Judge: Joseph Lipner, Case: 24STCV03912, Date: 2024-10-08 Tentative Ruling
Case Number: 24STCV03912 Hearing Date: October 8, 2024 Dept: 72
SUPERIOR COURT OF CALIFORNIA
COUNTY OF LOS ANGELES
DEPARTMENT 72
TENTATIVE
RULING
|
EUL HYUNG CHOI, Plaintiff, v. KEVIN JEFFERS, et al., Defendants. |
Case No:
24STCV03912 Hearing Date: October 8, 2024 Calendar Number: 6 |
Defendants Kevin Jeffers (“Jeffers”) and IMMCO Investment,
LLC (“IMMCO”) (collectively, Defendants”) demur to the Complaint filed by
Plaintiff Eul Hyung Choi (“Plaintiff”). Defendants additionally move to strike
portions of the Complaint relating to Plaintiff’s demands for punitive damages
and attorney’s fees.
The Court OVERRULES the demurrer to the first claim for
breach of fiduciary duty, second claim for breach of settlement agreement,
third claim for accounting, ninth claim for declaratory relief, and tenth claim
for injunctive relief.
The Court SUSTAINS the demurrer WITH LEAVE TO AMEND with
respect to Plaintiff’s fourth claim for negligence, fifth claim for fraudulent
concealment, sixth claim for conversion, seventh claim for embezzlement, and
eighth claim for unjust enrichment. Plaintiff shall have 20 days from the
issuance of this order to amend his complaint.
The Court DENIES the motion to strike as MOOT.
This case is a dispute over the settlement agreement in a
prior action. Except where otherwise noted, the following facts are taken from
the allegations of the Complaint, which the Court accepts as true for the
purposes of the demurrer.
Plaintiff
and IMMCO are the sole members of Wilshire Line Manager LLC (“Wilshire Line”).
At the time of formation, Plaintiff served as the managing member.
On
February 20, 2020, IMMCO filed a lawsuit against Plaintiff and SH Investment
& Securities, Inc. (“SH Investment”), an entity Plaintiff manages, in the
Los Angeles Superior Court, Case No. 20STCV07188 (the “Prior Action”).
In
the Prior Action, IMMCO alleged, among other things, that Plaintiff failed to
pay taxes and file returns for the Company’s tax years 2014, 2015, and 2018,
which led to the suspension of the Company by the California Secretary of State
and the California Franchise Tax Board. Additionally, IMMCO alleged that
Plaintiff denied access to Company bank accounts while using investor funds and
business profits for unauthorized purposes, including personal debts and living
expenses.
On
November 1, 2022, the parties reached a settlement of the Prior Action (the
“Settlement”). As part of the Settlement, Plaintiff agreed to certain
amendments to Wilshire Line’s operating agreement. These amendments provided
that Defendant Kevin Jeffers would take over as the manager of Wilshire Line,
subject to limited consultation requirements with Plaintiff over major
decisions. (Complaint, Ex. B.)
Plaintiff
alleges that Defendants extended a loan, for which Plaintiff’s consent was
required under the Settlement, to Sydell Wilshire LLC (“Sydell”) without
Plaintiff’s consent. Plaintiff alleges that Defendants similarly extended the
loan without Plaintiff’s consent. Plaintiff alleges that Defendants improperly
failed to respond to various requests for information that Plaintiff made.
Plaintiff
filed this action on February 16, 2024, raising claims for (1) breach of
fiduciary duty; (2) breach of settlement agreement; (3) accounting; (4)
negligence; (5) fraudulent concealment; (6) conversion; (7) embezzlement; (8)
unjust enrichment; (9) declaratory relief; and (10) injunctive relief.
Plaintiff’s numbering of his claims in the body of the Complaint do not match
the numbering in the caption page of the Complaint. The Court uses the
numbering in the caption page.
Defendants
filed the instant demurrer and motion to strike on August 29, 2024. Plaintiff
filed an opposition to each, and Defendants filed a reply in support of each.
“The party against whom a complaint or cross-complaint has
been filed may object, by demurrer or answer as provided in Section 430.30, to
the pleading on any one or more of the following grounds:
(a) The court has
no jurisdiction of the subject of the cause of action alleged in the pleading.
(b) The person who filed the pleading does not have the
legal capacity to sue.
(c) There is
another action pending between the same parties on the same cause of action.
(d) There is a defect or misjoinder of parties.
(e) The pleading does not state facts sufficient to
constitute a cause of action.
(f) The pleading is
uncertain. As used in this subdivision, “uncertain” includes ambiguous and
unintelligible.
(g) In an action
founded upon a contract, it cannot be ascertained from the pleading whether the
contract is written, is oral, or is implied by conduct.
(h) No certificate was filed as required by Section 411.35.”
(Code Civ. Proc., § 430.10.)
As a general matter, in a demurrer proceeding, the defects
must be apparent on the face of the pleading or via proper judicial
notice. (Donabedian v. Mercury Ins.
Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleading
alone, and not the evidence or facts alleged.” (E-Fab, Inc. v. Accountants,
Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) The court assumes the truth
of the complaint’s properly pleaded or implied factual allegations. (Ibid.) The only issue a demurrer is
concerned with is whether the complaint, as it stands, states a cause of
action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)
Where a demurrer is sustained, leave to amend must be
allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335,
348.) The burden is on the plaintiff to show the court that a pleading can be
amended successfully. (Ibid.;
Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f
there is any reasonable possibility that the plaintiff can state a good cause
of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist.
(1969) 70 Cal.2d 240, 245).
The court may, upon a motion, or at any time in its
discretion, and upon terms it deems proper, strike any irrelevant, false, or
improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The
court may also strike all or any part of any pleading not drawn or filed in
conformity with the laws of this state, a court rule, or an order of the court.
(Code Civ. Proc., § 436(b).) The grounds for a motion to strike are that the
pleading has irrelevant, false or improper matter, or has not been drawn or
filed in conformity with laws. (Code Civ. Proc., § 436.) The grounds for moving
to strike must appear on the face of the pleading or by way of judicial notice.
(Code Civ. Proc., § 437.)
“In California, two conditions must be met before the alter
ego doctrine will be invoked. First, there must be such a unity of interest and
ownership between the corporation and its equitable owner that the separate
personalities of the corporation and the shareholder do not in reality exist.
Second, there must be an inequitable result if the acts in question are treated
as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court
(2000) 83 Cal.App.4th 523, 538.) When these conditions are met, courts
disregard the corporate structure and impute the actions of a corporation onto
its owner or parent. (McLaughlin v. L. Bloom Sons Co. (1962) 206
Cal.App.2d 848, 851-852.)
In determining whether to apply the doctrine, California
courts consider a number of factors which include but are not limited to (1)
inadequate capitalization, (2) commingling of funds, records, and other assets,
(3) disregard of corporate formalities (e.g., stock issuance, holding board
meetings, keeping of minutes, election of officers and directors, segregation
of corporate records), (4) the same equitable ownership in the two entities,
(5) the same directors and officers, (6) confusion about corporate identity,
(7) use of the same offices and employees, (8) use of subsidiary as a mere
shell or conduit for the affairs of the parent, and (9) lack of segregation of
corporate records. (Brooklyn Navy Yard Cogeneration Partners, L.P. v.
Superior Court (Parsons Corp.) (1997) 60 Cal.App.4th 248, 258.)
There is not a heightened pleading standard for alter ego
theory; it is adequate for a plaintiff to allege “ultimate rather than
evidentiary facts.” (Rutherford Holdings, LLC v. Plaza Del Rey (2014)
223 Cal.App.4th 221, 236 [internal quotations and citation omitted].) Moreover,
“less particularity [of pleading] is required where the defendant may be
assumed to possess knowledge of the facts at least equal, if not superior, to
that possessed by the plaintiff, which certainly is the case” when analyzing
alter ego theory at the pleading stage. (Ibid.)
Here, although Plaintiff argues that Defendants are alter egos
of each other, he does not allege alter ego in the Complaint, nor does he
allege facts that would support the final conclusion that Defendants are alter egos.
Thus, for the purposes of the demurrer, the Court will not treat Defendants as
alter egos of each other.
Defendants argue that Plaintiff has not alleged the
existence of a fiduciary duty. However, in a manager-managed LLC, the manager
owes fiduciary duties of care and loyalty to the members of the company. (Corp.
Code, § 17704.09.) Thus, Jeffers owed Plaintiff fiduciary duties.
Defendants argue that Plaintiff has not alleged the breach
of any fiduciary duty. Plaintiff alleges that Defendants’ execution and
extension of the loan to Sydell, as well as alleged failure to collect interest
and expenses from the borrower and to provide accounting and banking records to
Plaintiff, constituted breaches of fiduciary duties.
Any LLC member has the right, upon reasonable request, to
“inspect and copy during normal business hours any of the records required to
be maintained pursuant to section 17701.13.” (Corp. Code, § 17704.10, subd.
(b)(1).) These records include the LLC’s financial statements. (Corp. Code, §
17701.13, subd. (d)(6).)
Further, the Settlement required that Jeffers consult with
Plaintiff regarding any decision which would require Wilshire Line to disburse
more than $25,000.00. (Complaint, Ex. B at p. 2, § 2(b).) Plaintiff alleges
that the loan amount was $15.5 million (Complaint ¶ 5.)
The Court therefore finds that Plaintiff has adequately
alleged breach of fiduciary duty.
The Court overrules the demurrer to this claim.
To state a cause of action for breach of
contract, a plaintiff must be able to establish “(1) the existence of the
contract, (2) plaintiff’s performance or excuse for nonperformance, (3)
defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011)
51 Cal.4th 811, 821.)
If a breach of
contract claim “is based on alleged breach of a written contract, the terms
must be set out verbatim in the body of the complaint or a copy of the written
agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999)
74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead
the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v.
TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)
As discussed above, Plaintiff has adequately alleged that
the Settlement required that Jeffers consult with Plaintiff for any
disbursement over $25,000.00, but nevertheless issued a loan of $15.5 million
without consulting with Plaintiff.
The Court therefore overrules the demurrer to this claim.
“A cause of action for an accounting requires a showing that
a relationship exists between the plaintiff and defendant that requires an
accounting, and that some balance is due the plaintiff that can only be
ascertained by an accounting. An action for accounting is not available where
the plaintiff alleges the right to recover a sum certain or a sum that can be
made certain by calculation.” (Teselle v.
McLoughlin (2009) 173 Cal.App.4th 156, 179, citations and paragraph break
omitted.)
A relationship exists between Plaintiff and IMMCO as
co-members. A relationship exists between Plaintiff and Jeffers as member and
manager.
Plaintiff alleges that Defendants have received profits of
Wilshire Line, a portion of which is due to Plaintiff. Further, as discussed
above, an LLC member has a right to obtain access to the LLC’s financial
records.
The Court therefore overrules the demurrer to this claim.
In order to state a claim for negligence, a plaintiff must
allege the elements of (1) “the existence of a legal duty of care,” (2) “breach
of that duty,” and (3) “proximate cause resulting in an injury.” (McIntyre v. Colonies-Pacific, LLC (2014)
228 Cal.App.4th 664, 671.)
“[C]ourts will generally enforce
the breach of a contractual promise through contract law, except when the
actions that constitute the breach violate a social policy that merits the
imposition of tort remedies.” (Erlich v. Menezes (1999) 21 Cal.4th 543,
552.) “Generally, outside the insurance context, “a tortious breach of contract
... may be found when (1) the breach is accompanied by a traditional common law
tort, such as fraud or conversion; (2) the means used to breach the contract
are tortious, involving deceit or undue coercion or; (3) one party
intentionally breaches the contract intending or knowing that such a breach
will cause severe, unmitigable harm in the form of mental anguish, personal hardship,
or substantial consequential damages.” (Id. at pp. 553-554, quoting Freeman
& Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 105.) “Focusing
on intentional conduct gives substance to the proposition that a breach
of contract is tortious only when some independent duty arising from tort law
is violated. If every negligent breach of a contract gives rise to tort damages
the limitation would be meaningless, as would the statutory distinction between
tort and contract remedies. (Id. at p. 554 [emphasis added] [citation
omitted].)
Here, Plaintiff has not adequately pled the violation of an
independent tort duty, as discussed below under Plaintiff’s tort claims.
The Court therefore sustains the demurrer to this claim with
leave to amend.
“[T]he elements of an action for fraud and deceit based on
concealment are: (1) the defendant must have concealed or suppressed a material
fact, (2) the defendant must have been under a duty to disclose the fact to the
plaintiff, (3) the defendant must have intentionally concealed or suppressed
the fact with the intent to defraud the plaintiff, (4) the plaintiff must have
been unaware of the fact and would not have acted as he did if he had known of
the concealed or suppressed fact, and (5) as a result of the concealment or
suppression of the fact, the plaintiff must have sustained damage.” (Lovejoy
v. AT&T Corp. (2004) 119 Cal.App.4th 151, 157–158.)
A duty to disclose arises when “[1] a defendant owes a
fiduciary duty to a plaintiff … [2] when the defendant has exclusive knowledge
of material facts not known to the plaintiff; [3] when the defendant actively
conceals a material fact from the plaintiff; or [4] when the defendant makes
partial representations but also suppresses some material facts.” (Jones v.
ConocoPhillips Co. (2011) 198 Cal.App.4th 1187, 1199 [internal citations
and quotation marks omitted; cleaned up].)
“Each of the [latter] three circumstances in which
nondisclosure may be actionable presupposes the existence of some other
relationship between the plaintiff and defendant in which a duty to disclose
can arise.” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336–337.)
“[S]uch a relationship can only come into being as a result of some sort of
transaction between the parties.” (Id. at p. 337.) “Thus, a duty to
disclose may arise from the relationship between seller and buyer, employer and
prospective employee, doctor and patient, or parties entering into any kind of
contractual agreement.” (Ibid.)
Although Plaintiff alleges that Defendants failed to timely
respond to Plaintiff’s requests for information, Plaintiff has not alleged how
that information would have altered his behavior.
Plaintiff appears to allege that Defendants deceived
Plaintiff into entering the Settlement by concealing the fact that Defendants
would be entrusted with large sums of money under the Settlement. However, the
face of the amendments, which Plaintiff signed, indicate that Jeffers would
become the manager of Wilshire Line. Thus, Plaintiff’s own allegations defeat
this claim by showing that Plaintiff would have known that the stipulated
amendments gave Jeffers such a power. To the extent that Plaintiff alleges that
Jeffers later improperly executed a loan, Plaintiff alleges a breach of the
Settlement, but not fraud.
The Court sustains the demurrer to this claim with leave to
amend.
Plaintiff alleges that Defendants mismanaged property of
Wilshire Line – not Plaintiff.
[W]here a cause of action seeks to recover for harms to the
corporation, the shareholders have no direct cause of action because a
corporation exists as a separate legal entity.” (Schrage v. Schrage
(2021) 69 Cal.App.5th 126, 149 [quotation marks and citations omitted].) “The
principles governing derivative actions in the context of corporations apply to
limited liability companies and limited partnerships.” (Id. at 150.)
Here, Plaintiff brings the conversion claim as an
individual, and not as a derivative claim.
The Court therefore sustains the demurrer to this claim with
leave to amend.
As discussed above, Plaintiff has alleged that Defendants
misappropriated Wilshire Line’s funds, but not Plaintiff’s. Plaintiff must
therefore bring this claim as a derivative claim.
The Court therefore sustains the demurrer to this claim with
leave to amend.
“The elements for a claim of unjust enrichment are receipt
of a benefit and unjust retention of the benefit at the expense of another. The
theory of unjust enrichment requires one who acquires a benefit which may not
justly be retained, to return either the thing or its equivalent to the
aggrieved party so as not to be unjustly enriched.” (Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769, quotation
marks and citations omitted.)
Notably, “[u]njust enrichment is not a cause of action”; it
is simply “a restitution claim.” (Hill v.
Roll International Corp. (2011) 195 Cal.App.4th 1295, 1307; see also Melchior v. New Line Productions, Inc. (2003)
106 Cal.App.4th 779, 793 [“there is no cause of action in California for unjust
enrichment”].)
As discussed above, Plaintiff has alleged that Defendants
misappropriated Wilshire Line’s funds, but not Plaintiff’s. Plaintiff must
therefore bring this claim as a derivative claim.
The Court therefore sustains the demurrer to this claim with
leave to amend.
“To qualify for declaratory
relief, a party would have to demonstrate its action presented two essential
elements: (1) a proper subject of declaratory relief, and (2) an actual
controversy involving justiciable questions relating to the party’s rights or
obligations.” (Jolley v. Chase Home
Finance, LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets
omitted.)
A cause of action for declaratory
relief should not be used as a second cause of action for the determination of
identical issues raised in another cause of action. (General of America Insurance Co. v. Lilly (1968) 258 Cal.App.2d
465, 470.) “The availability of another form of relief that is adequate will
usually justify refusal to grant declaratory relief” (California Insurance Guarantee Association v. Superior Court (1991)
231 Cal.App.3d 1617, 1624), and a duplicative cause of action is subject to
demurrer (Palm Springs Villas II
Homeowners Association, Inc. v. Parth (2016) 248 Cal.App.4th 268, 290).
Further, “there is no basis for declaratory relief where only past wrongs are
involved.” (Osseous Technologies of
America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357,
366, quotation marks omitted.)
Defendants argue that this claim should be dismissed if
Plaintiff’s other claims fail. Because the Court overrules the demurrer to the
claim for breach of fiduciary duty, the Court overrules the demurrer to this
claim.
“The elements of a
cause of action for injunctive relief are (1) a tort or other wrongful act
constituting a cause of action; and (2) irreparable injury, i.e., a factual
showing that the wrongful act constitutes an actual or threatened injury to
property or personal rights which cannot be compensated by an ordinary damage
award.” (Brownfield v. Daniel Freeman
Marina Hospital (1989) 208 Cal.App.3d 405, 410, citation omitted.) Notably,
“injunctive relief is a remedy and not, in itself, a cause of action, and a
cause of action must exist before injunctive relief can be granted.” (Camp v. Board of Supervisors (1981) 123
Cal.App.3d 334, 356.)
Section 12.16 of the operating agreement for Wilshire Line
provides that injunctive relief will be available when a party commits a
material breach of the agreement which may result in irreparable injury for
which there is no adequate remedy at law. (Complaint, Ex. D at p. 21, § 12.16.)
Plaintiff has alleged that Defendants breached the
amendments to the operating agreement by executing a loan in the amount of
$15.5 million, and approving the extension of that loan, without consulting
with Plaintiff. Plaintiff has alleged that the provision and extension of the
loan will cause irreparable injury. The Court finds these allegations to be
adequate.
The Court therefore overrules the demurrer to this claim.
Because the Court sustains the demurrer with leave to amend,
the Court denies the motion to strike as moot.