TENTATIVE RULING

Defendant Brian Freeman’s Demurrer to First Amended Complaint is OVERRULED.

Defendant Brian Freeman shall file and serve an answer to Plaintiff Lighter Capital, Inc.’s First Amended Complaint within ten (10) days of entry of this order. (Cal. Rules of Court, rule 3.1320(j).)

Defendant Brian Freeman to give notice. 

REASONING

“[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 (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967), but the Court does not “assume the truth of contentions, deductions, or conclusions of fact or law” (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125).

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”]; Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 [“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”]; Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768 [“When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.”].) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

First Cause of Action: Breach of Contract/Monies Due

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.)

Plaintiff Lighter Capital, Inc. (“Plaintiff”) alleges that Defendant Heartbeat Technologies, Inc. (“Heartbeat”) is indebted to Plaintiff under the terms of a loan agreement. (First Am. Compl. (“FAC”) ¶ 82.) Plaintiff further alleges that Defendant Brian Freeman (“Defendant”) induced Plaintiff to enter into this agreement based on material misstatements, and he is liable as an alter ego of Heartbeat. (FAC ¶¶ 84-85.) Defendant demurs to this claim on the ground that Plaintiff has not sufficiently pled Defendant is an alter ego of Heartbeat.

“Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) “A corporate identity may be disregarded—the ‘corporate veil’ pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.” (Ibid.) “The alter ego doctrine exists to prevent “individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds.” (Ibid.)

Plaintiff alleges that Defendant controlled the business affairs of Heartbeat, had financial say over Heartbeat’s affairs, oversaw loans from Heartbeat to third parties and Defendant Genoveva Winsen, and oversaw and executed loan documents from Plaintiff to Heartbeat. (FAC ¶ 26.) Plaintiff also alleges that Heartbeat was undercapitalized, and Defendant directed the diversion of company assets to Defendant Winsen and third parties. (FAC ¶¶ 68, 70.) The Court finds that Plaintiff has sufficiently pled a theory of alter ego, such that Plaintiff has properly pled a claim for breach of contract against Defendant. Accordingly, Defendant’s demurrer to the first cause of action is OVERRULED.

Second Cause of Action: Fraudulent Inducement and Third Cause of Action: Negligent Misrepresentation

“The elements of fraud,” including a cause of action for fraudulent inducement, “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 elements of a cause of action for negligent misrepresentation include “[m]isrepresentation of a past or existing material fact, without reasonable ground for believing it to be true, and with intent to induce another’s reliance on the fact misrepresented; ignorance of the truth and justifiable reliance on the misrepresentation by the party to whom it was directed; and resulting damage.” (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154, quotation marks omitted.) 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.)

As the Court previously stated in its prior ruling on demurrer, neither the second nor third causes of action have any specific statements alleged in the body of the cause of action. Plaintiff alleges that Defendant signed a Compliance Certificate certifying that all representations therein were true and correct, but Defendant omitted certain debts to Defendant Winsen and a third party, and he failed to disclose anticipated drops in revenue. (FAC ¶¶ 103-106.) While the statements are not direct quotes, the allegations sufficiently put Defendant on notice of the nature of the purported fraudulent statements, i.e., he failed to disclose certain information in the Compliance Certification, and this in turn induced Plaintiff to fund the loan. The Court finds that Plaintiff has sufficiently pled claims for fraudulent inducement and negligent misrepresentation. Thus, Defendant’s demurrer to the second and third causes of action is OVERRULED.