Judge: Barbara M. Scheper, Case: 22STCV13914, Date: 2022-08-02 Tentative Ruling
Case Number: 22STCV13914 Hearing Date: August 2, 2022 Dept: 30
Dept. 30
Calendar No.
Applied Infotech System, Inc. vs. Omoto, et. al., Case
No. 22STCV13914
Tentative Ruling
re: Defendant’s Demurrer to Complaint;
Motion to Strike
Defendant Alex Yosuka Omoto (Defendant)
demurs to and moves to strike portions of the Complaint of Plaintiff Applied
Infotech System, Inc. dba Applied Accountancy (Plaintiff). The Court sustains
the demurrer as to the first, second, third, sixth, seventh, and eighth causes
of action with ten (10) days leave to amend.
The demurrer to the fourth and fifth causes of action is overruled. The
motion to strike is granted.
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.)
Plaintiff is an accountancy
corporation formed in 1989 by Arthur Omoto. (Comp. ¶ 5.) Arthur and his wife,
Patricia Omoto, served as the only shareholders and directors of Plaintiff,
until Arthur’s death in 2016 left Patricia as the sole shareholder and
director. (Comp. ¶¶ 6-7.) Defendant Alex Yosuke Omoto is the son of Arthur and
Patricia, and began working for Plaintiff in June 2018. (Comp. ¶ 8.) During his
employment, Defendant “acted as if he were already the sole owner of
[Plaintiff],” through behavior including reimbursing a company credit card without
approval, refusing to discuss client files with Patricia, refusing client
contact information to Patricia, and barring Patricia from access to certain
books and records. (Comp. ¶ 10.) Plaintiff gave Defendant notice of his
termination on November 4, 2021, but Defendant essentially ignored the notice,
continued to service clients, and attempted to control day-to-day operations.
(Comp. ¶¶ 11-12.)
Defendant has rebuffed Patricia’s
attempts to resolve the matter, including her offer to transfer ownership of
Plaintiff to Defendant in exchange for Defendant’s agreement to have Plaintiff
indemnify Patricia from any potential liabilities that may arise post-transfer.
(Comp. ¶ 14.) Patricia has also attempted to wind-up and dissolve Plaintiff,
but has been prevented from doing so by Defendant, who has denied her access to
the books and records necessary to complete the dissolution. (Comp. ¶ 15.)
First Cause of Action - Interference with
Contractual Relationships
The
elements of a cause of action for intentional interference with contractual
relations are “(1) a valid contract between plaintiff and a third party; (2)
defendant’s knowledge of this contract; (3) 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.” (Pacific Gas & Electric Co. v. Bear Stearns & Co.
(1990) 50 Cal.3d 1118, 1126.) “
Plaintiff’s first cause of action for
Interference with Contractual Relationships alleges that Defendant has
prevented or hindered performance of contracts between Plaintiff and its
third-party clients. (Comp. ¶¶ 18-21.) Plaintiff alleges that Defendant, even
after being given formal notice of termination, continued to conduct
Plaintiff’s operations and service clients. (Comp. ¶ 14.) However, Plaintiff
has failed to allege any facts showing actual breach or disruption of the
contractual relations with its clients resulting from Defendant’s conduct.
Therefore, the demurrer is sustained
as to the first cause of action.
Second Cause of Action - Breach of Implied Covenant
of Good Faith and Fair Dealing
The elements of a claim for breach of
the implied covenant of good faith and fair dealing are: (1) existence of a
contract between plaintiff and defendant; (2) plaintiff performed his
contractual obligations or was excused from performing them; (3) the conditions
requiring defendant’s performance had occurred; (4) the defendant unfairly
interfered with the plaintiff’s right to receive the benefits of the contract;
and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irr.
Dist. v. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280
[discussing California law].)
“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.)
Plaintiff’s second cause of action
for Breach of Implied Covenant of Good Faith and Fair Dealing is premised upon Defendant’s
alleged bad faith with respect to the employment agreement between him and
Plaintiff. (Comp. ¶¶ 25-29.) Specifically,
“Alex prevented [P]laintiff from receiving the benefits it was entitle[d] to
under the [employment] agreement, including but not limited to access to its
own clients, books, and records.” (Comp. ¶ 28.)
Plaintiff has failed to plead the
employment contract on which this cause of action is based, either by alleging
its relevant terms or by attaching a copy of the contract to the Complaint.
Therefore, the demurrer is sustained
as to the second cause of action.
Third Cause of Action - Negligence
To plead a cause of
action for negligence a plaintiff must allege facts showing:
“(1) a legal duty of care toward the plaintiff;
(2) a breach of that duty; (3) legal causation;
and (4) damages.” (Century Surety
Co. v. Crosby Insurance, Inc. (2004) 124 Cal.App.4th 116, 127.) “The
threshold element of a cause of action for negligence is the existence of a
duty to use due care toward an interest of another that enjoys legal protection
against unintentional invasion. [Citations.] Whether this essential prerequisite
to a negligence cause of action has been satisfied in a particular case is a
question of law to be resolved by the court.” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397 (Bily).)
“
The
third cause of action for negligence alleges Defendant’s breach of the “duty of
ordinary care in the performance of his job duties.” (Comp. ¶ 32.) Although the
legal conclusion that ‘a duty’ exists is neither necessary nor proper in a
complaint, facts that cause the duty to arise (or from which duty is
‘inferred’) are essential to the cause of action.” (4
Witkin, Cal. Proc. 6th Plead § 585 (2022).) Accordingly, the pertinent
analysis is first whether the facts pled give rise to a duty of care owed by
Defendant to Plaintiff.
A paid agent owes the principal the duty “to
act with standard care and with the skill which is standard in the locality for
the kind of work which he is employed to perform.” (Id. § 379.) It is
alleged that Defendant was employed by Plaintiff during most of the relevant
period (Comp. ¶¶ 8-10), and so during that time Defendant owed Plaintiff the
duty to act with standard care and skill for the work which he was employed to
perform. However, the Complaint fails to allege any facts regarding the
substance of Defendant’s job duties during his employment with Plaintiff.
Absent any facts indicating what Defendant’s job duties actually were,
Plaintiff has not alleged Defendant’s negligent breach of those duties, because
the scope of the legal duty cannot be properly defined. (See Federico
v. Superior Court (Jenry G.) (1997) 59 Cal.App.4th 1207, 1211 [“As a
practical matter, [the] elements [of negligence] are interrelated, as the
question whether an act or omission will be considered a breach of duty or a
proximate cause of injury necessarily depends upon the scope of the duty
imposed].)
Therefore,
the demurrer is sustained as to the third cause of action.
Fourth and Fifth Causes of Action – Conversion,
Trespass to Chattels
To plead a cause of
action for conversion, one must allege (1) the plaintiff’s ownership or right
to possession of personal property; (2) defendant’s disposition of the property
inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont
Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97,
119.) “To state a conversion action ‘it is not essential that plaintiff
shall be the absolute owner of the property converted but she must show that
she was entitled to immediate possession at the time of conversion.’” (Hartford
Financial Corp. v. Burns (1979) 96 Cal.App.3d 591, 598.)
“[T]he tort of trespass to chattels
allows recovery for interferences with possession of personal property ‘not
sufficiently important to be classed as conversion, and so to compel the
defendant to pay the full value of the thing with which he has interfered.’” (Intel
Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1350 (Intel Corp.) “Trespass
to chattel, although seldom employed as a tort theory in California . . . lies
where an intentional interference with the possession of personal property has
proximately caused injury.” (Thrifty-Tel, Inc. v. Bezenek (1996) 46
Cal.App.4th 1559, 1566.) It includes the unauthorized use of personal property,
“for interferences with the possession of chattels which are not sufficiently
important to be classed as conversion.” (Id. (quoting Prosser and Keeton
on Torts (5th ed.1984) § 14, pp. 85-86.).)
The
fourth cause of action for conversion and fifth cause of action for Trespass to
Chattels are both premised upon Defendant’s alleged interference with Plaintiff’s
property, including client information and internal records. (Comp. ¶¶ 38, 44.)
Specifically, Defendant has prevented Patricia from accessing the information
and documents. (Comp. ¶ 14.)
Defendant
demurs on the grounds that the Complaint is vague, and that Plaintiff has
failed to allege damages.
“The detriment caused
by the wrongful conversion of personal property is presumed to be: [¶]
First--The value of the property at the time of the conversion, with the
interest from that time, or, an amount sufficient to indemnify the party
injured for the loss which is the natural, reasonable and proximate result of
the wrongful act complained of and which a proper degree of prudence on his
part would not have averted; and [¶] Second--A fair compensation for the time
and money properly expended in pursuit of the property.” (Civ. Code § 3336.) “[A]
person claiming damages under the alternative provision must plead and prove
special circumstances that require a measure of damages other than value.” (Lueter v.
State of California (2002) 94 Cal.App.4th 1285, 1302.)
While the
Complaint is unclear in some respects, it is not so vague as to warrant a
special demurrer for uncertainty. (Khoury v.
Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer
based on uncertainty is disfavored and will be strictly construed even when the
pleading is uncertain in some respects”].) Plaintiff’s allegation that
Defendant has continually denied Patricia’s access to company books and records
is sufficient to plead damages based on “fair compensation for the time
and money properly expended in pursuit of the property.” (Civ. Code § 3336.)
Therefore, the demurrer is overruled
as to the fourth and fifth causes of action.
Sixth Cause of Action –
Violation of UCL
The UCL prohibits unlawful, unfair, or fraudulent business
acts or practices. (Bus. & Prof. Code, § 17200 et seq.) “An
‘unlawful business activity’ includes ‘anything that can properly be called a
business practice and that at the same time is forbidden by law.’” (People
v. McKale (1979) 25 Cal.3d 626, 632 [quoting Barquis v. Merchants
Collection Assn. (1972) 7 Cal.3d 94, 113].) “Virtually
any law or regulation—federal or state, statutory or common law, can serve as a
predicate for a Business and Professions Code section 17200 ‘unlawful’
violation. [Citation.]” (Paulus v. Bob Lynch Ford, Inc. (2006) 139
Cal.App.4th 659, 681 [internal quotations omitted].)
“The ‘unlawful’ practices prohibited by
section 17200 are any practices forbidden by law, be it civil or criminal,
federal, state, or municipal, statutory, regulatory, or court-made.” (Saunders
v. Superior Court (1994) 27 Cal.App.4th 832, 838–839.) “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.] . .
. [U]nder 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.)
An individual has standing for a §
17200 claim only if they have “suffered injury in fact” and have “lost money or
property as a result of the unfair competition.” (Bus. & Prof. Code, §
17204.) To establish standing, a plaintiff must “(1) establish a loss or deprivation of money or property
sufficient to qualify as injury in fact, i.e., economic injury, and (2)
show that that economic injury was the result of, i.e., caused by, the
unfair business practice or false advertising that is the gravamen of the
claim.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 332
[emphasis in original].) The UCL incorporates the meaning of an “injury in
fact” under federal law, which defines the term as “an invasion of a legally
protected interest which is (a) concrete and particularized, [citations]; and
(b) ‘actual or imminent, not “conjectural” or “hypothetical.”’ [citations].” (Ibid.
[quoting Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560]; see Van
Patten v. Vertical Fitness Group, LLC (9th Cir. 2017) 847 F.3d 1037, 1049.)
“There are innumerable ways in which economic
injury from unfair competition may be shown. A plaintiff may (1) surrender in a
transaction more, or acquire in a transaction less, than he or she otherwise
would have; (2) have a present or future property interest diminished; (3) be
deprived of money or property to which he or she has a cognizable claim; or (4)
be required to enter into a transaction, costing money or property, that would
otherwise have been unnecessary. [Citation.]” (Kwikset Corp., supra, 51 Cal.4th at 323.)
The
sixth cause of action for Unlawful Business Practices alleges that Defendant’s interference
with Plaintiff’s client information, files, and records violates the UCL.
(Comp. ¶ 49.) Plaintiff has not alleged standing under the UCL, as the facts
pled do not show that Plaintiff has lost money or property as a result of
unfair business practices committed by Defendant. First, Defendant’s
reimbursement of the company credit card from the company bank account does not
show Plaintiff’s loss of property, because funds transferred to the company
credit card are still within Plaintiff’s possession and so have not been
“lost.” (Comp. ¶ 10.) Plaintiff’s withholding of information from Patricia and
denial of her access to company records likewise does not show loss of money or
property as required under the UCL. (Comp. ¶ 10.) Finally, the allegation that
this denial of access barred Patricia from dissolving Plaintiff does not show
that Plaintiff has lost money or property.
Therefore,
the demurrer is sustained as to the sixth cause of action.
Seventh Cause of Action – Injunctive Relief
Plaintiff’s seventh cause of action for
injunctive relief seeks an injunction enjoining Defendant from continuing to
interfere with Plaintiff’s property. Because the demurrer is sustained to
Plaintiff’s UCL claim, Plaintiff has not pled grounds for injunctive relief.
Therefore, the demurrer is also sustained to
the seventh cause of action.
Motion to Strike
Defendant moves to strike the allegations
supporting Plaintiff’s request for recovery of punitive damages.
A plaintiff may recover punitive
damages in an action for the breach of an
obligation not arising out of contract where the defendant has been guilty of
oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a).) “Malice” exists
when the defendant intends to cause injury to the plaintiff or the defendant
engages in despicable conduct with willful and conscious disregard of the
rights or safety of others. (Civ. Code, § 3294, subd. (c)(1).) “Oppression”
exists when the defendant in conscious disregard of a person's rights engages
in despicable conduct subjecting that person to cruel and unjust hardship. (Civ.
Code, § 3294, subd. (c)(2).)
The Court agrees with
Defendant that the allegations do not show malice, oppression, or fraud supporting
the recovery of punitive damages. The allegations that Defendant, an employee
of Plaintiff, withheld information from Plaintiff’s director does not amount to
“despicable conduct” or “conscious disregard” of Plaintiff’s rights.
Therefore,
the motion to strike is granted.