Judge: Barbara M. Scheper, Case: 22STCV27577, Date: 2022-12-22 Tentative Ruling

Case Number: 22STCV27577    Hearing Date: December 22, 2022    Dept: 30

Damavandi vs. Kohanbashiri, et. al., Case No. 22STCV27577

Tentative Ruling re:  Defendant’s Demurrer to Complaint

Defendant Iraj Kohanbashiri (Defendant) demurs to the first and third causes of action in the Complaint of Plaintiff Bijan Damavandi (Plaintiff). The demurrer is overruled.  Defendant is ordered to answer within ten (10) days of today’s date.

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 and Defendant each own 50% interests in the corporation Lincoln Millennium Car Wash, Inc. (Lincoln). (Comp. ¶¶ 8-10.) The parties entered into a Shareholders Agreement (the Agreement) for Lincoln effective November 16, 2006, and executed a First Amendment to the Agreement effective February 6, 2009. (Comp. ¶¶ 11-12, Ex. A, Ex. B.)

The Agreement, as amended, provides Plaintiff (and not Defendant) the right to make an offer for all shares of the other shareholder. (Comp. ¶ 13.) To make the offer, Plaintiff must deliver written notice of the offer to the other shareholder, including the purchase price, and deposit $150,000 in escrow. (Comp. ¶ 14.) The offeree shareholder is then provided thirty days to notify Plaintiff of his choice of one of two options: (1) Accept the offer for the shares at the purchase price set; or (2) Purchase the shares of Plaintiff at a higher price, determined via an auction-style process between the shareholders. (Comp. ¶ 15.) If the offeree does not respond within thirty days, it is deemed that the offeree has accepted the offer to purchase the shares at the given price. (Comp. ¶ 20.) The closing for the sale must be held no more than four months after the terms of the offer have been determined. (Comp. ¶ 16.)

On May 2, 2022, Plaintiff delivered to Defendant the Purchase Offer Notice for the purchase of Defendant’s shares in Lincoln and deposited $150,000 into escrow. (Comp. ¶¶ 22-23, Ex. C.) The Offer was made at the price of $3,000,000, minus 50% of all outstanding debt at time of closing, plus 50% of the book value of all remaining inventory at closing. (Ibid.) Defendant did not respond to the offer within the 30-day response period. (Comp. ¶ 25.)

One June 7, 2022, Plaintiff delivered notice to Defendant that the Purchase Offer was deemed accepted based on the lack of response. (Comp. ¶ 26.) On August 4, 2022, Plaintiff delivered to Defendant notice of escrow closing, with instructions to Defendant for closing escrow. (Comp. ¶ 28.) Defendant has refused to execute the escrow instructions as required by the amended Shareholder Agreement. (Comp. ¶ 29.) Plaintiff alleges three causes of action against Defendant, for: (1) Specific Performance; (2) Declaratory Relief; and (3) Breach of Contract.

First Cause of Action for Specific Performance

The cause of action for specific performance seeks “temporary, preliminary and injunctive relief,” including an order directing Defendant to convey his interest in Lincoln to Plaintiff, comply with the escrow instructions, and return any and all property belonging to Lincoln. (Comp. ¶ 40.)

“To obtain specific performance after a breach of contract, a plaintiff must generally show: ‘(1) the inadequacy of his legal remedy; (2) an underlying contract that is both reasonable and supported by adequate consideration; (3) the existence of a mutuality of remedies; (4) contractual terms which are sufficiently definite to enable the court to know what it is to enforce; and (5) a substantial similarity of the requested performance to that promised in the contract. [Citations.]’ ” (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472.)

Defendant first argues that specific performance is a remedy, and not a cause of action. “ ‘[S]pecific performance and injunctive relief are equitable remedies and not causes of action for injuries.’ [Citation.] A remedy must have a cause of action to support it.” (Timothy W. v. Julie W. (2022) 301 Cal.Rptr.3d 294, 306.) Here, Plaintiff’s prayer for specific performance is sufficiently supported by the cause of action for breach of contract, discussed below.

Defendant also argues that Plaintiff has failed to allege inadequacy of legal remedy. “[T]he general rule is that equity will not decree the specific performance of contracts relating to personal property where there is no specific quality in the individual articles which gives them a special value to the contracting party and where the recovery of damages will enable him to purchase others in the market of like kind and quality.” (Wehen v. Lundgaard (1940) 41 Cal.App.2d 610, 613.)

“It has been held repeatedly . . .  that an agreement to transfer stock of peculiar value may be specifically enforceable.” (Steinmeyer v. Warner Cons. Corp. (1974) 42 Cal.App.3d 515, 519.) Shares in a company have a peculiar value to the contracting party where “[t]hey could not have been purchased on the open market [and] could be acquired only from” the defendant. (Kaneko v. Okuda (1961) 195 Cal.App.2d 217, 233–234.)  “The propriety of specific enforcement of contracts to sell or convey unique items of personal property such as shares of stock in closely held corporations which are not traded in the market, and which have no established market value has long been recognized.” (Capaldi v. Levy (1969) 1 Cal.App.3d 274, 281.)

Plaintiff seeks the transfer of stock in a closely held corporation not available for purchase in the market. (Comp. ¶¶ 8-10.) These shares have a “peculiar value” to Plaintiff and so are a proper subject of a claim for specific performance.

            Defendant last argues that Plaintiff has failed to allege adequacy of consideration for the shares, because they are worth substantially more than $3,000,000. However, “[b]y the term ‘adequate consideration’ it is not meant that the price shall necessarily measure up to the full market value of the property, but merely that it shall be reasonably just and equitable to the party against whom the contract is sought to be enforced.” (Laguna Land & Water Co. v. Greenwood (1928) 92 Cal.App. 570, 573.) The Shareholders Agreement and First Amendment attached to the Complaint support the adequacy of consideration for the contracts. (Comp., Ex. A, Ex. B.)

Third Cause of Action for Breach of Contract

            Defendant demurs to the third cause of action on the basis that the Shareholders Agreement is incomplete as pled, because Plaintiff has not attached the Bylaws referenced in the agreement. “A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect. In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.’” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) Here, the  Court finds that the Shareholders Agreement and Amendment attached to the Complaint, and the allegation of all terms related to Plaintiff’s right to proffer a purchase offer, are sufficient to plead the substance of the relevant terms of the contract. (Comp. ¶¶ 13-23, Ex. A, Ex. B.)

Defendant further argues that the Shareholder Agreement was not properly executed based on the lack of a spousal consent form, citing Family Code § 1100. Under that section, “[a] spouse may not make a gift of community personal property, or dispose of community personal property for less than fair and reasonable value, without the written consent of the other spouse.” (Family Code § 1100, subd. (b).) A spouse operating or managing a business “that is all or substantially all community personal property has the primary management and control of the business or interest,” and therefore “may act alone in all transactions but shall give prior written notice to the other spouse of any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the personal property used in the operation of the business . . .” (Fam. Code, § 1100, subd. (d).)

            Here, any remedy for the failure to provide prior written consent as required by section 1100 would be held by the party’s spouse, and not Defendant. Furthermore, “[a] failure to give prior written consent shall not adversely affect the validity of a transaction nor any interest transferred.” (Family Code § 1100, subd. (d).) The Court also notes that there are no allegations that either party is married.

Defendant last argues that the Complaint fails because Plaintiff has failed to join Lincoln, which Defendant argues is a necessary party. Defendant has provided no explanation of why “complete relief cannot be accorded among the parties” in Lincoln’s absence, or shown any interest of Lincoln that will be impeded or cause risk of multiple liability. (Code Civ. Proc. § 389, subd. (a).) The Complaint alleges that Plaintiff and Defendant are Lincoln’s only partners, each holding 50% of the company, and so there is no indication that any other party is necessary to accord complete relief. (Comp. ¶¶ 8-10.) Accordingly, the demurrer is overruled.