2018-00227551-CU-BC

Hacienda Del Rio, Inc. vs. David Alley

Nature of Proceeding: Hearing on Demurrer to 2nd Amended Complaint

Filed By: Torlak-Celik, Alma

Defendant David Alley, in his individual capacity as well as his capacity as Trustee of the David Alley Separate Property Trust’s Demurrer to the cause of action for Promissory Fraud in the 2nd Amended Complaint is overruled.

Moving parties challenge the Promissory Fraud cause of action on the basis that it does not constitute a valid cause of action, fails to state facts sufficient to constitute any cause of action against these demurring parties, and is uncertain.

Moving parties (“Alley”) inherited the property located at 702 Sutter Street in Folsom, California, (“the premises”) that was being leased by Hacienda Del Rio, Inc. pursuant to a commercial lease agreement. Defendants became Plaintiffs’ landlord under the lease. (SAC, ¶ 8.) On March 23, 2014, a fire damaged the property leased by Plaintiff. (SAC ¶9.) Plaintiff alleges that the fire started when another tenant at the property gained access to the electrical panel that services the building “because Alley’s negligence had left the panel accessible.” (SAC ¶12.) The repairs of the premises took 26 months to complete during which time Plaintiffs business was closed. (SAC ¶13.)

Plaintiff alleges that defendant promised to pay for the repairs through his insurance. (SAC ¶¶ 14,22) Plaintiff alleges that defendant left significant repairs either unfinished or not repaired at all, and chose to spend available insurance funds elsewhere, not on the premises. (SAC ¶14) Plaintiff alleges that Belfor (repair contractor) and Alley and/or his agents had no intention of finishing all repairs because the permits that Belfor obtained for the job were premised upon Belfor’s representation to the City of Folsom, unbeknownst to plaintiff, that plaintiff would fix or finish certain repairs. Complaint, ¶26) Alley’s insurer confirmed to plaintiff in October of 2015 that Alley had expressly instructed his insurer to give preference to reimbursing Alley for his own code upgrade needs before plaintiff’s needs. In March 2016, “Alley communicated to plaintiff that he had a check for $6,369.46 from his insurance that he was obliged to issue to plaintiff.” Alley also communicated that he would be receiving approximately

an additional $16,000 from his insurance, that plaintiff was the likely recipient of such funds, but that he had “discretion” to issue the funds to Plaintiff. Despite Alley’s self-acknowledged obligation to issue the $6,369.46 check to Plaintiff, he willfully failed to do so.” (Complaint, ¶34.) Plaintiff’s business was closed for 26 months allegedly “due to the fault, misconduct, and/or negligent actions, inactions or omissions of Alley or his agents.” (Complaint, 35)

The demurrer to the Promissory Fraud cause of action (mislabeled 4th cause of action but actually the third cause of action) is overruled.

Plaintiff alleges as follows in this cause of action, after incorporating prior allegations:

Alley knew or should have known of the limitations of his insurance policy and/or that his insurance policy was insufficient to cover the losses to the entire

building, and made specific choices to delay restoration work to the Premises and withhold financial resources to plaintiff in order to further his own interests Between March 23, 2014 and at least April 2015 Alley and/or his agents made numerous promises that he would undertake to repair the Premises and/or reimburse plaintiff for its undertaking to finish repairs after Alley and/or his agents failed to repair the Premises. Plaintiff is informed and believes that each time Alley and/or his agents made these promises, that Alley and/or his agents had no intention of actually performing all repairs and taking financial responsibility for the same. Alley’s promises without any intention of performance was made with the intention to defraud and induce Plaintiff to rely upon them as described herein, the fact that Alley was in a superior position to plaintiff with regard to the veracity of his promises and representations, and the fact that Alley did in fact fail to perform, demonstrates and/or creates an inference that Alley actually did not have an intention to perform at the time that he made such promises. Plaintiff justifiably relied on these promises because Plaintiff understood that Alley had an obligation to repair the Premises under the Lease, and because Alley partially performed his obligations under the Lease in this regard. Alley knew or should have known that Plaintiff would rely on Alley’s representations. Plaintiff was induced to take various actions and forebearances, as alleged herein, in justifiable reliance of Alley’s representations that he would undertake to repair the Premises or reimburse Plaintiff for their repairs. At the time Plaintiff so acted, Plaintiff was unaware of Alley’s intention not to perform the promises. SAC ¶¶52 -56 [emphasis added]

Alley contends the cause of action is not sufficiently pleaded. The Court disagrees. “‘Promissory fraud’ is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.’ 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 Gen. Ins. Co. (2011) 196 Cal. App. 4th 1443,1452-

53. As noted in the Restatement 2d of Torts, § 530(1), “A representation of the maker’s own intention to do or not to do a particular thing is fraudulent if he does not have that intention.” A promise made without any intention of performing it constitutes actual fraud in the making of ordinary contracts under section 1572 of the Civil Code. Fraud

is an intentional tort. To adequately plead fraud, particularity of pleading is required and demands that “every element of the cause of action . . . be alleged in full, [both] factually and specifically.” Schauer v. Mandarin Gems of Cal. Inc. (2005) 125 Cal.App.4th 949, 961. This requires pleading specific facts that “show how, when, where, to whom, and by what means the representations were tendered.” Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.

In opposition, plaintiff contends that the allegations are specific enough to support an inference of intent not to perform the promised repairs. Although not a model, the pleading is sufficient. For purposes of ruling on demurrer the allegations of the complaint are presumed true, regardless of how improbable the facts may appear. ( Banerian v. O’Malley (1974) 42 Cal.App.3d 604, 610-611.) A demurrer does not put at issue the plaintiffs ability to prove the allegations contained in the complaint, and any perceived difficulty of proof is not to be considered by the courts in its examination. ( Alcorn v. Anbro Eng’g Inc. (1970) 2 Cal.3d 493,496.) Also taken as true are facts that may be implied or inferred from those expressly alleged. (Kiseskey v. Carpenters’ Trust for So. Cal. (1983) 144 Cal.App.3d 222, 228.) Thus, in considering a demurrer, the complaint must be liberally construed by drawing all reasonable inferences from the facts pleaded and deeming them admitted, with a view toward substantial justice to all parties. (C&H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062; Anderson v. Handley (1957) 149 Cal.App.2d 184, 186 (requiring liberal construction even in the case of fraud claims requiring specificity).)

The Court has reviewed the detailed allegations and find that a reasonable inference of a misrepresentation, knowing falsity, intent not to perform the promise, detrimental reliance, and damages are adequately alleged. The ability to prove these allegations is not an issue to be determined at the pleading stage.

The Motion to Strike is denied. Promissory fraud has been adequately alleged to support a claim for punitive damages. As noted, promissory fraud is a specie of “fraud”, and punitive or exemplary damages, which are designed to punish and deter statutorily defined types of wrongful conduct, are available only in actions “for breach of an obligation not arising from contract” (Civ. Code, § 3294, subd. (a), and thus are available in an intentional tort action, where malice, oppression, or fraud may justify punitive damages. In testing the adequacy of pleadings, the operative complaint must be read “as a whole, all parts in their context, and assuming the truth of all well-pleaded allegations.” (Courtesy Ambulance

Service v. Superior Court (1992) 8 Cal.App.4th 1504, 1519.) Like a demurrer, when considering a motion to strike punitive damages, it is the court’s role to assess the adequacy of Plaintiff’s pleadings with regard to punitive damages, not whether Plaintiff has brought forth sufficient evidence to support an award of punitive damages. ( Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Answer to be filed on or before September 4, 2018.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.