Case Number: EC060956 Hearing Date: May 02, 2014 Dept: NCD

TENTATIVE RULING (5-2-14)
#6
EC 060956
HOONANIAN v. VERENGO, INC.

Demurrer of Verengo, Inc. and American Contractors Indemnity Company to First Amended Defendant Kenneth Button’s Demurrer to First Amended Complaint
Defendants’ Motion to Strike Portions of First Amended Complaint

TENTATIVE:
Demurrer of Kenneth Burton is SUSTAINED. No facts are alleged which establish that this party should be individually liable for the conduct alleged. The opposition does not point to any such allegations but requests leave to amend. The demurrer is sustained with one further opportunity to amend.

Demurrer of Verengo, Inc. and American Contractors Indemnity Company, to the extent brought by American Contractors Indemnity Company, is not proper, as American Contractors is not named as a defendant in any of the causes of action challenged, so has no standing to argue insufficiency.

Demurrer to the extent brought by Verengo, Inc. is OVERRULED as to the first cause of action for breach of contract and third cause of action for breach of implied covenant of good faith.

Demurrer to the second cause of action for intentional misrepresentation and fifth cause of action for fraud are sustained on the ground the fraud is not stated with the requisite specificity, and not stated with the heightened specificity required when pleading such claims against a corporation.

Demurrer to the fourth cause of action for negligent misrepresentation is SUSTAINED. It is not clear what duty was owed here based on other than contractual duties, and the claim is not stated with sufficient specificity.

Demurrer to the seventh cause of action for violation of Business & Professions Code §17200 is SUSTAINED on the ground no remedies available under such a claim are requested in the prayer for relief.

Ten days leave to amend.

Motion to strike is GRANTED without leave to amend as to punitive damages sought in connection with the first cause of action for breach of contract.
Motion to strike is GRANTED with leave to amend as to the damages claimed in connection with the third and fifth causes of action, as the causes of action are not stated with sufficient specificity.

BACKGROUND:
Moving Party: Defendants Verengo, Inc, and American Contractors Indemnity Company
Defendant Kenneth Button
Responding Party: Plaintiff Cecilia Gracian

RELIEF REQUESTED:
Sustain demurrer to first through fifth and seventh causes of action of First Amended Complaint
Strike punitive damages

CAUSES OF ACTION: from First Amended Complaint
5) Breach of Contract
6) Intentional Misrepresentation
7) Breach of Implied Covenant of Good Faith
8) Negligent Misrepresentation
9) Fraud
10) Surety on a Contractor’s License Bond
11) Violation of Business & Professions Code section 17200

SUMMARY OF FACTS:
Plaintiff Ofik Hoonanian resides at property in Glendale, and alleges that plaintiff entered into a contract with defendant Verengo to act as general contractor on a home improvement project involving the installation of 13 windows. Plaintiff alleges that defendant through its president and CEO defendant Kenneth Button represented to plaintiff that Verengo would obtain permits from the City for the work at plaintiff’s home, but the installation was not in accordance with the permit actually approved by the City, and after a definite number of windows had been replaced, plaintiff was issued a citation by a City official. Plaintiff paid the citation, and defendant Verengo then continued to work on the property, and assured plaintiff that proper permits had been granted a second time, when they had not been granted. Plaintiff was cited a second time, and charged with a misdemeanor for having installed illegal windows. Defendants have refused to repair or replace the windows.

Moving defendants filed a demurrer and motion to strike in response to the original complaint, which were taken off calendar as moot upon the filing of the First Amended Complaint.

ANALYSIS:
First Cause of Action—Breach of Contract
Defendant Buttons argues that the contract at issue, attached to the pleading as Exhibit 1, shows that it was entered into on behalf of defendant Verengo, so that defendant Button is not a proper party to this cause of action.
The opposition seeks leave to amend to add alter ego allegations with respect to Button and Verengo. The demurrer is therefore sustained with one opportunity to amend.

Defendants Verengo and American Contractors state in the notice of motion and demurrer that this cause of action fails to state facts sufficient to state a cause of action, but make no legal argument concerning this cause of action.

As pointed out in the opposition, the causes of action to which the demurrer is directed are not brought against defendant American Contractors, so it is not clear that it has standing to file a demurrer to those claims. The demurrer shall therefore not be considered to the extent it is brought by American Contractors. (The only cause of action asserted against this defendant, for Bond Enforcement, is not challenged by the demurrer or motion to strike).

With respect to defendant Verengo, the demurrer is overruled.

Second Cause of Action— Intentional Misrepresentation and Fifth Cause of Action—Fraud
Defendant Button again argues that these claims are not sufficiently stated against him as an individual. The causes of action are not clear, alleging that Verengo and Button “agreed that the general contractor would obtain permits,” and the rest of the conduct is in essence alleged to have been done by Verengo, or by Lopez as an agent for Verengo. [Paras. 27-31, 33, 45]. The demurrer is sustained as to Button to allege fraud undertaken by Button individually rather than as an agent of Verengo.

It is also argued by Button and Verengo that the fraud is not stated with sufficient specificity.

Generally, in a fraud cause of action, a plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73. When such a claim is made against a corporation, the level of specificity required is even higher. Under Lazar v. Superior Court, (1996) 12 Cal.4th 631, 645, in fraud complaints against a corporation, a plaintiff must allege all of the following:
-the names of the persons who made the misrepresentation;
-their authority to speak for the corporation;
-to whom they spoke;
-what they said or wrote; and
-when it was said or written.

Here, it is not alleged how the alleged representations were made (orally or in writing) who made the representations, or where they were made. It is not clearly alleged who made the representations in paragraph 27 of the Second Cause of Action or in paragraph 45 of the Fifth Cause of Action. There is no specificity of who made representations, and as to the Fifth Cause of Action when any representations were made, or what was said. The demurrer is therefore sustained.

Third Cause of Action—Breach of Implied Covenant of Good Faith and Fair Dealing
As to Button, it is held that an essential element of a cause of action for a breach of the implied covenant of good faith and fair dealing is that a contract exists. Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 682. Since the pleading fails to allege any contract entered into with Button, as opposed to with Verengo, the demurrer is sustained.
Button, joined by Verengo, argues that the cause of action is defective because the contract was not an insurance contract. In Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal. 4th 85, the California Supreme Court limited tort recovery in contract breach situations to insurance contract cases.

Under Freeman, tort recovery is limited to insurance contracts, “at least in the absence of violation of an independent duty arising from principles of tort law other than denial of the existence of or liability under, the breached contract.” Freeman, 11 Cal.4th at 95.

Conduct amounting to a breach of contract becomes tortious only when it violates an independent duty arising from principles of tort law. Erlich v. Menezes (1999) 21 Cal.4th 543, 551. California law now precludes tort recovery for breach of contract or bad faith denial of the existence of a contract absent the breach of an independent duty arising from principles of tort law. Freeman & Mills v. Belcher Oil Co. (1995) 11 Cal.4th 85, 102.

Here, it is not clear that a demurrer on this basis is appropriate, as the claim seeks at least some recoverable damages, in effect, general damages for breach of contract. The cause of action therefore does not fail to state a cause of action, as some recoverable damages are sought.

There is also an argument that the cause of action is duplicative of the breach of contract claim.

It has been held that a demurrer may be sustained as to a claim for breach of implied
covenant which duplicates a breach of contract claim. Careau & Co. v. Security Pac. Bus. Credit, Inc.(1990) 222 Cal.App.3d 1371, 1395.

Here, the breach of contract and the breach of the implied covenant claims are not strictly duplicative. The demurrer to this cause of action is therefore overruled as to Verengo.

Fourth Cause of Action—Negligent Misrepresentation
Defendant Button argues that there are no allegations asserted which would implicate him individually, and that no general duty is owed by him to plaintiff. The opposition does not dispute this but seeks to make alter ego allegations.

As to Verengo, the cause of action again is not stated with sufficient specificity, and the demurrer is sustained. There is again an argument that the claim is duplicative of breach of contract claims, and therefore improper, and that because the conduct is merely breach of contract, it cannot give rise to tort liability but is barred by the economic loss rule. The pleading is not clear with respect to what misrepresentation is alleged to have been actionable here, and at least some of the representations appear to have been intentional. The demurrer is therefore sustained to more clearly allege this as a distinct claim based on negligence principles.

Seventh Cause of Action– Violation of B&P Section 17200
Defendants argue that this cause of action is improper because it is clear that under the Unfair Practices Act, the only available remedies in individual private actions for violation of the act are an injunction or restitution. Business & Professions Code sec. 17203; Korea Supply Co. V. Lockheed Martin Corp. (2003) 29 Cal. 4th 1134, 1145-1146. A plaintiff may not recover damages, treble damages or other penalties, or attorney’s fees. Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266. Here, the FAC in the allegations request restitution and an order enjoining the unfair business practices, but fails to seek such relief in the prayer. [See paras. 58, 59, Prayer, 1-5]. The opposition indicates that plaintiff meant to seek only these remedies. Accordingly, the demurrer is sustained with leave to amend to correct the problem.

Motion to Strike
The motion to strike seeks to strike punitive damages claims based on the principle that such damages are not ordinarily available in a construction contract context. The opposition concedes that plaintiff did not intend to seek punitive damages in connection with the first cause of action for breach of contract. He argues, however, that a well pleaded fraud claims set forth in the second and fifth causes of action will support a claim for punitive damages. However, as noted above, the fraud claims are not yet sufficiently stated, so the motion to strike is granted with leave to amend as to the fraud claims.