Case Number: BC583562 Hearing Date: May 05, 2016 Dept: 51

BC583562

TENTATIVE RULING RE:
Demurrer to First Amended Cross-Complaint

Background

On May 29, 2015, plaintiff filed a complaint for (1) breach of oral contract, (2) fraud, (3) quantum meruit, (4) unjust enrichment, (5) foreclosure on mechanic’s lien, (6) open book account, (7) account stated, (8) reasonable value of labor and materials furnished, and (9) violation of prompt payment statutes.

According to the allegations, on January 17, 2014, defendant’s processing plant was damaged in a fire. Defendant’s president contacted plaintiff to discuss restoring essential services and performing clean-up operations at defendant’s warehouse. The parties have been doing business for over 15 years, mostly via oral contracts. In mid-January 2014, the parties entered into an oral contract for the clean-up services for $435,000. Both parties performed. The parties then began discussing restoring the warehouse fully. In June 2014, the parties entered into an oral agreement whereby plaintiff would demolish and reconstruct defendant’s facility for $1.04 million. On October 14, 2014, demolition commenced. On October 22, 2014, defendant’s president informed plaintiff that its new majority shareholder ordered a temporary stop on the construction. In mid-November 2014, hazardous waste and gas pockets were discovered. Plaintiff informed defendant that toxic remediation was uncontemplated by the contract and that expensive rental equipment costs were accruing. Defendant told plaintiff to “hang in there” and that the project would recommence shortly. By January 2015, plaintiff was still on standby and had not been paid, despite sending invoices. Plaintiff was also not paid for work on the roof of defendant’s adjacent property. The subcontractors filed liens against the properties. Five months later, defendant paid a small portion of what it owed plaintiff. The balance remains outstanding.

On October 30, 2015, defendant filed a cross-complaint against plaintiff for (1) fraud, (2) unjust enrichment, and (3) conversion.

According to the allegations, plaintiff submitted fraudulent invoices to defendant, which defendant paid. More specifically, on January 16, 2015, plaintiff submitted two invoices, both identified as “#885,” for $40,000 and $69,514.10. Regarding the second #885 invoice, defendant alleges plaintiff rented certain equipment from third party Sunbelt for $23,907.54. Plaintiff charged defendant this amount for the equipment rental but did not include invoices from Sunbelt supporting the charge. Defendant disputed the invoice. In May 2015, defendant contacted Sunbelt and learned Sunbelt charged plaintiff only $12,907.54 for the equipment rental. Thus, plaintiff inflated unreasonably inflated the charge, had an undisclosed profit on the invoice, and added a 38% markup on the undisclosed profit.

Defendant further alleges the parties entered into an oral contract whereby defendant would pay plaintiff for clean-up and restore essential services after a fire that occurred in mid-January 2014. Plaintiff submitted 10 invoices on certain dates for certain amounts, which defendant paid. Defendant alleges plaintiff used the same fraudulent billing practices as described above, whereby plaintiff secretly marked up invoices from third party vendors without disclosing the mark-ups to defendant.

On January 5, 2016, the Court overruled defendant’s demurrer to the complaint. On January 15, 2016, defendant filed an answer.

On February 29, 2016, the Court sustained plaintiff’s demurrer to the cross-complaint with 20 days’ leave to amend, apparently based on defendant’s representation that it had new evidence of fraud concerning the fire invoices. On March 18, 2016, defendant filed the operative first amended cross-complaint asserting the same causes of action.

On April 13, 2016, plaintiff filed the instant demurrer to the FACC. The Court considered the moving, opposition, and reply papers, and rules as follows. Plaintiff filed a compliant meet and confer declaration. CCP § 430.41; Lozano Decl. ¶¶ 2-5, Exh. 1.

Demurrer Standard

A demurrer may also be sustained where the complaint fails to state facts sufficient to constitute a cause of action. CCP § 430.10(e). Thus, concerning the legal sufficiency of a pleading, the sole issue on demurrer is whether the facts pleaded, if true, state a valid cause of action, i.e., if the complaint pleads facts that would entitle the plaintiff to relief. Garcetti v. Superior Court (1996) 49 Cal.App.4th 1533, 1547; Limandri v. Judkins (1997) 52 Cal.App.4th 326, 339. The question of plaintiff’s ability to prove the allegations of the complaint or the possible difficulty in making such proof does not concern the reviewing court. Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 47. The ultimate facts alleged in the complaint must be deemed true, as well as all facts that may be implied or inferred from those expressly alleged. Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403; see also Shields v. County of San Diego (1984) 155 Cal.App.3d 103, 113 (stating, “[o]n demurrer, pleadings are read liberally and allegations contained therein are assumed to be true”). Nevertheless, this rule does not apply to allegations expressing mere conclusions of law, or allegations contradicted by the exhibits to the complaint or by matters of which judicial notice may be taken. Vance v. Villa Park Mobilehome Estates (1995) 36 Cal.App.4th 698, 709. Leave to amend must be allowed where there is a reasonable possibility of successfully stating a cause of action. Schulz v. Neovi Data Corp. (2007) 152 Cal.App.4th 86, 92.

First COA: Fraud

As a threshold matter, in opposition, defendant indicates it sufficiently pleads common law fraud, concealment, and statutory fraud. The first cause of action, however, is labeled as only for fraud. Defendant apparently presents an uncertain pleading by improperly combining causes of action. At the hearing, defendant should clarify whether it combines a cause of action for common law fraud, another for concealment, and another for statutory fraud in the first cause of action or whether the first cause of action is for one of the three theories identified in the opposition. Because the cause of action as pled is for common law fraud, that is the cause of action at issue here.

The elements of a cause of action for fraud are (1) a misrepresentation, which includes false representation, concealment, or nondisclosure, (2) knowledge of the falsity of the misrepresentation, i.e., scienter, (3) intent to induce reliance on the misrepresentation, (4) justifiable reliance, and (5) resulting damages. Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519; Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. Fraud must be specifically pled, which means that the allegations in such an action need not be liberally construed, general pleading of the legal conclusion of fraud is insufficient, and every element of the cause of action for fraud must be alleged fully, factually and specifically. Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1331. Pleadings must allege facts as to “‘how, when, where, to whom, and by what means the representations were tendered.’” Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.

Additionally, as plaintiff notes, “The 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 Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.
Here, defendant argues it sufficiently pleads a misrepresentation by alleging plaintiff’s bills contained undisclosed and excessive markups on subcontractor costs. In support, defendant cites paragraphs 13, 16, and 17. Paragraph 13 alleges plaintiff defrauded defendant by concealing facts and then lists invoice numbers, their dates, and their amounts. The list of invoices contain the following similar allegations: “BCI was billed $1,369.36 for temporary tower lighting, but billed Belmont $1,550.” Paragraph 16 pleads only conclusory fraud allegations. Paragraph 17 pleads that plaintiff had a duty to disclose “concealed facts” about the invoices, that defendant disputed the invoices and requested back-up for the invoices but plaintiff’s counsel refused to allow production of subcontractor Sunbelt’s invoices until after the parties entered into a protective order designating the production as a trade secret.

These allegations do not plead a misrepresentation that the invoices were fraudulent. As plaintiff argues, the FACC merely pleads that plaintiff charged defendant certain amounts, not that plaintiff misrepresented what Sunbelt charged plaintiff.

Additionally, defendant’s two cases are unpersuasive. In Sangster v. Paetkau (1998) 68 Cal.App.4th 151, “Wozniak testified that he usually employed a 15 percent markup and had used that percentage in his original bid. However, on July 23, 1992, Sangster told him to raise his markup on his services to 20 percent and also mark up the printing and file preparation work ‘in order that [he] get paid,’ because Cooke ‘[f]or some reason … was angry at [him]’ and ‘was not going to pay [him] for [his] time….’ Wozniak did so, in order to get paid.” Id. at 158. Here, the FACC does not allege plaintiff represented a certain markup in its bid or that plaintiff claimed it was marking up at a certain rate but actually marked up at a higher rate.
In Bardis v. Oates (2004) 119 Cal.App.4th 1, the Court of Appeal set forth a chart showing the disputed transaction and the cause of action applied. Id. at 9. “Markups of invoices and payment of invoices and management fees” were tied to “Intentional Breach of Fiduciary Duty,” and “Markups of invoices” were tied to “Breach of Contract.” Accordingly, Bardis does not support defendant’s position.
Moreover, the allegation that defendant disputed the invoices and requested back-up for them contradicts reliance. FACC ¶ 17. Thus, defendant admits it did not actually rely on the invoices but rather disputed them.
In its opposition defendant and cross-complainant does not state how it would amend to state a viable cause of action.
The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.
Second COA: Unjust Enrichment

Here, plaintiff argues this claim fails because it is contingent on the fraud claim.

While there is no “cause of action” for unjust enrichment, strictly speaking, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition of a constructive trust. McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1490. Nevertheless, one can plead and prove a cause of action based on a theory of unjust enrichment. See, e.g., Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 44.

The 2d Appellate District, in Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726, recognized a cause of action for unjust enrichment, the elements of which are: (1) receipt of a benefit and (2) unjust retention of the benefit at the expense of another. Lectrodryer, supra, 77 Cal.App.4th at 726 (citing First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1662-1663).

However, as long as the essential facts of some valid claim are stated, when construed with a view to substantial justice between the parties, a demurrer cannot be sustained. Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572.

Here, the unjust enrichment claim is based on the alleged fraud: “Cross-Defendants have been unjustly enriched at the expense of Belmont due to the extent of fraudulent billing.” FACC ¶ 30. Because the fraud claim is fatally flawed, so too is the unjust enrichment claim. Gruenberg, supra, 9 Cal.3d at 572. The opposition does not indicate the unjust enrichment claim could be based on some claim other than the defective fraud claim and, instead, as mentioned above, confirms unjust enrichment is based on fraud. Indeed, the parties argue within the framework that this claim is purely derivative of the fraud claim.

In its opposition defendant and cross-complainant does not state how it would amend to state a viable cause of action.

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.

Third COA: Conversion

Here, as above, plaintiff argues this claim fails because it depends on the fraud claim.

Conversion is any act of dominion wrongfully exerted over another’s personal property in denial of or inconsistent with his rights therein. It is unnecessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. The elements of a conversion cause of action are (1) plaintiff’s ownership or right to possession of the property at the time of the conversion; (2) defendant’s conversion by a wrongful act or disposition of plaintiff’s property rights; and (3) damages. Hartford Financial Corp. v. Burns (1979) 96 Cal.App.3d 591, 598. A plaintiff is not required to allege or prove that the defendant applied the property in question to his or her own use or benefit, so long as the plaintiff shows an assumption of control or ownership of the property inconsistent with the plaintiff’s possessory or ownership rights. Igauye v. Howard (1952) 114 Cal.App.2d 122. Money can be the subject of an action for conversion if a specific sum capable of identification is involved. Weiss v. Marcus (1975) 51 Cal.App.3d 590, 599; Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072.

Because the fraud claim is fatally flawed, the FACC identifies no wrongful act or disposition by plaintiff of the amounts defendant paid on the invoices. See Hartford Financial Corp., supra, 96 Cal.App.3d at 598. The opposition identifies no other basis for alleging a wrongful act by plaintiff with respect to the invoices.

In its opposition defendant and cross-complainant does not state how it would amend to state a viable cause of action.

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.

Plaintiff to give notice.