Judge: Gail Killefer, Case: 23STCV26052, Date: 2024-03-29 Tentative Ruling

Case Number: 23STCV26052    Hearing Date: March 29, 2024    Dept: 37

HEARING DATE:                 Friday, March 29, 2024

CASE NUMBER:                   23STCV26052

CASE NAME:                        Jess Phoenix, et al v. La Tuna Stables LLC, et al.

MOVING PARTY:                 Defendants La Tuna Stables LLC and Sheila and Steven McClure

OPPOSING PARTY:             Plaintiffs Jess and Carlos Phoenix

TRIAL DATE:                        Not Set

PROOF OF SERVICE:           OK

PROCEEDING:                      Demurrer to Complaint

OPPOSITION:                        12 March 2024

REPLY:                                  None filed.

TENTATIVE:                         Defendants’ demurrer is overruled in its entirety. Defendant to give notice.

Background

On October 23, 2023, Jess and Carlos Phoenix (collectively “Plaintiffs”) filed a Complaint against Defendants La Tuna Stables LLC, Sheila McClure and Steven McClure (collectively “Defendants”) and Does 1 to 10.

The Complaint alleges fifteen causes of action: (1) Breach of Contract, (2) Breach of Implied Contract, (3) Breach of Implied Covenant of Good Faith and Fair Dealing, (4) Breach of Fiduciary Duty, (5) Unjust Enrichment, (6) Fraud-False Promise, (7) Fraudulent Misrepresentation, (8) Fraudulent Concealment, (9) Quantum Meruit, (10) Promissory Estoppel, (11) Money Had and Received, (12) Accounting, (13) Declaratory Relief, (14) Specific Performance, and (15) Quiet Title.

On January 10, 2024, Defendants filed a demurrer to Plaintiffs’ complaint in relation to the Plaintiffs’ fraud causes of action. On March 12, 2024, the Plaintiffs filed opposing papers. No reply has been filed. The matter is now before the court.

Discussion

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

The Complaint alleges that Jess Phoenix (“Jess”) and Carlos Phoenix (“Carlos”) (collectively “Plaintiffs”)  along with Defendants Sheila (“Sheila”) and Steven McClure (“Steven”) (collectively the “McClures” or Defendants”) were long-time friends and agreed in 2019  to engage in a joint venture to purchase an equestrian property and run a horse boarding business together. (Compl. ¶¶ 1, 4, 16, 19.) Defendant Steven is an officer of La Tuna Stables LLC and Defendant Sheila is an officer and director of La Tuna Stables LLC. (Coml. ¶¶ 8, 9.) La Tuna Stales LLC is alleged to be the alter ego of Defendants. (Compl. ¶ 12.)

In reliance on the agreement to be partners in a joint venture, Plaintiffs invested time, funds and resources into the joint venture only to learn that Defendants misrepresented their intent to share equally as partners the profits of the business and thereby breached their agreement to operate as a joint venture. (Compl. ¶ 1.) Plaintiffs worked countless hours improving and running the horse boarding business as the McClures had no equine knowledge and relied on the knowledge and experience of Plaintiffs to run the joint venture/partnership. (Compl. ¶¶ 1, 3, 17.)

In 2019, Defendants and Plaintiffs put in at least two offers to buy property for the business with the understanding that both parties would live on site and co-run the boarding business, but the offers fell through. (Compl. ¶¶ 21-23.)

Plaintiffs boarded their houses at 10149 La Tuna Canyon Road, Sun Valley, California 91352, commonly known as La Tuna Stables (hereinafter “La Tuna Stable” or “the Property”).  Plaintiffs used their relationship with the previous owners of the Property to convince them to sell the Property to Defendants with the understanding between Defendants and Plaintiffs that Plaintiffs would have an ownership interest in the Property as managing members of the LLC and that title of the Property would be transferred to the LLC. (Compl. ¶¶ 24 -27, 32, 37, Ex. 1.)

For purposes of the initial lender approving the loan, La Tuna Stables, LLC was formed and registered with the California Secretary of State, with Defendants as its members. (Compl. ¶¶ 32, 35.) Defendants represented that Plaintiffs would be added as managing members and, in reliance on those assurances, Plaintiff Carlos agreed to co-sign the loan and be added as a borrower as Defendants did not qualify for the loan without a cosigner. (Compl. ¶¶ 36, 40.) On or about June 29, 2021, escrow closed, the mortgage loan was funded, and Defendants took possession of the Property. (Compl. ¶¶ 39, 65.)

By April 2021, the Plaintiffs had a detailed business proposal for the partnership, with the agreement established orally on April 3, 2021, but confirmed repeatedly in writing and by the conduct of the parties. (Compl. ¶¶ 41, 44, 46, 48.) The agreement was that Plaintiffs and Defendants would share equally in profits, equity, and opportunity in the joint venture/ partnership. (Compl. ¶ 49.) These representations were echoed to outside parties, including extended family, vendors, contractors, and clients along with Plaintiffs being given access to the company email and software for managing employees, attending formal weekly meetings to discuss business priorities, revenue, expenses, employee staffing, marketing, and repairs. (Compl. ¶ 56, 59, 60, 61, 67, Ex. 2.) Plaintiffs contributed over $25,240.33 of their funds to the joint venture/partnership along with their equestrian skill and expertise. (Compl. ¶¶ 63, 64, 66, 70-72.) The parties ran La Tuna Tables as a joint venture/partnership with Plaintiffs initiating fundraisers, increasing boarding rates, and seeking cost-saving alternatives to cover gaps in funding. (Compl. ¶ 73.) Plaintiff Jess also passed revenue from her horse training to the LLC. (Compl. ¶ 76.)

By Fall of 2021, however, the business relationship began to break down.  Defendants down-played Plaintiffs’ contributions to the partnership and refused to add Plaintiffs to the LLC despite Plaintiff’s repeated requests. (Compl. ¶¶ 74, 77.)

In November 2021, Plaintiffs learned that without their notice or approval, Defendants took out a $250,000.00 credit line secured by the Property for a total home remodel rather than the previously discussed mold remediation. (Compl. ¶ 79.) Defendants continued to promise that Plaintiffs would be added as managing members of the LLC, with Defendant Shelia promising to handle the LLC setup and registration. (Compl. ¶¶ 80, 83.) The Defendants also promised that they would refinance the loan to remove Plaintiff Carlos. (Compl. ¶¶ 84, 85, 93.)

By September 2022, it became apparent to Plaintiffs that Defendants had no intention of adding Plaintiffs to the LLC or in removing Carlos as a co-lender.  Accordingly, Plaintiffs decided to proceed with unwinding the joint venture/partnership. (Compl. ¶¶ 86, 87.) The parties held a meeting, which was memorized in a September 23, 2022, email with Defendants responding on or about September 25, 2022, agreeing to unwind the joint venture/partnership and proceeding with removing Plaintiff Carlos from the loan. (Compl. ¶¶ 88-90.)  Defendants did not follow through as agreed and Defendant Sheila “represented on multiple occasions that she was refinancing the mortgage – February 2022, October 2022, November 2022, and January 2023.” (Compl. ¶¶ 91, 92, 94 95.) To date, Defendants continue to reap benefits from Plaintiffs’ contributions to the partnership to Plaintiffs’ detriment. (Compl. ¶¶ 96-110.)

Plaintiffs filed this action on October 25, 2023.  Defendants now demurrer to the sixth, seventh, and eighth causes of action.

B.        Sixth, Seventh, and Eighth Causes of Action - Fraud Causes of Action

Civ. Code § 1710 defines one species of deceit as “[a] promise, made without any intention of performing it.” “A cause of action for promissory fraud requires the plaintiff to allege that the promissor did not intend to perform at the time the promise was made, that the promise was intended to deceive and induce reliance, that it did induce reliance, and that this reliance resulted in damages.” (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1411.)

“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.) “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.)

The sixth and seventh causes of action related to Defendants’ promise that Plaintiffs would be partners and share profits in the enterprise equally by adding Plaintiffs as principles to the La Tuna Stables LLC. (Compl. ¶¶ 138, 48.) Defendants made these promises with the intent to defraud and induce Plaintiffs to rely on the promise to their detriment.  (FAC ¶¶ 139, 145, 149, 150, 152.)  Defendants have instead repudiated the partnership and have refused to sell the business, buy Plaintiffs out of the business, or allow Plaintiffs to sell their share of the business to third parties. (Compl. ¶ 144.)

“[T]he elements of an action for fraud and deceit based on a 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.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248.)

The eighth cause alleges that Defendants as partners and directors owed a fiduciary duty to Plaintiffs and failed to disclose their plans for the partnership which was to unlawfully oust Plaintiffs from the partnership and prevent the Plaintiffs from sharing equally in the partnership. (Compl. ¶¶ 130, 155, 156.) Plaintiffs did not know this, and had they known they would have acted differently. (Compl. ¶¶ 157, 158.)

Defendants demur to the sixth, seventh, and eighth causes of action consist of a single paragraph that states:

The Complaint sets forth the factual allegations at paragraphs 1-110. None provide any details about any alleged fraud, fraudulent misrepresentation, or fraudulent concealment, hence the Court must sustain Named Defendants’ demurrers as to the sixth, seventh, and eighth causes of action, both for failure to state facts sufficient to constitute a cause of action and for uncertainty.

(Demurrer at p. 6:16-10.) Defendant fails to state why the Complaint is uncertain and what specific facts are missing from the Complaint that makes the fraud causes of action insufficiently pled. The court finds the demurrer is without merit and having reviewed the Complaint, the court finds that the fraud causes of action are pled with the requisite specificity and any ambiguity can be clarified via discovery.

Accordingly, the demurrer is overruled in its entirety.

Conclusion

Defendants’ demurrer is overruled in its entirety. Defendant to give notice.