Judge: Stephen P. Pfahler, Case: 23STCV21459, Date: 2024-04-30 Tentative Ruling

Case Number: 23STCV21459    Hearing Date: April 30, 2024    Dept: 68

Dept. 68

Date: 4-30-24

Case #23STCV21459

Trial Date: Not Set

 

DEMURRER

 

MOVING PARTY: Defendants, Earl Bayless

RESPONDING PARTY: Plaintiff, Rodney Smith

 

RELIEF REQUESTED

Demurrer to the First Amended Complaint

·         3rd Cause of Action: Fraud

·         5th Cause of Action: False Promise

·         6th Cause of Action: Promissory Estoppel

 

SUMMARY OF ACTION

In 1993, Defendants Wild Win, Inc. and Canay Manufacturing, Inc. hired Plaintiff Rodney Smith as Vice President. In 1996, Plaintiff alleges an oral agreement, whereby defendant, company owner and president of Wild Win and Canay Manufacturing, Earl Bayless, offered 20% of “proceeds,” if Plaintiff stayed on as an employee. The promise was reiterated in “the early 2000’s.”

 

In 2021, Bayless represented the sale of both companies to private equity firm, defendant Tide Rock Holdings, LLC. When Plaintiff mentioned the 20% agreement, Bayless “repudiated” the agreement and instead told Plaintiff he would receive $250,000. Notwithstanding, Plaintiff continued employment, and executed a written agreement for the $250,000 payment.

 

The separate agreement relied on the previously executed Asset Purchase Agreement, whereby Plaintiff was designated as a “key employee.” The agreement required continued employment for 12 months unless termination was for “good cause” or the employee quits, in order to receive the $250,000 payment. In March 2022, Plaintiff received a comment from the new CEO of Bayless regarding an employee complaint about the “tone” of Plaintiff in communicating with said employee. Plaintiff was subsequently “suspended pending an investigation,” and terminated in April 2022. The reason given was creation of a “hostile work environment.” Plaintiff maintains the termination was pretextual for purposes of insuring the non-payment of the $250,000.

 

On September 6, 2023, and December 19, 2023, Plaintiff filed a complaint and first amended complaint for Breach of Contract; 2. Breach of Implied Covenant of Good Faith & Fair Dealing; 3. Intentional Misrepresentation; 4. Negligent Misrepresentation; 5. False Promise; 6. Promissory Estoppel; 7. Intentional Interference with Prospective Economic Relations; 8. Negligent Interference with Prospective Economic Relations; and 9. Wrongful Termination in Violation of Public Policy. On February 8, 2024, Plaintiff dismissed the fourth cause of action for Negligent Misrepresentation. On February 9, 2024, defendant Wild Win, Inc. answered the first amended complaint.

 

RULING: Sustained with Leave to Amend.

Defendant Earl Bayless submits a demurrer to the third, fifth, and sixth causes of action for fraud, false promise, and promissory estoppel in the first amended complaint. Defendant challenges the first amended complaint on grounds that Bayless is not a party to any agreement relied upon in the subject causes of action. Plaintiff in opposition maintains the demurrer constitutes a misstatement of facts and law, and lacks applicable authority. Plaintiff also maintains liability against Bayless on grounds of alter ego liability. Bayless in reply reiterates the lack of any agreement with Bayless, and the employment relationship with the corporate entities. The reply also denies any alter ego grounds of liability, and the lack of overall factual support.

 

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.]

 

Bayless is named in the third, fourth fifth, and sixth, causes of action. With the dismissal of the fourth cause of action, Bayless challenges the remaining claims on the basis that Bayless was neither the actual employer of Plaintiff nor a party to any contract. Bayless was in no way responsible for the payment or termination of Plaintiff.

 

3rd Cause of Action: Fraud

5th Cause of Action: False Promise

Bayless maintains that as a non-party to the agreement on conditions for payment of the $250,000 upon completion of one year of employment, no basis of fraud applies. Plaintiff counters that the representations convincing Plaintiff to forego the claim for 20% of “proceeds” in exchange for the $250,000 conditional agreement was the result of a direct representation by Bayless, thereby rendering Bayless liable for the later revealed misrepresentation.

 

“‘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.) “[I]n order to support a claim of fraud based upon the alleged failure to perform a promise, it must be shown that the promisor did not intend to perform at the time the promise was made. (Conrad v. Bank of America (1996) 45 Cal.App.4th 133, 157 accord Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30.)

 

The pled facts support a finding of a representation to induce Plaintiff to forego the 20% of proceeds promise for a $250,000 payment at the end of a 12-month employment with a known pretense to terminate Plaintiff “with good cause” prior to the fulfillment of the terms. Such facts support a foundational underpinning for promissory fraud and/or fraud in the inducement claim. [First Amend. Comp., ¶¶ 47-49.] The argument of Bayless relies at least in part on the denial of any written accord between Plaintiff and Bayless relative to any alleged representations made at the time of entry into the compensation agreement. The operative complaint itself lacks any actual statement of the parties to the agreement. [First Amend. Comp., ¶¶ 22-23, 46, 50.] The argument identifying Bayless as a party to any agreement therefore remains extrinsic to consideration for purposes of the demurrer. The court considers the elements of the claim without extrinsic reference.

 

The court finds trouble with the fundamental basis of the claim as to Bayless. While Bayless may have made representations inducing a change of position by Plaintiff, the actual “resulting damages” (e.g. the termination of the contract) was still the result of the new employer(s) action, not Bayless. In other words, disregarding the lack of any pleading establishing Bayless as a party to any written agreement, the operative complaint still directly alleges the termination was the result of new ownership/management rather than any action of Bayless. The court therefore takes issue with the causation and damages elements.

 

“‘The causation aspect of actions for damage for fraud and deceit involves three distinct elements: (1) actual reliance, (2) damage resulting from such reliance, and (3) right to rely or justifiable reliance.” (Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 513, 169 Cal.Rptr. 478 (Younan ).) “In addition to showing that the defendant knowingly made a false representation, in order to establish fraud it must be shown that the defendant thereby intended to induce the plaintiff to act to his detriment in reliance upon the false representation. (Citations.) The defendant must intend to induce a particular act of the plaintiff and is not liable in fraud for unintended consequences. (Citation.) And it must be shown that the plaintiff actually and justifiably relied upon the defendant's misrepresentation in acting to his detriment.” (Conrad v. Bank of America, supra, 45 Cal.App.4th at p. 157.) There are two causation elements in a fraud cause of action. First, the plaintiff's actual and justifiable reliance on the defendant's misrepresentation must have caused him to take a detrimental course of action. Second, the detrimental action taken by the plaintiff must have caused his alleged damage. (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1062.) “Actual reliance occurs when a misrepresentation is an immediate cause of [a plaintiff's] conduct, which alters his legal relations, and when, absent such representation, he would not, in all reasonable probability, have entered into the contract or other transaction.” (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1256 (internal quotation marks omitted).) “The plaintiff must also plead the injury or damage suffered and its causal connection to plaintiff's reliance on the defendant's misrepresentations.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1239.)

 

Thus, again, disregarding the extrinsic references regarding the parties to the contract, the operative complaint still lacks a nexus between the purported (pre)contractual representation(s) of Bayless, and the actual functional termination of employment and cancellation of payment pursuant to the written contract for which it remains omitted as to whether Bayless was even a party responsible for any compliance with the terms of the contract. [First Amend. Comp., ¶¶ 24-26.] The demurrer is therefore sustained.

 

6th Cause of Action: Promissory Estoppel

Bayless again challenges the claim based on a non-party to any agreement for payment of the $250,000. Plaintiff counters with the citation to the elements of promissory estoppel.

 

“The elements of a promissory estoppel claim are ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’” (Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218, 225 (internal quotation marks omitted).) Again, the operative pleading alleges the existence of a misrepresentation by Bayless prior to entry into the written agreement, but otherwise avoids identifying the exact parties to the written agreement. [First Amend. Comp., ¶¶ 21-22.] The court finds no basis of reasonable reliance between Plaintiff and Bayless under the pled allegations. (Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411, 418.) Any alleged representations regarding the later intended conduct by management after Bayless ceased involvement with control of the companies constitutes a logical gap not overcome by the subject allegations.

 

The court declines to consider the alter ego argument submitted in the opposition. Nothing in the operative complaint actually alleges an alter ego basis of liability. Even considering the argument, the court cannot determine basis of potential liability given the subsequent termination apparently occurred after the sale of the businesses. The court therefore sustains the demurrer.

 

In summary, the court sustains the demurrer with 30 days leave to amend in order to allow Plaintiff an opportunity to articulate the basis of liability against Bayless. The court grants Plaintiff leave to amend given this is the first review of the action. Whether Plaintiff elects to continue omitting reference to Bayless from said agreements or not remains at the discretion of Plaintiff, but it will not prevent later consideration of extrinsic evidence in potential, applicable future law and motion. Plaintiff may not add any new causes of action without leave of court, but may articulate additional facts in order to support the challenged claims. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) New allegations or omissions may also be subject to the sham pleading standard should Plaintiff seek to alter the allegations in order to rectify potentially perceived deficiencies. Any new causes of action added without leave of court may be subject to a motion to strike.

 

The court will concurrently conduct a case management conference.

 

Defendant to give notice.