Judge: Stephen P. Pfahler, Case: 21CHCV00423, Date: 2023-02-22 Tentative Ruling


Case Number: 21CHCV00423    Hearing Date: February 22, 2023    Dept: F49

Dept. F-49

Date: 2-22-23

Case #21CHCV00423

Trial Date: Not Set

 

DEMURRER

 

MOVING PARTY:                Cross-Defendant, Win Partners, LLC

RESPONDING PARTY:       Cross-Complainants, World Tech Toys, Inc., et al.

 

RELIEF REQUESTED

Demurrer to the Cross-Complaint

·         2nd Cause of Action: Fraud/Deceit

·         3rd Cause of Action: Negligent Misrepresentation

 

Motion to Strike Allegations in Support of, and Claim for, Punitive Damages

 

SUMMARY OF ACTION

Plaintiff Win Partners, LLC alleges a January 24 or 25, 2021, oral agreement, whereby defendants World Tech Toys, Inc., World Trading 23, Inc., and/or Kevork Kouyoumjian, agreed to deliver certain personal protective equipment (PPE) described as “medical grade disposable seamless rubber gloves.” Plaintiff alleges payment of five million dollars ($5,000,000), but only received non-medical grade, non-FDA approved, “counterfeit” equipment, which lacks any resale value. 

 

On June 2, 2021, Plaintiff filed a complaint for Breach of Contract, Unfair Business Practices, Breach of Fiduciary Duties, and Fraud. On February 18, 2022, the court granted Plaintiff’s motion for leave to amend. On February 28, 2022, Plaintiff substituted in Jacques Kouyoumjian for Doe 3. On March 2, 2022, Plaintiff filed a first amended complaint for Breach of Contract, Unfair Business Practices, Breach of Fiduciary Duties, and Fraud.

 

On August 4, 2022, the court granted Plaintiff leave to file a second amended complaint. On August 5, 2022, Plaintiff filed the second amended complaint for Breach of Contract, Unfair Business Practices, Beach of Fiduciary Duties, and Fraud. On September 7, 2022, World Tech Toys, Inc., et al. answered and filed a cross-complaint against Win Partners, LLC, et al. for Breach of Contract, Fraud/Deceit, Negligent Misrepresentation, and Quantum Meruit.

 

On January 11, 2023, the court sustained the demurrer of Jacques Kouyoumjian, Azniv Kouyoumjian, and Vicken Kouyoumjian to the second amended complaint. On February 10, 2023, Plaintiff dismissed Jacques Kouyoumjian, Azniv Kouyoumjian, and Vicken Kouyoumjian.

 

RULING

Demurrer: Sustained with Leave to Amend.

Cross-Defendant Win Partners, LLC submits the demurrer to World Tech Toys, Inc. and World Trading 23, Inc. cross-complaint on the second and third causes of action for Fraud/Deceit and Negligent Misrepresentation. Cross-Defendant challenges the cross-complaint on grounds of insufficiently pled facts under the heightened pleading standard, and a bar under the economic loss rule. Cross-Defendant also raises a misjoinder of the parties argument. Cross-Complainants in opposition counter that the cross-complaint sufficiently alleges the fraud claims, deny any bar under the economic loss rule, and alternatively request leave to amend. Cross-Defendant in reply reiterates the lack of factual sufficiency, and economic loss rule.

 

Following the stipulation to dismiss and dismissal of Jacques Kouyoumjian, Azniv Kouyoumjian, and Vicken Kouyoumjian, after the demurrer to the second amended complaint, thereby leaving the second amended complaint to proceed against World Tech Toys, Inc. and World Trading 23, Inc., the court finds no potential amendments to the cross-complaint, and therefore considers the demurrer on the merits.

 

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated.  (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

 

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616; Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139 [“[U]nder our liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising defendant of the issues it is being asked to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend.]

 

2nd Cause of Action: Fraud/Deceit

“‘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.’” … [¶] ‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

 

“‘Active concealment or suppression of facts by a nonfiduciary “is the equivalent of a false representation, i.e., actual fraud.” [Citation.] (Citation).)’ A fraud claim based upon the suppression or concealment of a material fact must involve a defendant who had a legal duty to disclose the fact. (Civ.Code, § 1710, subd. (3) [a deceit includes “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact”]; Citation.)” (Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1186.) “[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612–613.)

 

The economic loss rule requires the pleading of wrongful conduct separate and independent from the obligations within the contract itself. (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 923; Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 991; Erlich v. Menezes (1999) 21 Cal.4th 543, 554; Dhital v. Nissan North America, Inc. (2022) 84 Cal.App.5th 828, 838.) Cross-Complainants allege fraud on the basis that cross-defendant knowingly and falsely represented the intention to pay for the imported gloves unless and until they could be successfully sold to a third party customer. [Cross-Comp., ¶ 25.]

 

“A breach of contract remedy assumes that the parties to a contract can negotiate the risk of loss occasioned by a breach. ‘[W]hen two parties make a contract, they agree upon the rules and regulations which will govern their relationship; the risks inherent in the agreement and the likelihood of its breach. The parties to the contract in essence create a mini-universe for themselves, in which each voluntarily chooses his contracting partner, each trusts the other's willingness to keep his word and honor his commitments, and in which they define their respective obligations, rewards and risks. Under such a scenario, it is appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive; this is the function of contract law.’ (Citation.) However, ‘[a] party to a contract cannot rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract.’ (Citation.) No rational party would enter into a contract anticipating that they are or will be lied to. ‘While parties, perhaps because of their technical expertise and sophistication, can be presumed to understand and allocate the risks relating to negligent product design or manufacture, those same parties cannot, and should not, be expected to anticipate fraud and dishonesty in every transaction.’ (Citation.) Dana's argument therefore proposes to increase the certainty in contractual relationships by encouraging fraudulent conduct at the expense of an innocent party. No public policy supports such an outcome.” (Robinson Helicopter Co., Inc. v. Dana Corp., supra, 34 Cal.4th at pp. 992–993 (internal quotation marks omitted).)

 

The court finds the cross-complaint fails to allege a separate and distinct basis of liability arising from the contractual obligations. The argument seeking to distinguish the contract from the costs associated with the carriage and storage of the gloves lacks a material distinction. The breach of contract itself specifically addresses said additional costs, and therefore reliance on said contract categorically renders the fraud claim barred by the economic loss rule. [Cross-Comp., ¶¶ 16, 21, 25.] The demurrer is sustained.

 

3rd Cause of Action: Negligent Misrepresentation

“Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. ‘Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit.’” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407.) “‘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.)

 

Again, the cross-complaint arises from the contract. [Cross-Comp., ¶¶ 16, 21, 33.] The demurrer is sustained.

 

The court declines to address the factual sufficiency arguments for purposes of the subject demurrer, and minimally articulated indispensable party argument.

 

 

Motion to Strike: Moot

To the extent Plaintiff challenges the fraud and punitive damages under the fraud claims, the motion to strike is MOOT.

 

 

In summary, the demurrer to the fraud and negligent misrepresentation causes of action in the cross-complaint is sustained with 30 days leave to amend. The motion to strike is MOOT. If cross-complainant fails to file an amended pleading within 30 days of this order, cross-defendants are ordered to answer the remaining causes of action.

 

 

Moving Cross-Defendant to give notice to all parties.