. (1).)

         RGIS’s Opposition to the Demurrer

         The FAC states causes of action against Bank of America “for specifically violating and concealing [Bank of America’s] contractually assumed disclosure obligations to RGIS and other similarly situated members of the public.”

         The statute of limitations for the contract cause of action was tolled by RGIS’s delayed discovery of the Karis House agreement until RGIS was sued in Knipe. RGIS is a third party beneficiary of the Karis House agreement, because the contract required that a benefit be conferred upon a third party. Regarding the fraud and misrepresentation causes of action, Bank of America breached its duty under the Karis House agreement to disclose the legal risks of the check-cashing fee, which constitutes an unfair business practice under the UCL.

         The Trial Court’s Ruling

         After a hearing on January 22, 2010, the trial court sustained the demurrer without leave to amend. The causes of action for fraud and misrepresentation fail, because the claims are based on an allegation that Bank of America failed to disclose potential legal liability, rather than a material fact. Reliance was not reasonable because information about the risk of liability was equally available to RGIS. Disclosure of material facts does not give rise to a duty to disclose the potential legal consequences of those facts. The cause of action for violation of the UCL by systematic breach of contract is time-barred by the four-year statute of limitations in the UCL, because the claim is based on the January 2005 breach of the Karis House agreement. Bank of America’s failure to advise RGIS of a potential violation of law is not fraudulent, unlawful, or unfair under the UCL. The breach of a third party beneficiary contract claim does not lie, because it is time-barred by the four-year contract statute of limitations. Any cause of action accrued no later than January 2005, when Bank of America and Karis House agreed that notice had been sent to all small business customers in their December 2004 statements. The third party’s ignorance of the Karis House agreement did not toll the limitations statute. The trial court did not reach the issue whether RGIS is a third party beneficiary. Leave to amend was denied: “Despite ample opportunity for discovery, RGIS has not alleged any facts that could sustain any of its claims, and further proceedings would serve only to further delay resolution of this action.”

         DISCUSSION

         I. Standard of Review

         “In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

         II. The Breach of Contract Claim is Time-Barred

         The statute of limitations for breach of contract actions is four years from the date the cause of action accrued. (Code Civ. Proc., § 337, subd. (1).) RGIS contends Bank of America breached its obligation to RGIS in the Karis House agreement to include a notice of the legal challenge to the check-cashing fee with the December 2004 bank statement. RGIS concedes it did not assert this claim until more than four years after the breach. Unless the claim relates back to the claims in the original complaint, which was filed in August 2008, or the statute of limitations was tolled, the breach of contract claim is time-barred.

         A. Relation Back

         RGIS contends the limitations statute is no bar to suit, because the FAC relates back to the filing of the original complaint. Bank of America contends RGIS forfeited this contention by failing to raise it in the trial court. RGIS concedes it did not raise the relation-back issue in the trial court, but asks us to consider it, because it presents a pure question of law on undisputed facts regarding both a non curable defect and a matter affecting the public interest and administration of justice. (See Dietz v. Meisenheimer & Herron (2009) 177 Cal.App.4th 771, 800.)

         “As a general rule, a party is precluded from urging on appeal any point not raised in the trial court. [Citation.] Any other rule would ‘“‘permit a party to play fast and loose with the administration of justice by deliberately standing by without making an objection of which he is aware and thereby permitting the proceedings to go to a conclusion which he may acquiesce in, if favorable, and which he may avoid, if not.’” [Citations.]’ [Citation.]” (In re Riva M. (1991) 235 Cal.App.3d 403, 411-412; accord, Dietz v. Meisenheimer & Herron, supra, 177 Cal.App.4th at pp. 799-800 [“‘“The rule that contentions not raised in the trial court will not be considered on appeal is founded on considerations of fairness to the court and opposing party, and on the practical need for an orderly and efficient administration of the law.” [Citations.] Otherwise, opposing parties and trial courts would be deprived of opportunities to correct alleged errors, and parties and appellate courts would be required to deplete costly resources “to address purported errors which could have been rectified in the trial court had an objection been made.” [Citation.] In addition, it is inappropriate to allow any party to “trifle with the courts by standing silently by, thus permitting the proceedings to reach a conclusion in which the party could acquiesce if favorable and avoid if unfavorable.” [Citation.]...’”].)

         “[A]n appellate court may consider a claim raising an important question of law despite the appellant’s failure to raise the issue in the trial court[.]” (In re Sheena K. (2007) 40 Cal.4th 875, 887, fn. 7.) “[T]he appellate court’s discretion to excuse forfeiture should be exercised rarely and only in cases presenting an important legal issue.” (In re S.B. (2004) 32 Cal.4th 1287, 1293.)

         RGIS makes no showing the issue is an important legal question or a matter affecting the public interest or administration of justice. Nothing in the record indicates that any other employers who used Bank of America’s payroll services were sued under Labor Code section 212. Moreover, RGIS was aware of the relation-back issue, yet offers no explanation for its omission to raise it in opposition to the demurrer. (See In re Riva M., supra, 235 Cal.App.3d at p. 412 [where the appellant knew of the legal standards but failed to raise them in the trial court, the Court of Appeal presumed the appellant either did not care if the legal standards were followed or was “attempting to sandbag the issue for appeal”].) We decline to excuse the forfeiture.

Bank of America discussed the issue in opposing the filing of the First Amended Complaint. The trial court permitted RGIS to file the First Amended Complaint, without ruling on whether the third party beneficiary claim related back to the allegations in the original complaint.

         B. Delayed Discovery

         RGIS contends the statute of limitations did not begin to run until RGIS had reason to know of its right to have notice of the legal challenge to the check-cashing fee sent to it in its December 2004 bank statement. RGIS contends there was no reason to know until May 2007, when its employees brought suit in Knipe. The contention is without merit, because RGIS did not allege in the FAC that anything in Knipe gave RGIS reason to know of the Karis House suit.

RGIS’s FAC alleged simply that its employees filed a second amended complaint in a class action lawsuit against RGIS alleging RGIS violated Labor Code section 212, and that the lawsuit was settled.

         Moreover, “[t]he general rule is that the cause of action in a third party contract accrues at the time of execution of the contract (or maturation of the obligation assumed), and the beneficiary has no rights greater than those of the promisor or promisee. [Citations.] A third party beneficiary is as much subject to the statute of limitations as the promisee to the contract which created the rights of the beneficiary.” (Skylawn v. Superior Court (1979) 88 Cal.App.3d 316, 318-320 [as a cause of action accrues immediately upon execution of the contract, the limitations period for a third party beneficiary suit is not tolled by the period of time when the beneficiary was ignorant of the contract’s existence].) While there would be some justification for a rule that the limitations period does not run until the beneficiary “‘has had a reasonable chance to know that his right exists[, ] [n]o wrong would be done, however, by the contrary ruling[.] [T]he right of the creditor came to him by a sort of “unexpected grace” and without consideration from him. If the statute should bar his remedy by a like accident because of his ignorance he would still be in exactly as good a position as his own contract originally put him. The law giveth and the law taketh away. The “unexpected grace” is nullified by the unexpected limitation.’” (Id. at p. 320; accord, Sanders v. American Casualty Co. (1969) 269 Cal.App.2d 306, 308-310 [in an action on the contract by a third party beneficiary, the contractual limitations period was not tolled during the period when the beneficiary was ignorant of the contract and its terms]; see Winick Corp. v. General Ins. Co. (1986) 187 Cal.App.3d 142, 148-149 [liability of surety accrues at same time as liability of the principal (general contractor); the statute of limitations is not tolled while the unpaid material man is ignorant of the surety bond]; compare April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 828-833[in breach of contract actions between the contracting parties, the general rule is that the cause of action accrues on the date of injury; where the injury occurred in secret and was not reasonably discoverable, accrual occurs on the date of discovery of the injury].)

         To the extent RGIS contends the limitations period was tolled by Bank of America’s delay in producing the Karis House agreement when demanded in discovery in January 2009, the contention has no merit. The facts that are necessary to support this contention—the dates discovery was demanded and provided—were not pleaded in the FAC, nor were they judicially noticed. In any event, RGIS’s demand for production was served on January 30, 2009, and gave Bank of America 35 days to respond. As the response date was outside the limitations period, any discovery delay did not toll the running of the statute of limitations.

RGIS’s demand for production of the Karis House agreement is annexed as an exhibit to the Declaration of Adam J. Karr in Support of Defendant Bank of America, N.A.’s Opposition to Motion for Leave to Amend, which we judicially notice. (Evid. Code, § 452, subd. (d).)

         III. The Fraud, Misrepresentation, and UCL Claims

         As pleaded, the causes of action for fraud by concealment of material facts, negligent misrepresentation by concealment of material facts, and violation of the UCL by systematic breach of contract are based on an alleged breach of the Karis House agreement to disclose the risk of legal liability attendant to the check-cashing fee. Since, as we concluded, RGIS is time-barred from asserting its claim for breach of the Karis House agreement, RGIS cannot state facts sufficient to constitute the fraud, misrepresentation, and UCL causes of action.

         Concerning the fraud and negligent misrepresentation causes of action, RGIS now contends the duty to disclose the risk of legal liability flowed from the fact that Bank of America provided information to RGIS concerning the check-cashing fee and how employees could avoid them. The contention is easily rejected. The FAC does not allege Bank of America provided RGIS with information concerning the check-cashing fee and how employees could avoid them. Moreover, an allegation of a failure to disclose the legal ramification of a fact does not state a cause of action for fraud or misrepresentation. (Sweat v. Hollister (1995) 37 Cal.App.4th 603, 608-609.) “[M]isrepresentations of law do not amount to actionable fraud.” (Bledsoe v. Watson (1973) 30 Cal.App.3d 105, 110.)

“The elements of fraud, which give rise to the tort action for deceit, are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another’s reliance on the misrepresentation, (4) justifiable reliance, and (5) resulting damage. [Citation.] The tort of negligent misrepresentation, a species of the tort of deceit [citation], does not require intent to defraud but only the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.” (Conroy v. Regents of University of California (2006) 45 Cal.4th 1244, 1255.)

To the extent RGIS asserts Bank of America’s provision of information created a duty to advise RGIS about the Karis House lawsuit, the assertion fails for the same reason.

         Concerning the UCL claim, RGIS contends Bank of America’s failure to disclose the potential legal risks posed by the check-cashing fee constituted an unlawful, unfair, and fraudulent business practice. We disagree. The authorities cited by RGIS concern failures to disclose material facts, not failures to disclose potential legal risks arising from facts. (E.g., Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 52 [a false representation of fact]; Day v. AT & T Corp. (1998) 63 Cal.App.4th 325, 333-334 [failure to disclose that prepaid phone card usage was rounded up].) RGIS cites no authority for its contention that a failure to disclose the legal ramification of a fact is actionable.

Under the UCL, “unfair competition... mean[s] and include[s] any unlawful, unfair or fraudulent business act or practice[.]” (Bus. & Prof. Code, § 17200.)

         As the complaint does not state facts sufficient to constitute a cause of action and RGIS does not contend that the defects can be cured by amendment, we affirm the order sustaining the demurrer without leave to amend. (See Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)

         DISPOSITION

         The judgment is affirmed. Costs on appeal are awarded to defendant and respondent Bank of America.

          I concur: KUMAR, J.

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

          MOSK, P.J., Concurring,

          I concur.

         I believe that a cause of action for breach of contract in this case would accrue as to the third party beneficiary of that contract when the beneficiary, not the party to the contract, discovers the breach. In disagreeing with older California Court of Appeal opinions (see, e.g., Skylawn v. Superior Court (1979) 88 Cal.App.3d 316 (Skylawn), I agree with more recent cases in other jurisdictions and the leading treatises. In Sodora v. Sodora (N.J.Super. 2000) 768 A.2d 840, the court rejected the holding in Skylawn and instead followed Bemis v. Estate of Bemis (Nev. 1998) 967 P.2d 437 and the Restatement of Contracts (Second) section 309, in holding that the statute of limitations is applied to the third party beneficiary without reference to the contracting party.

         Williston on Contracts states that “most courts recognize that, because the contract between the promisor and promisee creates a new obligation, even though the creditor beneficiary’s original claim is barred, the beneficiary may nevertheless enforce a claim against the promisor, so long as the statutory period has not run since the promisor agreed to pay the debt.” (13 Williston on Contracts (4th ed. 2000) § 37:60, pp. 354-355.) Corbin on Contracts, in referring to Bemis v. Estate of Bemis, supra, 967 P.2d 437, observes, “Most important, however was the court’s recognition of the basic rationale of the discovery rule to contract actions: the policies served by the statute of limitations do not outweigh the policy of not foreclosing judicial remedies before parties can discover their injuries.” (9 Corbin on Contracts (rev’d ed. 2007) § 46.7, p. 123.)

         In discussing Skylawn, supra, 88 Cal.App.3d 316, the Corbin work states, In support of its holding the court quoted from the prior edition of this treatise: “[T]he right of the creditor came to him by a sort of ‘unexpected grace’ and without consideration from him. If the statute should bar his remedy by a like accident of his ignorance he would still be in exactly as good a position as his own contract originally put him. The law giveth and the law taketh away. The ‘unexpected grace’ is nullified by the unexpected limitation.” (9 Corbin on Contracts (Interim ed. 1979) § 820, p. 249.) The court, however, failed to quote a prior statement on the same page of that edition which criticized an older view that the statute of limitations did not begin to run until the beneficiary had assented to the contract, citing More v. Hutchinson (1922) 187 Cal. 623. That criticism is followed by: “It could be justified in some degree on the theory that the statute should not be allowed to operate against one until he has had a reasonable chance to know that his right exists.” (9 Corbin, supra, § 820 at p. 249.) If knowledge of the claim is when an action accrues, to ignore the lack of knowledge by the plaintiff just because it is a third party beneficiary makes little sense.

         The question as to whether a clause is a contract that “is not intended to inure to the benefit of any person not a party hereto or specifically identified as a beneficiary herein, and it is not intended to constitute a third party beneficiary contract” is overridden by the notice provision. Plaintiff relies on Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225 (Prouty), in which the court allowed a third party beneficiary claim notwithstanding the language in the agreement that it was not to benefit any third party.

         Prouty, supra, 121 Cal.App.4th 1225 is distinguishable. In that case, an original stock purchase agreement contained a “no third party beneficiary” clause. Three months later, an amendment to the agreement conferred benefits on employees, giving them severance pay. In the amendment, the new parent company agreed to indemnify the merging company for any cost, expense, loss or liability recovered “by a third party” arising out of an employee termination. Employees terminated after the merger sued for severance pay. The court found that while the original agreement did “not provide any voluntary severance benefits... the amendment superseded the original agreement. The language of the contract (amendment) and the facts surrounding its negotiation demonstrate the parties expressly intended plaintiffs to be third party beneficiaries.

         In the instant case, there is only one agreement, with no amendment. The agreement expressly prohibits third party rights; further, it does not contemplate the possibility of third party actions because it does not provide for indemnity in the event of an employee lawsuit, unlike Prouty, supra, 121 Cal.App.4th 1225.

         It would seem that the Bank here, although it agreed to give notices, insulated itself from third party actions. Plaintiff was not a party “specifically identified as a beneficiary.” The Karis House agreement was an arms-length negotiated agreement. Under these circumstances, the no third party beneficiary provision should be applied.

         Accordingly, I would conclude that plaintiff is not a third party beneficiary, and on that basis, concur in the judgment that the delayed discovery rule did not apply.

         Some of the other issues are also not easy ones. But, I otherwise concur for the reasons set forth in the majority opinion.


Summaries of

RGIS, LLC v. Bank of America, N.A.

California Court of Appeals
May 24, 2011
B225640 (Cal. Ct. App. May. 24, 2011)
Case details for

RGIS, LLC v. Bank of America, N.A.

Case Details

Full title:RGIS, LLC, Plaintiff and Appellant, v. BANK OF AMERICA, N.A., Defendant…

Court:California Court of Appeals

Date published: May 24, 2011

Citations

B225640 (Cal. Ct. App. May. 24, 2011)