Judge: Daniel S. Murphy, Case: 23STCV21282, Date: 2024-05-20 Tentative Ruling

Case Number: 23STCV21282    Hearing Date: May 20, 2024    Dept: 32

BACKGROUND

            On September 5, 2023, Plaintiff and Cross-Defendant VISM Studio initiated this action by filing a complaint against Defendants and Cross-Complainants Woo-Jin Choi and Eunmi Song, alleging breach of contract.

The complaint alleges that VISM sponsored O-1B visas for Choi and Song, who are from South Korea, so that they could work at VISM’s tattoo studio in Los Angeles. VISM allegedly entered into employment contracts with both Choi and Song, which provided for VISM to receive a portion of gross sales generated by Choi and Song. Choi and Song allegedly abandoned their positions to work at another tattoo studio before their employment terms ended. VISM sues for the lost profits that it would have been entitled to had Choi and Song remained in their positions for the entirety of their terms.  

            Choi and Song have cross-complained against VISM, with the operative First Amended Cross-Complaint (FACC) filed on March 20, 2024. The FACC asserts causes of action for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) intentional misrepresentation, (4) negligent misrepresentation, (5) unfair business practices, and (6) common count – goods and services rendered.

The FACC alleges that VISM induced Choi and Song to uproot their lives in South Korea and move to the United States on promises that: VISM would foster a small number of tattoo artists; the artists’ share of revenues would increase annually; and VISM would assist Choi and Song in filing their taxes and obtaining green cards. VISM allegedly reneged on its promises by drafting employment contracts that did not provide for an increasing share of revenue and did not confirm that VISM would assist Choi and Song with their taxes or green cards. Additionally, VISM allegedly required Choi and Song to pay VISM’s staff for overtime and hired too many tattoo artists for a supposedly small and focused studio, which disrupted Choi’s and Song’s work. Ultimately, VISM informed Choi and Song that their work would cease on April 30, 2023 but that they would be paid through May 15, 2023. VISM has allegedly failed to pay Choi and Song for work performed in April 2023.

On April 18, 2024, VISM filed the instant demurrer and motion to strike against the FACC. Choi and Song filed their opposition on May 3, 2024. VISM filed its reply on May 9, 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 VISM has complied with the meet and confer requirement. (See Satnick Decl.)

DISCUSSION

I. Demurrer

            a. Breach of Contract

            “When a plaintiff attaches a written agreement to his complaint, and incorporates it by reference into his cause of action, the terms of that written agreement take precedence over any contradictory allegations in the body of the complaint.” (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 282.) Moreover, “[a] pleader may not attempt to breathe life into a complaint by omitting relevant facts which made his previous complaint defective.” (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946.)

            Here, the employment contracts attached to the FACC provide that “[a]rtist commissions are generally paid by the 15th of the following month of the month in which profits are generated” and that “[a]rtists must still be employed by VISM to receive artist commissions on the 15th of next month for their monthly gross income generated in the previous month.” (FACC, Ex. A, B.) VISM argues that this means Choi and Song must have been employed on May 15, 2023 in order to receive payment for the month of April 2023. VISM argues that because Choi and Song alleged in the original cross-complaint that they “stopped working” for VISM on April 30, 2023 (Cross-Compl. ¶ 20), they were not entitled to payment on May 15, 2023. VISM argues that Choi and Song changed the allegation in the FACC, which now alleges that Choi and Song were told to stop working on April 30, 2023 but were nonetheless assured that they would be paid through May 15, 2023. (FACC ¶ 23.) VISM contends that the allegations in the FACC contradict both the prior pleading and the express terms of the contract.

            However, “[t]he Labor Code . . . contemplates that employees will be paid for all work performed.” (Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 840.) VISM cannot deprive Choi and Song of payment for work performed simply because their employment terminated before a particular date. The cited provision, which conditions payment on an employee’s employment on the 15th of each month, is void for illegality. Therefore, the FACC sufficiently pleads a breach of contract claim. The demurrer is OVERRULED as to the first cause of action.     

b. Implied Covenant of Good Faith and Fair Dealing

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-50.) However, “[i]f the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.)

Here, the implied covenant claim alleges that VISM failed to pay Choi and Song for the work they performed in April 2023. (FACC ¶ 34.) This is identical to the conduct that forms the breach of contract claim (FACC ¶ 28), and no additional facts are alleged demonstrating bad faith. Therefore, the demurrer is SUSTAINED without leave to amend as to the second cause of action.

c. Fraud

            1. Essential Elements

“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.) Negligent misrepresentation involves “the tortfeasor’s lack of reasonable grounds for believing the assertion to be true” but otherwise still requires intent to induce reliance and justifiable reliance. (SI 59 LLC v. Variel Warner Ventures, LLC (2018) 29 Cal.App.5th 146, 154.)

VISM argues that the FACC lacks allegations that VISM knew the representations were false, that VISM intended to deceive Choi and Song, or that Choi and Song justifiably relied on the representations. While the FACC alleges that the representations were false, it does not allege that VISM knew them to be false or intended for Choi and Song to rely on them. (See FACC ¶¶ 36-49.) Therefore, the fraud claims fail to allege all essential elements.

            2. Specificity

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.)

The FACC alleges that in November 2021, VISM’s CEO, Dasol Kim, offered Song employment and stated that he was planning to operate a tattoo studio with a small number of artists. (FACC ¶ 8.) From December 2021 to January 2022, Kim allegedly told Song about the profit-sharing plan, including the annual increases, and stated that VISM would assist in filing Song’s taxes and obtaining a green card. (Id., ¶ 9.) In January 2022, Kim allegedly offered employment to Choi and informed him that VISM would assist in filing taxes and obtaining a green card. (Id., ¶ 11.)

Contrary to VISM’s argument, these allegations sufficiently specify who made which statements to whom. Kim, as VISM’s alleged CEO, inferably had authority to speak on VISM’s behalf. While the FACC later references these statements collectively under the fraud claim (FACC ¶ 38), that alone does not render the complaint ambiguous as to whom the statements were made to. The complaint must be read in its entirety, and the earlier allegations clearly establish which statements were directed at Choi and which were directed at Song.

Nonetheless, the FACC fails to specify how or by what means each statement was made, instead using generic terms such as Kim “informed,” or Kim “told.” These are facts that should be in Cross-Complainants’ possession. Therefore, the fraud claims do not meet the specificity standard. 

            3. Actionable Statements

“[A]ctionable misrepresentations must pertain to past or existing material facts. Statements or predictions regarding future events are deemed to be mere opinions which are not actionable.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469, internal citations omitted.) VISM argues that its representations that it was “planning” on operating a tattoo studio with a small number of artists, that it “would” increase the artist’s commissions annually, and that it “would” assist with taxes and green cards are predictions of future events that are not actionable as fraud.

VISM reads Cansino too broadly. That case does not stand for the proposition that any statement relating to future conduct is nonactionable. Rather, Cansino holds that predictions which amount to opinions are not actionable. In Cansino, the nonactionable opinion was “a prediction about future market conditions.” (Cansino, supra, 224 Cal.App.4th at p. 1470.) By contrast, VISM’s alleged representations were promises to perform certain actions, not predictions or opinions. False promises are actionable as fraud. “A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060.) Therefore, the alleged statements are actionable.

            4. Parol Evidence Rule

“Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.” (Code Civ. Proc, § 1856(a).) However, “[w]here the validity of the agreement is the fact in dispute, this section does not exclude evidence relevant to that issue.” (Id., § 1856(f).) Additionally, the rule does not preclude evidence “of the circumstances under which the agreement was made” or “to establish illegality or fraud.” (Id., § 1856(g).) “[P]arol evidence of fraudulent representations is admissible as an exception to the parol evidence rule to show that a contract was induced by fraud.” (Julius Castle Restaurant, Inc. v. Payne (2013) 216 Cal.App.4th 1423, 1440.)  

Here, the fraud claims do not attempt to alter the terms of the employment contracts with prior statements. Rather, those claims seek to establish that the statements induced Choi and Song to upend their lives in South Korea and move to the U.S., incurring relocation expenses and attorney’s fees for the visa application. (FACC ¶¶ 12-14.) This relates to fraud independent of the contract. The statements are also actionable as fraudulent inducement to the extent they caused Choi and Song to enter into the contracts in the first place. Although Choi and Song also have causes of action that seek to enforce the contract, “[a] plaintiff may plead cumulative or inconsistent causes of action.” (Gherman v. Colburn (1977) 72 Cal.App.3d 544, 565.) Therefore, the fraud claims are not barred by the parol evidence rule.     

In sum, the fraud claims fail to allege all essential elements and lack the requisite specificity. Therefore, the demurrer is SUSTAINED with leave to amend as to the third and fourth causes of action.

d. Unfair Business Practices

Business and Professions Code section 17200 prohibits unlawful, unfair, or fraudulent business acts or practices. Each of the three prongs is an independent basis for relief. (Smith v. State Farm Mutual Automobile Insurance Co. (2001) 93 Cal.App.4th 700, 718.) Unlawful conduct is defined as any practice forbidden by law. (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383.) UCL actions alleging unlawful conduct “borrow” from other statutes or common law causes of action outside Section 17200. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.)

According to the FACC, VISM engaged in unlawful, unfair, or fraudulent practices by failing to pay commissions and requiring Choi and Song to pay for overtime. (FACC ¶ 53.) As discussed above, VISM’s failure to pay Choi and Song constitutes a breach of contract, which is “unlawful” for purposes of the UCL. Being deprived of just compensation constitutes “injury in fact.”

Choi and Song argue in their opposition that requiring them to pay other employees overtime violated Labor Code section 510 and harmed competition because Choi and Song had to pay the wages of other tattoo artists. These theories are not pled in the FACC, and the UCL claim should be amended to the extent Choi and Song wish to include them as bases for the claim. Therefore, the demurrer is SUSTAINED with leave to amend as to the fifth cause of action.

e. Common Count

“A common count is not a specific cause of action, … rather, it is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness, including that arising from an alleged duty to make restitution under an assumpsit theory. When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.)

This cause of action is premised on VISM’s alleged failure to pay Choi and Song their commissions, as well as requiring them to pay other employees overtime. (FACC ¶ 59.) VISM argues that because the contract claim is demurrable, so is the derivative common count claim. VISM also argues that restitution is unavailable where a contract already covers the subject matter. However, as discussed above, the breach of contract claim is adequately pled. Contractual payment for work performed constitutes a “form[] of monetary indebtedness” aside from restitution. (See McBride, supra, 123 Cal.App.4th at p. 394.) Additionally, Choi and Song are entitled to plead restitution in the alternative even if they have a contract claim. (See Gherman, supra, 72 Cal.App.3d at p. 565.) The demurrer is OVERRULED as to the sixth cause of action.

II. Motion to Strike

“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).)

VISM argues that Choi and Song cannot recover punitive damages because all of the claims in the FACC derive from contract. However, the FACC asserts two causes of action based in fraud. As discussed above, the fraud claims are distinct from breach of contract because Choi and Song allege that they were induced into leaving South Korea and moving to the U.S., incurring related damages, as well as being induced into the contracts. Assuming these claims are adequately pled, they would justify punitive damages. (See Civ. Code, § 3294(c)(3).) However, as discussed above, the fraud claims are not adequately pled in their current form. Therefore, the FACC lacks a basis for punitive damages. The motion to strike is GRANTED with leave to amend.

CONCLUSION

            Cross-Defendant VISM’s demurrer is SUSTAINED in part as set forth above. VISM’s motion to strike is GRANTED with leave to amend.