Sisters Legal Document Preparation Inc Unique Maintenance Inc et al

Case Number

23CV04980

Case Type

Hearing Date / Time

Mon, 05/20/2024 - 10:00

Nature of Proceedings

CMC (Special Set w/ CLM); Demurrer to FAC; Motion to Strike Portions of FAC

Tentative Ruling

Sisters legal document preparation, inc. v. Unique Maintenance, Inc., et al.                                                                                                                       

Case No. 23CV04980

Hearing Date: May 20, 2024                                             

HEARINGS:             (1) Defendants’ Demurrer to Plaintiff’s First Amended Complaint;

(2) Defendants’ Motion to Strike Portions of Plaintiff’s First Amended Complaint.

                                   

ATTORNEYS:          For Plaintiff Sisters Legal Document Preparation, Inc.: Arash Merpour

For Defendants Unique Maintenance, Inc., Henry Bartley, and Joshua Bartley: Shereef Moharram, Jeff F. Tchakarov

                       

TENTATIVE RULINGS:  

1. Defendants’ demurrer to plaintiff’s first amended complaint is sustained in part and overruled in part as follows:
   1. Defendants demurrer as to the first, second, and third causes of action is overruled;
   2. Defendants demurrer as to the fourth cause of action is sustained with leave to amend.
2. Defendants’ Motion to Strike plaintiff’s prayer for punitive damages is granted with leave to amend.
3. Plaintiff shall file and serve its second amended complaint no later than June 10, 2024.

Background:

This action was commenced on November 9, 2023, by the filing of the original complaint by plaintiff Sisters Legal Document Preparation, Inc. (“plaintiff”) against defendants Unique Maintenance, Inc. (“UMI”), Henry Bartley (“Henry”), and Joshua Bartley (“Joshua”) (collectively, “defendants”). (Note: due to common surnames, Henry Bartley and Joshua Bartley will be referred to by their first names to avoid confusion. No disrespect is intended.)

On December 29, 2023, plaintiff filed the operative first amended complaint (“FAC”), setting forth causes of action for: (1) Breach of Contract; (2) Breach of the Implied Covenant of Good Faith and Fair Dealing; (3) Unjust Enrichment; and (4) Fraud. The four causes of action are alleged as to all defendants.

The basic facts alleged in the FAC are: Defendants retained plaintiff to apply to the IRS for Employee Retention Credit. UMI was to pay plaintiff 12 percent of any funds received through plaintiff’s efforts. As a result of plaintiff’s efforts, the IRS sent UMI over $1,000,000.00. Defendants, specifically Joshua, represented to plaintiff that plaintiff would be paid. Defendants did not pay anything to plaintiff.

Defendants now demur to each of the four causes of action and move to strike plaintiff’s prayer for punitive damages.

Plaintiff opposes the demurrer and the motion to strike.

Analysis:

            Demurrer

“The party against whom a complaint or cross-complaint has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of the following grounds:

“(a) The court has no jurisdiction of the subject of the cause of action alleged in the pleading.

“(b) The person who filed the pleading does not have the legal capacity to sue.

“(c) There is another action pending between the same parties on the same cause of action.

“(d) There is a defect or misjoinder of parties.

“(e) The pleading does not state facts sufficient to constitute a cause of action.

“(f) The pleading is uncertain. As used in this subdivision, “uncertain” includes ambiguous and unintelligible.

“(g) In an action founded upon a contract, it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct.

“(h) No certificate was filed as required by Section 411.35.” (Code Civ. Proc., § 430.10.)

“When any ground for objection to a complaint, cross-complaint, or answer appears on the face thereof, or from any matter of which the court is required to or may take judicial notice, the objection on that ground may be taken by a demurrer to the pleading.” (Code Civ. Proc., § 430.30, subd. (a).) “Our consideration of the facts alleged includes ‘those evidentiary facts found in recitals of exhibits attached to [the] complaint.’ [Citation.]” (Alexander v. Exxon Mobil (2013) 219 Cal.App.4th 1236, 1250.)

“[A] court must treat a demurrer as admitting all material facts properly pleaded, it does not, however, assume the truth of contentions, deductions or conclusions of law.” (Travelers Indem. Co. of Connecticut v. Navigators Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 358, citing Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

“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. “ ‘[W]e are not limited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determine if the factual allegations of the complaint are adequate to state a cause of action under any legal theory. The courts of this state have . . . long since departed from holding a plaintiff strictly to the ‘form of action’ he has pleaded and instead have adopted the more flexible approach of examining the facts alleged to determine if a demurrer should be sustained.’ ” [Citations.]” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38-39.)

Alter Ego Allegations

Plaintiff’s claims against Henry and Joshua are premised on alter ego liability.

Common to each of the four causes of action, defendants argue that there is a misjoinder of parties because plaintiff fails to allege sufficient facts to establish that UMI is the alter ego of Henry and Joshua.

“The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff’s interests. [Citation.] In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation: “ ‘As the separate personality of the corporation is a statutory privilege, it must be used for legitimate business purposes and must not be perverted. When it is abused it will be disregarded and the corporation looked at as a collection or association of individuals, so that the corporation will be liable for acts of the stockholders or the stockholders liable for acts done in the name of the corporation.’ ” [Citation.]” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.)

“There is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case. There are, nevertheless, two general requirements: “ ‘(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.’ ” [Citation.]” (Ibid.)

“The first requirement for disregarding the corporate entity under the alter ego doctrine - whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist - encompasses a series of factors. Among the many factors to be considered in applying the doctrine are one individual’s ownership of all stock in a corporation; use of the same office or business location; commingling of funds and other assets of the individual and the corporation; an individual holding out that he is personally liable for debts of the corporation; identical directors and officers; failure to maintain minutes or adequate corporate records; disregard of corporate formalities; absence of corporate assets and inadequate capitalization; and the use of a corporation as a mere shell, instrumentality or conduit for the business of an individual. [Citation.] This list of factors is not exhaustive, and these enumerated factors may be considered with others under the particular circumstances of each case. “ ‘ “No single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.” ’ ” [Citation.]” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1073.)

“The second requirement for application of the alter ego doctrine is a finding that the facts are such that adherence to the fiction of the separate existence of the corporation would sanction a fraud or promote injustice. [Citation.] The test for this requirement is that if the acts are treated as those of the corporation alone, it will produce an unjust or inequitable result. [Citation.]” (Ibid.)

“[T]he courts have followed a liberal policy of applying the Alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure. It is essential principally that a showing be made that both requirements, i.e., unity of interest and ownership, and the promotion of injustice by the fiction of corporate separate existence, exist in a given situation. [Citation.]” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915 (First Western).)

Plaintiff pleads the following related to alter ego liability:

“Henry was the Plaintiff’s point of contact regarding the Contract.” (FAC, ¶ 42.) “Henry and Plaintiff discussed the terms of the Contract.” (FAC, ¶ 43.) “Henry signed the contract on behalf of UMI.” (FAC, ¶ 44.)

“On information and belief, Henry and Joshua are the individuals responsible for making the decision to withhold the payment due to Plaintiff under the contract.” (FAC, ¶ 45.) “On information and belief, Henry is an owner of UMI.” (FAC, ¶ 46.) “On information and belief, Joshua is an owner of UMI.” (FAC, ¶ 47.) “Henry is Joshua’s father.” (FAC, ¶ 48.)

“As of the time of this filing, the Plaintiff does not know the reported or claimed ownership of UMI.” (FAC, ¶ 56.)

“Based on information and belief, Plaintiff alleges that there exists, and at all times herein mentioned there existed, a unity of interest and ownership between UMI, Henry, and Joshua, such that any individuality and separateness between them, ceased and/or never existed. Therefore, UMI is merely the alter ego of Henry and Joshua, without any separate existence.” (FAC, ¶ 57.) “In this instance, adherence to the fiction of the separate existence between UMI, Henry, and Joshua, would permit an abuse of the corporate privileges and would sanction fraud or promote injustice.” (FAC, ¶ 58.)

“Based on information and belief, the Plaintiff alleges that adherence to the fiction of the separate existence between UMI, Henry, and Joshua would permit an abuse of the corporate privilege and would sanction fraud because UMI, Henry, Joshua, and Does 1 through 20 intentionally used UMI to use Plaintiff’s services to transfer the money to an interest bearing account and avoid paying Plaintiff.” (FAC, ¶ 59.) “On information and belief, Henry and Joshua are directing UMI not to pay Plaintiff under the contract.” (FAC, ¶ 60.)

“In essence, Henry and Joshua entered into a contract with Plaintiff.” (FAC, ¶ 70.)

The primary case relied on by defendants, in their argument as to what plaintiff is required to plead, is Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825 (Associated Vendors). Associated Vendors involves an appeal of a judgment following trial. The court did provide a fairly lengthy list of factors that could tend to prove alter ego liability, but it in no way discusses pleading requirements.

The question of plaintiff’s’ ability to prove their case is of no concern in ruling on a demurrer. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214 [superseded by statute on other grounds].)

Defendants also rely on Leek v. Cooper (2011) 194 Cal.App.4th 399 (Leek), which does discuss pleading requirements for an alter ego theory of recovery.

“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. [Citation.] An allegation that a person owns all of the corporate stock and makes all of the management decisions is insufficient to cause the court to disregard the corporate entity.” (Id. at p. 415.)

In Leek, the allegations in the complaint were: 

“(1) that the plaintiffs were employed by Auburn Honda and Jay Cooper; (2) that Auburn Honda is a corporation; (3) that “ ‘Defendant Cooper is the sole owner of AUBURN HONDA, owning all of its stock and making all of its business decisions personally[;]’ ” and (4) that all defendants were “ ‘the agents, servants and employees of their co-defendants, and in doing the things hereinafter alleged were acting within the scope and authority as such agents, servants and employees and with the permission and consent of their co-defendants. All of said acts of each of the Defendants were authorized by or ratified by their co-defendants.” ’ ” (Ibid.)

As the court observed: “These allegations neither specifically alleged alter ego liability, nor alleged facts showing a unity of interest and inequitable result from treatment of the corporation as the sole actor. Furthermore, although plaintiffs alleged Cooper was the employer, the complaint contains no allegations that he should be held liable for the corporation’s wrongdoing.” (Ibid.)

In Leek, there were no allegations at all regarding alter ego liability.

Here, plaintiff does plead a unity of interest, ownership, and an unjust result if UMI is treated as the sole actor, as required under Leek.

Defendants argue that the cases of Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221 (Rutherford) and First Western, supra, illustrate what must be pled to overcome demurrer to allegations of alter ego liability. The allegations in Rutherford and First Western are essentially identical to one another.

The problem with defendants’ argument, pertaining to Rutherford and First Western, is that those cases demonstrate allegations that are sufficient. It does not follow that different allegations, or even fewer allegations, would be insufficient.

In Rutherford: “Defendants argue that Rutherford failed to allege specific facts to support an alter ego theory, but Rutherford was required to allege only “ ‘ultimate rather than evidentiary facts.’ ” [Citation.] Moreover, the “ ‘less particularity [of pleading] is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff,’ ” which certainly is the case here. [Citation.]” (Rutherford, supra, at p. 236.) The same is true in the present case. Plaintiff has pled ultimate facts of alter ego liability.

It would be highly unlikely that plaintiff would possess all the information necessary to prove alter ego liability at the pleading stage of litigation. The facts would be within the knowledge of the defendants and subject to discovery.

Plaintiff has set forth in the FAC allegations adequate and sufficient to state causes of action against defendants on the alter ego theory and is entitled to an opportunity to present evidence in support of the facts alleged.

As the demurrer to the first, second, and third causes of action are all entirely based on defendants’ alter ego argument, the demurrer will be overruled as to those causes of action.

            Fraud

Defendants demur to the fourth cause of action for fraud arguing that it is insufficiently plead.

“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.)

“[F]raud must be pled specifically; general and conclusory allegations do not suffice. . . . This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.]” (Lazar v. Superior Court, supra, 12 Cal.4th at p. 645.)

The court agrees with defendants that fraud is not sufficiently pled. Other than pleading damages, plaintiff fails to plead any of the required elements of fraud. There are no allegations of misrepresentation, knowledge of falsity, intent to defraud, or justifiable reliance. Further, even if the required elements were properly pled, there is a complete lack of facts showing the “how, when, where, to whom, and by what means” the fraudulent representations were made. While plaintiff adds additional details, and language supporting the elements of fraud, in its opposition to the demurrer, those details are not included in the FAC. Including details in the opposition does not overcome demurrer.

The demurrer to the fourth cause of action will be sustained. Because there is a reasonable likelihood that the FAC is capable of amendment to state a cause of action for fraud, plaintiff will be given leave to amend.

            Motion to Strike

Defendants move to strike prayer for relief item No. 3 of plaintiffs’ FAC for punitive damages on the fourth cause of action for fraud.

“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436.) “Irrelevant matter” includes a “demand for judgment requesting relief not supported by the allegations of the complaint.” (Code Civ. Proc., § 431.10, subds. (b)(3), (c).) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).)

“[J]udges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Punitive damages are recoverable for fraud actions involving intentional misrepresentation. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1241.) “[F]raud alone is an adequate basis for awarding punitive damages.” (Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 135.)

As the prayer for punitive damages relates solely to the fourth cause of action for fraud, and the demurrer will be sustained as to that cause of action, the motion to strike will be granted with leave to amend.