IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE
May 3, 2010
ALEX WALD, PLAINTIFF AND APPELLANT,
TRUSPEED MOTORCARS, LLC, DEFENDANT AND RESPONDENT.
Appeal from a judgment of the Superior Court of Orange County, Gregory Munoz, Judge. Reversed. (Super. Ct. No. 30-2008-00112013).
The opinion of the court was delivered by: Sills, P. J.
CERTIFIED FOR PUBLICATION
Back in the 1940‟s, a character in a theatrical comedy flatly stated that there is no such thing as a perfect crime. To which the retort was: "Ever buy a used car?"*fn1
The exchange might be a bit out of date today. California law has not only required car dealers to be licensed since 1959 (see Veh. Code, § 11700*fn2 ; added by Stats. 1959, ch. 3), but has subjected car dealers to specific statutes against fraud (see generally § 11711) since that date as well. And a relatively recent statute, section 11711.3 (added by Stats. 2002, ch. 407, § 2) goes so far as to completely preclude any recovery by a dealer of the price of a car if the dealer is not licensed. The "dominant purpose" of California‟s statutory car dealer licensing scheme is, of course, the protection of car buyers from irresponsible or unscrupulous dealers. (Valiyee v. Department of Motor Vehicles (1999) 74 Cal.App.4th 1026, 1032, italics added.)
The irony of the present case is that a scheme designed to protect consumers from unscrupulous dealers has, at least under the law as interpreted by the trial court on a successful demurrer, resulted in a car dealer reaping the benefit of an outright fraud on one of its salespeople, to whom it owed substantial finder‟s fees. The theory, which the trial court accepted on demurrer, was that the salesman really was himself a used car dealer, and, because he did not have a dealer‟s license, he could not complain when he was not paid his finder‟s fees for about 11 cars he obtained for the dealership.
At this stage we deal only with the facts in the complaint. That said, to affirm would be to allow the car dealership to get away with a perfect crime. We reverse.
II. THE COMPLAINT AND DEMURRER
The last operative complaint by the plaintiff was the second amended complaint. Again, we stress that the case comes to us after a sustained demurrer without leave to amend. That means plaintiff Alex Wald is entitled to all reasonable inferences from facts alleged in that document, but not conclusions of law.
The story alleged is this: Plaintiff Wald is in "the business" of finding, buying and then selling again used Porsches.*fn3 Defendant Truspeed is in the "business of selling sued Porsches." Truspeed liked Wald‟s ability to find used Porsches, and in June 2008 Wald and three representatives of Truspeed met to work out an arrangement.*fn4 The meeting resulted in an oral agreement which would work this way: Wald would locate a used Porsche, and "propose" the car to Truspeed. If Truspeed was "interested," Wald and Truspeed would negotiate a price between themselves. Then Wald would return to the owner and negotiate a lower price: The difference between the Wald-Truspeed price and the Wald-owner price would be Wald‟s compensation -- though there was a statement by one of the Truspeed representatives that Wald would receive no less than $500 per vehicle.*fn5
Importantly, the actual buying of a used Porsche would be done by Truspeed: It would be Truspeed that would write the check and do the other paperwork to actually procure the car from the owner located by Wald and at the price negotiated by him.*fn6 Thus -- if we may make a reasonable inference from that allegation -- Wald would not automatically get paid as might be case if he bought the used Porsche himself and then re-sold it to the dealer. He was dependent on the dealer for any compensation for his services. The parties thus called the compensation a "finder‟s fee" and Wald trusted Truspeed to obtain any necessary licenses to implement the arrangement.*fn7
A few other aspects of the complaint are noteworthy: The Truspeed representatives asked Wald whether he would be interested in selling vehicles for Truspeed "on the floor," though the parties agreed that "Plaintiff would essentially be locating cars from private parties and would receive a finder‟s fee" for his work. A Truspeed representative also asked Wald to "assist with pre-purchase inspections and shipping," and also "encouraged [Wald] to spend time at the store, offered [him] an office and asked [him] to help on the sales floor once or twice a week."
The complaint does not say that Wald accepted any of these "on the floor" offers. But the complaint does say that Truspeed‟s representative Rob Morgan and Wald had a discussion over the possibility that some of the prospective buyers might not want to sell to a dealer (which was the substance of the arrangement -- Truspeed would be the real buyer). In this conversation, Morgan told Wald he "did not care how" Wald "got the cars and encouraged [Wald] to lie to the sellers and say whatever it took to get the cars." The complaint does not say whether Wald actually misrepresented his ultimate purpose of having Truspeed buy the used Porsches, but the allegations to the effect that it was Truspeed who wrote the checks and actually did all the buying establishes a reasonable inference that Wald did not lie and that all sellers knew that the buyer of their cars was a dealer.
About 11 cars were obtained by Wald for Truspeed under the arrangement, and if the contract had been honored Wald would have been paid about $40,000. Truspeed, however, reneged on the deal and refused to pay Wald his fees for any of the cars obtained.*fn8 Truspeed‟s profits on the cars were alleged to exceed $100,000.
Truspeed filed a demurrer based on Wald‟s lack of dealer‟s license (and lack of a salesperson‟s license for that matter). The trial court sustained, without leave to amend, Truspeed‟s demurrer to four of the five causes of action set forth in the second amended complaint,*fn9 overruling a cause of action for common counts for $524.66 in actual expenses incurred. The court ruled that section 11711.3 of the Vehicle Code, which applies to unlicensed dealers, precluded any recovery by Wald of monies owed under the oral contract. As against Wald‟s argument that he was really a salesperson and his claims could be enforced in equity despite his lack of a salesperson‟s license, the trial court alluded to Tri-Q, Inc. v. Sta-Hi Corp. (1965) 63 Cal.2d 199, a case dealing generally with when "illegal" contracts may be enforced, but found the case inapplicable.*fn10 We will have more to say about Tri-Q and its ensuing jurisprudence in a moment.
After Wald himself dismissed his surviving fifth cause of action with prejudice, a judgment was entered against him. From that judgment he has timely appealed.
A. In Substance, A Salesperson
Section 11711.3 is strict. Very strict. Basically it says: If you are car dealer and you sell a car, if you are not licensed, you can be stiffed by the buyer, and there‟s nothing you can do about it.*fn11
The operative words in section 11711.3 are in its opening clause, introducing the subject of a long sentence: "A person acting as a dealer, who was not licensed as a dealer as required by this article . . . ." (Italics added.) The reader is immediately referred to the licensing requirements of "this article," which is in sections 11700 et seq.*fn12 As noted in the introduction, those statutes have provided since 1959 that car dealers must be licensed.
There is a statutory definition of "dealer" in the Vehicle Code, to be found in section 285. We reproduce the entirety of the statute in the margin.*fn13
Readers should notice this about the statute: It was obviously intended to be read in conjunction with a list of exceptions spelled out in section 286, because, if read independent of the exceptions in section 286, section 285 pretty much covers anybody whoever buys or sells a car, including ordinary consumers simply hoping to get a few bucks on their old clunker as a trade-in. Basically the scheme is: Define everybody who sells or buys or even negotiates in regard to buying or selling a car as a "dealer," then provide a list of exclusions from the otherwise blanket coverage of the statute.
So now to section 286, which lists who-is-not-a-dealer even though they otherwise would fall under the rubric of "dealer" in the previous statute. We also reproduce the entirety of that statute in the margin.*fn14 One of the reasons we provide the entire statute is so that readers can see the exertions of the Legislature in trying to work around a statutory scheme which first so broadly defines a category as to be virtually unrealistic (e.g., anyone who ever tries to sell his or her own car is a "dealer" under the definition) and then tries to remove from that broad definition people and organizations who are obviously not dealers. Thus section 286 goes to some lengths to define and then exempt charitable organizations to which consumers can donate cars, as well as ordinary consumers themselves and auto clubs who will often helpfully negotiate firm prices from certain dealers (real dealers), thus sparing their members the burden of haggling. Even yacht brokers have to be specifically exempted from section 285‟s ambit.
And, of course, car dealer salespeople are also exempted, in subdivision (c). That exemption is remarkable fairly short: "(c) Persons regularly employed as salespersons by vehicle dealers licensed under this code while acting within the scope of that employment."
Vehicle salespeople, as distinct from dealers, are defined in section 675.
We set out the entire statute in the margin.*fn15 It is a kind of mini-version of section 285‟s definition of dealer. First, in subdivision (a), the statute sets forth a series of categories, any one of which is sufficient to make a person a salesperson, and then, in subdivision (b), it lists exceptions. Among the categories bringing a person within the definition are formal employment "as a salesperson by a dealer, as defined in Section 285," but also a person who "under any form of contract, agreement, or arrangement with a dealer, for commission, money, profit, or other thing of value, sells, exchanges, buys, or offers for sale, negotiates, or attempts to negotiate, a sale, or exchange of an interest in a vehicle required to be registered under this code." (Italics added.)
None of the exceptions in subdivision (b) applies here. We need only note that one of those exceptions ("Persons regularly employed as salespersons by a vehicle dealer authorized to do business in California under Section 11700.1 of the Vehicle Code") refers to out-of-state dealers, as distinct from Truspeed.*fn16
The law prefers substance to form, and in substance, Wald was regularly employed as Truspeed‟s salesperson. The essence of Wald‟s services were in negotiating with used Porsche owners for their vehicles -- the same sort of work that car salespeople do every day when a buyer comes in with a trade-in, and work that fits within section 675‟s inclusion of people who professionally negotiate for dealers as salespeople. On top of that, it is a reasonable inference that Wald was devoting a substantial portion of his time to work on behalf of dealer Truspeed, i.e., he was "regularly employed" as a salesperson. Moreover, Wald received all compensation for his services directly from Truspeed, with all paperwork on the cars purchased handled by Truspeed.
B. Compensation Enforceable In Equity
Determining that Wald is a salesperson, as distinct from a dealer, is not, however, the end of the matter. Under section 11800, salespeople too must be licensed.*fn17
And there is no question that Wald did not have a salesperson‟s license.
But -- the statutory sanctions for unlicensed work are different for dealers and salespeople, perhaps reflecting a recognition on the part of the Legislature that the law not be used to oppress unlicensed car salespeople from being paid for their work. Thus, while section 11711.3 is borderline draconian in its bar of unlicensed dealers from getting paid -- no right in law, no right in equity, no how no way -- there is no similar statute precluding, a priori, any possibility that salespeople will get paid for their unlicensed work. The reasonable inference in the scheme is that the Legislature was willing to leave the payment of unlicensed salespeople up to the courts under existing case law involving illegal contracts.
Which brings us back to Tri-Q, Inc. v. Sta-Hi Corp., supra, 63 Cal.2d 199 (Tri-Q), a case which the trial court did not think applicable because it was an unfair competition case. We must part company with the trial court on the case.
To be sure, Tri-Q was a dispute between two manufacturers in which one accused the other of undercutting its competitors to gain a monopoly in the newspaper machinery market. But the Tri-Q court did have some general things to say about how courts should treat efforts to recover under illegal agreements, in considering a second action by one of the manufacturers against a former officer involving the backdating of some stock purchases to perpetrate a tax fraud, and a claim by the officer for the balance of agreed consideration despite the "improper" tax purposes of agreement. (See Tri-Q, supra, 63 Cal.2d at pp. 217-218.)
The Supreme Court allowed, in Tri-Q, the officer "the aid of the courts in obtaining the agreed consideration for the assets which he [had] delivered" to the manufacturer. (Tri-Q, supra, 63 Cal.2d at p. 220.) In the passage in the opinion allowing his claim, the high court pointed to four factors that allowed the officer to sue despite the illegality of the agreement: (1) the greater moral fault of the manufacturer; (2) the lack of "serious moral turpitude" in the conduct of the officer; (3) the fact the manufacturer would be unjustly enriched if the contract were not enforced; and (4) the deterrent policy of the law would be "best realized" by allowing the officer‟s claim rather than letting the manufacturer keep the benefit of its illegal bargain.*fn18
And indeed, Tri-Q has engendered a line of jurisprudence (e.g., Asdourian v. Araj (1985) 38 Cal.3d 276 (Asdourian); California Physicians' Service v. Aoki Diabetes Research Institute (2008) 163 Cal.App.4th 1506 (California Physician's Service) which, in contexts other than backdated stock option purchase agreements, have distilled the same or similar factors. (Asdourian, supra, 38 Cal.3d at p. 292 ["""In each case, the extent of enforceability and the kind of remedy granted depend upon a variety of factors, including the policy of the transgressed law, the kind of illegality and the particular facts."‟"]; California Physicians' Service, supra, 163 Cal.App.4th at p. 1516.)
As a gloss on what the Supreme Court said in Asdourdian, the California Physician's Service court stressed sophistication of the defendant (and hence whether a member of the class needing protection); (2) whether the illegality was malum in se or malum prohibitum and the (3) whether not enforcing the agreement might result in the unjust enrichment of the defendant. (See California Physician's Service, supra, 163 Cal.App.4th at pp. 1516-1517 ["In Asdourdian . . . our Supreme Court enforced oral home improvement contracts, despite a regulatory statute requiring such contracts to be in writing. . . . In enforcing the contracts, the court noted that defendant property owners were not unsophisticated consumers but real estate investors, and thus "are not members of the group primarily in need of the statute‟s protection.‟. . . . Also, the contracts at issue were not malum in se ("immoral in character, inherently inequitable or designed to further a crime or obstruct justice‟) but were malum prohibitum ("only voidable depending on the factual context and the public policies involved‟). . . . The court also noted that the contracts had been fully performed, and that the defendants would be unjustly enriched if "allowed to retain the value of the benefits bestowed by plaintiff without compensating him.‟"].)
Indeed, California Physician's Service is factually quite similar to the case at hand: Both cases involve a debtor trying to repudiate a debt based on the putatively illegal business status of the creditor. There, a health care provider, a diabetes research institute, sued a health care service plan for breach of contract, seeking reimbursement for medical services provided to the plan‟s members. But the plan said that the provider was "illegally organized as a nonprofit corporation instead of a professional medical corporation or partnership." (California Physician's Service, supra, 163 Cal.App.4th at p. 1510.) Applying the factors noted above, the appellate court easily affirmed a judgment for the provider. (See id. p. 1517 ["These same considerations support our conclusion that ADRI should not be denied relief. The ban on the corporate practice of medicine is meant to protect patients, not health care service plans; a contract for the provision of medical services by licensed professionals is plainly not malum in se; Blue Shield would be unjustly enriched if it were allowed to retain the benefit of services bestowed on its subscribers without compensating ADRI."].)
Applying the Tri-Q-Asdourian-California Physicians Service yields an ineluctable result:
(1) The class of people who are the beneficiaries of California‟s car dealership licensing scheme and preclusions against recovery by unlicensed dealers are most certainly not the car dealers themselves.
(2) The greater moral fault is easily Truspeed‟s. It knew of the licensing statutes, it seeks to enjoy a tangible windfall based on Wald‟s work and deny him all recompense for it. All it posits in opposition to the moral fault point (on pages 21-23 of the respondent‟s brief) are arguments to the effect that Wald should have known to get a license and wasn‟t in compliance with the licensing statutes. Indeed, nothing in the facts indicates "moral turpitude" on Wald‟s part. (Again, the inference at this stage is that he did not follow Truspeed‟s direction to lie about Truspeed being the ultimate buyer of the used Porsches.) All he did was find cars for Truspeed and negotiate an acceptable price for Truspeed to buy the cars and then resell. Nothing in Wald being able to receive compensation for his efforts is "malum in se."
(3) Truspeed will be unjustly enriched by the value of Wald‟s services ($40,000 worth). All Truspeed has to offer against the point (on pages 23-24 of the respondent‟s brief) is an argument that misconstrues the complaint: Truspeed says that Wald‟s real complaint is that [Truspeed] should have paid the sellers more and given him the difference." No -- Wald‟s "real complaint" is that he found cars for Truspeed at prices that Truspeed would pay, but Truspeed now wants to diddle him out of his "finder‟s fee."
(4) The deterrent policy of the law regulating dealerships would be "best realized" by allowing Wald‟s claim to proceed. Nothing in this salesperson-dealer dispute implicates the real reason for the dealer licensing statutes and section 11711.3 in particular, which is to protect the public from unscrupulous dealers. (See Merrill v. Department of Motor Vehicles (1969) 71 Cal.2d 907, 918 ["Looking to the entire statutory scheme governing the licensing of automobile dealers . . . we observe that the primary concern therein manifested is that the public be protected from unscrupulous and irresponsible persons in the sale of vehicles subject to registration under the code."].) It would upend that statutory goal to allow a dealer to use the licensing statute to get away with not paying for services actually rendered. (Cf. Tri-Q, supra, 63 Cal.2d at p. 218 [allowing recovery under illegal contracts so as to "to prevent the guilty party from reaping the benefit of his wrongful conduct"].)
C. The Fraud Claim
Truspeed says that, even if Wald can state contract or unjust enrichment claims against it, his fraud claim still must be subject to dismissal for his failure to plead it with sufficient particularity.
The basis of Wald‟s fraud claim (the fourth cause of action in the complaint) is, as one might expect, the allegation that Truspeed made its promise to pay Wald not having any intention to perform. Hence, "After just two months and after substantial services were provided and knowingly received by Truspeed, Truspeed informed [Wald] that it was not going to pay him because it did not believe that any court would uphold an oral agreement."
The basic rules as to the need to plead fraud with specificity were recently recapitulated by the court in Citizens of Humanity, LLC v. Costco Wholesale Corp. (2009) 171 Cal.App.4th 1, 20: ""In California, fraud must be pled specifically; general and conclusory allegations do not suffice.‟ . . . This requirements serves two purposes. First, it gives the defendant notice of the definite charges to be met. Second, the allegations "should be sufficiently specific that the court can weed out non-meritorious actions on the basis of the pleadings. Thus the pleading should be sufficient ""to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.‟"‟ . . . . Thus, a plaintiff must plead facts which show how, when, where, to whom, and by what means the representations were made. . . . When the defendant is a corporate defendant, the plaintiff must further allege the names of the persons who made the representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. . . . . There are certain exceptions to the particularity requirement. "Less specificity is required when ""it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy."‟" (Italics added.)
Tested under these rules, the complaint passes muster. How: Oral statements made at a meeting. When: June 2008. Where: Truspeed‟s offices. To whom: Wald. By what means: Oral statements in which Truspeed agreed to pay Wald finder‟s fees. Names of persons speaking for the corporation: Rob Morgan, Scott McCloud and Brack Roerderer. Their authority to speak: Rob Morgan had apparent authority to ask Wald to work the floor. To whom they spoke: Wald. What they said: We will pay you a finder‟s fee for used Porsches we buy based on the prices you negotiate. When it was said: June 2008.
We need only add the following: The allegations that Truspeed had expertise in licensing, plus the allegation that Truspeed allowed Wald to work for two months, then repudiated the entire agreement even to the point of not paying Wald‟s outof-pocket expenses, would, if proved, allow a reasonable jury to conclude that Truspeed did have a secret intention to make a promise without any intention of performing it. (See Civ. Code, § 1710 [a "promise, without any intention of performing it" is a species of "deceit"].) That is, these facts would show that Truspeed made the agreement with the secret intention of allowing Wald to work without ever being paid because it thought that Wald‟s lack of a dealer‟s license would, in effect, be a king‟s-X, allowing the firm to barefacedly repudiate the oral argument then say to Wald, in effect: "hey neener neener, gotcha sucker." (See Griffin Dewatering Corp. v. Northern Ins. Co. of New York (2009) 176 Cal.App.4th 172, 210 ["As the trial judge rightly intuited, an insurance company cannot first promise coverage, then barefaced repudiate that promise by pointing to an integration clause in the written contract, and saying in effect, hey "neener neener.‟ Indeed, it was the Houston Oral Promise that has posed the biggest problem in the case for us: Surely, we first thought, at least some punitive damages were merited given such a barefaced repudiation."].)
In light of the foregoing -- Wald wins at this stage -- Truspeed‟s assertion that this court should dismiss the appeal as frivolous is obviously ill-taken. While the request for dismissal itself borders on the frivolous, we will merely deny the motion to dismiss and leave matters at that. (See In re Marriage of Koester (1999) 73 Cal.App.4th 1032, 1041 ["Let us merely say that we heartily disapprove of knee-jerk requests for sanctions brought by any litigant, and leave it at that."].)
The judgment is reversed. Appellant Wald shall recover his costs on appeal.
WE CONCUR: MOORE, J., ARONSON, J.