Judge Gregory Keosian, Case 20STCV17040 2023-04-05 Tentative Ruling

Judge: Gregory Keosian, Case: 20STCV17040, Date: 2023-04-05 Tentative Ruling

Case Number: 20STCV17040 Hearing Date: April 5, 2023 Dept: 61

Nominal Defendant 357 South Broadway, LLC’s Motion for Judgment on the Pleadings is DENIED.

I. MOTION FOR JUDGMENT ON THE PLEADINGS

A party may move for a judgment on the pleadings as to an entire complaint or as to a particular cause of action in a complaint. (Code Civ. Proc. § 438 subd. (c)(2)(A).) If a defendant moves for a judgment on the pleadings and argues that a complaint does not state facts sufficient to constitute a cause of action against that defendant, then the court should grant a defendant’s motion only if the court finds as a matter of law that the complaint fails to allege facts sufficient to constitute the cause of action. (See id., § 438 subd. (c)(1)(B)(ii); see also Mechanical Contractors Assn. v. Greater Bay Area Assn. (1998) 66 Cal.App.4th 672, 677.)

“The standard for granting a motion for judgment on the pleadings is essentially the same as that applicable to a general demurrer, that is, under the state of the pleadings, together with matters that may be judicially noticed, it appears that a party is entitled to judgment as a matter of law.” (Bezirdjian v. O’Reilly (2010) 183 Cal.App.4th 316, 321.) When considering a motion for judgment on the pleadings, the court not only should assume that all facts alleged in the SAC are true but also should give those alleged facts a liberal construction. (See Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515–516, 101 Cal.Rptr.2d 470, 12 P.3d 720.) In particular, the court should liberally construe the alleged facts “‘with a view to attaining substantial justice among the parties.’ [Citation.]” (See Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1232, 44 Cal.Rptr.2d 352, 900 P.2d 601.)

Nominal Defendant 357 South Broadway, LLC (Defendant) moves for judgment on the pleadings against the derivative claims of Plaintiff Ultimate Action, LLC (Plaintiff) on the grounds that Plaintiff lacks standing to bring suit on behalf of Defendant.

Defendant reasons as follows. Plaintiff obtained its interest in Defendant company by virtue of a foreclosure sale conducted in the bankruptcy of Plaintiff’s predecessor in interest, Gerson Fox. However, prior to purchasing the interest, the bankruptcy court granted a motion by the bankruptcy trustee to disallow Gerson Fox to bring a claim on behalf of Defendant company, on the grounds that a 2011 K-1 schedule indicated that Fox had lost the interest in Defendant by the end of 2011. (RJN Exh. 3.) The motion was unopposed and granted. (RJN Exh. 4.)

Defendant’s argument sounds in issue preclusion. “The threshold requirements for issue preclusion are: (1) the issue is identical to that decided in the former proceeding, (2) the issue was actually litigated in the former proceeding, (3) the issue was necessarily decided in the former proceeding, (4) the decision in the former proceeding is final and on the merits, and (5) preclusion is sought against a person who was a party or in privity with a party to the former proceeding.” (Castillo v. City of Los Angeles (2001) 92 Cal.App.4th 477, 481.)

The present issue is the same as that decided in the bankruptcy court: namely, the existence of Plaintiff’s membership interest in Defendant, which is derived from its purchase of the membership interest from Gerson Fox. The fact that this identical issue was decided in the context of a motion to disallow a claim does not mean the issues are not the same, contrary to what Plaintiff argues in opposition. (Opposition at p. 6.)

The issue was also “actually litigated” and “necessarily decided” in the prior proceeding. “An issue is actually litigated ‘[w]hen [it] is properly raised, by the pleadings or otherwise, and is submitted for determination, and is determined.” (Ayala v. Dawson (2017) 13 Cal.App.5th 1319, 1330 [220 Cal.Rptr.3d 917, 926.) The issue of Fox’s interest was properly raised by the bankruptcy trustee’s motion, was submitted for determination to the court, and was determined adverse to Fox. The fact that Fox did not oppose the motion does not mean the matter was not litigated.

However, the failure of Fox to oppose the motion does raise an issue as to the applicability of issue preclusion here: whether there is privity between Fox and Plaintiff. Fox and Plaintiff are different entities, and thus privity with Fox is required for the application of the doctrine of issue preclusion to Plaintiff.” “’Privity’ in this context means a mutual or successive relationship to precisely the same right of property which can arise from such legal relationships as testator and executor, ancestor and heir, assignor and assignee, grantor and grantee, and lessor and lessee.” (Bailey v. Safeway, Inc. (2011) 199 Cal.App.4th 206, 212–213, italics omitted.) Plaintiff and Fox meet this definition of privity with respect to their interest in Defendant, but privity for the purposes of issue preclusion entails more: it “is an equitable concept based on fundamental principles of fairness.” (Id. at p. 213.) “As applied to questions of preclusion, privity requires the sharing of ‘an identity or community of interest,’ with ‘adequate representation’ of that interest in the first suit, and circumstances such that the nonparty ‘should reasonably have expected to be bound’ by the first suit. [Citation.] A nonparty alleged to be in privity must have an interest so similar to the party's interest that the party acted as the nonparty's ‘ “ ‘virtual representative’ ” ’ in the first action.” (Cal Sierra Development, Inc. v. George Reed, Inc. (2017) 14 Cal.App.5th 663, 672–673.)

Here, the timing and procedural character of the prior determination that Defendant relies upon both support the conclusion that the prior determination is not fairly applied to Plaintiff here. In a prior federal action against Gerson Fox, a charging order was entered on June 18, 2013, directing that Gerson Fox’s interests in a number of listed companies, including Defendant, be foreclosed and sold to satisfy the debt Fox owed to judgment creditor Fallen Star, LLC. (Opposition RJN Exh. C.) The motion to disallow the claim asserted by Fox on behalf of Defendant — the motion that Defendant relies on — was filed a month later, in a separate bankruptcy action on July 16, 2013, and was decided on August 9, 2013, while the charging order was in effect, and while Fox’s interest in Defendant had been given up to a judgment creditor. (Motion RJN Exh. 3, 4.) That Fox did not oppose that motion is not surprising. By the time the bankruptcy court determined that Fox lacked an interest in Defendant on August 9, 2013, Fox’s interest in Defendant had already been auctioned off to Plaintiff, and Plaintiff had paid the purchase price. (Motion RJN Exh. 2.) Thus at the time of the determination against Fox’s interest, Fox’s interest had already been set aside to be sold to another bidder. He could not have been expected to act as Plaintiff’s “virtual representative” in litigating the motion to disallow his claims. Accordingly, there was no privity between Fox and Plaintiff for the purpose of the issue that Defendant now relies upon. Accordingly, issue preclusion does not apply, and the motion is DENIED.

Plaintiff raises a number of other objections to the present motion: that it is untimely, and that the court previously indicated that triable issues existed as to the validity of Plaintiff’s interest in denying the November First Partnership’s motion for summary judgment on July 12, 2021. (Opposition at pp. 3–4.) Because Defendant’s motion fails on the merits, it is unnecessary to address these other arguments.