Groat v. Walsh, et al.

Defendants Eric Walsh and Walshmo Racing LLC’s demurrer to Plaintiff Nicholas Groat’s First Amended Complaint (“FAC”) is sustained in part and overruled in part. The demurrer as to the third cause of action is sustained with 15 days leave to amend. The demurrer as to the fourth and fifth causes of action is overruled.

Breach of Implied Covenant of Good Faith and Fair Dealing (Third Cause of Action) “Every contract imposes on each party an implied duty of good faith and fair dealing. Simply stated, the burden imposed is ‘that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.’” (Chateau Chamberay Homeowners Assn. v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 335, 345, citations omitted.) The covenant functions “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244, emphasis in original.)

A breach of the implied covenant will only be found if it “involves something beyond breach of the contractual duty itself”; bad faith “implies unfair dealing rather than mistaken judgment.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394, citation omitted.) The allegations necessary to assert a claim for breach of the implied covenant must “demonstrate[] a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.” (Ibid.) “If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.” (Id. at p. 1395.)

Here, Plaintiff alleges in the third cause of action the following: “The DEFENDANTS have breached the implied covenant of good faith and fair dealing by committing, and engaging in, the wrongful acts and conduct set forth herein.” (FAC, at ¶ 94.) In the opposition, Plaintiff clarified that the breach is actually “Defendants’ obstruction of Plaintiff’s contractual benefits through prolonged delay and shifting performance.” (Opp., at p. 4:20-21.) The FAC does not specifically allege this fact. But more importantly, this appears duplicative of the breach of contract claim. Timing for completion of the contract was an explicit term in the parties’ agreement, although it was updated and amended.

Plaintiff argues that he pled sufficient facts to show that Defendants were invested with discretionary power to perform a full engine swap and performance integration of Plaintiff’s race car, citing the FAC at paragraphs 11 through 19. But swapping the engine and the timing of that undertaking are terms in the contract. There was no discretion to perform or not perform those tasks. Thus, the demurrer is sustained with 15 days leave to amend.

Negligent Misrepresentation (Fourth Cause of Action)

“Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit. ‘Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit.’ ” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 407; CACI no. 1903.)

“Negligent misrepresentation requires an assertion of fact, falsity of that assertion, and the tortfeasor’s lack of reasonable grounds for believing the assertion to be true. It also requires the tortfeasor’s intent to induce reliance, justifiable reliance by the person to whom the false assertion of fact was made, and damages to that person. An implied assertion of fact is ‘not enough’ to support liability.” (SI 59 LLC v. Variel Warner Ventures, LLC (2018) 29 Cal.App.5th 146, 154.)

“When one of the parties possesses, or assumes to possess, superior knowledge or special information regarding the subject matter of the representation, and the other party is so situated that he may reasonably rely upon such supposed superior knowledge or special information, a representation made by the party possessing or assuming to possess such knowledge or information, though it might be regarded as but the expression of an opinion if made by any other person, is not excused if it be false.” (Haserot v. Keller (1924) 67 Cal.App. 659, 670; Palladine v. Imperial Valley Farm Lands Assn. (1924) 65 Cal.App. 727, 737 [representations by vendor of land, that it was free from alkali and excellent for raising grapes and general farming purposes, constituted actionable deceit]; Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 893 [whether borrower was justified in relying on statements by bank employee that it was highly probable that loan modification would be approved was question of fact, precluding summary judgment in borrower’s misrepresentation action against bank, where employee stated that he was from bank's “executives offices”].)

Here, the FAC alleges that in order to induce Plaintiff to hand over more money, Defendants represented “on the phone, through text messaging, emails, and during in-person meetings between March 2022 and August 2025, made representations regarding the expertise and experience of the DEFENDANTS, and the ability of MR. WALSH to complete the Project on time.” (FAC, at ¶ 96.) Plaintiff alleges and also argues that Defendants represented that they were capable, when this was not true. (FAC, at ¶¶ 52, 96; Opp., at p. 4:23.) In opposition, Plaintiff also argues that Defendants agreed on a shifting landscape of promises to complete the project but failed to live up to one of the promises. Yet Defendants lacked reasonable ground for believing the promises were true. (Opp., p. 14:19-22 [citing the FAC, at ¶¶ 25-78, 81-85, and 93- 95].) Thus, this claim is based on inaccurate representations of capability, progress, and timelines.

The statements regarding expertise and the present status of the swap are actionable misrepresentations. Plaintiff handed over more money as the time went on and alleges that $15,000 in new parts were “aged-out” and had to be replaced. (FAC, at ¶ 45.) The status of the work is a representation about present facts, that induced Plaintiff to spend money on parts that he otherwise would not have spent. Thus, the FAC has sufficiently alleged a claim. The demurrer as to the fourth cause of action is overruled.

Unfair Business Practice (Bus & Prof. Code, § 17200, et seq.) (Fifth Cause of Action)

Business and Professions Code section 17200, et seq. (“UCL”) prohibits unfair competition, including unlawful, unfair or fraudulent business acts. (Cel-Tech Comm., Inc. v. Los Angeles Cellular Tele. Co. (1999) 20 Cal.4th 163, 180.) By defining “unfair competition” to include any unlawful act or practice, the UCL permits violations of other laws to be treated as independently actionable as unfair competition. Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., (1999) 20 Cal.4th 163, 180.)

Here, Plaintiff relies on the negligent misrepresentation claim as the basis for the unfair business practices. Thus, the court overrules the demurrer on this derivative claim.