Preview
{Le 4
JAN-27 2021
Clerk of ie
‘ounty of Santa Clara
‘Supesior Court of
BY.
Magale Castellon
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA
10
11 PACIFIC OFFICE DESIGNS, INC., Case No. 20-CV-368229
12 Plaintiff,
ORDER RE: DEMURRERS AND
13 MOTION TO STRIKE TO THE FIRST
14 VS.
AMENDED COMPLAINT
15 Hearing Date: December 17, 2020
Time: 9:00 a.m.
16 SPOT ON CONSULTING GROUP, et al., Dept. 20 (Hayashi for Manoukian)
17 Defendants. Trial Date: None Set
18
19
The following motions came on for hearing before the Honorable Roberta S. Hayashi on
20
December 17, 2020, at 9:00 a.m. in Department 10: (1) the demurrer to the first amended
21
complaint (“FAC”) by defendants Spot On Consulting, Jonathan R. Laddy, and Kelly P. Playle
22
(collectively, the “Spot On Defendants”); (2) the motion to strike portions of the FAC by the
23
Spot On Defendants; and (3) the demurrer to the FAC by defendants Exemplis LLC, Paul
24
DeVries, and Nancy Lopez (collectively, the “Exemplis Defendants”). The matters having been
25
submitted, the Court orders as follows:
26
I. Statement of Facts.
27
Plaintiff Pacific Office Designs, Inc. (“Plaintiff”) filed its initial complaint alleging fraud,
28
breach of contract, unfair trade practices, common counts and negligence on July 9, 2020.
1
Case No. 20-CV-368229
Order Re: Demurrers and Motion to Strike to the FAC
Le-
Pursuant to the stipulation of September 17, 2020, Plaintiff filed its FAC on October 9, 2020,
seeking damages arising from a transfer of funds in or around December 2019, from Plaintiff's
bank account by its outside financial services provider, Spot On Consulting, to a fraudulently
created bank account as the result of an e-mail generated from Plaintiff's vendor, Exemplis LLC,
the resulting data breaches of Exemplis LLC’s data, as well as the disclosure of Plaintiff's
banking data by Spot On in executing the fraudulent transfer.
On 11/9/2020, the Spot On Defendants demurred to the First Cause of Action (“COA”)
of the FAC (Intentional Misrepresentation); the Second COA (Negligent Misrepresentation); the
Seventh COA (Tort of Another); and the Ninth COA (Negligence-Res Ipsa Loquitur).
10 On 11/16/2020, the Spot On Defendants moved to strike from the FAC, allegations of
11 punitive or exemplary damages, special damages, and attorneys’ fees (as to the Fifth, Sixth,
12 Seventh, Eighth and Ninth COAs), as well as remedies for equitable relief in those causes of
13 action.
14 On 11/16/2020, the Exemplis Defendants demurred to the Fifth COA (negligence); Sixth
45 COA (breach of implied contract); Seventh COA (Tort of Another); Eighth COA (breach of oral
16 contract); and Ninth COA (Negligence-Res Ipsa Loquitur).
17 Plaintiff opposes the demurrer, and urges the Court to consider Defendants’ failure to
18 cooperate with Plaintiff's investigation or disclose what their internal investigations revealed.
19 Those facts are not alleged in the FAC.
20 IL. Analysis.
21 A. Legal Standard.
22 “Tn reviewing the sufficiency of a complaint against a general demurer, we are guided by
23 long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but
24 not contentions, deductions or conclusions of fact or law. We also consider matters which may
25 be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only
26 the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the
27 complaint; the question of plaintiff's ability to prove these allegations, or the possible difficulty
28
Case No, 20-CV-368229
Order Re: Demurrers and Motion to Strike to the FAC
in making such proof does not concem the reviewing court.” (Committee on Children’s
Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.)
“The reviewing court gives the complaint a reasonable interpretation, and treats the
demurrer as admitting all material facts properly pleaded. The court does not, however, assume
the truth of contentions, deductions or conclusions of law. ... [I]t is error for a trial court to
sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory.
And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff
shows there is a reasonable possibility any defect identified by the defendant can be cured by
amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)
10 To the extent that Plaintiff relies upon the declarations submitted by their respective
11 counsel, the Court declines to consider them as a demurrer addresses only the well-pleaded facts
12 of the complaint and materials subject to judicial notice. (See Donabedian v. Mercury Ins. Co.
13 (2004) 116 Cal.App.4th 968, 994 [on demurrer, a court cannot consider the substance of
14 declarations].) Allegations of failure to cooperate in the investigation may bolster the alleged
15 fraudulent nature of any failure to disclose the change in banking information, or that there had
16 not been independent verification of the genuineness of the instruction before the transfer of
17 funds, but those facts are not alleged in the FAC.
18 B. Demurrers and Motion to Strike.
19 Plaintiff has alleged that the Exemplis Defendants had a duty to have in place appropriate
20 systems, procedures, and trained personnel that would have required verification before
21 payments are made, identified any data breaches, and promptly notified its customers of the
22 threat. The Court finds that the allegations of the existence of a duty and breach of that duty as
23 to Exemplis are sufficient. Plaintiff alleges that Defendant Nancy Lopez (““Ms. Lopez”), an
24 employee of Exemplis individually owed duties to Plaintiff, but does not plead facts that support
25 that Ms. Lopez has individual liability for negligent (as opposed to fraudulent) acts in the course
26 and scope of her employment for Exemplis.
27 Plaintiff has further alleged that Spot On had a duty to detect that the e-mail was
28 fraudulent, disclose to Plaintiff that its vendor had purported to change its bank account
Case No. 20-CV-368229
Order Re: Demurrers and Motion to Strike to the FAC
information, verify with the vendor the accuracy of the instruction and inform Plaintiff that it had}
not conducted such verification before making the transfer.
Plaintiff, has not, however alleged sufficient facts to show that Spot On knew that the
instruction for transfer of funds was fraudulent and executed the transfer, or failed to make the
disclosures to Plaintiff with the requisite intent to deceive necessary for fraud. Plaintiff has not
alleged facts sufficient to support the First COA (intentional misrepresentation), and has not
plead with sufficient specificity which statements or omissions to state facts (made by whom, on
what date) were made with the requisite fraudulent intent, or which are relied upon to support the
claims for negligent misrepresentation (the Second COA).
10 Defendants Spot On and Exemplis correctly contend that “tort of another” is a legal
11 doctrine which results in holding one defendant liable for the fraudulent or negligent conduct of
12 another person, in which the defendant participates — however, it depends on thé existence of the
13 underlying tort and pleading of the specific conduct which triggers that liability for fraud or
14 negligence. It is not an independent theory of liability.
15 “Res ipsa loquitur” is a legal doctrine that applies to show that a duty exists for purposes
16 of supporting a negligence cause of action. Plaintiff argues that it may be alleged as an alternate
17 theory of liability. In this case, the FAC includes a negligence COA against all identified
18 Defendants, which is premised (as are the other causes of action) on factual allegations that the
19 Spot-On Defendants and the Exemplis Defendants each owed separate and independent duties of
20 due care to safeguard the banking information, such that even if an Exemplis employee
21 knowingly or negligently participated in the conversion of funds from Plaintiff, the Spot-On
22 Defendants had a duty to not transfer Plaintifi’s funds without verifying the accuracy of the
23 account data. The Ninth COA is not just an alternative theory of liability but is based on the
24 inconsistent factual premise that all Defendants had a shared duty of care, such that a breach by
25 one would arguably be a breach by all.
26 The demurrer of Exemplis to the Sixth COA for breach of an implied contract is
27 appropriate. In addition to alleging the existence of an oral contract in its Eighth COA, Plaintiff
28 alleges that there is an implied contract arising from the established vendor-customer relationship}
4
Case No. 20-CV-368229
Order Re: Demurrers and Motion to Strike to the FAC
LEE
and the manner in which the parties conducted business. It cannot be determined from the
pleadings whether Plaintiff is asserting an implied in fact or implied in law contract, or what
specific facts Plaintiff contends such “implied contract” arises, what the implied or express terms
of the contract are, or how those implied terms were breached.
Attomeys’ fees for recovery of fraudulently converted property may lie, or may be
recovered by express contractual provision or statute. However, they are not supported by the
allegations of the Fifth COA. Also punitive damages must be based on allegations of the
specific conduct that purported constitutes malice, oppression or fraud.
III. Conclusion and Order.
10 For the reasons set forth above:
Il 1 The Spot On Defendants’ General and Special Demurrers are sustained as to the First
12 COA (Intentional Misrepresentation) and Second COA (Negligent Misrepresentation);
13 2. The General Demurrers of the Spot-On Defendants’ to the Seventh (Tort of Another) and
14 Ninth COA’s (Res Ipsa Loquitur) are sustained;
15 3. Exemplis’ Demurrer to the Fifth COA (Negligence) and the Eighth COA (Oral Contract)
16 are overruled;
17 4. Ms. Lopez’s Demurrer to the Fifth COA (Negligence); Seventh COA (Tort of Another);
18 and Ninth COA(Negligence -Res Ipsa Loquitur) are sustained, as there are no facts alleged
19 which would form the basis of individual liability against Ms. Lopez;
20 5. The Exemplis Defendants’ Demurrers to the Sixth (Implied Contract), Seventh (Tort of
21 Another) and Ninth (Res Ipsa Loquitur) COAs are sustained.
22 6. Spot On Defendants’ Motion to Strike is granted consistent with the foregoing, without
23 prejudice to Plaintiff asserting those remedies if supported in the pleadings as amended.
24 7. Plaintiff has thirty days leave to amend which is granted with regard to all causes of
25 action and Defendants.
26 IT IS SO ORDERED.
27
Dated: 26 January 2021
28 Hon. Roberta . Hayashi
Judge of the Superior Court
Case No, 20-CV-368229
Order Re: Demurrers and Motion to Strike to the FAC
aor
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA
“eo iS aKey: DOWNTOWN COURTHOUSE
191 NORTH First STREET
& 4.
SAN José, CALIFORNIA 95113
CIVIL DIVISION
JAN 72021
Cle: ihe Court
‘Superior Co: County of Sania Clara
BY. 4 DEPUTY
RE: Pacific Office Designs, Inc vs SPOT ON CONSULTING GROUP et al
Case Number: 20CV368229
PROOF OF SERVICE
Order re Demurrers and Motion to Strike to the first amended complaint was delivered to the parties listed
below the above entitled case as set forth in the sworn declaration below.
If you, a party represented by you, or a witness to be called on behalf of that party need an accommodation under the American with
Disabilities Act, please contact the Court Administrator's office at (408) 882-2700, or use the Court's TDD line (408) 882-2690 or the
Voice/TDD Califomia Relay Service (800) 735-2922.
DECLARATION OF SERVICE BY MAIL: ! declare that | served this notice by enclosing a true copy in a sealed envelope, addressed to
each person whose name is shown below, and by depositing the envelope with postage fully prepaid, in the United States Mail at San Jose,
CA on January 27, 2021, CLERK OF THE COURT, by Maggfe Castellon, Deputy.
ce: Terry John Mollica Mollica Law 560 First street Suite B201 BENICIA CA 94510
Teresa C Chow 11601 Wilshire Blvd Ste 1400 Los Angeles CA 90025-0509
Mark E DiMaria Post Office Box 64704 Los Angeles CA 90064
CW-9027 REV 12/08/16 PROOF OF SERVICE
Preview
{Le 4 JAN-27 2021 Clerk of ie ‘ounty of Santa Clara ‘Supesior Court of BY. Magale Castellon SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA 10 11 PACIFIC OFFICE DESIGNS, INC., Case No. 20-CV-368229 12 Plaintiff, ORDER RE: DEMURRERS AND 13 MOTION TO STRIKE TO THE FIRST 14 VS. AMENDED COMPLAINT 15 Hearing Date: December 17, 2020 Time: 9:00 a.m. 16 SPOT ON CONSULTING GROUP, et al., Dept. 20 (Hayashi for Manoukian) 17 Defendants. Trial Date: None Set 18 19 The following motions came on for hearing before the Honorable Roberta S. Hayashi on 20 December 17, 2020, at 9:00 a.m. in Department 10: (1) the demurrer to the first amended 21 complaint (“FAC”) by defendants Spot On Consulting, Jonathan R. Laddy, and Kelly P. Playle 22 (collectively, the “Spot On Defendants”); (2) the motion to strike portions of the FAC by the 23 Spot On Defendants; and (3) the demurrer to the FAC by defendants Exemplis LLC, Paul 24 DeVries, and Nancy Lopez (collectively, the “Exemplis Defendants”). The matters having been 25 submitted, the Court orders as follows: 26 I. Statement of Facts. 27 Plaintiff Pacific Office Designs, Inc. (“Plaintiff”) filed its initial complaint alleging fraud, 28 breach of contract, unfair trade practices, common counts and negligence on July 9, 2020. 1 Case No. 20-CV-368229 Order Re: Demurrers and Motion to Strike to the FAC Le- Pursuant to the stipulation of September 17, 2020, Plaintiff filed its FAC on October 9, 2020, seeking damages arising from a transfer of funds in or around December 2019, from Plaintiff's bank account by its outside financial services provider, Spot On Consulting, to a fraudulently created bank account as the result of an e-mail generated from Plaintiff's vendor, Exemplis LLC, the resulting data breaches of Exemplis LLC’s data, as well as the disclosure of Plaintiff's banking data by Spot On in executing the fraudulent transfer. On 11/9/2020, the Spot On Defendants demurred to the First Cause of Action (“COA”) of the FAC (Intentional Misrepresentation); the Second COA (Negligent Misrepresentation); the Seventh COA (Tort of Another); and the Ninth COA (Negligence-Res Ipsa Loquitur). 10 On 11/16/2020, the Spot On Defendants moved to strike from the FAC, allegations of 11 punitive or exemplary damages, special damages, and attorneys’ fees (as to the Fifth, Sixth, 12 Seventh, Eighth and Ninth COAs), as well as remedies for equitable relief in those causes of 13 action. 14 On 11/16/2020, the Exemplis Defendants demurred to the Fifth COA (negligence); Sixth 45 COA (breach of implied contract); Seventh COA (Tort of Another); Eighth COA (breach of oral 16 contract); and Ninth COA (Negligence-Res Ipsa Loquitur). 17 Plaintiff opposes the demurrer, and urges the Court to consider Defendants’ failure to 18 cooperate with Plaintiff's investigation or disclose what their internal investigations revealed. 19 Those facts are not alleged in the FAC. 20 IL. Analysis. 21 A. Legal Standard. 22 “Tn reviewing the sufficiency of a complaint against a general demurer, we are guided by 23 long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but 24 not contentions, deductions or conclusions of fact or law. We also consider matters which may 25 be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only 26 the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the 27 complaint; the question of plaintiff's ability to prove these allegations, or the possible difficulty 28 Case No, 20-CV-368229 Order Re: Demurrers and Motion to Strike to the FAC in making such proof does not concem the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214.) “The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. ... [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.) 10 To the extent that Plaintiff relies upon the declarations submitted by their respective 11 counsel, the Court declines to consider them as a demurrer addresses only the well-pleaded facts 12 of the complaint and materials subject to judicial notice. (See Donabedian v. Mercury Ins. Co. 13 (2004) 116 Cal.App.4th 968, 994 [on demurrer, a court cannot consider the substance of 14 declarations].) Allegations of failure to cooperate in the investigation may bolster the alleged 15 fraudulent nature of any failure to disclose the change in banking information, or that there had 16 not been independent verification of the genuineness of the instruction before the transfer of 17 funds, but those facts are not alleged in the FAC. 18 B. Demurrers and Motion to Strike. 19 Plaintiff has alleged that the Exemplis Defendants had a duty to have in place appropriate 20 systems, procedures, and trained personnel that would have required verification before 21 payments are made, identified any data breaches, and promptly notified its customers of the 22 threat. The Court finds that the allegations of the existence of a duty and breach of that duty as 23 to Exemplis are sufficient. Plaintiff alleges that Defendant Nancy Lopez (““Ms. Lopez”), an 24 employee of Exemplis individually owed duties to Plaintiff, but does not plead facts that support 25 that Ms. Lopez has individual liability for negligent (as opposed to fraudulent) acts in the course 26 and scope of her employment for Exemplis. 27 Plaintiff has further alleged that Spot On had a duty to detect that the e-mail was 28 fraudulent, disclose to Plaintiff that its vendor had purported to change its bank account Case No. 20-CV-368229 Order Re: Demurrers and Motion to Strike to the FAC information, verify with the vendor the accuracy of the instruction and inform Plaintiff that it had} not conducted such verification before making the transfer. Plaintiff, has not, however alleged sufficient facts to show that Spot On knew that the instruction for transfer of funds was fraudulent and executed the transfer, or failed to make the disclosures to Plaintiff with the requisite intent to deceive necessary for fraud. Plaintiff has not alleged facts sufficient to support the First COA (intentional misrepresentation), and has not plead with sufficient specificity which statements or omissions to state facts (made by whom, on what date) were made with the requisite fraudulent intent, or which are relied upon to support the claims for negligent misrepresentation (the Second COA). 10 Defendants Spot On and Exemplis correctly contend that “tort of another” is a legal 11 doctrine which results in holding one defendant liable for the fraudulent or negligent conduct of 12 another person, in which the defendant participates — however, it depends on thé existence of the 13 underlying tort and pleading of the specific conduct which triggers that liability for fraud or 14 negligence. It is not an independent theory of liability. 15 “Res ipsa loquitur” is a legal doctrine that applies to show that a duty exists for purposes 16 of supporting a negligence cause of action. Plaintiff argues that it may be alleged as an alternate 17 theory of liability. In this case, the FAC includes a negligence COA against all identified 18 Defendants, which is premised (as are the other causes of action) on factual allegations that the 19 Spot-On Defendants and the Exemplis Defendants each owed separate and independent duties of 20 due care to safeguard the banking information, such that even if an Exemplis employee 21 knowingly or negligently participated in the conversion of funds from Plaintiff, the Spot-On 22 Defendants had a duty to not transfer Plaintifi’s funds without verifying the accuracy of the 23 account data. The Ninth COA is not just an alternative theory of liability but is based on the 24 inconsistent factual premise that all Defendants had a shared duty of care, such that a breach by 25 one would arguably be a breach by all. 26 The demurrer of Exemplis to the Sixth COA for breach of an implied contract is 27 appropriate. In addition to alleging the existence of an oral contract in its Eighth COA, Plaintiff 28 alleges that there is an implied contract arising from the established vendor-customer relationship} 4 Case No. 20-CV-368229 Order Re: Demurrers and Motion to Strike to the FAC LEE and the manner in which the parties conducted business. It cannot be determined from the pleadings whether Plaintiff is asserting an implied in fact or implied in law contract, or what specific facts Plaintiff contends such “implied contract” arises, what the implied or express terms of the contract are, or how those implied terms were breached. Attomeys’ fees for recovery of fraudulently converted property may lie, or may be recovered by express contractual provision or statute. However, they are not supported by the allegations of the Fifth COA. Also punitive damages must be based on allegations of the specific conduct that purported constitutes malice, oppression or fraud. III. Conclusion and Order. 10 For the reasons set forth above: Il 1 The Spot On Defendants’ General and Special Demurrers are sustained as to the First 12 COA (Intentional Misrepresentation) and Second COA (Negligent Misrepresentation); 13 2. The General Demurrers of the Spot-On Defendants’ to the Seventh (Tort of Another) and 14 Ninth COA’s (Res Ipsa Loquitur) are sustained; 15 3. Exemplis’ Demurrer to the Fifth COA (Negligence) and the Eighth COA (Oral Contract) 16 are overruled; 17 4. Ms. Lopez’s Demurrer to the Fifth COA (Negligence); Seventh COA (Tort of Another); 18 and Ninth COA(Negligence -Res Ipsa Loquitur) are sustained, as there are no facts alleged 19 which would form the basis of individual liability against Ms. Lopez; 20 5. The Exemplis Defendants’ Demurrers to the Sixth (Implied Contract), Seventh (Tort of 21 Another) and Ninth (Res Ipsa Loquitur) COAs are sustained. 22 6. Spot On Defendants’ Motion to Strike is granted consistent with the foregoing, without 23 prejudice to Plaintiff asserting those remedies if supported in the pleadings as amended. 24 7. Plaintiff has thirty days leave to amend which is granted with regard to all causes of 25 action and Defendants. 26 IT IS SO ORDERED. 27 Dated: 26 January 2021 28 Hon. Roberta . Hayashi Judge of the Superior Court Case No, 20-CV-368229 Order Re: Demurrers and Motion to Strike to the FAC aor SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA “eo iS aKey: DOWNTOWN COURTHOUSE 191 NORTH First STREET & 4. SAN José, CALIFORNIA 95113 CIVIL DIVISION JAN 72021 Cle: ihe Court ‘Superior Co: County of Sania Clara BY. 4 DEPUTY RE: Pacific Office Designs, Inc vs SPOT ON CONSULTING GROUP et al Case Number: 20CV368229 PROOF OF SERVICE Order re Demurrers and Motion to Strike to the first amended complaint was delivered to the parties listed below the above entitled case as set forth in the sworn declaration below. If you, a party represented by you, or a witness to be called on behalf of that party need an accommodation under the American with Disabilities Act, please contact the Court Administrator's office at (408) 882-2700, or use the Court's TDD line (408) 882-2690 or the Voice/TDD Califomia Relay Service (800) 735-2922. DECLARATION OF SERVICE BY MAIL: ! declare that | served this notice by enclosing a true copy in a sealed envelope, addressed to each person whose name is shown below, and by depositing the envelope with postage fully prepaid, in the United States Mail at San Jose, CA on January 27, 2021, CLERK OF THE COURT, by Maggfe Castellon, Deputy. ce: Terry John Mollica Mollica Law 560 First street Suite B201 BENICIA CA 94510 Teresa C Chow 11601 Wilshire Blvd Ste 1400 Los Angeles CA 90025-0509 Mark E DiMaria Post Office Box 64704 Los Angeles CA 90064 CW-9027 REV 12/08/16 PROOF OF SERVICE