Judge: Curtis A. Kin, Case: 21STCV05918, Date: 2023-02-14 Tentative Ruling
Case Number: 21STCV05918 Hearing Date: February 14, 2023 Dept: 72
DEMURRER AND MOTION TO STRIKE
APPLICATION FOR PRO HAC VICE ADMISSION
Date: 2/14/23
(9:30 AM)
Case: FWD Future, LLC et al. v.
Blue Avian Ventures LLC et al. (21STCV05918)
TENTATIVE
RULING:
Defendants Natural Care USA, Inc.; Natural Collection, Inc.;
MMK International Inc.; and Rafi Shokrian’s Demurrer to Second Amended
Complaint is SUSTAINED IN PART.
Defendants Natural Care USA, Inc.; Natural Collection, Inc.;
MMK International Inc.; and Rafi Shokrian’s Motion to Strike Portions of Second
Amended Complaint is GRANTED IN PART.
Application of Vrinda Bhuta to appear as counsel pro hac
vice in this action on behalf of plaintiff The Raw Office, Inc. is GRANTED.
I.
DEMURRER TO SECOND AMENDED COMPLAINT
As a preliminary matter, the demurrer is brought by
defendants Natural Care USA, Inc. (“NCU”), Natural Collection, Inc., MMK
International Inc. (“MMK”) and Rafi Shokrian. Natural Collection, Inc. is not
named as a defendant in the SAC. (Cf. SAC ¶ 8 [one of the defendants
named as Natural Collection Corp.].) Accordingly, the discussion below pertains
to the sufficiency of the allegations against NCU, MMK, and Shokrian. To the
extent that Natural Collection Corp. intended to demur to the SAC, the
discussion set forth below applies equally to Natural Collection Corp. as an
alleged principal of defendants Elizabeth Labellarte, Alejandro Guardiola, and
Shokrian. (SAC ¶¶ 22, 25-27.)
A.
First Cause of Action – Fraud
Defendants contend the fraud cause of action fails because
no specific representations are attributed to them. Plaintiff The Raw Office,
Inc. (“TRO”) sufficiently alleges liability based on the statements of
defendants Elizabeth Labellarte and Alejandro Guardiola.
“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.) “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.” (Ibid.)
Prior to the purchase of the subject Sunrise brand nitrile
gloves by TRO and its assignors, Labellarte allegedly represented to Nitin
Kholsa, the Chief Executive Officer of one of TRO’s assignors, that the subject
Sunrise brand nitrile gloves were blue and FDA certified. (SAC ¶¶ 14, 19, 20,
34.) Labellarte also purportedly represented that the gloves were in conformity
with the representations in a marketing packet to which FDA refers as the
“Sunrise Gloves Profile Desk,” including that the gloves were to be packed in
boxes of 100 gloves per box and that the gloves were new, unused, and free of
defects. (SAC ¶¶ 14, 20, 34.) Based on Labellarte’s representations, TRO stated
that it was interested in purchasing the gloves, subject to TRO’s inspection of
the gloves. (SAC ¶ 37.)
During the pre-purchase inspection of the gloves by TRO and
its assignors, Labellarte and Guardiola selected cartons that they knew to
contain conforming gloves while knowing that the remaining cartons were
nonconforming and defective. (SAC ¶¶ 41, 53.) Labellarte and Guardiola misrepresented
that the cartons were selected at random. (SAC ¶ 41.) Labellarte also
orchestrated a demonstration of the purported strength and durability of the
gloves by putting on and tugging on a pair of gloves. (SAC ¶ 42.) During the
inspection and in front of TRO’s representatives, Labellarte also posted a
video on a network of third-party brokers, wherein she made various
representations concerning the quality of the gloves. (SAC ¶¶ 40, 43.) Based on
Labellarte and Guardiola’s representations during the inspection, TRO agreed to
purchase the gloves. (SAC ¶ 44.) TRO later learned from its third-party
customers that the gloves were nonconforming and defective. (SAC ¶ 56.)
Even though the representations set forth above were not
made by any of the demurring defendants, Labellarte and Guardiola were
allegedly agents of the demurring defendants. (SAC ¶¶ 25, 26, 34.) Labellarte
allegedly told Kholsa that the gloves were provided by Shokrian, the owner of
NCU and MMK, and that she had a close working relationship with Shokrian. (SAC
¶¶ 22, 35.) The pre-purchase inspection also took place in a warehouse
shared by NCU and MMK. (SAC ¶¶ 16, 38, 39, 45.) Based on these allegations,
demurring defendants may be liable for Labellarte and Guardiola’s alleged
fraudulent inducement as their principals. (Civ. Code § 2334 [“A principal
is bound by acts of his agent, under a merely ostensible authority, to those
persons only who have in good faith, and without want of ordinary care,
incurred a liability or parted with value, upon the faith thereof”].)
Defendants contend that, based on allegations in the
original Complaint and the First Amended Complaint, TRO cannot impute liability
upon demurring defendants. “‘[U]nder the sham pleading doctrine, plaintiffs are
precluded from amending complaints to omit harmful allegations, without
explanation, from previous complaints to avoid attacks raised in demurrers or
motions for summary judgment. [Citations omitted].’” (State ex rel. Metz v. CCC Info. Servs., Inc.) (2007) 149 Cal. App.
4th 402, 412.) In the Complaint and the FAC, filed before TRO purportedly was
assigned claims, it is alleged TRO purchased the gloves based on Labellarte’s
representations to Kholsa. (Compl. ¶ 44; FAC ¶ 42.) TRO makes the same allegation
in the SAC. (SAC ¶¶ 34-36.) Defendants do not sufficiently explain what or how any
allegations of the prior pleadings are necessarily inconsistent with the SAC
such that the sham pleading doctrine should have any bearing here.
Defendants argue that the fraud cause of action is barred
under the economic loss rule because no tort duties separate and apart from
contractual duties were alleged. “The economic loss rule requires a purchaser
to recover in contract for purely economic loss due to disappointed
expectations, unless he can demonstrate harm above and beyond a broken
contractual promise.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004)
34 Cal.4th 979, 988.) However, tort damages may be recovered in contract cases
where the contract was fraudulently induced. (Id. at 989-90, quoting Erlich
v. Menezes (1999) 21 Cal.4th 543, 551-52; see also Harris v. Atlantic
Richfield Co. (1993) 14 Cal.App.4th 70, 78 [“[W]hen one party commits a
fraud during the contract formation or performance, the injured party may
recover in contract and tort”].)
Based on the allegations discussed above, TRO sufficiently
alleged fraudulent inducement on the part of demurring defendants.
The demurrer to the first cause of action is OVERRULED.
B.
Second Cause of Action – Conspiracy to Defraud
Defendants contend that TRO fails to allege what they did in
furtherance of the conspiracy.
“To support a
conspiracy claim, a plaintiff must allege the following elements: (1) the
formation and operation of the conspiracy, (2) wrongful conduct in furtherance
of the conspiracy, and (3) damages arising from the wrongful conduct.” (AREI
II Cases (2013) 216 Cal.App.4th 1004, 1022, internal quotations omitted.)
TRO alleges demurring defendants’ formed a conspiracy to
financially benefit themselves at the expense of TRO by knowingly
misrepresenting the characteristics of the subject gloves. (SAC ¶¶ 29,
30.) Here, it is alleged Shokrian, the purported agent and owner of NCU and
MMK, provided the nonconforming gloves in furtherance of the conspiracy. (SAC
¶¶ 22, 30, 35, 87.) Because the gloves were nonconforming, TRO is not able
to sell the gloves, resulting in warehouse storage fees. (SAC ¶ 74.) TRO’s
customers have also stopped ordering from TRO. (SAC ¶ 74.) TRO sufficiently
alleged the elements of a conspiracy on the part of demurring defendants.
The demurrer to the second cause of action is OVERRULED.
C.
Third Cause of Action – Negligent Misrepresentation
“The same elements [for fraud] comprise a cause of action
for negligent misrepresentation, except there is no requirement of intent to
induce reliance.” (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th
513, 519.) Negligent misrepresentation requires the defendant to make false
statements believing them to be true, but without reasonable ground for such
belief. (Bily v. Arthur Young &
Co. (1992) 3 Cal.4th 370, 407.)
TRO sufficiently alleges that defendants, including
demurring defendants, had no reasonable grounds to believe that the
misrepresentations were true. (SAC¶ 94.) Based on the discussion above with
respect to the fraud cause of action, TRO sufficiently alleges all the other
elements of a negligent misrepresentation cause of action.
Defendants contend that the negligent misrepresentation
cause of action is barred by the economic loss rule. The economic loss rule
applies to negligence actions. (Robinson Helicopter, 34 Cal.4th at 989.)
However, “[u]nder California law, negligent misrepresentation is a species of
actual fraud and a form of deceit.” (Wong v. Stoler (2015) 237
Cal.App.4th 1375, 1388.) When a contract is fraudulently induced, the duty
giving rise to tort liability arises from intentional conduct that is intended
to harm. (Erlich, 21 Cal.4th at 552.) As discussed above with respect to
the first cause of action, TRO sufficiently alleges that defendants, including
demurring defendants, fraudulently induced TRO to purchase the gloves. The
fraudulent inducement exception to the economic loss rule applies to the
negligent misrepresentation cause of action. (Robinson Helicopter, 34
Cal.4th at 989-90.)
The demurrer to the third cause of action is OVERRULED.
D.
Fourth Cause of Action – Violation of Business and
Profession Code § 17200
Defendants contend that the fourth cause of action fails
because TRO does not allege unlawful or unfair conduct on the part of demurring
defendants. The Unfair Competition Law (“UCL”) prohibits persons from engaging
in fraudulent acts. (Bus. & Prof. Code § 17200.) A fraudulent act under the
UCL is one whether members of the public are likely to be deceived. (Morgan
v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1254.)
For a UCL claim, “[I]t is sufficient for plaintiff to
describe a scheme to mislead customers, and allege that each misrepresentation
to each customer conforms to that scheme.” (Committee On Children's
Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 212–213.) TRO
sufficiently alleges defendants’ scheme to defraud customers and enrich
defendants by knowingly misrepresenting the characteristics of the subject
gloves. (SAC ¶¶ 29, 30, 105.) For the reasons stated with respect to the first
cause of action, because Labellarte and Guardiola are allegedly agents of
demurring defendants, Labellarte and Guardiola’s misrepresentations concerning
the characteristics of the gloves can be attributed to demurring defendants.
The demurrer to the fourth cause of action is OVERRULED.
E.
Fifth Cause of Action – Breach of Contract
Defendants contend that TRO does not allege they entered
into a contract with TRO. Arguably, the terms regarding the purchase of the
gloves are not sufficiently alleged because TRO does not allege whether the
contract was written, oral, or implied by conduct. (CCP § 430.10(g); SAC ¶¶ 45,
46 [unstated by what means the parties agreed to payment amount and payment
arrangements].)
However, TRO also alleges that, on November 18, 2020,
defendants, including demurring defendants, verbally agreed to refund TRO for
the full amount of the purchase price. (SAC ¶ 63.) Defendants, including
demurring defendants, refused to refund the purchase price. (SAC ¶ 71.) A demurrer
only lies as to an entire cause of action. (Fremont Indemnity Co. v. Fremont
Gen. Corp. (2007) 148 Cal.App.4th 97, 119.) Accordingly, notwithstanding
any defects with respect to the contract to purchase the gloves, TRO
sufficiently alleges that demurring defendants agreed to refund the purchase
price of the gloves and that they breached that agreement.
The demurrer to the fifth cause of action is OVERRULED.
F.
Sixth Cause of Action – Money Had and Received
Defendants cite case law supporting the proposition that a
common count cause of action is demurrable when the cause of action is based on
facts supporting other causes of action that are insufficiently stated. (See,
e.g., McBride v. Boughton (2004) 123 Cal.App.4th 379, 394 [“When a common
count is used as an alternative way of seeking the same recovery demanded in a
specific cause of action, and is based on the same facts, the common count is
demurrable if the cause of action is demurrable”].)
Because the first through fifth causes of action are sufficiently
stated, however, the demurrer to the sixth cause of action is OVERRULED.
G.
Seventh Cause of Action – Unjust Enrichment
Defendants contend that
unjust enrichment is not a cause of action. The Second District Court of
Appeal, which would hear any appeal regarding a dismissal based on a demurrer,
has held that unjust enrichment is not a cause of action, only a remedy. (Bank
of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 955, quoting
McBride v. Boughton (2004) 123 Cal.App.4th 379, 387 [“‘Unjust enrichment
is not a cause of action, ... or even a remedy, but rather “ ‘ “a general
principle, underlying various legal doctrines and remedies.” ’ ” ....
[Citation.] It is synonymous with restitution. [Citation.]’”]; Melchior v.
New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 [“[T]here is no
cause of action in California for unjust enrichment . . . . Unjust enrichment
is ‘ “a general principle, underlying various legal doctrines and remedies,” ’
rather than a remedy itself.”]; Jogani v. Superior Court (2008) 165
Cal.App.4th 901, 911 [holding same, citing Melchior].)
TRO cites no case holding that unjust enrichment is a cause
of action. The demurrer to the seventh
cause of action is SUSTAINED.
II.
MOTION TO STRIKE PORTIONS OF SECOND AMENDED
COMPLAINT
Because the first cause of action for fraud is sufficiently
stated for the reasons set forth above with respect to the demurrer, the motion
to strike as to the allegations supporting and the prayer for punitive damages
is DENIED. (Civ. Code § 3294(a) [allowing for punitive damages when defendant
guilty of fraud].)
With respect to attorney fees, fees are recoverable when
authorized by contract, statute, or law. (CCP § 1033.5(a)(10)(A-C)). TRO
maintains that it is entitled to fees under Business and Professions Code §
17200. (SAC ¶ 108.) However, “[a]ttorney fees are not recoverable under the
UCL.” (People ex rel. City of Santa Monica v. Gabriel (2010) 186
Cal.App.4th 882, 889.) TRO cites no other contract, statute, or law that would
allow it to recover attorney fees.
Accordingly, the motion is GRANTED IN PART. The “reasonable attorney’s fees according
to proof” sought in paragraph 3 of the prayer for relief is STRICKEN.
Because deciding whether to allow leave to amend, the Court will
hear from plaintiff The Raw Office, Inc. as to how the Second Amended Complaint
can be amended to address the defects contained in the seventh cause of action
for unjust enrichment and the prayer for attorney fees.
III.
APPLICATION TO APPEAR AS COUNSEL PRO HAC VICE
The UNOPPOSED application of Vrinda Bhuta to appear as
counsel pro hac vice in this action on behalf of plaintiff The Raw Office, Inc.
is GRANTED. The Court finds that the application complies with all requirements
of Rule of Court 9.40 and that applicant provided sufficient proof of service
on the State Bar and payment of the requisite fee.