Judge: Cynthia A Freeland, Case: 37-2022-00030298-CU-BC-NC, Date: 2024-05-24 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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SOUTH BUILDING TENTATIVE RULINGS - May 23, 2024

05/24/2024  01:30:00 PM  N-27 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Cynthia A. Freeland

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Civil - Unlimited  Breach of Contract/Warranty Demurrer / Motion to Strike 37-2022-00030298-CU-BC-NC ZAYAT VS. HOROZ [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 12/20/2023

Plaintiffs/Cross-Defendants Kamel Zayat and Rana Zayat (collectively, 'Cross-Defendants')'s demurrer to Defendant/Cross-Complainant Tolga Horoz ('Cross-Complainant')'s First Amended Cross-Complaint (the 'FACC') is sustained in part and overruled in part.

A demurrer tests the legal sufficiency of a pleading. See McKell v. Washington Mutual, Inc. (2006) 142 Cal. App. 4th 1457, 1469. When reviewing a demurrer, the court 'give[s] the complaint a reasonable interpretation, reading it as a whole and its parts in their context.' Blank v. Kirwan (1985) 39 Cal. 3d 311, 318. The court 'treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law.' Durell v. Sharp Healthcare (2010) 183 Cal. App. 4th 1350, 1358. The court's analysis is limited to the complaint, exhibits attached to the complaint and incorporated by reference, and matters properly subject to judicial notice. See Performance Plastering v. Richmond American Homes of California, Inc. (2007) 153 Cal. App. 4th 659, 665; Thorburn v. Department of Corrections (1998) 66 Cal. App. 4th 1284, 1287-1288; Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App. 4th 968, 994.

Initially, to the extent Cross-Defendants demur to the FACC on the grounds of uncertainty, the demurrer is overruled as Cross-Defendants have failed to demonstrate that the FACC is so incomprehensible that they cannot reasonably respond. See Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal. App. 4th 1125, 1135. To the extent Cross-Defendants believe that the FACC is in any way ambiguous, such ambiguities can be clarified during discovery. See Khoury v. Maly's of California, Inc. (1993) 14 Cal. App. 4th 612, 616. The court will now address each subject cause of action in turn.

The demurrer to the first cause of action for rescission of contract is sustained. California court have held repeatedly that rescission is not an independent cause of action; rather, it is a remedy. See, e.g., Nakash v. Sup. Ct. (1987) 196 Cal. App. 3d 59, 70; Hailey v. California Physicians' Serv., (2007) 158 Cal. App. 4th 452, 468. Put differently, a court 'does not rescind contracts but only affords relief based on a party's rescission.' Wong v. Stoler (2005) 237 Cal. App. 4th 1375, 1385-1386. In this case, Cross-Complainant contends in his opposition that '[t]he relief sought requires a determination by the court the contract is rescinded, which is obtainable and determinable in an action at law.' See Cross-Complainant's Opposition, p. 3, ll. 18-19. Couched in those terms, it appears what Cross-Complainant really seeks is either rescission of the Buyout Agreement or declaratory relief that the Buyout Agreement is rescinded.

Either way, such relief can be sought by way of a breach of contract claim rather than an independent rescission claim. See DeCampos v. State Compensation Ins. Fund (1954) 122 Cal. App. 2d 519; Dessert Seed Co. v. Garbus (1944) 66 Cal. App. 2d 838.

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3067254 CASE NUMBER: CASE TITLE:  ZAYAT VS. HOROZ [IMAGED]  37-2022-00030298-CU-BC-NC Accordingly, the court sustains the demurrer to the first cause of action without leave to amend as Cross-Complainant has failed to demonstrate a reasonable possibility that the foregoing deficiencies can be cured by amendment. See Aubry v. Tri-City Hospital Dist. (1992) 2 Cal. 4th 962, 967. This ruling is without prejudice to Cross-Complainant stating a breach of contract cause of action as part of a further amended pleading, should Cross-Complainant choose to do so.

The demurrer to the second cause of action for fraud is sustained. 'The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.' Lazar v. Sup. Ct. (1996) 12 Cal. 4th 631, 638. Under California law, fraud-based claims are subject to heightened pleading requirements. See Lazar, 12 Cal. 4th at 645; Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal. App. 4th 513, 519. This means that '(1) general pleading of the legal conclusion of fraud is insufficient; and (2) every element of the cause of action must be alleged in full, factually and specifically, and the policy of liberal construction of pleading will not usually be invoked to sustain a pleading that is defective in any material respect.' Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal. App. 3d 1324, 1331. Indeed, '[t]he specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made.' West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal. App. 4th 780, 793. See also Small v. Fritz Co., Inc. (2003) 30 Cal. 4th 167, 184.

The court finds that the FACC, as presently pled, fails to allege facts with the requisite specificity to constitute a fraud cause of action against Cross-Defendants. More specifically, the FACC alleges that Mr. Zayat committed fraud against Cross-Complainant by: (1) recording four allegedly fraudulent mechanic's liens; (2) making false statements and accusations to representatives and officers of Parkview Financial with the intent to harm Cross-Complainant's reputation and credibility and to interfere with critical refinancing or a bridge loan for the Paradise Project; and (3) making false statements and accusations to vendors, subcontractors, and other individuals with the intent to harm Cross-Complainant's reputation and credibility and to interfere with the completion of the Paradise Project. See FACC, ¶¶ 80, 89-90. The foregoing is insufficient to state a fraud claim against Mr. Zayat under California's heightened pleading standard. As to the mechanic's liens, the FACC sufficiently alleges the 'how, when, where, to whom, and by what means' requirement by attaching copies of the mechanic's liens as Exhibits 4-7 to the FACC. However, as Cross-Defendants correctly note, the FACC fails to allege that the filing of the mechanic's liens constitute misrepresentations that Mr. Zayat made to Cross-Complainant to which Cross-Complainant relied upon. At most, the mechanic's liens constitute alleged misrepresentations and/or fraud upon the San Diego County Recorder's Office. Wand Corp. v. San Gabriel Valley Lumber Co. (1965) 236 Cal. App. 2d 855 is inapposite. In the present case, nothing in the subject mechanic's liens misleads Cross-Complainant or fails to provide him with appropriate notice of the lien. Whether the mechanic's liens, in fact, are fraudulent is not properly before the court.

The FACC likewise is deficient to the extent Cross-Complainant alleges that Mr. Zayat made false statements and/or misrepresentations to Parkview Financial, vendors, subcontractors, and other individuals. To start, as with the mechanic's liens, the FACC fails to allege specific representations Mr.

Zayat made to Cross-Complainant to which Cross-Complainant relied upon. Furthermore, the FACC is deficient to the extent that Cross-Complainant fails to identify the specific vendors/subcontractors/individuals to which Mr. Zayat spoke, how and by what means the communications were had, when and where the communications occurred, and what, exactly, was said.

Consequently, the court must sustain the demurrer to the second cause of action.

Accordingly, the court sustains the demurrer to the second cause of action with leave to amend to address the foregoing deficiencies, if possible. See Aubry, 2 Cal. 4th at 967.

The demurrer to the sixth cause of action for intentional interference with prospective economic Calendar No.: Event ID:  TENTATIVE RULINGS

3067254 CASE NUMBER: CASE TITLE:  ZAYAT VS. HOROZ [IMAGED]  37-2022-00030298-CU-BC-NC advantage is overruled. 'Intentional interference with prospective economic advantage has five elements: (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action.' Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal. 5th 505, 512 (citing Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th 1134, 1164-1165). To state such a claim, the defendant's conduct must be independently wrongful, i.e., 'wrongful by some measure beyond the fact of the interference itself.' See Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. (2021) 71 Cal. App. 5th 528, 537.

The court finds that the FACC alleges facts sufficient to state a cause of action against Mr. Zayat for intentional interference with prospective economic advantage. More specifically, the FACC alleges sufficiently the existence of an economic relationship between Cross-Complainant and various third-party lenders, including Parkview Financial and UC Funds, which relationship was established for the purpose of financing and/or refinancing the Paradise Project. Furthermore, the FACC alleges a probability of future economic benefit to Cross-Complainant by way of completion of the Project, which completion allegedly would have resulted in roughly $15,000,000.00 in equity in the Property. However, Mr. Zayat allegedly interfered with the financing and/or refinancing by contacting Parkview Financial and UC Funds in an alleged effort to delay the Project's funding and/or interfere with the Project's completion. Mr. Zayat's efforts ultimately proved successful as Cross-Complainant was unable to secure the necessary funding, the Paradise Project was forced into bankruptcy in November 2022, and Parkview Financial foreclosed on the Paradise Project causing all parties to lose their respective investments. The court respectfully disagrees with Cross-Defendants that the FACC fails to allege an independently wrongful act on Mr. Zayat's part aside from the alleged interference itself. Specifically, the FACC alleges that Mr. Zayat filed various allegedly fraudulent mechanic's liens as part of his efforts to delay the Paradise Project's funding and/or completion.

Accordingly, the court overrules the demurrer to the sixth cause of action.

The demurrer to the seventh cause of action for violation of California Business & Professions Code ('BPC') §§ 17200 et seq. is overruled. BPC § 17200 defines unfair competition as 'any unlawful, unfair or fraudulent business act or practice . . . .' Cal. Bus. & Prof. Code § 17200. The law is 'sweeping, embracing anything that can properly be called a business practice and at the same time is forbidden by law.' Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Company (1999) 20 Cal. 4th 163, 180. Since BPC § 17200 is written in the disjunctive, Cross-Complainant states a cause of action provided any of the three prongs are satisfied. See Podolsky v. First Healthcare Corp. (1996) 50 Cal. App. 4th 632, 647; Berryman v. Merit Property Management, Inc. (2007) 152 Cal. App. 4th 1544, 1554.

As to the unfair prong, '[a]n 'unfair' business practice occurs when that practice 'offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'' Candelore v. Tinder, Inc. (2018) 19 Cal. App. 5th 1138, 1157-1158 (quoting Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal. App. 4th 700, 718-719). See also Cel-Tech Communications, Inc., 20 Cal. 4th at 187 ('When a plaintiff who claims to have suffered injury from a direct competitor's 'unfair' act or practice invokes section 17200, the word 'unfair' in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.'). As to the fraudulent prong, '[a] business practice is fraudulent under the UCL if a plaintiff can show that 'members of the public are likely to be deceived.'' Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal. App. 4th 830, 847 (quoting Bardin v. Daimlerchrysler Corporation (2006) 136 Cal. App. 4th 1255, 1261).

The court finds that the FACC alleges facts sufficient to state a cause of action against Mr. Zayat and Casa Engineering, Inc. ('Casa') for violation of BPC §§ 17200 et seq. Cross-Defendants contend that the FACC fails to sufficiently allege unfair business practices by Cross-Defendants; rather, they argue Calendar No.: Event ID:  TENTATIVE RULINGS

3067254 CASE NUMBER: CASE TITLE:  ZAYAT VS. HOROZ [IMAGED]  37-2022-00030298-CU-BC-NC that the acts alleged in the FACC constitutes individual acts taken by Mr. Zayat. The court respectfully disagrees. As set forth above, Cross-Complainant may allege sufficiently a violation of the UCL by contending that Cross-Defendants' conduct was unfair, unlawful, and/or fraudulent. At a minimum, the FACC alleges sufficiently that Mr. Zayat, individually and through Casa, engaged in unlawful and fraudulent conduct. More specifically, the FACC alleges that Mr. Zayat/Casa intentionally filed false and/or misleading mechanic's liens in an effort to obstruct financing for the Paradise Project and otherwise harm Cross-Complainant's reputation and credibility. The FACC alleges sufficiently that the mechanic's liens were not filed with the proper notice in violation of the pertinent mechanic's lien statutes. Furthermore, the mechanic's liens, which are public records, were likely to deceive lenders and the public as to Cross-Defendant's purported debts and obligations. See Daugherty v. American Honda Motor (2006) 144 Cal. App. 4th 824. Finally, the FACC alleges sufficiently that Mr. Zayat/Casa's conduct was injurious in that it resulted in Parkview Financial foreclosing on the Property as well as the interference with Cross-Complainant's sale of his personal residence.

Accordingly, the court overrules the demurrer to the seventh cause of action.

The demurrer to the eighth cause of action for breach of the covenant of good faith and fair dealing is overruled. 'Every contract imposes on each party an implied duty of good faith and fair dealing.' Egan v. Mutual Omaha Ins. Co. (1979) 24 Cal. 3d 809, 818. The burden imposes is 'that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.' Gruenberg v. Aetna Ins. Co. (1973) 9 Cal. 3d 566, 573. To state a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff must allege: (1) the existence of a contractual relationship; (2) an implied duty; (3) breach; and (4) causation. See Smith v. San Francisco (1990) 225 Cal. App. 3d 38, 49. A breach of contract may also constitute a breach of the implied covenant of good faith and fair dealing; however, a breach of the implied covenant of good faith and fair dealing involving something beyond a breach of the contractual duty itself. See Congleton v. National Union Fire Ins. Co. (1987) 189 Cal. App. 3d 51, 59.

The court finds that the FACC alleges facts sufficient to state a cause of action against Mr. Zayat for breach of the implied covenant of good faith and fair dealing. Cross-Defendants' argument that the FACC fails to allege the existence of a contract is not well taken. Attached as Exhibit 2 to the FACC is a copy of the Development Agreement between Cross-Complainant and Cross-Defendants. Furthermore, the parties entered into a separate Paradise/Steelbuilt Buy-Out Agreement, which Agreement Cross-Complainant alleges Cross-Defendants breached by unreasonably interfering with the Paradise Project's financing and completion. Moreover, Mr. Zayat allegedly engaged in bad faith conduct beyond his contractual obligations by withdrawing $824,537.00 in fundings without basis or authority and for personal use.

Accordingly, the court overrules the demurrer to the eighth cause of action.

The demurrer to the eleventh cause of action for unjust enrichment is sustained. California does not recognize a cause of action for unjust enrichment. See, e.g., Hooked Media Group, Inc. v. Apple Inc.

(2020) 55 Cal. App. 5th 323, 336; Melchior v. New Line Productions, Inc. (2003) 106 Cal. App. 4th 779, 793; Hill v. Roll Int'l Corp. (2011) 195 Cal. App. 4th 1295, 1307. Cross-Complainant cites CACI 4410 for the proposition that unjust enrichment plainly is a claim under California law. The court respectfully disagrees. CACI 4401 merely defines unjust enrichment in the context of a remedy for a misappropriation of trade secret cause of action. However, just because CACI 4401 defines unjust enrichment does not mean that it is a legally cognizable claim. Indeed, CACI jury instructions define terms other than causes of action routinely.

Accordingly, the court sustains the demurrer to the eleventh cause of action without leave to amend as Cross-Complainant has failed to demonstrate a reasonable possibility that the foregoing deficiencies can be cured by amendment. See Aubry, 2 Cal. 4th at 967.

The demurrer to the twelfth cause of action for quantum meruit is overruled. 'The requisite elements of Calendar No.: Event ID:  TENTATIVE RULINGS

3067254 CASE NUMBER: CASE TITLE:  ZAYAT VS. HOROZ [IMAGED]  37-2022-00030298-CU-BC-NC quantum meruit are (1) the plaintiff acted pursuant to 'an explicit or implicit request for the services' by the defendant, and (2) the services conferred a benefit on the defendant.' Port Medical Wellness, Inc. v. Connecticut General Life Insurance Company (2018) 24 Cal. App. 5th 153, 180 (quoting Day v. Alta Bates Medical Center (2002) 98 Cal. App. 4th 243, 249).

The court finds that the FACC alleges facts sufficient to state a quantum meruit cause of action against Mr. Zayat. More specifically, the FACC alleges that Cross-Complainant and Mr. Zayat each held a 50% ownership interest in Steelbuilt Framing Technologies ('SBFT'). Cross-Complainant and Mr. Zayat formed SBFT with the understanding that SBFT would serve as the general contractor for the Paradise Project and distribute construction progress payments to the partners. In forming SBFT, the parties agreed that SBFT's offices would be located at a warehouse on Venture Street, which warehouse, at the time, was in a state of disrepair. Mr. Zayat was the owner of the warehouse. The parties, by consent and act, agreed that Cross-Complainant would pay Mr. Zayat $4,000.00 per month in rent, which amount was to be offset by Cross-Complainant's financial investment as well as his efforts to rehabilitate the property. Cross-Complainant ultimately invested roughly $517,000.00 in cleaning up the warehouse and provided various personal property and equipment for use at the warehouse. After the parties' business relationship soured, Mr. Zayat allegedly locked Cross-Complainant out of the warehouse while retaining the personal property therein. The foregoing sufficiently alleges an understanding between the parties that Cross-Complainant would provide certain services to Mr. Zayat, i.e., repair services and equipment, and that Mr. Zayat received the benefit of such services by virtue of the warehouse, which the FACC alleges Mr. Zayat owns, being repaired and stocked with equipment for use at the property.

Accordingly, the court overrules the demurrer to the twelfth cause of action.

The demurrer to the thirteenth cause of action for money had and received is sustained. 'To prevail on a common count for money had and received, the plaintiff must prove that the defendant is indebted to the plaintiff for money the defendant received for the use and benefit of the plaintiff.' Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal. App. 4th 221, 230.

The court finds that the FACC fails to state facts sufficient to constitute a cause of action for money had and received. As Cross-Defendants correctly argue, the FACC alleges that Mr. Zayat withdrew money from corporate accounts, i.e., accounts held in the names of SBFT and Paradise. Cross-Complainant does not personally own those accounts. Cross-Complainant implicitly, if not explicitly, concedes that this claim may need to be brought as a derivative claim on the corporations' behalf, if possible.

Accordingly, the court sustains the demurrer to the thirteenth cause of action with leave to amend to address the foregoing deficiencies, if possible. See Aubry, 2 Cal. 4th at 967.

In light of the foregoing, the court: (1) sustains the demurrer to the first and eleventh causes of action without leave to amend; (2) sustains the demurrer to the second and thirteenth causes of action with leave to amend; and (3) overrules the demurrer to the sixth, seventh, eighth, and twelfth causes of action. Cross-Complainant shall file and serve a second amended cross-complaint, if he chooses to file such a pleading, within ten (10) days of this hearing. See Cal. R. Ct. 3.1320(g).

This is the tentative ruling for the hearing at 1:30 p.m. on Friday, May 24, 2024. If no party appears at the hearing, this tentative ruling will become the order of the court as of May 24, 2024. If the parties are satisfied with the court's tentative ruling or do not otherwise wish to argue the motion, they are encouraged to give notice to the court and each other of their intention not to appear, though this notice is not required.

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