Judge: Michelle Williams Court, Case: 22STCV06818, Date: 2022-10-11 Tentative Ruling

Case Number: 22STCV06818    Hearing Date: October 11, 2022    Dept: 74

22STCV06818           MITCH JACOBS vs SCOTT COHEN

Cross-Defendants Mitch Jacobs and Fanbank, Inc.’s Demurrer to Cross-Complaint

TENTATIVE RULING:  The demurrer is OVERRULED.  Cross-Defendants shall have 20 days to answer the cross-complaint.

Background

On February 24, 2022, Plaintiff Mitch Jacobs filed this action against Defendant Scott Cohen asserting causes of action for: (1) breach of written contract; (2) breach of partnership agreement; (3) breach of fiduciary duty; and (4) accounting. The Complaint alleges the parties formed a partnership to develop business opportunities and contribute to existing projects.

On July 1, 2022, Scott Cohen filed a cross-complaint against Mitch Jacobs and Fanbank, Inc. asserting causes of action for: (1) breach of written contract; (2) breach of implied contract; (3) restitution; and (4) promissory estoppel.

Demurrer and Motion to Strike

On August 17, 2022, Cross-Defendants Mitch Jacobs and FanBank, Inc. filed their demurrer to each of the causes of action asserted in the cross-complaint. FanBank alone demurs to the first cause of action for breach of contract and both Cross-Defendants demur to the other three causes of action.

Opposition

In opposition, Cross-Complainant contends he can enforce the contract at issue as an assignee or third-party beneficiary, his other claims are distinct and pled in the alternative, the claims are timely, and the cross-complaint alleges sufficient facts to hold Cross-Defendant Jacobs is individually liable. 

Reply

In reply, Cross-Defendants reiterate their arguments in the initial demurrer and note the third-party beneficiary theory is not alleged in the cross-complaint.

Discussion

Meet and Confer

Cross-Defendants submitted the declaration of William Wargo, which satisfies the requirements of Code of Civil Procedure section 430.41.

Demurrer

Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) 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.) A complaint need not allege evidentiary facts noting plaintiff’s proof. (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) 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.)

A special demurrer to a complaint is appropriate when the grounds of the pleading are uncertain, ambiguous, or unintelligible. (Code Civ. Proc. § 430.10(f); Beresford Neighborhood Assn. v. City of San Mateo (1989) 207 Cal.App.3d 1180, 1191.) Courts typically disfavor demurrers based on uncertainty, which the court strictly construes even when the pleading is uncertain in some respects. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

If the demurrer is sustained, plaintiff must prove the possibility of cure by amendment. (Czajkowski v. Haskell & White, LLP (2012) 208 Cal.App.4th 166, 173 (citing Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 78-79).) Leave to amend must be allowed where there is a reasonable possibility of successfully stating a cause of action. (Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, 92.) 

Breach of Written Contract – First Cause of Action

To state a claim for breach of contract, a party must allege sufficient facts to establish: (1) a contract between the parties; (2) performance or excuse for nonperformance; (3) breach; and (4) damages from the breach. (See e.g. Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) A contract must be pled verbatim in the body of the complaint, be attached to the complaint and incorporated by reference, or be pled according to its legal effect. (Bowden v. Robinson (1977) 67 Cal.App.3d 705, 718.)

The cross-complaint alleges “[i]n 2018, Agent1099 and FanBank executed a valid, enforceable, and binding written contract, a copy of which is attached hereto as Exhibit 2 and incorporated herein by reference.” (Cross-Compl. ¶ 57.) The agreement is titled “Staffing Services Agreement.” (Id. Ex. 2.) The cross-complaint alleges Agent1099 either assigned its rights to reimbursement to Cohen, (Id. ¶ 60), or FanBank and Agent1099 modified their agreement to provide reimbursement directly to Cohen. (Id. ¶ 61.)

Cross-Defendant FanBank demurs to the first cause of action on the grounds that Cohen is not a party to the contract at issue and the express language of the contract precludes Cohen’s claims. (Dem. at 13:24-16:13.) Generally, “[s]omeone who is not a party to the contract has no standing to enforce the contract or to recover extra-contract damages for wrongful withholding of benefits to the contracting party.” (Hatchwell v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1034.)

Cross-Defendants note Paragraph 15.9 of the Staffing Services Agreement provides “[n]either party may assign this Agreement, in whole or in part, without the other party’s prior express written consent, which shall not be unreasonably withheld or delayed. Any attempted assignment without such written consent shall be void.” (Cross-Compl. Ex. 2 ¶ 15.9.) However, the Cross-Complaint alleges “FanBank agreed to this assignment in writing, including by emailing Cohen to state that reimbursement payments would be wired to Cohen directly, asking Cohen for the information necessary to wire reimbursement payments directly to him, and completing the paperwork necessary to transfer such reimbursement payments to Cohen.” (Cross-Compl. ¶ 60.)

Cross-Defendants first argue “Cohen does not attach the ‘assignment in writing’ or set out its terms verbatim, and thus has not met his burden for pleading an assignment.” (Dem. at 15:4-5.) However, Cross-Defendants’ cited authority contains no such pleading requirement. In Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2d 284, the Court reviewed an appeal from a judgment after trial and the admission of evidence. In Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459, the court held “[i]f the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” The contract at issue is attached to the agreement as Exhibit 2. The court in Otworth did not address the pleading requirements for an assignment.

Moreover, as noted by Cross-Complainant, the cross-complaint alleges the material legal effect of the assignment to which FanBank allegedly agreed. (Cross-Compl. ¶ 60.). Cross-Defendants’ reliance upon Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946 in reply for the proposition that “allegations in a complaint must yield to contrary allegations contained in exhibits to a complaint” is inapposite. The assignment allegations are not contradictory allegations of the contractual language, but rather allegations of subsequent conduct. The cross-complaint’s allegations are sufficient at the pleading stage.

Cross-Defendants make two additional arguments: “Cohen has not set out verbatim or attached a writing by which Agent1099 purportedly assigned its right to receive reimbursement from FanBank to Cohen” and “an agreement by FanBank to send reimbursement payments directly to Cohen is not in any sense an “express written consent” by FanBank permitting Agent1099 to assign its rights to receive reimbursement payments to Cohen.” (Dem. at 15:11-16.) Neither of these arguments are supported by any authority. (Ibid. See generally Fenton v. City of Delano (1984) 162 Cal.App.3d 400, 410 (“A point totally unsupported by argument and authority may be rejected by the reviewing court without discussion.”).)

The Staffing Services Agreement does not require a writing by Agent1099 to Cohen, only “the other party’s prior express written consent,” i.e. FanBank’s written consent. (Cross-Compl. Ex. 2 ¶ 15.9.) As argued by Cross-Complainant, assignments may be verbal. (Opp. at 11:19-25 citing Oswald v. Schwartz (1919) 181 Cal. 620, 624. See also Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1002 (“An assignment requires very little by way of formalities and is essentially free from substantive restrictions. In the absence of a statute or a contract provision to the contrary, there are no prescribed formalities that must be observed to make an effective assignment. It is sufficient if the assignor has, in some fashion, manifested an intention to make a present transfer of his rights to the assignee. Generally, interests may be assigned orally . . . ”) (quotations and citations omitted).)

The Court finds the Cross-Complaint adequately alleges Cohen’s ability to enforce the agreement as an assignee. (Johnson v. County of Fresno (2003) 111 Cal.App.4th 1087, 1096 (“The assignment merely transfers the interest of the assignor. The assignee ‘stands in the shoes’ of the assignor, taking his rights and remedies, subject to any defenses which the obligor has against the assignor prior to notice of the assignment. [Citation]. Once a claim has been assigned, the assignee is the owner and has the right to sue on it.”).) The demurrer is OVERRULED.

The parties’ other arguments are immaterial to the Court’s disposition of the demurrer. (Charpentier v. Los Angeles Rams Football Co., Inc. (1999) 75 Cal.App.4th 301, 307 (“If the factual allegations of the complaint are adequate to state a cause of action under any legal theory, the demurrer must be overruled.”).)

Existence of Express Contract

The second cause of action for breach of implied contract alleges “[u]nder the implied contract, Cohen assumed an obligation to transfer to Agent1099 funds sufficient to pay for the Outstanding Expenses. In return, Cross-Defendants assumed an obligation to reimburse Cohen for the Outstanding Expenses within three months.” (Cross-Compl. ¶ 72.) Thus, the second cause of action alleges a separate implied agreement between Cross-Complainant and Cross-Defendants. The third cause of action for restitution alleges “[i]f no adequate legal remedy is available under any applicable contract, Cohen brings this count in quasi contract to pursue restitution based on Cross-Defendants’ unjust enrichment, including Cross-Defendants’ retention of funds sufficient to reimburse Cohen for the Outstanding Expenses.” (Cross-Compl. ¶ 78.)

Cross-Defendants argue the second cause of action for breach of implied contract, third cause of action for restitution, and fourth cause of action for promissory estoppel are “quasi-contract” claims that are barred due to the existence of an express agreement. (Dem. at 16:16-17:18 citing Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203 (“As to the . . . claim of unjust enrichment resulting in an implied-in-fact contract, it is well settled that an action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter.”) and Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1388 (“A plaintiff may not, however, pursue or recover on a quasi-contract claim if the parties have an enforceable agreement regarding a particular subject matter.”).)

The Cross-Complaint attaches the written agreement governing FanBank’s obligation to reimburse Agent1099 for its operating expenses. (Cross-Compl. Ex. 2 ¶ 5.) As noted by Cross-Complainant, Cross-Defendants’ cited authority does not govern Cohen’s claims against Jacobs as neither Jacobs nor Cohen are named parties to the agreement. (Opp. at 14:6-15.) Cross-complainant brings the first cause of action as an assignee, but the second and third causes of action are brought in his individual capacity based upon conduct by Cross-Defendants and Cohen, not Agent1099. (Cross-Compl. ¶¶ 72-74, 79.) The cross-complaint seeks a reimbursement of Cohen’s contributions to Agent1099. This distinguishes Cross-Complainant’s allegations from those made by the assignee in California Medical Ass'n, Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151 cited by Cross-Defendants in reply. (Id. at 171 (“CMA contends equity mandates that CMA as Physicians' assignee have the opportunity to demonstrate its entitlement to restitution from defendants.”).)

Additionally, the cross-complaint pleads in the alternative, which is an acceptable pleading practice. (Cross-Compl. ¶ 78 (“If no adequate legal remedy is available under any applicable contract, Cohen brings this count in quasi contract to pursue restitution based on Cross-Defendants’ unjust enrichment.”). See Klein, supra, 202 Cal.App.4th at 1389 (“a plaintiff may plead inconsistent claims that allege both the existence of an enforceable agreement and the absence of an enforceable agreement.”); Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231 (“A claim for restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement.”); Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413 (“The Fleets have alleged facts that could support a cause of action for promissory estoppel against BofA in the event that they cannot establish a cause of action for breach of contract. Whether they can prove this cause of action awaits further development.”).)

Cross-Defendants’ demurrer cannot be sustained on this ground.

Statute of Limitations

Cross-Defendants also argue the second, third, and fourth causes of action are barred by the statute of limitations. (Dem. at 17:19-21:15.)

“In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows merely that the action may be barred.” (McMahon v. Republic Van & Storage Co. (1963) 59 Cal.2d 871, 874.) Cross-Defendants contend the statute of limitations for these claims is two years. (Code Civ. Proc. § 339(1) (“Within two years: 1. An action upon a contract, obligation or liability not founded upon an instrument of writing.”); Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1224 (“The statute of limitations for promissory estoppel based on oral promises is two years.”); Davies v. Krasna (1975) 14 Cal.3d 502, 510 n.6 (“the period of limitation of section 339, subdivision 1, governs not only actions for breach of oral or implied contracts, but also . . . quasi-contractual actions.”).)

The cross-complaint alleges “[b]etween approximately July 2018 and August 2018, Agent1099 incurred the Outstanding Expenses, which totaled at least $174,000. Cohen transferred to Agent1099 funds sufficient to pay for the Outstanding Expenses.” (Cross-Compl. ¶ 62.) Cross-Complainant further alleges “[i]n approximately August 2018, without legal basis, Cross-Defendants decided not to reimburse Cohen for at least $174,000 of Agent1099’s expenses.” (Id. ¶ 44.) Agent1099 “was wound down” in 2019, and “Cross-Defendants failed to reimburse the Outstanding Expenses.” (Id. ¶ 49.) Cross-Complainant did not file the cross-complaint until July 1, 2022, over two years from August of 2018 when Cross-Complainant alleges Cross-Defendants breached their promise to pay. (Cross-Compl. ¶ 44.)

In their demurrer, Cross-Defendants anticipated Cross-Complainant’s reliance upon Code of Civil Procedure section 360 to save the time-barred claims. (Dem. at 19:10-21:15.) Section 360 provides:

No acknowledgment or promise is sufficient evidence of a new or continuing contract, by which to take the case out of the operation of this title, unless the same is contained in some writing, signed by the party to be charged thereby, provided that any payment on account of principal or interest due on a promissory note made by the party to be charged shall be deemed a sufficient acknowledgment or promise of a continuing contract to stop, from time to time as any such payment is made, the running of the time within which an action may be commenced upon the principal sum or upon any installment of principal or interest due on such note, and to start the running of a new period of time, but no such payment of itself shall revive a cause of action once barred.

(Code Civ. Proc. § 360.) The cross-complaint expressly invokes an acknowledgement of the debt citing the text message exchange attached as Exhibit 3. (Cross-Compl. ¶¶ 50-55, 75, 89.)

The parties disagree as to whether the statements made in the attached text messages could satisfy Section 360. (Dem. at 19:10-21:15; Opp. at 15:2-16:21.) “The sufficiency of an acknowledgment or promise as evidence of a continuing or new contract is a matter of judicial interpretation. The question is one of law.” (Sterling v. Title Ins. & Trust Co. (1942) 53 Cal.App.2d 736, 740.) “It is to be noted that the acknowledgment and promise are stated in the alternative, thus indicating that either one or the other will be sufficient to toll the statute.” (Western Coal & Min. Co. v. Jones (1946) 27 Cal.2d 819, 822.) “It is well established that the code section does not prescribe any form in which an acknowledgment or promise sufficient to lift the ban of the statute of limitations shall be made. It is sufficient if it shows the writer treats the indebtedness as subsisting and one which the debtor is liable and willing to pay. From this acknowledgment the law implies the promise to pay. Such acknowledgment or promise may be made to an agent of the creditor or to some person authorized to receive it.” (Searles v. Gonzalez (1923) 191 Cal. 426, 430 (citations omitted).)

“The essentials of a sufficient acknowledgment have been frequently stated and were well expressed in Southern Pacific Co. v. Prosser (1898), 122 Cal. 413 [52 Pac. 836, 55 Pac. 145], at 415, as follows: ‘The distinct and unqualified admission of an existing debt contained in a writing signed by the party to be charged, and without intimation of an intent to refuse payment thereof, suffices to establish the debt to which the contract relates as a continuing contract, and to interrupt the running of the statute of limitations against the same; from such an acknowledgment the law implies a promise to pay.’” (Sterling, supra, 53 Cal.App.2d at 740.)

Cross-Complainant raised the issue of the outstanding payment with Cross-Defendant Jacobs on September 27, 2020, stating “[a]s for us, let me know how/if/when you plan on addressing the repayment for the $174k loan I advanced to fan-bank that should have been reimbursed well over a year ago and has seemingly been swept under the rug unfortunately.” (Cross-Compl. Ex. 3.) Cross-Defendant Jacobs responded, in relevant part, “Happy to talk about it anytime. . . . literally this morning I was thinking about what circumstances could unfold that would enable a repayment, at what level of outcome or how would it even work.” (Ibid.)

The Court finds the cross-complaint alleges sufficient facts to invoke Code of Civil Procedure section 360. “The unqualified recognition of the legally expired obligation creates by law an implicit waiver of the statute of limitations and a promise by appellant to pay.” (Buescher v. Lastar (1976) 61 Cal.App.3d 73, 75–76.) Jacobs’ response is an admission that the money is owed and indicates a desire to repay Cross-Complainant. (Id. at 75 (“Appellant's acknowledgment suggested no new conditions for payment of the note; he briefly and flatly admitted he owed the money.”); Southern Pacific, supra, 122 Cal. at 415 (“as we read the document it was an unqualified admission of an existing debt which defendant desired to pay.”); Sterling, supra, 53 Cal.App.2d at 743 (“As we read the first three letters there was no new promise, only an acknowledgment of an existing one. The strongest expressions used in any of them were no more than assurances that the money would be paid eventually and in part at least when the debtor should sell some property. The acknowledgment was unconditional and absolute.”).) “[T]here need be no express promise to pay, it being held sufficient if the writing shows that the debtor treats the indebtedness as subsisting and as one which he is liable and willing to pay; and from such acknowledgment the law implies a promise to pay.” (Foristiere v. Alonge (1929) 98 Cal.App. 563, 567.)

Cross-Defendant’s response does not contain any of the conditional statements present in the cases cited by Cross-Defendants. (Heiser v. McAlpine (1937) 20 Cal.App.2d 467, 469 (conditioning repayment upon the receipt of common stock); Maurer v. Bernardo (1931) 118 Cal.App. 290, 294 (“The letter in question was a conditional promise to pay the note when he could, not according to any particular terms, but solely upon his financial ability to pay.”).) Cross-Defendant Jacobs’s statement does not contain an “intimation of an intent to refuse payment.” (Southern Pacific, supra, 122 Cal. at 415.) Nor does it condition repayment on a specific occurrence. (Ibid. (“The suggestion of a peculiar mode of payment, not being proposed as a condition of the acknowledgment, did not impair the effect of the admission.”); Western Coal, supra, 27 Cal.2d at 825 (“there may be no such conditions or qualifications imposed by the acknowledgment which indicate an unwillingness to pay.”); Heiser, supra, 20 Cal.App.2d at 471 (“if the acknowledgment be accompanied . . . by such qualifying expressions or conditions as repel the idea of a contract to pay, except to the extent or upon the conditions named, no implied promise to pay absolutely is created.”).) The cross-complaint alleges Cross-Defendant Jacobs served as FanBank’s agent, (Cross-Compl. ¶ 17), and the acknowledgement was made by both Cross-Defendants. (Id. ¶ 75.) Whether Cross-Defendant Jacobs acknowledged the debt in his individual capacity, representative capacity, or both is a question of fact not properly adjudicated on demurrer. (Carlton Browne & Co. v. Superior Court (1989) 210 Cal.App.3d 35, 45 (“a written acknowledgment or promise of a debt signed by an authorized agent has been held to constitute a writing signed by the “party to be charged” within the meaning of section 360.”).)

The Court finds the cross-complaint alleges sufficient facts to invoke Code of Civil Procedure section 360. Accordingly, the cross-complaint does not demonstrate the claims are barred by the statute of limitations.

In reply, Cross-Defendants contend, for the first time, and without citation to authority, that the text messages cannot be construed as “signed by” Cross-Defendants. (Reply at 11:18-21.) “Points raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument.” (American Drug Stores, Inc. v. Stroh (1992) 10 Cal.App.4th 1446, 1453.) Cross-Defendants also do not cite any authority supporting this contention. (Fenton, supra, 162 Cal.App.3d at 410 (“A point totally unsupported by argument and authority may be rejected by the reviewing court without discussion.”).) Accordingly, this argument cannot sustain the demurrer.

Cross-Defendant Jacobs’ Liability

Finally, Cross-Defendants contend Cross-Defendant Jacobs cannot be individually liable for debts owed by Fanbank. (Dem. at 21:16-22:1.) Cross-Defendants cite authority regarding an agent’s liability for contracts signed on behalf of a corporate entity. (Id. citing United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595 (“Directors and officers are not personally liable on contracts signed by them for and on behalf of the corporation unless they purport to bind themselves individually”).) However, Cross-Defendant Jacobs is not named in the first cause of action for breach of contract and Cross-Defendants’ authority is inapplicable. As argued by Cross-Complainants, the cross-complaint asserts the second, third, and fourth causes of action, which are not based upon written contracts, against both Cross-Defendants based upon their agreements with cross-complaint. (Cross-Compl. ¶¶ 22, 70-88.) Similarly, Cross-Defendant Jacobs allegedly entered into the agreements in the first instance, rendering Cross-Defendants’ reliance upon the statute of frauds for “[a] special promise to answer for the debt, . . . of another” inapposite. (Civ. Code § 1624(a)(2).) The demurrer cannot be sustained on this basis.