2018-00228604-CU-OR

Faisal Nadeem vs. Markus Pegany

Nature of Proceeding: Hearing on Demurrer

Filed By: Parra, Jose L.

**If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel of the specific cause(s) of action or issue(s) on which oral argument is sought. **

Plaintiff and Cross-Defendant Faisal Nadeem’s (Nadeem) demurrer to the cross-complaint is SUSTAINED in part with leave to amend and OVERRULED in part.

This case presents a business dispute involving co-ownership of real property. In the complaint, Nadeem seeks partition and “dissolution of partnership.” Exhibits to the complaint are incorporated by reference into the cross-complaint.

The Defendants and Cross-Complaints are Markus Pegany (Markus) and Lati Pegany (Lati) (collectively “Cross-Complainants”). They allege that in April 2017, Nadeem engaged Lati as a real estate agent. Nadeem engaged Lati to locate a 5-acre parcel on which to store and maintain vehicles and equipment used in Nadeem’s trucking business. Lati located a 10-acre parcel (“the Property”). Given the Property’s size, Nadeem and Cross-Complainants agreed that Nadeem would fund half the purchase and Cross-Complainants would fund the other half. The plan was to develop a commercial venture for storage and maintenance of trucks and equipment. Markus and Nadeem took title as tenants in common. (See Compl., Exh. 1.)

On 10/03/17, the parties created American Trucking Services, Inc., an S-corporation. “The parties gave consideration to operating the commercial venture under the corporation, but no final decision was made.” (X-Compl., ¶ 12.)

On 10/20/17, Nadeem indicated he was withdrawing from the venture. A couple days later, Nadeem indicated he would withdraw from the venture in return for his investment. In reliance on these indications, Cross-Complainants sought financing, developed a business plan for the venture and obtained commitments from customers. Lati continued to act as Nadeem’s real estate agent and showed him smaller sites for his trucking company.

In early November 2017, Nadeem received a “$9,000 deposit he had placed with the lender that [Cross-Complainants] had solicited and obtained for financing of the commercial venture.” (X-Compl., ¶ 17.) On 11/14/17, Cross-Complainants received a new loan without involvement from Nadeem.

On 11/17/17, Nadeem and his brother informed Cross-Complainants that they wanted

either to take the entire Property for themselves or split it with Cross-Complainants. The next day, Nadeem told Lati he would not transfer his interest in the Property to allow Cross-Complainants’ new loan to close. The next day, 11/19/17, Nadeem’s brother told Lati that Nadeem would transfer his interest in the Property, and Lati agreed to sign a promissory note as assurance Nadeem would be repaid his investment. Nadeem’s brother indicated that such an arrangement was acceptable and that he would follow up later, but he never did.

Ultimately, Nadeem refused to transfer his interest in the Property to Cross-Complainants. Cross-Complainants nonetheless have continued to develop plans for the venture and have maintained the Property by, among other things, abating vegetation and protecting against trespassers.

The Cross-Complaint contains causes of action against Nadeem for “Breach of Contract to Convey Real Property Specific Performance,” Fraud, Breach of Contract, Interference with Prospective Economic Advantage and Breach of Fiduciary Duty. Nadeem demurs to each cause of action on grounds of uncertainty and/or failure to state a valid cause of action. Cross-Complainants oppose.

Discussion

The First Cause of Action for Breach of Contract to Convey Real Property Specific Performance

The demurrer for failure to state a cause of action is OVERRULED.

The agreement at issue involves Nadeem’s alleged promise to convey his interest in the Property in exchange for the return of his investment. Nadeem argues the allegations are defective because there is no reference to a writing within the statute of frauds.

Cross-Complainants counter that the allegations set up an estoppel exception to the statute of frauds. Specifically, they argue that because they took actions in reliance on Nadeem’s promise to convey, he is estopped to raise the statute.

In reply, Nadeem argues Cross-Complainants have not alleged the fraud or unconscionable injury needed to establish an estoppel defense to the statute of frauds.

“The doctrine of estoppel to assert the statute of frauds applies where unconscionable injury would result from denying enforcement of the oral contract after one party has been induced by the other seriously to change his position in reliance on the contract or where there would be unjust enrichment of a party who has received the benefit of the other’s performance.” (Isaac v. A & B Loan Co. (1988) 201 Cal.App.3d 307, 313, emphasis in original.) Here, the allegations can be construed to establish that Cross-Complainants performed valuable maintenance on the Property in reliance on Nadeem’s promise. (X-Compl., ¶ 21.) This can be construed as injury enough to overcome Nadeem’s demurrer.

The Second Cause of Action for Fraud

The demurrer for failure to state a cause of action is SUSTAINED with leave to amend.

Whether Cross-Complainants are proceeding on a theory of fraudulent misrepresentation or false promise, they must allege with more specificity the misrepresentation(s) or promise(s) Nadeem made. At this point, all that is alleged is an “agreement,” but fraud requires specificity as to what the defendant or cross-defendant said or promised.

Leave to amend is granted.

The Third Cause of Action for Breach of Contract

The demurrers for uncertainty and failure to state a valid cause of action are SUSTAINED with leave to amend.

Paragraphs 30 and 31 of the Cross-Complaint read:

30. Nadeem agreed to participate and contribute toward the purchase of the Subject Property and development of the commercial venture.

31. Implicit in the agreement to do so, was an express or implied promise that he would not withdraw from the efforts to develop the commercial venture or to take any actions to frustrate the purpose of the agreement to do so.

These allegations are so vague and ambiguous that they thwart a meaningful response. The court grants leave to amend. In any first amended cross-complaint (FACC), Cross-Complainants shall allege what the agreement required each party to do or refrain from doing as well as the benefits to which each party was entitled. Cross -Complainants can then determine whether they wish to proceed on a theory Nadeem breached the express terms of the agreement, implied terms, or both.

The Fourth Cause of Action for Interference with Prospective Economic Advantage

The demurrer for failure to state a cause of action is OVERRULED.

Cross-Complainants allege Nadeem backed out of the commercial venture when he did in order to usurp third-party relationships and contracts Cross-Complainants had developed. Specifically, Cross-Complainants allege that they had entered into third-party agreements for future use of the planned storage and maintenance facility. (See X-Compl., ¶ 34.) Nadeem argues the allegations he interfered by refusing to convey his interest in the Property are defective because they do not establish any wrongful act independent of the interference itself. (See Della Penna v. Toyota Motor Sales, U.S.A. (1995) 11 Cal.4th 376, 392-392.)

In opposition, Cross-Complainants argue the independently wrongful act is the fraud Nadeem perpetrated at the outset, i.e., his false agreement to join a venture to develop the Property. They characterize Nadeem’s refusal to transfer the Property and threat of partition as the continuation of the fraud.

In reply, Nadeem argues Cross-Complainants reliance on fraud is unavailing because the allegations do not establish actionable fraud.

Construing the allegations broadly, the fourth cause of action is predicated on a fraud that encompassed a breach of contract, i.e., Nadeem’s breach of his agreement to convey his interest in the Property in exchange for return of his investment. Nadeem does not explain why a breach of a contract with Cross-Complainants is not wrongful independently from his interference with Cross-Complainants’ commercial relations with third parties. Consequently, the court will not sustain the demurrer.

The Fifth Cause of Action for Breach of Fiduciary Duty

The demurrer for failure to state a cause of action is OVERRULED.

Cross-Complaints allege Nadeem breached a fiduciary duty attending the “partnership

(s) or joint venture(s) to purchase the Subject Property and or develop and operate the commercial venture[.]” (X-Compl., § 41.) Nadeem argues this theory of fiduciary duty rises and falls with the first cause of action. Because the court has overruled the demurrer to the first cause of action, it overrules the demurrer to the fifth cause of action as well.

Disposition

The demurrers to the third and fourth causes of action are sustained with leave to amend.

No later than 8/10/18, Cross-Complainants may file and serve an FACC in an attempt to remedy the defects in their third and fourth causes of action; response(s) due within 30 days thereafter, 35 days if the FACC is served by mail.

Although not required by any statute or rule of court, Cross-Complainants are requested to attach a copy of the instant minute order to the FACC to facilitate the filing of the pleading.

If any cross-defendant intends to demur to the FACC or move to strike, (s)he/it shall determine if any other defendant who has appeared in this action also intends to demur or move to strike. If so, all such defendants shall coordinate a single hearing date for the demurrers and motions to strike. Additionally, a copy of the FACC shall be included with the moving papers.