Judge: Maurice A. Leiter, Case: 20STCV41207, Date: 2024-12-12 Tentative Ruling

Case Number: 20STCV41207    Hearing Date: December 12, 2024    Dept: 54

Hearing Date: December 12, 2024

Department 54, Judge Maurice Leiter

Demurrer to Second Amended Complaint and Motion to Strike

Moving Party: Defendant Christopher Smedley

Responding Party: Plaintiffs Gerald Whitt, Alexander Whitt, Matthew Whitt, Christopher Whitt and Deborah Milam

T/R:     DEFENDANT SMEDLEY’S DEMURRER IS OVERRULED.

THE MOTION TO STRIKE IS DENIED.

DEFENDANT TO NOTICE

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On May 20, 2024, Plaintiffs filed the operative second amended complaint against Defendants, asserting causes of action for intentional and negligent misrepresentation, breach of fiduciary duty, breach of contract, conspiracy, malicious prosecution, and abuse of process. Plaintiffs were minority shareholders of Cloud B. Plaintiffs allege the Defendant majority shareholders conspired with the takeover Defendants to sell Cloud B and loot Cloud B’s assets, making Plaintiffs’ shares worthless.

REQUEST FOR JUDICIAL NOTICE

Defendant’s request for judicial notice is GRANTED as to the existence of the documents, but not as to the truth of the matters asserted in them.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it.  (CCP § 430.50(a).)  A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations.  (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.)  The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law.  (Id. at 732-33.)  The complaint is to be construed liberally to determine whether a cause of action has been stated.  (Id. at 733.)

A. Derivative v. Direct Claims

Defendant Smedley demurs to the first, second, fourth, fifth, sixth, and ninth causes of action for intentional and negligent misrepresentation, civil conspiracy, and malicious prosecution on the ground that they are improperly pleaded derivative claims on behalf of Cloud B.

Defendant asserts the causes of action should have been derivative claims because the harm alleged was done to Cloud B, rather than to Plaintiffs as individual shareholders. Defendant also argues the claims are barred by res judicata and collateral estoppel because Cloud B released all derivative claims in its bankruptcy action.

Plaintiffs allege that Defendants as majority shareholders and officers conspired to make Plaintiffs’ minority shares worthless. This is a recognized exception to mandatory derivative actions. (See Jones v. H.F. Ahmanson (1969) 1 Cal.3d 93, 106.) The demurrer cannot be sustained on this basis.

B. Statute of Limitations

Defendant contends the first, second, fourth, fifth, sixth, and ninth causes of action for are barred by the statute of limitations and do not relate back to the original complaint, filed on October 27, 2020, because the claims have been changed from derivative claims in the original complaint to direct in this FAC. Defendant does not cite authority stating this specific amendment prohibits relation back.

Defendant also asserts that being added to the pleadings as a Doe Defendant does not trigger relation back because Plaintiff knew of Defendant’s involvement at the start of this action in 2020. This is a question of fact not suitable for determination on demurrer.

C. Fourth Cause of Action for Civil Conspiracy

“The elements of a civil conspiracy are the formation and operation of the conspiracy and damage resulting to plaintiff from an act done in furtherance of the common design.” (Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303, 323.) Plaintiffs allege Defendants engaged in a conspiracy by, among other things, engaging in covert negotiations to takeover Cloud B and divulging Cloud B’s proprietary and confidential information to the takeover Defendants. This is sufficient to allege a civil conspiracy.

Defendant Smedley’s demurrer is OVERRULED.

D. Motion to Strike

“Any party, within the time allowed to response to a pleading, may serve and file a notice of motion to strike the whole or any part" of that pleading. (CCP § 435(b)(1).) “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 asserted 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." (CCP § 436.)

Defendant moves to strike allegations that refer to the “Takeover Defendants” that occurred before Defendant Pearl 33 was formed to the extent they contain “any direct or implied reference to Moving Defendant;” the prayers for punitive damages and attorney’s fees, references to alter ego, and any “derivative” claims. Defendant provides virtually no analysis to support these requests. This is insufficient to establish that these allegations are improper and must be stricken.

The motion to strike is DENIED.