Judge: Bruce G. Iwasaki, Case: 21STCV45776, Date: 2023-01-23 Tentative Ruling
Case Number: 21STCV45776 Hearing Date: January 23, 2023 Dept: 58
Judge Bruce G. Iwasaki
Hearing
Date: January 23, 2023
Case Name: Woodrow Wong, et al. v.
Jerrod Gutierrez, et al.
Case
No.: 21STCV45776
Matter: Demurrer to
cross-complaint
Moving
Party: Plaintiff Woodrow Wong
Responding
Party: Unopposed/Defendants Otto
Beasley; Loyalty AC, LLC; TFB Solutions
Tentative Ruling: The demurrer
is sustained in its entirety with 20 days leave to amend.
Background
This case
involves several business contracts dealing with cannabis. Woodrow Wong and GWC Real Estate Services (Plaintiffs
or Cross-defendants) sued Jerrod Gutierrez; Otto Beasley; JFTC Group, Inc.;
Loyalty AC, LLC; GMM International, Inc.; Cannacore Medical Network, Inc.; TFB
Solutions; and Flawless Vodka for breach of contract, racketeering activity,
conversion, unfair business practices, money had and received, violation of the
Ralph Act, breach of fiduciary duty, unjust enrichment, fraudulent inducement,
negligent misrepresentation, account, and violation of Penal Code section
496(a).
The
Complaint alleges several partnership agreements in which Plaintiffs agreed to
loan various amounts of money to Defendants for different businesses involving
cannabis cultivation, distribution, and retail sales. When Wong began to pressure Gutierrez for repayment,
Gutierrez allegedly responded by threatening him and calling him racial
epithets.
Otto
Beasley, Loyalty AC, LLC, and TFB Solutions (Cross-complainants) answered the Complaint
and filed a cross-complaint against Plaintiffs and another party, Zhen Qi (Qi),
for fraud, negligent misrepresentation, breach of oral contract, promissory
estoppel, and declaratory relief. The Cross-complaint alleged an oral agreement
in which Plaintiffs agreed to lend $3 million, through Qi, to
Cross-complainants and receive a 49% ownership interest in the business Loyalty
AC, LLC. Cross-complainants allege that
the funds were never received, and they spent $300,000 in down payments, lease
payments, payroll, licensing fees, and other expenses for the new business.
Cross-defendants now demur to all
causes of action for failure to state a cause of action, statute of
limitations, and statute of frauds grounds.
No opposition was filed. Counsel’s
declaration satisfies the meet-and-confer requirements. (Hayden Decl., ¶ 2.)
Legal Standard
A demurrer is an
objection to a pleading, the grounds for which are apparent from either the
face of the complaint or a matter of which the court may take judicial
notice. (Code Civ. Proc., § 430.30,
subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the
sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153
Cal.App.3d 280, 286.) “In the
construction of a pleading, for the purpose of determining its effect, its
allegations must be liberally construed, with a view to substantial justice
between the parties.” (§ 452.) The court “ ‘ “treat[s] the demurrer as
admitting all material facts properly pleaded, but not contentions, deductions
or conclusions of fact or law . . . .” ’ ”
(Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) The court liberally construes the complaint
to determine whether a cause of action has been stated. (Picton v. Anderson Union High School
Dist. (1996) 50 Cal.App.4th 726, 733.)
Discussion
Preliminarily, since Cross-complainants did not file an opposition to
the demurrer, the Court may sustain the demurrer. (Herzberg v. County of Plumas (2005)
133 Cal.App.4th 1, 20 [failure to oppose an issue constitutes abandonment].) Nevertheless, the Court will briefly consider
the merits of the demurrer.
First cause of action for fraud
Cross-defendants argue
that this cause of action is barred by the three-year statute of limitations
under Code of Civil Procedure section 338.
To raise a statute of limitations defense on demurrer, “‘“the
defect must clearly and affirmatively appear on the face of the complaint; it
is not enough that the complaint shows that the action may be barred.”’” (Committee
for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48
Cal.4th 32, 42.) Generally, a statute of
limitations begins to run “when the cause of action is complete with all of its
elements.” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 389.)
For fraud, a plaintiff must file suit within three
years. (Civ. Code, § 338, subd.
(d).) However, fraud “is not deemed to
have accrued until the discovery, by the aggrieved party, of the facts
constituting the fraud or mistake.” (Ibid.) Under this delayed discovery rule, “a cause
of action accrues and the statute of limitations begins to run when the
plaintiff has reason to suspect an injury and some wrongful cause, unless the
plaintiff pleads and proves that a reasonable investigation at that time would
not have revealed a factual basis for that particular cause of action. In that
case, the statute of limitations for that cause of action will be tolled until
such time as a reasonable investigation would have revealed its factual basis.”
(Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal. 4th 797, 803.)
Cross-defendants’ statute of limitations argument is not
well-taken. They assume that discovery
of the fraud occurred in August 2018, the date that the parties allegedly
entered into the contract. (Cross-complaint,
¶ 19.) Cross-complainants did not allege
when they discovered the fraud and thus, the defect does not clearly appear on
the face of the Cross-complaint.
However, the Cross-complaint is insufficiently alleged. The
elements of fraud, are “(a) misrepresentation (false representation,
concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c)
intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e)
resulting damage.” (Lazar v. Superior
Court (1996) 12 Cal.4th 631.) Fraud
must be pled specifically, not with “general and conclusory allegations.” (Small v. Fritz Companies, Inc. (2003)
30 Cal.4th 167, 184; Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73
[“This particularity requirement necessitates pleading facts which ‘show
how, when, where, to whom, and by what means the representations were
tendered.”)
Here, the fraud claim lacks specificity. Cross-complainants generally allege that Cross-defendants
provided false bank records. (Cross-complaint, ¶ 20.)
It is unclear who provided the statements. The Cross-complaint directs the fraud
allegations to “all Cross-defendants,” but there are at least two individual
Cross-defendants. Furthermore, the
element of scienter is missing.
Paragraph 21 merely alleges that when the representations of the bank
records were made, Cross-defendants “had no reasonable grounds for believing
they were true.” This allegation is more
properly directed to negligent misrepresentation, not fraud. Accordingly, the demurrer to the first cause
of action is sustained.
Second cause of action – negligent misrepresentation
The Court incorporates
its analysis of the fraud claim and sustains the demurrer to the second cause
of action for negligent misrepresentation.
(See Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184
[negligent misrepresentation claim also requires specificity].)
Third cause of action – breach of oral contract
Cross-defendants contend that this claim fails because of the statute
of limitations, statute of frauds, and is factually insufficient.
Code of Civil
Procedure section 339 imposes a two-year statute of limitations on oral
contracts from the “discovery of the loss or damage suffered by the aggrieved
party.” Again, the Cross-complaint does
not allege when Cross-complainants became aware of the breach and
Cross-defendants’ reliance on the alleged formation date is misplaced.
On the statute of
frauds, Civil Code section 1624 provides that certain agreements are “invalid
unless they, or some note or memorandum thereof, are in writing and subscribed
by the party to be charged or by the party's agent.” (Civ. Code § 1624, subd.
(a).) Agreements that are subject to the statute of frauds include agreements
that, by their terms, are not to be performed within a year from their
execution. (Civ. Code § 1624, subd. (a)(1).)
“It is a well-established rule in California that an oral contract is invalid
under subdivision 1 only where by its very terms it cannot be performed
within a year from the date it is made. [Citations.] The words of subdivision 1 have been
interpreted literally and narrowly by our courts. Only those contracts which
expressly preclude performance within one year are unenforceable.” (Plumlee v. Poag (1984) 150 Cal.App.3d
541, 548.)
Here, the statute of
frauds argument fails. Cross-defendants
argue that Paragraphs 11 through 13 allege that the parties entered into an
oral agreement to either provide the Cross-complainant’s $3 million in one year
or loan money totaling more than $100,000.
The paragraphs described do not allege when the funds were to be
provided nor when Cross-complainants had to perform their obligations. Thus, the Cross-complaint does not allege a contract
that “cannot be performed within a year from the date it is made.”
However, the Court is
persuaded that the allegations are insufficient. “The elements of a breach of oral contract
claim are the same as those for a breach of written contract: [1] a contract; [2]
its performance or excuse for nonperformance; [3] breach; and [4] damages. (Stockton
Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 453.) The failure to identify the material terms of
a contract renders the cause of action fatally defective. (Twaite v.
Allstate Insurance Co. (1989) 216 Cal.App.3d 239, 252-53; Otworth v.
Southern Pacific Transp. Co. (1985) 166 Cal.App.3d 452, 459.)
“‘Under California law, a contract will be enforced if it is
sufficiently definite (and this is a question of law) for the court to
ascertain the parties’ obligations and to determine whether those obligations
have been performed or breached.’ [Citation.] ‘To be enforceable, a promise
must be definite enough that a court can determine the scope of the duty[,] and
the limits of performance must be sufficiently defined to provide a rational
basis for the assessment of damages.’ [Citations.] ‘Where a contract is so
uncertain and indefinite that the intention of the parties in material
particulars cannot be ascertained, the contract is void and unenforceable.’
[Citations.] ‘The terms of a contract are reasonably certain if they provide a
basis for determining the existence of a breach and for giving an appropriate
remedy.’ [Citations.] But ‘[i]f … a supposed “contract” does not provide a
basis for determining what obligations the parties have agreed to, and hence
does not make possible a determination of whether those agreed obligations have
been breached, there is no contract.’” (Bustamante
v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 209.)
Here, there is a lack
of detail on the alleged oral contract. The
Cross-complaint pleads that Cross-defendants would provide, through Qi, $3
million for “Loyalty AC, LLC.”
(Cross-complaint, ¶ 11.) There is no information on when the money
must have transferred. Nor are there any
details as to what type of business this is and why the transaction had to pass
through Defendant Qi. While
Cross-complainants plead that Cross-defendants would receive 49% ownership
interest and profits, they fail to plead their own obligations under the
agreement. Paragraph 37 states, in
conclusory fashion, that Cross-complainants performed all conditions “in
accordance with the terms and conditions of the agreement” but fail to indicate
what those conditions are. The generic
details of “entering into down payments, lease payments, payroll, licensing
fees, product, equipment and other items for the new business” are insufficient.
To the
extent that Cross-complainants are alleging a joint venture, this is too
general. “‘“There are three basic
elements of a joint venture: the members must have joint control over the venture
(even though they may delegate it), they must share the profits of the
undertaking, and the members must each have an ownership interest in the
enterprise.”’” (Simmons v. Ware (2013) 213 Cal.App.4th 1035, 1049.) Cross-complainants do not allege Defendant
Qi’s share and ownership, if any, nor do they specify which of the three
Cross-complainants own the other 51% interest.
Accordingly, the demurrer is sustained on the third cause of action.
Fourth cause of action – promissory estoppel
“‘The elements of a promissory estoppel claim are “(1) a promise clear
and unambiguous in its terms; (2) reliance by the party to whom the promise is
made; (3)[the] reliance must be both reasonable and foreseeable; and (4) the
party asserting the estoppel must be injured by his reliance.”’” (Joffe v. City of Huntington Park (2011)
201 Cal.App.4th 492, 513)
The alleged promise is
the oral contract itself. (Cross-complaint,
¶ 43 [“The Agreement was clear and unambiguous”].) As discussed above, the terms of the
agreement are not “clear and unambiguous.” Cross-complainants do not specify when
Cross-defendants were required to transfer the money. Because there is no timeline alleged, Cross-complainants
insufficiently allege reasonable reliance.
While they allege that they entered into various down payments and
leases, there is no context behind that information such as dates or times. (See Orcilla v. Big Sur, Inc. (2016)
244 Cal.app.4th 982, 1007.) Accordingly,
the demurrer is sustained on the fourth cause of action.
Fifth cause of action – declaratory relief
This cause of action is dependent on
the breach of oral contract and other claims.
(Cross-complaint, ¶¶ 49-50.) Thus,
demurrer to this claim is also sustained.
(Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794
[demurrer properly sustained on cause of action for declaratory relief that was
“wholly derivative of” other causes of action on which demurrer had been
properly sustained].)
Conclusion
The Court sustains the
demurrer in its entirety with 20 days leave to amend.