Judge Upinder S. Kalra, Case 21STCV38957 2022-08-25 Tentative Ruling

1. An order sustaining the demurrer as to the first, second, fourth, fifth, seventh, tenth, and twelfth causes of action

1. Demurrer is SUSTAINED, with leave to amend, as to Causes of Action One, Four, Five, Ten, Eleven and Twelve, as well as actions pertaining to Deidre Watson.

2. Demurrer is SUSTAINED, without leave to amend, as to Causes of Action Two and Seven.

On October 21, 2021, Plaintiff Persevero, LLC, Diedre Watson, Alexander Cavano, LLC, and Daina Randle (“Plaintiffs”) filed a complaint against Defendants Kevin Harrington, Michael Lauchlan, Mark Campbell, Joe Parker, Crowdfund, LLC formerly dba Crowdfund Rescue, LLC, Inventure X (“Defendants”.) The complaint alleges seven causes of action: (1) Fraud, (2) Rescission, (3) Violation of CA Bus. & Prof. Code § 17200 et seq., (4) Violation of CA Bus. & Prof. Code § 17500, (5) Conversion, (6) Negligent Misrepresentation, and (7) Breach of Contract. The complaint alleges that Plaintiffs entered into a contract with Defendant InventureX to obtain crowdfunding assistance and expertise. Plaintiffs allege that Defendants did not perform the services promised in the contract.

On May 31, 2022, Defendants Michael Lauchlan and Crowdfund, LLC filed a Demurrer without a Motion to Strike.

A demurrer tests the sufficiency of 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 any 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. (SKF Farms v. Superior Court¿(1984) 153 Cal. App. 3d 902, 905.)¿Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.¿(CCP §§ 430.30, 430.70.)¿The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action.¿(Hahn, supra,¿147 Cal.App.4th¿at¿747.)

The Court may take judicial notice of the existence of the records, but not the truth of matters asserted in such records. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565). As a result, although the court may take judicial notice that the documents exists, the Court may not take judicial notice of the truth of the facts in the documents.

Additionally, Evidence Code only allows the Court to take judicial notice of certain types of documents. The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).) The Evidence Code does not allow the Court to take judicial notice of discovery responses or parts of cases, such as depositions.

1. The Docket in the Other Action Pending, Deidre Watson v. Kevin Harrington, Crowdfund Rescue, LLC, et al, Case No. 34-2020-00283953-CL-BC-GDS

2. The Complaint filed on August 10, 2020, Deidre Watson v. Kevin Harrington, Crowdfund Rescue, LLC, et al, Case No. 34-2020-00283953-CL-BC-GDS

The Declaration of Scott Talkov indicates that he met and conferred with Plaintiffs’ counsel on May 26, 2022, via email. Plaintiffs’ counsel indicated that he could meet and confer on May 31, 2022. However, on that day, Mr. Talkov indicates that Plaintiffs’ counsel did not contact him. (Dec. Talkov ¶ 4.) In Jason Turner’s declaration, he indicates that he intended to speak with Mr. Tolkov but was exhausted due to a bout with Covid-19. (Dec. Turner ¶ 3.)

The proof of service attached the Demurrer indicates that Plaintiffs’ counsel was served via email and USPS mail. The proof of service filed with the Opposition indicates service was effected via electronic service.

Defendant demurs on multiple grounds. First, Defendant argues that Plaintiff Diedre Watson has another pending action involving the same party. Second, the complaint fails to statute sufficient facts to constitute causes of action based on fraud as the complaint does not allege the required specificity. Additionally, certain causes of actions are remedies, not causes of action or independent torts.

Under CCP § 430.10(c), a party may file a demurrer when “there is another action pending between the same parties on the same cause of action.” Defendant contends that has filed a separate lawsuit in the County of Sacramento. The complaint, specifically paragraph 34, indicates that Plaintiff Watson has filed a lawsuit against Defendant. In response, Plaintiffs indicate that Diedre Watson’s prior legal action is being dismissed.

2. First and Second Causes of Action: Intentional Misrepresentation and Concealment

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

“[W]hen averments of fraud are made, the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” (Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (internal quotations and citations omitted). The allegations “must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” (Arikat v. JP Morgan Chase & Co. (N.D. Cal. 2006) 430 F.Supp.2d 1013, 1022.) Similarly, “[t]he requirement of specificity in a fraud action against a corporation requires the plaintiff to 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.” (Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157.)

Defendant contends that paragraphs 41 through 48 have vague allegations of wrongdoing, but fail to allege specific facts demonstrating Plaintiffs justifiable relied on Defendant’s alleged misrepresentations. Plaintiff contends that the Complaint alleges that Defendants represented “facts about services that they contractually agreed to provide.” (Complaint, ¶ 39.) However, when reviewing the Complaint, the Plaintiffs have failed to allege specific facts as required under fraud causes of action. Paragraph 32 provides the services that Defendant allegedly indicated were involved in the contract. However, the Complaint alleges that Defendant failed to perform the services, which is more akin to a breach of contract than fraud. The Complaint does not allege what the actual misrepresentation was, where it was made, which Defendant made the representation. The complaint contains vague allegations that Defendants misrepresented facts about qualifications and ability to deliver. This is insufficient for a fraudulent misrepresentation cause of action. Further, as stated above, when claims are against a corporation, the Plaintiff must indicate who made the representations, the authority to speak, to whom they spoke, etc. Here, the first cause of action is against all Defendants, including a corporation. Thus, the Plaintiffs have failed to allege specific facts required for an intentional misrepresentation cause of action.

As for the second cause of action, Plaintiffs assert that the second cause of action for fraud – concealment will be deleted.

Defendant contends that the fourth cause of action for conspiracy to defraud is not an independent tort. “Standing alone, a conspiracy does no harm and engenders no tort liability. It must be activated by the commission of an actual tort.” (Favila v. Katten Muchin Rosenman LLP (2010) 188 Cal.App.4th 189, 206, as modified on denial of reh'g (Sept. 22, 2010.)

Plaintiffs assert that the allegations will be restated as part of their allegations for joint liability of the Defendants.

Defendant contends that the fifth cause of action for recission is not a cause of action. “Rescission is not a cause of action; it is a remedy.” (Nakash v. Superior Court (1987) 196 Cal.App.3d 59, 70.) Plaintiffs assert that the allegations will be restated as part of their allegations for joint liability of the Defendants.

Defendant contends that the seventh cause of action fails because Plaintiffs purchased a service; they did not hold title to the services performed by Defendant Crowdfund, LLC. Plaintiffs assert that the seventh cause of action for conversion will be deleted.

Defendant contends that the tenth cause of action fails because it is not itself “a claim for substantive relief.” (quoting Leek v. Cooper (2011) 194 Cal.App.4th 399, 418–19.) Plaintiffs assert that the allegations will be restated as part of their allegations for joint liability of the Defendants.

Defendant contends that the eleventh cause of action fails because unjust enrichment “does not lie where, as here, express binding agreements exist and define the parties’ rights.” (California Med. Ass'n, Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172.) Plaintiff contends that this instance matter is similar to Rutherford. There the Court stated that restitution, which is synonymous with unjust enrichment, can be awarded based on an express contract if that contract was “procured by fraud or is unenforceable of ineffective for some reason.” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.) Here, Defendant fraudulently misrepresented ability to perform the agreed-upon services.

While unjust enrichment is not a cause of action, courts have stated that unjust enrichment is synonymous with restitution and allowed recovery where the plaintiff asserts a proper basis for recovering restitution.¿(See¿Durrell v. Sharp Healthcare¿(2010) 183 Cal.App.4th 1350, 1370;¿McBride v.¿Boughton¿(2004) 123 Cal.App.4th 379, 387-88.) “The elements for a claim of unjust enrichment are ‘receipt of a benefit and unjust retention of the benefit at the expense of another.’ [Citation.] ‘The theory of unjust enrichment requires one who acquires a benefit which may not justly be retained, to return either the thing or its equivalent to the aggrieved party so as not to be unjustly enriched.” (Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769.)

Here, the complaint does not sufficiently allege a cause of action for unjust enrichment. While Rutherford allows for unjust enrichment causes of action based on express agreements, like here, the Plaintiffs have failed to adequate allege fraud. As stated above, the complaint does not contain the required specificity for fraud. Because the first cause of action for fraud fails, the claim for unjust enrichment fails.

“To establish a cause of action for breach of contract, the plaintiff must plead and prove (1) the existence of the contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) resulting damages to the plaintiff. [Citation.]” (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97-98.)

Defendants argue that because the terms of the contract were not verbatim in the complaint or failed to attach the actual contract, this cause of action fails. The complaint alleges, in paragraphs 32, 334, 35, and 36 that Plaintiffs each entered into a contract with Defendant Crowdfund, LLC, but does not attach those contracts or set forth the terms.

Plaintiffs assert that the complaint will be amended to attach the written contracts that were described in the complaint.

As the Plaintiff has indicated that the complaint will be amended to attach the contracts and did not argue any further, the Demurrer as to the Twelfth Cause of Action is SUSTAINED.

Leave to amend should be liberally granted if there is a reasonable possibility an amendment could cure the defect. (County of Santa Clara v. Superior Court (2022) 77 Cal.App.5th 1018,1035.) The Plaintiff has the burden of demonstrating that leave to amend should be granted. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.”].) Plaintiff has indicated that these causes of action can and will be amended. It is likely that the causes of action, not including the second and seventh causes of action, can be amended. Plaintiff is likely to be able to further plead the required specificity for fraud.

Demurrer is SUSTAINED, with leave to amend, as to Causes of Action One, Four, Five, Ten, and Twelve, as well as actions pertaining to Deidre Watson.

Demurrer is SUSTAINED, without leave to amend, as to Causes of Action Two and Seven.

1. An
order granting monetary and non-monetary sanctions as to Plaintiffs Cavano,
Watson and Randle

On October 21, 2021, Plaintiff Persevero, LLC, Diedre
Watson, Alexander Cavano, LLC, and Daina Randle (“Plaintiffs”) filed a
complaint against Defendants Kevin Harrington, Michael Lauchlan, Mark Campbell,
Joe Parker, Crowdfund, LLC formerly dba Crowdfund Rescue, LLC, Inventure X
(“Defendants”.) The complaint alleges seven causes of action: (1) Fraud, (2)
Rescission, (3) Violation of CA Bus. & Prof. Code § 17200 et seq., (4)
Violation of CA Bus. & Prof. Code § 17500, (5) Conversion, (6) Negligent
Misrepresentation, and (7) Breach of Contract. The complaint alleges that
Plaintiffs entered into a contract with Defendant InventureX to obtain
crowdfunding assistance and expertise. Plaintiffs allege that Defendants did
not perform the services promised in the contract.

Defendants filed a Motion for Sanctions on July 14, 2022.
Plaintiffs Opposition was filed on August 12, 2022. Defendants’ Reply was filed
on August 19, 2022.

CCP section 128.7 states that a court may impose sanctions
on a party or attorney that presents a pleading, petition, motion, or other
similar papers in the following circumstances:

1) the
document is presented primarily for an improper purpose, such as to harass or
to cause unnecessary delay or needless increase in the cost of litigation.

2) the
claims, defenses, and other legal contentions therein are not warranted by
existing law or by a nonfrivolous argument for the extension, modification, or
reversal of existing law or the establishment of new law.

CCP section 128.7 permits the Court to impose monetary
sanctions on an attorney or an unrepresented party that violates any one of
these requirements. (Eichenbaum v. Alon
(2003) 106 Cal App 4th 967, 976.) In addition, section 128.7 does not
require a finding of subjective bad faith; instead it requires only that the
Court find that the conduct be objectively unreasonable. (In re Marriage of Reese
& Guy (1999) 73 Cal. App. 4th 1214, 1221.)

Under section 128.7, a court may impose sanctions if it concludes a pleading was filed for an
improper purpose or was indisputably without merit, either legally or
factually. (Bucur v. Ahmad (2016) 244
Cal.App.4th 175, 189–190.) A claim is factually frivolous if it is “not well
grounded in fact” and is legally frivolous if it is “not warranted by existing
law or a good faith argument for the extension, modification, or reversal of
existing law.” (Ibid.) In either
case, to obtain sanctions, the moving party must show the party's conduct in
asserting the claim was objectively unreasonable. (Ibid.) A claim is objectively unreasonable if “any reasonable
attorney would agree that [it] is totally and completely without merit.” (Ibid.) However, “section 128.7 sanctions
should be ‘made with restraint’ [Citation], and are not mandatory even if a
claim is frivolous.” (Peake v. Underwood
(2014) 227 Cal.App.4th 428. at 448.)

In addition, Code of Civil Procedure
section 128.7 “contains a safe harbor provision. It requires the party seeking
sanctions to serve on the opposing party, without filing or presenting it to
the court, a notice of motion specifically describing the sanctionable conduct.
Service of the motion initiates a 21-day ‘hold’ or ‘safe harbor’ period.
[Citations.] During this time, the offending document may be corrected or
withdrawn without penalty. If that occurs, the motion for sanctions ‘‘shall
not’’ be filed. [Citations.] By mandating a 21-day safe harbor period to allow
correction or withdrawal of an offending document, section 128.7 is designed to
be remedial, not punitive. [Citation.]” (Li
v. Majestic Industry Hills, LLC (2009) 177 Cal.App.4th 585,
590-591.)

The Court may take judicial notice of the
existence of the records, but not the truth of matters asserted in such
records. (Sosinsky v. Grant (1992) 6
Cal.App.4th 1548, 1565). As a result, although the court may take judicial
notice that the documents exists, the Court may not take judicial notice of the
truth of the facts in the documents.

Additionally,
Evidence Code only allows the Court to take judicial notice of certain types of
documents. The court may take judicial notice of “official acts of the
legislative, executive, and judicial departments of the United States and of
any state of the United States,” “[r]ecords of (1) any court of this state or
(2) any court of record of the United States or of any state of the United
States,” and “[f]acts and propositions that are not reasonably subject to
dispute and are capable of immediate and accurate determination by resort to
sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c),
(d), and (h).) The Evidence Code does not allow the Court to take judicial
notice of discovery responses or parts of cases, such as depositions.

1. Amended
and Restated Certificate of Formation of Crowfund, LLC, filed with the State of
Delaware Secretary of State/Division of Corporations on 2/19/2020;

2. Statutes
from the Delaware Limited Liability Act (Stats. Del. Title 6, Chapter 18)

The Declaration of Scott Talkov indicates that on May 31,
2022, the Motion was served via email and USPS priority mail. The un-filed
version was served on counsel for settled plaintiffs. On June 14, 2022,
Defendants filed a Notice of Motion regarding service of safe harbor notice,
which included the Case Management Statement where Defendants indicated that a
motion for sanctions would be filed. (Dec. of Notice filed 7/14, Ex. 4,
Paragraph 15.) The Motion for Sanctions was e-filed on July 14, 2022.

Defendants contend that the complaint filed by Plaintiff
warrants sanctions for two main reasons. First, the claims asserted by Settled
Plaintiffs are frivolous. Second, Plaintiff Deidre Watson has a pending action
against the same defendants.

Under CCP § 128.7(b)(2), a party
must certify that the claims are no frivolous. Here, Defendants assert that
Plaintiff Cavano and Plaintiff Daina Randle both executed a Settlement
agreement with Defendants, which indicates that Plaintiff would release
Defendant InventureX and all affiliates and related parties, including Kevin
Harrington. (Ex. 1 - 2, Settlement Agmt.)

In response, Plaintiffs argue that because
there is growing evidence that Mark Campbell, who signed one of the settlement
agreements, does not exist, there is an issue as to whether the agreements are
void or voidable. However, Defendants contend that there is no contract between
Plaintiffs and Mark Campbell. Even so, whether Mark Campbell signed the document
is irrelevant as Defendant Crowdfund, LLC did not raise a question as to the
authority of the signer of the agreement. (Reply 5: 8-12). Moreover, Scott
Talkov, the undersigned attorney of the present motion, signed the other
settlement agreement.

Defendant contends that Diedre
Watson has filed this current claim in violation of 128.7(b)(2), as there is
another pending action filed in Sacramento County against the same defendants. Defendant
refers to res judicata, but the Court notes that res judicata requires final
judgment on the merits. Here, the other matter has been filed, but there is no
indication that a final judgment has been rendered. Therefore, Defendant’s
argument concerning res judicata is misplaced.

In response, Plaintiff contends
that she is in the process of dismissing the matter. However, as stated in the
reply Exhibit 1 attached to the Declaration of Scott Talkov, which is the copy
of the docket in the other pending action, has no request for dismissal.

Defendant seeks monetary sanctions
totaling $12,125.96, based on the expenses incurred thus far. Additionally,
Defendant seeks non-monetary sanctions and requests the court strike the
complaint as it pertains to Plaintiffs Cavano, Randle, and Watson.

“A claim is factually frivolous if it is ‘not
well grounded in fact’ and is legally frivolous if it is ‘not warranted by
existing law or a good faith argument for the extension, modification, or
reversal of existing law.’ [Citation.] In either case, to obtain sanctions, the
moving party must show the party's conduct in asserting the claim was
objectively unreasonable. [Citation.] A claim is objectively unreasonable if
‘any reasonable attorney would agree that [it] is totally and completely
without merit.’ [Citations.]” (Kumar v.
Ramsey (2021) 71 Cal.App.5th 1110, 112, reh'g denied (Dec. 21, 2021.)

As for the two settled Plaintiffs—Cavano
and Randle— while the claim may be frivolous as the agreements released all
Defendants and affiliated parties, they claim that certain parties were non-existent.
“Because our adversary system requires that attorneys and litigants be provided
substantial breathing room to develop and assert factual and legal arguments,
[section 128.7] sanctions should not be routinely or easily awarded even for a
claim that is arguably frivolous” [citation omitted], and instead “should be
‘made with restraint.’ ” (Kumar, supra,
71 Cal.App.5th at 1121.) Defendant rightly points out that Plaintiff Randle’s
settlement agreement was signed by counsel Talkov and not the allegedly non-existent
“Mark Campbell.” Nonetheless, it is not entirely clear from this court that the
settlement agreement enjoins Randle from joining in a suit asking for injunctive
relief to prevent an unfair business practice that does not arise from Randle’s
contract or action after the effective date of the agreement. As such,
sanctions are not appropriate as it pertains to the two settled plaintiffs.

Plaintiff Watson filed a declaration
dated August 24, 2022, declaring that she requested the court dismiss the
action on August 15, 2022.[1]
As of August 19, 2022, as indicated by the copy of the docket for the
Sacramento Case, no dismissal has been ENTERED by the clerk. Striking the
Plaintiff at this stage would be punitive. However, as the Court has
discretion, if entry of dismissal does not occur in a reasonable time, the
Court may impose sanctions.

[1]Defendants
argue in their Reply that it is questionable that Plaintiff can move for
dismissal once the matter is stayed pending arbitration. Cardiff Equities, Inc. v. Superior Court (2008) 166 Cal.App.4th 1541 is
authority for the proposition that Plaintiff’ has a right to dismiss a
complaint at any time before trial commences, even in cases where arbitration
is ordered.