Judge: Daniel S. Murphy, Case: 22STCV14793, Date: 2023-01-11 Tentative Ruling

Case Number: 22STCV14793    Hearing Date: January 11, 2023    Dept: 32

BACKGROUND

            On May 3, 2022, Plaintiff Ask Consulting Group, LLC initiated this action against Defendants Aurai Capital, LLC (Aurai) and PDM Apparel LLC (PDM). 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 Aurai 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. The gloves were supposed to be FDA-approved Sri Tang gloves, but Aurai did not purchase them from Sri Tang, purchasing from PDM instead. Aurai then sold the nonconforming gloves to Plaintiff. Plaintiff alleges that PDM and Aurai conspired to defraud Plaintiff by selling counterfeit gloves.

            On October 31, 2022, PDM filed the instant demurrer to the FAC, arguing that there are not enough facts establishing that it conspired with Aurai or aided and abetted Aurai’s alleged fraud. PDM also argues that it cannot be liable for intentional interference with contract.    

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 Mauriello Decl.)

DISCUSSION

I. Conspiracy

            “The elements of an action for civil conspiracy are (1) formation and operation of the conspiracy and (2) damage resulting to plaintiff (3) from a wrongful act done in furtherance of the common design.” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1136.) “Where fraud is alleged to be the object of the conspiracy, the [underlying fraud] claim must be pleaded with particularity” because there is “no action for conspiracy to commit a tort unless the underlying tort is committed and damage results therefrom.” (Ibid.)  

            PDM argues that “Ask has not pled with specificity any wrongful conduct by PDM in furtherance of a purported conspiracy” because the alleged misrepresentations were made by Aurai, not PDM. (Dem. 6:1-11.) However, “[t]he significance of a conspiracy theory of liability is that each member may be held jointly liable as a tortfeasor, even though he or she may not have participated directly in the underlying tort.” (Prakashpalan, supra, 223 Cal.App.4th at p. 1136.) In denying Aurai’s demurrer, the Court has already ruled that Plaintiff has alleged fraud with the requisite specificity. (Dec. 9, 2022 Order re Demurrer to FAC 3:2-4:16.) Because the underlying fraud has been sufficiently pled, it may serve as the basis for a conspiracy claim. PDM need not have directly engaged in fraud to be liable for conspiracy, and Plaintiff need not prove the elements of fraud as to PDM.   

            The FAC alleges that PDM was aware of Aurai’s plan to defraud Plaintiff and “provided information about the gloves and their FDA approval either knowing the information was false or providing the false information recklessly.” (FAC ¶ 63.) According to the FAC, PDM is not an authorized distributor of Sri Tang gloves and registered for FDA approval with incorrect information. (Id., ¶ 31.) PDM allegedly conspired with Aurai to sell Plaintiff counterfeit gloves and profit therefrom. (Id., ¶ 58.) PDM is allegedly Aurai’s partner and provided the warehouse where the gloves were stored for Plaintiff’s inspection and pickup. (Id., ¶¶ 17, 20.) These allegations sufficiently raise an inference that PDM conspired with Aurai to sell counterfeit gloves to Plaintiff.   

II. Aiding and Abetting

“Liability may also be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person.” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846.) 

PDM argues that the FAC fails to allege PDM’s knowledge of the specific wrong being committed by Aurai and fails to allege the substantial assistance that PDM provided to Aurai. (Dem. 7:24-8:9.) However, as discussed above, the FAC alleges that PDM was aware of Aurai’s plan to defraud Plaintiff and assisted Aurai by providing false information about the gloves. (FAC ¶ 63.) The FAC further alleges that PDM applied for FDA approval with incorrect information and intended to profit from selling counterfeit gloves. (Id., ¶¶ 31, 58.) Read together, these allegations establish an inference that PDM knowingly aided and abetted Aurai’s fraud. The evidentiary facts showing the precise actions PDM took in furtherance of the conspiracy or aiding and abetting can be ascertained in discovery. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608.)

III. Intentional Interference with Contract

The elements of intentional interference with contractual relations are: “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.) “California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. ‘It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.’” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513, quoting Pacific, supra, 50 Cal.3d at p. 1126.) “It is also well established that corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of the corporation's contract.” (Shoemaker v. Myers (1990) 52 Cal.3d 1, 24.)

PDM argues that “[t]he complaint does not allege a single intentional act by PDM designed or intended to induce a breach or disruption of the contractual relationship between Ask and Aurai.” (Dem. 8:23-24.) However, the FAC alleges that “PDM knowingly supplied nonconforming gloves to Aurai that [it] knew Aurai would nonetheless supply to Ask in breach of the contract and disrupting Ask’s and Aurai’s contractual relationship.” (FAC ¶ 76.) PDM argues that even if its acts were intentional, they were so “minor and tangential” that they do not amount to intentional interference. (Dem. 9:1-9.) Providing false information to sell counterfeit gloves is not minor and tangential in the context of this transaction.

Lastly, PDM argues that it is not a stranger to the contract because Plaintiff alleges that PDM is an agent of Aurai. (Dem. 9:10-16.) Although Plaintiff includes an allegation that all defendants are agents of each other (FAC ¶ 9), there is no indication that PDM is a party to the contract between Plaintiff and Aurai. The allegations make clear that Plaintiff only contracted with Aurai and purchased the gloves from Aurai, having no direct relationship with PDM. PDM is not alleged to be a corporate agent or employee acting on behalf of Aurai. While PDM is free to prove that it is not a stranger to the contract, this issue cannot be resolved on the pleadings alone.

CONCLUSION

            Defendant PDM Apparel, LLC’s demurrer to First Amended Complaint is OVERRULED.