Judge: Daniel S. Murphy, Case: 23STCV20292, Date: 2024-03-29 Tentative Ruling

Case Number: 23STCV20292    Hearing Date: March 29, 2024    Dept: 32

BACKGROUND

            On August 23, 2023, Plaintiff Elizabeth Beissel, as administrator of the estate of Barry Floyd Dungy, filed this action against Defendants Ara Kassabian and Ara Kassabian CPA, A Professional Corporation. The complaint asserts causes of action for (1) breach of oral contract, (2) breach of written contract, (3) common count – account stated, (4) quasi-contract, (5) accounting, (6) fraud, and (7) declaratory relief. Plaintiff filed the operative First Amended Complaint on December 20, 2023.

            Plaintiff is the daughter of decedent Barry Lloyd Dungy, who operated a tax and accounting practice. (FAC ¶ 9.) In May 2021, Plaintiff received an offer from Defendant Kassabian to purchase the clients of Dungy’s practice. (Id., ¶ 10.) Kassabian sent a Tentative Proposal, providing that Defendants would pay Plaintiff 20% of revenues collected from the clients for two years. (Id., Ex. A.) Kassabian allegedly represented that his attorneys would be drafting a more definitive agreement, but this agreement was never exchanged, so the parties allegedly proceeded under the Tentative Proposal. (Id., ¶ 12.) Plaintiff alleges that she accepted the Proposal and handed over Dungy’s client information. (Ibid.)

            Plaintiff alleges that Kassabian failed to make a good faith effort to transition the Dungy clients to his practice, instead focusing on the few most profitable clients and neglecting the majority of clients. (FAC ¶ 15.) By ignoring most of the Dungy clients, Kassabian allegedly collected much less revenue from the clients than Dungy himself did when he was alive, which meant that Plaintiff received a miniscule return based on her 20% interest. (Id., ¶ 17.) Kassabian also allegedly failed to pay Plaintiff for certain clients that were serviced. (Id., ¶ 18.) Kassabian now denies any binding agreement between himself and Plaintiff and claims that he has no legal obligation to pay anything to Plaintiff. (Id., ¶ 19.) This action followed.      

            On February 20, 2024, Defendants filed the instant demurrer and motion to strike against the FAC. Plaintiff filed her opposition on March 18, 2024. Defendants filed their reply on March 22, 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.)

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 notes that Defendants have complied with the meet and confer requirement. (See Alkana Decl.)

DISCUSSION

I. Demurrer

            a. Ultra Vires Transaction

            Defendants argue that Plaintiff had no authority to execute the alleged contract after her father’s death but before she was appointed administrator of the estate. (See FAC ¶ 10 [parties formed contract in May 2021]; Def.’s RJN, Ex. 2 [Plaintiff appointed administrator in November 2021].) However, Plaintiff could have ratified the transaction upon becoming administrator. An administrator does not necessarily need an order from the probate court for every transaction. (Nason v. Granz (1963) 223 Cal.App.2d 761, 764.) Here, the Letter of Administration only requires court supervision to sell or exchange real property. (Def.’s RJN, Ex. 2.) The client list is not real property. Plaintiff was otherwise “authorized to administer the estate under the Independent Administration of Estates Act.” (Ibid.) There is no indication on the face of the pleadings or from judicially noticeable materials that Plaintiff entered into the transaction ultra vires.  

b. Statute of Frauds

            Defendants argue that the breach of contract claim fails because “all contracts relating to sales” must be signed in writing, and there is no signed writing in this case. (Dem. 3:23-25.) However, the statute of frauds does not apply to all sales contracts as Defendants contend. (See Civ. Code, § 1624(a) [listing the types of contracts covered by the statute of frauds].) The statute of frauds covers contracts “for the sale of real property,” but not sales generally. (Id., § 1624(a)(3).) Additionally, the statute of frauds does not apply where there is partial performance or reliance. (See Secrest v. Security National Mortgage Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 555; Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1040, fn. 10.) Here, Plaintiff alleges that she performed by handing over Dungy’s clients. (FAC ¶ 12.) Therefore, the statute of frauds does not apply.

            There is no general requirement that a contract be signed to be enforceable. “The requirements are only that there be a writing containing all terms and that there be acceptance by the party to be charged. How that acceptance is manifested is a matter of proof.” (E.O.C. Ord, Inc. v. Kovakovich (1988) 200 Cal.App.3d 1194, 1201.) “It may be proved by evidence of a particular act other than signing.” (Ibid.) It is for the trier of fact to determine whether the Tentative Proposal constitutes a valid binding contract. Plaintiff has alleged a breach of contract for pleading purposes.  

            c. Good Faith and Fair Dealing

            “The covenant of good faith and fair dealing imposes obligations on the contracting parties separate and apart from those consensually agreed to.” (Bodenhamer, supra, 192 Cal.App.3d at p. 1477.) “The obligations imposed by the implied covenant of good faith and fair dealing are not those set out in the terms of the contract itself, but rather are obligations imposed by law.” (Id. at p. 1478.)

Defendant argues that this claim fails because “[n]o where in any of the documentation attached to the First Amended Complaint is there any requirement that Defendant contact each of the former clients of Dungy.” (Dem. 6:4-6.) However, “breach of a specific provision of the contract is not a necessary prerequisite to a claim for breach of the implied covenant of good faith and fair dealing.” (Schwartz v. State Farm Fire & Casualty Co. (2001) 88 Cal.App.4th 1329, 1339.) Even if Defendant did not breach any express provision of the contract, he may have acted in bad faith by focusing on the few most profitable clients and thereby depriving Plaintiff of the benefit of the bargain.

            d. Common Count

            Defendant argues that there can be no account stated claim if there is no predicate agreement to pay. However, as discussed above, Plaintiff has adequately alleged a contract wherein Defendant agreed to pay 20% of revenues to Plaintiff.

            Defendant also argues that “an estate also has no cognizable claim for work not yet performed under a contract with a client before the principal dies.” (Dem. 6:23-25.) Defendant relies on Estate of Linnick (1985) 171 Cal.App.3d 752, 761, where the court held that “when an attorney dies having only partially performed services under a contingent fee contract, his estate is not entitled to recover any fees for the decedent's services unless and until the contract is completed, i.e., the contingency occurs.” The court relied on the general principle that “[p]rior to the completion of the contract, no enforceable claim arises.” (Ibid.)

However, the present case is distinguishable because the contract at issue is a sales contract, not a services contract. Plaintiff agreed to sell a client list in exchange for payment. The contract does not concern services that Dungy was to perform for his clients. Plaintiff alleges that she completed her end of the bargain by handing over the Dungy clients. There are no services yet to be completed by Plaintiff or Dungy. Rather, the only remaining obligations are Defendant’s alleged obligations, including the obligation to pay the revenues owed to Plaintiff.   

            e. Quasi-Contract

            “Quasi-contractual recovery is based upon benefit accepted or derived for which the law implies an obligation to pay.” (Davies v. Krasna (1970) 12 Cal.App.3d 1049, 1054.) The complaint alleges a benefit conferred in the form of the Dungy client list for which Defendant should pay. (FAC ¶ 48.)

            Relying again on Estate of Linnick, Defendant argues that “decedent’s contract with his clients extinguished with his death.” (Dem. 7:15-16.) However, as discussed above, this case does not concern services that Dungy was to perform for his clients. Instead, the benefit conferred is the procurement of the client list, which could be completed notwithstanding Dungy’s death. At most, Estate of Linnick precludes Dungy’s estate from pursuing Dungy’s former clients for fees based on services that Dungy was to perform prior to his death. Plaintiff’s quasi-contract claim concerns the entirely different issue of Defendant obtaining a client list and refusing to pay for it. (See FAC ¶ 38.) Defendants cite no authority supporting their contention that the client list does not constitute a benefit conferred just because Dungy is deceased. Therefore, Plaintiff has adequately pled a basis for quasi-contract. 

            f. Accounting

            “A cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.)       

Defendant argues that there is no duty to disclose a breakdown of fees because there is no underlying contract. However, as discussed above, Plaintiff has alleged a contract. The arrangement between Plaintiff and Defendant constitutes a relationship that requires an accounting because Defendant is supposed to pay 20% of revenues derived from the Dungy clients. Without an accounting, Plaintiff cannot ascertain how much is owed.  

g. Fraud

“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.)

Here, the complaint alleges that on May 24, 2021, Defendant emailed Plaintiff promising to pay 20% revenue for the Dungy client list. (FAC ¶¶ 10, 55.) The complaint alleges that Defendant knew the statement to be false, intended for Plaintiff to rely on it, Plaintiff did rely on it, and Plaintiff was damaged. (Id., ¶¶ 56-60.) Therefore, the complaint alleges the requisite elements of fraud with the necessary specificity. Defendant’s intent is a question of fact.  

Defendant is correct that “fraud is not just another bite at the breach of contract apple.” (See Dem. 8:8-9; Erlich v. Menezes (1999) 21 Cal.4th 543, 551.) However, at the pleading stage, “[a] plaintiff may plead cumulative or inconsistent causes of action.” (Gherman v. Colburn (1977) 72 Cal.App.3d 544, 565.) If the evidence ultimately reveals that the parties do not have a valid contract, Plaintiff may still have a fraud claim based on the representations made in Defendant’s email. Defendant also argues that the fraud claim fails because there is no contract. This misstates the law. A valid contract is not one of the elements of fraud.

h. Declaratory Relief

“Any person interested under a written instrument . . . or under a contract . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties . . . arising under the instrument or contract.” (Code Civ. Proc., § 1060.)

Here, the complaint alleges an existing contract under which the parties dispute their respective obligations. Specifically, Plaintiff alleges that she is entitled to 20% of revenues from the Dungy clients, while Defendant allegedly denies any obligation to pay Plaintiff. (FAC ¶ 66.) Therefore, the complaint properly pleads a claim for declaratory relief.

i. Rescission and Restitution

A contract may be rescinded based on, inter alia, mistake, duress, fraud, or undue influence. (Civ. Code, § 1689.) “The elements of a cause of action for unjust enrichment are simply stated as ‘receipt of a benefit and unjust retention of the benefit at the expense of another.’” (Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238.)

Plaintiff alleges this cause of action in the alternative in the event it is proven that the parties have no valid contract. Plaintiff alleges that the contract is rescindable based on mutual mistake and that Defendant should not be unjustly enriched.

Defendant’s demurrer raises a series of factual issues that cannot be resolved on demurrer. Defendant argues that: there is no contract to rescind; Defendant’s profits resulted solely from its own efforts; Defendant did not collect any money belonging to the estate; and Plaintiff did not suffer economic loss. None of these are defects that appear on the face of the complaint. Instead, they are factual contentions for the trier of fact to resolve.   

II. Motion to Strike

            a. Punitive Damages

“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (Civ. Code, § 3294, subd. (a).) “‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (Id., subd. (c)(1).) “‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Id., subd. (c)(2).) Fraud is “intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” (Id., subd. (c)(3).)

As discussed above, the fraud claim is properly pled, which supports punitive damages. Additionally, the allegations of intentional deception are sufficient to infer malice for pleading purposes.

b. 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.)  

The FAC, as currently written, fails to allege a contractual or statutory basis for attorneys’ fees. Plaintiff does not dispute this, nor does she identify any contractual or statutory provision that she plans on alleging to support a prayer for attorneys’ fees. Therefore, the prayer for attorneys’ fees is improper and must be stricken. Plaintiff may amend the complaint if and when she discovers a basis for attorneys’ fees.

CONCLUSION

            Defendants’ demurrer is OVERRULED. The motion to strike is GRANTED as to attorneys’ fees and DENIED as to punitive damages.