Case Number: BC543482    Hearing Date: July 30, 2014    Dept: J

Re: Equity AG Financial, Inc., etc., et al. v. Mary Ann Quay, et al. (BC543482)

DEMURRER TO COMPLAINT

Moving Parties: Defendants Route 66 CPAs, LLC, Mary Ann Quay, Carl Pon, Renee Graves, Linda Saddlemire, Pete Gautreau, Karin Nelson and Wade McMullen

Respondents: Plaintiffs Equity AG Financial, Inc. and Glendora Courtyard, LLC

POS: Moving OK; Opposing OK

This action arises from Plaintiffs’ effort to obtain funds from Defendant Route 66 CPA, LLC to provide common area maintenance to a commercial complex commonly known as the “Glendora Courtyard.” Plaintiff Glendora Courtyard, LLC and Route 66 jointly own and occupy the Courtyard. The Complaint, filed on 4/22/14, asserts causes of action for:

1. Theft of Labor
2. Public Nuisance
3. Private Nuisance
4. Negligent Misrepresentation
5. Fraud
6. Interference with Prospective Economic Advantage
7. Business & Professions Code § 17200, et seq.
8. Account Stated
9. Common Counts

The Case Management Conference is set for 7/30/14.

JUDICIAL NOTICE:

The court takes judicial notice of the court records in the in the related case KC063544. (Ev C § 452(d).)

DEMURRER:

Defendants Route 66 CPAs, LLC (“Route 66”), Mary Ann Quay, Carl Pon, Renee Graves, Linda Saddlemire, Pete Gautreau, Karin Nelson and Wade McMullen (collectively “Defendants”) demur to all causes of action of the Complaint of Plaintiffs Equity AG Financial, Inc. (“EAF”) and Glendora Courtyard, LLC (“Glendora”) (collectively “Plaintiffs”) on the grounds that they fail to allege facts constituting a cause of action, that they are barred by the judgment on the Complaint in Case No. KC063544, and that they are uncertain.

LITIGATION PRIVILEGE:

The litigation privilege “applies to any communication made (a) in judicial or quasi-judicial proceedings; (b) by litigants or other participants authorized by law; (c) to achieve the objects of the litigation; and (d) having some connection or logical relation to the action.” The privilege applies “even though the publication is made outside the courtroom and no function of the court or its officers is involved.” (Silberg v. Anderson (1990) 50 Cal.3d 205, 212; Jacob B. v. County of Shasta (2007) 40 Cal.4th 948, 955.) Where applicable, the privilege confers immunity for statements made by parties, counsel and other participants in the proceeding. (Kashian v. Harriman (2002) 98 Cal.App.4th 892, 929–931.)

Defendants demur to the Complaint on the ground that it is barred by the litigation privilege because all of the causes of action alleged in the Complaint arise from the allegations that the first lawsuit [Route 66 v. Glendora, Case No. KC063544] preemptively prevented Plaintiffs from performing maintenance at the Glendora Courtyard, that it resulted in delayed maintenance of the Courtyard, that it interfered with Glendora’s ability to perform routine maintenance, that it interfered with Glendora’s ability to perform maintenance, that it interfered with Glendora’s ability to make more significant repairs to the property, and that Plaintiffs sustained damages in lost rent as well as the loss of income capitalization.

However, the gravamen of the Complaint herein is Defendants’ alleged interference with Plaintiffs’ maintenance of the subject property, not the filing of the first lawsuit. Thus, the litigation privilege does not immunize all of the acts alleged in the Complaint. Accordingly, the demurrer based on the litigation privilege is overruled.

DEMURRER BASED ON RES JUDICATA AND COLLATERAL ESTOPPEL:

A general demurrer lies where the facts alleged in the complaint or matters judicially noticed show that plaintiff is seeking relief from the same defendant on the same cause of action as in a prior action, or is asserting an issue decided against plaintiff in the prior action. (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 792 — plaintiff’s wrongful death action barred by her prior voluntary dismissal of loss of consortium action against same defendant; Gabriel v. Wells Fargo Bank, N.A. (2010) 188 Cal.App.4th 547, 556 — complaint barred by collateral estoppel.)

Defendants demur to the Complaint on the grounds that the judicial findings in the first lawsuit bar every cause of action in the Complaint. Specifically, Defendants contend that the gravamen of all nine causes of action in the Complaint is that Route 66 wrongfully withheld consent to the improvements that Plaintiffs wanted to make, but this issue has already been litigated and decided in the first lawsuit.

However, as discussed above, the gravamen of the Complaint is not that Route 66 wrongfully withheld its consent to the improvements, but rather Defendants’ alleged interference with Plaintiffs’ maintenance of the subject property. The Complaint also alleges that Defendants intended to compel EAF to perform its maintenance obligations, reap the benefits of said performance, refuse to pay for said service, and to induce EAF to breach its contracts and duties related to the Glendora Courtyard, and seeks balance due on the CAM charges. (See Complaint ¶¶ 71-90, 183-192, 228-232, 235-238, 242-251, 257-263, 268-277.) The judicially-noticed documents do not demonstrate that such issues were resolved in the first lawsuit. Thus, the demurrer based on res judicata and collateral estoppel is overruled.

FIRST, FOURTH AND FIFTH CAUSES OF ACTION FOR THEFT OF LABOR BY FALSE PRETENSES, NEGLIGENT MISREPRESENTATION AND FRAUD:

The elements of fraud are: (1) a 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 CC § 1709.) The elements of negligent misrepresentation are: (1) the assertion of an untrue fact; (2) believed by defendant to be true; (3) a lack of reasonable grounds for the belief; (4) defendant’s intent to induce plaintiff’s reliance upon the representation; (5) plaintiff’s justifiable reliance upon the representation; and (6) resulting damage. (Melican v. Regents of Univ. of Cal. (2007) 151 Cal. App. 4th 168, 182.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.)

The Complaint alleges that Defendants knowingly and designedly, by false representation and pretense, conspired to and did defraud Glendora and EAF of labor (Complaint ¶ 184); Defendants, by permitting Plaintiffs to perform past maintenance services such as removal of landscaping beyond its useful life, repairing the irrigation system, and upkeep of common area – induced Plaintiffs to continue such performance over the course of 2012 and 2013 (Id. ¶ 185); in purchasing Parcel 3 subject to the CC&Rs, Defendants affirmatively represented that it would grant the Maintenance Director an easement over Parcel 3 for the maintenance of the common area thereon (Id. ¶ 186); Plaintiffs were in fact defrauded in that Plaintiffs parted with labor and services, performing maintenance, all in reliance upon the representations – that Defendants refused to pay, and never had any intention of paying (Id. ¶¶ 191-192); and that as a result, Plaintiffs suffered damages (Id. ¶ 194).

The Complaint also alleges that Defendants made multiple material misrepresentations (e.g., as to original intent to comply with CC&Rs, Route 66’s financial condition, feigned negotiations, and sham audit) (Complaint ¶¶ 4, 7, 10-12, 228, 235); the representations were false and were made to induce Plaintiffs (Id. ¶¶ 229-231, 236-237); Plaintiffs justifiably relied on the representations (Id. ¶¶ 232, 238); and as a result, they were damaged (Id. ¶¶ 233, 239).

The Complaint, however, fails to allege fraud with the required specificity, and fails to adequately allege facts showing detrimental reliance.

Plaintiffs, in opposition, contend that fraud is adequately alleged. Plaintiffs contend that they fulfilled their duties pursuant to the CC&Rs in reliance upon Defendants’ representations that they would properly pay pursuant to the CC&Rs. However, the Complaint does not allege specific facts as to when these representations were made, by whom, in what manner, and in what capacity. If Plaintiffs are contending that the misrepresentation was made at the time when Route 66 purchased the subject building by agreeing to be bound by the CC&Rs, Plaintiffs must alleges facts demonstrating that Defendants did not have intent to perform AT THE TIME of making the promises. Moreover, it appears that such representations were not made to the Maintenance Director induce performance of the maintenance, but rather, they were made in connection with the purchase of the subject property. Plaintiffs also appear to base their fraud causes of action on certain representations in connection with Defendants’ refinance of the subject property. However, such representations were not made to Plaintiffs, but to the bank, a third party.

Thus, the demurrers to the first, fourth and fifth causes of action are sustained.

SECOND AND THIRD CAUSES OF ACTION FOR PUBLIC AND PRIVATE NUISANCE:

A nuisance is statutorily defined as anything “injurious to health” or “indecent, or offensive to the senses, or an obstruction to the free use of property” that interferes “with comfortable enjoyment of life or property.” (CC § 3479.) Nuisances that affect the entire community or a considerable number of person are public nuisances (CC § 3480); all other nuisances are private nuisances (CC § 3481). The necessary elements for proof of a cause of action for public nuisance include the existence of a duty and causation. (In re Firearm Cases (2005) 126 Cal.App.4th 959, 988.)

The Complaint alleges that Defendants were at all times acting as the agent of each other, and were acting within the scope of their agency (Id. ¶¶ 43-44); EAF was authorized and obligated to maintain the subject property (“Courtyard”) (Id. ¶¶ 53-59); over the course of 2013, EAF performed specific maintenance functions at the Courtyard, exceeding $40,000 in value (Id. ¶ 67); in addition to the actual maintenance performed, EAF sought to perform additional work, which Defendants conspired to, and did, prevent EAF from performing (Id. ¶ 68); Defendants willfully and unjustifiably interfered with Courtyard maintenance (Id. ¶¶ 71-90); Defendants by affirmatively interfering with EAF’s maintenance of the Courtyard, created a condition that was harmful to health – including creating a life safety risk by prohibiting EAF from securing the removal of trees that pose a danger of collapse (Id. ¶ 198); the businesses at the Courtyard are open to the public, and thus any safety risk at the Courtyard poses a risk to tenant’s guests, customers, and the public generally (Id. ¶ 199); Defendants created a landscaping nuisance per se in violation of Glendora Municipal Code 9.36.010 (Id. ¶ 200); and that Defendants interfered with Plaintiffs’ use and enjoyment of the Courtyard (Id. ¶¶ 219-220).

The Complaint adequately alleges facts to support causes of action for public and private nuisance against Defendants. Thus, the demurrers to the second and third causes of action are overruled.

SIXTH CAUSE OF ACTION FOR INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE:

To state a claim for intentional interference with prospective economic advantage, plaintiff must show: (1) an economic relationship between plaintiff and some third party, with the probability of future economic benefit to plaintiff; (2) defendant’s knowledge of the relationship; (3) intentional acts on defendant’s part designed to disrupt the relationship; (4) actual disruption of the relationship; (5) economic harm to plaintiff proximately caused by defendant’s acts; and (6) that defendant’s acts were “wrongful by some legal measure other than the fact of interference itself.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153–1154; see also CACI 2202.)

The Complaint alleges that EAF has a relationship with current and prospective tenants (Complaint ¶ 242); Defendants had knowledge of the existence of said relationships (Id. ¶ 243); Defendants undertook intentional acts designed to disrupt those relationship and actually caused disruption and deterioration of the relationships (Id. ¶ 244); examples of such past interference include prohibiting EAF from performing maintenance at the Courtyard (Id. ¶ 246); Route 66 also deliberately took actions to force the decline of the entire Courtyard (Id. ¶ 247); this caused the vacancy rate and rental rates to fall below what they should have been (Id. ¶ 248); EAF’s compensation for work at the Glendora Courtyard is linked to the Courtyard’s rental rates (Id. ¶ 249); declining gross receipts from the Courtyard result in reduced compensation to EAF (Ibid.); Glendora receives rent from tenants, and the market value of the property is affected by both vacancy rates and rental rates (Id. ¶ 250); declining gross receipts for the Courtyard resulted in reduced income to Glendora and a diminution in value for Glendora’s property (Ibid.); and that the damages to Plaintiffs were proximately caused by Defendants (Id. ¶ 251). The Complaint adequately asserts a cause of action for interference with prospective economic advantage.

While Defendants contend that the Complaint fails to allege that their conduct was wrongful by some legal measure other than the fact of interference itself, the Complaint adequately alleges facts demonstrating that Defendants’ conduct created a nuisance. Thus, the demurer to the sixth cause of action is overruled.

SEVENTH CAUSE OF ACTION FOR VIOLATION OF BUS & PROF C § 17200:

In order to properly assert a claim for Unfair Business Practices, Bus & Prof C. § 17200, the complaint must allege a business practice that is unfair, unlawful or fraudulent, and an authorized remedy. (Bus & Prof C § 17200.)

The Complaint adequately alleges an unlawful business practice, i.e., public and private nuisance. Thus, the demurrer to the seventh cause of action is overruled.

EIGHTH AND NINTH CAUSES OF ACTION FOR ACCOUNT STATED AND COMMON COUNTS:

“[A] common count, by long continued practice is not subject to attack by general demurrer or by a special demurrer for uncertainty.” (Auckland v. Conlin (1928) 203 Cal. 776, 778. Accord Smith v. Bentson (1932) 127 Cal. App. Supp. 789, 791.) “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544, 1560.)

The eighth and ninth causes of action seek balances due on the CAM charges. Defendants demur to the eighth and ninth causes of action on the grounds that the court in the first lawsuit already decided that Route 66 was not obligated to consent to the improvements demanded by Plaintiffs, and since Route 66 as not obligated to pay these fees, these causes of action fail. However, as discussed above, the judicially noticed documents do not demonstrate that the above issues were resolved in the first lawsuit. Thus, the demurrers to the eighth and ninth cause of action are overruled.

DEMURRER BY INDIVIDUAL DEFENDANTS:

Defendants also contend that the court should sustain the demurrer on all causes of action regarding the individual defendants because the allegations of the Complaint are not sufficient to establish alter ego liability.

To allege alter ego, plaintiffs must plead a unity of interest and ownership such that the separate personalities of the corporation and individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285.) “[C]ourts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure.” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915.) No one test controls as to the alter ego doctrine which involves considering all of the circumstances, which may include: The commingling of funds; identical equitable ownership; the same offices; identical officers, directors and employees; disregarding of corporate formalities; and use of one as a mere shell or conduit for the other’s affairs. (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, LLP (1999) 69 Cal.App.4th 223, 250.)

The Complaint adequately alleges facts to establish alter ego liability. (Complaint ¶¶ 101-110, 125-148.) Moreover, the Complaint alleges an agency relationship between Defendants. (Id. ¶¶ 43-44.) “[T]he existence of an agency relationship is the ‘essential fact,’ and where alleged must be accepted as true.” (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 886.) Thus, the demurrer on this ground is overruled.

DEMURRER BASED ON UNCERTAINTY:

The complaint is not so uncertain that Defendants cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against them. (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Thus, the demurrer based on uncertainty is overruled.

The court will hear from counsel for Plaintiffs as to whether leave to amend is requested as to the first, fourth and fifth causes of action.