Judge: John C. Gastelum, Case: 21-01234034, Date: 2022-08-23 Tentative Ruling
Balboa Capital Corp. v. Max Haul, LLC
Demurrer to Cross-Complaint
Tentative Ruling: Cross-Defendant Balboa Capital Corp.’s general demurrer to the 5th and 7th causes of action for civil conspiracy and violation of Business and Professions Code section 17200 in the cross-complaint is OVERRULED.
5th COA for civil conspiracy: “‘[T]he basis of a civil conspiracy is the formation of a group of two or more persons who have agreed to a common plan or design to commit a tortious act.’ [Citation.]” (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582 (Kidron).) “[A] civil conspiracy does not give rise to a cause of action unless an independent civil wrong has been committed. The elements of an action for civil conspiracy are (1) formation and operation of the conspiracy and (2) damage resulting to plaintiff (3) from a wrongful act done in furtherance of the common design. [Citation.]” (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1062.) General allegations of an agreement are sufficient so long as the complaint sufficiently pleads the elements of a cause of action for some tort or other wrong. (Quelimane Co., Inc. v. Stewart Title Guaranty Co. (1998) 19 Cal. 4th 26, 47.)
“[T]he major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity. [Citation.]” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 511, internal quotation marks omitted.) “The conspiring defendants must [ ] have actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose. [Citations.] [¶] However, actual knowledge of the planned tort, without more, is insufficient to serve as the basis for a conspiracy claim. Knowledge of the planned tort must be combined with intent to aid in its commission.” (Kidron, supra, 40 Cal.App.4th at 1582.) A conspiracy agreement “may be tacit as well as express. [Citation.] A conspirator's concurrence in the scheme may be inferred from the nature of the acts done, the relation of the parties, the interests of the alleged conspirators, and other circumstances. [Citation.]” (AREI II Cases (XXXX) 216 Cal.App.4th 1004, 1024, internal quotation marks omitted.)
The elements of a fraud cause of action are: (1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance and (5) resulting damage. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 990.) Fraud must be pled with particularity. (Quelimane Co., supra, 19 Cal. 4th at p. 47.)
The 5th COA alleges a conspiracy to defraud between Cross-Defendants Balboa Capital Corp. (“Balboa) and Ryder System, Inc. (“Ryder”). Balboa contends the cause of action is insufficient because there are no allegations to show it had knowledge of any unlawful objective and it committed any acts in furtherance of the purported conspiracy. However, the 5th cause of action alleges that Ryder and Balboa formed a fraudulent scheme in which Ryder entices unsuspecting members of the public with the Deal, sells defective vehicles online, falsely claims the vehicles have been fully inspected and Ryder certified, and requires purchasers to exclusively finance with Balboa without ever seeing or inspecting the vehicles; that Ryder and Balboa know that the vehicles are defective and unusable and that buyers like Max would not be able to make payments under the financing agreements because they cannot generate any income with defective vehicles; and Balboa and Ryder repossesses said vehicles, accelerate the balances due, then sells them to others, repeating the same cycle of fraud. [Cross-Complaint, ¶ 39-40, 75-77] The allegations are sufficient to show the existence of an agreement to engage in a fraudulent scheme.
Further, the other allegations show Balboa’s tacit agreement in the conspiracy, as well as Balboa’s acts in furtherance of the conspiracy, based on the symbiotic relationship between Ryder and Balboa exhibited on Ryder’s website, Balboa’s financing of the Deal, and Balboa’s insistence that Max sign a release of Ryder’s liability for the Vehicle’s defects before Balboa would accept payment from Ryder.
Balboa also argues the conspiracy cause of action is insufficient because it lacks allegations that it made any misrepresentation pertaining to the condition of the Vehicle. However, a conspiracy cause of action does not require Balboa to make the misrepresentations so long as the allegations that Ryder made misrepresentations as part of the scheme are sufficient. The Cross-Complaint alleges Ryder made misrepresentations on its website in July 2021 regarding its thorough inspection of the vehicles it sells, as well as the merchantability and history of those vehicles. [Cross-Complaint, ¶¶ 5, 7 and Exhs. A and B.] Balboa asserts that, because Ryder is an entity, Cross-Complainants must allege who made those representations and their authority to speak for Ryder. However, less specificity is required when a defendant has superior knowledge of who is responsible. (West v. JP Morgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793-794.) Since the alleged misrepresentations appeared on Ryder’s website, Ryder is in the position to know who made those misrepresentations. As such, the allegation that Ryder made those misrepresentations is sufficient. The demurrer to the 5th cause of action for civil conspiracy is OVERRULED.
7th COA for violation of Bus. & Prof. Code section 17200: Business and Professions Code section 17200 et seq (“UCL”) prohibits unfair competition. “The purpose of the UCL ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’ [Citation.] The UCL prohibits any ‘unlawful, unfair or fraudulent business act or practice.’ [Citation.] ‘Because [the UCL] is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent.’ [Citation.]” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1374 (Klein).)
The UCL’s “coverage is sweeping, embracing anything that can properly be called a business practice and that at the same time is forbidden by law. [Citation.]… By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable. [Citation.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, internal quotations omitted.)
“In consumer cases arising under the UCL, a business practice is ‘unfair’ if (1) the consumer injury is substantial; (2) the injury is not outweighed by any countervailing benefits to consumers or competition; and (3) the injury could not reasonably have been avoided by consumers themselves. [Citation.] ‘Whether a practice is ... unfair is generally a question of fact which requires “consideration and weighing of evidence from both sides” and which usually cannot be made on demurrer. [Citations.]’ [Citation.]” (Klein, supra, 202 Cal.App.4th at p. 1376.)
“A business practice is ‘fraudulent’ within the meaning of section 17200 if it is “likely to deceive the public. [Citations.] It may be based on representations to the public which are untrue, and “ ‘also those which may be accurate on some level, but will nonetheless tend to mislead or deceive.... A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under’ ” the UCL. [Citations.] The determination as to whether a business practice is deceptive is based on the likely effect such practice would have on a reasonable consumer. [Citation.]’ [Citation.] [¶] ‘Generally, the question of ‘[w]hether a practice is deceptive or fraudulent “cannot be mechanistically determined under the relatively rigid legal rules applicable to the sustaining or overruling of a demurrer.” [Citation.] Rather, the determination is one question of fact, requiring consideration and weighing of evidence from both sides before it can be resolved.’ [Citation.] ‘[U]nless we can say as a matter of law that contrary to the complaint's allegations, members of the public were not likely to be deceived or misled by [the defendant's alleged conduct], we must hold that [plaintiffs] stated a cause of action.’ [Citation.]” (Klein, supra, 202 Cal.App.4th at p. 1380-1381.)
Balboa argues the 7th COA fails to allege facts to show it engaged in unlawful, unfair, or fraudulent business acts or practices. It contends the allegations do not support a purported conspiracy or fraud or show a violation of law or policy.
As previously discussed, the Cross-Complaint sufficiently alleges a conspiracy to defraud between Balboa and Ryder. It cannot be said on demurrer that Cross-Defendants’ alleged business conduct was not unfair within the meaning of the UCL. The Cross-Complaint also sufficiently alleges that Cross-Defendants’ business conduct was fraudulent within the UCL based on the misrepresentations made on Ryder’s website, which would likely deceive the public and did, in fact, deceive Cross-Complainants. Last, the Cross-Complaint does not set forth any law or policy violated by Cross-Defendants. However, because the UCL cause of action is sufficient under the unfair and fraudulent prongs, the failure to allege the law or policy would only subject it to a motion to strike. The demurrer to the 7th COA for violation of the UCL is OVERRULED.
Balboa is ORDERED to file and serve an answer to the Cross-Complaint within 10 DAYS of notice of ruling.
Cross-Complainants to give notice.