Judge: Melvin D. Sandvig, Case: 21STCV46471, Date: 2022-12-14 Tentative Ruling

Case Number: 21STCV46471    Hearing Date: December 14, 2022    Dept: F47

Dept. F47

Date: 12/14/22

Case #21STCV46471

 

DEMURRER TO THE SECOND AMENDED COMPLAINT

 

Demurrer filed on 9/27/22.

 

MOVING PARTY: Defendants Monolith Virtual Production LLC and Steve Griffith

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 Inducement

            4.  Fraudulent Misrepresentation

            5.  Intentional Interference With Contractual Relations

 

RULING: The demurrer to the 3rd cause of action is overruled.  Answer is due within 30 days.    

 

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 Second Amended Complaint (SAC) 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 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 its First Amended Complaint (FAC) which contained 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.  On 7/28/22, MVP’s demurrer to the 3rd cause of action was sustained with leave to amend.    

 

On 8/26/22, Plaintiff filed its Second Amended Complaint (SAC) which includes the same causes of action as the First Amended Complaint, except the 3rd cause of action is titled Fraudulent Inducement.  Now,  MVP and Griffith demur to the 3rd cause of action in the Second Amended Complaint.  Plaintiff has opposed the demurrer.    

 

ANALYSIS

 

3RD CAUSE OF ACTION – FRAUDULENT INDUCEMENT

 

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 pled 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. 

 

In sustaining MVP’s prior demurrer to the 3rd cause of cause of action, the Court found that Plaintiff failed to allege sufficient facts to support a finding that MVP did not intend to honor its contractual promises when it made them because the First Amended Complaint alleged 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.”  (See 7/28/22 Minute Order citing FAC ¶6).  The Court noted that the foregoing allegation was incorporated into the 3rd cause of action and that such allegation indicated that it was not until after the Agreement was entered that MVP had a change of heart and seemed to conflict with the later allegations that MVP made false representations in order to induce Plaintiff to enter the agreement.  (Id. citing FAC ¶¶90-93).  The Court ordered that in an amended pleading, Plaintiff must clarify the basis for the fraud cause of action against MVP.  Id.  Further, the Court ordered that 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.  Id. 

 

The Second Amended Complaint still includes the allegations regarding MVP’s Chief Executive Officer developing a case of buyer’s remorse after entering the Agreement.  (SAC ¶6).  However, Plaintiff no longer incorporates such allegations into the 3rd cause of action.  (See SAC ¶89).  Now, in its 3rd cause of action, Plaintiff claims that the fraudulent representations made to induce it into entering the contract only concern the exclusivity of the Agreement which it alleges is supported by an email sent by Griffith after the fact indicating that he never intended the agreement to be exclusive.  (SAC ¶¶90, 92 and Ex.O thereto).

 

Based on the foregoing, the Court finds that Plaintiff has sufficiently amended its complaint to allege that MVP did not intend to perform at least one of the terms of the contract (i.e., exclusivity) when it was entered, despite its representations otherwise and that such representation induced Plaintiff to enter the contract.  The Court also finds that such allegations do not amount to a sham pleading based on the fact that Plaintiff has attached an email from Griffith which could be interpreted as evidence of his intent not to perform the exclusivity provision when the contract was entered. 

 

A Plaintiff may recover out-of-pocket losses caused by fraud.  Alliance Mortgage Company (1995) 10 C4th 1226, 1240; Food Safety Net Services supra at 1134; Moncada (2013) 221 CA4th 768, 776-777.  Here, Plaintiff has alleged out-of-pocket costs incurred to acquire additional video display equipment to meet the requirements under the exclusive supplier agreement and lost opportunities.  (SAC ¶¶93-97).  In the reply, MVP argues that Plaintiff “primarily seeks recovery of alleged contractual damages through its fraudulent inducement claim.” (emphasis added) (Reply, p.2:7-8).  Even if some of the damages claimed are barred by the economic loss rule, other “reliance damages” are not.  As such, the Court finds that Plaintiff has sufficiently alleged damages in relation to the fraudulent inducement claim.  The Court must accept such allegations as true on demurrer.  Del E. Webb Corp. (1981) 123 CA3d 593, 604; Hacker (2018) 26 CA5th 270, 280.  The Court finds that Plaintiff has alleged recoverable damages in relation to the fraudulent inducement claim with sufficient specificity.    

 

CONCLUSION

 

Based on the foregoing, the demurrer is overruled.