Judge: Loren G. Freestone, Case: 37-2023-00046879-CU-BT-CTL, Date: 2024-04-05 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - April 04, 2024

04/05/2024  10:30:00 AM  C-64 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Loren G. Freestone

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Civil - Unlimited  Business Tort Demurrer / Motion to Strike 37-2023-00046879-CU-BT-CTL MOM CA INVESTCO LLC VS WFG NATIONAL TITLE INSURANCE COMPANY CAUSAL DOCUMENT/DATE FILED:

TENTATIVE RULING Defendant WFG National Title Insurance Company's demurrer to Plaintiffs MOM CA Investco LLC ('MOM CA'), MOM CA Investor Group LLC ('MOM Member'), and MOM CA Manager LLC ('MOM Manager')'s complaint is SUSTAINED WITH LEAVE TO AMEND.

MOM CA is allegedly a joint venture between MOM Member and Defendant Mohammed Honarkar.

MOM Manager is allegedly the 'Managing Manager' for MOM CA with 'sole power and authority' to manage MOM CA's assets-including non-party subsidiary Modan LLC. Acting without authority or Plaintiffs' knowledge, Honarkar allegedly caused Modan to purchase and later sell a home in Poway.

WFG allegedly acted as the title insurer and escrow agent for the sale. Although WFG allegedly knew that Honarkar was acting without authority, it never notified Plaintiffs of Honarkar's actions. Rather, WFG allegedly facilitated the sale and disbursed the sale proceeds to directly to Honarkar. Honarkar then allegedly converted the proceeds for his personal use. Based on these allegations Plaintiffs allege causes of action against WFG for breach of contract, breach of fiduciary duties, negligence, fraud/deceit, and violation of Penal Code section 496.

WFG demurs on a variety of grounds, including lack of standing. The standing argument is dispositive, and therefore it is unnecessary to address WFG's other arguments.

'A limited liability company is an entity distinct from its members.' (Corp. Code, § 17701.04, subd. (a).) As such, 'a member in a limited liability company does not hold any interest in the real property owned by the limited liability company.' (Fashion Valley Mall, LLC v. County of San Diego (2009) 176 Cal.App.4th 871, 886.) 'Because members of the LLC hold no direct ownership interest in the company's assets, the members cannot be directly injured when the company is improperly deprived on those assets.' (PacLink Communications Intt'l, Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 965.) In such a case, the member cannot maintain a personal action. (See id. at pp. 964–965 [affirming dismissal of claims brought by members of an LLC arising from a fraudulent transfer of the LLC's assets].) Here, the Crestwood property was allegedly owned by Modan. It was therefore Modan that was injured by the allegedly wrongful sale of that property and allegedly wrongful disposition of the proceeds to Honarkar. Although Plaintiffs stand in various relationships to Modan (either as owner, owner's owner, or owner's manager) and may have sustained an incidental injury by way of a diminution in the value of their various membership interests, that does not enable them to bring a direct action in their own name.

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3065546  44 CASE NUMBER: CASE TITLE:  MOM CA INVESTCO LLC VS WFG NATIONAL TITLE INSURANCE  37-2023-00046879-CU-BT-CTL Plaintiffs 'acknowledge the general rule that members of a limited liability company have only derivative standing to sue in that company's name,' but they argue that 'the facts of this case necessitate a departure from that general rule.' Plaintiffs contend that WFG was complicit in 'Honakar's misuse of the corporate form to abscond with cash,' that they 'were the true parties injured, because they were deprived of the Crestwood Property and the sale proceeds,' and that Modan was only injured in a 'formal sense.' Plaintiffs do not cite any authority in support of this departure, and there is nothing unique about the nature of this case or alleged injury. (See PacLink, supra, 90 Cal.App.4th at p. 962–966 [rejecting a similar argument that the LLC members had standing to sue directly because the defendant 'had acted with the intent to defraud' them and caused 'financial injury directly to plaintiffs themselves'].) Plaintiffs also argue that 'MOM CA is the sole holder of the membership interests in Modan' and therefore 'it is the only entity with any interest in Modan's property.' But again, the only entity with any interest in Modan's property is Modan. Even if Modan is a wholly owned subsidiary, Modan must be the one to sue. (See Vinci v. Waste Mgmt., Inc. (1995) 36 Cal.App.4th 1811, 1815 ['The remedy lies with the corporation, not the shareholder, even if the injured shareholder is the sole shareholder'].) Accordingly, the demurrer is sustained. Plaintiffs are granted 10 days leave to amend.

In light of this ruling, WFG's concurrent motion to strike is moot.

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