Judge Gail Killefer, Case Number: 23STCV11287, Date: 2023-08-22 Tentative Ruling

MOVING PARTY: Defendants AFMK, Inc..d/b/a Moda Gentlemen and its owner Moiz Kaboud ("Kaboud").

TENTATIVE: Defendants’ Demurrer to the second and third causes of action is sustained with leave to amend. Defendants’ Motion to Strike is granted with leave to amend.

On May 18, 2023, Plaintiff Urban Fitz, Inc. filed a Complaint against Defendants AFMK, Inc. (“AFMK”); Moiz Kaboud (Kaboud”); and Does 1 to 25. The Complaint alleges three causes of action for:

1) Breach of Oral Contract Confirmed in Writing (against Defendants Does 1 to 25 only)

On July 26, 2023, Defendants AFMK, Inc. and Moiz Kabound (collectively “Defendants”) filed a Demurrer with a Motion to Strike. Plaintiff filed opposing papers on August 9, 2023. Defendants filed a reply on August 15, 2023.

Discussion

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.)¿ “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.”¿ (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)¿ For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded.¿ (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)¿ A demurrer “does not admit contentions, deductions or conclusions of fact or law.”¿ (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (CCP, § 435(b)(1); CRC, rule 3.1322(b).) The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (CCP., § 436(a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].)¿¿¿

“Where the defect raised by a motion to strike or by demurrer is reasonably capable of cure, leave to amend is routinely and liberally granted to give the plaintiff a chance to cure the defect in question.” (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿¿

Plaintiff alleges that Defendant Kaboud, an individual, is the alter ego of Defendant AFMK, Inc. (Compl. ¶¶ 2, 3.) The Complaint alleges that Kaboud uses AKMF’s corporate form to insulate himself from his own creditors and, if the corporate form is not disregarded, an inequitable and unjust result will result. (Compl. ¶ 3.)

Plaintiff is in the business of selling apparel at wholesale for resale by its customers. (Compl. ¶ 7.) Defendants and Plaintiff entered into an agreement in which Defendants would order goods and Plaintiff would deliver with a written invoice, which Defendants would later pay. (Compl. ¶ 7.)

Defendants placed four orders for which Plaintiff delivered the goods as memorialized by the following invoice number and invoice amounts:

The balance due is $487,395.60. (Compl. ¶ 8, Ex. A-D.) The Complaint attaches the invoices as Exhibits A to D, which reflect the above amounts due and show that the orders were billed to “Moda Gentleman” at 1010 E. 14th St. and Shipped to “Moda Gentleman” at 2268 E. 15th St. (Compl. Ex. A-D.)

In response to the orders placed by Defendants, Plaintiff delivered the goods and Defendants accepted delivery of the goods. (Compl. ¶ 11.) Defendants did not reject the goods, nor dispute the amount owed or the merchantability of the goods. (Compl. ¶ 12.) Defendants promised to pay the invoices and accepted and retained the good for their own benefit. (Compl. ¶ 12.)

The Complaint asserts that Defendants are indebted to Plaintiff for the total sum of $487,395.60, plus interest from the date the goods were delivered. (Compl. ¶¶ 13, 14.)

Defendants filed a demurrer to Plaintiff's second cause of action for Common Count – Account Stated and third cause of action for Negligence. Defendants do not demurrer to the first cause of action as it is alleged only against the Doe Defendants.

“The essential elements of an account stated are: (1) previous transactions between the parties establishing the relationship of debtor and creditor; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; (3) a promise by the debtor, express or implied, to pay the amount due.” (Zinn v. Fred R. Bright Co. (1969) 271 Cal.App.2d 597, 600.) “The key element in every context is agreement on the final balance due.” (Maggio, Inc. v. Neal (1987) 196 Cal.App.3d 745, 753.)

Defendants demur to the second cause of action on the basis it fails to state sufficient facts against Defendant Kaboud. Defendants assert that while Plaintiff has sued Defendant AFMK as d/b/a “Moda Gentleman,” invoices A through D do not mention or refer to Defendant Kabound at all. Therefore, there are no allegations stated against Defendant Kaboud.

Although the Complaint alleges that Defendant Kaboud is an alter ego of Defendant AKMF, the Complaint fails to allege that a unity of interest and ownership exists between the Defendants such that the separate personalities of the corporation and Kaboud do not exist and instead they should be treated as a sole actor. (See Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, 749; see also Automotriz Del Golfo De California S. A. De C. V. v. Resnick (1957) 47 Cal.2d 792, 796.) Absent these allegations, Plaintiff’s alter ego allegation fails, as does the second cause of action against Defendant Kaboud.

The demurrer to the second cause of action is sustained with leave to amend as to Defendant Kaboud.

“The elements of a cause of action for negligence are well established. They are (a) a legal duty to use due care; (b) a breach of such legal duty; [and] (c) the breach as the proximate or legal cause of the resulting injury.” (Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917 [internal quotations omitted].) “A duty may arise through statute, contract, or the relationship of the parties.” (Lichtman v. Siemens Industry Inc. (2017) 16 Cal.App.5th 914, 920 [internal quotations and citations omitted].) The existence of a legal duty is a question of law for the Court to decide. (Adams v. City of Fremont (1998) 68 Cal.App.4th 243, 265.)

Defendants demur to the third cause of action on the basis it fails to state sufficient facts to show that Plaintiff was owed a legal duty.

The Complaint alleges that “Defendants took possession of the goods reflected in the invoices referenced above, Defendants negligently stored the goods within their warehouse(s) and Defendants claimed they were unable to return Plaintiff’s product to Plaintiff because the goods were damages and/or destroyed while being stored in Defendants’ warehouses(s).” (Compl. ¶ 25.) “Defendants owed Plaintiff a duty of care to avoid unreasonable risks of loss to Plaintiff; which duty included the duty to avoid unreasonable risks of loss to Plaintiff’s goods; at least until Defendants had paid for them.” (Compl. ¶ 26.) “Defendants breach that duty by failing to properly and competently store the goods in a safe place pending payment to Plaintiff, and Defendants have stated to Plaintiff that the goods were damaged and/or destroyed as a result.” (Compl. ¶ 26.)

Defendants assert that under the Cal. U. Com. Code, Defendants owed no duty of care because the title of the property passed to Defendants when the goods were sold and delivered.

Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading

(a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but

(b) If the contract requires delivery at destination, title passes on tender there.

If a buyer does not pay for the goods, a buyer owes the purchase price but no duty of care or liability under negligence theory. Therefore, Defendants assert that Plaintiff’s third cause of action for negligence fails.

The fact that Plaintiff was to deliver the goods and Defendants promised to pay after delivery, fails to show that Plaintiff retained title to the goods until payment. (See Compl. ¶ 7.) Plaintiff fails to allege that the parties explicitly agreed that Plaintiff would retain title to the property even after delivery and that title of property would only pass upon Plaintiff receiving payment for the good delivered. Therefore, Plaintiff fails to show that it retained title to the property even after it delivered the goods to Defendants and that Cal. U. Com. Code, § 2401(2) is inapplicable. Moreover, even if Plaintiff did retain title to the property after delivery, Plaintiff fails to show that Defendants owed a duty of care as to how the property was stored the due to a statue, contract, or special relationship between the parties.

Accordingly, the demurrer to the third cause of action is sustained with leave to amend.

Defendants move to strike the alter ego allegations in Plaintiff’s Complaint. Specifically, Defendants seek to strike page 1, lines 27 through page, line 2 of the Complaint. For alter ego liability to be applied by the court, Plaintiff must prove alter ego liability, but at the pleading stage Plaintiff need not prove the alter ego allegations. (See Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 604.) However, Plaintiff is still required to plead all the elements of alter ego liability.

“[C]ourts have followed a liberal policy of applying the Alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure. It is essential principally that a showing be made that both requirements, i.e., unity of interest and ownership, and the promotion of injustice by the fiction of corporate separate existence, exist in a given situation.” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915.) When pleading alter ego liability, Plaintiff is only required to pled “‘ultimate rather than evidentiary facts.’” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236.)

As stated above, the Complaint fails to allege that a unity of interest and ownership exists between Defendant Kaboud and AKMF such that the separate personalities of the corporation and the Kaboud do not exist and instead they should be treated as a sole actor. Moreover, the conclusory allegation that “Kaboud routinely and fraudulently misused AKMF’s corporate form to insulate himself from his own creditors” is insufficient to show that injustice would result if the corporate veil were not pierced. (See Compl. ¶ 3.) The complaint must allege specific facts as to how Defendant Kabound used AKMF to insulate himself from creditors, such as the fact that AKMF was organized as a “mere shall and sham, without capital assets, stock, or stockholder” and was purposefully undercapitalized and unable to pay the amount due. (See First Western Bank & Trust Co., supra, 267 CA.App.2d at 912-913; see also Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc. (2002) 99 Cal.App.4th 228, 245.)

Defendants’ Demurrer to the second as alleged against Defendant Moiz Kabound and third causes of action is sustained with leave to amend.

[1] Defendants assert that they tried to meet and confer with Plaintiff prior to filing a demurrer but that Plaintiff’s counsel was unavailable to meet due to being engaged in a month-long jury trial. (Vivoli Decl. ¶ 2,) The court finds that the meet and confer was sufficient and that Defendants complied with the meet and confer requirement of CCP §§ 430.41, 435.5(a). (Kadin Decl. ¶ 3.)