Case Name: United Security Bank v. El Camino Charter Lines, Inc., et al.
Case No.: 1-14-CV-259632

Defendant and cross-complainant El Camino Charter Lines, Inc. (“ECC”) alleges that plaintiff and cross-defendant United Security Bank (“USB”) and cross-defendant Sanjay Shah (“Shah”) were to provide security for a loan to ECC. (Cross-complaint, p. 9.) Shah “was to provide part of that security and make it available to USB upon default and request,” but refused to do so following ECC’s bankruptcy. (Id.) In 2013, Shah also filed for bankruptcy; however, ECC’s claims were not discharged in those proceedings. (Id.) In addition to failing to provide the security, USB and Shah committed torts, breached a contract or contracts with ECC, and breached fiduciary duties owed to ECC by “not providing information and seeking approvals and in proceeding unreasonably with attempted foreclosure and causing foreclosure on assets to ECC’s detriment.” (Id.) On September 12, 2014, ECC filed its cross-complaint, asserting claims against USB and Shah for: (1) breach of contract; (2) intentional tort; (3) general negligence; (4) fraud; and (5) common counts.

At issue is Shah’s demurrer to the entire cross-complaint and to each cause of action asserted therein.

I. Request for Judicial Notice

Shah’s request for judicial notice of filings in related actions is GRANTED. (Evid. Code, § 452, subd. (d); People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [only relevant matters are subject to judicial notice].) To the extent that the request is granted, however, the Court takes judicial notice of the existence and content of these documents only, and not of the truth of statements contained therein. (See Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1564-1568 [a court may take judicial notice of the existence and content of each document in a court file, but cannot take judicial notice of the truth of hearsay statements or factual findings therein].)

II. Demurrer to the Cross-Complaint

Shah demurs to the entire cross-complaint on the grounds that the Court lacks jurisdiction over ECC’s claims in light of Shah’s bankruptcy (Code Civ. Proc. (“CCP”), § 430.10, subd. (a)) and the same claims have been asserted by Shah in an action pending before the Superior Court of California, County of San Mateo (the “San Mateo Action”) (CCP, § 430.10, subd. (c)).

On October 24, 2013, Shah was granted a discharge under chapter 7 of title 11 of the United States Code. (See Shah’s Request for Judicial Notice (“RJN”), Ex. A, Discharge of Debtor.) “A Chapter 7 bankruptcy discharge releases the debtor from personal liability for her pre-bankruptcy debts.” (Boeing N. Am., Inc. v. Ybarra (In re Ybarra) (9th Cir. 2005) 424 F.3d 1018, 1022.) “[D]ischarge in bankruptcy is a recognized defense under state law,” and “state courts have the power to construe the discharge and determine whether a particular debt is or is not within the discharge.” (Pavelich v. McCormick, Barstow, Sheppard, Wayte & Carruth LLP (In re Pavelich) (B.A.P. 9th Cir. 1999) 229 B.R. 777, 783-784 [noting, however, that “[a]n incorrect construction would be void ab initio”].) “In contrast, state courts do have concurrent jurisdiction … to determine most theories of whether a particular debt is excepted from discharge or, in bankruptcy parlance, nondischargeability.” (Id. at p. 784.)

Here, ECC contends that its claims arise from Shah’s actions subsequent to his bankruptcy, and, therefore, are not within the discharge as opposed to being excepted from discharge. Thus, the Court has jurisdiction over the claims raised in the cross-complaint. Further, while it may be possible under some circumstances for a state court to determine on demurrer that particular claims are within a bankruptcy discharge, here, ECC alleges that Shah’s actions giving rise to the cross-complaint have continued until at least the time the cross-complaint was filed. Consequently, Shah’s arguments concerning his bankruptcy discharge do not support his demurrer on any ground. (See Casterson v. Super. Ct. (Cardoso) (2002) 101 Cal.App.4th 177, 183 [“a demurrer based on an affirmative defense will be sustained only where the face of the complaint discloses that the action is necessarily barred by the defense”].) Accordingly, Shah’s demurrer based upon his bankruptcy is OVERRULED.

While it does not reach Shah’s demurrer on this ground in light of the ruling below, the Court notes that the parties dispute whether this action or the San Mateo Action has priority for purposes of CCP section 430.10, subdivision (c). Should the issue arise again in connection with a future demurrer, the Court expects that the parties will address it in light of the applicable standard. (See Figgs v. Super. Ct. (Ponderosa Sky Ranch) (1962) 204 Cal.App.2d 231, 233 [“priority attache[s] when summons [is] first served on one defendant” in an action].)

III. Demurrer to the First Through Fifth Causes of Action

Shah demurs to each cause of action asserted in the cross-complaint on the grounds that it fails to state a claim (CCP, § 430.10, subd. (e)) and is uncertain (CCP, § 430.10, subd. (f)). In addition, Shah demurs to the first cause of action for breach of contract on the ground that the cross-complaint does not specify whether the contract is written, oral, or implied by conduct. (CCP, § 430.10, subd. (g).)

A. Demurrer for Uncertainty

As an initial matter, the demurrer to each claim on the ground of uncertainty is OVERRULED. Uncertainty is a disfavored ground for demurrer and a demurrer on this ground is typically sustained only where the pleading is so unintelligible that the defendant cannot reasonably respond. (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616 [“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”].) Here, ECC’s claims are alleged clearly enough to enable a response.

B. The First Cause of Action for Breach of Contract

The demurrer to the first cause of action for breach of contract is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND pursuant to CCP section 430.10, subdivisions (e) and (g). ECC fails to allege that Shah was a party to any agreement or to state which portions of the agreement at issue are written, oral, or implied by conduct. (See Cross-complaint, p. 3 [contract was “partly written & partly oral and by conduct”], 9 [“[i]t was agreed security would be provided” to ECC, but Shah was to make the security available to USB upon request].)

C. The Second Cause of Action for Intentional Tort

The demurrer to the second cause of action for intentional tort is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND pursuant to CCP section 430.10, subdivision (e), given that the cross-complaint does not specify the intentional tort or torts at issue or include allegations supporting the elements of any such claim. (See Cross-complaint, p. 9 [Shah’s tortious behavior “include[s] both negligent and intentional conduct … in not providing information and seeking approvals and in proceeding unreasonably with attempted foreclosure and causing foreclosure on assets to ECC’s detriment”].)

D. The Third Cause of Action for General Negligence

ECC alleges that Shah owes it fiduciary duties as a shareholder, officer, and director; Shah does not contend that ECC fails to allege a duty in support of its third cause of action, whether construed as a claim for negligence or for breach of fiduciary duties. However, as urged by Shah, the cross-complaint fails to adequately allege how Shah breached any duty owed to ECC. (See Cross-complaint, p. 9 [Shah’s tortious behavior “include[s] both negligent and intentional conduct … in not providing information and seeking approvals and in proceeding unreasonably with attempted foreclosure and causing foreclosure on assets to ECC’s detriment”].) Consequently, the demurrer to the third cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND pursuant to CCP section 430.10, subdivision (e).

E. The Fourth Cause of Action for Fraud

The demurrer to the fourth cause of action for fraud is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND for failure to state a claim. (See Charnay v. Cobert (2006) 145 Cal.App.4th 170, 185, fn. 14 [fraud must be pleaded with particularity and by facts that show how, when, where, to whom, and by what means the representations were tendered].) While ECC argues in general terms that Shah is aware of the misrepresentations he assertedly made, it does not allege or explain why the specific facts at issue here are in Shah’s exclusive knowledge or control. (See Eldridge v. Tymshare (1986) 186 Cal.App.3d 767, 777.)

F. The Fifth Cause of Action for Common Counts

In light of the above, the demurrer to the fifth cause of action for common counts is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND for failure to state a claim. (See 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.”].)