Case Name: Yim, et al. v. Food Trucks Plus Inc., et al.

Case No.: 18CV322976

Defendant Joseph Dawoud (“Dawoud”) and Food Trucks Plus, Inc. (“Food Trucks Plus”) (collectively, “Defendants”) demur to the Second Amended Complaint (“SAC”) filed by plaintiffs Kenitha Yim and Charles Nguyen (collectively, “Plaintiffs”) and move to strike portions contained therein.

I. Background
II.

A. Factual
B.

This is an action for fraud and unfair business practices, among things, arising out a failed business transaction. According to the allegations of the SAC, Plaintiffs desired to enter into the food truck business and consequently entered into a written agreement with Food Trucks Plus for that purpose on February 27, 2017, paying $84,340.12 for the purchase of a food truck. (SAC, ¶ 3 and Exhibit 3.) Defendants subsequently delivered a defective and non-compliant food truck not capable of lawfully operating in California to Plaintiffs on July 23, 2017, after falsely representing that they could build a code-compliant one. (Id., ¶¶ 3-10.) Despite promises to do so, Defendants failed to cure the defects in the truck or return the monies paid by Plaintiffs. (Id.)

In September 2017, the California Department of Housing and Community Development (“HCD”) issued a cease and desist letter to Defendants advising them that by manufacturing food trucks and offering them for sale in California without a contract with an HCD approved third-party agency for design approval and quality assurance, they were operating in willful violation of state law. (SAC, ¶ 14.) Defendants were instructed to cease and desist any further sales without HCD approval. (Id.) Despite this letter, Defendants represented to Plaintiffs in October 2017 that their truck had been built to the codes provided by the HCD. (Id., ¶ 15.) Defendants later made promises to fix the defects and non-compliance but then reneged on those promises in December 2017. (Id., ¶¶ 18-19.)

As a result of the foregoing, on December 18, 2017, Plaintiffs emailed and sent by certified mail a demand letter to Defendants notifying them of their election to rescind the parties’ agreement and demanding remediation and mediation. (SAC, ¶ 24.) Defendants did not respond. (Id.) This action followed.

C. Procedural
D.

On February 6, 2018, Plaintiffs filed the original complaint in this action, asserting seven causes of action. A first amended complaint was filed on November 1, 2018, asserting eight cause of action. The SAC was filed on July 15, 2019, pursuant to a stipulation and order, and asserts the following claims against Defendants: (1) common count- money had and received; (2) fraud and deceit (promises made without intent to perform; fraudulent inducement); (3) unfair business practices; (4) promissory estoppel; (5) breach of oral executed contracts; (6) breach of written contract; (7) breach of covenant of good faith and fair dealing; and (8) rescission of written contract (Civ. Code, § 17708.07, subd. (a)).

On October 11, 2019, Defendants filed the instant demurrer to the SAC and seven of the eight causes of action asserted therein on the grounds of failure to state facts sufficient to constitute a cause of action and uncertainty. (Code Civ. Proc., § 430.10, subds. (e) and (f).) Dawoud also demurs to the SAC on the ground that there is a defect or misjoinder of parties. (Code Civ. Proc., § 430.10, subd. (d).)

III. Demurrer
IV.

A. Uncertainty
B.

Defendants first assert that the SAC is uncertain, arguing that it is “extremely confusing” and is rife with recitations of court opinions and argument that renders it unintelligible. These assertions are without merit. The basic allegations of this action are clear and to the extent that Defendants believe that the SAC contains extraneous material, that does not support the sustaining of a demurrer on the ground of uncertainty. A demurrer on this ground is strictly construed and will be sustained only where the complaint is so ambiguous and/or unintelligible that the defendant cannot reasonably respond. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) While the SAC could be more concisely written, the nature of the wrongful conduct that Defendants purportedly committed towards Plaintiffs is abundantly clear. If Defendants believe that there are portions of the SAC that contain irrelevant or improper matter, a motion to strike, and not a demurrer, is the proper instrument to address them.

In accordance with the foregoing, Defendants’ demurrer to the SAC and seven of the claims asserted therein on the ground of uncertainty is OVERRULED.

C. Failure to State Facts Sufficient to Constitute a Cause of Action
D.

Defendants demur to all of the claims asserted in the SAC on the grounds of failure to state facts sufficient to constitute a cause of action except for the sixth for breach of written contract.

1. Fraud (2nd Cause of Action)
2.

In the second cause of action, Plaintiffs allege that Defendants willfully deceived them by concealing their lack of qualification to do business in California and misleading them that they were so qualified and that they would deliver a code-compliant food truck as ordered without defects. (SAC, ¶ 41.) Defendants argue that Plaintiffs’ claim for fraud fails because (1) it is barred by the economic loss rule and (2) it is not pleaded with the requisite specificity.

The economic loss rule provides that “where a purchaser’s expectations in a sale are frustrated because the product he brought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses.” (Robinson Helicopter Company v. Dana Corporation (2004) 34 Cal.4th 979, 988.) This doctrine hinges on a “distinction drawn between transactions involving the sales of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts.” (Robinson, supra, 34 Cal.4th at 988.) The rule requires a purchaser to recover solely in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. (Id.)

As Defendants acknowledge, however, the California Supreme Court carved out an exception to the foregoing rule in Robinson, holding that it does not bar claims for fraud and intentional misrepresentations, which are independent of the contract that is alleged to have been breached. (Robinson, supra, 34 Cal.4th at p. 991.) The court reasoned that a breach of contract remedy assumes the parties to a contract can negotiate the risk occasioned by a breach; given this negotiation, it is “appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive ….” (Id., citing Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 517.) However, because a party to a contract could not “rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract,” the court explained that public policy demanded that the party who is deceived be permitted to recover damages not limited to the contract. (Id.) Thus, where one party commits fraud during the contract formation or performance, the injured party may recover in contract and tort. (Id.; see also Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 79, 78.)

Defendants maintain that the foregoing exception does not apply here because Plaintiffs plead nothing more than their alleged failure to make good on their contractual promises. But that is not the entirety of what has been pleaded, as Plaintiffs have also alleged that they would not have entered into an agreement with Defendants for the purchase of the food truck in the first place but for their representations that they were qualified to do business in California and could produce a code-compliance truck. (SAC, ¶ 49.) This alleged fraudulent inducement occurred during the formation of the subject agreement, and therefore the economic loss rule does not bar Plaintiffs’ claim.

Defendants next insist that the fraud claim is not pleaded with sufficient particularity. The general elements of a fraud claim are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or “scienter”); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 638 (Lazar).) “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., supra, 214 Cal.App.4th at p. 793 [citation and quotation marks omitted].)

Here, Plaintiffs fraud claim is predicated on several theories, including fraudulent inducement, concealment and promises made without intent to perform. The court disagrees with Defendants that the claim has not been pleaded with sufficient particularity, with Plaintiffs alleging, among other things, that on January 17, 2017 at the SOMA SrtEat fair food park, Dawoud personally made promises to Plaintiffs that Defendants could legally do business in California, that they would handle all code compliance issues and that they would build and deliver a code-compliant food truck. (SAC, ¶ 6.) They further allege that Dawoud affirmed and informed each of them verbally and by email sent on January 18, 2017, that Food Trucks Plus was legal in California and would produce a code-compliant food truck for Plaintiffs that would immediately be ready for performance upon delivery. (Id., ¶ 7.) Dawoud allegedly made these same representations to Plaintiffs in person when they visited Food Trucks Plus’s manufacturing facility upon his invitation on February 10, 2017. (Id., ¶ 9.)

With the foregoing allegations, Plaintiffs have set forth in detail how, when, where, to whom, and by what means the purported misrepresentations were made. Thus, Defendants’ assertion that this claim lacks the required specificity is without merit and the demurrer will not be sustained on this basis.

As neither of the arguments asserted by Defendants in support of their demurrer to the second cause of action are persuasive, their demurrer to this claim on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

3. Common Count- Money Had and Received (1st Cause of Cause)
4.

In the first cause of action, Plaintiffs assert a common count for money had and received, alleging that Defendants became indebted to them for money had and received on an account stated by written contract and implied agreement for the purchase of the subject food truck, and that that money was obtained by fraud and misrepresentation. (SAC, ¶ 37.) In demurring to this claim, Defendants argue that it fails for the following reasons: (1) Plaintiffs did not suffer the necessary prerequisite to this claim of a loss of consideration; (2) Plaintiffs cannot allege Defendants received money to which they were not entitled; and (3) this claim is duplicative of the breach of express contract cause of action, rendering it subject to demurrer.

As a general matter, a cause of action for money had and received is stated if it is alleged the defendant is indebted to the plaintiff in a sum certain for money had and received by the defendant for the use of the plaintiff.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 460, internal citations and quotations omitted.) “In an action on an express contract, a claim for money had and received is permitted where there has been a total failure of consideration. Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party. [T]he failure of the consideration is total … [where] nothing of value has been received under the contract by the party … seeking restitution.” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231, internal quotations and citations omitted.) Defendants maintain that Plaintiffs are unable to allege they suffered a total failure of consideration because they admittedly received the food truck they ordered. While Plaintiffs allege that the truck suffered from various defects, , even assuming for the sake of argument that these allegations are true, Defendants explain, Plaintiffs have only alleged that Defendants did not fully execute their responsibilities under the subject agreement and not that no consideration had been received.

In their opposition, Plaintiffs respond that they need not allege a total failure of consideration to state this claim because they have pleaded that Defendants lacked the legal capacity to do business in California and therefore the subject agreement is void and renders these circumstances distinguishable from the general principles asserted by Defendants regarding a lack of consideration. Further, they contend, they also need not plead a total failure of consideration where the money received by the defendant was alleged to have been obtained by fraud.

Plaintiffs’ assertions are well taken, as it is “well settled that no contract is necessary to support an action for money had and received other than the implied contract which results by operation of law where one person received the money of another to which he has no right, conscientiously, to retain.” (Stratton v. Hanning (1956) 139 Cal.App.2d 723, 728.) “Under such circumstances, the law will imply a promise to return the money.” (Id.) Thus, an allegation that affectively asserts that the defendant received the plaintiff’s money which it had no right to retain is sufficient to satisfy the consideration element. (Id.; see, e.g., Coleman v. Sterling (S.D. Cal. 2011) 2011 WL 1668956, *3.) This includes circumstances where the money is paid under a void agreement, where it is obtained by fraud, or where it was paid by a mistake of fact. (Stratton, 139 Cal.App.2d at 728.) With Plaintiffs having alleged as much in the SAC (see ¶ 37), they need not plead a total lack of consideration in order to state a common count for money had and received.

Defendants next argue that Plaintiffs are unable to maintain a fraud claim and therefore the terms of the parties’ agreement control. But as stated above, Plaintiffs have sufficiently pleaded a claim for fraud. Consequently, the demurrer will not be sustained on this basis.

Finally, Defendants assert that this claim is duplicative of Plaintiffs’ breach of express contract cause of action and therefore demurrable on this basis. But this argument presumes that the contract is valid; Plaintiffs have also alleged that the agreement is void or voidable due to Defendants purportedly lacking the capacity to conduct business in California. Thus, this common count has essentially been pleaded in the alternative. Ultimately, even if Defendants’ argument had some merit, Defendants cite no authority which provides that a cause of action is demurrable on the ground that it is redundant.

In accordance with the foregoing analysis, Defendants’ demurrer to the first cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

5. Unfair Business Practices (3rd Cause of Action)
6.

In the third cause of action, Plaintiffs’ allege that Defendants’ actions towards them qualify as unlawful or fraudulent business practices under Business and Professions Code section 17200 et seq. (the “UCL”). (SAC, ¶¶ 60-65.)

The UCL provides as follows:

As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500 of Part 3 of Division 7 of the Business and Professions Code.)

Thus, the UCL covers five “wrongs”: (1) unlawful business acts or practices; (2) unfair business acts or practices; (3) fraudulent business acts or practices; (4) unfair, deceptive, untrue or misleading advertising; and (5) any act prohibited by B&P §§ 17500-17577.5. The first three categories are implicated here.

With respect to the first “wrong,” the UCL permits a cause of action to be brought if a practice violates some other law. In effect, the “unlawful” prong of the UCL makes a violation of the underlying law a per se violation of the UCL. Kasky v. Nike, Inc. (2002) 27 Cal. App. 4th 939, 950. The language “unlawful business practice” of the UCL proscribes anything that can properly be called a business practice and that at the same time is forbidden by law. People v. McKale (1975) 25 Cal. 3d 626, 634. The UCL “borrows” violations from other laws and deems them to be independently actionable under the UCL. Farmers Exchange v. Superior Court (1992) 2 Cal. 4th 377, 383. Consequently, if a business practice violates almost any law (civil or criminal), regulation or even the common law, then it can serve as the basis for an action alleging violation of the UCL. Saunders v. Superior Court (1994) 27 Cal. App. 4th 832, 838; AICCO, Inc. v. Insurance Co. of North America (2001) 90 Cal. App. 4th 579, 588-589.

The second “wrong,” of the UCL—the “unfair business practice”—is intentionally broad, allowing courts maximum discretion to prohibit new schemes to defraud. Motors, Inc. v. Times Mirror Co. (1980) 102 Cal. App. 3d 735, 740. Since the UCL’s definition of the five “wrongs” is set forth in the disjunctive, a business practice can be “unfair” and violative of the UCL even if it is not “deceptive” and even if it is lawful. Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th 163, 180.

With respect to the third “wrong” regarding fraudulent acts, a plaintiff does not need to establish the traditional elements of fraud to prove fraudulent conduct for purposes of proving a violation of the UCL. It is sufficient that a plaintiff establish that members of the general public “are likely to be deceived” by the defendant’s conduct or statements. Committee on Children’s Television v. General Foods Corp. (1983) 35 Cal. 3d 197, 211 (specifically discussing television advertising).

Defendants contend that this claim fails because Plaintiffs are not entitled to damages under the UCL and to the extent the cause of action is predicated on fraudulent business practices, it lacks the necessary specificity. While it may be true that damages are not recoverable under the UCL (see Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266), injunctive relief and restitution are, and Plaintiffs have prayed for the latter. (SAC, ¶ 66.) Accordingly, Defendants’ first argument is without merit.

Defendants’ second argument is also without merit because Plaintiffs have incorporated all of the preceding allegations, including those in the sufficiently pleaded fraud claim, and thus have set forth in detail the nature of the fraudulent business practices that Defendants allegedly engaged in. Consequently, Defendants’ demurrer to the third cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

7. Promissory Estoppel (4th Cause of Action)
8.

In the fourth cause of action, Plaintiffs allege that Defendants made certain promises to them to deliver a California code-compliant food truck but failed to do so. (SAC, ¶ 68.) Defendants maintain that this claim fails because a promissory estoppel cause of action cannot be stated where there is a valid, enforceable contract between the parties. However, as Plaintiffs note in their opposition, this argument only succeeds if the subject agreement between the parties is valid and enforceable, and they have pleaded that it is not because Defendants lacked the capacity to conduct business in California and they were fraudulently induced to enter into the agreement in the first place. Consequently, this argument is without merit and therefore Defendants’ demurrer to the fourth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

9. Breach of Oral Executed Contracts (5th Cause of Action)
10.

Next, Defendants contend that the fifth cause of action, in which Plaintiffs allege that the parties entered into an oral executed contract on October 31, 2017 regarding Defendants’ fixing various defects and HCD non-compliance with Plaintiffs’ food truck, is defective because there are no facts pleaded or consideration alleged which supports the existence of a second agreement as opposed to Defendants simply confirming that they would perform their obligations under the parties’ original agreement.

In their opposition, Plaintiffs maintain that they have sufficiently pleaded a claim for breach of an oral (executed) agreement because (1) the parties’ original agreement expressly provides that they can reach additional agreements with one another and (2) new consideration is not required because Plaintiffs’ performed under the oral agreement.

The general rule is that every executory contract requires consideration. (Civ. Code, § 1550.) Therefore, after a contract is fully executed, it is no longer possible to attack its validity on the ground that it lacks consideration. (See, e.g., Julian v. Gold (1931) 214 Cal. 74.) While Plaintiffs have correctly summarized the law, the Court agrees with Defendants that Plaintiffs have not set forth facts establishing a separate and distinct second agreement rather than affirmances by Defendants that they would perform under the parties’ written agreement. Consequently, Defendants’ demurrer to the fifth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

11. Breach of Covenant of Good Faith and Fair Dealing (7th Cause of Action)
12.

Next, Defendants argue that no claim for breach of the implied covenant of good faith and fair dealing has been stated because Plaintiffs have simply duplicated their breach of contract cause of action.

“Every contract imposes upon each party a duty of good faith and fair dealing in its covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658; see also CACI No. 325.) Thus, because the covenant is implied, it cannot “‘be endowed with an existence independent of its contractual underpinnings.’ [Citations.] It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349 – 350.) It merely prevents a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.’” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031 – 1032.)

As relevant to the argument asserted by Defendants, “where breach of an actual term is alleged, a separate implied covenant claim, based on the same breach, is superfluous.” (Guz v. Bechtel National, Inc., supra, 24 Cal.4th at 327.) In the seventh cause of action in the SAC, Plaintiffs allege that Defendants breached the implied covenant by: failing to perform as required under the subject agreement; failing to deliver the subject food truck without code violations; overcharging for services and goods that were never delivered; and failing to fix and remediate code violations and defects. (SAC, ¶ 95.) These allegations essentially mirror those in the preceding claim for breach of written contract and therefore Plaintiffs’ implied covenant claim is superfluous. Accordingly, Defendants’ demurrer to this cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

13. Rescission of Written Contract (8th Cause of Action)
14.

Finally, Plaintiffs seek rescission of the subject written agreement in the eighth cause of action based on Defendants’ alleged fraud in inducing them to enter into the agreement and their lack of capacity to lawfully conduct business in California. (SAC, ¶¶ 99-100.) Defendants argue that their demurrer to this claim should be sustained because a plaintiff cannot simultaneously affirm the existence of a contract and seek to retain its benefits by requesting damages via a breach of contract cause of action while also electing to have that agreement rescinded. This argument is well taken.

It is well established that “[a]n action for damages is based on an affirmance of the contract; an action for rescission on a disaffirmance thereof. The two remedies are mutually inconsistent, although damages may be prayed for in the event rescission cannot be had.” (Davis v. Rite-Lite Sales Co. (1937) 8 Cal.2d 675, 678-679.) Here, both remedies have been prayed for, and not in the alternative. Thus, a viable claim for rescission has not been stated given the preceding claim asserted by Plaintiffs for breach of contract. As a result, Defendants’ demurrer to the eighth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

E. Misjoinder of Parties
F.

Lastly, Defendants assert that Dawoud is not a proper party to this action because this is primarily a breach of contract between Plaintiffs and Food Trucks Plus and Plaintiffs “fail to allege any legal basis to include [him] in this action aside from on an unsupported, and vaguely pleaded alter-ego theory.” (Defendants’ Memo. at 15:11-12.)

Misjoinder of parties encompasses the circumstances in which a party is improperly joined in the litigation as a plaintiff or defendant. (Code Civ. Proc., § 430.10, subd. (d).) A demurrer on this ground only lies when the defect appears on the face of the complaint or matters judicially noticed. (Royal Surplus Lines, Inc. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193, 198. Defendants may be joined in one action if there is asserted against them: (1) Any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or (2) A claim, right, or interest adverse to them in the property or controversy which is the subject of the action. (Code Civ. Proc. § 379, subd. (a).) However, “[i]t is not necessary that each defendant be interested as to every cause of action or as to all relief prayed for. Judgment may be given against one or more defendants according to their respective liabilities.” (Code Civ. Proc., § 379, subd. (b).)

The Court is not persuaded that Dawoud is not a proper party to this action based on the theory of alter ego liability. Defendants do not discuss in any detail what is required to properly plead a basis for this type liability or how the SAC falls short of that standard. Consequently, Defendants’ demurrer to the SAC on the ground of misjoinder of parties is OVERRULED.

V. Motion to Strike
VI.

With the instant motion, Defendants seek to strike Plaintiffs’ requests for punitive damages, treble damages, and allegations related thereto. However, Defendants have simply listed the items they wish the Court to strike and have failed to provide any factual or legal argument as to why it should as required by California Rules of Court, rule 3.1113(b). Consequently, the motion to strike is DENIED.