Judge: Cynthia A Freeland, Case: 37-2022-00030298-CU-BC-NC, Date: 2024-02-23 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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SOUTH BUILDING TENTATIVE RULINGS - February 01, 2024

02/02/2024  01:30:00 PM  N-27 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Cynthia A. Freeland

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Civil - Unlimited  Breach of Contract/Warranty Demurrer / Motion to Strike 37-2022-00030298-CU-BC-NC ZAYAT VS. HOROZ [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion to Strike, 10/09/2023

Defendant/Cross-Complainant Tolga Horoz ('Defendant')'s motion to strike portions of Plaintiffs/Cross-Defendants Kamel Zayat and Rana Zayat (collectively, 'Plaintiffs')'s Second Amended Complaint (the 'SAC') is granted.

California Code of Civil Procedure § 436 provides that '[t]he court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.' Cal. Code Civ. P. §§ 436(a)-(b). In ruling on a motion to strike, courts do not read allegations in isolation. See Perkins v. Sup. Ct. (1981) 117 Cal. App. 3d 1, 6. 'In passing on the correctness of a ruling on a motion to strike, judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth.' Clauson v. Sup. Ct. (1998) 67 Cal. App. 4th 1253, 1255. The grounds for a motion to strike must appear on the face of the challenged pleading or any matter of which the court is required to take judicial notice. See Cal. Code Civ. P. § 437(a).

'In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damages statute, Civil Code section 3294.' Turman v. Turning Point of Central California, Inc. (2010) 191 Cal. App. 4th 53, 63. California Civil Code ('CC') § 3294 allows a plaintiff to recover punitive damages '[i]n an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.' Cal. Civ. Code § 3294(a). For purposes of awarding punitive damages, ''[m]alice' means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.' Cal. Civ. Code § 3294(c)(1). ''Oppression' means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.' Cal. Civ. Code § 3294(c)(2).

''Fraud' means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.' Cal. Civ. Code § 3294(c)(3). 'Despicable conduct' is conduct that is so mean, vile, base, or contemptible that it would be looked down upon and despised by reasonable people. See CACI 3940. Such conduct has been described as having 'the character of outrage frequently associated with crime.' Scott v. Phoenix Schools, Inc. (2009) 175 Cal. App. 4th 702, 715.

The SAC alleges that Plaintiffs and Defendant each own a 50% membership interest in a member-managed limited liability company known as Paradise Senior Apartment Complex, LLC Calendar No.: Event ID:  TENTATIVE RULINGS

3034450 CASE NUMBER: CASE TITLE:  ZAYAT VS. HOROZ [IMAGED]  37-2022-00030298-CU-BC-NC ('Paradise LLC'). See SAC, ¶ 6. Mr. Zayat and Defendant each own 50% of the capital stock in Steelbuilt Framing Technologies, Inc. ('Steelbuilt'). Ibid., ¶ 7. Paradise LLC was the owner and developer of the Senior Apartment Complex located at 2238 E. 6th St., National City, CA (the 'Project').

Ibid., ¶ 8. Steelbuilt served as the general contractor for the project. Ibid., ¶ 9. In September 2019, Paradise LLC obtained a construction loan from Parkview Financial REIT, LP ('Parkview') in the amount of $28,000,000.00 (the 'Parkview Loan'). Ibid., ¶ 10. Mr. Zayat and Defendant each executed a guaranty for the Parkview Loan. Ibid. On April 1, 2022, Plaintiffs and Defendant entered into a Pardise/Steelbuilt Buy-Out Agreement (the 'Buy-Out Agreement') under which Defendant agreed to purchase Plaintiffs' interest in Paradise LLC and Steelbuilt for $3,100,000.00. Ibid., ¶ 11. On April 15, 2022, the parties executed a First Amendment to the Buy-Out Agreement. Ibid., ¶ 11, Ex. A. Under the Buy-Out Agreement, Defendant agreed to deposit $600,000.00 into escrow no later than April 22, 2022 and cause Parkview to release Mr. Zayat as guarantor on the Parkview Loan. Ibid., ¶ 12. On April 15, 2022, Defendant executed a Promissory Note (the 'Note') in Plaintiffs' favor which required Defendant to pay each Plaintiff $375,000.00 by June 27, 2022, to be credited against the amount Defendant owes under the Amended Buy-Out Agreement, with interest accruing at 7% per annum. Ibid., ¶ 13, Ex. B. Defendant allegedly has failed to pay the sum owed under the Amended Buy-Out Agreement and Mr. Zayat has not been released as a guarantor on the Parkview Loan. Ibid., ¶ 14.

The SAC alleges causes of action against Defendant for: (1) breach of contract; (2) breach of fiduciary duty; (3) breach of the implied covenant of good faith and fair dealing; and (4) an accounting. As to the second cause of action, Plaintiffs allege, on information and belief, that Defendant breached his fiduciary duty(ies) to Plaintiffs by: (1) using Paradise LLC's capital and loan proceeds to fund his own projects; (2) taking away subcontractors for the Project and having them work on his projects; (3) neglecting the Project in favor of his own projects; and (4) appropriating Paradise LLC's opportunities. Ibid., ¶ 21.

Plaintiffs further allege, on information and belief, that Defendant willfully and intentionally deprived Plaintiffs of their property with a conscious disregard of Plaintiffs' rights. Ibid., ¶ 23.

The court construes Plaintiffs' lack of opposition as a concession of the motion's merits. See San Diego Rules of Court, Rule 2.1.19.B. The court also finds that the SAC fails to plead the ultimate facts with the requisite specificity demonstrating that Defendant's conduct, if ultimately proven by clear and convincing evidence, could give rise to the imposition of punitive damages. See Brousseau v. Jarrett (1977) 73 Cal. App. 3d 864, 872; Hillard v. A.H. Robins Co. (1983) 148 Cal. App. 3d 374, 391-392. Plaintiffs seek punitive damages in conjunction with their second cause of action for breach of fiduciary duty, which damages are recoverable under California law provided that the requisite malicious, fraudulent, and/or oppressive conduct as contemplated under CC § 3294 is sufficiently pled. See American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal. App. 4th 1017, 1051; Scott, 175 Cal. App. 4th at 715. In this instance, the court finds that the SAC does not satisfy the requisite pleading requirements.

To start, the court notes that ¶ 19 of the SAC incorporates by reference into the second cause of action the allegations set forth ¶¶ 1-18 of the SAC. Toward that end, to the extent Plaintiffs' second cause of action is predicated upon conduct that constitutes a breach of contract, the motion must be granted as the SAC is devoid of factual allegations supporting a claim that Defendant committed a tortious breach of contract. See Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal. App. 4th 1269, 1286. In addition, the court finds that the SAC is insufficiently pled to the extent Plaintiffs allege in conclusory fashion at ¶ 23 that Defendant's conduct was oppressive, fraudulent, and/or malicious. See Smith v. Sup. Ct. (1992) 10 Cal. App. 4th 1033, 1042 (a conclusory characterization of the defendant's conduct as willful, intentional, malicious, oppressive, and/or fraudulent is insufficient without specific factual allegations supporting the claim for punitive damages). Finally, the allegations at ¶ 21 of the SAC purportedly supporting Plaintiffs' punitive damages claim are not sufficiently pled.

Accordingly, the court grants the motion to strike without leave to amend as Plaintiffs, by failing to oppose the motion, have not demonstrated a reasonable possibility that the foregoing deficiencies can be cured by amendment. See Grieves v. Sup. Ct. (1984) 157 Cal. App. 3d 159, 168.

In light of the foregoing, the court grants the motion and strikes the following allegations from the SAC without leave to amend: (1) ¶ 23 in its entirety, and (2) subparagraph (b) of Plaintiffs' Prayer for Relief Calendar No.: Event ID:  TENTATIVE RULINGS

3034450 CASE NUMBER: CASE TITLE:  ZAYAT VS. HOROZ [IMAGED]  37-2022-00030298-CU-BC-NC (page 6, l. 4). Defendant shall file an answer or otherwise plead to the SAC (as stricken) within ten (10) days of this hearing.

This is the tentative ruling for the hearing at 1:30 p.m. on Friday, February 2, 2024. If no party appears at the hearing, this tentative ruling will become the order of the court as of February 2, 2024. If the parties are satisfied with the court's tentative ruling or do not otherwise wish to argue the motion, they are encouraged to give notice to the court and each other of their intention not to appear, though this notice is not required.

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