Judge: Gary I. Micon, Case: 23CHCV02662, Date: 2024-03-18 Tentative Ruling
Case Number: 23CHCV02662 Hearing Date: April 9, 2024 Dept: F43
Dept. F43
Date: 4-9-24
Case #23CHCV02662, Golden Hammer Ops, LLC vs. JETNET,
LLC, et al.
Trial Date: N/A
DEMURRER TO CROSS-COMPLAINT WITH MOTION TO
STRIKE
MOVING PARTY: Cross-Defendant Gregory Rowlee
RESPONDING PARTY: Cross-Complainant JETNET, LLC
RELIEF REQUESTED
Demurrer to the First Amended Complaint
·
First Cause for Breach of Contract
·
Second Cause of Action for Intentional
Interference with Contractual Relations
Motion to Strike
·
Request for Declaratory Relief [Cross-Complaint,
Paragraph 102 and in the Prayer for Relief]
RULING: Demurrer sustained in part and overruled
in part; motion to strike denied.
SUMMARY OF ACTION
On September 5, 2023, Cross-Defendant Golden Hammer Ops,
LLC (Golden Hammer) filed the complaint that began this action. Golden Hammer
filed that complaint against Cross-Complainant JETNET, LLC (JETNET) and two
other Defendants. Golden Hammer alleged causes of action for Misappropriation
of Trade Secrets, Intentional Interference with Contractual Relations, and
Violation of California Computer Fraud and Abuse Act against JETNET.
On October 30, 2023, JETNET filed a cross-complaint
against Golden Hammer and Cross-Defendant Gregory Rowlee (Rowlee). JETNET
alleges three causes of action for Breach of Contract, Intentional Interference
with Contractual Relations, and Declaratory Relief. In JETNET’s
Cross-Complaint, JETNET alleges that Golden Hammer and Rowlee breached an
agreement between the two parties and interfered with JETNET’s contract with
another party, AWS.
Rowlee filed his demurer with motion to strike on December
5, 2023. In his demurrer, Rowlee demurs to JETNET’s causes of action for breach
of contract and intentional interference with contractual relations on the
basis that they fail to state facts sufficient to constitute causes of action
against Rowlee. In the motion to strike, Rowlee moves to strike JETNET’s
request for declaratory relief.
JETNET argues in its opposition that the two causes of
action are adequately pled against Rowlee and that JETNET’s allegations
concerning declaratory relief should not be stricken. Rowlee argues in his
reply that JETNET has not sufficiently alleged that the contracting parties
intended to hold Rowlee liable and that JETNET has not sufficiently alleged
that the ADSB-X entity lacked notice of Golden Hammer’s identity. Finally,
Rowlee argues that the Cross-Complaint does not sufficiently plead that Rowlee
intentionally interfered with the AWS Contract.
Rowlee’s Request for Judicial Notice:
For his first and second requests, Rowlee wants the Court
to take judicial notice of a printout of the California Secretary of State
website showing that the initial filing date for Golden Hammer is June 17,
2020, and to take notice of a copy of the filing receipt provided to Golden
Hammer on the day of the initial filing. Rowlee makes these requests pursuant
to Evidence Code §
452(h). Because these are government records, the Court grants the request for
judicial notice.
For his third and fourth requests, Rowlee wants the Court
to take judicial notice of a work schedule and electronic signature receipts
that he claims are part of the Service Agreement and Hosting Agreement
referenced in the cross-complaint. Courts are permitted to take judicial notice
of agreements that are referenced in a complaint. (Align Technology, Inc. v.
Tran (2009) 179 Cal.App.4th 949, 956, fn. 6 [taking judicial notice of a
settlement agreement referenced in the complaint].) Based on this, the Court
grants these requests, but not for the purpose of interpreting the contract.
ANALYSIS
A demurrer is an objection to a pleading, the grounds for
which are apparent from either the face of the complaint or a matter of which
the court may take judicial notice. (CCP § 430.30(a); see also Blank v. Kirwan (1985) 39 Cal.3d 311,
318.) The purpose of a demurrer is to challenge the sufficiency of a pleading
“by raising questions of law.” (Postley
v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a
pleading, for the purpose of determining its effect, its allegations must be
liberally construed, with a view to substantial justice between the parties.” (CCP
§ 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of fact or law…”
’ ” (Berkley v. Dowds (2007) 152
Cal.App.4th 518, 525.) In applying these standards, the court liberally
construes the complaint to determine whether a cause of action has been stated.
(Picton v. Anderson Union High School
Dist. (1996) 50 Cal.App.4th 726, 733.)
First Cause
of Action
Rowlee demurs to JETNET’s First Cause of Action for Breach
of Contract on the basis that JETNET has not pled facts sufficient to
constitute a cause of action against Rowlee.
To prevail on a cause of action for breach of contract, the
plaintiff must prove (1) the
contract, (2) the plaintiff's performance of the contract or
excuse for nonperformance, (3) the
defendant's breach, and (4) the resulting damage to the
plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)
Here, JETNET’s Cross-Complaint (CC) alleges (1) “The Hosting
Agreement was a valid and enforceable contract against Golden Hammer Ops.” (CC,
¶ 85.) The Cross-Complaint further alleges (2) “JETNET has performed all of the
terms, conditions, and/or covenants required of it
under the Hosting Agreement, excepting those excused by or
prevented from being performed by
Golden Hammer and Rowlee, including but not limited to
authorizing, directing, and funding the
timely payment of all amounts owed thereunder.” (CC, ¶ 88.)
The Cross-Complaint also alleges Golden Hammer and Rowlee breached the Hosting
Agreement by (3) “disabling resources without them being infected, hacked, or
compromised in any way; failing to contact JETNET prior to disabling the
virtual server or give prior notice; disabling services without a reasonable
belief of JETNET’s violation of the then-current acceptable use policy, if any;
failing to ensure that resources were available as required under the Hosting
Agreement; and divulging JETNET’s confidential information in violation of the
Hosting Agreement’s confidentiality provision.” (CC, ¶ 89.) Specifically, the Cross-Complaint
alleges that Rowlee agreed to restore immediately restore access to the
platform, but full access was never restored. (CC, ¶¶ 51-52.) On another
occasion, Golden Hammer and Rowlee divulged information relating to JETNET’s
public forum operational data and wrongfully disclosed to third parties
information concerning an outage on the platform that JETNET uses. (CC, ¶ 56.)
Lastly, the Cross-Complaint alleges (4) “As a result of these wrongful
disclosures in violation of the Hosting Agreement, JETNET suffered significant
harm, including but not limited to the loss of a substantial number of receivers”
and “[a]s a direct and proximate result of Golden Hammer’s and Rowlee’s
breaches, JETNET has been damaged in an amount in excess of the jurisdictional
minimum including as alleged above, in an amount to be established according to
proof at trial.” (CC, ¶¶ 58, 90.)
Rowlee argues that JETNET has not sufficiently pled facts to
allege that Rowlee is liable in his personal capacity for the allegedly
wrongful acts. In JETNET’s cross-complaint, JETNET indicates that Rowlee
intentionally entered into the Hosting Agreement on behalf of a non-existent
entity, Golden Hammer Hosting. (CC, ¶ 29.) If that is the case, that would make
Rowlee a “corporate promoter, a person who undertakes “to form a corporation,
to procure for it the rights, instrumentalities and capital to effectuate the
purposes specified in its charter, and to establish it as fully able to do
business.” (9 Witkin Summary of Cal. Law (10 ed. 2005), Corporations § 52, p.
829.) As set forth below, the Court finds that the cross-complaint
inferentially alleges that Rowlee was a corporate promoter. In Paragraphs 27-29
of the cross-complaint, JETNET alleges that it believed that it was entering a
binding contract with Golden Hammer. In Paragraph 84, JETNET alleges that
Golden Hammer, under the name Golden Hammer Hosting, entered into the Hosting
Agreement with ADSB-X.
The standard rule is that a corporate promoter may be liable
for contracts they sign prior to formation of the company and after the company
adopts the contract. (See generally, Restate. 3d of Agency § 4.04c). In
California, whether a promoter may be personally liable for pre-formation
contracts after the entity is formed and adopts the contract depends on the
intent of the parties at the time they entered into the agreement. (MacDonald
v. Arrowhead Hot Spring Co. (1931) 114 Cal.App. 496, 500; Fletcher Cyclopedia
of the Law of Corp. § 215). The fundamental inquiry is whether the “contract
was incurred on the credit of an individual promoter or upon the responsibility
of the prospective corporation.” (Id.) Corporate promoters “are not
personally liable on the contracts made in the name and solely on the credit of
the future corporation, and not on an express or implied representation that
there is an existing corporation, where such intention is known to the other
contracting party, unless they are contracts which the corporation when formed
has no power to ratify or adopt.” (MacDonald, 114 Cal.App. at 500.)
Rowlee argues that the cross-complaint alleges and admits
that the parties intended for a future “Golden Hammer” entity to provide
services under the agreement. JETNET’s cross-complaint alleges that the intent
was for the services to be performed by the Golden Hammer entity. (CC, ¶¶
27-28.) It says nothing about the contract being incurred on the credit of
Rowlee as an individual. Rather, it appears from the facts alleged that the
intent was always for the Golden Hammer entity to be the responsible party for
purposes of the contract.
Furthermore, Rowlee argues that because JETNET’s
cross-complaint alleges that Golden Hammer provided services under the
agreement, then that is enough to show that Golden Hammer adopted or ratified
the Hosting and Services Agreements. (See Cal. Civil Code. § 1589 [“[a]
voluntary acceptance of the benefit of a transaction is equivalent to a consent
to all the obligations arising from it, so far as the facts are known, or ought
to be known, to the person accepting.”]; Stickel v. Harris (1987) 196
Cal.App.3d 575, 586 [holding that a joint venture ratified a corporate
promoter’s actions because payments were made on behalf of the entity, the
obligation of the joint venture to acquire property under the terms of an
agreement, and “the assumption of the joint venture of the ultimate
responsibility to discharge all obligations.”].)
Finally, Rowlee argues that use of a fictitious business
name does not preclude Golden Hammer from adopting or ratifying the two
agreements. “A person may adopt any name in which to prosecute business, and
may sue or be sued in such a name.” (Rossdale Group, LLC v. Walton
(2017) 12 Cal. App. 5th 936, 945.) The use of fictitious business names “Golden
Hammer Hosting Inc.” and Golden Hammer Services Inc.” did not create separate
legal entities to which any rights transferred. (Id. at 940.)
JETNET argues in its opposition that the situation in this
case is different because Rowlee did not sign on behalf of a soon-to-be-created
company. JETNET cites W.W. Leasing Unlimited v. Commercial Standard Title
Ins. Co. (1983) 149 Cal.App.3d 792, which held that disclosure of a
principal’s trade name only is not sufficient for an agent to avoid personal
liability. Rowlee argues in his reply that W.W. Leasing is different
from the current situation because the agent in that case only provided the
principal’s trade name, whereas here, the cross-complaint alleges that ADSB-X
knew the identity of Golden Hammer, its members, capabilities, and limited
liability status. The Court agrees that this case is different from W.W.
Leasing.
JETNET also argues that it was not alleging that Rowlee was
a corporate promoter and that he does not meet the definition of a corporate
promoter, but JETNET cites no authority in support of this argument. Based on
the definition of a corporate promoter as defined above, the Court finds that
Rowlee meets this definition.
Finally, JETNET makes arguments regarding the fictitious
name statute and how the entities named in the contract did not exist until May
2023. However, this does not appear to evidence any wrongdoing, as cases cited
by Rowlee in his reply demonstrate: “[f]ailure to comply with the
fictitious-name statute does not make the parties’ promises, agreements, and
transactions invalid as such. Noncompliance merely prevents a
fictitiously named business from enforcing obligations owed to it until
it places on record its true nature and ownership.” (Villareal v. LAD-T, LLC
(2022) 84 Cal.App.5th 446, 457 [citing Hydrotech Systems, Ltd. V. Oasis
Waterpark (1991) 52 Cal.3d 988] [emphasis in original]).
Based on the foregoing, JETNET has not alleged facts
sufficient to maintain a cause of action against Rowlee as an individual. ADSB-X
was aware that it was contracting with a Golden Hammer limited liability
company, even if the true name was not known at the time of contracting.
Furthermore, Golden Hammer Ops, LLC ratified the contract with its actions,
thereby taking on any liability under the contract.
Rowlee’s demurrer to the First Cause of Action is sustained
with leave to amend.
Second
Cause of Action
Rowlee demurs to JETNET’s Second Cause of Action for
Intentional Interference with Contractual Relations on the basis that JETNET
has not pled facts sufficient to constitute a cause of action against Rowlee.
To plead a claim for intentional interference with
contractual relations, a party must allege that “(1) the existence of a valid
contract between 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.” (Ixchel Pharma,
LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1141.)
In this case, JETNET’s Cross-Complaint has alleged that (1) “On
or about February 3, 2023, JETNET and AWS entered into a valid and enforceable
contract, the AWS Contract.” (CC, ¶ 92; see also, CC, ¶ 60.) Next, JETNET
alleges that (2) “Upon information and belief, Rowlee and Golden Hammer has
knowledge of the AWS Contract from multiple sources, including but not limited
to JETNET, Mr. Streufert, and others.” (CC, ¶ 94; see also CC, ¶ 61.) JETNET’s
Cross-Complaint also alleges that (3) on multiple occasions, Rowlee and Golden
Hammer denied JETNET access to information and data to which it was entitled on
the Golden Hammer servers and disabled accesses to the Golden Hammer servers
that hosted the ADSB-X Platform, with the intention to disrupt JENNET’s
migration to the new platform. (CC, ¶¶ 63, 64, 95.) Further, JETNET alleges
that (4) these acts of Rowlee and Golden Hammer did disrupt JETNET’s efforts to
migrate the ADSB-X Platform to AWS servers and made JETNET’s performance under
the AWS Contract more expensive than it would have been but for such conduct.
(CC, ¶¶ 66, 67.) Finally, JETNET alleges that (5) “As a direct result of the
actions of Rowlee and Golden Hammer, JETNET has been damaged in an amount in
excess of the jurisdictional minimum including as alleged above, in an amount
to be established according to proof at trial.” (CC, ¶ 99.)
The Points and Authorities of Rowlee’s demurrer contain no
arguments concerning this cause of action. JETNET’s opposition argues that
inasmuch as Rowlee’s demurrer is devoted to Rowlee’s status as a party to the
agreements, those arguments would be inapplicable to the separate issue of whether
he individually tortiously interfered with JETNET’s contract with AWS. (See PMC,
Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, 1379-1380 (individuals are
liable to those injured by their own tortious conduct regardless of whether
they acted on behalf of corporation, and regardless of whether corporation is
also liable).)
Rowlee argues for the first time in his reply, which is
technically improper, but the Court will address the argument, that the
economic loss rule would bar the claim because the tortious intentional
interference with contractual relations claim is substantially similar to
JETNET’s breach of contract claim. However, the causes of action are
independent in the source and extent of the resulting harm to JETNET. Golden
Hammer’s alleged breaches of the Hosting Agreement damaged JETNET as the owner
of the ADSB-X Platform. Meanwhile, Rowlee and Golden Hammer’s alleged
interference with the AWS Contract damages the independent contractual
relationship between JETNET and AWS. The damages arise from Golden Hammer’s,
and possibly Rowlee’s, actions in relation to two different contracts. The
breach of the contract between JETNET and Golden Hammer resulted in the loss of
a substantial number of receivers for JETNET and the loss of a return on
JETNET’s monthly fees for hosting services that Golden Hammer refused to provide.
(See CC, ¶¶ 58, 78, 88.) Meanwhile, Rowlee and Golden Hammer’s tortious
interference with the AWS Contract resulted in JETNET’s performance under that
contract being more expensive, and in other non-economic losses, including harm
to JETNET’s reputation.
Rowlee also argues that if he acted under the contract, then
he would be protected from liability. However, as JETNET argued in its
opposition, agents are liable for their own individual tortious conduct. Not
only that, but interfering with a third-party contract would not be acting
under the contract between JETNET and Golden Hammer, so this argument is
confusing.
JETNET has alleged sufficient facts against Rowlee to
maintain this cause of action. Rowlee’s demurrer to JETNET’s Second Cause of
Action is overruled.
Motion to Strike
Rowlee has moved to strike Paragraph 102 from JETNET’s Cross-Complaint.
This paragraph requests a declaration stating that “Golden Hammer Ops was not a
party to either the Services Agreement or the Hosting Agreement, and therefore,
had no rights thereunder.” (CC, ¶ 102.) Rowlee’s basis for striking this
paragraph is that Golden Hammer adopted and ratified the agreements.
This Court may strike from the complaint any irrelevant,
false, or improper matter. Under CCP § 435, “[a]ny party, within the time
allowed to respond to a pleading may serve and file a notice of motion to
strike the whole or any part thereof.” Under CCP § 436(a), “[t]he court may,
upon a motion made pursuant to Section 435, or at any time in its discretion,
and upon terms it deems proper . . . [s]trike out any irrelevant, false, or
improper matter inserted in any pleading.”
The Court would note that motions to strike are typically
filed as separate motions from a demurrer with their own points and
authorities. CCP § 435(e) only mentions that motions to strike may be made as
part of motions filed pursuant to Section 438 (motions for judgment on the
pleadings), not as part of demurrers. That being said, the Court will address
Golden Hammer’s arguments for the motion to strike.
Rowlee argues that regardless of whether he is personally
liable for the two agreements, there can be no dispute that Golden Hammer
adopted and ratified the agreements when it accepted the benefits of, and
performed the services for, ADSB-X and JETNET. (See Stickel, 196
Cal.App.3d at 586.)
JETNET argues in its opposition that Rowlee’s motion to
strike is Rowlee asking the Court to make a determination on JETNET’s request
for declaratory relief as to whether Golden Hammer ratified the agreement,
something that JETNET argues is very much in dispute in this action. JETNET
argues that this goes beyond the bounds of the standard for a motion to strike
because it is more than a determination as to whether this is relevant or drawn
in conformity with the laws of the state. Rowlee does not address this point in
his reply.
The Court agrees with JETNET’s arguments. It is premature at
this stage to ask the Court to make a determination on the request for
declaratory relief.
Rowlee’s motion to strike is denied.
Conclusion
Rowlee’s demurrer is sustained with leave to amend for the
first cause of action and overruled for the second cause of action.
Rowlee’s motion to strike is denied.
JETNET is given 30 days leave to amend.
Moving party to give notice to all parties.