Case Number: BC549704 Hearing Date: January 26, 2015 Dept: 34
Moving Party: Defendant Ronald C. Bradford

Resp. Party: Plaintiff Charley Johnston

Defendant’s demurrer to the first amended complaint is OVERRULED.

Defendant’s motion to strike is DENIED.

Defendant’s Request for Judicial Notice is DENIED. A Request for Judicial Notice must be in a separate document. (CRC 3.1306(c).) Nonetheless, the Court need not take judicial notice of plaintiff’s original complaint because it is part of the record in this action.

PRELIMINARY COMMENTS:

The instant demurrer and motion to strike are untimely. Demurrers must be made within 30 days after service of the complaint. (See Code Civ. Proc., §§ 430.40(a).) A motion to strike must be made within 30 days after service of the complaint. (See Code Civ. Proc., § 435(b)(1).) Defendant was served with the FAC by mail on 10/7/14. Therefore, defendant had until 11/11/14 to file a demurrer or motion to strike. Defendant did not file the instant demurrer or motion until 11/12/14. However, since plaintiff did not raise this issue in his opposition, the court will consider the motions on their merits.

The Court notes that the cover page of plaintiff’s opposition to the demurrer is entitled Plaintiff’s Opposition to Defendant’s Motion to Strike; similarly, the cover page of plaintiff’s opposition to the motion to strike is erroneously titled Opposition to Demurrer. The Court also notes that plaintiff’s table of contents on his demurrer is not accurate: for instance the table of contents states that argument §IV(B) is found on page 5, while in reality that argument begins on page 6.

More importantly, when counsel appeared before the court on November 19, 2014, defendant indicated that he would be filing a demurrer and motion to strike the FAC. At that time, the court urged counsel to meet and confer to resolve any issues, instead of wasting time and attorneys fees on a motion that, in all likelihood, would not be dispositive. Much time and effort could have been avoided had counsel heeded the court’s advice.

BACKGROUND:

Plaintiff commenced this action on 6/24/14. On 10/7/14 plaintiff filed a first amended complaint for: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) concealment; (4) intentional misrepresentation; and (5) negligent misrepresentation. Plaintiff alleges that in March 2012 he made an offer to purchase Bradford & Meneghini Company (“B&M”), a small manufacturing company / machine shop that was owned by defendant and Dave Meneghini. (FAC ¶¶ 7, 10.) B&M had two primary customers, one managed by Meneghini and one managed by defendant (Curtiss-Wright). (Id., ¶¶ 8-9.) Defendant and Meneghini did not accept plaintiff’s offer and did not sell the business. (Id., ¶ 10.) On 2/10/13, a business broker contacted plaintiff and informed him that one of his partners, defendant, was again interested in selling his one-half interest in B&M. (Id., ¶ 11.) Meneghini expressed that he was not willing to sell his interest for at least two more years. (Id., ¶ 12.) On 3/20/13, plaintiff and defendant verbally agreed to the sale of defendant’s interest, and this agreement was subsequently documented in a letter of intent. (Id., ¶ 13.) Plaintiff and defendant executed a purchase agreement on 5/15/13. (Id., ¶¶ 15-16.) On 7/12/13, plaintiff paid $200,000.00 to defendant in accordance with the terms of the agreement. (Id., ¶ 18.) Plaintiff alleges that he subsequently learned that the Curtiss-Wright shield product lien would be pulled from B&M, and that defendant knew of this prior to selling his interest. (Id., ¶¶ 20-24.) Plaintiff alleges that defendant failed to disclose that he gave all B&M employees a $1.00 pay raise just weeks before the purchase. (Id., ¶ 25.) Plaintiff has been able to bring back some of the shield business from Curtiss-Wright. (Id., ¶ 27.)

ANALYSIS:

Demurrer

Defendants demur to the entire first amended complaint and the five causes of action contained therein on the grounds that there is a misjoinder of parties, the complaint fails to allege sufficient facts and is uncertain, and it cannot be ascertained if the contract is written, oral, or implied.

There is no Defect or Misjoinder of Parties

A demurrer may be based on the ground that there is a defect or misjoinder of parties. (CCP § 430.10(d).)

Code of Civil Procedure section 389 subdivision (a) defines persons who should be joined in a lawsuit if possible, sometimes referred to as “necessary” parties…. It provides: “A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.” (Code Civ. Proc., § 389, subd. (a).) A determination that a person is a necessary party is the predicate for the determination whether he or she is an indispensable party … and requires analysis of the three distinct clauses of the above-referenced statute….

(TG Oceanside, L.P. v. City of Oceanside (2007) 156 Cal.App.4th 1355, 1365-1366.)

“Whether a party qualifies as indispensable is ordinarily treated as a matter where the trial court has a large measure of discretion in weighing factors of practical realities and other considerations.” (Kaczorowski v. Mendocino County Bd. of Supervisors (2001) 88 Cal.App.4th 564, 568.) “Joinder is required only when the absentee’s nonjoinder precludes the court from rendering complete justice among those already joined…” and any effects upon future litigation or the absent party are immaterial. (Countrywide Home Loans v. Sup. Ct. (1999) 69 Cal.App.4th 785, 794.)

The Court rejects defendant’s argument that the demurrer should be sustained because Meneghini was not included as a defendant. Plaintiff clearly alleges that only defendant sold his interest in B&M to plaintiff, and the purchase agreement was between plaintiff and defendant only. (See FAC ¶¶ 12-16.) Plaintiff alleges that the fraud and concealment were committed by defendant, not Meneghini. (See id., ¶¶ 21-25.) There is nothing on the face of the FAC which suggests that Meneghini committed any wrongdoing. Defendant’s speculation that Meneghini may have known the concealed facts or was involved in defendant’s wrongdoing is not sufficient to establish that there has been a defect or misjoinder of parties.

The FAC is not so Uncertain that Defendant can not Respond

Demurrers for uncertainty are strictly construed, because discovery can be used for clarification, and apply where defendants cannot reasonably determine what issues or claims are stated. (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616; Weil & Brown, Civ. Pro. Before Trial (The Rutter Group 2013) ¶ 7:85.) “Demurrer for uncertainty will be sustained only where the complaint is so bad that the defendant cannot reasonably respond; i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her.” (Weil & Brown, ¶ 7:85 [citing Khoury, 14 Cal.App.4th at p. 616].) The allegations in the FAC are not so unclear that defendant cannot reasonably respond. To the extent that defendant wishes to obtain more information as to the causes of action, such information may be sought during the discovery process.

The First Cause of Action for Breach of Contract is Adequately Pled

“A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) “If the action is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) However, it is not always necessary to attach the contract or allege its terms verbatim. “In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)

To the extent that defendant is arguing that it cannot be determined whether the agreement was oral or written, this argument is not well taken. Plaintiff alleges that he and defendant entered into a written purchase agreement. (FAC ¶¶ 15-16.)

Plaintiff alleges that he and defendant executed the purchase agreement for defendant’s one-half interest in B&M on 3/15/13. (FAC ¶ 31.) Plaintiff purports to attach the agreement as exhibit A, but no such agreement is attached. On 12/5/14, plaintiff filed a notice of errata to the FAC which provided the agreement. Plaintiff alleges that the agreement included warranties and representations from defendant, such as that all contracts relevant to the ownership and operation of the business were complete and in effect; there have been no material adverse changes to the assets, liabilities, revenues, expenses, or any other items since December 2012; and all representations in the agreement are true. (Id., ¶ 32.) Defendant also agreed to continue to operate the business in the usual way, to protect its assets and goodwill, and to maintain good relations with suppliers, customers, and employees. (Id., ¶ 34.) Plaintiff alleges that he performed under the contract. (Id., ¶ 35.) Plaintiff alleges that defendant breached the agreement by failing to disclose that the Curtiss-Wright shield product line business was pulled or was going to be pulled from B&M or that defendant gave all employees a $1.00 raise, and by failing to maintain good relations with Curtiss-Wright. (Id., ¶ 36.) Plaintiff alleges he was damaged as a result. (Id., ¶ 37.) These allegations are sufficient to support the first cause of action.

Defendant’s demurrer to the first cause of action is OVERRULED.

The Second Cause of Action is Adequately Pled

” ‘It is well settled that, in California, the law implies in every contract a covenant of good faith and fair dealing. [Citations.] Broadly stated, that covenant requires that neither party do anything which will deprive the other of the benefits of the agreement.’ ” (Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 91.)

Plaintiff alleges that he and defendant entered into a purchase agreement for defendant’s interest in B&M. (FAC ¶ 40.) Plaintiff alleges that defendant failed to disclose that the Curtiss-Wright shield product line business was pulled or was going to be pulled and that defendant gave his employees a $1.00 pay raise shortly before the agreement was signed. (Id., ¶ 44.) Plaintiff alleges that defendant failed to maintain good relations with Curtiss-Wright. (Ibid.) These allegations are sufficient to allege that defendant engaged in conduct which deprived plaintiff of the benefits of the agreement (i.e., the earning of business and profits from B&M).

Defendant’s demurrer to the second cause of action is OVERRULED.

The Third, fourth, and fifth Causes of Action Are Adequately Pled

The elements of a fraud claim are: (1) misrepresentation of a fact (or concealment); (2) knowledge of falsity; (3) intent to defraud (to induce reliance); (4) justifiable reliance; and (5) resulting damage. (Buckland v. Threshold Enters., Ltd. (2007) 155 Cal.App.4th 798, 806 807 [disapproved of on other grounds by Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310].) “The elements of negligent misrepresentation are (1) a misrepresentation of a past or existing material fact, (2) made without reasonable ground for believing it to be true, (3) made with the intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.” (Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 196.)

A fraud claim must be specifically pleaded, such that: ” ‘(a) General pleading of the legal conclusion of ‘fraud’ is insufficient; the facts constituting the fraud must be alleged. (b) Every element of the cause of action for fraud must be alleged in the proper manner (i.e., factually and specifically), and the policy of liberal construction of the pleadings will not ordinarily be invoked to sustain a pleading defective in any material respect. [Citation.]’ ” (Hall v. Department of Adoptions (1975) 47 Cal.App.3d 898, 904.) A plaintiff must allege what was said, by whom, in what manner, when, and, in the case of a corporate defendant, the speaker’s authority to bind the corporation. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)

” ‘[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.’ [Citations.]” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868.) The rule of specificity of pleading is intended to apply only to affirmative representations and not to fraud by concealment. (See Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384; Jones v. ConocoPhillips (2011) 198 Cal.App.4th 1187, 1200 [concealment is sufficiently pled when the complaint as a whole provides sufficient notice of the claims against defendants].)

Plaintiff alleges that defendant suppressed material facts about the financial condition and outlook for B&M. (FAC ¶ 48.) Plaintiff alleges that on 5/15/13 defendant represented that all contracts relevant to the ownership and operation of the business were complete and in effect; there have been no material adverse changes to the assets, liabilities, revenues, expenses, or any other items since December 2012; and all representations in the agreement are true. (Id., ¶¶ 49, 59, 69.) Plaintiff alleges that defendant knew that Curtiss-Wright had pulled or was going to pull the shield product line from B&M, but failed to disclose this. (Id., ¶¶ 50, 60, 70.) Plaintiff alleges that defendant failed to disclose the pay raise given to employees shortly before the purchase. (Id., ¶¶ 51, 60, 70.) Plaintiff alleges that defendant concealed the facts and made the misrepresentations with the intent to induce plaintiff into purchasing the interest in B&M. (Id., ¶¶ 53, 61, 71.) Plaintiff alleges that he relied on defendant’s conduct and that he would not have paid the purchase price to obtain the interest in B&M had he known the true facts. (Id., ¶¶ 54, 63, 64, 73, 74.) Plaintiff alleges he was damaged as a result. (Id., ¶¶ 55, 65, 74.) These allegations are sufficient to support plaintiff’s fraud-based claims.

Defendant’s demurrer to the third, fourth, and fifth causes of action is OVERRULED.

Motion to Strike

Punitive damages

Defendant seeks to strike plaintiff’s requests for punitive damages. The standard of proof for recovery of punitive damages is “clear and convincing” evidence of malice, fraud, or oppression. (Civil Code § 3294(a).) Under Civil Code 3294(c),

[¶] (1) ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. [¶] (2) ‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. [¶] (3) ‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

“In determining whether a complaint states facts sufficient to sustain punitive damages, the challenged allegations must be read in context with the other facts alleged in the complaint. Further, even though certain language pleads ultimate facts or conclusions of law, such language when read in context with the facts alleged as to defendants’ conduct may adequately plead the evil motive requisite to recovery of punitive damages.” (Monge v. Superior Court (1986) 176 Cal.App.3d 503, 510.) The inquiry is generally fact specific to the nature of the claim raised and the context in which the damages are sought, but “the critical element is an ‘evil motive’ of the defendant.” (Ibid.) “‘Punitive damages are proper only when the tortious conduct rises to levels of extreme indifference to the plaintiff’s rights, a level which decent citizens should not have to tolerate.'” (American Airlines v. Sheppard (2002) 96 Cal.App.4th 1017, 1051.)

As discussed above, plaintiff sufficiently alleges that defendant engaged in intentional fraud and concealment. The allegations supporting these claims are sufficient, at the pleadings stage, to support the requests for punitive damages.

Paragraphs 23, 50, and 74

Defendant also seeks to strike language in paragraphs 23, 50, and 74 which alleges that “Defendant also failed to disclose to his partner, Mr. Meneghini” that the Curtiss-Wright shield line product would be pulled. This request is denied. Defendant’s failure to inform Meneghini of this information provides context and supports plaintiff’s allegation that defendant is solely responsible for the alleged conduct.

Attorney’s fees

Though not mentioned in the notice of motion, defendant also challenges plaintiff’s request for attorney’s fees. “[A]s a general rule, attorney fees are not recoverable as costs unless they are authorized by statute or agreement.” (People ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc. (2007) 147 Cal.App.4th 424, 429.) Courts may strike prayers for attorney fees where a party demonstrated no potential basis for their recovery. (Agricultural Ins. Co. v. Sup. Ct. (1999) 70 Cal.App.4th 385, 404.) However, unsupported attorney’s fees allegations need not be stricken pursuant to a motion to strike, since later discovery may reveal a basis for their recovery. (Camenisch v. Sup. Ct. (1996) 44 Cal.App.4th 1689, 1699.)

Regardless of whether the FAC fails to specifically identify the basis for the requested fees, the request for attorney’s fees need not be stricken because further discovery could reveal a basis for the request.

Defendant’s motion to strike is DENIED.