Case Name: Berg, et al. v. Metaview Wholesale Investments, LP, et al.

Case No.: 1-14-CV-264065

I. Demurrer by Defendants Edic Sliva and Lisa Tollner-Sliva to the First Amended Complaint of Plaintiffs Clyde Berg, Christopher Ellis, Richard Jay, and Dorothy Jay

This action and related cross-actions arise from the operations of MetaView Wholesale Investments, LP (“MetaView LP”), a limited partnership, created to develop residential real estate. Plaintiffs Clyde Berg, Christopher Ellis, Richard Jay, and Dorothy Jay (collectively “Plaintiffs”) are investors in and limited partners of MetaView LP. (First Amended Complaint (“FAC”), ¶¶ 2-4.) MetaView Wholesale Investments, LLC (“MetaView LLC”) was the sole general partner of MetaView LP until its removal on April 19, 2014. (FAC, ¶ 6.) Terry Houghton, Valerie Houghton, Edic Sliva, and Lisa Tollner-Sliva are owners and members of MetaView LLC. (FAC, ¶¶ 7-10.)

On April 18, 2014, Plaintiffs (as investors in and limited partners of MetaView LP) instituted this action against Terry Houghton and MetaView LLC, alleging that MetaView LLC (as the general partner of MetaView LP) and Houghton (as the manager of MetaView LLC) committed fraud and gross negligence in conducting the operation of MetaView LP. In the operative FAC, Plaintiffs added Edic Sliva and Lisa Tollner-Sliva (collectively the “Slivas”) as defendants, alleging that all of the defendants misappropriated funds of MetaView LP. (FAC, ¶ 22(a)-(t).) The FAC alleges fourteen causes of action: (1) a direct action under section 15910.01 of the Corporations Code; (2) a derivative action under section 15910.02 of the Corporations Code; (3) breach of fiduciary duties; (4) fraud—intentional misrepresentation of fact; (5) fraud—negligent misrepresentation of fact; (6) fraud—suppression of fact; (7) fraud—promise made without intention to perform; (8) constructive fraud; (9) misrepresentation in securities transaction; (10) rescission of sale of securities not qualified for sale and restitution of consideration paid; (11) expulsion of general partner (against MetaView LLC only); (12) accounting; (13) appointment of receiver; and (14) injunctive relief.

Pursuant to Code of Civil Procedure section 430.10, subdivision (e), the Slivas now demur to all the causes of action stated against them (first through tenth and twelfth through fourteenth), on the ground that Plaintiffs have failed to plead facts sufficient to constitute a cause of action. The Slivas also assert, pursuant to Code of Civil Procedure section 430.10, subdivision (f), that the second cause of action fails for uncertainty.

1. First Cause of Action for Derivative Relief under Corp. Code section 15910.01

In the first cause of action, Plaintiffs bring a direct action against the Slivas (and the other defendants) under section 15910.01 of the Corporations Code. To assert such an action, a plaintiff must allege that he or she is a partner and is bringing the action “against the limited partnership or another partner for legal or equitable relief . . . to enforce the rights and otherwise protect the interests of the partner . . . .” (Corp. Code, § 15910.01.) In their demurrer, the Slivas assert that Plaintiffs have failed to plead any allegation that the Slivas were ever partners of MetaView LP. In contrast, Plaintiffs assert that they have sufficiently alleged that MetaView LLC is the alter ego of the Slivas and that they are therefore equivalent to a partner. The question, therefore, is whether Plaintiffs have sufficiently pled their alter ego theory.

To recover on an alter ego theory, a plaintiff must prove two factors: “first, that there is a sufficient unity of interest and ownership between the corporation and the individual or organization controlling it that the separate personalities of the individual and the corporation no longer exist[;] and, second, that treating the acts as those of the corporation alone with sanction a fraud, promote injustice, or cause an inequitable result.” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1072.) As to the first factor—that the Slivas share a unity of interest with MetaView LLC—Plaintiffs direct the Court to paragraphs 9, 10, and 15 of the FAC. The ninth and tenth paragraphs allege that the Slivas are members of MetaView LLC. The fifteenth paragraph alleges in conclusory fashion that MetaView LLC is the alter ego of the Slivas and that, on information and belief, “there is such a unity of interest and ownership that the separate personalities of MetaView LLC and [the individual defendants] no longer exist.” (FAC, ¶ 15.) These allegations are not sufficient. (See Meadows v. Emett & Chandler (1950) 99 Cal.App.2d 496, 498-499 [“The allegation that a corporation is the alter ego of the individual stockholders is insufficient to justify the court in disregarding the corporate entity in the absence of allegations of facts from which it appears that justice cannot otherwise be accomplished.”]; see also Misik, supra, 197 Cal.App.4th at p. 1073 [listing several factors that may be considered in determining whether unity of interest is shown].) This defect is potentially curable, and Plaintiffs are granted leave to amend. (See McDonald v. Super. Ct. (1986) 180 Cal.App.3d 297, 303-304 [stating that it is an abuse of discretion not to allow leave to amend where the demurring party has not demonstrated that the complaint is incurable on its face].)

The demurrer to the first cause of action is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

2. Second Cause of Action for Derivative Relief under Corp. Code section 15910.02

Corporations Code section 15910.02 provides for derivative actions to enforce the rights of a limited partnership. The purpose of a limited partner’s derivative action is to enforce a claim that the limited partnership possesses against others, but that the partnership refuses to enforce. (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 425-426.) Thus, the finding that Plaintiffs have failed to plead alter ego liability has no bearing on the second cause of action because it is not necessary to disregard the corporate form to assert liability against the Slivas in such an action. (See Aronson v. Lewis (Del. 1984) 473 A.2d 805, 811 [“The nature of [a derivative action] is two-fold. First, it is the equivalent of a suit by the shareholders to compel the corporation to sue. Second, it is a suit by the corporation, asserted by the shareholders on its behalf, against those liable to it.”].)

The Slivas demur to the claim on the ground that Plaintiffs have failed to allege that the Slivas engaged in any specific wrongful conduct. That assertion does not accurately reflect the allegations of the FAC. The second cause of action alleges that all of the defendants engaged in wrongful conduct as described in paragraph 22 of the FAC. (FAC, ¶ 32.) In paragraph 22, Plaintiffs allege, among other things, that Lisa Sliva “was paid sums from the Partnership purportedly for ‘commission’, ‘comp’, ‘compensation’, and other non-designated reasons in the aggregate amount of not less than $51,767.94 . . . [and] [s]uch payments were not for legitimate business purposes, were unreasonable, and were unearned.” (FAC, ¶ 22(r).) The receipt of unearned partnership funds is the type of conduct that may give rise to a derivative action. (See Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 426 [stating that mismanagement and self-dealing are actionable in a derivative action].)

The demurrer to the second cause of action is OVERRULED.

3. Third Cause of Action for Breach of Fiduciary Duties

The Slivas are correct that Plaintiffs have failed to allege the existence of a duty. Plaintiffs’ claim against the Slivas is based upon the assertion that MetaView LLC, as a general partner of MetaView LP, owed the other members of the partnership the duties of loyalty and of care. (FAC, ¶ 35, citing Corp. Code, § 15904.08.) Plaintiffs attempt to impute these duties on the Slivas through alter ego liability. However, as discussed above, Plaintiffs have not pled facts sufficient to support their alter ego theory. Consequently, Plaintiffs have failed to plead that the Slivas owed them any fiduciary duty.

The demurrer to the third cause of action is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

4. Fourth through Ninth Causes of Action for Fraud

These causes of action allege different species of fraud: intentional misrepresentation of fact (fourth cause of action); negligent misrepresentation of fact (fifth cause of action); suppression of fact (sixth cause of action); promise made without intention to perform (seventh cause of action); constructive fraud (eighth cause of action); and misrepresentation in a securities transaction (ninth cause of action). The elements of a claim for fraud are: “’(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’” (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 638.) Moreover, because claims of fraud involve a serious attack on a person’s character, such claims are subject to a heightened pleading standard and must be pled with particularity. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73; see also Hills Transp. Co. v. Southwest Forest Industries, Inc. (1968) 266 Cal.App.2d 702, 707.) This heightened pleading standard necessitates pleading facts showing “how, when, where, to whom, and by what means the representations were tendered.” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

The Slivas demur to these causes of action on the ground that they are not pled with particularity. The Slivas are correct. In the fourth cause of action, Plaintiffs allege that the Slivas (and other defendants) “made the following representations to plaintiffs: (i) that defendant would use, and had used, Partnership funds only for Partnership projects and purposes; (ii) that the books and records of the Partnership would be, and were, true, correct, and accurate; and (iii) that [a contractor] . . . allegedly stole $1,500,000 from the Partnership.” (FAC, ¶ 46.) Plaintiffs further allege that these representations were false. (Id., ¶ 47.) Concerning the fifth cause of action, Plaintiffs incorporate by reference all earlier allegations and then allege that “[w]hen the defendants made the representations . . . they had no reasonable ground for believing them to be true.” (Id., ¶ 53.) As to the sixth cause of action, Plaintiffs incorporate the earlier allegations and then allege that the defendants (including the Slivas) suppressed the actual facts, which misled Plaintiffs. (Id., ¶¶ 56, 57.) Similarly, with regard to the seventh cause of action, Plaintiffs incorporate the earlier allegations and then allege that, “[a]t the time the defendants made the promises to the plaintiffs, the defendants had no intention of performing them.” (Id., ¶ 62.) In the eighth cause of action, Plaintiffs allege that “each defendant [including the Slivas] abused the trust and confidence of the plaintiffs by engaging in the Wrongful Conduct described in paragraph 22[,]” which, as to the Slivas, simply alleges that Lisa Sliva “was paid sums from the Partnership purportedly for ‘commission’, ‘comp’, ‘compensation’, and other non-designated reasons in the aggregate amount of not less than $51,767.94 . . . [and] [s]uch payments were not for legitimate business purposes, were unreasonable, and were unearned.” (FAC, ¶ 22(r).) Finally, with regard to the ninth cause of action, Plaintiffs allege that, “[i]n connection with the offer and sale of the security, [which is identified as an interest in the partnership], defendants made untrue statements of material fact and/or omitted to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading . . . .” (FAC, ¶ 73.) These allegations—particularly paragraphs 22 and 46, which Plaintiffs repeatedly refer to in support of their fraud claims—fail to identify how, when, where, and by what means the allegedly fraudulent representations were tendered. Consequently, Plaintiffs have failed to meet the heightened pleading standard applicable to fraud claims. (See Small, supra, 30 Cal.4th at p. 184.)

The demurrer to the fourth through ninth causes of action is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

5. Tenth Cause of Action for Rescission and Restitution

Section 25110 of the Corporations Code makes it unlawful to sell a security that is neither qualified nor exempt. Section 25503 of the Corporations Code provides that any person who violates section 25110 shall be liable to the person acquiring the security and that the injured party “may sue to recover [among other remedies] the consideration he paid for such security with interest thereon at the legal rate, less the amount of any income received therefrom, upon the tender of such security . . . .”

The Slivas demur to the tenth cause of action on two grounds. First, they assert that rescission is only available for contract claims and Plaintiffs have failed to plead the terms and conditions of any contract. Second, they assert that Plaintiffs have failed to allege facts showing how the Slivas allegedly sold securities not qualified for sale. Both of these assertions lack merit. As to the first contention, section 25503 of the Corporations Code clearly authorizes the remedy being sought in the 10th cause of action. As to the second argument, the Slivas are incorrect that Plaintiffs have filed to identify the security interest at issue. Plaintiffs allege that the defendants sold them “a Limited Partnership Interest.” (FAC, ¶ 76.) While the determination of whether something is a “security” within the meaning of the Corporations Code is largely a factual determination, courts have found that an interest in a partnership may constitute a security under certain circumstances. (See Consolidated Management Group, LLC v. Department of Corporations (2008) 162 Cal.App.4th 598, 610 [“Where profits are to come substantially from the efforts of others (the typical case in a limited partnership), a security will be present.”].)

The demurrer to the tenth cause of action is OVERRULED.

6. Twelfth Cause of Action for Accounting

Corporations Code section 15904.08, subdivision (b)(1) provides that “[a] general partner’s duty of loyalty to the limited partnership and the other partners is limited to the following: (1) to account to the limited partnership . . . any property, profit, or benefit derived by the general partner in the conduct . . . of the limited partnership’s activities or derived from a use by the general partner of limited partnership property.” The duties imposed by section 15904.08 apply to general partners. Here, MetaView LLC was a general partner. While the Slivas were members of MetaView LLC, as discussed above, Plaintiffs have not sufficiently pled facts demonstrating that the Slivas shared a unity of interest with MetaView LLC. Consequently, Plaintiffs have not pled facts demonstrating that section 15904.08 applies to the Slivas.

The demurrer to the twelfth cause of action is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

7. Thirteenth Cause of Action for Appointment of a Receiver

Code of Civil Procedure section 564 authorizes the court to appoint a receiver in an action between partners or others jointly interested in any property or fund when it is shown that the property or fund is in danger of being lost, removed, or materially injured. (Code Civ. Proc., § 564, subd. (b)(1).) The Slivas demur to the thirteenth cause of action on the ground that the claim is moot because MetaView LLC was removed as a general partner. The Slivas have not explained, however, how the disassociation of MetaView LLC precludes Plaintiffs from seeking the appointment of a receiver for the protection of partnership funds that are allegedly in the possession of the Slivas.

The demurrer to the thirteenth cause of action is OVERRULED.

8. Fourteenth Cause of Action for Injunctive Relief

While the Slivas are correct that injunctive relief is a remedy, not a cause of action (see City of S. Pasadena v. Department of Transp. (1994) 29 Cal.App.4th 1280, 1293), the proper procedural vehicle to challenge the propriety of a remedy is a motion to strike, not a demurrer. (Caliber Bodyworks, Inc. v. Super. Ct. (2005) 134 Cal.App.4th 365, 384-385.) That rule is not abrogated by virtue of the fact that Plaintiff has framed the request for injunctive relief as a “cause of action.”

The demurrer to the fourteenth cause of action for “injunctive relief” is OVERRULED.

II. Demurrer by MetaView LLC, Terry Houghton, and Valerie Houghton to the First through Fifth Causes of Action in the Cross-Complaint of Mitchell Development Enterprises, Inc.

After Plaintiffs instituted this action against MetaView LLC and its members, multiple cross-complaints were filed. First, MetaView LLC and Terry Hougton filed a cross-complaint against MetaView LP, Sully McGrath, Adrienne McGrath, Juan Macias, and Mitchell Development Enterprises, Inc. (“Mitchell”). The cross-complaint asserts indemnity rights against MetaView LP and raises claims against the other cross-defendants (who acted as or are associated with the general contractor that worked on certain MetaView LLC projects) for using partnership property for their own benefit.

The cross-complaint filed by Mitchell against Terry Houghton, Valerie Houghton, and MetaView LLC on October 30, 2014, is the subject of the second demurrer presently before the court. According to its allegations, Sully McGrath is a California-licensed general contractor and owner (along which his wife Adrienne McGrath) of Mitchell. (Cross-Compl., ¶ 7.) In 2011, Terry Houghton contacted Sully McGrath, indicating interest in having Mitchell build or remodel residences for the purpose of resale. (Id., ¶ 8.) Mitchell and Terry Houghton reached an oral agreement by which Mitchell was hired to build and remodel properties bought by MetaView. (Id., ¶ 9.) It was not made clear to Mitchell whether it was working for Terry Houghton or MetaView LLC, but Mitchell received all direction and funding from Terry Houghton. (Id.) Mitchell worked as a general contractor on over a dozen properties on behalf of Houghton and MetaView LLC. (Id., ¶ 11.)

In 2012, Sully McGrath and Terry Houghton agreed to jointly purchase and develop property located in Los Gatos (the “Kennedy Road Property”), which consisted of two subdivided lots with a single residence located on them. (Cross-Compl., ¶ 13.) According to Mitchell, Terry Houghton mismanaged and commingled funds for the MetaView and Kennedy Road Property projects, which resulted in both Mitchell and Terry Houghton seeking additional funding to finish the Kennedy Road Property project. (Cross-Compl., ¶¶ 20-25.) In October 2013, the Kennedy Road Property was sold. (Id., ¶ 26.) Mitchell did not receive any profits from the sale. (Id.) Based upon these allegations, Mitchell asserts five causes of action against MetaView LLC and the Houghtons: (1) fraud; (2) conversion; (3) unjust enrichment; (4) breach of contract (relating to the MetaView project; and (5) breach of contract (relating to the Kennedy Road Property project).

MetaView LLC and the Houghtons (collectively the “Houghtons”) now demur to all five causes of action on the ground that Mitchell has failed to plead facts sufficient to sate a claim.

Mitchell’s request for judicial notice is GRANTED. The Business Entity Detail Report from the California Secretary of State’s website indicating that, as of December 23, 2014, MetaView LLC was a suspended entity is subject to judicial notice under Evidence Code section 452, subdivision (c) as an official act. (See Pedus Building Services, Inc. v. Allen (2002) 96 Cal.App.4th 152, 156 n.2.) As to the second document, Mitchell’s Cross-Complaint is a record of this Court and subject to judicial notice pursuant to Evidence Code section 452, subdivision (d).

As an initial matter, Mitchell asserts that MetaView LLC has been suspended by the California Franchise Tax Board and that it therefore lacks the capacity to defend this action. (See Rev. & Tax Code, § 23301; see also Bourhis v. Lord (2013) 56 Cal.4th 320, 324 [“‘corporation may not prosecute or defend an action, nor appeal from an adverse judgment in an action while its corporate rights are suspended for failure to pay taxes.’”], quoting Reed v. Norman (1957) 48 Cal.2d 338, 343.) It appears from the attachments to the Supplemental Declaration of Jared Ahern filed February 5, 2015, that MetaView LLC has been reinstated, and therefore this argument is moot.

1. First Cause of Action for Fraud

The Houghtons demur to the claim on the ground that it is not pled with the particularity required for such claims.

The elements of fraud are (1) a misrepresentation, (2) knowledge of falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damage. (See Lazar, supra, 12 Cal.4th at p. 638.) In the Cross-Complaint, Mitchell alleges that “Terry Houghton made material misrepresentations of facts related to . . . obtaining financing on the Kennedy Road properties, [and] the use of funds obtained through the financing on the Kennedy Road properties. (Cross-Compl., ¶ 31.) Mitchell further alleges that, “[o]n or about December 17, 2012, Terry Houghton wire transferred $308,274.79 of Kennedy Road property funds to his private account and . . . used those funds to purchase MetaView property” without Mitchell’s consent. (Id., ¶ 19.) According to Mitchell, “[w]hen confronted about the wire transfer, Terry Houghton denied the allegation and stated that the funds were used on the Kennedy Road property [which he knew was false].” (Id.) Mitchell also identifies other instances of concealment by Houghton in paragraph 21 of the Cross-Complaint, which alleges that Houghton obtained a loan in the amount of $250,000 against the Kennedy Road Property in June 2013 without Mitchell’s consent and used those funds on something other than the Kennedy Road Property project. (Id., ¶¶ 21-22.) Finally, Mitchell alleges that Houghton made these misrepresentations with the intent to deceive, that Mitchell relied upon the misrepresentations, and that the misrepresentations and concealment of facts resulted in damages to Mitchell. (Id., ¶¶ 33, 34, 37.)

The purpose of the heightened pleading standard for fraud claims stems from the fact that fraud allegations involve a serious attack on character, and fairness to the defendant demands that he should receive sufficient details to understand fully the nature of the charges being made. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.) These allegations satisfy the standard that the allegations sufficiently identify the “how, when, where, to whom, and by what means the representations were tendered.” (See Small, supra, 30 Cal.4th at p. 184; see also Wilson v. Houston Funeral Home (1996) 42 Cal.App.4th 1124, 1139 [requirement that elements of fraud be pled with specificity may be met by incorporated allegations showing a false misrepresentation and knowledge of falsity].)

The demurrer to the first cause of action in the Cross-Complaint is OVERRULED.

2. Second Cause of Action for Conversion

The elements of conversion are (1) the plaintiff’s ownership or right to possession of the property at the time of the conversion, (2) the defendant’s conversion by a wrongful act or disposition of property rights, and (3) damages. (Oakdale Village Group v. Fong (1996) 43 Cal.App.4th 539, 543-544.) Money can be the subject of an action for conversion if a specific sum capable of identification is involved. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 452.)

Here, Mitchell alleges that Houghton agreed to split the profits of the Kennedy Road Property project (Cross-Compl., ¶ 14), that Houghton obtained a $250,000 loan against the property without Mitchell’s knowledge or consent (id., ¶ 21), and that the proceeds from the Kennedy Road Property project were used to repay the loan (id., ¶ 25). These facts are not sufficient to state a claim for conversion. While neither legal title nor absolute ownership of property is necessary to state a claim for conversion, “mere contractual right of payment, without more, will not suffice.” (Zerin, supra, 53 Cal.App.4th at p. 452.) The California Supreme Court’s holding in Imperial Valley L. Co. v. Globe G. & M. Co. (1921) 187 Cal. 352 (“Imperial Valley”), is instructive. There, a tenant entered into an agreement to raise crops on leased land and to pay the landlord one-fourth of the crop as rental. (Id., at p. 353.) The tenant, however, sold the entire crop and the proceeds were used to pay other debts of the tenant. (Id.) The landlord brought suit for conversion and the Supreme Court concluded that no claim was stated because the rental agreement established no title to or lien upon the crop. (Id., at p. 354.) The facts are analogous here, where Houghton allegedly agreed to share 50/50 in the profits from the Kennedy Road Property project sale and then used some of those profits to pay off another debt. Consequently, under the holding from Imperial Valley, Mitchell has not stated a claim for conversion.

The demurrer to the second cause of action in the Cross-Complaint is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

3. Third Cause of Action for Unjust Enrichment

The Houghtons demur on the ground that unjust enrichment is not a cognizable cause of action. California appellate courts are not in accord on whether unjust enrichment is an independent “cause of action” or simply a remedy. As one court of appeal has stated, “[a]though some California courts have suggested the existence of a separate cause of action for unjust enrichment, this court [the Fourth District] has recently held that [t]here is no cause of action in California for unjust enrichment[,] [which] . . . is synonymous with restitution.” (Levine v. Blue Shield of Cal. (2010) 189 Cal.App.4th 1117, 1138.) In Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793, the court stated that unjust enrichment is “‘a general principle, underlying various legal doctrines and remedies,’ ” rather than a remedy itself. [Citation.] It is synonymous with restitution.”

In McBride v. Houghton (2004) 123 Cal.App.4th 379 (McBride), after recognizing that unjust enrichment was not a stand-alone cause of action, the court wrote: “In reviewing a judgment of dismissal following the sustaining of a general demurrer, we ignore erroneous or confusing labels if the complaint pleads facts which would entitle the plaintiff to relief. Thus, we must look to the actual gravamen of [plaintiff’s] complaint to determine what cause of action, if any, he stated, or could have stated if given leave to amend. In accordance with this principle, we construe [plaintiff’s] purported cause of action for unjust enrichment as an attempt to plead a cause of action giving rise to a right to restitution.” (McBride, supra, 123 Cal.App.4th at p. 387-388.) The court went on to state the following:

There are several potential bases for a cause of action seeking restitution. For example, restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason. [Citations.] Alternatively, restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct. In such cases, the plaintiff may choose not to sue in tort, but instead to seek restitution on a quasi-contract theory (an election referred to at common law as “waiving the tort and suing in assumpsit”). [Citation.] In such cases, where appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment. [Citation.]

(McBride, supra, 123 Cal.App.4th at p. 388; internal citations and punctuation omitted.)

As indicated by the holding in McBride, restitution is a legal theory that gives rise to an alternative remedy, e.g., in lieu of breach of contract or in the case of fraud where the plaintiff chooses not to sue in tort. A plaintiff may plead restitution in the alternative to other claims, but such claims must clearly be pled in the alternative. For instance, in Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, the plaintiff asserted claims for breach of contract and unjust enrichment. The court stated that, “[a]lthough a plaintiff may plead inconsistent claims that allege both the existence of an enforceable agreement and the absence of an enforceable agreement, that is not what occurred here[:] Instead, plaintiffs’ breach of contract claim pleaded the existence of an enforceable agreement and their unjust enrichment claim did not deny the existence or enforceability of that agreement.” (Klein, supra, 202 Cal.App.4th at p. 1389.) Given the state of the plaintiffs’ pleadings, the court held that “Plaintiffs are therefore precluded from asserting a quasi-contract claim under the theory of unjust enrichment.” (Id., at pp. 1389-1390.)

Here, Mitchell has not pled its claim for restitution in the alternative. The demurrer is therefore well-taken as to this claim but, because the defect is potentially curable, leave to amend is granted.

The demurrer to the third cause of action is SUSTAINED WITH 10 DAYS LEAVE TO AMEND.

4. Fourth and Fifth Causes of Action for Breach of Contract

The fourth cause of action relates to agreements concerning work on the MetaView properties. The fifth cause of action relates to agreements related to the Kennedy Road Property project. The Houghtons demur to both causes of action on the ground that Mitchell has failed to plead facts sufficient to state a claim.

To state a claim for breach of contract, the claimant must demonstrate: (1) the existence of a contract; (2) performance or excuse for nonperformance; (3) breach; and (4) damages. (Oasis W. Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

In the fourth cause of action, Mitchell alleges that, “[b]eginning in 2011 with the development of the first MetaView property[,] Terry Houghton and MetaView LLC entered into a series of oral contracts with Mitchell in which Terry Houghton and MetaView would pay for services (costs associated with poperty development, monthly pay for services, business expenses, payments to vendors, payments to subcontractors, bonuses, and profits as detailed above) and Mitchell would make improvements and develop real property (build or remodel homes on MetaView property). (Cross-Compl., ¶ 48.) The earlier allegations of the Cross-Complaint, which are incorporated by reference into the fourth cause of action, discuss the details of these agreements. For instance, Mitchell alleges that Terry Houghton and MetaView LLC “agreed that Mitchell would receive $15,000 per month (payable in biweekly payments) to act as a supervisor on building projects for MetaView.” (Id., ¶ 10.) “In addition[,] Terry Houghton and MetaView LLC would pay all of Mitchell’s business expenses (including insurance and office costs), pay for all construction material for project, pay third party vendors, fund payroll for workers, pay bonuses based on time of completion of projects, and pay Mitchell 8% of any profits on the sale of constructed or remodeled MetaView properties in which the general contractor was Mitchell.” (Id.) Mitchell alleges that it worked as a general contractor on over a dozen properties on behalf of Terry Houghton and MetaView LLC. (Id., ¶ 11.) Finally, Mitchell alleges that the Houghtons breached the terms of their agreements by failing to make payments to subcontractors, vendors, and for Mitchell’s payroll. (Id., ¶¶ 24, 28.) These allegations are sufficient to state a claim for breach of the oral contracts associated with the MetaView properties.

As to the fifth cause of action, Mitchell alleges that, “[i]n mid-2012 Mitchell, acting through Sully McGrath, and Terry Hougton reached an agreement in which they would develop the Kennedy Road property by building two residential homes on the subdivided property and split the profits 50/50.” (Cross-Compl., ¶ 53.) A Profit Sharing Agreement executed by Sully McGrath and Terry Houghton is attached as Exhibit B to the Cross-Complaint, the terms of which are referenced in the Cross-Complaint. Mitchell further alleges that it performed in accordance with the parties’ agreements and that Terry Houghton breached the agreement by not splitting the profits from the sale of the Kennedy Road Property. (Cross-Compl., ¶¶ 54, 55.) These allegations, in combination with the attachment of the Profit Sharing Agreement to the Cross-Complaint, are sufficient to state a claim for breach of the agreements related to the Kennedy Road Property project.

The demurrer to the fourth and fifth causes of action is OVERRULED.