Judge Joel R Wohlfeil, Case 37-2023-00002406-CU-BC-CTL 2023-08-08 Tentative Ruling

Judge: Joel R Wohlfeil, Case: 37-2023-00002406-CU-BC-CTL, Date: 2023-08-08 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - July 13, 2023

07/14/2023 09:00:00 AM C-73 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Joel R. Wohlfeil

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Civil - Unlimited Breach of Contract/Warranty Demurrer / Motion to Strike 37-2023-00002406-CU-BC-CTL GLOBAL SUSTAINABLE FUTURE LLC VS CHARGENET HOLDINGS CORP [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 05/05/2023

The general Demurrer (ROA # 14) of Defendants CHARGENET HOLDINGS CORP. and ASHUTOSH DUTT ('Defendants') for an order to the first, second and third causes of action in the First Amended Complaint ('FAC') by Plaintiffs GLOBAL SUSTAINABLE FUTURE, LLC and CHADWICK MANNING CORPORATION ('Plaintiffs'), is OVERRULED.

Defendants' Request (ROA # 17) for judicial notice is GRANTED.

Defendants are ordered to file and serve their Answers within twenty (20) days of this hearing.

A demurrer is appropriate where Plaintiff does not state facts sufficient to constitute a cause of action, either because the complaint itself is incomplete or because it discloses a defense that would bar recovery. (Code Civ. Proc. 430.10(e) & (f)).

When ruling on a demurrer, the Court looks to the face of the complaint, the exhibits attached to the complaint, and matters of which the Court may take judicial notice. (Quick v. Pearson (2010) 186 Cal. App. 4th 371, 377.) For the purpose of testing the sufficiency of each cause of action, a demurrer is treated as admitting the truth of all material facts properly pleaded unless contradicted by facts judicially noticed, but it does not assume the truth of contentions, deductions or conclusions of law. (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal. 4th 962, 967.) First Cause of Action – Breach of Implied in Fact Contract 'It shall be unlawful for any broker or dealer . . . to make use of the mails or any means or instrumentality of interstate commerce to affect any transactions in, or to induce or attempt to induce the purchase or sale of, any security . . . unless such broker or dealer is registered in accordance with subsection (b) of this section.' 15 U. S. C. A. 78o(a)(1).

'The term 'broker' means any person engaged in the business of effecting transactions in securities for the account of others.' 15 U. S. C. 78c(a)(4)(A).

California law agrees with federal precedent: 'no broker-dealer or agent shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any security in this state, unless such broker-dealer or such agent has first applied for and secured from the commissioner a certificate, then in effect, Calendar No.: Event ID: TENTATIVE RULINGS

2970621 1 CASE NUMBER: CASE TITLE: GLOBAL SUSTAINABLE FUTURE LLC VS CHARGENET HOLDINGS 37-2023-00002406-CU-BC-CTL authorizing such person to act in that capacity.' Cal. Corp. Code 25210.

Plaintiffs allege breach of implied in fact contract only against Defendant ChargeNet Holding Corporation ('ChargeNet' or 'Defendant'). As alleged, Plaintiffs contracted with Defendant to provide services for the benefit of ChargeNet. (FAC ¶ 42).

Any person doing business that effects transactions in securities for the account of others is a broker, and therefore needs to be registered as such. 15 U. S. C. A. 78o(a)(1).

Plaintiffs are not registered brokers as defined by 15 U. S. C. 78c(a)(4)(A).

Defendant argues Plaintiffs engaged in broker-dealer activities, including negotiations and finding investors. See Evans v. Riverside Intern. Raceway (1965) 237 Cal. App. 2d 666, 675. Thus, the object of the contract is illegal and Plaintiffs cannot be compensated.

However, as alleged, Plaintiffs are not regularly in the business of brokering securities and no facts in the FAC allege Plaintiffs have done so for Defendants. Citing to persuasive authority, Plaintiff argues that for them to be considered brokers, there needs to be 'a certain regularity of participation in securities transactions at key points in the chain of distribution.' SEC v. Hansen, 1984 WL 2413 (S.D.N.Y. 1984) (quoting Massachusetts Financial Services, Inc. v. Securities Investor Protection Corp., 411 F. Supp. 411, 415 (D. Mass.).) Furthermore, Plaintiffs were not transacting in securities for 'accounts of others' because, as alleged, Plaintiffs principals were the interim CFOs of ChargeNet. (FAC ¶ 5, 6, and 22).

Plaintiffs do not need to be licensed stockbrokers when acting as an agent or representative of ChargeNet. See Paradise v. Nowlin (1948) 86 Cal. App. 2d 897, 898.

The original complaint does not allege that Plaintiffs principals were CFOs for ChargeNet, but the FAC does. Defendants argue this is a material difference that may help Plaintiffs avoid harmful facts. See Deveny v. Entropin, Inc. (2006) 139 Cal. App. 4th 408, 425. However, this difference is not adding new facts or changing any allegations. It is simply a clarification.

There are no allegations pled on the face of the FAC that any broker-dealer securities transactions took place. There are also allegations that Plaintiffs principals were employees of Defendants and acting on their behalf. Therefore, the facts pled are sufficient to state a cause of action for breach of implied in fact contract.

Second and Third Causes of Action – Quantum Meruit & Fraud/Fraudulent Inducement Plaintiffs alleges Quantum Meruit and Fraud / Fraudulent Inducement against all Defendants. As alleged, Defendants agreed to compensate Plaintiffs for services performed. (FAC ¶ 35). Defendants' entire argument as to the illegality of the second and third causes of action is that the object of the contract under the first cause of action is illegal. Compensation under theories of quasi-contract or fraud would fall under the same 'compensation scheme' and are also illegal. However, the FAC does not facially allege any illegality. As alleged, Defendants' securities and industry attorneys reviewed and approved the compensation design (FAC ¶ 24). Plaintiffs allege sufficient facts to constitute claims for quantum meruit and fraud.

Conclusion Plaintiffs state three causes of action for which they could be granted compensation. On the face of the FAC there are sufficient facts to satisfy the elements of all three causes of action. Any illegality of the compensation agreement is not apparent from the alleged pleadings. Furthermore, the FAC does not conclusively show that any brokering of securities has occurred and alleges facts sufficient to show Calendar No.: Event ID: TENTATIVE RULINGS

2970621 1 CASE NUMBER: CASE TITLE: GLOBAL SUSTAINABLE FUTURE LLC VS CHARGENET HOLDINGS 37-2023-00002406-CU-BC-CTL Plaintiffs principals may have been employed by Defendants as their CFOs. For the foregoing reasons, Defendants general Demurrer is overruled.

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2970621 1