Judge: Mark H. Epstein, Case: 21SMCV00832, Date: 2023-04-13 Tentative Ruling
Case Number: 21SMCV00832 Hearing Date: April 13, 2023 Dept: R
The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.
Plaintiff filed a professional negligence claim against defendant, a payroll company. (The facts herein are taken from the complaint and assumed for purposes of this motion to be true. The court is, of course, making no independent factual findings.) Plaintiff alleges that it contracted with defendant to provide payroll assistance and systems based on defendant’s statements holding itself out as a professional and competent service provider that could maintain effective security measures. However, between 2016 and 2021, plaintiff’s former employee, Venegas, was able to get around that security and abscond with $1.7 million in payroll proceeds paid to a non-existent employee by submitting false timecards with false social security numbers. (Venegas worked for defendant before she worked for plaintiff, but at the time the fraud was discovered, she was plaintiff’s employee. The court is aware of no allegation that she was stealing money while she was defendant’s employee. Were that the case, the outcome of this motion might be different.) The payroll proceeds were deposited into an account Venegas controlled. Plaintiff contends that defendant did not build in adequate security to catch Venegas’s malfeasance even though there were many “red flags.” Indeed, the misconduct was eventually discovered only inadvertently due to a conversation with another accountant at the company. After the fraud was discovered, plaintiff requested defendant’s help to determine the damages. According to plaintiff, defendant ignored the request and failed to assist in any meaningful way, forcing plaintiff to subpoena defendant in 2021, and even then, defendant allegedly failed to produce documents relating to whether the security measures defendant employed were consistent with prevailing industry standards. Plaintiff alleges three causes of action: (1) professional negligence; (2) negligent misrepresentation; and (3) breach of contract. The demurrer is only to the first cause of action. Defendant asserts that there can be no professional negligence here. Rather, defendant claims that all plaintiff is alleging in this regard is that defendant negligently breached the contract, and that is not actually a tort. Plaintiff opposes.
The court previously sustained a similar demurrer. Plaintiff has amended and that is what is now before the court.
As a general matter, negligence requires the existence of a duty owed by the defendant to the plaintiff, the breach of that duty, and resulting damages. However, where the duty only exists because of a contractual relationship, the duty will not suffice for a negligence claim. (Applied Equipment Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503.) In the prior demurrer, the court was concerned that plaintiff had not asserted a cognizable legal duty separate and apart from the duties imposed by the contract. Put another way, there is no such tort as negligent breach of contract.
Plaintiff’s theory is that defendant proclaimed itself to be an expert and, by doing so, has the same kinds of duties that a lawyer or doctor would have. In other words, while negligently performing legal services might well be a breach of contract between lawyer and client, it is also professional negligence because a lawyer has a duty independent of the contract’s terms to perform legal services competently. In contrast, a shipper of goods has no independent duty to ship the goods competently; either the goods are shipped in conformity with the contract or they are not, but the buyer’s remedy if the goods are accidentally left on the dock or are shipped on a leaky boat is in contract alone.
The court does not believe plaintiff has met its burden. Even taking the website into account, it does not give rise to an independent duty that would support professional negligence. If the statements are false, those statements might well support a cause of action for fraud or misrepresentation. Indeed, plaintiff has alleged as much here. But that cause of action is not under attack by way of this demurrer. A statement of expertise simply does not put a payroll company in the same position as a doctor, lawyer, or accountant where there are independent legal duties that can give rise to a professional negligence cause of action. That does not mean that the statements are of no moment. As set forth two sentences ago, the statements could support the misrepresentation cause of action. Further, by so stating on the website, the defendant might have set forth the standard to which it will be held in the breach of contract cause of action. But it does not provide for a duty outside the contractual relationship.
Given that, plaintiff still has not set forth a cognizable theory for professional negligence. Because this is the exact same issue that was before the court last time, the court does not believe that leave to amend would serve any purpose. Accordingly, the demurrer as to this cause of action is SUSTAINED WITHOUT LEAVE TO AMEND. The court emphasizes that the breach of contract and misrepresentation causes of action remain.
Defendant has 10 days to answer.