Judge: Melvin D. Sandvig, Case: 22CHCV00273, Date: 2023-12-14 Tentative Ruling

Case Number: 22CHCV00273    Hearing Date: December 14, 2023    Dept: F47

Dept. F47

Date: 12/14/23                                                            TRIAL DATE: 10/21/24

Case #22CHCV00273

 

DEMURRER TO THE FIRST AMENDED CROSS-COMPLAINT

 

Demurrer filed on 11/6/23.

 

MOVING PARTY: Cross-Defendants Endeavor Recovery, LLC; Diana Radakovic and Sean Rougeau

RESPONDING PARTY: Cross-Complainants Andranik Justin Avakyan aka Justin Avakyan;  Vrezh F. Avakyan aka Freddy Avakyan and Avakyan Properties, LLC

NOTICE: ok

 

Demurrer is to the 2nd, 3rd, 4th, 5th, 6th, 7th, 9th, 10th, 11th, and 12th causes of action:

            1.  Breach of Written Contract

            2.  Breach of Fiduciary Duty

            3.  Breach of Fiduciary Duty (Derivative)

            4.  Breach of Oral Contract

            5.  Fraud – Intentional Misrepresentation

            6.  Embezzlement

            7.  Quantum Meruit

            8.  Accounting

            9.  Violation of Business & Professions Code 17200

            10. Fraud – Intentional Misrepresentation*    

            11. Breach of Oral Contract*      

            12. Common Counts*     

           

*The 10th, 11th and 12th causes of action listed in the caption of the First Amended Cross-Complaint do not match those in the body.  The 10th, 11th and 12th causes of action listed above are those set forth in the body of the First Amended Cross-Complaint. 

 

RULING: The demurrer is sustained, with leave to amend, in part, and overruled, in part.  An amended cross-complaint is 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/Cross-Defendant Endeavor Recovery, LLC (Endeavor) alleges that Defendant/Cross-Complainant Vrezh F. Avakyan aka Freddy Avakyan (Freddy) misrepresented that Endeavor would not have to pay for any of the costs for constructing the treatment facility; that Defendant/Cross-Complainant Andranik Justin Avakyan aka Justin Avakyan (Justin) breached the terms of Endeavor’s Operating Agreement, embezzled funds and/or aided and abetted the embezzlement of funds from Endeavor; that Defendant/Cross-Complainant Avakyan Properties, LLC (Avakyan Properties) and Freddy failed to allow Endeavor to retrieve personal property from the premises after Endeavor 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. 

 

On 4/21/22, Endeavor filed the instant action.  On 7/1/22, Endeavor 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 Avakyan 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, Avakyan Properties, Justin and Freddy’s demurrer and motion to strike as to the First Amended Complaint were sustained and granted with leave to amend. 

 

On 11/21/22, Endeavor filed its operative 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.  On 2/21/23, Justin’s demurrer to the 5th cause of action in the Second Amended Complaint was sustained without leave to amend and Freddy’s demurrer to the 5th and 7th causes of action in the Second Amended Complaint was overruled.  (See 2/21/23 Minute Order).  The accompanying motion to strike was granted without leave to amend as to the allegations regarding Justin’s capital contributions and was otherwise denied.  Id.  The Court ordered an answer/s was/were due within 30 days.  Id. 

 

On 3/23/23, Justin, Freddy and Avakyan Properties answered the complaint and filed a cross-complaint against Endeavor, Diana Radakovic (Radakovic) and Sean Rougeau (Rougeau).  In response to a demurrer to the cross-complaint, the subject First Amended Cross-Complaint was filed on 9/21/23 alleging causes of action for: (1) Breach of Written Contract by Justin against Radakovic, Rougeau and Endeavor; (2) Breach of Fiduciary Duty by Justin against Radakovic and Rougeau; (3) Breach of Fiduciary Duty (Derivative) by Justin on behalf of Endeavor against Radakovic and Rougeau; (4) Breach of Oral Contract by Justin against Endeavor; (5) Fraud – Intentional Misrepresentation by Justin against Endeavor, Radakovic and Rougeau; (6) Embezzlement by Justin against Radakovic and Rougeau; (7) Quantum Meruit by Justin against Endeavor; (8) Accounting by Justin against Endeavor, Radakovic and Rougeau; (9) Violation of Business & Professions Code 17200 by Justin against Endeavor, Radakovic and Rougeau; (10) Fraud – Intentional Misrepresentation* by Freddy against Endeavor, Radakovic and Rougeau; (11) Breach of Oral Contract* by Freddy against Endeavor, Radakovic and Rougeau; and (12) Common Counts* by Freddy against Endeavor.  The Court notes that the 10th, 11th and 12th causes of action listed in the caption of the First Amended Cross-Complaint do not match those in the body.  The 10th, 11th and 12th causes of action listed above are those set forth in the body of the First Amended Cross-Complaint. 

 

After meet and confer efforts failed to resolve issues Endeavor, Radakovic and Rougeau (collectively, Cross-Defendants) had with the First Amended Cross-Complaint, the instant demurrer to the 2nd, 3rd, 4th, 5th, 6th, 7th, 9th, 10th, 11th, and 12th causes of action was filed and served on 11/6/23.  Justin, Freddy and Avakyan Properties  (collectively, Cross-Complainants) have opposed the demurrer and Cross-Defendants have filed a reply to the opposition. 

 

ANALYSIS

 

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

 

2ND CAUSE OF ACTION – BREACH OF FIDUCIARY DUTY

 

As against Rougeau, Justin has failed to state a claim for breach of fiduciary duty.  In the demurrer to Endeavor’s First Amended Complaint, Justin argued, in part, that because the Statement of Information filed on behalf of Endeavor identified Radakovic as the sole manager, a fact of which the Court took judicial notice, a claim for breach of fiduciary duty against him failed.  In the First Amended Cross-Complaint, Justin claims that Rougeau owed him and Endeavor a fiduciary duty of care and loyalty pursuant to Corporations Code 17704.09.  (FAXC ¶50).    

 

However, Corporations Code 17704.09(f)(3) provides that, except as otherwise provided, in a manager-managed limited liability company, which Justin argued Endeavor was in the demurrer to the First Amended Complaint, a member does not have any fiduciary duty to the limited liability company or to any other member solely by reason of being a member.  The opposition to the instant demurrer argues that pursuant to Corporations Code 17704.09(d) Rougeau owed a fiduciary duty of good faith and fair dealing.  However, the First Amended Cross-Complaint does not mention subsection (d) of Corporations Code 17704.09.  (See FAXC ¶50).  Even if it did, Corporations Code 17704.09(d) provides that a member of a limited liability company “shall discharge the duties to a limited liability company and the other members under this title or under the operating agreement and exercise any rights consistent with the obligation of good faith and fair dealing.”  Justin has failed to establish that the duties covered by Corporations Code 17704.09(d) constitute “fiduciary duties” and/or that Rougeau allegedly knowing about, consenting, approving and/or ratifying Radakovic’s alleged breach of fiduciary duties constitutes a breach of a fiduciary duty owed by Rougeau.    

 

3RD CAUSE OF ACTION – BREACH OF FIDUCIARY DUTY (DERIVATIVE CLAIM)

 

The claim fails as against both Radakovic and Rougeau because the First Amended Cross-Complaint does not make clear that Justin brings or is entitled to bring any claim(s) as a representative of Endeavor.  (See FAXC ¶¶1, 4).  Additionally, as to Rougeau the claim fails for the reasons set forth above in relation to the 2nd cause of action. 

 

4TH & 11TH CAUSES OF ACTION – BREACH OF ORAL CONTRACT

 

The demur to these causes of action is based solely on the argument that the claims are barred by the applicable 2-year statute of limitations because the claims accrued in December 2019, June of 2020 and/or November 2020 and the cross-complaint was not filed until March of 2023.  However, as noted in the opposition and not refuted in the reply, the filing of the complaint tolled the statute of limitations on any cross-claims.  See ZF Micro Devices, Inc. (2016) 5 CA5th 69, 92-93; Sidney (1988) 198 CA3d 710, 715.  Since the complaint was filed on 4/21/22, the claims are, at least in part, timely.  

 

5TH & 10TH CAUSES OF ACTION – FRAUD – INTENTIONAL MISREPRESENTATION

 

Contrary to the argument in the demurrer, the fraud claims are pled with sufficient factual specificity. 

 

6TH CAUSE OF ACTION – EMBEZZLEMENT

 

“Embezzlement is the fraudulent appropriation of property by a person to whom it has been entrusted.”  Penal Code 593.  “Aiding and abetting occurs when one helps another commit a prohibited act.”  Janken (1996) 46 CA4th 55, 77.

 

Without any supporting authority, the demurrer and reply argue that because Endeavor is a manager-managed LLC, there is no requirement for Radakovic to seek approval from the other members of the LLC to write checks from Endeavor’s bank accounts.  Even if such is true, Justin has also alleged that Radakovic “caused payments to be made to herself and/or entities which she owned or controlled without properly accounting for same and by using false and misleading memos to disguise distributions she made to herself as business expenses.”  (FAXC ¶79).  Justin also  alleges that Rougeau aided and abetted Radakovic in this misconduct and benefitted from same.  Id.  Justin further alleges Radakovic failed to deposit or otherwise properly account for all checks written to Endeavor in order to make distributions to herself and/or Rougeau without making an equal distribution to Justin.  (FAXC ¶80).  Again, Justin alleges that Rougeau aided and abetted this misconduct.  (FAXC ¶81).  Such allegations are sufficient to state a claim for embezzlement. 

 

7TH CAUSE OF ACTION – QUANTUM MERUIT

 

The elements of a quantum meruit cause of action are: (1) the plaintiff acted pursuant to an explicit or implicit request for the services by the defendant, and (2) the services conferred a benefit on the defendant.  Port Medical Wellness, Inc. (2018) 24 CA5th 153, 181. 

 

Cross-Defendants cite no authority to support their argument in relation to the demurrer to the quantum meruit cause of action.  Cross-Defendants improperly seem to argue that Justin must prove his claim at the pleading stage.  However, the facts alleged must be accepted as true at the pleading stage and are sufficient to state such a claim.  (See FAXC ¶¶66, 85-88).

 

Cross-Defendants also argue that the claim is time-barred.  However, as with the 4th and 10th causes of action, the filing of the underlying complaint tolled the statute of limitations on any cross-claims. 

 

 

9TH CAUSE OF ACTION – VIOLATION OF BUSINESS & PROFESSIONS CODE 17200

 

Business & Professions Code 17200 prohibits any “unlawful, unfair or fraudulent business act or practice.”   “[A]ny unlawful, unfair or fraudulent business act or practice is deemed to be unfair competition.”  Podolsky (1996) 50 CA4th 632, 647.

 

The allegations which form the bases for the other causes in the First Amended Cross-Complaint which are sufficiently pled (i.e., the 5th and 6th causes of action) are also sufficient to state a claim for unfair business practices. 

 

12TH CAUSE OF ACTION – COMMON COUNTS

 

The elements of a common count are: (1) the statement of indebtedness in a certain sum, (2) the consideration and (3) nonpayment.  Farmers Insurance Exchange (1997) 53 CA4th 445, 460.  When  a common count is used as an alternative way of seeking the same relief demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the specific cause of action is demurrable.  McBride (2004) 123 CA4th 379, 394. 

 

The First Amended Cross-Complaint alleges sufficient facts to state common counts for quantum meruit, money had and received and reasonable value of services on behalf of Freddy.  The claim seems to be based, at least in part, on the breach of oral contract claim which is sufficiently pled and is not so uncertain that Endeavor cannot respond.  Freddy does not have to prove his claim at the pleading stage.     

 

CONCLUSION

 

The demurrer to the 2nd cause of action is sustained with 30 days leave to amend as to Rougeau and, to the extent made by Radakovic, is overruled.  The demurrer to the 3rd cause of action is sustained with 30 days leave to amend.  Due to the liberal policy of allowing leave to amend and because this is the first time the claims are before the Court, Cross-Complainants are given the opportunity to try to cure the defects in these causes of action.

 

The demurrer is overruled as to the 4th, 5th, 6th, 7th, 9th, 10th, 11th and 12th causes of action.