Judge Ralph C. Hofer, Case 22GDCV00672 2023-03-03 Tentative Ruling

Plaintiff Kawai and Ruvi, Inc. alleges that in May of 2021, plaintiff entered into an agreement with defendant The Holy Spirit Association for the Unification of World Christianity titled License Agreement, which was essentially a lease agreement rebranded as a license agreement. Plaintiff alleges that pursuant to the agreement, defendant leased a portion of its property in Monterey Park to plaintiff, including several rooms and a portion of an outdoor area that was not owned by defendant but was owned by Southern California Edison. The agreement stipulated that plaintiff would operate a day-care facility at the leased premises, although at the time the parties entered into the agreement, there was no license to operate such a facility, and the agreement indicated that its term would not begin to run until such license was issued.

Plaintiff alleges that to date, no such license has been issued. Plaintiff alleges that the agreement also provided that defendant would make the renovations required by all government regulations to operate a child day care center, and that plaintiff would provide defendant with a loan of $50,000 for such renovations, and it was also agreed that plaintiff would be repaid the loan in the form of rent credit once the term of the agreement began. The complaint alleges that after the agreement was signed, defendant represented to plaintiff that all renovations would be completed by November of 2021, and that plaintiff did in fact loan defendant $50,000 as agreed.

Plaintiff alleges that over one year after the agreement was signed, defendant has yet to complete any renovations, in breach of the agreement. It is also alleged that the premises are not ready for occupancy by plaintiff, and that in the meantime, plaintiff has paid the operating expense for its daycare, including payroll and administrative expenses (except for the rent, which was abated) to prepare to commence operations when renovations were completed.

Defendant argues that the cause of action is uncertain because defendant cannot ascertain what provision of the agreement has been beached. Defendant argues that the agreement states that the term does not begin to run until the day care is licensed, and the complaint clearly alleges that the property has not yet been licensed as a child care facility. The argument seems to be that the agreement has not yet become effective, so could not have been breached.

The complaint attaches a copy of the subject agreement, which provides that the license term is to begin on a date to be determined by agreement of the parties, “but no later than August 1, 2021,” and that the term can be extended to be determined after issuance of the license and inspection clearance, if “for the reason outside the Licensee’s Control, the State of California has not yet issued a license” by that date. [Complaint, Ex. 1, para. 2]. There is no allegation that the date has been extended, or that any delay has been outside the control of defendant.

“Licensor will make all the renovations required by the governmental regulations to operate a child daycare center. Licensee will be responsible for all other improvements, upon Licensor’s prior approval. These obligations come in force as of the Effective Date of this Agreement. Licensee shall provide to Licensor a loan equal to fifty thousand dollars ($50,000) at 0% interest for the installation of the sprinkler system and certain renovations at the Building.”

The License Agreement indicates in the first paragraph that the agreement is made between defendant and plaintiff “on this 14th day of May, 2021 (“Effective Date”).” The obligations of paragraph 8 accordingly arose on the expressly defined “Effective Date,” May 14, 2021, and are currently due and owing to plaintiff.

Defendant then argues that it is in the process of finalizing approval from the City for the construction but has no control over the timing of the actions of third party governmental entities. This contention does not appear from the face of the pleading, or anything which may be judicially noticed, and will not be considered on demurrer.

Under CCP § 430.30(a), an objection to a pleading may be taken by a demurrer "[w]hen any ground for objection to a complaint...appears on the face thereof, or from any matter of which the court is required to or may take judicial notice…."

Defendant then argues that to the extent there was an oral promise after the agreement was executed, such allegation is barred by the statute of frauds, and by the integration clause included in the agreement. [See Complaint, Ex. 1, para. 27]. However, this assertion does not defeat the breach of contract cause of action. To the extent the pleading alleges that following the execution of the agreement, there was a timeframe agreed to for performing the renovations, this is not a situation where the written agreement would be contradicted by any subsequent agreement, as the agreement does not appear to include a contradictory time-frame for performance. As noted above, a simple review of the agreement itself shows that the parties agreed in writing that the obligations to loan funds and to perform renovations arose as of the Effective Date of the agreement, which is expressly defined as May 14, 2021. [Complaint, Ex. 1, Agreement, p. 1 and para. 8].

With respect to completion of performance, even if the writing is unclear on this matter, this would be a matter of contract interpretation, and in the absence clarity, it would not be unreasonable to imply that performance would be due within a reasonable time. There is no inconsistency here.

Defendant also argues that here defendant’s duty to perform was conditioned on some event occurring, and again argues that the license agreement term does not begin to run until the day care is licensed, which has not occurred. Again, as pointed out above, the agreement expressly obligates the parties to perform the allegedly breached duty of renovation, which “obligations come in force as of the Effective Date of this Agreement.” [Complaint, Ex. 1, para. 8]. It is clearly alleged that plaintiff performed by paying the money for the renovations, and defendant failed to perform by failing to make the renovations or return the money. [Complaint, paras. 11, 13-16, 20-22]. There is no insufficiency, contradiction or inconsistency here, and the demurrer to this cause of action is overruled.

Defendant first seems to argue that the fraud cause of action contradicts the agreement, and then explains defendant’s position with respect to the difference between a lease agreement and a license agreement. As argued in the opposition, this argument has no bearing on the cause of action itself, which is based on alleged fraudulent conduct in inducing plaintiff to enter the agreement, which is sufficiently alleged regardless of what the nature of the resulting agreement was.

To state a cause of action for fraud, plaintiff must plead the following elements: A false representation, actual or implied, or concealment of a matter of fact material to the transaction which defendant had a duty to disclose, or defendant’s promise made without intention to perform; defendant’s knowledge of the falsity; defendant’s intent to deceive; plaintiff’s justifiable reliance thereon; and resulting damage to plaintiff. Pearson v. Norton (1964) 230 Cal.App.2d 1.

As argued in the opposition, the demurrer does not argue that these elements are not alleged. The pleading alleges that prior to entering the agreement, defendant represented that it owned all the property that it leased to plaintiff, specifically, the outdoor portion of the premises, that this representation was false, as defendant did not own the premises it was leasing, that defendant knew of the falsity, that plaintiff justifiably relied on the representation, and entered into the agreement, and suffered damages. [Complaint, paras. 24-27]. All elements have been alleged.

Defendant also argues that the cause of action is not alleged with sufficient specificity. Generally, in a fraud cause of action, a plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. When such a claim is made against an entity defendant, the level of specificity required is even higher. Under Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, in fraud complaints against a corporation, a plaintiff must allege all of the following:

The pleading here does not include these details, as it does not allege when the representation was made, where it was made, how it was made (orally or in writing), who made the representation, their authority to speak for defendant non-profit corporation, or to whom in plaintiff’s corporation the representation was made. [Complaint, paras. 24-25]. The opposition argues that the party’s dealings in this matter were fairly unsophisticated and simple. No legal authority is cited pursuant to which the specificity standards in alleging a fraud cause of action are relaxed where the transaction is allegedly simple. The demurrer is sustained with leave to amend to allege the fraud claim with the requisite specificity.

Defendant also argues that plaintiff is unable to recover tort damages in this situation where the relationship between the parties is fundamentally contractual. Conduct amounting to a breach of contract becomes tortious only when it violates an independent duty arising from principles of tort law. Erlich v. Menezes (1999) 21 Cal.4th 543, 551. California law now precludes tort recovery for breach of contract or bad faith denial of the existence of a contract absent the breach of an independent duty arising from principles of tort law. Freeman & Mills v. Belcher Oil Co. (1995) 11 Cal.4th 85, 102.

“Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury (Fuentes v. Perez (1977) 66 Cal. App. 3d 163, 168, fn. 2 [136 Cal. Rptr. 275]); for breach of the covenant of good faith and fair dealing in insurance contracts ( Crisci v. Security Ins. Co. (1967) 66 Cal. 2d 425, 433 434 [58 Cal. Rptr. 13, 426 P.2d 173]); for wrongful discharge in violation of fundamental public policy (Tameny v. Atlantic Richfield Co. (1980) 27 Cal. 3d 167, 175 176 [164 Cal. Rptr. 839, 610 P.2d 1330, 9 A.L.R.4th 314]); or where the contract was fraudulently induced. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal. App. 3d 1220, 1238 1239 [1 Cal. Rptr. 2d 301].) 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. (See, e.g., Christensen v. Superior Court (1991) 54 Cal. 3d 868, 885 886 [2 Cal. Rptr. 2d 79, 820 P.2d 181].)”

In fact, it has been noted that the duplicative standard referred to by defendant is not currently listed as a ground to sustain a demurrer under CCP § 430.10. See Blickman Turkus, LP v. MF Downtown Sunnydale, LLC (2008) 162 Cal.App.4th 858, 890. The court of appeal in Blickman noted that although the motion to strike statute previously authorized a court to strike “irrelevant and redundant” matter from a pleading, the statute no longer includes that language, and concluded, “This is not a ground on which a demurrer may be sustained.” Blickman, at 890, italics in original. The demurrer on this ground is overruled.

To state a claim, there must be allegations showing unlawful, unfair or fraudulent business acts or practices. Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 676-677. Pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. Khoury v. Maly’s of California, Inc. (1993, 2nd Dist.) 14 Cal.App.4th 612, 619.

Defendant first argues that plaintiff has failed to allege an act or practice of a business, as defendant is a church, not a business. No legal authority is cited for this novel argument, and, as argued in the opposition, it is clear from the complaint that defendant is alleged to have engaged in business acts or practices in connection with the transaction concerning the licensing of space for the operation of a business. [Complaint, paras. 11, 13, 14, 31, 32].

The cause of action incorporates previous allegations but then appears to focus on the allegations that defendant has borrowed money to pay for renovations and then not completed the renovations. [Complaint, para. 31]. The cause of action also appears to allege that defendant has wrongly benefitted from improvements that plaintiff has made to the premises. [Complaint, para. 32]. The opposition argues that defendants engaged in the unfair business of subleasing part of its premises under false pretenses and taking $50,000 from plaintiff and not performing its obligations and not refunding the monies. Plaintiff also argues that defendant is a potential competitor of plaintiff’s, as defendant has a conditional use permit to operate a child care facility. [Complaint, Ex. 1, p. 1].

This argument is confusing, as it is not clearly alleged in the cause of action itself that the alleged fraud is intended to be a fraudulent act upon which this cause of action is based, and there is no allegation concerning defendant being a competitor or engaging in unfair competition. Plaintiff argues that the this is an appropriate case for an award of restitution, as defendant is holding funds in which plaintiff has an ownership interest. The complaint appears incomplete on this theory as well, as the allegation is essentially a sentence fragment: “Plaintiff is informed and believes and thereon alleges that by borrowing money from Plaintiff for renovations, not paying for said renovations and not completing the renovations.” [Complaint, para. 31].

The demurrer is sustained with leave to amend to permit plaintiff to state with factual particularity one or more business acts upon which plaintiff bases this cause of action. This result seems particularly appropriate given the sustaining of the fraud cause of action for lack of specificity.

Demurrer to the second cause of action for fraudulent inducement is SUSTAINED WITH LEAVE TO AMEND on the ground the cause of action is not alleged with sufficient specificity. See Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73 (plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation); See also Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 (in fraud complaints against a corporation, a plaintiff must allege all of the following: the names of the persons who made the misrepresentation; their authority to speak for the corporation; to whom they spoke; what they said or wrote; and when it was said or written). Demurrer on all other grounds is OVERRULED.

Demurrer to the third cause of action for unfair business practices is SUSTAINED WITH LEAVE TO AMEND on the ground that, to the extent the opposition argues that the fraudulent business practice is that set forth in the second cause of action, this is not alleged in the cause of action itself, and the underlying fraud claim is not alleged with sufficient specificity, as discussed above, and, to the extent the cause of action is based on other alleged unfair business practices, the cause of action itself does not allege such acts with the requisite particularity when stating a statutory cause of action. Demurrer on all other grounds is OVERRULED.

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