Case Name: Ahrabi v. Private Spring Waters, Inc., et al.
Case No.: 17CV311476

I. Background

This action arises from a dispute over an unpaid commission purportedly owed under a representation authorization agreement for the sale of certain businesses. The pleading at issue is the Complaint filed by plaintiff Shahin Ahrabi aka Shawn Ahrabi as authorized agent for brokerage firm Pacific Inter Capital (“Plaintiff”) against defendants Private Springs Waters, Inc. and 3 Spring Waters Company, Inc. (collectively the “Businesses”), the businesses that were sold; Ken Churchill and Monica Churchill, two individuals associated with the Businesses (collectively the “Churchills”); and Alfred Vincelette (“Vincelette”), the purchaser of the Businesses (collectively “Defendants”).

As alleged in the Complaint, Plaintiff entered into a representation authorization agreement (“Agreement”) with the Businesses and the Churchills (collectively the “Sellers”), under which he had a non-exclusive right to sell the Businesses. (Complaint, ¶ 10.) Under the terms of the Agreement, the Sellers agreed to pay Plaintiff ten percent of the $5 million list price. (Id. at ¶ 11.) About a year after entering into the Agreement, Vincelette expressed interest in purchasing the Businesses and entered into a confidentiality agreement with Plaintiff to obtain information about them. (Id. at ¶ 13.) Plaintiff provided Vincelette with the requested information. (Id. at ¶ 14.)

About a month later, Vincelette expressed a desire to directly contact the Sellers and Plaintiff consented. (Id. at ¶ 15.) Shortly thereafter, the Sellers contacted Plaintiff and offered him $25,000 in exchange for a termination of the Agreement. (Id. at ¶ 17-18.) Plaintiff agreed and he and Sellers signed a mutual termination and release agreement (“Termination Agreement”) a month later. (Id. at ¶ 18.) At no point did the Sellers indicate they were in discussions with Vincelette regarding the sale of the Businesses. (Id. at ¶ 17, 19.) About a month after the Termination Agreement was signed, Vincelette filed articles of organization with the California Secretary of State for a limited liability company with the name of “Private Spring Water LLC” whose address was the address of the Businesses. (Id. at ¶ 20.) Shortly after that, Vincelette also filed a statement of information for “Private Spring Water LLC” that listed an identical address and himself as the sole manager of the entity. Around this time, Plaintiff learned from the company secretary that Vincelette had purchased the Businesses. (Id. at ¶ 22.) Plaintiff complains the Sellers fraudulently concealed they were in ongoing negotiations with Vincelette for the sale of the Businesses and, in failing to pay him the ten percent commission after the sale, breached the Agreement.

Plaintiff’s Complaint asserts three causes of action against for: (1) fraud in the concealment and conspiracy to commit fraud; (2) breach of written contract; and (3) breach of the implied covenant of good faith and fair dealing. The first cause of action is alleged against all Defendants while the second and third causes of action are only alleged against the Sellers.

Currently before the Court is the Sellers’ demurrer to the Complaint. They also filed a request for judicial notice in support of their demurrer and a separate request for judicial notice in support of their reply. Plaintiff opposes the demurrer.

II. Request for Judicial Notice

The Sellers seek judicial notice of: (1) a printout of the corporate record for Pacific Inter Capital Investment Solutions, Inc., obtained from the California Secretary of State website; (2) a printout of real estate license information for Pacific Inter Capital Investment Solutions, Inc., obtained from the California Bureau of Real Estate website; (3) a printout of the corporate record for Shiba Consulting, Inc. dba Pacific Inter Capital, obtained from the California Secretary of State website; and (4) a printout of real estate license information for Plaintiff, obtained from the California Bureau of Real Estate website.

Though they do not cite the specific subdivision of Evidence Code section 452 on which their request is based, official records are generally judicially noticeable under Evidence Code section 452, subdivision (h) as facts that are “not reasonably subject to dispute and capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (See e.g. Pedus Bldg. Servs. v. Allen (2002) 96 Cal.App.4th 152, 156 [taking judicial notice of the official records of the California Secretary of State to establish the plaintiff’s corporate status and principal place of business].)

In their demurrer and reply, the Sellers refer to these records in an attempt to demonstrate that Pacific Inter Capital Investment Solutions, Inc. is the only entity with standing to bring the claims alleged in the Complaint. Because these records are generally judicially noticeable and are relevant to the issue of Plaintiff’s standing to assert the claims in the Complaint, they are proper subjects of judicial notice. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [a precondition to taking judicial notice is that the matter to be noticed is relevant to an issue in the case].)

Accordingly, the request for judicial notice is GRANTED.

III. Demurrer

The Sellers demur to the Complaint on the ground of failure to state facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).) A demurrer may be directed to the entirety of a complaint or to any causes of action therein. (Code Civ. Proc., § 430.50, subd. (a).) As such, the demurrer must specify whether it applies to the entire pleading or to particular causes of action. (Cal. Rules of Court, rule 3.1320(a).) This distinction can be significant because “a demurrer which attacks an entire pleading should be overruled if one of the counts therein is not vulnerable to the objection.” (Lord v. Garland (1946) 27 Cal.2d 840, 850.) In other words, a demurrer to the complaint as a whole is not sustainable if any cause of action is properly stated. (See, e.g., Warren v. Atchison, Topeka & Santa Fe Ry Co. (1971) 19 Cal.App.3d 24, 36.)

Here, it is unclear whether the Sellers are demurring to the complaint in its entirety or to each individual cause of action. Though the demurrer prefatorily indicates they are generally demurring to the Complaint, the notice goes on to state they are separately demurring to each cause of action and lists the arguments they are making relative to each claim. Two arguments that are common to each cause of action are that Plaintiff lacks standing and failed to comply with a contractual mediation requirement before initiating his lawsuit. In their memorandum of points and authorities, the Sellers then couch these two arguments as supportive of their demurrer to the complaint in its entirety. This further compounds the confusion as to whether the demurrer is to the complaint as a whole or directed to each cause of action.

Though the Sellers initially state in their demurrer that they are generally demurring to the Complaint and indicate in one part of their memorandum that they are demurring to the Complaint in its entirety, the notice, demurrer and supporting memorandum otherwise list each cause of action individually. Further, the arguments regarding standing and the mediation requirement are raised in the notice with respect to each cause of action individually. As such, the Court will treat the demurrer as directed to each claim on the ground of failure to state facts sufficient to constitute a cause of action, as listed in Code of Civil Procedure section 430.10, subdivision (e). The Sellers are directed to comply with the cited presentation rules in the future.

The Court also notes an anomaly that exists with respect to the opposition filed in response to the demurrer. First, the opposition is brought on behalf of “Pacific Inter Capital Investment Solutions, Inc.” (“Pacific”) and the caption reads that Pacific is the plaintiff in this action. However, Pacific is not a named plaintiff in this lawsuit. The named plaintiff, Shahin Ahrabi, is an individual who filed the Complaint as an agent for Pacific and no motion for leave to amend has been filed to change the named plaintiff from Shahin Ahrabi to Pacific. Though the Court has discretion to disregard this opposition in its entirety as it was seemingly filed by a non-party to this action (See e.g. Brown v. Superior Court (2004) 116 Cal.App.4th 320, 334), it will nonetheless consider it as having been filed by Plaintiff.

A. First Cause of Action

The first cause of action is for fraud in the concealment and conspiracy to commit fraud. Plaintiff alleges that at the time he signed the Termination Agreement, the Sellers intentionally and actively concealed the fact they were involved in ongoing negotiations with Vincelette regarding the sale of the Businesses. He further avers that not knowing about these negotiations was a significant factor in his consent to terminate the Agreement given he procured Vincelette as a prospective buyer for the Sellers. Plaintiff alleges he relied on the Sellers’ nondisclosure and was damaged by being deprived of the ten percent commission he would have been entitled to after Vincelette purchased the Businesses.

The Sellers argue this cause of action is not viable because Plaintiff lacks standing to bring this claim and did not comply with the mediation requirement under the Agreement before initiating his lawsuit. They also argue the fraud claim fails because it is not alleged with sufficient specificity and is further insufficiently pled as to the Churchills because it contains no allegations they acted in their individual capacities in the concealment or directly participated in it.

With respect to standing, the Sellers assert that Pacific is the real party in interest because the Agreement was entered into between them and Pacific. In his opposition, Plaintiff seems to implicitly concede the merits of this argument by filing his opposition in the name of “Pacific Inter Capital Investment Solutions, Inc.” and unilaterally changing its caption to state that this entity, and not Plaintiff, is the plaintiff in this action. That being said, the Sellers do not adequately substantiate their argument that Plaintiff lacks standing to bring his fraudulent concealment claim.

Every action must be prosecuted in the name of the real party in interest. (Code Civ. Proc., § 367.) “Standing is a threshold issue, because without it no justiciable controversy exists. Standing goes to the existence of a cause of action.” (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 813.) The Sellers cite no authority supporting the proposition that standing to bring a fraud claim is conditioned on the existence of an agreement. Moreover, though they reference Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93 in support of the proposition that claims for injury to a corporation belong to the corporation and not its stockholders, their reliance on this case is misplaced. In Jones, the court discussed the general rule that a stockholder has no personal right of action against third persons for an injury to the corporation that results in the depreciation or destruction of its stock value. (Id. at 108.) In contrast, Plaintiff is not a stockholder suing the Sellers for conduct that damaged the stock value of Pacific. As such, Jones has no applicability here and the demurrer to the fraud claim on this basis is not sustainable.

With respect to the pre-litigation mediation requirement, paragraph 13 of the Agreement states in relevant part: “Seller and Broker agree to mediate any dispute or claim arising them [sic] out of this listing agreement, or any resulting transaction, before resorting to arbitration or court action.” (See Complaint, Exh. A.) The Sellers assert the fraud claim is not viable because Plaintiff failed to comply with this contractual requirement. However, they do not cite any California authority supporting the proposition a demurrer must be sustained if the parties failed to comply with a contractual pre-litigation mediation requirement. Independent research has also not revealed cases discussing this question. The one California case the Sellers reference, Lange v. Schilling (2008) 163 Cal.App.4th 1412, is inapposite because it does not address this issue. Rather, Lange stands for the rather unremarkable proposition that if a contract makes recovery of attorneys’ fees contingent on attempting to first resolve a matter through mediation, those fees are not recoverable where this requirement has not been complied with. (Lange, supra, 163 Cal.App.4th at 1417.) That being said, the Sellers do cite federal authority supporting the proposition that dismissal of a case is warranted where the parties fail to comply with a contract provision that makes mediation a condition precedent to filing a lawsuit. (See Delamater v. Anytime Fitness, Inc. (E.D. Cal. 2010) 722 F.Supp.2d 1168, 1181.) This authority is persuasive and the argument parties should comply with a contractual pre-litigation mediation requirement is sound. Moreover, Plaintiff has presented no argument or legal authority disputing the Sellers’ contention. Accordingly, the demurrer to the first cause of action is sustainable on this basis.

The Court is not aware of any legal authority addressing the issue of whether Plaintiff can plead around a contractual pre-litigation mediation requirement. Thus, out of an abundance of caution, leave to amend will be granted once to permit Plaintiff to research this issue and determine if an amendment can be made that will render his claims viable even in the absence of compliance with the mediation requirement.

With respect to the sufficiency of the fraud allegations, the Sellers assert they lack specificity because they do not allege “how, when, where, to who, and by what means” the misrepresentations were made and the specific damages Plaintiff suffered as a result of Defendants’ conduct. (Dem. at p. 9:22-27.) They also argue this cause of action is insufficiently pled against the Churchills because it does not allege that, as directors and officers of the corporation, they participated in the wrong or authorized that it be done. (See Opp. at p. 10:18-20.) In opposition, Plaintiff contends he sufficiently alleged fraudulent concealment because the Complaint avers the Sellers had a duty to disclose the sale agreement they entered into with Vincelette and intentionally concealed this fact to deprive him of his $500,000 commission under the terms of the Agreement. His argument is well-taken.

As a general rule, each element in a fraud cause of action must be pleaded with specificity. (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 645; Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) With that said, differences exist between the pleading requirements for a fraud claim based on affirmative misrepresentations and one based on concealment or nondisclosure. The requirement that facts be pled showing the “how, when ,where, to whom, and by what means the representations were tendered” is intended to apply to affirmative misrepresentations and not concealments. (See Alfaro v. Community Housing Imp. System & Planning Ass’n., Inc. (2009) 171 Cal.App.4th 1356, 1384.) This is simply because “it is harder to apply this rule to a case of simple nondisclosure.” (Ibid.) “How does one show ‘how’ and ‘by what means’ something didn’t happen, or ‘when’ it never happened, or ‘where’ it never happened?” (Ibid.) Therefore, less specificity is required when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy. (Ibid.)

Here, the Sellers contend the fraud claim is not pled with specificity because Plaintiff does not allege: the Churchills acted in their individual capacities as opposed to their capacities as officers of the Businesses, the Churchills were acting on behalf of the Businesses when they concealed their transactions with Vincelette, and the specifics of the “deal” entered into between the Sellers and Vincelette. They do not cite and the Court is not aware of any legal authority supporting their contention that any of these facts are required to state a claim for fraudulent concealment. Moreover, their additional argument that damages are not specifically pled is directly controverted by the allegations in the Complaint. In the first cause of action, Plaintiff specifically alleges he would not have entered into the Termination Agreement if he was aware of the ongoing discussions between the Sellers and Vincelette and “was harmed because instead of receiving the 10% broker’s fee stated in the AGREEMENT, Plaintiff instead received the $25,000.00 Termination fee.” (Complaint, ¶¶ 31-32.)

The Sellers’ contention regarding the failure to establish director and officer liability by the Churchills is also misplaced. They argue “there are no allegations that Ken and Monica Churchill acted in their individual capacities to authorize or direct the alleged fraudulent concealment” and cite United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586 in support of the proposition that no director and officer liability exists unless they participated in the wrong. (Dem. at p. 10:22-23.) However, this assertion is contradicted by the allegations in the first cause of action where Plaintiff alleges that the “Sellers” – a denomination that includes the Churchills – directly participated in the wrong of actively concealing from Plaintiff the negotiations and transaction between Defendants. (See Complaint, ¶¶ 10, 25.) Though the Sellers raise the issue that these actions were taken in their corporate capacities as opposed to their individual capacities, this is a distinction without a difference because the Complaint reflects that – whether as individuals or as officers of the Businesses – the Churchills directly participated in the fraudulent concealment. (See Id.) As such, the demurrer is not sustainable on the basis this claim has been insufficiently pled.

For the reasons stated, the demurrer to the first cause of action is SUSTAINED with 10 days’ leave to amend solely because the Complaint does not reflect compliance with the pre-litigation mediation requirement.

B. Second Cause of Action

The second cause of action is for breach of contract. Plaintiff alleges he entered into the Agreement with the Sellers, whereby he was entitled to a ten percent commission of the $5 million list price of the Businesses after he procured a buyer for them. He avers he fully or substantially performed under the terms of the Agreement but Sellers breached by refusing to pay him the commission.

The Sellers argue Plaintiff lacks standing because Pacific, and not Plaintiff, was the party to the Agreement. They also contend this cause of action fails because Plaintiff did not comply with the pre-lawsuit mediation requirement. Finally, they assert this claim cannot be maintained against the Churchills because they were not individual signatories to the agreement. Plaintiff presents no argument in response.

With respect to the argument regarding standing, as discussed, the case the Sellers cite in support, Jones, supra, is inapposite as it relates to claims brought by stockholders against third parties they claim damaged the corporation’s stock. (1 Cal.3d at 108.) As such, the demurrer is not sustainable on this basis.

With respect to the argument regarding the mediation requirement, for the reasons stated, the Sellers’ contention is well-taken and Plaintiff will be granted one opportunity to amend his Complaint.

Finally, with respect to the contention that no claim for breach of contract can be stated against the Churchills because they did not sign the Agreement in their individual capacities, it is not well-substantiated. The Sellers cite Gold v. Gibbons (1960) 178 Cal.App.2d 517 for the proposition that a breach of contract claim cannot be maintained against one who did not execute the contract but fail to adequately address the fact that the Agreement indicates the Churchills did, in fact, execute it. (See Complaint, Exh. 1, pgs. 1, 2 [listing “Monica and Ken Churchill” as parties to the contract and indicating the Agreement was signed by defendant Ken Churchill].) Though the Sellers attempt to draw a distinction between signing a contract in an individual capacity as opposed to a representative capacity, i.e. as vice president or president of the Businesses, they cite no authority supporting their contention such a distinction is significant for purposes of pleading a claim for breach of contract. As such, the demurrer to the second cause of action is not sustainable on this basis.

For the reasons stated, the demurrer to the second cause of action is SUSTAINED with 10 days’ leave to amend solely because the Complaint does not reflect compliance with the pre-litigation mediation requirement.

C. Third Cause of Action

The third cause of action is for breach of the implied covenant of good faith and fair dealing. Plaintiff alleges the Sellers breached the covenant by concealing their ongoing negotiations with Vincelette and inducing Plaintiff to execute the Termination Agreement. He avers they therefore unfairly and fraudulently interfered with his right to receive his commission under the Agreement.

The Sellers argue no cause of action has been stated because Plaintiff lacks standing and failed to comply with the pre-lawsuit mediation requirement. They also argue the third cause of action fails because no contract exists between the Churchills and Plaintiff, and this claim is duplicative of the second cause of action. In his opposition, Plaintiff does not address all of these arguments but simply contends a claim has been stated because the Sellers interfered with his right to receive the benefits by the Agreement by concealing their ongoing discussions with Vincelette and inducing Plaintiff to sign a Termination Agreement. His argument is well-taken.

With respect to the standing argument, for the reasons stated, the demurrer to this cause of action is not sustainable on this basis.

With respect to the argument regarding the mediation requirement, for the reasons stated, the Sellers’ contention is well-taken and Plaintiff will be granted one opportunity to amend his Complaint.

With respect to the assertion no agreement exists between Plaintiff and the Churchills, the Sellers turn again to the argument that the Churchills are not individual signatories to the Agreement. However, as with their demurrer to the second cause of action, they do not address the fact that the Agreement lists “Monica and Ken Churchill” as parties to the contract and is signed by defendant Ken Churchill. (See Complaint, Exh. 1, pgs. 1, 2.) They also do not explain why being an individual signatory to a contract, as opposed to a representative one, renders it unenforceable as to that signatory. As such, the demurrer is not sustainable on the basis that no contract exists between Plaintiff and the Churchills.

Finally, the Sellers err in their contention the claim for breach of the implied covenant of good faith and fair dealing is duplicative of the breach of contract claim. Though it is true the two causes of action are largely identical, the third cause of action includes an additional allegation that the Sellers breached the implied covenant of good faith and fair dealing by interfering with Plaintiff’s right to receive his ten percent commission under the Agreement. (See FAC, ¶ 52.)

The implied covenant of good faith and fair dealing is read into contracts and supplements their express provisions by preventing a contracting party from engaging in conduct that frustrates the other party’s rights to the benefits of the contract. (Thrifty Payless, Inc. v. Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.) Here, as argued by Plaintiff, the Complaint alleges the Sellers frustrated his right to receive the benefits of the Agreement by concealing from him the fact they were engaging in ongoing discussions with Vincelette and inducing Plaintiff to sign a Termination Agreement before consummating the sale with Vincelette. (See FAC, ¶ 52.) As such, the Sellers’ argument these claims are identical is misplaced. In any event, even if it were not, the fact that causes of action are duplicative “is not a ground on which a demurrer may be sustained.” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 889-90, citing Code Civ. Proc., § 430.10.)

For the reasons stated, the demurrer to the third cause of action is SUSTAINED with 10 days’ leave to amend solely because the Complaint does not reflect compliance with the pre-litigation mediation requirement.