Judge Lisa K. Sepe-Wiesenfeld, Case Number: 20SMCV01322, Date: 2024-11-19 Tentative Ruling

Judge: Lisa K. Sepe-Wiesenfeld, Case: 20SMCV01322, Date: 2024-11-19 Tentative Ruling

“[A] demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (See Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994 [in ruling on a demurrer, a court may not consider declarations, matters not subject to judicial notice, or documents not accepted for the truth of their contents].) For purposes of ruling on a demurrer, all facts pleaded in a complaint are assumed to be true (Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967), but the Court does not “assume the truth of contentions, deductions, or conclusions of fact or law” (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125).

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”]; Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 [“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”]; Vaccaro v. Kaiman (1998) 63 Cal.App.4th 761, 768 [“When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.”].) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

“The elements of fraud,” including a cause of action for fraudulent inducement, “are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Hinesley v. Oakshade Town Ctr. (2005) 135 Cal.App.4th 289, 294.) 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.)

In the fifth cause of action, Plaintiff Green Baron Holdings, LLC (“Plaintiff”) alleges that Defendant Gregory Meguerian represented to Plaintiff orally and via text message in December 2017 that Defendants would provide accounting statements immediately upon execution of the Long Form Agreement, but Defendants did not produce such statements, and Defendants did not hire an accountant. (SAC ¶¶ 97-99, 104-106.) Plaintiff alleges that Meguerian also made representations to Plaintiff orally about a business plan, a promise to allow access to the accounting system, and presenting Plaintiff with what appeared to be a breakdown of how money would be used, but Defendants intended to change the corporate structure. (SAC ¶¶ 100-101.) Plaintiff further alleges that in November 2017 and December 2017, Meguerian orally represented that Defendant Elevated Investment Group, Inc. had sole ownership of a new growth facility and a second dispensary, but Defendants had submitted for a single ownership structure for all entities, which would dilute Plaintiff’s share in the overall investment. (SAC ¶ 107.) Put simply, these allegations are not sufficiently specific as required in a fraud claim, as Plaintiff fails to allege the specific nature of the representations made, thereby precluding a finding that Plaintiff justifiably relied on the representations in a manner that caused harm. The Court previously advised Plaintiff to specifically allege the representations, when they were made, by what means, and Defendant’s knowledge of falsity, and it has failed to do so upon amending the complaint. Accordingly, Defendants’ demurrer to the fifth cause of action is SUSTAINED without leave to amend.

Corporations Code section 25401 makes it “unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in the light of the circumstances under which the statements were made, not misleading.”

Plaintiff uses the same allegations stated above, as well as alleging that Defendants Yvette Christiana Hernandez, John Meguerian, and Patrick Bon aided Defendant Meguerian’s purported fraud because they were signatories to the Short Form Agreement, making them aware of the obligation to provide accounting and financial information, but they failed to do so, and they further misrepresented the ownership structure for the corporate entities. (SAC ¶¶ 125-126.) Here, too, Plaintiff’s claims remain too vague and conclusory without the required specificity, as Plaintiff fails to allege the specific nature of the misrepresentations made as to the corporate structure or any other representations made by Meguerian. Accordingly, Defendants’ demurrer to the sixth cause of action is SUSTAINED without leave to amend.