Judge: Mark H. Epstein, Case: 24SMCV04591, Date: 2025-03-24 Tentative Ruling

Case Number: 24SMCV04591    Hearing Date: March 24, 2025    Dept: I

This is a demurrer.  Plaintiff was an investor in a surgical center.  According to the moving papers here, it appears that he was bought out, although that is not clear from the complaint itself.  Plaintiff sues for breach of fiduciary duty and related torts.  Among other things, plaintiff alleges that defendants did not provide him with the documents to which he was entitled as a shareholder/member.  Defendants demur.  Defendants assert that there is no such thing as a cause of action for accounting, and thus the claim ought to be dismissed.  As to the fiduciary duty, the defense claims that the breach—if there was a breach—was not a breach of duty to plaintiff but a breach to the entity.  Because the alleged breach was only to the entity, defendants argue, plaintiff lacks standing to sue; rather, the chose in action belongs to the entity and plaintiff’s remedy is to bring a derivative action if he can.  (There may be standing issues, though, depending on the requirements for derivative plaintiffs and this plaintiff’s current situation.)  Also with regard to the breach of fiduciary duty, defendants contend that plaintiff needs to specify which specific defendant did what.  Finally, as to getting documents, defendants assert that the remedy is to bring a petition for a writ of mandate, not a regular civil action.  Plaintiff opposes. 

The court will OVERRULE the demurrer in part and SUSTAIN WITH LEAVE TO AMEND in part.  While accounting is often a remedy, it can be a cause of action, so the court will OVERRULE the demurrer on that basis.  The court also notes that at the end of the day, it does not really matter whether it is a remedy or a cause of action; the result is the same.  In either event, plaintiff will need to show an entitlement to an accounting, which is something plaintiff might well be able to do if plaintiff contends that the distributions while plaintiff was a member were improperly calculated or as a potential remedy for breach of fiduciary duty (if the fiduciary duty cause of action survives), but in both cases assuming an accounting is actually necessary.  As to fiduciary duty, to the extent that the allegations are that the defendants misused the entity’s assets or usurped an opportunity, it does appear to be derivative not direct.  As such, the demurrer as to that cause of action is SUSTAINED WITH LEAVE TO AMEND.  It could be that plaintiff is also alleging a direct breach, but plaintiff will then need to explain how it is that there was a fiduciary duty owed directly to him and how it was breached in the amended complaint and how it is that a recovery ought to go to him personally rather than to the entity.  To the extent that the matter is recast as a derivative cause of action, the court can address whether plaintiff has derivative standing and whether there could be an exception to the normal standing rule if the allegation is that defendants wrongfully executed a buy-out.  As to the document issue, the court will construe the cause of action seeking to enforce plaintiff’s right to obtain documents due to his status as a member of the entity as being pled in the alternative as a petition for a writ of mandate.  Little point would be served by having him re-cast the matter that way, and a separate lawsuit need not be filed (a writ petition and a cause of action for damages can be combined in the same pleading anyway).  The demurrer is therefore OVERRULED in that regard.

Plaintiff has 30 days’ leave to amend.  Plaintiff might want to consider attaching the OA to the amended complaint.  The court notes that the repurchase offer was attached to the original complaint, and the court assumes that the repurchase was done pursuant to that offer, but the court really does not know.  If the repurchase was voluntary, that could affect the sorts of claims that can be brought.