Judge Elaine Lu, Case Number: 22STCV23538, Date: 2024-02-08 Tentative Ruling

On July 21, 2022, Plaintiffs Blue Pine Construction Corp. (“Blue Pine”), Jay Tallon (“Jay”)[1], Linda Dorothy Tallon (“Linda”), and Jennifer Tallon-Miranda (“Jennifer”) (collectively “Plaintiffs”) filed the instant fraud action against Defendants Blaise Hilton (“Hilton”) and Russell Square Consulting, Inc., (“Russel Square”) (jointly “Defendants”). On January 19, 2023, the Court sustained with leave to amend Defendants’ demurrer to the complaint in part as to the first cause of action for fraud, second cause of action for fraud, fourth cause of action for breach of fiduciary duty, fifth cause of action for conversion, sixth cause of action for civil extortion, ninth cause of action for intentional interference with prospective economic advantage, and eleventh cause of action for equitable indemnity.

On February 21, 2023, Plaintiffs filed a first amended complaint against Defendants. The first amended complaint asserted eleven causes of action for (1) Fraud, (2) Fraud, (3) Breach of Implied Covenant of Good Faith and Fair Dealing, (4) Breach of Fiduciary Duty, (5) Conversion, (6) Civil Extortion, (7) Defamation, (8) Intentional Interference with Prospective Economic Advantage (Jackson Square), (9) Intentional Interference with Prospective Economic Advantage (Employees), (10) Unfair Competition (B&P § 17200), and (11) Equitable Indemnity. On July 6, 2023, the Court sustained Defendants’ demurrer to the first amended complaint without leave to amend as to the sixth cause of action for civil extortion and ninth cause of action for intentional interference with prospective economic advantage and with leave to amend as to the second cause of action for fraud (false promise), fifth cause of action for conversion, and eleventh cause of action for equitable indemnity. (Order 7/6/23.)

On August 2, 2023, Plaintiffs filed the operative Second Amended Complaint (“SAC”) against Defendants. The SAC asserts eight causes of action for (1) Fraud – Intentional Misrepresentation, (2) Fraud – False Promise, (3) Breach of Implied Covenant of Good Faith and Fair Dealing, (4) Breach of Fiduciary Duty, (5) Defamation, (6) Intentional Interference with Prospective Economic Advantage (Jackson Square), (7) Unfair Competition (B&P § 17200), and (8) Equitable Indemnity. The first through fifth and eighth causes of action are against only Defendant Hilton. The remaining claims are against both Defendants.

On September 5, 2023, Defendants filed the instant demurrer to the SAC. On January 26, 2024, Plaintiffs filed an opposition. On February 1, 2024, Defendants filed a reply.

In early 2017, Hilton and Jay agreed to form Blue Pine – a construction business --together. (SAC ¶ 10.) “Hilton represented that there would be a 30% profit margin.” (SAC ¶ 10.) “Hilton was also the majority shareholder of Blue Pine and owned 60% of Blue Pine's stock shares at all relevant times.” (SAC ¶ 10.) “Hilton failed to properly manage and operate the business and affairs of Blue Pine, misappropriated corporate assets, stole business and employees from Blue Pine for his own benefit, and lied about the financial status of Blue Pine prior to leaving the corporation in order to induce the remaining shareholders of Blue Pine to purchase his shares in the corporation.” (SAC ¶ 11.)

“Until Hilton resigned from Blue Pine in December 2020, Hilton was in complete control of Blue Pine's finances. Hilton was the one who priced all the jobs for Blue Pine. Hilton managed and controlled all the expenses for Blue Pine, and oversaw all of the personnel who performed the construction work on behalf of Blue Pine.” (SAC ¶ 12.)

“Hilton mismanaged Blue Pine's finances and caused Blue Pine to accrue significant debt it could not afford. Hilton also concealed and/or made material misrepresentations about the financial status of Blue Pine to [Jay] and the other Blue Pine shareholders.” (SAC ¶ 13.)

The majority of Blue Pine’s business came from Jackson Square Properties, LLC. (SAC ¶ 14.) Jackson Square Properties, LLC would routinely pay Blue Pine money for jobs not yet completed which Hilton would then take to pay other people. (SAC ¶ 14.) “Hilton would also take money from one construction project and spend it on other projects.” (SAC ¶ 14.)

“Hilton represented to [Jay], and Hilton and [Jay] agreed, that Russell Square [Hilton’s wholly owned business] would assist in Blue Pine's construction business, in that Russell Square would handle the work necessary prior to breaking ground on a construction project (e.g., obtaining permits, hiring architects and contractors), and then Blue Pine would perform the construction from the ground up as well as all maintenance, rehabilitation, and upgrade work for Jackson Square properties.” (SAC ¶ 15.)

“Hilton separated from Blue Pine in or around December 2020. At that time, Hilton resigned from Blue Pine and sold all of his shares in the corporation to the remaining shareholders of Blue Pine. To that end, in December 2020, Blue Pine and Hilton entered into a Stock Repurchase and Separation Agreement (the ‘Agreement’), in which Hilton sold all of his shares of company stock to Blue Pine in exchange for the cancellation of a $189,887.97 debt Hilton owed to Blue Pine. ... The other stockholders of Blue Pine, including [Jay] and Jennifer, were also parties to the Agreement.” (SAC ¶ 16, Exh. A.)

“After Hilton left Blue Pine, Hilton wanted to use some of Blue Pine's employees to perform work for Jackson Square.” (SAC ¶ 18.) “Based on his close relationship with Jackson Square, Hilton threatened to pull all of the Jackson Square jobs that Blue Pine had under contract if Blue Pine did not rent out Blue Pine's employees to Hilton and Russell Square for Hilton’s and Russell Square's own benefit. Since Jackson Square jobs constituted approximately 90% of Blue Pine’s business, Blue Pine had no other choice but to agree to Hilton’s demands and allowed Hilton to use Blue Pine’s employees to its detriment.” (SAC ¶ 18.) “Hilton ultimately took all of Jackson Square's business away from Blue Pine, that otherwise would have gone to Blue Pine, as well as several Blue Pine employees, thereby resulting in the demise of Blue Pine.” (SAC ¶ 19.)

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 “give the complaint a reasonable interpretation, and read it in context.” (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) 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.)

Code of Civil Procedure § 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).)

Here, Defendants have fulfilled the meet and confer requirement. (Mullins Decl. ¶ 2.)

Defendants contend that the second cause for fraud (false promise) and the eighth cause of action for equitable indemnity fail.

Defendants contend that the second cause of action for false promise fails to allege reasonable reliance on Defendant Hilton’s representations.

“To maintain an action for deceit based on a false promise, one must specifically allege and prove, among other things, that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promisee to do or not do a particular thing. [Citations.] Given this requirement, an action based on a false promise is simply a type of intentional misrepresentation, i.e., actual fraud.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159.) “The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.)

“Fraud allegations ‘involve a serious attack on character’ and therefore are pleaded with specificity. [Citation.] General and conclusory allegations are insufficient. [Citation.] The particularity requirement demands that a plaintiff plead facts which ‘‘‘show how, when, where, to whom, and by what means the representations were tendered.’’’ [Citation.]” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) Moreover, “[e]ach element of a fraud count must be pleaded with particularity so as to apprise the defendant of the specific grounds for the charge and enable the court to determine whether there is any basis for the cause of action[.]” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231.)

Defendants argue that the promissory fraud cause of action is barred as a matter of law by virtue of the following language in the Agreement between the parties: “[t]he parties hereto acknowledge and agree that except as may be authorized in writing signed by Hilton and or his affiliates (collectively, the ‘Hilton Parties’), as applicable, and the Company, there is no set agreement or expectations between the Hilton Parties and the Company for future business, and that while the Hilton Parties or the Company may involve the other in future business, each may operate freely.” (SAC, Exh. A at ¶ 8(c).)

The interpretation of a contract is a judicial function. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126, citation omitted.) In engaging in this function, the trial court “give[s] effect to the mutual intention of the parties as it existed” at the time the contract was executed. (Ibid., citing Civ. Code, § 1636.) Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract’s terms. (Ibid., citing Civ. Code, § 1639.) Extrinsic evidence is admissible to interpret an agreement when a material term is ambiguous. (Ibid., citations omitted.) However, the Court cannot resolve any ambiguity on a demurrer.

Here, the SAC alleges that “on or about November or December 2020, Hilton orally promised to [Jay] in numerous phone calls that Russell Square would assist in Blue Pine’s construction business. Specifically, [Hilton] promised that Russell Square would handle the work necessary prior to breaking ground on a construction project, and then Blue Pine would perform the construction from the ground up as well as the rehabilitation, maintenance and upgrades to Blue Pine's existing clients, but in particular and of critical importance, Jackson Square.” (SAC ¶ 27.) “Hilton knew that when he made the promise to [Jay] regarding working with Blue Pine that this promise was false and that he had no intention of honoring it.” (SAC ¶ 28.) “Hilton made the promise with the intent that [Jay], Blue Pine, and Blue Pine’s other shareholders would rely on the promise to induce them to enter into the Agreement.” (SAC ¶ 29.) “[Jay], Blue Pine, and Blue Pine's shareholders did rely on this promise to their detriment and to the ultimate demise of Blue Pine by, among other things, entering into the Agreement with Hilton.” (SAC ¶ 30.) The SAC asserts that Jay, Blue Pine, and Blue Pine’s reliance on Hilton’s false oral promises were reasonable “because Jackson Square was virtually Blue Pine's only client, and the Agreement would have been illusory if there was no promise that Hilton and Russell Square would help Blue Pine with Jackson Square projects. It was also reasonable to rely on Hilton's promise to continue working with Blue Pine on the projects that Hilton had been heavily involved in on Blue Pine's behalf.” (SAC ¶ 30.)

The Court finds that these allegations are sufficient to state that Plaintiffs relied on Hilton’s oral promise. Moreover, the attached Agreement is not directly contrary to this assertion. (See Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627, [“[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.”] [bold and italics added].)

The language of the Agreement quoted above, upon which Defendants rely, does not – at least not as a matter of law -- vitiate Plaintiff’s allegations of reliance. First, the cited language of the Agreement is neither sufficiently clear nor sufficiently broad to constitute an unequivocal integration and anti-reliance clause. The provision upon which Defendants rely does not state that it supersedes all negotiations, agreements and understandings among the Parties with respect to the subject matter of the Agreement. Nor does the Agreement purport to constitute the entire agreement among the Parties with respect to the subjects covered by the Agreement. Instead, the language is quite narrow and somewhat ambiguous: “[t]he parties hereto acknowledge and agree that except as may be authorized in writing signed by Hilton and or his affiliates (collectively, the ‘Hilton Parties’), as applicable, and the Company, there is no set agreement or expectations between the Hilton Parties and the Company for future business, and that while the Hilton Parties or the Company may involve the other in future business, each may operate freely.” (SAC, Exh. A at ¶ 8(c), [bold and underline added].) The Agreement does not define the term “future business.” Under common terminology, the term “future business” may reasonably be understood to address future transactions -- such as with new clients. The Agreement is not necessarily contradictory to the alleged promise to continue working under a pre-existing agreement to work on the Jackson Square properties, which was not a new or “future” business endeavor. (SAC ¶ 30.)

Defendants contends that the eighth cause of action for equitable indemnity fails because there is no alleged joint obligation, which is necessary to support a claim for indemnity.

“[I]ndemnity refers to ‘the obligation resting on one party to make good a loss or damage another party has incurred.’ ” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.) “There are two basic types of indemnity: express indemnity, which relies on an express contract term providing for indemnification, and equitable indemnity, which embraces ‘traditional equitable indemnity’ and implied contractual indemnity.” (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 573.) “ ‘ “The elements of a cause of action for [equitable] indemnity are (1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is ... equitably responsible.” ’ [Citation.] ” (C.W. Howe Partners Inc. v. Mooradian (2019) 43 Cal.App.5th 688, 700.)

“ ‘The basis for the remedy of equitable indemnity is restitution. “ ‘ “[O]ne person is unjustly enriched at the expense of another when the other discharges liability that it should be his responsibility to pay.” ’ ” [Citations.] [¶] California common law recognizes a right of partial indemnity under which liability among multiple tortfeasors may be apportioned according to the comparative negligence of each.’ [Citation.] The test for indemnity is thus whether the indemnitor and indemnitee jointly caused the plaintiff's injury.” (AmeriGas Propane, L.P. v. Landstar Ranger, Inc. (2010) 184 Cal.App.4th 981, 989, [italics added].)

As the Supreme Court has noted, “[i]t is not sufficient, for purposes of indemnification, for a defendant simply to claim someone else caused all or part of the plaintiff's damages. To state a claim for indemnification, a defendant must allege that the same harm for which he may be held liable is properly attributable—at least in part—to the alleged indemnitor.” (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1127 [superseded by statute on other grounds as noted in Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854 Fn. 19.].) “If a defendant believes the plaintiff's injuries were the result of a different harm altogether, he may argue the point to the jury and escape liability if successful. Absent some claim of mutual liability for the same harm, however—under joint-and-several or vicarious liability principles, for example—an indemnification action will not lie.” (Ibid.)

Here, the SAC alleges that “Hilton's actions proximately caused the damages, if any, alleged against Blue Pine in several lawsuits : (i) The Sherwin-Williams Company v. Blue Pine Construction Corp, et al. (Sacramento County Superior Court Case No. 34-2021-00306439), (ii) Villara Corporation v. MB Mission Villas et al. (San Joaquin County Superior Court Case No. STK-CV-LBC-2021- 11525), (iii) Prairie Electric, Inc. v. Blue Pine Construction Corp et al. (Superior Court for Clark County, Washington, Case No. 21-2-01912-06), (iv) A&A Developers, Inc. v. Blue Pine Construction Corp. (Alameda County Superior Court Case No. 22CV020430).” (SAC ¶ 63.)

“[I]n the lawsuit filed by A&A Developers, A&A seeks damages against Blue Pine and [Jay] for alleged failure to pay monies due on two contracts, which Blue Pine purportedly entered in August 2019, for work A&A purportedly completed in 2019 (one year prior to Hilton's departure from Blue Pine). Hilton was in charge of Blue Pine's finances and financial records at all times relevant to the A&A complaint, and he negotiated the contracts and pricing on behalf of Blue Pine. Plaintiffs are informed and believe that Hilton intentionally, or at a minimum negligently, underbudgeted with respect to the contracts on which the A&A complaint is based, and Blue Pine was unable to pay the amounts allegedly due under the contract due to Hilton's underbudgeting of the projects and mismanagement of Blue Pine. The A&A Complaint has also named Hilton as a defendant and claims that he was an alter ego of Blue Pine at the times relevant to the complaint and makes joint allegations against Hilton and Blue Pine. … Hilton also underbudgeted the A&A projects and misrepresented to A&A the cost required for the projects.” (SAC ¶ 64 [italics added].)

“In the lawsuit filed by Sherwin Williams, Sherwin Williams seeks damages against Blue Pine and [Jay] for alleged failure to pay monies due under a contract allegedly entered in May 2019, whereby Blue Pine purportedly agreed to buy goods on credit from Sherwin Williams. Hilton was in charge of Blue Pine's finances and financial records at all times relevant to the Sherwin Williams Complaint, and he negotiated the contracts and pricing on behalf of Blue Pine. Plaintiffs are informed and believe that Hilton intentionally, or at a minimum negligently, underbudgeted with respect to the projects on which the Sherwin Williams contract was based, and Blue Pine was unable to pay the amounts allegedly due under the contract due to Hilton's underbudgeting of the projects and mismanagement of Blue Pine.” (SAC ¶ 65.)

“In a cross-complaint filed in the Sherwin Williams case, ARA Woodlands, JSP Woodlands, TC Woodlands, and CG Woodlands (collectively ‘Woodlands’), brought a lawsuit against Blue Pine and Plaintiffs for failure to complete work on certain projects. Hilton was in charge of Blue Pine's finances and financial records at the times relevant to the Woodlands' claims, and he negotiated the contracts and pricing on behalf of Blue Pine with respect to Woodlands' projects. Plaintiffs are informed and believe that Hilton intentionally, or at a minimum negligently, underbudgeted with respect to those projects, and as a result Blue Pine was unable to complete those projects due to Hilton's underbudgeting of the projects and mismanagement of Blue Pine.” (SAC ¶ 66.) “Woodlands further allege in their cross-complaint that Plaintiffs fraudulently transferred money to themselves, including that Plaintiffs purportedly transferred money to themselves for their own personal benefit. On information and belief, the Woodlands' claims are based on false statements by Hilton to Woodlands similar to those made to Jackson Square as alleged in Plaintiffs' defamation count.” (SAC ¶ 67.)

“In the lawsuit filed by Villara, Villara seeks damages against Blue Pine for alleged failure to pay monies due under a contract allegedly entered in November 2020. Hilton was in charge of Blue Pine's finances and financial records during the time of contracting, and he negotiated the contracts and pricing on behalf of Blue Pine. Plaintiffs are informed and believe that Hilton intentionally, or at a minimum negligently, underbudgeted with respect to the contract on which the Villara complaint is based, and Blue Pine was unable to pay the amounts allegedly due under the contract due to Hilton's underbudgeting of the project and mismanagement of Blue Pine.” (SAC ¶ 68.)

“In the lawsuit filed by Prairie Electric, Prairie Electric seeks damages against Blue Pine for alleged failure to pay monies due under a contract allegedly entered in September 2020. Hilton was in charge of Blue Pine's finances and financial records during the time of contracting, and he negotiated the contracts and pricing on behalf of Blue Pine. Plaintiffs are informed and believe that Hilton intentionally, or at a minimum negligently, underbudgeted with respect to the contract on which the Prairie Electric complaint is based, and Blue Pine was unable to pay the amounts allegedly due under the contract due to Hilton's underbudgeting of the project and mismanagement of Blue Pine.” (SAC ¶ 69.)

In each of these cases for which Plaintiffs seek equitable indemnity, Plaintiffs allege that the plaintiffs in the underlying actions – A&A, Sherwin Williams, Villara, and Prairie Electric – all seek damages against Blue Pine for failing to pay money under contracts entered into by Defendant Hilton on behalf of Blue Pine. (SAC ¶¶ 64-65,68-69.) In the A&A case, Hilton is the alleged alter ego of Blue Pine, and Hilton faces joint and several liability in the alleged breach of contract claim with Blue Pine. (SAC ¶ 64.) Moreover, Plaintiffs allege that Hilton’s mismanagement of Blue Pine was the cause of Plaintiffs’ inability to pay A&A under the contract. (SAC ¶ 64.)

A claim for indemnity requires that the prospective indemnitor and indemnitee are jointly and severally liable to the plaintiff in the underlying claim. (Heritage Oaks Partners, supra, 155 Cal.App.4th at p.348, [“‘unless the prospective indemnitor and indemnitee are jointly and severally liable to the plaintiff there is no basis for indemnity.’ [Citations.]”].) Here, the SAC identifies both that Hilton and Blue Pine are jointly liable to A&A and that Hilton is at fault. It is immaterial whether Plaintiffs otherwise state a valid claim for equitable indemnity based on the other actions because a “demurrer does not lie as to a portion of a cause of action and if any part of a cause of action is properly pleaded, the demurrer will be overruled.” (Elder v. Pacific Bell Telephone Co. (2012) 205 Cal.App.4th 841, 856, Fn. 14.)

Based on the foregoing, Defendants Blaise Hilton and Russell Square Consulting, Inc.’s demurrer to the second amended complaint is OVERRULED.

[1] As multiple plaintiffs have the same last name, the Court will refer to the individual plaintiffs by first name without any intent of disrespect to any of the parties.

County of Los Angeles

Department 26