Judge: Helen Zukin, Case: 21SMCV01430, Date: 2022-08-05 Tentative Ruling
Case Number: 21SMCV01430-03 Hearing Date: August 5, 2022 Dept: 207
Background
Plaintiffs Gregory
Mancuso and Rainier AG (collectively “Plaintiffs”) bring this action against
several Defendants, including Defendant Robert Yaspan (“Defendant”) . Plaintiff
Rainier AG is a brokerage company and Gregory Mancuso is a corporate compliance
office for Rainier AG. The dispute between the parties stems from a Brokerage
Agreement entered into between Rainier AG and Defendant Consul in October 2018.
Plaintiffs allege Consul began a pattern of unusual and suspicious trading
behavior shortly after entering in the Brokerage Agreement. Plaintiff alleges
it conducted an investigation which revealed stock manipulation and conversion
by Defendants. Consul previously brought an action in federal court alleging
causes of action stemming from the relationship between Consul and Rainier AG.
Plaintiffs allege this federal action was frivolous. Plaintiffs bring claims
against Defendants here alleging fraud, breach of contract, and other causes of
action arising from the relationship between Consul and Rainier AG, as well as
a claim for malicious prosecution stemming from the federal action filed by
Consul.
Plaintiffs’
operative pleading is the Second Amended Complaint (“SAC”) filed on April 1,
2022, which alleges causes of action against Defendant for (1) money had and
received, (2) conversion, (3) unjust enrichment, (4) fraud, and (5) malicious
prosecution. Defendant brings this demurrer to each of these causes of action,
alleging each fails to state sufficient facts to constitute a cause of action
against Defendant under Code Civ. Proc. § 430.10(e). Defendant further alleges
each of these causes of action must be dismissed because Plaintiffs have not
satisfied the pre-filing requirements of Civil Code § 1714.10. Defendant also
claims Plaintiff’s causes of action for money had and received and malicious
prosecution are barred by the statute of limitations.
Defendant has
separately filed a motion to strike which seeks to strike portions of the SAC,
specifically Plaintiffs’ allegations of alter ego liability, conspiracy, and
unjust enrichment, as well as certain of Plaintiffs’ claimed damages.
Request for Judicial Notice
Defendant requests the Court take judicial notice of records
from the prior federal district court case which forms the basis of Plaintiffs’
malicious prosecution action, Consul Group v. Zinchenko, United States
District Court, Central District of California, Case No. 2:19-cv-01254-JAK (the
“Federal Action”). Specifically, Defendant requests the Court take judicial
notice of (1) the docket in the prior litigation, (2) an April 25, 2019,
Request for Approval of Substitution or Withdrawal of Counsel, (3) the October
16, 2019, Answer and Affirmative Defenses of Gregory Mancuso, and (4) a
November 7, 2019, Order/Referral to ADR. The Court GRANTS Defendant’s request pursuant to Evidence Code §
452(d) and will take judicial notice of the existence of these
materials, however the Court will not take judicial notice of the truth of the
statements therein.
Demurrer Standard
When considering demurrers, courts read the allegations
liberally and in context. (Wilson v. Transit Authority of City of Sacramento
(1962) 199 Cal.App.2d 716, 720-21.) In a demurrer proceeding, the defects must
be apparent on the face of the pleading or via proper judicial notice. (Donabedian
v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the
pleading alone, and not on the evidence or facts alleged.” (E-Fab, Inc. v.
Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such,
the court assumes the truth of the complaint’s properly pleaded or implied
factual allegations. (Id.) However, it does not accept as true
deductions, contentions, or conclusions of law or fact. (Stonehouse Homes
LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.)
A special demurrer for uncertainty under Section 430.10(f) is disfavored
and will only be sustained where the pleading is so unintelligible a defendant
cannot reasonably respond—i.e., cannot reasonably determine what issues must be
admitted or denied, or what counts or claims are directed against him/her. (Khoury
v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even
if the pleading is somewhat vague, “ambiguities can be clarified under modern
discovery procedures.” (Id.)
Motion to Strike Standard
The court may, upon a motion,
or at any time in its discretion, and upon terms it deems proper, strike any
irrelevant, false, or improper matter inserted in any pleading. (Code Civ.
Proc., § 436(a).) The court may also strike all or any part of any pleading not
drawn or filed in conformity with the laws of this state, a court rule, or an
order of the court. (Id., § 436(b).)
The grounds for a motion to strike are: the pleading has irrelevant, false, or
improper matter, or has not been drawn or filed in conformity with laws. (Id. § 436.) The grounds for moving to
strike must appear on the face of the pleading or by way of judicial notice. (Id. § 437.)
Analysis
1. Meet and
Confer Requirement
Before filing a
demurrer or a motion to strike, the demurring or moving party is required to
“meet and confer in person or by telephone” with the party who filed the
pleading demurred to or the pleading subject to the motion to strike for the
purposes of determining whether an agreement can be reached through a filing of
an amended pleading to resolve the objections to be raised in the demurrer.
(C.C.P. §§ 430.41 and 435.5.) Defendant has satisfied these meet and confer
obligations in bringing the demurrer and motion to strike. (Brand Decls. at ¶
2.)
2. Civil
Code § 1714.10
“A plaintiff must
obtain a prior court order before filing an action against an attorney that
includes a claim for civil conspiracy with a client arising from any attempt to
contest or settle a claim while representing the client.” (Klotz v. Milbank,
Tweed, Hadley & McCloy (2015) 238 Cal.App.4th 1339, 1350.) Civil Code §
1714.10 “‘prohibits the unauthorized filing of an action for nonexempt civil
conspiracy against an attorney based on conduct arising from the representation
of a client that is in connection with any attempt to contest or compromise a
claim or dispute.’ [Citation.] Section 1714.10 ‘was enacted to combat ‘the use
of frivolous conspiracy claims that were brought as a tactical ploy against
attorneys and their clients and that were designed to disrupt the
attorney-client relationship.’ [Citation.] The statute thus performs a
‘“gatekeeping” function and requires a plaintiff to establish a reasonable
probability of prevailing before he or she may pursue a “cause of action
against an attorney for a civil conspiracy with his or her client arising from
any attempt to contest or compromise a claim or dispute.”’” (Ibid.) Where
a plaintiff has alleged civil conspiracy between an attorney and his or her
counsel with other claims, section 1714.10 only bars the allegations of civil
conspiracy. (See id. at pp. 1349-1350.)
Defendant contends
Plaintiff’s causes of action against him are barred by Civil Code § 1714.10(a),
which provides in pertinent part:
No cause of action against an
attorney for a civil conspiracy with his or her client arising from any attempt
to contest or compromise a claim or dispute, and which is based upon the
attorney's representation of the client, shall be included in a complaint or
other pleading unless the court enters an order allowing the pleading that
includes the claim for civil conspiracy to be filed after the court determines
that the party seeking to file the pleading has established that there is a
reasonable probability that the party will prevail in the action.
Defendant argues he
is being sued primarily because he acted as counsel for Consul Group Re
Dos Mil Vientiuno S.R.L. (“Consul”) in the Federal Action, and the SAC in
essence alleges he conspired with Consul in its alleged wrongdoing.
Plaintiffs concede they did not follow the pre-filing
procedure set out in Civil Code § 1714.10(a), rather they allege the claims
alleged against Defendant in the SAC fall within an exemption to these
pre-filing requirements codified at 1714.10(c). Section 1714.10(c) provides the
pre-filing requirements of subdivision (a) “shall not apply to a cause of
action against an attorney for a civil conspiracy with his or her client, where
… the attorney’s acts go beyond the performance of a professional duty to serve
the client and involve a conspiracy to violate a legal duty in furtherance of
the attorney’s financial gain.” Plaintiffs argue the claims raised against
Defendant go beyond his performance of a professional duty as counsel to Consul
in the Federal Action and allege he engaged in tortious acts in an individual
capacity and as the “chairman and alter ego of defendant GBT
Technologies/Gopher Protocol.” (Opposition at 8.)
The allegations against Defendant in the SAC go beyond
Defendant’s role as counsel in the Federal Action and allege he engaged in
wrongdoing as “director, chairperson, and alter ego” of Defendant GBT
Technologies Inc (SAC at ¶ 6), including allegations of stock manipulation (id
at ¶¶ 17, 31, 32) and duping Plaintiffs to enter into a Brokerage Agreement
with Defendants (id at ¶ 33) for his own financial gain (id at ¶
46.) The Court finds these allegations are not based on Defendant’s
representation of Consul in the Federal Action and are sufficient to trigger
the exemption codified in Civil Code § 1714.10(c) as they go beyond any
professional duty Defendant owed in his capacity as an attorney and allege
Defendant violated a separate and independent duty for his own financial gain. Thus,
Plaintiffs were not required to obtain an order prior to bringing these causes
of action against Defendant.
In reply, Defendant
contends a plaintiff must always “obtain leave to file a claim against an
attorney” and the applicability of an exemption under section 1714.10(c) can
only be determined at a hearing under section 1714.10(a). The Court disagrees. Defendant
cites no authority for these propositions, and they run contrary to caselaw on
point. (See e.g., Pavicich v. Santucci (2000) 85 Cal.App.4th 382 [hearing under 1714.10(a)
not required in advance of bringing malicious prosecution claim against attorney];
(Westamco Inv. Co. v. Lee (1999) 69 Cal.App.4th 481 [affirming
denial of motion to strike where complaint alleged cause of action for which
attorney could be held “separately liable”].) Further, Defendant’s proposed
interpretation would render section 1714.10(c) a nullity as subdivision (c)
expressly exempts a litigant from compliance with subdivision (a). If a
litigant were required to comply with subdivision (a) to assert one of the
exemptions codified at subdivision (c), there would be no purpose to assert any
such exemption.
Accordingly, the
Court OVERRULES Defendant’s demurrer as to the application of Civil Code §
1714.10.
3. Money
Had and Received
“A cause of action
for money had and received is stated if it is alleged the defendant is indebted
to the plaintiff in a certain sum for money had and received by the defendant
for the use of the plaintiff.” (Farmers Insurance Exchange v. Zerin
(1997) 53 Cal.App.4th 445, 460 [citation and quotation marks omitted].)
Defendant contends
Plaintiffs’ cause of action for money had and received fails because the SAC
does not allege Defendant was indebted to Plaintiffs or even received money for
the use of Plaintiffs. Paragraph 63 of the SAC alleges Defendant and others
“received monies that were intended to be used for the benefit of Plaintiffs.”
Paragraph 64 alleges these funds “totaled five (5) million dollars” and “were
not used for Plaintiffs’ benefit.” Paragraph 53 alleges Defendants “had all the
assets that Rainier AG had frozen transferred out of Rainier AG’s control and
into Defendants’ accounts, custody, or control. On information and belief, each
Defendant participated in these acts, each Defendant acted in concert with the
other Defendants, and each Defendant did so with the purpose of reaping financial
gain.” The Court finds these allegations are sufficient to state a cause of
action for money had and received against Defendant.
Defendant’s demurrer
further alleges Plaintiffs’ claim for money had and received is barred by the
two-year statute of limitations. Plaintiffs contend the applicable statute of
limitations for a cause of action for money had and received depends on the
nature of the underlying wrong. Plaintiffs contend their cause of action is
based on fraud and thus is governed by the three-year statute of limitations
for fraud claims under Code Civ. Proc. § 338(d). Defendant appears to concede
this point in his reply, stating “the alleged claim for money had and received
is based upon alleged fraud” and offering no rebuttal to Plaintiffs’ argument
regarding the applicable statute of limitations. (Reply at 3-4.) The Court
finds Plaintiffs’ claim is governed by the three-year statute of limitations
for fraud claims and was timely filed on August 27, 2021.
Accordingly, the
Court OVERRULES Defendant’s demurrer to Plaintiffs’ cause of action for money
had and received.
4. Conversion
“Conversion is the
wrongful exercise of dominion over the property of another. The elements of a
conversion claim are: (1) the plaintiff’s ownership or right to possession of
the property; (2) the defendant’s conversion by a wrongful act or disposition
of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th
1225, 1240.)
Defendant argues “Since
Plaintiffs incorporate the preceding paragraphs into the cause of action, the conversion
cause of action is a fraud claim” and thus must satisfy the heightened pleading
standard for fraud claims generally. (Demurrer at 9.) Defendant claims
Plaintiffs have failed to satisfy this heightened standard for fraud claims.
Plaintiffs argue Defendant has cited no authority demonstrating its cause of
action for conversion should be deemed a claim for fraud and contend
Defendant’s argument is illogical as Plaintiffs’ fraud claims appear after
their claim for conversion and thus the conversion claim does not incorporate
the fraud claims by incorporating the paragraphs which precede the conversion
claim.
The Court agrees
with Plaintiffs. Defendant cites to no authority showing Plaintiff’s conversion
claim must be deemed a fraud claim for purposes of pleading. Defendant cites to
State of California ex rel.
McCann v. Bank of America, N.A. (2011) 191 Cal.App.4th 897 (“McCann”) and City of Pomona v. Superior Court (2001) 89 Cal.App.4th
793 for the proposition that “in any action sounding in fraud the allegations
of a complaint must be pled with particularity.” (Demurrer at 9.) However,
neither case supports the assertion that Plaintiffs’ conversion claim sounds in
fraud simply because it is based on the same factual allegations as a separately
pled cause of action for fraud. In City of Pomona, the Court held “As in any action sounding in fraud, the
allegations of a federal False Claims Act complaint must be pleaded with
particularity.” (Id. at 803.) McCann was a case brought under the
California False Claims Act, and quoted City of Pomona in applying a
heightened pleading standard to the False Claims Act cause of action. (McCann,
supra, 191 Cal.App.4th 906.)
Both City of
Pomona and McCann are based on the nature of an action under the
California False Claims Act (“CFCA”). As the Court in McCann explained:
The CFCA is
intended “to supplement governmental efforts to identify and prosecute
fraudulent claims made against state and local governmental entities.
[Citation.]” (Rothschild v. Tyco Internat. (US), Inc. (2000) 83
Cal.App.4th 488, 494 [99 Cal. Rptr. 2d 721] (Rothschild).) It is
modeled on the federal False Claims Act (31 U.S.C. § 3729 et seq.), and
“permits the recovery of civil penalties and treble damages from any person who
‘[k]nowingly presents or causes to be presented [to the state or any political
subdivision] … a false claim for payment or approval.’ ([Gov. Code,] § 12651,
subd. (a)(1).)” (Rothschild, at p. 494.) A “claim” under the CFCA means “any
request or demand … for money … [¶] … presented to an officer, employee, or
agent of the state … .” (Gov. Code, § 12650, subd. (b)(1)(A).) False claims
include “[k]nowingly present[ing] or caus[ing] to be presented a false or
fraudulent claim for payment or approval” (Gov. Code, § 12651, subd. (a)(1)),
but also include “knowingly and improperly avoid[ing], or decreas[ing] an
obligation to pay or transmit money or property to the state or to any
political subdivision” (Gov. Code, § 12651, subd. (a)(7)). The first type is
referred to as a traditional false claim and the latter is known as a reverse
false claim. (See 1 Epstein et al., Unclaimed Property Law and Reporting Forms
(2010) § 5.12A, p. 5-40.14 (rel. 47-9/2007) (hereafter 1 Epstein et al.).)
(McCann,
supra, 191 Cal.App.4th 903.) CFCA claims thus inherently concern
allegations of fraudulent conduct, and necessarily trigger the heightened
pleading requirements applicable to fraud claims. However, nothing in City
of Pomona and McCann suggests those heightened pleading standards
apply to a non-fraud claim which shares foundational factual allegations with a
fraud claim, nor do the elements of a conversion claim inherently concern
allegations of fraud.
The Court
finds no basis to impose the heightened pleading requirements on Plaintiffs’
claim for conversion. As the sole basis for Defendant’s demurrer and motion to
strike as to this cause of action is the purported failure to satisfy the
heightened pleading requirement for fraud, the demurrer is OVERULED.
5. Unjust
Enrichment
The right to restitution or quasi-contractual recovery is
based upon “unjust enrichment,” i.e., where a person obtains a
benefit that the person may not justly retain, the person is unjustly enriched.
(Prakashpalan v. Engstrom, Lipscomb and Lack (2014) 223 Cal.App.4th 1105, 1132, as
modified on denial of reh’g (Feb. 27, 2014) (quoting Otworth v. Southern
Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 460.); see also Civ.
Code, §§ 2223-4.)
Defendant contends unjust enrichment is not a cause of action
under California law but is a remedy for restitution. There is a split in
California authority on this question. (Compare Durell v. Sharp Healthcare
(2010) 183 Cal. App. 4th 1350, 1370 [“There is no cause of action in California
for unjust enrichment. Unjust enrichment is synonymous with restitution”] with Peterson
v. Cellco Partnership (2008) 164 Cal. App. 4th 1583, 1593 [recognizing a
cause of action for unjust enrichment under California law].) Given this split
in authority, the Court declines to find Plaintiffs’ cause of action for unjust
enrichment fails as a matter of law.
Defendant also argues the SAC fails to state sufficient acts
to constitute a cause of action for unjust enrichment. The Court disagrees.
Plaintiffs’ cause of action for unjust enrichment is set forth at paragraphs
75-78 of the SAC and incorporates all preceding allegations. As set forth
above, paragraphs 53, 63, and 64 of the SAC allege Defendant and others
received money from Plaintiffs and transferred Rainier AG’s assets into their
own accounts, custody, or control. Paragraphs 76 and 77 allege Defendant has
“been unjustly enriched at the expense of Plaintiffs” as a result of these
actions and “have derived and continue to derive a benefit from their actions.”
The Court finds these allegations are sufficient to plead unjust enrichment,
and accordingly Defendant’s demurrer to this cause of action is OVERRULED and Defendant’s
motion to strike this cause of action is DENIED.
6. Fraud
“The elements of fraud are (a) a misrepresentation (false
representation, concealment, or nondisclosure); (b) scienter or knowledge of
its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e)
resulting damage.” (Hinesley v. Oakshade
Town Ctr. (2005) 135 Cal.App.4th 289, 294.) The facts constituting the
alleged fraud must be alleged factually and specifically as to every element of
fraud, as the policy of “liberal construction” of the pleadings will not
ordinarily be invoked. (Lazar v. Superior
Court (1996) 12 Cal.4th 631, 645.) To properly allege fraud against a corporation, the plaintiffs
must plead the names of the persons allegedly making the false representations,
their authority to speak, to whom they spoke, what they said or wrote, and when
it was said or written. (Tarmann v. State
Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)
Defendant
claims Plaintiffs’ fraud claim arises from his alleged mismanagement of defendant
GBT Technologies, and Plaintiffs lack standing to assert such a claim which
could only be properly brought by GBT’s shareholders in a derivative action.
“As noted, a derivative suit is one in which the shareholder
seeks ‘redress of the wrong to the corporation. [Citations.]’ Thus, an action ‘
“is derivative, i.e., in the corporate right, if the gravamen of the complaint is
injury to the corporation, or to the whole body of its stock and property without
any severance or distribution among individual holders, or it seeks to recover assets
for the corporation or to prevent the dissipation of its assets.” [Citations.]’
On the other hand, a direct or individual suit by a stockholder ‘ “is a suit to
enforce a right against the corporation which the stockholder possesses as an individual.”
[Citation.]’ A direct (as opposed to a derivative) action is maintainable ‘only
if the damages [are] not incidental to an injury to the corporation. [Citation.]’
And ‘ “[t]he two actions are mutually exclusive: i.e., the right of action and recovery
belongs to either the shareholders (direct action) or the corporation
(derivative action).” ’ ” (Bader v. Anderson (2009) 179 Cal.App.4th 775,
793 [internal citations omitted, alterations in original].)
Plaintiffs here are not alleging injury to GBT Technologies,
rather they are asserting a direct suit against Defendant for tortious conduct
allegedly committed against them by Defendant and others. Plaintiffs’ suit
against Defendant is not one of alleged mismanagement or insufficient corporate
governance, rather Plaintiffs have alleged a:
fraudulent scheme
committed by Defendants acting in concert, including: a fraudulent attempt to
legitimate illicit stock transactions (SAC ¶31, 37)); an illegal manipulation
of the stock market and the legal system (SAC ¶31, 54); the hidden identities
of the actual persons and entities that owned the stock; the hidden identities
of the persons and/or entities that owned GBT/GOPHER and CONSUL (SAC ¶95); the
true nature of the transactions to be placed with Plaintiff Rainier AG (SAC
¶95); entering into a brokerage agreement under false pretenses (SAC ¶31);
providing opinion letters with 13 falsehoods regarding the shares to be placed
with and/or through Plaintiffs (SAC ¶102); misleading Plaintiffs into using
them as part of their scheme to liquidate illegally obtained stock, a scheme
which included manipulating stock prices (SAC ¶60); misleading Plaintiffs to
believe that Defendants were engaging in bona fide stock purchases and sales (Id.);
misleading Plaintiffs as to the true owners of the stocks being traded and of
the entities involved (Id.); misleading Plaintiffs for purposes of
obtaining loans that Defendants had no intention of repaying (Id.);
lying to transfer agents to obtain frozen assets in Plaintiff s custody. (SAC
¶103).
(Demurrer Opposition at 14.) Plaintiffs allege they—not GBT
Technologies—have been harmed by Defendant’s conduct. (SAC at ¶108.) The Court
thus rejects Defendant’s assertion that Plaintiffs lack standing to bring their
cause of action for fraud.
Defendant asserts Plaintiff’s cause of action for fraud
simply amounts to a cause of action for breach of Rainier’s Brokerage
Agreement, which necessarily must fail because Plaintiffs cannot “transform an
alleged contract dispute into a tort action.” (Demurrer at 13.) However, in
making this argument Defendant acknowledges conduct amounting to a breach of
contract properly sounds in tort where “it also violates a duty independent of
the contract.” (Id.) As set forth above, the SAC alleges a myriad of
fraudulent conduct by Defendant which goes far beyond merely alleging otherwise
lawful conduct which breached the Brokerage Agreement. Defendant has demurred
to this cause of action under Code Civ. Proc. § 430.10(e), which tests whether
a plaintiff has stated a cause of action. Thus, to the extent some specific
allegations may amount to no more than a breach of the Brokerage Agreement,
this alone does not lead the Court to find Plaintiffs have not properly stated
a cause of action for fraud based on the remaining allegations.
Defendant also claims the SAC fails to satisfy the
heightened pleading requirements for fraud claims. The Court disagrees. The SAC
at paragraphs 95-109 contains detailed allegations of the alleged fraud,
including the respective roles of the various Defendants and approximate dates
and motivations of the parties in attempt to entice Plaintiff Rainier AG to
enter into the Brokerage Agreement so Defendants “could use Plaintiffs as a
conduit or vessel in their scheme for liquidating, ill-gotten, non-free trading
stock” and obtaining Plaintiffs’ frozen assets through fraudulent means. (SAC
at ¶ 103.)
Defendant argues Plaintiffs cannot rely on alter ego
allegations because Plaintiffs would not be able to carry their burden to
pierce the corporate veil. However, Plaintiffs are not required to
affirmatively prove Defendant was acting as the alter ego of any other entity
at the pleading stages. The cases cited by Defendant do not concern the
sufficiency of allegations in a pleading but rather the substantive merits of a
plaintiff’s claim of alter ego liability. As such they are inapplicable to
Defendant’s demurrer.
Defendant further claims Plaintiffs do not allege damages as
a result of the purported fraud. The Court disagrees. Paragraph 108 of the SAC
alleges “Plaintiff has suffered significant and extensive damages including
financial and reputational injury.”
The Court finds the allegations of the SAC are sufficient to
meet the heightened pleading requirements for fraud claims and thus Defendant’s
demurrer to this cause of action is OVERRULED.
7. Malicious
Prosecution
“A plaintiff must
plead and prove three elements to establish the tort of malicious prosecution:
a lawsuit (1) was commenced by or at the direction of the defendant and was
pursued to a legal termination favorable to the plaintiff; (2) was brought
without probable cause; and (3) was initiated with malice.” (Nunez v.
Pennisi (2015) 241 Cal.App.4th 861, 872 [quotations omitted].)
Defendant alleges
Plaintiffs’ claim for malicious prosecution is barred by the one-year statute
of limitations under Code Civ. Proc. § 340.6. Alternatively, Defendant argues
Rainier AG’s claim for malicious prosecution is also barred by the two-year
limitations period set forth in Code Civ. Proc. § 335.1.
Section 340.6 provides that “[a]n action against an
attorney for a wrongful act or omission, other than for actual fraud, arising
in the performance of professional services shall be commenced within one year
after the plaintiff discovers, or through the use of reasonable diligence
should have discovered, the facts constituting the wrongful act or omission, or
four years from the date of the wrongful act or omission, whichever occurs
first.” (C.C.P. § 340.6(a).) Section
340.6 is most commonly applied to claims for legal malpractice and “most
lawsuits between clients and their attorneys.” (See e.g., Lee v. Hanley (2015) 61 Cal.4th 1225, 1235-1238 [in enacting section 340.6
“the Legislature's primary focus was establishing a new limitations period for
legal malpractice”].) However, in Connelly v. Bornstein
(2019) 33 Cal.App.5th 783, 799, the Court of Appeal surveyed the history of the
caselaw concerning the statute of limitations applicable to a cause of action
for malicious prosecution and found “In sum, consistent with Lee, section 340.6(a) applies to malicious prosecution claims against attorneys who performed
professional services in the underlying litigation.” In reaching this
conclusion, the Connelly Court distinguished between malicious
prosecution and the types of more general torts which Lee had held
beyond the application of section 340.6: “While an attorney's theft or sexual battery of a client may have been
contemporaneous with the legal representation, it is intrinsically conduct that
is incidental or ancillary to the provision of professional services itself.” (Id.
at 795.) The Court further reasoned attorneys and litigants have differing
obligations when it comes to malicious prosecution: “attorneys are
professionally obligated to competently perform legal services by personally
assessing the tenability of a claim before asserting it.” (Id. at 798.)
Accordingly, Connelly found an action for malicious prosecution against
an attorney concerns “a professional obligation as opposed to some generally
applicable nonprofessional obligation” such as to trigger the application of
section 340.6 under the California Supreme Court’s analysis in Lee. (Id.
[quoting Lee, supra, 61 Cal.4th at 1238].)
The SAC here alleges
Defendant “participated, supported, aided, abetted, and ratified CONSUL's
actions not only as attorney for CONSUL, but as co-conspirator with CONSUL,
SCHNAPP, LARA, and YASPAN; individually; and in his position as director,
officer, chairperson and alter ego of the issuer defendant GOPHER/GBT.” (SAC at
¶ 111.) However, the SAC offers no factual allegations as to Defendant’s role
in aiding, abetting, or ratifying the Federal Action as an individual or
officer of GBT rather than as an attorney for Consul. Further, under Connelly,
Defendant as an attorney owed a professional obligation to refrain from
prosecuting an action without probable cause, triggering the application of the
one-year limitations period under 340.6.
The Court thus finds
the one-year statute of limitations applies to Plaintiffs’ claims for malicious
prosecution against Defendant. Plaintiffs allege the “Federal Action was
terminated on the merits in Plaintiffs’ favor in December 2019.” (SAC ¶ 117.)
Plaintiffs filed their lawsuit in this action on August 27, 2021, and is thus
barred by the one-year statute of limitations for malicious prosecution actions
set forth in Code Civ. Proc. § 340.6. Plaintiffs have not demonstrated this
defect could be cured by further amendment, and accordingly, Defendant’s
demurrer to Plaintiff’s cause of action for malicious prosecution is SUSTAINED
without leave to amend.
8. Alter
Ego Allegations
Defendant moves to
strike the allegations in the SAC which state Defendant was acting as the alter
ego of other defendant entities. Defendant argues “alter ego” is a theory of
liability and not a stand-alone cause of action and is thus improper to include
in the SAC. Defendant cites to no authority—and the Court is not aware of
any—which precludes a plaintiff from explaining its theory of liability against
a defendant in a complaint. Indeed, if Plaintiffs had not asserted the alter
ego allegations against Defendant, Defendant would have brought a demurrer
arguing Plaintiffs had not asserted any factual allegations against it.
Defendant next
argues Plaintiffs have not made the requisite showing “1) that a unity of
interest between the corporation and its equitable owners exists such that they
are not separate; and 2) that inequity would result if the corporate form were
respected.” (Motion at 12.) However, this argument goes to the merits of
Plaintiffs’ claim rather than the sufficiency of the SAC. Moreover, Defendant
acknowledges there is no litmus test to determine when it is appropriate to
pierce the corporate veil, which instead depends on the circumstances of each
particular case. (Motion at 13.) It would be illogical to impose an obligation
on Plaintiffs to affirmatively demonstrate they are entitled to pierce the
corporate veil at the pleading stage before any discovery has been conducted
and all of the relevant circumstances are before the Court.
Defendant further claims any alter-ego
allegations made “on information and belief” in the SAC must be stricken
pursuant to Code Civ. Proc. §§ 435 and 436. (Motion at 13.) However, sections
435 and 436 contain no prohibition against allegations made on information and
belief in a pleading. Defendant cites to no authority showing allegations made
on information and belief are in any way false, improper, or irrelevant.
Accordingly, the Court rejects this argument.
The Court finds Defendant has not set forth
any basis to strike Plaintiffs’ alter ego allegations, and Defendant’s motion
to strike those allegations is DENIED.
9. Conspiracy
Allegations
Defendant contends
Plaintiffs have not sufficiently alleged his involvement in a conspiracy and
thus asks the Court to strike the allegations in the SAC which allege a
conspiracy. Upon review of the SAC, the Court finds Plaintiffs have stated
sufficient facts at the pleading stage for their theory of Defendant’s
involvement in a conspiracy to survive.
In paragraph 33 of
the SAC, Plaintiffs allege Defendant “conspired and aided and abetted in
setting up the various alter ego corporate entities that were integral to
Defendants' scheme. As an attorney, as an individual, and as an owner,
director, chairperson, and control person for GBT/GOPHER, Plaintiffs allege
that YASPAN aided, abetted, planned and participated in the elaborate scheme to
dupe them into entering into the Brokerage Agreement with Defendants through
which Defendants would engage in their illegal transactions which included the
trading of GBT/GOPHER stock.”
Paragraph 34 further
states Defendant “agreed to, conspired in, and aided and abetted in a course of
intimidation and the eventual malicious prosecution of Plaintiffs during
Plaintiffs’ freezing of the suspicious funds. YASPAN as an insider of
Gopher/GBT clearly stood to benefit from the inflated share prices and illegal
stock placements. YASPAN was present and participated in teleconferences with
SCHNAPP as Defendants roped Plaintiffs into their scheme. Many of YASPAN's acts
were done in his capacity as alter ego, director, chairperson, and officer of
GBT/GOPHER.”
Plaintiffs also
allege Defendant acted in furtherance of the conspiracy, claiming: “YASPAN,
on behalf
of CONSUL and GOPHER, and
in an act planned and ratified by all Defendants, sent a letter directly to
Plaintiffs threatening them in an
attempt to get Plaintiffs to
release the assets. YASPAN
copied a retired FINRA analyst and a retired Chief of Police in order to
give his correspondence a whiff of credibility.” (SAC at ¶ 51.)
The Court finds
these allegations are sufficient to support Plaintiffs’ claims of conspiracy
and accordingly Defendant’s motion to strike the conspiracy allegations in the
SAC is DENIED.
10. Damages
Defendant moves to
strike several claims for damages asserted in the SAC. First, Defendant alleges
Plaintiffs’ damages under its cause of action for money had and received are
limited to return of the amount improperly held by Defendant. Defendant cites
to Pollak v. Staunton (1930) 210 Cal. 656, 665, which held:
Appellant Salsberry contends that in any
event in an action for money had and received his liability is limited to the
amount received by him to wit, one-third of $ 21,532.49 or $ 7,177.49. This
contention must be upheld. The action for money had and received is based upon
an implied promise which the law creates to restore money which the defendant
in equity and good conscience should not retain. The law implies the promise
from the receipt of the money to prevent unjust enrichment. The measure of the
liability is the amount received.
Plaintiffs
contend their cause of action for money had and received is simply “seeking
restitution in the form of the value of the stocks and monies that form the
basis of their claim.” (Opposition at 9.) However, this assertion is not
supported by the SAC, which instead seeks to recover “the loss of revenues,
loss of corporate opportunities, reputational damages and loss of goodwill” as
well as “punitive damages” in connection with their cause of action for money
had and received. (SAC at ¶¶ 65-66.) Plaintiffs have offered no authority
showing they can recover such damages in their case of action for money had and
received in contradiction of the express holding of Pollack set forth
above. Accordingly, the Court GRANTS Defendant’s motion to strike paragraphs 65
and 66 from the SAC.
Defendant next
moves to strike Plaintiffs’ claim for disgorgement from the SAC’s prayer for
relief because disgorgement is not alleged as a remedy in any of the causes of
action asserted therein. Defendant cites to no authority for this proposition.
California Court have recognized disgorgement as a remedy for unjust
enrichment. (See e.g., Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 894
[“The disgorgement of profits is a remedy to prevent unjust enrichment”]; American
Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1482
[“There are two types of disgorgement: restitutionary disgorgement, which
focuses on the plaintiff's loss, and nonrestitutionary disgorgement, which
focuses on the defendant's unjust enrichment”],) As the Court has overruled
Defendant’s demurrer and denied Defendant’s motion to strike Plaintiff’s claim
for unjust enrichment, Plaintiffs are entitled to seek disgorgement in
connection with that claim.
Finally,
Defendant moves to strike Plaintiffs’ claim for attorney’s fees, arguing the
SAC fails to demonstrate Plaintiffs are entitled to such recovery either by
contract or statute. In response, Plaintiffs claim they will be able to
“provide evidence to show that the Brokerage Agreement that forms the substance
of many of the allegations of the SAC contains an attorney’s fee provision.”
(Opposition at 10.) Even where a claim for
attorneys’ fees is unsupported by the pleadings, courts are not required to strike
such a claim before a plaintiff has the “opportunity to determine, through
discovery, whether a basis for recovery exists.” (Camenisch v. Superior
Court (1996) 44 Cal.App.4th 1689, 1699.) As counsel has indicated a
potential basis for recovery of attorney’s fees may exist, the Court declines
to strike Plaintiff’s claim for attorney’s fees at this time.
Conclusion
Defendant’s demurrer to Plaintiffs’ Second Amended Complaint
is SUSTAINED without leave to amend as to Plaintiffs’ cause of action for malicious
prosecution and OVERRULED in all other respects. Defendant’s motion to strike
Plaintiffs’ Second Amended Complaint is GRANTED as to paragraphs 65 and 66 and
is otherwise DENIED. Moving party to give notice.