Judge: Shirley K. Watkins, Case: 22VECV00559, Date: 2022-08-22 Tentative Ruling

Case Number: 22VECV00559    Hearing Date: August 22, 2022    Dept: T

            [TENTATIVE] ORDER:  Defendants NCAP2, LLC; Todd Kaplan; Smoke Wallin; NCA Management Co., LLC; and Medical Investor Holdings, LLC dba Vertical Companies’ Demurrer is OVERRULED.   

            Defendants NCAP2, LLC; Todd Kaplan; Smoke Wallin; NCA Management Co., LLC; and Medical Investor Holdings, LLC dba Vertical Companies’ Motion to Strike is GRANTED in Part and DENIED in Part.  The motion is GRANTED WITHOUT LEAVE TO AMEND as to the Penal Code citations and DENIED as to punitive/exemplary damages. 

            Defendants to answer within 20 days.

Introduction

Defendants NCAP2, LLC; Todd Kaplan; Smoke Wallin; NCA Management Co., LLC; and Medical Investor Holdings, LLC dba Vertical Companies (collectively “Defendants”) demur to Plaintiff Bradley Senet, individually and as Trustee of The Senet Family Trust dated November 2, 2009 (Plaintiff) Complaint.  Defendants’ demur against the first cause of action (COA) for fraud.  Defendants move to strike the allegations regarding the Penal Code violation and exemplary damages.

            Discussion 

            Defendants argue that Plaintiff’s allegations based upon “information and belief” lack the information that lead Plaintiff to believe that the allegations were true.  Defendants’ argument does not cite to the allegations in the Complaint that are purportedly insufficient and lack “information” pleading.  It is not upon the Court to “seek out theories [a party] might have advanced, or to articulate for him that which … [a party] has left unspoken.'”  (Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1686.)  Without specific argument linking the facts/allegations at issue with the legal authority, the argument is without support and not persuasive.

Defendants argue that Plaintiff’s claims are based upon Defendants’ alleged failure to disburse returns on investments to “receive a share of potential profits from growing and selling marijuana.”  (Demurrer pg. 4:4-6.)  However, the contention mischaracterizes Plaintiff’s allegations.  Plaintiff alleges that he was fraudulently induced into investing in Defendant NCAP2, an existing company that “was to build complexes of warehouses, each specifically for the marijuana industry with the requisite climate control, electricity and other infrastructure which is different than the typical warehouse.”  (Compl. pars. 10-12.)  Defendants' argument characterizing Plaintiff’s investment as an investment into a “start-up venture” or an investment in a business that grows, manufactures, and distributes marijuana is a complete mischaracterization of Plaintiff’s allegations.  Plaintiff expressly alleges that it was unknown to him that when he invested in June 2017 that NCAP2 was not formed.  Formation of NCAP2 was not done until 23 after June 2017.  (Compl. par. 13.)  Plaintiff’s allegation of delay in forming NCAP2 and delay in drafting the Operating Agreement and delay in building construction are relevant to Plaintiff’s claims.  Due to Defendants’ mischaracterization of Plaintiff’s claims, Defendant’s arguments regarding formation of the company, the operating agreement and building construction are unpersuasive.

Defendants argue that Plaintiff’s fraud COA failed to attach copies of the Subscription Agreement and/or Operating Agreement.  However, attaching a copy of an agreement is a pleading formality for the COA for breach of contract.  The tort of fraud does not require, as a pleading element, the actual contracts at issue in a breach of contract COA.  Plaintiff has sufficiently alleged the misrepresentations made by Defendants.  (See Compl. pars. 10-13, 23-28 and 37(a) – (h).)  Defendants' argument as to attaching the agreement is irrelevant to the tort claim of fraudulent inducement.

            Defendants argue that Plaintiff’s allegation as to reliance is unreasonable because the business of marijuana growth, manufacture, and distribution is illegal and speculative, specifically as to the amounts of valuation.  However, as reviewed above, the contention is incorrectly based upon Defendants' mischaracterization of the business which Plaintiff allegedly invested.  The business investment was in NCAP2 – a company that would build warehouses for marijuana growth, manufacture, and distribution.  Plaintiff’s claim does not allege investment into actual marijuana growth, manufacture, and distribution.  Because of Defendants’ mischaracterization of the claims, the argument against reliance is unfounded. 

            Defendants argue that the allegations as to inducement are insufficient.  However, the arguments are again incorrectly grounded on the mischaracterization of Plaintiff’s claim being based on an investment in a “startup venture.”  Because the argument is not grounded on the correct allegations made in the Complaint, the argument is meritless.  Defendants further argue as to the inducement element that specific facts are required to plead where and how Plaintiff’s investment was diverted.  Such specific fact pleading is unreasonable to made upon Plaintiff because such facts as to where Defendants used Plaintiff’s money are within Defendants’ knowledge.  Factual allegations about whether Defendants used Plaintiff’s money in other areas benefiting the “overall project of growing and selling marijuana,” again, misconstrues Plaintiff’s claim.  Plaintiff alleges that Defendants represented that NCAP2 was an existing company that was in the business of providing infrastructure for the marijuana business.  Defendants’ argument that the money being diverted to “another area” is not a pleading element for the alleged fraud at issue. 

Defendants also argue that Plaintiff’s reliance is not reasonable or justifiable because it is common knowledge that the business of growing/selling marijuana is illegal under federal law.  However, this argument again is based upon a mischaracterization of Plaintiff’s claim and thus improperly made.

            Defendants argue that the factual allegations are in conflict and/or inconsistent.  Defendants argue that Plaintiff lacks knowledge or facts to show that Defendants were unable to return Plaintiff’s investment.  However, this argument is merely disputes the veracity of an ultimate fact as pled.  A reasonable inference can be made from the other allegations pleading that Defendants breached the Redemption Agreement by failing to make all payments required.  Further specific factual allegation to support Defendants’ breach of the Redemption Agreement and/or alleged inability to make all payments under the Redemption Agreement is not required since the allegation is that of an ultimate fact.  Pleading the failure to pay is not uncertain but clear and concise.  

Defendants then argue that a breach of the Redemption Agreement is insufficient to allege a then-existing intent not to perform.  However, this argument places into issue a pleading element for the COA of false promise.  Plaintiff has not alleged false promise fraud.  Plaintiff’s first COA is for fraudulent inducement.  Defendants argument that non-performance is not intended non-performance is irrelevant to fraudulent inducement. 

Defendants demurrer lastly argues that the allegations fail to plead specific facts as to alter ego doctrine regarding Defendants NCA Management, LLC, Medical Investor Holdings, LLC dba Vertical Companies.  The Court notes that pleading the alter ego doctrine in the Complaint is not a COA.  Because alter ego pleading is not a COA, a demurrer is an improper vehicle to a raise a dispute as to alter ego pleading.  On this defect alone, the demurrer against alter ego doctrine pleading is improper. 

Defendants’ demurrer is unpersuasive and OVERRULED. 

            Defendants’ argue that the allegations regarding Penal Code section 484 and 484b should be stricken because the two statutes do not provide for a private civil causes of action.  However, the citations to the Penal Code are not seen to be alleged as independent COAs.  The citations to the statutes are also not part of any pleading element of fraudulent inducement.  Because the Penal Code citations are not part of a pleading element for fraudulent inducement, the two citations are irrelevant and improper. 

            The Motion to Strike the citations to Penal Code sections 484 and 484b is GRANTED WITHOUT LEAVE TO AMEND.

            Defendants then argue that the request for punitive damages should be stricken and re-assert the same arguments made in the demurrer (i.e., the fraudulent inducement COA was not pled with sufficient facts.)  The Court notes that Defendants’ Reply to support the Motion to Strike re-asserts the same arguments made in the Reply to support the Demurrer.  Because the Court found the arguments against the first COA for fraudulent inducement unpersuasive, the re-assertion of the same arguments in the Motion to Strike also are unpersuasive.

            The Motion to Strike the request for punitive damages is DENIED.