Judge: Douglas W. Stern, Case: 22STCV35515, Date: 2023-09-14 Tentative Ruling

Case Number: 22STCV35515    Hearing Date: September 14, 2023    Dept: 68

Motion for Judgment on the Pleadings

Craig Caces vs. Malvina Ghawi, et al., 22STCV35515

Moving Party: Defendant Malvina Ghawi

Background

            Defendant Malvina Ghawi (Defendant) filed this motion for judgment on the pleadings, arguing that she cannot be held liable for the three causes of action for breach of written contract, fraud, and conversion because she was not a party to the loan agreement at issue in this case. Defendant argues that she signed the loan agreement on behalf of her LLC, The Ghaoui Group, LLC, and not as an individual.

            Plaintiff Craig Caces argues that his Complaint and its attachments sufficiently show that Defendant was a party to the relevant contract for purposes of a motion for judgment on the pleadings for the breach of contract claim. Further, he argues that Defendant is liable for the fraud cause of action because managers can be liable for their own tortious and fraudulent conduct, even when acting as a representative of an LLC. Finally, Plaintiff argues that the complaint sufficiently alleges that Defendant, individually, improperly retained the funds loaned by Plaintiff.

            Defendant argues in her reply that it is clear that she signed the loan agreement in her capacity as manager of the LLC, so she cannot be held liable as an individual. Next, Defendant argues that she cannot be held liable for fraud because she could not simultaneously make representations on her own behalf and on behalf of the LLC. Finally, Defendant argues that the cause of action for conversion fails because Plaintiff does not allege that Defendant ever possessed and/or controlled the funds in a personal capacity.

Analysis

            A motion for judgment on the pleadings has the same function as a general demurrer and, except as provided for CCP § 438, the rules governing demurrers apply. (See Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 999.)

A motion for judgment on the pleadings may be granted only when the “complaint does not state facts sufficient to state a cause of action against the defendant.” (CCP § 438 (c)(1)(B)(ii).) The grounds for the motion must appear on the face of the challenged pleading or from matters that may be judicially noticed. (CCP § 438 (d).)

A complaint is required only to “allege the ultimate facts necessary to the statement of an actionable claim.” (Careau & Co. v. Sec. Pac. Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1390.) The function of a demurrer is to test the legal sufficiency of those allegations, not the sufficiency of the evidence. (See Abari v. State Farm & Casualty Co. (1988) 205 Cal.App.3d 530, 534.)

1.      Breach of Contract Cause of Action

To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.)

While Plaintiff has alleged that a contract existed, that the contract was breached, and that there was resulting damage to Plaintiff, the dispute is whether Plaintiff has alleged that Defendant was a party to the contract in her individual capacity.  The Court also has the agreement as an Exhibit, and looks to it as well.

            The Complaint is clear in its insistence that Defendant individually was a party to the loan agreement. While the loan agreement itself, which was attached to the Complaint as Exhibit A, is ambiguous.

            The beginning of the Agreement reads as follows:

“THIS LOAN AGREEMENT (“Agreement”) is made and entered into as of February 28, 2021 (“Effective Date”) by, and between Loaner below including signature(s) on Schedule 1 namely Malvina Ghaoui of The Ghaoui Group LLC located in Granada Hills, CA ("Facilitator or Facilitator Parties"), are used interchangeably and mean the same and Craig Caces…”  (Comp., Ex. A, p. 1.)

The Agreement was alleged to have been drafted by Ghawi, not by Plaintiff.  (Comp. ¶ 7)  It is ambiguous.  It does not state that it is between The Ghaoui Group LLC and Craig Caces.  Instead it says that it includes Malvina Ghaouri of The Ghaoui Group LLC and Craig Caces.  Ghawi created the ambiguity as to whether she was a party to the agreement and the description merely identifies her affiliation, or whether she was only participating in her capacity as the signing member of The Ghaoui Group LLC.

            Motions for judgment on the pleadings, like demurrers, test the legal sufficiency of a complaint. Based on the facts alleged in the complaint and the ambiguous nature of the wording of the loan agreement, there are sufficient facts alleged to maintain a breach of contract cause of action against Malvina Ghaoui as an individual.

2.      Fraud Cause of Action

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.)

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Ct. (1996) 12 Cal.4th 631, 645.) “[E]very element of the cause of action for fraud must be alleged in full, factually and specifically.” (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331.) “This particularity requirement necessitates pleading facts which show how, when, where, to whom, and what means the representations were tendered.” (Lazar, 12 Cal.4th at 645.)

Plaintiff’s complaint alleges that on February 28, 2021, Defendant Ghawi, on her own behalf and on behalf of the LLC, promised that Defendants would return Plaintiff’s $100,000 loan to him within 120 days. (Comp., ¶ 23.) Defendant opposes this cause of action on the basis that she did not make this representation on her own behalf, but rather on the behalf of the LLC. However, the facts as alleged in the complaint are sufficient to maintain a cause of action for fraud because Plaintiff has alleged that Defendant made the representations on her own behalf. This is sufficient to survive a motion for judgment on the pleadings.  Further, even if Ghawi made the false statements on behalf of an entity, she may be held liable for her fraud.

“Directors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they participate in the wrong or authorize or direct that it be done. They may be liable, under the rules of tort and agency, for tortious acts committed on behalf of the corporation (3 Witkin, Summary of Cal.Law (7th ed. 1960) § 48(c), pp. 2342-2343; 13 Cal.Jur.2d, § 353; 19 C.J.S. Corporations § 845; Knepper (1969) Liabilities of Corporate Officers and Directors)”  United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595 [83 Cal.Rptr. 418, 423, 463 P.2d 770, 775]

3.      Conversion Cause of Action

Conversion is generally described as the wrongful exercise of dominion over the personal property of another. The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

Plaintiff has alleged that Plaintiff is entitled to the repayment of the $100,000 loan, Defendants have not returned the money as required by the loan agreement, and Plaintiff has been damaged as a result of this. These allegations are sufficient for Plaintiff to maintain a cause of action for conversion. Therefore, the cause of action survives the motion for judgment on the pleadings.

Order

            Defendant Malvina Ghawi’s motion for judgment on the pleadings is DENIED.