Judge: Maurice A. Leiter, Case: 24STCV09768, Date: 2024-08-08 Tentative Ruling

Case Number: 24STCV09768    Hearing Date: August 8, 2024    Dept: 54

Hearing Date: August 8, 2024

Department 54, Judge Maurice Leiter

Demurrer to First Amended Complaint

Motion to Strike Portions of First Amended Complaint

Moving Party:

Defendant JP Morgan Chase Bank, N.A.

Responding Party:

Plaintiff Law Offices of Phoenix Thottam

T/R:     The demurrer to the second, third, seventh, and eighth causes of action is sustained without leave to amend.

            The demurrer to the remaining causes of action is sustained with twenty (20) days’ leave to amend.

            The motion to strike is denied as moot.

Defendant to give 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, oppositions and replies.

BACKGROUND

            Plaintiff the Law Offices of Phoenix Thottam sued defendant JP Morgan Chase Bank, National Association on April 17, 2024 and filed its operative first amended complaint (“FAC”) on May 1, 2024. Plaintiff asserts the following causes of action in its FAC:

            1.         Negligence,

            2.         Gross Negligence,

            3.         Mistake,

            4.         Breach of Fiduciary Duty,

            5.         Negligent Misrepresentation,

            6.         Unfair Business Practices,

            7.         Intentional Infliction of Emotional Distress,

            8.         Negligent Infliction of Emotional Distress,

            9.         Breach of Contract,

            10.       Breach of the Implied Covenant of Good Faith and Fair Dealing, and

            11.       Tortious Interference with Economic Relationships.

            Plaintiff, a law firm, alleges it maintains its client trust fund account with Defendant, a bank. (FAC, 3:2-11.) Defendant repeatedly misinformed Plaintiff about the status of checks deposited into the account and its consequent available balance. (Id., 4:2-11.) As a result, Plaintiff overdrew its client trust account. (Ibid.) Plaintiff and its clients have suffered harm as a result. (Id., 7:16-10:11.)

ANALYSIS

A. Legal Standards

            When considering a demurrer, a court reads the allegations stated in the challenged pleading liberally and in context, and “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) “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 v. Mirda (2007) 147 Cal.App.4th 740, 747.) The court treats all facts alleged in the complaint as true. (Picton v. Anderson Union High School District (1996) 50 Cal.App.4th 726, 732.)

      Motions to strike are used to reach defects or objections to pleadings that are not challengeable by demurrer, such as words, phrases, and prayers for damages. (See Code Civ. Proc. §§ 435, 436, and 437.) In granting a motion to strike made under Code of Civil Procedure section 435, “[t]he court may, upon a motion made pursuant to Section 435 [notice of motion to strike whole or part of complaint], or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Id. § 436(a).) Irrelevant matters include immaterial allegations that are not essential to the claim or those not pertinent to or supported by an otherwise sufficient claim. (Id. § 431.10.) The court may also “[s]trike 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.” (Id. § 436(b).)

B. Evidentiary Rulings

            Defendant requests judicial notice of a prior ruling in this case and a ruling by the United States District Court for the Central District of California. Both requests are denied. Only the fact that the rulings were made is noticeable, and the fact that the rulings were made is irrelevant.

            Defendant also submits the declaration of one of its representatives in support of its demurrer. The declaration is stricken. The inquiry upon demurrer is confined to the four corners of the complaint and noticeable materials. (Hahn v. Mirda, supra, 147 Cal.App.4th, at p. 747.)

C.    Demurrer

            Defendant demurs to all causes of action in the FAC, arguing each fails to state facts sufficient to constitute a cause of action and/or is uncertain.

            Second, Third, Seventh, and Eighth Causes of Action for Gross Negligence, Mistake, Intentional Infliction, and Negligent Infliction

            These causes of action in the FAC lack any apparent factual or legal support.

            As to the second and third causes of action: neither gross negligence nor “mistake” is a cause of action under California law. (See Erikkson v. Nunnink (2011) 191 Cal.App.4th 826, 856, fn. 18; Code Civ. Proc. § 338(d) [referring to mistake].)

As to the seventh and eighth causes of action: an intentional infliction claim requires extreme or outrageous conduct. (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1242.) A negligent infliction claim requires some sort of “special relationship” between the tortfeasor and the victim. (Christen v. Superior Court (1991) 54 Cal.3d 868, 884.) Both require a plaintiff to plead and prove emotional distress. (Burgess v. Superior Court (1992) 2 Cal.4th 1064, 1073; Stoiber v. Honeychuck (1980) 101 Cal.App.3d 903, 921.)

This is a dispute between two business entities over alleged banking errors. There are no facts in the FAC that suggest Defendant might be liable on any emotional-distress theory, and Plaintiff has made no showing that it might plead such facts.

The demurrer is sustained without leave to amend as to Plaintiff’s second, third, seventh, and eighth causes of action.

Economic Loss Rule: First, Fourth, Fifth, and Eleventh Causes of Action for Negligence, Breach of Fiduciary Duty, Negligent Misrepresentation, and Tortious Interference

            “[T]he economic loss rule provides: [W]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.”  (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal. 4th 979, 988 [internal quotations omitted].)  The rule is based on the premise that “[a] breach of contract remedy assumes that the parties to a contract can negotiate the risk of loss occasioned by a breach”, and the law should not impose an additional tort remedy on top of their agreement. (Id., at p. 992.) It is a “judicially created doctrine that bars recovery in negligence for pure economic losses when such claims would disrupt the parties’ private ordering, render contracts less reliable as a means of organizing commercial relationships, and stifle the development of contract law.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 915.)

            Plaintiff’s claims arise from a mishandling of the funds in a bank account. The handling of those funds is governed by the parties’ Deposit Account Agreement (“DAA”), which Plaintiff attached to its complaint and which appears to cover all of Defendant’s obligations related to the account. Plaintiff has not stated facts that demonstrate it suffered cognizable non-economic injury. As pleaded, Plaintiff’s claims are barred by the economic loss doctrine.

            The economic loss doctrine is not absolute, and Plaintiff might feasibly reframe his claims in a manner that survives the rule, so the Court sustains as to these causes of action with leave.

            Sixth Cause of Action for Unfair Business Practices

            California’s Unfair Competition Law (“UCL”) “addresses ‘unfair competition,’ which ‘ . . . include[s] any unlawful, unfair or fraudulent business act or practice . . . .” (Bus. & Prof. Code, § 17200.) Its purpose ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’ [Citation.]  ‘Actions for relief” under the UCL may be brought by various government officials and ‘by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.’ [Citation.]” (McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 954.)

Because the UCL is written in the disjunctive, ‘ “it establishes three varieties of unfair competition – acts or practices which are unlawful, or unfair, or fraudulent.” ’ [Citation.]” (Adhav v. Midway, supra, 37 Cal.App.5th at p. 970.)

Plaintiff has not pleaded that Defendant engaged in any practices injurious to consumers or deceitful to the public and has not stated a claim for unfair or fraudulent practices. Because the demurrer has largely been sustained, it is unclear on what violation of the law, if any, he bases an “unlawful” claim under the UCL.

The demurrer to Plaintiff’s sixth cause of action is sustained for uncertainty, with leave to amend.

Ninth and Tenth Causes of Action for Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing

                        Ninth Cause of Action for Breach of Contract

            The elements of breach of contract are (1) the contract, (2) plaintiff’s performance or excuse, (3) breach, and (4) injury. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

            Defendant contends Plaintiff has not pleaded his claim “specifically”. Specificity in pleading is not required for a contract claim, and Defendant’s case law does not suggest otherwise. Richman v. Hartley, supra, was decided on summary judgment and does not control pleading standards; in Bentley v. Mountain (1942) 51 Cal.App.2d 95, the plaintiff pleaded that contracts were simply “violated”, with no supporting facts at all. Plaintiff here identifies the conduct he claims breached the DAA.

            Levy v. State Farm Mutual Automobile Ins. Co. (2007) 150 Cal.App.4th 1, 5-8 is relevant here. In Levy the plaintiff sued his insurer, alleging it failed to pay to repair his car up to “‘industry standards’” as he contended their contract required. (Levy, supra, at p. 6.) The court found plaintiff’s term “industry standards” was inconsistent with the terms of the contract, which required restoration to “pre-loss condition”. (Ibid.) The trial court allowed the plaintiff multiple opportunities to “demonstrate a link between State Farm’s alleged violation of ‘industry standards and the insurance contracts State Farm issued”. (Ibid.) The plaintiff could not do so, and the court sustained State Farm’s demurrer without leave.

            As in Levy, there is a tension between Plaintiff’s allegations and the contract he attached to his FAC, which divests Defendant of responsibility for the sorts of overdraft errors Plaintiff has alleged. (See FAC, Ex. G, at pp. 8, 14 [sections III(A)(5), III(E)(1)].) The Court does not agree with Defendant that the tension is fatal to Plaintiff’s claims. But the provisions are problematic enough that Plaintiff must clarify.

Also, as in Levy, Plaintiff’s claims implicate various statutes and regulations – the UCC, in particular – as well as the parties’ contract. Levy suggests that where Plaintiff might state claims under many statutory or regulatory theories, but also brings claims based on the parties’ (complex) contract, he may be required to clarify the basis of his claims more thoroughly at the pleading stage.

            The demurrer is sustained with leave to amend as to Plaintiff’s ninth cause of action for breach of contract.

                        Tenth Cause of Action for Breach of the Covenant

“ ‘The [implied] covenant of good faith and fair dealing [is] implied by law in every contract.’ (Citation.) The covenant is read into contracts and functions ‘as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.’ (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031–1032.)

As discussed above, it is unclear which of Plaintiff’s allegations it considers a breach of express contract and which it considers a breach of the implied covenant of good faith and fair dealing. Because of this lack of clarity between the breach of contract and breach of covenant actions, the tenth cause of action fails for uncertainty.

The demurrer to Plaintiff’s tenth cause of action is sustained for uncertainty, with leave to amend.          

D.        Motion to Strike

            The demurrer having been sustained, the motion to strike is denied as moot.