2017-00222685-CU-CO

Ascentium Capital, LLC vs. Maynard J. Frantz Trucking, LLC

Nature of Proceeding: Hearing on Demurrer to Second Amended Cross-Complaint

Filed By: Goldflam, Hal D.

Plaintiff and Cross-Defendants Ascentium Capital, LLC’s demurrer to Defendants and Cross-Complaints Maynard Frantz and Maynard Frantz, LLC’s second amended cross -complaint is ruled upon as follows.

Ascentium filed its complaint against Cross-Complainants for breach of equipment finance agreement and breach of guaranty in connection with the sale of a 2005 Peterbilt truck to Maynard Frantz, LLC (“Frantz LLC”). Ascentium and Frantz, LLC allegedly entered into an Equipment Finance Agreement (“EFA”) which Maynard Frantz allegedly personally guaranteed. Cross-Complainants then filed a cross-complaint alleging causes of action for breach of contract, common counts, and fraud. They filed a first amended cross-complaint in response to Ascentium’s demurrer and then the SACC pursuant to the parties’ stipulation.

First Cause of Action (Breach of Contract)

Ascentium’s demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action. In order to plead a breach of contract, the plaintiff must attach a copy of the agreement, set forth the material terms verbatim or plead the legal effect of the agreement. (Construction Protective Services, Inc. v. TIG Specialty Insurance Co. (2002) 29 Cal.4th 189, 198-199.)The essential elements to be pleaded in an action for breach of contract are (1) the contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting harm to the plaintiff (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal. App. 3d 1371, 1388).

Here, Cross-Complaints allege that the subject contract to purchase the truck from non -demurring cross-defendant Interstate was financed by Ascentium by way of the EFA. They allege that Ascentium’s employee Peter Papageorges told them they would not need to make any payments until the truck was delivered and they had their vehicle. (SACC, Attachment BC-1.) They allege that they are out the money paid to Interstate plus costs associated with the pickup and delivery of the truck. (SACC, BC-4.)

To the extent that this cause of action is asserted by Maynard Frantz, it is deficient as pled. To that end it appears that the cause of action is premised on Ascentium’s alleged breach of the EFA, the Purchase Order between the supplier and Frantz LLC, and/or the Commencement Agreement between Ascentium and Frantz, LLC. The court notes that while Cross-Complainants referred to these agreements as being attached to the SACC, only the EFA was actually attached. The Commencement Agreement is attached to Ascentium’s complaint and Cross-complaints do not dispute that this is the same Commencement Agreement referred to in the SACC. As seen from the EFA attached to the SACC, Maynard Frantz only guaranteed Frantz, LLC’s performance under the EFA, he is not a party to the EFA and therefore can bring a breach of contract claim based on his status as a guarantor. (Stevenson v. Oceanic Bank (1990) 223 Cal.App.3d 306, 319.) Cross-Complaints’ opposition discussing the fact that Maynard Frantz is the sole owner of Frantz, LLC and the only means by which the LLC acts has no bearing on his ability to bring an action in his individual name based on a breach of contract as to which the LLC, not him, is a party, and he cites no authority which would allow him to do so. The authority is to the contrary. (Kruse v.

Bank of America (1988) 202 Cal.App.3d 38, 65 [shareholder cannot recover damages to corporation as shareholder lacks standing to recover for injuries to corporation].)

In addition the allegations are not sufficient to set forth a breach. To that end, it appears that it is alleged that Ascentium breached the EFA because its employee informed Cross-Complainants they would not have to make any payments until the truck was delivered. However, there is no reference to any specific term in the EFA conditioning payment on delivery of the truck or even any allegation that the EFA or any other written agreement contained such a term. Further, the Commencement Agreement which as discussed above is referred to as being attached to the SACC (though it is attached to Ascentium’s complaint) provides that Frantz, LLC was to begin making payments whether the truck was delivered or not. (Comp. Exh. 3 ¶ 1.) The EFA required Ascentium to pay the supplier but there is no allegation that Ascentium did not do so. Moreover while Cross-Complaints also allege that they are out money paid to Interstate for costs associated with the pickup and delivery of the truck, there are no allegations that EFA or any agreement between these parties required Ascentium to make such payments. In short, there currently are no allegations setting forth a breach of any term of any contract between the parties.

The Court would note that Cross-Complainants’ opposition arguments fail to properly focus on the actual allegations in the SACC and/or the actual arguments raised by Ascentium as to why the cause of action is deficiently pled. For example, they make numerous arguments regarding consideration which Ascentium did not even discuss. While Cross-Complainants also argue that Ascentium was improperly relying on extrinsic evidence, they fail to specifically state what extrinsic evidence they are referring to. In any event, the Court’s ruling is based solely on the specific allegations in the SACC and the documents attached to the SACC, and the documents attached to the complaint which were also referred to in the SACC.

Second Cause of Action (Common Counts)

Ascentium’s demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action.

Here, the common count cause of action is an alternative to the first cause of action for breach of contract which is defective for the reasons stated above. “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.) As a result, the demurrer to the second cause of action is sustained for the same reasons as the demurrer to the first causes of action was sustained.

Third Cause of Action (Fraud)

Ascentium’s demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action.

The elements of fraud “are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

When pleading a claim for fraud/negligent misrepresentation, each and every element must be alleged, “and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made.” ( Stansfield v Starkey (1990) 220 Cal.App.3d 59, 73; Cadlo v Owens-Illinois, lnc. (2004) 125 Cal.App.4th 513,519 (stating that “[e]ach element in a cause of action for fraud or negligent misrepresentation must be factually and specifically alleged”). To satisfy the particularity requirement, the plaintiff must plead facts which “show how, when, where, to whom, and by what means the representations were tendered.” (Stansfield, supra, 220 Cal.App.3d at p. 74; see also Lazar v Superior Court (1996) 14 Cal.4th 631, 645.) Also, when asserting a fraud /negligent misrepresentation claim against an entity, plaintiff must “‘allege the names of the persons who made the allegedly fraudulent misrepresentation, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.'” Lazar, supra, 12 Cal.4th at p. 645 (quoting Tarmann v State Farm Mut Auto Ins Co (1991) 2 Cal.App.4th 153, 157).

Cross-Complainants allege that they obtained financing for a truck that was not delivered and would not have agreed to finance the truck had they been notified that title to the truck could not be provided. (SACC FR-5.) They allege that “employees” of Ascentium assured them that the vehicle would be delivered and that Ascentium would not proceed without obtaining title from Cross-Defendants Lothspeich and Interstate. (Id.) They also allege that Ascentium knew or should have known that Interstate and Lothspeich did not have title for the subject truck and were instead selling vehicles for which they did not have title. They allege that Ascentium had been referred other sales from Lothspeich and Interstate where they could not provide title to the vehicles.

Here, the allegations fall short of the pleading requirements for a fraud cause of action, especially considering the requirements for fraud against a corporate entity. While Cross-complaints allege that Ascentium employee Papageorges made certain representations, there are no allegations with respect to his authority to speak on Ascentium’s behalf. Cross-complainants fail to address this deficiency in opposition and the demurrer is sustained on the basis that the fraud cause of action is not pled with the level of specificity required when pleading fraud against a corporate entity.

To the extent that the fraud claim is premised on a concealment theory it is deficient as currently pled. To that end Cross-Complaints have alleged that Ascentium was bound to disclose certain facts. (SACC FR-3(b).) However, there are no facts alleged to demonstrate that Ascentium had any duty to make any disclosure. For example, there are no allegations that a fiduciary duty existed which would create a duty to disclose. ( Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974, 979.) Nor are there any allegations with the specificity required for a fraud cause of action to show that Ascentium was aware that title to the truck could not be delivered. The fact that the EFA may have provided that Ascentium should be permitted to inspect the truck and that the truck should be titled and/or registered as directed by Ascentium does not show that Ascentium knew or should have known that title to the truck could not be delivered.

As with their opposition to the breach of contract cause of action, the opposition to the demurrer to the fraud cause of action fails to focus on the specific allegations in the SACC and arguments raised in support of the demurrer. Moreover, the opposition actually confirms the deficiency of the fraud allegations in the third cause of action because they argue that any lack of the requisite specificity could be gleaned from the fourth cause of action. However, Cross-complainants were required to comply with the

heightened level of specificity for fraud claims as to each fraud cause of action. Further, Cross-Complaints attempt to counter the argument that the cause of action lacks the requisite specific allegations by referring to terms in the EFA despite not relying upon those terms anywhere in the cause of action as it is currently pled. The rules of pleading a fraud cause of action require the specific details be pled in the SACC.

Given the above, the Court need not reach Ascentium’s additional arguments in support of the demurrer to this cause of action (causation, damages, justifiable reliance, etc.).

Fourth Cause of Action (Fraud in the Inducement)

Ascentium’s demurrer is sustained with leave to amend for failure to state facts sufficient to constitute a cause of action.

Cross-Complaints allege that they would not have entered into the EFA had they known that Ascentium’s statements that they would not owe any money until they received the truck and that they could cancel the deal if the truck delivered did not match what they purchased. (SACC Attach. 4.)

Here, this alternate fraud cause of action is subject to the same standards set forth above and is deficient for the same reasons.

Ascentium’s demurrers to the various causes of action based on uncertainty are overruled. Demurrers for uncertainty are disfavored and only sustained where the pleading is so muddled that the defendant cannot respond. The favored approach is to clarify any uncertainty or ambiguity through discovery. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) The SACC is not so uncertain that Ascentium cannot respond. Any uncertainties can be clarified through discovery.

While this is the second amended cross-complaint, and even though cross-complainants do not specifically show what additional facts can be alleged, this is the first challenge to the pleading on which the Court has ruled as the first amended cross-complaint was filed prior to the previous demurrer and the SACC was filed pursuant to the parties’ stipulation. Leave to amend is therefore granted.

Cross-Complainants may file and serve an amended cross-complaint no later than August 16, 2018. Cross-Defendant shall file and serve its response within 30 days thereafter, 35 days if the amended complaint is served by mail as modified by the CCP § 430.41 extension as necessary.

The notice of demurrer does not provide notice of the Court’s tentative ruling system as required by Local Rule 1.06(D). Counsel for Cross-Defendant is ordered to notify Cross-Complainants’ counsel immediately of the tentative ruling system and to be available at the hearing, in person or by telephone, in the event Cross-Complainants’ counsel appears without following the procedures set forth in Local Rule 1.06(B).

The minute order is effective immediately. No formal order pursuant to CRC rule 3.1312 or other notice is required