Judge: Anne Richardson, Case: 22STCV11483, Date: 2023-05-11 Tentative Ruling

Case Number: 22STCV11483    Hearing Date: May 11, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

MOVING PARTY:              Plaintiff/Cross-Defendant Edward Torres, Trustee of the Excalibur Trust; Cross-Defendant Roe 1 Robert Victor.

OPPOSITION:                      Defendant/Cross-Complainant Family Film Fund and Cross-Complainant Bill Waesche.

REPLY:                                 Plaintiff/Cross-Defendant Edward Torres, Trustee of the Excalibur Trust; Cross-Defendant Roe 1 Robert Victor.

Background

Plaintiff/Cross-Defendant Edward Torres— as Trustee of the Excalibur Trust (the Excalibur Trust; interchangeably referred to as Plaintiff)— sues Defendants Ryan O’Quinn, Heather O’Quinn, Robert Whitmore, Jay Stern, Damascus Road Productions, Inc, Family Film Fund, LLC (hereafter Family Film Fund), and Does 1 through 100 pursuant to an April 5, 2022 Complaint alleging claims of (1) Fraud: Intentional Misrepresentation, (2) Fraud: Negligent Misrepresentation, (3) Fraud: Intentional Concealment, (4) Fraud: Negligent Concealment, (5) Conversion, (6) Breach of Fiduciary Duty – Self-Dealing, (7) Breach of Fiduciary Duty – Lack of Care, (8) Breach of Fiduciary Duty – Majority Members as to Minority Members, (9) Aiding and Abetting Breach of Fiduciary Duty, (10) Violation of Unfair Competition Law, (11) Breach of Contract, and (12) Accounting.

The claims arise from allegations that: in or about 2019, Defendants Ryan and Heather O’Quinn and Robert Whitmore induced Plaintiff to invest $200,000 into Family Film Fund, representing that the LLC would produce no less than ten feature motion pictures for the sum of $40 million and that Plaintiff would own a share of said entity as a member of the LLC, receiving a minimum of 120% return on investment within two years, multiple times that amount over five to ten years, and, later, 5% of the gross amounts received by the O’Quinn and Whitmore Defendants; after receiving the $200,000, Defendants, and each of them, immediately started taking and using said funds for their own personal purposes and converted and depleted the entirety of said funds within a five month period, without even starting the production on a single film, including, among other things, without proper authorization, paying themselves $130,000 in salaries over five months, paying $30,000 to a friend of Defendants with no real benefit to Family Film Fund, $5,000 to a personal friend to have lunch, and using company funds for personal expenses; such expenditures contradicted representations made by Defendants to Plaintiff, including that the entirety of the invested funds would go towards producing feature films to be owned by the Family Film Fund, that none of the funds were to be used for Defendants’ personal purposes, and that Defendants had a First Look deal with Sony Pictures to distribute Family Film Fund feature films; and Plaintiff, as a majority member of Family Film Fund, has been injured by Defendants’ actions.

On December 14, 2022, Defendant/Cross-Complainant Family Film Fund and Cross-Complainant Bill Waesche—an original investor in Family Film Fund—filed a Cross-Complaint against Edward Torres as Trustee of the Excalibur Trust, Roe 1 Robert Victor individually, and Roes 2-10, with the operative December 28, 2022 First Amended Cross-Complaint alleging claims of (1) Breach of Contract, (2) Intentional Misrepresentation, (3) Negligent Misrepresentation, (4) Fraud, (5) Unfair Practices (B&P 17200), (6) Intentional Interference with Prospective Economic Advantage, (7) Negligent Interference with Prospective Economic Advantage, and (8) Declaratory Relief.

The claims arise from allegations that: Family Film Fund was induced to enter the agreement with Excalibur Trust by the Trust’s false representations that it had assets in excess of $5 million; after the coronavirus pandemic and subsequent financial loses, Family Film Fund and Waesche entered into a settlement agreement with the Excalibur Trust to repay monies to the Trust with additional monies to be paid to the Trust from proceeds generated from projects managed by Defendant Damascus Road Productions; despite the settlement agreement, the Excalibur Trust, without merit, initiated this lawsuit; Excalibur Trustee Robert M. Victor knowingly and intentionally withheld the fact that that he was previously sued for film finance fraud and disbarred from the practice of law in the State of California as a direct result of that suit, which, after revealed to investors, led to a withdrawal of funding for Family Film Fund, thus interfering with Family Film Fund’s economic relations; and Excalibur Trust’s filing of a lawsuit maliciously and spuriously forced Family Film Fund into premature economic shutdown, is a sham and a blatant, calculated extortion attempt, and interfered with Family Film Fund’s ability to initiate and expand its investments, and thus, interfered with Family Film Fund’s economic relations.

On February 27, 2023, Cross Defendants the Excalibur Trust—through Edward Torres as Trustee—and Robert Victor separately filed demurrers to the FAXC’s eight causes of action as alleged against them.

On February 28, 2023, the Excalibur Trust—through Edward Torres as Trustee—filed a special motion to strike pursuant to Code of Civil Procedure section 425.16 (anti-SLAPP motion) seeking resolution of the claims advanced in the FAXC.

On April 25, 2023, Cross-Complainants Family Film Fund and Bill Waesche opposed Excalibur Trust’s anti-SLAPP motion.

On April 28, 2023, Excalibur Trust—through Edward Torres as Trustee—replied to the April 25th anti-SLAPP opposition.

Also on April 28, 2023, Family Film Fund and Bill Waesche filed a combined opposition to the Excalibur Trust and Robert Victor demurrers.

On May 4, 2023, the Excalibur Trust—through Edward Torres as Trustee—and Robert Victor replied to the combined April 28th opposition to demurrers.

On May 5, 2023, the Court heard the anti-SLAPP motion and granted it, in part, specifically as to the striking of the FAXC’s 23rd, 24th, and 52nd paragraphs as alleged against the Excalibur Trust.

Also on May 5, 2023, Family Film Fund and Bill Waesche requested and the Clerk granted dismissal of causes of action one, six, and seven in the FAXC, i.e., the causes of action the Court found arose, at least in part, from protected activity for anti-SLAPP purposes.

The Cross-Defendant demurrers are now before the Court.

Demurrer [Excalibur Trust]: SUSTAINED.

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 FAXC, Standing, Bill Waesche: NOT RULED ON.

Based on the following discussion, the Court does not rule on standing in relation to Bill Waesche. (See Excalibur Trust Demurrer, pp. 10-11.)

FAXC, First, Sixth, and Seventh Causes of Action: MOOT.

Discussion as to Excalibur Trust’s demurrer to the first, sixth, and seventh causes of action is MOOT in light of the May 5, 2023 request for dismissal by Family Film Fund and Bill Waesche. (See 5/3/23 Request for Dismissal [dismissing these claims without prejudice].)

FAXC, Second through Fourth Causes of Action—Intentional Misrepresentation, Negligent Misrepresentation, Fraud [Concealment]: SUSTAINED.

Claims of fraud must plead, in relevant part, damages arising from the relevant false representation, concealment, or nondisclosure. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974; see also Odorizzi v. Bloomfield School Dist. (1966) 246 Cal.App.2d 123, 128; Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324, 1332.)

The first through fourth causes of action allege three varied claims of fraud by the Excalibur Trust, effected through its trustees in misrepresenting the value of the Trust—i.e., falsely claiming it was worth $5 million, thus making it a “qualified investor” for the purpose of “Securities and Exchange Commission (or the SEC), Rule 501 of Regulation D”—with Family Film Fund and Waesche relying on such misrepresentations to their harm. (See FAXC, ¶¶ 28-30 [2nd COA], 33-36 [3rd COA], 39-42 [4th COA].) The fourth cause of action also alleges fraud by concealment of the fact that Cross-Defendant Robert Victor—former trustee of the Excalibur Trust— was convicted of film finance fraud and disbarred from the practice of law in California as a result but directs this factual allegation at Robert Victor and not the Excalibur Trust. (FAXC, ¶ 40.)

In its demurrer and relevant part, the Excalibur Trust argues that the FAXC’s third and fourth causes of action fail to allege any harm—i.e., damages—because, for various reasons, the value of Excalibur Trust’s assets could not possibly harm Family Film Fund and Bill Waesche. (Excalibur Trust Demurrer, pp. 13-14.) First, the Excalibur Trust argues that “there is no allegation in the First Amended Cross-Complain[t] that Cross-Complainant ever relied upon the provision of the agreement (which Cross-Complainant wrote) about the value of the Trust.” (Excalibur Trust Demurrer, p. 14.) Second, the Excalibur Trust argues that “it must be recognized that Regulation D was enacted to protect investors, NOT to be used as a weapon by companies against their investors, especially companies who take investor’s [sic] money and then misappropriate such funds,” where “[t]he only possible way for Cross-Complainant to have suffered damages is if the SEC filed charges against the company – which is not at all alleged and which never occurred.” (Excalibur Trust Demurrer, p. 14.) Third, the Excalibur Trust argues that “even if true, the failure of Cross-Defendant to be an ‘Accredited Investor’ under Rule 501 DOES NOT create liability of the Investor to the Company.” (Excalibur Trust Demurrer, p. 14.) Fourth, the Excalibur Trust argues that “the Company [Family Film Fund] need only provide additional information to non-Accredited Investors 17 CFR § 230.502(b)(2),” such that the “Complaint does not allege any violations of SEC Rule 501.” (Excalibur Trust Demurrer, p. 14.)

In opposition and relevant part, Family Film Fund and Bill Waesche simply repeat allegations in the FAXC by arguing “Cross-Defendants Excalibur intentionally omitted its trustee’s status as a disbarred attorney ((FACC ¶¶ 9-10; 40; 53) for claims alleging mishandling trust account funds, and misrepresentations to the State Bar Court related to film financing investments” and further “intentionally misrepresented its status regarding the Film Fund’s clearly stated minimum capitalization requirements and omission of its then trustees past legal culpability for fraud as it related to film investments, until after Excalibur entered in agreements with the Fund, which facts damaged the Fund and Waesche.” (Opp’n to Excalibur Trust Demurrer, p. 6.)

In reply and relevant part, the Excalibur Trust reiterates its points on demurrer. (Excalibur Trust Reply, pp. 7-8.)

The Court finds that the second to fourth causes of action are fatally defective.

First, the Court agrees with the Excalibur Trust in finding that no damages are sufficiently pleaded in the FAXC in relation to “qualified investor”—actually, accredited investor—status. This investor status and consequences related to it are pleaded in paragraphs six, 21, 28, 33, 41 of the FAXC and allege only barebones allegations of damages that amount to nothing more than conclusions of fact and law. (See FAXC, ¶¶ 6 [pleading these allegations and no mention of damages], 21 [pleading these allegations in dismissed first cause of action], 28, 33, 41 [pleading these allegations in the three fraud claims with conclusory damages].) To the extent that damages are premised on Family Film Fund losing out on investors as a result of Excalibur Trust’s alleged misrepresentations or concealments as to its “qualified investor” status, such allegations are something not pleaded in the FAXC and further lack a causal link to damages, i.e., it is unclear how having one investor lacking accredited investor status would dissuade other investors from contributing to Family Film Fund, where such a causal link is not pleaded in the FAXC.

Second, the Court notes that the allegations relating to concealments by Robert Victor appear to be only alleged in relation to the fourth cause of action and to be directed only against Robert Victor. (Compare FAXC, ¶ 40 [Robert Victor concealed information], with FAXC, ¶ 41 [Excalibur Trust made misrepresentations].) Thus, the only grounds supporting the three fraud claims against the Excalibur Trust are the allegations related to misrepresentations relating to “qualified investor” status, which fail to state a valid cause of action, as discussed above. (See FAXC, ¶¶ 28-30 [2nd COA], 33-36 [3rd COA], 39-42 [4th COA].)

However, to the extent that Robert Victor’s concealments could be attributable to the Excalibur Trust, the Court finds that damages therefor are pleaded speculatively. (See FAXC, ¶¶ 9-10, 40, 42; see also Regalado v. Callaghan (2016) 3 Cal.App.5th 582, 602, citations omitted [“It is fundamental that damages [that] are speculative, remote, imaginary, contingent, or merely possible cannot serve as a legal basis for recovery”]; Estate of Kampen (2011) 201 Cal.App.4th 971, 991-992 [same].) While the FAXC alleges that investors became unwilling to invest in Family Film Fund after the Fund revealed Mr. Victor’s background, any harm derived therefrom is pleaded speculatively insofar as the FAXC fails to plead that relationships with investors existed, tied to actual promises of funding of Family Film Fund, which were withdrawn, at least in substantial part, after Mr. Victor’s background was revealed to the investors. (See FAXC, ¶¶ 9-10.) At is stands, the FAXC simply pleads the potential investors, who were considering but had not already committed to invest monies into Family Film Fund, walked away from such funding due to Mr. Victor’s background, which the Court finds is too attenuated a pleading to allege damages.

Excalibur Trust’s demurrer to the FAXC’s second through fourth causes of action is thus SUSTAINED.

FAXC, Fifth Cause of Action—Unfair Practices (B&P 17200): SUSTAINED.

The fifth cause of action is an unfair competition claim that is entirely premised on fraud allegations. (See FAXC, ¶¶ 45-47.) Therefore, the claim is, as pleaded, entirely derivative of the fraud claims alleged in the second to fourth causes of action. Accordingly, because the second to fourth causes of action are fatally defective, the fifth cause of action is also fatally defective.

Excalibur Trust’s demurrer to the FAXC’s fifth cause of action is thus SUSTAINED.

FAXC, Eighth Cause of Action, Declaratory Relief: SUSTAINED.

The fundamental basis of declaratory relief is a present and actual controversy between the parties over a proper subject. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 80.)

The eighth cause of action seeks declaratory relief that “acknowledge[s] … the settlement agreement as negotiated and represented by both parties — with rights under statute, contract, and common law permitting this Court jurisdiction to exercise its discretion to declare rights between the parties in accordance with the laws of this state.” (See FAXC, ¶ 61.)

In its demurrer, the Excalibur Trust advances arguments against the eighth cause of action as pleaded in the original Cross-Complaint, not the FAXC. (Excalibur Trust Demurrer, p. 21; compare Cross-Complaint, ¶ 61, with FAXC, ¶ 61.)

In opposition, Family Film Fund and Bill Waesche make the observation that the demurrer is directed at the Cross-Complaint’s eighth cause of action, not the FAXC’s eighth cause of action, and further make arguments related to attorney’s fees not directly alleged in the eighth causes of action as pleaded in the FAXC. (Opp’n to Excalibur Demurrer, p. 8.)

In reply, the Excalibur Trust fails to advance any arguments directly related to the declaratory relief cause of action. (See Excalibur Trust Reply generally.)

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

Simply, the FAXC alleges no actual controversy as to any of the terms of the parties’ settlement agreement. The settlement agreement referenced in the eighth cause of action is referenced in paragraphs 23, 24, and 61 of the FAXC. (See FAXC, ¶¶ 23-24 [pleadings in the now-dismissed first cause of action alleging that the parties in this action agreed to a settlement compensating Excalibur Trust for its investments in Family Film Fund out of proceeds from projects managed by Damascus Road Productions only for Excalibur Trust to nevertheless bring this action], 61 [“Cross-Complainants pray for declaratory relief in the acknowledgement of the settlement agreement as negotiated and represented by both parties”].)

From a reading of these paragraphs, it appears that the purpose of the eighth cause of action is twofold. First, the claim seeks a confirmation of the settlement agreement where the FAXC pleads no controversy as to its terms—which are not incorporated into the FAXC through pleading or attachment of a copy of the settlement agreement itself. The lack of controversy is even more apparent when considered in light of the fact that Cross-Complainants dismissed the first cause of action on May 5, 2023, thereby removing paragraphs 23 and 24 from the FAXC and leaving paragraph 61 of the FAXC to stand alone and “pray for declaratory relief in the acknowledgement of the settlement agreement as negotiated and represented by both parties” with no allegations contextualizing such a request. Second, if the Court read the request for declaratory relief pleaded in paragraph 61 of the FAXC within the framework provided by paragraphs 23 and 24 of the FAXC, the Court would readily conclude that Cross-Complainants seek recognition of the settlement agreement in connection with an argument that Excalibur Trust’s bringing of this action was somehow a breach of the settlement agreement, which is an allegation that triggers the litigation privilege and cannot survive, particularly in light of this Court’s May 5, 2023 discussion vis-à-vis this cause of action within the anti-SLAPP framework. (See Code Civ. Proc., § 47 [litigation privilege].)

Excalibur Trust’s demurrer to the FAXC’s eighth cause of action is thus SUSTAINED.

Demurrer [Robert Victor]: SUSTAINED.

Because the Excalibur demurrer and Robert Victor demurrer are virtually identical and rest on the same grounds (compare Excalibur Trust Demurrer, pp. 7-21, with Robert Victor Demurrer, pp. 7-22), the Court adopts its above discussion to SUSTAIN Robert Victor’s demurrer against the only operative causes of action remaining in the FAXC—second through fifth and eight causes of action.

Conclusion

Plaintiff/Cross-Defendant Edward Torres, Trustee of the Excalibur Trust’s CCP § 425.16’s Demurrer to First Amended Cross-Complaint is SUSTAINED, as to the FAXC’s second to fifth and eighth causes of action because these claims are fatally defective as pleaded.

Cross-Defendant Roe 1 Robert Victor’s Demurrer to First-Amended Cross-Complaint is SUSTAINED, based on the same grounds discussed in the Excalibur Trust Demurrer because the demurrers are based on identical arguments.

The Court will entertain oral argument as to whether the Court should grant leave to amend. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.”].)