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Lonely Maiden Productions, LLC, et al v. Goldentree Asset Management

November 30, 2011


APPEAL from a judgment of the Superior Court of Los Angeles County. Carl J. West, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC396660)

The opinion of the court was delivered by: J. Ashmann-gerst


The primary question presented is whether a secured lender may foreclose on funds held by a payroll processing company and thereby defeat subsequent claims to those funds asserted by unsecured creditor employers who contend that the funds should have been used to meet the payroll processing company's payroll obligations. The answer is yes when, as here, the funds paid by the unsecured creditor employers were not held in trust. Thus, the trial court properly denied the summary adjudication motion filed by the appellants*fn1 (collectively the film clients) as to whether GoldenTree Asset Management, LP and GTAM Special Realty, LLC (collectively GoldenTree) had a duty to refrain from foreclosing on funds held by Axium International, Inc. and its wholly owned subsidiaries (collectively Axium); and the trial court properly granted summary judgment in favor of GoldenTree with respect to the film clients' causes of action for unjust enrichment and conversion. Consequently, the film clients' attack on these rulings does not survive appellate scrutiny.

As a separate matter, the film clients argue that their fraud cause of action against GoldenTree should have survived demurrer. Due to deficiencies in the pleading, which we elucidate below, this argument lacks merit.

We affirm the judgment.


In 2007 and early 2008, the film clients (except for Hostage and Simon Cinema Ltd.) used Axium to provide payroll processing, staffing and other services with respect to specified film projects. The parties signed written service agreements which provided that Axium would serve as the joint employer of the cast and crew for each film; the film clients would provide all relevant payroll details to Axium; Axium would calculate, inter alia, wages and withholdings; Axium would invoice the film clients for the amounts due; and once the film clients transferred the invoiced amounts, Axium would issue payroll checks to cast and crew and pay withholdings to the appropriate entities. Pursuant to an oral agreement, Hostage hired Axium to process residuals for a film that had been previously produced.

Sordid paid Axium a $500,000 security deposit.

Axium defaulted on a loan to GoldenTree. GoldenTree had a perfected security interest in Axium's general deposit accounts and foreclosed on them, resulting in a transfer of $28 million.

The film clients sued GoldenTree to recover the funds they had paid to Axium. Following several rounds of pleading, the film clients filed their second amended complaint and alleged causes of action for fraudulent concealment, fraud, breach of fiduciary duty, unjust enrichment, conversion and violation of Business and Professions Code section 17200 et seq. According to the general allegations, when Axium defaulted on its loan, GoldenTree decided to improve its financial position by forcing Axium to aggressively invoice and collect money from the film clients. Those invoices amounted to affirmative misrepresentations by GoldenTree and Axium that the funds would be used for no other purpose but paying wages, residuals and withholdings. Only after the film clients paid the invoices did GoldenTree initiate foreclosure and seize the funds. GoldenTree demurred to the second amended complaint. The demurrer was overruled as to conversion and unjust enrichment but sustained without leave to amend as to the remaining claims. The film clients moved for summary adjudication as to whether GoldenTree had a duty to refrain from seizing the funds. The same day, GoldenTree moved for summary judgment or adjudication. The trial court denied the film clients' motion and, concurrently, granted GoldenTree's motion. Judgment was entered in favor of GoldenTree.

This timely appeal followed.


If an appeal challenges an order "sustaining a demurrer without leave to amend, the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed 'if any one of the several grounds of demurrer is well taken. [Citations.]' [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. [Citation.]" (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) The legal sufficiency of the complaint is reviewed de novo. (Montclair Parkowners Assn. v. City of Montclair (1999) 76 Cal.App.4th 784, 790.)

Summary judgment and summary adjudication motions pursuant to Code of Civil Procedure section 437c are also reviewed de novo. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843-857.) "[W]e apply the same three-step analysis used by the superior court. We identify the issues framed by the pleadings, determine whether the moving party has negated the opponent's claims, and determine whether the opposition has demonstrated the existence of a triable, material factual issue." (Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261.)


I. Fraud.

In dismissing the fraud cause of action, the trial court concluded that the film clients failed to sufficiently allege a misrepresentation by GoldenTree. The film clients assign error to this ruling because they alleged that "[GoldenTree] made numerous affirmative misrepresentations of material facts" by communicating "through employees of Axium." More specifically, the film clients point to their allegation that "[GoldenTree] caused Axium to continue sending invoices and billing statements" to the film clients and "[e]ach such invoice or billing statement that [GoldenTree] encouraged or caused Axium to send to each" of the film clients "constituted an affirmative representation by [GoldenTree] and Axium that the money requested to be transferred to Axium would be . . . used by Axium . . . only for the purpose of paying wages and compensation to" the film clients' "employees and for paying associated federal and state taxes, benefit plan contributions, and residuals required by collective bargaining agreements."

In our view, the film clients failed to make a case for reversal. To allege fraud based on misrepresentation, a plaintiff must allege a misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance and resulting damages. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 109.) "The representation must ordinarily be an affirmation of fact. [Citations.]" (5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 773, p. 1122.) Sometimes it can be a misrepresentation of law or a false promise that contains an implied misrepresentation of intention to perform the promise. (Id. at §§ 774-782, pp. 1123-1134.) And it is true, as the film clients point out, that a misrepresentation can be made through a conduit. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 219.) But, simply put, the film clients did not allege an actionable misrepresentation of fact or intention to perform because they did not allege that Axium's invoices expressly stated or promised how the film clients' funds would be used. When it is boiled down, they have essentially alleged a claim based on an implied false promise. To our knowledge, however, no such tort has been recognized by California law.

II. Duty, unjust enrichment and conversion.

According to the film clients, there are triable issues as to duty, unjust enrichment and conversion because the evidence demonstrates that the funds were held in express or resulting trust, they retained an interest in the funds, and GoldenTree was therefore not entitled to take them. The film clients contend that an express or resulting trust can be established by the written service agreements, Axium's receipt of the funds as a paying agent, and the ...

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