Case Number: 15. EC062146    Hearing Date: August 22, 2014    Dept: B

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

The Complaint alleges, inter alia, that 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 First Amended 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) Fraudulent Inducement
7) Accounting
8) Declaratory Relief

This hearing concerns the Defendants’ demurrer and motion to strike directed at the First Amended Complaint.

1 Demurrer to Fifth Cause of Action for Fraud
This cause of action is directed only at Defendant, California Edo Japan, Inc. The Plaintiff claims that the Defendant made false statements about its monthly gross sales.
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 that the Defendants, California Edo Japan, Inc. and David Kwong, made false representations to the Plaintiff regarding its monthly gross sales “including but not limited to on October 3, 2013.” This is insufficient because it does not identify where or by what means these false representations were tendered. Further, there are no allegations that identify the person who spoke on behalf of California Edo Japan, Inc. or the person’s authority to speak.
In addition, the Plaintiff is a business entity. There are no allegations that identify to whom the Defendants tendered the representations.
Accordingly, the Plaintiff does not plead the particular facts needed to plead the element of a false representation against Defendant, California Edo Japan, Inc.

In addition, there are no particular allegations indicating that the Defendant had the intent to defraud, the manner in which the Plaintiff justifiably relied upon the false representation, or the resulting damages. This raises a further a defect with the Plaintiff’s claim because the Plaintiff does not plead a fraud claim, i.e., that the Defendant made the false statements with the intent to defraud the Plaintiff.
Instead, the Plaintiff’s claim is that the Defendant breached a contract provision to provide information on grossly sales so that the amount of rent could be calculated. 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 of gross sales indicates that the Defendants breached this provision. 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. As noted above, there are no allegations regarding intent to defraud, the Plaintiff’s justifiable reliance, or resulting damages. This claim is based on a claim that the Defendants breached a contractual duty to provide information on gross sales to determine 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. It does not appear reasonably possible to correct the defects by amendment because the Plaintiff’s claim is based on the breach of contractual duties, which cannot be a fraud claim. Further, the Plaintiff was unable to correct these defects after the Court sustained the Defendants’ demurrer to this cause of action in original Complaint with leave to amend on May 16, 2014.

California law imposes the burden on the Plaintiff to demonstrate the manner in which the Plaintiff can amend the pleadings to correct the defects in its Complaint. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiff does not meet this burden because its papers include no explanation detailing the manner by which it can correct these defects by amendment.
Accordingly, the Court does not grant leave to amend.

2. Demurrer to Sixth Cause of Action for Fraudulent Inducement
This cause of action is directed only at Defendant, California Edo Japan, Inc. The Plaintiff claims that the Defendant made a promise without any intention of performing it to induce the Plaintiff to provide the premises.
The Defendants argue that this cause of action is not pleaded with sufficient particularity. The elements of the fraudulent inducement 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’s claim is based on the claim that the Defendant made a false promise to induce the Plaintiff into the contract. The Plaintiff alleges in paragraph 48 that on October 8, 2010, California Edo Japan, Inc. promised to abide by the terms of the lease agreement regarding the percentage of gross sales to pay and that it had no intention to pay this amount. In paragraph 49, the Plaintiff alleges that the Defendant intended to cause the Plaintiff to enter into the lease.
These allegations are insufficient because California Edo Japan, Inc. is a corporation and there are no allegations identifying the person who made the false promise on behalf of California Edo Japan, Inc. or the unknown person’s authority to speak. There are no allegations identifying how or in what manner the person made the false promise. There are no allegations identifying where the person made the false promise.
In addition, the Plaintiff is a business entity. There are no allegations that identify to whom the Defendants tendered the representations.

Therefore, the Court sustains the demurrer to the sixth cause of action.

California law imposes the burden on the Plaintiff to demonstrate the manner in which the Plaintiff can amend the pleadings to correct the defects in its Complaint. Goodman v. Kennedy (1976) 18 Cal.3d 335, 349. The Plaintiff does not meet this burden because its papers include no explanation detailing the manner by which it can correct these defects by amendment. If plaintiff indicates it ability to correct these defects, leave to amend will be granted.

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 sustains 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.
If no leave to amend the sixth cause of action is granted, the Court will grant the Defendants’ motion to strike. If leave to amend the sixth cause of action is granted, the Court will grant the motion to strike only the punitive damages claimed in the fifth cause of action and find that the motion is moot as to the sixth cause of action.