Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-02581/USCOURTS-cand-3_06-cv-02581-16/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332 Diversity-Fraud

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

DALE SAKAI, in his capacity as Trustee of

the Fusako Sakai 1995 Revocable Trust

under Trust Agreement dated June 27,

1995,

Plaintiff,

 v.

MERRILL LYNCH LIFE INSURANCE

COMPANY, et al.,

Defendant.

 /

No. C-06-2581 MMC

ORDER DENYING MOTION TO DISMISS;

VACATING HEARING

(Docket No. 64)

Before the Court is the motion filed January 24, 2007 by defendants Merrill Lynch

Life Insurance Company and Merrill Lynch Life Agency, Inc. to dismiss the Third Amended

Complaint (“TAC”), pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil

Procedure. Plaintiff Dale Sakai (“plaintiff”), in his capacity as trustee of the Fusako Sakai

(“Sakai”) 1995 Revocable Trust (“Sakai Trust”), has filed opposition to the motion;

defendants have filed a reply. Having considered the papers filed in support of and in

opposition to the motion, the Court finds the matter appropriate for resolution without oral

argument, see Civil L.R. 7-1(b), hereby VACATES the March 2, 2007 hearing, and rules as

follows:

1. Plaintiff has adequately alleged timeliness of the cause of action for violation of

§ 17200 of the California Business and Professions Code. Although the instant action was

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 In May 1999, defendants assertedly persuaded Sakai not to withdraw funds from

the Merrill Annuity in a lump sum and to change the guaranteed payment term from ten

years to five years. (See TAC ¶ 31.) 

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filed April 14, 2006, nearly seven years after the last asserted wrongful act assertedly

occurred,1

 and the statute of limitations for a § 17200 claim is four years, see Cal. Bus. &

Prof. Code § 17208, plaintiff has adequately alleged tolling of the statute of limitations. In

particular, as plaintiff alleges defendants are in a fiduciary relationship with Sakai, (see TAC

¶ 24), “the statute does not run until [plaintiff] has notice or knowledge of facts sufficient to

put a reasonable man on inquiry.” See Hobart v. Hobart Estate Co., 26 Cal. 2d 412, 442

(1945); see also Miller v. Bechtel Corp., 33 Cal. 3d 868, 875 (1983) (finding action against

fiduciary time-barred because plaintiff became aware of “facts which would make a

reasonably prudent person suspicious,” and thus “had a duty to investigate further, and . . .

was charged with knowledge of matter which would have been revealed by such an

investigation”). Where, as here, the plaintiff relies on such rule, the plaintiff “has the burden

of pleading . . . that he did not make the discovery” of the facts constituting the cause of

action until some date within the applicable limitations period and, in particular, “must allege

. . . facts showing the time and surrounding circumstances of the discovery and what the

discovery was.” See Hobart, 26 Cal. 2d at 437, 441. 

With respect to Sakai, plaintiff now alleges “Sakai did not discover the facts giving

rise to the claims for relief alleged herein at any time; the discovery of the facts alleged

herein [was] made by Plaintiff within a date within two years prior to the filing of this action.” 

(See TAC ¶¶ 61, 71.) Plaintiff further alleges Sakai “is presently suffering from senile

dementia” and “at all times herein was[ ] incapable of properly caring for her property or

transacting any business or fully understanding the nature or effects of her acts.” (See id. ¶

22.) With respect to plaintiff, the complaint alleges plaintiff was appointed co-trustee of the

Sakai Trust on August 1, 2002, and did not learn of the existence of the Merrill Annuity until

December 2003 or January 2004 when he called a telephone number listed in a Merrill

Lynch statement to determine the source of a “monthly credit transaction,” and was told the

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credits were payments from the Merrill Annuity. (See id. ¶¶ 35, 36.)

Because plaintiff now alleges that Sakai never became aware of the asserted

unsuitability of her investment in the Merrill Annuity, and that plaintiff was not even

appointed trustee until August 2002, a date within four years of the filing of the instant

action, plaintiff has adequately alleged timeliness of the cause of action for violation of §

17200 of the California Business and Professions Code, which, as noted, is subject to a

four-year statute of limitations. See Cal. Bus. & Prof. Code § 17208 (setting forth four-year

statute of limitations). Accordingly, to the extent defendants seek dismissal of the § 17200

claim as untimely, the motion is hereby DENIED.

2. Plaintiff has adequately alleged timeliness of his cause of action for violation of

the Elder Abuse Act. As an initial matter, because the Elder Abuse Act sets forth no statute

of limitations, the Court resolves the parties’ dispute as to the applicable statute of

limitations. Plaintiff argues that the four-year limitation period for claims of breach of

fiduciary duty applies; defendants argue the applicability of various two- and three-year

limitations periods. As defendants point out, the California Court of Appeal, in Benun v.

Superior Court, 123 Cal. App. 4th 113 (2004), held the two-year statute of limitations set

forth in California Code of Civil Procedure § 335.1 applicable to an Elder Abuse Act claim

where such claim was based on an allegation that health care providers recklessly or

intentionally neglected to provide adequate care. See id. at 125-26. Section 335.1,

however, governs causes of action for “assault, battery, or injury to, or for the death of, an

individual caused by the wrongful act or neglect of another,” see id. at 125-26, whereas

plaintiff here does not allege a physical injury, but, rather, that defendants engaged in

“financial abuse” by concealing from Sakai relevant facts about the transactions at issue

and advising her to enter into transactions that were in defendants’ best interests rather

than in Sakai’s best interests, (see, e.g., TAC ¶¶ 47, 50). Consequently, the reasoning of

Benun has no application to the instant action. Rather, because the gravamen of plaintiff’s

Elder Abuse Act claim is breach of fiduciary duty, the Court finds persuasive plaintiff’s

argument that the Court should apply the four-year statute of limitations applicable to

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2

 The Court finds unpersuasive defendants’ argument, set forth for the first time in

their reply, that the gravamen of the Elder Abuse Act claim is fraud. Consequently, the

Court finds the three-year statute of limitations for fraud claims set forth in California Code

of Civil Procedure § 338(d) is inapplicable to the Elder Abuse Act claim. The Court also

finds unpersuasive defendants’ alternative argument, also raised for the first time in their

reply, that the three-year statute of limitations set forth in California Code of Civil Procedure

§ 338(a), for “an action on a liability created by statute” applies to the Elder Abuse Act

claim; § 338(a) applies only where “the liability is embodied in a statutory provision and was

of a type which did not exist at common law.” See Lehman v. Superior Court, 145 Cal.

App. 4th 109, 118 (2006). Defendants have not argued, much less demonstrated, that the

Elder Abuse Act creates a type of liability that did not exist at common law.

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claims of breach of fiduciary duty. See, e.g., Davies v. Krasna, 14 Cal. 3d 502, 515 (1975)

(“The statute of limitations to be applied is determined by the nature of the right sued upon,

not by the form of the action or the relief demanded”); Smith v. Ben Bennett, Inc., 133 Cal.

App. 4th 1507, 1525 (2005) (noting statute of limitations is governed by “gravamen of the

cause of action” and that same cause of action asserted in different cases “may be

governed by different statutes of limitations, whenever the gravamen of the cause of action

is different”); Stalberg v. Western Title Ins. Co., 230 Cal. App. 3d 1223, 1230 (1991)

(holding cause of action for breach of fiduciary duty based on concealment of facts

governed by four-year statute of limitations); Robuck v. Dean Witter & Co., Inc., 649 F.2d

641, 644 (9th Cir. 1980) (applying four-year limitations period to investor’s claim against

investment advisor for breach of fiduciary duty).2

Because plaintiff alleges that Sakai never became aware of the asserted

unsuitability of her investment in the Merrill Annuity, and plaintiff was not appointed trustee

until August 2002, a date within four years of the filing of the instant action, defendants’

motion, to the extent defendants seek dismissal of the Elder Abuse Act claims as untimely,

is hereby DENIED.

3. Plaintiff has adequately alleged timeliness of his cause of action for breach of

fiduciary duty. As noted, the applicable limitations period for claims based on breach of

fiduciary duty is four years. The Court is unpersuaded by defendants’ contention that the

gravamen of plaintiff’s breach of fiduciary duty claim is fraud and that the three-year

limitations period for fraud claims is applicable. Although plaintiff’s breach of fiduciary duty

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 Plaintiff deleted his previously-asserted fraud claim when he filed the Third

Amended Complaint.

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claim arguably includes some allegations of fraudulent conduct, (see, e.g., TAC ¶ 64),

plaintiff also alleges liability based solely on defendants’ entry into transactions that were in

their best interests but not in the best interests of Sakai, (see id. ¶¶ 24, 30, 63). Under

such circumstances, the gravamen of the claim is not fraud and the statute of limitations

applicable to fraud claims does not apply.3

 See, e.g., Federal Deposit Ins. Corp. v.

McSweeney, 976 F.2d 532, 535 n.2 (9th Cir. 1992) (citing Davis & Cox v. Summa Corp.,

751 F.2d 1507, 1520 n.3 (9th Cir. 1985)) (holding three-year limitations period not applicable

to breach of fiduciary claim where claim is “not based solely on fraud” and that where “two

limitations provisions arguably apply, the longer of the two takes precedence”). Similarly,

and again contrary to defendants’ argument, plaintiff’s breach of fiduciary duty claim is not

subject to dismissal for failure to comply with the pleading requirements of Rule 9(b) of the

Federal Rules of Civil Procedure. See, e.g., In re Daou Systems, Inc., 411 F.3d 1006,

1027 (9th Cir. 2005) (internal quotation and citation omitted) (“Where averments of fraud

are made in a claim in which fraud is not an element, an inadequate averment of fraud

does not mean that no claim has been stated.”)

Accordingly, to the extent defendants seek dismissal of plaintiff’s breach of fiduciary

duty claim as untimely and for failure to plead such claim with the particularity required by

Rule 9(b), the motion is hereby DENIED.

4. Defendants shall answer the complaint within 21 days of the date this order is

filed.

This order terminates Docket No. 64.

IT IS SO ORDERED.

Dated: April 30, 2007 

MAXINE M. CHESNEY

United States District Judge

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