Judge H. Jay Ford, III, Case 21SMCV00361 2022-08-12 Tentative Ruling

Case No.: 21SMCV00361

Hearing: 8-12-22

Calendar #:

Notice: OK

Complaint Filed: 2-22-21

Motion C/O:

Discovery C/O:

Trial Date: 10-17-22

MOVING PARTY: (1) Defendants and Cross-Complainants Manchengo, LLC and Arcade Edit New York, LLC

Manchego, LLC and Arcade Edit New York, LLC’s Motion for Summary Adjudication of Plaintiff’s First and Fourth Causes of Action of First Amended Complaint and Defendants First and Fifth Causes of Action of Defendants’ Cross-Complaint is DENIED.

Defendants’ Request for Summary Adjudication of the 5^th Cause of Action for Reformation in the First Amended Complaint is GRANTED.

The Court OVERRULES Defendants’ Objections to paragraph 9, and SUSTAINS the objection to paragraph 11 at p.3:2-5 and 2) paragraph 23 4:22-5:4 of the Declaration of Gregory J. Aldisert.

The court takes judicial notice of only the existence of those documents. (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882.

Defendants move the Court for summary adjudication against Plaintiff and Cross-Defendant Damien Stevens on the First (Breach of Contract), Fourth (Declaratory Relief), and Fifth (Reformation) Causes of Action of the First Amended Complaint. Defendants also moves the Court for summary adjudication on the First (Breach of Contract) and Fifth (Declaratory Relief) Causes of Action of the Entity Defendants’ Cross-Complaint, namely, whether Stevens is due “book value” or “real market value” on his ownership percentage of Arcade.

The Entity Defendants bring their Motion on the grounds that the Second Amendment to Amended Restated Operating Agreement of Manchengo, LLC (the “Second Amendment” and the “Operating Agreement”, respectively) is clear in its construction and intentions on its terms: when a member leaves Manchengo, Manchengo has the option to purchase that person’s membership interest at the “book value” of Manchengo, multiplied by that percentage interest. This paragraph (¶ 11.8), on its terms, “delete[s], and replace[s]” the original ¶ 11.8, which provides for a payout via market value. Defendant’s argue there is no ambiguity in the Agreement – when a member leaves, he or she receives book value for their membership interest.

I. Manchego’s request for summary adjudication of Plaintiff’s First and Fourth Causes of Action of First Amended Complaint and Defendants First and Fifth Causes of Action of Defendants’ Cross-Complaint is improper because it fails to dispose of the entire cause of action.

Defendants argue that the issue raised in this instant Motion seeks to adjudicate an issue of duty. Defendants argue that the adjudication of this Motion will completely dispose of this issue regarding the obligation/contractual duties owed by Manchengo to Stevens.

To the extent that Defendants are claiming that they are seeking to adjudicate an issue of duty under Code of Civil Procedure 437c(f)(1), that argument fails as to Plaintiff’s First and Fourth Causes of Action of First Amended Complaint and Defendants First and Fifth Causes of Action of Defendants’ Cross-Complaint because the issue of duty is to whether or not the Defendants breach the contract. Plaintiff is claiming that Defendants breached the Operating Agreement as follows:

1. Manchengo terminated Stevens without cause in violation of the Manchengo Operating Agreement because there is no provision that authorizes the termination of a member without cause. There had been a provision (Paragraph 11.6) that allowed for the termination without cause, but this provision was intentionally deleted by the First Amendment.

2. Manchengo seeks to pay Stevens for his membership interest in Manchengo (including its wholly owned subsidiary Timber) based on a book value calculation pursuant to new Paragraph 11.8 set forth in the Second Amendment, but this provision does not apply.

3. Manchengo violated Paragraph 4.4 of the Manchengo Operating Agreement by failing to pay Stevens his managing member advance as defined in the Manchengo Operating Agreement for six months following his removal as managing member. Stevens was removed as managing member on December 22, 2020, and Manchengo stopped paying his managing member advance as of February 21, 2021.

4. Manchengo failed to return Stevens’ capital account of approximately $1.1 million, and if Paragraph 11.9 applies to his capital account, Manchengo violated Paragraph 11.9 by failing to pay the initial 20% payment and all quarterly payments owed thereafter.

Since Plaintiff is alleging that Defendants breach the Operating Agreement in multiple ways, as listed above, Defendants cannot seek adjudication of a single issue pursuant to Code of Civil Procedure 437c(f)(1). Code of Civil Procedure 437c(f)(1), state that “A party may move for summary adjudication as to one or more causes of action within an action,… or one or more issues of duty, if the party contends that the cause of action has no merit, that there is no affirmative defense to the cause of action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to a claim for damages, as specified in¿Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs.”¿(CCP,¿§ 437c(f)(1).) Here, the party’s duty was to perform on the contract and whether or not they breached one specific provision of the Operating Agreement would not dispose of the issue regarding the obligation and contractual duties owed by Manchengo to Stevens. Furthermore, a request for summary adjudication of a specific provision of the Operating Agreement does not dispose of Plaintiff’s First and Fourth Causes of Action of First Amended Complaint and Defendants First and Fifth Causes of Action of Defendants’ Cross-Complaint.

II. Defendants’ Request for Summary Adjudication is improper under Code of Civil Procedure 437c, Subdivision (t) because the the parties have not jointly stipulated to the adjudication of the issue.

(t) Notwithstanding subdivision (f), a party may move for summary adjudication of a legal issue or a claim for damages other than punitive damages that does not completely dispose of a cause of action, affirmative defense, or issue of duty pursuant to this subdivision.

(1)(A) Before filing a motion pursuant to this subdivision, the parties whose claims or defenses are put at issue by the motion shall submit to the court both of the following:

(ii) A declaration from each stipulating party that the motion will further the interest of judicial economy by decreasing trial time or significantly increasing the likelihood of settlement.

(B) The joint stipulation shall be served on any party to the civil action who is not also a party to the motion.

(2) Within 15 days of receipt of the stipulation and declarations, unless the court has good cause for extending the time, the court shall notify the stipulating parties if the motion may be filed. In making this determination, the court may consider objections by a nonstipulating party made within 10 days of the submission of the stipulation and declarations.

(3) If the court elects not to allow the filing of the motion, the stipulating parties may request, and upon request the court shall conduct, an informal conference with the stipulating parties to permit further evaluation of the proposed stipulation. The stipulating parties shall not file additional papers in support of the motion.

(4)(A) A motion for summary adjudication made pursuant to this subdivision shall contain a statement in the notice of motion that reads substantially similar to the following: “This motion is made pursuant to subdivision (t) of Section 437c of the Code of Civil Procedure. The parties to this motion stipulate that the court shall hear this motion and that the resolution of this motion will further the interest of judicial economy by decreasing trial time or significantly increasing the likelihood of settlement.”

(B) The notice of motion shall be signed by counsel for all parties, and by those parties in propria persona, to the motion.

Defendants argue that the issue raised in this instant Motion (1) is a critical part of the First, Fourth, and Fifth causes of action of Stevens’ First Amended Complaint and the First and Fourth causes of action of the Entity Defendants’ Cross-Complaint and (2) concerns an obligation or contractual duty owed by Manchengo to Stevens. Moreover, the adjudication of this Motion will completely dispose of this issue regarding the obligation/contractual duties owed by Manchengo to Stevens.

The Court also finds that Defendants’ Motion is procedurally defective because the parties have not filed the required joint stipulation . Defendants have moved summary adjudication on issues that does not dispose of a cause of action under CCP § 437c(t), as discussed above, but such a motion must meet the procedural requirements of § 437c subdivision (t)(1) through (5), which requires that the parties stipulate which issues are to be adjudicated by the motion. Defendants attest that on April 25, 2022, Plaintiff responded stating that he would not sign a stipulation. (Reitman Dec. ¶ 5.) No such stipulation has been filed with the Court, nor has defendant complied with the other procedural requirements for such a motion.

Therefore, Defendants’ Motion for Summary Adjudication as to Plaintiff’s First and Fourth Causes of Action and Defendants First and Fourth Causes of Action is improper pursuant to Code of Civil Procedure 437c(f)(1) and 437c subdivision (t).

Defendants move the Court for summary adjudication against Plaintiff and Cross-Defendant Damien Stevens on Fifth (Reformation) Cause of Action of the First Amended Complaint. A reformation action lies when a written instrument does not accurately reflect the oral understanding that gave rise to it. (CC § 3399; Getty v. Getty (1986) 187 Cal. App. 3d 1159, 1178.) That is, the sole purpose of the reformation doctrine is to correct a written instrument in order to effectuate a common intention of the parties which was incorrectly reduced to writing. (Getty, supra, 187 Cal.App.3d at 1178.) The elements of reformation are: (1) fraud, or mutual mistake of the parties, or a mistake of one party known or suspected by the other; (2) form of agreement pled verbatim or generally according to legal effect; and (3) contract does not express parties’ actual intent. (CC § 3399.)

The pertinent allegations in Plaintiff’s First Amended Complaint state that “Paragraph 11.8 of the Second Amendment did not effectuate the intent of the parties because the purpose was to limit a member to receiving book value for the reduction of his economic interest if that member chose to reduce his work commitment. Accordingly, Stevens is informed and believes that there was either a mutual mistake by the Manchengo members as to the meaning of Paragraph 11.8, particularly given the clear statements in Paragraphs 2.8 and 3 of the Redemption Agreement that the parties would enter into a Second Amendment in accordance with the Redemption Agreement. Alternatively, Stevens made a unilateral mistake as the meaning of Paragraph 11.8, and he is informed and believes that the mistake as to its meaning was known or suspected by the other members of Manchengo in light of the terms of the Redemption Agreement.” (FAC ¶ 118.)

Defendants argue that in fact, Stevens confirmed the Entity Defendants and their members agreed that “All future purchases of Membership and /or Economic Interest in the Manchengo LLC shall be rewritten in the Operating Agreement to be defined as subject to “Book Value” calculations from the date the proposed amendment with Kim [Bica] is signed forward.” (SSUF No. 26.) On December 30, 2016, Paul Kelley forwarded a message to Stevens (the forwarded message was between Mr. Kelley and Ms. Dagodag, Ms. Bica’s attorney) regarding Kim Bica’s proposal for the terms defining her reduction in work commitment to Manchengo that specified book value would apply to all purchases of interest:

All future purchases of Membership and/or Economic Interest in the Manchengo LLC shall be rewritten in the Operating Agreement to be defined as subject to “Book Value” calculations from the date of the proposed agreement with Kim is signed forward. . . BOTH SIDES AGREE” (SSUF No. 27.)

Stevens did not express any sort of misgiving or question why “book value” would be applied to “all future purchases of membership and/or economic interest” in Manchengo, and not just situations where membership/economic interest is reduced rather than bought out entirely. Defendants also presents emails from Steven who asked, “Do we change the NY operating agreement to be “book value” like we did with the LA/Kim deal? Would this be good or bad for Manchengo.” (SSUF No. 28.) Defendants argue that If the Arcade New York operating agreement was to be modified as Stevens believes the Manchengo operating agreement was, then that would not apply to “Jeff, Sila, and Dave” exiting Arcade New York, but simply reducing their membership interests. Steven’s own emails show that he understood the “book value” amendment to § 11.8 to apply to all purchases of membership interest, not just when a member decides to reduce their commitment – this comports with the December 23, 2016 email to Novokmet, with the reality being that Stevens (and the other Manchengo members) understood perfectly well what the Second Amendment meant with respect to § 11.8 – Stevens simply no longer desires that outcome, and is attempting ex post facto to change it.

Plaintiff does not present any evidence to show that there was a mutual mistake. The sole purpose of the reformation doctrine is to correct a written instrument in order to effectuate a common intention of the parties which was incorrectly reduced to writing. (Getty, supra, 187 Cal.App.3d at 1178.) As Stevens posed questions regarding the Agreement, Stevens was aware of the changes made in the Agreement. There was a common intention of the parties which was correctly reduced to writing. No evidence has been presented to show that there was a mutual mistake, rather, the evidence presented show that Stevens now wants the Operation Agreement to be susceptible to another interpretation based on the language itself. That is not grounds for reformation under California Civil Code § 3399.

Therefore, Defendants’ Motion for Summary Adjudication as to Plaintiff’s Fifth Cause of Action is GRANTED.