Judge: John J. Kralik, Case: 22BBCV00873, Date: 2023-01-27 Tentative Ruling

Case Number: 22BBCV00873    Hearing Date: January 27, 2023    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

BACKGROUND

A.    Allegations

Plaintiffs Natalia Kapych and Michael Chtivelman (“Plaintiffs”, in propria persona) allege that Chtivelman, Defendant Larissa Li, and Northridge Caregivers, Co., Inc. (“NCCI”) executed a settlement agreement in Case No. LC107566 in the Glendale Courthouse on August 22, 2022.  NCCI is a marijuana collective and a California cooperative corporation.  Plaintiffs allege that pursuant to the agreement, Chtivelman dropped the case and 30% of his shares in NCCI to Kapych.  They allege that on May 16, 2022, Li was deposed, where Li testified that Defendants Jordan Olshanski and Mikhail Fayman did not invest any money, were not working for NCCI, and were not affiliated with the company.  Chtivelman alleges that he demanded to inspect the financial records and books, but Defendants refused. 

The complaint was filed on October 31, 2022.  The causes of action alleged in the caption are different from the causes of action alleged in the body of the complaint.  The Court will reference the causes of action as alleged in the body of the complaint.  The complaint alleges causes of action for: (1) breach of contract against Li and NCCI; (2) fraudulent misrepresentation against Olshanski; (3) fraudulent misrepresentation against Fayman; (4) conspiracy to defraud against all Defendants; (5) fraudulent inducement against all Defendants; (6) fraudulent concealment against all Defendants; and (7) breach of fiduciary duty against Li and NCCI. 

B.     Demurrer on Calendar

On January 10, 2023, Defendants Michael Fayman and Jordan Olshanskiy filed a demurrer to the complaint.

On January 12, 2023, Plaintiffs filed an opposition brief.

On January 20, 2023, Defendants filed a reply brief.

DISCUSSION

            Defendants demur to the 2^nd, 3^rd, 4^th, 5^th, and 6^th causes of action in the complaint on the grounds that the complaint lacks sufficient facts and the allegations are uncertain.

A.    2^nd and 3^rd causes of action for Fraudulent Misrepresentation

To allege a cause of action for fraud, the requisite elements are: (1) a representation, usually of fact, which is false; (2) knowledge of its falsity; (3) intent to defraud; (4) justifiable reliance upon the misrepresentation; and (5) damage resulting from that justifiable reliance.  (Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 72-73.)  This cause of action is a tort of deceit and the facts constituting each element must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings.  (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.)  Since the claim must be pleaded with particularity, the cause of action based on misrepresentations must allege facts showing how, when, where, to whom, and by what means the misrepresentations were tendered.  (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.)

In the 2^nd cause of action, Plaintiffs allege that Olshanskiy operated retail and cultivation departments without any contracts or any valid affiliation with the company since 2018, despite representing contrary to Plaintiffs.  (Compl., ¶30.)  Plaintiffs allege that Olshanski’s negligence and wrongful business management caused financial losses.  (Id.)  Plaintiffs allege that selling marijuana and marijuana products without legal affiliation with the licensed facility is in violation of California law, such that Olshanskiy misrepresented material facts regarding this violation as well as statements that he invested personal funds.  (Id., ¶31.) 

In the 3^rd cause of action, Plaintiffs allege that Fayman misrepresented that he invested personal funds and that he refused to show the manufacturing facility on the basis of “trade secret.”  (Compl., ¶35.)  Plaintiffs allege that Fayman operating manufacturing departments without any contracts of valid affiliation with the company since 2019 and that his negligence and wrongful business management caused financial losses.  (Id., ¶36.)  Similar allegations are alleged against Fayman as were made against Olshanskiy.  (See id., ¶¶37-39.)

The allegations of the complaint fail to allege the basic elements of fraud, such as how, when, where, to whom, and by what means the misrepresentations were tendered by Olshanskiy and Fayman to Plaintiffs; whether Olshanskiy and Fayman knew of the falsity of the misrepresentations; their intent to defraud Plaintiffs; Plaintiff’s justifiable reliance on the misrepresentations; and Plaintiffs’ damages resulting from their justifiable reliance. 

As such, the demurrer to the 2^nd and 3^rd causes of action is sustained.  As this is Plaintiffs’ first attempt at the pleading, the Court will allow leave to amend.

B.     4^th cause of action for Conspiracy to Defraud

Under California law, conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.  (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784.)  A claim for conspiracy must be based on a wrongful act and the claim must allege: (1) the formation and operation of the conspiracy; (2) the wrongful act or acts done pursuant thereto; and (3) the damage resulting.  (Unruh v. Truck Insurance Exchange (1972) 7 Cal. 3d 616, 631.) 

            In the 4^th cause of action, Plaintiffs allege that Defendants were all in agreement to defraud Plaintiffs with respect to their misrepresentations of business activities.  (Compl., ¶41.)  Plaintiffs allege that Defendants made numerous misrepresentations about their businesses and relationship with one another, which were fundamentally untrue and were done with the purpose of deceiving Plaintiffs.  (Id., ¶42.)

            As stated above, conspiracy is not a cause of action.  Rather, to the extent that Plaintiffs are alleging conspiracy, they should do so in connection with their causes of action for fraud.  Further, Plaintiffs have not alleged sufficient facts to allege a viable basis for conspiracy.  Each of the elements above should be supported by facts upon amendment.

            The demurrer to the 4^th cause of action is sustained with leave to amend.

C.     5^th cause of action for Fraudulent Inducement

“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.”  (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294–295 [internal quotation marks omitted].) 

            In the 5^th cause of action, Plaintiffs allege that Defendants made misrepresentation to induce Plaintiffs to enter an agreement with full knowledge and awareness of the falsity of the misrepresentations.  (Compl., ¶45.)  Plaintiffs allege they justifiably relied on the misrepresentations and that Defendants induced Plaintiffs to enter the agreement based on the misrepresentations.  (Id., ¶¶46-47.) 

            Plaintiffs essentially allege the general elements of fraudulent inducement, but fail to allege particular facts supporting each element.  As a fraud cause of action, Plaintiffs must allege specific facts to support each element.  Conclusory allegations are not sufficient to reach this standard.

            As such, the demurrer to the 5^th cause of action is sustained with leave to amend.

D.    6^th cause of action for Fraudulent Concealment

The elements for fraudulent concealment are the following: (1) the defendant must have concealed or suppressed a material fact; (2) the defendant must have been under a duty to disclose the fact to the plaintiff; (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff; (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.  (Lovejoy v. AT&T Corp. (2004) 119 Cal. App. 4th 151, 157-158.)  This cause of action too is a tort of deceit and the facts constituting each element must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.)

In the 6^th cause of action, Plaintiffs allege that Defendants fraudulently concealed information from Plaintiffs about their relationship and business activities.  (Compl., ¶50.)  Plaintiffs allege that Olshanskiy and Fayman misrepresented that they invested personal funds to build out a cultivation department and retail store, but they did not have any documents and refused to show the manufacturing facility to Plaintiffs.  (Id., ¶51.)  Plaintiffs allege that Defendants misrepresented their own business relationships with one another.  (Id., ¶52.)

Similar to the discussions above, this cause of action too lacks sufficient facts to allege a claim for fraudulent concealment.  Plaintiffs have not alleged what facts were concealed or suppressed (as opposed to making misrepresentations), what duty Defendants owed to Plaintiffs to disclose these facts to Plaintiffs, whether Defendants’ concealment was intentional, Plaintiffs’ lack of awareness of these concealed facts, and Plaintiffs’ damages as a result.

As such, the demurrer to the 6^th cause of action is sustained with leave to amend.

CONCLUSION AND ORDER

Defendants Michael Fayman and Jordan Olshanskiy’s demurrer to the complaint is sustained with 20 days leave to amend as to the 2^nd to 6^th causes of action.

Upon amendment, Plaintiffs are ordered to number their causes of action consistently with the caption of the amended complaint and to properly spell the name of Defendant Jordan Olshanskiy (the complaint alleges the name “Jordan Olshanski”).

Defendants shall provide notice of this order.