Judge Mark E. Windham, Case Number: 23STLC06938, Date: 2024-03-20 Tentative Ruling

Judge: Mark E. Windham, Case: 23STLC06938, Date: 2024-03-20 Tentative Ruling

Case Number: 23STLC06938 Hearing Date: March 27, 2024 Dept: 26

Schwartz Law, PC v. MH SUB I LLC, et al.

DEMURRER

(CCP §§ 430.31, et seq.)

TENTATIVE RULING:

Defendants MH Sub I LLC and Jenny Phan’s Demurrer to the Complaint is OVERRULED AS TO THE FIRST, SECOND, AND THIRD CAUSES OF ACTION AND SUSTAINED WITH 20 DAYS’ LEAVE TO AMEND AS TO THE FOURTH CAUSE OF ACTION.

ANALYSIS:

On October 30, 2023, Plaintiff Schwartz Law, P.C. (“Plaintiff”) filed the Complaint in this action against Defendants MH Sub I, LLC (“Defendant Internet Brands”) and Jenny Phan (“Phan”) (collectively, “Defendants”). The Complaint alleges causes of action for (1) intentional misrepresentation; (2) recission; (3) declaratory relief; and (4) unfair competition under Business and Profession Code § 17200 et seq.

On November 28, 2023, Defendant Phan filed a declaration with the Court stating that Plaintiff did not properly serve her with summons and complaint but that she waived any defect in service, and asserting her right to an automatic extension of time to file the instant Demurer. On January 3, 2024, Defendants filed the instant Demurrer to Plaintiff’s Complaint. Plaintiff filed an opposition on January 19, 2024 and Defendants replied on January 26, 2024.

The Demurrer was set for hearing on February 5, 2024 but the action was transferred from Department 25 in the Spring Street Courthouse to Department 26 in the Spring Street Courthouse on that date. (Minute Order, 02/05/24.) The next hearing date, March 20, 2024, was continued to March 27, 2024. (Minute Order, 03/20/24.)

Discussion

Allegations in the Complaint

Plaintiff’s Complaint arises from the sale of potential client leads between the parties. (Compl., ¶¶9-20.) Defendant Phan, employed by Defendant Internet Brands to sell Nolo leads to law firms, contacted Plaintiff via email, asking if Plaintiff would be interested in purchasing some of Nolo’s wrongful termination leads. (Id. at ¶¶11-12.) Plaintiff expressed interest in buying a few leads to “test [Defendants’] program…” (Id. at ¶13.) Defendant Phan responded, “The minimum to get started is for 20 leads, which comes out to $540.” (Id. at ¶14.) Plaintiff agreed to buy the 20 leads for L.A. County only. (Id. at ¶15.) There may be a written agreement between the parties but Plaintiff does not have a copy of it. (Id. at ¶16.) The leads were allegedly “useless junk” with non-working phone numbers and unresponsive email addresses; also, the bases for the various wrongful termination leads were frivolous. (Id. at ¶18.) Plaintiff stopped attempting to contact the useless leads but did not realize Defendant Internet Brands continued charging Plaintiff’s credit card $540 per month. (Id. at ¶19.) When Plaintiff discovered the charges in September of 2023, it immediately contacted Defendant Internet Brands, which agreed to stop making charges but refused to refund the previously unauthorized payments. (Id. at ¶20.)

Demurrer to Complaint

Defendants demur to the Complaint for failure to allege facts sufficient to state a cause of action and uncertainty. (Citing Code Civ. Proc., § 430.10, subds. (e), (f).) The Demurrer is accompanied by a meet and confer declaration that complies with Code of Civil Procedure section 430.41. (Demurrer, Giberti Decl., ¶¶5-8.) As a preliminary matter, the Court notes that Defendants’ motions to special demur to the Complaint is improper. Only general demurrers are allowed in limited civil cases. (Code Civ. Proc., § 92, subd. (c).)

1st Cause of Action for Intentional Misrepresentation

The elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230–231.) 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.) To properly allege fraud against a corporation, the plaintiffs must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

Defendants demur to this cause of action pursuant to the economic loss rule, which bars claims in negligence for pure economic losses pursuant to a contract between the parties. (Citing Sheen v. Wells Fargo Bank, NA (2022) 12 Cal.5th 905, 922.) This argument is inapplicable to the first cause of action, which is for intentional misrepresentation. Only in reply do Defendants correctly cite the authority for intentional misrepresentation and argue that Defendant Phan made two representations to Plaintiff, neither of which were false. The two representations were: (1) “The minimum to get started is for 20 leads [sic] which comes out to $540;” and (2) “Phan represented to Schwartz law that it was purchasing a total of 20 leads for $540.” (Compl., ¶¶14, 24.)

The Court finds the Complaint sufficiently sets forth the elements for a cause of action for intentional misrepresentation based on the allegation that the second representation was false because Plaintiff was actually, unknowingly, purchasing more than 20 leads for more than $540.00. (Id. at ¶¶19-20, 25.) Specifically, the Complaint alleges that Plaintiff was clear and unambiguous with Defendant Phan that it wanted to buy only twenty 20 leads. (Id. at ¶22.) Defendant Phan never corrected Plaintiff or made clear that Plaintiff would be charged on an ongoing basis until Plaintiff canceled. (Id. at ¶23.) Defendant Phan represented to Plaintiff that it was purchasing a total of 20 leads for $540.00. (Id. at ¶24.) Plaintiff alleged that Defendant Phan’s representation was false, and that Defendant Phan knew that her representation was false when she made it or made it recklessly without regard for its truth and intended for Plaintiff to rely on the representation. (Id. at ¶¶25-27.) Plaintiff alleges that it reasonably relied on Defendant Phan’s representation and was harmed by being overcharged. (Id. at ¶¶28-29.)

To the extent that Defendants rely on the terms of the parties’ written agreement, which is submitted for consideration with the Demurrer, the Court declines to consider its terms. Defendants cite a non-binding federal case involving a motion to dismiss, Cortec Industries, Inc. v. Sum Holding L.P. (2d Cir. 1991) 949 F.2d 42, 44, in support of this argument. This authority does not guide the Court’s ruling on the instant Demurrer.

Finally, Defendants argue that Defendant Phan is not liable because she is merely an employee of the corporate defendant. Again, Defendants’ reliance on a non-binding federal case does not persuade the Court to adopt its position. (Citing Mercado v. Allstate Ins. Co. (9th Cir. 2003) 340 F.3d 824, 826.)

Therefore, Defendant’s Demurrer as to the first cause of action for intentional misrepresentation is overruled.

2nd Cause of Action for Rescission

Defendants demur to the second “cause of action” for rescission on the grounds that rescission is a remedy, not a cause of action. (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 70.) However, they go on to argue that the gravamen of Plaintiff’s claim is breach of contract without discussing whether the elements of breach of contract are sufficiently alleged. (McDonald v. Filice (1967) 252 Cal.App.2d 613, 622 [holding that it is “an elementary principle of modern pleading that the nature and character of a pleading is to be determined from its allegations, regardless of what it may be called, and that the subject matter of an action and issues involved are determined from the facts alleged rather than from the title of the pleadings or the character of the damage recovery suggested in connection with the prayer for relief.”].) Instead, Defendants argue that rescission of the contract is moot because they already agreed to terminate the contract. To the extent this is an argument that the damages element of a breach of contract cause of action is inadequate, nothing shows that termination of the contract in September 2023, as alleged in the Complaint, is the same thing as rescission of the contract as sought by Plaintiff.

The Demurrer to the second cause of action for rescission is overruled.

3rd Cause of Action for Declaratory Relief

“To qualify for declaratory relief, a party would have to demonstrate its action presented two essential elements: (1) a proper subject of declaratory relief [under CCP § 1060], and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.” (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets omitted.)

Plaintiff seeks a “Declaratory judgment invalidating any and all agreements between Internet Brands and Schwartz Law.” (Compl., Prayer, ¶5.) In support of this prayer, the third cause of action alleges that there is no contract between the parties as either Plaintiff or Internet Brands was mistaken about the extent of Plaintiff’s purchase. (Id. at ¶37.) Defendants demur as to the Plaintiff’s third cause of action as it is deficient on its face as the two allegations are confusing and contradict other portions of the Complaint. The allegations to which it points as contradictory, however, are not. No other allegations in the Complaint allege that the parties entered into a contract, they simply allege discussions around a possible contract. (See id. at ¶¶13, 17, 20.) Defendants also argue any need for determination on this cause of action would be moot as Defendants have agreed to cancel Plaintiff's request and terminated its contract. As noted above, this appears to inadequately attack the damages element.

Therefore, the Demurrer is overruled as to Plaintiff’s third cause of action for declaratory relief.

4th Cause of Action for Unfair Competition

Finally, Defendants demur to Plaintiff’s fourth cause of action for failure to state sufficient facts to constitute a cause of action under CA Business and Professions Code section 17200 et. seq. To set forth a claim for a violation of Business and Professions Code section 17200 (“UCL”), Plaintiff must establish that Defendants engaged in an “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” and certain specific acts. (Bus. & Prof. Code, § 17200.) A cause of action for unfair competition “is not an all-purpose substitute for a tort or contract action.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173.)

The Complaint alleges that by its illegal conduct, Defendant Internet Brands has gained an unfair advantage over competitors who don’t charge their customers for more than the customer agreed to purchase. (Id. at ¶40.) As a direct and proximate result of Defendant Internet Brands’ unfair business practices, Plaintiff has been injured. (Id. at ¶41.) The Court finds that the facts plead in the Complaint would not be sufficient to have a cause of action for unfair competition. Though Plaintiff refers to the general facts that give rise to the action, Plaintiff does not specifically plead what “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” gives it a claim under Business and Professions Code section 17200. Rather, Plaintiff’s complaint simply alleges that Defendant Internet Brand’s conduct was illegal without sufficiently pleading why it would be a violation of the statute.

Therefore, the Court sustains Defendants’ Demurrer to the fourth cause of action for unfair competition.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Id.) Given Plaintiff’s request for leave to amend any part of the Demurrer that is sustained, and there having been no prior opportunities to amend, the Court grants leave to amend the fourth cause of action.

Conclusion

Moving party to give notice.