Judge: Daniel S. Murphy, Case: 20STCV28740, Date: 2022-08-08 Tentative Ruling

Case Number: 20STCV28740    Hearing Date: August 8, 2022    Dept: 32

BACKGROUND

            On July 30, 2020, Plaintiff Gary Kroytor initiated this action against Defendants over an alleged partnership dispute. The First Amended Complaint was filed on September 23, 2020. At a December 10, 2021 deposition, Kroytor revealed that the partnership payments were primarily made to his loan-out company, Jet 2 Set, Inc., rather than to Kroytor directly. On February 14, 2022, Kroytor’s loan-out company, Jet 2 Set, Inc., filed its own lawsuit against Defendants based on the same facts. On May 3, 2022, the two cases were consolidated by order of Judge Barbara Scheper. On May 11, 2022, Plaintiffs Kroytor and Jet 2 Set, Inc. filed the operative Second Amended Complaint combining the allegations.

            The SAC asserts causes of action for: (1) breach of contract; (2) breach of fiduciary duty; (3) misappropriation of trade secrets; (4) fraud; (5) unfair business practices; (6) conversion; (7) accounting; (8) defamation; (9) intentional infliction of emotional distress; and (10) imposition of constructive trust. The SAC alleges that in June 2018, Defendant Faught solicited Kroytor to form a partnership together. (SAC ¶ 40.) Defendants allegedly “acknowledged that KROYTOR, individually or by and through JET 2 SET, was entitled to 30% of net profits from any Perspective projects.” (Id., ¶ 42.) Faught allegedly referred to Kroytor as his partner when bidding for jobs or making presentations. (Id., ¶ 43.) For at least one project, the joint enterprise went smoothly, and “KROYTOR, by and through JET 2 SET, received payment of the agreed upon 30% of net profit, totaling $135,000.” (Id., ¶ 46.) The SAC alleges that “KROYTOR, in his individual capacity and as JET 2 SET, worked for the joint venture/partnership . . . .” (Id., ¶ 49.) Defendant Faught allegedly failed to fulfill his obligation to formalize the partnership, make Kroytor an officer or director with 30% ownership, and compensate Kroytor for unpaid work. (Id., ¶ 71.)    

            On June 10, 2022, Defendants filed the instant demurrer to the SAC primarily based on the sham pleading doctrine. Defendants argue that the incorporation of Jet 2 Set as a plaintiff in the SAC directly contradicts allegations in the prior FAC, wherein Kroytor alleged that he entered into the partnership agreement and received payments and ownership interest in his individual capacity.  

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, 147 Cal.App.4th at p. 747.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court finds that Defendants have satisfied the meet and confer requirement. (See Kaufman Decl. ¶ 3, Ex. A.)

DISCUSSION

I. Breach of Contract and Accounting

            The allegations are unclear as to which parties formed the partnership agreement. In the SAC, both Kroytor and Jet 2 Set assert the cause of action for breach of contract.

Either Kroytor or Jet 2 Set entered the contract, or both did. To allege that Kroytor acted “by and through” Jet 2 Set indicates nothing about who the contracting parties actually are. Similarly, alleging that Kroytor, “by and through” Jet 2 Set, was entitled to 30% profits is unclear as to who is owed the benefits under the agreement. Either Kroytor is owed 30%, or Jet 2 Set is, or both collectively own 30%. The allegations do not specify which is the case.

Furthermore, the SAC makes several references to Kroytor individually being owed under the contract. For example, the SAC alleges that the agreement is evidenced by the payments reflecting “his” 30% ownership of the joint venture. (SAC ¶ 84.) Faught allegedly referred to Kroytor as his partner. (Id., ¶ 43.) Faught allegedly breached the agreement by failing to make Kroytor an officer or director with 30% ownership, and compensate Kroytor for unpaid work. (Id., ¶ 71.) These allegations make it appear as though Kroytor made the agreement individually. Plaintiff needs to properly specify the parties to the agreement and be consistent about each parties’ rights and obligations under the agreement.  

This defect affects the accounting claim as well because “[a] cause of action for an accounting requires a showing that a relationship exists between the plaintiff and defendant that requires an accounting, and that some balance is due the plaintiff that can only be ascertained by an accounting.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.) Here, the basis for Plaintiffs’ accounting claim is the alleged partnership and Defendants’ failure to distribute proceeds (30%) accordingly. (SAC ¶ 139.) As discussed above, the allegations are unclear as to which party is in the partnership and which party is owed money under the partnership.    

II. Misappropriation, Conversion, and Fraud

            Notwithstanding the above issues with the contract claim, these causes of action may be asserted by both Kroytor and Jet 2 Set. Defendants could have defrauded both Plaintiffs by making misrepresentations to Kroytor while he was acting individually and on behalf of his company Jet 2 Set, and Kroytor could have detrimentally relied on such misrepresentations while acting in both capacities. (SAC ¶¶ 117-126.) Defendants could have misappropriated and converted assets belonging to both Kroytor and his company. (Id., ¶¶ 104-116, 132-137.) These causes of action do not require either or both Plaintiffs to be in a partnership agreement with Defendants.  

III. Duck Egg as a Defendant

            On February 7, 2022, Judge Scheper granted a motion to quash Doe amendment as to Defendant Duck Egg on the grounds that Kroytor failed to demonstrate the requisite ignorance under Code of Civil Procedure section 474. Plaintiffs cannot now bypass that ruling by filing an amended complaint including Duck Egg as a defendant. Nothing has changed regarding the fact that Kroytor knew about Duck Egg long before attempting to identify it as a Doe defendant. The requirements of Section 474 would be meaningless if a plaintiff could simply file an amended complaint with a new defendant after its attempt to substitute a Doe is denied.

IV. Sham Pleading

            Defendants’ basis for their contention that the SAC is a sham pleading is that Kroytor filed the FAC in his individual capacity but the SAC alleges harm to Jet 2 Set as well. Defendants argue that the FAC alleging individual harm precludes any subsequent claim of harm to the company. However, Kroytor and Jet 2 Set are two distinct Plaintiffs. It is not contradictory for Kroytor to file an action based on individual harm to himself, and for Jet 2 Set to file a subsequent action for harm done to it. (See Gott v. Nazak, 2021 Cal. Super. LEXIS 26016, *8.) Kroytor’s filing of an individual claim is not a representation that no harm was done to any other individual or entity. However, as discussed above, the SAC is unclear as to which parties actually entered into the partnership agreement, and Plaintiffs must clarify.  

CONCLUSION

            Defendants’ demurrer is SUSTAINED with leave to amend as to the breach of contract and accounting causes of action. The demurrer is SUSTAINED without leave to amend as to Defendant Duck Egg.