Judge: Cherol J. Nellon, Case: 22STCV25858, Date: 2025-05-14 Tentative Ruling
Case Number: 22STCV25858 Hearing Date: May 14, 2025 Dept: 14
#13
Case Background
This is an action for breach of contract and promissory
fraud. Plaintiff Jee Lee alleges that Defendants promised Plaintiff equity and
stock ownership in their hemp business as part of his compensation as
Defendants’ general counsel. Defendants breached their agreement with Plaintiff
by failing to pay the value of the equity promised to him.
On October 4, 2024, Plaintiff Jee Lee filed his
Complaint against Defendants Cheef Holdings, Inc. (Cheef) and Dareh Zadoorian.
On February 13, 2024, Jedediah Knight and Patrick
Stordahl, attorneys for Defendants Cheef Holdings, Inc. and Dareh Zadoorian,
filed applications for admission pro hac vice.
On March 6, 2025, Defendants filed a demurrer.
On April 2, 2025, Plaintiff filed an opposition to the
demurrer.
On April 4, 2025, the Court continued the hearing on
the applications for admission pro hac vice to allow Knight and Stordahl to
file missing evidence.
On April 16, 2025, the Court continued these matters
again to allow Knight and Stordahl to file the missing materials.
Instant Pleading
Jedediah Knight and Patrick Stordahl, Counsel for
Defendants Cheef Holdings, Inc. and Dareh Zadoorian, move to be admitted pro
hac vice.
Defendants demur to Plaintiff’s Complaint.
Decision
The applications to appear pro hac vice filed by Jedediah
Knight and Patrick Stordahl are GRANTED.
Defendants’ demurrer is OVERRULED. Defendants must file
an Answer within 20 days of receiving notice of this order.
Discussion
1.
Pro Hac Vice Applications
The Court previously continued the hearing on this
action because the applications for admission pro hac vice lacked evidence that
the requisite fee was sent to the State Bar of California, and the Notice of
Hearing and the instant application were served on all interested parties and
on the State Bar of California as required under Cal. Rules of Court, Rule
9.40. Knight and Stordahl represented at a hearing on April 16, 2025 that they
obtained the missing information and emailed it to the Court. The Court continued
the matter to allow counsel to file the emailed documents. Both Counsel filed
the missing information on May 13, 2025. The applications to appear pro hac
vice filed by Jedediah Knight and Patrick Stordahl are GRANTED.
2.
Demurrer
Defendants demur to Plaintiff’s Complaint.
Breach of Contract: Sufficiency
Defendants demur to the cause of action for breach of
contract on the grounds that the Complaint fails to state whether the equity
promised to Plaintiff in his compensation actually vested.
“[T]he elements of a cause of action for breach
of contract are (1) the existence of the contract, (2) plaintiff’s performance
or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting
damages to the plaintiff.” (Thrifty Payless, Inc. v. The Americana at
Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)
The Complaint alleges that when Defendants hired him,
Defendants promised him a compensation package consisting of a minimum one
percent equity in the Cheef brands. (Compl., ¶7.) Cheef also agreed to give
Plaintiff equity in Hollyweed, a mark used in Defendants’ hemp business, which was
to vest within months of Plaintiff’s start date. (Id.) At the time of
Plaintiff’s hiring, Cheef was negotiating to acquire Hollyweed. (Id.) Once
Cheef acquired Hollyweed, Cheef would immediately grant the promised equity in Hollyweed.
(Id.) Plaintiff emailed the details of this agreement to Zadoorian. (Id.,
¶8.) Based on Cheef’s promises, Plaintiff believed he would be a beneficiary of
an option pool which Cheef set aside to grant equity to its employees and
agents. (Id., ¶9.) Zadoorian later introduced a change of control bonus
to be paid to individuals who
participated in the sale of another mark, Exhale. (Id., ¶11.) Plaintiff
continued to perform his duties through December 2023 when Zadoorian terminated
his employment. (Id.., ¶¶13-15.) Defendants breached their agreements
with Plaintiff by failing to pay the total value of the equity promised as part
of Plaintiff’s compensation. (Id., ¶16.)
Defendants
argue that the Complaint fails to state that Plaintiff’s promised equity in
Hollyweed actually vested because there is no indication Cheef completed the
acquisition of Hollyweed and Exhale actually vested. Defendants also argue that
the facts alleged do not show how much equity Cheef would have been obligated
to grant out of the option pools because the Complaint alleges Plaintiff could
have been given anywhere between 3% and 5%. Additionally, there are no facts
stating when this equity would have vested.
Although
the Complaint indeed lacks facts which establish that the equity in Hollyweed,
Exhale, or the option pools vested, the Complaint also states that Cheef
promised Plaintiff 1% equity in all of its brands when he was hired. Thus, even
if the facts do not establish Plaintiff was entitled to equity in Hollyweed and
Exhale, the facts do establish Plaintiff was promised equity in Cheef’s other
brands. The Court cannot sustain the demurrer as to Plaintiff’s allegations
regarding Hollyweed and Exhale because doing so would not completely dispose of
Plaintiff’s cause of action for breach of contract. (See Fremont
Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)
Defendants also argue that the
Complaint fails to state a cause of action for breach of contract because it
alleges Plaintiff performed all agreements, covenants, and conditions of the
contract except those excused by Cheef’s breach. Defendants argue that
Plaintiff admits he did not perform some obligations under the alleged contract
and that there are no facts connecting Plaintiff’s non-performance to Cheef’s
breach. However, Plaintiff is not required at the pleading stage to allege this
cause of action with more specificity. The Complaint sufficiently alleges
Plaintiff performed under the contract or was excused from performing under the
contract. Therefore, the Complaint alleges facts sufficient to support a cause
of action for breach of contract.
Therefore, the demurrer is
OVERRULED on this ground.
Breach of Contract: Waiver
Defendants next argue that
Plaintiff’s Complaint fails to state a cause of action for breach of contract
because he waived his claims with respect to the promised equity by continuing
to accept other compensation from Cheef. Defendants cite Leiter v. Eltinge (1966)
246 Cal.App.2d 306 in support of this argument. In that case, the Court of
Appeal determined that a party had waived the right to rescind by engaging in
conduct that “treat[ed] the contract as binding after full knowledge of the
breach.” (Leiter at p. 317.)
Here, the Complaint alleges
that Plaintiff attempted to enforce Defendants’ promises regarding his
compensation in December 2023 when he confronted Zadoorian, who repudiated the
promises. (Compl., ¶14.) There is no indication in the facts alleged the
Defendants refused to give Plaintiff the full value of his compensation package
prior to the December 2023 confrontation. At best, there is a factual dispute
over when the breach occurred. The Court cannot infer from the facts alleged
that Plaintiff had full knowledge that a breach occurred and continued to
perform under the alleged agreement. Therefore, the demurrer is OVERRULED on
this ground.
Fraud
The elements of fraud (i.e. intentional misrepresentation)
are: “(a) misrepresentation (false representation, concealment, or
nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to
defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting
damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.)
Defendants demur to the cause
of action for fraud on the grounds that the Complaint does not allege that Plaintiff
relied on Defendants’ alleged promise of equity because the Complaint does not
state Plaintiff would not have accepted employment with Cheef without the
equity offer. However, the Complaint does state that Defendants promised
Plaintiff equity in their brands at the time of hiring and that Plaintiff
“reasonably and justifiably relied on Defendant’s promise of equity.” (Compl.,
¶¶7, 20.) It is reasonable to infer from these facts that Plaintiff relied on
this promise when he made the decision to accept employment with Defendants.
The Complaint thus sufficiently alleges that Plaintiff relied on Defendants’
promise.
Defendants’ next argument that
the Complaint does not allege facts showing Plaintiff’s damages as a result of
the fraud is also without merit. As discussed above, Defendants failed to pay
Plaintiff the value of the equity promised to him. Therefore, the Complaint
sufficiently alleges Plaintiff’s damages are the loss of the value of the
equity promised to him.
Defendants’ demurrer is
OVERRULED as to the cause of action for fraud
Bonuses
Defendants next argue that the
facts surrounding the bonuses do not sustain a claim. However, the causes of
action for fraud and breach of contract are based on Defendants’ failure to pay
Plaintiff the value of the promised equity, not the bonuses. It appears
Plaintiff included this information in the Complaint to show that he had
performed adequately under his employment contract and was thus entitled to
compensation. Because the causes of action are not based on the bonuses, the
demurrer is OVERRULED on this ground.
Conclusion
The applications to appear pro hac vice filed by Jedediah
Knight and Patrick Stordahl are GRANTED.
Defendants’ demurrer is OVERRULED. Defendants must file
an Answer within 20 days of receiving notice of this order.