2018-00224991-CU-BC

Vampire Penguin, LLC vs. Pokeface Desserts, LLC

Nature of Proceeding: Hearing on Demurrer

Filed By: Pham, Bao-Quan P.

The demurrer filed by Defendants Pokeface Desserts LLC and Anh Tuan Lam to Plaintiff’s Complaint is ruled upon as follows.

FACTS

Plaintiff Vampire Penguin LLC and Defendant Pokeface entered into an agreement by which Plaintiff agreed to sell, and Pokeface, agreed to purchase, all business assets and licenses needed to operate two of Plaintiff’s business locations in South Sacramento and Elk Grove. (Compl. ¶¶ 12, 13.) In exchange for business equipment, inventory, right to use Plaintiff’s trade name and registered mark, and the business’ goodwill, Pokeface agreed to pay $225,000 to Plaintiff. (Compl. ¶ 13.) Pokeface also agreed to assume responsibility for the leases at each business location. (Compl. ¶ 20.)

Pokeface paid a total of $160,000 toward the purchase price and Plaintiff agreed to contribute $80,000 toward the total purchase price in exchange for a membership interest in Pokeface of 26.66 percent. (Comp. ¶¶14, 15.) By way of addenda to the Contract, Pokeface then agreed to purchase 13.33 percent of Plaintiff’s membership interest for $40,000 on two separate occasions. (Compl. ¶¶ 16, 17.) The payments would be made based on a portion of actual sales at each location until the amount was satisfied. (Compl. ¶ 17.) The remaining $25,000 due to Plaintiff would also be paid based on a portion of each unit sold until the amount was satisfied. (Compl. ¶ 18.)

Plaintiff alleges that Pokeface made partial payments for three months but then stopped. (Compl. ¶ 19.) Pokeface also failed to pay monthly rent and utilities at the leased locations. (Compl. ¶¶ 20-22.) Finally, Plaintiff alleges that Pokeface abandoned the leased locations and left them in a state of disarray, causing Defendant to incur significant costs to mitigate the condition of the property. (Compl. ¶ 23.)

Plaintiff alleges claims for breach of contract, fraud, and declaratory relief. Defendants have demurred to the first two causes of action.

LEGAL STANDARD APPLICABLE TO DEMURRER

A demurrer challenges the legal sufficiency of the complaint on the ground it fails to state facts sufficient to constitute a cause of action. CCP § 430.10(e);Rakestraw v. California Physicians’ Service(2000) 81 Cal.App.4th 39, 42-43. In reviewing a general demurrer, the facts pleaded are assumed to be true and the only issue is whether they are legally sufficient to state a cause of action.Rope v. Auto-Chlor System of Wash., Inc.(2013) 220 Cal.App.4th635. “[W]e are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’ Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.”Blank v. Kirwan(1985) 39 Cal.3d 311, 318 (citations omitted).

DISCUSSION

FIRST CAUSE OF ACTION: Breach of Contract

Defendants demur to the First Cause of Action solely on the grounds that Defendant Anh Tuan Lam was not a party to the purchase agreement between Pokeface and Vampire Penguin and Plaintiff has failed to establish any privity between Pokeface, which was the signatory to the Agreement, and Lam.

Plaintiff opposes the demurrer on the grounds that the Complaint sufficiently pleads facts to establish that Mr. Lam was the alter ego of Vampire Penguin.

The Court notes that it has not reviewed the Contract and related addenda submitted as exhibits in support of both Defendants’ demurrer and Plaintiffs’ Opposition thereto; a demurrer is strictly limited to the four corners of the Complaint and any attachments to the Complaint. Since none of these documents were attached to the Complaint, the Court is unable to consider them in adjudicating the demurrer.

The elements of a cause of action forbreach of contractare well established. The California Supreme Court has reiterated those elements as “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman(2011) 51 Cal.4th 811, 821.) This statement of the elements of a contract claim appears to assume that the contract in question is between the plaintiff and the defendant.

Under the traditional common-law rule, only parties inprivityof contract could sue on the contract. (SeeHoward Contracting, Inc. v. G. A. MacDonald Construction Co. (1998) 71 Cal.App.4th 38, 60 [[subcontractor on a construction project had no standing to sue the city directly on abreach of contractclaim because the subcontractor and the city “were not inprivityof contract].) “Privityof contract” is defined as “[t]he relationship between the parties to a contract, allowing them to sue each other but preventing a third party from doing so.” (Black’s Law Dictionary (9th ed. 2009) at page 1320.)

According to Plaintiff’s Complaint, the Agreement was between Vampire Penguin LLC and Pokeface Desserts LLC. (Compl. ¶¶ 12-13.) Plaintiff summarily alleges that Defendant Lam is the manager of Pokeface and “utilizes Pokeface as an alter ego.” (Compl. ¶ 3.) There are no allegations in the Complaint that Lam is a third party beneficiary or an assignee. (See, e.g.,Gulf Ins. Co. v. TIG Ins. Co.(2001) 86 Cal.App.4th422, 428;Applera Corp. v MP Biomedicals, LLC(2009) 173 Cal.App.4th 769, 786.)

The Court sustains the demurrer with leave to amend as to this cause of action. A plaintiff alleging that an individual is the alter ego of a corporate entity must plead facts showing (1) a unity of interest and ownership such that the separateness does not actually exist and (2) that a inequitable result would occur if the acts in question are treated as those of the corporation alone. (Vasey v. California Dance Co.(1977) 70 Cal.App.3d 742, 749.) There are no facts in the Complaint to suggest that Defendant Lam acted in a capacity other than as a representative for Pokeface. The Court rejects Plaintiff’s “alter ego” argument, on the grounds that such elements have not been adequately pleaded. (SeeEleanor Licensing LLC v. Classic Recreations LLC (2018) 21 Cal.App.5th599, 615 [noting that a corporation is regarded as a distinct legal entity from its stockholders, officers and directors and the corporate form should be disregarded only in narrowly defined circumstances where the facts establish a “requisite unity of interest” to give rise to an inference that the corporation is merely an alter ego of an individual defendant].) Plaintiff is given leave to amend since this is the first challenge to the pleadings at issue.

Second Cause of Action: Fraud

With regard to the Second Cause of Action for Fraud, Defendant argues that Plaintiff has failed to plead specific facts as against all Defendants necessary to constitute a viable cause of action for fraud.

The elements of a claim for fraud are (1) misrepresentation of a material fact; (2) knowledge of falsity or lack of a reasonable ground for belief in the truth of the representation; (3) intent to induce reliance; (4) actual and justifiable reliance by the plaintiff; and (5) resulting damage. (Orient Handel v. United States Fid. & Guar. Co. (1987) 192 Cal.App.3d 684, 693.) Fraud-based claims are subject to a stricter pleading standard than that governing most causes of action: to advance a cognizable cause of action for fraud, “every element of the cause of action … must be alleged in full, factually and specifically, and the policy of liberal construction of pleading will not usually be invoked to sustain a fraud claim deficient in any material respect.” (Wilhelm v. Pray, Price, Williams & Russell(1986) 186 Cal.App.3d 1324, 1331.) The heightened particularity requirement mandates pleading facts to show “how , when , where, to whom, and by what means the representations were tendered.” (Lazar v. Superior Court(1996) 12 Cal.4th631, 645.) Further, when fraud is alleged against a corporate defendant, the plaintiff must specifically allege the names of the persons who made the purported representation, their authority to speak, to whom they spoke, what they said or wrote, and when it was said and written. (Tarmann v. State Farm Mutual Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

Here, the Court concludes that the Complaint fails to sufficiently state the requisite elements requisite to a cause of action for fraud. Accordingly, the demurrer is sustained with leave to amend.

Plaintiff shall file and serve a First Amended Complaint on or before August 17, 2018. Defendants’ response shall be filed and served within 15 days of service of the amended complaint, 20 days if served by mail.