Judge: Joseph Lipner, Case: 20ATCV00173, Date: 2024-10-31 Tentative Ruling
Case Number: 20ATCV00173 Hearing Date: October 31, 2024 Dept: 72
SUPERIOR COURT OF CALIFORNIA
COUNTY OF LOS ANGELES
DEPARTMENT 72
TENTATIVE
RULING
|
MORRIS MATLOUBIAN, Plaintiff, v. ZAHAL MANSUR, et al., Defendants. |
Case No:
20STCV00173 Hearing Date: October 31, 2024 Calendar Number: 1 |
Plaintiff Morris Matloubian (“Plaintiff”) moves for leave to
file a second amended complaint.
The Court GRANTS Plaintiff’s motion. Plaintiff shall file his second amended
complaint as a separate document within 10 days of this order.
Plaintiff filed this action on January 2, 2020 against
Defendants Superior Home Design, Inc. (“Superior”), Zahal Mansur (“Zahal”),
Michal Mansur (“Michal”) (collectively with Zahal Mansur, the “Mansurs”)
(collectively with Superior, “Defendants”) (the Court uses the parties’ first
names for clarity only and means no disrespect). The Complaint raised claims
for (1) breach of fiduciary duty; and (2) accounting.
On June 25, 2020, the Court granted Defendants’ motion for
judgment on the pleadings as to the Complaint. The Court denied leave to amend
as to Plaintiff’s claim for breach of fiduciary duty as against Superior. The
Court granted leave to amend for Plaintiff’s breach of fiduciary duty claim
against the Mansurs and Plaintiff’s accounting claim against both Defendants.
Plaintiff filed the First Amended Complaint (“FAC”) on July
27, 2020, raising claims for (1) breach of fiduciary duty (against the Mansurs
only); and (2) accounting.
On April 22, 2022, Plaintiff voluntarily dismissed Superior
from this action without prejudice.
On June 7, 2022, the Court granted the Mansurs’ motion for
summary judgment.
Plaintiff appealed both the order granting summary judgment
and the order granting judgment on the pleadings.
On March 25, 2022, the Court of Appeal reversed both orders.
The Court of Appeal ordered the Court to vacate both orders and issue new
orders denying both the motion for judgment on the pleadings and the motion for
summary judgment. Remittitur was filed with the Court on June 5, 2024.
In the appeal, Defendants argued that the Court of Appeal
lacked jurisdiction because Plaintiff had voluntarily dismissed Superior from
the action, and a voluntary dismissal is not ordinarily appealable. (Remittitur
at p. 8.) The Court of Appeal found that the order granting judgment on the
pleadings and Plaintiff’s voluntary dismissal collectively gave rise to a
final, appealable judgment in favor of Superior. (Remittitur at pp. 8-9.) The
Court of Appeal found that Plaintiff’s dismissal of the breach of fiduciary
claim against Superior was “not really voluntary” because judgment had already
been granted on that claim. (Remittitur at p. 10.) “[M]any courts have allowed
appeals by plaintiffs who dismissed their complaints after an adverse ruling by
the trial court, on the theory the dismissals were not really voluntary, but
only done to expedite an appeal. (Gutkin v. University of Southern
California (2002) 101 Cal.App.4th 967, 974–975; see Remittitur at p. 9.)
On July 5, 2024, Plaintiff moved to vacate his dismissal of
Superior from the action and for leave to file a second amended complaint. On
July 18, 2024, Defendants filed an opposition. On July 25, 2024, Plaintiff file
a reply.
On July 2, 2024, Plaintiff withdrew his motion for leave to
amend, but not his motion to vacate dismissal.
On August 1, 2024, the Court continued Plaintiff’s motion to
vacate dismissal from August 1, 2024 to August 27, 2024. The Court ordered that
Plaintiff may file an updated motion for leave to amend and set the motion for
hearing on August 27, 2024.
On August 5, 2024, Plaintiff filed an amended motion for
leave to file a second amended complaint, with the hearing set for September
19, 2024. On the same day, Plaintiff filed an amended notice and motion to
vacate dismissal, with the hearing date listed for September 19, 2024.
On August 14, 2024, Defendants filed an opposition to
Plaintiff’s amended motion for leave to amend. On the same day, Defendants
filed a separate opposition to Plaintiff’s amended motion to vacate dismissal.
On August 20, 2024, Plaintiff filed a reply in support of
his motion for leave to amend.
On August 27, 2024, the Court granted Plaintiff’s motion to
vacate dismissal. The Court granted Plaintiff leave to amend to assert his
breach of fiduciary claim. The Court continued the motion for leave to amend
with respect to Plaintiff’s claim for violations of Penal Code, section 496,
and the remaining changes that Plaintiff requested.
Plaintiff filed a further brief on the remaining issues, as
ordered by the Court. Defendants filed an opposition and Plaintiff filed a
reply.
The Court grants Plaintiff’s request for judicial notice of
the submitted records from this case.
A complainant may obtain leave from the trial court to amend
their pleading beyond the number of amendments allowed under Code of Civil
Procedure section 472 (a) by filing a noticed motion. (Cal. Rules of Court,
Rule 3.1324.) The motion must be accompanied by a declaration stating: (1) the
effect of the amendment; (2) why the amendment is necessary and proper; (3)
when the facts giving rise to the amended allegations were discovered; and (4)
why the request was not made earlier.¿(Cal. Rules of Court, Rule 3.1324 (b).)
“Any judge, at any time before or after commencement of
trial, in the furtherance of justice, and upon such terms as may be proper, may
allow the amendment of any pleading or pretrial conference order.”¿(Code Civ.
Proc., § 576.) In the absence of a showing of prejudice from the opposing side,
the trial court ordinarily lacks discretion to deny a motion to amend a
pleading. (Honig v. Financial Corp. of America (1992) 6 Cal.App.4th 960,
965.)
Plaintiff
seeks leave to add a new cause of action for violations of Penal Code, section
496 and to make a laundry list of other changes.
In
its August 27, 2024 order, the Court expressed its opinion that Plaintiff had
not adequately shown why he did not amend to add this claim sooner, but
permitted further briefing on this issue.
Plaintiff
argues that this amendment could not be made earlier because the Court
erroneously denied leave to amend in its order on the motion for judgment on
the pleadings. This does not correctly describe the Court’s order. The Court
denied leave to amend as to Plaintiff’s breach of fiduciary duty claim. It did
not deny Plaintiff leave to ever again amend in the future. Plaintiff
had plenty of opportunities throughout the life span of this case to amend in
order to add his Penal Code claim. Thus, Plaintiff was not prevented from
adding his section 496 claim by the Court.
Plaintiff
argues that another reason for the delay was that the law was unclear on the
applicability of section 496 to shareholder distribution claims.
In
Switzer v. Wood (2019) 35 Cal.App.5th 116, the plaintiff sued for
misappropriated distributions that the defendant owed to him in their joint
business venture. (Switzer v. Wood (2019) 35 Cal.App.5th 116, 121.) The
jury returned a verdict for the plaintiff on his civil claim for violation of
section 496. (Ibid.) The Court of Appeal stated that “it is undisputed
that the jury specifically and unequivocally found all the factual elements
necessary to establish that Wood and Access Medical had engaged in conduct constituting
a violation of section 496(a).” (Id. at p. 127.) The court stated
that the jury’s factual findings “clearly establish violation(s) of section
496(a).” (Id. at p. 128.) The trial court’s position, which the Court of
Appeal rejected, was “that section 496(c) should not be applied in a literal
manner because the Legislature could not have intended to extend the statutory
treble damage remedy into the context of an ordinary business dispute where
traditional remedies for breach of contract, fraud and conversion were
available. Rather, it is argued that despite the clear and unambiguous wording
of the statutory provision, a narrower construction should be adopted to avoid
absurdity, such as a construction that limits treble damages to theft crimes involving
common carriers’ cargo.” (Id. at p. 128.) The court stated that “[t]he
wording of the statute makes no exception for cases involving preexisting
business relationships, nor does it limit applicability to violations involving
common carriers or truck cargo, and we are not at liberty to insert such
omitted terms into the statute.” (Id. at pp. 129-130.) “Based on the
plain wording of section 496(c), the Legislature apparently believed that any
violation of section 496(a) (or of subdivision (b)), if proven, would warrant
the availability of treble damages …. The fact that the treble damage remedy
may come into play where (as here) the parties were in a preexisting business
relationship in which the remedies at law have traditionally been limited
(e.g., for fraud, conversion or breach of contract)—while arguably a valid
policy argument—manifestly falls short of establishing the absurdity exception.”
(Id. at p. 130 [emphasis in original].)
Siry
Investment, L.P. v. Farkhondehpour further solidified the applicability of
section 496 to shareholder distribution claims. The California Supreme Court
stated that the case concerned “whether a trial court may award treble damages
and attorney's fees under Penal Code section 496, subdivision (c) in a case
involving, not trafficking of stolen goods, but instead, fraudulent diversion
of a partnership's cash distributions. ….
We answer yes[.]” (Siry
Investment, L.P. v. Farkhondehpour (2022) 13 Cal.5th 333, 339.) The Supreme
Court stated that “[v]iewing the issue independently as a matter of law, we
endorse the analysis of Bell and Switzer — even though, at the
same time, we acknowledge that some of the policy considerations highlighted in
those cases, and elaborated upon by the appellate court below, give pause.
Fundamentally, we agree with the conclusions of Bell and Switzer
that section 496(c) is unambiguous, and that read together with sections 496(a)
and 484, and in conformity with our standard approach to interpretation
[citation], section 496(c) must be understood as yielding the understanding
attributed to it in those decisions: A plaintiff may recover treble damages and
attorney's fees under section 496(c) when property has been obtained in any
manner constituting theft.” (Id. at p. 361.)
Switzer
was decided on April 15, 2019, over eight months before Plaintiff filed this
action on January 2, 2020. Siry Investment was decided on July 21, 2022,
after the Court granted the motion for summary judgment on June 7, 2022.
Plaintiff
contends that the applicability of section 496 to the misappropriation of
shareholder distributions was unclear until Siry Investment. The Court
believes that Switzer, standing alone, would have supported a section
496 claim. However, the Court agrees that the law was not entirely clear. The
Court of Appeal in Siry Investment found that section 496 did not apply.
(Siry Investment, L.P., supra, 13 Cal.5th at p. 342.) While
authority existed for Plaintiff’s position, it was still a live issue.
Given the policy that leave to amend should be granted
liberally, the Court determines that, while Plaintiff could have filed his
section 496 claim sooner, his delay in doing so was not inexcusable. The Court
grants leave to amend to assert a claim for violation of section 496.
The
Court has reviewed the general changes that Plaintiff requests outside of the
section 496 claim. The majority of these changes are to conform the complaint
to the Court of Appeal’s ruling or fix typographical errors. The Court
determines that none of these amendments would prejudice Defendants.
The
Court grants leave to amend as to Plaintiff’s remaining changes.