Case Number: BC661332 Hearing Date: March 28, 2018 Dept: 32

EFD USA, INC., et al.,

Plaintiffs,

v.

band pro film and digital, inc., et al.

Defendants.

Case No.: BC661332

Hearing Date: March 28, 2018

[TENTATIVE] order RE:

THREE demurrerS AND TWO MOTIONS TO STRIKE

BACKGROUND

Plaintiffs EFD USA, Inc. and its principal, Georgina Teran, brought suit on May 15, 2017, against Defendants Band Pro Film and Digital, Inc. (“Band Pro”); Direct Video Warehouse, Inc. (“DVWI”); MaxPro Leasing, LLC (“MaxPro”); AKT Enterprises, LLC (“AKT”); Technijian, Inc. (“Technijian”); Brandon Brooks (“Brooks”); Greg Bisel (“Bisel”); and Amnon Band (“Band”). Plaintiffs are in the business of leasing and, at the end of the lease, purchasing film equipment, and providing such equipment to film and television production companies in Latin America. Defendants were brokers who helped Plaintiffs obtain financing for these leases, or were the equipment suppliers. Plaintiffs allege they uncovered a systemic effort and conspiracy on the part of the Defendants to overcharge Plaintiffs for their services (through false invoices, and fake deposit and down payment requirements). Pursuant to the operative first amended complaint, Plaintiffs allege causes of action for:

Fraud (All Defendants)

Negligent Misrepresentation (All Defendants)

Aiding and Abetting Fraud (All Defendants)

Violations of Bus. & Prof. Code §§ 17200 et seq. (All Defendants)

Breach of Fiduciary Duty (All Defendants)

Breach of Implied Contract (All Defendants)

Breach of Implied Contract (Band Pro and DVWI)

Intentional Interference with Prospective Economic Advantage (All Defendants)

Money Had and Received (All Defendants)

Conversion (Bisel, Technijian, AKT, and MaxPro)

Civil Extortion (Band and Band Pro)

Defamation Per Se (Band and Band Pro)

On January 09, 2018, MaxPro, AKT, Technijian, and Bisel (the “Bisel defendants”) filed a demurrer and motion to strike. Brooks likewise filed a demurrer and motion to strike on January 09, 2018, making substantively identical arguments as the Bisel defendants. Finally, Band Pro, DVWI, and Band (the “Band defendants”) filed their own demurrer (but no motion to strike) on January 09, 2018.

DISCUSSION

I. DEMURRERS

A. Meet and Confer

Parties are required to attempt to meet and confer prior to the filing of a demurrer. (Civ. Code Proc. § 430.41.) Moreover, the demurring party is required to file with the Court a declaration stating either that the parties met and conferred and could not informally resolve the issues, or that the other party failed to respond to the meet and confer request. (Civ. Code Proc. § 430.41(3).)

All Defendants have complied with this requirement. (See Fuchs Decl. ¶¶ 5-6; Loo Decl. ¶¶ 5-6; Hannah Decl. ¶¶ 2-3.)

B. First, Second, and Third Causes of Action: Fraud-based Causes of Action

Plaintiffs’ first, second, and third causes of action are all claims for fraud.

The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

The elements of negligent misrepresentation are: (1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages. (See Shamsian v. Atlantic Richfield Co. (2003) 107 Cal.App.4th 967, 983; Home Budget Loans, Inc. v. Jacoby & Meyers Law Offices (1989) 207 Cal.App.3d 1277, 1285.)

“Liability may also be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.” (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846.)

All Defendants argue that Plaintiffs’ allegations are not sufficiently pled as to fraud. Defendants also argue on the merits that the actions alleged herein do not constitute fraud. The Brooks and Bisel defendants separately argue many of Plaintiffs’ claims are barred by the statute of limitations. The Band defendants separately argue Plaintiffs failed to allege intent to defraud and reasonable reliance.

The Court disagrees that Plaintiffs’ allegations are insufficiently pled. Plaintiffs explain at length the manner in which lease agreements were reached, and detail at length Defendants’ practices of inserting into invoices an exaggerated cost for the relevant equipment. (See FAC ¶¶ 36-80.) Indeed, Plaintiffs provide a chart, spanning some twenty pages, detailing each of the allegedly fraudulent transactions. (FAC ¶ 58.) Although the invoices were apparently prepared by the Bisel defendants or Brooks, Plaintiffs also provide specific allegations as to the Band defendants’ knowledge of these misrepresentations, their fraudulent failure to disclose the real value of the equipment, and the fact that Brooks was an agent of the Band defendants. (See FAC ¶¶ 43, 46, 61-63, 66, 70, 75.) Cumulatively, the Court concludes the foregoing constitutes sufficient allegations of an ongoing, complex fraud as to all of the named Defendants.

The Court notes, in particular, that Defendants repeatedly urge Plaintiffs to more specifically identify what misrepresentations Defendants made to Plaintiffs, as though something more than the false invoices are necessary. There is no apparent reason why these invoices and lease agreements may not, themselves, be the misrepresentations, insofar as Defendants therein misrepresented the amount Plaintiffs were required to pay in order to obtain the financing Defendants were arranging for Plaintiffs. Plaintiffs cite a federal case, Fontana Products, Inc. v. Spartech Plastics Corp. (9th Cir. 2001) 6 Fed. Appx. 591, for the proposition that a false invoice may constitute a misrepresentation. In reply, the Band defendants seek to distinguish the case by noting that the invoices there misrepresented the type of products being produced, which is distinct from the situation here. But the Court fails to see how that is substantively different. In Fontana, the defendants misrepresented the products being delivered; here, the defendants misrepresented the cost of the products. There is no apparent reason why this would not be sufficient to constitute a misrepresentation. Indeed, Defendants cite no California authority supporting a contrary finding.

Over the course of Plaintiffs twenty-page chart, representatives or agents of each Defendant are identified as being responsible for the misrepresentations therein. The foregoing is therefore clearly sufficient as to the misrepresentation element. This is especially true here, where the Court is particularly mindful that complete specificity would be impossible in this context, given that Plaintiffs are protesting a years-long campaign of fraud:

Additionally, in a case such as the present one, considerations of practicality enter in. A complaint should be kept to reasonable length, and plaintiffs’ fourth amended complaint, 64 pages long, strains at that limit. Yet plaintiffs allege thousands of misrepresentations in various media over a span of four years—representations which, while similar in substance, differ in time, place, and detail of language and presentation. A complaint which set out each advertisement verbatim, and specified the time, place, and medium, might seem to represent perfect compliance with the specificity requirement, but as a practical matter, it would provide less effective notice and be less useful in framing the issues than would a shorter, more generalized version.

(Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 217.)

The Court also concludes Plaintiffs have sufficiently alleged intent to defraud and reasonable reliance, as against the Band defendants (the only defendants to raise the issue). Plaintiffs allege that the Band defendants sought to cultivate a relationship of trust with Plaintiffs, which Plaintiffs came to rely upon; and that the Band defendants viewed kickbacks as an inherent part of the LA film industry, that Plaintiffs were unaware of this, and that Defendants intended to defraud Plaintiffs through such kickbacks. (FAC ¶¶ 27, 46, 73, 74, 78.) This is sufficient as to these elements.

Brooks and the Bisel defendants in reply for the first time also raise the issue of reasonable reliance. In doing so, however, these defendants arguments are not remotely related to the sufficiency of Plaintiffs’ complaint, but to various extrinsic issues, such as the fact that “the Los Angeles area is blanketed with companies selling audio visual and other motion picture equipment, that could provide comparative pricing,” and that therefore with “a few clicks of a mouse on the internet [Plaintiffs] could easily find companies selling such equipment to obtain comparative pricing.” (See, e.g., Brooks Reply 7:4-9.) These defendants also ask why Plaintiffs had no accountants who could check these invoices and discover these concerns earlier. These arguments are clearly improper on demurrer, as they ask that the Court consider facts extrinsic to those alleged in the FAC. But in any event, Plaintiffs clearly alleged that Defendants went to great lengths to secure Plaintiffs trust regarding these transactions (FAC ¶¶ 24-35), which raises an issue of fact as to whether Plaintiffs’ continued reliance on Defendants was reasonable.

As to the statute of limitations, the Court concludes Plaintiffs have adequately alleged delayed discovery. (See FAC ¶¶ 65-67.) Moreover, as all Defendants acknowledge, at least some of the allegations are within the statute of limitations, even without any delayed discovery. A demurrer is therefore an improper means of eliminating solely a portion of the fraud causes of action. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150,1167 [“[A] general demurrer may not be sustained, nor a motion for judgment on the pleadings granted, as to a portion of a cause of action.”].)

Finally, the Court notes that Defendants repeatedly seek to argue (particularly in the Bisel reply) that Plaintiff’s allegations are insufficient because in an equipment lease context, where a lender purchases products up front, and then leases them out to the ultimate purchaser (here, Plaintiffs), the amount paid upfront is necessarily going to be less than the amount paid over the course of the term of the lease. Similarly, Defendants argue that down payments or security deposits are standard parts of such transactions. The foregoing, however, is in no way mutually exclusive of the allegations herein that the lease payments and down payments were fraudulently inflated beyond what it should have been. In any event, this issue cannot be addressed at this stage, where the Court must take as true Plaintiffs allegations that the excessive amount Plaintiffs paid was due to fraud, and cannot be explained—either entirely or in part—by the general nature of leases.

For the foregoing reasons, the demurrers of all Defendants are OVERRULED as to the first, second, and third causes of action.

C. Fourth Cause of Action—Bus. & Prof. Code 17200

Bus. & Prof. Code §§ 17200 et. seq. (the “Unfair Competition Law” or “UCL”) prohibits fraudulent, unlawful, and unfair business practices. By proscribing “any unlawful” business act or practice, the UCL “borrows” rules set out in other laws and makes violations of those rules independently actionable. (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370.) A “violation of another law is a predicate for stating a cause of action under the UCL’s unlawful prong.” (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1554.) However, even beyond violations of another law, “under the broad scope of the UCL, the statutory language referring to ‘any unlawful, unfair or fraudulent’ practice (italics added) makes clear that a practice may be deemed unfair even if not specifically proscribed by some other law. . . . The Legislature . . . intended by this sweeping language to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur. Indeed, . . . the section was intentionally framed in its broad, sweeping language, precisely to enable judicial tribunals to deal with the innumerable new schemes which the fertility of man’s invention would contrive.” (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 677-78 [internal quotations and citations omitted].)

Defendants in large measure argue that, because the foregoing fraud claims fail, this cause of action must fail as well. Given that the foregoing fraud claims have not failed, this is no basis for dismissing this cause of action either.

In addition to alleging fraud, Plaintiffs allege Defendants were obligated, but failed, to obtain licenses to operate as brokers pursuant to Fin. Code §§ 22000, which would constitute unlawful conduct. (FAC ¶ 94.) Defendants argue they were not required to obtain such licenses, but such an argument is premature—at this stage, Plaintiffs allege Defendants were engaged in activities requiring such licensure, and the Court cannot determine at this stage whether the types of businesses Defendants operate were not actually covered by the identified provisions.

Finally, the Court concludes that Plaintiffs allegations regarding what is essentially a conspiracy between a number of different entities to overcharge Plaintiffs constitute unfair conduct within the meaning of the statute. (See McKell v. Washington Mut. Inc. (2006) 142 Cal.App.4th 1457, 1474 [holding that plaintiffs had sufficiently alleged unfair business practices when they alleged defendant “leads borrowers to believe it is charging them for the cost of certain services it provides, when in reality it is charging them substantially in excess of such costs.”].)

For the foregoing reasons, the demurrers of all Defendants are OVERRULED as to the fourth cause of action.

D. Fifth Cause of Action—Breach of Fiduciary Duty

The elements for breach of fiduciary duty are as follows: “(1) the existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach.” (Mosier v. Southern California Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022, 1044.)

The Band defendants demur to this cause of action on the ground no fiduciary relationship existed between them and Plaintiffs. In particular, the Band defendants object to Plaintiffs characterization of their relationship with Brooks as one pursuant to which Brooks was their agent. However, the Court concludes this agency has been sufficiently alleged. (See, e.g., FAC ¶ 22 [“Br. Brooks, acting on his own behalf and as an agent for Band Pro and DVWI, agreed to act as EFD’s agents and brokers to obtain financing for the equipment and services specified.”]. Plaintiffs further allege the Band defendants were agents in negotiating transactions and were otherwise operating as Plaintiffs’ financial advisers. (See, e.g., FAC ¶¶ 16 [“Mr. Band . . . directed Mr. Brooks, Band Pro, and DVWI to provide financial advisory services to EFD”]; 23 [“Mr. Brooks was a ‘Financing Specialist’ at Band Pro, and also performed brokerage work on behalf of DVWI”]; 27 [“Mr. Band directed Band Pro and DVWI, including Mr. Brooks, to enter into an ‘advisory’ relationship with EFD”]; 29 [“Mr. Brooks, on behalf of Band Pro and DVWI, send the following email to EFD seeking its financial information.”].) Based on this, the Court concludes Plaintiffs have sufficiently alleged the existence of an agency relationship and, by extension, a fiduciary duty. (Hobbs v. Bateman (1985) 164 Cal.App.3d 174.) The Band defendants claims that there was no agency relationship requires considering evidence beyond the scope of the FAC, which is improper at this stage.

Assuming such a duty exists, the Band defendants have raised no arguments as to any other element of the cause of action. The Band defendants’ demurrer to the fifth cause of action is therefore OVERRULED.

For some reason, the Bisel defendants and Brooks link this cause of action to the earlier fraud causes of action, and argue it was not pleaded with sufficient particularity. There is no such heightened pleading standard for breach of fiduciary duty. The Court agrees with Plaintiffs that Mendoza v. Rast Produce (2006) 140 Cal.App.4th 1395 is instructive in this regard. There, the Court of Appeal held as follows:

“An agency relationship is a fiduciary one, obliging the agent to act in the interest of the principal. [Citation.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 977, 64 Cal.Rptr.2d 843, 938 P.2d 903.) Because “the subagent owes the same duties to the principal as does the agent” (Streit v. Covington & Crowe, supra, 82 Cal.App.4th at p. 446, fn. 3, 98 Cal.Rptr.2d 193), it follows that the relationship between subagent and principal is a fiduciary one. Accordingly, appellant has adequately alleged a fiduciary relationship. The allegation in paragraph 25 of the complaint that “[respondents] breached their duties by, inter alia, using false or misleading invoices, reports, and other documentation to reduce and conceal the sums owing to [appellant] while selling to others for prices higher than those reported to [appellant]” adequately alleges a breach of the fiduciary duty. Further, the sums allegedly owing to appellant but concealed by respondents are sufficient to constitute damage caused by the alleged breach of fiduciary duty.

(Id. at 1405-06.)

Here, Plaintiffs have clearly provided analogous allegations. (See, e.g., FAC ¶¶ 20, 24-26, 30-36, 39-45, 48-58, 100.) The Bisel defendants and Brooks’ demurrers to the fifth cause of action are therefore OVERRULED.

E. Sixth and Seventh Causes of Action—Breach of Implied Contract

“An implied contract is one, the existence and terms of which are manifested by conduct.” (Civ. Code § 1621.) “The essential elements of an implied-in-fact contract and an express contract are the same, namely, mutual assent and consideration.” (Chandler v. Roach (1957) 156 Cal.App.2d 435, 441.)

Here, Plaintiffs clearly allege the existence of implied contracts between the parties, by virtue of a long-term relationship in which Plaintiffs sought financing for certain equipment, and Defendants either helped Plaintiffs secure financing from elsewhere or provided the equipment itself. Moreover, Plaintiffs have alleged breach of such contracts by virtue of Defendants’ overcharging for the goods sold.

The Band defendants argue Plaintiffs (1) fail to sufficiently allege that Brooks was an agent of the Band defendants, which defeats this claim because all contracts, to the extent they exist, were entered into with Brooks; (2) an implied contract cannot be based solely on the existence of an invoice; (3) actual written contracts necessarily preclude a claim for implied contract; and (4) the statute of limitations bars most of Plaintiffs’ claims, since they arise from transactions more than two years old.

First, the Court disagrees, as discussed above, that Plaintiffs have failed to allege that Brooks was an agent of the Band defendants. Allegations regarding the intertwined relationship between the parties are sufficient at this early stage. (See FAC ¶¶ 16, 22-23, 27, 29.) Second, while the Court agrees that a contract cannot be based solely on an invoice (see India Paint & Lacquer Co. (1954) 123 Cal.App.2d 597, 607), there is clearly more alleged here than merely the existence of an invoice; Plaintiffs allege a years-long relationship in which money, advice, and products were exchanged, and this is sufficient to provide the conduct necessary to suggest an implied contract at this stage.

Third, Plaintiffs persuasively argue in opposition that the only written agreements at issue here were between Plaintiffs and the actual financial lenders; the relationship between Plaintiffs and Defendants was more akin to a broker who secured the financing, or the underlying products provider. While Defendants will be free to submit evidence, at a motion for summary judgment or a trial, regarding exactly who was a party to which contract, the Court cannot at this stage conclude that the terms of any actual contract—which, in any event, is not before the Court—supersedes the implied contract herein alleged.

Fourth, in a footnote, Plaintiffs argue that a four-year, rather than a two-year, statute of limitations applies to these allegations. Plaintiffs argument here explicitly contradicts its argument in the previous paragraph, because there, Plaintiffs argue the implied agreements are not related to any written agreements that exist between Plaintiffs and others, while here, Plaintiffs argue the four-year statute of limitations applies precisely because the implied contracts are “founded upon” written contracts. Plaintiffs cannot have it both ways. However, as noted above, “[A] general demurrer may not be sustained, nor a motion for judgment on the pleadings granted, as to a portion of a cause of action.” (Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150,1167.) The Court therefore concludes that the fact that some, but not all, of Plaintiffs’ allegations fall beyond the statute of limitations is not a basis for sustaining the demurrer.

The Band defendants’ demurrer to the sixth and seventh causes of action is therefore OVERRULED.

Brooks and the Bisel defendants argue Plaintiffs allegations are conclusory as to the terms of the so-called contract, and therefore have not been sufficiently pled. The Court disagrees. Plaintiffs have thoroughly alleged a pattern of conduct pursuant to which Defendants agreed to obtain Plaintiffs financing, and then misrepresented the amount Plaintiffs were required to pay, thereby overcharging Plaintiffs and keeping the excess funds for themselves. Once again, these defendants seek to go beyond the parameters of a demurrer by arguing that such excess funds merely constituted their commissions, or were otherwise appropriate (pointing out that down payments are common in the leasing context), but (1) these are factual matters beyond that face of the FAC and are not relevant at this stage, and (2) the fact that a lease may typically require a down payment, or that a broker would typically take a commission, is in no way mutually exclusive with Plaintiffs’ claims that Defendants invented or exaggerated down payments that otherwise did not exist and overcharged Plaintiffs throughout the process, to enrich themselves.

Brooks and the Bisel demurrers to the sixth cause of action are therefore OVERRULED. (The Court notes, as an aside, that the seventh cause of action is not alleged against the Brooks and Bisel Defendants, and that they therefore do not demur to that cause of action.)

F. Eighth Cause of Action – Intentional Interference with Prospective Economic Relations

The elements of intentional interference with prospective economic relations are: “(1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant’s action.” (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (RAS, Inc.) (2017) 2 Cal.5th 505, 512.) The plaintiff must also show in the pleadings “that the defendant not only knowingly interfered with the plaintiff’s expectancy but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself.” (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393.)

Here, Plaintiffs allege Defendants interfered with their actual and prospective relationships with lenders by altering the terms of the agreements Plaintiffs otherwise would have been entering with these lenders (specifically, by inflating Plaintiffs’ costs).

The Court concludes Plaintiffs have not sufficiently alleged this cause of action. The only “disruption” Plaintiffs have identified is that Defendants’ conduct made the agreements more expensive for Plaintiffs. As far as the Court can determine, however, Plaintiffs still entered all of the agreements, and Plaintiffs relations with these lenders has not apparently been negatively impacted. While Plaintiffs may well have suffered economic harm because of Defendants’ actions—as shown above—it is not clear that Plaintiffs have suffered any economic harm because Defendants’ actions led to a disruption in Plaintiffs relations with others.

All Defendants’ demurrers to this cause of action are therefore SUSTAINED, without leave to amend.

G. Ninth Cause of Action—Money Had and Received

“A cause of action for money had and received is stated if it is alleged the defendant ‘is indebted to the plaintiff in a certain sum 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.)

Defendants all demur to this cause of action solely on the ground that all prior causes of action also fail. As the foregoing causes of action do not fail, Defendants demurrers to the ninth cause of action are OVERRULED.

H. Tenth Cause of Action—Conversion

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are: (1) the plaintiff’s ownership or right to possession of the property at the time of the conversion; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-452.)

Money cannot be the subject of a cause of action for conversion unless there is an identifiable sum, (or, as at least one court has indicated in dictum, “an amount of cash ‘capable of identification.’” (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384.)

The Bisel defendants—the only defendants against whom this cause of action is alleged—argue Plaintiffs cannot pursue a cause of action for conversion, because they have merely alleged that Defendants took Plaintiffs’ money, and money cannot be the subject of a cause of action for conversion.

In opposition, however, Plaintiffs persuasively argue that they have specifically alleged that the Bisel defendants took $199,525—an identifiable sum—to make advance payments to lenders, but failed to make those payments. (See FAC ¶¶ 126-129.) A claim for conversion is proper where “there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment.” (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284.) Accordingly, the Court concludes Plaintiffs have properly asserted a cause of action for conversion against the Bisel defendants.

The Bisel defendants’ demurrer to the tenth cause of action is therefore OVERRULED.

I. Eleventh Cause of Action—Civil Extortion

This cause of action is brought against the Band defendants only. The Band defendants do not demur to this cause of action.

J. Twelfth Cause of Action—Defamation Per Se

“The elements of a defamation claim are (1) a publication that is (2) false, (3) defamatory, (4) unprivileged, and (5) has a natural tendency to injure or causes special damage.” (Wong v. Tai Jing (2010) 189 Cal.App.4th 1354, 1369.)

The Band defendants argue Plaintiffs have failed to specifically plead what allegedly defamatory statement was made. This is clearly untrue: Plaintiffs specifically plead that “[I]n May 2016, Mr. Band falsely informed attendees of the Cannes Film Festival that Ms. Teran and EFD were going bankrupt and that Ms. Teran was crazy.” (FAC ¶ 3.)

The Band defendants also argue this claim is barred by the statute of limitations, because there is a one-year statute of limitations for defamation, and the allegedly defamatory statement occurred in “May 2016” while the complaint was filed on May 15, 2017. However, a demurrer based on a statute of limitations is only proper when it appears from the face of the complaint that the statement is untimely, and given that Plaintiffs do not allege what particular day the statements were made on, the Court cannot sustain the demurrer on this basis. (See, e.g., Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881 [“‘A demurrer on the ground of the bar of the statute of limitations will not lie where the action may be, but is not necessarily barred’. . . . It must appear clearly and affirmatively that, upon the face of the complaint, the right of action is necessarily barred. . . . This will not be the case unless the complaint alleges every fact which the defendant would be required to prove if he were to plead the bar of the applicable statute of limitation as an affirmative defense.”].) Furthermore, Plaintiffs allege they did not discover the defamatory statements until September 2016, and the Court agrees with Plaintiffs that the statute of limitations for defamation, at least in some circumstances, may appropriately be tolled due to delay in discovery. (See Manguso v. Oceanside Unified School District (1979) 88 Cal.App.3d 725, 731.) The demurrer based upon a statute of limitations is therefore ineffective as to this cause of action at this stage.

The Band defendants’ demurrer to the twelfth cause of action is therefore OVERRULED.

K. Conclusion

Defendants’ demurrers are OVERRULED as to the first, second, third, fourth, fifth, sixth, seventh, ninth, tenth, and twelfth causes of action. Defendants’ demurrers are SUSTAINED, without leave to amend, as to the eighth cause of action.

II. MOTIONS TO STRIKE

A. Sales Tax

In addition to their demurrers, Brooks and the Bisel defendants filed motions to strike. These are directed first to Plaintiffs’ allegations that, among other fraudulent charges, Defendants charged Plaintiffs’ sales tax when they were not supposed to do so, given Plaintiffs’ possession of a Resale Certificate, of which Plaintiffs allege Defendants were aware. Defendants argue they were obligated to charge Plaintiffs sales tax, and that these allegations should therefore be stricken.

Pursuant to Cal. Rev. & Tax Code § 6006(b)(g), a lease of personal property generally constitutes a “sale” for which sales tax may be charged. Upon presentation of a resale certificate, however, the initial seller does not charge sales tax. (Cal. Rev. & Tax Code § 6091.)

Plaintiffs argue in opposition that just as a ‘lease’ constitutes a ‘sale,’ a sublease constitutes a resale, and because they presented a resale certificate, Plaintiffs should not have been charged sales tax. (See, e.g., FAC ¶¶ 20, 52.)

Defendants argue any resale certificate would necessarily have been invalid, either because (1) a resale certificate is only permitted if a party intends to resell the products in California, rather than outside of California, and Plaintiffs allege they subleased the equipment to entities in Latin America, or (2) any resale of the equipment would violate the terms of the lease, which required that the products remain in California.

Plaintiffs argue in opposition that Defendants’ arguments require considering evidence not present on the face of the FAC. For example, Plaintiffs argue that although they allege that they supply equipment to other entities “primarily in Latin America,” (FAC ¶ 1) there is no evidence this is their exclusive practice. Plaintiffs also argue that the terms of the individual leases are not before the Court, as Plaintiffs did not submit hundreds of pages of leases with the FAC.

In reply, Defendants first request that the Court take judicial notice of (1) Publication 103 from the California Board of Equalization website, regarding how Resale Certificates function, and (2)-(9) various lease agreements Plaintiffs have entered into.

This request is GRANTED as to the first document and DENIED as to the other documents. (See Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1146 [holding that contracts are generally not subject of judicial notice on demurrer, because “before a trial court could find that the existence of a contract was not reasonably subject to dispute the court would have to engage in the kind of fact-finding appropriate for a trial on the merits, not for a hearing on demurrer. While most matters subject to judicial notice can be established by reference to a statute, court file, treatise or other document, a court cannot simply look at a piece of paper and conclude as a matter of law it is a contract between the parties.”].)

Even if the Court were inclined to take judicial notice of the documents pursuant to the authority cited by Defendants—namely Scott v. JP Morgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743—the Court notes that that case expressly requires that a contract only be judicially noticed if no party challenged the document. Yet here, Defendants did not produce the documents until the reply, preventing Plaintiffs from responding.

Third, the Court notes that Defendants have submitted only eight leases, while by the Court’s count, Plaintiffs have identified 28 leases in which Defendants improperly charged sales tax. (FAC ¶ 58.) Thus even if the Court were inclined to strike allegations relating to the eight produced leases, a significant number of sales-tax-related allegations would remain, effectively rendering Defendants’ motion moot.

Finally, the Court concludes that resolution of this issue turns on a significant number of facts not currently before the Court, and therefore not appropriate for resolution on a motion to strike. For example, it is unclear whether Plaintiffs showed Defendants the resale certificate, thereby obviating the need to pay the taxes. Assuming Plaintiffs did show it to Defendants, it is unclear what authority Defendants have to unilaterally reject that certificate and charge the tax anyway (as opposed to, for example, alerting California tax authorities regarding the potential misuse of the resale certificate, and allowing those authorities to resolve the issue). Assuming Defendants do have the right or obligation to charge taxes notwithstanding the existence of the certificate, it is unclear whether Plaintiffs were aware why or to what extent Defendants were engaging in this practice.

In sum, the propriety of the sales tax turns on a number of disputed facts, including the terms of the contracts themselves, and resolution of this issue via motion to strike is premature. (See CCP § 437 [“The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.”].)

Defendants’ motions to strike sale tax allegations are therefore DENIED.

B. Punitive Damages

Brooks and the Bisel defendants also seek to strike allegations relating to punitive damages.

Pursuant to Civ. Code § 3294, “In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”

As discussed at length above, Plaintiffs allege Defendants engaged in a long-term conspiracy to defraud her, resulting in hundreds of thousands of dollars of damages. If proven true, the Court has little hesitance concluding this would constitute fraudulent conduct within the meaning of Civ. Code § 3294. Defendants’ motion to strike the punitive damages request are therefore also DENIED.

C. Conclusion

Brooks and the Bisel defendants’ motions to strike are DENIED.