Judge: Gail Killefer, Case: 23STCV18559, Date: 2024-04-18 Tentative Ruling
Case Number: 23STCV18559 Hearing Date: April 18, 2024 Dept: 37
HEARING DATE: Thursday, April 18, 2024
CASE NUMBER: 23STCV18559
CASE NAME: David Feeley, et al. v. Jeffrey R. Vargo, et al.
MOVING PARTY: Defendants Jeffrey R. Vargo and
Vargo Physical Therapy
OPPOSING PARTY: Plaintiffs David Feeley and Porter
Ranch Physical Therapy, Inc.
TRIAL DATE: Not Set.
PROOF
OF SERVICE: OK
PROCEEDING: Demurrer to First Amended
Complaint
OPPOSITION: 5 April 2024
REPLY: 11 April 2024
TENTATIVE:
Defendants’
demurrer to the entire FAC as to Defendant Vargo is sustained with leave to
amend. The demurrer to the fourth cause of action for civil theft is sustained
with leave to amend and overruled as to the second cause of action for
conversion. Plaintiffs are granted 30 days leave to amend. The court continues
the Case Management Conference to, and sets the OSC RE: Amended Complaint for, May
30, 2024, at 8:30 a.m. Moving party to give notice.
Background
On August 8, 2023, David Feeley
(“Feeley) and Porter Ranch Physical Therapy, Inc. (“Porter Ranch PT”)
(collectively “Plaintiffs”) filed a Complaint against Jeffrey R. Vargo
(“Vargo”); Vargo Physical Therapy (“Vargo PT”) (collectively “Defendants”); and
Does 1 to 50.
The operative First Amended
Complaint (“FAC”) alleges six causes of action: (1) Breach of Contract; (2)
Conversion; (3) Breach of Fiduciary Duty; (4) Civil Theft (Civ. Code § 496(c));
(5) Declaratory Relief; and (6) Violation of Corp. Code §§ 1601, 1602.)
On April 8, 2024, Plaintiffs dismissed
the sixth cause of action.
On January 29, 2024, Defendants
filed a demurrer to the FAC. Plaintiffs oppose the demurrer. The matter is now
before the court.
I. Legal
Standard
Where pleadings are defective, a party may raise the defect
by way of a demurrer. (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A
demurrer tests the sufficiency of a pleading, and the grounds for a demurrer
must appear on the face of the pleading or from judicially noticeable matters.¿
(CCP § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In
evaluating a demurrer, the court accepts the complainant’s properly pled facts
as true and ignores contentions, deductions, and conclusory statements. (Daar
v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971)
5 Cal.3d 584, 591.) Moreover, the court does not consider whether a plaintiff
will be able to prove the allegations or the possible difficulty in making such
proof. (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d
590, 604.)
Leave to amend must be allowed
where there is a reasonable possibility of successful amendment. (Goodman v.
Kennedy (1976) 18 Cal.3d 335, 348.)¿ The burden is on the complainant to
show the Court that a pleading can be amended successfully. (Ibid.)
II. Demurrer[1]
A. Allegations in Complaint
Beginning in 2001, Plaintiffs began operating a physical therapy clinic in
Porter Ranch, California. (FAC ¶ 12.) The FAC alleges that in 2004, Defendant
Vargo “proposed combining the businesses and expanding to new locations
together as joint venture partners.” (FAC ¶¶ 1, 2, 13.) Plaintiff agreed to
merge his clinic in Porter Ranch with Defendant’s in exchange for a $22,000
monthly draw against 50% of profits from that clinic while Vargo would receive
8,000 as a monthly draw against 50% of the profits. (FAC ¶¶ 2, 14.) The FAC
asserts that Plaintiff Feeley and Defendant Vargo operated as partners and
established four new clinics. (FAC ¶¶ 3, 15.) In 2020, Plaintiff Feeley became
ill and was no longer able to work “at the same intensity as before” and was
unable to return to the clinics full time.
(FAC ¶¶ 20, 21.)
In January 2023, Defendant Vargo informed Plaintiffs that he
had unilaterally decided to eliminate the monthly draw and withhold future
profit distributions. (FAC ¶ 22.) Plaintiff Feeley was locked out of the joint
venture’s blank account and Vargo had removed Plaintiffs’ ability to access the
software necessary to run the clinics. (FAC ¶¶ 4, 22.)
Defendant have refused to pay Plaintiffs the draw and profits
he is entitled to under the joint venture and have refused to provide account
of the profits for the clinic or give Plaintiffs access to the joint venture’s
books and records. (FAC ¶¶ 23, 24.)
B. Demurrer to Entire FAC - Alter Ego and
Agency Allegations Are Deficient
Agency “can be established either by agreement between the
agent and the principal, that is, a true agency [citation], or it can be
founded on ostensible authority, that is, some intentional conduct or neglect
on the part of the alleged principal creating a belief in the minds of third
persons that an agency exists, and a reasonable reliance thereon by such third
persons.” (Lovetro v. Steers (1965) 234 Cal.App.2d
461, 474–475; see also Civ. Code §§ 2298, 2300.)
Properly pleading alter ego
liability requires more than the simple allegation that entities and persons
are alter egos: “[P]laintiff must plead and prove such a unity of interest and
ownership that the separate personalities of the corporation and the individuals
do not exist, and that an inequity will result if the corporate entity is
treated as the sole actor.” (Vasey v. California Dance Co. (1977)
70 Cal.App.3d 742, 749; see also Automotriz Del Golfo De California S. A. De
C. V. v. Resnick (1957) 47 Cal.2d 792, 796.) “[C]ourts
have followed a liberal policy of applying the Alter ego doctrine where the
equities and justice of the situation appear to call for it rather than
restricting it to the technical niceties depending upon pleading and procedure.
It is essential principally that a showing be made that both requirements,
i.e., unity of interest and ownership, and the promotion of injustice by the
fiction of corporate separate existence, exist in a given situation.” (First Western Bank & Trust Co. v. Bookasta (1968)
267 Cal.App.2d 910, 915.)
Defendants assert
that Plaintiffs have not properly pled any cause of action against Defendant
Vargo because Plaintiff only alleges business dealings with Vargo PT. (FAC ¶¶
13, 14.) Having read the FAC in its entirety, the court finds that the
allegations against Defendant Vargo are deficient.
First the court finds
that Plaintiff’s agency and alter ego allegations are conclusory. (FAC ¶¶ 10,
14.) Plaintiff fails to state facts as to which Defendant is the principal and
which is the agent in the agency relationship. Plaintiff fails to plead facts
as to what actions Vargo took that made him liable for Vargo PT’s breach of the
joint venture agreement.
Plaintiffs stated
that all draw and profits were payable to Porter Ranch PT but fails to explain
how Vargo profited from the joint venture enterprise and why injustice would
result if the corporate veil were not pierced. (FAC ¶ 14, n. 1.) Plaintiff
fails to plead facts to show how Vargo served as the alter ego of Defendant
Vargo PT and what unity of interest existed between the parties. It is also
unclear for what specific conduct was responsible.
Therefore, the court
finds that the FAC fails to allege sufficient facts as to Defendant Vargo and
the demurrer to all causes of action alleged against Defendant Vargo are
sustained with leave to amend.
C. Second Cause of Action- Conversion
To plead a cause of action for
conversion, one must allege (1) the 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.) “Money may be the
subject of conversion if the claim involves a specific, identifiable sum . . ..”
(WelcoElectronics, Inc. v. Mora (2014) 223 Cal.App.4th 202, 209.)
Plaintiffs assert
that under the joint venture agreement, Plaintiff was entitled to receive a
$22,000 monthly draw and 50% of the profits generated by the clinic located in
Porter Ranch. (FAC ¶ 33.) In 2023, Defendants converted Plaintiff’s property by
excluding physical barriers such as changed locks. (FAC ¶ 24.)
Defendants demurrer to the
second cause of action on the basis that Plaintiffs fail to plead a sum
certain. Relying on SP Investment Fund I LLC v. Cattell
(2017) 18 Cal.App.5th 898, Plaintiffs’ opposition states that
where the sum owed can become identifiable, then a conversion claim can stand.
In SP Investment, the appellate court found that where the plaintiff
alleged that defendant “received monetary
distributions from the Partnership that, under the Agreement” that the
defendant held in trust for Plaintiff’s benefit and refused to turn those funds
over to the plaintiff, the plaintiff had not pled a
generalized claim for money but rather a claim for a specific identifiable sum
of money received by [defendant] for SP's benefit.” (Id. at p. 907.)
Therefore, the plaintiff had “adequately stated a cause of action for
conversion.” (Ibid.)
The court finds that because Plaintiff Feeley
has pled that he was entitled to receive a
$22,000 monthly draw and 50% of the profits generated by the clinics, he has
made a claim for “a
specific identifiable sum of money” capable of being made certain that is
sufficient to sustain a claim for conversion. Defendants’ argument, that
profits make the sum uncertain, is without merit. Plaintiffs are not making a conversion claim
for future profits, but for past profits actually paid to the clinics. Therefore, the demurrer to the second cause
of action is overruled.
E. Fourth Cause of Action – Civil Theft
Penal Code § 496(c) allows any
person injured by receipt of stolen property under Penal Code § 496(a) to
“bring an action for three times the amount of actual damages, if any,
sustained by the plaintiff, costs of suit, and reasonable attorney’s fees.”
(Pen. Code, § 496(a).)
Defendants argue that pursuant
to Siry Investment, L.P. v. Farkhondehpour
(2022) 13 Cal.5th 333, 362, Plaintiffs are required to plead that both
defendants acted with criminal intent for both Defendants to be liable under
section 496(c). The FAC alleges that “Defendants have received,
concealed, or withheld property that they knew was obtained through theft. This
includes, without limitation, the receipt of money Defendants knew belonged to
Plaintiffs as Plaintiffs’ share of profit distributions from clinics that the
parties owned and joint ventures.” (FAC ¶ 45.)
In Siry Investment, the
plaintiff specifically alleged that the defendant has received property by
diverting partnership funds belonging to plaintiff “in a manner constituting
theft” and did so with the knowledge that such funds were wrongfully obtained.
(Siry Investment, supra, 13 Cal.5th at p. 361.) Here, Plaintiffs
fail to specifically allege that Defendants stole the partnership funds or that
they did so in a manner constituting theft and instead merely allege that
Defendants received and withheld stolen property. Here, the failure to turn
over profits or the receipt of stolen property is insufficient to show that
Defendant did not act “innocently or inadvertently, but with
careful planning and deliberation reflecting the requisite criminal intent.” (Siry,
at p. 362.)
Therefore, the
demurrer to the fourth cause of action is sustained with leave to amend.
Conclusion
Defendants’
demurrer to the entire FAC as to Defendant Vargo is sustained with leave to
amend.
The
demurrer to the fourth cause of action for civil theft is sustained with leave
to amend and
overruled
as to the second cause of action for conversion. Plaintiffs are granted 30 days
leave to
amend.
The court sets the OSC Re: Amended Complaint for May 30, 2024, at 8:30 a.m.
Moving
party to give notice.