Judge: Randy Rhodes, Case: 22CHCV00554, Date: 2022-10-27 Tentative Ruling

Case Number: 22CHCV00554    Hearing Date: October 27, 2022    Dept: F51

Dept. F-51

Date: 10-27-22                                                                        Trial Date: None set

Case # 22CHCV00554

DEMURRER

Demurrer filed on 9/29/2022

MOVING PARTIES:             Defendants JMJ Financial Group and Larry Ehrlich

RESPONDING PARTY:       Plaintiff Joel Shackelford

NOTICE:                                Ok

RELIEF REQUESTED: An order sustaining a demurrer to the Complaint and all eight causes of action.

RULING: Overruled and sustained in part:

The Court OVERRULES the demurrer to the first cause of action for breach of contract, second cause of action for breach of covenant of implied good faith and fair dealing, the seventh cause of action for intentional interference with contractual relations, and eighth cause of action for intentional interference with contractual relations.

The Court SUSTAINS the demurrer to the third cause of action for breach of fiduciary duty, without leave to amend.

The Court SUSTAINS the demurrer to the fourth cause of action for negligence, fifth cause of action for negligent misrepresentation, and sixth cause of action for intentional misrepresentation, with leave to amend.

The Court orders Plaintiff Joel Shackelford to file and serve his first amended complaint within thirty (30) days of this ruling.

Background

On July 25, 2022, Plaintiff Joel Shackelford, an individual as Trustee for the Blec Family Trust, filed this action against Defendants JMJ Financial Group (“JMJ”) and Larry Ehrlich (“Ehrlich”)(collectively, “Defendants”), asserting the following causes of action: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) breach of fiduciary duty; (4) negligence; (5) negligent misrepresentation; (6) intentional misrepresentation; (7) intentional interference with contractual relations; and (8) negligent interference with prospective economic relations.

The Complaint alleges the following. Defendants informed Plaintiff that they approved his loan to finance the purchase of a single-family residence at 35020 Sipes Pl., Agua Dulce, CA 91390 (the “Property”) and were ready to send the loan documents to escrow. Despite those representations, a few days before the closing, Defendants canceled the agreement because Plaintiff was unable to get (on such short notice) a citation, concerning a barn and recorded on the title of the Property, removed.

On September 29, 2022, the Defendants filed the pending Demurrer to the Complaint.

On October 14, 2022, Plaintiff filed his opposition.

On October 20, 2022, Defendants filed their reply.

Legal Standard

“The primary function of a pleading is to give the other party notice so that it may prepare its case [citation], and a defect in a pleading that otherwise properly notifies a party cannot be said to affect substantial rights.” (Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 240.) “A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 725.) The Court looks at whether “the complaint alleges facts sufficient to state a cause of action or discloses a complete defense.” (Id.) The Court does not “read passages from a complaint in isolation; in reviewing a ruling on a demurrer, we read the complaint ‘as a whole and its parts in their context.’ [Citation.]” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 804.) The Court “assume[s] the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken.” (Harris, supra, 56 Cal.4th p. 240.) “The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)

A general demurrer may be brought under Code of Civil Procedure section 430.10, subdivision (e) if insufficient facts are stated to support the cause of action asserted or under section 430.10, subdivision (a), where the court has no jurisdiction of the subject of the cause of action alleged in the pleading. All other grounds listed in Section 430.10, including uncertainty under subdivision (f), are special demurrers. Special demurrers are not allowed in limited jurisdiction courts. (Code Civ. Proc., § 92, subd. (c).)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)  The burden is on the complainant to show the Court that a pleading can be amended successfully. (Id.)

Analysis

Defendants demur to Plaintiff’s entire Complaint and all eight causes of action, contending that they fail to state facts sufficient to constitute a cause of action.

Meet and Confer

Defendants have met the meet and confer requirement. (Declaration of Demurring Party, filed on September 29, 2022, ¶ 2a.)

First Cause of Action for Breach of Contract

“To state a cause of action for breach of contract, a party must plead [1] the existence of a contract, [2] his or her performance of the contract or excuse for nonperformance, [3] the defendant’s breach and [4] resulting damage.”  (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) 

“Under the usual principles of lender liability, ‘[a] loan commitment is not binding on the lender unless it contains all of the material terms of the loan, and either the lender’s obligation is unconditional or the stated conditions have been satisfied.’” (Peterson Development Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 115.)

Here, Defendants argue that the Complaint fails to state facts sufficient to constitute a cause of action for breach of contract, because Plaintiff has not alleged that all of the conditions in the Conditional Approval were satisfied. Specifically, the very first condition in the Conditional Approval, they argue, “required that the underwriter review and approve the Building Code Violation related to the unpermitted barn.” (Opposition, p. 6:6-7, citing Compl., Ex. A, p. 2.) However, here, Plaintiff acknowledges in Paragraph 16 that JMJ’s primary reason for refusing to approve the loan was because of the building code violation due to the barn. That admission alone, Defendants conclude, undermines Plaintiff’s breach of contract cause of action because it shows that Plaintiff did not satisfy all of the conditions in the Conditional Approval.

However, the first condition in the Conditional Approval does not state that an underwriter had to “approve the Building Code Violation related to the unpermitted barn,” as Defendants contend. It does not even mention the barn. Instead, it states: “Title: Title Report Required – Need Title Report Dated Within 60 Days and Need Copies of Items 6 and 8 for Underwriter Review.”

In addition, as Plaintiff argues and Defendants concede in their reply, the Complaint alleges that: “On or about October 14, 2021 [before JMJ backed out of the deal], JMJ provided written confirmation to [Plaintiff] that JM had not only approved the loan, and committed to providing, but was also sending loan documents to escrow for closing on the Second Agreement. Closing thus seemed imminent.” (Compl., ¶ 15.)

In ruling on the demurrer, the Court “assume[s] … facts that reasonably can be inferred from those expressly pleaded ….” (Harris, supra, 56 Cal.4th p. 240.)

Here, it is reasonable to infer from the facts in the Complaint that Plaintiff satisfied the conditions in the Conditional Approval because Defendant not only told him that it approved the loan, but that they will be sending loan documents to escrow. Plaintiff does not need to attach a copy of the writing in which JMJ stated it had approved the loan to the Complaint to allege facts sufficient to constitute a cause of action for breach of contract. That writing is not the contract that is at issue. In addition, the Court cannot resolve factual disputes (e.g., whether Defendant in fact approved the loan or Plaintiff is lying) on a demurrer proceeding.

For those reasons, the Court OVERRULES the demurrer to the first cause of action for breach of contract.

Second Cause of Action Breach of the Covenant of Good Faith and Fair Dealing

Defendants argue that Plaintiff’s breach of the covenant of good faith and fair dealing claim (“breach of implied covenant claim”) fails because (1) it is not a cause of action independent from a breach of contract, (2) it is also, superfluous because it alleges the same breach in the breach of contract claim, or (3) invalid because it alleges a breach of an obligation that does not exist in the Conditional Approval.

Defendants misinterpret the law. A breach of implied covenant claim can be a standalone cause of action separate from a breach of contract cause of action as long as it alleges a different breach than the one the latter alleges.

“Every contract imposes on each party a duty of good faith and fair dealing in each performance and in its enforcement.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393 (“Careau”).) “Simply stated, the burden imposed is ‘“that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.”’ [Citations.] Or, to put it another way, the ‘implied covenant imposes upon each party the obligation to do everything that the contract presupposes they will do to accomplish its purpose.’ [Citation.]” (Ibid.)

“A ‘“breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself” and it has been held that “[b]ad faith implies unfair dealing rather than mistaken judgment.... [Citation.]” [Citation.]’ [Citation.]” (Careau, supra, 222 Cal.App.3d at p. 1394.)

“Thus, allegations which assert such a claim must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.” (Careau, supra, 222 Cal.App.3d at p. 1395.)

“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, supra, 222 Cal.App.3d at p. 400.)

In addition, “[t]he scope of conduct prohibited by the implied covenant depends on the purposes and express terms of the contract.”  (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 885.)  Therefore, to the extent that Plaintiff’s covenant claim seeks to invoke rights “beyond what the parties actually agreed, …[it] is invalid.”  (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 352.) 

In short, where a breach of contract claim and a breach of implied covenant claim allege the same breach, the breach of implied covenant claim is superfluous to the breach of contract claim. When the breach of implied covenant claim alleges a breach of an obligation that does not arise under the contract, it is invalid.

Here, Plaintiff’s first cause of action for breach of contract alleges that JMJ breached the Conditional Approval by failing to provide the requisite loan, “despite providing loan approval, commitment, and indicating the sending of loan documents to escrow for [Plaintiff’s] signature ….” (Compl., ¶ 25.)

Under the second cause of action, Plaintiff alleges that JMJ breached the implied covenant by adding a new “condition” for Plaintiff to obtain the loan (i.e., to remove an alleged title defect concerning the barn), “which frustrated the loan actually being made (as removal of the title issue … would take months, and [Plaintiff] had only [a] day to close escrow).” (Compl., ¶ 29.)

The allegations between the two claims are not the same and, therefore, the breach of implied covenant claim is not superfluous.

The breach of implied covenant claim is also not invalid. Plaintiff is not alleging a breach of a condition outside the contract. Instead, as stated above, a breach of implied covenant claims alleges that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. Here, Plaintiff alleges that JMJ sabotaged the Conditional Approval by requiring that Plaintiff resolve the title issue concerning the barn in order to get the approval even though it had already told Plaintiff that it had approved the loan.

For those reasons, the Court OVERRULES the demurrer to the second cause of action for breach of covenant of implied good faith and fair dealing.

Third Cause of Action Breach of Fiduciary Duty

The elements for a breach of fiduciary duty cause of action are “the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.”  (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.) 

Plaintiff asserts his third cause of action for breach of fiduciary duty only against Ehrlich.

Defendants argue that the breach of fiduciary duty claim against Ehrlich fails because no fiduciary duty exists between a borrower and lender in an arm’s length transaction. In addition, the Complaint does not and cannot allege that Ehrlich acted outside the role of a normal lender such that his actions would give rise to a special duty of care. Ehrlich was merely acting as JMJ’s representative, not Plaintiff’s fiduciary.

In opposition, Plaintiff argues that there was fiduciary relationship between the parties because a mortgage loan broker owes a fiduciary duty toward his principal and, here, the Complaint alleges that he was introduced to Ehrlich as a “possible loan broker.” Therefore, there was a mortgage broker/principal relationship that gave rise to fiduciary duty.

In reply, Defendants argue that while a mortgage broker has a fiduciary duty to a borrower, a mortgage lender does not. Therefore, for Plaintiff to properly allege a cause of action for breach of fiduciary duty against Ehrlich, Plaintiff needs to allege that Ehrlich was acting as Plaintiff’s independent loan broker and not as JMJ’s employee. However, here, Paragraph 3 of the Complaint alleges that Ehrlich is an employee and (or) JMJ’s agent. In addition, being introduced to someone as a “possible loan broker” is clearly different than alleging that Ehrlich was, in fact, acting as Plaintiff’s independent loan broker.

“[A] mortgage broker has a fiduciary duty toward the borrower.” (Smith v. Home Loan Funding, Inc. (2011) 192 Cal.App.4th 1331, 1335 (“Smith”).) “Business and Professions Code section 10131 provides in part: ‘A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others: [¶] ... [¶] (d) Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.’ The mortgage broker acts as the borrower’s agent.” (Ibid.)

“Financial Code section 50003, subdivision (m), defines a mortgage ‘Lender’ as ‘a person [who] ... directly makes residential mortgage loans, and ... makes the credit decision in the loan transactions.’” (Smith, supra, 192 Cal.App.4th at p. 1335.) “The relationship between a lending institution and a borrower is not fiduciary in nature.” (Ibid.)

Here, the Court agrees with Defendants that the Complaint fails to state facts sufficient to show that Ehrlich was acting as Plaintiff’s agent instead of JMJ’s. In addition, as Defendants argue, it is not sufficient for Plaintiff to allege that he was “introduced to” Ehrlich as a “potential broker.” Moreover, even though the Complaint alleges that Ehrlich “was working under NMLS License No. 633141 as a mortgage and/or loan broker or originator” (Compl., ¶ 3), it does not allege that Ehrlich was working as Plaintiff’s mortgage or loan broker.

The burden is on the Plaintiff “to articulate how [he] could amend [his] pleading to render it sufficient.” (Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal.App.4th 268, 290.) To satisfy that burden, Plaintiff “must show in what manner [he] can amend [his] complaint and how that amendment will change the legal effect of [his] pleading.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)

Here, Plaintiff has not articulated how he could amend his Complaint to allege a fiduciary duty between himself and Ehrlich. Nevertheless, even if the Court were to allow Plaintiff to amend the Complaint to allege that Ehrlich was at all relevant times acting as his mortgage broker, that allegation would be inconsistent with the following allegation: “For all times relevant herein, Mr. Ehrlich worked for or under, and/or held himself out as working for or under, JMJ as an employee and/or agent thereof.” (Compl., ¶ 3.) Any amendment to that fact would be vulnerable to the sham pleading rules. (Amid v. Hawthorne Community Medical Group, Inc. (1989) 212 Cal.App.3d 1383, 1387 [“Although ‘[g]enerally, after an amended pleading has been filed, courts will disregard the original pleading’ [citation], they will not do so ‘where an amended complaint attempts to avoid defects set forth in a prior complaint by ignoring them. The court may examine the prior complaint to ascertain whether the amended complaint is merely a sham.’ [Citation]”].)

For those reasons, the Court SUSTAINS the demurrer to the third cause of action for breach of fiduciary duty, without leave to amend.

Fourth Cause of Action Negligence

“‘The elements of a cause of action for negligence are well established. They are “(a) a legal duty to use due care; (b) a breach of such legal duty; [and] (c) the breach as the proximate or legal cause of the resulting injury.”’ [Citation.]” (Ladd v.County of San Mateo (1996) 12 Cal.4th 913, 917 [italics removed].)

“‘Liability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff or to a class of which the plaintiff is a member. [Citation.]’ [Citation.]” (Ladd, supra, 12 Cal.4th at p. 918.)

Defendants demur the fourth cause of action for negligence contending that it fails because Ehrlich did not owe Plaintiff a legal duty. Again, they argue, the Complaint concedes that Ehrlich was acting as an employee of JMJ in connection with the loan transaction. However, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.

In opposition, Plaintiff alleges that even in the absence of fiduciary duty, Ehrlich owed Plaintiff a duty to exercise ordinary care. In addition, that Ehrlich breached that duty by failing to verify the information he was passing along to Plaintiff.

“[A]n agent is personally liable for his own torts notwithstanding such torts are committed in the execution of his principal’s business.” (Central Mut. Ins. Co. v. Schmidt (1957) 152 Cal.App.2d 671, 675.) “‘In other words, when the agent commits a tort, such as ... fraud ..., then ... the agent [is] subject to liability in a civil suit for such wrongful conduct.’ [Citation.]” (Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 68.) “‘“[I]f a tortious act has been committed by an agent acting under authority of his principal, the fact that the principal thus becomes liable does not, of course, exonerate the agent from liability.” ... The fact that the tortious act arises during the performance of a duty created by contract does not negate the agent’s liability.’ [Citations.]” (Id. at pp. 68-69.)

The Complaint alleges the following. Ehrlich owed Plaintiff “a duty of at least reasonable and/or ordinary care.” (Compl., ¶ 37.)  Ehrlich breached its duty by (1) ensuring Plaintiff the loan could be completed, (2) communicating JMJ’s loan approval to Plaintiff, causing him to remove all contingencies in the Second Agreement, (3) providing written verification of loan commitment to Plaintiff, verifying that loan documentation was sent to escrow for a timely closing of the Second Agreement. (Compl., ¶ 38.) Ehrlich communicated to Plaintiff that JMJ would not fund the loan for the purchase of the Property under the Second Agreement, and that the loan would be canceled. (Compl., ¶ 16.) The Complaint then alleges: “Despite all of this, JMJ canceled the loan days prior to closing leaving Mr.

Shackelford high and dry, with no loan to close the Second Agreement, and nowhere to reside at the end of October 2021 if the Second Agreement didn’t close.” (Compl., ¶ 38.)

However, it is not clear why Ehrlich’s communications, without more, would constitute a breach of a reasonable or ordinary care. 

In addition, the Complaint fails to allege causation. Specifically, even accepting the facts alleged in the Complaint as true, the Complaint fails to allege that Ehrlich had any personal control over JMJ’s refusal to give Plaintiff a loan. Under the negligence cause of action, it is not Ehrlich’s communications that caused Plaintiff to sustain his damages, but JMJ’s refusal to give him a loan. (See Compl., ¶ 38 [alleging that Plaintiff has suffered as damages closing fees, difference in monthly payments between PPM and JMJ loans, closing fees, and the difference in monthly payments between HomeXpress loan and JMJ loan].) Therefore, there is no connection alleged between Ehrlich’s alleged breach of reasonable and ordinary care and Plaintiff’s damages.

For those reasons, the Court SUSTAINS the demurrer to the fourth cause of action for negligence, with leave to amend.

Fifth Cause of Action Negligent Misrepresentation

“Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit. [Citations.]”  (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407 [internal quotations omitted].) “The tort of negligent misrepresentation is similar to fraud, except that it does not require scienter or an intent to defraud.” (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 845.)  “[T]he same elements of intentional fraud also comprise a cause of action for negligent misrepresentation, with the exception that there is no requirement of intent to induce reliance [citation]….” (Ibid.)

To sufficiently plead misrepresentation, the pleading must state “facts which show how, when, where, to whom, and by what means the representations were tendered. [Citation].”  (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1060 [internal quotations omitted].) 

The fourth element of negligent misrepresentation is that a party justifiably relied on the misrepresentations.  (Shamsian v. Atlantic Richfield Co., supra, 107 Cal.App.4th at p. 984.) 

“To allege actual reliance with the requisite specificity, the plaintiff must plead that he believed the representations to be true ... and that in reliance thereon (or induced thereby) he entered into the transaction. [Citation.]”  (Beckwith v. Dahl, supra, 205 Cal.App.4th at p. 1063 [ellipses in original] [internal quotations omitted].)

“‘Besides actual reliance, [a] plaintiff must also show “justifiable” reliance, i.e., circumstances were such to make it reasonable for [the] plaintiff to accept [the] defendant's statements without an independent inquiry or investigation. [Citation.]’”  (Public Employees' Retirement System v. Moody's Investors Service, Inc. (2014) 226 Cal.App.4th 643, 672.) 

“Whatever form it takes, the injury or damage must not only be distinctly alleged but its causal connection with the reliance on the representations must be shown.”  (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 870.) 

Plaintiff asserts his fifth cause of action for negligent misrepresentation only against Ehrlich.

Here, as Defendants argue, Ehrlich’s alleged statement that Plaintiff “should be ok,” with regards to the unpermitted barn was only an opinion and, therefore, not actionable. In addition, Plaintiff cannot base his negligent misrepresentation claim on Ehrlich’s September 6, 2021 email, informing the latter that the loan was “already approved,” because the Complaint alleges that later, on or about September 14, 2021, Ehrlich sent Plaintiff the Conditional Approval before Plaintiff waived his financing contingency.

In opposition, Plaintiff acknowledges that opinions are not actionable.

However, Plaintiff argues that there are three exceptions to that rule: “‘(1) where a party holds himself out to be specially qualified and the other party is so situated that he may reasonably rely upon the former's superior knowledge; (2) where the opinion is by a fiduciary or other trusted person; [and,] (3) where a party states his opinion as an existing fact or as implying facts which justify a belief in the truth of the opinion.’ [Citation.]” (Cohen v. S & S Construction Co. (1983) 151 Cal.App.3d 941, 946; Opposition, pp. 16:20-17:2.)

Here, Plaintiff argues, those three exceptions are met for the following reasons. First, as a professional mortgage broker, Ehrlich held out himself as being specially qualified in obtaining home mortgages and Plaintiff reasonably relied on his representations as being factually accurate. Second, Ehrlich owed Plaintiff fiduciary duties. Third, Ehrlich gave Plaintiff assurances provided so close to the escrow which justified Plaintiff’s belief in the truth of Ehrlich’s opinions. (Opposition, p. 17:10-13, citing Compl., ¶¶ 9, 15.)

However, as discussed above, the Court has found that Plaintiff has failed to allege facts showing that Ehrlich was his personal mortgage broker or that Ehrlich owed him a fiduciary duty.

In addition, Ehrlich’s statement in Paragraph 9 that Plaintiff “should be ok,” with regards to the barn issue, was merely an opinion given the use of the words “should be.” Indeed, Ehrlich stated in the same email that “[i]t will be up to the appraiser to see what value he gives it [meaning the barn] if it is unpermitted.”

In Paragraph 15, Plaintiff alleges the following: “On or about October 14, 2021, JMJ provided written confirmation to Mr. Shackelford that JMJ had not only approved the loan, and committed to providing, but was also sending loan documents to escrow for closing on the Second Agreement.”

However, Plaintiff fails to allege who made those statements and by what means (e.g., a letter or email).

The Court finds that Plaintiff has failed to allege facts sufficient to constitute a cause of action for negligent misrepresentation. Specifically, the Complaint fails to allege what false statements Ehrlich made, the actions Plaintiff took in reliance of those statements, and the damages that flowed out of that reliance. 

Accordingly, the Court SUSTAINS the demurrer to the fifth cause of action for negligent misrepresentation, with leave to amend.

Sixth Cause of Action for Intentional Misrepresentation

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) Fraud must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

Here, the Complaint alleges that Ehrlich “represented to [Plaintiff] that he would obtain the requisite purchase money financing to purchase the Property under the Second Agreement.” (Compl., ¶ 50.) Ehrlich made those representations “recklessly and without regard for their truth.” (Compl., ¶ 52.) Ehrlich intended that Plaintiff “enter into the Second Agreement, and agree to use JMJ for the financing of

certain purchase money for the Second Agreement ….” (Compl., ¶ 53.)

However, the Complaint alleges that Plaintiff had already entered into the Second Agreement, before the parties entered into the Conditional Approval agreement. Therefore, it cannot also be true that Ehrlich made representations intending to induce Plaintiff to enter the Second Agreement. The Complaint is also clear that it was Plaintiff that was actively pursuing JMJ’s loan not vice versa. Therefore, it is unclear how Ehrlich would have made representations intending to induce Plaintiff into entering the Conditional Approval.  

In any event, as discussed above, the Complaint fails to allege which false representations Ehrlich made, the actions Plaintiff took in reliance of those statements, and the damages that flowed out of that reliance.

For those reasons, the Court SUSTAINS the demurrer to the sixth cause of action for intentional misrepresentation, with leave to amend.

Seventh Cause of Action Intentional Interference with Contractual Relations

“The elements of a cause of action for intentional interference with contractual relations are ‘(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.’ [Citations.]” (Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 997 (“Redfearn”).)

Here, the Defendants argue that Plaintiff’s seventh cause of action for intentional interference with contractual relations fails for the same reasons they argued the breach of contract claim fails (i.e., the Complaint admits that JMJ’s loan commitment was expressly conditional and that the requisite conditions were not all satisfied).

However, the Court has found Defendants’ arguments unpersuasive and overruled the demurrer to the first cause of action for breach of contract.

Accordingly, the Court OVERRULES the demurrer to the seventh cause of action for intentional interference with contractual relations.

Eighth Cause of Action Negligent Interference with Prospective Economic Relations

“The elements of negligent interference with prospective economic advantage are(1) the existence of an economic relationship between the plaintiff and a third party containing the probability of future economic benefit to the plaintiff; (2)the defendant’s knowledge of the relationship; (3) the defendant’s knowledge(actual or construed) that the relationship would be disrupted if the defendant failed to act with reasonable care; (4) the defendant’s failure to act with reasonable care; (5) actual disruption of the relationship; (6) and economic harm proximately caused by the defendant’s negligence.” (Redfearn, supra, 20 Cal.App.5th 989, 1005.)

Defendants argue that Plaintiff’s claim for negligent interference with prospective economic relations fails for the same reasons the seventh cause of action for intentional interference with contractual relations fails.

However, the Court has overruled the demurrer to the seventh cause of action.

Accordingly, the Court OVERRULES the demurrer to the eighth cause of action for intentional interference with contractual relations.