Filed 11/9/23 Cadu Medical v. James Worldwide CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
CADU MEDICAL, LLC et al., B321892
Plaintiffs and Appellants, (Los Angeles County
Super. Ct.
v. No. 21STCV21813)
JAMES WORLDWIDE, INC.
et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Rupert A. Byrdsong, Judge. Reversed with
directions.
Ervin Cohen & Jessup, Michael D. Murphy and
Catherine A. Veeneman for Plaintiffs and Appellants.
Squire Patton Boggs, Helen H. Yang and Shaun Kim for
Defendants and Respondents.
INTRODUCTION
Peter Groverman formed Cadu Medical, LLC in 2020 to
broker transactions between manufacturers and retailers of
personal protective equipment (PPE), which was in great demand
during the COVID-19 pandemic. Groverman introduced FCO
Genesis I, Inc., a supplier of medical gloves, and Mohawk Group,
Inc., an e-commerce consumer products company. FCO Genesis
agreed to sell Mohawk more than 300,000 boxes of gloves for
$4.4 million. The parties agreed to use James Worldwide, Inc.
and James Lee as the escrow agents. When FCO Genesis failed
to deliver the gloves, Mohawk demanded that James Worldwide
and Lee return Mohawk’s payment. They did not. Groverman
later learned a third party, M&W Suppliers, had withdrawn the
money from the escrow account.
Cadu and Groverman filed this action against
FCO Genesis, James Worldwide, Lee, M&W, and others. Cadu
and Groverman alleged causes of action against
James Worldwide and Lee for intentional and negligent
interference with prospective economic advantage, fraud,
fraudulent concealment, negligent misrepresentation, aiding and
abetting fraud, and negligence. The trial court sustained a
demurrer by James Worldwide and Lee without leave to amend
and entered judgment in their favor. Cadu and Groverman
appealed.
We conclude the trial court did not err in sustaining the
demurrer to Cadu and Groverman’s causes of action for
negligence and negligent interference with prospective economic
advantage, but erred in sustaining the demurrer to the other
causes of action. Therefore, we reverse.
2
FACTUAL AND PROCEDURAL BACKGROUND
A. Groverman Brokers a Deal for the Purchase and Sale
of Medical Gloves
Groverman was a principal of Grovara, a global exporter of
American wellness products.1 When the COVID-19 pandemic
exposed deficiencies in the supply of PPE, Groverman created
Cadu to extend Grovara’s business-to-business marketplace
platform into the PPE market. Groverman met Keven Kim, who
said his company, FCO Genesis, could import large quantities of
medical gloves into the United States. Groverman introduced
Kim to Mohawk, an e-commerce consumer products company
interested in purchasing medical gloves. In February 2021
representatives of Mohawk and FCO Genesis spoke by telephone
and negotiated a deal for the purchase and sale of medical gloves.
The parties agreed Mohawk would transfer the purchase
price for the medical gloves into an escrow account pending
delivery of the gloves. Kim suggested using James Worldwide
and Lee as escrow agents. Kim, however, did not disclose that
FCO Genesis had a dispute with James Worldwide and Lee or
that the agreement to resolve their dispute incentivized each
party to find a new customer to purchase PPE, with the funds
going to pay James Worldwide. Thus, Kim knew at the time
James Worldwide and Lee “were not unbiased.” Groverman,
1 We recite the facts alleged as in the operative, second
amended complaint, which we accept as true for purposes of
reviewing the trial court’s order sustaining the demurrer by
James Worldwide and Lee. (See Mathews v. Becerra (2019)
8 Cal.5th 756, 786.)
3
Mohawk, and FCO Genesis agreed to designate James Worldwide
and Lee as escrow agents.
Mohawk and FCO Genesis entered into a purchase and sale
agreement. The agreement provided that Mohawk would pay
$4,384,240 for 313,160 boxes of medical gloves. Mohawk,
FCO Genesis, and Lee signed an escrow agreement, which
provided: (1) Mohawk would wire the payment to an escrow
account managed by James Worldwide and Lee; (2) FCO Genesis
would deliver the gloves within 10 days; and (3) if FCO Genesis
did not deliver the gloves within 10 days, Mohawk could request
and receive all of the money it had deposited in the escrow
account. While the parties were drafting and executing the two
agreements, Cadu and Groverman “acted as a moderator between
the parties so as to ensure that the overall deal stayed on track.”
On the day Mohawk, FCO Genesis, and Lee signed the
agreements, Groverman spoke with Lee. Lee assured Groverman
that FCO Genesis and Kim “could be trusted” and “would
follow-through on the deal” and that James Worldwide and Lee
had “‘done over $100 million in business’” with FCO Genesis and
Kim. What Lee did not tell Groverman was that he was in a
dispute with FCO Genesis, that James Worldwide claimed
FCO Genesis owed it more than $5 million, or that FCO Genesis
claimed James Worldwide owed it almost $10 million.
B. Mohawk Pays the Money, but Doesn’t Get the Gloves
Mohawk deposited the purchase price into the escrow
account. When FCO Genesis did not deliver the gloves within
10 days, Mohawk demanded its money back. Lee, however, did
not return Mohawk’s money. Groverman contacted Kim, who
told Groverman the escrow account was not managed by
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James Worldwide and Lee, but instead was a bank account
accessible by a company called M&W Suppliers. Kim admitted
M&W, not FCO Genesis, was the importer of the gloves. Kim put
Groverman in touch with a representative of M&W, who told
Groverman that M&W had withdrawn Mohawk’s money from the
account because FCO Genesis owed M&W money for medical
supplies FCO Genesis had purchased from M&W.
Mohawk never received the gloves. As a result, Cadu and
Groverman lost a percentage of sales they anticipated earning
from the transaction. Cadu and Groverman also lost Mohawk as
a client: Mohawk said that, because of the FCO Genesis debacle,
it would never again do business with Cadu or Groverman. And
losing Mohawk as a client caused additional financial
repercussions for Cadu and Groverman: Before the FCO Genesis
deal, Mohawk told Groverman that it planned to order one
million boxes of gloves every week for the next 12 months, which
led Cadu and Groverman to start lining up suppliers of PPE
(other than FCO Genesis) to fulfill Mohawk’s anticipated future
orders. When the FCO Genesis deal failed and Cadu lost
Mohawk’s business, however, Cadu had to cancel its agreements
with the other suppliers, who also said they would never work
with Cadu again. Other buyers Cadu worked with also cut ties
with Cadu when they heard about the failed FCO Genesis
transaction. Cadu and Groverman’s reputations were so badly
damaged by the failure of the FCO Genesis transaction that
Groverman shut down Cadu.
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C. Cadu and Groverman File This Action, and the Trial
Court Sustains James Worldwide and Lee’s Demurrer
Cadu and Groverman filed this action in June 2021. They
alleged causes of action against James Worldwide and Lee for
intentional and negligent interference with prospective economic
advantage, fraud, fraudulent concealment, negligent
misrepresentation, aiding and abetting fraud, and negligence.
The trial court sustained the demurrer to the first amended
complaint with leave to amend.
Cadu and Groverman filed a second amended complaint,
and James Worldwide and Lee demurred again. This time the
trial court sustained the demurrer to all causes of action without
leave to amend. The court ruled Cadu and Groverman did not
sufficiently allege a special relationship such that
James Worldwide and Lee owed Cadu and Groverman a duty of
care. The court also ruled Cadu and Groverman did not allege
James Worldwide and Lee caused Cadu and Groverman’s
damages. The court stated that, “in terms of the causation of the
damages, you can’t connect them to these moving defendants”
and that Cadu and Groverman pleaded “no facts establishing the
nexus for why liability should attach.” The court also ruled Cadu
and Groverman did not allege fraud with sufficient particularity.
Cadu and Groverman timely appealed from the ensuing
judgment.
DISCUSSION
A. Applicable Law and Standard of Review
“‘In reviewing an order sustaining a demurrer, we examine
the operative complaint de novo to determine whether it alleges
facts sufficient to state a cause of action under any legal theory.’”
6
(Mathews v. Becerra (2019) 8 Cal.5th 756, 768; see Downey v. City
of Riverside (2023) 90 Cal.App.5th 1033, 1043-1044, review
granted July 19, 2023, S280322.) “We assume the truth of the
properly pleaded factual allegations, facts that reasonably can be
inferred from those expressly pleaded and matters of which
judicial notice has been taken.” (Regina v. State of California
(2023) 89 Cal.App.5th 386, 396-397; see Ivanoff v. Bank of
America, N.A. (2017) 9 Cal.App.5th 719, 725.) We “‘accept as true
even improbable alleged facts, and we do not concern ourselves
with the plaintiff’s ability to prove [the] factual allegations.’”
(Marina Pacific Hotel & Suites, LLC v. Fireman’s Fund Ins. Co.
(2022) 81 Cal.App.5th 96, 104-105; see Nolte v. Cedars-Sinai
Medical Center (2015) 236 Cal.App.4th 1401, 1406.) Where, as
here, “the demurrer was sustained without leave to amend, we
consider whether there is a ‘reasonable possibility’ that the defect
in the complaint could be cured by amendment.” (King v.
CompPartners, Inc. (2018) 5 Cal.5th 1039, 1050.) “The burden is
on plaintiffs to prove that amendment could cure the defect.”
(Ibid.)
B. The Trial Court Erred in Sustaining the Demurrer to
the Causes of Action for Fraud and Negligent
Misrepresentation
The elements of fraud are (1) a misrepresentation,
(2) knowledge of its falsity; (3) intent to induce another’s reliance
on the misrepresentation; (4) justifiable reliance, and
(5) resulting damage. (Conroy v. Regents of University of
California (2009) 45 Cal.4th 1244, 1255; Cohen v. Kabbalah
Centre Internat., Inc. (2019) 35 Cal.App.5th 13, 20.) “The
elements of negligent misrepresentation are similar to
intentional fraud except for the requirement of scienter; in a
7
claim for negligent misrepresentation, the plaintiff need not
allege the defendant made an intentionally false statement, but
simply one as to which he or she lacked any reasonable ground
for believing the statement to be true.” (Charnay v. Cobert (2006)
145 Cal.App.4th 170, 184.) To survive demurrer, the plaintiff
must allege facts constituting each element of fraud and
negligent misrepresentation with particularity. (Kalnoki v. First
American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th
23, 35; Charnay, at p. 185, fn. 14.) “‘“This particularity
requirement necessitates pleading facts which ‘show how, when,
where, to whom, and by what means the representations were
tendered.’”’” (People ex rel. Allstate Insurance Company v.
Discovery Radiology Physicians, P.C. (2023) 94 Cal.App.5th 521,
548.)
Cadu and Groverman alleged Lee made the following
misrepresentations to Groverman on February 10, 2021:
(1) FCO Genesis “could be trusted”; (2) FCO Genesis “would
follow-through on the deal”; (3) James Worldwide and Lee had
“‘done over $100 million in business’” with FCO Genesis; and
(4) James Worldwide and Lee “could serve as neutral and
reputable escrow agents.” Cadu and Groverman alleged Lee
knew these statements were false because James Worldwide was
involved in an “active dispute” with FCO Genesis. Cadu and
Groverman alleged that Lee should have known they would rely
on his misrepresentations and that Cadu and Groverman
reasonably relied on the misrepresentations by “supporting and
advocating for this deal to Mohawk.” Cadu and Groverman
alleged the fraudulent misrepresentations by James Worldwide
and Lee caused Mohawk and other prospective buyers to end
their relationships with Cadu and Groverman, which cost them
8
millions of dollars in lost future earnings. These allegations were
sufficient to constitute causes of action for fraud and negligent
misrepresentation.
The trial court ruled Cadu and Groverman did not plead
fraud or negligent misrepresentation with the required
particularity because, regarding “the who, what, when, where, in
terms of activities that the defendants did to induce Mohawk to
renege, there aren’t any facts supporting that.” But Cadu and
Groverman alleged those very facts. They alleged what Lee said,
when he said it, that he intended Cadu and Groverman to rely on
his misrepresentations, and that Cadu and Groverman relied on
those misrepresentations in encouraging Mohawk to move
forward with the FCO Genesis deal. And Cadu and Groverman
alleged James Worldwide and Lee’s misrepresentations caused
Mohawk to terminate its relationship with Cadu and Groverman
after Mohawk paid for, but did not receive, the gloves. That was
plenty of (and sufficient) particularity.
James Worldwide and Lee argue Lee’s statements were
opinions, not actionable facts. It is true that, with the exception
of Lee’s statement he had done over $100 million in business with
FCO Genesis (which Cadu and Groverman do not claim was
false), Lee’s statements—that FCO Genesis could be trusted, that
FCO Genesis would follow through, and that James Worldwide
and Lee could be neutral and reputable escrow agents—were in
the nature of opinions. (See Nissan Motor Acceptance Cases
(2021) 63 Cal.App.5th 793, 823 [“‘“[P]redictions as to future
events, or statements as to future action by some third party, are
deemed opinions, and not actionable fraud.”’”]; Gentry v. eBay,
Inc. (2002) 99 Cal.App.4th 816, 835 [“‘The law is quite clear that
expressions of opinion are not generally treated as
9
representations of fact, and thus are not grounds for a
misrepresentation cause of action.’”].) But here’s the thing:
An opinion may be actionable “where it is ‘expressed in a manner
implying a factual basis which does not exist.’” (Jolley v. Chase
Home Finance, LLC (2013) 213 Cal.App.4th 872, 893.)
“‘[P]redictions or representations as to what will happen in the
future are normally treated as opinion; but sometimes they may
be interpreted as implying knowledge of facts that make the
predictions probable.’” (Ibid.; see, e.g., id. at p. 892 [bank
employee’s statements to a borrower that approval of his loan
modification application was “‘highly probable,’ and ‘likely,’ and
‘look[ed] good’” were actionable because they implied facts];
Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007)
158 Cal.App.4th 226, 241 [investment banker’s statements that a
“preferred stock offering ‘was already, in effect, a “done deal”’”
and that early prepayment of notes was “‘“guaranteed”’” were
actionable statements of facts, not opinions or predictions].) If “a
person advances an opinion in which he does not honestly or
cannot reasonably believe, then an action for affirmative fraud
will lie if the remaining elements of the tort are present.”
(Cooper v. Jevne (1976) 56 Cal.App.3d 860, 866; see Pacesetter
Homes, Inc. v. Brodkin (1970) 5 Cal.App.3d 206, 211
[“expressions of opinion” can be “treated as misrepresentations
. . . where the one expressing the opinion does not in fact
entertain it”].)
Lee’s statements that FCO Genesis was trustworthy,
coupled with his statement he had done extensive business with
FCO Genesis, implied a factual basis: that James Worldwide and
Lee had not had any problems with FCO Genesis. Cadu and
Groverman alleged that implication was false because
10
FCO Genesis and James Worldwide were involved in a dispute,
with each side “accusing the other of owing many millions of
dollars on prior transactions.” Similarly, Lee’s opinion he and
James Worldwide could act as neutral and reputable escrow
agents was undermined, if not contradicted, by
James Worldwide’s dispute with FCO Genesis and those two
companies’ agreement to resolve the dispute and compensate
James Worldwide by finding a new customer to purchase PPE.
Lee’s assurances to Groverman “directly contradicted Lee’s
personal experiences” with FCO Genesis.
James Worldwide and Lee also argue Cadu and Groverman
did not allege with particularity that James Worldwide and Lee
intended to defraud Cadu and Groverman. But Cadu and
Groverman needed to allege only that James Worldwide and Lee
intended to induce them to rely on the misrepresentations, not
that James Worldwide and Lee intended to defraud them. (See
Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173
[elements of fraud include “‘“intent to defraud, i.e., to induce
reliance”’”]; Aton Center, Inc. v. United Healthcare Ins. Co. (2023)
93 Cal.App.5th 1214, 1245 [intent element for fraud is “‘intent to
induce reliance’”]; Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th
85, 93 [“the only intent by a defendant necessary to prove a case
of fraud is the intent to induce reliance”].) The plaintiff satisfies
the intent element by alleging the defendant “reasonably
expected” the plaintiff to rely on a representation. (Lovejoy, at
p. 93.) In their fraud cause of action, Cadu and Groverman
alleged James Worldwide and Lee “reasonably should have
known” Lee’s misrepresentations “would be relied upon” by Cadu,
Groverman, and Mohawk. Cadu and Groverman further alleged
they relied on Lee’s misrepresentations in recommending that
11
Mohawk proceed with the transaction. It is a reasonable
inference from these allegations that, when Lee made the
misrepresentations, he intended to induce Cadu and Groverman
to rely on them. Similarly, in their cause of action for negligent
misrepresentation, Cadu and Groverman alleged
James Worldwide and Lee “intended to induce [Cadu and
Groverman] and Mohawk to rely on these misrepresentations so
that Mohawk would agree to and sign the Escrow Agreement and
Sales Contract.” Those facts adequately alleged intent to induce
reliance.
James Worldwide and Lee further argue Cadu and
Groverman cannot allege James Worldwide and Lee intended to
defraud them because they alleged James Worldwide and Lee
intended to induce Mohawk, not Cadu and Groverman, to agree
to the transaction. James Worldwide and Lee assert they did not
have an incentive to induce Cadu and Groverman to rely on any
of the alleged misrepresentations. But the two are not mutually
exclusive: Cadu and Groverman alleged James Worldwide and
Lee intended to induce both Mohawk and Cadu/Groverman to
rely on Lee’s statements. As for incentive, Cadu and Groverman
alleged that, had James Worldwide and Lee not misrepresented
the facts, Cadu and Groverman “would have sought another
source of PPE and another escrow agent.” At the pleading stage
this was sufficient. (See Beckwith v. Dahl (2012) 205 Cal.App.4th
1039, 1061 [“‘[f]raudulent intent is an issue for the trier of fact to
decide’”].)
C. The Trial Court Erred in Sustaining the Demurrer to
the Cause of Action for Fraudulent Concealment
“‘“The required elements for fraudulent concealment are
(1) concealment or suppression of a material fact; (2) by a
12
defendant with a duty to disclose the fact to the plaintiff; (3) the
defendant intended to defraud the plaintiff by intentionally
concealing or suppressing the fact; (4) the plaintiff was unaware
of the fact and would not have acted as he or she did if he or she
had known of the concealed or suppressed fact; and (5) plaintiff
sustained damage as a result of the concealment or suppression
of the fact.”’” (Daneshmand v. City of San Juan Capistrano
(2021) 60 Cal.App.5th 923, 931-932; see Hambrick v. Healthcare
Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 162.)
Cadu and Groverman alleged James Worldwide and Lee
never disclosed that M&W, not FCO Genesis, “was in fact the
direct importer of the Gloves” and that the “Escrow Account was
in fact a bank account that could be accessed by parties other
than Lee.” Those were pretty important facts to conceal. As
stated, Cadu and Groverman also alleged that James Worldwide
and Lee told Groverman they had “‘done over $100 million in
business’” with FCO Genesis and that FCO Genesis “could be
trusted,” but they did not tell Groverman about their dispute
with FCO Genesis. Cadu and Groverman alleged
James Worldwide and Lee “concealed these facts with the
intention of inducing [Cadu and Groverman] and Mohawk to act,”
that Cadu and Groverman relied on the false representations by
James Worldwide and Lee in “supporting and advocating for this
deal to Mohawk,” and that had Cadu and Groverman known the
truth “they would have suggested Mohawk buy from a different
supplier.” Finally, Cadu and Groverman alleged they were
damaged by the concealment. Those allegations stated sufficient
facts to constitute a cause of action for fraudulent concealment.
James Worldwide and Lee contend Cadu and Groverman’s
cause of action for fraudulent concealment failed because
13
James Worldwide and Lee did not owe a duty to disclose any of
the allegedly concealed facts. Cadu and Groverman, however,
alleged a sufficient relationship with James Worldwide and Lee
to give rise to a duty to disclose.
“‘There are “four circumstances in which nondisclosure or
concealment may constitute actionable fraud: (1) when the
defendant is in a fiduciary relationship with the plaintiff;
(2) when the defendant had exclusive knowledge of material facts
not known to the plaintiff; (3) when the defendant actively
conceals a material fact from the plaintiff; and (4) when the
defendant makes partial representations but also suppresses
some material facts.”’” (Bigler-Engler v. Breg, Inc. (2017)
7 Cal.App.5th 276, 311; see LiMandri v. Judkins (1997)
52 Cal.App.4th 326, 336.) Other than the first circumstance
(fiduciary relationship), “the other three circumstances in which
nondisclosure may be actionable presuppose[ ] the existence of
some other relationship between the plaintiff and defendant in
which a duty to disclose can arise.” (Id. at pp. 336-337.) That
relationship requires “some sort of transaction between the
parties.” (Id. at p. 337.)
For a duty to disclose to arise, the parties must be involved
in a transaction, but they need not have a contractual
relationship. For example, in Vega v. Jones, Day, Reavis & Pogue
(2004) 121 Cal.App.4th 282 a shareholder of an acquired
company sued the law firm that represented the acquiring
company for fraudulent concealment. (Id. at p. 287.) The
shareholder alleged the law firm concealed the “toxic” stock terms
of a third-party financing transaction to induce the shareholder
to give up his valuable stock in exchange for worthless stock. (Id.
at p. 290.) The shareholder alleged the law firm concealed the
14
stock provisions by telling the shareholder’s attorneys “the
transaction was ‘standard’ and ‘nothing unusual,’ by failing to
provide the proper written disclosure it prepared, and by instead
providing a different, sanitized version of the disclosure.” (Ibid.)
The court held that, by preparing a proper disclosure schedule
but giving the shareholder and his attorneys a different version
that omitted the unfavorable stock provisions, the law firm
“specifically undertook to disclose the transaction and, having
done so, is not at liberty to conceal a material term.” (Id. at
p. 292.)
Similarly, in Pavicich v. Santucci (2000) 85 Cal.App.4th
382 an investor in a restaurant sued an attorney who represented
other parties to the transaction for conspiring with his clients to
defraud the investor by concealing threats of litigation by
previous investors. (Id. at p. 388.) The investor alleged he asked
the attorney and his clients “if there was anything he should
know about the early days of the joint venture before investing.”
(Id. at p. 386.) The attorney responded that negotiations with
two businessmen “had not been fruitful” and that the
businessmen “had signed a legally binding release to avoid any
future problems or claims.” (Ibid.) The attorney did not tell the
investor the businessmen claimed the release had been procured
by fraud and had threatened litigation. (Ibid.) The court held
the investor stated a cause of action against the attorney for
conspiring to defraud the investor because one “‘who is asked for
or volunteers information must be truthful, and the telling of a
half-truth calculated to deceive is fraud.’” (Id. at p. 398.)
Cadu and Groverman interacted directly with
James Worldwide and Lee. (See Bigler-Engler v. Breg, Inc.,
supra, 7 Cal.App.5th at p. 312 [the transactional relationship
15
creating a duty to disclose “must necessarily arise from direct
dealings between the plaintiff and the defendant; it cannot arise
between the defendant and the public at large”].) Even if Lee did
not initially have an obligation to disclose information to
Groverman, once he chose to speak about his prior dealings with
FCO Genesis, he had a duty to disclose all material facts. (See
ibid. [where there is a sufficient relationship, “‘a duty to speak
may arise when necessary to clarify misleading “half-truths”’”];
Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141,
1164-1165 [“intentional concealment exists when a party to a
transaction, who is under no duty to speak, nevertheless does
speak and suppresses facts which materially qualify the facts
stated”]; Pavicich v. Santucci, supra, 85 Cal.App.4th at p. 398
[“where one does speak he must speak the whole truth to the end
that he does not conceal any facts which materially qualify those
stated”]; see also Civ. Code, § 1710 [fraud includes the
“suppression of a fact, by one who is bound to disclose it, or who
gives information of other facts which are likely to mislead for
want of communication of that fact”].) Cadu and Groverman
sufficiently alleged that, once Lee told Groverman that he had
worked with FCO Genesis and that FCO Genesis was reputable
and trustworthy, Lee had a duty to disclose that he and
James Worldwide had a dispute with FCO Genesis over a
previous PPE transaction.
James Worldwide and Lee also contend, as they did
regarding the causes of action for fraud and negligent
misrepresentation, Cadu and Groverman did not and cannot
allege James Worldwide and Lee intended to defraud them.
Cadu and Groverman alleged similar facts in all three causes of
action. In the fraudulent concealment cause of action, Cadu and
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Groverman alleged James Worldwide and Lee concealed facts
about M&W’s role in the transaction, M&W’s access to the escrow
account, and James Worldwide’s dispute with FCO Genesis, all
“with the intention of inducing [Cadu and Groverman] and
Mohawk to act in reliance” on them. Cadu and Groverman also
alleged that Cadu and Groverman relied on James Worldwide
and Lee’s false representations in “supporting and advocating for
this deal to Mohawk” and that, had Cadu and Groverman known
the truth, “they would have suggested Mohawk buy from a
different supplier.” True, the allegation regarding false
representations appears to have been copied from the fraud cause
of action, and it would have been better to allege
James Worldwide and Lee intended to induce Cadu and
Groverman to act by disclosing some facts but concealing others.
But Cadu and Groverman alleged sufficient facts to constitute a
cause of action for fraudulent concealment. If James Worldwide
and Lee really need more clarity, they can serve a few
interrogatories.
D. The Trial Court Erred in Sustaining the Demurrer to
the Cause of Action for Aiding and Abetting Fraud
“‘Liability may . . . be imposed on one who aids and abets
the commission of an intentional tort if the person . . . knows the
other’s conduct constitutes a breach of duty and gives substantial
assistance or encouragement to the other to so act.’” (Chen v.
PayPal, Inc. (2021) 61 Cal.App.5th 559, 583; see IIG Wireless,
Inc. v. Yi (2018) 22 Cal.App.5th 630, 653-654.) “[L]iability for
aiding and abetting depends on proof the defendant had actual
knowledge of the specific primary wrong the defendant
substantially assisted.” (Casey v. U.S. Bank Nat. Assn. (2005)
17
127 Cal.App.4th 1138, 1145.) “‘[W]hile aiding and abetting may
not require a defendant to agree to join the wrongful conduct, it
necessarily requires a defendant to reach a conscious decision to
participate in tortious activity for the purpose of assisting
another in performing a wrongful act.’” (Berg & Berg Enterprises,
LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 823,
fn. 10; see American Master Lease LLC v. Idanta Partners, Ltd.
(2014) 225 Cal.App.4th 1451, 1475-1476.)
Cadu and Groverman alleged sufficient facts to constitute a
cause of action for aiding and abetting fraud. First, they alleged
FCO Genesis and Kim committed the primary wrong by
fraudulently misrepresenting that FCO Genesis “was the direct
importer of the Gloves,” that the escrow account was “managed
by and accessed by Lee only,” and that the escrow payment
“would immediately be returned to Mohawk upon request if
[FCO Genesis] failed to deliver the Gloves.” Second, they alleged
James Worldwide and Lee knew that Kim made those
representations and that the statements were false. Third, they
alleged James Worldwide and Lee substantially assisted
FCO Genesis and Kim in committing fraud by (1) posing as
escrow agents and not disclosing or clarifying that parties other
than James Worldwide and Lee would have access to the escrow
account; (2) assuring Groverman that FCO Genesis could be
trusted, while not disclosing the dispute between FCO Genesis
and James Worldwide; (3) failing to return Mohawk’s escrow
payment when Mohawk asked for it; and (4) “help[ing] the M&W
Defendants remove the Escrow Payment.”
James Worldwide and Lee argue Cadu and Groverman did
not sufficiently allege James Worldwide and Lee had “‘knowledge
of the object to be attained’” (Casey v. U.S. Bank Nat. Assn.,
18
supra, 127 Cal.App.4th at p. 1146, italics omitted) because Cadu
and Groverman did not allege James Worldwide and Lee knew
these facts about M&W’s involvement in the fraudulent scheme:
(1) M&W was the actual importer of the gloves; (2) FCO Genesis
had agreed to buy medical supplies from M&W; (3) M&W had
access to the escrow account; and (4) M&W withdrew Mohawk’s
deposit from the escrow account because FCO Genesis didn’t pay
M&W. But Cadu and Groverman alleged sufficient facts to show
James Worldwide and Lee knew about M&W’s role. They alleged
that James Worldwide and Lee knew and concealed M&W was
involved; that they never disclosed M&W, not FCO Genesis, “was
in fact the direct importer of the Gloves”; and that the “Escrow
Account was in fact a bank account that could be accessed by
parties other than Lee.”2 Cadu and Groverman also alleged
James Worldwide and Lee helped M&W take Mohawk’s money
from the escrow account. Cadu and Groverman may not have
alleged James Worldwide and Lee knew every detail of
FCO Genesis’s plan, but they alleged more than simply
James Worldwide and Lee “knew something fishy was going on.”
(Casey, at p. 1149; cf. ibid. [plaintiff failed to allege sufficient
facts to state a cause of action for aiding and abetting breach of
fiduciary duty where the plaintiffs alleged the defendant banks
knew corporate officers and directors were “‘involved in a
criminal or dishonest and wrongful enterprise and were, at the
very least, laundering money,’” but did not allege they were
misappropriating corporate funds].) Cadu and Groverman
2 Cadu and Groverman alleged these facts in the cause of
action for fraudulent concealment, not the cause of action for
aiding and abetting fraud, but the cause of action for aiding and
abetting fraud incorporated the previous allegations.
19
sufficiently alleged James Worldwide and Lee had “actual
knowledge of the specific primary wrong.” (Id. at p. 1145; see
American Master Lease LLC v. Idanta Partners, Ltd., supra,
225 Cal.App.4th at p. 1475.)
E. The Trial Court Erred in Sustaining the Demurrer to
the Cause of Action for Intentional Interference with
Prospective Economic Advantage
“Intentional interference with prospective economic
advantage has five elements: (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.)3 To state a cause of action for
intentional interference with prospective economic advantage,
the plaintiff must allege the defendant “committed an
independently wrongful act.” (Ixchel Pharma, LLC v. Biogen, Inc.
(2020) 9 Cal.5th 1130, 1142.) “‘[A]n act is independently
wrongful if it is unlawful, that is, if it is proscribed by some
constitutional, statutory, regulatory, common law, or other
3 Cadu and Groverman labeled their cause of action
“interference with prospective business advantage.” The same
tort is “variously known as interference with ‘prospective
economic advantage,’ ‘prospective contractual relations,’ or
‘prospective economic relations.’” (Della Penna v. Toyota Motor
Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 378.)
20
determinable legal standard.’” (Ibid.; see Korea Supply Co. v.
Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159.)
In their cause of action for intentional interference with
prospective economic advantage, Cadu and Groverman alleged
that they had business relationships with Mohawk and other
prospective buyers of PPE and that James Worldwide and Lee
were aware of those relationships. Cadu and Groverman alleged
James Worldwide and Lee “intentionally interfered” with those
relationships through the same wrongful acts that formed the
basis for their causes of action for fraud, negligent
misrepresentation, fraudulent concealment, and aiding and
abetting fraud: (1) telling Groverman that FCO Genesis “could be
trusted and would follow-through on the deal,” but concealing
that James Worldwide and Lee were involved in a dispute with
FCO Genesis; (2) falsely stating the escrow account was
“overseen and accessible only by Lee,” when in fact M&W had
access to the account, and James Worldwide, Lee, and
FCO Genesis intended to use Mohawk’s payment “to further a
side deal between [FCO Genesis] and M&W”; and (3) allowing
M&W to take the money in the escrow account. Cadu and
Groverman alleged the wrongful acts of James Worldwide and
Lee caused Mohawk and other prospective buyers to end their
relationships with Cadu and Groverman, costing them millions of
dollars in lost future earnings. These allegations stated sufficient
facts to constitute a cause of action for intentional interference
with prospective economic advantage.
James Worldwide and Lee argue Cadu and Groverman’s
cause of action for intentional interference with prospective
economic advantage failed because the conduct of
James Worldwide and Lee did “not amount to an independently
21
wrongful act.” However, as discussed, Cadu and Groverman
alleged sufficient facts to constitute causes of action for fraud,
negligent misrepresentation, fraudulent concealment, and aiding
and abetting fraud, all of which are independently wrongful,
based on the same conduct. (See Ixchel Pharma, LLC v. Biogen,
Inc., supra, 9 Cal.5th at p. 1142 [conduct that violates a “‘common
law . . . standard’” is independently wrongful]; Korea Supply Co.
v. Lockheed Martin Corp., supra, 29 Cal.4th at p. 1159 [same];
Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd.
(2021) 71 Cal.App.5th 528, 538 [same]; Popescu v. Apple Inc.
(2016) 1 Cal.App.5th 39, 65 [plaintiff “alleged independently
wrongful conduct . . . including . . . a scheme intending to
defraud”], disapproved on another ground in Ixchel, at p. 1148;
Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan &
Eisenberg (1989) 216 Cal.App.3d 1139, 1153-1154 [facts stating
a cause of action for breach of fiduciary duty “support a cause of
action against defendants for interfering with prospective
economic advantage”].)
James Worldwide and Lee also argue their “alleged conduct
was not the act that constituted the interference.” They contend
it was FCO Genesis’s failure to deliver the gloves and M&W’s
withdrawal of the money that caused Cadu and Groverman’s
harm. But that FCO Genesis and M&W also interfered with
Cadu and Groverman’s prospective advantage does not mean
James Worldwide and Lee did not. Cadu and Groverman alleged
that James Worldwide and Lee induced them to participate in
the transaction by concealing facts about their dispute with
FCO Genesis, that James Worldwide and Lee intended to use
Mohawk’s payment to satisfy a separate obligation to
FCO Genesis and M&W, and that James Worldwide and Lee
22
allowed M&W to take Mohawk’s payment from the escrow
account. These allegations were sufficient, at the pleading stage,
to connect James Worldwide and Lee to the fraudulent scheme
that disrupted Cadu and Groverman’s relationships with buyers
and sellers of PPE.
F. The Trial Court Did Not Err in Sustaining Without
Leave To Amend the Demurrer to the Causes of Action
for Negligence and Negligent Interference with
Prospective Economic Advantage
“To establish a cause of action for negligence, the plaintiff
must show that the ‘defendant had a duty to use due care, that he
breached that duty, and that the breach was the proximate or
legal cause of the resulting injury.’” (Brown v. USA Taekwondo
(2021) 11 Cal.5th 204, 213; see Doe v. Roman Catholic
Archbishop of Los Angeles (2021) 70 Cal.App.5th 657, 669.)
Similarly, the “tort of negligent interference with economic
relationship arises only when the defendant owes the plaintiff a
duty of care.” (Stolz v. Wong Communications Limited
Partnership (1994) 25 Cal.App.4th 1811, 1825; see J’Aire Corp. v.
Gregory (1979) 24 Cal.3d 799, 803 [“Liability for negligent
conduct may only be imposed where there is a duty of care owed
by the defendant to the plaintiff or to a class of which the plaintiff
is a member.”]; Golden Eagle Land Investment, L.P. v. Rancho
Santa Fe Assn. (2018) 19 Cal.App.5th 399, 430 [“When negligent,
yet disruptive, acts allegedly interfere with an economic
relationship, the acts are deemed tortious only where there was
an existing duty of care owed by the defendant to the plaintiff.”];
see also Carlin v. DairyAmerica, Inc. (E.D. Cal. 2013)
978 F.Supp.2d 1103, 1116 [“Because the tort of negligent
interference with prospective economic advantage is a form of
23
claim of the tort of negligence, a plaintiff must demonstrate the
existence of a duty of care owed to the plaintiff by the
defendant.”].)
“Duty is not universal; not every defendant owes every
plaintiff a duty of care. A duty exists only if ‘“the plaintiff’s
interests are entitled to legal protection against the defendant’s
conduct.”’” (Brown, at p. 213; see The Law Firm of Fox & Fox v.
Chase Bank, N.A. (2023) 95 Cal.App.5th 182, 193.) “Whether a
duty is owed is simply a shorthand way of phrasing what is the
essential question—whether the plaintiff’s interests are entitled
to legal protection against the defendant’s conduct.” (J’Aire Corp.
v. Gregory, supra, 24 Cal.3d at p. 803, internal quotation marks
omitted.)
The trial court ruled Cadu and Groverman did not allege
facts sufficient to establish James Worldwide and Lee owed Cadu
and Groverman a duty of care. The court stated that “in the
absence of . . . contractual privity . . . the law does not intervene
on those types of arms-length transactions. It would be a chilling
effect on business if that were the case.”
An escrow holder “‘has no general duty to police the affairs
of its depositors’; rather, an escrow holder’s obligations are
‘limited to faithful compliance with [the depositors’]
instructions.’” (Summit Financial Holdings, Ltd. v. Continental
Lawyers Title Co. (2002) 27 Cal.4th 705, 711 (Summit); see
Vournas v. Fidelity Nat. Tit. Ins. Co. (1999) 73 Cal.App.4th 668,
674 [the “primary duty owed by an escrow holder is to strictly
and faithfully perform the instructions given to it by the parties
to the escrow”].) Cadu and Groverman invoke an exception to the
general rule by arguing there was a “special relationship” among
24
the parties under the standard articulated by the Supreme Court
in Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja).
In Biakanja the Supreme Court held a notary public who
negligently prepared a will owed a duty of care to the intended
beneficiary of the will, even though the parties were not in privity
of contract. (Biakanja, supra, 49 Cal.2d. at p. 651.) The Supreme
Court listed six factors for determining whether a defendant may
be liable to a third person absent a contractual relationship:
(1) the extent to which the transaction was intended to affect the
plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the
degree of certainty that the plaintiff suffered injury; (4) the
closeness of the connection between the defendant’s conduct and
the plaintiff’s injury; (5) the moral blame attached to the
defendant’s conduct; and (6) the policy of preventing future harm.
(Ibid.) In concluding the notary public owed the plaintiff a duty
of care, the Supreme Court stated, “the ‘end and aim’ of the
transaction was to provide for the passing of” the decedent’s
estate to the plaintiff. (Id. at p. 650.)
In Summit, supra, 27 Cal.4th 705 the Supreme Court
applied the Biakanja factors to an escrow transaction. In that
case a borrower refinanced a loan, and the escrow company paid
the original lender according to the escrow instructions.
(Summit, at p. 708.) A different lender sued the escrow company,
alleging the escrow company should have paid the assignee
lender because the original lender had assigned the note to it and
the escrow company knew about the assignment. (Ibid.) Neither
the assignor lender nor the assignee lender was a party to the
escrow. (Ibid.) The Supreme Court concluded only one of the six
Biakanja factors, certainty of injury, weighed in favor of finding
the escrow company owed the assignee lender a duty of care. The
25
Supreme Court held that the transaction was intended to assist
the borrower and the new lender in closing a loan transaction
and that “any impact that transaction may have had on [the
assignee lender] was collateral to the primary purpose of the
escrow.” (Id. at p. 715.) The Supreme Court stated that it was
not foreseeable the assignor lender would not disburse the funds
to the assignee lender, that the escrow company followed the
escrow instructions and therefore was not blameworthy, that
policy considerations weighed in favor of encouraging escrow
companies to follow escrow instructions, and that the assignee’s
injury was not caused by the escrow company paying the assignor
lender but by the assignor’s breach of its contractual obligation to
the assignee. (Id. at pp. 715-716.)
Similarly, in Alereza v. Chicago Title Co. (2016)
6 Cal.App.5th 551 (Alereza) the court held an escrow company did
not owe a third party a duty of care under the Biakanja factors.
In Alereza an escrow company employee negligently listed the
name of the insured (the purchaser of a gas station business)
incorrectly when it secured a new certificate of insurance for the
business. (Id. at p. 553.) That error caused the property’s
landlord to demand the plaintiff, the uncle of the purchaser,
provide a personal guarantee. (Id. at p. 556.) The court
concluded none of the Biakanja factors weighed in favor of
finding the escrow company owed a duty of care to the plaintiff.
(Alereza, at pp. 560-562.) The plaintiff was not a party to the
escrow and the escrow instructions did not mention him. (Id. at
p. 560.) Rejecting the plaintiff’s assertion “he benefited from the
transaction by the ‘psychic and emotional reward’ of helping his
nephew,” the court concluded that the escrow agreement was
designed “only to complete a business transaction” between the
26
buyer and seller of the business and that any benefit to the
plaintiff “was a collateral benefit of the escrow transaction.”
(Ibid.) The court held that the escrow company could not foresee
the plaintiff would provide a personal guarantee, that “several
independent errors separated” the escrow company’s negligence
from “the ultimate financial losses” the plaintiff claimed, and
that the escrow company was negligent but not morally
blameworthy. (Id. at p. 561.) Finally, the court stated that,
because escrow companies already face liability to parties to the
escrow for any proximately caused damages, the policy of
preventing future harm did not support imposing a new legal
duty on escrow companies. (Ibid.)
Whether James Worldwide and Lee owed Cadu and
Groverman a duty of care under the Biakanja factors is a closer
question than whether the defendants owed the plaintiffs a duty
in Summit or Alereza. Under the second factor, although it was
foreseeable Cadu and Groverman would lose a commission if the
transaction did not close, their other claimed damages—millions
of dollars in lost future earnings—were less foreseeable. The
certainty-of-injury factor, the third, weighs in favor of finding a
duty because Cadu and Groverman alleged they lost their
commission on the FCO Genesis transaction and profits on future
transactions. Regarding the fifth Biakanja factor, moral blame,
unlike the escrow agents in Summit and Alereza,
James Worldwide and Lee allegedly engaged in fraud and did not
follow the escrow instructions. Therefore, they are more morally
blameworthy than an escrow agent who follows escrow
instructions but does so negligently.
The other Biakanja factors, however, weigh against finding
a duty. The first factor, whether the escrow transaction was
27
intended to affect or benefit Cadu and Groverman, does not
support imposing a duty on James Worldwide and Lee; to the
contrary, the escrow was intended to facilitate the sale of gloves
by FCO Genesis to Mohawk. Like the plaintiffs in Summit and
Alereza, Cadu and Groverman were not parties to the escrow,
were not entitled to be paid from the escrow, and were not
mentioned in the escrow agreement or instructions. Cadu and
Groverman contend they satisfied the intend-to-benefit factor by
alleging that “Kim represented to Groverman that Cadu stood to
make 15-25 cents on each box of Gloves sold to Mohawk” and that
“it was understood by all parties” that Cadu and Groverman
“stood to benefit from the deal.” But at most those allegations
claim that James Worldwide and Lee knew Cadu and Groverman
would earn a commission, making Cadu and Groverman
incidental, not intended beneficiaries of the transaction. As in
Summit and Alereza, the benefit to Cadu and Groverman as
brokers was collateral to the purpose of the escrow. (See
Summit, supra, 27 Cal.4th at p. 715; Alereza, supra,
6 Cal.App.5th at p. 560; cf. The Law Firm of Fox & Fox v. Chase
Bank, N.A., supra, 95 Cal.App.5th at p. 188 [bank owed a law
firm, “as an intended beneficiary of the blocked account order and
acknowledgment, a duty to act with reasonable care in limiting
distributions from the blocked account to those authorized by
court order”]; Business to Business Markets, Inc. v. Zurich
Specialties London Limited (2005) 135 Cal.App.4th 165, 171
[insurance broker owed a duty of care to a third party who was,
“strictly speaking, not quite an intended beneficiary,” but “close
enough to being one that imposing duty . . . is within the spirit of
Biakanja”].)
28
The remaining factors also weigh against finding a duty of
care. Regarding the fourth factor, closeness between the
defendants’ conduct and the plaintiffs’ injury, James Worldwide
and Lee’s allegedly negligent conduct—failing to prevent M&W
from taking Mohawk’s money from the escrow account and failing
to return the money to Mohawk—had some connection to Cadu
and Groverman’s injury, but it was not the only cause;
FCO Genesis’s failure to send the gloves and M&W’s removal of
Mohawk’s money from the escrow account played a significant
role. Nor does the policy of preventing future harm, the sixth
factor, support imposing a duty on James Worldwide and Lee.
Escrow agents already owe fiduciary duties to parties to the
escrow, and an escrow agent who fails to properly follow escrow
instructions is liable to parties to the escrow for breach of
contract. (See Alereza, supra, 6 Cal.App.5th at p. 561.)
Because Cadu and Groverman did not allege facts sufficient
to support a special relationship giving rise to a duty of care, the
trial court did not err in sustaining James Worldwide and Lee’s
demurrer to the causes of action for negligence and negligent
interference with prospective economic advantage.4 Cadu and
4 To the extent the trial court ruled that, for the negligent
misrepresentation cause of action, Cadu and Groverman had to
allege James Worldwide and Lee owed them a duty of care under
Biakanja, supra, 49 Cal.2d. 647, the court was mistaken. (See
Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016)
245 Cal.App.4th 821, 845 [a complaint that states a cause of
action for fraud “necessarily sufficiently pleads the elements of
. . . negligent misrepresentation”]; Lueras v. BAC Home Loans
Servicing, LP (2013) 221 Cal.App.4th 49, 68 [“The law imposes a
duty not to make negligent misrepresentations of fact.”];
29
Groverman have not stated what additional facts they could
allege to satisfy the Biakanja factors. Therefore, the trial court
did not abuse its discretion in sustaining the demurrer to those
causes of action without leave to amend.
G. Cadu and Groverman Alleged Sufficient Facts
To Constitute Stated Causes of Action Against
James Worldwide
James Worldwide argues that, even if Cadu and
Groverman alleged sufficient facts to constitute causes of action
against Lee, they did not allege sufficient facts to constitute a
cause of action against it. They contend the escrow agreement,
which was attached to the second amended complaint,
“conclusively demonstrates” James Worldwide was not the
escrow agent for the transaction because the agreement names
Lee, not James Worldwide, as the escrow agent. But all that
means is that James Worldwide may not have been a party to the
escrow agreement. Cadu and Groverman did not assert a cause
of action for breach of contract against James Worldwide. As
discussed, Cadu and Groverman alleged sufficient facts to state
causes of action against James Worldwide and Lee for
interference with prospective economic advantage and various
forms of fraud, regardless of whether James Worldwide was a
party to the escrow agreement. Cadu and Groverman alleged
that Lee was a manager of James Worldwide; that Lee told
Blankenheim v. E. F. Hutton & Co. (1990) 217 Cal.App.3d 1463,
1472-1473 [“negligent misrepresentation is included within the
definition of fraud”]; see also Sheen v. Wells Fargo Bank, N.A.
(2022) 12 Cal.5th 905, 943 [“‘[n]egligent misrepresentation is a
separate and distinct tort’ from negligence”].)
30
Groverman that “James Worldwide, originally started by his
parents, [had] a long history of conducting similar deals”; that
James Worldwide and Lee had a dispute with FCO Genesis; and
that FCO Genesis, James Worldwide, and Lee were looking for a
new customer to purchase PPE to resolve the dispute, with the
funds going to pay James Worldwide. Those allegations were
sufficient to raise an inference, which we accept as true for
purposes of a demurrer, Lee was working on behalf of
James Worldwide.
31
DISPOSITION
The judgment is reversed. The trial court is directed to
vacate its order sustaining the demurrer by James Worldwide
and Lee to the second amended complaint without leave to
amend, and to enter a new order overruling the demurrer to
Cadu and Groverman’s causes of action for intentional
interference with prospective economic advantage, fraud,
fraudulent concealment, negligent misrepresentation, and aiding
and abetting fraud and sustaining the demurrer to the causes of
action for negligence and negligent interference with prospective
economic advantage without leave to amend. Cadu and
Groverman are to recover their costs on appeal.
SEGAL, J.
We concur:
PERLUSS, P. J.
EVENSON, J.*
* Judge of the Alameda County Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
32