Judge: Mark A. Young, Case: 24SMCV04042, Date: 2025-05-20 Tentative Ruling

Case Number: 24SMCV04042    Hearing Date: May 20, 2025    Dept: M

CASE NAME:             Cohen, et al., v. Progress Rail Service Corp., et al. 

CASE NO.:                24SMCV04042

MOTION:                     Demurrer to the First Amended Complaint  

HEARING DATE:   5/16/2025

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.) 

“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 

Defendant Progress Rail Services Corp. demurs to Plaintiff David Cohen’s First Amended Complaint’s (FAC) first cause of action for breach of contract, second cause of action for intentional interference with contract, and third cause of action for accounting.

Defendant’s request for judicial notice is GRANTED. (Evid. Code §452(c), (d).)

In addition, there is a procedural issue that must be corrected by Plaintiff.  Plaintiff did not file the FAC in state court, but solely in federal district court where the case had been removed.  While Defendant provides a copy with its request for judicial notice, Plaintiff must file the FAC with this court by May 21, 2025.

Breach of Contract

To allege a breach of contract, a plaintiff must plead the contract, plaintiff’s performance or excuse for non-performance, defendant’s breach, and damage to plaintiff therefrom. (Acoustics, Inc. v. Trepte Constr. Co. (1971) 14 Cal.App.3d 887, 913.) A pleader’s legal characterization of a contract is not controlling, particularly when the contract is attached to the pleading. (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1314, citing Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.) However, courts will defer to plaintiffs’ reasonable interpretations. (Performance Plastering v. Richmond American Homes of Cal., Inc.¿(2007) 153 Cal.App.4th 659, 672.)

By way of background, the FAC alleges Plaintiff alleges that in 2022, he formed PG LLC with three others with the intent to manufacture, market, and sell “recycled plastic railroad tie products.” (FAC, ¶¶ 3, 7.) As part of the deal to form PG LLC, Pioonier International assigned certain U.S. patent rights to PG LLC. (¶ 9, Ex. A, Schedule B.) Between October 2022 and January 2024, Plaintiff was doing exemplary work for PG LLC. (FAC ¶¶ 10-12.) Despite this, in January 2024. the other members of PG LLC voted to remove Plaintiff as a Managing Member of the LLC. (¶¶ 13-14, Ex. B.) Plaintiff alleges that his co-owners were part of a conspiracy between the other co-owners to benefit from Plaintiff’s investment. (¶¶ 13-15.) Defendant, an Alabama corporation and wholly-owned subsidiary of Caterpillar Inc., was on the “cusp” of becoming a lucrative customer of PG LLC. (FAC, ¶¶ 2, 17.)

On April 25, 2023, prior to Plaintiff’s unlawful removal, PG LLC entered into a “Confidentiality and Nondisclosure Agreement” (the “NDA”) with Defendant. (FAC ¶16.) This NDA was the result of Plaintiff’s “tireless efforts” in developing the PG brand. (Id.) The NDA includes various provisions about use of certain Confidential Information. (FAC, Ex. C.) Defendant agreed to keep all such information supplied to it by PG LLC in complete confidence and to not use it any purpose other than “to assist the undersigned in its consideration of the transaction with [PG LLC].” (FAC ¶ 18.) In addition, the NDA provides that Defendant agreed “that it shall not directly or indirectly through or with any Affiliate, partnership or other person or entity, intentionally interfere with Company’s contractual rights with its employees, contractors, partners and customers.” (id.) The NDA’s definition of “Confidential Information” is broad, and included, among other things:  • All information relating to the Company, its assets, its business, its operations, and related information; • The identity of the Company and its affiliates; • The financial terms of contemplated transactions; and • Information relating to PG LLC’s railroad tie products. (¶19.) Defendant became privy to “Confidential Information” under the NDA, such as information on “innovative railroad ties” which would have never have been divulged without a written, signed, NDA. (¶ 20.)

Defendant first raises a condition precedent. Defendant argues that Plaintiff has not alleged that Defendant “finalized a business deal” with PG LLC. Defendant cites the following terms:

Unless and until a definitive agreement with respect to the transaction has been executed and delivered by the undersigned and Company, no party will be under any obligation of any kind whatsoever with respect to the transaction by virtue of this Agreement or any written or oral expression with respect to the transaction except, in the case of this Agreement, for matters specifically agreed to herein. In addition (but subject to the preceding sentence), each party expressly reserves the right, in its sole discretion, to modify, withdraw or reject any or all expressions of interest or offers regarding the transaction or terminate discussions with the other at any time with or without notice.

(FAC, Ex. C., emphasis added.) Defendant contends that there was no obligation to finalize the business transaction. However, the highlighted language shows that there was no condition precedent for the NDA’s own terms to be binding, including the terms regarding Confidential Information. Therefore, the FAC does not have to plead that a deal was finalized between Progress Rail and PG LLC in order to sue under the NDA’s own terms.

Defendant also argues that Plaintiff lacks standing because there was no motivating purpose to confer a benefit upon Plaintiff. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 829–30.) The FAC establishes both derivative standing and Plaintiff’s direct standing as a third-party beneficiary. Plaintiff is a third-party beneficiary of the NDA because it expressly confers “Affiliate” status on Plaintiff (and others), “Confidential Information” includes information that relates to Affiliates such as Plaintiff, and it prohibits Defendant from interfering with PG LLC’s relationship with employees and partners of PG LLC, including Plaintiff. (¶21.) The interference prohibition confers a direct benefit to an identifiable class of persons (Affiliates) which includes Plaintiff. Plaintiff could therefore plead a direct claim of breach of contract as a third-party beneficiary of the NDA’s interference terms. Thus, Plaintiff is a third-party beneficiary for pleading purposes.

The Court concurs with Defendant that the FAC fails to sufficiently allege breach. As to breach, the FAC specifically alleges Defendant “breached the terms of the NDA by attempting to enter into transactions for the purchase and sale of PG LLC products with PIOONIER INTERNATIONAL, thereby interfering with PG LLC’s contractual rights with its erstwhile partner, the Plaintiff herein. It would be impossible, as a practical matter, for Progress Rail to enter into any such transaction without using the Confidential Information that is subject to the NDA.” (FAC ¶ 22.) The remaining allegations only refer to Defendant’s above conduct as the breach of contract. (See FAC ¶¶ 27, 34-35.) However, “attempting” to enter into transactions for the purchase and sale of PG goods with Pioonier does not violate any of the express terms of the NDA. The FAC does not explain how this act substantially interfered with PG LLC’s contract rights (or any of Plaintiff’s individual rights). The FAC does not factually state Defendant used Confidential Information, only that it would be impossible “as a practical matter” for Defendant to not have used Confidential Information. Instead of alleging theoretical circumstances, Plaintiff must allege that Defendant used Confidential Information in violation of the NDA to state a breach of contract claim.

Accordingly, the demurrer is SUSTAINED with leave to amend.

Intentional Interference with Contract

A stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.) 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. (Id.) To establish the claim, the plaintiff need not prove that a defendant acted with the primary purpose of disrupting the contract, but must show the defendant's knowledge that the interference was certain or substantially certain to occur as a result of his or her action. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 56.)

The FAC does not allege sufficient facts to support the elements of valid contracts between third parties, defendant’s knowledge of said contracts, or the facts of Defendant’s intentional disruption. Plaintiff vaguely alleges that Defendant’s “intentional actions” interfered with PG LLC's ability to enter into contracts with “other potential purchasers of its railroad ties products”, “its contract with PIOONIER”, and the “contract between Plaintiff and PG LLC”. (FAC ¶ 32.) The FAC does not establish what intentional actions interfered with the alleged PG-Plaintiff contract or the Piooner-PG contract. Moreover, there are no allegations that Defendant specifically knew of either contract. More facts concerning both contracts and Defendant’s interference with those contracts are required to state a claim. As to the “other potential purchasers,” this allegation admits that no contract existed. Plaintiff could only have a prospective economic interest with the “potential” purchasers. Thus, no intentional interference with a contract is stated as to them.

Accordingly, the demurrer is SUSTAINED with leave to amend.

Accounting

“A cause of action for accounting requires a showing of a relationship between the plaintiff and the defendant, such as a fiduciary relationship, that requires an accounting or a showing that the accounts are so complicated they cannot be determined through an ordinary action at law.” (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413.) “‘An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.’” (Id.) “The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179-80.)  

Plaintiff fails to allege any viable relationship that would call for an accounting in this case. Plaintiff does not allege that Defendant holds any money received from PG LLC.

Accordingly, the demurrer is SUSTAINED. Plaintiff does not show a reasonable probability of successful amendment. Plaintiff argues that it needs an “accounting of Progress Rail’s finances as they relate to the asserted breach of contract and tortious interference claims”. (Opp. at 17.) Plaintiff thus admits that the accounts may be determined through an ordinary action at law. Therefore, the Court is not inclined to grant leave to amend as to the accounting claim.

Plaintiff has 20 days to file an amended complaint.