Judge: Curtis A. Kin, Case: 21STCV16594, Date: 2023-04-18 Tentative Ruling
Case Number: 21STCV16594 Hearing Date: April 18, 2023 Dept: 72
DEMURRER AND MOTION TO STRIKE
Date: 4/18/23 (9:30 AM)
Case: Calvin Short et al. v. Matthews Real
Estate Investment Serv., Inc. (21STCV16594)
TENTATIVE RULING:
Cross-Defendants Calvin Short, Gary Chou, Aron Cline, CCS
Capital Partners, Inc., Cortland Lioi, Jon Prater, Rob Vasiliavitchious, and
Zack Williams’ Demurrer to Second Amended Cross-Complaint is SUSTAINED IN PART.
Cross-Defendants Calvin Short, Gary Chou, Aron Cline, CCS
Capital Partners, Inc., Cortland Lioi, Jon Prater, Rob Vasiliavitchious, and
Zack Williams’ Motion to Strike Portions of Second Amended Cross-Complaint is
DENIED.
I.
DEMURRER TO SECOND AMENDED CROSS-COMPLAINT
A.
Third Cause of Action: Breach of the Implied
Covenant of Good Faith and Fair Dealing (by Matthews Real Estate Investment
Services, Inc. and Kyle Matthews)
Cross-defendants contend that the third cause of action is
duplicative of the first cause of action for breach of contract. California
courts have found where “allegations do not go beyond the statement of a mere
contract breach and, relying on the same alleged acts, simply seek the same
damages or other relief already claimed in a companion contract cause of
action, they may be disregarded as superfluous as no additional claim is
actually stated.” (Careau & Co. v.
Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.)
Cross-complainants allege that the Independent Contractor
Agreements (“ICA”) between the predecessor of Matthews Real Estate Investment
Services, Inc. (“Matthews”) and the individual cross-defendants contained an
implied obligation not to violate or cause Matthews to violate real estate law.
(SAXC ¶¶ 18, 140.) Cross-complainants allege that the violated statutory
obligations include performing real estate activities outside the supervision
of the responsible broker, i.e., Kyle Matthews, and supervising real estate
transactions on behalf of Matthews, the corporation. (SAXC ¶¶ 142, 143.)
Cross-defendants allegedly breached the implied obligation by concealing their
real estate activities from cross-complainants’ supervision and diverting real
estate transactions for their own benefit. (SAXC ¶¶ 145, 146.)
With respect to concealment of real estate transactions,
cross-defendants contend that the alleged implied obligation is duplicative of
section 2(f) of the Independent Contractor Agreement (“ICA”), which states,
“Salesperson is required to report all of his/her/its real estate activities to
the Company within 48 hours of their occurrence.” (SAXC Ex. H at § 2(f).)
Arguably, the concealment of real estate transactions is encompassed by section
2(f) of the ICA, as “real estate activities” is defined to include listing
agreements. (Ibid.; cf. SAXC ¶¶ 65-86 [alleged diverted listings of
property].)
With respect to diverting real estate transactions,
cross-defendants contend that the alleged implied obligation is encompassed in
section 10(e) of the ICA, which states: “Salesperson and the Company agree to
negotiate and cooperate with one another, in good faith, to determine
Salesperson’s compensation(s) and/or commission(s) relating to and/or with
respect to all probable real estate transactions and/or leads for potential
listings referenced on the Transaction List….” (SAXC Ex. H at § 10(e).) Section
10(e) does not expressly prohibit the diversion of real estate transactions.
Section 10(e) requires the provision of a list of probable real estate
transactions and leads for potential listings on or before the date of
termination and for the salesperson and Matthews to negotiate in good faith to
determine the salesperson’s compensation or commission. For pleading purposes,
cross-complainants allege an implied obligation separate and apart from the
provisions of the ICA.
The demurrer to the third cause of action on the ground that
the third cause of action is duplicative of the first cause of action is
OVERRULED.
B.
Fifth Cause of Action: Negligent Misrepresentation
(by Matthews Real Estate Investment Services, Inc.)
Cross-defendants maintain that the alleged
misrepresentations upon which the fifth cause of action is based are based on a
non-actionable omission or a false promise to perform in the future.
Cross-complainants allege that, in December 2020,
cross-defendant Calvin Short concealed his intention to end his affiliation
with Matthews and join CCS Capital Partners, Inc. (“CCS”) from Chad Kurz, a
Matthews salesperson, to obtain an off-market list of Walgreens properties.
(SAXC ¶¶ 104, 163(a).) However, negligent misrepresentation cannot be based on
concealment; it requires a requires a “positive assertion,” that is, it cannot
be based on an implied misrepresentation or a promise of future performance. (Stockton
Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 458-59.) Even if Short
executed a confidentiality agreement using his Matthews’ email address and
title (SAXC ¶ 163(a)), this would only serve to imply that Short would maintain
his affiliation with Matthews. Such an implication cannot serve as a basis for
a negligent misrepresentation claim.
Cross-complainants also allege that, in February 2021, Short
told Kurz that he “would give [a particular] offer to Matthews so that Matthews
could present the offer to the owner of the properties.” (SAXC ¶ 163(b).) That is an allegation of a false promise that
cannot form the basis for a negligent misrepresentation claim. (Tarmann v. State Farm Mut. Auto Ins. Co.
(1991) 2 Cal.App.4th 153, 159.) The
related alleged misrepresentations fare no better as the basis for a negligent
misrepresentation claim. The statement
that Short had a potential buyer for the entire portfolio of Walgreens
properties and that Short expected the buyer to purchase the entire portfolio
(SAXC ¶ 163(b)) is a nonactionable opinion of future action by a third
party. (Hinesley v. Oakshade Town
Ctr. (2005) 135 Cal.App.4th 289, 295.)
Similarly, the statement that an “LOI [letter of intent] [was] coming on
the entire portfolio” is an nonactionable opinion of what Short expected the
buyer to do. (Ibid.) Alternatively, it was a false promise by
Short that an LOI would be coming, which, as discussed above, cannot support a
claim for negligent misrepresentation. (Tarmann,
2 Cal.App.4th at 159.)
Accordingly, the demurrer to the fifth cause of action is
SUSTAINED.
C.
First through Third Causes of Action Asserted by
Kyle Matthews
Cross-defendants contend that the first through third causes
of action for breach of contract, intentional interference with contract, and
breach of the implied covenant of good faith and fair dealing, respectively,
fail as asserted by Kyle Matthews, because he is not sufficiently alleged to be
a third-party beneficiary to the ICAs. (See SAXC ¶ 124 [alleging
breaches of ICAs].) It is undisputed that Mr. Matthews is not a party to the
ICAs. (See CACI 303 [element of breach of contract includes plaintiff’s entry
into contract].) Rather, Matthews Retail Group, Inc., predecessor to plaintiff
Matthews Real Estate Investment Services, Inc., is a party to the ICAs. (SAXC
Ex. H.)
“A contract, made
expressly for the benefit of a third person, may be enforced by him at any time
before the parties thereto rescind it.” (Civ. Code § 1559.) “‘[E]xpressly’
means ‘in an express manner; in direct or unmistakable terms; explicitly;
definitely; directly.’ ” (Sofias
v. Bank of America (1985) 172
Cal.App.3d 583, 587, internal quotations omitted.) The language of the contract
is considered in determining whether allowing a third party to enforce a
contract is consistent with the objectives of the contract and reasonable
expectations of the contracting parties. (Goonewardene v. ADP, LLC
(2019) 6 Cal.5th 817, 830-31.) Here, while cross-complainants discuss
section 3 of the ICA and section 3(B) of the Independent Contractor Policy
Manual in the opposition, cross-complainants fail to allege how the language of
these provisions, or any other provision in the ICAs, demonstrates an express
intent to benefit Mr. Matthews.
Cross-complainants
allege that Mr. Matthews was paid renumeration for real estate transactions as
the broker of record and that the individual cross-defendants were aware of
this arrangement. (SAXC ¶¶ 98, 99, 126.) However, “simpl[e] knowledge that a
benefit to the third party may follow from the contract” is not sufficient to
demonstrate that the contracting parties had a “motivating purpose” to benefit
Mr. Matthews. (Goonewardene, 6 Cal.5th at 830.)
Further, a third party does not have a right to enforce a
contract if it is unnecessary to effectuate the contract’s objectives. (Wexler
v. California Fair Plan Association (2021) 63 Cal.App.5th 55, 66, citing Goonewardene,
6 Cal.5th at 830, 836.) Matthews, the corporation, is asserting the first
through third causes of action based on its status as a signatory to the ICAs.
Allowing Mr. Matthews to assert contract-based causes of action is unnecessary
here.
Because cross-complainants fail to allege that they are
parties to the ICAs or facts demonstrating they are third-party beneficiaries
who are entitled to enforce the ICAs, the first cause of action against Mr.
Matthews for breach of contract is not adequately stated. Because
cross-complainants fail to allege an underlying contract upon which Mr.
Matthews can sue, the second cause of action for intentional interference with
contract and third cause of action for breach of the implied covenant of good
faith and fair dealing fail with respect to Mr. Matthews. (Pacific Gas &
Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126 [element
of tortious interference with contract include a valid contract between
plaintiff and a third party]; CACI 325 [element of breach of implied covenant
of good faith and fair dealing includes plaintiff entering into contract].)
The demurrer to the first through third causes of action
asserted by cross-complainant Kyle Matthews is SUSTAINED.
II.
MOTION TO STRIKE PORTIONS OF SECOND AMENDED
CROSS-COMPLAINT
Cross-defendants seek to strike paragraph 157 and 169 in the
Second Amended Cross-Complaint, wherein Matthews Real Estate Investment
Services, Inc. (“Matthews”) alleges that CCS Capital Partners, Inc. obtained
the commission for the real estate transaction involving the Walgreens
portfolio.
With respect to paragraph 169, the motion is DENIED as MOOT
based on the ruling to sustain the demurrer to the fifth cause of action.
With respect to paragraph 157, “[i]n fraud cases involving
the ‘purchase, sale or exchange of property,’ the Legislature has expressly
provided that the ‘out-of-pocket’ . . . measure of damages should apply. (Alliance
Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240, citing Civil Code §
3343(a).) “The ‘out-of-pocket’ measure of damages is directed to restoring the
plaintiff to the financial position enjoyed by him prior to the fraudulent
transaction, and thus awards the difference in actual value at the time of the
transaction between what the plaintiff gave and what he received.” (Alliance
Mortgage, 10 Cal.4th at 1240.)
Here, however, as alleged in paragraph 157, the commission
of which Matthews was purportedly deprived resulted from cross-defendant Calvin
Short’s procurement of a confidential list of off-market real estate properties
from Chad Kurz, an alleged agent of Matthews. (SAXC ¶ 151.) No purchase, sale,
or exchange of property was alleged as the basis for the fraud claim. Rather,
the fraud at issue was in purportedly deceiving Kurz into providing the list of
properties to Short. Matthews was thus not defrauded in the “purchase, sale or
exchange of property”—the situation to which the limitation of Civil Code §
3343(a) applies. Consequently,
cross-defendants’ citation to Kenly v. Ukegawa (1993) 16 Cal.App.4th 49
and Hensley v. McSweeney (2001) 90 Cal.App.4th 1081 is unavailing, because
those cases were based on an analysis of Civil Code § 3343.
Instead, “[f]or the breach of an obligation not arising from
contract, the measure of damages, except where otherwise expressly provided by
this Code, is the amount which will compensate for all the detriment
proximately caused thereby, whether it could have been anticipated or not.”
(Civ. Code § 3333.) Under Civil Code § 3333, insofar as Matthews can prove they
are damages proximately caused, Matthews may seek the commissions that it would
have obtained had Short not obtained the list through fraud. Absent any
authority expressly prohibiting cross-complainants from seeking the commission
from the sale of the Walgreens properties, the motion to strike is DENIED.
Before deciding whether to allow leave to amend, the Court
inquires from cross-complainants how the Second Amended Cross-Complaint can be
amended to address the defects set forth above.