Judge: Lisa K. Sepe-Wiesenfeld, Case: 21STCV01858, Date: 2023-03-16 Tentative Ruling
Case Number: 21STCV01858 Hearing Date: March 16, 2023 Dept: N
This Motion: Cross-Defendants 9th
Wonder-Los Angeles, LLC and Fogarty & Klein, Inc’s Demurrer
TENTATIVE RULING
For the
following reasons, Cross-Defendants 9th Wonder-Los Angeles, LLC and
Fogarty & Klein, Inc’s Demurrer is OVERRULED in its entirety.
REASONING
Meet
and Confer –
Legal
Standard for Meet and Confer Requirement
“Before
filing a demurrer…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.” (CCP § 430.41(a); see also CCP § 435.5
(imposing similar requirements for a motion to strike).)
Analysis
for Meet and Confer Requirement
Here, the
demurring parties, Cross-Defendants, have met the meet and confer requirement
as outlined in CCP § 430.41(a). Before bringing the instant Demurrer,
Cross-Defendants sent a meet and confer email on January 10, 2023 and spoke
over the phone with Cross-Complainant on January 17, 2023. (Demurrer,
Declaration of Allegra Gorchynski (hereinafter, “Gorchynski Dec.”), ¶ 4-5). The
parties were unable to reach an agreement. (Ibid. ¶ 5).
Conclusion
for Meet and Confer Requirement
Accordingly,
the meet and confer requirement of CCP § 430.41(a) satisfied.
Demurrer
-
Legal
Standard for a Demurrer
“[A]
demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235
Cal.App.4th 385, 388.) A demurrer can be used only to challenge defects that
appear on the face of the pleading under attack or from matters outside the
pleading that are judicially noticeable. (See Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994 [in
ruling on a demurrer, a court may not consider declarations, matters not
subject to judicial notice, or documents not accepted for the truth of their
contents].) For purposes of ruling on a demurrer, all facts pleaded in a
complaint are assumed to be true, but the reviewing court does not assume the
truth of conclusions of law. (Aubry v.
Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967.)
Analysis
for Demurrer
First Cause of Action – Breach of Lease
To state a
cause of action for breach of contract, Plaintiff must be able to establish
“(1) the existence of the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting damages to the
plaintiff.” (Oasis West Realty, LLC v.
Goldman (2011) 51 Cal.4th 811, 821.)
Cross-Defendants
principal contention regarding the first cause of action is that
Cross-Complainant and Cross-Defendant 9th Wonder never entered into
a contract, thereby eliminating the first element of breach. First, this ignores
the crucial allegation of fraud alleged by Cross-Complainant in their FAXC.
(FAXC, ¶ 15-19). Second, it ignores successor liability as to Cross-Defendant 9th
Wonder.
Cross-Complainants
allege that multiple parties informed Cross-Complainant that there would be a
name change, that the public-facing name would change from “Phelps” to “9th
Wonder” but that there would be no impact on “ongoing operations and agreed
terms” and “no change in ownership and in staff”. (FAXC, ¶ 15-16). This would
provide Cross-Complainant no notice as to the need to add or change a
contracting party, because the parties were still the same as were their
contractual obligations. Moreover, the letter received from Breck Templeton,
who identified himself as “CFO/Partner” of 9th Wonder provided
assurance of that assumption. (Ibid.) However, as explained in their
FAXC, Cross-Complainants now believe that 9th Wonder is a separate
entity to which Cross-Defendant The Phelps Group transferred all or
substantially all of its assets pursuant to an Asset Purchase Agreement (APA)
dated April 16, 2018. (FAXC, ¶ 19). These facts are the basis of
Cross-Complainant’s fraud allegation. Cross-Defendants cannot ignore that
Cross-Defendant 9th Wonder is only not mentioned in the contract
because of what is alleged to be fraud, then object to the allegation of breach
because Cross-Defendant 9th Wonder is not party to the contract.
Additionally,
for the Cross-Defendant 9th Wonder, this poses the issue of
successor liability. Cross-Defendant 9th Wonder argues that the
leasehold was not transferred to them, nor did they assume the lease.
As set
forth in Ray v. Alad Corp., (1977), 19 Cal.3d 22, a successor company has liability for a
predecessor's actions if: (1) the successor expressly or impliedly agrees to
assume the subject liabilities (2) the transaction amounts to a consolidation
or merger of the successor and the predecessor, (3) the successor is a mere
continuation of the predecessor, or (4) the transfer of assets to the successor
is for the fraudulent purpose of escaping liability for the predecessor's
debts.
Here,
Cross-Complainant has outlined sufficient facts to show that Cross-Defendant 9th
Wonder could be held liable for Cross-Defendant The Phelps Groups obligations
under the lease, specifically that there may have been fraudulent purposes for
the transfer. Therefore, the Demurrer as to the first cause of action is
overruled.
Fifth Cause of Action – Fraud by
Misrepresentation & Concealment
“The
elements of fraud are (a) a misrepresentation (false representation,
concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c)
intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.”
(Hinesley v. Oakshade Town Ctr.
(2005) 135 Cal.App.4th 289, 294.) The facts constituting the alleged fraud must
be alleged factually and specifically as to every element of fraud, as the
policy of “liberal construction” of the pleadings will not ordinarily be
invoked. (Lazar v. Superior Court (1996)
12 Cal.4th 631, 645.)
To properly allege fraud against a corporation, the plaintiffs must plead the
names of the persons allegedly making the false 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.)
Cross-Defendant
argues that fraud is not plead with sufficient particularity in accordance with
Cal. Civ. Proc. Code § 430.10(e)
and (f). The Court
disagrees.
Cross-Complainant
alleges all the necessary elements with specificity. Specifically, to the fifth
cause of action, Cross-Complainant reincorporated paragraphs 1-44 into the
fifth cause of action, thereby alleging both Cross-Defendant 9th
Wonder and Cross-Defendant Fogarty and Klein Inc. (FAXC, ¶ 67). Both
misrepresentation and scienter are alleged when Cross-Complainant stated that
Cross-Defendant The Phelps Group was changing its business name from “The
Phelps Group to 9th Wonder”, and when Cross-Defendant did not
disclose the APA dated April 16, 2018. (FAXC, ¶ 16 & 19 respectively). The
intent to induce reliance stems from the alleged misrepresentations made
regarding Cross-Defendant’s financial status (FAXC, ¶ 27). Justifiable reliance
is alleged, and subsequent damages are alleged. (Ibid. at ¶27 and 29).
Cross-Defendants
additionally contend that the Cross-Complainant is time barred from bringing
this action pursuant to Code of Civil Procedure § 338(d). This section provides
that an action for relief based on fraud must be brought within three years of
discovery. Here, Cross-Defendant argues that the date of discovery is October
of 2018 based on the correspondence regarding the alleged transfer. (Demurrer,
11:21-26). The Court disagrees.
Cross-Complainant
argues that when it entered into the Second Amendment in December of 2020, it
was still unaware of the Advisory Agreement nor the alleged improper transfer.
(Opposition Papers, 15:17-18). Additionally, it was not until discovery that
Cross-Complainant found the fraud and amended its Cross-Complaint to reflect
the new information. (Opposition Papers, 16:12-14). The FAXC was filed on
October 24, 2022, well within any time limitation dictated by Code of Civil
Procedure § 338(d). The Demurrer with regard to the fifth cause of action is
overruled.
Sixth Cause of Action – Intentional
Interference with Contract
The
elements of a cause of action for intentional interference with contractual relations
are “(1) a valid contract between plaintiff and a third party; (2) defendant’s
knowledge of this contract; (3) defendant's intentional acts designed to induce
a breach or disruption of the contractual relationship; (4) actual breach or
disruption of the contractual relationship; and (5) resulting damage.” (I-CA Enterprises, Inc. v. Palram Americas,
Inc. (2015) 235 Cal.App.4th 257, 289.)
Cross-Complainant
alleges sufficient facts to state a cause of action for intentional
interference with a contract. The contract between Cross-Defendants The Phelps
Group and 9th Wonder was a valid contract. The allegations against
both Cross-Defendant The Phelps Group and 9th Wonder are re-alleged
against Cross-Defendant Fogarty and Klein Inc. as the parent company of
Cross-Defendant The Phelps Group and 9th Wonder, including knowledge
of the contract. (FAXC, ¶ 76. Also see FAXC ¶ 78 stating that “Fogarty knew of
the Lease because, pursuant to Section 2.2(c) of the APA, Fogarty agreed to
“reimburse” Guarantor for any money that Guarantor pays to Landlord “under the
Lease pursuant to the terms of his personal guaranty.”). Cross-Complainant
argues element three when they alleged the execution of the APA without
Cross-Complainant’s knowledge. (FAXC, ¶ 79). The fourth element lies in the
allegation that the APA made no room for Cross-Defendants The Phelps Group and
9th Wonder to meet its obligations under the lease. (FAXC, ¶ 19).
Finally, Cross-Complainant alleges damages.
The
Cross-Defendants alternative argument on Demurrer is that a party to the
contract cannot be charged with intentional interference of said contract,
citing Applied Equip. Corp. v. Litton
Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515. It is true that if, as
alleged, the Cross-Defendants have committed breach of the lease, they cannot
also commit intentional interference with the contract. However, California has
long recognized that “the plaintiff remains free to allege any and all
‘inconsistent counts’ that a reasonably attorney would find legally tenable on
the basis of the facts known to the plaintiff at the time. (Crowley v. Katleman,
(1997), 8 Cal.4th 666, at 691). Here, Cross-Claimant does just that.
Accordingly, the Demurrer is overruled as to the sixth cause of action.
Conclusion for Demurrer
For the
forgoing reasons, Cross-Defendants 9th Wonder-Los Angeles, LLC and
Fogarty & Klein, Inc’s Demurrer is OVERRULED in its entirety.