Judge: Michael E. Whitaker, Case: 24SMCV01978, Date: 2024-08-14 Tentative Ruling

Case Number: 24SMCV01978    Hearing Date: August 14, 2024    Dept: 207

TENTATIVE RULING

MOTIONS

On April 25, 2024, Plaintiff Elizabeth Ellison (“Plaintiff”) filed suit against Defendant Tanya N. Saban, alleging six causes of action for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) violation of Civil Code section 1102; (4) fraud and concealment; (5) negligent misrepresentation; and (6) negligence. 

Defendant demurs to the fourth cause of action for failure to state facts sufficient to constitute a cause of action and uncertainty, pursuant to Code of Civil Procedure section 430.10, subdivisions (e) and (f), respectively.  Defendant also moves to strike punitive damages from the Complaint.  Plaintiff opposes both motions and Defendant replies. 

ANALYSIS

1.     DEMURRER

“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 testing the sufficiency of a cause of action, a court accepts “[a]s true all material facts properly pled and matters which may be judicially noticed but disregard contentions, deductions or conclusions of fact or law.  [A court also gives] the complaint a reasonable interpretation, reading it as a whole and its parts in their context.”  (290 Division (EAT), LLC v. City & County of San Francisco (2022) 86 Cal.App.5th 439, 450 [cleaned up]; Hacker v. Homeward Residential, Inc. (2018) 26 Cal.App.5th 270, 280 [“in considering the merits of a demurrer, however, “the facts alleged in the pleading are deemed to be true, however improbable they may be”].)

Further, in ruling on a demurrer, a court must “liberally construe” the allegations of the complaint “with a view to substantial justice between the parties.”  (See 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.)  

In summary, “[d]etermining whether the complaint is sufficient as against the demurrer on the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

A.    UNCERTAINTY

“[D]emurrers for uncertainty are disfavored.”  (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.)  A demurrer for uncertainty will be sustained only where the pleading is so bad that the responding party cannot reasonably respond - i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what claims are directed against him or her.  (Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.)  Where a demurrer is made upon the ground of uncertainty, the demurrer must distinctly specify exactly how or why the pleading is uncertain, and where such uncertainty appears by reference to page and line numbers.  (See Fenton v. Groveland Comm. Services Dist. (1982) 135 Cal.App.3d 797, 809.) 

Here, although Defendant argues that the Complaint is uncertain, Defendant’s argument rests on the premise that Plaintiff did not specify with requisite particularity what was misrepresented, who made the misrepresentation, and how the misrepresentation/concealment impacted Plaintiff.  These arguments are relevant to whether Plaintiff has stated facts sufficient to constitute a cause of action for fraud, not uncertainty. 

Further, Defendant does not demonstrate that any portions of the Complaint are so bad that Defendant cannot reasonably determine what issues must be admitted or denied, or what claims are directed against Defendant. 

Therefore, the Court declines to sustain Defendant’s demurrer on the basis of uncertainty.

B.    FAILURE TO STATE A CAUSE OF ACTION

                                                         i.          Fraud and Concealment

“The required elements for fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact.”  (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)

“There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.”  (Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 311 (hereafter Bigler-Engler).)  In the absence of a fiduciary duty, “[a] duty to disclose facts arises only when the parties are in a relationship that gives rise to the duty, such as seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual arrangement.”  (Ibid.) 

“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 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.)

The Complaint alleges as follows:

9. Plaintiff is informed and believes and thereon alleges that TNS was formed in the State of Delaware and registered to do business in the State of California by or at the direction of Saban, who Plaintiff alleges that at all relevant times was its sole member and manager.

10. Plaintiff is further informed and believes, and thereon alleges that in said capacities, Saban elected to have TNS hold the ownership of the property located at 4228 No. Los Nietos Drive, Los Angeles, CA 90027 (“Subject Property”) when it was purchased in 2019.

11. TNS was the “Seller” of the Subject Property to Plaintiff, pursuant to a written Purchase and Sale Agreement executed by Saban (as Manager of TNS) and Plaintiff on or about April 14, 2022 (“PSA”).

12. Plaintiff is informed and believes and thereon alleges that shortly after the sale of the Subject Property to Plaintiff and on or before November 17, 2022, Saban distributed all of the proceeds from the sale of the Subject Property to herself and/or other entities that she owned and controlled, and thereafter, TNS ceased to function as a going concern, thereby completing, at minimum, a de facto dissolution under the holding in CB Richard Ellis, Inc. v. Terra Nostra Consultants (2014), 230 Cal.App.4th 405, 415, 178 Cal.Rptr.3d 640 (“CB Richard Ellis”).

13. After Plaintiff started to discover and complain about defects in the Property, Saban, on November 17, 2022, signed and caused to be filed a certificate of cancellation for TNS with the California Secretary of State, and on December 5, 2022 Saban caused TNS to file a voluntarily dissolution of the LLC with the State of Delaware, thereby formally dissolving TNS. According to the records of the Secretaries of State in California and Delaware, as of the filing of this Complaint, TNS is shown in said records as cancelled and dissolved.

14. Plaintiff contends that by operation of law, and pursuant to California Corporations Code §§ 17703.03.04(b), 17703.03.04(c) and 17707.07(a)(1)(B) Saban is both personally liable for her own tortious conduct, as an alter ego of TNS, and directly liable for the obligations of TNS to Plaintiff to the extent of all assets distributed by TNS to her, or distributed to her or her agents and representatives upon the dissolution of TNS, and also as a successor in interest to any liability of TNS to Plaintiff, and Plaintiff names Saban as a Defendant in this action pursuant to said code sections and the common law.

[…]

19. Plaintiff is informed and believes and thereon alleges that notwithstanding any dissolution of TNS, prior to said dissolution, there existed, and at all times herein mentioned prior to said dissolution, there existed, a unity of interest and ownership between Defendant Saban and TNS such that any separateness between the individual Defendant Saban and TNS ceased to exist and Saban is and has been throughout the LLC’s limited existence the alter ego of TNS in that:

A. TNS was a mere sham and shell without capital, assets, or independent members and was used, conceived and intended by Defendant Saban as a device to avoid individual liability for the purpose of substituting a financially insolvent limited liability company in the place of Defendant Saban;

B. TNS was so inadequately capitalized that compared to the business undertaken to be done by it and the requirements of the contracts in issue and services to be provided by it and the risk of loss attendant thereon, its capitalization was illusory;

C. The individual Defendant Saban used the assets of TNS for her own personal uses, caused assets of TNS to be transferred without adequate consideration, and withdrew funds from the TNS bank accounts for her own personal use;

D. Defendant Saban controlled, dominated, managed and operated TNS and intermingled the assets, debts and obligations with her own, all to suit her personal convenience; and

E. TSN was the instrumentality and conduit through which Saban carried on her business activities as a limited liability company, exactly as she had conducted her business prior to the formation of it, exercising complete control and dominance of such business to the extent that any individuality or separateness does not and did not exist, at any time herein mentioned.

20. Adherence to the fiction of the separate existence of TNS as an entity distinct from Saban would permit an abuse of the limited liability associated with the operation of a limited liability company and would sanction fraud and promote injustice.

21. The PSA for the Subject Property was based on a California Association of Realtors form, fully executed by both Plaintiff and seller TNS. A copy of the PSA, and its various addenda, is attached to this Complaint as Exhibit “1” and is incorporated herein by this reference.

22. Concurrent with the execution of the PSA, and prior to the closing of the purchase of the Subject Property, a number of subsidiary documents were exchanged, including but not limited to a Transfer Disclosure Statement (“TDS”). A Copy of the TDS is attached to this Complaint as Exhibit “2,” and is incorporated herein by this reference. Similarly, Defendants provided to Plaintiff the Sellers Subject Property Questionnaire (“SPQ”) which is attached to this Complaint as Exhibit “3.” Plaintiff was also provided with a Seller’s Drainage Report (“SDR”). In addition, there were disclosures showing that Compass Realty represented both buyer and seller in the sale of the Subject Property.

23. None of the Seller provided documents indicated that here was any problem with the drainage, roof or waterproofing in the Subject Property. To the contrary, in the TDS, the only disclosed problem was that “insulation in the downstairs bedroom was installed backwards.” In the SPQ, representations were made that extensive repairs and replacements were made to the Subject Property, including “HVAC/Electrical/Plumbing/roof/gutters/foundation/added sump pump/added drainage (see plan) -new retaining wall – interior doors-windows-walls-floors-appliances-ceilings” Under Water-Related and Mold Issues it was represented that “A-water intrusion at lower level in 2019 prior to drainage repairs by Farnsworth Builders was addressed and repaired in full.” No other conditions about the Subject Property were disclosed in the SPQ.

24. Prior to the close of escrow, the agents for both buyer and seller and Defendants represented the Subject Property as a full, premium first-class renovation of the Subject Property well worth the top dollar price demanded by the Seller. In reliance on these representations and on the disclosures, and representations set forth in the SPQ and TDS, Plaintiff proceeded to purchase the Subject Property for $4.100 mm.

25. Almost immediately after purchase of the Subject Property in June, 2022 and continuing during the remainder of the year, Plaintiff began to suffer numerous water intrusion events at the Subject Property. These intrusions included leaks from the roof in numerous places, leaks from the windows and doors, and particularly leaks into the lower level of the Subject Property. These intrusion events continued throughout the rainy season and no repairs were undertaken by the Seller despite repeated demands therefor by Plaintiff and the giving of specific notice of said demands to Compass Realty, and despite Defendants having complained that the roof was brand new and under warranty. Despite the above set forth repeated demands that Seller, or Seller’s roofer repair the leaks, no roofer appeared to stand behind the ostensibly brand new roof. At considerable expense, Plaintiff has had to have the roof repaired by her own contractors.

26. On the lower level, moisture and liquid water came into the habitable space along almost the entire rear and side walls. These intrusions severely damaged the walls, the framing, and the hardwood floor. Because of the continued nature of the moisture intrusions, significant mold growth began on the affected areas. All of the above rendered the entire Subject Property uninhabitable.

27. In addition, and despite the claim that a new drainage plan had been installed, surface run off came down the side of the house into the new pool, and into the crawl space under the house and the newly added rear stairs, damaging the framing and creating unacceptably high moisture levels under the house, that was inadequately ventilated and subject to accelerated mold growth and water damage to the house

28. Despite plans showing the installation of new retaining walls at the rear of the lower level, inspections in the wake of the water intrusion events have revealed absolutely no drainage or waterproofing behind these new walls or the pre-existing walls. Moreover, these inspections show that the ostensible upgrading of the lower level from an unapproved basement, into additional living space consisted only of the addition of new surface finishes and nominal improvements to the pre-existing stem walls – none of which included the installation of drainage and waterproofing necessary to render the lower-level habitable space.

29. Following the repeated water intrusions, further more invasive inspections were made, which revealed that no effort was made to control sub-terranean water in the lower level, even though the finish floor level on three of the four sides of the lower level is somewhere between 1-5 feet below the immediately adjacent grade.

30. Moreover, it is clear from the SPQ, that Defendants knew that water had previously intruded into the lower level, and, consequently, it is axiomatic that the Seller knew or should have known that the lower level was not adequately waterproofed for human habitation and was susceptible to unacceptable water intrusion. Furthermore, as evidenced by the initial and sustained water intrusion into the lower level after the purchase of the Subject Property, Seller’s representation that “water intrusion at lower level . . . was addressed and repaired in full” was completely false.

31. Finally, said further invasive inspections of the condition of the original retaining walls in the lower level (all of which were concealed behind new finishes installed by Seller, but exposed when damaged interior finishes were removed for repair) have revealed that these walls were obviously completely unsuitable for below grade habitable space, in that they almost certainly part of the original construction, were poorly constructed in the first instance, consisted of low strength, low density, obviously high porosity concrete with significant exposed aggregate.

32. Plaintiff contends and alleges that any marginally competent builder would know that walls of this nature and condition present essentially no impediment to vapor or liquid water intrusion and subterranean moisture. Moreover, the portion of these walls along the exterior of the residence were directly subject to rainfall and absolutely no surface moisture control was installed on the West side of the Subject Property, which was also subject to run off from the upper-level front yard.

33. In addition, removal of the newly installed, but now water damaged, hardwood floor on the lower level, revealed that it was installed directly on the existing slab, has no waterproofing or moisture membrane and is a completely inadequate installation for any slab on grade condition, let alone a below grade situation. Already, significant portions of the floor have been damaged and because of color matching concerns, the entire floor may need to be replaced. It has also come to light that the actually installed drainage deviates substantially from the approved plans and has contributed to all of the above.

34. Because the lower level is now fully built out, it will be extremely difficult and expensive to access the soil side of the existing below grade concrete retaining walls and install the drainage and waterproofing necessary to make the lower level of the Subject Property actually habitable and not subject to further water intrusion. Because many of these walls are structural, it will almost certainly be necessary to shore up the structure while excavation around these walls is undertaken.

35. Because of the poor condition of the existing walls, some may need to be replaced, and that will damage the stucco on the exterior. Because the house has a smooth Santa Barbara Mission finish, it will not be possible to color match and blend these repairs, necessitating full refinishing of substantial portions of the exterior. 36. In the wake of the appearance of all of the above alleged construction defects, an investigation of the building records for the Subject Property was undertaken and have showed that essentially all of the building permits for the renovation were pulled by Saban under the “Owner-Builder” exception. Saban used said exception, even though, at all times since the purchase of the Subject Property, it was her intention to renovate it and put it up for sale. As such, the exception was not properly invoked by her.

37. Plaintiff contends that as the Owner-Builder, Saban was obligated, in the renovation of the Subject Property, to comply with all applicable building standards and codes, as if she were a licensed contractor. Moreover, Saban as Owner-Builder accepted liability for defective design and construction, in order to obtain the permits to renovate the Subject Property.  Specifically, Saban represented that she was the owner of the property. In her applications for permits to renovate the Subject Property, she stated, either directly, or through her authorized agents, in part that “I understand as an Owner-Builder if I sell the property for which this permit is issued, I may be held liable for any financial or personal injuries sustained by any subsequent owner(s) that result from any latent construction defects in the workmanship or materials.”

38. As Sellers, the Defendants well know, Plaintiff paid nearly $2,000 per square foot for the Subject Property. Repairs consistent with this price point are very costly and must be consistent with the interior and exterior finish in place at the time of purchase. Furthermore, all of the above alleged damage and the necessary repairs must be disclosed by Plaintiff to any future buyer, and will substantially reduce the market value of the Subject Property, causing her to suffer yet further damage.

39. Plaintiff further alleges that when she purchased the Subject Property, it was her intention to move her family into the house and sell her existing home. However, because of all of the above alleged damage, the continuing water intrusion, the continuing leaks from the poorly installed roof, the need to demolish damaged interior finishes and the disruption from all these efforts at repair, Plaintiff has been unable to use or occupy the Subject Property at all, to lease it to others on favorable terms, or get any beneficial use of the Subject Property at all. As a result, Plaintiff did not receive the bargained for consideration in purchasing the Subject Property.

40. As a direct and proximate result of her inability to move into the Subject Property, she has been unable to sell the residence she had intended to sell, is suffering the cost of maintaining the Subject Property, paying taxes on the Subject Property, paying the costs associated with trying to repair the Subject Property and has lost the beneficial use of the funds dedicated to the purchase of the Subject Property – all to her damage.

41. Further investigation is likely to reveal yet further problems with the Subject Property.

42. On or about July 23, 2023, and in light of Defendants’ breaches of contract, fraudulent misrepresentations and concealments, Plaintiff made formal demand upon Defendants for Rescission of the purchase of the Subject Property. Said demand for rescission has been formally rejected by Defendants. Notwithstanding said formal rejection, in this proceeding, Plaintiff continues to pursue rescission as a remedy for Defendants’ breaches of contract, and fraudulent misrepresentations and concealments that have denied her the bargained for consideration sought by entering into the PSA.

[…]

67. Defendants, and each of them, actively misrepresented and deliberately concealed the true facts regarding the condition, habitability and defective nature of the construction at the Subject Property from Plaintiff and they deliberately misrepresented and concealed the true facts known to them or failed to make any reasonable investigation to determine the true facts from which representations were made as to the condition of the Subject Property to determine whether they were true or false, and without having any sufficient basis on which to make any representations, knowingly made false representations, concealing the true condition of the Subject Property as set forth in her Complaint.

68. Defendants, and each of them, misrepresented and concealed the facts when they each knew the true and correct facts regard the Subject Property.

69. The misrepresentations and concealment of the true facts from Plaintiff was done with the intent to induce Plaintiff to enter into the PSA.

70. Plaintiff’s reliance on statements made by the Defendants, and each of them, was justified in that Defendants had owned the Subject Property since 2019 and were responsible for the demolition and construction of the completely renovated residence sold to Plaintiff and which Defendants – as the Owner-Builder - had actual and personal knowledge of the condition of the Subject Property and the specific construction undertaken.

71. As a proximate result of the fraud and deceit alleged herein, Plaintiff was fraudulently induced to purchase the substantially defective Subject Property, and as a result, Plaintiff has been damaged in that Plaintiff has been forced to incur certain costs and expenses of correcting the defects and problems at the Subject Property and has not received the benefit of her bargain with Defendants pursuant to the PSA. Plaintiff is informed and believes that it will cost in excess of $500,000 to correct the defective condition of the Subject Property and as such the purchase price of $4,100,000 was substantially in excess of the actual value of the Subject Property and caused substantial damage to Plaintiff as a result of said fraudulent misrepresentations. Prior to the filing of this Complaint, and as a result of these fraudulent misrepresentations and concealments, Plaintiff has formally demanded rescission of the PSA in issue as well as all consequential damages, and Defendants have formally rejected said demand. In this proceeding and as a remedy for Defendants’ fraudulent misrepresentations and concealments as herein alleged, Plaintiff continues to demand that the Defendants rescind the PSA and compensate her for all damages recoverable in addition to said rescission. In the alternative, or in the event that the remedy of rescission is not awarded to her, Plaintiff seeks all damages otherwise recoverable from Defendants for their fraudulent misrepresentations and concealments, including, but not limited to all damages for both the out-pocket-costs she has or will have incurred to resolve the above referred to repairs and defects as well as the diminution in the fair market value of the Subject Property and her loss of its beneficial use.

72. In doing the acts alleged in her Complaint for fraud, Defendants, and each of them, acted with oppression, fraud, and malice as defined in Civil Code § 3294, and Plaintiff is entitled to punitive damages. The proceedings and conduct of the Defendants, and each of them, as indicated above were willful, wanton and done with malice with a conscious disregard for the rights of Plaintiff, and were intended to oppress and cause her to suffer severe emotional distress and injury.

(Complaint at ¶¶ 9-14, 19-42, 67-72.)  Thus, the Court determines that the complaint adequately alleges specific facts that:

·       Defendant is responsible as the alter ego of TNS, the seller. (Complaint ¶¶ 9-20.)

·       As the seller and owner-builder, Defendant had a legal obligation to disclose all facts material to the condition of the property and is legally liable for future injuries caused by latent construction defects. (Complaint ¶¶ 36-38.)

·       Defendant knew about the water intrusion issues, by virtue of its disclosure in the SPQ that “A-water intrusion at lower level in 2019 prior to drainage repairs by Farnsworth Builders was addressed and repaired in full.” (Complaint ¶ 23.)  Defendant also had personal knowledge of these issues, because Defendant obtained permits for the renovation work under the owner-builder exception. (Complaint ¶ 36.)

·       Defendant’s representation that the water intrusion into the lower level was addressed and repaired in full was false when made, as Defendant’s repairs actually concealed the extent of the water intrusion problems, instead of repairing them.  (Complaint ¶¶ 27-33.)

·       Plaintiff relied on these misrepresentations/concealment of the extensive water intrusion and the representation that “a full, premium first-class renovation” had been made to the property in paying the “top dollar price” of $4.1 million to purchase the property. (Complaint ¶ 24.)

·       Plaintiff has been damaged because the home is uninhabitable, preventing her from living there, from renting it out to others, or from selling it.  Meanwhile, Plaintiff has to bear the extensive repair costs.  (Complaint ¶¶ 38-40; 56)

·       Plaintiff would not have purchased the property had she known about the issues, and in fact Plaintiff attempted to rescind the purchase contract upon discovering the extent of the water intrusion issues.  (Complaint ¶ 42.)

Therefore, the Court overrules Defendant’s demurrer.

2.     MOTION TO STRIKE

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.) 

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.

(Civ. Code, § 3294, subd. (c)(1)-(3), emphasis added.) 

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”].) 

Moreover, “the imposition of punitive damages upon a corporation is based upon its own fault.  It is not imposed vicariously by virtue of the fault of others.”  (City Products Corp. v. Globe Indemnity Co. (1979) 88 Cal.App.3d 31, 36.)  “Corporations are legal entities which do not have minds capable of recklessness, wickedness, or intent to injure or deceive.  An award of punitive damages against a corporation therefore must rest on the malice of the corporation’s employees.  But the law does not impute every employee’s malice to the corporation.  Instead, the punitive damages statute requires proof of malice among corporate leaders:  the officers, directors, or managing agents.”  (Cruz v. Home Base (2000) 83 Cal.App.4th 160, 167 [cleaned up].) 

            Here, as discussed above, Plaintiff has adequately alleged facts with requisite specificity to state a claim for fraud against Defendant.  Moreover, the Complaint alleges specific facts about Defendant’s personal involvement with creating (and then dissolving) TNS, about Defendant’s comingling of funds with TNS, and Defendant’s personal knowledge and involvement in the renovations, by virtue of the fact that Defendant pulled the “owner-builder” permits to do the construction work.  As such, the Court finds the allegations adequately support a claim for punitive damages against Defendant.

CONCLUSION AND ORDER

For the reasons stated, the Court overrules Defendant’s Demurrer to the Fourth Cause of Action, and denies Defendant’s motion to strike punitive damages from the Complaint. 

Further, the Court orders Defendant to file and serve an answer to the Complaint on or before September 4, 2024. 

Further, on the Court’s own motion, the Court continues the Case Management Conference from August 27, 2024 to October 29, 2024 at 8:30 A.M. in Department 207.  All parties shall comply with California Rules of Court, rules 3.722, et seq., regarding Initial and Further Case Management Conferences.  In particular, all parties shall adhere to the duty to meet and confer (Rule 3.724) and to the requirement to prepare and file Case Management Statements (Rule 3.725). 

Defendant shall provide notice of the Court’s orders and file the notice with a proof of service forthwith. 

DATED:  August 14, 2024                                                     ___________________________

                                                                                          Michael E. Whitaker

                                                                                          Judge of the Superior Court