Schauer v. Mandarin Gems of Cal., Inc.

• Decision Date: 12 January 2005
• Docket Number: No. G033254.,G033254.
• Citation: 125 Cal.App.4th 949,23 Cal.Rptr.3d 233
• Court: California Court of Appeals Court of Appeals
• Parties: Sarah Jane SCHAUER, Plaintiff and Appellant, v. MANDARIN GEMS OF CALIFORNIA, INC., Defendant and Respondent.

23 Cal.Rptr.3d 233

125 Cal.App.4th 949

Sarah Jane SCHAUER, Plaintiff and Appellant, v. MANDARIN GEMS OF CALIFORNIA, INC., Defendant and Respondent.

No. G033254.

Court of Appeal, Fourth District, Division 3.

January 12, 2005.

Mark B. Plummer, Santa Ana, for Plaintiff and Appellant.

Latham & Watkins, James W. Daniels, and Christopher E. Campbell, Costa Mesa, for Defendant and Respondent.

OPINION

IKOLA, J.

Sarah Jane Schauer (plaintiff) appeals from a judgment of dismissal in favor of Mandarin Gems of California, Inc., dba Black, Starr & Frost (defendant) after the court sustained defendant's demurrer to plaintiff's second amended complaint without leave to amend. Plaintiff sought to recover on various theories based on her discovery that a diamond ring given to her as an engagement gift prior to her marriage to her now former husband, Darin Erstad, allegedly was not worth the $43,000 he paid defendant for it in 1999. Erstad is not a party to this action.

We reverse the judgment and remand. We conclude plaintiff has standing as a third party beneficiary of the sales contract between Erstad and defendant, and she has adequately pleaded a contract cause of action based on allegations of defendant's breach of express warranty. Defendant must answer to that claim. In all other respects, the pleading is defective and cannot be cured by amendment.

FACTS

Our factual summary "accepts as true the facts alleged in the complaint, together with facts that may be implied or inferred from those expressly alleged." (Barnett v. Fireman's Fund Ins. Co. (2001) 90 Cal. App.4th 500, 505, 108 Cal.Rptr.2d 657.)

Plaintiff and Erstad went shopping for an engagement ring on August 15, 1999. After looking at diamonds in premier jewelry establishments such as Tiffany and Company and Cartier, they went to defendant's store, where they found a ring that salesperson Joy said featured a 3.01 carat diamond with a clarity grading of "SI1." Erstad bought the ring the same day for $43,121.55. The following month, for insurance purposes, defendant provided Erstad a written appraisal verifying the ring had certain characteristics, including an SI1 clarity rating and an average replacement value of $45,500. Paul Lam, a graduate gemologist with the European Gemological Laboratory (EGL), signed the appraisal.

The couple's subsequent short term marriage was dissolved in a North Dakota judgment awarding each party, "except as otherwise set forth in this Agreement," "the exclusive right, title and possession of all personal property ... which such party now owns, possesses, holds or hereafter acquires." Plaintiff's personal property included the engagement ring given to her by Erstad.

On June 3, 2002, after the divorce, plaintiff had the ring evaluated by the Gem Trade Laboratory, which gave the diamond a rating of "SI2 quality," an appraisal with which "multiple other [unidentified] jewelers, including one at [defendant's store]" agreed. That was how plaintiff discovered defendant's alleged misrepresentation, concealment, and breach of express warranty regarding the true clarity of the diamond and its actual worth, which is — on plaintiff's information and belief— some $23,000 less than what Erstad paid for it.

Plaintiff sued defendant on several theories. Three times she attempted to plead her case. In the first cause of action of the second amended complaint, she sought to recover under the Consumers Legal Remedies Act (the Act, Civ.Code, § 1760 et seq.), stating, inter alia, that had the true clarity of the diamond been known, plaintiff would not have "acquired said diamond by causing it to be purchased for her." Thereafter, if the written verification of the clarity value sent to Erstad one month after the purchase had revealed the truth, plaintiff would have "immediately rescinded the sale based on a failure of consideration." The second cause of action, for breach of contract, alleged Erstad and defendant had a written contract under which Erstad agreed to purchase the ring "for the sole and stated purpose of giving it [to] Plaintiff," making plaintiff a third party beneficiary of the sales contract. Defendant breached the contract by delivering an engagement ring that did not conform to the promised SI1 clarity rating.

In her third cause of action, for constructive fraud, plaintiff claimed the existence of a special confidential relationship in which defendant was aware plaintiff and her "predecessor in interest," presumably Erstad, "were not knowledgeable and ... were relying exclusively on the Defendants' integrity," but defendant falsely represented the clarity of the diamond with the intent to defraud "[p]laintiff and her predecessor in interest" to make the purchase at the inflated price. The fourth cause of action for fraud alleged defendant's malicious and deceitful conduct warranted punitive damages. In the fifth cause of action, plaintiff sought rescission under Civil Code section 1689 for defendant's alleged fraud in the inducement, mistake, and failure of consideration.

Appended to the pleading was a redacted copy of a North Dakota court's judgment filed July 19, 2001, granting Erstad and plaintiff a divorce pursuant to their "Stipulation and Agreement," entitling each party, as noted ante, "to the exclusive right, title and possession of all personal property of the parties, joint or several, which such party now owns, possesses, holds or hereafter acquires [except as otherwise provided in the agreement]," and awarding the parties their respective "personal effects, clothing and jewelry."

In its general demurrer to the second amended complaint and each cause of action, defendant asserted plaintiff had no viable claim under any theory because: (1) plaintiff was neither the purchaser of the ring nor a third party beneficiary of the contract between defendant and Erstad, who was not alleged to have assigned his rights to plaintiff; (2) the statute of limitations had expired for defendant's alleged violations of the Act; (3) plaintiff was not a buyer, and the ring tendered to Erstad conformed entirely to the contract; (4) defendant owed no special confidential or fiduciary duty to plaintiff upon which to predicate a fraud cause of action; (5) any alleged fraud was the act of EGL, not attributable to defendant; and (6) fraud was not pleaded with the required specificity.¹

The court again sustained the demurrer, this time without further leave to amend. The judgment of dismissal followed, and plaintiff appeals. As we will explain, the court erred. Although the complaint is fatally defective in some respects, plaintiff is entitled as a matter of law to pursue her contract claim as a third party beneficiary.

DISCUSSION

Standard of Review

The trial court's decision to sustain a demurrer is a legal ruling, subject to de novo review." (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1501, 82 Cal.Rptr.2d 368.) "[W]e give the complaint a reasonable interpretation, and treat the demurrer as admitting all material facts properly pleaded, but not the truth of contentions, deductions or conclusions of law. We reverse if the plaintiff has stated a cause of action under any legal theory. [Citation.]" (Barnett v. Fireman's Fund Ins. Co., supra, 90 Cal.App.4th at p. 507, 108 Cal.Rptr.2d 657.)

The issue before us is whether, on well-pleaded facts, plaintiff may maintain an action to recover the $23,000 difference between what Erstad paid for the diamond ring and what that gift was really worth, given its alleged inferior quality.

We begin with the rule that "[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute." (Code Civ. Proc., § 367.) Where the complaint shows the plaintiff does not possess the substantive right or standing to prosecute the action, "it is vulnerable to a general demurrer on the ground that it fails to state a cause of action." (Carsten v. Psychology Examining Com. (1980) 27 Cal.3d 793, 796, 166 Cal.Rptr. 844, 614 P.2d 276; Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004, 79 Cal.Rptr.2d 544.)

The second amended complaint alleges "[d]efendant entered into a written contract with [Erstad] to purchase the subject engagement ring." The attached exhibit shows defendant issued a written appraisal to Erstad. Erstad is clearly a real party in interest, but he has not sued.

Plaintiff contends she, too, is a real party in interest because the North Dakota divorce judgment endowed her with all of Erstad's rights and remedies. As we will explain, this theory is wrong. However, as we will also discuss, plaintiff is correct in asserting she is a third party beneficiary of the sales contract. That status enables her to proceed solely on her contract claim for breach of express warranty. For the remainder, plaintiff is without standing to recover under any legal theory alleged, and the equitable remedy of rescission is also unavailable to her.

Transfer of Erstad's Rights and Remedies to Plaintiff

Plaintiff alleges and argues the North Dakota divorce judgment granted her "the exclusive right, title and possession of all [of her] personal property," including the engagement ring, and the judgment automatically divested Erstad of his substantive rights and transferred or assigned them to her by operation of law. Such is not the case.

Plaintiff undoubtedly owns the ring. (See Civ.Code, § 679 ["The ownership of property is absolute when a single person has the absolute dominion over it, and may use it or dispose of it according to his [or her] pleasure, subject only to general laws"]; see also N.D. Cent. Code, § 47-01-01 (2003) ["The ownership of a thing shall mean the right of one or more persons to possess and use it to the exclusion of others. In this code the thing of which there may be ownership is called property"].) But ownership of gifted property, even if awarded in a divorce, does not automatically carry with it ownership of the rights of...