Judge Ronald F. Frank, Case 20TRCV00772 2023-04-05 Tentative Ruling

Judge: Ronald F. Frank, Case: 20TRCV00772, Date: 2023-04-05 Tentative Ruling

Case Number: 20TRCV00772 Hearing Date: April 5, 2023 Dept: 8

Tentative Ruling¿

¿¿

HEARING DATE: April 5, 2022¿¿

¿¿

CASE NUMBER: 20TRCV00772

¿¿

CASE NAME: Marine Gasparian, et al v. Rolls-Royce Motor Cars NA, LLC, et al

¿¿

MOVING PARTY: Defendant, Rolls-Royce Motor Cars Financial Services

¿¿

RESPONDING PARTY: Plaintiffs, Avakian Engineering, Inc. and Marine Gasparian

¿¿

TRIAL DATE: March 11, 2024

¿¿

MOTION:¿ (1) Demurrer¿

Tentative Rulings: (1) Defendant Demurrer is Sustained without leave to amend as to RR Financial Services, but the case may proceed as to remaining Defs. The Court also notes that Rolls Royce Financial’s demurrers have been previously sustained to the first, second, and third amended complaints, all with leave to amend being granted.

I. BACKGROUND¿¿

¿¿

A. Factual¿¿

On October 26, 2020, Plaintiffs Avakian Engineering, Inc., and Marine Gasparian (collectively “Plaintiffs”) filed this action against Rolls-Royce Motor Cars NA, LLC, Rolls-Royce Cars Financial Services, a division of BMW Financial Services NA, LLC, O’Gara Coach Company LLC, Neil Martin, and DOES 1 through 20.

On May 31, 2022, Plaintiffs filed a third amended complaint. On January 12, 2023, Plaintiffs filed a Fourth Amended Complaint (“4AC”) against Defendants alleging causes of action for: (1) Breach of Contract; (2) Negligence; (3) Negligence; and (4) Fraud.

Defendant, Rolls-Royce Motor Cars Financial Services, a Division of BMW Financial Services NA, LLC (“Defendant”) now demurs to Plaintiffs’ 4AC.

B. Procedural¿¿

On February 15, 2023, Defendant filed this demurrer to Plaintiff’s 4AC. On March 23, 2023, Plaintiffs filed an opposition to Defendant’s demurrer. On March 28, 2023, Defendant filed a reply brief.

¿II. MOVING PARTY’S GROUNDS FOR THE DEMURRER¿¿

Defendant demurs to Plaintiffs’ Fourth Amended Complaint (“4AC”) on the grounds that: (1) The First Cause of Action against Defendant for Breach of Contract fails to state facts sufficient to constitute a cause of action pursuant to California Code of Civil Procedure § 430.10(e); and (2) The Third Cause of Action against Defendant for Negligence fails to state facts sufficient to constitute a cause of action pursuant to California Code of Civil Procedure § 430.10(e).

III. REQUEST FOR JUDICIAL NOTICE

Defendant requested that this Court take Judicial Notice of the following:

1. Plaintiffs’ Second Amended Complaint. A true and correct copy is attached as Exhibit “A” and incorporated herein by this reference. (See Declaration of Rebecca A. Caley, ¶ 4.)

2. Plaintiffs’ Third Amended Complaint. A true and correct copy is attached as Exhibit “B” and incorporated herein by this reference. (See Declaration of Rebecca A. Caley, ¶ 5.)

The Court grants Defendant’s request and takes judicial notice of the above documents.

IV. ANALYSIS¿

A. Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿¿

¿¿

B. Discussion

Breach of Contract

¿¿

To state a cause of action for breach of contract, Plaintiff must be able to establish “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) If a breach of contract claim “is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)

Here, Plaintiffs allege that on or about January 16, 2016, Plaintiff entered into a valid written agreement for the lease of a Rolls with Rolls-Royce Financial, the assignee, and O’Gara, as the lessor, for a term of forty-eight (48) months. (4AC, ¶ 47.) Plaintiffs also argue that on June 11, 2019, Rolls-Royce Financial committed material breach of the Agreement when they repossessed Plaintiffs’ Rolls based on false statements made to Rolls-Royce Financial by the CHP. (4AC, ¶ 54.) Plaintiff further notes that Rolls-Royce Financial conducted no investigation into the false statements allegedly made by CHP. (4AC, ¶ 54.) Plaintiffs further note that the false statements allegedly made to Rolls-Royce Financial by the CHP were used as a way to repossess and sell the Vehicle at action, that using false statements of a third-party is not proper, and that Defendants have violated the terms of the Agreement and are in breach. (4AC, ¶ 57.) Additionally, Plaintiffs assert that Rolls-Royce Financial offered Plaintiffs no option to cure per Section 26 of the Agreement, which is alleged to be a breach of the terms of the Agreement between Rolls-Royce Financial and Plaintiffs. (4AC, ¶ 58.) The Court has reviewed Paragraph 26 of the lease Agreement attached as an exhibit to the 4AC and that paragraph does not contain any language that could reasonably be interpreted as giving the lessee a right to cure after Plaintiff is in default of any of the listed types of default. (There is a purchase option in Paragraph 30 of the Lease.)

Nor does the 4AC allege that, after receiving the written notice of default (per certified mail, the letter of July 1, 2019, attached as Exhibit C to the 4AC), Plaintiffs tendered an amount to cure the assertedly defaulting act. Rather, the 4AC alleges in ¶34 that Rolls-Royce Financial advised Plaintiffs in a September 25, 2020 letter that it could not offer an option to reinstate after they repossessed the vehicle because of the allegedly fraudulent information contained in the credit application. Plaintiffs asserted in the Second Amended Complaint ¶ 34 that the listing of Gasparian as Vice President of Avakian and the statement that her annual income was $480,000 were false statements. The 4AC does not reallege that judicial admission, but it does allege in ¶37 that Gasparian held a sales position, not the position as Vice President, of Avakian.

In Defendant’s demurrer, they argue that Plaintiffs admit they signed the credit application, which noted, directly above Marine Gasparian’s signature, language reflecting that “[t]he information in this application is true and correct to the best of my knowledge.” (4AC, ¶¶ 36-38, Ex. 2.) Additionally, Defendant asserts that the Lease Agreement did not give Plaintiffs the right to reinstate rather than buy out the entire contract as offered in the Notice of Plan to Sell. Plaintiffs do not allege that Rolls Royce Financial breached any specific provision of the Lease Agreement or any provision of law by seeking that “buy out” in the Notice of Plan to Sell. The “buy out” included the difference between the Adjusted Capitalized Cost and the sum of all accumulated depreciation through the date of early termination of the lease, which is the lion’s share of the $198,075 gross early termination amount before the vehicle was put up for auction to satisfy that debt.

As done in previous rulings on previous demurrers to the breach of contract cause of action, this Court now on the fourth attempt to amend the allegations SUSTAINS the DEMURRER to the 4AC, but this time without leave to amend.

Negligence

In order to state a claim for negligence, Plaintiff must allege the elements of (1) “the existence of a legal duty of care,” (2) “breach of that duty,” and (3) “proximate cause resulting in an injury.” (McIntyre v. Colonies-Pacific, LLC (2014) 228 Cal.App.4th 664, 671.) Defendant asserts that “as highlighted by the Court in its Ruling on the Demurrer to the SAC, Plaintiffs’ Negligence claim is based on the same alleged duties set in their Breach of Contract claim.” (Demurrer, p. 8.) Generally, “a tortious breach of contract…may be found when (1) the breach is accompanied by a tradition common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.” (Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 10.) Additionally, “[f]ocusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated. (Elrich v. Menezes (1999) 21 Cal.4th 543, 553.) In the Court’s view, Plaintiffs have detailed additional allegations that are not necessarily predicated on the same duties alleged in the breach of contract cause of action, but are still problematic.

Plaintiffs’ 4AC alleges that Defendant owed them a duty of care under Biakanja v. Irving (1958) 49 Cal.2d 647, holding that a lender may be found to owe a borrower a general duty of care surrounding in negligence for their own mishandlings. (4AC, ¶ 74.) In Biakanja, the California Supreme Court held that the intended beneficiary of a failed testamentary gift could recover from a notary public who negligently prepared the will. The notary owed a contractual duty only to the testator – not to the plaintiff. However, the court held that the notary owed a tort duty to a third party, the plaintiff there, “even though they were not in privity of contract” and set out a case-by-case test for determining whether “the defendant will be held liable to a third person not in privity.” The test requires consideration of six factors: (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant's conduct and the injury; (5) the moral blameworthiness of the defendant's conduct; and (6) the policy of preventing future harm.”

Plaintiff’s 4AC alleges that each factor is met here. (4AC, ¶ 75(a)-(f).) Plaintiff discuss each of the Biakanja factors, which apply per that precedent when there is no privity of contract between the parties. Lower California courts have declined to extend Biakanja -- and its finding of a tort duty -- to cases where the parties are in privity with one another because the parties’ duties to each other are specified in the contract. (See Stop Loss Ins. Brokers, Inc. v. Brown & Toland Med. Grp. (2006) 143 Cal.App.4th 1036, 1042.) “Courts will generally enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.” ’ [Citation omitted.]” (Aas v. Superior Court (2000) 24 Cal.4th 627, 643.) The 4AC does not allege any social policy that might give rise to a tort duty where plaintiff essentially asserts that Rolls Royce Financial violated its contractual obligations in enforcing a contractual remedy it had under the controlling contract between the parties. No case has ever applied Biakanja to the relationship of lender and customer, or bank and depositor. Here, Plaintiffs note in their 4AC that they are in privity of contract with Defendant. (4AC, ¶ 15-22.) The relationship between buyers and lessees of motor vehicles on the one hand, and the sellers, lessor, and financers of motor vehicle acquisitions on the other hand, has been the subject of multiple statutes expressing specific social policies. Nowhere in the Opposition do Plaintiffs reference any of these statute or the social policies expressed in them to justify a duty to investigate akin to what the 4AC asserts here.

Instead, the Opposition cites to Bullis v. Security Pacific National Bank (1978) 21 Cal.3d 801 for the proposition that financial institutions owe a duty of ordinary care to its customers. In Bullis, the California Supreme Court held that the trial court had correctly determined that a bank acting with reasonable care would have required both co-executors’ signatures to effect withdrawals from the account of the decedent’s estate. The standard of care was supported by a provision of the Probate Code addressing the administration of accounts where co-executors were appointed. Further, the allegations and evidence in that case included provisions of the bank’s operations manual which required two signatures for withdrawals, and custom and usage evidence as to similar requirements applied by many other banks. The Court here recognizes that financial institutions owe a general duty of care, but that general duty does not embrace the specific asserted duties here. There is no allegation that a statute requires, or that other motor vehicle lenders perform, investigations before repossessing on the basis of fraud in the credit application. There is no statute cited that requires a lender to give an opportunity to cure when the lender obtain information that the borrower misrepresented financial information on the credit application.

Because the Agreement specifically notes that Defendant has the right to terminate the lease if “…(g) Any information in my credit application or a guarantor’s credit application is false or misleading,” and Plaintiffs’ prior pleadings admits to false and/or misleading information on the Agreement, there cannot be negligence on the part of Defendant when it repossessed the vehicle against a party in privity. (Agreement Paragraph 26(g).) In Plaintiffs’ 4AC, it notes that “Gasparian is an employee of AE, holding a sales position, not “Vice President” as stated on the Application. (4AC, ¶ 68.) Based on the foregoing, Plaintiff has not alleged sufficient facts to state a cause of action for negligence. The defect in pleading cannot be cured given the Defendant’s termination right contained in the contract and the judicial admission of privity that defeats reliance on the Biakanja exception to the general rule that there is no tort duty when a contracting party exercises a right given under the contract. While the Opposition argues that Rolls Royce Financial did not know about the misrepresentation on the credit application at the time, the Opposition cannot defeat a contractual right by claiming the repossession was carelessly unjustified at the time but would have been justified when the lender knew the true facts when it did repossess the vehicle a short time later.

This Court will decline to extend Biakanja to a case where the allegedly negligent party was in contractual privity with the plaintiff in the absence of some social policy giving rise to the asserted tort duty. “Invoking the Biakanja factors to create a tort duty in the absence of injury to a third party would circumvent this rule and blur the law's distinction between contract and tort remedies. [Plaintiff] has cited no case holding a business entity owes a tort duty of care to prevent another business from suffering purely financial losses, and we decline to announce such a duty here.” (Stop Loss, supra, 143 Cal.App.4th at p. 1043.) Nor does the Court believe it makes a material difference that the parties here were a business entity and a consumer, as the losses claimed here are alleged to be purely financial ones. Plaintiffs’ asserted tort remedy would also be barred by the economic loss rule which applies in the consumer arena as well as in the commercial arena. (See Robinson Helicopter, Inc. v. Dana Corp (2004) 34 Cal.4th 979, 988.)

The Court noted above that financial institutions can be held liable on a negligence theory even where they have contractual privity with the Plaintiff. But Plaintiffs have not alleged facts sufficient to place them in the Biakanja exception. Nor have they alleged facts sufficient to fit within the inherent danger of self-negotiation exception expressed by the California Supreme Court in Sun 'n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 695–696. In that case a very narrow duty to investigate was articulated: when a person not indebted to a bank endorses substantial checks to the bank as the payee of the checks, but the bank deposits the funds to a third party's account without inquiry, i.e., embezzles the check’s proceeds. Here, there is no allegation that there was a check or other form of payment that on its face raised objective indica of possible fraud. Here, there is no allegation that O’Gara or the CHP were attempting to acquire the subject Rolls Royce vehicle for themselves, or that Rolls Royce Financial had objective indicia that the CHP or the authorized dealer were giving the lender false or misleading information to induce the repossession, or that it would be apparent on the face of the credit application that the financial misrepresentations contained therein were not those of the persons who signed the application.

Having been given multiple opportunities to state causes of action against Rolls Royce Financial, and having not corrected all the pleading defects identified in previous tentative rulings, Defendant’s demurrer on this issue is now SUSTAINED WITHOUT LEAVE TO AMEND. If Plaintiff has some other exception that has not yet been pleaded, or some other basis in the decisional law or statutes for a negligence claim against Rolls Royce Financial on these facts that has not yet been briefed, it must be raised during oral argument along with citation to the legal exception that is claimed to apply and which was not asserted in the Opposition brief.