Judge: Gail Killefer, Case: 24STCV23381, Date: 2025-02-03 Tentative Ruling

Case Number: 24STCV23381    Hearing Date: February 3, 2025    Dept: 37

HEARING DATE:                 Monday, February 3, 2025

CASE NUMBER:                   24STCV23381

CASE NAME:                        CS Consulting Group Inc. v. Tribe Knits Inc.; Amit Sanan

MOVING PARTY:                 Defendants Tribe Knits Inc. and Amit Sanan

OPPOSING PARTY:             Plaintiff CS Consulting Group Inc.

TRIAL DATE:                        Not set

PROOF OF SERVICE:           OK

PROCEEDING:                      Demurrer to Complaint

OPPOSITION:                        10 January 2025

REPLY:                                  16 January 2025

TENTATIVE:                         Defendants’ demurrer to the Complaint is sustained as to the third cause of action and overruled as to the first, second and fourth cause of action. Plaintiff is granted 10 days leave to amend. The court sets the OSC RE: Amended Complaint for February 24, 2025, at 8:30 a.m., and continues the Case Management Conference to the same date and time. Defendant to give notice.

Background

On September 10, 2024, CS Consulting Group Inc. (“Plaintiff” or “CS Consulting”) filed a Complaint against Tribe Knits Inc. (“Tribe Knits”); Amit Sanan (“Sanan”) (collectively “Defendants”); and Does 1-10. The operative Complaint alleges four causes of action: (1) Fraud; (2) Negligent Misrepresentation; (3) Breach of Contract; and (4) Breach of Implied Warranty.

On November 26, 2024, Defendants filed a demurrer to Plaintiff’s Complaint. The Plaintiff opposes the Motion. 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 in Complaint

Plaintiff CS Consulting is a sourcing agent for finished textile goods. (Compl., ¶ 8.) Defendant Tribe Knits (“Tribe Knits”) is a supplier of finished goods. (Id. ¶ 9.) Defendant Amit Sanan (“Sanan”) is the CEO and CFO of Defendant Tribe Knits. (Id. ¶ 9.) Li & Fung Limited (“Li & Fung”) is a supply chain logistics firm that manages the sourcing, transportation, and distribution of goods along a business’s supply chain. (Id. ¶ 10.) Li & Fung contacted Plaintiff to inquire whether it had a source for hooded sweatshirts (“hoodies”) for its clients Vortex Optics and Vortex Wear (collectively “Vortex”), an optical scope and apparel company. (Id. ¶ 11.)

On or about February 2023, representatives of the Parties had oral conversations to discuss whether Defendant Tribe Knits had a supply of hoodies. (Compl. ¶ 12.) During these conversations, Plaintiff’s representatives, namely, Costa Spanos (“Spanos”)—the CEO of Plaintiff CS Consulting—emphasized to Defendant Sanan that the hoodies must be of first quality and that Vortex was particular about the quality of the hoodies they sell. (Id. ¶ 12, fn. 1.)

On or about March 2023, Plaintiff alleges Defendant Sanan represented to Spanos via phone call and during in person conversations: “1) that the finished apparel goods were of first quality; 2) that the finished apparel goods conformed to the specifications that Vortex had sent to Tribe Knits; and 3) that the finished apparel goods were produced from the same factory in Pakistan.” (Compl. ¶ 13.) On March 22, 2023, Spanos sent Defendant Sanan a text message asking for a size chart for the hoodies that Sanan would be supplying to Plaintiff. (Id. ¶ 13.) In response, Sanan texted Mr. Spanos back with a size chart specifying the detailed measurements of the promised hoodies from size small to size extra extra-large. (Id.  ¶ 13.) Defendants supplied a sample hoodie to Plaintiff, who then mailed the sample to Li & Fung to be approved by Vortex. (Compl. ¶ 14.) Vortex reviewed the sample and approved it. Thereafter, through Plaintiff, Vortex ordered 20,000 blank hoodies and 15,000 hoodies pre-printed with Vortex’s logo. (Id. ¶ 14.)

Plaintiff alleges that Defendant Sanan knew his representations about the hoodies’ quality, sizes, and factory of origin were untrue when he made them to Spanos because Tribe Knits supplied the hoodies. (Compl. ¶ 15.) Plaintiff relied on Defendant Sanan’s misrepresentations and assurances and Tribe Knits’ position as a commercial supplier of finished goods in the textile industry when Plaintiff entered into three contracts with Tribe Knits to purchase hoodies with certain specifications. (Id. ¶ 16.) These contracts are reflected in the invoices that Tribe Knits issued to Plaintiff on April 24, May 8, and June 22, 2023 (collectively, “2023 Invoices”) in exchange for first quality hoodies. (Compl., ¶¶ 16-17, Ex. 3.)

Plaintiff performed all its obligations when it paid Defendant Tribe Knits the purchase price of the hoodies. (Compl. ¶ 18.) Plaintiff received a shipment of 15,000 hoodies from Defendant and Plaintiff transported them to Mexico, where Plaintiff’s printer factory printed Vortex’s logo on the hoodies. (Id. ¶¶ 18, 19.) Plaintiff then arranged for the pre-printed hoodies to be shipped to Vortex and for the remainder of the blank hoodies to be delivered to Vortex. (Id. ¶ 19.)

Once it received the hoodies on or about August 2023, Vortex conducted an investigation+ on the quality of the hoodies and found that many of the hoodies were nonconforming across sizes. (Compl. ¶ 20.) As a result, on August 29, 2023, Li & Fung sent an email to Spanos to relay that the hoodies were nonconforming. (Id. ¶ 20.) On the same day, Mr. Spanos forwarded this email to Defendant Sanan to apprise him of the nonconforming hoodies from Defendant Tribe Knits. (Id. ¶ 20.) Defendant Sanan did not respond to the email. (Id. ¶ 20.)

Because of the large number of nonconforming hoodies, Vortex and Li & Fung hired

a third-party auditing firm (i.e., Melmarc) to perform an audit on the quality of the hoodies that Defendant Tribe Knits produced. (Compl. ¶ 21.) In its report, Melmarc concluded that at least 14,000 hoodies failed inspection. (Ibid.) The audit found inconsistencies in the sizing and fabrics of the hoodies. (Ibid.) As a result of uncovering the nonconforming hoodies, Vortex rejected 15,559 blank hoodies and 6,667 pre-printed hoodies. (Ibid.) On February 2, 2024, Spanos notified Defendant Sanan via email that the finished goods were nonconforming. (Id. ¶ 22.) Defendant Sanan did not respond to Spanos’s email. (Ibid.) On February 14, 2024, a representative of Vortex emailed a representative of Li & Fung that Vortex wanted a refund on the hoodies that it ordered. (Id. ¶ 21, Ex. 6).

Plaintiff alleges that Defendant Tribe Knits breached the 2023 Invoices by delivering nonconforming hoodies that did not conform to Vortex’s specifications. (Compl. ¶ 23.) Moreover, Plaintiff claims that Defendant Sanan misrepresented the quality of the hoodies that Tribe Knits was capable of producing. (Ibid.) Plaintiff also alleges that the hoodies that Tribe Knits produced were not first quality, did not have consistent measurements across sizes, did not have consistent fabric quality, and were produced at different factories. (Ibid.)

Vortex and Li & Fung sought a refund of the hoodies from Plaintiff. (Compl. ¶ 24.) Plaintiff agreed to receive the nonconforming hoodies from Vortex and to refund Li & Fung the purchase price for the nonconforming hoodies. (Ibid.) In so doing, Plaintiff alleges Plaintiff incurred the following costs: $16,452.17 to compensate Vortex for the cost of auditing the hoodies; $4,550.00 to transport the nonconforming hoodies to a storage facility; $3,536.00 to store the nonconforming hoodies (the costs of which are continuing to accrue); and $186,104.00 to refund Li & Fung for the nonconforming hoodies. (Ibid.)

As a result of Defendant Sanan’s fraud and Defendant Tribe Knits’ breach, Plaintiff lost profits in the amount of $38,400.48. Plaintiff claims harm in an amount no less than $249,042.48. (Compl. ¶ 25.) On July 24, 2024, Plaintiff’s counsel sent Defendants a demand letter for $200,142.94 and for Tribe Knits to accept the return of the nonconforming hoodies. (Compl. ¶ 26.)

Defendants now demur to all causes of action alleged in the Complaint.

B.        First and Second Causes of Action for Fraud and Negligent Misrepresentation

“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 elements of negligent misrepresentation, a form of deceit, are misrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another's reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage.” (Home Budget Loans, Inc. v. Jacoby & Meyers Law Offices (1989) 207 Cal.App.3d 1277, 1285.)

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 quotation marks omitted].) The existence and scope of a property owner’s duty are legal questions for the court. (Annocki v. Peterson Enterprises, LLC (2014) 232 Cal.App.4th 32, 36.) 

As the fraud and negligent misrepresentation causes of action, the Complaint alleges that Plaintiff agreed to purchase the hoodies and pay the 2023 Invoices because Defendant Sanam, falsely made the representation that the hoodies Tribe Knits could produce would be of first quality, have consistent measurements across sizes, consistent fabric quality, and would be produced at the same factories. (Compl. ¶ 23.)  Defendant Sanan knew or should have known of Tribe Knits’ production capabilities as he was the CEO and CFO. (Id. ¶¶ 9, 15.) Defendant Sanan’s representations were false when me made them and with the intent to induce Plaintiff’s reliance to enter into the Agreement and win Plaintiff’s, Li & Fung’s and Vortex’s business. (Id. ¶¶ 13, 30.) Plaintiff reasonably relied on Defendant Sanan’s representations resulting in damages of not less than $249,042.48. (Id. ¶ 32.)

Defendants assert the Plaintiff’s lack of action was the substantial cause for its alleged harm. Defendants point to the 2023 Invoices which clearly state that the hoodies must be returned within 7 days if Plaintiff wished to rescind the contract. (Compl. ¶ 3.) Defendants also assert that Plaintiff was aware the goods may have been non-conforming by at least August 29, 2023, but continued to retain the hoodies for over six months. (Id. ¶ 29, Ex. 5.)

Plaintiff’s opposition disputes Defendants’ proposed interpretation of the 2023 Invoices and asserts that the representations were made to induce Plaintiff to order and purchase the hoodies from Defendants for Defendants’ benefit. Plaintiff asserts that because of Defendant Sanan’s misrepresentations, the nonconforming hoodies had to be audited, transported, stored, refunded, and led to lost profits. Plaintiff states these damages would not have occurred but for Defendant’s misrepresentations that induced Plaintiff to rely on them.

Defendants point to the refund provision in the 2023 Invoices, but the Invoices are silent as to the quality of the hoodies and the possible substantial effect that would have on Plaintiff’s rescinding of the transaction.

Defendants fail to show how the fact the Invoices had a 7-day return/exchange policy excuses Defendants liability for damages proximately caused by fraud regarding the sizing and quality of the hoodies. “Although contributory negligence is a matter of defense, it may be raised by demurrer if its existence appears upon the face of the complaint[.]” (Carlisle v. Kanaywer (1972) 24 Cal.App.3d 587, 591.)

The Complaint presents issues of fact as to whether Plaintiff was negligent in not inspecting the hoodies prior to shipping them to Vortex and if Vortex contributed to the negligence by conducting an audit rather than seeking to exchange/return the hoodies as required by the 2023 Invoices. (Compl. ¶¶ 20-25.) Consequently, Defendant’s allegations of contributory negligence presents a question of fact. (See Ewing v. Cloverleaf Bowl (1978) 20 Cal.3d 389, 399 [affirmative defenses of contributory negligence and assumption of risk are also questions of fact].) Moreover, Defendants fail to show that a claim of contributory negligence also a defense to a fraud claim.

Therefore, the demurrer to the first and second causes of action are overruled.

C.        Third 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 (Oasis West).) 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).) “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” (Id. at p. 459 [internal citations omitted].)

Plaintiff and Defendant Tribe Knits entered a series of contracts, reflected in the 2023 Invoices.  (Compl. Ex. 3.) Plaintiff asserts it fulfilled all its obligations by paying the 2023 Invoices but that Tribe Knits breached the 2023 Invoices by delivering nonconforming hoodies determination that did not comply with Vortex’s size specifications. (Id. ¶ 42.) Plaintiff claims harm by the amounts specified in the 2023 Invoices and those other amounts that it incurred thereon including, but not limited to, the cost of auditing the hoodies; the cost of transporting the hoodies to a storage facility; the cost to store the nonconforming hoodies (the costs of which are continuing to accrue); the cost of refunding Li & Fung and Vortex the nonconforming hoodies; and lost profits. (Id. ¶ 43.)

Defendants demur to the breach of contract claim on the bases that Tribe Knits was not required to deliver hoodies that conformed to Vortex’s size specifications. (Demurrer, at p. 4:1-2). Defendants assert that “where a complete written contract is made, oral representations or warranties, and implied warranties, and all oral negotiations are merged in the written contract[.]” (Demurrer, at p. 4:5-7.)

“A written contract's terms cannot be ‘explained or supplemented by evidence of consistent additional terms’ if ‘the writing is intended ... as a complete and exclusive statement of the terms of the agreement.’ ” (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 560 citing CCP, § 1856(a).) Defendant fails to specify what provision of the 2023 Invoices shows that the contracts were fully integrated such that the Parties intended any prior negotiations and representations about the sizing of the hoodies to not be part of the contract. Moreover, the Invoices list the sizes ordered (i.e. S, M, L, etc.) but does not state what sizes makes a hoodie a size small rather than a medium. “Extrinsic evidence is admissible to explain the meaning of a contract only where it is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.” (Brinton, at p. 560.) Accordingly, Plaintiff may introduce evidence that the size chart presented by Defendant Sanan was part of the contract. (Compl., ¶ 13.)

Second, Defendants assert there is no breach of contract because if the hoodies were nonconforming, the Invoices required that all returns or exchanges be made within 7 days of purchase. (Compl. Ex. 3.) Plaintiff’s opposition does not dispute the fact that the 2023 Invoices required all returns or exchanges be made within 7 days of purchase. Instead, Plaintiff asserts that there is a disputed issue of fact not subject to adjudication on demurrer. “On a demurrer a court's function is limited to testing the legal sufficiency of the complaint. [Citation.] ‘A demurrer is simply not the appropriate procedure for determining the truth of disputed facts.’ [Citation.]” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-114.)

Plaintiff fails to explain how the 7-day return/exchange provision in the 2023 Invoices is ambiguous or uncertain such that the court cannot interpret the Invoices as a matter of law and find that Plaintiff was not obligated to comply with the 7-day deadline to return/exchange the hoodies. (Coyne v. De Leo (2018) 26 Cal.App.5th 801, 822.) “[I]f the instrument is ambiguous, the pleader must allege the meaning he or she ascribes to it.” (Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 18.) On demurrer, the “court will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action for breach.” (Ibid.) “Interpretation of a written instrument is solely a judicial function unless the interpretation turns upon the credibility of extrinsic evidence.” (Ibid.)

Plaintiff alleges that it complied with all its contractual obligations, but on the face of the Complaint, it is evident from the express terms of the Invoices that Plaintiff was required to return or exchange the hoodies within 7 days of purchase. (Compl., Ex. 3.) The Complaint is silent as to why Plaintiff was not required or excused from complying with the 7-day return/exchange deadline. (See Schick v. Lerner (1987) 193 Cal.App.3d 1321, 1327 [Facts not alleged in the pleadings are presumed not to exist].) Accordingly, Plaintiff’s breach of contract fails because Plaintiff has not satisfied the second element for a breach of contract claim, that Plaintiff’s nonperformance was excused. (Oasis West, supra, 51 Cal. 4th at p. 811.)

The demurrer to the third cause of action is sustained.

D.        Fourth Cause of Action for Breach of Express Warranty

“Section 2313, subdivision (1)(a) and (b) of the California Uniform Commercial Code governs this cause, providing that express warranties are created as follows: ‘(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. [¶] (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.’ ” (Weinstat v. Dentsply Internat., Inc. (2010) 180 Cal.App.4th 1213, 1227 [fn. Omitted].) “Hence, to prevail on a breach of express warranty claim, the plaintiff must prove (1) the seller's statements constitute an ‘affirmation of fact or promise’ or a ‘description of the goods’ ; (2) the statement was ‘part of the basis of the bargain’; and (3) the warranty was breached.” (Id. at p. 1227 [internal quotations omitted].)

Plaintiff alleges Defendant Sanan, on behalf of Defendant Tribe Knits (as seller), expressly warranted to Plaintiff (as buyer) that the hoodies sold by Tribe Knits were of first quality, conformed to the size specifications provided by Vortex, and were produced in the same factory. (Compl. ¶ 46.) Tribe Knits provided samples of the hoodies to Plaintiff, who provided them to Li & Fung to be approved by Vortex. (Id. ¶ 47.) Tribe Knits provided such samples to Plaintiff, Li & Fung, and Vortex to, among other things, warrant that the hoodies it would produce and deliver to Plaintiff were the same. (Id. ¶ 47.) However, Plaintiff claims the hoodies that Tribe Knits produced and delivered were not of first quality, did not conform to the size specifications provided by Vortex, and were not produced in the same factory. (Id. ¶ 48.)

The Complaint sufficiently alleges that at the time the Parties entered into the contract for the manufacturing and purchase of the hoodies, the requirement that the hoodies be of first quality of a specific size and produced from the same factory were affirmations of fact or promise that were the basis for which Plaintiff agreed to purchase the hoodies from Defendants and pay for them. (Compl., ¶¶ 12 fn. 1, 13, Ex. 7.) Moreover, what the Parties understood at the time they entered into the agreement, regarding Vortex’s size specifications and quality, remain disputed issues of fact not subject to adjudication on demurrer.

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

Conclusion

Defendants’ demurrer to the Complaint is sustained as to the third cause of action and overruled as to the first, second and fourth cause of action. Plaintiff is granted 10 days leave to amend. The court sets the OSC RE: Amended Complaint for February 24, 2025, at 8:30 a.m., and continues the Case Management Conference to the same date and time.  Defendant to give notice.