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Grayson Services, Inc v. Wells Fargo Bank

September 26, 2011

GRAYSON SERVICES, INC., PLAINTIFF AND APPELLANT,
v.
WELLS FARGO BANK, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Kern County. Sidney P. Chapin, Judge. (Super. Ct. No. CV263497)

The opinion of the court was delivered by: Franson, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

OPINION

INTRODUCTION

Based on a default judgment, a judgment creditor served a writ of execution and notice of levy on Wells Fargo Bank (Wells Fargo) in an attempt to obtain two certificates of deposit and related interest payments that the judgment creditor believed were the property of its judgment debtor. The certificates of deposit in question were in the possession of, and made payable to, a public entity. The accrued interest had been delivered to a creditor with a competing levy. Consequently, Wells Fargo's memorandum of garnishee stated it had nothing to report and no certificates or funds were delivered in response to the levy. A second writ of execution and levy were served on Wells Fargo, with essentially the same response.

The judgment creditor sued Wells Fargo in a separate action alleging (1) the bank's response to the levies violated its duties under California's Enforcement of Judgments Law (EJL)*fn2 and (2) the bank conspired with its customer and others to fraudulently transfer assets and hinder the judgment creditor's attempts to levy on those assets.

The trial court eliminated both claims at the pleading stage. First, the court sustained a demurrer to the conspiracy claim, concluding there was no allegation that a fraudulent transfer (the wrongful act underlying the conspiracy) had occurred. Later, the court granted a motion for judgment on the pleadings, concluding the claim alleging a violation of the EJL could not be pursued against a financial institution. The judgment creditor appealed.

In the published portion of this opinion, we conclude that a bank chartered as a national association is a "person" as defined in section 680.280 and, accordingly, is subject to the duties and liabilities imposed on "third persons" by the EJL, particularly sections 701.010 (duty of garnishee), 701.020 (liability for noncompliance with levy), and 701.030 (garnishee's memorandum).

In the unpublished portions, we conclude the allegations that Wells Fargo failed to deliver funds representing interest accrued on the certificates of deposit were sufficient to state a claim under the EJL. In addition, we conclude that the allegations in the conspiracy claim (1) were insufficient to allege a violation of the Uniform Fraudulent Transfer Act (Civ. Code, § 3439-3439.12) (UFTA) and (2) failed to allege with the requisite particularity all the elements of a general fraud claim based on false representations or concealment. These allegations, however, were sufficient to allege all the elements of a claim for conversion of personal property.

Therefore, the judgment of dismissal is reversed and the matter remanded for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

In July 2001, Grayson Service, Inc. (Grayson) filed a complaint against New Chaparral Petroleum, Inc. (New Chaparral) in Kern Superior Court, alleging New Chaparral had not paid for oil and gas well work performed by Grayson. In February 2002, Grayson obtained a default judgment against New Chaparral for $94,115.83.

In February 2005, Grayson filed a notice of judgment lien with the California Secretary of State that listed New Chaparral as the judgment debtor. Grayson alleges it obtained a writ of execution in April 2006, which it later served, along with a notice of levy, on a Wells Fargo branch in Bakersfield, California. Wells Fargo returned the levy to the Kern County Sheriff noting in the memorandum of garnishee report there were no assets in its possession responsive to the writ of execution and levy.

In October 2007, Grayson filed a separate complaint against Wells Fargo, New Chaparral, and Core Energy, LLC.*fn3 The only cause of action against Wells Fargo alleged the bank had violated the EJL by failing to deliver a $150,000 certificate of deposit to the levying officer in response to Grayson's April 2006, writ of execution. Grayson later obtained a second writ of execution and served a second levy on Wells Fargo in September 2008, seeking to levy on the two certificates of deposits listed below and accrued interest. The Memorandum of Garnishee again reported there were no assets to report or release, but did note that $11,735 was being held in an interest account, pending further order from the Kern County Sheriff because a third party, Core Energy, was also claiming an interest in the funds.

Following successful demurrers by Wells Fargo, Grayson filed a second amended complaint in April 2009, containing two causes of action.*fn4 The first cause of action alleged Wells Fargo violated the EJL by failing to deliver monies it held for the account of New Chaparral and failing to provide correct information in the garnishee's memorandum. The second cause of action alleged Wells Fargo participated in a conspiracy to fraudulently convey certificates of deposit and other money accounts subject to Grayson's levy to third parties to hinder or defeat Grayson's attempts to collect the judgment against New Chaparral. The second amended complaint is the operative pleading in this appeal.

As alleged in the second amended complaint, Wells Fargo had previously issued two certificates of deposit (CD). The first, dated April 22, 1998, referenced account 1892029489-000, and was for $100,000. That CD was issued with monies deposited by Capital Acquisition, Inc., for Chaparral Petroleum, Inc. and was payable to the California Division of Oil, Gas and Geothermal Resources (DOGGR). The CD was for a term of 12 months and stated it would automatically renew at maturity. The interest on the CD, $4,870 per year, was to be paid at maturity and credited to another account, 0900-919598, in the name of Capital Acquisition, Inc.

The second CD referenced account 1892-029547-000, was for $150,000, was dated April 10, 2000, was payable to DOGGR, and was from funds deposited by New Chaparral. The certificate was to automatically renew, with interest paid monthly with an annual return of $6,555 per year, credited to account 6867-538787, in the name of New Chaparral. The first cause of action alleges that Wells Fargo failed honor the 2006 and 2008 levies and turn over the two CDs and accrued interest accounts to Grayson.

Wells Fargo demurrered to the second cause of action, contending Grayson's conspiracy claim failed to state a cognizable cause of action because (1) Grayson had suffered no damages, (2) the allegations state the alleged fraudulent conveyance was unsuccessful, (3) Wells Fargo's knowledge of the fraud was not pled with sufficient specificity, and (4) Grayson had failed to join indispensable parties.

In June 2009, the trial court rejected the failure to join indispensable parties argument, but sustained the demurrer to the conspiracy claim on the other three grounds, without leave to amend.

In July 2009, Wells Fargo filed a motion for judgment on the pleadings on the first cause of action for failure to comply with the EJL, asserting Grayson had suffered no damages, because the underlying judgment against New Chaparral had been satisfied and Grayson lacked standing under section 367 to assert account irregularities concerning the two CDs that were alleged to have occurred prior to the levy. The trial court granted the motion without leave to amend, concluding that Grayson's suit was barred by the satisfaction of the underlying judgment, and Grayson lacked standing to assert a claim concerning account irregularities.

In October 2009, Grayson filed a motion for new trial, asserting that its allegations were sufficient to state a claim under the EJL and the court's determination that its judgment had been satisfied was a finding of fact that should not have been made at the pleading stage of the lawsuit.

Later in October 2009, before the motion for new trial was heard, the trial court filed a judgment dismissing the action with prejudice and awarding Wells Fargo its costs of suit. No notice of entry of judgment was served.

In January 2010, following a hearing on the motion for new trial, the court denied the motion for a new trial, although it reversed its finding that the underlying judgment had been satisfied.

Grayson thereafter filed a timely notice of appeal.

DISCUSSION

I. STANDARD OF REVIEW*fn5

This case presents a classic example of the longstanding rule that "in passing upon the question of the sufficiency or insufficiency of a complaint to state a cause of action, it is wholly beyond the scope of the inquiry to ascertain whether the facts stated are true or untrue" as "[t]hat is always the ultimate question to be determined by the evidence upon a trial of the questions of fact." (Colm v. Francis (1916) 30 Cal.App.742, 752.) The parties have spent considerable effort arguing facts extraneous to this appeal, since they were not contained in the second amended complaint or the exhibits, but were instead gathered during pre-trial discovery or presented to the trial court in the motion for summary judgment and opposition.

Our standard of review of an order sustaining a demurrer on the ground that the complaint fails to state facts sufficient to constitute a cause of action is well settled. We review the sufficiency of the complaint de novo. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) Our analysis begins with the second amended complaint. "[W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]" (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) "We also consider matters that may be judicially noticed." (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083, disapproved on another ground in Martinez v. Combs (2010) 49 Cal.4th 35, 50, fn. 12.)

Similarly, a motion for judgment on the pleadings may be made on the ground that the complaint fails to "state facts sufficient to constitute a cause of action." (Reynolds v. Bement, supra, 36 Cal.4th at p. 1083; § 438, subd. (c)(1)(B)(ii).) Like demurrers, motions made on this ground test the sufficiency of the complaint alone, not the evidence or other extrinsic matters. (Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1283.)

The sufficiency of a pleading is a question of law. (Neilson v. City of California City (2005) 133 Cal.App.4th 1296, 1305.) An appellate court independently decides this question of law without deference to the trial court's conclusions. (Id. at p. 1304.) Regardless whether the sufficiency of the pleading was raised by general demurrer or a motion for judgment on the pleadings, an appellate court applies the same rules to determine whether a cause of action has been stated. (Smiley v. Citibank (1995) 11 Cal.4th 138, 146.)

When a court analyzes the facts alleged to determine whether those facts entitle the plaintiff to relief under any legal theory, the labels the plaintiff used for its causes of action may be ignored.*fn6 (E.g., McBride v. Boughton (2004) 123 Cal.App.4th 379, 385 [erroneous or confusing labels ignored if complaint alleges facts that entitle plaintiff to relief]; Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908 [same].)

II. CLAIMS FOR VIOLATIONS OF THE EJL

The EJL is a comprehensive statutory scheme for the enforcement of civil judgments in California. (SBAM Partners v. Cheng Miin Wang (2008) 164 Cal.App.4th 903, 909.) The Legislature enacted the EJL in 1982 based on the recommendation of the Law Revision Commission. (OMC Principal Opportunities Fund v. CIBC World Markets Corp. (2008) 168 Cal.App.4th 185, 192.)

A. Allegations in First Cause of Action*fn7

Grayson's first cause of action in its second amended complaint includes the following general allegations. Pursuant to sections 700.140, 701.030, and 701.020, Wells Fargo was required to comply with Grayson's May 2006 and September 2008 levies, including releasing all amounts in any deposit accounts of New Chaparral that Wells Fargo possessed or controlled. Wells Fargo violated the statutory duties it owed to Grayson, which caused damage to Grayson.

Grayson also alleged that at the time of the May 2006, levy, New Chaparral had $8,657.49 in Wells Fargo account 6867-538787, interest proceeds from the $150,000 CD and at least $5,327.29 in account 892029489 or account 0900-919598, interest proceeds from the $100,000 CD (collectively, the interest accounts). Grayson alleged its levy applied to the interest accounts and the certificate of deposit accounts of New Chaparral. Wells Fargo improperly responded to the May 2006 levy--its memorandum of garnishee omitted information about the interest accounts and certificates of deposit, and it delivered no funds from the interest accounts or certificates of deposit to the Kern County Sheriff. Wells Fargo completed the memorandum of garnishee by stamping "NOTHING TO REPORT." In response to another question, which asked about the rights of other persons to the property levied upon, Wells Fargo indicated its records showed "NO FUNDS TO ATTACH."

Grayson also alleged that Wells Fargo concealed the fact that (1) Stranberg, another creditor, allegedly had levied at the exact same time as Grayson and (2) Wells Fargo sent the $8,657.49 in interest proceeds to Stranberg.

B. Contentions of the Parties*fn8

On appeal, Grayson asserts Wells Fargo committed two types of statutory violations that caused Grayson to suffer two different injuries. The first was the failure to deliver money to the levying officer, including the approximately $14,000 allegedly in the interest accounts. The second violation was the failure to set forth correct information in the memorandum of garnishee, which caused Grayson to incur additional attorney fees and costs in trying to collect its original judgment against New Chaparral.

Wells Fargo's appellate brief addresses three potential claims that are based on alleged violations of the EJL. The first claim concerns account irregularities alleged to have occurred before service of the first levy in May 2006. The second claim concerns the failure to disclose information about the interest accounts and certificates of deposit on the memorandum of garnishee. The third claim concerns the failure to turn over funds from the interest account -- a situation that Wells Fargo describes as "the 'dueling levy' morass created by [Grayson]."

C. Analysis of Three Theories*fn9

1. Account Irregularities

The trial court's order denying the motion for a new trial addressed the theory involving account irregularities that occurred before service of the May 2006 levy. The court determined that Grayson lacked any standing to claim a violation of the EJL based on activity that occurred prior to the service of the levy, because the duties and obligations contained in the EJL only became operative when the levy was served.

In its opening brief, Grayson has not pursued the theory that Wells Fargo violated the EJL by committing account irregularities before the levy was served or by failing to disclose those irregularities in the memorandum of garnishee.

Wells Fargo's respondent's brief contends that Grayson abandoned this particular theory by not developing it in its opening brief. Grayson did not file a reply brief and, therefore, does not contest the abandonment argument.

When an appellant fails to raise a point, we treat the point as forfeited. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785; see Atchley v. City of Fresno (1984) 151 Cal.App.3d 635, 647 [reviewing court need not discuss point merely asserted by appellant without argument or authority].) Based on this principle, we conclude that Grayson has forfeited the issue whether its allegations of account ...


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