Case Number: BC537424    Hearing Date: July 30, 2014    Dept: 58

JUDGE ROLF TREU
DEPARTMENT 58
________________________________________
Hearing Date: Wednesday, July 30, 2014
Calendar No: 5
Case Name: Martin v. Krupin, et al.
Case No.: BC537424
Motion: Demurrer
Moving Party: Defendants Michael J. Krupin; Krupin Partners Disability Insurance Services, LLC; and Krupin Partners Insurance Services, LLC
Responding Party: Plaintiff John H. Martin
Notice: OK

Tentative Ruling: Demurrer is sustained as to the 1st COA and is otherwise overruled. The Court grants 15 days leave to amend.
________________________________________

Background –
On 2/25/14, Plaintiff John H. Martin filed this action against Defendants Michael J. Krupin (“Krupin”); Michael J. Krupin, C.L.U., Ltd. (“KCLU”); Gilbert-Krupin Insurance Services, LLC (“GK LLC”); Krupin Partners Disability Insurance Services, LLC (“KPD”); Krupin Partners Insurance Services, LLC (“KPIS”); Gilbert Insurance Services, Inc. (“GIS”); Dennis J. Gilbert, Inc. (“Gilbert Inc.”); Dennis J. Gilbert (“Gilbert”), and Gilbert-Krupin (“GK Partnership”) arising out of the alleged failure to share commissions earned on insurance policies for clients referred by Plaintiff. On 5/20/14, in response but prior to the hearing on a demurrer filed by Krupin, KPD, and KPIS, Plaintiff filed a First Amended Complaint.

Factual Allegations of the FAC –
From January 2006 to 1/18/08, GK Partnership was composed of Gilbert Inc. and KCLU; which was succeeded by GK LLC. ¶ 10.

In March 2006, Plaintiff entered into an oral contract with Krupin, individually and as agent of the other defendants, to share commissions earned on insurance policies of clients referred by Plaintiff to Krupin and other defendants. ¶ 15. Plaintiff referred clients to Krupin, who brokered insurance policies and received payment from other defendants. ¶ 16.

In late 2006 and early 2007, Plaintiff referred Robert Fell and was paid a commission of $16,790 with Krupin stating in January 2007 that it was lower because an apportionment was required for the cost of initial and future renewal premiums. ¶¶ 21, 25(2).

In March 2006, Plaintiff referred Barry DeVorzon and was paid a commission of $186,000 with Krupin stating in January 2007 that it was lower because of deductions charged by the financing company. ¶¶ 22, 25(3).

In 2011, Fell renewed or acquired an additional policy. ¶ 23. On 8/23/13 at a lunch meeting, Krupin stated that the commission was used to pay future premiums for five years; however, in a phone call on 12/3/13, Kruping stated the commission was only to pay for two years of premiums and that he could not remember the face amount of the policies. ¶ 24.

Plaintiff asserts causes of action for (1) fraud, (2) breach of contract, and (3) accounting. The 1st COA is asserted against Krupin only; the remainder against all defendants.

Demurrer –
Krupin, KPD, and KPIS demur to the FAC.

1. 1st COA, Fraud
Krupin argues that Plaintiff fails to allege facts with particularity to support fraud. See, e.g., Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 72-73; Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 (requiring pleading facts which “show how, when, where, to whom, and by what means the representations were tendered). The Court agrees in part.

Plaintiff’s fraud claim combines two species of fraud: promissory fraud (see, e.g., Muraoka v. Budget Rent-A-Car, Inc. (1984) 160 Cal.App.3d 107, 119) based on the March 2006 agreement to share commissions and misrepresentation as to Plaintiff’s share of commissions for Plaintiff’s referred clients. See FAC ¶ 25. Krupin argues that Plaintiff is speculating that the representations for the paid commissions are false. However, this really attempts to improperly impose an evidentiary standard at the pleading stage.

Nevertheless, Plaintiff fails to allege facts showing how, where, and by what means the promises were made in the March 2006 agreement: this similar defect applies to the January 2007 representations concerning the Plaintiff’s commissions. As to the 8/23/13 statements, it is unclear as to the content of Plaintiff’s alleged misrepresentation. Plaintiff’s factual allegation only alleges that Krupin “said something about using the commission on the insurance policies for Robert Fell to pay premiums for 5 (five) years.” FAC ¶ 24. Plaintiff’s fraud claim then asserts that Krupin falsely represented that “no commission had been earned on another series of policies undertaken by Robert Fell . . . in 2011 because circumstances surrounding the insurance policies required apportionment of the commission to pay the cost of future renewal premiums.” Id. ¶ 25. This should be clarified. Therefore, the demurrer is sustained as to the 1st COA for fraud.

Krupin also argues that Plaintiff could not have relied on the 8/23/13 statements because Plaintiff alleges that it was the 8/23/13 statements that alerted Plaintiff to fraud. See FAC ¶ 32. However, Plaintiff really alleges that he became aware of possible wrongdoing with respect to his commissions because of the inconsistent and vague statements by Krupin on 12/3/13. See id. Plaintiff does not admit that he did not rely on the 8/23/13 statements.

2. KPD and KPIS
Plaintiff alleges that the March 2006 agreement contemplated binding subsequent entities to pay Plaintiff’s commissions. FAC ¶ 41. KPD and KPIS argue that none of the allegations can apply to them because they were not formed until March 2012 and January 2013 (see RJN Exs. 1-4) and Plaintiff alleges that he was paid commissions or became entitled to commissions in 2006, 2007, and 2011 (see FAC ¶¶ 21-23).

In opposition, Plaintiff asserts that he has sufficiently alleged alter ego liability. KPD and KPIS argue that there are no facts alleged to support the conclusion of alter ego liability, and that alter ego liability does not apply. Plaintiff has the better argument.

“To prevail on a claim of ‘alter ego,’ the third party must show (1) there is such a unity of interest that the separate personalities of the corporations no longer exist; and (2) inequitable results will follow if the corporate separateness is respected.” Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285. Plaintiff asserts alter ego liability by alleging that the entity defendants were not adequately capitalized, assets and liabilities were commingled, and activities were carried out without records and without attention to legal formalities. FAC ¶ 13. This is sufficient to support the element of a unity of interest and ownership. See First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-15. Additionally, Plaintiff alleges that funds due to Plaintiff are being allocated or apportioned amongst the other defendants as a result of a pending dissolution of the partnership between Krupin and Gilbert. FAC ¶ 34. This is sufficient to support the element of inequitable results.

KPD and KPIS argue that alter ego liability cannot apply to a subsequently formed entity. However, KPD and KPIS fail to cite to any authority in support of their argument. Indeed, there Court finds no reason why alter ego liability (see, e.g., McClellan v. Northridge Park Townhome Owners Ass’n, Inc. (2001) 89 Cal.App.4th 746, 753-54 (concerning judgment debtors and also addressing successor entity liability)) would not be available in the appropriate circumstances.

KPD and KPIS demurrer to the 2nd and 3rd COA is overruled.

Ruling –
The demurrer is sustained as to the 1st COA and is otherwise overruled. Plaintiff’s request for leave to amend is granted because this is the first challenge to the pleadings addressed by the Court.