Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-05546/USCOURTS-caed-1_04-cv-05546-4/pdf.json

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

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

JEFF REICH, individually and ) 

dba The Reich Law Firm, )

)

)

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Plaintiff, )

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v. )

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CALVERY INVESTMENTS, LLC, )

)

)

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Defendant. )

 )

1:04cv05546 DLB

ORDER GRANTING DEFENDANT’S

MOTION TO STRIKE

(Document 46)

Defendant Calvery Investment, LLC (“Defendant”), filed the instant motion to strike

portions of Plaintiff’s Third Amended Complaint on January 4, 2007. The matter was heard on

March 9, 2007, before the Honorable Dennis L. Beck, United States Magistrate Judge. Judith

Rodriguez appeared on behalf of Plaintiff Jeff Reich, individually and dba The Reich Law Firm

(“Plaintiff”). Douglas Tucker appeared on behalf of Defendant.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff filed the instant action on April 8, 2004, to recover money he contends is owed

to him by Defendant for services rendered. He filed an amended complaint on April 22, 2004,

and a Second Amended Complaint (“SAC”) on August 20, 2004. 

On January 20, 2005, the Court granted Defendant’s motion to dismiss and strike portions

of the SAC. As is relevant to this motion, the Court granted the motion to strike the allegations

Case 1:04-cv-05546-DLB Document 54 Filed 03/21/07 Page 1 of 5
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for interest in the causes of action for accounting and quantum meruit, holding that interest is not 

recoverable on unliquidated claims. 

On December 15, 2006, pursuant to the parties’ stipulation, Plaintiff filed a Third

Amended Complaint (“TAC”).

According to the TAC, Defendant is a business that purchases delinquent accounts from

credit companies such as Visa, Mastercard and Bank Americard. Defendant then allocates the

accounts to attorneys with whom it has contracted to collect on those accounts.

On April 30, 1999, Plaintiff and Defendant entered into a written agreement under which

Plaintiff was to provide legal collection services to recover on Defendant’s unpaid accounts. 

Pursuant to the terms of the agreement, Plaintiff was to receive a twenty percent contingency fee

on all funds collected from the accounts. The agreement was amended on January 31, 2000, so

that Plaintiff would also receive any award of attorney fees. 

Plaintiff alleges that he made substantial commitments and incurred substantial costs and

liabilities in order to provide service to Defendant. Plaintiff worked on numerous delinquent

accounts and collected on many of them. According to Plaintiff, Defendant terminated his

services after a “falling out.” Plaintiff maintains that Defendant did not have good cause to

terminate the contract.

The TAC alleges two causes of action. The first claim for relief is a claim for quantum

meruit, and was alleged in the SAC. Plaintiff alleges that he performed services to Defendant for

which Defendant agreed to provide compensation. He seeks recovery of the fair and reasonable

value of the services provided, a sum of more than “$500,000 plus interest on any actual

collection of any fees to which the Plaintiff is entitled from the time of such collection to the

present.” TAC, ¶ 14. This claim is not at issue in this motion. 

The second cause of action for “constructive trust/unjust enrichment” is a new claim. 

Plaintiff alleges as follows (language at issue in bold):

17. The Defendant has received payments on its accounts that were previously in the

possession of the Plaintiff and on which the Plaintiff had provided legal services

which directly resulted in the payments. The Defendant thus has received

revenues at various times presently unknown to the Plaintiff which rightfully and

by principles of equity are the property of the Plaintiff. Plaintiff asks that the

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court impose a constructive trust adjudging and decreeing that such sums as

would have been paid for the Plaintiff’s services when the accounts were collected

and which have been collected by the Defendant, are, in fact, the property of the

Plaintiff. Plaintiff also asks that the court further impose a constructive trust

upon the earnings of such money which fairly represents the time value of

the money from the time it was received to the present.

18. The imposition of a constructive trust on funds wrongfully withheld from Plaintiff

and on the earnings of such funds is necessary to prevent any unjust enrichment of

the Defendant. Plaintiff alleges that Defendant has received money rightfully

belonging to the Plaintiff and has used this money for a time period or time

periods so that the Defendant has had the benefit of interest on such money

for its own advantage. The court is requested to impose a constructive trust

upon all such money as will deny the Defendant any unjust enrichment and will

restore to the Plaintiff the sum to which he has been entitled by reason of the

events which are the subject of this action and sufficient to restore to him all that

he has lost as a result of Defendant’s wrongful conduct.

In paragraph 4 of his prayer for relief, Plaintiff prays:

4. For a constructive trust upon money which is the fair value of the time value

of money (interest) and/or the prevention of unjust enrichment to the

Defendant for possession of the time value of money which the court finds

should have been paid to the Plaintiff but of which the Defendant has instead

obtained a possession and not paid to Plaintiff;

Defendant filed the instant motion to strike on January 4, 2007, and seeks to strike the

allegations referring to prejudgment interest in paragraphs 17 and 18 of the second cause of

action for constructive trust/unjust enrichment, and paragraph 4 of the prayer for relief. 

Defendant does not seek to strike Plaintiff’s request for a constructive trust.

Plaintiff filed his opposition on February 23, 2007. Defendant filed its reply on March 2,

2007.

DISCUSSION

Federal Rule of Civil Procedure 12 (f) provides:

Motion to Strike. Upon motion made by a party before responding to a pleading

or, if no responsive pleading is permitted by these rules, upon motion made by a

party within 20 days after the service of the pleading upon the party or upon the

court's own initiative at any time, the court may order stricken from any pleading

any insufficient defense or any redundant, immaterial, impertinent, or scandalous

matter.

Defendant moves to strike the language above because the “time value” language refers to

interest accruing upon the monies at issue and is therefore a disguised prayer for prejudgment

interest. In an order dated January 20, 2005, the Court granted Defendant’s motion to strike the

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allegations for interest in the accounting and quantum meruit causes of action, agreeing with

Defendant’s contention that such interest is unavailable for unliquidated claims:

“The court does not agree [with Plaintiff] with regard to the Third and Fourth causes of

action. Case law holds that interest is not recoverable with respect to these causes of

action. As discussed above, Reich’s recovery is limited to quantum meruit.” (Emphasis

added).

The TAC realleges the claim for quantum meruit and adds an additional claim for

“constructive trust/unjust enrichment” for which Plaintiff seeks prejudgment interest. However,

a “constructive trust/unjust enrichment” is not a substantive right and therefore cannot support a

claim for prejudgment interest. Davies v. Kransa, 14 Cal.3d 502, 515-516 (1975) (“Since ‘a

constructive trust is not a substantive device but merely a remedy to compel a person not justly

entitled to property to transfer it to another who is entitled thereto,’ an action seeking to establish

a constructive trust is subject to the limitation period of the underlying substantive right.”)

(internal citations omitted); Communist Party v. 522 Valencia, Inc., 35 Cal.App.4th 980, 990

(1995) (“A constructive trust is an involuntary equitable trust created by operation of law as a

remedy to compel the transfer of property from the person wrongfully holding it to the rightful

owner.”). 

In opposing the motion, Plaintiff attempts to divide his claims for relief into two separate

legal claims: (1) delinquent accounts that were pending at the time the contract was terminated,

i.e., accounts that were still in progress and had not been reduced to judgment; and (2) delinquent

accounts for which all work had been completed and that had been reduced to judgment, and

where receipt of funds was the only remaining “event.” Plaintiff argues that a constructive trust

should attach, based on a contractual theory, under the latter category. 

The resolution of whether Plaintiff is entitled to interest turns on the legal theory upon

which he is entitled to relief. If his rights flow from a contractual theory, the claim is liquidated

and prejudgment interest may attach. On the other hand, if his rights flow from quantum meruit,

the claim is unliquidated until the time of judgment and prejudgment interest is not available. 

Swafford v. Goodman, 115 Cal.App.2d 105, 110 (1952). 

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Despite Plaintiff’s creative argument, the sole legal theory under which he is entitled to

relief is quantum meruit. Although he attempts to base his rights, at least in part, upon the

contract between the parties, the contract only assists in determining a reasonable value for the

services rendered. Unlike the traditional contingency fee agreement at issue in Cazares v. Saenz,

208 Cal.App.3d 279 (1989), cited by Plaintiff, the contract at issue here provides that if it is

terminated due to substantial breach, “REICH will not be entitled to any further fees due

thereunder.” Exhibit A, attached to TAC. Under the terms of the agreement, then, until the debt

was collected, the contingency had not occurred and Plaintiff was not entitled to payment. It

does not determine the amount owed, but instructs the Court as to a reasonable value of the

services. In this situation, then, a constructive trust is simply an alternate tool for enforcement of

Plaintiff’s quantum meruit rights, rather than a separate legal claim for which Plaintiff is entitled

to relief. As such, there is no right to prejudgment interest.

Accordingly, Defendant’s motion to strike is GRANTED. The language regarding

prejudgment interest, identified above, is STRICKEN from paragraphs 17 and 18 of the second

cause of action for constructive trust/unjust enrichment, and from paragraph 4 of the prayer for

relief. 

IT IS SO ORDERED. 

Dated: March 21, 2007 /s/ Dennis L. Beck 

3b142a UNITED STATES MAGISTRATE JUDGE

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