Judge Daniel M. Crowley, Case Number: 21STCV15143, Date: 2023-10-03 Tentative Ruling

Defendants Clyde Turner’s and Alfred Luciani’s, and joining Defendant Val Serebryany’s unopposed motion and joinder to motion, respectively, for judgment on the pleadings of Plaintiff Impact Solutions, LLP’s first amended complaint is granted without leave to amend.

Defendants Clyde Turner (“Turner”) and Alfred Luciani (“Luciani”) (collectively, “Defendants”) move unopposed for judgment on the pleadings asserted by Plaintiff Impact Solutions, LLP (“Impact Solutions”) (“Plaintiff”) in its first amended complaint (“FAC”). (Notice of Motion, pg. 2; C.C.P. §438; Evid. Code §452.) Defendant Val Serebryany (“Serebryany”) (“Defendant”) joins Turner’s and Luciani’s motion and incorporates by reference all arguments made therein. (Notice of Joinder, pg. 1.)

Serebryany’s 9/7/23 request for judicial notice of the (1) final judgment against Mark R. Moskowitz (“Moskowitz”) signed by Hon. Richard L. Fruin in Turner et al. v. Moskowitz, LASC Case No. 22STCP04179 (D-RJN, Exh. A); and (2) voluntary petition for Chapter 13 Bankruptcy in the U.S. Bankruptcy Court for C.D. Cal., filed by Moskowitz in Case No. 23-bk-10792-MB (D-RJN, Exh. B), is granted.

On April 21, 2021, Plaintiff filed its initial complaint. On June 24, 2022, Plaintiff filed the operative FAC against Defendants Russell Irby (“Irby”), Butler Snow, LLP (“Butler Snow”), Catalin Tutunaru (“Tutunaru”), Serebryany, Serebryany Family Trust (“Trust”), Turner, Russell Brooks (“Brooks”), and Luciani (collectively, “Defendants”) alleging fourteen causes of action: (1) tortious interference with existing economic advantage [against Irby, Butler, Serebryany, Trust, Brooks, Turner, and Luciani]; (2) tortious interference with prospective economic advantage [against Irby, Butler, Serebryany, Brooks, Turner, and Luciani]; (3) violation of Securities Act of 1934 [against all Defendants]; (4) violation of Securities Act of 1933 [against all Defendants]; (5) breach of contract [against Tutunaru]; (6) breach of contract (count II- specific performance) [against Tutunaru]; (7) breach of contract (count III- estoppel) [against Tutunaru]; (8) fraud and deceit [against Tutunaru]; (9) breach of fiduciary duty (count I) [against Tutunaru, Brooks, Turner, Serebryany, and Luciani]; (10) breach of fiduciary duty (count II) [against Tutunaru, Brooks, Turner, Serebryany, and Luciani]; (11) waste of corporate assets [against Tutunaru, Brooks, Turner, Serebryany]; (12) declaratory relief [against all Defendants]; (13) accounting [against all Defendants]; and (14) common counts [against Tutunaru].

On September 6, 2023, Turner and Luciani filed the instant motion. On September 7, 2023, Serebryany filed his joinder. On September 26, 2023, Turner and Luciani filed their reply. As of the date of this hearing, Plaintiff has not filed an opposition.

C.C.P. §438 provides that a defendant may move for judgment on the pleadings where: (I) the Court has no jurisdiction of the subject of the cause of action alleged in the complaint; or (ii) the Complaint does not state facts sufficient to constitute a cause of action against that defendant. (C.C.P. §438(c)(1)(B).) The grounds for a motion for judgment on the pleadings must appear on the face of the challenged pleading or be based on facts the court may judicially notice. (C.C.P §438(d); Tung v. Chicago Title Co. (2021) 63 Cal.App.5th 734, 758-759.)

A corporation may sue only upon authorization of its board of directors or upon the initiative of its president or managing officer. (See American Center for Education, Inc. v. Cavnar (1978) 80 Cal.App.3d 476, 498; see also Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108 [“The authority to manage the business and affairs of a corporation is vested in its board of directors, not in its shareholders. This includes the authority to commence, defend, and control actions on behalf of the corporation.”].)

Moskowitz initiated the instant action in the name of Impact Solutions without the authority to initiate, pursue, or maintain litigation in Impact Solutions’ name. Moskowitz was removed from his role on the management committee of Impact Solutions through an amendment to Impact Solutions’ operating agreement in September of 2020. Moskowitz’s removal was deemed valid through a Final Award issued by an Arbitrators Paul R. Fine, Judge Lawrence Crispo (Ret.), and Robert Pearman in an AAA arbitration, Turner, Luciani, and Brooks v. Moskowitz, Case No. 01-22-0000-5683. (See D-RJN, Exh. A at pg. 2.) Pursuant to the Final Award, the arbitration panel found that “Mark R. Moskowitz was properly removed from his position on the Management Committee and as Chairman and as an Officer of Impact Solutions, LLC” as of September 30, 2020, prior to his filing of the instant lawsuit in April 2021, and that Moskowitz “had no authority to act on behalf of Impact Solutions, LLC.” (See D-RJN, Exh. A at pg. 2.)

The Final Award was subsequently approved and confirmed by this Court, resulting in a final March 3, 2023, judgment against Moskowitz signed by Hon. Richard L. Fruin (“Judgment”) that confirmed Moskowitz’s valid ouster from any management role in the Company, and that Moskowitz “had no authority to act on behalf of Impact Solutions, LLC.” (D-RJN, Exh. A at pg. 2.)

Here, this case purports to be brought in the name of Impact Solutions. However, even accepting the allegations in the pleading as true, the FAC does not state facts sufficient to constitute a valid cause of action because Moskowitz was not authorized to initiate, and is not authorized to maintain, litigation in the

Moskowitz’s lack of authority has been conclusively established through the Final Award and the Judgment, including the Court’s express finding that “[f]ollowing his removal from the Management Committee, as Chairman, and as an Officer, Mark R. Moskowitz had no authority to act on behalf of Impact Solutions,

LLC.” Therefore, the FAC fails to state facts sufficient to constitute a valid cause of action.

Further, Under the Delaware Limited Liability Company Act, an individual ceases being a member of a limited liability company when he or she files a voluntary petition for bankruptcy. (6 Del. C. §18-304(1)(b).) The Delaware Supreme Court has confirmed that this law applies to multi-member LLCs to dissociate a bankrupt member’s rights to participate in management of the LLC while retaining the pure economic interest in the LLC as an asset of the bankrupt member’s Estate. (See, e.g., Zachman v. Real Time Cloud Servs. LLC (Del. 2021) 2021 WL 1561430, at *3, citing Milford Power Co., LLC v. PDC Milford Power, LLC (Del.Ch. 2004) 866 A.2d 738, 762.) Therefore, to the extent any authority remained after the Final Award and Judgment, Moskowitz’s membership in Impact Solutions ceased to exist immediately upon the filing of the Moskowitz Bankruptcy. (D-RJN, Exh. B.) Moskowitz did not have a membership interest in Impact Solutions, and had no right or authority to initiate, pursue, or maintain an action in the name of the Company. (American Center for Education, Inc., 80 Cal.App.3d at pg. 498.)

A motion for judgment on the pleadings may be granted with or without leave to amend. (C.C.P. §438(H)(1).) Leave to amend may be granted when there is a “reasonable possibility that the defect can be cured by amendment.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The burden of proof in establishing that the defect can be cured “is squarely on the plaintiff.” (Baughman v. State of California (1995) 38 Cal.App.4th 182, 187, citing Blank, 39 Cal.3d at pg. 318.)

Here, Plaintiff cannot, as a matter of law, demonstrate that any amendment would cure the defect in the FAC. As noted above, Moskowitz has been found to lack standing to initiate the instant matter, and under Delaware law, Moskowitz further relinquished any authority he might have had to maintain this lawsuit when he filed his Petition for Bankruptcy.

Accordingly, Turner’s and Luciani’s motion for judgment on the pleadings is granted without leave to amend.

Based on the foregoing, Turner’s, Luciani’s, and Serebryany’s motion for judgment on the pleadings as to the FAC is granted without leave to amend.

Hon. Daniel M. Crowley

Judge of the Superior Court