Superior Court of California

County of Los Angeles

North Central District

Department B

aaron justis, et al.,

Plaintiffs,

michael hodges,

Defendant.

CROSS-COMPLAINTS

Case No.: EC067546

Consolidated with: EC069206

Hearing Date: February 3, 2023

[TENTATIVE] order RE:

motion for judgment on the pleadings

BACKGROUND

A. Allegations

On June 1, 2018, Cross-Complainant Rodney Rice (“Mr. Rice”) filed a first amended cross-complaint (“Rice FACC”) against Cross-Defendants Aaron Justis (“Mr. Justis”) and Buds & Roses Collective (“B&R”) for: (1) breach of oral contract; (2) breach of fiduciary duty; (3) conversion; (4) unjust enrichment; (5) quantum meruit; (6) fraud; (7) promissory estoppel; and (8) accounting. Mr. Rice alleges that he has been working with Michael Hodges and Mr. Justice since 2009 on a joint venture to build a legal medical marijuana dispensary retail business. He alleges that he and Hodges funded and oversaw the joint venture and that Mr. Justis acted as the “boots on the ground” by handling the day-to-day management and execution of the retail location. Mr. Rice alleges that Mr. Justis unilaterally amended the company’s corporate documents and bank accounts and took control of the joint venture and its revenues/profits. He alleges that Mr. Justis engaged in gross misconduct in his role with respect to B&R, warranting his removal, and seeks for Mr. Justis to repay all misappropriated funds from B&R.

On December 12, 2022, Mr. Rice dismissed with prejudice the 2^nd, 3^rd, 4^th, 6^th, and 8^th causes of action in the cross-complaint. Thus, the only remaining causes of action in the Rice FACC are: (1) breach of oral agreement against Mr. Justis; (5) declaratory relief against all Cros-Defendants; and (7) promissory estoppel against Mr. Justis.

B. Motion on Calendar

On January 12, 2023, Mr. Justis filed a motion for judgment on the pleadings as to the 1^st cause of action for breach of oral contract in Rice’s FACC.

On January 25, 2023, Mr. Rice filed an untimely opposition brief. The opposition was due by January 23, 2023 and thus was filed two days late.

On January 27, 2023, Mr. Justis filed a reply brief.

REQUEST FOR JUDICIAL NOTICE

Mr. Justis requests judicial notice of Exhibits: (A) the Final Statement of Decision in this case filed on May 23, 2022; and (B) the Transcript of Proceedings on September 9, 2021 in this action containing the direct examination of Mr. Rice. The request is granted. (Evid. Code, § 452(d).)

DISCUSSION

Mr. Justis moves for judgment on the pleadings as to the 1^st cause of action for breach of oral agreement in Rice’s FACC on the grounds that it fails to state sufficient facts to constitute a cause of action against him, the claim is barred by the 2-year statute of limitations, and Mr. Rice has unclean hands as the agreement as for an illegal purpose.

A. Statute of Limitations

In the Rice FACC, Mr. Rice alleges that in 2009, Mr. Justis sought Mr. Hodges’ assistance with purchasing a medical cannabis dispensary. (Rice FACC, ¶12.) He alleges that he, Mr. Hodges, and Mr. Justis entered into a verbal contract to start a joint venture. (Id., ¶14.) He alleges that between July 30, 2010 to 2012, the collective operated as a dispensary. (Id., ¶22.) Mr. Rice alleges that around November 2011, the collective had available funds to begin repaying Mr. Justis’ loan obligation to Mr. Hodges and Mr. Rice, but that they have not yet been paid in full on their contributions to the collective. (Id., ¶¶23, 25.)

In the 1^st cause of action, Mr. Rice alleges that Mr. Rice, Mr. Hodges, and Mr. Justis entered into an oral contract, such that Mr. Hodges and Mr. Rice would equally supply the funds necessary to purchase, improve, and operate a medical cannabis dispensary, while Mr. Justis would relocate and invest his time in building the business. (Id., ¶¶49-50.) Mr. Rice alleges that he and Mr. Hodges performed their obligations and made payments to Mr. Justis for the operation of the dispensary, but Mr. Justis breached the contract by failing to make payments to Mr. Hodges and Mr. Rice. (Id., ¶¶51-52.)

CCP § 339(1) states that the statute of limitations for an action upon a contract that is not founded upon an instrument of writing is 2 years. Mr. Justis argues that Mr. Rice’s 1^st cause of action is time-barred against him because Mr. Rice filed his initial cross-complaint in January 2018, which was more than 2 years after Mr. Rice became aware that he was not being paid by Mr. Justis. Based on the allegations of the complaint, Mr. Rice suspected that Mr. Justis was not paying him on the loan obligation in November 2011. Further, Mr. Justis argues that even if relying on a December 12, 2014 date based on Trial Exhibit 163, the records show that the last repayment from Mr. Hodges to Mr. Rice attributed to B&R was made on December 12, 2014, which would still be time-barred. Based on the allegations of the Rice FACC, the breach of oral contract claim would be time-barred.

In the untimely opposition brief, Mr. Rice raises arguments and facts that are extrinsic to the allegations of the Rice FACC. For example, he argues that there was a final settlement with “Merav” in early 2016 and that Mr. Rice had a text conversation with Mr. Justis on August 3, 2016 about the monies. (Opp. at pp.3-4.) Thus, he argues that his initial cross-complaint was timely filed in January 2018. However, the Court cannot consider these arguments as they are extrinsic to the allegations of the FACC. The demurrer tests the pleading alone and not the evidence or other extrinsic matters which do not appear on the face of the pleading or cannot be properly inferred from the factual allegations of the complaint. (Executive Landscape Corp. v. San Vicente Country Villas IV Assn. (1983) 145 Cal.App.3d 496, 499.)

As such, the Court grants the motion for judgment on the pleadings. However, Mr. Rice’s extrinsic facts may show that the Rice FACC is subject to amendment to address the statute of limitation issue. As such, the motion for judgment on the pleadings as to the 1^st cause of action is granted with leave to amend.

B. Unclean Hands

Mr. Justis also moves for judgment on the pleadings on the basis that Mr. Rice’s unclean hands close the doors of the Court due to Mr. Rice’s inequitableness or bad faith relative to the matters in which he seeks relief. (See Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co. (U.S. 1945) 324 U.S. 806, 814.) As stated by the Court of Appeal in Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970:

Not every wrongful act constitutes unclean hands. But, the misconduct need not be a crime or an actionable tort. Any conduct that violates conscience, or good faith, or other equitable standards of conduct is sufficient cause to invoke the doctrine. [Citations.]

The misconduct that brings the unclean hands doctrine into play must relate directly to the cause at issue. Past improper conduct or prior misconduct that only indirectly affects the problem before the court does not suffice. The determination of the unclean hands defense cannot be distorted into a proceeding to try the general morals of the parties. [Citation.] … The misconduct “must relate directly to the transaction concerning which the complaint is made, i.e., it must pertain to the very subject matter involved and affect the equitable relations between the litigants.” (Id. at p. 728.) “[T]here must be a direct relationship between the misconduct and the claimed injuries ... ' ” so that it would be inequitable to grant [the requested] relief.“ ' ” [Citation.] The issue is not that the plaintiff's hands are dirty, but rather ' ” 'that the manner of dirtying renders inequitable the assertion of such rights against the defendant.' “ ' ” [Citation.] The misconduct must “ ' ”prejudicially affect ... the rights of the person against whom the relief is sought so that it would be inequitable to grant such relief.“ ' ” [Citation.]

(Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 979.)

Mr. Justis cites to the Court’s Final Statement of Decision at page 62, wherein the Court stated:

It was Mr. Justis who was first to understand how he could exploit the lack of joint-venture documentation to gain full control of B&R for his own personal profit. Nevertheless, for such a venture, all of the parties are guilty of unclean hands to an extent that it is inappropriate to involve a court of equity to sort it out dollar by dollar over an eleven-year period of time as if it were some sort of legitimate business venture. The Court finds that it is more appropriate to leave the parties to any remedy at law that they have asserted against each other.

(Final Statement of Decision at p. 62, lines 19-24.)

However, by making this statement, the Court did not foreclose the ability of Mr. Rice to bring his claims in the cross-complaint to trial. The Court recognized that Mr. Rice’s claims in his cross-complaint would be postponed to a second phase of trial. (See Final Statement of Decision at p. 3:19-25 [stating that Mr. Rice attended and testified at the trial, but he did not have any claims to adjudicate in the first phase of trial]; p. 48:1-4 [stating that the first phase of trial did not involve determinations regarding his conduct].) The Court stated that it was inappropriate to involve a court of equity (for the accounting cause of action and to appoint a receiver), but stated it would be appropriate to leave the parties to any remedy at law. The Court stated that the Court’s findings in the Final Statement of Decision would be binding on all parties as law of the case for the remaining proceedings, which only involves the remaining claims of Mr. Rice in his FACC. (Id. at p. 64, lines 9-15.)

The motion for judgment on the pleadings based on the doctrine of unclean hands is denied.

CONCLUSION AND ORDER

Cross-Defendant Aaron Justis’ motion for judgment on the pleadings as to the 1^st cause of action for breach of oral agreement in Cross-Complainant Rodney Rice’s first amended cross-complaint is granted with 20 days leave to amend.

Cross-Defendant shall provide notice of this order.