Judge Salvatore Sirna, Case Number: 23PSCV00922, Date: 2025-02-03 Tentative Ruling

Judge: Salvatore Sirna, Case: 23PSCV00922, Date: 2025-02-03 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, counsel are advised to check this website periodically to determine whether any changes or updates have been made to the tentative ruling. Counsel may submit on a tentative ruling by calling the clerk in Department G at (909) 802-1104 prior to 8:30 a.m. the morning of the hearing.

Case Number: 23PSCV00922 Hearing Date: February 3, 2025 Dept: G

Plaintiffs/Cross-Defendants Trinhnology Enterprise, Corp., Howard Trinh, and Cloud & Sky Enterprises’ Demurrer to Second Amended Cross-Complaint

Respondent: Defendant/Cross-Complainant Philip Chatalos

TENTATIVE RULING

Plaintiffs/Cross-Defendants Trinhnology Enterprise, Corp., Howard Trinh, and Cloud & Sky Enterprises’ Demurrer to Second Amended Cross-Complaint is SUSTAINED IN PART with twenty (20) days leave to amend as to the fourth cause of action and OVERRULED IN PART as to the first and third causes of action.

Plaintiffs/Cross-Defendants Trinhnology Enterprise, Corp., Howard Trinh, and Cloud & Sky Enterprises’ Motion to Strike Portions of the Second Amended Cross-Complaint scheduled for February 25, 2025, is advanced and deemed MOOT.

BACKGROUND

This is an action for breach of contract and fraud. In August 2019, Plaintiff Trinhnology Enterprise, Corp. (Trinhnology) entered into an alleged oral agreement with Defendant Philip Chatalos in which Trinhnology agreed to pay a monthly design fee and sales commissions to Chatalos in exchange for Chatalos’s sale of Trinhnology’s clothing products. In September 2022, Trinhnology ended its business relationship with Chatalos. Trinhnology alleges Chatalos breached their agreement by failing to repay advances on Chatalos’s commission that Trinhnology had paid. Trinhnology also alleges Chatalos overcharged Trinhnology for product samples or requested reimbursement for samples that had not been purchased. Last, Trinhnology alleges Chatalos failed to follow up with a client to ensure they made payments for previous orders and reinstated orders that had been cancelled.

On March 29, 2023, Trinhnology filed a complaint against Chatalos and Does 1-30, alleging the following causes of action: (1) breach of oral contract, (2) common counts, (3) breach of oral contract, (4) common counts, (5) fraud, (6) negligence, (7) common counts, (8) negligence, and (9) negligence.

On April 21, 2023, Chatalos filed a cross-complaint against Trinhnology, Howard Quoc Trinh, Cloud & Sky Enterprises (Cloud & Sky), and Does 1-50, alleging (1) breach of contract and (2) a violation of the California Independent Wholesale Sales Representative Contractual Relations Act. On July 11, 2023, Chatalos dismissed the cross-complaint without prejudice.

On November 2, 2023, after obtaining leave from the court, Chatalos filed a cross-complaint against Trinhnology, Howard Trinh, Cloud & Sky, and Does 1-50, alleging (1) breach of contract and (2) a violation of the California Independent Wholesale Sales Representative Contractual Relations Act.

On March 25, 2024, Chatalos filed a First Amended Cross-Complaint (FACC) against the same cross-defendants alleging the following causes of action: (1) breach of oral contract, (2) violation of the California Independent Wholesale Sales Representative Contractual Relations Act, (3) tortious breach of the covenant of good faith and fair dealing, (4) intentional misrepresentation, (5) intentional interference with contractual relationship, (6) conspiracy to engage in intentional interference with contract, and (7) conspiracy to breach the covenant of good faith and fair dealing. On August 5, 2024, the court sustained a demurrer by Trinhology, Trinh, and Cloud & Sky (collectively, Trinh Defendants) to the FACC in part with leave to amend.

On August 23, 2024, Chatalos filed a Second Amended Cross-Complaint (SACC) against the same cross-defendants alleging the following causes of action: (1) breach of written and oral contract, (2) violation of the California Independent Wholesale Sales Representative Contractual Relations Act, (3) tortious breach of the covenant of good faith and fair dealing, and (4) intentional interference with contractual relationship.

On November 25, 2024, the Trinh Defendants filed the present demurrer and a separate motion to strike. Prior to filing the demurrer, the Trinh Defendants’ counsel met and conferred telephonically with Chatalos’ counsel and was unable to reach a resolution. (Strecker Decl., ¶ 2.)

A hearing on the present demurrer and a CMC are set for February 3, 2025. A hearing on the Trinh Defendants’ separate motion to strike is set for February 25, 2025.

REQUEST FOR JUDICIAL NOTICE

The Trinh Defendants’ request for the court to take judicial notice of previous filings before this court is GRANTED.

ANALYSIS

The Trinh Defendants demur to Chatalos’ first cause of action (breach of written and oral contract), third cause of action (tortious breach of the covenant of good faith and fair dealing), and fourth cause of action (intentional interference with contractual relationship). For the following reasons, the court SUSTAINS their demurrer in part as to the fourth cause of action and OVERRULES it in part as to the first and third 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.)

Breach of Written and Oral Contract (First Cause of Action)

The Trinh Defendants argue Chatalos’ first cause of action for breach of written and oral contract fails to plead sufficient facts to state a claim. The court disagrees.

Legal Standard

To state a cause of action for breach of contract, a 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.) “[T]he vital elements of a cause of action based on contract are mutual assent (usually accomplished through the medium of an offer and acceptance) and consideration.” (Division of Labor Law Enforcement v. Transpacific Transportation Co. (1977) 69 Cal.App.3d 268, 275.)

Discussion

In this case, the Trinh Defendants argue the SACC is fatally uncertain because “it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct.” (Demurrer, p. 7:17-27, citing Code Civ. Proc., § 430.10, subd. (g).) A review of the pleadings, however, refutes this argument. The SACC first alleges Chatalos and Trinhnology entered into a written contract on July 20, 2020, and provides a copy of the contract’s terms as Exhibit 2. (SACC, ¶ 24, Ex. 2.) The SACC then alleges that two weeks after the initial contract was made, Chatalos and Trinhnology orally renegotiated the commission rates of the contract and agreed upon the time of payment. (SACC, ¶ 26.) The SACC also provides the specific terms of the parties’ oral modification. (SACC, ¶ 26.) These allegations are sufficient to ascertain the form in which the alleged agreement between Chatalos and Trinhnology was made.

Accordingly, the court OVERRULES the Trinh Defendants’ demurrer to this cause of action.

Tortious Breach of the Covenant of Good Faith and Fair Dealing (Third Cause of Action)

The Trinh Defendants contend Chatalos’ third cause of action for tortious breach of the covenant of good faith and fair dealing fails to plead sufficient facts to state a claim. Because their contentions are based on the same objections previously rejected by the court in its ruling on their demurrer to the FACC (08/05/2024 Ruling, p. 4-5), the court OVERRULES their demurrer to this cause of action for the same reasons.

Intentional Interference with Contractual Relationship (Fourth Cause of Action)

The Trinh Defendants maintain Chatalos’ fifth cause of action for intentional interference with contractual relationship fails to plead sufficient facts to state a claim. The court agrees.

Legal Standard

The elements of a cause of action for intentional interference with contractual relations are “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (I-CA Enterprises, Inc. v. Palram Americas, Inc. (2015) 235 Cal.App.4th 257, 289.)

Discussion

In sustaining the Trinh Defendants’ demurrer to this cause of action in the FACC, the court found the FACC failed to allege how Cloud & Sky acted to interfere with the alleged contract between Chatalos and Trinhnology beyond passively receiving documents and payments from Forever 21. (08/05/2024 Ruling, p. 6.) The court also found the FACC failed to allege that Cloud & Sky acted with the intent to disrupt or breach Chatalos’ agreement with Trinhnology. (08/05/2024 Ruling, p. 6.) Instead, the court noted the FACC’s allegations suggest Trinh and Trinhnology were the ones who were responsible for directing sales to Cloud & Sky and had the intent to disrupt or breach the agreement with Chatalos. (08/05/2024 Ruling, p. 6, citing FACC, ¶ 421, 432.)

The SACC provides further details as to Cloud & Sky’s alleged involvement. In 2022, Kevin Trinh, who served as chief financial officer for Trinhnology, formed Cloud & Sky and was the substantial or controlling shareholder. (SACC, ¶ 52.) Kevin Trinh then allegedly instructed Howard Trinh to close down Trinhnology’s business and sell Trinhnology to Cloud & Sky. (SACC, ¶ 53.) The SACC alleges Cloud & Sky was aware of Chatalos’ contractual relationship with Trinhnology. (SACC, ¶ 57-58.) The SACC alleges Cloud & Sky failed to transfer payments to Trinhnology and that this failure demonstrates a “clear intent to frustrate and interfere with” Trinhnology’s obligations to Chatalos. (SACC, ¶ 62.) The SACC also alleges Howard Trinh and Cloud & Sky conspired to interfere with Chatalos’s contract by directing purchasers to place orders from Chatalos’ sales with Cloud & Sky and not Trinhnology. (SACC, ¶ 68, 71.)

The Trinh Defendants maintain these additional allegations constitute sham pleading. (Demurrer, p. 12:18-13:8.) The sham pleading doctrine precludes the amendment of complaints that “omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment.” (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425.) “If a party files an amended complaint and attempts to avoid the defects of the original complaint by either omitting facts which made the previous complaint defective or by adding facts inconsistent with those of previous pleadings, the court may take judicial notice of prior pleadings and may disregard any inconsistent allegations.” (Colapinto v. County of Riverside (1991) 230 Cal.App.3d 147, 151.)

Here, the Trinh Defendants maintain the SACC changes the facts by alleging “it was not Howard Trinh and ‘employees of Trinhnology’ that caused the interference with the contract between Chatalos and Trinhnology, but that it was instead [Cloud & Sky] that did so.” (Demurrer, p. 12:18-21.) This argument fails as it misstates the pleadings. The SACC did not replace Howard Trinh and employees of Trinhnology with Cloud & Sky as the Trinh Defendants suggest. Instead, it provided additional allegations to explain Cloud & Sky’s involvement and to clarify that Howard Trinh was also acting on Cloud & Sky’s behalf as a conspirator. (SACC, ¶ 60, 68, 71.)

The Trinh Defendants next maintain these allegations deviate from the allegations of the Cross-Complaint which did not allege interference with contract but instead alleged Cloud & Sky acted in place of Trinhnology. (Demurrer, p. 12:21-26, citing Cross-Complaint, ¶ 6.) They also maintain the Cross-Complaint alleged Chatalos was the one who “communicated with representatives of Forever 21 that [Cloud & Sky] was operating in place of [Trinhnology].” (Demurrer, p. 12:27-13:2, quoting Cross-Complaint, ¶ 6.) The Trinh Defendants’ arguments, however, omit one key fact. These purportedly inconsistent allegations were also included in the SACC. (SACC, ¶ 6.) Although the court finds that the Trinh Defendants failed to demonstrate a violation of the sham pleading doctrine, their arguments do raise another issue with regard to whether Cloud & Sky was actually a third party to Chatalos’ contract with Trinhnology.

“It is axiomatic . . . that there can be no action for inducement of breach of contract against the other party to the contract.” (Shoemaker v. Myers (1990) 52 Cal.3d 1, 24.) In Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, the court held a cause of action for intentional interference with contractual relationship could not be brought against a defendant that was a party to the agreement at issue as demonstrated by the pleadings. (Id., at p. 998-999.) The court noted that plaintiffs, “by their own allegations, have pleaded themselves out of a cause of action for claimed interference with contractual relationships. Whether respondent did, in fact, become a party to the contracts in question is not before us and is, therefore, not decided.” (Id., at p. 998, fn. 3.)

In this case, the following allegations also plead Chatalos out of this cause of action against Cloud & Sky. First, the SACC alleges Trinhnology’s business was sold to Cloud & Sky and included “all pending and future sales to Forever 21 sourced by [Chatalos].” (SACC, ¶ 53, 55.) It has long been the rule in California that contracts are assignable unless the contract itself prohibits assignment. (La Rue v. Groezinger (1890) 84 Cal. 281, 283-284.) The prohibition may be explicitly stated in the contract’s terms or implied when “performance by another would be an essentially different thing from that contracted for.” (Id., at p. 283-285.) In other words, assignment is implicitly prohibited when “the duties imposed upon one party may be of such a personal nature that their performance by someone else would in effect deprive the other party of that for which he bargained.” (Farmland Irr. Co. v. Dopplmaier (1957) 48 Cal.2d 208, 222.) Assignment is also barred “if the assignment would materially impair the nonassigning party's chance of obtaining the performance he expected.” (Ibid.) Here, neither the written terms of Chatalos’ agreement nor the terms of the alleged oral modification include any express prohibition on assignment. (SACC, ¶ 26, Ex. 2.) Nor do the duties allegedly imposed upon Trinhnology to pay commissions to Chatalos appear to be of a personal nature that excludes performance by another. And there are no facts alleged to establish the assignment would materially impair Chatalos’ chances of obtaining the expected performance pursuant to the agreement.

Second, as noted by the Trinh Defendants, the SACC specifically alleges Chatalos informed Forever 21 that “Cloud & Sky was operating in place of [Trinhnology].” (SACC, ¶ 6.) The SACC also admits that Chatalos believed Chatalos was acting on Cloud & Sky’s behalf while making sales. (SACC, ¶ 6.) Because these allegations appear to establish the existence of a contractual relationship between Chatalos and Cloud & Sky, Chatalos cannot make the contradictory allegation that Cloud & Sky was a third-party and any remedy for Cloud & Sky’s alleged failure to pay Chatalos’ commissions sounds in contract, not tort. Thus, this cause of action against Cloud & Sky fails.

As to the allegations against Howard Trinh, the Trinh Defendants maintain there are no facts alleged to establish how Howard Trinh acted in an individual capacity to cause Trinhnology to breach its agreement with Chatalos. (Demurrer, p. 13:18-25.) The SACC alleges Howard Trinh conspired with Cloud & Sky to interfere with Chatalos’ contractual relationship with Trinhnology. (SACC, ¶ 68, 71.) But as noted above, the SACC’s allegations do not establish Cloud & Sky was intentionally interfering with Chatalos’ contractual relationship as Cloud & Sky was involved in the contract and not a third party. Thus, there was no conspiracy for Howard Trinh to join.

Furthermore, the only allegations of Howard Trinh’s alleged interference involve Howard Tring directing Forever 21 employees to make payments to Cloud & Sky instead of Trinhnology. (SACC, ¶ 60, 61, 70.) These acts alone did not interfere with Chatalos’ contract as the contract did not require Forever 21 to pay Chatalos. Instead, according to the terms of the parties’ alleged oral agreement, Trinhnology was to pay Chatalos upon payment of invoices by the customers. (SACC, ¶ 26.) Because Chatalos could only be paid after the customer made payment, it was only reasonable for Howard Trinh to direct payment to the correct entity upon the sale of Trinhnology’s business to Cloud & Sky. The issue here is not the transfer of payment from Trinhnology to Cloud & Sky but rather both entities’ alleged failure to pay the commissions that were owed to Chatalos.

Accordingly, the Trinh Defendants’ demurrer to this cause of action is SUSTAINED with leave to amend.

CONCLUSION

Based on the foregoing, the Trinh Defendants’ demurrer to Chatalos’ SACC is SUSTAINED IN PART with twenty (20) days leave to amend as to the fourth cause of action and OVERRULED IN PART as to the first and third causes of action.

Based upon the recommendations made on the demurrer, the Trinh Defendants’ motion to strike scheduled for February 25, 2025, is advanced and deemed MOOT.