Case Name: Christopher Treble v. Perry Hariri, et al.
Case No.: 2018-CV-321891

Demurrer to the First Amended Complaint by Defendant Urban Dynamic, LLC

Factual and Procedural Background

This is a breach of contract case. In December 2007, plaintiff Christopher Treble (“Plaintiff”) agreed to loan $500,000 to defendants Urban Dynamic, LLC (“Urban Dynamic”) and Perry Hariri. (First Amended Complaint [“FAC”] at ¶ 9.) The loan arrangement was ultimately agreed to and ratified by defendant John Treble. (Ibid.) The terms of the parties’ loan contract were as follows: “The principle balance owing on the loan was payable upon written demand, with 10% interest per annum, provided however that the demand could not be made before the occurrence of an Urban Dynamics liquidity event creating distributable, net to the partners after expenses, cash resources in such an amount sufficient to fully repay the loan (a “Sufficient Liquidity Event”), and Plaintiff’s being made aware of this event so that he could then make his demand.” (Ibid.) The subject loan was made with the understanding that it would be used by defendants in the purchase of real estate for Urban Dynamic to hold for development for an eventual profit through some form of sale. (Ibid.)

According to the parties’ loan agreement, defendants would not be obligated to repay the loan (even if a demand had been made) until Plaintiff was made aware that Urban Dynamic had a Sufficient Liquidity Event. (FAC at ¶ 10.) Plaintiff was not made aware of an occurrence of a Sufficient Liquidity Event until after January 18, 2016. (Ibid.) Plaintiff thereafter made written demand for payment of the loan in May 2016. (Ibid.) Plaintiff alleges he filed this action within two years after the earliest date the loan could have been due. (Ibid.)

Prior to Plaintiff’s first demand for payment in May 2016, one payment of $124,000 was made on the loan two years after it was made. (FAC at ¶ 11.) As of December 19, 2017, exactly ten years after Plaintiff funded the loan, the balance due and owing was $858,365. (Ibid.) Defendants have failed and refused to pay any of the remaining loan balance despite Plaintiff’s demand and this lawsuit. (Ibid.) As of December 31, 2017, the total amount outstanding on the loan remains at $858,365. (Ibid.)

The operative FAC alleges causes of action for breach of contract and common counts.

Demurrer to the FAC

Currently before the Court is the demurrer to the FAC by defendant Urban Dynamic. (Code Civ. Proc., § 430.10.) Urban Dynamic also filed a request for judicial notice in conjunction with the motion. Plaintiff filed written opposition. Defendant Urban Dynamic filed reply papers.

Request for Judicial Notice

In support of the demurrer, defendant Urban Dynamic requests judicial notice of the original complaint filed in this action on January 17, 2018. The complaint constitutes a record of the superior court subject to judicial notice under Evidence Code section 452, subdivision (d). (See Stepan v. Garcia (1974) 43 Cal.App.3d 497, 500 [the court may take judicial notice of its own file].) In addition, the complaint appears to be relevant to arguments raised in the demurrer. (See Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [judicial notice is confined to those matters which are relevant to the issue at hand].)

Accordingly, the request for judicial notice is GRANTED.

Legal Standard

“In reviewing the sufficiency of a complaint against a general demurer, we 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.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

First Cause of Action: Breach of Contract

The first cause of action is a claim for breach of contract. “To state a cause of action for breach of contract, a party must plead the existence of a contract, his or her performance of the contract or excuse for nonperformance, the defendant’s breach and resulting damage.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.)

Defendant Urban Dynamic makes the following arguments on demurrer: (1) Plaintiff fails to allege whether the contract is oral, written, or implied by conduct; (2) the newly alleged terms of the agreement are subject to the sham pleading doctrine; (3) the breach of contract claim is barred by the statute of limitations; (4) Plaintiff does not allege compliance with conditions to state a claim for breach of contract; and (5) the breach of contract cause of action is fatally uncertain.

Oral, Written or Implied by Conduct

A pleading is subject to demurrer if it cannot be ascertained whether the alleged contract is written, oral, or implied by conduct. (Code Civ. Proc., § 430.10, subd. (g).) A complaint need not explicitly state whether the alleged contract is written, oral, or implied by conduct to withstand demurrer. (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 99.) The nature of the contract may be ascertained from the contract as a whole. (Ibid.)

Defendant Urban Dynamic persuasively argues that the FAC fails to allege whether the parties’ loan agreement is oral, written, or implied by conduct. In opposition, Plaintiff concedes this argument but nevertheless claims the nature of the loan agreement can be ascertained from the FAC. (See OPP at pp. 12-13.) In doing so, Plaintiff points to allegations suggesting that the loan agreement constitutes an oral contract. (Ibid.) For example, Plaintiff alleges he filed this action within two years after the earliest date the loan could have been due. (FAC at ¶ 10.) Such allegation may suggest the existence of an oral contract which is subject to a two-year statute of limitations under Code of Civil Procedure section 339. However, for purposes of clarity, Plaintiff should amend his pleading to allege that the parties entered into an oral loan agreement to support his breach of contract cause of action. The Court therefore sustains the demurrer on this ground.

Sham Pleading Doctrine

Defendant Urban Dynamic also argues the first cause of action is subject to demurrer under the sham pleading doctrine.

The sham pleading doctrine holds that, as a general rule, an amended pleading that contradicts an admission in an earlier complaint will not be allowed. (Hendy v. Losse (1991) 54 Cal.3d 723, 742-743.) But a party should be allowed to amend a pleading to correct an allegation made as a result of mistake or inadvertence. (Id. at p. 743.) Any inconsistency with a prior complaint must be explained, otherwise the court may ignore the inconsistent allegation. (Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 946.) The purpose of the sham pleading doctrine is to enable the courts to prevent an abuse of process. (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 426.) The doctrine is not intended to prevent honest complainants from correcting erroneous allegations or to prevent the correction of ambiguous facts. (Ibid.)
Here, defendant Urban Dynamic argues the original complaint alleged that payment was due upon written demand. (See Request for Judicial Notice [Complaint at p. 3].) Urban Dynamic asserts this allegation conflicts with the contention raised in the FAC that payment be made upon written demand after the occurrence of the Sufficient Liquidity Event. (See FAC at ¶¶ 9-10.) The sham pleading doctrine however is not applicable as this is not a situation where Plaintiff omitted harmful allegations in a subsequent pleading. Nor is this is a case where facts alleged in the original complaint are inconsistent with those in the FAC. Like the prior pleading, the operative FAC alleges that payment be made upon written demand. If anything, Plaintiff merely explains, by way of amendment, that any written demand take place subject to the occurrence of the Sufficient Liquidity Event. Such allegation does not appear to be inconsistent with the prior pleading. Consequently, the demurrer is not sustainable based on the sham pleading doctrine.

Statute of Limitations.

In addition, defendant Urban Dynamic argues the first cause of action is barred by the applicable statute of limitations.

“[A] statute of limitations gives someone who has suffered a civil wrong a certain period of time to sue for damages.” (Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th 953, 960 (Doe).) “[T]he statute of limitations exists to promote the diligent assertion of claims, ensure defendants the opportunity to collect evidence while still fresh, and provide repose and protection from dilatory suits once excess time has passed.” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191 (Aryeh).)

“The limitations period, the period in which a plaintiff must bring suit or be barred, runs from the moment a claim accrues.” (Aryeh, supra, 55 Cal.4th at p. 1191.) Traditionally, a cause of action “accrues” when it is complete with all of its elements. (Doe, supra, 247 Cal.App.4th at p. 961.) However, “a cause of action will at times be deemed to accrue at a later date, such as when the plaintiff did not discover and had no occasion to discover the cause of action until that later date, when the defendant fraudulently concealed the existence of a possible claim until that later date, or when the defendant committed multiple wrongs that ended on that later date.” (Ibid.)

A court may sustain a demurrer on the ground of failure to state sufficient facts if “the complaint shows on its face the statute [of limitations] bars the action.” (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315.) A demurrer is not sustainable if there is only a possibility the cause of action is time-barred; the statute of limitations defense must be clearly and affirmatively apparent from the allegations in the pleading. (Id. at pp. 1315-16.) When evaluating whether a claim is time-barred, a court must determine (1) which statute of limitations applies and (2) when the claim accrued. (Id. at p. 1316.)

As a preliminary matter, the statute of limitations argument appears premature as Plaintiff has not yet alleged whether the contract is oral, written, or implied by conduct. Thus, it is not clear which statute of limitations would apply. (See Code Civ. Proc., § 337 [four-year period for written contracts]; Code Civ. Proc., § 339 [two-year period for oral contracts].) Regardless, defendant Urban Dynamic argues the breach of contract cause of action accrued in 2007 and thus, under either section 337 or 339, the claim would be time-barred as this action was not filed until January 2018. (See Buffington v. Ohmert (1967) 253 Cal.App.2d 254, 256 [“For purposes of the statute of limitations, loans payable on demand are deemed payable at their inception, and the statute begins to run from such time.”].) This argument however ignores the allegation that Plaintiff could not demand payment until occurrence of the Sufficient Liquidity Event which he did not become aware of until after January 18, 2016. (See FAC at ¶¶ 9-10.) Thus, the limitations period, whether two years or four years, began to run at the earliest on January 19, 2016. Since Plaintiff filed this lawsuit on January 17, 2018, the action would appear to be timely under either section 337 or 339. The statute of limitations argument therefore is not sustainable on demurrer.
Failure to Allege Compliance with Conditions
Defendant Urban Dynamic further argues that Plaintiff fails to allege compliance with all of the alleged conditions to state a claim for breach of contract.

“A conditional obligation is one in which ‘the rights or duties of any party thereto depend upon the occurrence of an uncertain event.’” (JMR Construction Corp. v. Environmental Assessment and Remediation Management, Inc. (2015) 243 Cal.App.4th 571, 593, citing Civ. Code, § 1434.) “[P]arties may expressly agree that a right or duty is conditional upon the occurrence or nonoccurrence of an act or event.” (Ibid., citations omitted.) “[A] condition precedent is either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises.” (Ibid. citations omitted; see also Civ. Code, § 1436.) Whether a condition precedent exists generally depends on the intent of the parties as determined from the words used in the contract. (Id. at pp. 593-594.) Conditions precedent are disfavored by the law and are to be strictly construed against the party seeking to avail itself of one. (Id. at p. 594.) A term of an agreement should not be construed as a condition precedent unless it is evident from clear, unambiguous language in the contract. (Ibid.)

The sole argument raised by defendant is that Plaintiff fails to allege that Urban Dynamic ever achieved a “Sufficient Liquidity Event.” (See Memo of P’s & A’s at p. 13.) This contention lacks merit as Plaintiff alleges such a liquidity event had occurred and that he became aware of the event sometime after January 18, 2016. (See FAC at ¶ 10.) Accordingly, the demurrer is not sustainable on this ground.

Uncertainty

Finally, defendant Urban Dynamic demurs to the first cause of action on the ground of uncertainty.

Uncertainty is a disfavored ground for demurrer; it is typically sustained only where the pleading is so unintelligible and uncertain that the responding party cannot reasonably respond to or recognize the claims alleged against it. (See Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) “[T]he failure to specify the uncertain aspects of a complaint will defeat a demurrer based on the grounds of uncertainty.” (Fenton v. Groveland Community Services Dist. (1982) 135 Cal.App.3d 797, 809 [overruled on other grounds by Katzberg v. Regents of University of California (2002) 29 Cal.4th 300, 328, fn. 30].)

The Court does not find the first cause of action to be fatally uncertain, vague, or unintelligible. Instead, the allegations set forth a straightforward action for damages arising from breach of a loan agreement. In addition, the arguments raised on general demurrer demonstrate that defendant Urban Dynamic has a clear understanding of the issues raised in this lawsuit. Consequently, the demurrer is not sustainable on the ground of uncertainty.

Disposition

The demurrer to the first cause of action is SUSTAINED WITH 15 DAYS’ LEAVE TO AMEND after service of this signed order solely on the ground that Plaintiff fails to allege whether the loan agreement is oral, written, or implied by conduct. (See City of Stockton v. Super. Ct. (2007) 42 Cal.4th 730, 747 [where plaintiff has not had opportunity to amend complaint in response to demurrer, “leave to amend is liberally allowed as a matter of fairness unless the complaint shows on its face that it is incapable of amendment”].)

Second Cause of Action: Common Counts

The second cause of action is a claim for common counts. A common count is not a specific cause of action; rather, it is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness, including that arising from an alleged duty to make restitution under an assumpsit theory. (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394.) “When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable.” (Ibid.) As discussed above, Plaintiff has not sufficiently pleaded a claim for breach of contract against defendant Urban Dynamic. It therefore follows that Plaintiff has not stated a viable claim for common counts.

Accordingly, the demurrer to the second cause of action is SUSTAINED WITH 15 DAYS’ LEAVE TO AMEND after service of this signed order.

The Court will prepare the Order.