Judge Jill Feeney, Case Number: 20STCV16234, Date: 2023-11-27 Tentative Ruling

This is a breach of contract action. Plaintiff Avant Plastic Surgery (“Avant”) alleges that in February 2019, it entered into an agreement with AHNL MD, Inc. (“AHNL”) in which AHNL agreed to provide and supervise the performance of cosmetic medical skin treatments at an office in Pasadena, California. (Compl., ¶5.) The agreement required Avant to make a courtesy deposit of $100,000 as an investment in the business. (Compl., ¶6.) Avant deposited $75,000 and was required to deposit $25,000 on August 15, 2019 but did not because AHNL materially breached the agreement. (Compl., ¶6.) The agreement stated that the deposit would be returned at the end of the end of the contract term or if either party terminated the agreement. (Compl., ¶7.) If the contract was terminated, AHNL was required to refund the total amount of the deposit within 60 days following termination. (Compl., ¶9.) On November 27, 2019, Avant terminated the agreement and when it demanded that AHNL return the deposit, AHNL refused. (Compl.,¶9.)

A party may move for summary judgment “if it is contended that the action has no merit or that there is no defense to the action or proceeding.” (Code Civ. Proc., section 437c, subd. (a).) “[I]f all the evidence submitted, and all inferences reasonably deducible from the evidence and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law,” the moving party will be entitled to summary judgment. (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) A motion for summary adjudication may be made by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural respects as a motion for summary judgment. (Code Civ. Proc. § 437c, subd. (f)(2).)

The moving party bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact, and if he does so, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850; accord Code Civ. Proc. § 437c, subd. (p)(2).) “Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Ibid.) “If the plaintiff cannot do so, summary judgment should be granted.” (Avivi v. Centro Medico Urgente Med. Ctr. (2008) 159 Cal.App.4th 463, 467.)

On a plaintiff’s motion, the plaintiff must present evidence that would require a reasonable trier of fact to find any underlying material fact more likely than not. (Id at p.845.) The plaintiff meets his burden of showing that there is no defense to a cause of action if he has proved each element on that cause of action. (Id at p.849.) The burden then shifts to the defendant to show that a triable issue of one or more material facts exists as to that cause of action or defense. (Id.)

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi, supra, 159 Cal.App.4th at p. 467; see also Code Civ. Proc., section 437c(c).)

Under California Evidence Code, section 452, the Court may take judicial notice, among other things, of official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States and facts, court records, and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. (Evid. Code, section 452(c), (d), (h).)

On reply, AHNL filed a supplemental request for judicial notice of the Stipulated Settlement and Disciplinary Order entered on March 25, 2022 against Dr. Perry Liu by the Medical Board of the California Department of Consumer Affairs, Case number 800-2018-045514. The order is an official act of the California Department of Consumer Affairs.

Because both parties concede Dr. Liu was present for the meeting at issue, there is a proper foundation for Dr. Liu’s testimony regarding the events of the meeting. Dr. Liu’s declaration is properly made under penalty of perjury as required under Code Civ. Proc., section 2015.5. Additionally, Dr. Liu’s testimony that Dr. Martin did not ask him whether he had any disciplinary actions or pending malpractice actions is not hearsay because he has personal knowledge of whether he was asked these questions and because the absence of statement does not constitute an out of court statement offered for its truth. Moreover, Dr. Martin is an agent of the corporation and her statements can be considered as those of a party opponent. Although the affidavit itself is hearsay, it is nevertheless admissible because motions for summary judgment may be supported by affidavits and declarations. (Code Civ. Proc., 437c(b)(1).)

AHNL moves for summary adjudication with respect to the Complaint on the grounds that (1) Avant fraudulently induced AHNL to enter into the agreement and failed to disclose to AHNL its medical malpractice liabilities, (2) AHNL used the money had and received to benefit Avant, and (3) AHNL fulfilled its end of the bargain. AHNL also moves for summary judgment with respect to its FACC arguing that (1) AHNL can establish the requisite elements of a breach of contract, (2) AHNL can establish the requisite elements of a breach of implied covenant of good faith and fair dealing, and (3) AHNL can establish the requisite elements of fraud.

“[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

Here, on February 15, 2019, the parties entered into a service agreement. (UMF No. 1.) Prior to executing the agreement, Avant was aware of at least one malpractice action against Dr. Liu. (UMF No.3.) Dr. Liu never disclosed any malpractice actions to AHNL. (UMF No. 4.)

Pursuant to the agreement AHNL was supposed to lease the second floor of the premises located at 1110 East Green Street Suite 200, Pasadena, California 91106. (Avant’s Exh. 12.) AHNL would then provide and supervise the performance of cosmetic medical and skin treatments and procedures. (Id, p.1.) Avant was to provide plastic surgery as well as medical and surgical services. (Id.) A portion of the office would serve as an outpatient surgical center. (Id.)

In Paragraph 3.3 of the Service Agreement, Avant and AHNL represented that Dr. Liu’s licenses had never been revoked, restricted, suspended, or subjected to probation; Dr. Liu has never been sanctioned, disciplined, or reprimanded by any state licensing board, medical society, or specialty board; Dr. Liu has never been denied membership or reappointment of membership on the medical staff of any hospital; and Dr. Liu never had clinical privileges revoked, restricted, suspended, voluntarily relinquished under threat of discipline, or subjected to terms of probation for any medical disciplinary cause or reason. (Exh. 12, Service Contract)

Section 3.5 of the agreement states: “In the event of any occurrence that would render any representation or warranty set forth in Section 3.3 or 3.4 hereof untrue or incorrect in any respect if such representation or warranty were made at the time of such occurrence (“Adverse Occurrence”), or in the event that APS or AHNL or Physician receives any notice or other information indicating that an investigation, proceeding, or action has been initiated which could reasonably be expected to result in an Adverse Occurrence if not resolved in its Physician’s favor, APS or AHNL shall immediately, and in any event within seven (7) days after the happening of such occurrence or of APS’s or AHNL’s or Physician’s receipt of such notice or information, notify APS or AHNL thereof in writing and thereafter provide APS or AHNL with such information relating thereto as APS or AHNL may reasonably request from time to time.”

AHNL argues that Avant breached the agreement by failing to disclose the malpractice actions and an investigation against Dr. Liu. AHNL provides the pleadings in three malpractice actions against Dr. Liu. (AHNL’s Exhs. 1-5.) AHNL also provides an Accusation filed May 20, 2021 with the Medical Board of the California Department of Consumer Affairs. (AHNL’s Exh. 8.)

AHNL first argues that Avant breached the agreement because Dr. Liu did not disclose the medical malpractice actions against him in breach of section 3.5 of the parties’ agreement. However, the representations and warranties in section 3.3 and 3.4 of the agreement do not include medical malpractice actions. Rather, they involve probation, discipline, investigation, clinical privileges, and other actions having to do with Dr. Liu’s medical license and governed by a state licensing board or similar organization. Thus, at the time the agreement was executed, the representations and warranties were still true. Dr. Liu had not been subject to discipline, had his license revoked, or been subject to any of the actions described in sections 3.3 and 3.4. The accusation filed with the Medical Board of the California Department of Consumer Affairs was filed after Avant had already terminated the agreement.

Section 3.5 requires that the parties and Dr. Liu disclose proceedings which would reasonably be expected to make a representation or warranty untrue if the proceeding is not resolved in Dr. Liu’s favor. However, AHNL provides no evidence that a civil malpractice action would reasonably be expected to lead to an investigation, probation, license revocation, or other actions described in section 3.3 and 3.4.

AHNL argues on reply that the Godeck wrongful death action was reasonably expected to result in an Adverse Occurrence as defined in the contract because that action actually resulted in an accusation before the Medical Board culminating in a Stipulated Settlement. (AHNL’s Supp. RFJN, Exh. 24.) The Medical Board revoked Dr. Liu’s Physician’s and Surgeon’s Certificate unless Dr. Liu completed probation. (Id.) However, regardless of whether the Godeck matter actually resulted in an investigation and discipline, AHNL’s assertion that the malpractice lawsuit would have been reasonably expected to lead to discipline or an investigation by a medical board is conclusory and not supported by evidence. Whether a medical board or similar body would typically investigate a medical malpractice verdict or settlement is a question that requires specific knowledge of medical licensing to answer. Absent evidence that the medical board normally would have investigated or disciplined Dr. Liu after a successful medical malpractice action, AHNL fails to meet its burden of proving the malpractice claim against Dr. Liu would reasonably lead to investigation, discipline, or other action that would render his representations and warranties untrue.

The parties’ agreement states Avant would deposit $100,000 to AHNL as a courtesy deposit for the contribution and investment needed for the operation. (Id., p.6.) Avant would make the first payment of $50,000 on the commencement, a second payment of $25,000 after three months, and a final $25,000 payment after the sixth month. (Id., p.6-7.) The deposit would be returned in full at the end of the contract term or after any party terminates the agreement. (Id.)

• Material breach: Any party may terminate in the event of a material breach of the agreement by giving 30 days’ written notice of termination stating the reasons for the termination. If the breach is cured to the satisfaction of the non-breaching property, the agreement would continue until otherwise terminated.

• Termination for cause: Any party may terminate the agreement immediately upon notice if (1) Dr. Liu is convicted of theft, drug abuse, alcohol abuse, fraud, or any crime involving moral turpitude, (2) breach of the confidentiality or non-solicitation provisions of the agreement, (3) termination of malpractice insurance, (4) if any event takes place that renders a representation or warranty in the agreement untrue, or (5) or if Dr. Liu becomes the subject of any disciplinary action or proceeding before the Medical Board of California or a similar agency.

AHNL next argues that it is entitled to summary judgment on Avant’s fourth cause of action for breach of contract because it performed its obligations under the agreement. Avant alleges that AHNL breached section 6.2 of the agreement because AHNL failed to build out the second floor under the agreement and Avant did not occupy the second floor or perform services there.

The parties’ agreement provided that AHNL was responsible for renovating the premises, making space in the premises available to Avant, and marketing services. (Id., p.4.) The parties were jointly responsible for joint marketing efforts and the salaries and benefits for certain members of staff. (Id., p.4-5.)

AHNL provides a renovation contract for $88,900 with a contractor, Home Paradise LLC, for the renovation of the second floor of the Pasadena premises leased by AHNL. (AHNL’s Exh. 14.) Checks and invoices also show that AHNL paid the contract price in full. (AHNL’s Exhs. 15-17.) Patrice Wang, an employee of NLW Institute of Regenerative Solution (“NLW”), AHNL’s management company, testifies that the construction was complete, including the framing, interior wall, general electricity, painting, and ceiling, which was confirmed by Dr. Liu. (Wang Decl., ¶12.)

AHNL also provides email communications between Patrice Wang and Dr. Liu. (AHNL’s Exh. 19.) In the email, Dr. Liu stated that the second floor build-out was supposed to be completed in the spring and it was not yet complete as of November 2019. Dr. Liu was also concerned about whether the office was being constructed according to his proposed plans and that the office would not pass inspections. Fifteen days after this email was sent, Avant terminated the agreement.

Contrary to AHNL’s argument, the evidence does not show that AHNL completed the build out of the second floor office according to Avant’s specifications as promised under the parties’ agreement. Although the invoices, checks, and Wang’s declaration show that the construction was completed and paid in full, the evidence does not show that the space was constructed with Avant’s input as the parties agreed in section 6.2 of the agreement. Although ANHL argues that it could not complete the renovations because Avant failed to pay the final $25,000 deposit, the agreement states that the work would be completed at ANHL’s sole cost. Thus, ANHL fails to meet its burden of proving no triable issue of material fact remains over whether it breached section 6.2. Even if it did meet its burden, Dr. Liu testifies in opposition to the motion that AHNL made changes during construction without informing him and that the space was not built according to his specifications. (Liu Decl., ¶5.)

Avant next argues that it is entitled to damages for Avant’s failure to pay rent because it was a foreseeable result that Avant would be liable for rent for the second floor of the premises if it breached the service agreement. However, the parties’ agreement does not contain a provision stating Avant must pay or share rent on the property. Although ANHL provides a Business Partnership Terms Proposal, there is no evidence that Avant agreed to the terms on this sheet, which was sent to Dr. Liu prior to the signing of the agreement at issue in this case.

Section 10 of the agreement states that Avant would pay AHNL compensation for its services, its use of the second-floor premises, and other costs included in Exhibit A to the agreement. Exhibit A states Avant would compensate AHNL for marketing and administrative fees consisting of half the net profit for business that arises from AHNL’s foreign medical tourism marketing efforts. (AHNL’s Exh. 12, p. 6, 13.) However, the email between Dr. Liu and Wang shows Avant was not able to use the premises before the agreement was terminated in November 2019. (AHNL’s Exh. 19.) Thus, Avant could not have been liable for rent between August and March 2020 under the agreement.

It appears Avant is attempting to show that an oral agreement existed between the parties. ANHL provides declarations from Patrice Wang and Elaine Hsu. Hsu is a former employee of Avant. Hsu and Wang testify that during a meeting in July 2019, the parties agreed that Avant would pay 50% of monthly rent beginning in August 2019.

The¿elements¿of a cause of action for¿money¿had¿and¿received¿are: (1) that the defendant received money that was intended to be used for the benefit of the plaintiff; (2) that the money was not used for the benefit of the plaintiff; and (3) that the defendant has not given the money to the plaintiff. CACI 370.

“A cause of action for money had and received is stated if it is alleged [that] the defendant “is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.” (Avidor v. Sutter's Place, Inc. (2013) 212 Cal.App.4th 1439, 1454.) The claim is viable ‘“wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter.” (Id.)

AHNL also argues that it used the deposit paid by Avant to pay for construction of the premises. However, the parties’ agreement does not state that the deposit was to be used for construction. Rather, section 6.2 provides that construction would come at the sole cost of AHNL.

Section 12 of the parties’ agreement states that the deposit was to be returned in full if either party terminated the agreement. Avant terminated the agreement in November 2019 and AHNL has not returned the deposit. Therefore, AHNL received money which now belongs to Avant according to the parties’ agreement. AHNL does not address Section 12 and therefore fails to meet its burden of proving no triable issue of material fact remains over whether the money Avant paid to AHNL was used for Avant’s benefit.

AHNL moves for summary adjudication of its second cause of action in the FACC for breach of implied covenant of good faith and fair dealing on the grounds that Dr. Liu concealed the malpractice actions against him, which prevented AHNL from receiving benefits under their agreement.

The elements for breach of the implied covenant of good faith and fair dealing are: (1) existence of a contract between plaintiff and defendant; (2) plaintiff performed his contractual obligations or was excused from performing them; (3) the conditions requiring defendant’s performance had occurred; (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irr. Dist. V. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280 (discussing California law).) Allegations must demonstrate defendant’s conduct for failure or refusal to discharge contractual responsibilities was a conscious and deliberate act, not an honest mistake, bad judgment or negligence. (Id.) “‘[T]he implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract and cannot be extended to create obligations not contemplated by the contract.’” (Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 206 (quoting Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094).)

“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 508.) “[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” (Id. at 509.) “The covenant of good faith and fair dealing . . . exists . . . to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349.)

“A ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself’ and it has been held that ‘[b]ad faith implies unfair dealing rather than mistaken judgment . . . .’” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394 (quoting Congleton v. National Union Fire Insurance Co. (1987) 189 Cal.App.3d 51, 59).)

AHNL first argues that Dr. Liu failed to inform AHNL of the malpractice actions and investigation against him as required under their agreement. However, as discussed above, there is a triable issue of material fact over whether Avant and Dr. Liu breached this provision of the agreement.

AHNL also argues that Dr. Liu concealed malpractice related to the death of a patient and the battery of another patient. It was important to AHNL that Avant’s medical staff was not involved in any medical malpractice. Had AHNL known of the malpractice, it could have looked for a suitable replacement for Dr. Liu.

AHNL’s principal, CEO, and owner, Dr. Alexis Martin, states that had she known there was a lawsuit against Dr. Liu related to the death of a patient and severe medical malpractice, she would never have entered into the Service Agreement with Dr. Liu. (Martin Decl., ¶13.) Dr. Martin and Patrice Wang both testify that during negotiations with Dr. Liu concerning the Service Agreement, Dr. Liu and his associates never told them about the lawsuit involving a deceased patient. (Wang Decl., ¶¶4-5; Martin Decl., ¶¶4.) Dr. Martin also testifies that she asked Dr. Liu whether he was aware of any pending malpractice claims against him and he represented there were none. (Martin Decl., ¶4.)

As discussed above, the parties’ agreement did not require Dr. Liu to report malpractice actions against him. Additionally, the evidence shows that there is a factual dispute over whether Dr. Martin and Wang asked Dr. Liu whether there were any malpractice actions pending against him. Thus, AHNL fails to meet its burden of proving no triable issue of material fact exists over whether Dr. Liu unfairly concealed the malpractice actions and investigation against him.

Additionally, as discussed above, a triable issue of material fact remains over whether AHNL built the second floor office with Avant’s input as required under the agreement. As the Cross-Complainant moving for summary judgment as to its own cause of action, AHNL must prove each element of a cause of action for breach of implied covenant of good faith and fair dealing. Because a triable issue of material fact remains as to an element of this cause of action, AHNL fails to meet its burden of proof. The burden does not shift to Plaintiff.

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) A misrepresentation that qualifies as fraud includes the intentional concealment of material defects not visible or observable by a plaintiff. (Wilson, 15 Cal.App.4th at p. 304.)

AHNL argues that Dr. Liu did not disclose his medical liabilities despite Dr. Martin and Wang asking if he or Avant were the subjects of any disciplinary actions, investigations, or medical malpractice. AHNL also argues that Dr. Liu had a duty to disclose his medical liabilities. AHNL cites LiMandri v Judkins (1997) 52 Cal.App.4th 326, 336 in support of this argument. The court in LiMandri held that there is a duty to disclose facts material to a transaction may arise between parties entering into a contractual agreement.

Here, it is reasonable to infer from Dr. Martin and Wang’s representations that they would not have entered into an agreement with Dr. Liu if they knew of medical malpractice actions against him that this information would have been material to the transaction. However, as discussed above, there is a triable issue of material fact over whether Dr. Martin and Wang asked Dr. Liu about his medical liabilities. AHNL fails to meet its burden of proof. The burden does not shift to Plaintiff.