BLACK v. BANK OF AMERICA

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Court of Appeal, First District, Division 2, California.

Donald Gordon BLACK et al., Plaintiffs and Appellants, v. BANK OF AMERICA N.T. & S.A. et al., Defendants and Respondents.

No. A057561.

Decided: October 14, 1993

Donald Gordon Black, Walnut Creek, for plaintiffs and appellants. Cherie L. Harpell, Louis J. Bachleder, James N. Roethe, Michael J. Halloran, Gen. Counsel, Office of Gen. Counsel, Bank of America N.T. & S.A., San Francisco, for defendants and respondents.

Donald Gordon Black (Black), Catherine Black and six related companies owned and/or controlled by Black (collectively, appellants) appeal the dismissal of their action against respondents Bank of America N.T. & S.A. (the Bank) and certain bank officers.   They assert the court improperly sustained without leave to amend respondents' demurrer to their first amended complaint.   We affirm.

BACKGROUND

For approximately 17 years the Bank loaned money to various agricultural enterprises organized and managed by Black.   These companies and partnerships, known as the “Black Group,” negotiated their loans with the Bank simultaneously.   As security for these loans the Bank was given a lien on the crop that “floated” from year to year, regardless of whether the Bank advanced any money for the next year's crop.

In the spring of 1984, the Bank entered into written loan agreements with three companies in the Black Group for the 1983–1984 operating year.   At the same time, these companies orally agreed to reduce their outstanding indebtedness to the Bank.   According to appellants, the Bank agreed to monitor these companies and notify them by June 30, 1984 if it would not be providing financing for the 1984–1985 season.   The Bank did not provide such notice by that date.

Black thereafter began negotiations with the Bank for loans for the 1984–1985 operating year.   Appellants assert the Bank repeatedly indicated it would renew existing loans and grant new loans to the Black Group.   Despite these representations, on May 6, 1985, the Bank informed the Black Group that it would not provide crop and equipment loans for the 1984–1985 operational year and that all guarantees of existing loans were called as of that date.   As a result of this decision, three of the companies comprising the Black Group subsequently filed for bankruptcy.

On November 26, 1991, Donald and Catherine Black, along with their affected companies, filed this action for civil conspiracy, which set forth eight causes of action including claims for fraud, breach of the covenant of good faith and fair dealing and intentional infliction of emotional distress.1  In this complaint appellants alleged respondents conspired to conceal from them the decision not to grant them further loans so that appellants would continue to invest in the 1985 crops, and the crops would be more valuable when the Bank foreclosed on this security.   Appellants asserted they first learned of the conspiracy in November 1990 and that the most recent acts in furtherance of the conspiracy occurred during November and December 1990.   This complaint was later amended on January 2, 1992.

On February 5, 1992 respondents demurred to the first amended complaint and asserted the complaint (1) failed to state facts sufficient to constitute a cause of action;  and (2) was barred by the applicable statutes of limitation.   On March 10, the court conducted a hearing on the demurrer.   The court concluded each cause of action was barred by the applicable statute of limitations and thus sustained the demurrer without leave to amend and dismissed the action.   Appellants subsequently moved for reconsideration of that ruling, which was denied.

This timely appeal followed.

DISCUSSION

 Appellants argue the court erred in denying them the chance to amend their complaint to properly state a claim for conspiracy.   They assert that if they had been permitted to amend they could adequately allege facts showing acts in furtherance of the conspiracy continued until January 1991, and that the conspiracy claim was thus not time-barred.   Respondents contend the court properly sustained the demurrer because appellants cannot state a claim for conspiracy between the Bank and its officers or employees.

 It has long been the rule in California that “[a]gents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage.”  (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 72, 35 Cal.Rptr. 652 [plaintiff cannot state claim for conspiracy between corporation and its officers to induce corporation to breach contract].)  Our Supreme Court subsequently applied this rule in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, where the owner of a bar and restaurant sued his insurance company, an insurance adjusting firm, a law firm and individual employees of those firms alleging the defendants had conspired to deprive him of the fire insurance benefits under his policy.   The court concluded the plaintiff stated a claim against the insurers for a breach of the duty of good faith and fair dealing but upheld the dismissal of the conspiracy claim against all the non-insurer defendants, explaining that “as agents and employees of the defendant insurers, they cannot be held accountable on a theory of conspiracy.”  (Id., at p. 576, 108 Cal.Rptr. 480, 510 P.2d 1032.)

Appellants argue this rule is not unqualified.   They maintain that, in certain circumstances, California courts have recognized a conspiracy may exist between a corporation and its agents and employees.   In support of this claim, appellants cite a number of cases, all of which, in our opinion, contain factors that distinguish them both legally and factually from the case at hand.   For example, in Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 157 Cal.Rptr. 392, 598 P.2d 45 the plaintiff brought an action against a mortgage loan broker, its affiliated corporations, their principal shareholder and several of the corporations' officers and directors for breach of duties owed to plaintiff in connection with the negotiation of a mortgage loan.   The plaintiff alleged the broker used misleading television commercials, misrepresented the terms of the loan, including the interest rate and the policy on late charges, and added late charges despite the timely payment of all installments.   On appeal, the court concluded the plaintiff could state a claim for conspiracy and determined the evidence supported the jury's finding in favor of the plaintiff.  (Id., at pp. 785–786, 157 Cal.Rptr. 392, 598 P.2d 45.)   The court explained, “[d]irectors and officers of a corporation are not rendered personally liable for its torts merely because of their official positions, but may become liable if it they directly ordered, authorized or participated in the tortious conduct.   Personal liability, if otherwise justified, may rest upon a ‘conspiracy’ among the officers and directors to injure third parties through the corporation.”  (Id., at p. 785, 157 Cal.Rptr. 392, 598 P.2d 45, citations omitted.)

Wyatt was limited to its facts and, in our opinion, does not support the recognition of a cause of action for conspiracy in this case.   In Wyatt the court explained that imposition of conspiracy liability was warranted in that case because the evidence showed (1) it was company policy to lure potential borrowers to their business by misleading “bait and switch” advertising;  (2) one defendant, who owned all or a controlling interest in the companies involved, advised the others that late charges “were a great source of income,” and that, if a single payment were late, it was company policy to treat all subsequent payments as late;  and (3) the companies were part of a tightly-knit, family-run business in which each individual defendant was an officer or director of one or more of the corporations and was in a management position at some point during the time the conspiracy was alleged to have occurred.   In light of this evidence, the court determined the jury could have concluded the breaches of fiduciary duties were undertaken “pursuant to established company policies agreed to by each of the appellants.”  (Id., at p. 786, 157 Cal.Rptr. 392, 598 P.2d 45.)

 The holding in Wyatt was premised on the fact that although directors and officers of a corporation do not incur personal liability simply by virtue of their official positions, they may become liable for the corporation's tortious conduct if they “directly ordered, authorized or participated in the tortious conduct.”  (Id., at p. 785, 157 Cal.Rptr. 392, 598 P.2d 45, citing United States Liab. Ins. Co. v. Haidinger–Hayes, Inc. (1970) 1 Cal.3d 586, 595, 83 Cal.Rptr. 418, 463 P.2d 770.)   Unlike Wyatt, where each of the individuals defendants served in a management position in the corporations, the individuals involved here were Bank employees who carried out, but did not create, Bank policies.   Because of this difference, we do not interpret Wyatt as supporting the conspiracy claim in this case.

Appellants also rely on Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 169 Cal.Rptr. 478.   In Younan the plaintiff, who claimed to be totally disabled, sued his disability insurance carrier, American Home Assurance, Equifax, which was hired to handle the claim, and two individuals, all of whom allegedly conspired to prepare a false medical report on plaintiff to provide a plausible reason for the denial of benefits.   In that case the court stated the central question was whether, in a case alleging wrongful denial of insurance benefits, an action for conspiracy will lie against persons not parties to the insurance contract.  (Id., at p. 508, 169 Cal.Rptr. 478.)   The defendants asserted Gruenberg, also a denial of benefits case, precluded a claim of conspiracy against them.   The court disagreed, concluding the Gruenberg court had only decided that a non-insurer defendant, who had no duty of good faith and fair dealing under the insurance contract, could not be liable for conspiring to breach that duty.  (Id., at p. 509, 169 Cal.Rptr. 478, italics in original.)   The Younan court thus declared that Gruenberg “did not [,] as respondent erroneously concludes, enunciate a rule exempting agents and employees from liability for all civil conspiracies.”   (Id., italics in original.)   Because Younan was alleging a conspiracy to commit fraud (and not a conspiracy to breach a contract-based duty), the court concluded Gruenberg was no bar to his action.   The court explained:  “A cause of action for conspiracy will lie against agents and employees of insurers even though the former are not parties to the agreement of insurance when they join the insurer in a conspiracy to defraud the insured.   As such, they are jointly liable with those with whom they conspire to commit the tort.”  (Id., at p. 511, 169 Cal.Rptr. 478.)

Appellants rely on this language as support for their claim that they may properly sue the Bank and its officers and employees for conspiracy.   We are unpersuaded.  Younan, unlike the instant case, involved a conspiracy that not only included the insurance company and its employees, but also other defendants unrelated to the insurer defendant.   In this case, appellants are alleging a conspiracy among the Bank—a corporation—and its own officers and employees.   The law does not recognize a conspiracy in these circumstances:  “ ‘ “[i]t is basic in the law of conspiracy that you must have two persons or entities to have a conspiracy.   A corporation cannot conspire with itself any more than a private individual can, and it is the general rule that the acts of the agent are the acts of the corporation․” ’ ”  (Kerr v. Rose (1990) 216 Cal.App.3d 1551, 1564, 265 Cal.Rptr. 597, quoting Shasta Douglas Oil Co. v. Work (1963) 212 Cal.App.2d 618, 624, 28 Cal.Rptr. 190;  Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 12–13, 101 Cal.Rptr. 499;  Wise v. Southern Pacific Co., supra, 223 Cal.App.2d 50, 72–73, 35 Cal.Rptr. 652.)

Appellants' reliance on Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 260 Cal.Rptr. 183, 775 P.2d 508 also is unavailing.   In that case the plaintiff, who had been injured by a doctor insured by The Doctors' Company, sued that insurer, its medical expert, a law firm and individual attorneys for allegedly conspiring to deprive plaintiff of a fair settlement for damages resulting from the doctor's negligence.   According to the complaint, the insurer, in an effort to generate a plausible excuse for refusing settlement, intentionally withheld from its expert evidence that proved its insured was negligent.

The court considered whether the defendants could be liable for conspiracy to violate Insurance Code section 790.03, subdivision (h)(5), which makes it an unfair practice under certain circumstances for an insurer to undermine a prompt and fair settlement of a claim after liability has become reasonably clear.   The court concluded that because the statute only applies to insurers, the attorney and the doctor were not bound by Insurance Code section 790.03, subdivision (h)(5), and could not be liable for conspiracy to cause the insurer to violate a duty peculiar to the insurer.  (Id., at p. 48, 260 Cal.Rptr. 183, 775 P.2d 508.)

 Appellants cite Doctors' for the proposition, earlier acknowledged in Gruenberg, supra, that corporate officers and directors who “directly order, authorize or participate in the corporation's tortious conduct ․ may be held liable, as conspirators or otherwise, for violation of their own duties towards persons injured by the corporate tort.”  (Id., at p. 48, 260 Cal.Rptr. 183, 775 P.2d 508, italics added.)   As respondents correctly note, however, such liability only may be imposed where the corporate officer owed some special duty to the party injured and/or the officer had sufficient authority within the corporation to direct or authorize the tortious conduct.   Because appellants cannot establish that the individuals here owed them such a special duty or possessed the kind of authority that would support tort liability, Doctors' is inapposite.

 Although appellants allege that each of the respondents had a fiduciary duty to each of the appellants, they have not alleged facts legally sufficient to warrant such a claim.   For example, appellants assert this fiduciary duty arose based on, inter alia, the long relationship between the Bank and appellants;  the “trust and confidence” appellants placed in respondents;  the fact that the Bank had secured its loans by crops, equipment and inventory owned by appellants;  and the fact that the Bank was in a greatly superior bargaining position, which rendered appellants “vulnerable.”   None of these allegations changes the fact that the relationship between the Bank and appellants was in all respects an arms-length business relationship and nothing more.   As the court observed in Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 437, 209 Cal.Rptr. 541, where a bank customer alleged his bank owed him a fiduciary duty, “under ordinary circumstances the relationship between a bank and its depositor is that of debtor-creditor, and is not a fiduciary one․”   Similarly, in this case, appellants and respondents simply were in a debtor-creditor relationship and appellants cannot establish the Bank was obligated to act in their best interests, as a fiduciary ordinarily must.   Without this, there simply is no basis for appellants' bald claim that the Bank owed them a “special duty” that would support a conspiracy claim.

Hannon Engineering, Inc. v. Reim (1981) 126 Cal.App.3d 415, 179 Cal.Rptr. 78, also cited by appellants, is distinguishable because it, like Doctors', involved defendants who owed the victims a special duty of care.   In Hannon, the corporation set up a pension plan for its retired employees.   Several former employees were sued by the corporation;  they cross-complained, alleging the corporation and employee-members of the pension plan committee had conspired to deprive them of the benefits due at the time of their resignations.   The cross-defendants cited Wise v. Southern Pacific Co., supra, and argued the individuals could not be liable for conspiring with the corporation.   The court disagreed, stating, “[c]ross-defendants are ignoring the fact that the individual cross-defendants were functioning in a dual capacity:  as officers and directors of the corporate cross-defendant Hannon Engineering and also in their [retirement] Plan administrator capacities․   Such duality, although physiological schizophrenia, constitutes two separate legal entities.”  (Id., at pp. 427–428, 179 Cal.Rptr. 78, italics in original.)   There is nothing that suggests the individual defendants here were acting in such a dual capacity or owed such a separate duty of care to those injured by the corporation's conduct.

 In sum, while in certain instances courts have recognized a claim for conspiracy between a corporation and its individual employees or agents, each of these cases is distinguished by (1) the inclusion in the conspiracy of parties wholly separate from the corporation—so that the corporation is not “conspiring with itself;”  (2) the individuals' direct participation in or authorization of the tortious conduct;  or (3) the existence of a special duty owed by the individuals to the party injured.   As none of these exceptions apply in the instant case, appellants are bound by the rule in Wise, which precludes a claim for conspiracy between the Bank and its officers or employees.2  As the court observed in Lawrence v. Bank of America, supra, 163 Cal.App.3d at p. 437, 209 Cal.Rptr. 541, where the plaintiff attempted to state a claim for conspiracy, “[t]he only named defendants are the Bank and its employees, and it is well established that the agents and employees of a corporation cannot conspire with their corporate principal.”

The court properly concluded appellants could not avoid the statute of limitations by pleading a claim for conspiracy, and thus correctly sustained the demurrer and dismissed the case.

DISPOSITION

The judgment is affirmed.   Respondents shall recover costs on appeal.

FOOTNOTES

1.   This was not the first case appellants filed against respondents based on these facts.   On May 5, 1986 appellants filed a complaint alleging, among other things, causes of action for emotional distress, breach of the covenant of good faith and fair dealing, misrepresentation and fraud based on the Bank's refusal to loan money to fund appellant's agricultural enterprises.  (Case No. 857395.)  (Respondents' Motion to Take Judicial Notice, exhibit A.)   This complaint was later amended and, in 1991, was dismissed under the five-year rule.   Appellants also attempted to raise the same claims in a cross-cross complaint filed in 1989 and amended in 1990.   The court granted the Bank's motion for judgment on the pleadings and denied leave to amend.

2.   The federal cases cited by appellants provide no assistance.   Although some federal courts have recognized a conspiracy between a corporation and its officers/employees may exist where the individuals are “acting beyond the scope of their authority or for their own benefit rather than that of the principal” (see, e.g., Pink Supply Corp. v. Hiebert, Inc. (8th Cir.1986) 788 F.2d 1313, 1317;  Buschi v. Kirven (4th Cir.1985) 775 F.2d 1240, 1252;  Hodgin v. Jefferson (D.Md.1978) 447 F.Supp. 804, 807), in the verified first amended cross-complaint appellants filed in their previous case (case no. 857395) they alleged the individual defendants committed the assertedly wrongful acts “in the course and scope of their respective employment and agency for the Bank.”  (Exh. E ¶ 3 I.)   They cannot now, in a desperate attempt to state a claim for conspiracy, directly contradict these allegations and assert that the same officers were acting beyond the scope of their authority.  (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877–878, 6 Cal.Rptr.2d 151 [plaintiff may not avoid demurrer by pleading facts that contradict facts pleaded in earlier actions].)

KLINE, Presiding Justice.

SMITH and PHELAN, JJ., concur.