Judge: Mel Red Recana, Case: 21STCV20050, Date: 2024-04-24 Tentative Ruling
Case Number: 21STCV20050 Hearing Date: April 24, 2024 Dept: 45
Hearing
date: April
24, 2024
Moving
Party: Defendants
Julio Jones and Sharod “Roddy” White
Responding
Party: Plaintiff
SLW Holdings, LLC
Demurrer
to Second Amended Complaint
The Court
considered the moving papers, opposition, and reply.
The
Demurrer is overruled. Defendants Julio
Jones and Sharod “Roddy” White to answer in 20 days.
Background
Plaintiff
SLW Holdings, LLC invested approximately $4,240,000 into two cannabis business
ventures based on Defendants Tyrone Freeman, Wolfgang & Associates LLC,
Daude Sherrills and Lamarr House fraudulent misrepresentations. The two business ventures were Gain Green
Corporation (“GGC”) and Genetixs LLC (“Genetixs”). Plaintiff alleges Defendants failed to
disclose that Freeman and Sherrills had felony judgments against them for
fraud, embezzlement and heroin trafficking and failed to disclose that they had
not undergone background checks.
Plaintiff alleges Defendants were not legally authorized to operate
either GGC or Genetixs. Plaintiff
alleges Defendants retaliated against Plaintiff’s objection to Defendants’
fraudulent and illegal operations by expelling Plaintiff rom Genetixs. Plaintiff alleges it lost its entire
investment as a result of the fraud.
Plaintiff
filed this action on May 28, 2021. Plaintiff’s
operative complaint is the Second Amended Complaint filed on April 20, 2023
alleging (1) fraudulent concealment; (2) fraudulent inducement; (3) breach of
fiduciary duty; (4) unfair business practices; (5) violation of Corp. C.
§§25401 and 25501; (6) injunctive and declaratory relief; (7) breach of
contract; (8) conversion; and (9) promissory estoppel.
On
July 21, 2021, Genetixs filed an action against Defendants Julio Jones, Sharod
“Roddy” White, John Van Beek, Shaun Van Beek, SLW Holdings, LLC, The Rite-Lab,
Xtreme Construction, John Van Beek Construction, Bunch Palms Trail, LLC and
Mehdi Tehranchi, Case No. 21STCV26774 (“Genetixs Action”). The Genetixs Action was consolidated with
this action as the lead case on February 23, 2022. After disqualifying Genetixs’s prior counsel,
the Court granted Genetixs leave in its April 17, 2023 Order to file a new pleading.
Genetixs’s
operative pleading is the complaint filed and served with its Motion for Relief
from Dismissal, which was granted on April 17, 2023 (the “New Genetixs
Complaint”). The New Genetixs Complaint
alleges (1) fraud; (2) conversion; (3) breach of fiduciary duty; (4)
accounting; (5) declaratory relief; and (6) breach of contract.
On
June 1, 2023, Defendants Julio Jones and Sharod “Roddy” White filed the
demurrer to the New Genetixs Complaint currently before the Court. On April 2, 2024, Genetixs filed an
opposition. On April 17, 2024,
Defendants filed a reply.
Legal
Standard
A demurrer for
sufficiency tests whether the complaint states a cause of action. (Hahn v.
Mirada (2007) 147 Cal.App.4th 740, 747.) A demurrer tests the pleadings
alone and not the evidence or other extrinsic matters. Therefore, the defects
must be apparent on the face of the pleading or via proper judicial notice.
(Code Civ. Proc., §§ 430.30, 430.70; Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968, 994.) At the pleading stage, a plaintiff need only
allege ultimate facts sufficient to apprise the defendant of the factual basis
for the claim against him. (Semole v.
Sansoucie (1972) 28 Cal. App. 3d 714, 721.)
The court assumes the truth of the complaint’s properly pleaded or
implied factual allegations. (E-Fab, Inc. v. Accountants, Inc. Servs.
(2007) 153 Cal.App.4th 1308, 1315.) A
“demurrer does not, however, admit contentions, deductions or conclusions of
fact or law alleged in the pleading, or the construction of instruments
pleaded, or facts impossible in law.” (S.
Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732.)
Discussion
On
January 28, 2022, the Court sustained Defendants Jones and White’s demurrer to
the fraud and breach of fiduciary duty claims alleged in the original complaint
filed in the Genetixs action. The Court
ruled that (1) the fraud claim was not alleged with specificity and (2) the
breach of fiduciary duty claim failed to allege facts that would impose a
fiduciary duty from Jones and White as individuals to Genetixs. (Aghaian Dec., Ex. 1, January 28, 2022
Order.)
Defendants
Jones and White now demur to the fraud and breach of fiduciary duty causes of
action in the New Genetixs Complaint on the same grounds as their original
demurrer. Defendants maintain the New Genetixs
Complaint fails to cure the lack of specificity in the fraud allegations and
there are still no allegations that Jones and White were acting individually
when the invested in Genetixs.
1. Fraud
The
elements of fraud are: (1) misrepresentation (false representation,
concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent
to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (Civil Code §1709.) Fraud actions are subject to strict
requirements of particularity in pleading.
(Committee on Children’s Television, Inc. v. General Foods Corp.
(1983) 35 Cal. 3d 197, 216.)
Consistent
with the rule requiring specificity in pleading fraud, a complaint must state
ultimate facts showing that the defendant intended or had reason to expect
reliance by the plaintiff or the class of persons of which he is a member.” (Geernaert v. Mitchell (1995) 31 Cal.
App. 4th 601, 608.) A plaintiff must
allege what was said, by whom, in what manner (i.e. oral or in writing), when,
and, in the case of a corporate defendant, under what authority to bind the
corporation. (Goldrich v. Natural Y
Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.)
Plaintiff
alleges that “Defendants (except Bunch Palms)” made numerous misrepresentations
beginning in February 2021, partly oral and partly written. (Aghaian Dec., Ex. 3, New Genetixs Complaint,
¶27.) “Defendants (except Bunch Palms)”
is sufficiently specific to identify Jones and White. Plaintiff also alleges when and how these
misrepresentations were made. (Id. at
¶27.) Plaintiff alleges the nature of
the misrepresentations. (Id. at
¶27.)
Genetixs
sufficiently alleges fraud against Jones and White. Defendants’ demurrer is overruled.
2. Breach of Fiduciary Duty
Genetixs
is a limited liability company. (Aghaian
Dec., Ex. 3, New Genetixs Complaint, ¶1.)
Lamarr House is the chairman and member of Genetixs. (Id. at
¶1.) Its members are SLW, Daude
Sherills, The Rite Lab LLC and Wolfgang & Associates, LLC. (Id.)
White was the manager of SLW Holdings, LLC and that White and Jones are
the principal officers, directors, members, shareholders, employees and
managing agents of SLW Holdings, LLC. (Id.
at ¶4.) Genetixs alleges “Defendants”
owed them a fiduciary duty as “the operators and managers of the Facility.” (Id. at ¶39.)
Pursuant
to Corporations Code §17704.09(a), “the fiduciary duties that a member
owes to a member-managed limited liability company and the other members of the
limited liability company are the duties of loyalty and care under (b) and
(c).” Thus, a member of member-managed
LLC, which Genetixs appears to be based on the New Genetixs Complaint (¶1), owes
the LLC fiduciary duties as a matter of law.
Jones and White
argue they are not members of Genetixs individually and are only involved with
Genetixs through SLW Holdings, LLC. White
is allegedly the manager of SLW Holdings, LLC and both White and Jones are the
principal officers, directors, members, shareholders, employees and managing
agents of SLW Holdings, LLC. (Aghaian
Dec., Ex. 3, New Genetixs Complaint, ¶5.)
A corporate
entity can only act through individuals.
(Shaw v. Hughes Aircraft Co. (2000) 83 Cal.App.4th
1336, 1347.) For this reason, SLW
Holdings, LLC’s principal officers, directors and manager (Jones and White) owed
Genetixs a fiduciary duty when serving in their capacities as officers,
directors and manager of SLW Holdings, LLC.
There is nothing on the face of the complaint indicating Genetixs is
alleging breach of fiduciary duty against them outside of their capacity as
officers, directors and manager of SLW Holdings, LLC.
In fact,
Genetixs alleges the breaches occurred in the Defendants’ personal management
and operation of Genetixs’ cannabis facility.
(Aghaian Dec., Ex. 3, New Genetixs Complaint, ¶4.) The allegation that Defendants, including
Jones and White, personally managed and operated the facility in a way that
breached their fiduciary duties is a factual allegation; it must be accepted as
true on demurrer, nor does the specific allegation that John Van Beek and Shaun
Van Beek managed and operated the facility necessarily in conflict with the
allegation that the remaining Defendants also managed and operated the
facility.
Genetixs alleges
sufficient facts to establish that Jones and White individually owed it a
fiduciary duty in their capacities as officers, directors and manager of SLW
Holdings, LLC, a member of Genetixs. Genetixs
need only allege facts indicating that Jones and White owed a fiduciary duty to
Genetixs when acting in their capacity as officers, directors and manager of
SLW Holdings, LLC and that Jones and White personally participated in the tort. Genetix alleges both. Jones and White’s demurrer to the breach
fiduciary duty cause of action is overruled.
Defendants’
demurrer to the breach of fiduciary duty cause of action is overruled.
Conclusion
Defendants’
demurrer to Genetixs’ New Complaint is overruled. Defendants to answer in 20 days.
It
is so ordered.
Dated:
April 24, 2024
_______________________
Rolf M. Treu
Judge of the
Superior Court