Judge: Frank M. Tavelman, Case: 24BBCV00309, Date: 2024-09-20 Tentative Ruling

Case Number: 24BBCV00309    Hearing Date: September 20, 2024    Dept: A

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

MOTION FOR SANCTIONS

NOTICE:

The Court is not requesting oral argument on this matter.  The Court is guided by California Rules of Court, Rule 3.1308(a)(1) whereby notice of intent to appear is requested.  Unless the Court directs argument in the Tentative Ruling, no argument is requested and any party seeking argument should notify all other parties and the court by 4:00 p.m. on the court day before the hearing of the party’s intention to appear and argue.  The tentative ruling will become the ruling of the court if no argument is received.  

Notice may be given either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.

ALLEGATIONS: 

Anat Group, Inc. (Plaintiff) brings this action against GT Live LLC (Defendant). Plaintiff alleges that Defendant entered into a contract whereby Defendant would lease space from Plaintiff to operate a recreational cannabis production operation. Plaintiff alleges that Defendant’s improperly sold cannabis using Plaintiff’s license, thereby accruing a large sum of unpaid taxes from those sales on Plaintiff’s behalf.

Before the Court is a motion for sanctions brought by Defendant pursuant to C.C.P. § 128.7. Defendant argues that Plaintiff’s Complaint is frivolous such that no reasonable person could have filed it. Defendant requests the Court issue an order striking the Complaint, dismissing the action with prejudice, and awarding Defendant’s counsel $11,685.00 in sanctions incurred from filing this motion. Plaintiff opposes the motion. Defendant has rendered no reply.

ANALYSIS: 

I.                    LEGAL STANDARD 

C.C.P. § 128.7 states that a court may impose sanctions on a party or attorney that presents a pleading, petition, motion, or other similar papers that does not meet the following criteria:

(1)   It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

(2)   The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.

(3)   The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.

(4)   The denials of factual contentions are warranted on the evidence or, if specifically, so identified, are reasonably based on a lack of information or belief.

(C.C.P. § 128.7(b)(1)-(4).)

Further, under C.C.P. § 128.7, a court may impose sanctions if it concludes a pleading was filed for an improper purpose or was indisputably without merit, either legally or factually. (Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 189-190.) A claim is factually frivolous if it is "not well grounded in fact" and is legally frivolous if it is "not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law." (Id.) In either case, to obtain sanctions, the moving party must show the party's conduct in asserting the claim was objectively unreasonable. (Id.) A claim is objectively unreasonable if "any reasonable attorney would agree that [it] is totally and completely without merit." (Id.) However, "section 128.7 sanctions should be made with restraint and are not mandatory even if a claim is frivolous." (Peake v. Underwood (2014) 227 Cal.App.4th 428, 448 [internal citations and quotation marks omitted].)

Under C.C.P. § 128.7, a court "may issue sanctions, including . . . terminating sanctions against a party for filing a complaint that is legally or factually frivolous." (Kumar v. Ramsey (2021) 71 Cal.App.5th 1110, 1120.)

II.                 MERITS

Defendant contends that the Complaint against them is frivolous to the point that bringing the action against them is unreasonable. Defendant’s primary argument is that the allegations of the Complaint in this matter are directly contradictory to the allegations in a previous proceeding brought by Plaintiff. To assess the veracity of these claims, the Court finds a summary of the previous proceedings is necessary.

Plaintiff states that, in September 2023, they received a notice from the California Department of Tax and Fee Administration (CDTFA). (Weiss Decl. ¶ 1.) Through this notice, Plaintiff learned that it would need to file a lawsuit against the CDTFA to dispute the collection of cannabis taxes allegedly accrued under Plaintiff’s cannabis license. (Id.) Plaintiff’s counsel states that they had less than 72 hours to file this suit. (Weiss Decl. ¶ 2.) Plaintiff’s counsel states that the Complaint filed in the action against the CDTFA was based on his firm’s knowledge of the situation at the time and was designed to place a hold on the CDTFA’s collection efforts. (Id.)

On October 10, 2024, Plaintiff filed his Complaint against the CDFTA in Los Angeles County Superior Court. (Wolfenzon Decl. Exh. A.) The CDFTA thereafter filed a demurrer. (Wolfenzon Decl. Exh. B.) On January 2, 2024, Plaintiff voluntarily dismissed the action against the CDFTA. (Wolfenzon Decl. ¶ 2; Weiss Decl. ¶ 3.) Plaintiff represents that they are currently going through the CDTFA appeals process. (Weiss Decl. ¶ 3.)

Defendant’s position in bringing the instant motion is based on the contents of Plaintiff’s Complaint against the CDFTA. Specifically, Defendant argues that the following allegations in Plaintiff’s CDTFA Complaint render his current allegations barred by judicial estoppel:

In December 2020, Weiss, Ted, and Maria met with Pelleg, ANAT's representative, in Hidden Hills, California. During the meeting, ANAT entered into an agreement with Defendants whereby GTL would operate out of ANAT's business location and distribute its cannabis using ANAT's license, so long as Weiss, Ted, and Maria: (a) caused GTL to properly report all cannabis sales it made to the City, CDTFA, and DCC; (b) pay all taxes associated with the use of ANAT's license; and (c) pay any and all license related expenses (the “Agreement”).

Pursuant to the Agreement, GTL began operating out of the Property and distributing cannabis under ANAT's license beginning in January of 2021.

(Wolfenzon Decl. Exh. A, ¶¶ 16-17 [emphasis added].)

Defendant argues that the above allegations are inconsistent with similar allegations of the Complaint in this case which read as follows:

In December 2020, Weiss, Ted, and Maria met with Roy Pelleg ("Pelleg"), a representative of AGI, in a house in Hidden Hills, California. During the meeting, AGI entered into an oral agreement with Defendants whereby GTL would lease a portion of the Property for an initial period of six months, during which period GTL would operate independently of AGI and would operate under its own cannabis distribution license (the "Lease Agreement"). The parties agreed that GTL will pay the sum of $ 15,000 per month for its space at the Property.

(Compl. ¶ 37.)

Essentially Defendant argues that Plaintiff should be estopped from alleging that Defendant was to operate under its own cannabis license because Plaintiff previously alleged that Defendant was to operate under Plaintiff’s license.

Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position at an earlier tribunal or proceeding, and then later seeking an advantage by taking a clearly inconsistent position at a later tribunal or proceeding. (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 422.) A general demurrer based on judicial estoppel may be properly sustained where the facts alleged or judicially noticed show that the plaintiff is asserting a position inconsistent with a position she previously asserted before a tribunal, and that the first position was accepted by the first tribunal. (Swahn Group, Inc. v. Segal (2010) 183 Cal.App.4th 831, 843-844.)

Factors supporting a determination that judicial estoppel should apply to bar a party from making certain claims in a subsequent suit are:

(1)   the same party has taken two positions;

(2)   the positions were taken in judicial or quasi-judicial administrative proceedings;

(3)   the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true);

(4)   the two positions are totally inconsistent; and

(5)   the first position was not taken as a result of ignorance, fraud, or mistake.

(International Engine Parts, Inc. v. Feddersen & Co. (1998) 64 Cal.App.4th 354, 352; see Eng v. Brown (2018) 21 Cal.App.5th 675, 701; see also Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 132, 133 [these factors are neither inflexible nor exhaustive, and the trial court's applicability of the doctrine is highly discretionary, even where all five factors are present].)

The Court finds Defendant’s argument with respect to judicial estoppel to be unpersuasive. First, the Court finds that judicial estoppel on these grounds generally requires factual findings which are insufficiently addressed in a motion brought under C.C.P. § 128.7. Judicial estoppel is necessarily a fact-based inquiry, requiring the Court to determine whether the arguments of the parties are supported by substantial evidence. (Kelsey v. Waste Management of Alameda County (1999) 76 Cal. App. 4th 590, 597.) Courts have been loath to apply judicial estoppel even in the context of motions for summary judgment because those motions concern the existence of triable facts and not the validity of facts. (Id.) Here, the Court has been presented with no facts upon which to determine whether Defendant was to operate under their own cannabis license or operate under Plaintiff’s license. Without such a factual determination, the Court cannot declare that Plaintiff was unreasonable in bringing the current action.

Further, the Court finds that the allegations made in the CDTFA matter were not adopted by the prior tribunal as true. It appears that Plaintiff voluntarily dismissed his Complaint before the CDTFA matter could proceed past the pleadings stage. Nothing in the record supports that the court in the CDTFA matter accepted Plaintiff’ allegations as to the contract to be true. Judicial estoppel requires that the party to be estopped “‘was successful in  asserting the first position (i.e., the tribunal adopted the position or accepted it as true).’” (Metabyte, Inc. v. Technicolor S.A. (2023) 94 Cal. App. 5th 265, 282 citing Aguilar v. Lerner (2004) 32 Cal.4th 974, 986).

Lastly, nothing in the record indicates that Plaintiff’s bringing the instant action was the result of intentional wrongdoing or attempt to gain unfair advantage. (See Miller v. Bank of America, N.A. (2013) 213 Cal.App.4th 1, 10 [holding that judicial estoppel can apply to parties' contradictory positions only in rare situations where litigants made an egregious attempt to manipulate the legal system.].) Here, Plaintiff’s counsel has submitted a sworn declaration that the CDTFA matter was only filed as a precautionary measure to protect Plaintiff from allegedly improper collections. (Weiss Decl. ¶ 2.) Plaintiff’s counsel further stated that it filed the CDTFA complaint without full information due to the time constraints. (Id.) The inferences to be drawn from these statements are that the alleged inconsistencies in Plaintiff’s current Complaint are likely the result of his counsel operating with more complete information. Defendant has presented no evidence to the contrary or any other evidence which would suggest impropriety in bringing this action on Plaintiff’s part.

In short, Defendant has failed to demonstrate many of the key elements required to justify the application of judicial estoppel in this case. The Court does not view the filing of this action to be frivolous, much less unreasonable to the extent required to grant sanctions under C.C.P. § 128.7.

Accordingly, Defendant’s motion for sanctions is DENIED.

Plaintiff’s Sanction Request

Under C.R.C. Rule 8.276(a)(3), the Court may impose sanctions on a party for filing a frivolous motion. A motion is frivolous if any reasonable attorney would agree the motion is totally devoid of merit. (See Workman v. Colichman (2019) 33 Cal.App.5th 1039, 1062.) A motion is totally devoid of merit if there are "no unique issues, no facts that are not amenable to easy analysis in terms of existing law, and no reasoned argument by [the movant] for an extension of existing law." (Westphal v. Wal-Mart Stores, Inc. (1998) 68 Cal.App.4th 1071, 1081.) We impose sanctions "sparingly" and "to deter only the most egregious conduct." (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 651.)

The Court declines Plaintiff’s request to grant sanctions. While the Court is unpersuaded by Defendant’s reasoning, it does not follow that the motion was entirely without merit. The Court does express concern that Defendant chose to present their arguments in the context of a motion for sanctions under C.C.P. § 128.7. As discussed above, judicial estoppel at the pleading stage of litigation is typically presented in the context of a demurrer and based on judicially noticeable facts. Defendant’s choice to present these arguments in the context of a dispositive motion seeking $11,685.00 may not have been persuasive to the Court, but it was not egregious to the point that the motion is entirely frivolous, This being said, this Court is not shy in awarding sanctions where the basis for them exists. The Court admonishes Defendants and cautions them to proceed appropriately. 

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RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records. 

ORDER 

GT Live LLC’s Motion for Sanctions came on regularly for hearing on September 20, 2024, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows: 

THE MOTION FOR SANCTIONS IS DENIED. 

UNLESS ALL PARTIES WAIVE NOTICE, DEFENDANT GT LIVE LLC TO GIVE NOTICE.

IT IS SO ORDERED. 

DATE:  September 20, 2024                          _______________________________ 

                                                                        F.M. TAVELMAN, Judge 

Superior Court of California 

County of Los Angeles