Judge: Kevin C. Brazile, Case: 22STCV30771, Date: 2023-04-12 Tentative Ruling

Hearing Date: April 12, 2023

Case Name: Mellone v. Horist, et al.

Case No.: 22STCV21735 

Matter: Demurrer; Motion to Strike

Moving Party: Defendant Terry J. Horist

Responding Party: Plaintiff Mary Mellone

Notice: OK

Ruling: The Demurrer is overruled.

The Motion to Strike is denied.

Moving party to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

This is a construction defect case.  On February 2, 2023, Plaintiff Mary Mellone filed the operative First Amended Complaint (“FAC”) for (1) breach of contract, (2) negligence, (3) fraud, and (4) negligent misrepresentation.  

1. Demurrer

Defendant Terry J. Horist demurs to the third and fourth causes of action for failure to state sufficient facts. 

When considering demurrers, courts read the allegations liberally and in context, and “treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.)  “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.”  (Hahn v. Mirda¿(2007) 147 Cal.App.4th 740, 747.)  It is error “to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.”  (Aubry v. Tri-City Hospital Dist.¿(1992) 2 Cal.4th 962, 967.)

The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, internal quotation marks omitted.) 

“[F]raud must be pled specifically; general and conclusory allegations do not suffice. [Citations] Thus the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any material respect.  This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.”  (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, internal quotation marks omitted.)  

“Negligent misrepresentation is a form of deceit, the elements of which consist of (1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages.”  (Fox v. Pollack (1986) 181 Cal. App. 3d 954, 962.)

A negligent misrepresentation claim should also be pled with specificity.  (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 185, fn. 14.) 

Defendant first argues that the subject claims are barred by the statute of limitations.  Specifically, Defendant argues, “[b]ased on serial admissions within the Complaint since November 2017, Plaintiff has known that the $2,272,971.00 figure was not the actual cost to construct the home. This cause of action, if ever it arose, was extinguished in November 2020, nearly two years before the filing of the October 2022 motion seeking leave to add fraud as a cause of action to the Complaint and thus the demurrer as to this cause of action should be sustained.”

The statute of limitations for fraud claims is three years.  (Code Civ. Proc. § 338(d).)  In actions involving claims for negligent misrepresentation, some courts have held or stated that the three-year fraud statute of limitations in section 338(d) applies (e.g., Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 956 [applying three-year statute but noting split of authority]), while other courts have applied section 339, subdivision 1's two-year statute of limitations for negligence (e.g., Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1155 [two-year statute applies “where the allegations amount to a claim of professional negligence”] ).

Moreover, “a cause of action accrues at the time when the cause of action is complete with all of its elements.”  (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806 (“Fox”), internal quotation marks omitted.)  Code Civ. Proc. § 338(d) states that a claim for fraud “is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”  “This discovery element has been interpreted to mean the discovery by the aggrieved party of the fraud or facts that would lead a reasonably prudent person to suspect fraud.”  (Doe v. Roman Catholic Bishop of Sacramento (2010) 189 Cal.App.4th 1423, 1430 (internal quotation marks omitted).)  “The discovery rule only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action. . . . In other words, plaintiffs are required to conduct a reasonable investigation after becoming aware of an injury, and are charged with knowledge of the information that would have been revealed by such an investigation.”  (Fox, supra, 35 Cal.4th at pp. 807–08.)  A “plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.”  (Fox, supra, 35 Cal.4th at p. 808, internal quotation marks omitted.)

The FAC relates to a false promise: “Defendant, Horist, promised and represented in writing that: ‘all of the above work is to be completed in a substantial and workmanlike manner according to standard practices for the sum of Two Million two-hundred seventy-two nine-hundred seventy-one dollars ($2,272,971.00).’ . . . The truth, which was known to Horist at the time the false promise was made, and unknown to Mellone, was that Horist deliberately underbid the project and had no intention of performing the work for the specified sum of $2,272,971.00, but intended to use the underbid price to lure Mellone into signing the contract at the specified sum, once signed, to charge Mellone for whatever the cost the construction turned out to be.”

The face of the FAC does not disclose a statute of limitations issue because it does not specify when the extra charges were incurred.  The statute of limitations issue is a factual matter.  Defendant cites the FAC’s reference to a November 2017 cost breakdown, but there is no indication that the basis for fraud was apparent therefrom.   

Defendant next argues that the misrepresentation allegations are “wholly inconsistent with the allegations at paragraph 7 of the First Amended Complaint, in which Plaintiff acknowledges that in November 2017, Defendant Horist issued a separate cost breakdown that would be the basis of a new contract.”  Defendant merely raises factual issues outside of the FAC.  Again, there is no indication in the FAC that the November 2017 cost breakdown contained information that was inconsistent with prior representations.  

Therefore, the Demurrer is overruled.  An answer is to be filed within twenty days.

2. Motion to Strike 

Defendant seeks to strike the FAC’s references to attorneys’ fees and punitive damages.

The Motion is denied as to punitive damages because fraud is pled.  (Civ. Code § 3294.)

The Motion is denied as to attorneys’ fees, which could be obtained under Business & Professions Code § 7160 to the extent fraud is alleged.

Moving party to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.