NATURE OF PROCEEDINGS: Hearing on Defendants' Demurrer - without Motion to Strike

 

Defendants' Demurrer is sustained in part and overruled in part.

                                                                                

BACKGROUND

Plaintiffs Live Out Live Foundation (LOL) and Candace Newman filed this action against Jasmine Laverne and Company, LLC, Jasmine Kent, and doe defendants 1-20 (“Defendants”); Plaintiffs allege that Defendants made false representations to secure contracts with LOL organizing a benefit concert and subsequently breached those contracts.

The causes of action are: (1) Alter Ego; (2) Breach of Contract; (3) Breach of Contract; (4) Unjust Enrichment; (5) Intentional Misrepresentation; (6) Negligent Misrepresentation; (7) Fraud; (8) Intentional Interference with Prospective Economic Advantage; (9) Negligent Interference with Prospective Economic Advantage; and (10) Slander Per Se.

 

Defendants filed a demurrer to the first, fourth, fifth, sixth, seventh, eighth, and ninth causes of action. Plaintiffs filed an opposition.

 

 

 

EVIDENTIARY OBJECTIONS

The Court rules on Plaintiff’s evidentiary objections as follows:

1.     General Objection to Defendants’ Demurrer in its Entirety. Denied.

2.     General Objections to all Exhibits attached to Defendants’ Demurer. Sustained. Extrinsic evidence is irrelevant to ruling on a demurrer. See Donabedian v. Mercury Ins. Co., 116 Cal. App. 4th 968, 994 (“In reviewing the ruling on a demurrer, a court cannot consider … the substance of declarations, matter not subject to judicial notice, or documents judicially noticed but not accepted for the truth of their contents.”).

3.     General Objections to the inclusion of settlement communications. Sustained. Ibid; see also Cal. Evid. Code § 1152 (evidence of settlement offers or negotiations inadmissible to prove or disprove liability).

4.     Exhibit 1 of Defendants’ Second Demurrer. Sustained. Extrinsic evidence is irrelevant.

5.     Exhibit 2 of Defendants’ Second Demurrer. Sustained. Extrinsic evidence is irrelevant.

6.     Exhibit 3 of Defendants’ Demurrer. Sustained. Extrinsic evidence is irrelevant.

7.     Defendants Demurrer Page 6, Line 6-10. Sustained. Extrinsic evidence is irrelevant.

8.     Defendants Demurrer Page 6, Line 17-21. Sustained. Extrinsic evidence is irrelevant.

9.     Defendants Demurrer Page 6, Line 25-28. Sustained. Extrinsic evidence is irrelevant.

10.   Defendants Demurrer Page 7, Line 1-12. Sustained. Extrinsic evidence is irrelevant.

11.   Defendants Demurrer Page 9, Line 12-18. Sustained. Extrinsic evidence is irrelevant.

12.  Defendants Demurrer Page 10, Line 4-6. Sustained. Extrinsic evidence is irrelevant.

13.  Defendants Demurrer Page 11, Line 15-24. Sustained. Extrinsic evidence is irrelevant.

14.  Defendants Demurrer Page 13, Line 9-13. Sustained. Extrinsic evidence is irrelevant.

15.  Defendants Demurrer Page 14, Line 3-5. Sustained. Extrinsic evidence is irrelevant.

 

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.

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

I. Alter Ego

Defendants argue that because Kent is the sole member of JLC, an LLC, there is no corporate veil to pierce, no corporate formalities to observe, and she cannot be held liable for commingling her own income.

“The ‘single enterprise,’ or alter ego, doctrine is an equitable doctrine: ‘A corporate identity may be disregarded—the “corporate veil” pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.” Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1341 (citation omitted). “In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” Ibid. (citations omitted) (internal quotation marks omitted).

Corporation Code section 17703.04, subdivision (b) provides in relevant part, “A member of a limited liability company shall be subject to liability under the common law governing alter ego liability ….” “In appropriate circumstances, traditional veil piercing permits a party to pierce the corporate or limited liability company (LLC) veil ‘so that an individual shareholder [or LLC member] may be held personally liable for claims against the corporation [or LLC].’” Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 840 (Blizzard) (quoting Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, 1513 (alteration in original).

In applying the doctrine, courts consider the following factors: (1) the commingling of funds and assets of the two entities, (2) identical equitable ownership in the two entities, use of the same offices and employees, (3) disregard of corporate formalities, (4) identical directors and officers, and (5) use of one as a mere shell or conduit for the affairs of the other. Cam-Carson, LLC v. Carson Reclamation Authority (2022) 82 Cal.App.5th 535, 549-550. Courts look to the totality of the circumstances, and no one factor is dispositive. Whether a party is liable under an alter ego theory is normally a question of fact. Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 811.

To the extent that Kent argues that a member of an LLC cannot be liable under an alter ego theory, she is incorrect. Corp. Code § 11703.04, subd., (b); Blizzard, supra, 71 Cal.App.5th at p. 840. Moreover, her argument that there was no injustice relies on extrinsic evidence not properly considered on demurrer. Demurrer at p. 9 7-18.

Plaintiffs allege that Kent and JLC share a unity of interest and ownership, Kent used JLC assets for her personal use, and Kent undercapitalized JLC to the point that she could not pay her employee. FAC ¶¶ 51-55. These allegations are sufficient at the demurrer stage to support Kent’s liability for JLC’s obligations.

However, the Court notes that "alter ego" is not a cause of action. It is a theory of liability that allows the plaintiff to prove that someone other than the named corporate defendant is liable for the acts of the corporate defendant. Shaoxing County Huayue Import & Export v. Bhaumik (2011) 191 Cal.App.4th 1189, 1198; Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1358-1359 ("A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural, i.e., to disregard the corporate entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice."). Therefore, the demurrer to the alter ego claim is sustained without leave to amend, but this does not invalidate alter ego as a theory of liability for Plaintiffs’ substantive claims. See Lopez v. Escamilla, 48 Cal. App. 5th 763, 765 (holding a plaintiff may properly name a party as an alter ego by motion in the original action or by filing a complaint in a separate action because “The substantive question is whether [the defendant] is, in fact, an alter ego. ‘The law respects form less than substance.’”) (quoting Civ. Code, § 3528).

 

II. Unjust Enrichment

Defendants argue that Plaintiffs Unjust Enrichment claim fails because unjust enrichment is not a recognized cause of action and because Defendants were not enriched.

“The elements of a cause of action for unjust enrichment are simply stated as ‘receipt of a benefit and unjust retention of the benefit at the expense of another.’” Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238 (quoting Lectrodryer v. Seoulbank (2000) 77 Cal.App.4th 723, 726.) “‘The term “benefit” denotes any form of advantage.’” Ibid. (quoting Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51). “‘[T]he benefit that is the basis of a restitution claim may take any form, direct or indirect. It may consist of services as well as property. A saved expenditure or a discharged obligation is no less beneficial to the recipient than a direct transfer.’” Ibid. (quoting Rest.3d Restitution and Unjust Enrichment, § 1, com. d, p. 7.)

The Court reads the complaint as stating a claim for restitution based on unjust enrichment. This is a valid claim. “Whether termed unjust enrichment, quasi-contract, or quantum meruit, the equitable remedy of restitution when unjust enrichment has occurred ‘is an obligation (not a true contract [citation]) created by the law without regard to the intention of the parties, and is designed to restore the aggrieved party to his or her former position by return of the thing or its equivalent in money.’”Federal Deposit Ins. Corp. v. Dintino, 167 Cal. App. 4th 333, 346 (quoting 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 1013, p. 1102.) In O'Grady v. Merchant Exchange Productions, Inc., 41 Cal. App. 5th 771, 79, the court noted that while there are decisions holding unjust enrichment is not a cause of action, “[t]he point is largely academic because this district has long taken the position that, even if unjust enrichment does not describe an actual cause of action, the term is synonymous with restitution, which can be a theory of recovery.” (citations omitted) (internal quotation marks omitted).

Here, Plaintiffs allege they are entitled to restitution of their payments to Defendants because Defendants did not provide the services as they agreed to. Defendants' argument that they were not actually enriched because they received less than the contracted amount due improperly asserts facts not alleged and fails to accept as true the allegation in the FAC that Defendants did not provide the services required by the agreement with Plaintiffs. Accordingly, the demurrer is overruled as to the unjust enrichment claim.

III. Fraud, Intentional Misrepresentation and Negligent Misrepresentation

Defendants argue that Plaintiff fails to state a cause of action for fraud, intentional misrepresentation, or negligent misrepresentation because the allegedly false statements are not facts, but opinions.

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).

“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. The essential elements of a count for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true. Each element of a fraud count must be pleaded with particularity so as to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action, although less specificity is required if the defendant would likely have greater knowledge of the facts than the plaintiff.” Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231 (citations omitted).

“The elements of negligent misrepresentation are similar to intentional fraud except for the requirement of scienter; in a claim for negligent misrepresentation, the plaintiff need not allege the defendant made an intentionally false statement, but simply one as to which he or she lacked any reasonable ground for believing the statement to be true.” Charnay, supra, 145 Cal.App.4th at p. 184.

“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; see also Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331 (affirming demurrer where the complaint failed to plead with specificity a factual basis for how a defendant attorney knew the representations she communicated on behalf of her client were false). Moreover, it “‘is not sufficient to allege fraud or its elements upon information and belief, unless the facts upon which the belief is founded are stated in the pleading.’” Carney v. Simmonds (1957) 49 Cal.2d 84, 100 (quoting Dowling v. Spring Valley Water Co. (1917), 174 Cal. 218, 221.

To prevail on a cause of action for fraud or misrepresentation, the representation must be a statement of fact, not merely opinion. See Hauter v. Zogarts, 14 Cal. 3d 104, 111 (“If defendants' assertion of safety is merely a statement of opinion -- mere ‘puffing’ -- they cannot be held liable for its falsity.”) Moreover, “[i]t is hornbook law that an actionable misrepresentation must be made about past or existing facts; statements regarding future events are merely deemed opinions.” San Francisco Design Center Associates v. Portman Companies, 41 Cal. App. 4th 29, 43-44.

Here, the allegedly false representations are that Kent represented that she had the requisite experience to make the event a success, that JLC was highly successful, and that it was staffed by a team of highly qualified and experienced individuals, and the contract represented that Kent had the experience and ability to do everything she agreed to professionally and on time. FAC ¶¶ 14, 16, 18.

As pleaded, none of the alleged representations rise to the level of actionable misrepresentations of fact. Kent's claims about her experience and business being up to the task are statements of opinion or puffery. Likewise, her claim that she would be able to meet Plaintiff’s needs is an opinion about the future, not an actionable misrepresentation about past or existing facts.  Because Plaintiffs do not allege Kent falsely asserted she or her staff had specific qualifications or made specific false claims about her business, the Court concludes that they fail to state a cause of action for fraud or misrepresentation. Accordingly, the fifth, sixth, and seventh causes of action are dismissed with leave to amend.

IV. Intentional and Negligent Interference with Economic Advantage

Defendants argue that Plaintiffs’ claims for Intentional and Negligent Interference with Economic Advantage fail because no interference occurred.

The necessary elements for intentional interference with economic advantage are: (1) an economic relationship existing between the plaintiff and a third party; (2) the probability of a future economic benefit to the plaintiff; (3) the defendant's knowledge of the relationship; (4) the defendant's intentional acts designed to disrupt the relationship; (5) that the defendant engaged in an independently wrongful act in disrupting the relationship beyond just inducing disruption of the plaintiff's economic advantage; (6) actual disruption of the relationship; and (7) economic harm to the plaintiff caused by the acts. Salma v. Capon (2008) 161 Cal.App.4th 1275, 1290.

The necessary elements for negligent interference with economic advantage are: (1) an economic relationship between the plaintiff and a third party; (2) that contained a reasonably probable future economic benefit or advantage to plaintiff; (3) that the defendant knew of the existence of the relationship and was aware, or should have been aware, that if it did not act with due care, its actions would interfere with the relationship and cause the plaintiff to lose in whole or in part the probable future economic benefit or advantage; (4) the defendant was negligent; (5) the negligence caused damage to the plaintiff because of actual interference or disruption; and (6) the plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship. North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.

Plaintiffs allege that Kent intentionally or negligently turned off the donor link during the fundraising event, making it nearly impossible for attendees to donate. FAC ¶¶ 115, 122, 123.

Defendants argue Plaintiffs cannot prove any interference because Kent did not turn off the donor link. Opp. at p. 13:7-16, 14:3-6. Defendants misstate Plaintiffs’ burden at the pleading stage and improperly attempt to introduce extrinsic evidence. Accordingly, the demurrer as to counts eight and nine are overruled.

 

CONCLUSION

Defendants' demurrer is sustained without leave to amend to count one. The demurrer is sustained with leave to amend as to counts five, six, and seven. The demurrer is overruled as to all other causes of action.  Plaintiff has twenty days to amend.