Judge Cherol J. Nellon, Case Number: 24STCV04857, Date: 2024-08-01 Tentative Ruling

Judge: Cherol J. Nellon, Case: 24STCV04857, Date: 2024-08-01 Tentative Ruling

Case Number: 24STCV04857 Hearing Date: August 1, 2024 Dept: 14

#10

Case Background

This is an action for fraud, rescission, breach of contract, injunctive relief, an accounting, involuntary dissolution of the corporation, and declaratory judgment. Plaintiffs allege that they bought a home healthcare business in September 2023 together with Defendant Belzunce. The seller, Defendant Akopyan, and Belzunce misrepresented that Medicare’s provider agreement and billing privileges would convey to Plaintiffs. Belzunce then locked Plaintiffs out of the premises and all corporate records and accounts. Belzunce named herself CEO, President, and secretary of the corporation and named her son, Defendant Beto, as the Assistant CFO. Plaintiff placed the business property’s lease in her own name and placed Beto in a corporate position without the shareholders’ consent. After Plaintiffs terminated Belzunce from their positions, Belzunce refused to relinquish control of the company.

On February 27, 2024, Plaintiffs Mohsen Ali and Carol Ghanem filed their Complaint against Defendants Hero Home Healthcare, Inc. (Hero), Diana Akopyan, Maria Isabel Belzunce, and Sebastian Beto.

On June 10, 2024, Defendant Akopyan filed this demurrer.

On July 17, 2024, Plaintiffs filed an opposition.

On July 25, 2024, Akopyan filed a reply.

Instant Pleading

Akopyan demurs to the Complaint.

Decision

Akopyan’s demurrer is SUSTAINED as to the cause of action for an accounting and OVERRULED as to the remaining causes of action. Plaintiffs failed to discuss the issue of leave to amend and must be prepared to discuss this issue at the hearing on this matter.

Discussion

Akopyan demurs to the first through third causes of action for fraud, rescission, and breach of contract on the grounds that Plaintiffs are barred from asserting them by the parol evidence rule. Akopyan demurs to the fourth through seventh causes of action on the grounds that they only concern the actions of Defendant Belzunce, not Akopyan.

As a preliminary matter, the causes of action for rescission, injunctive relief, involuntary dissolution, and declaratory relief are not the proper subject of a demurrer.

“A demurrer is not the appropriate vehicle to challenge a portion of a cause of action demanding an improper remedy.” (Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, 384-85; see PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682-83 (“A demurrer does not lie to a portion of a cause of action.”).) “The appropriate procedural device for challenging a portion of a cause of action seeking an improper remedy is a motion to strike.” (Caliber Bodyworks, Inc., supra, 134 Cal.App.4th at 385.)

Here, because the second, fourth, and seventh causes of action are remedies, they are not the proper subject of a demurrer. Akopyan did not file a motion to strike. Therefore, the demurrer is overruled as to these remedies.

1. Parol Evidence Rule

Akopyan alleges in her moving papers and reply that the causes of action for fraud and breach of contract are barred by the parol evidence rule.

“The parol evidence rule generally prohibits the introduction of any extrinsic evidence, whether oral or written, to vary, alter or add to the terms of an integrated written instrument” and it is embodied in Code Civ. Proc., section 1856. (Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1433.) “Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.” (Code Civ. Proc., section 1856(a); See also Alling 5 Cal.App.4th at 1433, [“An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.”].) The test for admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonable susceptible. (Pacific Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 37, [“But extrinsic evidence is not admissible to give language used in a written instrument a meaning to which it is not reasonably susceptible.”]; People ex rel. Dept. of Parks and Recreation v. West-A-Rama, Inc. (1973) 35 Cal.App.3d 786, 791.)

Fraud

Here, regarding the first cause of action for fraud, Akopyan argues that the parol evidence rule bars Plaintiffs from alleging that Defendants false representations prior to entering into the purchase agreement which are inconsistent with the terms of the contract, which states Plaintiffs were required to familiarize themselves with the operations of the Corporation and applicable regulations. (Compl., Exh. 1, sections 9(b)-9(c).)

A claim for fraud must plead all of the following elements: (1) misrepresentation; (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1332.)

Here, Akopyan argues that Plaintiffs were legally required to familiarize themselves with the laws regarding the existence of restrictions against transferring business licenses and that the parol evidence rule bars Plaintiffs asserting causes of action based on their reliance on false representations that Hero’s business license was transferrable. However, the parol evidence rule affects what evidence may be admitted to vary, alter, or add to the terms of an integrated written instrument. The rule does not expressly bar what may be pled in a complaint. Additionally, Plaintiffs are not alleging breach of contract or fraud based on any dispute over the meaning of any contract term.

Akopyan also argues that the parties’ agreement expressly disclaimed any and all prior statements by Akopyan. However, no such provision exists in the agreement. The clause stating Plaintiffs performed independent investigations into the affairs of the Corporation and familiarized themselves with all applicable regulations does not appear to disclaim Akopyan’s prior statements.

The Complaint alleges that Akopyan and Belzunce misrepresented that the Medicare provider agreement and billing privileges would transfer to Plaintiffs and Belzunce and that the 36-month prohibition on the sale of a home healthcare agency did not apply to the transaction. (Compl., ¶¶20-21.) Plaintiffs relied on this misrepresentation and agreed to the purchase, later discovering that the provider agreement and billing privileges did not transfer and that Belzunc had been illegitimately transferring clients to Hero without notifying Medicare of the ownership change. (Compl., ¶¶22-23.) Plaintiffs would not have agreed to the sale but for the misrepresentation. (Compl., ¶24.)

The Court finds that Plaintiffs have pled each element of fraud. Therefore, the demurrer is overruled as to the cause of action for fraud.

Breach of Contract

Akopyan makes the same arguments for the breach of contract cause of action as the fraud cause of action.

The elements of a claim for breach of contract are: “(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.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 821.) In addition, the complaint must demonstrate damages proximately caused by the breach. (St. Paul Ins. v. American Dynasty (2002) 101 Cal.App.4th 1038, 1060.)

Here, as discussed above, the parol evidence rule is a limitation on the evidence which may be introduced to affect the meaning of a contract term. The rule does not expressly limit what may be pled in a complaint. The Complaint alleges that Akopyan represented she “disclosed in writing all relevant information to the Buyer concerning the business, it’s (sic) assets, and it’s (sic) liabilities including…valid licenses held by the corporation…and other relevant information concerning the state of the business.” (Compl., ¶37, Exh. 1, section 8(c).) During negotiations, Akopyan and Belzunce falsely represented to Plaintiffs that there were no restrictions on the change of ownership. (Compl., ¶38.)

Because the Medicare provider’s agreement and billing privileges are relevant to whether Hero can continue operating as a home healthcare business, it is reasonable that Akopyan should have disclosed the fact that the agreement and billing privileges did not transfer to Plaintiffs due to a 36-month prohibition on the sale of the business under the parties’ agreement. Because the Complaint alleges Akopyan failed to disclose that the agreement and billing privileges did not transfer and instead misrepresented that they did transfer, the Complaint sufficiently alleges a breach of the representations and warranties. There is no dispute over the meaning of section 8(c) of the agreement, only whether Akopyan made the requisite representations and warranties. Therefore, the parol evidence rule does not bar Plaintiffs from pleading this cause of action.

The demurrer is OVERRULED as to the breach of contract cause of action.

2. Remaining cause of action for an Accounting

An accounting is an equitable proceeding that must be supported by some underlying misconduct which allows the plaintiff to invoke the right to an equitable remedy for accounting. (Green Valley Landowners Assn. v. City of Vallejo (2015) 241 Cal.App.4th 425, 442, citing Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1137.)

Although an accounting is generally a remedy, it may be a cause of action in some cases, such as when one party owes another a fiduciary duty that requires an accounting, and some balance is due to a plaintiff that can only be ascertained by an accounting. (Pantoja v. Countrywide Home Loans, Inc. (2009) 640 F.Supp.2d 1177, 1191; Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 593.) Where a defendant owes no money to a plaintiff, the plaintiff has no right to an accounting. (Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 594.)

Here, the Complaint alleges that Defendants Belzunce and Beto’s illegitimate corporate actions and inactions resulted in the sale, transfer, or other disposal of corporate assets which require an accounting to ascertain. However, the only allegations as to Akopyan pertain to the alleged misrepresentations she made at the time of the sale. Plaintiff’s opposition does not clarify what conduct committed by Akopyan would require an accounting. Because there are no allegations that Akopyan took part in the misappropriation of corporate assets, the demurrer is sustained as to the cause of action for an accounting.

Conclusion

The demurrer is SUSTAINED as to the cause of action for an accounting and OVERRULED as to the remaining causes of action.