Judge: Maurice A. Leiter, Case: 22STCV00665, Date: 2023-07-20 Tentative Ruling

Case Number: 22STCV00665    Hearing Date: January 17, 2024    Dept: 54

Hearing Date: January 17, 2024

Department 54, Judge Maurice A. Leiter

Demurrer to First Amended Cross-Complaint and Motion to Strike

Moving Party: Cross-Defendants Lat Long Infrastructure, LLC, Cavallo Capital Partners, LLC, Urban Tech Consulting, LLC, Jeffery Anon and Daniel Urban.

Responding Party: Cross-Complainants Trafero Technologies, LLC and Sahil Chaudhary

T/R:     CROSS-DEFENDANTS’ DEMURRER AS TO CROSS-DEFENDANTS ANON AND CAVALLO IS SUSTAINED WITH LEAVE TO AMEND.

CROSS-DEFENDANTS' DEMURRER AS TO THE REMAINING PARTIES AND CAUSES OF ACTION IS OVERRULED.

THE MOTION TO STRIKE IS DENIED.

CROSS-COMPLAINANTS TO FILE AND SERVE A SECOND AMENDED CROSS-COMPLAINT WITHIN 30 DAYS OF NOTICE OF RULING. CROSS-DEFENDANTS TO FILE AND SERVE A RESPONSE WITHIN 30 DAYS THEREAFTER.

CROSS-DEFENDANTS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On March 30, 2022, Plaintiffs filed a first amended complaint against Defendants, asserting nine causes of action for breach of contract, fraud, tortious interference and indemnity and contribution. Plaintiffs allege Defendants agreed to invest $40,000,000.00 into the Plaintiff companies via a Term Sheet agreement and Subscription Agreement but failed to pay.

On January 19, 2023, Cross-Complainants Trafero Technologies, LLC and Sahil Chaudhary Singh filed a first amended cross-complaint against Cross-Defendants Lat Long Infrastructure, LLC, Cavallo Capital Partners, LLC, Urban Tech Consulting, LLC, Jeffery Anon and Daniel Urban, asserting eleven causes of action for securities fraud, recission, fraud, breach of contract and common counts.

Cross-Complainants allege Daniel Urban misrepresented the scope of Cross-Defendants' business, and the reason Cross-Defendants' needed investment funds (to fund the purchase of another company), and that Cross-Defendants breached a Consulting Services and Loan Agreement entered into between Urban Tech and Trafero, which required Urban Tech to pay Sahil Singh $5,000,000.00.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it.  (CCP § 430.50(a).)  A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations.  (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.)  The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law.  (Id. at 732-33.)  The complaint is to be construed liberally to determine whether a cause of action has been stated.  (Id. at 733.)

A. First and Second Causes of Action for Securities Fraud

Cross-Defendants demur to the first and second causes of action for securities fraud on the ground that membership interests Lat Long do not constitute “securities.” Corporations Code § 25019 defines “security” by listing transactions and instruments deemed to be securities, including “any note; ¿stock; ¿treasury stock; ¿membership in an incorporated or unincorporated association; ¿bond; ¿debenture; ¿evidence of indebtedness; ¿certificate of interest or participation in any profit-sharing agreement; ... or, in general, any interest or instrument commonly known as a ‘security.’” (Corp. Code § 25019.)

Cross-Defendants assert that one-on-one agreements negotiated by parties, with no intention of offering those agreements to the public, are not “securities” under the Corporations Code. But this is not what Cross-Complainants allege. Cross-Complainants allege Cross-Defendants solicited Cross-Complainants to invest in Lat Long and to find other investors to obtain $40,000,000.00 in capital for Lat Long. The demurrer cannot be sustained on this basis.

The demurrer to the first and second causes of action is OVERRULED.

B. Third, Fourth and Fifth Causes of Action for Fraud

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.)

Cross-Defendants demur to the third, fourth, and fifth causes of action for fraud on the ground that they are not pleaded with the requisite specificity. The Court disagrees. Cross-Complainants allege Cross-Defendant Urban misrepresented the value of Lat Long and the reason why Urban needed investments at a business meeting in June 2021 to induce Cross-Complainants to invest and find other investors. This is sufficiently specific to state causes of action for fraud.

The demurrer to the third, fourth, and fifth causes of action is OVERRULED.

C. Sixth, Seventh, Eighth Causes of Action for Negligence, Constructive Trust, and Accounting

Cross-Defendants assert the sixth, seventh, and eighth causes of action fail because Cross-Defendants did not owe Cross-Complainants a fiduciary duty.  Cross-Complainants allege Cross-Defendants owed Cross-Complainants professional and fiduciary duties because they acted as unlicensed securities brokers. This is sufficient to allege tort and fiduciary duties.

The demurrer to the sixth, seventh, and eighth causes of action is OVERRULED.

D. Ninth Cause of Action for Breach of Contract

Cross-Defendants demur to the ninth cause of action for breach of contract on the ground that the contract attached to the cross-complaint contradicts the allegations.           

Cross-Complainants allege Cross-Defendants agreed to pay Singh $5 million in consulting fees. The contract attached to the cross-complaint does not provide a specific number for Cross-Complainants' consulting fees and instead references invoices that are not attached to the cross-complaint. This does not defeat Cross-Complainants’ allegations regarding his consulting fees.

The demurrer to the ninth cause of action is OVERRULED.

E. Alter Ego

Cross-Defendants assert Cross-Complainants have failed to allege alter ego against Jeff Anon or Cavallo. The Court agrees. Cross-Complainants do not allege any facts showing how Jeff Anon was involved in the alleged scheme or showing how Anon or Cavallo are alter egos of the other Cross-Defendants.

The demurrer as to Cross-Defendants Jeff Anon and Cavallo is SUSTAINED with leave to amend.

F. Motion to Strike

Any party, within the time allowed to response to a pleading, may serve and file a notice of motion to strike the whole or any part" of that pleading. (CCP § 435(b)(1).) “The Court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false or improper matter asserted in any pleading; (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the Court." (CCP § 436.)

Punitive damages are available in noncontract cases where the defendant is guilty of “oppression, fraud, or malice.”  (Civil Code § 3294(a).)  Conclusory allegations are insufficient to support a claim for punitive damages.  (See, e.g., Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal. App. 3d 590, 620.)  However, “the stricken language must be read not in isolation, but in the context of the facts alleged in the rest of petitioner's complaint.”  (Perkins v. Superior Court (1981) 117 Cal. App. 3d 1, 6.)

Cross-Defendants' move to strike the prayers for punitive damages on the grounds that Cross-Complainants fail to allege facts showing malice, oppression or fraud and fail to allege corporate ratification. As stated, Cross-Complainants have sufficiently alleged causes of action for fraud against Cross-Defendants. This supports claims for punitive damages.

The motion to strike is DENIED.