Judge Elaine W. Mandel, Case Number: 23SMCV01639, Date: 2023-09-13 Tentative Ruling

Judge: Elaine W. Mandel, Case: 23SMCV01639, Date: 2023-09-13 Tentative Ruling

Case Number: 23SMCV01639 Hearing Date: December 7, 2023 Dept: P

Tentative Ruling

Freeman, et al v. Williams, Case No. 23SMCV01639

Hearing Date December 7, 2023

Plaintiff/Cross-Defendant Freeman’s Demurrer to Cross-Complaint

Freeman and Williams created Metro Properties, LLC to invest in real estate. Freeman was the LLC’s majority member; Williams had a minority stake. Pursuant to Metro’s operating agreement, Williams was responsible for day-to-day operation. Freeman alleges Williams misappropriated funds and mismanaged properties. Williams’ cross-complaint alleges Freeman reduced his salary, took a salary of his own in violation of Metro’s operating agreement and interfered in Metro’s business, causing it to miss investment opportunities and lose profits. Freeman demurs to Williams’s cross-complaint.

Quantum Meruit/Breach of Oral Contract

A quantum meruit claim cannot proceed when there is an express oral contract covering the same subject matter. Hedgin Concepts, Inc. v. First All. Morg. Co. (1996) 41 Cal.App.4th 1410, 1419. A plaintiff is permitted at the pleading phase to plead inconsistent causes of action for breach of contract and quantum meruit in the alternative. Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1222-1223. To alternatively plead inconsistent claims for breach of contract and quasi-contract (e.g. unjust enrichment), the quasi-contract cause of action must deny the existence or enforceability of the earlier pleaded contract. Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1389.

Freeman argues the quantum meruit claim is subject to demurrer because the cross-complaint alleges a written contract. Although quantum meruit may be pleaded alongside a breach of a contract covering the same subject matter, the quantum meruit claim must “deny the existence or enforceability” of the earlier pleaded agreement. Klein, supra 202 Cal.App.4th at 1389-1390. Williams’ quantum meruit claim does not do so. SUSTAINED with ten days leave to amend as to quantum meruit.

Freeman argues the breach of oral contract cause of action is inconsistent with the breach of written contract cause of action, as Williams cannot sue based on two different contracts covering the same subject matter. Although Williams alleges a written contract containing a provision regarding compensation, he may plead a separate oral contract containing a different compensation provision. For pleading purposes, those allegations must be treated as true. OVERRULED on these grounds as to the oral contract cause of action.

Unjust Enrichment

Some California courts have held unjust enrichment is a principle of relief, not an independent cause of action. E.g. Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370. Other courts, including the Supreme Court, treat unjust enrichment as an independent cause of action. Hartford Casualty Ins. Co. v. J.R. Marketing LLC (2014) 61 Cal.4th 988, 995. Restitution based on unjust enrichment can be alleged when services were provided under an express contract that is void or rescinded. Rutherford Holdings, LLC (2014) 223 Cal.App.4th 221, 231.

Freeman argues the unjust enrichment claim is is subject to demurrer because it is not a recognized cause of action. While acknowledging the conflicting precedent, the court follows J.R. Marketing and treats unjust enrichment as an independent cause of action. OVERRULED.

Uncertainty

Freeman argues the claims for breaches of written contract, oral contract, breach of fiduciary duty and unjust enrichment are uncertain. The court agrees as to the contract claims. The breach of contract causes of action do not specify the term Freeman allegedly breached or how he breached it. Williams points to portions of the “general allegations”, which more set forth the contractual terms and Freeman’s alleged breach. Despite this clarification, the cross-complaint remains unclear. Williams must amend so Freeman can determine which background factual allegations support the breach of contract claims.

The breach of fiduciary duty cause of action alleges Freeman breached by “engaging in or refusing to engage in transactions on behalf of Metro that benefitted Freeman at the expense of Metro and its members[.]” Cross-complaint ¶100. This is sufficiently specific for pleading purposes. Williams alleged sufficient facts establishing a breach of fiduciary duty.

The unjust enrichment claim alleges Freeman “knowingly accepted and retained funds, payments, and benefits,” that he should not be permitted to keep. Cross-complaint ¶110. This is enough to survive demurrer.

SUSTAINED with ten days leave to amend as to the causes of action for breach of oral and written contract, OVERRULED as to the unjust enrichment and fiduciary duty claims.

Motion to Strike

Freeman argues paragraphs 42 and 45 should be struck because they relate to Freeman’s alleged failure to respond to an offer to buy buildings owned by Plaza Diamond Bar Partners, LLC. Freeman argues Williams lacks standing to make a claim based on damage to Plaza Diamond Bar. Similarly, he argues paragraphs 61, 67 and 83 allege conduct that did not damage Williams individually, so cannot support Williams’s individual claims. These are fact arguments, not properly made at the pleading stage. Williams alleges the conduct detailed in the challenged paragraph damaged Metro, violating the fiduciary duty Freeman allegedly owed to Williams. At the pleading stage, these allegations must be treated as true. DENIED.

Freeman argues some of the actions alleged are protected by the business judgment rule. The business judgment rule does not apply when there is bad faith or a conflict of interest. Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1045. Williams alleges Freeman acted in bad faith and was motivated by self-interest. Cross-complaint ¶¶42, 51. These allegations must be treated as true at the pleading stage. Whether the business judgment rule should apply is a question of fact, not properly decided at the demurrer phase. DENIED.

Finally, Freeman moves to strike Williams’ request for punitive damages. The cross-complaint states Freeman “acted willfully and with the intent to cause injury to Williams and in conscious disregard of Williams’s rights[.]” Cross-complaint at ¶103. This is conclusory. The cross-complaint must be amended to specifically identify conduct justifying punitive damages. GRANTED with ten days leave to amend.