Judge Elaine Lu, Case 21STCV06977 2022-09-21 Tentative Ruling

On February 22, 2021, Plaintiffs Jurek Pilek, Yacht Solutions Worldwide, Inc. dba Scott B. Jones Yacht & Ship Brokers, Inc., and Scott B. Jones Yacht & Ship Brokers Int’l (collectively “Plaintiffs”) filed the instant breach of contract action. On March 25, 2022, Plaintiffs filed the operative Second Amended Complaint (“SAC”) against Defendants DR101, LLC (“DR101”) and Landon M. Ross (“Ross”) (jointly “Defendants”)[1]. The SAC asserts six causes of action for (1) Breach of Contract, (2) Common Count: Goods and Services Rendered (Quantum Meruit), (3) Intentional Misrepresentation, (4) Negligent Misrepresentation, (5) Action to Set Aside Constructive Fraudulent Transfer – No Reasonably Equivalent Value Received, and (6) Action to Set Aside Constructive Fraudulent Transfer – Insolvency.

On April 20, 2022, Defendants filed the instant demurrer. On September 8, 2022, Plaintiffs filed an opposition. On September 13, 2022, Defendants filed a reply.

Defendant DR101 is the alter ego of Defendant Ross. (SAC ¶¶ 13-16.) On June 1, 2015, Plaintiffs entered into a written agreement with Defendants for the right to sell Defendants’ Yacht. (SAC ¶¶ 17-18, Exh. 1.) The June 1, 2016 Listing Agreement provided for a 10% brokerage fee of the gross sale price of Defendants’ Yacht. (SAC ¶ 19, Exh. 1.) “Additionally, pursuant to the June 1, 2015 Listing Agreement, ‘[t]he sale, donation, trade or exchange of a majority of the stock, or equitable interest of a corporate or limited partnership holding title to vessel by Owner shall be construed as a sale for the purposes hereof.’” (SAC ¶ 19, Exh. 1.) In addition, the Listing Agreement provides that it “shall remain in effect until the yacht is sold unless cancelled by either party by giving the other party Thirty (30) days prior written notice of cancellation. This agreement shall remain in effect for 6 months. Upon cancellation or expiration, this Agreement will convert to an open non-exclusive listing.” (SAC ¶ 20.)

In emails that Plaintiffs and Defendants exchanged on September 22, 2015 and September 23, 2015, the parties agreed that Plaintiffs would be reimbursed for all expenditures Plaintiffs made in preparation of the Yacht for sale. (SAC ¶ 21, Exh. 2.)

On February 25, 2019, Defendants, Plaintiffs, and Don Smith “entered into a Purchase Agreement pertaining to the Yacht on February 24, 2019.” (SAC ¶ 22, Exh. 3.)

“In reliance on DEFENDANTS representations contained in the June 1, 2015 Listing Agreement, the September 22, 2015, and September 23, 2015 agreement, and the February 24, 2019 Purchase Agreement, PLAINTIFFS incurred substantial expenses preparing the Yacht for sale. PLAINTIFFS additionally performed significant work preparing the Yacht for sale. PLAINTIFFS made extensive repairs to practically every system of the Yacht including propulsion, electrical, plumbing, controls, decks, upholstery, and countertops. PLAINTIFFS made DEFENDANTS aware of these extensive repairs as they were occurring.” (SAC ¶ 24.) In addition, Plaintiffs incurred significant expenses and performed significant work marketing the Yacht. (SAC ¶ 25.) However, Defendants rendered the Yacht unmarketable and refused to transfer title of the Yacht because DR101 was embroiled in an internal dispute and inactive. (SAC ¶ 26.)

On March 14, 2019, Defendants transferred the Yacht to Chimney Hill Properties, LTD in a sham sale to avoid paying Plaintiffs. (SAC ¶ 27.) At some point afterwards, Defendants cancelled the outstanding agreements with Plaintiffs. (SAC ¶ 28, Exh. 4.)

“DEFENDANTS have refused to pay any money or reimbursements to PLAINTIFFS under the agreements between PLAINTIFFS and DEFENDANTS. DEFENDANTS’ failure to pay and reimburse PLAINTIFFS is a breach of the June 1, 2015 Listing Agreement and the September 22, 2015, and September 23, 2015 agreements between PLAINTIFFS and DEFENDANTS.” (SAC ¶ 30.)

In supplemental opposition, Plaintiffs request that the Court take judicial notice of:

2. California Secretary of Statement Business Search website history profile for DR101, LLC

As the court may take judicial notice of court and state records, (See Evid. Code, § 452(c),(d)), the unopposed requests for judicial notice are granted. However, the Court will not take judicial notice of the truth of assertions within. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal 3d 311, 318.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dep’t of Water & Power (2006) 144 Cal. App. 4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal. App. 4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Ct. (1984) 153 Cal. App. 3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, 147 Cal.App.4th at 747.)

A special demurrer for uncertainty, Code of Civil Procedure §430.10(f), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Ibid.)

Code of Civil Procedure section 430.41, subdivision (a) requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer¿in person or by telephone¿with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” The parties are to meet and confer at least five days before the date the responsive pleading is due and if they are unable to meet the demurring party shall be granted an automatic 30-day extension. (CCP § 430.41(a)(2).) The demurring party must also file and serve a declaration detailing the meet and confer efforts. (Id.¿at (a)(3).)¿ If an amended pleading is filed, the parties must meet and confer again before a demurrer may be filed to the amended pleading. (Id.¿at (a).)

Defendants contend that the first cause of action for breach of contract is uncertain because it improperly combines multiple contracts together.

“The cause of action is based on the injury to the plaintiff, not on the legal theory or theories advanced to characterize it. Thus, if a plaintiff states several purported causes of action which allege an invasion of the same primary right he has actually stated only one cause of action. On the other hand, if a plaintiff alleges that the defendant's single wrongful act invaded two different primary rights, he has stated two causes of action, and this is so even though the two invasions are pleaded in a single count of the complaint.” (Skrbina v. Fleming Companies (1996) 45 Cal.App.4th 1353, 1364.)

Here, the SAC alleges the existence of three separate written contracts. The first is the June 1, 2015 Listing Agreement under which Defendants would receive 10% of the gross sale price for the Yacht. (SAC ¶ 19, Exh. 1.) The second agreement is the September 22, 2015 and September 23, 2015 email exchange in which Defendants agreed to compensate Plaintiffs for expenditures spent on repairing the Yacht, “[s]o long as [Plaintiffs] send [Defendants] the [receipts] now instead of later.” (SAC, Exh. 2.) Finally, the SAC alleges a third contract in which “DEFENDANTS, PLAINTIFFS, and a buyer of the Yacht, Mr. Don Smith, entered into a Purchase Agreement pertaining to the Yacht on February 24, 2019.” (SAC ¶ 22, Exh. 3.) The SAC alleges Defendants have breached these three agreements by refusing to pay any money to reimburse Plaintiffs and by failing to pay the 10% of the gross sale price when the Yacht was transferred to Chimney Hill Properties, LTD. on March 14, 2019. (SAC ¶¶ 27, 30.)

Though they all involve the same Yacht, each of the three contracts was created at different times and could only be breached by different conduct. Despite the allegations that the contracts were breached by the same conduct, the written contracts clearly indicate otherwise. “[F]acts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.” (Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)

The June 1, 2015 List Agreement states that the Yacht would only be listed for a selling price of $445,000.00 and that Defendants would pay 10% of the agreed gross sale price if the vehicle was sold during the term of the List Agreement. (SAC, Exh. 1 at ¶¶ 1, 3.) The Listing Agreement also specifically states that “[Plaintiffs] will make reduced advertising rates available to the owner for special advertising, if desired. [Plaintiffs] shall be obligated to advertise the yacht for sale at broker’s expense.” (SAC, Exh. 1 at ¶ 6, [italics added].) There is no allegation that any special advertising was conducted or even requested. Finally, Defendants agreed to pay the 10% gross sale price fee for one year after termination of the agreement if Defendants sold the Yacht to a party which Plaintiffs submitted during the term of the Listing Agreement. (SAC, Exh. 1 at ¶ 7.) However, the Listing Agreement, by its own terms, expired six months after execution and became a non-exclusive listing. (SAC, Exh. 1 at ¶ 5.)[2]

Based on these terms, the June 1, 2015 Listing Agreement could not have been breached by Defendants’ failure to reimburse expense for the work marketing the Yacht. (See SAC ¶ 45.) As noted above, the Listing Agreement provided that Plaintiffs were obligated to advertise the Yacht at their expense. (SAC, Exh. 1 at ¶ 6.) Moreover, the Listing Agreement is silent as to reimbursement for preparing the Yacht for Sale. Thus, any breach of the June 1, 2015 List Agreement could not arise from the failure to reimburse for expenses preparing the yacht for sale as alleged. (See SAC ¶ 45.) Finally, the Listing Agreement could not have been breached by virtue of the transfer of the Yacht to Chimney Hill Properties, LTD. Because the Listing Agreement had expired by its own terms nearly four years before this transfer, and there is no allegation that Plaintiffs presented Chimney Hill Properties, LTD. as a potential seller.

The second agreement, the Reimbursement Agreement memorialized in the September 22, 2015 and September 23, 2015 emails, specifically notes that Defendants agreed to reimburse Plaintiffs for money spent for the electrician “[s]o long as [Plaintiffs] send [Defendants] [the receipts] now instead of all later.” (SAC, Exh. 2.) Thus, this agreement could have been breached by Defendants’ failure to reimburse Plaintiffs for the expenses incurred in preparing the Yacht for sale. (SAC ¶ 45.) However, this Reimbursement Agreement is silent as to the commission for selling the Yacht. Thus, the Reimbursement Agreement could not have been breached by virtue of the transfer of the Yacht to Chimney Hill Properties, LTD. as alleged. (See SAC ¶ 45.)

In contrast, the February 24, 2019 Purchase Agreement specifically provides that if Defendants materially breach the agreement, “[Defendants] shall also be liable to [Plaintiffs] and any cooperating broker for the full amount of their commissions and any advances made on behalf of Seller.” (SAC ¶ 23, Exh. 3 at ¶ 12(b).) Thus, unlike the prior agreements, the Purchase Agreement could have been violated by the failure to reimburse and by the failure to pay Defendants the 10% gross sale price commission. (SAC ¶ 45.) However, this agreement could not have been breached by the transfer of the Yacht to Chimney Hills Properties, LTD as alleged. (See SAC ¶ 45.)

Given that each of these three contracts includes different terms, requires performance of different conduct and were made at different times, Plaintiffs’ conflating and combining of the allegations into one cause of action renders the first cause of action uncertain. As pled, there is no indication as to what Plaintiffs claim is the alleged breach as to each contract. Thus, as pled, Defendants cannot reasonably admit or deny the claims raised against them. Accordingly, Defendants’ demurrer for uncertainty to the first cause of action is SUSTAINED.

Defendants’ additional claim that the SAC is uncertain because it alleges that Defendants owned the Yacht when only Defendant DR101 is the record owner, (SAC ¶ 17; Request for Judicial Notice “RJN” Exh. 1), is without merit. The SAC alleges that Defendant DR101 is the alter ego of Defendant Ross. (SAC ¶¶ 13-16.) “An alter ego defendant has no separate primary liability to the plaintiff. Rather, plaintiff's claim against the alter ego defendant is identical with that claimed by plaintiff against the already-named defendant. [¶] A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural, i.e., to disregard the corporate entity as a distinct defendant and to hold the alter ego [defendant] liable on the obligations of the corporation where the corporate form is being used by the [defendant] to escape personal liability, sanction a fraud, or promote injustice.” (Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1358–1359.) Therefore, under the alter ego doctrine for a breach of contract, the plaintiff has multiple procedural options available. “The first option is to sue the alter ego directly in an action for breach of contract, … Another is to first obtain a judgment for breach of contract against the signatories to the contract, followed by a motion to amend the judgment to add the alter egos as defendants.” (MSY Trading Inc. v. Saleen Automotive, Inc. (2020) 51 Cal.App.5th 395, 402.) Accordingly, the allegation that Defendants owned the Yacht is clear in that liability flows from the alter ego allegations. In fact, the SAC specifies that DR101 was the owner of title. (See SAC ¶ 26.) Alleging that Defendants both owned the Yacht does not make the first cause of action uncertain, and Defendants can reasonably determine the basis for liability – i.e., through the alter ego claim.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Goodman v. Kennedy, supra, 18 Cal.3d at p.348; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.)

Here, the allegations can be easily amended by separating out what alleged conduct breached each of the three alleged contracts. Therefore, the court finds it is proper to allow Plaintiffs an opportunity to cure the defects discussed in this order. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037.)

Based on the foregoing, Defendant DR101, LLC and Landon M. Ross’ demurrer is SUSTAINED WITH LEAVE TO AMEND as to the First Causes of Action.

Plaintiffs are to file an amended complaint within ten (10) days of notice of this order.

[1] The SAC does not name defendant Chimney Hills Properties, LTD. Thus, it appears that Plaintiffs are no longer pursuing any claims against Chimney Hills Properties, LTD.

[2] The Court notes that the Listing Agreement appears somewhat ambiguous as it provides that “[t]his agreement shall remain in effect until the yacht is sold unless cancelled by either party giving the other party Thirty (30) days prior written notice of cancellation. This agreement shall remain in effect for 6 months. Upon cancellation or expiration, this Agreement will convert to an open non-exclusive listing.” (SAC, Exh. 1 at ¶ 5.) The Listing Agreement further provides that the 10% owed for a sale to a buyer that Plaintiffs presented applies for one year following “termination.” (SAC, Exh. 1 at ¶ 7.) The use of cancellation, expiration, and termination without explanation or distinction appears to have some ambiguity. This ambiguity must be construed against Plaintiffs as the agreement clearly indicates that Plaintiffs drafted the Listing Agreement. (Victoria v. Superior Court (1985) 40 Cal.3d 734, 739 [“ambiguities in standard form contracts are to be construed against the drafter.”].) Thus, the Court construes these terms as interchangeable as they are used in the agreement.

Superior Court of California

County of Los Angeles

Department 26