Judge: H. Jay Ford, III, Case: 21SMCV01812, Date: 2023-04-20 Tentative Ruling

Case Number: 21SMCV01812    Hearing Date: April 20, 2023    Dept: O

  Case Name:  Christina Development Corporation v. ADP, LLC, et al.

SUBJECT:                 DEMURRER TO SECOND AMENDED COMPLAINT

MOVING PARTY:   Defendants ADP, LLC; ADP Totalsource DE IV, Inc.; Matt Peluso; Shannon Bates, Christa Zimmerman, Dominque Akens and Danielle Roubian

RESP. PARTY:         Plaintiff Christina Development Corporation

TENTATIVE RULING

            Defendants ADP, LLC, ; ADP Totalsource DE IV, Inc.; Matt Peluso; Shannon Bates, Christa Zimmerman, Dominque Akens and Danielle Roubian’s Demurrer to the Second Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND as to the 1^st cause of action for breach of fiduciary duty and 2^nd cause of action for unfair competition under B&PC 17200, SUSTAINED WITH 10 DAYS LEAVE TO AMEND as to the 5^th cause of action for tortious interference with prospective economic advantage and OVERRULED as to the 3^rd cause of action for negligent misrepresentation and 4^th cause of action for promissory estoppel. 

I.  Defendants fail to establish there is any material difference between California and New York law.

            Defendants argue NY law applies based on the parties’ choice of law provision in the 2016 and 2020 Client Services Agreements.  However, Defendants do not argue that New York law differs materially from California law in any way.  In fact, Defendants argue the outcome of the demurrer will be the same under either New York or California law.  As such, the Court will apply California law in evaluating the demurrer.  See Washington Mutual Bank, FA v. Superior Court (2001) 24 Cal.4th 906, 919–920 (“The fact that two or more states are involved does not in itself indicate there is a conflict of laws problem.  Indeed, if the relevant laws of each state are identical, there is no problem and the trial court may find California law applicable to class claims.”); Frontier Oil Corp. v. RLI Ins. Co. (2007) 153 Cal.App.4th 1436, 1454 (“Under the governmental interest analysis, the court first determines whether the applicable rules of law of the potentially concerned jurisdictions are the same or different. If the applicable rules of law are identical, the court may apply California law.”)   

            Moreover, even if the laws of New York and California materially differed, that would not be the end of the choice of law analysis.  “If the applicable rules of law differ materially, the court proceeds to the second step, which involves an examination of the interests of each jurisdiction in having its own law applied to the particular dispute. If each jurisdiction has an interest in applying its own law to the issue, there is a “true conflict” and the court must proceed to the third step. In the third step, known as the comparative impairment analysis, the court determines which jurisdiction has a greater interest in the application of its own law to the issue or, conversely, which jurisdiction's interest would be more significantly impaired if its law were not applied. The court must apply the law of the jurisdiction whose interest would be more significantly impaired if its law were not applied.”  Frontier Oil Corp., supra, 153 Cal.App.4th at 1454–1455.  Defendant did not analyze or brief the second or third steps of the choice of law analysis.

            The Court will apply California law to the demurrer.  Defendants fail to establish that the laws of New York or California materially differ, or if they did, that New York law should control even if there were a true conflict of laws. To the extent Plaintiff argues New York law should apply, Plaintiff fails to address any step of the choice-of-law analysis. 

I.  1^st cause of action for Breach of Fiduciary Duty—SUSTAIN WITHOUT LEAVE TO AMEND on grounds no fiduciary relationship alleged.

            “The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. Whether a fiduciary duty exists is generally a question of law.”  Hodges v. County of Placer (2019) 41 Cal.App.5th 537, 546.

            “Our Supreme Court has acknowledged that it is difficult to enunciate the precise elements required to show the existence of a fiduciary relationship.  But the high court has noted that before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.”  Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 631–632.  “A fiduciary duty undertaken by agreement arises when one person enters into a confidential relationship with another.”  Das v. Bank of America, N.A. (2010) 186 Cal.App.4th 727, 742. 

            “A fiduciary relationship is any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter's knowledge or consent.”  Hodges, supra, 41 Cal.App.5th at 546–547.  “Traditional examples of fiduciary relationships in the commercial context include trustee/beneficiary, directors and majority shareholders of a corporation, business partners, joint adventurers, and agent/principal.”  Id. at 547. 

            Plaintiff fails to allege any facts that would give rise to a fiduciary duty in the commercial context.  Plaintiff’s allegation that the parties were in a longstanding contractual relationship is insufficient.  Plaintiff’s allegations only support the existence of a standard business relationship between a seller of payroll and human resources services and a buyer of those services.  See ¶¶26-54. 

            Moreover, the parties’ agreements expressly disclaim the existence of any advisory relationship.  The 2016 Client Services Agreement is attached as Exhibit 1 to the SAC.  The 2020 Client Services Agreement is attached as Exhibit 7 to the SAC.  Both the 2016 and 2020 CSAs contain express clauses stating that Defendants’ services would not be relied upon by Plaintiff as either legal, financial, insurance or tax advice.  See SAC, Ex. 1, 2016 Client Services Agreement, §1.B; Ex. 7, 2020 Client Services Agreement, §1.D. 

            Based on the complaint allegations, Plaintiff and Defendants did not have a fiduciary relationship.  Plaintiff fails to establish that this defect is reasonably capable of cure with leave to amend.  Demurrer to the 1^st cause of action for breach of fiduciary duty is SUSTAINED WITHOTU LEAVE TO AMEND.   

II.  2^nd cause of action for unfair business competition—SUSTAIN WITHOUT LEAVE TO AMEND for failure to allege standing under B&PC §§17203 and 17535.

            Defendant argues Plaintiff was required to state a claim only under New York’s unfair business practices law.  Defendant fails to establish that New York law should apply to the exclusion of Plaintiff’s right to sue for unfair competition under CA law.  (See discussion re: choice of law analysis).

            Defendant argues Plaintiff lacks standing because Plaintiff fails to allege what money or property it has lost due to the alleged unfair business practices.  Defendants’ objection is well-taken.  The 2^nd cause of action does not identify what money or property Plaintiff is seeking to recover pursuant to B&PC 17200.  On that ground alone, the 2^nd cause of action fails to state a claim under B&PC 17200. 

            Plaintiff argues it was forced to pay for its own defense without insurance coverage in the employment lawsuit brought by former employee Chomyk.  However, its defense costs in the Chomyk action do not qualify as loss of money or property that would confer standing under the unfair competition or false advertising laws.  The only monetary relief available on a 17200 or 17500 claim is restitution.  “Neither the UCL nor the FAL supports a claim for damages, only for restitution and injunctive relief.”  Benson v. Southern California Auto Sales, Inc. (2015) 239 Cal.App.4th 1198, 1208 (citing Zhang v. Superior Court (2013) 57 Cal.4th 364, 371; Colgan v. Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663, 694; Bus. & Prof.Code §§ 17203, 17535.)

            Plaintiff fails to establish that it can cure the standing defects raised by Defendants on demurrer.  Defendants’ demurrer to the 17200 claim is SUSTAINED WITHOUT LEAVE TO AMEND. 

III. 3^rd cause of action for negligence—OVERRULE as negligent misrepresentation of fact sufficiently pleaded.

            Plaintiff’s third cause of action is entitled one for negligence.  Based on the allegations, Plaintiff is alleging negligent misrepresentation.

            “Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for that belief, he or she may be liable for negligent misrepresentation.” 5 Witkin, Summary of California Law, (11^th ed. 2017), §940.  “A person who makes a misrepresentation is subject to liability to another for physical harm that results from an act done by the other or a third person in reliance on the truth of the representation, if the person (a) intends his or her statement to induce or should realize that it is likely to induce action by the other, or a third person, that involves an unreasonable risk of physical harm to the other, and (b) knows that the statement is false, or that the person has not the knowledge that he or she professes.”  Id.

            “A statement couched as an opinion, by one having special knowledge of the subject, may be treated as an actionable misstatement of fact.  Whether a statement is nonactionable opinion or actionable misrepresentation of fact is a question of fact for the jury.”  Furla v. Jon Douglas Co. (1998) 65 Cal.App.4th 1069, 1080–1081. 

            Defendants demur to the negligent misrepresentation claim on grounds that the alleged misrepresentation is not one of fact but a statement of opinion.  The Court disagrees.  Plaintiff alleges Defendants affirmatively misrepresented the scope of insurance coverage it would provide relative to the scope of Plaintiff’s then-existing coverage.  See SAC, ¶¶74-75.  Defendants also allegedly failed to provide Plaintiff a copy of the insurance policy so that Plaintiff could verify the scope of coverage was as represented.  Id. at ¶¶75-76.  Plaintiff also alleges Defendants represented themselves out as experts on the scope of services and products offered by them.  Id. at ¶73.

            While confusing, Plaintiff’s mislabeling of its 3^rd cause of action as one for negligence instead of negligent misrepresentation does not render it uncertain.  Moreover, the Court must overrule the demurrer if the any valid cause of action is stated.  See New Livable Calif. v. Association of Bay Area Governments (2020) 59 CA5th 709, 714-715.

            Plaintiff alleges a negligent misrepresentation claim.  Defendants’ argument that Plaintiff failed to plead an affirmative misrepresentation of fact is contradicted by the complaint allegations.  Defendants’ demurrer to the 3^rd cause of action for negligent misrepresentation is OVERRULED. 

IV.  4^th cause of action for promissory estoppel—OVERRULE as clear and unambiguous promise is pleaded.

“The elements of a promissory estoppel claim are (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3)[the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218, 225.

“The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. If the promisee's performance was requested at the time the promisor made his promise and that performance was bargained for, the doctrine is inapplicable.”  Youngman v. Nevada Irr. Dist. (1969) 70 Cal.2d 240, 249. The doctrine is an equitable doctrine that is only necessary when no actual consideration was given by the promisee.  Id. at 250. 

“Estoppel cannot be established from preliminary discussions and negotiations.  Moreover, unlike a party seeking to establish a promise in a pure breach of contract context, a party seeking to establish promissory estoppel cannot rely on extrinsic evidence to explain an ambiguous statement.”  Garcia v. World Savings, FSB (2010) 183 Cal.App.4^th 1031, 1044. 

Defendants argue Plaintiff’s promissory estoppel claim fails, because Plaintiff fails to allege a clear and unambiguous promise.  Plaintiff alleges the following:  “ADP Group made a clear and unambiguous promise that EPLI coverage provided by ADP TS through the new, proposed CSA would be less expensive and equal to or better than CDC’s then-current coverage.”  SAC, ¶82.  Plaintiff alleges Defendants provided misleading summaries that supported this promise, while failing to provide Plaintiff with a copy of the actual policy when requested.  Id. at ¶¶82-83. 

Defendants argue its insurance was less expensive.  However, based on ¶¶32A and 82, the clear and unambiguous promise included the promise that Plaintiff would have the same or better coverage than under Plaintiff’s then current coverage with Scottsdale, not just that it would be less expensive. 

            Plaintiff alleges a clear and unambiguous promise regarding the scope of coverage that would be provided with Defendants’ policy.  Defendants’ demurrer based on failure to allege a clear and unambiguous promise is OVERRULED. 

V.  Tortious Interference with Prospective Economic Advantage—SUSTAINED WITH 10 DAYS LEAVE on grounds that Plaintiff does not specify intentional or negligent interference

            Both negligent and intentional interference with economic advantage require plaintiff to allege (i) the existence of an economic relationship between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff and (ii) that defendant's negligent or intentional conduct interfered with plaintiff's relationship with that third party.  See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153 (intentional interference); see North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786 (negligent interference). 

            The plaintiff must also plead and prove acts that are wrongful, independent of the interference itself.  Id. at 1154, 1158-1159. “To establish a claim for interference with prospective economic advantage, therefore, a plaintiff must plead that the defendant engaged in an independently wrongful act. An act is not independently wrongful merely because defendant acted with an improper motive.” Id. at 1158. “[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.” Id. at 1159.

            Plaintiff alleges Defendants interfered with its economic relationship with Scottsdale Insurance by using negligent misrepresentations to induce its cancellation of the Scottsdale Insurance policy.  See SAC, ¶91.  Plaintiff, however, alleges that Defendants both negligently and intentionally interfered with Plaintiff’s prospective economic advantage, which renders the cause of action uncertain.  Defendants cannot reasonably respond to the cause of action if it is unclear if Plaintiff is alleging a claim for negligent or intentional interference with Plaintiff’s economic relationship with Scottsdale Insurance. 

            Defendants also argue that under New York law, a tortious interference claim can only be based on “conduct directed not at the plaintiff itself, but at the party with which the plaintiff has or seeks to have a relationship.”  Carvel Corp. v. Noonan (2004) 3 N.Y.3d 182, 192.  Again, Defendants have failed to engage in the complete choice of law analysis.  To the extent this is a material difference between New York and California law, Defendants must fully analyze whether New York law should apply under the appropriate choice of law analysis.  Defendants must also establish as a threshold issue that this is a material difference between California and New York law.  Defendants claim throughout the demurrer that the outcome under both sets of law would be the same. 

            Defendants’ Demurrer to the 5^th cause of action for tortious interference with prospective economic advantage is SUSTAINED WITH LEAVE TO AMEND.  Plaintiff must clarify if it is alleging intentional or negligent interference with prospective economic advantage.