DEMURRER TO THIRD AMENDED COMPLAINT

Moving Party: Defendant 5150 Exotic Wear, Inc.

Respondents: Plaintiff Jim Lee and Dave Barela dba JD & Associates

POS: Moving OK; Opposing served by regular mail contrary to CCP § 1005(c)

This is a breach of contract action filed by Plaintiffs Jim Lee and Dave Barela dba JD& Associates, in pro per. The Complaint alleges that Defendant borrowed $30,000.00 from Plaintiffs’ assignor pursuant to a written agreement and that Defendant breached the agreement by failing to pay. Plaintiffs commenced this action on 1/31/12. The operative Complaint is the Third Amended Complaint filed on 7/25/13, which asserts causes of action for:

1. Breach of Contract
2. Common Count – Money Had and Received

A continued Case Management Conference is set for 2/26/14.

Defendant 5150 Exotic Wear, Inc. (“Defendant”) demurs to the Third Amended Complaint (“TAC”) on the grounds that: (1) the first cause of action for breach of contract is uncertain and it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct; and (2) the second cause of action for money had and received is barred by the statute of limitations.

REQUEST FOR JUDICIAL NOTICE:

The court declines to judicial notice of the print-outs from the official web page of the Secretary of State relating to 5150 Wear, Inc., attached to Defendant’s request as Exhibits 1-2. (See People v. Thacker (1985) 175 Cal.App.3d 594, 598-599 – materials prepared by private parties that are on file with governmental agencies, such as the Secretary of State, are not official records of which judicial notice may be taken; See also Stevens v. Sup. Ct. (1999) 75 Cal.App.4th 594, 608.)

FIRST CAUSE OF ACTION FOR BREACH OF CONTRACT:

The elements of breach of contract cause of action are (1) the existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach (or anticipatory breach); and (4) resulting damage. (Wall Street Network, Ltd. v. N. Y. Times Co. (2008) 164 Cal.App.4th 1171, 1178.) Contract terms may be alleged generally according to legal intendment. (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.) Pleading contracts by legal effect involves alleging the relevant terms in substance. (McKell v. Washington Mutual, Inc. (2006) 142 Cal. App. 4th 1457, 1489.)

A demurrer will lie in an action founded upon a contract, when it cannot be ascertained from the pleading whether the contract is written or oral, or implied by conduct. (CCP § 430.10(g).)

To allege alter ego, plaintiffs must plead a unity of interest and ownership such that the separate personalities of the corporation and individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285; See also generally 9 Witkin Sum. Of Cal. Law (10th ed. 2005) Corps. §10.) “[C]ourts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure.” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915.) “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Leek v. Cooper (2011) 194 Cal. App. 4th 399, 415 – noting a complete absence of such allegations.)

A variation of “de facto” merger liability occurs where the purchaser corporation acquires the seller corporation’s assets (but not its liabilities) for inadequate consideration, has practically the same shareholders and management as the seller, and carries on the same business. In such circumstances, the purchaser is essentially the same entity as the seller and may be held liable for the seller’s liabilities. This is especially so when actual fraud or the rights of creditors are involved — i.e., little or no cash is paid for the seller’s assets and the object of the transaction appears to be avoidance of specific debts or obligations. (McClellan v. Northridge Park Townhome Owners Ass’n, Inc. (2001) 89 Cal.App.4th 746, 753–756; see Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1326–1335—“mere continuation” doctrine applied where corporation effectively acquired another corporation’s division (line of business) by assuming leases and other property in attempt to defraud transferee corporation’s investors.)

The TAC alleges that in or about early May 2008, Peter Larios asked Plaintiff’s assignor Nhan Thi Tran (“Tran”) if she could loan him approximately $30,000.00 for his company 5150 Wear, Inc. (TAC ¶ 6); Larios stated that he or the company would pay back the money to Tran by May 1, 2009, but if the money was not paid back by then, interest would accrue at the rate of 5% per annum on the unpaid balance, until paid in full (Ibid.); on May 14, 2008, Larios had his company 5150 Wear, Inc. incorporated (Id. ¶ 7); pursuant to the agreement, Tran gave Larios $30,000.00 in four cash payments (Id. ¶ 8); in November 2008, Larios and Tran executed a separate written agreement whereby the agreement for the loan of $30,000.00 loan was confirmed (Id. ¶ 9); the written agreement also confirmed that the repayment of the $30,000.00 would be evidenced by a Promissory Note from 5150 Wear, Inc. in the amount of $30,000.00 which was due on or before May 1, 2009, and if the note was not paid in full on or before May 1, 2009, interest would accrue at the rate of 5% per annum on the unpaid balance, until paid in full (Ibid.); despite the terms of the written agreement, Larios and/or 5150 Wear, Inc. never gave Tran the referenced Promissory Note (Id. ¶ 10); thereafter, and as the months ensued, Tran contacted Larios on numerous occasions and requested that Larios pay back the $30,000.00, plus accumulated interst (Id. ¶ 11); however, on each occasion, Larios explained that neither he nor 5150 Wear, Inc. had the money to pay Tran the money she was owed (Ibid.); thereafter, and in an effort to avoid from having to pay Tran the money that was owed to her, Larios decided to form a new company, 5150 Exotic Wear, Inc. (Id. ¶ 12); on October 29, 2009, Larios had 5150 Exotic Wear, Inc. incorporated and registered with the California Secretary of State (Id. ¶ 13); and that there is no discernable difference between 5150 Wear, Inc. and 5150 Exotic Wear, Inc. (Id. ¶ 14). The TAC further alleges that Defendant breached the written agreement by failing to pay Tran $30,000.00 loan, plus accumulated interest. (Id. ¶¶ 18-19.)

The TAC adequately asserts a cause of action for breach of contract. Defendant contends that it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct. However, the TAC alleges that the parties executed a separate written agreement whereby the initial oral agreement for the loan of $30,000.00 loan was confirmed. (TAC ¶¶ 9, 18.) Defendant also contends that Plaintiff has failed to state a “cause of action” for alter ego liability. Although Plaintiff has not specifically alleged a theory of alter ego liability, the TAC alleges that there is no discernable difference between 5150 Wear, Inc. and 5150 Exotic Wear, Inc., both companies were formed by Larios and are engaged in the same type of business, both companies continue to operate in the same city, 5150 Exotic Wear, Inc. is a mere continuation of 5150 Exotic Wear, Inc. and that Larios created 5150 Exotic Wear, Inc. for the fraudulent purpose of escaping liability for 5150 Wear, Inc.’s debt to Tran. (TAC ¶¶ 14, 20.) The TAC alleges adequate facts to support an alter ego liability and/or “de facto” merger liability against Defendant. Thus, the demurrer to the first cause of action is overruled.

SECOND CAUSE OF ACTION FOR MONEY HAD AND RECEIVED:

A common count is not a specific cause of action: “[R]ather, it is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness, including that arising from an alleged duty to make restitution under an assumpsit theory.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.) The only essential elements of a common count are (1) the statement of indebtedness in a certain sum; (2) the consideration — i.e., goods sold, work done, etc.; and (3) nonpayment. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460.)

The statute of limitations applicable to the common counts is either two or four years, depending on whether the underlying debt was incurred orally or in writing. If the action is founded upon a contract or other writing (e.g., “book account”, “account stated” or money lent on a note), the statute of limitations is generally four years from the date of the last item in the account. (CCP § 337(1),(2); Armstrong Petroleum Corp. v. Tri–Valley Oil & Gas Co. (2004) 116 Cal.App.4th 1375, 1395, fn. 9.) Otherwise, the statute of limitations is two years. (CCP § 339.)

Where the dates alleged in the complaint show the action is barred by the statute of limitations, a general demurrer lies. (See Vaca v. Wachovia Mortg. Corp. (2011) 198 Cal.App.4th 737, 746.) The running of the statute must appear “clearly and affirmatively” from the dates alleged. It is not enough that the complaint might be barred. (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 324-325.)

The TAC does not specifically allege when the contract was breached and thus, the running of the statute does not appear “clearly and affirmatively” on the face of the TAC. Moreover, the TAC alleges a breach of a written agreement (TAC ¶¶ 17-19); and therefore, even assuming that the breach occurred right after the contract was made, i.e., on November 2008, Plaintiff commenced this action on January 2012, less than four years after the breach. Thus, the demurrer to the second cause of action is overruled.

Defendant has 10 days to answer.