Judge: Mark C. Kim, Case: 22LBCV00071, Date: 2022-08-23 Tentative Ruling
Case Number: 22LBCV00071 Hearing Date: August 23, 2022 Dept: S27
1. Background
Facts
Plaintiff LBCM, Inc. filed this
action against Defendant PAMC Services, Inc. on 2/17/22. Plaintiff alleges it owned and operated a
community association service building doing business as CondoServices in
Signal Hill, California. Plaintiff
alleges the parties entered into an asset purchase agreement on or about May
10, 2021 wherein Defendant agreed to purchase certain assets relating to
Plaintiff’s business for $900,000.00.
Plaintiff alleges Defendant has failed to make the final payment of
$400,000.00 and to take on the obligations of the business, including equipment
leases, vendor contracts, office leases, and utilities.
Plaintiff filed the operative First
Amended Complaint (“FAC”) on 3/2/22, asserting causes of action for:
1. Breach
of Contract
2. Fraud
2. Meet
and Confer
Defendant’s counsel declares that he sent
Plaintiff’s counsel a meet and confer correspondence on March 16, 2022, that
they spoke on March 18, 2022, and that it was clear after meeting and
conferring that Plaintiff’s counsel would not agree to either withdraw the
second cause of action or amend the complaint.
(WIndust Decl., ¶¶ 2-3.)
Defendant has satisfied the meet and confer requirement.
3. Demurrer
a.
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. (Taylor
v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th
1216, 1228.) 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.” (SKF
Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer
hearing is whether the complaint, as it stands, unconnected with extraneous
matters, states a cause of action.” (Hahn, supra, 147 Cal.App.4th at 747.)
b.
Second
Cause of Action for Fraud
Defendant demurs to the second
cause of action for fraud on grounds that Plaintiff has failed to allege
specific facts to support the cause of action.
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.) 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.)
A
promise of future conduct is actionable if it is made without a present intent
to perform. (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471,
481.) “[I]n pleading a fraud action
based on the alleged falsity of a representation or a promise to perform a
future act it is not necessary to allege the circumstantial evidence from which
it may be inferred that the representation or promise was false—these are
evidentiary matters which give rise to the misrepresentation.” (Universal
By-Productions, Inc. v. City of Modesto (1974) 43 Cal.App.3d 145,
151.) “The only essential allegation is
the general statement that the representation or promise was false and that the
defendant knew it to be false at the time it was made.” (Id.)
Plaintiff
alleges Defendant committed fraud by misrepresenting to Plaintiff that they
would make the final payment of $400,000 to Plaintiff by January 20, 2022 and
that Defendant would take on the obligations of the business once Defendant
took control of the assets of the business.
(FAC, ¶¶ 37-38.) Plaintiff alleges
Defendant has also fraudulently used Plaintiff’s electronic signature and
credit cards without authorization to pay Defendant’s obligations and
misrepresented it was authorized to do so.
(Id., ¶ 38.) Plaintiff alleges Defendant made the
representations either knowing they were false or made the promises to
Plaintiff with no intent to perform them and that this was done in order to get
Plaintiff to rely on the representations and promises so Defendant could take
control of the assets of the business. (Id., ¶ 39.) Plaintiff alleges that, because of
Defendant’s statements, Plaintiff entered into the agreement with Defendant,
delivered the assets of the business to Defendant, paid outstanding bills, and
was harmed in an amount according to proof, but in no event less than
$400,000. (Id., ¶ 40.)
Plaintiff
has failed to sufficiently plead fraud against Defendant. Despite Plaintiff’s argument in opposition, Plaintiff
has failed to allege specific facts showing how each of the alleged misrepresentations
and promises were made, who made each of the alleged misrepresentations and
promises on Defendant’s behalf, when they were made, to whom, and by what
means. Further, Plaintiff has not
alleged facts showing justifiable reliance on the purported misrepresentations
and promises.
Defendant
also argues the fraud cause of action is barred by the economic loss rule. Defendant’s argument is well-taken.
The
economic loss rule posits that a purchaser of a product that does not live up
to the buyer’s expectations can only recover in contract and not tort, “unless [the
purchaser] can demonstrate harm above and beyond a broken contractual
promise.” (Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209
Cal.App.4th 1118, 1130 (quoting Robinson
Helicopter Company, Inc. v. Dana Corporation (2004) 34 Cal.4th 979,
988).) A tort claim for fraud must be
sufficiently independent from a breach of contract claim for which the
plaintiff suffered economic loss. (Robinson Helicopter, supra, 34 Cal.4th
at 991.) Thus, in order to plead around
the economic loss rule, a party must plead the existence of a duty that arises
independent of any contractual duty and independent injury, other than economic
loss, that arises from the breach of that duty.
(Robinson Helicopter, supra,
34 Cal.4th at 988-91.)
Fraudulent
inducement of the contract is one means by which California law recognizes the
existence of a duty independent of the duties imposed by the contract. (Erlich
v. Menezes (1999) 21 Cal.4th 543, 551-52.)
Fraud in the inducement occurs where a party’s assent to contract is
obtained through “conscious misrepresentation, or concealment, or non-disclosure
of a material fact which induces the innocent party to enter the
contract.” (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128;
see also Civ. Code § 1572.)
As
discussed, Plaintiff has failed to sufficiently plead fraud. Plaintiff has thus failed to sufficiently allege
fraudulent inducement as a basis for recovering on a fraud claim.
Accordingly,
the demurrer to the second cause of action is sustained with leave to amend.
4. Conclusion
Based on the foregoing, Defendant’s
demurrer to First Amended Complaint is SUSTAINED with leave to amend.
Defendant is ordered to give
notice.
Parties who intend to submit on
this tentative must send an email to the court at gdcdepts27@lacourt.org indicating intention to submit on the tentative
as directed by the instructions provided on the court website at www.lacourt.org. If the department
does not receive an email indicating the parties are submitting on the
tentative and there are no appearances at the hearing, the motion may be placed
off calendar. If a party submits on
the tentative, the party’s email must include the case number and must identify
the party submitting on the tentative.