Judge: H. Jay Ford, III, Case: 20SMCV01932, Date: 2022-09-01 Tentative Ruling

Case Number: 20SMCV01932    Hearing Date: September 1, 2022    Dept: O

Case Name:  nZania, LLC, et al. v. B.B. Dakota, Inc., et al.       

SUBJECT:                 MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION

MOVING PARTY:   Defendant Steven Madden, Ltd.

RESP. PARTY:         Plaintiffs nZania, LLC, Richard Koral and Ivan Spiers

TENTATIVE RULING

            Defendant Steven Madden, Ltd.’s Motion for Summary Judgment is GRANTED.

            Plaintiffs’ Objections to the Dec. of K. Klinsport—OVERRULED

            Defendant Madden’s Objections to Plaintiffs’ evidence—(1) Court declines to rule on Objection Nos. 1-4, 6-26 per CCP §437c(q); (2) SUSTAINED as to Objection Nos. 27-38; (3) OVERRULED as to Objection No. 5.

I.  No triable issues of fact remain as the 2^nd cause of action for conspiracy to commit fraud

            A. Law of Conspiracy

            “To prove a claim for civil conspiracy, [plaintiff] was required to provide substantial evidence of three elements: (1) the formation and operation of the conspiracy, (2) wrongful conduct in furtherance of the conspiracy, and (3) damages arising from the wrongful conduct.”

Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581.

“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.  By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy.  In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors.”  Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510–511. 

            “A bare agreement among two or more persons to harm a third person cannot injure the latter unless and until acts are actually performed pursuant to the agreement. Therefore, it is the acts done and not the conspiracy to do them which should be regarded as the essence of the civil action.”  Id. at 511 (party to contract did not have duty to refrain from interfering with that contract and therefore could not be held liable for conspiracy to interfere with contract). 

            “The conspiring defendants must also have actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose.  However, actual knowledge of the planned tort, without more, is insufficient to serve as the basis for a conspiracy claim. Knowledge of the planned tort must be combined with intent to aid in its commission…This rule derives from the principle that a person is generally under no duty to take affirmative action to aid or protect others.”  Kidron, supra, 40 Cal.App.4th at 1582. 

            “While knowledge and intent may be inferred from the nature of the acts done, the relation of the parties, the interest of the alleged conspirators, and other circumstances, conspiracies cannot be established by suspicions. There must be some evidence. Mere association does not make a conspiracy. There must be evidence of some participation or interest in the commission of the offense.  An inference must flow logically from other facts established in the action.”  Id. at 1582. 

“[W]hile the court may infer facts from the evidence, those inferences must be logical and reasonable. The decision about what inferences can permissibly be drawn by the fact finder are questions of law for determination by the court, inasmuch as an inference may not be illogically and unreasonably drawn, nor can an inference be based on mere possibility or flow from suspicion, imagination, speculation, supposition, surmise, conjecture or guesswork.”  Kidron, supra, 40 Cal.App.4th at 1580–1581.

B.  Defendant Madden presents evidence negating Plaintiffs’ allegations of conspiracy to commit fraud with Brandes Defendants

According to the First Amended Complaint (FAC), Madden and Brandes Defendants “formed and participated in a conspiracy and were part of a scheme pursuant to which the Brandes Group…based on fraudulent misrepresentations and concealment, to induce Plaintiffs to enter into the 2019 Agreement, terminate section 8 of the 2008 Agreement and lose their rights to millions of dollars which would be due to Plaintiff on the sale of Dakota by the Brandes Group.”  See FAC, ¶57.  Plaintiffs also allege that Madden “had actual knowledge of the 2008 Agreement and the 2019 Agreement,” that Madden knew that the 2019 Agreement “cut Plaintiffs out of millions of dollars that would be due them as a result of Madden’s purchase,” and “Madden participated in the fraud so it could benefit and obtain the consent of the Brandes Group to sell Dakota to madden in a manner that would save the Brandes Group from paying an additional $3,217,520 to Plaintiffs.”  Id. at ¶58. 

Madden negates these allegations with several undisputed facts.  First, Madden submits evidence that it did not even know about the 2019 Agreement until after it was executed. Spiers and Koral executed the 2019 Agreement on 6-25-19.  See Defendant Madden’s Separate Statement, SSUMF No. 3.  Madden’s attorney, Witt, testified that he flagged the Contingent Payment issue as a potential issue in the 5-20-19 Draft Stock Purchase Agreement.  See Defendant Madden’s Separate Statement, SSUMF No. 17.  Brandes Defendants did not respond with comments and revisions to the first draft until 7-3-19.  Id. at No. 23.  Brandes Defendants’ revision eliminated the footnote referencing the Contingent Payment, prompting Witt to contact Brandes Defendants on 7-8-19 to inquire what happened to the Contingent Payment.  Id. at No. 25.  Thus, Madden establishes that its first discovery the resolution of the Contingent Payment through the parties’ 2019 Agreement after it had been executed.

Madden also submits evidence that Gloria never asked Madden to pay the Contingent Payment, because she never discussed the Contingent Payment with Madden.  See Defendant Madden’s Separate Statement, SSUMF No. 27.  Gloria also testified that she had been thinking about resolving the Contingent Payment long before negotiations with Madden began.  Id. at No. 28. 

Madden’s evidence sufficiently negates Plaintiffs’ allegations of conspiracy in the SAC.  Madden’s evidence negates any allegation that it knew of the 2019 Agreement prior to its formation, or that it planned with Gloria to defraud Plaintiffs by depriving them of their Contingent Payment.  Contrary to Plaintiffs’ position, conspiracy liability can only be imposed for agreeing with Gloria to commit fraud.  Knowledge of a planned fraud alone would not even be sufficient to impose conspiracy liability, much less knowledge of a completed fraud.  See Kidron, supra, 40 Cal.App.4th at 1582 (“actual knowledge of the planned tort, without more, is insufficient to serve as the basis for a conspiracy claim. Knowledge of the planned tort must be combined with intent to aid in its commission”). 

Moreover, conspiracy liability is imposed for agreement to a “planned fraud.”  See Kidron, supra, 40 Cal.App.4th at 1582 (“conspiring defendants must also have actual knowledge that a tort is planned and concur in the tortious scheme with knowledge of its unlawful purpose”).  According to Madden’s evidence, it only acquired knowledge of the 2019 Agreement, not even the alleged fraud, until after the agreement was fully executed and the monies paid to Spires and Koral. 

Madden therefore satisfies its burden as moving party on the 2^nd cause of action for conspiracy to commit fraud. The burden therefore shifts to Plaintiffs to raise a triable issue of material fact.

C.  Plaintiffs fail to raise a triable issue of fact as to the 2^nd cause of action for conspiracy

Plaintiffs do not dispute Madden’s UMF Nos. 3, 23, 25, 27 or 28, which sufficiently negate Plaintiffs’ conspiracy allegations.  Plaintiffs, however, maintain Witt was not the only person at Madden who worked on the deal with BB Dakota.  Plaintiffs, however, fail to present evidence identifying such other persons and evidence that those persons discussed the Contingent Payment with anyone from BB Dakota.  Moreover, Plaintiffs fail to present any evidence that Madden knew of the 2019 Agreement or Gloria’s plans to resolve the Contingent Payment by way of an settlement agreement prior to the 6-19-19 meeting. 

Instead, Plaintiffs argue that the Court can reasonably infer both Madden’s knowledge of Gloria’s plans and Madden’s agreement to the scheme to fraudulently induce Plaintiffs’ into waiving their right to the Contingent Payment from.  Plaintiff argues such a reasonable inference can be made from (1) Madden’s agreement that BB Dakota email the 2019 Agreement for review rather than deposit into the “data room” where due diligence documents were ordinarily stored; (2) Witt’s email response to the 2019 Agreement, in which he indicated he was “curious as to the background of the discussions between BB Dakota and N’Zani in reach this settlement amount and release.  Any context you could provide would be greatly appreciated (Plaintiff’s Response to Defendant’s Separate Statement, P39-P40); (3) Madden’s inclusion of an indemnification provision expressly identifying any potential liability to N’Zania “from fraud or otherwise” in the July Draft of the Stock Purchase Agreement; and (4) inclusion of a $1,000,000 hold back in the July Draft specifically for this indemnification.  See Plaintiffs’ Response to Defendant’s Separate Statement, P39-P40, P44-P47. 

            All of these acts occurred in July, after the June 2019 Agreement had been executed and Spiers and Koral paid thereunder.  As such, none of these events would give reasonably give rise to an inference that Madden knew of Gloria’s plan to defraud Plaintiffs out of their Contingent Payment by hiding her negotiations with Madden and agreed to participate in the fraud. 

Moreover, the Court cannot reasonably infer both knowledge and agreement to the fraud based solely Madden’s counsel agreement to review the 2019 Agreement through an email, as opposed to requiring that it be deposited in the data room.  To infer both knowledge and agreement from this single act is unreasonable and would be “based on mere possibility or flow from suspicion, imagination, speculation, supposition, surmise, conjecture or guesswork.”  Kidron, supra, 40 Cal.App.4th at 1580–1581.

At best, the facts submitted by Plaintiffs would support an inference that, once BB Dakota provided Madden with the executed 2019 Agreement after the fraud had been completed, Madden separately concluded that N’Zania could potentially claim Gloria defrauded them and name Madden in any potential lawsuit.  Even if this were the case, it would not establish Madden’s knowledge of the fraud or agreement to the fraud.  Plaintiffs do not assert that Madden had any duty to report the fraud to them.  Plaintiffs only claim Madden did not have a duty to participate in and agree to Gloria’s fraud.  Plaintiffs are correct that every person has a duty not to commit fraud under Civil Code §§1709 and 1720, but they fail to establish that Madden violated this duty, either directly or as a co-conspirator of Gloria. 

Plaintiffs therefore fail to raise a triable issue of fact as to the 2^nd cause of action for conspiracy to commit fraud.  Defendant Madden’s motion is GRANTED as to the 2^nd cause of action for conspiracy.

II.  No triable issues of fact remain as to the 4^th cause of action for interference with contract

            “It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract. The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.”  Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.

            The acts designed to induce a breach or disruption of the contractual relationship need not be independently wrongful.  “Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage, it is not necessary that the defendant's conduct be wrongful apart from the interference with the contract itself.”  Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55.

            According to the FAC, Madden interfered with the 2008 Agreement by “acting in concert and with” Brandes Defendants in the alleged fraud and “participating in the fraudulent scheme” alleged against Gloria.  See FAC, ¶67.  Plaintiffs also alleged that Madden benefitted from the fraud, because it “enabled Madden to purchase Dakota at a price acceptable to Madden and which permitted the Brandes Group to keep more of the sale proceeds that it was entitled to and for that reason to consent to the sale to Madden.”  Id. at 68.

            As stated in connection with the 2^nd cause of action for conspiracy to commit fraud, based on the undisputed evidence, Madden did not participate in the fraud allegedly committed by Gloria.  As such, the motion is GRANTED as to the 4^th cause of action for interference with contract. 

III. Aiding and abetting is outside the scope of the FAC and is not supported by any evidence

            Plaintiffs argue the evidence should be sufficient to raise a triable issue as to whether Defendant Madden aided and abetted Brandes Defendants. The Court disagrees.  Plaintiffs do not cite to evidence or otherwise explain what facts show Madden aided and abetted the Brandes Defendants’ fraud. Nor is there any evidence that tends to show Madden acted with the intent to facilitate Brandes’ fraud or that Madden did anything that was a substantial factor in causing Plaintiff’s harm.  Moreover, Plaintiffs do not allege facts supporting an aiding and abetting theory of liability in their FAC. “The purpose of a summary judgment proceeding is to permit a party to show that material factual claims arising from the pleadings need not be tried because they are not in dispute.”  Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 161. Thus, the pleadings serve as the “outer measure of materiality” in a summary judgment motion, and the motion may not be granted or denied on issues not raised by the pleadings. See Government Employees Ins. Co. v. Sup.Ct. (Sims) (2000) 79 Cal.App.4th 95, 98, fn. 4.