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.