Judge: Elaine W. Mandel, Case: 22STCV34993, Date: 2023-08-07 Tentative Ruling

Case Number: 22STCV34993    Hearing Date: August 7, 2023    Dept: P

Tentative Ruling

Terry Harkham v. Efrem Harkham, et al., Case No. 22STCV34993

Hearing Date August 7, 2023

Defendants’ Demurrer to and Motion to Strike Portions of Plaintiff’s Second Amended Complaint

In 1994/1995 plaintiff Terry Harkham allegedly entered a business partnership with his brother Efrem Harkham to operate a luxury hotel, contributing 12.5% of the capital to purchase the property. Terry allegedly acted as a partner in the business for decades, contributing capital, participating in meetings and receiving distributions. The court uses first names of the various Harkham parties for ease of reference.

Terry alleges Efrem and his son Aron deny his status as partner, refusing to distribute profits from the hotel’s sale and preventing him from inspecting books and records. Terry also alleges Efrem and Aron engaged in self-dealing, taking out loans against the hotel for their own benefit and using companies under their control to siphon Terry’s funds out of the partnership. Efrem, Aaron and the corporate/LLC defendants demurred to the first amended complaint (FAC).

The court overruled the demurrer to the FAC in part and sustained it in part with leave to amend. Efrem, Aaron and the corporate/LLC defendants now demur to the second amended complaint (SAC.)

Breach of Contract

Defendants argue the breach of contract claim is alleged against non-parties to the contract. The SAC identifies “the Contributing Partners, including Efrem Harkham, the Afalos, Ben Harkham, and Plaintiff[,]” as parties. SAC ¶95. The breach of contract claim is alleged against Efrem Harkham, Summit Hospitality and Rodeo LLC. Summit and Rodeo are not parties to the contract, and the complaint does not set forth any basis for non-party liability.

Defendants argue plaintiff has not adequately alleged the contract’s terms. The SAC alleges “[p]laintiff would make monetary contributions in exchange for a 12.5 percent int erest in the Partnership. The contract terms also provided . . . that [p]]laintiff . . . was entitled to a 12.5 percent share of all proceeds from hotel and retail operations[.]” SAC ¶¶97. This is an adequate allegation of the material terms.

Defendants also argue the contract is alleged to be “partially written, partially oral, and partially implied-in-fact[.]” SAC. The allegation renders the breach of contract cause of action uncertain—it is not clear which contractual provisions were written, which were oral and which were implied, nor is the nature of the conduct that created the implied terms of the contract identified. This is too uncertain. SUSTAINED with ten days leave to amend. 

Fraud   

Fraud claims must be pleaded with a higher level of particularity. Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979, 993. A plaintiff must plead facts showing “how, when, where, to whom, and by what means” the alleged false representations were made. Lazar v. Superior Ct. (1996) 12 Cal.4th 631, 645. This requirement is relaxed when the allegations “indicate that the defendant must necessarily possess full information concerning the facts of the controversy,” or “when the facts lie more in the knowledge of the defendant.” Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1008.

Defendants argue plaintiff failed to allege fraud with sufficient particularity. Plaintiff alleges “in 1994 through 1995. . . Efrem represented both orally and in writing that plaintiff would receive in exchange for such contributions a 12.5 percent interest in the partnership[.]” SAC ¶106. The SAC alleges dates Efrem solicited capital from plaintiff, assuring him that he would recognize plaintiff’s 12.5 percent interest in the partnership. Id. ¶108. The SAC identifies dates Efrem made distributions to plaintiff, allegedly concealing his intention to oust plaintiff once the property was sold. Id. ¶110. These allegations are sufficiently specific to set forth a claim for fraud against Efrem.

The SAC does not allege any direct misrepresentations made by defendant Aron. It alleges only that he sent an email to plaintiff’s son Simon Harkham, who is not a party to this action. SAC ¶114.

The demurrer also argues the fraud claims are barred by the three-year statute of limitations. The SAC alleges plaintiff had no basis to doubt Efrem’s representations regarding his partnership interest until 2022, when defendants sold the property and allegedly refused to share proceeds. SAC ¶117.

Finally, defendants argue the fraud claim impermissibly seeks to “tortify” the breach of contract claim, framing ordinary breaches of contract as of fraud. A plaintiff may not recover in tort for breaches of duties that arise solely out of contractual obligations. Aas v. Superior Ct. (2000) 24 Cal.4th 627, 643. Plaintiff here alleges an independent non-contractual duty: the duty to refrain from injuring others via intentional misrepresentations. SUSTAINED with ten days leave to amend as to defendant Aron. OVERRULED as to defendant Efrem.

Aiding and Abetting Breach of Fiduciary Duty

The knowledge and acts of individuals alleged to own and control an entity are imputed to that entity. Peregrine Funding, Inc. v. Sheppard Mullen Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 679.

Defendants argue plaintiff does not specify how each defendant allegedly aided and abetted the breach, lumping them all together. Plaintiff alleges “Efrem and Aron caused Rodeo LP, through its general partners, Summit Hospitality and Rodeo LLC, to manipulate and falsely report earnings of the Partnership, the Property, and the Luxe Rodeo for years in order to reduce Plaintiff’s distributions and steal plaintiff’s distributions for themselves.” SAC ¶142. This adequately alleges specific conduct constituting aiding and abetting. OVERRULED.

Penal Code §496

Under Penal Code §496(c), plaintiff can recover treble damages in an action against a party who knowingly buys, receives, conceals or withholds stolen property. A claim under §496(c) requires plaintiff to allege criminal intent, which can be shown when defendants act “not inadvertently, but with careful planning and deliberation[.]” Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 362.

Defendants argue plaintiff has not adequately pleaded criminal intent. The SAC does not clearly allege careful planning and deliberation to intentionally steal money from plaintiff. SUSTAINED without leave to amend.

Breach of the Implied Covenant of Good Faith and Fair Dealing

Because, as stated, plaintiff has not adequately pleaded a contract, the cause of action for breach of the covenant of good faith and fair dealing fails. SUSTAINED with ten days leave to amend.

Accounting

Defendants argue an accounting is not available against entities other than Rodeo LP. This cause of action is alleged only against Rodeo LP, so the demurrer fails. OVERRULED.  

Motion to Strike

Delayed Discovery/Statute of Limitations

Defendants’ motion to strike operates as a second demurrer. The motion argues plaintiff’s claims are time-barred and delayed discovery is not sufficiently alleged. These arguments are more properly made on demurrer. As the court held in its ruling on the prior motion to strike, plaintiff adequately alleged delayed discovery, setting forth facts indicating he had no basis to doubt his stake in the partnership until 2022, when defendants allegedly refused to share the proceeds of the property’s sale. SAC ¶47, 53, 105. DENIED.

Replacement Property Defendants/Conspiracy

Defendants move to strike six of the limited liability companies plaintiff names as defendants on the grounds they did not exist at the time of the 2022 hotel sale. Defendants argue the SAC fails to set forth a cause of action against these defendants. This is an improper attempt to use a motion to strike as a second demurrer. The attempt to strike plaintiff’s conspiracy allegations is similarly deficient. DENIED.

Benjamin Harkham Settlement Allegations

Finally, defendants move to strike portions of the SAC referring to Benjamin Harkham’s settlement discussions in a related case. These allegations are irrelevant and, as they refer to privileged settlement discussions, improper. GRANTED.

Punitive Damages

Plaintiff adequately alleges fraud against Efrem, so the request for punitive damages against Efrem is proper. Plaintiff has not alleged fraud, malice, or oppression against defendants. The request for punitive damages against other defendants is improper. DENIED as to Efram; GRANTED with ten days leave to amend as other defendants.