Judge: William D. Claster, Case: 21-01218388, Date: 2022-09-30 Tentative Ruling
1. Defendants Electronic Commerce, LLC and Darnell Ponder's
Notice of Demurrer and Demurrer to Plaintiff's First Amended Complaint ROA
46
2. Defendants Electronic Commerce, LLC and Darnell Ponder's Notice of Motion
and Motion to Strike Plaintiff's Complaint ROA 42
Defendants Electronic Commerce, LLC and Darnell Ponder demurrer to the 4th, 5th and 6th causes of action, and move to strike Plaintiff’s request for punitive damages and attorneys’ fees.
For the reasons below, the Court makes the following rulings:
1. The Demurrer to the 4th cause of action for fraud is SUSTAINED with leave to amend.
2. The Demurrer to the 5th cause of action for conversion is OVERRULED.
3. The Demurrer to the 6th cause of action alleging a violation of Business & Professions Code § 17200 is SUSTAINED with leave to amend.
4. The Motion to Strike Punitive Damages is GRANTED with leave to amend.
5. The Motion to Strike Attorneys’ Fees is DENIED.
Any amended complaint must be filed on or before October 17, 2022.
BASIC ALLEGATIONS OF THE COMPLAINT
The First Amended Complaint (FAC) alleges that Defendant Electronic Commerce (EC) is an independent sales organization that processes credit card payments for merchants like Plaintiff Spotted Shield LLC. Ponder is alleged to be the owner and managing member of EC. (FAC ¶ 3) Plaintiff asserts that Defendants have wrongfully withheld funds belonging to Plaintiff but held in reserve pursuant to a Merchant Processing Agreement. The amount wrongfully withheld is in excess of $102,000.
The FAC alleges causes of action against EC for breach of contract, accounting, account stated and violation of Business & Professions Code § 17200. Against Ponder, the FAC alleges a 4th of cause of action for fraud, a 5th cause of action for conversion and the 6th cause of action also for violation of B&P § 17200.
DEMURRER
In evaluating a demurrer, the Court is guided by long-settled rules. The Court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) “The complaint must be construed liberally by drawing reasonable inferences from the facts pleaded.” (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.) “Further, [the Court] gives the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)
1. 4th COA for Fraud Against Defendant Ponder
Fraud actions must be pled with specificity. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, superseded by statute on another ground as stated in California for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227.) California’s heightened pleading rule serves two purposes: (1) to put the defendant on notice, to “furnish [it] with certain definite charges which can be intelligently met”; and (2) to weed out nonmeritorious actions. (Id.)
Defendants argue this cause of action is duplicative of the breach of contract claim against EC because it relies upon the same basic contention, i.e., that EC failed to pay back certain monies. Citing Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30-31, Defendants assert that something more than a mere alleged breach of contract is needed to support a fraud claim. Here, it is alleged that Ponder intentionally and knowingly misled Plaintiff for the purpose of inducing it to enter the Merchant Processing Agreement. (FAC ¶¶ 40-43). At least at the pleading stage, these allegations are sufficient to separate the fraud claim from the breach of contract cause of action.
EC also argues the FAC fails to allege facts establishing the elements of fraud with the requisite specificity. Namely, that Plaintiff has failed to allege “under what authority Ponder had to make such representations and to whom they were made.” Plaintiff argues that because Ponder’s actions or intentions are exclusively within the knowledge or control of Defendants, the requisite specificity is therefore lower, and the allegations are adequate. At the same time, Plaintiff asserts it can amend the pleading to address the problems identified by EC.
While the FAC adequately alleges most of the basic elements of fraud (¶¶ 39-45), some specificity is missing, including details not exclusively within the control of EC. Thus, Plaintiff must state to whom the alleged misrepresentations were made and when they occurred.
Accordingly, the demurrer on this basis is SUSTAINED WITH LEAVE TO AMEND.
2. 5th COA for Conversion Against Defendant Ponder
The elements of a conversion claim are: (i) the plaintiff’s ownership or right to possession of the property; (ii) the defendant’s conversion by a wrongful act or disposition of property rights; and (iii) damages. (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.) “ ‘Money cannot be the subject of a cause of conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment.’ [Citation omitted.]” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, 395.) Another court characterized the requirement as “a specific sum capable of identification.” (Voris v. Lampert (2019) 7 Cal.5th 1141, 1151 [citation omitted].)
Defendants argue that the parties’ relationship was contractual and, as the losses were purely economic, the economic loss rule bars the claim. In response Plaintiff asserts the conversion cause of action is not predicated on the breach of contract. Instead, the conversion claim alleges that Ponder wrongfully exercised full dominion and control over a fixed sum-- $102,625.92---for his own use and benefit. (FAC ¶¶ 51-52) This is sufficient at the demurrer stage to set forth a viable claim for conversion.
Accordingly, the demurrer to the conversion claim is OVERRULED.
3. Sixth COA - Bus. & Prof. Code § 17200 Against EC and Ponder
Business & Professions Code Section 17200 prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Under the unlawful prong, a violation of law may be actionable as unfair competition under B&P § 17200. (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 81.) “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. . . . An unfair business practice also means the public policy which is a predicate to the action must be tethered to specific constitutional, statutory or regulatory provisions.” (Ibid. [internal citations omitted].) A fraudulent practice “require[s] only a showing that members of the public are likely to be deceived and can be shown even without allegations of actual deception, reasonable reliance and damage.” (Id. [internal citations omitted].)
Defendants argue that the FAC does not allege the requisite underlying violation of a specific statute or law to support a claim under the unlawful prong. Similarly, they argue the FAC does not allege any action taken by Defendants that qualifies as “unfair” under that prong. Further, Defendants contend that Plaintiff does not qualify as a “consumer.”
The Court agrees that Plaintiff fails to cite a law or statute that Defendants allegedly violated. Plaintiff also does not base its claim on a particular public policy. Nor does it respond to Defendants’ contention that it does not qualify as a “consumer.” Indeed, the § 17200 claim is based on the purported wrongful withholding of Plaintiff’s funds, the use of Plaintiff’s funds for a wrongful benefit, and the so-called unjust profiting by Defendants as a result of the unfair business practices. (FAC ¶¶ 53-57.) As currently pleaded, these allegations are not sufficient to support a claim under any of the three § 17200 prongs.
Plaintiff will be given leave to amend to attempt to correct these flaws. Further, to the extent that a valid fraud claim exists, that also may provide a basis for a § 17200 claim.
4. Naming Ponder as a Defendant
Defendants argue that Ponder is not a proper defendant in this case since there are insufficient allegations of his alter ego status. Alter ego status potentially would come into play if Plaintiff was seeking to hold Ponder personally responsible for EC’s actions. Yet as pleaded, the FAC does not seek to hold Ponder liable for EC’s alleged breach of contract or any other EC conduct. Rather, Plaintiffs seek to hold him liable for actions purportedly taken by him. Defendants fail to cite any authority that precludes an individual owner or manager of a corporation from being sued in this capacity.
MOTION TO STRIKE
A court may strike out any irrelevant, false, or improper matter inserted in any pleading or strike 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.) Motions to strike are disfavored. Pleadings are to be construed liberally with a view to substantial justice. (Cal. Code Civ. Proc. § 452.) The allegations of the complaint are presumed true; they are read as a whole and in context. (Clauson v. Superior Court (1998) 67 Cal. App. 4th 1253, 1255.) The use of the motion must be “cautious and sparing” and is not intended to be used as a “procedural ‘line item veto’ for the civil defendant.” (PH II, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682-83.)
A. Punitive Damages
To plead a claim to recover punitive damages, a plaintiff must plead and show one of the following bases for imposition of exemplary damages, i.e. malice, oppression, or fraud. (Civ. Code § 3294(a).)
At the pleading stage, the complaint may rely on ultimate facts of fraud, oppression or malice. (Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1055.) Generally, a fraud cause of action adequately pled will support a prayer for punitive damages. (Stevens v. Super. Ct. (1986) 180 Cal.App.3d 605, 610.)
Here, the FAC does not yet plead a valid cause of action for fraud, and there are no other allegations sufficiently alleging malice or oppression. Because the FAC fails to allege facts to support a claim for punitive damages, the motion is GRANTED with leave to amend.
B. Attorney Fees
Defendants fail to address Plaintiff’s contractual-based argument (referring to the terms and conditions of the Merchant Processing Agreement) regarding Defendants’ right to recover attorney fees and the reciprocal rights of Plaintiff pursuant to Civil Code § 1717. Accordingly, the motion to strike the request for attorney fees is DENIED.