Judge: Daniel S. Murphy, Case: BC454901, Date: 2023-01-30 Tentative Ruling

Case Number: BC454901    Hearing Date: January 30, 2023    Dept: 32

BACKGROUND

            On February 10, 2011, plaintiff Leonard W. Borisoff (“Borisoff”), a composer, filed a complaint against defendants the Pullman Group, LLC; Wertheim, LLC; David Pullman; and Broadcast Music, Inc. (collectively, “Defendants”) for (1) rescission based on failure of consideration; (2) fraud; (3) rescission based on fraud; and (4) declaratory relief. Defendants prevailed in the compelled arbitration proceeding and were awarded ownership of Borisoff’s past and future royalties and attorney fees of $67,866.13. On October 3, 2013, Defendants petitioned the Court to confirm the award, which the Court did on January 15, 2014, with a final judgment entered on August 27, 2014. Borisoff appealed the judgment. The Court of Appeal reversed the judgment.

On February 4, 2021, the Currency Corp (“Plaintiff”) was substituted as Borisoff’s successor in interest after he passed away in 2020.

On November 15, 2022, Plaintiff filed a First Amended Complaint (“FAC”) against Defendants alleging (1) fraud; (2) intentional interference with contract; and (3) declaratory relief.

On December 19, 2022, Defendants filed this instant demurrer and motion to strike.

On January 17, 2023, Plaintiff filed an opposition.

On January 23, 2023, Defendants filed a reply.

This motion is set to be heard on January 30, 2023.

REQUEST FOR JUDICIAL NOTICE

The Court GRANTS Defendants’ requests for judicial notice in full.

DEMURRER

            Defendants demur to the FAC’s first, second, and third causes of action on the grounds that each fails to state facts sufficient to constitute a cause of action and that the first and second causes of action are vague and uncertain.

            A. Discussion

1. First Cause of Action: Fraud

Defendants contend that Plaintiff’s first cause of action for fraud fails in that Plaintiff does not specify what representation(s) were made and by whom, Plaintiff does not identify what exactly was false or misleading, Plaintiff does not clarify whether the alleged misrepresentations were verbal or in writing, and Plaintiff fails to sufficiently allege Defendants’ intent.

Claims for fraud and deceit must be plead with specificity. (Charnay v. Cobert¿(2006) 145 Cal.App.4th 170, 185, fn. 14.) “[T]hat is, a plaintiff must plead facts that show with particularity the elements of the cause of action.” (Glaski v. Bank of Am., Nat'l Ass’n (2013) 218 Cal. App. 4th 1079, 1090 [emphasis in original].) In other words, a plaintiff must plead “facts which show how, when, where, to whom, and by what means the representations were tendered.” (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 645 [emphasis in original].) When the fraud claim is based on false or incomplete statements, the plaintiff “must set forth at least the substance of those statements.” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 878 [emphasis in original].) In the case of a corporate defendant, the plaintiff must also allege the names of the persons who made the allegedly fraudulent representations and their authority to speak on behalf of the corporate defendant. (Lazar, supra, 12 Cal.4th at 645.) In addition, damages must be alleged distinctly and their “causal connection with the reliance on the representations must be shown.” (Service by Medallion v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1818.)  

“Less specificity is required when ‘it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy....’ ” (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216. See¿Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 47 [the pleading rule for fraud “is relaxed when it is apparent from the allegations that the defendant necessarily possesses knowledge of the facts”].) Similarly, less specificity is required for fraud claims based on omission or concealment. (Alfaro v. Community Housing Imp. System & Planning Ass’n, Inc.¿(2009) 171 Cal.App.4th 1356, 1384) [“This statement of the rule [of specificity] reveals that it is intended to apply to affirmative misrepresentations . . . it is harder to apply this rule to a case of simple nondisclosure. How does one show ‘how’ and ‘by what¿means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?”].) 

Here, the Court finds that Plaintiff alleges sufficient facts to support its fraud claim. Contrary to Defendants’ contention, Plaintiff alleges that Pullman, on behalf of himself and his wholly owned companies, The Pullman Group, LLC and Wertheim, LLC made fraudulent misrepresentations to Borisoff on the telephone in early 2007: “Pullman represented to Borisoff that he would receive $100,000 in exchange for assigning all his music royalty rights and purported claims against Currency. Pullman further represented that he would not exercise any rights in the Transaction Documents unless and until the closing of the transaction occurred, including Borisoff’s receipt of the $100,000. Pullman further represented that the transaction was legal, valid, and in good faith; the transaction was contingent on his due diligence and satisfaction of the Conditions Precedent; and that the transaction was a loan, not a sale.” (Opp. p. 11:12-18, FAC at ¶ 24). Plaintiff claims that Pullman’s representations were false because Pullman claimed ownership of Borisoff’s royalties although he never satisfied the Conditions Precedent and never paid Borisoff the required consideration. (FAC ¶ 25.) Plaintiff alleges that Pullman knew of and used Borisoff’s desperate need for money to fraudulently induce him to sign the Contract since he and his mother were in critical health conditions at that time. (Id.) Finally, Plaintiff claims that as a result of Pullman’s actions, Borisoff suffered significant damages which include: “being left living sick and penniless in a public facility for the last fifteen (15) years of his life without access to his royalties, [not receiving the] money he needed for his or his mother’s emergency health needs; [being deprived of the] right to receive his royalties; and suffer[ing] extreme emotional distress. (Id. at ¶ 30). The Court finds these allegations to be sufficient in satisfying the specificity requirement for fraud. Thus, the Court OVERRULES Defendants’ Demurrer as to the First Cause of Action.

2. Second Cause of Action: Contractual Interference

                        a. Statute of Limitations

            Defendants contend that Plaintiff’s second cause of action for contractual interference is barred by the statute of limitations since it was never asserted in the original complaint or arbitration, and even if it was claimed in the original complaint, it would have been barred at the time of filing because Borisoff alleged that the interference occurred “sometime later in 2008.” (Original Complaint ¶ 20.)

            In opposition, Plaintiff claims that its contractual interference is not time barred because Borisoff licensed his Compositions to many entities such that each separate interference by Pullman gives rise to new claims. Plaintiff claims that nothing in the original complaint indicates that Borisoff incurred actual harm in 2008. Finally, Plaintiff contends the discovery rule would postpone the accrual of the statute of limitations in any event since Borisoff did not discover BMI’s actual withholding of royalties until within two years of Borisoff’s filing of the original complaint.

            A plaintiff must bring a claim for intentional interference with contractual relations within two years of the alleged wrongdoing. (See Code Civ. Proc., § 339 [“Within two years: 1. An action upon a contract, obligation or liability not founded upon an instrument of writing, except as provided in [a relevant provision]; or an action founded upon a contract, obligation or liability, evidenced by a certificate, or abstract or guaranty of title of real property, or by a policy of title insurance; provided, that the cause of action upon a contract, obligation or liability evidenced by a certificate, or abstract or guaranty of title of real property or policy of title insurance shall not be deemed to have accrued until the discovery of the loss or damage suffered by the aggrieved party thereunder.”]

            Here, the Court finds that Plaintiff’s intentional interference claim is barred by the statute of limitations because it is unclear when Plaintiff’s claim accrued. Defendants identify 2008 as the time Plaintiff’s claim arose. The Court finds this sufficient since Plaintiff does not provide any other date or any other sufficient information to support that the discovery rule would apply. Although Plaintiff contends that each separate interference by Pullman would give rise to new claims, Plaintiff does not specify when those claims arose. Thus, the Court SUSTAINS WITHOUT LEAVE TO AMEND Defendants’ demurrer as to the second cause of action.

3. Third Cause of Action: Declaratory Judgment

Defendants argue that Plaintiff’s request for declaratory judgment is moot because the Court of Appeal already fully and finally adjudicated the contract in this case as unconscionable. (See FAC, ¶¶ 19-22 (e.g., “the Contract ‘'lacked consideration and was procedurally and substantively unconscionable.’”)

In opposition, Plaintiff claims that there an actual controversy has arisen and now exists between Plaintiff and Pullman concerning their respective rights under the Contract. Plaintiff contends the Contract is void or voidable by Plaintiff, and that Pullman has no rights to Borisoff’s royalties. Plaintiff contends it is entitled to a declaration and that it is not moot because there is no final judgment in the case. The Court agrees.

Here, the Court finds that there is not a final judgment in this instant case, and that Plaintiff’s request for declaratory judgment is not moot since there is an actual controversy regarding the parties rights under the Contract. Plaintiff is entitled to request declaratory relief to prevent Pullman from claiming any of Borisoff’s royalties. Thus, the Court OVERRULES Defendants’ demurrer as to the third cause of action.

B. Conclusion

Defendants’ demurrer is overruled as to the FAC’s first and third causes of action and sustained without leave to amend as to the FAC’s second cause of action.

MOTION TO STRIKE

            Defendants move to strike (1) alter ego allegations; and (2) attorney’s fees.

            A. Discussion

1. Attorney’s Fees

            Defendants contend that Plaintiff is not entitled to attorney’s fees because the contract expressly limited the attorney’s fee provision to arbitration proceedings and other legal proceedings which may arise. Defendants claim that Plaintiff has already obtained attorney’s fees from the arbitration related litigation, and the case at hand is not related to arbitration.

            In opposition, Plaintiff argues that it may obtain attorney’s fees because the reciprocity rule supports Plaintiff’s fee request, and the contract’s severability provision supports fee recovery.

            Although Defendant argues that this is a “brand-new litigation disguised as a mere continuation of prior litigation,” the Court finds that there is sufficient nexus between this instant case and the arbitration proceeding since it contains many of the same issues. Thus, the Court DENIES Defendants’ motion to strike attorney’s fees.

2. Alter Ego Allegations

Here, the Court finds that Plaintiff’s alter ego allegations are sufficient since Pullman owns and controls the corporate entity defendants The Pullman Group, LLC and Wertheim.

“The essence of the alter ego doctrine is that justice be done. ‘What the formula comes down to, once shorn of verbiage abound control, instrumentality, agency, and corporate entity, is that liability is imposed to reach an equitable result.’” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 301.) “‘It is the law in California as elsewhere that, although a corporation is usually regarded as an entity separate and distinct from its stockholders, both law and equity will, when necessary to circumvent fraud, protect the rights of third persons and accomplish justice, disregard this distinct existence and treat them as identical.’” (Kohn v. Kohn (1950) 95 Cal.App.2d 708, 718.) 

In Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-36, the court of appeal held that the following alter ego allegations were sufficient to survive a 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; that the individual defendant used the entity defendant’s assets as her own; and that recognizing the separate existence of the entity defendant would promote injustice.

Here, Plaintiff alleges: “Pullman, on the one hand, and TPG, Wertheim, and DOES 1 through 10, on the other hand, have had and continue to have a unity of interest. Pullman is the sole owner of TPG, Wertheim, and DOES 1 through 10. Pullman controlled and dominated the businesses of TPG, Wertheim, and DOES 1 through 10 such that there existed a unity of ownership, interest, and identity between all these Defendants. Pullman controlled all the decision-making of TPG, Wertheim, and DOES 1 through 10, and controlled all litigation for his companies.” (FAC ¶ 7.) Additionally, Plaintiff claims: “Adherence to the fiction of a separate existence of TPG, Wertheim and DOES 1 through 10 as entities distinct from Pullman would permit an abuse of corporate privilege and would sanction fraud and promote injustice in that Pullman was in fact so intertwined with TPG, Wertheim and DOES 1 through 10 so as to make Pullman, TPG, Wertheim and DOES 1 through 10 all one and the same. TPG, Wertheim and DOES 1 through 10 are mere shells and a sham. TPG, Wertheim and DOES 1 through 10 were at all relevant times the alter-ego of Pullman in that Pullman used the assets of TPG, Wertheim and DOES 1 through 10 for his own use, freely transferred property between them, commingled funds, and kept inadequate and deficient corporate records.” (Id. ¶ 8.) The Court finds the existing allegations to be sufficient to allege an alter ego theory of liability against Defendant Pullman.

B. Conclusion

Defendants’ motion to strike is denied.