Judge: Barbara M. Scheper, Case: 21STCV25510, Date: 2022-07-26 Tentative Ruling

Case Number: 21STCV25510    Hearing Date: July 26, 2022    Dept: 30

Dept. 30

Calendar No.

Gallagher vs. Ygrene Energy Fund California, LLC, et. al., Case No. 21STCV25510

Tentative Ruling re:  Defendants’ Demurrer to First Amended Complaint

Defendants S P Energy Services (SP) and Western National Mutual Insurance Company (Western) (collectively, Defendants) demur to the First Amended Complaint (FAC) of Plaintiff Andrew Gallagher (Plaintiff). The first through eighth causes of action are asserted against SP. The ninth and tenth causes of action are asserted against Western. The demurrer is sustained.

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 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.)

First, Defendants demur to the SAC on the basis that there is a defect and misjoinder of parties. (Code Civ. Proc. § 430.10(d).)

Code Civ. Proc. § 379 permits joinder of defendants where “[a]ny right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. (Code Civ. Proc., § 379, subd. (a)(1).) “Demurrers on the ground of misjoinder lie only when the defect appears on the face of the complaint or matters judicially noticed.” (Royal Surplus Lines Ins. Co., Inc. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193, 198.)

Here, the common series of transactions and occurrences involving Defendants is Plaintiff’s participation in the Clean Energy Program (CEP) Loans administered by Co-Defendant Ygrene Energy Fund California, LLC (Ygrene), which allegedly used SP to market, advertise, and sell CEP loans. (Comp. ¶ 17.) Given these allegations, there is no misjoinder of parties.

Defendants also specially demur on the basis that the FAC is uncertain. A demurrer based on uncertainty is disfavored and will be strictly construed even when the pleading is uncertain in some respects. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 (Khoury).) The Court finds here that the FAC is not uncertain.

First Cause of Action under Civ. Code § 1770

            Defendants demur to the first cause of action against SP under the Consumer Legal Remedies Act (CLRA), Civ. Code § 1770, on the grounds that the CLRA does not apply to PACE financing as a matter of law. The Court agrees.

            The CLRA prohibits “unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or that results in the sale or lease of goods or services to any consumer.” (Civ. Code, § 1770.) Prohibited practices include “representing that a transaction confers or involves rights, remedies, or obligations which it does not have or involve ...” (Civ. Code, § 1770, subd. (a)(14).)

            In Smith v. Ygrene Energy Fund, Inc. (N.D. Cal., July 26, 2017) 2017 WL 3168519, the plaintiff asserted claims under the CLRA for the same PACE loans that are at issue here; the District Court found that PACE loans are intangible financial products that do not fall under the CLRA. (Id. at *8-9.) The District Court compared the PACE loans to life-insurance policies and mortgages loans, which have both been found to fall outside the CLRA in state court decisions. (Ibid.; see Fairbanks v. Super. Ct., 46 Cal. 4th 56 (2009); Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29, 40.)

Here, as in Smith, “[n]othing in the complaint suggests that the defendants did anything that would bring the PACE contracts inside the bounds of the CLRA.” (Smith, 2017 WL 3168519 at *9.) Therefore, the demurrer is sustained as to the first cause of action.

Second, Fourth, and Sixth Contract-Based Causes of Action

Defendants demur to Plaintiff’s second, fourth, and sixth contract-based causes of action against SP, for respectively breach of contract, breach of covenant of good faith and fair dealing, and rescission, on the grounds that Plaintiff has not attached or sufficiently pled the material terms of the alleged contract. The Court agrees.

“A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect. In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.’” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)

            The FAC alleges that around July 2017, salesman Cory Corbin solicited Plaintiff to perform home repair and improvement projects that would be financed by Ygrene via the CEP loans. (FAC ¶ 25.) Corbin was allegedly acting on behalf of and trained by Defendants Ygrene, Centerline, and SP. (FAC ¶ 25.)

Plaintiff’s breach of contract claim is premised on SP’s breach of a “home improvement contract.” (FAC ¶ 72.) While Plaintiff alleges that he entered into a Finance Estimate and Disclosure Agreement with Ygrene and an agreement with Corbin for home improvement projects and products (FAC ¶¶ 30, 32), Plaintiff has not attached or pled the material terms of any contract. Furthermore, it is not clear what contract the allegations under the fourth and sixth causes of action are meant to refer to. (FAC ¶¶ 89, 109.)

            Accordingly, the demurrer is sustained as to the second, fourth, and sixth causes of action.

Third Cause of Action under Bus. & Prof. Code § 17200

            Defendants demur to the third cause of action under Bus. & Prof. Code § 17200 against SP, on the grounds that Plaintiff’s allegations are not sufficient to show unfair or deceptive business practices, and that Plaintiff cannot seek personal damages or recover attorney’s fees under this cause of action.

            California’s Unfair Competition Law (UCL) prohibits unlawful, unfair, or fraudulent business acts or practices.  (Bus. & Prof. Code, § 17200 et seq.) The UCL does not define the term “unfair” as used in Business and Professions Code section 17200. Judicial interpretation of the “unfair” prong of the UCL has been somewhat unsettled. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1364-66.) In Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, the Court of Appeal stated that the unfair standard “is intentionally broad, thus allowing courts maximum discretion to prohibit new schemes to defraud.” (Id. at 718.) However, more recent decisions appear to have narrowed the scope of the unfair prong. (Durell, 183 Cal.App.4th 1350, 1365; see Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917; Byars v. SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134.)

While the scope of conduct covered by the UCL is broad, its remedies are limited. [Citation.] A UCL action is equitable in nature; damages cannot be recovered. [Citation.] We have stated that under the UCL, ‘[p]revailing plaintiffs are generally limited to injunctive relief and restitution.’” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144 [quoting (Cel–Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180].)

            Here, while Plaintiff alleges that Defendants’ business practices were misleading and “unfair,” Plaintiff has failed to present any argument in support of the contention that SP’s alleged conduct amounted to unfair business practices under the UCL. (FAC ¶¶ 81-82.)

            Accordingly, the demurrer is sustained as to the third cause of action.

Fifth Cause of Action for Fraud

            Defendants demur to Plaintiff’s fifth cause of action for fraud against SP on the grounds that Plaintiff has not alleged any direct misrepresentation made by SP to Plaintiff.

            The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See Civil Code §1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) “The particularity requirement demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) 

            Plaintiff’s fifth cause of action alleges that SP induced Plaintiff to enter into the home improvement contract by promising to provide the contracted-for work, but did not plan to complete the work and did not obtain proper licenses for any work performed. (FAC ¶ 98.) The Court finds that Plaintiff has failed to plead the cause of action for fraud with the requisite specificity. Plaintiff has not pled how, when, and where the representations were tendered.

Plaintiff argues that specificity is not required here because the claim is based on fraud by concealment; this does not reflect the pleadings, which refers to affirmative misrepresentations made by Defendants, not concealment. (FAC ¶ 98-100 [“At the time the foregoing misrepresentations were made, [SP] knew the true facts and Defendants made such misrepresentations intentionally…”].)

Accordingly, the demurrer is sustained as to the fifth cause of action.

Seventh Cause of Action for Unjust Enrichment

            Defendants demur to the seventh cause of action for unjust enrichment, on the basis that there is no independent cause of action for unjust enrichment.

            The Court agrees that there is no cause of action for unjust enrichment in California. (See Rutherford Holdings LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231; Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1138.) However, courts have stated that unjust enrichment is synonymous with restitution and have allowed recovery where the plaintiff asserts a proper basis for recovering restitution. (See Durrell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370; McBride v. Boughton (2004) 123 Cal.App.4th 379, 387-88.) Such bases include quasi-contract, fraud, duress, conversion, or similar conduct. (See Durrell, 183 Cal.App.4th at 1370; McBride, 123 Cal.App.4th at 387-88.)

            Because Plaintiff has failed to establish any basis for restitution against Defendant, the seventh cause of action for unjust enrichment fails.

Eighth Cause of Action for Bus. & Prof. Code § 7160, et seq.

Bus. & Prof. Code § 7160 provides, “Any person who is induced to contract for a work of improvement, including but not limited to a home improvement, in reliance on false or fraudulent representations or false statements knowingly made, may sue and recover from such contractor or solicitor a penalty of five hundred dollars ($500), plus reasonable attorney's fees, in addition to any damages sustained by him by reason of such statements or representations made by the contractor or solicitor.”

Defendants argue that this is not a recognized cause of action. It is clear from the statute’s language that it provides a private cause of action. Furthermore, this section “does not exempt noncontracting parties from liability . . . for fraudulent inducement of a home improvement contract.” (Moore v. Teed (2020) 48 Cal.App.5th 280, 295.) However, as discussed above, Plaintiff has failed to plead fraud by SP with the requisite specificity; because this cause of action requires the Plaintiff to show “reliance on false or fraudulent representations or false statements knowingly made,” it also fails. (Bus. & Prof. Code § 7160.)

Accordingly, the demurrer to the eighth cause of action is sustained.

Ninth and Tenth Causes of Action under Bus. & Prof. Code § 7071

Plaintiff alleges under the ninth cause of action against Western that Western failed to fulfill the conditions under Section 7071.6 regarding issuance of a bond, and that Plaintiff is entitled to damages pursuant to Section 7071.5. (FAC ¶¶ 128-131.) Defendants demur on the grounds that this section is not a cause of action and requires the determination of a violation of contractor law by the Contractors State License Board.

            Bus. & Prof. Code § 7071.5 requires a contractor’s bond to be “executed in favor of the State of California for the benefit of, among others, homeowners who are harmed by a contractor's violation of certain California laws governing contractors.” (In re Dunbar (B.A.P. 9th Cir. 1999) 235 B.R. 465, 475.) “Under § 7071.5, those bonds are essentially third-party beneficiary contracts, the penal sum protecting certain specified classes of people who are harmed in specified ways in dealing with the contractor.” (In re Buna Painting & Drywall Co., Inc. (9th Cir. 1974) 503 F.2d 618, 619.)

            Section 7071.6 provides that “The board shall require as a condition precedent to the issuance, reinstatement, reactivation, renewal, or continued maintenance of a license, that the applicant or licensee file or have on file a contractor's bond in the sum of fifteen thousand dollars ($15,000).” (See Karton v. Ari Design & Construction, Inc. (2021) 61 Cal.App.5th 734, 751.)

            While a homeowner damaged by a contractor’s violations may be entitled to recovery of the bond issued pursuant to these sections, Plaintiff has not alleged the underlying violation committed by SP. To the extent that Plaintiff seeks to premise this cause of action on alleged fraud by SP (FAC ¶ 130), Plaintiff has failed to allege the fraud with the requisite specificity, as discussed above.

            Accordingly, the demurrer to the ninth cause of action is sustained.

            The tenth cause of action requests declaratory relief as to Plaintiff’s rights regarding the bond issued by Western to SP. (FAC ¶¶ 134-135.) For the reasons stated above, Plaintiff has not pled sufficient facts showing that he is entitled to the bond in question, and so the demurrer is also sustained as to the tenth cause of action.