Judge Thomas D. Long, Case Number: 22STCV38726, Date: 2023-09-19 Tentative Ruling

On December 13, 2022, Nova Skilled Home Health LLC (“Nova-Buyer”) filed this action against Nova Skilled Home Health Inc. (“Nova-Seller”), Julita P. Fraley aka Julie Fraley, and Carol Vega aka Carol Vega Aguilar.

On February 3, 2023, Nova-Seller, Julita P. Fraley, Carol Vega, and Nelson Rolando Aguilar (collectively, “Cross-Complainants”) filed a cross-complaint against Nova-Buyer, Jonathan Sassover, Michael Davidov, and Pine Street Healthcare Holdings LLC (“Pine Street”) (collectively, “Cross-Defendants”).

A demurrer for sufficiency 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, accepting the alleged facts as true.

Cross-Defendants argue that the alter ego allegations are boilerplate and insufficient. (Demurrer at p. 12.) “In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.)

Cross-Complainants allege that “Cross-Defendants, and each of them, were the agents, employees, managing agents, supervisors, conspirators, parent corporation, joint employers, alter ego, and/or joint ventures of the other Cross-Defendants, and each of them, and in doing the things alleged herein, were acting at least in part within the course and scope of said agency, employment, conspiracy, joint employment, alter ego status, and/or joint venture and with the permission and consent of each of the other Cross-Defendants.” (Cross-Complaint ¶ 10.)

Although Cross-Complainants need not allege specific facts to support an alter ego theory when the Cross-Defendants may be assumed to possess superior facts, they still must allege some facts, not just conclusions, demonstrating unity of interest. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236; First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915-916.)

B. Cross-Complainants Do Not Properly Allege Contract Claims Against Non-Parties to the Contract (First, Third Causes of Action).

The first cause of action alleges breach of written contract, and the third cause of action alleges breach of the implied covenant of good faith and fair dealing.

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. The covenant thus cannot ‘“‘be endowed with an existence independent of its contractual underpinnings.’”’ [Citation.] It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-350.)

Cross-Complainant Nova-Seller and Cross-Defendant Nova-Buyer executed the Asset Purchase Agreement. (Cross-Complaint ¶¶ 19, 29.) Sassover, Davidov, and Pine Street are not alleged to be parties to the contract, and the alter ego allegations are insufficient to make them liable on behalf of Nova-Buyer. Accordingly, the contract-based claims are not properly brought against them.

The demurrer to the first and third causes of action are sustained as to Sassover, Davidov, and Pine Street.

C. Cross-Complainants Do Not Allege Fraud With Specificity (Second, Fourth Causes of Action).

The second cause of action alleges intentional misrepresentation, and the fourth cause of action alleges negligent misrepresentation.

“The essential elements of a count for intentional misrepresentation are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. [Citations.] The essential elements of a count for negligent misrepresentation are the same except that it does not require knowledge of falsity but instead requires a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true. [Citations.]” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 230-231.)

“Causes of action for intentional and negligent misrepresentation sound in fraud and, therefore, each element must be pleaded with specificity.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1166.) “‘This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.] A plaintiff’s burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Cross-Complainants allege that between November 2020 and July 2021, “[d]uring the months of due diligence and negotiation leading up to the execution of the [Asset Purchase Agreement], Sassover and Davidov repeatedly made certain representations to Carol and Julie.” (Cross-Complaint ¶ 36; see Cross-Complaint ¶¶ 20, 49.) These representations included “(a) that Nova-Buyer would pay the Holdback Amount to Nova-Seller, (b) that Nova-Buyer would pay the accounts receivables Nova-Seller earned prior to closing, and (c) that Nova-Buyer would continue to operate the Business as a going concern to facilitate its growth.” (Cross-Complaint ¶¶ 20, 37, 49.) This does not allege the date or manner of misrepresentation with specificity. It also does not allege with specificity any misrepresentation by Nova-Buyer or Pine Street.

The court may, upon a motion or at any time in its discretion: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court. (Code Civ. Proc., § 436, subds. (a)-(b).)

Cross-Defendants move to strike Cross-Complainants’ allegations about and prayer for punitive damages. (Motion at pp. 5-7.) A plaintiff can recover punitive damages in tort cases where “the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code § 3294, subd. (a).) “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.)

The allegation in the second cause of action that “Cross-Defendants committed the acts alleged above with oppression, fraud and malice, and with the wrongful intention of injuring Cross-Complainants, and in conscious disregard of Cross-Complainants’ rights. Cross-Defendants acted in a despicable, deliberate, cold, callous and intentional manner” (Cross-Complaint ¶ 42) is conclusory. Moreover, the Court concurrently sustains the demurrer to this fraud cause of action, and there are no other specific facts showing oppression or malice.

Cross-Defendants also move to strike the entire prayer for relief because it does not identify which damages are sought as to each cause of action. (Motion at pp. 7-8.) Each cause of action includes an allegation about the minimum amount of damages that Cross-Complainants suffered, and only the second cause of action requests punitive damages. (Cross-Complaint ¶¶ 34, 41-42, 47, 51.) There is nothing improper about these allegations or the prayer for relief.

The motion to strike is GRANTED IN PART and DENIED IN PART as set forth above, with 30 days’ leave to amend.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court

[1] The court notes the moving party’s citation to the Code of Hammurabi circa 2000 B.C. on the subject of punitive damages. That code imposed “[p]enalties for malpractice [by health care providers as follows]: . . . a doctor who killed a rich patient would have his hands cut off, while only financial restitution was required if the victim was a slave.” The Court believes that punitive damages have evolved such that 4000-year-old precedent is unhelpful. See https://www.history.com/topics/ancient-middle-east/hammurabi#Hammurabi But the Court does appreciate the historical discussion.