29 Cal.App.5th 230
Cal. Ct. App.2018Background
- Professional Tax Appeal (PTA) contracted on a contingent-fee basis (30%) with Victory Glen to prosecute 2009–2010 property tax appeals for vacant land; fees payable when a refund check was received or the refund was applied to delinquent taxes.
- PTA succeeded: Board of Assessment Appeals approved reductions producing refunds totaling $139,624.29; PTA’s statutory contingent fee totaled $41,887.28.
- Before the county issued refund checks, KW Victory Land (an affiliate of Kennedy-Wilson) acquired the vacant land at a nonjudicial foreclosure and paid the delinquent taxes after the county applied the full refunds to the delinquency.
- PTA sued defendants for unjust enrichment and conversion, alleging defendants received the benefit of PTA’s work (reduced tax liability) and retained it without paying PTA its contingent fee; the original owner lacked assets after foreclosure.
- Trial court sustained defendants’ demurrer without leave to amend as to both causes of action; the Court of Appeal affirmed dismissal of conversion but reversed as to unjust enrichment and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants must disgorge benefit under unjust enrichment/restitution when a third party performed contractual services for the prior owner and the benefit reduced defendants’ tax outlay after foreclosure | PTA: Section 25 Restatement and equitable principles require restitution because PTA’s uncompensated performance conferred a saving to defendants and PTA has no other remedy against insolvent prior owner | Defendants: No contractual relationship; accepting restitution here is inconsistent with California law and would impose unexpected liability on a bona fide purchaser | Held: Reversed trial court; complaint alleges facts satisfying Restatement §25 criteria and California equitable unjust enrichment principles — demurrer to unjust enrichment overruled and defendants must answer |
| Whether defendants were bona fide purchasers without notice, shielding them from restitution liability | PTA: Defendants were sophisticated and had actual or inquiry notice (due diligence, trustee’s sale records, receiver/project manager communications) of PTA’s contingent-fee claim | Defendants: As purchasers/foreclosure acquirers, they had no obligation to prior owner’s contractors and were entitled to retain the benefit | Held: PTA pleaded sufficient facts that defendants knew or had reason to know of the claim, so bona fide purchaser protection may not apply at pleading stage |
| Whether conversion claim is viable where the county applied refunds to delinquent taxes before defendants paid | PTA: Defendants effectively appropriated the refund benefit by paying reduced delinquencies; conversion of PTA’s property right in the fee | Defendants: There was no act of dominion over a specific refund check; county applied the refund before defendants acquired or controlled funds | Held: Affirmed dismissal of conversion — complaint fails to allege defendants exercised dominion or control over a specific refund instrument |
| Whether demurrer should have been sustained without leave to amend | PTA: Facts alleged are sufficient; alternative pleading would not cure conversion defect | Defendants: Complaint cannot state viable conversion cause and unjust enrichment fails as matter of law | Held: Court gave leave for unjust enrichment (demurrer overruled) but affirmed no leave for conversion (demurrer sustained without leave) |
Key Cases Cited
- Aubry v. Tri-City Hosp. Dist., 2 Cal.4th 962 (1992) (standards for de novo review on appeal from demurrer)
- Lectrodryer v. Seoulbank, 77 Cal.App.4th 723 (2000) (elements of unjust enrichment: receipt and unjust retention of a benefit)
- First Nationwide Sav. v. Perry, 11 Cal.App.4th 1657 (1992) (consideration of judicially noticed matters and unjust enrichment restitution principles)
- Kossian v. Am. Nat. Ins. Co., 254 Cal.App.2d 647 (1967) (equitable restitution where a third party benefits from another’s performance and prior party cannot be compensated)
- County of Solano v. Vallejo Redev. Agency, 75 Cal.App.4th 1262 (1999) (transferee with knowledge of circumstances may be obligated to make restitution)