Case Number: 20STCV38006    Hearing Date: May 4, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

MOVING PARTY:              Defendants Muslim Community Services, Inc. aka La Mirada Masjid, Mohammed Rezaur Rahman and Atikur Khan.

OPPOSITION:                      Plaintiff Mohamad John Ayoubi, derivatively on behalf of Muslim Community Service, Inc. aka La Mirada Masjid.

REPLY:                                 Defendants Muslim Community Services, Inc. aka La Mirada Masjid, Mohammed Rezaur Rahman and Atikur Khan.

Background

Plaintiff Mohamad John Ayoubi—derivatively on behalf of Defendant Muslim Community Service, Inc. aka La Mirada Masjid (MCSI)—sues Defendants MCSI, Mohammed Rezaur Rahman, Atikur Khan, and Does 1 through 10 pursuant to a July 29, 2022 Second Amended Complaint (SAC) alleging claims of: (1) Failure to Produce Business Records; (2) Breach of Fiduciary Duty; (3) Accounting; (4) Unfair Competition [Violation of Bus. & Prof. Code § 17200 et seq.]; and (5) Declaratory Relief.

The SAC arises from allegations that: Plaintiff Mohamad Ayoubi was a member of MCSI; based on his construction background, Plaintiff Ayoubi was approached and asked to join MCSI’s board of directors in 2018, in large part because MCSI was undertaking a large construction project with which Ayoubi could be of assistance; through his work on the construction project, Plaintiff Ayoubi became concerned about the amount paid and nature of some contracts with vendors known to be close to various board members, later raising these concerns with the board and inquiring about the bidding process for approval of those contracts, with no members of the board sharing the requested information with Plaintiff; Plaintiff Ayoubi also discovered that MCSI had paid for work to be done on board member’s private residences, matters into which Plaintiff Ayoubi inquired, only to be refused the necessary information regarding these expenditures; Plaintiff generally requested records and documents related to MCSI’s construction projects, Bylaws, board minutes, and other records between, at the very least, November 2019 and January 2020, but was rebuffed; Plaintiff requested information as to how Defendants Rahman and Khan came to lead the organization—as MCSI’s President and Treasurer respectively—but was not given this information; on July 16, 2020, MCSI’s board—including Defendants Rahman and Khan—decided to ban Plaintiff from the mosque, partly based on allegations of assault; Plaintiff Ayoubi was also removed from the board, impeding his ability to reach MCSI’s corporate records.

On August 26, 2022, Defendants demurred to the SAC on lack of sufficient pleading and uncertainty in pleading grounds, as centered on arguments related to standing and the conduct underlying the SAC’s five causes of action. The demurrer was calendared for hearing on February 2, 2023.

On September 15, 2022, Defendants moved to strike portions of the SAC that allege or pray for (1) damages suffered by Plaintiff Ayoubi in his personal capacity, (2) an order enjoining Defendants from removing Plaintiff from MCSI’s board and/or compelling Defendants to reinstate Plaintiff as a member of MCSI and its board, and (3) attorney’s fees in favor of Plaintiff Ayoubi. The motion to strike was calendared for hearing on February 2, 2023.

On January 20, 2023, the Court continued the hearing on the demurrer and motion to strike to May 4, 2023.

Also on January 20, 2023, Plaintiff Ayoubi opposed the demurrer and the motion to strike.

On January 26, 2023, Defendants filed a combined reply to the January 20th oppositions.

The demurrer and motion to strike are now before the Court.

Request for Judicial Notice

Defendants seek judicial notice of: (1) MCSI’s Articles of Incorporation, filed with the California Secretary of State on March 9, 2001; (2) MCSI’s by-laws, dated April 24, 2001; (3) a Statement of Information filed with the California Secretary of State on March 29, 2020, identifying three MCSI officers; (4) MCSI’s board minutes for July 16, 2020, expelling Plaintiff Ayoubi from MCSI; (5) the SAC in this action; (6) a Statement of Information filed with the California Secretary of State on October 28, 2020, listing MCSI’s officers and directors; and (7) Plaintiff’s interrogatories allegedly reflecting that Plaintiff suffered no damages as a result of the conduct alleged in the SAC. (Demurrer & Strike Mot., RJN, p. 2, ¶¶ 1-7, Exs. 1-7.)

Plaintiff Ayoubi objects to the judicial notice of the by-laws and the July 16, 2020 minutes, as well as any assumption of truth of statements made in any of the seven documents up for judicial notice. (Opp’n, Objections, pp. 1-2; see Evidentiary Objections discussion infra.)

While “[t]he court [must] take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering a demurrer, only where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court[,] [t]he hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of affidavits, declarations, depositions, and other such material which was filed on behalf of the adverse party and which purports to contradict the allegations and contentions of the plaintiff.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-605.)

Here, the Court TAKES JUDICIAL NOTICE of the SAC, attached as Exhibit 5 to the request for judicial notice, and the interrogatory responses attached as Exhibit 7 to the request for judicial notice and showing discovery responses propounded from Plaintiff that could be inconsistent with damages allegations and prayers in the SAC. (See RJN, p. 2, ¶¶ 5, 7, Exs. 5, 7; see also Del E. Webb Corp. v. Structural Materials Co., supra, 123 Cal.App.3d at pp. 604-605; Evid. Code, §§ 452, subds. (d), (h), 453.)

The Court DECLINES judicial notice of the remaining five exhibits. (See Demurrer & Strike Mot., RJN, p. 2, ¶¶ 1-4, 6, Exs. 1-4, 6.) The Court declines to convert this hearing into a contested evidentiary hearing, particularly where many of these exhibits precede 2018 or follow Plaintiff Ayoubi’s removal from MCSI’s board in January 2020 and from MCSI itself in July 2020. (See RJN, p. 2, ¶¶ 1-5, Exs. 1-5; see also Del E. Webb Corp. v. Structural Materials Co., supra, 123 Cal.App.3d at pp. 604-605.)

Evidentiary Objections

Opposition Objections by Plaintiff Ayoubi

Objection No. 1 to Judicial Notice of By-Laws: SUSTAINED.

Objection No. 2 to Judicial Notice of July 16, 2019 Minutes: SUSTAINED.

Objection No. 3 to Assumption of Truth of Judicial Notice Documents: SUSTAINED, as to RJN Nos. 1-4, 6; OVERRULED, as to RJN Nos. 5, 7.)

Demurrer

Demurrer Sufficiency Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This device can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a [general] demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521.)

Demurrer Uncertainty Standard

A demurrer to a pleading lies where the pleading is uncertain, ambiguous, or unintelligible. (Code Civ. Proc. § 430.10, subd. (f).) “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) As a result, a special demurrer for uncertainty is not intended to reach failure to incorporate sufficient facts in the pleading but is directed only at uncertainty existing in the allegations already made. (People v. Taliaferro (1957) 149 Cal.App.2d 822, 825.) Where complaint is sufficient to state a cause of action and to apprise defendant of issues he is to meet, it is not properly subject to a special demurrer for uncertainty. (See ibid.; see also Gressley v. Williams (1961) 193 Cal.App.2d 636, 643 [“A special demurrer [for uncertainty] should be overruled where the allegations of the complaint are sufficiently clear to apprise the defendant of the issues which he is to meet”].)

Entire SAC, Standing: SUSTAINED.

In relevant part, Defendants demur to the SAC on the ground that Plaintiff Ayoubi’s causes of action involve derivative claims on behalf of a religious nonprofit corporation, which requires that Mr. Ayoubi plead that he has standing to bring derivative claims on behalf of MCSI as against Defendants MCSI, Rahman, and Khan pursuant to Corporations Code section 9142, and which the SAC fails to sufficiently plead. (Demurrer, pp. 4-5.) More specifically, Defendants argue that, despite the allegations in the SAC, the documents proposed for judicial notice by Defendants show that Plaintiff Ayoubi was never a member, former member, or director of MCSI, for which reason he has no standing to bring this derivative suit on behalf of Defendant MCSI, where (1) a member is defined by Corporations Code section 5056, incorporated into Corporations Code section 9332 and (2) standing as a director must exist at the time the suit is filed. (Demurrer, pp. 4-5.)

In opposition, Plaintiff Ayoubi argues that the SAC sufficiently pleads his member and director status in MCSI at paragraphs 1, 12 to 16, and 28. (Opp’n to Demurrer, p. 7.) Plaintiff Ayoubi also argues that the SAC cures any deficiencies in the FAC by specifically filing this action derivatively on behalf of MCSI and pleading member and director status, as well as a written demand for relief from MCSI’s board dated August 10, 2020. (Opp’n to Demurrer, pp. 8-9.) Plaintiff next argues that the judicial notice requested by Defendants is improper insofar as the Court cannot assume the truth of statements made in the documents subject to judicial notice and transmute the demurrer into a contested evidentiary hearing, and that the by-laws are an improper subject for judicial notice because they precede in time the allegations made in the SAC. (Opp’n to Demurrer, pp. 11-12.) Plaintiff last argues that he has sufficiently pleaded standing based on member or former member status and former director status. (Opp’n to Demurrer, pp. 13-18.)

In reply, Defendants argue that the documents for which they request judicial notice are properly subject to notice and show Plaintiff lacks standing to bring this derivative action, specifically because Plaintiff was never a director, officer, or member of MCSI. (Combined Reply, pp. 1-3.)

The Court first notes that Corporations Code section 9142 is argued by the parties to be the sine qua non of standing for the purpose of bringing any derivative claim on behalf of a nonprofit religious corporation. It is not. Corporations Code section 9142 simply contemplates standing for the purpose of bringing an action for breach of a trust held by a nonprofit religious corporation. (See Corp. Code, § 9142, subd. (a).) Other statutory sections in Code of Civil Procedure sections 9110 et seq. contemplate different derivative actions that may be brought against directors of a nonprofit religious corporation. For example, Corporations Code section 9243 contemplates standing for an action against directors of a nonprofit religious corporation who have engaged in self-dealing. (See Corp. Code, §§ 9241, 9243, subds. (a), (c).)

Nonetheless, the Court notes that the SAC fails to sufficiently plead standing for the purposes of section 9142.

Section 9142 allows various persons and entities to bring a derivative action related to breach of a trust under which religious nonprofit assets are held, including (1) the corporation itself, a member, or a former member asserting the right in the name of the corporation, provided that for the purpose of this paragraph the provisions of Section 5710 shall apply to such action (e.g., a demand to the corporation’s board for relief sought in the operative pleading), (2) an officer of the corporation, (3) a director of the corporation, or (4) a person with a reversionary, contractual, or property interest in the assets subject to such trust. (Corp. Code, § 9142, subds. (a)(1)-(4).)

The SAC pleads Plaintiff Ayoubi as a former member of MCSI. (SAC, ¶¶ 16 [Plaintiff pleaded as member of MCSI], 24 [Plaintiff pleaded as banned from MCSI in July 2020].) The SAC also pleads Plaintiff Ayoubi as a former director of MCSI. (SAC, ¶¶ 14-15 [Plaintiff joins MCSI’s board of directors], 42 [Plaintiff removed from board of directors in January 2020].)

Based on the SAC’s pleadings that Plaintiff Ayoubi is a former member of MCSI, Plaintiff Ayoubi would have standing to bring a derivative action related to breach of a trust under which MCSI assets were held if the SAC’s pleadings also satisfied Corporations Code section 5710—which the SAC fails to do. (See Corp. Code, § 9142, subd. (a)(1) [former member may bring derivative action related to breach of trust holding nonprofit assets if pleading satisfies Corp. Code, § 5710].) Section 5710 requires that before bringing a derivative action, the plaintiff must make a demand for relief with the corporation’s board of directors. (Corp. Code, § 5710, subds. (b)(1)-(2) [necessitating pleadings of member status when harms occurred and demand for relief from board].) The SAC alleges that Plaintiff made a demand for relief from MCSI’s board of directors in August 2020. (SAC, ¶¶ 30-31.) However, the pleaded demand for relief does not involve harm to MCSI in the form of breach of a trust holding assets belonging to MCSI, instead alleging harm to MCSI through the purported self-dealing of its directors. (See SAC, ¶¶ 30-31.) Consequently, a demand for relief for the purposes of Corporations Code section 9142, subdivision (a)(1) is not pleaded in the SAC. The SAC thus fails to plead section 9142 standing through allegations of Plaintiff Ayoubi’s former member status in MCSI.

Similarly, the SAC fails to plead section 9142 standing based on allegations that Plaintiff Ayoubi is a former director of MCSI because, even if the SAC alleged a breach of a trust holding assets belonging to MCSI—which it does not—section 9142, subdivision (a)(3) limits the right to bring a derivative action for such breach of a trust to current directors, not former directors. (See Corp. Code, § 9142, subd. (a)(3) [current director may bring action related to breach of trust holding nonprofit assets; no mention of former directors].)

The SAC therefore does not properly plead standing grounds for Plaintiff Ayoubi to bring an action on behalf of MCSI pursuant to Corporations Code section 9142. Although the causes of action pleaded in the SAC do not allege reliance on Corporations Code section 9142, such that the SAC’s failure to plead standing pursuant to that statutory section would be irrelevant to the determination of whether the five claims pleaded in the SAC are sufficiently stated, Plaintiff argued that he had standing on this basis in his Opposition. (See Opp’n at pp. 12-18.)

The Court thus SUSTAINS the demurrer as premised on its section 9142 standing argument. In an excess of caution, however, the Court will continue to analyze the additional arguments (See First to Fifth Causes of Action, below.)

SAC, First Cause of Action, Failure to Produce Business Records: SUSTAINED, Without Leave to Amend.

Every director shall have the right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director for a purpose reasonably related to such person’s interests as a director. (Corp. Code, § 9513.)

The SAC’s first cause of action for “Failure to Produce Business Records” is pleaded against all Defendants, is premised on Corporations Code section 9513, and alleges that, between late 2018 and January 2020—during which time Plaintiff was a member of MCSI’s board of directors—Defendants refused Plaintiff Ayoubi’s requests for inspection of MCSI’s business records in relation to Ayoubi’s investigation of self-dealing by MCSI’s board members. (SAC, ¶¶ 38-45.) The Court notes that the claim is pleaded as a “derivative claim.” (SAC, p. 7:24.)

In their demurrer, Defendants argue that the first cause of action is not properly pleaded because “the … corporate and state records [for which judicial notice was requested] show that Plaintiff has never been listed as a director on any corporate documents,” for which reason “Plaintiff was never a director of MCSI, and therefore he has no standing to make such a claim.” (Demurrer, pp. 5-6.)

In opposition, Plaintiff Ayoubi argues that he sufficiently “alleges that he made numerous requests for Defendants’ records, including bylaws, minutes, etc., to investigate Plaintiff’s suspicions of Defendants’ misappropriation of Mosque funds” but that “Defendants continuously refused to produce the records[] (SAC at ¶¶ 19-21, 40-43)” and that Plaintiff sufficiently “alleges that he was a director of MCSI and was improperly removed,” for which reasons “[t]hese facts state[] a valid claim.” (Opp’n to Demurrer, p. 18.)

In their reply, Defendants reiterate their argument that “Plaintiff’s allegation that he was a director is invalidated by the documents subject to judicial notice,” for which reason “Plaintiff was never a director, nor was he director at the time he filed his Complaint,” invalidating “standing to demand production of business records from MCSI.” (Combined Reply, pp. 3-4.)

The Court finds that the first cause of action is fatally defective.

Corporations Code section 9513 contemplates an injury to a director as a result of being denied access to corporate records. However, the Complaint pleads that he was removed from the Board in January 2020, and thus as of the time of the filing of the original Complaint on October 2, 2020, not to mention as of the subsequent filing of the FAC and SAC, Plaintiff was not a director for MCSI. (Complaint, ¶ 16; FAC, ¶ 19; SAC, ¶ 42.) Under such circumstances, Plaintiff Ayoubi lacks standing to bring the first cause of action.

Defendants’ demurrer to the SAC’s first cause of action is thus SUSTAINED, Without Leave to Amend. (Cabral v. Soares (2007) 157 Cal.App.4th 1234, 1240 [“The denial of leave to amend is appropriate … when it conclusively appears that there is no possibility of alleging facts under which recovery can be obtained”].)

SAC, Second Cause of Action, Breach of Fiduciary Duty: SUSTAINED, Without Leave to Amend.

A corporate director owes a fiduciary duty to the corporation. (See DHC Health Servs. Corp. v. Waite (2002) 95 Cal.App.4th 829, 832 [“[A] corporate director owe[s] [no] … [fiduciary] duty to anyone but the corporation”]; see Corp. Code, § 9241, subd. (a) [“A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner such director believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as is appropriate under the circumstances”].)

The SAC’s second cause of action is pleaded against all Defendants based on allegations that Defendants have breached their fiduciary duty to MCSI pursuant to Corporations Code sections 14620 and 5231 by, among other things, “misappropriat[ing] MCSI’s funds to pay for improvements to their private property,” “contract[ing] with friends and family members for work performed on MCSI without a bidding process and at unreasonably high rates,” and “refus[ing] to allow Plaintiff, other members of MCSI, or the public to review records, which would expose Defendants’ wrongdoing.” (SAC, ¶ 51; see SAC, ¶¶ 46-56.)

In their demurrer, Defendants argue that the second cause of action is not sufficiently pleaded because it does not sufficiently allege standing to bring this claim (1) pursuant to Corporations Code section 5231, either as a current officer, director, or member of MCSI, (2) pursuant to Corporations Code section 5710, and (3) insofar as Plaintiff lacks some definite interest in the property at issue. (Demurrer, p. 6.)

In opposition, Plaintiff argues that “[a]t all pertinent times, Plaintiff was a member of MCSI, and director of MCSI until he was improperly removed,” for which reason “Defendants thus owed Plaintiff a fiduciary duty,” and that “Defendants breached their fiduciary duty by, inter alia, misappropriating MCSI’s funds to pay for improvements to their private property and contracting with friends and family members for work performed on MCSI without a bidding process and at unreasonably high rates.” (Opp’n to Demurrer, p. 18.)

In reply, Defendants raise arguments relating to judicial notice, which are not considered in light of being raised for the first time on reply without adequate justification. (Combined Reply, p. 4; see Nordstrom Com. Cases (2010) 186 Cal.App.4th 576, 583.)

The Court finds that the second cause of action is fatally defective.

A claim pursuant to Corporations Code section 14620—the first statutory ground supporting this claim (SAC, ¶ 47)—is actually a claim pursuant to Corporations Code section 14623, subdivisions (b)(1)-(2), dealing with an action or a claim against a benefit corporation generally or its directors or officers for failure to serve a corporation in good faith and with due care. (See Corp. Code, §§ 14620, 14623, subds. (b)(1)-(2); see also Corp. Code, § 14600, subd. (a) [“This part shall be applicable to all benefit corporations”].) To have standing to bring such an action or claim derivatively, the plaintiff must be (A) a shareholder, (B) a director, (C) a person or group of persons owning a 5% equity interest in the corporation, or (D) other persons specified by the corporation’s articles or by-laws. (Corp. Code, § 14623, subds. (b)(2)(A)-(D).) The Court adopts its Standing discussion above to find that the SAC fails to plead that Plaintiff Ayoubi was a current director of MCSI at any time since this action was filed. (See also SAC, ¶ 42 [clearly pleading that Plaintiff was not a director at any time since this action was initiated].) The SAC also does not plead that Plaintiff Ayoubi is a shareholder in MCSI, an equity interest holder in MCSI, or a person named by MCSI’s articles or by-laws as a person that can bring a cause of action for failure to act in good faith and with due care for MCSI’s interests. (See SAC generally.) Plaintiff therefore does not qualify for standing to bring suit on behalf of MCSI for lack of good faith and failure to act with due care by MCSI’s directors—e.g., by Defendants Rahman or Khan.

A claim pursuant to Corporations Code section 5231—the second statutory ground supporting this claim (SAC, ¶ 47)—is actually a claim pursuant to Corporations Code section 5233, subdivisions (a) and (c), dealing with situations in which a director of a nonprofit public benefit corporation engages in self-dealing. (See Corp. Code, §§ 5231, 5233, subds. (a), (c).) A more apt statutory scheme for such relief against directors of a nonprofit religious corporation is Corporations Code sections 9241 and 9243, containing identical language for nonprofit religious corporation purposes. (See Corp. Code, §§ 9241, 9243, subds. (a), (c).) To have standing to bring a self-dealing action or claim derivatively on behalf of a nonprofit religious corporation, the plaintiff must be (1) the corporation or a current member thereof asserting the right pursuant to Corporations Code section 5710, (2) a director of the corporation, (3) an officer of the corporation, or (4) any person authorized by the bylaws to bring an action. (Corp. Code, § 9243, subds. (c)(1)-(4).) The Court adopts its Standing discussion above to find that the SAC fails to plead that Plaintiff Ayoubi was a current director of MCSI at any time since this action was filed. (See also SAC, ¶ 42 [clearly pleading that Plaintiff was not a director at any time since this action was initiated].) The Court also points to paragraphs 16 and 24 of the SAC, which make clear that Plaintiff pleads that he was not a current member of MCSI at the time this action was filed in October 2020. (SAC, ¶ 16 [Plaintiff removed from membership of MCSI], 24 [Plaintiff banned from MCSI in July 2020].) Plaintiff therefore does not qualify for standing to bring suit on behalf of MCSI for self-dealing by MCSI’s directors—e.g., by Defendants Rahman or Khan.

Defendants’ demurrer to the SAC’s second cause of action is thus SUSTAINED, Without Leave to Amend. (Cabral v. Soares, supra, 157 Cal.App.4th at p. 1240.)

SAC, Third Cause of Action, Accounting: SUSTAINED, Without Leave to Amend.

An action for an accounting has two elements: (1) “that a relationship exists between the plaintiff and defendant that requires an accounting” and (2) “that some balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.) “An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.” (Ibid.)

The SAC’s third cause of action is pleaded against all Defendants and alleges that “Plaintiff was a member of MCSI and a director on the Board, which means he has a fiduciary relationship with MCSI and Defendants” and that “Defendants have misappropriated funds for personal use and/or for the benefit of friends and family through vendor contracts whose nature and amount exceed what would be paid had a formal bidding process with third parties occurred,” for which “an accounting is necessary to ascertain the balance due to misappropriations of funds.” (SAC, ¶¶ 57-62.)

In their demurrer, Defendants argue that “Plaintiff’s purported status as a director and member is plainly incorrect as seen by official corporate records, and there is no basis for this claim,” for which reason “no relationship exists that would require an accounting, nor does Plaintiff plead that a balance is due to him,” leading to the conclusion that “Plaintiff fails to state any claim for accounting against Defendants, and [that] the cause of action is otherwise uncertain.” (Demurrer, p. 6.)

In opposition, Plaintiff argues that “‘fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting’” and that the SAC sufficiently pleads accounting insofar as Plaintiff is “a congregant who has paid money and invested time and energy in the Mosque, … [thus] entitl[ing] [him] to an accounting of the Board Member Defendants’ use of Mosque monies.” (Opp’n to Demurrer, pp. 18-19.)

In reply, Defendants argue that “Plaintiff does not have a relationship with MCSI that rises to the level of being able to demand an accounting of the corporation” and that “Plaintiff also does not allege monetary damages owed that would require an accounting,” for which reason “Plaintiff does not have the requisite relationship for demanding an accounting of the corporation and fails to state a cause of action[,] … [simply stating a claim that] is uncertain.” (Combined Reply, p. 4.)

The Court finds that the third cause of action is fatally defective.

The SAC does not allege facts to support the second element -- that Defendants owe Plaintiff money that can only be ascertained by an accounting. (SAC, ¶¶ 57-62.) While Plaintiff alleges that vendors have been overpaid and that Defendants have misappropriated funds for their own use, such damages have been suffered by MCSI, not Plaintiff, as alleged.

The first element is also missing. The Court adopts its Standing, First Cause of Action, and Second Cause of Action discussions above to determine that the SAC fails to plead grounds of any kind for this Court to find that a relationship exists between Plaintiff Ayoubi and MCSI entitling Plaintiff to obtain an accounting from MCSI.

Defendants’ demurrer to the SAC’s third cause of action is thus SUSTAINED, Without Leave to Amend. (Cabral v. Soares, supra, 157 Cal.App.4th at p. 1240.)

SAC, Fourth Cause of Action, Unfair Competition [Violation of Bus. & Prof. Code § 17200 et seq.]: SUSTAINED, Without Leave to Amend.

An individual has standing to maintain a section 17200 claim if he or she “has suffered injury in fact and has lost money or property as a result of the unfair competition.” (Bus. & Prof. Code, § 17204.) “[A] party who has lost money or property generally has suffered injury in fact. Consequently, the plain language of these clauses suggests a simple test … a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322, superseded by statute on other grounds as stated in Citizens of Humanity, LLC v. Haas (2020) 46 Cal.App.5th 589, 594 fn. 2.)

The fourth cause of action is pleaded against all Defendants and alleges that “[t]hrough Defendants’ unauthorized use of MCSI’s funds and their awarding of vendor contracts to friends and family rather than holding a formal bidding process, and through their acts alleged in this Complaint, Defendants have engaged in a willful and concerted effort to engage in ‘unlawful, unfair or fraudulent business act(s) or practice(s)’ as defined in Business & Professions Code section 17200 et seq.” (SAC, ¶ 64; see SAC, ¶¶ 63-68.)

In their demurrer, Defendants argue that the fourth cause of action alleges self-dealing by Defendants Rahman and Khan, which connotes a claim pursuant to Corporations Code sections 5142 and 5233, and which require standing as a director of former member of MCSI, neither of which the SAC properly alleges. (Demurrer, pp. 6-7.) Defendants also argue that “there is no support for [Plaintiff’s] contention that a private religious corporation has to follow rules applicable to public entities for the bidding of contracts.” (Demurrer, p. 7.)

In opposition, Plaintiff fails to rebut the standing arguments and instead focuses on arguing that “Plaintiff alleges that Defendants engaged in unfair, fraudulent, and deceptive acts by, inter alia, misappropriating MCSI’s funds to pay for improvements to their private property and contracting with friends and family members for work performed on MCSI without a bidding process and at unreasonably high rates.” (Opp’n to Demurrer, p. 19.)

In reply, Defendants argue that (1) “Plaintiff does not address his lack of standing for this cause of action in his opposition, but [rather] reiterates his allegations of an unfair, fraudulent, and deceptive business acts,” (2) “[a] breach of a charitable trust is governed by Corp. Code Sec. 5142, and in order to have standing Plaintiff would need to be an officer, director, or a person with a reversionary, contractual, or property interest in the assets subject to such charitable trust,” which Plaintiff fails to do, and (3) “Plaintiff fails to state a cause of action and the action is uncertain because Plaintiff lacks standing to purport that there was a lack of a bidding process for awarding contracts and misappropriation of funds.” (Combined Reply, p. 4.)

The Court finds that the fourth cause of action is fatally defective.

The Court initially notes that Defendants’ reliance on Corporations Code section 5142 is misplaced for two reasons. First, section 5142 applies to nonprofit public benefit corporations, not nonprofit religious corporations, where the statutory section identical to section 5142 applying to nonprofit religious corporations is Corporations Code section 9142. Second, the Court finds that section 9142—containing identical language to section 5142 and entitled “actions to remedy breach of trust”—is not helpful under the facts pleaded in the SAC. The fourth cause of action is premised on self-dealing. (SAC, ¶ 64.) Section 9142 would be applicable to that self-dealing if the SAC pleaded that monies paid out in relation to the contracts pleaded in paragraph 64 were disbursed through a breach of a trust held by MCSI. (See Corp. Code, § 9142, subd. (a) [Contemplating “an action to enjoin, correct, obtain damages for or to otherwise remedy a breach of a trust under which any or all of the assets of a corporation are held”].) No such pleadings are made in the SAC. (See SAC generally.) Indeed, the word trust is not once mentioned in the SAC. (See SAC generally.)

The Court next adopts its Second Cause of Action discussion to find that Plaintiff Ayoubi lacks standing to bring a self-dealing claim against Defendants MCSI, Rahman, or Khan because the SAC fails to plead that Plaintiff Ayoubi is the kind of person contemplated to have standing to bring such a claim pursuant to Corporations Code section 9243, i.e., the nonprofit religious corporation counterpart statutory section to Corporations Code section 5233, relating to self-dealing claims against directors in nonprofit public benefit corporations.

Defendants’ demurrer to the SAC’s third cause of action is thus SUSTAINED, Without Leave to Amend. (Cabral v. Soares, supra, 157 Cal.App.4th at p. 1240.)

SAC, Fifth Cause of Action, Declaratory Relief: SUSTAINED, Without Leave to Amend.

Any person interested under a written instrument, excluding a will or a trust, or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property, or with respect to the location of the natural channel of a watercourse, may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. (Code Civ. Proc., §1060.) He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time. (Code Civ. Proc., §1060.) The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment. (Code Civ. Proc., §1060.) The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought. (Code Civ. Proc., §1060.)

The fifth cause of action is pleaded against all Defendants and alleges that “[a]n actual controversy has arisen and now exists between Plaintiff and Defendants concerning their respective rights and duties in that Plaintiff contends that MCSI’s Board of Directors including Defendants have failed to follow MCSI’s Bylaws, as detailed in preceding paragraphs.” (SAC, ¶ 70; see SAC, ¶¶ 69-72.) The Prayer for Relief in the SAC appears to also request that the fifth cause of action “enjoin[] Defendants from removing Plaintiff as a member of MCSI and its Board, and/or compelling Defendants to reinstate Plaintiff as a member of MCSI and Board member” and “compel[] Defendants to hold formal elections for MCSI’s Board, pursuant to the formal processes established in MCSI’s Bylaws.” (SAC, Prayer for Relief, ¶¶ 5-6.)

In their demurrer, Defendants argue that “Plaintiff’s request for the Court to compel Defendants to ‘reinstate Plaintiff as a member of MCSI and Board member’ is entirely inappropriate and factually inaccurate” because that request “‘intrude[s] intrude into a religious organization’s determination of religious or ecclesiastical matters such as theological doctrine, church discipline, or the conformity of members to standards of faith and morality.” (Demurrer, p. 7.)

In opposition, Plaintiff argues that “Plaintiff alleges that an actual controversy has arisen and now exists between Plaintiff and Defendants concerning their respective rights and duties in[sofar as] … Plaintiff contends that MCSI’s Board of Directors[,] including Defendants[,] have failed to follow MCSI’s Bylaws, and, despite Plaintiff’s efforts to resolve the various violations informally, Defendants have refused to take corrective action, making this litigation necessary.” (Opp’n to Demurrer, p. 19.)

In reply, Defendants raise arguments relating to “written instrument[s]” and Corporations Code section 5142, which are not considered in light of being raised for the first time on reply without adequate justification. (Combined Reply, p. 4; see Nordstrom Com. Cases, supra, 186 Cal.App.4th at p. 583.)

The Court finds that the fifth cause of action is fatally defective.

The Court adopts its Standing and First through Fourth Cause of Action discussions to find that the SAC completely fails to plead a controversy between Plaintiff Ayoubi—individually or derivatively on behalf of MCSI—and Defendants.

Defendants’ demurrer to the SAC’s fifth cause of action is thus SUSTAINED, Without Leave to Amend. (Cabral v. Soares, supra, 157 Cal.App.4th at p. 1240.) 

Motion to Strike

Having found that the entire SAC is fatally defective, Defendants’ motion to strike is MOOT.

Conclusion

While clearly the allegations in the Plaintiff’s complaint raise important concerns, if true, the Court concludes that Plaintiff’s causes of action as pleaded in this third attempt at a complaint still do not state claims recognized under California law.

Defendants Muslim Community Services, Inc. aka La Mirada Masjid, Mohammed Rezaur Rahman and Atikur Khan’s Demurrer to Second Amended Complaint is SUSTAINED, Without Leave to Amend, as to all five causes of action stated therein because all five claims are fatally defective.

Defendants Muslim Community Services, Inc. aka La Mirada Masjid, Mohammed Rezaur Rahman and Atikur Khan’s Motion to Strike Portions of Second Amended Complaint is MOOT in light of the ruling on demurrer.

Defendants are ORDERED to file with the Court a proposed judgment WITHIN SEVEN CALENDAR DAYS.