Case Name: Red and White Wireless, Inc., et al. v. Selwyn R. Bhola, et al.

Case No.: 1-15-CV-277290

General Demurrer to Complaint by Defendant Selwyn R. Bhola

In August 2012, a mutual friend introduced plaintiff Levent Agdas (“Agdas”) to defendant Selwyn R. Bhola (“Bhola”) who represented himself as an expert in the cellular phone service industry. (Complaint, ¶10.) Between February and April 2014, plaintiff Agdas and his wife, plaintiff Aysun Tasci (“Tasci”), were presented an opportunity to purchase an established Metro PCS dealership in Santa Clara. (Complaint, ¶¶1 and 11.) Defendant Bhola offered to help plaintiffs with the purchase, management, and operation of the Santa Clara Metro PCS dealership. (Complaint, ¶11.)

On May 16, 2014, plaintiff Tasci and defendant Bhola entered into an agreement to purchase the Santa Clara Metro PCS dealership for $35,000. (Complaint, ¶12 and Exh. 1.) Plaintiff Tasci provided the entire $35,000 and defendant Bhola made no monetary contribution. (Complaint, ¶12.) In the same month, plaintiff Tasci founded plaintiff Red and White Wireless, Inc. (“RWW”), appointed defendant Bhola as an officer and director, and gave defendant Bhola management authority. (Id.)

In June 2014, plaintiff RWW and Bhola entered into an oral agreement regarding Bhola’s compensation and defendant Bhola took over management and control of the Metro PCS dealership. (Complaint, ¶13.) Unknown to plaintiffs, defendant Bhola, on RWW’s behalf, entered into a merchant services agreement with Focus Merchant Services to handle credit card purchases. (Complaint, ¶14.) Defendant Bhola did so without plaintiff Tasci’s authorization and by forging plaintiff Tasci’s signature on the merchant services agreement. (Id.)

In September 2014, defendant Bhola opened a Square account under his own business, Primetime Wireless, and began processing RWW customer transactions through this account through December 2014 without reporting these sales to RWW. (Complaint, ¶16.)

In November 2014, plaintiffs Tasci and Agdas discovered from merchant services statements that the RWW account was receiving customer complaints of fraudulent transactions (chargebacks). (Complaint, ¶17.) In December 2014, plaintiffs learned of chargebacks dating back to October 2014. (Id.) Defendant Bhola did not report the chargebacks to plaintiffs. (Id.)

On December 31, 2014, plaintiff RWW decided to remove defendant Bhola as an officer and director and to terminate defendant Bhola for misconduct. (Complaint, ¶20.) Plaintiff Agdas took over management and control of the business in January 2015. For three weeks, plaintiffs had difficulty conducting business because dealer access codes and IDs had to be cancelled as a result of defendant Bhola’s fraudulent conduct. (Complaint, ¶21.) Plaintiff Agdas had to pay $3,449 for delinquent balances in order to continue merchant transactions. (Id.) Plaintiff Agdas discovered as much as $2,000 in merchandise was missing. (Id.) Plaintiff Agdas discovered defendant Bhola charged $970 from the RWW business credit card to his own Square account, but plaintiff Agdas was able to dispute the charge. (Id.) RWW customers began complaining and continue to complaint of disconnected cellular services despite paying their fees. (Id.)

On February 25, 2015, plaintiffs RWW, Tasci, and Agdas filed a complaint against Bhola asserting causes of action for:

(1) Breach of Oral Contract
(2) Breach of Fiduciary Duty
(3) Fraud/ Misrepresentation
(4) Conversion
(5) Negligence
(6) Intentional Infliction of Emotional Distress

On June 19, 2015, defendant Bhola filed the motion now before the court, a general demurrer to the third and sixth causes of action of plaintiffs’ complaint.

DISCUSSION

I. Defendant Bhola’s demurrer to the third cause of action [fraud/ misrepresentation] is OVERRULED.

“[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612 – 613.)

In Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 97, the court recognized, “It is established by statute that intentional concealment of a material fact is an alternative form of fraud and deceit equivalent to direct affirmative misrepresentation. [Civil Code §§1572(3), 1709, and 1710(3).] Further, where failure to disclose a material fact is calculated to induce a false belief, the distinction between concealment and affirmative misrepresentation is tenuous. Both are fraudulent. An active concealment has the same force and effect as a representation which is positive in form.”

Plaintiffs’ third cause of action asserts a claim for fraud based on concealment. Defendant Bhola demurs to this third cause of action by arguing plaintiffs have not and cannot plead actual reliance. “Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff’s conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction. [Citations.]” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.)

Defendant Bhola contends plaintiffs cannot allege reliance here because plaintiffs already relied by entering into a contract with defendant (presumably, the June 2014 oral agreement concerning Bhola’s compensation) before any fraudulent concealment occurred. Defendant Bhola appears to misunderstand the allegations as stated in the complaint, as the court reads them. Plaintiffs generally allege that defendant Bhola concealed his misconduct while employed by RWW as the manager of the Metro PCS dealership. Had they learned of this misconduct, it is reasonable to infer that plaintiffs would have terminated defendant Bhola sooner. It is also reasonable to infer that, as a result of the concealment, plaintiffs relied on the nondisclosures and continued employing defendant Bhola to their detriment.

Accordingly, defendant Bhola’s demurrer to the third cause of action in plaintiffs’ complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for fraudulent concealment is OVERRULED.

II. Defendant Bhola’s demurrer to the sixth cause of action [intentional infliction of emotional distress] is OVERRULED.

“The tort of intentional infliction of emotional distress is comprised of three elements: (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff suffered severe or extreme emotional distress; and (3) the plaintiff’s injuries were actually and proximately caused by the defendant’s outrageous conduct.” (Cochran v. Cochran (1998) 65 Cal.App.4th 488, 494 (Cochran); see also Ross v. Creel Printing & Publishing Co., Inc. (2002) 100 Cal.App.4th 736, 744 – 745; see also CACI, Nos. 1600 and 1602.)

“There is no bright line standard for judging outrageous conduct and its generality hazards a case-by-case appraisal of conduct filtered through the prism of the appraiser’s values, sensitivity threshold, and standards of civility. The process evoked by the test appears to be more intuitive than analytical.” (Cochran, supra, 65 Cal.App.4th at p. 494.) “Even so, the appellate courts have affirmed orders which sustained demurrers on the ground that the defendant’s alleged conduct was not sufficiently outrageous.” (Id.; emphasis added) The Cochran court went on to state, “the mere fact that the actor knows that the other will regard the conduct as insulting, or will have his feelings hurt, is not enough.” (Id. at p. 496.) “In evaluating whether the defendant’s conduct was outrageous, it is not enough that the defendant has acted with an intent which is tortious or even criminal.” (Id.)

In Kruse v. Bank of America (1988) 202 Cal.App.3d 38 (Kruse), the plaintiff lost her home when the defendant bank foreclosed upon loans secured by the plaintiff’s house. When a “claim for emotional distress is based on the same conduct alleged to show fraud, no recovery is permitted. Emotional distress is not recoverable as an element of damages for fraud.” (Kruse, supra, 202 Cal.App.3d at p. 67.)

Here, plaintiffs allege very generically that, “Defendants and each of them maliciously, fraudulently and oppressively engaged in, instigated, and directed a course of extreme and outrageous conduct with the intention of causing, or reckless disregard of the probability of causing, emotional distress to Plaintiffs Tasci and Agdas.” (Complaint, ¶60.) To the extent plaintiffs’ emotional distress claim is premised on the alleged fraud, the claim is insufficient.

However, the claim here is not premised solely on fraud. In Wallis v. Superior Court (1984) 160 Cal.App.3d 1109, 1120, the court cited the following definition of outrageous conduct: “Behavior may be considered outrageous if a defendant (1) abuses a relation or position which gives him power to damage the plaintiff’s interest; (2) knows the plaintiff is susceptible to injuries through mental distress; or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress.” (See also McDaniel v. Gile (1991) 230 Cal.App.3d 363, 372.)

Here, plaintiffs have alleged that defendant Bhola held a relation or position which gave him power to damage the plaintiffs’ interest. Namely, plaintiffs have alleged defendant Bhola was appointed as an officer and director of RWW, given management authority of RWW, and control over operation of the Metro PCS dealership. (Complaint, ¶¶12 – 13.) Based on these allegations if proven, the alleged misconduct could be considered outrageous. Plaintiffs have stated sufficient facts to state a cause of action to be determined by the trier of fact.

Accordingly, defendant Bhola’s demurrer to the sixth cause of action in plaintiffs’ complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for intentional infliction of emotional distress is OVERRULED.