Judge: Melvin D. Sandvig, Case: 22CHCV00273, Date: 2022-10-27 Tentative Ruling

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Case Number: 22CHCV00273    Hearing Date: October 27, 2022    Dept: F47

Dept. F47

Date: 10/27/22

Case #22CHCV00273

 

DEMURRER & MOTION TO STRIKE

TO THE

FIRST AMENDED COMPLAINT

 

Demurrer & Motion to Strike filed on 7/26/22.

 

MOVING PARTY: Defendants Andranik Justin Avakyan aka Justin Avakyan, Vrezh F. Avakyan aka Freddy Avakayan and Avakyan Properties, LLC

RESPONDING PARTY: Plaintiff Endeavor Recovery,  LLC

NOTICE: ok

 

Demurrer is to the 2nd, 5th, 7th, 9th and 10th causes of action:

            1.  Breach of Written Contract

            2.  Breach of Fiduciary Duty

            3.  Embezzlement

            4.  Aiding and Abetting Embezzlement

            5.  Breach of Written Contract

            6.  Conversion

            7.  Fraud – Intentional Misrepresentation

            8.  Accounting

            9.  Conspiracy to Commit Fraud

            10. Breach of Oral Agreement

            11. Common Count – Money Had and Received

            12. Unjust Enrichment

            13. Declaratory Relief

 

RELIEF REQUESTED IN MOTION TO STRIKE: An order striking various portions of the First Amended Complaint. 

 

RULING: The demurrer is sustained and the motion to strike is granted, both with 30 days leave to amend.    

 

SUMMARY OF FACTS & RELEVANT PROCEDURAL HISTORY

 

This action arises out the development, operation and closure of a residential drug treatment facility/center in Northridge, California.  In sum, Plaintiff alleges that Defendant Andranik Justin Avakyan aka Justin Avakyan (Justin) breached the terms of Plaintiff Endeavor Recovery,  LLC’s (Plaintiff) Operating Agreement, embezzled funds and/or aided and abetted the embezzlement of funds from Plaintiff and made other misrepresentations to Plaintiff regarding the running of the facility; that Defendant Avakayan Properties, LLC (Avakayan Properties) and Defendant Vrezh F. Avakyan aka Freddy Avakayan (Freddy) breached a Lease Agreement with regard to the premises in which the residential treatment center was operated; and that Freddy made misrepresentations regarding the marketing of the residential treatment facility, guaranteeing he could fill the facility with clients, embezzled money, etc. 

 

Plaintiff is a limited liability company which operated a licensed, residential drug treatment center/facility in Northridge, California.  (FAC ¶¶1, 15, 33, 39).  Plaintiff alleges that Justin is a  50% member of Plaintiff, but also makes the contradictory allegation that Justin is not a member of Plaintiff.  (FAC ¶¶2, 22).  Sean Rougeau (Rougeau) is a 25% member of Plaintiff and Diana Radakovic (Radakovic) is also a 25% member of Plaintiff.  (FAC ¶5).  Radakovic is also alleged to be Plaintiff’s sole manager.  (FAC ¶5; RJN, Ex.A).

 

Plaintiff alleges that sometime in 2019, Rougeau and Radakovic were approached by Freddy with a proposal to jointly start a residential drug treatment facility.  (See FAC ¶¶13-14).  Plaintiff alleges that Freddy told Rougeau and Radakovic that he would pay all construction costs and that a new LLC would be formed to lease the property Freddy had purchased for the center.  (FAC ¶¶14-15).  Plaintiff alleges that Freddy advised Rougeau and Radakovic that he wanted his son, Justin, to be the 50%  member of the new LLC which was to be formed with Rougeau and Radakovic.  (FAC ¶16).

 

Thereafter, on or about 12/22/19, the Articles of Organization of Plaintiff were filed and Plaintiff was formed for the purpose of operating the center.  (FAC ¶17 and Ex.1 thereto).  Rougeau, Radakovic and Justin completed the organizational documents of Plaintiff when the Operating Agreement was signed on 2/10/20.  (FAC, Ex.2, p.13).

 

Plaintiff alleges that on 2/10/20, Rougeau, Radakovic and Justin met at a Wells Fargo bank to open a bank account for Plaintiff.  (FAC ¶21).  Plaintiff alleges there was an oral agreement that Rougeau and Radakovic would contribute $10,000 to open the bank account and that Justin  would also contribute $10,000.  Id.  However, the bank account was opened with only the $10,000 contribution from Rougeau and Radakovic.  Id. 

 

At the end of February 2020, Plaintiff alleges that Freddy asked that Plaintiff sign a lease for the property with Avakayan Properties (Avakayan Properties) and start paying rent.  (FAC ¶23).  On 2/25/20, Radakovic, as manager of Plaintiff, signed the lease with Avakayan Properties.  (FAC, Ex.3, p.1 ¶2.B).  Plaintiff alleges that around April 2020, Freddy demanded that Plaintiff start paying half of the construction costs for the work at the property and that Plaintiff did so.  (FAC ¶¶29, 31).  However, Plaintiff alleges that Freddy refused to provide invoices as Plaintiff requested.  (FAC ¶32). 

 

Plaintiff alleges that the renovations on the property were completed around August 2020 and , Plaintiff obtained its license to operate the center in October 2020.  (FAC ¶33).  Plaintiff alleges that it did not have patients until November 2020 and that it was never full.  Id.

 

Plaintiff alleges that Freddy was given access to its bank account and that he wrote checks for work which was not performed or authorized.  (FAC ¶36).  Plaintiff alleges that Rougeau and Radakovic made several attempts to reach Justin to discuss closing the business “to no avail.”  (FAC ¶37).  Plaintiff alleges that Rougeau and Radakovic informed Freddy that they were going to shut down the center and Plaintiff shut down on 10/23/21.  (FAC ¶39).

 

Plaintiff alleges that certain items of personal property were left at the facility after it shut down and demands for return of the property have been denied.  (FAC ¶¶39, 40).  Plaintiff also alleges that “several insurance checks” have not been accounted for and speculates that they were deposited by Freddy.  (FAC ¶¶41, 42). 

 

On 4/21/22, Plaintiff filed the instant action.  On 7/1/22, Plaintiff filed its First Amended Complaint (FAC) alleging causes of action for: (1) Breach of Written Contract against Justin; (2)  Breach of Fiduciary Duty against Justin; (3) Embezzlement against Justin and Freddy; (4) Aiding and Abetting Embezzlement against Justin and Freddy; (5) Breach of Written Contract against Avakyan Properties and Freddy; (6) Conversion against Avakayan Properties and Freddy; (7) Fraud – Intentional Misrepresentation against Justin and Freddy; (8) Accounting against Avakyan Properties and Freddy; (9) Conspiracy to Commit Fraud against Justin and Freddy; (10) Breach of Oral Agreement against Freddy; (11) Common Count – Money Had and Received against Avakyan Properties and Freddy; (12) Unjust Enrichment against Avakyan Properties and Freddy and (13) Declaratory Relief against Justin.  Meet and confer efforts did not resolve the issues presented by the instant demurrer and motion to strike.

 

Therefore, on 7/26/22, Defendants Andranik Justin Avakyan aka Justin Avakyan (Justin), Vrezh F. Avakyan aka Freddy Avakayan (Freddy) and Avakyan Properties, LLC (Avakyan Properties) (collectively, Defendants) filed and served the instant demurrer as to the 2nd, 5th, 7th, 9th and 10th causes of action in the First Amended Complaint.  Additionally, Defendants move to strike various portions of the First Amended Complaint (i.e., (1) ¶9, p.3:24-p.4:7; (2) ¶20, p.6:26-28; (3) ¶22, p.7:8-9; (4) ¶22, p.7:15-16; (5) ¶45, p.13:8-10; (6) ¶46, p.13:13-15; (7) ¶47, p.13:17-18; (8) ¶48, p.13:24-25; (9) ¶71, p.18:8-19; (10) ¶72, p.18:11-12; (11) ¶80, p.19:28-p.20:4; (12) ¶91, p.23:6-10; (13) ¶103, p.25:20-27; (14) ¶121, p.29:9-11; (15) ¶121, p.29:13; (16) ¶2 of the Prayer, p.30 and (17) ¶4 of the Prayer, p.30).

 

Defendants’ Request for Judicial Notice (RJN) is granted.   

 

DEMURRER

 

2ND CAUSE OF ACTION – BREACH OF FIDUCIARY DUTY

 

Plaintiff argues that Justin owed it a fiduciary duty as one of its managing members because its Articles of Organization indicates that Plaintiff’s “Management Structure” is “All LLC Member(s).”  (See FAC ¶¶2, 53-55 and Ex.1, thereto).  However, the First Amended Complaint and Plaintiff’s Statement of Information indicate that Radakovic is Plaintiff’s sole manager.  (FAC ¶5 and RJN, Ex.A).   Additionally, Plaintiff has also pled that Justin “is not in fact a member of Plaintiff.”  (FAC ¶22).  While Plaintiff is permitted to plead alternative/inconsistent theories of recovery, it cannot plead inconsistent facts.  See Brown (1977) 75 CA3d 141, 146.

Based on the foregoing, Plaintiff has failed to sufficiently allege a basis for the fiduciary duty it claims Justin breached.

 

5TH CAUSE OF ACTION – BREACH OF WRITTEN CONTRACT

 

The 5th cause of action is based on alleged breaches of the lease by Avakyan Properties and Freddy.  (FAC ¶¶69-73 and Ex.3 thereto).  The lease which is attached to and incorporated into the First Amended Complaint does not indicate that Freddy is a party to the agreement.  Plaintiff’s conclusory alter ego allegations are insufficient to hold Freddy liable for breach of the lease.  (See FAC ¶¶8-9, 68-73; See also “Motion to Strike” below). 

 

Additionally, the 5th cause of action fails to allege sufficient facts to state a cause of action against Avakyan Properties.  Plaintiff contends that the lease was breached by failing to deliver the Premises within 5 days of 3/1/20 and the alleged ability of Plaintiff to terminate the lease on 30 days’ notice. 

 

Plaintiff alleges that Avakyan Properties required it to start paying rent on 3/1/20.  (FAC ¶69).   Next, despite acknowledging on 2/25/20 that the Premises, furniture, furnishings, appliances, landscaping and fixtures were in good order, Plaintiff alleges that the facility was not sufficiently completed and available for move-in until August 2020.  (FAC ¶¶9, 70).  Plaintiff then suggests that pursuant to ¶23 of the lease, it should not have been required to pay rent.   (FAC ¶69).  However, ¶23 of the Lease states:     

 

“If Landlord is unable to deliver possession within 5 calendar days after agreed Commencement Date, Tenant may terminate this Agreement by giving written notice to Landlord, and shall be refunded all rent and security deposit paid." (Ex. 3 to FAC, p.3.)

 

Plaintiff does not allege that it gave written notice to Landlord that it was terminating the Lease agreement.  (See FAC, generally).  Additionally, Plaintiff acknowledged receipt of the keys and remote control devices at the time it signed the Lease.  (FAC ¶18, Ex.3 p. 2).  As noted above, Plaintiff also acknowledged that the Premises was in good order at the time it signed the Lease. (FAC ¶9, p.2).  Regardless of whether or not the Premises was "ready for move-in,” the allegations in the First Amended Complaint and the exhibits attached thereto indicate that possession of the Premises was delivered to Plaintiff at the time it was provided the keys (i.e., when Plaintiff signed the Lease).  (FAC ¶18, Ex.3, p.2).  Even if certain improvements were not completed, it does not mean that Plaintiff was not given possession of the premises as required. 

 

Plaintiff also alleges that it was entitled to terminate its tenancy on 30 days’ notice to Defendant. (FAC ¶72).  Such allegation contradicts the terms of the Lease which states at paragraph 2.B that the term of the Lease was March 1, 2020 to February 28, 2025.  (FAC, Ex.3).  Plaintiff’s contradictory allegation must be disregarded.  Alphonzo E. Bell Corp. (1941) 46 CA2d 684, 691.

 

Based on the foregoing, Plaintiff has failed to allege sufficient facts to state a claim for breach of the lease. 

 

7TH CAUSE OF ACTION – FRAUD – INTENTIONAL MISREPRESENTATION

 

In the 7th cause of action, Plaintiff alleges that both Justin and Freddy made intentional misrepresentations.  (FAC ¶¶81-91). 

 

The elements of fraud are: (1) a false representation made with knowledge of the falsity; (2) intent to defraud, (3) justifiable reliance and (4) resulting damage.  Stansfield (1990) 220 CA3d 59, 72-73.

 

The elements of promissory fraud are: (1) a promise made regarding a material fact without any

intention of performing it; (2) the existence of the intent not to perform at the time the promise was made; (3) intent to deceive or induce the promisee to enter into a transaction; (4) reasonable reliance by the promisee; (5) nonperformance by the party making the promise; and (6) resulting damage to the promisee.  See Gruber (2020) 48 CA5th 529, 540.  A claim for fraud is not stated based merely on an unkept but honest promise, or mere subsequent failure to perform.  See  Riverisland Cold Storage, Inc. (2013) 55 C4th 1169, 1183.   Additionally, fraud claims must be pled with particularity (i.e., with facts showing how, when, where, to whom and by what means the fraudulent representations were made.  Stansfield, supra at 73. 

 

As against Justin, the fraud cause of action is based on the following representations allegedly made "between February 2019 and February 2020" to Rougeau and Radakovic on behalf of Plaintiff: (1) Justin could and would get the facility operating and that he would manage the facility on behalf of Plaintiff; and (2) Justin  would make an initial capital contribution to Plaintiff in the amount of $100,000.  (FAC ¶82).   

 

However, the allegations are not pled with the required factual specificity as to when the alleged misrepresentations were made and how they were made.  As such, it cannot be determined if Plaintiff was formed at the time the alleged misrepresentations were made.  With regard to the alleged representation that Justin would make an initial capital contribution, Plaintiff has failed to allege facts which would support reasonable reliance as the fully integrated Operating Agreement states, among other things, the initial Capital Contributions must be set forth on Exhibit A to the Operating Agreement.  (FAC, Ex.2 p.3, p.11).  Exhibit A to the Operating Agreement does not indicate that any such initial monetary Capital Contribution was required.  (FAC, Ex.2 p.14).  Since there is no written amendment which provides for an initial Capital Contribution of $100,000, Plaintiff has not shown justifiable reliance on any alleged verbal representation made by Justin regarding a Capital Contribution.  See Alphonzo E. Bell Corp, supra at 691.  Plaintiff has also not alleged that it did anything in reliance on the alleged misrepresentation. 

 

The claim also fails as against Justin because Plaintiff has not alleged sufficient facts to show that Justin did not intend to perform when the representation was made.  See Tenzer (1985) 39 C3d 18, 31.   

 

With regard to Freddy, the fraud cause of action is based on the following alleged misrepresentations which Plaintiff claims were made "between 2019 and 2021" to Rougeau and Radakovic on behalf of Plaintiff: (1) Freddy had experience owning and operating a treatment facility; (2) Freddy would do the marketing for the facility, guaranteeing to keep the 6-bed facility constantly at full capacity; (3) Once the facility was up and running, Freddy would only charge $10,000 a month for his marketing services; (4) Plaintiff would not have to pay for the cost of converting the garage into the treatment facility; and (5) Plaintiff would not have to pay for a lease of the Property until after all construction was finished.  (FAC ¶83).

 

As with the allegations against Justin, Plaintiff has also failed to plead the fraud claim against Freddy with the required factual specificity as to when each of the alleged misrepresentations was made and how each alleged misrepresentation was made.   

 

Additionally, Plaintiff’s allegations indicate that the first three alleged representations are true and/or were made before Plaintiff was formed and therefore were not misrepresentations made to Plaintiff upon which it could have justifiably relied.

 

The first representation (i.e., that Freddy had experience owning and operating a treatment facility) is not alleged to have been false.  In fact, Plaintiff alleges that “the Avakyans both had experience owning and operating a treatment facility.”  (FAC ¶¶11-12).    

 

The second representation (i.e., that Freddy would do the marketing for the facility) is also not alleged to have been false.  Rather, it seems that the claim is based on a purported deficiency of Freddy’s marketing of the facility, rather than a failure to market.  (See FAC ¶34).  Additionally, the representations were made to Rougeau and Radakovic before Plaintiff was formed.  (FAC ¶12). 

 

To the extent that Plaintiff is alleging Freddy promised that the facility would be full based on his marketing efforts, the representation was also made before Plaintiff was formed.  Additionally, such a statement as to future events is deemed an opinion and does not constitute actionable fraud.  See Graham (2014) 226 CA4th 594, 607-608.  Further, even if statements of opinion were actionable, Plaintiff has not alleged sufficient facts to show that its reliance on the representation was a substantial factor in causing its alleged harm.  

 

Plaintiff has failed to allege facts to show that the third representation (i.e., that once the facility was up and running, Freddy would only charge $10,000 a month for his marketing services) was not true at the time it was made.  Based on Plaintiff’s allegations, Freddy did not demand an increase until March of 2021.  (FAC ¶34).   

 

With regard to the alleged representations that Plaintiff would not have to pay for the cost of converting the garage into the treatment facility and/or pay rent until construction was completed, such representations were made prior to the time Plaintiff was formed and are contrary to the lease.  (FAC ¶15, Ex.3).  As such, the representations were not made to Plaintiff and Plaintiff could not have justifiably relied upon them.  Plaintiff has also likewise failed to allege facts which show that the alleged representations were a substantial factor in causing harm to Plaintiff.

 

9TH CAUSE OF ACTION – CONSPIRACY TO COMMIT FRAUD

 

A conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing the tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.  Applied Equipment Corp. (1994) 7 C4th 503, 510.  Plaintiff has failed to allege sufficient facts to establish a common plan, design or agreement between and among Freddy and Justin to state a claim for conspiracy to commit fraud.

 

Further, the conspiracy to commit fraud cause of action fails for the same reasons the fraud cause of action fails.

 

10TH CAUSE OF ACTION – BREACH OF ORAL AGREEMENT

 

This claim is against Freddy based on the allegation that in or around December 2019, Freddy agreed to perform marketing for Plaintiff for $10,000.00 per month.  (FAC ¶105).  However, Plaintiff was not formed at the time the alleged agreement was made.  (See FAC, Ex., Ex.2 p.13).   

 

Additionally, Plaintiff alleges that Freddy breached the oral agreement when he paid others for marketing services.  (FAC ¶107).  However, Plaintiff has not alleged that the oral agreement for Freddy to perform marketing services was exclusive and/or that he could not hire anyone else to assist him with providing marketing services.   

 

Based on the foregoing, Plaintiff has failed to allege sufficient facts to establish the terms of the oral agreement and Freddy’s breach thereof which are necessary elements of the claim.  See Stockton Mortgage, Inc. (2014) 233 CA4th 437, 447.   

 

LEAVE TO AMEND

 

Due to the liberal policy of allowing leave to amend and since this is the first time Plaintiff’s pleading is before the Court, Plaintiff is given the opportunity to try to cure the defects in the First Amended Complaint. 

 

MOTION TO STRIKE

 

Conclusory allegations may be stricken from a pleading.  See Perkins (1981) 117 CA3d 1, 6

Plaintiff has failed to allege sufficient facts to support the conclusory alter ego allegations against Freddy in ¶9 of the First Amended Complaint.  See Norins Realty Co. (1947) 80 CA2d 879, 880.  Additionally, a court will not disregard a corporate entity unless it is necessary to prevent fraud or injustice.  Meadows (1950) 99 CA2d 496, 498; Dos Pueblos Ranch & Improvement Co. (1937) 8 C2d 617, 621.  Plaintiff has not alleged facts which indicate that a fraud or injustice will occur unless the Freddy is found to be the alter ego of Avakayan Properties. 

 

The allegations that Justin promised and/or was required to make a capital contribution to Plaintiff in the amount of $100,000.00 is contradicted by the terms of the Operating Agreement which provides that it can only be amended in writing.  (See FAC ¶¶18, 20, 22, 45, 46, 47, 48, 121 and Ex.2 pp.3, 11, 14).

 

Similarly, Plaintiff’s allegations regarding a month-to-month tenancy contradict the express terms of the lease which is attached to and incorporated in the First Amended Complaint.  (See ¶¶71, 72 and Ex.3, p.1 §2).  Such contradictory allegations must be stricken.  See Alphonzo E. Bell Corp., supra at 691.

 

Plaintiff has also failed to plead sufficient facts to show that Defendants acted with fraud, oppression or malice to support a claim for punitive damages.  See CC 3294; Blegen (1981) 125 CA3d 959, 963; Grieves (1984) 157 CA3d 159, 166; (FAC ¶¶80, 91, 103, Prayer ¶2).

 

Plaintiff has also failed to specify against whom the Prayer for attorneys’ fees is made.  (Prayer ¶4).  As such, the basis for such prayer cannot be determined. 

 

As with the demurrer, due to the liberality with which leave to amend is to be granted, Plaintiff is given the opportunity to cure the defects in the First Amended Complaint as noted in the motion to strike.