Schon Investments, LLC, et al. v. Eva Cassidy, et al.

DEMURRER TO FIRST AMENDED COMPLAINT

 

MOVING PARTY: Defendant Eva Cassidy

RESPONDING PARTY(S): Plaintiffs Schon Investments, LLC, and Paul Schon

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs Schon Investments and Paul Schon allege they entered into an oral agreement with Defendant Eva Cassidy whereby Plaintiffs would provide a $100,000 investment into Defendant’s confectionary business for a 25% stake.  

Following Plaintiffs’ initial investment of $50,000, Plaintiffs allege that Defendants dissolved the business and ceased all communications.  Plaintiffs bring causes of action for (1) breach of contract, (2) breach of implied covenant and good faith and fair dealing, (3) money had and received, (4) unjust enrichment, (5) conversion, and (6) misrepresentation and fraudulent inducement.

Defendant Eva Cassidy now demurs to each cause of action in the First Amended Complaint. Plaintiffs opposed.

TENTATIVE RULING:

Defendant’s Demurrer to the FAC is OVERRULED in its entirety.

Defendant is to file an Answer to the First Amended Complaint within 21 days.

Moving party to give notice, unless waived.  

DISCUSSION:

Demurrer

I. Meet and Confer

The Declaration of Defendant Eva Cassidy reflects that the parties met and conferred. (CCP § 430.41.)

II. Legal 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.  (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.)

III. Analysis 

Defendant Cassidy demurs to each cause of action in the First Amended Complaint.  Each is addressed in turn.

A. Breach of Contract (First Cause of Action)

Defendant demurs to the first cause of action, first arguing Plaintiffs have failed to plead whether the contract was oral or written. Defendant also argues Plaintiffs have failed to attach the copy of the contract or plead its essential terms.

Plaintiffs allege that “[i]n or about October 2021 CASSIDY and Plaintiff entered into an oral contract informally memorialized in a writing whereby Plaintiff would provide capital in the form of cash to CASSIDY for the formation and organization of a confectionary business known as ‘CUT BY CAKE.’ The parties contemplated that Plaintiff would provide a total of One Hundred Thousand Dollars ($100,000.00) for a 25 percent (25%) share of the business.” (FAC ¶ 6.) The alleged informal written agreement is attached to the FAC as exhibit 1. The written agreement does not appear to provide for the $100,000 capital investment, but does provide for a 25/75 ownership split, among other things.  (See FAC, Exh. 1.) 

A contract may be partly written and partly oral. “A so-called partly written and partly oral contract is in legal effect a contract, the terms of which may be proven by both written and oral evidence.” (Lande v. Southern California Freight Lines (1948) 85 Cal.App.2d 416, 420–421.) “[I]f the respective parties orally agreed upon all of the terms and conditions of a proposed written agreement with the mutual intention that the oral agreement should thereupon become binding, the mere fact that a formal written agreement to the same effect has not yet been signed does not alter the binding validity of the oral agreement. [Citation.]” (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 358.) 

Plaintiffs have therefore alleged the existence of a contract and its essential terms.  Moreover, the terms of the oral agreement and those written terms may supplement each other.  Ultimately, “[w]hether parties have reached a contractual agreement and on what terms are questions for the fact finder when conflicting versions of the parties’ negotiations require a determination of credibility.” (Hebberd-Kulow Enterprises, Inc. v. Kelomar, Inc. (2013) 218 Cal.App.4th 272, 283.)

Defendant next argues that Plaintiffs have not pled all elements for breach of contract. To establish breach of contract, Plaintiffs must allege: (1) the existence of contract; (2) Plaintiffs’ performance or excuse for nonperformance; (3) Defendant’s breach (or anticipatory breach); and (4) resulting damage.  (Wall Street Network, Ltd. v. N. Y. Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

As discussed, Plaintiffs have alleged the existence of a part written and part oral contract. (FAC ¶ 6.) Plaintiffs further allege they made an initial $50,000 investment in the business as required under the agreement, but that Defendants terminated the business and refused to return the investment. (FAC ¶¶ 9, 24.) Plaintiffs allege damages in the form of this investment. (Id. ¶ 26.) Plaintiffs have therefore pled all elements for breach of contract.  

Defendant next argues there are no facts alleged against the entity Defendants.  However, the FAC alleges that “Cut by Cake, LLC” is the entity Defendant for which the initial investment would fund. (FAC ¶¶ 6, 9.) The FAC further alleges that “Plaintiff would provide capital in the form of cash to CASSIDY for the formation and organization of a confectionary business known as “CUT BY CAKE.” (Id. ¶ 6.) The FAC also alleges that “entities” “Cake Gourmet Sugar Service” and “Cut by Cake” are merely the “dba’s” of the individual Defendant Cassidy. (Id. ¶ 2.) The FAC is therefore sufficient.

Defendant then argues that the contract is barred by the statute of frauds and the Parol Evidence Rule.  The Statute of frauds generally forbids a contract that by its terms is not to be performed within a year from its making, unless made in writing and signed by the party to be charged. (See Civil Code § 1624(a)(1.) To the extent his Code section has any applicability to the present facts, Plaintiffs also allege they did, in fact, perform under the contract by making a partial investment.  (FAC ¶ 9.) “Part performance allows enforcement of a contract lacking a requisite writing in situations in which invoking the statute of frauds would cause unconscionable injury. [Citation.] ‘[T]o constitute part performance, the relevant acts either must ‘unequivocally refer[ ]’ to the contract [citation], or ‘clearly relate’ to its terms. [Citation.] Such conduct satisfies the evidentiary function of the statute of frauds by confirming that a bargain was in fact reached. [Citation.]’” [Citation.] (Secrest v. Sec. Nat'l Mortg. Loan Tr. 2002-2 (2008) 167 Cal. App. 4th 544, 555.) Plaintiffs have therefore alleged partial performance under the alleged agreement, which renders the statute of frauds inapplicable.

The Parol Evidence Rule generally prohibits the introduction of extrinsic evidence to vary or contradict the terms of an integrated written instrument. (EPA Real Estate Partnership v. Kang (1992) 12 Cal.App.4th 171, 175.) Here, there is no complete and final integration of the alleged contract.  Rather, it is alleged to have both oral and written terms.  The Parol Evidence Rule is therefore inapplicable.  For that same reason, Civil Code section 1698(c)—which requires new consideration to orally modify a purely written contract—is inapplicable on these facts.

Accordingly, Defendant’s Demurrer to the First Cause of Action is OVERRULED.

B. Breach of Implied Covenant of Good Faith and Fair Dealing (Second Cause of Action)

Defendant contends that “Plaintiffs have not alleged any specific actionable conduct by the Defendants in connection with their claim for Breach of Implied Covenant of Good Faith and Fair Dealing, and California law prohibits a court from modifying a contract to add obligations not contemplated by its express terms.” (Dem. 16: 9-12.)

To establish breach of good faith and fair dealing, Plaintiffs must allege that: (1) the parties entered into a contract; (2) Plaintiffs fulfilled their contractual obligations; (3) any conditions precedent to Defendant’s performance occurred; (4) Defendants unfairly interfered with Plaintiff’s right to receive the benefits of the contract; and (5) Plaintiffs were harmed by Defendants’ conduct. (CACI No. 325.)

Plaintiff has alleged that Defendants breached the implied covenant by “(1) suddenly and without explanation terminating CUT BY CAKE, LLC; (2) spending the $50,000 tendered by Plaintiff privately for her own gain; (3) making expenditures over $1,000 despite agreeing to oversight by Plaintiff for expenditures exceeding $1,000; (4) continuing to operate a sole proprietorship under the name “CUT BY CAKE” without providing Plaintiff the promised percentage or even a fraction of the percentage contemplated by the parties; (5) failing and refusing to apply her best efforts in establishing a going concern as contemplated by the contract and (6) demanding that Plaintiff invest the full $100,000.00 before becoming eligible for any percentage of the business.” (FAC ¶ 30.) Plaintiff further alleges that Defendant Cassidy “intentionally exhausted the first half of Plaintiff’s capital investment on unauthorized expenditures in order to create a false need for demanding the entire $100,000 before establishing the company.” (Id.)

Plaintiffs have therefore alleged conduct that could constitute breach of the covenant of good faith and fair dealing, and the demurrer fails.

Accordingly, Defendant’s Demurrer to the Second Cause of Action is OVERRULED.

C. Money Had and Received (Third Cause of Action)

Defendant contends this cause of action fails because Plaintiffs “have failed to plead the essential elements of this cause of action with the required specificity.” (Dem. 16: 16-18.) 

“A cause of action is stated for money had and received if the defendant is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.’ ” (Gutierrez v. Girardi (2011) 194 Cal. App. 4th 925, 937.) “This common count is available in a great variety of situations…and ‘lies wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter’.” (Id.)

Here, Plaintiffs has alleged that Defendant received an investment but failed to create or maintain the business, resulting in a $50,000 debt owed to Plaintiff.  (FAC ¶¶ 36, 37.) The claim therefore survives the demurrer.

Accordingly, Defendant’s Demurrer to the Third Cause of Action is OVERRULED

D. Unjust Enrichment (Fourth Cause of Action)

Defendant contends that Plaintiffs have not pled the elements of a claim for unjust enrichment. 

The elements of an unjust enrichment claim are the “receipt of a benefit and [the] unjust retention of the benefit at the expense of another.” (Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726.) Here, Plaintiffs allege that Defendant has been unjustly enriched by retaining Plaintiffs’ investment in a business that is now non-existent.  (FAC ¶ 39.) Plaintiffs have therefore pled all elements of the cause of action.

Accordingly, Defendant’s Demurrer to the Fourth Cause of Action is OVERRULED.

E. Conversion (Fifth Cause of Action)

Defendant argues Plaintiff has not identified a specific sum of money allegedly converted, and that Plaintiff consented to the taking of the property.

“Conversion is generally described as the wrongful exercise of dominion over the personal property of another. [Citation.] The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. [Citation.]” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

Plaintiffs have alleged they provided Defendant with an investment of $50,000 to be used for forming the business, with “conditions accompanying” that investment. (FAC ¶ 42.) Plaintiffs further allege that Defendant “terminat[ed] the business” and instead “spen[t] the $50,000 for her personal gain.” (Id. ¶ 43.) Therefore, Plaintiffs have alleged the elements of conversion.

Accordingly, Defendant’s Demurrer to the Fifth Cause of Action is OVERRULED.

F. Misrepresentation and Fraudulent Inducement (Sixth Cause of Action)

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. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. 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.) 

Plaintiffs have alleged all elements of misrepresentation, based on the common allegation that Defendant received the investment but then failed to create the business as required.  Moreover, Plaintiffs allege that Defendant in fact “never intended to provide Plaintiff a 25% share in the company, never intended to form a company in the first place, and all along intended to use Plaintiff’s money for her personal gain.” (FAC ¶ 50.) 

Accordingly, Defendant’s Demurrer to the Sixth Cause of Action is OVERRULED. 

Defendant’s Demurrer to the FAC is OVERRULED in its entirety.

IT IS SO ORDERED.

Dated:   March 29, 2023 ___________________________________

Randolph M. Hammock

Judge of the Superior Court

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.