Judge Daniel M. Crowley, Case 23SMCV00060 2023-04-18 Tentative Ruling

Judge: Daniel M. Crowley, Case: 23SMCV00060, Date: 2023-04-18 Tentative Ruling

Case Number: 23SMCV00060 Hearing Date: April 18, 2023 Dept: 207

Background

Plaintiffs Michael Grecco (“Plaintiff”) and Michael Grecco Productions, Inc. (collectively, “Plaintiffs”) bring this action against Ian Mitchell (“Defendant”) and others concerning a series of investments or loans made by Plaintiff to various entities and individuals. Plaintiff’s Complaint, filed January 3, 2023, asserts six causes of action for breach of promissory note (asserted as two separate causes of action), breach of contract, fraud, foreclosure of security interest, and common count. Defendant now brings a demurrer to the fourth cause of action for fraud under Code Civ. Proc. § 430.10(e) and (f), arguing it fails to state facts sufficient to constitute a cause of action and is uncertain. Defendant also moves to strike Plaintiff’s claim for punitive damages as well as paragraphs 25, 26, and 46 of the Complaint relating to Plaintiffs’ request for an award of interest. Plaintiff opposes Defendant’s demurrer and motion to strike.

Request for Judicial Notice

Defendant requests the Court take judicial notice of records from the California Secretary of State. Defendant’s request is unopposed and is GRANTED.

Legal Standard

When considering demurrers, courts read the allegations liberally and in context. (Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Id.) However, it does not accept as true deductions, contentions, or conclusions of law or fact. (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.)

The general rule is that the plaintiff need only allege ultimate facts, not evidentiary facts. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “All that is required of a plaintiff, as a matter of pleading, even as against a special demurrer, is that his complaint set forth the essential facts of the case with reasonable precision and with sufficient particularity to acquaint the defendant with the nature, source and extent of his cause of action.” (Rannard v. Lockheed Aircraft Corp. (1945) 26 Cal.2d 149, 156-157.)

A special demurrer for uncertainty under Section 430.10(f) is disfavored and will only be sustained where the pleading is so unintelligible that a defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Id.)

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436(b).) The grounds for a motion to strike are: the pleading has irrelevant, false, or improper matter, or has not been drawn or filed in conformity with laws. (Id. § 436.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id. § 437.)

Analysis

1. Meet & Confer

The Court finds Defendant has complied with the meet and confer requirements set forth under Code of Civil Procedure §§ 430.41 and 435.5. (Opposition at 4, fn. 1 [“Grecco’s attorney and Mitchell’s attorney met and conferred via telephone on February 21, 2023”].)

2. Fraud

The elements of a claim for fraud are “(a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Hinesley v. Oakshade Town Ctr. (2005) 135 Cal.App.4th 289, 294.) The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Defendant alleges Plaintiff has not sufficiently alleged the elements of fraud and instead improperly seek to elevate a breach of contract action to a cause of action for fraud without a sufficient factual basis. Plaintiff’s fraud allegations are asserted on information and belief rather than any claimed personal knowledge. Specifically, Plaintiff alleges he is “informed and believes” Defendants made misrepresentations with knowledge they are false (Complaint at ¶36); is “informed and believes” Defendants intentionally failed to disclose material facts to him (id at ¶37); is “informed and believes” Defendants failed to disclose these facts to induce Plaintiff to loan them money (id); and is “informed and believes” Defendants undertook these acts (id at ¶40.)

Plaintiff may base his claims on such information and belief, but is required to set forth the facts upon which he bases that belief. “It is not sufficient to allege fraud or its elements upon information and belief, unless the facts upon which the belief is founded are stated in the pleading.” (Findley v. Garrett (1952) 109 Cal.App.2d 166, 177 [quoting Dowling v. Spring Valley Water Co. (1917) 174 Cal. 218, 221] [internal quotation and brackets omitted].) “Plaintiff may allege on information and belief any matters that are not within his personal knowledge, if he has information leading him to believe that the allegations are true.” (Pridonoff v. Balokovich (1951) 36 Cal.2d 788, 792.) The Complaint does not provide such factual basis for these assertions made on information and belief. The elements of scienter and intent to induce reliance are the foundational elements which separate a cause of action for fraud from a cause of action for breach of contract and must be pled with some sort of factual basis which is not present in the current Complaint. As these factual deficiencies can be addressed through amendment, the Court SUSTAINS Defendant’s demurrer to Plaintiff’s cause of action for fraud with leave to amend.

3. Motion to Strike

Defendant separately moves to strike Plaintiffs’ claim for punitive damages as well as the requests for an award of interest as set forth in paragraphs 25, 26, and 46 of the Complaint on the basis that Plaintiffs’ request for interest is based on a promissory note which provides for interest in excess of the legal rate. The request for interest contained in paragraphs 25 and 26 of the Complaint are based on the breach of a promissory note attached as Exhibit B to the Complaint. The request for interest contained in paragraph 46 is based on Exhibit B as well as two other promissory notes attached as Exhibits A and C to the Complaint.

Defendant argues the promissory note attached as Exhibit B provides for an interest rate of 100% per annum, which exceeds the legal limit for interest. Plaintiff’s opposition acknowledges the promissory note attached as Exhibit B to the Complaint provides for interest at a rate which exceeds the permissible rate, and therefore states he will not seek interest in connection with the Exhibit B promissory note. The Court thus GRANTS Defendant’s motion as to Plaintiff’s claim for interest relating to that specific promissory note, including the language requesting an award of interest in paragraphs 25 and 26. However, the language requesting interest contained in paragraph 46 is also based on at least one other promissory note which does not contain an impermissible interest rate, the Court will not strike that language from the Complaint.

As for Plaintiffs’ request for punitive damages, Plaintiff acknowledges it must stand or fall with the fourth cause of action for fraud. (Opposition at 11.) As the Court has sustained Defendant’s demurrer to the fraud claim with leave to amend, the same result follows with respect to Plaintiffs’ claim for punitive damages. The Court thus GRANTS Defendant’s motion to strike Plaintiffs’ claim for punitive damages with leave to amend.

Conclusion

Defendant’s demurrer to the fourth cause of action for fraud is SUSTAINED with 30-days’ leave to amend. Defendant’s motion to strike Plaintiff’s claim for punitive damages is GRANTED with 30-days’ leave to amend. Defendant’s motion to strike Plaintiff’s requests for interest is GRANTED as to paragraphs 25 and 26 and DENIED as to paragraph 46.