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1 REICKER, PFAU, PYLE & McROY LLP
1421 State Street, Suite B
2 Santa Barbara, CA 93101 ELECTRONICALLY FILED
Tel (805) 966-2440 Superior Court of California
3 Fax (805) 966-3320 County of Santa Barbara
Kevin R. Nimmons (State Bar No. 261577) Darrel E. Parker, Executive Officer
4 knimmons@rppmh.com
Meghan K. Woodsome (State Bar No. 272459) 5/27/2021 4:08 PM
5 mwoodsome@rppmh.com By: Sarah Sisto, Deputy
Cory T. Baker (State Bar No. 315763)
6 cbaker@rppmh.com
7 Attorneys for Defendants
Andrew Waters and FCP Private, LLC
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF SANTA BARBARA—ANACAPA DIVISION
11
12 MARK SCHAUB, an individual; TLG LTD., Case No.: 20CV02113
a Hong Kong limited Liability company Assigned to: Hon. Donna D. Geck
13
Plaintiffs,
14 DEFENDANTS ANDREW WATERS
v. AND FCP PRIVATE, LLC'S REPLY
15 TO OPPOSITION TO DEMURRER
ANDREW WYLES WATERS, an individual;
16 FCP CORPORATION LTD., a Hong Kong TO FIRST AMENDED COMPLAINT
limited liability company; FCP PRIVATE,
17 LLC, a California limited liability corporation;
and DOES 1 through 10, inclusive, Date: June 4, 2021
18 Time: 10:00 a.m.
Defendants. Dept.: 4
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REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 1
1 MEMORANDUM OF POINTS AND AUTHORITIES
2 I. INTRODUCTION
3 Plaintiffs' First Amended Complaint ("FAC") and Opposition to the Demurrer
4 ("Opposition") make it plain that this is not a case of fraud. Rather, this is an alleged case of
5 conversion of funds, or "a simple case of theft," as the FAC alleges. (FAC, 1:3.) Plaintiffs have not
6 properly alleged fraud because they have failed to allege every element of intentional
7 misrepresentation and concealment, and the allegations are not pled with particularity.
8 The Opposition's "Factual Background" section contains "facts" that are not set forth in the
9 FAC. (See, Opposition, 1:26-3:7.) Similarly, when Plaintiffs finally turn away from describing
10 "facts" not even in the FAC, and turn to defending their fraud allegations, they paraphrase the FAC,
11 rather than quote it, and in doing so, they misrepresent what is actually pled in the FAC.
12 This is not a case of unjust enrichment. Plaintiffs' fourth cause of action for such is not a
13 recognized cause of action in California (Levine v. Blue Shield of Calif. (2010) 189 Cal.App.4th
14 1117, 1138.), and the cases Plaintiffs rely upon do not assist them. This is also not a case of breach
15 of contract where the contract is void and can be saved by a claim for restitution under a quasi-
16 contract theory. Rather, Plaintiffs have alleged the tort of conversion against Defendants and
17 demanded monetary damages. Therefore, Defendants' demurrer as to the two fraud causes of action
18 and the cause of action for unjust enrichment should be sustained.
19 Defendants do not see how Plaintiffs can change their allegations in the verified FAC to
20 allege fraud. The funds were transferred "by mistake", as the FAC alleges, and the Opposition
21 alleges that "[i]n July 2019, a bank error led to the transfer of approximately $2 million
22 (instead of the intended $50,000) from Mr. Schaub's TLG account to the Waters-controlled FCP
23 Corporate account." (Opposition, 2:16-17 [emphasis added].) The verified FAC and the Opposition
24 in defense of the FAC are judicial admissions that there was no fraud and that the funds were
25 transferred by a mistake. Plaintiffs cannot be given leave to contradict these admissions.
26 ///
27 ///
28 ///
REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 2
1 II. THE DEMURRER TO THE SECOND CAUSE OF ACTION FOR FRAUD
2 SHOULD BE SUSTAINED BECAUSE FRAUD IS NEITHER ADEQUATELY
3 PLED NOR PLED WITH THE REQUISITE PARTICULARITY.
4 A. The Second Cause of Action for Fraud Fails to State a Cause of Action.
5 The Opposition's "Factual Background" section contains "facts" that are not set forth in the
6 FAC. (See, Opposition, 1:26-3:7.) For example, Plaintiffs discuss an alleged "Ponzi scheme," that
7 there was a transfer of $50,000 to go to a client account, and other allegations not in the FAC.
8 Plaintiffs cite to the FAC to support these allegations, but the FAC does not allege these things. The
9 Court should ignore these and focus on the actual allegations in the FAC.
10 After pages of mischaracterizing and misrepresenting the actual allegations in their own
11 FAC, on the fourth page of their Opposition, Plaintiffs finally defend the Second Cause of Action
12 for Fraud by referencing the FAC. However, they do not quote their own FAC because the actual
13 word-for-word allegations of the FAC are different than what they summarize in their Opposition,
14 as if the Court is not going to review the actual allegations of the FAC.
15 They contend that the following saves their fraud cause of action:
16 "Plaintiffs specifically plead the following misrepresentations made by
Defendant Waters: (1) that the bank had frozen the accounts where
17 Plaintiffs’ funds were transferred to; (2) that the bank believed the funds
18 were from an illegitimate source; and (3) that Mr. Schaub would have to
go to Hong Kong to resolve the situation with the frozen accounts. (FAC ¶
19 2.)" (Opposition, 4:1-5.)
20 These allegations are insufficient, as set forth in the Demurrer. None of these allegations
21 induced Plaintiffs to "mistakenly" transfer funds to Defendants. Plaintiffs admit in their verified
22 FAC that the funds were transferred "by mistake" to Defendants' accounts, controlled by
23 Defendants, and Defendants allegedly refused to return the funds and provided false reasons why
24 they would not, or could not, return the funds. (Id., 3:2-4.) All of these alleged facts occurred after
25 Plaintiffs transferred the funds. None of these allegations are sufficient to allege fraud.
26 ///
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REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 3
1 Plaintiffs rely on additional allegations in the FAC to defend their FAC:
2 "The FAC also specifically states that Defendant Waters drained the
Citibank accounts of the funds that were supposed to be maintained by
3 him in trust, at the same time he was making these false and fraudulent
4 representations. (FAC ¶¶ 23, 39.)" (Opposition, 4:5-8.)
5 Once again, Plaintiffs attempt to paraphrase their inadequate allegations. Plaintiffs clearly
6 try to seize on one instance in the FAC where Plaintiffs allege that "Defendant Waters induced
7 Plaintiffs to sending some of the funds to the accounts under his control on the basis it was a trust
8 account." (FAC 6:7-8.) Nowhere does the FAC state that the funds were to be held in trust, that
9 Defendants represented that the funds would be held in trust, that a portion of "some of the funds"
10 was to be held in trust, that the representation that the funds were held in trust was untrue when
11 made, that Plaintiffs had knowledge of the falsity when the statement was made, or that Plaintiffs
12 relied on the statement by transferring funds.
13 The alleged misrepresentations that Plaintiffs claim they justifiably relied upon were that
14 Defendants’ accounts, to which Plaintiffs had already transferred funds, were frozen, and because
15 they were frozen, Defendants could not return the funds to Plaintiffs. (FAC, 6:7-13; 6:18-20; 7:2;
16 7:14.) Plaintiffs allege that “Defendant Waters’ acts, representations, and communications with
17 Plaintiffs in regard to the frozen accounts were knowingly false and made with intent that
18 Plaintiffs rely on his false representations in order to deceive Plaintiffs…” (Id., 7:1-5 [emphasis
19 added].) Plaintiffs also allege this same thing “in regards to the unavailability of the funds.” (Id.,
20 7:6-10 [emphasis added].) Plaintiffs further allege that "Plaintiffs justifiably and reasonably relied
21 on the representations, promises, and assertions made by Defendant Waters in inducing Plaintiffs to
22 believe the funds were frozen." (Id., 7:11-14 [emphasis added].)
23 As set forth above, whether the accounts were frozen or not, this did not harm Plaintiffs
24 because by the time the accounts were allegedly frozen, Defendants were in control of Plaintiffs'
25 funds and allegedly failed and refused to return them to Plaintiffs. Instead, Defendants allegedly
26 lied about why they could not return the funds, but these alleged lies are not the basis for a fraud
27 cause of action. Therefore, the Second Cause of Action for Intentional Fraud fails and the Demurrer
28 thereto should be sustained.
REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 4
1 B. Plaintiffs Fail to Plead Fraud With Particularity.
2 "The requirement of specificity in a fraud action against a corporation requires the plaintiff
3 to allege the names of the persons who made the allegedly fraudulent representations, their authority
4 to speak, to whom they spoke, what they said or wrote, and when it was said or written." (Tarmann
5 v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 4th 153, 157.)
6 While Plaintiffs acknowledge that fraud must be pled with particularity (Opposition, 3:24-
7 26), Plaintiffs do not argue that they have met this standard of pleading. Rather, Plaintiffs merely
8 focus on their inadequate allegations of fraud discussed at length in the Demurrer.
9 Plaintiffs generally allege that Defendant Waters "induced Plaintiffs into sending some of
10 the funds to accounts under his control on the basis it was a trust account" (FAC, 6:7-8) and “made
11 promises to Plaintiffs to facilitate the transfer of funds to Plaintiffs, which he had no intention of
12 honoring" (Id., 6:25-28). Plaintiffs also generally allege that Defendant Waters made untrue
13 "assertions and representations of fact." (Id., 6:14.)
14 Generally alleging that Defendant Waters "induced Plaintiffs" and "made promises" to
15 Plaintiffs does not meet the particularity requirement (Id., 6:7-8; 6:25-28). There is no specific
16 allegation as to what Defendant Waters actually asserted, whether it was oral or written, to whom it
17 was made, or when it was made. Similarly, Plaintiffs allege that Defendant Waters induced
18 Plaintiffs to send "some of the funds" (Id., 6:14 [emphasis added]), but Plaintiffs do not set forth the
19 amount that he was induced to send, or why they transferred some but not other amounts.
20 Plaintiffs do not allege how they specifically relied on any alleged misrepresentations to
21 their detriment. (See, Goldrich v. Natural Y Surgical Specialties, Inc., supra, 25 Cal.App.4th 772,
22 783.) Plaintiffs only allege that they "justifiably and reasonably relied on the representation,
23 promises, and assertions made by Defendant Waters in inducing Plaintiffs to believe the funds were
24 frozen". (FAC, 7:11-14.) (Goldrich, supra, at 783 [reliance alleged in general, insufficient terms].)
25 However, as set forth above, Plaintiffs could not have relied to their detriment on representations
26 that the accounts were frozen because this statement was allegedly made after Plaintiffs transferred
27 funds to accounts under Defendants' control.
28 ///
REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 5
1 III. THE DEMURRER TO PLAINTIFFS' THIRD CAUSE OF ACTION
2 FOR FRAUD BASED ON CONCEALMENT SHOULD BE SUSTAINED.
3 Like the defective Second Cause of Action for Fraud based on Intentional
4 Misrepresentation, the Third Cause of Action for Fraud based on Concealment also fails to state a
5 cause of action. The alleged concealment of material facts was that the funds had been transferred to
6 Defendants' accounts and that "the funds were not frozen and could be withdrawn." (FAC, 7:26-28.)
7 Plaintiffs then allege that Plaintiffs relied on the concealment and "would have behaved differently,
8 and would not have been without access to funds that rightfully belong to Plaintiffs". (Id., 8:1-7.)
9 However, Plaintiffs did not rely on the alleged concealment to their detriment because they could
10 not have accessed or controlled the funds that were always Defendants' accounts under Defendants'
11 (and not Plaintiffs') control. (Id., 3:5-6; 6:9-10.) The alleged concealment that the accounts were not
12 frozen did not cause Plaintiffs any further harm or damages.
13 Nowhere in their FAC do Plaintiffs allege how they detrimentally relied on any concealment
14 of material facts, why their reliance was justified, or how such reliance caused them any damages.
15 Moreover, there is nothing they could have done differently that would have changed Defendants'
16 control over the accounts and refusal to return the funds.
17 Even if these allegations of concealment were true, the damage to Plaintiffs had already
18 occurred because Defendants, not Plaintiffs, controlled the funds and allegedly converted the funds.
19 Therefore, Plaintiffs cannot allege any detrimental, reasonable, or justifiable reliance, nor any
20 damages caused by the alleged concealment. Rather, this case is one of alleged conversion and
21 cannot be bootstrapped with any fraud cause of action. Because the Third Cause of Action for Fraud
22 based on Concealment fails to state a cause of action, the Demurrer should be sustained.
23 IV. IT IS INCONCEIVABLE HOW PLAINTIFFS MAY AMEND
24 THE FRAUD CAUSES OF ACTION TO STATE A CAUSE OF ACTION.
25 "An amended pleading that contradicts facts alleged in an earlier pleading is subject to
26 challenge. Unless the contradiction is satisfactorily explained (e.g., new information discovered),
27 the rule requiring truthful pleading may result in denial of leave to amend; or, if the pleading has
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REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 6
1 already been filed, render it subject to demurrer or motion to strike as a 'sham.'" (Weil & Brown,
2 Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group June 2020 Update) ¶ 6:706.)
3 "The California Supreme Court held that '[a]s a general rule a party will not be allowed to
4 file an amendment contradicting an admission made in his original pleadings. If it be proper in any
5 case, it must be upon very satisfactory evidence that the party has been deceived or misled, or that
6 his pleading was put in under a clear mistake as to the facts.'" (Thurman v. Bayshore Transit
7 Management, Inc. (2012) 203 Cal.App.4th 1112, 1158 [italics in original; quoting Brown v.
8 Aguilar (1927) 202 Cal. 143, 149; disapproved of on other grounds by ZB, N.A. v. Superior
9 Court (2019) 8 Cal.5th 175].)
10 "The grant of a leave to amend does not include within it the leave to amend to plead
11 inconsistent allegations; if it did, the “sham pleading” doctrine would cease to exist. That is not the
12 law." (Smyth v. Berman (2019) 31 Cal.App.5th 183, 196–197.)
13 Even assuming that Plaintiffs could recraft their allegations to claim that Defendants
14 misrepresented to Plaintiffs that they could transfer funds to Defendants' "trust" account, that
15 Plaintiffs did in fact transfer funds, that the accounts were not in fact "trust" accounts, that such
16 transfer was made in reliance on Defendants' misrepresentations as to the "trust" account, and that
17 Plaintiffs were damaged as a result—none of which have been alleged—this would not fix the
18 defects in the FAC. There is no significance between a "trust" account and any other bank account.
19 The fact remains that Defendants controlled the accounts, whether they were trust accounts or non-
20 trust or "normal" accounts. Plaintiffs admit that they had no control over the accounts. Rather,
21 Plaintiffs "by mistake" allegedly transferred funds and then Defendants allegedly lied about the
22 reasons why the funds could not or would not be returned. That may be conversion, but it is not
23 fraud. Plaintiffs cannot contradict the allegations in the verified FAC to fix their defects.
24 It is also inconceivable how Plaintiffs may cure their defects by alleging that Defendants'
25 accounts were represented to be "in good standing", when actually Defendants knew the "accounts
26 would be closed." (Opposition, 6:23-26.) There are no allegations as to why the funds were
27 transferred to Defendants' accounts, so it is inconceivable that the status of the accounts is material
28 to the FAC's allegations. This is because the funds were transferred "by mistake", as alleged in the
REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 7
1 FAC. The Opposition in defense of the FAC alleges that "[i]n July 2019, a bank error led to the
2 transfer of approximately $2 million (instead of the intended $50,000) from Mr. Schaub's TLG
3 account to the Waters-controlled FCP Corporate account. (Opposition, 2:16-17.) This is a further
4 judicial admission that there was no fraud and that the funds were transferred by mistake.
5 V. THE DEMURRER TO THE FOURTH CAUSE OF ACTION
6 FOR UNJUST ENRICHMENT SHOULD BE SUSTAINED—
7 WITHOUT LEAVE TO AMEND.
8 Plaintiffs rely upon the case of Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223
9 Cal.App.4th 221 to attempt to plead around the well-established law in California that there is no
10 cause of action in California for unjust enrichment. Rutherford Holdings, LLC v. Plaza Del Rey,
11 supra, does not apply to the facts and legal theories alleged here, and the court in that case
12 explained when unjust enrichment can be construed as a claim for restitution.
13 "Thus, a party to an express contract can assert a claim for restitution
based on unjust enrichment by alleging in that cause of action that the
14 express contract is void or was rescinded. [Citation.] A claim for
15 restitution is permitted even if the party inconsistently pleads a breach of
contract claim that alleges the existence of an enforceable agreement.
16 [Citation.] Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223
Cal.App.4th 221, 231 [citations and quotations omitted].)
17
18 The court in the Rutherford Holdings, LLC case then went on to explain why the facts
19 alleged and legal theories in that case allowed the unjust enrichment claim to remain:
20 "[W]e conclude that Rutherford stated a quasi-contract claim for
restitution based on unjust enrichment. In particular, we conclude
21 Rutherford adequately alleged a reasonable interpretation of the purchase
22 agreement under which section 1.2 is void to the extent it permits PDR to
retain the deposit when Rutherford has not breached, and that PDR has
23 been unjustly enriched by retaining the deposit. Accordingly, we conclude
the trial court erred in sustaining the demurrer as to the claim for
24
restitution based on unjust enrichment. (Rutherford Holdings, LLC v.
25 Plaza Del Rey, supra, 223 Cal.App.4th at 232.)
26 Here, Rutherford Holdings, LLC does not apply. There is no claim of any contract in this
27 case, quasi, implied, express, or otherwise. Rather, Plaintiffs allegedly transferred funds belonging
28 to Plaintiffs to Defendants, and Defendants allegedly refused to return it. This is a cause of action
REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 8
1 for conversion, and Plaintiffs seek monetary damages for the amount of the funds allegedly
2 converted. The demurrer to the fourth cause of action for unjust enrichment should be sustained
3 without leave to amend because there is no separate cause of action in California for unjust
4 enrichment. (Levine v. Blue Shield of Calif. (2010) 189 Cal.App.4th 1117, 1138; see also, Melchior
5 v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 ["there is no cause of action in
6 California for unjust enrichment"]; Low v. LinkedIn Corp. (N.D. Cal. 2012) 900 F.Supp.2d 1010,
7 1031 (quoting Hill v. Roll Intern. Corp. (2011) 195 Cal.App.4th 1295, 1307) ["California does not
8 recognize a stand-alone cause of action for unjust enrichment."].)
9 VI. CONCLUSION
10 Accordingly, the Court should sustain Defendants' Demurrer to Plaintiffs' FAC without
11 leave to amend.
12
13 Dated: May 27, 2021 REICKER, PFAU, PYLE AND McROY LLP
14
15
By ___________________________________
16 Kevin R. Nimmons
Meghan K. Woodsome
17 Cory T. Baker
Attorneys for Defendants
18 Andrew Waters and FCP Private, LLC
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REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 9
1 PROOF OF SERVICE
2 I, the undersigned, say that I am a citizen of the United States, over 18 years of age, and not
a party to the within action. I am employed by the law firm of Reicker, Pfau, Pyle & McRoy LLP,
3 1421 State Street, Ste. B, Santa Barbara, California 93101.
4 On May 27, 2021, I served the within: DEFENDANTS ANDREW WATERS AND FCP
5 PRIVATE, LLC'S REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED
COMPLAINT on the interested parties listed below, as follows:
6
Matthew Donald Umhofer
7 Diane H. Bang
SPERTUS, LANDES & UMHOFER, LLP
8 1990 South Bundy Dr., Suite 705
Los Angeles, California 90025
9 Telephone: (310) 826-4700
Facsimile: (310) 826-4 711
10 Email: matthew@spertuslaw.com
Email: diane@spertuslaw.com
11
(X) (By Mail) I caused such document to be mailed in a sealed envelope, by first-class mail,
12 postage fully prepaid. I am “readily familiar” with this firm’s practice of collection and
processing correspondence for mailing. It is deposited with the U.S. postal service on that
13 same day in the ordinary course of business. I am aware that on motion of party served,
service is presumed invalid if the postal cancellation date or postage meter date is more
14 than one (1) day after the date of deposit for mailing as stated in this declaration.
15 ( ) (By Personal Service) I caused such document to be delivered by hand.
16 ( ) (By FAX) I caused such document to be sent via facsimile transmission to the above-listed
addressee(s) and FAX number(s). This transmission was reported as complete and without
17 error.
18 (X) ((By E-MAIL [CCP § 1010.6(a)(2)) On the date indicated on this Proof of Service, at the
time indicated on in the header of my electronic mail, I transmitted the foregoing
19 document(s) by electronic mail to one or more of the recipients at each firm indicated on
this Proof of Service. I caused the my computer to print or maintain a record of the
20 electronic mail to the recipients named in this Proof of Service, a true and correct copy of
which has been retained by Reicker, Pfau, Pyle & McRoy LLP in either hard copy or
21 electronic format in the ordinary course of business and is available for inspection if
necessary.
22
(X) (State) I declare under penalty of perjury pursuant to the laws of the State of California
23 that the foregoing is true and correct.
24 Executed May 27, 2021, at Santa Barbara, California.
25
_______________________________
26 Catrine Casper
Legal Assistant
27
28
Preview
1 REICKER, PFAU, PYLE & McROY LLP 1421 State Street, Suite B 2 Santa Barbara, CA 93101 ELECTRONICALLY FILED Tel (805) 966-2440 Superior Court of California 3 Fax (805) 966-3320 County of Santa Barbara Kevin R. Nimmons (State Bar No. 261577) Darrel E. Parker, Executive Officer 4 knimmons@rppmh.com Meghan K. Woodsome (State Bar No. 272459) 5/27/2021 4:08 PM 5 mwoodsome@rppmh.com By: Sarah Sisto, Deputy Cory T. Baker (State Bar No. 315763) 6 cbaker@rppmh.com 7 Attorneys for Defendants Andrew Waters and FCP Private, LLC 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF SANTA BARBARA—ANACAPA DIVISION 11 12 MARK SCHAUB, an individual; TLG LTD., Case No.: 20CV02113 a Hong Kong limited Liability company Assigned to: Hon. Donna D. Geck 13 Plaintiffs, 14 DEFENDANTS ANDREW WATERS v. AND FCP PRIVATE, LLC'S REPLY 15 TO OPPOSITION TO DEMURRER ANDREW WYLES WATERS, an individual; 16 FCP CORPORATION LTD., a Hong Kong TO FIRST AMENDED COMPLAINT limited liability company; FCP PRIVATE, 17 LLC, a California limited liability corporation; and DOES 1 through 10, inclusive, Date: June 4, 2021 18 Time: 10:00 a.m. Defendants. Dept.: 4 19 20 21 22 23 24 25 26 27 28 REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 1 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I. INTRODUCTION 3 Plaintiffs' First Amended Complaint ("FAC") and Opposition to the Demurrer 4 ("Opposition") make it plain that this is not a case of fraud. Rather, this is an alleged case of 5 conversion of funds, or "a simple case of theft," as the FAC alleges. (FAC, 1:3.) Plaintiffs have not 6 properly alleged fraud because they have failed to allege every element of intentional 7 misrepresentation and concealment, and the allegations are not pled with particularity. 8 The Opposition's "Factual Background" section contains "facts" that are not set forth in the 9 FAC. (See, Opposition, 1:26-3:7.) Similarly, when Plaintiffs finally turn away from describing 10 "facts" not even in the FAC, and turn to defending their fraud allegations, they paraphrase the FAC, 11 rather than quote it, and in doing so, they misrepresent what is actually pled in the FAC. 12 This is not a case of unjust enrichment. Plaintiffs' fourth cause of action for such is not a 13 recognized cause of action in California (Levine v. Blue Shield of Calif. (2010) 189 Cal.App.4th 14 1117, 1138.), and the cases Plaintiffs rely upon do not assist them. This is also not a case of breach 15 of contract where the contract is void and can be saved by a claim for restitution under a quasi- 16 contract theory. Rather, Plaintiffs have alleged the tort of conversion against Defendants and 17 demanded monetary damages. Therefore, Defendants' demurrer as to the two fraud causes of action 18 and the cause of action for unjust enrichment should be sustained. 19 Defendants do not see how Plaintiffs can change their allegations in the verified FAC to 20 allege fraud. The funds were transferred "by mistake", as the FAC alleges, and the Opposition 21 alleges that "[i]n July 2019, a bank error led to the transfer of approximately $2 million 22 (instead of the intended $50,000) from Mr. Schaub's TLG account to the Waters-controlled FCP 23 Corporate account." (Opposition, 2:16-17 [emphasis added].) The verified FAC and the Opposition 24 in defense of the FAC are judicial admissions that there was no fraud and that the funds were 25 transferred by a mistake. Plaintiffs cannot be given leave to contradict these admissions. 26 /// 27 /// 28 /// REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 2 1 II. THE DEMURRER TO THE SECOND CAUSE OF ACTION FOR FRAUD 2 SHOULD BE SUSTAINED BECAUSE FRAUD IS NEITHER ADEQUATELY 3 PLED NOR PLED WITH THE REQUISITE PARTICULARITY. 4 A. The Second Cause of Action for Fraud Fails to State a Cause of Action. 5 The Opposition's "Factual Background" section contains "facts" that are not set forth in the 6 FAC. (See, Opposition, 1:26-3:7.) For example, Plaintiffs discuss an alleged "Ponzi scheme," that 7 there was a transfer of $50,000 to go to a client account, and other allegations not in the FAC. 8 Plaintiffs cite to the FAC to support these allegations, but the FAC does not allege these things. The 9 Court should ignore these and focus on the actual allegations in the FAC. 10 After pages of mischaracterizing and misrepresenting the actual allegations in their own 11 FAC, on the fourth page of their Opposition, Plaintiffs finally defend the Second Cause of Action 12 for Fraud by referencing the FAC. However, they do not quote their own FAC because the actual 13 word-for-word allegations of the FAC are different than what they summarize in their Opposition, 14 as if the Court is not going to review the actual allegations of the FAC. 15 They contend that the following saves their fraud cause of action: 16 "Plaintiffs specifically plead the following misrepresentations made by Defendant Waters: (1) that the bank had frozen the accounts where 17 Plaintiffs’ funds were transferred to; (2) that the bank believed the funds 18 were from an illegitimate source; and (3) that Mr. Schaub would have to go to Hong Kong to resolve the situation with the frozen accounts. (FAC ¶ 19 2.)" (Opposition, 4:1-5.) 20 These allegations are insufficient, as set forth in the Demurrer. None of these allegations 21 induced Plaintiffs to "mistakenly" transfer funds to Defendants. Plaintiffs admit in their verified 22 FAC that the funds were transferred "by mistake" to Defendants' accounts, controlled by 23 Defendants, and Defendants allegedly refused to return the funds and provided false reasons why 24 they would not, or could not, return the funds. (Id., 3:2-4.) All of these alleged facts occurred after 25 Plaintiffs transferred the funds. None of these allegations are sufficient to allege fraud. 26 /// 27 /// 28 /// REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 3 1 Plaintiffs rely on additional allegations in the FAC to defend their FAC: 2 "The FAC also specifically states that Defendant Waters drained the Citibank accounts of the funds that were supposed to be maintained by 3 him in trust, at the same time he was making these false and fraudulent 4 representations. (FAC ¶¶ 23, 39.)" (Opposition, 4:5-8.) 5 Once again, Plaintiffs attempt to paraphrase their inadequate allegations. Plaintiffs clearly 6 try to seize on one instance in the FAC where Plaintiffs allege that "Defendant Waters induced 7 Plaintiffs to sending some of the funds to the accounts under his control on the basis it was a trust 8 account." (FAC 6:7-8.) Nowhere does the FAC state that the funds were to be held in trust, that 9 Defendants represented that the funds would be held in trust, that a portion of "some of the funds" 10 was to be held in trust, that the representation that the funds were held in trust was untrue when 11 made, that Plaintiffs had knowledge of the falsity when the statement was made, or that Plaintiffs 12 relied on the statement by transferring funds. 13 The alleged misrepresentations that Plaintiffs claim they justifiably relied upon were that 14 Defendants’ accounts, to which Plaintiffs had already transferred funds, were frozen, and because 15 they were frozen, Defendants could not return the funds to Plaintiffs. (FAC, 6:7-13; 6:18-20; 7:2; 16 7:14.) Plaintiffs allege that “Defendant Waters’ acts, representations, and communications with 17 Plaintiffs in regard to the frozen accounts were knowingly false and made with intent that 18 Plaintiffs rely on his false representations in order to deceive Plaintiffs…” (Id., 7:1-5 [emphasis 19 added].) Plaintiffs also allege this same thing “in regards to the unavailability of the funds.” (Id., 20 7:6-10 [emphasis added].) Plaintiffs further allege that "Plaintiffs justifiably and reasonably relied 21 on the representations, promises, and assertions made by Defendant Waters in inducing Plaintiffs to 22 believe the funds were frozen." (Id., 7:11-14 [emphasis added].) 23 As set forth above, whether the accounts were frozen or not, this did not harm Plaintiffs 24 because by the time the accounts were allegedly frozen, Defendants were in control of Plaintiffs' 25 funds and allegedly failed and refused to return them to Plaintiffs. Instead, Defendants allegedly 26 lied about why they could not return the funds, but these alleged lies are not the basis for a fraud 27 cause of action. Therefore, the Second Cause of Action for Intentional Fraud fails and the Demurrer 28 thereto should be sustained. REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 4 1 B. Plaintiffs Fail to Plead Fraud With Particularity. 2 "The requirement of specificity in a fraud action against a corporation requires the plaintiff 3 to allege the names of the persons who made the allegedly fraudulent representations, their authority 4 to speak, to whom they spoke, what they said or wrote, and when it was said or written." (Tarmann 5 v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 4th 153, 157.) 6 While Plaintiffs acknowledge that fraud must be pled with particularity (Opposition, 3:24- 7 26), Plaintiffs do not argue that they have met this standard of pleading. Rather, Plaintiffs merely 8 focus on their inadequate allegations of fraud discussed at length in the Demurrer. 9 Plaintiffs generally allege that Defendant Waters "induced Plaintiffs into sending some of 10 the funds to accounts under his control on the basis it was a trust account" (FAC, 6:7-8) and “made 11 promises to Plaintiffs to facilitate the transfer of funds to Plaintiffs, which he had no intention of 12 honoring" (Id., 6:25-28). Plaintiffs also generally allege that Defendant Waters made untrue 13 "assertions and representations of fact." (Id., 6:14.) 14 Generally alleging that Defendant Waters "induced Plaintiffs" and "made promises" to 15 Plaintiffs does not meet the particularity requirement (Id., 6:7-8; 6:25-28). There is no specific 16 allegation as to what Defendant Waters actually asserted, whether it was oral or written, to whom it 17 was made, or when it was made. Similarly, Plaintiffs allege that Defendant Waters induced 18 Plaintiffs to send "some of the funds" (Id., 6:14 [emphasis added]), but Plaintiffs do not set forth the 19 amount that he was induced to send, or why they transferred some but not other amounts. 20 Plaintiffs do not allege how they specifically relied on any alleged misrepresentations to 21 their detriment. (See, Goldrich v. Natural Y Surgical Specialties, Inc., supra, 25 Cal.App.4th 772, 22 783.) Plaintiffs only allege that they "justifiably and reasonably relied on the representation, 23 promises, and assertions made by Defendant Waters in inducing Plaintiffs to believe the funds were 24 frozen". (FAC, 7:11-14.) (Goldrich, supra, at 783 [reliance alleged in general, insufficient terms].) 25 However, as set forth above, Plaintiffs could not have relied to their detriment on representations 26 that the accounts were frozen because this statement was allegedly made after Plaintiffs transferred 27 funds to accounts under Defendants' control. 28 /// REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 5 1 III. THE DEMURRER TO PLAINTIFFS' THIRD CAUSE OF ACTION 2 FOR FRAUD BASED ON CONCEALMENT SHOULD BE SUSTAINED. 3 Like the defective Second Cause of Action for Fraud based on Intentional 4 Misrepresentation, the Third Cause of Action for Fraud based on Concealment also fails to state a 5 cause of action. The alleged concealment of material facts was that the funds had been transferred to 6 Defendants' accounts and that "the funds were not frozen and could be withdrawn." (FAC, 7:26-28.) 7 Plaintiffs then allege that Plaintiffs relied on the concealment and "would have behaved differently, 8 and would not have been without access to funds that rightfully belong to Plaintiffs". (Id., 8:1-7.) 9 However, Plaintiffs did not rely on the alleged concealment to their detriment because they could 10 not have accessed or controlled the funds that were always Defendants' accounts under Defendants' 11 (and not Plaintiffs') control. (Id., 3:5-6; 6:9-10.) The alleged concealment that the accounts were not 12 frozen did not cause Plaintiffs any further harm or damages. 13 Nowhere in their FAC do Plaintiffs allege how they detrimentally relied on any concealment 14 of material facts, why their reliance was justified, or how such reliance caused them any damages. 15 Moreover, there is nothing they could have done differently that would have changed Defendants' 16 control over the accounts and refusal to return the funds. 17 Even if these allegations of concealment were true, the damage to Plaintiffs had already 18 occurred because Defendants, not Plaintiffs, controlled the funds and allegedly converted the funds. 19 Therefore, Plaintiffs cannot allege any detrimental, reasonable, or justifiable reliance, nor any 20 damages caused by the alleged concealment. Rather, this case is one of alleged conversion and 21 cannot be bootstrapped with any fraud cause of action. Because the Third Cause of Action for Fraud 22 based on Concealment fails to state a cause of action, the Demurrer should be sustained. 23 IV. IT IS INCONCEIVABLE HOW PLAINTIFFS MAY AMEND 24 THE FRAUD CAUSES OF ACTION TO STATE A CAUSE OF ACTION. 25 "An amended pleading that contradicts facts alleged in an earlier pleading is subject to 26 challenge. Unless the contradiction is satisfactorily explained (e.g., new information discovered), 27 the rule requiring truthful pleading may result in denial of leave to amend; or, if the pleading has 28 REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 6 1 already been filed, render it subject to demurrer or motion to strike as a 'sham.'" (Weil & Brown, 2 Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group June 2020 Update) ¶ 6:706.) 3 "The California Supreme Court held that '[a]s a general rule a party will not be allowed to 4 file an amendment contradicting an admission made in his original pleadings. If it be proper in any 5 case, it must be upon very satisfactory evidence that the party has been deceived or misled, or that 6 his pleading was put in under a clear mistake as to the facts.'" (Thurman v. Bayshore Transit 7 Management, Inc. (2012) 203 Cal.App.4th 1112, 1158 [italics in original; quoting Brown v. 8 Aguilar (1927) 202 Cal. 143, 149; disapproved of on other grounds by ZB, N.A. v. Superior 9 Court (2019) 8 Cal.5th 175].) 10 "The grant of a leave to amend does not include within it the leave to amend to plead 11 inconsistent allegations; if it did, the “sham pleading” doctrine would cease to exist. That is not the 12 law." (Smyth v. Berman (2019) 31 Cal.App.5th 183, 196–197.) 13 Even assuming that Plaintiffs could recraft their allegations to claim that Defendants 14 misrepresented to Plaintiffs that they could transfer funds to Defendants' "trust" account, that 15 Plaintiffs did in fact transfer funds, that the accounts were not in fact "trust" accounts, that such 16 transfer was made in reliance on Defendants' misrepresentations as to the "trust" account, and that 17 Plaintiffs were damaged as a result—none of which have been alleged—this would not fix the 18 defects in the FAC. There is no significance between a "trust" account and any other bank account. 19 The fact remains that Defendants controlled the accounts, whether they were trust accounts or non- 20 trust or "normal" accounts. Plaintiffs admit that they had no control over the accounts. Rather, 21 Plaintiffs "by mistake" allegedly transferred funds and then Defendants allegedly lied about the 22 reasons why the funds could not or would not be returned. That may be conversion, but it is not 23 fraud. Plaintiffs cannot contradict the allegations in the verified FAC to fix their defects. 24 It is also inconceivable how Plaintiffs may cure their defects by alleging that Defendants' 25 accounts were represented to be "in good standing", when actually Defendants knew the "accounts 26 would be closed." (Opposition, 6:23-26.) There are no allegations as to why the funds were 27 transferred to Defendants' accounts, so it is inconceivable that the status of the accounts is material 28 to the FAC's allegations. This is because the funds were transferred "by mistake", as alleged in the REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 7 1 FAC. The Opposition in defense of the FAC alleges that "[i]n July 2019, a bank error led to the 2 transfer of approximately $2 million (instead of the intended $50,000) from Mr. Schaub's TLG 3 account to the Waters-controlled FCP Corporate account. (Opposition, 2:16-17.) This is a further 4 judicial admission that there was no fraud and that the funds were transferred by mistake. 5 V. THE DEMURRER TO THE FOURTH CAUSE OF ACTION 6 FOR UNJUST ENRICHMENT SHOULD BE SUSTAINED— 7 WITHOUT LEAVE TO AMEND. 8 Plaintiffs rely upon the case of Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 9 Cal.App.4th 221 to attempt to plead around the well-established law in California that there is no 10 cause of action in California for unjust enrichment. Rutherford Holdings, LLC v. Plaza Del Rey, 11 supra, does not apply to the facts and legal theories alleged here, and the court in that case 12 explained when unjust enrichment can be construed as a claim for restitution. 13 "Thus, a party to an express contract can assert a claim for restitution based on unjust enrichment by alleging in that cause of action that the 14 express contract is void or was rescinded. [Citation.] A claim for 15 restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement. 16 [Citation.] Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231 [citations and quotations omitted].) 17 18 The court in the Rutherford Holdings, LLC case then went on to explain why the facts 19 alleged and legal theories in that case allowed the unjust enrichment claim to remain: 20 "[W]e conclude that Rutherford stated a quasi-contract claim for restitution based on unjust enrichment. In particular, we conclude 21 Rutherford adequately alleged a reasonable interpretation of the purchase 22 agreement under which section 1.2 is void to the extent it permits PDR to retain the deposit when Rutherford has not breached, and that PDR has 23 been unjustly enriched by retaining the deposit. Accordingly, we conclude the trial court erred in sustaining the demurrer as to the claim for 24 restitution based on unjust enrichment. (Rutherford Holdings, LLC v. 25 Plaza Del Rey, supra, 223 Cal.App.4th at 232.) 26 Here, Rutherford Holdings, LLC does not apply. There is no claim of any contract in this 27 case, quasi, implied, express, or otherwise. Rather, Plaintiffs allegedly transferred funds belonging 28 to Plaintiffs to Defendants, and Defendants allegedly refused to return it. This is a cause of action REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 8 1 for conversion, and Plaintiffs seek monetary damages for the amount of the funds allegedly 2 converted. The demurrer to the fourth cause of action for unjust enrichment should be sustained 3 without leave to amend because there is no separate cause of action in California for unjust 4 enrichment. (Levine v. Blue Shield of Calif. (2010) 189 Cal.App.4th 1117, 1138; see also, Melchior 5 v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 ["there is no cause of action in 6 California for unjust enrichment"]; Low v. LinkedIn Corp. (N.D. Cal. 2012) 900 F.Supp.2d 1010, 7 1031 (quoting Hill v. Roll Intern. Corp. (2011) 195 Cal.App.4th 1295, 1307) ["California does not 8 recognize a stand-alone cause of action for unjust enrichment."].) 9 VI. CONCLUSION 10 Accordingly, the Court should sustain Defendants' Demurrer to Plaintiffs' FAC without 11 leave to amend. 12 13 Dated: May 27, 2021 REICKER, PFAU, PYLE AND McROY LLP 14 15 By ___________________________________ 16 Kevin R. Nimmons Meghan K. Woodsome 17 Cory T. Baker Attorneys for Defendants 18 Andrew Waters and FCP Private, LLC 19 20 21 22 23 24 25 26 27 28 REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT: Page 9 1 PROOF OF SERVICE 2 I, the undersigned, say that I am a citizen of the United States, over 18 years of age, and not a party to the within action. I am employed by the law firm of Reicker, Pfau, Pyle & McRoy LLP, 3 1421 State Street, Ste. B, Santa Barbara, California 93101. 4 On May 27, 2021, I served the within: DEFENDANTS ANDREW WATERS AND FCP 5 PRIVATE, LLC'S REPLY TO OPPOSITION TO DEMURRER TO FIRST AMENDED COMPLAINT on the interested parties listed below, as follows: 6 Matthew Donald Umhofer 7 Diane H. Bang SPERTUS, LANDES & UMHOFER, LLP 8 1990 South Bundy Dr., Suite 705 Los Angeles, California 90025 9 Telephone: (310) 826-4700 Facsimile: (310) 826-4 711 10 Email: matthew@spertuslaw.com Email: diane@spertuslaw.com 11 (X) (By Mail) I caused such document to be mailed in a sealed envelope, by first-class mail, 12 postage fully prepaid. I am “readily familiar” with this firm’s practice of collection and processing correspondence for mailing. It is deposited with the U.S. postal service on that 13 same day in the ordinary course of business. I am aware that on motion of party served, service is presumed invalid if the postal cancellation date or postage meter date is more 14 than one (1) day after the date of deposit for mailing as stated in this declaration. 15 ( ) (By Personal Service) I caused such document to be delivered by hand. 16 ( ) (By FAX) I caused such document to be sent via facsimile transmission to the above-listed addressee(s) and FAX number(s). This transmission was reported as complete and without 17 error. 18 (X) ((By E-MAIL [CCP § 1010.6(a)(2)) On the date indicated on this Proof of Service, at the time indicated on in the header of my electronic mail, I transmitted the foregoing 19 document(s) by electronic mail to one or more of the recipients at each firm indicated on this Proof of Service. I caused the my computer to print or maintain a record of the 20 electronic mail to the recipients named in this Proof of Service, a true and correct copy of which has been retained by Reicker, Pfau, Pyle & McRoy LLP in either hard copy or 21 electronic format in the ordinary course of business and is available for inspection if necessary. 22 (X) (State) I declare under penalty of perjury pursuant to the laws of the State of California 23 that the foregoing is true and correct. 24 Executed May 27, 2021, at Santa Barbara, California. 25 _______________________________ 26 Catrine Casper Legal Assistant 27 28