Case Name:   Mediaboost, Ltd. v. Tal Hart, et al.

Case No.:       1-14-CV-263099

After full consideration of the arguments and the authorities submitted by each party, the court makes the following rulings:

Plaintiff/cross-defendant Mediaboost, Ltd. (“Mediaboost”) and cross-defendants Trend Software, Inc. (“Trend”), and Michael Burstein (“Burstein”) (collectively, “Cross-Defendants”) demur to the causes of action asserted against Mediaboost in the first amended cross-complaint (“FAXC”) by defendant/cross-complainant Alon Matas (“Matas”), and Mediaboost moves for judgment on the pleadings to the answer by Matas and defendant Compile Ltd. (“Compile”) (collectively, “Answering Defendants”).[1]

I.          Mediaboost’s Demurrer to the FAXC

In the FAXC, Matas alleges the following:

Pursuant to a written contract (“Employment Agreement”) approved by the board of Mediaboost’s parent company, nonparty Mediaboost, Ltd. (Israel) (“Parent Company”), Matas worked as Mediaboost’s CEO, and Mediaboost agreed to pay his salary, travel expenses, and—should it terminate him without “justifiable cause”—severance pay.  (FAXC, ¶¶ 17-18, 26, 40 & Ex. A.)  Parent Company decided to sell Mediaboost, and Mediaboost and Parent Company executed a contract (“Carveout Agreement”) whereby Matas and certain employees who continued to work for Mediaboost would receive a bonus if the acquisition or merger occurred during or within 6 months after their employment.  (Id., ¶¶ 19-21, 27, 42 & Ex. D.)

In November 2012, Trend and/or Burstein acquired Mediaboost, Mediaboost terminated Matas without justifiable cause on November 29, 2012, Burstein subsequently became Mediaboost’s CEO, and Mediaboost merged with Trend on February 6, 2013.  (Id., ¶¶ 23-24 & 29-30.)  Cross-Defendants concealed the date of the merger/acquisition, and Burstein—on Mediaboost’s behalf—threatened to take adverse action against Matas if he refused to release Mediaboost from the Carveout Agreement, and ultimately took such adverse action.  (Id., ¶¶ 31-38.)  Mediaboost failed to pay Matas his bonus, severance pay, and travel expenses, and failed to immediately pay him for his unused paid leave.  (Id., ¶¶ 25 & 41-44.)  In the FAXC, Matas asserts causes of action against Mediaboost for (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) intentional infliction of emotional distress (“IIED”); (4) negligent infliction of emotional distress (“NIED”); (5) failure to immediately pay wages and statutory penalties; (6) violation of the unfair competition law (“UCL”); (7) wrongful termination; (8) defamation; and (9) extortion.

Cross-Defendants demur to the causes of action asserted against Mediaboost in the FAXC on the grounds of failure to allege sufficient facts and uncertainty.  (See Code Civ. Proc. [“CCP”], § 430.10, subds. (e) & (f).)

The demurrer for uncertainty is OVERRULED.  (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 [“a demurrer for uncertainty is strictly construed because ambiguities can be clarified under modern discovery procedures”].)

The demurrer to the first, second, and seventh causes of action against Mediaboost for failure to allege sufficient facts is OVERRULED.  The cases cited by Cross-Defendants for the position that a plaintiff “must plead and prove that he has performed every obligation required of him under the agreement” in order to state a claim for breach of contract do not actually support that proposition.  (See Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1389-1393 [a plaintiff is only required to allege performance in general terms]; see also McDonald v. John P. Scripps Newspaper (1989) 210 Cal.App.3d 100, 104 [discussing damages, not performance]; see also FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367 [“FPI Development”] [discussing the parol evidence rule].)

Contrary to Cross-Defendants’ assertion, Matas alleges that he performed under the Employment Agreement by serving as CEO; he performed under the Carveout Agreement by continuing to work as CEO in lieu of seeking other work; he was terminated without justifiable cause; he is entitled to a $1.5 million bonus under the Carveout Agreement; he is entitled to reimbursement for travel expenses under the Employment Agreement; and Mediaboost wrongfully terminated him as a means to avoid paying him his earned compensation.  (FAXC, ¶¶ 22-24, 28-29, 37-41, 44, & 87.)  These allegations are accepted as true on demurrer, and whether Matas can ultimately prove the truth of the allegations is irrelevant.  (See Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496 [“Alcorn”].)

The demurrer to the third cause of action against Mediaboost for failure to allege sufficient facts is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.  Matas does not allege facts to support the elements of outrageous conduct, causation, or symptoms of severe emotional distress.  (See Cochran v. Cochran (1998) 65 Cal.App.4th 488, 494 [elements of an IIED claim]; see also Alcorn, supra, at pp. 498-499 [a plaintiff adequately pleaded causation and severe emotional distress where the plaintiff allegedly “did suffer physical illness, shock, nausea and insomnia as a result thereof”].)  These deficiencies can reasonably be cured, and leave to amend is granted.

The demurrer to the fourth cause of action against Mediaboost for failure to allege sufficient facts is SUSTAINED WITHOUT LEAVE TO AMEND.  NIED “is the tort of negligence to which the traditional elements of duty, breach of duty, causation, and damages apply” (Ess v. Eskaton Properties, Inc. (2002) 97 Cal.App.4th 120, 126),  “[b]ut in the absence of physical injury, the courts have never allowed recovery of damages for emotional distress arising solely from property damage or economic injury to the plaintiff” in connection with a NIED claim (Butler-Rupp v. Lordeaux (2005) 134 Cal.App.4th 1220, 1228).

The demurrer to the fifth cause of action against Mediaboost for failure to allege sufficient facts is OVERRULED.  A claimant is not required to allege the exact amount of wages owed, and the applicable statutes do not impose any “employee obligations.”  (See Labor Code, §§ 201 & 203.)  Matas alleges that Mediaboost violated the Labor Code by failing to immediately pay him for his unused paid leave upon his termination.  (FAXC, ¶¶ 70 & 73.)

The demurrer to the sixth cause of action against Mediaboost for failure to allege sufficient facts is OVERRULED.  Matas asserts a UCL claim on behalf of himself and others, alleging that Mediaboost failed to pay him and others their wages and benefits, and conspired to delay the recognition of its merger/acquisition to avoid paying them.  (FAXC, ¶ 76.)  This allegation is sufficient to support standing to assert a representative UCL claim.  (See Bus & Prof. Code, §§ 17203 & 17204; Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143.)  Also, the UCL allows claims based on a single act; no ongoing pattern of conduct need be alleged to state a claim.  (UFW of America v. Dutra Farms (2000) 83 Cal.App.4th 1146, 1163; Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 968-969, fn. 3.)

The demurrer to the eighth cause of action against Mediaboost for failure to allege sufficient facts is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.  Matas alleges that Burstein—not Mediaboost—made defamatory statements.  In opposition, Matas states that Burstein made the statements on Mediaboost’s behalf, but the FAXC does not contain that allegation, and only allegations in the pleading are considered on demurrer.  (See Hall v. Great Western Bank (1991) 231 Cal.App.3d 713, 719, fn.7.)

The demurrer to the ninth cause of action against Mediaboost for failure to allege sufficient facts is SUSTAINED WITHOUT LEAVE TO AMEND.  The crime of extortion may be asserted as a private cause of action, since “[i]t is essentially a cause of action for moneys obtained by duress, a form of fraud.”  (Fuhrman v. California Satellite Systems (1986) 179 Cal.App.3d 408, 426.)  “The fatal flaw” in Matas’ claim is that he “never paid the money defendants demanded.”  (See id.; see also FAXC, ¶ 36.)

II.        Motion for Judgment on the Pleadings to Matas & Compile’s Answer

In the complaint, Mediaboost alleges that Tal Hart (“Hart”) and Matas worked for Mediaboost, and throughout their employment, misappropriated Mediaboost’s assets and funds; and that Compile is the alter ego of Hart and Matas.  (Compl., ¶¶ 14-27 & 30-34.)  Mediaboost asserts causes of action for: (1) breach of duty of loyalty and constructive fraud (against Hart, Answering Defendants, defendant Telnet, and Does 1-20 [collectively, “Defendants”]); (2) breach of contract (against Hart); (3) breach of contract (against Matas); (4) breach of fiduciary duty (against Defendants); (5) conversion (against Defendants); (6) intentional misrepresentation (against Matas); (7) intentional misrepresentation (against Hart); and (8) unfair competition in violation of the UCL (against Defendants).  In the answer, Answering Defendants deny each allegation in the complaint, and assert the following affirmative defenses: (1) failure to state a claim for relief; (2) failure to mitigate damages; (3) statute of limitations; (4) waiver; (5) collateral estoppel/res judicata; (6) unclean hands; (7) laches; (8) conduct of others; (9) avoidable consequences; (10) privilege/justification; (11) failure to exhaust statutory requirements; (12) failure to exhaust administrative/contractual remedies; (13) excused performance; (14) failure/lack of consideration; (15) adequate remedy at law; (16) setoff and recoupment; (17) Fair Responsibility Act of 1986, Civil Code sections 1431-1431.5 (also known as Proposition 51); (18) standing; (19) failure to state a claim under the UCL; (20) not appropriate for treatment as representative action; (21) no malice; and (22) additional affirmative defenses.

Mediaboost moves for judgment on the pleadings to the answer on the ground that the complaint contains sufficient allegations to state a claim, and the answer does not contain sufficient allegations to support any affirmative defense.  (See CCP, § 438, subd. (c)(1)(A); see also FPI Development, supra, at p. 384, fn.4 [facts which do not “directly tend to disprove” an averment in the complaint, “but tend to establish a defense independently of them, . . . are new matter, and must be specially pleaded”].)

The first affirmative defense for “failure to state a claim for relief” does not interpose new matter; it is an objection to the complaint properly asserted in the answer.  (See CCP §§ 430.10, subd. (e) & 430.30, subd. (b).)  The twenty-second affirmative defense also does not insert any new matter, it is a summary of Answering Defendants’ right to amend their answer under certain circumstances.  (See CCP, §§ 472 & 473.)  Accordingly, the motion for judgment on the pleadings as to the first and twenty-second affirmative defenses is DENIED.

The third affirmative defense is for statute of limitations.  A party does not need to allege facts supporting a statute of limitations defense; rather, the party must state “that the cause of action is barred by the provisions of Section ___ (giving the number of the section and subdivision thereof, if it is so divided, relied upon).”  (CCP, § 458.)  In the answer, Answering Defendants state the requisite statutory language, and identify CCP sections 335.1, 337, 338, 339, 340, and 343, and Labor Code section 203.  These statutes provide the statute of limitations for every cause of action asserted in the complaint,[2] and thus, the third affirmative defense complies with the CCP.  Therefore, the motion for judgment on the pleadings as to the third affirmative defenses is DENIED.

The second, fourth through seventeenth, twentieth, and twenty-first affirmative defenses insert new matter and must be supported by factual allegations.[3]  However, Answering Defendants do not allege any supporting facts.  Thus, the motion for judgment on the pleadings as to the second, fourth through seventeenth, twentieth, and twenty-first affirmative defenses is GRANTED WITH 10 DAYS’ LEAVE TO AMEND.

Answering Defendants’ eighteenth and nineteenth affirmative defenses are asserted in connection with each cause of action, but the basis for these defenses is that Mediaboost lacks standing under the UCL.  The UCL’s standing requirements only apply to the UCL claim.  (Bus & Prof. Code, § 17204.)  With respect to the UCL claim, the defenses contain new matter that must be supported by factual allegations, but Answering Defendants fail to allege supporting facts.  Thus, the motion for judgment on the pleadings as to the eighteenth and nineteenth affirmative defenses is GRANTED WITH 10 DAYS’ LEAVE TO AMEND to the extent it applies to the UCL claim, and GRANTED WITHOUT LEAVE TO AMEND to the extent it applies to the other claims.

The Court will prepare the order.