Judge Kristin S. Escalante , Case Number: 22STCV33445, Date: 2023-05-19 Tentative Ruling

Judge: Kristin S. Escalante , Case: 22STCV33445, Date: 2023-05-19 Tentative Ruling

The demurrers to the derivative claims of Cash Daddies LLC, and to the second (breach of covenant of good faith and fair dealing), third (fraudulent inducement), fourth (constructive fraud), sixth (conversion) causes of action are sustained with leave to amend. The demurrers to the first (breach of contract), fifth (accounting), seventh (declaratory relief), eighth (quantum meruit), and ninth (unjust enrichment) causes of action are overruled.

The Motion to Strike Portions of Complaint by Defendant Sam Tripoli; reservation no.: 063634226234 filed by Defendant Sam Tripoli on 03/10/2023 is GRANTED in part and DENIED In part as set forth below. The court grants the request to strike the prayer for punitive damages with leave to amend. The court denies the request to strike attorneys’ fees. The court denies all other request to strike allegations as moot by virtue of the demurrer ruling.

Defendant Sam Tripoli (“Defendant”) demurrers to the first (breach of oral contract), second (breach of implied covenant of good faith and fair dealing), third (fraudulent inducement), fourth (constructive fraud), fifth (accounting), sixth (conversion), seventh (declaratory relief), eighth (quantum meruit), and ninth (unjust enrichment) causes of action in the complaint filed by Plaintiff Chris Neff (“Plaintiff”). (Notice of Mtn., at pp. 3-4.) Defendant demurs on the grounds the claims do not state sufficient facts to state a cause of action and/or are uncertain. (Notice of Mtn., at pp. 3-4.)

By way of background, on October 13, 2022, Plaintiff filed suit against Evan Hand, Howie Dewey, Defendant, and Cash Daddies, LLC (“Cash Daddies”) (collectively “Defendants”) alleging claims arising out of the parties’ relationship to the podcast Cash Daddies. Plaintiff alleges the parties were co-hosts of Cash Daddies (the “Podcast”) from February 2021 until July 2022. During that time Plaintiff spent at least twenty hours a week working on the Podcast, either directly or through promotional efforts. In July 2022, Defendants requested Plaintiff leave the Podcast. Plaintiff alleges they excised him from the podcast out of greed. Specifically, Defendants sought to use Plaintiff for his talent only to oust him once the Podcast began succeeding.

As a preliminary manner, Defendant argues the entire complaint is uncertain because the Plaintiff’s purported derivative action on behalf of Cash Daddies—nominally named as a Defendant—have not been plead in a separate manner from Plaintiff’s individual claims. Plaintiff brings all the causes of action against all Defendants. Additionally, Defendant argues the derivative claims are improper because Plaintiff has not complied with the notice requirements laid out in Corporation Code section 17709.02 subdivision (b) (“Section 17709.02”). Plaintiff does not address this argument in the opposition papers.

As to procedural compliance, Section 17709.02 states a member of a limited liability company (“LLC”) may not maintain an action on behalf of the LLC unless the plaintiff alleges they were a member during the relevant time period, alleges with particularity plaintiff’s efforts to secure from the managers’ plaintiff desires, and either informed the LLC /managers in writing of the ultimate facts of each cause of action, or delivered the LLC/managers a copy of the proposed complaint. Where a plaintiff fails to attempt to comply with the requirements of Section 17709.02, they do not have standing to bring an action. (See Schrage v. Schrage (2021) 69 Cal.App.5th 126, 158, 157 fn. 14.) Plaintiff appears to have plead futility as to this requirement.

Having been provided no guidance from Plaintiff regarding the standard for pleading futility, the court looks to corporate law for guidance regarding the circumstances when a demand can be deemed futile. It reveals that “In California, there have been a few cases that have attempted to delineate the circumstances constituting demand futility.” (Bader v. Anderson (2009) 179 Cal.App.4th 775, 790.) Specifically, the allegations to the directors must be “made with particularity[;] . . . general averments that the directors were involved in a conspiracy or aided and abetted the wrongful acts complained of will not suffice to show demand futility.” (Ibid. [internal quotations omitted].) “[T]he court must be apprised of facts specific to each director from which it can conclude that that particular director could or could not be expected to fairly evaluate the claims of the shareholder plaintiff.” (Ibid [internal quotations omitted].)

The complaint alleges that “Plaintiff has attempted to make demand on the CDLLC members/managers to institute this action against defendants. When such demand was made, Defendants responded by stating they had dissolved CDLLC. Thus such demand is excused because making a demand would be a futile and useless act because the members is [sic] incapable of making an independent and disinterested decision to institute and vigorously prosecute this action . . .” (Compl., ¶9.) Plaintiff has alleged an attempt to comply with Section 17709.02, but not with the requisite particularity. (See Bader, supra, 179 Cal.App.4th at p. 790.) The allegation is a general averment that the group of LLC members would not exercise independent judgment. Plaintiff must provide more detail as to why each member could not have fairly evaluated the challenged transaction.

Because the failure to adequately allege demand is dispositive the court does not address propriety of pleading Plaintiff and Cash Daddies claims as one without delineating the differences. Nevertheless, the court grants Plaintiff leave to add further detail regarding the difference, or lack thereof, between Plaintiff and Cash Daddies claim.

The covenant of good faith and fair dealing is “implied by law in every contract.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.) It “requires each party to do everything the contract presupposes the party will do to accomplish the agreement’s purposes.” (Ibid.) To state a claim for the breach of the covenant of good faith and fair dealing, the plaintiff must allege “that the conduct of the defendant. . . demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) To decide if this has occurred, the court looks at the “contractual purposes and reasonably justified expectations of the parties.” (Ibid.) “The prerequisite for any action for breach of the implied covenant of good faith and fair dealing is the existence of a contractual relationship between the parties, since the covenant is an implied term in the contract.” (Smith v. City and County of San Francisco (2002) 225 Cal.App.3d 48, 49.)

Defendant argues that Plaintiff has not alleged any conduct beyond the breach of oral contract that could give rise to a claim to a breach of the separate implied covenant of good faith and fair dealing. Specifically, Defendant argues Plaintiff has not identified any specific conduct which frustrate Plaintiff’s rights that is not also simply a violation of the agreement’s terms. (See Careau, supra, 222 Cal.App.3d at p. 1395.)

Plaintiff alleges “Defendants, in their conduct, breached the covenant of good faith and fair dealing insofar as it relates to their [sic] parties oral agreement by their actions as set forth herein above, and incorporated herein by this reference.” (Compl., ¶40.) By the clear language of the complaint, Plaintiff’s breach of the covenant claims hinge on the breach of contract claims. Plaintiff argues that he alleged duties beyond the contract—such as those owed by business partners—which give rise to the claim. However, this argument is not borne out by the allegations. Neither the general nor the specific allegations to the breach of covenant claim identify additional duties or violations of those duties which would give rise to a breach of the covenant of good faith and fair dealing claim.

Fraud in the inducement occurs when there is a “misrepresentation involving a contract in which the promisor knows what he or she is signing but consent is induced by fraud.” (McClain v. Octagon Plaza, LLC (2008) 150 Cal.App.4th 784 [internal quotations omitted].) Fraud, in turn, occurs when the following element are meet, there is “(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.) “[F]raud must be pled specifically; general and conclusory allegations do not suffice. . . .This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Lazar, supra, 12 Cal. 4th at 645 [internal quotation marks and ellipses omitted).]

Plaintiff has not alleged sufficient damages for a fraudulent inducement claim. He alleges that Defendants made a series of promises to him including that the parties would continue the Podcast, that the parties owned a specific interest in the Podcast business and its revenues, the parties would create and run Cash Daddies, the Cash Daddies’ bank account would hold all income generated, and income generated from the Podcast would be distributed according to each parties’ ownership interest. (Compl., ¶43.) Defendants made the promises to Plaintiff to induce him to “provide money, intellectual property, time and labor for no consideration.” (Compl., ¶44.) Defendants knew the representations were false and made them with the intent to deceive Plaintiff. (Compl., ¶45.) Plaintiff relied on the representations and such reliance was justified based on the parties longstanding professional and personal relationship. (Compl., ¶¶46, 47.) He alleged damages in the sum of $250,000.00.

Defendant argues that Plaintiff’s claims lack the requisite specificity of a fraud claim and that Plaintiff has not identified any misrepresentative promise with no intent to perform. This is incorrect. Plaintiff identified five separate promises. (Compl., ¶43.) Defendant also argues the complaint is implausible because he could not have anticipated the Podcast would succeed when he made the alleged misrepresentation. Thus, Plaintiff is attempting to obtain tort liability on what is a simple breach of contract case. The court disagrees. As a practical matter, it does not appear the parties’ inability to predict the Podcast’s success is dispositive of whether Defendant made false promises to Plaintiff to induce him to provide free labor. Additionally, Defendant’s argument about the implausibility of the case is a question of fact and not grounds to sustain a demurrer.

Finally, Defendant concludes in a single sentence without further analysis that Plaintiff has not alleged damages beyond the breach of contract. The complaint alleges “Plaintiff was injured in the sum of no less than $250,000.00.” (Compl., ¶48.) Apparently conceding the argument that he only alleged damages for money, Plaintiff raises the economic loss rule and argues that he was also damaged beyond a sum of money. He lost earnings, his interest in the ongoing podcast, and the intellectual property he created. However, there are no such allegations for the fraudulent inducement cause of action. Assuming without deciding that the economic loss rule applies—as Plaintiff appears to concede this—the court finds the damages allegations insufficient.

Constructive fraud “consists [of]: (1) In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or (2) [i]n any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.” (Civ. Code, § 1573.)

Defendant argues the constructive fraud action fails because Plaintiff has not sufficiently alleged the underlying duty which Defendant owed to Plaintiff. He has sufficiently alleged a duty. (See Compl., ¶51.) Defendant also argues the alleged misrepresentations took place during the formation of the partnership and thus, not when Defendant owed any duty premised on the alleged partnership relationship. Plaintiff does not address Defendant’s argument that all of the misrepresentations took place during formation and that there are no allegations regarding misrepresentations after formation. Instead, Plaintiff argues the relationship formed in February 2021. (Opp., at p. 12:03-26.) This does not provide the court with assistance in determining if the alleged misrepresentation took place before the duty Plaintiff hinges them on existed. Nevertheless, the court cannot determine on the face of the complaint when the relationship formed and when the misrepresentations occurred.

The notice states Defendant demurrers to the fifth cause of action as uncertain. This appears to be premised on the primary argument that the derivative action by Cash Daddies renders the complaint uncertain. As discussed previously, the court disagrees. The demurrer is overruled.

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240; see also Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451.)

The issue with the conversion claim is whether the sum Plaintiff alleges was converted can be the subject of a conversion claim. The complaint alleges that “[f]rom in or about February 2021 through September 2022, Neff is informed and believes, and based thereon alleges, that Defendants have taken monies which belonged to Neff. Specifically, . . . the Defendants failed to remit and deliver to Neff a specific sum of income and revenues generate to which Neff was entitled to a proportional share pursuant to his interest in the Partnership at the time.” (Compl., ¶61.)

Plaintiff argues Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1042 applies because it ruled a business partner can be held liable for conversion if he withholds the business accounting from a partner. In Sanowicz plaintiff real estate partner sued defendant real estate partner for failure to abide by the parties’ agreement to share commissions. The court found a mere contractual right of payment does not support a conversion claim. However, the commission qualified for a conversion claim because it was premised on actual possession by defendant of an amount of money due to plaintiff. (Id. at p. 1042.)

Defendant, on the other hand, argues the conversion claim fails because it is a generalized claim for money and does not identify a specific sum of money that was converted. (Demurrer, at p. 13:1-18.) Defendant argues Voris v Lampart (2019) 7 Cal.5th 1141, in which the California Supreme Court found a conversion claim could not be premised on lost wages, is more applicable. In Voris, the court stated “money cannot be the subject of an action for conversion unless a specific sum capable of identification is involved. Where the money or fund is not identified as a specific thing the action is to be considered as one upon contract or for debt—or perhaps upon some other appropriate theory—but not for conversion.” (Id. at p. 1151 [internal brackets and quotations omitted].) “This means that a cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff’s possessory interest in a specific, identifiable sum; the simple failure to pay money owed does not constitute conversion.” (Ibid. [internal brackets and quotations omitted].) The court reasoned to find otherwise would allow the tort of conversion to swallow contract claims premised on a failure to satisfy contractual payments.

Plaintiff concedes the sum in inexact but is nevertheless identifiable through an accounting. Plaintiff implicitly likens the sum here to the commission in Sanowicz. The court disagrees. A commission is a specific sum which a person can immediately identify upon payment. But here, the Cash Daddies payments are more akin to an employee’s payment. The payments are derived from income to Cash Daddies and then Cash Daddies distributed based on a partnership agreement. The sum represents money owed; Plaintiff seeks a monetary loss, not an identifiable sum.

“Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another. . . may, in case of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-compliant. . .” (Code Civ. Proc., § 1060.) A plaintiff may bring request for declaratory relief alone or with other relief. (Code Civ. Proc., § 1060.) “The existence of an ‘actual controversy relating to the legal rights and duties of the respective parties,’ suffices to maintain an action for declaratory relief.”¿ (Ludgate Ins. Co. v. Lockheed Martin Corp.¿(2000) 82 Cal.App.4th 592, 605; see also Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.)

Plaintiff requests declaratory relief regarding his ownership interest in Cash Daddies, and his entitlement to use of the Cash Daddies’ name and other affiliated digital items, e.g., Cash Daddies email, and Instagram etc. Defendant argues the declaratory relief claim is duplicative and unnecessary to the complaint. Specifically, any issues relating to Plaintiff’s rights will be adjudicated in connection with the breach of contract claim. The court disagrees. Plaintiff has identified an actual controversy and seeks clarification of the rights to certain items pursuant to the parties’ oral agreement. It is not clear at this time whether the breach of contract claim will address all the requested issues.

By way of background, “recovery in quantum meruit does not require a contract.” (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449 (Maglica).) Instead, the party must show “the circumstances were such that ‘the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made.” (Chodos v. Borman (2014) 227 Cal.App.4th 76, 96.) “The underlying idea behind quantum meruit is the law's distaste for unjust enrichment. If one has received a benefit which one may not justly retain, one should restore the aggrieved party to his or her former position by return of the thing or its equivalent in money.” (Maglica, supra, 66 Cal.App.4th at p. 449 [internal quotations and brackets removed].)

“The elements of an unjust enrichment claim are the receipt of a benefit and the unjust retention of the benefit at the expense of another.” (Peterson v. Cellco P’ship (2008) 164 Cal.App.4th 1583, 1593 [internal brackets and quotations omitted].) “The spirit behind the law of unjust enrichment is to apply the law ‘outside of the box’ and fill in the cracks where common civil law and statutes fail to achieve ‘justice.’ ” (Hernandez v. Lopez (2009) 180 Cal.App.4th 932, 939.)

Defendant argues the quantum meruit and unjust enrichment claims are an attempt to convert Plaintiff’s breach of contract claim into a tort and obtain tort liability. Moreover, they establish inconsistent facts. Specifically, Defendant argues Plaintiff’s allegation that he was entitled to a portion of the profits is contradictory of his claim that he understood he would be paid for the purported value of his services. (Demurrer at p. 14:20-27 [citing Brown v. City of Fremont (1977) 75 Cal.App.3d 141, 146 (“while inconsistent theories of recovery are permitted [citation], a pleader cannot blow hot and cold as to the facts positively stated.”)]) Defendants do not fully explain why the allegations are inconsistent. Plaintiff, in turn, provides no opposition to this point and argues only that he has plead the claims.

The complaint alleges that “[b]ased upon the work, labor and services performed, and the value to Defendants, Neff is entitled to the reasonable value of such services and labor render for and on behalf of Defendants and [Cash Daddies]” (Compl., ¶73.) He further alleges that “[a]t the request of Defendants, Neff provided work, labor, and services tto Defendant and [Cash Daddies], at the special request of Defendants. Such actions of Neff are specifically set forth in above and were performed based upon the understanding and agreement that Neff would benefit from such efforts.” (Compl., ¶76.) It is not apparent on the fact of the complaint that the allegations are entirely inconsistent. As plead, the court does not find them inconsistent. Plaintiff alleges that he performed services under the belief that he would receive some form of compensation for such services, and that Defendants withheld or obtained the benefits of Plaintiff’s work unjustly. (See Compl., ¶¶ 72, 73, 76, 77.)

Defendant moves to strike the following: (i) Cash Daddies from the caption, (ii) paragraph 6 naming Cash Daddies as a nominal cross-defendant, (iii) paragraph 9 alleging Plaintiff’s attempt to make a demand on Defendants, (iv) the punitive damages allegations in paragraphs 49, 55, and 65, (v) the prayer for punitive damages, and (vi) the prayer for attorneys fees as permitted by statute or contract.

As to the motion to strike references to Cash Daddies and the attempt to make a demand on Defendants, the court denies the requests as moot based on the demurrer ruling. The request to strike the punitive damages alleged in paragraphs 49, 55, and 65 are also denied as moot based on the ruling above. The motion to strike the prayer for punitive damages is granted with leave to amend.

As to the prayer for attorneys’ fees, Defendant concludes without any supporting authority that there “is no statute or alleged agreement providing grounds for Plaintiff to recover attorney’s fees.” (MTS, at p. 8:02-10.) Notably, Plaintiff does not respond to the argument. Nevertheless, Defendant’s broad and conclusory argument is unconvincing. The motion is denied.