Judge: Helen Zukin, Case: 23SMCV00023, Date: 2023-03-10 Tentative Ruling
Case Number: 23SMCV00023 Hearing Date: March 10, 2023 Dept: 207
Background
Plaintiff Lauren Selig (“Plaintiff”) brings this action
against Defendants Rainer Ziehm (“Ziehm”), Nate Reese (“Reese”), and Scott
Ulliman (“Ulliman”), Future Trash, Inc., and FOAD, Inc. (collectively
“Defendants”) alleging she performed work for Defendants in the early stages of
the development of a business venture and Defendants have failed to provide her
with the compensation agreed upon by the parties. Plaintiff’s Complaint, filed
January 5, 2023, alleges two causes of action against Defendants for breach of
contract and declaratory relief. Defendants bring this demurrer to all of these
causes of action, arguing they fail to state
sufficient facts to constitute causes of action against them and are uncertain
pursuant to Code Civ. Proc. § 430.41(e). Plaintiff opposes the demurrer.
Legal 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.)
The general rule is that the plaintiff need only allege
ultimate facts, not evidentiary facts. (Doe v. City of Los Angeles
(2007) 42 Cal.4th 531, 550.) “All that is required of a plaintiff, as a matter
of pleading, even as against a special demurrer, is that his complaint set
forth the essential facts of the case with reasonable precision and with
sufficient particularity to acquaint the defendant with the nature, source and
extent of his cause of action.” (Rannard v. Lockheed Aircraft Corp.
(1945) 26 Cal.2d 149, 156-157.)
Analysis
1. Meet and
Confer
The Court finds Defendants have
satisfied the meet and confer obligation imposed by Code Civ. Proc. § 430.41. (Gura Decl. at ¶¶3-4.)
2. Breach of
Contract
To state a cause of action for
breach of contract, Plaintiff must be able to establish “(1) the existence of
the contract, (2) plaintiff’s performance or excuse for nonperformance, (3)
defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011)
51 Cal.4th 811, 821.) If a breach of contract claim “is based on alleged breach
of a written contract, the terms must be set out verbatim in the body of the
complaint or a copy of the written agreement must be attached and incorporated
by reference.” (Harris v. Rudin, Richman
& Appel (1999) 74 Cal.App.4th 299, 307.) In some circumstances, a
plaintiff may also “plead the legal effect of the contract rather than its
precise language.” (Construction
Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189,
198-199.)
The Complaint alleges on or about
January 11, 2022, Ziehm approached Plaintiff about an opportunity to work on a
new business project alternatively referred to as “FOAD,” “Trash Labs,” or
“Future Trash, Inc.” (Complaint at ¶12.) Ziehm approached Plaintiff because he,
along with his business partners Reese and Ulliman, hoped to gain access to
Plaintiff’s “thoughts, idea, contacts and efforts to promote the Project and
pursue the venture for profit” and because of her “reputation as a prominent
investor and businessperson in areas related to the planned business of the
Project.” (Id.) Ziehm informed Plaintiff that if she agreed to
“participate, and shared her thoughts, ideas and contacts, she would receive
equity, and other consideration, to be determined later in good faith.” (Id.
at ¶13.) Based on this representation, Plaintiff “began performing services for
Defendants, sharing her thoughts and ideas, [and] utilizing her expertise and
contacts.” (Id. at ¶14.)
The Complaint alleges that as of
January 23, 2022, she was engaged in a joint venture with the Defendants,
though “the precise compensation/equity position of the partners had not been
decided, but it was understood and agreed by them that this would be determined
later, in good faith.” (Id. at ¶16.) Plaintiff alleges these
compensation terms were set later in email correspondence sent in March 2022. (Id.
at ¶17.) In a March 28, 2022, email Reese proposed a compensation structure
which would give Plaintiff and Ziehm a cumulative 15% equity stake in the
project, and proposed to leave it up to Plaintiff and Ziehm as to how to
allocate this 15% stake between themselves. (Id.) Ziehm responded by
indicating that he and Plaintiff had agreed he would take a 10% stake and
Plaintiff would receive the remaining 5% share of equity. (Id. at ¶18;
Ex. A to Complaint.) Following this agreement, Plaintiff “continued to commit
herself to the Project and devote her time, effort, expertise, ideas, and
contacts to it and to the business of the partnership….” (Id. at ¶20;
see also Complaint at ¶24 [“Plaintiff was promised a five percent (5%) interest
in the soon to be formed FTI and FOAD in exchange for past and future services
and for her contributions of her ideas, labor, sweat equity, and other
services’].) Defendants ultimately cut Plaintiff out of the venture completely
and have refused to compensate her in any way. (Id. at ¶21.)
The Court finds the Complaint
sufficiently alleges a cause of action for breach of contract. Plaintiff
alleges the existence of a contract by which she was to receive a 5% equity
share in return for her work on the subject project, her own performance under
the contact, Defendants breach of the terms of that contract, and her damages
as a result of Defendants’ alleged breach. Defendants argue Plaintiff’s sole
involvement in the project was to attract outside investors, a task she had
already accomplished at the time the terms of her compensation was proposed and
agreed to by email in March 2022. Defendants argue Plaintiff’s past
consideration could not support the formation of an employment contract in March
2022. Defendants’ argument relies on a factual assertion which does not appear
on the face of the Complaint: Plaintiff’s work on the project was complete when
she secured potential investment from third party Animoca. As set forth above,
the Complaint alleges both that Plaintiff performed work for the project beyond
securing third-party investment, and this work continued after the parties
agreed to provide her with a 5% equity share. (Complaint at ¶24.) The email
correspondence attached to Plaintiff’s Complaint supports this assertion, as
after agreeing to the 5% stake, Ulliman arranges a call for the parties for the
following day, specifically soliciting Plaintiff’s participation on that call
to give “insight on who would be a good web3 game designed who specializes in
tokenomics.” (Ex. A to Complaint.) Thus, the 5% equity stake was not based
solely on past consideration provided by Plaintiff.
Defendants also argue even if the
parties did agree to provide Plaintiff a share of equity in the project, any agreement
would be void for illegality. Defendants claim Plaintiff was acting as a
broker-dealer in securing potential investment from Animoca, a job which she
could not legally perform because she was not licensed to do so. Even if the
Court were to assume Plaintiff satisfied the definition of a broker-dealer
under Corporations Code § 25004, Defendants’ argument relies on the claim that
Plaintiff is not properly licensed to act as a broker-dealer. This is a factual
assertion which is not apparent on the face of the Complaint. The Complaint
makes no representation as to whether Plaintiff was licensed to act as a
broker-dealer or not. In ruling on Defendants’ demurrer, the Court cannot look
beyond the four corners of the Complaint or matters which the Court may
judicially notice. Defendants have not asked the Court to take judicial notice
of any documents or information, and thus the Court is limited to the face of
the Complaint itself. As the Complaint does not show Plaintiff was acting as an
unlicensed dealer-broker, the Court cannot find the alleged contract is void
for illegality.
Defendants’ reliance on Zappas
v. King Williams Press, Inc. (1970) 10 Cal.App.3d 768 is misplaced. In Zappas
the Court of Appeal affirmed the sustaining of a demurrer without leave to
amend where the plaintiff was seeking compensation based on work he had done
connecting a real estate owner with a lease of the property. The Court noted
under Business and Professions Code § 10136 a person engaged in the business of
acting as a real estate broker could not bring a lawsuit seeking compensation for
that work “without alleging and proving that he was duly licensed real estate
broker.” (Id. at 771-772.) The Court found the plaintiff’s compliant had
indicated he had engaged in business as a real estate broker and thus sustained
the defendant’s fourth demurrer without leave to amend because “plaintiff has
never claimed he can amend his complaint to allege that he was a licensed
broker at the time of the subject transaction.” (Id. at 775-776.)
Indeed, there are situations where
a plaintiff must specifically allege licensure in filing a complaint or risk
demurrer. Business and Professions Code § 10136 imposes such a requirement on
real estate brokers, and Business and Professions Code § 7031 imposes the same
requirement on construction contractors. Defendants do not cite to any similar
requirement for broker-dealers under Corporations Code § 25004, and the Court
is not aware of any authority which imposes such a requirement on Plaintiff
here. Thus, Plaintiff was not required to allege her licensure in the
Complaint, and her licensure status is a factual matter which falls beyond the
Court’s purview in ruling on Defendants’ demurrer. As the Court cannot
determine from the face of the Complaint whether Plaintiff was a licensed
dealer-broker, it cannot determine the alleged contract was illegal on its face
as a matter of law.
The Court thus OVERRULES
Defendants’ demurrer to Plaintiff’s cause of action for breach of contract.
3. Declaratory
Relief
“‘The fundamental basis of
declaratory relief is the existence of an¿actual, present controversy¿over a
proper subject.’“ (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79,
citing 5 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 817, p. 273.) “The ‘proper
subjects’ of declaratory relief are set forth in Code of Civil Procedure
section 1060 and other statutes.” (Brownfield v. Daniel Freeman Marina
Hospital (1989) 208 Cal.App.3d 405, 410.) Under Code of Civil Procedure
section 1060: “Any person interested under a written instrument …, or under a
contract, or who desires a declaration of his or her rights or duties with
respect to another …, may, in cases of actual controversy relating to the legal
rights and duties of the respective parties, bring an original action … in the
superior court for … a determination of any question of construction or
validity arising under the instrument or contract.”
“[A]n action in declaratory relief
will not lie to determine an issue which can be determined in the underlying …
action. ‘The object of the statute is to afford a new form of relief where
needed and not to furnish a litigant with a second cause of action for the
determination of identical issues.’” (California Ins. Guaranty Assn. v. Superior
Ct. (1991) 231 Cal.App.3d 1617, 1624 [citation omitted]; see also Hood
v. Superior Ct. (1995) 33 Cal.App.4th 319, 324 [declaratory relief cause of
action deemed “unnecessary and superfluous” where the issues invoked were fully
engaged by other causes of action].)
Plaintiff’s cause of action for
declaratory relief alleges she entered into an agreement by which she was to
receive a 5% interest in the project in return for work she performed. It
alleges a “controversy has arisen between Plaintiff and Defendants as to
whether Plaintiff is entitled to her 5% interest in Defendants. Plaintiff
believes that she is entitled to the 5% as promised and Defendants disagree.”
(Complaint at ¶26.) Plaintiff seeks “a judicial determination of whether there
was an agreement between herself and Defendants by which Plaintiff is entitled
to 5% of Defendants.” (Id. at ¶27.)
The Court finds that the
declaratory relief claim is duplicative of the breach of contract claim
asserted in the Complaint. Plaintiff seeks determination of whether she has a
contractual right to a 5% equity stake in the subject project, a question which
will necessarily be determined in connection with Plaintiff’s cause of action
for breach of contract premised on Defendants’ alleged failure to provide her
with a 5% interest in the project. In opposition, Plaintiff argues a
determination of her contractual right to a 5% equity stake “could easily have
a purpose beyond the award of contract damages or other monetary remedies.”
(Opposition at 8.) But the only basis for the declaratory relief claim set
forth in the Complaint is a determination of Plaintiff’s right to a 5% equity
stake in the companies. Regardless of the purpose Plaintiff is seeking this
declaration of her right to a 5% share, the question of whether she is entitled
to it will necessarily be resolved by Plaintiff’s cause of action for breach of
contract.
The Court thus SUSTAINS
Defendants’ demurrer to Plaintiff’s cause of action for declaratory relief. As
Plaintiff has argued she can cure any defects in her Complaint by amendment,
the Court will grant her 30 days’ leave to amend to assert a valid cause of
action for declaratory relief which is not duplicative of her cause of action
for breach of contract.
Conclusion
Defendants’ demurrer is OVERRULED as to Plaintiff’s cause of
action for breach of contract and SUSTAINED with 30 days’ leave to amend as to
Plaintiff’s cause of action for declaratory relief.