2012-00121796-CU-PL

West Coast Nutrition LLC vs. Optimum Health Distributing Inc

Nature of Proceeding: Hearing on Demurrer to Second Amended Complaint (Drew Green)

Filed By: Dunzweiler, Krista J.

*** If oral argument is requested, the parties are directed to notify the clerk and
opposing counsel at the time of the request which causes of action will be
addressed at the hearing. Counsel are reminded that pursuant to Local Rules,
only limited oral argument is permitted on law and motion matters. ***

Defendant Drew Green’s (“Green”) demurrer to the Second Amended Complaint
(“2AC”) is SUSTAINED without leave to amend, as follows.

Moving counsel is admonished for failing to comply with CRC Rule 3.1110(b)(3)-(4).

Plaintiffs’ counsel is again admonished for failing to comply with CRC Rule 3.1113(f).

Although the notice of hearing provided notice of the Court’s tentative ruling system as
required by Local Rule 1.06(D), the notice does not comply with that rule. Moving
counsel is directed to review the Local Rules, effective 1/1/2013.

The 2AC generally alleges that several defendants distributed and sold various
nutritional and dietary supplements, some of which were purchased by plaintiffs for re-
sale to the public. It is further alleged that some of the supplements purchased by
plaintiffs were “adulterated” with various substances within the meaning of federal law
and this has caused plaintiffs’ injuries and damages including being faced with civil
and criminal charges. (2AC, ¶30.) Additionally, the 2AC asserts that one of plaintiffs’
customers was injured by defendants’ products and led to a lawsuit against various
entities including plaintiffs, ultimately culminating in the latter’s “loss of the fair market
value of the company, the closure of some locations, lost equity in the company,…past
and future income…[and] attorney’s fees and costs…” (2AC, ¶¶32-33.)

With respect to defendant Green individually, the 2AC contends that he was “the sole
shareholder, director and chief executive officer” of defendants Natures Science, LLC
and Reaction Nutrient, LLC and that at all relevant times, there was a “unity of interest
between Green and the aforementioned [LLCs] such that any individuality and
separateness between them ceased and the [LLCs] became the alter ego of defendant
Green…” (2AC, ¶8.) Paragraphs 9 and 10 allege that Green was in September 2012
indicted for conspiracies to distribute synthetic drugs, to introduce misbranded drugs
into interstate commerce and to commit money laundering, and thereafter, Green
“admitted to the charges…” Paragraph 11 claims that the West Virginia State Attorney
General investigated Green and another of his companies for unfair/deceptive
practices in marketing and distribution of synthetic controlled substances, ultimately
resulting in an injunction. Plaintiffs insist these facts establish a “common scheme or
plan” by Green to provide illegal steroids to retailers and ultimately to consumers.
(2AC, ¶¶12-13.) Finally, Paragraph 14 asserts that “Green and the aforementioned
Corporate Defendants are jointly and severally liable for all relief sought herein…” but
there is no other specific reference to defendant Green himself in the 2AC.

Like its predecessor, the 2AC purports to assert causes of action (“COA”) for
negligence, deceit by concealment, negligence per se and negligent infliction of
emotional distress (“NIED”).

Green now demurs to each COA on various grounds. First, Green insists that all of
the COA alleged in the 2AC fail as against Green because the 2AC contains no
specific facts to support liability against Green individually under any COA identified by
plaintiffs. Instead, by its own terms, the 2AC only alleges against Green relate to alter
ego liability but Green contends the 2AC fails to plead facts sufficient to establish
liability against him on an alter ego theory. Second, Green argues that both the
negligence and negligence per se COA fail since the 2AC contains no facts which
show Green himself owed a duty of care to any plaintiff, Green breached such a duty
and/or such breach proximately caused plaintiffs’ alleged damages. Third, Green
maintains that both of these negligence claims are also barred by the “economic loss
rule” since none of the plaintiffs in this action suffered any actionable personal injury or
property damage. Fourth, Green claims the concealment COA is not pled with the
requisite factual specificity particularly since it does not even mention Green by name
and since plaintiffs fail to allege all requisite elements of concealment. Finally, Green
demurs to the NIED claim on the ground that a “direct victim” claim is permitted only
where there was the mishandling of a corpse, the misdiagnosis of a disease which
could harm another or the breach of a duty arising out of a preexisting relationship with
the plaintiff and on the ground that emotional distress damages are not typically
available when the injury is merely property damage or economic injury.

In opposition plaintiffs contend that the negligence COA pleads all four required
elements including duty and that the concealment COA sufficiently states each
element with respect to defendant’s product labels which failed to disclose the
supplements were adulterated. The opposition further asserts that the elements of
reasonable reliance and causation are ordinarily questions of fact which cannot be
resolved here. Plaintiff also concedes that the NIED claim is a form of negligence
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which in this case seeks remedies in addition to those sought in the 1 COA for
negligence and that the question of whether a duty of care exists depends on “the
foreseeability of the risk and a weighing of policy considerations.” Finally, the
opposition maintains that the negligence per se claim is properly pled and that contrary
to OHD’s argument, the “economic loss rule” does not bar tort claims which are
“independent” of the underlying contract.

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1 COA for Negligence. The demurrer to the negligence claim is sustained without
leave to amend. This COA fails to state facts sufficient to establish that defendant
Green himself owed any duty of care to any plaintiff, that he breached any duty and/or
that his breach was the proximate caused of any damage alleged in the 2AC. As
noted above, with the exception of the otherwise conclusory alter ego allegations
found in Paragraphs 8-14, the 2AC pleads no specific facts which could support a
finding that defendant Green personally owed any duty of care to any of the plaintiffs in
this action. Likewise, the 2AC fails to plead facts which tend to show that defendant
Green was in any relevant manner negligent or that any claimed negligence caused
any damage to plaintiffs since the 2AC is nearly completely silent as to Green’s own
personal conduct. Additionally, since none of the plaintiffs in this action suffered any
personal injury or property damage as a proximate result of the allegedly adulterated
supplements but rather only led to exposure to potential civil/criminal liability and other economic losses (“loss of the fair market value of the company, the closure of some
locations, lost equity in the company,…past and future income…[and] attorney’s fees
and costs…” (2AC, ¶¶30-33)). As noted in the ruling on the demurrers to the prior
complaint (which plaintiffs did not contest), the “economic loss rule” effectively
precludes this negligence COA. (See, e.g., Robinson Helicopter Co. (2004) 34 Cal.4th
979, 984 [“economic loss rule” bars tort action in absence of personal injury or physical
damage to other property]; Food Safety Net Services v. Eco Safe Systems USA, Inc.
(2012) 209 Cal.App.4th 1118, 1130 [where purchaser’s expectations are frustrated, his
remedy is in contract alone for he has suffered only “economic” losses;” the economic
loss rule prevents the law of contract and the law of tort from dissolving one into the
other; a party alleging fraud or deceit in connection with contract must establish
tortious conduct independent of breach of contract itself, a violation of “some
independent duty arising from tort law”].)

2nd COA for Concealment. The Court sustains the demurrer to the 2nd COA without
leave to amend as well. First, a claim of fraudulent concealment cannot stand without
plaintiffs pleading facts showing the existence of some duty or obligation on the part of
Green individually to disclose to plaintiffs those material facts allegedly concealed.
(See, e.g., Civ. Code §1710; CACI 1901; BAJI 12.35.) While Paragraph 37 purports to
allege the existence of a “duty to disclose,” the allegation is impermissibly conclusory
and lacks specific facts sufficient to support a conclusion that defendant Green in
particular had some duty or obligation to disclose to plaintiffs, as mere retailers of the
nutritional supplements and as opposed to the ultimate consumers of those products,
the ingredients in the supplements being distributed. Second, Green correctly points
out that the 2nd COA fails to plead facts showing the prima facie elements of Green’s
intent to defraud, plaintiffs’ reasonable reliance and damages proximately flowing from
their claimed reliance. Finally, the concealment COA is not pled with sufficient factual
specificity in that it fails to plead facts showing exactly what was allegedly concealed
from plaintiffs by Green in particular, how plaintiffs were justified in relying on
defendant Green and the damages proximately caused by such reliance on defendant
Green, especially since the 2nd COA nowhere even mentions Green by name.

3rd COA for Negligence Per Se. The Court must sustain without leave to amend
Green’s demurrer to this COA for at least three independent reasons. First, as
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explained in connection with the 1 COA for negligence, the 2AC fails to state facts
sufficient to establish that defendant Green himself owed any duty of care to any
plaintiff, that he breached any duty and/or that his own personal negligence was the
proximate caused of any damage alleged by plaintiffs. Second, negligence per se is
itself not an independent COA but simply an evidentiary presumption of negligence
when an applicable statute is violated. Third, this COA is essentially identical to the
negligence COA and is therefore barred by the “economic loss rule.”

4th COA for NIED. The demurrer to the NIED claim brought solely by plaintiff Ware is
sustained without leave to amend as well. As already discussed above, the 2AC fails
to state facts sufficient to establish that defendant Green himself owed a duty of care
to any plaintiff much less to plaintiff Ware in particular, that Green breached any duty
and/or that Green’s own alleged personal negligence proximately caused any
emotional distress. Whether defendant owed a duty is a question of law and
moreover, a “direct victim” claim for NIED “arises from the breach of a duty that is
assumed by the defendant or imposed on the defendant as a matter of law, or that
arises out of the defendant’s preexisting relationship with the plaintiff.” (Huggins v.
Longs Drug Stores (1993) 6 Cal.4th 124, 129-130 (emphasis added).) The 2AC fails
to show the existence of any preexisting relationship between plaintiff Ware and
defendant Green individually which could support such a duty. Paragraph 56 alleges
that “Defendants, and each of them, owed a ‘special duty’ to the retailers and
consuming public to exercise reasonable care in designing, manufacturing, packaging
labeling, marketing, distribution and sales of the product and to comply with all relevant
comprehensive Federal and State statutes…” but aside from being entirely conclusory
and lacking specific facts, this allegation is insufficient to show that defendant Green
himself owed a duty of care to plaintiff Ware since Paragraphs 3 and 55 admit that the
latter was neither a retailer nor a member of the “consuming public.” Instead,
Paragraphs 3 and 55 state that plaintiff Ware was merely “an officer, director and/or
managing agent” of the two LLCs also named as plaintiffs and the “owner, manager” of
those entities which then re-sold the subject supplements to the public and thus, based
on the currently allegations of the 2AC, the Court can find no preexisting relationship
between Green and plaintiff Ware in their individual capacities which would give rise to
a duty of care owed directly to the latter, as opposed to the LLC plaintiffs. In the
absence of a duty owed by defendant Green, plaintiff Ware’s NEID COA is insufficient
to withstand demurrer.

Since (1) plaintiffs have now had three opportunities to plead a valid COA for
negligence, concealment, negligence per se and/or negligent infliction of emotional
distress as against Green, (2) plaintiffs have failed to demonstrate how the complaint
can be amended to state a valid claim under any of those theories and (3) this Court
concludes that plaintiffs have no reasonable probability of doing so, leave to amend is
denied.

This minute order is effective immediately. Pursuant to CRC Rule 3.1312, defendant
Green to prepare a formal order and proposed judgment of dismissal as to Green only.