Judge: Elaine Lu, Case: 20STCV13619, Date: 2022-08-26 Tentative Ruling

Case Number: 20STCV13619    Hearing Date: August 26, 2022    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

On April 7, 2020, Plaintiffs John Kim and Elina Kim (jointly “Plaintiffs”) filed the instant products liability action.  On June 1, 2021, Plaintiffs filed the operative Second Amended Complaint (“SAC”) against defendants Vibrant K9, Inc. , Joe Powell, Krista Powell, OC Raw Dog, LLC, and OCPP, LLC. [1]  The SAC asserts five causes of action for: (1) negligent product liability; (2) strict product liability: failure to warn of defective condition; (3) breach of implied warranty (mislabeled as the “Fourth Cause of Action”); (4) breach of express warranty (mislabeled as the “Fifth Cause of Action”); (5) deceptive business practices (mislabeled as the “Sixth Cause of Action”).

            On March 18, 2022, Defendants Krista Powell and Joe Powell (collectively, “Movants”) filed the instant motion for summary adjudication as to the fifth cause of action for deceptive business practices. On August 12, 2022, Plaintiffs filed their opposition papers.  On August 19, 2022, Movants filed their reply papers.

Allegations of the Operative Complaint

            The SAC alleges as follows:

            Plaintiffs own a dog, and they received an order of dog food on October 27, 2019 from raw dog food provider, Vibrant K9. (SAC ¶¶ 15-16.) The order consisted of one (1) ten-pound bag of beef patties and one (1) ten-pound bag of turkey blend patties. (SAC ¶ 16.) At the time, Vibrant K9 was a business organization operating with a license to do business under the laws of the State of California operated by Joe and Krista Powell. (SAC ¶¶ 2-3.) The food was manufactured by OC Raw Dog, LLC and the food packaging refers to OCPP, LLC. (SAC ¶¶ 17-19.)

            On October 28, 2019, Plaintiffs fed their dog a defrosted turkey blend patty from the newly ordered dog food. (SAC ¶ 20.) On the following day, Plaintiffs’ dog began presenting symptoms of vomiting and lethargy, and he was taken to his local veterinarian. (SAC ¶ 21.) These symptoms persisted and grew worse over time.  Plaintiffs’ dog had to undergo surgery to correct the problem. (SAC ¶ 22-26.) No foreign bodies were found, and inflammation was present, which suggested an infection. (SAC ¶ 26.) After some tests were conducted on Plaintiffs’ dog, one test revealed the presence of salmonella. (SAC ¶ 31.) Further testing on the subject food confirmed the presence of salmonella. (SAC ¶¶ 32-33, 36.) In April 2021, Plaintiffs notified Vibrant K9 and the Powells of the issue with their product pursuant to Civil Code § 1782. (SAC ¶ 34.) The packaging failed to provide any warning about the potential for salmonella or any other bacteria, and it also failed to provide any warnings to dogs eating raw food. (SAC ¶ 37.)

Evidentiary Objections

Movants’ Evidentiary Objections

In reply, Movants object to the declarations of John Kim, Elina Kim and Jill Ryther.  The Court rules as follows:

1.      As to the Declaration of John Kim:

a.       Objection 1 to paragraph 3 of the declaration: Overruled.

b.      Objection 2 to paragraph 4 of the declaration: Overruled.

2.      As to the Declaration of Elina Kim:

a.       Objection 1 to paragraph 3 of the declaration: Overruled.

b.      Objection 2 to paragraph 4 of the declaration: Overruled.

3.      As to the Declaration of Jill Ryther:

a.       Objection 1 to paragraph 5 of the declaration: Overruled.

b.      Objection 2 to Exhibit 3 attached to the declaration: Overruled.

c.       Objection 3 to paragraph 6 of the declaration: Overruled.

d.      Objection 4 to paragraph 7 of the declaration: Overruled.

e.       Objection 5 to paragraph 8 of the declaration: Overruled.

f.        Objection 6 to paragraph 9 of the declaration: Overruled.

g.      Objection 7 to Exhibit 4 attached to the declaration: Overruled.

h.      Objection 8 to paragraph 10 of the declaration: Overruled.

i.        Objection 9 to Exhibit 5 attached to the declaration: Overruled.

j.        Objection 10 to paragraph 11 of the declaration: Overruled.

k.      Objection 11 to Exhibit 6 attached to the declaration: Overruled.

Undisputed Material Facts

Movants and Plaintiffs have each submitted Undisputed Material Facts, which the court will reference as “DMF” for Movants’ Undisputed Material Facts and “PMF” for Plaintiffs’ Undisputed Material Facts.

            Plaintiffs’ dog sustained injuries from consuming defective dog food sold by Movants in their individual capacity. (DMF 1, 6.)  On June 8, 2020, Movants incorporated their business and created Vibrant K9, Inc. to grow the business further and shield themselves from liability. (DMF 4-5; PMF 1-2, 4, 13-14.)  Movants are directors and officers of Vibrant K9, Inc. (PMF 3.) Movants’ duties have remained the same and the business is operating similarly as it was before incorporation. (PMF 7-8, 10-12, 21.) Thereafter, Movants only sold dog food through Vibrant K9, Inc. (DMF 7-9.) Since incorporated, Vibrant K9, Inc. has not experienced the anticipated growth. (PMF 5-6, 16-29.) On April 1, 2021, Plaintiffs served Movants’ counsel with a letter pursuant to Civil Code § 1782. (DMF 10.)  

Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial.  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)  CCP § 437c(c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

As to each claim as framed by the complaint, the defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element or to establish a defense.  (CCP § 437c(p)(2); Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520.)  Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.”  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

“If the defendant meets this burden, then the burden of production shifts to the plaintiff to establish the existence of a triable issue of material fact.  [Citation.]”  (Donohue v. AMN Services, LLC (2018) 29 Cal.App.5th 1068, 1077.)  “A triable issue of material fact may not be created by speculation or a ‘stream of conjecture and surmise.’  [Citations.]  Instead, the plaintiff must produce ‘substantial responsive evidence.’  [Citation.]”  (Miller v. Fortune Commercial Corp. (2017) 15 Cal.App.5th 214, 221.)  “There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.  [Citation.]’  [Citation.]”  (Gabrielle A. v. County of Orange (2017) 10 Cal.App.5th 1268, 1282.)

Judicial Notice

            Movants request the Court to take judicial notice of the Articles of Incorporation for Vibrant K9, Inc. The Court grants Movants’ request pursuant to Evidence Code § 452(h).

Discussion

            Movants move for summary adjudication solely as to the cause of action for deceptive business practices in violation of Civil Code § 1770, et seq. on the grounds that the CLRA notice letter was procedurally invalid and injunctive relief is improper against Movants because Movants do not operate the subject business in their individual capacity. (Notice of Motion at pg. 2.) The Court shall address each argument in turn.

Whether Plaintiffs’ CLRA Notice Letter Complied with Civil Code § 1782.

Movants argue that Plaintiffs’ deceptive business practice claim fails because Plaintiffs did not strictly abide by the notice requirement set forth under Civil Code § 1782. (Motion at pp. 6-7.)

Civil Code § 1782(a) provides in relevant part:

Thirty days or more prior to the commencement of an action for damages pursuant to this title, the consumer shall do the following:

(1) Notify the person alleged to have employed or committed methods, acts, or practices declared unlawful by Section 1770 of the particular alleged violations of Section 1770.

(2) Demand that the person correct, repair, replace, or otherwise rectify the goods or services alleged to be in violation of Section 1770.

(Civil Code § 1782(a).)

                The various unfair methods of competition and unfair or deceptive acts or practices identified under Civil Code § 1782(a) include “[r]epresenting that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.” (Id. at subd. (7).)

“The purpose of the notice requirement [Civil Code §1782] is to give the manufacturer or vendor sufficient notice of alleged defects to permit appropriate corrections or replacements.” (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 38.)

            Movants’ Burden

Movants assert that Plaintiffs’ CLRA Notice Letter failed to identify any alleged business practices or statements by Movants. (DMF No. 12; Notice of Lodging (“NOL”) Exhs. D-G.) Instead of identifying any false or misleading statements, representations, or actions by Movants, the letter stated: “Specifically, the Vibrant K9 Defendants provided defective food for dog consumption. In addition, to our knowledge, the Vibrant K9 Defendants have not reported the defective food to the USDA.” (DMF No. 11; NOL, Exhs. E-H.)

The CLRA prohibits the representation that goods have qualities or characteristics that they do not have or that they are of a particular quality or standard. (See Victor v. R.C. Bigelow. Inc. (N.D. Cal. 2014) 2014 U.S. Dist. LEXIS 34550 at pg. 64.) Plaintiffs’ notice letter fails to identify what representation Movants purportedly made. It is clear from the SAC that the subject dog food lacked sufficient warnings regarding the contamination of salmonella or other bacteria harmful to dogs. (SAC ¶ 37.) However, there is no claim that Movants represented that the subject dog food was free of any harmful bacteria.  Thus, the Court finds that Movants have met their burden.

Plaintiffs’ Burden

            In opposition, Plaintiffs argue that they provided sufficient notice under Code of Civil Procedure § 1782 because the letter identified that the subject dog food was defective. (Opposition at pp. 5, 17-18; Ryther Decl. ¶ 3, Exh. 1.) Plaintiffs reason that “defective food for dog consumption” is a violation of Civil Code § 1770 because the definition of “defective”—meaning “imperfect or fault” or “lacking or deficient”—implicated subdivision (a)(7). (Opposition at pg. 5; See Defective, OXFORD LANGUAGES, available at google.com.)  Plaintiffs further claim that Movants made the representation that their products was safe for dog consumption. (Elina Kim Decl. ¶ 3; John Kim Decl. ¶ 3.) Additionally, Plaintiffs assert that Movants have been aware of Plaintiffs’ claims and injuries since the inception of this lawsuit. (Opposition at pg. 18.)

            Plaintiffs’ argument is unpersuasive.  Plaintiffs fail to cite to any legal authority to support the assertion that the CLRA encompasses claims relating to defective products. Nor have Plaintiffs cited any authority to support their contention that Plaintiffs’ filing of a lawsuit and thereby placing defendants on notice of Plaintiffs’ claims excuses Plaintiffs from compliance with the notice requirement of Civil Code § 1782(a).  Moreover, the notice letter must identify the alleged business practice that is unlawful. (Ang v. Bimbo Bakeries USA, Inc. (N.D. Cal. 2013) 2013 U.S. Dist. LEXIS 138897, 40.)

            Because Plaintiffs have failed to meet their burden, the Court grants Movants’ motion for summary adjudication on this ground.

Whether Liability for Injunctive Relief Follows Movants After Incorporation

Movants also move for summary adjudication on the basis that Plaintiffs cannot seek injunctive relief against Movants because Movants no longer conduct their business in their individual capacity. (Motion at pg. 5.)

Movant’s Burden

            Movants sold dog food in their individual capacity before June 8, 2020. (NOL Exh. C [Joe Powell Decl.]; Exh. D [Krista Powell Decl.].) After Plaintiffs initiated this action, Movants incorporated their business to create Vibrant K9, Inc. on June 8, 2020 and stopped selling dog food in their individual capacity. (See RJN, Exh. A [Vibrant K9, Inc.’s Articles of Incorporation]; NOL Exh. C [Joe Powell Decl.]; Exh. D [Krista Powell Decl.].) Moreover, Plaintiffs lack evidence to show that Movants continue to sell dog food in their personal capacity. (See Plaintiffs’ responses to Movants’ requests for admissions no. 12; see also Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 590.) As a result, Movants reason that injunctive relief against them is inapplicable because they no longer sell dog food in their individual capacity, and the purpose of injunctive relief is to prevent future harms from an ongoing business. (See City of South Pasadena v. Department of Transportation (1994) 29 Cal.App.4th 1280, 1295-1296; see also Maldonado v. Fast Auto Loans. Inc. (2021) 60 Cal.App.5th 710, 717.)

Considering that Movants are now selling dog food exclusively through their legally formed corporation and have ceased selling dog food in their individual capacity, the Court finds that Movants have met their burden in showing that Plaintiffs’ claim for injunctive relief is inapplicable against them.

Plaintiffs’ Burden

In opposition, Plaintiffs contend that as a matter of law, liability follows a newly formed corporate entity even when the liabilities belonged to a sole proprietorship. (Opposition at pg. 14; see Cleveland v. Johnson (2012) 147 Cal. Rptr. 3d 772, 782–83; see also D.N. & E. Walter & Co. v. Zuckerman (1931) 214 Cal. 418, 419; Stanford Hotel Co. v. M. Schwind Co. (1919) 180 Cal. 348, 354; Thomson v. L.C. Roney & Co. (1952) 112 Cal.App.2d 420, 429.) In this instance, Plaintiffs argue that Vibrant K9, Inc. assumed the liabilities created by Movants’ sole proprietorship. (Opposition at pp. 18-19.) Furthermore, Plaintiffs assert that Movants’ intention behind incorporating their business was to shield themselves from liability, which implicates the alter ego theory of liability. (Opposition at pp. 20-21.)

In reply, Movants argue that Plaintiffs should be estopped from asserting an alter ego theory of liability because it was not alleged in the SAC, and thus, this new theory goes beyond the scope of the pleadings. (Reply at pp. 2-3, relying on Howard v. Omni Hotels Management Corp. (2012) 203 Cal.App.4th 403, 421 and Leek v. Cooper (2011) 194 Cal.App.4th 399, 406.) To succeed on an alter ego claim, a plaintiff must be able to show (1) such unity of interest that no separation actually exists, and (2) that the facts are “such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice.”  (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-915.)  “Conditions under which the corporate entity may be disregarded vary by circumstance, but courts often consider commingling of funds, personal use of corporate assets, inadequate corporate records, lack of employees, offices, or operating funds, and inadequate capitalization.”  (CADC/RADC Venture 2011-1 LLC v. Bradley (2015) 235 Cal.App.4th 775, 789.)   Generally, the determination of alter ego liability is a question of fact. (Virtualmagic Asia, Inc., vs. Fil-Cartoons, Inc. (2002) 99 Cal.App.4th 228, 245.)

There is a split in authority as to whether an alter ego theory of liability must be pleaded in the complaint. (Compare Auer v. Frank (1964) 227 Cal.App.2d 396, 403 [allowing a plaintiff to rely on an alter ego theory of liability even though it was not alleged in the complaint]; with Leek v. Cooper (2011) 194 Cal. App. 4th 399, 417.) In Leek, the Court of Appeals examined whether a sole shareholder of a corporation could be held accountable for the corporation’s alleged conduct in violation of the California Family Rights Act and FEHA under an alter ego theory of liability. (Leek, supra, 194 Cal. App. 4th 399, 406.) Acknowledging the split in authority, the Leek Court held that the procedural and factual circumstances required the plaintiff in Leek to assert its alter ego theory of liability in its complaint. (Leek, supra, 194 Cal. App. 4th 399, 413-415.) The Leek Court reasoned that is necessary for a defendant to be on notice of the allegations that are being asserted against the defendant and the remedies that plaintiffs seek. (Id. at pg. 415; Signal Hill Aviation Co. v. Stroppe (1979) 96 Cal.App.3d 627, 636.) The Leek Court relied primarily on cases where an alter ego theory needed to be sufficiently alleged at the pleading stage for jurisdictional purposes. (See Norins Realty Co. v. Consol. A. T.G. Co. (1947) 80 Cal.App.2d 879; Sheard v. Superior Court (1974) 40 Cal.App.3d 207.)

Under the circumstances of the instant action, the Court finds that Leek is not controlling because no jurisdictional issue is before the Court, and thus, Plaintiffs were not required to allege alter ego in the SAC before raising this issue in opposition to Movants’ motion for summary adjudication. Moreover, the SAC at least indirectly gives notice of Plaintiffs’ reliance on an alter ego theory by referencing that the defendants were acting through the scope of an agency relationship or a joint venture and alluding to a single enterprise.  (SAC. ¶ 10.)

            However, the Court finds that Plaintiffs’ evidence in support of a showing unity of interest is insufficient to raise a triable issue.

            To determine whether alter ego liability exists, the Court must consider several factors, including:  

[1] [c]ommingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses ...; [2] the treatment by an individual of the assets of the corporation as his own ...; [3] the failure to obtain authority to issue stock or to subscribe to or issue the same ...; [4] the holding out by an individual that he is personally liable for the debts of the corporation ...; the failure to maintain minutes or adequate corporate records, and the confusion of the records of the separate entities ...; [5] the identical equitable ownership in the two entities; the identification of the equitable owners thereof with the domination and control of the two entities; identification of the directors and officers of the two entities in the responsible supervision and management; sole ownership of all of the stock in a corporation by one individual or the members of a family ...; [6] the use of the same office or business location; the employment of the same employees and/or attorney ...; [7] the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization ...; [8] the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation ...; [9] the concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities ...; [10] the disregard of legal formalities and the failure to maintain arm's length relationships among related entities ...; [11] the use of the corporate entity to procure labor, services or merchandise for another person or entity ...; [12] the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another ...; [13] the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions ...; [14] and the formation and use of a corporation to transfer to it the existing liability of another person or entity.

(Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 512–13.) 

Plaintiffs primarily rely on evidence that ownership interests and certain aspects, such as business location, equipment and job duties, have remained the same (PMF 3, 9-11, 28-29; Ryther Decl. ¶ 4-5, Exhs. 2, 5; Joe Powell Depo. at pp. 31:7, 36:4-24, 50:6-25; Krista Powell Depo at pp. 22:20, 36:8-9, 40:3-5)  However, ownership is only one of many factors that can be considered and insufficient on its own for the court to disregard the corporate entity. (Meadows v. Emett & Chandler (1950) 99 Cal.App.2d 496, 499.)  Plaintiffs also argue that the Vibrant K9, Inc. has been experiencing losses in revenue. (PMF 30-35; Ryther Decl. ¶ 5, Exh. 3.) The mere fact that profits have declined following incorporation does not imply bad faith on Movants. This evidence does not show that Vibrant K9, Inc. is undercapitalized. “Bad faith in one form or another must be shown before the court may disregard the fiction of separate corporate existence.” (See Hollywood Cleaning & Pressing Co. v. Hollywood Laundry Service (1932) 217 Cal. 124, 129.) Thus, Plaintiffs have failed to present sufficient evidence to show that alter ego liability applies in this instance.

Accordingly, because Plaintiffs have failed to meet their burden, the Court grants Movants’ motion for summary adjudication on this additional ground.

CONCLUSIONS AND ORDER

Based on the foregoing, Defendants Krista Powell and Joe Powell’s motion for adjudication is GRANTED as to Plaintiffs’ cause of action for deceptive business practices in violation of Civil Code §§ 1770, et seq.

Moving parties are to provide notice of this order to all parties and to file proof of service of such.

DATED: August 26, 2022                                                      ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court