Judge Randolph M. Hammock, Case Number: 23SMCV00005, Date: 2023-10-13 Tentative Ruling

Plaintiff Morgan Creek Productions, Inc. alleges between 2007 and 2009, it made eighteen loans to Defendant Antoine Fuqua in the total amount of $1,100,000. Each loan was documented in the form of a written and executed Promissory Note. Defendant allegedly made no payments on the notes. Accordingly, Plaintiff brings eighteen causes of action for breach of promissory note (one for each note), and a nineteenth cause of action for accounting.

Defendant Fuqua has filed a Cross-Complaint against Plaintiff Morgan Creek for rescission. Cross-Complainant alleges the statute of limitations on the subject notes expired in 2016. However, Cross-Complainant alleges on January 13, 2019, Cross-Defendant tricked or induced him into signing a “form” reviving the expired debts. He now seeks rescission of that form.

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.)

Morgan Creek’s Second Amended Complaint sets the background: Morgan Creek alleges between December 2007 and December 2009, it made eighteen loans to Antoine Fuqua in the total amount of $1,100,000. (SAC ¶ 7.) Including interest, the total amount of Fuqua’s alleged indebtedness is approximately $3,261,900. (Id.) Each one of the 18 Loans were documented in the form of a written and executed Promissory Note, as well as a written “Spousal Consent” form executed by Mr. Fuqua’s wife, Leia Rochon Fuqua. (Id. ¶ 8.)

Morgan Creek alleges that Fuqua executed a “Debt Acknowledgment Form” dated January 13, 2019, which advanced the statute of limitations on each note to January 13, 2023. (Id. ¶ 10; Exh. 1.) Defendant has allegedly made no payments on any of the Notes. (Id. ¶ 9.)

In response, Fuqua filed a Cross-Complaint seeking rescission of the Debt Acknowledgment Form. While Fuqua concedes he “had not paid down the principal on the Notes,” he alleges “he understood based on Cross-Defendants’ representations that he had paid back his debts to Morgan Creek through his services on Morgan Creek’s [film] projects.” (Cross-Complaint ¶ 12.) Fuqua alleges that James Robinson, acting on behalf of Morgan Creek, “used his personal friendship with Mr. Fuqua to induce Mr. Fuqua to sign” the Debt Acknowledgment Form. (Id. ¶ 13.) Fuqua further alleges that Robinson told him the Form “would be used only for Morgan Creek’s internal record keeping purposes, not to revive any expired debt.” (Id.) He alleges that he “did not bargain for anything in exchange for signing the Form, and Cross-Defendants have given nothing by way of the Form to Mr. Fuqua.” (Id. ¶ 16.) Therefore, Fuqua seeks rescission of the form based on Cross-Defendant’s alleged misrepresentations. (Id. ¶¶ 14, 15.)

Civil Code section 1689 governs the rescission of a “contract.” (See Civil Code 1689(a),(b).) Morgan Creek contends “a cursory examination of” the Debt Acknowledgment Form “demonstrates that the document is not a contract.” (Dem. 7: 18-19.) Rather, Morgan Creek asserts the Debt Acknowledgment form “has independent legal significance as an acknowledgement of prior contract obligations (the Notes), but under California law, it is not itself a contract independent of those prior contract obligations which may be rescinded.” (Dem. 9: 8-10.) In other words, Morgan Creek contends the Form lacks the necessary mutual consideration to be deemed a valid contract.

It appears undisputed, at least for purposes of this demurrer, that the obligations on the notes expired in 2016. It was only through operation of the Debt Acknowledgment Form executed in 2019 that the parties revived the debts. Morgan Creek recognizes as much: indeed, its underlying action is itself based on this Form, which is attached to the SAC as Exhibit 1. (See SAC ¶ 10 [alleging that “Defendant’s failure to make payment on any and/or all of the Notes represents a breach of the terms of each such Note, whose respective statutes of limitation were advanced to January 13, 2023 by virtue of the Acknowledgment.”])(Emphasis added.)

That the Form may have lacked consideration is precisely a grounds for rescission. Section 1689 expressly allows for the rescission of a contract due to failure of consideration. For Morgan Creek to contend the Form is not a contract for purposes of the Cross-Complaint, yet rely on that same Form in the SAC to revive the debts is a questionable, perhaps untenable, position.

Put simply, Morgan Creek likewise provides no conclusive authority holding a debt acknowledgment form is not a “contract.” Likewise, it provides no authority suggesting a debt acknowledgment form cannot be rescinded where grounds might exist to do so. (See Maurer v. Bernardo (1931) 118 Cal.App. 290, 293-294 [“an acknowledgment [of debt] made after the statute has run gives a new cause of action, and the action must be upon the new acknowledgment or new promise, for which the old debt is a consideration.”]; Gen. Credit Corp. v. Pichel (1975) 44 Cal. App. 3d 844, 848 [“In California, the acknowledgment of a prior unenforceable obligation gives rise to a new enforceable promise”].)

Because an acknowledgment of debt is a “new promise” giving rise to a new cause of action—which, as here, Morgan Creek seeks to enforce—it logically follows that the acknowledgment can be deemed a “contract” subject to rescission, just as the underlying notes were.

Finally, Morgan Creek alternatively argues that the “inconsistencies” in the Cross-Complaint render it uncertain. As a general rule, “demurrers for uncertainty are disfavored.” (Lickiss v. Fin. Indus. Regul. Auth., (2012) 208 Cal. App. 4th 1125, 1135.) For pleadings purposes, the Cross-Complaint is not uncertain.

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.