Judge: Ronald F. Frank, Case: 22TRCV01531, Date: 2024-04-26 Tentative Ruling

Case Number: 22TRCV01531    Hearing Date: April 26, 2024    Dept: 8

Tentative Ruling 

HEARING DATE:                 April 26, 2024

CASE NUMBER:                  22TRCV01531

CASE NAME:                        Los Angeles Apparel, Inc. v. Domestic Medical Supply Coalition LLC, et al.   

MOVING PARTY:                Defendant/Cross-Complainant, Domestic Medical Supply Coalition, LLC

RESPONDING PARTY:       Plaintiff, Los Angeles Apparel, Inc.

TRIAL DATE:                        February 10, 2025

MOTION:                              (1) Motion for Leave to File Cross-Complaint

Tentative Rulings:                  (1) GRANTED

I. BACKGROUND 

A.    Factual

On December 20, 2022, Plaintiff, Los Angeles Apparel, Inc. (“Plaintiff”) filed a Complaint against Defendant, Domestic Medical Supply Coalition LLC and DOES 1 through 50. The Complaint alleges a cause of action for: (1) Breach of Contract; (2) Common Counts. The Complaint is based on allegations that Plaintiff and Defendant entered into a written purchase order requests and invoices, whereby Defendant would purchase gowns and masks made by Plaintiff during the COVID-19 pandemic. Plaintiff also alleges that Defendant executed a Credit Application with Plaintiff, dated April 2, 2020, which contained certain terms and conditions related to Defendant’s purchase of goods from Plaintiff. However, Plaintiff contends that due to the volume of Defendant’s orders, Plaintiff was required to purchase a special machine (“TukaTech Machine”) to assist with the manufacturing process.

Plaintiff also asserts, in opposition, that because the TukaTech Machine was purchased specifically to fulfill Defendant’s orders, the parties agreed Defendant would provide a $250,000 deposit to cover the estimated cost of the TukaTech machine. Plaintiff asserts that the deposit was made in exchange for the purchase and installation of the TukaTech cutting machine, and any excess remaining deposit beyond the cost of the machine and the related installation costs was applied against future non-sewn mask orders at a rate of $0.10 per piece. The Complaint alleges that on October 7, 2020, Plaintiff’s principal contacted Defendant by email, stating that Defendant had a large past due balance of $636,216.63 owing to Plaintiff, which did not include amounts related to fabric purchased to support Defendant’s orders. Plaintiff contends that Defendant responded to the email the same day conceding that money was owed to Plaintiff, but claimed that the amount was $214,000. However, Plaintiff asserts that Defendant failed to make payments to reduce the debt, which is why Plaintiff filed the Complaint on December 20, 2022.

            Now, Defendant/Cross-Complainant, Domestic Medical Supply Coalition, LLC (“DMS”) files a Motion for Leave to file Cross-Complaint.

B. Procedural

On March 28, 2024, DMS filed a Motion for Leave to File Cross-Complaint. On April 15, 2024, Plaintiff, Los Angeles Apparel, Inc. (“LAA”) filed an opposition brief. On April 19, 2024, DMS filed a reply brief.  

II. ANALYSIS 

A.    Legal Standard 

Code of Civil Procedure Section 428.10 provides that a party against whom a cause of action has been asserted may file a cross-complaint setting forth: “(b) Any cause of action he has against a person alleged to be liable thereon, whether or not such person is already a party to the action, if the cause of action asserted in his cross-complaint (1) arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause brought against him or (2) asserts a claim, right, or interest in the property or controversy which is the subject of the cause brought against him.”  (Code Civ. Proc., § 428.10, subd. (b).)  A party shall obtain leave of court to file a cross-complaint if it is not concurrently filed with the answer or at any time before the court sets a trial date.  Leave may be granted in the interest of justice at any time during the course of the action.  (Code Civ. Proc., § 428.10, subd. (c).) 

B.     Discussion

Here, DMS seeks leave to file a cross-complaint containing causes of action for: (1) Fraud and Misrepresentation; (2) Breach of Contract; (3) Money Had & Received; (4) Violation of Business and Professions Code § 17200; and (5) Accounting. DMS argues that its cross-complaint is based on the allegations that as part of discovery in this case, Defendant requested information about the actual purchase price of the machine, and when it subpoenaed business records directly from TukaTech, the records indicated the actual cost of the machine was approximately $180,000, thus making LAA profit approximately $70,000 from the purchase and sale of the Machine. DMS also notes it is seeking an accounting of the income generated by LAA’s use of DMS’s machine, and to establish the credit mounts due to DMS from LAA for: (1) defective isolation gowns rejected by DMS; (2) defective isolation gowns manufactured by LAA for DMS and rejected by DMS’s customers due to manufacturing defects; and (3) credit due to DMS from LAA for isolation gowns manufactured and sold by LAA, made with material charged to DMS and cut with DMS’s machine.

By filing this motion, DMS notes that it seeks to file a compulsory cross-complaint against LAA for fraud and misrepresentation in connection with the Machine and also to assert a cause of action against LAA for breach of contract for the failure to deliver isolation garments that were free of manufacturing defects. DMS further notes it wishes to assert claims that fabric ordered by DMS was charged to DMS but not delivered to DMS, and the proceeds of the sale of that fabric by LAA to third parties was never properly credited to DMS.

Whether DMS Unreasonably Delayed Filing The Cross-Complaint

            In opposition, Plaintiff contends that DMS unreasonably delayed the filing of the cross-complaint, noting that this case was filed on December 20, 2022, DMS’s answer was filed on August 3, 2023, and now, months later, on March 28, 2024, DMS is filing this motion. However, DMS contends that the catalyst in filing this cross-complaint was information they received from TukaTech, the manufacturer of the machine in question, after they had subpoenaed business records from them. Although DMS sent a letter to counsel for Plaintiff on January 19, 2024, the moving or reply papers do not indicate when DMS subpoenaed these records, or when the records were received. This information would be necessary for this Court to determine whether Defendant has unreasonably delayed the filing of this motion. As such, the Court requests this information at the hearing.

Same Transaction or Occurrence

            Next, Plaintiff LAA argues that DMS’s proposed first, third, and fourth causes of action do not arise from the same transaction nor involves the same facts. LAA argues its complaint involves agreements between Defendant and Plaintiff, whereby DMS purchased gowns and masks manufactured by Plaintiff; that DMS only made a few payments, and then cancelled its orders in the middle of the manufacturing process, leaving Plaintiff with fabric acquired specifically for Defendant’s orders, and causing Plaintiff significant loss. Plaintiff argues that Defendant’s proposed cross-complaint is related to a different alleged agreement that Defendant would provide a deposit for LAA to acquire the TukaTech machine and Defendant would earn its deposit back to receive discounts on future orders. Further, DMS’s proposed cross-complaint also seeks entirely separate relief for “income generated from the use of the machine” and a “percentage of such profits.” Plaintiff, LAA, contends that this is an entirely new scope of inquiry, and is not properly asserted in the scope of a cross-complaint.

            As to the causes of action relating to the TukaTech machine as it relates to money allegedly owed to Plaintiff, the Court finds that much of the proposed causes of action are based on the same transaction or occurrence. Plaintiff is seeking money it claims is due from DMS, however, just as asserted by Plaintiff, whatever remained from the $250,000 was to be used toward materials bought by DMS from Plaintiff at $0.10. Thus, litigating DMS’s cross-complaint against Plaintiff involving fraud and misrepresentation claims, money had and received, and violation of Business and Professions Code claims speaks to the amount owed based on the actual purchase price, including fees associated with the purchase of the machine, and how much of the amount owed should have been put toward credit for the items DMS typically purchased from Plaintiff.

            This would also speak to the accounting wanting to be done by DMS as DMS is not seeking profit from the used materials, but such an accounting would determine, in basic contract principles, how much of what DMS allegedly owed to Plaintiff was able to be repurchased by a different company.

Breach of Contract and Statute of Limitations

            Next, Plaintiff’s opposition argues that DMS’s breach of contract cause of action fails because any alleged breach of an oral contract would have had to be brought within two years of the violation. However, Plaintiff notes that this cause of action is being proposed to be brought four (4) years after the alleged breach. In DMS’s reply brief, it argues that this cause of action relates back to the filing of the complaint. “As a general rule, the filing of a complaint tolls the statute of limitations applicable to a cross-complaint so long as the cross-complaint is related to the original complaint and its causes of action were not barred when the original complaint was filed.”  (California-American Water Co. v. Marina Coast Water Dist. (2016) 2 Cal.App.5th 748, 763.)  “Such a cross-complaint need only be subject-matter related to the plaintiff's complaint—i.e. arise out of the same occurrence (See §§ 426.10, 428.10)—to relate back to the date of filing the complaint for statute of limitation purposes.”  (Sidney v. Superior Court (1988) 198 Cal.App.3d 710, 714.)   

            This Court notes that Plaintiff’s original filing of the Complaint is based on allegations involving money owed to Plaintiff by DMS. As such, an alleged oral contract whereby Plaintiff and DMS allegedly orally and in writing, agreed that the machine would be used for cutting fabric for cross-complainant’s product, and when the machine was not in use for DMS’s purposes, the machine would be used to cut fabric for third parties in which a portion of the income generated by that use of the machine would be paid to cross-complainants may loosely relate in the subject matter of Plaintiff’s complaint. Both allegations speak to and essentially determine what is owed to Plaintiff by DMS, and if that money would be offset by money allegedly owed to DMS by Plaintiff.

            Subject to change during clarification during oral argument, this Court’s tentative ruling is to GRANT the Motion and allow DMS to file the cross-complaint.  The Court’s ruling would be without prejudice to a demurrer or dispositive motion by Plaintiff asserting that one or more causes of action can be adjudicated as a matter of law, i.e., the Court is not making a final determination that the statute of limitations is or is not a bar to an oral contract claim in the Cross-Complaint. 

III. CONCLUSION 

Based on the foregoing, DMS’s Motion for Leave to File Cross-Complaint is GRANTED.  Domestic Medical Supply shall file its Cross-Complaint as a stand-alone document, not as an exhibit or attachment to any other document, within 5 days of this ruling. 

Moving party to give notice.