Opinion
G057206
09-25-2019
WORKSEARCH.COM, INC., et al., Plaintiffs and Appellants, v. MORE MEDIA GROUP, INC., et al., Defendants and Respondents.
Law Office of William B. Hanley and William B. Hanley for Plaintiffs and Appellants. Green and Todd A. Green for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2018-00988703) OPINION Appeal from a judgment of the Superior Court of Orange County, David R. Chaffee, Judge. Affirmed. Law Office of William B. Hanley and William B. Hanley for Plaintiffs and Appellants. Green and Todd A. Green for Defendants and Respondents.
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Plaintiffs Kenny Berger and his company, Worksearch.com, Inc. (collectively, plaintiffs), hired a consultant to help in selecting a Web site developer to complete a specific job on deadline. Plaintiffs sued the consultant for fraudulent concealment when they later learned the Web site developer they hired on the consultant's recommendation paid a 50 percent "kickback" of the Web site development contract. Plaintiffs alleged the consultant's secret deal with the Web site developer for payment of a kickback in exchange for the job referral unjustifiably inflated the Web site development contract price by 300 percent.
The trial court sustained the consultant's demurrer to the second amended complaint and denied leave to amend, finding the pleading insufficient as to three elements of the fraudulent concealment claim. We affirm.
I
BACKGROUND
A. Factual Allegations
Because this is an appeal of a judgment of dismissal entered after the sustaining of a general demurrer, "we accept as true all the material allegations of the complaint." (Shoemaker v. Myers (1990) 52 Cal.3d 1, 7.) The operative second amended complaint discloses the following facts.
Plaintiffs wanted to find a Web site developer to build an "[e]mployment posting" Web site where employers and potential employees could find each other anonymously. Sometime around January 2015, plaintiffs enlisted the help of defendants William Gantz and his company, More Media Group, (collectively, MMG) in finding a reliable Web site developer to build the Web site in time to launch it at a trade conference in July 2015. Plaintiffs told MMG they had a $260,000 budget for the development and initial marketing of the Web site they called "Worksearch.com." MMG told plaintiffs its consulting fee was $5,000 per month.
In January 2015, plaintiffs and MMG met in Atlanta, Georgia with a software development company called Debello and its principal, Robert Emmanuel (collectively, Debello). MMG had recommended Debello for the initial job of analyzing some early Web site design work performed by another company. Debello looked at the other company's work, reported to plaintiffs the work was "substandard," and offered to build the Worksearch.com Web site by the July 2015 deadline for $70,000.
One week later, Debello submitted a written proposal to plaintiffs "to complete the build-out of the website" for $220,000. When plaintiffs asked Debello why the contract price increased from $70,000 to $220,000, Debello explained it would "have to hire top quality subcontractors to be able to complete the task and be ready for the conference in July, 2015." In other words, Debello told plaintiffs the dramatic price increase "was the result of an accelerated build rate" needed to meet plaintiffs' deadline.
After receiving Debello's proposal, plaintiffs "consulted with [MMG] who highly recommended that Plaintiffs hire [Debello] if Plaintiffs wanted to make the July, 2015 . . . conference deadline." In reliance on MMG's "recommendation" that hiring Debello was "the only way to have the website completed by July, 2015," plaintiffs signed a contract with Debello on February 1, 2015, agreeing to pay Debello $220,883 "to design, develop and market [the] worksearch.com website[.]"
In April 2015, Plaintiffs entered into a written contract with MMG for the latter to "provide consulting services . . . in connection with" the Debello contract. Unbeknown to plaintiffs, MMG and Debello had a secret compensation agreement that predated both plaintiffs' Web site development contract with Debello and plaintiffs' consulting agreement with MMG. "Long before," Debello had orally agreed to pay MMG a "referral fee/kickback of fifty percent" of any fixed price contract for web design work Debello got as a result of MMG's referral (the referral fee agreement). At MMG's insistence, MMG and Debello concealed this referral fee agreement from plaintiffs.
MMG did not disclose to plaintiffs that Debello raised its contract price from $70,000 to $220,833 as "a cover for the fifty percent referral fee/kickback" to MMG, rather than because the "expedited time frame" drove up labor costs, as Debello claimed.
Plaintiffs paid MMG over $121,000 "at the rate of $5,000 per month" pursuant to their consulting agreement. Plaintiffs relied on MMG's "representation that the total compensation to be paid [MMG] for consulting services was $5,000 per month[.]" Plaintiffs would not have entered into either its consulting agreement with MMG or its Web site development agreement with Debello "[h]ad Plaintiffs known of the fifty percent referral fee/kickback" which "artificially increase[ed] the costs of the website build-out . . . and exceeded Plaintiffs' budget."
In December 2016, plaintiffs filed a lawsuit against Debello in regard to the work performed. In the course of that litigation, plaintiffs learned about the referral fee agreement between MMG and Debello, as well as MMG's similar agreement with US Business Incubator, Inc. (USBI) another company plaintiffs hired at MMG's recommendation, resulting in an additional $6,000 referral fee to MMG.
Plaintiffs lost their case against Debello and thereafter filed this action against MMG stating a single claim of fraudulent nondisclosure. Plaintiffs claim MMG's "misrepresentations and concealment" caused them over $450,000 in damages, consisting of the $220,883 payment to Debello, the $6,000 referral fee MMG received related to USBI's work, the $121,000 plaintiffs paid MMG under the consulting agreement, and the $290,000 plaintiffs incurred in attorney fees and costs in their unsuccessful lawsuit against Debello.
B. Ruling on Demurrer
MMG successfully demurred to plaintiffs' original and first amended complaints, with the trial court twice granting plaintiffs leave to amend. The trial court sustained MMG's demurrer to the second amended complaint without leave to amend, concluding plaintiffs' "third iteration" of the complaint proves they "simply cannot" "articulate a legally cognizable theory of liability against the defendants[.]" The trial court ruled plaintiffs failed to plead facts sufficient to establish three of the elements of a cause of action for fraudulent concealment: "the duty to disclose, detrimental reliance, and damages."
II
DISCUSSION
A. Standard of Review
In reviewing a judgment of dismissal following the sustaining of a general demurrer without leave to amend, "we examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory[.]" (McCall v. PacifiCare of California, Inc. (2001) 25 Cal.4th 412, 415.) "For that purpose we accept as true the properly pleaded material factual allegations of the complaint, together with facts that may properly be judicially noticed. [Citation.]" (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 335 (LiMandri).) We review the decision to deny leave to amend for abuse of discretion. (Aguilera v. Heiman (2009) 174 Cal.App.4th 590, 595.)
B. The Trial Court Properly Sustained MMG's Demurrer Without Leave to Amend
"'The elements of a cause of 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.' [Citation.]" (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868 (Blickman Turkus).)
The trial court found the allegations of the complaint insufficient on three of these elements: duty to disclose, detrimental reliance, and damages. The duty element is, of course, foundational to the cause of action for fraudulent concealment: Failing to disclose material facts is actionable only if there is a duty to disclose those facts. (LiMandri, supra, 52 Cal.App.4th at p. 337.)
Plaintiffs devote much of their opening brief to arguing the trial court erred in concluding MMG had no duty to disclose the referral fee it received from Debello. The argument is unhelpful because it consists mostly of multiple quotations from case law, each stating differently the circumstances in which a duty to disclose can arise, without applying the law to the facts here. In place of legal analysis, plaintiffs simply assert MMG had a duty to disclose that arose, variously, from the "circumstances," from the contractual relationship between plaintiffs and MMG, and from the fact the undisclosed referral fee was "material." Ultimate facts, however, are not enough to support a fraud claim; every element of fraud must be pleaded with specificity. (Lesperance. v. North American Aviation, Inc. (1963) 217 Cal.App.2d 336, 344.) Plaintiffs fail to explain how specific allegations add up to a duty to disclose on MMG's part.
For example, plaintiffs cite the following four-part test from Blickman Turkus, supra, 162 Cal.App.4th 858: "'A duty to speak may arise in four ways: it may be directly imposed by statute or other prescriptive law; it may be voluntarily assumed by contractual undertaking; it may arise as an incident of a relationship between the defendant and the plaintiff; and it may arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent.' ([Id., at p. 867].)" Plaintiffs cite a different test on the next page of the brief: "A duty to disclose arises when (1) the defendant had exclusive knowledge of material facts not known to the plaintiff; and (2) when the defendant actively conceals a material facts from the plaintiff or (3) when the defendant makes partial (i.e. incomplete representations) while suppressing material portions (Bank of America Corp. v. Superior Court (2011) 198 Cal.App.4th 862, 870-871)." Elsewhere, plaintiffs cite yet another test: "[A]ctive concealment exists when a party '[w]hile under no duty to speak nevertheless does so, but does not speak honestly or makes misleading statements or suppresses facts which materially qualify those stated' [(Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 294.)]."
For example, plaintiffs make the following bare assertions in their argument on duty to disclose: "Defendants, under the circumstances . . . had a duty to speak." "The direct dealings between Plaintiffs, Defendants and third part[ies] hired to design and build the website gave rise to the duty to disclose the secret kickback/referral fee." MMG had a duty to disclose because "the secret agreement artificially increased the contract [sic] price to build the website by 300 percent [sic] solely for the purpose of paying the secret referral fee." "What [MMG] did not disclose and had a duty to disclose and intentional[ly] concealed from plaintiffs was the fact that [MMG] had secretly entered into an agreement with [Debello] to get a 'kickback' from [Debello] of a percentage of the money being paid by Plaintiffs to [Debello]."
Fortunately, we need not search through the complaint for allegations supporting a duty to disclose because the pleading's deficiencies as to two other elements of the fraudulent concealment claim are dispositive. We agree with the trial court: The complaint fails to allege sufficient facts to establish the elements of detrimental reliance and damages.
The gravamen of the complaint is that MMG committed fraud by concealing from plaintiffs the hefty referral fee MMG received from Debello. Plaintiffs alleged the secret referral fee was "material" because it "artificially inflated" the contract price 300 percent and caused a budget overrun. Plaintiffs further alleged they would not have entered into either the consulting agreement or the web design contract had they known of this kickback agreement.
Crucially, however, plaintiffs do not allege they relied on MMG for any advice about the price of the web design contract. Plaintiffs do not allege MMG told them the contract price Debello gave them was fair or the projected labor costs stated in the bid were accurate. Nor do plaintiffs allege MMG advised them the contract price was a good deal and they had no need to "shop around" for a better price. Instead, plaintiffs allege only that MMG recommended Debello for the job because hiring Debello was "the only way to have the website completed by July, 2015." More to the point, plaintiffs do not allege they gave any thought to whether MMG might get a referral fee from Debello. Lacking these or similar specific allegations, the complaint fails to state sufficient facts showing plaintiffs relied on MMG's silence about the referral fee, with its implication MMG would receive no referral fee from Debello, in deciding to sign either their contract with Debello or their consulting contract with MMG.
MMG's consulting agreement with plaintiffs, attached as an exhibit to the complaint, sheds no light on the nature of the relationship between Plaintiffs and Defendants, stating only the following generic description: "The Company hereby agrees to retain the services of the Consultant to advise the Company and to perform certain consulting services in the area of Consultant's expertise as represented to Company by Consultant." --------
Likewise, even if plaintiffs had alleged reliance, they failed to allege facts showing their reliance caused them harm. We begin by noting, generally, the complaint fails to state facts showing it was MMG's concealment of the referral fee that caused plaintiffs' alleged damages, rather than the simple fact Debello tripled its bid price. After all, would plaintiffs have suffered no damages had Debello overcharged plaintiffs on the design contract but greedily kept all the money itself? As the trial court observed in the minute order: "[W]hat Debello did with its payment from plaintiffs was really of no concern to plaintiffs."
As for the specific damages plaintiffs alleged in the complaint, none constituted legally recognizable damages caused by MMG's alleged fraudulent concealment of the referral fee. First, plaintiffs claimed as damages the entire $220,883 price of their web design contract with Debello. The minute order aptly addressed the illogic of this claim: "[E]ven assuming plaintiffs would have elected not to hire Debello and US Business Incubators had they known about the referral fees - what is the damage suffered? A jury [in plaintiffs' prior lawsuit against Debello] has already concluded that Debello did good work on plaintiffs' Web site, and if not Debello then plaintiffs would have had to hire somebody else to do the same work in the same expedited fashion (and presumably for near the same cost, if not more). Plaintiffs do not allege the existence of another website designer ready, willing and able to step in and complete the project in the same time frame with the same (or better) results."
As for plaintiffs' damage claim for the substantial litigation costs they incurred in their unsuccessful lawsuit against Debello, the complaint failed to explain the nature of that earlier lawsuit or its connection to the undisclosed referral fee MMG received. Moreover, plaintiffs also failed to show how they were damaged by the referral fees MMG received from Debello and USBI, or by plaintiffs' payment to MMG of the fees MMG earned for the services it performed under the consulting contract.
In conclusion, we conclude plaintiffs insufficiently pleaded the elements of detrimental reliance and damages in their claim of fraudulent concealment. Consequently, the trial court properly sustained the demurrer to the second amended complaint. Moreover, plaintiffs made no showing in the trial court or on appeal that they could amend the complaint to survive another demurrer. For that reason, the court acted within its discretion in denying plaintiffs leave to amend.
III
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
ARONSON, J. WE CONCUR: MOORE, ACTING P. J. THOMPSON, J.