Judge Alison Mackenzie, Case Number: 23STCV04460, Date: 2023-12-14 Tentative Ruling

Judge: Alison Mackenzie, Case: 23STCV04460, Date: 2023-12-14 Tentative Ruling

Case Number: 23STCV04460 Hearing Date: December 14, 2023 Dept: 55

NATURE OF PROCEEDINGS: Demurrer of Defendants to First Amended Complaint.

The demurrer is overruled. Twenty days to answer.

On 5/9/23, 1147 S. BEVERLY DRIVE ASSOCIATES, LLC (“Plaintiff”) filed a First Amended Complaint (“FAC”) against FUNNY BUSINESS, INC., and MARTIN H. CALLNER (“Defendants”) alleging that the entity defendant failed to pay all amounts due under a commercial lease of 1147 South Beverly Drive, Second Floor, Los Angeles, and the individual defendant is an alter ego of the entity lessor.

The causes of action are: 1) For Breach of Lease; 2) Violation of Civil Code §3439; 3) Fraudulent Transfer in Violation of Civil Code §3439.04(A)(2)(A); 4) Open Book Account; 5) Account Stated; and 6) Unjust Enrichment.

Defendants demur to each claim of the First Amended Complaint. Plaintiff opposes the demurrer.

1) Breach of Lease.

Defendants contend that the alter ego allegations are not sufficiently alleged to support contract liability of the noncontracting individual defendant, such that there is a misjoinder.

To allege alter ego, plaintiffs must plead a unity of interest and ownership such that the separate personalities of the corporation and individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor. Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal. App. 4th 1269, 1285. Plaintiffs can sufficiently allege (1) a unity of interest, by alleging a corporation was inadequately capitalized, failed to abide by corporate formalities, and was used by the defendant only as a shell and conduit, and (2) an adherence to a separate corporation existence that would promote injustice or lead to inequitable results, by alleging the use of a corporation to avoid payment obligations. A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 696-97. “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” Leek v. Cooper (2011) 194 Cal. App. 4th 399, 415 (noting a complete absence of such allegations). Cf. Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235 (sufficiently alleged defendant dominated and controlled, a unity of interest and ownership existed, a mere shell and conduit, inadequately capitalized, failed to abide by formalities of corporate existence, used assets as own, and recognizing separate existence would promote injustice). Other authorities excuse any pleading requirements of alter ego. As to contract-based claims, the alter ego doctrine is sufficiently alleged by an allegation that defendant made the contract involved. Los Angeles Cemetery Assoc. v. Sup. Ct. (1968) 268 Cal.App.2d 492, 494. “The alter ego issue is ordinarily raised by the pleadings…. Nonetheless, even when not pleaded, that issue may be resolved at trial….” Hennessey’s Tavern v. Am. Air Filter Co. (1988) 204 Cal. App. 3d 1351, 1358.

"Demurrers on the ground of misjoinder lie only when the defect appears on the face of the complaint or matters judicially noticed..." and demurring parties are prejudiced. Royal Surplus Lines Ins. Co. v. Ranger Ins. Co. (2002) 100 Cal. App. 4th 193, 198.

The Court concludes that the alter ego allegations in the FAC are significantly more detailed than the typical complaint, and sufficiently address the elements in accordance with case law (see, e.g., FAC, ¶¶ 4-9). Contrary to Defendants’ contention, the FAC adequately alleges that treating the entity defendant as separate from the individual defendant would promote an injustice because it would allow the entity defendant to avoid its financial obligations to Plaintiff. (Id., ¶ 9(p).) Moreover, some authorities have held that alter ego requires no allegations in support, as set forth above. The demurrer to the first cause of action therefore is overruled.

2) Violation of Civil Code §3439; and 3) Fraudulent Transfer in Violation of Civil Code §3439.04(A)(2)(A).

An action under Civil Code Section 3439.04 lies “for the fraudulent transfer of the debtor’s property with the intent to ‘hinder, delay, or defraud any creditor of the debtor’ (Civ. Code, § 3439.04, subd. (a))….” Snapp & Assocs. Ins. Services, Inc. v. Robertson (2002) 96 Cal. App. 4th 884, 891, disapproved on other grounds by Aryeh v. Canon Bus. Sols., Inc. (2013) 55 Cal. 4th 1185, 1196.

The elements of the claim are:

Transfer made or obligation incurred by a debtor;
with actual intent to hinder, delay, or defraud any creditor of debtor;
without receiving a reasonably equivalent value in exchange for the transfer or obligation;

debtor was engaged or was about to engage in a business or a transaction for which remaining assets were unreasonably small in relation to the business or transaction; or
intended to incur, or believed or reasonably should have believed that debtor would incur, debts beyond ability to pay as they became due; and

injury to the creditor.

Civ. C. §§3439.04(a), 3439.05. See also Filip v. Bucurenciu (2005) 129 Cal. App. 4th 825, 834 ("There is no minimum number of factors that must be present before the scales tip in favor of finding of actual intent to defraud."); Kirkeby v. Sup. Ct. (2004) 33 Cal. 4th 642, 651 (fraudulent transfer was sufficiently alleged based on defendant’s transfer of property with the intent to defraud, hinder or delay creditors in collection); Annod Corp. v. Hamilton & Samuels (2002) 100 Cal. App. 4th 1286, 1298 (proof of fraudulent intent in conveyances often is inferenced from the surrounding circumstances).

Defendants claim the second and third causes of action fail because instead of alleging causation, the FAC merely states that Plaintiff “has been damaged…or will suffer damages” (FAC at p. 7, lines 17-19 and p. 8 lines 22-25). The Court rejects this argument. As to the Second and Third Causes of Action, all the elements set forth above are alleged, with the Second focusing upon fraudulent intent, and the Third emphasizing transfers for no consideration with knowledge of inability to pay debts. The final element of injury is alleged, including by Defendants’ removal of the ability to pay the debt allegedly owed under the subject lease. (FAC, ¶ 9.) The demurrer to these causes of action is overruled.

4) Open Book Account.

The elements of a claim for open book account are:

Detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation;
shows the debits and credits in connection therewith, and against whom and in favor of whom entries are made;
entered in the regular course of business as conducted by such creditor or fiduciary;
kept in a reasonably permanent form and manner; and
in a bound book, on a sheet or sheets fastened in a book or to backing but detachable therefrom, on a card or cards of a permanent character, or is kept in any other reasonably permanent form and manner.

CCP §337a; Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal. App. 4th 1334, 1343.

Defendants correctly note that the subject complaint does not allege the existence of a book and that the book kept a detailed statement of debit/credits in the regular course of business, but instead alleged an amount due. Although the FAC fails to allege a detailed, permanent account of transactions, debits and credits, the claim is a common count as to which demurrers do not lie where the underlying claims are well alleged, as here. “[A] common count, by long continued practice is not subject to attack by general demurrer or by a special demurrer for uncertainty.” Auckland v. Conlin (1928) 203 Cal. 776, 778. Accord Smith v. Bentson (1932) 127 Cal. App. Supp. 789, 791. “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable." Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1560. As discussed above, the breach of contract claim survives demurrer and so the open book claim does as well.

While Defendants assert that common counts are unavailable where an express contract is a basis of the case, an express contract does not necessarily bar a common count. A common count is proper notwithstanding that it relates to an original transaction involving an express or implied contract. Utility Audit Co. v. City of L. A. (2003) 112 Cal.App.4th 950, 958. The demurrer is overruled with respect to the fourth cause of action.

5) Account Stated.

The elements of a claim for account stated are:

An account statement of indebtedness between the parties;
the balance or sum due;
the time of the statement;
the place of the statement;
the debt was found, or the debtor expressly or impliedly promised to pay the amount.

Truestone, Inc. v. Simi West Industrial Park II (1984) 163 Cal.App.3d 715, 725.

Defendants contend that the fifth cause of action for account stated fails to allege that Defendant agreed the amount claimed by Plaintiff was the correct amount owed, or that Defendant promised to pay the same (see FAC p. 9 lines 20-26). But like the analysis above, regarding the claim for Open Book Account, this Cause of Action for Account Stated fails to allege an agreed statement of indebtedness, but a demurrer does not lie as to common counts, and the express lease is no bar.

6) Unjust Enrichment.

Defendants assert that unjust enrichment is not a cognizable cause of action (dem., 9:11-17). Plaintiff is correct that there is a split of authority on this issue and the Second District of the Court of Appeal recognizes the claim.

Where there is a split of authority, trial courts have discretion to choose between the decisions. Auto Equity Sales, Inc. v. Sup. Ct. (1962) 57 Cal.2d 450, 456. Where there is a split of authority, “[a]s a practical matter, a superior court ordinarily will follow an appellate opinion emanating from its own district even though it is not bound to do so.” McCallum v. McCallum (1987) 190 Cal.App.3d 308, 316 n.4.

Here, the Court exercises its discretion to follow the line of authority supporting the cause of action.

Conclusion

The demurrer is overruled, as to each claim, as analyzed above.