Judge: Richard Y. Lee, Case: 30-2023-01303979, Date: 2023-08-10 Tentative Ruling
Defendants Christopher Abboud and RepRipe Trading, Inc. (“Defendants”) demur to the Complaint of Plaintiff Starbuzz Tobacco, Inc. (“Plaintiff”) on the grounds that all causes of action against Abboud fail to state facts sufficient to state a cause of action and the fraud-based fifth and sixth causes of action are not pleaded with sufficient specificity.
Defendants contend that the allegations against Abboud in the Complaint are conclusory and lack any facts sufficient to support an alter ego theory of liability.
“To recover on an alter ego theory, a plaintiff need not use the words “alter ego,” but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.) “The allegation that a corporation is the alter ego of the individual stockholders is insufficient to justify the court in disregarding the corporate entity in the absence of allegations of facts from which it appears that justice cannot otherwise be accomplished.” (Norins Realty Co. v. Consolidated Abstract & Title Guaranty Co. (1947) 80 Cal.App.2d 879, 883.)
“The first requirement for disregarding the corporate entity under the alter ego doctrine—whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist—encompasses a series of factors. Among the many factors to be considered in applying the doctrine are one individual’s ownership of all stock in a corporation; use of the same office or business location; commingling of funds and other assets of the individual and the corporation; an individual holding out that he is personally liable for debts of the corporation; identical directors and officers; failure to maintain minutes or adequate corporate records; disregard of corporate formalities; absence of corporate assets and inadequate capitalization; and the use of a corporation as a mere shell, instrumentality or conduit for the business of an individual. [Citation.] This list of factors is not exhaustive, and these enumerated factors may be considered with others under the particular circumstances of each case.” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1073.)
The alter ego allegations are asserted in Paragraphs 12 through 19. Those Paragraphs allege that Abboud was the sole owner and/or operator of RepRipe and maintains pervasive authority and control over the company, there is a unity of interest and ownership between the two, RepRipe was operated by Abboud for his own benefit with the specific intent of harming Plaintiff, RepRipe is undercapitalized and Abboud has commingled his personal funds with the company’s funds, Abboud fails to conduct regular meetings of members and fails to obtain members’ written consent or approval of company actions, and if the actions of RepRipe are considered the company’s alone, an inequitable result will follow. The Sales Orders attached as Exhibit B to the Complaint show that Plaintiff contracted with RepRipe, not Abboud, for the goods at issue.
The Complaint fails to allege any concrete facts against Abboud to show that he should be held liable for the alleged breaches by RepRipe. Plaintiff’s alter ego allegations are conclusory and unsupported by any facts. Instead, they constitute a parroting of the factors for the alter ego doctrine found in the case law. While it is true that “the courts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915), here, based on all the allegations against Abboud, the equities and justice of the situation do not appear to call for application of the alter ego doctrine. Instead, it appears that Plaintiff has sued Abboud based solely on his status as the owner of the company.
Thus, the Court SUSTAINS the demurrer on the ground that the Complaint fails to adequately allege any alter ego theory of liability against Abboud, with 20 days leave to amend.
Defendants jointly demur to the fifth and sixth causes of action for intentional and negligent misrepresentation on the ground that the allegations fail to meet the heightened specificity required for fraud-based claims.
“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. [Citations.] The essential elements of a count for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true.” (Chapman v. Skype, Inc. (2013) 220 Cal.App.4th 217, 230-231.) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] ‘Thus “ ‘the policy of liberal construction of the pleadings . . . will not ordinarily be invoked to sustain a pleading defective in any material respect.’.” [Citation.] This particularity requirement necessitates pleading facts which “show how, when, where, to whom, and by what means the representations were tendered.” ’ ” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)
The Complaint alleges that Abboud represented that Defendants would have the products ordered by Plaintiff manufactured by a third party and ready to be shipped in a timely fashion and within 90 days of the initial deposit. (Compl. ¶¶ 32-33.) Defendants also represented that they would replace any defective products or reimburse Plaintiff. (Compl. ¶ 94.) Plaintiff paid one Sales Order in full and the required 30% deposit on two other Sales Orders. (Compl. ¶ 36.) However, Defendants had no intention of providing the products and secretly intended to keep the initial deposit money. (Compl. ¶ 37.) The representations made by Defendants were false because they could not timely prepare the quantity or qualify of hookah products ordered by Plaintiff and they were not qualified of supplying defect-free products on time. (Compl. ¶¶ 95-96.) Defendants knew they did not have the capacity to provide the products or had no reasonable grounds for believing their representations were true and intended to induce Plaintiff’s reliance and payment of the initial deposits. (Compl. ¶¶ 97-98.)
Plaintiff’s fraud claims both revolve around Defendants’ promises to have the products ready to be shipped within 90 days of payment of the initial deposit and replace or reimburse Plaintiff for any defective products. Plaintiff’s allegations that Defendants had no intention of shipping the products to Plaintiff is “the very sort of general and conclusory allegation[] that [is] insufficient to state a fraud claim.” (Reeder v. Specialized Loan Servicing LLC (2020) 52 Cal.App.5th 795, 804 [finding allegation that defendants had no intention of allowing plaintiff to re-finance loan could not support plaintiff’s three fraud claims].) “ ‘It is insufficient to show an unkept but honest promise, or mere subsequent failure of performance.’ ” (Ibid., citing Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1183.) As the plaintiff in Reeder, Plaintiff here has alleged no facts or circumstances suggesting anything more than the failure to perform a contractual obligation.
Accordingly, Defendants’ Demurrer as to the fifth and sixth causes of action is SUSTAINED with 20 days leave to amend.
The Case Management Conference is Continued to 10/12/2023 at 1:30 p.m.
Defendants to give notice.