Judge Jill Feeney, Case Number: 22STCV01184, Date: 2023-08-25 Tentative Ruling

This is an action for breach of contract arising from an agreement between Plaintiff Humanoids, Inc. (“Humanoids”) and Defendant Vagator Productions Sarl (“Vagator”) to publish Plaintiff’s magazine. Plaintiff alleges that although it exercised its right to terminate their agreement, Vagator continues to contest Plaintiff’s right to terminate the agreement.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. 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 pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

A party filing a demurrer “shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Code Civ. Proc., section 430.41(a).) “The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer.” (Code Civ. Proc., section 430.41(a)(2).) A failure to meet and confer does not constitute grounds to sustain or overrule a demurrer. (See Code Civ. Proc., sections 430.41 (a)(4).)

The elements for a breach of fiduciary duty cause of action are “the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.) “Before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 246.)

In late 2019, Vagator approached Humanoids to relaunch Metal Hurlant as a quarterly digital and printed magazine. (Id., ¶10.) On November 27, 2019, Vagator and Humanoids entered into a written agreement to co-publish the magazine. (Id., ¶11.) The magazine would consist of 208 pages of text, images, and comics by various authors, and would be published in two color editions in French and English to be distributed in France and the English language market. (Id.) Vagator was responsible for developing original content and designs, delivering print files of the final approved content, supervising distribution of the French division, collecting sales proceeds, and supervising crowdfunding operations. (Id., ¶12.) Humanoids was responsible for printing, distributing the magazine in bookshops, collecting proceeds, managing cash flow, and arranging license agreements with third parties. (Id.) All copies were to be deemed jointly owned by the parties. (Id., ¶13.)

The parties executed an addendum to the agreement in June 2020, adding that the parties would use their best efforts to continue the project beyond the publication of the work. (Id., ¶16.) After Vagator raised €294,366 through crowdfunding, Humanoids requested and received half of these funds, though the payment was not covered under the agreement. (Id., ¶18.) The first launch of the magazine in September 2021 was a success. (Id., ¶19.) However, Humanoids sent a letter to Vagator that it was terminating the agreement one week after the launch. (Id., ¶20.)

Humanoids then unilaterally communicated with service providers, authors, and editors Vagator used for the project, published news of the termination, and attempted to obtain the names of contributors to Vagator’s crowdfunding campaign. (Id., ¶¶22-24.) Humanoids also failed to pay an invoice from the company that edited and printed the magazine. (Id., ¶25.)

Vagator alleges that Humanoids and Vagator were joint venturers because they shared a joint interest in the magazine and understood that they would share the profits and losses, as well as creative control over it. (Id., ¶35.) Humanoids breached its fiduciary duty to Vagator regarding the joint affairs of the venture by terminating the agreement unlawfully, failing to pay for publishing costs, and failing to share the proceeds equally. (Id., ¶36.)

The relationship between copartners, or between joint adventurers, is of a fiduciary character. (Nelson v. Abraham (1947) 29 Cal.2d 745, 750.) A joint venture is “an undertaking by two or more persons jointly to carry out a single business enterprise for profit.” (Id at p. 749.) It requires a: “(1) joint interest in a common business; (2) with an understanding to share profits and losses; and (3) a right to joint control.” (Jacobs v. Locatelli (2017) 8 Cal. App. 5th 317, 328 n.10.)

“A joint venture resembles a partnership in that its members associate together as co-owners of a business enterprise, agreeing to share profits and losses. However, a partnership ordinarily engages in a continuing business for an indefinite or fixed period of time, while a joint venture is formed for a single transaction or single series of transactions, thus being more limited in both scope and duration.” (Rickless v. Temple (1970) 4 Cal.App.3d 869, 893.) “Such a venture or undertaking may be formed by a parol agreement (Sly v. Abbott, 89 Cal.App. 209, 216, 264 P. 507), or it may be assumed as a reasonable deduction from the acts and declarations of the parties.” (Nelson, supra, 29 Cal.2d at pp. 749–50.)

Here, the FACC alleges that Vagator and Humanoids had a joint interest in a common business because the terms of their agreement state that the purpose of the agreement was to co-publish a magazine and that each company agreed to take on certain duties. (FACC Exh. A, pp.1, 2, 4.) The agreement also states the companies would split the balance of operations evenly each year, meaning the companies shared costs and profits from the project. (Id.) Finally, the companies had joint control over the project because the terms of their agreement include that major decisions would be decided jointly, including print runs and retail prices, release dates, reprint dates, the independent graphic novel authors contributing to the work, the contents of the magazine, and whether the continue the project. (FACC, Exh. A.) The Court finds that these facts are sufficient to allege that the parties engaged in a joint venture.

Humanoids argues that the agreement did not create a joint venture because Vagator does not claim an ownership interest in Metal Hurlant’s trademark and logos. The agreement did not concern the development of the Metal Hurlant series itself, but this specific co-publication of a magazine based on the licensed rights. Humanoids argues that there was no mutual profit arising from the agreement. Humanoids cites Wolf v. Superior Court (2003) 107 Cal.App.4th 25 in support of this argument. However, Wolf involved a contract for the use of rights to intellectual property in exchange for fixed compensation and a percentage of the profits from the exploitation of those rights. There, the agreement created a creditor-debtor relationship where one party agreed to assign the intellectual property rights and allow the other property to use those rights as they saw fit in exchange for compensation. Humanoids also cites Rickel v. Schwinn Bicycle Co. (1983) 144 Cal. App. 3d 648, 654, where a court found that a fiduciary relationship did not exist between a manufacturer and distributor where nonmutual profit was inherent in the relationship. The parties in these cases did not mutually profit because the debtors were allowed to use the rights as they saw fit. There was no obligation for the debtor to maximize profits or even make a profit from the use of those rights. In other words, these cases involved one-sided contracts where the party assigning the rights had no further control over the use and resulting profits of those rights and merely accepted compensation.

Here, Humanoids did not merely assign the rights to Metal Hurlant in exchange for compensation. Rather, both companies agreed to co-publish the magazine. Humanoids agreed to license Metal Hurlant for the purpose of publishing a new version of the magazine and to take an active role in co-publishing the magazine, including supervising distribution, collecting proceeds, and managing the cash flow of common operations. (FACC, Exh. A, p. 2.) Additionally, the parties agreed in the amendments to the agreement to use their best efforts to continue the project beyond the publication of the book. (FACC, Exh. B, p.4.) This agreement is distinguishable from Wolf and Rickel because Vagator here was required to use the licensed rights to publish the magazine and to continue the project after publication, meaning Vagator was required to sell the magazine after it was published. Unlike the assignment agreements in Wolf and Rickel, where the assignees could have purchased the rights without doing anything further to utilize those rights, Vagator here was required to publish and sell the magazine. Even if it was possible that the magazine would not be profitable, the Court cannot find from the fact alleged that nonmutual profit was inherent to this relationship.

Humanoid also argues that the FACC fails to allege facts showing joint control over the project. Humanoids argues that Humanoids had sole control over the operation’s cash flow, printing process, publishing agreements, and third party licensing whereas Vagator was hired to put together the content of the magazine, running crowdfunding, and help with distribution. However, a joint venture may delegate its responsibilities exclusively to a particular member of the venture, even sole management responsibility, without destroying the fundamental nature of the joint venture. (Orosco v. Sun-Diamond Corp. (1997) 51 Cal.App.4th 1659, 1666 (citing Stilwell v. Trutanich (1960) 178 Cal.App.2d 614).)

Here, although Humanoids attempts to characterize Vagator as a hired provider with a minor role in the project, Vagator was responsible for compiling the magazine’s original content, the graphic design, delivery of the print files, supervision of distribution, and supervision of crowdfunding. (FACC, Exh. A, p.2.) In addition, mutual agreement from both Vagator and Humanoids was required as to certain major decisions such as pricing, release dates, and the continuation of the project. The Court finds these facts are sufficient to allege that Vagator and Humanoids had joint control over the project.

Humanoids next argues that profit sharing is not enough to create a joint venture. However, Humanoids does not dispute that it agreed to share profits and expenses with Vagator arising from this relationship. As discussed above, the facts alleged in the Complaint are sufficient to plead the other two elements of a joint venture.

Finally, Humanoids argues that Vagator improperly attempts to convert a breach of contract claim into a tort claim because the FACC merely alleges that Humanoids terminated the agreement in bad faith. Humanoids argues that Vagator fails to allege a legally separate wrongdoing from the cause of action for breach of contract. However, it is well-settled that where a joint venturer commits a breach of fiduciary duty, the act may often constitute a breach of contract as well. (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 828.) Although Humanoids compares the cause of action for breach of fiduciary duty to Vagator’s cause of action for breach of implied covenant of good faith and fair dealing, that cause of action does require allegations of bad faith conduct beyond a mere breach of contract. (Bionghi v. Metropolitan Water District (1999) 70 Cal.App.4th 1358, 1370.) There is no such requirement for breach of fiduciary duty.

In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice. (Civ. Code, § 3294, subd. (a).)

“Malice is defined in the statute as conduct 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.” (College Hospital, Inc., supra, 8 Cal.4th at p. 725 [examining Civ. Code § 3294, subd. (c)(1)].) “A conscious disregard of the safety of others may constitute malice within the meaning of section 3294 of the Civil Code. In order to justify an award of punitive damages on this basis, the plaintiff must establish that the defendant was aware of the probable dangerous consequences of his conduct, and that he willfully and deliberately failed to avoid those consequences.” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 895-896.)

“As amended to include [despicable], the statute plainly indicates that absent an intent to injure the plaintiff, ‘malice’ requires more than a ‘willful and conscious’ disregard of the plaintiffs’ interests. The additional component of ‘despicable conduct’ must be found.” (College Hospital, Inc., supra, 8 Cal.4th at p. 725.) The statute’s reference to despicable conduct represents a “new substantive limitation on punitive damage awards.” (Ibid.) 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. Such conduct has been described as ‘having the character of outrage frequently associated with crime.’” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1287.)

“Corporations are legal entities which do not have minds capable of recklessness, wickedness, or intent to injure or deceive. An award of punitive damages against a corporation therefore must rest on the malice of the corporation’s employees. But the law does not impute every employee’s malice to the corporation. Instead, the punitive damages statute requires proof of malice among corporate leaders: the ‘officer[s], director[s], or managing agent[s].’” (Cruz v. Home Base (2000) 83 Cal.App.4th 160, 167 [citation omitted].) As to ratification, “[a] corporation cannot confirm and accept that which it does not actually know about.’” (Ibid. [citing College Hospital, Inc., supra, 8 Cal.4th at p. 726 [for ratification sufficient to justify punitive damages against corporation, there must be proof that officers, directors, or managing agents had actual knowledge of the malicious conduct and its outrageous character]].)

Here, the FACC states that Humanoids terminated the agreement with Vagator, failed to pay invoices owed to Vagator, and failed to distribute profits under the agreement. Humanoids’ failure to meet its contractual obligations does not rise to the level of despicable conduct sufficient to support a demand for punitive damages. Additionally, although the FACC names the CEO and founder of Humanoids, it fails to allege any facts that he knew of or ratified any malicious conduct. The demurrer is sustained as to the demand for punitive damages.