Farmers Ins. Exchange v. Zerin

• Decision Date: 27 February 1997
• Docket Number: No. C021079,C021079
• Citation: 53 Cal.App.4th 445,61 Cal.Rptr.2d 707
• Parties: , 97 Cal. Daily Op. Serv. 1848, 97 Daily Journal D.A.R. 3407 FARMERS INSURANCE EXCHANGE, Plaintiff and Appellant, v. Jonathan J. ZERIN, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

Page 707

61 Cal.Rptr.2d 707

53 Cal.App.4th 445, 97 Cal. Daily Op. Serv. 1848,

97 Daily Journal D.A.R. 3407

FARMERS INSURANCE EXCHANGE, Plaintiff and Appellant, v. Jonathan J. ZERIN, Defendant and Respondent.

No. C021079.

Court of Appeal, Third District, California.

Feb. 27, 1997.

Review Denied May 14, 1997.

Caudle, Welch, Politeo, & Bovee, Kincade, Gianunzio, Caudle & Hubert, Oakland, John Van de Poel, Jr., Judith A. Pemberton, San Francisco, Scott A. Bovee and Kelly A. Kilkenny, Oakland, for Plaintiff and Appellant.

Jonathan J. Zerin, in pro. per., for Defendant and Respondent.

PUGLIA, Associate Justice.

Plaintiff, Farmers Insurance Exchange (Farmers), appeals from a judgment of dismissal entered after the trial court sustained general demurrers to the complaint, in part with leave to amend, and Farmers declined to amend. Farmers contends the complaint adequately states causes of action for conversion, breach of constructive trust, declaration of a lien, negligent and intentional interference with contract, money had and received, and a general declaration of rights. We shall affirm.

I

For purposes of appeal, we accept as true the facts as alleged in the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) Farmers issued separate policies of automobile insurance to Joseph Stewart and Linda Kendrick which provide for the payment of medical benefits in the event of an accident in which the insured or another covered person is injured. On or about August 13, 1991, Stewart was involved in an accident in which he and Jimmy Stinnett were injured. Stewart and Stinnett submitted a claim for medical benefits under Stewart's insurance policy and Farmers paid the sum of $10,000. On or about July 25, 1992, Kendrick was involved in an automobile accident in which Jennifer Silva was injured. Silva submitted a claim for medical benefits under Kendrick's insurance policy and Farmers paid the sum of $2,000.

The policies issued to Stewart and Kendrick both contain the following provision: "When a person has been paid damages by us under this policy and also recovers from another, the amount recovered from the other shall be held by that person in trust for us and reimbursed to us to the extent of our payment...." ¹

Stewart, Stinnett, and Silva (the insureds) hired defendant, Jonathan Zerin, an attorney, to represent them in connection with their claims against third party tortfeasors allegedly responsible for their injuries. Farmers notified defendant of the policy provisions requiring reimbursement upon recovery from third parties. Defendant thereafter received payments from third party tortfeasors on behalf of the insureds but failed to pay any portion to Farmers, disbursing the funds instead to himself and others.

Farmers initiated this action against defendant alleging seven causes of action regarding the payments received on behalf of Stewart and Stinnett: (1) conversion; (2) breach of constructive trust; (3) declaration of an equitable lien; (4) intentional interference with contract; (5) negligent interference with contract; (6) money had and received; and (7) declaratory relief. Essentially identical causes of action, the eighth through the fourteenth, are alleged as to payments received on behalf of Silva.

Defendant interposed general demurrers, arguing none of the causes of action states a claim for relief because the policy language does not create a lien on third party recoveries or a trust relationship between Farmers and defendant. Defendant further argued the complaint does not allege adequate notice of Farmers' claim or demand for payment. Finally, defendant argued the allegations of the complaint establish defendant is not in possession of the alleged trust res.

The trial court sustained the demurrers without leave to amend as to the third and tenth causes of action (declaration of an equitable lien) and with leave to amend as to the remaining causes of action. Farmers declined to amend and defendant moved to dismiss. The trial court granted defendant's motion.

II

"In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.' Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58, citations omitted.)

Farmers contends the first and eighth causes of action state claims for conversion. Therein, Farmers alleges it had property rights in any third party recoveries by virtue of the insurance policy language, defendant had notice of Farmers' rights, defendant received payments from third parties on behalf of the insureds, and defendant failed to pay any portion to Farmers.

"Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff's ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. [Citations.]" (Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 543-544, 50 Cal.Rptr.2d 810.) Money can be the subject of an action for conversion if a specific sum capable of identification is involved. (Weiss v. Marcus (1975) 51 Cal.App.3d 590, 599, 124 Cal.Rptr. 297.)

Neither legal title nor absolute ownership of the property is necessary. (Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329, 245 Cal.Rptr. 548.) A party need only allege it is "entitled to immediate possession at the time of conversion. [Citations.]" (Bastanchury v. Times-Mirror Co. (1945) 68 Cal.App.2d 217, 236, 156 P.2d 488, italics in original.) However, a mere contractual right of payment, without more, will not suffice. For example, in Imperial Valley Co. v. Globe Grain and Milling Co. (1921) 187 Cal. 352, 202 P. 129, the tenant entered into an agreement to raise crops on leased land and to pay the landlord one-fourth of the crop as rental. However, the tenant sold the entire crop and the proceeds were used to pay other debts of the tenant. The landlord brought an action for conversion. The Supreme Court concluded no claim was stated because the rental agreement established no title to or lien upon the crop but only established the measure of damages for breach of contract. (Id. at pp. 353-354, 202 P. 129.)

Farmers contends it had a sufficient property interest in the third-party recoveries by virtue of the policy language which, it argues, created an actual or equitable lien on the funds. "One who wrongfully withholds personal property from another who is entitled to it under a security agreement may be liable for conversion." (Messerall v. Fulwider, supra, 199 Cal.App.3d at p. 1329, 245 Cal.Rptr. 548.)

In Weiss v. Marcus, supra, 51 Cal.App.3d 590, 124 Cal.Rptr. 297, Weiss, an attorney, contracted with Oram to prosecute Oram's claim against Novick. Weiss was given an express lien on all amounts recovered to secure payment of his fees. However, before completion of the action, Marcus replaced Weiss as counsel for Oram. Up to then, Weiss had performed services with a reasonable value of $6,750. Eventually, a settlement was negotiated whereby Oram was to receive $35,000. Despite knowledge of Weiss' lien rights, Marcus disbursed the entire amount to himself and Oram. Weiss sued both Oram and Marcus. The Court of Appeal concluded Weiss stated a claim for conversion against Marcus by virtue of Marcus' receipt of and exercise of dominion over that portion of the settlement proceeds covered by Weiss' lien. (Id. at p. 599, 124 Cal.Rptr. 297.)

In McCafferty v. Gilbank (1967) 249 Cal.App.2d 569, 57 Cal.Rptr. 695, McCafferty had obtained an Ohio judgment against her former husband for unpaid support. Gilbank represented the former husband in a personal injury action in California and negotiated an agreement between McCafferty and his client whereby McCafferty would be paid one-half of any recovery in the personal injury action. However, when the personal injury action settled and checks were issued in payment, Gilbank paid the net proceeds to his client.

The Court of Appeal concluded the agreement between McCafferty and her former husband created an equitable lien in favor of McCafferty on the third-party recovery and Gilbank's payment of the proceeds to his client was an act of conversion. (Id. at pp. 575-576, 57 Cal.Rptr. 695.) The court explained: " '[W]here a third party has paramount title to the money in the hands of the agent, and notifies the latter of his claim, if the agent nevertheless pays the principal, he is liable to the true owner.' " (Id. at p. 577, 57 Cal.Rptr. 695, quoting from Tillman v. Bungenstock, 185 Mo.App. 66 ; accord Kaiser Foundation Health Plan, Inc. v. Aguiluz (1996) 47 Cal.App.4th 302, 303, 54 Cal.Rptr.2d 665 [existence of an equitable lien conceded; attorney who is on notice of client's contractual obligation to indemnify health care provider from the proceeds of a settlement or judgment is liable to health care provider if he disburses such funds to client]; but see United States v. Limbs (D.Ariz.1973) 356 F.Supp. 1004, aff'd. in part, 524 F.2d 799 [federal employees who were paid medical benefits by government obtained a third-party settlement; employees' attorney receiving settlement proceeds was not required to reimburse the government because the government's claim to the funds was disputed.].)

Farmers contends the language of the insurance policies, incorporated in the complaint by...