Judge: Katherine Chilton, Case: 22STLC00603, Date: 2022-09-29 Tentative Ruling
Case Number: 22STLC00603 Hearing Date: September 29, 2022 Dept: 25
PROCEEDINGS: DEMURRER WITH MOTION TO STRIKE
MOVING PARTY: Defendant Scratch Restaurants Group, LLC
RESP. PARTY: Plaintiffs Steven Michaels, et al.
DEMURRER WITH MOTION TO STRIKE
(CCP §§ 430.10, 435 et seq.)
TENTATIVE RULING:
Defendant Scratch Restaurants Group, LLC’s DEMURRER to the First Amended Complaint is SUSTAINED, as to Plaintiff SRG-Michaels Investment Group, LLC, ONLY, WITH 20 DAYS LEAVE TO AMEND.
Defendant Scratch Restaurants Group, LLC’s MOTION TO STRIKE First Amended Complaint is DENIED.
SERVICE:
[ X ] Proof of Service Timely Filed (CRC, rule 3.1300) OK
[ X ] Correct Address (CCP §§ 1013, 1013a) OK
[ X ] 16/21 Court Days Lapsed (CCP §§ 12c, 1005(b)) OK
OPPOSITION: Filed on September 15, 2022. [ ] Late [ ] None
REPLY: Filed on September 21, 2022. [ ] Late [ ] None
ANALYSIS:
I. Background
On January 28, 2022, Plaintiffs Steven Michaels, an individual (“Michaels”) and SRG-Michaels Investment Group, LLC (“SMIG”), (collectively “Plaintiffs”), filed an action against Defendant Scratch Restaurants Group (“Defendant” or “SRG”) for violation of Civil Code § 1719.
On February 17, 2022, Defendant filed a Demurrer and Motion to Strike. On April 18, 2022, Plaintiffs filed a First Amended Complaint (“FAC”), and thus, the Court took the Demurrer and Motion to Strike off calendar on May 5, 2022. (5-5-22 Minute Order.)
On August 22, 2022, Defendant filed the instant Demurrer with Motion to Strike (“Demurrer”) to the First Amended Complaint. Plaintiff filed an Opposition on September 15, 2022, and Defendant filed a Reply on September 21, 2022.
II. Legal Standard
A demurrer is a pleading that may be used to test the legal sufficiency of the factual allegations in the complaint. (Code of Civ. Proc. § 430.10.) There are two types of demurrers – general demurrers and special demurrers. (See McKenney v. Purepac Pharmaceutical Co. (2008) 167 Cal.App.4th 72, 77.)
General demurrers can be used to attack pleadings for failure to state facts sufficient to constitute a cause of action or for lack of subject matter jurisdiction. (Code Civ. Proc. § 430.10(e); McKenney, 167 Cal.App.4th at 77.) Such demurrers can be used only to challenge defects that appear on the face of the pleading or from matters outside the pleading that are judicially noticeable; evidence or extrinsic matters are not considered. (Code of Civ. Proc. §§ 430.30, 430.70; Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) For the purpose of testing the sufficiency of the cause of action, the Court admits “all material facts properly pleaded” and “matters which may be judicially noticed,” but does not consider contentions, deductions, or conclusions of fact or law. [Citation].” (Blank, 39 Cal.3d at 318.) It gives these facts “a reasonable interpretation, reading it as a whole and its parts in their context.” (Ibid.). 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 face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) "If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence." (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447.)
Special demurrers can be used to attack the pleadings on grounds that the pleading is uncertain, ambiguous, and unintelligible, or in a contract case, for failure to allege whether a contract is oral or written. (Code Civ. Proc., § 430.10(f).) However, special demurrers are not allowed in limited jurisdiction civil actions and any grounds for special demurrers must be raised as affirmative defenses in the answer. (Code Civ. Proc., § 92(c).)
Moreover, Code of Civil Procedure § 430.41 requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party 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., § 430.41(a).) The parties are to meet and confer at least five days before the date the responsive pleading is due. (Code Civ. Proc., § 430.41(a)(2).) Thereafter, the demurring party shall file and serve a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a)(3).)
III. Discussion
A. Meet and Confer Requirement
Defense counsel states that following the filing of the FAC, counsel for all parties have engaged in several discussions regarding the FAC. (Mehta Decl. ¶ 8.) On August 16, 2022, prior to filing the instant Demurrer with Motion to Strike, defense counsel telephonically conferred with Plaintiffs’ counsel and informed him of her intent to file the instant Motion. (Ibid. at ¶ 9.) Plaintiffs’ counsel told her to proceed with the filing. (Ibid.)
The Court finds the declaration sufficient to satisfy the meet and confer requirement for the instant Demurrer with Motion to Strike.
B. Cause of Action – Violation of Civil Code § 1719
a. Plaintiffs’ Allegations
Plaintiffs collectively allege in the First Amended Complaint that on December 1, 2021, Plaintiff Michaels received a check from Defendant in the amount of $10,000. (Compl. ¶ 6, Ex. 1.) The check was a monthly distribution check for the month of November 2021 that Defendant owed to SMIG. (Ibid.) As with previous occasions, Defendant made the check payable to Plaintiff Michaels. (Ibid.) Plaintiffs alleged that the check incorrectly identifies that it is a payment for the month of December 2021, not November 2021. (Ibid.)
Plaintiff Michaels deposited the check into his Bank of America Account on December 1, 2021, at 4:26 p.m. (Ibid. at ¶ 7; Ex. 2.) The following day, he received notice that a stop payment had been placed on the check, which had been returned unpaid, and the Bank would charge Plaintiff Michaels a $12 fee. (Ibid. at ¶ 8; Ex. 1.) There was no justification for the stop payment and Defendant still owed Plaintiffs the money. (Ibid. at ¶ 9.)
On December 23, 2021, Plaintiffs’ counsel sent a Demand Letter to Defendant and its principals via certified mail to Defendant’s agent for service of process, Phillip Frankland Lee. (Ibid. at ¶¶ 10-11; Exs. 3-5.) The Letter demanded that Defendant pay the exact amount of the check and warned Defendant that it could be liable for treble damages up to $1,500 if it did not make a payment, pursuant to Civil Code § 1719. (Ibid. at ¶¶ 13-15; Ex. 3.) In the Letter, “Plaintiffs also advised Defendant that if it believed it had a good faith basis to stop payment, it should try and work out the dispute with Plaintiffs’ counsel.” (Ibid. at ¶ 16; Ex. 3.)
Although Plaintiffs’ counsel sent the Letter to Defendant’s address for agent for service of process listed with the California Secretary of State, the Letter was returned unopened, and the post office noted that the address “was vacant and there was no forwarding address.” (Ibid. at ¶ 12; Exs. 6-7.) Subsequently, Plaintiffs sent certified mail to Defendant’s principal’s address, which was signed on December 28, 2021. (Ibid., Ex. 5.)
Plaintiffs allege that thirty (30) days passed since Defendant received the Letter; however, “Defendant has not made good on the $10,000 check, has not issued a replacement check or otherwise paid the amount owed to Plaintiffs, and has not attempted to work out this dispute.” (Ibid. at ¶ 18.)
Plaintiffs bring a cause of action for violation of the California Civil Code § 1719 based on these allegations. (Compl. p. 4.) They allege that Defendant prepared Check # 11012, drawn from its bank account, and made payable to Plaintiff Michaels in the amount of $10,000 for money owed to Plaintiff SMIG for monthly distribution. (Ibid. at ¶ 20.) Plaintiff Michaels deposited the check into his bank account on December 1, 2021. (Ibid. at ¶ 21.) On December 3, 2022, Michaels’ bank informed him that a stop payment had been placed on the check. (Ibid. at ¶ 22.) Plaintiff’s counsel sent a Demand Letter to Defendant requesting the payment of $10,000 within thirty days and informing him of statutory requirements per Civil Code § 1719. (Ibid. at ¶ 23.) Although Defendant’s place of business, as registered with the California Secretary of State, was vacant, Defendant’s principal received the letter on December 28, 2021. (Ibid. at ¶ 24, Ex. 6.) Defendant did not pay the $10,000 owed and has not responded to Plaintiffs’ Demand Letter, which complied with Civil Code § 1719. (Ibid. at ¶¶ 25-26, 28.) As a result, Plaintiff has suffered damages of at least $11,500. (Ibid. at ¶ 27.)
Plaintiffs seek compensatory damages in the amount of $10,000, treble damages in the amount of $1,500, costs, and “other and further relief as the Court deems proper.” (Compl. p. 5.)
b. Defendant’s Demurrer
Defendant generally demurs on the following grounds:
(1) To the entire complaint on the grounds that SMIG lacks standing because it is not the real party in interest;
(2) Plaintiff SMIG fails to state facts sufficient to constitute a cause of action as SMIG failed to make the requisite demand or provide notice as required by Civil Code Section 1719;
(3) Plaintiff SMIG fails to state facts sufficient to constitute a cause of for violation of Civil Code Section 1719 as SMIG is not the payee on the check.
(Demurrer pp. 2-3.)
Defendant argues that the check included with the FAC demonstrates that it was made payable to Steve Michaels, not SMIG. (Ibid. at p. 6.) Subsequently, the letter from Bank of America regarding the stop payment on the check was addressed to Steven S. Michaels, as the check was deposited into his personal account, not SMIG’s. (Ibid.) The Demand Letter sent to Defendant does not reference SMIG and specifically states that counsel who sent the Demand Letter was retained by Steven Michaels. (Ibid.) The letter also states that the check was made to Plaintiff Michaels, not SMIG, and advises Defendant regarding any good faith disputes with Plaintiff Michaels. (Ibid.) Defendant argues that no demand has been made on behalf of SMIG pursuant to Civil Code § 1719 and SMIG has not mailed a notice to Defendant. (Ibid.)
Defendant argues that Plaintiffs amended the original complaint to state that “while the named payee on the check is Steven Michaels, SMIG is the ultimate beneficiary of the money.” (Ibid. at p. 7.) However, SMIG is a California Limited Liability Company, with its own legal identity. (Ibid. at pp. 7, 10.) Here, Michaels is the payee on the check, which he deposited into his personal account. (Ibid.)
Defendant argues that in this context, “payee,” as used in § 1719, should be limited to the person named as “payee” on the check. (Ibid.) Here, SMIG is not the “payee,” even if it is the ultimate beneficiary, and thus, lacks standing to bring an action on its behalf. (Ibid. at p. 8.)
Furthermore, demurrer should be sustained because SMIG fails to state facts sufficient to constitute a cause of action, as SMIG did not make a demand or provide notice, as required by Civil Code § 1719. (Ibid. at p. 9.) The Demand Letter clearly states that Steven Michaels was the “payee,” the check was written to Michaels, and the attorney who sent the letter was retained by Michaels. (Ibid.) It further advises Defendant to resolve any good faith disputes with Michaels. (Ibid.)
Thus, SMIG has failed to establish that it is the “payee,” under § 1719 and that Defendant is liable to Plaintiff SMIG. (Ibid. at pp. 11-12.)
Defendant requests that the Court sustain its demur without leave to amend as SMIG cannot cure the “fatal defect.” (Ibid. at p. 8, 10, 12.)
c. Plaintiff’s Opposition to Demurrer
In their Opposition to the Demurrer, Plaintiffs argues that the instant action is being prosecuted by the real party in interest and SMIG “was added as a plaintiff in an abundance of caution because the money was actually owed to SMIG, not Steven Michaels.” (Oppos. p. 2.)
Plaintiff also opposes Defendant’s demurrer that SMIG did not provide noticed under Civil Code § 1719 because 1) Defendant did not raise this argument in its initial demurrer and thus, cannot raise it in the instant Demurrer, and 2) notice was given to Defendant on behalf of both Plaintiffs, as alleged in FAC ¶¶ 10-17. (Ibid. at pp. 2-3.)
Plaintiffs concede that Michaels is the real party in interest because the check was made out to him, however, SMIG is an additional plaintiff because the money at issue was owed to SMIG. Plaintiffs state that Defendant does not cite to legal authority to support its contention that “every plaintiff must be ‘the’ real party in interest.” (Ibid. at pp. 4-5.) Furthermore, Plaintiffs argue that they properly pled that notice was given to SRG on behalf of both Plaintiffs, as the FAC alleges, “[o]n December 23, 2021, counsel for Michaels and SMIG sent a demand letter (the “Demand Letter”) to Defendant and Defendant’s principles.” (Ibid. at p. 5; FAC ¶ 10.) Since all factual allegations must be accepted as true, Defendant’s argument fails. (Ibid. at p. 5.) Plaintiffs also argue that Defendant’s argument that SMIG did not serve notice to Defendant should not be accepted as it was not brought in the first demurrer. (Ibid. at pp. 5-6.)
d. Defendant’s Reply to Opposition to Demurrer
In its Reply, Defendant opposes Plaintiffs’ statement that arguments not set forth in the first demurrer cannot be set forth in the second demurrer, citing Code of Civil Procedure § 430.41(b). (Reply p. 2, 4.) Here, no demurrer was sustained or decided on its merits, as the demurrer became moot after the filing of the amended complaint. (Ibid.)
Defendant also argues that it did not concede that Plaintiff Michaels is a real party in interest, but only challenged SMIG’s standing to bring the lawsuit because it is not the payee on the check. (Ibid. at p. 2, 4, 7.) SMIG has not cited to any legal authority or any arguments that it has standing under § 1719. (Ibid.) Defendant argues that each Plaintiff must have independent standing and under § 1719, only the payee has standing. (Ibid. at pp. 7-8.)
Defendant also opposes Plaintiffs’ argument that the allegations in the FAC regarding notice by both Plaintiffs are sufficient to survive the Demurrer. (Ibid. at p. 3.) Although the FAC states that ‘“counsel for Michaels and SMIG sent a demand letter,’” the exhibits contradict that notice was issued on behalf of both Plaintiffs and when exhibits contradict allegations in the complaint, the facts in the exhibits take precedence. (Ibid. at pp. 3-6.) The FAC may allege that counsel for both Plaintiffs sent the demand, but “[i]t doesn’t state that a demand was sent by counsel on behalf of both Plaintiffs.” (Ibid. at p. 5.) Nowhere in the Demand Letter is SMIG mentioned, and Plaintiffs added “and SMIG” to the FAC to avoid the demurrer. (Ibid. at pp. 5-6.) Defendant argues that the FAC is a “sham” pleading and “should be disregarded.” (Ibid. at p. 5.)
e. Analysis
Civil Code § 1719(a)(2) provides that “any person who passes a check on insufficient funds shall be liable to the payee for damages equal to treble the amount of the check if a written demand for payment is mailed by certified mail to the person who had passed a check on insufficient funds and the written demand informs this person of (A) the provisions of this section, (B) the amount of the check, and (C) the amount of the service charge payable to the payee. The person who had passed a check on insufficient funds shall have 30 days from the date the written demand was mailed to pay the amount of the check, the amount of the service charge payable to the payee, and the costs to mail the written demand for payment.”
Pursuant to § 1719, exceptions exist in cases in which payment was stopped “in order to resolve a good faith dispute with the payee,” or when payor “presents the payee with written confirmation by his or her financial institution that the check was returned to the payee by the financial institution due to an error on the part of the financial institution…or account had insufficient funds as a result of a delay in the regularly scheduled transfer of, or the posting of, a direct deposit of a social security or government benefit assistance payment.” (Civil Code § 1719(a)(3), (a)(4), (a)(5).)
“A cause of action under this section may be brought by a holder of the check or an assignee of the payee” and “[t]he assignee of the payee or a holder of the check may demand, recover, or enforce the service charge, damages, and costs specified in this section to the same extent as the original payee.” (Civil Code § 1719(f), (i).)
The Court finds that Plaintiffs have failed to state facts sufficient to show that Plaintiff SMIG is entitled to relief under Civil Code § 1719. While Plaintiff Michael’s name appears on the check and written demand, allegations regarding Plaintiff SMIG only appear in the FAC. Plaintiffs are correct in stating that a demurrer tests the legal sufficiency of the factual allegations in the complaint. (Code of Civ. Proc. § 430.10.) However, the face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) "If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence." (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447.) Given that Plaintiff SMIG is not listed as a payee on the check, and the Demand Letter does not provide notice on behalf of Plaintiff SMIG, Plaintiffs have not stated any facts sufficient to show that Plaintiff SMIG could be entitled to relief pursuant to Civil Code § 1719. The Court also finds that Defendant was not precluded from bringing additional arguments in the second demurrer, as the first demurrer was placed off calendar and not sustained. (Code of Civ. Proc. § 430.41(b).)
Therefore, Defendant’s Demurrer to the First Amended Complaint is SUSTAINED, as to Plaintiff SMIG ONLY.
C. Leave to Amend
When a demurrer is sustained, the Court determines whether there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) When a plaintiff “has pleaded the general set of facts upon which his cause of action is based,” the court should give the plaintiff an opportunity to amend his complaint, since plaintiff should not “be deprived of his right to maintain his action on the ground that his pleadings were defective for lack of particulars.” (Reed v. Norman (1957) 152 Cal.App.2d 892, 900.) Generally, the court will allow leave to amend on at least the first try, unless there is absolutely no possibility of overcoming the issue. (See Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227 ("Denial of leave to amend constitutes an abuse of discretion unless the complaint shows on its face it is incapable of amendment. [Citation.] Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.").)
Here, there is a reasonable possibility that an amendment may cure the defect in the pleadings as there may be additional facts that entitle Plaintiff SMIG to relief pursuant to Civil Code § 1719. Therefore, Defendant’s Demurrer to the First Amended Complaint is SUSTAINED WITH 20 DAYS LEAVE TO AMEND.
D. Motion to Strike
a. Defendant’s Motion to Strike
Defendant moves to strike the following portions from the First Amended Complaint: “All references in the Complaint to Defendant SRG’s ‘principal’ and ‘Phillip Frankland Lee,’ or Phillip Frankland Lee’s address.” (Demurrer p. 3.)
Specifically, Defendant moves to strike the following paragraphs:
A). FAC, page 3, ¶ 10, line 2: “and Defendant’s principals.”
B). FAC, page 3, ¶ 11, line 4 and 5: “principal and.”
C). FAC, page 3, ¶ 12, line 11 and 12: “The certified mail sent to the Defendant, c/o Lee, at 121 W. Oak Drive, Cedar Creek, TX 78612 was signed for on December 28, 2021. Exhibit 5.”
D). FAC, page 4, ¶ 24, line 19: “Defendant’s principal received the certified letter on December 28, 2021.”
E). FAC, page 4, ¶ 25, line 22: “Neither” and “nor its principal.”
F). FAC, Exhibit 5 in its entirety.
Defendant argues that these references to Lee or his Texas address are “irrelevant and have no bearing on the claims made, and do not provide any basis for damages.” (Ibid. at p. 12.) Here, SRG is the only Defendant and Lee is not a named defendant. (Ibid.) There are no allegations that Lee signed the check or drew it from his account, knew about the check or the stop payment placed on the check. (Ibid.) Lee’s Texas address should also be stricken as it is not the address for service of process and there is no allegation that Lee received the Demand Letter in Texas. (Ibid. at pp. 12-13.) Defendant argues that someone else signed the certification after the letter was delivered. (Ibid. at p. 13.)
b. Plaintiffs’ Opposition to Motion to Strike
In their Opposition to the Motion to Strike, Plaintiffs argue that all references to principal Lee are pled with respect to Plaintiffs’ attempts to serve Defendant with the Demand Letter, as required by § 1719, and these references “in fact, ‘have bearing on the claims made’ in this case” because Lee is as listed as the agent for service of process for Defendant with the California Secretary of State. (Oppos. p. 3, 6.)
c. Defendant’s Reply to Opposition to Motion to Strike
In its Reply to the Demurrer, Defendant reiterates its argument that all references to Lee and his address must be stricken because they are “irrelevant and have no bearing on the claims made, and do not provide any basis for damages.” (Ibid. at p. 9.) Defendant states that § 1719 requires notice, not proving “all the efforts taken to provide notice.” (Ibid.) Furthermore, pursuant to § 1719, notice must “be given to the ‘drawer’ of the check, which is SRG.” (Ibid.) Lee is listed as the agent for service of process, not the principle, and his address is listed in Encino, CA, not Texas. (Ibid. at pp. 9-10.) The mail sent to Texas was not signed by Lee, Plaintiff does not allege that Lee personally received the letter, or that Lee resides at this address. (Ibid. at p. 10.) Thus, these references to the Texas address do not provide proof of notice. (Ibid.)
d. Analysis
According to Code of Civil Procedure § 436:
The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper:
(a) Strikeout any irrelevant, false, or improper matter inserted in any pleading.
(b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.
However, motions to strike in limited jurisdiction courts may only challenge pleadings on the basis that “the damages or relief sought are not supported by the allegations of the complaint.” (Code Civ. Proc. § 92(d).) The Code of Civil Procedure also authorizes the Court to act on its own initiative to strike matters, empowering the Court to enter orders striking matter “at any time in its discretion, and upon terms it deems proper.” (Code Civ. Proc. § 436.) Furthermore, § 435.5 requires that “[b]efore filing a motion to strike pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion to strike for the purpose of determining whether an agreement can be reached that resolves the objections to be raised in the motion to strike.” (Code Civ. Proc. § 435.5(a).)
As discussed above, Defendant has satisfied the meet and confer requirement through its Counsel’s declaration.
However, the Court finds that Defendant’s Motion to Strike is improper in a limited civil case as it does not seek to strike portions of the FAC on the basis that “the damages or relief sought are not supported by the allegations of the complaint.” (Code Civ. Proc. § 92(d).) For this reason, Defendant’s Motion to Strike is DENIED.
IV. Conclusion & Order
For the foregoing reasons, Defendant Scratch Restaurants Group, LLC’s DEMURRER to the First Amended Complaint is SUSTAINED, as to Plaintiff SRG-Michaels Investment Group, LLC, ONLY, WITH 20 DAYS LEAVE TO AMEND.
Defendant Scratch Restaurants Group, LLC’s MOTION TO STRIKE First Amended Complaint is DENIED.
Moving party is ordered to give notice.