Judge: H. Jay Ford, III, Case: 22SMCV00730, Date: 2023-01-25 Tentative Ruling

Case Number: 22SMCV00730    Hearing Date: January 25, 2023    Dept: O

  Case Name:  The Fyzz Facility Ltd. v. Emmett Furla Films Holdings, LLC, et al.

SUBJECT:                DEMURRER WITHOUT MOTION TO STRIKE

MOVING PARTY:   Defendant George Furla

RESP. PARTY:         Plaintiff The Fyzz Facility Ltd.

TENTATIVE RULING

            Defendant George Furla’s Demurrer is OVERRULED. Defendant Furla to answer in 20 days. 

            The elements of a cause of action for inducing breach of contract are:  (1) a contract between plaintiff and a third party; (2) defendant’s knowledge of the contract; (3) defendant’s intent to cause the third party to breach the contract; (4) defendant’s conduct caused the third party to breach the contract; (5) that plaintiff was harmed; and (6) that defendants’ conduct was a substantial factor in causing plaintiff’s harm.  CACI 2200; 5 Witkin, Cal. Proc. (6^th ed. 2022), Pleading, §768. 

            “The ordinary tort action for interference with contract cannot be brought against the other contracting party; the action lies only for acts of a third person.”  5 Witkin, Cal. Proc. (6^th ed. 2022), Pleading, §768.  “A person who is in a confidential relationship with a party to a contract may induce breach of the contract when acting in the party's interests. When an employment relationship is involved with the party, this is sometimes referred to as the ‘manager's privilege.’  See 5 Witkin, Summary (11^th ed. 2022), Torts §878.

            California law is unsettled as to whether the “manager’s privilege” to induce a principal to breach a contract is absolute or qualified.  The privilege has been recognized in California; but the question whether it is absolute (requiring only a showing that a defendant occupied such a position), or qualified (requiring a defendant to establish a prima facie case of entitlement to it) ‘is somewhat muddled in California law.’  Some authorities, without much analysis, suggest that it is absolute; others seem to hold that it should not be based merely on a defendant's position, but on the defendant's purpose in inducing the breach.”  Id. (quoting Aalgaard v. Merchants Nat. Bank (1990) 224 Cal.App.3d 674, 684 (motion for summary judgment properly granted based on manager’s privilege where undisputed facts demonstrated that employee induced bank’s breach of employment contract for benefit of bank and not personal benefit or gain). 

            There are therefore “three formulations of the manager’s privilege:  (1) absolute, (2) mixed motive, and (3) predominant motive.”  Huynh v. Vu (2003) 111 Cal.App.4^th 1183, 1195.  “If the privilege is absolute, it is based solely on the manager's status as the manager of the breaching party, without regard to the manager's motives or state of mind. The ‘mixed motive’ formulation applies the privilege as long as the manager is motivated, at least in part, by a desire to benefit the principal. The ‘predominant motive’ formulation is the most restrictive, granting a manager the privilege of interfering with a principal's contract only when the manager's predominant motive is to serve the interest of the principal.”  Id. at 1195.

            The manager’s privilege has been held to be absolute in some cases involving termination of an at-will employee.  See Halvorsen v. Aramark Uniform Services, Inc. (1998) 65 Cal.App.4^th 1383, 1396.  However, whether the manager’s privilege is absolute in cases of termination of at-will employment is “less than unanimous.”  See Huynh, supra, 111 Cal.App.4^th at 1198.

            In Huynh, the Court of Appeals held that the manager’s privilege applied to a husband who was acting on his wife’s behalf in the sale of real property.  Id. at 1195.  The Court held that the manager’s privilege was qualified and the predominant motive test should apply.  Id. at 1198 (trial court erred in denying husband defendant’s request to present manager’s privilege as defense to plaintiff’s inducement claim against him).  The Court concluded that “the predominant motive test should be applied when a defense of manager’s privilege is asserted in response to most forms of commercial tort claims.”  Id. at 1198. 

            “In our view, when a manager stood to reap a tangible personal benefit from the principal's breach of contract, so that it is at least reasonably possible that the manager acted out of self-interest rather than in the interest of the principal, the manager should not enjoy the protection of the manager's privilege unless the trier of fact concludes that the manager's predominant motive was to benefit the principal. Thus, in a case such as the instant one, where the manager had a material, albeit indirect, personal financial interest in the transaction,17 we are of the opinion that the predominant motive test should be applied.”  Id. 

            Defendant argues that under Reynolds v. Bement (2005) 36 Cal.4^th 1075, the manager’s privilege applies to an agent without qualification. However, Reynolds did not clearly address the scope of the privilege and whether the privilege was absolute or qualified.  Reynolds addressed whether individual defendants could be held personally liable for a Labor Code §1194 cause of action.  After reviewing the common law on whether a corporate agent could be held liable for failing to pay employee wages or inducing a corporation’s breach of contract, the Supreme Court found that a plaintiff could not state a claim against individual defendants.  Reynolds, supra, 36 Cal.4^th at 1088 (abrogated in Martinez v. Combs (2010) 49 Cal.4^th 35 on grounds that common law does not define “employer” or employment relationship under Labor Code 1194; applicable wage order of Industrial Welfare Commission defined these terms for Labor Code §1194 claim). 

            Thus, the issue of whether the manager’s privilege is absolute based solely on the agent’s status or qualified based on either the mixed or predominant motive of the agent was never before the Reynold’s court.  The issue has not been resolved by the Supreme Court.  Defendant also fails to cite any authority reasoning that the manager’s privilege should be absolute, either in all contexts or the commercial context presented here. 

            Based on the reasoning of Huynh, which this Court finds persuasive, the manager’s privilege is a qualified privilege.  Under either the mixed motive or predominant motive test, Plaintiff alleges sufficient facts to render the privilege inapplicable.  Plaintiff alleges Defendant Furla induced the Emmett Defendants to breach the Guarantee Agreement “because doing so would result in personal financial benefits to them and their predominant motive in engaging in such conduct was to obtain personal financial benefits, and not because it was in the interests of [the Emmett Defendants].”  See Complaint, ¶24.  Defendant’s demurrer based on the manager’s privilege is therefore OVERRULED.

            Defendant also argues the 2^nd cause of action is uncertain and nonsensical, because it is based on the unauthorized release of funds to Butler for payment in connection with “Hair of the Dog,” not “Mexicali.”  Defendant argues such conduct would allegedly have been in breach of the Bridge Loan Agreement, not the Guarantee.  Even if the obligation to only pay Butler with the loan funds for “Mexicali” were contained in the Bridge Loan, Plaintiff alleges that the Emmett Entity Defendants agreed to guarantee the “full, faithful and complete performance by the Borrower of each and every covenant…of the Borrower under or contained in…the Bridge Loan Agreement, as if [Emmett Entity Defendants] were the primary obligors with respect to each and all of the Borrower’s Obligations.”  See Complaint, ¶9.  The Bridge Loan Agreement obligations were therefore incorporated into the Guarantee Agreement.  Thus, if Defendant Furla induced Emmett Entity Defendants to release the funds held by the CAA to Butler for “Hair of the Dog” in violation of the Bridge Loan Agreement, Defendant Furla induced the Emmett Entity Defendants to breach the Guarantee.  Defendant Furla’s demurrer based on uncertainty of the allegations is OVERRULED.

            Defendant attacks other elements of the inducement cause of action for the first time on reply, specifically the failure to identify the conduct of Furla’s that induced breach.  The complaint alleges that Furla induced breach of contract by, “among other things, authorizing the release of the money held by CAA to pay Gerard Butler for his services in ‘Mexicali’ to be used as a credit against his acting services fee in a different motion picture entitled ‘Hair of the Dog,’ without seeking or obtaining permission from [Plaintiff.]”  See Complaint, ¶23. 

            In addition, the Court declines to consider these new arguments raised for the first time on reply. To do so would violate Plaintiff’s due process rights.  See Grappo v. McMills (2017) 11 Cal.App.5^th 996, 1009 (a court has discretion to accept arguments or evidence made for the first time in reply).