Judge Bruce G. Iwasaki, Case Number: 22STCV27572, Date: 2023-09-20 Tentative Ruling

Tentative Ruling: Defendant Webcor Construction, L.P.’s demurrer to fifth cause of action is sustained without leave to amend. Defendant Next Century Partners Mezzanine Borrower, LLC’s demurrer to first, second, sixth, seventh and eighth causes of action is overruled.

This action arises from a dispute involving a $1.5 billion construction renovation of the Hyatt Regency Century Plaza Hotel in Century City (Project). Plaintiff Control Air Enterprises, LLC was the HVAC subcontractor for the Project and claims it is owed millions of dollars for the labor and materials it furnished to Defendant Webcor Construction, L.P (Webcor), the general contractor on the Project. Plaintiff Control Air Enterprises also alleges it is owed money for labor and materials provided to Defendant Next Century Partners, LLC (NCP), owner of the Hyatt Regency Century Plaza Hotel. On August 14, 2022, Plaintiff Control Air Enterprises, LLC (Plaintiff) filed a Complaint against Defendants Webcor and NCP.

On August 29, 2022, Plaintiff Control Air (CAE) filed a form Amendment to Complaint (Fictious/Incorrect Name), replacing “Doe 1” with Next Century Partners Mezzanine Borrower LP (NCPMB).

On May 23, 2023, Plaintiff filed a Second Amended Complaint against Defendants Webcor, NCP, and NCPMB, alleging causes of action for (1) Breach Of NCP Contract; (2) Fraud-Nondisclosure; (3) Breach Of Hotel Subcontract; (4) Breach Of Tower Subcontract; (5) Fraud In The Inducement (Hotel SCO and Tower SCO); (6) Quantum Meruit; (7) Foreclosure Of Mechanic’s Lien (Hotel); (8) Foreclosure Of Mechanic’s Lien (Towers); (9) Disgorgement For Violation Of Contractor Licensing Laws; and (10) Declaratory Relief regarding Violation Of Contractor Licensing Laws.

On June 26, 2023, Defendants Webcor, NCP, and NCPMB each filed a separate demurrer to the Second Amended Complaint.

On October 19, 2023, Plaintiff filed a Third Amended Complaint against Defendants Webcor, NCP, and NCPMB, alleging causes of action for (1) Breach of NCP Contract; (2) Fraud-Nondisclosure; (3) Breach of Hotel Subcontract; (4) Breach of Tower Subcontract; (5) Fraud In The Inducement (Hotel SCO and Tower SCO); (6) Quantum Meruit; (7) Foreclosure of Mechanic’s Lien (Hotel); and (8) Foreclosure of Mechanic’s Lien (Towers).

On November 30, 2023, Defendants Webcor and NCPMB both filed a demurrer to the Third Amended Complaint. Plaintiff opposed each demurrer.

Defendant Webcor’s demurrer is sustained without leave as to the fifth cause of action. Defendant NCPMB’s demurrer is overruled as to first, second, sixth, seventh and eighth causes of action.

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.” (Code Civ. Proc. § 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.) In applying these standards, 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.)

Webcor Construction, L.P.’s Demurrer to the Fifth Cause of Action

Defendant Webcor argues the fifth cause of action for fraud in the inducement was not pled with the specificity required for a fraud cause of action and fails to state a claim.

Promissory fraud or false promise “ ‘is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.’ [Citations.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973–974.) “An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

The elements of promissory fraud “are: (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promise[e].” (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1453.)

As with any other form of fraud, each element of a promissory fraud claim must be alleged with particularity. (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1059–1060.) “A plaintiff's burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]” (Lazar v. Superior Court, supra, 12 Cal.4th at 645.)

Plaintiff’s fraud cause of action relies primarily on the allegations in Paragraph 71. The paragraph has three sentences, none of which supports a claim for fraud.

First, Paragraph 71 of the TAC alleges “[f]rom December 2021 through January 30, 2022, Kurt Ricci and others on behalf of WEBCOR engaged in meetings and discussions with Greg Ellis and others on behalf of CAE to try to resolve certain disputes over the Hotel and Tower Subcontracts.” This sentence contains no allegation of any specific representations.

Second, Paragraph 71 of the TAC alleges “[o]n or about December 16, 2021, Kurt Ricci and others from Webcor memorialized terms of an agreement between WEBCOR and CAE in an email sent to Greg Ellis of CAE that promised ‘No further credits or back-charges will be processed against Control Air or Webcor in associated with this scope of works [sic].’”

This allegation refers generally to “Kurt Ricci and others from Webcor” as the persons making the representation. (TAC ¶ 71.) However, the allegation does not allege who specifically sent the email containing the specific representation. (TAC ¶ 71.) Moreover, the TAC is devoid of any allegations as to these named and unnamed persons’ authority to speak on behalf of the Webcor. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)

Additionally, the falsity of this specific email representations is unclear. The TAC alleges Webcor promised “No further credits or back-charges will be processed against Control Air or Webcor in associated with this scope of works [sic].” (TAC ¶71.) This allegation is unclear as to what was “this scope of work” as there is no other context to this written representation. Similarly, the TAC’s allegation that “Despite repeatedly promising CAE that it would not assert backcharges related to a certain portion of CAE’s work, WEBCOR did just that” is equally unclear as what Webcor wrongly backcharged. (TAC ¶ 73.) Simply put, it is unclear from the identified representation what was specifically promised by Webcor and what was specifically done by Webcor in violation of this promise.

Finally, paragraph 71 contains an allegation that “on or about January 26, 2022, Kurt Ricci of WEBCOR made a promise to CAE to not assert any backcharges against CAE relating to any work performed prior to the execution of the Hotel SCO and Tower SCO in a written agreement contained in the Hotel and Tower SCOs and transmitted that writing to Greg Ellis.” (TAC ¶ 71.)

First, for the reasons discussed in the Court’s ruling on the demurer to the SAC, Plaintiff cannot rely on a fraudulent promise set forth in the written SCOs (to the extent this allegation attempts to do so).

Further, Plaintiff executed the Hotel SCO and Tower SCO on January 21, 2022. (TAC ¶¶ 46- 47, Exs. D-E.) Thus, these January 26, 2022 representations were made after Plaintiff CAE entered into the Hotel SCO and Tower SCO, undermining the argument that the allegedly false representations induced CAE to enter into these agreements. Because the representations post-date the SCOs, they cannot, as a matter of law, have been relied upon to enter into the SCOs. That is, the TAC fails to show lack detrimental reliance on these January 26 representations.

Accordingly, Plaintiff’s fraud cause of action remains deficient for multiple reasons.

Webcor’s demurrer to the fifth cause of action is sustained without leave to amend.

Defendant Next Century Partners Mezzanine Borrower, LLC (NCPMB) demurs to the first, second, sixth, seventh and eighth causes of action on the grounds that the TAC alleges insufficient facts about NCPMB’s purported involvement in the wrongdoing arising from the renovation project.

As the demurrer notes, only a handful of paragraphs attribute any specific allegations against NCPMB. (Dem., 3:19-4:16 [citing TAC ¶¶ 3, 16, 17, 19, 38, 39].) With respect to Paragraphs 3 and 16, these allegations contain only slight changes from the SAC and no new substantive allegations. (Compare SAC ¶¶ 3, 16 with TAC ¶¶ 3, 16.) Essentially, these allegations state that NCPMB is the sole member of NCP and owns 100% of the equity interests of NCP.

The only new allegations relating to alter ego liability are the allegations that NCP and NCPMB are both are managed and controlled by the same individual, Michael Rosenfeld, and use the same office address (TAC ¶ 17), and the allegation that the NCP and NCPMB share the same purpose of financing, developing and constructing the Century Plaza Hotel (TAC ¶ 18).

The only other change to the TAC as it relates to NCPMB’s liability is that instead of referring to “Owner Defendants,” the TAC now refers specifically to NCP and NCPMB.[1]

The remaining paragraphs referring to NCPMB rely on alleging that NCPMB was the alter ego of NCP. That is, CAE continues to rely on the alter ego theory as to NCP to extend liability to NCPMB, having alleged no specific allegations of wrongdoing against NCPMB.

Defendant NCPMB’s demurrer contends that the alter ego allegations are insufficient to attach liability onto NCPMB from other defendants’ conduct, and argues that Plaintiff simply recites several common boilerplate factors in support of alter ego liability.

Based on the new factual allegations, the alter ego allegations in the TAC are sufficient.

“Ordinarily a corporation is considered a separate legal entity, distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. [Citation.] The same is true of a limited liability company (LLC) and its members and managers. [Citations.] [¶] That legal separation may be disregarded by the courts ‘when [a corporation or LLC] is used [by one or more individuals] to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose.’ ” (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 220-221; see Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539.)

“Before the alter ego doctrine will be invoked in California, two conditions generally must be met. [¶] ‘First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.’ [Citation.] While courts have developed a list of factors that may be analyzed in making these determinations, ‘[t]here is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case.’ ” (Curci Investments, LLC v. Baldwin, supra, 14 Cal.App.5th at p. 221; see Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300; Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at p. 538.)

In general, the conditions in which a court may disregard the structure of a limited liability company and consider it the alter ego of a member “necessarily vary according to the circumstances in each case inasmuch as the [alter ego] doctrine is essentially an equitable one and for that reason is particularly within the province of the trial court.” (Zoran Corp. v. Chen (2010) 185 Cal. App. 4th 799, 811.)

Here, the TAC adds the following specific factual allegations regarding alter ego: identical equitable ownership in the two entities, use of the same offices, and common interest and purpose. Additionally, the TAC contains the allegation that NCPMB is the sole member of NCP and owns 100% of the equity interests of NCP, which adds to the alter ego analysis.

These allegations are sufficient for pleading purpose to allege alter ego liability. (See e.g., Curci Investments, LLC v. Baldwin, supra, 14 Cal.App.5th at p. 224 [evidence that an LLC “serve[s] as a vehicle for holding and investing” the money of an individual who is also the sole and managing member of that LLC supports a unity of interest].)

Defendant Webcor’s demurrer is sustained without leave to amend as to the fifth cause of action. Defendant NCPMB’s demurrer is overruled as to first, second, sixth, seventh and eighth causes of action.

[1] The SAC made approximately 83 references to NCPMB as one of the “Owner Defendants,” explaining that “Owner Defendants” is defined as “NCP and NCPMB.” (SAC ¶ 3.)

Judge Bruce G. Iwasaki

Department 58