Judge: Melvin D. Sandvig, Case: 22CHCV00273, Date: 2023-02-21 Tentative Ruling

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Case Number: 22CHCV00273    Hearing Date: February 21, 2023    Dept: F47

Dept. F47

Date: 2/21/23

Case #22CHCV00273

 

DEMURRER & MOTION TO STRIKE

TO THE

SECOND AMENDED COMPLAINT

 

Demurrer & Motion to Strike filed on 12/15/22.

 

MOVING PARTY: Defendants Andranik Justin Avakyan aka Justin Avakyan and Vrezh F. Avakyan aka Freddy Avakyan

RESPONDING PARTY: Plaintiff Endeavor Recovery, LLC

NOTICE: ok

 

Demurrer is to the 5th and 7th causes of action:

            1.  Breach of Written Contract

            2.  Embezzlement

            3.  Aiding and Abetting Embezzlement

            4.  Conversion

            5.  Fraud – Intentional Misrepresentation

            6.  Accounting

            7.  Breach of Oral Agreement (only alleged against Vrezh F. Avakyan aka Freddy                        Avakyan)

            8.  Common Count – Money Had and Received

            9.  Unjust Enrichment

            10. Declaratory Relief

 

RELIEF REQUESTED IN MOTION TO STRIKE: An order striking various portions of the Second Amended Complaint relating to alter ego liability, punitive damages and capital contributions which are contrary to the Operating Agreement attached to the Second Amended Complaint. 

 

RULING:

 

Defendant Andranik Justin Avakyan aka Justin Avakyan’s demurrer as to the 5th cause of action is sustained without leave to amend.  Defendant Vrezh F. Avakyan aka Freddy Avakyan’s demurrer to the 5th cause of action and 7th cause of action is overruled.

 

The motion to strike is granted without leave to amend as to the allegations regarding Defendant Andranik Justin Avakyan aka Justin Avakyan’s capital contributions which are contrary to the Operating Agreement attached to the Second Amended Complaint.  The motion to strike is otherwise denied. 

 

Answer(s) is/are due within 30 days.

 

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 Vrezh F. Avakyan aka Freddy Avakyan (Freddy) misrepresented that Plaintiff would not have to pay for any of the costs for constructing the treatment facility; 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; that Defendant Avakyan Properties, LLC (Avakyan Properties) and Freddy failed to allow Plaintiff to retrieve personal property from the premises after Plaintiff left the property where the facility was located; 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 at 8537 Yolanda Avenue in Northridge, California for approximately one year between October 2020 and October 2021.  (SAC ¶¶1, 17, 33, 39).  Defendant Justin owns fifty percent (50%) of Plaintiff.  (SAC ¶2).  Sean Rougeau (Rougeau) owns twenty-five percent (25%) of Plaintiff.  (SAC ¶5).  Rougeau's wife, Diana Radakovic (Radakovic) also owns twenty-five percent (25%) of Plaintiff and is "Plaintiffs sole manager."  (SAC ¶5).  Rougeau and Radakovic are licensed nurse practitioners.  (SAC ¶11).

 

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 SAC ¶¶11-14).  Plaintiff alleges that in January and February of 2020 Freddy told Rougeau and Radakovic that he would pay all construction costs and when construction was finished, Plaintiff would lease the property from Avakyan Properties, LLC (Avakyan Properties).  (SAC ¶15).  Plaintiff alleges that Freddy advised Rougeau and Radakovic that he wanted his son, Justin, to be the 50%  member of the LLC/Plaintiff which was to be formed with Rougeau and Radakovic.  (SAC ¶17).

 

At the end of February 2020, Plaintiff alleges that Freddy asked that Plaintiff sign a lease for the property with Avakyan Properties and start paying rent.  (SAC ¶25).  On 2/25/20, Radakovic, as manager of Plaintiff, signed the lease with Avakayan Properties.  (SAC ¶25).  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.  (SAC ¶¶29, 31).  However, Plaintiff alleges that Freddy refused to provide invoices as Plaintiff requested.  (SAC ¶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.  (SAC ¶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.  (SAC ¶36).  Plaintiff alleges that Rougeau and Radakovic made several attempts to reach Justin to discuss closing the business “to no avail.”  (SAC ¶37).  Plaintiff alleges that Rougeau and Radakovic informed Freddy that they were going to shut down the center and Plaintiff shut down on October 23, 2021.  (SAC ¶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.  (SAC ¶¶39, 40).  Plaintiff also alleges that “several insurance checks” have not been accounted for and speculates that they are in the possession of Freddy.  (SAC ¶¶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.  On 10/27/22, Defendants Avakyan Properties, Justin and Freddy’s demurer and motion to strike as to the First Amended Complaint were sustained and granted with leave to amend. 

 

On 11/21/22, Plaintiff filed its Second Amended Complaint which alleges causes of action for: (1) Breach of Written Contract; (2) Embezzlement; (3) Aiding and Abetting Embezzlement;

(4) Conversion; (5) Fraud – Intentional Misrepresentation; (6) Accounting; (7) Breach of Oral Agreement; (8) Common Count – Money Had and Received; (9) Unjust Enrichment and

(10) Declaratory Relief.  Meet and confer efforts did not resolve the issues presented by the instant demurrer and motion to strike.

 

Therefore, on 12/15/22, Justin and Freddy (collectively, Defendants) filed and served the instant demurrer as to the 5th and 7th causes of action in the Second Amended Complaint.  Only Freddy is a defendant in the 7th cause of action.  Additionally, Defendants move to strike various portions of the Second Amended Complaint relating to alter ego liability, punitive damages and capital contributions which are contrary to the Operating Agreement attached to the Second Amended Complaint.  Plaintiff has opposed the demurrer and motion to strike. 

 

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

 

DEMURRER

 

5TH CAUSE OF ACTION – FRAUD – INTENTIONAL MISREPRESENTATION

 

In the 5th cause of action, Plaintiff alleges that both Justin and Freddy made intentional misrepresentations.  (SAC ¶¶69-72).  In the opposition to the demurrer, Plaintiff states that it “is not opposing the demurrer with respect to the Fraud cause of action as plead against Defendant J. Avakyan.”  (See Opposition to Demurrer, p.2:7-8).  Therefore, Justin’s demurrer to the 5th cause of action is sustained without leave to amend    

 

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. 

 

With regard to Freddy, the fraud cause of action is based on the allegation that “on at least one occasion in January 2020 and on at least one occasion in February 2020, while Rougeau and Radakovic were visiting the Property with F. Avakyan, F. Avakyan represented that Plaintiff would not have to pay for any of the costs for  converting the detached garage into Plaintiff's treatment facility, as he would bear all of those costs.”  (See SAC ¶¶15, 69, 71). 

 

Freddy’s argument that Plaintiff was not formed until February 10, 2020, and, therefore, any representations made before such date were not made to Plaintiff and/or could not have been relied on by Plaintiff is without merit.  Pursuant to Corporations Code 17702.01(d), “a limited liability company is formed when the Secretary of State has filed the articles of organization.”  Freddy does not refute that the Plaintiff’s articles of organization were filed by the Secretary of State on December 22, 2019.  (See SAC ¶18, Ex.1).

 

Additionally, based on the allegations in the Second Amended Complaint it can reasonably be discerned that Freddy orally made the alleged misrepresentations to Plaintiff (through Rougeau and Radakovic as members of Plaintiff) when they all visited the property in January and February of 2020.  (SAC ¶¶15, 69, 71).  Plaintiff has also sufficiently alleged it justifiably relied on the alleged misrepresentations to its detriment.  (See SAC ¶¶74-76).

 

7TH CAUSE OF ACTION – BREACH OF ORAL AGREEMENT

 

This claim is against Freddy based on the allegation that after Plaintiff was formed, Freddy agreed to perform marketing for Plaintiff for $10,000.00 per month, guaranteeing that he would keep the 6-bed facility full at all times.  (SAC ¶89).  Plaintiff alleges that Freddy breached the agreement because Plaintiff was never at full capacity and because Freddy was receiving $11,000.00 per month for the services he agreed to perform for $10,000.00 per month.  (SAC ¶90).

 

Freddy’s argument that the alleged oral agreement was made before Plaintiff was formed is without merit.  As noted above, Plaintiff was formed on December 22, 2019 when its articles of organization were filed by the Secretary of State.  Corporations Code 17702.01(d); (SAC ¶18, Ex.1).  As such, the allegation that the contract was entered after Plaintiff was formed does not contradict the allegation made in the First Amended Complaint that the oral agreement was made in or around December 2019.  Plaintiff has sufficiently alleged the elements of a breach of contract cause of action: (1) the oral agreement, (2) Plaintiff’s performance or excuse for non-performance, (3) Freddy’s breach, and (4) damages.  See Stockton (2014) 233 CA4th 437, 447; (SAC ¶¶89-93).

 

MOTION TO STRIKE

 

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.  Additionally, in the opposition to the motion to strike, Plaintiff has failed to address the request to strike such allegations.  As such, the request to strike those allegations contained in paragraphs 21, 22, 23, 37, 45, 46, 70, 73a, 75, 105 and paragraph 5 of the Prayer for Relief of the Second Amended Complaint is granted without leave to amend. 

 

The Court finds that when the allegations in the Second Amended Complaint are read as whole, particularly the fraud claim against Freddy, sufficient facts have been alleged to state the claim for punitive damages.  As such, the request to strike allegations relating to punitive damages contained in paragraphs 68 and 79 and the prayer for such relief contained in paragraph 3 of the Prayer for Relief  in the Second Amended Complaint is denied. 

 

Similarly, the Court finds the alter ego allegations sufficient at the pleading stage.  As such, the request to strike such allegations contained in paragraph 9 of the Second Amended Complaint is denied.