Judge: Joseph Lipner, Case: 22STCV38057, Date: 2023-10-24 Tentative Ruling

Case Number: 22STCV38057-B    Hearing Date: January 18, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendant BeautyCon Media ABC Trust (the “Trust”) moves to stay this action pending the resolution of related litigation in the Delaware Court of Chancery.

The Court DENIES Defendant’s motion.

Background

This action concerns a number of business loans (the “Secured Loans”) from Plaintiff New General Market Partners, LLC (“NGMP”) to BeautyCon Media ABC (“BeautyCon”) which were secured by BeautyCon’s assets. In 2021, BeautyCon allegedly defaulted on its loans. The Trust currently administers BeautyCon’s estate on behalf of BeautyCon’s creditors. NGMP and its assignee, NGM1, LLC (“NGM1”) (collectively, “Plaintiffs”) foreclosed on the loans and acquired title to BeautyCon’s assets but have allegedly been unable to take possession of some of the assets. They seek possession of those assets in this action.

On April 26, 2021, BeautyCon and Sacullo Business Consulting, LLC (“Trustee”) entered into a Trust Agreement and Assignment for the Benefit of Creditors (the “ABC Agreement”) whereby BeautyCon’s assets were transferred to the Trust to be managed by Trustee.

On April 28, 2021, Trustee filed a petition (the “ABC Action”) in the Delaware Court of Chancery to administer the Trust.

On June 4, 2021, NGMP notified BeautyCon and the Trust that NGMP intended to exercise its rights under the Secured Loans and that a foreclosure auction of BeautyCon’s assets had been scheduled for July 1, 2021.

On June 9, 2021, the Delaware Court of Chancery asserted jurisdiction over the ABC Action for Trustee to administrate the Trust.

On July 1, 2021, the foreclosure was held. NGM1, as assignee of NGMP’s interest in the Secured Loans, was the successful bidder and became the legal owner of all of BeautyCon’s assets.

Plaintiffs then attempted to obtain possession of BeautyCon’s assets. While they were mostly successful, Defendants Mahdara and the Trust have not turned over the entirety of the assets.

On October 1, 2021, in the ABC Action, NGM1 filed a Motion to Compel Turnover of Assets and For Order to Show Cause (the “Motion to Compel”) in the ABC Action. NGM1 sought an order directing Trustee to turn over the BeautyCon assets in Trustee’s custody. Trustee filed an opposition on November 4, 2021. On November 10, 2021, NGM1 filed a Notice of Withdrawal of Motion as to the Motion to Compel. Plaintiffs did not further prosecute the Motion to Compel in Delaware court.

Plaintiffs filed this action against Defendants the Trust, Moj Mahdara, and Elastic Ventures, Inc. (“Elastic”) (collectively, “Defendants”) on December 6, 2022, raising claims for (1) declaratory judgment; (2) declaratory judgment; (3) declaratory judgment; (4) constructive fraud; (5) conversion; (6) trespass to chattels; (7) unjust enrichment; and (8) violation of the Computer Data Access and Fraud Act.

On December 13, 2022, the Trust filed a complaint against NGMP in the Superior Court of the State of Delaware (the “Delaware Action”), raising claims for, inter alia, breach of fiduciary duty; aiding and abetting breach of fiduciary duty; fraud in the inducement; and breach of contract. These causes of action arose out of the agreements for the Secured Loans. Plaintiffs’ declaratory relief causes of action sought declaratory judgment to the effect that the Trust’s foregoing causes of action were unfounded.

On May 9, 2023, the Court sustained the Trust’s demurrer to the three causes of action for declaratory judgment, granting leave to amend. Plaintiffs did not re-file their causes of action for declaratory judgment.

The operative complaint is now the First Amended Complaint (“FAC”) which raises claims for (1) conversion; (2) constructive fraudulent conveyance, (3) conversion; (4) trespass to chattels; (5) unjust enrichment; (6) violations of the Computer Data Access and Fraud Act; and (6) unfair business practices.

On August 11, 2023, the court in the Delaware Action dismissed the Trust’s claims against NGMP for breach of fiduciary duty; aiding and abetting breach of fiduciary duty; fraud in the inducement; and breach of contract with the exception of a claim by the Trust for failure to negotiate certain provisions in good faith. (BeautyCon Media ABC Trust Through Saccullo Business Consulting, LLC v. New General Market Partners, LLC (Del. Super. Ct., Aug. 11, 2023, No. N22C-12-143 MAA CCLD) 2023 WL 5164148, at *1 fn. 1, *19.)

The Trust filed this motion on December 4, 2023. Plaintiffs filed an opposition and the Trust filed a reply.

Request for Judicial Notice

The Court grants the Trust’s request for judicial notice.

Legal Standard

“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489 citing Walker v. Superior Court (1991) 53 Cal.3d 257, 266, 279.) “The rule which forbids a later action in the same state between the same parties involving the same subject matter rests upon principles of wisdom and justice, to prevent vexation, oppression and harassment, to prevent unnecessary litigation, to prevent a multiplicity of suits,—in short, to prevent two actions between the same parties involving the same subject matter from proceeding independently of each other.” (Simmons v. Superior Court (1950) 96 Cal.App.2d 119, 124-125.) “Any and all of this may occur where the later action is commenced in another state, as well as where it is commenced in the same state.” (Ibid.) Thus, “there is no distinction in reason or difference in principle between a case where a later action between the same parties involving the same subject matter is commenced in the same state and a case where a later action between the same parties involving the same subject matter is commenced in another state.” (Id. at p. 125.) “Granting a stay in a case where the issues in two actions are substantially identical is a matter addressed to the sound discretion of the trial court." (Thompson v. Continental Ins. Co. (1967) 66 Cal.2d 738, 746, citing Simmons, 96 Cal.App.2d at p. 123.)

“Where … the actions are pending in courts of different states, the determination whether to stay the later-filed action is discretionary, not mandatory, and should be raised by motion[.]” (Leadford v. Leadford (1992) 6 Cal.App.4th 571, 574; see also Farmland Irr. Co. v. Dopplmaier (1957) 48 Cal.2d 208, 215 “When an action is brought in a court of this state involving the same parties and the same subject matter as an action already pending in a court of another jurisdiction, a stay of the California proceedings is not a matter of right, but within the sound discretion of the trial court.”].)

Discussion

The parties agree that this action was filed on December 6, 2022, whereas the Delaware Action was filed on December 13, 2022. The Trust argues that the ABC Action, which was filed almost a year before this action, is the prior action. Moreover, the Trust asks the Court to exercise its discretion to stay the current action in favor of the ABC Action.  There are a number of problems with this argument and request. 

First, the parties are not identical between the two actions. Defendant Mahdara is not a party to either the ABC Action or Delaware Action.

Second, the subject matter is not the same between this action and either the ABC Action or the Delaware Action. The ABC Action does not involve Plaintiffs’ claims at issue in this case.  The mere fact that NGM1 filed and withdrew a motion to compel the turnover of the Trust assets in that action is not dispositive – that motion is not currently pending, and the ABC Action does not otherwise have binding control over the disposition of the collateral. Moreover, the ABC Action does not involve the damages claims that Plaintiffs are asserting in this case. 

Similarly, the pending causes of action in the Delaware Action are not of the same subject matter in this action. The remaining causes of action there are for breach of contract by failure to negotiate in good faith to establish a prospective long term commercial partnership and for tortious interference with contract. (BeautyCon Media ABC v. New General Market Partners, LLC (Del. Super. Ct., Aug. 11, 2023, No. N22C-12-143 MAA CCLD) 2023 WL 5164148, at *15.) Those causes of action would not put the legitimacy of Plaintiffs’ foreclosure on the Secured Loans at issue.

The Court notes that the ABC Action is not inconsistent with Plaintiffs’ efforts to enforce their rights in the current action.  Indeed, “the commencement of an ABC does not enjoin creditor collection.” (Andrew B. Dawson, Better Than Bankruptcy? (2016) 69 Rutgers U. L. Rev. 137, 147.) “Thus, creditors with a prior perfected security interest may still foreclose against their collateral[.]” (Ibid.)

California is also a more economical forum in which to try this case. BeautyCon had its principal place of business in Los Angeles and Trustee currently has its principal place of business in Los Angeles. (Colwell Decl. ¶¶ 6-7.) Defendant Mahdara resides in Los Angeles. (Colwell Decl. ¶ 6.) The majority of relevant witnesses and evidence are located in California. (Colwell Decl. ¶¶ 8.) Plaintiffs’ causes of action appear to arise under California law. Not only would it therefore be inconvenient to try the case in Delaware, but there is also a significant risk that Delaware courts may be unable to exercise compulsory process over all of the parties and witnesses.

For all these reasons, the Court does not view the ABC Action as a prior action that precludes the efficient litigation of the claims here, nor is a stay warranted in favor of the Delaware Action.  The Court therefore declines to exercise its discretion to stay the current case given the differences between the actions and the interests of judicial economy. (See Leadford, supra, 6 Cal.App.4th 571, 574.)

The Court denies the Trust’s request to stay this action.