Michel Applegate v. The Red Hat Society, Inc. and Debra Lee Granich

5. NEGLIGENT ENTRUSTMENT/NEGLIGENT ENDORSEMENT 6. VICARIOUS LIABILITY 7. PUNITIVE DAMAGES On March 13, 2026, a first amended complaint (FAC) was filed. On June 22, 2026, the instant demurrer was filed. On June 23, 2026, the instant motion to strike (MTS) was filed. On August 20, 2026, oppositions were filed. On August 26, 2026, replies were filed.

Discussion

Defendants bring forth the demurrer on the grounds that Plaintiff fails to plead the Fourth Cause of Action for Negligent Hiring, Training, and Retention, the Fifth Cause of Action for Negligent Entrustment/Negligent Endorsement, and the Seventh Cause of Action for Punitive Damages with sufficient particularity to state a claim. Defendants advance a variety of arguments, but the court will briefly address one as it goes unaddressed by Plaintiff in opposition: that the FAC improperly lumps the defendants.

As argued by Defendants, the FAC establishes that the three Defendants served materially distinct roles (a national governing body, a regional judo organization, and a premises owner). Yet the FAC does not distinguish their respective responsibilities, operational authority, or relationship to the individuals allegedly involved in Plaintiff's injury. [1] The court agrees that a demurrer may be sustained where defendants were treated as one single actor and that courts routinely dismiss such conclusory allegations. (See, e.g., Moore v.

Regents of Univ. of Cal. (1990) 51 Cal. 3d 120, 125 n.1 & 134 n.12; Wilson v. Household Fin. Corp. (1982) 131 Cal. App. 3d 649, 653.) With that, the court sustains the demurrer with 30 days leave to amend. At this juncture, the court will not reach the merits of the rest of the demurrer or the MTS (to strike punitive damages). Plus, the opposition at pages 8 and 9 discusses how the pleading can be further amended. The parties are required to telephonically meet and confer should a subsequent demurrer and MTS be filed.

Conclusion

Based on the foregoing, the demurrer is sustained in its entirety with 30 days leave to amend; the MTS is moot. [1] Defendants cite to Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616 to support this proposition, but Khoury involves no such language. Page 616 involved discussion of a breach of an oral agreement and allegations regarding the uncertainty of nature and duration of said agreement.

(1) D efendants The Red Hat Society, Inc., erroneously sued as Red Hat Society, Inc., and Debra Lee Granich's Demurrer to the First Amended Complaint is SUSTAINED in part and OVERRULED in part; TBD as to some COAs; leave to amend is TBD based upon oral argument. (2) D efendants The Red Hat Society, Inc., erroneously sued as Red Hat Society, Inc., and Debra Lee Granich's Motion to Strike Parts of the First Amended Complaint is DENIED in part and GRANTED in part; leave to amend is TBD based upon oral argument.

Background

This case arises from Plaintiff Michel Applegate May 2025 purchase of assets from Defendants Red Hat Society (RHS) ("Seller") and Debra Lee Granich (Chief Executive Officer, director and shareholder of Seller) (collectively, "Defendants"). Plaintiff alleges that the Seller represented that it owned numerous registered trademarks for RHS but that after the execution of the purchase agreement, Plaintiff discovered that many of the trademarks were canceled or abandoned. As for Granich individually, Plaintiff alleges that she engaged in conduct including continued use of the RHS brand, assertions of authority over Plaintiff's business, and communications with members and third parties that created confusion regarding ownership and control.

On December 15, 2025, Plaintiff filed suit asserting the following causes of action (COAs): 1. BREACH OF CONTRACT (v. Seller) 2. BREACH OF EXPRESS WARRANTY (v. Seller) 3.BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING (v. Seller) 4. FRAUD (v. Seller) 5. NEGLIGENT MISREPRESENTATION (v. Seller) 6. TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS (v. All Defendants) 7. TORTIOUS INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE (v. All Defendants) 8. UNFAIR BUSINESS PRACTICES (BUS. & PROF.

CODE Sec. 17200) (v. All Defendants) On March 16, 2026, Defendants filed a demurrer and MTS to the original complaint, which the court sustained with leave to amend on 4/13/26. On May 26, 2026, Plaintiff filed a first amended complaint (FAC) for the same eight COAs. On July 8, 2026, the instant demurrer and MTS were filed. On July 28, 2026, an opposition was filed. On August 3, 2026, a reply was filed.

Discussion

A. 4/13/26 Ruling Before addressing the instant demurrer and motion to strike, the court will revisit the court's 4/13/26 ruling. On that demurrer, the court compared the Agreement--which takes precedent to the extent they contradict the allegations because Plaintiff incorporated it by reference into her COAs [1] --to the complaint. The court agreed with Defendant insofar as the complaint focused on the failure to deliver assets which need not occur until May 2030 but the opposition appeared to focus on Defendants' failure to actually own the assets being sold.

Related to the assets, the court observed the lack of ultimate facts regarding the complaint about what assets were defective or non-existent assets. As to the interference claims, the court agreed with Defendant--particularly in light of Drink Tank Ventures LLC-- that Plaintiff is turning liability ex contractu into liability ex delicto contrary to law. Overall, the court sustained the entirety of the demurrer for Plaintiff to amend her complaint to comport with the issues above.

B. The FAC Now, the amended complaint (FAC) does allege more ultimate facts as to how Defendants represented that they hold certain governmental registrations, but that Plaintiff discovered they were inactive. Taken near verbatim from pages four to five of the FAC, Plaintiff alleges the following regarding the 'defective and nonexistent trademark assets': that after execution of the agreement, Plaintiff discovered that numerous trademarks were not valid as represented; that Plaintiff discovered that in or about April 2022, Defendants received communications from trademark counsel identifying specific RHS-related trademarks, their classifications, and their renewal dates, suggesting that Defendants were actively managing and monitoring the status of the RHS trademarks and were aware that the continued validity of such trademarks depended on timely renewal and maintenance yet despite this knowledge, Defendants failed to maintain, renew, or preserve multiple trademarks and allowed certain marks to lapse, become abandoned, or otherwise lose enforceable status; such trademarks and related marks that were dead, canceled, abandoned, expired, materially impaired, no longer federally registered, substantially diminished in enforceability or value, or otherwise not valid and enforceable as represented at the time of the transaction included "RED HAT SOCIETY," "RED HAT," "RED HATTER," "PINK HAT," "PINK HATTER," "RED HATTER MATTERS," "PLAY EVERYWHERE"; RHS," "ANOTHER WAY TO PLAY," and "WOMEN AT PLAY."

In short, the FAC now more clearly alleges--with the ultimate facts--that the RHS intellectual property portfolio was materially impaired, unstable, substantially less valuable than represented and that resulted from Defendants' failure to maintain and renew such trademark.

C. Merits

As for this demurrer to the FAC, Defendants again demur to all COAs on the grounds that all do not state sufficient facts to constitute a cause of action against Defendants. For reasons to be explained, the demurrer is sustained in part and overruled in part; as is the motion to strike. Leave to amend is TBD at the hearing based upon oral argument (by Plaintiff's counsel).

Contract Claims (Counts 1, 2): As for the breach of contract COA (1 st COA) and 2 nd COA (breach of express warranty), Plaintiff alleges that Seller breached Section 14a of the Agreement and related contractual warranties by representing and warranting that it possessed transferable governmental registrations and enforceable intellectual property and could sell said Assets when in fact the trademark assets were materially impaired, improperly maintained or otherwise subject to cancellation or withdrawal. (FAC p. 10.)

Paragraph 14(a) of the Agreement (p. 14 of 19 of Agreement) provides that "Seller Warranty. Seller warrants that it has the right to sell the Assets, and that it holds governmental registrations of the Assets as applicable." Defendant argues that "Section 14(a) contained no representations; it constituted only a warranty. Defendant Seller did not warrant ' that it possessed transferrable governmental registrations' including as to any trademark or that there were 'enforceable intellection property rights.'" (Demurrer p. 8, emphasis added.)

It appears Defendant is arguing that because the Agreement doesn't explicitly state that the Assets belonged to the Seller, then they could not be transferred. (Demurrer p. 8:19-22; see also Reply p. 2:15-16 ["A demurrer does not admit the pleader's unreasonable interpretation of a written contract... Here, the 22 words of Section 14(a) cannot be read as adopting or incorporating all pre-contract "representations" or due diligence documents."].) Here, the court determines that Defendants have applied an obstinate reading of the agreement that runs contrary to contract interpretation.

As noted by Plaintiff, "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Opp. p. 3, citing Civ. Code Sec. 1636.) Here, the intent of the parties is clear from the agreement: Plaintiff would pay for certain Assets of RHS hence why the agreement is entitled "Purchase and Sale Agreement." As persuasively argued by Plaintiff, " Under Defendants' construction, Seller could represent that it owned a valuable portfolio of federally registered trademarks, allow those registrations to lapse or become unenforceable before execution of the Agreement, and nevertheless incur no contractual liability so long as it transferred whatever diminished rights remained." (Opp. p. 4:19-22.)

Thus, the court OVERRULES the demurrer as to the 1 st and 2 nd COA for breach of contract and breach of express warranty, respectively.

Count 3: BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING As for the 3 rd COA for implied covenant, that is predicated upon post-closing contact. (See P.71; see also Opp. p. 6 ["The FAC alleges specific post-closing conduct by Granich that frustrated Plaintiff's contractual rights. Plaintiff alleges that, despite the Agreement prohibiting Seller from using the RHS brand commercially, Granich continued using the RHS brand in her email signature, demanded access to RHS membership databases without contractual authority, misrepresented her continuing management authority, asserted approval rights...."], emphasis added.)

Defendant demurs on the grounds that "No cause of action under the implied covenant arises from breach of the purchase agreement's express terms or from conduct permitted by the agreement." (Demurrer p. 9, citing Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349-50; Coyote Aviation Corp. v. City of Redlands (2025)111 Cal.App.5th 955, 978; Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) Here, Defendants' argument is somewhat supported by the Agreement as (much of) the post-closing conduct by Seller seems to be contemplated by the Agreement.

For example, and as argued by Defendants, the agreement granted the Seller the right to be consulted about the Society's ongoing operations, required quarterly reports from Plaintiff, and required Seller's written consent for all material changes to "the core membership experience," and limited Plaintiff's ability to make changes to operations without Seller's prior written consent (Ex. A, Sec.Sec. 5 ["Buyer Covenants Regarding Business Operations & Membership Experience. Buyer agrees that, for the duration of the Loan term and until all obligations under this Agreement are satisfied in full, Buyer shall not, without the prior written consent of Seller, which shall not be unreasonably withheld: Sell, transfer, lease, or otherwise dispose of any material assets of the Business outside the ordinary course of operations; Enter into any contract or commitment that materially alters the scope, nature, or focus of the Business...

Take any action that would materially impact the financial position or operations of the Business, including incurring debt beyond ordinary operating expenses... Make material changes to the core membership experience, including but not limited to membership dues, benefits, event structure, chapter operations, branding, or member communications, without first consulting Seller and obtaining written approval. The intent is to preserve the essence, community culture, and goodwill of the RHS organization as it is known on the Acquisition Date...."], 7(a) ["Buyer shall engage Debra Granich as a 1099 subcontractor (without benefits) for a minimum of six (6) months at her 2024 year-end salary."]; and 10(a) and (e) ["Any such records, documents, materials, and other items in the possession, or under the control of Buyer shall be made available for inspection in the facility where such records, documents, materials, and other items are normally kept.".)

The agreement also imposed upon Plaintiff, not defendant Seller, the obligation to police and protect The Red Hat Society, Inc., trademarks. (Id., Sec. 8 ["Buyer shall consult with Seller in advance of initiating or settling any legal proceeding involving the Trademarks."].)

The opposition doesn't squarely address the foregoing. To the extent that, for example, communicating with European trademark authorities concerning renewal decisions were not part of Seller's obligations or that Granich using the RHS brand in her email signature were not allowed by the Agreement, [2] that is unclear/have not been clearly alleged. The court will hear from the parties. The demurrer to this 3 rd COA is TBD.

Fraud Claim (Counts 4) Defendant demurs on the grounds that this COA lack specificity showing how, when, where, to whom, and by what means the representations were tendered. The court disagrees and Plaintiff's opposition provides sound reasoning as to why fraud is adequately pled. As stated at length above, Plaintiff alleges that, before execution of the Agreement, numerous trademarks represented as valuable intellectual property assets had already been canceled, abandoned, materially impaired, expired, or otherwise rendered enforceable because Defendants received communications from trademark counsel identifying renewal deadlines and maintenance requirements before the transaction but nevertheless represented the trademark portfolio as valid and valuable while concealing the known defects. (FAC P.P. 17-26.)

Plaintiff further alleges that these representations were made to induce Plaintiff to purchase the business for approximately $1.2 million. These facts must be taken as true for purposes of this demurrer, so too must any inferences made from such allegations be made in favor of Plaintiff. Yet, as with the first two counts above, Defendant is imposing a far stricter standard than is required. If anything, should even more specifics be available, they are within Defendants' knowledge. (See Opp. p. 7 citing [Bradley v.

Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825 ["The specificity pleading requirement is also mitigated when "it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy."].) Defendant even acknowledges that "some" of the "dots" are provided to "connect" the dots, but more are needed. (Reply p. 4:5-7.) This is merely the pleading stage not a summary judgment nor a trial; the whole picture need not be presented but just enough of the outline to understand what is going on, and Plaintiff has done so.

Thus, the court OVERRULES the demurrer as count 4.

Count 5: Negligent Misrepresentation In addition to the argument above that count 5 does not plead reliance, Defendants also argue that this COA is barred by the economic loss rule. (Demurrer p. 12.) The general economic loss rule is simple: to preserve the distinction between contract and tort law a purchaser can only recover in contract for purely economic loss unless the purchaser "can demonstrate harm above and beyond a broken contractual promise." (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal. 4th 979, 988.)

Therefore, there is only a remedy in both tort and contract when an independent duty arising from tort law is violated. (Id., at p. 990.) Now what conduct constitutes an independent tort is generally the subject of the analysis. (Rattagan v. Uber Techs., Inc. (2024) 17 Cal. 5th 1, 13.) In Rattagan, the state's high court clarified the application economic loss doctrine with its two-part analysis. First, a plaintiff must "demonstrate the defendant's injury-causing conduct violated a duty that is independent of the duties and rights assumed by the parties when they entered the contract." "Second, the defendant's conduct must have caused injury to persons or property that was not reasonably contemplated by the parties when the contract was formed." (Id. at pp. 20-21.)

Ultimately, the principal question underlying the application of the economic loss doctrine is whether the "consequences of a breach were [] reasonably contemplated when the contract was entered and the duty to avoid causing such a harm has an independent statutory or public policy basis, exclusive of the contract." (Id. at p. 27.) There is only a contract remedy if the alleged breach is "based on a failure to perform as the contract provides, and the parties reasonably anticipated and allocated the risks associated with the breach." (Ibid; see also Tameny v.

Atlantic Richfield Co. (1980) 27 Cal.3d 167, 175.) As applied in Robinson, the court held that the economic loss rule did not apply where the plaintiff, Robinson (a manufacturer of helicopters), suffered economic losses independent of a breach of contract due to defendant Dana's fraudulent conduct. The Robinson court found that Dana used affirmative deception when Dana supplied false certificates to Robinson, lying that their clutch products met the product specifications as required by the Federal Aviation Administration and their contract with Robinson. (Robinson, supra, at p. 990.)

The court reasoned that the economic loss rule does not bar the claim for fraud because Dana's affirmative misrepresentations were dispositive of fraud and "[n]o rational party would enter into a contract anticipating that they are or will be lied to." (Id. at pp. 990-91.) Though the opposition in other discussion sections avers that fraud constitutes independently wrongful conduct separate from any contractual breach (Opp. p. 10:2-3), the opposition does not address the economic loss rule. Thus, absent any oral argument during the hearing to do so otherwise, the court is inclined to SUSTAIN the demurrer as to this COA.

Economic Interference Torts (Counts 6 and 7) For Count 6, the elements of the cause of action for intentional interference with contractual relations are the existence of a valid contract between the plaintiff and a third party, the defendant's knowledge of that contract, the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship, actual breach or disruption of the contractual relationship, and resulting damage. (3500 Sepulveda, LLC v. Macy's West Stores, Inc. (2020) 980 F.3d 1317, 1325-1326.)

For Count 7, plaintiff must allege "the existence, between the plaintiff and some third party of an economic relationship that contains the probability of future economic benefit to the plaintiff." (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.) As for the 7 th COA, this is different than interference with an existing contract (i.e., 6 th COA) because the plaintiff must also plead and prove as part of its case-in-chief that the defendant engaged in conduct that was wrongful by some legal measure other than the fact of interference itself. (Ixchel Pharma, LLC v.

Biogen, Inc. (2020) 9 Cal.5th 1130.) Here, Plaintiff alleges that she "had existing contractual relationships and contractual business arrangements with RHS members, vendors, licensees, event providers, travel partners, and business counterparties relating to membership services, licensing, events, travel arrangements, and RHS business operations." (P.89.) But as noted by Defendants, this is a rather generic list of contracts. If there are such contracts or relationships implicated in the tort theories, Plaintiff must know the specifics, including for each naming the third party involved.

Moreover, absent pleading particular contracts, the FAC reads as if the contract interfered with is the very purchase agreement which, as stated in the previous ruling, would not satisfy this element. (See Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. (2021) 71 Cal.App.5 th 528.) Thus, the court SUSTAINS the demurrer as to this COA. Leave to amend is TBD.

Count 8: Unfair Competition Defendant largely argues that a defendant's breach of contract standing on its own does not constitute a predicate act under the UCL. (Demurrer pp. 15, 16, citing Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 489; [3] see also Meta Platforms, Inc. v. BrandTotal Ltd., 605 F.Supp.3d 1218, 1271 (C.D. Cal. 2022).) The opposition does not address these cases. To the extent that Plaintiff argues Plaintiff is facing an ongoing harm via Defendants' post-closing conduct, this relates to the 3 rd COA above and whether the conduct is contemplated by the Agreement.

To the extent that Plaintiff argues that the COA is adequately pled because Defendants allegedly continue to use the RHS brand, assert authority over the business, and interfere with Plaintiff's relationships with members, vendors, licensees, and other business partners, "courts have recognized that UCL fraud plaintiffs must allege their own reliance--not the reliance of third parties--to have standing." (Meta Platforms, Inc. supra, 605 F.Supp.3d at p. 1271.) Thus, the court is inclined to sustain this COA without leave to amend, but will hear from Plaintiff's counsel.

MTS Defendants now move to strike parts of the first amended complaint. (Cal. Code Civ. Proc. Sec. 436.) The motion includes in two specifications to be struck. Specification #1, the allegation of entitlement to equitable relief in paragraph 63 in Count 1 for breach of contract (the purchase agreement); and Specification #2, the punitive damages allegations in paragraphs 81, 97, and 102 the corresponding paragraph 4 of the prayer. (Cal. Code Civ. Proc. Sec.Sec. 435, 436.) As for the first argument, a breach of contract cannot be prohibited by injunctive relief. (Cal.

Civ. Code Sec. 3423, subd. (e); Cal. Code Civ. Proc. Sec. 526, subd. (b)(5).) Even if the request is directed to prevent further alleged breach of the agreement, it is still but the same original contract in dispute. The opposition does not meaningfully address this point. As for punitive damages, the court declines to strike those. As outlined above in the section on the demurrer, the FAC adequately alleges an intentional course of fraudulent and deceptive conduct extending beyond a routine breach of contract.

Plaintiff alleges that during a three-month due diligence period, Defendants represented that the transaction included a valuable portfolio of federally registered trademarks and provided Plaintiff with a Brand Guide displaying the "Red Hat Society" mark with the (R) symbol, together with additional trademark-related materials identifying numerous names, logos, and brand elements as protected intellectual property assets. The FAC further alleges that Defendants represented these trademarks as existing, valid, and valuable despite knowing that many had already been canceled, abandoned, impaired, expired, or otherwise unenforceable. (Opp. p. 4.)

Thus, fraud is adequately pled.

Conclusion

Based on the foregoing, the demurrer is OVERRULED in part and SUSTAINED in part / TBD in part, with leave to amend also TBD; the motion to strike is denied in part (re punitive damages) and granted in part (re equitable relief), with leave to amend also TBD. [1] See e.g., Kim v. Westmoore Partners, Inc. (2011) 201 Cal. App. 4th 267, 282; see Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 943 [2] And it is unclear whether she was using the RHS brand in her email signatures within the scope of the Agreement. [3] Defendants' recitation of the law is not entirely correct.

The court in Arce did state that a "breach of contract in turn may form the predicate for a UCL claim, provided it also constitutes conduct that is " unlawful, or unfair, or fraudulent. " (Id. at p. 489-490, italics original.) And as for what the statute means as to unlawful, unfair, or fraudulent conduct, "[b]y its terms, the statute is broad in scope. " (Id. at p. 486.) And in Arce, the appellate court observed that if the trial court were to find that "Applied Behavior Analysis therapy and speech therapy for autism spectrum disorders are covered services under the terms of the health care plan, then Kaiser's alleged practice of categorically denying coverage for such services to the putative class could constitute a breach of contract. " (Id. at p. 489.) | Home -->)" -->