Judge Randolph M. Hammock, Case 22STCV31249 2023-03-22 Tentative Ruling

Judge: Randolph M. Hammock, Case: 22STCV31249, Date: 2023-03-22 Tentative Ruling

Plaintiff Armenia Restaurant Group alleges it retained Defendant Deli Bookkeeping & Tax Services to handle the business’s tax services. Defendants Egbert Sanchez and Anastasio Carcamo are alleged to be owners, directors, officers, or managing agents of Defendant Deli Bookkeeping. Plaintiff alleges that Defendant Cindy’s Insurance, operated by Defendant Egbert Sanchez’s wife, Cindy Sanchez, was also involved in the tax process.

From 2014 to 2022, Plaintiff alleges that it paid Defendants around $80,000.00 for which Plaintiff believed was paid to the State of California as part of Plaintiff’s tax filings. In fact, Plaintiff alleges Defendants provided Plaintiff with false information and inflated the amount owed in order to keep the money paid. Plaintiff alleges that Defendants in fact never completed Plaintiff’s taxes despite being paid to do so. Plaintiff is now under investigation by the California Department of Tax and Fee Administration due to underpaying the state of California.

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 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.)

“From time to time, Defendant Egbert would inform Edith that a certain amount needed to be paid by Plaintiff to the California Department of Tax and Fee Administration.” (Id. ¶ 24.) Defendant Egbert would also instruct Edith to make out the checks directly to his name instead of making them out directly to the California Department of Tax and Fee Administration. (Id. ¶ 24.) When Plaintiff questioned why she needed to make the checks out to Sanchez directly and not the state of California, Defendant “would tell her that he had already sent out the money required to the California Department of Tax and Fee Administration on behalf of Plaintiff [] and that Plaintiff needed to reimburse him.” (Id. ¶ 25.)

In total, Plaintiff paid Defendants $79,638.00 to be given to the state of California as tax returns, and paid Defendants a total of $4,550.00 for their services. (Id. ¶ 28.) Plaintiff alleges, however, “that quarterly reports have ranged from $200.00 to $700.00 and not $5,000.00 or the amounts Defendant Egbert Sanchez had informed her.” (Id. ¶ 29.) In fact, Defendants had been providing Plaintiff with false figures and information. (Id.) Defendants also never filed Plaintiff’s taxes despite receiving payment to do so. (Id. ¶ 30.) As a result, Plaintiff is under investigation by the California Department of Tax and Fee Administration due to underpaying the state of California. (Id. ¶ 32.)

Thus, Plaintiff has alleged one or more intentional misrepresentations, made by Defendants with knowledge of their falsity and with intent to induce reliance, actual and justifiable reliance by Plaintiff, and resulting damage. As pled, these allegations sufficiently meet the heightened pleading requirements. 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.

“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.) “Money may be the subject of conversion if the claim involves a specific, identifiable sum; it is not necessary that each coin or bill be earmarked.” (Welco Elecs., Inc. v. Mora (2014) 223 Cal. App. 4th 202, 209.)

Based on the same facts discussed above, Plaintiff alleges that “Defendant Egbert Sanchez falsely misrepresented the amount(s) needed to be paid to California Department of Tax and Fee Administration for the purpose to steal over $86,945.14 from” Plaintiff. (Compl. ¶ 45.) Defendant Cindy’s Insurance allegedly “par[took] in preparing Plaintiff’s tax information” and also received payments from Plaintiff. (Id.) Plaintiff also alleges “[t]here is good belief that Defendant Anastasio Carcamo had knowledge of Defendant Egbert’s actions and concealed these facts from Plaintiff and Edith.” (Id.) Plaintiff has therefore alleged all elements of conversion, including a “specific, identifiable sum” of money. (Welco Elecs., Inc., supra, 223 Cal. App. 4th at 209.)

Defendants next demur to the breach of contract claim, arguing the Complaint “fails to state with clarity any of the specific terms of the contract created between Plaintiff and Defendants, and whether any contract was created between each Defendant and Plaintiff, specifically, in writing or orally.” (Dem. 10: 15-17.)

“A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)

Plaintiff alleges that the parties “entered into an oral contract where Defendants would act as Plaintiff's accountant.” (Compl. ¶ 50.) Defendants would be compensated for the work completed. (Id.) Plaintiff alleges Defendants breached the oral contract by failing “to act as [a] reasonable accountant would under the circumstance,” and by “fail[ing] to act with care when handling Plaintiff’s important documents and when sending them to the California Department of Tax and Fee Administration, openly lying to both the state and Plaintiff.” (Id. ¶ 52.)

Contract formation requires mutual consent, which cannot exist unless the parties “agree upon the same thing in the same sense.” (Bustamante v. Intuit, Inc. (2006) 141 Cal. App. 4th 199, 208 [citing Civ.Code, §§ 1580, 1550, 1565].) “Where the existence of a contract is at issue and the evidence is conflicting or admits of more than one inference, it is for the trier of fact to determine whether the contract actually existed.” (Id.) At least for pleadings purposes to survive a demurrer, Plaintiff has sufficiently alleged all elements for breach of contract, including the existence of a contract itself.

Defendants demurrer to the fourth cause of action for breach of the implied covenant of good faith and fair dealing. Defendants argue Defendants have failed to plead the existence of a contract, that the allegations are general and conclusory, and that the underlying allegations are the same as those for the breach of contract cause of action.

Defendants next demur to the fifth cause of action for breach of fiduciary duties. Defendants apparently concede that a fiduciary duty exists here, but argue the Complaint contains only “vague and general accusations” that “fail to show how these alleged actions resulted in any damages or harm claimed.” (Opp. 12: 24-25.)

“The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its breach, and (3) damage proximately caused by that breach.” (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1405.) “Although subject to exceptions, the determination whether a breach of fiduciary duty occurs under a particular set of facts is ‘mainly for the trier of facts.’ ” (O'Neal v. Stanislaus Cnty. Employees' Ret. Assn. (2017) 8 Cal. App. 5th 1184, 1215.) Whether a duty exists, on the other hand, is generally a question of law. (Id.)

Plaintiff alleges that Defendants, as Plaintiff’s accountants, owed Plaintiff a fiduciary duty. (Compl. 62-65; See generally, 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 805, p. 157 [“Like other professionals ..., accountants ‘have a duty to exercise the ordinary skill and competence of members of their profession, and a failure to discharge that duty will subject them to liability for negligence.’ (Citation omitted.)”]. Plaintiff alleges Defendants failed to file Plaintiff’s taxes and misrepresented the amount owed to the State of California. Plaintiff further alleges that “Defendant’s acts fell below the standard of care owed to Plaintiff,” as Defendants did not “act as reasonable accountants would under the circumstance[s].” (Id. ¶ 64.) In particular, Defendants “all failed to act with care, loyalty, and integrity when handling Plaintiffs important documents and when sending them to the California Department of Tax and Fee Administration, openly lying to the state and Plaintiff.” (Id.)

Plaintiff has therefore alleged facts supporting the imposition of a fiduciary duty on Defendants, and at least for pleadings purposes, alleged the breach of that duty. (See O'Neal, supra, 8 Cal. App. 5th at 1215 [“whether a breach of fiduciary duty occurs under a particular set of facts is ‘mainly for the trier of facts.’ ”].)

Finally, Defendants Demurrer to the Sixth Cause of Action for Negligent supervision, arguing the cause of action fails to state facts to support the claim against the moving Defendants. However, moving Defendants are not named as Defendants in the Sixth Cause of Action—it is asserted only against Defendants Carcamo and Deli Bookkeeping & Tax Services.

Plaintiff alleges that Defendant Egbert Sanchez visited the restaurant in 2013 and offered Plaintiff accounting or financial services. (Complaint ¶ 18.) Defendant Sanchez represented that he and Defendant Carcamo, a licensed accountant, owned or operated Defendant Deli Bookkeeping Services. (See Id. ¶ 19; see also ¶ 9 [alleging Defendant Caracamo was “owner, director, officer, or managing agent” of Defendant Deli Bookkeeping and Tax Services].) Plaintiff alleges that Defendants “were the agents, employees, managing agents, supervisors, coconspirators, parent corporation, joint employers, alter ego, and/or joint ventures of the other Defendants.” (Id. ¶ 13.) Defendant Sanchez informed Plaintiff that Carcamo “was a licensed accountant that would always oversee his work and would back up [Sanchez’s] work and expertise.” (Id. ¶ 19.) Plaintiff alleges its “tax returns were prepared by…Defendant Anastasio Carcamo,” along with the other Defendants. (Id. ¶ 26.) Plaintiff alleges Defendant Carcamo “w[as] aware of” the alleged fraud and “aided Defendant Egbert to defraud Editha and Plaintiff.” (Id. ¶ 36.) “There is good belief that Defendant Anastasio Carcamo had knowledge of Defendant Egbert’s actions and concealed these facts from Plaintiff.” (Id. ¶ 36.)

Based on these allegations, which the court must accept as true, Plaintiff has alleged one or more intentional misrepresentations, made by Defendants with knowledge of their falsity and with intent to induce reliance, actual and justifiable reliance by Plaintiff, and resulting damage. As pled, these allegations sufficiently meet the heightened pleading requirements. (See Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal. App. 4th 1068, 1078 [court “must accept[] as true all well pleaded facts” in the Complaint when ruling on a demurrer].)

Notably, Defendant has not offered any evidence of which this court may take judicial notice that would negate the allegation that Defendant has an ownership interest in Defendant Deli Bookkeeping & Tax Services, or show that he was otherwise not directly involved in the scheme to defraud Plaintiff. (See Arce v. Kaiser Found. Health Plan, Inc. (201) 181 Cal. App. 4th 471, 482 [“Because a demurrer challenges defects on the face of the complaint, it can only refer to matters outside the pleading that are subject to judicial notice.”]).

Based on the same facts discussed above, Plaintiff alleges that “Defendant Egbert Sanchez falsely misrepresented the amount(s) needed to be paid to California Department of Tax and Fee Administration for the purpose to steal over $86,945.14 from” Plaintiff. (Compl. ¶ 45.) Defendant Cindy’s Insurance allegedly “par[took] in preparing Plaintiff’s tax information” and also received payments from Plaintiff. (Id.) Plaintiff also alleges that as owner of Defendant Deli, “[t]here is good belief that Defendant Anastasio Carcamo had knowledge of Defendant Egbert’s actions and concealed these facts from Plaintiff and Edith.” (Id.) Plaintiff has therefore alleged all elements of conversion, including receipt of a “specific, identifiable sum” of money against the moving Defendant. (Welco Elecs., Inc., supra, 223 Cal. App. 4th at 209.)

Defendant also argues the cause of action is barred by the three-year statute of limitations. (See CCP 338(c) [providing three-year limitations period for “action[s] for taking, detaining, or injuring any goods or chattels”].) “Assuming the tax payments were not being properly allocated each year from 2014 to 2022,” Defendant argues, “Plaintiff should have received a notice each year from the Franchise Tax Board, and thus, Plaintiff should have discovered Defendant’s alleged breach soon after.” (Dem. 10: 10-12.)

Under California law, “the statute of limitations for conversion is triggered by the act of wrongfully taking property.” (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1433.” Courts have, however, recognized a “discovery rule” exception to toll the statute “when the defendant in a conversion action fraudulently conceals the relevant facts or where the defendant fails to disclose such facts in violation of his or her fiduciary duty to the plaintiff.” (AmerUS Life Ins. Co. v. Bank of Am., N.A. (2006) 143 Cal. App. 4th 631, 639.) In those instances, “the statute of limitations does not commence to run until the aggrieved party discovers or ought to have discovered the existence of the cause of action for conversion.” (Id.)

Plaintiff alleges the conversion occurred from 2014 through 2022. (Compl. ¶¶ 44, 46.) Plaintiff alleges to have only “[r]ecently” discovered the alleged conversion, although the exact time appears absent from the Complaint. Based on the pleading, the court cannot find that Plaintiff discovered or should have discovered the alleged conversion so as to make the claim untimely under a three-year limitations period. This is considered in light of the allegation that Defendants committed fraud by “conceal[ing]” the amounts actually owed to the State and then “[l]ying about the amount.” (Id. ¶ 37)

Here, Plaintiff alleges that Defendant Sanchez represented that he and Defendant Carcamo, a licensed accountant, owned or operated Defendant Deli Bookkeeping Services. (See Id. ¶ 19; see also ¶ 9 [alleging Defendant Caracamo was “owner, director, officer, or managing agent” of Defendant Deli Bookkeeping and Tax Services].) Plaintiff also alleges that Defendants “were the agents, employees, managing agents, supervisors, coconspirators, parent corporation, joint employers, alter ego, and/or joint ventures of the other Defendants.” (Id. ¶ 13.) Defendant Sanchez informed Plaintiff that Carcamo “was a licensed accountant that would always oversee his work and would back up [Sanchez’s] work and expertise.” (Id. ¶ 19.) Plaintiff alleges its “tax returns were prepared by…Defendant Anastasio Carcamo,” along with the other Defendants. (Id. ¶ 26.) Thus, Plaintiff has sufficiently alleged all elements for breach of contract, including the existence of a contract involving the moving Defendant.

Defendant also argues the cause of action is barred by a two-year statute of limitations. Once again, this court cannot find that Plaintiff discovered or should have discovered the alleged breach of contract at a time so as to make the claim untimely under a two-year limitations period. This is considered in light of the allegation that Defendants committed fraud by “conceal[ing]” the amounts actually owed to the State and then “[l]ying about the amount.” (Id. ¶ 37)

Plaintiff alleges that Defendants, as Plaintiff’s accountants, owed Plaintiff a fiduciary duty. (Compl. ¶¶ 62-65; See generally, 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 805, p. 157 [“Like other professionals ..., accountants ‘have a duty to exercise the ordinary skill and competence of members of their profession, and a failure to discharge that duty will subject them to liability for negligence.’ (Citation omitted.)”]. Plaintiff alleges Defendants failed to file Plaintiff’s taxes and misrepresented the amount owed to the State of California. Plaintiff further alleges that “Defendant’s acts fell below the standard of care owed to Plaintiff,” as Defendants did not “act as reasonable accountants would under the circumstance[s].” (Id. ¶ 64.) In particular, Defendants “all failed to act with care, loyalty, and integrity when handling Plaintiffs important documents and when sending them to the California Department of Tax and Fee Administration, openly lying to the state and Plaintiff.” (Id.) Plaintiff alleges its “tax returns were prepared by…Defendant Anastasio Carcamo,” along with the other Defendants. (Id. ¶ 26.)

“An employer can be held liable for negligent supervision if it knows or has reason to believe the employee is unfit or fails to use reasonable care to discover the employee's unfitness.” (Alexander v. Cmty. Hosp. of Long Beach (2020) 46 Cal. App. 5th 238, 253. “[T]here can be no liability for negligent supervision ‘in the absence of knowledge by the principal that the agent or servant was a person who could not be trusted to act properly without being supervised.’ ” (Id.)

Plaintiff alleges Defendant Carcamo is responsible for the alleged harm done by Defendant Sanchez because Carcamo “negligently hired, supervised, and/or retained” Sanchez. (Compl. ¶ 67.) Plaintiff alleges that Sanchez became unfit or incompetent “because he did not report accurate figure to Plaintiff, the customer, and failed to report the accurate information and monies given by Plaintiff to the California Department of Tax and Fee Administration.” (Id. ¶ 69.) Plaintiff asserts Defendant “knew or should have known that Defendant Egbert Sanchez [was] or became unfit or incompetent.” (Id. ¶ 70.)

Here, Plaintiff has not pled facts suggesting that Defendant Carcamo knew or had reason to believe that Defendant Sanchez was unfit for his job. Plaintiff’s only retort to the demurrer is that “being as the defendants were defendant Egbert’s boss, they should have been aware that he had become unfit and was creating a risk to the Plaintiff.” (Opp. 9: 13-15.) But absent any additional allegations, such a conclusory allegation is insufficient. Were that the standard, negligent supervision could be imposed on any employer.

Accordingly, Defendants’ Demurrer to the Sixth Cause of Action is SUSTAINED. Plaintiff must demonstrate at the hearing how it can reasonably amend this cause of action to plead facts suggesting knowledge or constructive knowledge of Defendant Sanchez’s alleged “unfitness” on the moving Defendant. If it cannot, no leave to amend will be given.

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.