Judge: Helen Zukin, Case: 22SMCV00998, Date: 2022-12-14 Tentative Ruling
Case Number: 22SMCV00998 Hearing Date: December 14, 2022 Dept: 207
Background
Plaintiff Real Ketones, LLC (“Plaintiff”) brings this action
against Defendant CaseStack, LLC, (“CaseStack”) and its parent company,
Defendant Hub Group, Inc. (“Hub Group” or, collectively with CaseStack,
“Defendants”) stemming from a contract between Plaintiff and CaseStack.
Plaintiff’s operative First Amended Complaint (“FAC”), filed October 4, 2022,
asserts five causes of action in connection with alleged breaches of this
contract, as well as alleged fraudulent inducement and misrepresentations in
connection with its formation.
Defendants bring this demurrer to Plaintiff’s causes of
action for fraudulent inducement, fraudulent misrepresentation, negligent
misrepresentation, and unfair business practices under Business and Professions
Code § 17200, arguing each fails to state sufficient facts to constitute a
cause of action under Code Civ. Proc. § 430.10(e). Defendants separately move
to strike certain of Plaintiff’s claims for damages sought in the FAC.
Plaintiff opposes the demurrer and motion to strike.
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.)
The general rule is that the plaintiff need only allege
ultimate facts, not evidentiary facts. (Doe v. City of Los Angeles
(2007) 42 Cal.4th 531, 550.) “All that is required of a plaintiff, as a matter
of pleading, even as against a special demurrer, is that his complaint set
forth the essential facts of the case with reasonable precision and with
sufficient particularity to acquaint the defendant with the nature, source and
extent of his cause of action.” (Rannard v. Lockheed Aircraft Corp.
(1945) 26 Cal.2d 149, 156-157.)
Motion to Strike Standard
The court may, upon a motion, or at any time in its
discretion, and upon terms it deems proper, strike any irrelevant, false, or
improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The
court may also strike all or any part of any pleading not drawn or filed in
conformity with the laws of this state, a court rule, or an order of the court.
(Id., § 436(b).) The grounds for a
motion to strike are: the pleading has irrelevant, false, or improper matter,
or has not been drawn or filed in conformity with laws. (Id. § 436.) The grounds for moving to strike must appear on the
face of the pleading or by way of judicial notice. (Id. § 437.)
Analysis
1. Meet and
Confer Requirement
The Court
finds Defendants have complied with the meet and confer requirements set forth
under Code of Civil Procedure §§ 430.41 and 435.5. (Goldman Decls. at ¶2.)
2. Economic Loss Rule
“[C]onduct amounting to a breach of
contract becomes tortious only when it also violates a duty independent of the contract
arising from principles of tort law.” (Robinson Helicopter Co., Inc. v. Dana
Corp. (2004) 34 Cal.4th 979, 989 (Robinson Helicopter).) In other words,
“[t]he economic loss rule requires a purchaser to recover in contract for purely
economic loss due to disappointed expectations, unless he can demonstrate harm above
and beyond a broken contractual promise.” (Ibid.) In Robinson Helicopter,
the tort claim at issue was a fraud and misrepresentation claim. (Id. at
p. 990.) The California Supreme Court held that the economic loss rule did not bar
recovery where “a defendant’s affirmative misrepresentations on which a plaintiff
relies and which expose a plaintiff to liability for personal damages independent
of the plaintiff’s economic loss.” (Id. at p. 993.) Thus, in order to plead
around the economic loss rule, a party must plead both (1) the existence of a duty
that arises independent of any contractual duty and (2) independent injury, other
than economic loss, that arises from the breach of that duty. (Id. at 988-91.)
Plaintiff correctly argues causes
in action sounding in fraud, such as claims of fraudulent inducement, is one means
by which California law recognizes the existence of a duty independent of the duties
imposed by the contract. (See Erlich v. Menezes (1999) 21 Cal.4th 543, 551-52.)
However, it is not enough for Plaintiff to plead an independent duty, Plaintiff
must also plead independent injury. As to an independent injury, “[e]conomic loss
consists of ‘damages for inadequate value, costs of repair and replacement of the
defective product or consequent loss of profits—without any claim of personal injury
or damages to other property’” (Robinson Helicopter, supra, 34Cal.4th
at 988 [quoting Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482].)
The Court finds Plaintiff has
failed to plead independent injury as the damages sought for the causes of
action for fraudulent inducement, fraudulent misrepresentation, and negligent
misrepresentation are the same as those sought for Plaintiff’s cause of action
for breach of contract. Plaintiff’s claim for breach of contract alleges
damages in the form of forcing Plaintiff “to expend money and resources to
remedy those breaches, including additional freight charges and the costs of
lost product.” (FAC at ¶126.) Plaintiff’s claims for fraudulent inducement,
fraudulent misrepresentation, and negligent misrepresentation similarly allege
damages in the form of unnecessary freight charges, additional employee time to
remedy customer concerns, and lost sales. (FAC at ¶¶86, 100, 114.) These
damages appear to stem, not from any breach of an independent duty, but rather
Defendants’ alleged failure to perform under the contract.
Plaintiff argues the economic loss
rule does not apply to its claims against Defendant Hub Group because it does
not have any contractual relationship to it, stating there is no published
authority from a California state court applying the economic loss rule in the
absence of a direct contractual relationship between the parties. Defendants,
citing authority from federal caselaw, argues the economic loss rule applies to
claims brought against a parent corporation stemming from a contractual
relationship with its subsidiary. Plaintiff correctly points out this federal
authority is not binding on this Court; however, it is persuasive authority
interpreting California law. In the absence of California state court authority
on point, the Court declines to announce a bright line rule which prohibits the
application of the economic loss rule to a parent corporation arising from a
plaintiff’s contractual relationship with a subsidiary. Accordingly, the Court
finds the economic loss rule applies to Plaintiff’s claims against Defendant
Hub Group.
Accordingly, the Court SUSTAINS
Defendants’ demurrer to the first, second, and third causes of action under the
economic loss rule. However, as it appears Plaintiff may have a legitimate
basis to assert claims which fall beyond the economic loss rule, the Court will
grant Plaintiff leave to amend to clarify the distinction between the damages
sought in connection with the first, second, and third causes of action and
those sought in connection with Plaintiff’s claim for breach of contract.
3. Unfair
Business Practices
The parties appear to agree
Plaintiff’s claim for unfair business practices under Business and Professions
Code § 17200 will stand or fall with Plaintiff’s causes of action for
fraudulent inducement and fraudulent misrepresentation. (Demurrer at 21; Opp. at
15.) As the Court has sustained Defendants’ demurrers to those causes of action
with leave to amend as set forth above, the same result follows with respect to
Plaintiff’s fourth cause of action for unfair business practices. Accordingly,
Defendants’ demurrer to Plaintiff’s fourth cause of action is SUSTAINED with
leave to amend.
4. Motion to Strike
Defendants separately move to
strike the damages mentioned in paragraphs 2, 86, 100, 114, and 126, arguing
Plaintiff waived the right to recover such damages under a contractual
provision stating:
IN NO EVENT SHALL ANY PARTY
BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, DATA OR USE, INCURRED
BY ANY PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT…
(Ex. A to FAC at § 13.) Paragraphs
2, 86, 100, and 114 concern damages sought in connection with Plaintiff’s
first, second, and third causes of action. As the Court has sustained
Defendants’ demurrer to these causes of action with leave to amend to clarify
the distinction between the damages sought in connection with those causes of
action and Plaintiff’s separate cause of action for breach of contract,
Defendants’ motion to strike these paragraphs is DENIED as moot.
Paragraph 126 asserts two
categories of damages in connection with Plaintiff’s claim for breach of
contract: (1) additional freight charges, and (2) the costs of lost product.
(FAC at ¶126.) Defendants acknowledge the contract permits Plaintiff to recover
“the cost to repair or replace the Goods actually lost, damaged or destroyed.”
(Motion at 7 [quoting Ex. A to FAC].) Plaintiff can thus properly seek to
recover for lost product as claimed in paragraph 126. Plaintiff argues it
should be permitted to recover additional freight charges because section 5.1
of the Terms and Conditions permits indemnity for additional freight charges.
However, as Defendants correctly point out, section 5.1 by its own terms does “not
apply to any claims against CaseStack arising from or related to loss, damage,
destruction or delay of or to Goods.” (Ex. A to FAC.) Thus, the indemnity
provision of section 5.1 does not extend to Plaintiff’s claims against
Defendants for additional freight charges incurred in connection with the delay
of Plaintiff’s goods. Such additional freight charges would consist incidental
or consequential damages stemming from such delay and are thus barred by
section 13 of the Terms and Conditions. Accordingly, the Court GRANTS
Defendants’ motion to strike paragraph 126, but only as to the recovery of
additional freight charges.
Defendants also move to strike
Plaintiff’s claim for punitive damages. Plaintiff’s claims for punitive damages
arise from the alleged fraudulent conduct which forms the basis of Plaintiff’s
first and second causes of action. As the Court has sustained Defendants’
demurrer to those causes of action with leave to amend, Defendant’s motion to
strike Plaintiff’s claims for punitive damages is DENIED as moot.
Conclusion
Defendants’ demurrer to the first, second, third, and fourth
causes of action is SUSTAINED with 30 days’ leave to amend. Defendants’ motion
to strike is GRANTED as to Plaintiff’s claim for recovery of additional freight
charges in connection with Plaintiff’s claim for breach of contract and is
otherwise DENIED.