Case Name: Umesh Patel v. Pacific Lodging Group, et al.

Case No: 19CV340816

I. Background
II.

Umesh Patel (“Plaintiff”) brings this action against Tarun Patel (“Tarun”), among others, for damages associated with the sale of an interest in a partnership and failure to pay on a promissory note.

According to the allegations of the second amended complaint (“SAC”), Tarun and defendant S.M. Patel (“Partner”) were partners, along with several other people, in Pacific Hospitality Company and its successor, Pacific Lodging Group (“Pacific”). (Id. at ¶ 5.) Pacific operates a hotel in Bodega Bay. (Id. at ¶ 3.) In or around 1985, Plaintiff’s two corporations, Mosam Enterprises, Inc. and MM&H Investment, Inc. (“MM&H”), invested in Pacific and each received an ownership interest of 21.43%. (Id. at ¶¶ 13, 14.)

In 2009, Plaintiff and Partner executed a sale and purchase agreement transferring MM&H’s interest in Pacific to Partner. (SAC, ¶ 16, Ex. A.) Plaintiff provided notice to Pacific’s partners of his intent to sell and transfer his entire interest to Partner. (Id. at ¶ 17, Ex. B.) All the partners of Pacific, including Tarun and Partner, signed a consent to the “purchase and sale to [Partner] of the interest held by… MM&H…” (Ibid.) Partner and Defendant also signed a promissory note on behalf of Pacific, agreeing to pay Plaintiff $726,251 plus interest and specified late charges. (Id., at ¶ 18, Ex. C.)

Plaintiff has successor interest and stands in place to collect debts held in favor of MM&H. (SAC, ¶ 1.) To date, Plaintiff has not received any payment from Pacific or its partners, despite Plaintiff’s efforts. (Id., ¶¶ 19, 20.) Through written correspondence, Tarun has repeatedly recognized that Plaintiff is owed money, and that the purchase agreement and promissory note are valid. (Ibid.) Tarun has never disputed the validity of the debt and as recently as 2017, has acknowledged its existence. (Id., at ¶ 26.)

Plaintiff asserts causes of action against Tarun, Partner, and Pacific for (1) breach of contract; (2) fraud/intentional misrepresentation; (3) negligent misrepresentation; and (4) civil conspiracy to defraud.

Before the Court is Tarun’s demurrer to all four causes of action.

III. Demurrer
IV.

Tarun demurs to all four causes of action on the ground of failure to state sufficient facts. (Code Civ. Pro., § 430.10, subd. (e) .)

A. Legal Standard
B.

A demurrer tests the legal sufficiency of a pleading, but not the truth of a plaintiff’s allegations or the accuracy with which he or she describes the defendant’s conduct. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958; citing Committee on Children’s Television Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213.) A demurrer reaches only to the contents of the pleading and such matters subject to judicial notice. (Code Civ. Proc. § 430.10, subd. (a); South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, citations omitted.) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations, or the accuracy with which [they] describe the defendant’s conduct” and the facts alleged are deemed to be true, however improbable. (Align Technology, Inc. v. Tran, supra, 179 Cal.App.4th 949, 958.)

C. Statute of Limitations
D.

Tarun first argues that all four causes of action are barred by the applicable statutes of limitation.

To sustain a demurrer on the basis of the statute of limitations, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows merely that the action may be barred. (E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1317.) “In assessing whether claims are time-barred, two basic questions drive [the] analysis: (a) [w]hat statutes of limitations govern the plaintiff’s claims? (b) [w]hen did the plaintiff’s causes of action accrue?” (Id. at 1316.) Generally speaking, a cause of action accrues at the time when the cause of action is complete with all its elements. (Id. at 1317.)

1. First Cause of Action – Breach of Contract
2.

Tarun demurs to the first cause of action on the basis that the statute of limitations for actions on a promissory note shows the cause of action is time-barred. For a promissory note payable at a definite time, the statute of limitations is six years from the final due date. (Cal. U. Com. Code, § 3118, subd. (a); Cadle Co. v. Worldwide Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 504, 514, fn. 8.) The promissory note here was due in full 36 months after execution in January 2009, a defined time. (SAC, Ex. C.) As found in the prior demurrer, the limitations period expired in 2018, a year before the complaint was filed.

However, Plaintiff asserts that the statute of limitations was waived because Tarun acknowledged the debt several times over the years, including in 2017. It is well-settled that a written acknowledgment, signed by a debtor acknowledging an ongoing obligation to a debt may function as a waiver of the statute of limitations. (Code Civ. Proc., § 360; Buescher v. Lastar (1976) 61 Cal.App.3d 73, 75-76; citing Sterling v. Title Ins. & Trust Co. (1942) 53 Cal.App.2d 736, 741.)

Unlike the FAC, the SAC includes the endorsed promissory note, which was signed by Tarun. (SAC, Ex. C.) Therefore, as a signatory, the facts now allege Tarun is liable for the debt, and the attached promissory note is consistent with these allegations. (Id. at ¶ 18.) Furthermore, it is alleged that as recently as April 28, 2017, Tarun acknowledged the debt, and his obligation to it, in a written email, which includes his electronic signature. (Id. at ¶ 27, Exhibit I.) This is sufficient to plead acknowledgment of the debt and waiver of the statute of limitations.

Therefore, the demurrer to the first cause of action cannot be sustained on the basis of the statute of limitations.

3. Second and Third Causes of Action – Misrepresentation
4.

Tarun argues that the second and third causes of action for intentional and negligent misrepresentation are time-barred. Specifically, that the alleged misrepresentation occurred in 2009, and the causes of action accrued then, so the complaint filed in 2019 is outside the three year statute of limitations. (See Code Civ. Proc., § 338, subd. (d); see also Thompson v. Canyon (2011) 198 Cal.App.4th 594, 607 [as a species of fraud, negligent misrepresentation also has a three year limit].)

By its nature, fraud may not be immediately apparent to a plaintiff, however facts must be alleged to support delayed discovery. (E-Fab., Inc. v. Accountants, Inc. Services, supra, 153 Cal.App.4th 1308, 1318.) The discovery rule “postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action (Ibid.) A plaintiff must plead facts to show both the time and manner of discovery and the inability to have made earlier discovery despite reasonable diligence, and conclusory allegations will not withstand demurrer. (Id. at 1320.)

In the SAC, Plaintiff has pleaded facts that allege he did not “become aware that Tarun’s promises to pay were false until sometime after the April 28, 2017.” (SAC, ¶ 29.) He then alleges “When Defendant failed to remit payment following that correspondence, Plaintiff realized that Defendants had been engaged in a calculated pattern of deception in order to effectively ride out the statute of limitations.” (Id. at ¶ 28.) He also alleges that Tarun “exploited [their] long-time family connection” in order “to gain Plaintiff’s trust, and delay Plaintiff from taking legal action in order to collect on the Promissory Note.” (Id. at ¶ 28.) Therefore he has pleaded sufficient facts to show the time and manner of discovery and the inability to have made an earlier discovery.

Therefore, the demurrer to the second and third causes of action cannot be sustained on the basis of the statute of limitations.

5. Fourth Cause of Action – Civil Conspiracy
6.
Tarun demurs to the fourth cause of action for civil conspiracy to defraud on the basis that it is time-barred. The applicable statute of limitations is determined by the nature of the action in which conspiracy is alleged. (Maheu v. CBS, Inc. (1988) 201 Cal.App.3d 662, 673.) Since the underlying tort is fraud, the statute of limitations is three years. (§ 338, subd. (d).) A cause of action based on conspiracy “accrues on the date of the commission of the last overt act in pursuance of the conspiracy, a date which must be alleged.” (Maheu v. CBS, Inc., supra, 201 Cal.App.3d 662, 673-674; emphasis added.)

As with the FAC, the SAC does not affirmatively state an alleged date by which the conspiracy accrued. Since over ten years has passed since the promissory note was executed, and that is the last pleaded “act” the cause of action is time-barred based on the pleadings. Likewise, in opposition to the demurrer, Plaintiff fails to cite allegations that support accrual of the conspiracy, but rests on an argument that because the fraud causes of action are timely, the civil conspiracy cause of action is also timely, however as noted in the ruling on the prior demurrer, this is not the standard.

Therefore, demurrer to the fourth cause of action on grounds of failure to state sufficient facts on the basis of the statute of limitations will be sustained.

E. Failure to State Sufficient Facts
F.

Tarun also demurs to each cause of action on the ground that they are not sufficiently pleaded.

1. First Cause of Action
2.

Tarun argues that the SAC fails to sufficiently allege breach of contract, however his arguments rest on the holding in the prior demurrer, and do not address the amendments to the complaint.

To plead a cause of action for breach of contract, the facts must allege: (1) the existence of a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) resulting damages to the plaintiff. (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97-98.)

The SAC attaches a promissory note, signed by Tarun and Partner, allegedly indebting them to Plaintiff. (SAC, Exhibit C.) Plaintiff is alleged to have surrendered his shares to Pacific, by way of the promissory note and Partner and Tarun’s promise to pay. (Id. at ¶¶ 16, 17.) It also alleges that Tarun and Partner have failed to pay the money due pursuant to the note. (Id. at ¶¶ 19, 33.) Thus, the facts sufficiently allege contract and breach.

Therefore, the demurrer to the first cause of action is OVERRULED.

G. Second and Third Causes of Action
H.

Tarun next demurs to the second and third causes of action for fraud and misrepresentation. Specifically, he attacks the pleading sufficiency of damages arguing that Plaintiff’s alleged damages cannot be said to have been proximately caused by any fraud or misrepresentation, but arise from contract.

Where a breach of contract is alleged, “damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time: consequential damages beyond the expectation of the parties are not recoverable.” (Erlich v. Menezes (1999) 21 Cal.4th 543, 550.) Breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law. (Id. at 551, citation omitted.)

The allegations here fail to allege a breach of duty independent of the contract. As Tarun notes, the only damages are alleged to have arisen from “Defendant’s breach of the agreement.” (SAC, ¶¶ 35, 50, 63.) Thus, the damages alleged are limited to those within the contemplation of the parties when the contract was signed.

In opposition, Plaintiff takes issue with the demurrer argument regarding damages, because it was not addressed in Tarun’s demurrer to the FAC and argues that “[h]e should not be able to file serial demurrers on multiple grounds.” However, he fails to substantiate this objection with citations to statute or case law. Furthermore, the Sixth District Court of Appeals and others have adopted the opposite position, reasoning that the interests of all parties are advanced by avoiding a trial and reversal for defects in pleadings. (See Pacific State Enterprises, Inc. v. City of Coachella (1993) 13 Cal.App.4th 1414, 1420, fn. 3; Pavicich v. Santucci (2000) 85 Cal.App.4th 382, 389, fn. 3; Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1036; Carlton v. Dr. Pepper Snapple Group, Inc. (2014) 228 Cal.App.4th 1200, 1211 [stating filing an amended complaint “opened the door to a demurrer to the entire” pleading, including causes of action that previously survived demurrer].) Therefore, this argument is unavailing.

Furthermore, Plaintiff’s request for leave to amend states that through discovery he has acquired documentary evidence regarding the assignment of rights from MM& H and Mosam, and confirming Tarun “bears liability for the underlying debt.” However, none of this alleged new evidence bears on the tort causes of action, specifically damages beyond those recognized in contract, thus he has failed to demonstrate how he can amend his pleading. (See Goodman v. Kennedy (1976)18 Cal.3d 335, 349 [the plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading], quoting Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 636; see also Hendy v. Losse (1991) 54 Cal.3d 723, 742 [the burden is on the plaintiff… to demonstrate the manner in which the complaint might be amended].)

As a result, the demurrer to the second and third causes of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend on the basis that damages have not been sufficiently pleaded. Plaintiff has previously been granted leave to amend this cause of action, and has failed to cure the defect in the SAC.

I. Fourth Cause of Action – Sufficiency of Civil Conspiracy Pleading
J.

Tarun demurs to the fourth cause of action for civil conspiracy to defraud on the ground of failure to state sufficient facts because it does not allege an underlying tort or civil wrong.

Conspiracy is not an independent cause of action, but a legal doctrine that imposes liability on one who, although not committing the tort themselves, share a common plan or design in it perpetration. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.) Standing alone, conspiracy engenders no tort liability and must be activated by an underlying tort. (Id. at 511.)

As with the FAC, the SAC fails to sufficiently allege any underlying tort to support a cause of action for civil conspiracy, nor does his opposition address this. He also fails to show how the pleading can be amended to allege civil conspiracy, so as stated above, leave to amend will not be granted.

Consequently, the demurrer to the fourth cause of action on ground of failure to state sufficient facts is SUSTAINED without leave to amend, on the basis of the statute of limitations and failure to sufficiently plead an underlying tort. Plaintiff has previously been granted leave to amend this cause of action, and has failed to cure the defect in the SAC.