Judge Bruce G. Iwasaki, Case Number: 24STCV13900, Date: 2024-09-11 Tentative Ruling

Tentative Ruling: The demurrer is overruled.

Plaintiff Bruce Ramer (Plaintiff) chartered a boat from Defendants. After several voyages, Plaintiff learned, he alleges, that the captain was not properly licensed and the crew was not qualified. He sues Defendants for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) fraud, and (4) under Business and Professions Code section 17200. Defendants demur to the first three causes of action on the ground that the complaint fails to allege damages proximately caused by Defendants’ conduct. Defendants also argue that the Complaint fails adequately to allege an alter ego relationship among them.

In June 2024 Plaintiff filed a Complaint against Cimarron, Inc, and Ken Newman and Brandie Newman. The Complaint alleges that Defendant Cimarron was the alter ego of Defendant Newmans. In August 2023, avers the Complaint, Plaintiff and Cimarron entered an Agreement by which Plaintiff chartered a boat called the Shambhala from Cimarron “for 17 days between August 1, 2023 and May 31, 2023.” (Compl. ¶ 7.)[1] Plaintiff traveled on the boat for eight days between August 17 and October 22, 2023. Plaintiff alleges that on October 22, 2023, he:

learned that Defendants were operating the Shambhala in a manner that threatened his and the other passengers’ safety, and breached the Agreement in myriad ways. Among other things, the captain of the Shambhala was not licensed to captain a vessel of the Shambhala’s size; crew requirements were not met; the vessel was known by the captain and crew to leak fuel and illegally discharge fuel and waste, and; Defendants continually operated the vessel in a manner that violated and voided the terms of their insurance.

The first cause of action of the Complaint alleges that Plaintiff’s Agreement with Defendants contained the representation that the “Captain and crew shall be appropriately licensed and qualified….” (Compl. ¶ 17.) The Complaint alleges that in breach of the Agreement neither was true, and as a “result of Defendants’ material breaches of the Agreement, Mr. Ramer has been damaged, and continues to accrue damages….” (Id. ¶¶ 18-19.)

The second cause of action incorporates the breach of contract allegations and also alleges that Defendants “continually operated the Shambhala in a manner that violated and voided the terms of their insurance.” (Compl. ¶ 24.) The Complaint alleges that Defendants’ conduct “voided the insurance policy” and that as “a direct and proximate result of Defendants’ material breaches of the implied covenant of good faith and fair dealing, Mr. Ramer has been damaged, and continues to accrue damages….” (Id. ¶¶ 31-33.)

The third cause of action for “false promise” avers that Defendants made three false promises to Plaintiff: (1) The captain and crew would be appropriately licensed and qualified; (2) that the vessel would be adequately insured; and (3) that “the Vessel, Captain, and crew would be in compliance with all charter laws of the United States.” (Compl. ¶¶ 37-41.) These representations, the Complaint asserts were “false when made,” Defendants intended Plaintiff to rely upon them, and Plaintiff reasonably relied on them. (Id. ¶¶ 42-44.) Accordingly, Plaintiff maintains, he “has been damaged and continues to accrue damages, in an amount subject to proof at trial….” (Id. ¶¶ 45-46.)

Defendants demur to these three counts on the ground that they fail to state a cause of action because they do not plead damages caused by the alleged breach. With respect to the fraud claim, Defendants also state that the allegations lack the requisite specificity. Finally, Defendants argue, the Complaint fails sufficiently to allege “alter egoism” against the Newmans.

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.)

The Complaint is not a model of clarity. It does not explain how Plaintiff continues to accrue damages and is not specific to the extent he seeks special damages. But Defendants’ arguments are often factual challenges inappropriate for a demurrer,[2] and seem to seek information uniquely available to them, such as the insuring agreement. Plaintiff need plead only ultimate facts, and need not specify a dollar amount of damages. Discovery is the stage in which these details should emerge. The Complaint adequately places Defendants on notice of the claims alleged.

Establishing a claim for breach of contract requires a showing of “(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff.” (D’Arrigo Bros. of California v. United Farmworkers of America (2014) 224 Cal.App.4th 790, 800.) “Further, the complaint must indicate on its face whether the contract is written, oral, or implied by conduct.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458–459.)¿

For present purposes, the Court assumes as true the allegation that the captain and crew were not properly licensed. Defendants argue that Plaintiff should have ferreted this fact out before he signed the agreement, and in any case, he was not harmed by this breach. That argument is unpersuasive. If United Airlines knowingly employed pilots without sufficient training, it is not the passengers’ burden to discover this fact and cancel their tickets. At this stage, the Court assumes what was alleged: that the Agreement between the parties included that the captain and crew were qualified to operate the boat, when in fact they were not. Those assumptions may be proven true or false by the evidence, and if established, a factfinder may determine the amount of damages. At this stage, the first cause of action sufficiently pleads a claim for relief. The demurrer to the first cause of action is overruled.

Second cause of action for breach of the implied covenant of good faith and fair dealing

To establish a claim for breach of the implied covenant, the plaintiff must show that (1) plaintiff and defendant entered into a contract, (2) all conditions required for defendant’s performance had occurred, (3) defendant prevented Plaintiff from receiving the benefits under the contract, (4) by doing so, defendant did not act fairly and in good faith, and (5) plaintiff was harmed by defendant’s conduct. (CACI 325.) “The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made.” (Italics omitted.) The covenant thus has no existence independent of its contractual underpinnings, and cannot impose substantive duties or limits on contracting parties beyond those in the specific terms of their agreement. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350.)

Plaintiff alleges that the failure to man the vessel with a qualified crew voided the insurance policy. Assuming that is so, the issue is how that harms Plaintiff. For present purposes it would be the same harm as if the Agreement represented the vessel carried insurance when it did not. Passengers do not ask to review a carrier’s insurance package. They reasonably rely on an Agreement that states prominently what the limits of insurance coverage are. Defendants argue that nothing untoward occurred that required insurance to be called upon, and hence no damages accrued. But that is hardly an argument that fulfils the purpose of the agreement. The assumption here – again, of course, subject to proof at trial – is that Defendants knew the Captain and crew were inappropriately licensed and that if any loss occurred because of their acts or omissions, insurance coverage could well be denied. Such a claim, if true, describes bad faith and unfair dealing. The demurrer to the second cause of action is overruled.

The elements of promissory fraud are: 1) a promise made regarding a material fact; 2) promisor’s lack of any intention of performing at the time of making the promise, based upon: a) specific factual circumstances beyond contract breach; or b) inferring a contemporaneous intent not to perform; 3) the promise was made with an intent to induce action by plaintiff; 4) plaintiff reasonably relied on the promise; 5) defendant did not perform the promised act; 6) plaintiff was injured/harmed; and 7) plaintiff’s reliance on defendant’s promise was a substantial factor in causing the harm. (CACI 1902.)

In arguing that the fraud claim is insufficiently specific, Defendants contest the facts, not the adequacy of the pleading: “Nowhere in the Complaint are there any ‘facts’ that demonstrate that above representations were false.” (Demurrer p. 8) “What are the facts,” rhetorically asks Defendants, “supporting any claim that Defendant had knowledge of these alleged deficiencies and then intentionally concealed them or misrepresented them?” At trial or in a motion for summary judgment, that question is highly relevant. Not here.

Defendants also repeat their argument that Plaintiff has not pleaded damages. Plaintiff’s argument is he did not receive the benefit of his bargain. If this litigation continues, he will have to prove the dollar value of the bargain he claims he was deprived of. He has not put a dollar amount to it yet – discovery goes two ways – but he has certainly alleged damages. The Court is dubious he can prove future damages, but that matter is not before us.

It strikes the Court that factfinding in the case will be straightforward. Precisely what licenses or certifications the Captain and crew possessed during the relevant time should be easily determined. (The question is analogous to whether the person calling herself a lawyer is actually a member of the bar, not whether she is a brilliant or inept advocate, or even whether she committed malpractice.) It is perhaps a mixed question of law and fact whether those qualifications complied with governing rules when the Agreement was entered and the voyages occurred. The Court is confident that Defendants have all of that information now. They should disclose such facts on request.

The Newman Defendants challenge the allegations of “alter egoism” with respect to all four causes of action. The cases they cite do not arise from demurrers. They hold that in order to disregard the corporate entity, allegations must be pleaded indicating that justice cannot otherwise be accomplished. Paragraph 5 of the Complaint adequately alleges these facts.

The demurrer is overruled. Defendants shall serve and file their Answer on or before October 2, 2024.

[1] The Complaint appears to misstate the date the agreement was to terminate.

[2] Defendants argue that the allegations are “non-factual.” (Demurrer p. 9.)

Judge Bruce G. Iwasaki

Department 58