Judge Barbara M. Scheper, Case 22STCV14601 2022-09-28 Tentative Ruling

Judge: Barbara M. Scheper, Case: 22STCV14601, Date: 2022-09-28 Tentative Ruling

Case Number: 22STCV14601 Hearing Date: September 28, 2022 Dept: 30

Dept. 30

Calendar No.

Care Plus Medical Group, Inc., et. al. vs. Law Offices of Michael E. Reznick, et. al., Case No. 22STCV14601

Tentative Ruling re: Defendant’s Demurrer to Complaint

Defendant JP Morgan Chase Bank, N.A. (Chase) demurs to the first, ninth, tenth, and eleventh causes of action in Plaintiffs’ Complaint. The demurrer is sustained.

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, cor 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 p. 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.)

Plaintiffs in this action consist of a group of corporations and their owner and manager, Ailene Bundalian Rivera (Rivera). (Comp. ¶ 1.) Plaintiffs’ claims arise out of an alleged scheme by Defendants to take over and usurp Rivera’s control of the companies. (Comp. ¶ 1.)

The Complaint alleges that, in early 2019, Rivera was introduced to Defendants Carlos Escobar Mancada and Mitesh Kumar Patel. Mancada and Patel expressed interest in purchasing all medical clinics owned and operated by Rivera and merging those clinics with Clinica Medica General, the clinic that Mancada and Patel owned. Rivera declined the offer. (Comp. ¶ 26.) After their offer was rebuffed, Mancada, Patel, and other Defendants began a scheme to gain control over Rivera’s medical clinics through other means.

Over the next two years, Defendants gained access to medical files and records and other sensitive business information related to Rivera’s clinics through various means, including donating money to one of Rivera’s clinics so that it would use office software providing Defendants a backdoor into the clinic’s files and records, and acquiring employment in sensitive positions at another clinic. (Comp. ¶¶ 27-29.) Around early 2021, Defendants convinced Rivera to retain Defendant Michael E. Reznick and his law firm as an attorney for the clinics, in connection with a threatened lawsuit also concocted by Defendants. (Comp. ¶¶ 31-32.) In that position, Reznick sought to obtain further confidential information related to the clinics and their operations, and shared that information with the other Defendants. (Comp. ¶ 32.)

On October 29, 2021, Reznick and other Defendants commenced a legal action (LASC Case No. 21STCV39991) purportedly on behalf of the plaintiff medical clinics against Rivera, as further part of the attempt to usurp Rivera’s control of the clinics. (Comp. ¶ 33.) Around that time, Defendants also filed fraudulent corporate documents with the Secretary of State, which falsely named various Defendants as CEO, Secretary, CFO, and Director of each of the clinics. (Comp. ¶ 34.)

Defendants then presented these false documents to Chase Bank, withdrew funds belonging to Plaintiffs, transferred Plaintiffs’ accounts to Defendants’ control, and then closed the accounts. (Comp. ¶ 35.) It is also alleged that Chase has “frozen” the accounts of Plaintiffs, causing Plaintiffs to lose access to all financial resources and threatening the continued operation of the clinics. (Comp. ¶ 42.)

Chase demurs to the causes of action asserted against it for: (1) Preliminary Injunction, Permanent Injunction, and Damages; (9) Negligence; (10) Breach of Contract; and (11) Breach of Fiduciary Duty.

UCC Preemption

In Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239, the plaintiff alleged common law causes of action against the defendant bank for breach of contract, negligence, return of deposit, and money had and received; each claim was based on allegations that the bank should not have accepted fraudulent payment orders. (Id. at 251.) The California Supreme Court affirmed the grant of summary judgment for the bank, on the basis that division 11 of the California Uniform Commercial Code displaces common law causes of action based on allegedly unauthorized funds transfers. (Ibid.)

“[S]ections 11201 through 11204 [of the UCC] provide a detailed scheme for analyzing the rights, duties and liabilities of banks and their customers in connection with the authorization and verification of payment orders. Analysis of a funds transfer under these sections results in a determination of whether or not the funds transfer was ‘authorized,’ and provides a very specific scheme for allocation of loss.” (Id. at 251-52.) Consequently, the UCC preempts common law causes of action in this area “(1) where the common law claims would create rights, duties, or liabilities inconsistent with division 11; and (2) where the circumstances giving rise to the common law claims are specifically covered by the provisions of division 11.” (Id. at 253.)

Here, Plaintiffs’ ninth cause of action for negligence, tenth cause of action for breach of contract, and eleventh cause of action for breach of fiduciary duty are each based on Chase’s alleged release of funds to unauthorized third persons. (Comp. ¶¶ 101-102, 111, 115.) The ninth cause of action alleges that Chase negligently allowed Plaintiffs’ funds to be withdrawn based on Defendants’ fraudulent signatures; the tenth cause of action similarly alleges that Chase breached its contractual duty to Plaintiff to “release [Plaintiffs’] funds for withdrawal and/or payment only upon the express instructions and authorizations of Plaintiffs and pursuant only [] to the signature of persons listed on said Plaintiffs’ signature cards.” (Comp. ¶¶ 109-110.)

As was the case in Zengen, the gravamen of each cause of action asserted by Plaintiffs against Chase is that “[t]he Bank should not have accepted and executed the fraudulent payment orders.” (Zengen, 41 Cal.4th at 254.) These causes of action thus “fall squarely within the provisions of division 11 of the California Uniform Commercial Code,” and so are preempted. (Id. at 255.) Accordingly, the demurrer is sustained as to the ninth, tenth, and eleven causes of action.

Because Plaintiffs have not established any underlying cause of action supporting injunctive relief or recovery of damages, the demurrer is also sustained as to the first cause of action against Chase for “Preliminary Injunction, Permanent Injunction, and Damages.”