Case Name:   Wells Fargo Bank, National Association v. SerraStreet Technologies, Inc., et al.

Case No.:       1-14-CV-261797

 

In this action for breach of contract and related claims, plaintiff Wells Fargo Bank, National Association (“Wells Fargo”) alleges that defendants SerraStreet Technologies, Inc. (“SerraStreet”) and Raja V. Jasti (“Jasti,” collectively with SerraStreet, “Defendants”) failed to repay a business line of credit granted by Wells Fargo.  Wells Fargo filed suit against Defendants on March 7, 2014.  On May 6, 2014, Jasti cross-complained against Wells Fargo, alleging that he was mislead into signing a personal guaranty associated with the business line of credit.  The cross-complaint asserts claims for: (1) violations of Business and Professions Code section 17200 et seq.; (3) fraud; (4) negligent misrepresentation; and (5) breach of the implied covenant of good faith and fair dealing.[1]

 

Currently at issue is Wells Fargo’s demurrer to the cross-complaint on the grounds that each claim asserted therein fails to state facts sufficient to constitute a cause of action and is uncertain.  (Code Civ. Proc., § 430.10, subds. (e) and (f).)

 

1. Uncertainty

 

Wells Fargo’s demurrer on the ground of uncertainty is OVERRULED.  Uncertainty is a disfavored ground for demurrer and a demurrer on this ground is typically sustained only where the pleading is so unintelligible that the defendant cannot reasonably respond.  (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”].)  Here, Jasti’s claims are alleged clearly enough to enable a response.

 

1. Failure to State a Claim

 

1. The Third Cause of Action for Fraud and the Fourth Cause of Action for Negligent Misrepresentation

 

In his third and forth causes of action, Jasti asserts that Wells Fargo misrepresented and failed to disclose several facts to him in connection with his application for a business line of credit on behalf of SerraStreet.  Jasti alleges that Wells Fargo: (1) misrepresented that the line of credit was a business line of credit extended to SerraStreet and concealed that Jasti would be expected to personally co-guaranty it (see Cross-Complaint, ¶¶ 127, 136); (2) concealed that the guaranty clause waives defenses to which SerraStreet might otherwise be entitled (see Cross-Complaint, ¶ 127(f)(i)); (3) concealed that the guaranty clause is governed by South Dakota law (see Cross-Complaint, ¶ 127(f)(ii)); and (4) concealed that the guaranty clause purports to make Jasti liable for attorneys’ fees incurred in enforcing it (see Cross-Complaint, ¶ 127(f)(iii)).

 

As an initial matter, Wells Fargo argues that Jasti’s claims must fail because he does not identify any affirmative misrepresentations made by Wells Fargo.  As discussed above, however, Jasti alleges that Wells Fargo misrepresented that the line of credit he was applying for was for SerraStreet and that he would be expected to sign the documents associated therewith as SerraStreet’s CEO.  (See Cross-Complaint, ¶¶ 127, 136.)  Furthermore, a fraud claim may be based on concealment as well as misrepresentation.  (See Civ. Code, § 1710, subd. (3) [deceit includes “[t]he suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact”].)  Consequently, Wells Fargo’s argument on this point fails.

 

Wells Fargo also contends that Jasti cannot establish justifiable reliance on any statements or concealments regarding terms in the parties’ agreement, or that Wells Fargo owed a duty to disclose any such terms, because the terms of the agreement were available to Jasti and speak for themselves.  However, questions as to whether aspects of a transaction that were allegedly unknown to a plaintiff were “reasonably accessible” to him or her, rendering reliance on a misrepresentation or concealment concerning such information unreasonable, “are questions of fact to be resolved on the evidence, not as a matter of law on a demurrer.”  (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 295.)  Here, Jasti alleges that he was rushed to sign a contract on behalf of SerraStreet that presented a single signature line, but the contract contained a hard-to-spot individual guaranty indicating that Jasti was also signing in his personal capacity.  (See Cross-Complaint, ¶¶ 127, 136.)  Given these allegations, it is inappropriate to resolve the issues of whether Jasti’s reliance was reasonable and whether Wells Fargo had a duty to disclose the personal guaranty on demurrer.  Finally, Wells Fargo’s arguments regarding the viability of a fraud-based defense to the contract’s enforceability are not relevant to its demurrer to Jasti’s independent claim for fraud.

 

In light of the above, Wells Fargo’s demurrer to the third and fourth causes of action is OVERRULED.

 

1. The Fifth Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing

 

In support of his fifth cause of action, Jasti alleges that: (1) Wells Fargo included a hidden personal guaranty in the contracts it presented to him and provided him only with nearly-illegible copies of the contracts; (2) Wells Fargo aggressively encouraged Jasti to draw upon the credit line once it had been established; and (3) Wells Fargo took these actions as part of an established unfair business practice.  (Cross-Complaint, ¶ 143.)

 

Wells Fargo contends that Jasti cannot state a claim for breach of the implied covenant of good faith and fair dealing based upon Wells Fargo’s decision to enforce its rights under the parties’ contracts by pursuing Jasti under the guaranty.  However, it is not this action that forms the basis of Jasti’s claim, and Wells Fargo does not address Jasti’s theories discussed above.  Accordingly, Wells Fargo’s demurrer to the fifth cause of action is OVERRULED.

 

In its reply papers, Wells Fargo raises new arguments addressing the theories raised by the complaint.  However, these arguments are not properly before the Court given that they were not included in the moving papers, and the Court will not consider them.  (See Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764 [points raised for the first time in reply brief will not ordinarily be considered, because such consideration would deprive respondent of an opportunity to counter the argument].)

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1. The First Cause of Action for Violations of the Business and Professions Code

 

For the reasons already discussed, the demurrer to the first cause of action is OVERRULED.  (See Krantz v. BT Visual Images, LLC (2001) 89 Cal.App.4th 164, 178 [where claim for “relief under the unfair competition law (Bus. & Prof. Code, §17200 et seq.)” is based upon conduct alleged in support of preceding claims for relief, it will “stand or fall depending on the fate of the antecedent substantive causes of action”].)

[1] The cross-complaint does not include a second cause of action.