Judge: Anne Richardson, Case: 23STCV15063, Date: 2024-01-25 Tentative Ruling

Case Number: 23STCV15063    Hearing Date: January 25, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Pleadings

Plaintiff SmartSilk Corp. sues Defendants Lorraine D’Alessio, Lorraine D’Alessio, A Professional Law Corporation (D’Alessio Law Corp.), D’Alessio Law, D’Alessio Law Group, and Does 1 through 50 pursuant to a June 28, 2023 Complaint alleging claims of (1) Fraudulent Misrepresentation and (2) Negligent Misrepresentation.

The claims arise from the following allegations. Between December 2020 and January 2021, Plaintiff SmartSilk entered negotiations with 24KK—a company located in Thailand—to source and deliver medical grade gloves for sale in the United States and Canada. Richard D’Alessio—Lorraine D’Alessio’s husband—acted as 24KK’s broker, and Defendants in this action facially acted as 24KK’s counsel. After receiving samples of 24KK-sourced gloves, SmartSilk requested that Lorraine D’Alessio make five specific attestations, on which SmartSilk would rely to move forward with a deal with 24KK. These attestations included 24KK’s ability to source and deliver medical grade gloves. Lorraine D’Alessio executed the Letter of Attestation (LOA) on January 4, 2021 and made the five requested attestations. Relying in substantial part on the LOA, on January 19, 2021, SmartSilk wired $2 million to 24KK as a 30% deposit on the first monthly shipment of gloves according to the parties’ December 29, 2020 sales purchase agreement (SPA). After receiving the deposit, however, 24KK abruptly ceased communications with SmartSilk. SmartSilk followed up, first seeking delivery and then to recover its money, to no avail, resulting in damages of over $2 million. Lorraine D’Alessio was a recipient of SmartSilk’s communications but did not disclaim her representation of 24KK despite this receipt.

Motions Before the Court

On September 21, 2023, Lorraine D’Alessio and D’Alessio Law Corp. filed a demurrer to the Complaint.

That same day, these Defendants filed a motion to strike the Complaint in its entirety and paragraph 3 of the Complaint’s Prayer.

On January 11, 2024, Plaintiff SmartSilk filed oppositions to the demurrer and motion to strike, which were electronically served on Lorraine D’Alessio and D’Alessio Law Corp.’s counsel at the same email addresses appearing in these Defendants’ September 21st motion.

No reply appears in the record.

Lorraine D’Alessio and D’Alessio Law Corp.’s demurrer is now before the Court.

Demurrer

Demurrer Sufficiency Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This device can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) To sufficiently allege a cause of action, a complaint must allege all the ultimate facts—that is, the facts needed to establish each element of the cause of action pleaded. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 212, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) Thus, “[t]o survive a [general] demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521.)

Demurrer to Entire Complaint: OVERRULED.

The Complaint’s two causes of action incorporate prior allegations—summarized above in the Background—to support streamlined intentional and negligent misrepresentation claims against all Defendants, as based on Lorraine D’Alessio ’s LOA. (Complaint, ¶¶ 1-50 [background allegations], 51-57 [intentional misrepresentation claim], 58-63 [negligent misrepresentation claim].)

Intentional misrepresentation involves “(1) a knowingly false representation by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages.” (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816.)

Negligent misrepresentation involves (1) an assertion, as a fact, of that which is not true, (2) by one who has no reasonable ground for believing it to be true, (3) made with intent to induce the recipient to alter his position to his injury or his risk, (4) with justifiable reliance on the representation, and (5) resulting damage. (B.L.M. v. Sabo & Deitsch (1997) 55 Cal.App.4th 823, 834.)

Allegations of fraud “must be pled with more detail than other causes of action.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 240.) “Every element of the cause of action for fraud must be alleged … factually and specifically[,] and the policy of liberal construction of the pleadings … will not ordinarily be invoked to sustain a pleading defective in any material respect. [Citations.]” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) “[G]eneral and conclusory allegations do not suffice.” (Small v. Fritz Cos., Inc. (2003) 30 Cal.4th 167, 184 [citations omitted].) Fittingly, a plaintiff pleading fraud must plead facts showing “how, when, where, to whom, and by what means” the allegedly fraudulent representations were tendered. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

I. Attorney-Client Privilege

In their demurrer, Lorraine D’Alessio and D’Alessio Law Corp. argue that the attorney-client privilege prevents Defendants from presenting a meaningful defense in this action. Specifically, these Defendants argue that “a) SmartSilk was not a client of these moving defendants, b) 24KK, a non-party, is the holder of the privilege, c) 24KK has not waived the privilege, and d) the privilege exists between 24KK and these moving defendants,” for which reasons “moving defendants cannot present all of the facts and communications in order to conduct a trial on the merits.” Lorraine D’Alessio and D’Alessio Law Corp. also argue that “[d]ismissal of the action is supported so as to prevent an action proceeding with defendants’ hands tied behind their backs.” (Demurrer, pp. 4-5.)

In opposition, SmartSilk argues how the three cases cited by the demurrer to support the attorney-client privilege argument actually contradict the demurrer’s position. In essence, SmartSilk argues that “(1) Defendants have not identified any evidence that is 24KK’s confidential information; (2) there is no evidence that 24KK is insisting that the information remain confidential; (3) there is no reason to believe that any of the allegedly confidential information is highly material to the defendants’ defenses; (4) given the lack of information about Defendants’ evidence, there is no way for the court to effectively use ‘ad hoc measures from [its] equitable arsenal,’ to evaluate whether this action can proceed; and (5) given the complete lack of information, it is impossible to determine if it would be ‘fundamentally unfair’ to allow the action to proceed.” SmartSilk also argues that denying it the right to proceed would be fundamentally unfair where SmartSilk has an absolute right to sue Defendants for making false statements to SmartSilk, and that the crime-fraud exception would likely waive any privilege. (Opp’n, pp. 3-8.)

No reply appears in the record despite service. (Compare Opp’n to Demurrer, Proof of Service [service on counsel for Lorraine D’Alessio and D’Alessio Law Corp. via email], with Mot., p. 1 [showing same email addresses for Lorraine D’Alessio and D’Alessio Law Corp.’s counsel].)

The Court finds in favor of SmartSilk.

This action alleges what could be interpreted as 24KK’s fraud on SmartSilk, which was facilitated by Lorraine D’Alessio and her law firm(s)’s representations attesting:

“(i) ‘I am counsel for 24KK CO. LTD.[] (Hereinafter “MY CLIENT”)’”;

“(ii) ‘I attest that MY CLIENT has agreed to produce[], and deliver for the next 24 months, as of this date, up to 1 million boxes per month of Glov-Nitrile Exam gloves [] to SmartSilk, to be labeled Glov by SmartSilk, and sold exclusively to the US and Canada’”;

“(iii) ‘Glov is both FDA 510K certified, and Canadian MDL certified’”;

“(iv) ‘This agreement is secured by acceptable financial instruments agreed to by the parties,’”

“(v) ‘MY CLIENT is ready, willing and able to proceed with this production allocation agreement,’”

“(vi) ‘the manufacturing, securing of raw materials, and other necessary supply chains needed to fulfill this agreement are unencumbered,’”

“(vii) ‘I am available to converse further regarding this production allocation agreement’”’; and

“(viii) ‘I certify that I have gained admission to the bar in the United States in the State of California, BAR REGISTRATION NUMBER 16373400 and am in good standing.’”

(See Complaint, ¶ 42, quoting Complaint, Ex. 1 [copy of Jan. 4, 2021 Letter of Attestation signed by Lorraine D’Alessio on D’Alessio Law Group letterhead].)

The crime-fraud exception clearly permits discovery into whether, for example, Defendants had any knowledge of any fraudulent intent on the part of 24KK, and thus, executed the LOA despite knowing the reliance the LOA would induce in SmartSilk. (Evid. Code, § 956.) To the extent that discovery delves into protected communications or work product, Defendants can raise objections and file motions for protective orders. If SmartSilk cannot then make its case despite discovery, Defendants can file a motion seeking to dismiss this action based on insufficient pleadings or evidence or based on Defendants’ inability to present meaningful defenses without waiving the attorney-client privilege.

II. Marital Privilege

In their demurrer, Lorraine D’Alessio and D’Alessio Law Corp. also argue that the marital privilege bars Lorraine D’Alessio from presenting a meaningful defense because “[a]ny communications between Ms. D’Alessio and Mr. D’Alessio [24KK’s broker] are protected from disclosure by the marital privilege.” (Demurrer, p. 6, citing Evid. Code, § 970.)

SmartSilk’s opposition fails to address this argument.

No reply appears in the record.

The Court finds in favor of SmartSilk.

The fact that Lorraine D’Alessio as an individual may be limited in the testimony she can provide regarding her husband—who is not a party to this action—is not in and of itself a reason to determine that Lorraine D’Alessio cannot sustain a meaningful defense in this action, on the face of the pleadings. Richard D’Alessio’s involvement with 24KK and its alleged actions is unclear based on the pleadings themselves. There is no indication that Lorraine D’Alessio will be called to testify against Richard D’Alessio in any proceeding, at least insofar as the pleadings now stand. To the extent that Lorraine D’Alessio is tacitly arguing that her testimony in this action would necessarily implicate her husband in some kind of proceeding against him, the Court determines that Defendants’ briefing on this point is insufficient to support sustaining a demurrer.

Defendants’ demurrer is thus OVERRULED.

Motion to Strike

Legal Standard

The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (a) strike out any irrelevant, false, or improper matter inserted in any pleading; or (b) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc. § 436, subds. (a), (b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].)

For the purposes of a motion to strike pursuant to Sections 435 to 437 of the Code of Civil Procedure, the term “pleading” generally means a demurrer, answer, complaint, or cross-complaint, (Code Civ. Proc., § 435, subd. (a)), and an immaterial allegation or irrelevant matter in a pleading entails (1) an allegation that is not essential to the statement of a claim or defense, (2) an allegation that is neither pertinent to nor supported by an otherwise sufficient claim or defense, or (3) a demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint (Code Civ. Proc., § 431.10, subds. (b)(1)-(3), (c)).

I.

Order Striking Complaint: DENIED.

In their motion, Lorraine D’Alessio and D’Alessio Law Corp. argue that “plaintiff[’s Complaint] raised issues not only related to their specific situation investing in a deal, but also the services provided by defendants to client, 24KK, who is not a party to this case. 24KK has not waived the attorney-client privilege. As such, defendants are placed in the untenable position of being unable to rebut these allegations without disclosure of protected client confidences, whether providing oral testimony or documentation relating to communications with their clients that pertain to the services provided and dismissal of these defendants is mandated.” (Mot., pp. 5-9.)

In opposition, SmartSilk argues that it is not material to this motion that Defendants may possess privileged information belonging to 24KK and that Defendants failed to show why privilege prevents them from proceeding in the case. (Opp’n to Mot., pp. 3-5.)

No reply appears in the record.

The Court finds in favor of SmartSilk.

The Court adopts its discussion as to the demurrer above to DENY the motion to strike as to this relief.

II.

Order Striking Punitive Damages: DENIED.

In their motion, Lorraine D’Alessio and D’Alessio Law Corp. also argue that punitive damages are not sufficiently alleged in the Complaint because the “Complaint fails to specify what Mr. Altman [SmartSilk’s CEO] and Ms. D’Alessio specifically discussed during their January 2021 call,” which means that “the Complaint fails to plead with particularity the circumstances constituting the alleged fraud,” undercutting the claims supporting punitive damages. (Mot., pp. 9-10.)

In opposition, SmartSilk argues that in sufficiently alleging fraud, it has also sufficiently alleged a basis for punitive damages. (Opp’n to Mot., pp. 5-6.)

No reply appears in the record.

The Court finds in favor of SmartSilk.

The Court briefly notes that Lorraine D’Alessio and D’Alessio Law Corp. challenge the punitive damages prayer based on the fraud claims failing to plead the circumstances surrounding the misrepresentations with particularity, which is not an argument raised by these Defendants in their demurrer. (See Demurrer, pp. 3-6 [arguments limited to privileges].)

Moving to the merits, the Court determines that the Complaint sufficiently alleges a basis for misrepresentation, whether intentional or negligent: Lorraine D’Alessio’s execution of the LOA, the truth or certainty of which Lorraine D’Alessio did not correct or address during a January 2021 call with SmartSilk’s CEO, Yair Altman. (See Complaint, ¶¶ 40-46.) As to the content of the January 2021 call between Altman and Lorraine D’Alessio, the Court is not convinced that such allegations are necessary. Those allegations would be necessary for, for example, a fraud or negligent misrepresentation claim arising from misrepresentations made during the call itself. However, it appears evident that the issue in the fraud claims is Lorraine D’Alessio’s execution of the LOA and SmartSilk’s reliance on it. (See Complaint, ¶¶ 40-46.) As such, allegations that such a call took place and that Lorraine D’Alessio did not correct or address uncertainties as to her representations in the LOA during that call are proper background allegations.

Lorraine D’Alessio and D’Alessio Law Corp.’s motion is thus DENIED as to striking punitive damages.

Conclusion

Defendants Lorraine D’Alessio and Lorraine D’Alessio, A Professional Law Corporation’s Demurrer to Plaintiff’s Complaint is OVERRULED.

Defendants Lorraine D’Alessio and Lorraine D’Alessio, A Professional Law Corporation’s Motion to Strike Plaintiff’s Complaint is DENIED.