Case Name: Ajay Shingal, et al. v. Scottline Healthcare Solutions, Inc., et al.
Case No.: 17-CV-307141

Currently before the Court is the demurrer and request for monetary sanctions by plaintiffs and cross-defendants Ajay Shingal (“Ajay”) and Myra Shingal (collectively, “Plaintiffs”).

Factual and Procedural Background

This is an action for breach of contract and fraud. On March 9, 2017, Plaintiffs, individually and as trustees of the Ajay and Myra Shingal Trust (“Shingal Trust”), filed the underlying complaint against defendants and cross-complainants Scottline Healthcare Solutions, Inc. (“Scottline”), Venkat Garikapati (“Garikapati”), and Jyothi Kakumanu (“Kakumanu”) (collectively, “Defendants”), alleging causes of action for: (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) fraudulent inducement; (4) fraudulent concealment; and (5) unjust enrichment.

Subsequently, on October 3, 2017, Defendants filed a cross-complaint against Plaintiffs, individually and as trustees of the Shingal Trust.

According to the allegations of the cross-complaint, Defendants made an oral and written agreement with Plaintiffs on or about October and November 2016. (Cross-Complaint, ¶ BC-1.) Under the terms of the agreement, Plaintiffs “agreed to pay to [Scottline] as an invest [sic] $1,000,000, which amount would assist Scottline in expanding its business and product line(s)” and Plaintiffs “further agreed and represented that [Ajay] would in good faith become chief executive officer of Scottline, and that [Ajay] was qualified to become chief executive officer of Scottline and to guide Scottline and its business and product line(s) including expansion thereof.” (Ibid.)

When Plaintiffs represented that they would pay Scottline $1,000,000, Ajay would be Scottline’s chief executive officer, and Ajay was qualified to be Scottline’s chief executive officer, they had no reasonable ground for believing their representations to be true. (Cross-Complaint, ¶ FR-2.) Additionally, at the time their promises were made, Plaintiffs did not have any intention of performing their promises. (Id., at ¶ FR-4.)

In reliance on Plaintiffs’ conduct, “Scottline planned and contracted to expand its business and product line(s) and incurred expenses and costs in furtherance thereof.” (Cross-Complaint, ¶ FR-5.)

On or about October and November 2016, Plaintiffs allegedly breached the agreement by “[f]ailing to satisfy the obligation to pay [Scottline] as an investment, and misrepresenting that [Ajay] would in good faith become chief executive officer of Scottline, and that [Ajay] was qualified to become chief executive officer of Scottline and to guide Scottline and its business and product line(s) including expansion thereof.” (Cross-Complaint, ¶ BC-2.) As a result of Plaintiffs’ breach of the agreement, Defendants allegedly “lost business opportunity and expansion of [Scottline] and its product line(s)[,] and out of pocket expenses and costs paid by [Scottline] in reliance on the agreements and representations by” Plaintiffs. (Id., at ¶¶ BC-4 and FR-6.)

Based on the foregoing allegations, Defendants plead causes of action for (1) breach of contract and (2) fraud.

On November 7, 2017, Plaintiffs filed the instant demurrer to the cross-complaint and request for monetary sanctions. Defendants filed opposition papers on January 23, 2018.

Discussion

I. Demurrer

Plaintiffs demur to the first and second causes of action of the cross-complaint on the grounds of uncertainty and failure to allege facts sufficient to state a cause of action. (Ntc. of Dem., p. 2:12-25; see Code Civ. Proc., § 430.10, subds. (e) and (f).)

A. Legal Standard

The function of a demurrer is to test the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) Consequently, “[a] demurrer reaches only to the contents of the pleading and such matters as may be considered under the doctrine of judicial notice.” (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, internal citations and quotations omitted; see Code Civ. Proc., § 430.30, subd. (a).) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations [in the challenged pleading] or the accuracy with which [the plaintiff] describes the defendant’s conduct. [ ] Thus, [ ] the facts alleged in the pleading are deemed to be true, however improbable they may be.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, internal citations and quotations omitted.)

B. Procedural Issue

As an initial matter, Defendants argue the demurrer is defective because Plaintiffs failed “to include the required demurrer.” (Opp’n., p. 1:28.) Defendants assert that Plaintiffs’ papers “are improperly comprised of a Notice; ‘Demurrer’ (which is really a memorandum of points and authorities, with the confusing footer ‘Opposition to Defendants’ Special and General Demurrer); and a purported declaration of Navneet Chugh ….” (Id., at p. 1:23-28.) Thus, Defendants appear to argue that the demurrer should be summarily overruled because Plaintiffs did not file a demurrer and instead filed a notice of demurrer and memorandum of points and authorities.
Defendants’ argument is not well-taken. While it is true that the papers filed in support of a demurrer must include a demurrer that specifies each ground for demurrer, which is something that is generally separate and distinct from a notice of hearing and memorandum of points and authorities (see Cal. Rules of Ct., rules 3.1112 and 3.1320), it is common practice for parties to combine the demurrer and notice of hearing in a single document, and there is no authority prohibiting such practice. Here, it appears that Plaintiffs combined their demurrer and notice of demurrer in a single document. (See Ntc. of Dem., pp. 2:2-3:3.)

Even assuming for the sake of argument that Plaintiffs did not file an actual demurrer as required by California Rules of Court, rule 3.1320, Defendants have not been prejudiced by the purported defect. Plaintiffs’ notice of demurrer sets forth the grounds for demurrer in detail with respect to each cause of action and Plaintiffs’ memorandum of points and authorities sets forth Plaintiffs’ arguments. Most importantly, Defendants filed a detailed opposition to the demurrer. Thus, the Court will reach the merits of the demurrer. (See Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 237 [court may reach merits of dispute despite a violation of California Rules of Court].)

C. Meet and Confer

Defendants argue that Plaintiffs failed to adequately meet and confer prior to filing the instant demurrer.

Code of Civil Procedure section 430.41 provides that the demurring party must meet and confer with the party who filed the challenged pleading “for the purpose of determining whether an agreement could be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., § 430.41, subd. (a).) During this process, the demurring party must identify all causes of action it believes are subject to demurrer, identify the bases for the demurrer, and provide legal support. (Code Civ. Proc., § 430.41, subd. (a)(1).)

Here, Plaintiffs’ counsel sent a meet and confer letter to Defendants’ counsel via email on October 18, 2017. (Chugh Dec., Exs. A and C.) The meet and confer letter identifies the causes of action Plaintiffs believe are subject to demurrer, identifies the bases for the demurrer, and provides legal support for Plaintiffs’ arguments. (Ibid.) Consequently, the Court finds that Plaintiffs’ meet and confer efforts were adequate.

Moreover, even if Plaintiffs had failed to adequately meet and confer, a determination that the meet and confer process was insufficient is not grounds to overrule a demurrer. (Code Civ. Proc., § 430.41, subd. (a)(4).) At most, the Court could continue the hearing on the demurrer and direct compliance with the statute. (See Assembly Committee on Judiciary Report (2015-2016 Reg. Sess.), Senate Bill 383, p. 2.) Here, however, there is no indication that postponing the hearing and ordering the parties to engage in meet and confer efforts would be productive.

For these reasons, the Court finds that Defendants’ argument challenging the adequacy of the meet and confer efforts lacks merit.

D. Uncertainty

Plaintiffs demur to the first and second causes of action of the cross-complaint on the ground of uncertainty. (Ntc. of Dem., p. 2:12-25; Dem., pp. 2:8-10, 5:8-9, and 6:13-14.) However, the demurrer is devoid of any argument specifying an allegation in the cross-complaint that Plaintiffs contend is uncertain, ambiguous, and/or unintelligible.

“[T]he failure to specify the uncertain aspects of a complaint will defeat a demurrer based on the grounds of uncertainty.” (Fenton v. Groveland Community Services Dist. (1982) 135 Cal.App.3d 797, 809 overruled on other grounds by Katzberg v. Regents of University of California (2002) 29 Cal.4th 300, 328, fn. 30.) Furthermore, “[w]hen [a party] fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority,” the point is treated as waived. (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785; see Schaeffer Land Trust v. San Jose City Council (1989) 215 Cal.App.3d 612, 619, fn. 2 [“[A] point which is merely suggested by a party’s counsel, with no supporting argument or authority, is deemed to be without foundation and requires no discussion.”].)

Accordingly, the demurrer to the first and second causes of action on the ground of uncertainty is OVERRULED.

E. Failure to Allege Sufficient Facts to State a Claim

1. Breach of Contract

Plaintiffs demur to the first cause of action for breach of contract on the ground of failure to allege sufficient facts to state a claim. Plaintiffs argue that Defendants fail to state a claim for breach of contract because: “Defendants failed to allege any facts to demonstrate that the alleged promises by [them] were supported by any legal consideration”; Defendants “failed to specify which of the above ‘agreements’ were in writing and which were oral”; Defendants “failed to either set out the terms of the contract verbatim or attach the written contract to the cross-complaint”; and “Defendants have not alleged a single fact to demonstrate their performance or excuse of nonperformance ….” (Dem., pp. 4:13-5:3.)

Plaintiffs’ arguments are not well-taken. In the cross-complaint, Defendants clearly allege that the parties’ agreement is both written and oral. (Cross-Complaint, ¶ BC-1.) Moreover, to the extent the alleged agreement is written, Defendants do not need to plead consideration. (See Civ. Code, § 1614 [“A written instrument is presumptive evidence of a consideration.”]; see also 4 Witkin, California Procedure (5th ed. 2008) Pleading, § 521 [“ ‘A written instrument is presumptive evidence of a consideration.’ (C.C. 1614.) The California courts have given this statute the effect of excusing the pleading of consideration for a written contract, whether it is set out verbatim or pleaded according to its legal effect. [Citations.] The rule applies even though the complaint does allege the consideration, i.e., the averment as to its existence and nature is surplusage and the complaint cannot be attacked on general demurrer for insufficiency of the consideration pleaded. [Citation.] The result is that the defense of lack of consideration for a written contract must be specially pleaded in the answer. [Citation.]”]; PHII, Inc. v. Super. Ct. (1995) 33 Cal.App.4th 1680, 1682 [a demurrer does not lie to only a portion of a claim].) Furthermore, the cause of action sets forth the essential terms of the agreement such that Defendants adequately plead the contract by its legal effect. (See McKell v. Washington Mut., Inc. (2006) 142 Cal.App.4th 1457, 1489 [“A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom. [Citation.] A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect. [Citation.] In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms.’ ”]; see also Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 993.) Finally, Defendants expressly allege that they performed all of their obligations except those that they were prevented or excused from performing, which is an appropriate allegation of ultimate fact that is accepted as true on demurrer. (Cross-Complaint, ¶ BC-3.)

Accordingly, the demurrer to the first cause of action on the ground of failure to allege sufficient facts to state a claim is OVERRULED.

2. Fraud

Plaintiffs demur to the second cause of action for fraud on the ground of failure to allege sufficient facts to state a claim. Plaintiffs argue that Defendants fail to state a claim for fraud because: “the cross-complaint is devoid of any facts that show ‘how, when, where, to whom, and by what means the representations were tendered’ ”; and “Defendants have no facts to demonstrate that they justifiably relied on [their] representation.” (Dem., pp. 5:27-6:12.)

Plaintiffs’ first argument regarding lack of specificity is well-taken. “Fraud must be pleaded with specificity rather than with general and conclusory allegations. The specificity requirement means a plaintiff must allege facts showing how, when, where, to whom, and by what means the representations were made, and, in the case of a corporate defendant, the plaintiff must allege the names of the persons who made the representations, their authority to speak on behalf of the corporation, to whom they spoke, what they said or wrote, and when the representation was made.” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793, citation and quotation marks omitted.) Here, the second cause of action does not state by what means the representations were made or where the representations were made.

Accordingly, the demurrer to the second cause of action on the ground of failure to allege sufficient facts to state a claim is SUSTAINED, with 10 days’ leave to amend.
II. Request for Monetary Sanctions

Pursuant to Code of Civil Procedure section 128.5, Plaintiffs request an award of monetary sanctions against Defendants and their counsel in the amount of $3,060.

A. Legal Standard

Code of Civil Procedure section 128.5 provides that “[a] trial court may order a party, the party’s attorney, or both to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) For purposes of this section, “actions or tactics” include, but are not limited to, the making or opposing of motions or the filing and service of a complaint, cross-complaint, answer, or other responsive pleading. (Code Civ. Proc., § 128.5, subd. (b)(1).) “Frivolous” means totally and completely without merit or for the sole purpose of harassing an opposing party. (Code Civ. Proc., § 128.5, subd. (b)(2).)

When evaluating a motion for sanctions under Code of Civil Procedure section 128.5, the trial court must first evaluate whether the party seeking sanctions has tendered some evidence showing potentially sanctionable conduct. (San Diegans for Open Government v. City of San Diego (2016) 247 Cal.App.4th 1306, 1320.) If the party seeking sanctions satisfies its burden, the burden of producing evidence shifts to the party opposing the sanctions motion to refute the moving party’s prima facie case. (Ibid.)

B. Analysis

Plaintiffs argue that they are entitled to monetary sanctions under Code of Civil Procedure section 128.5 because the cross-complaint is frivolous and was filed solely to harass them and cause unnecessary delay. (Dem., p. 2:2-19.) Plaintiffs’ argument is based on the fact that “Plaintiff[s] and Defendants almost settled the case”; Defendants and their counsel acknowledged that Defendants were willing to settle the case in May 2017; and Defendants subsequently filed their cross-complaint. (Id., at pp. 2:17-24 and 6:24-7:6.)

Plaintiffs’ argument is without merit and fails to demonstrate that the cross-complaint is totally and completely without merit or was filed for the sole purpose of harassing Plaintiffs. (See Code Civ. Proc., § 128.5, subd. (b)(2).) Plaintiffs’ evidence simply demonstrates that Plaintiffs declined Defendants’ settlement proposal in May 2017, and Defendants subsequently proceeded to file their cross-complaint. (Chugh Dec., Exs. A and B.) The fact that Defendants were willing to settle the case, but Plaintiffs refused to do so does not establish that the cross-complaint is totally and completely without merit or that it was filed for the sole purpose of harassing Plaintiffs. Consequently, Plaintiffs do not meet their initial burden to tender some evidence showing potentially sanctionable conduct.

C. Conclusion

Accordingly, Plaintiffs’ request for monetary sanctions is DENIED.