Judge: Joseph Lipner, Case: 24STCV11342, Date: 2024-11-07 Tentative Ruling
Case Number: 24STCV11342 Hearing Date: November 7, 2024 Dept: 72
SUPERIOR COURT OF CALIFORNIA
COUNTY OF LOS ANGELES
DEPARTMENT 72
TENTATIVE
RULING
|
BLACK LIVES MATTER GLOBAL NETWORK
FOUNDATION, INC., Plaintiffs, v. TIDES FOUNDATION, et al., Defendants. |
Case No:
24STCV11342 Hearing Date: November 7, 2024 Calendar Number: 6 |
Defendants The Tides Center (“Tides Center”) and Tides
Foundation (collectively, the “Tides Parties”) demur to the second, fourth,
eleventh, twelfth, and thirteenth claims in the First Amended Complaint (“FAC”)
filed by Plaintiff Black Lives Matter Global Network foundation, Inc.
(“Plaintiff”).
The Court OVERRULES the demurrer to the fourth claim for
breach of contract as to defendant Tides Foundation but SUSTAINS the demurrer
WITH LEAVE TO AMEND as to the Tides Center.
The Court SUSTAINS the demurrer to the thirteenth claim for
intentional interference with prospective economic advantage WITH LEAVE TO
AMEND
Plaintiff shall amend within 20 days.
The Court OVERRULES the demurrer as to all other claims.
This case relates to a dispute over the management of
charitable contributions to Plaintiff. The following facts are taken from the
allegations of the FAC, which the Court accepts as true for the purposes of the
demurrer.
Plaintiff entered into a series of agreements with the Tides
Parties for the management of funds. Plaintiff alleges that the agreement
provided that the Tides Parties would receive tax-deductible donations on
behalf of Plaintiff and hold them for the benefit of Plaintiff. The agreements
allegedly provided that when Plaintiff obtained 501(c)(3) status, the Tides
Parties would provide Plaintiff with access to the funds. Plaintiff alleges
that the Tides Parties misappropriated and mismanaged Plaintiff’s funds.
Plaintiff was incorporated on October 16, 2017 to become the
primary entity that would receive charitable donations on behalf of the Black
Lives Matter Movement. Plaintiff later received IRS acknowledgement of its
501(c)(3) status on December 2, 2020, effective retroactively to August 28,
2020.
In the summer of 2020, Plaintiff engaged Tides Center to
receive tax-deductible donations on behalf of Plaintiff. The parties entered an
agreement referred to as the Fiscal Sponsorship MOU. Starting on June 26, 2020,
tax-deductible donations for the benefit of Plaintiff were sent to Tides
Center. Plaintiff’s fund operated by Tides Center (the “Fiscal Sponsorship
Fund”) received at least $7.4 million donations for Plaintiff.
The Tides Parties subsequently required Plaintiff to enter
into a Collective Action Fund MOU that authorized the creation of a separate
Collective Action Fund.
Plaintiff alleges that, in June 2020, a number of named
employees of the Tides Parties told representatives of Plaintiff, such as
Shalomyah Bowers, that the Tides Parties would disburse Plaintiff’s funds upon
request from Plaintiff and once Plaintiff achieved its 501(c)(3) status. On
July 14, 2020, Bowers participated in a virtual meeting with several named
representatives of the Tides Parties where the Tides Parties allegedly made
similar representations that Plaintiff would be able to direct the disposition
of the funds deposited into the Collective Action Fund.
Plaintiff entered into the Collective Action Fund MOU with
Tides Center on June 26, 2020. The Collective Action Fund MOU created the
Collective Action Fund. Plaintiff alleges that the Tides Parties designed the
Collective Action MOU and Collective Action Fund to allow the Tides Parties to
deny disbursement of funds to Plaintiff. Plaintiff alleges that it was the only
entity that solicited financial support from donors for both the Fiscal
Sponsorship Fund and Collective Action Fund. Plaintiff alleges that Tides
Center was not authorized to direct or transfer funds from the Fiscal
Sponsorship Fund to the Collective Action Fund. However, Plaintiff alleges that
the Tides Parties comingled the funds, which, among other things, generated
additional fees for the Tides Parties.
Plaintiff alleges that it entered into both MOUs in reliance
on the Tides Parties’ representations that Plaintiff would be able to retrieve
the funds deposited into the Fiscal Sponsorship Fund and the Collective Action
Fund and direct their disposition.
Plaintiff alleges that, during a July 17, 2020 phone call,
Eric Brown, legal counsel for the Tides Parties, told Bowers that “[a]ll of
this stuff won’t have to happen after you get [501(c)(3)] status and reclaim
those dollars back.” (FAC ¶ 38.) Plaintiff alleges that Brown promised that
Plaintiff could reclaim its funds at any time.
Plaintiff alleges that on September 14, 2020, Brown again
told Bowers that Plaintiff would be able to direct the disposition of the funds
in the Collective Action Fund.
On March 7, 2023, in a meeting between Tides representatives
and Plaintiff’s board members, Janiece Evans-Page, the Tides Parties’ current
CEO, stated that “we, Tides, do not really make that decision [of distributing
funds].” She further stated that “ultimately you [BLM GNF] have responsibility,
but we [Tides] do not decide who on the ground receives funds.” (FAC ¶ 54.)
Plaintiff alleges that the Collective Action Fund MOU
requires, among other things, that Tides Foundation ensure that the Fund
Manager submits a grant recommendation to Tides Foundation prior to any
grantmaking and that grantmaking does not confer a private benefit or
contravene the charitable purposes defined under section 501(c)(3) of the
Internal Revenue Code. Plaintiff alleges that the agreement also requires that
Tides Foundation maintain an Independent Advisory Committee (“IAC”) for the
Collective Action Fund that meets periodically and that the Tides Foundation
provide quarterly reports of activity to the Fund Manager.
Plaintiff alleges that the Collective Action Fund MOU stated
that the Fund Manager should approve grants before Tides Foundation makes any
distribution or grants. Plaintiff alleges that Tides Foundation did not consult
with the fund manager when making all of its grants. Plaintiff further alleges
that members of the IAC who supported Plaintiff were removed and replaced with
members who were associated with other organizations and wished to grant
Plaintiff’s funds to their own organizations.
Plaintiff alleges that the Tides Parties transferred
millions of dollars of Plaintiff’s funds to One Love Global, Inc. (“OLG”), the
fiscal sponsor of a wholly separate organization, without Plaintiff’s approval.
Plaintiff alleges that the Tides Parties transferred millions of dollars from
Plaintiff’s funds to OLG in the years 2020, 2021, and 2022. Plaintiff alleges
that OLG did not use those funds to advance Plaintiff’s purpose and objectives
for Plaintiff’s funds, but for its own gain.
In January 2022, Sandra Hudson and Jorden Giger, former
members of the IAC, warned the Tides Parties not to grant additional money to
OLG due to their beliefs that the money would not actually end up supporting
Plaintiff’s objectives. Plaintiff alleges that on January 10, 2022, a
representative of OLG falsely told Plaintiff that the funds granted to OLG from
the Collective Action Fund would be used to promote Plaintiff’s objectives by
promoting the Black Lives Matter movement. On January 21, 2022, the Tides
Foundation granted over $7 million to OLG despite Plaintiff’s request that the
Tides Parties not transfer Plaintiff’s money to OLG. Plaintiff alleges that OLG
used the money to fund various personal expenses for its representatives and
affiliates, including a personal vacation trip and personal stipend checks.
On June 13, 2022, Bowers communicated to the Tides Parties
that Plaintiff was terminating its funding relationship with the Tides Parties.
However, the Tides Foundation refused to disburse the funds to Plaintiff.
Plaintiff further alleges that the Tides Parties deliberately disbursed some of
the funds in question to third parties without Plaintiff’s consent. Plaintiff
alleges that the Tides Parties still refuse to release the funds to Plaintiff.
Tides Foundation assessed various fees for grants and
transactions relating to the Collective Action Fund. Tides Center also assessed
fees for revenue flowing into the Fiscal Sponsorship Fund. Plaintiff alleges
that Tides Center improperly transferred Fiscal Sponsorship Fund money to the
Collective Action Fund and assessed fees associated with that transaction on at
least two occasions.
Plaintiff filed this action on May 6, 2024. The operative
complaint is now the FAC, which raises claims for (1) breach of oral contract;
(2) intentional misrepresentation; (3) negligent misrepresentation; (4) breach
of written contract; (5) conversion; (6) unfair competition; (7) accounting;
(8) breach of fiduciary duty; (9) aiding and abetting breach of fiduciary duty;
(10) negligence; (11) constructive fraud; (12) concealment; (13) intentional
interference with prospective economic relations; (14) negligent interference
with prospective economic relations; and (15) declaratory relief.
On July 18, 2024, the Tides Parties demurred to the FAC.
Plaintiff filed an opposition and the Tides Parties filed a reply.
The Tides Parties request that the Court take judicial
notice of (1) the Fiscal Sponsorship MOU (Romain Decl., Ex. 1); (2) the
Collective Action Fund MOU (Romain Decl., Ex. 2); (3) the Tides Center Policy
Overview (Romain Decl., Ex. 3); and (4) the Project Handbook (Operations
Manual) (Romain Decl., Ex. 4).
“The existence and contents of a written agreement may be
the proper subject of judicial notice if there is no factual dispute that the
document is genuine and accurate.” (Chacon v. Union Pacific Railroad
(2020) 56 Cal.App.5th 565, 572.)
Here, Plaintiff does not dispute the contents of either MOU
as written. Although Plaintiff contends that the written terms are not
controlling because they were allegedly procured by fraud, Plaintiff does not
dispute what the MOUs say.
The Tides Parties argue that all of the documents are
incorporated into the FAC by reference. “[T]he doctrine of incorporation by reference generally
‘requires that (1) the reference to another document was clear and unequivocal;
(2) the reference was called to the attention of the other party, who consented
to that term; and (3) the terms of the incorporated documents were known or
easily available to the contracting parties.’ ” (Yu v. Liberty Surplus Ins.
Corp. (2018) 30 Cal.App.5th 1024, 1032.)
For these reasons, the Court takes judicial notice of the two
MOUs. Because the third and fourth items are documents that are incorporated in
the MOUs, the Court takes judicial notice of them as well.
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 facts
constituting the alleged fraud must be alleged factually and specifically as to
every element of fraud, as the policy of “liberal construction” of the
pleadings will not ordinarily be invoked. (Lazar
v. Superior Court (1996) 12 Cal.4th 631, 645.) The facts
constituting the alleged fraud must be alleged factually and specifically as to
every element of fraud, as the policy of “liberal construction” of the
pleadings will not ordinarily be invoked. (Lazar
v. Superior Court (1996) 12 Cal.4th 631, 645.) “[Fraud’s] particularity
requirement necessitates pleading facts which ‘show how, when, where, to whom,
and by what means the representations were tendered.’ [Citation.]” (Stansfield
v. Starkey (1990) 220 Cal.App.3d 59, 73.) “Less specificity is required
when it appears from the nature of the allegations that the defendant must
necessarily possess full information concerning the facts of the controversy.”
(Wald v. TruSpeed Motorcars, LLC (2010) 184 Cal.App.4th 378, 394
[quotation marks omitted].)
To properly allege fraud against a corporation, the
plaintiffs must plead the names of the persons allegedly making the false
representations, their authority to speak, to whom they spoke, what they said
or wrote, and when it was said or written. (Tarmann
v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)
The Tides parties argue that Plaintiff has not adequately
pled knowledge or intent to reduce reliance.
“A promise of future conduct is actionable as fraud only if
made without a present intent to perform.” (Magpali v. Farmers Group, Inc.
(1996) 48 Cal.App.4th 471, 481.) Plaintiff alleges that the Tides Parties knew
that their promise of disbursing funds to Plaintiff was false prior to forming
any agreements with Plaintiff. Plaintiff has adequately pled knowledge of
falsity. Plaintiff has also pled that the Tides Parties knowingly perpetrated a
bait-and-switch tactic in order to deceive Plaintiff into providing them with
its funds. ( FAC ¶¶ 27, 44, 87.)
The Court therefore 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.)
Plaintiff alleges that Tides Center breached the Fiscal
Sponsorship MOU by making grants that were not for the exclusive benefit of
Plaintiff and by changing the legal structure of the fiscal sponsorship without
signing a spin-off or separation agreement. (FAC ¶ 106.)
Plaintiff alleges that Tides Foundation breached the
Collective Action Fund MOU by (1) making grants of $12.6 million or more
without authorization from the Fund Manager of the Fund Manager’s grant
recommendation, (2) making grants that conferred a private benefit or violated
the charitable purpose requirements under section 501(c)(3), (3) failing to
establish and maintain a truly independent IAC or ensure that the IAC met
periodically, and (4) failing to provide required quarterly reports of fund
activity to the Fund Manager.
Plaintiff additionally alleges that the formation and
execution of both the Fiscal Sponsorship MOU and the Collective Action Fund MOU
were invalid because Plaintiff entered into the agreements based on oral
misrepresentations allegedly made by the Tides Parties.
Here, Defendant argues that the MOUs defeat Plaintiff’s
claim because their contents provide that grants are intended to carry out the
Tides Center’s mission and that the Tides Center has the power of ultimate
approval over grants.
The Collective Action Fund MOU provides that Tides
Foundation must provide quarterly reports of fund activity to members.
Plaintiff alleges that Tides Foundation failed to do so. Plaintiff has thus
stated a breach of contract claim against Tides Foundation.
For this reason, the Court overrules the demurrer to this
claim as to Tides Foundation.
However, it is not clear which terms of the Fiscal
Sponsorship MOU Plaintiff contends were violated by Tides Center. For this
reason, the Court sustains, with leave to amend, the demurrer to the fourth
claim as to Tides Center.
“Constructive fraud is a unique species of fraud applicable
only to a fiduciary or confidential relationship.” (Prakashpalan v.
Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1131 [citation
and quotation marks omitted].) “Constructive fraud arises on a breach of duty
by one in a confidential or fiduciary relationship to another which induces
justifiable reliance by the latter to his prejudice.” (Ibid. [citation
and quotation marks omitted].) “Constructive fraud exists in cases in which
conduct, although not actually fraudulent, ought to be so treated—that is, in
which such conduct is a constructive or quasi fraud, having all the actual
consequences and all the legal effects of actual fraud.” (Ibid.
[citation and quotation marks omitted].)
The elements of a constructive fraud cause of action are (1)
a fiduciary duty or confidential relationship, (2) nondisclosure (breach of
fiduciary duty); (3) intent to deceive, and (4) reliance resulting in injury. (Younan
v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14.)
The Tides Parties argue that this claim fails because
Plaintiff has not alleged a fiduciary relationship.
Plaintiff argues that the Tides Parties have conceded the
existence of a fiduciary relationship by failing to demur to Plaintiff’s claim
for breach of fiduciary duties. The Court disagrees. Failure to demur to a
cause of action is not admission of the claim’s truth, nor is it an admission
that every legal conclusion made in the cause of action is supported by
properly pled facts. Plaintiff cites Wilner v. Sunset Life Ins. Co.
(2000) 78 Cal. App. 4th 952, 958 (material facts and those arising by
reasonable implication admitted at demurrer stage) and Jenkins v. Fam.
Health Program (1989) 214 Cal. App. 3d 440, 445 (“In assessing the sufficiency
of the complaint against respondents’ demurrer, we treat the demurer as
admitting all material facts properly pleaded”). But each of these cases deals
with the factual assumptions that the Court must make about the allegations in
a claim against which a demurrer is raised, and not the effect of a failure
to demur to other claims. Here, the Tides Parties affirmatively challenge the
allegation that there was a fiduciary relationship. They have therefore not conceded
the sufficiency of those allegations.
Neither MOU contains an express provision that creates a
fiduciary relationship between the Tides Parties and Plaintiff. However, “there exists a fiduciary
relationship between a charity or any person soliciting on behalf of a charity,
and the person from whom a charitable contribution is being solicited. The
acceptance of charitable contributions by a charity or any person soliciting on
behalf of a charity establishes a charitable trust and a duty on the part of
the charity and the person soliciting on behalf of the charity to use those
charitable contributions for the declared charitable purposes for which they
are sought.” (Bus. & Prof. Code, § 17510.8.)
Here,
Plaintiff alleges that the Tides Parties agreed with Plaintiff that they would
receive charitable funds that Plaintiff solicited and use those funds only for
purposes consistent with Plaintiff’s mission. At least for purposes of
withstanding the demurrer, Plaintiff has adequately alleged the existence of a
fiduciary relationship between Plaintiff and the Tides Parties.
The
Court therefore overrules the demurrer to this claim.
“[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].)
The Tides Parties argue that this claim fails because
Plaintiff has not alleged a fiduciary relationship. As noted above, Plaintiff has adequately
asserted facts that could give rise to a fiduciary relationship. Moreover, the duty arises in contexts other than
a fiduciary duty. “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.) In sum, a
fiduciary relationship is not required.
The Tides Parties argue that Plaintiff has failed to allege
that the Tides Parties intentionally failed to disclose that Plaintiff’s funds
would not be retrievable. The Court disagrees. Plaintiff alleges that agents of
the Tides Parties repeatedly made statements indicating that the funds would be
disbursed to Plaintiff upon request. Plaintiff alleges that the Tides Parties
never informed Plaintiff that they would not disburse Plaintiff’s funds.
Plaintiff has therefor alleged that the Tides Parties made partial
representations, but also suppressed some material facts.
The Court therefore overrules the demurrer to this claim.
Plaintiff alleges that it had established relationships with
various donors and that the Tides Parties were aware of those relationships.
On May 9, 2024, Tides Foundation communicated to several
donors that Plaintiff was no longer a partner and requested that all future
donations be ceased. The Tides Foundation did not provide any alternate means
to direct donations to Plaintiff, which Plaintiff alleges disrupted the flow of
funds.
The Court concludes that in the current pleading Plaintiff
has not alleged wrongful conduct. If Plaintiff and the Tides Parties were no
longer associated, then the Tides Parties were correct to inform the donors as
such. The Tides Parties’ failure to provide alternate donation routes also does
not appear to be wrongful – the relationship had terminated, and Plaintiff
provides no authority indicating why the Tides Parties would have been
obligated to research or create other mechanisms by which Plaintiff received
donations.
The Court sustains the demurrer to this claim with leave to
amend.