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 Post subject: Sacramento Housing & Redevelopment Agency
PostPosted: Tue Jan 06, 2009 8:55 am 
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Sacramento Housing & Redevelopment Agency v. Small Business Chamber of Commerce, Inc., Court of Appeals No. C056077 (Cal.App. 3rd Dist., Dec. 19, 2008)


Court of Appeal, Third District, California.
SACRAMENTO HOUSING & REDEVELOPMENT AGENCY, Plaintiff and Appellant,
v.
SMALL BUSINESS CHAMBER OF COMMERCE, INC. et al., Defendants and Respondents.
No. C056077.
(Super.Ct.No. 06AS04504).
Dec. 19, 2008.

Office of the City Attorney, Sacramento, CA, for Plaintiff and Appellant.

Richard Montgomery Watts Jr., Millstone Peterson & Watts, Roseville, CA, for Defendant and Respondent.


BLEASE, Acting P.J.
*1 Plaintiff Sacramento Housing & Redevelopment Agency (SHRA) entered into an agreement with the Meadowview Community Action (MCA) that provided $100,000 in federal Community Development Block Grant funds for the purchase of real property on which MCA promised to build a public service facility to serve low-income residents of the Meadowview neighborhood of Sacramento, including the provision of Headstart services.

The agreement provided that the property purchased would revert to SHRA if the facility was not constructed by December 31, 1996, or MCA ceased to operate Headstart services with a capacity for 40 children during the 10 years following its execution.

When MCA purchased the property with the block grant funds but failed to build a facility or conduct the promised services during a 10-year period, SHRA filed this action on October 19, 2006, against MCA to quiet title and for equitable relief and damages. SHRA recorded a lis pendens. Shortly thereafter MCA conveyed the property to Small Business Chamber of Commerce, Inc. (SBCC) who conveyed it to PTS Business Investments, LLC (PTS). SHRA then amended its pleading to join SBCC and PTS as defendants.

SBCC and PTS, as successors in interest to MCA, filed a demurrer to SHRA's complaint on the ground the statute of limitations had run on SHRA's various causes of action against MCA and the trial court granted it without leave to amend. The court dismissed the action as to SBCC and PTS and this appeal followed.

As we will explain, the demurrer was properly sustained. However, SHRA proposed to amend the complaint to assert that MCA “continuously agreed to provide and MCA accepted further time to perform under the terms of the agreement, continuing until June 9, 2006.” In its opening brief, SHRA asserts that it “offered, and MCA accepted, extensions of time to develop the real property and MCA represented to SHRA that the development would proceed under federal guidelines.... In exchange, SHRA agreed not to pursue recovery of the grant funds or the property and continued to assist with development plans.” This proposal leaves open the reasonable possibility that SHRA can amend its complaint to assert that SBCC and PTS are equitably estopped to assert the statute of limitations on the claims against MCA.

We will reverse the judgment of dismissal as to five of the six causes of action and remand the matter to give SHRA the opportunity to amend its complaint.


FACTUAL AND PROCEDURAL BACKGROUND

On an appeal from a judgment of dismissal after a demurrer has been sustained, we accept the material allegations of the complaint as true, but do not assume the truth of contentions, deductions, or conclusions of law. ( City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.)

SHRA filed its original complaint against MCA on October 19, 2006, and a first amended complaint to quiet title and for equitable relief and damages on December 22, 2006. The amended complaint alleges the following: On August 22, 1995, SHRA entered into a written “Agreement to Provide Community Development Services” (the agreement) with Meadowview Community Action, Inc. A copy of the agreement is attached to the complaint and incorporated by reference .FN1 Under the agreement SHRA agreed to pay MCA $100,000 in federal Community Development Block Grant funds (block grant funds), and MCA agreed to use the funds “exclusively for the purpose of implementing its approved activity....”

FN1. To the extent the allegations in the first amended complaint conflict with the facts appearing in the agreement, we accept as true the factual contents of the agreement. ( Holland v. Morse Diesel Int'l, Inc. (2001) 86 Cal.App.4th 1443, 1447.)


*2 The agreement provides that “[a]ny real property under [MCA's] control which was acquired ... with [block grant] funds in excess of $25,000 must be ... used to meet one of the national objectives in 24 CFR 570.208 for five years after the expiration or termination of this [a]greement, or disposed of in a manner that results in [SHRA] being reimbursed in the amount of the current fair market value of the property....”

MCA's “approved activity” is detailed in a second “Agreement to Provide Community Development Services,” a copy of which is attached as “Exhibit A” to the standard agreement and incorporated therein by reference.FN2 Pursuant to this agreement, MCA agreed, among other things, to use the $100,000 in block grant funds to purchase real property “described as Sacramento County APN 047-0164-004[sic] located on 24th Street Bypass, California” and to “construct a facility on the site for the purpose of providing Headstart and other services for the Meadowview community.”

FN2. Unless otherwise indicated, we shall refer to the standard agreement and Exhibit A thereto collectively as “the agreement.”


“The property [was to] be acquired and the facility ... constructed in a timely manner, with completion no later than December 31, 1996.” MCA would “own the complete site, and maintain the completed site without reimbursement from [SHRA].” “In the event that work [was] not completed by December 31, 1996, or in the event that [MCA] cease[d] to operate Headstart services with capacity for 40 children at any time during the ten years following execution of this contract; ownership of the real property ... [would] revert to ... [SHRA].” The agreement further provides that no “alteration or variation” in its terms is valid unless made in writing and signed by the parties.

In accordance with the agreement, on August 22, 1995, SHRA provided $100,000 in block grant funds to MCA, and on August 25, 1995, MCA purchased the real property described as APN 047-014-004. When MCA failed to construct a Headstart facility by December 31, 1996, or at all, or operate Headstart services on the property, SHRA filed this action against MCA on October 19, 2006.FN3 Less than two months later (December 4, 2006) MCA transferred the property to SBCC by grant deed. Two days later, on December 6, 2006, SBCC transferred the property to PTS by grant deed.

FN3. On October 25, 2006, less than one week after filing its original complaint, SHRA caused a notice of pendency of action, commonly known as a lis pendens, to be recorded. (Code Civ. Proc., § 405.20.) The original complaint named only MCA as a defendant. SHRA filed its first amended complaint, which added SBCC and PTS as defendants, on December 22, 2006. Contrary to SBCC and PTS's assertion, the first amended complaint did not “plead additional causes of action.”


The first amended complaint asserts causes of action against MCA, SBCC, and PTS for quiet title (first), injunctive relief (second), resulting trust (third), fraud (fifth), and violation of California's False Claims Act (sixth). It asserts a cause of action for breach of contract (fourth) against MCA. SHRA seeks to establish a resulting trust, quiet title, and obtain declaratory relief, injunctive relief, compensatory damages, treble damages, and attorney fees.

The quiet title cause of action alleges that under the agreement, the property automatically reverted to SHRA “upon MCA's failure to construct the Headstart childcare facility”; thus, SHRA is the owner of the property, and defendants have no right, title, estate, lien, or interest in the property.

*3 The injunctive relief cause of action alleges defendants “have wrongfully threatened to interfere and continue to interfere” with SHRA's use of the property by failing to return the property to SHRA and “threaten[ing] to sell or otherwise encumber” the property.

The resulting trust cause of action alleges SHRA informed MCA it was not in compliance with the terms of the agreement and demanded MCA return the property to SHRA; and MCA not only failed to return the property, but transferred it to SBCC, which in turn transferred it to PTS.

The breach of contract cause of action alleges MCA breached the agreement by failing “to construct and maintain a Headstart childcare facility” on the property.

The fraud cause of action alleges “MCA falsely represented that it was going to construct a Headstart childcare facility when it entered into the agreement with [SHRA],” “[d]efendants intended to defraud [SHRA] of the gran[t] funds through their misrepresentations that they intended to use the property for a Headstart childcare facility,” and SHRA “justifiably relied on MCA's representations when it provided $100,000 in grant funds to MCA....”

The cause of action for violation of the False Claims Act alleges “MCA falsely filed for grant funds ... by misrepresenting that the funds were intended to acquire a site to construct a public service facility that would serve low-income residents of the Meadowview neighborhood,” and “[d]efendants knowingly presented and/or conspired to get a false claim paid by [SHRA].”

SBCC and PTS demurred to the first amended complaint on the grounds: the first through fourth causes of action were barred by the four year limitations period for “action[s] upon any contract” (Code Civ. Proc., § 337), the fifth cause of action was barred by the three year limitations period for fraud actions ( id., § 338, subd. d)), and the sixth cause of action was barred by the three year limitations period for civil actions brought under the False Claims Act (Gov.Code, §§ 12652, 12654, subd. (a)).FN4

FN4. MCA did not participate in the demurrer and is not a party to the appeal.


SBCC and PTS also urged the fifth and sixth causes of action were insufficient because they failed to allege that either SBCC or PTS made any statements to SHRA or submitted a false claim to a government entity.FN5

FN5. PTS simultaneously filed a motion to expunge the lis pendens, arguing the first amended complaint was time barred.


SHRA responded by seeking leave to file a proposed second amended complaint which it claimed included allegations that cured any perceived defects in the first amended complaint.FN6 With respect to the timeliness of the action, the proposed complaint alleges that “[a]lthough the [December 31, 1996] deadline under the agreement lapsed, SHRA continuously agreed to provide and MCA accepted further time to perform under the terms of the agreement, continuing until June 9, 2006.” It also alleges that “[t]he agreement entered into between SHRA and MCA provides that in the event that MCA ceased to operate Headstart services with capacity for 40 children at any time during the ten years following the execution of the agreement, ownership of the property would revert to SHRA.” SHRA argued MCA's failure to operate Headstart services on the property “constituted a continuing breach at least until 2005.”

FN6. While styled as a “motion to amend first amended complaint,” SHRA's moving papers included a proposed second amended complaint which it sought to file.


*4 With respect to the fraud cause of action, the proposed complaint includes the following additional allegation: “Each [d]efendant transferred the real property and/or accepted ownership of the real property even though they had knowledge that SHRA had a rightful claim to the real property and/or payment related to the real property.” SHRA argued this allegation, along with those in the first amended complaint, stated a claim under the Uniform Fraudulent Transfer Act (UFTA) (Civ.Code, § 3439 et seq.)

SBCC and PTS opposed SHRA's motion for leave to file a proposed second amended complaint, arguing the allegation the agreement was modified by an oral agreement should be disregarded as a sham pleading; the alleged oral agreement was void under Civil Code section 1698 because SHRA failed to allege, and could not allege, the agreement was executed by the parties; and SHRA's theory MCA continuously breached the agreement until at least 2005 by failing to operate Headstart services was unsupported by the agreement because the facility was never built.

The trial court denied SHRA's motion to file a second amended complaint. It ruled “the proposed new allegations of an oral extension of time to perform until 2006 appear[ed] to ... be sham amendments intended to avoid the statute of limitations bar,” and “the newly alleged oral modification contradict[ed] the written agreement, and therefore [would not] state a cause of action.” In doing so, the court noted “the written agreement ... expressly prohibit[ed] any modification except by writing.” FN7

FN7. That same day, the trial court granted PTS's motion to expunge the lis pendens. The court ruled SHRA failed to show “the probable validity of its real property claim, as any right to the property by reversion upon breach of the written agreement occurred more than four years prior to the filing of this action.”


SHRA filed its opposition to the demurrer the next day. It again asserted that MCA continuously breached the agreement until at least 2005 by failing to operate Headstart services during that time, and thus, the first through fourth causes of action were timely. With respect to the fraud cause of action, SHRA argued the first amended complaint sufficiently alleged a violation of the UFTA, and because the claim was predicated on the transfers of the property in 2006, it, too, was timely. With respect to the cause of action for violation of the False Claims Act, SHRA asserted the first amended complaint adequately alleged SBCC and PTS, along with MCA, conspired to defraud SHRA of the block grant funds, and because SHRA did not discover SBCC or PTS's involvement until 2006, that claim was timely as well. In the event the trial court sustained the demurrer, SHRA requested leave to amend.

The trial court sustained the demurrer without leave to amend. Referring to its prior ruling denying SHRA's motion for leave to file a proposed second amended complaint, the court determined “MCA's breach of the written contract occurred more than nine years prior to the filing of the complaint, and [SHRA] is not able to amend to allege an oral modification that would bring this action within the statute of limitations. The factual basis for the first cause of action for quiet title is the alleged breach of contract by MCA, which is now time-barred. The causes of action for injunction and resulting trust are remedies for the breach of contract cause of action, and are likewise time-barred. [¶] The causes of action for fraud and violation of [the False Claims Act] are based on representations made in 1995 by defendant MCA concerning its intent to build the childcare center. No facts are alleged showing defendants PTS or [SBCC] had any involvement with respect to those representations. Even if [SHRA] could allege such facts, these causes of action are barred by the three-year statutes of limitation under [Code of Civil Procedure] section 338 and [Government] Code section 12654 as [SHRA] knew in 1996 that MCA did not build the childcare center.”


DISCUSSION

* * *

I


* * *

II

* * *

C

SHRA also asserts it should have been granted leave to amend its fifth cause of action to state facts sufficient to allege a violation of the UFTA. We agree.

A fraudulent conveyance under the UFTA involves “ ‘ “a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim.” ‘ “ ( Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829.) A transferee who knowingly receives assets or notes from a debtor in violation of the statute is liable to the creditor. ( Id. at p. 830; see Pedro v. Soares (1937) 18 Cal.App.2d 600, 605; Civ.Code, § 3439.08, subd. (b).) A defrauded creditor may seek to have such a transfer voided to the extent necessary to satisfy the creditor's claim, or apply for “[a]ny other relief the circumstances may require.” (Civ.Code, § 3439.07, subds.(a)(1), (a)(3)(C).)

SBCC and PTS argue SHRA cannot establish it is a creditor under the UFTA because any claim it had regarding the property was time barred at the time the transfers were made. Thus, according to SBCC and PTS, SHRA cannot amend to state a claim under the UFTA.

*10 Under the UFTA, “ ‘[c]reditor’ means a person who has a claim....” (Civ.Code, § 3439.01, subd. (c).) “Person” includes a “government or governmental subdivision or agency” ( id., § 3439.01, subd. (g)), and “ ‘[c]laim,’ means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” ( id., § 3439.01, subd. (b).)

If SHRA is able to amend its complaint to state facts which would estop defendants from relying on the statute of limitations as a defense to the first through fourth causes of action, SHRA would have a “claim,” and thus, would qualify as a creditor under the UFTA. Moreover, given the timing of MCA's transfer of the property to SBCC-less than two months after this action was commenced-it could reasonably be inferred that MCA transferred the property to SBCC with the intent of preventing SHRA from reaching it to satisfy its claim against MCA.

Moreover, because MCA's transfer to SBCC and SBCC's transfer to PTS took place after a lis pendens had been recorded, it also reasonably could be inferred that SBCC and PTS were aware of SHRA's claims concerning the property at the time the transfers were made. Indeed, the proposed second amended complaint alleges “[e]ach [d]efendant transferred the real property and/or accepted ownership of the real property even though they had knowledge that SHRA had a rightful claim to the real property and/or payment related to the real property.” These averments are sufficient to satisfy SHRA's burden of showing a reasonable possibility the complaint can be amended to state facts sufficient to state a cause of action under the UFTA.

Hence, the denial of leave to amend was an abuse of discretion, and the judgment of dismissal must be reversed.


DISPOSITION

The judgment of dismissal is reversed as to the first, second, third, fourth, and fifth causes of action and affirmed as to the sixth cause of action. The matter is remanded to the trial court with directions to grant SHRA leave to amend its complaint. The parties shall bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)


We concur: NICHOLSON and CANTIL-SAKAUYE, JJ.

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