Judge: Daniel S. Murphy, Case: 20STCV05936, Date: 2023-05-22 Tentative Ruling

Case Number: 20STCV05936    Hearing Date: January 29, 2024    Dept: 32

BACKGROUND

            Plaintiff and Cross-Defendant Tipsntrends, LLC initiated this action against Defendant and Cross-Complainant Aminogenesis, LLC in February 2020. In July 2020, the parties jointly stipulated to proceed in arbitration. In August 2021, the case was dismissed without prejudice. The case was restored to active status in October 2022 after the failure of arbitration. The order of dismissal was vacated.

The complaint alleges that Defendant did not pay for advertising services provided by Plaintiff. On May 24, 2023, Defendant filed a cross-complaint against Plaintiff, alleging that Plaintiff did not provide the services as promised. On August 6, 2023, the Court sustained Plaintiff’s demurrer to the cross-complaint with leave to amend. The First Amended Cross-Complaint was filed on August 24, 2023. On November 3, 2023, the Court sustained a demurrer to the FACC with leave to amend. The operative Second Amended Cross-Complaint was filed on November 22, 2023. The SACC asserts (1) breach of contract and (2) fraud.

            On December 8, 2023, Plaintiff/Cross-Defendant filed the instant demurrer to the SACC. Defendant/Cross-Complainant filed its opposition on January 16, 2024. Cross-Defendant filed its reply on January 18, 2024.

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Cross-Defendant has complied with the meet and confer requirement. (See Kian Decl.)

DISCUSSION

I. Statute of Limitations

            a. Date of Discovery

The statute of limitations for an action based upon a written contract is four years. (Code Civ. Proc., § 337(a).) The statute of limitations for an action based in fraud is three years. (Id., § 338(d).) “A plaintiff may not avoid a demurrer by pleading facts or positions in an amended complaint that contradict the facts pleaded in the original complaint or by suppressing facts which prove the pleaded facts false. Likewise, the plaintiff may not plead facts that contradict the facts or positions that the plaintiff pleaded in earlier actions or suppress facts that prove the pleaded facts false.” (Larson v. UHS of Rancho Springs, Inc. (2014) 230 Cal.App.4th 336, 344, internal citations omitted.) However, the sham pleading doctrine “is not intended to prevent honest complainants from correcting erroneous allegations or to prevent the correction of ambiguous facts.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 751.)

Cross-Defendant argues that the claims are time-barred because the FACC already admitted that the discovery date was March 2019, when Cross-Complainant “requested copies of the past six months of ads that were run, and discovered that no changes had been made to make them conforming to what they were supposed to be.” (See FACC ¶ 17.) By contrast, the SACC alleges that in May 2019, Cross-Complainant “requested copies of the last 6 six months of 2018 ads that were run, and discovered that not only had changes not been made, but other anomalies were discovered that were not agreed to.” (SACC ¶ 19.) Cross-Defendant argues that the SACC changes the discovery date from March 2019 to May 2019 without explanation and is therefore a sham pleading intended to circumvent the statute of limitations. Cross-Defendant also points out that the fraud claim would be time-barred even if the discovery date was May 2019.

However, neither the FACC nor SACC establishes as a matter of law that March/May 2019 was the discovery date. Cross-Complainant merely sent a communication in March/May 2019 requesting copies of the last six months of 2018 ads that were run because Cross-Defendant failed to send any proof of the ads for that period. (FACC ¶ 17; SACC ¶ 19.) Cross-Complainant alleges that it performed an audit after the May 2019 communication, and it is this later audit that led Cross-Complainant to believe Cross-Defendant lied about ad placements and other services. (SACC ¶¶ 19-26.) Cross-Complainant alleges that it was hindered in discovering the misrepresentations because Cross-Defendant refused to participate in the audit and because magazines go out of print after publication. (Id., ¶ 20.)

Cross-Complainant does not allege the precise dates that it engaged in the audit, but for pleading purposes, it may be reasonably inferred that Cross-Complainant exercised reasonable diligence and did not discover its causes of action until within the limitations period. (See Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 324-25 [“If the dates establishing the running of the statute of limitations do not clearly appear in the complaint, there is no ground for general demurrer”].) The allegations suggest that the March/May 2019 correspondence alone did not provide sufficient facts to constitute discovery of the causes of action. (See April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 826 [“a cause of action under the discovery rule accrues when the plaintiff discovers or should have discovered all facts essential to his cause of action”].)

Citing to Vera v. REL-BC, LLC (2021) 66 Cal.App.5th 57, Cross-Defendant argues that Cross-Complainant was on inquiry notice by March/May 2019 because the FACC and SACC admit that was the date Cross-Complainant “discovered” certain inconsistencies. (FACC ¶ 17; SACC ¶ 19.) “The statute of limitations begins to run when the plaintiff has information which would put a reasonable person on inquiry.” (Vera, supra, 66 Cal.App.5th at p. 69.) However, Vera was decided on summary judgment with the benefit of evidence. Here, for pleading purposes, Cross-Complainant has alleged enough facts to support a reasonable inference that it was not on inquiry notice until after May 2019. Cross-Defendant’s narrow focus on the word “discovered” is not dispositive because a complaint must be read as a whole and interpreted liberally. It cannot be resolved on a demurrer whether the facts possessed in May 2019 (or earlier) were sufficient to place Cross-Complainant on inquiry notice. Therefore, the claims are not time-barred on the face of the complaint.

b. Relation Back

Additionally, the allegations in an amended complaint may relate back to the original, timely complaint, if they “(1) rest on the same general set of facts, (2) involve the same injury, and (3) refer to the same instrumentality, as the original one.” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 409.) “An amended complaint relates back to an earlier complaint if it is based on the same general set of facts, even if the plaintiff alleges a different legal theory or new cause of action.” (Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 277.) “[T]he critical inquiry is whether the defendant had adequate notice of the claim based on the original pleading.” (Ibid.) “Additionally, in applying the relation-back analysis, courts should consider the strong policy in this state that cases should be decided on their merits.” (Ibid.)

Here, the claims in the SACC are the same ones Cross-Complainant asserted in a June 2021 cross-claim filed in arbitration. Cross-Defendant argues that the SACC is “entirely unrelated” to the original cross-claim from arbitration because the SACC contains facts not alleged in the original cross-claim. However, relation back only requires the two complaints to be “based on the same general set of facts.” (Pointe San Diego Residential Community, L.P., supra, 195 Cal.App.4th at p. 277.) Here, the arbitration cross-claim and SACC arise from the same general set of facts even if the SACC provides more detail regarding the alleged fraud and breach of contract. In other words, Cross-Defendant “had adequate notice of the claim based on the original pleading.” (Ibid.) Therefore, the SACC relates back to the timely cross-claim filed in June 2021.

II. Attorneys’ Fees

“Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties . . . .” (Code Civ. Proc., § 1021.) Thus, a plaintiff must set forth a statutory or contractual basis for attorney’s fees in order to recover such fees.  

            The SACC includes a prayer for attorneys’ fees “pursuant to the contractual relationship between the parties, an example of which is attached as Exhibit ‘A’ to the Complaint and pursuant to California Civil Code section 1717.5.” (SACC at p. 15, Prayer 3.) Cross-Defendant demurs to the prayer for attorneys’ fees on the grounds that Cross-Complainant has not alleged a contractual basis. Because a defendant cannot demur to a prayer for relief, the Court considers this as a motion to strike.

Cross-Defendant first points out that no Exhibit A is attached to the SACC. However, the SACC refers to Exhibit A in “the Complaint,” as in the underlying complaint in this action. This is sufficiently clear, and Cross-Defendant readily identified the Exhibit A that is referenced.  

Cross-Defendant also argues that Exhibit A does not support Cross-Complainant’s prayer for attorneys’ fees because it only provides for attorneys’ fees in the event Cross-Defendant incurs such fees in pursuit of payment under the contract. However, Civil Code section 1717 makes an attorneys’ fees provision reciprocal even if the provision, when read literally, only applies to one party. (Civ. Code, § 1717; Hom v. Petrou (2021) 67 Cal.App.5th 459, 465.) Therefore, the SACC adequately pleads entitlement to attorneys’ fees.   

CONCLUSION

            Cross-Defendant’s demurrer to the SACC is OVERRULED. The motion to strike attorneys’ fees is DENIED.