Judge Bruce G. Iwasaki

Department 58

Hearing Date: May 13, 2025

Case Name: BlueX Trade v. Creative Arcades, LLC

Case No.: 25STCV02928

Matter: Demurrer and Motion to Strike

Moving Party: Defendants Creative Arcades LLC and Brian Horowitz

Responding Party: None

Tentative Ruling: The demurrer to the Complaint is sustained. The motion to strike is moot.

Background

Plaintiff BlueX Trade alleges that Defendants Creative Arcades and its principal, Brian Horowitz, breached multiple written agreements—including a “Directed Buy Agreement,” a “Pay It Later Agreement,” and a subsequent payment agreement—by failing to repay a debt of $987,124.07 and failing to assign promised customer accounts receivable. Plaintiff BlueX claims it fully performed its contractual obligations, including paying Creative Arcades’ suppliers on its behalf, and that Horowitz personally guaranteed repayment but defaulted.

The Complaint alleges causes of action for: (1.) breach of contract, (2.) breach of guaranty, (3.) goods and services rendered, (4.) open book account, and (5.) account stated.

On April 15, 2025, Defendants Creative Arcades LLC and Brian Horowitz demurred to the Complaint. Defendants also filed a motion to strike. No opposition was filed.

The demurrer is sustained. The motion to strike is moot.

Legal Standard for Demurrers

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading by raising questions of law. (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . .” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.) In applying these standards, the court liberally construes the complaint to determine whether a cause of action has been stated. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 733.)

Analysis

Misjoinder Allegations:

Defendants Creative Arcades and Horowitz move to dismiss the action on the grounds that Plaintiff has failed to join an indispensable party: Cumulus Co. Ltd. (Cumulus).

Code of Civil Procedure section 389 addresses the joinder of necessary and indispensable parties.

Subdivision (a) of Section 389 provides: “A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.” A party that must be joined under this provision is deemed a “necessary” party. (Countrywide Home Loans, Inc. v. Superior Court (1999) 69 Cal.App.4th 785, 791.)

“If a person [or entity] is determined to qualify as a ‘necessary’ party under one of the standards outlined above [under Code of Civil Procedure section 389, subd. (a)], courts then determine if the party is also ‘indispensable.’ ” (City of San Diego v. San Diego City Employees' Retirement System (2010) 186 Cal.App.4th 69, 83–84.)

Code of Civil Procedure section 389, subdivision (b), lists factors which the court must consider if a party cannot be joined. Specifically, section 389 provides:

“(b) If a person as described in paragraph (1) or (2) of subdivision (a) cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensable. The factors to be considered by the court include: (1) to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person's absence will be adequate; (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder.”

“Indispensable parties have been identified as those who are essential for ‘a complete determination of the controversy’ [citations] or the ability of a court to enter ‘any effective judgment’ [citation].” (Kaczorowski v. Mendocino County Bd. of Supervisors, supra, 88 Cal.App.4th at p. 568.) “ ‘[A] person is an indispensable party [only] when the judgment to be rendered necessarily must affect his rights.’ ” (Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 808.)

Put another way, “[t]he controlling test for determining whether a person is an indispensable party is, ‘Where the plaintiff seeks some type of affirmative relief which, if granted, would injure or affect the interest of a third person not joined, that third person is an indispensable party. [Citation.]’ ” (Save Our Bay, Inc. v. San Diego Unified Port Dist. (1996) 42 Cal.App.4th 686, 692.)

Defendant notes that all the contracts at issue in this breach of contract case -- the October 4, 2023 Directed Buy Agreement, the November 20, 2023 Pay it Later Agreement, and the January 15, 2024 Agreement for Outstanding Payments and Cargo Release -- include Cumulus as a party. Under these agreements, Cumulus and the Plaintiff provided services such as procuring goods and paying supplier invoices on behalf of Creative Arcades, with the expectation of full repayment.

In particular, under the January 15, 2024 Agreement for Outstanding Payments and Cargo Release, Defendant Creative Arcades, agreed to pay an outstanding balance of $774,855.72 to Cumulus (the “Creditor”) and assign BlueX (the “Factor”) as the recipient of all accounts receivable for customers previously assigned to Creative Arcades, until Cumulus confirmed receipt of the outstanding bill in full. (Compl., ¶ 17, Ex. D.) The Complaint alleges Creative Arcades allegedly defaulted on these terms by failing to pay the full amount and failing to assign the required receivables. As of December 4, 2024, the unpaid balance had grown to $987,124.07, and Plaintiff seeks recovery of this amount plus costs and attorney fees, with Horowitz personally guaranteeing Creative Arcades' obligations.

Based on the foregoing, Defendant argues that BlueX improperly brings claims that belong to Cumulus and has failed to join Cumulus as a necessary party. On these grounds, Defendants argue the Complaint must be dismissed for failing join this indispensable party, citing Bank of Orient v. Superior Court (1977) 67 Cal.App.3d 588.

In Bank of Orient v. Superior Court (1977) 67 Cal.App.3d 588, the court held a partially subrogated insurer is an indispensable party and must be joined as a party plaintiff under Code of Civil Procedure section 389. In that case, a manager of plaintiff savings and loan embezzled money from it and deposited the money in the defendant bank. (Bank of Orient v. Superior Court, supra, 67 Cal.App.3d at pp. 591–592.) The plaintiff was insured for the losses, and the insurer paid the plaintiff's claims in exchange for an assignment of rights. (Id. at p. 592.) The plaintiff sued the bank to recover the embezzled funds. (Ibid.) After discovery revealed the assignment to the insurer, the defendant bank moved to compel joinder of the insurer as a plaintiff. (Ibid.) The trial court denied the motion. (Id. at p. 593.) The Court of Appeal issued a writ of mandate and held the insurer, as a partial assignee and subrogee of the savings and loan, was an indispensable party whose joinder was compulsory under Code of Civil Procedure section 389, subdivision (a). (Bank of Orient v. Superior Court, supra, 67 Cal.App.3d at pp. 595–596.)

Here, the allegations support finding that Cumulus is a necessary party. A judgment on this contract could impact Cumulus’ legal rights and obligations with respect to these contracts to which it is party. Further, there is a risk of conflicting judgments where the Court here could make findings as to the contract’s enforceability and underlying factual determinations, and another, different court could reach a different findings on a later action brought by Cumulus.

The demurrer further argues that since Plaintiff BlueX has intentionally not joined Cumulus, joining Cumulus would not be feasible. This conclusory statement is not well taken.

Based on the foregoing, Defendants have shown only that Cumulus is a necessary party but not an indispensable party. That is, Cumulus must be joined and there is no identified reason Plaintiff “cannot be made a party” this action.

If the court concludes that a necessary party is “subject to service of process, and whose joinder will not deprive the court of jurisdiction over the subject matter,” then the court “shall order” the party to be joined if he has not been so joined. (Code Civ. Proc., § 389, subd. (a).) It is only if the court determines that a necessary party cannot be joined, that the court must then decide whether to proceed with or dismiss the action under the statutory criteria in subdivision (b), “the absent person being thus regarded as indispensable” in the latter situation. (Code Civ. Proc., § 389, subd. (b); Countrywide Home Loans, Inc. v. Superior Court (1999) 69 Cal.App.4th 785, 791-792, fn. 3.)

Conclusion

The demurrer to the Complaint is sustained. The motion to strike is moot. Plaintiff shall have leave to amend. An amended pleading shall be filed and served on or before June 13, 2025.

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