Judge Randolph M. Hammock, Case 21STCV03107 2022-07-25 Tentative Ruling

Judge: Randolph M. Hammock, Case: 21STCV03107, Date: 2022-07-25 Tentative Ruling

Plaintiff El Paseo Center SPE, LLC alleges that it owned a shopping center in South Gate, California, and that Defendant Adir International, LLC (dba Curacao Department Stores) was a tenant. Plaintiff alleges Defendant breached its lease by failing to pay common area maintenance payments. Plaintiff brought causes of action for (1) breach of contract, (2) open book account, (3) quantum meruit, and (4) unjust enrichment. Only the breach of contract claim remains at this time.

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. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (CCP § 430.30(a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, 147 Cal.App.4th at 747.)

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.) Generally, “[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice.” (Alfaro v. Community Housing Improvement System & Planning Assn., Inc.¿(2009) 171 Cal.App.4th 1356, 1384, internal quotations omitted.) “The normal policy of liberally construing pleadings against a demurrer will not be invoked to sustain a fraud cause of action that fails to set forth such specific allegations. (Id.)” The heightened pleading standard for fraud requires “pleading facts which show how, when, where, to whom, and by what means the representations were tendered.” (Id.)

Cross-Defendant first argues that the claims fail because they are alleged “on information and belief” but lack facts in support. Here, Adir alleges El Paseo has charged Adir expenses for “pylon signage”—digital billboards that are affixed to pylon signs that service the shopping center—and that Adir is contractually obligated to pay for its proportional share of pylon signage maintenance. (CC 25.) However, Adir alleges that El Paseo has been charging Adir more than its actual costs and realizing a profit on these costs—both of which are a violation of the parties’ Lease Agreement. (Id. 28.) It is alleged that “El Paseo (by and through its authorized agents Beth Villalobos and Doreen Galchutt of Sperry Commercial, Inc.) deliberately concealed all of the revenue that El Paseo generated from its billboard and pylon signage from Adir and omitted the existence of this revenue when it misrepresented its pylon signage maintenance expenses to Adir in its 2018 monthly estimated CAM statements and its corresponding 2019 and 2020 CAM reconciliation reports.” (Id. 29.)

It is further alleged that “Cross-Complainant relied on the deliberately inflated and inaccurate pylon signage maintenance charges…by paying all amounts identified by El Paseo as legitimate pylon signage maintenance expenses…” (Id. 30.) “At the time Adir paid the deliberately inflated pylon signage maintenance charges in 2020 and 2021, Adir had no knowledge of their inaccuracies, nor of the revenue that El Paseo generated therefrom and concealed from Adir.” (Id.) Adir did not discover the concealments until on or about September 15, 2021, “when it conducted a comprehensive audit of El Paseo’s CAM charges corresponding to the 2018, 2019 and 2020 lease year.” (Id.) Cross-Complainant concludes that Cross-Defendant’s conduct “was done by El Paseo for its own self-interest with knowledge of the falsity and materiality of the resulting misrepresentations and/or concealments and constituted both oppression and fraud.” (Id. 31.)

The court finds these allegations sufficiently meet the heightened pleading requirements, as Cross-Complainant has adequately plead each element of the claim. The specificity requirement serves two purposes: (1) to furnish the defendant with certain definite charges that can be intelligently met, and (2) to ensure the complaint is specific enough so that the court can “weed out nonmeritorious actions on the basis of the pleadings.” (Committee on Children's Television, Inc. v. General Foods Corporation (1983) 35 Cal.3d 197, 216-217.) This court is comfortable that these purposes have been met here.

Cross-Defendant next argues there was no duty to disclose the sign revenue, because “[t]here is no connection that can be inferred from anything Adir alleges, and Adir does not allege any lease provision that requires disclosure of sign revenue as a part of the billing of CAM fees.” (Dem. 7: 26-28.) Cross-Complainant counters that “(i) El Paseo is contractually prohibited from charging Adir CAM expenses an amount that is in excess of its actual costs; and (ii) El Paseo is prohibited from realizing a profit from the CAM expenses it charges to Adir. El Paseo deliberately omitted the revenue it generated from its exploitation of the pylon signage.” (Opp. 7: 2-5.)

This court agrees that Cross-Complainant has adequately alleged the source of the duty, which it alleges is imposed by the Lease Agreement’s Section 22.3.2. (CC 28.) Cross-Defendant would apparently disagree that this section imposes such a duty but does not provide an alternative interpretation or why Cross-Complainant’s is incorrect for pleading purposes.

Cross-Defendant next argues that Cross-Complainant has not alleged facts showing concealment. Cross-Defendant contends that because Cross-Complainant had a contractual right to audit Cross-Defendant’s records, nothing was being concealed. This court disagrees. Cross-Complainant has adequately alleged that “El Paseo did disclose various information about its pylon signage expenses [but] never disclosed the revenue it generated from the exploitation of the pylon signage. It was the revenue data that was deliberately concealed from Adir, not the expense data.” (Opp. 8: 4-8.) And just because Cross-Complainant may have a right, in some instances, to demand an audit, does not mean that Cross-Defendant could not attempt to conceal information. Cross-Defendant has cited no authority for this position.

Finally, Cross-Defendant argues that Cross-Complainant has not adequately alleged justifiable reliance or resulting damage. Cross-Defendant contends that since there was no concealment, there was no justifiable reliance, and without justifiable reliance, there can be no damages. (Dem. 9: 1-6.) But this court found above that Cross-Complainant has adequately alleged concealment. Thus, the argument fails.

A motion to strike lies either (1) to strike any irrelevant, false or improper matter inserted in any pleading; or (2) to strike any pleading or part thereof not drawn or filed in conformity with the laws of this state, a court rule or order of court. (CCP § 436.)

Paragraph 31: “The conduct described above was done by El Paseo for its own self-interest with knowledge of the falsity and materiality of the resulting misrepresentations and/or concealments and constituted both oppression and fraud. As a result of El Paseo’s misconduct, Adir has sustained general damages in an amount to be proven at trial.”

Civil Code section 3294, subdivision (a) permits an award of punitive damages “for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.”

Civil Code Section 3294, subdivision (c), defines malice as follows: “(1) Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. Oppression is “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Id. at § 3294(c)(2).) “Fraud means an intentional misrepresentation, deceit or concealment of a material known fact to the defendant with the intention of depriving a person of legal rights otherwise causing injury.” (Id. at § 3294(c)(3).)

To survive a motion to strike a prayer for punitive damages, a plaintiff must plead ultimate facts showing its entitlement to such relief. (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) Allegations devoid of any factual assertions are insufficient to support a conclusion that parties acted with oppression, fraud, or malice. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1042.) “Mere negligence, even gross negligence, is not sufficient to justify an award” for punitive damages. (Kendall Yacht Corp. v. United California Bank (1975) 50 Cal.App.3d 949, 958.) With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification and act of oppression, fraud or malice must be on the part of an officer, director, or managing agent of the corporation.” (CCP § 3294(b).)

For the reasons consistent with the Demurrer, above, this court finds that Plaintiff has adequately alleged conduct, that if true and proven at trial, could result in an award of punitive damages. The Cross-Complaint describes how El Paseo concealed from Adir facts about how it generates revenue from its pylon signage when it sought to collect CAM expenses from Adir. (See Cross-Complaint ¿28-30). It further alleged that these concealments had the effect of artificially increasing Adir’s resulting CAM charges in 2018, 2019 and 2020. (Id.) This is sufficient, for pleading purposes, to support a potential punitive damage under the fraud cause of action.

On the other hand, Cross-Defendant’s Motion to Strike as to the alleged “general damages” for Adir appears to be meritorious. It is well established that a non-individual party, such as Adir (which is an LLC) cannot maintain a request for “general” damages, which is typically emotional distress, pain and suffering and/or humiliation. (See Civic W. Corp. v. Zila Indus., Inc. (1997) 66 Cal. App. 3d 1, 19 [stating “we know of no authority suggesting that a corporate entity may recover for the emotional distress of its officers].”)

Accordingly, Cross-Defendant’s Motion to Strike is GRANTED as to Paragraph 31, and as to any other request or prayer for general damages, if any. No leave to amend is granted, as there is no reasonable possibility that a successful amendment could be made as to this particular item of damages. Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in