Judge: Holly J. Fujie, Case: 22STCV22693, Date: 2022-11-14 Tentative Ruling

Case Number: 22STCV22693    Hearing Date: November 14, 2022    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

MOVING PARTY: Defendant Straight Forwarding, Inc. (“Moving Defendant”)

RESPONDING PARTY: Plaintiff

The Court has considered the moving, opposition and reply papers.

BACKGROUND

            This action arises out of a dispute over the performance of a commercial shipping contract.  Plaintiff’s complaint (the “Complaint”) alleges: (1) breach of contract; (2) reformation of contract based upon illegality; (3) conversion; (4) intentional interference with contractual relations; (5) intentional interference with prospective economic relations; (6) money had and received; and (7) declaratory relief.

In relevant part, the Complaint alleges: Plaintiff is a toy manufacturer that produces its products overseas and imports them to the United States.  (Complaint ¶¶ 13-14.)  Plaintiff hired Moving Defendant, a freight forwarder, to coordinate Plaintiff’s shipments from its manufacturer to its designated point of delivery.  (Complaint ¶¶ 15-16.)  On or about March 22, 2019, Plaintiff and Moving Defendant (the “Parties”) entered into a Credit Application and Agreement (the “Agreement”) which set forth the Parties’ relationship and respective obligations.  (See Complaint ¶ 17, Exhibit A.) 

The Agreement contains a provision that provides:

“Customer agrees that all amount due is payable within the number of days credit is granted from date of invoice.  Company reserves the right to demand payment of all outstanding and right includes the right to demand payment upon delivery of any shipment(s) at any time.  If any amount due is not paid within said period a delinquency charge of 2% per month (24% annual) of the delinquent balance shall be added to the sum due.”

(Complaint, Exhibit A at 3.)  

During the course of dealings of their relationship, Moving Defendant provided Plaintiff 30 days from the day of invoice to pay any outstanding balanced owed without incurring extra fees or interest.  (Complaint ¶ 19.)  In around September and October 2021, Plaintiff arranged for the shipment of cargo containing toys to fill orders for the holiday shopping season (the “Holiday Shipments”).  (Complaint ¶ 20.)  When the Holiday Shipments began arriving in the United States, Moving Defendant began demanding payments to be made upon arrival as opposed to the 30-day period that had been afforded to Plaintiff throughout the Parties’ relationship.  (Complaint ¶ 21.)  Due to the importance of the Holiday Shipments to Plaintiff’s business, Plaintiff paid Moving Defendant upfront, but advised Moving Defendant that it would be unable to pay up front after January 2022.  (See Complaint ¶¶ 22-23.)  Moving Defendant did not thereafter revert to its previous practice of allowing 30 days for payment and Plaintiff has incurred losses as a result.  (See Complaint ¶¶ 24-33.)

Moving Defendant filed a demurrer (the “Demurrer”) to the second cause of action on the grounds that the Complaint fails to state sufficient facts to constitute a cause of action.  Moving Defendant also filed a motion to strike (the “Motion”) portions of the Complaint.

DEMURRER

Meet and Confer

The meet and confer requirement has been met with respect to the Demurrer and Motion.

Legal Standard

A demurrer tests the sufficiency of a complaint as a matter of law.  (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)  The court accepts as true all material factual allegations and affords them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts.  (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.)  With respect to a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded.  (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.)  A demurrer will be sustained without leave to amend if there exists no reasonable possibility that the defect can be cured by amendment.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 

Second Cause of Action: Reformation of Illegal Contract

Generally, the California Constitution sets a maximum annual interest rate of seven percent on loans and forbearances, but allows parties by written contract to set the interest rate at up to 10 percent, or at the level of the Federal Reserve's discount rate plus 5 percent, on loans or forbearances involving real property.  (WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, 533; see Cal. Const., art. XV, § 1, subds. (1)-(2).)  A loan of money is the delivery of a sum of money to another under a contract to return at some future time an equivalent amount.  (Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal.3d 701, 705 (“Southwest”).)  A forbearance of money is the giving of further time for the payment of a debt or an agreement not to enforce a claim at its due date.  (Id.)  However, both a loan of money and a forbearance are to be distinguished from a sale which is the transfer of property in a thing for a price in money.  (O'Connor v. Televideo System, Inc. (1990) 218 Cal.App.3d 709, 713.) 

There are many exceptions to usury law.  (Southwest, supra, 51 Cal.3d at 705.)  One is the “time-price” doctrine, which applies when property is sold on credit as an advance over the cash price.  (Id.)  In these circumstances, the seller finances the purchase of property by extending payments over time and charging a higher price for carrying the financing.  (Id.) This type of transaction, often called a bona fide credit sale, is not subject to the usury law because it does not involve a loan or forbearance.  (Id.)  Another exception to the usury laws is the rule that a debtor by voluntary act cannot render an otherwise valid transaction usurious.  (Id. at 706.)  A debtor cannot bring his creditor to the penalties of the Usury Law by his voluntary default in respect to the obligation involved where no violation of law is present at the inception of the contract.  (Id.)  Where the excessive interest is caused by a contingency under the debtor's control, the transaction will not be deemed usurious.  (Id.)

Whether a particular transaction is a usurious loan or a sale is a question of fact.  (Ghirardo v. Antonioli (1995) 8 Cal.4th 791, 799.)  In usury cases, the issue is whether or not the bargain of the parties, assessed in light of all the circumstances and with a view to substance rather than form, has as its true object the hire of money at an excessive rate of interest.  (Id. at 799-800.) 

            Moving Defendant argues that the Agreement is not usurious under Southwest because it is an interest payment on an overdue commercial account and therefore falls under the time-price doctrine and because it was a voluntary agreement at the time it was entered into.  While the general principles of usury law are correctly stated in the Demurrer, the Court notes that none of the cases cited by Moving Defendant was based on determinations at the pleading stage.  Because the determination of whether a particular transaction is a loan or sale subject to the aforementioned exceptions to usury laws is a question of fact, the Court declines to rule on whether the Agreement falls under an exception to usury law. 

            The Court therefore OVERRULES the Demurrer.  

MOTION TO STRIKE

Legal Standard

A motion to strike either: (1) strikes any irrelevant, false or improper matter inserted in any pleading; or (2) strikes any pleading or part thereof not drawn or filed in conformity with the laws of this state, a court rule or order of court.  (CCP § 436.)

            The Motion seeks to strike allegations regarding to the second cause of action and the characterization of the Agreement as usurious and allegations regarding to punitive damages.  

            In light of the Court’s ruling on the Demurrer, the Court DENIES the Motion as to the usury allegations.

Punitive Damages

Civil Code section 3294, subdivision (a) authorizes punitive damages in non-contract cases where the defendant has been guilty of oppression, fraud, or malice.  (Civ. Code § 3294, subd. (a).)

The Court finds that the Complaint adequately pleads conduct sufficient to support a punitive damages award.  The Complaint alleges not only that Moving Defendant breached the Agreement, but that it also engaged in willful conduct to force Plaintiff to incur additional fees and disrupt Plaintiff’s other contractual agreements.  (See generally Complaint ¶¶ 49-73.)

The Court therefore DENIES the Motion.  Moving Defendant is ordered to file an answer to the Complaint within 20 days of this order. 

Moving party is ordered to give notice of this ruling. 

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar. 

  Dated this 14th day of November 2022