Judge: Barbara M. Scheper, Case: 22STCV04870, Date: 2022-08-09 Tentative Ruling

Case Number: 22STCV04870    Hearing Date: August 9, 2022    Dept: 30

Dept. 30

Calendar No.

Holiday Villa East vs. Frydrych, et. al., Case No. 22STCV04870

Tentative Ruling re:  Defendants’ Demurrer to First Amended Complaint; Motion to Strike

Defendants Michael Frydrych and Jack Frydrych (collectively, Defendants) demur to the First Amended Complaint (FAC) of Plaintiff Holiday Villa East (Plaintiff). The demurrer is sustained with ten (10) days leave to amend.

In reviewing the legal sufficiency of a complaint against a demurrer, a court will treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank); C & H Foods Co. v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062.) It is well settled that a “demurrer lies only for defects appearing on the face of the complaint[.]” (Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 601.) “The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Guclimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (internal quotes omitted).) For purposes of ruling on a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded. (Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 958.)

When ruling on a demurrer, the Court may only consider the complaint’s allegations or matters which may be judicially noticed. (Blank, supra, 39 Cal.3d at 318.) The Court may not consider any other extrinsic evidence or judge the credibility of the allegations plead or the difficulty a plaintiff may have in proving his allegations. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.) A demurrer is properly sustained only when the complaint, liberally construed, fails to state facts sufficient to constitute any cause of action. (Kramer v. Intuit Inc. (2004) 121 Cal.App.4th 574, 578.)

Plaintiff has alleged two causes of action against Defendants for Aiding and Abetting Breach of Fiduciary Duty and Intentional Interference with Contractual Relations. Plaintiff is a partnership formed in April 1975 for the purpose of acquiring real property located in Santa Monica, California, and constructing and operating an elderly care facility on the property. (FAC ¶ 7.) Defendants are the heirs to and co-executors of the Estate of Henry Frydrych, Defendants’ father and one of Plaintiff’s founding partners. (FAC ¶ 11.) At the time of his death on July 26, 2017, Henry owned a 10% interest in Plaintiff. (FAC ¶ 14.)

In December 2017, Defendant Michael Frydrych approached Arthur Diller, the president of Plaintiff’s partner Diller Floor Covering, Inc. (DFC) regarding a sale of Henry’s interest to Plaintiff. Arthur asked partner David Frankel to negotiate the purchase on behalf of Plaintiff. (FAC ¶ 18.) After agreeing to represent Plaintiff, Frankel and his sister then planned to purchase the interest for themselves without informing the other partners. (FAC ¶ 24.) In February 2018, Frankel, and his sister Sara Friedman, also a partner, agreed with Defendants to purchase the interest for $1.3 million. (FAC ¶ 26.)

Friedman informed Plaintiff and the other partners of the buyout agreement on March 2, 2018. (FAC ¶ 27.) In a subsequent call between Frankel, Friedman, Arthur, and partners Sam Israel and Jerry Ganger, the parties reached an oral agreement whereby Frankel and Friedman would acquire the Estate’s interest then sell the proportionate interests to DFC and Ganger, and also lend money to DFC and Ganger for the purchase of the shares. (FAC ¶ 29.) Frankel and Friedman then sent the partners a draft of the purchase agreement which included Frankel, Friedman, and their spouses. (FAC ¶ 30.) Plaintiff claimed that the inclusion of the spouses triggered a provision in the Partnership requiring that all partners be given the right of first refusal to purchase the interest. (FAC ¶ 30; Ex. A, ¶ 11.) Defendants allegedly refused to provide the required notice and refused to sell the Estate’s interest to any partner beside Frankel and Friedman. (FAC ¶ 31.)

After the death of Henry Frydrych in 2017, a dispute arose between his Estate and Plaintiff as to whether dissociation and a buy-out at full market value were required under the provision for succession in Plaintiff’s partnership agreement. (FAC ¶ 17.) In May 2018, the Estate offered to sell its interest to Plaintiff for $1.5 million to resolve this dispute over the dissociation. (FAC ¶ 33.) Frankel informed the other partners that he would refuse to consent to Plaintiff paying any more than $1 million to acquire the interest. (FAC ¶ 33.) Because Frankel blocked this sale, Plaintiff was forced to proceed to arbitration with the Estate over the issue. (FAC ¶ 35.) In August 2018, the arbitrator determined that Henry Frydrych dissociated on his death, and that upon dissociation Plaintiff was obligated to buy his interest for its full fair market value. (FAC ¶ 38.) An appraisal completed in January 2019 found that the value of the interest was $810,000, and Plaintiff then paid the Estate that amount plus interest owed for a total of $929,391.77. (FAC ¶ 40.)

The Estate then claimed that its interest was valued at $2.3 million and demanded to arbitrate the fair market value. (FAC ¶ 41.) During the arbitration, Frankel testified that he believed the interest was valued at $1.6 to $2 million. (FAC ¶ 42.) The arbitrators concluded on December 8, 2020, that the buyout price would be $1,680,000 plus interest accrued since Henry’s death, and so Plaintiff paid the Estate an additional sum of $1,163,000. (FAC ¶ 45.)

First Cause of Action for Aiding and Abetting Breach of Fiduciary Duty

Defendants argue that this cause of action is barred by the statute of limitations. The Court agrees.

“The statute of limitations for breach of fiduciary duty is three years or four years, depending on whether the breach is fraudulent or nonfraudulent.” (American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1479.) “The statute of limitations for a cause of action for aiding and abetting a tort generally is the same as the underlying tort.” (American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1478.)

“Generally speaking, a cause of action accrues at ‘the time when the cause of action is complete with all of its elements.’ ” (Fox v. Ethicon Endo–Surgery, Inc. (2005) 35 Cal.4th 797, 806.) “When damages are an element of a cause of action, the cause of action does not accrue until the damages have been sustained.” (City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 886; see Choi v. Sagemark Consulting (2017) 18 Cal.App.5th 308, 323 [“If the last element to occur in a tort action is damages, the statute of limitations begins to run on the occurrence of ‘appreciable and actual harm, however uncertain in amount,’ that consists of more than nominal damages”].)

“A defendant is liable for aiding and abetting another in the commission of an intentional tort, including a breach of fiduciary duty, if the defendant ‘knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act.’ The elements of a claim for aiding and abetting a breach of fiduciary duty are: (1) a third party’s breach of fiduciary duties owed to plaintiff; (2) defendant’s actual knowledge of that breach of fiduciary duties; (3) substantial assistance or encouragement by defendant to the third party’s breach; and (4) defendant’s conduct was a substantial factor in causing harm to plaintiff. Some cases suggest a complaint must allege a fifth element--that the aider and abettor had the specific intent to facilitate the wrongful conduct.” (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343 [internal citations omitted].)

Here, the underlying breach of fiduciary alleged involved fraud by Frankel and Friedman, and so this cause of action is subject to the three-year statute of limitations. (FAC ¶ 32.) Defendants’ alleged assistance with Frankel and Friedman’s breaches began in March 2018, when they refused to sell to any other partner. (FAC ¶¶ 30-31.) Plaintiff’s alleged damages for this cause of action arise out of it being forced to arbitrate to determine the amount due on dissociation because of Frankel and Friedman’s breaches of fiduciary duty, and from Plaintiff being forced to pay $680,000 over the initial buyout price for Defendants’ interest as determined in the arbitration concluded in December 2020. (FAC ¶ 58.) This cause of action was therefore complete when damages were sustained, at the commencement of the arbitration on the dissociation issue. The arbitration concluded August 2018. (FAC ¶ 37.) Plaintiff filed this action on February 8, 2022, around three and a half years later. Consequently, this cause of action is barred by the three-year statute of limitations.

Second Cause of Action for Intentional Interference with Contractual Relations

The elements of a cause of action for intentional interference with contractual relations are “(1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)

Defendants argue that this cause of action is also barred by the statute of limitations. The cause of action is premised upon Defendants’ alleged interference with the Partnership Agreement between Frankel, Friedman, and the remaining partners. (FAC ¶ 61.) Defendants’ tortious conduct here is the same as that giving rise to the first cause of action. The parties agree a two-year statute of limitations applies. As with the aiding and abetting claim, this cause of action was complete at the first occurrence of damages, which was the arbitration on the dissolution issue concluding August 2018. (FAC ¶ 37.) It is therefore barred by the two-year statute of limitations.

            Because the demurrer is sustained, the motion to strike is denied as moot.