Judge: Barbara M. Scheper, Case: 24STCV14946, Date: 2024-12-05 Tentative Ruling
Case Number: 24STCV14946 Hearing Date: December 5, 2024 Dept: 30
Dept.
30
Calendar
No.
Shen, et. al. vs Chow, et. al.,
Case No. 24STCV14946
Tentative Ruling re:
Defendants’ Demurrer to Complaint; Motion to Strike
Judy Chao Di Chow
and Steve Chi Kong Lee (Defendants) demur
to Pei Ching Shen and Steve Hayashi’s (Plaintiffs) complaint alleging causes of
action for fraud, breach of fiduciary duty, and violation of Business and
Professions Code section 17200. Defendants also move to strike the portions of
Plaintiffs’ complaint requesting punitive damages or attorney’s fees. Defendants’
demurrer is sustained as to the second cause and third causes of action, and their
motion to strike is granted as to Plaintiffs’ request for attorney’s fees only.
A demurrer is
sustained where “[t]he pleading does not state facts sufficient to constitute a
cause of action.” (Code Civ. Proc., 430.10, subd. (e).) “A demurrer tests the
legal sufficiency of the factual allegations in a complaint.” (Yalung v.
State (2023) 98 Cal.App.5th 71, 80.) In reviewing a complaint’s legal
sufficiency, a court will treat the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of law. (Esparza
v. Kaweah Delta Dist. Hospital (2016) 3 Cal.App.5th 547, 552.) 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.) “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 Tit. Guaranty Co.
(1998) 19 Cal.4th 26, 38.) 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, a court may only consider the complaint’s allegations or matters
which may be judicially noticed. (Blank
v. Kirwan (1985) 39 Cal.3d 311,
318.) The Court may not consider any other extrinsic evidence or judge the
credibility of the allegations pleaded or the difficulty a plaintiff may have
in proving his allegations. (Ion Equipment
Corporation 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.)
The Court
may, upon a motion, or at any time in its discretion, and upon terms it deems
proper, strike any irrelevant, false, or improper matter inserted in any
pleading. (Code Civ. Proc., § 436, subd. (a).) The Court may also strike all or
any part of any pleading not drawn or filed in conformity with the laws of this
state, a court rule, or an order of the Court. (Id., § 436, subd. (b).)
The grounds for a motion to strike are that the pleading has irrelevant, false
or improper matter, or has not been drawn or filed in conformity with laws. (Id.,
§ 436.) The grounds for moving to strike must appear on the face of the
pleading or by way of judicial notice. (Id., § 437.)
When a
demurrer is sustained, the Court determines whether there is a reasonable
possibility that the defect can be cured by amendment. (Blank, supra,
39 Cal.3d at p. 318). When a plaintiff “has pleaded the general set of
facts upon which his cause of action is based,” the court should give the
plaintiff an opportunity to amend his complaint, since plaintiff should not “be
deprived of his right to maintain his action on the ground that his pleadings
were defective for lack of particulars.” (Reed v. Norman (1957) 152
Cal.App.2d 892, 900.)
Defendants argue that
Plaintiffs’ claims are barred by the economic loss rule. Additionally, Defendants
demur to Plaintiffs’ three causes of action on the grounds that they fail to state
facts sufficient to constitute a cause of action and that they are uncertain.
(Code Civ. Proc., § 430.10, subds. (e), (f).) The Court will first
address Defendants’ economic loss rule argument before turning to each cause of
action individually.
Plaintiffs’ causes of
action are not barred by the economic loss rule.
Under the economic
loss rule, tort recovery for breach of a contract duty is generally barred. (Rattagan
v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 20 (Rattagan).) A
plaintiff may still bring a tort action if they “demonstrate the defendant’s
injury-causing conduct violated a duty that is independent of the duties and
rights assumed by the parties when they entered the contract” and that “defendant’s
conduct . . . caused injury to persons or property that was not reasonably
contemplated by the parties when the contract was formed.” (Id. at pp.
20–21.) Fraudulent inducement of contract is not a context to which the
economic loss rule applies. (Id. at p. 41.)
Here, Plaintiffs’
tort claims concern alleged oral representations to share commissions. (Compl.
¶ 10.) Plaintiffs do not assert the existence of a contract. Rather, their
action involves promissory fraud on the part of Defendants: inducing Plaintiffs
to perform based on a false promise. As discussed in Rattagan, this is
not a context requiring the traditional separation of tort and contract law. (Rattagan,
supra, 17 Cal.5th at p. 41.) Thus, the economic loss rule does not apply
to the present case.
Plaintiffs have pled
facts sufficient to state a cause of action for fraud.
Defendants argue that
Plaintiffs have failed to plead facts sufficient to state a cause of action for
fraud. The elements of fraud are (1) misrepresentation, (2) knowledge of
falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting
damage. (Rattagan, supra, 17 Cal.5th at p. 32.) “In California,
fraud must be pled specifically; general and conclusory allegations do not
suffice . . . This particularity requirement necessitates pleading facts which
show how, when, where, to whom, and by what means the representations were
tendered.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 (Lazar).)
However, less specificity is required in a complaint when “it appears from the
nature of the allegations that the defendant must necessarily possess full
information concerning the facts of the controversy. (Tenet Healthsystem
Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 838 (Tenet).)
Defendants argue that Plaintiffs have not pled facts satisfying the heightened
pleading standard for fraud regarding the intent to defraud and justifiable
reliance elements but concede that they have sufficiently pled the rest.
Here, Plaintiffs have
pled sufficient facts showing Defendants’ intent to defraud. Plaintiffs allege
that when Defendants made the false representations identified in the
complaint, “they knew them to be false and made these representations with the
intention to deceive and defraud Plaintiffs and to induce Plaintiffs to act in
reliance on those representations.” (Compl. ¶ 31.) Plaintiffs identify the false
representations tendered with specificity as required by Lazar. (Id. ¶¶
9–10.) Defendants admit as much in their briefing. (Demurrer p. 7 lines 17–20.)
Plaintiffs are not required to plead specific facts regarding Defendants’
scienter — Defendants must necessarily possess full knowledge regarding these
facts as discussed in Tenet. Requiring more specific facts involving a
defendant’s intent to defraud would make the pleading of fraud a near
impossibility absent admissions from the defendant. Thus, Plaintiffs have pled sufficient
facts alleging Defendants’ intent to defraud.
Plaintiffs have also
pled sufficient facts showing justifiable reliance. As discussed in the
preceding paragraph, this element is not held to a heightened pleading
standard. To show justifiable reliance, a plaintiff must show that “circumstances
were such to make it reasonable for plaintiff to accept
defendant’s statements without an independent inquiry or investigation.” (Wilhelm
v. Pray, Price, Williams & Russel (1986) 186 Cal.App.3d 1324, 1332.) Plaintiffs
allege that Defendants represented they had experience obtaining commercial
loans and that any loan obtained would result in commission split between
Plaintiffs and Defendants. (Compl. ¶¶ 9–10.) It was reasonable for Plaintiffs
to accept Defendants’ statements, as they were fellow experienced real estate
brokers. Thus, Plaintiffs have pled facts showing justifiable reliance.
Accordingly, Defendants’ demurrer is overruled as to the first cause of action.
Plaintiffs
have not pled sufficient facts to state a cause of action for breach of
fiduciary duty.
Defendants argue that
Plaintiffs have failed to plead facts sufficient to state a cause of action for
breach of fiduciary duty. Breach of fiduciary duty requires proof of three
elements: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty;
and (3) damage proximately caused by the breach. (Tribeca Companies, LLC v.
First American Title Ins. Co. (2015) 239 Cal.App.4th 1088, 1114.)
Plaintiffs have
failed to plead facts showing the existence of a fiduciary duty. “[B]efore a
person can be charged with a fiduciary obligation, he must either knowingly
undertake to act on behalf and for the benefit of another, or must enter into a
relationship which imposes that undertaking as a matter of law.” (City of
Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375,
386.) Examples of such relationships include joint ventures, partnerships, and
agencies. (Ibid.) Here, Plaintiffs allege that Defendants “voluntarily
and knowingly undertook to act on behalf of and for the benefit of Plaintiffs.”
(Compl. ¶ 38.) Such an allegation is conclusory. Plaintiffs do not plead any
other facts showing the existence of a fiduciary duty. Plaintiffs’ allegations
that they and Defendants merely worked together to secure the loans in question
do not constitute the formation of a joint venture or agency relationship. Accordingly,
Defendants’ demurrer as to this cause of action is sustained.
Plaintiffs
have not pled facts sufficient to support a cause of action for unfair competition
under Business and Professions Code section 17200.
Defendants argue that
Plaintiffs have not pled sufficient facts to support a cause of action for
unfair competition. Unfair competition includes “any unlawful, unfair or
fraudulent business act or practice and unfair, deceptive, untrue or misleading
advertising.” (Bus. & Prof. Code, § 17200.) A court may issue injunctive
relief to “restore to any person in interest any money or property, real or
personal, which may have been acquired by means of such unfair competition.” (Id.,
§ 17203.) A party alleging unfair competition under section 17200 must “state
with reasonable particularity the facts supporting the statutory elements of
the violation.” (Khoury v. Maly’s of California, Inc. (1993) 14
Cal.App.4th 612, 619 (Khoury).)
Here, Plaintiffs allege
that Defendants’ actions constitute unfair business practices, and that the
harm to Plaintiffs outweighs any utility of those practices. (Compl. ¶¶ 42–43.)
Plaintiffs allege that Defendants have reaped benefits by violating the
prohibition on unfair competition in Business and Professions Code section
17200, and that Plaintiffs are entitled to injunctive relief pursuant to
section 17203. (Id. ¶ 46.) In Khoury, the appellate court
affirmed a trial court’s sustaining of a demurrer as to causes of action under
section 17200, reasoning that “the second amended complaint identifie[d] no
particular section of the statutory scheme which was violated and fail[ed] to
describe with any reasonable particularity the facts supporting violation.” (Khoury,
supra, 14 Cal.App.4th at p. 619.) Unlike in Khoury, here Plaintiffs
identify section 17200’s ban on unfair or fraudulent business acts or practices
as a statutory violation. Plaintiffs also identify Defendants’ commission
promises as violations. Thus, Plaintiffs have pled facts sufficient to satisfy
the pleading standard outlined in Khoury.
Defendants also argue
that Plaintiffs have no remedy under section 17200. “While the scope of conduct
covered by the UCL is broad, its remedies are limited.” (Korea Supply Co. v.
Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144 (Korea Supply).) An
action under section 17200 is equitable in nature; thus, damages may not be
recovered. (Ibid.) Compensation for a lost business opportunity is a
measure of damages and does not constitute restitution. (Id. at p.
1151.) Here, like in Korea Supply, Plaintiffs seek disgorgement of profits
kept by Defendants that Plaintiffs contend they are owed as agreed upon
commission. Plaintiffs never possessed the funds in question. Thus, under Korea
Supply, Plaintiffs may not bring a cause of action under section 17200
because they seek relief regarding a “contingent expectancy of payment from a
third party” rather than a “quantifiable sum owed by defendants to
plaintiff[s].” (Id. at p. 1150.) Such relief does not constitute
restitution, and thus Plaintiffs have not requested an equitable remedy
authorized under section 17203. Accordingly, Defendants’ demurrer is sustained
as to Plaintiffs’ third cause of action.
Motion to Strike
Defendants move to
strike Plaintiffs’ prayer for punitive damages and all paragraphs referencing
punitive damages in the complaint. A plaintiff may recover punitive damages
where it is proven by clear and convincing evidence that the defendant has been
guilty of oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a).) Malice
is defined as conduct intended to injure the plaintiff or despicable conduct by
a defendant acting with a willful and conscious disregard of the rights and
safety of others. (Id., § 3294, subd. (c)(1).) Oppression means
despicable conduct subjecting a person to cruel and unjust hardship in
conscious disregard of their rights. (Id., § 3294, subd. (c)(2).) And
fraud refers to intentional misrepresentations or concealment of a material
fact known to the defendant. (Id., § 3294, subd. (c)(3).)
Here, as discussed
above, Plaintiffs have pled sufficient facts to support a cause of action for
fraud. (Compl. ¶¶ 9–10.) Plaintiff may request punitive damages pursuant to Civil
Code section 3294, subdivision (c)(3). Thus, Defendants’ motion to strike is
denied as to Plaintiffs’ claim for punitive damages.
Additionally, Defendants
argue that Plaintiffs fail to plead facts justifying an award of attorney’s
fees. “[A]s a general rule, attorney fees are
not recoverable as costs unless they are authorized by statute or agreement.” (People
ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc. (2007)
147 Cal.App.4th 424, 429.) Here, Plaintiffs do not allege any contractual or
statutory basis for recovery of attorney’s fees and have stipulated to striking
the request. Accordingly, Defendants’ motion to strike is granted in part and
Plaintiffs’ fourth paragraph in their prayer for relief is stricken.