Case Name: David Markevitch v. Pagano & Kass, PC, et al.
Case No.: 2015-1-CV-277789
This action arises out of an employment dispute between plaintiff David Markevitch (“Plaintiff”) and defendant Pagano & Kass, PC (“Defendant”). Plaintiff alleges that, based on the parties’ contract (“the Contract”) and Defendant’s promises, he is entitled to receive a percentage of attorney’s fees collected in a federal class action (“the Class Action”) because he brought the class plaintiff, Louis Morin (“Morin”), to Defendant’s firm. (See Complaint at 1, 10-13, 25-28, & 42-45, & Ex. A.) Defendant allegedly refused to pay Plaintiff as promised. (Id. at 14-16.) Plaintiff’s March 9, 2015 Complaint states causes of action against Defendant for: (1) breach of contract; (2) failure to pay wages; (3) failure to pay wages on termination; (4) promise without intent to perform; and (5) violation of the unfair competition law (“UCL”). The Court (Hon. Huber) on May 8, 2015 sustained Defendant’s demurrer to the second and third causes of action without leave to amend, but overruled Defendant’s demurrer to the claims for breach of contract, fraud—intentional misrepresentation/promise without intent to perform, and violation of the UCL (first, fourth, and fifth causes of action). Defendant’s argument that the fourth cause of action for fraud failed to state a claim because it was not alleged with sufficient specificity was found to be “without merit.” Defendant’s later motion for summary judgment/adjudication of the remaining claims was denied in its entirety by the Court (Hon. Pierce) on February 23, 2016. Currently before the Court is Defendant’s motion for judgment on the pleadings (“JOP”) directed at the fourth cause of action for fraud (intentional misrepresentation/promise without intention to perform).
A JOP motion is the functional equivalent of a general demurrer but is made after the time to demur has expired and more than 30 days before trial. (See CCP §438.) Except as provided by the statute, the rules governing demurrers apply. The motion may be brought on the same grounds as a general demurrer, i.e., that the pleading at issue fails to state facts sufficient to constitute a legally cognizable claim or defense. (See Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 999; County of Orange v. Association of Orange County Deputy Sheriffs (2011) 192 Cal.App.4th 21, 32; Southern Calif. Edison Co. v. City of Victorville (2013) 217 Cal.App.4th 218, 227.) However, pursuant to CCP §438(g)(1) a JOP motion may only be brought on the same grounds as a previously overruled demurrer if there has been a material change in applicable case law or statute since the demurrer ruling. As with a demurrer the ability of a party to prove the allegations in the challenged pleading is irrelevant. Generally, “judgment on the pleadings must be denied where there are material factual issues that require evidentiary resolution.” (Schabarum v. California Legislature (1998) 60 Cal.App.4th 1205, 1216.)
As with a demurrer the Court may not consider any extrinsic evidence. (See Smiley v. Citibank (South Dakota) N.A. (1995) 11 Cal.4th 138, 146 [“[T]he trial court generally confines itself to the complaint and accepts as true all material facts alleged therein… [and] may extend its consideration to matters that are subject to judicial notice.”]) Accordingly, the Court has not considered the declaration of Plaintiff’s Counsel Kevin Allen filed with the opposition to the present motion or the declaration of Defense Counsel Ian Kass filed with Defendant’s Reply or any exhibits attached thereto, nor has the Court considered any arguments based on such extrinsic evidence.

Defendant’s request for judicial notice of three documents is GRANTED in part and DENIED in part. Defendant’s request for judicial notice of a file endorsed copy of Plaintiff’s March 9, 2015 Complaint (Ex. JN-1), while unnecessary as the Court already considers the operative pleading in ruling on a JOP motion, is GRANTED pursuant to Evid. Code §452(d). Notice is only taken of the pleading’s existence and filing date and not of the truth of its contents. Defendant’s request for judicial notice of the memorandum of points and authorities previously filed in support of its April 23, 2015 demurrer (Ex. JN-2) is DENIED. A precondition to judicial notice in either its permissive or mandatory form is that the matter to be noticed be relevant to the material issue before the Court. (Silverado Modjeska Recreation and Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 307, citing People v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422 fn. 2.) The memorandum could only be noticed as to its existence and filing date, neither of which are relevant to the material issue before the Court, whether the Complaint adequately alleges a claim for fraud. Defendant’s request for judicial notice of a copy of the May 8, 2015 order of the Court (Hon. Huber) on Defendant’s demurrer to the Complaint is GRANTED pursuant to Evid. Code §452(d). The Order can be noticed as to the truth of its contents.

Defendant’s motion for JOP is brought on the grounds that Plaintiff’s fourth cause of action is purportedly “(1) barred by the Economic Loss Rule, and (2) does not state facts regarding the element of resulting damages that are sufficient to constitute a cause of action.” Notice of Motion at 1:25-27. The second ground (in addition to being an improper attempt to again argue that the Fourth cause of action fails to state sufficient facts) is wholly dependent on the first. The sole argument made in support of the claim that damages are insufficiently alleged is that all alleged damages are barred by the “Economic Loss Rule.” (See Defendant’s Memo. of Points & Authorities at 10:1-11:21.)

In support of the first ground, Defendant asserts that “having failed to specifically allege any non-contractual damages, Plaintiff’s Fourth Cause of Action is barred by the Economic Loss Rule, and thus, fails to state a viable claim for relief.” (Def.’s Memo of P&As at 2:18-20.) Defendant’s claim that Plaintiff has failed to specifically allege any of the elements of the Fourth Cause of Action, including damages, was already rejected in the May 8, 2015 demurrer order and pursuant to CCP §438(g)(1) it may not repeat that argument again now. Defendant’s interpretation of the Economic Loss Rule is not persuasive and the motion for JOP is DENIED as Defendant has not established that the Economic Loss Rule bars Plaintiff from obtaining any damages under his Fourth cause of action as a matter of law.

The “Economic Loss Rule” arises out of product liability and negligence in commercial dealings and generally provides that if a purchaser’s expectations in a sale are frustrated because a product is not working properly, the purchaser is limited to contract remedies because the purchaser has suffered only “economic losses.” (See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988-989.) “[T]ort damages have been permitted in contract cases where a breach of duty directly causes physical injury; for breach of the covenant of good faith and fair dealing in insurance contracts; for wrongful discharge in violation of fundamental public policy; or where the contract was fraudulently induced.” (Id. at 989-990 [emphasis added, internal citations omitted].) “In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.” (Id. at 990, emphasis added; see also Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 70, 78 [“when one party commits a fraud during the contract formation or performance, the injured party may recover in contract and tort”].)

It is clear that even in the commercial context in which it was formulated, the economic loss rule does not bar all claims for intentional fraud. (See Robinson, supra, at 991. [“We hold the economic loss rule does not bar Robinson’s fraud and intentional misrepresentation claims because they were independent of Dana’s breach of contract.”]) As Plaintiff correctly points out, the Robinson majority expressly rejected the dissent’s “proposition that the economic loss rule should be broadly construed to bar tort recovery in every case where only economic damages occur. . . . [I]t is worth noting that the rule’s development in the context of product liability claims and its extension to negligent breach of contract claims were not mere fortuities. Dealing with affirmative acts of fraud and misrepresentation raises different priority concerns that those raised by negligence or strict liability claims. . . . The economic loss rule is designed to limit liability in commercial activities that negligently or inadvertently go awry, not to reward malefactors who affirmatively misrepresent and put people at risk.” (Id. at 991, fn.7, emphasis added.)

What also fundamentally distinguishes Robinson (and the non-California authorities cited by Defendant) from the facts alleged here (assumed to be true for purposes of the motion) is that Plaintiff’s Fourth cause of action alleges fraud/promise without intention to perform in an employment context and not in the context of a commercial contract for the purchase or sale of good or services between business entities. Plaintiff alleges that he accepted employment with Defendant based on the representations made in Defendant’s written employment offer (see Ex. A to the Complaint), including the false representation that he would be compensated for business he brought to the firm based on the total amount of collected billings.

“[F]raudulent inducement of contract—as the very phrase suggests—is not a context where the ‘traditional separation of tort and contract law’ obtains. . . . [I]t has long been the rule that where a contract is secured by fraudulent representations, the injured party may elect to affirm the contract and sue for the fraud. . . . [I]t is a truism that contract remedies alone do not address the full range of policy objectives underlying the action for fraudulent inducement of contract. In pursuing a valid fraud action, a plaintiff advances the public interest in punishing intentional misrepresentations and in deterring such misrepresentations in the future. Because of the extra measure of blameworthiness inhering in fraud, and because in fraud cases we are not concerned about the need for ‘predictability about the cost of contractual relationships’, fraud plaintiffs may recover ‘out-of-pocket’ damages in addition to benefit-of the-bargain damages.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645-646 [internal citations omitted]. See also Robinson, supra, at 992 [quoting Lazar and stating “California also has a legitimate and compelling interest in preserving a business climate free of fraud and deceptive practices.”]) In this context, Plaintiff may allege both contract and fraud-based damages with the rule against double recovery limiting any overlap. Whether Plaintiff can prove such damages is beyond the scope of a JOP motion.