Judge: Daniel S. Murphy, Case: 22STCV14793, Date: 2022-12-09 Tentative Ruling

Case Number: 22STCV14793    Hearing Date: December 9, 2022    Dept: 32

BACKGROUND

            On May 3, 2022, Plaintiff Ask Consulting Group, LLC initiated this action against Defendants Aurai Capital, LLC and PDM Apparel LLC. The operative First Amended Complaint (FAC) was filed on September 30, 2022 and adds Defendant Outreach Medical Marketing Inc. The FAC asserts causes of action for: (1) breach of contract; (2) fraudulent inducement; (3) aiding and abetting fraud; (4) negligent misrepresentation; (5) interference with contract; and (6) quantum meruit.

            The complaint arises from an arrangement between Plaintiff and Defendant Aurai Capital, LLC wherein Plaintiff purchased medical gloves from Aurai that were supposedly FDA-approved. The gloves were not FDA-approved, and Plaintiff’s customers refused to purchase the gloves, resulting in the losses claimed in this action.

            On October 31, 2022, Defendant Aurai filed the instant demurrer to the fraudulent inducement and negligent misrepresentation claims in the FAC.       

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 Defendant has complied with the meet and confer requirement. (See Consolino Decl.)

DISCUSSION

“The elements of fraud that will give rise to a 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.’” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974, quoting Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Fraud must be pleaded with specificity rather than with general and conclusory allegations. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made. (Lazar, supra, 12 Cal.4th at p. 645.)

            Defendant argues that Plaintiff fails to plead fraud with the requisite specificity. Defendant argues that “[t]he only statement that Ask alleges was made ‘fraudulently’ occurred after the March 16 and 17 purchase order agreements—not before—and thus cannot support a claim for fraudulent inducement.” (Dem. 5:7-10.) Defendant further argues that its intent and Plaintiff’s reasonable reliance are also not alleged with specificity. (Dem. 5:12-6:5.)

            A reading of the FAC compels the opposite conclusion. For example, the FAC alleges that “[d]uring the first two weeks in February 2021, in multiple emails and telephone calls with Ask’s CEO Harlan Lyons and its COO Jeff Spikes, Aurai’s CEO/President Andreas Menge and its Manager Christopher Ehlers represented that Aurai was offering for sale FDA-approved nitrile gloves manufactured by Sri Trang that had received 510(k) clearance.” (FAC ¶ 14.) This allegation contains all of the necessary details, and the statement was allegedly made before the March purchase orders. Defendant also allegedly made representations about the quality of the gloves by sending Plaintiff an inspection report purporting to show FDA clearance. (Id., ¶ 15.)

            Furthermore, the FAC alleges that on March 17, 2021, before the purchase agreement was executed, Plaintiff conducted an inspection of the gloves, wherein Defendant’s representative texted Plaintiff’s representative and claimed that Defendant had an additional 44,000 Sri Tang gloves for sale. (FAC ¶¶ 20-21.) Based upon these representations, Plaintiff agreed to purchase the additional 44,000 gloves. (Id., ¶ 21.) The gloves turned out to be counterfeit and not true Sri Tang gloves. (Id., ¶ 31.) Defendant had actually obtained the gloves from PDM, who is not an authorized affiliate of Sri Tang and was allegedly committing regulatory fraud relating to FDA approval. (Ibid.) Defendant was explicitly notified by Sri Tang to only purchase gloves directly from Sri Tang but purchased the gloves from PDM despite the fraud warning. (Id., 34.) Defendant allegedly concealed this from Plaintiff and made false assurances to Plaintiff to induce Plaintiff into completing the transaction. (Id., ¶ 35.)   

            Under the circumstances, it would have been reasonable for Plaintiff to rely on Defendant’s representations and proceed with the purchase. As to Defendant’s intent, the intent required for fraud is either intentional deceit or reckless disregard for the truth. (Engalla, supra, 15 Cal.4th at p. 974.) The allegations are sufficient to establish that Defendant acted with at least reckless disregard for the truth, having been warned about the authenticity of gloves not purchased directly from Sri Tang but nonetheless assuring Plaintiff that the gloves met specifications. This is sufficient at the pleading stage to place Defendant on notice of the issues.

CONCLUSION

            Defendant Aurai Capital, LLC’s demurrer is OVERRULED.