Judge Martha K. Gooding, Case 23-01302156 2023-08-21 Tentative Ruling

Judge: Martha K. Gooding, Case: 23-01302156, Date: 2023-08-21 Tentative Ruling

1) Demurrer to Amended Complaint

2) Case Management Conference

The Court SUSTAINS without leave to amend the Demurrer by Defendants Ernest Schroeder and Donna Schroeder, both individually and as Co-Trustees of the Ernest and Donna Schroeder Family Trust, established August 30, 2001, Schroeder Asset Company (“SAC”), and Tracy Schroeder (all, collectively, “Defendants”) only as to the Third Cause of Action, for injunctive relief, in Plaintiffs’ First Amended Complaint (“FAC”). Injunctive relief is not a cause of action; it is a remedy.

Although the demurrer is sustained without leave to amend the Third Cause of Action, this does not preclude Plaintiffs from seeking leave to amend to add new or different claims that may warrant injunctive relief.

Request for Judicial Notice

The Request is GRANTED as to Exhibit 1, the Complaint and exhibits thereto.

The Request is DENIED as to Exhibit 2 (Notice of Ratification Under Corporations Code section 119, filed on March 7, 2023) and Exhibit 3 (Defendants’ executed Ratification Under Corporations Code section 119).

Judicial notice may not be taken of any matter unless authorized or required by law. (Evid. Code § 450; Munoz v. State of California (1995) 33 Cal.App.4th 1767, 1773 n.2). A corporation's original articles of incorporation, a letter from the Secretary of State to the corporation acknowledging receipt of a statement of information, a certificate of revivor issued by the Franchise Tax Board, and a letter from the Franchise Tax Board to the corporation reflecting a determination of the corporation's tax-exempt status are all proper subjects of judicial notice as documents reflecting official acts of the executive department of the State of California. (Evid. Code § 452(c); Friends of Shingle Springs Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 1470).

But Defendants do not cite any on point authority that would permit the Court to judicially notice the validity or legal effect of these documents, particularly given that they were filed after the dispute between the parties regarding the validity of the Board’s action arose.

Merits

Defendants argue that even if the two ratifications (which are not legally controlling on this demurrer) did not bar Plaintiffs’ belated attempt to undo SAC’s corporate existence, all of Plaintiffs’ claims are time-barred by the three- or four-year statute of limitation that applies to their claims. (Code Civ. Proc., § 338(d).) The Court is not persuaded.

Defendants argue that the events of which Plaintiffs complain occurred on December 18, 2017 – the date of SAC’s incorporation (FAC, ¶¶ 8-11) and that Plaintiffs acknowledged in writing on that date that they reviewed, approved, and ratified the actions of the Incorporator, SAC’s incorporating documents, and SAC’s share issuance to Plaintiffs. (Id., ¶ 11, Ex. B [Plaintiffs’ Initial Complaint, Ex. B at pp. 1, 4, 6].)

But this is, at best, an unduly narrow reading of the FAC. Plaintiffs allege they discovered in December 2022 that the formation of SAC was legally improper. Plaintiffs allege they “could not have reasonably discovered such omissions prior to December 2022, as the omissions (1) relate to legal requirements that the Agent Incorporator was required (but failed) to satisfy, which resulted in the failure to properly perfect the organization of SAC as a corporation; (2) the Plaintiffs were entitled to rely and in fact relied on the Agent Incorporator’s expertise in forming SAC; and (3) Ernie retained the Agent Incorporator and, for all intents and purposes, was the exclusive conduit in communicating with the Agent Incorporator and maintaining the corporate documents for SAC.” (FAC, ¶ 16.) The Court must accept these allegations as true for purposes of this Demurrer.

Defendants argue that a statute of limitations period is not delayed by Plaintiffs’ alleged reliance on an attorney where they had knowledge of the facts essential to their claims at the date of SAC’s incorporation, citing Gutierrez v. Mofid (1985) 39 Cal.3d 892, 898-900. But this case does not support Defendants’ argument. Gutierrez was a medical malpractice case decided on summary judgment, and the facts of Gutierrez were that plaintiff knew immediately that instead of removing a tumor, the doctor performed an unauthorized hysterectomy. The Gutierrez court held that reliance on an attorney's advice did not postpone the time of plaintiff’s “discovery” (and thereby extend the limitations period) because the plaintiff had already learned facts causing her to suspect she was a victim of malpractice. These are not our facts here.

Defendants argue that Plaintiffs reviewed, approved, and ratified the actions of the Incorporator, SAC’s incorporating documents, and SAC’s share issuance to Plaintiffs (Compl. Ex. B). But there is nothing in the pleading to suggest that Plaintiffs knew or should have known that the Incorporator erred in incorporating SAC, thereby leaving the validity of SAC’s operations in doubt. (FAC, ¶ 12-13). Defendants’ argument involves factual issues beyond the facts alleged in the pleading, which this Court must accept as true – despite Defendants’ suggestion that the Court disregard them on the ground that they are “frankly unbelievable.”

Finally, the Court sustains the Demurrer as to the purported cause of action for injunctive relief., without leave to amend.

An injunction is not a cause of action but is solely a remedy: a cause of action must exist before a judge may grant a request for injunctive relief. (Venice Coalition to Preserve Unique Community Character v City of Los Angeles (2019) 31 Cal.App.5th 42, 54; Shamsian v. Atlantic Richfield Co. (2003) 107 Cal.App.4th 967, 984-985 [“[A] request for injunctive relief is not a cause of action. Therefore, we cannot let this ‘cause of action’ stand”].) A permanent injunction is merely a remedy for a proven cause of action and may not issue if the underlying cause of action is not established. (Ivanoff v Bank of America, N.A. (2017) 9 Cal.App.5th 719, 734; see also Shell Oil Co., Inc. v. Richter (1942) 52 Cal.App.2d 164.)

Defendants are ordered to answer the FAC within 10 days.

Plaintiffs are ordered to give notice.