Judge Blaine K. Bowman, Case Number: 37-2022-00045117-CU-DF-CTL, Date: 2024-04-26 Tentative Ruling

Judge: Blaine K. Bowman, Case: 37-2022-00045117-CU-DF-CTL, Date: 2024-04-26 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - April 25, 2024

04/26/2024 08:30:00 AM C-74 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Blaine K. Bowman

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Civil - Unlimited Defamation Demurrer / Motion to Strike 37-2022-00045117-CU-DF-CTL RYVYL INC VS LUNA [IMAGED] CAUSAL DOCUMENT/DATE FILED:

The court addresses the evidentiary issues. Defendant Coyni, Inc.'s request for judicial notice is GRANTED as to Exhibits E and F and DENIED as to all other exhibits. Defendant Coyni's reply request for judicial notice is DENIED. There is no evidence before the court showing that the documents attached as Exhibits A, B, C, D and G were filed with the United States Security and Exchange Commission. Absent such evidence, Coyni fails to establish grounds for judicial notice. Even if the court were to take judicial notice of the SEC documents, there is no authority allowing the court to take judicial notice of the facts contained therein. See, Bach v. McNelis (1989) 207 Cal.App.3d 852, 865. See also, Larson v. State Personnel Bd. (1994) 28 Cal.App.4th 265, 270, fn. 2. The court is not persuaded by Coyni's reliance on Apple Inc. v. Superior Court (2017) 18 Cal.App.5th 222, as there is no discussion of the evidence establishing that the SEC filings considered by the court were the actual SEC filings. Also, in contrast to the circumstances in Apple Inc., the court finds the allegations of the First Amended Complaint sufficient to establish a reasonable dispute as to the contents of the SEC filings [see, e.g., FAC ¶ 72].

The court then rules as follows. Defendant Coyni, Inc.'s demurrer to Plaintiff Vanessa Luna's first amended complaint in Luna v. GreenBox POS, Inc., et al. (Case No. 37-2022-00045803-CU-WT-CTL) is SUSTAIANED WITH LEAVE TO AMEND as to the breach of contract, quasi-contract/unjust enrichment and promissory estoppel causes of action and SUSTAINED WITHOUT LEAVE TO AMEND as to the retaliation/wrongful termination, sexual harassment - quid pro quo and sexual harassment - hostile work environment causes of action.

Breach of Contract Quasi-Contract/Unjust Enrichment Promissory Estoppel As pled, Coyni's alleged liability under these causes of action is premised on allegations that Coyni is 'a successor entity to GreenBox/RYVYL' [FAC ¶¶ 119, 132, 138]. McClellan v. Northridge Park Townhome Owners Ass'n, Inc. (2001) 89 Cal.App.4th 746 recognizes the principle that '[i]f a corporation organizes another corporation with practically the same shareholders and directors, transfers all the assets but does not pay all the first corporation's debts, and continues to carry on the same business, the separate entities may be disregarded and the new corporation held liable for the obligations of the old. [Citations.]' (9 Witkin, Summary of Cal. Law, supra, Corporations, § 19, p. 532.) Calendar No.: Event ID: TENTATIVE RULINGS

3099863 3 CASE NUMBER: CASE TITLE: RYVYL INC VS LUNA [IMAGED] 37-2022-00045117-CU-DF-CTL McClellan, 89 Cal.App.4th at 753. McClellan goes on to state, [t]he general rule is 'where one corporation sells or transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the former unless (1) the purchaser expressly or impliedly agrees to such assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape liability for debts. [Citations.]' (Ortiz v. South Bend Lathe (1975) 46 Cal.App.3d 842, 846 [120 Cal.Rptr. 556], italics added; accord, Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28 [136 Cal.Rptr. 574, 560 P.2d 3];3 Franklin v. USX Corp., supra, 87 Cal.App.4th at p. 621.) [Emphasis added.] McClellan, 89 Cal.App.4th at 753–754.

Critically, as Acheson v. Falstaff Brewing Corp. (9th Cir. 1975) 523 F.2d 1327, explains, this rule 'is applicable only where all or substantially all of a corporation's assets are purchased.' Acheson, 523 F.2d at 1330.

As pled, the FAC fails to allege facts sufficient to establish that all or substantially all of RYVYL's assets were purchased by Coyni. Without more, allegations that RYVYL transferred assets of $25 million to Coyni [FAC ¶ 95(b), 103] are insufficient. Absent alleging facts establishing that RYVYL transferred all or substantially all of its assets to Coyni, the court finds the FAC fails to allege facts sufficient to establish a basis for holding Coyni liable as the successor of GreenBox/RYVYL.

Even if the FAC alleged such facts the result would not change.

The FAC relies on the following two circumstances to support successor liability.

92. Where one corporation sells or transfers its assets to another corporation, the successor corporation may be liable: (1) if the successor corporation is merely a continuation of the selling corporation, or if (2) the transaction is entered into fraudulently to escape liability for debts. McClellan v. Northridge Park Townhome Owners Assn., 89 Cal.App.4th 746, 753 (2001).

As to Plaintiff's mere continuation theory, McClellan explains, [i]n discussing the mere continuation exception to the general rule of successor non-liability, the court in Ray v. Alad Corp. stated 'California decisions holding that a corporation acquiring the assets of another corporation is the latter's mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation's assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations. (See Stanford Hotel Co. v. M. Schwind Co. (1919) 180 Cal. 348, 354 [181 P. 780]; Higgins v. Cal. Petroleum etc. Co. (1898) 122 Cal. 373 [55 P. 155]; Economy Refining & Service Co. v. Royal Nat. Bank of New York (1971) 20 Cal.App.3d 434 [97 Cal.Rptr. 706, 49 A.L.R.3d 872]; Blank v. Olcovich Shoe Corp.[, supra,] 20 Cal.App.2d 456 ...; cf. Malone v. Red Top Cab Co. [(1936)] 16 Cal.App.2d 268 [60 P.2d 543].)' (Ray v. Alad Corp., supra, 19 Cal.3d at p. 29; accord, Franklin v. USX Corp., supra, 87 Cal.App.4th at p. 626.) McClellan, 89 Cal.App.4th at 754.

Again critically, imposition of successor liability under the 'mere continuation' doctrine requires that the predecessor entity that was purportedly acquired by the successor entity no longer exist. See Butler, 486 F.Supp.2d at 1064 ('With regard to the third exception, the 'mere continuation' doctrine [ ] requires that the selling Calendar No.: Event ID: TENTATIVE RULINGS

3099863 3 CASE NUMBER: CASE TITLE: RYVYL INC VS LUNA [IMAGED] 37-2022-00045117-CU-DF-CTL entity dissolve-because only one corporation may remain after the transaction,' citing Ferguson v. Arcata Redwood Co., LLC, No. C 0305632 SI, 2004 WL 2600471, *5 (N.D.Cal. Nov. 12, 2004)).

Gerritsen v. Warner Bros. Entertainment Inc. (C.D. Cal. 2015) 116 F.Supp.3d 1104, 1133. See also, Phillips v. Cooper Laboratories (1989) 215 Cal.App.3d 1648, 1660. ['Nor was Nestle a mere continuation of Miller. While Nestle and Miller had several common officers and directors, Miller continued as a separate corporation after its acquisition.'] As pled, the FAC fails to allege that RYVYL no longer exists. Absent such allegations, the court finds the FAC fails to allege facts sufficient to support a finding that Coyni is a 'mere continuation' of RYVYL.

To support Plaintiff's fraudulent transfer theory the FAC alleges: 102. Where one corporation sells or transfers its assets to another corporation, the successor corporation may be liable if 'the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.' Iheartmedia + Entm't, a Nev. Corp., No. 21STCV41091, 2023 Cal. Super. LEXIS 53506, at *41 (L.A. Super. Ct., Aug. 7, 2023), citing Cleveland v. Johnson, 209 Cal. App. 4th 1315, 1326 (2012).

103. On information and belief, RYVYL's transferred at least $25 million in assets to Coyni. On information and belief, RYVYL's transfer of assets to Coyni was for the fraudulent purpose of escaping liability for RYVYL's debts. Indeed, in lawsuit filed against RYVYL, Coyni, Fredi Nisan and others on June 16, 2023, alleging RICO and other violations, former employee Manuel Sanchez alleges on information and belief that RYVYL 'knowingly and intentionally transferred its assets to Coyni in an effort to avoid judgment from potential civil actions brought by GreenBox's investors.' 104. In addition to Ms. Luna's lawsuit, RYVYL and its officers and directors also face several other lawsuits, including a securities fraud class action, a shareholder derivative suit alleging misrepresentations and omissions by its officers and directors, and a lawsuit by former employee Jacquelyn Dollar alleging employment law violations.

105. In the first nine months of 2023 alone, RYVYL paid over $4.1 million to settle pending litigation, including a case filed in the American Arbitration Association ('AAA') brought by The Good People Farms, LLC ('TGPF') alleging that RYVYL and other individual defendants breached contracts and withheld funds. Id. [Emphasis in original.] ¶ 102 is a statement of the law. The allegation of ¶ 103 that RYVYL transferred $25 million to Coyni is insufficient by itself to establish a fraudulent transfer. And the conclusion in ¶ 103, that such transfer was for the fraudulent purpose of escaping liability for RYVYL's debts is also insufficient, without supporting factual allegations, to establish a fraudulent transfer. See, Gerritsen, 116 F.Supp.3d at 1135.

[Because Gerritsen's fraudulent purpose theory is not supported by factual allegations and because the facts pled in the complaint are not plausibly suggestive of such a purpose, she has failed adequately to allege that WB can be held liable as a successor-in-interest because it engaged in transactions with Katja and New Line to avoid liability to creditors.'] The allegations of ¶¶ 103, 104 and 105 as to lawsuits filed by others are also insufficient.

In opposition Plaintiff also relies on an agency theory to hold Coyni liable as the agent of RYVYL.

However, under general principles of agency law, agents are not liable for the acts of their principles.

See, Peredia v. HR Mobile Services, Inc. (2018) 25 Cal.App.5th 680, 692. Plaintiff fails to articulate a theory under which Coyni could be liable for the acts of its alleged principle, RYVYL. Plaintiff also argues that Coyni is liable for Nisan's conduct while acting as Coyni's agent. However, Plaintiff fails to cite to any allegations establishing that Nisan was acting as Coyni's agent, and not as agent of GreenBox/RYVYL, Plaintiff's alleged employer, with respect to Plaintiff's employment. Allegations that Calendar No.: Event ID: TENTATIVE RULINGS

3099863 3 CASE NUMBER: CASE TITLE: RYVYL INC VS LUNA [IMAGED] 37-2022-00045117-CU-DF-CTL Coyni is a wholly owned subsidiary of RYVYL are insufficient to establish Coyni's liability under either agency theory.

The court allows Plaintiff 10 days leave to amend to allege facts to support imposition of liability on Coyni as successor to GreenBox/RYVYL and/or as principle of Nisan.

Retaliation/Wrongful Termination Sexual Harassment - Quid Pro Quo Sexual Harassment - Hostile Work Environment Plaintiff raises no arguments in opposition specific to these causes of action. Plaintiff does not dispute that, to state a claim under each of these causes of action the complaint must allege that Coyni was Plaintiff's employer. See Taylor v. Financial Casualty & Surety, Inc. (2021) 67 Cal.App.5th 966 [California Labor Code] and Vernon v. State of California (2004) 116 Cal.App.4th 114, 123 [Fair Employment and Housing Act]. Plaintiff does not cite to any allegations establishing that Coyni was Plaintiff's employer. The only allegation in the FAC referencing Plaintiff's employer is in ¶ 8: 'During the relevant period, RYVYL was an 'employer' under Government Code §12926(d).' To the extent Plaintiff relies on the same successor liability and agency theories addressed above, Plaintiff fails to articulate how such theories would support a finding that Coyni was Plaintiff's employer. Absent allegations that Coyni was Plaintiff's employer, each of these causes of action fails as against Coyni.

Although Plaintiff seeks leave to amend, Plaintiff fails to proffer any facts to cure this pleading deficiency.

Therefore, the court finds Plaintiff fails to demonstrate a reasonable probability the complaint can be amended to plead a basis for liability against Coyni under any of the Labor Code/FEHA-based causes of action. Accordingly, Defendant Coyni, Inc.'s demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the seventh cause of action for retaliation/wrongful termination, eighth cause of action for sexual harassment - quid pro quo and ninth cause of action for sexual harassment - hostile work environment.

Doe v. United States Youth Soccer Assn., Inc. (2017) 8 Cal.App.5th 1118, 1143 citing Titus v. Canyon Lake Property Owners Assn. (2004) 118 Cal.App.4th 906, 917. See also, Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; Ruinello v. Murray (1951) 36 Cal.2d 687, 690.

If this tentative ruling is confirmed the Minute Order will be the final order of the court and the parties shall not submit any further order on this motion.

Unless the ruling(s) above indicate that an appearance is necessary, parties who wish to submit, who are satisfied with the above tentative ruling(s), and/or who do not otherwise wish to argue the motion(s) are encouraged to give notice to the Court and each other of their intention not to appear.

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