2018-00231893-CU-BC

Stephanie Bianchi vs. Capital Home Builders, Inc.

Nature of Proceeding: Hearing on Demurrer to Third Amended Complaint

Filed By: Menezes, Darrin M.

Defendant Khanh Nguyen’s demurrer to Plaintiffs Stephanie Bianchi, et al.’s third amended complaint (“TAC”) is ruled upon as follows.

Defendant’s request for judicial notice is granted.

A demurrer challenges the legal sufficiency of the complaint on the ground it fails to state facts sufficient to constitute a cause of action. CCP § 430.10(e);Rakestraw v. California Physicians’ Service(2000) 81 Cal.App.4th 39, 42-43. In reviewing a general demurrer, the facts pleaded are assumed to be true and the only issue is whether they are legally sufficient to state a cause of action.Rope v. Auto-Chlor System of Wash., Inc.(2013) 220 Cal.App.4th635. The ability of plaintiff to prove them is not in issue.” ( Diamond Multimedia Systems, Inc. v. Superior Court(1999) 19 Cal.4th1036, 1041, n.4.) “[W]e are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’ Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (citations omitted).

This action arises out of Plaintiffs’ purchase of two homes in Rancho Murieta, California. Plaintiffs Stephanie Bianchi and Brian Beck, husband and wife, and their minor children Francesca and Santino Beck allege causes of action against Defendant and others for strict liability, negligence, private nuisance and more. Plaintiffs Tom and Sunday Barrow allege similar causes of action in connection the purchase of a separate home. All Plaintiffs allege that the homes were constructed by the same defendants and that the homes contained various undisclosed defects.

The Court previously sustained Defendant’s demurrer to the complaint and the first amended complaint. In sustaining the demurrer to the FAC, the Court sustained Defendant’s demurrer to the fourth, fifth and sixth causes of action for breach of contract, fraud and negligent misrepresentation without leave to amend. The Court sustained the demurrer to the first, second and seventh causes of action for strict liability, negligence and violation of Business and Professions Code § 17200 with leave to amend on the basis that Plaintiffs failed to allege any facts to show any act by Defendant which would render him personally liable and that Plaintiff’s alter-ego allegations were not sufficient. The Court struck the third cause of action for private nuisance on the basis that it was added to the FAC in excess of the leave granted by the Court when it sustained the demurrer to the original complaint.

At the outset, Defendant’s demurrer to the fourth, fifth and sixth causes of action is moot. While Defendant argues that Plaintiffs made changes to these causes of action even though the Court sustained his demurrer to them without leave to amend in connection with the ruling on the demurrer to the FAC, Plaintiffs have since filed a notice of dismissal of the causes of action with prejudice. (ROA 159)

Defendant next argues that he is not a proper party to the TAC because all causes of action arise from the subject purchase agreements with Defendant VRK, LLC (“VRK”) a contract to which he is not a party. He once again argues that the alter-ego allegations against him are insufficient to include him in any cause of action. To that end, he argues that there are no facts alleged to show a unity of interest or that an inequitable result would occur absent alter-ego liability. While Plaintiffs’ opposition was not particularly helpful in that they failed to discuss their allegations in any detail, the Court nevertheless disagrees with defendant’s assertion.

“In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist.” Second, there must be an inequitable result [to plaintiffs] if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 528 [citations omitted].)

“It is a fundamental rule that ‘[the] conditions under which the corporate entity may be disregarded, or the corporation be regarded as the alter ego of the stockholders necessarily vary according to the circumstances in each case inasmuch as the doctrine is essentially an equitable one and for that reason is particularly within the province of the trial court. Only general rules may be laid down for guidance.” ( Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.2d 825, 836-837.) There are numerous factors that the Courts will look to in making such a determination, including comingling funds, treating corporate assets as one’s own, failure to maintain corporate records, identical ownership in the two entities, use of same employees/attorneys, etc. (Id. 838-840.)

Previously in the FAC, Plaintiffs alleged that there was a unity of ownership, management, control authority and decision-making power between Defendant and VRK, LLC, Capital Home Builders, Inc. (“Capital”) and Pacific Coast Ventures, LLC (“Pacific Coast”) and that Defendant signed documents on the entities behalf, including the grant deed by which the subject property was conveyed to them. (FAC ¶ 17.) It was also alleged that Defendant made representations that he was closely affiliated with the entities. (Id.) Plaintiffs further alleged that over the years Defendant had formed and funded and disbanded numerous business entities to maximize profits for construction related ventures and to minimize or escape personal financial responsibility. (FAC ¶ 19.) Defendant was alleged to be the owner, managing agent, principal, CEO, and primary decision maker for VRK, Capital and Pacific Coast. (FAC ¶ 8.) The Court found these allegations insufficient.

New to the TAC, Plaintiffs now allege that Capital, VRK and Pacific Coast were sham entities formed by Defendant to avoid financial responsibility if faulty construction projects and inadequate repair attempts gave rise to litigation. (TAC ¶ 20.) They allege that VRK was “woefully undercapitalized.” (Id. ¶ 21.) They allege that VRK had no fixed business address, no website, and no phone number and that clients like Ms. Bianchi had to call Defendant directly. (Id.) VRK allegedly had no insurance policy or responsive bonding company for Plaintiffs to direct repair demands and compensation demands. (Id.) Plaintiffs allege that VRK routinely comingled funds. They allege that Defendant (and other non-demurring individual defendants) made statements referring to the subject homes as his own project rather than a VRK project. They allege that VRK had no one responsible to receive a summons and complaint and that VRK had the same legal representation as the individual defendants and Capital and Pacific Coast. (Id.) Plaintiffs allege that Capital and Pacific Coast were also undercapitalized and failed to observe proper corporate formalities. (Id. ¶ 22.) Plaintiffs allege that VRK had no support staff or management personnel aside from Defendant and the non-demurring individual defendants. (Id.) Like VRK, Capital and Pacific Coast are also alleged to not have had any applicable insurance. (Id.)

These new allegations, which are more detailed than the boilerplate allegations in the FAC, are sufficient for pleading purposes as they demonstrate both a unity of interest and an inequitable result. Plaintiffs have alleged that the VRK, Capital and Pacific Coast had a unity of interest with the individual defendants and were simply sham entities formed for the purpose of avoiding personal financial responsibility. Plaintiffs allege that the business entities were not only undercapitalized, but also did not have any insurance or bonding company with respect to the subject construction which demonstrates that an inequitable result would occur if the doctrine is not applied. They allege that funds were commingled and that the business entities had no staff, website or phone number and that Plaintiffs had to deal directly with Defendant and the other individuals who referred to the projects as their own projects.

Defendant makes no real effort to address the new allegations in ¶¶ 21 and 22, but even if he had, the result would not be different. Defendant does argue that the allegation that the corporate defendants did not have anyone to respond to a summons and complaint is false because a search of the Secretary of State’s records would show that each had an agent for service of process. Plaintiffs’ allegations, however, must be assumed as true for purposes of demurrer. In reality, Defendant is arguing that the allegations do nothing more than parrot key phrases articulated by case law applying the alter-ego doctrine. The Court finds that the allegations are sufficient for pleading purposes. “It is not even essential, apparently, that actual fraud be specifically alleged or that the alter ego doctrine always be specifically pleaded in the complaint in order for it to be applied in appropriate circumstances.” (First Western Bank and Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915 [emphasis in original].) “It therefore appears that the courts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure.” (Id. [emphasis in original].) Leek v. Cooper (2011) 194 Cal.App.4th 399, 415 makes clear that a complaint must simply set forth facts with sufficient precision “to put the defendant on notice about what the plaintiff is complaining and what remedies are being sought.” Leek even made clear that to recover on an alter-ego theory, a plaintiff need not even use the words “alter ego” but instead must simply allege facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor. Plaintiffs’ new allegations in the TAC are sufficient to meet this standard. Ultimately, application of the doctrine is a question of fact. (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 837.)

As a result, the demurrer to the TAC on the basis that Plaintiffs failed to sufficiently allege a basis for alter-ego liability is overruled.

Defendant next argues that the TAC is fatally uncertain as to what causes of action Plaintiffs are asserting against him and that the allegations within the various causes of action are uncertain. The Court previously sustained Defendant’s demur based on uncertainty because Plaintiffs had failed to indicate which claims against which

Defendants in the fourth, fifth and sixth causes of action and failed to plead a contract cause of action against Defendant in tort. Nevertheless, Plaintiffs have now dismissed the fourth, fifth and sixth causes of action with prejudice. The demurrer on this basis is overruled. As above noted, the complaint must simply set forth facts with sufficient precision “to put the defendant on notice about what the plaintiff is complaining and what remedies are being sought.” Leek v. Cooper , supra, at p. 415. Demurrers for uncertainty are disfavored and are only granted where the complaint is so muddled that the defendant cannot reasonably 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.) Especially now that the fourth, fifth and sixth causes of action have been dismissed, the TAC is not so uncertain that Defendant cannot respond. To the extent that Defendant desires additional details he can obtain such detail through discovery.

Defendant next argues that the first, second and third causes of action for strict liability, negligence and nuisance fail because they are tort claims that arise out of a contractual relationship because they are based entirely on written purchase agreements. “A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations.” (Aas v. Superior Court (2000) 24 Cal.4th 627, 643.) Generally speaking, the economic loss rule, in the context of construction defects, precludes recovery in negligence when the loss is purely economic and had not yet caused property damage or personal injury. (Id., 636, 639.) Plaintiffs fail to address this argument in their opposition. Nevertheless, the argument must be rejected. The TAC alleges that Plaintiffs complied with SB800 prior to filing the action. The Court must note that the Right to Repair Act has been recognized as abrogating the economic loss rule in new residential construction cases “thus legislatively superseding Aas.” (Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1202.) Further, even if the Right to Repair Act does not apply here, liability may exist where defects in a home cause damage to other parts of the home or personal injury, strict liability and negligence claims are permissible. (E.g. Jimenez v. Superior Court (2002) 29 Cal.4th 473, 476, 481, fn. 1 [homeowners allowed to present evidence of damages that was not economic loss caused by manufacturer’s negligence and concluding that manufacturer of windows may be liable for window defects causing damage to other parts of home].) Here Plaintiffs alleged that the subject defects damaged their personal property. (E.g., TAC ¶ 37.) The demurrer on this basis must be overruled.

Defendant finally argues that the third cause of action for private nuisance is deficient because it does nothing more than restate the negligence claim. On this point Defendant is correct. Where negligence and nuisance claims rely on the same facts regarding lack of due care, the nuisance claim is a negligence claim and a private nuisance claim does nothing more than a negligence claim and need not be considered apart from the negligence claim. (El Escorial Owners’ Assn. v. DLC Plastering, Inc. (2007) 154 Cal.App.4th 1337, 1349.) Here Plaintiffs nuisance claim rests on the same allegations as the negligence and strict liability claims. (TAC ¶¶ 45, 46.) Plaintiffs failed to oppose this argument and failed to demonstrate how the nuisance cause of action differed from the negligence cause of action. The demurrer to the third cause of action is thus sustained, with leave to amend.

In short, Defendant’s demurrer is overruled on all grounds except on the basis that the third cause of action for nuisance is deficient as to which the demurrer is sustained with leave to amend. Although leave to amend has previously been given, this is the first challenge to the merits of the nuisance cause of action on which the Court has ruled.

Where leave was given, an amended complaint may be filed no later than October 3, 2019. Defendant shall file and serve his 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 minute order is effective immediately. No formal order pursuant to CRC rule 3.1312 or other notice is required.

Item 5 2018-00231893-CU-BC

Stephanie Bianchi vs. Capital Home Builders, Inc.

Nature of Proceeding: Motion to Strike Third Amended Complaint

Filed By: Menezes, Darrin M.

Defendant Khanh Nguyen’s motion to strike portions of Plaintiffs Stephanie Bianchi, et al.’s third amended complaint (“TAC”) is moot in part and granted without leave to amend in part as set forth below.

Defendant moves to strike the fourth, fifth and sixth causes of action in the TAC on the basis that they were included in the TAC even though the court sustained the demurrer to these causes of action without leave to amend. Plaintiffs dismissed the fourth, fifth and sixth causes of action with prejudice on August 5, 2019. (ROA 159) Plaintiffs’ opposition simply states that the motion is moot. Plaintiffs are correct that the motion as the fourth, fifth and sixth cause of action because they have been dismissed. However, the motion also sought to strike the punitive damages allegations and the prayer for relief requesting punitive damages. The motion is granted as to the punitive damages allegations and prayer for relief as requested in the moving papers. Plaintiffs make no argument that they have properly pled punitive damages and it appears that in any event that they only sought such damages in connection with the fifth cause of action for fraud which has been dismissed with prejudice.

In short, the motion is moot as to the fourth, fifth and sixth cause of action and granted without leave to amend as to the punitive damages allegations and prayer for punitive damages allegations.

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

Item 6 2018-00231893-CU-BC

Stephanie Bianchi vs. Capital Home Builders, Inc.

Nature of Proceeding: Motion for Sanctions

Filed By: Menezes, Darrin M.

Defendant Khanh Nguyen’s unopposed motion for sanctions is ruled upon as follows.

The Court declines to consider Plaintiffs’ untimely opposition filed and served only five court days prior to the hearing. In any event the opposition indicates that discovery responses have now been served and that medical issues have prevented Plaintiffs from timely providing the discovery.

On May 30, 2019, this Court granted Defendant’s unopposed motion to compel Plaintiffs’ responses to form interrogatories-construction litigation (set one). Responses were due by June 13, 2019. Defendant seeks terminating and monetary sanctions on the basis that Plaintiffs have not provided the Court ordered responses.

For misuse of the discovery process, including as is the case here, disobeying a court order to provide discovery, the Court may impose a terminating sanction by one of the following: an order striking out the pleadings or parts of the pleadings of any party engaging in the misuse of the discovery process or an order dismissing the action, or any part of the action, of that party. See, e.g. Code of Civil Procedure sections 2023.010(d) and (g), 2023.030(d)(1) and (3). The Court has broad discretion in selecting the appropriate sanctions under the factual circumstances before it. ( Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, 12.)

The Court finds that the drastic remedy of terminating sanctions is not warranted at this time. “The sanctions the court may impose are such as are suitable and necessary to enable the party seeking discovery to obtain the objects of the discovery he seeks but the court may not impose sanctions which are designed not to accomplish the objects of the discovery but to impose punishment.” (Caryl Richards, Inc. v. Superior Court (1961) 188 Cal. App. 2d 300, 304.) “The penalty should be appropriate to the dereliction, and should not exceed that which is required to protect the interests of the party entitled to but denied discovery. (Deyo v. Kilbourne (1978) 84 Cal. App. 3d 771, 793) The discovery sanction cannot put the propounding party in a better position than they would have been in if they had received the discovery. ( Puritan Insurance Co. v Superior Court (1985) 171 Cal. App.3d 877, 884.)

The motion is premised on the failure to provide responses to Defendant’s form interrogatories-construction litigation (set one) as ordered by the Court on May 30, 2019. No sanctions have been previously imposed for the failure to provide the responses. The Court finds that the failure to comply with the discovery order in this case does not yet justify the drastic remedy of terminating sanctions. Other than the subject order, there do not appear to be any earlier discovery orders which Plaintiffs have failed to comply with. In addition, Plaintiffs have yet to have monetary sanctions imposed against them for failing to comply with the subject discovery order.

Imposing the terminating sanction requested here would be punitive in light of the above circumstances and would be inconsistent with the incremental approach to discovery sanctions.

However, given the delay in complying with the Court’s discovery orders, the Court finds that a modest award of monetary sanctions is appropriate. The requested amount of $5,955.45 for this simple motion is excessive. Indeed, the amount includes the fees spent by Defendant in connection with the underlying motion to compel for which monetary sanctions were denied. Defendant is awarded monetary sanctions from Plaintiffs in the amount of $780 ($240/hr x 3 hr + $60 filing fee). Sanctions are to be paid on or before October 23, 2019. If sanctions are not paid by that date, Defendant may prepare a formal order granting sanctions for the Court’s signature, and the order may be enforced as a separate judgment. (Newland v. Superior Court (1995) 40 Cal.App.4th 608, 615.)

In addition, the Court will again order that Claimant serve verified responses without objections to the form interrogatories-construction litigation (set one) as previously ordered by the Court. Responses shall be served no later than October 3, 2019. To the extent that Plaintiffs have served the responses, they need not be re-served.

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