Judge David A. Rosen, Case 22GDCV00462 2023-03-02 Tentative Ruling

Judge: David A. Rosen, Case: 22GDCV00462, Date: 2023-03-02 Tentative Ruling

Case Number: 22GDCV00462 Hearing Date: March 2, 2023 Dept: E

Case No: 22GDCV00462
Hearing Date:03/03/2023 – 10:00am

Trial Date: 11/06/2023

Case Name: infra

FAC: GAIL COOPER, individually and as Trustee of the G.S. Cooper Living Trust v. KATHCO, INC., a California corporation, dba KSM CONSTRUCTION; KEVIN HOLCZER, an indiv; TRACY HOLCZER, an indiv; AMERICAN CONTRACTORS INDEMNITY COMPANY, and DOES 1-10

Cross-Complaint: AMERICAN CONTRACTORS INDEMNITY COMPANY, a California corporation v. KATHCO, INC., a California corporation; GAIL COOPER, individually and Trustee of the G.S. Cooper Living Trust; and ROES 1-50

TENTATIVE RULING ON MOTION TO STRIKE

Moving Party: Defendants, Kathco Inc. dba KSM Construction; Kevin Holczer (Kevin), and Tracy (Tracy) Holczer

Responding Party: Plaintiff, Gail Cooper

Opposition Submitted, No Reply submitted.

Moving Papers: Notice of Motion/Memo; Proposed Order

Opposition Papers: Opposition

Reply Papers: No Reply Submitted

Proof of Service Timely Filed (CRC Rule 3.1300): Ok
16/21 Court Days Lapsed (CCP 1005(b)): Ok
Proper Address: Ok

RELIEF REQUESTED
Defendants, Kathco Inc. dba KSM Construction (Kathco), Kevin Holczer (Kevin), and Tracy Holczer (Tracy), move this Court for an order striking the following portions of the First Amended Complaint (FAC) and Prayer for Relief on the ground that said portions of the FAC contain irrelevant, false, and improper matter and are not drawn or filed in conformity with the law of this state:

1. As to the First Cause of Action for Fraud: The prayer for “punitive damages” (p. 7, lines 21-25, ¶39.); and

2. As to the Prayer for Relief: The prayer for “punitive damages” at p.10, line 22, on the grounds that the pleading contains irrelevant, false and improper matters and is not drawn or filed in conformity with the laws of this State.

Defendants move pursuant to CCP §435, 436, and 437.

BACKGROUND
Plaintiff filed a Complaint on 07/29/2022.

On 08/04/2022, Plaintiff filed a FAC alleging five causes of action: (1) Fraud, (2) Breach of Contract, (3) Breach of Implied Warranties, (4) Negligence – Damage to Property, and (5) Violations of Business and Professions Code.

The first, second, third, and fourth causes of action were alleged against all Defendants except ACIC; thus, the first, second, third, and fourth causes of action were alleged against Kathco, Kevin Holczer, and Tracy Holczer.

The fifth cause of action was alleged against All Defendants, including ACIC.

Plaintiff filed a notice of errata to the FAC on 09/20/2022.

On 11/17/2022, American Contractors Indemnity Company filed a Cross-Complaint.

PROCEDURAL

Meet and Confer

Before filing a motion to strike pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion to strike for the purpose of determining if an agreement can be reached that resolves the objections to be raised in the motion to strike. If an amended pleading is filed, the responding party shall meet and confer again with the party who filed the amended pleading before filing a motion to strike the amended pleading. (CCP §435.5(a).)

In the Foellmer Declaration, Defendants’ counsel alleges they met with counsel regarding the issues raised in the motion, but the parties did not reach an agreement. (Foellmer Decl. ¶3.)

LEGAL STANDARD – MOTION TO STRIKE
The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc. § 436(a).) The court may also strike 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. (Code Civ. Proc. § 436(b).) A motion to strike cannot be based upon the grounds that a complaint fails to state facts sufficient to constitute a cause of action, but instead is properly based on grounds of superfluous or abusive allegations, or improprieties in form or procedure. (Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528-29.)

The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Code. Civ. Proc. § 437; Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63 [“judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth”].)

Further, CCP §431.10(a)-(c) states as follows:

(a) A material allegation in a pleading is one essential to the claim or defense and which could not be stricken from the pleading without leaving it insufficient as to that claim or defense.

(b) An immaterial allegation in a pleading is any of the following:

(1) An allegation that is not essential to the statement of a claim or defense.

(2) An allegation that is neither pertinent to nor supported by an otherwise sufficient claim or defense.

(3) A demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint.

(CCP §431.10(a)-(c).)

ANALYSIS

Punitive Damages
California Civil Code section 3294 authorizes the recovery of punitive damages in non-contract cases where “the defendant has been guilty of oppression, fraud, or malice . . . ” (Civ. Code § 3294(a).) Punitive damages thus require more than the mere commission of a tort. (See Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-95.) “‘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.” (CCP § 3294(c)(1).) “‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Id.,§ 3294(c)(2).) “‘Fraud’ means an 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., § 3294(c)(3).) Specific facts must be pleaded in support of punitive damages. (See Hillard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 391-92.)

“An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (CCP §3294(b).)

Discussion

As a preliminary matter, both the moving and opposition papers are difficult to decipher, confusing, and bring up arguments that are outside the scope of this motion.

For example, Defendants argue, “There is not sufficient evidence of malice, oppression[,] or fraud to support a claim for punitive damages.” (Def. Mot. p.4.) Further, Defendants argue, “The disputed representations by Kevin Holczer do not amount to intentional malicious or despicable conduct. The conduct alleged is insufficient to justify or support the claim for punitive damages.” (Def. Mot. p.5.) However, these two arguments are misplaced because this case is at the pleading stage.

Another confusing aspect of this motion is that Defendants state, “If the Court is inclined to deny the motion, then Defendants submit that it should only be denied as to Kevin Holczer.” (Def. Mot. p. 4.) This is confusing because nowhere in this motion does it state why this motion to strike should be granted with respect to Tracy. Defendants do not bring up Tracy once in this motion as to why the instant portions should be stricken.

Tracy and Kevin
The first cause of action for fraud is alleged against Kathco, Tracy, and Kevin. Important to note, is that Defendants did not demur to the fraud cause of action for failure to state sufficient facts to constitute a cause of action. A motion to strike cannot be based upon the grounds that a complaint fails to state facts sufficient to constitute a cause of action, but instead is properly based on grounds of superfluous or abusive allegations, or improprieties in form or procedure. (Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528-29.)

Therefore, striking the request for punitive damages in the first cause of action with respect to Tracy and Kevin is DENIED because Plaintiff sufficiently pled a fraud cause of action. Defendants did not demur to the fraud cause of action.

Kathco
Defendants cite Civil Code §3294(b) which states:

Defendants then argue, “To satisfy the requirements of Civil Code §3294(b ), Plaintiff must show Kathco, Inc. had advance knowledge of the unfitness of an employee. The allegations against Kevin Holczer as stated above are alleged misrepresentations regarding the subcontractors, which is insufficient to establish malice, oppression or fraud.” (Def. Mot. p.6.)

But plaintiff need not show anything here at the pleading stage. Here, it is unclear what Defendants are trying to argue and why its motion to strike should be granted with respect to Kathco.

Defendants are not entirely correct to state that “Plaintiffs must show Kathco, Inc. had advance knowledge of the unfitness of an employee.” Defendants leave out a large portion of the 3294(b) which later states “…advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (CCP §3294(b), [Emph added.].)

Confusingly, in Opposition, the vast majority of Plaintiff’s motion focuses on issues not relevant to this instant motion.

Also confusing is Plaintiff’s Opposition argument that, “Defendants assert that the punitive damage claim is not sufficiently alleged against Kathco under Civil Code 3294(b) because there is no allegation that the fraudulent conduct was authorized or ratified.” (Oppo. p.5-6.)

Defendants never made this argument nor mentioned ratification.

Plaintiff then argues:

However, there is no need for this allegation because the acts of fraud and malice were committed by an officer of Kathco, Inc. The second sentence of Section 3294(b) states:

With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation. (Bold added.)

Where the wrongful act giving rise to punitive damages is by an officer, the corporation is liable. No separate authorization or ratification of the conduct is required. White v. Ultamar, Inc. (1999) 21 Cal.4th 563, 572 [“Section 3294 is no longer silent on who may be responsible for imputing punitive damages to a corporate employer. For corporate punitive damages liability, section 3294, subdivision (b), requires that the wrongful act giving rise to the exemplary damages be committed by an "officer, director, or managing agent."]

(Oppo. p. 5-6.)

Problematic with Plaintiff’s argument that “Where the wrongful act giving rise to punitive damages is by an officer, the corporation is liable. No separate authorization or ratification of the conduct is required,” is that Plaintiff’s citation does not support that argument.

What the White case that Plaintiff cited actually states is:

After Egan, supra, 24 Cal.3d 809, and Agarwal, supra, 25 Cal.3d 932, the Legislature drafted Senate Bill No. 1989 (1979-1980 Reg. Sess.) to codify and refine further the requirements for employer punitive damages liability. The new amendment added subdivision (b) to section 3294. (Stats. 1980, ch. 1242, § 1, p. 4217.) Following subsequent minor amendments, the statute now states in pertinent part: “An employer shall not be liable for [punitive] damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the *572 rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (§ 3294, subd. (b), italics added.) The drafters' goals were to avoid imposing punitive damages on employers who were merely negligent or reckless and to distinguish ordinary respondeat superior liability from corporate liability for punitive damages. (See Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128, 1150-1151 [74 Cal.Rptr.2d 510]; see also College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 712-713 [34 Cal.Rptr.2d 898, 882 P.2d 894] [noting that, after 1979, the Legislature limited circumstances under which an employer could be held liable for punitive damages].) Section 3294 is no longer silent on who may be responsible for imputing punitive damages to a corporate employer. For corporate punitive damages liability, section 3294, subdivision (b), requires that the wrongful act giving rise to the exemplary damages be committed by an “officer, director, or managing agent.”

(White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 571-571.)

Nowhere in Plaintiff’s citation to White does it state that no separate authorization or ratification is required, but instead it states that for corporate punitive damages liability, 3294(b) requires that the wrongful act giving rise to the exemplary damages be committed by an officer, director, or managing agent.

Plaintiff then argues that:

Defendant Kevin Holczer, the person who committed forgery and then lied about it, and who knew that the defective work was dangerous and concealed it, is an officer of Kathco, Inc. FAC ¶ 6. He is alleged to have committed these acts “individually, on behalf of and in conspiracy with Defendants, and each of them” (FAC ¶ 26), namely Kathco, Inc. and Tracy Holczer, the other officer of Kathco, Inc. FAC ¶ 6. In addition, Kathco, Inc. is alleged to be the alter ego of Defendants Kevin Holczer and Tracy Holczer. FAC ¶ 7. These allegations are sufficient to impose punitive damages on Defendants Kathco. Inc. and Tracy Holczer, along with Defendant Kevin Holczer.

(Oppo. p. 6.)

TENATIVE RULING
Plaintiff’s argument that ratification needn’t be pled may seem logical, but it is not supported by any cited law affirming that ratification doesn’t have to be alleged where the alleged fraud is alleged to have been committed by a corporate officer. 3294(b) does not so state. The Motion to Strike is Granted with 20 days’ leave to amend (Velez v. Smith (2006) 142 Cal. App. 4^th 1154.) for Plaintiff to more clearly plead Defendant Kevin Holczer’s position vis a vi’ the other Defendants and to more specifically address the ratification issues.