Case Name: Connect • Work • Thrive, LLC, et al. v. Quixey, Inc., et al.
Case No.: 17CV319483

I. Background

According to the allegations in the first amended complaint (“FAC”), defendant Quixey, Inc. (“Quixey”) needed a new CEO. Quixey turned to plaintiff Johanna Wise (“Wise”) and her recruitment business Connect•Work•Thrive, LLC (“CWT”) (collectively, “Plaintiffs”). CWT gave Quixey a new-client discount and agreed to accept $60,000—rather than $105,000—in the event Quixey hired the candidate it located. In August 2016, Quixey hired CWT’s candidate as CEO. Despite this successful placement, Quixey never paid CWT.

Roughly six months later, Quixey decided to cease operations and sell its assets. Its management replaced CWT’s successfully-placed CEO with defendant Michael Hogan (“Hogan”). Additionally, Quixey hired defendants Armanino, LLP and the Brenner Group, LLC to help wind up its business. Plaintiffs contacted Alexander van Dillen (“van Dillen”), of the Brenner Group, LLC, to discuss the unpaid invoice for $60,000. He refused to pay this invoice without adequately assessing its validity and instead turned it over to the Mountain View Police Department. Plaintiffs allege his conduct damaged their business reputations.

Plaintiffs assert causes of action against Quixey, Hogan, Armanino, LLP, the Brenner Group, LLC and van Dillen (collectively, “Defendants”) for: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) fraud (against Quixey only); and (4) “unjust enrichment.”

Currently before the Court is Defendants’ demurrer to and motion to strike portions of the FAC, which is accompanied by a request for judicial notice.

II. Request for Judicial Notice

Defendants request judicial notice of a declaration attached as an exhibit to the pleading. Presumably, they request judicial notice of this declaration as a court record. (See Evid. Code, § 452, subd. (d).) Nevertheless, it is unnecessary to take judicial notice of the declaration because it is part and parcel of the pleading under review and, as such, must necessarily be considered by the Court. (See Paul v. Patton (2015) 235 Cal.App.4th 1088, 1091, fn. 1.) Consequently, Defendants’ request for judicial notice is DENIED.

III. Demurrer

Defendants demur to each cause of action on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) They also demur to the second cause of action on the ground of uncertainty. (Code Civ. Proc., § 430.10, subd. (f).)

A. First Cause of Action

The first cause of action is for breach of contract. The existence of a contract between the plaintiff and the defendant is an essential element of a breach of contract claim. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) The central question for the purpose of this demurrer is: who are the parties to the contract at issue?

Defendants first argue Wise fails to state a claim for breach of contract because she does not allege she was a party to the agreement between her company, CWT, and Quixey. This argument is supported by the allegations in the pleading stating CWT and Quixey were the parties to the contract at issue. (FAC, ¶¶ 11–12.) Plaintiffs do not respond to this argument. Thus, Defendants’ first argument is well-taken. Wise fails to state a claim for breach of contract.

Defendants also argue the claim is defective as asserted against Hogan as well as Armanino, LLP, the Brenner Group, LLC, and van Dillen (collectively, “Liquidators”) for the very same reason. It is true that Plaintiffs allege Quixey was the other party to the agreement. Plaintiffs do not allege Hogan and Liquidators were parties to the agreement. Thus, Plaintiffs fail to state a claim for breach of contract against Hogan and Liquidators.
To be sure, Plaintiffs’ fallacious agency theory does not support a contrary conclusion. Although not clearly articulated by Plaintiffs, they seem to argue the general rule is that an agent is typically liable for breaching a contract entered into by or on behalf of the principal. This is not the law.

As an initial matter, Plaintiffs misrepresent the significance of their cited authority, which states “the doctrine of respondeat superior imposes liability upon an innocent principal or employer for the torts of his agent or employee which are committed within the scope of employment whether or not the agent or employee acts in excess of his authority or contrary to his instructions.” (Garton v. Title Insurance & Truck Co. (1980) 106 Cal.App.3d 365, 375.) This case and the doctrine of respondeat superior are inapplicable because the issue is whether an agent, not a principal, may be held liable for breach of contract, not a tort.

In actuality, the general rule is that an agent is not liable for the principal’s contractual obligations. (Kurtin v. Elieff (2013) 215 Cal.App.4th 455, 480.) An agent’s personal liability arises under the circumstances set forth in Civil Code section 2343, such as when the agent personally consents to an agreement or consents to an agreement on behalf of the principal without an adequate belief that he or she has authority to do so. (Ibid.) Plaintiffs do not allege facts material to an agent’s contractual liability under Civil Code section 2343. In fact, Plaintiffs allege the agreement at issue was formed long before Hogan and Liquidators assumed responsibility for winding down the business. Consequently, Plaintiffs’ argument lacks merit.

Plaintiffs also argue they are third-party beneficiaries of agreements between Quixey and the other defendants. (Opp. at pp. 5:4–6:13.) It is not especially clear whether Plaintiffs are advancing this argument separately or in connection with their agency argument. In either case, it is problematic for a number of reasons. First and foremost, the contract at issue is the oral agreement between CWT and Quixey. Thus, Plaintiffs’ purported status as third-party beneficiaries of some other agreement is immaterial to whether they state a claim for breach of the CWT-Quixey contract. Second, Plaintiffs identify no factual allegations to support the conclusion that they are third-party beneficiaries. (See generally Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1022–23.) Plaintiffs’ argument is specious.

In conclusion, Plaintiffs allege the existence of a contract between CWT and Quixey. Thus, Wise fails to state a claim for breach of contract against any defendant. Also, CWT fails to state a claim against Hogan and Liquidators.

When a court sustains a demurrer, it may deny leave to amend if there is no reasonable possibility the plaintiff can amend the complaint to state a viable claim. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) A “[p]laintiff must show in what manner he [or she] can amend his [or her] complaint and how that amendment will change the legal effect of the pleading.” (Ibid.) Plaintiffs neither request leave to amend in their written opposition nor explain how they could cure the defect in the pleading if given an opportunity to do so. Moreover, given the affirmative allegations made in the FAC, it is unclear how Plaintiffs could honestly allege consistent facts—facts that do not run afoul of the sham pleading rule—to cure the defects discussed above. Thus, the demurrer to the first cause of action as asserted by Wise is SUSTAINED WITHOUT LEAVE TO AMEND. The demurrer to the first cause of action as asserted by CWT against Hogan and Liquidators is SUSTAINED WITHOUT LEAVE TO AMEND. CWT’s claim as asserted against Quixey remains.

B. Second Cause of Action

Defendants demur to the second cause of action on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action.

1. Uncertainty

A demurrer on the ground of uncertainty tests whether a pleading is ambiguous, uncertain, or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Reg. Authority (2012) 208 Cal.App.4th 1125, 1135.) A demurrer on the ground of uncertainty “is not intended to reach the failure to incorporate sufficient facts in the pleading, but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145–46.)

Defendants do not explicitly address their demurrer on the ground of uncertainty or advance arguments that otherwise appear to support the conclusion that the pleading is uncertain, ambiguous, or unintelligible. The Court finds the FAC is not so incomprehensible Defendants cannot reasonably respond. Thus, the demurrer to the second cause of action on the ground of uncertainty is OVERRULED.

2. Failure to State Sufficient Facts

Defendants argue no claim for breach of the implied covenant of good faith and fair dealing is stated by Wise because she is not a party to the agreement. Plaintiffs do not respond to this argument. It is true that the implied covenant of good faith and fair dealing necessarily binds and applies to the contracting parties. (Racine & Laramie, Ltd. v. Dept. of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031.) As explained above, the facts alleged show CWT, not Wise, was the party bound by the oral agreement to locate a new CEO for Quixey. Accordingly, Defendants’ argument is persuasive.

Defendants also argue the second cause of action is superfluous. A demurrer is not sustainable on the ground a claim is superfluous. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 889–90, citing Code Civ. Proc., § 430.10.) Thus, this argument does not justify sustaining the demurrer.

For these reasons, as well as those articulated in connection with the first cause of action, the demurrer to the second cause of action as asserted by Wise is SUSTAINED WITHOUT LEAVE TO AMEND. The demurrer to the second cause of action as asserted by CWT is OVERRULED.

C. Third Cause of Action

Quixey argues Plaintiffs fail to state a claim for fraud because they do not plead all of the essential elements of the claim with particularity. Although Plaintiffs conclude their allegations are sufficient, they do not actually address this argument.

The essential elements of a fraud claim based on an intentional misrepresentation are: “(1) the defendant made a false representation as to a past or existing material fact; (2) the defendant knew the representation was false at the time it was made; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the representation; and (5) the plaintiff suffered resulting damages.” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 792, citing Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 638.) A plaintiff must plead these elements with particularity by alleging, among other things, “how, when, where, to whom, and by what means the representations were tendered.” (Lazar, supra, 12 Cal.4th at pp. 644–45 [internal quotation marks and citation omitted].) “[G]eneral and conclusory allegations do not suffice.” (Id. at p. 645.)

Although Quixey broadly argues Plaintiffs’ allegations lack specificity, it seems to focus on the element of intent. Because the scope of its argument is somewhat unclear, the Court addresses each element out of an abundance of caution.

Here, Plaintiffs’ fraud claim is based on a false-promise theory. A “false promise is actionable on the theory that a promise implies an intention to perform, that intention to perform or not to perform is a state of mind, and that misrepresentation of such a state of mind is a misrepresentation of fact.” (Tarmann v. State Farm Mutual Auto. Insurance Co. (1991) 2 Cal.App.4th 153, 158–59.) “The allegation of a promise (which implies a representation of intention to perform) is the equivalent of the ordinary allegation of a representation of fact.” (Id. at p. 159.) Plaintiffs allege that in May 2016, Quixey founder and board member Tomer Kagan orally promised to pay CWT’s recruitment fee in exchange for it securing a qualified CEO candidate. (FAC, ¶¶ 11–12 & Ex. A.) These allegations are sufficient to plead the first element of the claim with particularity, namely that Quixey made a misrepresentation of fact. To be sure, Quixey does not explicitly address these allegations.
Next, “[i]n a promissory fraud action…the falsity of the promise and the knowledge of that falsity (scienter) are interconnected.” (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1061.) “A promise is only false if the promisor did not intend to perform the promise when it was made, i.e., had knowledge of its falsity.” (Id. at pp. 1061–62.) And so, an allegation that the promise was false when made is sufficient to plead multiple elements of the claim, including the element of intent or scienter. (Id. at p. 1062.)

Quixey first states “Plaintiffs provide absolutely no specific allegations whatsoever anywhere in the third cause of action or anywhere else in the FAC…that [it] possessed contemporaneous disbelief in what it said at the time the statements were made.” (Mem. of Pts. & Auth.at p. 10:12–14.) This categorical statement is not supported by any meaningful legal analysis or a discussion of the facts alleged.

Quixey also argues Plaintiffs do not allege consistent facts showing it had intent to defraud. It asserts there are allegations in the third cause of action that Quixey, through founder Tomer Kagan, knowingly made a false promise to compensate it that Quixey never intended to perform, which purportedly conflict with facts apparent from an exhibit attached to the pleading, namely the declaration of Tomer Kagan. (FAC, Ex. A.) Quixey claims the declaration reflects it intended to perform at the time the promise was made. There are a few problems with this argument.

First, for a court to consider allegations appearing in an exhibit attached to a pleading, the contents of the exhibit must be incorporated by reference and it must be apparent that the plaintiff intended for statements in the exhibit to be treated as allegations upon which the claim is based. (Holly Sugar Corp. v. McColgan (1941) 18 Cal.2d 218, 226–27.) In other words, the plaintiff must indicate he or she intended to adopt the statements as his or her own. (Ibid.) Here, Plaintiffs do incorporate the declaration by reference. (FAC, ¶ 16.) With that said, they rely on it to establish no payment was made for the services provided. And so, although Plaintiffs seem to attach the exhibit to buttress their allegation of nonpayment, it is not apparent they are adopting all of the statements in the exhibit as their own.

This is significant because, when evaluating inconsistent allegations, a court compares the plaintiff’s pleaded construction or interpretation of an exhibit with the statements on the face of the exhibit. (See Alfaro v. Comm. Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1378.) For example, a court might compare the terms of a written agreement attached to a complaint with the plaintiff’s pleaded interpretation or allegation as to the legal effect of the written agreement. (Aragon-Haas v. Family Security Insurance Services, Inc. (1991) 231 Cal.App.3d 232, 239.) “‘So long as the pleading does not place a clearly erroneous construction upon the provision of the contract, in passing upon the sufficiency of the complaint, [a court] must accept as correct [a] plaintiff’s allegations as to the meaning of the agreement.’ [Citation.]” (Ibid.) Here, unlike a written instrument, the declaration attached to the complaint is not as easily susceptible to such a comparison. In the absence of an allegation setting forth Plaintiffs’ interpretation of the declaration, it is difficult to ascertain any identifiable inconsistency at this juncture.

Ultimately, and contrary to what Quixey states, Tomer Kagan does not expressly state there was an honest intent to pay CWT at the time the promise was made. Thus, the declaration and the allegations in the third cause of action are not directly in conflict. With that said, Tomer Kagan does generally acknowledge the existence of the payment obligation. And so, it seems the issue is whether an after-the-fact acknowledgement that a payment is due and owing establishes a payor intended to perform at the time the promise to pay was originally made. The Court is not inclined to draw such an inference here because Quixey does not request such an inference—instead suggesting there is some explicit statement by Kagan—and does not cite authority addressing such circumstances.
For these reasons, Quixey’s argument that there are inconsistent allegations regarding intent is not well-taken. The Court is not persuaded the second and third elements of the fraud claim are inadequately pleaded.

Finally, Plaintiffs allege they relied upon the misrepresentations and suffered damages as a result. (FAC, ¶¶ 21–40.) Defendants do not expressly address the element of reliance. As for damages, they offer the conclusion that Wise “has not and cannot allege she personally suffered any damages.” (Mem. of Pts. & Auth. at p. 10:27–11:1.) It is insufficient to merely assert a point without providing authority and analysis in support. (People v. Dougherty (1982) 138 Cal.App.3d 278, 282; see also Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784–85.) Defendants’ statement is not supported by the allegations in the pleading because Wise does allege she suffered damages. (FAC, ¶¶ 21, 41.) Moreover, Defendants’ reference to “Section A.1 and A.3” of their brief does not cure the gap in their analysis. (Mem. of Pts. & Auth. at p. 10:27.) First, those sections do not exist. Additionally, it is not apparent how their discussion of the parties to the contract at issue in sections B.1 and B.3 supports their position.

For these reasons, Defendants’ argument that Plaintiffs fail to plead all of the elements of a fraud claim with particularity is not persuasive. The demurrer to the third cause of action is therefore OVERRULED.

D. Fourth Cause of Action

The fourth cause of action is labeled as a claim for “unjust enrichment.” (FAC at p. 10:11.) In actuality, “unjust enrichment is not a cause of action.” (Jogani v. Super. Ct. (2008) 165 Cal.App.4th 901, 911.) Unjust enrichment describes the “result of failure to make restitution under circumstances where it is equitable to do so.” (Lauriedale Associates, Ltd. v. Wilson (1992) 7 Cal.App.4th 1439, 1448.) Thus, the fourth cause of action is presumably a claim seeking restitution based on an alternative, equitable theory. (See McBride v. Boughton (2004) 123 Cal.App.4th 379, 388.)
As the First District has explained:

There are several potential bases for a cause of action seeking restitution. For example, restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. [Citations.] Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may choose not to sue in tort, but instead to seek restitution on a quasi-contract theory (an election referred to at common law as “waiving the tort and suing in assumpsit”). [Citations.] In such cases, where appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment.

(McBride, supra, 123 Cal.App.4th at p. 388.)

Defendants argue that, like Plaintiffs’ contract claims, the alternative claim seeking restitution can only be asserted by CWT against Quixey as they were the parties engaged in the business transaction. This argument is well-taken. Irrespective of the theory upon which Plaintiffs seek restitution, the allegations clearly disclose that CWT provided services to Quixey and, thus, that Quixey would be unjustly enriched if allowed to retain that benefit without providing compensation to CWT. Plaintiffs do not provide a coherent explanation to support a contrary conclusion. Accordingly, the demurrer to the fourth cause of action as asserted by CWT against Hogan and Liquidators is SUSTAINED WITHOUT LEAVE TO AMEND. The demurrer to the fourth cause of action as asserted by Wise is SUSTAINED WITHOUT LEAVE TO AMEND.

IV. Motion to Strike

Defendants move to strike Plaintiffs’ prayer for punitive damages and related allegation that Quixey’s conduct was “intentional, malicious, oppressive, and fraudulent” such that punitive damages are warranted. (FAC, ¶ 42.)

In order to plead a claim for punitive damages, a plaintiff must allege the defendant was guilty of malice, oppression, or fraud and the ultimate facts underlying such allegations. (Civ. Code, § 3294, subd. (a); Clauson v. Super. Ct. (1998) 67 Cal.App.4th 1253, 1255.) If a claim for punitive damages is not properly pleaded, it may be stricken. (Grieves v. Super. Ct. (1984) 157 Cal.App.3d 159, 164.) “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.” (Monge v. Super. Ct. (1986) 176 Cal.App.3d 503, 510.) “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.” (Ibid.)

“‘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.” (Civ. Code, § 3294, subd. (c)(1).) “‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Civ. Code, § 3294, subd. (c)(2).) For purposes of both malice and oppression, despicable conduct means conduct that is “‘so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.’ [Citation.]” (American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017, 1050.) “‘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.” (Civ. Code, § 3294, subd. (c)(3).)

Defendants argue in a conclusory manner that Plaintiffs do not allege facts sufficient to support their claim for punitive damages. Although Plaintiffs generally dispute this point, their presentation is also conclusory. The arguments advanced by both sides are underdeveloped.

The Court does not find there are allegations of conduct rising to the level of malice or oppression. Nevertheless, Plaintiffs allege facts to support a fraud claim against Quixey and the recovery of punitive damages on that basis. Thus, Plaintiffs adequately plead facts to support a claim for punitive damages against Quixey alone. It follows that paragraph 42—which appears in the third cause of action—may not be stricken. Because Plaintiffs focus on Quixey in the third cause of action and in paragraph 42 in particular, allegations of fraud do not provide a basis for seeking punitive damages from the other defendants. And so, Plaintiffs do not adequately allege facts to support a request for punitive damages as against Hogan and Liquidators. Despite this conclusion, the prayer for relief may not be stricken because it applies generally to all causes of action, including the remaining fraud cause of action against Quixey. Defendants’ motion to strike is, therefore, DENIED.

The Court will prepare the order.

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