Val-Pro, Inc. v. Douglas Lalonde

DEFENDANT DOUGLAS LALONDE’S DEMURRER TO COMPLAINT

 

MOVING PARTY: Defendant Douglas Lalonde

RESPONDING PARTY(S): Plaintiff Val-Pro, Inc., dba Valley Fruit & Produce Company

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff Val-Pro, Inc., brings this action against its 50% Shareholder, Defendant Douglas Lalonde. Plaintiff alleges that it loaned Defendant $478,053 to assist in the payment of Defendant’s life insurance premiums. Plaintiff further alleges that Defendant has not repaid the debt. Plaintiff now asserts causes of action for (1) breach of written contract, (2) account stated, (3) open book account, (4) conversion, and (5) violation of Penal Code § 496.

Defendant now demurrers to the Fourth and Fifth Causes of Action in the Complaint. Plaintiff opposed.

TENTATIVE RULING:

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.) Plaintiff must make an “offer of proof” at the hearing demonstrating it can allege conduct beyond a mere contractual breach. If it does not, no leave to amend will be given.

If no leave to amend is granted, Defendant is to file an Answer within 21 days to the remaining causes of action.

Defendant is ordered to give notice, unless waived.

DISCUSSION:

Demurrer

I. Meet and Confer

The declaration of attorney Roger M. Rosen reflects that the meet and confer requirement was satisfied. 

II. Judicial Notice

Pursuant to Defendant’s request, the court takes judicial notice of Plaintiff Val-Pro’s 2022 Statement of Information. (RJN, Exh. 1.)

III. 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.)

IV. Analysis

A. Demurrer to Fourth Cause of Action for Conversion

First, Defendant demurrers to the Fourth Cause of Action for Conversion, arguing conversion does not apply to the facts in this case.

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.)

Generally, “[a] mere contractual right of payment, without more, will not suffice” to state a claim for conversion. (See Farmers Ins. Exch. v. Zerin (1997) 53 Cal. App. 4th 445, 452). Consistent with this understanding, “California cases permitting an action for conversion of money typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others.” (Kim v. Westmoore Partners, Inc. (2011) 201 Cal. App. 4th 267, 284.) But “the simple failure to pay money owed does not constitute conversion.” (Id.) See Kim, supra, 201 Cal. App. 4th at 285 [no cause of action for conversion was stated where “promissory notes [plaintiff] incorporated into the complaint demonstrate beyond dispute that this case actually involves a simple creditor-debtor relationship, in which defendants are alleged to have violated their obligations to repay the subject debts”].)

Plaintiff alleges it loaned Defendant $478,053, memorialized in a written promissory note and addendum, “to assist in the payment of [Defendant’s] life insurance premiums.” (Compl. ¶¶ 8, 9, 10.) Plaintiff alleges that Defendant “has still not repaid his debt of $506,753 to Val-Pro, which consists of $478,053 in Loan principal, $14,341 in accrued and unpaid interest for the year 2022, and $14,359 in accrued and unpaid interest for the year 2023.” (Id. ¶¶ 16.) 

Here, like in Kim, the action demonstrates nothing more than a creditor-debtor relationship, in which Defendant is alleged to have failed to repay a “debt” of $506,753 under the promissory note and addendum. (Compl. ¶¶ 9, 10, 11, 16.) This contractual right to repayment, standing alone, is insufficient to constitute conversion. 

Accordingly, Defendant’s Demurrer to the Fourth Cause of Action is SUSTAINED. 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.) Plaintiff must make an “offer of proof” at the hearing demonstrating conduct beyond a mere contractual breach. If it does not, no leave to amend will be given.

B. Demurrer to Fifth Cause of Action for Violation of Penal Code § 496

Defendant also demurrers to the Fifth Cause of Action for violation of Penal Code section 496, arguing that the allegations do not arise to a Penal Code violation. 

“Section 496, subdivision (a) (section 496(a)) defines the criminal offense of what is commonly referred to as receiving stolen property. As amended in 1972 (Stats. 1972, ch. 963, § 1, p. 1739), it provides in relevant part: ‘Every person who buys or receives any property that has been stolen or that has been obtained in any manner constituting theft or extortion, knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen or obtained,’ is subject to incarceration.” (Siry Inv., L.P. v. Farkhondehpour (2022) 13 Cal. 5th 333, 346.) Subdivision (c) of section 496 states that any person who has been injured by a violation of section 496(a) “may bring an action for three times the amount of actual damages, if any, sustained by the plaintiff, costs of suit, and reasonable attorney's fees.” (Penal Code § 496(c).)

As already discussed, the property at issue here is a loan made to Defendant which has allegedly not been repaid. Plaintiff loaned the money to Defendant and memorialized the debt in a written promissory note and addendum. (Compl. ¶¶ 8, 9, 10, 16.)

On the facts alleged, Defendant did not receive “stolen” property. (Penal Code § 496(a).) Nor did he obtain the property “in any manner constituting theft or extortion.” (Id.) Rather, as alleged in the Complaint, this is an action to recover a contractual debt left unpaid. Nothing more, nothing less. 

Accordingly, Defendant’s Demurrer to the Fifth Cause of Action is SUSTAINED. Again, Plaintiff must make an “offer of proof” at the hearing demonstrating that it can allege conduct beyond a mere contractual breach. If it does not, no leave to amend will be given.

Moving party is ordered to give notice.

IT IS SO ORDERED.

Dated:   September 6, 2024 ___________________________________