Judge Gail Killefer, Case 22STCV30056 2023-03-16 Tentative Ruling

MOTIONS: Defendant’s Demurrer to the First Amended Complaint; Defendant’s Motion to Strike Plaintiff’s First Amended Complaint

TENTATIVE: Defendant’s demurrer is sustained. As the demurrer has been sustained, Defendant’s motion to strike is now moot. Plaintiff is granted 30 days leave to amend. Defendant Tellez is to give notice.

This action arises in connection with the sale, financing, and leasing of Defendant Throgmortons’ Frame Clinic, Inc. (“Frame Clinics”), a business entity operating in California. David M. Throgmorton (“Plaintiff”) entered into an agreement with Defendant Tellez for the purchase of the Frame Clinics business on September 1, 2021 (“Purchase Agreement”). On September 1, 2021, Plaintiff and Tellez also entered into a Promissory Note (“Promissory Note”) regarding the purchase of the business, and a commercial leasing agreement (“Lease”) pertaining to the premises located at 2414 Connor Avenue, Commerce, CA 90040 (“Premises”). The Complaint alleges Defendants abandoned the Premises on August 31, 2022, with an unpaid rent balance and monies owed pursuant to the agreements between the parties.

On December 16, 2022, Plaintiff filed the operative First Amended Complaint. (“FAC”) The FAC alleges eight causes of action as follows: (1) breach of contract (Lease); (2) breach of contract (Promissory Note); (3) breach of contract (Purchase Agreement); (4) fraud in the inducement; (5) conversion; (6) violation of Penal Code § 496; (7) restitution of benefits unjustly received/retained; (8) unfair business practices (Business & Professions Code §17200).

Tellez now demurs to the entirety of the FAC. Tellez also moves to strike portions of the FAC. Plaintiff opposes both motions.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (CCP § 430.30(a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) The court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . .” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525 (Berkley).) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (CCP § 452; see also Stevens v. Sup. Ct. (1999) 75 Cal.App.4th 594, 601.) “When a court evaluates a complaint, the plaintiff is entitled to reasonable inferences from the facts pled.” (Duval v. Board of Trustees (2001) 93 Cal.App.4th 902, 906.)

The general rule is that the plaintiff need only allege ultimate facts, not evidentiary facts. (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “All that is required of a plaintiff, as a matter of pleading, even as against a special demurrer, is that his complaint set forth the essential facts of the case with reasonable precision and with sufficient particularity to acquaint the defendant with the nature, source and extent of his cause of action.” (Rannard v. Lockheed Aircraft Corp. (1945) 26 Cal.2d 149, 156-157.) “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Ins. Agency, Inc. (2017) 14 Cal.App.5th 841, 848, fn. 3, citing Lickiss v. Fin. Indus. Regulatory Auth. (2012) 208 Cal.App.4th 1125, 1135.) In addition, even where a complaint is in some respects uncertain, courts strictly construe a demurrer for uncertainty “because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

Demurrers do not lie as to only parts of causes of action where some valid claim is alleged but “must dispose of an entire cause of action to be sustained.” (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) “Generally it is an abuse of discretion to sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)

A cause of action for¿breach of contract consists of four elements: (1) the existence of a contract; (2) the plaintiff’s performance or excuse for nonperformance; (3) the defendant’s breach; and (4) the resulting damages to the plaintiff.¿ (Oasis West Realty, LLC v. Goldman¿(2011) 51 Cal.4th 811, 821.)¿“The essence of a contract is the meeting of minds on the essential features of the agreement.” (Krasley¿v. Superior Court¿(1980) 101 Cal.App.3d 425, 431.) A contract “is unenforceable if the parties fail to agree on a material term or if a material term is not reasonably certain.” (Lindsay v. Lewandowski¿(2006) 139 Cal.App.4th 1618, 1623.)¿

A¿written¿contract must be pled verbatim in the body of the complaint, be attached to the complaint and incorporated by reference, or be pled according to its legal effect.¿¿(Bowden v. Robinson¿(1977) 67 Cal.App.3d 705, 718.)¿¿An allegation of an oral agreement must “set[] forth the substance of its relative terms.”¿ (Gautier v. General Tel. Co.¿(1965) 234 Cal.App.2d 302, 305.)¿¿¿

Here, Defendant Tellez contends the first three causes of action for breach of contract for the three agreements between the parties, the Purchase Agreement, the Promissory Note, and the Lease agreement, are insufficiently pled and fail as a matter of law because the attached documents do not show Tellez as a contracting party who agreed to undertake financial obligations as part of these agreements. (Demurrer, 5-8.) In particular, Tellez references paragraph 1 of the Lease Agreement and paragraph 14(h) of the Purchase Agreement, to show the agreements between the parties did not impose these obligations onto Tellez as an individual. (Id.)

“1. Landlord [Plaintiff] is the sole owner if the real property known as Throgmorton’s Frame Clinics, Inc., located at 2414 Conner Avenue, Commerce, CA 90040. Landlord desires to sell the business to Jack Tellez III, and to lease the real estate to Tenant [Tellez], who will be the new owner and operator of Throgmorton’s Frame Clinics, Inc., with an option to buy. ... The financial obligations in this lease shall be obligations of Throgmorton’s Frame Clinics, Inc., and not personal obligations of Jack Tellez III.” (FAC, Exh. C, ¶1.)

14. Purchaser [Tellez] represents and warrants to Seller [Plaintiff] the following:

h. Purchaser shall have no personal liability for the monetary payments set forth in this Agreement; any such obligations shall be, after the closing date, Throgmorton’s Frame Clinics, Inc.’s sole obligations.” (FAC, Exh. A, ¶14.)

Defendant further contends that the Promissory Note, while incorporated as an exhibit to the FAC, “is not a stand-alone agreement but in fact an agreement that is a part of the Purchase Agreement. This is further evident considering the expressed terms of the Exhibit A of the FAC and the same amounts contained in the Purchase Agreement and the Promissory Note.” (Dem., 6-7.) Further, Tellez contends Paragraph 17 of the Purchase Agreement obligates the “execution and delivery of the Promissory Note to the Seller as a condition precedent” of the Purchase Agreement itself. (Id.) “It is evident the financial obligations and any damages claimed pursuant to the contract are in fact the obligations of Throgmorton’s Frame Clinics, Inc., and not the obligations of Defendant Tellez.” (Dem., 6-8.)

In opposition, Plaintiff contends the first three causes of action are sufficiently pled for two reasons: (1) the FAC alleges alter ego liability as to Tellez and Frame Clinics, and (2) Tellez was a party to the agreements and had obligations as a contracting party. (Opp., 2-10.)

First, Plaintiff contends the FAC alleges Tellez to be an alter ego of Frame Clinics, referencing paragraphs 7, 8, and 9 of the FAC. (Opp., 2-3.) These three paragraphs allege:

“7. Plaintiff is informed and believes and based thereon alleges that at all relevant times herein mentioned, Defendants, and each of them, have engaged in conduct inconsistent with the maintenance of a separate and distinct identity of THROGMORTON CORP., including but not limited to commingling of personal funds and assets with the funds and assets of the subject business entity, failure to keep separate and/or adequate records, and/or using and/or authorizing and/or directing the subject business entity to perpetuate a fraud and/or intentional torts, and/or using company funds to pay personal debts, and/or raiding company assets to its shareholder(s) own use.

8. Plaintiff further is informed and believes and based thereon alleges that, at all times relevant hereto, TELLEZ has so dominated and controlled THROGMORTON CORP. so that there was a unity of interest and ownership that individuality, or separateness, of TELLEZ and THROGMORTON CORP. has ceased to exist and TELLEZ and THROGMORTON CORP., are and/or were the alter egos of each other and that adherence of the fiction of a separate existence of THROGMORTON CORP. and TELLEZ as distinct from each other would permit an abuse of the normal protections to the business entities and their privileges as such, and would sanction and promote injustice.

9. Plaintiff is further informed and believes and thereupon allege that, at all times relevant herein, each Defendant was the agent of and/or was completely dominated and/or controlled by his/her/its co-defendant such that each was the agent and/or alter-ego of the other.” (FAC ¶¶7-9.)

Second, Plaintiff contends Tellez was a contracting party to the agreements between the parties, as Defendant Tellez is identified as the “Tenant” in the Lease Agreement, the only “Borrower” in the Promissory Note, and “Purchaser” in the Purchase Agreement, with obligations pursuant to each agreement. (Opp., 4-10.)

Further, Plaintiff contends Tellez’s “material breach” of these agreements “excuses Plaintiff’s performance to refrain from enforcing the ‘financial obligations’ against [Tellez]” pursuant to these agreements. (Id.) Plaintiff fails to explain, however, how Tellez’s alleged material breach allows Plaintiff to impose such obligations. The court here recognizes that Tellez’s alleged material breach would excuse further performance on the part of Plaintiff, but Plaintiff fails to explain, or provide authorities to support, the contention that Tellez’s alleged breach empowers Plaintiff to impose further obligations beyond what the agreements considered. (Id.)

In reply, Tellez contends “Plaintiff’s argument that the breach of the agreement opens the door to Plaintiff not having to live by the terms of the agreement is beyond what Plaintiff is seeking. Plaintiff does not want to be bound by the term of the agreement.” (Reply, 2-3.) Further, Tellez argues the FAC contains “no allegations ... to establish the basis of the alter-ego and instead merely asserts conclusory language that Defendant Tellez is the alter-ego. The cases cited by Plaintiff may provide color to validly plead alter-ego claims but do not provide any information regarding what types of allegations are necessary in a Complaint in establishing a theory of recovery under the alter-ego doctrine.” (Reply, 3-4.) Defendant further reiterates earlier arguments about an explicit, plain reading of these agreements, and further asserts the Promissory Note again cannot be a stand-alone document as it was incorporated into the Purchase Agreement. (Reply, 2-4.) The court agrees.

Here, while Plaintiff argues that Tellez’s alleged material breach of the agreements allows for the imposition of duties onto the Defendant, Plaintiff fails to explain what duties Tellez was responsible for, and breached, in the first place to allow for such imposition of additional obligations. Further, while the referenced paragraphs conclude Tellez to be an alter ego of Frame Clinics, they provide little support in terms of factual allegations, aside from conclusory statements to that effect. Therefore, the court finds the first, second, and third causes of action to be insufficiently pled.

For these reasons, the demurrer to the first, second, and third causes of action are sustained.

The elements of a fraud cause of action are: (1)¿misrepresentation (false representation, concealment, or omission); (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Davis v. Southern California Edison Co. (2015) 236 Cal.App.4th 619.) Fraud must be pled in the complaint specifically. General and conclusory allegations are not sufficient. (Stansfield v. Starkey¿(1990)¿220 Cal.App.3d 59,¿74;¿Nagy v. Nagy¿(1989) 210 Cal.App.3d 1262, 1268.) Unlike most causes of action where the “the policy of liberal construction of the pleadings,” fraud requires particularity, that is, “pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Stansfield, supra, 220 Cal.App.3d at 73;¿Lazar v. Superior Court¿(1996) 12 Cal.4th 631, 645.) Every element of a fraud cause of action must be alleged both factually and specifically. (Hall v. Department of Adoptions¿(1975) 47 Cal.App.3d 898, 904; Cooper v. Equity General Insurance¿(1990) 219 Cal.App.3d 1252, 1262.)¿

The elements of an action for fraud based on an omission are: “‘(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.’” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248 [quoting Han v. Mirda (2007) 147 Cal.App.4th 740, 748.].)

Here, Tellez contends the fourth cause of action is similarly insufficiently pled as it only references representations made in the Purchase Agreement, and “merely referring to a term within the contract” is insufficient to show fraudulent conduct which induced Plaintiff’s behavior as “the allegations of the FAC show that Plaintiff and Defendant Tellez had an intention to perform pursuant to the contract.” (Dem., 8-9.)

In opposition, Plaintiff contends the representations made in the Purchase Agreement are “undeniable” and that there is “no legal basis to dismiss a cause of action for fraud, merely because the alleged misrepresentations are contained within an agreement between the parties.” (Opp., 10-11.) Specifically, Plaintiff contends the FAC pleads the specificities required for fraud claims as it pleads when, how, where, and to whom the representations were made, in writing on September 1, 2021. (Id.) However, Plaintiffs fails to explain how Tellez failing to have the funds available for the Purchase is a fact, let alone a material fact, which must have been disclosed. (FAC ¶¶42-47.)

Here, the FAC again alleges in conclusory fashion that Defendant Tellez knew he did not have the funds necessary for the purchase of Frame Clinics, knew that fact should have been disclosed, intentionally concealed the fact with an intent to defraud the plaintiff, and Plaintiff relied on the concealment of such a fact. Conclusory allegations do not establish the elements of a claim for the purposes of a demurrer. A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [internal citations omitted].) Further, as this court has found the breach of contract claim regarding the Purchase Agreement to be insufficiently pled against Tellez, the court here further recognizes insufficient pleading with regards to Tellez’s duties and obligations. Therefore, the court finds the fourth cause of action to be insufficiently pled.

For these reasons, Defendant’s demurrer to the fourth cause of action is sustained.

“Conversion¿is the wrongful exercise of dominion over the property of another.” (Farmers Ins. Exchange v.¿Zerin¿(1997) 53 Cal.App.4th 445, 451.) The elements of a claim for¿conversion¿are (1) the plaintiff's ownership or right to possession of the property at the time of the¿conversion, (2) the defendant's¿conversion¿by a wrongful act or disposition of property rights, and (3) damages. (Prakashpalan¿v. Engstrom, Lipscomb & Lack¿(2014) 223 Cal.App.4th 1105, 1135.) “It is not necessary that there be a manual taking of the property,” only “an assumption of control¿or ownership over the property, or that the alleged converter has applied the property to his [or¿her] own use.” (Farmers Ins. Exchange, supra, 53 Cal.App.4th at pp. 451-452.)¿

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp.¿(2007) 148 Cal.App.4th 97, 119.)¿¿“Money may be the subject of¿conversion¿if the claim involves a specific, identifiable sum; it is not necessary that each coin or bill be earmarked.” (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 209.)

“51. Plaintiff is informed, believes and thereon alleges that basis alleges that DAVID has a right to possess certain equipment that TELLEZ sold, traded, bartered and/or removed from the property.

52. Plaintiff is informed and believes and based thereon alleges that TELLEZ has intentionally deprived Plaintiff of such equipment without a legal right to do so for his own personal gain.” (FAC ¶¶51-52.)

Defendant contends the fifth cause of action is insufficiently pled as “Plaintiff fails to allege any nexus between the ownership of the equipment being transferred from Throgmorton Frame Clinic Inc to Defendant Tellez or that Defendant Tellez had knowledge that he was responsible for return of the equipment which is owned by Throgmorton Frame Clinic Inc.” (Dem., 9; citing Software Design & Application, Ltd. v. Hoefer & Arnett, Inc. (1996) 49 Cal.App.4th 472, 485.) Further, Defendant contend “the amount allegedly converted is not a specific identifiable sum” and therefore the claim for conversion is insufficiently pled. (Id.; citing Haigler v. Donnelly (1941) 18 Cal.2d 674, 681.)

In opposition, Plaintiff merely relies on the FAC’s claims that Plaintiff “has a right to possess” certain equipment which Defendant Tellez has converted. (Opp., 11.)

The court agrees with Defendant Tellez that the fifth cause of action is insufficiently pled because the FAC does not allege that Plaintiff is owed a specific, identifiable sum, nor does it provide allegations to support Plaintiff’s right to possession over unidentified equipment, beyond conclusory contentions to that effect.

Penal Code § 496(a) provides as follows: “Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170.” Further, Penal Code § 496(c) provides that any person who has been injured by a violation of subdivision (a) may bring an action for treble damages, attorney’s fees and costs.

Here, Defendant contends the FAC pleads “contradictory statements” in alleging a “valid agreement” between Plaintiff and Tellez for the sale of goods and/or equipment, and also alleging that Tellez “has stolen and/or sold or withheld or aided in stealing, selling or withholding property.” (Dem., 9-10.)

“Moreover, it is evident as alleged in the FAC that Defendant Tellez has not engaged in any theft or extortion in obtaining the tools, equipment and/or money of Plaintiff.” (Id.) “There has been insufficient facts that Defendant Tellez has engaged in any theft. Instead, Throgmorton Frame Clinics, Inc., the rightful owner of the property, was required to vacate the property in light of the failing business and therefore the removal of the business trade fixtures was a necessary component in returning possession to Plaintiff.” (Id.)

“56. Plaintiff is informed and believes and based thereon alleges that Defendants and each of them, have knowingly stolen and/or sold or withheld or aided in stealing, selling or withholding property, in the form of tools, equipment and/or money of its owner, [Plaintiff].” (FAC ¶ 56.)

The court agrees with Defendant Tellez that the sixth cause of action is insufficiently pled. The FAC fails to plead sufficient factual allegations to show how Defendant Tellez obtained property which was stolen or engaged in theft in the obtaining of any such unidentified equipment. The FAC’s conclusory allegations again do not stand at this demurrer stage.

For these reasons, Defendant Tellez’s demurrer to this cause of action is sustained.

Under California law, unjust enrichment is not a cause of action.¿ Rather, it is a general principle underlying various doctrines and remedies, including quasi-contract.¿ (Jogani¿v. Superior Court¿(2008) 165 Cal.App.4th 901, 911 (Jogani).)¿ It is the law that “when one obtains a benefit which may not be justly retained, unjust enrichment results, and restitution is in order.”¿ (Marina Tenants¿Ass’n¿v. Deauville Marina Dev. Co.¿(1986) 181 Cal.App.3d 122, 134 (Marina).)¿¿¿

Although there is no cause of action titled “unjust enrichment,” California courts have allowed recovery for an unjust enrichment claim for restitution of an underlying wrong.¿ (See¿Durell¿v.¿Sharp Healthcare¿(2010) 183 Cal.App.4th 1350, 1370; see also¿Melchior, 106 Cal.App.4th at p. 793 [recognizing that unjust enrichment “is synonymous with restitution”].)¿¿

“60. By occupying and conducting business at the Premises without paying rent, while wrongfully removing, using and/or selling personal property and equipment owned by Plaintiff and located at the Premises to third-parties or to their own benefit, TELLEZ has received and retained benefits, the retention of which would unjustly enrich TELLEZ at Plaintiff’s expense.” (FAC ¶ 60.)

As this court has already sustained the Defendant’s demurrer to the claims regarding the Purchase Agreement, Lease agreement, and the conversion claims, which underpin this seventh cause of action, the court therefore finds the seventh cause of action to also be insufficiently pled.

For these reasons, Defendant Tellez’s demurrer to this cause of action is sustained.

F. Eighth Cause of Action: Violation of Business & Professions Code § 17200

Business & Professions Code § 17200 (“UCL”) prohibits “unfair competition,” which is defined to include “any unlawful, unfair or fraudulent business act or practice” and “unfair, deceptive, untrue or misleading advertising” and any act prohibited by business and professions code section 17500. A cause of action under the UCL must be stated with “reasonable particularity.” (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1261.)

“While the scope of conduct covered by the UCL is broad, its remedies are limited. [Citation.] A UCL action is equitable in nature; damages cannot be recovered. [Citation.] [The Supreme Court has] stated that under the UCL, ‘[p]revailing plaintiffs are generally limited to injunctive relief and restitution.’” (Korea Supply Co. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.) UCL actions based on “unlawful” conduct may be based on violations of other statutes.¿ (See¿Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.)

Here, the FAC incorporates and refers to allegations made in other claims only to support the UCL claim. (FAC ¶¶ 62-63.)

As this court has sustained Defendant Tellez’s demurrer to the remainder of the claims of the FAC, the court therefore finds the eighth cause of action to be insufficiently pled as well.

For these reasons, Defendant Tellez’s demurrer to this cause of action is sustained.

As Defendant Tellez’s demurrer to the FAC is sustained, the motion is now moot.

Defendant’s demurrer is sustained. As the demurrer has been sustained, Defendant’s motion to strike is now moot. Plaintiff is granted 30 days leave to amend. Defendant Tellez is to give notice.

[1] Tellez submits the declaration of its counsel, Shahzad Z. Omar (“Omar”), to demonstrate compliance with statutory meet and confer requirements. Omar attests that on November 17 and 29, 2022, the parties exchanged meet and confer letters regarding the arguments raised in the instant demurrer but were unable to reach an agreement. (Omar Decl. ¶¶ 2-3.) The Omar Declaration is sufficient for purposes of CCP § 430.41.