Judge: Stephen P. Pfahler, Case: 22CHCV01523, Date: 2023-08-29 Tentative Ruling

Case Number: 22CHCV01523    Hearing Date: August 29, 2023    Dept: F49

Dept. F-49

Date: 8-29-23

Case #22CHCV01523

Trial Date: N/A

 

DEMURRER

 

MOVING PARTY: Defendants, Selective San Fernando Partners, LLC, et al.

RESPONDING PARTY: Plaintiffs, Welding Evolution, Inc., et al.

 

RELIEF REQUESTED

Demurrer to the First Amended Complaint

·         1st Cause of Action: Fraudulent Inducement

·         2nd Cause of Action: Negligent Misrepresentation

·         3rd Cause of Action: Breach of the Implied Covenant of Good Faith and Fair Dealing

·         4th Cause of Action: Unfair Business Practices

 

SUMMARY OF ACTION

Plaintiff Welding Evolution, Inc. and Mario Alvara sought certain industrial premises requiring both floor space and sufficient power delivery for business operations. Plaintiffs allege Defendants misrepresented the power supply available to the building, thereby inducing Plaintiffs to execute a lease on false pretenses. Upon discovering the insufficient electrical current, Plaintiffs incurred additional expenses running external power generating sources.

 

On December 29, 2022, Plaintiffs filed a complaint for Fraudulent Inducement, Negligent Misrepresentation, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Unfair Business Practices. On May 11, 2023, Plaintiff dismissed Colliers International Greater Los Angeles, LLC. On June 9, 2023, Plaintiffs filed their first amended complaint.

 

RULING: Sustained with Leave to Amend in Part/Overruled in Part.

Defendants Colliers International of Greater Los Angeles, Inc. (Colliers), and Selective San Fernando Partners, LLC, Selective 1111 Harris LLC, Eric Cortes, and Brian Fagan (Selective), submits separate demurrers to the first amended complaint for Fraudulent Inducement, Negligent Misrepresentation, Breach of the Implied Covenant of Good Faith and Fair Dealing (all parties except Colliers), and Unfair Business Practices. Selective challenges the operative complaint on grounds regarding insufficient facts against Brian Fagan individually, challenging the qualitative veracity of the purported representations of Cortes, lack of an underlying claim of breach in support of the bad faith cause of action, and an overall lack of factual support for all claims. Colliers relies on legal argument regarding the impacts of the disclaimer clauses within the lease.

 

Plaintiffs in opposition reiterate the factual basis of the claim, describe certain arguments as “throw-aways,” and maintain liability based on the alleged misrepresentations. Colliers in reply reiterates the diligence requirement and failure to confirm, thereby undermining any showing of reasonable reliance. Colliers also challenges the lack of sufficient factual particularity on the unfair business practices claim. The other moving defendants in reply argue that as a matter of law, based on the terms of the lease including the release and integration clause, no fraudulent inducement occurred. The reply also emphasizes the lack of facts against individual Fagan, or sufficient facts supporting fraud in general. Defendants reiterate the lack of any breach of the lease and therefore no bad faith claim, and the insufficiently pled unfair competition claim as well. Finally, Defendants join with the demurrer of Colliers.

 

Given the similarity in argument and majority of challenged claims presented in both demurrers, the court consolidates the ruling into a single tentative.

 

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.]

 

1st Cause of Action, Fraudulent Inducement: Overruled.

Select challenges the fraud claims on grounds of lack of specific facts as to Fagan ever making any representations regarding electrical capacity, with any and all representations solely made by broker, Cortes. As for Cortes, the demurrer contends only “verbally/orally confirmed” regarding power supply sufficiency, which fails to meet the sufficiency requirements of a direct misrepresentation rather an implied statement. Select adds in an argument regarding the lack of “authority” by Cortes to make any representations on behalf of Lessor regarding electrical supply requirements. Plaintiffs cite to allegations in the operative complaint regarding the specific allegations as to both Fagan and Cortes.

 

“‘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.) “Fraud in the inducement is a subset of the tort of fraud. It ‘occurs when “‘the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable.’”’ (Citations.)” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.)

 

The court finds the actual fraud allegations sufficiently pled regarding the misrepresentation of requested power supply requirements (e.g. a minimum of 1200 amps) in the presence of all necessary principals for purposes of executing the agreement. [First Amend. Comp., ¶¶ 17-18, 20-21, 36-39.] Said allegations sufficiently establish the basis of authority for Cortes to speak on behalf of Select, as its identified Senior Asset Manager. [Id., ¶¶ 8, 10, 21, 38.] The court also finds the presence of Fagan, as president of Select, also links the claim of participation in the misrepresentation. [Id., ¶¶ 7, 10, 17-18.] As addressed below, the court considers distinctions between pre-lease communications, later discoveries, and purported agreements to address the issue. [Id., ¶ 26.]

 

In a separate argument beyond the general challenge of factual insufficiency and extrinsic references of improper conduct in violation of the lease, Select specifically contends that the claim of fraudulent inducement conflicts with direct and specific disclaimers within the lease regarding power specification requirements. (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1249.) Colliers also submits a substantially similar legal challenge based on certain sections of the lease. Thus, the court concurrently considers the arguments. All defendants present the argument as a basis of undermining any basis of reasonable or justifiable reliance on the alleged statements of Cortes. Plaintiffs counter that law against “anti-reliance provisions” are “unlawful” and therefore unenforceable for purposes of considering the demurrer.

 

The lease is incorporated into the first amended complaint. The court therefore considers the terms.

 

Section 2.4 provides in relevant part that Lessee was “given the opportunity to inspect and measure the Premises … with respect to the size and condition of the Premises (including but not limited to the electrical…) … made such investigations as it deems necessary with refernce to such matters and assumes all responsibility…” Section 60 follows up on the inspection terms: “Lessee hereby acknowledges and agrees that Lessor and Broker(s) have strongly advised Lessee to perform careful inspection of all parts of the Premises to determine existence of any defects, deficiencies, damage(s), and/or need for repair(s) of any part(s) of the Premises, including all systems, equipment and elements therein . . . . Lessee shall indemnify, defend and hold harmless Broker(s) and Lessor from any liability and/or damages which may result in connection with Lessee’s failure to identify any such defect(s), deficiencies, damage(s) and/or need for repair(s) of any part(s) of the Premises, including all systems, equipment and elements therein.” Section 61 continues: “Lessee hereby accepts possession of the Premises with knowledge and understanding that all existing electrical services may or may not contain amperage as stated on the power services panel within the premises and/or on the marketing brochures prepared by Broker or Lessor, however, neither Broker nor Lessor are able to confirm, guarantee or substantiate that such amperage or power services are located within such electrical service panel, or supplied to the subject service. Lessee agrees to confirm the presence and/or the availability of such electrical services with the Lessee’s electrical contractor and/or with the appropriate city officials or other such applicable utilities service company, and shall indemnify, defend and hold Broker and Lessor harmless from and against costs, liability, and/or damages that arise due to any electrical service insufficiencies that may exist…” Select ties it all together with citation to the integration clause in section 22, which denies any terms outside the written lease.

 

A plaintiff establishes reasonable reliance in a fraud claim “‘when the misrepresentation or nondisclosure was an immediate cause of the plaintiff's conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction.’ [¶] … Although a plaintiff's negligence in failing to discover the falsity of the statement or the suppressed information is not a defense to fraud (Citation), a plaintiff's particular knowledge and experience should be considered in determining whether the reliance upon the misrepresentation or nondisclosure was justified. (Citation.) ‘If the conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable ... he will be denied a recovery.’ (Citation.) … Generally, the question of whether reliance is justifiable is one of fact.” (Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1193–1194; Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [“‘Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff's reliance is reasonable is a question of fact.’”] The phrasing of the non-reliance clause may lead to a requirement that the lessee engage in due diligence to inquire further. (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 302-303.)

 

“All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.” (Civ. Code, § 1668.) “Witkin explains that ‘[a] party to a contract who has been guilty of fraud in its inducement cannot absolve himself or herself from the effects of his or her fraud by any stipulation in the contract, either that no representations have been made, or that any right that might be grounded upon them is waived. Such a stipulation or waiver will be ignored, and parol evidence of misrepresentations will be admitted, for the reason that fraud renders the whole agreement voidable, including the waiver provision. [Citations.]’” [] “Quoting section 1668, another commentator explains that ‘[a]ll contracts which have for their objective, directly or indirectly, to except anyone from responsibility for his own fraud ... are against the policy of the law.’ A provision of a contract that unreasonably exempts a party from the legal consequences of a fraudulent ... misrepresentation is unenforceable on grounds of public policy. Therefore, ... a party who has induced the other party to enter into the contract based on ... an intentional ... misrepresentation cannot be relieved of liability by any ... exculpatory clause, or other clause waiving liability, contained in the contract. Because the fraud renders the entire contract voidable, the clause intended to absolve the seller from liability is also voidable.” (Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1500–1501; McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 795; Ron Greenspan Volkswagen, Inc. v. Ford Motor Land Development Corp. (1995) 32 Cal.App.4th 985, 993-995.)

 

Colliers in reply presents a case directly holding the obligations should apply pursuant to the terms of the contract. (Bank of America Nat. Trust & Sav. Ass'n v. Vannini (1956) 140 Cal.App.2d 120, 129-131; see Jue v. Smiser (1994) 23 Cal.App.4th 312, 318–319. The court cannot deny the validity of authority. A split of authority appears to exist. (Miller & Starr, 1 Cal. Real Est. § 1:168 (4th ed.).)

 

Given the significant body of law against deflecting liability under a cloud of fraud, the court declines to find as a matter of law that the exculpatory clauses bar the fraudulent inducement claim as a matter of law. The operative complaint itself alleges the inability of the electrician to verify the claims, due to pallets blocking access to the electrical panels by the occupying tenant. [First Amend. Comp., ¶ 19.] While the argument raises subsequent valid questions as to the potential lack of diligence in later following up when the pallets were apparently cleared by the prior tenant, the court finds that such argument falls beyond the scope of the demurrer under at least one side of the disputed standard.

 

Yes, precedent for making the determination as a matter of law, but barring further exploration by the parties into the correct standard, the court declines to sua sponte further delve further into the argument at this stage. Thus, even assuming no legal nullification of the disclaimer clauses under certain case law, examination of reasonableness also remains a question of fact, or at least an issue beyond the scope of the demurrer for this court. Thus, the court declines to consider the circumstances as a matter of law at the demurrer stage. The demurrer is overruled.

 

2nd Cause of Action, Negligent Misrepresentation: Overruled.

“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.)

For the reasons addressed in the fraud claim, the court finds no legal or factual bar to the negligent misrepresentation claim. Also as addressed above, the court finds the claim sufficiently articulated based on an actual misrepresentation of sufficient power needs. (RSB Vineyards, LLC v. Orsi (2017) 15 Cal.App.5th 1089, 1102.) The court also finds that the allegations regarding the alleged conduct by Greg Geraci, in the capacity as Vice President of Colliers, constitutes a sufficient basis for imposing fraud liability. [First Amend. Comp., ¶¶ 17-18, 22-23.] The demurrer is overruled.

 

3rd Cause of Action, Breach of the Implied Covenant of Good Faith and Fair Dealing: Sustained with Leave to Amend.

The subject claim arises from the alleged failure “to provide adequate power” for the facility. [First Amend. Comp., ¶ 65.] Select challenges the subject cause of action on a failure to allege a withholding of benefits within the lease terms. The argument relies on the denial of any improperly withheld electrical delivery requirements. Plaintiff counters that the failure to deliver sufficient electrical supply constitutes the bad faith. Plaintiff challenges the claim as improperly relying on extrinsic inference.

 

The fraud claims allege fraud in the inducement (e.g. a representation of sufficient power requirements in order to entice Plaintiffs to execute the lease). The subject claim relies on the existence of a contractual term for the guarantee of certain power supply. The court cannot determine the basis of the failure to deliver sufficient amperage to the facility within the terms of the lease, as pled in both the introductory paragraphs and the minimally pled elements of the claim. (Racine & Laramie, Ltd. v. California Dept. of Parks & Rec. (1992) 11 Cal.App.4th 1026, 1031-1032.) The demurrer is sustained with leave to amend.

 

4th Cause of Action, Unfair Business Practices: Overruled.

Select contends the insufficiently fraudulent inducement claim also undermines any reliance on an unfair business practices claim. Plaintiffs counter that the fraud claims support the subject cause of action.

 

“The UCL does not proscribe specific acts, but broadly prohibits ‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising....’” [¶] “‘A private plaintiff must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition.’ (Citation.)” (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1359.) Fact specific pleading is not required in order to allege an unfair business practice. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 46–47.

 

An “unlawful” practice “means any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.… ‘Unfair’ simply means any practice whose harm to the victim outweighs its benefits. (Citation.) ‘Fraudulent,’ as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public ‘“are likely to be deceived.”’” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 838–839.) Fundamentally, recovery requires a direct harm to the consumer, and actual reliance. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 326–327.)

 

As addressed in the first two causes of action, the court finds the fraud based claims sufficiently articulated for purposes of the demurrer review. The court therefore finds the subject claim also properly relies on said fraud allegations. The demurrer is overruled.

 

In summary, the demurrer is overruled as to the first, second, and fourth causes of action for Fraudulent Inducement, Negligent Misrepresentation, , and Unfair Business Practices, and sustained with 20 days leave to amend as to the Breach of the Implied Covenant of Good Faith and Fair Dealing cause of action. If Plaintiffs elect to not file an amended complaint, Defendants are ordered to answer the remaining claims in the operative complaint within 10 days of the lapse of the amendment deadline.

 

Moving defendants to give notice.