Judge: Barbara M. Scheper, Case: 22STCV27577, Date: 2023-03-14 Tentative Ruling

Case Number: 22STCV27577    Hearing Date: March 14, 2023    Dept: 30

Dept. 30

Calendar No.

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

Tentative Ruling re:  Cross-defendant’s Demurrer to Cross-complaint; Motion to Strike

Cross-Defendant Bijan Damavandi (Cross-Defendant) demurs to the first and fourth causes of action in the Cross-Complaint of Iraj Kohanbashiri (Cross-Complainant), and moves to strike portions of the Cross-Complaint. The demurrer is sustained with ten (10) days leave to amend. The motion to strike is granted.

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 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.) 

Cross-Complainant and Cross-Defendant are each one-half shareholders in the corporation Lincoln Millennium Car Wash, Inc. (Lincoln). (Cross-Complaint (CC) ¶ 6.) In April 2022, a third-party purchaser allegedly approached Cross-Defendant with an offer to purchase all of Lincoln’s shares at the price of $6,500,000. (CC ¶ 9.) Cross-Defendant entered into a contract with the buyer for the sale of all shares at that price, and then “concocted a scheme to acquire Cross-Complainant’s shares at a low price, apparently in an attempt to resell them at a profit to Buyer.” (CC ¶ 10.)

On April 29, 2022, Cross-Defendant sent Cross-Complainant an offer to purchase his shares in Lincoln at the price of $3,000,000. (CC ¶ 12.) On May 24, 2022, the parties met in person, and entered into an agreement in which Cross-Defendant purchased 10% of Lincoln’s shares from Cross-Complainant for $700,000, based on a total valuation of Lincoln of $7,000,000. (CC ¶ 12.) Cross-Defendant did not disclose the third-party offer to Cross-Complainant at any point. (CC ¶ 19.)

Cross-Complainant’s first and fourth causes of action are for breach of fiduciary duty and elder financial abuse, respectively.

“The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.) “‘[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” [Citations].’ (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 386.)

Cross-Complainant alleges that Cross-Defendant “was the Corporation’s dominant shareholder,” and thus “had a duty to refrain from using his dominance to produce action unfair to Cross-Complainant.” (CC ¶ 15.) Cross-Defendant breached his fiduciary duty to Cross-Complainant by his failure to disclose the third-party offer, and his failure to disclose that he was purchasing Cross-Complainant’s shares to resell them to the third party. (CC ¶ 18.) It is alleged that Cross-Defendant’s “exercise of his control and dominance to seek personal advantage against Cross-Complainant in such an unfair, unjust and inequitable manner constitute shareholder oppression against Cross-Complainant.” (CC ¶ 20.)

As an initial matter, Cross-Defendant’s purported shareholder dominance appears entirely unfounded, given that the parties were allegedly equal shareholders in Lincoln. (CC ¶ 6.) But even assuming that Cross-Defendant’s failure to disclose the third-party offer constituted a breach of his fiduciary duty to Cross-Complainant, the cause of action would fail because Cross-Complainant has not pled facts showing that he suffered damages from the breach.

The alleged third-party offer to Cross-Defendant was for all shares in Lincoln at the price of $6,500,000. (CC ¶ 10.) Cross-Complainant agreed to sell 10% of his shares to Cross-Defendant at the price of $700,000, based on a total valuation of $7,000,000; Cross-Complainant thus made more from his agreement with Cross-Defendant than he would have made had he sold his shares to the third party. (CC ¶ 12.) These facts directly contradict the allegation that Cross-Defendant “stood to make a profit in purchasing Cross-Complainant’s shares of Company and reselling them to Buyer.” (CC ¶ 18.) Because Cross-Complainant has failed to plead damages resulting from Cross-Defendant’s alleged failure to disclose, the demurrer is sustained as to the first cause of action.

Cross-Complainant’s failure to plead damages is also fatal to the cause of action for financial elder abuse. (CC ¶¶ 37-42.) Additionally, that claim fails because Cross-Complainant has not alleged that the transfer of his shares to Cross-Defendant actually took place. “Financial abuse” of an elder occurs when a person “[t]akes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud,” or assists in such conduct. (Welf. & Inst. Code, § 15610.30, subd. (a).) Absent the actual transfer of the shares, Cross-Complainant has failed to plead that Cross-Defendant took, secreted, appropriated, obtained, or retained Cross-Complainant’s personal property. The lack of any actual transfer is further confirmed by Cross-Complainant’s Prayer for Relief, which requests “an order of specific performance and a judgment compelling [Cross-Defendant] to purchase 10% of Company shares from Cross-Complainant at $700,000, in accordance with the terms and conditions of the May 24 Agreement…” (CC p. 9, ¶ 4.) Accordingly, the demurrer is sustained as to the fourth cause of action.

Motion to Strike 

Cross-Complainant moves to strike the allegations relating to Plaintiff’s prayers for a contractual penalty, for restitution, for a constructive trust, and for recovery of attorney’s fees. The motion to strike is granted.

            The parties’ May 24, 2022 Agreement, as translated from Farsi, provides, “[a]nyone cheating in the carwash shall be fined $500,000, and not $100,000 as stated in the previous contract.” (CC ¶   Ex. 3.) Cross-Complainant seeks recovery of a $500,00 penalty from Cross-Defendant pursuant to this provision, on the basis that that Cross-Defendant “acted dishonestly toward Cross-Complainant by breaching the May 24 Agreement.” (CC ¶ 32.)

“[A] provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made.” (Civ. Code, § 1671, subd. (b).) “A litigant seeking the benefits of a clause purporting to fix liquidated damages must plead and prove that the clause is valid under the facts which then existed.” (Purcell v. Schweitzer (2014) 224 Cal.App.4th 969, 975.) “A liquidated damages clause will generally be considered unreasonable, and hence unenforceable under section 1671(b), if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach. The amount set as liquidated damages ‘must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained.’ ” (Ridgley v. Topa Thrift & Loan Ass'n (1998) 17 Cal.4th 970, 977.)

Cross-Complainant “has the burden of pleading and proving that when the contract was entered into, the fixing of damages was impracticable or extremely difficult.” (Chastain v. Belmont (1954) 43 Cal.2d 45, 58.) There are no facts pled in support of the validity of the penalty provision, and so Cross-Complainant has failed to meet his burden. Cross-Complainant has also presented no statutory or contractual basis for recovery of attorney’s fees. (Code Civ. Proc. § 1021.) Finally, because Cross-Complainant has failed to plead that he transferred any shares to Cross-Defendant, the facts alleged do not support recovery of restitution or the imposition of a constructive trust. (CC, p. 9, ¶¶ 2-3.) The motion to strike is granted.