Judge Lee W. Tsao, Case Number: 21NWCV00671, Date: 2023-09-14 Tentative Ruling

Judge: Lee W. Tsao, Case: 21NWCV00671, Date: 2023-09-14 Tentative Ruling

Case Number: 21NWCV00671 Hearing Date: September 14, 2023 Dept: C

ACCENTIAN, INC. v. HIGH PRECISION GAS, LLC

CASE NO.: 21NWCV00671

HEARING: 09/17/23

#11

I. Defendants HIGH PRECISION GAS, LLC; SCOTT TAKEO NAGAMI; and DAVID LEE’s Demurrer to Plaintiff’s Fourth Amended Complaint is OVERRULED in part, and SUSTAINED without leave to amend in part.

II. Defendants HIGH PRECISION GAS, LLC; SCOTT TAKEO NAGAMI; and DAVID LEE’s Motion to Strike Portions of Plaintiff’s Third Amended Complaint is DENIED in part and MOOT in part.

Opposing Party to give Notice.

This breach of contract action was filed by Plaintiff ACCENTIAN, INC. (“Plaintiff”) on October 8, 2021.

On February 2, 2023, the operative Fourth Amended Complaint (“4AC”) was filed.

The 4AC alleges the following relevant facts: “Plaintiff is a licensed cannabis manufacturing company specializing in the extraction of butane hash oil, which sells wholesale and directs a variety of cannabis products for manufacturers and commercial sellers.” (4AC ¶1.) “Defendants delivered disqualified ‘specialty gases’ containing illegal levels of a cancer-causing chemical to be used for extracting the cannabis oil and manufacturing various cannabis products for human consumption, to Plaintiff. Specifically, Defendant defrauded Plaintiff into purchasing what Plaintiff believed were benzene-free gases—the ‘n-Butane & Propane Mix’ with false and misleading statements and advertisements about the purity of Defendants’ products. Defendants did so by representing directly to Plaintiff that their specialty gases contained no benzene, passed the lab tests, and are safe to be used for cannabis oil extraction. Defendants also advertised the safety and purity of their gases on their website and marketing materials.” (4AC ¶2.) “In actuality, the benzene surreptitiously contained in Defendants’ products is a harmful, carcinogenic substance that contaminated Plaintiff’s production line, making it unfit for sale…. Plaintiff is also concerned that Defendants’ misrepresentations surrounding, and delivery of, contaminated gases have contaminated other products of other manufacturers and retailers—posing a substantial health risk to consumers of al types.” (4AC ¶3.)

Defendant HIGH PRECISION GAS, LLC (“High Precision”) “is a company that specializes in supplying various gases and chemicals to the cannabis extraction industry.” (4AC ¶9.) Defendant SCOTT TAKEO NAGAMI (“Nagami”) “was and is an investor, member, Chief Executive Officer, Agent for Service of Process, and/or Facility Manager of HIGH PRECISION GAS, LLC….” (4AC ¶10.) Defendant DAVID LEE (“Lee”) “was and is an agent and/or employee of HIGH PRECISION GAS, LLC….” (4AC ¶11.) “

The 4AC asserts the following causes of action: (1) Breach of Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Breach of Express Warranty; (4) Fraud in the Inducement; (5) Fraudulent Concealment; (6) Negligent Misrepresentation; (7) Unfair Competition in Violation of B&P §17200; (8) Unlawful Business Acts and Practices in Violation of B&P §17200; (9) Unfair Business Acts and Practices in Violation of B&P §17200; (10) Fraudulent Business Acts and Practices in Violation of B&P §17200; (11) Untrue Advertising in Violation of B&P §17200; and (12) Negligence

Defendants High Precision, Nagami, and Lee (collectively “Defendants”) specially and generally demur to each cause of action.

First Cause of Action– Breach of Contract

Whether it is written, oral, or implied, the elements of a cause of action for breach of contract are as follows: (1) the existence of a contract; (2) Plaintiff’s performance or excused non-performance; (3) Defendants’ breach; and (4) resulting damage to Plaintiff. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) “If an action is based on a breach of written contract, the terms must be set forth verbatim in the body of the complaint or a copy of the contract must be attached and incorporated by reference.” (Id. at 459.) Alternatively, if the claim is based on a written contract, then “a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co., (2002) 29 Cal.4th 189, 198-199.) Terms of an oral contract may be pleaded generally as to its effect, because it is rarely possible to allege the exact words. (Scolinos v. Kolts (1995) 37 Cal.App.4th 635, 640.)

Plaintiff alleges the following facts: “Based on representations made above both to the public and to Plaintiff directly, parties entered into an oral contract that each purchase of butane would be of a quality sufficient to use for cannabis oil extraction.” (4AC ¶70.) “Plaintiff verbally offered to purchase butane that the free of benzene from Defendants, in exchange for payment. Defendants also offered certificates of conformance, certificates of lot analysis and similar documents to show and warrant that the purchase butane was in fact, benzene free. Defendants accepted the offer. Plaintiff would offer payment, in exchange for

Defendants delivering the benzene free butane and their warranty. The price and quantity of butane would be memorized in the invoices that would be generated later…. Thus, the parties entered into an oral agreement that bound both Plaintiffs and Defendants. Further, the parties agreed that Plaintiff would be invoiced through High Five Solutions, Inc. in order to obtain a purchase discount…. Plaintiffs paid for these invoices, and Defendants delivered Butane—however this Butane was not benzene free. Defendants failed to perform their part of the bargain, which was to provide benzene free butane.” (4AC ¶71.)

The demurrer to the first cause of action is OVERRULED. Plaintiff’s allegations are sufficient to plead the existence of an oral contract. The legal effect of the oral agreement, and the parties’ obligations thereunder is adequately pled for purposes of surviving demurrer.

Second Cause of Action – Breach of Implied Covenant of Good Faith and Fairh Dealing

The demurrer to the second cause of action is SUSTAINED without leave to amend. In Opposition, Plaintiff agrees to dismiss this cause of action, but no Request for Dismissal has been filed.

Third Cause of Action – Breach of Express Warranty

With respect to the third cause of action for Breach of Express Warranty based on the Breach of Oral Contract claim, the Court finds that Plaintiff has adequately alleged the material terms of the express warranty at issue (and has attached copies to the 4AC)—“Plaintiff purchased butane from Defendants… on the following dates…. Defendants provided to Plaintiffs… a written and express warranty. The warranty states ‘HPG warrants that the above products conform at the time of shipment to the above description….” (4AC ¶83.) Plaintiff also generally alleges the remaining elements of this cause of action. The demurrer to the third cause of action is OVERRULED.

Fourth, Fifth, and Sixth Causes of Action - Fraud in the Inducement, Fraudulent Concealment, and Negligent Misrepresentation

The elements of a cause of action for intentional 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. (See Cal. Civ. Code §1709.)

“Fraud in the inducement is the subtort of fraud. It occurs when the promisor knows what he is signing but his consent is induced by fraud, mutual assent is

present and a contract is formed, which, by reason of the fraud, is voidable. [Citations Omitted.]” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.)

“[T]he elements of a cause of action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (f) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.)

“The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage…. [T]he allegations of reliance, must be specifically pleaded.” (National Union Fire Ins. Cor. Of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 50.)

Whether intentional or negligent in nature, 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.) “Fraud must be pleaded with specificity… [t]o withstand a demurrer, the facts constituting every element of the fraud must be alleged with particularity, and the claim cannot be salvaged by references to the general policy favoring the liberal construction of pleadings. (Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.) “This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

The demurrer to the fourth through sixth causes of action as to NAGAMI is OVERRULED. Plaintiff alleges that “Nagami… falsified lab tests to conceal the existence of benzene in their products, which Defendants High Precision Gas and Nagami knew would make their products unfit for Plaintiff’s cannabis oil extraction.” (4AC ¶91). “The result was what Defendants High Precision Gas and

Nagami intended: the products passed the laboratory tests and certifications, by way of deliberately induced false readings.” (4AC ¶92.) The Court must accept these allegations as true at this stage in the litigation.

Twelfth Cause of Action – Negligence

“Following an order sustaining a demurrer… with leave to amend, the plaintiff may amend his or her complaint only as authorized by the court’s order.” (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.)

Without leave of Court, Plaintiff added a twelfth cause of action for Negligence This amendment goes beyond the scope of the previous order granting leave to amend, and Plaintiff did not seek leave to amend prior to adding this claim.

The demurrer to the twelfth cause of action is SUSTAINED without leave to amend.

Motion to Strike

The Motion to Strike punitive damages is DENIED given the Court’s ruling on the fraud claims above.

The Motion to Strike the newly added twelfth cause of action is MOOT given the Court’s ruling on the demurrer above.

Request for Leave to File a Fifth Amended Complaint

Notwithstanding Plaintiff’s arguments in Opposition, no Motion for Leave to File an Amended Complaint is on file with the Court and no request to specially set such a Motion has been lodged/filed. Therefore, Plaintiff’s request to file an amended pleading is procedurally improper and DENIED.