Schaefer v. Berinstein

Decision Date27 March 1956
Citation295 P.2d 113,140 Cal.App.2d 278
CourtCalifornia Court of Appeals Court of Appeals
PartiesMartin F. SCHAEFER, on Behalf of Himself and all other Taxpayers of the City of Compton, State of California, and on Behalf of the said City as such Taxpayers, Plaintiff and Appellant, v. Samuel BERINSTEIN, T. A. Rombotis, John F. Bender, Helen Bender, Gizella Allen, Roy L. O. Adams, Grayce W. Webster, John M. Alzola, Annette Marie Alzola, Ann Sipe, Frank R. Sipe, Elbert, Ltd., a corporation, Luberco, Ltd., a corporation, The Sterling Company, City of Compton, and Doe One through Doe Fifty, Defendants. Samuel Berinstein, T. A. Rombotis, John F. Bender, Helen E. Bender, Grayce W. Webster, John M. Alzola, Annette Marie Alzoia, Frank R. Sipe, Ann Sipe, Elbert, Ltd., a corporation, Luberco, Ltd., a corporation, and The Sterling Company, a corporation, Respondents. Civ. 21144.

Albert Vieri, Compton, and Walter Monarch, Los Angeles, for appellant.

Glen Behymer, Los Angeles, for respondents Samuel Berinstein, T. A. Rombotis, Elbert, Ltd., a corp., Luberco, Ltd., a corp., The Sterling Co., a corp.

Robt. E. Rosskopf, Beverly Hills, for respondents John F. Bender, Helen E. Bender, Grayce W. Wester, John M. Alzola, Annette Marie Alzola, Frank R. Sipe and Ann Sipe.

VALLEE, Justice.

Appeals by plaintiff, suing in a representative capacity as a taxpayer, from two judgments entered in an action based on defendants' alleged fraud on the city of Compton.

Plaintiff appeals from a judgment dismissing the action as against defendants Luberco, Ltd., and The Sterling Company following an order sustaining their demurrers to his second amended complaint without leave to amend. He also appeals from a later judgment dismissing the action in its entirety following an order sustaining general demurrers of defendants John F. Bender, 1 Helen Bender, Elbert, Ltd., Grayce W. Webster, John M. Alzola, Annette Marie Alzola, Frank R. Sipe, and Ann Sipe to his third amended and supplemental complaint without leave to amend, granting a motion of defendants Berinstein, Rombotis, Luberco, Ltd., and The Sterling Company to strike that complaint as to them, and the subsequent denial of a motion to vacate said orders and for leave to file a fourth amended and supplemental complaint. The appeals will be considered in the reverse order from that taken by plaintiff.

The appeal from the judgment on the third amended complaint.

The third amended complaint, referred to as the complaint, contains eight counts, all predicated on the common ground of fraud. It names as defendants John F. Bender, Helen Bender, Gizella Allen, Roy L. O. Adams, Grayce W. Webster, John M. Alzola, Annette Marie Alzola, Ann Sipe, Frank R. Sipe, Elbert, Ltd., Samuel Berinstein, T. A. Rombotis, Luberco, Ltd., The Sterling Company, and city of Compton. Gizella Allen and Roy L. O. Adams are not parties on the appeal. The others, except city of Compton, demurred and moved to strike. City of Compton filed an answer in which it stated that the city council desired to remain 'neutral' in the litigation and take no stand for or against plaintiff.

Plaintiff contends each count states facts sufficient to state a cause of action against all defendants.

There are inferences in the briefs that in determining the sufficiency of the third amended complaint we should look to the allegations of the prior complaints and to the proposed fourth amended complaint. Where an amended complaint is filed, the original complaint ceases to be the complaint in the action and it is entirely superseded by the amended complaint except for certain limited purposes. W. H. Marston Co. v. Kochritz, 80 Cal.App. 352, 251 P. 959; Jackson v. Pacific Gas & Electric Co., 95 Cal.App.2d 204, 212 P.2d 591; see Neal v. Bank of America, etc., 93 Cal.App.2d 678, 681, 209 P.2d 825. In determining the sufficiency of the third amended complaint in the present case it cannot be aided or defeated by the prior complaints or the proposed fourth complaint.

Count I. The first count is for damages against all defendants on the ground of a conspiracy to defraud the city of Compton. The following facts are alleged:

1. Plaintiff is a citizen, resident, and taxpayer of the city of Compton and brings the suit in his representative capacity as a taxpayer. The city is a chartered municipal corporation. Plaintiff made demands on the city council to institute in the name of the city legal action against defendants and the city council refused to authorize or institute such action.

2. Defendant John Bender, an attorney at law, had entered into a series of contracts with the city council, culminating in a contract of January 11, 1944, whereby he was employed as special attorney for the city to clear the title to tax-deeded land situated within the jurisdiction of the city and to sell the land with merchantable title.

3. Defendants Elbert, Ltd., Luberco, Ltd., and The Sterling Company are California corporations engaged in the business of purchasing tax-deeded properties from the city and other municipalities. Defendants Berinstein and Rombotis own a controlling interest in each of the corporations and they are the officers and agents who represented the corporation at all times herein mentioned in their dealings with the other defendants. Plaintiff refers to Berinstein, Rombotis, and the corporate defendants as the 'Masters'; for convenience we shall use this reference. While Bender was acting as special attorney for the city, he was, and is now, the personal attorney for the Masters.

4. Defendants Frank Sipe and Ann Sipe, husband and wife, were employees and agents of Bender, and from time to time during the period from 1944 to the present aided and assisted the Masters and Bender in the wrongful acts alleged.

5. Defendants John Alzola and his wife, Annette Marie Alzola, and Grayce W. Webster, were agents of the other defendants and acted as dummies for them. They enabled Bender to purchase tax-deeded land from the city without disclosing that he was in fact the buyer.

6. In the 1920's and the early 1930's the city council authorized the issuance of bonds under the Improvement Bond Acts of 1911 and 1915, Streets and Highways Code, §§ 5000 et seq., 8500 et seq. During the early 1930's about one-fourth of the land situated within the city was deeded to the state for taxes. A large part of this land was burdened by the bonds which had become delinquent as to principal and interest. By 1944 the state 'was selling tax deeds' to cities for prices ranging from $5 to $25 a lot, but the actual fair market value of each lot was between $500 and $1000 with a merchantable title. Bender, in his official capacity, compiled lists of properties deeded to the state, selected certain parcels, and proceeded to obtain title reports and other information concerning the parcels at the expense of the city of Compton. He then negotiated the purchase of these lands on behalf of the city; and from time to time the city council, relying upon his expert advice, ratified his actions by resolutions and purchased the lands.

7. The count pleads in great detail numerous alleged fraudulent representations and transactions by defendants whereby the Masters, Bender, and Helen Bender acquired from the city, in the names of dummies and nominees, many parcels of tax-deeded land at prices far below their actual value. It alleges the Masters induced Bender to represent and he did represent to the city: that the corporate defendants were the actual owners of bonds which were valid liens against each of the parcels sold to them, when in fact the liens were either invalid or nonexistent; that the sales were conducted at public auctions, when in fact they were conducted under private sales procedure and did not comply with the requirements of such; that it was in the best interest of the city to sell to the owners of the equity of redemption and to the owners of the bonds to the exclusion of all other bidders; that he (Bender) had investigated the ownership of bond liens on the properties.

8. Bender recommended to the city that certain lots in which the Masters were interested be sold without a merchantable title and for one-fifth of their actual value. He concealed the fact that the land could have been sold with a merchantable title without large expense and would have given the city a very large profit. For the purpose of concealing the fraud, he enticed other officers and employees of the city to purchase tax-deeded land from the city. In order to preserve the fantasy of the value of the alleged bonds claimed to be owned by defendants, Bender, until December 3, 1951, caused the city to pay principal and interest and penalties on bonds which were presumed extinguished on or after January 1, 1947 to corporate defendants and to himself. For the purpose of concealing the fraud he failed to keep any adequate records of his transactions and failed to make written reports of a comprehensive nature.

9. The representations were false, were known by defendants to be false, were made with the intention of defrauding the city, and were relied on by the city to its damage. They were made by Bender until the time of filing the complaint, and the overt acts of fraudulent concealment were carried out by defendants at frequent intervals from 1948 to the date of filing this suit.

10. Pursuant to his contract with the city, Bender received fees and costs from the city in connection with the fraudulent transactions. He also was paid fees by purchasers for clearing the title to property after they had bought the property from the city and for other alleged services.

11. The city had no information which would put it on notice of the existence of the wrongful course of conduct of defendants in the conspiracy until April 1953. The fraud was revealed to the city on April 14, 1953 by James G. Butler, who later became city attorney,...

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