Judge Michael E. Whitaker, Case Number: 22SMCV01631, Date: 2023-09-27 Tentative Ruling

Judge: Michael E. Whitaker, Case: 22SMCV01631, Date: 2023-09-27 Tentative Ruling

Plaintiff and Cross-Defendant Xenon Investment Corp. (“Xenon”) and Cross-Defendant Rohit Mehta (“Mehta”) (collectively, “Cross-Defendants”) demur to both causes of action—for breach of contract and fraud—alleged in Defendant and Cross-Complainant Back to Total Health’s (“BTTH”) Cross-Complaint. Cross-Defendants also move to strike the alter ego allegations and request for punitive damages in BTTH’s Cross-Complaint.

This case stems from a dispute over leased commercial property. Xenon filed a complaint against BTTH for breach of contract and declaratory relief based on BTTH’s failure to pay rent on commercial properties BTTH leased from Xenon.

BTTH filed a cross-complaint against Xenon and Xenon’s owner, Mehta, on a theory of alter ego liability, for breach of contract and fraud. BTTH alleges Xenon breached the lease agreement by failing to provide quiet enjoyment of premises to BTTH, by allowing “Barry’s Bootcamp” to use common areas, causing noise and vibrations in BTTH’s leased premises, and committed fraud by promising to rectify the Barry’s Bootcamp issues without intent to actually do so. (Cross-Complaint ¶¶ BC-2; FR-4.)

Cross-Defendants demur to BTTH’s cross-complaint on the grounds that each cause of action fails to state a cause of action, and is barred by the applicable statutes of limitation. Further, Cross-Defendants move to strike BTTH’s claim for punitive damages and alter-ego allegations on the grounds that the cross-complaint contains matters not drawn in conformity with the laws of California.

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint. (Code Civ. Proc., § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

A breach of contract cause of action has a four-year statute of limitations. (Code Civ. Proc., § 337.) “A cause of action for breach of contract does not accrue before the time of breach.” (Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 488.) “In the context of successive breaches of a continuing contractual obligation, […] where the parties did not mutually abandon or rescind it upon a breach or successive breaches, the injured party could wait until the time arrived for a complete performance by the other party and then bring an action for damages for such breaches.” (Id. at pp. 489-490.) A party is “not bound to treat the contract as abandoned on the first breach of it, or on any particular breach, but [has their] election to still rely on it, and the statute of limitations could not begin to run until [the party] had made its election.” (Ibid.) “[R]esolution of the statute of limitations issue is normally a question of fact[.]” (Id. at p. 487.)

Cross-Defendants first argue that the Breach of Contract cause of action is barred by the statute of limitations, because the Cross-Complaint alleges that the lease was entered into on July 15, 2017, and the breach is alleged to have occurred “on or about July 15, 2017 and continuing” but the cross-complaint was not filed until July 14, 2023, nearly six years later. (Demurrer at pp. 4:20-5:14.)

But BTTH alleges several “continuing” breaches. (See Cross-Complaint ¶¶ BC-2.) Thus, the statute of limitations has run is a question of fact, and the Court cannot determine at the pleading stage whether the breach of contract cause of action in the cross-complaint is time-barred as a matter of law.

To allege a cause of action for breach of contract, a plaintiff must allege “(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff.” (D'Arrigo Bros. of California v. United Farmworkers of America (2014) 224 Cal.App.4th 790, 800.)

Cross-Defendants first argue that although the cross-complaint alleges BTTH “has performed all obligations to defendant except those obligations plaintiff was prevented or excused from performing,” BTTH has failed to meet its burden, because it has not alleged it paid the rent due under the lease. (Demurrer at p. 7:3-11.) The Court disagrees. The language of the complaint suffices at this stage of the litigation. Questions about when and under what circumstances BTTH stopped paying rent go beyond the four corners of the Cross-Complaint, and are factual questions to be resolved at later stages of the litigation.

Similarly, Cross-Defendants argue that BTTH has failed to allege that the $250,000 damages it allegedly suffered were proximately caused by Cross-Defendants’ breach. (Demurrer at p. 7:12-17.) Again, the language of the cross-complaint, indicates that “Plaintiff suffered damages legally (proximately) caused by defendant’s breach of the agreement as follows: Diminished value of the leased premises and on information and belief, in an amount not less than $250,000. Other damages according to prove at trial[.]” (Cross-Complaint ¶ BC-4.) The assertions are sufficient at this stage of the litigation.

Finally, Cross-Defendants argue that the language of paragraph 8.8 of the Lease Agreement precludes recovery of damages for lost profits, and precludes recovery of damages arising from another tenant’s act or neglect, or from Lessor’s failure to enforce another lease in the shopping center, thus barring the claim here. (Demurrer at 7:18-8:26.) Cross-Defendants cite to Frittelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th 35, 42, in support of their argument.

As a threshold matter, the language of the Cross-Complaint shows BTTH is seeking damages for “[d]iminished value of the leased premises,” not necessarily lost profits. (Cross-Complaint, ¶ BC-4.) Moreover, the Cross-Complaint alleges Cross-Defendants breached the lease agreement between Xenon and BTTH by failing to provide quiet enjoyment of the premises to BTTH. BTTH does not allege that its damages arise from any breach by Barry’s Bootcamp, or Xenon’s failure to enforce its lease with Barry’s Bootcamp.

Frittelli is distinguishable for several reasons. First, Frittelli was decided at the summary judgment stage, not at the pleadings stage. Second, Frittelli expressly sought damages for lost profits to the business, unlike BTTH, who seeks damages for diminished value of the premises. Third, the contract at issue in Frittelli limited recovery in the event that the landlord’s negligence was the cause of the breach, which is exactly what Frittelli alleged. By contrast, here, BTTH alleges Cross-Defendants simply failed to perform under the terms of the agreement. BTTH does not allege Cross-Defendants acted negligently.

“In a promissory fraud action, to sufficiently alleges [sic] defendant made a misrepresentation, the complaint must allege (1) the defendant made a representation of intent to perform some future action, i.e., the defendant made a promise, and (2) the defendant did not really have that intent at the time that the promise was made, i.e., the promise was false.” (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060.) “Moreover, to be actionable, a misrepresentation or concealment must induce justifiable reliance and resulting damage.” (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 482, as modified on denial of reh'g (Aug. 20, 1996).)

“In California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) “This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Ibid.)

“One of the purposes of the specificity requirement is notice to the defendant, to furnish the defendant with certain definite charges which can be intelligently met.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384, as modified on denial of reh'g (Mar. 18, 2009).) As such, less specificity is required “when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy[.]” (Ibid.) “Even under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Ibid.)

Here, Cross-defendants argue that BTTH fails to plead the elements of fraud with sufficient particularity. The Court agrees.

The Cross-Complaint alleges “Cross-defendants, by and through Mr. Mehta, promised that the issues of sound, noise, and vibration created by Barry’s Bootcamp would be addressed in an appropriate manner and consistent with the Parties’ agreement. Cross-defendants, by and through Mr. Mehta, promised BTTH that it would have the quiet enjoyment of the premises and that it would have the benefit of the common areas, for which it was being charged.” (Cross-Complaint at ¶ FR-4.) The cross-complaint further alleges that, “In justifiable reliance upon defendant’s conduct, plaintiff was induced to act as follows: Enter into the subject lease, attached hereto as Exhibit A, and make substantial improvements to the subject premises, in excess of $100,000, and develop a business plan based on the term of the subject lease.” (Id. at ¶ FR-5.) Further, “Because of plaintiff’s reliance upon defendant’s conduct, plaintiff has been damaged as follows: Diminished value of the leased premises; loss of business opportunities; loss of enjoyment of common areas, to the detriment of BTTH’s business; loss of quiet enjoyment of the subject premises.” (Id. at ¶ FR-6.)

Although the cross-complaint includes details about who made the promise (Mr. Mehta) and what was promised (that the noise and vibrations caused by Barry’s Bootcamp would be appropriately dealt with), it does not specify when, how, where, or to whom the promise(s) were allegedly made.

Therefore, BTTH has failed to plead a fraud cause of action with requisite particularity.[1]

Any party, within the time allowed to respond to a pleading, may serve and file a motion to strike the whole pleading or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1); Cal. Rules of Court, rule 3.1322, subd. (b).) On a motion to strike, the court may: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc., § 436, subd. (a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782.)

Here, Cross-Defendants move to strike from the cross-complaint, references to and claims for punitive damages and alter ego liability.

In ruling on a motion to strike punitive damages, “judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) To state a prima facie claim for punitive damages, a plaintiff must allege the elements set forth in the punitive damages statute, Civil Code section 3294. (College Hosp., Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) Per Civil Code section 3294, a plaintiff must allege that the defendant has been guilty of oppression, fraud, or malice. (Civ. Code, § 3294, subd. (a).) As set forth in the Civil Code,

(1) “Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. (2) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights. (3) “Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

Further, a plaintiff must assert facts with specificity to support a conclusion that a defendant acted with oppression, fraud or malice. To wit, there is a heightened pleading requirement regarding a claim for punitive damages. (See Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1041-1042.) “When nondeliberate injury is charged, allegations that the defendant’s conduct was wrongful, willful, wanton, reckless or unlawful do not support a claim for exemplary damages; such allegations do not charge malice. When a defendant must produce evidence in defense of an exemplary damage claim, fairness demands that he receive adequate notice of the kind of conduct charged against him.” (G. D. Searle & Co. v. Superior Court (1975) 49 Cal.App.3d 22, 29 [cleaned up].) In Anschutz Entertainment Group, Inc. v. Snepp, the Court of Appeal noted that the plaintiffs’ assertions related to their claim for punitive damages were “insufficient to meet the specific pleading requirement.” (Anschutz Entertainment Group, Inc. v. Snepp (2009) 171 Cal.App.4th 598, 643 [plaintiffs alleged “the conduct of Defendants was intentional, and done willfully, maliciously, with ill will towards Plaintiffs, and with conscious disregard for Plaintiff's rights. Plaintiff's injuries were exacerbated by the malicious conduct of Defendants. Defendants' conduct justifies an award of exemplary and punitive damages”]; see also Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 166 [“The mere allegation an intentional tort was committed is not sufficient to warrant an award of punitive damages. Not only must there be circumstances of oppression, fraud, or malice, but facts must be alleged in the pleading to support such a claim”].)

Here, as discussed above, BTTH has failed to allege facts with requisite specificity to state a cause of action for fraud. As such, the allegations also fall short of supporting the request for punitive damages.

With respect to alter ego allegations, the cross-complaint alleges, “Xenon Investment is an alter ego for Rohit Mehta, among others.” (Cross-complaint, ¶ 9.) BTTH also points out that Mehta “signed the subject lease as ‘president and authorized agent’” and “as CEO and President.” (Opp. 6:5-6.)

The authorities cited by Cross-Defendants are distinguishable. In Moore v. Regents of University of California (1990) 51 Cal.3d 120, 134, fn. 12, the court listed “egregious examples of generic boilerplate” as “each of the defendants was the agent, joint venturer and employee of each of the other remaining defendants, and is jointly liable for the acts of every other defendant […] each was acting within the course and scope of said agency, employment, partnership and joint venture [….]” By contrast, here, there is no allegation that both Cross-Defendants [much less many Cross-Defendants] are agents and employees of each other. The cross-complaint simply alleges that Xenon is the alter ego of Mehta.

And in Meadows v. Emett & Chandler (1950) 99 Cal.App.2d 496, the complaint did not allege that defendants were alter egos at all; it simply alleged that defendants jointly owned and controlled the corporation. By contrast, here, the cross-complaint alleges specifically that Xenon is the alter ego of Mehta. That suffices at this stage of the litigation.

A plaintiff has the burden of showing in what manner the complaint could be amended and how the amendment would change the legal effect of the complaint, i.e., state a cause of action. (See The Inland Oversight Committee v City of San Bernardino (2018) 27 Cal.App.5th 771, 779; PGA West Residential Assn., Inc. v Hulven Int'l, Inc. (2017) 14 Cal.App.5th 156, 189.) A plaintiff must not only state the legal basis for the amendment, but also the factual allegations sufficient to state a cause of action or claim. (See PGA West Residential Assn., Inc. v Hulven Int'l, Inc., supra, 14 Cal.App.5th at p. 189.) Moreover, a plaintiff does not meet his or her burden by merely stating in the opposition to a demurrer or motion to strike that “if the Court finds the operative complaint deficient, plaintiff respectfully requests leave to amend.” (See Major Clients Agency v Diemer (1998) 67 Cal.App.4th 1116, 1133; Graham v Bank of America (2014) 226 Cal.App.4th 594, 618 [asserting an abstract right to amend does not satisfy the burden].)

Here, the Opposition states “In the event the Court concludes that any part of the Cross-complaint is deficient, BTTH requests leave to amend to address any concerns the Court may have.” This is insufficient.

BTTH has thus failed to meet its burden to demonstrate what amendments it could make to correct the deficiencies identified.

The Court sustains Cross-Defendants’ demurrer to the second cause of action for fraud without leave to amend.

The Court overrules Cross-Defendants’ demurrer to the first cause of action for breach of contract.

The Court grants in part and denies in part Cross-Defendants’ motion to strike. The Court strikes from Paragraph 10(d), p.2 of the Cross-complaint the phrase, “Punitive damages on the Second Cause of Action for fraud in an amount to deter and to punish the improper behavior.” The Court does not strike the alter-ego allegations from the cross-complaint.

Cross-Defendants shall provide notice of the Court’s ruling and file a proof of service regarding the same.

[1] Because the Court finds BTTH has failed to plead a fraud cause of action, it need not address whether the statute of limitations has run on the claim.

DEPARTMENT	207
HEARING DATE	September 27, 2023
CASE NUMBER	22SMCV01631
MOTIONS	Demurrer and Motion to Strike Portions of Cross-Complaint
MOVING PARTIES	Plaintiff and Cross-Defendant Xenon Investment Corp. and Cross-Defendant Rohit Mehta
OPPOSING PARTY	Defendant and Cross-Complainant Back to Total Health, Inc.