Case Number: KC069410 Hearing Date: March 16, 2018 Dept: J

Re: John Rosenfeld v. Richard John Hernandez, etc., et al. (KC069410)

DEMURRER TO SECOND AMENDED COMPLAINT; MOTION TO STRIKE PORTIONS OF SECOND AMENDED COMPLAINT

Moving Parties: Defendants Andrew Quezada (erroneously sued as Andrew Ernie Quezada), Prime Equity Mortgage, a DBA (erroneously sued as Prime Equity Mortgage, a partnership), JNJ Properties, Inc. and Spectra Home Loans, Inc.

Respondent: Plaintiff John Rosenfeld

POS: Moving OK; Opposing OK; Replies OK

Plaintiff alleges that, during the period from 8/15-12/16, he made loans to Richard John Hernandez aka Richard Hernandez aka Ricky Hernandez (“Hernandez”) and Andrew Ernie Quezada aka Andrew Quezada (“Quezada”) which they would lend out to third parties as part of their business making and arranging loans for third party borrowers. Plaintiff alleges that Hernandez has defaulted on promissory notes. Plaintiff alleges that defendants failed to disclose, inter alia, that Hernandez’s license with the Board of Real Estate (“BRE”) had been revoked as of 4/16/16 and that Prime Equity Mortgage (“Prime Partnership”) was not licensed as a real estate broker by the BRE. Plaintiff alleges that Hernandez and Quezada had their salesperson licenses placed under the supervision of JNJ Properties, Inc. (“JNJ”), Joaquin George Arias aka George Arias (“Arias”) and/or Spectra Home Loans, Inc. (“Spectra”). The complaint was filed 6/23/17. On 10/11/17, Hernandez’s default was entered. On 10/27/17, Arias was dismissed, without prejudice. The First Amended Complaint was filed 11/15/17. The Second Amended Complaint, filed 1/17/18, asserts causes of action against Hernandez, Quezada, Prime Partnership, Prime Equity Acquisitions & Holdings, LLC (“Prime LLC”), JNJ, Spectra and Does 1-100 for:

Damages for Fraud—Failure to Disclose Material Facts (against Hernandez, Quezada, Prime Partnership and Prime LLC only)
Damages for Fraud—False Representations (against Hernandez, Quezada, and Prime Partnership only)
Negligent Supervision (against JNJ and Spectra only)
Collection on Promissory Note (against Hernandez only)
Collection on Promissory Note (against Hernandez only)
Collection on Promissory Note (against Hernandez only)
Restitution and Injunctive Relief for Unfair Business Practices (against Hernandez, Quezada, Prime Partnership and Prime LLC only)

A Case Management Conference is set for 3/28/18.

DEMURRER TO SECOND AMENDED COMPLAINT:

Defendants Andrew Quezada (erroneously sued as Andrew Ernie Quezada), Prime Equity Mortgage, a DBA (erroneously sued as Prime Equity Mortgage, a partnership) (“Prime Equity Mortgage”), JNJ Properties, Inc. and Spectra Home Loans, Inc. (“defendants”) demur to Plaintiff John Rosenfeld’s (“plaintiff”) Second Amended Complaint (“SAC”), on the basis that they each fail to state facts sufficient to constitute causes of action and are uncertain.

“A demurrer tests the legal sufficiency of factual allegations in a complaint. (Title Ins. Co. v. Comerica Bank—California (1994) 27 Cal.App.4th 800, 807).” Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 42-43. A demurrer is treated “as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact of law. (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713).” Serrano v. Priest (1971) 5 Cal.3d 584, 591.

FIRST AND SECOND CAUSES OF ACTION (DAMAGES FOR FRAUD—FAILURE TO DISCLOSE MATERIAL FACTS AND DAMAGES FOR FRAUD—FALSE REPRESENTATIONS, RESPECTIVELY):

The court notes that the first and second causes of action have been brought against Quezada and Prime Equity Mortgage.

“’The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge or falsity (or “scienter”); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’ (5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 676, p. 778; see also Civ. Code, § 1709; Hunter [v. Up-Right, Inc. (1993)] 6 Cal.4th 1174, 1184; Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1108.)” Lazar v. Superior Court (1996) 12 Cal.4th 631, 638. “’…[T]he elements of an action for fraud and deceit based on a concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.

“[F]raud must be pled specifically; general and conclusory allegations do not suffice.” Lazar, supra, 12 Cal.4th 631, 645. “[I]t is not sufficient to allege fraud or its elements upon information and belief, unless the facts upon which the belief is founded are stated in the pleading.” Dowling v. Spring Val. Water Co. (1917) 174 Cal. 218, 221.

“’Fraudulent representations which work no damage cannot give rise to an action at law. [Citation.]’ (Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268). A ‘complete causal relationship’ between the fraud or deceit and the plaintiff’s damages is required. (Garcia v. Superior Court (1990) 50 Cal.3d 728, 737; see also Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1m 12).” Williams v. Wraxall (1995) 33 Cal.App.4th 120, 132. “In order to recover for fraud, as in any other tort, the plaintiff must plead and prove the ‘detriment proximately caused’ by the defendant’s tortious conduct. (Civ. Code, § 3333). Deception without resulting loss is not actionable fraud. (Hill v. Wrather (1958) 158 Cal.App.2d 818, 825). ‘Whatever form it takes, the injury or damage must not only be distinctly alleged but its causal connection with the reliance on the representations must be shown.’ (5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 680, p. 131).” Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1818.

Plaintiff alleges that Prime Equity Mortgage was organized as a general partnership consisting of Hernandez, Quezada and Does 1-10. (SAC, ¶ 4). Here, the promissory notes were executed by Hernandez in his individual capacity only and do not reference Quezada and/or Prime Partnership whatsoever. (See SAC, Exhibits “1”-“3”). “’[P]rima facie, it [the note] is to be presumed to be the paper of the individual partner whose name is signed to it and the burden of proof is upon the holder to show affirmatively that the signature was intended for the signature of the firm.’” Bank of America Nat. Trust & Savings Ass’n v. Kumle (1945) 70 Cal.App.2d 362, 368. Corporations Code § 16301(2) provides that an act of a partner that is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership only if the act was authorized by the other partners. There are no factual allegations in the SAC that Quezada and Hernandez were partners wherein personal loans were made “in the ordinary course of business.”

Additionally, since the underlying tort which forms the basis of both causes of action is fraud, those allegations must be pled with the requisite specificity, which they are not.

Accordingly, Quezada’s and Prime Partnership’s demurrer to the first and second causes of action is sustained.

THIRD CAUSE OF ACTION (NEGLIGENT SUPERVISION):

The court notes that the third cause of action has been brought against JNJ and Spectra.

To state a cause of action for negligent supervision, plaintiff needs to allege (1) that Hernandez and Quezada were unfit or incompetent to perform the work for which each was hired, (2) that their employer knew or should have known that they were unfit or incompetent, and that this created a particular risk to others, (3) that their unfitness or incompetence harmed plaintiff, and that (4) negligent supervision played a substantial factor in causing the harm. See CACI No. 426. Plaintiff has not pled causation. It is unclear how JNJ’s and Spectra’s purported failure to detect that Hernandez and Quezada had formed and operated Prime Equity Mortgage has anything to do with Hernandez’s failure to allegedly pay back personal loans.

JNJ’s and Spectra’s demurrer to the third cause of action, then, is sustained.

SEVENTH CAUSE OF ACTION (RESTITUTION AND INJUNCTIVE RELIEF FOR UNFAIR BUSINESS PRACTICES):

The court notes that the seventh cause of action has been brought against Quezada and Prime Equity Mortgage.

“Business and Professions Code section 17200…establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent.” Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647. “The ‘unlawful’ practices prohibited by section 17200 are any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made. (People v. McHale (1979) 25 Cal.3d 626, 632).” Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 838-839. If a business practice is alleged to be “unlawful,” then the complaint “must state facts supporting the statutory elements of the alleged violation. (See G.H.I.I. v. MTS (1983) 147 Cal.App.3d 256…)” 5 Witkin, Cal. Procedure (5th ed. 2008), Pleading, § 779, p. 196.

“An unfair business practice…means ‘”the public policy which is a predicate to the action must be ‘tethered’ to specific constitutional, statutory or regulatory provisions.”’ (Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917, 940).” Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 81.

Lastly, “[a] fraudulent business practice under section 17200 ‘is not based upon proof of the common law tort of deceit or deception, but is instead premised on whether the public is likely to be deceived.’ (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1498). Stated another way, ‘In order to state a cause of action under the fraud prong of [section 17200] a plaintiff need not show that he or others were actually deceived or confused by the conduct or business practice in question. “The ‘fraud’ prong of [section 17200] is unlike common law fraud or deception. A violation can be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained any damage. Instead, it is only necessary to show that members of the public are likely to be deceived.” [Citations.]’ (Schnall v. Hertz Corp. (2000) 78 Cal.App.4th 1144, 1167).” Progressive West Ins. Co. v. Yolo County Superior Court (2005) 135 Cal.App.4th 263, 284. Plaintiff has not factually alleged any unlawful, or unfair, or fraudulent business practice by Quezada and/or Prime Partnership.

Additionally, the viability of an unfair competition law cause of action stands or falls with plaintiff’s other causes of action, which are insufficiently pled, for the reasons set forth above. See Krantz v. BT Visual Images, L.L.C. (2001) 89 Cal.App.4th 164, 178.

Quezada’s and Prime Partnership’s demurrer to the seventh cause of action is sustained.

MOTION TO STRIKE PORTIONS OF THE SECOND AMENDED COMPLAINT:

Based upon the foregoing rulings on the demurrer, the motion to strike is deemed moot.

The court will hear from counsel for plaintiff as to whether leave to amend is requested, and as to which cause(s) of action, and will require an offer of proof if so.