Judge: David A. Hoffer, Case: 30-2020-1130613, Date: 2022-10-31 Tentative Ruling
Defendants Jason Lilly Associates dba Kannabis Works, Steve Mckay, Michelle Mckay, Jason Lilly, and Josiah Lilly’s (“Defendants” together) Demurrer to plaintiff Chasen Stanley’s (“Plaintiff”) Third Amended Complaint (“TAC”) is OVERRULED in part and SUSTAINED in part.
Overruled as to causes of action Nos. 1–16. Sustained as to causes of action Nos. 17-19.
A demurrer presents an issue of law regarding the sufficiency of the allegations set forth in the complaint. (Lambert v. Carneghi (2008) 158 Cal.App.4th 1120, 1126.) The challenge is limited to the “four corners” of the pleading (which includes exhibits attached and incorporated therein) or from matters outside the pleading which are judicially noticeable under (Evidence Code §§ 451 or 452.)
As to causes of action Nos. 1-16, Defendants bring their Demurrer on the bases that Plaintiff is judicially estopped from pursing this claim as Plaintiff did not mention his interest in the business or in a potential lawsuit against Defendants in his prior bankruptcy action(s) and that Plaintiff lacks standing to pursue the claim as the bankruptcy trustee is the proper entity to bring any claims in this action.
On 05/10/21, this court previously sustained Defendants’ demurrer to Plaintiff’s Second Amended Complaint and directed Plaintiff to file a new action in Bankruptcy Court to cure issues of standing and estoppel based on discrepancies in plaintiff’s prior bankruptcy filings. (ROA #61.)
Plaintiff subsequently re-filed a bankruptcy petition notifying the court and trustee about this action and Plaintiff’s alleged interest in the company. Although the trustee argued the action was properly within the bankruptcy trust estate, the Bankruptcy Court 1) held the JLA claims cannot be administered by the bankruptcy trustee as they are related to marijuana sales, which is considered an illegal business under federal law; 2) declined to make any findings regarding whether the JLA claims are an asset of the estate or whether the JLA claims have been abandoned; and 3) closed the Bankruptcy Court matter. (Demurrer, RTJN, Ex. H.)
This court, having considered the pleadings and the rulings of the Bankruptcy Court, concludes that, as marijuana assets could not and cannot be part of a bankruptcy estate (In re Burton, 610 B.R. 633, 634 (B.A.P. 9th Cir. 2020); In re Malul, 614 B.R. 699 (Bankr. D. Colo. 2020)) and as the business in question is alleged to be a cannabis dispensary, Plaintiff’s claims in this matter could either not be part of the bankruptcy estate at any point due to the federal illegality of the subject matter, or, if they could be part of the bankruptcy estate, then they must be deemed abandoned as the bankruptcy trustee is barred from administering such claims. (Demurrer, RTJN, Ex. H.)
As such, since this matter never could have been part of the bankruptcy estate due to the nature of the claims/business, Plaintiff is not judicially estopped from pursuing his claims in state court. Plaintiff, and not the bankruptcy trustee, has standing to bring this action as, again, the Bankruptcy Court has held the trustee is barred from administering these claims. Moreover, to the extent there was a question regarding standing in the first complaint, plaintiff has pled around the issue, albeit tortuously, by alleging changes to the JLA Association over time. This court finds that to rule otherwise would permit potentially viable claims to wither on the vine without any injured party being able to pursue them – which this court finds fundamentally inequitable. (See Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 685 (“The law favors resolution of cases on their merits”)).
The demurrer is overruled as to causes of action Nos. 1 through 16 on the issues of judicial estoppel and standing.
As to causes of action Nos. 17 through 19, defendants assert that these causes of action are barred by the statute of limitations because they were filed more than four years after the causes of action accrued. Plaintiff does not contest the time calculation but argues the causes of action should nevertheless be permitted because they relate back to the filing of the original complaint.
The relation-back doctrine requires “[(1)] the same general set of facts, (2) involve the same injury, and (3) refer to the same instrumentality, as the original one.” Quiroz v. Seventh Ave. Ctr., (2006) 140 Cal. App. 4th 1256, 1278. Here, none of these requirements are satisfied. Although relating to the same subject matter (the JLA Association), the new causes of action deal not with plaintiffs ouster from the for-profit entity, but with the failure to properly disburse the monies of the allegedly separate non-profit entity. The new causes of action also refer to a brand new alleged injury that non-profit JLA suffered when its assets were improperly disbursed. Finally, the new causes of action seek to bring a claim on a completely separate basis -- not on plaintiff’s own behalf but standing in the shoes of non-profit JLA – and seek damages not sought in the original causes of action. For all of these reasons, plaintiff’s new causes of action do not related back (as alleged) and are barred by the statute of limitations.
Based on the discussion above, the court does not reach defendants’ other arguments regarding the new causes of action. The court sustains the demurrer as to causes of action 17 through 19 and provides plaintiff one final opportunity to amend within 20 days of service of this ruling.
Both parties’ Requests for Judicial Notice are GRANTED under Ev. Code §§ 452 as to the existence of the documents and their legal effects and not as to any disputed factual statements contained therein. (Fontenot v. Wells Fargo Bank, NA (2011) 198 Cal.App.4th 256, 264; Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 482.) The court does not rule on plaintiff’s evidentiary objections as such a ruling is not necessary to the resolution of this motion.
Plaintiff is ordered to give notice of this ruling. If plaintiff does not amend, defendants are to answer within the statutory time-frame.