Judge: Stephen P. Pfahler, Case: 23STCV21459, Date: 2025-03-13 Tentative Ruling


Case Number: 23STCV21459    Hearing Date: March 13, 2025    Dept: 68

Dept. 68

Date: 3-13-25

Case #23STCV21459

Trial Date: Not Set

 

DEMURRER

 

MOVING PARTY: Defendants, Earl Bayless, et al.

RESPONDING PARTY: Plaintiff, Rodney Smith

 

RELIEF REQUESTED

Demurrer to the Second 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 October 13, 2024, Plaintiff dismissed Tide Rock Holdings, LLC without prejudice. On February 8, 2024, Plaintiff dismissed the fourth cause of action for Negligent Misrepresentation. On February 9, 2024, defendant Wild Win, Inc. and Canay Manufacturing, Inc. answered the first amended complaint.

 

On April 30, 2024, the court sustained the demurrer of Earl Bayless to the third, fifth, and sixth causes of action for fraud, false promise, and promissory estoppel in the first amended complaint. On May 30, 2024, Plaintiff filed a second amended complaint for 1. 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 July 2, 2024, defendant Bayless Manufacturing, LLC answered the second amended complaint.

 

RULING: Overruled.

Defendant Earl Bayless, Wild Win, Inc. and Canay Manufacturing, Inc. submit a demurrer to the third, fifth, and sixth causes of action for fraud/intentional misrepresentation, false promise, and promissory estoppel in the second amended complaint. Defendants also challenge the re-addition of the fourth cause of action for negligent misrepresentation following the February 8, 2024, dismissal of the subject cause of action, and re-addition of the cause of action without leave of court.

 

Defendant Bayless again challenges Plaintiff on grounds that Bayless is not a party to any agreement relied upon in the challenged subject causes of action. Wild Win, Inc. and Canay Manufacturing, Inc. also submit a demurrer apparently based on lack of allegations regarding an employment relationship, thereby entitling Plaintiff to the $250,000 payment under the alleged agreement. All Defendants challenge any liability on the basis of alter ego. Plaintiff in opposition presents extensive reiteration of the allegations, requests leave to amend if applicable, contends the operative complaint sufficiently alleges the third, fifth and sixth causes of action, and admits to inadvertently reincorporating the fourth cause of action. Defendants in reply reiterates the lack of any agreement with Bayless, and the employment relationship with the corporate entities. The reply adds in new argument regarding the lack of allegations supporting causation and damages. 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.]

 

All parties are named in the third, fourth, fifth, and sixth, causes of action. Plaintiff admits to unintentionally reinstating the fourth cause of action, but agrees to dismiss it. The court therefore sua sponte STRIKES the fourth cause of action with prejudice/without leave to amend.

 

On the demurrer of Wild Win, Inc. and Canay Manufacturing, Inc. on the remaining causes of action, the court first notes that Defendants only now submit a demurrer after the court ruled on the demurrer to the first amended complaint. Both parties previously answered the first amended complaint on February 9, 2024. “A party demurring to a pleading that has been amended after a demurrer to an earlier version of the pleading was sustained shall not demur to any portion of the amended complaint, cross-complaint, or answer on grounds that could have been raised by demurrer to the earlier version of the complaint, cross-complaint, or answer.” (Code Civ. Proc., § 430.41, subd. (b).) The demurrer offers no written address regarding the later decision to bring a demurrer after previously answering. The court cannot otherwise delineate the basis of the now filed demurrer and declines to consider any potential explanation in oral argument. [See Points and Authorities Section D, X.] The demurrer therefore violates the successive demurrer rule, and is OVERRULED as to Wild Win, Inc. and Canay Manufacturing, Inc. without consideration on the merits.

 

As for Bayless, the court again considers the positions regarding status as a party to any agreement. Bayless first challenges the sufficiency of the alter ego allegations. Alter ego is not a cause of action, and therefore more properly the subject matter of a motion to strike. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682-1683 [While a demurrer is not the exclusive means to challenge a cause of action, a motion to strike generally applies to parts of a cause of action, claim for damages, or where the cause of action or primary right is barred as a matter of law]; see Quiroz v. Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1281 [“Where a whole cause of action is the proper subject of a pleading challenge, the court should sustain a demurrer to the cause of action rather than grant a motion to strike”].) Regardless, the court considers the alter ego claims as they relate to the claims against Bayless (and Wild Win, Inc. and Canay Manufacturing, Inc.)

 

Alter ego liability requires two elements: “‘(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.’” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300; Leek v. Cooper (2011) 194 Cal.App.4th 399, 411.) To allege alter ego, plaintiffs must plead a unity of interest and ownership such that the separate personalities of the corporation and individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285.) The operative complaint sufficiently articulates the elements for pleading alter ego liability. [Sec. Amend. Comp., ¶¶ 6-8.] The court declines to consider the factually qualitative challenges beyond the properly pled elements.

 

3rd Cause of Action: Fraud

5th Cause of Action: False Promise

6th Cause of Action: Promissory Estoppel

Bayless challenges the claim based on status as a non-party to any agreement for payment of the $250,000. Bayless relies on the prior order sustaining the demurrer to the first amended complaint, and lack of any new facts addressing the defects cited by the court. Plaintiff counters that the representations convincing Plaintiff to remain with the company and forego new employment opportunities based on promise of 20% of company sales “proceeds” ($250,000), and the later termination of Plaintiff by the companies controlled by Bayless renders 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 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).)

 

Notwithstanding the conclusive “sham” pleading reference and reliance on the lack of Bayless as a defendant in the breach of contract cause of action, the court, again addresses the core of the action—the basis of reasonable reliance for Plaintiff to rely on the alleged assurances of Bayless as a non-party to the company entered agreement, but still a controlling person via alter ego. (See Granadino v. Wells Fargo Bank, N.A. (2015) 236 Cal.App.4th 411, 418.) The operative pleading alleges the existence of an oral agreement with Bayless regarding continued employment for payment of later sales proceeds. [Sec. Amend. Comp., ¶¶ 16-17.] Defendants Wild Win, Inc. and Canay Manufacturing, Inc. were aware of the oral agreement. [Sec. Amend. Comp., ¶¶ 18-19, 21.] Wild Win, Inc. and Canay Manufacturing, Inc. subsequently purchased the assets pursuant to written agreement, which also contained a clause designated Plaintiff as a “key” employee. [Sec. Amend. Comp., ¶¶ 23-24.] Plaintiff entered into the agreement with Wild Win, Inc. and Canay Manufacturing, Inc., and relies on an assumption of alter ego liability as the basis for linking Bayless to the obligations within the written agreement. [Sec. Amend. Comp., ¶¶ 25-26.] All conduct occurred with a known intent/pretense to terminate Plaintiff “with good cause” prior to the fulfillment of the terms. Such facts support a foundational underpinning for promissory fraud, fraud in the inducement, and promissory estoppel claims. [Sec. Amend. Comp., ¶¶ 49, 67, 75.]

 

Again, the court finds the alter ego allegations sufficient for purposes of meeting the demurrer standard. Even if Defendant presented substantive legal and factual support regarding the existence of “sham” pleading, the court specifically granted Plaintiff leave to add in alter ego liability for purposes of addressing the logical gaps in the first amended complaint alleging wrongful conduct after entry into the written contract with separate defendants. The court finds no improper, illogical alteration as to the claims of liability against Bayless based on the addition of the alter ego claims.

 

Plaintiff asserts Bayless remains responsible for the purported fraud and promissory estoppel claims through control of the purchasing corporate entities and parties to the contracts responsible for payment of the $250,000 in commission. Bayless as a third party to the written contract with the corporate employer entities, and therefore not a party to the breach of contract cause of action, in no way alters the viability of the alter ego allegations as the connective thread for pleading fraud and estoppel liability. Whereas as the court previously found the fundamental basis of the claim as to Bayless troubling given the logical gap in time and lack of liability tether, the assertion of control over all relevant acting entities (e.g. the parties responsible for both the promise and responsibility for the premature termination of Plaintiff), establishes a sufficient claim for purposes of withstanding the demurrer.

 

The demurrer is overruled as to the third, fifth and sixth causes of action on both procedural and substantive considerations as to ALL Defendants. The court strikes the fourth cause of action with prejudice/without leave to amend as to ALL Defendants. ALL Defendants to answer the second amended complaint within 10 days of this order.

 

The court will concurrently conduct a case management conference.

 

Defendants to give notice.