Judge: Joseph Lipner, Case: 23STCV02342, Date: 2023-09-12 Tentative Ruling

Case Number: 23STCV02342    Hearing Date: September 12, 2023    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

(1) Defendant Altisource Solutions, Inc. d/b/a Granite Risk Management (“Granite”) demurs to the Third Cause of Action for Negligence. 

Defendant Granite’s Demurrer to the Third Cause of Action for Negligence is overruled.  Defendant Granite to answer in 20 days.   The Court notes no opposition was filed. 

(2) Defendant Lifetime Home Builders, Inc. (“Lifetime”) demurs to the Second Cause of Action for Intentional Misrepresentation and the Third Cause of Action for Negligence. 

Defendant Lifetime Home Builders, Inc.’s Demurrer to the Second Cause of Action for Intentional Misrepresentation is SUSTAINED WITH 10 DAYS LEAVE TO AMEND and to the Third Cause of Action for Negligence is overruled.  Lifetime’s RJN is denied. 

(3) Defendant Lifetime also moves to strike punitive damages from the Second Cause of Action for Intentional Misrepresentation and Items 1, 2 and 5 of the Prayer for Relief.

Defendant Lifetime’s Motion to Strike is moot as to the punitive damages allegations in light of the Demurrer and granted as to Items 1, 2 and 5 of the prayer for relief. 

Background

            Plaintiff George Andraos brings this action against Defendants Lifetime Home Builders, Inc. and Altisource Solutions, Inc. d/b/a Granite Risk Management (“Granite”).  Plaintiff entered into an agreement for home improvement of his residence with Defendant Lifetime Home Builders, Inc.  Plaintiff entered into an agreement to monitor and inspect Lifetime’s work with Defendant Granite.  On February 2, 2023, Plaintiff filed a complaint alleging: (1) breach of contract; (2) intentional misrepresentation; and (3) negligence.

Legal Standard

             A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, the defects must be apparent on the face of the pleading or via proper judicial notice. (Code Civ. Proc., §§ 430.30, 430.70; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) 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.) The court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) 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.)

            A “demurrer based on an affirmative defense cannot properly be sustained where the action might be barred by the defense, but is not necessarily barred.”  (CrossTalk Productions, Inc. v. Jacobson (1998) 65 Cal.App.4th 631, 635.) “A general demurrer based on the statute of limitations is only permissible where the dates alleged in the complaint show that the action is barred by the statute of limitations. The running of the statute must appear clearly and affirmatively from the dates alleged. It is not sufficient that the complaint might be barred. If the dates establishing the running of the statute of limitations do not clearly appear in the complaint, there is no ground for general demurrer. The proper remedy is to ascertain the factual basis of the contention through discovery and, if necessary, file a motion for summary judgment.”  (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 324-325.)

Granite’s Demurrer—Discussion

            Defendant Granite demurs to the third cause of action for negligence.  Defendant Granite is only named in the third cause of action for negligence.  Defendant argues Plaintiff’s allegations are unintelligible and consist largely of legal conclusions.  Defendant also argues Plaintiff fails to allege facts that would support imposition of a tort duty on Defendant.  Defendant argues Plaintiff’s allegations only support a claim for breach of a contractual duty. Defendant argues Plaintiff’s claims are also barred by the economic loss rule and the statute of limitations. 

            Plaintiff sufficiently alleges violation of a duty arising in tort 

            A party may not convert a broken promise into a tort by simply pleading breach of a duty of care. (Erlich v. Menezes (1999) 21 Cal.4th 543, 553 (courts must avoid “converting every contract breach into a tort”); Stop Loss Ins. Brokers, Inc. v. Brown & Toland Medical Group (2006) 143 Cal.App.4th 1036, 1041 (“Despite the cross-complaint's use of negligence terminology, the alleged misconduct by [defendant] describes, at most, a breach of contract, not a breach of a legal duty of care”.) 

            In North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774, the Court of Appeal described the common law duty contracting parties have to perform with reasonable care, skill, expedience and faithfulness, and stated that the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts.  Negligent performance of a contract entitles the aggrieved party to sue in tort or contract, distinguishing failure to perform, which gives rise only to a contract action. As the court explained: “A contract to perform services gives rise to a duty of care which requires that such services be performed in a competent and reasonable manner. A negligent failure to do so may be both a breach of contract and a tort.”  (Id. at p. 774; see also Michaelis v. Benavides (1998) 61 Cal.App.4th 681, 688; 3 Witkin, Cal. Proc. (6th ed. 2023) Actions §155 (“If a contract creates an interest protected by the law of torts, breach of the contract may constitute a tort, and the plaintiff’s election to sue in tort is generally recognized.”))

            The Supreme Court in Erlich discussed North American by noting that “conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law.  An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.  (Erlich, supra, 21 Cal.4th at 551.)  The mere negligent breach of a contract is insufficient to state a claim for damages sounding in tort.  (Id.)   The remedy for a breach of contract is generally limited to contract law, and recovery in tort is not permitted unless: (1) the breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.”  (Id. at pp. 553–554.)

            Most recently, the Supreme Court in Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5^th 905 acknowledged that consumer contracts for professional services can give rise to tort actions “even though they arise from, and are not independent of, a contract.”  (Sheen, supra, 12 Cal.5^th 905, 929).  “It is true that we have, in certain contexts, allowed tort actions to proceed even though they arise from, and are not independent of, a contract, despite the economic loss rule. Specifically, we have allowed for tort recovery in some cases involving insurance policies and contracts for professional services.”  (Id. at 929.)

            Here, Plaintiff alleges that he entered into an agreement with Defendant Granite “to monitor and inspect Lifetime’s work to ensure that Lifetime was performing their work to industry standards and in accordance with the agreement between Plaintiff and Lifetime.”  (Complaint, ¶20.)  Plaintiff alleges that Granite “negligently and carelessly inspected and approved Lifetime’s work despite is [sic] clearly unacceptable quality.”  (Id. at ¶35.)  Plaintiff does not allege a “mere omission to perform a contract obligation,” which is “never a tort.”  (Erlich, supra, 21 Cal.4^th at 551.)  Plaintiff alleges that Granite entered into an agreement for professional services with him and it performed those services negligently. 

            At least at the pleading stage, Plaintiff alleges sufficient facts to state a claim for negligence.  Defendant Granite’s demurrer based on failure to allege a tort duty is overruled. 

            Economic Loss Rule

            Under the economic loss rule, recovery in negligence is barred for “pure economic losses when such claims would disrupt the parties’ private ordering, rendering contracts less reliable as a means of organizing commercial relationships, and stifle the development of contract law.”  (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 915.)  The economic loss rule generally bars tort claims for contract breaches, thereby limiting contracting parties to contract damages.  (Aas v. Superior Court (2000) 24 Cal.4th 627, 643 (“A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations.”) As explained in Robinson Helicopter Co., Inc. (2004) 34 Cal.4th 979, “conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law.” (Robinson Helicopter Co., Inc., supra, 34 Cal.4th at 989.)

            The economic loss rule only applies to preclude tort recovery where the harm is purely financial, unaccompanied by any physical or property damage.  “The economic loss rule provides that, in general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.”  (Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 837 (economic loss rule bars recovery for negligently inflicted economic losses “unaccompanied by…property damage”); Erlich, supra, 21 Cal.4th 543, 551 (recognizing long line of cases in which tort damages were allowed for a breach of contract where the conduct resulted in injury to person or property); Robinson Helicopter Co., Inc., supra, 34 Cal.4th at 989-990 (economic loss rule does not bar tort damages where conduct is also a breach of contract where intentional tort is involved, where conduct violates duty independent of contractual duties, or in contract cases where breach of duty directly causes physical injury).)

            Defendant argues the economic loss rule automatically bars Plaintiff from suing in both tort and contract.  However, Plaintiff’s allegations do not establish clearly and unequivocally that Plaintiff is seeking recovery of “pure economic losses” “unaccompanied by physical or property damage.”  Plaintiff alleges that he suffered damages in the form of “costs for completion, repairs, and property damage.”  (Complaint, ¶36.)  Plaintiff’s allegations must be accepted as true on demurrer, however improbable they may be.  (Marina Pacific Hotel & Suites, LLC v. Fireman's Fund Ins. Co. (2022) 81 CA5th 96, 104-105.) 

            Defendant relies heavily on Sheen for the proposition that the economic loss rule bars Plaintiff’s negligence claim.  Sheen is distinguishable.  Sheen involved a bank’s alleged negligent processing of the plaintiff’s loan modification application.  Based on the plaintiff’s complaint the only alleged damages were pure economic losses.  Unlike Sheen, Plaintiff has alleged accompanying property damage. 

            More importantly, Sheen recognized that consumer contracts for professional services are a “recognized exception[] to the economic loss rule” and for which tort actions are specifically allowed “despite the economic loss rule.”  (Sheen, supra, 12 Cal.5^th at 929, 932.)  “In that context,…a cause of action for negligence ensures that the consumer receives the services the professional agreed to provide. In such settings, professionals generally agree to provide ‘careful efforts’ in rendering contracted-for services, but most clients do not know enough to protect themselves by inspecting the professional's work or by other independent means.  Given this disparity, a claim for professional negligence can serve the important purpose of ensuring that professionals render the 'careful efforts't they have contracted to provide.” (Id. at 933.)

            Based on Sheen’s discussion of the economic loss rule and consumer contracts for professional services, Plaintiff’s negligence claim is a “recognized exception to the economic loss rule,” because he has alleged a consumer contract for professional services.  Defendant does not claim that the services it rendered were not “professional services” as discussed in Sheen.  Defendant’s demurrer based on the economic loss rule is therefore overruled. 

           Statute of Limitations

           Finally, Defendant demurs to the complaint based on the 2-year limitations period applicable to oral agreements under CCP §339 and the 3-year limitations period applicable to actions for injury to real property.  Defendant argues the complaint’s failure to attach writings establishing Plaintiff’s contracts with Defendants “raises the real possibility that Lifetime’s allegedly defective performance of the contract to conduct improvement on the Residence may be barred by the Statute of Limitations.”  (Demurrer, 10:26-28-11:1-4). 

           A demurrer based on statute of limitations can only be sustained if the action is clearly and affirmatively time barred on the face of the complaint.  Plaintiff’s failure to attach writings establishing his contracts with Defendants does not establish that the action is time barred.  Such an assertion is a non sequitur. 

           Moreover, as Defendant’s own opposition acknowledges, there is only a “possibility” that the complaint “may” be time barred.  This is patently insufficient grounds to sustain demurrer based on statute of limitations.  (CrossTalk Productions, Inc., supra, 65 Cal.App.4th at 635 (demurrer based on statute of limitations cannot be sustained where action only “might” be time barred, as opposed to “necessarily” barred).  Defendant’s demurrer based on statute of limitations is overruled. 

Lifetime’s Demurrer—Discussion

           Lifetime demurs to the second cause of action for intentional misrepresentation and third cause of action for negligence.  Lifetime argues the second cause of action fails to allege fraud with specificity.  Lifetime argues the third cause of action for negligence is duplicative of the first cause of action for breach of contract and improperly converts a contract claim into a tort claim.  Lifetime also argues Plaintiff’s negligence claim is barred by the economic loss rule. 

           Fraud claim is insufficiently pleaded

           The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (Civil Code §1709.) Fraud actions are subject to strict requirements of particularity in pleading.  (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.)

           Consistent with the rule requiring specificity in pleading fraud, a complaint must state ultimate facts showing that the defendant intended or had reason to expect reliance by the plaintiff or the class of persons of which he is a member. (Geernaert v. Mitchell (1995) 31 Cal. App. 4th 601, 608.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (Goldrich v. Natural Y Surgical Specialties, Inc.) (1994) 25 Cal.App.4th 772, 782.)

           Plaintiff fails to allege fraud with specificity.  Plaintiff alleges the nature of the misrepresentation but fails to allege (1) when it was made; (2) by whom; (3) under what authority to bind Lifetime; and (4) in what manner.  (Complaint, ¶¶18-20 and 25-31.) 

Plaintiff also failed to file an opposition.  Demurrer to the second cause of action for intentional misrepresentation is sustained with 20 days leave to amend. 

           Negligence is properly pled

           Defendant Lifetime makes the same arguments as Defendant Granite regarding Plaintiff’s ability to alleged negligence based on an obligation arising from contract.  For the same reasons stated in connection with Defendant Granite’s demurrer, Lifetime’s demurrer based on Erlich and the economic loss rule is overruled.  Plaintiff has alleged physical damage to property as a result of Lifetime’s negligent performance of the home improvement agreement.  (Complaint, ¶36.)  In addition, Lifetime does not address whether its home improvement contract qualifies as a consumer contract for professional services that is a “recognized exception” to the economic loss rule and for which a consumer may allege tort and/or contract claims per Sheen.  Defendant Lifetime’s demurrer is overruled.

Lifetime’s Motion to Strike—Discussion

           Lifetime’s Motion to Strike ¶32 is moot in light of the demurrer to the Second Cause of Action for Intentional Misrepresentation.

           Lifetime’s Motion to Strike Items 1, 2 and 5 from the prayer for relief is granted.  Items 1 and 2 seek restitution and fees and costs pursuant to employment law, which is not at issue here.  Item 5 seeks punitive damages, which are no longer supported by any cause of action in the complaint in light of the demurrer to the Second Cause of Action for Intentional Misrepresentation.