Judge Virginia Keeny, Case 22VECV01273 2022-12-08 Tentative Ruling

Judge: Virginia Keeny, Case: 22VECV01273, Date: 2022-12-08 Tentative Ruling

Case Number: 22VECV01273 Hearing Date: December 8, 2022 Dept: W

MICHELLE DAVIS, et al. v. FRAMEWORK CONSTRUCTION & REMODELING, INC., et al.

Defendants FRAMEWORK CONSTRUCTION & REMODELING, INC., SEAN LAWRENCE WOOD, REGEV TIMOR COHEN, and IAKOV MEIR SEBBAG’s demurrer

Date of Hearing: December 8, 2022 Trial Date: None set.

Department: W Case No.: 22VECV01273

Moving Party: Defendants Sean Lawrence Wood and Regev Timor Cohen

Responding Party: Plaintiffs Michelle Davis and Benjamin Davis

Meet and Confer: Yes. (Vandernaald Decl. ¶¶5-6.)

BACKGROUND

In early June 2021, Plaintiffs sought the services of a California licensed contractor for the primary purpose of the construction of a backyard swimming pool and spa at the Property. Plaintiffs allege they met with Defendant Sebbag, Defendant’s Framework’s principal, partner and/or co-venturer, who represented to Plaintiffs that Defendant Framework was a general contractor, that Framework was licensed to perform pool construction, and that all of the pool construction work under the Project could be performed under Framework’s license. Plaintiffs allege, however, Defendant Framework was not properly licensed to perform pool construction work and there were several issues with the construction. Moreover, Defendant’s contract violated numerous provisions of the California Business & Professions Code, as well as California Contractors State License Board (CSLB) guidelines and requirements. Defendant Wood is the RMO and officer and/or managing agent of Framework. Defendant Cohen is an officer and/or managing agent of Framework. Plaintiffs also assert claims against Defendants The North River Insurance Company and Hartford Insurance Company of the Midwest, surety companies, for damages sustained by Plaintiff for Defendant Framework’s material breaches of the contract.

On September 1, 2022, Plaintiffs filed a complaint against Defendants asserting causes of action for (1) Breach of Written Contract; (2) Breach of Implied Covenant to Perform the Work in a Good and Competent Manner; (3) Negligence; (4) Negligent Supervision; (5) Disgorgement [Bus. & Prof. Code § 7031]; (6) Unfair Business Practices [Bus. & Prof. Code § 17200, et seq.] (7) Fraud - Intentional Misrepresentation; (8) Fraud – Deceit; and (9) Recovery on Surety Bond.

On October 12, 2022, Hartford Insurance Company of Midwest filed a cross-complaint against Framework Construction & Remodeling, Inc., Amos Ezrachi, Michelle Davis, Benjamin Davis, Sandy D. King, Christine Mong-King, and Christina Moreno Perez for indemnity and interpleader.

On October 13, 2022, Defendants Framework Construction & Remodeling, Inc., Sean Lawrence Wood, Regev Timor Cohen, and Iakov Meir Sebbag filed a cross-complaint against ROES 1-20 asserting causes of action for (2) Equitable Indemnity; (3) Contribution and Apportionment; (4) Declaratory Relief – Duty to Defend; (5) Declaratory Relief – Duty to Indemnify; and (6) Breach of Contract – Failure to Obtain Insurance.

[Tentative] Ruling

Defendants’ Demurrer to the first, second, fifth, and sixth causes of action is SUSTAINED WITH LEAVE TO AMEND. Defendants’ Demurrer to the seventh and eighth causes of action is OVERRULED.

DISCUSSION

Defendants Sean Lawrence Wood and Regev Timor Cohen demur to the complaint on the grounds the first, second, fifth, sixth, seventh, and eighth causes of action fail to state facts sufficient to constitute a cause of action.

First and Second Causes of Action

Defendants Wood and Cohen demur to the first cause of action for breach of written contract and second cause of action for breach of implied covenant to perform the work in a good and competent manner on the grounds neither Defendant Wood nor Cohen were parties to the contract.

“A cause of action for breach of contract requires (1) pleading of a contract, (2) plaintiff's performance or excuse for failure to perform, (3) defendant's breach and (4) damage to plaintiff resulting therefrom.” (McKell v. Washington Mutual, Inc.¿(2006) 142 Cal.App.4th 1457, 1489.) “Under California law, only a signatory to a contract may be liable for any breach.” [Citations.]” (Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 452.)

Defendants contend that the operative agreements reveal that the party to the contract with Plaintiffs was Defendant Framework. As a result, there are no allegations pled in the complaint which would support a conclusion that Plaintiffs entered into contracts with either Defendant Cohen or Wood.

In opposition, Plaintiffs argue the complaint alleges sufficient alter ego allegations against Defendants Wood and Cohen, which taken together, support Plaintiffs’ breach of contract and breach of implied warranty causes of action.

The court finds Plaintiffs’ have failed to allege facts sufficient to support a breach of contract and breach of implied warranty claim against Defendants Wood and Cohen. However, the court disagrees with Defendants’ contention that the alter ego allegations do not change the fact that there is no contract pled between Plaintiffs and either Defendant Cohen or Wood. To assert alter ego liability for a breach of contract, there are a few procedural vehicles available to the party asserting alter ego liability: “The first option is to sue the alter ego directly in an action for breach of contract . . . . Another is to first obtain a judgment for breach of contract against the signatories to the contract, followed by a motion to amend the judgment to add the alter egos as defendants. [Citations.] Still another is, after obtaining a judgment against the signatories, to institute an independent action against the alter egos . . . . [Citation.] These different procedural vehicles, however, are identical in substance: in all three, the proof of alter ego is the same.” (MSY Trading Inc. v. Saleen Automotive, Inc. (2020) 51 Cal.App.5th 395, 402-403 (emphasis in original).) To argue otherwise would make doctrines like alter ego meaningless.

However, the court finds Plaintiff has not sufficiently alleged alter ego allegations against Defendants Cohen and Wood. Plaintiff alleges both Wood and Cohen are officers of Framework and that “there existed a unity of interest and commonality of control”. (Compl. ¶¶10-11.) However, “in California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. [Citations.]” (Sonora Diamond Corp. v Superior Court (2000) 83 Cal.App.4th 523, 538-39.) Plaintiffs have not alleged Defendants Wood or Cohen have any ownership interest in Framework.

Accordingly, Defendants’ demurrer to the first and second cause of action are SUSTAINED with leave to amend.

Fifth Cause of Action

Defendants Wood and Cohen demur to the fifth cause of action for disgorgement on the grounds the complaint does not provide any allegations that Wood or Cohen contracted and/or performed work as unlicensed contractors in connection with the project.

California Business and Professions Code section 7031(b) provides that “a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.” (Bus. & Prof. Code § 7031(b).)

Defendants contend the complaint is absolutely void of any facts alleging Plaintiffs entered into contracts for construction work with either Defendant Cohen or Wood nor does the complaint allege Defendants Cohen or Wood acted as unlicensed contractors. Moreover, Defendant contends the complaint does not allege Plaintiffs made separate payments to either Defendant Wood or Cohen.

In opposition, Plaintiff again argues the alter ego allegations allow Plaintiff to assert causes of action against Defendant Wood and Cohen even if the operative agreements were entered with Framework and payments were made to Framework, not Cohen or Wood.

Again, the court finds Plaintiffs’ have failed to allege facts sufficient to support a cause of action for disgorgement. While the court disagrees with Defendants Wood and Cohen’s contention that Plaintiff must allege something other than alter ego to succeed on a claim for disgorgement, Plaintiffs have failed to sufficiently allege Defendants Wood and Cohen were alter egos of Defendant Framework.

Accordingly, Defendants’ demurrer to the fifth cause of action is SUSTAINED WITH LEAVE TO AMEND.

Sixth Cause of Action

Defendants Wood and Cohen demur to the sixth cause of action for unfair business practices on the ground there are no facts alleged to demonstrate either engaged in any unlawful, unfair, or fraudulent business acts or practices.

California’s Unfair Competition Law prohibits unlawful, unfair or fraudulent business acts or practices. (Bus. & Prof. Code, § 17200.) A defendant violates the fraudulent business acts or practices prong by engaging in conduct by which “members of the public are likely to be deceived.” (Comm. On Children's Television, Inc. v. Gen. Foods Corp. (1983) 35 Cal. 3d 197, 211.) An ‘unfair’ business practice occurs “when that practice ‘offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’” (Davis v. Ford Motor Credit Co. LLC (2009) 179 Cal. App. 4th 581, 595 (citations omitted).) “An unlawful business practice or act is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969.)

Defendants contends the cause of action cannot stand against Cohen or Wood as Plaintiffs only allege conduct as against Defendant Framework in its capacity as the contractor Plaintiffs hired and contracted with to complete the project and which relate back to the central allegations alleged in the complaint against it.

Again, the court finds Plaintiffs’ have failed to allege facts sufficient to support a cause of action for Violation of Business & Professions Code 17200. While the court disagrees with Defendants Wood and Cohen’s contention that Plaintiff must allege Defendants Wood or Cohen engaged in unfair business practices, Plaintiffs have failed to sufficiently allege Defendants Wood and Cohen were alter egos of Defendant Framework.

Accordingly, Defendants’ demurrer to the sixth cause of action is SUSTAINED WITH LEAVE TO AMEND.

Seventh and Eighth Causes of Action

Defendants Wood and Cohen demur to the seventh cause of action for intentional misrepresentation and eighth cause of action for fraudulent concealment on the grounds the complaint fails to allege facts to satisfy the particularity requirement to support a fraud-based claim as against either Defendant Wood or Cohen.

The elements of fraud 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.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud, including negligent misrepresentation, must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)

“[T]o establish fraud through nondisclosure or concealment of facts, it is necessary to show the defendant ‘was under a legal duty to disclose them.’” (OCM Principal Opportunities Fund v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 845.) Nondisclosure or concealment may constitute actionable fraud when: (1) there is a fiduciary relationship between the parties; (2) the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) the defendant actively conceals a material fact from the plaintiff; and (4) the defendant makes partial representations but also suppresses some material facts. (See Los Angeles Memorial Coliseum Commission v. Insomniac, Inc. (2015) 233 Cal.App.4th 803, 831.)

Defendants contend the complaint identifies four alleged representations forming the basis of Plaintiffs’ fraud claims in each of the fraud-based causes of action. Specifically, the allegations are that Defendant Framework represented: (1) that it held the required contractor’s license to complete the project; (2) that it had the required skill and experience to complete the project properly; (3) that its contract was in conformance with California law; and (4) that Framework’s insurer would make Plaintiffs whole in the event of defective work. (Compl. ¶¶ 128, 136). Defendants contend, however, the complaint is void of any factual allegations showing that Defendant Wood or Cohen made any of the foregoing representations to Plaintiffs.

In opposition, Plaintiffs argue a corporate officer or director is subject to liability for the torts of the corporation if he or she participated in the wrong or directed or authorized that it be done. (Frances T. v. Village Green Owners Association (1986) 42 Cal.App.3d 490, 505; United States Liability Insurance Co. v. Haidinger-Hayes, Inc. (1970) 1 C3d 586, 595.) As a result, Plaintiff’s allegations that Defendant Wood and Cohen directly participated in the tortious conduct is sufficient to support Plaintiffs’ claims for fraud. Specifically, Plaintiffs allege that “Wood and Cohen had knowledge of Sebbag’s material misrepresentations, as Sebbag repeatedly informed Plaintiff’s that he consulted with Wood and Cohen prior to execution of the Improvement Contract and during the Project work.” (Compl. ¶¶ 128-130.) Plaintiffs also allege Defendant Wood and Cohen concealed from Plaintiffs that Framework did not possess a C-53 license, that Framework must subcontract with a licensed C-53 contractor, and that Framework did not hire a qualified C-53 subcontractor to construct the pool and spa. (Compl. ¶¶ 125, 136.)

Plaintiffs need not allege communications between Defendants Wood and Cohen and Plaintiffs as Plaintiffs are alleging Defendants Wood and Cohen either consented to or approved of the unlawful acts. (See PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, 1380.) Plaintiffs have alleged Defendant Wood and Cohen had knowledge of Sebbag’s material false representations and they concealed material facts including Defendant Framework’s lack of license. The court finds such allegations against an officer sufficient.

In reply, Defendants also make the argument Plaintiffs’ fraud-based claims are just regurgitations of their breach of contract, negligence, and disgorgement claims simply pled as fraud. However, points raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before. (Balboa Ins. Co. v. Aguirre (1983) 149 Cal. App. 3d 1002, 1010.)

Accordingly, Defendants’ demurrer to the seventh and eighth causes of action is OVERRULED.