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1 SPERTUS, LANDES & UMHOFER, LLP Superior Court of California
Matthew Donald Umhofer (SBN 206607) County of Santa Barbara
2 Diane H. Bang (SBN 271939) Darrel E. Parker, Executive Officer
1990 South Bundy Dr., Suite 705 5/21/2021 5:37 PM
3 Los Angeles, California 90025
Telephone: (310) 826-4700 By: Elizabeth Spann, Deputy
4 Facsimile: (310) 826-4711
mumhofer@spertuslaw.com
5 dbang@spertuslaw.com
6 Attorneys for Mark Schaub and TLG Ltd.
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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FOR THE COUNTY OF SANTA BARBARA
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TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10 MARK SCHAUB, an individual; TLG Case No.: 20CV02113
Spertus, Landes & Umhofer, LLP
LTD., a Hong Kong limited liability
11
1990 SOUTH BUNDY DR., SUITE 705
company,
Hon. Donna D. Geck
LOS ANGELES, CA 90025
12 Plaintiffs,
PLAINTIFFS’ OPPOSITION TO
13 v. DEMURRER TO FIRST AMENDED
COMPLAINT
14 ANDREW WYLES WATERS, an
individual; FCP CORPORATE LTD., a Hearing Date: June 4, 2021
15 Hong Kong limited liability company; Hearing Time: 10:00 a.m.
FCP PRIVATE, LLC, a California Dept.: 4
16 limited liability corporation; and DOES
1 through 10 inclusive,
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Defendants.
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PLAINTIFFS’ OPPOSITION TO DEMURRER
1 MEMORANDUM OF POINTS AND AUTHORITIES
2 I. INTRODUCTION
3 Defendants stole $2 million from Plaintiff Mark Schaub and his company.
4 Defendant Andrew Waters fraudulently induced Mr. Schaub into sending funds to
5 accounts controlled by Waters, and when Mr. Schaub demanded the return of the funds,
6 Waters lied to keep the funds, claiming that the funds had been frozen even as he
7 surreptitiously siphoned all of Plaintiffs’ money out of the accounts. After months of lies
8 and lulling by Waters, Plaintiffs were left with no choice but to bring this case in order to
9 hold Waters accountable and secure the return of their funds.
These facts, as set forth in Plaintiffs’ First Amended Complaint (“FAC”), properly
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
11 allege four causes of action for conversion, intentional misrepresentation, concealment,
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 and unjust enrichment. See Beeler v. City Title Ins. Co. (1962) 201 Cal. App. 2d 702,
13 705 (“In considering each of the demurrers [courts] are guided by the settled rule that the
14 pleading must be liberally construed and that all facts well pleaded are assumed to be
15 true.”). The FAC specifically alleges that Defendants misrepresented that the funds
16 would be held in trust and lied to keep the funds, and that Plaintiffs have been damaged
17 because Defendants refuse to return those funds which were to be held in trust. Plaintiffs
18 never would have permitted the transfer of the funds, had they known the truth that the
19 funds would not be held in trust and would not be returned to Plaintiffs. Defendants have
20 unjustly benefited from having control over Plaintiffs’ funds, and Plaintiffs are entitled to
21 restitution.
22 Because the FAC pleads facts sufficient to set forth claims for intentional
23 misrepresentation, concealment, and unjust enrichment, the demurrer should be
24 overruled, and Defendants should be held to answer the allegations in the FAC.
25 II. FACTUAL BACKGROUND
26 As the FAC makes clear, Defendant Andrew Waters is a fraud. Through his
27 companies, Defendants FCP Corporate Ltd. and FCP Private, LLC, he has been operating
28 a fraudulent Ponzi scheme, luring wealthy investors into sending him hundreds of
1.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 thousands of dollars, and misappropriating those funds for his own personal use.
2 Defendant Waters has essentially been operating a shell factory enterprise by creating
3 various startup companies and misleading potential investors to believe each company
4 would be operating and profitable.
5 Defendant Waters targeted Mr. Schaub, befriending him and then ultimately
6 defrauding him. Mr. Schaub believed Waters to be a successful businessman and that he
7 was running real businesses with real potential for growth and profitability. (FAC ¶ 45.)
8 In 2019, Mr. Schaub was informed that HSBC in Hong Kong was planning to
9 close his company account, TLG Ltd. Defendant Waters misled Mr. Schaub into
believing that HSBC was closing the account because the bank believed it to contain
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
11 tainted funds. Unfamiliar with Hong Kong banking regulations and trusting in Waters’
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 apparent expertise, Mr. Schaub believed Defendant Waters’ misrepresentations and
13 transferred approximately $50,000 to the FCP Corporate account controlled by Waters,
14 who promised Mr. Schaub that the money was going to a client account and that the
15 funds would be held in trust. (FAC ¶ 39.)
16 In July 2019, a bank error led to the transfer of approximately $2 million (instead
17 of the intended $50,000) from Mr. Schaub’s TLG account to the Waters-controlled FCP
18 Corporate account. (FAC ¶ 15.) When Mr. Schaub inquired about the money, rather
19 than returning the funds to Mr. Schaub, Defendant Waters proceeded to drain FCP
20 Corporate’s account of the entire $2 million. (FAC ¶ 23.) Meanwhile, Defendant Waters
21 repeatedly and falsely told Mr. Schaub that the bank had frozen the accounts where
22 Plaintiffs’ funds were transferred to, that the bank believed the funds were from an
23 illegitimate source, and that he would have to go to Hong Kong to resolve the situation
24 with the frozen accounts. (FAC ¶¶ 17-25.) For months, Defendant Waters proceeded to
25 use lies to delay the return of Mr. Schaub’s money and facilitate his movement of the
26 money out of the FCP account. (Id.)
27 The fraud scheme succeeded until early 2020, when Mr. Schaub learned that
28 Defendant Waters had been lying to him the whole time—not just about the frozen
2.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 accounts, but about Waters’ business dealings as well. (FAC ¶ 25.) When Mr. Schaub
2 demanded the immediate return of his funds, Defendant Waters refused, and he continues
3 to refuse to this day. In an effort to conceal and complete the fraud, Defendant Waters
4 has threatened litigation against Mr. Schaub based on entirely false allegations
5 concerning business transactions, including a purported deal with Hearst
6 Communications--a deal that appears to be as fake as Mr. Waters’ many other fraudulent
7 claims to Mr. Schaub and others. (FAC ¶ 27.)
8 III. ARGUMENT
9 A. Pleadings Are Liberally Construed
In considering demurrers, courts “are guided by the settled rule that the pleading
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
11 must be liberally construed and that all facts well pleaded are assumed to be true.”
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 Beeler v. City Title Ins. Co. (1962) 201 Cal. App. 2d 702, 705 (citations omitted); Code
13 Civ. Proc. § 452 (“In the construction of a pleading, for the purpose of determining its
14 effect, its allegations must be liberally construed, with a view to substantial justice
15 between the parties.”). “Although the complaint may not be a model pleading, the policy
16 of the law is to construe pleadings liberally to the end that cases will be tried on their
17 merits rather than disposed of on technicalities of pleadings.” Porten v. University of San
18 Francisco (1976) 64 Cal. App. 3d 825, 833. “Mistaken labels and confusion of legal
19 theory are not fatal; if appellant’s complaint states a cause of action on any theory, he is
20 entitled to introduce evidence thereon.” Id.
21 Applying the standards above, Defendants’ demurrer must be overruled.
22 B. Plaintiffs’ Complaint Adequately Pleads Intentional
23 Misrepresentation
24 “A complaint alleging fraud must plead with particularity ultimate facts showing
25 representation, falsity of representation, knowledge of falsity, intent to deceive and
26 reliance with resulting damage.” Winn v. McCulloch Corp. (1976) 60 Cal. App. 3d 663,
27 670. “Negligence in reliance upon a misrepresentation is not a defense where the
28 misrepresentation was intentionally made to induce reliance upon it.” Id. at 671.
3.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Plaintiffs specifically plead the following misrepresentations made by Defendant
2 Waters: (1) that the bank had frozen the accounts where Plaintiffs’ funds were transferred
3 to; (2) that the bank believed the funds were from an illegitimate source; and (c) that Mr.
4 Schaub would have to go to Hong Kong to resolve the situation with the frozen accounts.
5 (FAC ¶ 2.) The FAC also specifically states that Defendant Waters drained the Citibank
6 accounts of the funds that were supposed to be maintained by him in trust, at the same
7 time he was making these false and fraudulent representations. (FAC ¶¶ 23, 39.)
8 Defendant Waters knew these representations were false when he made them. (FAC ¶
9 44.) Plaintiffs relied on Defendant Waters’ representations that the funds would be held
in trust when they authorized the funds to be transferred to accounts under his control.
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
11 (FAC ¶ 45.) Plaintiffs have been damaged by being denied funds that belong to them.
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 (FAC ¶¶ 46-47.)
13 Therefore, Plaintiffs’ FAC alleges all elements of a cause of action for intentional
14 misrepresentation.
15 C. Plaintiffs’ Complaint Adequately Pleads Concealment
16 An action for concealment has five elements: (1) concealment of a material fact,
17 (2) a duty to disclose the fact, (3) intentional concealment of the fact with the intent to
18 defraud, (4) the plaintiff was unaware of the fact and would not have acted as he did if he
19 had known of the concealed fact, and (5) damage as a result of the concealment.
20 Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal. App. 4th 603, 612-13.
21 The First Amended Complaint adequately pleads a cause of action for
22 concealment. Defendants lied about the following: (1) that the funds transferred by
23 Plaintiffs would be held in trust, (2) that the funds were frozen by the bank, (3) that
24 Citibank wanted to close the accounts because something was wrong with the money, (4)
25 that Defendant Waters had to go to Hong Kong in order for the money to be released, (5)
26 that the bank had locked Defendants’ accounts, and (6) that the $750,000 repaid to
27 Plaintiffs is Defendant Waters’ own personal funds. (FAC ¶¶ 17-24.)
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4.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Defendants had a duty to disclose the truth about the funds and the accounts where
2 they were being held by Defendants because they were being held in trust. (FAC ¶ 39.)
3 Defendants intentionally hid the truth from Plaintiffs with the intent to defraud and steal
4 approximately $2 million. (FAC ¶ 49.) Plaintiffs were unaware that the funds would not
5 be held in trust and that Defendants would steal Plaintiffs’ money. (FAC ¶ 50.)
6 Plaintiffs have been damaged as a result of not being told the truth by being deprived of
7 the $2 million that rightfully belongs to them. (FAC ¶¶ 51-52.)
8 Therefore, Plaintiffs’ FAC alleges all elements of a cause of action for
9 concealment.
D. Plaintiffs Have Appropriately Pleaded A Claim For Unjust
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
11 Enrichment
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 Although California courts do not recognize a standalone cause of action for
13 unjust enrichment, it is characterized as “a general principle, underlying various legal
14 doctrines and remedies . . . [and] is synonymous with restitution.” Rutherford Holdings,
15 LLC v. Plaza Del Rey (2014) 223 Cal. App. 4th 221, 231. Courts have construed “the
16 cause of action as a quasi-contract claim seeking restitution.” Id.
17 “[R]estitution may be awarded where the defendant obtained a benefit from the
18 plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may
19 choose not to sue in tort, but instead to seek restitution on a quasi-contract theory.
20 McBride v. Boughton (2004) 123 Cal. App. 4th 379, 388. “In such cases, where
21 appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to
22 the parties’ intent, in order to avoid unjust enrichment.” Id.
23 Here, Plaintiffs’ cause of action for unjust enrichment is based on the premise that
24 they are entitled to restitution on a quasi-contract theory based on Defendants’ tortious
25 conduct. Money was transferred to FCP Corporate’s accounts with the understanding
26 that it would be held in trust and returned to Plaintiffs upon request. Defendants have
27 been unjustly enriched by maintaining possession and control over Plaintiffs’ money
28 through misrepresentations and concealment. Because Plaintiffs have pleaded allegations
5.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 giving rise to a right to restitution, Defendants’ demurrer should be overruled. See
2 McBride, 123 Cal. App. 4th at 387 (stating that “if the complaint pleads facts which
3 would entitle the plaintiff to relief,” erroneous or confusing labels should be ignored);
4 Rutherford Holdings, 223 Cal. App. 4th at 232 (concluding that “the trial court erred in
5 sustaining the demurrer as to the claim for restitution based on unjust enrichment).
6 E. Any Defects Can Be Cured By Amendment
7 “In the furtherance of justice great liberality should be exercised in permitting a
8 plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to
9 sustain a demurrer without leave to amend if there is a reasonable possibility that the
defect can be cured by amendment.” Coffelt v. Coffelt (1964) 229 Cal. App. 2d 659,
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
11 666. “Even where the defect is one of substance, a demurrer should not be sustained
1990 SOUTH BUNDY DR., SUITE 705
LOS ANGELES, CA 90025
12 without leave to amend if there is a possibility that subsequent amendments will supply
13 omitted allegations and the plaintiff has not had a fair opportunity to do so.” Id.
14 If the Court finds that Plaintiffs have not pleaded the intentional misrepresentation
15 and concealment causes of action with the requisite particularity, Plaintiffs should be
16 permitted to amend the complaint to cure such defects. Among the additional facts that
17 Plaintiffs would allege are the following:
18 Defendant Waters knowingly misrepresented to Plaintiffs that the FCP
19 Corporate Citibank accounts were trust accounts.
20 Plaintiffs would not have authorized the transfer of any funds to the FCP
21 Corporate Citibank accounts but for the fact that they were represented as trust
22 accounts.
23 Defendant Waters knowingly misrepresented to Plaintiffs that the FCP
24 Corporate Citibank accounts were in good standing despite a June 2019 letter
25 from Citibank stating that the FCP Corporate Citibank accounts would be
26 closed.
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6.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Plaintiffs relied on Defendant Waters’ representation that the FCP Corporate
2 Citibank accounts were in good standing and would not have authorized the
3 transfer of any funds to those accounts had they known the truth.
4 Because there is a reasonable probability that the complaint can be amended to
5 cure any defects, Plaintiffs should be given an opportunity to do so.
6 IV. CONCLUSION
7 Defendants’ demurrer should be overruled, as Plaintiffs have adequately pleaded
8 claims for intentional misrepresentation, concealment, and unjust enrichment. Should the
9 Court find otherwise, Plaintiffs should be given an opportunity to amend the complaint.
Dated: May 21, 2021 SPERTUS, LANDES & UMHOFER, LLP
TELEPHONE 310-826-4700; FACSIMILE 310-826-4711
10
Spertus, Landes & Umhofer, LLP
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1990 SOUTH BUNDY DR., SUITE 705
By:
LOS ANGELES, CA 90025
12
Matthew Donald Umhofer
13 Diane H. Bang
Attorneys for Plaintiffs
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7.
PLAINTIFFS’ OPPOSITION TO DEMURRER
1 Proof of Service
2 STATE OF CALIFORNIA, COUNTY OF LOS ANGELES
3 I am employed in the County of Los Angeles, State of California. I am
over the age of 18 and not a party to the within action. My business address is
4 1990 South Bundy Dr., Suite 705, Los Angeles, CA 90025.
5 On the date indicated below, I served the foregoing documents described
as:
6
PLAINTIFFS’ OPPOSITION TO DEMURRER
7
on the interested parties in this action:
8
9
Kevin Nimmons
REICKER, PFAU, PYLE & McROY
10 1421 State Street, Suite B
11
Santa Barbara, CA 93101
TELEPHONE 310‐826‐4700; FACSIMILE 310‐826‐4711
Spertus, Landes & Umhofer, LLP
knimmons@rppmh.com
12 Attorneys for Defendants Andrew Waters and
1990 SOUTH BUNDY DR., SUITE 705
FCP Private, LLC
LOS ANGELES. CA 90025
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BY U.S. MAIL: I placed an envelope addressed to the above servees for
15 deposit with the United States Postal Service with postage thereon fully prepaid.
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I declare under penalty of perjury under the laws of the State of California
17 that the above is true and correct. Executed on May 21, 2021, at Los Angeles,
California.
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19 ___________________________
Nolan Burkholder
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PROOF OF SERVICE
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ELECTRONICALLY FILED 1 SPERTUS, LANDES & UMHOFER, LLP Superior Court of California Matthew Donald Umhofer (SBN 206607) County of Santa Barbara 2 Diane H. Bang (SBN 271939) Darrel E. Parker, Executive Officer 1990 South Bundy Dr., Suite 705 5/21/2021 5:37 PM 3 Los Angeles, California 90025 Telephone: (310) 826-4700 By: Elizabeth Spann, Deputy 4 Facsimile: (310) 826-4711 mumhofer@spertuslaw.com 5 dbang@spertuslaw.com 6 Attorneys for Mark Schaub and TLG Ltd. 7 SUPERIOR COURT OF THE STATE OF CALIFORNIA 8 FOR THE COUNTY OF SANTA BARBARA 9 TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 MARK SCHAUB, an individual; TLG Case No.: 20CV02113 Spertus, Landes & Umhofer, LLP LTD., a Hong Kong limited liability 11 1990 SOUTH BUNDY DR., SUITE 705 company, Hon. Donna D. Geck LOS ANGELES, CA 90025 12 Plaintiffs, PLAINTIFFS’ OPPOSITION TO 13 v. DEMURRER TO FIRST AMENDED COMPLAINT 14 ANDREW WYLES WATERS, an individual; FCP CORPORATE LTD., a Hearing Date: June 4, 2021 15 Hong Kong limited liability company; Hearing Time: 10:00 a.m. FCP PRIVATE, LLC, a California Dept.: 4 16 limited liability corporation; and DOES 1 through 10 inclusive, 17 Defendants. 18 19 20 21 22 23 24 25 26 27 28 PLAINTIFFS’ OPPOSITION TO DEMURRER 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I. INTRODUCTION 3 Defendants stole $2 million from Plaintiff Mark Schaub and his company. 4 Defendant Andrew Waters fraudulently induced Mr. Schaub into sending funds to 5 accounts controlled by Waters, and when Mr. Schaub demanded the return of the funds, 6 Waters lied to keep the funds, claiming that the funds had been frozen even as he 7 surreptitiously siphoned all of Plaintiffs’ money out of the accounts. After months of lies 8 and lulling by Waters, Plaintiffs were left with no choice but to bring this case in order to 9 hold Waters accountable and secure the return of their funds. These facts, as set forth in Plaintiffs’ First Amended Complaint (“FAC”), properly TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 allege four causes of action for conversion, intentional misrepresentation, concealment, 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 and unjust enrichment. See Beeler v. City Title Ins. Co. (1962) 201 Cal. App. 2d 702, 13 705 (“In considering each of the demurrers [courts] are guided by the settled rule that the 14 pleading must be liberally construed and that all facts well pleaded are assumed to be 15 true.”). The FAC specifically alleges that Defendants misrepresented that the funds 16 would be held in trust and lied to keep the funds, and that Plaintiffs have been damaged 17 because Defendants refuse to return those funds which were to be held in trust. Plaintiffs 18 never would have permitted the transfer of the funds, had they known the truth that the 19 funds would not be held in trust and would not be returned to Plaintiffs. Defendants have 20 unjustly benefited from having control over Plaintiffs’ funds, and Plaintiffs are entitled to 21 restitution. 22 Because the FAC pleads facts sufficient to set forth claims for intentional 23 misrepresentation, concealment, and unjust enrichment, the demurrer should be 24 overruled, and Defendants should be held to answer the allegations in the FAC. 25 II. FACTUAL BACKGROUND 26 As the FAC makes clear, Defendant Andrew Waters is a fraud. Through his 27 companies, Defendants FCP Corporate Ltd. and FCP Private, LLC, he has been operating 28 a fraudulent Ponzi scheme, luring wealthy investors into sending him hundreds of 1. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 thousands of dollars, and misappropriating those funds for his own personal use. 2 Defendant Waters has essentially been operating a shell factory enterprise by creating 3 various startup companies and misleading potential investors to believe each company 4 would be operating and profitable. 5 Defendant Waters targeted Mr. Schaub, befriending him and then ultimately 6 defrauding him. Mr. Schaub believed Waters to be a successful businessman and that he 7 was running real businesses with real potential for growth and profitability. (FAC ¶ 45.) 8 In 2019, Mr. Schaub was informed that HSBC in Hong Kong was planning to 9 close his company account, TLG Ltd. Defendant Waters misled Mr. Schaub into believing that HSBC was closing the account because the bank believed it to contain TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 tainted funds. Unfamiliar with Hong Kong banking regulations and trusting in Waters’ 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 apparent expertise, Mr. Schaub believed Defendant Waters’ misrepresentations and 13 transferred approximately $50,000 to the FCP Corporate account controlled by Waters, 14 who promised Mr. Schaub that the money was going to a client account and that the 15 funds would be held in trust. (FAC ¶ 39.) 16 In July 2019, a bank error led to the transfer of approximately $2 million (instead 17 of the intended $50,000) from Mr. Schaub’s TLG account to the Waters-controlled FCP 18 Corporate account. (FAC ¶ 15.) When Mr. Schaub inquired about the money, rather 19 than returning the funds to Mr. Schaub, Defendant Waters proceeded to drain FCP 20 Corporate’s account of the entire $2 million. (FAC ¶ 23.) Meanwhile, Defendant Waters 21 repeatedly and falsely told Mr. Schaub that the bank had frozen the accounts where 22 Plaintiffs’ funds were transferred to, that the bank believed the funds were from an 23 illegitimate source, and that he would have to go to Hong Kong to resolve the situation 24 with the frozen accounts. (FAC ¶¶ 17-25.) For months, Defendant Waters proceeded to 25 use lies to delay the return of Mr. Schaub’s money and facilitate his movement of the 26 money out of the FCP account. (Id.) 27 The fraud scheme succeeded until early 2020, when Mr. Schaub learned that 28 Defendant Waters had been lying to him the whole time—not just about the frozen 2. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 accounts, but about Waters’ business dealings as well. (FAC ¶ 25.) When Mr. Schaub 2 demanded the immediate return of his funds, Defendant Waters refused, and he continues 3 to refuse to this day. In an effort to conceal and complete the fraud, Defendant Waters 4 has threatened litigation against Mr. Schaub based on entirely false allegations 5 concerning business transactions, including a purported deal with Hearst 6 Communications--a deal that appears to be as fake as Mr. Waters’ many other fraudulent 7 claims to Mr. Schaub and others. (FAC ¶ 27.) 8 III. ARGUMENT 9 A. Pleadings Are Liberally Construed In considering demurrers, courts “are guided by the settled rule that the pleading TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 must be liberally construed and that all facts well pleaded are assumed to be true.” 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 Beeler v. City Title Ins. Co. (1962) 201 Cal. App. 2d 702, 705 (citations omitted); Code 13 Civ. Proc. § 452 (“In the construction of a pleading, for the purpose of determining its 14 effect, its allegations must be liberally construed, with a view to substantial justice 15 between the parties.”). “Although the complaint may not be a model pleading, the policy 16 of the law is to construe pleadings liberally to the end that cases will be tried on their 17 merits rather than disposed of on technicalities of pleadings.” Porten v. University of San 18 Francisco (1976) 64 Cal. App. 3d 825, 833. “Mistaken labels and confusion of legal 19 theory are not fatal; if appellant’s complaint states a cause of action on any theory, he is 20 entitled to introduce evidence thereon.” Id. 21 Applying the standards above, Defendants’ demurrer must be overruled. 22 B. Plaintiffs’ Complaint Adequately Pleads Intentional 23 Misrepresentation 24 “A complaint alleging fraud must plead with particularity ultimate facts showing 25 representation, falsity of representation, knowledge of falsity, intent to deceive and 26 reliance with resulting damage.” Winn v. McCulloch Corp. (1976) 60 Cal. App. 3d 663, 27 670. “Negligence in reliance upon a misrepresentation is not a defense where the 28 misrepresentation was intentionally made to induce reliance upon it.” Id. at 671. 3. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Plaintiffs specifically plead the following misrepresentations made by Defendant 2 Waters: (1) that the bank had frozen the accounts where Plaintiffs’ funds were transferred 3 to; (2) that the bank believed the funds were from an illegitimate source; and (c) that Mr. 4 Schaub would have to go to Hong Kong to resolve the situation with the frozen accounts. 5 (FAC ¶ 2.) The FAC also specifically states that Defendant Waters drained the Citibank 6 accounts of the funds that were supposed to be maintained by him in trust, at the same 7 time he was making these false and fraudulent representations. (FAC ¶¶ 23, 39.) 8 Defendant Waters knew these representations were false when he made them. (FAC ¶ 9 44.) Plaintiffs relied on Defendant Waters’ representations that the funds would be held in trust when they authorized the funds to be transferred to accounts under his control. TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 (FAC ¶ 45.) Plaintiffs have been damaged by being denied funds that belong to them. 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 (FAC ¶¶ 46-47.) 13 Therefore, Plaintiffs’ FAC alleges all elements of a cause of action for intentional 14 misrepresentation. 15 C. Plaintiffs’ Complaint Adequately Pleads Concealment 16 An action for concealment has five elements: (1) concealment of a material fact, 17 (2) a duty to disclose the fact, (3) intentional concealment of the fact with the intent to 18 defraud, (4) the plaintiff was unaware of the fact and would not have acted as he did if he 19 had known of the concealed fact, and (5) damage as a result of the concealment. 20 Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal. App. 4th 603, 612-13. 21 The First Amended Complaint adequately pleads a cause of action for 22 concealment. Defendants lied about the following: (1) that the funds transferred by 23 Plaintiffs would be held in trust, (2) that the funds were frozen by the bank, (3) that 24 Citibank wanted to close the accounts because something was wrong with the money, (4) 25 that Defendant Waters had to go to Hong Kong in order for the money to be released, (5) 26 that the bank had locked Defendants’ accounts, and (6) that the $750,000 repaid to 27 Plaintiffs is Defendant Waters’ own personal funds. (FAC ¶¶ 17-24.) 28 4. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Defendants had a duty to disclose the truth about the funds and the accounts where 2 they were being held by Defendants because they were being held in trust. (FAC ¶ 39.) 3 Defendants intentionally hid the truth from Plaintiffs with the intent to defraud and steal 4 approximately $2 million. (FAC ¶ 49.) Plaintiffs were unaware that the funds would not 5 be held in trust and that Defendants would steal Plaintiffs’ money. (FAC ¶ 50.) 6 Plaintiffs have been damaged as a result of not being told the truth by being deprived of 7 the $2 million that rightfully belongs to them. (FAC ¶¶ 51-52.) 8 Therefore, Plaintiffs’ FAC alleges all elements of a cause of action for 9 concealment. D. Plaintiffs Have Appropriately Pleaded A Claim For Unjust TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 Enrichment 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 Although California courts do not recognize a standalone cause of action for 13 unjust enrichment, it is characterized as “a general principle, underlying various legal 14 doctrines and remedies . . . [and] is synonymous with restitution.” Rutherford Holdings, 15 LLC v. Plaza Del Rey (2014) 223 Cal. App. 4th 221, 231. Courts have construed “the 16 cause of action as a quasi-contract claim seeking restitution.” Id. 17 “[R]estitution may be awarded where the defendant obtained a benefit from the 18 plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may 19 choose not to sue in tort, but instead to seek restitution on a quasi-contract theory. 20 McBride v. Boughton (2004) 123 Cal. App. 4th 379, 388. “In such cases, where 21 appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to 22 the parties’ intent, in order to avoid unjust enrichment.” Id. 23 Here, Plaintiffs’ cause of action for unjust enrichment is based on the premise that 24 they are entitled to restitution on a quasi-contract theory based on Defendants’ tortious 25 conduct. Money was transferred to FCP Corporate’s accounts with the understanding 26 that it would be held in trust and returned to Plaintiffs upon request. Defendants have 27 been unjustly enriched by maintaining possession and control over Plaintiffs’ money 28 through misrepresentations and concealment. Because Plaintiffs have pleaded allegations 5. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 giving rise to a right to restitution, Defendants’ demurrer should be overruled. See 2 McBride, 123 Cal. App. 4th at 387 (stating that “if the complaint pleads facts which 3 would entitle the plaintiff to relief,” erroneous or confusing labels should be ignored); 4 Rutherford Holdings, 223 Cal. App. 4th at 232 (concluding that “the trial court erred in 5 sustaining the demurrer as to the claim for restitution based on unjust enrichment). 6 E. Any Defects Can Be Cured By Amendment 7 “In the furtherance of justice great liberality should be exercised in permitting a 8 plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to 9 sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment.” Coffelt v. Coffelt (1964) 229 Cal. App. 2d 659, TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 666. “Even where the defect is one of substance, a demurrer should not be sustained 1990 SOUTH BUNDY DR., SUITE 705 LOS ANGELES, CA 90025 12 without leave to amend if there is a possibility that subsequent amendments will supply 13 omitted allegations and the plaintiff has not had a fair opportunity to do so.” Id. 14 If the Court finds that Plaintiffs have not pleaded the intentional misrepresentation 15 and concealment causes of action with the requisite particularity, Plaintiffs should be 16 permitted to amend the complaint to cure such defects. Among the additional facts that 17 Plaintiffs would allege are the following: 18 Defendant Waters knowingly misrepresented to Plaintiffs that the FCP 19 Corporate Citibank accounts were trust accounts. 20 Plaintiffs would not have authorized the transfer of any funds to the FCP 21 Corporate Citibank accounts but for the fact that they were represented as trust 22 accounts. 23 Defendant Waters knowingly misrepresented to Plaintiffs that the FCP 24 Corporate Citibank accounts were in good standing despite a June 2019 letter 25 from Citibank stating that the FCP Corporate Citibank accounts would be 26 closed. 27 28 6. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Plaintiffs relied on Defendant Waters’ representation that the FCP Corporate 2 Citibank accounts were in good standing and would not have authorized the 3 transfer of any funds to those accounts had they known the truth. 4 Because there is a reasonable probability that the complaint can be amended to 5 cure any defects, Plaintiffs should be given an opportunity to do so. 6 IV. CONCLUSION 7 Defendants’ demurrer should be overruled, as Plaintiffs have adequately pleaded 8 claims for intentional misrepresentation, concealment, and unjust enrichment. Should the 9 Court find otherwise, Plaintiffs should be given an opportunity to amend the complaint. Dated: May 21, 2021 SPERTUS, LANDES & UMHOFER, LLP TELEPHONE 310-826-4700; FACSIMILE 310-826-4711 10 Spertus, Landes & Umhofer, LLP 11 1990 SOUTH BUNDY DR., SUITE 705 By: LOS ANGELES, CA 90025 12 Matthew Donald Umhofer 13 Diane H. Bang Attorneys for Plaintiffs 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7. PLAINTIFFS’ OPPOSITION TO DEMURRER 1 Proof of Service 2 STATE OF CALIFORNIA, COUNTY OF LOS ANGELES 3 I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action. My business address is 4 1990 South Bundy Dr., Suite 705, Los Angeles, CA 90025. 5 On the date indicated below, I served the foregoing documents described as: 6 PLAINTIFFS’ OPPOSITION TO DEMURRER 7 on the interested parties in this action: 8 9 Kevin Nimmons REICKER, PFAU, PYLE & McROY 10 1421 State Street, Suite B 11 Santa Barbara, CA 93101 TELEPHONE 310‐826‐4700; FACSIMILE 310‐826‐4711 Spertus, Landes & Umhofer, LLP knimmons@rppmh.com 12 Attorneys for Defendants Andrew Waters and 1990 SOUTH BUNDY DR., SUITE 705 FCP Private, LLC LOS ANGELES. CA 90025 13 14 BY U.S. MAIL: I placed an envelope addressed to the above servees for 15 deposit with the United States Postal Service with postage thereon fully prepaid. 16 I declare under penalty of perjury under the laws of the State of California 17 that the above is true and correct. Executed on May 21, 2021, at Los Angeles, California. 18 19 ___________________________ Nolan Burkholder 20 21 22 23 24 25 26 27 28 -1- PROOF OF SERVICE