NATURE OF PROCEEDINGS: Defendant Jordan Walker-Pearlman’s Demurrer to Plaintiff’s First Amended Complaint

 

Defendant’s Demurrer is sustained with leave to amend.

 

BACKGROUND

In 2015, Plaintiff Peter Kleidman filed this action against Jordan Walker-Pearlman and Cinessence, LLC (Defendants), alleging Defendants had breached a contract and defaulted on money owed under a promissory note. The complaint alleged causes of action for: (1) Breach of Contract on Credit Line Agreement and Guarantee; (2) Breach of Contract on Promissory Note and Guarantee; and (3) Breach of Contract on Security Agreement.

On April 15, 2016, Plaintiff filed the operative First Amended Complaint (FAC) alleging causes of action for: (1) Breach of Contract on Credit Line and Guarantee; (2) Open Book Account; (3) Breach of Contract on Promissory Note and Guarantee; and (4) Breach of Contract on the Security Agreement.

On June 21, 2019, the Court entered a default judgment against Defendants.

Also, on June 21, 2019, the third and fourth causes of action in the FAC were dismissed pursuant to a request for dismissal filed by Plaintiff.

In January 2025, the Court granted Walker-Pearlman’s motion to set aside/vacate default and default judgment. Walker-Pearlman filed the instant Demurrer to Plaintiff’s First Amended Complaint. Walker-Pearlman demurs to each cause of action in the FAC on the grounds that such causes of action are barred by the doctrine of judicial estoppel because Plaintiff failed to timely disclose such claims in the concurrent bankruptcy proceeding.

On February 26, 2025, Plaintiff filed an opposition to the demurrer, to which Walker-Pearlman replied on May 4, 2025.

In the reply brief, Walker-Pearlman indicates that the demurrer as to the now dismissed third and fourth causes of action is moot. (Reply at p. 1:9-18.) Walker-Pearlman submitted a revised proposed order with the reply brief.

Initially, the Court finds that the meet and confer requirement has been met. Code Civ. Proc., § 430.41.

REQUESTS FOR JUDICIAL NOTICE

Walker-Pearlman requests that the Court take judicial notice of the following documents:

1.      Plaintiff’s First Amended Complaint in this action (Exhibit 1).

2.      Plaintiff’s February 8, 2012 Chapter 11 Voluntary Bankruptcy Petition filed in the United States District Court of the Central District of California, bearing Case No. 1:12-bk-11243-MB (the “Bankruptcy Proceeding”) (Exhibit 2).

3.      Plaintiff’s May 29, 2012 Complaint against Walker-Pearlman and Cinessence LLC, and the exhibits attached thereto, filed in the Supreme Court of the State of New York for the County of New York, bearing Case No. 153152/2012 (the “NY Action”) (Exhibit 3).

4.      Plaintiff’s January 7, 2013 Amended Schedule filed in the Bankruptcy Proceeding (Exhibit 4).

5.      Plaintiff’s March 5, 2013 Amended Schedule filed in the Bankruptcy Proceeding (Exhibit 5).

6.      Plaintiff’s March 5, 2013 Third Amended Plan of Reorganization filed in the Bankruptcy Proceeding (Exhibit 6).

7.      Plaintiff’s March 13, 2013 Notice of Motion and Motion for Order Confirming the Third Amended Chapter 11 Plan of Reorganization filed in the Bankruptcy Proceeding (Exhibit 7).

8.      The Court’s May 24, 2013 Order in the Bankruptcy Proceeding Confirming Plaintiff’s Third Amended Chapter 11 Plan of Reorganization (Exhibit 8).

9.      Plaintiff’s May 29, 2013 request for discharge filed in the Bankruptcy Proceeding (Exhibit 9).

10.  The Court’s June 24, 2013 Order granting Plaintiff’s request for discharge filed in the Bankruptcy Proceeding (Exhibit 10).

11.  Plaintiff’s original complaint filed in this action (Exhibit 11).

12.  Plaintiff’s June 21, 2019 declaration filed in this action (Exhibit 12).

13.  The June 21, 2019 default judgment against Defendants in this action (Exhibit 13).

14.  This Court’s January 22, 2025 Order setting aside Plaintiff’s default and default judgment against Walker-Pearlman (Exhibit 14).

15.  Plaintiff’s April 14, 2016 Amended Schedule filed in the Bankruptcy Proceeding (Exhibit 15).

Walker-Pearlman’s request for judicial notice is granted pursuant to Evid. Code § 452.

Plaintiff requests the Court take judicial notice of the following documents filed in the Bankruptcy Proceeding:

1.      Reorganized Debtor’s Amended Notice of Opportunity to Request Hearing on Motion and Motion to Enter Final Decree Closing the Case; Proof of Service Document, filed on April 14, 2016 (Exhibit A).

2.      Order granting motion in Bankruptcy Proceeding for entry of a final decree and order closing the case, filed on July 22, 2016 (Exhibit B).

3.      Online docket from PACER showing activity in the Bankruptcy Proceeding from March 13, 2013, to July 18, 2016 (Exhibit C).

The Court grants Plaintiff’s request for judicial notice under Evid. Code § 452.

LEGAL STANDARD

When considering demurrers, courts read the allegations liberally and in context. Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts assume the truth of the complaint’s properly pleaded or implied factual allegations. Ibid. However, it does not accept as true deductions, contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 (“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”). The burden is on the complainant to show the Court that a pleading can be amended successfully. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.

ANALYSIS

I. Allegations of the FAC

Plaintiff alleges the following in the FAC: Plaintiff provided a credit line (the “Credit Line”) to Cinessence, whereby Plaintiff would make certain advances to Cinessence. FAC, ¶5. These payments included, without limitation, payments to purchase and maintain a piece of real property (the “Property”) located in Alabama, which Cinessence and Walker-Pearlman used. FAC, ¶ 5. Walker-Pearlman guaranteed Cinessence’s performance in connection with the Credit Line. FAC, ¶ 6. The principal balance of the Credit Line was settled by the parties at $61,510.00 as of December 2007. FAC, ¶ 8. Since then, a total in debits of $283,196.65 were added to increase the balance of the Credit Line, and a total of credits of $48,611.26 were made to decrease the balance of the Credit Line. FAC, ¶ 8. Thus, the principal balance of the Credit Line is $296,095.39. FAC, ¶ 8. Including interest, as of April 1, 2016, the total owing on the Credit Line is $379,113.92. FAC, ¶ 10.  The Credit Line was memorialized in a Credit Line Agreement. FAC, ¶ 7; Exhs. B, D, E.

Plaintiff alleges that he performed his material obligations in connection with the Credit Line Agreement by making advances to Cinessence and Walker-Pearlman, including making payments and advances on behalf of Cinessence. FAC, ¶ 11. Cinessence failed to repay Plaintiff on the Credit Line and Walker-Pearlman failed to honor the guarantee. FAC, ¶ 12.

II. Judicial Estoppel

Walker-Pearlman contends that each cause of action in the FAC is barred as a matter of law by the doctrine of judicial estoppel. (Dem. at p. 5:23-8:7.) Plaintiff contends that judicial estoppel does not apply because Walker-Pearlman has failed to show that Plaintiff gained an advantage in his bankruptcy. (Opp’n at p. 7:16-8:8.)

As to the issue of judicial estoppel, Plaintiff further argues that: (1) Walker-Pearlman provides no Bankruptcy Court order or ruling indicating that it adopted or accepted that Plaintiff had no claims against Walker-Pearlman (Opp’n at p. 8:9-10:11); (2) the Bankruptcy Court accepted that Plaintiff did have claims against Walker-Pearlman (Opp’n at p. 10:12-12:23); and (3) Walker-Pearlman fails to show that the Bankruptcy Court adopted or accepted the position that Plaintiff had no claims against Walker-Pearlman (Opp’n at p. 12:24-16:8).

“The concept of judicial estoppel prevents a party from asserting a position in a judicial proceeding that is contrary or inconsistent with a position previously asserted in a prior proceeding. The purpose is to protect the integrity of the judicial process and not the parties of the lawsuit.” International Engine Parts, Inc. v. Feddersen & Co. (1998) 64 Cal.App.4th 345, 350 (International Engine Parts). Application of “judicial estoppel is especially appropriate where a party has taken inconsistent positions in separate proceedings.” Id. at p. 351 (quoting Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181). Judicial estoppel “should apply when: (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake. [Citations.]” Ibid. (quoting Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 183).

Where a bankruptcy proceeding is concerned, “[i]t is a long-standing tenet of bankruptcy law that one seeking the benefits of protection under the bankruptcy law has a concomitant duty to disclose to the creditor’s all of the debtor’s interests and property rights without limitation.” International Engine Parts, Inc. v. Fedderson & Co., supra, 64 Cal.App.4th 345, 351. A party in a bankruptcy proceeding must disclose “the possibility of any litigation likely to arise in a nonbankruptcy context.” Ibid. “[A] party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor’s schedules or disclosure statements.” Hamilton v. State Farm Fire & Cas. Co. (2001) 270 F.3d 778, 784. “Judicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset.” Ibid. “Debtors in bankruptcy have a general right to amend their schedules, including their exemptions, at any time before the case is closed.” Fed. Rules of Bankruptcy Procedure, Rule 1009(a).

Here, Plaintiff initiated the Bankruptcy Proceeding on February 8, 2012, which is when Plaintiff filed a Chapter 11 Bankruptcy Petition. Walker-Pearlman RJN at Exhibit 2. Plaintiff listed $9,653,770.00 in assets and $12,342.049.32 in liabilities and indicated that he had an interest in 25 percent of the revenue of Cinessence. Walker-Pearlman RJN, Exhibit 2 at pp. 18, 21. Plaintiff, however, did not disclose any monies owed pursuant to the Credit Line or Credit Line Agreement. Walker-Pearlman RJN at Exhibit 2. In his Amended Schedule in the Bankruptcy Proceeding, Plaintiff failed to disclose the existence of monies owed pursuant to the Credit Line Agreement or a guaranty provided by Walker-Pearlman. Walker-Pearlman RJN at Exhibit 4. Plaintiff failed to set forth the NY Action is his amended schedule. Walker-Pearlman RJN at Exhibit 4. Neither Plaintiff’s March 5, 2013, Amended Schedule filed in the Bankruptcy Proceeding nor his Third Amended Plan of Reorganization identified the existence of monies owed pursuant to the Credit Line Agreement or the associated guaranty set forth therein. Walker-Pearlman RJN at Exhibits 5 and 6.

On March 13, 2013, in the Bankruptcy Proceeding, Plaintiff filed a Motion for Order Confirming the Third Amended Chapter 11 Plan of Reorganization; however, such motion did not mention the existence of monies owed pursuant to the Credit Line Agreement or the associated guaranty set forth therein. Walker-Pearlman RJN at Exhibit 7. The Third Amended Chapter 11 Plan of Reorganization was approved by the Bankruptcy Court on May 24, 2013. Walker-Pearlman RJN at Exhibit 8. Plaintiff thereafter applied for a discharge of all preconfirmation debts and discharge was granted by the Bankruptcy Court on June 24, 2013. Walker-Pearlman RJN at Exhibits 9 and 10.

However, on April 14, 2016, in the Bankruptcy Proceeding, Plaintiff filed an Amended Schedule which purports to backdate Plaintiff’s property as of March 5, 2013. Walker-Pearlman RJN, Exhibit 15 at p. 1. For the first time, Plaintiff set forth that he had causes of action against Cinessence and Walker-Pearlman for non-payment of loans, including the credit line, with an estimated value of recovery of $75,000.00. Walker-Pearlman RJN, Exhibit 15 at p. 11.

On July 22, 2016, in the Bankruptcy Proceeding, the Bankruptcy Court entered an order granting Plaintiff’s motion to close the case. Kleidman RJN at Exhibits A and B. The Bankruptcy Proceeding was still active after discharge was granted. Kleidman RJN at Exhibit C. On July 28, 2016, the Bankruptcy Proceeding concluded as the Bankruptcy Court indicated that plan of reorganization had been fully implemented and the case was closed. Kleidman RJN, Exhibit C at p. 32.

The Court finds that a discussion of International Engine Parts, supra, 64 Cal.App.4th 345 is appropriate. In International Engine Parts, appellant International Engine Parts, Inc. (International Engine Parts) filed suit against respondent Fedderson and Company (Fedderson). International Engine Parts, supra, 64 Cal.App.4th 345, 348. International Engine Parts hired Fedderson in the late 1970’s to perform accounting services and Fedderson prepared International Engine Parts’ tax returns for the years of 1983 and 1984. Ibid. Fedderson, however, made an omission which caused an audit by the IRS as to International Engine Parts in 1985. Ibid. International Engine Parts alleged that Fedderson negligently forgot or missed required filings. Ibid. Apart from the tax issue, International Engine Parts filed for bankruptcy protection in 1984. Ibid. In its respective plans of reorganization, International Engine Parts failed to mention any contemplated litigation involving Fedderson. Id. at p. 349. In its second and last amended plan of reorganization, which was filed on May 15, 1990, International Engine Parts did not reference any contemplated litigation against Fedderson. Ibid. On May 15, 1990, International Engine Parts filed its complaint against Fedderson for professional malpractice. Ibid. On July 18, 1990, the bankruptcy court confirmed International Engine Parts’ plan of reorganization, which did not reference the litigation against Fedderson. Ibid.

The trial court granted Fedderson’s motion for summary judgment, which was made on the grounds that judicial estoppel prevented International Engine Parts from raising claims against Fedderson which International Engine Parts had failed “to acknowledge in [the] bankruptcy action even existed.” International Engine Parts, supra, 64 Cal.App.4th 345, 347. International Engine Parts appealed the trial court’s order granting summary judgment. Ibid. The International Engine Parts court addressed the issue of whether the action filed by International Engine Parts was barred by the doctrine of judicial estoppel. Id. at p. 349. The court held that the action was barred by the doctrine of judicial estoppel. Id. at p. 352. The court indicated that International Engine Parts had made multiple subsequent failures to disclose the potential action against Fedderson in the bankruptcy proceedings. Id. at p. 353. The court noted that International Engine Parts failed to disclose Fedderson’s potential liability at all in the bankruptcy proceedings. Ibid.

Here, like the plaintiff in International Engine Parts, Plaintiff failed to disclose the existence of any potential causes of action against Walker-Perlman or monies owed by Defendant Walker-Pearlman in any of his plans of reorganization submitted in the Bankruptcy Proceeding prior to the confirmation of his plan of reorganization and his discharge. Here, Plaintiff first mentioned the existence of the facts giving rise to the instant litigation almost three years after the discharge order was entered. The Court is allowed to draw inferences from the FAC in assessing the instant demurrer. Rodas v. Speigel (2001) 87 Cal.App.4th 513, 517. Here, the FAC alleges that the principal balance of the Credit Line was settled in December 2007 and debits were added since that time. FAC, ¶ 8. Thus, the Court can infer that, at the time the Bankruptcy Proceeding was initiated, Plaintiff should have been aware of some potential causes of action against Walker-Pearlman as well as the existence of monies owed from Walker-Pearlman to Plaintiff. As such, Plaintiff should have provided such information to the Bankruptcy Court prior to the approval of the plan of reorganization and entry of discharge in 2013. The fact that Plaintiff attempted to backdate an amended schedule in April 2016 does not obviate the fact that Plaintiff failed to disclose potential causes of action or monies owed as to Walker-Pearlman prior to the discharge of the bankruptcy and approval of Plaintiff’s reorganization plan.

The Court finds that Plaintiff’s citation to Filtzer v. Ernst (2022) 79 Cal.App.5th 579 is inapposite as such case does not address the issue of failure to disclose monies owed or potential litigation in a bankruptcy proceeding.

Plaintiff’s reliance on Gottlieb v. Kest (2006) 141 Cal.App.4th 110 (Gottlieb) for the proposition that the Bankruptcy Court did not accept or adopt the position that he had no claims against Walker-Pearlman is inapposite. Gottlieb is factually distinguishable as the bankruptcy in such action was dismissed without confirmation of a plan of reorganization. Gottlieb v. Kest, supra, 141 Cal.App.4th 110, 130. Gottlieb does express the rule that “[u]nder Chapter 11, a debtor has a continuing duty to notify the bankruptcy court of its assets, for example, by amending its schedules or including the assets on subsequently filed documents.” Gottlieb, supra, 141 Cal.App.4th 110, 133. Plaintiff was required to “list any legal claims against a creditor whose wrongful conduct caused the bankruptcy; otherwise, an action on the claim is barred.” Id. at p. 136. Gottlieb provides that “the grant of a discharge . . . or the confirmation of a plan may constitute sufficient ‘acceptance’ of the accuracy of schedules so as to permit judicial estoppel.” Gottlieb, supra, 141 Cal.App.4th 110, 142 (quoting In re An-Tze Chang (Bankr.9th Cir.2004) 308 B.R. 448, 453)).

Here, Plaintiff omitted any reference monies owed to him by Walker-Pearlman pursuant to the Credit Line and Credit Line Agreement, as well as potential causes of action pertaining to Walker-Pearlman, prior to the grant of discharge from documents presented to the Bankruptcy Court. It follows that the Bankruptcy Court relied on the accuracy of the presented schedules and plans of reorganization prior to entering discharge.

The Court finds that the doctrine of judicial estoppel applies pursuant to International Engine Parts, supra, 64 Cal.App.4th 345. The Court finds that prior to approval of the reorganization plan and discharge of bankruptcy, Plaintiff did not ever reference any potential litigation against Walker-Pearlman or monies owed to Plaintiff by Walker-Pearlman. Plaintiff took an inconsistent position in the bankruptcy action than was taken in the instant action. The Bankruptcy Court clearly adopted the inconsistent position as the reorganization plan was approved and discharge was entered although Plaintiff omitted any reference to the potential litigation against Walker-Pearlman or monies owed to Plaintiff by Walker-Pearlman. The Court finds that the positions in the Bankruptcy Proceeding and the instant action are totally inconsistent. Lastly, Plaintiff makes no argument that his failure to timely apprise the Bankruptcy Court of any potential litigation against Walker-Pearlman or monies owed to Plaintiff by Walker-Pearlman prior to approval of the reorganization plan and discharge was the result of ignorance fraud or mistake.

Thus, the first and second causes of action in the FAC are barred by the doctrine of judicial estoppel.

III. The Litigation Privilege

As a tertiary argument, Plaintiff contends that the litigation privilege bars Walker-Pearlman’s argument concerning judicial estoppel. (Opp’n at p. 17:17-26.) On reply, Walker-Pearlman asserts that the litigation privilege argument has no merit. (Reply at p. 7:17-26.)

Civ. Code § 47(b) provides that a privileged publication or broadcast is one made “[i]n any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law . . . .” Civ. Code § 47, subd. (b). “[C]ourts have applied the [litigation] privilege to eliminate the threat of liability for communications made during all kinds of truth-seeking proceedings: judicial, quasi-judicial, legislative and other official proceedings.” Hagberg v. California Federal Bank (2004) 32 Cal.4th 350, 361 (quoting Silberg v. Anderson (1990) 50 Cal.3d 205, 213)).

The Court fails to see the merit of Plaintiff’s argument as to the litigation privilege. Walker-Pearlman is not seeking to impose liability onto Plaintiff for any statement or non-statement made during the Bankruptcy Proceedings. Thus, the litigation privilege does not prevent the operative claims in the FAC from being subject to the doctrine of judicial estoppel.

 

CONCLUSION

Defendant’s Demurrer is sustained as to the first and second causes of action in the FAC. Plaintiff has twenty days leave to amend.