Judge: Gail Killefer, Case: 23STCV00626, Date: 2025-05-06 Tentative Ruling
Case Number: 23STCV00626 Hearing Date: May 6, 2025 Dept: 37
HEARING DATE: Tuesday, May 6, 2025
CASE NUMBER: 23STV00626
CASE NAME: Zahem Al Zahem, et al. vs. Asia
Top City, et al.
MOVING PARTY: Defendants Asia Top City LTD
and Marcos Vivian (aka Vivian de la Pedrosa)
OPPOSING PARTY: Plaintiffs Zahem Al Zahem, the
Estate of Subheyah Al Muqahwi through its administrator Ahmad Yousif Alomani,
Fahad Al Omani, Mossaffa LLC, Abdulaziz Ahmad Alghannam & Bros. Co. WLL,
Khalil Amioni, and Moudhi Alrefai, individually on behalf of themselves, and
derivatively on behalf of Marquez Pacific View, LLC
TRIAL DATE: Not Set
PROOF OF SERVICE: OK
PROCEEDING: Demurrer to First
Amended Complaint
OPPOSITION: 25 October 2024
REPLY: 32
October 2024
TENTATIVE: Defendants’ demurrer is overruled as to the
14th, 23rd, and 24th causes of action, and is otherwise sustained with leave to
amend. Plaintiffs are granted 10 days
leave to amend. The court sets the OSC RE: Amended Complaint for May 21, 2025, at
8:30 a.m., and continues the Case Management Conference to the same date and
time. Defendants to give notice.
Background
On January 11, 2023,
Zahem Al Zahem (“Zahem”), the Estate of Subheyah Al Muqahwi through its
administrator Ahmad Yousif Alomani (“Muqahwi”), Fahad Al Omani (“Omani”),
Mossaffa LLC (“Mossaffa”), Abdulaziz Ahmad Alghannam & Bros. Co. WLL
(“Alghannam”), Khalil Amioni (“Amioni”), and Moudhi Alrefai (“Alrefai”),
individually on behalf of themselves, and derivatively on behalf of Marquez
Pacific View, LLC (“MPV”) (collectively “Plaintiffs”) filed this action against
Asia Top City LTD (“Asia Top”), Marcos Vivian (aka Vivian de la Pedrosa)
(“Marcos”), and Michael James Kiely (“Kiely”) (collectively “Defendants”).
The operative First
Amended Complaint, filed January 22, 2025, alleges the following thirty causes
of action:
1)
Breach of Fiduciary Duty - against Asia Top, Marcos, and
Kiely – Derivatively;
2)
Breach of Fiduciary Duty -against Asia Top, Marcos, and Kiely
- Individually);
3)
Aiding and Abetting Breach of Fiduciary Duty -against Asia
Top, Marcos, and Kiely – Derivatively;
4)
Aiding and Abetting Breach of Fiduciary Duty – against Asia
Top, Marcos, and Kiely - Individually);
5)
Intentional Misrepresentation - against Asia Top, Marcos, and
Kiely - Derivatively);
6)
Intentional Misrepresentation - against Asia Top, Marcos, and
Kiely - Individually);
7)
Intentional Omission - against Asia Top, Marcos, and Kiely -
Derivatively);
8)
Intentional Omission - against Asia Top, Marcos, and Kiely -
Individually)
9)
Fraud In The Inducement - against Asia Top and Marcos -
Individually);
10) Negligent
Misrepresentation - against Asia Top, Marcos, and Kiely - Derivatively);
11) Negligent
Misrepresentation - against Asia Top, Marcos, and Kiely - Individually)
12) Breach of Operating
Agreement - against Asia Top – Individually;
13) Negligence - against
Asia Top, Marcos, and Kiely - Derivatively);
14) Negligence - against
Asia Top, Marcos, and Kiely - Individually);
15) Theft by False Pretenses
- against Asia Top and Marcos - Individually);
16) Corporate Waste -
against Asia Top, Marcos, and Kiely - Derivatively);
17) Abuse of Control -
against Asia Top and Marcos- Derivatively);
18) Unjust Enrichment -
against Asia Top, Marcos, and Kiely - Derivatively);
19) Unjust Enrichment -
against Asia Top, Marcos, and Kiely - Individually);
20) Legal Malpractice -
against Kiely - Derivatively);
21) Accounting - against
Asia Top - Derivatively);
22) Accounting - against
Asia Top and Marcos - Individually);
23) Declaratory Relief -
against Asia Top, Marcos, and Kiely - Derivatively);
24) Declaratory Relief -
against Asia Top, Marcos, and Kiely - Individually);
25) Injunctive Relief -
against Asia Top, Marcos, and Kiely - Derivatively);
26) Injunctive Relief -
against Asia Top, Marcos, and Kiely - Individually);
27) Unfair Business
Practices Against Asia Top, Marcos, and Kiely - Derivatively);
28) Unfair Business
Practices Against Asia Top, Marcos, and Kiely - Individually);
29) Breach of Mossaffa Loan,
Pledge Agreement and Failure to Repay Forbearance Payments - against Marcos, the Company and Asia Top –
Individually); and
30) Common Counts as to
Mossaffa Loan and Failure to Repay Forbearance Payments Marcos, the Company and
Asia Top – Individually.
Defendants now demur to
the FAC. Plaintiffs oppose the demurrer. The matter is now before the
court.
REQUEST FOR JUDICIAL
NOTICE
The court may take judicial notice
of records of any court of record of the United States. (Evid. Code, §
452(d)(2).) However, the court may only judicially notice the existence of the
record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6
Cal.App.4th 1548, 1565.)
Exhibit 1: The First
Amended Complaint filed in this case by Plaintiffs on January 22, 2025.
Exhibit 2: The
Court’s January 13, 2025 Ruling on Defendants’ Demurrer with Motion to Strike
to Plaintiffs’ Complaint.
Exhibit 3: The
Complaint filed in this action on January 11, 2023.
Defendants’ request for judicial
notice is granted.
LEGAL STANDARDS
A. Demurrer
A demurrer is an
objection to a pleading, the grounds for which are apparent from either the
face of the complaint or a matter of which the court may take judicial notice.
(CCP § 430.30(a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)¿“To
survive a demurrer, the complaint need only allege facts sufficient to state a
cause of action; each evidentiary fact that might eventually form part of the
plaintiff’s proof need not be alleged.”¿(C.A. v. William S. Hart Union High
School Dist. (2012) 53 Cal.4th 861, 872.)¿For the purpose of
testing the sufficiency of the cause of action, the demurrer admits the truth
of all material facts properly pleaded.¿ (Aubry v. Tri-City Hospital Dist. (1992)
2 Cal.4th 962, 966-967.)¿A demurrer “does not admit contentions, deductions or
conclusions of fact or law.”¿(Daar v. Yellow Cab Co. (1967) 67
Cal.2d 695, 713.)¿¿
“Where the defect raised by a motion to strike or by demurrer
is reasonably capable of cure, leave to amend is routinely and liberally
granted to give the plaintiff a chance to cure the defect in question.” (CLD
Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.)
The burden is on the complainant to show the Court that a pleading can be
amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿¿¿
I. Discussion
A. Summary of
Allegations in Complaint
Plaintiffs are the
minority member of MPV (the “Company”).
(FAC, ¶ 1.) Plaintiffs were introduced to Marcos around 2015 and enticed
Plaintiffs to invest in an undeveloped Pacific Palisades property (the “Property”).
(Id. ¶¶ 13, 14.) The FAC alleges that in July and August 2016, Marcos
presented the Plaintiffs with an inaccurate appraisal, no other parties had an
interest in the Property, and that the Plaintiffs’ investment would be used to
develop the Property and not diverted for other purposes. (Id. ¶¶ 15,
20.)
On September 1, 2016,
Plaintiffs invested approximately $4,500,000.00 (the “Investment”) into MVP and
became minority members. (FAC., ¶ 16.)
MPV’s Second Amended and Restated Operating Agreement (the “Operating
Agreement”), dated September 1, 2016 was entered amongst Asia Top (the managing
member), whose sole director is Marcos, and non-managing members, including
Plaintiffs. (Id. ¶ 16, Ex. A.) Pursuant to the Section 8.03 of the
Operating Agreement, “[t]he provisions of this Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.” (Id. Ex.
A, ¶ 8.03.)
Defendant Asia Top is
the manager of the Company, Marcos is the Chief Executive Officer of the
Company, and Defendant Kiely is the Vice President. (FAC ¶¶ 26 - 28.) Marcos
and Kiely would provide updates regarding the development of the Property and
“[s]everal years later” they informed Plaintiffs that additional capital
contribution of $7,500,000.00 was needed to complete the development. (Id.
¶ 18.)
Plaintiffs tried to
obtain accounting and information as to why the development of the Property was
not yet completed, and learned that Marcos had obtained a loan of $1.6 Million
from Vicino Limited Partnership (the “Vicino Loan”) which recorded a deed of
trust against the Property. (FAC, ¶ 19.) When Marcos told Plaintiff he could
not pay the Vicino Laon, Plaintiffs, through Mossaffa, LLC, lent Asia Top $233,000.00
(the “Mossaffa Loan”). (Ibid. Ex. B, C.) Defendants never paid the Mossaffa
Loan and it remains in default. (Ibid.) Plaintiffs also paid $400,000.00
in forbearance fees for the Company related to the Vicino Loan that have not
been repaid despite Marcos, Asia Top, and the Company’s promise to do so. (Ibid.)
In 2020, Plaintiffs
learned through another action, Powers v. Vivian, et al. (LASC Case No.
19STCV40987), that Steven Powers claimed to have an interest in the Property
since 2013 and that this was not disclosed to Plaintiffs. (FAC, ¶ 20.) Moreover,
Marcos has refused to provide the Company’s books and records (Id. ¶
20.)
Defendants now demurrer to the 1st, 3rd, 4th, 5th, 7th, 10th,
13th, 14th, 16th, 17th, 18th, 21st, 23rd, 24th, 25th, and 27th
causes of action.
B. Failure to Particularly Allege Compliance with Pre-Suit
Demand Requirement
Defendants demur to the 1st, 3rd, 5th, 7th, 10th, 13th, 16th -
18th, 20th -21st, 23rd, 25th, and 27th causes of action on the basis that the
pre-litigation demand is not properly pled.
Court of Chancery Rule 23.1 implements the substantive demand
requirement at the pleading stage by mandating that derivative complaints
“allege with particularity the efforts, if any, made by the plaintiff to obtain
the action the plaintiff desires from the directors or comparable authority and
the reasons for the plaintiff's failure to obtain the action or for not making
the effort.” To comply with Rule 23.1, the plaintiff must meet “stringent
requirements of factual particularity that differ substantially from ...
permissive notice pleadings.” When considering a motion to dismiss a
complaint for failing to comply with Rule 23.1, the Court does not weigh the
evidence, must accept as true all of the complaint's particularized and
well-pleaded allegations, and must draw all reasonable inferences in the
plaintiff's favor.
(United Food and Commercial Workers Union and Participating
Food Industry Employers Tri-State Pension Fund v. Zuckerberg (Del. 2021)
262 A.3d 1034, 1048 (United Food) [food note omitted].)
The FAC alleges that Plaintiffs served a demand on Defendants on
December 17, 2021 (the “Derivative Demand”) stating that Defendants “have
committed breaches of fiduciary duty, fraud, unfair business practices,
breaches of contract, and other improper and illegal activities both as to the
Minority Members individually and as to the Company.” (FAC, ¶ 23, Ex. E.)
Your clients [Asia Top City LTD (“Asia Top”) and Marcos Vivian
(“Vivian”)], among other things, have breached the Company’s operating
agreement, misappropriated funds, misrepresented the use of funds,
misrepresented the value of the Sunset project, mispresented their ability to
complete the Sunset project, misrepresented the costs of the Sunset project,
misrepresented other material information related to the Sunset Project, used
the Company’s assets for projects unrelated to the Sunset project and encumbered
the same, engaged in a transaction with Steven Powers which was undisclosed,
failed and refused to account for any of funds invested into the Company by the
Minority Members, and failed to make the Company’s books and records available.
We have previously demanded that your clients cure such acts, omissions, and
breaches, provide an accounting, and make available or produce the Company’s
books and records, but your clients have failed and refused to do so. This is a
final demand, which we believe will be futile based on your clients past lack
of response, but your clients have three (3) business days from the date of
this notice to cure the breaches and present evidence to the satisfaction of
the Minority Members that your clients have the money to complete the Sunset
project and actually commence paying the professionals to move forward with
said project or, alternatively, refund all of the funds invested by the
Minority Members with interest at the legal rate. This is a demand letter with
regard to a derivative action as to the claims that the Minority Members have
outlined above, which will be commenced if your clients do not cure the above
issues.
(FAC, Ex. E.)
“By making a demand, a
stockholder tacitly acknowledges the absence of facts to support a finding of
futility.” (Spiegel v. Buntrock (Del. 1990) 571 A.2d 767, 775.) “A
shareholder who makes a demand can no longer argue that demand is excused.” (Id.
at p. 775.) “The effect of a demand is to place control of the derivative
litigation in the hands of the board of directors.” (Ibid.) “The
plaintiff in this action did not make a pre-suit demand. Thus, the question
before the Court is whether demand is excused as futile.” (United Food, supra,
(Del. 2021) 262 A.3d at p. 1048.)
Because the FAC states
that a demand was made, Plaintiffs cannot allege that a demand to Defendants would have been futile. Instead,
Plaintiffs must make “particularized allegations which would raise a reasonable
doubt that the Board's decision to reject the demand was the product of a valid
business judgment.” (Grimes v. Donald (Del. 1996) 673 A.2d 1207, 1220
overruled in part on other grounds by Brehm v. Eisner (Del. 2000) 746
A.2d 244.) “[A] board has no obligation to take any specific type of action to
comply with a demand under Rule 23.1. The board may, for example, ignore the
demand ... if, in the exercise of its good faith judgment ... the corporation's
interests would be served thereby.” (Schick Inc. v. Amalgamated Clothing and
Textile Workers Union (Del. Ch. 1987) 533 A.2d 1235, 1240 (Schick).)
Therefore, the burden is on Plaintiffs to allege facts showing that the
Defendants’ decision not to respond or comply with the Derivative Demand was
not a valid exercise of business judgment.
The FAC alleges that
while the demand was received by Defendants, no action was taken by Defendants
to address the demands. (FAC, ¶ 23.) “Marcos is solely in control of the
Company” and “the Company’s lawyers are being funded and paid for by
Marcos/Asia Top such that they are incapable of exercising any independent
advice and judgment to the Company.” (Ibid.) “Moreover, there is no
board or any other management person independent of Marcos and Asia Top that
can influence or meaningfully and independently review the claims of the
Minority Members.” (Ibid.) “The wrongful actions taken by Marcos, Asia
Top and Kiely, have not been cured as of this date, which is why the instant
action has been filed and any further demands are futile under these
circumstances.” (Ibid.)
The FAC focuses on why a
response to the December 17, 2021, Derivative
Demand would have been futile, instead of why the failure to respond is not in
a valid exercise of business judgment. The focus of a pre-litigation demand is
whether Defendants had “a legal obligation to comply with it.” (Schick Inc., supra,
Del. Ch. 1987) 533 A.2d at p. 1240.) In other words, Plaintiffs fail to explain
with particularity why Defendants’ failure to respond or comply with the
Derivative Demand was not a valid exercise of business judgment.
Here, the Operating
Agreement sets out the Parties’ obligations. Section 1.04 expressly allows the
Parties to engage in outside activities and imposes no fiduciary obligations on
its members. (FAC, Ex. A, § 1.04.) Section 2.02 of the Operating Agreement express
states that “[e]xcept as provided in Section 2.02 below, the Managing Member
shall have the full and complete charge of all affairs of the Company, and the
management and control of the Company’s business (including all
decision-making) shall rest exclusively with the Managing Member subject to the
terms of this Agreement.” (FAC, Ex. A.)
Therefore, the court
fails to see what obligated the Defendants to respond or comply with the
Derivative Demand such that Plaintiffs may proceed with the derivative action.
Thus, the demurrer to the 1st, 3rd, 5th, 7th, 10th, 13th,
16th - 18th, 20th -21st, 23rd, 25th, and 27th causes of action is sustained with leave to amend.
While the court sustains the demurrer to the 1st, 3rd, 5th, 7th, 10th, 13th, 16th - 18th, 20th -21st, 23rd,
25th, and 27th causes of action on the basis that the pre-suit demand is not
properly pled, for the sake of judicial economy, the court also addresses
Defendants’ other basis for demurring to the FAC:
i. 5th, 7th, and
10th Causes of Action Violate the Sham Pleading Doctrine
Defendants' demurrer to the 5th, 7th, and 10th causes of action asserts
that those claims violate the sham pleading doctrine by alleging that the
misrepresentations at issue were made to the Company (Asia Top City) rather
than the individual Plaintiffs.
“[T]he policy against sham pleading permits the court to take
judicial notice of the prior pleadings and requires that the pleader explain
the inconsistency. If he fails to do so the court may disregard the
inconsistent allegations and read into the amended complaint the allegations of
the superseded complaint.” (Owens v. Kings Supermarket (1988) 198
Cal.App.3d 379, 384.) “Plaintiffs therefore may avoid the effect of the sham
pleading doctrine by alleging an explanation for the conflicts between the
pleadings.” (Larson v. UHS of Rancho Springs, Inc. (2014) 230
Cal.App.4th 336, 344.) The purpose of the sham pleading doctrine is to prevent
the abuse of process but it is “ ‘not intended to prevent honest complainants
from correcting erroneous allegations ... or to prevent correction of ambiguous
facts.’ [Citation.]” (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th
408, 426.)
The 5th cause of action in the original Complaint alleges that
.Defendants, and each of them, represented to the Minority Members that certain
facts were true and correct, as evidenced by the Pre-Investment
Misrepresentations and Project Status Breach and Misrepresentations.” (Compl.,
¶ 58.) However, the FAC now asserts that the misrepresentations were made “to
the Company and its investors” without an explanation for the change. (FAC, ¶
58.)
The 7th cause of action in the original Complaint similarly states
that the intentional omissions were made “to the Minority Members, as evidenced
by Defendants’ failure to keep the Minority Members apprised of the true status
of the Project.” (Compl., ¶ 79.) The FAC now asserts that the omissions were
made “to the Company” without explanation as to why the allegation was changed.
(FAC, ¶ 79.)
As Plaintiffs fail to explain why allegations as to whom the
misrepresentations or omissions were made are inconsistent, the court finds
that Plaintiffs violated the sham pleading doctrine as to the 5th, 7th, and
10th causes of action.
The court also agrees that the FAC fails to explain why the
Company, rather than Plaintiffs, individually, was harmed by the alleged
omissions or misrepresentations such that a derivative action is proper. “[T]he initial step of
ascertaining whether a complaint alleges direct or derivative claims is
uncontroverted and quite practical. This Court should look to the ‘nature of
the wrong alleged’ and ‘the relief, if any, which could result if [the]
plaintiff were to prevail.’ ” (Agostino v. Hicks (Del. Ch. 2004) 845
A.2d 1110, 1121[footnotes omitted].) Here, the injury to both Plaintiffs
individually and the Company is the same, as is the injury, such that the court
is not persuaded that a derivative action is proper.
ii. 1st, 13th, 16th, 17th
and 18th Cause of Action - Failure to Distinguish between “Direct” and
“Derivative” Claims
Defendants’ demurrer to the 1st, 13th, 16th, 17th, and 18th causes
of action also asserts that Plaintiffs fail to explain why the injury related
to “wrongful actions” as defined in Paragraph 29 resulted in a harm to the
Company rather than individual harm to Plaintiffs. (FAC, ¶¶ 29, 137, 163, 170,
177.) The court agrees and instructs Plaintiffs to explain how Defendants’
alleged misconduct resulted in an injury to the Company. (Motion, at p.
11:17-12:25.) Conclusory allegations of damages will not suffice. A demurrer “does not admit contentions,
deductions or conclusions of fact or law.”
(Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)
C. 3rd and 4th Causes of Action - Aiding and Abetting Breach of
Fiduciary Duty (Derivatively & Individually)
The 1st and 2nd causes of action allege that Defendants Asia Top,
Marcos, and Kiely owed Plaintiffs and the company a fiduciary duty. (FAC, ¶¶
24, 41.) Specifically, Asia Top as the manager of the Company, and Marcos, as
the chief executive officer, owed the Company and Plaintiffs fiduciary duties
as a matter of law. (Id. ¶¶ 26, 27, 35, 36.) The 3rd and 4th causes of
action are plead in the alternative, “in the event that Asia Top, Marcos,
and/or Kiely are determined not to owe fiduciary duties to the Company” or “to
the Minority Members,” collectively referred to as the “Alternative
Non-Fiduciary Defendants.” (Id. ¶¶ 44, 51.) “Alternative Non-Fiduciary Defendants, and
each of them, knew that the unlawful conduct constituted breaches of the
fiduciary duties owes by at least one of Asia Top, Marcos, and/or Kiely and
gave substantial assistance in consummating the unlawful conduct and encouraged
and facilitated the same.” (Id. ¶¶ 45, 52.)
Defendants demur to the 3rd and 4th causes of action because they
are ambiguous and uncertain as “Defendants cannot practically respond to causes
of action which do not allege what fiduciary duties are being alleged against
any individual or entity.” (Motion at p. 13:14-15.) The 3rd and 4th causes of
action also fail to state what assistance or encouragement each defendant
rendered to the party owing a fiduciary duty, such that they are liable for
aiding and abetting.
“A third party may be liable for aiding and abetting a breach of a
corporate fiduciary's duty to the stockholders if the third party ‘knowingly
participates’ in the breach.” (Malpiede v. Townson (Del. 2001) 780 A.2d
1075, 1096.) “[T]he complaint must allege facts that satisfy the four elements
of an aiding and abetting claim: ‘(1) the existence of a fiduciary
relationship, (2) a breach of the fiduciary’s duty, ... (3) knowing
participation in that breach by the defendants,’ and (4) damages proximately
caused by the breach.” (Id. at p. 1096.)
“It is the aider and abettor that must act with scienter.”
(RBC Capital Markets, LLC v. Jervis (Del. 2015) 129 A.3d 816, 862
[italics original].) “To establish scienter, the plaintiff must
demonstrate that the aider and abettor had ‘actual or constructive knowledge
that their conduct was legally improper.’ Accordingly, the question of whether
a defendant acted with scienter is a factual determination.” (Ibid.
[italics original] [footnote omitted].)
While Plaintiffs are not required to prove their allegations at
the pleading stage, they must nevertheless state sufficient facts to support a
claim for aiding and abetting against each Defendant.
Here, the 3rd and 4th causes of action fail to state how each
Defendant knowingly participated in the breach of fiduciary duty. “[F]acts not
alleged are presumed not to exist.” (Schick v. Lerner (1987) 193
Cal.App.3d 1321, 1327.) Specifically, the FAC fails to state how each Defendant
aided and abetted in the wrongful conduct, which included but was not limited
to “the Project Status Breach and Misrepresentations, the Records Breach, the
Loan Breach, the Failure to Account Breach, the Non-Disclosure Breach, and the
Waste Breach.” (FAC, ¶ 29.)
The conclusory allegation that “at least one of Asia Top, Marcos,
and/or Kiely and gave substantial assistance in consummating the unlawful
conduct and encouraged and facilitated the same” fails to allege facts showing how
each Defendant had actual or constructive knowledge of the breach and owed
a duty to both Plaintiffs and the Company to disclose knowledge of the breach.
(Id. ¶¶ 45, 52.) Conclusory allegations, with no specific fact are
insufficient to survive a demurrer. (See Bagatti v. Department of Rehabilitation
(2002) 97 Cal.App.4th 344, 366, fn. 8.)
Therefore, the demurrer to the 3rd and 4th causes of
action is sustained with leave to amend.
D. 13th and 14th Causes of Action – Negligence (Derivatively
& Individually)
Defendants demur to the 13th and 14th causes of action on the
basis that Section 2.06 of the Operating Agreement exempts Defendants Asia Top
and Marcos from liability for claims of ordinary negligence. (FAC, Ex. A, §
2.06 [““No Member (nor any officer of the Company designated pursuant to
Section 2.06) shall be liable or accountable in damages to the Company or to
the other Members for any error of judgment or any mistake of fact or
law…except in the case of willful misconduct or gross negligence.”].) “The Delaware Limited
Liability Company Act (the ‘LLC Act’) authorizes a limited liability company
agreement to modify the duties (including fiduciary duties) that a member,
manager, or other person otherwise would owe under common law.” (Cygnus
Opportunity Fund, LLC v. Washington Prime Group, LLC (Del. Ch. 2023) 302
A.3d 430, 445; see 6 Del. Code, § 18-1101(c).)
The FAC asserts that Defendants acted with “willful and wanton
disregard” and engaged in an “extreme departure from the ordinary standard of
care,” by “partaking in the Wrongful Actions.” (FAC, ¶¶ 137, 138, 139, 147,
148, 149.)
Defendants assert that “partaking in the Wrongful Actions” cannot
constitute gross negligence because the same conduct complained off, the
“Wrongful Actions”, are used to assert claims for breach of fiduciary duty,
corporate waste, and abuse of control, such that they are duplicative causes of
action and add nothing to the pleading and should be dismissed. (FAC, ¶¶ 29,
28, 163, 170.) Defendants fail to cite any proper legal authority for this
proposition. Defendants rely on Lipman v. GPB Capital Holdings LLC (Del.
Ch., Nov. 18, 2020, No. CV 2020-0054-SG) 2020 WL 6778781, at *14, which is an
unpublished opinion with no precedential value and where the court found that
“[t]he declaratory judgment count is thus duplicative of the breach of
fiduciary duty counts.”
The FAC alleges that Defendant acted willfully and wantonly by
taking out the “the Vicino Loan and using the funds to pay Defendants’ personal
expenses” and “attaching a deed of trust against Company’s Property to pay off
personal loans is unreasonable and dangerous and an ordinary prudent person
knows that such conduct is highly probable to harm Company and Minority
Members.” (FAC, ¶ 148.) Defendants also acted willfully and wantonly by hiding
from Plaintiffs the fact that Steven Powers has acquired an interest in the
Property that jeopardized Plaintiffs’ interest in the Property and Project in
which they had invested significant amounts of money. (Id. ¶ 149.)
The Court of Chancery of Delaware has “has interpreted ‘willful
misconduct’ as ‘intentional wrongdoing, not mere negligence, gross negligence
or recklessness,’ but which involves either malicious conduct or ‘conduct
designed to defraud or seek an unconscionable advantage.’ ” (Cygnus
Opportunity Fund, LLC v. Washington Prime Group, LLC (Del. Ch. 2023) 302
A.3d 430, 463.) “When determining ‘whether an actor engaged in willful
misconduct at the pleading stage, ‘the trial court must draw reasonably
conceivable inferences in favor of the plaintiff based on what the allegations
of the complaint suggest, recognizing that it may be virtually impossible for a
plaintiff to sufficiently and adequately describe the defendant's state of mind
at the pleading stage.’ ” (Ibid.)
Here, the court finds that the allegation that Defendants took out
a loan to pay for their personal expenses is sufficient to support a claim for
gross negligence. (Fac, ¶ 149.) Therefore, the demurrer to the 14th cause of
action is overruled.
E. 23rd and 24th Causes
of Action for Declaratory Relief (Derivatively & Individually)
Defendants demur to the 23rd and 24th causes of action on the
basis that the declaratory relief claims seek the same relief as the remaining
causes of action.
A declaratory judgment “is a statutory action” and so “is
meant to provide relief in situations where a claim is ripe but would not
support an action under common-law pleading rules.” It follows, then, that
there is no need for a declaratory judgment where a claimant does have recourse
to the common law. Put differently, where a claimant merely has
repackaged in the language of a declaration an adequately-pleaded affirmative
count, the “declaration” is duplicative and not viable. Indeed, a duplicative
declaration “does not add anything” but, instead, counteracts the
efficiency-based rationale animating declaratory judgment jurisdiction. Accordingly,
to survive dismissal, a declaratory count must be “distinct” from the
affirmative counts in the complaint such that a decision on the affirmative counts
would not resolve the declaratory count.
(Blue Cube Spinco LLC
v. Dow Chemical Company (Del. Super. Ct., Sept. 29, 2021, No.
CVN21C01214PRWCCLD) 2021 WL 4453460, at *15 [foot notes omitted].)
Plaintiffs seek a judicial action as to the following:
A.
Asia Top should be removed as
the manager of the Company and Marcos removed as CEO and replaced by a neutral
third-party referee/receiver selected by the parties mutually or the Court;
B.
Due to the Wrongful Actions
that the Defendants have materially breached, and have wrongfully and
anticipatorily repudiated, the Operating Agreement;
C.
That the Minority Members are
entitled to an accounting of the income and expenses and assets of the Company
and the Nalin Dr. project;
D.
That Asia Top, Marcos and Kiely
cannot use the Company or its assets to satisfy and/or pay their personal
obligations or divert monies or assets from the Company;
E.
That various transactions
related to the Company to which the Defendants assert the Company has agreed
are invalid and unenforceable against Company and the Minority Members’
interest therein-including but not limited to any transactions with Mr. Powers that
purported to give him an interest in the Company, Property or Project; and
F.
That Asia Top, Marcos and Kiely
must return monies or assets wrongfully diverted from the Company.
G.
In the alternative, Due to the
Wrongful Actions that the Defendants are liable for a refund of the investments
made by the Minority Members and that the investment be rescinded upon receipt
of the funds invested
(FAC, ¶¶ 211(A)-(F), ¶ 217(G).)
“Declaratory relief operates prospectively to declare future
rights, rather than to redress past wrongs.” (Canova v. Trustees of Imperial
Irrigation Dist. Employee Pension Plan (2007) 150 Cal.App.4th 1487, 1497 (Canova).)
“Where, as here, a party has a fully matured cause of action for money, the
party must seek the remedy of damages, and not pursue a declaratory relief
claim.” (Ibid.) “ ‘The declaratory relief statute should not be used for
the purpose of anticipating and determining an issue which can be determined in
the main action. The object of the statute is to afford a new form of relief
where needed and not to furnish a litigant with a second cause of action for
the determination of identical issues.’ ” (Id. at p. 324.)
While the court agrees that some of Plaintiffs’ requests for declaratory
relief seek redress for past wrongs rather than a declaration of the Parties’
future rights and obligations, the court cannot sustain a demurrer to part of a
cause of action. “A demurrer cannot rightfully be sustained to part of a cause
of action or to a particular type of damage or remedy.” (Kong v. City of
Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047.)
The request for declaratory relief seeks the removal of Asia Top
as the manager of the Company and the removal of Marcos as the CEO, and a
determination that Asia Top, Marcos, and Kiley cannot use Company assets to
satisfy their personal obligations or divert funds. Plaintiffs also request
that “All of the design professional documents, plans, surveys and other
materials related to the Property should be turned over to the Minority
Members.” (FAC, ¶ 218(F).) Defendants fail to explain what cause of action in
the FAC already provides Plaintiffs with the relief requested above, such that
the court can find that both the 23rd and 24th cause of action are entirely duplicative
of other causes of action alleged in the FAC.
Therefore, the demurrer to the 23rd and 24th cause of action is
overruled.
Conclusion
Defendants’
demurrer is overruled as to the 14th, 23rd, and 24th causes of action, and is
otherwise
sustained with leave to amend. Plaintiffs
are granted 10 days leave to amend. The
court
sets the OSC RE: Amended Complaint for May 21, 2025, at 8:30 a.m., and
continues the
Case
Management Conference to the same date and time. Defendants to give notice.
[1]
Pursuant to CCP §§ 430.41 and 435.5(a), the meet
and confer requirement has been met. (Tragish Decl. ¶¶ 2, 3.)