Judge Bruce G. Iwasaki, Case Number: 24STCV02167, Date: 2024-08-02 Tentative Ruling

Case Name: CEP Fickett, LLC, a California limited liability company v. Fire Net, a California corporation, and Does 1-10, inclusive

Tentative Ruling: Defendant’s Demurrer to the first, second, third, fourth, and fifth causes of action is overruled. Defendant’s Demurrer to the sixth cause of action is sustained.

Defendant’s Motion to Strike is denied.

On January 26, 2024, Plaintiff CEP Fickett, LLC (“CEP”) filed this action against Defendants Fire Net (“Fire Net”) and Does 1-10 arising out of a dispute related to construction service performed by Defendants. On April 12, 2024, CEP filed a First Amended Complaint (“FAC”). Following a stipulation by the parties, CEP filed a Second Amended Complaint (“SAC”) against Fire Net on May 22, 2024, for (1) negligence, (2) violation of Business and Professions Code § 7160, (3) intentional misrepresentation, (4) negligent misrepresentation, (5) breach of contract, and (6) breach of implied covenant to perform work in a good and competent manner.

On March 29, 2024, Fire Net filed a Cross-Complaint and on June 5, 2024, it filed a First Amended Cross-Complaint against Foundation Builders Corporation (“Builders”), David Martinez (“Martinez”), CEP, First Republic Bank (“Bank”), and Roes 1-100 (collectively “Cross-Defendants”) for (1) breach of written contract, (2) open book account, (3) account stated, (4) reasonable value, (5) foreclosure of mechanics’ lien, and (6) claim on mechanics’ lien release bond.

On June 12, 2024, Fire Net filed the instant Demurrer (“Demurrer”) and Motion to Strike (“MTS”) portions of the SAC. On July 24, 2024, CEP filed an Opposition and on July 26, 2024, Fire Net filed a Reply.

A demurrer is a pleading that may be used to test the legal sufficiency of the factual allegations in the complaint. (Code of Civ. Proc. § 430.10.) There are two types of demurrers – general demurrers and special demurrers. (See McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal.App.4th 72, 77.)

General demurrers can be used to attack pleadings for failure to state facts sufficient to constitute a cause of action or for lack of subject matter jurisdiction. (Code Civ. Proc., § 430.10(e); McKenney, 167 Cal.App.4th at 77.) Such demurrers can be used only to challenge defects that appear on the face of the pleading or from matters outside the pleading that are judicially noticeable; evidence or extrinsic matters are not considered. (Code of Civ. Proc., §§ 430.30, 430.70; Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) For the purpose of testing the sufficiency of the cause of action, the Court admits “all material facts properly pleaded” and “matters which may be judicially noticed,” but does not consider contentions, deductions, or conclusions of fact or law. [Citation].” (Blank, 39 Cal.3d at 318.) It gives these facts “a reasonable interpretation, reading it as a whole and its parts in their context.” (Ibid.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) "If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence." (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447.)

Special demurrers can be used to attack the pleadings on grounds that the pleading is uncertain, ambiguous, and unintelligible, or in a contract case, for failure to allege whether a contract is oral or written. (Code Civ. Proc., § 430.10(f).)

Moreover, Code of Civil Procedure § 430.41 requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., § 430.41(a).) The parties are to meet and confer at least five days before the date the responsive pleading is due. (Code Civ. Proc., § 430.41(a)(2).) Thereafter, the demurring party shall file and serve a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a)(3).)

When a demurrer is sustained, the Court determines whether there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 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.) Generally, the court will allow leave to amend on at least the first try, unless there is absolutely no possibility of overcoming the issue. (See Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227 ("Denial of leave to amend constitutes an abuse of discretion unless the complaint shows on its face it is incapable of amendment. [Citation.] Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.").)

The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper:

(a) Strikeout any irrelevant, false, or improper matter inserted in any pleading.

(b) Strike out 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.

The Code of Civil Procedure also authorizes the Court to act on its own initiative to strike matters, empowering the Court to enter orders striking matter “at any time in its discretion, and upon terms it deems proper.” (Code Civ. Proc., § 436.)

Furthermore, section 435.5 requires that “[b]efore filing a motion to strike pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion to strike for the purpose of determining whether an agreement can be reached that resolves the objections to be raised in the motion to strike.” (Code Civ. Proc., § 435.5(a).)

Defense counsel has submitted Form CIV-140 indicating that at least five days prior to the date the responsive pleadings were due, the parties met and conferred by telephone regarding the instant Demurrer and Motion to Strike but were unable to reach an agreement.

Plaintiff states that it has already amended its complaint twice in a good faith attempt to resolve Defendant’s concerns without court intervention. Prior to the filing of the instant Demurrer and MTS, Defendant sent a meet and confer letter to Plaintiff expressing its intention to demur to the second, third, fourth, and fifth causes of action. However, Defendant has demurred to all causes of action and has failed to meet and confer regarding the first and sixth causes of action, thus, the Court should overrule the Demurrer to those causes of action.

The Court finds defense counsel’s declaration to be sufficient evidence of its efforts to meet and confer prior to filing the instant Demurrer and Motion to Strike.

Defendant Fire Net demurs to the entire Second Amended Complaint on the basis that it is uncertain, vague, and unintelligible, and fails to state facts to constitute causes of action against Defendant. Fire Net argues that Plaintiff refers to a contractual agreement throughout the SAC but presents four tort-based causes of action and an unclear breach of contract cause of action. Moreover, Fire Net argues, the entire SAC is ambiguous as it alleges causes of action that do not apply in this case.

Fire Net agrees to stipulate to the filing of a Third Amended Complaint to allow Plaintiff to clarify its allegations and its request for punitive damages.

As discussed in the next sections, the Court overrules Defendant’s Demurrer to all but the sixth cause of action. Thus, the Demurrer to entire Second Amended Complaint is also overruled.

“The essential elements of a cause of action for negligence are: (1) the defendant's legal duty of care toward the plaintiff; (2) the defendant's breach of duty—the negligent act or omission; (3)¿injury to the plaintiff as a result of the breach—proximate or legal cause; and (4) damage to the plaintiff.” (Leyva v. Garcia (2018) 20 Cal.App.5th 1095, 1103.) Owing a duty of care to the plaintiff is an indispensable prerequisite to the imposition of liability for negligence. (Richards v. Stanley (1954) 43 Cal.2d 60, 63.) A duty is an “obligation, recognized by the law, requiring the actor to conform to certain standard of conduct, for the protection of others against unreasonable risks.” (Hilyar v. Union Ice Co. (1955) 45 Cal. 2d 30, 36-37.)

Fire Net demurs to the negligence cause of action for failure to state a cause of action. Fire Net argues that the negligence cause of action arises out of a purported agreement; however, the SAC does not clarify whether the agreement was in writing, oral, or implied. Defendant contends that Plaintiff makes conclusory allegations regarding oppression, fraud, or malice, and its entitlement to punitive damages.

Plaintiff argues that it has properly pleaded all the elements for a negligence cause of action: (1) Defendant owed a duty to Plaintiff to perform work on Plaintiff’s property (SAC ¶ 22), (2) Defendant breached its duty by failing to use reasonable care in performing the work (SAC ¶¶ 12, 23), (3) Plaintiff suffered damages, including those to its property (SAC ¶¶ 12(h), 16, 25), (4) which were caused directly by Defendant’s breach of duty. Plaintiff argues that Defendant improperly characterizes this cause of action to arise from an agreement, however, this cause of action is based on the duty owed to Plaintiff as a subcontractor.

A contractor has “‘a general duty imposed by law to use reasonable care to prevent damage to persons whom he may reasonably expect to be affected by his work…’ [Citations.]” (Chance v. Lawry’s, Inc. (1962) 58 Cal.2d 368, 378.) Here, Plaintiff has alleged that Defendant owed a duty of reasonable care to Plaintiff, it breached this duty by performing defective work, causing serious delays, and creating a need for subsequent repairs, as specifically listed in Paragraphs 12 and 23 of the SAC, and as a result of the defective work, Plaintiff suffered physical damage to the property, additional expenses to fix the damage, and loss of income and use.

The Court finds that Plaintiff has sufficiently pleaded a cause of action for negligence. The Court overrules Defendant’s demurrer to the first cause of action.

c. Second Cause of Action - Violation of Business and Professions Code section 7160

Business and Professions Code section 7160 provides: “Any person who is induced to contract for a work of improvement, including but not limited to a home improvement, in reliance on false or fraudulent representations or false statements knowingly made, may sue and recover from such contractor or solicitor a penalty of five hundred dollars ($500), plus reasonable attorney’s fees, in addition to any damages sustained by him by reason of such statements or representations made by the contractor or solicitor.”

Fire Net demurs to the violation of Business and Professions Code section 7160 cause of action for failure to state a cause of action. Fire Net argues that the Business and Professions Code is 7160 applies only to a home improvement business and for a person who was induced to enter into a contract with a contractor. Here, the allegations are regarding the construction of 16 multi-family units and do not fall under the Home Improvement Business. Moreover, Defendant was a subcontractor of the terminated Contractor, Foundation Builders Corp., and there was no inducement between Owner and contractor.

Plaintiff respondes that the language of section 7160 includes all home improvement, including residential buildings, as set forth in Business and Professions Code § 7151, and includes additions and installations to real property that constitute “improvement.” Here, the allegations state that Defendant was contracted to add a fire sprinkler system to a residential building, which constitutes home improvement. Moreover, Plaintiff maintains, Defendant knowingly misrepresented to Plaintiff that it had completed work on the ground floor, when it had not, in order to get Plaintiff to pay for work that was not completed. (SAC ¶¶ 28-32.) In reliance, Plaintiff was induced into contracting for and paying $12,000 directly to Defendant for work it never completed. (SAC ¶ 33.)

Defendant argues that the Proposal presented in Exhibit 1 created a basis for a contract between Defendant and Foundational Builders Corp., not Plaintiff, and, thus, Plaintiff was not obligated to continue the relationship with Defendant. There is no evidence that Plaintiff was induced into the agreement.

Here, Plaintiff has alleged facts that fall within the scope of Business and Professions Code section 7160. As defined in section 7151, “home improvement” includes “repairing, remodeling, altering, converting, or modernizing of, or adding to, residential property,” or “installation of home improvement goods or the furnishing of home improvement services.” A home improvement contract can be an oral or written agreement between a contractor and an owner regardless of the number of residential units. (Bus. & Prof. Code, § 7151.2.) Moreover, Plaintiff does allege that it was induced to pay Defendant as part of their agreement in reliance on false representations made by Fire Net’s agents Fay Lindemer and Eddie Amiri, who knowingly informed Plaintiff that the ground floor work was 100% complete when it had several missing components. (SAC ¶¶ 28-35.)

Defendant argues, as it does throughout the demurrer, that there is no evidence for the claim. However, a demurrer does not test the sufficiency of the parties’ evidence, but rather tests whether the complaint contains sufficient allegations to apprise Defendant of the cause of action. Therefore, Defendant’s demurrer as to the second cause of action is overruled.

Fire Net demurs to the intentional misrepresentation cause of action for failure to state a cause of action. Fire Net argues that Plaintiff has failed to allege the authorized agent of CEP who relied on Defendant’s agents. The allegations in the SAC may amount to a breach of contract cause of action, it contends, but there are no allegations regarding fraud and any allegations regarding oppression, fraud, or malice are conclusory.

Plaintiff argues that it has alleged all five elements with the necessary specificity and has in fact identified the authorized agent of CEP, Marlen Donu. (SAC ¶¶ 38-48.)

In its Reply, Defendant argues that Plaintiff has failed to include the invoices upon which the misrepresentations were based and to provide the requisite details supporting the misrepresentations, as required. Thus, the Court should dismiss the negligent and intentional misrepresentation causes of action.

“The elements of a cause of action for intentional misrepresentation are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another’s reliance on the misrepresentation, (4) actual and justifiable reliance, and (5) resulting damage.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166.) The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

Plaintiff has properly alleged the intentional misrepresentation cause of action against Defendant and presents sufficient specific allegations to meet the heightened pleading standard for this cause of action. The SAC asserts that Fire Net sent a written invoice to CEP in December 2022 claiming that 83% of the work was completed and another invoice in March 2023 claiming that 100% of the ground floor work was completed. (SAC ¶¶ 39-40.) Fire Net’s agents, including Fay Lindemer and Eddie Amiri, knew these representations were false and made them to CEP’s authorized agent Marlen Donu, knowingly with the intent to induce CEP to pay for completed work. (SAC ¶¶ 42-43, 48.) Plaintiff alleges that Eddie Amiri is “an officer, director, and/or managing agent of Fire Net.” (SAC ¶ 3.) CEP relied on their representations and made the payments but later discovered that the work was not completed as “piping was missing from the lobby, elevator machine room, and trash rooms; there were zero sprinkler heads installed anywhere on the entire ground floor; main drains to exterior planters were missing; and there was no water in the sprinkler system.” (SAC ¶¶ 41, 44.) As a proximate result, CEP suffered damages of no less than $12,000, the amount it paid Defendant. (SAC ¶¶ 46-47.)

The elements of negligent misrepresentation are “(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243.) Negligent misrepresentation claims must be alleged with the same factual specificity as intentional misrepresentation claims. (See Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184; Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) “To be actionable, a negligent misrepresentation must ordinarily be as to past or existing material facts.” (Tarmann v. State Farm Mutual Automobile Ins. Co. (1991) 2 Cal.App.4th 153, 158.)

Fire Net demurs to the negligent misrepresentation cause of action for failure to state a cause of action. Fire Net argues that the allegations for negligent misrepresentation are nearly identical to those presented in regard to intentional misrepresentation and do not comply with the heightened requirements for this cause of action.

Plaintiff argues that it has alleged each of the required elements of negligent misrepresentation. Plaintiff has alleged that “(1) in March 2023, Defendant represented to Plaintiff that the work on the ground floor was 100% complete (SAC ¶ 51); (2) Defendant had no reasonable grounds for believing such representation to be true (SAC ¶ 53); (3) Defendant intended Plaintiff to rely on such representation so that it would pay Defendant for such work (SAC ¶ 54); (4) Plaintiff believed and reasonably relied on such representations (SAC ¶ 55); and (5) Plaintiff was harmed in the amount of at least $12,000 due to such reliance. (¶¶ 56-57.)” (Oppos. p. 5.)

As discussed above, in its Reply, Defendant argues that Plaintiff has failed to include the invoices upon which the misrepresentations were based and to provide the requisite details supporting the misrepresentations. These arguments are inappropriate for a challenge to the pleadings.

Plaintiff has properly alleged the negligent misrepresentation cause of action against Defendant and presents sufficient specific allegations to meet the heightened pleading standard for this cause of action. Accordingly, Defendant’s demurrer as to the negligent misrepresentation cause of action is overruled.

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) “A written contract may be pleaded either by its terms – set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference – or by its legal effect. [Citations.] In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.’ [Citation.]” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)

Fire Net demurs to the breach of contract cause of action for failure to state a cause of action. Fire Net argues that Plaintiff has alleged the existence of an agreement with Defendant, but has not clarified whether the agreement was in writing, oral, or implied. In Paragraph 7 of the SAC, it alleges that Fire Net and CEP, through their authorized agents, orally agreed to the terms of the Proposal unless modified or amended by other writings. However, in Paragraph 9, it alleges that the Proposal and change orders constitute the relevant agreement; it is not clear if the agreement was in writing, oral, or implied.

Plaintiff argues that the SAC makes it clear that the contract was in writing, as it states that “together, the Proposal and the change orders constitute the relevant agreement between CEP and Fire Net (the ‘Agreement’).” (SAC ¶ 9.) Moreover, the written contract is attached as Exhibit 1.

In its Reply, Defendant argues that the Proposal was between Foundational Builders Corp. and Defendant. On the other hand, the invoices upon which the breach of contract claim is based are not included.

Plaintiff has properly pleaded a cause of action for breach of contract. The SAC states that agreement in the matter was the combination of the Proposal, attached as Exhibit 1, along with the change orders between CEP and Fire Net. Although the Proposal prepared by Fire Net is for Foundational Builders Corp., it lists 321 S. Fickett Street, Los Angeles, CA 90033, as the property where the listed services were to be performed. (Ex. 1.) The Proposal was sent to CEP’s agent, Brain Commie, and on June 8, 2022, Fire Net and CEP, through their authorized agents orally agreed for the terms of the Proposal to govern their agreement. (SAC ¶ 7.) Throughout the project, Fire Net submitted change orders to CEP’s main business address, with specific attention to David Martinez, CEP’s general contractor and Project manager. (SAC ¶ 8.) Plaintiff alleges that it performed its obligations pursuant to the Agreement by making all payments directly to Fire Net. (SAC ¶¶ 10, 60.) However, the pleading avers, Fire Net breached the agreement by performing defective work, as set forth in Paragraph 12, and causing serious delays. (SAC ¶¶ 10-12, 61.) As a proximate result of Defendant’s breach of agreement, CEP has suffered “significant actual damages, including but not limited to property damage, costs of repair, costs of completion, loss of income, and loss of use in an amount to be proven at trial but no less than $250,000.” (SAC ¶ 62.)

The SAC pleads sufficient facts regarding the agreement, along with a copy of the Proposal order, to apprise Defendant of the cause of action and relevant allegations.

Accordingly, the demurrer to the breach of contract cause of action is overruled.

g. Sixth Cause of Action - Breach of implied covenant to perform work in a good and competent manner.

Fire Net demurs to the breach of implied covenant to perform work in a good and competent manner cause of action for failure to state a cause of action. Fire Net argues that this cause of action fails to state facts sufficient to constitute a cause of action as the previous cause of action also fails.

Plaintiff argues that Defendant’s demurrer to the sixth cause of action is unintelligible and the fifth and sixth causes of action are not linked. Plaintiff states that the sixth cause of action is properly pleaded.

In its Reply, Defendant states that “ ‘[a]ccompanying every contract is a common-law duty to perform with care, skill, reasonable expedience, and faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions is a tort as well as a breach of the contract.’ (Kuitems v. Covell (1951) 104 Cal.App.2d 482, 485.)” (Reply p. 5.) Thus, this cause of action is superfluous and unnecessary.

For the sixth cause of action, the SAC asserts the same allegations regarding Defendant’s duty to perform in a “skillful, reasonable, and workmanlike manner” and its breach of this duty. The Court finds that the sixth cause of action for breach of implied covenant to perform work in a good and competent manner is a duplicative of other causes of action asserted in the SAC. Claims which are duplicative are subject to demurrer. (Shoemaker v. Myers (1990) 52 Cal.3d 1, 24.) Plaintiff has not alleged any facts or elements that distinguish the sixth cause of action from the other counts.

Accordingly, Defendant’s demurrer to the sixth cause of action is sustained with leave to amend.

“In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) A request for punitive damages may be made pursuant to Civil Code section¿3294, subdivision (a) which provides that “[i]n an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”

Under the statute, malice is defined as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others” and oppression is defined as “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Code Civ. Proc., § 3294(c)(1), (c)(2).) Despicable conduct refers to circumstances that are base, vile, or contemptible. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.) Also, “[u]nder the statute, malice does not require actual intent to harm…Conscious disregard for the safety of another may be sufficient where the defendant is aware of the probable dangerous consequences of his or her conduct and he or she willfully fails to avoid such consequences…. [Citation.]” (Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1299.)

Fire Net moves to strike all allegations and requests for punitive damages. It argues that the SAC contains conclusory language regarding punitive damages that is “improper, has no factual or legal basis and is not in conformity with the laws of CA.” (MTS p. 2.) Thus, it moves to strike the following portions of the SAC:

3. All of prayer for relief of punitive damages in the first and third causes of action.

Fire Net argues that the first cause of action for negligence does not support a claim for punitive damages, as conduct that is negligent cannot be willful. Thus, Paragraph 26, lines 17-20 should be stricken from the SAC. Moreover, conclusory allegations regarding Defendant’s conduct constituting oppression, fraud, or malice, are not sufficient to support a claim for punitive damages. Here, Defendant maintains, the allegations in the SAC fail to rise to the threshold pleading requirement for an award of punitive damages as the SAC does not contain allegations that Fire Net acted with oppression, fraud, or malice. According to Fire Net, paragraphs 23-26 and 39-48 are at most allegations for breach of contract and not oppression, fraud, or malice required for punitive damages.

Plaintiff argues that it does not need to present evidence for an award of punitive damages at this stage in the litigation, it must merely plead facts to support a claim of punitive damages. Here, it has alleged specific details of Defendant’s fraudulent and malicious actions that warrant an award of damages in SAC ¶¶ 12-14, 24, 26, 39-48. Plaintiff’s third cause of action for intentional misrepresentation sufficiently alleges fraud and fraudulent inducement to support a prayer for punitive damages. Defendant sent an invoice to Plaintiff in March 2023 stating that the work on the ground floor was 100% complete when it was missing piping, sprinkler heads, man drains, and more, and Defendants knew that their representations regarding the status of the work were false. Defendant knowingly made these representations to induce Plaintiff to pay for work not performed and Plaintiff relied on these representations and made the payments. Once Plaintiff learned of the misrepresentations, Defendant refused to refund or credit Plaintiff for the fraudulent charges. (SAC ¶¶ 38-48.) Given that Plaintiff has clearly pleaded “fraud” it has sufficiently pleaded its entitlement to an award of punitive damages. Moreover, Plaintiff has pleaded allegations of gross negligence, which also support an inference of malice sufficient to entitlement to an award of punitive damages.

Moreover, the SAC alleges that Defendant acted with “extreme departure from what a reasonably careful person would do in the same situation…to the point of gross negligence.” (SAC ¶ 24.) Defendant intentionally (1) failed to correct its substandard work even after being told of the deficiencies by Plaintiff and the city inspectors and (2) claimed to have installed fire protection equipment that was never actually installed. (SAC ¶ 26.) The SAC alleges that Defendant was aware of the probable consequences of such dangerous conduct, particularly putting a residential building at burn risk and endangering public safety, and yet it deliberately failed to avoid such consequences. (Ibid.) These allegations are sufficient to support an inference of malice and therefore, support a prayer for punitive damages.

In its Reply, Defendant argues that the “claims for punitive damages are based on invoices that cannot be found, on statements without support or details, and for potential harms that never occurred.” (Reply p. 2.) Defendant further argues that where there was no intent to harm, a showing of malice requires clear and convincing evidence of despicable conduct carried on with willful and conscious disregard of the rights or safety of others. Plaintiff must show that Defendant was aware of the dangerous consequences of his or her conduct and willfully and deliberately failed to avoid these consequences. When such allegations are made regarding a corporate entity, Plaintiff must establish that Defendant had such advance knowledge and authorized or ratified the actions of an officer, director, or managing agent acting in a corporate or employment capacity, as required by Civil Code section 3294.

Civil Code section 3294 provides: “An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.”

Although allegations for a simple negligence claim are not generally sufficient for a request for punitive damages, wanton and reckless misconduct akin to gross negligence justifies an award of punitive damages. (Donnely v. Southern Pacific Co. (1941) 18 Cal.2d 863, 869.) In such a case, a person may have no intent to cause harm intentionally but may perform “an act so unreasonable and dangerous that he knows, or should know, it is highly probable that harm will result.” (Ibid.)

For both the negligence and intentional misrepresentation causes of action, the SAC asserts the following allegations in support of its request for punitive damages:

Defendants were entrusted with ensuring the safety of the Property, its inhabitants, and the public, by installing a fire protection service that would protect the building from fire. Defendants’ actions as described herein actually put the building at burn risk, endangering public safety. Defendants knowingly put the rights and safety of others at risk by failing to correct its faulty work even after being told by CEP and by city inspectors about the errors. Further, Fire Net knowingly put the rights and safety of others at risk by claiming to have installed fire protection equipment that was never actually installed. Specifically, Fire Net, through its authorized agents Eddie Amiri and Fay Lindemer, told CEP, through its authorized agent Marlen Donu, that they had performed work, including installing piping and sprinklers on the ground floor, that they knew had not actually been performed. This willful conduct, ratified by Eddie Amiri, put the entire building, including the publicly accessible ground floor and lobby, at serious fire and safety risk. Defendants’ conduct described herein was done with a willful and conscious disregard for CEP’s rights, and the rights and safety of others, such as to constitute oppression, fraud or malice under Civil Code Section 3294. CEP is entitled to punitive and exemplary damages in an amount appropriate to punish or set an example of Defendants.

These allegations are sufficient to support a request for punitive damages. The SAC asserts that Defendants knowingly put the rights and safety of others at risk by failing to correct faulty work and falsely claiming to have installed the fire protection equipment that was agreed upon. Defendant’s actions could constitute despicable conduct carried out with a willful and conscious disregard for the safety of others. The allegations also assert specific conduct as Fire Net, through its agents, knowingly misrepresented the completion of the work, directly endangering the public.

Defendant Fire Net’s Demurrer is overruled as to the first, second, third, fourth, and fifth causes of action. The Demurrer is sustained as to the sixth cause of action. Plaintiff shall have leave to file and serve an amended complaint on or before August 23, 2024.

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