Judge Upinder S. Kalra, Case Number: 23STCV02557, Date: 2023-10-17 Tentative Ruling

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1. An order sustaining the demurrer as to the first cause of action for failing to state facts sufficient to constitute a cause of action against Defendant. (CCP § 430.10(e).)

2. Defendant also demurrers to on the grounds that this cause of action is barred by the applicable statute of limitations.

On February 6, 2023, Plaintiff James F. Barger (Plaintiff) filed a Complaint against Defendant Burke Eiteljorg (Defendant). Defendant demurrered to the Complaint, which the court sustained with leave to amend as to the first cause of action for Breach of Guaranty and overruled as to the second cause of action for Fraud on July 27, 2023.

Plaintiff filed a First Amended Complaint (FAC) On August 9, 2023. The FAC has two causes of action for: (1) Breach of Guaranty, and (2) Fraud.

The FAC alleges that, at Defendant’s request, Plaintiff loaned $250,000 (the Loan) to an entity named Spring Mill Coal, LLC (Spring Mill) in connection with a potential investment opportunity to acquire ownership interests in another company, Central Utility Coal Co., Inc. (Central Utility), which entity owned real property that could be used for profitable coal production. The FAC alleges that Defendant memorialized the Loan in a convertible promissory note. Defendant allegedly agreed to personally guaranty the Loan (the Guaranty). Plaintiff alleges that the acquisition of Central Utility did not happen, Defendant has not repaid the Loan since September 2012, and Defendant has failed to honor the Guaranty.

Defendant Burke Eiteljorg timely filed a Demurrer to the FAC on September 25, 2023.[1] Plaintiff timely filed an opposition on October 4, 2023. Defendant timely filed a reply on October 10, 2023.

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. …. 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 147 Cal.App.4th at 747.)

Prior to filing a demurrer, the demurring party is required to satisfy their meet and confer obligations pursuant to Code of Civ. Proc. §430.41 and demonstrate that they so satisfied their meet and confer obligation by submitting a declaration pursuant to Code of Civ. Proc. §430.41(a)(2) & (3). Upon reviewing the Declaration of Alexander P. Manglinong in support of the Demurrer to FAC, Defendant met the meet and confer requirement.

Defendant argues that Plaintiff’s cause of action for Breach of Guaranty began to accrue on December 25, 2012, when, they allege, Defendant was obligated under the Guaranty to pay for Spring Mill’s debts under the Note.[2] Plaintiff contends that the due date of the Convertible Promissory Note (the Note) is ambiguous because the Note, the Warrant to Purchase Units (the Warrant), and the Guaranty must be read together pursuant to Civ. Code § 1642.

The statute of limitations for breach of written contract is four years from the date of the breach. (CCP § 337(a).) “No waiver shall bar a defense to any action that the action was not commenced within the time limited by this title unless the waiver is in writing and signed by the person obligated. No waiver executed prior to the expiration of the time limited for the commencement of the action by this title shall be effective for a period exceeding four years from the date of expiration of the time limited for commencement of the action by this title and no waiver executed after the expiration of such time shall be effective for a period exceeding four years from the date thereof, but any such waiver may be renewed for a further period of not exceeding four years from the expiration of the immediately preceding waiver.” (CCP § 360.5; see California First Bank v. Braden (1989) 216 Cal.App.3d 672, 676.)

The court notes that this argument is unchanged from the demurrer to complaint. As such, the court will not reiterate its analysis on this issue, but instead will focus on the new arguments presented below that are unique to the FAC.[3]

Defendant argues Plaintiff’s “misinterpretation” of the Warranty does not control over the Warranty’s actual terms. Defendant additionally argues that the parol evidence rule bars any of plaintiff’s exhibits attached to the FAC allegedly showing the parties’ intent.[4] Plaintiff contends that the court must consider the Note, Guaranty, and Warrant together and that the parole evidence rule does not apply.

“Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.” (CCP § 1856(a).) “The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance.” (Id. at subd. (c).) “This section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates . . . or or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud.” (Id. at subd. (g).)

Whether a contract is ambiguous is a question of law. (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239.) “Where a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible.” (Ibid.; Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 229 (Rutherford Holdings).) While the plaintiff’s interpretation may ultimately prove invalid, at the pleading stage, it is sufficient that the agreement is reasonably susceptible of this meaning. (Rutherford Holdings, supra, at 229.) However, a court is not required to credit a plaintiff’s allegations that extrinsic evidence renders a contract ambiguous where the language in the contract attached to the complaint shows otherwise. (George v. Automobile Club of Southern Calif. (2011) 201 Cal.App.4th 1112, 1130 (George).) If there is only one reasonable interpretation of a contract, then the court may sustain a general demurrer without leave to amend. (Baldwin v. AAA Northern Calif., Nevada & Utah Ins. Exch. (2016) 1 Cal.App.5th 545, 553.)

Here, the Note clearly indicates on its face that repayment shall be due and payable six months after June25, 2012. While Plaintiff now argues that the Note was ambiguous, nowhere in the complaint does Plaintiff sufficiently allege facts showing ambiguity as to Spring Mill’s obligation to repay the loan within six months. First, the Note, the Guaranty, the Warranty, and the post-June 25, 2012 correspondence, show extensive planning for the conversion period (which did not happen) – not discussion of when Spring Mill needed to repay its loan to Plaintiff. (See FAC Exhibits A, B, C, and D.) Close review of the correspondence attached to Plaintiff’s June 25, 2022 demand letter do not discuss repayment of the loan, but confirm 100% acquisition of Central Utility had not yet happened and delay of distribution on investment. (FAC Exhibit D.) While Plaintiff alleges that neither party “understood at the time of execution of the Note that Eiteljorg had a six-month deadline to acquire stock in Central Utility, or surrender the loan proceeds,” this does not comport to the FAC attachments.[5] (FAC ¶9; George, supra, at p.1130; see Moran v. Prime Healthcare Mgmt., Inc. (2016) 3 Cal.App.5th 1131, 1145-46.) The FAC also alleges that “[if] the loan was repaid, there would be no funds for Spring Mill to buy the stock in Central Utility.”[6] (FAC ¶ 9.) However, the FAC Exhibits show that Spring Mill purchased 31% of Central Utility as of July 23, 2012.[7] (FAC Exhibit D.) Without straining its interpretation, the court does not see how the Note, the Guaranty, and the Warranty taken together show the parties did not contemplate Spring Mill to repay the loan within six months.[8]

Accordingly, Defendant succeeds on his argument that the statue of limitations bars Plaintiff’s first cause of action for breach of guaranty. Additionally, it does not appear to the court that there is any way Plaintiff can remedy the defects identified herein.

[1] The parties stipulated to extend Defendant’s response deadline to September 25, 2023 to allow for further meet and confer. The court granted this stipulation on September 18, 2023.

[2] The Note is the only document that refers to loan repayment obligation.

[3]The court’s prior analysis concerning waiver, Commercial Code § 3118, and demand remain unchanged.

[4]The court disregards Defendant’s argument re intentionally omitting terms from contract, because no allegations that the terms were intentionally omitted.

[5] The court disregards allegations in the FAC that are legal contentions and are otherwise not statements of fact. (See Wexler v. California Fair Plan Ass’n (2021) 63 Cal.App.5th 55, 70 [disregarding legal conclusions in a complaint as “just lawyer’s arguments.”])

[6] This allegation is arguably not a fact but a conclusion.

[7] It seems obvious to the court that Spring Mill used Plaintiff’s funds to purchase those shares.

[8] Indeed, Plaintiff did not allege that he and Defendant subsequently modified the Note to extend Spring Mill’s repayment obligation deadline. Based on the current allegations and submitted exhibits, the court does not see how Plaintiff could, in good faith, make such an allegation.