Case Number: EC062146 Hearing Date: May 16, 2014 Dept: B

26. EC062146
ATLANTIC TIMES SQUARE X, LLC v. DAVID HANK KWONG, et al
Demurrer and Motion to Strike

The Complaint alleges that the Defendant, California Edo Japan, breached a commercial lease by failing to pay rent. Further, the Defendants, David Kwong, Lolo Kwong, and Edmond Kwong, breached a personal guaranty agreement for the performance of California Edo Japan. The causes of action in the Complaint are for:
1) Breach of Contract
2) Breach of Contract
3) Breach of Implied Covenant of Good Faith and Fair Dealing
4) Breach of Personal Guaranty
5) Fraud
6) Aiding and Abetting
7) Accounting
8) Declaratory Relief

This hearing concerns the Defendants’ demurrer and motion to strike.

1 Demurrer to Fifth Cause of Action for Fraud
The Defendants argue that the Plaintiff has not pleaded this cause of action with the particularity necessary to state a fraud claim. The elements of a fraud cause of action are the following:

1) a representation, usually of fact, which is false;
2) knowledge of its falsity;
3) intent to defraud;
4) justifiable reliance upon the misrepresentation; and
5) damage resulting from that justifiable reliance
Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 72-73.

Facts constituting each element of fraud must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216. Since fraud must be pleaded with particularity, the complaint must allege facts showing how, when, where, to whom, and by what means the representations were tendered. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.

In addition, fraud pleadings against a corporation must allege the names of the persons who made the misrepresentations, their authority to speak for the corporation, to whom they spoke, what they said or wrote, and when it was said or written. Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157.

The Plaintiff alleges in paragraph 41 and 42 that the Defendants provided financial records and books to the Plaintiff that were false. There are no allegations that identify how, when, where, to whom, or by what means these books were delivered to the Plaintiff. Since the Plaintiff is a business entity, there must be allegations that identify to whom the books were given. This is insufficient to plead the element of a false representation.

Further, the Plaintiff’s allegations do not plead a fraud claim; instead, they plead that the Defendants breached a contract provision regarding the amount of rent required. Conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law. Erlich v. Menezes (1999) 21 Cal. 4th 543, 551. An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty. Id. Examples of cases permitting tort damages in contract cases are the following:

1) breaches of contractual duties that cause physical injuries;
2) breaches of the covenant of good faith and fair dealing in insurance contracts;
3) wrongful discharge in violation of public policy;
4) the fraudulent inducement of a contract.
Id. at 551-552.

The Plaintiff alleges in paragraph 11e that the Defendant agreed to pay an amount by which the percentage of gross sales exceeds the minimum annual rental value. The Plaintiff’s allegation that the Defendants did not provide accurate financial records indicates that the Defendants breached this provision by attempting to pay less than the required amount. This is a breach of a duty arising from the contract.

There is no breach of a tort duty arising independent of the contract, e.g., no representation that induced the Plaintiffs into the contract. This becomes clear when the Plaintiff’s allegation of justifiable reliance are reviewed. The Plaintiff alleges in paragraphs 44 and 45 that the Plaintiff reasonably relied upon the financial records and books by charging the Defendants less rent. This indicates that the Defendants’ conduct was the breach of its duty to pay the correct amount of rent. The Plaintiff does not allege any conduct that was the breach of an independent duty arising from tort law.

Therefore, the Court sustains the demurrer to the fifth cause of action with 10 days leave to amend.

2. Demurrer to Sixth Cause of Action for Aiding and Abetting

The Defendants argue that this is not a cause of action; instead, it is the legal doctrine of conspiracy. A review of the sixth cause of action reveals that the Plaintiff claims that the Defendant, California Edo Japan, Inc., defrauded the Plaintiff and that the other Defendants, David Kwong, Edmond Kwong, and Lolo Kwong, aided and abetted the fraud. These allegations indicate that the Plaintiff is seeking to hold the individual Defendants liable for the fraud committed by California Edo Japan, Inc. on the ground that they assisted in the fraud, i.e., that there was a conspiracy to engage in fraud.

Under California law, conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784. Since conspiracy is not a cause of action, the Court sustains the demurrer to the sixth cause of action. Instead, it should be incorporated into the fraud claim.

Therefore, the Court sustains the demurrer to the sixth cause of action because conspiracy is not a cause of action. Further, the Court does not grant leave to amend because it is not possible to correct this defect by amendment.

3. Motion to Strike
The Defendants request the Court to strike portions from the Complaint in which the Plaintiff seeks an award of punitive damages. A complaint including a request for punitive damages must include allegations showing that the plaintiff is entitled to an award of punitive damages. Clauson v. Superior Court (1998) 67 Cal. App. 4th 1253, 1255.

A review of the Complaint reveals that the claims for punitive damages were in the fifth and sixth causes of action. Since the Court sustained the demurrers to the fifth and sixth causes of action that support the claim for punitive damages, no portion of the pleadings supports a claim for punitive damages against the Defendants.

Accordingly, the Court strikes the portions of the pleadings that support or seek punitive damages with 10 days leave to amend.