Judge: John J. Kralik, Case: 22BBCV00873, Date: 2023-05-19 Tentative Ruling

Case Number: 22BBCV00873    Hearing Date: October 27, 2023    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

BACKGROUND

A.    Allegations

Plaintiffs Natalia Kapych and Michael Chtivelman (“Plaintiffs”, in propria persona) allege that Chtivelman, Defendant Larissa Li, and Defendant Northridge Caregivers, Co., Inc. (“NCCI”) executed a settlement agreement in Case No. LC107566 in the Glendale Courthouse on August 22, 2022.  NCCI is a marijuana collective and a California cooperative corporation.  Plaintiffs allege that pursuant to the agreement, Chtivelman dropped the case and sold 30% of his shares in NCCI to buyer Kapych.  They allege that on May 16, 2022, Li was deposed, where Li testified that Defendants Jordan Olshanski and Mikhail Fayman did not invest any money, were not working for NCCI, and were not affiliated with the company.  Chtivelman alleges that he demanded to inspect the financial records and books, but Defendants refused. 

The third amended complaint (“TAC”), filed on August 7, 2023, alleges causes of action for: (1) breach of written contract by Chtivelman against Li and NCCI; (2) breach of verbal contract by Chtivelman against Li and NCCI; (3) breach of written contract by Kapych against Li and NCCI; (4) breach of verbal contract by Kapych against Li and NCCI; and (5) fraudulent representation by Chtivelman against Li. 

On August 7, 2023, Plaintiffs dismissed with prejudice Defendants Michael Fayman and Jordan Olshanski.

B.     Motions on Calendar

On September 5, 2023, Li and NCCI filed a demurrer and motion to strike portions of the TAC.

On October 13, 2023, Plaintiffs filed a single opposition brief. 

On October 19, 2023, Li and NCCI filed a reply brief to the demurrer.

DISCUSSION RE DEMURRER

Li and NCCI (hereinafter, “Defendants”) demur to the 1^st, 2^nd, 4^th, and 5^th causes of action causes of action on the ground that Plaintiffs have not alleged sufficient facts to constitute causes of action against them.  They also specially demur, arguing that the allegations are uncertain and fail to allege sufficient facts for the breach of contract causes of action.

A.    1^st cause of action for breach of written contract by Chtivelman against Li and NCCI

The essential elements of a cause of action for breach of contract are: “(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.”  (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)  “A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect.”  (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) 

In the 1^st cause of action for breach of written contract, Plaintiffs allege that for valuable consideration, Plaintiffs and Defendants entered into the settlement and shareholders agreements.  (TAC, ¶25, Ex. 1.)  Plaintiffs allege that pursuant to the settlement agreement, Chtivelman dropped a case and 30% of his shares in NCCI (3,000 shares) to buyer Kapych, whom Chtivelman has been named as the legal proxy.  (Id., ¶25.)  They allege that pursuant to the settlement agreement, the shares transferred to Kapych were to be free and clear of all debts, except debts owed and legal obligations or future potential liability to government tax agencies, and to confirm this, Defendants were to produce supporting documents.  (Id.)  Plaintiffs allege that Li did not produce any documents at the August 28, 2022 meeting.  (Id.)  Plaintiffs allege that they repeatedly demanded Defendants to abide by the settlement agreement and the Corporations Code to produce financial and accounting documents, but no documents were produced.  (Id., ¶26.)  They allege Defendants materially breached the shareholders agreement and Corporations Code by failing to repay the Note on Plaintiffs’ demand and that Defendants breached the contract by transferring shares that were not clear of debts.  (Id., ¶27.) 

Defendants demur to the 1^st cause of action, arguing that Plaintiffs misstate Defendants’ contractual duty to confirm that the shares are free and clear of all debts except those noted in the agreement.  While Defendants argue that Plaintiffs’ allegations are misstatements of fact and are directly contrary to the actual written contract, the settlement agreement appears to include the same language as alleged in the TAC.  Based on the allegations of the TAC, Plaintiffs allege that Defendants were required to transfer shares to Kapych free and clear of all debts except those debts owed and legal obligations or future potential liability to governmental taxing agencies and any other creditors, all of whom are currently known and listed in the form Exhibit SA-B.  (TAC, ¶25; Settlement Agreement, § II.1.)  Although Defendants argue that Plaintiffs’ allegations are inconsistent with the settlement agreement, Defendants only generally argue this without specifying what terms are inconsistent. 

Despite this, there are still issues with the 1^st cause of action.  While Plaintiffs cite to Exhibit SA-B in the TAC and their opposition brief, the Court has reviewed the TAC and cannot find Exhibit SA-B.  As such, the known debtors are not listed and Plaintiffs’ allegations regarding Defendants’ purported breach is conclusory and lacks supporting facts.  Plaintiffs allege that Defendants did not provide shares free and clear of all debt (except as listed in Exhibit SA-B, which the Court does not have).  Further, Plaintiffs allege that Defendants breached the settlement agreement by failing to produce company documents for Plaintiffs’ review and examination.  (TAC, ¶27.)  However, the settlement agreement does not include a term that Defendants must produce documents so that Plaintiffs can confirm that the shares were being transferred free and clear of debts.  The shareholder’s agreement similarly lacks these requirements and provisions.

In the Court’s prior order on the demurrer to the SAC, the Court warned Plaintiffs that they would have one final opportunity to amend the complaint.  The Court raised issues with the pleading and ordered Plaintiffs to separate their causes of action for breach of written contract so that there would be one cause of action for breach of the settlement agreement and another cause of action for breach of the shareholder’s agreement.  This was not complied with upon amendment in this latest iteration of the complaint.  The Court also pointed out that Plaintiffs did not present any case law showing how a failure to produce documents would eviscerate the law regarding the formation of a contract and the basic elements thereto.  As stated in the prior demurrer order, Plaintiffs had a final opportunity to amend the 1^st cause of action.  The issues regarding the 1^st cause of action have not been cured and the 1^st cause of action still lacks sufficient facts to constitute a cause of action against Defendants. 

As such, the demurrer to the 1^st cause of action is sustained without leave to amend.

B.     2^nd cause of action for breach of verbal contract by Chtivelman against Li and NCCI

“The elements of a breach of oral contract claim are the same as those for a breach of written contract: a contract; its performance or excuse for nonperformance; breach; and damages.”  (Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 453.)  “An oral contract may be pleaded generally as to its effect, because it is rarely possible to allege the exact words.”  (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

In the 2^nd cause of action for breach of verbal contract, Plaintiffs allege that they entered into a verbal agreement on August 22, 2022 in the office of David M. Kritzer, Esq. to hold a meeting on August 28, 2022 to confirm that the transferred shares were free and clear of all debt except as stated in Exhibit SA-B.  (TAC, ¶30.)  Plaintiffs allege that Defendants had to produce various company documents and that they requested Li to produce specific company records.  (Id., ¶31.)  Plaintiffs allege that Li did not produce any records at the August 28, 2022 meeting.  (Id., ¶32.)  They allege that Defendants materially breached the verbal agreement and that the shares were not free and clear of debts.  (Id., ¶34.) 

Defendants demur to the 2^nd cause of action, arguing that the settlement agreement expressly states that the document is the entire agreement, cannot be amended except in writing executed jointly by the parties, and the agreement cannot be modified by oral representations before or after executing the agreement.  (Settlement Agreement, §§ 18, 20.)  There is no term in the settlement agreement requiring Defendants to produce documents, much less an agreement that document would be produced by the August 28, 2022 meeting.  Plaintiffs have not presented any exhibits or documentary evidence showing that this verbal agreement (modification) was later written and executed by the parties. 

As such, the demurrer to the 2^nd cause of action is sustained.  As noted in the Court’s prior order on the demurrer to the SAC, Plaintiffs had a final opportunity to amend the 2^nd cause of action.  However, the 2^nd cause of action continues to have issues and still fails to allege sufficient facts against Defendants.  As such, the demurrer is sustained without leave to amend.

C.     4^th cause of action for breach of verbal contract by Kapych against Li and NCCI

Defendants argue that for the same reason the 2^nd cause of action fails, the 4^th cause of action also fails. 

The 4^th cause of action is similar to the 2^nd cause of action, except that the 2^nd cause of action is asserted by Chtivelman while the 4^th cause of action is asserted by Kapych.  (See TAC, ¶¶51-57.)  For the same reasons discussed above, the demurrer to the 4^th cause of action is sustained without leave to amend. 

D.    5^th cause of action for fraudulent representation by Chtivelman against Li

To allege a cause of action for fraud, the requisite elements are: (1) a representation, usually of fact, which is false; (2) knowledge of its falsity; (3) intent to defraud; (4) justifiable reliance upon the misrepresentation; and (5) damage resulting from that justifiable reliance.  (Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 72-73.)  This cause of action is a tort of deceit and the facts constituting each element must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings.  (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.)  Since the claim must be pleaded with particularity, the cause of action based on misrepresentations must allege facts showing how, when, where, to whom, and by what means the misrepresentations were tendered.  (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.)

In the 5^th cause of action, Plaintiffs allege that Chtivelman and Li had a meeting in July 2023 where Chtivelman stated he weas aware that Olshanskiy and Fayman used to manage NCCI in violation of cannabis control department regulations without accounting and control from NCCI’s supervisors.  (TAC, ¶59.)  Chtivelman alleges that he stated he would not enter the settlement agreement if Olshanskiy and Fayman were involved in company management and that Li assured him that Olshanskiy and Fayman were not involved in the company.  (Id., ¶¶59-60.)  He alleges that on May 16, 2022, Li testified during her deposition that Olshanskiy and Fayman “didn’t invest any money not working or contractor in NCCI and not affiliated with the company any other way and don’t have any written or verbal contracts….”  (Id., ¶61.)  Plaintiffs allege that Li misrepresented these facts intentionally with the intent to deceive Plaintiffs out of their rights and interest in the matter.  (Id., ¶62.)  Plaintiffs then allege recitations of the law regarding damages for fraud.  (Id., ¶¶63-66.)  Plaintiffs allege they sustained general, special, consequential, and incidental damages and seek compensatory and punitive damages against Defendants.  (Id., ¶¶67-68.) 

Plaintiffs’ allegations fail to allege each element of a fraud cause of action with the requisite particularity.  The 5^th cause of action does not allege facts showing how Chtivelman relied on Li’s representations, how his reliance was justified, and the damages resulting from that reliance.  Further, the nature of the misrepresentation is not clear.  While Plaintiffs allege that Li represented that Olshanskiy and Fayman were not involved in the company and did not invest money, Plaintiffs have not alleged in the TAC what part of this statement was untrue. 

Plaintiffs have had multiple opportunities to amend the fraud cause of action and have failed to do so effectively in the TAC.  As such, the demurrer to the 5^th cause of action is sustained without leave to amend.

DISCUSSION RE MOTION TO STRIKE

Defendants Li and NCCI move to strike the Prayer for Damages with respect to the 1^st, 2^nd, 4^th, an 5^th causes of action. 

In light of the ruling on the demurrer, the motion to strike is taken off-calendar as moot. CONCLUSION AND ORDER

Defendants Larissa Li and Northridge Caregivers Co., Inc.’s demurrer to the TAC is sustained without leave to amend as to the 1^st, 2^nd, 4^th, and 5^th causes of action. 

 In light of the ruling on the demurrer, the motion to strike is taken off-calendar as moot.

Defendants shall provide notice of their respective order.