Judge: Edward B. Moreton, Jr, Case: 24SMCV04548, Date: 2025-02-07 Tentative Ruling

Case Number: 24SMCV04548    Hearing Date: February 7, 2025    Dept: 205

Superior Court of California

County of Los Angeles – West District

Beverly Hills Courthouse / Department 205

BACKGROUND

This case arises from the alleged misappropriation of funds from an LLC.  Plaintiff Steven Pritz purchased a home located at 1475 Cuyama Highway, Cuyama, CA 93254 (the “Property”).  Plaintiff then executed a lease agreement with non-party Barry Hermanson for the Property.  (Compl. ¶1.)

On May 16, 2019, Plaintiff, Hermanson, Jeffrey Pritz, William Campoy, and Dave Fish formed 420 Plenty LLC.  Fish invested approximately $420,000 into 420 Plenty LLC; Plaintiff invested approximately $40,000, and Hermanson invested approximately $30,000.  (Id. ¶2.)

The lease with an option to purchase between Plaintiff and Hermanson was assigned to 420 Plenty LLC (the “LLC”). The LLC made monthly lease payments and salary payments to Plaintiff until Hermanson’s death.  (Id. ¶3.)

 In October 2020, 420 Plenty LLC, Campoy, and Fish sued Plaintiff for breach of contract and fraud, alleging that Plaintiff had no intention of transferring the Property to the LLC.  (Id. ¶4.)  During the lawsuit, Plaintiff subpoenaed the LLC’s financial records and discovered that Campoy had allegedly misappropriated LLC funds. William Campoy issued checks to himself and to various entities including Defendant Tracy Wiedner, totaling significant amounts. (Id. ¶¶5-6.)  When Plaintiff attempted to discuss these issues with Defendant, she responded with a threat of legal action, stating, “Don’t ever contact me again or I will get a restraining order.”  (Id. ¶7.)

This hearing is on Defendant’s demurrer to the Complaint.  Defendant argues that Plaintiff has no standing to sue to recover funds belonging to the LLC. 

MEET AND CONFER

Code Civ. Proc. § 430.41 requires that before the filing of a demurrer the moving party “shall meet and confer in person or by telephone” with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.  (Code Civ. Proc., § 430.41(a).)  The parties are to meet and confer at least five days before the date the responsive pleading is due. (Code Civ. Proc., § 430.41(a)(2).)  Thereafter, the moving party shall file and serve a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a)(3).)  Defendant submits the Declaration of Everett Gotfredson which states that “[a]fter attempting to meet and confer with Plaintiff, the parties did not reach an agreement resolving the objections raised in the demurrer.”  (Gotfredson Decl. ¶4.)  There is no indication that the parties ever met and conferred by telephone and/or in person.  Rather, the declaration only references email exchanges.  (Id. ¶¶ 2, 3, 5.)  While this fails to satisfy the meet and confer requirements of § 430.41, the Court cannot overrule a demurrer based on an insufficient meet and confer.  (Code Civ. Proc., § 430.41(a)(4).)       

LEGAL STANDARD

“[A] demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.)  A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable.  (See Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994 (in ruling on a demurrer, a court may not consider declarations, matters not subject to judicial notice, or documents not accepted for the truth of their contents).)  For purposes of ruling on a demurrer, all facts pleaded in a complaint are assumed to be true, but the reviewing court does not assume the truth of conclusions of law. (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967.)        

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 (“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”).)  The burden is on the complainant to show the Court that a pleading can be amended successfully. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)  

SINGLE SPACED OPPOSITION

Plaintiff has filed a single spaced opposition which violates the local rules.  However, as Plaintiff’s violation was not intended to circumvent the page limits (it is only three pages long), the Court will consider the opposition on its merits. 

DISCUSSION

Defendant argues that Plaintiff has no standing to sue for the alleged misappropriation of monies belonging to the LLC.  The Court agrees.

It is clear from Plaintiff’s complaint that the monies that were allegedly misappropriated belong to the LLC, not Plaintiff.  Paragraph 5 of the complaint states that: “Plaintiff subpoenaed the LLC's financial records and discovered that William Campoy had misappropriated LLC funds.”  The Complaint further alleges that “Defendant Tracy Wiedner has been unjustly enriched by receiving funds that rightfully belong to 420 Plenty LLC. The court should order Defendant to return these funds to 420 Plenty LLC ... " (Compl., paragraph IV, page 4, lines 4-5). Additionally, the Complaint alleges that “Defendant Tracy Wiedner participated in a scheme to divert LLC funds, acting in concert with William Campoy and other conspirators.  Her actions caused direct financial harm to 420 Plenty LLC and its members.” (Compl., paragraph IV, page 4, lines 9-11).  Still further, the Complaint states that “Defendant Tracy Wiedner aided and abetted William Campoy in the unlawful diversion of LLC funds. Her actions contributed to the financial harm suffered by 420 Plenty LLC and its members ... “. (Compl. paragraph IV, page 4, lines 14-17.)

“A limited liability company is an entity distinct from its members.” (Corp. Code § 17701.04(a).)  As a separate legal entity, an LLC must sue on its own behalf.  If it refuses to sue, the member may bring a derivative suit on behalf of the entity.  (See PacLink Communications Int'l, Inc. v. Superior Court (2001) 90 Cal. App. 4th 958, 964-965.)  Here, Plaintiff has not brought a derivative suit on behalf of the LLC, nor has he alleged that the requirements for a derivative suit have been met. 

In order to properly bring a derivative action, Plaintiff must comply with Corporations Code § 17709.02.  That section requires that Plaintiff allege “in the complaint with particularity the plaintiff’s efforts to secure from the managers the action the plaintiff desires or the reasons for not making that effort, and alleges further that plaintiff has either informed the limited liability company or the managers in writing of the ultimate facts of each cause of action against each defendant or delivered to the limited liability company or the managers a true copy of the complaint that the plaintiff proposes to file.”

Here, Plaintiff has failed to allege that he made efforts to secure from the managers the action Plaintiff desires or the reasons for not making that effort.  Plaintiff has failed to plead or allege that he informed the managers in writing of the facts of each cause of action or delivered to the LLC a copy of the complaint prior to filing it.  Having failed to comply with the requirements for filing a derivative action on behalf of the LLC, Plaintiff’s complaint must be dismissed.

Plaintiff argues that he has standing to sue because he suffered personal harm in that he leased property to the LLC, the LLC owes him lease payments, and Defendant’s alleged wrongdoing precluded the LLC from making the payments.  Plaintiff does not cite any case which stands for proposition that a creditor of an LLC has standing to sue an entity that has committed a tort against the LLC.  In any event, the Complaint does not allege standing on the basis of these allegations.        

CONCLUSION

            For the foregoing reasons, the Court SUSTAINS the demurrer to the Complaint with 20 days’ leave to amend. 

DATED:  February 7, 2025                                   ___________________________

Edward B. Moreton, Jr.

Judge of the Superior Court