Judge: Maurice A. Leiter, Case: 20STCV48660, Date: 2023-03-03 Tentative Ruling

Case Number: 20STCV48660    Hearing Date: March 3, 2023    Dept: 54

Hearing Date: March 3, 2023

Department 54, Judge Maurice A. Leiter

Motion to Enforce Subpoena for Financial Records

Moving Party: Defendants Capital Stone Holdings, Inc. and Robert Spiro

Responding Party: Plaintiff J.E. Group, LLC

T/R:     PLAINTIFFS’ MOTION IS GRANTED.

WELLS FARGO IS ORDERED TO COMPLY WITH THE SUBPOENA WITHIN 10 DAYS OF NOTICE OF RULING.

            PLAINTIFFS 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 December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC sued Defendants CSM Sycamore, LLC, Capital Stone Management, Inc., and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

ANALYSIS

CCP § 1987.1 provides, “[i]f a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, or other things before a court, or at the trial of an issue therein, or at the taking of a deposition, the court, upon motion reasonably made by any person described in subdivision (b), or upon the court's own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders.”

Plaintiffs move to enforce a subpoena served on third-party Wells Fargo Bank seeking “Any and all documents concerning [four accounts], including, but not limited to account statements, cancelled checks, signatory or signor forms, deposit and withdrawal receipts, notifications, correspondence, and wire transfer documents from January 1, 2016, through October 31, 2022.” Plaintiffs served the subpoena on October 18, 2022. Plaintiffs assert that Defendants have refused to allow Plaintiffs’ access to Sycamore’s financial records and that Defendants have used various companies to shift money. These records are relevant and discoverable.

In opposition, Defendants assert Plaintiffs’ counsel cannot serve as the deposition officer on the subpoenas. CCP § 1985(c) allows an attorney to sign and issue subpoenas.

Plaintiffs’ motion is GRANTED.

Hearing Date: March 3, 2023

Department 54, Judge Maurice A. Leiter

Demurrer to First Amended Complaint and Motion to Strike

Moving Party: Defendants Capital Stone Holdings, Inc. and Robert Spiro

Responding Party: Plaintiff J.E. Group, LLC

T/R:     DEFENDANTS’ DEMURRER IS OVERRULED.

DEFENDANTS’ MOTION TO STRIKE IS DENIED.

DEFENDANTS TO FILE AND SERVE ANSWERS TO THE FIRST AMENDED COMPLAINT WITHIN 20 DAYS OF NOTICE OF RULING.

            DEFENDANTS 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 December 21, 2020, Plaintiffs J.E. Group, LLC and 1999 Sycamore, LLC sued Defendants CSM Sycamore, LLC, Capital Stone Management, Inc., and Cole Harris. This action arises out of a joint venture to acquire real property. Plaintiffs allege Defendants improperly encumbered the property.

REQUEST FOR JUDICIAL NOTICE

            Defendants’ request for judicial notice of 1999 Sycamore, LLC’s operating agreement is DENIED.

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. Alter Ego

To invoke the alter ego doctrine, the plaintiff must plead unity of interest and ownership, and that an inequity will result if the corporate entity is treated as the sole actor. (See Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, 749.)

Defendants assert Plaintiffs have failed to allege alter ego liability. In opposition, Plaintiffs present the complex web of entities and their connections to each other. Plaintiffs allege Defendants converted Plaintiffs’ funds for personal use using their status as manager of Plaintiffs. This is sufficient to allege alter ego liability.

B. Breach of Fiduciary Duty

The elements for a breach of fiduciary duty cause of action are “the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach.” (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 604.)  

Defendants assert Plaintiffs have failed to allege Defendants owed Plaintiffs fiduciary duties. Plaintiffs allege Defendants owed Sycamore a fiduciary duty as Sycamore’s manager and owed JE Group fiduciary duties as a member of Sycamore. Managers of an LLC owe the LLC and the LLC’s members duties of loyalty and care. (See Corp. Code § 17704.09)

Defendants’ demurrer to the fourth through seventh causes of action is OVERRULED.

C. Fraud

The elements of fraud are: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Charnay v. Cobert (2006) 145 Cal.App.4th 170, 184.) In California, fraud, including negligent misrepresentation, must be pled with specificity. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.) “The particularity demands that a plaintiff plead facts which show how, when, where, to whom, and by what means the representations were tendered.” (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.)

            Defendants assert Plaintiffs have failed to allege fraud with the requisite specificity. Plaintiffs allege Defendants concealed the terms of the Preferred Bank loan, which was never authorized by J.E. Group; and that: a forged document purporting to be J.E. Group's consent to the loan was submitted to Preferred Bank; the loan was improperly cross-collateralized with another property owned by an entity managed by Spiro, Harris and Capital Stone; proceeds of the loan and other of Sycamore's funds were misappropriated by various Defendants, including Spiro and CSH; Defendants bore a fiduciary relationship to Plaintiffs and a duty to disclose the terms of the loan to Plaintiffs and to obtain J.E. Group's consent; Defendants intended to deceive Plaintiffs by concealing these facts; if Plaintiffs had been aware of these facts they would not have allowed the loan; Plaintiffs have suffered damages in excess of $1,800,000. This is sufficient to establish a cause of action for fraud.

            Defendants’ demurrer to the second cause of action for fraud is OVERRULED.

D. Gross Negligence, Conversion, Civil Conspiracy and Unjust Enrichment

Defendants demur to the causes of action for conversion, unjust enrichment, gross negligence and civil conspiracy on the ground that Plaintiffs have failed to allege Defendants owed Plaintiffs a fiduciary duty. As discussed, this argument fails.

            Defendants’ demurrer to the third, eighth, tenth and eleventh causes of action is OVERRULED.

E. 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.)

Defendants move to strike the FAC as to Plaintiff Sycamore because it is not represented by counsel. In opposition, Plaintiffs assert that any omission of Sycamore as a represented party was in error. Plaintiffs assert Sycamore is represented by the same counsel as Plaintiff JE Group.

Defendants’ motion to strike is DENIED.