Judge: Daniel S. Murphy, Case: 23STCV31304, Date: 2024-06-07 Tentative Ruling

Case Number: 23STCV31304    Hearing Date: June 7, 2024    Dept: 32

BACKGROUND

            On December 21, 2023, Plaintiff Harvey Vechery, individually and as trustee of the Vechery Family Trust (TVFT) and the Vechery Grandchildren’s Trust (TVGT), filed this action against Defendant Charles Anderson (Anderson) and Does 1 through 25 (collectively, Defendants). The operative First Amended Complaint (FAC), filed March 26, 2024, asserts causes of action for (1) intentional misrepresentation, (2) negligent misrepresentation, (3) elder abuse, (4) breach of promissory note, and (5) breach of service agreement.

            The FAC alleges that Defendants induced Plaintiff into a business arrangement to finance Anderson’s businesses (the Controlled Entities). Plaintiff was allegedly promised substantial returns based on the Controlled Entities’ potential income. The parties entered into the following contracts: (a) a promissory note wherein Plaintiff caused TVFT to loan Defendants $2.45 million; (b) a promissory note wherein Plaintiff caused TVGT to loan Defendants $550,000; (c) a services agreement whereby Defendants agreed to pay Plaintiff $10,203.33 per month until the earlier of full repayment of the TVFT loan or 48 months; and (d) a services agreement whereby Defendants agreed to pay Plaintiff $2,291.67 per month until the earlier of full repayment of the TVGT or 48 months. Defendants allegedly defaulted under all four agreements and allegedly made false representations in order to induce Plaintiff to pay $3 million.

            On May 3, 2024, Defendant Anderson filed the instant demurrer to 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 Jackson Decl.)

REQUEST FOR JUDICIAL NOTICE

            Defendant’s request for judicial notice is denied. The purported agreements attached in the RJN cannot be properly authenticated on a demurrer. They are reasonably subject to dispute and cannot be verified by a source of indisputable accuracy. (See Evid. Code, § 452(h).) “[T]he existence of a contract between private parties cannot be established by judicial notice under Evidence Code section 452, subdivision (h).” (The Travelers Indemnity Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 354-55.) “The existence and terms of a private agreement are not facts that are not reasonably subject to dispute and that can be determined by indisputable accuracy.” (Ibid.)  

DISCUSSION

I. Plaintiff’s Standing

            Defendant argues that Plaintiff lacks standing in his individual capacity because he signed the contracts as trustee. For support, Defendant relies on extrinsic evidence of the promissory notes. As addressed above, the Court cannot take judicial notice of the documents. Lack of standing is not a defect that otherwise appears on the face of the complaint. Plaintiff’s allegation that he suffered financial loss as a result of the fraudulently induced loans must be taken as true for pleading purposes. (See, e.g., FAC ¶ 21.) Plaintiff’s allegation that it was “Plaintiff’s $3 million dollars” must also be assumed true. (See id., ¶ 32.)

It may be reasonably inferred that Plaintiff suffered personal financial loss despite the trusts loaning the money because, for example, Plaintiff is a beneficiary of the trusts, or Plaintiff placed his own money into the trusts. None of the allegations in the FAC, nor any legal authority, precludes this possibility as a matter of law. Therefore, the FAC does not fail for lack of standing at this stage.

II. Alter Ego

Establishing alter ego “generally requires the proponent to demonstrate two elements: (1) a unity of interest and ownership such that the separate personalities of the corporation and the individual do not exist; and (2) an inequitable result if the corporate identity is not disregarded.” (JPV I L.P. v. Koetting (2023) 88 Cal.App.5th 172, 189.) “The alter ego test encompasses a host of factors,” and “[t]his long list of factors is not exhaustive.” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 812.) “No single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.” (Ibid.)

Courts have found the following allegations sufficient to survive demurrer: that the individual defendant dominated and controlled the entity defendant; that a unity of interest and ownership existed between the individual defendant and entity defendant; that the entity defendant was a mere shell and conduit for the individual defendant’s affairs; that the entity defendant was inadequately capitalized; that the entity defendant failed to abide by corporate formalities; and that the individual defendant used the entity defendant’s assets as her own. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-36.)

Defendant argues that Plaintiff has failed to plead sufficient facts to hold him personally liable for the acts of Enverto, one of the Controlled Entities. However, Plaintiff has alleged the same ultimate facts that were found sufficient in Rutherford. (See FAC ¶ 5.) For demurrer purposes, it may be reasonably inferred that there is a unity of interest between Defendant and Enverto or the other Controlled Entities. Plaintiff has also alleged that treating Defendant and the Entities as separate would result in injustice. (Id., ¶ 6.) The evidentiary facts sought by Defendant are better left for discovery. (See Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 608.) The allegations are sufficient “to put the defendant on notice about what the plaintiff is complaining and what remedies are being sought.” (See Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) Therefore, Plaintiff has adequately alleged alter ego.       

III. Conspiracy and Aiding and Abetting

            “A corporate employee cannot conspire with his or her corporate employer; that would be tantamount to a person conspiring with himself.” (Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55, 78.) “Similar reasoning applies to aiding and abetting.” (Ibid.)

Defendant argues that he cannot be liable for conspiracy or aiding and abetting because he merely acted in his capacity as Enverto’s CEO. For support, Defendant relies on extrinsic evidence of the purported agreements. Again, these documents are not judicially noticeable. Defendant’s relation to Enverto and the other Controlled Entities is a factual matter not resolvable on a demurrer. Therefore, the FAC sufficiently alleges conspiracy and aiding and abetting.

IV. Conditions Precedent

            Defendant argues that the FAC fails because it does not allege satisfaction of the conditions precedent in the promissory notes. As discussed above, extrinsic evidence of the notes cannot be considered on a demurrer. Whether Plaintiff satisfied any conditions precedent remains a factual issue.

V. 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.) Negligent misrepresentation involves “the tortfeasor’s lack of reasonable grounds for believing the assertion to be true.” (SI 59 LLC v. Variel Warner Ventures, LLC (2018) 29 Cal.App.5th 146, 154.) 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 allegations lack the requisite specificity. They vaguely refer to “Anderson and/or Does 11-25” soliciting and inducing Plaintiff to enter the agreements. (FAC ¶ 10.) Anderson allegedly represented “how successful, stable, and financially strong the Controlled Entities were.” (Ibid.) The FAC further alleges that “they” made representations “that future business income was certain for at least four years given the plethora of new customers and clients of the Controlled Entities.” (Ibid.) It is unclear whether Anderson alone, or others, made the representations. It is also unclear what the actual statements were and how they were made.

            Additionally, the representations as currently pled appear to be nonactionable predictions or opinions. Boasting about the Controlled Entities’ financial strength does not equate to making a factual representation. (See Demetriades v. Yelp, Inc. (2014) 228 Cal.App.4th 294, 311 [“a statement that is quantifiable, that makes a claim as to the ‘specific or absolute characteristics of a product,’ may be an actionable statement of fact while a general, subjective claim about a product is non-actionable puffery”].) The same goes for predictions about the Entities’ future income. (See Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469 [“Statements or predictions regarding future events are deemed to be mere opinions which are not actionable”].)

            Therefore, the fraud claims have not been sufficiently pled. The demurrer is SUSTAINED with leave to amend as to the first and second causes of action.

VI. Elder Abuse

Financial abuse of an elder or dependent adult occurs when a person or entity takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both. (Welf. & Inst. Code, § 15610.30(a)(1).) A person or entity shall be deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates, obtains, or retains the property and the person or entity knew or should have known that this conduct is likely to be harmful to the elder or dependent adult. (Id., § 15610.30(b).) Statutory claims must be pled with heightened specificity. (Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790.)

This claim is premised on the allegation that “DEFENDANTS committed elder abuse prohibited by law when they fraudulently induced PLAINTIFF to ‘loan’ them $3 million dollars based on false pretenses, causing PLAINTIFF financial and emotional harm.” (FAC ¶ 31.) “By keeping PLAINTIFF’s $3 million dollars and failing to repay it as promised, Defendants appropriated PLAINTIFF’s funds for their own use, benefit, and financial gain, to the deprivation of PLAINTIFF.” (Id., ¶ 32.) Defendants allegedly knew that their actions would “cause [Plaintiff] financial and emotional distress.” (Id., ¶ 33.)

These facts sufficiently establish the claim with the requisite specificity. In particular, Plaintiff has alleged that Defendants borrowed $3 million of his money and then failed to repay it. This constitutes taking, secreting, appropriating, obtaining, or retaining the personal property of an elder.[1] Defendant’s knowledge and intent are ultimate facts that do not require elaboration at the pleading stage. The intent necessary for elder abuse is that Defendant knew or should have known that his conduct was likely to be harmful. (See Welf. & Inst. Code, § 15610.30(b).) Plaintiff has alleged this (FAC ¶ 33), and it may be reasonably inferred from the allegations. Therefore, the elder abuse claim is adequately pled.    

VII. Breach of Contract

            Defendant argues that the breach of contract claims fail as against him because he did not sign the contracts in his individual capacity, and the alter ego allegations are insufficient. As discussed above, evidence of the contracts cannot be considered here, and the alter ego allegations are adequate. Therefore, the breach of contract claims survive. 

CONCLUSION

            Defendant’s demurrer is SUSTAINED with leave to amend as to the first and second causes of action and OVERRULED in all other respects.