Roy E Stephenson vs Hickingbotham Limited et al
Case No: 17CV00955
Hearing Date: Fri Mar 23, 2018 9:30

Nature of Proceedings: Demurrer and Motion to Strike; Case Management Conference

Tentative Ruling: 1. The court sustains the demurrer of defendants Desert European Motorcars, Ltd.; Wayne Bernstein; Shad Scheussler; Larry Py; Tiffany A. Murphy; Jerry Johnson; Gene Whisenhunt; Gary Whitaker; and Nora Whitaker to the first cause of action in plaintiff Roy E. Stephenson’s first amended complaint without leave to amend. The court overrules the demurrer in all other respects. These defendants shall file their answer to the remaining causes of action asserted against them in the FAC on or before April 2, 2018.

2. The court sustains defendant Indigo European Motorcars, LLC’s demurrer to the sixth and ninth causes of action in plaintiff Roy E. Stephenson’s first amended complaint without leave to amend.

3. The court denies the motion of defendants Desert European Motorcars, Ltd.; Wayne Bernstein; Shad Scheussler; Larry Py; Tiffany A. Murphy; Jerry Johnson; Gene Whisenhunt; Gary Whitaker; and Nora Whitaker to strike portions of the first amended complaint.

Background: On March 3, 2017, plaintiff Roy E. Stephenson filed his complaint against defendants Desert European Motorcars, Ltd. (“DEM”), Todd L. Blue; Indigo European Motorcars, Ltd., dba Desert European Motorcars (“Indigo”); Wayne Bernstein; Shad Scheussler; and Larry Py. (Stephenson refers to Indigo as “indiGO.” The court will use the name as presented in Indigo’s pleading.)

With a demurrer pending, on January 5, 2018, Stephenson filed a first amended complaint (“FAC”) against those defendants named above and added defendants Porsche Cars North America, Inc. (“PCNA”); Tiffany A. Murphy, as successor to David B. Murphy; Jerry Johnson; Gene Whisenhunt; Gary Whitaker; Nora Whitaker; Director of the California Department of Motor Vehicles (“DMV”); AmTrust Financial Services, Inc. (AmTrust); and Travelers Casualty and Surety Co. of America (“Travelers”). Stephenson alleges:

Hickingbotham, Murphy, Johnson, Whisenhunt, and Gary Whitaker are shareholders of DEM, members of “DEM limited liability company,” and alter egos of DEM. [FAC ¶¶5-9]

On March 6, 2013, Stephenson purchased a 2011 Porsche 911 Carrera S Cabriolet from DEM. The conditional sales contract was dated March 5. [FAC ¶¶78-81]

On March 27, 2012, PCNA, licensed by the DMV to sell only unregistered new Porsches, sold an unregistered used 2010 (2011?) Porsche to DEM for the sum of $91,500. PCNA gave DEM a “Company Car Discount” for almost $12,000 in connection with the sale of the unregistered used car. Both PCNA and DEM knew the Porsche was used as a “demonstration vehicle” from September 9, 2010 to March 6, 2012, and was driven over 2,500 miles. The Porsche, used as a “demonstration vehicle” qualified as a used car under state and federal law. DEM’s DMV license permits DEM to buy only unregistered new vehicles from PCNA. PCNA issued a certificate of origin stating that the vehicle was a new vehicle. [FAC ¶¶43-48]

DEM and its agent Bernstein represented the vehicle was new and “thoroughly inspected and maintained,” when it was used and not inspected and maintained. They did not disclose the vehicle had been driven for nearly 18 months as a dealer demo. [FAC ¶¶56-61] In reliance on these representations, on February 23, 2013, Stephenson offered to purchase the vehicle for $84,654 and Bernstein, on behalf of DEM accepted. [FAC ¶¶62, 63]

On March 5, 2013, Nora Whitaker, DEM’s employee and authorized agent, filed a Used Vehicle Certification with DMV, containing a buyer’s certificate that Stephenson never executed. The buyer’s certificate contains false information. [FAC ¶¶139, 145]

On March 12, 2012 (2013?), Nora Whitaker filed registration documents with the DMV, including an Application for Registration of a New Vehicle. [FAC ¶88] Also on that date, Nora Whitaker submitted documents to Bank of America, which financed part of the purchase price, including the contract for purchase of a new Porsche. [FAC ¶91]

On March 22, 2013, Stephenson drove the vehicle from Santa Barbara to DEM in Palm Springs to obtain items set forth in DEM’s “Due Bill”—windscreen, service manual, warranty and information manual, owner’s manual). [FAC ¶95] Bernstein wrote in the service manual that the “in-service” date of the vehicle was 09-2011, when the actual date was 09-2010. [FAC ¶¶96, 97] Shortly after purchasing the vehicle, Stephenson had to make several repairs to the vehicle. [FAC ¶98]

On October 27, 2017, PCNA informed Stephenson that the in service date was 9/9/2010, and the warranty started on that date. [FAC ¶101]

The causes of action in the FAC are: 1) conspiracy to transform used unregistered vehicle into a new unregistered vehicle in violation of state and federal laws (all defendants except Travelers*); 2) cancellation of void instrument, certificate or origin for a vehicle (PCNA); 3) breach of warranty of title (PCNA, DEM); 4) violation of Rees-Levering Motor Vehicle Sales and Financial Act, Civil Code § 2981, et seq. (“defendants DEM”); 5) cancellation of void instruments, DMV New Vehicle Registration/Transfer Form (DMV); 6) violation of B&P Code § 17200, et seq. (all defendants except AmTrust and Travelers; 7) fraudulent misrepresentations (“defendants DEM”); 8) negligent misrepresentations (“defendants DEM”); 9) successor liability as to DEM (Blue and Indigo); 10) violation of Vehicle Code § 11711, et seq. (AmTrust); and 11) violation of Vehicle Code § 11711, et seq. (Travelers). Stephenson seeks rescission of the contract; restitution; general, incidental, consequential, punitive, and statutory damages, including a civil penalty; equitable relief permitted under Civil Code § 3412 and requiring that defendants deliver the Certificate of Origin For A Vehicle, and the Application for Registration of New Vehicle and Vehicle Transfer Form to the clerk of the court for cancellation; and attorneys’ fees.

*The caption of the first cause of action reads, in part: “As Against All Defendants Except Travelers….” However, only DEM and PCNA are mentioned in the text of the cause of action. The court concludes that the first cause of action is alleged against DEM and PCNA only.

DEM Demurrer: Defendants DEM, Bernstein, Scheussler, Py, Nora Whitaker, Hickingbotham, Murphy, Johnson, Whisenhunt, and Gary Whitaker demur to the first, fourth, sixth, seventh, and eighth causes of action on the grounds that Stephenson fails to state facts necessary to constitute the causes of action and the causes of action are uncertain. (DEM, and not the individuals, is named as a defendant in the third cause of action for breach of warranty of title. DEM has not demurred to that cause of action.) Stephenson has not opposed the demurrer.

For purposes of this demurrer, the court will refer to these defendants collectively as “DEM.” Other than with respect to the first cause of action, DEM offers no argument or analysis in support of its claim of uncertainty. Therefore, the court will not discuss whether the fourth, sixth, seventh, and eighth causes of action are uncertain.

The court’s only task in ruling on a demurrer is to determine whether the complaint states a cause of action. Moore v. Regents of University of California, 51 Cal.3d 120, 125 (1990). The court assumes the truth of allegations in the FAC that have been properly pleaded and give it a reasonable interpretation by reading it as a whole and with all its parts in their context. Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal.4th 553, 558 (1998). The court assumes the truth of the reasonable inferences that may be drawn from the properly pleaded material facts. Reynolds v. Bement, 36 Cal.4th 1075, 1083 (2005). “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” SKF Farms v. Superior Court, 153 Cal.App.3d 902, 905 (1984).

1. First Cause of Action: Stephenson purports to state a cause of action for conspiracy to transform used unregistered vehicle into a new unregistered vehicle in violation of state and federal laws.

“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 510-511 (1994). “There is no separate tort of civil conspiracy and no action for conspiracy to commit a tort unless the underlying tort is committed and damage results therefrom.” Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal.App.4th 1105, 1136 (2014). “[C]onspiracy is not an independent tort and, thus, a claim for conspiracy cannot lie if the alleged conspirator was not personally bound by the duty violated and was instead acting only as the agent or employee of the party who did owe that duty.” Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc., 131 Cal.App.4th 802, 817 (2005).

It is not clear what underlying tort Stephenson alleges in this cause of action. Stephenson has not opposed the demurrer and, therefore, has made no effort to explain the cause of action. The court sustains the demurrer to the first cause of action.

“If there is a reasonable possibility that the defect in a complaint can be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend. [Citation.] The burden is on the plaintiff, however, to demonstrate the manner in which the complaint might be amended. [Citation.]” Hendy v. Losse, 54 Cal.3d 723, 742 (1991). “It is not up to the judge to figure that out.” Lee v. Los Angeles County Metropolitan Transportation Authority, 107 Cal.App.4th 848, 854 (2003). The plaintiff has the burden “to show what facts he or she could plead to cure the existing defects in the complaint.” McClain v. Octagon Plaza, LLC, 159 Cal.App.4th 784, 792 (2008). “The assertion of an abstract right to amend does not satisfy this burden. The plaintiff must clearly and specifically set forth the ‘applicable substantive law’ and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, the plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action. Allegations must be factual and specific, not vague or conclusionary.” Rossberg v. Bank of Am., N.A., 219 Cal.App.4th 1481, 1491 (2013) [internal quotations and citations omitted].

Stephenson has made no effort to state the manner in which he could amend the FAC to state this cause of action. The court sustains the demurrer to the first cause of action without leave to amend.

2. Fourth Cause of Action: DEM contends this cause of action is barred by the one-year statute of limitation in CCP § 340(a). That statute provides a one-year limitation for bringing: “An action upon a statute for a penalty or forfeiture, if the action is given to an individual, or to an individual and the state, except if the statute imposing it prescribes a different limitation.”

Stephenson alleges violations of the Automobile Sales Finance Act, Civil Code § 2981, et seq. (“ASFA”), also known as the Rees-Levering Motor Vehicle Sales and Finance Act. He alleges DEM violated Civil Code § 2982(q) by inaccurately designating the vehicle as new when it was used. (He also alleges that DEM violated Civil Code § 2981.9, which provides that a conditional sales contract “shall contain in a single document all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle, including any promissory notes or any other evidences of indebtedness.” Stephenson alleges DEM violated § 2981.9 by failing to attach a copy of the “Used Vehicle Certification” to the contract. But he does not allege that certification has anything to do with the total cost and terms of payment. Civil Code § 2981.9 does not require that all terms or representations be in one document, only terms respecting costs and payment.)

An action is only subject to the CCP § 340(a) statute of limitation if it is an action on a statute for a penalty or forfeiture. Jack Heskett Lincoln-Mercury, Inc. v. Metcalf, 158 Cal.App.3d 38, 42 (1984). The one-year period does not apply to all provisions and remedies under the AFSA. Stone v. James, 142 Cal. App. 2d 738, 740 (1956). “A demurrer based on the statute of limitations may not properly be sustained if any part of the cause of action be not barred.” Vassere v. Joerger, 10 Cal.2d 689, 694 (1938).

To the extent the fourth cause of action seeks a penalty or forfeiture, that portion of the cause of action would be subject to the one-year statute. However, Stephenson does not plead a statutory provision for a penalty or forfeiture. (He alleges that Civil Code § 2983.6 imposes a penalty for a violation of § 2982(q). But § 2983.6 provides that a willful violation of the ASFA is a misdemeanor. It does not impose a civil penalty.)

DEM also contends that Stephenson has failed to state a cause of action for rescission under Civil Code § 2983.1(d), which provides that a buyer may elect to rescind a contract that is not enforceable under § 2983. A contract is not enforceable under § 2983(a) if it violates § 2981.9 or subdivision (a), (j), or (k) of § 2982. That subdivision does not include § 2982(q) and, as discussed above, Stephenson has not pled a violation of § 2981.9.

Stephenson seeks rescission under Civil Code § 1689(b)(5), which provides that a party may rescind a contract, if “the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault.” [FAC ¶152] Civil Code § 1667 provides: “That is not lawful which is: 1. Contrary to an express provision of law….” [FAC ¶151] Stephenson has alleged that the contract is contrary to Civil Code § 2982(q). This alleges a theory of rescission that is an alternative to § 2983.1(d). Civil Code § 2983.1 applies to automobile finance contracts only, while Civil Code § 1689 applies to all contracts. DEM does not address this theory of rescission in its demurrer.

The court overrules DEM’s demurrer to the fourth cause of action.

3. Seventh and Eighth Causes of Action: DEM argues that Stephenson has failed to plead justifiable reliance on the representation that the vehicle was new. Justifiable reliance is an element of both intentional and negligent misrepresentation causes of action. Lazar v. Superior Court, 12 Cal.4th 631, 638 (1996); Fox v. Pollack, 181 Cal.App.3d 954, 962 (1986).

Allegations of justifiable/reasonable reliance must be pleaded with specificity. Glaski v. Bank of America, 218 Cal.App.4th 1079, 1091 (2013). “[T]he mere assertion of ‘reliance’ is insufficient. The plaintiff must allege the specifics of his or her reliance on the misrepresentation to show a bona fide claim of actual reliance.” Cadlo v. Owens-Illinois, Inc., 125 Cal.App.4th 513, 519 (2004).

Stephenson alleges that Bernstein, on behalf of DEM, represented that the vehicle was new and compared its price to the price range for a used vehicle with higher mileage. [FAC ¶60] DEM never disclosed that the vehicle was used as a demonstration vehicle and qualified as a used car. [FAC ¶61] Stephenson offered to purchase the vehicle in reliance on Bernstein’s representations. [FAC ¶62]

DEM contends the reliance was not justifiable because the contract and odometer reflected over 2,500 miles [FAC ¶¶80, 56]; the price was approximately $30,000 under the manufacturer’s suggested retail price [FAC ¶20]; and his credit union informed him that they regarded the vehicle as used because of the mileage [FAC ¶59].

The requirements of pleading demand that a plaintiff assert with specificity what he did in reliance on representations and concealments. Some of Bernstein’s representations were offered in rebuttal to the credit union’s assessment. [FAC ¶60] DEM essentially argues that, balancing what Stephenson did know against what DEM told him, his reliance was not in fact justifiable. That is a question of fact not resolved on demurrer. “[T]he issue is whether the person who claims reliance was justified in believing the representation in the light of his own knowledge and experience.” Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226, 1247 (1995) [internal quotation and citation omitted].

In these causes of action, Stephenson does not fail to state facts regarding justifiable reliance. The court overrules the demurrer to the seventh and eighth causes of action.

4. Sixth Cause of Action: This cause of action is under the Unfair Competition Law (“UCL”) statute. A cause of action under the UCL”) must allege a business practice that is unlawful, unfair or fraudulent. Smith v. State Farm Mut. Auto. Ins. Co., 93 Cal.App.4th 700, 717 (2001). The statute is interpreted broadly because “unfair or fraudulent business practices may run the gamut of human ingenuity and chicanery.” Motors, Inc. v. Times Mirror Co., 102 Cal.App.3d 735, 740 (1980). Claims for relief under the UCL “stand or fall depending on the fate of the antecedent substantive causes of action.” Krantz v. BT Visual Images, 89 Cal.App.4th 164, 178 (2001).

DEM again argues that Stephenson cannot show actual reliance on this one word in the sale agreement when the weight of the evidence shows that he understood the vehicle was used. [Demurrer 16:10-13] First, Stephenson does not allege reliance solely on the word “new” in the contract. As discussed above, he also alleges affirmative representations by Bernstein, some of which were in response to what Stephenson reported that his credit union said. Second, DEM’s use of the terms “weight of the evidence” is telling. Questions of fact requiring the consideration and weighing of evidence are unsuitable for resolution on demurrer. M.F. v. Pacific Pearl Hotel Mgmt LLC, 16 Cal.App.5th 693, 703 (2017).

The court overrules DEM’s demurrer to the sixth cause of action.

5. Order: The court sustains the demurrer of defendants Desert European Motorcars, Ltd.; Wayne Bernstein; Shad Scheussler; Larry Py; Tiffany A. Murphy; Jerry Johnson; Gene Whisenhunt; Gary Whitaker; and Nora Whitaker to the first cause of action in plaintiff Roy E. Stephenson’s first amended complaint without leave to amend. The court overrules the demurrer in all other respects. These defendants shall file their answer to the remaining causes of action asserted against them in the FAC on or before April 2, 2018.

DEM’s Motion to Strike: DEM moves to strike from the FAC “prayers for punitive or exemplary damages” at page 31, lines 1 through 7; page 39, lines 25 through 28; page 40, lines 1 through 2; page 46, lines 7 through 11; and page 53, line 14. DEM also moves to strike a prayer for increase in punitive damages under Civil Code § 3345 (no location of this prayer is specified).

The notice of motion does not comply with the applicable rule of procedure. “A notice of motion to strike a portion of a pleading must quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action, count, or defense.” CRC 3.1322(a). In its notice, DEM does not quote any portions of the FAC it seeks to strike or designate entire paragraphs.

This is especially significant here because the FAC filed with the court on January 5 (and ostensibly served on DEM’s counsel) does not contain any reference to punitive or exemplary damages at the locations specified in the notice. (And there is no page 53.) It is up to the party asking the court to strike portions of the complaint to direct the court’s attention to the matters to be stricken. The court will not search the FAC to determine what allegations or prayer DEM is addressing.

Substantively, the court notes that the FAC does allege fraud.

The court denies the motion of defendants Desert European Motorcars, Ltd.; Wayne Bernstein; Shad Scheussler; Larry Py; Tiffany A. Murphy; Jerry Johnson; Gene Whisenhunt; Gary Whitaker; and Nora Whitaker to strike portions of the first amended complaint.

Indigo’s Demurrer: Defendant Indigo European Motorcars, LLC, “(erroneously sued as Todd Blue, individually and as Manager of Indigo European Motorcars, LLC)” demurs to the sixth and ninth causes of action in the FAC. (Indigo filed an answer to the original complaint also stating that it was sued erroneously as Blue.)

In the FAC, Stephenson separately names Indigo and Blue as defendants. [FAC ¶¶17, 18] He alleges that DEM sold its Porsche franchise to Indigo. [FAC ¶19] While most of the allegations in the ninth cause of action refer to Blue [FAC ¶¶195-214], it is clear that the cause of action is against both of them [FAC 43:26-27; ¶215]. The court will treat this demurrer as the demurrer of Indigo only and not Blue. Blue has not appeared in this proceeding and has not paid an appearance fee.

Indigo contends that Stephenson has failed to state facts sufficient to constitute the causes of action and that they are uncertain. Indigo presents no argument or analysis regarding uncertainty, so the court will not address that ground for demurrer. Stephenson has not opposed the demurrer.

1. Ninth Cause of Action: Stephenson alleges that Indigo and Blue are jointly and severally liable as successors to DEM. Blue formed Indigo in Delaware on May 1, 2013, and “filed an Application with the Secretary of State, State of California, to Register indiGO European Motorcars LLC, which is a Foreign Limited

Liability Company (LLC).” [FAC ¶¶204, 205]

“It has been generally stated that ‘where one corporation sells or transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the former unless (1) the purchaser expressly or impliedly agrees to such assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape liability for debts.’ ” Franklin v. USX Corp., 87 Cal.App.4th 615, 621 (2001) [citation omitted].

Stephenson does not allege that Indigo agreed to assume obligations of DEM, that the two entities merged, or that the transaction was entered into fraudulently to escape liability for debts. The basis for the cause of action appears to be continuation liability.

“The crucial factor in determining whether a corporate acquisition constitutes either a de facto merger or a mere continuation is the same: whether adequate cash consideration was paid for the predecessor corporation’s assets.” Id. at 625. Stephenson does not allege inadequate consideration for DEM’s assets.

Stephenson alleges that, after Indigo purchased DEM’s assets, he appointed Gary Whitaker to remain with Indigo as general manager and retained former employees including Bernstein, Scheussler, Py, and Nora Whitaker. In Franklin v. USX Corp., the court discussed cases in which courts considered adequacy of consideration and the same ownership of the selling and purchasing entities. The court noted that prior reported cases did not involve a situation where there was adequate consideration and “only a single person with minimal ownership interest in either entity remained as an officer and director.” Id. at 626-627. Stephenson does not allege any identity of ownership, only retention of employees, one of which was general manager.

The court agrees that Stephenson has failed to state facts sufficient to constitute the cause of action for successor liability. Therefore, the court will not address Indigo’s statute of limitation arguments.

Again, Stephenson has not responded to the demurrer or suggested any manner in which he might amend the FAC to state this cause of action. The court sustains Indigo’s demurrer to the ninth cause of action without leave to amend.

2. Sixth Cause of Action: As to the UCL cause of action, Indigo points out that any allegations against it fail because it did not acquire the dealership until two months after Stephenson purchased his vehicle. Indigo’s only alleged conduct is set forth in the ninth cause of action and the court has sustained Indigo’s demurrer to that cause of action. Again, a claim for relief under the UCL is tied to the fate of the antecedent substantive cause of action. Krantz v. BT Visual Images, supra, 89 Cal.App.4th at 178. Therefore, the court sustains the demurrer to the sixth cause of action without leave to amend.

3. Order: The court sustains defendant Indigo European Motorcars, LLC’s demurrer to the sixth and ninth causes of action in plaintiff Roy E. Stephenson’s first amended complaint without leave to amend.