Judge Bruce G. Iwasaki, Case Number: 22STCV41082, Date: 2023-10-30 Tentative Ruling

Tentative Ruling: The Demurrer to the Second Amended Complaint is sustained as to the second and fifth causes of action and overruled as to the third cause of action.

This is an action for breach of contract arising from real estate commissions. In the Complaint, Plaintiff Anderson Real Estate Group (Plaintiff) alleges that Defendant KJ Ticehurst (Ticehurst) owes Plaintiff $67,729.75 in commissions arising from her Team Member Agreement – Buyer Specialist (Agreement) with Plaintiff. Plaintiff further alleges Defendants Coralyn Wahlberg, Claudia Pardon, and Think RE Management, Inc. (collectively, Defendants Think) engaged in fraudulent actions to prevent Plaintiffs’ collection of these real estate commissions. The Second Amended Complaint contains causes of action for (1.) breach of contract, (2.) fraud (concealment), (3.) tortious interference with contract, (4.) misappropriation of trade secrets, and (5.) tortious interference with prospective economic advantage.

Defendants Coralyn Wahlberg, Claudia Pardon, and Think RE Management, Inc. (collectively, Defendants Think) now demur to the second, third, and fifth causes of action in the Second Amended Complaint. Plaintiff opposes the demurrer.[1]

The demurrer is sustained as to the second and fifth causes of action and overruled as to the third cause 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.)

Defendants Think demur to the second cause of action for fraudulent concealment on the grounds that Plaintiff has failed to allege facts sufficient to state a claim.

Fraud requires an express or implied false representation, concealment of a material fact that the defendant had a duty to disclose, or a promise made without the intention to perform. (Pearson v. Norton (1964) 230 Cal.App.2d 1, 7.)

Here, the second cause of action is ill defined. Despite labeling this cause of action as claim for concealment, the SAC alleges “Defendants, and each of them, represented to Plaintiff that they understood the terms of the Agreement, and would abide by them.” (SAC ¶ 45.) Further, the SAC alleges “Plaintiff relied on these representations in providing marketing information and leads on potential sales to Defendants, as part of the Agreements entered into with Defendants.” (SAC ¶ 47.) Thus, to some extent, the second cause of action relies on certain affirmative representations for the basis of the fraud.

The elements of a cause of action for intentional misrepresentation are: (1) a misrepresentation; (2) knowledge of falsity; (3) intent to defraud or induce reliance; (4) actual reliance by the plaintiff; and (5) resulting damage. (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1255; Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173; Civ. Code, § 1709.) Further, fraud, unlike most claims in tort, requires that each element must be pled with specificity. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) That is, generally, “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.). “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Ibid.)

In this case, the SAC alleges “the defendants” made the statement, with no particularities of “ ‘how, when, where, to whom, and by what means.’” (Stansfield v. Starkey, supra, 220 Cal.App.3d at p. 73.) As such, the cause of action alleges representations but lacks the requisite specificity.

Additionally, the allegations as to concealment and promise without intent to perform are no more specific. In fact, these allegations appear to be a conflation of a duty to disclose and promise without an intent to perform. (SAC ¶ 35.)

To state a claim for fraudulent inducement-concealment, Plaintiffs must allege: (1) the defendant “concealed or suppressed a material fact,” (2) the defendant was “under a duty to disclose the fact to the plaintiff,” (3) the defendant “intentionally concealed or suppressed the fact with the intent to defraud the plaintiff,” (4) the plaintiff was “unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact,” and (5) “as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (BiglerEngler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310–11.)

As to the requisite specificity, some cases suggest a “softening” of the requirement that all claims for fraud must be pled with the same high level of specificity where the allegations of the complaint make clear the defendant already has “ ‘full information concerning the facts of the controversy.’ “ (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217, superseded by statute on other grounds as stated in Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 227.) Relaxation of the specificity requirement is particularly appropriate in concealment case -- where unlike intentional misrepresentation which requires some affirmative act like an assertion or promise -- a fraudulent concealment is the absence of something, the suppression of a fact. (Civ. Code § 1710.)

However, even acknowledging the lessened specificity requirement for fraudulent concealment, the Court finds Plaintiffs have failed to state a claim against Defendants Wahlberg and Pardon – and, by extension, THINK. The entirety of the fraudulent concealment claim is based on Plaintiff’s conclusory allegations that Defendants entered into the Agreements but never intended to comply with the terms of their Agreements. (SAC ¶¶ 43-51.)

This theory of a failure to disclose the wrongful intent fails as matter of law. “The general duty is not to warn of the intent to commit wrongful acts, but to refrain from committing them.” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 338.)

Lastly, the SAC does not allege facts showing a lack of intent to perform the Agreement because the SAC is unclear how Defendants Wahlberg and Pardon failed to “abide by their signed Agreements . . ..” (SAC ¶ 34.) The SAC only alleges that Defendant Wahlberg and Pardon “recruited numerous active [Plaintiff] Team Members as well as past members.” (SAC ¶ 35.) There is no explanation as to what legal duty they had not to undertake these actions or to disclose this intent not to undertake these actions.

This claim fails as a matter of law. The demurrer to the second cause of action is sustained. The Court is dubious that Plaintiff can state a claim on this theory, but will permit a final opportunity to do so.

Defendants Think also demur to the third cause of action on the grounds that Plaintiff has failed to state a claim.

“The elements which a plaintiff must plead to state the 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.)

Here, the SAC alleges Defendants Think served “as broker for the eleven transactions at issue, keeping funds they knew needed to be shared with Plaintiff under the Agreement, and taking actions to disrupt payments on that contractual relationship.” (SAC ¶ 55.) The SAC further alleges that Defendants Think “enticed [Defendant Ticehurst] to close transactions with them with the promise of higher commission payment and to help deny the fees that were owed to Plaintiff.” (SAC ¶ 56.) These allegations are sufficient to show Defendants’ intent to induce a breach of Plaintiff’s contract with Defendant Ticehurst.

Contrary to the argument on demurrer, a claim for intentional interference with contractual relations does not require a showing that “THINK’s conduct that either prevented performance or made performance more expensive or difficult.” (Dem. 4:21-22.) Rather, this showing is merely an alternative to demonstrating an actual breach. (See Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1129 [“Plaintiff need not allege an actual or inevitable breach of contract in order to state a claim for disruption of contractual relations. We have recognized that interference with the plaintiff's performance may give rise to a claim for interference with contractual relations if plaintiff's performance is made more costly or more burdensome.”].) Here, Plaintiff alleges Defendants’ conduct induced Defendant Ticehurst’s actual breach of a contract.

Moreover, Defendants’ reliance on Diodes, Inv. v. Frazen (1968) 260 Cal.App.2d 244 is not well taken. The court in Diodes, Inc. v. Franzen reiterated the so-called privilege of competition, as applied in the context of employment relations, as follows:

“Even though the relationship between an employer and his employee is an advantageous one, no actionable wrong is committed by a competitor who solicits his competitor's employees or who hires away one or more of his competitor's employees who are not under contract, so long as the inducement to leave is not accompanied by unlawful action. [¶]

However, if either the defecting employee or the competitor uses unfair or deceptive means to effectuate new employment, or either of them is guilty of some concomitant, unconscionable conduct, the injured former employer has a cause of action to recover for the detriment he has thereby suffered.” (Id. at 255.)

This case did not discuss a breach of contract, actions to induce a breach of contract, or otherwise suggest that the “privilege of competition” permits causing a breach of another parties’ contract.

Fifth Cause of Action for Tortious Interference with Prospective Economic Advantage:

Defendants Think also demur to the fifth cause of action on grounds that Plaintiff has failed to allege facts sufficient to state a claim.

“The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition. [Citation.] It is premised upon the principle, ‘ “[e]veryone has the right to establish and conduct a lawful business and is entitled to the protection of organized society, through its courts, whenever that right is unlawfully invaded.” ’ ” (Settimo Associates v. Environ Systems, Inc. (1993) 14 Cal.App.4th 842, 845.) The elements of the tort include “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153, 1164–1165.)

To meet the third element, a plaintiff must demonstrate intentional acts by the defendant, that are wrongful apart from the interference itself, designed to disrupt the relationship; this element requires a showing that the defendant “engaged in conduct that was wrongful by some legal measure other than the fact of interference itself” such as “conduct that is recognized as anticompetitive under established state and federal positive law.” (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393; see also S Products, Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168.) An act is not made independently wrongful merely because of improper motives. (Korea Supply Co., supra, 29 Cal.4th at p. 1158.)

Here, the SAC fails to allege independently tortious conduct to support the interference element. (SAC ¶ 73, 75.) First, Plaintiff alleges all Defendants interfered with Plaintiff’s business “by making use of marketing work, resources, trade secrets, and client information gathered by Plaintiff.” (SAC ¶ 73.) However, these allegations of Defendants purportedly using trade secrets and Plaintiff’s other property is too vague and conclusory to demonstrate independently wrongful conduct.[2]

Further, the allegations that Defendants THINK “enticed” Defendant Ticehurst to use them as broker for the eleven transactions at issue by offering “an exceptionally low commission on these transactions” also does not satisfy the independently wrongful element of this tort where Plaintiff has not demonstrated that offering Ticehurst a more competitive commission structure was wrongful.

[1] On the same day the opposition was filed, Plaintiff also filed a motion for leave to amend to file a Third Amended Complaint. The Court previously took Defendants’ demurrer to the First Amended Complaint off calendar in response to Plaintiff’ motion for leave to amend to file a Second Amended Complaint. The Court declines to take the demurrer off calendar again in the face of this pending motion.

[2] On the demurrer to the Complaint, the Court previously found that misappropriation of trade secrets claim were inadequate; the allegations here are not sufficiently improved.

Judge Bruce G. Iwasaki

Department 58