Judge: Gail Killefer, Case: 23STV00626, Date: 2025-01-13 Tentative Ruling
Case Number: 23STV00626 Hearing Date: January 13, 2025 Dept: 37
HEARING DATE: Monday, January 13, 2025
CASE NUMBER: Zahem Al Zahem, et al. vs.
Asia Top City, et al.
CASE NAME: 23STV00626
MOVING PARTY: Defendants Asia Top City LTD,
Marcos Vivian (aka Vivian de la Pedrosa), and Michael James Kiely
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 with Motion to
Strike Complaint
OPPOSITION: 25 October 2024
REPLY: 32
October 2024
TENTATIVE: Defendants’ demurrer is sustained with leave
to amend as to the 3rd, 4th, 5th, 7th, 10th, 13th, 14th, 16th to 18th, 21st,
23rd, 25th, and 27th causes of action. Defendants’ motion to strike is denied.
Plaintiff is granted 10 days leave to amend. The court sets the OSC RE: Amended
Complaint, and continues the Case Management Conference, to February 4, 2025,
at 8:30 a.m. 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 Complaint
alleges 30 causes of action for:
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 and
move to strike the Complaint. Plaintiffs oppose the Motion. The matter is now
before the court.
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, subd. (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.)¿¿
B. Motion to Strike
¿Any party, within the time allowed to respond to a pleading
may serve and file a notice of motion to strike the whole or any part thereof.
(CCP, § 435(b)(1); CRC, rule 3.1322(b).) The court may, upon a motion or at any
time in its discretion and upon terms it deems proper: (1) strike out any
irrelevant, false, or improper matter inserted in any pleading; or (2) strike
out all or any part of any pleading not drawn or filed in conformity with the
laws of California, a court rule, or an order of the court. (CCP, § 436(a)-(b);
Stafford v. Shultz (1954) 42 Cal.2d 767, 782 [“Matter in a pleading
which is not essential to the claim is surplusage; probative facts are
surplusage and may be stricken out or disregarded”].)¿¿¿¿
C. Leave to Amend
“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. (Compl., ¶ 1.)
Plaintiffs were introduced to Marcos around 2015, and in 2016 Marcos enticed
Plaintiffs to invest in an undeveloped Pacific Palisades property (the “Property”).
(Id. ¶¶ 13, 14.) In July and August 2016, Marcos presented the
Plaintiffs with false facts including an inaccurate appraisal, that 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. (Compl., ¶ 16.)
MPV’s Second Amended and Restated Operating Agreement (the “Operating Agreement”),
dated September 1, 2016 was entered. (Id., ¶ 16, Ex. A.) Pursuant to the
Section 8.03 of the Operating Agreement: “The 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 Marcos is also
the Chief Executive Office of MPV, and Defendant Kiely is the Vice President.
(Compl, ¶¶ 27, 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”) who recorded a deed of trust
against the Property. (Id. ¶ 19.) Plaintiffs discovered that proceeds
from the Vicino Loan were diverted to Marco’s investment project, unrelated to
MPV (the “Loan Breach”). (Ibid.)
In April 2019, Marcos
indicated that the Vicino Loan could not be paid and Plaintiffs, through
Mossaffa, LCC, lent $233,000.00 to Asia Top via a promissory note. (Compl., ¶
19, Ex. B.) In addition, Asia Top pledged some of its membership interests in
MPV as security for the Mossaffa Loan and Asia Top is in breach of the pledge
agreement. (Id., Ex. C.) Asia Top and Marcos failed to pay the Mossaffa
Loan before September 20, 2020 and the loan continues to be in default. In
addition to the Mossaffa Loan, Plaintiffs paid $400,000.00 in forbearance fees
for MPV that MPV, Marcos, and Aisa Top promised to repay, but did not (the “Forbearance
Payment”). (Ibid.)
Defendants now demurrer to the 1st, 3rd, 4th, 5th, 7th, 10th,
13th, 14th, 16th, 17th, 18th, 21st, 23rd, 25th, and 27th causes of action.
B. Deficiencies in the
Meet and Confer
Plaintiffs assert that Defendants’ meet and confer correspondence
did not address the demurrer to the 1st, 13th, 16th, 17th, 18th, 21st, 25th,
and 27th causes of action. Consequently, the demurrer to those cause of action
should be overruled. “Any determination by the court that the meet and confer
process was insufficient shall not be grounds to overrule or sustain a
demurrer.” (CCP, § 430.41(a)(4).) As the failure to meet and confer does not
constitute grounds to overrule a demurrer, the court continues to the merits.
C. Failure to Particularly Allege Compliance with Pre-Suit
Demand Requirement
Defendants argue that
under Delaware law, Plaintiffs must plead particularized facts showing
Plaintiffs made a demand upon the governing body of the corporate entity and
the demand was refused before filing the derivative action.
“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.’ ” (United Food and
Commercial Workers Union and Participating Food Industry Employers Tri-State
Pension Fund v. Zuckerberg (Del. 2021) 262 A.3d 1034, 1048.) “To comply
with Rule 23.1, the plaintiff must meet ‘stringent requirements of factual
particularity that differ substantially from ... permissive notice pleadings.’
” (Ibid; see Abrams v. Koether
(D.N.J. 1991) 766 F.Supp. 237, 251 [accord].)
The Complaint alleges:
During the course of the past two years, the Minority
Members have provided the Company with notice of the wrongful actions taken
by Defendants and in particular served as demand on December 17, 2021.
The Company while acknowledging the demand and the claims raised therein, has
taken no action to address the same whatsoever. Marcos is solely in control of
the Company and the claims were primarily claims of breach of fiduciary duty by
Marcos and Asia Top. Marcos and Saia Top in effect have a conflict of interest
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. 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. 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.
(Compl., ¶ 23. [italics
added].)
“It is no answer to say that demand is necessarily futile because
(a) the directors ‘would have to sue themselves, thereby placing the conduct of
the litigation in hostile hands,’ or (b) that they approved the underlying
transaction.” (Brehm v. Eisner (Del. 2000) 746 A.2d 244, 257, fn. 34.) The Complaint sufficiently pleads that
any pre-suit demand would be futile because Marcos, Asia Top, and Kiely, are
not disinterested parties who can exercise independent judgment and they approved the wrongful conduct.
Defendants assert that
Plaintiffs cannot plead that both a pre-suit demand was made or that making
such a demand would be futile. “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.)
Thus, when a demand is made, the question of whether demand
was excused is moot. . .A shareholder who makes a demand can no longer argue
that demand is excused. [Citation] he effect of a demand is to place control of
the derivative litigation in the hands of the board of directors.
(Ibid.)
Therefore, the court
need only consider if Plaintiffs sufficiently allege facts that they made a
pre-suit demand on the board.
“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.)
Defendants fail to state
what facts are particulate facts are missing from Plaintiff’s pre-suit demand
allegation. Defendants fail to cite any authority that requires Plaintiffs to
attach the demand served on December 17, 2021 to the Complaint. However, the
court agrees that Plaintiffs fail to specify what specific “wrongful actions”
were detailed in the December 17, 2021 pre-suit demand and what remedy
Plaintiffs demanded. (See Rales v. Blasband (Del. 1993) 634 A.2d 927,
931 [“Conclusory allegations, however, are not accepted as true.”].)
As the Plaintiffs’
pre-suit demand lacks particularity, the court agrees that Plaintiff fails to
show they can proceed with their derivative claims. Therefore, the demurrer to
the 3rd, 5th, 7th, 10th, 13th, 16th to 18th, 21st, 23rd, 25th, and 27th causes
of action is sustained with leave to amend.
D. 5th, 7th, and 10th Cause of Action: No
Separate Injury to MPV, No Derivative Causes of Action
Defendants further
assert that the 5th, 7th, and 10th causes of action are improper derivative
actions because the injury and relief sought are for the Plaintiffs rather than
for MPV.
“[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].)
The misrepresentations
and omissions made to the MPV, are alleged to be the same misrepresentations
and omissions made to Plaintiffs related to the “Pre-Investment
Misrepresentations and Project Status Breach and Misrepresentations.”(Compl.,
¶¶ 58, 79, 108.) The Complaint further alleges it was Plaintiffs who
detrimentally relied on the misrepresentations and omissions, not MPV.
Accordingly, the court
agrees that Plaintiffs fail to allege that 5th, 7th, and 10th causes of action
are derivative actions that allege injury to MPV. This would also support
sustaining the demurrer as to the 5th,
7th, and 10th causes of action.
E. 3rd and 4th Causes
of Action - Aiding and Abetting Breach of Fiduciary Duty
Defendants assert that
the 3rd and 4th causes of action lack the requisite facts to support a claim
for aiding and abetting. The elements of aiding and abetting breaches of
fiduciary duty are “(i) the existence of a fiduciary relationship, (ii) a
breach of the fiduciary's duty, (iii) knowing participation in that breach by
the defendants, and (iv) damages proximately caused by the breach.” (RBC
Capital Markets, LLC v. Jervis (Del. 2015) 129 A.3d 816, 861.)
The Complaint alleges
“Asia Top, Marcos, and Kiely knew that Asia Top, Marcos, and/or Kiely owes
fiduciary duties to the Company, and Asia Top, Marcos, and/or Kiely had actual
knowledge of the unlawful conduct discussed herein above and actually participated
and/or assisted in the consummation of the same. “ (Compl. ¶¶ 44, 51.)
Defendants assert the 3rd,
and 4th causes of action fail allege who Defendants encouraged, assisted, or
facilitated in breaching their fiduciary duties. In other words, the Complaint
fails to allege who Defendants aided and abetted in the breach of fiduciary
duties.
Although the third and
fourth causes of action are pled in the alternative and need not be pled with
particularity, Plaintiffs need to allege who Defendants aided.
The demurrer to the 3rd
and 4th causes of action is sustained with leave to amend.
F. 13th and 14th Causes of Action :
Ordinary Negligence Prohibited by
Operating Agreement
Defendants’ demurrer to
the 13th and 14th cause of action on the basis the Operating Agreement limits
liability for ordinary negligence. Section 2.06 of the Operating Agreement
exempts Defendants from liability for claims of ordinary negligence. (Compl.,
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).)
Plaintiffs do not
dispute that the Operating Agreement limits liability for ordinary negligence
but asserts that Defendants’ misrepresentations relating to the $4,500,000.00
investment and omissions related to the development of the Property amounts to
gross negligence and willful misconduct that is not limited by the Operating
Agreement. “‘In the corporate context, gross negligence means reckless
indifference to or a deliberate disregard of the whole body of stockholders or
actions which are without the bounds of reason.’” (Firefighters' Pension
System of City of Kansas City, Missouri Trust v. Presidio, Inc. (Del. Ch.
2021) 251 A.3d 212, 287. “To be grossly negligent in this context, a decision
‘has to be so grossly off-the-mark as to amount to reckless indifference or a
gross abuse of discretion.’” (Ibid.)
Having reviewed the
Complaint, the court agrees that the Complaint fails to allege that Defendants’
conduct about reckless indifference or gross abuse of discretion is sufficient
to support a claim for gross negligence or willful misconduct. The demurrer to
the 13th and 14th causes of action is sustained with leave to amend.
G. 23rd Cause of
Action: Declaratory Relief
Defendants demur to the
23rd cause of action for derivative declaratory relief because there is no actual
controversy between MPV and Plaintiffs: the allegations in Paragraph 23 assert
that a pre-suit demand address the same or similar “wrongful actions” that form
the basis for Plaintiffs’ requests for declaratory relief. (Compl., ¶¶ 23,
207(a)-(f).)
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 allege that
an actual controversy exists but fail to negate the fact that the Complaint and
Declaratory Relief cause of action seek the same relief. Because the Complaint
seeks common law relief and declaratory relief for the same wrongful actions, on
the same terms, “the declaratory judgment claim is impermissibly duplicative
unless it is pleaded as distinct from the common-law claim.” (Blue Cube
Spinco LLC v. Dow Chemical Company (Del. Super. Ct., Sept. 29, 2021, No.
CVN21C01214PRWCCLD) 2021 WL 4453460, at *17.)
Therefore, the demurrer
to the 23rd cause of action is sustained with leave to amend.
Motion to Strike
Defendants move to
strike the following from the Complaint:
1)
Paragraph 29, page 11, lns.
10-12 (First Cause of Action for Derivative Breach of Fiduciary Duty): “…the
above-referenced actions and inactions, including, but not limited to, the
Project Status Breach and Misrepresentations, the Records Breach…the Failure to
Account Breach, the Non-Disclosure Breach…(collectively, the “Wrongful
Actions”)”
2)
Paragraph 137, page 22,
lns. 16-17 (Thirteenth Cause of Action for Negligence, Derivatively): “Wrongful
Actions”
3)
Paragraph 159, page 24, ln.
17 (Sixteenth Cause of Action for Theft by False Pretenses, Derivatively):
“Wrongful Actions”
4)
Paragraph 166, page 25, ln.
9 (Seventeenth Cause of Action for Derivative Abuse of Control, Derivatively):
“Wrongful Actions”
5)
Paragraph 173, page 26, ln.
1 (Eighteenth Cause of Action for Unjust Enrichment, Derivatively): “Wrongful
Actions”
Defendants seek to
strike the 1st, 13th, 16th, 17th, and 18th causes of action on the grounds
that Plaintiffs fail to plead these causes of action as derivative because the
“wrongful actions” alleged in Paragraph 29 of the Complaint are not injuries to
MPV but to Plaintiffs.
It is improper to strike a whole cause of
action pursuant to a motion to strike. (Quiroz v. Seventh Ave. Center
(2006) 140 Cal.App.4th 1256, 1281.) Such
challenges must be made by demurrer. (Id.)
By seeking to strike “wrongful actions,” Defendants are effectively seeking to
strike entire causes of action due to Plaintiffs’ failure to distinguish
between injuries to MPV and injury to Plaintiffs. Defendants fail to show how
the allegation of “wrongful conduct” is irrelevant, false, or improper. (CCP, §
436(a).)
Defendants’ objections
to the 1st, 13th, 16th, 17th, and 18th should have been raised by demurrer, not
via motion to strike. The motion to strike is denied.
Conclusion
defendants’ demurrer is sustained with
leave to amend as to the 3rd, 4th, 5th, 7th, 10th, 13th,
14th,
16th to 18th, 21st, 23rd, 25th, and 27th causes of action. Defendants’ motion
to strike
is
denied. Plaintiff is granted 10 days leave to amend. The court sets the OSC RE:
Amended
Complaint,
and continues the Case Management Conference, to February 4, 2025, at 8:30 a.m.
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.)