Case Name: Jyotish Patel, et al. v. Element Hospitality, LLC, et al.
Case No.: 18CV338058

I. Background

This is an action brought by plaintiff Jyotish Patel (“Jyotish”) and his company Shijyo, Inc. (“Shijyo”) (collectively, “Plaintiffs”) against defendants Element Hospitality, LLC (dba Eclipse Hospitality) (“Eclipse”), Anand Patel (“Anand”), and Jigna Chopda Chowdhury (“Chowdhury”).

According to the allegations in Plaintiffs’ first amended complaint (“FAC”), Anand negotiated an oral agreement between Jyotish and Eclipse whereby Jyotish would provide “sales and business development activities” and build a sales team in exchange for the title “head of sales,” a 10-percent interest in Eclipse, 11-percent commission on gross sales, and “all amounts received over…the baseline markup on sales he made.” (FAC at p. 3.) Plaintiffs allege that subsequently, on June 5, 2018, Eclipse “put in writing” that Jyotish would receive 10 percent of the proceeds of the sale of Eclipse when the business was sold. (FAC at p. 3.) Eclipse purportedly began breaching their agreement in November 2014 by failing to pay Jyotish commissions and making impermissible deductions therefrom as well as by failing to honor his ownership interest and right to 10 percent “in profits.” (FAC at p. 3.) Eclipse also failed to reimburse Jyotish for unspecified expenses. On this basis, Jyotish asserts the first, sixth, and seventh causes of action against Eclipse for: (1) breach of contract; (6) common count; and (7) breach of the implied covenant of good faith and fair dealing.

Plaintiffs also allege Anand and Chowdhury, both individually and on behalf of Eclipse, made defamatory statements to customers, potential customers, and suppliers of their “furnished goods” business. (FAC at p. 4.) Anand and Chowdhury stated Plaintiffs “committed wire fraud, stole from [Eclipse], lied to and ripped customers off, and failed to deliver product.” (FAC at p. 4.) Some of these accusations of theft and criminal conduct were made to executives at HHM Hospitality, such as Ben Vaishnav, as well as to executives at ZMC Hotels, LLC, including Byron Chapman and Julie Kowlczak. (FAC at p. 6.) Plaintiffs allege Anand and Chowdhury made the statements with knowledge of or recklessness as to their falsity and with intent to interfere with Plaintiffs’ business relationships. On this basis, Plaintiffs assert causes of action against Eclipse, Anand, and Chowdhury for intentional and negligent interference with prospective economic advantage (2–3) as well as defamation and trade libel (4–5).

Currently before the Court is a demurrer by Eclipse, Anand, and Chowdhury (collectively, “Defendants”) to each cause of action asserted in the FAC. The demurrer is accompanied by a request for judicial notice.

II. Request for Judicial Notice

Defendants request judicial notice of a June-2018 agreement that they present as the agreement referenced by Plaintiffs in the FAC. A court may take judicial notice of the existence of a contract if its existence is undisputed. (See Fremont Indemnity Co. v. Fremont General Corp. (“Fremont”) (2007) 148 Cal.App.4th 97, 113; Evid. Code, § 452, subd. (h).) But judicial notice is limited to the existence of the agreement; “the truth of statements contained in the document and its proper interpretation are not subject to judicial notice if those matters are reasonably disputable.” (Fremont, supra, 148 Cal.App.4th at p. 113.) Significantly, “a court cannot convert a demurrer into an incomplete evidentiary hearing in which the demurring party can present documentary evidence and the opposing party is bound by what the evidence appears to show.” (Id. at p. 115; see also Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604–05 [“The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of…material which was filed on behalf of the adverse party and which purports to contradict the allegations and contentions of the plaintiff.”].) Defendants do not just request judicial notice of the existence of the agreement. Rather, they ask the Court to take judicial notice of its terms as interpreted by them. This is improper.

Also, a court need not take judicial notice of a matter unless it “is necessary, helpful, or relevant.” (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 748, fn. 6.) The agreement provided by Defendants is partially illegible, not obviously contradictory to the facts alleged, and absent from the legal argument they advance in support of their demurrer. Accordingly, the agreement is not necessary, helpful, or relevant.

For all of these reasons, the agreement is not a proper subject of judicial notice. Defendants’ request for judicial notice is, therefore, DENIED.

III. Demurrer

In general, “a complaint must contain ‘[a] statement of the facts constituting the cause of action, in ordinary and concise language.’” (Davaloo v. State Farm Insurance Co. (2005) 135 Cal.App.4th 409, 415, quoting Code Civ. Proc., § 425.10, subd. (a)(1).) “This fact-pleading requirement obligates the plaintiff to allege ultimate facts that as a whole apprise[ ] the adversary of the factual basis of the claim.” (Davaloo, supra, 135 Cal.App.4th at p. 415 [internal quotation marks and citations omitted].) A demurrer on the ground of failure to state facts sufficient to constitute a cause of action tests whether the plaintiff alleges each ultimate fact essential to the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e); C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 873.) It solely tests the legal sufficiency of the pleading, not the plaintiff’s ability to prove his or her claim. (Nguyen v. Western Digital Corp. (2014) 229 Cal.App.4th 1522, 1536–37.) For the purpose of a demurrer, a court considers the allegations on the face of the pleading. (Code Civ. Proc., § 430.30, subd. (a).) A court accepts the factual allegations as true and gives them a reasonable, contextual interpretation. (Sisemore v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1396–97.)

A. First Cause of Action

The first cause of action is for breach of contract. In support of Defendants’ demurrer, they advance a hybrid argument based on the statute of frauds and the statute of limitations.
“The primary purpose of the [statute of frauds] is evidentiary, to require reliable evidence of the existence and terms of the contract and to prevent enforcement through fraud or perjury of contracts never in fact made.” (Sterling v. Taylor (2007) 40 Cal.4th 757, 766 [internal quotation marks and citations omitted].) It is codified in Civil Code section 1624, which lists the types of contracts that “are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent.” One type of contract subject to the statute of frauds is “[a]n agreement that by its terms is not to be performed within a year from the making thereof.” (Civ. Code, § 1624, subd. (a)(1).) This provision does not simply apply to a contract when the performance, as a matter of fact, does not occur within one year. (See Lacy v. Bennett (1962) 207 Cal.App.2d 796, 800.) Rather, this provision only applies to a contract that, by its very terms, is incapable of being performed within a year. (Ibid.) “The question of whether or not the pleaded contract meets the test of the statute of frauds may be posed by a general demurrer” on the ground of failure to state sufficient facts. (Malerbi & Associates v. Seivert (1961) 191 Cal.App.2d 760, 763.) But the defense must be clearly disclosed by the allegations on the face of the pleading. (Ibid.)

Similarly, while a party may raise the statute of limitations as a basis for challenging the sufficiency of a pleading, it must be shown that the statute clearly and affirmatively bars the action. (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315–16.) If the allegations merely reflect that the action may be barred, a court cannot dismiss the action at the pleading stage. (Ibid.) The moving party must demonstrate (1) which statute of limitations applies and (2) when the claim accrued. (Id. at p. 1316.)

Defendants’ central argument is difficult to parse. It is framed in hypothetical terms and seems to be based on speculation and assumptions that go far beyond what is warranted by the law and the facts alleged. For this reason alone, it is not well-taken. More specifically, Defendants’ argument is rooted in the unsubstantiated assumption that the agreement at issue set a date for performance of one year or less from the date of formation to avoid the writing requirement of the statute of frauds. Based on this presumptive deadline for performance, Defendants conclude the claim accrued in September 2014 and is time-barred. Defendants seem to believe that any contract must comply with the statute of frauds unless it specifically sets a date for performance within one year. This is fallacious. Defendants identify no factual basis for their assumption that Jyotish and Eclipse picked a date for performance within one year of formation. And their assumption is otherwise based on a misunderstanding about what qualifies as “[a]n agreement that by its terms is not to be performed within a year from the making thereof.” (Civ. Code, § 1624, subd. (a)(1).) Because their interpretation of the statute of frauds and, in turn, their hypothesis about the terms of the agreement is without any foundation, Defendants’ argument about the statute of limitations unravels as well. In summary, Defendants’ strawman argument does not justify sustaining the demurrer.

Although not set forth along with Defendants’ other legal arguments (including the argument above), they separately assert in some introductory portions of their supporting memorandum that Plaintiffs untimely assert breach of the oral agreement more than two years after the claim accrued in November 2014. (Mem. of Pts. & Auth. at p. 1:11–23.) But they do not develop this argument elsewhere in their papers. It is true that the statute of limitations for breach of an oral agreement is two years under Code of Civil Procedure section 339. That said, Plaintiffs allege multiple ongoing breaches began occurring in November 2014. And so, arguably, even if some of the breaches are time-barred, other breaches Plaintiffs have yet to identify by date may not be time-barred in light of principles of continuous accrual. (See Gilkyson v. Disney Enterprises, Inc. (2016) 244 Cal.App.4th 1336, 1341–42.) Furthermore, these breaches of the oral agreement constitute only a portion of the cause of action in the first instance. Thus, irrespective of whether principles of continuous accrual apply, the demurrer is not sustainable based on the untimeliness of a portion of the cause of action. (PHII, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682.)

In conclusion, the demurrer to the first cause of action is OVERRULED.

B. Second and Third Causes of Action

The second and third causes of action are for intentional and negligent interference with prospective economic advantage.

“The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition.” (Settimo Associates v. Environ Systems, Inc. (1993) 14 Cal.App.4th 842, 845.) The essential elements of a claim of intentional interference with prospective economic advantage are: “‘(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.’ [Citations.]” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.) The elements of negligent interference are the same except the interference must result from negligent rather than intentional conduct. (Venhaus v. Shultz (2007) 155 Cal.App.4th 1072, 1078.)

Defendants argue Plaintiffs do not plead any of the elements of negligent interference and fail to plead the first element of intentional interference. But in support, they focus solely on the first element, namely the existence of an economic relationship. 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.) And so, Defendants’ argument as to the sufficiency of the remaining elements of negligent interference is unsubstantiated. As for the first element of both types of interference, Defendants focus on whether Plaintiffs have identified with adequate specificity the people or entities with whom they have economic relationships. Plaintiffs do identify their economic relationships as their relationships with customers, potential customers, and suppliers. Defendants cite no authority for the proposition that Plaintiffs must identify these third parties or describe their relationships with a greater degree of specificity, such as by identifying them by name. Thus, Defendants’ arguments is not well-taken.

Based on the foregoing the demurrer to the second and third causes of action is OVERRULED.

C. Fourth and Fifth Causes of Action

The fourth and fifth causes of action are for defamation and trade libel.

“‘Defamation is an invasion of the interest in reputation.’ [Citation.]” (Sonoma Media Investments, LLC v. Super. Ct. (2019) 34 Cal.App.5th 24, 37.) “‘The tort involves the intentional publication of a statement of fact that is false, unprivileged, and has a natural tendency to injure or which causes special damage.’ [Citation.]” (Ibid.) Trade libel consists of “a knowingly false or misleading publication that derogates another’s property or business and results in special damages.” (Hartford Casualty Insurance Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, 291.)
Defendants argue the fourth and fifth causes of action are not pleaded with adequate specificity. At first, they cite the rule that a plaintiff must allege either the exact words or the substance of a defamatory statement depending on the type of defamation claim asserted (e.g., libel or slander). (Compare Gilbert v. Sykes (2007) 147 Cal.App.4th 13, 31 [pleading libel] with Okun v. Super. Ct. (1981) 29 Cal.3d 442, 458 [pleading slander].) But then, they proceed to argue Plaintiffs fail to allege the circumstances surrounding the statements with particularity as though the Court was presented with fraud claims. (See Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 644–45.) Defendants’ argument lacks merit because their conclusion about the sufficiency of the allegations does not logically follow from the major premise upon which they rely. In other words, the cited rules for pleading what defamatory statement was made do not support the conclusion that a defendant must plead all of the same particular facts that must be pleaded to state a fraud claim. Moreover, Plaintiffs do allege facts about who made the statements to whom as well as what was said. And so, Defendants’ argument lacks merit for this reason as well.

Defendants also argue Plaintiffs fail to plead special damages. They appear to argue Plaintiffs must plead these damages with particularity, such as by alleging the particular customers or sales they lost. But Plaintiffs do allege they suffered a pecuniary loss. And Defendants otherwise rely exclusively on cases concerning the sufficiency of evidence—not allegations—that do not support their particularity argument. Thus, Defendants’ argument is not persuasive.

Based on the foregoing, the demurrer to the fourth and fifth causes of action is OVERRULED.

D. Sixth and Seventh Causes of Action

Defendants argue the sixth and seventh causes of action are derivative of the first cause of action for breach of contract and, thus, fail for the same reasons. They also advance a few additional arguments with respect to the seventh cause of action.

The sixth cause of action is a common count, which is an abbreviated form of pleading that is not ordinarily subject to demurrer. (Jones v. Daly (1981) 122 Cal.App.3d 500, 510.) Typically, demurrers to common counts are only sustained “[w]hen a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action” and the demurrer to that specific cause of action is sustained. (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.) Because the demurrer to the first cause of action is not sustainable, the demurrer to the common count claim is also OVERRULED.

The seventh cause of action is for breach of the implied covenant of good faith and fair dealing. “Every contract contains an implied covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract.” (Digerati Holdings, LLC v. Young Money Entertainment, LLC (“Digerati”) (2011) 194 Cal.App.4th 873, 885.) “The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises.” (Ibid.) “The scope of conduct prohibited by the implied covenant depends on the purposes and express terms of the contract.” (Ibid.)

Because the covenant of good faith and fair dealing is an implied term of a contract, “its breach [necessarily is] a breach of the contract, although a breach of a consensual (i.e., an express or implied-in-fact) contract term will not necessarily constitute a breach of the covenant.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393–94.) It follows that a claim for breach of the implied covenant is not superfluous simply because a plaintiff also asserts a claim for breach of contract based on the same facts. (Id. p. 1395.) Rather, the test is whether the facts alleged necessarily amount to nothing more than breach of an express term. (Ibid.; see, e.g., Free Range Content, Inc. v. Google, Inc. (“Free Range”) (2016) (N.D.Cal. May 13, 2016, No. 14-CV-02329-BLF), 2016 WL 2902332.)

To state a claim, a plaintiff must allege the defendant’s conduct, “whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.” (Careau, supra, 222 Cal.App.3d at p. 1395.)

Although not especially clear, to the extent Defendants are arguing Plaintiffs fail to allege the existence of an agreement in the first instance, their argument is not well-taken. As for Defendants’ argument that the claim is duplicative, they do not provide legal analysis to support their position. And, in any event, the Sixth District has explained that the fact that causes of action are duplicative “is not a ground on which a demurrer may be sustained.” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 889–90, citing Code Civ. Proc., § 430.10.) “A quarter-century ago the code authorized a motion to strike ‘irrelevant and redundant’ matter from a pleading. [Citation.]” (Id. at p. 890, original italics.) “But the parallel provision now empowers the court only to ‘[s]trike out any irrelevant, false, or improper matter inserted in any pleading.’” (Ibid., quoting Code Civ. Proc., § 436, subd. (a).) “The elimination of the reference to redundancy may have rested on the irreproachable rationale that it is a waste of time and judicial resources to entertain a motion challenging part of a pleading on the sole ground of repetitiveness. (See Civ. Code, § 3537 [‘Superfluity does not vitiate.’].)” (Ibid.) “This is the sort of defect that, if it justifies any judicial intervention at all, is ordinarily dealt with most economically at trial, or on a dispositive motion such as summary judgment.” (Ibid.) Accordingly, Defendants’ argument about duplication is unavailing.
For these reasons, the demurrer to the seventh cause of action is also OVERRULED.

The Court will prepare the order.