Case Number: BC517406 Hearing Date: April 10, 2014 Dept: 34

Moving Party: Defendants Robert Freeman, Tory Freeman, and Freeman & Sear

Resp. Party: Plaintiff Joseph Klemash

Defendants’ demurrer is OVERRULED.

Defendants’ motion to strike is DENIED.

BACKGROUND:

Plaintiff commenced this action on 8/5/13 against defendants for: (1) breach of oral contract; (2) fraudulent inducement; (3) fraudulent misrepresentation; (4) concealment; (5) conversion; (6) violations of Bus. & Prof. Code § 17200; and (7) accounting.

Defendants are dealers in ancient coins and antiquities. (Compl., ¶ 8.) Over the past five years, plaintiff has entered into approximately seven business transactions with defendants wherein plaintiff invested in defendants for the purchase of ancient coins, and defendants represented and promised to pay plaintiff his principal plus a 30% return on that investment. (Id., ¶ 9.) In the most recent transaction, which occurred in December 2012, plaintiff contributed $340,000.00 for the purchase of ancient coins, defendants represented that plaintiff would not lose any of his investment and was not at risk, and defendants promised to pay plaintiff his principal plus 30% return upon the sale of the coins. (Id., ¶ 10.) In January, defendants submitted to plaintiff three checks, each in the amount of $70,000.00. (Id., ¶ 11.) When plaintiff attempted to cash the checks, the first two were denied for insufficient funds. (Ibid.) After informing defendants of the denial, defendants made additional promises that were not fulfilled. (Id., ¶¶ 12-13.) Defendants still have not paid plaintiff the monies owed. (Id., ¶ 14.)

ANALYSIS:

Demurrer

Defendants demur to the second, third, fourth, and fifth causes of action in the complaint on the grounds that they fail to allege sufficient facts and are uncertain. Although defendants spend four pages of their MPA discussing why plaintiffs should not be able to pursue their sixth cause of action under the UCL, (See MPA, pp. 7-11) they have not demurred to the sixth cause of action. (See Demurrer, p. 2.)

Uncertainty

Demurrers for uncertainty are strictly construed, because discovery can be used for clarification, and apply where defendants cannot reasonably determine what issues or claims are stated. (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2008) 7:85.) “Demurrer for uncertainty will be sustained only where the complaint is so bad that the defendant cannot reasonably respond; i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her.” (Weil & Brown, 7:85 [citing Khoury, 14 Cal.App.4th at p. 616].)

Defendants’ demurrer for uncertainty is not well taken. Defendants understand what is being alleged and can appropriately respond. Any ambiguities may be resolved in the discovery process.

Second Cause of Action for Fraudulent Inducement and Third Cause of Action for Fraud

The elements of a fraud claim are: (1) misrepresentation of a fact (or intent to conceal in a fraudulent concealment case); (2) knowledge of falsity; (3) intent to defraud (to induce reliance); (4) justifiable reliance; and (5) resulting damage. (Buckland v. Threshold Enters., Ltd. (2007) 155 Cal.App.4th 798, 806-807.)

Fraud and misrepresentation must be specifically pleaded. (Scafidi v. Western Loan & Bldg. Co. (1946) 72 Cal.App.2d 550, 553.) Since allegations of fraud involve a serious attack on character, fairness to the defendant demands that he should receive the fullest possible details of the charge in order to prepare his defense. Accordingly, fraud must be specifically pleaded, such that: “(a) General pleading of the legal conclusion of ‘fraud’ is insufficient; the facts constituting the fraud must be alleged. (b) Every element of the cause of action for fraud must be alleged in the proper manner (i.e., factually and specifically), and the policy of liberal construction of the pleadings will not ordinarily be invoked to sustain a pleading defective in any material respect.” (Hall v. Department of Adoptions (1975) 47 Cal.App.3d 898, 904.)

“Consistent with the rule requiring specificity in pleading fraud [citation], a complaint must state ultimate facts showing that the defendant intended or had reason to expect reliance by the plaintiff or the class of persons of which he is a member.” (Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 608.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

Though plaintiff alleges what was said, by whom, and when the statements were made, plaintiff fails to clearly allege in what manner (i.e., oral or in writing) the representations were made. (See Compl., ¶¶ 9, 10, 12, 13, 22, 29.) However, this is information that may be easily obtained during the discovery process.

Accordingly, defendants’ demurrer to the second and third causes of action is OVERRULED.

Fourth Cause of Action for Fraudulent Concealment

Defendants argue that this cause of action fails because plaintiffs only allege that defendants concealed their intention to wrongfully refuse to pay plaintiff. (See Bank of America Corp. v. Superior Court (2011) 198 Cal.App.4th 862, 872-873 [recognizing the lack of a duty to disclose an intent to defraud].) However, defendants’ intent is not the only fact alleged to be concealed. Plaintiffs also allege, among other things, that defendants concealed the fact that they did not have sufficient funds to support the checks they issued to plaintiff. (See Compl., ¶¶ 39, 41-42.) Plaintiff alleges he was damaged by the concealment. (See id., ¶¶ 44-45.)

Accordingly, defendants’ demurrer to the fourth cause of action is OVERRULED.

Fifth Cause of Action for Conversion

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff’s ownership or right to possession of the property at the time of the conversion; the defendant’s conversion by a wrongful act or disposition of property rights; and damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. [Citations.]” (Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 543-544.) A party need not allege legal title or absolutely ownership, so long as the party is entitled to immediate possession at the time of conversion. (Bastanchury v. Times-Mirror Co. (1945) 68 Cal.App.2d 217, 236.) “However, a mere contractual right of payment, without more, will not suffice.” (Farmers Insurance Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-452.)

Plaintiff’s complaint does not merely allege a contractual right to payment. Instead, plaintiff alleges that defendants wrongfully converted plaintiff’s contribution which was intended to purchase ancient coins, and instead used the money to pay for their personal expenses. (See Compl., ¶¶ 15, 49.) Plaintiff alleges the other elements of conversion. (See id., ¶¶ 48-51.)

Accordingly, defendants’ demurrer to the fifth cause of action is OVERRULED.

Sixth Cause of Action for Violations of Bus. & Prof. Code § 17200

Although defendants argue that “The Sixth Cause of Action Fails to Allege Entitlement to Injunctive Relief or Sufficient Facts to State a Cause of Action,” (MPA, p. 7:10-11), they have not demurred to this cause of action. (See Demurrer, p. 2.)

Defendants’ Demurrer is OVERRULED. Defendants to answer within 10 days.

Motion to Strike

Defendants move to strike plaintiff’s allegations that defendants were running a Ponzi scheme and were fraudulently misappropriating funds to pay for defendants’ personal expenses. (See Compl., ¶¶ 11, 15, 23, 24, 32, 33, 40, 41, 42, 49, 59, 61.) A motion to strike may be used to strike (1) any “irrelevant, false or improper matter inserted in any pleading” or (2) any pleading or part thereof “not drawn or filed in conformity with the laws of this state, a court rule or order of court.” (Code Civ. Proc., § 436.) However, like demurrers, the grounds for a motion to strike must appear on the face of the pleading under attack, or from matters which the court may judicially notice. (Code Civ. Proc., § 437.) Nothing on the face of the complaint or a judicially noticed item establishes that these allegations are false or otherwise improper. These allegations are material because they pertain to plaintiff’s allegations that defendants wrongfully obtained his money with no intent to return it or use it for its intended purpose.

Defendants also seek to strike plaintiff’s claims for punitive damages. The standard of proof for recovery of punitive damages is “clear and convincing” evidence of malice, fraud, or oppression. (Civil Code § 3294(a).) Under Civil Code 3294(c),

[¶] (1) ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. [¶] (2) ‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. [¶] (3) ‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

“In determining whether a complaint states facts sufficient to sustain punitive damages, the challenged allegations must be read in context with the other facts alleged in the complaint. Further, even though certain language pleads ultimate facts or conclusions of law, such language when read in context with the facts alleged as to defendants’ conduct may adequately plead the evil motive requisite to recovery of punitive damages.” (Monge v. Superior Court (1986) 176 Cal. App. 3d 503, 510.) The inquiry is generally fact-specific to the nature of the claim raised and the context in which the damages are sought, but “the critical element is an ‘evil motive’ of the defendant.” (Ibid.) “‘Punitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff’s rights, a level which decent citizens should not have to tolerate.’” (American Airlines v. Sheppard (2002) 96 Cal. App. 4th 1017, 1051.)

As discussed above, plaintiff sufficiently alleges that defendants engaged in fraud and converted plaintiff’s money. (Compl., ¶¶ 10-15.) This is sufficient to support a claim for punitive damages.

Defendants challenge plaintiff’s claim for injunctive relief. The sixth cause of action, to which there is no demurrer, states a cause of action for violation of B&P § 17200. (See Comp., ¶ 56.) Injunctive relief is a permissible remedy under this statute. The motion to strike the request for injunctive relief is denied.

Finally, defendants seek to strike plaintiff’s request for attorney’s fees. “[A]s a general rule, attorney fees are not recoverable as costs unless they are authorized by statute or agreement.” (People ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc. (2007) 147 Cal.App.4th 424, 429.) Courts may strike prayers for attorney fees where a party demonstrated no potential basis for their recovery. (Agricultural Ins. Co. v. Sup. Ct. (1999) 70 Cal.App.4th 385, 404.) It appears that the attorney’s fees request is based on the sixth cause of action and Code of Civil Procedure section 1021.5. (See Opp., pp. 8-9.) Upon motion, a court may award attorneys’ fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any.”

Defendant argues that “California law is settled that attorney’s fees as costs are only recoverable on two bases: (1) a statute allows for such recovery, or (2) a written contract provides for such recovery. [DOUG TO ADD CITE]” (Motion to Strike, p. 11:23-25.)

Regardless of whether or not Doug has added a citation, Plaintiff’s sixth cause of action is based on the UCL, which is a statute that allows for recovery of attorneys fees. The Court denies the motion to strike attorney’s fees.

Defendants’ Motion to Strike is DENIED.