Judge Barbara M. Scheper, Case 21STCV03363 2023-01-24 Tentative Ruling

Judge: Barbara M. Scheper, Case: 21STCV03363, Date: 2023-01-24 Tentative Ruling

Case Number: 21STCV03363 Hearing Date: January 24, 2023 Dept: 30

Dept. 30

Calendar No.

Ikspan, Inc. vs. Ruben, et. al., Case No. 21STCV03363

Tentative Ruling re: Defendants’ Demurrer to Second Amended Complaint

Defendants David Schottenstein and Privé Goods, LLC (collectively, Defendants) demur to the eighth and eleventh causes of action in the Second Amended Complaint (SAC) of Plaintiff Ikspan, Inc. (Ikspan). The demurrer is overruled. Defendants are ordered to answer within ten (10) days of today’s date.

In reviewing the legal sufficiency of a complaint against a demurrer, a court will treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank); C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062.) It is well settled that a “demurrer lies only for defects appearing on the face of the complaint[.]” (Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 601.) “The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Guclimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (internal quotes omitted).) For purposes of ruling on a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded. (Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 958.)

When ruling on a demurrer, the Court may only consider the complaint’s allegations or matters which may be judicially noticed. (Blank, supra, 39 Cal.3d at p. 318.) The Court may not consider any other extrinsic evidence or judge the credibility of the allegations plead or the difficulty a plaintiff may have in proving his allegations. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.) A demurrer is properly sustained only when the complaint, liberally construed, fails to state facts sufficient to constitute any cause of action. (Kramer v. Intuit Inc. (2004) 121 Cal.App.4th 574, 578.)

Ikspan’s claims arise out of an alleged March 2019 agreement (the Licensing Agreement) with Privé Goods, LLC (PG), an eyewear company, to market, promote, advertise, distribute, and sell PG products in fifteen European Union countries. (SAC ¶ 2.) Defendant David Schottenstein (Schottenstein) is PG’s owner. (SAC ¶ 1.) Under the Licensing Agreement, Ikspan acted as a “middle-man” for the covered countries, and in that role entered into a contract with GrandVision, an optical retailer, for the exclusive rights to distribute PG products to GrandVision (the GV Contract). (SAC ¶ 3.)

Ikspan alleges that PG’s approved manufacturers failed to meet product standards, deliver goods in a timely manner, and comply with European standards of quality, jeopardizing the GV Contract. (SAC ¶ 4.) Ikspan first notified PG and Schottenstein of the poor state of its manufacturing facilities in August 2018, then provided formal written notice of the manufacturing failures on May 24, 2019. (SAC ¶ 4.) PG allegedly did nothing to address the manufacturers’ failures, harming Ikspan’s relations with GrandVision. (SAC ¶ 4.) PG then “sought to facilitate the termination of the GV Contract in a fraudulent bid to cut out Ikspan and seize the opportunity to transact with Grandvision directly.” (SAC ¶ 26.) PG did so by “coaxing Ikspan to forfeit its exclusive distribution rights,” while Schottenstein, working with GrandVision and Laurent Ruben, an Ikspan insider, “hammered out a secret side deal” to undermine Ikspan’s interests in the GV Contract. (SAC ¶ 26.) Ikspan, at the advice of Ruben, executed a confidential settlement agreement and accompanying release under which “Ikspan relinquished its exclusive right to market, promote, advertise distribute and sell Prive eyewear in the Territory and promptly shut down.” (SAC ¶ 8.)

Defendants’ alleged misconduct culminated in PG’s acquisition by Safilo Group on February 10, 2020, along with PG’s announcement in June 2020 of its exclusive European expansion deal with GrandVision. (SAC ¶ 28.) The SAC alleges that “PG, Schottenstein and TSG knowingly exploited Ikspan’s know-how, expertise and proprietary knowledge from Ruben to position PG for acquisition.” (SAC ¶ 27.)

Ikspan’s eighth and eleventh causes of action are for Intentional Interference with Prospective Economic Advantage and Intentional Interference with Contract, respectively.

The elements for the tort of intentional interference with prospective economic advantage are: “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.)

In order to establish intentional interference with prospective economic advantage, a plaintiff must show that the defendant engaged in an independently wrongful act. (See Korea Supply Co., supra, 29 Cal.4th at 1158.) “An act is not independently wrongful merely because defendant acted with an improper motive.” (Ibid.) “[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Id. at 1159.)

“To prevail on a cause of action for intentional interference with contractual relations, a plaintiff must plead and prove (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148.)

Ikspan’s eighth cause of action for Intentional Interference with Prospective Economic Advantage, asserted against PG, alleges that the defendants intentionally interfered with the economic relationship between Plaintiff and GrandVision, by “engag[ing] in a fraudulent scheme to expropriate Plaintiff for their own financial benefit.” (SAC ¶¶ 75-77.) The eleventh cause of action for Intentional Interference with Contract alleges that PG intentionally interfered with the GV Contract between Ikspan and GrandVision by fraudulently inducing Plaintiff to relinquish its rights under the GV Contract, pressuring Plaintiff to settle its claims with PG, and failing to disclose facts material to Plaintiff’s position with respect to the GV Contract. (SAC ¶ 98.)

Defendants demur to both the eighth and eleventh causes of action on the grounds that part of PG’s alleged interference took place before Ikspan entered into the GV Contact or formed an economic relationship with GrandVision, and that the alleged conduct postdating Ikspan’s relationship with GrandVision is insufficient to support the claims.

Defendants argue that the interference claims are improperly premised on conduct in August 2018, the date of Ikspan’s first alleged notification to PG of the manufacturing issues. But Ikspan’s causes of action, liberally construed, are not based on that initial notice; the SAC alleges that PG’s failure to act continued through at least May 24, 2019, when Ikspan delivered formal written notice of the manufacturing issues. (SAC ¶ 4.) The allegation that PG had also failed to correct the problems prior to the formation of Ikspan’s contract with GrandVision does not mean that its continuing failure to act after formation of the GV Contract cannot constitute intentional disruptive acts.

Furthermore, Ikspan has alleged other interference by Defendants postdating the GV Contract. The SAC alleges that Schottenstein, GrandVision, and Laurent Ruben, an Ikspan insider, colluded in May 2022 to undermine Ikspan’s contract with GrandVision for PG’s benefit. (SAC ¶¶ 5-7.) This collusion resulted in Ikspan executing a confidential settlement agreement and accompanying release agreement, under which it relinquished its rights to market and distribute PG eyewear in the covered countries. (SAC ¶ 8.) Defendants also “pressured Plaintiff to settle its claims with PG, TSG and GrandVision,” and “failed to disclose and/or misrepresented certain material facts that would have otherwise altered Plaintiff’s position with respect to the Settlement Agreement, GV Contract, and/or the Licensing the Agreement.” (SAC ¶ 32.)

Defendants’ alleged misconduct constitutes intentional acts on the part of Defendants, designed to disrupt the economic relationship and contract between Ikspan and GrandVision. The alleged misconduct resulted in “actual disruption of the relationship” and “actual breach or disruption of the contractual relationship,” as Ikspan was ousted from its deal with GrandVision and later relinquished its rights under the GV Contract. (SAC ¶ 29.) The eighth and eleventh causes of action are therefore sufficiently pled. The demurrer is overruled.