Opinion
B313292 B314394
08-22-2022
ISLAND ENTERPRISES, INC., et al., Plaintiffs and Appellants, v. CATALINA COASTAL TOURS, LLC, et al., Defendants and Respondents. ISLAND ENTERPRISES, INC., et al., Plaintiffs and Appellants, v. MNSS CORPORATION, Defendant and Respondent.
Jerome D. Stark for Plaintiffs and Appellants Island Enterprises, Inc. and Island Navigation Company, Inc. (B313292 and B314394). William C. Kersten for Defendants and Respondents Catalina Coastal Tours, LLC, and Catalina Coastal Tours and Fishing, LLC, (B313292) and Defendant and Respondent MNSS Corporation (B314394).
NOT TO BE PUBLISHED
APPEAL from judgments of the Superior Court of Los Angeles County, No. 20LBCV00291 Michael P. Vicencia, Judge. Affirmed.
Jerome D. Stark for Plaintiffs and Appellants Island Enterprises, Inc. and Island Navigation Company, Inc. (B313292 and B314394).
William C. Kersten for Defendants and Respondents Catalina Coastal Tours, LLC, and Catalina Coastal Tours and Fishing, LLC, (B313292) and Defendant and Respondent MNSS Corporation (B314394).
ROTHSCHILD, P. J.
Island Enterprises, Inc., and Island Navigation Company, Inc. (collectively, the Island plaintiffs), sued Catalina Coastal Tours, LLC, Catalina Coastal Tours and Fishing, LLC (collectively, the Catalina defendants), and MNSS Corporation (MNSS), alleging causes of action for fraud and interference with prospective economic relations. The court sustained demurrers by the Catalina defendants and MNSS and entered judgments of dismissal in their favor. The Island plaintiffs appealed. We affirm.
The Island plaintiffs also asserted a cause of action against the City of Avalon and certain individuals for violating the anti-discrimination provisions of a statute granting to the City of Avalon the state's right, title, and interest in "the tide lands, submerged lands and filled tide lands lying within the corporate limits of the City of Avalon." (Stats. 1943, ch. 303, § 1, pp. 1294-1295.) This cause of action is not a subject of the instant appeals and the City is not a party to the appeals.
FACTUAL AND PROCEDURAL SUMMARY
A. Background Allegations
The Island plaintiffs have had a 40-year "ongoing business relationship" with the City of Avalon (the City). Among other business operations, the Island plaintiffs owned and operated a "harbor float"-a floating structure attached to the end of the Pleasure Pier in Avalon Harbor and moored by anchors to the harbor sea floor. The harbor float is 80 feet long and 21 feet wide. The Island plaintiffs used the float to conduct "various tours and business operations."
The Catalina defendants engage in charter fishing and tour businesses in Catalina and have had "an ongoing highly beneficial business relationship" with the City. This relationship includes the City's permission for the Catalina defendants to operate a shore boat service from 2017 to 2022.
MNSS is a corporation affiliated with, and an agent of, the Catalina defendants. MNSS and the Catalina defendants, together with the City and others, are also coconspirators with respect to the allegedly wrongful actions described in the first amended complaint.
For several years prior to 2017, the City charged the Island plaintiffs $15,000 per year for the right to connect its harbor float to the Pleasure Pier. In December 2017, the City informed the Island plaintiffs that it was increasing the annual fee to $30,300. The City knew that the Island plaintiffs could not afford that increase and raised the fee "to put [the Island] [p]laintiffs out of business."
After the Island plaintiffs refused to pay the increased fee, the City refused to allow the Island plaintiffs to use the harbor float in Avalon Harbor.
In December 2018, the City issued a request for proposals (RFP) for a contract for a new "Pier End-Float." According to the RFP, the pier end-float shall be no more than 80 feet long and 20 feet wide-one foot narrower than the Island plaintiffs' harbor float. The City knew that the Island plaintiff's harbor float was 21 feet wide, and the City drafted the RFP with the narrower width requirement to preclude the Island plaintiffs from submitting a bid in response to the RFP.
The RFP, which is attached to and incorporated into the first amended complaint, states: "The City reserves the right to waive any and all requirements for this proposal process and/or accept or reject any or all proposals." The RFP further provides that the City "reserves the right to waive any irregularities and technicalities" and to "accept proposals which deviate from the RFP."
On April 2, 2019, Avalon awarded the pier end-float contract to the Catalina defendants. In making the award, the City "[w]aive[d] all irregularities" and provided the Catalina defendants with seven years of "free rent."
After the City awarded the Pleasure Pier end-float contract to the Catalina defendants, the Island plaintiffs towed the harbor float to a location in Long Beach for storage.
In July 2019, the harbor float had a fair market value of $850,000 and a replacement cost value of approximately $1,000,000.
On July 24, 2019, the Island plaintiffs sold the harbor float to MNSS for $150,000. The bill of sale for the harbor float states that it "shall inure to the benefit of [MNSS], its successors and assigns." The sale included "all requisite and related mooring hardware necessary for mooring in Avalon."
During the negotiation and sale of the harbor float, neither MNSS nor any other defendant disclosed to the Island plaintiffs that MNSS was purchasing the harbor float for the purposes of allowing the Catalina defendants to satisfy the terms of the pier end-float contract, to return the harbor float to Avalon Harbor and attach it to the Pleasure Pier, and to use the harbor float to operate the Catalina defendants' fishing and tour businesses. Nor did the defendants disclose to the Island plaintiffs that the City would allow the Catalina defendants to use the harbor float to satisfy the requirements of the RFP or that the Catalina defendants would permit the City to use the harbor float in Avalon Harbor.
On May 25, 2020, the Catalina defendants and MNSS towed the harbor float to Avalon Harbor and attached it to the end of the Pleasure Pier. The Catalina defendants have thereafter used the harbor float to operate their various businesses, including fishing and tour services.
B. Causes of Action for Fraud and Deceit
In its second cause of action for fraud and deceit by intentional misrepresentation, the Island plaintiffs incorporate the allegations summarized above and further allege that, in negotiating the purchase of the harbor float, none of the defendants "ever disclosed" to the Island plaintiffs that MNSS and the Catalina defendants were purchasing the harbor float for the purpose of towing it back to Avalon Harbor and attaching it to the Pleasure Pier.
At all times, the Island plaintiffs "were ignorant of the falsity of the representations" and "believed them to be true." The Island plaintiffs relied on the Catalina defendants' false representations and would not have sold the harbor float to MNSS if they had "known the actual facts." As a result, the Island plaintiffs suffered damages, "including the sum of approximately $850,000.00 as a result of selling the Harbor Float to . . . MNSS."
In the third cause of action for fraud and deceit by suppression of fact, the Island plaintiffs alleged that the Catalina defendants "suppressed" the facts that the City would permit the Catalina defendants to use the harbor float to satisfy the RFP's requirements and to allow the return of the harbor float to Avalon Harbor even though the harbor float is one foot wider than the maximum width specified in the RFP. The Catalina defendants "were bound to disclose the suppressed facts," but did not do so. The Catalina defendants suppressed these facts with the intent to induce the Island plaintiffs to sell the harbor float to MNSS at an approximately 85 percent "discount." The Island plaintiffs were ignorant of the suppressed facts and would not have sold the harbor float to the Catalina defendants at an 85 percent discount if the suppressed facts had been disclosed.
C. Interference with Prospective Economic Relations
In their fourth and fifth causes of action, the Island plaintiffs assert causes of action for intentional and negligent interference with prospective economic relations. They allege that "they were in an economic relationship" with the City by virtue of "operating their businesses in Avalon Harbor in and around the Harbor Float." The Catalina defendants and MNSS are direct competitors of the Island plaintiffs and knew of this "ongoing business relationship."
MNSS and the Catalina defendants engaged in "wrongful conduct" by "knowingly and willfully conspiring and agreeing with [the City] to ensure [the Island] [p]laintiffs would be prohibited from bidding on the . . . RFP, and, in turn, that the [Island] [p]laintiffs would sell the Harbor Float to . . . MNSS [and the Catalina defendants] at an approximately [85 percent] discount." By engaging in this conduct, the defendants intended to disrupt, and did disrupt, the relationship between the City and the Island plaintiffs, including the Island plaintiffs' business operations on the harbor float.
The negligent interference cause of action incorporates the foregoing facts, and adds that the defendants "knew or should have known" of the Island plaintiffs ongoing business relationship with the City, the defendants "knew or should have known" that their conduct would disrupt that relationship if they failed to act with reasonable care, and that the defendants, by engaging in the conduct described above, "failed to act with reasonable care."
D. The Demurrers and Judgments
On November 12, 2020, MNSS and the Catalina defendants filed separate demurrers to the first amended complaint on the ground that the pleading failed to state facts sufficient to constitute a cause of action. They also filed a motion to strike portions of the pleading.
On February 4, 2021, the court sustained the Catalina defendants' demurrers without leave to amend, and ruled that their motions to strike were moot. The court sustained MNSS's demurrer with leave to amend as to the fraud and deceit causes of action, and sustained the demurrer without leave to amend as to the interference with prospective economic relations causes of action.
The Island plaintiffs did not file a second amended complaint.
On March 11, 2021, the court entered a judgment of dismissal in favor of the Catalina defendants. The Island plaintiffs timely appealed on April 30, 2021.
On June 24, 2021, the court entered judgment of dismissal in favor of MNSS. The Island plaintiffs timely appealed on August 4, 2021.
We consolidated the appeals for purposes of argument and decision.
DISCUSSION
A. Standard of Review
We review an order sustaining a demurrer de novo and" 'exercise our independent judgment about whether the complaint states a cause of action as a matter of law.'" (Performance Plastering v. Richmond American Homes of California, Inc. (2007) 153 Cal.App.4th 659, 665.) In analyzing the complaint, we assume the truth of the well-pleaded material facts, but not contentions, deductions or conclusions of fact or law. (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010.) We may "rely on and accept as true the contents of the exhibits" attached to and incorporated into the complaint. (Barnett v. Fireman's Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.)
B. Fraud
The Island plaintiffs allege causes of action for fraud by "intentional misrepresentations," as asserted in the second cause of action, and by "failures to disclose and suppressions of facts," as asserted in the third cause of action.
The elements of fraud, generally, are:" '(1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage.'" (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239; Hoffman v. 162 North Wolfe LLC (2014) 228 Cal.App.4th 1178, 1185-1186.) The Island plaintiffs do not allege or identify in their appellate briefs any affirmative false representation of fact made by any defendant. If they have stated a cause of action for fraud, it is by virtue of allegations that the defendants suppressed or failed to disclose facts. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 346-347 (Goodman).)
When the alleged fraud is based upon suppression or nondisclosure of material facts, the plaintiff must allege that the defendant had a duty to disclose the fact. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868 (Blickman); Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613; see Civ. Code, § 1710, subd. (3).) A duty to disclose facts may arise when the defendant has a fiduciary or confidential relationship with the plaintiff (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 337) or voluntarily undertakes to disclose the undisclosed information (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282, 292; De Spirito v. Andrews (1957) 151 Cal.App.2d 126, 130). Statutes may also impose a duty of disclosure in certain transactions. (See, e.g., Civ. Code, §§ 1102 et seq. [seller of single-family residential real property must disclose certain matter]; Ins. Code, § 332 [parties to an insurance contract must disclose all facts that are material to the contract "and which the other has not the means of ascertaining"].) The Island plaintiffs do not allege any of these bases for a duty to disclose.
Generally, in the absence of a fiduciary or confidential relationship, a voluntary undertaking to make disclosures, or a statutory obligation, a party to a transaction does not have a duty to disclose material facts to the adverse party. (La Jolla Village Homeowners' Assn. v. Superior Court (1989) 212 Cal.App.3d 1131, 1151, disapproved on another point in Jimenez v. Superior Court (2002) 29 Cal.4th 473, 481, fn. 1; 37 C.J.S. (2022) Fraud, § 30.) Thus, ordinarily, one party to a transaction "may reasonably expect the [other party] to make his own investigation, draw his own conclusions and protect himself; and if the [other party] is indolent, inexperienced or ignorant, or his judgment is bad, or he does not have access to adequate information, the [first party] is under no obligation to make good [the other party's] deficiencies." (Rest.2d Torts (1977) § 551, com. k.)
In Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285 (Warner), our Supreme Court explained that a transacting party may have a duty to disclose material facts "in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render [the] 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." (Id. at p. 294, fns. omitted; accord, Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1130.) Courts of Appeal have also stated that such a duty may "arise as a result of other conduct by the defendant that makes it wrongful for him to remain silent." (Blickman, supra, 162 Cal.App.4th at p. 867; accord, SCC Acquisitions, Inc. v. Central Pacific Bank (2012) 207 Cal.App.4th 859, 864.)
This vague and seemingly tautological basis, originating in Blickman and without citation to authority (Blickman, supra, 162 Cal.App.4th at p. 867), has not been adopted by our Supreme Court.
Here, the Island plaintiffs do not identify any representations by a defendant that would have been materially qualified by the disclosure of the alleged suppressed facts. Nor do they allege any representation that was rendered misleading by the failure to disclose facts. Thus, the first basis for a duty of disclosure described by the Warner court does not apply.
The second basis described in Warner is that "the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff." (Warner, supra, 2 Cal.3d at p. 294, see also Goodman, supra, 18 Cal.3d at p. 347; BAJI No. 12.36.) The Island plaintiffs could have reasonably discovered the defendants' undisclosed intent to return the harbor float to Avalon Harbor and the City's permission to let the Catalina defendants use it to satisfy the pier end-float contract. They could have conditioned any negotiations for the purchase of the harbor float upon MNSS's disclosure of its intended use of the item; that is, the Island plaintiffs needed only to ask MNSS why it was purchasing the harbor float and where it planned to use it. If the Island plaintiffs were concerned about the harbor float falling into the hands of a competitor, it could have further protected itself by requiring MNSS to disclose whether it or its owners have any relationship with the Catalina defendants and conditioned any purchase on MNSS's representations that it would not use the harbor float in Avalon Harbor or convey it to anyone who would. Not only did the Island plaintiffs fail to condition the sale upon such disclosures or representations, they expressly provided that MNSS's rights as the buyer of the harbor float "shall inure to the benefit of [MNSS], its successors and assigns." (Italics added.) The Island plaintiffs thus expressly permitted MNSS to transfer its rights to the harbor float to others without limitation.
BAJI No. 12.36, provides the following optional instruction in cases of fraud by concealment: "A duty to disclose known facts arises [in the absence of a fiduciary or a confidential relationship] where one party knows of material facts and also knows that these facts are neither known nor readily accessible to the other party." (BAJI No. 12.36, brackets in original.) A "Use Note" accompanying the instruction cautions that support for the instruction is "in cases involving nondisclosure by the seller" and that its applicability to cases of "nondisclosure by the buyer is uncertain." (Use Note to BAJI No. 12.36.) Indeed, the Island plaintiffs do not refer us to any case in which a purchaser had a duty to disclose material facts about the transaction to a seller.
The Island plaintiffs argue that the defendants failed to disclose that MNSS is affiliated with the Catalina defendants and that if they had known that fact, they would not have sold the harbor float "for an approximate 85 [percent] discount." In addition to requiring MNSS to disclose its affiliations as a negotiating condition, as discussed above, the Island plaintiffs could have reasonably discovered the connection between MNSS and the Catalina defendants even without asking MNSS. The Island plaintiffs attached to the first amended complaint, and incorporated therein, documents they obtained via the Internet from the Secretary of State, including MNSS's articles of incorporation, which show that MNSS had the same business address and agent for service of process as the Catalina defendants. Such information indicates an affiliation between MNSS and the Catalina defendants and was readily available to the Island plaintiffs prior to the sale of the harbor float to MNSS.
Because the facts the defendants allegedly failed to disclose were reasonably discoverable by the Island plaintiffs, the second basis for a duty to disclose described in Warner does not apply. (See Warner, supra, 2 Cal.3d at p. 294.)
Nor do the Island plaintiffs allege facts showing that the defendants "actively conceal[ed] discovery" from the Island plaintiffs-the third basis described in Warner. (Warner, supra, 2 Cal.3d at p. 294.) There is no allegation that the defendants made any attempt to keep the Island plaintiffs from inquiring about MNSS's intent in purchasing the harbor float, the City's willingness to waive the 20-foot width requirement, or MNSS's affiliation with the Catalina defendants.
Lastly, the first amended complaint does not allege "other conduct by the defendant[s] that makes it wrongful for [them] to remain silent." (Blickman, supra, 162 Cal.App.4th at p. 867.) This test, though unrecognized by our Supreme Court, may draw support from the Restatement Second of Torts, which states that a duty to disclose "facts basic to the transaction" may arise when a party "knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts." (Rest.2d Torts, supra, § 551(2)(e).) The Restatement Second authors note that this rule has been limited to cases where "the advantage taken of the plaintiff's ignorance is so shocking to the ethical sense of the community, and is so extreme and unfair, as to amount to a form of swindling, in which the plaintiff is led by appearances into a bargain that is a trap, of whose essence and substance he is unaware." (Rest.2d Torts, supra, § 551, com. l.) Nothing so extreme or unfair is alleged here. Indeed, the sale of the harbor float appears to be an arms-length transaction in which the Island plaintiffs could have easily protected themselves by requiring disclosures and representations by MNSS, as discussed above.
Because the first amended complaint does not allege facts establishing a duty by the defendants to disclose the facts they allegedly suppressed and concealed, the Island plaintiffs have failed to state a cause of action for fraud.
C. Interference with Prospective Economic Relations
The elements of intentional interference with prospective economic advantage are: "(1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant's action." (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.)
Negligent interference involves the same elements with the exception that, instead of intentionally wrongful acts, the plaintiff must allege that the defendant knew or should have known that the plaintiff's economic relationship with a third party would be disrupted if the defendant failed to act with due care and would cause the plaintiff to lose the probable economic benefit or advantage of the relationship, and the defendant failed to act with such care. (Venhaus v. Shultz (2007) 155 Cal.App.4th 1072, 1079; North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.)
Defendants argue that the Island plaintiffs have failed to allege (1) the existence of an economic relationship with a third party-here, the City-and probability of future economic benefits or (2) a requisite wrongful act. We agree with the second point and do not need to address the first.
Both intentional and negligent interference torts require that the defendant's conduct be "wrongful 'by some measure beyond the fact of the interference itself.'" (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393; Redfearn v. Trader Joe's Co. (2018) 20 Cal.App.5th 989, 1006, disapproved on another point in Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, 1148.) More specifically, the defendant's conduct must be "unlawful, that is, . . . proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159.) This requirement ensures that the law will not "punish individuals or commercial entities for their choice of commercial relationships or their pursuit of commercial objectives, unless their interference amounts to independently actionable conduct." (Id. at pp. 1158-1159.)
The wrongful conduct alleged in the first amended complaint to support both the intentional and negligent interference causes of action consists of defendants' "knowingly and willfully conspiring and agreeing with [the City] and its agents to ensure [the Island] [p]laintiffs would be prohibited from bidding on the Harbor Float RFP." The defendants ensured this result, the Island plaintiffs assert, by including in the RFP the requirement that the width of the pier end-float not exceed 20 feet, one foot narrower than the harbor float. Even if such a conspiracy and agreement could satisfy the wrongful conduct element for tortious interference- an argument the Island plaintiffs do not support in their appellate briefs-the RFP refutes the point. Although the RFP specifies that the end-float shall be no wider than 20 feet, it further provides that the City can waive any "requirements" in the RFP, "waive any irregularities and technicalities," and "accept proposals [that] deviate from the RFP." Because the City was permitted under the RFP to waive the 20-foot width requirement and accept a proposal that deviates from the RFP, the RFP did not prohibit the Island plaintiffs from submitting a proposal for its 21-foot wide harbor float.
The Island plaintiffs further assert that the wrongful conduct element is satisfied by the fraudulent conduct alleged in their second and third causes of action. This argument fails because, as explained above, there is no merit to the fraud causes of action.
Because the Island plaintiffs have not alleged wrongful conduct by the defendants, they failed to state a cause of action for intentional or negligent tortious interference with prospective economic relations.
DISPOSITION
The judgments are affirmed. The respondents are awarded their costs on appeal.
We concur: CHANEY, J. KELLEY, J. [*]
[*] Judge of the Los Angeles County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.