Judge Richard Y. Lee, Case 30-2020-01129185 2022-09-08 Tentative Ruling

Judge: Richard Y. Lee, Case: 30-2020-01129185, Date: 2022-09-08 Tentative Ruling

DEMURRER #1

Defendants, Brandon Burkhart (“Burkhart”); Amberlee Rails (“Rails”); Canop Holdings, Inc. (“Canop Holdings”); Luxx Lighting, Inc, (“Luxx Lighting”); and Athena Products, Inc. (“Athena”) (collectively the “Burkhart Defendants”) move for an order sustaining a demurrer to the Third Cause of Action for Intentional Inducement of Breach of Contract (APA) against Rails, Fourth Cause of Action for Intentional Inducement of Breach of Contract (Rails Consulting Agreement) against Burkhart and Canop Holdings, Seventh Cause of Action for Intentional Interference with Contract against all Defendants, Eighth Cause of Action for Intentional Interference with Contract against Burkhart, Canop Holdings, Rails, Luxx Lighting and Athena, Tenth Cause of Action for Aiding and Abetting against Luxx Lighting and Athena, and Eleventh Cause of Action for Intentional Interference with Contract against Luxx Lighting and Athena of the Third Amended Complaint (“TAC”) filed by Plaintiff Route Four LLC (“Plaintiff” or “Route Four”).

The Burkhart Defendants contend that Plaintiff’s TAC fails to plead sufficient additional facts after the Court sustained a previous demurrer to claims asserted in Plaintiff’s Second Amended Complaint, and that the Third, Fourth, Seventh, Eighth, Tenth, and Eleventh Causes of Action fail to state facts sufficient to constitute a cause of action such that the demurrer should be sustained and these causes of action dismissed with prejudice.

Plaintiff contends that the TAC contains sufficient allegations to support each of the causes of action at issue and that the demurrer should be overruled but that if it is sustained, it should be with leave to amend.

In reply, the Burkhart Defendants reiterate arguments advanced in the moving papers, contend that at minimum, the Court should sustain without leave to amend, all causes of action asserted against Luxx Lighting and Athena. They contend that for the first time in Plaintiff’s TAC, Plaintiff contends that it also acquired Luxx Lighting and Athena from Burkhart even though the APA explicitly excluded Burkhart’s interests in Luxx Lighting and Athena in Schedule 1.3 of the APA, and that where the allegations conflict with the attached exhibits, the Court should rely on the exhibits rather than the allegations.

As a threshold matter, the Declaration of Joshua Bornstein, counsel for Defendants, establishes compliance with the meet and confer requirements of Code of Civil Procedure section 430.41. (Declaration of Joshua Bornstein, ¶¶ 2-4; ROA 443.)

On demurrer, a complaint must be liberally construed. (Code Civ. Proc. § 452; Stevens v. Superior Court (1999) 75 Cal. App. 4th 594, 601.) All material facts properly pleaded, and reasonable inferences, must be accepted as true. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal. 4th 962, 966-67.) “A demurrer tests only the sufficiency of the allegations. It does not test their truth, the plaintiff[’s] ability to prove them or the possible difficulty in making such proof.” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 840.) “[I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory.” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)

Third Cause of Action for Intentional Inducement of Breach of Contract (Asset Purchase Agreement) against Rails

The Burkhart Defendants contend that the Third Cause of Action fails for the same reason the Court previously sustained a demurrer to this cause of action in that Rails, as an employee, cannot be held liable for inducing her employer to breach a contract. They also assert that the TAC fails to allege any non-conclusory wrongful conduct purportedly committed by Rails.

Plaintiff contends that the Burkhart Defendants’ argument is invalid because under California law, Rails was a stranger to the Asset Purchase Agreement (“APA”) such that she may be held liable for intentional interference with the contract, and that owners or officers of a business entity may also be held liable for interfering with that entity’s contracts. Plaintiff also contends that if Rails asserts a privilege against liability, the privilege is a defense that cannot be adjudicated on demurrer. Plaintiff additionally contends that while the Burkhart Defendants claim that Rails was a “corporate agent” and an “employee for and on behalf” of Canop Holdings and Burkhart, the existence of an agency or an employer/employee relationship is a factual question which cannot be determined on demurrer. Plaintiff further contends that the Burkhart Defendants’ reliance on the requirement for independent wrongfulness for an alleged interference with an at-will contract is misplaced as the TAC does not allege an at-will contract, such that Plaintiff is not obligated to allege specific instances of independently wrongful conduct, but that even assuming Plaintiff was required, the TAC alleges specific wrongful conduct attributed to Rails in paragraphs 44 and 45 of the TAC.

The principal elements for a cause of action for damages for inducing breach of contract are “the existence of a valid contract, defendant’s intent to induce a breach of the contract, and a breach resulting from defendant’s unjustifiable or wrongful conduct.” (Bledsoe v. Watson (1973) 30 Cal.App.3d 105, 108.)

“The tort of intentional interference with contractual relations is committed only by ‘strangers—interlopers who have no legitimate interest in the scope or course of the contract’s performance.’ [Citation.] Consequently, a contracting party is incapable of interfering with the performance of his or her own contract and cannot be held liable in tort for conspiracy to interfere with his or her own contract. [Citations.]” (PM Group, Inc. v. Steward (2007) 154 Cal.App.4th 55, 65.)

A party to the plaintiff’s contract cannot be liable under a claim for intentional or negligent interference with an existing contract, or intentional or negligent interference with prospective economic advantage. (Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal.App.4th 344, 350.) “If the defendant is a party to the contract, the plaintiff is relegated to a cause of action for breach of that contract. [Citation.]” (Ibid.) Contract inference claims may be stated against owners, officers, and directors of a company whose contract was the subject of the litigation. (Id. at p. 356.) “While those defendants may attempt to prove that their conduct was privileged or justified, that is a defense which must be pleaded and proved.” (Ibid.)

“It is . . . well established that corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of the corporation’s contract. [Citations.]” (Shoemaker v. Myers (1990) 52 Cal.3d 1, 24-25.)

In addition, “a defendant who is not a party to the contract or an agent of a party to the contract is not immune from liability for intentional interference with contract by virtue of having an economic or social interest in the contract.” (Caliber Paving Co., Inc. v. Rexford Industrial Realty and Management, Inc. (2020) 54 Cal.App.5th 175, 187.)

Here, the Court initially notes that while the Third Cause of Action is styled as a cause of action for “Intentional Inducement of Breach of Contract,” it appears that the parties treat this claim as a claim for intentional interference with contract. In addition, in ruling on a demurrer, “the trial court is obligated to look past the form of a pleading to its substance.” (Saunders v. Cariss (1990) 224 Cal.App.3d 905, 908.) “Erroneous or confusing labels attached by the inept pleader are to be ignored if the complaint pleads facts which would entitle the plaintiff to relief. [Citation.]” (Ibid.) Accordingly, the Court treats the Third Cause of Action as a claim against Rails for intentional interference with the APA.

The Third Cause of Action is alleged against Rails and realleges and incorporates paragraphs 1 through 63. (TAC, ¶ 64.) The TAC alleges that on or about July 23, 2018, Plaintiff, Burkhart and Canop Holdings [formerly Hydroponics, Inc.] entered into a written APA wherein Plaintiff agreed to purchase, subject to several exclusions, assets and business of Canop Holdings for the total amount of $3,350,000, plus sales taxes on furniture, fixtures, and equipment purchased in the transaction, as well as an earnout of up to $300,000, in the event that Plaintiff reached certain financial performance metrics following closing of the transaction. (TAC, ¶ 24.) The TAC alleges, among other things, that Rails serves as an officer, employee, and agent of Luxx Lighting and Athena, and that “Defendants” have posted, and continue to post on Luxx Lighting and Athena’s respective Instagram pages, multiple posts promoting direct retail sale of Luxx Lighting and Athena products which violates Sections 9.2 and 9.4 of the APA. (TAC, ¶ 45(a).) The TAC also alleges that “Defendants” have disparaged Plaintiff to numerous existing and prospective customer violating Sections 8.1, 9.2, and 9.4 of the APA. (TAC, ¶ 45(e).)

The Third Cause of Action alleges that Plaintiff, Burkhart, and Canop Holdings are parties to the APA; that Rails knew of the APA since its inception; that Plaintiff is informed and believes that Rails intended to cause Burkhart and Canop Holdings to breach the APA; that Rails’ conduct did so cause Burkhart and Canop Holdings to breach the APA; that “Rails was a stranger to the APA because she was not a party to the APA and was not an agent of Canop Holdings at the time the APA was executed and, at the time of Rails’ wrongful conduct, Rails was not acting for or on behalf of either Burkhart of [sic] Canop Holdings; and that Plaintiff suffered harm as a result. (SAC, ¶¶ 65-70.) The TAC also alleges that Rails was an employee of Canop Holdings. (TAC, ¶ 37.)

Based on the foregoing, as a threshold matter, there is no allegation that the APA or any other contract alleged in the TAC is or was “at-will,” such that Plaintiff is not required to allege that the Rails engaged in an independently wrongful act. The allegations otherwise sufficiently allege the existence of a valid contract, Rails’ knowledge of the APA, that Rails was a stranger to the APA, Rails’ intent to induce a breach of the APA, and a breach resulting from Rails’ unjustifiable or wrongful conduct.

The Court notes that its ruling on the previous demurrer stated that the SAC alleges that Rails is an employee of Canop Holdings, and that Rails cannot be held liable for inducing a breach of the APA as an employee of Canop Holdings. Although the TAC similarly alleges that Rails was an employee of Canop Holdings, the TAC also alleges that Rails was a stranger to the APA because “at the time of Rails’ wrongful conduct, Rails was not acting for or on behalf of either Burkhart of [sic] Canop Holdings.” Despite these inconsistent allegations, there is authority providing that “[w]hen a pleader is in doubt about what actually occurred or what can be established by the evidence, the modern practice allows that party to plead in the alternative and make inconsistent allegations.” (Adams v. Paul (1995) 11 Cal.4th 583, 593, 46 Cal.Rptr.2d 594, 904 P.2d 1205; Crowley v. Katleman (1994) 8 Cal.4th 666, 690–691, 34 Cal.Rptr.2d 386, 881 P.2d 1083 [factually and legally inconsistent theories allowed].) (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402.) In addition, “it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory.” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.)

Based on the foregoing, the demurrer to the Third Cause of Action is OVERRULED.

Fourth Cause of Action for Intentional Inducement of Breach of Contract (Rails Consulting Agreement) against Burkhart and Canop Holdings

The Burkhart Defendants contend that the Fourth Cause of Action fails because Burkhart and Canop Holdings were not “strangers” to the Rails Consulting Agreement, and the TAC admits that the Rails Consulting Agreement was part of the sale of Hydroponics. They also contend that the TAC fails to allege any non-conclusory wrongful conduct purportedly committed by Burkhart or Canop Holdings as it relates to the Rails Consulting Agreement.

Plaintiff contends that the Burkhart Defendants’ arguments fail for the same reasons set forth above as to Rails as no other individual or business entity is a party to the Rails Consulting Agreement such that Burkhart and Canop Holdings are strangers to the Rails Consulting Agreement and may be liable for interference of said agreement. Plaintiff also argues that the Burkhart Defendants’ falsely assert that TAC fails to allege any non-conclusory wrongful conduct committed by Burkhart or Canop Holdings, as such is alleged in paragraphs 44 and 45 of the TAC.

Here, the Fourth Cause of Action, like the Third Cause of Action, is styled as “Intentional Inducement of Breach of Contract,” but will be treated as a claim for intentional interference with the Rails Consulting Agreement, for the same reasons set forth above.

The TAC alleges that “[t]o ensure the smooth transition of the business and Purchased Assets to Route Four, Route Four and Rails, who was an employee of Canop Holdings, also entered into a written Consulting Agreement (the ‘Rails Consulting Agreement’) pursuant to which Route Four agreed to additionally pay Rails a consulting fee of $1,500.” (TAC, ¶ 37.) The Fourth Cause of Action is alleged against Burkhart and Canop Holdings, incorporates every allegation contained in paragraphs 1 through 78, and alleges that Route Four and Rails are parties to the Rails Consulting Agreement; that Burkhart and Canop Holdings knew of the Rails Consulting Agreement, and has known of the Rails Consulting Agreement at all times since the agreement’s inception; that Route Four is informed and believes that Burkhart and Canop Holdings intended to cause Rails to breach the Rails Consulting Agreement; that their conduct caused Rails to breach the Rails Consulting Agreement as “Rails, at the direction of Burkhart and Canop Holdings, poached Route Four’s sales to Customers A, B, and C” which violated “Defendants’ ” obligations not to directly or indirectly compete, as mandated by Section 1.2 of the Rails Consulting Agreement, as well as “Defendants’ ” obligations with regard to the non-solicitation of customer in Section 1.4 of the Rails Consulting Agreement; and that Plaintiff suffered harm as a result. (TAC, ¶¶ 72-78.)

Similar to the Third Cause of Action, there is no allegation that the Rails Consulting Agreement is or was “at-will,” such that Plaintiff is not required to allege that Burkhart or Canop Holdings engaged in an independently wrongful acts. In addition, the foregoing allegations adequately allege the existence of a valid contract, that Burkhart and Canop Holdings knew of the Rails Consulting Agreement and were strangers to the Rails Consulting Agreement, that Burkhart and Canop Holdings intended to induce a breach of the Rails Consulting Agreement, and that a breach resulted from their unjustifiable or wrongful conduct.

Although the Burkhart Defendants contend that Burkhart and Canop Holdings were not strangers to the Rails Consulting Agreement because said agreement was made concurrently with Plaintiff acquiring substantially all of the assets of Hydroponics, citing to paragraph B of Exhibit C to the TAC which is the Rails Consulting Agreement (TAC, ¶ 37), no authority is cited that supports that the parties to a separate agreement, i.e., APA, become parties to an agreement that is concurrently made as between other parties, i.e., Rails Consulting Agreement. Based on the allegations of the TAC, which must be assumed true, only Plaintiff and Rails were parties to the Rails Consulting Agreement. The Burkhart Defendants cite to no other part of the TAC to support that they are not strangers to the Rails Consulting Agreement. Consequently, the Court OVERRULES the demurrer to the Fourth Cause of Action.

Seventh Cause of Action for Intentional Interference with Contract against All Defendants

The Burkhart Defendants contend that Plaintiff does not, and cannot, allege that any of its contracts with its consumers were anything but at-will contracts such that it must allege independent wrongfulness for its interference which it does not plead, and that there is no basis for Plaintiff’s suggestion that it was required to approve Luxx Lighting’s purchase agreement. The Burkhart Defendants assert that the allegations are improper attempts by Plaintiff to impose the non-compete provisions found in the APA upon entities that were not parties to the contract.

Plaintiff contends that the instant case does not involve “at-will” contracts as Plaintiff does not allege any such contracts, and thus, Plaintiff is not required to allege independently wrongful acts, but that TAC does contain specific allegations of independent wrongful conduct performed by all of the Defendants. In addition, as to the Seventh Cause of Action, Plaintiff contends that the TAC alleges that Luxx Lighting and Athena Products were assets and/or intellectual property that Route Four specifically purchased from Burkhart through the APA, and that despite this, Luxx Lighting and Athena, at the direction of Burkhart and Rails, ignored Plaintiff and “embarked on retail sales, distribution, and services both in person and over the internet, throughout Washington, California,” as alleged in paragraphs 24, 27, 29, and 45 of the TAC. Plaintiff argues that this was not simply “legitimate business competition,” as argued by the Burkhart Defendants, but that such actions constitute independent, illegitimate and fraudulent wrongful conduct.

Here, the Seventh Cause of Action is asserted against “All Defendants” and realleges and incorporates every allegation contained in paragraphs 1 through 90. (TAC, ¶ 91.) The term “Defendants” collectively refers to Burkhart, Rails, Canop Holdings, Luxx Lighting (Doe 1), Athena (Doe 2), The Scotts Miracle-Gro Company (Doe 3), Hawthorne Hydroponics LLC (Doe 4), The Hawthorne Collective, Inc. (Doe 5), The Hawthorne Gardening Company (Doe 6), and Does 7 through 10. (TAC, 2:7-13.)

The TAC alleges that Plaintiff purchased assets held in the name of Burkhart and employed or used by Athena and Luxx Lighting, and that Burkhart affirmed that such assets held in his name and employed or used by Athena and Luxx Lighting were employed and used in Hydroponics, Inc.’s business, such that “as a part of the sale, Route Four purchased the assets employed or used by Athena Products and Luxx Lighting that were employed and used in Hydroponics, Inc.’s business.” (TAC, ¶ 3.) The TAC alleges that as part of the APA, certain asserts were excluded from the “Purchased Assets,” but that “[b]ecause Defendant Burkhart affirmed that assets held in his name and employed or used by Defendants Luxx Lighting and Athena were also employed and used in Hydroponics, Inc.’s business, such assets were not excluded by the APA.” (TAC, ¶ 27.)

However, as noted by the Burkhart Defendants, Section 1.3 provides for “Excluded Assets,” and states:

“Notwithstanding anything contained herein to the contrary, the Sellers [Hydroponics, Inc. and Burkhart] shall not sell, convey, assign, transfer, or deliver, or cause to be sold, conveyed, assigned, transferred or delivered to the Buyer [Route Four], and the Buyer shall not purchase, acquire or accept from the Company, any of the following properties, contracts and other assets related to the Business (the “Excluded Assets”): . . . .

[¶¶.]

“(d) Each of the assets listed on Schedule 1.3 hereto.”

(Ex. A to TAC at p.3.)

Schedule 1.3 to the APA describes and sets forth a number of items including the following: “All assets held in the name of Brandon Burkhart, his assignees or nominees, and employed or used by Aura AC Systems, Inc., Athena Products, Inc. (formerly known as Granics, Inc.), Luxx Lighting, Inc., and HPI Distribution Corp. to which Brandon Burkhart affirms that such assets are not employed or used in Hydroponics, Inc.’s business.”

(Ex. A to TAC, Schedule 1.3 to APA at p. 1 of 2.)

“ ‘While the “allegations [of a complaint] must be accepted as true for purposes of demurrer,” the “facts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.” ’ [Citation.]” (Moran v. Prime Management, Inc. (2016) 3 Cal.App.5th 1131, 1145-1146.) Based on the foregoing, the language in the APA is contrary to the allegations in the TAC that Route Four purchased the assets employed or used by Athena Products and Luxx Lighting that were employed and used in Hydroponics, Inc.’s business. The Court gives the language in APA precedence over the allegations in the TAC.

The TAC also alleges that as part of the APA, Plaintiff purchased all Intellectual Property of Hydroponics, Inc. and Burkhart and that pursuant to the APA, “the Intellectual Property used in connection with the business includes the customer list of Hydroponics, Inc. which in turn includes Luxx Lighting.” (TAC, ¶¶ 28-29.)

The TAC additionally alleges, “[e]ven though Route Four purchased the Intellectual Property of the business that included the customer list containing Luxx Lighting . . . , Luxx Lighting and Athena have been active participants in the breaches committed by Burkhart, Rails, and Canop Holdings. Luxx Lighting and Athena have assisted Burkhart’s efforts to poach customers and employees from Route Four.” (TAC, ¶ 45.)

This includes allegations that “Luxx Lighting and Athena have embarked on retail sales, distribution, and services both in person and over the internet, throughout Washington, California, and otherwise, of lighting, nutrient and additive products that are directly competitive with products offered by Route Four.” (TAC, ¶ 45(a).) In addition, the TAC alleges that a representative of Luxx Lighting poached Plaintiff’s sale to Customer A, that Luxx Lighting directly sold lights to Customer B who was a customer of Plaintiff’s recurring maintenance program, and that Luxx Lighting refused to fill Plaintiff’s sale order for Customer C as well as that Luxx Lighting representatives have repeatedly solicited Customer C for the same or substantially same sales that Luxx Lighting refused to fill for Plaintiff. (TAC, ¶¶ 45(b)-(d).) The TAC additionally alleges that since approximately November 2019, Burkhart has instructed Luxx Lighting and Athena to cease all sales of their products to Plaintiff, and that they have obliged. (TAC, ¶ 45(g).) Moreover, paragraph 76 expressly alleges that “Rails, at the direction of Burkhart and Canop Holdings, poached Route Four’s sales to Customers A, B, and C.” (TAC, ¶ 76.)

The Seventh Cause of Action alleges, in pertinent part:

“92. Plaintiff had contracts with various clients formerly serviced by Hydroponics, Inc. for the sale of various products. Defendants Burkhart, Canop Holdings, Rails, Luxx Lighting, Athena, Scotts, HH LLC, HC Inc., and HGC were “strangers” to these contracts, based on the established definition of the term “strangers” alleged above. In this regard, Defendants Burkhart, Canop Holdings, Luxx Lighting, Athena, Scotts, HH LLC, HC Inc., and HGC were not parties to the contracts with these clients and they were not agents of parties to these contracts. Defendants were aware of those contracts and their value, as the contracts included the sale of Luxx Lighting and/or Athena products. Thereafter, Defendants – and each of them – intentionally interfered with the contractual relationship between Plaintiff and those clients by communicating with Plaintiff’s clients, by offering to beat Plaintiff’s prices by selling the Luxx Lighting and Athena products directly and/or by selling and purchasing Luxx Lighting and Athena as follows: . . . .

[¶¶.]

“93. This interference resulted in Plaintiff being unable to perform under the contracts with third party clients without incurring more costs and ultimately losing money in the sales. Defendants intended to disrupt Plaintiff’s performance of its contracts, and/or Defendants knew that their conduct was substantially certain to disrupt Plaintiff’s performance of its contracts.”

Based on the foregoing allegations, and as stated above, Plaintiff does not allege any “at-will” contracts such that it is not required to allege independently wrongful acts by the Burkhart Defendants. The foregoing allegations sufficiently allege that Plaintiff had valid contracts with clients to which the Burkhart, Canop, Rails, Luxx Lighting and Athena are strangers, that they had knowledge of such client contracts, and that they intended to induce a breach of such client contracts, and that a breach resulted from their unjustifiable or wrongful conduct. Thus, the Court OVERRULES the demurrer to the Seventh Cause of Action as to Burkhart, Canop, Rails, Luxx Lighting and Athena.

Eighth Cause of Action for Intentional Interference with Contract against Burkhart, Canop Holdings, Rails, Luxx Lighting and Athena

The Burkhart Defendants contend that the Eighth Cause of Action fails because there are no allegations of any wrongful conduct committed by any of the Defendants. As to the Eighth Cause of Action, the Burkhart Defendants contend that the claim appears to be a cause of action for tortious interference with prospective economic advantage and not interference with contract because Plaintiff does not allege any breach or disruption of a contractual relationship, but rather an interference with its “existing and/or prospective relationships,” but that regardless of its title, since Plaintiff does not, and cannot, allege that any of its contracts with its customers were anything but at-will contracts, it must allege independent wrongfulness for either type of interference claims, which it does not plead. The Burkhart Defendants contend that even if Burkhart’s alleged ultimatum to one of Plaintiff’s customers as alleged in paragraph 99 could amount to independent wrongful conduct, the Eighth Cause of Action must still be dismissed as to Canop Holdings, Rails, Luxx Lighting, and Athena since they are not alleged to have been involved in that discussion, it is not alleged that Burkhart was acting on behalf of Luxx Lighting and within the scope of employment when the alleged ultimatum was given, and it is not alleged that Luxx Lighting authorized or ratified Burkhart’s alleged conduct.

As to the Eighth Cause of Action, Plaintiff contends that the Burkhart Defendants only focus on the allegation that Burkhart threatened one of these customers, and ignore other instances of wrongful conduct alleged in the TAC. Plaintiff contends that Burkhart’s characterization that Plaintiff’s contractual relations with third party customers as “at-will” is without any support as Plaintiff specifically alleges that Defendants interfered with existing, contractually bound customers. Plaintiff also alleges that the assertion that Plaintiff failed to allege that “Burkhart was acting on behalf of Luxx Lighting and within the scope of his employment when the ultimatum was given” is non-sensical as Plaintiff alleges that Luxx Lighting and Athena are privately-held companies “in which Burkhart possesses ownership interests, and that Burkhart has control and/or influence over the management and policies of such organizations.” (TAC, ¶ 45(a).)

Here, the Eighth Cause of Action for Intentional Interference with Contracts is alleged against Burkhart, Canop Holdings, Rails, Luxx Lighting and Athena, realleges and incorporates allegations contained in paragraphs 1 through 96, and alleges that Plaintiff has existing contracts with various clients, including Customer A, Customer B, and Customer C; that Burkhart, Canop Holdings, Rails, Luxx Lighting and Athena were strangers to the contracts Plaintiff had with these Customers as they were not parties to these contracts and were not agents of parties to these contracts; that upon information and belief, the Burkhart Defendants knew of the existence of these contracts; that the Burkhart Defendants intentionally disrupted the contractual relationships between the clients and Plaintiff, causing Plaintiff to lose the benefits of the contracts with those clients; that Plaintiff has been damaged and will continue to be damaged as a result of the tortious interference with Plaintiff’s existing and/or prospective business relationships. (TAC, ¶¶ 97-99, 101.) The Eighth Cause of Action also alleges that “[o]n or around January 17, 2019, the owner of one of Plaintiff’s Customers had a conversation with Burkhart in which Burkhart told him that Burkhart was aware that the Customer was trying to sell Plaintiff lighting products in order to fulfill another customer’s purchase order and that Burkhart would cut-off the Customer’s account with Luxx Lighting if the Customer sold the lighting products to Plaintiff.” (TAC, ¶ 99.)

Based on the allegations, the contracts at issue were not “at-will.” Thus, Plaintiff is not required to allege independent wrongfulness regardless of whether this is a claim for intentional interference with an existing contract or interference with prospective economic advantage.

The foregoing allegations, in addition to allegations set forth above for the Fourth and Seventh Causes of Action sufficiently state a cause of action for intentional interference concerning contracts Plaintiff had with clients to which Burkhart, Canop Holdings, Rails, Luxx Lighting and Athena were not parties and of which they had knowledge, alleges the intent to interfere or disrupt such contracts, and alleges a resulting breach of such contracts due to their conduct. Thus, the Court OVERRULES the demurrer to the Eighth Cause of Action.

Tenth Cause of Action for Aiding and Abetting a Breach of Fiduciary Duty Against Luxx Lighting and Athena

The Burkhart Defendants contend that the Tenth Cause of Action fails in two respects: (1) the TAC fails to allege that Luxx Lighting’s or Athena’s conduct constituted a breach of duty to Plaintiff as the APA and Rails Consulting Agreement placed no limitations on Luxx Lighting or Athena to engage in legitimate business competition; and (2) the TAC fails to identify “substantial assistance or encouragement” given to Burkhart, Rails, or Canop Holdings in achieving a tortious result.

Plaintiff contends that contrary to the Burkhart Defendants’ assertions, Plaintiff specifically alleges that Luxx Lighting and Athena were assets and/or intellectual property that Plaintiff specifically purchased from Burkhart through the APA as set forth in paragraphs 27 and 29, and that the TAC extensively alleges the wrongful conduct committed by Luxx Lighting and Athena in paragraphs 45(a)-(d), 45(g), 45(i), 45(j), and 99 which support that they knowingly provided substantial assistance or encouragement to Burkhart, Rails, or Canop Holdings in achieving a tortious result. Lastly, Plaintiff contends that whether a party breached a duty is a question of fact that cannot be determined on demurrer.

There are two different theories pursuant to which a person may be liable for aiding and abetting a breach of fiduciary duty. (American Master Lease LLC v. Idana Partners Ltd. (2014) 225 Cal.App.4th 1451, 1477.) “One theory, like conspiracy to breach a fiduciary duty, requires that the aider and abettor owe a fiduciary duty to the victim and requires only that the aider and abettor provide substantial assistance to the person breaching his or her fiduciary duty. [Citations.] On this theory, California law treats aiding and abetting a breach of fiduciary duty and conspiracy to breach a fiduciary duty similarly. Courts impose liability for concerted action that violates the aider and abettor's fiduciary duty. [Citations.] The second theory for imposing liability for aiding and abetting a breach of fiduciary duty arises when the aider and abettor commits an independent tort. [Citations.] This occurs when the aider and abettor makes ‘ “a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act.” ’ [Citations.]” (Ibid.) Liability may be imposed where one aids and abets the commission of an intentional tort if the person knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act, or gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct constitutes a breach of duty to a third person. (Casey v. U.S. Bank Nat’l Ass’n (2005) 127 Cal.App.4th 1138, 1144.)

Here, the Eleventh Cause of Action is alleged against Luxx Lighting and Athena and realleges and incorporates paragraphs 1 through 109. (TAC, ¶ 110.) The Eleventh Cause of Action alleges the following:

“111. Luxx Lighting and Athena manufactured, marketed and sold lighting and/or gardening products for hydroponic gardening. Route Four purchased the assets employed or used by Luxx Lighting and Athena that were employed and used in Hydroponics, Inc.’s business. And, as part the APA, Route Four also purchased all Intellectual Property that was used in connection with the business, including the customer list of Hydroponics, Inc., which included Luxx Lighting.

“112. Luxx Lighting and Athena knew that Burkhart, Rails and Canop Holdings owed Route Four a fiduciary duty not to compete with Route Four and not to attempt to induce any current or prospective customer, including Luxx Lighting and Athena, to withdraw, curtail or cease doing business with Route Four.

“113. Luxx Lighting and Athena knew that the conduct of Burkhart, Rails and Canop Holdings by inducing Luxx Lighting and Athena from withdrawing, curtailing and ceasing to do business with Route Four constituted a breach of duty owed by Burkhart, Rails and Canop Holdings to Route Four.

“114. Luxx Lighting and Athena, and each of them, knowingly provided substantial assistance and encouragement to Burkhart, Rails and Canop Holdings to breach their duties owed to Route Four by intentionally interfering with Route Four’s customer relationships and by agreeing to withdraw, curtail and cease doing business with Route Four.

“115. Route Four is informed and believes, and thereupon alleges that, Luxx Lighting and Athena assisted Defendants Burkhart, Rails, and Canop Holdings in accomplishing the wrongful acts set forth above.”

(TAC, ¶¶ 111-115.)

In addition, the TAC alleges specific instances in which Luxx Lighting and Athena actively participated in the breaches committed by Burkhart, Rails, and Canop Holdings, in assisting Burkhart’s efforts to poach customers, such as Customers A, B, and C, and employees from Plaintiff by “embark[ing] in retail sales, distribution, and services both in person an over the internet throughout Washington, California, and otherwise of [products] that are directly competitive with products offered by Route Four” violating Sections 9.2 and 9.4 of the APA and Sections 1.2 and 1.4 of the Rails Consulting Agreement. (TAC, ¶¶ 45(a)-(d), (h), (i).) The TAC also alleges that that since approximately November 2019, Burkhart instructed Luxx Lighting and Athena to cease all sales of their products to Plaintiff, and they have obliged. (TAC, ¶ 45(g).)

Based on the foregoing allegations, Plaintiff adequately alleges that Luxx Lighting and Athena aided and abetted in Burkhart, Rails, and Canop Holdings’ breaching their fiduciary duty to Plaintiff and that Luxx Lighting and Athena gave substantial assistance and encouragement to them to so act. Thus, the Court OVERRULES the demurrer to the Tenth Cause of Action.

Defendants assert that there is no cause of action for aiding and abetting a breach of contract under California law, citing to a unpublished federal district court case. (See whiteCryption Corporation v. Arxan Technologies, Inc. (N.D. Cal., June 18, 2015, No. 15-CV-00754-WHO) 2015 WL 3799585, at *4.) “[D]ecisions of federal courts interpreting California law are persuasive but not binding.” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 299.)

Eleventh Cause of Action for Intentional Interference with Contract Against Luxx Lighting and Athena

The Burkhart Defendants contend that the Eleventh Cause of Action fails because Plaintiff does not allege that Luxx Lighting or Athena committed any unjustified acts designed to interfere with or disrupt the APA, Burkhart Consulting Agreement or Rails Consulting Agreement. They contend that neither the APA nor the Rails Consulting Agreement places any limitations on Luxx Lighting or Athena, and that the TAC claims that Luxx Lighting and Athena have engaged in lawful competition which cannot be a breach of any contractual duties owed by Burkhart, Rails, or Canop Holdings.

Plaintiff asserts the same arguments set forth above concerning the Seventh Cause of Action.

The Eleventh Cause of Action is asserted against Luxx Lighting and Athena, and realleges and incorporates every allegation contained in paragraphs 1 through 116. (TAC, ¶ 117.) More specifically, it alleges that “[v]alid contracts existed between Plaintiff and Defendants Burkhart, Rails, and Canop Holdings, namely the APA, Burkhart Consulting Agreement, and Rails Consulting Agreement; that Luxx Lighting and Athena were strangers to the APA, the Burkhart Consulting Agreement, and Rails Consulting Agreement as they were not parties to these contracts and were not agents of any of the parties to these contracts; that Plaintiff also had existing contracts with various clients, including Customer A, Customer B, and Customer C to which Defendants Burkhart, Canop Holdings, Rails, Luxx Lighting and Athena were strangers as they were not parties to the contracts with these clients and customer and were not agents of parties to these contracts; that Luxx Lighting and Athena had knowledge of these contracts; and that they undertook intentional acts that were designed to assist Defendants Burkhart, Rails, and Canop Holdings in breaching duties owed to Plaintiff; that Luxx Lighting and Athena intended to disrupt these contracts by intentionally marketing themselves and making direct sales to Plaintiff’s clients, customers and purchasers in California and Washington, thereby depriving Plaintiff of its benefits under the contractual agreements Plaintiff had with its clients and customers and depriving Plaintiff of its benefits under the APA, Burkhart Consulting Agreement, and Rails Consulting Agreement. (TAC, ¶¶ 118-122, 124.) The Eleventh Cause of Action also alleges that as a result, Burkhart, Rails, and Canop Holdings breached the duties owed under the APA, Burkhart Consulting Agreement, and Rails Consulting Agreement. (TAC, ¶ 123.)

The TAC additionally alleges, Luxx Lighting and Athena were “strangers” to the APA because they were neither parties to that contract nor agents of a party to the contract.” (TAC, ¶ 3.) The TAC further alleges that Luxx Lighting and Athena are privately-held companies; that Burkhart is the Chief Executive Officer, possesses an ownership interest, and controls and/or influences the management and policies for Luxx Lightening and Athena, and that Rails serves as an officer, employee, and agent to Luxx Lighting and Athena. (TAC, ¶¶ 45(a)-(c).)

The Court notes that the Eleventh Cause of Action appears to repeat allegations as to interference by Luxx Lighting and Athena with Plaintiff’s contracts with customers and/or clients, as asserted in Seventh and Eighth Causes of Action. The Court OVERRULES the demurrer to the Eleventh Cause of Action for the same reasons set forth above as to the Seventh and Eighth Causes of Action.

Accordingly, the Court orders demurring defendants to answer within 30 days.

Plaintiff to give notice.

DEMURRER #2

Defendants The Scotts Miracle-Gro Company; Hawthorne Hydroponics, LLC; The Hawthorne Collective, Inc; The Hawthorne Gardening Company (collectively, the “Scotts Defendants” or “Scotts”) move for an order sustaining a demurrer, or the alternative, an order striking Plaintiff, Route Four LLC’s Third Amended Complaint (“TAC”).

Specifically, the Scotts Defendants demur to the Seventh Cause of Action for Intentional Interference with Contract against “all Defendants” on the ground that it fails to state facts sufficient to constitute a cause of action against Scotts. Scotts contends that the TAC merely alleges that a Scotts entity entered into an asset purchase agreement with Luxx Lighting and, as a result, Plaintiff is now unable to sell Luxx Lighting’s equipment, but Plaintiff does not allege, nor can it allege, an independently wrongful act in that Scotts was under an obligation to consult with Plaintiff or obtain its consent prior to any transaction relating to Luxx Lighting or that Scotts has affirmatively done anything to prevent Plaintiff from selling Luxx Lighting products. Scotts also alleges that the allegation that Luxx Lighting was listed on a “customer list” when it entered into an asset purchase agreement with Canop Holdings and Burkhart is insufficient to state a cause of action for intentional interference with contract. Scotts additionally contends that while the TAC alleges that as a result of the purchase of Luxx Lighting by Scotts from Burkhart, Plaintiff was no longer able to sell, distribute and/or supply Luxx Lighting products to its clients and Customers, the TAC also alleges that before the sale, Burkhart had instructed Luxx Lighting to cease all sales of their products to Plaintiff in paragraph 45(g), suggesting that Route Four was no longer able to sell, distribute and/or supply Luxx Lighting to its clients and Customers before the sale to Scotts. Scotts further argue that their inclusion the TAC appears to be made solely for the purposes of harassment.

The Scotts Defendants alternatively argue that the Court should strike them as named defendants pursuant to Code of civil Procedure section 436(b) in this action since following the Court’s order sustaining a demurrer with leave to amend filed by other defendants in this lawsuit, the Court did not grant Plaintiff leave to add new parties, and Plaintiff did not obtain leave of Court to add Scotts as defendants.

Plaintiff argues that the demurrer should be overruled and the motion to strike should be denied. Plaintiff contends that the TAC adequately alleges the Seventh Cause of Action for Intentional Interference with Contract against the Scotts Defendants as set forth in paragraphs 48-50 and 91-96, and that the tort duty not to interfere with a contract is imposed on a “stranger” to the contract. Plaintiff also argues that Scotts’ assertions with respect to Code of Civil Procedure section 128.7 are pointless and do not constitute a motion under that statute, and that Scotts do not assert that they complied with the necessary preconditions for filing such a motion such that the Court should disregard any references to Section 128.7.

Plaintiff contends that the Scotts Defendants wrongly assert that they were not properly added as “Doe” defendants as Orange County Superior Court Form L-0132 constitutes a procedural vehicle for naming Doe defendants, and specifically provides, “No Order Required,” such that leave of court was not required to add the Scotts Defendants as Doe defendants in this case, and that accordingly, on April 14, 2022, concurrently with the filing of the TAC, the Scotts Defendants were all properly added as Doe Defendants. Plaintiff asserts that to the extent the motion to strike is granted on the ground that leave was not first granted, Plaintiff requests leave to amend the TAC to add the Scotts Defendants as “Doe” defendants in accordance with Code of Civil Procedure section 474. Lastly, Plaintiff contends that if the demurrer is sustained in whole or in part, or the motion to strike is granted, leave to amend should be granted.

In reply, the Scotts Defendants reiterate arguments made in their moving papers, as well as contend that even assuming that Plaintiff need not allege any independently wrongful conduct, the TAC still fails to state a cause of action because the allegations are conclusory, that Plaintiff misrepresents the plain language of the APA which explicitly excluded the assets that were acquired by Scotts in December 2021, and that Plaintiff does not allege that Scotts purchased in 2021 any of Luxx Lighting’s assets that Plaintiff now claims to have acquired through the APA in 2018. The Scotts Defendants also assert that Plaintiff’s claim against Scotts is based on events that post-date the prior pleadings and relates to the December 30, 2021 acquisition of the assets of Luxx Lighting, after the case was filed such that they cannot be “Doe” defendants because all of the facts that form the basis of Plaintiff’s purported cause of action against them arose after the filing of all prior pleadings and do not relate back to the Second Amended Complaint which was filed on August 6, 2021. The Scotts Defendants also note that Plaintiff previously moved for leave to amend its First Amended Complaint to include Luxx Lighting and Athena as “Doe” defendants, Nos. 1 and 2.

Meet and Confer

Code of Civil Procedure section 430.41(a) provides that “the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer . . . .” Similarly, prior to filing a motion to strike, “the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion to strike . . . .” (Code Civ. Proc. § 435.5(a).)

The Declaration of Joshua Bornstein, counsel for Defendants, establishes compliance with the meet and confer requirements of Code of Civil Procedure section 430.41. (Declaration of Joshua Bornstein, ¶¶ 2-4; ROA 438.)

However, to the extent that Scotts alternatively moves to strike them as named defendants in the TAC pursuant to Code of Civil Procedure section 436, Scotts fails to establish that the parties met and conferred as to the grounds for a motion to strike as required by Code of Civil Procedure section 435.5. Despite this lack of compliance, the Court will consider the merits of both arguments.

The Court warns the parties that any future failure to establish compliance with a requirement to meet and confer prior to filing any demurrer may result in the demurrer being taken off-calendar or continued.

Merits

As an initial matter, the Court disregards any discussion concerning Code of Civil Procedure section 128.7 insofar as the Scotts Defendants do not move for a motion under that section and any arguments concerning a purported motivation in naming the Scotts Defendants as Doe Defendants is not pertinent to the determination of the instant demurrer or alternative motion to strike.

Seventh Cause of Action for Intentional Interference with Contract

“Tortious interference with contractual relationship requires ‘(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.]” (Ixchel Pharma, LLC v. Biogen (2020) 9 Cal. 5th 1130, 1141.) To state a claim for interference with an at-will contract by a third party, the plaintiff must allege that the defendant engaged in an independently wrongful act. (Id. at p. 1148.) “Without an independent wrongfulness requirement, a competitor’s good faith offer that causes a business to withdraw from an at-will contract could trigger liability or at least subject the competitor to costly litigation. In fact, even if a business in an at-will contract solicits offers on its own initiative, a third party that submits an offer could face liability if it knew that acceptance of the offer would cause the soliciting business to withdraw from its existing contract. Allowing disappointed competitors to state claims for interference with at-will contracts without alleging independently wrongful conduct may expose routine and legitimate business competition to litigation.” (Ibid.)

Here, the TAC alleges the following:

“8. . . . on December 30, 2021, without Plaintiff’s knowledge or consent and even though Luxx Lighting was specifically listed on the customer list that was included in the Asset Purchase Agreement, Defendant Burkhart and Luxx Lighting entered into a separate asset purchase agreement with Scotts Miracle-Gro Company (“Scotts”) whereby Scotts’ Hawthorne segment (which Plaintiff is informed and believes and thereon alleges is comprised of Hawthorne Hydroponics LLC, The Hawthorne Collective, Inc., and The Hawthorne Gardening Company) acquired the assets of Luxx Lighting for a purchase price of $213.5 million.

[¶¶.]

“48. On December 30, 2021, without Route Four’s consent, knowledge or permission, Defendants Burkhart and Luxx Lighting entered into an asset purchase agreement with Scotts Miracle-Gro Company (the “Scotts APA”) whereby Scotts and its Hawthorne subsidiaries purchased the assets of Luxx Lighting from Defendant Burkhart for $213.5 million.

[¶¶.]

“(d) On December 30, 2021, without Route Four’s consent, knowledge or permission, Defendants Burkhart and Luxx Lighting entered into an asset purchase agreement with Scotts, HH LLC, HC Inc., and HGC whereby Scotts, HH LLC, HC Inc. and HGC purchased the assets of Luxx Lighting from Defendant Burkhart for $213.5 million. As a result of the purchase of Luxx Lighting by Scotts, HH LLC, HC Inc., and HGC from Burkhart, Plaintiff was no longer able to sell, distribute and/or supply Luxx Lighting products to its clients and Customers.

Based on the foregoing, the TAC alleges that Plaintiff had contracts with clients formerly serviced by Hydroponics, Inc. for the sale of various products to which the Scotts Defendants were not parties; that the Scotts Defendants were aware of these contracts; that the Scotts Defendants intentionally interfered with said contracts by communicating with Plaintiff’s clients; that as a result of the purchase of Luxx Lighting by the Scotts Defendants, Plaintiff was no longer able to sell, distribute and/or supply Luxx Lighting products to its clients; and that Plaintiff has been damaged. (TAC, ¶¶ 8, 48, 92(d), 93.)

Limited to the “four corners” as such, a pleading is adequate if it contains a reasonably precise statement of the ultimate facts, in ordinary and concise language, and with sufficient detail to acquaint a defendant with the nature, source and extent of the claim. (Leek v. Cooper (2011) 194 Cal. App. 4th 399, 413.) Thus, it appears that the TAC sufficiently alleges the facts to state a cause of action for intentional interference with contractual relations against the Scotts Defendants.

Although the Scotts Defendants argue that Plaintiff does not, and cannot allege that any of its contracts with its clients or customers were anything but at-will contracts such that Plaintiff must allege independent wrongfulness which is not plead, the TAC does not allege that such contracts were at-will, and the Court must assume the truth of the allegations of the TAC which simply alleges that Plaintiff had contracts with clients.

Based on the foregoing, the Court OVERRULES the demurrer to the Seventh Cause of Action.

In addition, despite the Scotts Defendants’ assertions, there is no showing that to state a claim for intentional interference with contract that Plaintiff must allege that Scotts was under an obligation to consult with Plaintiff or obtain its consent prior to any transaction relating to Luxx Lighting or that Scotts has affirmatively done anything to prevent Plaintiff from selling Luxx Lighting products.

Alternative Motion to Strike the Scotts Defendants from the TAC

Code of Civil Procedure section 474 provides, “[w]hen the plaintiff is ignorant of the name of a defendant, he must state that fact in the complaint, or the affidavit if the action is commenced by affidavit, and such defendant may be designated in any pleading or proceeding by name, and when his true name is discovered, the pleading or proceeding must be amended accordingly; . . . .” (Code Civ. Proc. § 474.) “In some courts, plaintiff’s attorney must prepare an application and order to amend the complaint. In other courts (e.g., Los Angeles), printed forms are available for amendments of this type; all the attorney has to do is fill in the name of the defendant who is being served as one of the “Does.” (Weil & Brown, Cal. Practice Guide: Civ. Proc. Before Trial (The Rutter Group June 2022 update) ¶ 6:613.) “In most courts, leave to amend to substitute a defendant’s true name for “Doe” is routinely granted without notice or hearing.” (Weil & Brown, Cal. Practice Guide: Civ. Proc. Before Trial (The Rutter Group June 2022 update) ¶ 6:614.) The Orange County Superior Court has a form approved for optional use, Form L-0132 covering an amendment to name a Doe defendant for which it states, “No Order Required.”

The Court notes that on April 14, 2022, Plaintiff filed Amendments to Complaint on Form L-0132 naming the Scotts Defendants as Does 3 through 6. (See ROA 421-424.)

Based on the foregoing, the Scotts Defendants were properly named as Doe Defendants to the TAC. Thus, the Court DENIES the Scotts Defendants’ Motion to Strike.

The Scotts Defendants’ argument that they cannot be “Doe” defendants because all of the facts that form the basis of Plaintiff’s purported cause of action against them arose after the filing of all prior pleadings is raised for the first time in reply. The Court declines to consider all new points, arguments, and evidence presented for the first time on reply. (See Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010; Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538.)

Plaintiff’s Request for Judicial Notice

Plaintiff requests that the Court take judicial notice of the Minute Order, dated June 18, 2015, issued by the Honorable James J. Di Cesare (Ret.), O.C.S.C. Case No. 30-2013-00685153-CU-CO-CJC pursuant to Evidence Code section 452(d).

The Court GRANTS the request for judicial notice pursuant to Evidence Code section 452(d) and takes judicial notice of the existence of the documents and the results reached, but not the truth of hearsay statements included therein. (See Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882.)

Plaintiff to give notice.

As a separate matter, the Court finds it confusing to have multiple complaints where opposing parties are labeled plaintiffs and defendants simultaneously. Since the matter was consolidated (see ROA 124), and the Court ordered the case of Route Four LLC v. Brandon Burkhart, et al., Case No. 30-2020-01129185 the lead case number, the Court now orders the parties to re-file the pleadings (such as Complaint and Answer), in Burkhart v. Route Four, LLC, Case No. 30-2020-01130231 as a cross-complaint with the parties re-labeled as cross-complainant or cross-defendant. No other changes are allowed.

Route Four LLC to give notice.