Paige Gesualdo v. John A. “Jay” Ruskey, et al
Paige Gesualdo v. John A. “Jay” Ruskey, et al
Case Number
23CV05305
Case Type
Hearing Date / Time
Mon, 05/13/2024 - 10:00
Nature of Proceedings
1. Defendant Andy Mullins’ Demurrer to Complaint; and, 2. Defendants John Ruskey and Kari Shafer’s Demurrer to Complaint
Tentative Ruling
Paige Gesualdo v. John A. “Jay” Ruskey, et al
Case No. 23CV05305
Hearing Date: May 13, 2024
HEARING: 1. Defendant Andy Mullins’ Demurrer to Complaint
2. Defendants John Ruskey and Kari Shafer’s Demurrer to Complaint
ATTORNEYS: For Plaintiff Paige Gesualdo: Andrew I. Shadoff
For Defendants John A. “Jay” Ruskey, Andy Donald Mullins, Kari Shafer, and Frinj Coffee, Inc.: Wendy M. Thomas
TENTATIVE RULING:
- Defendant Andy Mullins’ demurrer to the complaint is overruled.
- Defendants John Ruskey and Kari Shaffer’s Demurrer to the complaint is overruled.
- Defendants shall file and serve answers to plaintiff’s complaint no later June 3, 2024.
Background:
This action commenced on December 1, 2023, by the filing of the complaint by plaintiff Paige Gesualdo (“Gesualdo”) against defendants John A. “Jay” Ruskey (“Ruskey”), Andy Donald Mullins (“Mullins”), Kari Shafer (“Shafer”), and Frinj Coffee, Inc. (“Frinj”) setting forth 20 causes of action. (Note: The moving parties claim, through the declaration of counsel Wendy M. Thomas, that plaintiffs filed a dismissal of the 16th through 18th causes of action on February 14, 2024. No such dismissal has been filed with the court.)
As alleged in the complaint: Ruskey is the founder, CEO, and controlling shareholder of Frinj. (Compl., ¶ 5.) Mullins is a co-founder of Frinj and from at least 2017 until late 2021 or early 2022, Mullins was the COO of Frinj. (Compl., ¶ 6.) Shafer is the Vice President and Controller of Frinj. (Compl., ¶ 7.)
Frinj was incorporated in May 2017, and is headquartered at Good Land Organics (“GLO”), a farm that was founded in 1992 by Ruskey’s family. (Compl., ¶¶ 12, 13.)
The complaint alleges that plaintiff was fraudulently induced to invest $1,200,000.00 into Frinj by Ruskey and that Mullins and Shaffer aided and abetting in the fraud. Plaintiff also alleges violations of the Labor Code and California’s Equal Pay Act. Additional specific allegations will be addressed below as appropriate.
The action is currently stayed as to Frinj due to a bankruptcy filing.
Mullins demurs to plaintiff’s third cause of action for aiding and abetting fraud. Ruskey and Shafer demur to plaintiff’s third cause of action for aiding and abetting fraud, plaintiff’s fourth cause of action for cancellation of written instrument, and plaintiff’s fifteenth cause of action for violation of California’s equal pay act. Of note is that Ruskey is not a named defendant as to the third cause of action, Shafer is not a named defendant as to the fourth cause of action, and Shafer is not a named defendant as to the fifteenth cause of action.
Plaintiff opposes the demurrers.
Analysis:
“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.)
“To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.)
Aiding and Abetting Fraud
Mullins and Shafer demur to the third cause of action for aiding and abetting 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.)
“ ‘The required elements for fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact. [Citation.]’ ” (Hambrick v. Healthcare Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)
“[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.)
“Less specificity should be required of fraud claims “ ‘when ‘it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy,’ ” [citation]; “ ‘[e]ven under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party. . . .’ ” [Citation.] (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1384.)
There are “four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” (Heliotis v. Schuman (1986) 181 Cal.App.3d 646, 651.)
Plaintiff makes numerous allegations supporting fraud as against Ruskey. Those allegations include:
On April 9, 2021, Gesualdo met Ruskey at GLO because Gesualdo was seeking out a California coffee farm to utilize for her own California grown coffee business venture. (Compl., ¶ 14.) During that meeting, Ruskey told Gesualdo that Ruskey’s family trust owned the property on which Frinj operated and that he controlled the trust. (Compl., ¶ 15.) The representation was untrue, as Ruskey was not then nor did was he ever in control of the trust that owns the property on which Frinj has operated. (Ibid.) Ruskey’s father was and is in control of the trust and the land on which Frinj has operated. (Ibid.) Ruskey concealed from Gesualdo the fact that Frinj operated subject to a lease agreement with a third party over which he had no control. (Ibid.)
Also, during the April 9, 2021, Ruskey represented that Frinj’s “Seed Round” of investor financing was underway and that Frinj was the “future of California coffee,” likening its potential to California’s wine industry. (Compl., ¶ 16.) In order to induce Gesualdo to invest in Frinj, Ruskey showed Gesualdo a PowerPoint slide deck which he alleged accurately reflected Frinj’s business operations. (Compl., ¶ 17.) The slide deck contained material misrepresentations about Frinj’s operations and value. (Ibid.) “Among other things, the Slide Deck materially overstated Frinj’s grower network, the number of its coffee-producing trees, its average sales price, and the company’s fixed target for Seed Round funding. The Slide Deck also made material misstatements relating to the existence of Frinj’s research and development program, its coffee breeding program, and the members of its executive team.” (Compl., ¶ 18.) The slide deck made no mention of GLO and did not include that Frinj paid for GLO’s expenses or operations. (Compl., ¶ 19.)
“To further induce Gesualdo to invest, Ruskey also showed Gesualdo financial documents purporting to contain an accurate overview of Frinj’s financial situation. Ruskey provided Gesualdo with the following documents: Statement of Assets, Liabilities & Equity as of December 31, 2019; Statement of Assets, Liabilities & Equity as of June 30, 2020; Quarterly Revenue & Expenses Summary, January – June 2020; and Project Geisha (“ ‘Geisha Model’ ”).” (Compl. ¶ 20.) “These financial documents were incomplete, inaccurate, significantly overstated Frinj’s income, and significantly understated Frinj’s liabilities and operating costs. In particular, Frinj owed significant backpay and reimbursements to its employees, owed past due bills at a plant growth nursery called Por La Mar, and owed ongoing monthly payments for an undisclosed loan made to Frinj by Ron Caird in February 2020. Further, Gesualdo later learned that Ruskey was using Frinj’s capital and investments to sustain GLO, despite Frinj’s financial documents making no mention of GLO or indicating that Frinj that at all financially responsible for GLO. These substantial liabilities were not disclosed to Gesualdo prior to her investment.” (Compl., ¶ 21.) “Ruskey represented to Gesualdo that her initial investment would be used to buy coffee bean roasting equipment and facilitate the creation of jobs within the company, including marketing and operations roles. Frinj did not crate these roles or purchase a roaster with Gesualdo’s initial investment.” (Compl., ¶ 22.)
Gesualdo invested $500,000.00 in Frinj, based on Ruskey’s representations, and on April 12, 2021, Gesualdo and Ruskey signed a promissory note in that amount. (Compl., ¶¶ 23, 24.) The promissory note had a maturity date of May 31, 2022, and obligated Frinj to pay simple interest on the principal at 12 percent per annum or the maximum rate permissible by law, whichever is less. (Compl., ¶ 26.)
In June 2021, Ruskey told Gesualdo that he had two major investors willing to fully fund the Series A funding round, but they would only invest after the Seed Round closed. (Compl., ¶ 30.) Ruskey represented that the deal was time-sensitive and that he had two letters of intent out to the prospective investors. (Ibid.) Ruskey represented that the investment was a sure thing, and that he needed an additional investment from Gesualdo in order to close the seed round. (Ibid.) Ruskey’s statements regarding sending letters of intent and having investors to fully fund the Series A funding round were untrue. (Ibid.)
Ruskey represented that Frinj was running out of money and that he needed Gesualdo to invest an additional $500,000.00. (Compl., ¶ 31.) Gesualdo agreed. (Compl., ¶ 32.) Ruskey promised Gesualdo that she would be made a partner of Frinj, with a 10 percent ownership, if she increased her second investment to $700,000.00. (Compl., ¶ 33.) “To further induce Gesualdo to make the increased investment, Ruskey provided Gesualdo with financial documents that he represented were Frinj’s current financial documents: Statement of Assets, Liabilities & Equity, As of December 21, 2020; and an updated version of the Geisha Model.” (Compl., ¶ 34.) “These documents, like the documents provided to induce Gesualdo to invest with the First Note, made material misrepresentations and significantly understated Frinj’s current liabilities and overstated its income and actual value at that time. The documents did not account for the thousands of dollars of backpay and reimbursements owed to multiple employees, a loan to the company made by Ron Caird in February 2020, COVID PPP loans, or the payments due and owing to Por La Mar. Further still, none of the documents discussed GLO or indicated that Frinj was financially responsible for GLO.” (Compl., ¶ 35.) In reliance on Ruskey’s representations, Gesualdo invested another $700,000.00 in Frinj and executed a second promissory note in that amount. (Compl., ¶¶ 36, 37.)
The second promissory note had a maturity date of May 31, 2022, and obligated Frinj to pay simple interest on the principal at the rate of 12 percent per annum or the maximum rate permissible by law, whichever is less. (Compl., ¶ 38.) Ruskey did not increase Gesualdo’s ownership share to 10 percent as he had promised. (Compl., ¶ 41.)
Additional allegations of fraud are included through paragraph 53. The allegations are specific as to the “how, when, where, to whom, and by what means the representations were tendered.” Although defendants make a conclusory argument that the complaint lacks specific facts of fraud, the fraud allegations, as against Ruskey, are sufficient and, by not demurring to the cause of action for fraud against Ruskey and Frinj, defendants implicitly concede that the fraud allegations are sufficient. While defendants appear to suggest that plaintiff must include every single detail that will provide proof of the alleged fraud, that is not necessary or required when it comes to pleading.
“California has adopted the common law rule for subjecting a defendant to liability for aiding and abetting a tort. “ ‘ “Liability may . . . be imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.” ’ [Citation.]’ ” [Citation.]” (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal. App.4th 1138, 1144.)
Defendants do not even address the issue of aiding and abetting the fraud in their demurrers. However, even if they did, the demurs would fail as to the third cause of action. Plaintiff alleges:
“The deceitful and fraudulent conduct of Ruskey and Frinj was made possible by the substantial assistance and encouragement of Mullins and Shafer.” (Compl., ¶ 100.) “Mullins and Shafer had actual knowledge of the fraudulent and deceitful conduct of Ruskey and Frinj, as they were both Frinj executives who played a critical role in creating Frinj’s financial documents, the Slide Deck, and other materials given to prospective investors.” (Compl., ¶ 101.) “Mullins and Shafer knew that Ruskey and Frinj underreported Frinj’s liabilities and operating costs to investors and directly assisted Ruskey and Frinj in those efforts by generating the very documents they relied upon to effect their fraud.” (Compl., ¶ 102.) “Mullins and Shafer knew they were assisting Ruskey in perpetuating fraud on Frinj’s prospective investors, including Gesualdo.” (Compl., ¶ 105.) “Mullins and Shafer created and maintained Frinj’s fraudulent, incomplete, and inaccurate financial documents and investor materials that were a substantial factor in causing Gesualdo’s harm, including her decision to invest $1.2 million in Frinj.” (Compl., ¶ 106.) “The conduct of Mullins and Shafer was malicious, oppressive and/or fraudulent thereby entitling Gesualdo to an award of punitive damages.” (Compl., ¶ 107.)
Allegations of “knowledge” and “intent” are allegations of facts, which are sufficiently alleged through use of the term. (See City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 803 [“Allegations of the defendant’s knowledge and intent to deceive may use conclusive language.”].)
The allegations against Mullins and Shafer contained in the complaint are more than sufficient to constitute a cause of action, for aiding and abetting fraud, against each of them.
The demurrers to the third cause of action will be overruled.
Cancellation of Written Instrument
Ruskey demurs to the fourth cause of action for cancellation of written instruments arguing that Ruskey is not a party to the agreements and, therefore, there is no basis for plaintiff to seek cancellation of the agreements against Ruskey individually. Ruskey’s argument is contained in a single paragraph.
“A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or canceled.” (Civ. Code, § 3412.)
To plead a right to cancellation under Civil Code section 3412, a plaintiff must allege the instrument is “void or voidable” and would cause “serious injury” if not canceled. (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 818-819.)
In the fourth cause of action, plaintiff again states the agreements, the dates the agreements were executed, and details of the agreements. Plaintiff then alleges: “The First Note, Second Note, and Amendment are void or voidable because they were procured by fraudulent inducement, as alleged above and incorporated herein.” (Compl., ¶ 112.) “Because the First Note, Second Note, and Amendment are void or voidable, Plaintiff accordingly asks that they be adjudged as cancelled pursuant to California Civil Code section 3412, and the parties should be restored to their positions immediately prior to entering into the written instruments.” (Compl., ¶ 113.) “There is a reasonable apprehension that if the First Note, Second Note, and Amendment are left outstanding, they will cause serious injury to Gesualdo in that the common stock of Frinj is and is likely to be worthless, thereby subjecting Gesualdo to the pecuniary loss of the $1,200,000 she invested due to Defendants’ fraud.” (Compl., ¶ 114.)
Ruskey signed the notes and the amendment as Chairman and CEO of Frinj. The complaint contains alter ego allegations. (Compl., ¶ 8.) Additionally, as set forth above, plaintiff alleges that it was Ruskey who committed the fraud that resulted in the execution of the documents. Sufficient facts are pled to overcome demurrer to the fourth cause of action for cancellation of written instrument, based on fraud, as against Ruskey. Ruskey’s demurrer to the fourth cause of action will be overruled.
Violation of California’s Equal Pay Act
Ruskey demurs to plaintiff’s fifteenth cause of action for violation of California’s Equal Pay Act.
“[Labor Code] Section 1197.5 is California’s equal pay law. Its operative subsection states: “ ‘No employer shall pay any individual in the employer’s employ at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where the payment is made pursuant to a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex.’ ” (§ 1197.5, subd. (a).)” (Green v. Par Pools, Inc. (2003) 111 Cal.App.4th 620, 622-623.)
“The Equal Pay Act exists to ensure that employees performing equal work are paid equal wages without regard to gender.” (Hall v. County of Los Angeles (2007) 148 Cal.App.4th 318, 323.)
Unlike fraud, violation of the California Equal Pay Act does not have a heightened pleading requirement.
Plaintiff’s allegations regarding violation of the California Equal Pay Act include:
“While pitching Frinj as an investment opportunity for Gesualdo, Ruskey also pitched the prospect of Gesualdo joining the company as a partner and executive.” (Compl., ¶ 54.) “Ruskey’s pitch about Frinj was so enticing that Gesualdo agreed to join the company as the Head Roaster and VP of Sales. Just as Ruskey lied and misrepresented material information to Gesualdo to entice her to invest in Frinj, he did the same to induce her to accept employment at Frinj. (Compl., ¶ 55.)
“Ruskey told Gesualdo that she would begin her employment working part-time, with her wages based on an annualized $85,000 salary, and promised that she would be converted to full-time with a salary increase to $100,000 annually as soon as Frinj received an additional $200,000 investment, and then to $165,000 annually once Frinj ended its Seed Round and began its Series A investment funding round.” (Compl., ¶ 56.) “However, when Gesualdo’s official employment began on or about May 1, 2021, Frinj required that she work full time, not part-time. Gesualdo worked full time and had to submit her hours to Shafer, Frinj’s VP of Finance and Controller, for approval. When she submitted her hours for approval, however, Shafer and Ruskey both pressured her to reduce her reported hours in order to “help the Company” and “save money.” Each time Gesualdo submitted her hours to Shafer, Shafer would tell Gesualdo she needed to under-report her hours because “ ‘investors should want the company to have more money to succeed.’ ” (Compl., ¶ 57.) “During this period of time, Gesualdo never received company policies, such as an employee handbook, informing her of her rights as a non-exempt employee.” (Compl., ¶ 58.)
“Throughout Gesualdo’s employment, Frinj regularly failed to reimburse Gesualdo’s necessary and reasonable business expenses. Gesualdo never received any reimbursement for her commute from San Francisco to Santa Barbara, however, Gesualdo became aware later in her employment that her male, similarly situated coworkers, did receive reimbursement for commutes. Frinj’s failure to provide Gesualdo with its expense reimbursement procedures left Gesualdo uncertain of what the company would reimburse.” (Compl., ¶ 63.)
“Frinj paid Gesualdo a salary of $84,999.99 for her work when it classified her as exempt. Frinj paid Gesualdo an hourly wage corresponding with a salary of $84,999.99 for her work when it classified her as non-exempt. Frinj did not require it’s male employees similarly situated to Gesualdo to work on an hourly basis.” (Compl., ¶ 178.) “No male individuals employed by Frinj in Vice President positions were ever treated as non-exempt. All male individuals employed by Frinj received a far greater salary than $84,999.99.” (Compl. ¶ 179.)
“Frinj failed to pay Gesualdo her minimum and overtime wages, and failed to reimburse Gesualdo for necessary business expenses at various times in her employment. Frinj never failed to pay male individuals similarly situated to Gesualdo their minimum and overtime wages. Frinj always reimbursed the necessary business expenses for its male employees similarly situated to Gesualdo.” (Compl., ¶ 180.) “Frinj notified Gesualdo that she would not receive some of her wages, and in fact did not pay Gesualdo some of her owed wages while it classified her as an exempt employee. Frinj always paid its similarly situated male employees their salaries, even during the periods of time in which Gesualdo did not receive her salary.” (Compl., ¶ 181.)
“Frinj failed to provide Gesualdo with a raise from $84,999.99 to $100,000 when it received additional funding from investments, but Frinj did provide similarly situated male employees with raises.” (Compl., ¶ 182.) “Frinj’s failure to pay Gesualdo in an equal manner to similarly situated male employees was knowing and intentional.” (Compl., ¶ 183.)
“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.)
At the pleading stage, plaintiff’s allegations of violations of California’s Equal Pay Act are more than sufficient to overcome demurrer. The demurrer to the fifteenth cause of action will be overruled.