Judge: Theresa M. Traber, Case: 23STCV30154, Date: 2024-08-26 Tentative Ruling

Case Number: 23STCV30154    Hearing Date: August 26, 2024    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     August 26, 2024                     TRIAL DATE: NOT SET

CASE:                         Mario A. Lopez, et al. v. Grandway Construction, LLC, et al.

CASE NO.:                 23STCV30154           

DEMURRER TO COMPLAINT

MOVING PARTY:               Defendants Grandway Construction LLC; Grandway Asset Management, Inc.; Lawrence Chichung Wang, Frederick Chi-Shan Wang, and Shadowcreek Development, LLC

RESPONDING PARTY(S): Plaintiffs Mario Lopez, Trustee of the Lopez Family Revocable Trust Dated February 15, 2011 and Courtney Lopez

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            This is a construction defect action that was filed on December 11, 2023. Plaintiff alleges that Defendants constructed a residential property with substantial structural defects and induced Plaintiff to purchase the property by concealing those defects.

Defendants demur to the Complaint in its entirety.

TENTATIVE RULING:

            Defendants’ Demurrer to the Complaint is SUSTAINED with leave to amend as to misjoinder of parties only and otherwise OVERRULED.

            Plaintiffs shall have 30 days leave to file a First Amended Complaint naming Grandway I-F, LLC as a Defendant.

DISCUSSION:

Defendants demur to the Complaint in its entirety.

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Legal Standard

A demurrer tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, 147 Cal.App.4th at p. 747.) The ultimate facts alleged in the complaint must be deemed true, as well as all facts that may be implied or inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403; see also Shields v. County of San Diego (1984) 155 Cal.App.3d 103, 133 [stating, “[o]n demurrer, pleadings are read liberally and allegations contained therein are assumed to be true”].) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

Meet and Confer

Before filing a demurrer, the demurring party shall meet and confer in person or by telephone with the party who has filed the pleading subject to the demurrer and file a declaration detailing their meet and confer efforts.  (Code Civ. Proc., § 430.41(a).) However, an insufficient meet and confer process is not grounds to overrule or sustain a demurrer.  (Code Civ. Proc., § 430.41(a)(4).)

            The Declaration of Emily Kromke in support of the motion states defense counsel attempted to meet and confer with Plaintiffs’ attorney on February 6 and February 14, 2024, via email regarding Defendants’ challenges to the Complaint. (Declaration of Emily A. Kromke ISO Demurrer. ¶¶ 2-3, Exh. A-B.) Defendants’ counsel attempted to follow up via email and telephone on February 20, 2024. (Id. ¶ 4, Exh. C.) Plaintiffs’ counsel represented that he would call Defendants’ counsel back that same day, but did not do so. (Id. ¶ 5.) Defendants’ counsel states that Plaintiffs’ counsel instead sent a written response, but does not describe that response nor present a copy of it to the Court. (¶ 6.) Defendants’ counsel then explains that the parties did not reach an agreement resolving the objections raised in the demurrer. (¶ 7.)  Defendants’ conclusory assertion is not sufficient to demonstrate a proper effort to meet and confer with Plaintiffs’ counsel to informally resolve this dispute. However, as an insufficient meet and confer process is not grounds to overrule or sustain the demurrer, the Court shall address the demurrer on its merits.

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Defendants’ Overlength Motion

            Plaintiffs object to Defendants’ demurrer as improper because it exceeds the maximum length permitted under the Rules of Court. Defendants’ memorandum of points and authorities in support of their demurrer is 23 substantive pages in length, discounting the caption page, notice of motion and motion, the tables of contents and authorities, and the proof of service. Pursuant to California Rule of Court 3.1113(d), an opening or responding memorandum on any motion other than a motion for summary judgment or adjudication may not exceed 15 substantive pages. (Cal Rule of Court 3.1113(d).) A party may seek leave to file an overlength memorandum. (Rule of Court 3.1113(e).) However, an overlength memorandum which is filed without leave must be considered in the same manner as a late-filed paper. (Rule of Court 3.1113(g).) The Court has discretion to refuse to consider late-filed papers. (Rule of Court 3.1300(d).) Defendants did not seek leave of Court before filing their overlength brief.

            In response, Defendants contend that the length of the brief was necessitated by the number of parties involved and the effects of Plaintiffs’ claimed failure to join an indispensable party. Defendants argue that they “should not be penalized for attempting to streamline the demurrer process for the Court” by filing a single demurrer rather than several. The Court is not persuaded. The Rules of Court reflect the Judicial Council’s determination that the procedures it has chosen reflect the best method to ensure the just and speedy determination of these proceedings. (Cal. Rules of Court 1.5.) Although the Court appreciates Defendants’ professed desire to facilitate a speedy determination of this issue, Defendants may not substitute their own decision-making for that of the Judicial Council as to how that desire should be given effect. Moreover, in the context of a dispositive motion such as this, a failure to comply with the procedural requirements risks prejudice to Plaintiffs’ due process rights. For that reason, the Court refuses to consider the portions of Defendants’ memorandum which exceed the page limits of Rule 3.1113(d), which encompasses Defendants’ individual challenges to the third cause of action for negligent misrepresentation, fourth cause of action for suppression of fact, and fifth cause of action for negligence for failure to state facts sufficient to constitute a cause of action.  

Plaintiffs’ Absent Table of Contents and Authorities

            Defendants object to Plaintiffs’ Opposition for failing to include a table of contents and authorities despite that opposition exceeding ten pages in length. As Defendants state, Rule of Court 3.1113(f) requires both a table of contents and a table of authorities for any brief which is greater than ten substantive pages in length. Although Defendants are correct that the opposition is defective in this respect, the failure to include these materials does not disadvantage the opposing party in the same manner as a substantially overlength brief seeking a dispositive ruling.

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Failure to Join Indispensable Party

            Defendants demur to the Complaint under Code of Civil Procedure section 410.30(d) for failure to join an indispensable party. An “indispensable party” is a party who “is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter,” and whom “(1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.” (Code Civ. Proc. § 389.)

            Defendants argue that this case is grounded in the construction and sale of a residential property by Grandway USDEV I-F, LLC which Plaintiffs allege was defective. As Defendants state, the Complaint expressly states that Grandway I-F was listed as the owner on the certificate of occupancy obtained October 14, 2021 (Complaint ¶ 16), that Plaintiffs entered into Residential Purchase Agreement for the property with Grandway I-F on May 4, 2022 (¶ 17), that the Defendants, through Grandway I-F, executed a Real Estate Transfer Disclosure Statement (¶ 18), and that, after the close of escrow, heavy rainfall revealed a severe water leakage problem with the patio. (¶ 20.)

            Defendants contend that there is a defect of parties in that Plaintiffs have failed to name the entity which entered into the underlying contract.  Although Defendants characterize the Complaint as improperly pleading breach of contract, the Complaint is more properly described as asserting a claim for fraudulent inducement to contract through a series of alter egos, including the alleged contracting entity, alongside other related tort claims. (See Complaint ¶¶ 9, 36-44.) Regardless, Defendants argue with considerable force that the entity that signed the underlying contract is a party in whose absence complete relief cannot be accorded, as Defendants contend that Grandway I-F was, in fact, an independent entity with divergent interests and potentially separate liability, and not an alter ego of the named parties. Defendants also argue that the failure to join the entity which executed the sale of the property exposes them to potentially inconsistent obligations and multiple liability.

            In opposition, Plaintiffs dismiss Defendants’ contentions as mere speculation and argue that service of process on Grandway I-F is impossible because it is a terminated LLC. Not so. A cancelled limited liability company continues to exist for the purpose of winding up its affairs, prosecuting and defending actions to collect and discharge obligations, and disposition of its property and assets. (Corp Code § 17707.06.) Nor is the Court persuaded that Defendants are merely speculating that Grandway I-F’s absence makes complete relief impossible where, as here, there is a dispute as to the independence or lack thereof of the various entities involved in this dispute, Grandway I-F included. The Court therefore finds that the Complaint is defective because it fails to join a necessary party. For that reason alone, Defendants’ demurrer to the Complaint must be sustained.

Alter Ego Allegations

            Defendants contend that the Complaint is also subject to demurrer for misjoinder of parties because it does not allege alter ego liability with sufficient factual detail. This contention goes to the failure to allege sufficient facts, not a defect of parties. The Court therefore rejects this challenge to the Complaint as improper.

Second Cause of Action: Intentional Misrepresentation/Fraudulent Concealment

            Defendants demur to the second cause of action for intentional misrepresentation for failure to state facts sufficient to constitute a cause of action. Although the second cause of action is titled “intentional misrepresentation,” the Complaint claims that Defendants concealed the defects identified in the Complaint. (Complaint ¶¶ 19-23, 37.) Thus, the second cause of action is more properly construed as a claim for fraudulent concealment.

The elements of fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) intent to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) the plaintiff sustained damage as a result of the concealment or suppression of fact. (Hambridge v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)  

Defendants first argue that Plaintiffs’ fraud claim is barred by the economic loss rule. Under the economic loss rule, “[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is in contract alone, for he has suffered only ‘economic losses.’” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) The economic loss rule “hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts.” (Id.) Simply stated, the economic loss rule “prevents the law of contract and the law of tort from dissolving one into the other.” (Id.)  

The restrictions on contract remedies serve purposes not found in tort law—they protect the parties’ freedom to bargain over special risks, and they promote contract formation by limiting liability to the value of the promise. (Harris v. Atlantic Richfield (1993) 14 Cal.App.4th 70, 77.) This encourages efficient breaches, resulting in increased production of goods and services at a lower cost to society. (Id.) Because of these overriding policy considerations, the California Supreme Court has proceeded with caution in carving out exceptions to the traditional contract remedy restrictions. (Id.)  

Nevertheless, the most widely recognized exception to the economic loss rule is when a defendant’s conduct constitutes a tort as well as a breach of contract. (Id. at 78.) When one party commits fraud during the contract formation or performance, the injured party may recover in both contract and tort. (Id.) Thus, under express authority and well-settled precedent, Plaintiffs’ claim for fraudulent concealment in the inducement of the sale is not barred by the economic loss rule.

Defendants also argue that the Complaint does not plead intentional misrepresentation with the requisite specificity. However, as stated above, the second cause of action is more properly considered a claim for fraudulent concealment, not express misrepresentation. Defendants’ argument in this respect therefore misses the mark. Defendants’ demurrer to the second cause of action for failure to state facts sufficient to constitute a cause of action is without merit.

Leave to Amend

            When a demurrer is sustained, the Court determines whether there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318).  When a plaintiff “has pleaded the general set of facts upon which his cause of action is based,” the court should give the plaintiff an opportunity to amend his complaint, since plaintiff should not “be deprived of his right to maintain his action on the ground that his pleadings were defective for lack of particulars.” (Reed v. Norman (1957) 152 Cal.App.2d 892, 900.) Accordingly, California law imposes the burden on the plaintiffs to demonstrate the manner in which they can amend their pleadings to state their claims against a defendant.  (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “Denial of leave to amend constitutes an abuse of discretion unless the complaint shows on its face it is incapable of amendment.  [Citation.]  Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given." (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.)

            Here, although Plaintiffs have not shown how the Complaint might be amended to cure the defect in joinder, the solution of naming that entity and serving process upon it is readily apparent. The Court will therefore permit Plaintiffs to amend the Complaint to cure this deficiency.

CONCLUSION:

            Accordingly, Defendants’ Demurrer to the Complaint is SUSTAINED with leave to amend as to misjoinder of parties only and otherwise OVERRULED.

            Plaintiffs shall have 30 days leave to file a First Amended Complaint naming Grandway I-F, LLC as a Defendant.

            Moving Parties to give notice.

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IT IS SO ORDERED.

Dated:  August 26, 2024                                 ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.