Judge Bruce G. Iwasaki, Case Number: 22STCV11771, Date: 2024-11-27 Tentative Ruling

Tentative Ruling: Plaintiff’s Motion for Summary Adjudication is denied. Defendants’ Motion for Summary Adjudication is granted.

On April 7, 2022, Plaintiff TruConnect Communications Inc. (“Plaintiff”) filed this action against Defendant Ground Floor Marketing, LLC, (“Defendant”) alleging breach of agreement. After getting leave to amend the Complaint, Plaintiff filed a First Amended Complaint (“FAC”) on August 2, 2022. The operative FAC alleges (1) breach of contract, (2) intentional interference with prospective economic relations, (3) negligent interference with prospective economic relations, (4) aiding and abetting interference with prospective economic relations, (5) fraud, and (6) violation of California Penal Code § 496.

Plaintiff manages a free wireless telephone program for qualified, low-income households. In May 2021, Plaintiff contracted with Defendant. As part of the agreement, Plaintiff sent cellular devices to Defendant (with zero paid upfront), and Plaintiff was to provide the devices to qualified individuals who enrolled in the programs. (FAC ¶¶ 19-20.) On March 8, 2022, Plaintiff exercised its right to terminate the contract and demanded that Defendant return the devices or remit payment of $978,899.00 for the devices. (FAC ¶¶ 27-31.)

After filing the initial complaint, Plaintiff alleges that it discovered an online seller with the pseudonym “mr.hikmat642” selling its inventory online through eBay. Plaintiff then requested leave to file an amended complaint, which the court granted. The FAC additionally alleges that Defendant is selling these cellular tablets and devices through eBay, using the pseudonym to avoid detection. (FAC ¶ 6.) Plaintiff alleges that Defendant never intended to enter into the agreement for legitimate purposes, but instead created the appearance of being a legitimate company to deceive Plaintiff and take its devices to sell them to the outside market. (FAC ¶ 64.)

The Court granted a preliminary injunction to enjoin Defendant from selling or transferring the 20,446 cellular tablets and devices in its possession.

On January 30, 2023, Defendant filed a demurrer to the second, third, fourth, fifth, and sixth causes of action. The Court overruled the demurrer.

Then, on April 24, 2024, Plaintiff TrueConnect Communications, Inc. (Plaintiff) moved for summary adjudication. Defendants Ground Floor Marketing LLC, John Merrill, and Marisa Voloshin (Defendants) filed an opposition.

On July 30, 2024, Defendants Ground Floor Marketing LLC, John Merrill, and Marisa Voloshin moved for summary adjudication. Plaintiff filed an opposition.

Plaintiff’s motion for summary adjudication is denied. Defendants’ motion for summary adjudication is granted in its entirety.

“The party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) A triable issue of material fact exists if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Ibid.)

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal. App. 4th 463, 467; Code Civ. Proc. § 437c, subd. (c).)

Plaintiff moves for “partial summary adjudication” of the sixth cause of action for violation of Penal Code section 496. Plaintiff’s motion for partial summary adjudication is procedurally defective.

As a preliminary matter, “[a] motion for summary adjudication tenders only those issues or causes of action specified in the notice of motion, and may only be granted as to the matters thus specified.” (Schmidlin v. City of Palo Alto (2007) 157 Cal.App.4th 728, 743-744.)

Plaintiff’s Motion violates the mandatory provisions of California Rules of Court, rule 3.1350(b). Subsection (b) requires that the specific cause of action, affirmative defense, claim for damages, or issue of duty as to which summary adjudication is sought “must be stated specifically in the notice of motion and be repeated, verbatim, in the separate statement of undisputed material facts.”

In this case, Plaintiff’s notice of motion seeks adjudication of different issues than the separate statement.

In the Notice of Motion, Plaintiff seeks summary adjudication in its favor “as to liability, on Count VI of the SAC [sic], with an order ruling that Plaintiff is entitled to at least treble actual damages ultimately proved, as well as costs and reasonable attorney’s fees, pursuant to California Penal Code § 496, subdivision (c).” (Not., 3:6-8.)

“ 1. . . . As there are no material issues of fact that Defendant retains property it has no right to, Plaintiff TruConnect therefore should prevail—at least as to liability—on Count VI (Violation of California Penal Code § 496) of its First Amended Complaint, as a matter of law.” (Not., 2:17-19.)

“2. The parties disagree about the number of electronic devices Defendant may be holding that are property of TruConnect. However, Defendant admits that it is retaining at least 8,589 electronic mobile devices that it was to distribute on behalf of TruConnect on a consignment basis. (Not., 2:20-22.)

“3. Defendant cannot claim that it presently has a legitimate right to the electronic devices, as the devices were provided on a consignment basis to Defendant, with express terms that Defendant did not have title to the devices at any time and assumed any loss of them until distribution to ultimate end users.” (Not., 3:23-26.)

“4. Defendant has refused to return the electronic mobile devices, purportedly based on amounts Defendants claims are owed under a contractual crossclaim, arising out of a billing dispute between the parties.” (Not., 3:1-3.)

In contrast, the Separate Statement contains three issues for summary adjudication: (1.) Plaintiff and Defendant entered into a distribution agreement pursuant to which Defendant was to distribute cellular devices owned by Plaintiff to low-income individuals; (2.) TruConnect terminated the Agreement and Ground Floor has returned to pay for or return TruConnect’s devices; and (3.) Ground Floor continues to refuse to return TruConnect’s devices for unjustified reasons.

“The requirement of a separate statement from the moving party and a responding statement from the party opposing summary judgment or summary adjudication “serves two functions: to give the parties notice of the material facts at issue in the motion and to permit the trial court to focus on whether those facts are truly undisputed.” (Parkview Villas Assn., Inc. v. State Farm Fire & Casualty Co. (2005) 133 Cal.App.4th 1197, 1210.) The failure to comply with this requirement of a separate statement may in the court's discretion constitute a sufficient ground for denying the motion. (Code Civ. Proc., § 437c, subd. (b)(1); see also Truong v. Glasser (2009) 181 Cal.App.4th 102, 118 [finding the court's power to deny a motion for summary judgment due to failure to comply with formatting requirements is “discretionary, not mandatory”].)

The gist of Plaintiff’s Notice and the Separate Statement is summary adjudication of the liability issue of Sixth Cause of Action in the First Amended Complaint.

Even if the Court overlooked Plaintiff’s defect above, the requested relief in the motion is also defective, in this instance fatally.

A motion for summary adjudication may be granted “only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).)

The policy behind summary adjudication motions is, “to ‘promote and protect the administration of justice, and to expedite litigation by the elimination of needless trials.’ ” (Lilienthal & Fowler v. Superior Court (1993) 12 Cal.App.4th 1848, 1854.) Said another way, the clear intent of Code of Civil Procedure section 437c, subdivision (f) is “ ‘to stop the practice of adjudication of facts or adjudication of issues that do not completely dispose of a cause of action or defense.’ ” (Lilienthal & Fowler v. Superior Court, supra, 12 Cal.App.4th at p. 1853; Hood v. Superior Court (1995) 33 Cal.App.4th 319, 323.)

Plaintiff’s motion for summary adjudication fails to dispose of an entire cause of action. Plaintiff’s motion on the single issue of liability does nothing to further this policy as it does not eliminate the need for trial on the cause of action. As Plaintiff’s own motion admits, the injury, or damages, is a necessary element of the claim; the matter must still proceed to trial on this cause of action to determine the element of damages. (See Mot., 4:21-23 [“The only remaining task for this Court to determine is the amount of statutory damages that Ground Floor owes to TruConnect for the theft of its devices.”].)

As such, Plaintiff’s motion for summary adjudication, which omits this element, is improper. (Paramount Petroleum Corp. v. Superior Court (2014) 227 Cal.App.4th 226, 241 [“[T]he plaintiff must “prove[ ] each element of the cause of action entitling the party to judgment on that cause of action.”].)

Thus, Plaintiff’s motion for summary adjudication is denied. (See e.g., Department of Industrial Relations v. UI Video Stores, Inc. (1997) 55 Cal.App.4th 1084, 1097 [error for the trial court to grant summary judgment on the question of defendant's liability, with damages to be determined in a later accounting proceeding. Because issues of calculation of damages remained, proper procedure “would have been a motion to bifurcate the issue of liability, which the parties could have tried on the undisputed facts,” not a motion for summary adjudication or summary judgment].)

Fourth Cause of Action for Aiding and Abetting Interference with Prospective Economic Relations and Fifth Cause of Action for Fraud:

Defendant moves for summary adjudication of these causes of action. Plaintiff does not oppose the motion on this ground. (Opp. 2:4-9.)

Accordingly, the motion for summary adjudication of the Fourth and Fifth causes of action is granted.

Defendant moves for summary adjudication of the sixth cause of action for violation of Penal Code section 496.

“Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170.”

Theft is broadly defined as “the unlawful taking of another's property” and “includes larceny, embezzlement, larceny by trick, and theft by false pretenses.” (People v. Shannon (1998) 66 Cal. App. 4th 649, 653.) In the civil context, a plaintiff injured by such theft “may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney's fees.” (Pen. Code, § 496, subd. (c).)

Here, the First Amended Complaint alleges a violation of Penal Code section 496 based on a theory of theft by false pretenses. (FAC ¶ 76 [citing Penal Code section 484, subdivision (a)].)

As detailed above, Defendants intended to defraud TruConnect. Defendants never intended to help increase LifeLine support participation, and only told TruConnect they would do so in order to take possession of 20,446 tablets, so that they could then sell those same tablets on the open market (i.e., rather than provide those devices to the specific consumers for whom they were intended). That Ground Floor is now selling those devices under a pseudonym named “mr.hikmat642” is indicative that it intended for TruConnect never to learn of those online sales. (FAC ¶ 79.)

Further, an actual fraud was committed: rather than provide devices to qualifying low-income consumers—as Defendants promised they would do—Ground Floor, Voloshin, and Merrill made false promises in order to take possession of 20,446 tablets, and have since been selling those same tablets on e-Bay.com (as opposed to providing them to qualifying households). Ground Floor, Voloshin, and Merrill also used false pretenses to perpetrate the fraud: they falsely represented what they would do with TruConnect’s devices (i.e., supply them to qualifying low-income households), solely so that they could sell those devices through unapproved channels and make a profit.” (FAC ¶ 80.)

The allegations are important to adjudicate this claim because “pleadings play a key role in a summary judgment motion” in that they “delimit the scope of the issues’ ” and “frame ‘the outer measure of materiality in a summary judgment proceeding.’” (Hutton v. Fidelity National Title Co. (2013) 213 Cal.App.4th 486, 493.) In other words, “the burden of a defendant moving for summary judgment only requires that he or she negate plaintiff's theories of liability as alleged in the complaint; that is, a moving party need not refute liability on some theoretical possibility not included in the pleadings.” (Ibid.)

Based on these allegations in the operative pleading, Defendants moves for summary adjudication of the sixth cause of action on the grounds that they did not misrepresent or make any knowingly false representation to Plaintiff and, consequently, Plaintiff cannot establish a claim for theft by false pretenses.

Specifically, Defendant submits evidence showing Defendants have no affiliation with the e-Bay seller known as “mr.hikmat642” who was selling Plaintiff’s devices online. (DSS 9-10.)

In opposition, Plaintiff argues it had a good faith basis for its belief but essentially concedes “it is plausible that Defendants do not have a direct association with the eBay seller “mr.hikmat642” and that this seller may have independently acquired TruConnect’s devices from other sources.” (PSS 9-10.) But Plaintiff submits no evidence to dispute Defendants’ material fact. Plaintiff’s speculation is, for purposes of this motion, worthless.

Without any evidence of Defendant’s action to re-sell the devices, Plaintiff has nothing to support its false pretenses claim and can only show – at most -- non-performance of the parties’ contract.

Mere nonperformance is insufficient to establish a lack of intent to perform. “Fraudulent intent must often be established by circumstantial evidence[, and may be] inferred from such circumstances as defendant's ... failure even to attempt performance, or his [or her] assurances after it was clear he [or she] would not perform. [Citation.]” (Tenzer v. Superscope, Inc. . (1985) 39 Cal.3d 18, 30.)

Specifically relevant to the Penal Code section 496 claim, courts have held that, “not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft.” (Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 361.) “To prove theft, a plaintiff must establish criminal intent on the part of the defendant beyond ‘mere proof of nonperformance or actual falsity.’ ” (Id. [citing People v. Ashley (1954) 42 Cal.2d 246, 264.].) “This requirement prevents ordinary commercial defaults from being transformed into a theft.” (Siry Investment, L.P. v. Farkhondehpour, supra, 13 Cal.5^th at 361.)

In opposition, Plaintiff attempts to recharacterize the underlying conduct to support a claim for violation of Penal Code section 496. Plaintiff argues that “the grounds for Plaintiff’s claims also include Defendants’ theft and conversion based on their failure to return thousands of devices that belong to Plaintiff even though Defendants have absolutely no right to hold those devices. Defendants have admitted to wrongfully holding those devices as leverage for Ground Floor’s Cross-Claim.” (PSS 8; see also Opp., p. 9.)

In addition to not being a clearly pled basis for this claim, this legal theory is not supported by the law. As cited by Defendants, the court in Formic Ventures LLC v. SomaLogic, Inc. (N.D. Cal., Sept. 15, 2023, No. 23-CV-02660-VC) 2023 WL 6037899, emphasized that the criminal intent requirement is not without substance. Simply arguing that Defendants are “obviously” not in compliance with the contract is inadequate. (Id. at *1.) This case is consistent with Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333.

Defendants have shifted their initial burden on the motion for summary adjudication. Plaintiffs have failed to present any triable issue of material facts in dispute. Defendants have negated the element of criminal intent contained within Penal Code section 496.

Plaintiff’s motion for summary adjudication is denied. Defendants’ motion for summary adjudication is granted.