Judge: H. Jay Ford, III, Case: 23SMCV04769, Date: 2024-05-28 Tentative Ruling

Case Number: 23SMCV04769    Hearing Date: May 28, 2024    Dept: O

  Case Name:  Marianna Zimmerman et al. v. Paddock Group LLC, et al.

SUBJECT:                DEMURRER WITH MOTION TO STRIKE

MOVING PARTY:  Defendants Paddock Group, LLC and Resa Ghassemzadeh

RESP. PARTY:        Plaintiffs Marianna Zimmerman and Quantum Rejuvenation, LLC

TENTATIVE RULING

            Defendants Paddock Group LLC (“Paddock”) and Resa Ghassemzadeh’s (“Ghassemzadeh”) (collectively “Defendants”) Demurrer is SUSTAINED as to the Plaintiffs’ Marianna Zimmerman (“Zimmerman”) and Quantum Rejuvenation’s (“Quantum”) (collectively “Plaintiffs”) 2^nd, 3^rd, and 4^th causes of action of the First Amended Complaint (FAC) (filed in the pre-consolidation related Case No. 23SMCV05832) WITHOUT LEAVE TO AMEND.  Defendants are to submit the proposed order of dismissal. 

            Defendants’ Motion to Strike Plaintiffs’ prayer for punitive damages is moot.

Breach of Fiduciary Duty

As explained in Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29-30, “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. . .. (Citations). 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. (Citations.) Inherent in each of these relationships is the duty of undivided loyalty the fiduciary owes to its beneficiary, imposing on the fiduciary obligations far more stringent than those required of ordinary contractors.”

Here, at most Plaintiffs allege a lessor-lessee and landlord-tenant relationship with Paddock and Quantum (FAC ¶¶5, 7).  Plaintiffs allege “all Defendants” owed Plaintiffs a fiduciary duty by virtue of “the contacts” with Plaintiffs.  Plaintiffs, however, do not allege the creation of a fiduciary relationship between Plaintiffs and Quantum and Zimmermann. (FAC, ¶ 25, 26.) Although Plaintiffs state that Defendants were a party to the contract and had a duty to act with the utmost good faith for the benefit of Plaintiffs, that allegation is not sufficient to show the creation of a fiduciary relationship. (FAC, ¶ 28.)  See Girard v. Delta Towers Joint Venture (1993) 20 Cal.App.4th 1741, 1749 (“We note first that no fiduciary relationship is established merely because “the parties reposed trust and confidence in each other.” (Citation) Nothing in the instant record indicates that the relationship between appellant and Mediacom was any thing other than a garden variety landlord-tenant relationship in a commercial setting. (Citation.)”.); Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 513 (“[l]andlord and tenant do not generally stand in a fiduciary relationship.”); McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 808 (Rejecting argument the implied covenant of good faith and fair dealing inherent in every contract imposes fiduciary duties.)

Finally, based on the allegations of the FAC, there is s no reasonable possibility Plaintiffs can allege facts supporting the creation of a fiduciary relationship between Plaintiffs and Defendants Quantum and Zimmerman.  Nor have Plaintiffs identified any such facts in their opposition. The Court therefore sustains Defendant’s demurrer without leave to amend. (See e.g. Bock v. Hansen (2014) 225 Cal.App.4th 215, 224 (“It is clear from the allegations, and from the arguments made in plaintiffs' opposition, that this action is strictly contract based. None of the facts alleged in the [FAC] support a fraud based claim, and plaintiffs have not suggested any facts they could allege that would support a misrepresentation claim or a claim for intentional infliction of emotional distress.”; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 [6 Cal.Rptr.3d 457, 460 (“The plaintiff has the burden of proving that an amendment would cure the defect.”)

Constructive Fraud and Concealment

“[T]he elements of a cause of action for fraud based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310–311, citations omitted; see also CACI, 1901.)

Here, Plaintiffs allege Defendants had a duty to disclose the non-commercial status of the Property premised solely on the existence of a fiduciary relationship with Plaintiff.  Plaintiffs, however, have not, and cannot, allege facts sufficient to show the creation of a fiduciary relationship between Plaintiffs and the. Thus, the demurrer is sustained as to Plaintiffs’ third cause of action for constructive fraud and concealment without leave to amend.

Alter Ego

Given the Court’s sustaining the defendants’ demurrer to all the causes of action giving rise any claim against the Quantum and Zimmerman defendants, there remains no basis for the Court to adjudicate Plaintiffs cause of action for “alter ego” against these defendants.  Therefore, Defendants Quantum and Zimmermans’ demurrer to Plaintiffs’ fourth cause of action for alter ego is sustained without leave to amend.

“In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court,  (2000) 83 Cal.App 4th 523, 538.)

Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other. (Id., at 538-539.) Other factors include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. (Id., at 539.) No one characteristic governs. The courts must look at the totality of the circumstances to determine whether the doctrine should be applied. Alter ego is an extreme remedy which is sparingly used. (Id.)

Here, Plaintiffs allege that both Paddock and Champion are the alter egos of  Ghassemzadeh.  (XFAC, ¶ 52, Opp., pg. 6.)   In doing so, Plaintiffs set forth facts demonstrating Defendants’ motive/intent.  (XFAC, ¶49.)  Plaintiffs allege Paddock acquired ownership from Champion to avoid liability and create a “cover” so that it would appear Paddock and Ghassemzadeh had no idea that Property was not commercial.  (XFAC, ¶ 49.)  However, Plaintiffs do not assert sufficient facts demonstrating a unity of interest beyond the fact Ghassemzadeh was an agent for both Champion and Paddock. (XFAC, ¶¶50, 52.)  For example, Plaintiffs do not assert there was a commingling of funds or use of the same offices.  Although Plaintiffs plead that an inequitable result would occur if Court did not find in favor of the alter ego theory, Plaintiffs do not provide facts showing that under the totality of the circumstances, there is a unity of interest between all three parties. Plaintiffs fail to demonstrate that the doctrine should be applied. (XFAC, ¶51.)

Thus, the demurrer is sustained as to the fourth claim with leave to amend.

I.                   Motion to Strike

“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (Civ. Code, § 3294, subd., (a) emphasis added.) “With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.” (Id., subd., (b).) (3) ‘”Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.” (Id., subd., (c)(3).)

“[E]ven though certain language pleads ultimate facts or conclusions of law, such language when read in context with the facts alleged as to defendants' conduct may adequately plead the evil motive requisite to recovery of punitive damages.” (Monge v. Superior Ct., (1986)176 Cal. App. 3d 503, 510.) Furthermore, “[m]alice and oppression may be inferred from the circumstances of a defendant's conduct.” (Id., at p. 511.)

Here, Plaintiffs do not demonstrate the requisite elements for concealment or fraud, as discussed. Moreover, Plaintiffs have not pled facts sufficient to overcome the fact that any alleged fraud arose outside of the contract. Punitive damages may be appropriate when there is a breach of obligation, not arising from a contract. In this case, however, Plaintiffs claims are based on breach of duty arising from a contract.

Thus, Defendants’ Motion to Strike is granted.