VMD Aviation LLC vs Alan Stalcup

Case Number

23CV04235

Case Type

Hearing Date / Time

Fri, 05/17/2024 - 10:00

Nature of Proceedings

Demurrer

Tentative Ruling

For all reasons discussed herein, the demurrer of defendants to plaintiff’s second amended complaint is sustained, in part, as to the first, second, third, and fourth causes of action alleged against defendant N528DJ Falcon, LLC, only, with leave to amend. Except as otherwise herein sustained, the demurrer is overruled. Plaintiff shall file and serve its third amended complaint, if any, on or before May 31, 2024.

Background: 

Plaintiff VMD Aviation, LLC, (VMD) filed its original complaint in this matter on September 27, 2023, alleging one cause of action for breach of contract against Alan Stalcup (Stalcup). The original complaint arises from an alleged agreement entered into between VMD and Stalcup on December 10, 2021, for the purchase of a 2000 Cessna Citation X (the Aircraft). (See Compl., ¶ 8 & Exh. A.) On November 29, 2023, VMD filed a first amended complaint against Stalcup also alleging a first cause of action for breach of contract and adding a second cause of action for breach of the implied covenant of good faith and fair dealing.

On January 19, 2024, the court entered an order, pursuant to a stipulation of the parties, granting VMD leave to file a second amended complaint (the SAC). VMD filed the SAC on January 23, 2024, naming additional defendants N426CM, LLC (the LLC) and N528DJ Falcon, LLC (Falcon), and adding a third cause of action for declaratory relief against all defendants and a fourth causes of action for conversion against Falcon only. As alleged in the operative SAC:

On December 10, 2021, VMD and Stalcup entered into an Offer to Purchase (the 2021 Agreement) under which VMD agreed to sell and Stalcup agreed to purchase the Aircraft for a purchase price which included the monetary sum of $2 million dollars and 11 round trip flights from southern California to Idaho. (SAC, ¶ 10.) The 2021 Agreement included a provision which permitted Stalcup to terminate the parties’ obligations by rejecting the Aircraft following a pre-purchase inspection and test flight. (Id. at ¶ 11.) Following a pre-purchase inspection and test flight of the Aircraft, Stalcup rejected the Aircraft which extinguished the parties’ obligations under the 2021 Agreement. (Ibid.) VMD and Stalcup renegotiated the terms of sale of the Aircraft. (Id. at ¶ 12.)

On February 8, 2022, VMD, Stalcup, and the LLC, which is owned by Stalcup, entered into an Offer to Purchase (the 2022 Agreement) in which VMD agreed to sell, and Stalcup and the LLC (collectively, the Buyers) agreed to purchase, the Aircraft. (SAC, ¶¶ 5, 12 & Exh. A.) The purchase price agreed to by the Buyers under the 2022 Agreement includes a monetary sum of $1,960,000 and 11 round trip flights from southern California to Idaho. (Id. at ¶ 14 & Exh. A.)

The 2022 Agreement also provides that a transportation and repair fund of $1,240,000 (the transportation fund) was to be established by the Buyers with Falcon, which is also owned by Stalcup. (SAC, ¶ 5 & 14.) The transportation fund was to be used to provide to VMD the 11 round trip flights under the 2022 Agreement. (Ibid.) Buyers further agreed to provide the 11 round trip flights using the Aircraft or “an equivalent plane” containing twin engine jets. (Id. at ¶ 15.) The round trip flights were to be provided on the Aircraft or another equivalent plane for safety purposes because lower quality, single engine propeller planes were not deemed safe for the flight path and altitude necessary to complete the trips between southern California and Idaho. (Id. at ¶ 16.)

The Buyers provided VMD with two and one-half of the 11 round trip flights personally guaranteed by the Buyers under the terms of the 2022 Agreement on the following dates and using either the Aircraft or an equivalent twin engine jet: (1) June 1, 2022; (2) October 7, 2022; (3) June 7, 2023; (4) July 8, 2023; and (5) July 15, 2023. (SAC, ¶ 17.) The Buyers utilized $281,818.17 of the transportation fund to remit the two and one-half round trip flights to VMD. (Id. at ¶ 22.)

In September 2023, the Buyers indicated their intent to sell the Aircraft even though not all of the 11 round trip flights required under the 2022 Agreement had been furnished to VMD. (SAC, ¶ 18.) The Buyers offered to remit the remaining eight and one-half round trip flights using a turboprop single engine propeller plane which is not equivalent to either the Aircraft or any other plane previously utilized to provide trips to VMD under the 2022 Agreement. (Id. at ¶¶ 17-19.) The Buyers refused to charter a plane of equivalent value to the Aircraft to remit the remaining trips to VMD. (Id. at ¶ 19.) The use of a single engine propeller plane would deprive VMD of the entire value of the transportation fund included in the purchase price of the Aircraft. (Id. at ¶¶ 22 & 24.) The remaining eight and one-half trips are valued at $958,181.79 using a twin engine plane equivalent to the Aircraft. (Id. at ¶ 22.)

Stalcup, the LLC, and Falcon (collectively, defendants) have filed a demurrer to each cause of action alleged in the SAC, on the grounds that VMD has failed to state facts sufficient to constitute a cause of action. The demurrer is opposed by VMD.

Analysis:

In ruling on a demurrer, the court determines whether the complaint states a cause of action. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) The complaint is given a reasonable interpretation and read as a whole, with all its parts in their context. (Ibid.) A demurrer assumes the truth of properly pleaded material allegations, but not of contentions, deductions, or conclusions of fact or law. (Ibid.) The court also accepts as true facts that may be inferred from those expressly alleged and facts appearing in exhibits attached to the complaint. (McMahon v. Craig (2009) 176 Cal.App.4th 1502, 1509; Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 567.) “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 Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.)

Demurrer to the first cause of action for breach of contract:

Defendants contend that VMD seeks to impose on them contractual obligations to which defendants did not agree under the 2022 Agreement. Specifically, defendants assert that the terms of the 2022 Agreement attached to the SAC do not provide that the amount of $1,240,000 was intended to be used to pay for repairs or transportation or that this amount was to be paid to VMD. Therefore, defendants argue, the 2022 Agreement is not reasonably susceptible to the allegation asserted by VMD that the sum of $1,240,000 was intended to create the transportation fund. Defendants further assert that the 2022 Agreement cannot be reasonably interpreted to require that the agreed-upon round trip flights be made on the Aircraft or its equivalent or that the flights would within any specific period of time, or to prohibit a sale of the Aircraft.

In addition, defendants contend that VMD has failed to allege that Falcon is a party to the 2022 Agreement and to allege facts sufficient to impose alter ego liability as between defendants. For these reasons, defendants argue, VMD has failed to state facts sufficient to allege either a contract with Falcon or to allege a breach of the 2022 Agreement by defendants.

The express terms of the 2022 Agreement attached to the SAC as Exhibit A do not reflect that Falcon is a contracting party. In addition, in the SAC and its opposition to the demurrer, VMD does not expressly allege or appear to assert that Falcon is a party to the 2022 Agreement. (See, e.g., SAC, ¶¶ 12, 21 [alleging that Stalcup and the LLC entered into the 2022 Agreement with VMD].) Instead, VMD contends that it has alleged facts sufficient to show that Falcon and the LLC are owned by Stalcup, that the Buyers could bind Falcon to act under the 2002 Agreement by establishing the transportation fund to be used to provide the 11 round trip flights as part of the purchase price for the Aircraft, and that Falcon received a significant amount of money via the transportation fund in connection with the sale of the Aircraft. (See Opp. at p. 7, l. 11- p. 8, l. 7.) Based on these allegations, VMD argues, there exists a unity of interest among defendants sufficient to impose liability for breach of the 2022 Agreement on Falcon under an alter ego theory. VMD further contends that an unjust result will occur if Falcon is not deemed to be the alter ego of the Buyers.

“In California, common principles apply regardless of whether the alleged alter ego is based on piercing the corporate veil to attach liability to a shareholder or to hold a corporation liable as part of a single enterprise.” (Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1108 (Toho-Towa).) Though the conditions under which the alleged alter ego may apply vary in each case, “[f]actors for the trial court to consider include the commingling of funds and assets of the two entities, identical equitable ownership in the two entities, use of the same offices and employees, disregard of corporate formalities, identical directors and officers, and use of one as a mere shell or conduit for the affairs of the other.” (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1342.) “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415 (Leek).)

The pertinent allegations of the SAC for present purposes include that Falcon and the LLC are each limited liability companies owned by Stalcup, that the Buyers would establish the transportation fund with Falcon to enable them to furnish the 11 round trip flights to VMD, and that defendants “were the agent, alter-ego, servant, co-conspirator, partners, representative, or employee of the other, and in doing things hereinafter alleged were working within the course and scope of this agency, alter-ego, partnership, employment, or representation with the knowledge, notification, authorization, and consent of each other.” (SAC, ¶¶ 2-5, 7, 14, 21, 38.)

The allegations described above are insufficient to show a unity of interest or inequitable result. For example, allegations that Stalcup owns both the LLC and Falcon alone are insufficient to allege an alter ego. (See Leek, supra, 194 Cal.App.4th at p. 415.) Though VMD alleges in the SAC that the Buyers would establish the transportation fund with Falcon, these allegations are also insufficient to show any commingling of funds or assets or that Falcon should be liable for the acts of the LLC or Stalcup. Moreover, there are no allegations showing that Stalcup, the LLC, and Falcon operated with combined resources to pursue a single business purpose or that one party or entity “so dominated the finances, policies and practices” of the other. (Toho-Towa, supra, 217 Cal.App.4th at p. 1109.) These examples are intended to be illustrative but not exhaustive.

Because the allegations of the complaint do not plead that Falcon is a party to the 2022 Agreement or plead facts sufficient to give rise to any alter ego liability of Falcon, VMD has failed to allege facts sufficient to state a cause of action for breach of contract against Falcon. Therefore, the court will sustain the demurrer to the first cause of action as to Falcon.

With respect to the claims alleged in the first cause of action against the LLC and Stalcup, “[w]here a complaint is based on a written contract which it sets out in full, a general demurrer to the complaint admits not only the contents of the instrument but also any pleaded meaning to which the instrument is reasonably susceptible. [Citation.] While plaintiff's interpretation of the contract ultimately may prove invalid, it [is] improper to resolve the issue against [the plaintiff] solely on [the plaintiff’s] own pleading. ‘In ruling on a demurrer, the likelihood that the pleader will be able to prove his allegations is not the question.’ [Citation.]” (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239 (Aragon-Hass).)

In addition, to the extent a contract forming the basis of an action is ambiguous, the plaintiff may allege its construction of the agreement provided the pleading does not place a “a clearly erroneous construction upon the provisions of the contract….” (Marina Tenants Assn. v. Deauville Marina Development Co. (1986) 181 Cal.App.3d 122, 128 [also noting that “in passing upon the sufficiency of the complaint, we must accept as correct plaintiff’s allegations as to the meaning of the agreement”].) If a plaintiff fails to allege its interpretation of an alleged contract that forms the basis of an action, plaintiff should be given leave to amend to do so. (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 229.)

As further discussed above, under the 2022 Agreement, that total purchase price for the Aircraft includes both a monetary sum and 11 round trip flights to be provided to VMD. The 2022 Agreement further and expressly provides that Falcon would receive the sum of $1,240,000. (See SAC, Exh. A at ¶ 1.) The 2022 Agreement does not include a provision which explains the purpose for the payment of this sum to Falcon, whether the money would be used to furnish the 11 round trip flights, or whether the sum to be provided to Falcon would be used for transportation or repair costs incurred in connection with the round trip flights to be provided to VMD.

Notwithstanding the above, the 2022 Agreement also provides that the purchase price to be paid by the Buyers to VMD would be held by Insured Aircraft Title Service, Inc. (the title company), and that the title company would wire transfer the purchase price per VMD’s instructions. (SAC, Exh. A at ¶¶ 1 & 6.) The 2022 Agreement further provides that the title company would hold all “closing documents”. (Id. at ¶ 6.)

A document titled “Seller’s Disbursement Instructions” signed by VMD and directed to the title company is attached to the SAC as Exhibit B. In addition, a copy of a “Settlement Statement” prepared and signed by the title company is attached to the SAC as Exhibit C. The Seller’s Disbursement Instructions directs the title company to release funds from escrow to VMD in the amount of $1,960,000 plus 11 round trip flights from “SBA” to Idaho upon authorization from the Buyers, and notes that Falcon “will have a fund of $1,240,000” for the 11 round trip flights. (See SAC, Exh. B.) In addition, the Settlement Statement shows that the amount of $1,240,000 was disbursed at closing to Falcon for a “[t]ransportation & [r]epair [f]und.” (Id. at Exh. C [column titled “Disbursements At Closing” appearing under “Summary of Seller’s Transaction”].)

The Seller’s Disbursement Instructions and the Settlement Statement do not, as defendants contend, vary or contradict the express terms of the 2022 Agreement. For example, the 2022 Agreement, the Seller’s Disbursement Instructions, and the Settlement Statement each identify the same specific amount to be provided to Falcon. In addition, both the 2022 Agreement and the Seller’s Disbursement Instructions describe the 11 round trip flights to be provided as part of the purchase price for the Aircraft and, if read together, the amount of the payment to be made to Falcon for these flights. The Settlement Statement also demonstrates that the payment to be made to Falcon was for the transportation fund alleged in the SAC.

For all reasons discussed above, the Seller’s Disbursement Instructions and the Settlement Statement do not contradict but tend to explain the material terms of the 2022 Agreement with respect to the payment to be made to Falcon in connection with the 11 round trip flights included in the purchase price for the Aircraft. (Thrifty Payless, Inc. v. Mariners Mile Gateway, LLC (2010) 185 Cal.App.4th 1050, 1061 [general discussion regarding use of extrinsic evidence to shed light on the contracting parties’ intent].) Therefore, a reasonable interpretation of the SAC, including facts appearing in the exhibits thereto or which may be inferred from those expressly alleged, shows that the payment to Falcon referenced in the 2022 Agreement was for the purpose of establishing the transportation fund alleged in the SAC, and that the transportation fund was to be used to provide the 11 round trip flights agreed to by the Buyers under the 2022 Agreement. Moreover, defendants cite to no provision in the 2022 Agreement that directly contradicts the interpretation offered by VMD. Accordingly, and for all reasons discussed above, the 2022 Agreement is reasonably susceptible to the interpretation proposed by VMD.

The same analysis applies with respect to defendants’ contention that the 2022 Agreement does not require the agreed-upon round trip flights to be made on either the Aircraft or an equivalent aircraft. Though the SAC can be reasonably interpreted to allege that the Buyers would need to secure an aircraft to remit the round trip flights as part of the purchase price for the Aircraft, the 2022 Agreement includes no provisions describing the type of aircraft to be used in providing the round trip flights or the time within which the flights would be furnished to VMD. However, in an email dated November 13, 2021, and attached to the SAC as Exhibit D, Stalcup states that he “[w]ould make best attempt to have your plane and if not an equivalent plane like our Lear or Falcon. That way you could fly whenever you want without any additional costs.” (SAC, Exh. D.) VMD asserts that this email reflects the parties’ agreement to use the Aircraft or an equivalent plane to furnish the round trip flights.

Though defendants contend that the email attached to the SAC as Exhibit D pertains only to the 2021 Agreement alleged in the complaint which VMD alleges was extinguished, the court notes that in the SAC, VMD alleges that the prior December 21, 2021, agreement also included in the purchase price for the Aircraft the 11 round trip flights to Idaho. (See SAC, ¶ 10.) Furthermore, defendants’ assertion that the email attached to the SAC pertains only to the prior agreement constitutes extrinsic matter that the court may not consider on demurrer. (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881 [error for court to consider matters raised in memorandum and not otherwise pleaded]; Executive Landscape Corp. v. San Vicente Country Villas IV Assn. (1983) 145 Cal.App.3d 496, 499-500 [also noting that the court is precluded from weighing disputed facts on demurrer].)

In addition, the contents of the November 13, 2021, email attached to the SAC cannot vary, add to, or contradict the 2022 Agreement because, as further discussed above, the parties did not include provisions specifying the type of aircraft that could or could not be used by the Buyers to remit the 11 round trip flights. For these reasons, the email may be considered for present purposes to shed light on the intention of the parties with respect to the alleged manner in which the 11 round trip flights were to be provided. (Aragon-Haas, supra, 231 Cal.App.3d at p. 240 [the terms of the contract must first be determined before the court can determine if extrinsic evidence is being offered for a prohibited purpose].) The contents of the email attached to the SAC as Exhibit D also demonstrate that VMD’s interpretation of the 2022 Agreement alleged in the SAC is not clearly erroneous. Moreover, the court is required to accept as correct VMD’s construction of the 2022 Agreement with respect to the type of aircraft the parties contemplated would be utilized to provide the round trip flights described therein.

Notwithstanding whether the 2022 Agreement requires that the 11 round trip flights be provided within a specified time frame, VMD alleges that the Buyers sold the Aircraft before providing the entirety of the 11 round trip flights required under the 2022 Agreement. For present purposes, these facts are sufficient to allege a breach of the 2022 Agreement with respect to whether Stalcup and the LLC remitted to VMD the entirety of the purchase price for the Aircraft.

For all reasons discussed above, the 2022 Agreement is reasonably susceptible to the interpretation proposed by VMD under which Stalcup and the LLC were obligated to provide VMD with 11 round trip flights and to remit the sum of $1,240,000 to Falcon for the purpose of establishing the transportation fund to provide these flights. It is also reasonable to interpret the 2022 Agreement, for present purposes, to require the round trip flights to be provided on the Aircraft or its equivalent. Based on the proposed interpretation of the 2022 Agreement alleged in the SAC, VMD has stated facts sufficient to demonstrate that Stalcup and the LLC breached the 2022 Agreement by failing to furnish the remaining eight and one-half round trip flights on the Aircraft or its equivalent, which VMD alleges are valued at $958,181.83. (See SAC, ¶¶ 22 & 25.) On demurrer, the court does not consider whether VMD can prove these allegations. Accordingly, and for all reasons discussed above, the court will overrule the demurrer to the first cause of action as to Stalcup and the LLC.

Demurrer to the second cause of action for breach of the implied covenant of good faith and fair dealing:

In the second cause of action, VMD alleges that defendants breached the implied covenant of good faith and fair dealing under the 2022 Agreement by “failing to remit to [VMD] a total of 11 round trip flights from Southern California to Idaho utilizing either the Aircraft or an equivalent twin engine jet” and by “failing to remit to [VMD] a total value of $1,240,000.00 held in [the] transportation … fund by Falcon to be used in providing the 11 round trip flights….” (SAC, ¶¶ 29-30.)

Defendants contend that because VMD has failed to allege facts demonstrating that Falcon is a party to the 2022 Agreement, VMD cannot impose liability on Falcon for its breach.

“Under California law, every contract includes an implied covenant of good faith and fair dealing.” (Prager University v. Google LLC (2022) 85 Cal.App.5th 1022, 1039.) This implied covenant “exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. [Citation.] The covenant thus cannot ‘ “be endowed with an existence independent of its contractual underpinnings.” ’ [Citations.] It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349-350.)

With respect to the claims alleged against Falcon in the second cause of action, the same reasoning applies. For all reasons further discussed above, because VMD has not alleged facts sufficient to show that Falcon is a contracting party under the 2022 Agreement and notwithstanding that VMD has alleged that the parties agreed to provide money to Falcon under the 2022 Agreement to establish the transportation fund, VMD also has failed to allege facts sufficient to state a claim for breach of the implied covenant of good faith and fair dealing against Falcon. (See Murphy v. Allstate Ins. Co. (1978) 83 Cal.App.3d 38, 48 [though not “strictly a contractual obligation”, the duty of good faith and fair dealing “governs a party to a contract in discharging its contractual responsibilities”].) Therefore, the court will sustain the demurrer to the second cause of action as to Falcon.

As to the claims alleged in the second cause of action against Stalcup and the LLC, defendants contend that, because VMD relies on the same insufficient factual allegations further discussed above which defendants contend are insufficient, VMD has also failed to allege facts sufficient to constitute a cause of action for breach of the implied covenant of good faith and fair dealing. The same analysis also applies. For all reasons discussed above, because the 2022 Agreement is reasonably susceptible to the interpretation alleged by VMD in the SAC, the implied covenant alleged in the second cause of action also does not contradict or vary the terms of the 2022 Agreement. Therefore, VMD has alleged facts sufficient to constitute a cause of action for breach of the implied covenant of good faith and fair dealing as against Stalcup and the LLC.

Defendants further contend that the second cause of action is unnecessary (i.e., “superfluous”) because the allegations do not go beyond the breach of contract claim and rely on the same alleged acts. That a cause of action is superfluous or unnecessary is not grounds for a demurrer. (Code Civ. Proc., § 430.10, subd. (a)-(h); Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 889-890; see also Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1015 [permitting leave to amend to allege causes of action for both breach of contract and breach of the implied covenant].) For this and all reasons further discussed above, the court will overrule the demurrer to the second cause of action as to Stalcup and the LLC.

Demurrer to the third cause of action for declaratory relief:

As the sole grounds for their demurrer to the third cause of action for declaratory relief, Stalcup and the LLC contend that the 2022 Agreement does not impose on them the obligations further discussed above and alleged in the SAC with respect to the use of the Aircraft or its equivalent to furnish the 11 round trip flights. The same analysis applies. For all reasons discussed above, the court will overrule the demurrer to the third cause of action for declaratory relief as alleged against Stalcup and the LLC.

Defendants further contend that because VMD has failed to allege facts showing that Falcon owes any contractual obligations to VMD, the demurrer to the third cause of action as against Falcon should be sustained. The “controversy” alleged in the third cause of action for declaratory relief is based on the obligations purportedly owed by defendants under the 2022 Agreement only. (SAC, ¶ 33.) VMD seeks a declaratory judgment that under the 2022 Agreement, Falcon owes to VMD a total of 8 and one-half round trip flights on the Aircraft or its equivalent. (Id. at ¶ 35.)

Because the claims alleged against Falcon in the third cause of action arise solely from obligations purportedly owed under the 2022 Agreement, the same reasoning applies. Therefore, the court will sustain the demurrer to the third cause of action as to Falcon for all reasons further discussed above.

Demurrer to the fourth cause of action for conversion:

A reasonable interpretation of the SAC shows that the fourth cause of action for conversion, alleged against Falcon only, arises from provisions in the 2022 Agreement which VMD alleges require the creation of the transportation fund in the amount of $1,240,000 to be established with Falcon and to be used by the Buyers to remit the portion of the purchase price for the Aircraft that consists of the 11 round trip flights to Idaho. (See SAC, ¶¶ 14, 38.)

In the fourth cause of action, VMD alleges that it has demanded that defendants charter an equivalent Aircraft to furnish the remaining 8 and one-half round trip flights owed under the 2022 Agreement but that defendants have stated that they would provide the remaining flights using a turboprop single engine propeller plane only, which VMD asserts is not an equivalent aircraft. (SAC, ¶¶ 18, 40.) VMD further alleges that the refusal by defendants to furnish the remaining flights on an equivalent aircraft has “depriv[ed] [VMD] of the entire value” of the transportation fund and the purchase price for the Aircraft. (Id. at ¶ 40.) Because the money used to establish the transportation fund is included in the purchase price for the Aircraft, VMD asserts that it is entitled to ownership of those monies. (Id. at ¶ 41.) For this reason, VMD further alleges, Falcon has converted the sums remaining in the transportation fund in excess of $958,181.83. (Id. at ¶¶ 22 [alleging that the monetary value of the remaining 8 and one-half trips is $958,181.79] & 42.)

In the demurrer, defendants assert that VMD has no ownership in or right to possess the sum of $958,181.83, that there exists no obligation under the 2022 Agreement to create the transportation fund or pay any remaining portion of that fund to VMD, and that the sum alleged by VMD is uncertain and does not account for repairs that would have been payable from the alleged fund. For these reasons, defendants argue, VMD has failed to state a claim for conversion against Falcon.

To establish a cause of action for conversion, a plaintiff must prove “(1) [its] ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.) “Money may be the subject of conversion if the claim involves a specific, identifiable sum[.]” (Welco Electronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 209.)

Though VMD has sufficiently alleged a specific and identifiable sum of money that Falcon is alleged to have wrongfully converted, a reasonable interpretation of the SAC shows that VMD did not retain possession of the monetary sum of $1,240,000 following the execution of the 2022 Agreement. For example, the allegations of the SAC, including facts which can be inferred from those expressly alleged, show that that under the 2022 Agreement, VMD agreed that the monetary sum of $1,240,000 would be furnished by the Buyers to Falcon for the purpose of establishing the transportation fund. (SAC, ¶ 14.) The transportation fund was to be used to provide the 11 round trip flights under the 2022 Agreement. (Ibid.) According to the allegations of the SAC, the transportation fund was actually used to furnish VMD with 2 and one-half of the 11 round trip flights, in the amount of $281,818.17. (Id. at ¶¶ 17 & 22.) From these allegations, it can be inferred that VMD did not expect to or in fact retain possession of the money used to create the transportation fund with Falcon.

In addition, to the extent that the SAC may be reasonably interpreted to allege a claim that VMD is entitled to recover the remaining moneys held in the transportation fund by Falcon based on a breach of the 2022 Agreement by the Buyers, though legal title or absolute ownership to the property at issue is not necessary to support a conversion claim, “a mere contractual right of payment, without more, will not suffice.” (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 452.) As VMD has not alleged facts sufficient to demonstrate title to or a lien upon the remaining money allegedly held in the transportation fund by Falcon, the allegations of the complaint are insufficient to allege a claim for conversion of these funds based solely on a purported breach of the 2022 Agreement. (Ibid.)

“Where plaintiff neither has title to the property alleged to have been converted, nor possession thereof, he cannot maintain an action for conversion.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 610-611.) Because the fourth cause of action for conversion arises from an alleged sum of money remaining in the transportation fund and because the allegations of the SAC are insufficient to show that VMD retained or had a right to possession of those funds, VMD has failed to state facts sufficient to support a cause of action for conversion against Falcon. Therefore, the court will sustain the demurrer to the fourth cause of action alleged in the SAC.

Leave to amend:

VMD bears the burden to show a reasonable possibility that the defects discussed herein can be cured by amendment to the SAC. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In the opposition to the demurrer, VMD requests the opportunity to cure any defects in the SAC in the event the court grants any part of the demurrer. The bare bones request of VMD fails to offer any reasoned argument demonstrating in what manner the SAC may be amended to cure the deficiencies discussed herein.

Though VMD has failed to show the manner in which the defects discussed above can be cured, the SAC does not necessarily show on its face that it is incapable of amendment. Though the court questions whether the SAC may be truthfully amended to state causes of action for breach of contract or conversion against Falcon, and notwithstanding that VMD has not met its burden to demonstrate that the defects can be cured by amendment, as the SAC is, for present purposes, effectively an original pleading, the court will grant plaintiff leave to amend. (Eghtesad v. State Farm General Insurance Company (2020) 51 Cal.App.5th 406, 411-412.) VMD may amend the SAC with respect to the claims alleged against Falcon as authorized herein. (Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023.)