Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-00369/USCOURTS-caed-2_08-cv-00369-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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This matter was determined to be suitable for decision 1

without oral argument. L.R. 78-230(h).

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

TRAVELERS CASUALTY AND SURETY )

COMPANY OF AMERICA, ) 2:08-cv-00369-GEB-EFB

)

Plaintiff, )

v. ) ORDER1

)

RBC CENTURA BANK, )

)

Defendant. )

)

Defendant moves to dismiss Plaintiff’s conversion claim

under Federal Rule of Civil Procedure (“Rule”) 12(b)(6). Plaintiff

opposes the motion. For the following reasons, the motion is denied. 

I. Background

Plaintiff and Defendant entered into two Set Aside

Agreements concerning residential construction projects in two

California communities. (Mot. at 3:2-3.) Plaintiff executed certain

bonds to ensure the completion of the subdivision improvements (the

“Improvements”) for the projects. (Id. at 3:4-5.) 

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Plaintiff alleges that “in consideration of the execution by

Plaintiff of bonds . . . , Defendant agreed to set aside amounts in

certain loans . . . for the Improvements secured by Plaintiff’s bonds

(the “Set Aside Funds”).” (Compl. ¶ 7.) Plaintiff further alleges

“Defendant agreed that if [either Borrower] failed to complete or pay

for the Improvements, then Defendant would make available for

disbursement to Plaintiff the [] balance of the Set Aside Funds” for

that Borrower. (Id. ¶ 10.) 

Plaintiff alleges the Borrowers defaulted and Defendant is

now required to disburse to Plaintiff the balance of the Set Aside

Funds, which totals $6,440,317.74. (Id. ¶¶ 9, 10, 15, 33.) Plaintiff

further alleges it requested Defendant to disburse funds, but

Defendant “has failed to, and continues to fail to, disburse [the

funds] . . . .” (Id. ¶¶ 19, 31, 32.) Plaintiff alleges Defendant has

“wrongfully converted to its own use the . . . balance of [the] Set

Aside Funds . . . .” (Id. ¶ 35.)

II. Standards Governing Motion to Dismiss 

Dismissal is appropriate under Rule 12(b)(6) if Plaintiff’s

conversion claim fails to present a cognizable legal theory, or

sufficient facts to support the claim. Robertson v. Dean Witter

Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). When

considering a dismissal motion, “[a]ll allegations of material fact

[in the Complaint] are taken as true and construed in the light most

favorable to [Plaintiff].” Cahill v. Liberty Mut. Ins. Co., 80 F.3d

336, 337-38 (9th Cir. 1996). In addition, Plaintiff is given the

benefit of every reasonable inference that can be drawn from the

allegations in its complaint. Retail Clerks Int’l Ass’n, Local 1625

v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

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III. Conversion 

Defendant contends Plaintiff’s conversion claim must be

dismissed because “Plaintiff fails to satisfy any of the elements of

[a] conversion claim.” (Mot. at 5:1-2.) Plaintiff counters it has pled

a conversion claim, by alleging “it has a right to possess the SetAside Funds in an amount to be utilized to pay for and complete

certain improvements.” Opp. At 3:13-15. “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.” Spates

v. Dameron Hospital Ass’n, 114 Cal. App. 4th 208, 221 (2003). 

A. Right to Possession

Defendant argues that Plaintiff’s conversion claim fails as

a matter of law because Plaintiff has “never had possession of or

title to” the funds Plaintiff requests. (Mot. at 2:17.) It is

sufficient for Plaintiff to allege that it “was entitled to immediate

possession” of the property “at the time of conversion.” Spates, 114

Cal. App. 4th at 222. Plaintiff’s allegations support drawing the 

reasonable inference that under the agreements, it was entitled to

immediate possession of the Set Aside Funds needed to complete or pay

for the Improvements after the Borrowers defaulted.

B. Wrongful Act

Defendant argues that Plaintiff's conversion claim fails

because “Plaintiff only alleges that [Defendant] has failed to take

some action,” but a “[c]onversion requires an affirmative action to

deprive another of property, not lack of action.” (Mot. at 6:6-10

(citing Spates v. Dameron Hospital Ass’n, 114 Cal. App. 4th 208, 222

(2003)(emphasis added)).) Plaintiff argues its allegations satisfy

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Defendant also contends Plaintiff “improperly” demands all 2

of the unadvanced Set Aside Funds because, if anything, Plaintiff

could only recover funds in the amount it has “actually paid out in

claims.” (Mot. at 1:26-2:3.) This argument is disregarded since it

does not provide a reason for dismissal of Plaintiff’s conversion

claim. 

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this element since the conditions to Plaintiff’s possession of the Set

Aside Funds have been met, but Defendant will not disburse to it the

funds. (Opp’n at 3:23-25, 6:16-17; see Mears v. Crocker First Nat.

Bank of S.F., 84 Cal. App. 2d 637, 644 (1948)(“‘[W]here a corporation

refuses to allow a transfer of shares upon its books, the assignee may

treat this as a conversion of his shares and sue the company for their

value.’”) (quoting Ralston v. Bank of Cal., 112 Cal. 208, 213 (1896).) 

Plaintiff has sufficiently alleged a “wrongful act” for purposes of a

conversion claim. 

C. Damages

Defendant argues Plaintiff's conversion claim fails because

Plaintiff has not pled a specific amount of money that has allegedly

been converted. (Mot. at 6:16-17.) "Money can be the subject of an

action for conversion if a specific sum capable of identification is

involved." Farmers Ins. Exch. v. Zerin, 53 Cal. App. 4th 445, 452

(1997). Although Plaintiff alleges Defendant’s conversion has caused

“damages . . . in an amount to be proved at trial,” Plaintiff also

alleges it is entitled to the undisbursed balance of the Set Aside

Funds, which totals $6,440,317.74. (Compl. ¶¶ 9, 10, 33, 36.) This

allegation sufficiently alleges a sum capable of identification.2

D. Breach of Contract Claim

Finally, Defendant argues since Plaintiff’s first claim is

for breach of contract, Plaintiff’s conversion claim fails because

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“California law does not allow a conversion claim to be joined with a

breach of contract claim when both claims arise out of alleged

nonperformance under the contract.” (Mot. at 2:24-26, 7:5-17 (citing 

Kronsberg v. Wershow, 238 Cal. App. 2d 170 (1965)).) Kronsberg upheld 

dismissal of a conversion claim because it contradicted the terms of

the contract attached to the complaint. Here, it has not been shown

that the allegations in the Complaint are inconsistent with the

agreements. Further, Rule 8(e)(2) authorizes Plaintiff to plead

alternate theories of liability.

IV. Conclusion

For the reasons stated above, Defendant’s Motion to Dismiss

is denied.

Dated: April 28, 2008

 

GARLAND E. BURRELL, JR.

United States District Judge

 

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