Judge: Mark A. Young, Case: 22SMCV00385, Date: 2023-01-05 Tentative Ruling

Case Number: 22SMCV00385    Hearing Date: January 5, 2023    Dept: M

CASE NAME:           Secured Investments and Holdings Co. Inc. v. Action Property Management, et al.

CASE NO.:                22SMCV00385

MOTION:                  Motion to Strike

HEARING DATE:   1/5/2022

BACKGROUND

On July 21, 2022, Plaintiff filed the operative Second Amended Complaint (SAC), which alleges causes of action for breach of express and implied covenants, actual and constructive Fraud, gross negligence, writ of mandate, declaratory/injunctive relief, and breach of a third-party beneficiary contract.  On August 18, 2022, Defendants Stephen Smith, Azzurra Homeowners' Association, and Action Property Management, Inc., Harold Sledge, David Robinson, Alexander Drazdov, Brooke Goldstein, Blake Taylor, Jeremy Helfand, Diane Cooper, Steven Brill and Stephen Smith (collectively, “Defendants”) moved to strike the SAC’s allegations of an entitlement to an award of punitive damages. Plaintiff filed an opposition to the motion.

Plaintiff also brings a motion for monetary sanctions. Plaintiff seeks monetary sanctions against defense counsel Christopher Nissen, David Goldberg and Wilson, Elser, Moskowitz, Edelman & Dicker LLP pursuant to Code of Civil Procedure section 128.7, based on the motion to strike. Defendants opposes the request.

Legal Standard

            Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof. (CCP § 435(b)(1); Cal. Rules of Court, Rule 3.1322(b).) The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (CCP §§ 436(a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading which is not essential to the claim is surplusage; probative facts are surplusage and may be stricken out or disregarded”].)

            In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code Section 3294. (Coll. Hosp., Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice. (Civ. Code § 3294 (a).)

            “In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff. [Citations.] In passing on the correctness of a ruling on a motion to strike, judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth. [Citations.] In ruling on a motion to strike, courts do not read allegations in isolation. [Citation.]” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) “The mere allegation an intentional tort was committed is not sufficient to warrant an award of punitive damages. [Citation.] Not only must there be circumstances of oppression, fraud or malice, but facts must be alleged in the pleading to support such a claim. [Citation.]” (Grieves v. Superior Ct. (1984) 157 Cal.App.3d 159, 166, fn. omitted.)

            “Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.” (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.) It is an abuse of discretion for the court to deny leave to amend where there is any reasonable possibility that plaintiff can state a good cause of action. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on plaintiff to show in what manner plaintiff can amend the complaint, and how that amendment will change the legal effect of the pleading. (Id.)

MEET AND CONFER

Before filing a demurrer or motion to strike, the moving party must meet and confer in person or by telephone with the party who filed the pleading to attempt to reach an agreement that would resolve the objections to the pleading. (CCP §§ 430.41, 435.5.) Counsel’s declaration regarding correspondence exchanged between the parties does not satisfy Code of Civil Procedure § 430.41(a)’s requirement that the parties meet and confer in person or by telephone. (Goldberg Decl. ¶¶ 2-4.) On this occasion, the Court will proceed to address the merits of the demurrer despite the insufficiency of the meet and confer. The Court cautions the parties that a code-compliant meet and confer effort is required for each demurrer and motion to strike on subsequent pleadings.

Analysis

Motion to Strike - Punitive Damages

Plaintiff has not pled sufficient facts to support a claim of punitive damages under Civil Code section 3294(c). As used in that section, the following definitions apply:

(1) “Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

(2) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.

(3) “Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

The SAC fails to allege any specific conduct by Defendants that could be construed to be oppressive, fraudulent, or malicious, as defined above. In fact, the SAC does not even contain express statements of oppression, fraud or malice, let alone facts establishing such conduct. The SAC claims punitive damages based on scant references to the individual board member’s alleged concealment that they (1) either should have applied for PPP loans, or (2) that they did so and failed to credit the homeowners’ association or its members. (SAC ¶46.) Any claim of punitive damages fails because the SAC does not establish a duty to disclose running to Plaintiff.  Moreover, mere negligence, even gross negligence, is not sufficient to justify an award of punitive damages. (Kendall Yacht Corp., 50 Cal.App.3d at 958.) 

“To establish fraud through nondisclosure or concealment of facts, it is necessary to show the defendant ‘was under a legal duty to disclose them.’ [Citation.]” (OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 845.) There are several scenarios “in which nondisclosure or concealment may constitute actionable fraud [including]: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. [Citation.]” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336.) 

First, Plaintiff fails to plead any duty running to it as a member of the Azzurra Homeowners Association. Generally, the SAC claims that the individual defendants “did absolutely nothing” to secure the PPP funding that could have, and should have, either “reduced each member’s monthly dues by the amount attributable to Azzurra staff compensation and/or reimbursed each such member by that amount.” (SAC ¶ 6.) Plaintiff alleges that under the Management Agreement, Action was to act as Defendant Azzurra Homeowners' Association’s “exclusive” managing agent. (SAC ¶¶ 6, 20.) The Azzurra staff were employees/agents of both Azzurra and Action. (SAC ¶¶ 22-23.) Action allegedly had an affirmative duty as the HOA’s “exclusive managing agent” to disclose to Azzurra regarding PPP loans made to support the Azzurra staff. (SAC ¶46.) As a result, the HOA (or its members) did not receive the PPP funds. (SAC ¶47.)

In essence, the SAC alleges that Action failed to perform its duties as the “exclusive managing agent” because Action either failed to apply for PPP funds on behalf of the HOA, or it did, and it failed to give credit to the HOA (or its members) for PPP funds it received. (SAC ¶ 25.) Under such circumstances, there may have been a duty between Azzurra and Action, but Plaintiff does not elaborate on any duty to disclose anything regarding the PPP loans to Plaintiff as a member. As expressed by the SAC, the only duty to disclose would be stated as to the HOA, which is separate and distinct from its members.  Furthermore, Plaintiff fails to explain why Azzurra receiving PPP funds would reduce the homeowner association members’ dues under the cited agreements. The SAC claims that Action failed to pay over such PPP funds to the Azzurra Homeowners' Association or its members, “as it had a duty to do.” (SAC ¶ 29.) But, even if they had such a duty, there is no allegations or information presented linking that duty with a reduction in Plaintiff’s dues.  To the extent Plaintiff amends the complaint, this issue must be addressed.

The SAC also fails to plead facts which show that Defendants had the necessary knowledge and intent. Plaintiff only generally claims that certain board members were aware of the PPP programs. (See, e.g., SAC ¶ 25.) Plaintiff does not allege that Defendants intended to deprive anyone of property or otherwise cause injury.  Accordingly, Defendants’ motion is GRANTED with TEN days leave to amend.

SANCTIONS

Plaintiff moves for $24,000.00 in monetary sanctions against defense counsel for their submission of the above discussed Motion to Strike pursuant to Code of Civil Procedure section 128.7.  As discussed above, the motion to strike had merit. Therefore, the sanctions motion is without merit and the motion is DENIED.

The Court will also address the issue of civility – or rather, the lack of civility found in Plaintiff’s filings and correspondence, and to a much lesser extent, Defendants’ response.  The Los Angeles Superior Court Civility Guidelines, Appendix 3.A of Local Rules, states in pertinent part “Counsel should always deal with parties, counsel, witnesses, jurors or prospective jurors, court personnel and the judge with courtesy and civility.”  While “[z]eal and vigor in the representation of clients are commendable. So are civility, courtesy, and cooperation. They are not mutually exclusive.” (In re Marriage of Davenport (2011) 194 Cal.App.4th 1507, 1537.)