Judge: Melvin D. Sandvig, Case: 21STCV46471, Date: 2022-07-28 Tentative Ruling

Case Number: 21STCV46471    Hearing Date: July 28, 2022    Dept: F47

Dept. F47

Date: 7/28/22

Case #21STCV46471

 

DEMURRER TO THE FIRST AMENDED COMPLAINT

 

Demurrer filed on 5/2/22.

 

MOVING PARTY: Defendant Monolith Virtual Production LLC

RESPONDING PARTY: Plaintiff Background Images, Inc.

NOTICE: ok

 

Demurrer is to the 3rd cause of action:

            1.  Breach of Contract

            2.  Breach of Implied Covenant of Good Faith and Fair Dealing

            3.  Fraudulent Misrepresentation

            4.  Fraudulent Misrepresentation

            5.  Intentional Interference With Contractual Relations

 

RULING: The demurrer to the 3rd cause of action is sustained with 30 days leave to amend.    

 

FACUAL SUMMARY & RELEVANT PROCEDURAL HISTORY

 

This action arises out of a written Exclusive Equipment Agreement (the Agreement) entered into between Plaintiff Background Images LLC (Plaintiff) and Defendant Monolith Virtual Production LLC (MVP) pursuant to which Plaintiff, which owned and leased video display equipment used by production companies in the film and television industries, agreed to supply the required video display equipment required by all third-party production company customers of MVP for a period of five years, which term could be extended by the parties.  (See First Amended Complaint (FAC) Ex.A). MVP agreed to use only BGI to supply video display equipment to its customers, and agreed to compensate BGI, including with half of each job’s profits. 

 

After entering the Agreement, MVP tried to renegotiate its terms.  Plaintiff rejected MVP’s attempt to renegotiate the Agreement.  Thereafter, Plaintiff alleges MVP created Defendant/Moving Party Monolith Studios, Inc. (MS) which began taking on third-party production company customers in place of MVP and fulfilling those customers’ video display equipment requirements without using Plaintiff.  Plaintiff alleges that MS is the alter ego of MVP.  Essentially, Plaintiff alleges that once MVP learned Plaintiff would not renegotiate the Agreement as MVP wished, MVP created MS to act in its place to contract with third-party production company customers in order to circumvent the contractual obligations MVP owed to Plaintiff under the Agreement.

 

As a result, on 12/21/21, Plaintiff filed this action against MVP, MS, Josh Furlow (Furlow) and Steve Griffith (Griffith).  In response to a demurrer filed by MS and Furlow as to the original complaint, on 3/29/22, Plaintiff filed the subject First Amended Complaint (FAC) which contains the  following causes of action: (1) Breach of Contract against MVP and MS, (2) Breach of the Implied Covenant of Good Faith and Fair Dealing against MVP and MS, (3) Fraudulent Misrepresentation against MVP and Griffith, (4) Fraudulent Misrepresentation against MS and Furlow and (5) Intentional Interference With Contractual Relations against MS and Furlow.  On 7/20/22, MS and Furlow’s demurrer to the 1st, 2nd, 4th and 5th causes of action was overruled by the Court.  MVP’s joinder to that demurrer as to the 1st and 2nd causes of action was granted.  As such, any challenge by MVP to the 1st and 2nd causes of action has already been overruled.  Now,  MVP demurrers to the 3rd cause of action.  Plaintiff has opposed the demurrer.    

 

ANALYSIS

 

3RD CAUSE OF ACTION – FRAUDULENT MISREPRESENTATION

 

Based on the allegations in the First Amended Complaint and the argument in the opposition, there seems to be no dispute that the 3rd cause of action is one for fraudulent inducement.  (See FAC ¶¶90-94; Opp. p.3:2-17).

 

The elements of a fraud cause of action are: (1) misrepresentation, (2) knowledge of the falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damages.  Glaski (2013) 218 CA4th 1079, 1090.  A fraud claim must be specifically plead setting forth facts showing how, when, where, to whom, and by what means the representations were made.  Id.; Lazar (1996) 12 C4th 631, 645.  To establish a claim for fraudulent inducement, the plaintiff must show that the defendant did not intend to honor its contractual promises when defendant made the promises.  Food Safety Net Services (2012) 209 CA4th 1118, 1131. 

 

MVP’s argument that the fraudulent inducement claim fails because Plaintiff has not alleged an enforceable, binding contract, which is necessary to state such a claim, is without merit.  As set forth in this Court’s ruling on MS and Furlow’s demurrer to the 1st and 2nd causes of action, to which MVP joined, Plaintiff has sufficiently alleged a valid and binding contract.  (See 7/20/22 Minute Order).  However, the fraudulent inducement claim still fails to allege sufficient facts to state a cause of action.  

 

Plaintiff has failed to allege sufficient facts to support a finding that MVP did not intend to honor its contractual promises when it made them.  The First Amended Complaint alleges that after the Agreement was entered, MVP’s Chief Executive Officer “developed a serious case of ‘buyer’s remorse’, and, unknown to BGI, decided he and MVP no longer liked the terms of the Five-Year Agreement MVP had entered with BGI, and that he no longer wanted to perform either the first fulfillment agreement for a third-party contract he had just signed with BGI, or the Five-Year Agreement pursuant to which all third-party contracts were to be fulfilled, at least not pursuant to the terms of the parties’ Agreement.”  (FAC ¶6).  The foregoing allegation is incorporated into the 3rd cause of action.  (FAC ¶89).    Additionally, the opposition concedes that “[s]hortly after entering the Agreement, MVP decided the deal was too rich for BGI and tried to completely renegotiate the compensation terms of the Agreement…” (emphasis added) (Opp. p.1:10-11).  Such allegations/arguments indicate that it was not until after the Agreement was entered that MVP had a change of heart and seem to conflict with the later allegations that MVP made false representations in order to induce Plaintiff to enter the agreement.  (See FAC ¶¶90-93). 

The opposition also seems to rely on representations made after the contract was entered.  (See Opp. p.5:3-10).  However, such later representations could not have induced Plaintiff to enter the contract. 

 

Based on the foregoing and due to the liberal policy of allowing leave to amend, the demurrer to the 3rd cause of action is sustained with leave to amend.  In an amended pleading, Plaintiff must clarify the basis for the fraud cause of action against MVP.  If Plaintiff is still claiming fraud in the inducement, it must allege facts to support a finding that MVP did not intend to perform at the time the contract was entered and explain in the Second Amended Complaint the seemingly conflicting allegations in paragraph 6 of the First Amended Complaint.  If Plaintiff is basing the claim on representations made after the contract was entered, it must clearly allege so.

 

Because the basis of the fraud claim against MVP is not clear, the Court cannot determine whether the damages alleged in relation thereto are sufficiently/properly alleged.