Judge: Shirley K. Watkins, Case: 20VECV01399, Date: 2022-08-02 Tentative Ruling

Case Number: 20VECV01399    Hearing Date: August 2, 2022    Dept: T

            [TENTATIVE] ORDER: 

            1.         Sternlight’s Demurrer to the Fourth Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND. 

            2.         Cabeau’s Demurrer to the Fourth Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND as to the fourth COA and sixth COA. 

            3.         The Motions to Strike are MOOT. 

            4.         Defendants’ Requests for Judicial Notice is GRANTED. 

            5.         Plaintiff’s Objection to the Declaration of Jonathan Gabriel is OVERRULED. However, his declaration is not relied upon by the court for its decision here.

            6.         Cabeau to answer within 20 days.

INTRODUCTION

Defendant David Sternlight (“Sternlight”) and Defendant Cabeau, Inc. (“Cabeau”) (collectively “Defendants”) each filed their own Demurrer to plaintiff Upside Health, Inc.’s (“Plaintiff”) Fourth Amended Complaint (“FAC”).  Sternlight demurs to the fourth cause of action (“COA”) for conversion, the fifth COA for aiding and abetting, and the sixth COA for fraud – false promise.  Cabeau demurs to the fourth and sixth COAs.

DISCUSSION

             This is the fourth attempt by plaintiff to state a viable non-contractual cause of action against Cabeau and to state any viable cause of action against Sternlight.  Plaintiff has failed to state any non-contractual causes of action.  This case remains a commercial contract for failure to pay for goods ordered and delivered.  Plaintiff has tried numerous times to formulate some claim which is not reliant on a failure to pay.  It has not been able to do so.  Plaintiff has tried and has failed to assert some tort or fraud cause of action.  It has been unable to do so.  Plaintiff has tried to assert any cause of action against Sternlight.  It has been unable to do so.  No further leave to amend will be granted. 

            COA FOR FRAUD

            Defendants contends that Plaintiff’s fraud COA is barred by the economic loss rule, as Plaintiff’s damages are the same as the breach of contract damages.

            A review of the FAC reveals that the damages sought by Plaintiff for the breach of contract COA and its fraud COA is for the $161,000, which was the amount due on the agreement reached between Plaintiff and Cabeau, whereby Plaintiff agreed to deliver health masks to Cabeau’s client, the State of Colorado (“Colorado”), in exchange for payment by Cabeau.  (See FAC, ¶¶ 38, 137.)

            The economic loss rule is based on the concept that a purchaser of a product that does not live up to the buyer’s expectations can only recover in contract and not tort, “unless [the purchaser] can demonstrate harm above and beyond a broken contractual promise.” (Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1130 (quoting Robinson Helicopter Company, Inc. v. Dana Corporation (2004) 34 Cal.4th 979, 988).)  A tort claim for fraud must be sufficiently independent from a breach of contract claim for which the plaintiff suffered economic loss. (Robinson Helicopter, supra, 34 Cal.4th at 991.)  Thus, in order to plead around the economic loss rule, a party must plead the existence of a duty that arises independent of any contractual duty and independent injury, other than economic loss, that arises from the breach of that duty. (Robinson Helicopter, supra, 34 Cal.4th at 988-91.)  

            “Economic loss consists of ‘damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits—without any claim of personal injury or damages to other property’”  (Robinson Helicopter, supra, 34Cal.4th at 988 (quoting Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482).)

            Plaintiff has failed to allege any “harm above and beyond a broken contractual promise.”  In addition, Plaintiff has failed to sufficiently allege that Defendants’ “affirmative misrepresentations on which a plaintiff relie[d] . . . expose[d] [] plaintiff to [potential] liability for personal damages independent of the plaintiff’s economic loss.”  (Id. at 993; County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 329 [“[P]laintiffs’ potential liability to these people is independent of the economic harm to plaintiffs.”])

            Thus, Defendants’ Demurrer to Plaintiff’s sixth COA is SUSTAINED WITHOUT LEAVE TO AMEND.

CONVERSION-CABEAU

Cabeau contends that Plaintiff cannot establish this cause of action because Plaintiff did not own or have right to possession of the masks, and title passed to Colorado when they were delivered.

To plead a cause of action for conversion, one must allege (1) the plaintiff’s ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  “It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.”  (Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 746.)  “[T]here can be no valid ‘delivery’ or ‘entrustment’ of property to another where the possession of the property is acquired by means of some fraudulent device.”  (Freedman v. Queen Ins. Co. of America (1961) 56 Cal.2d 454, 458.)  “To prove a cause of action for conversion, the plaintiff must show the defendant acted intentionally to wrongfully dispose of the property of another.  (Duke v. Superior Court (2017) 18 Cal.App.5th 490, 508.)

The Court found that Plaintiff’s fraud cause of action is barred by the economic loss rule.  There is no fraud alleged which is not barred by the economic loss rule to support this claim.

            Thus, Cabeau’s Demurrer to the fourth COA is SUSTAINED WITHOUT LEAVE TO AMEND.

CONVERSION-STERNLIGHT

There are no allegations that Sternlight had, independent from Cabeau, any right to the masks, or had possession of them or had the right to dispose of them.  There are no allegations that Sternlight came into possession of the masks, and then disposed of them inconsistent with Plaintiff’s rights.  In addition, there are no allegations that Sternlight assumed control or took ownership of the masks.  Furthermore, there are no allegations that Sternlight used the masks for his own use.  In addition, the allegations show that Cabeau, and not Sternlight, was the one who was paid and had control of the monies paid by Colorado.  (See FAC, ¶¶63, 65, 66, 86, 90.)

            Thus, Sternlight’s Demurrer to Plaintiff’s fourth COA is SUSTAINED WITHOUT LEAVE TO AMEND.   

            AIDING AND ABETTING

            Sternlight contends that the Court should sustain the demurrer to this cause of action because Sternlight cannot be held liable for his conduct in his capacity as CEO of Cabeau.

            Agents and employees of a corporation cannot be liable for conspiracy when acting in their official capacities on behalf of the corporation.  (See Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 512 n.4.)

            While the Applied Equipment court applied the “agent’s immunity” rule in the context of a conspiracy, the Court finds that the principles underlying the rule are also applicable in causes of action for aiding and abetting.  (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 512 n.4 [“Agents and employees of a corporation cannot conspire [or aid and abet] with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage. . . . ”]  (Emphasis added.))  Here there are no allegations that Sternlight was acting for is individual benefit.  Instead, the allegations establish that he was acting in his capacity as CEO of Cabeau and for the benefit of Cabeau.  (See FAC, ¶ 96.)

            Thus, Sternlight’s Demurrer to the fifth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

            MOTIONS TO STRIKE

            In light of the court's decisions above, the motions to strike are MOOT.

            IT IS SO ORDERED, CLERK TO GIVE NOTICE.