Judge: Stephen I. Goorvitch, Case: 22STCV25300, Date: 2023-01-24 Tentative Ruling

Case Number: 22STCV25300    Hearing Date: January 24, 2023    Dept: 39

DLC Laboratories, Inc. v. Resource Label Group, LLC, et al.

Case No. 22STCV25300

Demurrer and Motion to Strike

INTRODUCTION

            Plaintiff DLC Laboratories, Inc. (“Plaintiff”) filed this action against Resource Label Group, LLC, individually and as successor-in-interest by merger to Axion Label, LLC dba Axiom Label and Packaging (“Defendant”), alleging that Defendant mislabeled products manufactured by Plaintiff, necessitating a recall.  Plaintiff asserts ten causes of action, and Defendant demurs to the second through tenth causes of action.  Defendant also moves to strike portions of the complaint.

LEGAL STANDARD

A.        Demurrer

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)  When considering demurrers, courts read the allegations liberally and in context.  (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.)  “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, 147 Cal.App.4th at p. 747.)  However, courts do not accept as true deductions, contentions, or conclusions of law or fact.  (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.)  The general rule is that the plaintiff need only allege ultimate facts, not evidentiary facts.  (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.)  “[D]emurrers for uncertainty are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.”  (Lickiss v. Fin. Indus. Regulatory Auth. (2012) 208 Cal.App.4th 1125, 1135.)  In addition, even where a complaint is in some respects uncertain, courts strictly construe a demurrer for uncertainty “because ambiguities can be clarified under modern discovery procedures.”  (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)  Demurrers do not lie as to only parts of causes of action, where some valid claim is alleged but “must dispose of an entire cause of action to be sustained.” (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  

            B.        Motion to Strike

Courts may, upon a motion, or at any time in their discretion, and upon terms they deem proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a).) Courts may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436, subd. (b).)  The grounds for a motion to strike are that the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. (Id., § 436.) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id., §¿437.)  

DISCUSSION

            A.        Second Cause of Action

Plaintiff’s first cause of action is for breach of contract.  Therefore, Defendant demurs to the second cause of action, which is breach of the implied covenant of good faith and fair dealing, as duplicative of the first cause of action.  Plaintiff is entitled to plead in the alternative.  (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402.)  Therefore, the demurrer to the second cause of action is OVERRULED. 

B.        Third Cause of Action

Plaintiff’s third cause of action is negligence.  Plaintiff alleges: “Defendants owed a duty of Plaintiff in using due care in performing its obligations under the contract between the parties whereby Defendants agreed to provide Plaintiff with accurate labeling services for the Product.”  (Complaint, ¶ 38.)  Plaintiff alleges: “Defendants breached the duty owed to Plaintiff by failing to provide accurate labeling services for the Product which they should have been able to do had they acted with reasonable care and diligence.”  (Complaint, ¶ 39.)   

            Defendants argue that this cause of action is barred by the economic loss rule.  Tort claims for monetary losses between contractual parties are barred by the economic loss rule when they arise from—or are not independent of—the parties’ underlying contract.  (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 923, citing Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 991; Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552.)  The purpose of this rule is to prevent the law of contract and the law of tort from “dissolving one into the other.”  (Id., p. 922, citations omitted.)  In this case, Plaintiff alleges no independent tort, as the complaint states expressly that the duty at issue was merely the obligation to perform under the contract.  This falls squarely within the economic loss rule.  Plaintiff attempts to overcome this issue by arguing that there was fraud and intentional misconduct.  While that may, in fact, give rise to intentional torts, it does not address the third cause of action, which is for negligence.  Therefore, the demurrer to the third cause of action is SUSTAINED without leave to amend. 

            C.        Fourth Cause of Action

            Plaintiff’s fourth cause of action is negligent interference with prospective economic advantage.  Plaintiff alleges that it had an economic relationship with Walmart, which had sold Plaintiff’s products for over twenty years.  (Complaint, ¶ 44.)  Plaintiff alleges that the labeling error disrupted this relationship, as Walmart stopped selling Plaintiff’s products after the recall as a result of the mislabeling.  (Complaint, ¶ 48.)

            OPTION #1

            Defendants argue that this claim is barred by the economic loss rule and is not based on independently wrongful conduct.  In so arguing, Defendants suggest that Plaintiff may pursue this theory of damages as part of their first and second causes of action.  Defendants’ counsel stipulated in open court that the loss of Walmart’s future business is a viable theory for any breach of contract and/or breach of the implied covenant of good faith and fair dealing.  Therefore, the demurrer to the fourth cause of action is SUSTAINED without leave to amend. 

            OPTION #2

Defendants argue that this claim is barred by the economic loss rule and is not based on independently wrongful conduct.  In so arguing, Defendants suggest that Plaintiff may pursue this theory of damages as part of their first and second causes of action.  Yet,  Defendants’ counsel refused to stipulate in open court that the loss of Walmart’s future business is a viable theory for any breach of contract and/or breach of the implied covenant of good faith and fair dealing.  This suggests that the fourth cause of action provides an independent theory of damages that is not available as a contractual remedy.  Therefore, the demurrer to the fourth cause of action is OVERRULED. 

            D.        Fifth Cause of Action

            Plaintiff’s fifth cause of action is intentional interference with prospective economic advantage.  In order to assert this cause of action, Plaintiff must allege the following: (1) There was an economic relationship between Plaintiff and a third-party with a probability of future economic benefit to Plaintiff; (2) Defendants knew about the relationship; (3) There were intentional acts by Defendants designed to disrupt the relationship; (4) There was actual disruption of the relationship; and (5) There was economic harm to the Plaintiff proximately caused by Defendants’ actions.  (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Ass’n (2018) 19 Cal.App.5th 399, 429.)  Plaintiff must plead “intentional wrongful acts . . . designed to disrupt the relationship.”  (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1154.)  Plaintiff may satisfy this requirement by alleging that Defendants committed intentional acts and they “knew that interference was certain or substantially certain to occur as a result of its action.”  (Ibid.) 

            Plaintiff fails to do so.  Plaintiff alleges that Defendants “failed to act with reasonable care,” and as a result, Plaintiff’s products were mislabeled.  (Complaint, ¶ 54.)  Plaintiff does not allege that Defendants intentionally mislabeled their products or knew the labels were incorrect and used them anyway.  Nor does Plaintiff allege sufficient facts to establish recklessness.  At heart, Plaintiff alleges only negligence.  Therefore, the demurrer to the fifth cause of action is SUSTAINED with leave to amend. 

            E.         Sixth Cause of Action

            Plaintiff’s sixth cause of action is conversion.  Plaintiff alleges it paid Defendants $16,558.95 for accurate labeling services, and Defendants refused to refund the funds, even though they misprinted the labels at issue.  This does not constitute conversion.  “[T]he simple failure to pay money owed does not constitute conversion.”  (Kim v. Westmoore Partners, Inc. (2011) 20 Cal.App.4th 267, 284.)  Therefore, the demurrer to the sixth cause of action is SUSTAINED without leave to amend. 

            F.         Seventh Cause of Action  

            Plaintiff’s seventh cause of action is false advertising under Business and Professions Code section 17500, et seq.  Plaintiff must allege that it relied on the allegedly deceptive or misleading statements and that they were an immediate cause of the injury.  (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 326.)  In that sense, a claim under section 17500 is more appropriate for a consumer who purchased a mislabeled product.  Therefore, the demurrer to the seventh cause of action is SUSTAINED without leave to amend. 

            G.        Eighth Cause of Action

            Plaintiff’s eighth cause of action is for fraud.  Defendants allegedly advertised that they employed a thorough quality control process and that Plaintiff would receive the correct labels, but Plaintiff did not.  Plaintiff’s allegations are not sufficient to assert a cause of action for fraud because they do not establish that Defendants had a contemporaneous intent not to perform as promised.  (See Hills Transportation Co. v. Southwest Forest Ind., Inc. (1968) 266 Cal.App.2d 702, 707.)  Therefore, the demurrer to the eighth cause of action is SUSTAINED with leave to amend.

            H.        Ninth Cause of Action

            Plaintiff’s ninth cause of action is negligent misrepresentation based upon Defendants’ alleged false promises concerning their quality control efforts.  There is no cause of action for negligent false promise.  (Tarmann v. State Farm Mutual Automobile Ins. Co. (1991) 2 Cal.App.4th 153, 159.)  Therefore, the demurrer to the ninth cause of action is SUSTAINED without leave to amend. 

            I.          Tenth Cause of Action

            Plaintiff’s tenth cause of action is for unfair competition in violation of Business and Professions Code section 17200.  Section 17200 prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.)  Plaintiff alleges that Defendants engaged in unfair business practices by misrepresenting their quality control efforts to induce customers to hire Defendants.  These allegations are sufficient.  Contrary to Defendants’ argument, an adequate remedy at law will not preclude this cause of action.  (6 Witkin, Cal. Procedure (3d ed. 1985) Provisional Remedies, § 253, p. 220; People v. Los Angeles Palm, Inc. (1981) 121 Cal.App.3d 25, 32-33.)  The demurrer to the tenth cause of action is OVERRULED.

            J.          Motion to Strike

            The Court grants the motion to strike with respect to attorney’s fees.  The Court sustained the demurrer to the sixth cause of action without leave to amend, and Plaintiff’s counsel admits that he is not aware of any contractual obligation to pay attorney’s fees.  Should that change, he is free to seek leave to amend to add a prayer for attorney’s fees.  The Court grants the motion to strike the prayer for punitive damages, having dismissed every intentional tort.  The Court also grants the motion with respect to compensatory damages, as Plaintiff’s counsel admits that he is not seeking compensatory damages with respect to the tenth cause of action.  The Court grants leave to amend only with respect to punitive damages, should Plaintiff allege sufficient facts to assert intentional torts.   

CONCLUSION AND ORDER

            Based upon the foregoing, the Court orders as follows:

            1.         The demurrer is overruled with respect to the second and tenth causes of action.

            2.         The demurrer is overruled without leave to amend with respect to the third, fourth, sixth, seventh, and ninth causes of action.

            3.         The demurrer is overruled with leave to amend with respect to the fifth and eighth causes of action. 

            4.         The motion to strike is granted with leave to amend to re-assert a prayer for punitive damages.

            5.         Defendants’ counsel shall provide notice and file proof of such with the Court.