Judge Holly J. Fujie, Case 20STCP04290 2023-02-02 Tentative Ruling

MOVING PARTIES: (1) Defendants Brian Kennedy (“Brian”)[1], Regency Outdoor Advertising, Inc. (“Regency”), and Skyline Outdoor Media, LLC (“Skyline”) (collectively, the “Regency Defendants”); (2) Defendant NTGS Acquisition, LLC (“NTGS”)

This action arises out of a business relationship. The currently operative fourth amended complaint (the “4AC”) alleges: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) breach of fiduciary duty; (4) fraud; (5) intentional interference with contractual relations; and (6) aiding and abetting breach of fiduciary duty.

In relevant part, the 4AC alleges: Plaintiff worked for Brian, his brother Drake Kennedy (“Drake”), and their billboard businesses as a consultant for Regency and a 20 percent owner of Skyline. (See 4AC ¶¶ 4, 21, 24.)^{^[2]} Brian and Drake had a contentious relationship, and in 2013, Drake sued Brian for involuntary dissolution of their businesses. (4AC ¶¶ 30, 34.) On April 1, 2017, a settlement agreement was reached in judicial buyout proceedings that resulted in the execution of a binding term sheet (the “BTS”) that included terms for the forced sales of the Kennedys’ companies’ business assets. (See 4AC ¶¶ 3, 35, Exhibit A.) The BTS provided terms for Plaintiff’s compensation during the sale of the companies. (4AC ¶ 4.) The BTS was modified on October 9, 2017, March 2, 2018 and June 14, 2018. (4AC ¶¶ 40, 48, 57 Exhibits B-D.) After the First Amendment to the BTS, the Kennedys decided that they would not pay Plaintiff his promised two percent bonus, despite separate representations to Plaintiff that he would be paid this amount. (4AC ¶¶ 41-42.)

Plaintiff helped the Kennedys make a billboard sale to Netflix, which Netflix conditioned on Plaintiff’s continuing to manage the transition of assets after the sale. (4AC ¶¶ 6, 59.) When the Netflix sale closed, Plaintiff was paid one percent of the sale price. (4AC ¶ 66.) The Kennedys thereafter decided to stop paying Plaintiff money he was owed under the BTS. (See 4AC ¶¶ 6, 68-69.) Regency also stopped paying Plaintiff his monthly salary, to which he was allegedly entitled until all of its assets were sold and the terms of the BTS were fulfilled. (4AC ¶ 72.)

Brian continued to obstruct the sale process, which resulted in Drake’s filing a lawsuit against Brian in 2019 (the “Receiver Action”). (See 4AC ¶ 76.) The receiver who was eventually appointed in the Receiver Action focused on having one of the Kennedys buy out the other brother rather than conducting a sale that complied with the terms of the BTS. (See 4AC ¶ 77.) In 2021, Brian purchased the remaining business assets. (See 4AC ¶¶ 78-79.) NTGS financed Brian’s purchase. (4AC ¶ 82.) As a result of its due diligence process, NTGS knew of the final BTS terms, all payments owed to Plaintiff, and that Brian did not intend to pay Plaintiff. (See id.) The Kennedys subsequently refused to pay Plaintiff the money he was owed by Regency and Skyline. (4AC ¶¶ 80-81, 83.)

The Regency Defendants filed a demurrer (the “Regency Demurrer”) to the fourth cause of action on the grounds that the 4AC fails to state a cause of action and the pleading is uncertain. The Regency Defendants also filed a motion to strike (the “Regency Motion”) portions of the 4AC.

NTGS filed a demurrer (the “NTGS Demurrer”) to the fifth and sixth causes of action on the ground that the 4AC fails to allege sufficient facts to state a cause of action. NTGS also filed a motion to strike (the “NTGS Motion”) portions of the 4AC.

The Regency Defendants’ Requests for Judicial Notice are GRANTED. NTGS’s Requests for Judicial Notice are GRANTED. Plaintiff’s Requests for Judicial Notice are GRANTED. While the Court takes judicial notice of the existence of court documents, it does not take notice of the truth of the matters stated therein. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113.) In addition, while the Court takes judicial notice of factual findings in another proceeding, it does not take notice of the truth of that finding. (Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 121.)

A demurrer tests the sufficiency of a complaint as a matter of law. (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1358.) The court accepts as true all material factual allegations and affords them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts. (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.) With respect to a demurrer, the complaint must be construed liberally by drawing reasonable inferences from the facts pleaded. (Rodas v. Spiegel (2001) 87 Cal.App.4th 513, 517.) A demurrer will be sustained without leave to amend if there exists no reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Demurrers for uncertainty are disfavored. (Chen v. Berenjian (2019) 33 Cal.App.5th 811, 822.) A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. (Id.)

California law generally recognizes four forms of deceit: intentional misrepresentation, negligent misrepresentation, concealment and failure to perform a promise. (Finch Aerospace Corp. v. City of San Diego (2017) 8 Cal.App.5th 1248, 1252.)

The Regency Defendants argue that the fourth cause of action is uncertain because it improperly combines separate claims for intentional misrepresentation, concealment, false promise and constructive fraud and that the separate theories of fraud are all insufficiently alleged.

The Court agrees that the fourth cause of action is uncertain because it is not clear what alleged misrepresentations or omissions form the bases for recovery on the various legal theories. The uncertainty caused by the consolidation of fraud-based claims is compounded by the argument in Plaintiff’s Opposition that the claim is not uniformly alleged against the identified Defendants.^{^[3]}

The Court therefore SUSTAINS the Regency Demurrer to the fourth cause of action with twenty days leave to amend for Plaintiff to separate his fraud-based claims and to allege facts to plead each cause of action with the requisite specificity. If Plaintiff files an amended complaint that does not sufficiently allege his fraud claims, the Court will consider sustaining a demurrer to these claims without further leave to amend.

NTGS argues that it is shielded from liability by the litigation privilege and the Noerr-Pennington doctrine because its alleged conduct is solely related to its participation in the sale in the Receiver Action.

The litigation privilege, codified at Civil Code section 47, subdivision (b), provides that a “publication or broadcast” made as part of a “judicial proceeding” is privileged. (Kenne v. Stennis (2014) 230 Cal.Ap0.4th 953, 964.) This privilege is absolute in nature, applying ‘to all publications, irrespective of their maliciousness. (Id.) The usual formulation is that the privilege applies to any communication: (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that has some connection or logical relation to the action. (Id.) The privilege is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards. (Id.) The privilege applies only to communicative acts and does not protect tortious courses of conduct. (Buchanan v. Maxfield Enterprises, Inc. (2005) 130 Cal.App.4th 418, 423.)

Under the Noerr-Pennington doctrine[4], those who petition the government are generally immune from antitrust liability. (People ex rel. Gallegos v. Pacific Lumber Co. (2008) 158 Cal.App.4th 950, 964.) This doctrine relies on the constitutional right to petition for redress of grievances to establish that there is no antitrust liability for petitioning any branch of government, even if the motive is anticompetitive. (Id.) The Noerr-Pennington doctrine has been extended to preclude virtually all civil liability for a defendant's petitioning activities before not just courts, but also before administrative and other governmental agencies. (Id.)

The Court finds that the 4AC and properly judicially noticed facts do not establish that Plaintiff’s claims against NTGS are barred on these grounds. NTGS is not a party to the Receiver Action and the 4AC does not allege any “communications” it made in connection to that litigation. Furthermore, the sale in the Receiver Action was not overseen by the court-appointed receiver; rather, the court approved the sale as provided in the terms of a settlement agreement entered into by the Kennedys. (See NTGS RJN, Exhibit H.)

NTGS argues that Plaintiff has not sufficiently alleged causation in the Fifth Cause of Action because the 4AC alleges that the Kennedys already intended to breach the BTS.

The elements of intentional interference with contractual relations are: (1) a valid contract between the plaintiff and a third party; (2) the defendant’s knowledge of this contract; (3) the 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. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55.)

The 4AC sufficiently alleges the elements of intentional interference with contractual relations. The 4AC alleges numerous breaches of the BTS, including breaches that involve the terms of the sale of the Regency Defendants’ assets, which are directly implicated by NTGS’s alleged conduct. The Court therefore OVERRULES the NTGS Demurrer to the fifth cause of action.

The elements of a claim for aiding and abetting a breach of fiduciary duty are: (1) a third party's breach of fiduciary duties owed to plaintiff; (2) defendant's actual knowledge of that breach of fiduciary duties; (3) substantial assistance or encouragement by defendant to the third party's breach; and (4) defendant's conduct was a substantial factor in causing harm to plaintiff. (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343.)

The 4AC sufficiently alleges that NTGS aided and abetted breach of fiduciary duty by learning of the duties owed to Plaintiff during its due diligence process and facilitating a contrary sale that breached those duties for its own benefit. The Court therefore OVERRULES the NTGS Demurrer to the sixth cause of action.

Under California Code of Civil Procedure (“CCP”) section 436, a motion to strike either: (1) strikes any irrelevant, false or improper matter inserted in any pleading; or (2) strikes any pleading or part thereof not drawn or filed in conformity with the laws of this state, a court rule or order of court. (CCP § 436, subds. (a)-(b).) “Irrelevant” matters include: allegations not essential to the claim, allegations neither pertinent to nor supported by an otherwise sufficient claim or a demand for judgment requesting relief not support by the allegations of the complaint. (CCP § 431.10, subd. (b).)

The allegations of the complaint are presumed true; they are read as a whole and in context. (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) A motion to strike should not be a procedural “line item veto” for the civil defendant. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1683.) Pleadings are to be construed liberally with a view to substantial justice. (CCP § 452.)

A plaintiff may recover punitive damages in an action for breach of an obligation not arising from contract when the plaintiff proves by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice. (Civ. Code § 3294, subd. (a).) Malice is conduct which is intended by the defendant to cause injury to the plaintiff, or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. (Civ. Code § 3294, subd. (c)(1).) Despicable conduct is conduct which is so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people. (Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 331.) Oppression is defined as despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. (Civ. Code § 3294, subd. (c)(2).) Punitive damages thus require more than the mere commission of a tort. (See Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-95.) The allegations supporting a request for punitive damages must be alleged with specificity; conclusory allegations without sufficient facts are not enough. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1041-42.)

The request for punitive damages against the Regency Defendants is tied to the fourth cause of action. Due to the Court’s discussion of the Regency Demurrer, the Court GRANTS the Regency Motion with respect to the prayer for punitive damages with 20 days leave to amend.

There are insufficient allegations to support a punitive damages award against NTGS. The Court therefore GRANTS the NTGS Motion with respect to the prayer for punitive damages without leave to amend.

Attorney’s fees are generally not recoverable unless authorized by a contract, statute or law. (CCP § 1033.5, subd. (a)(10).)

The 4AC does not identify a basis for Plaintiff to recover attorney’s fees from NTGS. The Court therefore GRANTS the NTGS Motion with respect to these allegations without leave to amend. The BTS, which is included as an exhibit to the 4AC, however, does support an award of attorney’s fees from the Regency Defendants. (See 4AC, Exhibit A.) The Court therefore DENIES the Regency Motion with respect to these allegations.

In light of the Court’s ruling on the NTGS Demurrer, the remainder of the NTGS Motion that concerns allegations other than punitive damages and attorney’s fees is DENIED.

The non-punitive damages allegations identified in the Regency Motion are also DENIED.[5]

In consideration of the current COVID-19 pandemic situation, the Court¿strongly¿encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative.¿¿If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to¿SMC_DEPT56@lacourt.org¿stating your intention to appear in person.¿ The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date.¿ This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

[1] The Court uses first names to distinguish individuals with the same last name and intends no disrespect in so doing.

[2] The Court refers to Brian and Drake collectively as the “Kennedys” or the “Kennedy Defendants.” Plaintiff’s relationship with the Kennedys and Regency began in 1998. (4AC ¶ 21.) Skyline was founded by Plaintiff and the Kennedys in 2005. (4AC ¶ 24.)

[3] Plaintiff represents that constructive fraud is not alleged against Regency.

[4] Established in the cases of Eastern Railroad Presidents Conf. v. Noerr Motor Freight, Inc. (1961) 365 U.S. 127, 135 and United Mine Workers v. Pennington (1965) 381 U.S. 657, 670.

[5] Many of the allegations the Regency Defendants seek to strike concern the proper interpretation of the BTS and its various amendments. The Regency Defendants do not make an argument about why the interpretations alleged in the 4AC are inconsistent with the BTS terms to a degree that the Court may rule on Plaintiff’s proffered interpretation at the pleading stage. (See Aragon-Haas v. Family Security Ins. Services Inc. (1991) 231 Cal.App.3d 232, 240.) Other contested allegations concern matters outside the pleading that are not conclusively established by matters subject to judicial notice.