Moncada v. West Coast Quartz Corp. (221 Cal. App. 4th 768, 2013)

Opinion

RUSHING, P. J.

This case involves a dispute between former employees' of a company and the company’s sole shareholders over a promised retirement bonus that was never paid.

Plaintiffs, Irma Moncada, Randy Morris and Everardo Serrano, worked for West Coast Quartz Corporation (West Coast). Defendants Paul Maloney and Nancy Tkalcevic were the owners and sole shareholders of West Coast. Defendants were preparing to sell West Coast, and wanted plaintiffs to continue.to work for the company until the sale was complete. To accomplish that end, defendants repeatedly promised plaintiffs that if they continued to work for West Coast until the sale, they would be paid a bonus from the sale proceeds that would be sufficient for them to retire. Plaintiffs remained at West Coast for five years following defendants’ initial promise of the retirement bonus, rejecting job offers from other companies, and opportunities to move out of the area. When defendants sold West Coast in 2009 for approximately $30 million, they did not pay plaintiffs the promised bonus.

Plaintiffs filed suit against defendants for fraud and breach of contract, among other causes of action. Following the trial court sustaining defendants’ demurrer to their first amended complaint with leave to amend, plaintiffs opted to stand on the pleading. As a result, the trial court dismissed the first amended complaint and entered judgment in favor of defendants. Plaintiffs appeal the judgment.

Statement of the Facts and Case

In June 2004, the plaintiffs, Ms. Moncada, Mr. Morris and Mr. Serrano, were all key long-term employees of defendant, West Coast. At the time, the sole shareholders of West Coast were defendants Mr. Maloney, the president and chief financial officer, and Ms. Tkalcevic, the chief executive officer. On June 22, 2004, Mr. Maloney and Ms. Tkalcevic held a meeting with plaintiffs and other key long-term employees at Ms. Tkalcevic’s home. During the meeting, Ms. Tkalcevic and Mr. Maloney told those present that they were planning to sell West Coast, and the process would take between two and 10 years to complete. Ms. Tkalcevic and Mr. Maloney also said that they did not want any of the key employees of the company to quit during the sale process, and represented to those present that they would receive stock or stock options in West Coast so that when the company actually sold, they would be rewarded for their loyalty.

Following the meeting in June, seeing no action from defendants regarding the grant of stock or stock options in West Coast, some managers and key employees began to leave the company. On August 27, 2004, Mr. Maloney told Ms. Moncada that he and Ms. Tkalcevic did not want to reward disloyal employees, and planned to change the way they would reward employees who stayed with the company until the completed sale. Mr. Maloney told Ms. Moncada that he and Ms. Tkalcevic would pay the employees who stayed with the company a bonus when the company sold that would be enough for the employees to retire.

Following Mr. Maloney’s first statement of his promise to pay plaintiffs a bonus upon the sale of the company in August 2004, he repeated the promise numerous times whenever an employee expressed doubt or a wish to leave the company. On September 5, 2005, Mr. Maloney told Ms. Moncada that he was increasing her pay and reiterated that she would receive a bonus of enough money to retire when the company was sold. On November 20, 2005, when Ms. Moncada said she wanted to leave the company, Mr. Maloney and Ms. Tkalcevic reiterated their promise that when the company was sold, they would pay her a bonus that would be sufficient to retire. Ms. Moncada continued to work for the company. On August 15, 2006, Mr. Maloney told Ms. Moncada that he and Ms. Tkalcevic were consulting with financial advisors to determine an amount of the bonus for the employees when the company sold that would minimize tax liability.

With regard to plaintiff Mr. Serrano, Mr. Maloney reiterated the same specific promise that if Mr. Serrano continued to work at West Coast until the company’s sale, he would be paid a bonus in an amount sufficient for him to retire. Mr. Maloney repeated the promise to Mr. Serrano on February 7, 2005, January 26, 2006, and May 17, 2006, when Mr. Maloney increased Mr. Serrano’s pay and gave him an update on the progress of the sale, saying, “[Y]ou guys will get the bonus, enough to retire.” On June 3, 2006, Mr. Serrano told Mr. Maloney he was considering moving to Bakersfield. In response, Mr. Maloney reiterated the promise of the bonus if he stayed with West Coast until the sale. Mr. Maloney repeated the terms of the promise on August 25, 2006, and April 14, 2007.

Mr. Maloney reiterated the retirement bonus many times to plaintiff Mr. Morris between 2004 and 2009. Mr. Morris turned down nine offers of employment from other companies during that period in reliance on defendants’ promise of a bonus at file time of West Coast’s sale.

In November 2009, plaintiffs learned that defendants had sold and transferred all of their shares in West Coast for the amount of $30.21 million. Plaintiffs never received the bonus for retirement that defendants promised to them.

In April 2010, plaintiffs filed their original complaint against defendants asserting causes of action for misrepresentation-concealment, breach of contract, promissory estoppel, intentional infliction of emotional distress, estoppel in pais, and violation of Business and Professions Code section 17200.

Defendants demurred to the original complaint and on September 7, 2010, the trial court sustained the demurrer with leave to amend, except as to the cause of action for estoppel in pais, to which the court sustained the demurrer without leave to amend.

Plaintiffs filed a first amended complaint on October 4, 2010, that alleged causes of action for misrepresentation-concealment, breach of contract and implied covenants, promissory estoppel, intentional infliction of emotional distress, and negligent misrepresentation.

Defendants demurred to the first amended complaint. On February 9, 2011, the court sustained the demurrer with leave to amend, except as to the cause of action for intentional infliction of emotional distress, to which the court sustained the demurrer without leave to amend. Plaintiffs did not file a second amended complaint, and instead, chose to stand on the first amended complaint. As a result, the trial court dismissed the first amended complaint pursuant to Code of Civil Procedure section 581, subdivision (f)(2), and entered a judgment in favor of defendants. Plaintiffs filed a notice of appeal of the judgment.

Discussion

Plaintiffs assert on appeal that the trial court erred in sustaining the demurrer to the first amended complaint with leave to amend, and dismissing the action with prejudice. In addition, plaintiffs argue the court erred in sustaining the demurrer to the action for estoppel in pais alleged in the original complaint, without leave to amend.

This appeal involves review of two separate orders. The first is the trial court’s order of September 7, 2010, wherein it sustained defendants’ demurrer to plaintiffs’ cause of action for estoppel in pais without leave to amend. We review this order as an “intermediate ruling . . . which involves the merits or necessarily affects the judgment or order appealed from . . . .” (Code Civ. Proc., § 906.)

The second order was on February 9, 2011, when the trial court sustained defendants’ demurrer to the first amended complaint with leave to amend. As this court stated in County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292 [40 Cal.Rptr.3d 313], “[w]hen a demurrer is sustained with leave to amend, and the plaintiff chooses not to amend but to stand on the complaint, an appeal from the ensuing dismissal order may challenge the validity of the intermediate ruling sustaining the demurrer. [Citation.] On the other hand, where the plaintiff chooses to amend, any error in the sustaining of the demurrer is ordinarily waived.” (Id. at p. 312.)

The issue raised in this appeal is entirely a matter of law and we hold that the first amended complaint states a cause of action. A demurrer is properly sustained when the complaint “does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) “On appeal from a dismissal following the sustaining of a demurrer, this court reviews the complaint de novo to determine whether it alleges facts stating a cause of action under any legal theory. [Citation.] . . . [f] Because the function of a demurrer is not to test the truth or accuracy of the facts alleged in the complaint, we assume the truth of all properly pleaded factual allegations. [Citation.] Whether the plaintiff will be able to prove these allegations is not relevant; our focus is on the legal sufficiency of the complaint.” (Los Altos Golf & Country Club v. County of Santa Clara (2008) 165 Cal.App.4th 198, 203 [80 Cal.Rptr.3d 340].) “Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].)

Misrepresentation-concealment

Plaintiffs assert the first amended complaint alleges facts sufficient to state a cause of action for misrepresentation-concealment. Plaintiffs allege that defendants concealed the fact that they wanted plaintiffs to remain employed at West Coast to make the company more attractive to potential buyers, and only intended to give plaintiffs a nominal or no bonus for remaining employed.

Concealment is a species of fraud or deceit. (See Civ. Code, §§ 1710, subd. 3, 1572, subd. 3; Lovejoy v. AT&T Corp. (2004) 119 Cal.App.4th 151, 158 [14 Cal.Rptr.3d 117] (Lovejoy).) “[T]he elements of an action for fraud and deceit based on concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613 [7 Cal.Rptr.2d 859]; see Lovejoy, supra, 119 Cal.App.4th at pp. 157-158.)

“Promissory fraud,” as is alleged in this case, is a subspecies of the action for fraud and deceit. “A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citations]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 [49 Cal.Rptr.2d 377, 909 P.2d 981].)

Every element of a fraud cause of action must be specifically pleaded. (Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807 [52 Cal.Rptr.2d 650]; Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157 [2 Cal.Rptr.2d 861].) This pleading requirement of specificity applies not only to the alleged misrepresentation, but also to the elements of causation and damage. As this court stated in Service By Medallion, Inc., “In order to recover for fraud, as in any other tort, the plaintiff must plead and prove the ‘detriment proximately caused’ by the defendant’s tortious conduct. (Civ. Code, § 3333.) Deception without resulting loss is not actionable fraud. [Citation.] ‘Whatever form it takes, the injury or damage must not only be distinctly alleged but its causal connection with the reliance on the representations must be shown.’ ” (Service by Medallion, Inc. v. Clorox Co., supra, 44 Cal.App.4th at p. 1818; see Cooper v. Equity Gen. Insurance (1990) 219 Cal.App.3d 1252, 1262 [268 Cal.Rptr. 692] [“in California, every element of a cause of action for fraud must be alleged both factually and specifically, and the policy of liberal construction of pleadings will not be invoked to sustain a defective complaint”].)

The allegations in the first amended complaint of plaintiffs’ damages as a result of defendants’ fraud include the following: “[a]s a direct and proximate result of the concealment, failure to inform and representations of Defendants, Plaintiffs have: [][] A. Been damaged in an amount equal to the monies which would have allowed them to retire and stop working when West Coast was sold; [j[] B. Sustained damages in the form of missed opportunities for other employment and residence opportunities; [