Judge: Mark A. Young, Case: 23SMCV01909, Date: 2023-12-05 Tentative Ruling
Case Number: 23SMCV01909 Hearing Date: March 20, 2024 Dept: M
CASE NAME: Bazaar Chic
Inc. v. Elavon Inc., et al.
CASE NO.: 23SMCV01909
MOTION: Demurrer
to the First Amended Complaint
HEARING DATE: 3/20/2024
Legal
Standard
A
demurrer for sufficiency tests whether the complaint states a cause of action.
(Hahn v. Mirda (2007)
147 Cal.App.4th 740, 747.) When considering demurrers, courts read the
allegations liberally and in context. In a demurrer proceeding, the defects
must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968, 994.) A demurrer tests the pleadings alone and not
the evidence or other extrinsic matters. Therefore, it lies only where the
defects appear on the face of the pleading or are judicially noticed. (CCP §§
430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate
facts sufficient to apprise the defendant of the factual basis for the claim
against him. (Semole v. Sansoucie
(1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit
contentions, deductions or conclusions of fact or law alleged in the pleading,
or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen
(1964) 226 Cal.App.2d 725, 732, internal citations omitted.)
A
special demurrer for uncertainty is disfavored and will only be sustained where
the pleading is so bad that defendant cannot reasonably respond—i.e., cannot
reasonably determine what issues must be admitted or denied, or what counts or
claims are directed against him/her. (CCP § 430.10(f); Khoury v. Maly’s
of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if
the pleading is somewhat vague, “ambiguities can be clarified under modern
discovery procedures.” (Ibid.)
“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.)
Analysis
Defendants Elavon, Inc. and U.S.
Bancorp demur to each cause of action alleged by Plaintiff Bazaar Chic, Inc. in
their First Amended Complaint (FAC). The FAC alleges eight causes of action for
intentional misrepresentation, concealment, negligent misrepresentation, breach
of contract, breach of implied covenant of good faith and fair dealing,
intentional interference with contractual relations, unjust enrichment, and
unfair business practices.
Fraud/Negligent Misrepresentation
The Court previously sustained
Defendants’ demurrer to the fraud based causes of action for failure to meet
the heightened pleading standard of fraud, and for failing to allege an
actionable misrepresentation. The
elements of fraud are: “(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.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) Intentional
misrepresentation requires the defendant to represent a material fact as true
when it is actually false and the defendant knew the representation was false
when the defendant made it, or the defendant made the representation recklessly
and without regard for its truth. (Manderville v. PCG & S Group, Inc.
(2007) 146 Cal.App.4th 1486, 1498.) Negligent misrepresentation requires the
defendant to make false statements believing them to be true, but without
reasonable ground for such belief. (Bily v. Arthur Young & Co.
(1992) 3 Cal.4th 370, 407.)
In California, fraud, including
negligent misrepresentation, must be pled with specificity. (Small v. Fritz
Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands
that a plaintiff plead facts which show how, when, where, to whom, and by what
means the representations were tendered.” (Cansino v. Bank of America
(2014) 224 Cal.App.4th 1462, 1469.)
Generally, expressions of future
events are treated as non-actionable opinions, and thus are not grounds for a
misrepresentation cause of action. (See Neu-Visions Sports v. Soren
(2000) 86 Cal.App.4th 303, 308 [representations of value are opinions].) To be
actionable, a misrepresentation must ordinarily be as to past or existing
material facts. (Tarmann v. State Farm Mutual Automobile Insurance Co.
(1991) 2 Cal.App.4th 153, 158 ["predictions as to future events, or
statements as to future action by some third party, are deemed opinions, and
not actionable fraud"]; see also Magpali v. Farmers Group, Inc.
(1996) 48 Cal.App.4th 471, 481 [a promise of future conduct is actionable if it
is made without a present intent to perform].)
This dispute arises from the fraudulent purchase of several watches from
Plaintiff. On June 18, 2022, a customer purchased three watches from
Plaintiff, each a separate transaction, totaling $77,500, comprising a Rolex
Datejust II S/G w/ Black Dial Ref. 126333, Serial # 9X7625Q2 for $14,500, a
Rolex Datejust II SS Ref. 116334, Serial # V799281 for $13,000; and a Rolex
President II 18KYG, Black Dial Ref. 218238, Serial #M946410 for $50,000. (FAC ¶
18.) The customer provided an American Express (“AmEx”) credit card with an EMV
chip. (Id.) The EMV chip in credit cards generates a unique transaction code
for each purchase, increasing security. (¶¶ 19, 21.)
In support of their fraud-based
claims against Defendants, Plaintiff relies on certain representations by
Defendant Kang on behalf of Bancorp/Elavon. On June 21, 2022, Plaintiff
received an email from Helen R. Helton, Fraud Operations Analyst of Bancorp
d.b.a. U.S. Bank advising Plaintiff about potential fraud and requesting more
details about the three transactions. (FAC ¶ 22, Ex. E.) Plaintiff reached out
to its contact at Bancorp, Defendant Kang, forwarding her Ms. Helton’s message.
(¶ 23.) In response, Kang instructed Plaintiff to provide the requested
details. (Id., Ex. F.) On June 28, 2022, Kang “guided Plaintiff to agree to
process a refund to the cardholder, outside of the chargeback process described
in the Payment Network Regulations.” (¶ 24.) According to Kang, “if Plaintiff
insisted on its right to the chargeback process, it would lose its ‘good
standing’ with Defendant Elavon and would be unable to process credit cards
until such time as the matter is resolved.” (Id.) “Kang represented to
Plaintiff that once the refund was completed, the funds would no longer be ‘on
hold in the cloud,’ but rather released to American Express. Once the money was
no longer ‘on hold in the cloud,’ banker Kang explained, American Express would
then, based on her experience, process a refund of the funds to Plaintiff,
which was guiltless in the matter.” (Id.) According to the FAC, Kang twice confidently
confirmed with Plaintiff that once the refund was processed, Plaintiff would be
reimbursed for the purchase price of the three watches in the amount of
$77,500. (Id.) Kang reassured Plaintiff with “supreme confidence” of someone
who knew how to navigate this process that “Plaintiff would be reimbursed for
the chargeback amount of $77,500.” (Id.) Plaintiff processed the refund as
directed by Kang only because of this high degree of confidence. (Id.)
Defendants Elevon and Bancorp,
through common personnel including Defendant Kang, represented to Plaintiff
that a refund processed outside of the usual chargeback procedures would be
beneficial to Plaintiff and allow it to receive the funds for the three
transactions. (FAC ¶ 36.) Specifically, these Defendants stated that once
Plaintiff processed the refund, the funds would be released to Defendant
American Express, and it would receive a reimbursement of the funds from
Defendant American Express. (Id.)
As with the prior demurrer, Kang’s
statements should generally be interpreted as predictions about how
American Express, an alleged third party, would process Plaintiff's refund
request if Plaintiff consented to the chargeback request. This is a prediction
of a future event that Kang (or Elavon/BanCorp) had no alleged control over. The
FAC attempts to allege Kang’s opinions as assertions of fact based on Kang’s
expertise and specific assurances.
Opinions may be treated as
statements of material facts under certain scenarios. (Cohen Cohen v. S
& S Const. Co. (1983) 151 Cal.App.3d 941, 946; Bily v. Arthur Young
& Co. (1992) 3 Cal.4th 370, 408.) For instance, a speaker's opinions
are actionable where the speaker holds himself or herself out as having
superior knowledge or expertise, such in the case of a fiduciary agent or
healthcare professional. (Nelson v.
Gaunt (1981) 125 Cal.App.3d
623, 635-636.) Further, where a party affirms a prediction as to future
events as an existing material fact, such as where a party implies knowledge of
facts that make the prediction probable, the otherwise non-actionable opinion
becomes actionable. (Cicone v. URS Corp. (1986) 183 Cal.App.3d 194,
202-203.) “When a statement, although in the form of an opinion, is ‘not a
casual expression of belief’ but ‘a deliberate affirmation of the matters
stated,’ it may be regarded as a positive assertion of fact. [Citation.]
Moreover, when a party possesses or holds itself out as possessing superior
knowledge or special information or expertise regarding the subject matter and
a plaintiff is so situated that it may reasonably rely on such supposed
knowledge, information, or expertise, the defendant's representation may be
treated as one of material fact. [Citations.]” (Bily, supra, 3 Cal.4th
at 408 [auditor’s professional opinions treated as representations of fact];
see also Gagne v. Bertran (1954) 43 Cal. 2d 481, 484 [test hole driller
liable for negligence or deceit where he held himself out as an expert,
plaintiffs hired him to supply information concerning matters of which they
were ignorant, and after examining samples from test holes, he made unequivocal
statements that the fill was only 12 to 16 inches in depth which necessarily
implied that he knew facts that justified such statement]; Jolley v. Chase
Home Finance, LLC (2013) 213 Cal.App.4th 872, 893, 153 C.R.3d 546 [whether
borrower was justified in relying on statements by bank employee that it was
highly probable that loan modification would be approved was question of fact where
employee stated that he was from bank's “executives offices”].) Whether a
statement is nonactionable opinion or actionable misrepresentation of fact
requires a factual determination generally beyond the scope of a demurrer. (Furla
v. Jon Douglas Co. (1998) 65 Cal.App.4th 1069, 1081.)
Here, Plaintiff
alleges that it has been banking with Defendant US bank since April 2020 for
credit card processing needs. (FAC ¶16.) During that time, Defendant Kang
represented that she was Plaintiff’s point of contact for all credit card
processing matters, and consistently held herself out to Plaintiff as a
knowledgeable and trusted banker and problem-solver. (FAC ¶ 17.) Plaintiff
alleges that Kang possessed a superior knowledge, expertise and special
information on the credit and chargeback processes involved herein. (¶ 24.) Defendant
Kang expressly stated with “confidence” that once the money was no longer “on
hold in the cloud,” then, “based on her experience,” American Express would
process a refund of the funds to Plaintiff and reimburse the purchase price. Kang
allegedly “reassured” Plaintiff with “supreme confidence” that she was someone
who knew how to navigate this process that “Plaintiff would be reimbursed for
the chargeback amount of $77,500.” (Id.) Thus, Kang allegedly held herself out
as an expert on the subject, and as having superior or unique information on
the process that would make the prediction probable. Kang allegedly provided
these assurances not with a casual expression of belief, but with an alleged
deliberate affirmation of the matters stated. Under such circumstances, it
would be a question of fact whether the statements are non-actionable opinions
or misrepresentations of fact, or whether it was reasonable for Plaintiff to
rely on these alleged representations.
Accordingly, the demurrer to the
fraud and negligent misrepresentation claims is OVERRULED.
Concealment
Defendants object to the
concealment cause of action on the grounds that Kang did not allegedly have a
fiduciary relationship with Plaintiff. To allege a cause of action for concealment, a
plaintiff must allege that defendant was under a legal duty to disclose the
material facts. (OCM Principal Opportunities Fund v. CIBC World Markets
Corp. (2007) 157 Cal.App.4th 835, 845.) A duty to disclose may arise when: (1)
there is a fiduciary relationship between the parties; (2) the defendant had
exclusive knowledge of material facts not known to the plaintiff; (3) the
defendant actively conceals a material fact from the plaintiff; and (4) the
defendant makes partial representations but also suppresses some material
facts. (Los Angeles Memorial Coliseum Commission v. Insomniac, Inc.
(2015) 233 Cal.App.4th 803, 831.)
Here, the FAC alleges that Kang concealed
certain material facts: (a) the
chargeback dispute fees are negligible compared to losing the ability to
recover $77,500; (b) Elavon would benefit from Plaintiff’s “good standing” and
continued ability to continue to process credit cards with them by charging
Plaintiff a percentage fee for each transaction; (c) by consenting to the
refund outside of the usual chargeback procedures, Plaintiff would lose the
ability to prevail in the chargeback dispute and to have the funds deposited
into Plaintiffs account. (FAC ¶ 44.)
Plaintiff cites no case law which
suggests a fiduciary relationship exists with the moving Defendants. Further,
Plaintiff fails to establish how the first two material facts could be
exclusively known by Defendant Kang. Plaintiff would presumably have access to
any chargeback dispute fees per its own contract with American Express. Thus,
Kang could not have concealed this fact. Similarly, Plaintiff must have known
that Elavon would “benefit” from continuing to process credit cards with
Plaintiff, since Plaintiff must have been aware that they charge fees for their
credit card services. Therefore, the first two cited material facts could not
support the concealment cause of action.
That said, the third material fact,
that Plaintiff would lose the ability to recover the funds, could be concealed
by Kang. Kang allegedly misrepresented this precise fact by assuring that
Plaintiff would recover the funds if it did not contest the
chargeback. A fact finder could conclude that Kang either actively concealed
this material fact by stating the opposite was true, or that Kang only provided
partial representations of material fact.
Accordingly, the demurrer to the concealment
claim is OVERRULED.
Contract-based Claims
Elavon demurs to the breach of
contract and implied covenant claims arguing that it did not breach the
agreement because it did not control Defendant Kang or American Express, and
that there are no specific allegations of breach.
“The standard elements of a claim
for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or
excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff
therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164
Cal.App.4th 1171, 1178.) All contracts impose upon each party an implied duty
of good faith and fair dealing as part of its performance and its enforcement.
(Foley v. Interactive Data Corporation (1988) 47 Cal.3d 654, 683.) Under
the implied covenant, each contracting party must “refrain from doing anything
to injure the right of the other to receive the agreement’s benefits.” (Jordan
v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1072.) In sum, the
implied covenant fills in gaps in contracts in order to effectuate the
intentions of parties and prevent a contracting party from engaging in conduct
which, while not technically transgressing the express covenants, frustrates
the other party’s rights to the benefits of the contract. (Racine &
Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th
1026, 1031-1032.) Consequently, a breach of the covenant of good faith and fair
dealing is treated as a breach of the underlying contract. (Careau & Co.
v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371,
1393.)
Plaintiff relies on the terms of a merchant
agreement between itself and Elavon, as well as certain “regulations” promulgated
by American Express. The FAC contends that “[p]ursuant to regulation, once a
merchant upgrades its credit card terminal, the risk of a fraudulent
transaction passes to the card issuer, and the merchant is to be relieved of
liability for fraudulent transactions that the processor permitted to pass
through. By contrast, regulation shifts liability for fraudulent transactions
to merchants who fail to upgrade their systems and/or to comply with particular
steps during the card transaction process. As this chip technology is not
fraud-proof, some fraudulent transactions get through unnoticed in real time.”
(FAC ¶ 19.) The FAC further states that Elavon “commits in its standard
merchant agreement known as its ‘Terms of Service’ at Section 8.1 to comply
with “all Laws and Payment Network Regulations applicable to the selected
Services.’” (¶ 20.) The Payment Network Regulations with respect to American
Express card transactions are the “Merchant Regulations – US” issued by
American Express, which provide for the rules regulating chargebacks to the
merchant. (Id.) The FAC contends that section 11.6 of the Merchant Regulations
provides that “a merchant who has upgraded its credit card processing terminal
to one with a chip reader, and who follows the card transaction steps, will be
relieved from liability for a fraudulent transaction that, despite these fraud
prevention efforts, nevertheless gets through and is processed for payment in
real time.” (Id., Exs. A-B.)
The FAC alleges that Elavon
breached their merchant agreement by not complying with the Payment Network
Regulations as issued by American Express under the title “Merchant Regulations
– US.” Specifically, the regulations addressing when liability shifts to permit
chargeback to the cardholder. (FAC ¶ 64.) Elavon further breached the merchant
agreement by threatening termination of the contract and urging of Plaintiff to
not engage in or to continue with the chargeback dispute process guaranteed to
merchants. (¶ 71.) By inducing Plaintiff to not engage in the chargeback
dispute process, Elavon allegedly deprived Plaintiff of its right under the
merchant agreement to receive and keep the funds from the fraudulent
transactions. (¶ 72.)
First, Elavon incorrectly asserts
that Kang was not their agent. The FAC alleges that Kang was an agent of
Elavon. (FAC ¶ 12.) The FAC alleges that Kang initially contacted Plaintiff to
convince Plaintiff to use the in-house credit card processing services of
Elavon. (¶ 17.) Kang represented herself as Plaintiff’s point of contact for
credit card processing by Elavon. (Id.) Plaintiff switched to Elavon for
processing because of Kang’s representations. (Id.) Kang worked with Helton
from Bancorp on the fraud dispute. (¶¶ 22-24.) Plaintiff alleges, as a matter
of fact, that Kang made the above-discussed misrepresentation specifically on
behalf of “Elavon and U.S. Bank.” (¶¶ 32-33.) Thus, Kang’s actions may be
fairly attributed to Elavon at the pleading stage.
That said, Plaintiff does not
demonstrate that Elavon breached the merchant agreement or American Express’
Merchant Regulations through Kang’s acts. Plaintiff cites no express terms in
either the merchant agreement or the regulations that Elavon breached. Plaintiff
cites generally section 11.6 of the Merchant Regulations, but after a review of
the cited section, there are no terms which state that if Plaintiff had a
credit card processing terminal with a chip reader, and that they otherwise
followed the guidelines, Plaintiff would be “relieved from liability for a
fraudulent transaction” and therefore be entitled to the disputed funds. (SAC
Exs. A-B.) notably, in opposition, Plaintiff only generally cites section 11
without any increased specificity.
At best, Plaintiff cites to an
implied term that Elavon would not interfere with Plaintiff’s right to receive
and keep the funds from the fraudulent transactions under certain
circumstances. However, Plaintiff does not allege sufficient facts that it actually
had any right to receive and keep the funds. Plaintiff only offers the mere
conclusion that it had such a right, without any support from specific language
in the cited agreements. (See FAC ¶¶ 19-20.) Without such support, Plaintiff’s
bare conclusions of a contractual duty and breach of said duty are
insufficient.
Accordingly, the demurrer is
SUSTAINED with leave to amend.
Intentional Interference with Contractual Relations
To prevail on a cause of action for
intentional interference with contractual relations, a plaintiff must plead and
prove (1) the existence of a valid contract between the plaintiff and a third
party; (2) the defendant's knowledge of that contract; (3) the 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. (Pacific Gas & Electric Co. v. Bear Stearns
& Co. (1990) 50 Cal.3d 1118, 1126.)
As discussed, Plaintiff does not
allege that it was deprived of the benefits of any contract or that any party
breached any contract. In fact, the allegations suggest that there has been no
disruption of any contractual relationship. (See FAC ¶ 32 [plaintiff’s contract
with Elavon remains in “good standing”].) Plaintiff therefore fails to allege sufficient
facts showing Bancorp induced any breach or disruption of any contractual
relationship.
Accordingly, the demurrer is
SUSTAINED with leave to amend.
Plaintiff has ten days to file an
amended complaint consistent with this ruling.