Rajeev Chitrabhanu v. Richard Dean Carson, et al
Rajeev Chitrabhanu v. Richard Dean Carson, et al
Case Number
23CV05200
Case Type
Hearing Date / Time
Wed, 02/21/2024 - 10:00
Nature of Proceedings
1) Demurrer By Def ProHealth Inc. To The Complaint; 2) Def Richard Dean Carson’s Demurrer To The Complaint; 3) Mtn By Def ProHealth Inc. To Strike Punitive Damages; 4) App To Appear Pro Hac Vice For Plaintiff; 5) App To Appear Pro Hac Vice For Plaintiff
Tentative Ruling
For Plaintiff Rajeev Chitrabhanu: Jeremy Ostrander, White & Case LLP, Nathan Rogers, Rogers, Sheffield & Campbell, LLP
For Defendant Richard Dean Carson: J. Paul Gignac, Claire K. Mitchell, Rimon, P.C.
For Defendant ProHealth Inc.: Nick S. Pujji, Emma Moralyan, Dentons US LLP
RULING
(2) For all reasons discussed herein, the demurrer of Defendant Richard Dean Carson to Plaintiff’s complaint is sustained as to the first, second, and third causes of action, with leave to amend. Except as otherwise herein sustained, the demurrer of Defendant Richard Dean Carson is overruled.
(4) Plaintiff shall file and serve his first amended complaint on or before March 4, 2024.
(6) For all reasons discussed herein, the application to appear pro hac vice of Balaji Venkatakrishnan is granted.
Background
On November 21, 2023, Plaintiff Rajeev Chitrabhanu filed a complaint against Defendants ProHealth Inc. (ProHealth) and Richard Dean Carson, in his personal capacity as the Chairman of ProHealth (Carson) (collectively, Defendants), alleging seven causes of action: (1) breach of contract; (2) anticipatory breach of contract; (3) quantum meruit; (4) fraud; (5) negligent misrepresentation; (6) breach of fiduciary duty; (7) accounting. As alleged in the complaint:
Plaintiff is a business advisor and entrepreneur who has built a career devising exit strategies for businesses. Plaintiff is also the founder of Magnetic, a firm based in Mumbai, India. Presently, Plaintiff is directing his efforts as an investor and advisor through Magnetic to develop and grow businesses and to place them in a position for a potential sale.
ProHealth is a corporation located in Carpinteria, California. Carson founded ProHealth in 1988 to market nutritional supplement products containing nicotinamide mononucleotide (NMN). Carson is the owner, shareholder, and Chairman of ProHealth, and has also served as ProHealth’s Chief Financial Officer.
ProHealth has struggled to generate revenue for the majority of its history. Plaintiff contacted Carson in November 2020 to express excitement for ProHealth and its NMN nutritional supplement products. The two men communicated regularly. At the time, Carson was developing a business venture named ProHealth Longevity with the goal of generating revenue by selling supplement products, including NMN, using ProHealth’s existing network of customers.
In late 2020 and early 2021, Carson communicated to Plaintiff that he wished to leverage Plaintiff’s knowledge and expertise to benefit ProHealth and ProHealth Longevity. Defendants solicited Plaintiff’s advice on all aspects of ProHealth’s business and operations, including ProHealth’s sales, inventory, finances, marketing, and personnel. During this period, Plaintiff invested time to learn about and counsel Defendants regarding ProHealth’s business goals. Carson and Plaintiff communicated often and for lengthy periods of time discussing all aspects of ProHealth’s business.
Carson communicated to Plaintiff that he wished to devise an exit strategy with the goal of selling ProHealth and that he wished to use Plaintiff’s experience to accomplish that goal. Plaintiff told Carson that he would assist with the exit strategy, but that Plaintiff’s involvement would be conditioned on Plaintiff receiving an upfront equity stake in ProHealth in return. Plaintiff told Defendants that it was his regular practice to enter only into those arrangements that provided Plaintiff with equity in the businesses he advised. Plaintiff communicated this requirement to Defendants in early 2021 and in the spring of 2021.
In the first half of 2021, Defendants told Plaintiff on numerous occasions that Plaintiff would be compensated for advising Defendants by receiving an upfront equity stake in ProHealth. Carson also told ProHealth’s Board of Directors that Plaintiff would receive an equity stake in ProHealth in exchange for Plaintiff’s services. Defendants and Plaintiff ultimately came to an agreement pursuant to which Plaintiff would be provided with an upfront equity interest in ProHealth.
During the summer of 2021, upon Defendants’ request to formalize the partnership between the parties, Defendants finalized the terms of Plaintiff’s ownership in ProHealth. On June 28, 2021, Plaintiff sent Carson an email titled “Terms of Engagement” (the TOE) stating the terms that Plaintiff and Defendants had discussed regarding Plaintiff’s ownership, equity interest, compensation, and performance obligations in and to ProHealth. The TOE itemized the consideration Plaintiff would receive from Defendants in exchange for Plaintiff’s services and stated Plaintiff’s performance obligations which Defendants and Plaintiff had previously discussed.
Pursuant to the TOE, Defendants agreed that Plaintiff would receive a $5,000 monthly fee beginning in July 2021, a 10 percent upfront equity share in ProHealth, and a guaranteed 40 percent share of sales proceeds if ProHealth was sold at a valuation above $19 million, which was Carson’s best-case scenario as conveyed at the time to Plaintiff. For example, if ProHealth was sold at a $25 million valuation, the parties agreed that Plaintiff would receive $1.9 million (a 10 percent equity share in ProHealth), plus an additional $2.4 million or 40 percent of the sales proceeds above the $19 million mark.
On July 24, 2021, Carson sent an email to Plaintiff regarding the TOE stating “Your message below is nicely summed up and is exactly what we discussed. Good job.” Carson also described Plaintiff as his “business partner” to ProHealth’s board of directors, employees, and third-party business contacts, before and after the TOE.
Plaintiff performed his obligations pursuant to the TOE. To plan for ProHealth’s exit, Plaintiff worked to establish a business advisory board which included efforts by Plaintiff to identify, find, and recruit qualified individuals to populate the business advisory board because Carson and other members of ProHealth’s management lacked experience with corporate finance, growing businesses, and developing exit strategies. Carson described Plaintiff as the “founding member” of ProHealth’s business advisory board.
Plaintiff also worked to expand ProHealth into markets in Asia, improved ProHealth’s marketing strategy which resulted in increased sales on Amazon, evaluated ProHealth’s finances, and advised Defendants on improving cash flow as well as inventory and personnel management. These efforts included Plaintiff negotiating an amicable departure of ProHealth’s former Chief Executive Officer and identifying and hiring a new successor Chief Executive Officer. As a result of Plaintiff’s efforts, ProHealth’s revenues increased to greater than $20 million in 2022.
From November 2020 through February 2022, Plaintiff devoted time and effort to providing advisory and consulting services to Defendants in reliance on Defendants’ commitment to provide an upfront equity stake in ProHealth to Plaintiff in exchange for his services. Defendants paid Plaintiff the $5,000 monthly fee provided in the TOE from August to December 2021.
In late 2021 and early 2022, Defendants disavowed and refused to acknowledge the TOE. In April 2022, Defendants took the position that the parties never entered an agreement, and, throughout the spring of 2022, Defendants disengaged from communications with Plaintiff. In late November 2021, Carson proposed to Plaintiff that they modify the compensation set out in the TOE from $5,000 per month to an hourly fee of $715.
Defendants have not provided Plaintiff with any payment or remuneration related to his equity interest in ProHealth, including the 10 percent upfront equity stake to which they agreed in June 2021. Defendants also refused to acknowledge Plaintiff’s right to 40 percent of all sales proceeds in the event ProHealth is sold at a valuation above $19 million.
On January 12, 2024, ProHealth filed a demurrer to the complaint (the ProHealth Demurrer) on the grounds that each cause of action alleged in the complaint fails to state facts sufficient to constitute a cause of action and is uncertain. On the same date, ProHealth filed a motion to strike all allegations for punitive damages against ProHealth alleged in the complaint (the motion to strike).
Also on January 12, 2024, Carson filed a demurrer to the complaint (the Carson demurrer) on the grounds that each cause of action alleged in the complaint fails to state facts sufficient to constitute a cause of action. Carson has also filed a joinder in the ProHealth demurrer and motion to strike.
Plaintiff opposes the ProHealth demurrer, the motion to strike, and the Carson demurrer.
On January 18, 2024, Plaintiff filed an application for an order permitting Jack E. Pace III to appear as counsel pro hac vice in this action (the Pace application), and an application for an order permitting Balaji Venkatakrishnan to appear as counsel pro hac vice in this action (the Venkatakrishnan application). On February 2, 2024, Carson filed separate statements of non-opposition to the Pace application and the Venkatakrishnan application (collectively, the pro hac vice applications).
Analysis
(1) The ProHealth Demurrer and the Carson Demurrer
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 pleading subject to demurrer is given a reasonable interpretation and is 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 “those facts that may be implied or inferred from those expressly alleged.” (McMahon v. Craig (2009) 176 Cal.App.4th 1502, 1509.) “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.)
(a) The ProHealth Demurrer:
ProHealth demurrer for uncertainty:
ProHealth generally contends that each cause of action alleged in the complaint is uncertain. A party may object by special demurrer on the grounds that the subject pleading is uncertain. (Code Civ. Proc., § 430.10, subd. (f).) “ ‘[U]ncertain’ includes ambiguous and unintelligible.” (Smith v. Kern County Land Co. (1958) 51 Cal.2d 205, 209.) “A special demurrer on the ground that [a pleading] is (a) ambiguous, (b) unintelligible, or (c) uncertain is insufficient unless the demurrer points out specifically wherein the pleading is ambiguous, uncertain or unintelligible.” (Coons v. Thompson (1946) 75 Cal.App.2d 687, 690.)
The recitation of essential facts set forth in the ProHealth demurrer demonstrates that the complaint is not unintelligible or ambiguous and that ProHealth understands the issues and the nature of each cause of action alleged by Plaintiff. (See Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245 [“a Plaintiff is required only to set forth the essential facts of his case with reasonable precision and with particularity sufficient to acquaint a Defendant with the nature, source and extent of his cause of action”]; Dumm v. Pacific Valves (1956) 146 Cal.App.2d 792, 799.) For this reason, the complaint is not so incomprehensible that ProHealth cannot reasonably respond. (Morris v. JPMorgan Chase Bank, N.A. (2022) 78 Cal.App.5th 279, 292.)
In addition, to the extent the complaint or any particular cause of action alleged in the complaint is in some respects uncertain, any “ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)
For all reasons discussed above, ProHealth has failed to meet its burden to demonstrate that the complaint is uncertain. Therefore, the Court will overrule the special demurrer of ProHealth.
ProHealth demurrer to the first cause of action for breach of contract, second cause of action for anticipatory breach of contract, and sixth cause of action for breach of fiduciary duty:
In the first cause of action for breach of contract, Plaintiff alleges that TOE is a valid and binding contract. (Compl., ¶ 16-23 & 67.) Plaintiff further alleges that, though he performed his obligations under the TOE, ProHealth breached the TOE by denying Plaintiff a 10 percent equity interest in ProHealth as provided in the TOE, by failing to pay to Plaintiff the monthly fee for services performed in January and February 2022 under the terms of the TOE, and by disavowing the TOE. (Compl., ¶¶ 68-69.) Plaintiff alleges that, because of ProHealth’s breach of its obligations under the TOE, Plaintiff was damaged in an amount no less than the value of the compensation and equity owed but not paid by Defendants pursuant to the terms of the TOE. (Compl., ¶ 70.)
ProHealth asserts that the TOE is merely an informal email exchange between the parties setting forth what ProHealth contends are vague, unsettled, and outstanding items from the parties’ discussions. ProHealth also asserts that the TOE lacks any identification of material terms.
ProHealth further contends that Plaintiff has failed to specify an amount in alleged damages and instead relies on the TOE which ProHealth asserts is vague and fails to include any defined parameters for increases or decreases in monthly cash or equity to be provided to Plaintiff. Therefore, ProHealth argues, the TOE constitutes an unenforceable “agreement to agree.” For all reasons discussed above, ProHealth contends that Plaintiff has failed to allege existence of a valid and enforceable contract between the parties.
“Contractual damages are of two types—general damages (sometimes called direct damages) and special damages (sometimes called consequential damages). [Citations.] [¶] General damages are often characterized as those that flow directly and necessarily from a breach of contract, or that are a natural result of a breach. [Citations.] Because general damages are a natural and necessary consequence of a contract breach, they are often said to be within the contemplation of the parties, meaning that because their occurrence is sufficiently predictable the parties at the time of contracting are ‘deemed’ to have contemplated them.” (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968.)
Among other things, the complaint alleges that ProHealth failed to pay to Plaintiff all monthly compensation and a 10 percent equity share which Plaintiff contends ProHealth agreed to provide under the TOE, and which flow directly from the alleged breach of the terms of the TOE by ProHealth. (See, e.g., Compl., ¶ 69(b) and (c).) For pleading purposes, the allegations of the complaint, including facts which may be inferred from those expressly alleged, provide a reasonable approximation of damages based on the terms of the TOE as alleged in the complaint. (See Compl., ¶¶ 6, 60-63, 69.)
In addition, a demurrer challenges only the legal sufficiency of the complaint and not the Plaintiff’s ability to prove its allegations. (See Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 732; Griffith v. Department of Public Works (1956) 141 Cal.App.2d 376, 381 [“[n]either trial nor appellate Courts should be distracted from the main issue, or rather, the only issue involved in a demurrer hearing, namely, whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action”].) Therefore, even if a pleading “prays for relief to which the [pleader] is not entitled, or fails to seek the proper relief,” is it nevertheless good against a general demurrer “if it pleads facts sufficient to show that the pleader is entitled to some equitable relief.” (Woodley v. Woodley (1941) 47 Cal.App.2d 188, 190-191; see also Moropoulos v. C.H. & O.B. Fuller Co. (1921) 186 Cal. 679, 688 [“[t]he prayer for damages itself is not a part of the complaint, subject to demurrer, and the fact that Plaintiff has prayed for exemplary damages, or any other relief to which he may not be entitled does not affect the sufficiency of his complaint”].)
To the extent the ProHealth demurrer challenges Plaintiff’s ability to establish the amount of damages that flow from the alleged breach of contract by ProHealth, it cannot be rightfully sustained. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 (Kong).)
Regarding ProHealth’s contention that Plaintiff has failed to allege the existence of a valid binding contract between the parties, “[a] cause of action for breach of contract requires pleading of a contract, Plaintiff’s performance or excuse for failure to perform, Defendant’s breach and damage to Plaintiff resulting therefrom. [Citation.] A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect. [Citation.]” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.)
“Where 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.)
In the complaint, Plaintiff alleges that the written TOE is based on and effectively sets forth the content of the parties’ discussions in late 2020, early 2021, and during the spring of 2021. (Compl., ¶¶ 4, 15-21.) Therefore, Plaintiff has sufficiently alleged the nature of the purported contract with ProHealth, including that the alleged contract is written.
Plaintiff also alleges verbatim in the body of the complaint what Plaintiff asserts are the material terms of the TOE, including terms relating to the monthly fee to be paid to Plaintiff for the services described in the TOE, the “upfront” equity interest to be provided to Plaintiff, and percentages of profit shares to be provided above $19 million. (Compl., ¶¶ 4, 15-21.) Plaintiff also includes a copy of the TOE in the body of the complaint, which Plaintiff asserts sets forth the essential terms of the parties’ discussions and agreement. (Compl., ¶ 20.) Plaintiff further alleges the specific terms of the TOE that Plaintiff claims ProHealth breached. (Compl., ¶¶ 6, 60-63, 69.) The TOE is reasonably susceptible to Plaintiff’s pleaded meaning which the ProHealth demurrer admits.
In addition, giving the allegations of the complaint a reasonable interpretation, Plaintiff alleges that in the July 24, 2021, email (the July email), Carson agreed to the terms stated in the TOE by stating that the TOE “sum[s] up and is exactly what we discussed.” (Compl., ¶ 22.) Plaintiff effectively alleges that the statements contained in the July email demonstrate a manifestation of assent by ProHealth to all the terms of the TOE, establish ProHealth’s mutual consent to those terms, and demonstrate the formation of a contract between the parties. Though ProHealth contends that the July email does not demonstrate its mutual consent or agreement to the terms of the TOE, on demurrer, the Court does not consider whether a Plaintiff can prove the allegations. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.)
In addition, “[w]here the existence of a contract is at issue and the evidence is conflicting or admits of more than one inference, it is for the trier of fact to determine whether the contract actually existed.” (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208 (Bustamante).) It can be inferred from the alleged statements in the July email that Carson, on behalf of ProHealth, consented to the terms set forth in the TOE with respect to compensation to be provided in exchange for the services described in the TOE. Plaintiff also alleges that he performed the services under the TOE, and that Plaintiff’s services provided a benefit to ProHealth which ProHealth accepted. (Compl., ¶¶ 68, 69.)
Plaintiff further alleges that Defendants paid the $5,000 monthly fee pursuant to the TOE for services provided by Plaintiff from August through December 2021. (Compl., ¶ 6.) ProHealth does not address these allegations from which it can also be inferred, for pleading purposes, that a binding contract exists. (See California Food Service Corp. v. Great American Ins. Co. (1982) 130 Cal.App.3d 892, 897 [finding that a letter of intent could constitute a binding contract “depending on the expectations of the parties” which “may be inferred from the conduct of the parties and surrounding circumstances”]; see also Rest.2d Contracts, § 19 [assent may be manifested by conduct to the extent a party “intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents”].)
The cases cited in the ProHealth demurrer do not involve pleading challenges and are therefore not persuasive for the points cited. (See, e.g., Bustamante, supra, 141 Cal.App.4th 199 [appeal of ruling on motion for summary judgment in which the Court analyzed evidence supplied in the parties’ moving and opposing papers]; Ablett v. Clauson (1954) 43 Cal.2d 280 [appeal from judgment following trial declaring owner’s rights under a lease in action for unlawful detainer in which Court reviewed evidence regarding tenant’s right to a renewal of lease]; Apablasa v. Merritt & Co. (1959) 176 Cal.App.2d 719 [appeal from judgment of nonsuit after trial finding that no written contract existed based on evidence presented by the parties]; Stott v. Johnston (1951) 36 Cal.2d 864, 866 [affirming judgment upon verdict and finding the evidence contained in the record supported the judgment].)
For all reasons discussed above, the TOE and the July email are reasonably susceptible to the meaning and interpretation alleged by Plaintiff in the complaint, notwithstanding whether Plaintiff’s interpretations may prove invalid. In addition, and for all reasons discussed above, Plaintiff has for pleading purposes sufficiently alleged the existence of a contract with ProHealth and the nature of the damages sustained by Plaintiff resulting from its alleged breach. Therefore, the Court will overrule the ProHealth demurrer to the first cause of action for breach of contract alleged in the complaint.
Relying on the arguments further discussed above, ProHealth further contends that the second cause of action for anticipatory breach of contract also fails because Plaintiff has not pleaded the existence of a valid, binding contract. The same analysis applies.
ProHealth also asserts that in the second cause of action, Plaintiff has failed to allege facts demonstrating when performance by ProHealth was due. Therefore, ProHealth argues, the second cause of action fails to state a claim for anticipatory breach of contract.
“The doctrine of anticipatory breach is well established in California. [Citation.] Corbin on Contracts describes an anticipatory breach as follows: ‘If the promisor makes a definite statement to the promisee that he either will not or can not perform his contract, this is a repudiation and will operate as an anticipatory breach unless the promisor had some justifying cause for his statement.’ [Citation.]” (Karson Industries, Inc. v. Superior Court of Contra Costa County (1969) 273 Cal.App.2d 7, 9.)
In addition to the allegations further discussed above, Plaintiff expressly alleges that in April 2022, December 2022, and May 2023, ProHealth claimed that it did not enter, and refused to acknowledge the existence of, any agreement with Plaintiff and attempted to alter the terms of compensation stated in the TOE. (Compl., ¶¶ 59-63.) These allegations are sufficient to allege that ProHealth unequivocally refused to perform the purported contract. (Trilogy at Glen Ivy Maintenance Assn. v. Shea Homes, Inc. (2015) 235 Cal.App.4th 361, 370 [“anticipatory breach requires either an unequivocal statement by the promisor of his or her refusal or inability to perform the contract”].) For these reasons, the Court will also overrule the ProHealth demurrer to the second cause of action alleged in the complaint.
Regarding the sixth cause of action for breach of fiduciary duty alleged in the complaint, in the ProHealth demurrer, ProHealth asserts that because the allegations of the complaint fail to establish the existence of a valid contract between the parties, Plaintiff has also failed to allege a relationship conferred upon the parties. Therefore, ProHealth argues, no breach of contract could have occurred. For this reason, ProHealth argues, the ProHealth demurrer to the sixth cause of action must also be sustained. (See Demurrer at p. 21.)
To the extent ProHealth demurs to the sixth cause of action solely on the grounds that Plaintiff has failed to allege the existence of a valid contract which establishes a fiduciary relationship between the parties, the same analysis applies, and the Court will overrule the ProHealth demurrer to the sixth cause of action alleged in the complaint. Moreover, as ProHealth asserts no additional grounds for demurrer to the sixth cause of action (see Demurrer at p. 21), the Court declines to issue an advisory opinion regarding whether the sixth cause of action is otherwise sufficient. (Stocks v. City of Irvine (1981) 114 Cal.App.3d 520, 531 [a Court “has no power to issue advisory opinions”].)
ProHealth demurrer to the third cause of action for quantum meruit:
In the third cause of action for quantum meruit, Plaintiff alleges that he performed services, including those described under the TOE, pursuant to Carson’s request, that the services performed by Plaintiff benefitted ProHealth, and that Plaintiff is owed compensation under the terms of the TOE for the services provided by Plaintiff. (Compl., ¶¶ 76-79.)
ProHealth contends that because Plaintiff alleges that he was paid a monthly fee of $5,000 from August to December 2021 for the purported services performed by Plaintiff, the complaint fails to sufficiently allege facts showing how and why equity compensation is a reasonable remedy for the services rendered by Plaintiff. ProHealth also argues that Plaintiff’s quantum meruit claim is inconsistent with the breach of contract cause of action and must be pleaded in the alternative.
“Quantum meruit permits the recovery of the reasonable value of services rendered. [Citation.] To recover in quantum meruit, the ‘Plaintiff must establish both that he or she was acting pursuant to either an express or implied request for such services from the Defendant and that the services rendered were intended to and did benefit the Defendant’; further, the Defendant must have ‘ “retained [the] benefit with full appreciation of the facts....” ’ [Citation.]” (Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc. (2017) 12 Cal.App.5th 200, 214-215, original italics.)
Plaintiff alleges that he furnished services before and after the date of the TOE and the July email based on Carson’s express request that Plaintiff advise ProHealth on various aspects of its business operations and exit strategy. (Compl., ¶¶ 3-5, 15, 18, 24-51.) Plaintiff further alleges that ProHealth retained and was benefited by those services. (Compl., ¶¶ 52-58.) These allegations are sufficient to state a cause of action for quantum meruit notwithstanding whether Plaintiff is entitled to the remedies demanded in the complaint. (See Kong, supra, 108 Cal.App.4th at p. 1047 [“a demurrer cannot rightfully be sustained to … a particular type of damage or remedy”].)
In addition, “recovery in quantum meruit does not require a contract.” (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449.) Moreover, “[a] Plaintiff is permitted to plead alternative inconsistent theories.” (Dubin v. Robert Newhall Chesebrough Trust (2002) 96 Cal.App.4th 465, 477.) Plaintiff here has sufficiently pleaded an alternative cause of action for quantum meruit irrespective of whether, as ProHealth contends, the theory of recovery is inconsistent with the cause of action for breach of contract. Therefore, and for all reasons discussed above, the Court will overrule the ProHealth demurrer to the third cause of action alleged in the complaint.
ProHealth demurrer to the fourth cause of action for fraud and the fifth cause of action for negligent misrepresentation:
ProHealth contends that Plaintiff has failed to allege sufficiently specific facts showing how, when, where, by whom, or by what means Plaintiff was fraudulently induced into a contract based on a false promise of performance. ProHealth also asserts that the false statements alleged in the complaint pertain to future events and not past or existing material facts and are therefore insufficient to state an actionable claim for fraud. For these reasons, ProHealth argues, the complaint fails to allege with requisite specificity a cause of action for fraud.
“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 (Lazar).) “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.)
Plaintiff expressly alleges that in the first half of 2021, ProHealth told Plaintiff that he would be compensated for providing advisory services by receiving an upfront equity stake in ProHealth. (Compl., ¶ 17.) Plaintiff further alleges that in the summer of 2021, ProHealth finalized the terms of Plaintiff’s compensation after which Plaintiff sent the TOE effectively memorializing the terms the parties had discussed for “weeks”. (Compl., ¶¶ 19, 20.)
In the complaint, Plaintiff effectively alleges that the TOE sets forth the terms that the parties discussed regarding Plaintiff’s compensation and performance obligations. (Compl., ¶¶ 16-21, 81.) As further discussed above, Plaintiff also alleges that in the July email, Carson stated that the TOE “sum[s] up … exactly” the parties’ discussions. (Compl., ¶ 22.) By these statements, Plaintiff alleges, Carson, on behalf of ProHealth, agreed and promised that Plaintiff would receive the compensation stated in the TOE for services described in the TOE. (Compl., ¶¶ 23, 81.) Plaintiff also alleges “on information and belief,” that ProHealth “understood these representations to be false, or had reckless disregard for their truth or falsity, when they were made” and that ProHealth “never intended to perform their promise in the [TOE]” and had “no intention of providing [Plaintiff] his promised compensation under the [TOE].” (Compl., ¶¶ 83, 84.)
Notwithstanding that Plaintiff identifies Carson as the person who sent the July email, the identity of the person at ProHealth who made the representations described in the TOE need not be alleged for present purposes because that information is “uniquely within” ProHealth’s knowledge. (See West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.)
Plaintiff also alleges that neither Carson nor ProHealth had any intent to provide the compensation described in the TOE either at the time the parties discussed the matters described in the TOE or at the time Carson sent the July email stating that the TOE sums up “exactly” the contents of those discussions. (Compl., ¶¶ 22, 81, 83-85.) These allegations are sufficient to show that Carson and ProHealth did not have a present or contemporaneous intent to compensate Plaintiff for the services described in the TOE either during the parties’ discussions about the services or compensation to be provided to Plaintiff or at the time the July email was sent to Plaintiff. (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 481 [“[a] promise of future conduct is actionable as fraud only if made without a present intent to perform”].)
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.) An intent to deceive may also be inferred from allegations that the purported false statements were made with the intent to induce another to act. (Wennerholm v. Stanford University School of Medicine (1942) 20 Cal.2d 713, 716 [upholding inferential pleading of intent to deceive].) For these additional reasons, allegations regarding ProHealth’s intent made on “information and belief” are also sufficient. (See also Woodring v. Basso (1961) 195 Cal.App.2d 459, 465; Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 92-93 [ “ ‘[o]ne who fraudulently makes a misrepresentation of fact ... for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation.’ ”].)
For all reasons discussed above, Plaintiff has alleged with the required specificity how, when, where, to whom, and by what means the representations at issue were made.
To the extent the Court finds that Plaintiff has adequately pleaded a cause of action for fraud, ProHealth further asserts that Plaintiff’s fraud cause of action is premised on the same facts as the first cause of action for breach of contract. Because Plaintiff seeks to recover purely economic loss without any claim of personal injury or property damage, ProHealth argues, the fourth cause of action is barred by the economic loss rule.
The economic loss rule requires recovery in contract for “purely economic loss due to disappointed expectations” unless a party can “demonstrate harm above and beyond a broken contractual promise. [Citation.] Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.’ [Citation.]” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 (Robinson).)
However, in some instances, tort damages are permitted in cases involving a breach of contract. (Erlich v. Menezes (1999) 21 Cal.4th 543, 551-554 [“[c]onduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law”].) For example, “[a]n action for promissory fraud may lie where a Defendant fraudulently induces the Plaintiff to enter into a contract. [Citations.] In such cases, the Plaintiff’s claim does not depend upon whether the Defendant’s promise is ultimately enforceable as a contract. ‘If it is enforceable, the [Plaintiff] ... has a cause of action in tort as an alternative at least, and perhaps in some instances in addition to his cause of action on the contract.’ [Citations.] Recovery, however, may be limited by the rule against double recovery of tort and contract compensatory damages. [Citation.]” (Lazar, supra, 12 Cal.4th at p. 638.)
“ ‘[A] party to a contract cannot rationally calculate the possibility that the other party will deliberately misrepresent terms critical to that contract.’ [Citation.] No rational party would enter into a contract anticipating that they are or will be lied to. ‘While parties, perhaps because of their technical expertise and sophistication, can be presumed to understand and allocate the risks relating to negligent product design or manufacture, those same parties cannot, and should not, be expected to anticipate fraud and dishonesty in every transaction.’ [Citation.]” (Robinson, supra, 34 Cal.4th at p. 993.)
The claim alleged in the fourth cause of action as further discussed above relates to purportedly fraudulent conduct by ProHealth with respect to what Plaintiff alleges are critical terms regarding Plaintiff’s compensation independent of any purported breach of conduct by ProHealth. Therefore, Plaintiff does not allege a breach of duty based solely on purportedly contractual obligations. (Robinson, supra, 34 Cal.4th at pp. 991-994.) For these reasons, the economic loss rule does not bar Plaintiff’s fourth cause of action for fraud.
For all reasons discussed above, the Court will overrule ProHealth’s demurrer to the fourth cause of action alleged in the complaint. The ProHealth demurrer to the fifth cause of action for negligent misrepresentation relies on identical factual and legal arguments as those further discussed above. The same analysis applies. For the same reasons discussed above, the Court will also overrule the ProHealth demurrer to the fifth cause of action alleged in the complaint.
ProHealth demurrer to the seventh cause of action for an accounting:
In the seventh cause of action, Plaintiff alleges that “Carson and ProHealth are improperly withholding [Plaintiff’s] rights and interests in ProHealth. Because [] Carson and ProHealth have improperly withheld [Plaintiff’s] rights and interests in ProHealth, and because they control ProHealth, the precise value of Mr. Chitrabhanu’s rights and interests is unknown and cannot be ascertained without a careful evaluation of ProHealth’s current financial records, agreements, and other documents.” (Compl., ¶ 102.)
ProHealth contends that Plaintiff has failed to allege facts sufficient to demonstrate that the accounts at issue are so complicated that the other causes of action in the complaint will not suffice.
“A cause of action for accounting requires a showing of a relationship between the Plaintiff and the Defendant, such a [sic] fiduciary relationship, that requires an accounting or a showing that the accounts are so complicated they cannot be determined through an ordinary action at law. [Citation.] ‘An action for accounting is not available where the Plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation. [Citation.]’ [Citation.]” (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413-1414.)
The conclusory allegations described above are insufficient to allege facts demonstrating what, if any accounts at issue are so complicated that they cannot be determined through the other causes of action alleged in the complaint. Further, though Plaintiff asserts in his opposition to the ProHealth demurrer that his claims for equity ownership and a portion of any sales proceeds above certain value thresholds will be based solely on information in the possession and control of ProHealth and that an accounting is required to understand what is owed to Plaintiff, these assertions do not appear in the complaint. Moreover, these assertions do not show that any accounts are so complicated that an accounting is required.
For all reasons discussed above, the Court will sustain the ProHealth demurrer to the seventh cause of action alleged in the complaint. Though Plaintiff has not sufficiently demonstrated in what manner the complaint can be amended to state a cause of action for an accounting, as this is an original complaint, the Court will grant Plaintiff leave to amend. (Eghtesad v. State Farm General Insurance Company (2020) 51 Cal.App.5th 406, 411.)
(b) The Carson Demurrer
In the Carson demurrer, Carson generally asserts that the complaint wholly fails to allege that Carson individually participated in any wrongdoing because, according to Carson, the allegations of the complaint demonstrate that Carson was acting on behalf of ProHealth. For this reason, Carson contends that he should be dismissed as a Defendant. Alternatively, Carson asserts that Plaintiff should be required to amend the complaint to specifically allege the conduct by Carson which gives rise to personal liability.
Carson also asserts that the first cause of action for breach of contract, second cause of action for anticipatory breach of contract, third cause of action for quantum meruit, and seventh cause of action for an accounting must be dismissed because Carson acted as an agent for ProHealth and cannot be liable for any breach of contract by ProHealth.
Plaintiff contends that the complaint alleges facts sufficient to establish alter ego liability, that Carson’s misconduct was for his own benefit, and that Carson personally participated in the tortious conduct alleged in the fraud, negligent misrepresentation, and breach of fiduciary duty causes of action.
In the fourth, fifth, and sixth causes of action, Plaintiff expressly and effectively alleges that Carson participated in the tortious conduct described in the complaint including with respect to the representations described above and in the July email. (See, e.g., Compl., ¶¶ 15, 17, 19-20, 22 & 23.) The Court does not find these allegations to be uncertain considering the additional allegations set forth in paragraph 9 of the complaint in which Plaintiff asserts that Carson, who is the owner, shareholder, and Chairman of ProHealth’s Board of Directors, directed, controlled, or participated in the “acts and practices” of ProHealth as alleged in the complaint. (Compl., ¶ 9.)
“One who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, … [¶] [¶] [w]hen his acts are wrongful in their nature.” (Civ. Code, § 2343, subd. (3).)
“ ‘ “An agent … is always liable for his own torts….” ’ [Citations.] ‘In other words, when the agent commits a tort, such as ... fraud ..., then ... the agent [is] subject to liability in a civil suit for such wrongful conduct.’ [Citations.] [¶] ‘ “[I]f a tortious act has been committed by an agent acting under authority of his principal, the fact that the principal thus becomes liable does not, of course, exonerate the agent from liability.” ... The fact that the tortious act arises during the performance of a duty created by contract does not negate the agent's liability.’ [Citation.]” (Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 68-69.)
As the Court will overrule the ProHealth demurrer to the fourth, fifth, and sixth causes of action alleged in the complaint, each of which sufficiently allege that Carson and ProHealth each and together participated in the torts described in those causes of action, the Court will also overrule the Carson demurrer to these same causes of action.
With respect to the first, second, and third causes of action, a reasonable interpretation of the allegations of the complaint demonstrates that, to the extent Carson was allegedly acting as the agent of ProHealth, Plaintiff was on notice of ProHealth’s identity. Therefore, Plaintiff has failed to allege facts sufficient to impose personal liability on Carson for any purported breach of the TOE by ProHealth. (Dones v. Life Insurance Company of North America (2020) 55 Cal.App.5th 665, 689-690.)
To the extent Plaintiff contends that liability may be imposed on Carson based on an alter ego theory, “ ‘[i]t is a fundamental rule that “[t]he conditions under which the corporate entity may be disregarded, or the corporation be regarded as the alter ego of the stockholders, necessarily vary according to the circumstances in each case inasmuch as the doctrine is essentially an equitable one and for that reason is particularly within the province of the trial Court. Only general rules may be laid down for guidance.” [Citations.] The basic rule stated by our Supreme Court as a guide in the application of this doctrine is as follows: The two requirements are (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. [Citations.] With respect to the second requirement, it is sufficient that it appear that recognition of the acts as those of a corporation only will produce inequitable results. [Citation.] The general rule is thus stated as follows: ‘ “Before a corporation’s acts and obligations can be legally recognized as those of a particular person, and vice versa, it must be made to appear that the corporation is not only influenced and governed by that person, but that there is such a unity of interest and ownership that the individuality, or separateness, of such person and corporation has ceased, and that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice.” ’ [Citations.]” (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 836-837 (Associated Vendors).)
Factors that a Court considers to determine whether a corporate entity may be disregarded include “the commingling of funds and other assets; the failure to segregate funds of the individual and the corporation; the unauthorized diversion of corporate funds to other than corporate purposes; the treatment by an individual of corporate assets as his own; the failure to seek authority to issue stock or issue stock under existing authorization; the representation by an individual that he is personally liable for corporate debts; the failure to maintain adequate corporate minutes or records; the intermingling of the individual and corporate records; the ownership of all the stock by a single individual or family; the domination or control of the corporation by the stockholders; the use of a single address for the individual and the corporation; the inadequacy of the corporation's capitalization; the use of the corporation as a mere conduit for an individual's business; the concealment of the ownership of the corporation; the disregard of formalities and the failure to maintain arm’s-length transactions with the corporation; and the attempts to segregate liabilities to the corporation.” (Mid-Century Ins. Co. v. Gardner (1992) 9 Cal.App.4th 1205, 1213, fn. 3; see also Associated Vendors, supra, 210 Cal.App.2d at pp. 838-840.)
Here, the relevant allegations appear in paragraph 9 of Plaintiff’s complaint in which Plaintiff alleges: that Carson was and is the founder, owner, shareholder, and Chairman of ProHealth; that Carson also served as the Chief Financial Officer of ProHealth; and, that Carson controlled the conduct of ProHealth by (1) hiring employees and independent contractors of ProHealth, (2) executing contracts on ProHealth’s behalf, (3) developing strategies regarding the business of ProHealth, and (4) overseeing ProHealth’s operations, sales, inventory, finances, marketing and personnel. (Compl., ¶ 9; see also Opp. Carson Demurrer at p. 3, ll. 5-12 [describing the allegations which Plaintiff contends are sufficient to establish a unity of interest and ownership for purposes of alter ego liability].)
Allegations that Carson controlled the management of ProHealth are insufficient to cause the Court to disregard the ProHealth corporate entity. (Meadows v. Emett & Chandler (1950) 99 Cal.App.2d 496, 499.) Moreover, Plaintiff has neither expressly nor by implication alleged facts demonstrating any of the factors further discussed above or that Carson was using ProHealth’s corporate form “unjustly and in derogation of” Plaintiff’s interests. (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.)
For all reasons discussed above, Plaintiff has failed to specifically allege facts sufficient to show a unity of interest and ownership between Carson and ProHealth or that an inequitable result would occur if ProHealth is treated as the sole actor with respect to the claims alleged in the first, second, or third causes of action. As the facts alleged in the complaint are inadequate to show that Carson may be held individually liable for the alleged breaches by ProHealth or for compensation purportedly owed to Plaintiff by ProHealth, the Court will sustain the Carson demurrer to the first, second, and third causes of action alleged in the complaint. For all reasons discussed above, the Court will grant Plaintiff leave to amend these causes of action.
As the Court will sustain the ProHealth demurrer to the seventh cause of action for an accounting, the Carson demurrer is moot with respect to this cause of action. However, to the extent that there exist deficiencies with respect to any claims alleged against Carson for an accounting, the Court expects that Plaintiff will correct any such deficiencies in his amended pleading.
(2) The Motion to Strike
“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).)
ProHealth moves to strike allegations for punitive damages appearing in Plaintiff’s complaint on the grounds that Plaintiff has failed to allege facts demonstrating oppression, fraud, or malice by ProHealth. To survive a motion to strike allegations of punitive damages, ultimate facts showing an entitlement to such relief must be pleaded. (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) 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.
As the Court will, for all reasons discussed above, overrule the ProHealth demurrer to the fourth cause of action for fraud, the Court will also deny the motion to strike.
(3) The Pro Hac Vice Applications
“A person who is not a licensee of the State Bar of California but who is an attorney in good standing of and eligible to practice before the bar of any United States Court or the highest Court in any state, territory, or insular possession of the United States, and who has been retained to appear in a particular cause pending in a Court of this state, may in the discretion of such Court be permitted upon written application to appear as counsel pro hac vice, provided that an active licensee of the State Bar of California is associated as attorney of record. No person is eligible to appear as counsel pro hac vice under this rule if the person is: [¶] [a] resident of the State of California; [¶] [r]egularly employed in the State of California; or [] [r]egularly engaged in substantial business, professional, or other activities in the State of California.” (Cal. Rules of Court, rule 9.40(a).)
“A person desiring to appear as counsel pro hac vice in a superior Court must file with the Court a verified application together with proof of service by mail in accordance with Code of Civil Procedure section 1013a of a copy of the application and of the notice of hearing of the application on all parties who have appeared in the cause and on the State Bar of California at its San Francisco office. The notice of hearing must be given at the time prescribed in Code of Civil Procedure section 1005 unless the Court has prescribed a shorter period.” (Cal. Rules of Court, rule 9.40(c)(1).)
An application to appear as counsel pro hac vice must state “[t]he applicant’s residence and office address; [¶] [t]he Courts to which the applicant has been admitted to practice and the dates of admission; [¶] [t]hat the applicant is a licensee in good standing in those Courts; [¶] [t]hat the applicant is not currently suspended or disbarred in any Court; [¶] [t]he title of each Court and cause in which the applicant has filed an application to appear as counsel pro hac vice in this state in the preceding two years, the date of each application, and whether or not it was granted; and [¶] [t]he name, address, and telephone number of the active licensee of the State Bar of California who is attorney of record. (Cal. Rules of Court, rule 9.40(d).)
The pro hac vice applications are each sufficiently verified and were each served on all parties who have appeared in this action and on the San Francisco office of the State Bar of California. In addition, the Pace application and the Venkatakrishnan application each state the matters required under California Rules of Court, rule 9.40(d).
For all reasons discussed above, the Court finds that the pro hac vice applications comply with rule 9.40 of the California Rules of Court and are sufficient. Therefore, the Court will grant the Pace application and the Venkatakrishnan application and permit attorneys Jack E. Pace III and Balaji Venkatakrishnan to appear in this action as counsel pro hac vice for Plaintiff. In addition, the Court has reviewed the proposed orders submitted with the pro hac vice applications and intends to sign them.