Judge: Gail Killefer, Case: 23STCV23845, Date: 2024-04-15 Tentative Ruling
Case Number: 23STCV23845 Hearing Date: April 15, 2024 Dept: 37
HEARING DATE: Monday, April 15, 2024
CASE NUMBER: 23STCV23845
CASE NAME: TruConnect Communications, Inc. v. Torq LLC
MOVING PARTY: Plaintiff/Cross-Defendant
TruConnect Communications, Inc.
OPPOSING PARTY: Defendant/Cross-Complainant Torq
LLC
TRIAL DATE: Not Set
PROOF OF SERVICE: OK
PROCEEDING: Demurrer to First Amended
Cross-Complaint
OPPOSITION: 27 March 2023
REPLY: None
Filed.
TENTATIVE: Plaintiff/Cross-Defendant’s TruConnect’s
demurrer to the FACC is sustained without leave to amend as the first cause of
action for fraudulent inducement, second cause of action for fraudulent
misrepresentation, and sustained with leave to amend as to the sixth cause of
action for common count. The demurrer to the third cause of action for breach
of Bus. & Prof. Code § 17200, the fourth cause of action for breach of
contract, and the fifth cause of action for declaratory relief are overruled.
Defendant/Cross-Complainant Torq is granted is granted 30 days leave to amend.
The court sets the OSC RE: Amended Complaint for May 29, 2024, at 8:30 a.m. Moving
Party to give notice.
Background
On October 2, 2023,
TruConnect Communications, Inc. (“Plaintiff” or “TruConnect”) filed a Complaint
against Torq LLC (“Defendant” or “Torq”) and Does 1 to 10. The Complaint
alleges two causes of action: (1) Breach of Contract and (2) Unjust Enrichment.
On December 14, 2022,
Torq filed a Cross-Complaint against TruConnect. The operative First Amended
Cross-Complaint (“FACC”), filed December 19, 2023, alleges six causes of action:
(1) Fraud – Inducement; (2)
Fraud-Misrepresentation; (3) Unfair Business Practices; (4) Breach of
Contract); (5) Declaratory Relief; and (6) Common Counts.
On January 23, 2024,
TruConnect filed a demurrer to the FACC. Defendant/Cross-Complainant Torq
opposes the demurrer. The matter is now before the court
request
for JUDICIAL notice
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.)
Plaintiff/Cross-Defendant
TruConnect requests judicial notice of the following:
1)
Exhibit A:
TruConnect’s Complaint filed December 2, 2023.
Plaintiff’s request
for judicial notice is granted.
I. Legal Standard
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.)
II. Demurrer[1]
A. Summary of Allegations in First Amended
Cross-Complaint (“FACC”)
Cross-Defendant
TruConnect is a prepaid wireless service that predominantly provides service to
low-income and lower-volume consumers. (FACC ¶¶ 9, 10.) TruConnect participates
in two federal programs that provide low-income individuals with discounts on phone
service, the “Lifeline” program, and the Affordable Connectivity Program
(“APC”) programs. (FACC ¶¶ 6,7.) Torq believes that TruConnect is wrongfully
profiting from the Lifeline and ACP Programs through its relationship with
distributors, such as Torq. (FACC ¶ 12.)
Torq opened for
business in 2018 to provide direct sales in communications. (FACC ¶ 13.) In the
fall of 2020, Torq’s Eric Wendland (“Wendland”) began discussions about a
distribution agreement with TruConnect’s Hao Zhang (“Zhang”) with Zang
proposing it would provide “an upstanding and valid business model” that would
allow Torq to serve low-income families. (FACC ¶¶ 13, 14.) On October 20, 20204,
Torq and TruConnect entered the “TruConnect Master Service Agreement.” (FACC ¶
14, Ex. A.) In December 2022, TruConnect sent a form agreement that would
replace all previous agreements between the parties that was signed by Wendland
on behalf of Torq on December 15, 2022 (the “Distributor Agreement”). (FACC ¶
17, Ex. B.)
Torq asserts that the
Distributor Agreement was “grossly one-sided” in TruConnect’s favor with a jury
waiver and bar to class actions buried in in the penultimate paragraph of the
Agreement and a provision that made the reasonable return of devices
impossible. (FACC ¶¶ 18, 19, 20.) Through the Distributor Agreement, TruConnect
also represented that it would “keep accurate books of account and records
covering all payments owed in relation to this Agreement….” (FACC ¶ 20.)
On May 12, 2023,
TruConnect sent Torq an invoice (the “May Invoice”) for $552,000.00 which Torq
believed to be inaccurate and issued in error since the volume of devices did
not match the number of devices transacted by Torq. Torq based this belief on the fact that the
unique international mobile equipment identity (“IMEI”) numbers did not match.
(FAC ¶ 22, fn. 5, Ex. C.) Torq notified TruConnect that the May Invoice was
incorrect, but TruConnect did not provide a corrected or updated Invoice, nor did
it insist that the numbers on the May Invoice were correct. (FACC ¶ 23.)
Given the May
Invoice, Torq proposed and TruConnect accepted, an interim payment arrangement
with Torq paying $10,000 per month so that Torq could audit TruConnect’s
accounting in the May Invoice. (FACC ¶ 24.) TruConnect advised it would produce
a written amendment to the Distributor Agreement addressing the interim
agreements. Instead, on September 25,
2023, TruConnect, through its lawyer, terminated the Distributor Agreement and
demanded that Torq pay $641, 007.00 by filing this action. (FACC ¶¶ 24, 25.)
Torq asserts that
TruConnect’s records from December 3, 2020, to September 1, 2023, show
inconsistencies in the number of orders shipped and the commission Torq
received, with the unique IMEI numbers confirming duplication of orders,
phantom devices, and inflated order quantities. (FACC ¶¶ 27-31.)
B. First and
Second Causes of Action – Fraudulent Inducement and Fraudulent
Misrepresentation
The elements of an action for fraud based on concealment
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.” (Mktg.
W., Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.) To
plead a cause of action for fraudulent misrepresentation, a plaintiff must
plead: (1) a false representation, (2) knowledge of falsity (scienter), (3)
intent to defraud (i.e., to induce reliance), (4) justifiable reliance, and (5)
resulting damage. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th
1226, 1239.)
Fraud must be pleaded specifically. To survive demurrer,
plaintiff must plead facts that “show how, when, where, to whom, and by what
means the representations were tendered.” (Hamilton v. Greenwich Investors
XXVI, LLC (2011) 195 Cal.App.4th 1602, 1614.) “[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.’ ” (Tenet
Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245
Cal.App.4th 821, 838 citing Lazar v. Superior Court (1996) 12
Cal.4th 631, 645.)
Cross-Defendant TruConnect demurs to the first and second
causes of action on the basis that the fraud claims are not pled with the
requisite specificity.
The first cause of action alleges that Torq was induced to
enter into a business relationship with TruConnect by the promises made by Hou
Zhang. The FACC only alleges that Zhang promised “to provide an
upstanding and valid business model,” a representation that relates to a future
event, not a past or present material fact. (FACC ¶ 14.) “The law is well established
that actionable misrepresentations must pertain to past or existing material
facts. [Citation.] Statements or
predictions regarding future events are deemed to be mere opinions which are
not actionable. [Citations.]” (Cansino v. Bank of America (2014) 224
Cal.App.4th 1462, 1469–1470.) Moreover, TruConnect asserts that the FACC fails
to provide sufficient facts to show that Zhang’s statements about providing an
upstanding and valid business model did not pertain to an opinion or matters of
judgment that are not actionable representations of fact. (See Graham
v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 606 [“ A representation is
an opinion ‘if it expresses only (a) the belief of the maker, without
certainty, as to the existence of a fact; or (b) his judgment as to quality,
value ... or other matters of judgment’ ”].)
As to the allegation
that TruConnect was
obligated to provide “accurate books of account and records,” the Distribition
Agreement imposed this obligation on TruConnect. Therefore, this was a contractual obligation, not a
representation made to Torq. (FACC ¶ 20.) A breach of such obligation is
recoverable through a breach of contract claim, not a fraud claim.
The second cause of action relates to allegations that
TruConnect inflated figures for devices, including duplication of IMEI numbers
for devices and invoices. (FACC ¶¶ 39, 40.) Torq alleges that TruConnect
provided improper accounting based upon representations made in its invoices,
causing Torq to rely on the misrepresented invoices and incur damages. (FACC ¶¶
41-44.)
TruConnect argues that allegations of improper accounting
are nothing more than an allegation that TruConnect failed to perform under the
Distributor Agreement such that the claims should be subsumed under the breach
of contract claim. California law does not permit a plaintiff to recover 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 FACC fails to explain why contract damages
would be insufficient to compensate Torq for paying improper invoices to
TruConnect. Here, the damages alleged by Torq in the FACC are purely economic
in nature; Torq does not allege physical harm or exposure of liability for
personal damages. “Not all tort claims for monetary losses between contractual
parties are barred by the economic loss rule. But such claims are barred when
they arise from — or are not independent of — the parties’ underlying
contracts.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th
905, 923.)
Torq’s opposition fails to show how the first and second
causes of action are capable of successful amendment. Accordingly, the demurrer
to the first and second cause of action is sustained without leave to amend.
C. Third Cause of Action – Unfair Competition Law
Business and Professions
Code § 17200 (“UCL”) prohibits “any unlawful, unfair or fraudulent business act
or practice.” (Bus. & Prof. Code, § 17200; see Clark v.
Superior Court (2010) 50 Cal.4th 605, 610.) To plead this statutory
claim, the pleadings must state with reasonable particularity the facts
supporting the statutory elements of the violation. (Khoury v. Maly's of
California, Inc. (1993) 14 Cal.App.4th 612, 619 (Khoury).)
“An unlawful business
practice or act is an act or practice, committed pursuant to business activity,
that is at the same time forbidden by law.” (Klein v. Earth Elements, Inc.
(1997) 59 Cal.App.4th 965, 969.) “A business practice is unfair within the
meaning of the UCL if it violates established public policy or if it is
immoral, unethical, oppressive or unscrupulous and causes injury to consumers
which outweighs its benefits.” (McKell v. Washington Mutual, Inc. (2006)
142 Cal.App.4th 1457, 1473.) Lastly, a fraudulent business practice claim under
section 17200 “is not based upon proof of the common law tort of deceit or
deception, but is instead premised on whether the public is likely to be
deceived.” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490,
1499.)
The FACC alleges that TruConnect engaged in unlawful, unfair
and fraudulent business practices in violation of the UCL by inflating
transactions for the purpose of generating and obtaining improper subsidies.
(FACC ¶¶ 46, 47.) “Such practices
directly impact and harm the public in that they undermine the purpose and
intent of the government’s programs to provide communications systems to
low-income households.” (FACC ¶ 47.) Therefore, Torq seeks a temporary or
permanent injunction to stop TruConnect from engaging in further acts that
violated the UCL and harmed the public as there is no adequate remedy at law.
(FACC ¶ 49.)
To assert a claim under each of the three prongs of the UCL,
each fact that belongs to each of the three prongs must be pled with
particularity. (Khoury, supra, 14 Cal.App.4th at p. 619.) A claim under
the unlawful prong of the UCL is only as good as the underlying claim of “unlawfulness”
on which it rests. (Id. at p. 619.) The fraud prong fails to allege how
the reasonable consumer is likely to be deceived by TruConnect’s billing
practices or business model. (Sepanossian v. National Ready Mix Company,
Inc. (2023) 97 Cal.App.5th 192, 200.) However, the unfair prong of the UCL
claim is properly pled as it alleges that TruConnect’s inflated transaction resulted
in it obtaining improper government subsidies, which offends public policy.
Cross-Defendants also demurrer to the third cause of action
on the basis that Torq lacks standing to assert a UCL claim as it is neither a
consumer nor a competitor. “[W]here a UCL action is based on
contracts not involving either the public in general or individual consumers
who are parties to the contract, a corporate plaintiff may not rely on the UCL
for the relief it seeks.” (Linear Technology Corp. v.
Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 135 (Linear
Technology). In
Linear Technology, the UCL claims of the alleged victims were dismissed
because the victims “were neither competitors nor powerless, unwary consumers” but “corporate
customers . . . ‘each with each of which
presumably has the resources to seek damages or other relief ... should it
choose to do so.’ [Citation.]” (Id. at p. 135.)
Here, however, Torq has alleged that it “had had business dealings with a defendant and had lost
money or property as a result of the defendant's unfair business practices.” (Clayworth v. Pfizer, Inc. (2010) 49 Cal. 4th 758, 788
[italics original].) The FACC properly alleges that Torq lost money because of
TruConnect’s unfair competition sufficient to show that Torq suffered an injury. This fact is sufficient to confer standing on
Torq to bring a UCL claim under the unfair prong of the UCL. (See Law
Offices of Mathew Higbee v. Expungement Assistance Services (2013)
214 Cal.App.4th 544, 555–556; Kwikset Corp.
v. Super. Ct. (2011) 51 Cal.4th 310,
322.)
As a demurrer does not lie in part of a cause of action and
Torq has properly pled a UCL claim under the ‘unfair prong’ of the UCL, the court
overrules the demurrer to the third cause of action.
D. Fourth Cause of Action – Breach of
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.)
“If the action is based on
alleged breach of 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, 308.) Alternatively, “a plaintiff may 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.)¿¿“[A]ll essential elements of a breach of contract cause of action []
must be pleaded with specificity.”¿(Levy v. State Farm Mutual Automobile
Ins. Co. (2007) 150 Cal.App.4th 1, 5.)
The first part of the fourth cause of action pertains
to the Distributor Agreement and the devices TruConnect agreed to ship to Torq
in a “mutually agreed upon number.” (FACC ¶
52, Ex. B.) Torq alleges that TruConnect breached paragraph 20 of the
Distributor Agreement by failing to “keep accurate books of account and records covering all
payments owed in relation to this Agreement….” (FACC ¶ 52, Ex. B,¶ 20.) TruConnect improperly accounted for devices
and services under the Distributor Agreement. (FACC ¶ 53.) ‘
The second part of the fourth cause of action pertains to
the alleged amendments TruConnect agreed to after the May Invoice, allowing Torq
to contribute portions of the commission back to TruConnect while Torq did its
Audit. (FACC ¶ 54.) However, TruConnect failed to provide a written amendment
for these amendments in the Distributor Agreement. (FACC ¶ 54.) In the summer
of 2023, TruConnect retracted the amendments and breached them by reverting to
the pre-amendment terms and demanding that TruConnect abide by “improper
accounting.” (FACC ¶ 55.)
On demurrer, TruConnect alleges that Torq has alleged a
proper breach of contract claim for the Distributor Agreement despite the
allegation that TruConnect improperly filed this lawsuit in violation of the provision
allowing Defendant 10 days to return the devices. (FACC ¶ 55.) As a demurrer
does not lie in a portion of a cause of action, the demurrer to the fourth
cause of action is overruled. (PH II, Inc. v. Superior Court (1995) 33
Cal.App.4th 1680, 1682; Fremont Indemnity Co. v. Fremont General Corp.
(2007) 148 Cal.App.4th 97, 119.)
E. Fifth Cause of Action – Declaratory Relief
“[W]hen the parties maintain a contractual relationship
which will continue after resolution of the immediate dispute, and may give
rise to additional claims, declaratory relief can help guide their future
conduct and avoid multiple lawsuits.” (Cardellini v. Casey (1986) 181
Cal.App.3d 389, 396.) “The fundamental basis of declaratory relief is the
existence of an actual, present controversy over a proper subject.” (Otay
Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 562 [internal
citations and quotations omitted].)
The fifth cause of action seeks a judicial determination that
TruConnect is employing fraudulent accounting practices that are harming Torq
and the public through improper inflating transaction data to obtain wrongful
and improper subsidies. (FACC ¶ 60.)
As TruConnect has terminated the Distributor Agreement,
there is no present controversy regarding the parties' future relationship and
Torq’s breach of contract claim properly seeks damages for TruConnect’s past
wrongful accounting actions.
However, as TruConnect continues to operate and the public
remains likely to be deceived by TruConnect’s accounting practices, a present
actual conversely exists regarding the validity of TruConnect’s business
practices. Furthermore, Torq has alleged a viable UCL claim. (See City of
Cotati v. Cashman (2002) 29 Cal.4th 69, 80 [“. . . ‘a request for
declaratory relief will not create a cause of action that otherwise does not
exist.’”]; see also Gilkyson v. Disney Enterprises, Inc. (2016) 244
Cal.App.4th 1336, 1347 [declaratory relief cause of action cannot exist without
valid underlying claim].)
Based on the above, the demurrer to the fifth cause of
action is overruled.
F. Sixth Cause of Action – Common Count
“The only essential allegations of a common count are “(1)
the statement of indebtedness in a certain sum, (2) the consideration, i.e.,
goods sold, work done, etc., and (3) nonpayment.’ [Citation.]” (Farmers
Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.)
Incorporating Paragraphs 1 through 61, the sixth cause of
action alleges that TruConnect “became indebted to Cross-Complainant, as set
forth above, in an amount according to proof, plus subsequently accruing late
charges, interest, attorney’s fees and costs.” (FACC ¶ 63.)
Cross-Defendant demurs to the sixth cause of action on the
basis that Torq does not specify which common count it pleads (open book
account, account stated money had and received etc.) and does not allege a sum
certain. In opposition, Torq alleges that it was damaged in the sum of
$3,300,000.00 for work done in reliance on the promises and obligations under
the parties’ contracts such that TruConnect became indebted to Torq. (FACC ¶¶ 21,
24, 57, 63.) Paragraph 57 alleges that Torq was damaged in an amount “exceeding
$3,300,000.00 plus interest” such that no sum certain is provided. Moreover,
Torq fails to specify under which common count it seeks recovery of its money.
(See McBride v. Boughton (2004) 123 Cal.App.4th 379, 394 [“a common
count is not a specific cause of action”].)
Therefore, the demurrer to the sixth cause of action is
sustained with leave to amend.
Conclusion
Plaintiff/Cross-Defendant’s
TruConnect’s demurrer to the FACC is sustained without leave to amend as the
first cause of action for fraudulent inducement, second cause of action for
fraudulent misrepresentation, and sustained with leave to amend as to the sixth
cause of action for common count. The demurrer to the third cause of action for
breach of Bus. & Prof. Code § 17200, the fourth cause of action for breach
of contract, and the fifth cause of action for declaratory relief are
overruled. Defendant/Cross-Complainant Torq is granted is granted 30 days leave
to amend. The court sets the OSC RE: Amended Complaint for May 29, 2024, at
8:30 a.m. Moving party to give notice.