Judge Salvatore Sirna, Case 22PSCV01987 2023-04-12 Tentative Ruling

Judge: Salvatore Sirna, Case: 22PSCV01987, Date: 2023-04-12 Tentative Ruling

Case Number: 22PSCV01987 Hearing Date: April 12, 2023 Dept: G

Defendant Kevin Chen’s Demurrer to Plaintiff’s First Amended Complaint

Respondent: Plaintiff Bo Lin

Defendant Kevin Chen’s Motion to Strike Plaintiff’s Requests for Punitive Damages

Respondent: Plaintiff Bo Lin

TENTATIVE RULING

Defendant Kevin Chen’s Demurrer to Plaintiff’s First Amended Complaint is SUSTAINED IN PART, OVERRULED IN PART with twenty (20) days leave to amend.

Defendant Kevin Chen’s Motion to Strike Plaintiff’s Requests for Punitive Damages is deemed MOOT.

BACKGROUND

This is a breach of contract and fraud action arising from an investment agreement. On March 31, 2020, Plaintiff Kevin Chen entered into an oral agreement with Defendant Kevin Chen in which Plaintiff agreed to invest $155,000 with Defendant. In March 2021, after Plaintiff made a profit of $50,000, Plaintiff asked Defendant to return the money. While Defendant returned some of the money, Plaintiff alleges Defendant kept $86,500.

On November 22, 2022, Plaintiff filed a complaint against Defendant and Does 1-50, alleging the following causes of action: (1) breach of oral contract, (2) fraud, (3) negligent misrepresentation, (4) conversion, and (5) money had and received.

On February 22, 2023, Plaintiff filed a First Amended Complaint (FAC) against same defendants alleging the same causes of action.

On March 17, 2023, Defendant filed the present demurrer and motion to strike. Prior to filing on March 15, Defendant’s counsel met and conferred telephonically with Plaintiff’s counsel and was unable to reach a resolution. (Lu Decl., ¶ 3.)

A hearing on the demurrer and motion to strike is set for April 12, 2023. A case management conference and OSC re: Failure to File Proof of Service is also set for April 20.

ANALYSIS

Defendant demurs to Plaintiff’s second cause of action (fraud), third cause of action (negligent misrepresentation), and fourth cause of action (conversion). For the following reasons, the court SUSTAINS Defendant’s demurrer to Plaintiff’s third cause of action with leave to amend and OVERRULES Defendant’s demurrer to Plaintiff’s second and fourth causes of action.

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.)

Discussion

Defendant argues Plaintiff’s second cause of action for fraud, third cause of action for negligent misrepresentation, and fourth cause of action for conversion fail to plead sufficient facts to state a claim because they arise from Plaintiff’s breach of contract claim.

“In general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank. N.A. (2022) 12 Cal.5th 905, 922.) It “functions to bar claims in negligence for pure economic losses in deference to a contract between litigating parties.” (Id., at p. 922.) “Tort damages have been permitted in contract cases where . . . the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.” (Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552.)

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, quoting 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 676, p. 778.) “Conversion is an intentional tort.” (Multani v. Knight (2018) 23 Cal.App.5th 837, 853.) “Because the act [of conversion] must be knowingly done, ‘neither negligence, active or passive, nor a breach of contract, even though it result in injury to, or loss of, specific property, constitutes a conversion.’” (Taylor v. Forte Hotels International (1991) 235 Cal.App.3d 1119, 1124.) Because conversion and fraud are intentional torts, they are not barred by the economic loss rule.

On March 31, 2020, Plaintiff alleges Defendant orally promised to return all of Plaintiff’s funds upon Plaintiff’s request. (FAC, ¶ 7-8.) Plaintiff alleges Defendant knew this was a false representation because Defendant never intended or did not have the ability to repay Plaintiff. (FAC, ¶ 24.) Furthermore, Plaintiff alleges Defendant intended for Plaintiff to rely on these representations. (FAC, ¶ 25.) Thus, Plaintiff has alleged sufficient facts to state a cause of action for fraud against Plaintiff.

Plaintiff has also alleged sufficient facts to state a cause of action for conversion by alleging Plaintiff knowingly and intentionally refused to return Plaintiff’s money. Defendant argues Plaintiff cannot state a claim for conversion because Plaintiff’s money is not identified as a specific thing. However, “cases recognizing claims for the conversion of money ‘typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others.’” (Voris v. Lampert (2019) 7 Cal.5th 1141, 1152, quoting PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 396.) The present case is one such case as Plaintiff alleges Plaintiff entrusted a specific fund to Defendant for Defendant to invest and Defendant has allegedly refused to return the full fund.

Lastly, to state a claim for negligent misrepresentation, Plaintiff must show “(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243.) “In contrast to fraud, negligent misrepresentation does not require knowledge of falsity.” (Ibid.) Here, Plaintiff fails to allege how Defendant misrepresented a past or existing material fact. While Plaintiff claims Defendant misrepresented that Defendant would return all of Plaintiff’s funds upon Plaintiff’s demand, this is a promise and not a representation of a past or present fact. (FAC, ¶ 32-34.) Thus, Plaintiff has failed to allege sufficient facts to state a claim for negligent misrepresentation.

Accordingly, Defendant’s demurrer to Plaintiff’s second and fourth causes of action is OVERRULED while Defendant’s demurrer to Plaintiff’s third cause of action is SUSTAINED with leave to amend.

CONCLUSION

Based on the foregoing, Defendant’s demurrer to Plaintiff’s FAC is SUSTAINED with twenty (20) days leave to amend as to the third cause of action.

The demurrer is OVERRULED as to the second and fourth causes of action.

Based on the Court's rulings above, Defendant’s motion to strike punitive damages from Plaintiff’s FAC is deemed MOOT.