Judge Christopher K. Lui, Case 21STCV40022 2022-08-17 Tentative Ruling

Judge: Christopher K. Lui, Case: 21STCV40022, Date: 2022-08-17 Tentative Ruling

Case Number: 21STCV40022 Hearing Date: August 17, 2022 Dept: 76

Pursuant to California Rule of Court 3.1308(a)(1), the Court does not desire oral argument on the demurrer addressed herein. 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. If notice of intention to appear is not given and the parties do not appear, the Court will adopt the tentative ruling as the final ruling.

Plaintiffs allege that Defendants have diverted the resources and opportunities of nominal Defendant Infiniti Health, LLC, of which Plaintiff and Defendant Avery Williams are each 50% members and co-managers.

Defendants Avery M. Williams and Aric Williams demur to the Second Amended Complaint.

TENTATIVE RULING

Defendants Avery M. Williams and Aric Williams’ demurrer to the Second Amended Complaint is SUSTAINED with leave to amend as to the first, second, fourth, sixth, ninth, twelfth causes of action, and without leave to amend as to the fifth, seventh, eighth, tenth causes of action. The demurrer is OVERRULED as to the third and eleventh causes of action.

Plaintiff is given 30 days’ leave to amend.

ANALYSIS

Meet and Confer

The Declaration of Madelynn A. Hefner reflects that Defendants’ counsel satisfied the meet and confer requirement set forth in CCP § 430.41.

Discussion

1. First Cause of Action (Breach of Contract—Plaintiff Zeledon against Defendant Avery Williams).

A. Re: Plaintiff Cannot Combine Direct Claims With Derivative Claims In A Single Action.

Defendants argue that this direct cause of action cannot be combined with derivative claims. Defendants cite early case law for this proposition, arguing that:

California law is clear that “[a]n action of a personal nature resulting in injury to the plaintiff individually may not be joined with a derivative action for injuries done to the corporation.” Shenberg v. De Garmo (1943) 61 Cal.App.2d 326, 331-332; Beal v. United Properties Co. (1920) 46 Cal.App. 287, 297 (“It is manifest... [that a plaintiff] cannot join [a derivative] action (wherein he is suing as a trustee of the corporation and in the nature of a guardian) with an action in his own behalf wherein he is seeking personal relief.”); James v. P.B. Steifer Mining Co. (1918) 35 Cal.App. 778, 779, 787-788 (finding that cause of action for personal wrongs was improperly joined with one for injuries to the corporation, and that the demurrer upon that ground was well taken).

However, later cases recognize that “[a] single cause of action by a shareholder can give rise to derivative claims, individual claims, or both. (Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1222 [18 Cal. Rptr. 3d 276].)” (Goles v. Sawhney (2016) 5 Cal. App. 5th 1014, 1018 n.3.)

A minority shareholder may bring a cause of action for breach of fiduciary duty against majority shareholders as an individual claim or as a derivative claim, depending on the circumstances. (See Daly v. Yessne (2005) 131 Cal.App.4th 52, 63 [31 Cal. Rptr. 3d 420]; Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1252–1253, 1257–1258 [18 Cal. Rptr. 3d 187] (Jara); see also Sutter v. General Petroleum Corp. (1946) 28 Cal.2d 525, 530 [170 P.2d 898] [“a stockholder may sue as an individual where he is directly and individually injured although the corporation may also have a cause of action for the same wrong”]; Goles v. Sawhney (2016) 5 Cal.App.5th 1014, 1018, fn. 3 [210 Cal. Rptr. 3d 261] [“A single cause of action by a shareholder can give rise to derivative claims, individual claims, or both.”]; Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1222 [18 Cal. Rptr. 3d 276] [same].) . . . [*150] . . .

The principles governing derivative actions in the context of corporations apply to limited liability companies and limited partnerships. (Citations omitted.)

(Schrage v. Schrage (2021) 69 Cal.App.5th 126, 149-51.)

To the extent that the older case law cited by Defendants suggest that the direct claims must be dismissed, it would not serve judicial economy to dismiss those claims, only for Plaintiff to immediately re-assert them in a separate lawsuit, which would be related and consolidated, because it arises out of the same set of facts as the derivative claims.

The Court does not find this argument to be persuasive.

B. Re: Failure To Allege A Valid Contract Concerning Infiniti Health, LLC.

Defendant argues that the purported contract, the Partnership Agreement attached as Exhibit A to the 2AC, is inconsistent with the allegation that Infiniti was formed as an LLC, and that the Partnership Agreement would govern the operations thereof. Rather, the Partnership Agreement creates a general partnership, and does not address the relations among the members of an LLC. (Corp. Code, § 17701.10(a).)

Defendant also argues that the acts of ratification of the Partnership Agreement as the Infiniti Operating Agreement have not been specially pled.

Corporations Code § 17701.02(s) provides that

(s) “Operating agreement” means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member, concerning the matters described in subdivision (a) of Section 17701.10. The term “operating agreement” may include, without more, an agreement of all members to organize a limited liability company pursuant to this title. An operating agreement of a limited liability company having only one member shall not be unenforceable by reason of there being only one person who is a party to the operating agreement. The term includes the agreement as amended or restated.

(Corp. Code, § 17701.02(s)[bold emphasis added].)

Thus, the fact that the document attached to the 2AC is titled “Partnership Agreement” and does not identify Infiniti Health, LLC, only goes to the weight of the existence of an Operating Agreement pertaining to Infiniti Health, LLC as a limited liability company. That agreement can be a combination of a written, oral and/or implied agreement, and need not even be called an Operating Agreement. (Corp. Code § 17701.02(s).) As such, the allegation that the Infiniti Operating Agreement is attached to the 2AC as Exh. A must be taken as true for purposes of this demurrer.

“The sole issue raised by a general demurrer is whether the facts pleaded state a valid cause of action, not whether they are true. No matter how unlikely or improbable, plaintiff's allegations must be accepted as true for the purpose of ruling on the demurrer. (Citation omitted.) Furthermore, plaintiff's possible inability or difficulty in proving the allegations of the complaint is of no concern. (Citation omitted.)” (Kerivan v. Title Ins. & Trust Co. (1983) 147 Cal.App.3d 225, 229.)

This ground for demurrer is not persuasive.

C. Re: Failure To Allege Damage Caused By Alleged Breach of Contract.

Defendants argue that harm to Plaintiff individually was not contemplated or reasonably foreseeable by Plaintiff and Defendant Avery when they entered into the Partnership Agreement. Defendants also argue that the alleged damages in the form of deprivation of the benefit of the bargain are not pled, nor are any damages that are the natural consequence of a breach. Defendants also argue that special damages are not pled with particularity.

Damages are an essential element of a breach of contract claim. (Navellier v. Sletten (2003) 106 Cal.App.4th 763, 775 [131 Cal. Rptr. 2d 201].) The statutory measure of damages for breach of contract is “the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.” (§ 3300.) “Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectations of the parties are not recoverable.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515 [28 Cal. Rptr. 2d 475, 869 P.2d 454], italics added.) Witkin explains that “in the law of contracts the theory is that the party injured by breach should receive as nearly as possible the equivalent of the benefits of performance.” (1 Witkin, Summary of Cal. Law, supra, Contracts, § 869, p. 956.)

(Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1468.)

Plaintiff alleges that following breaches at ¶ 64:

64. As alleged herein, Defendant Avery Williams has breached, and continues to breach, the Infiniti Operating Agreement, including, but not limited to: (i) Section 3.3(b)(f) (prohibiting hiring or entering into contracts with relatives of a member without unanimous consent); (ii) Section 7.3(a)(4) (requiring approval of both Plaintiff and Defendant to hire and fire counsel); (iii) Section 7.3(c) (requiring good faith and due care by each Member); and (iv) Section 7.4(c) (prohibiting unilateral actions of either member that “make it impossible to carry on the business” of Infiniti).

Here, Plaintiff asserts the first cause of action for breach of contract as a direct claim. Plaintiff must allege how the above breaches caused damage to him individually, rather than to the limited liability company.

The parties agree that the principles of derivative lawsuits applicable to corporations likewise apply to a limited liability company such as PacLink-1. We therefore begin by setting forth those principles.

[*964] "A shareholder's derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act. Thus, 'the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.' [Citations.] '. . . The stockholder's individual suit, on the other hand, is a suit to enforce a right against the corporation which the stockholder possesses as an individual.' [Citation.]" ( Jones, supra, 1 Cal. 3d 93, 106-107, italics added.)

(Paclink Communications Internat. v. Superior Court (2001) 90 Cal.App.4th 958, 963-64.)

This ground for demurrer is persuasive.

The demurrer to the first cause of action is SUSTAINED with leave to amend.

2. Second Cause of Action (Breach of Fiduciary Duty—Derivatively On Behalf of Infiniti Health against Defendant Avery Williams).

A. Re: The RULLCA Default Rules Govern Infiniti Health, LLC.

Defendants argue that the combination of oral or implied agreement that constitutes the operating agreement of Infiniti is supplemented by the Revised Uniform Limited Liability Company Act (“RULLCA”), and the default rules will govern the LLC. .(Corp. Code, § 17701.10(b): “(b) To the extent the operating agreement does not otherwise provide for a matter described in subdivision (a), this title governs the matter.”)

Defendants draw the conclusion that the Partnership Agreement is not, and cannot be, Infiniti’s operating agreement, and thus the default rules of the RULLCA govern Infiniti. However, this is not necessarily the case. The Partnership Agreement can, in combination with an oral and/or implied agreement, constitute the Operating Agreement (Corp. Code, § 17701.02(s)), which would be supplemented, not replaced, by the RULLCA. (Corp. Code, § 17701.10(b).) Assuming the truth of Plaintiff’s allegations and drawing all inferences in favor of Plaintiff, this argument does not defeat the second cause of action.

B. Re: Failure To Allege Conduct That Constitutes a Breach of Avery Williams’ Fiduciary Duty Under Default Rules.

“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)

Defendants argue that the default rule for the duty of care in the conduct of the LLC’s activities is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. (Corp. Code, § 17704.09(c), (f)(1).) Defendants argue that ordinary or simple negligence does not violate the duty of care, and Defendants have not alleged that Defendant Avery Williams was grossly negligent or reckless, intentional, or knowingly violated the law.

In the context of an LLC, the fiduciary duty a member owes includes the duty of care as follows:

(c) A member’s duty of care to a limited liability company and the other members in the conduct and winding up of the activities of the limited liability company is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

(Corp. Code, § 17704.09(c).)

Here, ¶ 69 alleges various conduct which a jury could find constitutes grossly negligent or reckless conduct or intentional misconduct. This argument is not persuasive.

Defendants also argue that Plaintiff does not allege that Defendant’s actions have been a substantial factor in causing harm to the LLC, other than theoretical harm.

¶ 70 merely alleges in conclusory language that “Defendant Avery Williams’s actions strongly jeopardize Infiniti’s contracts, such as that with LAUSD, and reputation, and threaten to destroy the Infiniti from within.” This does not allege actual harm, only speculative harm, which is insufficient to state a cause of action for breach of fiduciary duty.

Where, as here, “damages are an element of a cause of action, the cause of action does not accrue until the damages have been sustained. [Citation.] ‘Mere threat of future harm, not yet realized, is not enough.’ [Citation.] ‘Basic public policy is best served by recognizing that damage is necessary to mature such a cause of action.’ [Citation.] Therefore, when the wrongful act does not result in immediate damage, ‘the cause of action does not accrue prior to the maturation of perceptible harm.’ ” (City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 886 [101 Cal. Rptr. 2d 237].)

(Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.)

This argument is persuasive.

The demurrer to the second cause of action is SUSTAINED with leave to amend.

3. Third Cause of Action (Breach of Fiduciary Duty— Derivatively On Behalf of Infiniti Health against Defendant Aric Williams).

A Re: Cannot Assert Derivative Claims Against Defendant Aric Williams In His Capacity As Counsel For Infiniti.

Defendants argue that derivative claims may not be asserted by a manager of an LLC against corporate counsel. (McDermott, Will & Emery v. Super. Ct. (2000) 83 Cal.App.4th 378.) However, cases after McDermott, Will & Emery have set forth the following test for dismissal of claims against a defendant attorney where the attorney-client privilege would violate due process to present a meaningful defense:

“The attorney-client privilege ‘authorizes a client to refuse to disclose, and to prevent others from disclosing, confidential communications between attorney and client.’ (Solin v. O'Melveny & Myers (2001)] 89 Cal.App.4th [451,] 456–457 [107 Cal. Rptr. 2d 456]; see Evid. Code, § 950 et seq.)” (Dietz v. Meisenheimer & Herron (2009) 177 Cal.App.4th 771, 785–786 [99 Cal. Rptr. 3d 464].) “ ‘Clearly, the fundamental purpose behind the privilege is to safeguard the confidential relationship between clients and their attorneys so as to promote full and open discussion of the facts and tactics surrounding individual legal matters. (People v. Flores (1977) 71 Cal.App.3d 559, 563 [139 Cal. Rptr. 546].) In other words, the public policy fostered by the privilege seeks to insure “the right of every person to freely and fully confer and confide in one having knowledge of the law, and skilled in its practice, in order that the former may have adequate advice and a [*646] proper defense.” (Baird v. Koerner [(9th Cir. 1960)] 279 F.2d [623,] 629.)’ (Mitchell v. Superior Court (1984) 37 Cal.3d 591, 599 [208 Cal. Rptr. 886, 691 P.2d 642].)” (Solin, supra, 89 Cal.App.4th at p. 457 (Solin).)

Appellants maintain that “absent a waiver by each client whose confidential information will be disclosed, a lawsuit may not be prosecuted against a defendant who reasonably needs to disclose attorney-client privileged information in order to prepare a defense.” For example, in dismissing a shareholder derivative suit alleging attorney malpractice in which the corporation had not waived attorney-client privilege, the court stated, “We simply cannot conceive how an attorney is to mount a defense in a shareholder derivative action alleging a breach of duty to the corporate client, where, by the very nature of such an action, the attorney is foreclosed, in the absence of any waiver by the corporation, from disclosing the very communications which are alleged to constitute a breach of that duty.” (McDermott, Will & Emery v. Superior Court (2000) 83 Cal.App.4th 378, 385 [99 Cal. Rptr. 2d 622].) In Solin an attorney filed a malpractice suit against a law firm from which he had obtained advice regarding his representation of clients whose confidential information he had disclosed in obtaining the advice. Affirming the trial court's dismissal of the action, the court found that the confidential information was critical to determining the central issues in the case, including what advice was given and why, and concluded that “because this lawsuit ‘is incapable of complete resolution without breaching the attorney-client privilege, the suit may not proceed.’ ” (Solin, supra, 89 Cal.App.4th at p. 467, quoting General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164, 1170 [32 Cal. Rptr. 2d 1, 876 P.2d 487].)

Appellants, however, state the proposition too broadly. “[A] court may take the extraordinary step of dismissing a plaintiff's claim on the ground that an attorney defendant's due process right to present a defense is compromised by the defendant's inability to present confidential information in support of that defense only in the rarest of cases … .” (Dietz v. Meisenheimer & Herron, supra, 177 Cal.App.4th at p. 794 (Dietz).) “If dismissal were required whenever a lawyer's ethical duties prevented the lawyer from presenting evidence having any relevance to the action, without respect to the materiality of the evidence, the ‘drastic action’ of dismissal would become commonplace. (General Dynamics, supra, 7 Cal.4th at p. 1190.)” (Dietz, supra, 177 Cal.App.4th at p. 792.)

Before dismissing a case “on the ground that a defendant attorney's due process right to present a defense would be violated by the defendant's inability to disclose a client's confidential information,” a court must consider [*647] “at least four factors”: The evidence at issue must be the client's confidential information, which client insists on keeping confidential; the evidence must be “highly material to the defendants' defenses”; the trial court must determine whether it could “effectively use ‘ad hoc measures from [its] equitable arsenal,’ including techniques such as ‘sealing and protective orders, limited admissibility of evidence, orders restricting the use of testimony in successive proceedings, and, where appropriate, in camera proceedings,’ so as to permit the action to proceed”; and the court “should consider whether it would be ‘fundamentally unfair’ to allow the action to proceed.” (Dietz, supra, 177 Cal.App.4th at pp. 792–793.) The last of these considerations “is an extension of the principle that, ‘[t]he privilege which protects attorney-client communications may not be used both as a sword and a shield.’ (Chevron Corp. v. Pennzoil Co. (9th Cir. 1992) 974 F.2d 1156, 1162.) … [B]oth the McDermott and Solin courts noted the inherent unfairness in allowing a plaintiff to bring a claim, which, by its very nature necessitates a defense based on confidential information, where the plaintiff has either directly supplied such confidential information to the defendant, as in Solin, or where the plaintiff seeks to derivatively represent a third party who has supplied such information to the defendant, as in McDermott. (See Solin, supra, 89 Cal.App.4th at p. 463 [citing Evid. Code, § 958, and stating that it is unfair for a party to sue upon advice provided by an attorney and then seek to prevent the attorney from presenting evidence pertaining to why the advice was given]; McDermott, supra, 83 Cal.App.4th at p. 384 [noting that pursuant to Evid. Code, § 958 a plaintiff's filing a malpractice claim against his or her attorney results in a waiver of the privilege to the extent necessary to defend the claim, but that ‘because a derivative action does not result in the corporation's waiver of the privilege, such a lawsuit against the corporation's outside counsel has the dangerous potential for robbing the attorney defendant of the only means he or she may have to mount any meaningful defense’].)” (Dietz, supra, 177 Cal.App.4th at pp. 793–794.)

(People ex rel. Herrera v. Stender (2012) 212 Cal. App. 4th 614, 645-47 [bold emphasis and underlining added].)

Here, Defendants have not addressed the four factors set forth in Stender, so the Court cannot dismiss this cause of action at this stage.

This argument is not persuasive.

B. Re: The RULLCA Default Rules Confer Equal Power to the Manager of Infiniti Health, LLC.

Defendants argue that the default RULLCA rules do not require that Defendant Avery Williams obtain Plaintiff’s consent to retain Defendant Aric Williams as legal counsel for Infiniti, because they had equal rights to manage and conduct the activities of the LLC. (Corp. Code, § 17704.08(b)(2), (c)(2).)

Assuming for purposes of this demurrer only that this is true, as discussed below, would not be sufficient to defeat the entire cause of action.

C. Re: Defendant Aric Williams Was Not Required To Obtain A Conflict Waiver.

Defendants argue that there was no requirement that Defendant Aric Williams obtain a waiver because there was no conflict of interest in his representing two clients: the company and its members individually with respect to tax issues. (Rules Prof. Conduct, rules 1.7, 1.13(g).)

Assuming for purposes of this demurrer only that this is true, as discussed below, would not be sufficient to defeat the entire cause of action.

¶ 75 alleges in pertinent part: “Defendant Aric Williams concealed his invoices and unconscionable bills from Plaintiff Zeledon, and accepted payment of those unconscionable fees despite Plaintiff Zeledon’s instructions that Infiniti’s payments to Defendant Aric cease.” In this regard, ¶ 37 alleges that Defendant Aric’s billing practices are improper:

Defendant Aric’s billing practices are also unethical, unreasonable, unfair, and shock the conscience. He pads his bills, bills for improper work, and bills for time not actually incurred, such that his bills are now approximately $100,000 per month (resulting in fees that would amount to more than $1.2 million a year).

This is sufficient to allege a breach of fiduciary duty:

To establish a cause of action for breach of fiduciary duty, a plaintiff must demonstrate the existence of a fiduciary relationship, breach of that duty and damages. (Citations omitted.) Charnay alleges Cobert breached his fiduciary duty by billing for tasks not performed and by billing at an inflated rate. Although, as the trial court found, the retainer agreement on its face may not have been “substantively unconscionable,” by alleging Cobert and his firm improperly inflated the billings sent to Charnay by including tasks not performed and incorrectly using higher hourly rates than justified, Charnay has adequately pleaded a claim for breach of fiduciary duty. (See Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106 Cal.App.4th 419, 431 [130 Cal. Rptr. 2d 782] [client who alleged former defense counsel fraudulently inflated his charges stated breach of fiduciary duty claim; all members of the bar owe clients “fiduciary duty to charge only fair, reasonable and conscionable fees”].)

(Charnay v. Cobert (2006) 145 Cal.App.4th 170, 182 [bold emphasis added].)

Because the alleged overbilling practices suffice to support this cause of action, the demurrer must be overruled, as a demurrer does not lie to only a part of a cause of action.

“A demurrer must dispose of an entire cause of action to be sustained.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 C al. App. 4th 97, 119.) A demurrer does not lie to only part of a cause of action or a particular type of damage or remedy. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2003) 108 Cal.App.4^th 1028, 1046; PH II, Inc. v. Superior Court (Ibershof) (1995) 33 Cal.App.4^th 1680, 1682.) The proper procedure is to bring a motion to strike the substantively defective allegation. (Id. at 1682-83.)

The demurrer to the third cause of action is OVERRULED.

4. Fourth Cause of Action (Breach of Fiduciary Duty—Plaintiff Zeledon against Defendant Aric Williams).

A. Re: Plaintiff Cannot Combine Direct Claims With Derivative Claims In A Single Action.

The Court does not find this argument to be persuasive for the reasons set forth above at 1.A.

B. Re: No Conflict of Interest and No Duty To Provide Plaintiff With Invoices.

Defendants argue that Aric was not required to obtain a conflict of interest waiver because there was not conflict requiring such waiver. Defendants also argue that Aric was not duty bound to provide invoices and bills to Plaintiff because Infiniti was the holder of the attorney-client privilege, which encompasses the information conveyed in legal billing for the purpose of legal representation.

The Court does not address these arguments at this time because, as discussed below, the fourth cause of action does not sufficiently plead causation of damages to Plaintiff Zeledon individually.

C. Re: Uncertainty As To Concealing Information.

The alleged breaches of fiduciary duty are set forth at ¶¶ 82-84 as follows:

82. Defendant Aric Williams breached these fiduciary duties to Zeledon by taking actions that damaged Zeledon including, among other things, continuing to act on behalf of Infiniti (and on behalf of Defendant Avery), even though neither Infiniti nor Plaintiff Zeledon have ever consented to this representation, and neither Plaintiff Zeledon nor Infiniti have ever provided informed written consent for this conflicted relationship. Indeed, neither Plaintiff Zeledon nor Infiniti ever agreed to hire Defendant Aric Williams as General Counsel and, more importantly, Defendant Aric Williams has failed to comply with Cal. Rules Prof. Conduct 1.7 as he never obtained the informed written consent from either Infiniti or Plaintiff Zeledon prior to accepting representation of Infiniti, even though Defendant Aric Williams simultaneously represents both Defendant Avery Williams and Plaintiff Zeledon, individually.

83. Moreover, and separately, Defendant Aric Williams has concealed information from Plaintiff Zeledon. Not only has he concealed his activities purportedly taken on behalf of Infiniti from Plaintiff Zeledon, but he concealed Defendant Avery Williams’ acts of breached fiduciary duties owed to Plaintiff Zeledon and Infiniti. Moreover, and even worse, Defendant Aric Williams concealed his invoices and unconscionable bills from Plaintiff Zeledon, and accepted Infiniti’s payment of those unconscionable fees despite Plaintiff Zeledon’s instructions that payments to Defendant Aric cease. These separate acts of concealment are in violation of Cal. Bus. & Prof. Code § 6068.

84. As a result of these independent breaches of fiduciary duty by Defendant Aric Williams, Plaintiff Zeledon has been damaged in an amount to be proven at trial, but that far exceeds the jurisdictional minimum of this Court.

Defendants argue that it is uncertain whether the allegedly concealed information is confidential or not. More fundamentally, the Court finds that this cause of action does not sufficiently plead how the alleged breaches of fiduciary duty by Defendant Aric Williams caused Plaintiff harm in his individual capacity.

“For causation to be established, there must be a nexus between the compensatory damages assessed and the breaches of fiduciary duty. (Citations omitted.)” (Mosier v. S. Cal. Physicians Ins. Exch. (1998) 63 Cal.App.4th 1022, 1048.)

(Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.)

Here, it is uncertain how the alleged breaches of fiduciary duty caused harm to Plaintiff Zeledon individually.

The demurrer to the fourth cause of action is SUSTAINED with leave to amend.

5. Fifth Cause of Action (Conversion—Derivatively On Behalf of Infiniti Health against Defendants Aric Williams and Avery Williams).

A. Re: Cannot Assert Derivative Claims Against Defendant Aric Williams In His Capacity As Counsel For Infiniti.

This argument is not persuasive for the reasons set forth above at 3.A.

B. Re: Failure To Allege Wrongful Interference With Infiniti’s Property and Rightfully Entitled To Payment For Legal Services.

Defendants argue that there is nothing wrongful about Defendant Avery Williams causing Infiniti to pay Defendant Aric Williams for the services he performed as corporate counsel for Infiniti. Moreover, Defendant Aric was rightfully entitled to payment for the personal services he provided to Infiniti as corporate counsel.

Here, Defendant Avery Williams, as a manager member of the LLC, had an equal right to retain Defendant Arci Williams as counsel for Infiniti. (Corp. Code, § 17704.07(c)(2).) The only matters for which consent of all members of the LLC is required is in the following situations:

(4) The consent of all members of the limited liability company is required to do any of the following:

(A) Sell, lease, exchange, or otherwise dispose of all, or substantially all, of the limited liability company’s property, with or without the goodwill, outside the ordinary course of the limited liability company’s activities.

(B) Except as otherwise provided in Article 10 (commencing with Section 17710.01), any other act outside the ordinary course of the limited liability company’s activities.

(Corp. Code, § 17704.07(c)(4).)

As such, the fact that Plaintiff Zeledon did not approve of Defendant Avery Williams’ retention of his brother, Defendant Aric Williams, as legal counsel for Infiniti (see, e.g., 2AC, ¶¶ 30-34) does not render Defendant’s Aric’s rendition of services unauthorized. This renders the conversion claim as one for payment of services rendered pursuant to a contract. However, the right to receive payment for services rendered would be a generalized claim for money over a period of time pursuant to a contractual right of payment, which is not subject to conversion. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal. App. 4th 445, 451-52; Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284-85.)

"Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff's ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to [*452] his own use. [Citations.]" ( Oakdale Village Group v. Fong (1996) 43 Cal. App. 4th 539, 543-544 [50 Cal. Rptr. 2d 810].) Money can be the subject of an action for conversion if a specific sum capable of identification is involved. (Weiss v. Marcus (1975) 51 Cal. App. 3d 590, 599 [124 Cal. Rptr. 297].)

Neither legal title nor absolute ownership of the property is necessary. ( Messerall v. Fulwider (1988) 199 Cal. App. 3d 1324, 1329 [245 Cal. Rptr. 548].) A party need only allege it is "entitled to immediate possession at the time of conversion. [Citations.]" ( Bastanchury v. Times-Mirror Co. (1945) 68 Cal. App. 2d 217, 236 [156 P.2d 488], italics in original.) However, a mere contractual right of payment, without more, will not suffice.

(Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-52[bold emphasis added].)

A ‘generalized claim for money [is] not actionable as conversion.’ (Citations omitted.) [¶] … [¶] California cases permitting an action for conversion of money typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others. (. . . see also Software Design & Application, Ltd. v. Hoefer & Arnett, Inc., supra, 49 Cal.App.4th at p. 485 [no claim for conversion is stated where money was allegedly misappropriated “over time, in various sums, without any indication that it was held in trust for” plaintiff]; . . .

(Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 284-85 [bold emphasis added].)

As such, the demurrer to the fifth cause of action is SUSTAINED without leave to amend, unless Plaintiff can demonstrate a reasonable possibility of successful amendment.

C. Re: Uncertainty As To Whether Represented Was Authorized For Two Weeks.

Given the above ruling, the Court does not address this argument, which appears to go to only a portion of the cause of action anyway.

6. Sixth Cause of Action (Defamation – Slander—Plaintiff Zeledon against Defendant Avery Williams).

A. Re: Plaintiff Cannot Combine Direct Claims With Derivative Claims In A Single Action.

The Court does not find this argument to be persuasive for the reasons set forth above at 1.A.

Defendants do not offer any other argument regarding this cause of action.

The demurrer to the sixth cause of action is OVERRULED.

7. Seventh Cause of Action (Intentional Interference with Contract—Plaintiff Zeledon against Defendant Aric Williams).

A. Re: Claim Is Derivative.

Defendants argue that the alleged harm—50% of the fees collected by Defendant Aric Williams—is a derivative, not direct, harm.

This argument is persuasive. The 2AC alleges that Defendant Aric Williams received fees, 50% of which Plaintiff Zeledon could have enjoyed as profits. (2AC, ¶ 107). In other words, Defendant Aric allegedly received Infiniti’s funds, from which Plaintiff’s share of profits would have derived.

Shareholders own neither the property nor the earnings of the corporation. (Miller v. McColgan (1941) 17 Cal. 2d 432, 436 [110 P.2d 419, 134 A.L.R. 1424].) Shareholders own only stock, from which their income is derived upon the liquidation of assets or the declaration of dividends by the directors. (Id., at pp. 436-437.) Nelson had no ownership interest in the profits of Lonan and cannot have been deprived of them. The nature of Nelson's proof establishes that any injury was to the corporation; and since she neither alleged nor proved the breach of a duty owing to her personally, her emotional distress and the loss of her investment were incidental to the injury to the corporation.

(Nelson v. Anderson (1999) 72 Cal. App. 4th 111, 126.)

Claims seeking to recover corporate assets from a [*1041] third party are generally deemed to be derivative in nature. (PacLink, supra, 90 Cal.App.4th at p. 964 [claim alleging limited liability company had been “improperly deprived of … assets,” causing a “diminution in the value of [individual member's] interest” was derivative]; see also 2 Marsh et al., Marsh's Cal. Corp. Law (4th ed. 2000) § 15.11[A][1], pp. 15-61 to 15-64.) Thus, to the extent defendants unlawfully solicited and accepted payment from Purposeful Press for legal services that were not authorized by the company's management, or were otherwise intended to benefit Mohr in her personal capacity, a derivative action is the appropriate remedy.

(Sprengel v. Zbylut (2019) 40 Cal. App. 5th 1028, 1040-41.)

The demurrer to the seventh cause of action is SUSTAINED without leave to amend.

8. Eighth Cause of Action (Civil Conspiracy—Plaintiff Zeledon against Defendants Avery Williams and Aric Williams).

Defendants argue that there is no cause of action for civil conspiracy. This argument is persuasive.

“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. … [¶] Standing alone, a conspiracy does [*955] no harm and engenders no tort liability. It must be activated by the commission of an actual tort.” (Citation omitted.) “A conspiracy cannot be alleged as a tort separate from the underlying wrong it is organized to achieve.” (Citation omitted.)

(Moran v. Endres (2006) 135 Cal.App.4th 952, 954-55.)

Moreover, the alleged fiduciary duty owed by Defendant Avery Williams as a member and manager of Infiniti was distinct from the fiduciary duty owed by Defendant Arci Williams, as General Counsel for Infiniti. (2AC, ¶ 10.)

There can be no liability, moreover, “if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing and was acting only as the agent or employee of the party who did have that duty.” (Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 44 [260 Cal. Rptr. 183, 775 P.2d 508]; see also id. at p. 45 [notwithstanding alleged conspiracy, insurer's agent not liable where “duty is imposed by statute solely upon persons engaged in the business of insurance”].)

(Reynolds v. Bement (2005) 36 Cal.4th 1075, 1090, overruled on other grounds as stated in Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809, 822.).

As such, the demurrer to the eighth cause of action is SUSTAINED without leave to amend.

9. Ninth Cause of Action (Unfair Business Practices Pursuant to B & P Code § 17200—Derivatively On Behalf of Infiniti Health against Defendants Avery Williams and Aric Williams).

A Re: Cannot Assert Derivative Claims Against Defendant Aric Williams In His Capacity As Counsel For Infiniti.

This argument is not persuasive for the reasons set forth above at 3.A.

B. Re: This Is Actually A Direct Claim.and Plaintiff Cannot Combine Direct Claims With Derivative Claims In A Single Action.

The Court does not find this argument to be persuasive for the reasons set forth above at 1.A.

C. Re: Failure to Plead With Particularity, Including Causation.

Defendants argue that this cause of action is not pled with the reasonable particularity required of statutory claims, including causation of injury in fact.

“[S]tatutory causes of action must be pleaded with particularity.” (Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790.)

“In order to satisfy the Proposition 64 standing requirements, a party must establish an economic injury and in addition ‘show that that economic injury was the result of, i.e., caused by, the unfair business practice … that is the gravamen of the claim.’” (Law Offices of Mathew Higbee v. Expungement Assistance Servs. (2013) 214 Cal.App.4th 544, 562.)

Here, the ninth cause of action does not specify the unlawful, unfair or fraudulent business practices, nor how each of them caused injury in fact to Infiniti.

The demurrer to the ninth cause of action is SUSTAINED with leave to amend.

10. Tenth Cause of Action (Unjust Enrichment—Derivatively On Behalf of Infiniti Health against Defendants Avery Williams and Aric Williams).

A Re: Cannot Assert Derivative Claims Against Defendant Aric Williams In His Capacity As Counsel For Infiniti.

This argument is not persuasive for the reasons set forth above at 3.A.

B. Re: Unjust Enrichment Is Not A Cause of Action.

Defendants argue that there is not cause of action for unjust enrichment in California.

“Unjust enrichment is not a cause of action, however, or even a remedy, but rather ‘ “ ‘a general principle, underlying various legal doctrines and remedies’ ” … . [Citation.] It is synonymous with restitution.’ ” (McBride v. Boughton (2004) 123 Cal.App.4th 379, 387 [20 Cal. Rptr. 3d 115].) Like the trial court, we will construe the cause of action as a quasi-contract claim seeking restitution.

“[A]n action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter.” (Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203 [51 Cal. Rptr. 2d 622].) However, “restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason.” (McBride v. Boughton, supra, 123 Cal.App.4th at p. 388.) Thus, a party to an express contract can assert a claim for restitution based on unjust enrichment by “alleg[ing in that cause of action] that the express contract is void or was rescinded.” (Lance Camper Manufacturing Corp. v. Republic Indemnity Co. supra, at p. 203.) A claim for restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1389 [137 Cal. Rptr. 3d 293].)

(Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.)

Here, Plaintiff does not allege that an express contract is unenforceable or ineffective for some reason. This is a claim for unjust enrichment that is not recognized as a cause of action in California.

The demurrer to the tenth cause of action is SUSTAINED without leave to amend.

11. Eleventh Cause of Action (Accounting—Derivatively On Behalf of Infiniti Health against Defendants Avery Williams and Aric Williams).

A Re: Cannot Assert Derivative Claims Against Defendant Aric Williams In His Capacity As Counsel For Infiniti.

This argument is not persuasive for the reasons set forth above at 3.A.

The demurrer is OVERRULED as to the eleventh cause of action.

12. Twelfth Cause of Action (Declaratory Relief—Plaintiff Zeledon against Defendants Avery Williams and Aric Williams).

A. Re: Claim Is Derivative.

Defendants claim this is a derivative cause of action. This appears to be well-taken, as all three subjects of declaratory relief appear to involve Infiniti as the real-party-in interest, i.e., the party who will be directly affected by the relief sought.

“The purpose of the real party in interest requirement is to assure that any judgment rendered will bar the owner of the claim sued upon against relitigating. ‘It is to save a defendant, against whom a judgment may be obtained, against further harassment or vexation at the hands of some other claimant to the same demand.’ [Citations.]” (Citation omitted.)

(O’Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1094.)

The demurrer to the twelfth cause of action is SUSTAINED with leave to amend.

Plaintiff is given 30 days’ leave to amend.