Judge: Christopher K. Lui, Case: 21STCV19443, Date: 2023-05-02 Tentative Ruling

Case Number: 21STCV19443    Hearing Date: May 2, 2023    Dept: 76

Pursuant to California Rule of Court 3.1308(a)(1), the Court does not desire oral argument on the motion addressed herein.  Counsel must contact the staff in Department 76 to inform the Court whether they wish to submit on the tentative, or to argue the matter.  As required by Rule 3.1308(a)(2), any party seeking oral argument must notify ALL OTHER PARTIES and the staff of Department 76 of their intent to appear and argue.

Notice to Department 76 may be sent by email to smcdept76@lacourt.org or telephonically at 213-830-0776.

Per Rule of Court 3.1308, if notice of intention to appear is not given, the Court may adopt the tentative ruling as the final ruling.

            Plaintiffs entered into a distribution agreement with Defendants to manufacture and distribute hand sanitizers as a result of increased demand during the pandemic. Defendants failed to pay supply vendors, which caused Plaintiff Valley of the Sun Cosmetics, LCC to enter into settlement agreements with some of the vendors. This caused damage to Plaintiffs’ business reputation with the vendors.

Defendants filed a Cross-Complaint alleging that Cross-Defendants/Plaintiffs executed a Settlement Agreement that settled the claims alleged in the Complaint, and thus, breached the Settlement Agreement by filing this lawsuit.

Plaintiffs Ajmal Shehzad aka Jim Shahzad and Valley of the Sun Cosmetics, LLC move for leave to file a second amended complaint.

TENTATIVE RULING           

            Plaintiffs Ajmal Shehzad aka Jim Shahzad and Valley of the Sun Cosmetics, LLC’s  motion for leave to file a Second Amended Complaint is GRANTED. Plaintiffs are to file a stand-alone copy of the Second Amended Complaint today, which is deemed served upon Defendants as of the date of this order.

            The hearing on the motion for summary judgment set for May 9, 2023 is placed OFF-CALENDAR as moot.

ANALYSIS

Motion For Leave to File Amended Complaint

Request For Judicial Notice

            Plaintiffs’ request that the Court take judicial notice of the following: (1)  A true and correct copy of Defendants' Motion for Summary Judgment (Exh. A); (2) A true and correct copy of Defendants' Answer filed on July 11, 2022 (Exh. B); (3) Selected portions of the Deposition Transcript of 15 Faizan Bakali, Vol. 1, taken on February 22, 2023 (Exh. 3); (4) A true and correct copy of the Settlement Agreement executed on January 29, 2021.

            Requests Nos. 1 and 2 are GRANTED per Evid. Code, § 452(d)(court records). Request No. 3 is GRANTED. The Court may properly take judicial notice of the reporter’s transcript of court proceedings pursuant to Evidence Code §§ 452(d) and 459. (See, e.g., In re Travis C. (1991) 233 Cal.App.3d 492, 497 n.4 & 5.)  Request No. 4 is GRANTED. On demurrer, judicial notice may be taken of documents which form the basis of the allegations in the complaint.  (Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285 n.3.)

            Defendants request that the Court take judicial notice of the following: (1) U.S. Patent and Trademark Office Initial Action Letter regarding Applicant’s trademark application, dated June 18, 2020; (2) Request for Reconsideration after Final Action to U.S. Patent and Trademark Office, submitted on May 26, 2021, submitted by Elizabeth Oliner as attorney for VOTS; (3) Selected Portions of the Deposition Transcript of Ajmal “Jim” Shehzad, Vol. I, Taken November 15, 2021.Plaintiffs’ objections to Requests Nos. 1 and 2 are SUSTAINED—insufficient authentication. Requests Nos. 1 and 2 are DENIED.

Discussion

Plaintiffs Ajmal Shehzad aka Jim Shahzad and Valley of the Sun Cosmetics, LLC move for leave to file a second amended complaint.

 “Leave to amend is in general required to be liberally granted (citation omitted), provided there is no statute of limitations concern. Leave to amend may be denied if there is prejudice to the opposing party, such as delay in trial, loss of critical evidence, or added costs of preparation. (Citation omitted.)”  (Kolani v. Gluska (1998) 64 Cal.App.4th 402.)  Where an additional theory of liability is proposed against an existing defendant, this is not prejudice which would justify the denial of leave to amend. (See Hirsa v. Superior Court (1981) 118 Cal.App.3d 486, 490. See also Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761: “[I]t is irrelevant that new legal theories are introduced as long as the proposed amendments 'relate to the same general set of facts.' [Citation.]" (Citation omitted.))

Plaintiffs represent that the motion for leave to amend has become necessary in order for Plaintiffs to plead previously unpleaded facts and theories in connection with Defendants' motion for summary judgment, and to set forth fully and more accurately, all claims against all responsible parties. Plaintiffs claim that it became clear from the deposition of CBD President Faizan Bakali that the Settlement Agreement and the release contained therein was obtained by among other things, fraud, because Bakali did not inform the owner of Plaintiff that CBC’s application for the trademark “Pro Sanitize” had been denied by the USPTO back on December 9, 2020, more than a month prior to the execution of the Settlement Agreement. Plaintiffs, therefore, are seeking leave to file the Second Amended Complaint to add a cause of action for fraud and a cause of action for rescission.

Plaintiffs are now seeking to amend the FAC to avoid the affirmative defense of the release asserted by Defendants on the additional ground and alternative theory that CBC's failure to deliver a valid trademark to Plaintiffs, coupled with the non-payment of the installment amount that was due to VOTS on April 1, 2021, amounted to a material breach of the 2 Settlement Agreement which terminated the Agreement, including the release.

            While Plaintiffs argue that Bakali admitted for the first time during his February 22, 2023 deposition that, contrary to the verified answer, he actually did not make the $25,000 payment to Plaintiff due in April 2021. However, as Defendants point out in the opposition, Plaintiffs were already aware of such non-payment. This by itself would not justify amendment of the Complaint.

            However, especially in light of the fact that Plaintiffs’ objections to Defendants’ request for judicial notice of the USPTO documents have been sustained and judicial notice thereof has been denied, Defendants will have to raise their arguments either by way of law and motion attacking the sufficiency of the pleadings, or by way of a new motion for summary judgment.

The motion sets forth the proposed changes, at Pages 5 – 6 of the motion.

CRC Rule 3.1324(b), which states:

A separate declaration must accompany the motion and must specify:

(1)  The effect of the amendment;

(2)  Why the amendment is necessary and proper;

(3)  When the facts giving rise to the amended allegations were discovered; and

(4)  The reasons why the request for amendment was not made earlier.

   (Cal. Rules of Court, 3.1324(b).)

            The Declaration of Charles O. Agege sufficiently addresses the factors in Rule 3.1324(b). Plaintiffs acted prudently in seeking leave to amend before the hearing date on the motion for summary judgment, which is the preferred procedure when issues outside the pleadings would be raised in opposition to summary judgment:

“A sufficient motion cannot be successfully resisted by counterdeclarations which create immaterial factual conflicts outside the scope of the pleadings; counterdeclarations are no substitute for amended pleadings.” (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1065 [225 Cal. Rptr. 203], italics added.) If plaintiffs wanted to raise new factual issues not embraced by their pleading, they should have sought leave to amend before the hearing on the Regents' motion. (Leibert v. Transworld Systems, Inc. (1995) 32 Cal.App.4th 1693, 1699 [39 Cal. Rptr. 2d 65]; 580 Folsom Associates v. Prometheus Development Co. (1990) 223 Cal.App.3d 1, 18 [272 Cal. Rptr. 227].) 

(Shugart v. Regents of University of California (2011) 199 Cal.App.4th 499, 508 [bold emphasis added].)

            Notably, whether to grant leave to amend is within the Court’s discretion. Defendants are not prejudiced by the amendment because they were well aware of the Settlement Agreement, so the proposed amendment will not introduce unanticipated issues. Indeed, Defendants filed a Cross-Complaint for breach of the Settlement Agreement on July 31, 2021.

“‘“[T]he trial court has wide discretion in allowing the amendment of any pleading [citations], [and] as a matter of policy the ruling of the trial court in such matters will be upheld unless a manifest or gross abuse of discretion is shown. [Citations.]”’ [Citation.] Nevertheless, it is also true that courts generally should permit amendment to the complaint at any stage of the proceedings, up to and including trial. [Citations.] But this policy applies ‘“only ‘[w]here no prejudice is shown to the adverse party.’”’ [Citation.] Moreover, ‘“‘even if a good amendment is proposed in proper form, unwarranted delay in presenting it may—of itself—be a valid reason for denial.’”’ [Citations.] Thus, appellate courts are less likely to find an abuse of discretion where, for example, the proposed amendment is ‘“offered after long unexplained delay … or where there is a lack of diligence … .”’ [Citation.]” (Melican v. Regents of University of California (2007) 151 Cal.App.4th 168, 175 [59 Cal. Rptr. 3d 672] (Melican).)

(Doe v. L.A. Cty. Dep't of Children & Family Servs. (2019) 37 Cal.App.5th 675, 688-89 [bold emphasis added].)

            Here, a  new trial has not yet been set. Although the summary judgment motion is not set to be heard in a week, the fact that Defendant’s motion for summary judgment is now moot does not constitute prejudice which would justify denial of leave to amend.          

            The motion for leave to file a Second Amended Complaint is GRANTED. Plaintiffs are to file a stand-alone copy of the Second Amended Complaint today, which is deemed served upon Defendants as of the date of this order.

            The hearing on the motion for summary judgment set for May 9, 2023 is placed OFF-CALENDAR as moot. (JKC3H8 v. Colton (2013) 221 Cal.App.4th 468, 477-79.)