Judge: Salvatore Sirna, Case: 22PSCV00624, Date: 2023-04-05 Tentative Ruling
Case Number: 22PSCV00624 Hearing Date: April 5, 2023 Dept: G
Defendants ‘Matias’ Clinical Laboratory, Inc. and Emilio Villarba’s Demurrer to Plaintiff’s Complaint
Respondent: Plaintiff De Lage Landen Financial Services, Inc.
Defendants ‘Matias’ Clinical Laboratory, Inc. and Emilio Villarba’s Motion to Strike Portions of Plaintiff’s Complaint
Respondent: Plaintiff De Lage Landen Financial Services, Inc.
TENTATIVE RULING
Defendants ‘Matias’ Clinical Laboratory, Inc. and Emilio Villarba’s Demurrer to Plaintiff’s Complaint is OVERRULED.
Defendants ‘Matias’ Clinical Laboratory, Inc. and Emilio Villarba’s Motion to Strike Portions of Plaintiff’s Complaint is DENIED.
BACKGROUND
This is a breach of contract action arising from an equipment lease agreement. On October 12, 2020, Thermo Fisher Financial Services, Inc. (Thermo Fisher) entered into a written lease agreement with Defendant ‘Matias’ Clinical Laboratory, Inc. (Matias Clinical Lab), doing business as Health Care Providers Laboratory, in which Thermo Fisher agreed to finance and lease equipment to Matias Clinical Lab. On July 13, 2021, Thermo Fisher assigned the lease agreement to Plaintiff De Lage Landen Financial Services, Inc. On February 15, 2022, Plaintiff alleges Matias Clinical Lab breached the agreement by failing to make monthly installment payments. On June 15, Plaintiff sent a written demand to Matias Clinical Lab that demanded Matias Clinical Lab repay the balance under the lease and return the leased equipment. Plaintiff further alleges Matias Clinical Lab refused to make further payments and return the equipment.
On June 22, 2022, Plaintiff filed a complaint against Matias Clinical Lab and Emilio Villarba (Matias Clinical Lab and Villarba, collectively Defendants) as well as Does 1-50, alleging the following causes of action: (1) breach of contract, (2) possession of personal property, and (3) conversion.
On December 8, 2022, Defendants filed the present demurrer and motion to strike. Prior to filing on December 1, Defendants’ counsel met and conferred telephonically with Plaintiff’s counsel and was unable to reach a resolution. (Klaskin Suppl. Decl., ¶ 2.)
A hearing on the demurrer and motion to strike and a case management conference is set for April 5, 2023.
ANALYSIS
Defendants demur to Plaintiff’s first cause of action (breach of contract), second cause of action (possession of personal property), and third cause of action (conversion). For the following reasons, the court OVERRULES Defendants’ demurrer in its entirety.
Legal Standard
A party may demur to a complaint on the grounds that it “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) When considering demurrers, courts accept all well pleaded facts as true. (Fox v. JAMDAT Mobile, Inc. (2010) 185 Cal.App.4th 1068, 1078.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, at p. 747.)
Breach of Contract (First Cause of Action)
Defendants argue Plaintiff’s first cause of action for breach of contract fails as a matter of law because it violates California’s usury laws. The court disagrees.
California’s usury law limits the interest rate for commercial loans or forbearance to ten percent annually or five percent plus the rate of interest established by the Federal Reserve Bank of San Francisco. (Korchemny v. Piterman (2021) 68 Cal.App.5th 1032, 1042, citing Cal. Const., art. XV, § 1.) However, “[i]t is also elementary that the contract must in its inception require a payment of usury or it will not be held a violation of the statute and it may not be judged after some default of the borrower, which default alone authorizes penalties or forfeitures which, if exacted in the beginning, would have been a violation of the statute.” (Sharp v. Mortgage Sec. Corp. v. America (1932) 215 Cal. 287, 290-291.) “[A] debtor cannot bring [their] creditor to the penalties of the usury law by [their] voluntary default in respect to the obligation involved, where no violation of law is present at the inception of the contract.” (Id., at p. 291.)
In this case, the alleged usurious interest rate of 18% only applies after Defendants default on the lease payments. (Complaint, Ex., ¶ 8.) Because the 18% interest rate is brought on by Defendants’ voluntary default, there is no violation of California’s usury laws. Furthermore, as noted in Southwest Concrete Products v. Gosh Construction Corp. (1990) 51 Cal.3d 701 (Southwest Concrete), a late charge “is not subject to the usury law because it does not constitute payment for the ‘loan or forbearance of any money.’” (Id., at p. 709.)
In response, Defendants attempt to distinguish Southwest Concrete by noting that case dealt with interest payments on late fees rather than the entire principal. However, this is not a substantive difference. In both that case and this case, the interest rate did not apply to the initial loan or lease and only applied after Plaintiff’s default, which makes California’s usury law inapplicable. Thus, because Defendants have not established the interest rate was usurious, they have not established the contract is unenforceable.
Accordingly, Defendants’ demurrer to Plaintiff’s first cause of action is OVERRULED.
Possession of Personal Property (Second Cause of Action)
Defendants contend Plaintiff’s second cause of action for possession of personal property fails to plead sufficient facts to state a claim against Villarba because Plaintiff did not establish Matias Clinical Lab is Villarba’s alter ego. The court disagrees.
It is well established that a corporation’s directors or officers may become personally liable “if they directly ordered, authorized or participated in the tortious conduct.” (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785; see also Holistic Supplements, L.L.C. v. Stark (2021) 61 Cal.App.5th 530, 544 [“As the director and shareholder of the corporation, [Defendant] could be held personally liable for participating in, directing, or authorizing tortious conduct.”].)
In this case, although Defendants are correct that Plaintiff did not allege Villarba is the alter ego of Matias Clinical Lab, Plaintiff alleges Villarba possessed the leased equipment, received demand for the return of the equipment, and failed to return it. (Complaint, ¶ 22, 27, 28.) Because Plaintiff alleges Villarba participated in a tort by possessing Plaintiff’s personal property, Plaintiff is not required to establish Matias Clinical Lab was Villarba’s alter ego.
Accordingly, Defendants’ demurrer to Plaintiff’s second cause of action is OVERRULED.
Conversion (Third Cause of Action)
Defendants maintain Plaintiff’s third cause of action for conversion fails to plead sufficient facts to state a claim against Villarba because Plaintiff did not establish Matias Clinical Lab is Villarba’s alter ego. Defendants also maintain it fails to state a claim by failing to establish Defendants engaged in wrongful conduct. The court disagrees.
With regards to Villarba, the court finds this demurrer fails for the same reason it fails as to the second cause of action for possession of personal property because Plaintiff has alleged Villarba’s direct participation in a tort.
“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages.” (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.)
In this case, Plaintiff alleges Defendants converted the leased property by refusing to return the property to Plaintiff after failing to make payments pursuant to the lease which entitled Plaintiff to repossession in case of default. (Complaint, ¶ 38, 41-42.) Defendants claim an allegation of breach of contract cannot provide a basis for a claim of conversion, but cite no authority to support this contention. The court finds this argument is without merit as “the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts.” (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774.)
Accordingly, Defendants’ demurrer to Plaintiff’s third cause of action is OVERRULED.
Motion to Strike
Defendants move to strike all allegations of accrued interest in the Complaint on the grounds that the interest rate is usurious. Because the court already rejected this argument in the demurrer, Defendants’ motion to strike on the same grounds is also DENIED.
CONCLUSION
Based on the foregoing, Defendants’ demurrer to Plaintiff’s Complaint is OVERRULED in its entirety.
Based upon the recommendations made on the demurrer, Defendant’s motion to strike portions of Plaintiff’s Complaint is DENIED.
Defendants to file an answer to the Complaint within twenty (20) days.