Case Name: Headstart Nursery, Inc., et al. v. Forty Four Organic Farms, LLC, et al.
Case No.: 17-CV-316969

This is a breach of contract and fraud action initiated by plaintiffs Headstart Nursery, Inc. (“Headstart”) and T and C Supplies, Inc. dba Radicle Seed Company (“Radicle”) (collectively “Plaintiffs”) against defendants Forty Four Organic Farms, LLC (“Forty Four”) and Doug Langum (“Langum”) (collectively “Defendants”).

According to the allegations of the complaint (“Complaint”), Langum is the President of Forty Four, a merchant engaged in the business of growing and selling agricultural commodities. (Complaint, ¶¶ 4, 6.) Headstart is a merchant engaged in the business of selling “transplants” grown from seeds for agricultural production and related products. (Id. at ¶ 5.) Radicle is a sister corporation to Headstart. (Id. at ¶ 2.)

Forty Four entered into a purchase order with Headstart to purchase transplants. (Complaint, ¶¶ 9, 10.) Headstart fulfilled the contract by making several deliveries, after which it sent corresponding invoices to Forty Four according to customary commercial practices. (Id. at ¶ 10.) Forty Four never objected to the terms of the invoices or rejected any shipment as non-conforming. (Id. at ¶ 11.) After the deliveries were completed, Headstart mailed a statement to Forty Four indicating it owed $191,275.96. (Ibid.; Exh. B.)

In addition, Langum ordered a shipment of transplants from Radicle and requested it be sent to a company called Mother Earth Organic Farms (“Mother Earth”). (Complaint, ¶ 12.) When Langum made the order, he never intended to pay for it as Mother Earth was bankrupt and had no assets. (Ibid.) Langum additionally did not intend to grow the products for the benefit of Mother Earth and actually retained the revenue derived from the transplants for the benefit of Forty Four. (Ibid.) Radicle subsequently mailed a statement to Mother Earth, indicating it was owed $11,733.48. (Id. at ¶ 14.)

Plaintiffs assert three causes of action for breach of contract, common count – goods and services rendered, and fraud.

Defendants presently demur to each cause of action.

As an initial matter, while it is evident the demurrer to the second and third causes of action are brought on the ground of failure to state sufficient facts to constitute a cause of action, it is less clear whether Defendants bring their demurrer to the first cause of action on that ground as well. The demurrer to the first cause of action states: “Defendants hereby demur to Plaintiffs’ First Cause of Action on the basis that it fails to set forth facts sufficient to constitute a cause of action against them as the contract is not defined. (Code of Civil Procedure Section 430.10(g).)” (Dem., ¶ 1.) This statement is unclear because it alludes to two different grounds for demurrer. Defendants state the cause of action fails to state sufficient facts to constitute a cause of action, which is a ground for demurrer (see Code Civ. Proc, § 430.10, subd. (e)), but cite the ground of failure to allege whether the contract is written, oral, or implied by conduct (see Code Civ. Proc., § 430.10, subd. (g)), which is a separate and distinct ground.

It appears from the notice of motion and memorandum of points and authorities that Defendants intended to demur on the ground of failure to state sufficient facts to constitute a cause of action. The notice of demurrer explicitly states Defendants are demurring to each cause of action on the ground of failure to state sufficient facts and does not mention the ground of failure to allege whether the contract is written, oral, or implied by conduct. In addition, the arguments advanced in support of the demurrer to the first cause of action concern whether Plaintiffs allege sufficient facts to state a claim. Consequently, the Court will treat the demurrer to the first cause of action as brought only on the ground of failure to state sufficient facts to constitute a cause of action.

Turning to the merits of the demurrer, Defendants initially advance arguments specific to each cause of action. In reply, they also argue Plaintiffs should amend the Complaint because each cause of action does not specifically identify to which defendant it is directed. Defendants assert that, as a result of the lack of labels, the Complaint is confusing and they were unable to ascertain which causes of action were alleged against which defendant. After reading Plaintiffs’ opposition, Defendants surmise the first two causes of action pertain only to Forty Four and the third cause of action pertains only to Langum. Defendants request that Plaintiffs file an amended complaint specifying which causes of action are alleged against which defendant.

As a preliminary matter, this argument is problematic because it was asserted for the first time in reply and courts typically do not consider contentions raised for the first time in reply. (See In re Tiffany Y. (1990) 223 Cal.App.3d 298, 302-303.) The Court could deny Defendants’ request on that basis alone.

Defendants’ position is otherwise misguided. The Complaint is technically defective because Plaintiffs do not comply with California Rules of Court, rule 2.112(4), which requires each cause of action to specifically state the party or parties to whom it is directed. A demurrer may lie on the ground of uncertainty where multiple claims are asserted against multiple defendants and the plaintiff failed to identify which claims are asserted against which defendants. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) Defendants, however, did not demur on the ground of uncertainty and do not cite any legal authority for the proposition that noncompliance with rule 2.112(4) can be a basis for concluding the complaint fails to state a claim.

Additionally, while Plaintiffs did not technically comply with rule 2.112(4), it is readily apparent against whom each cause of action is asserted from the face of the pleading. For example, the first cause of action for breach of contract only mentions Forty Four and alleges it agreed to purchase certain transplants from Headstart and attached the relevant invoices. (See Complaint, ¶¶ 16-20.) The first cause of action is silent as to Langum and, consequently, is clearly only asserted against Forty Four. It is similarly clear against whom the second and third causes of action are asserted.

As such, the demurrer is not sustainable on the basis Plaintiffs failed to comply with rule 2.112(4). The Court will now address the merits of Defendants’ arguments as to each individual cause of action.

I. First Cause of Action – Breach of Contract

The first cause of action is predicated on Forty Four’s agreement to purchase transplants from Headstart in 2016. (See Complaint, ¶¶ 16-17.)

Defendants first contend this cause of action fails to state a claim because Plaintiffs do not allege they entered into any contract in connection with Langum’s purchase of transplants on behalf of Mother Earth. Defendants appear to misconstrue the nature of the first cause of action, which is not predicated on the August 31, 2016 order for transplants for Mother Earth; instead, it is based on Forty Four’s orders for transplants from Headstart. (See Complaint, ¶¶ 16-21.) Once again, the cause of action itself does not mention Langum. Consequently, any argument advanced by Defendants relating to Langum’s August 31, 2016 order is not a basis for finding the first cause of action is inadequately pleaded.

Next, Defendants contend this cause of action is barred by the statute of frauds, particularly Civil Code section 1624, subdivision (a)(7), which provides that an oral contract is unenforceable if it is one “to loan money or to grant or extend credit, in an amount greater than one hundred thousand dollars ($100,000), not primarily for personal, family, or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or extending credit.” (Civ. Code, § 1624, subd. (a)(7).) A general demurrer may lie where the complaint is barred by the statute of frauds. (Parker v. Solomon (1959) 171 Cal.App.2d 125, 136.)

Here, it is not apparent the contract falls within the statute of frauds because the face of the pleading does not indicate whether the contract is written or oral. Even assuming the contract is oral, which Plaintiffs incidentally do not dispute, the statute of frauds argument fails because there are no allegations suggesting the circumstances fall within Section 1624, subdivision (a)(7). The face of the Complaint does not reflect Plaintiffs loaned money or granted credit in the amount of $100,000.00 to Defendants or that they are in the business of lending or arranging for the lending of money or extending credit. Rather, the pleading alleges Plaintiffs are merchants in the business of selling agricultural products. (See Complaint, ¶¶ 1-2.)

Defendants’ statute of frauds argument is also misplaced because, as argued by Plaintiffs, it appears from the pleading that the transaction is not covered by Section 1624 and is instead governed by the Uniform Commercial Code (“UCC”). The UCC covers the commercial sale of goods and is the primary source of commercial law in areas that it governs. (See U. Com. Code, §§ 1103, 2102.) To the extent the UCC governs a particular area of law, it “is intended to preempt statutes that contradict or are inconsistent with its terms.” (Sleep EZ v. Mateo (2017) 13 Cal.App.5th Supp. 1, 7.) Plants and agriculture, which are at issue here, are included within the UCC’s definition of goods. (See U. Com. Code, § 2105; see also Apex LLC v. Sharing World, Inc. (2012) 206 Cal.App.4th 999, 1010 (“Apex”).)

The UCC contains a statute dictating when an oral contract is enforceable, thereby supplanting Section 1624. (See U. Com. Code, § 2201.) UCC section 2201 (“Section 2201”) provides that a contract for the sale of goods for the price of $500 or more is not enforceable unless memorialized by a “writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought[.]” In other words, Section 2201 “creates a statute of frauds for the sale of all goods with the value of $500 or more.” (Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d 432, 439.) “When both parties are merchants, this requirement is satisfied ‘if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents . . . unless written notice of objection to its contents is given within 10 days after it is received.’” (Apex, supra, 206 Cal.App.4th at p. 1012, quoting U. Com. Code, § 2201, subd. (2).) Here, Plaintiffs allege that both parties are merchants, they sent invoices confirming the existence of the contract, and they never received any objection to the contents of the contract. (See Complaint, ¶¶ 9-11.) They therefore satisfy the requirements set forth in Section 2201.

In reply, Defendants do not dispute that Plaintiffs satisfy Section 2201’s requirements. Instead, they state the first cause of action appears to be based on common law, and not the UCC, because the “UCC is never mentioned in the Complaint.” (Reply, p. 2:9-10.) While Defendants maintain this cause of action is predicated on common law, they concede that “if Plaintiffs allege a UCC breach of contract claim, [they] will withdraw their demurrer without conceding that the UCC applies to the transaction and reserve their right to file a motion for summary judgment on the issue.” (Id. at p. 2:9-12.) Defendants appear to misconstrue the UCC. There is no such thing as a UCC breach of contract cause of action as opposed to a common law breach of contract cause of action. A plaintiff may assert a breach of contract cause of action and which law applies depends on the particular facts. There is no requirement that a plaintiff must explicitly allege the law governing his or her claim. As such, Plaintiffs need not allege the UCC applies for it to govern.

For the foregoing reasons, the pleading reflects the cause of action is governed by the UCC, not Section 1624. Defendants’ argument that the cause of action is barred by the statute of frauds is therefore meritless.

Accordingly, the demurrer to the first cause of action on the ground of failure to state sufficient facts to constitute a cause of action is OVERRULED.

II. Second Cause of Action – Common Count for Goods and Services Rendered

The second cause of action is based on Headstart’s sale of transplants to Forty Four in 2016. (Complaint, ¶¶ 23-26.)

Defendants argue this cause of action is predicated on the same facts as the first and third causes of action and is subject to demurrer since those two causes of action are defective. In support, Defendants cite the general rule that “[w]hen 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” ordinarily “must stand or fall with [the] cause of action.” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394-95.) The demurrer is not supported because both the first and third causes of action are not subject to demurrer for the reasons discussed above and below.
Consequently, the demurrer to the second cause of action on the ground of failure to state sufficient facts to constitute a cause of action is OVERRULED.

III. Third Cause of Action – Fraud

The third cause of action is predicated on Langum’s purchase of transplants on August 31, 2016 without intending to pay at the time of purchase. (Complaint, ¶ 28.)

Defendants argue Plaintiffs fail to state a claim because the fraud cause of action is a mere reiteration of the contract breach and a plaintiff may not recover in tort for the breach of a contractual obligation. Defendants assert there are no allegations of any promises outside of those contained in the contractual provisions and this cause of action lies solely in contract.

As aptly argued by Plaintiffs, Defendants appear to misconstrue the nature of the fraud claim. This cause of action is not predicated on a breach of contract, but rather is a promissory fraud claim based on Langum’s representation that he would purchase transplants when he had no intent of ever paying. (See Complaint, ¶ 28.) “‘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. An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract. In such cases, the plaintiff’s claim does not depend upon whether the defendant’s promise is ultimately enforceable as a contract. If it is enforceable, the [plaintiff] … has a cause of action in tort as an alternative at least, and perhaps in some instances in addition to his cause of action on the contract.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, internal citations and quotation marks omitted (“Lazar”).) A cause of action for promissory fraud exists precisely for this circumstance, i.e. a defendant fraudulently inducing a plaintiff to enter into a contract without the intent to ever perform. (See Miles v. Deutsche Bank National Trust Company (2015) 236 Cal.App.4th 394, 403.) Such a cause of action is separate and distinct from a breach of contract cause of action because it stems from the fraudulent intent to never perform the contract when entered into it. As such, Defendants’ argument that Plaintiffs cannot state a fraud cause of action because it is predicated on their purported refusal to fulfill the terms of the contract is unpersuasive.

Next, Defendants contend Plaintiffs fail to allege the elements of misrepresentation and justifiable reliance with requisite specificity. (See Lazar, supra, 12 Cal.4th at p. 638 [setting forth elements of promissory fraud cause of action and stating they must be pleaded with particularity].) Defendants’ argument is problematic for several reasons.

First, although elements of a fraud cause of action must be specifically pleaded and Defendants frame their argument relative to that pleading standard, the substance of their arguments does not actually address that standard. Defendants do not discuss how the allegations relating to misrepresentation and justifiable reliance lack specificity. Instead, they argue “the allegations of misrepresentations/false promise and justifiable reliance do not make logical sense outside the context of the alleged oral contract. Plaintiff alleges the misrepresentation/false promise made by Defendants was their promise to pay Plaintiff the cost of transplants. This alleged misrepresentation does not make sense outside the context of the alleged contract.” (Mem. Ps. & As., p. 7:10-15.) Once again, Defendants maintain Plaintiffs cannot state a fraud cause of action because it is predicated only on a contract breach. For the reasons stated above, that argument is misguided.

To the extent Defendants did intend to challenge the particularity of the pleading, the Court finds Plaintiffs plead the challenged elements of misrepresentation and justifiable reliance with requisite specificity.

As to the element of misrepresentation, a plaintiff must allege facts reflecting how, when, where, to whom, and by what means the representation was made. (Lazar, supra, 12 Cal.4th at p. 645.) The pleading contains these facts. Plaintiffs allege Langum made the representation to Radicle salesman Daniel by placing an order for transplants on August 31, 2016, the details of which are reflected in the invoice attached to the Complaint. (Ibid.) This level of detail is sufficient to plead the element of misrepresentation with particularity.

With respect to the element of reliance, a plaintiff must allege he or she actually relied on the representation, meaning he or she believed it to be true and entered into a transaction in reliance thereon, as well as that the representation was justifiable, which requires setting forth facts showing the reliance was reasonable. (Goonewardene v. ADP, LLC (2016) 5 Cal.App.5th 154, 178.) Reliance may be inferred from the pleading. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1168; Beckwith v. Dahl (2012) 205 Cal.App.4th 1039, 1062–1063.) Here, it can be inferred from the pleading that Plaintiffs actually relied on Langum’s representation by performing their part of the contract, i.e. delivering the transplants and that such reliance was justifiable because they were fulfilling an order for transplants in the normal course of business. (Complaint, ¶¶ 30-32.) Plaintiffs thus sufficiently allege the element of justifiable reliance.

Accordingly, the demurrer to the third cause of action on the ground of failure to state sufficient facts to constitute a cause of action is OVERRULED.

The Court shall prepare the Order.