2015-00174213-CU-BC

Stephen C. Patterson vs. Institute Of Technology

Nature of Proceeding: Hearing on Demurrer to the 2nd Amended Complaint

Filed By: Fox, David M.

Defendant Mason Meyers’ demurrer to the Fourth Cause of Action in Plaintiff Stephen

Patterson’s second amended complaint is ruled on as follows.

This matter was continued from December 21, 2017 to allow Defendant to comply with CCP § 430.41. The Court finds that Defendant has sufficiently complied.

Defendant’s request for judicial notice is granted. Plaintiff’s request for judicial notice is granted.

Plaintiff filed a motion for leave to file the SAC to add Defendant in June 2017 and to add the new intentional interference with contract cause of action against existing defendants. Plaintiff withdrew the motion on July 10, 2017 and on the same day filed a Doe Amendment adding Defendant s Doe 1 to the third cause of action for fraudulent transfer. The fraudulent transfer cause of action had been added by way of the First Amended Complaint filed on June 3, 2016. On August 14, 2017, Plaintiff re-filed the motion for leave to amend to file the SAC. Defendant simultaneously demurred to the first amended complaint and moved to strike the DOE amendment. The Court granted the motion for leave to file the SAC and denied the demurrer/motion to strike as moot.

Defendant demurs to the Fourth Cause of Action for Intentional Interference with Contractual Allegations on the basis that the cause of action is barred by the statute of limitations. The two year statute of limitations in CCP § 339 governs causes of action for intentional interference with contractual relations. (Knoell v. Petrovich (1999) 76 Cal.App.4th 164, 168.) In this cause of action Plaintiff alleges that Defendant and Defendants Select Education Group (“SEG”) and National Holistic Institute, Inc. (“NHI”) interfered with a written lease agreement with Institute of Technology (“IOT”) and Guaranty of Lease with Brightstar Education Group.

Defendant argues that the instant cause of action accrued no later than January 21, 2015 when Plaintiff filed the initial complaint. The second amended complaint was filed on October 11, 2017 after the Court granted Plaintiff’s motion for leave to amend. In connection with that hearing, Defendant’s counsel filed a request for continuance indicating that the parties agreed that any statute of limitations was tolled from September 15, 2017 through the date of the continued hearing.

According to Defendant, the very allegations of the original complaint filed on January 21, 2015 set forth all facts necessary for an intentional interference with contractual relations claim and he cannot now assert such a claim. “To state a claim for intentional interference with contractual relations, a plaintiff must show: (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract;

(3) defendant’s intentional acts designed to induce breach of disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Pac. Gas & Elec. Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.) Defendant points to the allegations in the complaint which contained two causes of action for breach of contract against Defendants IOT, Brighstar and SEG. Plaintiff alleged that he had a Lease Agreement with IOT which Brightstar guaranteed. (Comp. ¶¶ 8, 9.) Plaintiff alleged that IOT and Brightstar formed SEG by way of an asset only sale that was a “sham intended only to escape liability for IOT and Brightstar’s liability under the Lease.” (Id. ¶¶ 15, 18.) Plaintiff alleged that IOT and Brightstar stopped paying rent and abandoned the property in breach of the Lease which caused over $8 million in damages to Plaintiff. (Id. ¶ 22.) Defendant reasons that the allegations in the complaint show Plaintiff was aware of all the necessary elements of an intentional interference with contract cause of action no

later than January 15, 2015 and this was required to bring a cause of action against Defendant no later than January 20, 2017.

Plaintiff argues that the cause of action is timely under the discovery rule. “Generally speaking, a cause of action accrues at ‘the time when the cause of action is complete with all of its elements.’ [citation omitted] An important exception to the general rule of accrual is the ‘discovery rule,’ which postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806-807.) A plaintiff has reason to discover the cause of action when he or she ‘has reason to discover a cause of action when he or she ‘has reason at least to suspect a factual basis for its elements.’” (Id. [citations omitted].) The discovery rule allows accrual of the cause of action even if the plaintiff is not aware of the identity of the defendant. (Id.) “[T]he rationale for distinguishing between ignorance of the wrongdoer and ignorance of the injury itself appears to be premised on the commonsense assumption that once the plaintiff is aware of the injury, the applicable limitations period (often effectively extended by the filing of a Doe complaint) normally affords sufficient opportunity to discover the identity of all the wrongdoers.” (Fuller v. Tucker (2000) 84 Cal.App.4th 1163, 1171.)

Plaintiff alleged in the SAC that he “did not discover the nature of the transaction between IOT, Brightstar, and SEG prior to Defendant’s production of discovery responses on or about September 21, 2015, and a further response on October 27, 2015. Prior to the production of these documents, Plaintiff had no evidence of the form of the transaction (i.e., merger, acquisition, or in this case purported asset purchase), NHI’s participation in the same, or the role of the individual defendant. Further, Defendant SEG wrongfully withheld over 1,200 pages of relevant document detailed [sic] the true nature of the transactions, including specifically, a side-agreement negotiated by Mason Myers that was not produced until June 2017.” (SAC ¶ 24.) In the Fourth Cause of Action for Intentional Interference with Contractual Relations Plaintiff alleged that Defendant, SEG and NHI entered into an Asset Purchase Agreement with an intent to take all valuable assets of IOT and Brightstar leaving both with the inability to perform their contractual obligations and with knowledge that doing so would cause a breach of the Lease Agreement and Guaranty. (SAC ¶ 50.)

The Court must first address Plaintiff’s contention that Defendant incorrectly argued that the cause of action accrues once injury is discovered. Defendant did not make such an argument but instead argued that based on the allegations in the original complaint, Plaintiff was aware of all of the elements (including injury) necessary to support an intentional interference with contract claim. Further, Defendant did discuss the correct standard for the discovery rule.

Here, the Court must assume that Plaintiff’s allegations regarding his lack of knowledge of Defendant and NHI’s role in the matters in this lawsuit and true nature of the transaction until September 21, 2015 are true for purposes of the demurrer. While the original complaint contained allegations regarding the subject contracts now alleged to have been intentionally interfered with and allegations that SEG was formed as a sham to deprive IOT and Brightstar of assets so that they could not fulfill their obligations under the Lease, there were no specific allegations regarding Defendant or NHI or the Asset Purchase Agreement in the original complaint which only set forth breach of contract causes of action. No tort causes of action were alleged. While the Court sees the basis for Defendant’s argument given the allegations in the original complaint regarding the subject contracts and the allegations that SEG was formed to

deprive IOT and Brightstar of the ability to fulfill the obligations under the contracts, the Court cannot say as a matter of law on this pleading motion that the allegations set forth in the original complaint necessarily show that Plaintiff was on notice of the facts giving rise to an Intentional Interference with Contractual Relations Cause of Action. This is especially true given the allegations in the SAC that Plaintiff was unable to discover the true nature of the events because SEG wrongfully withheld over 1,200 documents. To that end, “[a] demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” (Guardian North Bay, Inc. v. Superior Court (2001) 94 Cal.App.4th 963, 971-972 [citation omitted]. [emphasis added].)

As a result, the Court finds that the statute of limitations defect does not affirmatively appear on the face of the SAC as a matter of law. The Court notes again that while the SAC was filed on October on October 11, 2017 the parties agreed that any statute of limitations was tolled from September 15, 2017 through the date of the continued hearing on the motion for leave to file the SAC. The SAC was filed within two years of the date Plaintiff alleged discovered the basis for the Fourth Cause of Action. On this basis alone the demurrer is overruled.

In addition, even if the discovery rule did not apply, the demurrer must be overruled for a separate reason. To that end, Defendant was added to this action by way of a Doe Amendment in which he was substituted for DOE 1 in the third cause of action for fraudulent conveyance on July 10, 2017. Under Cal. Civ. Proc. Code § 474, a plaintiff ignorant of the identity of a party responsible for damages may name that person in a fictitious capacity, a Doe defendant, and the time limit prescribed by the applicable statute of limitations is extended as to the unknown defendant. When the complaint is amended to substitute the true name of the defendant for the fictional name, the defendant is regarded as a party from the commencement of the suit. (Munoz v. Purdy (1979) 91 Cal. App. 3d 942, 946.) Civ. Proc. Code § 474 must be liberally construed to enable a plaintiff to avoid the bar on the statute of limitations where he is ignorant of the identity of the defendant. The inquiry is restricted to the knowledge of the plaintiff at the time of the filing of the complaint. The lack of knowledge of the true name of the defendant must be real and not feigned. Ignorance of the facts is the critical issue, and whether it be due to misinformation or negligence is not relevant. Under § 474, therefore, a plaintiff has no duty to exercise reasonable diligence prior to filing the complaint to discover the defendant’s identity. (Balon v Drost (1993) 20 Cal.App.4th 483.) Plaintiff’s ignorance of the defendant’s name must be genuine (in good faith) and not feigned. (Stephens v. Berry (1967) 249 Cal.App.2d 474, 477.) “[A] plaintiff is entitled to the benefits of section 474 unless substantial evidence shows she was not ignorant of the facts she needed to know. (General Motors Corp. v. Superior Court (1996) 48 CaI.App.4th 580, 595. (emphasis added).)

Defendant argues that the Doe Amendment was improper because Plaintiff filed the amendment without leave of court. Defendant relies on CCP 472, which provides that a plaintiff can amend their complaint in a lawsuit only once as a “matter of

course” (without leave of court), and such an amendment must occur before a defendant’s (or cross-defendant’s) answer or demurrer is filed. Defendant contends that because Plaintiff’s time to amend as of right had passed years ago, he was required to make a motion for leave to the extent he wanted to add Defendant as a Doe Defendant. Defendant argues that Plaintiff did nothing more than simply present

a Doe Amendment which the Court entered and that Plaintiff did not even provide any notice, for example, by way of an ex parte application.

Code of Civil Procedure section 474, the fictitious name statute, states in part: “When the plaintiff is ignorant of the name of a defendant, he must state that fact in the complaint . . . and such defendant may be designated in any pleading or proceeding by name, and when his true name is discovered, the pleading or proceeding must be amended accordingly…” There is no requirement in CCP 474 that a DOE amendment requires prior court approval. Code of Civil Procedure section 474 is to be liberally construed. (General Motors Corp. v. Superior Court (1996) 48 Cal. App. 4th 580, 593

& 593-594, fn. 12.) The Sacramento Superior Court does not mandate prior court approval for a DOE amendment. Specifically, the local form, which is optional, but approved by the Court for use, unequivocally states that “no court order is required” to file and serve a DOE amendment. See CV\E 120, Rev. 11.03.11. This local form applies to all DOE amendments, not only those made before a responsive pleading has been filed. The Local Rules of the Sacramento Superior Court, like those of the Los Angeles Superior Court, provide authorization for DOE amendments to be made by filing and serving the optional form or one substantially similar to the court provided optional form. (See Weil & Brown, Civil Procedure Before Trial, section 6.614.) While Plaintiff here did not use the optional form, he used one substantially similar. (ROA 119.)

Whether CCP 474 has been properly complied with (genuine ignorance of DOE’s identity etc.) may be challenged by a motion to quash or other appropriate motion raising that issue. (See Balon v Drost (1993) 20 Cal.App.4th 483.) The Court does not make that determination in advance of a DOE amendment, as such a determination requires an evidentiary hearing. The Court thus disagrees with Defendant’s argument that the DOE Amendment was improperly filed. Further, while Defendant argues that Plaintiff was not truly ignorant of Defendant’s identity at the time the FAC was filed in June 2016 (which contained the fraudulent conveyance cause of action as to which he was added as a Doe Defendant), this is a factual question not properly resolved on a demurrer. Defendant’s reference to Plaintiff’s statement in connection with the briefing on the motion for leave to amend that he “arguably…had enough information to name [Defendant] as a Doe earlier in this case for fraudulent transfer…” does not demonstrate as a matter of law that he was not truly ignorant of Defendant’s identity and Defendant’s connection to the case at the time the FAC was filed in June 2016. “[E]ven though the plaintiff knows of the existence of the defendant sued by a fictitious name, and even though the plaintiff knows the defendant’s actual identity (that is, his name), the plaintiff is ‘ignorant’ within the meaning of the statute if [plaintiff] lacks knowledge of that person’s connection with the case or with [plaintiff’s] injuries…The fact that the plaintiff had the means to obtain knowledge is irrelevant.” ( General Motors Corp. v. Superior Court (1996) 48 Cal.App.4th 580, 593-594 [citations omitted].) As a result, at least for purposes of the instant demurrer, the Doe Amendment related back to the filing of the complaint and thus the Fourth Cause of Action is timely on that basis as well.

The Court is cognizant of Defendant’s footnote arguing that the Doe Amendment adding Defendant to the Third Cause of Action in the FAC was filed to avoid any statute of limitations issue on the Fourth Cause of Action in the SAC because he eventually dropped Defendant from the Third Cause of Action. Defendant reasons that this shows that Plaintiff never intended to pursue Defendant on the Third Cause of Action in the first instance and was just engaged in procedural gamesmanship to avoid

the statute of limitations. The Court will not invalidate the Doe Amendment on this basis.

As a result, the demurrer is overruled.

Give the above, the Court need not and does not address Plaintiff’s additional argument that Defendant is equitably estopped from raising the statute of limitations.

No later than February 2, 2018, Defendant shall file and serve his answer to the SAC.