Case Name: Gyoergy “George” Rath v. Panasas, Inc., et al.
Case No.: 2015-1-CV-286493

I. Introduction

This is an action for breach of contract and fraud arising out of an employment dispute between self-represented plaintiff Gyoergy “George” Rath (“Plaintiff”) and defendants Panasas, Inc. (“Panasas”) and its employee Christopher Y. Emura (“Emura”) (collectively, “Defendants”).

According to the allegations in the second amended complaint (“SAC”), Plaintiff applied for a job at Panasas through a recruiting agency in April 2013. (SAC, ¶ 5.) After being interviewed on June 18, 2013, Panasas offered Plaintiff a position as an independent contractor. (SAC, ¶¶ 6-7.) The parties executed an independent contractor services agreement (“ICSA”). (SAC, ¶ 8; see also SAC, Exh. 1.)

In August 2013, Plaintiff left his job in Hungary, shipped both of his cars to the United States, and moved to California. (SAC, ¶¶ 5, 10.) Panasas paid for his roundtrip flight, with a return date of June 30, 2014. (SAC, ¶ 10.) Plaintiff, a software engineer, began working at the Panasas campus in Sunnyvale, California in September 2013. (SAC, ¶ 12.) Panasas terminated Plaintiff on October 11, 2013 as part of a workforce reduction instigated by investor panic over its financial health. (SAC, ¶¶ 12-16.) Plaintiff returned to Europe in April 2014 and obtained employment with a German company in September 2014. (SAC, ¶ 21.)

According to Plaintiff, Defendants promised to employ him for a minimum of six months, convert his contract position to a full-time employee position, and to pay up to $15,000.00 of his moving expenses, including the cost of shipping his cars to the United States, but terminated him early, failed to convert his position, and refused to reimburse him before belatedly paying him only $3,000.00. (SAC, ¶¶ 8, 10, 15, 19.) Plaintiff alleges Emura threatened him with unspecified ramifications if he attempted to pursue reimbursement of his moving costs. (SAC, ¶ 18.)

Plaintiff asserts causes of action for: (1) promissory fraud (against Defendants); (2) breach of written contract (against Panasas); (3) breach of written contract (against Panasas); (4) breach of oral contract (against Panasas); (5) promissory fraud (against Defendants); and (6) undue influence and breach of the covenant of good faith and fair dealing (against Emura).

Currently before the Court is Defendants’ demurrer to the first, third, fourth, fifth, and sixth causes of action on the ground of failure to state facts sufficient to constitute a cause of action. The parties met and conferred in advance of the filing of the demurrer in compliance with Code of Civil Procedure section 430.41. (Swiss Decl., ¶¶ 3-4.)

II. Request for Judicial Notice

Defendants request judicial notice of the complaint and first amended complaint in support of their demurrer. The Court may take judicial notice of these court records pursuant to Evidence Code section 452, subdivision (d). The request for judicial notice is therefore GRANTED.

III. Demurrer

“A demurrer tests only the legal sufficiency of the pleading.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-14, superseded by statute on other grounds.) On demurrer, the complaint must be given “a reasonable interpretation by reading it as a whole and all of its parts in their context.” (Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 565.) “For purposes of a demurrer, [courts] accept as true both facts alleged in the text of the complaint and facts appearing in exhibits attached to it.” (Id. at pp. 567-68.) If facts appearing on the face of exhibits to the complaint are inconsistent with the factual allegations in the text of the complaint, the facts appearing in the exhibits are given precedence. (Ibid.)

A. First and Fifth Causes of Action

Defendants argue Plaintiff’s first and fifth causes of action for promissory fraud fail because the written terms of the ICSA, attached as Exhibit 1 to the SAC, directly contradict the allegations appearing within the first and fifth causes of action.

“The elements of promissory fraud (i.e., of fraud or deceit based on a promise made without any intention of performing it) are: (1) a promise made regarding a material fact without any intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promisee.” (Behnke v. State Farm General Insurance Co. (2011) 196 Cal.App.4th 1443, 1453.)

1. First Cause of Action

Plaintiff’s first cause of action is based on the allegation that Defendants promised there was six months of secured funding for his position pursuant to the ICSA. Defendants argue Plaintiff fails to allege they promised he would be employed for six months with the intent not to fulfill this promise or that he thereafter reasonably relied on their promise because the ICSA clearly discloses his employment was for an unspecified term.

Plaintiff alleges Defendants hired him to work for at least six months pursuant to the terms of the ICSA. (SAC, ¶ 8.) Paragraph 7 of the ICSA, entitled “Term and Termination,” however, states the agreement is valid for one year unless terminated earlier. (SAC, Exh. 1.) Subdivision (b) and (c) of paragraph 7 state the agreement may be terminated by either party with or without cause upon 15 days’ notice. (SAC, Exh. 1.) Plaintiff’s allegation in the text of the SAC that he had a six-month contract is thus inconsistent with the facts appearing on the face of the ICSA. Consequently, the facts appearing within Exhibit 1 will be given precedence. Plaintiff therefore fails to allege Defendants promised to employ him for six months.

Plaintiff’s allegations with respect to the elements of intent not to perform and to deceive are also insufficient. As an initial matter, since Defendants did not promise to employ Plaintiff for six months, there is no operative promise they could have intended not to perform. Moreover, even if Plaintiff’s allegation as to the six-month term of employment was sufficient, he does not explicitly allege they intended not to perform at the time the promise was ostensibly made or intended to deceive and induce him into entering into the agreement. He simply alleges, without more, their promise was untrue. Such an allegation does not reflect the promise was untrue at the time it was made. Plaintiff therefore fails to allege Defendants intended not to perform the subject promise or intended to deceive and induce him into entering into ICSA.

Finally, Defendants argue Plaintiff’s purported reliance was unreasonable as a matter of law because the ICSA unambiguously states the working relationship may be terminated at any time so long as 15 days’ notice are provided. A plaintiff cannot reasonably rely on representations as to the nature of a contract that directly contradict the written terms of the contract itself. (Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 958-59.) “That is, when a plaintiff asserts that the defendant misrepresented the nature of the contract, the contract is not considered void due to fraud if the plaintiff had a reasonable opportunity to discover the true terms of the contract.” (Ibid.) As discussed above, the ICSA clearly states the working relationship may be terminated with 15 days’ notice. Accordingly, Plaintiff’s allegation of reliance on a representation contradictory to the terms of the ICSA does not rise to the level of an allegation that his reliance was reasonable. Moreover, he does not otherwise allege he was denied an opportunity to discover the true terms of the contract. Plaintiff therefore fails to allege facts with respect to the element of reasonable reliance.

Based on the foregoing, Plaintiff failed to allege all of the elements for a claim of promissory fraud, and his claim is subject to demurrer. When sustaining a demurrer, a court may deny leave to amend if the plaintiff cannot demonstrate any reasonable possibility of curing the defect in the pleading through amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Here, Plaintiff does not demonstrate any reasonable possibility of curing the defect, and the Court is unable to see how he could do so given his claim, which he alleges is based on the ICSA, is directly contradicted by the facts appearing on the face of the ICSA itself. The demurrer to the first cause of action is therefore SUSTAINED WITHOUT LEAVE TO AMEND.

2. Fifth Cause of Action

Plaintiff’s fifth cause of action is based on the allegation that Defendants promised to convert his contract position to a full-time employee position. Defendants argue Plaintiff’s fifth cause of action is defective because several emails he attached as exhibits to the SAC clearly contradict this allegation. Defendants also argue a fraud claim may not be based on an implied promise.

Within the fifth cause of action, Plaintiff alleges Defendant promised to convert his contract position to a full-time position. (SAC, ¶ 43.) This allegation is inconsistent with Plaintiff’s allegation that he was hired for a contract position with only “the prospect of an employment position at the end of the contract.” (SAC, ¶ 8.) Moreover, the emails attached as Exhibit 5 to the SAC do not contain any promises to convert his contract position to a position of permanent employment. In these emails, Emura clearly states Plaintiff’s position is a contract position and that it is too soon to tell whether hiring him as a full-time employee would be possible. (SAC, Exh. 5.) Given Plaintiff’s allegation that Defendants promised to convert his contract position to a full-time position is inconsistent with the facts appearing in Exhibit 5 to the SAC as well as paragraph 8 of the SAC, the Court give the latter factual allegations precedence. Plaintiff therefore fails to allege Defendants made any actionable promise to him or made any representations upon which he could have reasonably relied. His claims is therefore subject to demurrer.

With respect to their second argument, Defendants state Plaintiff “alleges a cause of action for promissory fraud against Panasas on the grounds that Panasas, by its behavior, implied a promise of conversion to work employment.” (Mem. of Pts. & Auth. at p. 9:11-12.) Defendants argue a fraud claim cannot be based on a promise implied through conduct. While Defendants may be correct as a matter of law, it is unclear and they do not explain or otherwise elaborate as to how Plaintiff’s fifth cause of action is based on an implied promise. Defendants therefore fail to substantiate their argument, and it is not a basis for sustaining the demurrer.

Based on the foregoing, Plaintiff fails to state a claim for promissory fraud based on a promise to convert his contract position to a full-time position. As with his first cause of action, Plaintiff cannot demonstrate any reasonable possibility of curing the defect in his claim through a third amendment to the complaint. The demurrer to the fifth cause of action is therefore SUSTAINED WITHOUT LEAVE TO AMEND.

B. Fourth Cause of Action

Defendants argue Plaintiff’s fourth cause of action for breach of oral contract is subject to demurrer because an ostensible oral agreement is contradictory to the written ICSA, and the claim is barred by the statute of limitations.

“A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)
1. Inconsistent Allegations

First, Defendants argue Plaintiff’s claim is subject to demurrer because the ostensible oral agreement is contradictory to the written ICSA because the ICSA was a fully-integrated agreement. Defendants do not provide any authority in support of their argument, and the demurrer to the fourth cause of action is not therefore sustainable on that basis.

2. Statute of Limitations

Defendants argue Plaintiff’s fourth cause of action is time-barred because it accrued in October 2013, and he did not assert the claim until December 2015, after the statute of limitations ran. In opposition, Plaintiff argues his claim is not time-barred because it accrued in February 2014 pursuant to the discovery rule.

A general demurrer will lie where a statute of limitations defense appears clearly and affirmatively from the face of the complaint. (E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315-16.) A general demurrer will not lie when “the complaint shows merely that the action may be barred.” (Ibid.) In determining whether a claim is time-barred, a court must determine (1) which statute of limitations applies and (2) when the plaintiff’s claim accrued. (Id. at p. 1316.)
The statute of limitations for breach of an oral contract is two years. (Code Civ. Proc., § 339, subd. 1; see also NBCUniversal Media, LLC v. Superior Court (“NBC”) (2014) 225 Cal.App.4th 1222, 1230.) “Generally, the limitations period starts running when the last element of a cause of action is complete.” (NBC, supra, 225 Cal.App.4th at p. 1231.) “The discovery rule ‘postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.’” (Id. at p. 1232, quoting Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.)
Code of Civil Procedure section 339, subdivision 1 does not explicitly state the statute of limitations for a breach of oral contract claim begins to run from the time a plaintiff discovers or has reason to discover the ultimate facts making up each element of his or her claim. (Cf. Code Civ. Proc., § 339, subd. 3 [statute of limitations for rescission claim runs from discovery of fraud or mistake].) Even so, courts apply the discovery rule to breach of contract claims involving fraud or misrepresentation. (NBC, supra, 225 Cal.App.4th at p. 1233 [“Although delayed accrual under the discovery rule generally applies to most tort actions, it has been held applicable to certain types of breach of contract actions, such as those involving fraud or misrepresentation by the defendant.”]) “In order to rely on the discovery rule for delayed accrual of a cause of action, ‘[a] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’ [Citation.]” (Fox v. Ethicon Endo-Surgery, Inc., supra, 35 Cal.4th at p. 808.)
As an initial matter, Plaintiff’s fourth cause of action does not arise out of fraud or misrepresentation. The discovery rule thus does not apply. Moreover, even if the discovery rule applied, Plaintiff does not allege facts showing he was unable to discover Defendants refusal to pay all of his moving expenses sooner despite reasonable diligence. Plaintiff’s cause of action thus accrued once all of the elements of the claim for breach of contract were complete.
In his fourth cause of action, Plaintiff alleges Defendants orally agreed to pay for his moving expenses up to $15,000.00 in April 2013 and breached this promise by covering only $3,000.00 of his moving expenses. (SAC, ¶ 40.) Plaintiff alleges “the termination forced [him] to foot the bill.” (SAC, ¶ 40.) Panasas terminated Plaintiff in October 2013. (SAC, ¶ 15.) Plaintiff’s allegations thus disclose Defendants ostensibly breached the oral agreement to cover his moving expenses and he suffered damages in the amount of the moving expenses he paid out of pocket in October 2013.

Plaintiff thus had until October 2015 to assert his cause of action for breach of oral contract because the statute of limitations is two years. Plaintiff did not file the SAC until May 23, 2016, long after the statute of limitations ran. Even so, a claim is not time-barred if a plaintiff can establish it relates back to an earlier filed pleading. (See Barrington v. A.H. Robins Co. (1985) 39 Cal.3d 146, 151.) Here, Plaintiff filed the first amended complaint in December 2015, which was also after the statute of limitations ran. Plaintiff filed the original complaint in October 2015, before the statute of limitations ran. The Court will therefore consider whether Plaintiff’s claim relates back to the original complaint.

A claim relates back to the filing of the original action if it is based on the same general set of facts, seeks recovery against the same defendants for the same injuries, and refers to the same incident as alleged in the original complaint. (Ibid.)

Here, the original complaint filed in October 2015 involved the same parties, including Defendants, but only alleged facts and causes of action pertaining to unpaid wages and wages lost while seeking employment following his termination. The original complaint never referred to moving expenses or any agreement to reimburse him for such expenses. Plaintiff did not seek to recover moving expenses until he filed the first amended complaint. Consequently, Plaintiff’s claim does not relate back to the original complaint because it involves a completely different injury based on distinct facts and circumstances. Because Plaintiff’s claim does not relate back to the only pleading filed before the statute of limitations ran, his claim is time-barred.

Given that Plaintiff’s claim could not possibly relate back to the original complaint and there is no reasonable possibility he could allege a claim that would not be time-barred, the demurrer to the fourth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

C. Third Cause of Action

With respect to the third cause of action for beach of written contract, Defendants’ sole argument is that Plaintiff fails to allege the terms of the written contract they ostensibly breached by failing to reimburse him for expenses incurred on a business trip to Ukraine.

In order to properly state a claim for breach of contract, a plaintiff must “plead the terms of the contract either [verbatim] or according to legal effect.” (Twaite v. Allstate Insurance Co. (1989) 216 Cal.App.3d 239, 252.)

Here, the ICSA is attached as Exhibit 1 to the SAC. On its very first page, the provision entitled “Compensation” states an independent contractor will be reimbursed for approved business expenses. While Plaintiff might have more clearly identified this exhibit in his third cause of action, looking at the SAC as a whole and giving it a reasonable interpretation in light of all of its parts in context, it is clear the ICSA is the applicable written agreement. The ICSA is the only written agreement referenced throughout the SAC and attached thereto. Plaintiff therefore adequately alleges the terms of the agreement Defendants purportedly breached. The demurrer to the third cause of action is therefore OVERRULED.

D. Sixth Cause of Action

Plaintiff’s sixth cause of action is presented as a claim for undue influence and breach of the covenant of good faith and fair dealing. Defendants argue Plaintiff fails to state a cause of action because undue influence is not a cause of action and he does not seek to rescind the ICSA. Defendants additionally argue Plaintiff does not allege ultimate facts constituting a claim for breach of the implied covenant of good faith and fair dealing.

1. Undue Influence

A party may assert a cause of action for rescission if his or her assent to the contract at issue was obtained through undue influence. (Civ. Code, § 1689, subd. (b)(1).) Consequently, undue influence is not a cause of action in and of itself, but a theory upon which a party may claim a contract should be rescinded. (See Das v. Bank of America, N.A. (2010) 186 Cal.App.4th 727, 743.) In order to state a claim for rescission, “the plaintiff must ordinarily allege the party against whom rescission is sought took some advantage of the mental weakness or incapacity of the other party.” (Ibid.)

Plaintiff does not assert a claim for rescission or seek to invalidate the ICSA in his prayer for relief. Moreover, Plaintiff generically asserts Emura intimidated him and does not allege he was vulnerable to influence. Plaintiff therefore fails to state a claim for rescission based on undue influence.

2. Implied Covenant of Good Faith and Fair Dealing

Defendants argue Plaintiff’s allegations with respect to the implied covenant of good faith and fair dealing are insufficient because he does not allege Emura entered into a contract with him in his individual capacity.

“The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (“Racine”) (1992) 11 Cal.App.4th 1026, 1031, citing Foley v. Interactive Data Corp. (1988) 47 Cal.3d.654, 683-84.) “‘In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent 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, supra, 11 Cal.App.4th at pp. 1031-32, quoting Love v. Fire Insurance Exchange (1990) 221 Cal.App.3d 1136, 1153, original italics; see also Guz v. Bechtel National, Inc. (2000) 25 Cal.4th 317, 349, original italics [The covenant prevents a party “from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.”])

Here, Plaintiff asserts this cause of action against Emura alone, but does not allege the existence of any contract between Emura and himself. Plaintiff therefore fails to allege an underlying contractual obligation, and the demurrer to the sixth cause of action is therefore sustainable.

3. Conclusion

Plaintiff does not suggest the manner in which he could cure the defects in this cause of action through an additional amendment. Accordingly, the demurrer to the sixth cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.