Judge: Joseph Lipner, Case: 25STCV00573, Date: 2025-03-27 Tentative Ruling

Case Number: 25STCV00573    Hearing Date: March 27, 2025    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendant Heidi Corporation d/b/a Donald J. Scheffler’s Construction (“Scheffler”) demurs to the Complaint and moves to strike portions of the Complaint. 

Defendant Scheffler’s Demurrer is OVERRULED and the Motion to Strike is DENIED.  Defendant to answer in 20 days.

Background

            On February 8, 2023, Plaintiff Forest Construction Co., Inc. entered into a subcontract (“Subcontract”) with Defendant Heidi Corporation d/b/a Donald J. Scheffler’s Construction (“Scheffler”).  Pursuant to the Subcontract, Scheffler would provide the structural concrete work for a project located at 3525 Padaro Lane Caprinteria, CA 93013 (the “Project”).  Scheffler commenced work on the Project and a dispute arose regarding 17 of the 25 piles that were installed.  The engineer of record deemed the 17 piles to be substandard. 

            As a result of the dispute over the 17 substandard piles, Plaintiff and Scheffler entered into an Interim Partial Settlement Agreement and Completion Addendum (“Interim Agreement”) on June 20, 2024.  Under the Interim Agreement, Plaintiff would absorb the $600,000 in additional cost and delay caused by Scheffler's substandard work.  In exchange, Scheffler agreed to perform all remaining work in its scope based upon all drawings in existence as of the signing of the Interim Agreement for $1.3 million.  Scheffler also acknowledged full payment for all work performed to date. 

            Plaintiff alleges Scheffler breached the parties’ Subcontract as modified by the Interim Agreement when it refused to perform the remaining work on the project.  Scheffler refused to perform on grounds that Plaintiff was required under the “new agreement” to provide a single plan page, signed by the architect, engineer, contractor and owner, which included all information set forth in the stamped and approved plans and specifications for the Project.  Work did not proceed and the mock-up was never completed or approved. 

            After refusing to perform for three months, Plaintiff indicated it would terminate Scheffler for cause if it did not commence work as required under the Interim Agreement and Subcontract.  Scheffler refused to commence work and Plaintiff provided Scheffler with a 48-hour notice of default and demand to cure on October 1, 2024.  In response, Scheffler demobilized and abandoned the Project.  Plaintiff was required to hire a new subcontractor and has incurred $1.4 million in costs due to Scheffler’s breach.

            Plaintiff alleges Scheffler had no intention of actually continuing work on the Project.  Plaintiff alleges Scheffler fraudulently induced Plaintiff into executing the Interim Agreement by misrepresenting its intention.  Plaintiff alleges damages in the amount of $1.8 million due to Scheffler’s fraudulent inducement.

            On January 9, 2025, Plaintiff filed a complaint against Scheffler alleging (1) breach of contract and (2) fraud in the inducement.  On February 26 and 27, 2025, Scheffler filed a motion to strike and demurrer to the complaint respectively.  On March 14, 2025, Plaintiff filed oppositions to the demurrer and motion to strike.  On March 20, 2025, Scheffler filed replies to Plaintiff’s opposition.

Discussion

            Meet and Confer

            Defense counsel sent a letter to on February 10, 2025 requesting a conference to meet and confer on the pleading, offering February 10, 11 and 12^th as available dates.  (Ruiz Dec., Ex. C.)  No response to the letter was received.  (Ruiz Dec., ¶¶9 and 10.)  Plaintiff’s counsel did not see the letter until February 12^th.  (Opposition, Rudman Dec., ¶5.)  Defendant’s meet and confer declaration states that he attempted to meet and confer and no response was received.  This is sufficient under CCP §430.10(a)(B). 

            Demurrer

            Scheffler demurs to both causes of action in the complaint for breach of contract and fraudulent inducement.  Scheffler argues the breach of contract claim fails to allege the specific breach against Scheffler and is uncertain.  Scheffler argues the fraud in the inducement claim fails because there are no factual allegations establishing a fraudulent motive or its intent not to perform.  Scheffler also argues the fraud claim fails to identify the individual who made the fraudulent representations, when they were made, how they were made and the authority by which the person made them on Scheffler’s behalf.

                        Breach of Contract

            The elements for a breach of contract cause of action are: (1) the existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) resulting damages.  (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.)  A written contract may be pleaded either in haec verba (word for word) or generally “according to its legal intendment and effect” (e.g., “Defendant agreed to sell the described property to Plaintiff for $100,000”).  (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198–199.) 

             Plaintiff alleges that the parties entered into an Interim Partial Settlement and Completion Addendum on June 20, 2024.  (Complaint, ¶14.)  Plaintiff alleges the terms of the Interim Agreement by attaching the agreement (Complaint, Ex. C) and by alleging the specific material terms allegedly breached (Complaint, ¶16.)  Plaintiff alleges Defendant was required to “perform all remaining work in its scope based upon all drawings in existence as of the signing of this Addendum for the total price of [$1.3 million]” and that it acknowledged full payment to date.  (Complaint, ¶16.) 

            Plaintiff alleges that during the three-month period following execution of the Interim Agreement, Scheffler refused and continued to refuse to perform as required of it.  (Complaint, ¶18.)  Plaintiff alleges Scheffler has refused to complete the Project, claiming Plaintiff must first provide it with a single plan page, signed by the architect, engineer, contractor and owner, which included all the information set forth in the stamped and approved plans and specifications for the Project.  (Complaint, ¶18.)  Plaintiff denies that there was ever such a requirement under the Interim Agreement or any other agreement.  (Complaint, ¶19.) 

            Plaintiff’s allegation of breach—that Scheffler has refused to complete the Project and has not done so—is an allegation of fact that must be accepted as true.  Plaintiff need not allege facts showing its performance under the Interim Agreement per CCP §457, which states:  “In pleading the performance of conditions precedent in a contract, it is not necessary to state the facts showing such performance, but it may be stated generally that the party duly performed all the conditions on his part, and if such allegation be controverted, the party pleading must establish, on the trial, the facts showing such performance.”  (CCP §457.)

            Plaintiff’s allegation that the breach of contract claim “assum[es] that the Interim Agreement was not fraudulently induced and is not enforceable” does not render the cause of action uncertain.  Plaintiff is entitled to allege alternative theories of relief if it is unsure of the facts or legal theories upon which it may recover.  “Pleading of alternative theories of relief on the same set of facts is, of course, quite proper and is often done where there is a legally recognized basis for recovery in both contract and tort.”  (Gebert v. Yank (1985) 172 Cal.App.3d 544, 554 (plaintiff properly pled alternative theories of recovery for breach of bailment contract and negligence, two causes of action with differing burdens of proof).)

            Plaintiff’s allegation that the parties intended the Interim Agreement to settle the dispute over the 17 substandard piles and modify the Subcontract is supported by the title of the Interim Agreement is “Interim Partial Settlement and Completion Addendum to Subcontract.”  (Complaint, Ex. C.)  Parties clearly intended from the title of the agreement to make it a part of the larger Subcontract as an addendum.  (Id.)  For this reason, Plaintiff’s interpretation of the Interim Agreement as part of the Subcontract is reasonable and this interpretation must be accepted as true on demurrer.  (Requa v. Regents of University of California (2012) 213 Cal.app.4^th 213, 223.) 

            Plaintiff therefore sufficiently identifies Defendant’s breach of a material term of the Interim Agreement, which was intended to be a part of the Subcontract.  Plaintiff sufficiently alleges the material terms of the Interim Agreement, as well as damages.  Defendant’s arguments attack the truth of the allegations or raise disputed facts outside of the Complaint as defenses.  Defendant’s demurrer to the first cause of action is OVERRULED.

                        Fraudulent Inducement

            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 alleges it relied on Scheffler’s fraudulent representation that Scheffler “was prepared to remobilize immediately, and perform the balance of the work called for under its Subcontract of the total remaining price of $1,300,000.”  (Complaint, ¶31.)  Plaintiff alleges Scheffler intended for Plaintiff to rely on “its representations, including those in the Interim Agreement, as it provided that Scheffler would continue to perform the project for $1,300,000.”)  (Complaint, ¶33.)  Plaintiff alleges “conversely, Plaintiff believes that Scheffler had no intention of actually continuing with the work on the Project and was inducing the Interim Agreement to avoid the damages claims against it for its previously unaccepted pile construction.”  (Complaint, ¶34.)  Plaintiff alleges that it suffered $1.8 million in damages due to Scheffler’s fraudulent misrepresentation.  (Complaint, ¶37.)

            Plaintiff’s second cause of action for fraudulent inducement alleges the Interim Agreement itself contains the fraudulent misrepresentations, specifically Scheffler’s promises to perform the rest of the work for $1.3 million and to use its best efforts to timely provide and accomplish specific contractual milestones.  The date of the misrepresentations are therefore the date of the Interim Agreement, June 20, 2024, and the individual making the misrepresentations was Donald J. Scheffler, Scheffler’s President.  (Complaint, Ex. C.)  Plaintiff therefore alleges the misrepresentations, how they were made, who made them, when they were made and the authority by which the speaker made the representations on Scheffler’s behalf. 

            Plaintiff’s second cause of action for fraudulent inducement also alleges another species of fraud—promissory fraud.  So long as Plaintiff alleges a valid cause of action, even one not intended by it, the demurrer must be overruled.  (New Livable Calif. v. Association of Bay Area Governments (2020) 59 Cal.App.5th 709, 714-715.)

            Defendant also argues lack of evidentiary facts to support a finding of fraudulent intent.  However, “[i]ntent, like knowledge, is a fact. Hence, the averment that the representation was made with the intent to deceive the plaintiff, or any other general allegation with similar purport, is sufficient.”  (5 Witkin, Cal. Proc. (6^th ed. 2021) Plead § 725.  Purely evidentiary matters—usually circumstantial evidence or admissions showing lack of that intention—should not be pleaded. Hence, the only necessary averment is the general statement that the promise was made without the intention to perform it, or that the defendant did not intend to perform it.” (Beckwith v. Dahl (2012) 205 Cal. App. 4th 1039, 1060.)  Plaintiff need only allege ultimate facts, not evidentiary facts.  Thus, Plaintiff’s allegation that Defendant made promises to complete the work for $1.3 million without the intent to perform is an allegation of ultimate fact and it must be accepted as true on demurrer.

            Defendant argues there are insufficient evidentiary facts alleged to support a finding of reasonable or justifiable reliance.  However, Plaintiff alleges that Defendant promised it complete the work on the Project for $1.3 million pursuant to a written agreement and in exchange for a release of any liability for the 17 disputed piles.  Plaintiff alleges sufficient facts to support a finding of reasonable reliance.  “Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff's reliance is reasonable is a question of fact.”  (Beckwith, supra, 205 Cal.App.4th at 1067.)

            Defendant’s demurrer to the second cause of action for fraudulent inducement is overruled.

             Motion to Strike

            Defendant moves to strike certain key allegations from the Complaint.  Defendant moves to strike Plaintiff’s allegations (1) of Defendant’s fraudulent intent; (2) Plaintiff’s performance of all obligations under the contract; (3) allegations that Defendant’s actions reflected Defendant’s motivation for fraudulently inducing the Interim Agreement (avoidance of liability for the 17 disputed piles); (4) purportedly deficient allegations of fraud; (5) allegations regarding Defendant’s intent and motivation based on Plaintiff’s belief.

            Defendant argues these allegations must be stricken based on the standards required to plead causes of action for breach of contract and fraud on demurrer.  Defendant apply the wrong standard.  A motion to strike is intended to strike allegations that are irrelevant, false or improper.  (CCP §436.)  Moreover, as discussed in connection with the demurrer, intent is a fact and averment thereof is sufficient.  In addition, the fraud and breach of contract claims are also sufficiently alleged and the targeted allegations are either essential ultimate facts to state both claims, or they are evidentiary or background facts that are relevant and proper.  Defendant’s motion to strike is denied.