Case Number: BC706281 Hearing Date: December 26, 2018 Dept: 47

Trevor Selkirk, et al. v. Grasshopper House, LLC, d/b/a Passages Malibu and Passages Ventura

DEMURRER TO FIRST AMENDED COMPLAINT

MOVING PARTY: Defendants Grasshopper House, LLC d/b/a Passages Malibu and Passages Ventura, Passages Silver Strand, LLC, Chris Prentiss and Pax Prentiss

RESPONDING PARTY(S): Plaintiff Trevor Selkirk and Dan Rescigno

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs alleges that Defendants have engaged in false advertising in connection with their alcohol and drug addiction rehabilitation facilities.

Defendants demur to the first amended complaint (“1AC”).

TENTATIVE RULING:

Defendants Grasshopper House, LLC d/b/a Passages Malibu and Passages Ventura, Passages Silver Strand, LLC, Chris Prentiss and Pax Prentiss’ demurrer to the first amended complaint is OVERRULED as to the first, second and third causes of action and SUSTAINED without leave to amend as to the sixth cause of action, unless Plaintiffs can demonstrate a reasonable possibility of successful amendment at the hearing.

If leave to amend is not granted, Defendants are ordered to answer the allegations which remain in the 1AC within 20 days.

DISCUSSION:

Demurrer

Meet and Confer

The Declaration of Jennifer Morrow reflects that the meet and confer requirement set froth in CCP § 430.41 was satisfied.

Request For Judicial Notice

Defendants request that the Court take judicial notice of the following: (1) The “Passages Addiction Treatment Philosophy” page of Passages Malibu’s website; (2) The “Addiction Treatment Methods/Modalities at Passages Malibu” page of Passages Malibu’s website; (3) Unpublished federal decision Securities and Exchange Commission v. Husain (C.D. Cal, October 24, 2016) No. 2:16-cv-03250, 2016 WL 11269462.

Requests Nos. 1 and 2 are DENIED. These are not matters which are subject to judicial notice pursuant to Evid. Code §§ 451 and 452. Request No. 3 is GRANTED. Federal district court decisions may be considered for their persuasive value. “Unpublished federal district court decisions are citable and may be persuasive authority. (Aleman v. AirTouch Cellular (2012) 209 Cal.App.4th 556, 576, fn. 8 [146 Cal. Rptr. 3d 849].)” Akopyan v. Wells Fargo Home Mortgage, Inc. (2013) 215 Cal. App. 4th 120, 142 n.13.

Analysis:

1. First Cause of Action (Fraud by Misrepresentation).

“To establish a claim for deceit based on intentional misrepresentation, the plaintiff must prove seven essential elements: (1) the defendant represented to the plaintiff that an important fact was true; (2) that representation was false; (3) the defendant knew that the representation was false when the defendant made it, or the defendant made the representation recklessly and without regard for its truth; (4) the defendant intended that the plaintiff rely on the representation; (5) the plaintiff reasonably relied on the representation; (6) the plaintiff was harmed; and (7) the plaintiff’s reliance on the defendant’s representation was a substantial factor in causing that harm to the plaintiff. (Citations omitted.)” Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1498 (italics omitted).

Fraud causes of action must be pled with specificity. Hills Transportation Co. v. Southwest Forest Ind., Inc. (1968) 266 Cal.App.2d 702, 707. The complaint must allege facts as to “‘how, when, where, to whom, and by what means the representations were tendered.’” Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. “The requirement of specificity in a fraud action against a corporation requires the plaintiff to allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Citations omitted.)” Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.

The misrepresentation must be as to existing fact or an actionable type of opinion:

The trial court found that the statements made by respondent’s agents were neither representations of existing facts nor opinion of the type upon which actionable fraud may be founded. Those findings are supported by the record and the law. The record discloses that while respondent’s agents told appellant that the units to be constructed would rent for specified amounts, they also stated to appellant that the buildings would be an excellent investment, “If you receive the rents as we contemplate, . . .” (Italics added.) The trial court was justified in construing the fair meaning of the statements made to appellant as those of opinion concerning future estimated rentals and not as an unqualified representation of what those rentals would be. That construction precludes the treatment of those statements as “positive assertions” within the meaning of subdivision 2 of section 1572 or as an “assertion of fact” within the meaning of subdivision 2 of section 1710 of the Civil Code unless exceptional circumstances are present. (Citations omitted.)

Exceptional circumstances resulting in expressions of opinion being treated as misrepresentations have been found where the one expressing the opinion does not in fact entertain it (citations omitted); where the opinion amplifies false representations of fact (citation omitted); where the opinion is expressed in a manner implying a factual basis which does not exist (citation omitted); where the opinion is expressed as a fact (citation omitted); and where the expression of opinion is made by a party “possessing superior knowledge” (citations omitted).

Pacesetter Homes, Inc. v. Brodkin (1970) 5 Cal.App.3d 206, 211 (bold emphasis added).

Here, Plaintiffs’ allege that Defendants’ misrepresentations were made on Defendants’ website, television ads and appearances and in a book. 1AC, ¶¶ 4, 5. Plaintiffs allege that Defendants claim that they have discovered the precise cause of alcoholism and drug addiction and can therefore permanently “cure” those conditions. 1AC, ¶ 5.

A specific representations is alleged as follows: On the Passages website, Defendants represented that Pax was “cured” and would never again use drug or alcohol, and Defendants started a program to share their knowledge that cured Pax, and which program has saved thousands of others.[1] 1AC, ¶¶ 8, 48, 49, 51 – 54. ¶ 9 alleges that this representation was false because Pax continued to be deeply involved in destructive drug use for at least several years after Passages opened.

Plaintiffs also allege misrepresentations in the book The Alcoholism & Addiction Cure that Pax and hundreds of others had been cured by the program offered at Passages (¶¶ 62 – 65, 75 – 77), but Pax had in fact continued to sue drugs for at least several years after the opening of Passages, i.e., Pax had not been “cured.” ¶¶ 66, 78. Additionally, it is alleged that Passages had no way of knowing how many patients had been “cured” of addiction and alcoholism because it does not keep records of the status of sobriety or cure rate of its patients. ¶ 79.

The foregoing alleged representations are sufficiently pled for purposes of a fraud cause of action. If Plaintiffs reasonably relied only on the foregoing representations in deciding to seek treatment at Passages (1AC, ¶¶ 20, 21), that would sufficient for a fraud cause of action.[2] Any other representations made by Defendants which contributed to Plaintiffs’ decision to seek treatment as Passages may be developed through discovery.

Obviously, the damage sustained by Plaintiffs would be the out-of-pocket costs they incurred in paying for treatment at Passages.

The first cause of action for fraud by misrepresentation is sufficiently pled for purposes of this demurrer.

The demurrer to the first cause of action is OVERRULED.

2. Second Cause of Action (Fraud By Suppression of Fact).

[T]he elements of a cause of action for fraud based on concealment are: “ ‘(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage. [Citation.]’ [Citation.]” (Citation omitted.)

Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal. App. 4th 830, 850.

Moreover: “[c]oncealment is a species of fraud, and ‘[f]raud must be pleaded with specificity.’ (Citation omitted.) To plead tort liability based on false or incomplete statements, the pleader must set forth at least the substance of those statements.” Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 878.

“If a fraud claim is based upon failure to disclose, and ‘the duty to disclose arises from the making of representations that were misleading or false, then those allegations should be described.’ (Citation omitted.)” Morgan v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1262.

“There are ‘four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. [Citation.]’ ” (Citations omitted.) Where, as here, there is no fiduciary relationship, the duty to disclose generally presupposes a relationship grounded in “some sort of transaction between the parties. [Citations.] Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement. [Citation.]” (Citation omitted.)

OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 859 (bold emphasis added).

As discussed above, Defendants made specific misrepresentations about Pax and hundreds/thousands of others having been cured after completing the rehabilitation program offered at Passages. By making such affirmative representations, Defendants had a duty to disclose that Pax had continued using drugs for several years after the opening of Passages and that Defendants had no basis for claiming that hundreds/thousands of patients had been “cured” after completing the program at Passages.

The second cause of action is sufficiently pled for purposes of this demurer.

The demurrer to the second cause of action is OVERRULED.

3. Third Cause of Action (Negligent Misrepresentation).

“The elements of negligent misrepresentation are ‘(1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another’s reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.’ (Citation omitted.)” National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal. App.4th 35, 50.

The same pleading specificity requirement applicable to fraud applies to pleading negligent misrepresentation. Cadlo v. Owens-Illinois, Inc., (2004) 125 Cal.App.4th 513, 519.

Moreover, “[t]o be actionable, a negligent misrepresentation must ordinarily be as to past or existing material facts. ‘[P]redictions as to future events, or statements as to future action by some third party, are deemed opinions, and not actionable fraud.’ (Citation omitted.)” Tarmann v. State Farm Mutual Automobile Ins. Co. (1991) 2 Cal.App.4th 153, 158. There is no cause of action for a negligent false promise. Id. at 159: (“Simply put, making a promise with an honest but unreasonable intent to perform is wholly different from making one with no intent to perform and, therefore, does not constitute a false promise.”)

The tort of negligent misrepresentation does not require scienter or intent to defraud. (Gagne v. Bertran (1954) 43 Cal.2d 481, 487-488 [275 P.2d 15].) It encompasses “[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true” (Civ. Code, § 1710, subd. 2), and “[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true” (Civ. Code, § 1572, subd. (2); see Fox v. Pollack (1986) 181 Cal. App. 3d 954, 962 [226 Cal. Rptr. 532] [describing elements of the tort]). When such misrepresentations have occurred in connection with the sale of corporate stock, the California courts have entertained common law actions for fraud or negligent misrepresentation. (E.g ., Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412 [159 P.2d 958]; Sewell v. Christie (1912) 163 Cal. 76 [124 P. 713].CA(5)(5))

Small v. Fritz Companies, Inc. (2003) 30 Cal. 4th 167, 173-74.

As discussed above, Defendants made specific misrepresentations about Pax and hundreds/thousands of others having been cured after completing the rehabilitation program offered at Passages. Plaintiffs allege that Defendants had no reasonable basis for making such representations because Pax had continued using drugs for several years after the opening of Passages and Defendants had no basis for claiming that hundreds/thousands of patients had been “cured” after completing the program at Passages.

The third cause of action is sufficiently pled for purposes of this demurer.

The demurrer to the third cause of action is OVERRULED.

4. Sixth Cause of Action (Negligence).

In ruling upon Defendants’ anti-SLAPP special motion to strike, the Court ruled that, based upon the allegations in the 1AC, there was no special relationship between Defendants and Plaintiffs at the time Plaintiffs saw Defendants’ advertisements, so pure economic injury would not support a negligence cause of action (and Defendants did not allege physical injury):

“The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion. [Citations.]” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 397 [11 Cal. Rptr. 2d 51, 834 P.2d 745] (Bily).) Whether a duty exists is a question of law to be determined by the courts. (Ibid.) In the absence, as here, of a duty that arises by statute or contract, we assess whether the nature of the activity or the relationship of the parties gives rise to a duty. (Ratcliff Architects v. Vanir Construction Management, Inc. (2001) 88 Cal.App.4th 595, 605 [106 Cal. Rptr. 2d 1] (Ratcliff).) “Recognition of a duty to manage business affairs so as to prevent purely economic loss to third parties in their financial transactions is the exception, not the rule, in negligence law” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 58 [77 Cal. Rptr. 2d 709, 960 P.2d 513]), so courts are reluctant to impose duties to prevent purely economic harm to third parties (Bily, at p. 403; Ratcliff, at p. 605; Mission Oaks, supra, 65 Cal.App.4th at p. 725).

Lake Almanor Associates L.P. v. Huffman-Broadway Group, Inc. (2009) 178 Cal.App.4th 1194, 1205 (bold emphasis and underlining added).

Accordingly, the Court granted the special motion to strike as to the sixth cause of action to the extent it is based upon statements made in the Prentiss’ book at ¶¶ 21, 37 – 41, 62 – 65, 71, 75, and 76.

As to the remaining allegations that were not stricken, the demurrer to the sixth cause of action is SUSTAINED without leave to amend. Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. Goodman v. Kennedy (1976) 18 Cal.3d 335, 348. In this instance, however, Plaintiff must demonstrate this possibility at the hearing, otherwise no leave to amend will be given.

Defendants to give notice, unless waived.

IT IS SO ORDERED.

Dated: December 26, 2018 ___________________________________

Randolph M. Hammock

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.

[1] This is a paraphrase by the Court: the specific quotation is set forth at ¶ 8 of the 1AC.

[2] Of course, whether each Plaintiff “reasonably” relied upon these representations is a question of fact which cannot be properly adjudicated at the demurrer stage in this particular case.