Judge: Michael P. Linfield, Case: 22STCV13776, Date: 2023-02-24 Tentative Ruling
Case Number: 22STCV13776 Hearing Date: February 24, 2023 Dept: 34
SUBJECT: Demurrer
to First Amended Complaint
Moving Party: Defendants
LA Stainless Kings, Inc. and Szabolcs Apai
Resp. Party: Plaintiff Pasta Sisters Trucks LLC
Defendants’ Demurrer is OVERRULED.
BACKGROUND:
On April 26, 2022, Plaintiff Pasta Sisters Trucks LLC filed its
Complaint against Defendants LA Stainless Kings, Inc. and Szabolcs Apai on
causes of action regarding the sale of a food truck.
On September 19, 2022, the Court sustained in
part Defendants’ Demurrer to the Complaint. The Court sustained the Demurrer
with leave to amend the Complaint as to the causes of action for breach of
fiduciary duty, rescission, violation of Vehicle Code section 11700, and
violation of the Unfair Competition Law. The Court sustained the Demurrer
without leave to amend the Complaint as to the cause of action for restitution.
The Court overruled the Demurrer as to the cause of action for breach of
contract and the alter ego allegations.
On October 10, 2022, Plaintiff filed its
First Amended Complaint (FAC), which includes the following causes of action:
(1) Breach of contract;
(2) Breach of fiduciary
duty;
(3) Rescission;
(4) Violation of Vehicle
Code section 11700; and
(5) Violation of Unfair
Competition Laws.
On January 10, 2023, Defendants filed their
Demurrer to the FAC. Defendants concurrently filed: (1) Declaration of Gabor
Szabo; and (2) Request for Judicial Notice.
On February 8, 2023, Plaintiff filed its
Opposition.
No reply or other response has been filed.
ANALYSIS:
I.
Request
for Judicial Notice
Defendant requests that the Court take judicial notice of the Complaint
filed in this matter.
Judicial notice is denied as superfluous. Any
party that wishes to draw the Court’s attention to a matter filed in this
action may simply cite directly to the document by execution and filing date.
(See Cal. Rules of Court, rule 3.1110(d).)
II.
Legal
Standard
A demurrer is a pleading used to test the legal sufficiency of other
pleadings. It raises issues of law, not fact, regarding the form or content of
the opposing party’s pleading. It is not the function of the demurrer to
challenge the truthfulness of the complaint; and for purpose of the ruling on
the demurrer, all facts pleaded in the complaint are assumed to be true,
however improbable they may be. (Code Civ. Proc., §§ 422.10, 589.)
A demurrer can be used only to challenge defects that appear on the
face of the pleading under attack; or from matters outside the pleading that
are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No
other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A
demurrer is brought under Code of Civil Procedure section 430.10 (grounds),
section 430.30 (as to any matter on its face or from which judicial notice may
be taken), and section 430.50(a) (can be taken to the entire complaint or any
cause of action within).
A demurrer may be brought under Code of Civil Procedure section 430.10,
subdivision (e) if insufficient facts are stated to support the cause of action
asserted. A demurrer for uncertainty (Code of Civil Procedure section 430.10,
subdivision (f)), is disfavored and will only be sustained where the pleading
is so bad that defendant cannot reasonably respond—i.e., cannot reasonably
determine what issues must be admitted or denied, or what counts or claims are
directed against him/her. (Khoury v. Maly's of Calif., Inc. (1993) 14
Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague,
“ambiguities can be clarified under modern discovery procedures.” (Id.)
III.
Discussion
Defendants demur to the second, third, fourth, and fifth causes of
action in the FAC.
A. Breach of Fiduciary Duty
1.
Legal
Standard
“The elements of a cause of action for breach of fiduciary
duty are the existence of a fiduciary relationship, its breach, and damage
proximately caused by that breach.” (City of Atascadero v. Merrill Lynch,
Pierce, Fenner, & Smith, Inc. (1998) 68 Cal.App.4th 445, 483.)
“There are¿two kinds¿of fiduciary duties — those imposed by
law and those undertaken by agreement.” (Gab Bus. Servs. v. Lindsey &
Newsom Claim Servs. (2000) 83 Cal.App.4th 409, 416, emphasis omitted,
overruled in part on other grounds by Reeves v. Hanlon (2004) 33 Cal.4th
1140, 1154.)
“Fiduciary duties are imposed
by law in certain technical, legal relationships such as those between partners
or joint venturers, husbands and wives, guardians and wards, trustees and
beneficiaries, principals and agents, and attorneys and clients.” (Id.,
citations omitted.) ¿
“A fiduciary duty is undertaken by agreement when one person
enters into a confidential relationship
with another.” (Id. at 417.)
2.
Discussion
Defendants argue that Plaintiff’s second cause of action for breach of
fiduciary duty must fail because no facts are pled in the FAC to establish a
fiduciary relationship. (Demurrer, p. 8:18–19.) Defendants claim that Plaintiff
has not pled the critical details for proving such a relationship, that the
contract is not attached to the FAC, and that the allegations are conclusory
without factual support. (Id. at pp. 7:21–28, 8:1-17.)
Plaintiff disagrees, arguing: (1) that the law is clear that a broker
acts in a fiduciary capacity and that making this explicit in the FAC is
unnecessary; (2) that whether a fiduciary relationship exists in any given
situation is a question of fact; and (3) that sufficient allegations are made
in the FAC to plead a claim against Defendants for breach of fiduciary duty.
(Opposition, p. 16:6–23.)
Prior to signing the Contract, Plaintiffs allege that they saw and
believed representations that Defendants had expertise “as builders, merchants,
and agents for consumers and businesses desiring to acquire and operate
commercial food trucks”. (FAC, ¶ 16.) Plaintiffs then allege that the Parties
agreed in the contract that Defendants “shall assist Plaintiff in connection
with the purchase, by Plaintiff, of a commercial food concession truck”. (Id.
at ¶ 18.) While Plaintiffs admit that in the Contract Defendants were
represented as “a concession truck designer and manufacturer that assists
customers in manufacturing new customized concession trucks”, Plaintiffs argue
that the relationship under the Contract was actually a principal-agent
relationship, where Defendants were to act (and did act) as Plaintiff’s
brokers. (Id. at ¶¶ 17, 34–35.) The Contract has not been submitted to
the Court.
For the purposes of a demurrer, the Court must assume that the facts
pleaded are true, however improbable they are. Moreover, the Court agrees with
Plaintiff that it is a question of fact whether a fiduciary relationship
existed.
Plaintiff alleges in its FAC that a fiduciary relationship existed
because of a principal-agent relationship, where Defendants acted as
Plaintiff’s broker. This is sufficient to defeat Defendants’ arguments.
The Court OVERRULES the Demurrer to the second cause of action for breach
of fiduciary duty.
B. Rescission
1.
Legal
Standard
“A contract is extinguished by its
rescission.” (Civ. Code, § 1688.)
“A contract may be rescinded if all the
parties thereto consent.” (Civ. Code, § 1689, subd. (a).)
“A party to a contract may rescind the
contract in the following cases:
1.
“If the consent of the party rescinding, or of any party jointly
contracting with him, was given by mistake, or obtained through duress, menace,
fraud, or undue influence, exercised by or with the connivance of the party as
to whom he rescinds, or of any other party to the contract jointly interested
with such party.
2.
“If the consideration for the obligation of the rescinding party
fails, in whole or in part, through the fault of the party as to whom he
rescinds.
3.
“If the consideration for the obligation of the rescinding party
becomes entirely void from any cause.
4.
“If the consideration for the obligation of the rescinding party,
before it is rendered to him, fails in a material respect from any cause.
5.
“If the contract is unlawful for causes which do not appear in its
terms or conditions, and the parties are not equally at fault.
6.
“If the public interest will be prejudiced by permitting the
contract to stand.
7.
“Under the circumstances provided for in Sections 39, 1533, 1566,
1785, 1789, 1930 and 2314 of this code, Section 2470 of the Corporations Code,
Sections 331, 338, 359, 447, 1904 and 2030 of the Insurance Code or any other
statute providing for rescission.”
(Civ. Code, § 1689, subd. (b)(1–7).)
2.
Discussion
Defendants argue that Plaintiff’s third cause of action for rescission
must fail because: (1) rescission is a remedy and not a cause of action; (2)
Plaintiff’s allegations in the FAC are conclusory and not supported by specific
facts; (3) it is uncertain against which defendant Plaintiff’s allegations are
made; (4) fraud claims must meet the heightened pleading standard; and (5) the
allegations are not sufficient to constitute rescission under theories of
fraud, negligent misrepresentation, or promissory fraud. (Demurrer, pp., 9:8–10,
10:1–25.) Defendant cites Nakash v. Superior Court (1987) 196 Cal.App.3d
59, 70.
Plaintiff disagrees, arguing that rescission is a cause of action
recognized in the State of California. (Opposition, p. 17:2–28.) Plaintiff
cites Marzec v. Public Employees’ Retirement System (2015) 236
Cal.App.4th 889, 913–15; Datig v. Dove Books (1999) 73 Cal.App.4th 964,
fn. 19; and Odorizzi v. Bloomfield School District (1966) 246 Cal.Ap.3d
123, 135.
The Court notes that there is a disagreement among the Courts of Appeal
in reasoning, although not outcome, regarding whether the Court should sustain
a demur to a cause of action for rescission.
According to the authority Defendants cite, “[r]escission is not a
cause of action; it is a remedy.” (Nakash, supra, at 70, citing
Civ. Code, § 1689.) But according to the authority Plaintiff cites, “[w]e do
hold that [a plaintiff’s pleading] states a cause of action for rescission of a
transaction to which his apparent consent had been obtained through the use of
undue influence.” (Datig, supra, at 135.) Plaintiff also cites
the most recent of the cases, which “conclude[s] that plaintiffs have stated a
cause of action for rescission.” (Marzec, supra, at 914.)
Any disagreement between the Courts of Appeal appears to be a
distinction without a difference. Even in Nakash, where the trial court
had denied summary adjudication on the causes of action involving rescission,
the Court of Appeal found “no error in the trial court’s denial of summary
adjudication in this case.” (Nakash, supra, at 70.) To the extent
that there is a true conflict, the Court chooses to follow the Datig line
of cases. (See Auto Equity Sales, Inc. v. Super. Ct. (1962) 57 Cal.2d
450, 456 (requiring the trial court to pick between appellate court decisions
when those decisions are in conflict).)
Furthermore, the Court notes that none of the cases cited appear to
have a thorough discussion of the statutory authority for a cause of action for
rescission. The Court cited Civil Code sections 1688 and 1689 above in its
legal standard. However, the causes of action are also rooted in Civil Code
sections 1691 through 1693.
“When
a contract has been rescinded in whole or in part, any party to the contract
may seek relief based upon such rescission by (a) bringing an action to
recover any money or thing owing to him by any other party to the contract as a
consequence of such rescission or for any other relief to which he may be
entitled under the circumstances or (b) asserting such rescission by way
of defense or cross-complaint.” (Civ. Code, § 1692, rest of statute omitted for
brevity.)
“When relief
based upon rescission is claimed in an action or proceeding, such relief shall
not be denied because of delay in giving notice of rescission unless such delay
has been substantially prejudicial to the other party.” (Civ. Code, § 1693,
rest of statute omitted for brevity.)
“When notice of
rescission has not otherwise been given or an offer to restore the benefits
received under the contract has not otherwise been made, the service of a
pleading in an action or proceeding that seeks relief based on rescission shall
be deemed to be such notice or offer or both.” (Civ. Code, § 1691, rest of
statute omitted for brevity.)
Upon considering these statutes, along with the relevant case law, the
Court finds Plaintiff to be correct in arguing that a cause of action for
rescission is recognized in the State of California. Further, Plaintiff has
pleaded sufficiently certain allegations for the cause of action, including any
that would require the heightened standard for fraud. (FAC, ¶¶ 54–60.)
The Court OVERRULES the Demurrer to the third cause of action for
rescission.
C. Violation of Vehicle Code section 11700
1.
Legal
Standard
“No person shall act as a dealer, remanufacturer,
manufacturer, or transporter, or as a manufacturer branch, remanufacturer
branch, distributor, or distributor branch, without having first been issued a
license as required in Section 11701 or temporary permit issued by the
department, except that, when the license or temporary permit has been
canceled, suspended, or revoked or has expired, any vehicle in the dealer’s
inventory and owned by the dealer when the dealer ceased to be licensed may be
sold at wholesale to a licensed dealer. . . .” (Veh. Code, § 11700.)
2.
Discussion
a.
Arguments
to the Renewed Cause of Action
The Court sustained the prior Demurrer to this cause of action
(violation of Vehicle Code section 11700) with leave to amend the Complaint.
The Court did so after the Court took judicial notice of the corporate
Defendant’s occupational license from the Department of Motor Vehicles and did
not find that the allegations stated a violation of Vehicle Code section 11700.
Plaintiff’s FAC renews this cause of action, arguing that a violation
of Vehicle Code section 11700 occurred because the corporate Defendant’s
occupational license is only as a “Wholesale-Only Dealer,” which by the terms
of the license only allows sales between licensed dealers. Plaintiff is not a licensed delear. (FAC, ¶
64.) The FAC also cites Code of Civil Procedure section 1029.8 to establish the
private right of action and treble damages. (FAC, ¶¶ 65–66.)
Defendants argue that Vehicle Code
section 11700 was not triggered, much less violated, because Defendants were
hired to build out a commercial kitchen on a shell vehicle purchased by
Plaintiff, not to manufacture a vehicle. (Demurrer, p. 11:20–25.) Defendants
further argue that the allegations in the FAC are that Defendants only promised
to assist Plaintiff in finding and purchase a vehicle suitable to build the
desired “Truck” on. (Id. at 12:1–13.)
Rather than argue the merits, Plaintiff
argues that Defendants have made a speaking objection to this cause of action
and that at this time the Court should not conclude that Defendants did not
require a license or conclude that Defendants possessed the correct license.
(Opposition, p. 18:2–7, 18:23–26.)
b.
Statutory
Definitions
The legislature has explicitly defined
the terms used in the Vehicle Code.
“A ‘vehicle’ is a device by which any person or
property may be propelled, moved, or drawn upon a highway, excepting a device
moved exclusively by human power or used exclusively upon stationary rails or
tracks.” (Veh. Code, § 670.)
“A
‘remanufactured vehicle’ is a vehicle that has been constructed by a licensed
remanufacturer and consists of any used or reconditioned integral parts,
including, but not limited to, frame, engine, transmission, axles, brakes, or
suspension. Remanufactured vehicles may be sold under a distinctive trade name.
An existing vehicle which is incidently repaired, restored, or modified by
replacing or adding parts or accessories is not a remanufactured vehicle.”
(Veh. Code, § 507.5.)
“‘Vehicle
manufacturer’ is any person who produces from raw materials or new basic
components a vehicle of a type subject to registration under this code,
off-highway motorcycles or all-terrain vehicles subject to identification under
this code, or trailers subject to identification pursuant to Section 5014.1, or
who permanently alters, for purposes of retail sales, new commercial vehicles
by converting the vehicles into house cars that display the insignia of
approval required by Section 18056 of the Health and Safety Code and any
regulations issued pursuant thereto by the Department of Housing and Community
Development. As used in this section, ‘permanently alters’ does not include the
permanent attachment of a camper to a vehicle.” (Veh. Code, § 672, subd. (a).)
“A
‘remanufacturer’ is any person who for commission, money, or other thing of
value, produces a vehicle that consists of any used or reconditioned integral
parts, including, but not limited to, frame, engine, transmission, axles,
brakes, or suspension which is subject to registration under this code. A
remanufacturer is not a person who incidently repairs, restores, or modifies an
existing vehicle by replacing or adding parts or accessories.” (Veh. Code, §
507.8.)
“A ‘distributor’
is any person other than a manufacturer who sells or distributes new vehicles
subject to registration under this code, new trailers subject to identification
pursuant to Section 5014.1, or new off-highway motorcycles or all-terrain
vehicles subject to identification under this code, to dealers in this state
and maintains representatives for the purpose of contacting dealers or
prospective dealers in this state.” (Veh. Code, § 296.)
“‘Dealer’ is a person not otherwise expressly
excluded by Section 286 who:
“(a) For
commission, money, or other thing of value, sells, exchanges, buys, or offers
for sale, negotiates or attempts to negotiate, a sale or exchange of an
interest in, a vehicle subject to registration, a motorcycle, snowmobile, or
all-terrain vehicle subject to identification under this code, or a trailer
subject to identification pursuant to Section 5014.1, or induces or attempts to
induce any person to buy or exchange an interest in a vehicle and, who receives
or expects to receive a commission, money, brokerage fees, profit, or any other
thing of value, from either the seller or purchaser of the vehicle.
“(b) Is
engaged wholly or in part in the business of selling vehicles or buying or
taking in trade, vehicles for the purpose of resale, selling, or offering for
sale, or consigned to be sold, or otherwise dealing in vehicles, whether or not
the vehicles are owned by the person.”
(Veh. Code, § 285.)
Vehicle Code section 286 then goes on to list the exceptions to who is
a dealer. A partial list of the exceptions include: entities making a sale for
the purpose of saving the seller from loss or pursuant to the authority of a
court; salespersons of vehicles while acting in the scope of that employment;
persons engaged exclusively in the bona fide business of exporting vehicles or
of soliciting orders for the sale and delivery of vehicles outside the
territorial limits of the United States; lessors; renters; persons not engaged
in the purchase or sale of vehicles as a business; and persons engaged in the
purchase, sale, or exchange of vehicles that are not intended for use on the
highways.
“A ‘transporter’
is a person engaged in the business of moving any owned or lawfully possessed
vehicle by lawful methods over the highways for the purpose of delivery of such
vehicles to dealers, sales agents of a manufacturer, purchasers, or to a new
location as requested by the owner.” (Veh. Code, § 645, subd. (a).)
c.
Analysis
On a demurrer, the Court considers the allegations of the pleading and
determines whether, if taken as true, the allegations fail to constitute a
cause of action as a matter of law.
Plaintiffs allege in their FAC that the corporate Defendant is
responsible under the Contract for: (1) “assisting the Plaintiff in finding and
purchasing a vehicle suitable to build the desired Truck on”; (2) “ordering and
installing a wrap for the Truck”; and (3) ”manufacturing the Truck according to
and in compliance with the plan approved by the County, including professional
installation of appliances and manufacture of cabinets”. (FAC, ¶ 20.)
Based solely upon the allegations in the FAC, the Court finds for the
purposes of the Demurrer: (1) the “food truck” in question is a “vehicle” as that
term is defined by Vehicle Code section 670, but not a “remanufactured vehicle”
as that term is defined by Vehicle Code section 507.5; (2) Defendants are
dealers as that term is defined by the Vehicle Code sections 285, subdivision
(a) and 286 because the allegations are that, in exchange for money from
Plaintiff, Defendants negotiated and/or induced Plaintiff to buy a vehicle, and
no exceptions apply; and (3) that Defendants did not act as a manufacturer,
remanufacturer, distributor, or transporter (or as a branch of any of those) as
those terms are defined by the Vehicle Code.
Thus, on these allegations,
Vehicle Code section 11700 does apply here to Defendants. Further, as
Plaintiffs have alleged that they are not themselves licensed dealers, the Court
finds that Plaintiffs have sufficiently pleaded the elements for a cause of
action for violation of Vehicle Code section 11700.
The Court OVERRULES the Demurrer to the fourth cause of action for
violation of Vehicle Code section 11700.
D. Unfair Competition Law
1.
Legal
Standard
To set forth a claim for a violation of
Business and Professions Code section 17200 (“UCL”), Plaintiff must establish
Defendant was engaged in an “unlawful, unfair or fraudulent business act or
practice and unfair, deceptive, untrue or misleading advertising” and certain
specific acts. (Bus. & Prof. Code, § 17200.) A cause of action for unfair
competition “is not an all-purpose substitute for a tort or contract action.” (Cortez
v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173.)
2.
Discussion
Defendants argue that Plaintiff’s fifth cause of action for violation
of the UCL must fail because: (1) the FAC contains conclusory statements rather
than specific facts as to the cause of action for violation of the UCL; (2)
that Plaintiff has a remedy for breach of contract and thus has no standing to
bring a UCL violation claim; (3) that because the underlying claims fail, the
UCL claim must also fail; and (4) that the alleged underlying causes of action,
such as conspiracy and fraud, are not applicable here. (Demurrer, pp. 12:17–18,
13:1–4, 13:9–10, 14:12–16.)
Plaintiff disagrees, arguing: (1) that each prong of the UCL has been
claimed; (2) that the Demurrer mischaracterizes the scope of the predicate
laws; (3) that the Demurrer ignores highly particularized acts of unfair,
unlawful, and fraudulent conduct; and (4) that the Demurrer does not address
the FAC’s pleading of the UCL prongs. (Opposition, p. 20:1–6.)
The Court disagrees with Defendants’ arguments.
Among other things, Plaintiff alleges in its FAC that Defendants
engaged in false advertising and concealment, in violation of Vehicle Code
section 11713. (FAC, ¶ 72.)
Vehicle Code Section 11713 states in relevant part:
“A holder of a license issued under this article
shall not do any of the following: (a) Make or disseminate, or cause to be
made or disseminated, before the public in this state, in a newspaper or other
publication, or an advertising device, or by public outcry or proclamation, or
in any other manner or means whatever, a statement that is untrue or misleading
and that is known, or that by the exercise of reasonable care should be known,
to be untrue or misleading; or to so make or disseminate, or cause to be so
disseminated, a statement as part of a plan or scheme with the intent not to
sell a vehicle or service so advertised at the price stated therein, or as so
advertised.” (Veh. Code, § 11713, subd. (a).)
For the purposes of a demurrer, Plaintiff’s allegation that Defendants
engaged in misleading advertising and concealment in violation of Vehicle Code
section 11713 is sufficient to constitute a cause of action for violation of
the UCL. The allegation is not a conclusory statement; it is an allegation of
fact. Further, Defendant’s arguments about lack of standing, failure of the
underlying claims, and issues with causes of action such as conspiracy and/or
fraud are inapplicable here.
The Court OVERRULES the Demurrer to the fifth cause of action for
violation of the UCL.
E.
Procedural
Issues
Defendants demur to the entire FAC; their argument is based on allegations
of a sham pleading. (Demurrer, p. 4:22–24.)
Plaintiff argues that the sham pleading doctrine does not apply here.
(Opposition, p. 14:16.) Plaintiff further argues that the Demurrer is defective
because (1) the Demurrer was not signed as served upon Plaintiff, (2) the
Demurrer did not distinctly specify each of its grounds in separate paragraphs,
and (3) the title and notice of the Demurrer conflict with the Demurrer itself.
(Id. at pp. 13:24–28, 14:1–11.)
The Court does not find that the changes made to the FAC to constitute
a sham pleading.
The Court OVERRULES the Demurrer to the entire FAC on the basis of the
sham pleading doctrine.
IV.
Conclusion
Defendants’ Demurrer is OVERRULED.