Judge Michael P. Linfield, Case 22STCV23741 2023-01-17 Tentative Ruling

Judge: Michael P. Linfield, Case: 22STCV23741, Date: 2023-01-17 Tentative Ruling

Case Number: 22STCV23741 Hearing Date: January 17, 2023 Dept: 34

SUBJECT: Demurrer to Complaint

Moving Party: Defendants Homayoun Tony Namvar, Mousa Namvar, Houshang Namvar, and Ramin Namvar

Resp. Party: Plaintiff Farhad Kohanim

Defendants’ Defendants’ demurrer as to the first, second, third, and eighth causes of action is SUSTAINED with leave to amend.

Defendants’ demurrer as to the fourth, fifth, sixth, seventh, and ninth causes of action is OVERRULED.

BACKGROUND:

Plaintiff Farhad Kohanim (“Plaintiff”), acting in his role as Trustee of the Kohanim Revocable Trust commenced this action on July 22, 2022, alleging (1) fraud, (2) intentional misrepresentation, (3) negligent misrepresentation, (4) breach of contract, (5) accounting, (6) Penal Code section 496, (8) breach of implied covenant of good faith and fair dealing, and (9) conversion.

This action arises from a dispute regarding the NAM 5 Ltd. Venture Partner Agreement (the “Agreement”), in which Plaintiff invested $600,000 in exchange for profits and distributions arising from a real estate investment project called the “Mamila Project.” Plaintiff alleges that the Namvar Defendants fraudulently disposed of Plaintiff’s interest in the profits and distributions. Plaintiff also alleges that the Namvars refused to make the books and records relating to the Project available for inspection and auditing.

Defendants Homayoun Tony Namvar, Mousa Namvar, Houshang Namvar, and Ramin Namvar (collectively, the “Namvar Defendants”) filed the instant demur on December 9, 2022. Plaintiff filed an opposition, and Defendants filed a reply.

ANALYSIS:

I. Demurrer to Complaint

A. Legal Standard

¿A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, the defects must be apparent on the face of the pleading or via proper judicial notice. (Code Civ. Proc., §§ 430.30, 430.70; Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) The court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732.)

B. Discussion

Defendants demur to each cause of action. Defendants argue that the tort causes of action are barred by the economic loss rule, that the fraud causes of action are not plead with specificity, the causes of action for breach of fiduciary duty and accounting fail to allege the requisite relationship, the contract causes of action do not state a claim and are uncertain, and the Penal Code section 496 and conversion claims do not state a claim and are uncertain.

1. First, Second, and Third Causes of Action: Fraud, Intentional Misrepresentation, and Negligent Misrepresentation

Defendants argue that the fraud, intentional misrepresentation, and negligent misrepresentation fail because these causes of action violate the economic loss rule and they are not plead with the requisite specificity. In opposition, Plaintiff argues that the economic loss rule does not apply to claims of fraudulent inducement and the causes of action are plead with specificity.

a. Economic Loss Rule

The economic loss rule provides: '[W]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.' This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts. The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.” (Robinson Helicopter Co., Inc. v Dana Corp. (2004) 34 Cal.4th 979, 988 (citations omitted).)

“Tort¿damages¿have been permitted in contract cases where a breach of duty directly causes physical injury; for breach of the covenant of good faith and fair dealing in insurance contracts; for wrongful discharge in violation of fundamental public policy; or where the contract was¿fraudulently¿induced.¿In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.” (Id. at 989-990 [emphasis added].)

The Complaint alleges that “The Namvars intentionally misrepresented a joint venture business opportunity to Kohanim to invest in the Mamilla Project for the eventual sale of the real property after development. The Namvars misrepresented that Kohanim would receive distributions and profits from the eventual sale, if Kohanim invested $600,000 pursuant to the Joint Venture Agreement.” (Compl. ¶ 21.) Additionally, it alleges that “The Namvars representations were made with the intent to deceive and induce Kohanim to enter into the Joint Venture Agreement and invest $600,000 pursuant to the same.” (Compl. ¶ 23.) Likewise, the intentional and negligent misrepresentation causes of action allege that the Namvar Defendants misrepresentations occurred prior to entering into the Agreement. (Compl. ¶¶ 27-28, 35-36.)

Because the Complaint sufficiently alleges that the contract was fraudulently induced, which is an exception to the economic loss rule, the fraud causes of action are not barred.

b. Specificity

Defendants argue that the fraud causes of action fail because the Complaint does not allege facts with sufficient particularity.

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud, including negligent misrepresentation, must be plead with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) Fraud allegations need not be liberally construed, general pleading of the legal conclusion of fraud is insufficient, and every element of the cause of action for fraud must be alleged fully, factually and specifically. (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal. App. 3d 1324, 1331; see also Quelimane Co., Inc. v. Stewart Title Guaranty Co. (1998) 19 Cal. 4th 26, 47)

The Complaint alleges that: “The Navmars misrepresented that Kohanim would receive distributions and profits from the eventual sale, if Kohanim invested $600,000 pursuant to the Joint Venture Agreement.” (Complaint ¶ 21; see also Complaint ¶ 27, 35.) The Complaint proceeds to allege that “The Namvars had no intention to pay Kohanim any distributions and profits and effectively stole Kohanim’s significant investment after selling Kohanim’s interest in the Mamilla Project and failed to pay Kohanim distributions Kohanim was and is entitled to.” (Complaint ¶ 22; see also Complaint ¶ 28-29, 36-37.) Additionally, these representations “were made with the intent to deceive and induce Kohanim to enter into the Joint Venture Agreement and invest $600,000.” (Complaint ¶ 23; see also Complaint ¶ 30, 38.)

These allegations are insufficient to support a cause of action for fraud, intentional misrepresentation, and negligent misrepresentation. The Complaint does not state “how, when, where, to whom, and by what means the representations were tendered.” Because the Plaintiff is referring to the conduct of Defendants prior to entering into the Agreement, the language and form of the Agreement does not serve to satisfy this specificity requirement. Plaintiff must plead facts showing who made the statements, when the statements were made, and how the statements were made.

The Court sustains the demurrer as to the first, second, and third causes of action with leave to amend.

2. Fifth and Sixth Causes of Action for Accounting and Breach of Fiduciary Duty

Defendants argue that Plaintiff has not sufficiently plead a relationship between Plaintiff and Defendants to support these causes of action. Additionally, Defendants argue that the economic loss rule bars the causes of action for accounting and breach of a fiduciary duty.

a. Existence of a relationship

Defendant argues that the Complaint fails to allege a relationship between the parties that supports these causes of action.

The necessary elements for a breach of fiduciary duty cause of action are: (1) the existence of the fiduciary duty; (2) the defendant’s breach of the duty; and (3) damage caused by the breach. (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 182.)

An accounting claim requires the existence of a relationship requiring accounting, such as fiduciary, and some unliquidated and unascertained balance that is owed. (St. James Church of Christ Holiness v. Superior Court (1955) 135 Cal.App.2d 352, 359; Raymond v. Independent Growers, Inc. (1955) 133 Cal.App.2d 154, 160; Kritzer v. Lancaster (1950) 96 Cal.App.2d 1, 7 [“a cause of action for accounting need only state facts showing the existence of the relationship which requires an accounting and the statement that some balance is due the plaintiff.”]; see also Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179 ["[A] fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting.”].)

The Complaint pleads that “The Namvars are in a fiduciary relationship with Kohanim as partners pursuant to the Joint Venture Agreement” (Complaint, ¶ 50) and “The Namvars owed Kohanim fiduciary duties of care and undivided loyalty in connection with the Venture Partner Agreement.” (Complaint ¶ 56.)

Additionally, a partnership is a fiduciary relationship. “In all proceedings connected with the conduct of the partnership every partner is bound to act in the highest good faith to his copartner and may not obtain any advantage over him in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind.” (Enea v. Sup.Ct. (2005) 132 Cal.App.4th 1559, 1564.)

The allegations that the parties were partners in an agreement and that the Namvar Defendants owed Plaintiff fiduciary duties of care in connection with the Agreement is sufficient to support a cause of action for breach of fiduciary duty. Furthermore, because Plaintiff has adequately plead that there was a fiduciary relationship and that a balance is owed to Plaintiff as a result of that relationship, Plaintiff has sufficiently alleged a relationship between the parties that supports a cause of action for accounting.

b. Economic Loss Rule

Defendants argue that these causes of action are barred by the economic loss rule.

However, breach of fiduciary duty and accounting are duties that arise independent of the contractual duty. These duties of loyalty and accounting arise out of the nature of the fiduciary relationship, not the Agreement itself.

Defendants’ demurrer as to the fifth and sixth causes of action is overruled.

3. Fourth and Eighth Causes of Action for Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing

Defendants argue that the causes of action for breach of contract and breach of implied covenant of good faith and fair dealing fail because they are uncertain and fail to state a claim. They also argue that the breach of implied covenant of good faith and fair dealing fails because it does not state facts distinct from the breach of contract cause of action.

A demurrer for uncertainty will be sustained only where the complaint is so bad that defendant cannot reasonably respond—i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

To state a claim for breach of contract, a plaintiff must have plead (1) the existence of a contract, (2) his or her performance of the contract or excuse for non-performance, (3) the defendant's breach, and (4) resulting damage. (Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal.App.3d 1371, 1388 (1990)).

“A breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself and it has been held that bad faith implies unfair dealing rather than mistaken judgment.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated … [T]he only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” (Id. at pp. 1394-1395.) To recover in tort for breach of the implied covenant, the defendant must “have acted unreasonably or without proper cause.” (Id. at p. 1395, citations and italics omitted.)¿

First, Plaintiff’s claim for breach of contract and breach of implied covenant of good faith and fair dealing are not uncertain. The claim clearly states that Namvar Defendants breached the Agreement entered into on December 30, 2008. (Complaint ¶ 12.) The Agreement is attached to the Complaint as Exhibit A. The complaint alleges that “The Namvars breached their obligations under the Venture Partner Agreement by, among other things, disposing of Kohanim’s interest in the profits and distributions from the Mamilla Project and the Mamilla Real Property, by selling all interests that Kohanim and The Namvars held in the Mamilla Real Property for at least $6,000,000 and failing to pay Kohanim a single cent in distributions, failing and refusing to provide Kohanim access to NAM 5 LTD.’s books and records, and failing and refusing to mediate this instant dispute.” (Complaint ¶ 46.) This is not uncertain.

However, Defendants argue that the breach of the implied covenant of good faith and fair dealing claim fails because the Complaint does not allege any specific breach of the implied covenant apart from the alleged breach of the Agreement. The Complaint states “The Navmars conduct prevented Kohanim from receiving benefits under the Venture Partner Agreement, including by selling the property for at least $6,000,000, which would entitle Kohanim to distributions but not paying Kohanim any money . . . By committing the conduct detailed above, The Namvars did not act fairly and in good faith and Kohanim was harmed by The Namvars’ conduct.” (Complaint ¶¶70-71.)

These allegations rely on the same facts as the breach of contract claim. Although Plaintiff states Defendants “did not act fairly and in good faith,” this is conclusory and the accompanying facts that show lack of good faith are the same facts that show breach of contract.

Defendants’ demurrer to the fourth cause of action for breach of contract is overruled. Defendants’ demurrer to the eighth cause of action for breach of implied covenant of good faith and fair dealing is sustained with leave to amend.

4. Seventh and Ninth Causes of Action for Violation of Penal Code Section 496 and Conversion

Defendants allege that the seventh and ninth causes of action are barred by the economic loss rule and are uncertain.

a. Economic Loss Rule

Penal Code section 496 provides that

“(a) Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained, shall be punished by imprisonment in a county jail for not more than one year, or imprisonment pursuant to subdivision (h) of Section 1170…

(c) Any person who has been injured by a violation of subdivision (a) or (b) may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney's fees.”

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) “The tort of conversion applies to personal property, not real property.” (Salma v. Capon (2008) 161 Cal.App.4th 1275, 1295.)

The Complaint states that Plaintiff “entered into the Joint Venture Agreement and paid and performed thereunder in reliance on The Namvars’ fraudulent misrepresentations, assurances, omissions and conduct… The Namvars intentionally and fraudulently appropriated said funds for their own selfish purposes in contravention of the purposes said funds were paid and in violation of law, in turn considered making said funds stolen property as a matter of law.” (Complaint ¶¶ 62-63.)

The Complaint asserts that these claims arise not from Defendants’ contractual duty, but rather from Defendants’ conduct prior to entering into the contract, which caused Plaintiff to give Defendants his money due to a false promise. This money was then never returned to Plaintiff because the Namvar Defendants “knowingly and intentionally [took] possession of, prevent[ed] Kohanim from having access to, and refus[ed] to return the $600,000 to Kohanim.” (Complaint ¶ 75.) These causes of action then arise from the conduct prior to the Agreement and are not barred by the economic loss rule.

b. Uncertainty

Defendants also attempt to argue that these causes of action are uncertain.

Defendants’ arguments here are confusing because they allege that the “Complaint generically alleges recites the elements of each cause of action, the Complaint fails to allege with any sort of specificity how the Namvars purportedly – and “intentionally and fraudulently” – stole or even “interfered with” property owned by Kohanim.” (Demurrer 19:28-20:2.) They argue that this failure renders the causes of action ambiguous and unintelligible.

These causes of action are not uncertain, ambiguous, or unintelligible. Defendants admit that the Complaint recites the elements of each cause of action, and heightened specificity is not required to plead these causes of action. The causes of action sufficiently plead that Defendants wrongfully withheld and disposed of Plaintiff’s $600,000. This is sufficient.

Defendants’ demurrer to the seventh and ninth causes of action are overruled.

C. Conclusion

Defendants’ demurrer as to the first, second, third, and eighth causes of action is sustained with leave to amend.

Defendants’ demurrer as to the fourth, fifth, sixth, seventh, and ninth causes of action is overruled.