Judge Jill Feeney, Case Number: 23STCV17048, Date: 2024-02-28 Tentative Ruling

This is an action for fraud in the inducement, negligent misrepresentation, breach of implied covenant of good faith and fair dealing, unfair business practices, and conversion. Plaintiff alleges that in May 2022, he was introduced to Defendant Yerushalmi, who asked Plaintiff to invest in a new business venture called Cielos. (FAC, ¶9.) Cielos owns and rents venues for events and provides upscale camping experiences. (Id.) Yerushalmi represented that if Plaintiff invested during its “Excelsior” round, he and other investors would enter into a Simple Agreement for Future Equity (“SAFE”). (FAC, ¶10.) After Plaintiff invested in Cielo based on representations made by Yerushalmi and Defendant Gerstein, the company lost the original site and moved in a different direction involving a smaller venue. (FAC, ¶¶12-14.) After Plaintiff learned his investment was being used to pay Yerushalmi’s and Gerstein’s personal expenses and debts, Plaintiff asked for his investment to be refunded. (FAC, ¶¶15-16.) Defendants represented the investment could not be returned unless every investor was reimbursed at the same time. (Id.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. 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 pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

A party filing a demurrer “shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., section 430.41(a).) “The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer.” (Code Civ. Proc., section 430.41(a)(2).) A failure to meet and confer does not constitute grounds to sustain or overrule a demurrer. (See Code Civ. Proc., sections 430.41 (a)(4).)

Defendants argue that the FAC fails to plead a cause of action against Yerushalmi and Gerstein because it alleges that they acted in their capacities as managers or members of Evolver Group, LLC. Defendants contends that the FAC fails to make any allegations which could operate to pierce the corporate veil or would impose alter ego liability on Yerushalmi or Gerstein.

“In general, members of a limited liability company are not liable for the ‘debts, obligations, or other liabilities’ of the limited liability company.” (CB Richard Ellis, Inc. v. Terra Nostra Consultants (2014) 230 Cal.App.4th 405, 411 (citing Corp. Code § 17703.04(a)).) Corporations Code section 17703.04(b)-(c), (e) sets forth ways in which members may be held liable for the debts and obligations of the limited liability company, including alter ego liability, a member’s participation in tortious conduct, and a member explicitly agreeing to personal liability for particular obligations. (Corp. Code, § 17703.04(b)-(c), (e); CB Richard Ellis, Inc., supra, 230 Cal.App.4th at 411 (citing to Corporations Code § 17703.04(b)-(e) as identifying ways in which members can be held liable).)

To recover on an alter ego theory, a plaintiff need not use the words “alter ego,” but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor. (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) Factors to be considered include: (1) whether there was commingling of funds and other assets; (2) failure to segregate funds of separate entities; (3) the unauthorized diversion of corporate funds or assets to other than corporate uses; (4) the treatment by an individual of corporate assets as that individual’s own assets; (5) the failure to adequately capitalize a corporation; and (6) the use of the corporate form as a shell. (Id. at 417.)

Here, Yerushalmi and Gerstein were acting on behalf of Cielo when they represented the money invested in Cielo would be used to finance the development of a second Cielo location in Temecula called “Lucid Rose.” (FAC, ¶¶11, 18.) The site had four active water wells, a spring fed lake, and a former RV campground. (Id.)

In May 2022, Yerushalmi represented that (1) the site was suitable as a second Cielos location, (2) the company conducted extensive due diligence and negotiated favorable financial terms wit the owners, (3) construction would commence on August 15, 2022, (4) an event was already booked for Lucid Rose in November 2022, (5) Lucid Rose would open in January 2023, (6) the site would have a pool, beach, heated showers and bathrooms, and other fixtures and improvements, (7) the company raised 70% of the planned $2 million, and (8) the money raised would be used specifically to finance the development of Lucid Rose. (Id.) Plaintiff consulted with Defendant Gerstein, who provided an “Investor Deck” containing pictures of the site, existing fixtures, and planned improvements which were very attractive to Plaintiff. (FAC, ¶12.)

Based on representations made by Yerushalmi and Gerstein, Plaintiff invested $40,000 in the company. (FAC, ¶13.) Under the SAFE agreement, Plaintiff would receive an equity stake in the company upon the occurrence of certain events. (Id.) SAFE includes a discount rate of 80%, meaning Plaintiff’s investment would eventually be worth $400,000. (Id.)

In March 2023, Plaintiff learned the company had abandoned the Lucid Rose site due to unforeseen challenges. (FAC, ¶14.) The company decided to invest in a new site called Campout Temecula, which was a small campsite with limited facilities that was only capable of hosting groups of 75 or less. (Id.) The company notified investors of the change in April 2023. (Id.) Plaintiff began doubting the business acumen and the veracity of Yerushalmi and Gerstein. (Id.) Plaintiff also discovered the company was using investor funds to pay personal expenses and debts of Yerushalmi and Gerstein. (FAC, ¶15.) When Plaintiff requested a refund of his investment, Yerushalmi and Gerstein represented they could not refund the money without refunding all the money to all investors at the same time. (FAC, ¶16.)

However, the causes of action for fraud and negligent misrepresentation are tort causes of action. Defendants have not explained why these causes of action cannot proceed against the individuals since under the Corporations Code members of a limited liability corporation may be held liable for their tortious actions.

“Fraudulent inducement is a viable tort claim under California law. ‘The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage. Fraud in the inducement is a subset of the tort of fraud. It ‘occurs when ‘the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable.’” (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 838-839.)

Ordinarily, “fraud must be pleaded specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.). “This particularity requirement necessitates pleading facts which show how, where, to whom, and by what means” the alleged fraud occurred. (Id.) The purpose of the particularity requirement is to “separate meritorious and nonmeritorious cases, if possible in advance of trial.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

Some cases, however, conclude that this standard is less stringent when the defendant already has “ ‘full information concerning the facts of the controversy.’ ” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217, superseded by statute on other grounds as stated in Californians for Disability Rights v. Mervyn's, LLC (2006) 39 Cal.4th 223, 227.) Relaxation of the specificity requirement is particularly appropriate in a¿concealment¿case. Unlike intentional misrepresentation, which requires some affirmative representation or promise, a fraudulent¿concealment¿is the absence of something, the suppression of a fact. (Civ. Code, section 1710.)

The courts have ruled that specificity as to fraud claims is required if it appears from the nature of allegations that defendant must necessarily possess full information, or if the facts lie more in the knowledge of opposing parties. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384-1385 [“it does not appear necessary to require each of the 38 plaintiffs to allege each occasion on which an agent of either defendant could have disclosed …. Surely defendants have records of their dealings with the plaintiffs”] accord Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal.App.4th 915, 931 [“plaintiffs did not have to specify the … personnel who prepared these documents because that information is uniquely within … [defendant’s] knowledge”].) “‘[T]he courts should not ... seek to absolve the defendant from liability on highly technical requirements of form in pleading. Pleading facts in ordinary and concise language is as permissible in fraud cases as in any others, and liberal construction of the pleading is as much a duty of the court in these as in other cases.’” (Appollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 242.)

Here, Defendants first argue that this cause of action is contradicted by the terms of the agreement. Defendants argue that Plaintiff agreed to invest in Evolver Group, LLC and not any particular project. Under the agreement, Plaintiff would receive equity in the company at a future point but could not convert his investment into equity early. Plaintiff agreed that he was capable of evaluating the merits and risks of his investment and that he would bear the economic risks of the investment.

The cause of action for fraud in the inducement is concerned with whether a plaintiff, knowing what he is signing, is induced to agree to a contract through fraud. Thus, it is not material what the terms of the contract are if the plaintiff was induced to agree to the contract through fraud. Therefore, the cause of action is not barred under the terms of the parties’ agreement.

Here, Plaintiff’s FAC alleges that Yerushalmi and Gerstein, acting on behalf of the company, made false representations regarding the Lucid Rose site which led Plaintiff to agree to the investment. In reality, the Lucid Rose site was not suitable as a venue due to environmental concerns, the company had not performed any due diligence, construction did not commence in August 2022, the November 2022 event at the site was cancelled, Lucid Rose did not open in January 2023, the site did not have the advertised facilities, the company had not raised $1.4 million, and the money raised had not been used to develop the site. (FAC ¶19.) Yerushalmi and Gerstein knew or should have known that the representations were false at the time of Plaintiff’s investment. (FAC ¶21.) They made the representations to induce Plaintiff into investing $40,000 with the company and signing the agreement. (FAC ¶20.) Finally, Plaintiff relied on these misrepresentations and invested the money. (FAC ¶23.)

The facts alleged show that Plaintiff decided to invest in the Evolver Group because Yerushalmi and Gerstein represented that the company was developing the Lucid Rose site and had made significant progress. Yerushalmi and Gerstein knew these representations were false and intended to induce Plaintiff to invest in the company. The FAC includes specific representations which Plaintiff alleges were false. Plaintiff invested the money and signed the agreement in reliance of misrepresentations made by Yerushalmi and Gerstein. Because the facts are specific as to the misrepresentations made, who made the misrepresentations, and when the misrepresentations were made, the FAC alleges a cause of action for fraud in the inducement with sufficient specificity.

Defendants argue that the FAC does not state that Yerushalmi and Gerstein knew their representations were not true. Defendants allege that the FAC merely states that something was planned for and ultimately did not happen. However, the FAC states that Yerushalmi and Gerstein knew the Lucid Rose site was not suitable for development, the company had not raised $1.4 million dollars, the company had not developed the site, and the company had not intended to use the investment funds to develop the site. These allegations go beyond planned events that did not come to pass. The facts state Yerushalmi and Gerstein knew the representations were false and that the company never intended to develop the Lucid Rose site. Therefore, the FAC sufficiently alleges a cause of action for fraud in the inducement.

Defendants next demur to the second cause of action for negligent misrepresentation on the grounds that (1) the FAC fails to state that Defendants made a positive assertion of fact, (2) Plaintiff did not justifiably rely on any misrepresentation, and (3) Plaintiff has no damages.

The elements of a cause of action for negligent misrepresentation are “misrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage.” (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154, quotation marks omitted.)

Here, Defendants first argue that the FAC fails to allege that Defendants made any positive assertion of fact. However, as discussed above, the FAC does state that Yerushalmi and Gerstein did make representations about Evolver Group’s development of the Lucid Rose site that were false and that they knew were false. This is a positive assertion of fact because Yerushalmi and Gerstein made positive assertions about the status of the Lucid Rose development and did not merely omit or imply these facts. Therefore, the FAC sufficiently states that Defendants made a positive assertion of material fact.

Defendants next argue that Plaintiff could not have justifiably relied on any misrepresentation because there were no actionable representations made. However, as discussed above, the FAC alleges that Defendants made misrepresentations about the status of the Lucid Rose development. Additionally, the FAC alleges Plaintiff relied on these misrepresentations when he decided to invest in Evolver Group and sign the agreement. Therefore, the FAC states sufficient facts to support a cause of action for negligent misrepresentation.

Defendants also argue that the FAC fails to allege that Plaintiff suffered damages. The FAC states that after Plaintiff discovered Defendants misrepresentations and requested a refund of his investment, Defendants represented that they could not refund Plaintiff without refunding all the other investors. (FAC ¶16.) Plaintiff would not have invested $40,000 in Evolver Group had he known the true facts. (FAC ¶32.) The facts thus state that Plaintiff suffered damages in the form of his investment which he would not have made if he knew the true facts and that Plaintiff cannot access now because Defendants cannot refund the investment. Therefore, the FAC sufficiently alleges that Plaintiff suffered damages as a result of his reliance on Defendants’ misrepresentations.

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).)

Here, Defendants argue that this cause of action fails because it is barred under the terms of the parties’ agreement. However, whether a party breached the implied covenant of good faith and fair dealing depends on whether the party engaged in some conduct which frustrated the other contracting party’s right to benefit under the contract. Here, Defendant argues that each of Plaintiff’s causes of action fail because Plaintiff agreed to invest in Evolver Group and not any particular project. However, even if this is true, Plaintiff is not barred from alleging that Defendants engaged in conduct which would unfairly interfere with his right to benefit under the contract. It does not appear that any provision of the agreement here bars Plaintiff from bringing this cause of action against Defendants.

The FAC alleges that under the parties’ agreement, Defendants agreed that the company would only use investor funds for the purposes listed in its investor deck, that the company would use investor funds for legitimate business purposes, and that the company would utilize good business judgment in spending the investment funds. (FAC ¶37.) Defendants failed to perform under the contract by using investment funds to pay personal expenses and debts for Yerushalmi and Gerstein. (Id.)

The agreement attached to the Complaint states that in exchange for Plaintiff’s investment of $40,000 Evolver Group would issue Plaintiff the right to units of the company’s membership interest once a triggering event occurs at a post-money valuation cap of $8,000,000. (FAC, Exh. A.) Alternatively, Plaintiff’s investment would purchase shares at an 80% discount compared to new investors at the time of the triggering event. (Id.) In other words, Plaintiff’s investment would purchase an interest in the company as if the company was valued at $8,000,000 or at an 80% discount, whichever is better for Plaintiff. Triggering events which would convert Plaintiff’s investment into equity include equity financing, a liquidity event, a dissolution event, liquidation priority, or termination. (Id.)

Under the terms of the contract, Plaintiff’s investment would not convert into equity in the company until a triggering event occurred. Plaintiff made a $40,000 investment, meaning Plaintiff performed under the contract. Defendants were then required to perform under the contract by promising to issue equity in the company once a triggering event occurred. Although there is no requirement that a breach of contract must take place before a plaintiff may pursue a cause of action for breach of the implied covenant of good faith and fair dealing, there are no facts in the FAC which show that Plaintiff will not be able to receive the benefits under the contract. Although the FAC states Defendants began developing a different site which Plaintiff did not approve of, there are no facts which would show this change unfairly interfered with Plaintiff’s right to benefit under the contract. The agreement does not state that Plaintiff or any other investor could choose which sites the company developed. Rather, the agreement only concerns when Plaintiff’s investment would be converted into equity and how much equity Plaintiff’s investment would buy. There are no allegations that Plaintiff’s future equity would be harmed by Defendants’ actions or that Defendants’ actions interfered Plaintiff’s right to benefit under the contract.

To successfully plead a UCL claim for unfair business practices, a plaintiff must allege facts justifying relief in the form of protecting the public from unfair business practices or deceptive advertising. (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 331-332.) A plaintiff must plead and prove that the defendant engaged in a business practice that 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.)

“[T]he ‘practice’ requirement envisions something more than a single transaction . . . ; it contemplates a ‘pattern of conduct’ [citation], ‘on-going . . . conduct’, ‘a pattern of behavior’ [citation], or ‘a course of conduct’ . . . .” (Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 519 (quoting State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1169-70).)

Here, the FAC alleges that Defendants engaged in unfair business practices by obtaining Plaintiff’s investment by way of fraud, misrepresenting how Plaintiff’s investment would be used, using the investment to pay for personal debts and expenses, failing to return Plaintiff’s investment, and falsely claiming that Defendants could not return Plaintiff’s investment. (FAC ¶41.)

The FAC only states facts with respect to Plaintiff’s investment, a single transaction. The FAC does not state that Defendants engaged in a pattern of conduct or on-going conduct as contemplated by the UCL. Therefore, the FAC fails state facts sufficient to support a cause of action for unfair business practices.

Defendants argue that this cause of action is barred because Plaintiff’s allegations are contradicted by the agreement itself. Specifically, Defendants allege that Plaintiff had no veto rights or control over how Evolver Group chose to use the investment funds. However, Plaintiff’s FAC states that Defendants obtained Plaintiff’s consent to invest and sign the agreement through fraud. Because fraud is unlawful, the FAC sufficiently states Defendants engaged in an unlawful business practice.

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

“‘Conversion is any act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with his rights therein.’” (Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 747 (quoting Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329).) “‘It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.’” (Id.)

Here, Defendants argue that Evolver Group was entitled to receive the $40,000 in dispute because Plaintiff agreed to the investment. However, as discussed above, the facts alleged show the investment was induced by fraud. Defendants provide no authority stating funds induced by fraud do not constitute a wrongful taking. It is reasonable to infer that because Defendants obtained the investment funds through fraud, Defendants wrongfully exerted dominion over Plaintiff’s investment funds.

Defendants also argue that no provision on the agreement entitles Plaintiff to have his investment returned upon demand. However, the FAC alleges that Plaintiff would not have invested in Evolver Group had he known the true facts. (FAC ¶32.) Because Defendants induced Plaintiff to invest in the company by fraud, the money has been used to support Defendants’ business and to pay personal debts and expenses for Yorushelmi and Gerstein. It is reasonable to infer that Defendants’ disposition of Plaintiffs’ investment was inconsistent with Plaintiff’s rights because Plaintiff would still be in possession of the funds had he known the true facts. Therefore, the FAC states facts sufficient to support a cause of action for conversion.

Defendants assert for the first time on reply that Plaintiff’s claims arising from the parties’ agreement should be governed by Delaware law because the agreement states all rights and obligations under the agreement shall be governed by the laws of the state of Delaware. Defendants allege that Plaintiff’s claims would be barred under Delaware law.

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., section 435, subd. (b)(1); Cal. Rules of Court, rule 3.1322, subd. (b).) The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc. section 436, subd. (a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782.)

In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice. (Civ. Code, section 3294, subd. (a).)

When the defendant is a corporation, “the oppression, fraud, or malice must be perpetrated, authorized, or knowingly ratified by an officer, director, or managing agent of the corporation.” (Wilson v. Southern California Edison Company (2015) 234 Cal.App.4th 123, 164; see Civ. Code § 3294(b).)

Here, as discussed above, the FAC sufficiently alleges that Defendants induced Plaintiff to invest in Evolver Group by fraud. Civ. Code, section 3294 authorizes punitive damages if a defendant is guilty of fraud. Therefore, the FAC alleges sufficient facts to support a demand for punitive damages under Civ. Code, section 3294.

Defendant also argues that the FAC fails to state that Evolver Group ratified any conduct which warrants an award of punitive damages. However, the FAC alleges that the alleged fraudulent conduct was committed by Yerushalmi and Gerstein. Yerushalmi signed the subject agreement as CEO of the company. (FAC Exh. A, p. 9.) Because Yerushalmi is an officer of Evolver Group and the FAC alleges the fraud was perpetrated by Yerushalmi, the FAC alleges sufficient facts to support a demand for punitive damages.