Judge: Gail Killefer, Case: 23STCV11287, Date: 2025-03-03 Tentative Ruling

Case Number: 23STCV11287    Hearing Date: March 3, 2025    Dept: 37

HEARING DATE:                 Monday, March 3, 2025

CASE NUMBER:                   23STCV11287

CASE NAME:                        Urban Fitz, Inc. v. AFMK, Inc., et al.

MOVING PARTY:                 Defendant Moiz Kaboud

OPPOSING PARTY:             Plaintiff Urban Fitz, Inc.

TRIAL DATE:                        15 July 2025

PROOF OF SERVICE:           OK

PROCEEDING:                      Demurrer to Second Amended Complaint with Motion to Strike

OPPOSITION:                        18 February 2025

REPLY:                                  24 February 2025

TENTATIVE:                         Defendant Moir’s demurrer to the 1st, 2nd, and 5th causes of action is sustained with leave to amend and overruled as to the third and fourth cause of action. The motion to strike is granted with leave to amend. Plaintiff is granted 10 days leave to amend. The court sets the OSC RE: Amended Complaint for April 18, 2025, at 8:30 a.m. Defendant to give notice.

Background

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

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

2)     Open Book Account-Account Stated (against Defendants and Does 1 to 25); and

3)     Negligence (against Defendants and Does 1 to 25).

On August 22, 2023, the court sustained Defendants’ demurrer to the second and third causes of action with leave to amend.

Plaintiff filed the First Amended Complaint on September 11, 2023.  The parties stipulated on October 9, 2024, that Plaintiff be granted leave to file a Second Amended Complaint (“SAC”), which the court approved.  On October 29, 2024, Plaintiff filed the operative Second Amended Complaint (“SAC”) alleging the following four causes of action:

1)     Fraud;

2)     Violation of Pen. Code § 496(c);

3)     Breach of Oral Contract Confirmed in Writing;

4)     Open Book Account-Account Stated; and

5)     Negligence.

Defendant Moiz now demurs and moves to strike the SAC. Plaintiff filed opposing papers. The matter is now before the court.

Legal Standard

            A.        Demurrer

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.)¿¿

            B.        Motion to Strike

 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”].)¿¿¿ 

            C.        Leave to Amend

“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.)¿¿ 

Demurrer[1]

II.        Discussion

The SAC alleges that Defendant Moiz is the alter ego of Defendant AFMK. (SAC, ¶ 3.) Defendants contacted Plaintiff and placed four orders for which Plaintiff delivered the goods as memorialized by the following invoice number and invoice amounts:

• Invoice 21-556 - $192,000
• Invoice 21-496 - $24,048.00
• Invoice 21-442 - $79,194.00
• Invoice 21-572 - $192,153.60

The balance due is $487,395.60. (Id. ¶ 9, Ex. A-D.) All the invoices were paid to “Moda Gentleman” which is the fictitious business name of AFMK. (Id. ¶ 2.) Defendants, through Moiz, “expressly promised to pay the stated amounts for the good” but Plaintiff has since discovered that Defendants had no intention to pay for the goods. (Id. ¶ 10.)

Defendant Moiz now demurs to all causes of action alleged in the SAC.

A.        The Alter Ego Allegations

“To succeed on their alter ego claim, plaintiffs must be able to show: (1) such a unity of interest and ownership between the corporation and its equitable owner that no separation actually exists, and (2) an inequitable result if the acts in question are treated as those of the corporation alone.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 417.)

The SAC alleges that AFMK and Moiz are “a single enterprise” which “Moiz dominates and controls for his own benefit.” (SAC ¶ 3.) “[A] unity of interests and ownership between Moiz and AFMK that there exists no true separate existence between them and any fictious separation should be pierced through the doctrine of ‘piercing the corporate veil’ to hold Moiz jointly liable along with the entity he owns  and fraudulently controls to the detriment of his own personal creditors.” (Id.) Moreover, the SAC allege that Moiz “transferred the funds paid by the insurance company to AFMK to himself, leaving AFMK bereft of the funds it would need to pay Plaintiff.” (Id.) “As such, Moiz and AFMK are guilty of commingling funds between them to the detriment of their creditors.” (Ibid.

Detailed pleading is not required to allege an alter ego theory of liability.¿Indeed, “[i]t is not even essential, apparently, that ... the alter ego doctrine always be specifically pleaded in the complaint in order for it to be applied in appropriate circumstances. [¶] ... [Citation.] ... [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 [italics omitted]; see Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236 [stating “only ‘ultimate rather than evidentiary facts' ” necessary to support alter ego theory].)¿¿ 

The court finds that the alter ego allegations in the SAC are sufficiently pled. “Whether the plaintiff will be able to prove the pleaded facts is irrelevant to ruling upon the demurrer.” (Stevens v. Superior Court (1986) 180 Cal.App.3d 605, 609–610.)

B.        1st Cause of Action – Fraud

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 (Lazar).) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Id. at p. 645.) Specificity “necessitates pleading facts which show how, when, where , to whom, and by what means the representations were tendered.” (Id. at p. 631.)

A higher standard applies when a plaintiff asserts a fraud claim against a corporation. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 838.) “In addition, a plaintiff is held to a higher standard in asserting a fraud claim against a corporate defendant. “In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ ” (Ibid.) “In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ ” (Lazar, supra,  12 Cal.4th at p. 645.)

The SAC fails to state when and to which agent of Plaintiff Moiz represented that when dealing with AFMK they are dealing with him rather than a separate entity. (SAC, ¶ 3.) The SAC also fails to allege what led Plaintiff to believe that Moiz had the authority to speak on behalf of AFMK. The SAC fails to allege when and to which agent of Plaintiff Moiz represented that he would purchase insurance that would be for Plaintiff’s benefit. (SAC, ¶¶ 3, 8 12.) Plaintiff states it was notified that certain goods were damaged, but fails to state who, when, and how Plaintiff was informed that Defendants had “agreed Plaintiff would be paid from the proceeds of insurance carried by AFMK.” (Id.  ¶ 12.) The fraud claims is also premised on the fact that “Defendants promised to pay” for the goods, but the SAC fails to state who, how, and when the promise was made. (Ibid.)

The court agrees that the fraud claim is not pled with the requisite specificity. Furthermore, the fraud claim also appears to be barred by the economic loss rule that prevent a Plaintiff from recovering tort damages for contract claims. As explained by the California Supreme Court, “the economic loss rule prevents the law of contract and the law of tort from dissolving into the other.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal. 4th 979, 989.) The duty that gives rise to the tort liability must be “‘either completely independent of the contract or arises from conduct which is both intentional and intended to harm.’” (Id. at p. 990.) The fact that Defendants intentionally breached the oral contract is insufficient to support a fraud cause of action because it does not arise out of a duty that exists independently of the contract.

The demurrer to the first cause of action is sustained with leave to amend.

C.        2nd Cause of Action – Violation of Pen. Code § 496(c)

Penal Code § 496(a) states in relevant part: 

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. 

(Id.) 

Penal Code § 496(c) allows any person injured by receipt of stolen property under section 496(a) to “bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney’s fees.” (Pen. Code, § 496(a).) Pursuant to Siry Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, Plaintiff is required to plead that Defendants acted with criminal intent in order to be liable under section 496(c).

The SAC fails to allege that AFMK and Moiz acted with criminal intent. The criminal intent requirement “prevents ‘ordinary commercial defaults’ from being transformed into a theft” with “mere proof of nonperformance or actual falsity.” (Siry Investments, supra, 13 Cal5th at pp. 361-362.) The SAC must allege “that defendants acted not innocently or inadvertently, but with careful planning and deliberation” to receive the merchandise belonging to Plaintiff without paying for it, thus constituting theft.

Both parties also ignored this court’s prior order which found that under Cal. U. Com. Code § 2401(2)(a)-(b), title of the property passed to Defendants once the goods were sold and delivered. The SAC fails to explain why title of the merchandise was not passed to Defendants at the time of delivery or how Defendants can be held liable for theft even if they still hold title to the property.

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

            D.        3rd Cause of Action – Breach of Oral Contract

The elements of a claim for breach of contract are: “(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.) In addition, the complaint must demonstrate damages proximately caused by the breach. (St. Paul Ins. v. American Dynasty (2002) 101 Cal.App.4th 1038, 1060.)

The SAC alleges that “Plaintiff and Defendants entered into an oral agreement, confirmed in writing through Plaintiff’s invoices and Defendants' past history and practice of paying the amount of each invoice after accepting delivery of the goods ordered by Defendants from Plaintiff.” (SAC ¶ 28.) Defendants accepted the goods and did not dispute the prices quoted in the invoices but breached the oral agreement by failing to pay. (Id. ¶¶ 29-31.)

Defendant Moiz asserts that the third cause of action fails as alleged against him because the invoices do not mention him. Plaintiff asserts that the third cause of action is adequately pled because “Defendants placed four orders” and the invoices “were issued to AFMK at Moiz’s request.” (SAC, ¶ 9.) While the court takes Plaintiff’s allegations as true “[t]he courts … will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed.” (Del E. Webb Corp. v. StructMateriaural ls Co. (1981) 123 Cal.App.3d 593, 604.)

Exhibits A to D of the SAC show only that merchandise was shipped to and billed to “Moda Gentleman” and not Defendant Moiz.

The SAC does not allege that Moiz orally represented he was personally entering into a contract with Plaintiff. The SAC also does not allege whether Moiz entered a contract with Plaintiff on behalf of “Moda Gentleman.” “It is certainly true that an agent is not ordinarily liable on contracts he executes on behalf of a disclosed principal.” (Epic Communications, Inc. v. Richwave Technology, Inc. (2009) 179 Cal.App.4th 314, 329 [italics original].) Unless Moiz entered a contract with Plaintiff as an individual, rather than as an agent of AFMK, he cannot be held liable for breach of contract based on an agency theory

However, Moiz can be held liable as the alter ego of AFMK. Therefore, the demurrer to the third cause of action is overruled.

E.        4th Cause of Action -  Common Count - Account Stated

“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.) “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394–395.)

As the breach of contract claim survives, the court declines to sustain the demurrer as to the fourth cause of action. Moreover, Defendants have failed to show that the account stated claim is inadequately pled. The demurrer to the fourth cause of action is overruled.

            F.        5th Cause of Action – Negligence

“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 fifth cause of action on the basis it fails to state sufficient facts to show that Plaintiff was owed a legal duty. The SAC alleges that “Defendants negligently stored the goods within their warehouse(s)” and the goods were damaged and/or destroyed and could not be returned to Plaintiff. (SAC ¶ 37.) “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.” (Id. ¶ 38.) “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.” (Ibid.)

This court previously sustained the demurrer to the negligence cause of action on the basis that under the Cal. U. Com. Code, § 2401(2)(a)-(b),  Defendant owed no duty of care because title of the property passed to Defendants when the goods were sold and delivered. (Order 8/22/2023.) Even if Plaintiff’s continued to maintain title, Plaintiff fails to cite a statute or case law finding that in a buyer and seller relationship, the buyer has a duty to properly store the goods delivered.

Plaintiff’s opposition asserts that “it is well settled law that a contract may create a legal duty of care, the negligent breach of which is actionable in tort.” (Opposition at p. 8:21-22.)

First, the SAC identifies invoices pursuant to an oral contract requiring the payment for goods delivered. However, the SAC fails to allege that proper storage of the goods was an express term of the oral contract. Absent such allegation, the court cannot find that Defendants owed such a contractual duty to adequately store the merchandise.

The California Supreme Court in Erlich v. Menezes (1999) 21 Cal.4th 543 held that “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. [Citation.] ‘ “ ‘An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.’ ” ' [Citation.]” (Id. at p. 551.) The Erlich Court explained that the remedy for breach of contract is generally limited to contract law, and recovery in tort is not permitted unless: “ ‘(1) [t]he breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.’ [Citation.]” (Id. at pp. 553-554.)

None of the cases cited by Plaintiff in its opposition convince this court that a contractual duty alone can give rise to a tort. Prior to Elrich, California courts recognized that “ ‘[a]ccompanying every contract is a common-law duty to perform with care, skill, reasonable expedience, and faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions is a tort, as well as a breach of the contract.’ ” (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774. However, the duty extended to contracts for the performances of services not the sale of goods. “A contract to perform services gives rise to a duty of care which requires that such services be performed in a competent and reasonable manner. A negligent failure to do so may be both a breach of contract and a tort.” (Id. at p. 774.) Here, Plaintiff’s contract is for the sale of goods not the performance of services.

Secondly, in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, the California Supreme Court confirmed that the trial court did not err in dismissing the causes of action for breach of contract, negligence, and negligent misrepresentation because “ADP's contract with Altour was not entered into for the benefit of plaintiff or Altour's other employees and plaintiff was not an intended beneficiary of ADP's services.” (Id. at p. 842.) The  Goonewardene court noted that ADP could not be held liable for negligently performing its contractual obligations owed to Altour because ADP’s conduct was properly deterred “by virtue of its potential contractual liability to plaintiff's employer that would result from such negligence.” (Id. at p. 841.)

The holding in Erlich v. Menezes (1999) 21 Cal.4th 543 stands which expressly prohibits Plaintiff from bringing a negligence breach of contract absent an independent duty that does not arise from the contract itself.

The demurrer to the fifth cause of action is sustained with leave to amend.

IV.       Motion to Strike

Defendant Moiz moves to strike the following:

·       Page 6, lines 26 - p. 7, line 7: “As such, punitive damages are proper to punish Defendants for their fraudulent conduct and to deter Defendants from ever engaging in such conduct again.”

·       The entire Second Cause of action for Violation of Penal Code §496(c) (page 7, line 2 through line 18.

·       Page 10, lines 7 - 8:4.) For lost profits on the goods Plaintiff would have earned from the sale of goods to another party ... ”

·       Page 10, line 9: For treble damages purchase to Penal Code §496(c)

·       Page 10, lines 10 - 11: “For punitive damages in a sum sufficient to punish Defendants' fraud and to deter Defendants and others from engaging in similar conduct in the future ...”

·       Page 10, line 13: “including attorney fees under Penal Code §496(c)”

As the demurrer to the 1st and 2nd cause of action has been sustained with leave to amend, the motion to strike is also granted with leave to amend.

Conclusion

Defendant Moir’s demurrer to the 1st, 2nd, and 5th causes of action is sustained with leave to amend and overruled as to the third and fourth cause of action. The motion to strike is granted with leave to amend. Plaintiff is granted 10 days leave to amend. The court sets the OSC RE: Amended Complaint for April 18, 2025, at 8:30 a.m. Defendant to give notice.