Judge Stephen P. Pfahler, Case Number: 23STCV31125, Date: 2024-08-22 Tentative Ruling

Judge: Stephen P. Pfahler, Case: 23STCV31125, Date: 2024-08-22 Tentative Ruling

Case Number: 23STCV31125 Hearing Date: August 22, 2024 Dept: 68

Dept. 68

Date: 8-22-24 c/f 7-31-23

Case #23STCV31125

Trial Date: Not Set

DEMURRER

MOVING PARTY: Plaintiff, Mary Kheir, et al.

RESPONDING PARTY: Defendants, Shybary Grand HOA

RELIEF REQUESTED

Demurrer to the Answer to the Complaint

SUMMARY OF ACTION

Plaintiffs Mary Kheir, Vessie Kazachka, Wilson Lea, Mandy Doyle, Richard Koons, and Aaron Thom, own units within a housing development at 312 West 5^th Street. The project is governed and managed by Defendants the Shybary Grand Homeowners Association, 1200 Management, LLC, Rommy Shy, Barry Shy and Eric Shy. Plaintiffs allege substandard maintenance of common areas and refusal to fix certain items led to further degradation and damage to the individual properties.

On December 20, 2023, Plaintiffs filed their complaint for (1) Breach Of Contract (2) Enforcement Of Equitable Servitudes; (3) Breach Of Implied Covenant Of Good Faith And Fair Dealing; (4) Negligence; (5) Breach Of Fiduciary Duty; (6) Nuisance ; (7) Violation Of Civil Code Section 5205(A) ; (8) Violation Of Civil Code Section 5300(A) ; (9) Violation Of Civil Code Section 5550(A) ; (10) Violation Of Civil Code Section 5605(B) ; (11) Unfair Business Practices; (12) Conversion; (13) RICO [18 U.S.C. § 1962]; and (14) Declaratory Relief. On March 15, 2024, Shybaby Grand, Inc. answered the complaint and filed a cross-complaint for Indemnity, Contribution, and Apportionment of Fault.

RULING: Sustained with Leave to Amend.

Plaintiffs submits a demurrer to each and every of the 23 affirmative defenses in the answer of Shybaby Grand, Inc. on grounds that the answer lacks supporting facts and instead only relies on unsupported conclusions. Defendant in opposition concedes to the validity of the demurrer to the second, sixth, seventh, eighth, tenth through fifteenth, eighteenth and twenty third affirmative defenses. Defendant maintains the remaining items meritoriously plead the defenses. Plaintiffs in reply emphasize the concession on certain defenses, and reiterates the lack of factual support argument.

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.]

An “answer to a complaint must include ‘[a] statement of any new matter constituting a defense.’ The phrase ‘new matter’ refers to something relied on by a defendant which is not put in issue by the plaintiff. [Citation.] Thus, where matters are not responsive to essential allegations of the complaint, they must be raised in the answer as ‘new matter.’ [Citation.] Where, however, the answer sets forth facts showing some essential allegation of the complaint is not true, such facts are not ‘new matter,’ but only a traverse.” (Walsh v. West Valley Mission Community College District (1998) 66 Cal.App.4th 1532, 1546 (italics original).)

“Generally, a party must raise an issue as an affirmative defense where the matter is not responsive to essential allegations of the complaint. [Citations omitted.] Thus, where a defendant relies on facts not put in issue by the plaintiff, the defendant must plead such facts as an affirmative defense.” (Bevill v. Zoura (1994) 27 Cal.App.4th 694, 698; South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 733–734 [In considering a demurrer to the answer, the defect in question need not appear on the face of the answer: “the determination of the sufficiency of the answer requires an examination the answer” in context of the operative complaint purportedly being answered].)

A party must allege any and all affirmative defenses or risk waiver. (Cal. Code Civ. Proc., § 430.80, subd. (a); See Roy v. Superior Court of County of San Bernardino (2005) 127 Cal.App.4th 337, 345.) An answering party must aver ultimate facts, rather than conclusions. (FPI Development, Inc. v. Nakashimi (1991) 231 Cal.App.3d 367, 384.) The “onus of proof” on any “new matter” alleged in the answer is the burden of the pleading defendant. (Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 239.)

The court appreciates the frustration arising from Plaintiffs’ request that Defendant simply amend the answer rather than force the filing of the motion, only to lead to the late concession of certain deficiencies and requiring a court order. Given the concession to the merits of the demurrer on at least certain affirmative defenses, the court sustains the demurrer. The court declines to make the substantive arguments on each and every of the remaining challenged affirmative defenses regarding the required elements and factual sufficiency, especially with the lack of address of each and every challenged affirmative defense with legally supported, factual argument. Defendants may amend the non-conceded affirmative defenses as well.

The court will concurrently conduct the Case Management Conference.

Plaintiffs to give notice.

Dept. 68

Date: 8-22-24

Case #23STCV31125

Trial Date: Not Set

DEMURRER

MOVING PARTY: Defendants, 1200 Management, et al.

RESPONDING PARTY: Plaintiff, Mary Kheir, et al.

RELIEF REQUESTED

Demurrer to the Complaint

· 11^th Cause of Action: Unfair Business Practices

· 12^th Cause of Action: Conversion

· 13^th Cause of Action: RICO [18 U.S.C. § 1962]

Motion to Strike

· Claim for Punitive Damages

· Claim for UCL Damages and Attorney Fees

SUMMARY OF ACTION

RULING

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

Defendants 1200 Management, Rommy Shy, Barry Shy, and Elior Shy submit a demurrer to the eleventh, twelfth and thirteenth causes of action for Unfair Business Practices, Conversion, and RICO to the complaint of Plaintiffs Mary Kheir, Vessie Kazachka, Wilson Lea, Mandy Doyle, Richard Koons, and Aaron Thom. Defendants challenge the applicability of certain identified laws and/or challenge the factual sufficiency of others. Plaintiffs in opposition maintain each cause of action is properly pled under California law. Defendants in reply reiterates the legal and factual arguments seeking to render the challenged causes of action invalid as a matter of law.

11^th Cause of Action, Unfair Business Practices: Sustained with Leave to Amend.

Defendants challenge the subject cause of action on grounds of a bar under the Davis Sterling Act. Plaintiffs reiterate the claim itself and seek to distinguish the relied upon authority. Defendants reiterate the cases law relied upon in support.

“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.) “[A]n unfair business practice also means” the relied upon public policy provision is “tethered” to a specific regulatory provision. (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 81.) Fundamentally, recovery requires a direct harm to the consumer, and actual reliance. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 326–327.)

The claim against Defendants essentially relies on allegations of “numerous large and unexplained payments to 1200 Management on a regular basis, all of which are far in excess of 1200 Management’s fees for the management and operation of the HOA; (ii) the 1200 Management Defendants’ charging of extremely inflated fees for the management and operation of the HOA when compared to the fees charged by other management companies in the HOA’s geographic area; (iii) the HOA Defendants’ and/or Shy Defendants’ making of numerous large and unexplained payments to unidentified payees that do not appear to match any of its executed contracts, invoices, or vendor proposals; and (iv) Defendants’ accounting of rental income belonging Rommy, Barry, and Eric and other legal entities controlled by them as HOA funds.” [Comp., ¶ 194.] The plain allegations in no way articulate any unlawful practice in that no statute or regulation is identified. The court also finds no fraudulent basis in that Plaintiffs allege no deception and it appears Defendants list their transactions. A marginal factual argument can be made for the unfair element in that the alleged misuse of funds harmed the greater maintenance of the property, though the court only relies on the allegations under the demurrer standard requiring acceptance of the allegations as pled, and in no way makes any qualitative determinations. (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1555.)

Defendants however challenge any application of the UCL on grounds that the HOA itself in no way operates as a business operation subject to the UCL. (That v. Alders Maintenance Assn. (2012) 206 Cal.App.4th 1419, 1426-1427.) The court finds support for the argument.

The complaint itself lacks any specific allegation of 1200 Management other than describing it as a limited liability corporation, and introductory statement of the HOA defendants. Shybary Grand Homeowners Association is identified as the HOA, but later allegations in the complaint generally refer to moving defendants as the HOA parties regarding the substandard maintenance and mismanaged funds. [See Comp., ¶¶ 9, 12, 41-109.] The operative complaint only identifies the individuals with limited as managing partners/managers of 1200 Management, with at least some, also serving on the HOA board as well.

The HOA categorically remains immune from a UCL claim. (That v. Alders Maintenance Assn., supra, 206 Cal.App.4th at pp. 1426-1427.) A management company serving the HOA may also be protected under the Davis-Sterling Act when acting on behalf of the HOA for purposes of managing the common interest development, though it the statutory authority underpinning the finding appears repealed. (Berryman v. Merit Property Management, Inc., supra, 152 Cal.App.4th 1550-1551.) The court declines to rely on inference and finds lack of articulation and distinction renders the subject cause of action uncertain for purposes of establishing a basis of liability. The demurrer is sustained.

12^th Cause of Action, Conversion: Overruled.

Defendants challenge the lack of specificity regarding the amount of funds. Plaintiffs counter that the complaint identifies a sum of “no less than $500,000” with further discovery to identify the exact amount. [Comp., ¶ 201.]

“‘A cause of action for conversion requires allegations of plaintiff's ownership or right to possession of property; defendant's wrongful act toward or disposition of the property, interfering with plaintiff's possession; and damage to plaintiff. [Citation.] Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved.’” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.)

The parties offer no dispute as to the rightful basis of the claim. The court accepts the source of the funds as from the assessments with Plaintiffs contributing their respective pro rata shares. Given the lack of information regarding the exact disposition of each dollar and cent of the funds and denial of access to the books, the court accepts the stated claim as sufficiently pled for purposes of the demurrer. The demurrer is overruled.

13^th Cause of Action, RICO [18 U.S.C. § 1962]: Sustained with Leave to amend.

Defendants challenge the lack of facts supporting the RICO claim, while Plaintiff maintains a properly pled cause of action based on claim of criminal enterprise.

The claim requires allegations that :1) the defendants formed a scheme or artifice to defraud; (2) the defendants used the United States mails or caused a use of the United States mails in furtherance of the scheme; and (3) the defendants did so with the specific intent to deceive or defraud.” (Schreiber Distributing Co. v. Serv-Well Furniture Co., Inc. (9th Cir. 1986) 806 F.2d 1393, 1400.) The allegations must be pled with factual particularity. (Id. at pp. 14011-1401.)

The court finds the allegations of “large and unexplained” payments insufficiently articulates the high threshold of facts required to allege a criminal enterprise level scheme basically arising from a homeowner association dispute over substandard maintenance and property damage. The demurrer is sustained.

Motion to Strike: Granted in Part/Moot in Part

Defendants submit a list of 12 items for the motion to strike:

· Complaint, Paragraph 39, Page 8, lines 18-20 (within “Background Allegations”): “39. Plaintiffs expect that Rommy, Barry, and Eric may have also commingled funds belonging to them and/or other legal entities controlled by them (including without limitation 1200 Management with the funds of the HOA.”

· 2. Complaint, Paragraph 40, Page 6, lines 24-28 (within “Background Allegations”): “40. Plaintiffs are not privy to the particular communications and relationship(s) between Defendants. Such information is readily available to and in the possession, control, and/or knowledge of the Defendants. Plaintiffs anticipate that information, documents, and other evidence that will provide details of the particular communications and relationship(s) between and amongst Defendants will be revealed through discover to be conducted in this case.”

· 3. Complaint, Paragraph 156, Page 29, lines 17-26 (within the Nuisance Cause of Acton): “156. In acting or failing to act as descried above, the HOA Defendants and Shy Defendants have subjected each of the Plaintiffs to cruel and unjust hardship in conscious disregard for their rights, most particularly their rights as fully performing members of the HOA and HOA community. To be sure, such acts or failures of the HOA Defendants and Shy Defendants have not only harmed Plaintiffs financially, but emotionally and physically as well; having a significant impact on their daily lives, health, comfort, and use and enjoyment of the one location they should feel safe and comfortable—their homes—but because of the HOA Defendants and Shy Defendants’ acts and omissions as described above, all of that has been damaged as is in a constant state of being threatened and harmed.”

· 4. Complaint, Paragraph 156, Page 29, line 27 through Page 30, line 2 (within the Nuisance Cause of Acton): “157. As a consequence of the HOA Defendants’ and Shy Defendants’ oppressive and/or malicious and/or fraudulent conduct as set forth above, Plaintiffs are entitled to an award of punitive damages for the sake of example and by way of punishment of the HOA Defendants and Shy Defendants.”

· 5. Complaint, Paragraph 160, Page 32, lines 3-11 (within the Nuisance Cause of Acton): “160. In acting or failing to act as described above, the HOA Defendants and Shy Defendants have subjected each of the Plaintiffs to cruel and unjust hardship in conscious disregard for their rights, most particularly their rights as fully performing members of the HOA and HOA community. To be sure, such acts or failures of the HOA Defendants and Shy Defendants have not only harmed Plaintiffs financially, but emotionally and physically as well; having a significant impact on their daily lives, health, comfort, and use and enjoyment of the one location they should feel safe and comfortable—their homes—but because of the HOA Defendants and Shy Defendants’ acts and omissions as described above, all of that has been damaged as is in a constant state of being threatened and harmed.”

· 6. Complaint, Paragraph 170, Page 32, lines 12-15 (within the Nuisance Cause of Acton): “170. As a consequence of the HOA Defendants’ and Shy Defendants’ oppressive and/or malicious and/or fraudulent conduct as set forth above, Plaintiffs are entitled to an award of punitive damages for the sake of example and by way of punishment of the HOA Defendants and Shy Defendants.”

· 7. Complaint, within Paragraph 196, Page 36, at line 28 (within the statutory unfair competition claim): “for the damages caused Plaintiffs.”

· 8. Complaint, Paragraph 197, Page 37, lines 5-7 (within the statutory unfair competition claim): “197. As a direct and proximate result of the wrongful actions and inactions of the Defendants, Plaintiffs are informed and believe and upon that basis allege, that they have been damaged in at least the sum of $500,000, with the exact amount to be proven at time of trial.”

· 9. Complaint, Paragraph 199, Page 37, lines 11-12 (within the statutory unfair competition claim): “199. Plaintiffs are further entitled to reasonable attorneys’ fees and costs under Code of Civil Procedure section 1021.5.”

· 10. Complaint, Paragraph 208, Page 38, lines 7-12 (within the conversion cause of action): “208. Plaintiffs are informed and believe, and upon that basis allege, that each of the Defendants is responsible for the damages caused Plaintiffs because, as alleged in further detail above, they were part of a conspiracy to convert Plaintiffs’ property as alleged in this Complaint. Plaintiffs are informed and believe, and upon that basis allege, that each of the Defendants were aware of the conversion of Plaintiffs’ property and agreed with each of the Defendants and intended to convert Plaintiffs’ property as alleged above.”

· 11. Complaint, Paragraph 209, Page 38, lines 13-19 (within the conversion cause of action): “209. Plaintiffs are informed and believe, and upon that basis allege, that the Defendants’ foregoing conduct, most especially their conversion of Plaintiffs’ property and/or actions taken in furtherance of the conspiracy to convert Plaintiffs’ property, were oppressive, malicious, and despicable [sic], and done with the deliberate intent of harassing, annoying, injuring, or embarrassing Plaintiffs and causing Plaintiffs to suffer the foregoing damages, including the severe emotional distress and financial losses alleged above. Plaintiffs are therefore, entitled to an award of punitive damages against Defendants in an amount to be proven at trial.”

· 12. Complaint, Prayer (beginning at page 41): a. Page 42, line 11 (re: the Breach of Fiduciary Duty Cause of Action): “For punitive damages, in an amount to be proven at the time of trial;” b. Page 42, line 17 (re: the Nuisance Cause of Action): “For punitive damages, in an amount to be proven at the time of trial;” c. Page 44, line 9 (re: the Conversion Cause of Action): “For punitive damages, in an amount to be proven at the time of trial”

The motion is granted as to the UCL related claims. The subject paragraphs were not part of the pled UCL causes of action, but reliance on said claim renders them inert, and therefore superfluous in the operative pleading. The attorney fee claim is also moot.

On the remaining items, Defendants challenge the lack of facts supporting any punitive damages claims in the nuisance, breach of fiduciary duty and conversion causes of action. Plaintiffs in opposition challenge the notice of motion itself, and maintain the complaint sufficiently alleges the claim for punitive damages. Plaintiffs also maintain the propriety of the damages claim in the UCL claims. The reply reiterates the basis to strike the punitive damages, attorney fees, etc.

Civil Code section 3294, subdivision (c) authorizes punitive damages upon a showing of malice, oppression, or fraud, which are defined as follows:

(1) “Malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

(2) “Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.

(3) “Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

Punitive damages require more than the mere commission of a tort. (See Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-95.) Specific facts must be pled in support of punitive damages. (Hillard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 391-392.) “The mere allegation an intentional tort was committed is not sufficient to warrant an award of punitive damages. [Citation.] Not only must there be circumstances of oppression, fraud or malice, but facts must be alleged in the pleading to support such a claim. [Citation.]” (Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 166, fn. Omitted [emphasis added].)

The remaining allegations constitute a series of conclusions without sufficiently supporting a finding of malicious, oppressive or fraudulent conduct required for a claim of punitive damages. The motion to strike is granted as to the remaining paragraphs as well.

The demurrer is therefore overruled as to the conversion cause of action, and sustained with 30 leave to amend as to the UCL and RICO causes of action. The motion to strike is granted without prejudice. Plaintiffs may add facts in support of the existing causes of action, and damages claims, but may not add any new causes of action. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.) Any new causes of action added without leave of court may be subject to a motion to strike. If Plaintiffs elect to forego filing an amended complaint, Defendants to answer the remaining causes of action within 10 days of the lapse of the amendment deadline.

The court will concurrently conduct the Case Management Conference.

Defendants to give notice.