Judge Randolph M. Hammock, Case 22STCV00679 2022-12-09 Tentative Ruling

Plaintiff Guangxi Tongheng Biotech Co. LTD brings this action against Defendants Charles M. Baker, Rose Baker, and MCB Lighting and Electrical, Inc., dba MCB Acquisition & Logistics Supply Management. Plaintiff, a wholesale manufacturer of medical equipment and supplies, alleges it entered into a sales contract with Defendants for the sale of almost 2 million protective facemasks at $0.18 per unit. The parties then entered into a second sales contract for 3,700,000 additional face masks. The total purchase price of the two contracts was $1,094,480.00. After partial payments, Plaintiff alleges Defendants have an outstanding balance of $836,676.00 due and payable. Plaintiff brings causes of action against all Defendants for (1) breach of contract, (2) common count: account stated, (3) misrepresentation, (4) conversion, (5) breach of implied covenant of good faith and fair dealing, (6) violation of Business and Professions Code section 17200 et seq., and (7) unjust enrichment. Plaintiff also brings an eighth cause of action against Defendant Charles M. Baker only for breach of personal guaranty.

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 “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 (internal citations omitted).)

Plaintiff alleges that Defendant MCB Lighting & Electrical Inc. does business under the name MCB Acquisition & Logistics Supply Management. (Compl. ¶ 2.) It further alleges that Defendant Charles Baker “is an owner and/or operator of MCB and is the personal guarantor for the purchase order of protective face masks from GTBC.” (Id. ¶ 3.) Similarly, it alleges that Defendant Rose Baker is “an owner and/or operator of MCB, and a corporate director of MCB, and who therefore controls and operate[s] the business entity MCB.” (Id. ¶ 4.) Plaintiff alleges that “there existed a unity of interest and ownership between” the individual Defendants and MCB, “such that any individuality and separateness between the individual defendant and the corporate entities resulted in the corporate entities serving as the alter-ego for the individual defendant.” (Id. ¶ 6.) Plaintiff further alleges the entity Defendant “was a mere shell and sham business entity without capital or assets,” and that the individual Defendants “completely controlled, dominated, managed and operated the corporate entity and intermingled the assets to suit the convenience of the individual defendant,” among other things. (Id. ¶ 7.) Plaintiff proceeds to allege that Defendants entered into two Sales Contracts with Plaintiff for the purchase of protective face masks for $1,094,480.00, and that a balance of $836,676,00 remains unpaid. (Id. ¶¶ 23, 25.)

Accordingly, Plaintiff has adequately alleged that the individual defendants are alter-egos of the entity. Alter ego allegations may be pled generally, and the principal factors for piercing the corporate veil—individual dominated the affairs of the corporation, unity of interest and ownership, corporation is a mere shell, diversion of income, inadequate capitalization, failure to issue stock and observe corporate formalities, adherence to fiction of separate corporate existence would work an injustice—may be alleged in conclusory terms. (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-916.)

While it is true that the Sales Contracts reference only “MCB Acquisition & Logistics Supply Management,” Plaintiff alleges this entity is the dba of Defendant MCB Lighting and Electrical, Inc. (Id. 2.) A demurrer tests the pleadings alone and lies only where the defects appear on the face of the pleading or are judicially noticed. Defendant has not asked this court to judicially notice any documents purporting to show that MCB Acquisition & Logistics Supply Management is a wholly different entity from—and not just the dba of—MCB Lighting and Electrical, Inc.

Defendants next argue that Plaintiff has failed to allege any misrepresentation, “other than apparently quoting the terms of the contract upon which the complaint is based.” (Dem. 5: 11-12.) Plaintiff also “fails to specify whether such representations were either negligent or fraudulent,” or “which of the defendants supposedly made such representations.” (Dem. 5: 11-15.)

The Complaint alleges that “Defendants, and each of them, negligently misrepresented to Plaintiff GTBC that MCB had the intent to purchase approximately 5,636,000 face masks for a total sum of $1,094,480.00.” (Compl. 47.) Defendants “continued to represent to Plaintiff GTBC that they would make the payments and had the intention to make said payments.” (Id. 49.) Defendants allegedly “knew that the representations made to Plaintiff were false, or the representations were made recklessly and without regard for its truth.” (Id. 51.)

“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, 230–31.) “The essential elements of a count for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true.” (Id.)

The court agrees that Plaintiff has failed to plead a claim for misrepresentation. First, it is unclear if the claim is one for negligent misrepresentation or intentional misrepresentation. Plaintiff concurrently alleges that the misrepresentations were made negligently and intentionally. (See Compl. 47, 49, 50, 51.) Despite their similarities, intentional misrepresentation and negligent misrepresentation are “separate and distinct” torts. (Oakland Raiders v. Oakland-Alameda Cnty. Coliseum, Inc. (2006) 144 Cal. App. 4th 1175, 1184.)

Plaintiff also fails to plead the claim with the requisite particularity. The heightened requirement for pleading fraud claims applies to intentional misrepresentation and negligent misrepresentation. (SI 59 LLC v. Variel Warner Ventures, LLC (2018) 29 Cal. App. 5th 146, 155; See also Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184–185, fn. 14 [fraud and negligent misrepresentation must be pleaded with particularity, with facts showing “how, when, where, to whom, and by what means the representations were tendered”].) Plaintiff fails to plead who made the statements, or what was allegedly said beyond vague promises to pay. (Id. 49, 50.)

Defendants also demurrer to the fourth cause of action for conversion. The elements for conversion are: “(a) plaintiff's ownership or right to possession of personal property, (b) defendant's disposition of property in a manner inconsistent with plaintiff's property rights, and (c) resulting damages.” (Voris v. Lampert (2019) 7 Cal. 5th 1141, 1150.) “’[A] cause of action for conversion of money can be stated only where a defendant interferes with the plaintiff's possessory interest in a specific, identifiable sum’; ‘the simple failure to pay money owed does not constitute conversion.’ [Citation.] Were it otherwise, the tort of conversion would swallow the significant category of contract claims that are based on the failure to satisfy ‘mere contractual right[s] of payment.’” (Id. at 1150-1151.)

Here, the Complaint alleges “there is an unpaid balance of $836,676.00,” that Defendants “have now refused to pay the balance owed nor return the face masks back to Plaintiff.” (Compl. 58, 59.) Plaintiff contends Defendants are therefore “liable in tort for conversion of Plaintiffs rights to these funds.” (Id. 60.) However, lacking are any allegations that Defendants “misappropriated, commingled, or misapplied specific funds.” (Voris, supra, 7 Cal. 5th at 1152.) Indeed, the cause of action itself states it is based on “Defendants' failure to uphold their end of the contract terms.” (Id. 61.) As plead, Plaintiff has demonstrated only a contractual dispute, not conversion. A “plaintiff has no claim for conversion merely because the defendant has a bank account and owes the plaintiff money.” (Id. at 1152.)

Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) It does seem unlikely that there is such a reasonable possibility. Be that as it may, Plaintiff must demonstrate this possibility at the hearing, consistent with this ruling.

Defendants demur to the fifth cause of action, arguing it is duplicative of the breach of contract claim. “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.” (Careau & Co. v. Sec. Pac. Bus. Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1395.)

Plaintiff alleges that Defendant breached the implied covenant by “making an unreasonable and bad faith refusal to pay Plaintiff the monies owed for goods delivered.” (Compl. 66.) In opposition, Plaintiff concedes that the breach of contract cause of action and implied covenant cause of action “rely on the same facts” and does not oppose the demurrer.

Defendants also demurrer to the Sixth cause of action for violation of the Unfair Competition Law. Business and Professions Code section 17200 defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice....” “The scope of section 17200 is broad, encompassing ‘anything that can properly be called a business practice and that at the same time is forbidden by law.’ ... It governs ‘anti-competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’” [Citations.] (Linear Tech. Corp. v. Applied Materials, Inc., (2007) 152 Cal. App. 4th 115, 133). Whether a practice violates the section “is generally a question of fact which requires ‘consideration and weighing of evidence from both sides’ and which usually cannot be made on demurrer.” [Citation]. (Id.)

Finally, Defendant Charles Baker demurs to the cause of action for breach of personal guaranty. He argues that Plaintiff has “completely failed to allege any facts to support a supposed personal guarantee,” and contends that the “[s]ignature [on] a contract on behalf of a corporation does not rise to the level of a personal guarantee.” (Dem. 7: 22-24.)

The Complaint alleges that the Sales Contracts “were signed by Defendant C. Baker in his individual and personal capacity.” (Id. at 80.) Plaintiff, however, has not presented or pled the existence of any written personal guarantees aside from the Sales Contracts. The court does not construe these documents as personal guarantees. Plaintiff also presents no authority in opposition suggesting they could constitute personal guaranties, even considering the allegation that Defendant Baker and MCB Lighting and Electrical, Inc., are alter egos. California also does not recognize oral guaranties. (Civil Code § 2793.) For that reason, Defendant has failed to adequately plead the existence of a written personal guaranty.

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 whole or in part.