Kaia Leibo, et al. vs. IV Properties, Inc.
Kaia Leibo, et al. vs. IV Properties, Inc.
Case Number
23CV03826
Case Type
Hearing Date / Time
Wed, 11/08/2023 - 10:00
Nature of Proceedings
1) Demurrer To Plaintiffs’ Complaint; 2) Motion To Strike Portions Of Plaintiffs’ Complaint
Tentative Ruling
For Plaintiffs Kaia Leibo, Benjamin Richardson, and Abby Wilbur: Gregory K. Nelson, Dimitrios N. Theofilopoulos, Gregory N. Suhr, Weeks Nelson
For Defendant IV Properties, Inc.: Jerri L. Johnson, Stephen Acker, Neyilah A. Carter, Acker & Whipple
RULING
(1) For all reasons discussed herein, the demurrer of Defendant IV Properties, Inc., to Plaintiffs’ complaint is overruled.
(2) For all reasons discussed herein, the motion to strike of Defendant IV Properties, Inc., is denied.
Background
Plaintiffs Kaia Leibo (Leibo), Benjamin Richardson (Richardson), and Abby Wilbur (Wilbur) (collectively, Plaintiffs), individually and on behalf of others similarly situated, filed their original class action complaint in this matter on September 5, 2023, alleging three causes of action against Defendant IV Properties, Inc. (IVP): (1) bad faith retention of security deposit (Civ. Code, § 1950.5); (2) fraud; and (3) unlawful, unfair, and fraudulent business practices (Bus. & Prof. Code, § 17200 et seq.) As alleged in the complaint:
On November 15, 2021, Richardson together with Sophia Nelson, Parker Barandon, David Obbard, and Christine Le Forge (the Unit 3 Tenants) entered into a lease (the Unit 3 Lease) to rent a residential housing unit (Unit 3) in a multi-unit complex located at 6587 Picasso Road in Goleta, California (the premises). (Complaint, ¶ 27.)
On November 18, 2021, Wilbur together with Kayla Hamm, Alyssa Harriman, Eden Thorson, and Audrey Teresi (the Unit 4 Tenants) entered into a lease (the Unit 4 Lease) to rent a residential housing unit (Unit 4) in the premises. (Complaint, ¶ 43.)
On November 19, 2021, Leibo together with Ashlynn Urie, Paige Hutchison, and Carol Heimer (the Unit 2 Tenants) entered into a lease (the Unit 2 Lease) to rent a residential housing unit (Unit 2) in the premises. (Complaint, ¶ 7.)
The Unit 2 Lease, the Unit 3 Lease, and the Unit 4 Lease (collectively, the Subject Leases) do not expressly identify the owner of Unit 2, Unit 3, or Unit 4 (collectively, the Subject Units). (Complaint, ¶¶ 8, 28, 44.) The Unit 2 Tenants, Unit 3 Tenants, and Unit 4 Tenants (collectively, the Tenants) are unaware of the identity of the owner of the Subject Units, but the Tenants interacted solely with IVP during the events described in the complaint. (Ibid.) The term of each of the Subject Leases lasted from July 15, 2022 to June 25, 2023. (Complaint, ¶¶ 7, 27, 43.) The Tenants are college students who lived in the Subject Units for the 2022-2023 school year. (Ibid.)
The Subject Leases required the Tenants to pay a security deposit and provide that the security deposits “will be refunded, less deductions, as allowed by law.” (Complaint, ¶¶ 9, 10, 29, 30, 45, 46.) Plaintiffs read this language and relied upon it in signing the Subject Leases. (Complaint, ¶¶ 10, 30, 46.) The Subject Leases further provide that if the Subject Units were painted after termination of the Subject Leases, the amount deducted from the security deposit for such paint costs would be “prorated based on a five (5) year life of the painting[.]” (Complaint, ¶¶ 11, 31, 47.)
As required by the Unit 2 Lease, the Unit 2 Tenants paid a security deposit of $9,500 to IVP (the Unit 2 Security Deposit) prior to the beginning of the term of the Unit 2 Lease. (Complaint, ¶ 9.) Leibo contributed one-fourth of the Unit 2 Security Deposit and agreed to split four-ways with the other Unit 2 Tenants any amount of the Unit 2 Security Deposit that was returned. (Ibid.)
As required by the Unit 3 Lease, the Unit 3 Tenants paid a security deposit of $9,750 to IVP (the Unit 3 Security Deposit) prior to the beginning of the term of the Unit 3 Lease (Complaint, ¶ 29.) Richardson contributed one-fifth of the Unit 3 Security Deposit and agreed to split five-ways with the other Unit 3 Tenants any amount of the Unit 3 Security Deposit that was returned. (Ibid.)
As required by the Unit 4 Lease, the Unit 4 Tenants paid a security deposit of $11,400.00 to IVP (the Unit 4 Security Deposit) prior to the beginning of the term of the Unit 4 Lease. (Complaint, ¶ 45.) Wilbur contributed one-fifth of the Unit 4 Security Deposit and agreed to split five-ways with the other Unit 4 Tenants any amount of the Unit 4 Security Deposit that was returned. (Ibid.)
On June 16, 2023, before the Unit 2 Lease and the Unit 3 Lease terminated, IVP performed an initial inspection of Unit 2 and Unit 3 and rendered a written statement identifying items for repair and cleaning. (Complaint, ¶¶ 12, 32.) Before vacating Unit 2, the Unit 2 Tenants hired a professional cleaner who was familiar with IVP and its expectations of cleanliness upon move out and who cleaned the unit and returned Unit 2 to its level of cleanliness at move in. (Complaint, ¶ 13.) Before vacating Unit 3, the Unit 3 Tenants cleaned the unit and returned it to its level of cleanliness at move-in. (Complaint, ¶ 33.) The Unit 4 Tenants thoroughly cleaned Unit 4 and returned it to its level of cleanliness at move in prior to vacating Unit 4. (Complaint, ¶ 48.) The Unit 2 Tenants and the Unit 3 Tenants removed all their belongings from the units before departing. (Complaint, ¶¶ 13, 33.) The Tenants vacated the Subject Units on June 25, 2023, at the termination of the Subject Leases. (Complaint, ¶¶ 14, 34, 49.)
On July 10, 2023, IVP rendered a security deposit disposition statement to each of the Tenants which laid out IVP’s deductions to the Unit 2 Security Deposit, the Unit 3 Security Deposit, and the Unit 4 Security Deposit. (Complaint, ¶¶ 15, 35, 50.) IVP returned $1,671.87 of the Unit 2 Security Deposit after making $7,828.13 in deductions. (Complaint, ¶ 15.) IVP returned to the Unit 3 Tenants $7,371.04 of the Unit 3 Security Deposit, after deducting $2,378.96. (Complaint, ¶ 35.) IVP returned $6,894.81 of the Unit 4 Security Deposit after making $4,505.19 in deductions. (Complaint, ¶ 50.)
In returning the security deposits, IVP, among other things; made deductions for items that were not mentioned on IVP’s pre-moveout statements of deficiencies, for damages that predated Plaintiffs’ tenancies, for ordinary wear and tear, and for unreasonable repairs and cleaning costs; failed to prorate costs of painting before deducting from the Tenants’ security deposits; and, provided vague descriptions of items for which deductions were made. (See Complaint, ¶¶ 17-26, 36-42, 51-55, 65-67.) Plaintiffs would not have signed the Subject Leases if they knew that IVP would not properly refund security deposits minus lawful deductions or that IVP had a policy or practice of deducting from security deposits amounts that exceed those which are lawful. (Complaint, ¶¶ 10, 30, 46, 71-74.)
IVP has filed a demurrer to the first, second, and third causes of action alleged in the complaint which is opposed by Plaintiffs. IVP has also filed a motion to strike allegations seeking punitive and exemplary damages against IVP which is also opposed by Plaintiffs.
Analysis
(1) The Demurrer of IVP
A demurrer tests the legal sufficiency of factual allegations in a complaint. (Title Ins. Co. v. Comerica Bank—California (1994) 27 Cal.App.4th 800, 807.) “The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also ‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]’ [Citation.]” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (Quelimane); accord, Zhang v. Superior Court (2013) 57 Cal.4th 364, 370.) “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane, supra, 19 Cal.4th at p. 38.)
Demurrer to the first and third causes of action:
IVP contends that Plaintiffs have failed to state facts sufficient to constitute a first cause of action for bad faith retention of a security deposit under Civil Code section 1950.5 because, IVP argues, that statute permits IVP to use the security deposits at issue for any purpose and is not exclusive or limited to the four purposes listed in the statute. IVP further contends that Plaintiffs have failed to allege specific facts establishing that they were charged by IVP for damages they did not create. IVP also effectively contends that because Plaintiffs allege that they were provided a breakdown of deductions from the security deposits at issue and the purpose for those deductions, the deductions are statutorily authorized.
“The elements of an action for wrongful retention of a security deposit under Civil Code section 1950.5 are: (1) the Plaintiff paid a security deposit; (2) the security deposit was for a residential property; (3) the Plaintiff used the property as a dwelling; and (4) the amounts deducted by the Defendant were not reasonably necessary.” (Peviani, supra, 62 Cal.App.5th at p. 899.)
In the complaint, Plaintiffs allege that they each paid a security deposit to IVP for residential property that was used by each Plaintiff as a dwelling during the 2022 through 2023 school year. The complaint also includes specific factual allegations regarding what Plaintiffs contend constitute not reasonably necessary, or unlawful, deductions from the security deposits paid by the Tenants. The amounts deducted by IVP from the security deposits at issue are alleged in the complaint and include, among other things, deductions for ordinary wear and tear with respect to a shower drain, light bulbs, and natural settlement of the Subject Units, deductions for purportedly unnecessary or unreasonable cleaning, deductions for preexisting damage to kitchen cabinets and blinds, deductions for costs to haul property not belonging to the Tenants, and deductions for painting costs that were not prorated as required by the Subject Leases. (See Complaint, ¶¶ 13, 20, 22-26, 33, 38, 40-42, 48, 51, 52, 55.)
The allegations described above are sufficient to allege a cause of action for wrongful detention of a security deposit under Civil Code section 1950.5. On demurrer, the Court does not consider whether or not Plaintiffs can prove these allegations. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.) The Court also notes that at trial, “it is Defendants who bear the burden of proving the reasonableness of their security deposit deductions.” (Peviani, supra, 62 Cal.App.5th at p. 899.) Moreover, to the extent IVP contends that any one particular allegation describing a deduction from the security deposits paid by Plaintiffs is insufficient to support a claim under Civil Code section 1950.5, the demurrer is insufficient because it cannot be sustained to only part of the cause of action. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047.)
As Plaintiffs have, for all reasons discussed above, sufficiently alleged a cause of action for bad faith retention of a security deposit under Civil Code section 1950.5, the Court will overrule the demurrer of IVP to the first cause of action alleged in the complaint.
Regarding the third cause of action alleged in the complaint, Business and Professions Code section 17200 et seq. prohibits unfair competition, which includes unlawful, unfair, and fraudulent business acts. “[The term “unfair competition” is broadly defined by section 17200 of the Business and Professions Code to include “any unlawful, unfair or fraudulent business act or practice.” (Gregory v. Albertson's, Inc. (2002) 104 Cal.App.4th 845, 850-851.) “A business practice constitutes unfair competition if it is forbidden by any law, ‘be it civil or criminal, federal, state, or municipal, statutory, regulatory, or Court-made’ [citation] or if it is unfair, that is, if it ‘ “ ‘offends an established public policy or ... is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’ ” ’ [Citation.]” (Id. at p. 854.) A Plaintiff alleging unfair business practices under the statute must state with reasonable particularity the facts supporting the statutory elements of the violation. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.)
For all reasons discussed above, Plaintiffs have sufficiently alleged a cause of action for unlawful retention of a security deposit under Civil Code section 1950.5. To the extent Plaintiffs allege that IVP’s conduct violates the provisions of Civil Code section 1950.5, Plaintiffs have also sufficiently alleged an unlawful business act or practice under Business and Professions Code section 17200 et seq. notwithstanding the title under which the factual basis of relief is stated. (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 [“[v]irtually any law can serve as the predicate for a section 17200 action”]; Quelimane, supra, 19 Cal.4th at p. 38.) For these reasons, the Court will overrule IVP’s demurrer to the third cause of action alleged in the complaint.
Second cause of action for fraud:
With respect to the demurrer to the second cause of action, IVP contends that the allegations of the complaint are impermissibly vague and lack specific facts as to any fraudulent conduct on behalf of IVP including why the language in the Subject Leases regarding the security deposit is false or the basis on which IVP knew or should have known of the alleged falsity of the relevant language in the Subject Leases regarding the security deposit.
“The elements of fraud, which give rise to the tort action for deceit, 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. Superior Court (1996) 12 Cal.4th 631, 638.) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] … [¶] This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Id. at p. 645, original italics, internal quotation marks omitted.)
In paragraphs 10, 30, and 46 of the complaint, Plaintiffs set forth the specific language of the Subject Leases that relates to the return of the security deposits at issue that Plaintiffs allege were made by IVP and on which Plaintiffs relied when Plaintiffs agreed to sign the Subject Leases. It is reasonable to interpret the complaint to allege that IVP made the representations regarding refunds of and deductions to the security deposits paid by Plaintiffs in the Subject Leases. (Complaint, ¶¶ 10, 30, 46.) Based on the express allegations of the complaint and facts that can be inferred therefrom, Plaintiffs have sufficiently alleged that the purportedly fraudulent representation regarding the manner in which IVP would return security deposits, or make deductions from security deposits, was made in the Subject Leases by IVP. The identity of the person at IVP who prepared the Subject Leases need not be alleged for present purposes because that information is “uniquely within” IVP’s knowledge. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)
Plaintiffs also effectively allege that IVP had a “policy and practice” of deducting amounts from its tenants’ security deposits that exceed deductions that are lawful under Code of Civil Procedure section 1950.5. Therefore, Plaintiffs allege, IVP’s representation in the Subject Leases regarding the return of security deposits was false or fraudulent because IVP does not, as part of its policy and practice, return to its tenants their security deposits from which only lawful deductions are made. (See, e.g., Complaint ¶¶ 10, 30, 46, 73.)
Based on these allegations, to the extent Plaintiffs allege that IVP made misrepresentations or concealed material facts in the Subject Leases regarding its policy or practice of returning security deposits or of deducting only those amounts that are lawfully permitted, these allegations are sufficient to meet the heightened pleading requirements for fraud. Furthermore, “[a]llegations of the Defendant’s knowledge and intent to deceive may use conclusive language ….” (City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 803.)
For all reasons discussed above, at this stage of the proceedings, Plaintiffs have sufficiently alleged a second cause of action for fraud. As further discussed above, the Court does not for present purposes concern itself with whether Plaintiffs can prove these allegations. Therefore, the Court will overrule the demurrer to the second cause of action alleged in the complaint.
(2) The Motion To Strike of IVP
In the motion to strike, IVP contends that the allegations regarding punitive damages that appear in the complaint at page 18, lines 7- 8 (“plus punitive damages for IVP’s fraudulent conduct”) and page 19, line 11 (“[f]or punitive damages pursuant to Cal.Civ. Code section 3294”) are improper because Plaintiffs have not alleged facts demonstrating the requisite malice, oppression, or fraud required for an award of punitive damages.
“Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof[.]” (Code Civ. Proc., § 435, subd. (b)(1).) In ruling on a motion to strike, a Court may “strike out any irrelevant, false, or improper matter inserted in any pleading” or “strike all or part of any pleading not filed in conformity with applicable law, Court rules, or an order of the Court” (Code Civ. Proc., §436.) The grounds for a motion to strike must appear on the face of the pleading or from matters which the Court may take judicial notice. (Code Civ. Proc., § 437, subd. (a).)
Under Civil Code section 3294, subdivision (a), punitive damages are recoverable where it is shown by clear and convincing evidence that the Defendant acted with malice, oppression, or fraud. “Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the Defendant with the intention on the part of the Defendant of thereby depriving a person of property or legal rights or otherwise causing injury. (Civ. Code, § 3294, subd. (c)(3).)
As the Court will overrule the demurrer of IVP to the second cause of action based on fraud, the Court finds that Plaintiffs have sufficiently alleged specific facts showing that IVP acted with fraud. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1042.) As the alleged fraudulent conduct is sufficient to support a claim for punitive damages, the Court will deny IVP’s motion to strike.