Judge Lynette Gridiron Winston, Case Number: 24PSCV00568, Date: 2024-06-11 Tentative Ruling

Judge: Lynette Gridiron Winston, Case: 24PSCV00568, Date: 2024-06-11 Tentative Ruling

CASE NAME: Scott DeSmet, Conservator of the Person and Estate of Gregory L.

DeSmet Sr and Trustee of the Gregory L. DeSmet Trust v. Vicki Brown aka Vicki Brown-Desmet, et al.

The Court SUSTAINS the demurrer to the First, Second, and Third Causes of Action of the complaint with 20 days’ leave to amend.

Moving Parties are ordered to give notice of the Court’s ruling within five calendar days of this order.

This is a business dispute. On February 23, 2024, plaintiff Scott DeSmet, Conservator of the Person and Estate of Gregory L. DeSmet Sr and Trustee of the Gregory L. DeSmet Trust (Plaintiff) filed this action against defendants Vicki Brown aka Vicki Brown-DeSmet (Vicki), Victoria Marie Brown aka Victoria Marie Brown-DeSmet[1], Gregory L. DeSmet Jr. (Greg Jr.), Al Snow (Snow), DPI Labs, Inc. (DPI Labs), DeSmet Property Investments, LLC (DeSmet Property), Sowing Seeds for Life (Sowing Seeds), Hillsborough Accounting Services (collectively, Defendants), and Does 1 through 100, alleging causes of action for: (1) fraud and conspiracy to commit fraud; (2) breach of fiduciary duty; and (3) financial elder abuse and conspiracy to commit financial elder abuse.

On April 29, 2024, Vicki, DPI Labs, DeSmet Property, Greg Jr., and Sowing Seeds (collectively, Moving Parties) demurred to and moved to strike the complaint.[2] On May 29, 2024, Plaintiff opposed the motions. On June 4, 2024, Moving Parties replied.

A demurrer is a pleading used to test the legal sufficiency of other pleadings. It raises issues of law, not fact, regarding the form or content of the opposing party's pleading (complaint, answer or cross-complaint). (Code Civ. Proc., § 422.10; see Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) It is not the function of the demurrer to challenge the truthfulness of the complaint; and for purposes of ruling on the demurrer, all facts pleaded in the complaint are assumed to be true. (Id.)

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. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Donabedian, supra, 116 Cal.App.4th at p. 994.) No other extrinsic evidence can be considered. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881 [error for court to consider facts asserted in memorandum supporting demurrer]; see also Afuso v. United States Fid. & Guar. Co. (1985) 169 Cal.App.3d 859, 862, disapproved on other grounds in Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal.3d 287 [error to consider contents of release not part of court record].)

A demurrer can be utilized where the “face of the complaint” itself is incomplete or discloses some defense that would bar recovery. (Guardian North Bay, Inc. v. Superior Court (2001) 94 Cal.App.4th 963, 971-972.) The “face of the complaint” includes material contained in attached exhibits that are incorporated by reference into the complaint, or in a superseded complaint in the same action. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94; see also Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505 [“[W]e rely on and accept as true the contents of the exhibits and treat as surplusage the pleader’s allegations as to the legal effect of the exhibits.”])

A demurrer can only be sustained when it disposes of an entire pleading, cause of action, or affirmative defense. (See Cal. Rules of Court, rule 3.1320, subd. (a); Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119; Kong v. City of Hawaiian Gardens Redev. Agency (2003) 108 Cal.App.4th 1028, 1046-1047.)

“Each ground of demurrer must be in a separate paragraph and must state whether it applies to the entire complaint, cross-complaint, or answer, or to specified causes of action or defenses.” (Cal. Rules of Court, rule 3.1320, subd. (a).) The Court notes that Moving Parties’ notice of demurrer fails to comply with Rule 3.1320, subdivision (a), of the California Rules of Court, and does not state each ground for demurrer for each cause of action in a separate paragraph. (Notice of Demurrer, 2:11-13.)

The Court also notes that Moving Parties stated their grounds for the demurrer in the notice rather than in a demurrer, which is separate from the notice and memorandum of points and authorities. (See A. Demurrers, Cal. Prac. Guide Civ. Pro. Before Trial Ch. 7(I)-A [“The demurring party must file with the court, and serve on the other party, the following: • Demurrer; • Notice of Hearing (see ¶ 7:110 ff.); • Memorandum of Points and Authorities; [CRC 3.1112(a)] • Proof of service. [CCP § 1005(b); CRC 3.1300(c)].” [emphasis added].)

The Court further notes that the memorandum of points and authorities in support of the demurrer adds the ground of uncertainty in the middle of the memorandum instead of in the demurrer. (Memorandum of Points and Authorities, 5:16-6:5.)

The Court will still consider the demurrer, but admonishes Moving Parties to comply with the requirements of the California Rules of Court going forward.

Per Code of Civil Procedure section 430.41, subdivision (a), Moving Parties were required to meet and confer in person, by telephone, or by video conference before bringing this demurrer. (Code Civ. Proc., § 430.41, subd. (a).) The Court finds Moving Parties’ meet-and-confer efforts insufficient, as there is no indication that counsel for Moving Parties ever called counsel for Plaintiff before filing the demurrer. (See Meigs Decl., ¶ 2.) Nevertheless, the Court may not overrule a demurrer for failure to adequately meet and confer. (Code Civ. Proc., § 430.41, subd. (a)(4).) The Court will still consider the demurrer, but admonishes Moving Parties to comply with the Code of Civil Procedure going forward.

To state a cause of action for fraud, the plaintiff must allege facts demonstrating, “(1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage. [Citation.]” (Aton Ctr., Inc. v. United Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214, 1245.) “In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] ‘Thus ‘ “the policy of liberal construction of the pleadings ... will not ordinarily be invoked to sustain a pleading defective in any material respect.’ ‘ [Citation.] [¶] This particularity requirement necessitates pleading facts which show how, when, where, to whom, and by what means the representations were tendered.’ [Citation.] A plaintiff's burden in asserting a fraud claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.’ [Citation.]” (Lazar v. Superior Ct. (1996) 12 Cal.4th 631, 645 (Lazar).) To invoke civil conspiracy liability against multiple defendants, the plaintiff must allege facts demonstrating, “’(1) formation and operation of the conspiracy and (2) damage resulting to plaintiff (3) from a wrongful act done in furtherance of the common design.’ [Citation.]” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1136 (Prakashpalan).)

Moving Parties demur to the First Cause of Action for fraud and conspiracy to commit fraud on the grounds that the complaint fails to state a cause of action. Moving Parties contend the complaint fails to allege fraud with the requisite specificity, as there are no allegations regarding what the alleged misrepresentations were, who made them, to whom they were made, the means by which they were made, or when they allegedly occurred. Moving Parties also contend the complaint fails to allege facts demonstrating a conspiracy, as the complaint contains no allegations regarding the formation or operation of a conspiracy. In opposition, Plaintiff contends the complaint alleges sufficient facts for fraud and conspiracy to commit fraud.

The Court finds the complaint fails to state a cause of action for fraud and conspiracy to commit fraud. The complaint lacks any allegations explaining what misrepresentations were purportedly made, when they were made, how they were made, or who made the misrepresentations and to whom they were made. (See Compl., ¶¶ 12-16.) The complaint further fails to allege what was said or written and when the alleged representations were said or written, which is necessary for fraud claims against corporate defendants. (See Id.; Lazar, supra, 12 Cal.4th at p. 645.) Instead, the complaint alleges in a conclusory and cluttered fashion that Vicki, Greg Jr., and Snow made misrepresentations. (See Compl., ¶¶ 12-16.) The complaint also does not allege that Greg Jr. or Snow were authorized to make statements on behalf of DPI Labs or DeSmet Property. (See Id., ¶¶ 4-5.) Further, the complaint fails to allege facts showing the resulting damage to the Conservatee and the Trust. “[T]he loss of corporate profits, revenues, or assets as a result of negligent or intentional wrongdoing by a corporation's officers, directors, or majority shareholders results in corporate injury, for which only the corporation may sue to recover.” (Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 230.)

Moreover, given the failure to state a cause of action for fraud, the complaint also necessarily fails to state a claim for civil conspiracy because conspiracy is not a separate cause of action. (Prakashpalan, supra, 223 Cal.App.4th at p. 1136 [“There is no separate tort of civil conspiracy and no action for conspiracy to commit a tort unless the underlying tort is committed and damage results therefrom. [Citation.]”]) The Court further construes Plaintiff’s failure to address Moving Parties’ arguments in the opposition as a tacit admission that Moving Parties’ arguments are meritorious. (See Sexton v. Superior Court (1997) 58 Cal.App.4th 1403, 1410; C. Opposing the Motion—and Rebutting the Opposition, Cal. Prac. Guide Civ. Pro. Before Trial Ch. 9(I)-C, ¶ 9:105.10.)

Based on the foregoing, the Court SUSTAINS the demurrer to the First Cause of Action.

To state a cause of action for breach of fiduciary duty, the plaintiff must allege facts demonstrating, “’(1) the existence of a fiduciary relationship, (2) its breach, and (3) damage proximately caused by that breach.’ [Citation.]” (O'Neal v. Stanislaus Cnty. Employees' Ret. Assn. (2017) 8 Cal.App.5th 1184, 1215.)

Moving Parties demur to the Second Cause of Action for breach of fiduciary duty for failure to state a cause of action and for uncertainty. Moving Parties contend the complaint contains no allegations establishing the existence of a fiduciary duty on behalf of any of the Defendants except for Vicki. Moving Parties contend the complaint only makes conclusory allegations that Defendants made misrepresentations and misappropriations of funds from DPI, and fails to allege what the misrepresentations were, when the alleged misappropriations occurred, or who is alleged to have taken part in the alleged misappropriation, and fails to meet the heightened pleading requirements for fraud claims. Moving Parties also contend Plaintiffs’ breach of fiduciary duty claim ambiguously refers to misrepresentations without any specificity and is therefore uncertain. Moving Parties further contend the complaint does not establish the existence of a fiduciary duty on behalf of Greg Jr. or any entity Defendant.

In opposition, Plaintiff contends Defendants omit the fact that the Second Cause of Action includes a conspiracy to breach the fiduciary duty Defendants have admitted Vicki owes to Plaintiff. Plaintiff otherwise contends the complaint adequately alleges a cause of action for breach of fiduciary duty.

The Court finds the Second Cause of Action is subject to demurrer for uncertainty and also for failure to state a cause of action against Greg Jr. and Snow. First, although not specifically mentioned in the moving papers, the Court notes that the Second Cause of Action is actually two causes of action. (See Compl., ¶¶ 17-25.) The complaint lists them as Count One for DPI Labs and Count Two for DeSmet Property. (Id.) Combining two causes of action into one creates ambiguity and renders that cause of action subject to demurrer for uncertainty. (See Zumbrun v. University of Southern California (1972) 25 Cal.App.3d 1, 9 [trial court properly sustained demurrers for uncertainty based on two contracted related causes of action having been improperly combined into one].) This cause of action should be split into two separate causes of action.

Second, the complaint fails to allege facts demonstrating that either Greg Jr. or Snow owed a fiduciary duty to DPI Labs or DeSmet Property. For example, the complaint does not allege that Greg Jr. or Snow were directors or officers of either entity. (Compl., ¶¶ 4-7.) Additionally, the allegation that Snow was a CPA does not automatically impose a fiduciary duty either. (Id., ¶ 5.) “Notably, no reported California decision has found that the relationship between an accountant and client (without more) creates a fiduciary obligation. [Oakland Raiders v. Nat'l Football League, 131 Cal. App. 4th 621, 632, 32 Cal. Rptr. 3d 266 (6th Dist. 2005).]” (§ 34:19. Duty of care to clients, Cal. Civ. Prac. Torts § 34:19.)

Third, Plaintiff’s argument that Greg Jr. and Snow can be liable for conspiracy to breach Vicki’s fiduciary duty to DPI Labs and DeSmet Property is unpersuasive and unavailing. "A nonfiduciary cannot conspire to breach a duty owed only by a fiduciary. 'Conspiracy is not an independent tort; it cannot create a duty. . . . It allows tort recovery only against a party who already owes the duty . . . based on applicable substantive tort law principles.' " (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1597 quoting Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514.)

While the complaint alleges a fiduciary duty as to Vicki, based on the foregoing regarding combining the causes of action, the Court SUSTAINS the demurrer to the Second Cause of Action as to Vicki with leave to amend.

For all of the foregoing reasons, the Court SUSTAINS the demurrer to the Second Cause of Action as to DeSmet and Snow with leave to amend.

Third Cause of Action – Financial Elder Abuse and Conspiracy to Commit Financial Elder Abuse

“Financial abuse” of an elder or dependent adult occurs when a person or entity does any of the following:

(1) Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(2) Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(3) Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real or personal property of an elder or dependent adult by undue influence, as defined in Section 15610.70.

Elder abuse claims are statutory causes of action and therefore must be pleaded with particularity. (See Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 790, citing Lopez v. Southern Cal. Rapid Trans. Dist. (1985) 40 Cal.3d 780, 795.)

Moving Parties demur to the Third Cause of Action for financial elder abuse for failure to state a cause of action. Moving Parties contend the complaint contains no allegations that Defendants appropriated any real or personal property of Plaintiff. Moving Parties contend Plaintiff instead makes vague and conclusory allegations that Defendants made misrepresentations and misappropriated funds from DPI Labs, which is a corporation and is separate from Plaintiff’s status as a shareholder of DPI Labs.

In opposition, Plaintiff contends that Plaintiff has standing to allege a cause of action for elder abuse. Plaintiff contends Vicki has reported income to the taxing authority that was never paid to the Conservatee (as defined in the complaint) because Vicki converted those funds for her own use and benefit. Plaintiff contends that Snow assisted Vicki in converting the funds that were reported as paid to Conservatee but in fact were not. Plaintiff contends that Plaintiff is able to plead both derivative causes of action and direct causes of action, and that Plaintiff has sufficiently pled this Third Cause of Action for elder abuse.

The Court finds the complaint fails to state a cause of action for financial elder abuse. The Court agrees with Moving Parties that the complaint does not allege facts demonstrating Plaintiff was deprived of personal property for purposes of a financial elder abuse claim. (See Compl., ¶¶ 26-29.) The money and profits of the corporation belong to the corporation unless it declares a dividend or liquidates. “Shareholders do not own and have no right to receive corporate profits, except in limited circumstances: ‘It is fundamental, of course, that the corporation has a personality distinct from that of its shareholders, and that the latter neither own the corporate property nor the corporate earnings.’ [Citation.] Shareholders own stock in the corporation, from which they derive income only upon liquidation of the corporation or the declaration of a dividend by the corporate directors. [Citation.]” (Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 229.) The complaint does not allege that DPI Labs or DeSmet Property declared a dividend or was liquidated. (See generally, Compl.) Thus, the moneys that were allegedly misappropriated from DPI Labs or DeSmet Property were not Plaintiff’s personal property. It is not clear from the facts alleged in the complaint that the Third Cause of Action is based on the alleged reporting of income to the taxing authority. (See Compl., ¶¶ 26-29.) Nor are such allegations alleged with any specificity. (See Compl., ¶ 12(e).) The Court also finds that the complaint lacks the specificity necessary for an elder abuse claim for many of the same reasons set forth above under the First Cause of Action. (See Covenant Care, Inc. v. Superior Court, supra, 32 Cal.4th at p. 790.)

Moreover, although not raised in the parties’ respective briefs, the Court notes that the complaint does not allege the Conservatee was an elder or dependent adult (as defined in the statute) at the time of the alleged misconduct. The Third Cause of Action is based on the alleged deprivation of the Conservatee’s money and assets. (Compl., ¶ 28.)

Based on the foregoing, the Court SUSTAINS the demurrer to the Third Cause of Action with leave to amend.

“A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural, i.e., to disregard the corporate entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice.” (Hennessey's Tavern, Inc. v. Am. Air Filter Co. (1988) 204 Cal.App.3d 1351, 1359, internal citation omitted.)

The Court declines to address the parties’ arguments regarding the alter ego allegations in the complaint, as alter ego is not a cause of action. (Hennessey's Tavern, Inc. v. Am. Air Filter Co. supra, 204 Cal.App.3d at p. 1359.) A demurrer can only be sustained when it disposes of an entire pleading, cause of action, or affirmative defense. (See Cal. Rules of Court, rule 3.1320, subd. (a); Poizner v. Fremont General Corp., supra, 148 Cal.App.4th at p. 119; Kong v. City of Hawaiian Gardens Redev. Agency, supra, 108 Cal.App.4th at p. 1046.) The proper motion to address the alter ego allegations would have been a motion to strike. (PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682-1683, internal citations omitted [“A demurrer does not lie to a portion of a cause of action… We conclude that when a substantive defect is clear from the face of a complaint… a defendant may attack that portion of the cause of action by filing a motion to strike.”])

“Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof, but this time limitation shall not apply to motions specified in subdivision (e).” (Code Civ. Proc., § 435, subd. (b)(2).) “The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out 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.” (Id., § 436.)

Per Code of Civil Procedure section 435.5, subdivision (a), Moving Parties were required to meet and confer in person, by telephone, or by video conference before bringing this motion to strike. (Code Civ. Proc., § 435.5, subd. (a).) The Court finds Moving Parties’ meet-and-confer efforts insufficient, as there is no indication that counsel for Moving Parties ever called counsel for Plaintiff before filing the motion to strike. (See Meigs Decl., ¶ 2.) Nevertheless, the Court may not deny a motion to strike for failure to adequately meet and confer. (Code Civ. Proc., § 430.41, subd. (a)(4).) The Court will still consider the motion to strike, but admonishes Moving Parties to comply with the Code of Civil Procedure going forward.

Moving Parties seek to strike allegations seeking recovery for punitive damages and attorney’s fees. Given that the Court has sustained the demurrer to each cause of action of the complaint with leave to amend, the Court DENIES the motion to strike as moot.

The Court SUSTAINS the demurrer to the First, Second, and Third Causes of Action of the complaint with 20 days’ leave to amend.

Moving Parties are ordered to give notice of the Court’s ruling within five calendar days of this order.

[1] It appears that Victoria Marie Brown aka Victoria Marie Brown-DeSmet are additional aliases for Defendant Vicki rather than a separate person. (See Compl., ¶ 3.)

[2] The notice for the demurrer and motion to strike also include a person named Luis Gonzalez, (see Notice of Demurrer, 2:1-7; Notice of Motion to Strike, 2:1-8), but there is no such party named in the complaint, (see generally, Compl.), nor has Plaintiff filed a Doe amendment naming such a party.