Judge Deborah C. Servino, Case 30-2019-01115068 2022-09-02 Tentative Ruling

Judge: Deborah C. Servino, Case: 30-2019-01115068, Date: 2022-09-02 Tentative Ruling

Defendants Galardi Group Franchise Corporation and Galardi Group Franchise & Leasing LLC’s demurrer to Plaintiffs Hooman Nissani and Playa Vista Weinerschnitzel’s First Amended Complaint (“FAC”) is sustained with 15 days leave to amend.

Breach of Contract

The first cause of action is for breach of contract. (FAC, at pp. 3-4.) “The elements of a cause of action for breach of contract are: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” (Coles v. Glaser (2016) 2 Cal. App. 5th 384, 391.)

A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated by reference—or by its legal effect, i.e., by alleging the substance of its relevant terms. (Construction Protective Servs., Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198–199; Heritage Pac. Fin., LLC v. Monroy (2013) 215 Cal.App.4th 972, 993 [alleging substance of contract's relevant terms is more difficult because it requires careful analysis of instrument, comprehensiveness in statement, and avoidance of legal conclusions]; Miles v. Deutsche Bank National Trust Company (2015) 236 Cal.App.4th 394, 401-402.)

Here, Plaintiffs have not alleged the legal effect of the Franchise Agreement and Addendum. Plaintiffs allege that in 2016, Plaintiffs and Defendants entered into a series of contracts related to the opening of a potential Wienerschnitzel franchise which included the following: (1) Advertising Association Agreement; (2) Franchise Agreement; (3) Addendum to the Franchise Agreement; and (4) Promotional Allowance Assignment Agreement. (FAC, at ¶ 6, Exhs. A and B.) The main contract, the Franchise Agreement, is not attached to the FAC. The FAC also does not allege all of the material terms of the Franchise Agreement. Rather, Plaintiffs attempts to plead the legal effect of the contract.

Specifically, Plaintiffs allege that the Franchise Agreement was entered into by and among Galardi Group Franchise Corp., Galardi Group Franchise & Leasing, LLC and Hooman Nissani. (FAC, at ¶ 7.) It appears both Plaintiffs bring this claim. The allegations, however, assert that only Plaintiff Nissani was a party to the contract(s). (See FAC, at ¶¶ 6-7, Exhs. A and B.) “The Franchise Agreement provides a grant of a license to “use the Trademarks and the Wienerschnitzel System to operate a Wienerschnitzel Restaurant.” (Section 1 of Franchise Agreement) The term of the license was for 20 years after the opening of the franchise location. (Section 4 of Franchise Agreement).” (FAC, at ¶ 7.) Plaintiffs allege that the Franchise Agreement was improperly cancelled by Defendants on December 2, 2016 when Defendants’ agent Ted Milburn informed Plaintiffs via an email that Defendants refused to honor their obligations under the Agreements. (FAC, at ¶ 10.) “In particular, Mr. Milburn’s email states that the Galardi Group Franchise Corp. is not interested in ‘4-part food concept in a convenience store environment’ and is canceling the Agreements. Yet, the very same concept had been discussed with Defendants from the outset of the relationship”. (FAC, at ¶ 10.)

Plaintiffs have not properly alleged their claim. Plaintiffs specifically allege that the Franchise Agreement provides a grant of a license to use the Trademarks and the Wienerschnitzel System to operate a Wienerschnitzel Restaurant. (FAC, at ¶ 21.) In contrast, the allegation of breach is that Defendants refused to open and operate with the Wienerschnitzel name a “4-part food concept in a convenience store environment”. (FAC, at ¶ 15.) The allegation that the parties had discussed a four-part food concept in a convenience store environment is not the equivalent of an agreement between the parties. In other words, Plaintiffs do not allege that the legal effect of the Franchise Agreement and Addendum was to permit operation of a four-part concept in a convenience store. Accordingly, Plaintiffs have not stated a claim for breach of contract. Thus, the demurrer as to this cause of action is sustained with 15 days leave to amend.

Fraud

The second cause of action is for fraud. (FAC, at pp. 4-5.) “ ‘ “Promissory fraud” is a subspecies of fraud and deceit. 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.’ ” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973−974, internal citations omitted; Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 481; CACI no. 1902.)

Fraud allegations must be pleaded with more detail than other causes of action. (Heritage Pac. Fin., LLC v. Monroy (2013) 215 Cal.App.4th 972, 989 [policy of liberal construction of pleadings does not apply to fraud causes of action].) The facts constituting the fraud, including every element of the cause of action, must be alleged “factually and specifically,” i.e., the plaintiff must plead facts showing the defendant's misrepresentation (or omission that the defendant had a duty to disclose), the defendant's knowledge of falsity (“scienter”), the defendant's intent to defraud (i.e., to induce the plaintiff's reliance on the misrepresentation), the plaintiff's justifiable reliance, and the resulting damage. (Kalnoki v. First Am. Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 35; Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1498, [promissory fraud claim must also be alleged with particularity].) The plaintiff must plead facts that show how, when, where, to whom, and by what means the false representations were made; when the defendant is a corporation, the plaintiff must also allege the names of the persons who made the representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Kalnoki v. First Am. Trustee Servicing Solutions, LLC, supra, 8 Cal.App.5th at p. 35.)

Here, the FAC alleges that Defendants Galardi Group Franchise Corp., Galardi Group Franchise & Leasing, LLC and Plaintiff Nissani entered into a series of written agreements, including the Franchise Agreement, in 2016. (FAC, at ¶¶ 6-7, 20.) Plaintiffs allege that Defendants never intended to perform. (FAC, at ¶ 22 [“Yet, Defendants’ promises to provide the franchises license for twenty (20) years were false . . . .”].) “Defendants had no intention to honor the Franchise Agreement. Said lack of intent is evidenced by Defendants pretextual reason for not continuing with the Agreements. Defendants and Plaintiffs had discussed ‘4-part food concept in a convenience store environment’ extensively prior to the execution of the Agreements.” (FAC, at ¶ 23.)

Here, fraud was not pled with specificity. Plaintiffs do not indicate for instance, who made the agreement to allow a four-part food concept in a convenience store environment, how that agreement was made (orally or in writing), and when that agreement was made relative to the signing of the Franchise Agreement. Thus, the demurrer as to this cause of action is sustained with 15 days leave to amend.

Defendants shall give notice of the ruling.

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