Judge Michael E. Whitaker, Case Number: 23SMCV04868, Date: 2025-02-03 Tentative Ruling

Judge: Michael E. Whitaker, Case: 23SMCV04868, Date: 2025-02-03 Tentative Ruling

This case arises from a dispute between former business partners. Plaintiffs Stephen R. Hofer (“Hofer”); Stephen R. Hofer Law Corporation d/b/a Aerlex Law Group (“ALG”); Aerlex Tax Services, LLC (“ATS LLC”); and Aerlex Tax Services, LLP (“ATS LLP”) (ATS LLC and ATS LLP will be referenced as “ATS”) (collectively, “Plaintiffs”) brought suit against Defendants Vicky Boladian (“Boladian”) and Boladian Aviation Law Group, APC (“BALG”) (collectively, “Defendants”) alleging thirteen causes of action: (1) breach of contract – settlement agreement; (2) breach of contract – operating agreement and buy-sell agreement; (3) breach of implied covenant of good faith and fair dealing; (4) breach of fiduciary duty; (5) intentional misrepresentation; (6) fraud in the inducement; (7) wrongful dissociation; (8) conversion; (9) intentional interference with contractual relations; (10) computer data access and fraud act; (11) receiving stolen property; (12) unlawful business practices; and (13) declaratory relief.

Boladian’s operative second amended cross complaint (“SACC”) alleges two causes of action for (1) breach of contract; and (2) breach of fiduciary duty against all Plaintiffs.

Plaintiffs now demur to both causes of action in the SACC on the grounds that they fail to state facts sufficient to constitute a cause of action and uncertainty, pursuant to Code of Civil Procedure section 430.10, subdivisions (e) and (f), respectively. Boladian opposes the Demurrer and Plaintiffs reply.

Plaintiffs request judicial notice of the parties’ September 22, 2020 settlement agreement, as alleged in the SACC.

“Judicial notice may not be taken of any matter unless authorized or required by law.” (Evid. Code, § 450.) Evidence Code section 452 outlines the matters of which a Court may take judicial notice as follows:

(a) The decisional, constitutional, and statutory law of any state of the United States and the resolutions and private acts of the Congress of the United States and of the Legislature of this state.

(b) Regulations and legislative enactments issued by or under the authority of the United States or any public entity in the United States.

(c) Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.

(d) Records of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.

(e) Rules of court of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.

(f) The law of an organization of nations and of foreign nations and public entities in foreign nations.

(g) Facts and propositions that are of such common knowledge within the territorial jurisdiction of the court that they cannot reasonably be the subject of dispute.

(h) Facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.

In support of the request, Plaintiffs cite to Ingram v. Flippo (1999) 74 Cal.App.4th 1280 (hereafter Ingram), where the court took judicial notice of a letter and media release made by a District Attorney. Specifically, the appellate court found judicial notice proper under Evidence Code section 452, subdivision (h) for three reasons: (1) “the complaint excerpted quotes from the letter and summarized parts of it in some detail[,] (2) “both sides referred to the letter and quoted from it[,]” and (3) the appellant did not oppose the request. (Id. at p. 1285, fn. 3.)

However, unlike a letter and media release made by a District Attorney, which appear to be public records and therefore capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy (public government records), private contracts and agreements between parties are not capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.

Plaintiffs also cite to Align Tech., Inc. v. Tran (2009) 179 Cal.App.4th 949, 956, fn. 6 (hereafter Align); Performance Plastering v. Richmond Am. Homes of Cal., Inc. (2007) 153 Cal.App.4th 659, 666, fn. 2 (hereafter Performance Plastering); and Fontenot v. Wells Fargo, N.A. (2011) 198 Cal.App.4th 256, 264 (hereafter Fontenot).

In Fontenot, the appellate court affirmed the trial court’s taking judicial notice not only of the existence and recordation of real property records whose authenticity was not challenged, but also the parties, dates, legal consequences and effects of those records, including that the deed of trust listed a particular entity as the beneficiary (but not that it was in fact still the beneficiary.) The appellate court reasoned: “The official act of recordation and the common use of a notary public in the execution of such documents assure their reliability, and the maintenance of the documents in the recorder's office makes their existence and text capable of ready confirmation, thereby placing such documents beyond reasonable dispute.” (Fontenot, supra, 198 Cal.App.4th at pp. 264–265.) By contrast, the settlement agreement here is neither recorded nor notarized, and therefore distinguishable from the real property records in Fontenot.

In Align, the court took judicial notice of pleadings from a prior lawsuit and two federal lawsuits Align had filed against one of the defendants, as well as the parties’ prior settlement agreement, which “resulted in the dismissal of the prior suit,” and determined that the claims being asserted were properly subject to demurrer because they were compulsory cross-claims in the prior actions.

Similarly, in Performance Plastering, the court took judicial notice of two settlement agreements that were attached to the opposition to the demurrer, notwithstanding that they went beyond the four corners of the complaint because “there is and can be no factual dispute concerning the contents of the agreements.” (Performance Plastering, supra, 153 Cal.App.4th at p. 666, fn. 2.) Specifically, the Court noted that, despite the complaint’s allegations, plaintiff CalFarm, the subcontractor’s insurer, was clearly not a party to, nor even mentioned in the underlying settlement agreements upon which it was suing for breach of contract.

As a threshold matter, the Court is not convinced that the parties’ private settlement agreement here is “capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy” as the statute requires before the Court may take judicial notice of it.

Moreover, Plaintiffs do not request the Court to take judicial notice of the underlying settlement agreement to make a simple determination as to whether Boladian’s claims were clearly encompassed by a prior lawsuit or whether Boladian was even a party to the agreement upon which she is suing for breach. Rather, Plaintiffs request that the Court conduct an in-depth analysis of the contractual terms and find, among other things:

(1) that Boladian was not personally the beneficiary of each and every one of the terms, and specifically not the express terms that related to the marketing of ATS and

(2) that Boladian filed the cross-complaint without satisfying the condition precedent of “first proceeding through each step of the dispute resolution process” as required in the settlement agreement

But “The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of documents whose truthfulness or proper interpretation are disputable.” (Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369, 374.)

The Court thus declines Plaintiff’s invitation to engage in a protracted evidentiary hearing about the specific terms of the settlement agreement at the pleadings stage and therefore denies the request for judicial notice.

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) In testing the sufficiency of a cause of action, a court accepts “[a]s true all material facts properly pled and matters which may be judicially noticed but disregard contentions, deductions or conclusions of fact or law. [A court also gives] the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (290 Division (EAT), LLC v. City & County of San Francisco (2022) 86 Cal.App.5th 439, 450 [cleaned up]; Hacker v. Homeward Residential, Inc. (2018) 26 Cal.App.5th 270, 280 [“in considering the merits of a demurrer, however, “the facts alleged in the pleading are deemed to be true, however improbable they may be”].)

Further, in ruling on a demurrer, a court must “liberally construe” the allegations of the complaint “with a view to substantial justice between the parties.” (See Code Civ. Proc., § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

In summary, “[d]etermining whether the complaint is sufficient as against the demurrer on the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated, or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.)

“[D]emurrers for uncertainty are disfavored.” (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.) A demurrer for uncertainty will be sustained only where the pleading is so bad that the responding party cannot reasonably respond - i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what claims are directed against him or her. (Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.) Where a demurrer is made upon the ground of uncertainty, the demurrer must distinctly specify exactly how or why the pleading is uncertain, and where such uncertainty appears by reference to page and line numbers. (See Fenton v. Groveland Comm. Services Dist. (1982) 135 Cal.App.3d 797, 809.)

“To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff's performance of the contract or excuse for nonperformance, (3) the defendant's breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.)

With respect to the first cause of action for breach of contract, the SACC alleges:

10. Boladian was admitted to the California State Bar in 1998. Since then, the focus of her practice has been aviation tax law.

11. Boladian first began working with Hofer in 2008, when she was hired as a contract attorney by Hofer’s law firm, ALG. When Boladian started working at ALG, she was asked to work in a conference room and was paid approximately $25 per hour. Although $25 per hour was a low rate for an attorney, Boladian was grateful for the opportunity that she had been given in the midst of the Great Recession, and she set out to prove herself as an asset to the firm

12. By 2013, Boladian had become a leader in her field. She was approached by a number of other firms that had offered her new and exciting opportunities. Given those opportunities, Boladian began having conversations with Hofer about the next phase of her career. During the course of those discussions, Hofer recognized the value that Boladian brought to his business, so he began discussing the possibility of a partnership with Boladian. Hofer eventually proposed that they form a new firm, ATS LLC, and Boladian agreed. Per their agreement, Hofer had 55% membership interest in ATS LLC, and Boladian had a 45% membership interest.

13. Before ATS LLC was formed, Hofer told Boladian that he had consulted with ALG’s in-house counsel, Douglas Stuart, who advised Hofer to form ATS as an LLC. As further detailed below, this was a false representation by Hofer. While Boladian was an expert in aviation tax law, she was not readily familiar with the rules and regulations pertaining to law firm formation, including the rule in California prohibiting law firms from operating as LLCs. Boladian reasonably relied on Hofer in selecting the proper entity structure for ATS. Unlike Boladian, Hofer had substantial experience in starting law firms, including ALG. She had no reason at the time to doubt Hofer’s representation to her that he had consulted with Attorney Stuart who had recommended and approved ATS to be formed as an LLC.

14. After the formation of ATS LLC in 2014, Boladian dedicated her life to making that firm a success. Hofer, on the other hand, was not involved in the day-to-day operations of ATS LLC. Boladian was the one who provided legal services to ATS’s clients, who considered Boladian as their trusted legal advisor. ATS LLC and ALG operated as separate firms with separate offices.

15. Hofer and Boladian had agreed that all pre-acquisition tax matters would be handled at ALG, while the post-acquisition tax matters would be handled through ATS LLC. For preacquisition tax matters that Boladian handled, she did so as contract attorney for ALG. All of her post-acquisition work was performed and billed through ATS LLC.

16. In or about 2019, certain disputes arose between Boladian and Hofer over the management of ATS LLC and the handling of ATS LLC’s funds by Hofer which resulted in litigation. On or about September 22, 2020, Boladian entered into a Settlement Agreement with Hofer and ALG to resolve said disputes.

17. The Settlement Agreement provided that, “ALG shall not advertise post-acquisition tax services on its website.” (Settlement Agreement at ¶ 12.) That was because ATS was the one that was supposed to handle all post-acquisition tax matters. Boladian, with 45% ownership interest in ATS LLC, was a beneficiary of this term.

18. The Settlement Agreement also provided the following: ALG and ATS will continue in the future to maintain cordial relationships as sister companies and where and when appropriate will recommend that clients utilize each other’s services. ALG shall identify and recommend ATS as ALG’s preferred provider of post-acquisition aircraft-related tax services. ALG shall utilize Boladian’s services as an ALG contract attorney for pre-acquisition tax matters pertaining to sales and use tax issues, property tax issues, and any other tax matters that could lead to post-acquisition tax work, subject to the client’s approval (which approval ALG shall not discourage). For the services Boladian performs as an ALG contract attorney, ALG shall pay Boladian 33% of the rate at which ALG bills clients for her services. (Settlement Agreement at ¶ 16.) Again, Boladian with 45% ownership interest in ATS LLC was a beneficiary of the terms requiring ALG and Hofer “to identify and recommend ATS as ALG’s preferred provider of post-acquisition aircraft-related tax services.” Moreover, Boladian was direct beneficiary of term requiring ALG and Hofer to “utilize Boladian’s services as an ALG contract attorney for pre-acquisition tax matters pertaining to sales and use tax issues, property tax issues, and any other tax matters that could lead to post-acquisition tax work . . .”

19. Boladian is informed and believes and based thereon alleges that Hofer and ALG breached the Settlement Agreement by advertising post-acquisition tax services on ALG’s website. Moreover, Boladian is informed and believes and based thereon alleges that Hofer and ALG breached the Settlement Agreement by refusing or failing to identify and recommend ATS as ALG’s preferred provider of post-acquisition aircraft-related tax services. Hofer and ALG also refused or failed to utilize Boladian’s services as an ALG contract attorney for pre-acquisition tax matters that could lead to post-acquisition tax work. Despite the foregoing breaches by Hofer/ALG, Boladian’s hard work and stellar reputation in the industry continued to bring business to ATS LLC.

20. In early 2023, Boladian became aware of the State Bar of California’s new Client Trust Account Protection Program. She retained attorneys to advise Boladian on the steps she was required to take to comply with the new requirements. During that process, Boladian discovered that she, unwittingly, was in violation of California law that prohibits limited liability companies from rendering “professional services” in this State. Boladian immediately conveyed the forgoing to Hofer, who at first seemed surprised by the LLC law in California, but then he agreed that ATS LLC could not continue to provide legal services to its clients. Thus, in or about March of 2023, Hofer and Boladian agreed to immediately dissolve ATS LLC. Additionally, they agreed to form Aerlex Tax Services, LLP (“ATS LLP”), with Hofer and Boladian receiving 55% and 45% partnership interest in ATS LLP, respectively.

21. Boladian is informed and believes, and based thereon alleges, that Hofer knew from the very beginning that a law firm could not operate in California as a limited liability company Yet, he still proposed to form ATS as an LLC instead of as a professional corporation, partnership, etc. Boladian is informed and believes, and based thereon alleges, that Hofer did so to skirt the restrictions on an attorney’s concurrent ownership interest in two or more law firms. Hofer already held ownership interest in ALG and, Boladian is informed and believes that he took the risk of operating ATS as an LLC so that he could receive income from two law firms while presenting ATS LLC as a purported “tax company” instead of a law firm. Hofer did not inform Boladian of this risk. To the contrary, as discussed above, Hofer misrepresented to Boladian that he had consulted with Attorney Stuart who had advised him to form ATS as an LLC. In or about October 2023, Boladian was informed that Attorney Stuart did not recall ever providing such advice to Hofer.

22. After their agreement to dissolve ATS LLC in March 2023, and despite assuring Boladian that he was going to cancel ATS LLC with the California Secretary of State right away, Hofer did not take any action to cancel ATS LLC, thus placing Boladian’s law license at further unnecessary risk. ATS LLC was finally cancelled in August 2023.

23. In or about September 2023, Boladian informed Hofer that she was ending the partnership, and starting a new law firm. By operation of law, that resulted in dissolution of ATS LLP.

24. Instead of wishing her former partner the best of luck with her new firm, Hofer filed the instant lawsuit asserting a host of claims against Boladian, including accusing her of “fraudulently” dissolving ATS LLC.

26. When they formed ATS LLC in 2014, Hofer and Boladian had an understanding that all pre-acquisition tax matters would be handled through ALG, while the post-acquisition tax matters would be handled through ATS LLC. For any pre-acquisition tax matters that Boladian handled, she did so as contract attorney for ALG. All of her post-acquisition work was performed and billed through the law firm ATS LLC.

27. In or about 2019, certain disputes arose between Boladian and Hofer over the operations of ATS LLC and the handling of ATS LLC’s funds by Hofer which resulted in litigation. On or about September 22, 2020, Boladian, on the one hand, entered into a Settlement Agreement with Hofer and ALG, on the other hand, to resolve said disputes.

28. The Settlement Agreement provided that, “ALG shall not advertise post-acquisition tax services on its website.” (Settlement Agreement at ¶ 12.) That was because ATS LLC was the one that was supposed to handle all post-acquisition tax matters. Boladian, with 45% ownership interest in ATS LLC, was a beneficiary of this term.

29. The Settlement Agreement also provided the following: ALG and ATS will continue in the future to maintain cordial relationships as sister companies and where and when appropriate will recommend that clients utilize each other’s services. ALG shall identify and recommend ATS as ALG’s preferred provider of post-acquisition aircraft-related tax services. ALG shall utilize Boladian’s services as an ALG contract attorney for pre-acquisition tax matters pertaining to sales and use tax issues, property tax issues, and any other tax matters that could lead to post-acquisition tax work, subject to the client’s approval (which approval ALG shall not discourage). For the services Boladian performs as an ALG contract attorney, ALG shall pay Boladian 33% of the rate at which ALG bills clients for her services. (Settlement Agreement at ¶ 16.) Again, Boladian with 45% ownership interest in ATS LLC was a beneficiary of the terms requiring ALG and Hofer “to identify and recommend ATS as ALG’s preferred provider of post-acquisition aircraft-related tax services.” Moreover, Boladian was direct beneficiary of term requiring ALG and Hofer to “utilize Boladian’s services as an ALG contract attorney for pre-acquisition tax matters pertaining to sales and use tax issues, property tax issues, and any other tax matters that could lead to post-acquisition tax work . . .”

30. While it was in effect, Boladian fully performed under the terms of the Settlement Agreement. Hofer and ALG, however, breached the Agreement. Boladian is informed and believes and based thereon alleges that Hofer and ALG breached the Settlement Agreement by advertising post-acquisition tax services on ALG’s website in breach of the terms set forth in Paragraph 12 of the Agreement. Moreover, Boladian is informed and believes and based thereon alleges that Hofer and ALG breached the Settlement Agreement by refusing or failing to identify and recommend ATS as ALG’s preferred provider of post-acquisition aircraft-related tax services. Hofer and ALG also refused or failed to utilize Boladian’s services as an ALG contract attorney for pre-acquisition tax matters that could lead to post-acquisition tax work, thus breaching the terms set forth in Paragraph 16 of the Settlement Agreement.

31. As a direct, foreseeable, and proximate result of the breaches of the Settlement Agreement, Boladian (who was a party and beneficiary to the terms of the Settlement Agreement at issue herein) has suffered damages in an amount that currently cannot be ascertained but which exceeds the jurisdictional minimum of this Court.

Although Plaintiffs disagree with these allegations, they do not demonstrate that these allegations are so bad that Plaintiffs cannot reasonably determine what issues must be admitted or denied, or what claims are directed against them. Therefore, the Court declines to sustain the demurrer to the first cause of action on the basis of uncertainty.

Although Plaintiffs demur to the second cause of action in part on the grounds of uncertainty, the memorandum of points and authorities does not actually make any arguments that the second cause of action is uncertain. Nor do Plaintiffs identify any allegations that are so bad that Plaintiffs cannot reasonably determine what issues must be admitted or denied, or what claims are directed against them. Therefore, the Court declines to sustain the demurrer to the second cause of action on the basis of uncertainty

As illustrated above, the SACC alleges (1) the parties agreed that ATS is ALG’s preferred provider of post-acquisition aircraft-related tax services and ALG is the preferred provider of post-acquisition aircraft-related legal services; (2) the settlement agreement provides that Plaintiffs will not advertise post-acquisition tax services on its website and will instead refer post-acquisition tax service business to ALG as its preferred tax services provider; (2) Boladian fully performed under the terms of the agreement; (3) Plaintiffs breached these essential terms by advertising post-acquisition tax services on its website and refusing to refer tax service clients to ALG; and (4) Boladian suffered damages as a result of Plaintiffs’ breaches.

Plaintiffs first argue that the allegations made on information and belief that Plaintiffs advertised their own post-acquisition tax services on their website fail because Boladian does not allege the basis or bases for that information and belief. But there is no heightened pleading requirement to allege a breach of contract cause of action. As such, Boladian has sufficiently alleged ultimate facts to withstand demurrer.[1]

Plaintiffs next argue that Hofer is not mentioned in the cited provisions. But paragraph 15 of the SACC alleges that Hofer and Boladian agreed to this division of their services between their clients and paragraph 16 of the SACC alleges that the settlement agreement was entered into among Hofer, Boladian, and ALG. As such, the SACC sufficiently alleges a breach of contract as to Hofer.

Plaintiffs further argue that the ultimate decision whether to utilize ATS for tax services is up to each client, yet the SACC seeks to hold Plaintiffs liable for their clients’ decision not to utilize ATS. Whether Plaintiffs actually advertised their own tax services on their website, failed to recommend ATS as ALG’s preferred post-acquisition tax services provider, or otherwise dissuaded clients from utilizing ATS’s services are factual questions to be raised at later stages of the litigation. The allegations are sufficient for pleading purposes.

Further, Plaintiffs argue that the damages would be too speculative or remote to sustain a cause of action. The Court disagrees. If, for example, ALG advertised and performed in-house tax services to clients post-acquisition, those damages would be easily calculable. Ultimately the Court cannot say at the pleadings stage that the damages are too speculative to support a cause of action.

Plaintiffs also argue that Boladian lacks standing in her individual capacity because she would only have been harmed as a member of ATS. But as indicated above, the alleged agreement was made among Boladian, Hofer, and ALG. As such, the Court cannot say at the pleadings stage that Boladian lacks standing to bring a breach of contract cause of action.

Plaintiffs also argue that Boladian has cherry-picked only parts of the settlement agreement to allege in the SACC, but Boladian is only required to allege the essential terms of the agreement. Further, the Court notes that Plaintiffs have not identified any provisions that are incorrect or misleading out of context.

Finally, Plaintiffs argue that the breach of contract cause of action fails because Boladian has failed to satisfy conditions precedent. Specifically, Plaintiffs argue that the settlement agreement requires, as conditions precedent to filing suit, that the parties first proceed through each step of an outlined dispute resolution process. However, Plaintiffs’ argument exceeds the four corners of the complaint and relies upon evidence the Court has declined to take judicial notice of. As such, this is an evidentiary question to be resolved at later stages of the litigation.

“The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its breach, and (3) damage proximately caused by that breach.” (O'Neal v. Stanislaus County Employees' Retirement Assn. (2017) 8 Cal.App.5th 1184, 1215.)

“Before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (Hasso v. Hapke (2014) 227 Cal.App.4th 107, 140.) Fiduciary duties are also imposed by law “in certain technical, legal relationships such as those between partners or joint venturers, trustees and beneficiaries, principals and agents, and attorneys and clients.” (Ibid.)

12. […] Hofer eventually proposed that they form a new firm, ATS LLC, and Boladian agreed. Per their agreement, Hofer had 55% membership interest in ATS LLC, and Boladian had a 45% membership interest.

33. Hofer, by virtue of his position as a member of ATS LLC, owed fiduciary duties to Boladian and ATS LLC (as a nominal party).

34. Hofer breached those duties by engaging in conduct described herein. Among other things, before ATS LLC was formed, Hofer told Boladian that he had consulted with ALG’s inhouse counsel, Douglas Stuart, who had advised Hofer to form ATS as an LLC. While Boladian was an expert in aviation tax law, she was not readily familiar with the rules and regulations pertaining to law firm formation, including the rule in California prohibiting law firms from operating as LLCs. Boladian reasonably relied on Hofer in selecting the proper entity structure for ATS. Unlike Boladian, Hofer had substantial experience in starting law firms, including ALG. Moreover, Boladian at the time had no reason to doubt Hofer’s affirmative representations to her that he had consulted with Attorney Stuart who had recommended and approved ATS to be formed as an LLC.

35. Boladian is informed and believes, and based thereon alleges, that Hofer knew from the very beginning that a law firm could not operate in California as a limited liability company. Yet, he still proposed to form ATS as an LLC instead of as a professional corporation, partnership, etc. Boladian is informed and believes, and based thereon alleges, that Hofer did so to skirt the restrictions on an attorney’s concurrent ownership interest in two or more law firms. Hofer already held an ownership interest in ALG and, Boladian is informed and believes that he took the risk of operating ATS as an LLC so that he could receive income from two law firms, but present ATS LLC as a tax company instead of a law firm. Hofer did not inform Boladian of this risk. To the contrary, Hofer actively deceived Boladian with affirmative statements that he had consulted with Attorney Stuart who had advised him to form ATS as an LLC.

36. In early 2023, Boladian became aware of the State Bar of California’s new Client Trust Account Protection Program. She retained attorneys to advise Boladian on the steps she was required to take to comply with the new requirements. During that process, Boladian discovered that she, unwittingly, was in violation of California law that prohibits limited liability companies from rendering “professional services” in this State. Moreover, in or about October 2023, Boladian was informed that Attorney Stuart did not recall Hofer seeking any advice, or Attorney Stuart providing any advice about the formation of ATS as an LLC.

37. Hofer also breached his fiduciary duty to Boladian by failing to timely cancel ATS LLC. Specifically, after discovering that she, unwittingly, was in violation of California law that prohibits limited liability companies from rendering “professional services” in this State, Boladian immediately reached out to Hofer, who at first seemed surprised by the LLC law in California, but then he agreed that ATS LLC could not continue to provide services to its clients. Thus, in or about March of 2023, Hofer and Boladian agreed to immediately dissolve and cancel ATS LLC. Additionally, they agreed to form ATS LLP, with Hofer and Boladian receiving 55% and 45% partnership interest in ATS LLP, respectively. However, despite assuring Boladian that he was going to cancel ATS LLC with the California Secretary of State right away, Hofer did not take any action to cancel ATS LLC for several months, thus placing Boladian’s law license at further unnecessary risk. ATS LLC was finally cancelled in August 2023

38. Hofer also breached his fiduciary duties to Boladian and ATS (as a nominal party) by refusing and/or failing to recommend ATS LLC to his clients for post-acquisition tax work. Moreover, Boladian is informed and believes and based thereon alleges that Hofer improperly referred and recommend ALG over ATS LLC to current and/or potential clients seeking assistance with post-acquisition tax matters.

Thus, Boladian alleges Hofer breached his fiduciary duties by (1) improperly setting up ATS as an LLC in 2014; (2) delaying several months in dissolving ATS LLC once asked by Boladian; and (3) refusing to recommend ATS to clients for post-acquisition tax services, performing such work in-house instead.

39. As a direct, foreseeable and proximate result of Hofer’s breach of fiduciary duties of loyalty and care, Boladian and ATS LLC (as nominal party) have suffered damages in an amount that currently cannot be ascertained but which exceeds the jurisdictional minimum of this Court.

Plaintiffs contend (1) to the extent Boladian’s breach of fiduciary duty claim is premised upon Hofer setting up ATS as an LLC in 2014, such claim is barred by the applicable statute of limitations; (2) to the extent the breach of fiduciary duty is premised on Hofer’s purported delay in dissolving ATS LLC, Boladian was ATS LLC’s liquidation manager and the “risk to Boladian’s law license” does not constitute actionable harm; and (3) to the extent the breach of fiduciary duty is premised on Hofer’s purported failure to recommend ATS tax work, and to the extent the breach of fiduciary duty claim is premised upon ALG’s failure to advertise ATS’s services, Boladian has established only that ALG had a contractual obligation to do so, but has not established that ALG owed Boladian a fiduciary duty to advertise ATS’s services.

Taking Plaintiffs’ third argument first, the Court notes that the second cause of action for breach of fiduciary duty is alleged only against Hofer, and not ALG. As discussed above, paragraphs 12 and 33 of the SACC adequately allege ultimate facts that Hofer owed a fiduciary duty to Boladian by virtue of their common membership in ATS LLC, which he breached by failing to refer clients to ATS for post-acquisition tax services, resulting in damages.

Thus, Boladian has adequately alleged a breach of fiduciary duty to withstand demurrer.[2]

For the reasons stated, the Court overrules Plaintiffs’ demurrer in its entirety.

Plaintiffs shall file and serve an Answer to the SACC on or before February 24, 2025.

Plaintiffs shall provide notice of the Court’s ruling and file the notice with a proof of service forthwith.

[1] Ultimate facts are those “constituting the cause of action” or those upon which liability depends, e.g., duty of care, breach of the duty and causation (damages). (See Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “[T]he term ultimate fact generally refers to a core fact, such as an essential element of a claim. Ultimate facts are distinguished from evidentiary facts and from legal conclusions.” (Central Valley General Hosp. v. Smith (2008) 162 Cal.App.4th 501, 513 [cleaned up]; see also Rodriguez v. Parivar, Inc. (2022) 83 Cal.App.5th 739, 750–751 [“The elements of a cause of action constitute the essential or ultimate facts in a civil case”].)

[2] To the extent Plaintiffs raise additional arguments attacking other alleged breaches of fiduciary duties, a general demurrer does not lie to only part of a cause of action. Where there are sufficient allegations entitling plaintiff to relief, other allegations cannot be challenged by general demurrer. (See Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1167.)

DEPARTMENT	207
HEARING DATE	February 3, 2025
CASE NUMBER	23SMCV04868
MOTION	Demurrer to Second Amended Cross-Complaint
MOVING PARTIES	Cross-Defendants Stephen R. Hofer, Stephen R. Hofer Law Corporation, and Aerlex Tax Services, LLC
OPPOSING PARTY	Cross-Complainant Vicky Boladian