Judge: Cynthia A Freeland, Case: 37-2023-00012085-CU-BC-NC, Date: 2023-10-20 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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SOUTH BUILDING TENTATIVE RULINGS - October 19, 2023

10/20/2023  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 37-2023-00012085-CU-BC-NC LABORATORY CORPORATION OF AMERICA VS. INTERCHANGE PHYSICIANS NETWORK, INC. [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 06/09/2023

Defendant Shaylee Morrison ('Defendant')'s demurrer to Plaintiff Laboratory Corporation of America ('Plaintiff')'s First Amended Complaint (the 'FAC') is sustained.

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.

Defendant's demurrer to the first cause of action for account stated, the second cause of action for open book account, and the third cause of action for breach of contract is sustained. As to the first cause of action, '[t]he essential elements of an account stated are: (1) previous transactions between the parties establishing the relationship of debtor and creditor; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; (3) a promise by the debtor, express or implied, to pay the amount due.' Zinn v. Fred R. Bright Co. (1969) 217 Cal. App. 2d 597, 600. As to the second cause of action, '[t]he elements of an open book account cause of action are: 1. That [plaintiff] and [defendant] had financial transactions ... ; [¶] 2. That [plaintiff] ... kept [an] account of the debits and credits involved in the transactions; [¶] 3. That [defendant] owes [plaintiff] money on the account; and [¶] 4. The amount of money that [defendant] owes [plaintiff].' State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal. App. 5th 422, 449. As to the third cause of action, 'the elements of a cause of action 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.

The court finds that the FAC fails to state facts sufficient to constitute causes of action for account stated, open book account, and breach of contract against Defendant. The FAC alleges that Defendant is the executive officer and principal of Defendant Interchange Physicians Network, Inc. ('Interchange').

See FAC, ¶ 2. Interchange provides medical services to rehabilitation and behavioral treatment facilities.

Ibid. At some point, Plaintiff and Interchange entered into an agreement wherein Plaintiff agreed to provide, inter alia, medical specimen testing at Interchange's behest. Ibid., ¶ 4. The agreement between Calendar No.: Event ID:  TENTATIVE RULINGS

2984368 CASE NUMBER: CASE TITLE:  LABORATORY CORPORATION OF AMERICA VS. INTERCHANGE  37-2023-00012085-CU-BC-NC Plaintiff and Interchange is evidenced by various writings, including the requisition forms and subsequent billings, as well as the parties' course of conduct/dealing and the payments made. Ibid., ¶ 8.

Consequently, the FAC alleges a contract between Plaintiff and Interchange as evidenced by various written and oral dealings. Ibid. Plaintiff provided services to Interchange until January 2022. Ibid., ¶ 5.

Plaintiff billed Interchange according to the price applicable to the tests performed in the billing period and Interchange, in turn, made some payments on its account or provided Plaintiff with information to permit Plaintiff to bill third parties. Ibid., ¶ 6. The outstanding balance on Interchange's account is $10,218.61, plus 10% interest per annum. Ibid., ¶ 10. Interchange has not made further payments on its account notwithstanding Plaintiff's demands. Ibid., ¶ 12. On or about May 3, 2022, Defendant formed a successor corporation, Defendant Labs2U ('Labs2U') and transferred Interchange's assets and client information to Labs2U with the goal of delaying and hindering Interchange's creditors. Ibid., ¶¶ 2, 13.

The foregoing is insufficient to survive the pleading stage. More specifically, the FAC fails to allege the existence of a contract or account between Plaintiff and Defendant in her individual capacity. Indeed, the FAC plainly alleges that the services contract, which is purportedly evidenced both orally and in writing, is between Plaintiff and Interchange. The invoices attached as Exhibit A to the FAC likewise fail to show the existence of an agreement between Plaintiff and Defendant – each invoice identifies the paying account as 'Ardent Diagnostics attn Denise Griffith.' Further, the FAC fails to allege the existence of an account for which Defendant is responsible or any financial transactions between Plaintiff and Defendant in her individual capacity. To the contrary, the FAC alleges that 'Plaintiff set up an account for [Interchange] and assigned [Interchange] account number 04113580.' See FAC, ¶ 4. Curiously, the account number identified at ¶ 4 of the FAC (04113580) is different from the account number listed on the invoices attached as Exhibit A (80226367). Finally, the FAC fails to state facts demonstrating that Defendant could be liable under the first, second, and third causes of action based on an alter ego theory. 'Under the standard alter ego doctrine, in appropriate circumstances the corporate form may be disregarded and the corporate veil pierced so that an individual shareholder may be held personally liable for claims against the corporation.' Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal. App. 4th 1510, 1513. 'To recover on an alter ego theory, a plaintiff need not use the words 'alter ego,' but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.' Leek v. Cooper (2011) 194 Cal. App. 4th 399, 415. In this instance, the FAC's conclusory allegations that Defendant: (1) is Interchange's executive officer and principal; (2) served as an intermediary between treatment facilities; and (3) was in charge of providing patients' test results to their physicians, without more, is insufficient to allege alter ego liability. See, e.g., Meadows v. Emett & Chandler (1950) 99 Cal. App. 2d 496, 499 (an allegation that a person owns all of the corporate stock and makes all of the management decisions is insufficient to cause the court to disregard the corporate entity.) Accordingly, the court sustains the demurrer to the first, second, and third causes of action with leave to amend to address the foregoing deficiencies, if possible. See Aubry v. Tri-City Hospital Dist. (1992) 2 Cal. 4th 962, 967.

The demurrer to the fourth cause of action for unjust enrichment is sustained. 'The elements of a cause of action for unjust enrichment are . . . receipt of a benefit and unjust retention of the benefit at the expense of another.' Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal. App. 5th 230, 238.

The court finds that the FAC fails to state facts sufficient to constitute a cause of action for unjust enrichment against Defendant. The FAC alleges that Defendant was in control of billing and collections from third parties for the testing services that Plaintiff provided for Interchange. On information and belief, Plaintiff contends that 'Morrison and/or LABS2U' was unjustly enriched by retaining payments from third parties for Plaintiff's services instead of forwarding those payments to Plaintiff. See FAC, ¶ 32.

The foregoing is insufficient to survive the pleading stage as it is unclear from the FAC, as presently pled, whether it was, in fact, Defendant who unjustly retained a benefit at Plaintiff's expense (as opposed to Labs2U).

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2984368 CASE NUMBER: CASE TITLE:  LABORATORY CORPORATION OF AMERICA VS. INTERCHANGE  37-2023-00012085-CU-BC-NC Accordingly, the court sustains the demurrer to the fourth 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 sustains the demurrer with leave to amend. Plaintiff shall file and serve a second amended complaint, if it so 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, October 20, 2023. If no party appears at the hearing, this tentative ruling will become the order of the court as of October 20, 2023. 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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