Judge: Elaine W. Mandel, Case: 22STCV34993, Date: 2023-05-17 Tentative Ruling
Case Number: 22STCV34993 Hearing Date: May 17, 2023 Dept: P
Tentative Ruling
Harkham v. Harkham
et al., Case No. 22STCV34993
Hearing Date May 16,
2023
Defendants’ Demurrer
to Plaintiffs’ First Amended Complaint
In 1994/1995 plaintiff
Terry Harkham entered a business partnership with his brother Efrem Harkham to
operate a luxury hotel, contributing 12.5% of the capital to purchase the property.
Terry acted as a partner in the business for decades, contributing capital, participating
in meetings and receiving distributions. The court uses first names of the
various Harkham parties for ease of reference, not with an intent to show
disrespect.
Terry alleges
Efrem and his son Aron now deny his status as partner, refusing to distribute profits
from the hotel’s sale and preventing him from inspecting books and records. Terry
also alleges Efrem and Aron engaged in self-dealing, taking out loans against the
hotel for their own benefit and using companies under their control to siphon
Terry’s funds out of the partnership.
Efrem, Aaron and
the corporate/LLC defendants demur to the first amended complaint.
Breach of Contract
A complaint may
plead inconsistent causes of action or legal theories if there are no
contradictory or antagonistic facts. Berman v. Bromberg (1997) 56
Cal.App.4th 936, 945.
Defendants argue
the breach of contract cause of action includes contradictory allegations. The
FAC alleges the
contract created a limited partnership or, in the alternative, a general
partnership. FAC ¶¶86-87. Defendants argue this alternative pleading renders
the first cause of action uncertain, since it relies on facts that cannot be
reconciled and prevents defendants from determining which contract they are
sued under.
Plaintiff argues
the alternative pleading of limited and general partnership agreements is
proper, as it sets out two different theories based on a single set of facts. It
is permissible to plead inconsistent legal theories if the allegations are
based on a single consistent set of facts.
Plaintiff alleges
he entered a limited partnership agreement with Efrem, Summit Hospitality, Ben
Harkham and the Aflalos. In the alternative, he alleges he entered a general
partnership agreement with Efrem, Ben and Rodeo LP. The inconsistent identities
of the alleged contracting parties are not alternate legal theories, they are
alternate facts. Plaintiff pled two “antagonistic” sets of facts, which is not
a permissible method of pleading in the alternative. SUSTAINED with ten days
leave to amend.
Fraud
Fraud claims must
be pleaded with a higher level of particularity. Robinson Helicopter Co. v.
Dana Corp. (2004) 34 Cal.4th 979, 993. This means a plaintiff must plead
facts showing “how, when, where, to whom, and by what means” the alleged false
representations were made. Lazar v. Superior Ct. (1996) 12 Cal.4th 631,
645. This requirement is relaxed when the allegations “indicate that the
defendant must necessarily possess full information concerning the facts of the
controversy,” or “when the facts lie more in the knowledge of the defendant.” Orcilla
v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1008.
The fraud claim
details various false promises Efren allegedly made to Terry. FAC ¶¶95-98. It
does not clarify when, where or by what means these representations were made.
Although the opposition refers to the “factual background” portion of the FAC, it
is not clear which allegations are meant to support the fraud claim.
Plaintiff argues the
particularity standard for pleading fraud should be relaxed under Orcilla. The
allegations do not indicate “defendant must necessarily possess full
information” regarding the alleged misrepresentations. Additionally, since the
alleged misrepresentations were made directly to plaintiff, the facts do not
“lie more in the knowledge of the defendant.” Orcilla does not apply. SUSTAINED
with ten days leave to amend.
Breach of
Fiduciary Duty
To owe a fiduciary
duty, one must “knowingly undertake to act on behalf and for the benefit of
another or must enter into a relationship which imposes that undertaking as a
matter of law.” City of Hope Nat’l. Med. Ctr. v. Genentech, Inc. (2008)
43 Cal.4th 375, 386. A family
relationship can be evidence of a fiduciary relationship, but it does not, on
its own, impose a fiduciary duty. Knapp v. Knapp (1940) 15 Cal.2d 237,
242. The statute of limitations for a fraudulent breach of fiduciary duty is
four years; the statute for non-fraudulent breach is three years. American
Master Lease, LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1479.
A partner can
bring a direct action, rather than a derivative one, when alleging an injury
that is not solely the result of an injury suffered by the partnership. Cal.
Corp. Code §15910.01. A minority partner can bring a direct claim based on
allegations that the majority partner excluded other partners from the
transaction’s benefits. E.g., Everest Investors 8 v. McNeil Ptrs. (2003)
114 Cal.App.4th 411, 429.
Defendants argue
plaintiff alleges Summit ceased to be a general partner (so ceased to owe
plaintiff a fiduciary duty) on May 24, 2017. FAC ¶12. Defendants argue any
breaches before that date fall outside the statute of limitations. Plaintiff
alleges Summit’s violations “have only recently been discovered by Plaintiff,
within two years from Plaintiff’s original complaint[.]” FAC at ¶116. Plaintiff
adequately pleaded delayed discovery, so the claims are not time-barred.
Defendants argue plaintiff
has not adequately alleged a fiduciary relationship with Efrem and Aron, since
familial ties and business relationships are not, on their own, sufficient to
create a fiduciary duty. Plaintiff alleges Efrem and Aron had complete control
over plaintiff’s investment, were family members and business partners and knew
plaintiff reposed trust and confidence in them. FAC ¶114. None of these facts
independently is enough to create a fiduciary duty, but together are sufficient
to allege a fiduciary relationship for pleading purposes.
Defendants argue
all alleged breaches are vague, derivative or fall outside the statute of
limitations. Plaintiff alleges defendants forced a fire sale of the hotel and
failed to pay plaintiff his share of the proceeds. FAC ¶17. The sale occurred
in December 2021; refusal to pay plaintiff occurred in 2022. FAC ¶¶5-6. These
alleged breaches occurred within the statute of limitations, regardless of
whether the three-year or four-year statute applies. Plaintiff adequately
alleged a direct, rather than derivative claim. Defendants’ alleged withholding
of sale proceeds is not an injury to the partnership but a direct injury to
plaintiff’s financial interest. The claim is properly brought on a personal,
rather than derivative, basis. OVERRULED.
Aiding and
Abetting Breach of Fiduciary Duty
The knowledge and
acts of individuals alleged to own and control an entity are imputed to that
entity. Peregrine Funding, Inc. v. Sheppard Mullen Richter & Hampton LLP
(2005) 133 Cal.App.4th 658, 679.
Defendants argue
plaintiff does not specify how each defendant allegedly aided and abetted the
breach. Plaintiff alleges “[a]t the direction of Efrem and Aron Harkham, each
Defendant has also aided and abetted the foregoing breaches of fiduciary
duties,” but does not specify how they did so. The FAC contains no detail as to
what specifically Efrem and Aron allegedly directed their entities to do.
SUSTAINED with ten days leave to amend.
Conversion
A generalized
claim for money is not actionable as conversion; the amount involved must be
definite. PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil &
Shapiro, LLP (2007) 150 Cal.App.4th 384, 395. A mere contractual right of
payment, without more, will not suffice to support a cause of action for
conversion. Farmers Ins. Exch. v. Zerin (1997) 53 Cal.App.4th 4456, 452.
A cause of action for conversion can lie where a partner seeks to recover a
certain percentage of funds held by the defendant. SP Investment Fund I LLC
v. Cattel (2017) 18 Cal.App.5th 898, 907.
Defendants argue the
conversion claim is based on a generalized claim for money, not a specific sum.
The sum plaintiff seeks is identifiable based on his partnership share: 12.5%
of the sale price. FAC ¶32, 136, 140.
Defendants argue the
conversion claim restates the breach of contract claim. Plaintiff is not merely
alleging failure to make a contractual payment. According to the FAC, his
partnership share gave him a vested right to 12.5% of the sale price, which
defendants merely held in trust for him. Per SP Investment, a failure to
turn over partnership distributions held in trust can constitute conversion,
even when alleged alongside a breach of contract. SP Investment Fund, supra,
18 Cal.App.5th at 907. OVERRULED.
Penal Code §496
Under Penal Code
§496(c), plaintiff can recover treble damages against a party who knowingly
buys, receives, conceals or withholds stolen property.
Defendants argue
plaintiff has not adequately pleaded criminal intent or pleaded fraud with
sufficient particularity. This cause of action is derivative of plaintiff’s fraud
claim; the alleged criminal intent arises out of the fraudulent retention of
plaintiff’s partnership interest. Since fraud is not alleged with adequate
specificity, this cause of action also fails. SUSTAINED with ten days leave to
amend.
Implied Covenant of Good Faith and Fair Dealing
Plaintiff failed to adequately allege a contract. The cause of action
for breach of the implied covenant also fails. SUSTAINED with ten days leave to
amend.
Cal. Corp. Code §15903.04
§15903.04(a) allows a limited partner to inspect and copy information
maintained by the limited partnership. A general partner within a limited
partnership can be required to produce records to limited partners. McCain v. Phoenix Resources, Inc. (1986) 185 Cal.App.3d 575, 577.
Defendants argue this cause of action cannot proceed against Rodeo LLC,
since plaintiff admits it became a general partner in May 2017, and it is an
LLC, not a limited partnership. Additionally, defendants argue the complaint is
uncertain as to whether he holds an interest in Rodeo LP or in an unnamed
general partnership with Rodeo LP. The FAC alleges plaintiff is a limited
partner of Rodeo LP, and Rodeo LLC is general partner in that limited
partnership. Plaintiff’s allegation of an unnamed general partnership does not
defeat this cause of action, since it is a permissible alternative legal
theory, rather than a contradictory factual allegation. OVERRULED.
Dissolution
A cause of action for dissolution is proper when “it is not reasonably
practicable to carry on the activities of the limited partnership in conformity
with the partnership agreement.” Panakosta,
Partners, LP v. Hammer Lane Mgmt., LLC (2011) 199
Cal.App.4th 612, 628.
Defendants arguing it is uncertain because plaintiff refers to both
Rodeo LP and an “unnamed general partnership.” Demurrer at pg. 37. Pleading the
LP and the GP in the alternative is proper. Defendants argue plaintiff has not
adequately alleged the terms of the partnership agreement. The FAC alleges the
sole purpose of the partnership was to operate the hotel property. FAC
¶¶184-185. This is a sufficient allegation of the partnership’s purpose to
survive demurrer. OVERRULED.
Accounting
Defendants argue an accounting is not available against Efrem, Summit Hospitality
and Rodeo LLC, since they are entities separate from the partnership, and
plaintiff’s status as partner gives him no right to conduct an accounting of
their assets. The court agrees. Plaintiff has not adequately set forth why he
is entitled to an accounting from the other partners. SUSTAINED with ten days
leave to amend.
Declaratory Relief
When a cause of action for declaratory relief arises from the “same operative
facts” as other claims, and the “issues invoked were fully engaged by other
causes of action. Hood v. Superior
Ct. (1995) 33 Cal.App.4th 319, 324.
Defendants argue this cause of action is duplicative. Although it is
based on the same facts as the other causes of action, it is based on a
separate legal theory and seeks different relief. The other causes of action
seek damages for alleged wrongdoing in the past. This claim seeks a declaration
of plaintiff’s future partnership rights. OVERRULED.
Money Had and Received
To set forth a cause of action for money had and received a plaintiff
must show that a definite sum, to which he is justly entitled, has been
received by defendant. French v. Robbins (1916) 172 Cal.670, 679.
Defendants argue plaintiff has not alleged a “definite sum.” Plaintiff
alleged he is entitled to 12.5% of the profits from the sale of the hotel. This
is sufficiently definite for pleading purposes. OVERRULED.
Motion to Strike
Defendants’ motion to strike operates as a second demurrer and argues the
claims are time-barred. Plaintiff adequately pleaded delayed discovery,
alleging defendants acknowledged plaintiff’s partnership interests until 2022,
and plaintiff was not aware of alleged wrongdoing until the sale of the
property and defendants’ failure to share profits in 2022. FAC ¶¶7, 53, 64, 76.
DENIED.
Defendants argue plaintiff’s claims are derivative, not individual. Plaintiff
adequately alleged individual, rather than derivative, claims. DENIED.
Defendants argue allegations plaintiff has an ownership interest in the
property must be struck, since the FAC does not allege a signed writing, or
that plaintiff has any individual interest in the property, rather than an
interest in the partnership. The FAC does not allege plaintiff has a direct
interest in the property. Rather, it alleges that, as a partner, he has an
interest in the proceeds from sale of the property. DENIED.
Defendants move to strike conspiracy allegations. The allegations of
conspiracy are unclear and conclusory; the FAC does not specifically state what
each defendant agreed to do or how they furthered the agreement, lumping all
defendants together. GRANTED with ten days leave to amend.
Defendants move to strike allegations that Aron engaged in wrongdoing
in 1995, when he was an infant. The FAC does not specifically allege any
wrongdoing by Aaron at that time. DENIED.
Defendants move to strike plaintiff’s allegations against non-party
conspirators. Since these alleged conspirators are not parties, their actions
are not relevant, and the allegations must be struck. GRANTED.
Defendants move to strike the request for punitive damages. As plaintiff
failed to allege fraud, he has not sufficiently alleged malice or oppression.
There is no basis for punitive damages. GRANTED.