Judge: Virginia Keeny, Case: 19VECV01803, Date: 2022-10-07 Tentative Ruling

Case Number: 19VECV01803    Hearing Date: October 7, 2022    Dept: W

OSVALDO MARTIGNONI, et al. v. arash majlessi, et al.

DEMURRER TO PLAINTIFFS’ FOURTH AMENDED COMPLAINT

Date of Hearing:          October 7, 2022                      Trial Date:       November 28, 2022

Department:               W                                             Case No.:         19VECV01803

Moving Party:             Defendants Kamran Hekmat and Gloria Center LLC

Responding Party:       Plaintiffs Osvaldo Martignoni and Claudia Martignoni

BACKGROUND

This is a contractual fraud action. On December 19, 2019, Plaintiffs Osvaldo Martignoni and Claudia Martignoni (“Plaintiffs”) filed this action. The operative pleading is the Fourth Amended Complaint, which was filed on February 9, 2022, against Defendants Arash Majlessi, Majlessi Corporation, Gloria Center LLC, Kamran Hekmat, United Escrow Co., John C. Lee, and Ian Bhak for (1) rescission, (2) fraud, (3) breach of contract, (4) rescission, (5) breach of duty and gross negligence, (6) breach of duty and gross negligence, (7) fraud, and (8) declaratory relief.

On April 18, 2022, the Court sustained, without leave to amend, Defendants Kamran Hekmat and Gloria Center LLC’s (“Defendants”) demurrer to the fourth and seventh causes of action and dismissed Defendants with prejudice. Plaintiffs filed an initial Motion to Set Aside the Dismissal, and on June 13, 2022, the Court denied that motion.

On August 31, 2022, the Court granted Plaintiffs’ Motion to Set Aside/Vacate Dismissal on the grounds that Plaintiffs’ counsel erred in failing to oppose the demurrer to the Fourth Amended Complaint and failed to appear at the hearing. The Court vacated the dismissal order and set the demurrer to the Fourth Amended Complaint for hearing on October 6, 2022.

[Tentative] Ruling

Defendants’ Demurrer to the Fourth Amendment Complaint is SUSTAINED WITHOUT LEAVE TO AMEND in part and SUSTAINED WITH LEAVE TO AMEND in part.

ANALYSIS

Defendants demur to the fourth cause of action for rescission and the seventh cause of action for fraud on the grounds that neither of these causes of action state facts sufficient to constitute a cause of action.

Fourth Cause of Action – Rescission

Defendants demur to the fourth cause of action on the grounds Plaintiffs have failed to allege that (1) Defendants made any representations to plaintiffs, or that (2) Defendants had knowledge of any code violations, or (3) that plaintiffs paid any consideration to Defendants. Each of these elements are essential to Plaintiffs’ claims. Defendants note this is the Plaintiffs’ fourth attempt to allege facts against Defendants.

Plaintiffs claim that Defendants had or should have had notice that the premises were not properly licensed or permitted because Defendants, as previous owners, had the duty to obtain the required governmental license or permit to conduct business as a café. They also allege that Defendants would have had knowledge of code violations because they should have received notices of violations and non-compliance after governmental inspections during the 13-year period that Defendants owned and operated the café.

The court notes the TAC and 4AC share the same fatal defects. As previously considered by this court, Plaintiffs have failed to allege any representation by Defendants, or of any duty to investigate alleged breaches by the Majlessi defendants. Moreover, the 4AC does not allege the terms of the agreement that Defendants allegedly breached nor does the 4AC allege that Defendants were aware of the permit issues.

(1)   Defendants’ Representations to Plaintiffs

Plaintiffs fail to put forth sufficient facts that show Defendants made misrepresentations to Plaintiffs. Plaintiffs’ allegations that Defendants made “implied promises” that they “would deliver to Plaintiffs a commercial property in which [Plaintiffs would] be able to operate their Nuts ‘n Berries café and be profitable” is insufficient to constitute misrepresentations which Defendants made. (4AC ¶54.) Although Defendants are incorrect in concluding that this allegation is a “preposterous and conclusory assertion for which no supporting facts have been alleged because they do not exist” because the Court does not consider the validity of claims at the demurrer stage, the Court finds that this allegation alone is not sufficient to support a claim for rescission. Neither is Plaintiffs’ claim that Defendants “deliberately concealed the true facts known to them or failed to make any reasonable investigation to determine the true facts from which representations were made” satisfactory. (4AC ¶ 55.) This still does not show that Defendants made representations to Plaintiffs.

(2)   Defendants’ Knowledge of Code Violations

Plaintiffs cannot show that Defendants knew of any code violations. Plaintiffs’ allegations that it is “highly unlikely” that the Cafe´ was not subject to any sort of governmental inspection in the last 13 years is also insufficient to prove knowledge. (4AC ¶54.) It is also insufficient when Plaintiffs claim Defendants “had access to information known to [the Majlessi Defendants] or could ascertain it by a reasonably competent and diligent investigation and inspection” because Plaintiffs do not state what Defendants represented to Plaintiffs nor that Defendants had any duty to investigate the alleged breaches by the Majlessi Defendants. (4AC ¶58.)

(3)   Plaintiffs’ Payment of Consideration to Defendants

Plaintiffs fail to show that they are entitled to rescission of the contract for failure of consideration when they state that they “discovered that the consideration for said agreement had failed in that the assignor … was already in breach … of the original lease” because these allegations do not sufficiently show that Defendants knew or had any duty to investigate what the Majlessi Defendants knew or did not know.” (4AC ¶¶64, 65.)

Thus, Plaintiffs’ Fourth Cause of Action fails to state facts sufficient to constitute a cause of action. The Court notes that this is Plaintiffs’ fourth time in amending this cause of action.

Accordingly, Defendants’ demurrer to the Fourth Cause of Action is SUSTAINED WITHOUT LEAVE TO AMEND.

Seventh Cause of Action – Fraud

Defendants demur to the seventh cause of action on the grounds the cause of action is replete with substantially identical speculative, conclusory and factually unsupported allegations that are set forth in plaintiffs’ rescission cause of action, and are subject to the same defects set forth above with respect to the fourth cause of action.

Plaintiffs claim they sufficiently allege all the elements with supporting facts to support a cause of action for fraud. First, they claim misrepresentation is sufficiently pled because they essentially stated all they knew and that representations need not be oral but may be implied by conduct. Second, they claim knowledge of falsity is pled because the governmental agencies that inspect the premises should have given Defendants written notice of their code violations. Third, they claim they sufficiently pled that Defendants had an intent to defraud because they concealed true facts from Plaintiffs in order to induce them to enter into the lease agreements. Fourth, they claim justifiable reliance is pled because they alleged that they relied on Defendants’ misrepresentation of the condition of the premises and that this was justified because Defendants had or should have had access to information known to Defendants Majlessi. Finally, they claim that they adequately pled damages by providing a specific dollar amount for the rents paid and also allege out of pocket costs and expenses and loss of use of the café and premises.

Again, the TAC and 4AC share the same fatal defects. As discussed above, Plaintiffs fail to allege any representation by Defendants or any nondisclosure. Plaintiffs generally allege they relied on Defendants’ misrepresentation and/or concealment and that Defendants’ actions were fraudulent because they should have known about the issues. This is insufficient to state a fraud cause of action. The Court notes that fraud should be pleaded with higher specificity and finds that Plaintiffs failed to allege specific facts to satisfy the higher pleading requirement for fraud. The Court finds that there are no facts to reasonably support a finding of misrepresentation since Plaintiffs do not give sufficient facts to show any representations Defendants made.

Thus, Plaintiffs’ Seventh Cause of Action fails to state facts sufficient to constitute a cause of action. The Court notes that this is Plaintiffs’ second time in amending this cause of action.

Accordingly, Defendants’ demurrer to the Seventh Cause of Action is SUSTAINED WITHOUT LEAVE TO AMEND.

CONCLUSION

Defendants’ Demurrer to the Fourth Amendment Complaint is SUSTAINED WITHOUT LEAVE TO AMEND as to Plaintiffs’ Fourth Cause of Action and SUSTAINED WITHOUT LEAVE TO AMEND as to Plaintiffs’ Seventh Cause of Action.