Judge Deirdre Hill, Case 21TRCV00669 2023-05-23 Tentative Ruling

ALERT

Due to Coronavirus, please consider appearing by phone for Department M cases.

Department M strongly encourages the use of LA CourtConnect* for ALL hearings, without need for prior approval, unless live testimony by a witness is required.

The contact information for LA CourtConnect* is:

https://lacourt.portalscloud.com/VCourt/

*Parties with a fee waiver on file may be eligible to appear at no/reduced cost

The demurrer is OVERRULED as to the 1^st, 2^nd, and 3^rd causes of action in the Sixth Amended Complaint.

The motion to strike is GRANTED WITHOUT LEAVE TO AMEND as to the claim for punitive damages.

On September 10, 2021, plaintiffs A. Terry Ivan and Neal S. Ivan filed a complaint 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.

On May 9, 2022, pursuant to stipulation and order, plaintiffs filed a Fourth Amended Complaint.

On June 16, 2022, pursuant to stipulation and order, plaintiffs filed a Fifth Amended Complaint for (1) accounting, (2) breach of contract, and (3) conversion against Ronald T. Wasserman.

On September 1, 2022, the court sustained with leave to amend defendant Ronald Wasserman’s demurrer to the 1^st cause of action and overruled the demurrer as to the 2^nd and 3^rd causes of action in the Fifth Amended Complaint. The motion to strike was granted without leave to amend as to the claim for attorney’s fees and punitive damages as to the 2^nd cause of action and granted with leave to amend as to punitive damages as to the 3^rd cause of action and denied as to the references to fiduciary duty. The court also ordered that defendant Fumiko Wasserman be dismissed with prejudice.

On September 12, 2022, plaintiff filed a Sixth Amended Complaint 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.”

Defendant Ronald Wasserman demurs to each of the causes of action in the Sixth Amended Complaint on the grounds that they fail to state sufficient facts to constitute a cause of action and are uncertain. Defendant also contends that plaintiffs lack standing.

In the Sixth Amended Complaint, plaintiffs allege that in September 1988, Ronald Wasserman (“RW”) organized RTW Investments, LTD, a California Limited Partnership (“Partnership”) to purchase a developed piece of real property and conduct the business of renting out portions of the property for profit. SAC, ¶7. RW registered the Partnership with the California Secretary of State on October 27, 1988. This registration was cancelled on January 3, 2019 by RW. Id., ¶8. RW solicited individuals to invest in the Partnership and become Limited Partners pursuant to a Limited Partnership Agreement provided by RW (“Agreement”). The Agreement provided that RW was the Partnership’s sole General Partner, and responsible for all aspects of the business operations of the Partnership. The Agreement provided that RW was the Partnership’s sole General Partner. Id., ¶9. Pursuant to the Agreement, RW invested $75,000 giving him a 22.4% interest. He held his interest as Community Property. Id., ¶10. Plaintiff Terry Ivan invested $150,000, giving him a 44.8% ownership interest in the partnership. Upon making his investment, plaintiff completed all duties and obligations required of him under the Agreement. Id., ¶11. The total investment of all the partners was $335,000. Id., ¶12. The Agreement did not provide for any general partnership bonus percentage in ownership for organizing the partnership. Id., ¶13. At all times alleged herein, RW was acting in his capacity as General Partner under the Agreement. Id., ¶14.

The SAC further alleges that sometime after the formation of the Partnership, believed to have been 2015 or 2016, plaintiff Terry transferred 50% of his ownership interest in the Partnership to his brother Neal. They orally informed RW of the transaction and then sometime later, and at RW’s request, written notice of the assignment of interest was given to RW. Id., ¶15. In or about October 1988, RW negotiated the Partnership’s purchase of a six unit office building located at 1230 Crenshaw Blvd., Torrance (“Property”). Id., ¶16. RW, as General Partner, was responsible for maintaining the Property, obtaining tenants, negotiating lease terms, and collecting rents. RW was solely responsible for operating the Partnership’s business, and pursuant to section 4.01, was exclusively responsible for any net losses suffered by the Partnership after the surplus capital was exhausted. Id., ¶17. RW 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., ¶18. At all times, the Partnership operated at a loss, never producing a profit between the years 1988 through 2018, when RW sold the Partnership’s sole asset. Id., ¶19.

The SAC further alleges the Partnership Agreement provided that the Partnership would “continue until October 27, 2003, unless terminated by earlier by an agreement between the General Partner and the majority interest of the limited partners.” The Partnership did not terminate on October 27, 2003, but continued to operate until it was terminated by RW on January 3, 2019. Id., ¶20. One or more extensions were executed by the partners to extend the operational life of the Partnership until after the Partnership’s sole asset was sold. Id., ¶21. In September 2018, the Property was sold to an entity known as Old Towne Phillips Investments, LLC for $1.9 million. Id., ¶22. The Partnership received $1,459,560.92 as net sales proceeds from the sale of the Property. RW took possession and control of these funds, the Partnership’s cash assets, and deposited these funds in interest bearing accounts. In December 2018, the Partnership cash assets were $1,466,464.92. RW continues to control and possess the Partnership’s cash assets. Id., ¶23.

The SAC further alleges that $328,488.13 of the Partnership cash assets were and are owned by plaintiff Terry Ivan. Id., ¶24. $328,488.13 of the Partnership cash assets were and are owned by plaintiff Neal Ivan. Id., ¶25. In December 2018, RW, as General Partner, paid Terry Ivan $150,000 from the cash assets of the Partnership. No further funds were ever paid to Terry. Id., ¶26. In January 2019, RW, as General Partner, paid Neal Ivan $150,000 from the cash assets of the Partnership. No further funds were ever paid to Neal. Id., ¶27. More funds from the Partnership cash assets should have been distributed to Terry and Neal; those funds, however, were retained by RW. Id., ¶28. Section 1.07d of the Agreement defines “cash available for distribution” to include “. . . the cash proceeds, if any, from the sale, or other disposition, refinancing, or liquidation of Partnership property.” Id., ¶29.

“An action for an accounting is equitable in nature. It may be brought to compel the defendant to account to the plaintiff for money or property, (1) where a fiduciary relationship exists between the parties, or (2) where, even though no fiduciary relationship exists, the accounts are so complicated that an ordinary legal action demanding a fixed sum is impracticable. [Citations].” Los Defensores, Inc. v. Gomez (2014) 223 Cal. App. 4th 377, 401 (citation omitted). “To plead a request for an accounting, a complaint “need only state facts showing the existence of the relationship which requires an accounting and the statement that some balance is due the plaintiff.” Id. “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) (citation 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.’” Id. (citation omitted).

The SAC alleges that defendant RW, despite repeated requests from plaintiffs, never provided plaintiffs with the business and accounting records of the Partnership, and has failed and refused and continues to fail and refuse plaintiffs access to those partnership records. SAC, ¶31. In October 1988, RW, as General Partner, as Trustor, executed a deed of trust on the property in favor of Pacific Heritage Bank as beneficiary and trustee, securing a loan of $550,000. Id., ¶32. In March 1994, RW as General Partner, as Trustor, executed a deed of trust on the property in favor of Bay Cities National Bank as beneficiary and trustee, securing a loan of $831,000. Id., ¶33. In May 1998, ,RW, as General Partner, as Trustor, executed a deed of trust on the property in favor of Bay Cities National Bank as beneficiary and trustee, securing a loan of $570,000. Id., ¶34. In June 2003, RW, as General Partner, as Trustor, executed a deed of trust on the property in favor of Bank of America as beneficiary and trustee, securing a loan of $543,5635. Id., ¶35. In January 2012, RW, as General Partner, as Trustor, executed a deed of trust on the property in favor of Bay Cities National Bank as beneficiary and trustee, securing a loan of $831,000. Id., ¶36. Defendant RW, despite repeated requests from plaintiffs, never provided plaintiffs with an accounting of the proceeds from the loans secured by these deeds of trust, and has failed and refused and continues to fail and refuse plaintiffs access to those partnership records. Id., ¶37. Plaintiff Terry was a Limited Partner and his rights of access to the Partnership’s financial records is established by Section 6.05 of the Agreement and its subparts. Id., ¶38. Plaintiff Neal was not a Limited Partner but an Assignee. His rights are based under Corp. Code §15907.02. Id., ¶39.

The court had previously sustained the demurrer to the Fifth Amended Complaint as to this cause of action with leave to amend.

Defendant argues that since the SAC alleges that plaintiffs are entitled to sums certain (see paras. 50-51), this cause of action fails as a matter of law. Defendant contends that plaintiffs’ attempt to cure the deficiency by adding allegations that defendant never provided plaintiffs with an accounting of the proceeds from five loans, which the partnership entered into from 1988 to 2012, is unavailing because the loan record allegations are read together with the allegations at paras. 24, 25, 50, and 51, which allege that plaintiffs are entitled to sums certain, and defendant was not required to maintain loan records under the terms of the Agreement (see section 6.03f providing that books and records were only required to be maintained for the current and past three fiscal years) or the Uniform Limited Partnership Act. See Corp. Code §§15901.11, 15902.11. Defendant also argues that Neal Ivan has no standing because the Corp. Code only allows a transferee or transferee of a partner’s interest in a limited partnership to obtain an account of the limited partnership’s transactions upon the dissolution and winding up of the limited partnership, and not at any other time. Defendant further argues that the claim is uncertain because there is no allegation when plaintiffs made a demand for such records.

In opposition, plaintiffs contend that they are alleging the right to recover uncertain monetary losses as well as a sum certain, citing to Tesselle v. McLoughlin (2009) 173 Cal. App. 4^th 156, 179-80 (“The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.”). Plaintiffs also assert that the SAC does not make a demand for loan records for the years 1988 to 2012; rather plaintiffs allege a request for an accounting of the proceeds of these loans. As to Neal Ivan’s standing, he seeks an accounting as a “transferee” under Corp. Code §15907.02, which allows upon dissolution and winding up of the Limited Partnership. Further, plaintiffs argue, it is of no import if and when a request was made for an accounting.

The court finds that the allegations are sufficient. Although plaintiffs allege a sum certain under the other causes of action with respect to the sale proceeds of the property, plaintiffs also allege the dissolution of the partnership, defendant Wasserman’s fiduciary duty as General Partner, plaintiff’s rights to an accounting whether it be under the Agreement or the Corporations Code, and defendant’s failure to provide an accounting as to the proceeds of the loans.

The SAC alleges that Article 10, subsection .01 of the Agreement provides: “Liability of General Partners. Except as otherwise provided in the Agreement, the liability of General partners arising from the conduct of the business affairs or operations of the Partnership or the debts of the Partnership is unrestricted.” RW avoided his contractual liabilities as provided in the Agreement by reimbursing himself for expenses and losses for which he was responsible pursuant to the terms of the Agreement. From the net sales proceeds of the sale of the Property. These acts were and are contrary to the provisions of the Agreement. SAC, ¶42. RW wrongfully recouped over $250,000 from the net sales proceeds in contravention of Article 10, subsection .01. RW took funds, which were properly and in accord with terms of the Agreement, the property of plaintiffs. Id., ¶43. Plaintiff Terry Ivan was damaged by RW’s secret actions in that plaintiff was denied his rightful share of the net sales proceeds of the Partnership’s sole asset and other Partnership profits. Id., ¶44.

Defendant argues that the claim is barred by the statute of limitations and doctrine of laches to the extent that such cause of action is based on defendant’s failure to pay market rent for his alleged exclusive use of the property.

In opposition, plaintiff argues that neither affirmative defense appears on the face of the complaint.

The court previously found that the allegations are sufficient. Further, a demurrer is not well taken to only part of a cause of action.

A cause of action for conversion requires the following elements: (1) plaintiff's ownership or right to possession of personal property; (2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and (3) resulting damages. Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal. App. 4th 97, 119. “ It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.” Spates v. Dameron Hospital Association (2003) 114 Cal. App. 4th 208, 221. “Money cannot be the subject of a cause of action for conversion unless there is a specific, identifiable sum involved, such as where an agent accepts a sum of money to be paid to another and fails to make the payment. A generalized claim for money is not actionable as conversion.” PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro LLP (2007) 150 Cal. App. 4th 384, 395.

The SAC alleges that throughout the term of the Partnership’s ownership of the Property, RW maintained office space in the Property for his own use and benefit. He failed to pay market rate rent for that space, taking for his own benefit the earning capacity of one or more rental units in the Property, to the detriment of the partnership. No portion of the agreement empowered RW to occupy partnership property for his own exclusive benefit at partnership expense. SAC, ¶47. RW used a partnership asset for his own benefit and appropriated value that would have otherwise have realized as distributable income to plaintiffs. Id., ¶48. Defendant RW retained possession and continues to retain possession for his own use of $178,488.13 that are the property of plaintiff Terry Ivan. Id., ¶50. Defendant RW retained possession and continues to retain possession for his own use of $178,488.13 that are the property of Neal Ivan. Id., ¶51.

Defendant argues that the claim is barred by the three-year statute of limitations and the doctrine of laches. Defendants further contend that plaintiffs lack standing because the property was owned by the partnership and any rent owed by defendant for his use of the property should have been paid to the partnership not to the individual plaintiffs.

In opposition, plaintiffs argue that a statute of limitations defect does not appear on the face of the complaint and that plaintiffs do not base their allegation that defendant did not pay rent for the entire 30 years that he used partnership office space. Plaintiffs further argue that a fiduciary cannot invoke the doctrine of laches where it is alleged that he breached his fiduciary duty or there has been no inexcusable delay. Plaintiffs also contend that they have standing because they allege damage to their individual interests.

The court finds that the claim is not barred on its face by the statute of limitations as to the proceeds of the sale. Plaintiffs allege that the sale took place in September 2018 with the proceeds being distributed in December 2018 and defendant retaining the proceeds. The complaint was filed in September 2021, within three years. As to the allegation that defendant failed to pay market rent from 1988 to 2018, the claim is not barred on its face as to the prior three years before the complaint was filed. As to doctrine of laches, defendant can assert as an affirmative defense. As to standing, the allegations are sufficient at the pleading stage.

Defendant Wasserman requests that the court strike para. 54 and punitive damages from the prayer as to the 3^rd cause of action in the Sixth Amended Complaint.

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”).

The court finds that the allegations are insufficient to support a claim for punitive damages under the conversion cause of action. There are no facts showing malice, oppression, or fraud.