Judge: Daniel S. Murphy, Case: 21STCV45709, Date: 2023-01-06 Tentative Ruling

Case Number: 21STCV45709    Hearing Date: January 6, 2023    Dept: 32

BACKGROUND

            On December 15, 2021, Plaintiffs Kostiv & Associates and Petro R. Kostiv filed this action against various Defendants, asserting 16 causes of action stemming from an alleged conspiracy to embezzle money from Plaintiffs. The allegations mainly revolve around the actions of Defendant Diego Gonzalez (“Diego”), the former finance director for Plaintiff Kostiv & Associates, who fraudulently entered into contracts with Defendants Ezlawpay and Payink on behalf of Plaintiff, resulting in false invoices charged to Plaintiff. Beyond Ezlawpay, Payink, and Diego, Plaintiffs also bring this suit against Diego’s wife (allegedly the owner of Ezlawpay), two corporate officers of Payink, and various employees who worked under Diego at Plaintiff’s finance department. The operative First Amended Complaint was filed May 2, 2022.

            On September 13, 2022, Payink filed a cross-complaint against Plaintiffs for (1) unjust enrichment, (2) work, labor, and services, and (3) quantum meruit. Payink alleges that Plaintiffs failed to compensate Payink for services performed.  

On November 18, 2022, Plaintiffs filed the instant motion for leave to amend their FAC and file a Second Amended Complaint. Plaintiffs seek to add causes of action for negligence, violation of the Consumer Privacy Act, Res Ipsa Loquitor, and declaratory or injunctive relief. These new claims arise from allegations that Defendants allowed Plaintiffs’ clients’ information to be revealed on the public internet. Plaintiffs also seek to name two Doe defendants: Brianda Diaz and Lorena Jurado.

LEGAL STANDARD

The court may, in furtherance of justice, and on such terms as may be proper, allow a party to amend any pleading. (Code Civ. Proc, §§ 473(a), 576.) Courts must apply a policy of liberality in permitting amendments at any stage of the proceeding, including during trial, when no prejudice to the opposing party is shown. (Duchrow v. Forrest (2013) 215 Cal.App.4th 1359, 1377.) At the same time, “leave to amend should not be granted where, in all probability, amendment would be futile.” (Foroudi v. The Aerospace Corp. (2020) 57 Cal.App.5th 992, 1000.) A plaintiff “has the burden to establish how the complaint can be amended to state a valid cause of action.” (Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1044.)

DISCUSSION

            “Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” (Code Civ. Proc., § 367.) “[T]he general rule [is] that in seeking relief litigants must assert their own legal rights rather than rely on the rights or interests of third parties.” (Matrixx Initiatives, Inc. v. Doe (2006) 138 Cal.App.4th 872, 877.)

            Defendant Payink opposes the motion on the grounds that the amendment would be futile because Plaintiffs cannot assert the rights of their clients. The proposed causes of action arising from the alleged data breach concern Plaintiffs’ clients’ information being leaked. Plaintiffs do not articulate any personal harm to themselves. The Consumer Privacy Act (CPA) allows a civil action by “[a]ny consumer whose nonencrypted and nonredacted personal information . . . is subject to an unauthorized access and exfiltration, theft, or disclosure . . . .” (Civ. Code, § 1798.150(a)(1).) A “consumer” under the CPA is defined as “a natural person who is a California resident . . . .” (Id., § 1798.140(i).) Plaintiff Kostiv & Associates, a company, cannot assert a CPA claim because it is not a natural person. In any case, neither Plaintiff claims that their personal information was leaked and therefore do not constitute consumers whose personal information was subject to unauthorized access. (See id., § 1798.150(a)(1).)

Plaintiffs insist that the amendment is not futile because the new causes of action are not time-barred. However, the statute of limitations is not at issue. The issue is Plaintiffs’ standing. Plaintiffs do not explain how they can assert causes of action based on harm suffered by others. Therefore, Plaintiffs have not established how the complaint can be amended to state a valid cause of action, and the amendment would be futile. (See Sanowicz, supra, 234 Cal.App.4th at p. 1044; Foroudi, supra, 57 Cal.App.5th at p. 1000.)

Lastly, a plaintiff may not unreasonably delay in naming a Doe defendant after discovering the defendant’s identity. (A.N. v. County of Los Angeles (2009) 171 Cal.App.4th 1058, 1065.) Plaintiffs do not explain when they discovered the identifies of Diaz and Jurado or why they did not move to name them earlier. Plaintiffs improperly attempted to add Diaz and Jurado as defendants in their FAC filed May 2, 2022. The Court struck down this attempt in an August 24, 2022 ruling. Therefore, Plaintiffs must have been aware of Diaz and Jurado before May 2, 2022 and have known since August 24, 2022 that Diaz and Jurado are not named as defendants. Plaintiffs nonetheless waited until November 18, 2022 to file this motion.

The proposed SAC alleges that Plaintiffs were unaware of Diaz and Jurado “[a]t the time of the filing of the initial complaint” (SAC ¶ 265), but Plaintiffs certainly were aware by the time of the FAC in May 2022. The proposed SAC further alleges that Diego mentioned Jurado in his deposition on October 14, 2022 (SAC ¶ 267), but Plaintiffs must have been aware of Jurado before then, because they named Jurado in the FAC filed May 2, 2022. The proposed SAC alleges that “with the ongoing investigation, and discovery, the name DIAZ has surfaced.” (SAC ¶ 268.) This does not explain how and when Plaintiffs discovered Diaz.

A Doe amendment is properly denied where there is “no express statement explaining the dates upon which [plaintiff] learned the names of the Doe Defendants, nor . . . any explanation of whether and why their identities could not have been learned” earlier. (A.N., supra, 171 Cal.App.4th at p. 1068.) The information included in the motion is insufficient to justify a Doe amendment at this late stage. Trial is approaching in April 2023. “[I]t does not require speculation to recognize that a party who is drawn into litigation on the eve of trial will face difficulties in preparing a defense in such short order.” (Ibid.)

CONCLUSION

            Plaintiffs’ motion for leave to amend is DENIED.

BACKGROUND

            On December 15, 2021, Plaintiffs Kostiv & Associates and Petro R. Kostiv filed this action against various Defendants, asserting 16 causes of action stemming from an alleged conspiracy to embezzle money from Plaintiffs. The allegations mainly revolve around the actions of Defendant Diego Gonzalez (“Diego”), the former finance director for Plaintiff Kostiv & Associates, who fraudulently entered into contracts with Defendants Ezlawpay and Payink on behalf of Plaintiff, resulting in false invoices charged to Plaintiff. Beyond Ezlawpay, Payink, and Diego, Plaintiffs also bring this suit against Diego’s wife (allegedly the owner of Ezlawpay), two corporate officers of Payink, and various employees who worked under Diego at Plaintiff’s finance department. The operative First Amended Complaint was filed May 2, 2022.

            On September 13, 2022, Payink filed a cross-complaint against Plaintiffs for (1) unjust enrichment, (2) work, labor, and services, and (3) quantum meruit. Payink alleges that Plaintiffs failed to compensate Payink for services performed.  

On November 14, 2022, Plaintiffs filed the instant demurrer to Payink’s cross-complaint. Plaintiffs also move to strike Payink’s request for attorneys’ fees.

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. (Id.) 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, 147 Cal.App.4th at p. 747.)

Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part of that pleading. (Code Civ. Proc., § 435, subd. (b).) The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike (1) any irrelevant, false, or improper matter inserted in any pleading and (2) 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.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id., § 437.)

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 finds that Plaintiffs have satisfied the meet and confer requirement. (See Quiroga Decl. ¶¶ 4-6.)

DISCUSSION

I. Demurrer

            “[T]he elements for a claim of unjust enrichment [are] receipt of a benefit and unjust retention of the benefit at the expense of another.” (Elder v. Pacific Bell Telephone Co. (2012) 205 Cal.App.4th 841, 857.) “A common count for reasonable value has the following elements: (1) plaintiff performed certain services for the defendant; (2) the reasonable value of those services; (3) the services were rendered at the request of the defendant; and (4) the services were unpaid.” (State Comp. Ins. Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 449.) “[Q]uantum meruit is a theory that implies a promise to pay for services as a matter of law for reasons of justice . . . .” (Iverson, Yoakum, Papiano & Hatch v. Berwald (1999) 76 Cal.App.4th 990, 996.) “The requisite elements of 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 Ins. Co. (2018) 24 Cal.App.5th 153, 180.)

            Payink’s cross-complaint alleges that Kostiv & Associates initially entered into a Subscription Agreement with Crystal Jewelry Trends (Ezlawpay) for payment collection services. (Cross-Compl. ¶ 7.) Through an Asset Purchase Agreement, Payink purchased certain assets from Ezlawpay, including the Subscription Agreement with Kostiv & Associates. (Id., ¶ 10.) The Subscription Agreement was allegedly superseded by a Novation Agreement. (Id., ¶¶ 12-13.) Despite these agreements being subsequently rescinded, Payink alleges that it performed services for Kostiv & Associates beginning in September 2020 and seeks to recover the reasonable value of those services. (Id., ¶¶ 14, 17, 18.) The allegations satisfy the elements of all three causes of action.

            Plaintiffs argue that the claims fail because Payink admits the agreements were rescinded. However, these causes of action exist precisely to allow recovery for services performed in the absence of an enforceable contract. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231 [“restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason”]; Port Medical, supra, 24 Cal.App.5th at p. 180 [“To recover in quantum meruit, a party need not prove the existence of a contract . . .”].)

            Plaintiffs also argue that Payink fails to allege the precise services performed and fails to establish a basis for asserting $250,000 as the value of the services performed. However, the cross-complaint states that “[s]ince September 22, 2020, Payink has performed services for Kostiv & Associates’ in connection with the collection of payments from the law firm’s clients using receivables management technology, including that deployed through ezlawpay.com. Through the use of the receivables software technology, Payink facilitated the receivables management of Kostiv & Associates’ accounts with its clients and facilitated the collection of millions of dollars by the firm.” (Cross-Compl. ¶ 14.) This sufficiently places Plaintiffs on notice of the issues, and evidentiary facts should be left for discovery. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608.) Similarly, Payink’s damages are subject to proof at trial. Payink’s allegation that it performed $250,000 worth of services must be accepted as true at the pleading stage.   

            Plaintiffs argue that they never authorized Payink to perform any services and that it is Payink that has embezzled Plaintiffs’ money. These factual contentions cannot be resolved on a demurrer. Payink’s allegations must be assumed as true for pleading purposes. That Plaintiffs have filed a complaint accusing Payink of embezzlement does not preclude Payink from filing its own cross-complaint with contrary allegations.

            Lastly, Plaintiffs request sanctions for Payink’s failure to meet and confer by telephone. However, Plaintiffs do not set forth any basis for sanctions for failure to meet and confer prior to a demurrer.

II. Motion to Strike

“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.  

Payink does not allege a contractual or statutory basis for attorneys’ fees and in fact alleges that the pertinent agreements were rescinded. Therefore, the references to attorneys’ fees should be stricken from the cross-complaint.

CONCLUSION

            Plaintiffs’ demurrer to Payink’s cross-complaint is OVERRULED and their request for sanctions is DENIED. Plaintiffs’ motion to strike is GRANTED.