Case Name: Universal Operations Risk Management, LLC, et al. v. Harry Levitt
Case No.: 2015-1-CV-288955

Factual and Procedural Background

Plaintiffs and cross-defendants Universal Operations Risk Management, LLC (“Universal”), Tom Bochnowski (“Tom”), Jim Bochnowski (“Jim”), and Ted Muhlner (“Muhlner”) (collectively, “Plaintiffs”) filed the underlying complaint against defendant and cross-complainant Harry Levitt (“Levitt”), alleging that Levitt: improperly named them in an arbitration demand based on an arbitration clause in his agreement with Levitt & Cohon Partners, LLC (“LCP”), which they did not sign; wrongfully demanded money from them based on a loan that he purportedly made to LCP and a services contract between Universal and Comcast; and breached an oral agreement and promise to pay Universal for “the cost of his health insurance and assistant’s salary.” (Complaint, ¶¶ 1, 12, 14-25.)

On March 7, 2016, Levitt filed the operative first amended cross-complaint (“FAXC”) against Plaintiffs and cross-defendant Mark Cohon (“Cohon”) (collectively, “Cross-Defendants”), asserting causes of action for: (1) quantum meruit (against Cross-Defendants); (2) quasi-contract (against Cross-Defendants); (3) fraud (against Cohon); (4) aiding and abetting fraud (against Plaintiffs); (5) violation of Penal Code section 496 (against Cross-Defendants); and (6) punitive damages (against Cross-Defendants).

According to the allegations of the FAXC, Tom, Jim, Muhlner, and Cohon (collectively, “Individual Cross-Defendants”) are the principals of Universal. (FAXC, ¶ 2.) In 2012, Levitt joined Universal based on Cohon’s promise that he would become an equity owner of Universal. (Id., at ¶ 3.) Levitt then worked with the Individual Cross-Defendants for eight months to develop business for Universal, “including captive insurance business.” (Id., at ¶ 4.) “During this time, Levitt used his relationship with executives at Comcast to interest Comcast in reinsuring some of its insurance plans with a captive Comcast insurance company.” (Id., at ¶ 5.)

“When it became clear to Levitt that [Universal] and its principals had no intention of giving him an equity interest in [Universal], and it appeared that [he] would leave [Universal] and stop working on the Comcast proposal, Cohon approached [him] and suggested that they break off the captive insurance consulting business and form a separate company each owning 50%.” (FAXC, ¶ 6.) In May 2013, Cohon sent Levitt and email stating that he wanted to “break off from [Universal] as soon as possible”; they would “not retain equity in [Universal]”; they would “control [their] business in [their] company and split with [Universal]”; they would not give Universal any equity in their company; and Levitt would “get 50% of the deals [he had] worked on right away, as soon as cash comes into the company.” (Id., at ¶ 7.) Based on the “strategy and structure” set forth in the email, Cohon and Levitt agreed to form LCP. (Id., at ¶ 8.) “Levitt hired the law firm of Loeb & Loeb to draw up the LLC, which was finalized in August 2013.” (Id., at ¶ 12.)

In order to induce Levitt to provide operating funds for LCP, Cohon falsely told Levitt that he could not fund LCP because he “put substantially all his assets into a trust for the benefit of his three children so they would be ‘shielded’ from his ex-wife.” (FAXC, ¶¶ 9-10.) Based on Cohon’s representation, Levitt loaned LCP its start-up and operating capital in the amount of $205,000. (Id., at ¶¶ 11, 13.) “Levitt wanted to start doing business as LCP and alert their clients that they had split off from [Universal],” but “Cohon told [him] that he was concerned that it would detract from their credibility if they were to change names and organizations.” (Id., at ¶ 15.) Cohon also falsely stated that Muhlner and Tom were planning to change Universal’s name to “Redpoint or Redpoint Security,” he and Livett “should just continue to do business as [Universal] so they could continue their negotiations with Comcast,” and “they could either just take over the [Universal] name down the road or change it once LCP had some marketing successes.” (Id., at ¶¶ 17-20.)

“[At] the end of 2013 and into 2014, Levitt and Cohon began working on a transaction to reinsure 90% of the risk on Comcast’s employees’ group life insurance plan … with a Comcast captive insurance entity.” (FAXC, ¶ 21.) They also “negotiated a consulting arrangement with Comcast.” (Id., at ¶ 23.) “The proposal was originally written on [Universal’s] stationery because Cohon [falsely] told Levitt that Comcast insisted the deal be done with [Universal] because LCP did not have proper security for e-mails to meet Comcast’s contracting standard.” (Id., at ¶¶ 23-24.) “Largely as a result of Levitt’s relationship with Comcast, his efforts and his marketing experience, Comcast agreed to pay them $450,000 over a three-year period beginning January 1, 2015” with payments “made in quarterly …: $200,000 in 2015; $150,000 in 2016; and $100,000 in 2017.” (Id., at ¶ 27.) “Once the Comcast contract was in the final stages of negotiation, Cohon stopped returning Levitt’s calls.” (Id., at ¶ 28.) “The Comcast contract was finalized in February 2015.” (Id., at ¶ 29.) “Based on Cohon’s representations to [him] from the beginning, Levitt understood that he and Cohon were to be the 50-50 beneficiaries of the Comcast contract.” (Id., at ¶ 30.)

“When the first payment from Comcast of $50,000 was received in April 2015 by [Universal], Levitt expected to receive his half,” but “Cohon became incommunicado and was impossible to reach.” (FAXC, ¶¶ 31-32.) Levitt contacted Tom, who told him that “he, Muhlner and Cohon felt Levitt owed them money because they paid for [Levitt’s] health insurance and the salary of [Universal’s] secretary … and that they were keeping the money that was coming from Comcast.” (Id., at ¶ 34.) Based on the foregoing, Levitt alleges that he “is entitled to be repaid the $205,000 [loaned to LCP] out of the sums received (or to be received) from Comcast, and then to 50% of any additional funds received from Comcast.” (Id., at ¶ 39.)

Currently before the Court are the following matters: (1) the demurrer by Cohon to the FAXC of Levitt; and (2) the demurrer by Plaintiffs to the FAXC Levitt.
Discussion

I. Legal Standard

“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.’ ” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

II. Demurrer by Cohon

Cohon demurs to the third, fifth, and sixth causes of action of the FAXC on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

A. Third Cause of Action: Fraud

The third cause of action for fraud incorporates the general allegations of the FAXC and states the following: “[a]t the time he agreed to pay Levitt ‘50% of the deals you’ve worked on right away,’ Cohon had no intention of honoring that agreement and falsely represented that Levitt would get ‘50% of the deals you’ve worked on right away”; Cohon knew his representation was false; “Cohon intended to and did defraud Levitt by inducing him to form LCP”; “Cohon intended to and did defraud Levitt by having the Comcast contract entered to with [Universal], rather than LCP”; “Levitt justifiably relied on Cohon’s promise and agreement that Levitt would receive ‘50% of the deals that you’ve worked on right away’ when he worked to obtain the Comcast contract”; and “Levitt has been damaged by the failure of [Universal] and its principals … to pay him the sums owed him as a result of [Universal] entering into the Comcast contract.” (FAXC, ¶¶ 55-60.)

As Cohon persuasively argues, Levitt fails to state a claim for fraud based on his alleged statement in the May 2013 email that Levitt would “get 50% of the deals you’ve worked on right away.” (FAXC, ¶ 7.) The email in its entirety states that Cohon wanted to “break off from [Universal] as soon as possible”; Cohon and Levitt would “not retain equity in [Universal]”; Cohon and Levitt would “control [their] business in [their] company and split with [Universal]”; Cohon and Levitt would not give Universal any equity in their company; and Levitt would “get 50% of the deals [he had] worked on right away, as soon as cash comes into the company.” (Id., at ¶ 7, emphasis added.) Levitt does not allege that LCP ever received, or was otherwise entitled to, any money as a result of the contract with Comcast. In fact, Levitt alleges that he and Cohon continued to negotiate with Comcast as Universal, not as LCP; he was told by Cohon that Comcast would only enter into a contract with Universal; the contract that was eventually reached was between Universal and Comcast, not Comcast and LCP; and Comcast paid money to Universal pursuant to the contract. (See FAXC, ¶¶ 15, 17-20, 23-24, 31, 32.) Since Cohon allegedly represented that Levitt would receive fifty percent of the deals that he worked as soon as money was received by LCP and LCP did not receive any money as a result of the contract with Comcast, Levitt fails to allege facts demonstrating that Cohon’s representation was false.

Furthermore, to the extent the third cause of action is based on other misrepresentations allegedly made by Cohon (i.e., that he could not provide the operating funds for LCP, Muhlner and Tom were planning to change Universal’s name to “Redpoint or Redpoint Security,” “they could either just take over the [Universal] name down the road or change it once LCP had some marketing successes,” and “Comcast insisted the deal be done with [Universal] because LCP did not have proper security for e-mails to meet Comcast’s contracting standard”), the claim fails because those representations are not pled with the requisite specificity. (See FAXC, ¶¶ 9-10, 17-20, 23-24; see also Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73 [fraud must be pleaded with specificity, which necessitates pleadings facts which show “how, when, where, to whom, and by what means the representations were tendered”].) In addition, Levitt does not plead facts demonstrating how he relied on these misrepresentations or how his reliance on those misrepresentations caused him damage. (See Anderson v. Deloitte & Touche (1997) 56 Cal.App.4th 1468, 1474 [the essential elements of fraud are misrepresentation, knowledge of falsity, intent to defraud, justifiable reliance, and resulting damage].)

For these reasons, the demurrer to the third cause of action is SUSTAINED, with 10 days’ leave to amend.

B. Fifth Cause of Action: Violation of Penal Code section 496

The fifth cause of action for violation of Penal Code section 496 incorporates the general allegations of the FAXC, recites the contents of Penal Code sections 496 and 484, and states that “[t]he failure of [Universal] and its principals … to honor their obligations to Levitt constitutes fraud,” “[a]s a result of the false and fraudulent conduct by [Universal] and its principals … [Universal] and its principals … knowingly and designedly, by false or fraudulent representation or pretense, defrauded Levitt of the money and funds owed to [him] and thereby fraudulently obtained possession of money from Levitt,” and “Levitt has been injured by a violation of Penal Code § 496(a) ….” (FAXC, ¶¶ 64-71.)

“Penal Code section 496, subdivision (a) … makes receiving or buying property ‘that has been obtained in any manner constituting theft’ a criminal offense punishable by imprisonment.” (Bell v. Feibush (“Bell”) (2013) 212 Cal.App.4th 1041, 1043.) That statute extends liability to “[e]very person who buys or receives any property that has been stolen or has been obtained in any manner constituting theft.” (Pen. Code, § 496, subd. (a).) As such, Penal Code section 496, subdivision (a) incorporates Penal Code section 484, subdivision (a), which provides that every person who shall “knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money … is guilty of theft.” (See Bell, supra, 212 Cal.App.4th at p. 1043.)

As indicated above, Levitt fails to state a claim for fraud against Cohon and those same allegations form the basis of Levitt’s claim for violation of Penal Code section 496. Consequently, the claim under Penal Code section 496 fails as well.

Accordingly, the demurrer to the fifth cause of action is SUSTAINED, with 10 days’ leave to amend.

C. Sixth Cause of Action: Punitive Damages

The sixth cause of action attempts to set forth a separate claim for punitive damages and alleges in a conclusory manner that Plaintiffs are guilty of oppression, fraud, and malice. (FAXC, ¶¶ 72-74.)

As Cohon persuasively argues, there is no cause of action for punitive damages. (See Orient Handel v. United States Fid. & Guar. Co. (“Orient”) (1987) 192 Cal.App.3d 684, 697; see also Hilliard v. A. H. Robins Co. (“Hilliard”) (1983) 148 Cal.App.3d 374, 391.) Punitive or exemplary damages are remedies available to a party who can plead and prove the facts and circumstances set forth in Civil Code section 3294. (See Orient, supra, 192 Cal.App.3d at p. 697.) “Punitive damages are merely incident to a cause of action, and can never constitute the basis thereof.” (Gold v. Los Angeles Democratic League (1975) 49 Cal.App.3d 365, 373, fn. 3; see James v. Public Finance Corp. (1975) 47 Cal.App.3d 995, 1000-1001.) Levitt should have pleaded the relevant statutory language in his other causes of action (e.g., fraud) plus sufficient facts (see Blegen v. Super. Ct. (1981) 125 Cal.App.3d 959, 963) to support an allegation that Cohon acted with malice, fraud, or oppression. (See Hilliard, supra, 148 Cal.App.3d at p. 391.)

Consequently, the demurrer to the sixth cause of action is SUSTAINED, with 10 days’ leave to amend so Levitt can plead punitive damages as a remedy.

III. Demurrer by Plaintiffs

Plaintiffs demur to the first, second, fourth, fifth, and sixth causes of action of the FAXC on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

A. First Cause of Action: Quantum Meruit

The first cause of action for quantum meruit incorporates the general allegations of the FAXC and states the following: Levitt’s services were a key factor in obtaining the Comcast contract; Levitt did not provide those services gratuitously; Levitt provided those services “with the expectation from Cohon, a [Universal] principal, that, if a contract with Comcast was entered into, [he] would receive ‘50% of the deal’”; Universal and its principals received and sums from Comcast for Levitt’s use and benefit; Levitt demanded payment of such sums; and Plaintiffs refuse to make such payments. (FAXC, ¶¶ 40-47.)

“To recover in quantum meruit, a party need not prove the existence of a contract…, but it must show the circumstances were such that the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made.” (Advanced Choices, Inc. v. Department of Health Services (2010) 182 Cal.App.4th 1661, 1673, internal citations omitted.) As such, a plaintiff must allege that the defendant made an explicit or implicit request for the performance of the particular service in question. (Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 249.)

Here, as Plaintiffs persuasively argue, Levitt does not allege any facts demonstrating that they made an explicit or implicit request for his services. (See Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794 [“To recover on a claim for the reasonable value of services under a quantum meruit theory, a plaintiff must establish both that he or she was acting pursuant to either an express or implied request for services from the defendant and that the services rendered were intended to and did benefit the defendant.”].) While Levitt alleges that Cohon, a Universal principal, made representations that he would be paid for his work relating to the Comcast contract, there is no allegation that Cohon made the representation on behalf of Universal or that Universal and the Individual Cross-Defendants were aware of or otherwise acquiesced to his provision of services. (See Producers Cotton Oil Co. v. Amstar Corp. (1988) 197 Cal.App.3d 638, 659 [a defendant’s mere acquiescence in the provision of services is sufficient to satisfy this requirement].)

For these reasons, the demurrer to the first cause of action is SUSTAINED, with 10 days’ leave to amend.

B. Second Cause of Action: Quasi-Contract/Restitution

The second cause of action for quasi-contract/restitution incorporates the general allegations of the FAXC, reiterates the allegations set forth in the first cause of action, and states that Universal and its principals have been unjustly enriched by receiving funds from Comcast that should have been paid to Levitt. (FAXC, ¶¶ 48-53.)

“Under the law of restitution, ‘[a]n individual is required to make restitution if he or she is unjustly enriched at the expense of another. [Citations.] A person is enriched if the person receives a benefit at another’s expense. [Citation.]’ [Citation.] However, ‘[t]he fact that one person benefits another is not, by itself, sufficient to require restitution. The person receiving the benefit is required to make restitution only if the circumstances are such that, as between the two individuals, it is unjust for the person to retain it. [Citation.]’ ” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 388-389.)

As Plaintiffs convincingly argue, Levitt does not demonstrate that he is entitled to restitution because he fails to allege facts showing that Plaintiffs obtained a benefit (i.e., the monies from the Comcast contract) by fraud, duress, conversion, or other similar conduct. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 [“There are several potential bases for a cause of action seeking restitution. For example, restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. [Citations.] Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may choose not to sue in tort, but instead to seek restitution on a quasi-contract theory…. [Citations.] In such cases, where appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment.”].)

Accordingly, the demurrer to the second cause of action is SUSTAINED, with 10 days’ leave to amend.

C. Fourth Cause of Action: Aiding and Abetting

The fourth cause of action for aiding and abetting incorporates the general allegations of the FAXC and states that Universal and its principals “knowingly aided and abetted Cohon in defrauding Levitt in that they (a) knew or should have known that Cohon’s conduct constitutes fraud and gave substantial assistance or encouragement to Cohon to commit that fraud or (b) gave substantial assistance to Cohon in accomplishing his fraud and their own conduct, separately considered, constitutes a breach of duty to Levitt.” (FAXC, ¶¶ 61-63.)

The elements of aiding and abetting are: (1) the commission of an intentional tort by the primary wrongdoer; (2) actual knowledge of the specific primary wrong committed by the party committing the underlying tort; (3) the provision of substantial assistance and/or encouragement to the primary wrongdoer; and (4) the assistance was a substantial factor in causing the plaintiff’s harm. (Casey v. U.S. Bank N.A. (2005) 127 Cal.App.4th 1138, 1144-1146; American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1476.)

As indicated above, Levitt fails to plead facts supporting his claims for fraud and violation of Penal Code section 496 against Cohon. Consequently, he fails to allege facts showing the commission of an intentional wrong by Cohon. Furthermore, while Levitt asserts in a conclusory manner that Plaintiffs provided substantial assistance and/or encouragement to Cohon, he does not allege any facts demonstrating that Plaintiffs provided substantial assistance and/or encouragement to Cohon.

Therefore, the demurrer to the fourth cause of action is SUSTAINED, with 10 days’ leave to amend.

D. Fifth Cause of Action: Violation of Penal Code section 496

The demurrer to the fifth cause of action is SUSTAINED, with 10 days’ leave to amend, for the same reasons articulated above with respect to Cohon’s demurrer to the fifth cause of action.

E. Sixth Cause of Action: Punitive Damages

The demurrer to the sixth cause of action is SUSTAINED, with 10 days’ leave to amend, for the same reasons articulated above with respect to Cohon’s demurrer to the sixth cause of action.