Judge David B. Gelfound, Case Number: 23CHCV01560, Date: 2024-04-22 Tentative Ruling

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APRIL 22, 2024

Los Angeles Superior Court Case # 23CHCV01560

MOVING PARTY: Defendants AAA Merchant Services, Aimee Johnson, and CardConnect, LLC

RESPONDING PARTY: Plaintiff Golden Pro Insurance Services, Inc. (“Plaintiff”)

RELIEF REQUESTED: An order dismissing the action, or in the alternative, staying all proceedings based on a forum selection clause.

On May 30, 2023, Plaintiff initiated this action against Defendants AAA Merchant Services, Aimee Johnson, Fiserv, Credit Risk Monitoring, and Does 1 through 100, alleging (1) Conversion, (2) Common Counts, (3) Fraud, and (4) Negligence.

On December 15, 2023, Plaintiff filed its Amendment to Complaint form, substituting Defendants Fiserv and Credit Risk Monitoring with their true name, CardConnect LLC. Subsequently, on April 2, 2024, Plaintiff filed a Request for Dismissal, dismissing Defendant CardConnect LLC, which was entered on the same day.

On January 23, 2024, Defendants AAA Merchant Services, Aimee Johnson, and CardConnect LLC (later dismissed) (collectively, “Defendants”) filed their instant Amended Motion to Dismiss (the “Motion”). Plaintiff filed its Opposition on April 4, 2024. Subsequently, on April 15, 2024, Defendants filed their Reply.

Code of Civil Procedure § 418.10(a)(2) provides, “A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion for one or more of the following purposes…(2) To stay or dismiss the action on the ground of inconvenient forum.” (Code Civ. Proc. § 418.10(a)(2).)

Code of Civil Procedure § 410.30(a), provides, “When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.” (Code Civ. Proc., § 410.30(a).)

The procedure for enforcing a forum selection clause is a motion to stay or dismiss for forum non conveniens. (Berg v. MTC Electronics Technologies Co. (1998) 61 Cal.App.4th 349, 358.)

Defendants invoke the forum selection clause in the Merchant Processing Application and Agreement (the “Agreement”) entered into between Plaintiff and Defendant CardConnect LLC and non-party BBVA USA. The forum selection clause states:

“We have substantial facilities in the State of New York and many of the services provided under this Agreement are provided from these facilities. The exclusive venue for any actions or claims arising under or related to this Agreement shall be in the appropriate state of federal court located in Suffolk County, New York.”

In California, “forum selection clauses are valid and may be given effect, in the court's discretion and in the absence of a showing that enforcement of such a clause would be unreasonable.” (Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496 [“courts possess discretion to decline to exercise jurisdiction in recognition of the parties' free and voluntary choice of a different forum”; policy favoring access to California courts by resident plaintiffs “is satisfied in those cases where … a plaintiff has freely and voluntarily negotiated away his right to a California forum.” (id. at p. 495)].)

The burden of proof is on the plaintiff, and the factors involved in traditional forum non conveniens analysis do not control. (Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 198 (Intershop Communications).) “Instead, the forum selection clause is presumed valid and will be enforced unless the plaintiff shows that enforcement of the clause would be unreasonable under the circumstances of the case.” (Ibid.; see also Furda v. Superior Court, (1984) 161 Cal.App.3d 418, 424–425 [“the existence of a contractual forum selection clause requires a court to decline jurisdiction under … section 410.30, absent a showing that enforcement would be unfair or unreasonable”].)

Plaintiff argues that Defendants lack standing to invoke the forum selection clause as they are not parties to the Agreement. (Opp’n., at 3.) However, the Court finds this argument unpersuasive.

Courts have held in cases, where the alleged conduct is closely related to the contractual relationship, that the forum selection clause of the agreement is enforceable for the benefit of non-signatories to the contract. (Lu v. Dryclean-U.S.A. of California, Inc., (1992) 11 Cal. App. 4th 1490, 1494.)

“The key to the closely related test is whether the nonsignatories were close to the contractual relationship, not whether they were close to the third party [signatory].” (Bugna v. Fike (2000) 80 Cal.App.4th 229, 235.)

Here, Plaintiff’s Complaint alleges that “Aimee Johnson and AAA Merchant Services, solicited credit card processing services from Plaintiff.... As part of their solicitation, they analyzed the payment history of Plaintiff ... and represented that Defendants ... would promptly be crediting the full payments due without delay. Based on the representations by Defendants ... Plaintiff retained the credit card processing services[,]” (Compl., ¶¶ 9-10), supporting the finding that Defendants were key transaction participants who negotiated, evaluated, and put together the transaction. Moreover, Plaintiff also pleads that “each of the Defendants was the agent, servant, representative or employee of each of the other Defendants, and at all times herein mentioned, was acting within the scope and course of that agency or employment” (Id., ¶ 7), and that “[t]he conduct of the Defendants, and each of them ... in providing those services [under the Agreement] fell below the standard of care of a credit card service provider.” (Id., ¶ 37.) Consequently, it is evident that Defendants, although not signatories, were closely related to the contractual relationship.

Furthermore, Plaintiff argues that Defendants may not enforce the forum selection clause as Plaintiff has rescinded the Agreement pursuant to Civil Code section 1689(b)(1), the effect of which renders the Agreement void ab initio, citing Weltman v. Kaye (1959) 167 Cal.App.2d 607. (Opp’n., at 3.)

The Court notes that Civil Code section 1689(b)(1) provides that “A party to a contract may rescind the contract in the following cases: (1) if the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence[.]”

Here, Defendants point out that their dispute over Plaintiff’s fraud allegation, effectually contest the grounds for Plaintiff’s unilateral rescission under Civil Code section 1689(b)(1). Accordingly, the effect of Plaintiff’s rescission and whether it was justified will still need to be determined by the Court.

Therefore, the Court determines that Plaintiff’s contention for Defendants’ lack of standing is unconvincing.

Plaintiff contends that the underlying disputes of this action do not arise from or relate to the Agreement because the fraud and/or negligence occurred before these ever was any agreement. (Opp.’n. at 3.)

The Court notes that established precedents do not support a notion that a forum selection clause is necessarily inapplicable simply because the alleged tortious conduct happened before the contract at issue was signed. Rather, the focus is the relationship between the claims and the scope of the forum selection clause.

“We first note that forum selection clauses can be equally applicable to contractual and tort causes of action. [Citations.] Whether a forum selection clause applies to tort claims depends on whether resolution of the claims relates to interpretation of the contract. [Citations.]” (Manetti–Farrow, Inc. v. Gucci America, Inc., (1988) 858 F.2d 509, 514.)

Here, the scope of the forum selection clause, by its express terms, encompasses “any actions or claims arising under or related to this Agreement.” (Maravent Decl., Ex. “A,” § 48.2.)

It is apparent that Plaintiff’s claim for Conversion, Common Count, Fraud, and Negligence necessarily arise out of the Agreement. According to Plaintiff’s allegation in its Complaint, “the damages herein alleged were the natural and probable result of a prior Agreement,” (Compl., ¶ 8.) The resolution of the Conversion claim requires interpretation of the Agreement to demonstrate Plaintiff’s ownership of the payment due or Defendant’s disposition of the funds inconsistent with Plaintiff’s rights. Similarly, Plaintiff’s causes of action for Fraud and Negligence necessarily require interpretation of the Agreement to establish the elements of misrepresentation and standard of care. The Common Counts claim necessarily arises out the Agreement as Plaintiff seeks the return of its $132,789.32 payments received through the contracted credit card processing service. It is evident that these underlying disputes are all related to the Agreement and require interpretation of its terms.

Consequently, the Court concludes that the forum selection clause applies to Plaintiff’s claims.

“A mandatory forum selection clause ... is generally given effect unless enforcement would be unreasonable or unfair.” (Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 471.) “To be mandatory, a clause must contain language that clearly designates a forum as the exclusive one.” (Korman v. Princess Cruise Lines, Ltd. (2019) 32 Cal.App.5th 206, 215.)

“[T]he party opposing enforcement of a mandatory forum selection clause ordinarily bears a heavy burden to show enforcement would be unreasonable or unjust[.]” (Wimsatt v. Beverly Hills Weight etc. International Inc. (1995) 32 Cal.App.4th 1511, 1519-1520.)

Here, it is apparent that the forum selection clause is mandatory, as it employs the term “exclusive venue.”

Courts will not enforce a forum selection clause that “substantially diminish[es] the rights of California residents” or deprives “California resident[s]” of public policy protections. (EpicentRx, Inc. v. Superior Court (2023) 95 Cal.App.5th 890, 899-900 (EpicentRx), review granted.) “[T]he burden is reversed when the underlying claims are based on statutory rights the Legislature has declared to be unwaivable. In that instance, the party seeking to enforce the forum selection clause has the burden to show enforcement would not diminish unwaivable California statutory rights, otherwise a forum selection clause could be used to force a plaintiff to litigate in another forum that may not apply California law.” (Verugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 144.)

Plaintiff maintains that California courts will not enforce a contractual choice of law and venue as it conflicts with a fundamental policy of this state – specifically that the right to jury trial cannot be waived pre-dispute – warranting the application of burden shifting. (Opp’n., at 4.) Defendants posit that given the Supreme Court has now granted review of EpicentRx’s ruling, the Court should stay this case until the Supreme Court issues its review on this issue. (Reply, at 5.)

The order granting review specifically indicated that the EpicentRx opinion may be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456. (Cal. Rules of Court, rule 8.1115(e)(3).) The Court hereby exercises its discretion and finds EpicentRx persuasive.

In line with the ruling in EpicentRx, the Court concludes that enforcement of a forum selection clause that causes a litigant to waive their unwaivable rights to a jury trial, is in contravention of California public policy and will not be enforced.

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APRIL 22, 2024

Los Angeles Superior Court Case # 23CHCV01560

MOVING PARTY: Defendants AAA Merchant Services, Aimee Johnson, and CardConnect, LLC

RESPONDING PARTY: Plaintiff Golden Pro Insurance Services, Inc. (“Plaintiff”)

RELIEF REQUESTED: An order granting Defendants’ demurrer to Plaintiff’s first amended Complaint.[1]

On January 19, 2024, Defendants AAA Merchant Services, Aimee Johnson, and CardConnect LLC (later dismissed) (collectively, “Defendants”) filed their instant Demurrer (the “Demurrer”). Plaintiff filed its Opposition on April 4, 2024. Subsequently, on April 15, 2024, Defendants filed their Reply.

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) A general demurrer is proper, and typically used, where the plaintiff fails to allege “facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e); Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1004.)

“The sufficiency of a cause of action is evaluated by presuming all of the material factual allegations in the complaint are true.” (Aubry v. TriCity Hospital Dist. (1992) 2 Cal 4th 962, 966 – 967 (Aubry).) In ruling on a demurrer, a court may consider facts that are properly subject to judicial notice.” (Arroyo v. Plosay, 225 Cal. App. 4th 279.) In ruling on a demurrer, the allegations of the complaint must be liberally construed, with a view to substantial justice between the parties. (Glennen v. Allergan, Inc. (2016) 247 Cal.App.4th 1, 6.) Nevertheless, while "[a] demurrer admits all facts properly pleaded, [it does] not [admit] contentions, deductions or conclusions of law or fact." (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120, 135.) Additionally, “[a] complaint otherwise good on its face is subject to demurrer when facts judicially noticed render it defective.” (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.)

“It is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 103.) And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)” Aubry, supra, 2 Cal. 4th at 967.)

The Court may take judicial notice of the redacted Agreement pursuant to Evidence Code

section 452, subdivision (h). Section 452(h) provides that the Court may take judicial notice of

“[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate

and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code, § 452, subd. (h).)

Pursuant to Section 453 of the Evidence Code, the trial court “shall take judicial notice of any matter specified in Section 452 if a party requests it and: (a) Gives each adverse party sufficient notice of the request, through the pleadings or otherwise, to enable such adverse party to prepare to meet the request; and (b) Furnishes the court with sufficient information to enable it to take judicial notice of the matter. (Evid. Code, § 453.)

Defendants request the Court to take judicial notice of a redacted version of the Merchant Processing Application and Agreement and incorporated Program Guide (collectively, the “Agreement”). Defendants maintain that the Agreement should be considered in the stage of demurrer as Plaintiff refers to the Agreement in its Complaint.

The Court notes that the Complaint does not include a cause of action for breach of contract, nor does Plaintiff attach the Agreement verbatim. The allegations that Defendants refer to simply plead to the effect that Plaintiff “retained the credit card processing services” (see, e.g., Compl., ¶ 10), and “utilized the credit card processing services they had purchased from Defendants.” (see, Compl., ¶ 11.) These allegations may be inferred as to the existence of the Agreement; however, it is evident that the legal effect of the Agreement, including its terms and enforceability, is clearly in dispute, particularly in light of the fraud allegations.

The Evidence Code section 452 subdivision (h) only authorizes the Court to take judicial notice of “[f]acts and propositions that are not reasonably subject to dispute.” Consequently, the Agreement does not fall within the scope authorized by this section.

Therefore, the Court DENIES the request to take judicial notice of the Agreement.

Defendants seek to invoke the Choice of Law provision in the Agreement. Moreover, Defendants maintain that the outcome will be the same even if the California law is applied. (Dem., at 3, fn. 4.)

Since the Court has denied the request to take judicial notice of the Agreement, any provisions therein, including the Choice of Law, cannot to be considered by the Court in reviewing the Demurrer.

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are: (1) the plaintiff's ownership or right to possession of the property at the time of the conversion; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-452; see also Prakashpalan v. Engstrom, Lipscomb and Lack (2014) 223 Cal.App.4th 1105, 1135; PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.)

Defendants argue that Plaintiff does not and cannot establish the first element of conversion, namely the right to possession of the property at issue. (Dem., at 4.) Defendants reference a provision of the Agreement entered into by Plaintiff, arguing that the funds at issue were not immediately entitled to Plaintiff as they are subject to CardConnect's right to evaluate and establish a reserve account. (Dem., at 4.)

The Court turns to assess the sufficiency of pleading. In its Complaint, Plaintiff alleges that it retained Defendants’ credit card processing services based on Defendants’ representation that they would promptly credit the full payment due without delay.” (Compl., ¶ 11.) Plaintiff further pleads that it confirmed the immediate possession within a few days when utilizing Defendants’ credit card processing services, Defendant interfered with Plaintiff’s right to possession for $132,789.32 for many months.” (Id., ¶ 11-13.)

The Court finds that Plaintiff sufficiently pleaded the elements of the action. Defendants’ argument essentially disputes Plaintiff’s factual allegation of its right of possession, however, as the Court has explained previously, at the stage of demurrer, it is required to presume all the material factual allegations in the complaint as true (Aubry, supra, 2 Cal 4th at 966-967), without weighting or determining the credibility of conflicting evidence.

Moreover, Plaintiff acknowledges in its Opposition that Defendant CardConnect LLC has returned the last of the funds that it had been withholding “for many months.” (Compl., ¶ 11.) The Court notes that this development does not automatically render the Conversion claim moot, as the delay in releasing the funds may constitute conversion. (See Greif v. Sanin (2022) 74 Cal.App.5th 412, [The vendor committed conversion by delaying for almost two years to release purchaser’s funds deposited in escrow.])

Plaintiff acknowledges that this cause of action is now moot as CardConnect LLC has returned the last of the funds at issue.

Accordingly, the Demurrer as to the Second Cause of Action is SUSTAINED without LEAVE TO AMEND.

A claim for fraud must plead all of the following elements: (1) misrepresentation; (2)¿knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1332.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) Particularity requires facts that show how, when, where, to whom, and by what means the representations were tendered. (Lazar v. Superior Court (1996) 12¿Cal.4th 631, 645 (Lazar).)

The Complaint alleges that “[w]ithin the last 2 years, Defendants, AIMEE JOHNSON and AAA MERCHANT SERVICES, as the authorized agents of Defendants ... solicited credit card processing services from Plaintiff ... As part of their solicitation, they analyzed the payment history of Plaintiff ... and represented that Defendants ... would promptly be crediting the full payments due without delay.” (Compl., ¶ 9.)

Defendants argue that the Complaint lacks particularity as to the identification of individuals who made the representation. (Dem., at 6.) Defendants refer to paragraph 9 of the Complaint, as shown above, and point out that the Plaintiff uses “they” without naming specific individuals. (Ibid.) Contrary to Defendants’ argument, it is evident that Plaintiff’s Complaint names at least one individual Aimee Johnson in the same paragraph and identifies other parties. Thus, Defendants’ argument on this issue is unpersuasive.

Additionally, Defendants argue that Plaintiff does nothing to address the argument and law that Plaintiff’s alleged misrepresentations are directly contradicted by the terms of the Agreement, citing Martinian v. Olivier (2015) 2015 WL9702548, at 2. Notably, the Martinian Court considers a motion for summary judgment, which applies a different standard compared to the review of demurrer. As explained previously, the contradicting terms of the Agreement are not considered at this stage.

Defendants further argue that the level of requisite intent is not sufficiently stated in the Complaint. (Reply, at 3.)

The Court finds that the pleading regarding the element of Defendant’s knowledge of falsity is severely deficient. The Complaint merely asserts that “[Defendant] knew they were false when said representations were made.” (Compl., 27.) This allegation is speculative and amounts to a mere conclusion of fact, which must not be admitted in the review of a demurrer. (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1120, 135.)

Based on this, the Court SUSTAINS with LEAVE TO AMEND as to the Third Cause of Action.

The elements of a negligence cause of action are duty, breach of that duty, proximate cause, and damages. (Peredia v. HR Mobile Services, Inc. (2018) 25 Cal.App.5th 680, 687.)

Owing a duty of care to the plaintiff is an indispensable prerequisite to the imposition of liability for negligence. (Richards v. Stanley (1954) 43 Cal.2d 60, 63.) A duty is an “obligation, recognized by the law, requiring the actor to conform to certain standard of conduct, for the protection of others against unreasonable risks.” (Hilyar v. Union Ice Co. (1955) 45 Cal. 2d 30, 36-37.)

Defendants argue that Plaintiff failed to plead that the remaining Defendants AAA Merchant Services and Aimee Johnson owed a duty to Plaintiff, as they “were not Plaintiff’s ‘credit card services provider,’ CardConnect was.” (Dem., at 7.)

The Court agrees with Defendants and finds that the Complaint has not pleaded sufficient factual allegations to show AAA Merchant Services and Aimee Johnson owes a duty to Plaintiff. In its Opposition, Plaintiff does not respond to the argument on insufficiency, instead merely asserts that “[i]f the misrepresentation which forms the basis for the Fraud claim are found not to be intentional, then they were negligent, to wit, made with a failure to exercise reasonable care.” (Opp’n., at 6.) However, negligence and negligent misrepresentation are two distinct causes of action. Even though the pleading is liberally construed, such liberal construction does not justify creating a new cause of action that is not explicitly alleged in the Complaint.

Therefore, the Court SUSTAINS without LEAVE TO AMEND the Demurrer as to the Fourth Cause of Action.

Defendants’ Demurrer is SUSTAINED without LEAVE TO AMEND as to the Second Cause of Action - Common Counts, and the Fourth Cause of Action - Negligence.

Defendants’ Demurrer is SUSTAINED with LEAVE TO AMEND as to the Third Cause of Action - Fraud.

Plaintiff is ordered to file an amended Complaint as to the Fraud Cause of Action within 20 days.

Defendants’ Demurrer is OVERRULED as to the First Cause of Action - Conversion.

[1] The case files reveal that Plaintiff did not file a First Amended Complaint filed, but two Amendment to Complaint forms, correcting parties’ names. Thus, the original Complaint is operative.