Judge: Peter A. Hernandez, Case: 21PSCV00172, Date: 2023-10-26 Tentative Ruling

Case Number: 21PSCV00172    Hearing Date: March 4, 2024    Dept: K

1.         Plaintiff/Cross-Defendant Manking ELS LLC and Cross-Defendants Chung Chin Tsai aka Johnny Tsai and Kenny Tsai’s Demurrer to Cross-Complaint is OVERRULED in part (i.e., as to the first, second, fifth and sixth causes of action) and SUSTAINED in part (i.e., as to the third and fourth causes of action. The court will hear from counsel for Cross-Complainants as to whether leave to amend is requested, and as to which cause(s) of action, and will require an offer of proof if so.

2.         Plaintiff/Cross-Defendant Manking ELS LLC and Cross-Defendants Chung Chin Tsai aka Johnny Tsai and Kenny Tsai’s Motion to Strike Portions of Cross-Complaint is DENIED as MOOT.

Background[1]  

Plaintiff Manking ELS, LLC (“Manking”) alleges as follows:

On May 19, 2017, Manking entered into a Commercial Lease Agreement (“CLA”) with Enhancer Elsinore, LLC (Enhancer”), Esther Lin (“Lin”) and Walter Lynn (“Lynn”) (collectively, “Defendants”) pertaining to the Elsinore Hot Springs Motel (“Property”). The CLA, which was to be effective on June 16, 2017, called for a three-year lease term. At Defendants’ request, the parties on June 16, 2017 signed an Addendum, extending the lease from July 16, 2017 to such date at which inspections pass to qualify the Property for an occupancy permit. At the same time the parties executed the CLA, Defendants drafted a Hotel Management Agreement (“HMA”), which the parties entered into on June 16, 2017. Defendants failed to pay rent and failed to manage and maintain the Property.

On November 12, 2021, Manking filed a Second Amended Complaint, asserting causes of action against Defendants and Does 1-10 for:

1.                  Breach of Written Contract

2.                  Fraud/Misrepresentation

3.                  Negligent Misrepresentation

4.                  Breach of Fiduciary Duties

5.                  Common Counts

6.                  Accounting

On March 1, 2022, the court sustained Defendants’ demurrer to the second and third causes of action, without leave to amend.

On November 13, 2023, Defendants filed a cross-complaint, asserting causes of action against Manking, Chung Chin Tsai aka Johnny Tsai (“C. Tsai”), Kenny Tsai (“K. Tsai”) and Roes 1-50 for:

1.                  Rescission

2.                  Breach of Contract (In the Alternative)

3.                  Intentional Misrepresentation

4.                  Negligent Misrepresentation

5.                  Negligence

6.                  Disgorgement

A Trial Setting Conference is set for March 4, 2024.

1.         Demurrer

Legal Standard

A demurrer may be made on the grounds that the pleading, inter alia, does not state facts sufficient to constitute a cause of action and/or is uncertain. (Code Civ. Proc., § 430.10, subds. (e) and (f).)

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.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905 [citations omitted].) 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] demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction placed on an instrument pleaded therein, or facts impossible in law, or allegations contrary to facts of which a court may take judicial knowledge.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [citations omitted].)

Discussion

Manking, C. Tsai and K. Tsai (together, “Cross-Defendants”) demur, pursuant to Code of Civil Procedure § 430.10, subdivisions (e) and (f), to the first through sixth causes of action in Enhancer, Lin and Lynn’s (together, “Cross-Complainants”) cross-complaint on the basis that they each fail to state facts sufficient to constitute causes of action and are uncertain.

The matter originally came on calendar for hearing on February 1, 2024, but was continued by the court to the instant date based on moving party’s non-compliance with Code of Civil Procedure § 430.41. Moving party’s counsel has since filed a meet and confer declaration; as such, the court will proceed to the merits.

First Cause of Action (i.e., Rescission)

Cross-Defendants argue that “Rescission is not a cause of action; it is a remedy.” (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 70). However, “in ruling on a demurrer, the trial court is obligated to look past the form of a pleading to its substance. Erroneous or confusing labels. . . are to be ignored if the complaint pleads facts which would entitle the plaintiff to relief.” (Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908.)

“When one party has been injured by a breach of contract and she either lacks the ability or the desire to keep the contract alive, she can choose between two different remedies.  She can treat the contract as rescinded and recover damages resulting from the rescission. Or she can treat the contract as repudiated by the other party and recover damages to which she would have been entitled had the other party not breached the contract or prevented her performance. An action for rescission is based on the disaffirmance of the contract and an action for damages for breach of contract is based on its affirmance.” (Akin v. Certain Underwriters at Lloyd’s London (2006) 140 Cal.App.4th 291, 296.) “An action for rescission and an action for breach of contract are alternative remedies. The election of one bars recovery under the other.” (Id.)

Cross-Complainants are seeking to disaffirm the Commercial Lease Agreement. (See Cross-Complaint, ¶ 37). Cross-Defendants’ demurrer to the first cause of action is overruled.

Second Cause of Action (i.e., Breach of Contract (In the Alternative))

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

Cross-Defendants assert that Cross-Complainants have failed to plead that their breach caused Cross-Complainants’ damages. Not so. Cross-Complainants have alleged that Cross-Defendants refused to allow Cross-Complainants’ input into the construction and hired unlicensed contractors who performed “shoddy, poor quality” work and that, as a result, the property never passed the inspections needed to operate with an occupancy permit, thus breaching the Management Agreement. (Cross-Complaint, ¶¶ 46 and 47).

Cross-Defendants’ argument that “unnamed contractors, not cross-complainants, were responsible for the damages, if any, cause to cross-complainant” is, as Cross-Complainants state, “an attempt to argue the merits,” which is improper on demurrer. (Dem., 5:13-15; Opp., 6:18-19).

Cross-Defendants’ demurrer to the second cause of action is overruled.

Third and Fourth Causes of Action (i.e., Intentional Misrepresentation and Negligent Misrepresentation, Respectively)

“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage.” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231). “The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243.)

“Fraud must be pleaded with specificity…[t]o withstand a demurrer, the facts constituting every element of the fraud must be alleged with particularity, and the claim cannot be salvaged by references to the general policy favoring the liberal construction of pleadings.” (Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782 [emphasis in original].)

“This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73 [emphasis in original; internal quotations and citation omitted].) “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

Likewise, “[e]ach element in a cause of action for. . . negligent misrepresentation must be factually and specifically alleged.” (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519 [citation omitted].)

Here, Cross-Complainants have alleged that “[i]n or around April 2017, [C. Tsai] approached CROSS-COMPLAINANTS, and requested CROSS-COMPLAINANTS manage the Property” and that C. Tsai, “acting for all Cross-Defendants, promised to provide all resources to allow the building to obtain the requisite occupancy certificate, including $100,000.” (Cross-Complaint, ¶ 15). Cross-Complainants have also alleged that “[i]n early 2017, Cross-Defendants approached CROSS-COMPLAINANTS to discuss having CROSS-COMPLAINANTS manage the Property,” that “[o]ver the course of several discussions, Cross-Defendants offered to give CROSS-COMPLAINANTS $100,000 to bring the Property up to code” and that C. Tsai and K. Tsai assured Cross-Complainants in May 2017 “that the Property would be able to pass inspection, and Cross-Defendants would provide $100,000 toward that effort by the time of the effective date of June 16, 2017.” (Id., ¶¶ 51 and 53).

It is unclear from the foregoing, however, whether the representations were oral or written, when they were made and by whom and to whom they were made on each occasion.

Cross-Defendants’ demurrer to the third and fourth causes of action is sustained.

Fifth Cause of Action (i.e., Negligence)

“The elements of any negligence cause of action are duty, breach of duty, proximate cause, and damages.” (Peredia v. HR Mobile Services, Inc. (2018) 25 Cal.App.5th 680, 687.)

Cross-Defendants have alleged that Cross-Complainants “acted as general contractor in hiring unlicensed subcontractors to do work” (Cross-Complaint, ¶ 29) and “had a duty to hire competent and licensed contractors to perform the necessary repairs, and who would not cause harm” “[t]o satisfy the condition of bringing the property to code to pass inspection” (Id., ¶ 77). Cross-Complainants have alleged, inter alia, that Cross-Defendants hired unlicensed contractors, that these contractors were not fit to perform the work they were hired to do and that the breach of duty was a substantial factor causing Cross-Complainants’ injuries. (Id., ¶¶ 79-82).

Cross-Defendants’ demurrer to the fifth cause of action is overruled.

Sixth Cause of Action (i.e., Disgorgement)

Cross-Defendants argue whether they are general contractors; Cross-Complainants have alleged that they were. (See Cross-Complaint, ¶¶ 29 and 87). “It is well settled that a general demurrer admits the truth of all material factual allegations in the complaint; that the question or plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court; and that plaintiff need only plead facts showing that he may be entitled to some relief.” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.)

Cross-Complainants have alleged that they are entitled to “disgorgement and return of all monies paid pursuant to the Management Agreement, at least $50,000 spent, to help with repair in order to help the chances of the Property to pass inspection, as well as any other damages flowing from the illegal acts of the Cross-Defendants.” (Cross-Complaint, ¶ 94).

Cross-Defendants’ demurrer to the sixth cause of action is overruled.

2.         Motion to Strike

Legal Standard

Pursuant to Code of Civil Procedure section 436, “the court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.” The grounds for a motion to strike must “appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437.)

Discussion

Manking, C. Tsai and K. Tsai move to strike out the following portions of the cross-complaint:

1.                  Page 11, ¶ 62;

2.                  Pages 12-13, ¶ 75; and

3.                  Page 16, ¶ 2 (i.e., “Punitive”).

The motion to strike is denied as moot, based upon the ruling made on the demurrer.