Judge: Thomas Falls, Case: 21PSCV00654, Date: 2022-09-15 Tentative Ruling

The Court may change tentative rulings at any time. Therefore, attorneys are advised to check this website to determine if any changes or updates have been made to the tentative ruling. Counsel may submit on the tentative rulings by calling the clerk in Dept. R at 909-802-1117 before 8:30 the morning of the hearing.

Case Number: 21PSCV00654    Hearing Date: September 15, 2022    Dept: R

Weiss Industrial Holdings, LLC v. Mudita Health and Wellness,                                                      Inc., et al. (21PSCV00654)

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(1)   Cross-Defendants’ Weiss Industrial Holdings, LLC’s, Art Weiss, Inc.’s, Matthew A. Sawyer’s, and Wendy A. Sawyer’s Demurrer to Defendants’/Cross-Complainants’ FIRST AMENDED Cross-Complaint

(2)   Cross-Defendants’ Weiss Industrial Holdings, LLC’s, Art Weiss, Inc.’s, Matthew A. Sawyer’s, and Wendy A. Sawyer’ MOTION TO STRIKE

Responding Party: Defendants, Mudita Health and Wellness, Inc. and Orlander Earl Robinson

Tentative Ruling

(1) Cross-Defendants’ Weiss Industrial Holdings, LLC’s, Art Weiss, Inc.’s, Matthew A. Sawyer’s, and Wendy A. Sawyer’s Demurrer to Defendants’/Cross-Complainants’ FIRST AMENDED Cross-Complaint is SUSTAINED IN PART with leave to amend (i.e., as to 2^nd cause of action for Negligence cause of action and 4^th cause of action for Breach of contract cause of action as to Unit B) and OVERRULED in part (i.e., as to 1^st cause of action for fraud, 3^rd cause of action for unfair business practices, and 6^th cause of action for breach of covenant of good faith and fair dealing as to Unit B).

(2) Cross-Defendants’ Weiss Industrial Holdings, LLC’s, Art Weiss, Inc.’s, Matthew A. Sawyer’s, and Wendy A. Sawyer’ MOTION TO STRIKE is DENIED.

Background

This case arises from a breach of a lease.

On or about March 6, 2017, Plaintiff Weiss Industrial Holdings, LLC (“Plaintiff”) entered into a written agreement (the “Lease”) with Defendant Mudita Health and Wellness, Inc. (“Defendant Mudita”). The Lease was signed by Defendant Mudita and the obligations under the Lease were guaranteed by Defendant Orlander Early Robison (“Defendant Robinson” or “Guarantor”). The Lease was for a two-year period, commencing March 6, 2017 and terminating on February 28, 2019. Plaintiff is informed and believes and alleges that, commencing on or about December 1, 2018, Mudita failed to pay rent, failed to pay their share of the common area operating expenses, and abandoned the Premises before the expiration of the Lease, requiring Plaintiff to repair the Premises and suffer damages for the repairs. Plaintiff is informed and believes and alleges that the total delinquent rent, common area operating expenses, and damages incurred to repair the Premises is about $171,677.86 ($55,250.00 rent plus $58,510.81 cost of repairs plus $672.95 security deposits due plus $79,344.10 common area operating expenses minus $22,100.00 security deposit). Pursuant to the Guaranty signed by Robinson, no notice of default by Mudita under the Lease was required to be given to Robinson, as Guarantor, allowing for this immediate action.

On August 11, 2021, Plaintiff filed suit against Defendants Mudita, Defendant Robinson, and Does 1 through 10 for:

            1. Common Counts,

            2. Breach of Contract,

            3. Breach of Written Guaranty, and

            4. Unjust Enrichment

On January 5, 2022, the court granted Defendants’ Orlander Earl Robinson and Mudita Health and Wellness Inc.’s (“Defendants”) motion to set aside default.

On February 8, 2022, said Defendants filed their answer.

On February 9, 2022, Defendants filed a cross-complaint against Plaintiff Weiss Industrial Holdings, Inc., in addition to naming Art Weiss, Inc., Matthew A. Sawyer, and Wendy A. Sawyer as Cross-Defendants for:

1.      Fraud,

2.      Negligence,

3.      Unfair Business Practices,

4.      Breach of Contract,

5.      Breach of Contract,

6.      Breach of Covenant of Good Faith and Fair Dealing,

7.      Breach of Covenant of Good Faith and Fair Dealing

On April 8, 2022, Plaintiff and the additionally named Cross-Defendants (collectively, “Plaintiffs”) filed the instant Demurrer without a motion to strike, which the court sustained in part and overruled in part.

On June 23, 2022, Defendants filed their First Amended Cross-Complaint (“FACC”) realleging the same causes of actions against the same Plaintiffs.

On August 18, 2022, Plaintiffs filed the instant Demurrer.

            On September 1, 2022, Defendants filed their Opposition.

            On September 7, 2022, Plaintiffs filed their Reply.

Legal Standard

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. 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. (CCP §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [internal citations omitted].) 

Judicial Notice

The court grants Plaintiffs’ request for judicial notice.

Discussion

Plaintiffs demur to all causes of action asserted in the Cross-Complaint, except for the fifth cause of action for breach of contract as to Unit A and seventh cause of action for breach of covenant of good faith and fair dealing as to Unit A (as they were not discussed).  

1.      Whether Robinson Has Standing?

Plaintiffs first argue that Robinson, as the guarantor on the lease, does not have standing to assert these claims because he does not have a “personal right to the damages demanded by Mudita for business losses.” (Demurrer p. 4.)

In Opposition, Defendants argue that Robinson was “imperiled by [Plaintiffs’] actions by lying about the zoning.” (Opp. p. 5.)

Here, the court finds that FACC explicitly lays out Robinson’s standing by stating the following: 

To the extent that Weiss Industrial has sued Robinson personally, he has been harmed by its fraud, as it seeks to collect against him personally on rents that were un-owed due to the ongoing multi-part fraud caused by Weiss Industrial and Mathew Sawyer.

(FACC ¶31.)

Put differently, Robinson has a personal interest because as the guarantor—the individual who is responsible to pay rent—he is being held liable for rent in a unit that Defendants could not even possess because it was being used by another party.

2.      Whether Defendants Have Alleged Sufficient Facts to Establish an Alter Ego Theory as Their Basis for Adding Matthew Sawyer, Wendy Sawyer, and Art Weiss, Inc.?

According to the FACC, Matthew Sawyer is the Chief Executive Officer, Secretary, and Chief Financial Officer of Art Weiss who executed the lease on behalf of Weiss Industrial and “[p]er the website of Art Weiss, Inc., Wendy Sawyer is the face of Art Weiss, Inc. who controls [] Weiss Industrial and Art Weiss with Matthew Sawyer.” As stated in the cross-complaint:

Weiss Industrial and Art Weiss were the alter egos of each other and of Matthew Sawyer and Wendy Sawyer. At all times herein, there has existed a unity of interest and ownership among Cross-Defendants such that any separateness between them has ceased to exist in that Matthew Sawyer and Wendy Sawyer completely controlled, dominated, managed, and operated the corporate defendants to suit their convenience. Upon information and belief, Matthew Sawyer and Wendy Sawyer control Art Weiss and Weiss Industrial, commingle the funds and assets of the corporate entities, divert corporate funds for their own use, disregard legal formalities, fail to maintain arm’s length relationships among the corporate entitles, inadequately capitalize the corporate entities, use the corporate entities as mere shells for their own business, and use the corporate entities to conceal their assets and interests.

(FACC ¶12.)

Plaintiffs argue that such a pleading are essentially a mere recital of the elements of an alter ego theory and that such a fact-less pleading would promote a “highly personal fishing expedition into their lives.” (Demurrer pp. 4-5, citing Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 517.)[1]

In Opposition, Defendants inherently concede that the allegations are conclusory, but, citing to Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 236, state that a plaintiff need only allege the ultimate rather than evidentiary facts to state a claim for alter-ego liability.  

Indeed, Rutherford Holdings, a case wherein plaintiffs raised the identical argument as Plaintiffs do here, stood for such a proposition. (Id. at 236, quoting Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550 [“It would be inconsistent with this purpose, or with the mandate to broadly construe these provisions, to apply more stringent rules of pleading than those that ordinarily apply. (See § 425.10, subd. (a) [a complaint is sufficient if it contains ‘[a] statement of the facts constituting the cause of action, in ordinary and concise language.’].) Thus, the complaint ordinarily is sufficient if it alleges ultimate rather than evidentiary facts.”]; see also Doheny Park Terrace Homeowners Assn., Inc. v. Truck Ins Ins. Exchange (2005) 132 Cal.App.4th 1076, 1099 [“ ‘a plaintiff is required only to set forth the essential facts of his case with reasonable precision and with particularity sufficient to acquaint a defendant with the nature, source and extent of his cause of action. [Citation.] If there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend. [Citations.]’ ... ‘The particularity required in pleading facts depends on the extent to which the defendant in fairness needs detailed information that can be conveniently provided by the plaintiff; less particularity is required where the defendant may be assumed to have knowledge of the facts equal to that possessed by the plaintiff. [Citation.]’ ... There is no need to require specificity in the pleadings because ‘modern discovery procedures necessarily affect the amount of detail that should be required in a pleading.’ [Citation.]”.].)

Here, the fair notice test is satisfied.

Therefore, Defendants have adequately pled alter ego to withstand Plaintiffs’ Demurrer.

That said, the court observes that no causes of action are directed against Wendy Sawyer. Therefore, to the extent that Plaintiffs argue that the FACC is subject to a special demurrer for uncertainty as to Wendy Sawyer, the court SUSTAINS the demurrer because Defendants do not assert any causes of action against her.

3.      Whether Defendants Have Adequately Pled Fraud?

The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See Civil Code §1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.)

“Fraud must be pleaded with specificity rather than with ‘“‘general and conclusory allegations.’”’ (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)

“Consistent with the rule requiring specificity in pleading fraud, a complaint must state ultimate facts showing that the defendant intended or had reason to expect reliance by the plaintiff or the class of persons of which he is a member.” (Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 608.)

Plaintiffs argue that Defendants have not alleged specific facts.

Here, the court finds that Defendants have been pled sufficient facts. As stated in the cross-complaint, Defendants “knowingly allowed the cultivation of cannabis at the property despite lacking the requisite zoning” and “further engaged in fraud by collecting rents from Mudita and Robinson for Unit A, while simultaneously collecting rents from Pro-Tek.” Such conversations can be inferred to have occurred prior to signing of the lease(s).[2]

Lastly, as to intent (though Defendants do not address the element), fraudulent intent would necessarily be inferred from the allegation of certain facts. (See Feeney v. Howard (1889) 79 Cal. 525, 528; see also Locke v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 368 [fraudulent intent “may be ‘inferred from such circumstances as defendant's ... failure even to attempt performance....’ ”].)

Therefore, the demurrer to the first cause of action for fraud is OVERRULED.

4.      Whether Defendants Have Adequately Pled Negligence

The elements for negligence are: (1) a legal duty owed to the plaintiff to use due care; (2) breach of duty; (3) causation; and (4) damage to the plaintiff. (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 318.)  

Plaintiffs aver that Defendants have failed to establish a duty of Weiss Industrial or Matthew Sawyer because the Lease itself placed the responsibility to maintain and supply electricity on the tenant.

In opposition, Defendants argue that Plaintiffs “did a shoddy job with the entirety of the property leading to the destruction of the entire property’s electrical system affecting Unit B.” (Opp. p. 13.)

Here, however, that is not what Defendants allege in their FACC. Rather, Defendants allege that Plaintiffs represented that the electrical systems in both Units A and B were in good working order. (FACC ¶22.) Thus, though Defendants in opposition may argue they alleged that the entirety of the property suffered from defects, that is not apparent on the face of the pleadings. Accordingly, as Section 7.1 of the Lease provides that the Lessee “shall, at Lessee’s sole expense, keep the Premises, Utility Installations, and Alterations in good order . . . including . . . electrical [equipment]” and here, the problem happened in Defendants’ units (even if unoccupied), the duty to maintain proper electrical systems was the lessee’s responsibility. To the extent that Defendants argue another duty was owed (those that generally flow from landlord-tenant relationship), the FACC is explicit that the duty is limited to maintain electrical standards at the property. (FACC ¶34.)

Therefore, the court SUSTAINS with leave to amend the demurrer as to the second cause of action for negligence.

5.      Whether Defendants Have Adequately Pled Unfair Business Practices

California’s Unfair Competition Law (“UCL”) prohibits unlawful, unfair or fraudulent business acts or practices.  (Bus. & Prof. Code, § 17200.)  It is a tool with which to enjoin deceptive or sharp practices.  (Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, 1299, fn. 6.)  The UCL is intended to “safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented.”  (Bus. & Prof. Code, § 17001.)   

Plaintiffs argue that Defendants fail to allege whether any alleged practices were unlawful, unfair, or fraudulent; leaving Plaintiffs in the dark as to which prong under section 17200 they must respond. Further, Plaintiffs aver that the allegations are only as to Unit B.

Here, the court finds Defendants have pled sufficient facts that Plaintiffs engaged in fraudulent practices by misrepresenting the property’s zoning, accepting rents, and misrepresenting the property’s electrical system, all of which affected both units.

Therefore, the court OVERRULES Plaintiffs’ Demurrer as to third cause of action for Unfair Business Practices.

6.      Whether Defendants Adequately Pled Breach of Contract for Unit B

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) 

For similar reasons articulated as to the negligence cause of action—notably that the allegations are premised on shoddy electrical work within the Units and such responsibility was placed on the tenant, the court SUSTAINS Plaintiffs’ Demurrer with leave to amend for the Breach of Contract claim as to Unit B.

7.      Whether Defendants Adequately Pled Breach of Covenant of Good Faith and Fair Dealing for B

“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 508.) “[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” (Id. at 509.) “The covenant of good faith and fair dealing . . . exists . . . to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349.)  

Here, the FACC grounds this cause of action on the premise that Plaintiffs’ lied about the zoning.[3]  Accordingly, as a material term of the contract was appropriate zoning, an alleged misrepresentation as to such would constitute as a breach of good faith and fair dealing.

Therefore, the court OVERRULES the demurrer as to the sixth cause of action.

Conclusion

Based on the foregoing, the demurrer is SUSTAINED IN PART with leave to amend (i.e., as to 2^nd cause of action for Negligence cause of action and 4^th cause of action for Breach of contract cause of action as to Unit B) and OVERRULED in part (i.e., as to 1^st cause of action for fraud, 3^rd cause of action for unfair business practices, and 6^th cause of action for breach of covenant of good faith and fair dealing as to Unit B).[4]

II. Motion to Strike

Legal Standard

The proper procedure to attack false allegations in a pleading is a motion to strike. (Code of Civil Procedure “Code Civ. Proc.” §436(a).)  In granting a motion to strike made under Code Civ. Proc. §435, “[t]he court may, upon a motion made pursuant to Section 435 [notice of motion to strike whole or part of complaint], or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.”  (Code Civ. Proc. §436(a).)  Irrelevant matters include immaterial allegations that are not essential to the claim or those not pertinent to or supported by an otherwise sufficient claim.  (Code Civ. Proc.  §431.10.)  The court may also “[s]trike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”  (Code Civ. Proc.  §436(b).) 

Plaintiffs seek to strike the following:

-          5^th cause of action

-          7^th cause of action

-          Striking portions relevant to recovery for illegal damages

-          Statements under the 1^st and 3^rd causes of action seeking to enforce an unenforceable contract and

-          Striking the entire complaint

First, as to the Plaintiffs’ request to strike entire causes of action, doing so with a motion to strike is inappropriate as a demurrer is more appropriate. Under¿CCP § 436: “While under section 436, a court at any time may, in its discretion, strike portions of a complaint that are irrelevant, improper, or not drawn in conformity with the law, matter that is essential to a cause of action should not be struck and it is error to do so.  [Citation.]  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. [Citation.]”  Quiroz v. Seventh Ave. Center (2006) 140 Cal.App.4th 1256, 1281. 

Therefore, as to any request to motion to strike entire causes of actions and not portions of the FACC, the motion is denied.

Second, as for any arguments relating the validity of a contract, that again should have been raised on a demurer. Thus, any requests pertaining to lease agreement will not be addressed.

Third, as Mudita’s status as a suspended corporation and that thus “to the extent Mudita had any damages at all, those damages were based on unenforceable business transactions to third parties that would have been unenforceable under California law,” the court finds that also inappropriate on a motion to strike because it seeks to strike the entirety of damages/losses which is the basis for the FACC.

Conclusion

Therefore, considering that the motion does not seek to strike out any irrelevant, false, or improper matter in the FACC but rather entire causes of actions, damages, or the FACC in its entirety, the motion to strike is DENIED as the arguments should have been raised in the demurrer.