Judge: Alison Mackenzie, Case: 21STCV45457, Date: 2024-11-27 Tentative Ruling
Case Number: 21STCV45457 Hearing Date: November 27, 2024 Dept: 55
NATURE OF PROCEEDINGS: Hearing on Jerry Sorrentino's Demurrer - with Motion to Strike (CCP 432.10)
Jerry Sorrentino's demurrer is sustained with leave to
amend. Sorrentino’s motion to strike is denied as moot.
BACKGROUND
Plaintiff Precision
Construction Group, Inc. (Plaintiff or Precision), filed this action against
Onni Contracting, Inc. (Defendant or
Cross-complainant) and doe defendants 1 through 10, alleging Defendant hired it
as a subcontractor, but breached the subcontract and failed to pay Plaintiff
for goods, wares, and merchandise it provided.
Defendant filed a First Amended Cross-Complaint (FACC)
against Plaintiff, Jerry Sorrentino, SureTec Insurance Company, and roe
defendants 2 through 200 (Cross-Defendants) alleging claims for (1) Breach of
Written Contract, (2) Breach of Oral Contract; (3) Breach of Fiduciary Duty;
(4) Negligence; (5) Contractual indemnity; (6) Unfair Business Practices; (7) Disgorgement
(8) Recovery on Contractor’s License Bond; (10) Conversion; (11) Fraudulent
Concealment; and (12) Statutory Liability.
Jerry Sorrentino filed a
Demurrer - with Motion to Strike.
Cross-Complainant filed an opposition.
LEGAL STANDARD
When considering demurrers, courts read the allegations
liberally and in context. Wilson v. Transit Authority of City of Sacramento
(1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must
be apparent on the face of the pleading or via proper judicial notice. Donabedian
v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the
pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v.
Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts
assume the truth of the complaint’s properly pleaded or implied factual
allegations. Ibid. However, it does not accept as true deductions,
contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of
Sierra Madre (2008) 167 Cal.App.4th 531, 538.
Further, the court may, upon a motion, or at any time in its
discretion, and upon terms it deems proper, strike any irrelevant, false, or
improper matter inserted in any pleading. Code Civ. Proc., § 436(a). The court
may also strike all or any part of any pleading not drawn or filed in
conformity with the laws of this state, a court rule, or an order of the court.
Id., § 436(b). The grounds for a motion to strike are that the pleading
has irrelevant, false, or improper matter, or has not been drawn or filed in
conformity with laws. Id. § 436. The grounds for moving to strike must
appear on the face of the pleading or by way of judicial notice. Id. §
437.
Leave to amend must be allowed where there is a reasonable
possibility of successful amendment. See Goodman v. Kennedy (1976) 18
Cal.3d 335, 349 (court shall not "sustain a demurrer without leave to
amend if there is any reasonable possibility that the defect can be cured by
amendment"); Kong v. City of Hawaiian Gardens Redevelopment Agency
(2002) 108 Cal.App.4th 1028, 1037 ("A demurrer should not be sustained
without leave to amend if the complaint, liberally construed, can state a cause
of action under any theory or if there is a reasonable possibility the defect
can be cured by amendment."). The burden is on the complainant to show the
Court that a pleading can be amended successfully. Blank v. Kirwan
(1985) 39 Cal.3d 311, 318.
ANALYSIS
Sorrentino demurs to the third, fourth, ninth, tenth, and
eleventh causes of action.
I. Fraud and Fraudulent Concealment
Sorrentino argues that Cross-Complainant fails to state
sufficient facts to support a cause of action for fraud or fraudulent
concealment.
“The elements of fraud are (a) misrepresentation (false
representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’);
(c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and
(e) resulting damage.” Charnay v. Cobert (2006) 145 Cal.App.4th
170, 184 (Charnay) (citation omitted) (internal quotation marks
omitted).
“Fraud must be specifically pleaded; a general pleading of
the legal conclusion of fraud is insufficient. Every element of the cause of
action must be alleged in full, factually and specifically.” Tindell v.
Murphy (2018) 22 Cal.App.5th 1239, 1249.
“The required elements for fraudulent concealment are (1)
concealment or suppression of a material fact; (2) by a defendant with a duty
to disclose the fact to the plaintiff; (3) the defendant intended to defraud
the plaintiff by intentionally concealing or suppressing the fact; (4) the
plaintiff was unaware of the fact and would not have acted as he or she did if
he or she had known of the concealed or suppressed fact; and (5) plaintiff
sustained damage as a result of the concealment or suppression of the fact.” Graham
v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 606.
A complaint alleging fraudulent concealment must allege “(1)
the content of the omitted facts, (2) the defendant’s awareness of
the materiality of those facts, (3) the inaccessibility of the facts to
the plaintiff, (4) the general point at which the omitted facts
should or could have been revealed, and (5) justifiable and actual reliance,
either through action or forbearance, based on the defendant’s omission.” Rattagan
v. Uber Technologies, Inc., 17 Cal. 5th 1, 43-44 (Rattagan).
“A promise of future conduct is actionable as fraud only if
made without a present intent to perform.” Magpali v. Farmers Group
(1996) 48 Cal.App.4th 471, 481. “A declaration of intention, although in the
nature of a promise, made in good faith, without intention to deceive, and in
the honest expectation that it will be fulfilled, even though it is not carried
out, does not constitute a fraud.” Ibid (citations omitted) (internal
quotation marks omitted). “[S]omething more than nonperformance is required to prove
the defendant’s intent not to perform his promise.” Tenzer v. Superscope
(1985) 39 Cal.3d 18, 30 (quoting People v. Ashley (1954) 42 Cal.2d 246, 263).
However, “fraudulent intent must often be established by circumstantial
evidence.” Ibid.
Here, Cross-Complainant alleges that Precision issued pay
application number eight to Cross-Complainant. FACC ¶ 76. When Precision issued
that pay application, Precision and Sorrentino represented
that it would use funds paid to Precision by Cross-Complainant to pay the
subcontractors and material suppliers whose work was included in the pay
application. Ibid. Cross-Complainant further alleges that when Precision issued pay application number eight, Precision
and Sorrentino concealed their intention not to pay Precision’s subcontractors
from funds that Precision would receive for pay application number eight.
The Court finds that
Cross-Complainant fails to properly allege any affirmative misrepresentation
with sufficient particularity. The FACC states that Precision and Sorrentino
represented that the funds would be used to pay Precision’s workers and
material suppliers, “[w]hen Precision issued application number eight,” but
does not clearly state how this representation was made.
In Lonely Maiden
Productions, LLC v. GoldenTree Asset Management, LP (2011) 201 Cal.App.4th
368, 375 (Lonely Maiden), the court affirmed a trial court's demurrer of
a fraud claim where the plaintiffs alleged the defendant payroll processing
company defrauded them by sending invoices and billing statements, which they
argued constituted affirmative representations that they would only be used for
purposes of paying wages and compensations to plaintiffs’ clients. The court
held the plaintiffs “did not allege an actionable misrepresentation of fact or
intention to perform because they did not allege that [defendant]’s invoices
expressly stated or promised how the [plaintiffs’] funds would be used.” Lonely
Maiden supra, 201 Cal.App.4th at p. 375.
Similarly, here, the FACC does not indicate whether the
alleged representation was included in the terms
of the pay application, in a separate writing, or orally. FACC ¶ 76. In the opposition, Cross-Complainant argues that
Cross-Defendants made the representation by means of “the written document that
is pay application number 8.” However, Cross-Complainant fails to clearly allege
in the FACC that the representation appeared in pay application number eight,
and what the terms of the representation were.
Likewise, Cross-Complainant
fails to allege facts sufficient to allege fraudulent concealment because it
has not alleged sufficient facts showing Cross-Defendants’ intent to use the
funds for a purpose other than to pay the subcontractors and material suppliers
whose work was included in the pay application was a material fact or that Cross-Complainant
relied on that omission. For Cross-Defendants’ omission of their intent to be a
material fact, Cross-Complainant would need a basis for believing that they
would use the funds to to pay the subcontractors and material suppliers. Put
another way, Cross-Complainant’s fraudulent concealment claim is simply the
other side of the coin of its fraud claim.
Accordingly, the demurrer is
sustained with leave to amend as to the tenth and eleventh causes of action.
II. Tort Claims
Next, Sorrentino argues that Cross-Complainant
has improperly sought relief through tort causes of action for breach of
contract claims.
The economic loss rule provides that “[i]n general, there is
no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning
financial harm unaccompanied by physical or property damage.” Sheen v. Wells
Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922 (quoting, Southern
California Gas Leak Cases (2019) 7 Cal.5th 391, 400). Furthermore, it
“requires a [contractual party] to recover in contract for purely economic loss
due to disappointed expectations, unless he can demonstrate harm above and
beyond a broken contractual promise.” Robinson Helicopter Co., Inc. v. Dana
Corp. (2004) 34 Cal.4th 979, 988. “Generally, outside the insurance
context, a tortious breach of contract … may be found when (1) the breach is
accompanied by a traditional common law tort, such as fraud or conversion; (2)
the means used to breach the contract are tortious, involving deceit or undue
coercion; or (3) one party intentionally breaches the contract intending or knowing that such a breach will cause
severe, unmitigable harm in the form of mental anguish, personal hardship, or
substantial consequential damages.” Id. at p. 990 (citations omitted)
(internal quotations omitted).
1. Negligence
The elements of negligence are well settled. To state a
claim for negligence, Plaintiff must allege (1) the existence of a legal duty
of care, (2) breach of that duty, and (3) proximate cause resulting in an
injury. McIntyre v. Colonies-Pacific, LLC (2014) 228 Cal.App.4th 664,
671.
Here, Cross-Complainant
alleges Precision had a duty to perform its work in accordance with the
standard of care of contractors. FACC ¶ 45. It further alleges Precision
breached its duty by (a) failing to properly and competently perform its project
work, (b) retaining an unlicensed subcontractor to perform work, (c) failing to
pay its subcontractors for work despite having been paid for that work by Cross-Complainant,
and (d) abandoning the project before work was completed.
Cross-Complainant argues that
these duties are independent of any contractual duties owed under the contract.
However, it fails to identify an applicable exception to the economic loss
rule, which prevents recovery in negligence for purely economic claims. Here,
the alleged injury is entirely economic in nature. Accordingly, the demurrer is
sustained with leave to amend as to the negligence claim.
2. Conversion
“Conversion is the wrongful exercise of dominion over the
property of another. The elements of a conversion claim are: (1) the
plaintiff's ownership or right to possession of the property; (2) the
defendant's conversion by a wrongful act or disposition of property rights; and
(3) damages. Conversion is a strict liability tort. The foundation of the
action rests neither in the knowledge nor the intent of the defendant. Instead,
the tort consists in the breach of an absolute duty; the act of conversion itself
is tortious. Therefore, questions of the defendant's good faith, lack of
knowledge, and motive are ordinarily immaterial.” Burlesci v. Petersen
(1998) 68 Cal.App.4th 1062, 1066 (citations omitted).
“A cause of action for conversion of money can be stated
only where a defendant interferes with the plaintiff's possessory interest in a
specific, identifiable sum, such as when a trustee or agent misappropriates the
money entrusted to him.” Kim v. Westmoore Partners, Inc. (2011)
201 Cal.App.4th 267, 284. Courts have held that “the simple failure to pay
money owed does not constitute conversion.” Ibid. “Were it otherwise,
the tort of conversion would swallow the significant category of contract
claims that are based on the failure to satisfy ‘mere contractual right[s] of
payment.’” Voris v. Lampert (2019) 7 Cal.5th 1141, 1152 (quoting Sanowicz
v. Bacal (2015) 234 Cal.App.4th 1027, 1041) (citation omitted) (internal
quotation marks omitted).
Here, Cross-Complainant
alleges that it paid Precision $860,001.28 based on Precision’s fraudulent
representations. Cross-Complainant cites Wendling Lumber Co. v.
Glenwood Lumber Co. (1908) 153 Cal. 411, 415 (Wendling Lumber)
for the proposition that “[i]t is the general rule that in actions for the
conversion of personal property where the property has been procured by fraud,
it is not necessary to allege the fraud, but it is sufficient to declare
generally, that the property was wrongfully converted.” However, the court went
on to say that where a cause of action "strictly rested on fraud … the general
rule requiring the allegation of the facts constituting the fraud [applied].” Wendling
Lumber, supra,153 Cal. at p. 416. In Wendling Lumber, fraud was only
raised “in reply to the defense that defendant is the owner by reason of an
alleged sale by the plaintiff.” Id. at p. 415.
Here, Cross-Complainant’s
conversion claim rests squarely on its allegation of fraud. Cross-Complainant
does not dispute that it intentionally paid the money to Precision but alleges
that Precision acquired it through its wrongful act of fraud. Because Cross-Complainant fails to meet the heightened
pleading standard for torts of deceit, it likewise fails to state a claim for
conversion based on fraud.
Additionally, while Cross-Complainant
may have an interest in the paid funds based on the contract, a contractual
obligation to pay money is insufficient to establish a conversion claim. Moreover,
even if Cross-Defendants converted the funds, Cross-Complainant would not have
a claim for conversion because it lacked either title or possession of the
funds. Del E. Webb Corp. v. Structural Materials Co. (1981) 123
Cal.App.3d 593, 610-611 (“Where plaintiff neither has title to the property
alleged to have been converted, nor possession thereof, he cannot maintain an
action for conversion.”). As alleged, the funds were held in trust by Precision
and Sorrentino as trustees for Precision’s subcontractors and material
suppliers and subsequently converted for Sorrention’s personal use. FACC ¶¶
70-71. Therefore, Cross-Complainant lacked title to or possession of those
funds when they were allegedly converted. While Cross-Complainant may be
able to assert a claim based on equitable subrogation, it made no such
allegation in the FACC. Accordingly, the demurrer to the conversion claim is
sustained with leave to amend.
3. Breach of Fiduciary Duty
“The elements of a claim for breach of fiduciary duty are
(1) the existence of a fiduciary relationship, (2) its breach, and (3) damage
proximately caused by that breach. Mendoza v. Continental Sales Co.
(2006) 140 Cal.App.4th 1395, 1405.
“A trust ‘is a fiduciary relationship with respect to
property, subjecting the person by whom the title to the property is held to
equitable duties to deal with the property for the benefit of another person,
which arises as a result of a manifestation of an intention to create it.’” Chang
v. Redding Bank of Commerce (1994) 29 Cal.App.4th 673, 684 (quoting
Rest. 2d of Trusts, § 2).
It is the beneficiaries of the trust, Precision’s
subcontractors and material suppliers, and not Cross-Complainant,
to whom Precision owed a fiduciary duty.
As explained above, if Cross-Complainant is alleging that it is entitled
to bring this based on a theory of equitable subrogation, it should allege that
in the complaint.
Accordingly, the demurrer to
the breach of fiduciary duty claim is sustained with leave to amend.
III. Motion to Strike
Because the Court sustained the demurrer as to all tort
claims, the motion to strike punitive damages is moot.
CONCLUSION
Jerry Sorrentino's demurrer is sustained. Cross-Complainant has twenty
days leave to amend.