Judge Gail Killefer, Case Number: 23STCV20381, Date: 2024-06-03 Tentative Ruling

MOVING PARTY: Defendants Stephen Hightower, Stephen Hightower II, and Hightowers Petroleum Company

TENTATIVE: Defendants’ demurrer to the first, second, third, and sixth causes of action are sustained with leave to amend and overruled as to the fourth and fifth causes of action. Plaintiff is granted 30 days leave to amend. The court sets a Non-Appearance OSC RE: Amended Complaint for July 12, 2024, at 8:30 a.m. Defendants to give notice.

On August 24, 2023, Holy Oil Partnerships (“Plaintiff”) filed a Complaint against Stephen Hightower (“Hightower”); Stephen Hightower II (“Hightower II”); Hightowers Petroleum Company (“HPC”) (collectively “Defendants”) and Does 1 to 100.

On March 1, 2024, Plaintiff filed the operative First Amended Complaint (“FAC”) alleging six causes of action for:

On April 2, 2024, Defendants filed a demurrer to the FAC and a Motion for Sanctions. Plaintiff opposes both Motions. The matter is now before the court.

Demurrer[1]

Where pleadings are defective, a party may raise the defect by way of a demurrer. (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters.¿ (CCP, § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In evaluating a demurrer, the court accepts the complainant’s properly pled facts as true and ignores contentions, deductions, and conclusory statements. (Daar v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Moreover, the court does not consider whether a plaintiff will be able to prove the allegations or the possible difficulty in making such proof. (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 604.)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿ The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

This action arises out of Plaintiff’s plan to develop a public-private partnership with the City of Adelanto (“City”) to develop mixed fueling stations (the “P3 Project”). (FAC, ¶ 11.) If the P3 Project came to fruition, Plaintiff expected profits of approximately $205 million over a five-year period based on figures obtained by geologist Terry Bryant. (FAC, ¶¶ 20, 21.) Initial talks with the City began in 2020 but stalled. (FAC, ¶¶ 12, 15, 25.) Discussions with the City resumed in January 2022. (FAC, ¶ 26.)

On January 12, 2022, Plaintiff through its owner, Shashon Jenkins (“Jenkins”), reached out to Defendant HPC’s chief operating officer, Defendant Hightower II, to see if they were interested in joining the P3 Project. (FAC, ¶ 27.) On January 28, 2022, Plaintiffs submitted their proposal to Defendants for a partnership. (FAC, ¶¶ 29-32, Ex. 3 at p. 2; Ex. 4.) Defendants agreed they liked the opportunity and wanted to discuss further details. (FAC, ¶ 33, Ex. 5.)

Plaintiff alleges that at the February 18, 2022, meeting, Plaintiff and Hightower II agreed to move forward with the P3 Project once they met with the City’s mayor. (FAC, ¶ 36.) Plaintiff alleges that in its discussion with the Mayor “[t]he City indicated that, based on Defendants’ expertise and resources, the P3 Project would be approved to move forward. The Mayor reconfirmed the City’s support to the P3 Project and agreed to meet with Plaintiffs and Hightower II.” (FAC, ¶ 37.)

On March 4, 2022, Plaintiff and Hightower II had a phone conference wherein Hightower II “discussed the services Defendants would bring to the P3 Project, estimated profits from the venture, and what Defendants desired in terms of compensation from their role in the Project.” (FAC, ¶ 38.) On March 18, 2022, a video conference meeting was held between Plaintiff, the City’s Mayor, and Hightower II (the “Partnership Meeting”) wherein the P3 Project was discussed, and the parties' roles, ideas and commitments were outlined. (FAC, ¶ 40.)

At the meeting, the FAC alleges that Hightower II stated that HPC was able to meet its commitments toward the P3 Project and would take the lead in securing funding as well as commit the resources of HPC and its subsidiaries to the P3 Project. (FAC, ¶ 41.) As part of the first phase of the P3 Project, HPC promised to implement smart grid technology on the 40-acre parcel where the first location of the City Gas would be located. (FAC, ¶ 3.)

The Mayor stated that the City’s contribution to the P3 Project would be a plot of land situated off 395 and El Mirage Road, with the City handling the land acquisition for the private owner and in return the City would receive 3-4 cents per gallon in return. (FAC, ¶ 51.) Plaintiff agreed to commit its Louisiana and Texas Energy Assets to the P3 Project and expand the revenue sources for the P3 Project. (FAC, ¶¶ 47, 48.)

Plaintiff asserts that the Partnership Agreement was created orally at the March 18, 2022, Partnership Meeting. (FAC, ¶¶ 40, 52, 76.) The FAC alleges that the parties' obligations were as follows under the Partnership Agreement:

The parties concluded the meeting with an understanding that HPC was the principal lead partner tasked with putting the Project details in writing, beginning the next phase of actual development, and bringing in additional Operations Partners to the P3; City was tasked with acquiring the land for the fueling station and to upgrade existing infrastructure; while Plaintiffs was tasked with further expansion to bring in more locations within the Project and bring in additional sources of revenue through its Assets. The parties further committed that substantial revenue from the Project would be shared and apportioned between them.

In reliance on the Partnership Agreement, Plaintiff reached an agreement with Kowrii, a fintech bank (“Bank”), to build a brick-and-mortar store on all future City Gas locations in exchange for Plaintiff receiving a 30% profit. (FAC, ¶ 55; Ex. 7.)

On March 28, 2022, Defendant Hightower II emailed Plaintiffs asking about dates for a face-to-face meeting with all P3 partners. (FAC, ¶ 57.) The in-person meeting did not occur as Hightower II stated he became ill with COVID-10. (FAC, ¶ 62.) In response, Plaintiff stated that “there is some urgency to finalize and memorialize the P3 Project as there was some uncertainty that a different City administration would be taking over who may not be interested in the Project” because the Mayor and three other individuals were up for reelection. (FAC, ¶ 63.)

The FAC alleges that Defendant Hightower II lied about being sick with COVID-19 as evidenced by his social media posts. (FAC, ¶ 64; Ex. 12, 13.) Plaintiff asserts that despite Defendants being aware of Plaintiff’s business relationships with the City and the Bank, Defendants backed out of their obligations and duties under the P3 Partnership. (FAC, ¶¶ 65, 78.) Plaintiff further maintains that such actions were “willful, malicious, oppressive, and fraudulent.” (FAC, ¶ 65.)

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.) Furthermore, “the complaint must [also] indicate on its face whether the contract is written, oral, or implied by conduct.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458-59 citing CCP, § 430.10(g).)

Defendants assert that there was no oral contract to form a partnership, and the parties' communications were preliminary discussions that never materialized into an actual partnership. Defendants further maintain that even if there was an agreement to form a partnership, the statute of frauds barred the agreement. To establish the existence of a contract, there must be “(1) Parties capable of contracting; (2) Their consent; (3) A Lawful Object; and (4) A Sufficient Cause or Consideration.” (Civ. Code, § 1550.) “Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise.” (Civ. Code, § 1605.)

Plaintiff alleges it suffered a detriment because in reliance on the Partnership Agreement with Defendants, Plaintiff entered into an agreement with Kowrii Bank. (FAC, ¶ 55, Ex. 7.) Plaintiff asserts that in consideration for the Agreement with the Bank, they wrote a check for $15,000.00. (FAC, ¶ 55, Ex. 7.) However, the check is dated February 12, 2021, more than a year before the March 18, 2022, Partnership Meeting wherein Plaintiff alleges the Partnership was formed. (FAC, ¶¶ 40, 76, Ex. 7.) Plaintiff also alleges that due to the Partnership Agreement, Plaintiff reached an agreement with a food vendor, Lincoln Avenue Brewery, for the City Gas locations. (FAC, ¶ 54, 77, 84.) Plaintiff further alleges that Defendants knew about Plaintiff’s relationship with the food vendor. (FAC, ¶ 118.)

As Plaintiff suffered a detriment due to the Partnership Agreement, the facts support a finding that there was consideration for the Partnership Agreement. Whether the discussions Plaintiff, the City, and Defendants had was a preliminary negotiation and not a final agreement, is a disputed issue of fact not subject to demurrer. Lastly, Defendants argue the Partnership Agreement is barred by the Statute of Frauds because the Partnership Agreement cannot “by its terms” “be performed within a year” of its making. (Civ. Code, § 1624(a).

“The test for determining whether an oral contract is not to be performed within a year lies wholly within its terms. [Citation.] The terms of the oral agreement may by express provision specify that the duty is not to be performed within a year, or by clear implication make it evident from the subject matter of the contract that a period longer than one year was contemplated by the parties. [Citation.]” (Lacy v. Bennett (1962) 207 Cal.App.2d 796, 800 [italics original].) Nothing in the FAC reflects facts to show that the obligations of the parties as outlined in the FAC could be performed within one year. (FAC¶¶ 51, 52.) This included the city obtaining the plot of land and updating the existing infrastructure, completing all the phases of development needed to bring the P3 Project into fruition, obtaining additional partners and funding, and scouting for further locations. (FAC, ¶ 52.)

In other words, the FAC fails to allege facts to show that a possibility exists that the terms of the Partnership agreement may be performed within a year. (See Hollywood Motion Picture Equipment Co. v. Furer (1940) 16 Cal.2d 184, 187.) “Furthermore, to fall under the bar of subdivision 1 of section 1624 of the Civil Code, the contract must, by its terms, be impossible of performance within a year. If it is unlikely that it will be so performed, or the period of performance is indefinite, the statute does not apply. [Citation.]” (Blaustein v. Burton (1970) 9 Cal.App.3d 161, 185.) Here, the FAC fails to allege facts to show that the Partnership Agreement was of indefinite duration such that the Statute of Frauds does not bar the Partnership Agreement.

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

C. Second Cause of Action – Breach of Implied Covenant of Good Faith and Fair Dealing

“Every contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.¿The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises.” (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885.) The covenant thus cannot “ ‘be endowed with an existence independent of its contractual underpinnings.’ ” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 quoting Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1153.) “It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349–350.)

As Plaintiff has failed to plead the existence of a valid contract, the demurrer to the second cause of action is sustained with leave to amend.

“‘The elements of a promissory estoppel claim are ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3)[the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’ [Citation.]” (Advanced Choices, Inc. v. State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1672, citing US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 901.) “Conceptually, promissory estoppel is distinct from contract in that the promisee's justifiable and detrimental reliance on the promise is regarded as a substitute for the consideration required as an element of an enforceable contract.” (Signal Hill Aviation Co. v. Stroppe (1979) 96 Cal.App.3d 627, 640.)

Defendants assert that Plaintiff’s third cause of action fails because the promise is not clear and unambiguous and the FAC only pleads in a conclusory manner that the promises were detailed. The FAC alleges that Defendants stated they would “bring in additional, experience national operations partners (“Operations Partners”) to handle the daily operations of the City Gas station” which had not yet been built nor was the location for the City Gas acquired by the City. (FAC, ¶ 45.) “HPC was the principal lead partner tasked with putting the Project details in writing, beginning the next phase of actual development”, with the first phase of the project being the construction of the City Gas station the City Parcel that had not yet been acquired. (FAC, ¶¶ 43, 52.)

As the P3 Project details were not put in writing by Defendants and the City had not moved to acquire the plot to build the City Gas station, the alleged promise on which Plaintiff relied appears to be ambiguous since no time frame was given as to when Defendants’ performance was due. Specifically, Plaintiff fails to plead facts to show that between March 18, 2022, when the Partnership Agreement was formed, and July 2022, shortly after Defendants backed out of the Agreement Plaintiff in reliance of the Agreement entered into an agreement with the Lincoln Avene Brewery and incurred expenses before realizing that Defendants no longer intended to abide by the agreement. (FAC, 54, 105.)

As the court finds that Plaintiff failed to plead facts to show that the promise was clear and unambiguous and that their reliance was reasonable and foreseeable, the demurrer to the third cause of action is sustained with leave to amend.

E. Fourth and Fifth Causes of Action – Interference with Prospective Economic Advantage and Negligent Interference with Prospective Economic Advantage

“The five elements for intentional interference with prospective economic advantage [(“IIPEA”)] are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.” (Youst v. Longo (1987) 43 Cal.3d 64, 71, fn. 6.) The tort of negligent interference with a prospective economic advantage (“NIPEA”) differs in that the defendant's act disrupting the economic relationship does not need to be intentional. (Venhaus v. Shultz (2007) 155 Cal.App.4th 1072, 1078.)“The tort of negligent interference with economic relationship arises only when the defendant owes the plaintiff a duty of care.” (Stolz v. Wong Communications Limited Partnership (1994) 25 Cal.App.4th 1811, 1825 [italics original].)

For both IIPEA and NIPEA, the interference must be wrongful by some legal measure other than the fact of the interference itself. (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 378.) “[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159.)

Defendants’ demurrer to the fourth and fifth causes of action on the grounds that the FAC fails to allege negligent or intentional acts designed to disrupt the Plaintiff’s economic relationship with the City of Adelanto and Kowrii Bank. (FAC, ¶¶ 11, 29, 41, 55, 56.) The FAC alleges that Defendants withdrew from the project shortly after July 2022. (FAC, ¶ 104.) Defendants withdrew by failing to re-schedule the in-person meeting despite Plaintiff and the City being on standby for a conference by lying about being sick with COVID-19. (FAC, ¶¶ 62, 64, Ex. 12, 13.)

The court finds that the FAC sufficiently alleges that the wrongful conduct was Defendants’ withdrawal from the Partnership resulting in the disruption of Plaintiff’s economic relationships because Defendants did not take the lead on the P3 Project and did not develop Plaintiff’s assets. (FAC, ¶ 103.) This soured any future relationship Plaintiff may have had with the City, the Lincoln Brewery, and the Bank. (FAC, ¶ 107.) Plaintiff lost out on potentially 30% of the profits in the Agreement with the Bank and expected profits from the P3 Project (FAC, ¶ 55, 105.)

Based on the above, the court finds that Plaintiff has pled facts sufficient to show that Defendants’ conduct was wrongful and disrupted Plaintiff’s economic relationships.

On reply, Defendants argue that Plaintiff fails to plead any independently wrongful conduct by Defendants. The court does not consider this argument. “Points raised for the first time in a reply brief will not be considered.” (Malmstrom v. Kaiser Aluminum & Chemical Corp. (1986) 187 Cal.App.3d 299, 320.)

“‘[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.’” (Hassov. Hapke (2014) 227 Cal.App.4th 107, 140 (quoting Committee on Children’s Television, Inc. v. General Foods Corp.(1983) 35 Cal.3d 197, 221).) “A fiduciary duty under common law may arise ‘when one person enters into a confidential relationship with another.’” (Id.) A¿partnership relationship is a fiduciary relationship. (See Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1338.)

Defendants’ demurrer to the sixth cause of action on the basis that the FAC fails to plead the existence of a fiduciary relationship because there was no Partnership Agreement. (FAC, ¶ 129.) As the FAC fails to allege the existence of a valid contract forming a Partnership Agreement, the demurrer to the sixth cause of action is sustained with leave to amend.

CCP § 128.7(b) provides that by presenting a pleading to the court, an attorney “is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met:

(1)¿It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

(2)¿The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.

(3)¿The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.

(4)¿The denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.

Section 128.7(c) provides that the court may impose monetary sanctions on an attorney who violates subdivision(b) or who is responsible for the violation. “Under section 128.7, a court may impose sanctions if it concludes a pleading was filed for an improper purpose or was indisputably without merit, either legally or factually. [Citation.]” (Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 189.) “[T]o obtain sanctions, the moving party must show the party's conduct in asserting the claim was objectively unreasonable. [Citation.] A claim is objectively unreasonable if ‘any reasonable attorney would agree that [it] is totally and completely without merit.’ [Citations.]” (Id.) No showing of bad faith is required. (In re Marriage of Reese & Guy (1999) 73 Cal.App.4th 1214, 1221.)¿

The Court may take judicial notice of records of any court of record of the United States. (Evid. Code, § 452(d)(2).) However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.)

1) The initial Complaint in this action, filed on August 24, 2023, in the matter entitled Holy Oil Partnerships v. Stephen Hightower, et al. (Los Angeles Superior Court Case No. 23STCV20381), a true and correct copy of which is attached hereto as Exhibit A.

2) The First Amended Complaint in this action, filed on March 1, 2024, in the above-referenced matter, a true and correct copy of which is attached hereto as Exhibit B.

3) The Demurrer to Plaintiffs’ First Amended Complaint in this action, filed on April 1, 2024, in the above-referenced matter, a true and correct copy of which is attached hereto as Exhibit C.

Defendants move for terminating sanctions on the basis that the causes of action asserted in the FAC are brought for an improper purpose, are completely frivolous, and lack evidentiary support in violation of CCP § 128.7. Defendants request that the following sanctions be imposed:

1) Terminating sanctions, i.e., an order dismissing this action in its entirety;

2) Monetary sanctions sufficient to reimburse Defendants for all attorneys’ fees and costs incurred as a direct result of defending this action, i.e., an amount presently equivalent to $38,122; and

The court denies Defendants’ Motion because the Motion is the equivalent of requesting that Plaintiff prove the facts of its case at the pleading stage. "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.) Discovery in this action has not been completed. Plaintiff may still prevail on its claims such that it would be premature for the court to rule that this action lacks merit without allowing Plaintiff to conduct discovery.

Furthermore, Defendants’ Motion reiterates points already raised in their demurrer. “The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of affidavits, declarations, depositions, and other such material which was filed on behalf of the adverse party and which purports to contradict the allegations and contentions of the plaintiff.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 605.)

Defendants’ demurrer to the first, second, third, and sixth causes of action are sustained with leave to amend and overruled as to the fourth and fifth causes of action. Defendants’ Motion for Sanctions is denied. Plaintiff is granted 30 days leave to amend. The court sets a Non-Appearance OSC RE: Amended Complaint for July 12, 2024, at 8:30 a.m. Defendants to give notice.

[1] Pursuant to CCP § 430.41, the meet and confer requirement has been met. (Maata Decl. ¶ 2-7, Ex. A, B.) Plaintiff asserts that the meet and confer was deficient because Defendant’s counsel asserted that the only rationale for the demurrer was that the FAC was frivolous and that he would move for sanctions. (Cortez Decl. ¶¶ 5-7.) “Any determination by the court that the meet and confer process was insufficient shall not be grounds to overrule or sustain a demurrer.” (CCP § 430.41(a)(4).) As the failure to meet and confer does not constitute grounds to overrule a demurrer, the court continues to review the merits.