AppFolio Inc vs Tides Equities LLC et al
AppFolio Inc vs Tides Equities LLC et al
Case Number
24CV03410
Case Type
Hearing Date / Time
Mon, 11/18/2024 - 10:00
Nature of Proceedings
Demurrer; Motion: Strike Portions of Complaint
Tentative Ruling
# 24CV03410 AppFolio Inc. v. Tides Equities LLC
Hearing Date: 11/18/2024
HEARINGS: Demurrer by defendant PMG Property Management, LLC
Motion to strike by defendant PMG Property Management LLC
ATTORNEYS: Jared M. Katz / Andrew M. Cox of Mullen & Henzell LLP for plaintiff AppFolio, Inc.
Tyler R. Dowdall / Renata A. Guidry of Tarter Krinsky & Drogin LLP for defendants PMG Property Management, LLC and Jarrod Robinson
Justin H. Sanders / Thomas J. Eastmond of Sanders Roberts LLP for defendants Tides Equities, LLC, Brien Kelley, Sean Kia, Ryan Andrade, and Melissa Bartolucchi Delgado.
TENTATIVE RULINGS: For the reasons more fully articulated below:
PMG’s demurrers to the first (breach of written contract), second (breach of oral contract), third (breach of implied contract), fourth (breach of the implied covenant of good faith and fair dealing), fifth (intentional misrepresentation), and sixth (negligent misrepresentation), and seventh (concealment) causes of action are overruled.
PMG’s demurrer to the 10th cause of action (conspiracy to commit tort) is sustained, with leave to amend to properly allege conspiracy allegations other than as a separate cause of action.
PMG’s demurrer to the 12th cause of action (declaratory judgment) is sustained with leave to amend.
PMG’s motion to strike punitive damage allegations is denied.
To the extent leave to amend has been permitted by the Court, AppFolio may file a First Amended Complaint on or before December 16, 2024.
BACKGROUND: Plaintiff AppFolio, Inc. (AppFolio) filed its complaint on June 18, 2024, naming as defendants Tides Equities, LLC (Tides), PMG Property Management, LLC (PMG), and individual defendants affiliated with those entities. It alleges that PMG is an Arizona limited liability company whose principal place of business is Scottsdale, Arizona, and which has filed papers with the Arizona Secretary of State indicating that it has dissolved. Defendant Jarrod Robinson is alleged to be a manager, member, and/or officer of PMG. Robinson’s motion to quash service of summons based upon his claim that California lacked personal jurisdiction over him was denied by this Court on October 21, 2024, and he has not yet filed a responsive pleading in this case. The current demurrer and motion to strike are therefore pursued solely by PMG.
As against PMG, the complaint alleges causes of action for (1) breach of written contract; (2) breach of oral contract; (3) breach of implied contract; (4) breach of the implied covenant of good faith and fair dealing; (5) intentional misrepresentation; (6) negligent misrepresentation; (7) concealment; (8) civil conspiracy to commit tort (10th c/a); and (9) declaratory judgment (12th c/a).
The complaint alleges that on September 14, 2022, an agent for Robinson Family Group, LLC dba The Robinson Group executed a written Order Form for the use of AppFolio’s services for a 24-month term beginning November 1, 2022, and ending November 1, 2024 (the Order Form is attached to and incorporated into the Complaint). The Order Form provided for monthly service fees of $45,540.00, in exchange for use of the AppFolio Property Manager Plus, Residential proprietary software. The Order Form provides that in the event AppFolio is unable to collect sums due, the user agrees to pay such sums, including costs incurred in collecting them, including attorneys’ fees, and interest at the lower of 1.5% per month or the highest rate permitted by law.
The Order Form incorporates AppFolio’s Terms of Service (TOS), which provide, among other things, that (1) subscribing to or using the services creates a legally binding agreement; (2) use of the services after any revision to the TOS constitutes an acceptance of any revisions; (3) upon termination for convenience, the user agrees to pay an early termination fee equal to 50% of the service fees payable for the remaining period of the subscription, and the user acknowledges that AppFolio has the right to charge the Early Termination Fee to the payment methods associated with the account; (4) AppFolio may collect late fees and charges, as well as court and related costs, attorneys’ or collection agencies fees plus interest in an amount equal to the lesser of 1% per month or the maximum rate permitted by law; (5) the user agrees to defend, indemnity, and hold AppFolio harmless from any claims, judgments, awards, demands, suits, proceedings, investigations, damages, costs, expenses, losses, and any other liabilities, including attorneys’ fees, court costs, and expenses, arising out of or relating to use of the service in violation of the TOS an excluded claim, any breach of any representation, warranty, covenant or obligation under the TOS, or user’s gross negligence or willful misconduct; (6) the TOS will bind the parties’ respective successors and assigns; and (7) that the TOS and any dispute arising out of or related to the services or the TOS will be interpreted in accordance with the laws of the State of California, and that all disputes out of or related to the TOS are subject to the exclusive jurisdiction and venue of the California state courts located in Santa Barbara, California, and federal courts of the Central District of California, unless the parties agreed to some other location, and that the user expressly consented to the personal and exclusive jurisdiction of these courts. [Underlining used solely to assist the reader in identifying the topic of the provision discussed.]
On September 27, 2022, the Robinson Family Group, LLC changed its name to PMG in filings with the Arizona Secretary of State, also filing a Member Structure Attachment for PMG that listed Tides Equities, LLC as the sole member of the PMG Member-Managed LLC.
On May 24, 2023, PMG initially gave notice that it intended to terminate the agreement and dissolve as a result of a merger. At that time, PMG was acting as property manager and agent for Tides in connection with various residential properties that were owned by Tides. After receiving the notice, AppFolio on May 30, 2023 advised PMG that its merger would not relieve it of its legal duties, and that card services would be disabled as a result of PMG having exceeded Visa’s Early Warning chargeback threshold for multiple months. PMG directed Tides’ Managing Director of Operations, defendant Melissa Bartolucci Delgado (Delgado) to communicate with AppFolio on a resolution, and Delgado then asked AppFolio what they could do to prevent card processing from being disabled on June 2. On June 1, 2023, AppFolio informed Tides that because PMG and Tides both had stated that neither would pay the remainder of the contract term, there was no way to prevent card services from being disabled.
On June 7, 2023, Robinson, the CEO of PMG, sent a letter to Janice Akins at AppFolio that PMG would be dissolving, and intended to cancel its services effective June 30, 2023. Robinson asked AppFolio to cease all ongoing services as of that date, and finalize all outstanding invoices or payments due, including any prorated amounts or fees related to the cancellation. Had that notice remained in place, AppFolio would have treated it as notice of termination, and billed PMG for the Early Termination Fee, which it could have collected from the not-yet-dissolved PMG and ceased providing software access as of June 30, 2023. Instead, PMG, Tides, and their officers and representatives are alleged to have “manipulated” AppFolio into maintaining services so that Tides would have access to data it needed for its operations, leading AppFolio to believe contractual obligations would be paid. Without such conduct, AppFolio would not have maintained services for Tides.
On June 13, 2023, there was a phone call between PMG and AppFolio, following which PMG’s President, defendant Jessica Fern-Kirkland (Fern-Kirkland) wrote to AppFolio stating that PMG was rescinding its notice to terminate services, anticipated needing a few more months, and that AppFolio would be formally notified at a later date when termination of services would occur by Tides or Robinson. She provided a list of Tides properties for which access to the software was still needed for the orderly transition of the management of the properties. Since PMG served as property management company solely for Tides and had no other clients, the maintenance of access to AppFolio’s software was solely for Tides’ benefit.
After being informed of the imminent suspension of card services, PMG confirmed on June 16, 2023, that it was prepared to pay all fees owed under the Agreement in connection with the cancellation. At Tides’ request, PMG revoked its notice so that Tides would continue to have access to the AppFolio software. AppFolio alleges that it made clear it would continue to provide services for Tides only on the condition that it was paid all amounts owed under the agreement, and the parties agreed and proceeded based upon this understanding. But for the understanding and agreement, AppFolio would not have continued to provide services, and would have offered PMG the ability to pay an early termination fee rather than to pay all service fees for the remainder of the agreement, or would have pursued collection of all amounts owed for the contract term.
On June 16, 2023, AppFolio wrote to Robinson and others to confirm that PMG rescinded its request to termination, and stated that AppFolio needed to confirm that PMG would continue to pay subscription services on a monthly basis during that time, and to confirm that ultimate termination would fall under the provision of the TOS that would provide the option to terminate for convenience and pay only 1/2 of the remaining service fees, which it would then calculate. The communication requested confirmation that they would be responsible for all such amounts when due. Also on that date, Fern-Kirkland responded confirming agreement to the terms, copying Delgado of Tides, Robinson, and other of PMG on the email.
On June 26, 2023, a call took place between AppFolio and Tides, to which Robinson was invited but declined to participate, during which the parties expressed the need for Tides to maintain access to the AppFolio system to access information critical to its operations, notwithstanding that PMG was dissolving, and asked to extend the termination date to July 31, 2024. On June 27, 2023, Akins forwarded the June 16 email thread to Robinson, copying Tides’ officers, requesting confirmation of PMG’s understanding it would be responsible for all amounts due. Robinson responded on June 29, 2023, stating that they were going to pay as normal, and “if we decide to cancel the service I will reach out at that time to discuss.”
AppFolio was advised on August 23, 2023, that PMG had dissolved. Tides continued to access the software and services and paid service fees owed to AppFolio from July 2023, into early 2024. AppFolio consented because of Tides’ agreement to pay, and Tides continued its access long beyond the initially agreed July 31, 2023 termination date. AppFolio alleges that this, expressly or implied, constituted an assignment of the contract from PMG to Tides.
On January 22, 2024, Robinson emailed AppFolio to advise that PMG had shut its doors in June 2023 since it was no longer going to be managing the Tides portfolio, had kept the AppFolio operational after the transition so that they could ensure all data was saved considering the large number of properties transitioning, and that since that process was fully completed and they no longer needed access to AppFolio, they needed to shut down access and end the agreement.
On January 25, 2024, a representative of Tides, defendant Sean Kia (Kia), wrote to Akins and advised that Tides was confirming that effective February 1, it would no longer be paying for AppFolio. These were intentionally not notices of termination for convenience, as defined in the TOS, but were repudiations of the contract and its payment obligations.
On January 26, 2024, Akins responded via email to Robinson, Kia and Delgado, copying others at Tides, confirming PMG’s request to terminate its AppFolio subscription prior to the end of its term. It noted that the early termination fee for the subscription would total $182,160 (50% of the total of the monthly fees for the remainder of the contract term, the effective date of which would be 30 days following the notification). Akin requested that the parties confirm the January 22 email as 30-day notice for early termination, and acknowledge the early termination fee which was due under the contract. Defendant Brien Kelley, Tides’ Managing Director and General Counsel, responded via email that Tides was not a party to the contract and would not pay the early termination fee, since it no longer needed access to AppFolio. Also on January 26, Robinson responded via email stating that he had no intention of paying, and did not want to exercise the contractual right of termination for convenience, saying that PMG was out of business, had dissolved, had no assets, and there was nothing more to do since the contract was not personally guaranteed.
Based upon these allegations that AppFolio stated the identified causes of action against PMG.
Demurrer: On August 28, 2024, defendant PMG filed the current demurrer, challenging each of the causes of action alleged against it.
With respect to the first through third causes of action for breach of written, oral, or implied contract, PMG contends that no existing contract is adequately alleged. Rather, PMG argues that plaintiff admitted the contract was assigned to and assumed by Tides, that plaintiff accepted payment from and worked with Tides for eight months, and that Tides terminated the contract. The complaint alleges that AppFolio and Tides agreed that Tides would assume the contract, and that AppFolio continued to provide services based upon that assumption and the TOS, which apply to the user of AppFolio’s products. (¶ 40) It admits that Tides requested that the termination date be extended (¶ 34) and assumed the contract (¶ 40), that PMG notified AppFolio that it was out of business as of August 23, 2023 (¶ 38), that AppFolio continued to provide services to Tides after PMG dissolved (¶ 39) and for 7 months beyond the original termination date (¶ 39), Tides paid for services after PMG dissolved and ceased using services (¶ 40), and that Tides advised on January 25, 2024, that services would no longer be required as of February 1, 2024 (§ 43). The contract provided for a termination date of October 31, 2024, and that the contract could be terminated early for convenience, subject to a payment of 50% of outstanding fees. The complaint alleges that it received payment through February 1, 2024, and that Tides—as assignee of the contract—is refusing to pay the early termination fee. Since Tides assumed the contract and enforced the early termination provision, PMG is no longer a party to the contract and no breach of contract claim can be maintained against it. The contract contained no guarantees.
With respect to the fourth cause of action for breach of the implied covenant of good faith and fair dealing, PMG argues that the allegations do not rise to the level necessary for a breach of the implied covenant. If a claim alleges nothing more than a mere contract breach, and seeks the same damages as in a contract cause of action, PMG argues that the claim may be disregarded as superfluous, citing Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395. PMG contends that in spite of the superfluous tort causes of action, the complaint sounds in breach of contract and nothing more, and the cause of action therefore fails.
With respect to the fifth and sixth causes of action for intentional and negligent misrepresentation, PMG again contends that the complaint improperly converts the nonperformance of a contract into misrepresentation claims. It asserts that the facts that constitute fraud must be pleaded specifically and particularly, and when alleged against a corporation, the plaintiff must allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written, unless by the allegations the defendant necessarily possesses full information or when the facts lie more in the knowledge of the defendant. Further, with respect to negligent misrepresentation, it must involve a positive assertion concerning a past or existing fact.
PMG contends that the allegations do not support the claim that PMG made any fraudulent statements, reliance, or harm, but rather merely tells that PMG advised it was terminating the contract, rescinded the termination so that Tides could continue to perform and assume the contract, and then a termination by Tides. No fraudulent misrepresentation exists.
PMG argues that a fraudulent representation is an antecedent statement made as an inducement to the contract, but is not a part or element of a contract; misrepresentations must related to past or existing material facts, and statements with respect to future events are unactionable opinions. PMG contends that its alleged statements were not false—it stated it was terminating the agreement, that it was rescinding to allow Tides access to the platform, and that it advised it was out of business. Any statements of future intentions are not actionable fraud. It concludes that the allegations at best support a breach of contract claim against Tides.
With respect to the seventh cause of action for concealment, PMG again asserts that the allegations are insufficient, contending that even if there was a failure to disclose facts, PMG was under no duty to disclose since it was not a fiduciary and had no confidential relationship with plaintiff.
With respect to the tenth cause of action for conspiracy to commit tort, PMG contends there is no such cause of action, but rather it is a form of vicarious liability. PMG contends that the complaint fails to allege any civil wrongdoing by it, and fails to allege sufficient facts to establish a conspiracy.
Finally, with respect to the twelfth cause of action for declaratory relief, PMG contends that a declaratory relief cause of action requires that there be an actual controversy relating to the legal rights and duties of the respective parties, not an abstract or academic dispute, citing Centex Homes v. St. Paul Fire & Marine Ins. Co.(2015) 237 Cal.app.4th 23, 29. It then concludes there is no controversy.
Opposition: AppFolio has opposed the demurrer on all grounds.
With respect to the breach of contract claims, AppFolio contends that PMG’s demurrer is simply wrong. That a contract has been assumed by another does not relieve the original obligor from liability under the contract. The burden of an obligation may be transferred with the consent of the party entitled to its benefit, but not otherwise (Code Civ. Proc., § 1457), and this is for the protection of the entitled to the benefit, i.e., AppFolio. (Hearn Pacific Corp. v. Second Generation Roofing, Inc. (2016) 247 Cal.App.4th 117, 149.) Unless the party entitled to the benefit consents to the assignment, the assignor remains bound under the contract as a surety for the assignee. (Ibid.) While there are no formalities that must be observed to make an effective assignment or delegation of contract obligations, but where the obligations are assumed, the original creditor under the contract may sue the assuming party on the theory that he is a third party beneficiary of the assumption of the contract, and may join both the assuming party and the original debtor. (Dick v. Woolson (1951) 106 Cal.App.2d 415, 419.) Since AppFolio never gave PMG a written release of its obligations, it remains liable for breach of the contract as a surety to Tides.
With respect to the cause of action for breach of the implied covenant of good faith and fair dealing, AppFolio asserts that the complaint alleges facts showing that PMG engaged in objectively unreasonable and deceptive behavior, trying to trick AppFolio into accepting the rescission of its early termination notice and maintaining software services, never intending to follow through on its promises to pay. Particularly at the pleading stage, AppFolio asserts it is entitled to assert the breach as an alternative theory of recovery, given that it is permitted to plead alternative and inconsistent theories. That a claim is duplicative is not a grounds for demurrer.
With respect to the intentional and negligent misrepresentation causes of action, AppFolio contends that its complaint alleges a wealth of specific facts meeting the requirements of the claims. ¶¶ 15-18 show PMG was obligated for a 24-month term, and could terminate early with payment of the early termination fee. ¶¶ 20-26 show PMG initially exercised the early termination right, and asked to be billed for the early termination fee. ¶¶ 27-30 show PMG rescinded its early termination to benefit its principal, Tides, and but for those representations AppFolio would have billed PMG for, and collected from PMG, the early termination fee. ¶ 31 alleges specific communication by AppFolio to PMG’s CEO confirming that AppFolio was accepting the rescission, and would forego issuing an invoice for the early termination fee in exchange for PMG’s confirmation that it would be responsible for all contract amounts owed at the time of termination. ¶¶ 32-33 allege PMG representations confirming it and Tides agreed to the terms set forth in the email. ¶¶ 35-37 allege details of communications between AppFolio and PMG, wherein PMG made specific representations to induce AppFolio to accept rescission of the notice of termination instead of billing PMG for the early termination fee. ¶¶ 42-48 detail the communications of PMG and others showing the falsity of the representations that PMG would abide by and pay contractual obligations in exchange for AppFolio agreeing to accept rescission of the early termination notice. Not only do they show the falsity of the representations, but also that there was an intent to deceive AppFolio so that PMG could escape its payment obligations. ¶¶ 49-50 show the harm caused by PMG’s misrepresentations.
AppFolio asserts that the complaint contains ample facts showing PMG breached a tort duty separate and independent from its duties under the agreement, citing Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 989-990, for the proposition that a party’s contractual obligation may create a legal duty, that a breach of that duty may support a tort action, and that conduct amounting to a breach of contract becomes tortious when it also violates a duty independent of the contract arising from principles of tort law.
With respect to the concealment cause of action, AppFolio asserts that it has adequately alleged a cause of action for concealment. The complaint alleges that PMG led AppFolio to believe it would pay all contract amounts owed when the contract was terminated, but failed to disclose it intended to dissolve and claim it had no money left to pay AppFolio. It argues that circumstances such as these give rise to a duty to disclose, citing Bigler-Engler v. Breg, Inc. (2017) 7 Cal.App.5th 276, 310-312, in which the court noted that nondisclosure/concealment may constitute actionable fraud when (1) defendant is in a fiduciary relationship with plaintiff, (2) defendant had exclusive knowledge of material facts not known to plaintiff, (3) defendant actively conceals a material fact from plaintiff, and (4) when defendant makes partial representations but also suppresses some material facts. The three circumstances which do not involve a fiduciary relationship presuppose the existence of some other relationship between plaintiff and defendant in which a duty to disclose can arise, including parties entering into any kind of contractual relationship. The Bigler-Engler court quoted Warner Construction Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294, in stating “In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.”
Based upon this authority, AppFolio asserts that the Complaint’s story that PMG led AppFolio astray and hid its plan to dissolve and claim poverty, after promising payment to induce AppFolio to keep open the software services, states a claim for concealment.
With respect to the cause of action for conspiracy to commit tort, AppFolio asserts that PMG’s argument that insufficient facts are alleged to support a conspiracy is not meritorious. A conspiracy is an agreement by two or more persons to commit a wrongful act, which may be inferred from the circumstances, including the nature of the acts performed, the relationships between the parties, and the interests of the alleged coconspirators. AppFolio alleges that PMG and the other defendants agreed and planned to deceive AppFolio into maintaining services with the intent that PMG would claim it had no more money to pay, and Tides would claim that it did not have to pay because PMG was the party in contractual privity. While conspiracy is no t a separate tort, the complaint alleges that defendants conspired to commit the torts of intentional misrepresentation, negligent misrepresentation, concealment, intentional interference with contract, and negligent interference with prospective economic advantage.
With respect to the cause of action for declaratory judgment, AppFolio contends that the mere fact that PMG’s demurrer disputes that PMG continues to owe obligations after the assignment shows why declaratory relief is an appropriate remedy.
Reply: [PMG filed a joint reply, and only those portions of the reply related to the demurrer will be discussed here.]
With respect to the contract claims, PMG argues that according to the complaint, the only existing contractual obligation is between plaintiff and Tides, and the opposition contradicts that binding judicial admission that PMG was no longer a party to the contract, in claiming that PMG remained bound by the contract because plaintiff did not consent to the assignment. It refers to ¶¶ 40-41, where plaintiff alleged that since PMG had dissolved and was no longer using or paying for services, and Tides assumed the role of paying and using the services for its properties, whether expressly or impliedly, the contract was assigned by PMG to Tides, and alleges further that AppFolio at that time recognized and continued to provide services based on the fact that Tides had assumed the agreement and the responsibility to abide by the TOS, and that Tides began paying for the services with its own credit card in October 2023. Relying on Civil Code section 1589 (“A voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.”), PMG concludes that AppFolio’s voluntary acceptance of payment by Tides constituted a consent to the assignment.
PMG argues further that AppFolio has admitted that there are no formalities required to effect an assignment, and contends that an assignment of rights under a contract completely transfers the rights and obligations to the assignee under the contract. Where the counterparty consents to the assignment, the assignor is released. The complaint alleges that AppFolio consented to maintaining the services for the benefit of Tides on condition that it be paid all amounts owed to it under the agreement (¶ 29), that AppFolio consented to maintaining services for the benefit of Tides because Tides agreed to pay for the contractual obligations owed, and continued to use the services for seven months after the initial termination date (¶ 39), and that Tides assumed the role of paying for and using services for its properties, and AppFolio recognized and continued to provide services based on the fact that Tides had assumed the Agreement and the responsibility to abide by the TOS, which apply to any user of plaintiff’s products (¶40). Since plaintiff admitted it accepted $318,410 in payments form Tides, and has admitted it consented to the assignment of the contract, PMG argues that AppFolio cannot contradict that argument and maintain a claim for breach of contract against PMG.
With respect to the cause of action for breach of the implied covenant of good faith and fair dealing, PMG’s reply contends that the complaint sounds in contract, despite plaintiff’s attempts to characterize them as tort causes of action, and that the complaint fails to allege any facts that PMG engaged in objectively unreasonable and deceptive behavior, as the opposition contended. It asserts that simple failure to pay a termination fee is a breach of contract, and nothing more. It is not “objectively unreasonable” because it took place during the regular course of business.
With respect to the causes of action for intentional and negligent misrepresentation, PMG contends that plaintiff’s list of conclusory facts does not meet the specificity requirement, and the opposition does not identify any misrepresentations. PMG reiterates its argument that no fraudulent statements were made at the time the contract was entered into, and that any statements alleged in the complaint are not actionable misrepresentations, since a fraudulent misrepresentation is an antecedent statement made as an inducement to the contract, but is not a part or element of the contract, and actionable misrepresentations must pertain to past or existing material facts, not predictions regarding future events. The complaint does not allege any pre-contract fraud. PMG contends that AppFolio has admitted that PMG did not make any false promises. A breach of a promise to pay is not fraud, but breach of contract.
With respect to the cause of action for concealment, PMG contends that the allegations are devoid of specific facts to support concealment, and in fact consist of emails which advised plaintiff exactly what was happening and why. The opposition attempts to create a duty to disclose where none exists; there are only three instances where a duty to disclose will arise, other than where a fiduciary duty exists, and none are alleged in the complaint. Plaintiff describes in detail all of the disclosures that were made, and identifies no information PMG withheld. It asserts that the failure to pay a contractual termination fee is not concealment, since a future event is not something that can be concealed.
With respect to the cause of action for conspiracy to commit tort, PMG reiterates that conspiracy is not a cause of action, and then contends that plaintiff has failed to identify an independent wrong committed by PMG. Without that, there can be no claim for conspiracy. It argues that the complaint fails to allege that PMG engaged in a conspiracy, that a conspiracy was formed, or that PMG engaged in a tortious act, instead alleging facts to show PMG was open and honest with AppFolio. It is not tortious to exercise a contractual right, to tell plaintiff it was going out of business, or to not pay a contractual termination fee.
With respect to the declaratory relief cause of action, PMG’s reply contends (for the first time) that declaratory relief generally operates prospectively to declare future rights, rather than to address past wrongs; it sets controversies at rest before they lead to repudiation of obligations. When there has ben a breach of contract, declaratory relief is not proper because monetary damages will suffice.
Motion to strike punitive damages: The motion seeks to strike the punitive damage language from the causes of action for intentional misrepresentation, concealment, and conspiracy to commit tort, and the prayer for exemplary damages. The motion sets forth the standards applicable to the pleading of claims for punitive damages, and contends that the allegations of malice, oppression, or fraud necessary for such a claim are set forth only in conclusory statements, when the allegations in support of such claim must be specifically and factually alleged.
Opposition: In opposition, plaintiff argues that it has set forth extremely detailed facts supporting the tort causes of action, and specifically that it has adequately alleged fraud against PMG, which suffices to support a claim for punitive damages. The opposition reiterates (from its opposition to the demurrer) the allegations which support the three causes of action for which punitive damages are requested. AppFolio concludes that the request for punitive damages is appropriate, and the motion to strike should be denied.
Reply: In reply, PMG reiterates that there has been no showing of malice, oppression or fraud, and contends that AppFolio admitted that PMG was open and honest with plaintiff at all times, and all of plaintiff’s allegations are reducible to a breach of contract claim. While fraud claims are alleged, the allegations do not comply with the rules of pleading related to fraud. PMG further contends that the acts complained of must be both intentional and accompanied by aggravating circumstances amounting to malice, and that mere spite or ill will is insufficient. Here, none of the facts alleged suggest that PMG’s conduct was “wicked, malevolent, or verging on criminal indifference.” Plaintiff cannot manifest fraud by calling something fraudulent.
ANALYSIS: For the reasons more fully articulated below:
PMG’s demurrers to the first (breach of written contract), second (breach of oral contract), third (breach of implied contract), fourth (breach of the implied covenant of good faith and fair dealing), fifth (intentional misrepresentation), sixth (negligent misrepresentation), and seventh (concealment) causes of action are overruled.
PMG’s demurrer to the 10th cause of action (conspiracy to commit tort) is sustained, with leave to amend to properly allege conspiracy allegations other than as a separate cause of action.
PMG’s demurrer to the 12th cause of action (declaratory judgment) is sustained with leave to amend.
PMG’s motion to strike punitive damage allegations is denied.
To the extent leave to amend has been permitted by the Court, AppFolio may file a First Amended Complaint on or before December 16, 2024.
Demurrer
1. Standards
The court’s task in ruling on a demurrer is to determine whether the complaint states a cause of action. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300.) A demurrer admits the truth of all material facts properly pleaded (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 966-967), no matter how unlikely or improbable they may be (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604), or how unlikely it will be that plaintiff will be able to prove the claim (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214). The court also assumes the truth of all reasonable inferences that may be drawn from the properly pleaded facts. (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083.) The assumption of truth does not apply, however, to contentions, deductions, or conclusions of law or fact. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters, and therefore lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.)
2. Breach of contract causes of action.
The Court will overrule the demurrer to these causes of action, on the basis that the demurrer failed to meet its initial burden of showing that the complaint did not state a cause of action. PMG’s demurrer to these causes of action only cited authorities related to the elements of a breach of contract cause of action, and with respect to the fact that exhibits to a pleading are given preference over contrary allegations in the complaint. It then simply concluded—without the citation of any legal authority to support the proposition—that because Tides had assumed the contract, AppFolio could not maintain any breach of contract cause of action against it.
Based upon this failure alone, the demurrer failed to meet its initial burden of showing that the facts set forth in the complaint were insufficient to allege a breach of contract cause of action, and must be overruled. Even if the Court considers the new arguments and authorities set forth in PMG’s reply, however, it still finds that the demurrer must be overruled.
When PMG was subsequently confronted with actual legal authority that the assignment of a contract does not necessarily relieve the contracting party of its obligations, and that the obligations of the contracting party continued after its assignment of the contract to another unless the obligee under the contract consented to the assignment, PMG then, for the first time, made legal arguments to attempt to support a conclusion which went far beyond the scope of its initial demurrer argument, i.e., that AppFolio could be legally deemed to have consented to the assignment by accepting the benefits of the contract from Tides through Tides’ continued payment pursuant to the contract, citing only Civil Code section 1589 for that proposition.
Section 1589 states a general principal, and essentially supports the conclusion that if a party accepts the benefits of a transaction, that same party also consents to all of the obligations that transaction would imposes on that same party. In other words, by accepting payment from Tides, AppFolio necessarily consented to the obligation of providing services and access to its software to Tides.
PMG’s reply argument attempts to extend the reach of Section 1589 well past that result, and to include the legal conclusion that in simply accepting benefits (i.e., payment for use of AppFolio’s proprietary software) from Tides, that AppFolio is deemed to have legally consented to the assignment, such that the authorities cited by AppFolio in its opposition papers—that unless there is a consent to the assignment, the original obligor on the contract remains liable for compliance with the contract, as the surety of the assignee—have relieved PMG from any liability to AppFolio for breach of contract.
PMG reads far too much into Section 1589. In fact, its interpretation of the impact of Section 1589 on an assignment of a contract would completely erase from existence the authorities cited by AppFolio establishing that in the absence of the obligee’s consent to the assignment, the obligor remains liable for performance under the contract as the surety for the assignee. Section 1589 was enacted in 1872, and was fully in effect at the time the courts decided Hearn Pacific Corporation v. Second Generation Roofing, Inc. (2016) 247 Cal.App.4th 117, and the cases it relied on (i.e., Cutting Packing Co. v. Packers’ Exchange of California (1890) 86 Cal.574, 576; and Wiseman v. Sklar (1930) 104 Cal.App. 369, 374), in finding that an assignee can assume contractual obligations without the other party’s consent, but that the assignor is not relieved of them absent such consent, and the assignor stands in the nature of a surety for the assignee for the performance of the obligation.
What would be the reason for such a rule, if the assignee’s performance of the assignor’s obligations under the contract automatically indicated the deemed consent of the other contracting party? Further, although PMG contends that AppFolio’s allegations establish that it had consented to PMG’s assignment of the contract to Tides, and that its obligations under the contract were therefore extinguished, the allegations of the complaint do not definitively do so. In fact, the complaint expressly alleges that PMG agreed that it would continue to be responsible for all amounts due under the agreement, even if AppFolio agreed to the rescission of the termination notice and agreed to extend its services to Tides. (¶¶ 29-37).
In any event, the original argument set forth in the demurrer, which is bereft of any legal authority for its principal point, failed to establish that the mere fact that Tides had assumed PMG’s obligations under the contract relieved PMG of any further obligations, and insulated it from any liability. For that reason alone, the demurrer must be overruled. Further, even if the Court reaches the arguments made by PMG in its reply, it cannot find that they establish as a matter of law under the facts alleged in the complaint that AppFolio has legally consented to an assignment in a manner which absolutely relieves PMG of any further liability under the contract. Consequently, the Court will overrule the demurrer to the contract-based causes of action.
3. Implied covenant of good faith and fair dealing cause of action.
PMG’s demurrer to the fourth cause of action for breach of the implied covenant of good faith and fair dealing asserts that it only seeks contract damages, and is therefore superfluous and may be disregarded. AppFolio responds by contending that (1) it is entitled to assert the claim as an alternative theory of recovery, (2) the fact that a cause of action is “duplicative” is not a ground on which a demurrer may be sustained, citing Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 890), and (3) that the complaint alleges facts that show that PMG engaged in objectively unreasonable and deceptive behavior in trying to trick AppFolio into accepting the rescission of its early termination notice and maintaining software services, w while never truly intending to make good on its promises to pay.
While it very well may prove true that the trier of fact finds that the evidence of the events in this case do not support a cause of action for breach of the implied covenant of good faith and fair dealing, the Court cannot find that PMG’s demurrer establishes as a matter of law on the facts alleged that no such cause of action exists. Consequently, the Court will overrule the demurrer to this cause of action.
4. Intentional and negligent misrepresentation causes of action.
PMG’s demurrer to the fifth and sixth causes of action for intentional and negligent misrepresentation, respectively, argues that the complaint improperly attempts to convert nonperformance of the contract into misrepresentation claims, that there were no actionable misrepresentations, there was no pre-contract fraud, and any statement of future intention is not actionable fraud.
AppFolio responds by asserting that the complaint alleges ample facts to show that PMG breached a tort duty separate and independent from its duties under the contract. And cites Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, for the principle that a party’s contractual obligation may create a legal duty, and that a breach of that duty may support a tort action when it also violates a duty independent of the contract.
The Court will overrule the demurrer to the misrepresentation causes of action. At least under the facts alleged, PMG’s interpretation of the misrepresentation causes of action is unduly narrow. Certainly, PMG is correct that there were no misrepresentations made as an inducement to enter into the contract itself. However, that is not what the complaint alleges. The complaint alleges that PMG notified AppFolio of its early termination of the contract, and asked that AppFolio prepare a statement of the amounts due for early termination. Had this been all that happened, most certainly there would have been no cause of action for misrepresentation stated, and all that would have arisen from PMG’s failure to pay the early termination charges it had agreed to in entering into the contract, would be a breach of contract claim.
However, what the complaint alleges is that PMG then asked AppFolio to rescind its termination of the agreement, and in exchange for doing so and for AppFolio permitting Tides to have continued access to AppFolio’s proprietary software for a period of time, PMG would agree that any charges due under the original contract when such services ultimately terminated would be paid. However, the complaint alleges that PMG had no intention of paying the charges when these representations were made, and they were only made to induce AppFolio to continue to provide services to Tides under the terms that were set forth in the underlying contract AppFolio had with PMG. This is, in essence, a fraudulent inducement of a new agreement between PMG and AppFolio, and the failure to pay the amounts due when services ultimately terminated can be construed as PMG’s breach of a duty independent of that which it assumed in entering into the underlying contract.
At the bare minimum, the arguments made by PMG in its demurrer do not meet the burden of showing that no fraudulent misrepresentation claim can be stated, requiring that the demurrer to the fifth and sixth causes of action be overruled.
5. Concealment cause of action.
The concealment cause of action alleges that AppFolio and defendants were in a business relationship, and in order to induce AppFolio to permit PMG to revoke its termination of the agreement and continue to provide services to Tides, defendants made oral and written representations and engaged in communicative actions, but for which AppFolio would have discontinued provision of services and immediately sought to collect the early termination fee. It alleges that defendants concealed their true intent to avoid paying the amounts owed for the remainder of the contract term once Tides no longer needed the services, concealed their intent that Tides would claim it had not agreed to assume the agreement or be responsible for payment once it completed its use of AppFolio’s services, and concealed their intent that PMG would claim that it had dissolved and no longer had funds to satisfy the amounts owed to AppFolio. It alleges that AppFolio did not know the omitted information; had it known the true information, it would not have agreed for PMG to revoke its initial termination notice, and would not have continued to provide services to Tides, and was damaged by the concealment.
PMG has demurred to the concealment cause of action contending that the cause of action requires that the defendant have had a duty to disclose the concealed or suppressed fact, but that the complaint does not alleges facts to support the existence of a duty to disclose, since it was not a fiduciary, and did not have a confidential relationship with AppFolio. Other than a citation for the elements of a concealment claim, no authorities were cited by the demurrer to support the contention that no duty to disclose existed.
In opposition, AppFolio notes that courts have found duties to disclose in transactions arising from direct dealings between plaintiff and defendant, but not involving fiduciary or confidential relationship, including (1) where defendant makes representations but dues not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; and (3) the defendant actively conceals discovery from plaintiff, citing Warner Construction Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.) AppFolio contends the complaint alleges that PMG led it astray, hiding its plan to dissolve and claim poverty after promising payment to induce AppFolio to keep providing services.
In reply, PMG simply contends that none of the circumstances set forth in Warner, supra, are alleged in the complaint. While AppFolio details the disclosure which were made, its complaint identifies no information PMG concealed, contending that the failure to pay a contractual termination fee is not concealment.
Once again, PMG’s demurrer argument was woefully insufficient to support its contention that no cause of action for concealment has been alleged. It merely contends that even if it failed to disclose facts to AppFolio, no duty to disclose existed. It cites no authorities with respect to when a duty to disclose does or does not arise or exist, and makes no argument other than to contend that no duty to disclose exists because it was not a fiduciary and was not in a confidential relationship with AppFolio. As noted by plaintiff’s opposition, however, courts have acknowledged that a duty to disclose may arise under circumstances other than where a fiduciary or confidential relationship exists, including: “(1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead; (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff; (3) the defendant actively conceals discovery from the plaintiff.” (Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 294.). In failing to address those circumstances at all, the demurrer failed to meet its burden of showing that the complaint failed to state a cause of action for concealment.
In its reply, PMG attempts to fill in the blanks created by its deficient demurrer, by reiterating the three circumstances set forth in the Warner case, and then simply stating that the complaint does not identify any information which PMG withheld. The problem with this late-raised contention is that the complaint in fact does identify information concealed by PMG, which was unknown to AppFolio and which, if known, would have caused it to act differently to prevent the harm it ultimately sustained. (Complaint at ¶ 99-101.)
The Court will overrule the demurrer to the concealment cause of action.
6. Conspiracy to commit tort cause of action.
PMG has demurred to the cause of action, contending that there is no separate cause of action for conspiracy, that no civil wrongdoing has been alleged against it, and the complaint fails to allege sufficient facts to establish a conspiracy.
In its opposition papers, AppFolio acknowledged that conspiracy is not a separate tort, but contended that the defendants in that cause of action (which is stated against all defendants), conspired to commit the torts of intentional misrepresentation, negligent misrepresentation, concealment, intentional interference with contract, and negligent interference with prospective economic advantage. Apparently, it contends the complaint alleges this through the brief statement set forth in ¶ 123 (“Defendants conspired with one another to commit torts against AppFolio, including the torts alleged here”), because the tenth cause of action which is labeled as one for “conspiracy to commit tort” contains no other allegations identifying any underlying tort. AppFolio contends that the conspiracy it asserts is that PMG and the other defendants agreed and acted to deceive AppFolio into maintaining services with the intent that PMG would claim that it had no more money to pay, and Tides would claim it did not have to pay because PMG was the party in contract privity.
A. Standards for alleging conspiracy
Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. (Applied Equipment Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 510-511.) The doctrine involves concerted action in pursuit of a common plan or design to commit a tortious act, in which the conspirators actively take part, or further the conspiracy by cooperation or request, by lending aid or encouragement to the wrongdoers, or by ratifying and adopting those acts done for his or her benefit. (See Cully v. Bianca (1986) 186 Cal.App.3d 1172, 1176.) As held in Peskin v. Squires (1957) 156 Cal.App.2d 240, 247, each party to a conspiracy is liable for all acts done in pursuance thereof, and his or her lack of knowledge of details, or an absence of personal commission of overt acts, is immaterial.
In stating a cause of action based upon a conspiracy theory, the plaintiff must allege the formation and operation of the conspiracy, the wrongful act or acts done pursuant to it, and the damage resulting from it. (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 419.) In making the allegations, legal conclusions, inferences, generalities, presumptions, and conclusions are insufficient. (Ibid.) However, although the pleaded facts must show that something was done which, without the conspiracy, would give rise to a cause of action (i.e., the underlying tort), the formation and operation of a conspiracy may be alleged in general terms. The general allegation that defendants “did agree together”, or “conspired together,” are sufficient to allege a conspiracy. (See Farr v. Bramblett (1955) 132 Cal.App.2d 36, 47; Greenwood v. Mooradian (1955) 137 Cal.App.2d 532, 535-537.) The acts done pursuant to the conspiracy and inflicting the wrong should be alleged; the specific acts constituting the conspiracy need not be alleged. (Greenwood v. Mooradian, supra.) Further, the existence of the conspiracy may be inferred from the nature of the acts done, the relations of the parties, the interests of the alleged conspirators, and other circumstances. (Allen v. Powell (1967) 248 Cal.App.2d 501, 508.)
B. Application
The Court notes that PMG is already a direct defendant in the causes of action for intentional misrepresentation, negligent misrepresentation, and concealment. It is not alleged to be a direct defendant in the causes of action for intentional interference with contract, and negligent interference with prospective economic advantage, which name as defendants only Tides, Kelley, and Delgado. It appears that, through the improper, stand-alone conspiracy cause of action, AppFolio intends to also hold PMG liable for conspiracy to interfere with (its own) contract, and negligent interference with prospective advantage, even though it has not named PMG as a defendant in those causes of action.
AppFolio acknowledges that there is no separate cause of action for conspiracy, but then proceeds to allege a separate cause of action for conspiracy. This is improper. Because there is no such thing as a separate cause of action for conspiracy, the conspiracy allegations should be made within, or incorporated into, each tort cause of action for which the plaintiff contends that the liability of one or more of t the defendants is based upon a conspiracy theory, and each such defendant should be directly named as a defendant in that tort cause of action. Because each of the substantive tort claims incorporate by reference only those allegations in the preceding paragraphs, the Court cannot simply deem the conspiracy allegations to already be a part of the causes of action alleged prior to the purported “conspiracy” claim.
Further, because each of the underlying tort causes of action are alleged only against specified defendants, combined with the manner in which the “conspiracy” cause of action merely references conspiracy to commit “the torts alleged herein,” the pleading becomes hopelessly confusing and contradictory, in a manner which effectively precludes any definitive determination of the basis for any specific defendant’s liability within any specific tort cause of action.
The Court will sustain the demurrer to the separately-alleged conspiracy cause of action. To the extent that AppFolio wishes to allege that any of the defendants have tort liability through application of the conspiracy doctrine, it may amend its complaint to add conspiracy allegations in an appropriate manner (i.e., not in a separate cause of action, but elsewhere in the complaint, either in the general allegations, or within each tort cause of action for which AppFolio contends that the liability of one or more of the defendants named in that cause of action exists under a conspiracy theory). However, AppFolio may not amend to again allege a separate conspiracy cause of action, as it did in its original complaint.
7. Declaratory relief cause of action.
AppFolio’s 12th cause of action for declaratory judgment is stated against PMG and Tides, and alleges that a controversy has arisen between AppFolio and those entities with respect to their rights under the agreement. Plaintiff contends that Tides is obligated to pay all amounts owed under the agreement, that PMG contracted with AppFolio as agent of and on behalf of Tides, that the agreement was assumed by or assigned to Tides, that Tides agreed to be governed by the agreement as a condition of using plaintiff’s services, and that Tides is estopped from denying liability for paying the fees owed under the agreement to plaintiff, including through the remainder of the contract term. Plaintiff alleges on information and belief that Tides and PMG disagree and contend to the contrary. The claim then alleges that AppFolio is entitled to a declaratory judgment of the parties’ respective rights and duties to one another with respect to the identified issues.
PMG’s demurrer summarily stated that there was no actual controversy between the parties, and that the cause of action should be dismissed. In opposition, AppFolio argues that the mere fact that the demurrer disputes that PMG continued to owe contract obligations after it assigned the agreement to Tides shows why declaratory relief is an appropriate remedy. In reply, PMG notes, for the first time, that declaratory relief operates prospectively to declare future rights, rather than to redress past wrongs, and is improper where there has been an alleged breach of contract.
A. Standards for a declaratory relief claim.
“Any person interested under a written instrument …, or under a contract, or who desires a declaration of his or her rights or duties with respect to another, … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.” (Code Civ. Proc., § 1060.) “A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties … and requests that these rights and duties be adjudged by the court.” (Maguire v. Hibernia Savings & Loan Society (1944) 23 Cal.2d 719, 728.) Declaratory relief is appropriate to obtain judicial clarification of the parties’ rights and obligations under applicable law. (Californians for Native Salmon and Steelhead Association v. Department of Forestry (1990) 221 Cal.App.3d 1419, 1427.)
A declaratory relief claim operates prospectively, serving to set controversies at rest, and there is no basis for declaratory relief where only past wrongs are involved. As a result, where there is an accrued cause of action for an actual breach of contract or other wrongful act, declaratory relief may be denied. (See Osseous Technologies of America v. DiscoveryOrtho Partners, LLC (2010) 191 Cal.App.4th 357, 366; General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 471.) Where issues invoked in a declaratory relief cause of action are already fully engaged by other causes of action, declaratory relief is unnecessary and superfluous. (Hood v. Superior Court (1995) 33 Cal.App.4th 319, 324.)
B. Application.
The bare-bones statement in PMG’s demurrer that no actual controversy exists among the parties, set forth without explanation or elaboration, is woefully deficient to support a demurrer. However, the basic facet of declaratory relief law that it does not lie for past wrongs, and only operates prospectively to put controversies at rest, essentially illustrates the reason why the allegations of AppFolio’s 12th cause of action do not show the existence of an actual controversy between the parties.
The essence of the cause of action is that a declaration of the rights of the parties will assist in resolving issues of liability in the case. However, there is no longer any contractual relationship between the parties, for which a declaration of rights and duties could put to rest future dispute. All allegedly wrongful conduct has been completed, and all that remains is to determine liability and, if appropriate, assess damages. That is not the function of a declaratory relief cause of action.
The Court will sustain the demurrer to the declaratory relief cause of action. While the Court is unaware of any circumstances which would permit AppFolio to allege a valid declaratory relief cause of action against PMG, it will permit AppFolio an opportunity to evaluate its case and file an amended pleading containing such a claim, if it is possible to do so.
Motion to strike
1. Standards for striking punitive damage allegations.
On motion to strike, a court can strike out any irrelevant, false, or improper matter inserted in a pleading. (Code Civ. Proc., §§ 435, subd. (b)(1); 436, subd. (a).) Just as with a demurrer, the grounds for a motion to strike must appear on the face of the pleading or from matter which the court may take judicial notice. (Code Civ. Proc., § 437, subd. (a).) A demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint is an “immaterial allegation,” and is considered “irrelevant matter” subject to a motion to strike. (Code Civ. Proc., §§ 431.10, subds. (b)(3), (c), and 436, subd. (a).)
The courts have long been charged with an important gate-keeping function with respect to claims for punitive damages. Because of the inflammatory nature of a punitive damage allegation, the law requires that all pleadings in which punitive damages are sought allege specific facts which, if proven, would constitute malice, oppression, or fraud supporting a punitive damage request, as those terms are defined by Civil Code section 3294(c). (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) When presented with a motion to strike, a trial court is obligated to strike from a pleading a request for punitive damages if there are insufficient specific facts alleged to meet the statutory definitions of malice, oppression, or fraud. (See Turman v. Turning Point of Central California, Inc. (2010) 191 Cal.App.4th 53, 63-64; Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6; and Brousseau v. Jarrett (1977) 73 Cal.App.3d 864, 872.)
Under Civil Code section 3294(c), “malice” means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. (Civ. Code, § 3294, subd. (c)(1).) An allegation of “intent” is an allegation of fact which is 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.”].)
“Oppression” means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. (Civ. Code, § 3294, subd. (c)(2).)
“Fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury. (Civ. Code, § 3294, subd. (c)(3).)
The Legislature added the element of “despicable conduct” to the statutory definitions of malice [related to one of the two alternate means of showing “malice” under Section 3294(c)(1)] and oppression in 1987, for the purpose of providing greater assurance that punitive damages will be awarded only to punish conduct that is truly blameworthy and reprehensible. (Mock v. Michigan Millers Mut. Ins. Co. (1992) 4 Cal.App.4th 306, 331.) It has been defined to mean conduct which is so vile, contemptible, miserable, wretched, or loathsome that it would be looked down on and despised by ordinary decent people. (Id.)
2. Application
The Court has overruled PMG’s demurrers to the fraud-based causes of action. Because the allegation of facts constituting fraud are sufficient to support a request for punitive damages under Civil Code section 3294(c)(3), the Court will deny the motion to strike the punitive damages allegations from the complaint.
Leave to amend
To the extent that this Court has sustained the pleading challenges, it will allow AppFolio leave to file a First Amended Complaint on or before December 16, 2024.