Judge Deirdre Hill, Case 21TRCV00669 2022-09-01 Tentative Ruling

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The demurrer is SUSTAINED WITH LEAVE TO AMEND as to the 1^st cause of action and OVERRULED as to the 2^nd and 3^rd causes of action in the FAC. The motion to strike is GRANTED WITHOUT LEAVE TO AMEND as the claim for attorneys’ fees and punitive damages on the 2^nd cause of action, GRANTED WITH LEAVE TO AMEND as to the punitive damages claim on the 3^rd cause of action, and DENIED as to the references to a fiduciary duty.

On September 10, 2021, plaintiffs A. Terry Ivan and Neal S. Ivan filed the instant action against defendants Ronald T. Wasserman and Fumiko Wasserman for (1) accounting, (2) wrongful taking, (3) breach of contract, (4) gross negligence, (5) conversion, and (6) fraud.

The operative fifth amended complaint only names defendant Ronald and alleges causes of action for (1) accounting, (2) breach of contract, and (3) conversion.

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. “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905. “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 v. Mirda (2007) 147 Cal. App. 4th 740, 747.

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. CCP § 436(a). The court may also strike 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. CCP § 436(b). The grounds for a motion to strike are that the pleading has irrelevant, false or improper matter, or has not been drawn or filed in conformity with laws. CCP § 436. The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. CCP § 437.

CCP § 431.10 states, “(b) An immaterial allegation in a pleading is any of the following: (1) An allegation that is not essential to the statement of a claim or defense. (2) An allegation that is neither pertinent to nor supported by an otherwise sufficient claim or defense. (3) A demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint. (c) An “immaterial allegation” means “irrelevant matter” as that term is used in Section 436.”

In the FAC, plaintiffs allege that in September, 1988 Wasserman organized, RTW Investments, LTD, a California Limited Partnership (hereinafter, “The Partnership”) to purchase a developed piece of real property and conduct the business of renting out portions of the property for profit. FAC, ¶ 7. Wasserman registered The Partnership with the California Secretary of State on October 27, 1988. This registration was cancelled on January 3, 2019 by RW. Id., at ¶ 8. Wasserman solicited individuals to invest in The Partnership and become Limited Partners pursuant to a Limited Partnership Agreement he provided (hereinafter “The Agreement”). The Agreement provided that Wasserman was The Partnership’s sole General Partner, and responsible for all aspects of the business operations of The Partnership. Id., at ¶ 9. Plaintiff Terry Ivan invested $150,000.00 in The Partnership becoming a Limited Partner and giving him a 44.8% ownership interest and completing all duties and obligations required of him under the Agreement. Id., at ¶¶ 9, 11. At all times alleged in the Complaint, Wasserman was acting in his capacity as General Partner under the Agreement. Id., at ¶ 14. Sometime after the formation of The Partnership Terry transferred 50% of his ownership interest in The Partnership to his brother Neal. Id., at ¶ 15. In or about October, 1988, Wasserman negotiated The Partnership’s purchase of a six unit office building (hereinafter “The Property”). Id., at ¶ 16. Wasserman, as General Partner was solely responsible for operating the Partnership’s business, maintaining The Property, obtaining tenants, negotiating lease terms and collecting rents. Pursuant to section 4.01. of The Agreement, Wasserman was exclusively responsible for any net losses suffered by The Partnership after the surplus capital was exhausted. Id., at ¶ 17. Wasserman rented office space in The Property throughout The Partnership’s ownership thereof and he failed to pay rent for that space for much of that time. Id., at ¶ 18. The Property was sold for $1,900,000. Id., at ¶ 22. The Partnership received $1,459,560.92 as net sales proceeds from the sale of The Property. These funds were deposited in interest bearing accounts and in or about December 31, 2018 The Partnership cash assets were $1,466,464.92. Id., at ¶ 23. Defendant Wasserman, despite repeated requests from plaintiffs, never provided plaintiffs with an accounting of the sales proceeds, and has failed and refused and continues to fail and refuse plaintiffs access to those partnership records. Id., at ¶ 24. Wasserman, as General Partner gave each plaintiff $150,000.00 from these proceeds. No further funds were ever paid to either plaintiff. Id., at ¶ 25. More funds from the sale proceeds were available for distribution to the Limited Partners, those funds however were retained by Wasserman, who received in excess of $1,105,241.00. Id., at ¶ 26. §1.07d of The Agreement defines “cash available for distribution” to include, inter alia, “… the cash proceeds, if any, from the sale, or other disposition, refinancing, or liquidation of Partnership property.” Id., at ¶ 27. Wasserman wrongfully recouped over $250,000.00 from the net sales proceeds, in doing so, Wasserman took funds, that were properly and in accord with terms of the Agreement, the property of plaintiffs. Id., at ¶ 34. In or about, December, 2018 defendant Wasserman had sole possession of the entire cash assets of the Partnership. Id., at ¶ 40. After Wasserman’s distribution of $150,000.00 of the cash assets of the Partnership to plaintiff Terry A Ivan, defendant Wasserman retained possession, and continues to retain possession for his own use of $178,488.13 that are the property of plaintiff A Terry Ivan. Id., at ¶ 43. After Wasserman’s distribution of $150,000.00 of the cash assets of the Partnership to plaintiff Terry A Ivan, defendant Wasserman also retained possession, and continues to retain possession for his own use, of $178,488.13 that are the property of plaintiff Neal S. Ivan. Id., at ¶ 44.

Defendant demurs to the first cause of action on the basis that (1) plaintiffs fail to state sufficient facts to constitute a cause of action, (2) plaintiffs lack standing to bring this cause of action, and (3) the cause of action is uncertain.

“A cause of action for an accounting requires a showing of a relationship between plaintiff and the defendant … that requires an accounting or a showing that the accounts are so complicated they cannot be determined through an ordinary action at law.“ (Fleet v. Bank of America (2014) 229 Cal.App.4th 1403, 1413 (court sustained demurrer to cause of action for accounting because plaintiff failed to allege the necessary elements) [citations omitted]). “’An action for accounting is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.’” (Ibid. [citation omitted]).

Here, the FAC alleges that defendant Wasserman retained possession, and continues to retain possession for his own use of $178,488.13 that are the property of plaintiffs. FAC, ¶¶ 43-44. Thus, plaintiffs allege a sum certain.

Defendant argues that plaintiffs fail to allege a breach of the contract because defendant was allowed to deduct expenses of operating and maintaining the Property. This argument is not well taken. Plaintiffs allege that defendant wrongfully recouped over $250,000 from the net sales proceeds and didn’t properly distribute the funds to plaintiffs. Accordingly, whether the funds were properly deducted for expenses of operating and maintaining the property is a factual question. At the pleading stage, the allegations are sufficient to state a breach. Further, as plaintiffs point out, plaintiffs also allege a breach for failure to pay rent. (FAC, ¶ 18.)

Defendant argues the third cause of action for conversion is uncertain because paragraphs 36-38 are misnumbered and should be 45-47. This argument is not well taken. Misnumbering of two paragraphs does not render the FAC uncertain and defendant provides no legal authority for this assertion.

(ii) (ii) the words “Reasonable attorney fees and cosnts [sic] of suit” from the Prayer for Relief “On The First Cause of Action;”

(iii) (iii) the words “Reasonable attorney fees and costs of suit” from the Prayer for Relief “On The Third Cause of Action;”

(iv) (iv) the words “Punitive damages in an amount sufficient to punish and make an example of these defendants” from the Prayer for Relief “On The Second Cause of Action;” and

(v) (v) the words “Punitive damages in an amount sufficient to pinish [sic] and make anexaple [sic]of these Defendants” from the Prayer for Relief “On The Third Cause of Action.”

Defendant moves to strike these paragraphs because they reference a non-existent cause of action for breach of fiduciary duty. In opposition, plaintiffs argue that this goes towards defendant’s fraudulent conduct and his failure to meet his duty to disclose.

The court finds that references to defendant’s fiduciary duty are proper to show context.

Request Nos. (ii), (iii), and (iv) relating to attorneys’ fees and punitive damages on the second cause of action

Plaintiffs do not oppose the motion to strike as to these requests. Accordingly, the motion to strike is GRANTED as to the second, third, and fourth requests.

Civil Code § 3294 authorizes the recovery of punitive damages in non-contract cases where “the defendant has been guilty of oppression, fraud, or malice . . . .” The court in Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-95, found:

“Something more than the mere commission of a tort is always required for punitive damages. There must be circumstances of aggravation or outrage, such as spite or ‘malice,’ or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that his conduct may be called willful or wanton.”

Indeed, “malice” is defined in Civil Code § 3294 to mean “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.” Civil Code § 3294(c)(1). As the Court noted in College Hospital v. Superior Court (1994) 8 Cal.4th 704, 713, Section 3294 was amended in 1987 to require that, where malice is based on a defendant’s conscious disregard of a plaintiff’s rights, the conduct must be both despicable and willful. The Court in College Hospital held further that “despicable conduct refers to circumstances that are base, vile, or contemptible.” Id. at 725 (citation omitted).

A claim for punitive damages may not be based on conclusory allegations of oppression, fraud or malice, but instead must be based on factual allegations which support such a conclusion. See Smith v. Superior Court (1992) 10 Cal. App. 4^th 1033, 1041-1042 (Court of Appeal issued peremptory writ directing trial court to issue order striking plaintiff’s prayer for punitive damages because “[t]he sole basis for seeking punitive damages are . . . conclusory allegations” which were “devoid of any factual assertions supporting a conclusion [defendants] acted with oppression, fraud or malice”).

As defendant points out, the allegations supporting this cause of action are the same as the allegations supporting the breach of contract cause of action, i.e., the breach of the their agreement by retaining more proceeds and not distributing them properly, which cannot support a claim for punitive damages. Defendant also points out that the case plaintiffs cite to in order to claim it is fraudulent conversion does not deal with fraud for purposes of § 3294. Accordingly, plaintiffs have not alleged sufficient facts to support a claim for punitive damages.