Judge Frank M. Tavelman, Case EC068968 2023-02-03 Tentative Ruling

TENTATIVE RULING

February 3, 2023

The instant action arises from an alleged agreement between Jorge del la Garza (“Plaintiff”) and G.D. Baca Inc. dba Counterpoint Public Adjusting (“Counterpoint”), Gary Baca (“Baca”), Victor Cuahutemoc Pena (“Pena”), and Vic’s Restoration & Construction (“Vic’s) (collectively “Defendants”). Plaintiff alleges a series of contracts between himself and Defendants. Plaintiff alleges a first contract whereby Counterpoint would assess insurance claims on Plaintiff’s property. Plaintiff alleges that pursuant to that agreement, Counterpoint was to hold money received from Plaintiff’s insurance company and disburse as necessary to Vic’s. Plaintiff alleges a second contract exists between himself and Vic’s for the restoration of Plaintiff’s property. Plaintiff alleges that Counterpoint dispersed to Vic’s more than $182,000 of the $250,822.80 granted by Plaintiff’s insurance. Plaintiff alleges that Vic’s walked off the job leaving it incomplete and that the work completed was below standard.

Plaintiff filed his initial Complaint on July 2, 2018, and his First Amended Complaint (“FAC”) on May 16, 2019. The FAC alleges five causes of action: (1) Negligence, (2) Breach of Contract (as to Pena Defendants), (3) Breach of Contract (as to Baca Defendants), (4) Breach of Fiduciary Duty (as to Baca Defendants), and (5) Fraud. The Court notes the caption of the FAC incorrectly lists Breach of Fiduciary Duty as the 4^th cause of action and Fraud as the 5^th cause of action, while in the body of the FAC these are reversed such that Fraud is the 4^th cause of action and Breach of Fiduciary Duty is the 5^th cause of action. The Court relies on the order set forth in the body of the FAC, not in the caption.

The Court received the Motion for Judgment on the Pleadings filed by Counterpoint and Baca (collectively, “Baca Defendants”) on January 6, 2023. On January 12, 2023, Pena and Vic’s (collectively, “Pena Defendants”), together with non-party Old Republic Surety Company (“ORSC”) (collectively, “Joinders”), a named defendant in the related action Jorge De la Garza vs. Victor Cuahutemoc Pena, et al., Case No. 19STLC00228 (“Related Action”) filed a joinder to the motion. Plaintiff filed his opposition on January 23, 2023. On January 27, 2023, Baca Defendants and Joinders filed two separate replies.

Baca Defendants move for judgment on the pleadings as to all causes of action asserted against them in the FAC. Specifically, Baca Defendants move for judgment on the pleadings as to the 1^st (negligence), 3^rd (breach of contract), 4^th (breach of fiduciary duty), and 5^th (fraud) causes of action.

In their motion, Joinders move for judgment on the pleadings as to the 1^st (negligence), 2^nd (breach of contract), and 5^th (fraud) causes of action. The Court notes ORSC improperly moves for judgment on the pleadings as to causes of action not asserted against it, as ORSC is not a named defendant in the instant action.

The standard for judgment on the pleadings is essentially the same as that for a general demurrer, that is, under the state of the pleadings, together with matters that may be judicially noticed, it appears that a party is entitled to judgment as a matter of law. (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 321-322, citing Schabarum v. California Legislature (1998) 60 Cal.App.4th 1205, 1216)

When the moving party is a defendant, they must demonstrate either of the following:

(i) The court has no jurisdiction of the subject of the cause of action alleged in the complaint.

(ii) The complaint does not state facts sufficient to constitute a cause of action against that defendant. (C.C.P. § 438 (c)(1)(B)(i)-(ii))

C.C.P. § 439(a) requires that the moving party meet and confer with the party who filed the pleading that is subject to the motion for judgment on the pleadings at least five days before the date the responsive pleading is due, by telephone or in person, for the purpose of determining if the parties can resolve the objections to be raised in the motion. The moving party must file and serve a declaration detailing their meet and confer efforts.

Upon review of the record the Court finds that meet and confer requirements have been satisfied to code. (Sofris Decl., ¶ 3.)

Plaintiff alleges that Counterpoint is the alter ego of Baca, the promoter and sole shareholder of Counterpoint. Baca Defendants argue that no relationship has been alleged between Plaintiff and Baca to sustain any causes of action against Baca individually. Baca Defendants’ argument with respect to Plaintiff’s allegation that Baca is the alter ego of the company Counterpoint is not entirely clear.[1] In his opposition, Plaintiff restates that Counterpoint is the alter ego of Baca, and adds that facts obtained through discovery support this.

“Under the alter ego doctrine, then, when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation's acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523.) “The allegation that a corporation is the alter ego of the individual stockholders is insufficient to justify the court in disregarding the corporate entity in the absence of allegations of facts from which it appears that justice cannot otherwise be accomplished.” (Norins Realty Co. v. Consolidated Abstract & Title Guaranty Co. (1947) 80 Cal.App.2d 879.) “Mere ownership of all the stock and control and management of a corporation by one or two individuals is not of itself sufficient to cause the courts to disregard the corporate entity.” (Ibid.)

For Plaintiff to adequately allege Baca to be the alter ego of Counterpoint, he must allege facts supporting that treating Baca and Counterpoint separately would result in some injustice. The FAC contains no such allegations; Plaintiff simply asserts that Counterpoint is the alter ego of Baca because of his sole ownership. In opposition, Plaintiff argues that discovery has revealed Baca’s personal involvement with the alleged fraud, by virtue of assuring Plaintiff that Vic’s work would be completed satisfactorily and by failing to inform Plaintiff of the disbursements made to Vic’s. The Court does not find that these facts support the allegation that Baca utilized Counterpoint as a vehicle for fraud and that to treat Baca and Counterpoint as separate legal entities would result in injustice.

The Court finds that Plaintiff’ fails to state causes of action for Negligence, Breach of Contract, Breach of Fiduciary Duty, and Fraud as against Baca individually. The Court does not find that it would be impossible to allege alter ego, but Plaintiff would need to allege facts supporting that Baca utilized Counterpoint for the purpose of fraud and that separate treatment would create injustice. As such, the motion is GRANTED as to all causes of action against Baca individually with leave to amend, except for the cause of action for negligence which is GRANTED without leave to amend for reasons that will be discussed below.

Plaintiff’s cause of action for negligence is based on allegations that Counterpoint and Vic’s failed to use reasonable care in disbursing funds. Defendants argue that such claims are identical to Plaintiff’s cause of action for breach of contract, in that Plaintiff fails to allege a duty outside of a contractual relationship. “‘[A] contractual obligation may create a legal duty and the breach of that duty may support an action in tort.’ This is true; however, conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law.” (Erlich v. Menezes (1999) 21 Cal.4th 543.) Here, Plaintiff has asserted no theory of duty which operates independently of his claim for breach of contract.

Plaintiff argues in opposition that he should not be forced to select between inconsistent remedies before trial. However, Plaintiff makes no argument as to how a remedy for negligence and a remedy for breach of contract would be inconsistent. Plaintiff also argues that there is independent duty, stating that Baca violated his fiduciary duty to Plaintiff and induced Plaintiff via fraud. As will be discussed, the only fiduciary duty that Plaintiff has alleged here would necessarily arise from the contract between himself and Counterpoint/Vic’s. Further, Plaintiff does not cite any law supporting that an allegation of fraud, an intentional tort, can be used to create duty owed to Plaintiff in an action for negligence. Plaintiff has not alleged a duty owed to him that is independent of the contracts with G.D. Baca and Vic’s. As such, the Court finds that Plaintiff has failed to state a cause of action for negligence as against any defendant.

The Court finds Plaintiff is unable to amend the complaint in such a way to allege a duty entirely separate of that owed under his causes of action for breach of contract, fiduciary duty, or fraud to support his negligence cause of action. As such, Defendants’ motion for judgment on the pleadings as to the negligence cause of action is GRANTED without leave to amend.

To state a cause of action for breach of contract, Plaintiff must establish “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821)

If a breach of contract claim “is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.) “In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.’ [Citation.]” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489)

Defendants argue that the FAC does not properly allege a contractual relationship existed between the parties given Plaintiff failed to attach a copy of the contracts to the FAC and state whether the contracts were oral or written. Further, Defendants argue that FAC fails to allege the terms and conditions of any contracts between them. Plaintiff presents no argument in return, only stating that Baca and Counterpoint know the written and oral nature of the contracts made with Plaintiff.

The Court finds the allegations in the FAC insufficient to state causes of action for breach of contract against Pena Defendants and Baca Defendants. No copy of either contract has been attached and the FAC fails to plead with the appropriate specificity the legal effect of the alleged contracts. The FAC merely avers that Plaintiff and Counterpoint made a contract whereby the amount recovered from insurance would be held by Counterpoint and thereafter disbursed in the rebuilding of Plaintiff’s home. The FAC makes no factual allegations as to any specific conditions such as the percentage to be retained by Counterpoint, conditions of disbursement, or conditions regarding the work to be done. Similarly, the FAC states that Plaintiff and Vic’s entered into a contract for the restoration of Plaintiff’s home but makes no reference to any specific conditions of the work to be performed. Plaintiff may be able to allege facts sufficient to support his claim, either by attaching copies of the contracts or referencing the substantive terms with more specificity, but it has not done so here. As such, the Court GRANTS Defendants’ motion as to the 2^nd and 3^rd causes of action for breach of contract with leave to amend.

“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)

The elements of a fiduciary relationship are usually that: (1) one party entrusts its affairs, interests or property to another; (2) there is a grant of broad discretion to another, generally because of a disparity in expertise or knowledge; (3) the two parties have an “asymmetrical access to information,” meaning one party has little ability to monitor the other and must rely on the truth of the other party's representations; and (4) one party is vulnerable and dependent upon the other. (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375.) However, all contracts require the parties to rely on one another, and a fiduciary duty generally only occurs when one party’s vulnerability is so substantial as to give rise to equitable concerns. (Id.)

Plaintiff alleges Counterpoint breached its fiduciary duty owed to Plaintiff by disbursing funds improperly. The Court notes that none of the allegations with respect to breach of fiduciary duty specifically name Baca as the person in breach. It is usually the case that the directors of corporations, not corporations themselves, bear fiduciary duties. The Court presumes that the FAC treats Baca and Counterpoint as one in the same under the alter ego theory, though notes that this is not mentioned explicitly. Baca Defendants argue that the allegations of breach of fiduciary duty are lacking in that they do not allege a fiduciary relationship between Baca and Plaintiff. In opposition, Plaintiff merely reasserts that a fiduciary duty was breached when Baca disbursed the funds to Vic’s.

The Court finds that Plaintiff fails to allege a relationship between Baca and Plaintiff giving rise to a fiduciary duty. It may be that a fiduciary duty is owed to Plaintiff through the alleged contracts, but Plaintiff fails to allege facts speaking to any of the elements of the existence of a fiduciary duty or a breach thereof. Plaintiff must plead what created the fiduciary duty, by whom it was owed, and the extent of his reliance. As such, the Court GRANTS Defendants’ motion with respect to the 4^th cause of action for breach of fiduciary duty with leave to amend.

Plaintiff alleges Counterpoint and Vic’s had a conspiracy to defraud him, wherein Counterpoint would disburse money to Vic’s for services it either rendered poorly or did not render at all. Baca Defendants argue that the FAC does not contain sufficient facts to state a claim for fraud against them, specifically, that it lacks an allegation of an actual material misrepresentation that Counterpoint made to Plaintiff. Defendants also argue that the FAC fails to allege any facts which speak to Plaintiff’s justifiable reliance. Plaintiff argues in return that the FAC alleges in detail the conspiracy between Pena and Counterpoint.

The Court finds that the FAC lacks sufficient factual allegations in support of the fraud cause of action. The FAC lacks any detail as to how this alleged conspiracy came about, who the actors behind the conspiracy were, or when the conspiracy occurred. The FAC alleges a misrepresentation was made, but it contains no facts as to which individual working for Counterpoint specifically made this misrepresentation, when it was made, or to whom it was made. The FAC similarly includes no allegations as to which individual working for Vic’s specifically made a misrepresentation, when it was made, or to whom it was made. Further, the FAC does not state facts as to any defendant’s knowledge of falsity, simply stating that Counterpoint knew Vic’s intended to do substandard work. Plaintiff may be able to allege facts sufficient to support his claim, but it has not done so here. As such, the Court GRANTS Defendants’ motion with respect to the 5^th cause of action for fraud with leave to amend.

After a judgment on the pleadings is granted, the same standards apply in granting leave to amend as for demurrers and leave is routinely granted.¿¿(See C.C.P. §438(h); Virginia G. v. ABC Unified Sch. Dist.¿(1993) 15 Cal. App. 4th 1848, 1852.) In case of a demurrer, the Court determines whether there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318). When a plaintiff “has pleaded the general set of facts upon which his cause of action is based,” the court should give the plaintiff an opportunity to amend his complaint, since plaintiff should not “be deprived of his right to maintain his action on the ground that his pleadings were defective for lack of particulars.” (Reed v. Norman (1957) 152 Cal.App.2d 892, 900.) Accordingly, California law imposes the burden on the plaintiffs to demonstrate the manner in which they can amend their pleadings to state their claims against a defendant. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)

If leave to amend is granted, the party against whom the motion is granted must be given 30 days to file an amended pleading. (C.C.P. § 438(h)(2).)

Defendants contend in their reply that leave to amend should be denied with respect to any causes of action where the motion is granted. Defendants contend that Plaintiff has not shown that he can produce evidence which would cure the deficiencies in his complaint. The Court finds that, except for the claim for negligence, it is possible Plaintiff could cure the defects in the FAC. Plaintiff has 30 days in which to file an amended complaint pursuant to C.C.P. § 438(h)(2). As such, the Court acknowledges the February 6, 2023 trial date will likely need to be continued.

Defendants’ motion for judgment on the pleadings is GRANTED as to the first cause of action for Negligence without leave to amend. Defendants’ motion for judgment on the pleadings is GRANTED as to the second and third causes of action for breach of contract, fourth cause of action for breach of fiduciary duty, and fifth cause of action for fraud are GRANTED with leave to amend.

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records.

Defendants G.D. Baca Inc., Gary Baca, Vitor Cuahutemoc Pena, and Vic’s Restoration & Construction’s Motion for Judgment on the Pleadings came on regularly for hearing on February 3, 2023, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows:

THE MOTION FOR JUDGMENT ON THE PLEADINGS IS GRANTED AS TO THE FIRST CAUSE OF ACTION FOR NEGLIGENCE WITHOUT LEAVE TO AMEND.

THE MOTION FOR JUDGMENT ON THE PLEADINGS IS GRANTED WITH LEAVE TO AMEND AS TO THE SECOND AND THIRD CAUSES OF ACTION FOR BREACH OF CONTRACT, FOURTH CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY, AND FIFTH CAUSE OF ACTION FOR FRAUD.

[1] Defendants assert, “¶ 3 asserts that Defendant Gary Baca should be held personally liable for acts and omissions of GD Baca, Inc. as an alter-ego not because Defendant Gary Baca engaged in specific conduct that, if proven true, could cause him to be personally liable for GD Baca, Inc.’s financial obligations if GD Baca, Inc. was unable to pay its obligations.” It is unclear to the court what Defendants’ argument is, either from some typo or omission.

MP:	G.D. Baca Inc. dba Counterpoint Public Adjusting & Gary Baca (Defendants)
RP:	Jorge de la Garza (Plaintiff)