Carreno v. 360 Painting, LLC.

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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DEBORAH CARRENO CASE NO. 19cv2239-LAB-BGS

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Plaintiff,

ORDER GRANTING

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DEFENDANT’S MOTION TO

13 DISMISS [Dkt. 39]

360 PAINTING, LLC, et al.

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Defendants.

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And related counterclaim.

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19 On March 16, 2020, the Court dismissed Plaintiff Deborah Carreno’s

20 claims for unjust enrichment and breach of the implied covenant of good faith

21 and fair dealing against Defendant 360 Painting, LLC (“360”). Carreno then

22 filed her First Amended Complaint (“FAC”). In addition to amending the two

23 previously-dismissed claims, the FAC includes a claim for breach of oral

24 contract and six additional claims, all of which are based on the theory that 360

25 negligently or intentionally misrepresented that its “rent-a-license” business

26 model complied with California law and would permit Carreno to operate a

27 painting franchise by renting a contractor’s license, rather than having one

1 360 has moved to dismiss the FAC in its entirety. (Dkt. 39.) The FAC

2 hasn’t corrected the flaws in the two previously-dismissed claims. It fails to

3 allege any consideration on Carreno’s part for the alleged oral contract. And

4 the alleged misrepresentations are non-actionable statements of opinion about

5 the law, rather than statements of fact, so Carreno couldn’t justifiably rely on

6 them. Accordingly, 360’s motion is GRANTED. Each of Carreno’s claims is

7 DISMISSED WITHOUT PREJUDICE.

8 SUMMARY OF ALLEGATIONS

9 360 is a Virginia limited liability company that licenses painting

10 franchises. In December 2017, Plaintiff Deborah Carreno entered into a

11 Franchise Agreement with 360 to operate a painting business in San Diego,

12 CA. This case largely centers around representations made to Carreno during

13 those negotiations. California law generally requires that contractors operating

14 within the state be licensed by the California Contractors State License Board

15 (“CSLB”). Carreno alleges that representatives of 360 told her during their

16 negotiations that the company’s business model would “accommodate the

17 CSLB’s licensing requirements.” (Dkt. 38 ¶ 16.) Carreno signed the Agreement

18 relying on this representation. 360 subsequently told Carreno that it was

19 “wrapping up [her] licensing plan.” (Id. ¶ 27.) Carreno subsequently learned

20 that California law did not permit the “rent-a-license” model that 360 used, and

21 she informed 360 of that understanding of the law. (Id. ¶ 63.)

22 In August 2019, Carreno spoke with 360’s CEO, Paul Flick, and they

23 agreed that she would “separate from the [360] Franchise.” (Id. ¶ 33.) Carreno

24 and Flick agreed that she would not be responsible for royalties for her 360

25 franchise, she would maintain control of the social media and marketing

26 accounts created for use with her franchise, and she would have access to

27 360’s software that stored her business proposals and contracts. (Id. ¶ 34.)

1 up with Flick, he wrote that 360 would “mail [a check] to [her].” (Id. ¶¶ 37-39.)

2 Carreno never received such a check, she continues to pay royalties to

3 360, and she doesn’t have access to either the social media and marketing

4 accounts or 360’s software. She filed this action, alleging claims for breach of

5 oral contract, breach of the implied covenant of good faith and fair dealing,

6 intentional and negligent misrepresentation, rescission based on fraud,

7 intentional and negligent interference with prospective economic relations,

8 unjust enrichment, and unfair business practices.

9 DISCUSSION

10 A Rule 12(b)(6) motion challenges the legal sufficiency of a complaint.

11 Navarro v. Block, 250 F.3d 728, 732 (9th Cir. 2001). A plaintiff must plead

12 sufficient facts that, if true, “raise a right to relief above the speculative level.”

13 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007). “To survive a motion

14 to dismiss, a complaint must contain sufficient factual matter, accepted as true,

15 to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

16 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 547). A claim is

17 plausible when the factual allegations permit “the court to draw the reasonable

18 inference that the defendant is liable for the misconduct alleged.” Id.

19 A. Breach of Oral Contract

20 Carreno fails to state a claim for breach of oral contract under California

21 law.1 The elements for breach of oral contract are the same as breach of written

22 contract: the parties had a contract; the plaintiff performed it or her performance

23 was excused; the defendant breached it; and the plaintiff suffered damages.

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25 1 Although California courts favor enforcing choice of law provisions, 360

waived its right to claim Virginia law applies to the Franchise Agreement in

26 briefing on the prior motion to dismiss. (Dkt. 16 at 2 n.1; Dkt. 38-1 at 41 ¶ 30.1).

27 360 doesn’t establish any of the factors that would permit the Court to depart

from the law of the case in that regard. See United States v. Alexander, 106

1 Stockton Mortg., v. Tope, 233 Cal. App. 4th 437, 453 (2014). Carreno alleges

2 that Flick, on 360’s behalf, orally agreed to release Carreno from her

3 obligations under the Agreement, waiving 360’s royalties and permitting

4 Carreno to continue using the franchise’s social media and marketing accounts

5 and 360’s software.

6 But the alleged oral agreement isn’t a standalone agreement—it modifies

7 termination duties imposed by the parties’ prior written agreement, (see Compl.

8 Ex. B, Dkt. 38-1 at 229, ¶ 23.2), which expressly precludes any oral

9 modification. (Id. at 235, ¶ 40.) “[P]arties may, by their conduct, waive such a

10 provision where evidence shows that was their intent.” Biren v. Equality

11 Emergency Medical Group, Inc., 102 Cal. App. 4th 125, 141 (2002) (internal

12 marks removed). But they can only do so where the oral agreement is

13 supported by new consideration. See Cal. Civ. Code § 1698(c). Carreno

14 alleges a wholly one-sided oral agreement, with 360 waiving right to payment

15 while granting control of marketing accounts and access to software. 360’s

16 alleged promises, without any consideration in return, don’t amount to a

17 contract, and they can’t be enforced on an oral contract theory.

18 Because Carreno’s allegations leave room for the possibility that the

19 alleged oral agreement involved some consideration not alleged in the FAC,

20 this claim is DISMISSED WITHOUT PREJUDICE.

21 B. Breach of Implied Covenant of Good Faith and Fair Dealing

22 The Court previously dismissed Carreno’s claim for breach of the implied

23 covenant of good faith and fair dealing, but granted leave to amend if Carreno

24 could allege a breach of the implied covenant without contradicting the terms

25 of Agreement. (Dkt. 16 at 8.) But the FAC’s claim relies on the same conduct

26 as before—360’s alleged failures to provide proper advertising materials and

27 to provide counseling and advisory services in connection with obtaining a

1 Just as before, the Franchise Agreement’s requirement that 360 provide

2 a reasonable level of counseling and advisory services doesn’t vary its

3 provision making Carreno “solely responsible for obtaining [a] license[].” (Dkt.

4 38-1 at 76 ¶ 9.4.) And just as before, the FAC fails to allege any facts that

5 plausibly establish that the alleged printing error was “so material that it

6 frustrated the purpose of the Franchise Agreement.” (Dkt. 16 at 6.)

7 The FAC fails to state a claim for breach of the covenant of good faith

8 and fair dealing. Carreno, given an opportunity to amend this claim, hasn’t

9 added anything of substance. The Court finds that further amendment would

10 be futile, so the claim for breach of the implied covenant of good faith and fair

11 dealing is DISMISSED WITHOUT PREJUDICE but without leave to amend.

12 C. Negligent and Intentional Misrepresentation

13 Carreno fails to state claims for negligent and intentional

14 misrepresentation, too. Both claims require, among other elements,

15 allegations that 360 made a misrepresentation of material fact and that

16 Carreno justifiably relied on that misrepresentation. Small v. Fritz Companies,

17 Inc., 30 Cal. 4th 167, 173-74 (2003) (negligent misrepresentation); Engalla v.

18 Permanente Medical Group, Inc., 15 Cal. 4th 951, 974 (1997) (intentional

19 misrepresentation).

20 Both misrepresentation claims fail, though, because they don’t rest on a

21 representation of fact, but instead on legal opinions that Carreno couldn’t

22 justifiably rely on. “An opinion on a question of law based on facts known to

23 both parties alike by one occupying no confidential relation toward person to

24 whom it is addressed does not justify such person in relying upon it.” Watt v.

25 Patterson, 125 Cal. App. 2d 788, 793 (1954) (intentional misrepresentation);

26 see also Blankenheim v. E.F. Hutton & Co., 217 Cal. App. 3d 1463, 1473-74

27 (1990) (negligent misrepresentation). The alleged misrepresentation here is

1 law. (Dkt. 38 ¶ 28.) Carreno doesn’t allege that 360 misrepresented any facts

2 about that model, though, only that California law would permit her to operate

3 with a rented license. (Id.) Because this alleged misrepresentation is one of

4 law, rather than fact, her claims based on that misrepresentation fail.

5 Carreno had another reason not to rely on 360’s representation: the

6 Franchise Agreement made her “solely responsible for obtaining any and all

7 licenses and permits required to operate the Business.” (Dkt. 38-1 at 76,

8 ¶ 9.4.) A plaintiff can’t justifiably rely on misrepresentations as to the terms of

9 an agreement unless she didn’t have a reasonable opportunity to review the

10 agreement before executing it. See Rosenthal v. Great Western Fin. Securities

11 Corp., 14 Cal. 4th 394, 419-20 (1996) (plaintiff claiming fraud in execution of

12 contract can’t justifiably rely on misrepresentation as to contents of written

13 agreement). The alleged misrepresentation that 360’s rent-a-license model

14 was permissible under California law carried with it the implication that 360

15 would provide Carreno with a license through that means. That expectation is

16 what Carreno allegedly relied on, and 360’s failure to provide a license is what

17 Carreno complains of. But the Franchise Agreement makes clear that 360

18 would not be responsible for providing Carreno with a license, and Carreno

19 fails to allege that she didn’t have an opportunity to review the Franchise

20 Agreement. To the contrary, the most plausible inference from Carreno’s FAC

21 is that she had at least eight days to review the Franchise Agreement before

22 she signed it, and there’s no allegation that she was under any deadline to

23 execute the agreement. (See Dkt. 38-1 at 252 (Franchise Agreement stating

24 that it was signed as of “this 29th day of November 2017”); Dkt. 38 ¶ 20

25 (alleging that Carreno didn’t sign the Franchise Agreement until December 7,

26 2017).)

27 Because Carreno couldn’t justifiably rely on the alleged

1 implication that 360 would provide Carreno with the license necessary to

2 operate her franchise, the FAC fails to state claims for intentional or negligent

3 misrepresentation. Those claims are DISMISSED WITHOUT PREJUDICE.

4 D. Fraudulent Inducement

5 Carreno seeks rescission of the Agreement based on a theory of

6 fraudulent inducement. In California, fraud must be pled with specificity. Lazar

7 v. Superior Ct., 12 Cal. 4th 631, 645 (1996). Carreno alleges that 360 failed to

8 disclose that it was previously involved in a separate business that was similar

9 to the franchises it now sells. However, Carreno doesn’t allege any facts in

10 support of this theory, offering only the legal conclusions that 360 “willfully and

11 intentionally failed to disclose their prior involvement” in other, similar

12 businesses without identifying the business or alleging facts that would indicate

13 that 360 was involved in it. (Dkt. 38 ¶¶ 86, 88.)2

14 Carreno also alleges that Defendants “possessed material information .

15 . . concerning the licensing requirements under California law” and failed to

16 disclose that information. (Id. ¶ 87.) But as with her misrepresentation claims,

17 this alleged failure to disclose the law doesn’t permit Carreno to rescind the

18 contract. See Watt v. Patterson, 125 Cal. App. 2d at 793. California’s licensing

19 requirements aren’t secret, and parties to a contract don’t have a duty to

20 provide one another with legal advice in advance of execution.

21 The FAC fails to state a claim for fraudulent inducement. That claim is

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2 To the extent that Carreno intends to rely on the same documents she

submitted in connection with her motion to dismiss the counterclaim, she

24 doesn’t attach them to the FAC or otherwise reference their contents in that

25 pleading. And as the Court noted in denying her motion to dismiss, while Flick

may have been involved in a prior similar business, he is not the “franchisor”

26 under California law, and so Cal. Corp. Code § 31101 didn’t require him to

27 disclose those businesses to Carreno in connection with this transaction. See

Cal.Corp. Code §§ 31007, 31101; Dkt. 38-2 at 193, 237 (Franchise Agreement

1 DISMISSED WITHOUT PREJUDICE.

2 E. Negligent and Intentional Interference with Prospective Economic

3 Relations

4 In California, a plaintiff must allege acts “wrongful apart from the

5 interference itself”—that is, “proscribed by some constitutional, statutory,

6 regulatory, common law, or other determinable standard”—to allege a claim for

7 negligent or intentional interference with economic relations. Korea Supply Co.

8 v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153-54, 1159 (2003) (intentional

9 interference); see also Venaus v. Schultz, 155 Cal. App. 4th 1072, 1079 (2007)

10 (negligent interference).

11 The only wrongful acts that Carreno relies on for her interference claims

12 are Defendants’ alleged misrepresentations. (Dkt. 38 ¶¶ 95, 101; Dkt. 41 at 15-

13 16.) But as discussed above, Defendants’ alleged misrepresentations were

14 opinions of law, not statements of fact, and thus not “proscribed by . . . common

15 law.” Korea Supply, 29 Cal. 4th at 1159. Without alleging an independent

16 wrongful act, the FAC fails to state a claim for intentional or negligent

17 interference with prospective economic relations. Those claims are

18 DISMISSED WITHOUT PREJUDICE.

19 F. Unjust Enrichment

20 A claim for unjust enrichment cannot stand where the parties have a

21 valid, express contract covering the same subject matter. Lance Camper Mfg.

22 Corp. v. Republic Indem. Co., 44 Cal. App. 4th 194, 203 (1996). The Court’s

23 previous order dismissed Carreno’s claim but permitted amendment to add

24 allegations that would establish that 360 was unjustly enriched in a way not

25 encompassed by the Franchise Agreement. The FAC’s unjust enrichment

26 claim seeks to avoid this issue by working from the premise that the Franchise

27 Agreement is void and unenforceable as a result of Defendants’ alleged

1 || to establish a basis to rescind the Franchise Agreement, then, it fails to state a

2 || claim for unjust enrichment.

3 Although this claim has been dismissed once before, it may be viable if

4 || Carreno can identify a factual misrepresentation that supports rescission of the

5 || contract. Accordingly, it is DISMISSED WITHOUT PREJUDICE, but unlike the

6 || claim for breach of the implied covenant of good faith and fair dealing, Carreno

|| may seek leave to amend this claim.

8 G. Unfair Business Practices

9 Carreno’s claim under California’s Unfair Competition Law, like her

10 || interference, rescission, and unjust enrichment claims, relies exclusively on

11 || Defendants’ allegedly fraudulent acts. (Dkt. 38 110.) And as discussed

12 || above, there’s no fraud in statements of legal opinion, nor would a reasonable

13 || consumer rely on such statements. See Williams v. Gerber Prods. Co., 552

14 || F.3d 934, 938 (9th Cir. 2015). Because Carreno hasn't alleged any fraudulent

15 || act or practice, she hasn’t alleged a claim under that prong of the UCL. Her

16 || claim under that statute is DISMISSED WITHOUT PREJUDICE.

17 CONCLUSION AND ORDER

18 For these reasons, Defendant’s motion to dismiss is GRANTED. Each of

19 || Carreno’s claims is DISMISSED WITHOUT PREJUDICE. Carreno may amend

20 all but the claim for breach of the implied covenant of good faith and fair

21 || dealing, as the failure to correct that claim’s flaws demonstrates the futility of

22 || further amend. If she elects to amend, she must file a motion seeking leave to

23 || amend no later than April 9, 2021.

24 IT IS SO ORDERED.

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96 || Dated: March 19, 2021 l 4. ZB wy

27 HON. LARRY ALAN BURNS

28 United States District Judge