Case Name: Umesh Patel v. Pacific Lodging Group, Limited Partnership, et al.

Case No: 19CV340816

I. Background
II.

Umesh Patel (“Plaintiff”) commenced this action against Tarun Patel (“Defendant”) for damages associated with the sale of an interest in a partnership and failure to pay on a promissory note.

According to the allegations of the first amended complaint (“FAC”), Defendant and S.M. Patel (“Partner”) were partners, along with several other people in Pacific Hospitality Company and its successor Pacific Lodging Group (“Pacific”). (FAC, ¶¶ 4, 7.) Pacific operates a hotel in Bodega Bay. (FAC, ¶ 3.) In or around 1985, Plaintiff’s two corporations, Mosam Enterprises, Inc. and MM&H Investment, Inc. (“MM&H”), invested in Pacific and each received an ownership interest of 21.43%. (FAC, ¶¶ 13, 14.)

In 2009, Plaintiff and Partner executed a sale and purchase agreement transferring MM&H’s interest in Pacific to Partner. (FAC, ¶¶ 15, 16, Ex. A.) Plaintiff provided notice to Pacific’s partners of his intent to sell and transfer his entire interest to Partner. (FAC, ¶ 17, Ex. B.) All the partners of Pacific, including Defendant and Partner, signed a consent to the “purchase and sale to [Partner] of the interest held by… MM&H…” (FAC, Ex. B.) Partner also signed a promissory note on behalf of Pacific, agreeing to pay Plaintiff $726,251 plus interest and specified late charges. (FAC, ¶ 18.) The promissory note listed MM&H as “lender” and Partner as “debtor.” (FAC, Exs. B & C.)

Plaintiff has successor interest and stands in place to collect debts held in favor of MM&H. (FAC, ¶ 1.) To date, Plaintiff has not received any payment from Pacific or its partners. (FAC, ¶ 19.) Plaintiff has engaged in extensive efforts to collect payment. (FAC, ¶ 20.) Through written correspondence, Defendant has repeatedly recognized that Plaintiff is owed money, and that the purchase agreement and promissory note are valid. (Ibid.) Defendant has never disputed the validity of the debt and as recently as 2017, has acknowledged its existence. (FAC, ¶ 26.)

Plaintiff asserts causes of action against Defendant, Partner, and Pacific for (1) breach of contract; (2) fraud/intentional misrepresentation; (3) negligent misrepresentation; and (4) civil conspiracy to defraud.

Before the Court is Defendant’s demurrer to all four causes of action.

III. Demurrer
IV.

Defendant demurs to all four causes of action on the ground of failure to state sufficient facts. (Code Civ. Pro., § 430.10, subd. (e) .)

As to all four causes of action, defendant demurrers on the basis of the statute of limitations applicable to each. He also attacks all four individually on the basis that the causes of action themselves are not sufficiently pleaded.

A. Legal Standard
B.

A demurrer tests the legal sufficiency of a pleading. (Trs. Of Capital Wholesale Elec. Etc. Fund v. Shearson Lehman Bros. (1990) 221 Cal.App.3d 617, 621.) The facts alleged in the pleading are deemed to be true, however improbable they may be. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958, citations omitted.) The demurrer admits all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. (Blumhurst v. Jewish Family Services of Los Angeles (2005) 126 Cal.App.4th 993, 999.)

C. Statute of Limitations
D.

Defendant first argues that all four causes of action are barred by the statutes of limitation applicable to each.

To sustain a demurrer on the basis of the statute of limitations, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows merely that the action may be barred. (E-Fab., Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1317.) “In assessing whether claims are time-barred, two basic questions drive [the] analysis: (a) [w]hat statutes of limitations govern the plaintiff’s claims? (b) [w]hen did the plaintiff’s causes of action accrue?” (Id. at 1316.) Generally speaking, a cause of action accrues at the time when the cause of action is complete with all its elements. (Id. at 1317.)

1. First Cause of Action – Breach of Contract
2.

Defendant first argues that the breach of contract claim for failure to pay the promissory note is time-barred. Defendant states that pursuant to section 337, subdivision (a), the statute of limitations for breach of written contract is 4 years. However, when the contract is a promissory note payable at a definite time, the statute of limitations is six years from the final due date. (Cal. U. Com. Code, § 3118, subd. (a); Cadle Co. v. Worldwide Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 504, 514, fn. 8.) The promissory note here was due in full 36 months after execution in January 2009, a defined time. (FAC, Ex. C.) So the limitations period specified in the Commercial Code governs and the limitations period would have expired in 2018, a year before the complaint was filed. In either case, 4 years or 6 years, the cause of action is time-barred, unless there is an applicable defense affirmatively pleaded.

Here, Plaintiff asserts that there was a waiver of the statute of limitations in that Defendant acknowledged the debt several times over the years, including in 2017. Defendant argues that there was no waiver because there was no acknowledgement signed by the debtor. It is well-settled that a written acknowledgment by a debtor of an ongoing obligation for a debt may function as a waiver of the statute of limitations. (§ 360; Buescher v. Lastar (1976) 61 Cal.App.3d 73, 75-76; citing Sterling v. Title Ins. & Trust Co. (1942) 53 Cal.App.2d 736, 741.) Plaintiff alleges that such a waiver occurred here because Defendant acknowledged the Partnership’s debt through written emails, as recently as 2017.

However, the pleading is inconsistent as to who is the debtor. The allegations state “[Pacific] executed a promissory note,” and that [Partner] on behalf of Pacific… agreed to pay MM&H…” (FAC, ¶ 18.) Conversely, the promissory note attached to the complaint lists only Partner as “debtor.” (FAC, Ex. C.) Neither Defendant nor Pacific are listed on the promissory note nor is there any statement in the note that Partner was acting “on behalf of Pacific.” (Ibid.) This is confirmed by the attached purchase and sale agreement which indicates among other things “[Partner] shall pay the full purchase price to MM&H in accordance with terms and conditions specified in… [the] separate Promissory Note.” (FAC, Ex. A.)

For purposes of evaluating the demurrer, the contents of the attached promissory note and sale and purchase agreement must control over the written allegations. (See e.g., Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 726; citing SC Manufactured Homes, Inc. v. Liebert (2008) 162 Cal.App.4th 68, 83 [“‘facts appearing in exhibits attached to the complaint will…be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.’”] Pursuant to the promissory note, only Partner is liable for the debt. Therefore Defendant’s statements cannot support a defense of a waiver of the statute of limitations as an ongoing acknowledgement of the debt by a debtor. This is true even if his statements were made as an agent of Pacific, because Pacific is not the debtor either. Waiver is thus not sufficiently alleged, so the facts as pleaded show that the cause of action is time-barred.

Therefore, demurrer to the first cause of action on grounds of failure to state sufficient facts on the basis of the statute of limitations will be sustained with 10 days leave to amend after service of this signed order.

3. Second and Third Causes of Action – Misrepresentation
4.

Defendant argues that the second and third causes of action for intentional and negligent misrepresentation are time-barred. Specifically that the alleged misrepresentation occurred in 2009, and the causes of action accrued then, so the complaint filed in 2019 is outside the time limit. Indeed, section 339, subdivision (d) specifies a three-year limit for fraud. Also, as a species of fraud, negligent misrepresentation has a three year limit. (Thompson v. Canyon (2011) 198 Cal.App.4th 594, 607.)

By its nature, fraud may not be immediately apparent to a plaintiff, however facts must be alleged to support delayed discovery. (E-Fab., Inc. v. Accountants, Inc. Services, supra, 153 Cal.App.4th 1308, 1318.) The discovery rule “postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action (Ibid.) A plaintiff must plead facts to show both the time and manner of discovery and the inability to have made earlier discovery despite reasonable diligence, and conclusory allegations will not withstand demurrer. (Id. at 1320.)

Here, Plaintiff has not affirmatively pleaded delayed discovery. The complaint is devoid of facts sufficient to demonstrate the time and manner of his discovery or facts that describe his inability to discover the cause of action earlier or requisite diligence. As a result, on the face of the complaint the causes of action for intentional and negligent misrepresentation are time-barred.

Therefore, demurrer to the second and third causes of action on grounds of failure to state sufficient facts on the basis of the statute of limitations will be sustained with 10 days leave to amend after service of this signed order.

5. Fourth Cause of Action – Civil Conspiracy
6.

Defendant demurs to the fourth cause of action for civil conspiracy to defraud on the basis that it is time-barred. The applicable statute of limitations is determined by the nature of the action in which conspiracy is alleged. (Maheu v. CBS, Inc. (1988) 201 Cal.App.3d 662, 673.) Since the underlying tort is fraud, the statute of limitations is three years. (§ 338, subd. (d).) A cause of action based on conspiracy “accrues on the date of the commission of the last overt act in pursuance of the conspiracy, a date which must be alleged.” (Maheu v. CBS, Inc., supra, 201 Cal.App.3d 662, 673-674; emphasis added.)

The allegations of the complaint do not affirmatively state an alleged date by which the conspiracy accrued. Since over ten years has passed since the promissory note was executed, and that is the last pleaded “act” the cause of action is time barred.

Therefore, demurrer to the fourth cause of action on grounds of failure to state sufficient facts on the basis of the statute of limitations will be sustained with 10 days leave to amend after service of this signed order.

E. First Cause of Action – Sufficiency of Pleading of Contract Liability
F.

Defendant argues that the complaint is insufficient to allege that is personally liable for the debt under the promissory note. He first states that the alter ego doctrine is not sufficiently pleaded. He then goes on to argue that because the promissory note was between Plaintiff and Partner, the allegations cannot establish that he is in breach.

To establish a cause of action for breach of contract, the plaintiff must allege, among other things “the existence of the contract.” (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97.) Indeed, there is a contract pleaded in the form of the promissory note. As stated above, there are inconsistencies regarding who is a party to the contract, but the attached instrument must control. (See Ivanoff v. Bank of America, N.A., supra, 9 Cal.App.5th 719, 726.) The promissory note was an agreement between HH&M and Partner only. (FAC, Ex. C.) Therefore, as currently pleaded, Defendant has no contract with Plaintiff, and he bears no liability. (See Tri-Continent Internat. Corp. v. Paris Savings & Loan Assn. (1993) 12 Cal.App.4th 1354, 1359 [“[one] cannot assert a claim for breach of contract against one who is not a party to the contract.”].)

Next, Defendant attacks the sufficiency of the pleading of the alter ego doctrine. However, as pleaded, the doctrine is irrelevant to the analysis. The doctrine applies where debts are incurred by a partnership and a derivative claim is being made against a partner on the theory that they are one in the same. (Stodd v. Goldberger (1977) 73 Cal.App.3d 827, 832-833.) Here, the promissory note lists Partner, and not the Partnership as the debtor. Thus, there can be no claim for derivative liability since the debt is Partner’s alone.

Therefore, the complaint does not allege sufficient facts to show that Defendant is liable for breach of contract, either directly or through derivative liability, and demurrer to the first cause of action on that basis will be sustained with 10 days leave to amend after service of this signed order.

G. Second and Third Causes of Action – Sufficiency of Misrepresentation Pleading
H.

Defendant next demurs to the second and third cause of action on the basis that the intentional and negligent misrepresentation causes of action are not pleaded with requisite specificity.

Specifically, Defendant takes issue with the element of misrepresentation. Fraud claims must be alleged with specificity and general and conclusory allegations do not suffice. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) As one of the required elements, a cause of action for misrepresentation must allege actual misrepresentation. (Lazar v. Superior Court, supra, 12 Cal.4th 631, 638.) Facts must be pleaded to show how, when, where, to whom, and by what means the representations were tendered. (Id. at 645.)

As to this element, the pleading is sufficient. It alleges that through several email exchanges over the years, Defendant has misrepresented an intent to make good on the debt, and Plaintiff relied on these representations. (FAC, ¶¶ 37-41.) The emails are attached to the complaint, and include the dates sent and the electronic signatures of Defendant in satisfaction of the pleading requirements for this element. (FAC, Ex. D.)

The demurrer does not offer any substantive argument regarding any of the other elements and because the element it does address is sufficiently pleaded, it cannot be sustained on the basis of failure to state sufficient facts to allege misrepresentation.

I. Fourth Cause of Action – Sufficiency of Civil Conspiracy Pleading
J.

Defendant demurs to the fourth cause of action for civil conspiracy to defraud on the ground of failure to state sufficient facts because it does not allege an underlying tort or civil wrong.

Conspiracy is not an independent cause of action, but a legal doctrine that imposes liability on one who, although not committing the tort themselves, share a common plan or design in its perpetration. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.) Standing alone, conspiracy engenders no tort liability and must be activated by an underlying tort. (Id. at 511.)

Here, Plaintiff has alleged two underlying torts: intentional and negligent misrepresentation. While the Court is not sustaining the demurrer on the basis that the misrepresentation torts themselves are not sufficiently pleaded, the demurrer is being sustained based on the statute of limitations. Therefore, no sufficiently pleaded underlying tort supports the conspiracy claim.

Consequently, demurrer to the fourth cause of action on ground of failure to state sufficient facts based on failure to allege an underlying tort will be sustained with 10 days leave to amend after service of this signed order.

V. Conclusion
VI.

The demurrer to the first cause of action on grounds of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend after service of this signed order, on the basis of the statute of limitations and failure to sufficiently allege contract liability by Defendant.

The demurrer to the second and third causes of action on grounds of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend after service of this signed order, on the basis of the statute of limitations.

The demurrer to the second and third causes of action on grounds of failure to state sufficient facts is OVERRULED on the basis that facts are not sufficiently pleaded to state a cause of action for misrepresentation.

The demurrer to the fourth cause of action on grounds of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend after service of this signed order, on the basis of the statute of limitations, and lack of an underlying tort to support a conspiracy cause of action.

The Court will prepare the order.