Judge Helen Zukin, Case 19SMCV01966 2022-08-05 Tentative Ruling

Judge: Helen Zukin, Case: 19SMCV01966, Date: 2022-08-05 Tentative Ruling

Case Number: 19SMCV01966 Hearing Date: August 5, 2022 Dept: 207

Background

The present action arises out of the design and construction of a custom residential home. Michael Levine and Zorbey Ozdilek (“Plaintiffs”) contracted with Montalba Architects, Inc. to serve as the architect for the construction of Plaintiffs’ custom home in Los Angeles, California (“the project”). During the project, Plaintiffs learned the general contractor and various subcontractors, including moving Defendant Folger Roofing & Construction Company, Inc. (“Folger”), failed to construct Plaintiffs’ home according to Plaintiffs’ specifications.

On March 25, 2022, Plaintiffs filed their Third Amended Complaint (“SAC”). Defendant Folger demurred to Plaintiffs’ sixth cause of action for aiding and abetting breach of fiduciary duty, the seventh cause of action for fraud and deceit, the eighth cause of action for aiding and abetting fraud and deceit, the eleventh cause of action for aiding and abetting conversion, and the twelve cause of action for violation of Business and Professions Code § 17200 asserted against it in the TAC. Defendants WMW, Inc. (“WMW”), Heritage Woodworks, Inc. (“Heritage”), and LA Overhead Door, Inc. (“LA Overhead”) filed requests for joinder in Folger’s demurrer. The Court granted the requests for joinder and on June 2, 2022, sustained Folger’s demurrer to the causes of action for aiding and abetting breach of fiduciary duty, fraud and deceit, aiding and abetting fraud and deceit, aiding and abetting conversion, and violation of Business and Professions Code § 17200, with leave to amend.

Plaintiffs filed the operative Fourth Amended Complaint (“FAC”) on June 30, 2022. Folger now brings the instant demurrer to the sixth cause of action for aiding and abetting breach of fiduciary duty, the eighth cause of action for aiding and abetting fraud and deceit, and the eleventh cause of action for violation of Business and Professions Code § 17200 asserted against it in the FAC. Folger demurrers to each of these claims arguing they fail to state sufficient facts to constitute a cause of action under Code Civ. Proc. § 430.10(e) and are uncertain under Code Civ. Proc. § 430.10(f).

Defendants WMW, Heritage, and LA Overhead (collectively with Folger, “Defendants”) have again requested joinder in Folger’s demurrer.

Request for Judicial Notice

Folger requests the Court take judicial notice of the notice of ruling filed by Plaintiffs on June 3, 2022. Folger’s request is unopposed and is GRANTED.

Demurrer Standard

When considering demurrers, courts read the allegations liberally and in context. (Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Id.) However, it does not accept as true deductions, contentions, or conclusions of law or fact. (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.)

A special demurrer for uncertainty under Section 430.10(f) is disfavored and will only be sustained where the pleading is so unintelligible a defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Id.)

Analysis

1. Meet and Confer Requirement

Before filing a demurrer, the demurring party is required to “meet and confer in person or by telephone” with the party who filed the pleading demurred to for the purposes of determining whether an agreement can be reached through a filing of an amended pleading to resolve the objections to be raised in the demurrer. (C.C.P. §§ 430.41.) Counsel for Folger has confirmed this requirement has been satisfied and the Court will proceed to the merits of Folder’s demurrer. (Morrison Decl. at ¶ 2.)

2. Joinder by Other Defendants

In ruling on Folger’s previous demurrer to the TAC, the Court granted Defendants WMW, Heritage, and LA Overhead’s requests for joinder as the Court had specifically requested similarly situated Defendants “attempt to work together on the demurrer, and if possible, avoid filing a slew of separate motions.” The Court GRANTS Defendants WMW, Heritage, and LA Overhead’s requests for joinder to Folger’s demurrer to the FAC for the same reason.

Plaintiffs contend the requests for joinder filed by WMW and Heritage were untimely by four and one day, respectively. Plaintiffs claim this is a “blatant due process” violation which prohibits the Court from considering these untimely filings. (Opposition at 3-4.) Plaintiffs are correct that the joinders filed by WMW and Heritage are untimely. A joinder must be filed and served within the time for noticing the underlying motion. (See, e.g., Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1176-1177.) The WMW and Heritage joinders were not filed and served sixteen court days before the August 5 hearing on Folger’s demurrer as required by Code Civ. Proc. § 1005(b).

However, the Court is not free to disregard these joinders simply because they are untimely. California Rules of Court, rule 3.1300(d) expressly prohibits the Court from doing so: “No paper may be rejected for filing on the ground that it was untimely submitted for filing. If the court, in its discretion, refuses to consider a late filed paper, the minutes or order must so indicate.” Plaintiffs here claim, without citation to any authority, the consideration of these untimely joinders would “unnecessarily and unreasonably” deprive Plaintiffs of their “procedural due process rights.” However, Plaintiffs do not articulate any specific prejudice they suffered as a result of these untimely filings beyond having a shortened time to prepare their opposition. The Court in its discretion will consider the arguments raised by WMW and Heritage in the interest of judicial economy.

3. Aiding and Abetting Breach of Fiduciary Duty – Sixth Cause of Action

“[T]here are two different theories pursuant to which a person may be liable for aiding and abetting a breach of fiduciary duty. One theory, like conspiracy to breach a fiduciary duty, requires that the aider and abettor owe a fiduciary duty to the victim and requires only that the aider and abettor provide substantial assistance to the person breaching his or her fiduciary duty. . . The second theory . . . arises when the aider and abettor commits an independent tort. [Citation.] This occurs when the aider and abettor makes a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.” (American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1477.)

In sustaining Folger’s prior demurrers to this cause of action, the Court found Plaintiffs failed to allege any of the demurring Defendants had knowledge of an unlawful act or gave substantial assistance or encouragement to an unlawful act.

The Court finds Plaintiffs have failed to cure the defects in the SAC and TAC identified by the Court’s prior ruling with respect to the aiding and abetting causes of action. Plaintiffs cite to paragraphs 282 and 292-295 as sufficiently establishing a cause of action for aiding and abetting breach of fiduciary duty. (Opposition at 6-8.) However, these paragraphs are merely verbatim repetitions of paragraphs 280 and 289-292 of the TAC, which themselves parrot the conclusory allegations of the Second Amended Complaint and have been repeatedly found by the Court to be insufficient in alleging a cause of action against Defendants.

The paragraphs relied on by Plaintiffs merely allege every one of the Subcontractor Defendants were aware that other defendants had and were breaching their fiduciary duties to Plaintiffs (TAC at ¶ 292), “gave the others substantial assistance and/or encouragement” for their breaches (id. at ¶ 293), and that substantial assistance was a substantial factor in causing harm to Plaintiffs (id. at ¶ 294). These unsupported legal conclusions are insufficient to state a claim for aiding and abetting for the same reasons they were found insufficient in the SAC and TAC. Plaintiffs state paragraph 283 incorporates all other allegations in the FAC into the cause of action for aiding and abetting breach of fiduciary duty, but the FAC contains no factual allegations as to Defendants’ alleged knowledge of or substantial assistance to a breach of fiduciary by any other party or entity. Accordingly, the FAC fails to set forth sufficient factual allegations to state a claim against the demurring Defendants for aiding and abetting breach of fiduciary duty or aiding and abetting conversion. Defendants’ demurrer to these causes of action is SUSTAINED. As the Court noted in its June 3, 2022, ruling, Plaintiffs would not be given further leave to amend this cause of action. Plaintiffs here have provided the Court with no reason to depart from its prior ruling and thus sustains the demurrer to this cause of action without leave to amend.

4. Aiding and Abetting Fraud - Eighth Causes of Action

To establish a fraud cause of action, Plaintiffs must allege (1) misrepresentation, (2) knowledge of falsity, (3) intent to defraud or to induce reliance, (4) justifiable reliance, and (5) resulting damage. (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.) In California, fraud, including negligent misrepresentation, must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) Because a corporation can only act through its agents, a plaintiff must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Mason v. Drug, Inc. (1939) 31 Cal.App.2d 697, 703).

“‘Liability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.’” (Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1325-26 [quoting Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846]; see also Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, 93.) “Mere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting.” (Fiol, supra, 50 Cal.App.4th at 1326.) “To plead aiding and abetting by a defendant, the plaintiff must allege that the defendant had actual knowledge of the ‘specific primary wrong’ being committed, and gave substantial assistance to the wrongful conduct.” (Goonewardene v. ADP, LLC (2016) 5 Cal.App.5th 154, 188 [overturned on other grounds].)

In sustaining Folger’s prior demurrer to the eighth cause of action for aiding and abetting fraud and deceit, the Court found the TAC failed to provide factual allegations showing Defendants aided and abetted other defendants in misleading Plaintiffs. Folger contends there has been no material change in the allegations made against it in the FAC concerning Plaintiffs’ claim for aiding and abetting fraud. In response, Plaintiffs direct the Court to paragraphs 315 and 316 in the FAC. Paragraph 315 alleges “each of the Defendants named in this cause of action who are not specifically charged with committing fraud and deceit themselves were certainly well aware of the fraud” being committed by other parties. Paragraph 316 alleges every Defendant named in its eighth cause of action “substantially assisted” in the fraud of other parties “by observing yet failing to report these fraudulent acts to” Plaintiffs.

The Court finds these generalized statements in the FAC fail to state sufficient factual allegations to constitute a cause of action against Defendants. Plaintiffs simply lump several defendants together and state each of them had knowledge of the fraud and substantially assisted in it. These are simply legal conclusions without any factual basis. Further, Plaintiffs appear to rest their claim for aiding and abetting fraud on Defendants’ failure to report the fraud of other parties, however, as set forth above, “Mere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting.” (Fiol, supra, 50 Cal.App.4th at 1326.) Plaintiffs do not allege how Defendants knew of the alleged fraud or what specific actions any of Defendants undertook to substantially assist the alleged fraud other than by not stopping it.

The Court finds the TAC fails to state a claim for fraud or aiding and abetting fraud against Defendants and the demurrer to the eighth cause of action is SUSTAINED without leave to amend.

5. Violation of Business & Professions Code § 17200, et seq.

California’s Unfair Competition Law (“UCL”), codified at Business and Professions Code section 17200 et seq., prohibits “any unlawful, unfair, or fraudulent business act or practice.” (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) A UCL plaintiff must plead and prove the defendant engaged in a business practice which was either unlawful (i.e., is forbidden by law) or unfair (i.e., harm to victim outweighs any benefit) or fraudulent (i.e., is likely to deceive members of the public). (Albillo v. Intermodal Container Services, Inc. (2003) 114 Cal.App.4th 190, 206.) “An unlawful business practice or act within the meaning of the UCL is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Bernardo v. Planned Parenthood Federation of America (2004) 115 Cal.App.4th 322, 351.) Unfair competition “borrows” violations of other laws and authorizes a separate action pursuant to unfair competition. (Farmers Ins. Exch. v. Superior Court (1992) 2 Cal.4th 377, 383.) Unfair conduct in unfair competition actions must be violative of public policy and “tethered to specific constitutional, statutory, or regulatory provisions.” (Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917, 940.) As a statutory cause of action, allegations of unfair business practices must state with reasonable particularity the facts supporting the statutory elements of the violation. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.) The statutory violations must be specifically delineated and said violations must relate to business activity. (Id.) “Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices. [Citation.]” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.)

The Court sustained Folger’s prior demurrer to the cause of action for violation of Business & Professions Code § 17200, et seq., finding Plaintiffs could not rely on their fraud claims as the basis for the UCL claim and otherwise failed to sufficiently allege wrongful conduct on the part of the demurring defendants. Defendants allege the same result follows in the FAC. Plaintiffs do not point the Court to any paragraph of the FAC which they allege constitute new factual allegations supporting their cause of action as to Defendants.

Upon review of the FAC, it appears Plaintiffs have amended their claims relating to the unfair competition cause of action. However, their amended allegations also fall short of sufficiently stating a cause of action against Defendants. Aside from minor wording changes, the only new allegation as to Folger concerning unfair competition simply states “As noted above, a business practice is proscribed under the UCL if it violates any federal, state, or local law. By and through its negligent, reckless, and otherwise illegal behavior, FOLGER violated multiple state laws” before listing the same Building Code violations as alleged in the TAC. (FAC at ¶ 363.) Plaintiffs add the same boilerplate statement as to Heritage (id at ¶ 365), LA Overhead (id at ¶ 367), and WMW (id at ¶ 370.)

These new statements are simply legal conclusions devoid of any factual basis. Simply characterizing Defendants conduct as negligent, reckless, and illegal is insufficient. Plaintiffs have again not pled their claim with the reasonable particularity required to state a cause of action under Business and Professions Code § 17200 and the Court SUSTAINS Defendants’ demurrer to the eleventh cause of action asserted in the TAC without leave to further amend.

Conclusion

Defendants Folger, Heritage, WMW, and LA Overhead’s demurrer to the sixth, eighth, and eleventh, causes of action in the Fourth Amended Complaint is SUSTAINED without leave to amend.