Judge: Anne Richardson, Case: 21STCV44256, Date: 2023-04-12 Tentative Ruling

Case Number: 21STCV44256    Hearing Date: April 12, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiff Tianmu Investment Hong Kong Limited (“Tianmu”) is an investment company based in Hong Kong. Defendants Mark Canton, Courtney Solomon, Cinelou Holdings, LLC, and Atmosphere Entertainment MM, Inc. (“Defendants”) are in the business of producing films. Plaintiff Tianmu alleges that it entered two agreements with Defendants—the “Robotech Agreement” and “Debt Investment (DI) Agreement”—for Defendants to produce films using Plaintiff’s investments but that the films were never produced, nor Plaintiff compensated under the agreements, and that Defendants knew they could not or had no reasonable ground for believing that they could compensate Plaintiff according to the terms of the agreements. These allegations support causes of action for (1) Breach of (the December 2015 “Robotech”) Agreement, (2) Breach of (the July 2017 Debt Investment) Agreement, (3) Breach of Implied Covenant of Good Faith and Fair Dealing, (4) Negligent Misrepresentation, (5) Fraud, (6) Violation of California Corporations Code §§ 25400; 25401, et seq., and (7) Violation of California Corporations Code § 25504, et seq.

On March 20, 2023, Defendants Cinelou Holdings, LLC (“Cinelou”) and Courtney Solomon (“Solomon”) made a motion for an order securing costs recoverable from non-resident Plaintiff Tianmu, i.e., an undertaking, pursuant to Code of Civil Procedure section 1030, subdivision (a).

On March 29, 2023, Plaintiff Tianmu opposed the March 20th motion. On April 5, 2023, Cinelou and Solomon replied to the March 29th opposition. The motion is now before the Court.

Motion for Order Securing Costs [Undertaking]: GRANTED, in Part.

Preliminary Consideration – Reply Length

The reply brief filed by Defendants Cinelou and Solomon contains a points and authorities memorandum that is 12 pages long where ten pages is the limit on such papers. (Cal. Rules of Court, rule 3.1113, subd. (d).) Rather than consider the reply to be a “late-filed” paper (Cal. Rules of Court, rule 3.1113, subd. (g)), the Court instead limits its analysis of the reply through the tenth page of the points and authorities, i.e., page 13 of the filing.

Preliminary Consideration – Attachments

In their motion and reply, Defendants Cinelou and Solomon refer to the Robotech and DI Agreements but do not attach a copy of these agreements thereto, instead ‘attaching’ these documents through the incorporation of a July 11, 2022 request for judicial notice filed by Defendants in support of a previously filed demurrer to the Complaint. (See Reply, 6:1-7 [citing Roth v. Plikaytis (2017) 15 Cal. App. 5th 283, 292 for this proposition, which found that a court erred in failing to consider previously filed documents in support of a fees motion].)

Legal Standard

In an action or special proceeding brought by a nonresident plaintiff, the defendant may at any time move for an order reqiring the plaintiff to post security to secure an award of costs and attorney’s fees (which a party must be authorized to recover by a statute other than this section or by contract). (Code Civ. Proc., § 1030, subd. (a).) The stated grounds for the motion are that the plaintiff resides out of state or is a foreign corporation, and there is a reasonable possibility that the moving defendant will obtain a favorable judgment. (Code Civ. Proc., § 1030, subd. (b).)

The motion can be brought at any time. (Code Civ. Proc., § 1030, subd. (a).) While the statute does not specify the time in which a request for cost bond must be filed, nor does it authorize the trial judge to reject the defendant’s request as untimely, an undue delay in making a demand for a cost bond may operate as a waiver of the right. (Heffron v. Los Angeles Transit Lines (1959) 170 Cal.App.2d 709, 714-15.) But the court does have the authority to deny the motion on the ground that the nonresident plaintiff is indigent. (Alshafie v. Lallande (2009) 171 Cal.App.4th 421, 429.)

The motion is required to be noticed. (Code Civ. Proc., § 1030, subd. (a).) The notice of motion must be served at least 16 court days before the hearing, with additional time if the motion is served by some method other than personal service, the amount of additional time being determined by the method of service used. (Code Civ. Proc., § 1005, subd. (b); Cal. Rules of Court, rule 3.1300.)  If attorney’s fees are sought, the party must be authorized to recover them by a statute apart from this section or by contract. (Code Civ. Proc., § 1030 subd. (a).)

The motion must be accompanied by a supporting affidavit or declaration which establishes the stated grounds for the motion and sets forth the nature and amount of the costs and attorney’s fees the defendant has incurred and expects to incur until the action is concluded. (Code Civ. Proc., § 1030, subd. (b).) It must also be accompanied by a memorandum of points and authorities. (Code Civ. Proc., § 1030, subd. (b), Cal. Rules of Court, rule 3.1113.) The affidavit shall set forth the nature and amount of the costs and attorney’s fees the defendant has incurred and expects to incur by the conclusion of the action or special proceeding. (Code Civ. Proc., § 1030, subd. (b).)

A party moving under this section is “not required to show that there [is] no possibility [the opponent] could win at trial, but only that it [is] reasonably possible that [the moving party] would win.”  (Baltayan v. Estate of Maro Getemyan (2001) 90 Cal.App.4th 1427, 1432, italics in the original.)

If the court, after hearing, determines that the grounds for the motion have been established, the court shall order that the plaintiff file the undertaking in an amount specified in the court’s order as security for costs and attorney’s fees. (Code Civ. Proc., § 1030, subd. (c).)

Analysis

In their motion, Defendants Cinelou and Solomon argue that: (1) Plaintiff is, by its own pleadings, a “Hong Kong Limited Liability Company Delaware [sic] with a principal place of business in the Hong Kong, China[] (Complaint, ¶ 1[])” (Mot., 10:21-24); and (2) there is a likelihood that Defendants Cinelou and Solomon will prevail against Plaintiff’s claims (Mot., 10:25-15:17).

I. Alter Ego Liability for Defendant Solomon

In their motion’s Introduction, Defendants Cinelou and Solomon briefly argue that Defendant Solomon was improperly brought into this lawsuit under a poorly devised alter ego theory, for which reason all the claims will fail against her. (Mot., 6:11-14.)

In opposition, Plaintiff does not directly address this argument—perhaps because it was not included in the motion’s legal arguments sections. (See Opp’n generally.)

In reply, Defendants Cinelou and Solomon argue that Plaintiff has no chance of prevailing against Defendant Solomon where (1) she is not a party to the Robotech and DI Agreements at issue, (2) where alter-ego allegations are not supported by admissible evidence for the purposes of this motion, (3) Plaintiff does not refute in its opposition that Defendant Solomon is not bound by the agreements, and (4) the agreements have been incorporated into their motion by reference to the July 11, 2022 request for judicial notice. (Reply, 6:25-8:11.)

The Court first finds that, consistent with its October 6, 2022 ruling re: demurrer, the Complaint sufficiently ties Defendant Solomon to any liability owed to Plaintiff based on conduct or omissions undertaken by Defendant Cinelou based on an alter ego liability theory. (See 10/6/22 Ruling, pp. 6-7.) This motion for undertaking cannot rehash these findings by pointing the finger at Plaintiff to show alter ego evidence making Solomon liable for Cinelou’s acts or omission.

Further, as the movants, it behooves Defendants Cinelou and Solomon to show that no alter ego liability should be imposed on Defendant Solomon because, for example, Defendant Cinelou respects corporate formalities and is not undercapitalized.

As a result, the Court finds it has inadequate evidence upon which it can find it reasonably possible that Solomon would prevail on the claims against her based on her non-party status to the Robotech and DI Agreements.

II. First Cause of Action

The first cause of action for Breach of Agreement (i.e., Contract)—alleged against all Defendants and premised on the December 2015 Robotech Agreement relating to a $6.7 million loan from Plaintiff to Defendants to produce a film named Robotech and compensation to Plaintiff in the amount of $6.7 million plus one-third of all gross proceeds subject to a cap of 1% thereof—is based on Defendants’ alleged failure to produce the film or compensate Plaintiff pursuant to the agreement. (Complaint, ¶¶ 34-41.)

In their motion, Defendants Cinelou and Solomon argue that they show a reasonable possibility of successfully defending against the first cause of action because (1) although Defendants have failed to produce the Robotech film, (a) the parties’ Robotech Agreement specifically provides that any money due to Plaintiff is not due until production and release of Robotech and (b) the parties’ Robotech Agreement fails to provide an assurance that Robotech will be produced or completed and (2) any 2016 to 2018 promises by Defendants that Robotech would be produced are defeated by the full integration of the Robotech Agreement—i.e., no parol evidence allowed to contradict the fully integrated agreement. (Mot., 11:5-12:15.)

In opposition, Plaintiff argues that Defendants’ unverified assertions regarding the Robotech Agreement are insufficient to show a reasonable possibility of successfully defending the merits of the first cause of action. (Opp’n, 3:10-19.)

In reply, Defendants Cinelou and Solomon argue that Defendant Solomon will successfully defend against the first cause of action because, in relevant part, no actionable conduct supports this claim as directed against her where (1) the agreement does not require actual production of the film, (2) the agreement only entitles Plaintiff to monies once the film is produced, and (3) Plaintiff’s arguments that the agreements are not in the record fails where Cinelou and Solomon have incorporated the agreements by reference (Reply, 8:25-10:3);

The Court finds some merit to the argument that Cinelou and Solomon show a reasonable possibility of defending against the first cause of action. The Complaint alleges breach of the Robotech Agreement based on Defendants’ failure to produce Robetech and failure to compensate the fees, recoupment, and gross proceeds contemplated by the terms of the agreement. (Complaint, ¶ 37.) Any contractual terms related to compensation to Plaintiff (Complaint, ¶ 36) may not be sufficiently ripe because no income has been generated through the Robotech film, and there is an express disclaimer that there is “no assurance” that the film would be completed or distributed.

The Court thus finds that Defendants Cinelou and Solomon have shown a reasonable possibility of defending against the first cause of action.

III. Second Cause of Action

The second cause of action for Breach of Agreement (i.e., Contract)—alleged against all Defendants and premised on the July 2017 DI Agreement relating to a $5 million loan from Plaintiff to Defendants to produce three motion pictures, with Plaintiff to be repaid in the loan amount plus 17.5% of the loan amount within a year of receipt by Defendants—is based on Defendants’ failure to produce the three films and compensate Plaintiff pursuant to the agreement. (Complaint, ¶¶ 42-49.)

In their motion, Defendants Cinelou and Solomon argue that they show a reasonable possibility of successfully defending against the second cause of action because the DI Agreement on which the claim is premised required that Plaintiff loan to Defendants $5 million to produce three films, but any such monies were returned to Plaintiff, such that Defendants were never in possession or had access to the $5 million. (Mot., 12:16-13:16, Reynolds Decl., Ex. A.)

In opposition, Plaintiff argues that Defendants cannot successfully defend against the second cause of action where (1) the contract provided by Defendants as evidence (dated July 11, 2017) is not the contract at issue in the pleadings (dated July 4, 2017) (compare Mot., Reynolds Decl., Ex. B, with 7/11/22 RJN, Ex. 2 [both contracts]), (2) the position that money was returned back to Plaintiff is absurd because no evidence has been provided to show such a transfer and there is no explanation for why such a return was effectuated, and (3) there exists no evidence that the $1 million referenced by Plaintiffs in relation to the DI Agreement has anything to do with the terms of the Robotech and DI Agreements (contra 7/11/22 RJN, Ex. 2, p. 5). (Opp’n, 3:20-4:3.)

In reply, Defendants Cinelou and Solomon argue that Plaintiff’s second cause of action will fail (1) because no breach of the DI Agreement is possible where the $5 million to be loaned thereunder were returned to Plaintiff, and (2) because Plaintiff’s argument that the $5 million were not returned to him is belied by evidence filed by the moving parties with their motion. However, any additional argument raised for the first time on reply without any substantial justification therefor will not be considered. (Reply, 10:13-12:16.)

The Court finds the reasonable possibility of a successful defense against the second cause of action. This claim is premised on the ground that between July 21 and 27, 2017, Plaintiff lent $5 million to Defendants to produce three films. (Complaint, ¶¶ 43-45.) Yet, Exhibit A attached to this motion’s Reynolds declaration appears to show that the $5 million contemplated in the second cause of action were returned to Plaintiff in three deposits between those same dates of July 21 to 24, 2017. (Mot., Reynolds Decl., ¶ 3, Ex. A, p. 2, Foreign Currency Savings.) Plaintiff’s opposition does not address this evidence. (See Opp’n, 3:20-4:3.)

The Court thus finds that Defendants Cinelou and Solomon have shown a reasonable possibility of defending against the second cause of action.

IV. Third Cause of Action

The third cause of action alleges Breach of Implied Covenant of Good Faith and Fair Dealing against all Defendants based on Defendants’ failure to abide by the terms of the Robotech and DI Agreements, failure to repay Plaintiff’s loans with interest, and failure to produce any films. (Complaint, ¶¶ 50-54.)

In their motion, Defendants Cinelou and Solomon argue that they show a reasonable possibility of successfully defending against the third cause of action because (1) as argued ante, Plaintiffs were not required to pay any monies to Plaintiff Tianmu under the Robotech and DI Agreements and (2) any argument that Defendants used Plaintiff’s investment for personal purposes cannot succeed where Defendants never received the monies contemplated under the DI Agreement. (Mot., 13:17-14:15.)

The opposition does not appear to address the third cause of action. (See Opp’n generally.)

In reply, Defendants Cinelou and Solomon argue that Plaintiff concedes a possibility of successful defense as to the third cause of action by failing to rebut the arguments raised on motion. (Reply, 12:17-13:13.)

As to the third claim, the Court is split.

Insofar as the third cause of action alleges Breach of Implied Covenant of Good Faith and Faith Dealing as to the Robotech Agreement, the Court finds that Cinelou and Solomon show no reasonable possibility of defending against this claim. While a review of the Robotech Agreement (see 7/11/22 RJN, Ex. 1) fails to show a contractual clause specifically stating that Robotech would actually be produced, the Court reads into that contract—however integrated it may be—the implied covenant of good faith and fair dealing to in fact attempt to produce Robotech and confer to Plaintiff the benefits of the Robotech Agreement. A failure to produce Robotech could frustrate such benefits depending on the intent behind the non-action.

Insofar as the third cause of action alleges Breach of Implied Covenant of Good Faith and Faith Dealing as to the DI Agreement, the Court finds that Cinelou and Solomon have shown a reasonable possibility of successfully defending against this claim because there can be no breach of good faith and fair dealing if Plaintiff never actually lent money to Defendants to produce the three films.

The Court thus finds that Defendants Cinelou and Solomon have, in part, shown a reasonable possibility of defending against the third cause of action, where the claim is premised on two sets of distinct factual grounds: conduct relating to the Robotech Agreement and conduct related to the DI Agreement.

V. Fourth to Fifth Causes of Action

The fourth cause of action alleges Negligent Misrepresentation against all Defendants based on the written terms in the Robotech and DI Agreements where Defendants did not know whether they were capable of maintaining and would keep such promises (the representations at issue). (Complaint, ¶¶ 55-58.)

The fifth cause of action alleges Fraud against all Defendants based on the written terms in the Robotech and DI Agreements where Defendants made the promises therein (the representations at issue) with knowledge of their falsity or reckless disregard for their truth and with the intent of inducing Plaintiff to finance Defendants’ films without any concern for whether Plaintiff would be repaid with interest or receive any other consideration under the Robotech and DI Agreements. (Complaint, ¶¶ 59-65.)

In their motion, Defendants Cinelou and Solomon argue that they show a reasonable possibility of successfully defending against the fourth to seventh causes of action—where the sixth and seventh causes of action are derivative of the fourth and fifth—because: (1) any promises or statements that Defendants allegedly made to induce Plaintiff’s investment under the DI Agreement cannot support fraud where (a) Plaintiff did not pay the $5 million to Defendants and (b) it is Cinelou, not Plaintiff, who suffered damages, where Cinelou paid Plaintiff $1 million in reliance of Plaintiff’s false promise to invest $6.75 million pursuant to the DI Agreement (see 7/11/22 Mot., Ex. 2, p. 5); (2) the Robotech Agreement specifically disclaims any guarantee of Robotech’s profitability, production time, and completion; and (3) Defendant Solomon cannot be held liable for these claims where Plaintiff’s fraud claims merely allege that “Defendants” promised in writing to perform the terms of the Robotech and DI Agreements but there is no statement specifically attributed to Defendant Solomon (Mot., 14:16-15:17).

In opposition, Plaintiff argues that no undertaking should be imposed based on the fraud claims because Defendants premise their arguments on evidence that is not before the Court—the incorporated Robotech and DI Agreements—or based on evidence of a contract or transaction unrelated to these agreements—i.e., Ex. B to the motion’s Reynolds declaration. (Opp’n, 5:6-15.)

In reply, Defendants Cinelou and Solomon argue that Defendant Solomon can succeed on causes of action four to seven because (1) Plaintiff cannot support its fraud claims as related to the DI Agreement where the $5 million in funding was returned to Plaintiff and where it is instead Defendants that were damaged by paying Plaintiff $1 million in reliance that the DI Agreement would be funded and (2) the Robotech Agreement specifically disclaims the film’s profitability, production time, and completion. (Reply, 13:16-28.) The Court notes that it does not consider the remaining arguments in Defendants Cinelou and Solomon’s reply. (See Preliminary Discussion [court only considering Reply through end of internal page 13].)

The Court finds that Defendants Cinelou and Solomon show a reasonable possibility of succeeding on the fraud claims as premised on the production of Robotech. Any argument by Defendants that the Complaint does not explain which misrepresentations are at issue simply rehashes the previously filed demurrer, where, as explained by the Court in its October 6, 2022 ruling, the fourth cause of action sufficiently alleges that “‘Defendants represented to Plaintiff in writing’ that Defendants would produce the films and pay Plaintiff” and the fifth cause of action sufficiently alleges grounds for the Court to “infer that [Defendants made] statements that [they] would produce the films and pay Plaintiff ….” (10/6/22 Ruling, p. 5.) However, the non-production of Robotech could result in a factfinder concluding in favor of either party. At this time, there is at least a reasonable possibility that defendants may prevail.

The Court also finds that Defendants Cinelou and Solomon show a reasonable possibility of succeeding in their defense against the fraud claims as based on the DI Agreement because, even if Plaintiff did not fund the $5 million contemplated by the agreement, it is possible that Defendants will be able to show lack of reasonable reliance.

The Court thus finds that Defendants Cinelou and Solomon have shown a reasonable possibility of defending against the fourth and fifth causes of action.

VI. Sixth to Seventh Causes of Action

The sixth cause of action alleges Violation of California Corporations Code §§ 25400; 25401, et seq. against Defendants Courtney Solomon, Mark Canton, and Does 1-50 based on the investments contemplated by the Robotech and DI Agreements qualifying as “securities” and Defendants engaging in fraud to induce Plaintiff to enter these contracts, where Corporations Code section 25400, subdivision (d) makes it unlawful for a person to sell securities through fraud and where Corporations code section 25401 makes it unlawful for a person to offer or sell a security through written or oral communications that include untrue statements or omissions. (Complaint, ¶¶ 66-77.)

The seventh cause of action alleges Violation of California Corporations Code § 25504, et seq. based on the investments contemplated by the Robotech and DI Agreements qualifying as “securities” and Defendants engaging in fraud to induce Plaintiff to enter these contracts, where Corporations Code section 25504 and 25504.1 could impose joint and several liability on the Defendants for each other’s fraud. (Complaint, ¶¶ 78-82.)

In their motion, Defendants Cinelou and Solomon argue that they show a reasonable possibility of successfully defending against the sixth and seventh causes of action for the same reasons advanced against the fourth and fifth causes of action. (See Mot., 14:16-15:17; see also Analysis, § V. Supra.)

In opposition, Plaintiff argues that no undertaking should be imposed for the sixth and seventh causes of action for violations of the Corporations Code where Plaintiff’s claims survived demurrer—on October 6, 2022—and where Defendants have made no evidentiary argument as to why they would reasonably prevail on these claims. (Opp’n, 5:17-23.)

In reply, Defendants Cinelou and Solomon argue that they show a reasonable possibility of successfully defending against the sixth and seventh causes of action for the same reasons advanced against the fourth and fifth causes of action. (See Reply, 13:16-28; see also Analysis, § V. Supra.)

The Court adopts its reasoning at section V of this Analysis to determine that Defendants Cinelou and Solomon have shown a reasonable possibility of defending against the sixth and seventh causes of action, which incorporate Defendants’ liability for the fourth and fifth causes of action to support a finding that Defendants Solomon and Canton violated provisions of the Corporations Code.

VII. Conclusion as to Elements for Posting of Undertaking

Defendants Cinelou and Solomon have shown Plaintiff is a nonresident plaintiff, and have shown a reasonable possibility of success as to the majority of the Complaint’s causes of action. The Court concludes that this motion is meritorious and GRANTS it, in Part—with the amount of undertaking limited as discussed below.

VIII. Amount of Undertaking

Defendants Cinelou and Solomon argue that a $143,200 undertaking for projected costs is reasonable based on the substantial number of causes of action and defendants (and agents) involved in this action, where discovery will require costs for Plaintiff’s travel and Chinese translation services. (Mot., 15:18-16:3.) The motion variously argues that $143,200, $140,000, and $173,945 are all reasonable bond amounts representing the estimated costs. (Mot., 15:18–24.) The Court notes that despite the use of the language “and fees” in various places (see, e.g., Reynolds Declaration at ¶ 9:24-25), the Court finds that no basis for fees has been articulated and no fees are being sought in this motion.

In opposition, Plaintiff argues that any degree of possibility of success by Defendants does not merit the requested undertaking where past case work by Plaintiff’s counsel yielded a memo of costs of approximately $10,000, the maximum amount this Court should impose in undertaking. (Opp’n, 6:1-10.)

The Court does not consider Defendants Cinelou and Solomon’s arguments on reply. (See Preliminary Discussion [court only considering Reply through end of internal page 13].)

The Court finds that an undertaking of $75,000 is appropriate. The calculations made by Defendants Cinelou and Solomon as to costs (see Mot., Reynolds Decl., ¶ 5) show what is likely to be inflated costs, including expected costs of $80,445 for depositions, $58,500 for witness fees, and $10,000 each for court reporter, models, and interpreter fees. (Mot., Reynolds Decl., ¶ 5.) There is also duplication of fees for electronic filing in sections 1 and 13 of the chart in that paragraph, estimating $2000 for such fees in one location (likely excessive) and $500 in the second section (more reasonable.) Nonetheless, depositions and expert witness fees in particular can be expensive, and the fact that this case is international in scope likely increases the amount of costs that will be expended. The Court concludes that $75,000 is reasonable.

Conclusion

Defendants Cinelou Holdings, LLC and Courtney Solomon’s Motion for Order Securing Costs Recoverable from Non-Resident Plaintiff Pursuant to CCP § 1030(a) is GRANTED, in Part, because they have shown a reasonable possibility of success on the Complaint.

Plaintiff Tianmu Investment HongKong Limited SHALL FILE AN UNDERTAKING OF $75,000 NOT LATER THAN 30 days after service of the court’s order. (Code Civ. Proc., § 1030, subd. (d).) If Plaintiff fails to file the undertaking within the time allowed, this action shall be dismissed as to Defendants Cinelou and Solomon. (Code Civ. Proc., § 1030, subd. (d); see Code Civ. Proc., § 1030, subd. (e).)

The determinations of this order are for the purpose of ruling on this motion only and were made before any evidence has been taken. This order will have no effect on the determination of any issues on the merits of the action, nor may it or any portion of it be given in evidence nor referred to in the trial for this action. (Code Civ. Proc., § 1030, subd. (f).)