Judge Thomas D. Long, Case Number: 23STCV00659, Date: 2023-12-05 Tentative Ruling

On June 30, 2023, Cross-Complainant filed a first amended cross-complaint (“FACC”) against Cross-Defendants American Industrial Inspection and Eduardo Avalos, alleging (1) judicial dissolution of partnership; (2) breach of contract; (3) breach of the covenant of good faith and fair dealing; (4) breach of fiduciary duty; (5) failure to produce corporate records; (6) fraud; (7) negligent misrepresentation; (8) conversion (erroneously numbered as seventh cause of action); (9) accounting (erroneously numbered as eighth cause of action); and (10) declaratory relief (erroneously numbered as ninth cause of action).

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. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.) A special demurrer for uncertainty under Code of Civil Procedure section 430.10, subdivision (f) is disfavored and will only be sustained where the pleading is so bad that defendant or plaintiff cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)

Cross-Defendants’ request for judicial notice of the Complaint and Cross-Complaint is denied as unnecessary because these documents are already part of this case’s record.

Cross-Defendants argue that the amendments in the FACC render it a sham pleading because the FACC is not wholly inconsistent with the prior Cross-Complaint. (Demurrer at pp. 13-14.) “Under the sham pleading doctrine, a plaintiff cannot avoid allegations that are determinative to a cause of action simply by filing an amended complaint which omits the problematic facts or pleads facts inconsistent with those alleged in the original complaint.” (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1248.)

Specifically, Cross-Defendants contend that the amended allegations are contradictory and an effort to avoid the statute of limitations. (See Demurrer at pp. 13-15.) The original Cross-Complaint alleges that the acts of Cross-Defendants’ fraud “were committed as early as 2020 and continue to the present.” (Cross-Complaint ¶ 44.) The FACC similarly alleges that the actions “were committed as early as 2020 and continue to the present.” (FACC ¶ 72.) However, the FACC now alleges that Cross-Complainant discovered the misconduct “on or around August to October 2022.” (FACC ¶ 72.) The Cross-Complaint did not allege a discovery date, so the addition of the date is not inconsistent.

C. The Contract Claims Are Not Facially Barred By the Statute of Limitations.

Cross-Defendants argue that the contract-based claims are barred by the statute of limitations. (Demurrer at pp. 14-15.)

“‘In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.’” (Geneva Towers Ltd. Partnership v. City of San Francisco (2003) 29 Cal.4th 769, 781.) An action based on a written contract must be brought within four years. (Code Civ. Proc., § 337.) An action based on an oral contract must be brought within two years. (Code Civ. Proc., § 339.)

The FACC alleges an oral contract entered into in July 2021. (FACC ¶ 33.) Although the date of breach is not alleged, this claim was timely alleged in the March 27, 2023 Cross-Complaint.

Cross-Defendants argue that the claims for accounting and declaratory relief are remedies, not causes of action. (Demurrer at pp. 15-16.)

Accounting may be pleaded as a cause of action. (See Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413.)

The cause of action for declaratory relief, seeking a determination of the parties’ rights and duties in light of the other alleged conduct, is also proper. A person who desires a declaration of his or her rights or duties with respect to another may bring an action for a declaration of rights or duties, either alone or with other relief. (Code Civ. Proc., § 1060.)

E. The Claim For Failure to Produce Corporate Records Alleges Only a Remedy.

According to Cross-Defendants, the fifth cause of action for “‘Failure to Produce Corporate Records’ is not a recognized cause of action in California. At best, it is a form of breach that might give rise to an action for involuntary dissolution.” (Demurrer at p. 15.)

The FACC alleges that under Corporations Code section 16403, the partnership must keep its books and records at its chief executive office, and the partners must be provided with access to inspect the records. (FACC ¶¶ 59-60.) Cross-Complainant has demanded production of all records, but the partnership has produced only a fraction of the records requested and required to be kept. (FACC ¶¶ 62-63.) Cross-Complainant therefore seeks reasonable expenses and attorney fees under Corporations Code section 1604. (FACC ¶ 61.)

Section 1604 provides for reimbursement of expenses “[i]n any action or proceeding under Section 1600 or Section 1601.” (Corp. Code, § 1604.) The fifth cause of action is not brought under sections 1600 or 1601.

The demurrer to the fifth cause of action is SUSTAINED with 10 days’ leave to amend. The demurrer is otherwise overruled.

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 paragraphs 57, 77, and 92, as well as the prayer for punitive damages. 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.) Paragraphs 57, 77, and 92 (and the related causes of action) involve the same allegedly fraudulent conduct supporting the fraud causes of action. (See FACC ¶¶ 54, 66-76, 88.) Cross-Defendants did not challenge the fraud claims, which can support punitive damages.

Cross-Defendants also move to strike paragraphs 61, 63, and 64 of the fifth cause of action, as well as the prayer for attorney fees and costs. This is duplicative of the demurrer, and Cross-Complainant has been granted leave to amend these allegations.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court