Judge: Gail Killefer, Case: 24STCV00604, Date: 2024-08-14 Tentative Ruling

Case Number: 24STCV00604    Hearing Date: August 14, 2024    Dept: 37

HEARING DATE:                 Thursday, August 14, 2024

CASE NUMBER:                   24STCV00604

CASE NAME:                        Vetsnap, Inc. v. Gregory Schimpff

MOVING PARTY:                 Defendant Gregory Schimpff

OPPOSING PARTY:             Plaintiff Vetsnap, Inc.

TRIAL DATE:                        Not set.

PROOF OF SERVICE:           OK

PROCEEDING:                      Demurrer to Second Amended Complaint

OPPOSITION:                        1 August 2024

REPLY:                                  6 August 2024

TENTATIVE:                         Defendant’s demurrer is sustained as to the eighth cause of action with leave to amend and overruled as to the ninth cause of action. Plaintiff is granted 10 days leave to amend. The court sets a Non-Appearance OSC RE: Amended Complaint for September 23, 2024, at 8:30 a.m. Defendant to give notice.

Background

On January 9, 2024, Vetsnap, Inc. (“Plaintiff”) filed a Complaint against Gregory Schimpff (“Defendant”) and Does 1 to 10.

On April 17, 2024, the operative Second Amended Complaint (“SAC”) was filed alleging nine causes of action:

1)     Fraudulent Inducement;

2)     Fraud by Intentional Misrepresentation,

3)     Fraud by Concealment;

4)     Breach of Fiduciary Duty;

5)     Negligent Misrepresentation;

6)     Promissory Estoppel;

7)     Illegal Use of Domain (Pen. Code, § 502);

8)     Intentional Interference with Contractual Relations; and

9)     Negligent Interference with Prospective Economic Advantage.

Defendant now demurs to the SAC. Plaintiff opposes the Motion. The matter is now before the court.

Demurrer[1]

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.        Discussion

The SAC alleges in 2019 and 2020, Defendant along with his friend Yangyang Shi (“Shi”) and Steven Elliot (“Elliot”) launched  Vetsnap Corporation (“Plaintiff”). (SAC, ¶ 2.) In the months leading up to the founding of Plaintiff corporation, Defendant misrepresented his skills, experience, willingness to work, and industry relationships. (Id., ¶¶ 22-23.) Based on Defendant’s representations, Shi and Elliot agreed to co-found Vetsnap with Defendant and provide him with a $100,000 per year salary and more than 3,000,000 shares of the new company. (Id., ¶¶ 33-39, Ex. 1 .)

The SAC alleges that in the 27 months that Defendant worked for Plaintiff, he was willfully negligent in all areas he had boasted strength and underperformed and failed to advance sales and ruled valuable sales opportunities. (SAC, ¶¶ 37-70.) By the summer of 2022, Defendant admitted that he was unable to perform major marketing for Plaintiff. (Id, ¶¶ 59-61, 88.) Defendant initially agreed to a smooth transition out for Plaintiff but later refused to follow through on the agreement before quitting on October 27, 2022. (Id., ¶¶ 91-96.)

After Defendant quit Plaintiff’s employment, he logged into Plaintiff’s Adobe Acrobat Sign account using his company email and a personal password and proceed to terminate Plaintiff’s Adobe Acrobat Sign account, resulting in Adobe contacting all of Plaintiff’s vendors to inform them that the contracts were being terminated. (SAC, ¶ 97.) Plaintiff owned the Adobe Acrobat Sign account and Defendant did not have permission to access the account after his departure. (Id., ¶ 98.) “Vetsnap had to spend substantial time and resources to rectify the situation.” (Id.)

Defendant now demurs to the eighth and ninth causes of action for Intentional Interference with Contractual Relations (“IICR”) and Negligent Interference with Prospective Economic Advantage (“NIPEA”).

A.        Eighth Cause of Action - Intentional Interference with Contractual Relations (“IICR”)

“The elements of a cause of action for intentional interference with contractual relations are ‘(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4)  actual breach or disruption of the contractual relationship; and (5) resulting damage.’ ” (Redfearn v. Trader Joe's Co. (2018) 20 Cal.App.5th 989, 997, citing Reeves v. Hanlon(2004) 33 Cal.4th 1140, 1148.)¿ 

“Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage, it is not necessary that the defendant’s conduct be wrongful apart from the interference with the contract itself.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55 (Quelimane) [internal citations omitted]; see also CACI 2201.)

For IICR, the SAC alleges that Plaintiff had a valid contract with Adobe and other doctors and/or medical organizations, Defendant was aware of these contracts, but prior to his departure he deliberately breached and/or disrupted Plaintiff’s contractual relations “through his willful neglect of his duties.” (SAC, ¶¶ 160-164.) After his departure, Defendant deliberately disrupted Plaintiff’s relationship with Adobe, Plaintiff relationship with Adobe and its vendors was terminated, and Plaintiff lost the goodwill of its customers “as a result of Schimpff’s neglect.” (Id. at pp. 165-168.) Plaintiff was damaged because of Defendant’s conduct. (Id., at p. 169)

In Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945, the appellate court explained that even if a defendant could assert a privilege against liability for interference with a contract on the basis that the defendant had an ownership interest in the entity’s contract such that he cannot interfere with his own contract, such an assertion was a defense and “because the privilege is a defense, it was not amenable to determination on demurrer.” (Id., at p. 963 referencing Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344, 351, fn. 7.) Recently, the California Supreme Court concluded that “a defendant who is not a party to the contract or an agent of a party to the contract is not immune from liability for intentional interference with contract by virtue of having an economic or social interest in the contract.” (Caliber Paving Company, Inc. v. Rexford Industrial Realty and Management, Inc. (2020) 54 Cal.App.5th 175, 187.) Therefore, the fact that Defendant had an ownership interest in Plaintiff does not mean that he cannot be held liable for interference with Plaintiff’s contracts.

However, the SAC alleges that Defendant’s interference was not intentional but due to Defendant’s “neglect”  and “willful neglect of his duties.” (SAC, ¶¶ 164, 166.) Plaintiff fails to show that willful neglect amounts to intentional conduct sufficient to support a claim for IICR.” “While a plaintiff may satisfy the intent requirement by pleading specific intent, i.e., that the defendant desired to interfere with the plaintiff’s prospective economic advantage, a plaintiff may alternately plead that the defendant knew that the interference was certain or substantially certain to occur as a result of its action.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1154 (Korea).) The SAC fails to allege that Defendant acted with the specific intent to interfere with Plaintiff’s contract or that Defendant knew his interference with the contract was certain or substantially certain to occur due to his conduct.

Lastly, while Quelimane held that independent wrongful conduct is not necessary, the California Supreme Court held in Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1148 that independent wrongful conduct is necessary for at-will contracts. Accordingly, Plaintiff must plead that the contracts Defendant interfered with were not at-will contracts and do not require independent wrongful conduct.

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

                       B.          Ninth Cause of Action – Negligent Interference with Prospective Economic Advantage (“NIPEA”)

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 a NIPEA claim, the interference must be wrongful by some legal measure other than the fact of the interference itself. (See Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 378.) “[T]he same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts.”¿ (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774.)¿ However, “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.”¿ (Erlich v. Menezes (1999) 21 Cal.4th 543, 551 [italics added]; see also Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515 [‘ “An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.” ’ [internal quotation marks and citations omitted].) “[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, supra, 29 Cal.4th at p. 1159.)

As to the NIPEA claim, the SAC alleges Plaintiff had several economic relationships with current and prospective customers and independent contracts that had the probability of future economic benefit for Plaintiff. (SAC, ¶ 172.) On one occasion, during Defendant’s employment, Defendant interfered with Plaintiff’s prospective relationship with BetterVet by promising “an inappropriately low price” for Plaintiff’s products and not validating a contract with a third-party vendor, resulting in the loss of the deal, loss of $60,000 in an accounts receivable, and loss to Plaintiff’s valuation. (SAC, ¶ 173.) Furthermore, two contractors who were strong and experienced salespeople were terminated due to Defendant misrepresenting their performance and advocating their termination, depriving Plaintiff of the economic benefit of their labor. (SAC, ¶ 174.) As Plaintiff’s officer and co-founder, Defendant owed a duty of care to Plaintiff. (SAC, ¶ 177.)

Defendant demurs to the NIPEA claim on the basis that Plaintiff fails to allege independent wrongful conduct. Plaintiff points to the other causes of action for fraudulent inducement, fraudulent misrepresentation, and breach of fiduciary duty as wrongful independent conduct sufficient to sustain a NIPEA claim. (Opposition, at p. 14:1-6.)

Defendant argues that the fraud-based causes of action and the breach of fiduciary duty, while wrongful, is not conduct related to the interference itself and is insufficient to show independent wrongful conduct. “A plaintiff need not allege the interference and a second act independent of the interference. Instead, a plaintiff must plead and prove that the conduct alleged to constitute the interference was independently wrongful, i.e., unlawful for reasons other than that it interfered with a prospective economic advantage.” (Stevenson Real Estate Services, Inc. v. CB Richard Ellis Real Estate Services, Inc. (2006) 138 Cal.App.4th 1215, 1224.)

The SAC fails to allege that the misrepresentations Defendant made about his marketing and sales experience, or lack thereof, occurred at the same time Defendant interfered with the BetterVet contract or the contract with the two independent contractors. However, the fourth cause of action for breach of fiduciary duty, did occur while Defendant was an officer and Defendant’s deception about his competence and capability caused interference with the BetterVet contract and the contract with the two independent contractors. (SAC, ¶¶ 131-135.) Therefore, the SAC does allege a viable NIPEA claim.

While a demurrer does not lie in part of a cause of action, the court notes that the SAC fails to allege what duty Defendant breached after he left Plaintiff’s employment that is sufficient to sustain an NIPEA claim for conduct occurring after Defendant’s employment with Plaintiff. (See Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119[“A demurrer must dispose of an entire cause of action to be sustained”].)

Therefore, the demurrer to the ninth cause of action is overruled.

Conclusion

Defendant’s demurrer is sustained as to the eighth cause of action with leave to amend and overruled as to the ninth cause of action. Plaintiff is granted 10 days leave to amend. The court sets a Non-Appearance OSC RE: Amended Complaint for September 23, 2024, at 8:30 a.m. Defendant to give notice.