Mystica Fleury vs Byron Richard Tarnutzer et al

Case Number

22CV02886

Case Type

Hearing Date / Time

Fri, 02/02/2024 - 10:00

Nature of Proceedings

CMC; (6) Motions to Compel; (2) Right to Attach; 1 Motion to Stay

Tentative Ruling

For the reasons set forth below:

1. Plaintiff’s applications for right to attachment orders and writs of attachment are denied.
2. Defendants’ motion to stay action is granted. This action is stayed until July 26, 2026, or until further order of the court.
   1. Counsel for all parties are ordered to attend the hearing in this matter, either in-person or remotely, to discuss the scheduling of a further Case Management Conference.
3. Defendants’ motions to compel further responses to discovery are taken off-calendar to be re-set for hearing after the stay is lifted.

Background:

This action was commenced on July 26, 2022, when plaintiff Mystica Fleury (Fleury) filed a complaint against defendants Byron Richard Tarnutzer (aka Rick Tarnutzer), Vonna Carol Tarnutzer, and American Interior, alleging nine causes of action related to an underlying transaction in which defendant Rick Tarnutzer (Rick) induced Fleury to purchase a run-down property and hire him and his wife, Vonna Carol Tarnutzer (Vonna), to perform design and construction work to remodel the property. [Note: In order to avoid any confusion, the Court will refer to the Tarnutzer defendants by their first names; no disrespect is intended.] The complaint alleged that in reliance on various representations made by defendants, plaintiff paid substantial sums of money to defendants for their work. It alleged further that defendants were not licensed contractors, failed to obtain any permits for the work, failed to provide promised documentation of work completed, invoices, proof that subcontractors had been paid, failed to perform the work in a workmanlike manner, charged in excess of the hourly wage they had promised the work would be performed for, charged a fee for acting as general contractor when they had promised they would not do so, impeded progress on the project by failing to timely pay subcontractors, and stopped work prior to completion when plaintiff challenged the billing.

On October 10, 2022, Rick and Vonna appeared in this action through counsel, by filing a demurrer to and motion to strike the complaint, setting their hearings for February 2, 2023.

On January 23, 2023, Fleury filed her first amended complaint (FAC), which mooted the hearings on the demurrer and motion to strike.

Rick and Vonna demurred to the FAC and filed a motion to strike. Fleury then agreed to file a second amended complaint (SAC), which she did on August 24, 2023. The SAC contains causes of action for: (1) Breach of Contract - Services; (2) Breach of the Covenant of Good Faith and Fair Dealing - Services; (3) Violation of the Contractors’ State License Law; (4) Negligence; (5) Concealment; (6) Unfair Business Practices; (7) Accounting; (8) Breach of Contract - Loan Agreement; and (9) False Promise - Loan Agreement.

As alleged in the SAC:

Fleury is the owner of real property located at 540 Owen Road, Santa Barbara (the property). (SAC, ¶ 2.)

Fleury and Rick had been good friends for approximately 18 years, and, through that friendship, Rick learned intimate details of Fleury’s life. (SAC, ¶ 9.) Rick took on a father figure role with Fleury and purported to act as Fleury’s advisor and confidante. (Ibid.)

In May 2020, Rick contacted Fleury with a plan for Fleury to purchase the property, but Fleury was skeptical because the property was rundown. (SAC, ¶ 10.) Rick assured Fleury that he had a crew that would be able to remodel the property quickly and efficiently. (Ibid.) Rick told Fleury that he would manage and run the project because he and Vonna had remodeled many homes, and that it would be a straightforward project. (Ibid.) Rick coached Fleury to tell anyone who asked that Fleury was an owner/builder, when it was really Rick that was pretending to be a general contractor. (Ibid.) Rick told Fleury that permits were not necessary and would only slow down the remodeling process. (Ibid.) Relying on Ricks representations, Fleury believed that permits were either not required or were unnecessary. (Ibid.)

Fleury purchased the property on November 24, 2020, and entered into an oral agreement with Rick, Vonna, and American Interior whereby the defendants agreed to perform design and construction work with an estimated completion date of June 2021. (SAC, ¶ 11.) “The work to be performed by Defendants, and each of them, required a general contractor’s license, as it included, but was not limited to, such things as constructing new bathrooms and closets, moving, and configuring walls, installing cabinetry, replacing plumbing, installing drywall, and doing rough electrical work, among other things. Yet, at no time did Defendants advise Plaintiff that none of them had a contractor’s license.” (Ibid.) Fleury agreed to reimburse defendants for the costs of the work with the understanding that defendants would not charge a fee for acting as general contract. (Ibid.) Fleury requested that defendants provided her with a total price for the work performed, but they did not do so even though they represented multiple times that they would provide a budget. (Ibid.) “Additional material terms of the agreement were that all work would be up to Code, timely performed to meet the estimated completion date, and that all work would be photographed before walls were closed in as proof that all work was performed according to Code.” (Ibid.)

“Between August 2021, and January 28, 2022, Plaintiff wired approximately $780,000.00 to Defendant VONNA, as directed by Defendants, with respect to work purportedly performed on the project. At all times, Plaintiff was under the belief, based on the conduct of Defendants, that the work on the property was being lawfully completed. However, due to Defendants’ lack of a contractor’s license, no permits, and other factors, the money spent on the project did not go towards any lawful work.” (SAC, ¶ 13.)

On February 24, 2022, a sub-contractor informed Fleury that defendants had not paid them for their work, but when Fleury attempted to questions the subcontractor, she was told that Vonna had instructed him not to speak with Fleury about money. (SAC, ¶ 14.)

On March 9, 2022, Fleury asked Rick for photos of all states of the project, but defendants have failed to provide any photos. (SAC, ¶ 15.) Fleury was supposed to meet with Vonna on March 12, 2022, to review defendants’ invoicing to Fleury, with supporting documents, but the meeting never took place. (SAC, ¶ 16.)

“On or about March 17, 2022, Plaintiff showed a subcontractor on the job a summary of Defendants’ billing rates for every hourly worker on the job that Plaintiff had received from Defendants. The subcontractor told Plaintiff that except for himself, the other workers on the job were not being paid at those rates.” (SAC, ¶ 18.)

Fleury believes, in violation of the oral contract, defendants were charging her a fee for acting as general contractor on the project and were failing to pay workers and subcontractors, despite Fleury having paid defendants for the work at the property. (SAC, ¶ 22.)

In paragraph 24 of the SAC, Fleury sets forth 10 separate alleged breaches of the agreement with defendants.

As of the date of drafting the SAC, Fleury has paid approximately $1,492,066.09 to the defendants on the project, which is still not complete. (SAC, ¶ 25.)

“Plaintiff has been damaged and has incurred, and will incur, expenses for labor and materials to remediate and mitigate the damage inflicted by said Defendants, and/or to repair the substandard work performed by said Defendants, and obtain permits for same, all in an amount to be proven at the trial of this matter . . .” (SAC, ¶ 26.)

“[A]t the time of consummating the agreement alleged above, each of the Defendants knew, but failed to disclose to Plaintiff that each of the Defendants did not hold valid contractor’s licenses to perform the work contemplated under the agreement as required by California law, that each of the Defendants did not have the requisite skill, experience, and knowledge to enable them to perform the home improvement work in a good and workmanlike manner, and that each of the Defendants had no intent to perform per the work as promised, per required permits, and in good and workmanlike manner.” (SAC. ¶ 30.)

The defendants were acting in the capacity of contractors and were in violation of Business & Professions Code sections 7028. subdivision (a). and Fleury is entitled to the remedies provided for by Business & Professions Code section 7031. (SAC, ¶¶ 34, 35, 36, 38.)

Defendants, and their agents under defendants’ supervision and control, negligently performed their functions in connection with the project such that it was left in a defective condition. (SAC, ¶ 41.) In addition to the issues described in paragraph 24 of the SAC, Fleury lists several other defects in paragraph 42 of the SAC.

Defendants had a duty to disclose facts, including that they did not hold valid contractor’s licenses, and knew that they could not lawfully perform the work required without obtaining the correct licenses and obtaining permits. (SAC, ¶ 46.) The defendants concealed this information from Fleury and intentionally led her to believe that defendants had the necessary contractor’s licenses. (Ibid.) “Said Defendants further knew, but failed to disclose to Plaintiff, that that Defendants did not have the requisite skill, experience, and knowledge to enable them to perform the home improvement work in a good and workmanlike manner, and had no intent to perform per the work as promised, per required permits, and in a good and workmanlike manner, fully permitted and free of defects.” (Ibid.)

The following applications and motions are now before the court:

(1) Plaintiff’s Application for Right to Attachment Order and Writ of Attachment as to defendant Byron Richard Tarnutzer;

(2) Plaintiff’s Application for Right to Attachment Order and Writ of Attachment as to defendants Byron Richard Tarnutzer and Vonna Carol Tarnutzer;

(3) Tarnutzer Defendants’ Motion to Stay Action While Criminal Prosecution is Pending, or, in the Alternative, for a Protective Order;

(4) Plaintiff’s Six Motions to Compel Further Responses to Discovery.

Analysis:

1. Applications for Right to Attachment Orders and Writ of Attachments

Fleury requests that the court take judicial notice of a September 1, 2023 letter from California Contractors State License Board.

“ ‘Courts can take judicial notice of the existence, content and authenticity of public records and other specified documents, but do not take judicial notice of the truth of the factual matters asserted in those documents.’ ” [Citation.]” (Dominguez v. Bonta (2022) 87 Cal.App.5th 389, 400.)

The court will take judicial notice of the existence of the letter but will not take judicial notice of the truth of the factual matters asserted therein. However, the letter has no bearing on the court’s ruling relative to the applications for right to attachment.

“ ‘The basic purpose of the remedy of attachment . . . is to aid in the collection of a money demand by seizure of property in advance of trial and judgment, as security for eventual satisfaction of the judgment.’ ” [Citations.]” (Commercial & Farmers Nat. Bk. v. Hetrick (1976) 64 Cal.App.3d 158, 164.)

“Upon the filing of the complaint or at any time thereafter, the plaintiff may apply pursuant to this article for a right to attach order and a writ of attachment by filing an application for the order and writ with the court in which the action is brought.” (Code Civ. Proc., § 484.010.)

“The application shall be supported by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based.” (Code Civ. Proc., § 484.030.)

“(a) At the hearing, the court shall consider the showing made by the parties appearing and shall issue a right to attach order, which shall state the amount to be secured by the attachment determined by the court in accordance with Section 483.015 or 483.020, if it finds all of the following:

“(1) The claim upon which the attachment is based is one upon which an attachment may be issued.

“(2) The plaintiff has established the probable validity of the claim upon which the attachment is based.

“(3) The attachment is not sought for a purpose other than the recovery on the claim upon which the attachment is based.

“(4) The amount to be secured by the attachment is greater than zero.” (Code Civ. Proc., § 484.090, subd. (a).)

“(a) Except as otherwise provided by statute, an attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500) exclusive of costs, interest, and attorney’s fees.

“(b) An attachment may not be issued on a claim which is secured by any interest in real property arising from agreement, statute, or other rule of law (including any mortgage or deed of trust of realty and any statutory, common law, or equitable lien on real property, but excluding any security interest in fixtures subject to Division 9 (commencing with Section 9101) of the Commercial Code). However, an attachment may be issued where the claim was originally so secured but, without any act of the plaintiff or the person to whom the security was given, the security has become valueless or has decreased in value to less than the amount then owing on the claim, in which event the amount to be secured by the attachment shall not exceed the lesser of the amount of the decrease or the difference between the value of the security and the amount then owing on the claim.

“(c) If the action is against a defendant who is a natural person, an attachment may be issued only on a claim which arises out of the conduct by the defendant of a trade, business, or profession. An attachment may not be issued on a claim against a defendant who is a natural person if the claim is based on the sale or lease of property, a license to use property, the furnishing of services, or the loan of money where the property sold or leased, or licensed for use, the services furnished, or the money loaned was used by the defendant primarily for personal, family, or household purposes.

“(d) An attachment may be issued pursuant to this section whether or not other forms of relief are demanded.” (Code Civ. Proc., § 483.010.)

“Under the Attachment Law, “ ‘[w]hether or not the defendant appears in opposition, the plaintiff has the burden of proving (1) that his claim is one upon which an attachment may be issued and (2) the probable validity of such claim.’ ” [Citation.]” (Bank of America v. Salinas Nissan, Inc. (1989) 207 Cal.App.3d 260, 271.)

“ ‘[A]ttachment is a harsh remedy at best in that an alleged debtor loses control of his property before the claim against him is adjudicated. This being so, the provisions relating thereto should be strictly construed.’ ” [Citation.]” (J.C. Peacock, Inc. v. Hasko (1961) 196 Cal.App.2d 363, 365.)

Fleury’s first application for attachment pertains to both Tarnutzers and is based upon Fleury’s third cause of action for restitution under Business & Professions Code sections 7028, subdivision (a) and 7031. Fleury alleges that the defendants violated the Contractors State License Law, by engaging in the business of contractors without having valid contractor’s licenses. Fleury alleges that she has paid the Tarnutzers $1,492,066.09 for contracting work and that she is entitled to its return.

The claim is for money, based on an implied contract, and the amount is readily ascertainable, thus satisfying the first requirements of Code of Civil Procedure section 483.010. This is not disputed by the Tarnutzers.

It is undisputed that the Tarnutzers are “natural persons.” Fleury argues that attachment is proper because the money she allegedly paid to the Tarnutzers arises out of the conduct by the defendants of a trade, business, or profession. The Tarnutzers argue that the cause of action does not arise out of their conduct of a trade, business, or profession.

“The mere fact that an individual defendant is engaged in a profit-making enterprise will not support attachment unless the claim arises out of that business.” (12 Miller & Starr, Cal. Real Est. (4th ed. 2023) §42:10.)

Generally, trade, business, or profession means an activity carried on “for the purpose of livelihood or profit on a continuing basis.” (Nakasone v. Randall (1982) 129 Cal.App.3d 757, 764.)

Fleury cites Goldstein v. Barak Construction (2008) 164 Cal.App.4th 845 (Goldstein) in support of their argument that attachment is proper. While that case does hold that a claim brought under the Contractors’ State License Law against an unlicensed contractor my appropriately form the basis for a right to attach order, the case is distinguishable from the present case. In Goldstein, the appellant defendants engaged in construction work for their livelihood or profit on a continuing basis. One of the defendants was an actual construction company and the other defendant was an owner of the company.

Here, Fleury has provided no evidence that either Rick or Vonna are engaged in construction work for their livelihood or for profit on a continuing basis. Fleury’s argument that Vonna ran American Interiors, that she has a California Resale License which she uses to obtain wholesale rates, and that the money Fleury paid for the remodel was deposited into the American Interiors bank account does not assist Fleury in meeting her burden of proof that the claim is one upon which an attachment may be issued. Fleury’s cause of action is based on unlicensed construction work on the property. There is no evidence that American Interiors in any way regularly engages in construction work that requires a permit.

Fleury has not met her burden of proof that the claim is one upon which an attachment may be issued. The application will be denied. Because Fleury has not met her burden of proof that the claim is one upon which an attachment may be issued, the court need not determine the probable validity of the claim.

Fleury’s second application for attachment pertains solely to Rick and is based upon Fleury’s eighth cause of action for breach of written Promissory Note, which was executed by Rick on March 15, 2021. Fleury alleges that she lent Rick $1,750,000.00, that he was to pay interest-only payments at 5% per annum between the 15th and the last day of each month, and that he has made no interest payments since May 2022. Fleury argues that the total currently due is $123,958.39.

The claim is for money, is based on an express contact, and the amount is readily ascertainable, thus satisfying the first requirements of Code of Civil Procedure section 483.010. Again, this is not disputed by the Tarnutzers.

Fleury argues that the debt arises out of Ricks conduct of a trade, business, or profession, in that the money was loaned based solely on Rick’s representations that he would act as Fleury’s investment advisor, including that he would invest the money on her behalf, the interest on the loan would be tax free, and that Rick had access to great investment opportunities.

In opposition, Rick argues that he is not in the business of conducting loan transactions and he did not obtain the loan for commercial purposes. Rick declares, under penalty of perjury, that the loan was solely for his personal purposes. (Rick Dec., ¶ 9.)

The question then becomes, as it pertains to Rick individually, whether the requirements of Code of Civil Procedure section 483.010, subdivision (c) are met in that the loan “arises out of the conduct by the defendant of a trade, business, or profession.”

There is no evidence presented by Fleury that the loan arose out of the conduct of Rick of a trade, business, or profession. This is so even if Rick told plaintiff that he would invest the money on her behalf. As such, the application for right to attach order and writ of attachment, as to Rick, will be denied. Because Fleury has not met her burden of proof that the claim is one upon which an attachment may be issued, the court need not determine the probable validity of the claim.

2. Motion to Stay Action While Criminal Prosecution is Pending, or, in the Alternative, for a Protective Order

Fleury objects to the following paragraphs and attachments in the declaration of defense counsel based on hearsay, lack of personal knowledge, and lack of foundation:

1. Paragraph 2 & Exhibit A; (2) Paragraph 3 & Exhibit B; (3) Paragraph 5 & Exhibit D; (4) Paragraph 6 & Exhibit E; and (5) Paragraph 7 & Exhibit Q. Fleury also objects to Paragraph 18 that it is argumentative, lacks foundation, conclusory, and lacks a showing of personal knowledge of the declarant.

As to objections 1-5, the objections are sustained. The documents are not properly authenticated. Objection 6 is also sustained. It is conclusory, lacks foundation, and is speculative.

Fleury has not objected to certain paragraphs or exhibits, including paragraph 4 & exhibit C, which is a letter to Fleury from the Contractors State License Board, and paragraph 19 & exhibit P, which is the Misdemeanor Complaint filed by the Santa Barbara City Attorney/Prosecutor against the Tarnutzers.

The Tarnutzers move to stay this action or, in the alternative, for a protective order barring discovery into all matters for which they are facing pending criminal prosecution and potential criminal prosecution pursuant to Business & Professions Code section 7028.

Fleury opposes the motion arguing that any further delay will substantially prejudice her.

Business & Professions Code section 7028, subdivisions (a)-(b) provides:

“(a) Unless exempted from this chapter, it is a misdemeanor for a person to engage in the business of, or act in the capacity of, a contractor within this state under either of the following conditions:

“(1) The person is not licensed in accordance with this chapter.

“(2) The person performs acts covered by this chapter under a license that is under suspension for failure to pay a civil penalty or to comply with an order of correction, pursuant to Section 7090.1, or for failure to resolve all outstanding final liabilities, pursuant to Section 7145.5.

“(b) A first conviction for the offense described in this section is punishable by a fine not exceeding five thousand dollars ($5,000) or by imprisonment in a county jail not exceeding six months, or by both that fine and imprisonment.”

“Notwithstanding any other law, an indictment for any violation of this section by an unlicensed person shall be found, or information or a complaint shall be filed, within four years from the date of the contract proposal, contract, completion, or abandonment of the work, whichever occurs last.” (Bus. & Prof. Code § 7028, subd. (g).)

 

At some point, Fleury filed a complaint against the Tarnutzers with the Contractors State License Board. On September 1, 2023, the Contractors State License Board sent Fleury a letter informing her that their investigation has determined that the “subject” of her complaint was not a licensed contractor in the state of California, that contracting without a license is a criminal offense in violation of Business & Professions Code section 7028, and that they have forwarded their investigation to the District Attorney with a recommendation for criminal prosecution. (Gimino Dec., ¶ 4 & Exh. C.) There does not appear to be a dispute that the “subject” of Fleury’s complaint was the Tarnutzers.

The Santa Barbara City Attorney filed a misdemeanor complaint against the Tarnutzers on September 28, 2023. The complaint contains counts for: (1) Unlawful use of land in violation of Santa Barbara Municipal Code section 30.01.040; (2) Failure to comply with business tax requirements in violation of Santa Barbara Municipal Code section 5.04.060; and (3) Failure to register or to furnish return of transient occupancy tax in violation of Santa Barbara Municipal Code section 4.08.210. (Gimino Dec., Exh. P.)

It does not appear that the Tarnutzers are currently charged with violation of Business & Professions Code section 7028.

Based on the allegations of the SAC, it appears that the statute of limitations for violation of Business & Professions Code section 7028 will have run by July 26, 2026.

“To the extent that such privilege exists under the Constitution of the United States or the State of California, a person has a privilege to refuse to disclose any matter that may tend to incriminate him.” (Evid. Code § 940.)

“It is a fundamental principle of our law that witnesses may not be compelled to incriminate themselves, and the scope of a witness’s privilege is liberally construed. [Citations.] “ ‘To invoke the privilege, a witness need not be guilty of any offense; rather, the privilege is properly invoked whenever the witness’s answers ‘ “would furnish a link in the chain of evidence needed to prosecute’ the witness for a criminal offense.’ ” [Citations.]” (People v. Williams (2008) 43 Cal.4th 584, 613-614.)

“The privilege ‘ “can be asserted in any proceeding, civil or criminal, administrative or judicial, investigatory or adjudicatory; (fn. omitted) and it protects against any disclosures which the witness reasonably believes could be used in a criminal prosecution or could lead to other evidence that might be so used.” ’ (Emphasis added.) [Citation.]” (Segretti v. State Bar (1976) 15 Cal.3d 878, 886.)

“The constitutional guarantee against compelled self-incrimination does more than protect an individual from being forced to testify against him or herself in a pending criminal proceeding; “ ‘[i]t also privileges a person not to answer official questions in any other proceeding, ‘ “civil or criminal, formal or informal,” ’ where he or she reasonably believes the answers might incriminate him or her in a criminal case.’ ” [Citation.] Thus, the privilege protects a person both from being compelled to testify against him- or herself and from being required to provide the state with evidence of a testimonial or communicative nature. [Citation.] The privilege will be applied where the person is confronted by substantial and real, as opposed to merely trifling or imaginary, hazards of incrimination.” (Kassey S. City of Turlock (2013) 212 Cal.App.4th 1276, 1280-1281.)

The Tarnutzers argue that this action should be stayed “because the pendency of the discovery requests, discovery motions and the applications for writ of attachment discussed above shows that Defendants will be called upon to address allegations about Section 7028 in responding and there is a risk that in doing so they might incriminate themselves.” (Motion, p. 10, ll. 8-12.)

The Tarnutzers rely on Pacers, Inc. v. Superior Court (1984) 162 Cal.App.3d 686 (Pacers) in support of their argument for staying discovery. Pacers is on point. In short, the Pacers petitioners were not criminal defendants, but they were threatened with criminal prosecution. The petitioners invoked their Fifth Amendment privilege against self-incrimination at deposition. The court concluded that the petitioners properly invoked the privilege and that the proper course of action was to stay the depositions until after the expiration of the criminal statute of limitations.

As in Pacers: “Petitioners here are civil defendants facing possible criminal prosecution involving the same facts as the civil action.” (Id. at p. 688.) “[T]he prosecution should not be able to obtain, through the medium of the civil proceedings, information to which it was not entitled under the criminal discovery rules.” (Id. at p. 690.)

The first seven causes of action in Fleury’s SAC are inextricably tied to the Tarnutzers’ potential criminal prosecution for violation of Business & Professions Code section 7028. The court cannot compel the Tarnutzers to provide answers to discovery, related to those causes of action, that would very likely implicate them criminally.

Failing to grant the requested stay would have the effect of prejudicing Fleury as well as the Tarnutzers. Fleury would be deprived of obtaining discoverable information that would assist her in presenting her case at trial. The Tarnutzers would be penalized for asserting their Fifth Amendment rights. “A party asserting the Fifth Amendment privilege should suffer no penalty for his silence.” (Pacers, supra, 162 Cal.App.3d at p. 689.)

Taking into consideration all factors before the court, as well as the parties’ competing interests: The motion for stay will be granted. The stay will remain in place until July 26, 2026, or further order of the court. The parties are encouraged to continue engaging in settlement negotiations during this time.

The court would have been inclined to deny the stay with respect to the $1,750,000.00 loan. However, Fleury has directly tied the eighth cause of action for breach of contract against Rick and ninth cause of action for false promise against Rick to the construction project. (SAC, ¶¶ 66, 67, 69, 75, 76, 77, 79.) As such, those causes of action must also be stayed.

3. Motions to Compel

As the action is being temporarily stayed, Fleury’s six motions to compel will be taken off-calendar. The motions will be re-set for hearing upon the expiration of the stay.